This Last 30 Minute Hilsenrally Brought To You By Your Favorite Fed Mouthpiece

Tyler Durden's picture

The last time Hilsenrath tried to be relevant, back on May 22, he essentially said to ignore anyone who tried to time the Taper (but don't call it a Taper) when he said: "when the Fed shuts off bond buying, it won’t be abrupt and it won’t be predictable." So just to make sure market expectations of tapering are actually very predictable, if at least on the short end, moments ago Hilsenrath once again hit the tape with the following: "Fed Likely to Push Back on Market Expectations of Rate Increase: Federal Reserve officials have been trying to convince investors for weeks not to overreact when the central bank starts pulling back on its $85 billion-per-month bond-buying program. An adjustment in the program won’t mean that it will end all at once, officials say, and even more importantly it won’t mean that the Fed is anywhere near raising short-term interest rates. Investors aren’t listening." So here comes the Hilsenrally to save the day by making investors listen, even if not so much for the benefit of stocks this time, as for bonds, which little by little are starting to lose it.

Some more hand-holding by Bernanke's proxy:

Prices have been dropping in Eurodollar and fed-funds futures markets, for example, where investors make bets on future short-term interest rates. Those declines suggest investors expect higher short-term rates by late 2014. In the fed-funds futures market, for example, the expected fed funds rate in December 2014 is 0.35%. In the Eurodollar market, investors see 3-month rates borrowing rates rising to 0.67% by December 2014.


A similar message is coming from swaps markets, where the market is pricing in an average 0.37% fed funds rate between June 2014 and May 2015, according to BNP Paribas. That is up from an expected rate of 0.17% in early May.


The fed funds rate — which is an interbank borrowing rate — was 0.08% yesterday.


These movements aren’t huge and could quickly reverse, but they merit attention.


There are three possible explanations for the movements in expected short-term rates:


1) Money markets are out of whack for technical reasons.
2) The market is pricing in a stronger economy, which it in turn expects to prompt Fed rate increases.
3) Investors are starting to doubt the Fed’s commitment to keep short-term rates down.


Many market participants say it is the latter. “The market is saying, ‘The fundamental economic outlook really hasn’t changed much, but we are getting more worried about Fed policy,’” says Jan Hatzius, chief economist at Goldman Sachs.


Since last December the Fed has been promising to keep short-term interest rates near zero until the jobless rate reaches 6.5%, as long as inflation doesn’t take off. Most forecasters don’t see the jobless rate reaching that threshold until mid-2015

The confusion:

At the same time, however, the Fed is talking about pulling back on its $85 billion-per-month bond-buying program. The chatter about pulling back the bond program has pushed up a wide range of interest rates and appears to have investors second-guessing the Fed’s broader commitment to keeping rates low.


This is exactly what the Fed doesn’t want. Officials see bond buying as added fuel they are providing to a limp economy. Once the economy is strong enough to live without the added fuel, they still expect to keep rates low to ensure the economy keeps moving forward.

So we are back to the old regime where the Fed will continue unlimited easing in perpetuity, where any tapering will merely be a catalyst for imminent untapering, and where bad and good economic news is good news... for stocks.

The bottom line is that with the Fed controlling both the short and the long end, Bernanke thinks the market is nervous that just because the Fed is slowly losing control of the long end, the market thinks the short end will follow too. This of course is 100% wrong, just as Japan has shown in the past three weeks. It is not about short vs long end - it is about how the market reacts when there is a shift in the regime, and when the Fed's monthly Flow is impaired, even modestly. Also, note: despite the market reaction, this is not a validation that there will be no taper. Quite the opposite. It is merely a promise that the Fed will not let go of the short end. Period.

The biggest winner, as expected, are bonds, which almost got dragged to the intellectual level of idiot equities and have been selling off like crazy in the past few weeks: as if the Fed will ever stop monetizing the US deficit.

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Dr. Engali's picture

Hat tip to fonz for the Hilsenpuke call earlier.

NotApplicable's picture


"Officials see bond buying as added fuel they are providing to a limp economy. Once the economy is strong enough to live without the added fuel, they still expect to keep rates low to ensure the economy keeps moving forward."

Reads like this...

"If you have an erection lasting longer than four hours, please seek medical help immediately."

ACP's picture

"If you have an irrational rally that lasts more than 4 years, please seek medical help immediately."

Edit: Nikkei futes all the way back up, before the open in a few hours. So the Fed is buying it up to help the US markets?

nope-1004's picture

That's some hi-tech monetary policy.  Use a journalist to steer market conditions, when the market is not cooperating with your direct interventions.  See Ben.... you're a failure.  This will work, until it doesn't, much like QE.  Then what Benny? 


Againstthelie's picture

I have to admit, that the FED's managment of the market is brilliant. No, I'm not saying their politics is good, I say their MOPE (management of perceived economics) is brilliant.

They started talking about tapering sometime in the future. The MSM turned that into tapering soon. Then Bernanke explicitly said:

1. Tapering can be temporarily.

2. Reduction of asset buying can be partial.

3. Could be changed later.

4. Reduced buying of assets does NOT mean raising rates.


But the media and the market began to sell off and the rates raised.

Then the Fed sent out several of their directors, which clearly stated that tapering is not on the short term agenda.

Still the market didn'r react.

Finally Ben calls Hilsenrath and he writes it explicitly for the most dumb journalists and giving no room to turn things upside down:

Raising rates is against the intentions of the FED. If rates being raised, then long after quiting QE. Quiting QE not on the short time horizon. Not even reducing is a topic now.

Finally the market seems to has got it.

What i find brilliant, is how they managed to get the equity market to correct a bit and get a sense how dependent they are on FED's funny money. I think that's exactly what they wanted. But if the rally resumes unabated, we probably will hear tapering-BS sooner rather than later again.


You can say everything against the FED - but how they control the sheeple is impressive.

merizobeach's picture

"$85 billion-per-month bond-buying program"

Is this statement inaccurate?

debtor of last resort's picture

Even Zerohedge has got leverage Dr.

Well deserved leverage.

slaughterer's picture

Shorted between 1632 and 1638: the half life of this Hilsenrally is 1 day.  

Againstthelie's picture

I don't think so:

US deficit this year roughly 700 bn.

QE: 1020 bn.

Means: the FED could buy 100% of US debt -> determine the price -> no raising rates.

Dr. Kenneth Noisewater's picture

The Mouth of Saur^H^H^H^HBernanke..

TheEdelman's picture

Here's Jonnie!


Cursive's picture

Well, BernanQE got the move down in yields that he really, really needed.  But, one day soon, the only thing that will move rates down will be the all-too-obvious realization that the economy is completely and utterly fucked.  By then, it will be too late to stop the riots and killings.

NotApplicable's picture

I'm sure they're okay with that.

madbraz's picture

What are you talking about?  Yields have gone up since QEternity, much like with every QE to date.  Undisputable fact.



Cursive's picture


I'm talking about the chart Tyler put up for this post.  The Hilsenrumor is jawboning to get a result.  With unlimited QE and an all-time high in asset prices, BernanQE has been having his cake and eating it too.  BernanQE doesn't want to lose control of the yield curve, but he will.  And when he does, he is going to have to admit the economy is in the tank; which is the only way for yields to fall again.

Yen Cross's picture

     The fed is not going to taper. They are just jawboning(Draghis ECB handbook) to take some of the froth off the market Back before the days of QE higher bond yields implied a strong equity demand. Now things are so back asswards lower yields are a signal that inflation is being contained and stocks should rally because of cheaper borowing costs. Look at 10s.

         U.S. 10-Year    2.181    2.228    2.233    2.163   [ -0.047    -2.10%]    19:45:36

Ham-bone's picture

Fed is saying they will taper but not taper to effect stocks up and yields down...unless you are thinking of selling bonds or stocks in which case they are saying they will increase and not taper.  All clear?!?

Yen Cross's picture

      That would be a big "10-4" Ham.

Dr. Engali's picture

Like many of us have been saying all along....there will never be a taper or an end to QE.

fonzannoon's picture

yup Credit = dumb money

Equities = smart money.

Back to the old nightmare.

NotApplicable's picture

If there is, you can bet it is merely more smoke and mirrors. Any money not spent by Kevin Henry will merely end up somewhere else, unaccounted for. And they'll make it look like it works, too. Right up until the instant Tyler figures out the new scam.

hairball48's picture


The microsecond Bernanke stops buying, or there is even a hint of them'll be game over...and rising rates will kill off whatever is left of the economy. And so the Fed will print on until the dollar implodes....or war.

Midasking's picture

This is ridicuous.. they are never pulling back. It is all a bluff.  If they do all their good deads go up in smoke. The credit boom is built on the sands of banknotes and deposits. It must collapse… If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders. Ludwig von Mises, Human Action, 1949

traditionalfunds's picture

The Fed is worried about Asia carnage so they leak this non-news. The Fed seems to believe the headlines that taper fears are the cause of Asian share drops. Not crap fundamentals. Fed navel gazing at it's finest.

The story confirms the taper is coming without saying it.  



Phat Stax's picture

I agree - above all the Fed believes it can control everything.

ghostfaceinvestah's picture

Because Central Planning has always worked throughout history.

JJ McApe's picture

they cannot pull back, and they know it.

Imagine the markets without free dough. ROFLMAO

and just imagine interest rates above 3% oh woooow people could also start saving again.


NotApplicable's picture

For years people gave me the strangest looks when I stated that it's impossible to save wealth in dollars. Not so much any more, given the masses loss of disposable income.

CrashisOptimistic's picture


If there were no free dough, there would be no borrowing to buy shares back by CFOs.  The share buybacks are the source of most EPS gains on which all the talk of valuation based on forward earnings is based.

If rates rise, those balance sheet loans have to rollover at the new rate.  They won't buy any  more shares back.

And presto, EPS falls.

It is a bargin my friend's picture

At least European markets try and maintain a semblane of the facade, the US however are like "Nah fuck It", Wall St really are the greedist pigs at the trough

wallstreetaposteriori's picture

The markets are calling Bernake's bluff.  Where is the line for that free Koolaid?

Uncle Zuzu's picture

They don't know what they're doing. Buy gold and take the decade off.

madbraz's picture

This talk that the "Fed is losing control of the long-end" is nonsense.  


If the Fed stops QEternity, yields tank.  Period.


Clowns on Acid's picture

Yields tank short term along with stawks.... but mid term ...who is going to buy the long end? Stagflation ensues.... then controlled chaos.

lizzy36's picture

I am a fucking WSJ subscriber - how the hell do i not get this article 5 mins b/f you freeloading assholes !!

Clowns on Acid's picture

Like Reuters frontrunning premiums.... you have to pay moar ! Haven't you read Animal Farm yet ?

Rainman's picture

How bout they taper 1 billion fiatscos a month for 85 months...that'll be enough taper to get Bernank back to Princeton before this shit finale blows sky high.

LeisureSmith's picture

Reading the comment section on the article seems Hilsenrat's cover is blown. Funny stuff, the facade is cracking.

Shizzmoney's picture

Give credit to Josh Brown, who called it like the Babe called a HR in the 1934 series against the Chicago Cubs

I'll bet you anything the next Fed leak is a backing away from tapering. They cannot be sanguine looking at mortgage bonds, REITs.

Of COURSE it is!  Especially with the bad news coming out of DC lately, they need to get this market going to distract the punditry.

WHo needs jobs number/incomes/condfidence....we have Hilsenrath!  I'd love to what each word types equals in DJIA/SP point moves.

Rainman's picture

The Gross bet ! .....halleluja !

New American Revolution's picture

The FED can't taper without allowing the outside America banking firms to collapse, which would collapse the US banking firms.  This tapering is all bullshit and Bernanke is now playing the rumor mill in order to maniuplate the market from flying away or collapsing, depending upon the market and their perceptions.  The FED is trapped, they just don't want anyone to know it, but this secret can't last forever, and when it becomes too obvious, KAPLUEY!!! 

I'm not calling for a revolution, I'm just saying that it's coming.  The historic definition of a governmental bankrupcty is called revolution.  Think square and be there.  Political Liberty is our only way out.   Serfs Up America!

CrashisOptimistic's picture

Historic definitions mean NOTHING.

A revolution does not expunge sovereign debt.  Nothing does.  And no country importing 8 million barrels per day and running an 800Billion deficit can go bankrupt -- because no one will lend to fund all that.

No oil, no food transport.  The citizens die.

blindman's picture

the debt will not be inflated away !
we stand firm on this.
hilarity and slavery ensues. funny that those two
only work together in the virtual cyber psychological
realms, the realm of politics and modern monetary
eco fascistic fantasy. the grid grinds on ....

Iam Yue2's picture

"Today's data was supportive of the Fed scaling back its asset purchase program sooner than later - although it is important to clarify that "sooner" does not mean next week, but September. Later is December. Data dependent, of course. But the data is not yet taking the kind of downward turn needed to turn talk away from tapering."

Barry McBear's picture

Anyone who watched the reaction the bonds had to a very bearish 30 year auction this afternoon knows that Hillsy leaked the story to someone big. Maybe the fed should get a mouthpiece that isn't compromised or... heaven forbid... say what they want to say themselves.

Downtoolong's picture

Federal Reserve officials have been trying to convince investors for weeks not to overreact…. Investors aren’t listening….So here comes the Hilsenrally to save the day by making investors listen.

So it’s clear then, the Fed is even more interested in controlling what we think than controlling the economy or doing the right thing. Got it!

Clowns on Acid's picture

The Grapes of HilsenWrath.

There is no HilsenWrath like a market scorned.

C'mon Billy B. - get to work 'bro !

neutrinoman's picture

It's ZIRP that holds rates down, not QE. QE tends to push bond prices down and rates up the longer it runs.

Zo ze izzue iz ZIRP. The Fed might move off 0-0.25% by late 2014. But it's unlikely. For one thing, this summer marks four years since the recovery started, and the risk of the next recession will start to rise later this year and into 2014 and 2015.

Here's a completely different way of looking at the Fed. Because its mandate is stated in terms of inflation and unemployment, the Fed's public pronouncements are couched in that language. But we all know these are not what drives Fed policy. What does?

1. The need to monetize outsized federal deficits and hold government borrowing costs down. The two are distinct but related.

2. The need to prop up the financial system, with a special and growing emphasis on housing and the mortgage-real estate complex.

3. The need to prop up capital markets and assets generally.

(The gap between the official Fed rationales and their actual motives creates a "credibility gap" and occasional "credibility crises.")

ZIRP is the main tool in accomplishing these things. But a big lesson from the Great Depression is that ZIRP has the unfortunate side effect of pulling many into "safe" bonds, with a corresponding depression in risk assets and real estate. This is one aspect of the "liquidity trap," which is actually a bad side effect of ZIRP, not some natural thing that happens to free capital markets.

That's where QE comes in. It's designed to push people *out* of "safe" bonds and into more risky things. While QE is under way, it tends to push bond prices *down*. That's the bad side effect of QE, and the Fed has to control it. The longer QE goes on, the greater its scope and size, the more it pushes up risk assets, but ALSO the greater risk it runs of causing bond prices to cave in, as money flows out of bonds into higher risk. (Bond prices do bid up in anticipation of QE. But not once QE starts. BTW, this means that QE is all about FLOW, and not stock, contrary to what the Fed says publicly -- maybe they're as confused as many so-called "experts.")

And it's the Fed wondering out loud about this side effect of QE (as well as whether risk assets are yet again in a bubble, which they manifestly are) that has sent bonds into a tizzy. It's the fear that QE will continue (and grow and grow, with Japan getting into it on an unprecedented scale), causing risk assets to run away, that's got the bond market spooked, NOT the announcement of an end date. Rather, the latter would calm the bond market down. And QE tapers or ends, risk assets will again deflate and bond prices rise again, as they did in the last four summers.

(Note how artificial all this is. Normally, credit leads, with risk assets following. But here risk assets are being pushed and pushed, with bonds reluctantly following by dropping in price, with a lag. Notice also how its Treasuries and MBS that have been hit. Other credit hasn't been affected as much, which proves my point.)

Finally, all of this commentary (including my own) ignores the major -- if unspoken -- reason for the Fed's taper talk right now: the federal deficit is shrinking. It shrank in fiscal 2012, is shrinking now, and will shrink in fiscal 2014. However, it will return to sharply higher levels in 2015. The Fed wants to taper now, let its balance sheet shrink a bit, and be ready for the next, even larger, and more sustained wave of debt monetization when the deficit starts growing again.

By late this decade, the money velocity and multiplier trends might turn against them, threatening price inflation, and pushing the Fed into a corner -- it will be time to sharply shrink the balance sheet, just when the Treasury and Congress will be screaming for debt monetization on a scale not seen since the Great Inflation of the 1970s.