The Annotated Hilsenrath

Tyler Durden's picture

In a weekend dominated by discussion of the "Taper Tantrum", i.e., interpretations of what Hilsenrath "said" after the close on Friday, what the Fed wanted him to say, what the market's response to what he said or did not say would be, and what the next steps may be, we present this convenient annotation of Hilsenrath's complete recital courtesy of Mike O'Rourke from Jones Trading.

Hilsenrath Highlights

The WSJ’s Jon Hilsenrath published a story Friday evening titled “Fed Maps Exit From Stimulus - Timing of Wind-Down Is Uncertain, but Focus Is on Managing Unpredictable Market Expectations.”  We suspect the twitter taper caper on Thursday opened the window for the FOMC to provide some clarity as to where policy stands.  Here are some key questions.  Is this story important?  Can it be taken at face value and should markets move?  The answer is yes, yes and yes.  The WSJ placed the article prominently on the cover of the Saturday edition, so they believe they have an important story.  It is a Hilsenrath story, and in the post-recession QE era the Fed has used him to foreshadow almost every major monetary policy move.  Finally, in a tape where QE is the dominant theme, any indication of policy slowing or reversing course is meaningful.

We think the headline in and of itself is interesting “… Focus Is on Managing Unpredictable Market Expectations.” Are market expectations really highly unpredictable?  Has this Fed done anything done but promise excessive monetary support for the US economy?  The market only expects what the Federal Reserve has conditioned it to expect.  Nearly every time the stock market dipped over the past 3 years, a new asset purchase program was launched.  We view “unpredictable market expectations” as a sign that the FOMC has been trying to foreshadow policy in one direction and the market is interpreting it in another direction.

Since this story is important, we decided to share our thoughts that came to mind as we read through it and have quoted the text of the original article below.  You can skip to our key takeaways in parentheses and blue text at the end of the paragraphs. 

* * *

 “Federal Reserve officials have mapped out a strategy for winding down an unprecedented $85 billion-a-month bond-buying program meant to spur the economy—an effort to preserve flexibility and manage highly unpredictable market expectations.”  

(The Fed has done little to dissuade the market from believing it can or will meaningfully reverse course on monetary policy.  Despite the Fed Chairman’s championship of transparency at the Central Bank, he chooses to foreshadow hawkish policy through the WSJ or the FOMC minutes rather than having to make a speech and own the statements himself.  This is his way of keeping his flexibility.  Our question is this - if your formal speeches and statements primarily advocate easier monetary policy and all indications in the other direction come from surrogates, are the market expectations really that unpredictable?)

“Officials say they plan to reduce the amount of bonds they buy in careful and potentially halting steps, varying their purchases as their confidence about the job market and inflation evolves. The timing on when to start is still being debated.” 

(“Halting steps”- that is an interesting description.  On one level it sounds abrupt, but it more likely means there could be pauses between moves.)

“The Fed's strategy for how and when to wind down the program is of intense interest in financial markets. While the strategy being debated leaves the Fed plenty of flexibility, it might not be the clear and steady path markets expect based on past experience.” 

(This gives the indication that investors will prepare for the FOMC meeting by trying to anticipate if the FOMC will trim $10 or $20 Billion this meeting.  Similar to a decade ago when the looming question was whether the FOMC would move 25 or 50 basis points or make no move at all.)

“Officials are focusing on clarifying the strategy so markets don't overreact about their next moves. For example, officials want to avoid creating expectations that their retreat will be a steady, uniform process like their approach from 2003 to 2006, when they raised short-term interest rates in a series of quarter-percentage-point increments over 17 straight policy meetings.” 

(Finally, some type of acknowledgement of what a disaster that policy was.  This new approach should lead to lead to mildly more volatility.  This is a healthy development.  The added uncertainty should help keep the market honest by reducing some low conviction speculative activity.)

"I don't want to go from wild turkey to cold turkey," Richard Fisher, President of the Federal Reserve Bank of Dallas, said in an interview Friday.  "I think we ought to dial it back." Mr. Fisher is part of a contingent of Fed hawks who are wary of the Central Bank's easy-money policies.

(Despite being one of the Fed Presidents with a logical constructive view, if Ben Bernanke does not listen to Fisher then why should we.)

“Stocks and bond markets have taken off since the Fed announced in September that it would ramp up the bond-buying program, and major indexes closed at another record Friday. An abrupt or surprising end to it could send stocks and bonds in the other direction, but a delayed end could allow markets to overheat. And some officials feel they've ended other programs too soon and don't want to repeat the mistake.” 

(In 2010, St. Louis Fed President Bullard practically begged Bernanke to keep QE1 open as a dormant but ongoing policy allowing for additional purchases if the economy weakened and sales if it strengthened – similar to the manner in which the Fed funds rate policy is administered.   Bernanke chose to let QE1 sunset.  Then 2 ½ years later the Chairman adopted Bullard’s approach.  These days President Bullard is leaning to the hawkish side.)

“The Fed's strategy on how to unwind the program has emerged as a source of some uncertainty in markets in the wake of its policy meeting earlier this month. The Fed said in its post meeting statement that it was ‘prepared to increase or reduce the pace of its purchases’ as the economic outlook evolved.” 

(This balanced language in the FOMC statement was met with new stock market highs.  We noted that considering the soft round of economic data, the word “reduce” was a surprising hawkish twist to us.  It is very possible and now it is looking likely that it was meant to be hawkish.  A hawkish jawbone met with more speculative activity could be an example of the “highly unpredictable market expectations.”)

“The suggestion that the Fed might boost its bond buying was a change in the policy statement that appeared to some as an acknowledgment that more aid for the economy might be needed.  Employment data in April was weak and inflation has fallen well below the Fed's 2% inflation objective, both points that allow leeway for more stimulus.” 

(The Congressional authority for the dual mandate reads as follows "effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”  Up until last year, the unofficial inflation target of 2% annual PCE growth was used to make sure inflation stayed in check.  We understand the deflationary risks in the economy, but this thinking that if inflation is below 2% the FOMC needs to do more is dangerous, and essentially contrived.  This is not an exercise of the authority given to them by Congress.  Unless the FOMC is prepared to tighten at 3% (we were approaching it in 2011), it should not be pushing for additional easing at 1% as Chicago Fed President Evans does daily.)

“But many officials believe the recovery is on track and aren't yet concerned about the inflation slowdown.  Instead, the most recent statement seems more aimed at signaling the Fed's broader flexibility in managing the programs.”

Charles Plosser, president of the Philadelphia Fed, said in an interview Friday that the change in the statement was meant "to remind everybody" that the Fed has "a dial that can move either way."

(Just like President Fisher, President Plosser has constructive views, but for anyone with hawkish views their credibility among market participants has been undermined by the Bernanke, Yellen & Dudley block.)

“The dial can also pause. Fed officials could shrink the size of their purchases and hold it at that level for a while as they assess the effects, or they could make several moves in a row if that seemed right. They could also boost their buying if they lose confidence about the economic outlook. The strategy is meant in part to ensure flexibility in an uncertain economy.”

(The market will only believe the dial can move in the other direction when it actually happens.)

“Yet while officials appear increasingly settled on a strategy for how to dial back the program, they haven't decided when to start.” 

(In 2009-2010, Chairman Bernanke gave speeches on the “exit strategy.”  Since then, he has alluded that it might not go according to the original plan.  So it’s no surprise that the lack of further details on timing falls deaf on market ears.)

“Mr. Fisher said he advocated starting right away at the last Fed meeting.  Some officials can envision taking a first step this summer, if strong data shows the economy is weathering the tax increases and federal spending cuts that appear to be weighing on growth. But they might wait longer, especially if the economy disappoints, as it has for several years during the spring and summer months.”

(Yes, the seasonal adjustments.  Three years into recovery the Fed has finally figured it out. )

“A Wall Street Journal survey of private economists this week showed that 55% expect the Fed to start shrinking its bond purchases in the third or fourth quarter this year, while 45% expect the Fed to wait until next year or later.  None expected the Fed to increase its purchases as its next step.” 

(After this article, 100% should expect tapering to start this year, but they won’t.)

“The bond-buying programs are aimed at pushing down long-term interest rates and boosting financial markets to encourage more borrowing, spending and hiring in the broader economy. The Fed's securities holdings have increased from $2.58 Trillion to $3.04 Trillion since September.”

(That’s just change in Chairman Bernanke’s couch cushions).

“Clearer signals about the Fed's plans could emerge next week.  Five regional Fed bank presidents, including Mr. Fisher and Mr. Plosser, and Fed governor Sarah Bloom Raskin are scheduled to speak.  Fed Chairman Ben Bernanke will discuss economic prospects for the long-run in a commencement address at Bard College at Simon's Rock next Saturday.” 

(Chairman Bernanke just spoke by way of this article.  If anyone outside of Bernanke, Yellin or Dudley speaks, nobody will listen.  NY Fed President Dudley has a speech May 21st.  More importantly, Chairman Bernanke testifies on the economic outlook in front of the Joint Economic Committee on May 22nd. )

"Central bank officials want to see substantial improvements in the job-market outlook before the programs are ended all together. And then, efforts to boost short-term interest rates might not occur for months or even years later.”

(The “considerable period of time” mentioned at the last press conference.)

“The unemployment rate has fallen to 7.5% from 8.1% since August, both because of hiring and people leaving the workforce. Payroll employment has increased on average by 193,000 per month during the eight months since the program was launched, compared with average gains of 157,000 before it began. "It is pretty hard to say we haven't seen an improvement in the labor market," Mr. Plosser said. 

(The average Unemployment Rate for the last 20 years is 6%, the last 40 years is 6.5%.  No matter how much of a rush you are in to get somewhere, you still don’t drive 80 miles per hour in the driveway.)

“Many economists believe economic growth will slow in the second quarter—in part because of fiscal drags—from a 2.5% annualized rate in the first quarter, but then accelerate in the second half. If growth remains firm in the weeks ahead that could give officials more confidence about starting to pull back.

Fed officials aren't very concerned about the annual rate of inflation falling toward 1% in recent months, well below their 2% objective.  Because expectations of future inflation have remained steady, many Fed officials expect inflation readings to move back up toward 2% in the second half of the year. ‘I'm not too worried about it,’ Mr. Plosser said. ‘Expectations remain pretty stable.’"

(This was addressed above, Plosser is right.  We have to reiterate the FOMC manufactured a new target and it has become the justification/rationalization for policy beyond its mandate.)

“The Fed has policy meetings in June, July and September, and Mr. Bernanke will have a chance to explain its actions at news conferences in June and September.” 

(June makes a lot of sense to get the process rolling and start managing those unpredictable market expectations.)

“Some of the bond-buying program's most vocal proponents have signaled more optimism about the outlook and a willingness to consider pulling back from the programs. John Williams, president of the Federal Reserve Bank of San Francisco, said in an interview last month that he anticipated pulling back this summer.”

"I'm looking for continuing signs of improvement in the economy," he said, "sustained, ongoing improvement in the economy."

(Aren’t we all?)

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devo's picture

Gold starting to take a dump.

Really curious to see what happens in physical markets this time.

Zer0head's picture
Bloomberg’s culture is all about omniscience, down to the last keystroke

fourchan's picture

you had me till "lead to".

Careless Whisper's picture


The Careless Whisper UNANSWERED QUESTION OF THE WEEK & Threadjacking

Its been reported here and elsewhere that allegedly, the Bloomberg News Cartel did some hacking and wiretapping against the JP Morgan Cartel, the GoldmanSachs Cartel, and the Federal Reserve Cartel.While there have been many questions about what information the reporters for the Bloomberg Cartel were able to obtain, my question is, what information did the Bloomberg Cartel owner obtain, and when did he start obtaining the information. I'm not accusing the Bloomberg Cartel of frontrunning the other Cartels. But, i am really really curious how the Bloomberg Cartel owner was able to amass a fortune estimated at $30 Billion, all from the monthly subscriptions to "the leading financial news service" (see below). That seems farfetched to me. Just wondering, like I do on Sundays, did the Billionaire owner of the Bloomberg Cartel participate in any really, really, well timed trades? Ever? 

FLASHBACK: August 25. 2000. It was a Friday. Most traders were in the Hamptons. At 10;13 a.m. fortunes were made, and lost, when Emulex dropped from $103 to $32 in about ten minutes, due to a fake news story reported by the Bloomberg News Cartel.




Careless Whisper's picture

@ Zer0Head

thanks for the link.

Many current and former Bloomberg employees say they have been told the company keeps a record of every action taken on a terminal, whether by staff or outside customers, in a practice known as keystroke logging.

Noooooooothing to see here. Move along.

Zer0head's picture

not to mention if Bloomberg contributors also had similar access you know guys like Rattner, Levitt, Ploooufffe etc


the ability to watch in real time what the likes of Jamie. Lloyd, Warren and their minions were doing could certainly be a temptation to even the purest of the pure of course consumation is a different thing and clearly none in the Bloomberg fold would ever sucum.


but why not ask for his thoughts on the matter - Matt is the LoProfile brains behind much of the operation and Mikey`s partner from the early days (whe knew?)


I'd suggest you ask Mike but I think there is a Chinese firewall betwixt him and 499 Park though I am not sure if that same firewall exists betwist Mike and Willett at 78th & Madison and Willett and 499 and of course Rattner

and then there's the gossip

Ban KKiller's picture

Wall Street is honest. Honestly corrupt to the bone. Crooks stealing from other criminals...I love it. 

Non Passaran's picture

What an idiot.

Why would they log "keystrokes" when they can simply keep server-side logs.

And anyone who thinks this is somehow a big discovery is an idiot too.

Nage42's picture

BlmB server-side logging would only have BlmB-destined traffic logged; whereas client-side logging tracks everything you do (within other application contexts).
It's not like bigwigs even look at the market anymore. Anyone in the game knows that those above SVP/D spend 50% of their time deleting^H^H^Hreading cooperate HR spam and underlings' sh1t-fights, 25% reading PPT presentations from their departments falsifying progress, and 25% of their time falsifying their own progress to their directs.

BSDs looking at the market... Ha! What a joke.

LawsofPhysics's picture

So it would appear that the Warlords (cartels) are getting their tribes in order.  Good, it won't be long now, got popcorn, should be a good show.

HulkHogan's picture

If they allow rates to rise, the markets are supposed to go down. Let's see if either happens.

orez65's picture

If they allow rates to rise the bond market will go into panic selling.

And the budget deficit will increase.

And taxes are going up so the economy will slow down.

And Europe is going into depression which will further slow down our economy leading to lower government tax receipts ...

QE to infinity and beyond.

The Fed is just tossing "red herrings"

kito's picture

Devo more rumors from somebody who knows somebody who is a big bullion dealer who swears the comex is soooo close to defaulting this time.........

fonzannoon's picture

I keep coming back to Cyrpus Kito. The big bad Russians got their money out while the little guy never had a chance. How could it be that I can go out tomorrow and buy gold (granted 6% plus over spot) and some big shots somewhere are getting cut off. It just seems like that is not the way it would work.

devo's picture

It's smart to have some gold, but Mike Maloney is Baloney. Trading a few ounces for a house...and people believe him. Sprott selling his silver...etc. These guys sell to the paranoid. Again, not that gold is bad, but let's be realistic. If it ever is repriced expect 80%+ windfall taxes. You can't win in gold unless you bought pre-2004 or there's an entirely new government that embraces it. And all signs are th world will embrace bitcoin before gold.

fonzannoon's picture

Nah. That is where I disagree. The U.S has no way out except hard default or inflation. None.

Either scenario means the currency, at a minimum, gets beaten to shit at some point. It's just a matter of when, and how bad.

They can go for the windfall tax. Good luck tracking transactions.

devo's picture

Good luck tracking transactions.

Maybe offline, but based on the warning signs, it seems we'll need to use our real name, social, etc to login to the internet.

They've manged to devalue the dollar some ridiculous % since 2008 yet nobody cares, so I am not sure default or inflation are the only ways out. They might be able to use propaganda or force (e.g. purchase stocks, savings tax, wealth tax, increase property tax, etc). If this is done in an environment where gold carries an 80% windfall tax there's no escape. They're going to fuck everyone, and for posterity and history (i.e. to teach future Keynsians), I wouldn't be surprised if it's the minority protecting themselves with gold. Then they can write it off once and for all. I plan to get F'd in the ass no matter what I hold. I think everyone should. Mike Maloney is on crack.

fonzannoon's picture

I'm happy for u that u are somehow not getting fked in the ass like the rest of us have been for years already.

kito's picture

They don't care about gold....they want dollars...they want part of your asset portfolio.....and most people don't have gold and would likely sell their gold teeth and chains if things continue as as they are....

Rusty Shorts's picture

"They've manged to devalue the dollar some ridiculous % since 2008 yet nobody cares"

 - the real crash of the dollar was a silent one, from 2001 to 2008, when the price of oil went from $27 to $92 (barrel)...and still no one cares.

kito's picture

Fonz you forgot about the global wealth tax...that would not wipe the currency and would feed the monsters.....

fonzannoon's picture

it's going to be amazing to see the coming ebb and flow of money all over the globe.

oh where oh where to put my 2k.

kito's picture

As per whitenight I'm shorting treasuries bitchz.....

fonzannoon's picture

U and Bill Gross. Except his fund is loaded up on treasuries.....

kito's picture

maybe whitenight is bill gross......................

kchrisc's picture

Hyperinflation is baked into the cake because when the "reserve" status evaporates, all those trillions of printed dollars, from bonds to mattresses, will come flooding back to the US. Foreigners will buy any and everything they can get their hands on.

Mark my words: the US will be the only nation in history to implement capital controls on currency flowing IN.      hujel

akak's picture


Again, not that gold is bad, but let's be realistic. If it ever is repriced expect 80%+ windfall taxes.

Devo, need I point out that gold has ALREADY been "repriced" by upwards of 500% in the last 12 years, without any of the dire warnings of "windfall taxes" falling on it or even being discussed? 

I think your fears (or fearmongering) are much ado about very little.

devo's picture

I'm not fear-mongering. I love gold and own it. I just don't think I/we will be allowed to win. That's reality, not fear.

Gold has a higher tax rate than equities, and times aren't desperate enough yet to warrant a windfall. They're still trying to appear in control. Taxing gold shows a loss of control.

fonzannoon's picture

no one who has ever won anything substantial was "allowed" to win it.

I think it's not about the day gold explodes higher. the dollar will be revalued at some point. The hard part will be to not cough up whatever you have on the way to going broke from now until then. When the dollar gets revalued the "social fabric" getting torn to shreds won't make the scene very pretty afterward either. Good luck.

PiratePawpaw's picture

I agree fonz, the hard part will be in the getting from here to there.

LawsofPhysics's picture

What will be "allowed" will depend on resources and location.  Shit, if things really went south (like losing electricity to the entire L.A. basin for a few months), homes will be fucking taken by the most organized, well stocked, and best armed/trained mob.  History is pretty clear on that.  

GeorgeHayduke's picture

Any large metropolitan area in the US without electricity for a few weeks, let alone a couple of months or more, and all bets are off for holding onto or planning for anything that might help you through it. At that point it likely will boil down to who you are allied with and how under the radar you can eek out an existence or if you can show enough force to be left alone. Mad Max and the Thunderdome would look like child's play once things broke down...about ten days to two weeks I would guess if not sooner. The veneer of civilization is extremely thin already and it will fall apart quickly once inconvenience turns into desperation.

Also, considering all the military hardware and gizmos we have I doubt the military, or the police (which are about the same anymore) would do little more than stake out their own claim in the chaos. They may put on a nice show for a while, but 4 weeks without any electricity and I'm guessing things get real dicey. That whole "to protect and to serve" BS won't show it face, except to protect and serve their own.

Maybe I am wrong and people will prove me wrong if such an event happens. But at this point I'll lean toward the cynical side of that bet.

kito's picture

sorry devo, i doubt they go after tyler has pointed out time and time again, they will tax the dollar based assets......they will come in and in one fell swoop tax your 401k, money market account, ira, real property....they will confiscate any money in any bank that goes under rather than bail out the banks....... anything that is easy for them............................that is why i still believe that hyperinflation just isnt in the cards.....there is still lots of private wealth out there for the taking..trillions and trillions...better for them to take the dollars rather than ruin the dollar....................cyprus has set the course folks........physical cash will be very very valuable......................

fonzannoon's picture

and here is where I see it different Kito. It just seems so much easier to generate a crash at some point and blame wall street bad guys and make the public an offer they can't refuse. Something like an offer to give your post crash balance a 25% bonus and a governemnt guaranteed 4% interest rate in return for the government getting control of the principal balance. u get a 4% roll up rate and a 4% payout rate at age 65.

The point is they would get the same result except they look like the good guys, and we all run into their welcoming arms.

You and this Django unchained version....i just don't see it.

kito's picture

ok fonz, getting skanked is very viable and ive called for that scenario before..........but how is that destroying the underlying dollar??? does skanking that lead to hyperinflation??? get me from point A to point B so that i can buy some gold when it hits 1200..................

fonzannoon's picture

sure. You overtly take my 401(k) in a very in my face type of way. then I guess there is nothing I can do about it. however, you just made it clear to even the dumbest sheep, who the enemy is. So every dollar earned after or not taken, will leave the system. The scenario u describe seems to actually align the sheep and the gold bugs together as the sheep finally realize who was right to be scared all along. 

Your scenario springs up black markets like nothing we have ever seen.  It's just easier to crash the whole thing. Lay the blame at the feet of a bunch of rich people, and be the good guy.

kito's picture

or the wealth tax is pegged as an attack only on the rich....a sort of grandpa warren endorsed "fairness" move....perhaps only accounts that have a minimum of a million.......then the sheeple cheer with joy that they can still get fat, psychotropically happy, and rich with debt.......and taken care of because it will be the evil rich guys who are going to could be a populist play that allows for confiscation...........this would bring the sheeple to a rousing ovation!!!............................and i dont see how that destroys the dollar............

fonzannoon's picture for everyone with a mil, they take every other dollar and find a non dollar store of value to escape further skanking.

for everyone under a mil. u think they stick around in dollar based accounts or gtfo and do the same?

I don't see how that strengthens the dollar in any way.

I really think the wealth tax will come in the form of the new C note in October. It's time to force that cash out into the open.

kito's picture

Elaborate on the c note.....forcing cash out in the open??? I see much or most of it in the you mean the offshore accounts???

gonetogalt's picture

There's a relevant article at 24hr  gold dealing with asset confiscation, worth reading.

TheProphet's picture

No they won't. This perfectly describes the precariousness of our position.

IF they let a major bank fail and hack depositor accounts, the very next day there would be a run on every single bank.

They simply cannot print $100 bills fast enough to meet the demand. To be sure, as I recently posted herein, that despite the Fort Worth Texas mint running the $100 printing presses WFO (wide fucking open) 24 x 7 for the last five years, the FT reported two weeks ago that the float of $100 bills has increased by only 42%.

You get the point... no, they WILL bail out bank depositors with ever more worthless currency until it becomes impossible to do.

Then, it's katy-bar the door.

Divine Wind's picture




We need to keep in mind that aside from paper Au, U.S. buyers represent only a small fraction of global phyz sales.


kito's picture

Tis true fonz...kwn bullshit.....and I don't trust what sprott says.....

fonzannoon's picture

well i sure as shit don't trust the msm, and there are a lot more of them. so where does that leave us?

kito's picture

Well in the upside down world msm gives you huge stock gains the past two years and sprott gives you -40% I'm as confused as you.....I'm going to continue holding cash for now...dry powder......

fonzannoon's picture

one of them is setting a trap. either msm is fattening up those 401(k) accounts for their own purposes or Sprott is selling me silver and taking my dollars and buying lulu lemon and priceline in his brokerage account.

I think we all agree no one gives a shit about the middle class, so maybe it's both.

kito's picture

you know what pulls at me???? this slight nagging feeling that somehow im deluded, and everybody here is deluded....and that ive fallen for groupthink...and that they WILL start tapering regularly...and that stocks continue to march higher....that somehow ive overthought this whole thing......................and that im flat wrong............

fonzannoon's picture

that should pull at you. You should constantly consider those possibilities. Or that the U.S can continue to run debt up by the trillons while keeping a gun pointed at everyone and they just deal with it. Or that as bad as it is here people all over the world would still flee here if they can cause it's still better here.

Don't get to crazy with it though. Things are falling apart economically. it's undeniable. 

kito's picture

perhaps our congress does act in our own interests???? and that they will save us???????..........................oh nooo....what is happening to me????????!!!!!!!!!!!!!!!!!!!!!!!!