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FOMC Decision - "Real Fundamentals" Or "Reaction Function"

Tyler Durden's picture


It appears the plethora of talking heads discussing the FOMC's potential decision to 'Taper' - and the subsequent sell-offs in a number of risk-assets - believe this action has stemmed from better economic data (as the 'manipulated' unemployment rate has drifted faerie-like towards their target - but don't call it a threshold). However, as Barclays notes and we have been warning, there is another interpretation that is more worrisome for the market - that is a change in the Fed's 'reaction function'. As is clear from the minutes of the latest FOMC meeting, there is a growing concern over bubbles, technical dislocations, and the cost-benefits of a QE program out of control. The market's reaction to these two reasons for 'tapering' will be significantly different and reading the Fed tea-leaves even more critical than ever.



Reaction function #1 - the consensus view...

The serial extrapolators at the Fed perhaps see the chart above and therefore - a Taper is on the cards...

But we know (and therefore we assume the Fed knows) that this 'target' is predicated on a conceptually broken data item that shows little to no improvement in reality


and inflation expectations (and realized) have been sliding notably...


And away from pure unemployment - the economic data is anything but improving...


so is it:

Reaction Function #2 - costs/benefits analysis is becoming skewed...


So - it's not just about the 'taper' decision but what is driving them to this decision. As asset-gatherers bluster about the fact that the Fed can't leave now because things are not that great (correctly) they are perhaps missing the key point that the Fed has changed its reaction function from fundamentals to technicals - and is worried...

Charts: Bloomberg and Barclays


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Tue, 06/18/2013 - 13:55 | 3668863 dracos_ghost
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Who is this "A Few" person?

Tue, 06/18/2013 - 13:57 | 3668876 ekm
ekm's picture

People still believe that FOMC voting is a democracy.

Members are simply irrelevant.


Obama made it clear last night that White House rules over the FED and the Fed simply follows orders.

Tue, 06/18/2013 - 14:19 | 3668965 Bastiat
Bastiat's picture

Obama simply follows orders too.

Tue, 06/18/2013 - 14:30 | 3668987 francis_sawyer
francis_sawyer's picture

At the end of the line of all this supposed & suggested, "order following", by very assumption of the argument, is SOMEBODY giving orders...


The BLUEBUCK stops somewhere...

[Unless, of course, you're one of the numerous englightened comment makers on ZH that believes it's all just some crazy obfuscated 'order following' labyrinth contained in a perpetual motion machine ~ whereby, I'd be delighted to hear your LOGICAL explanation about how that perpetual motion machine works]... But go ahead & just junk my comment... After all ~ that's the path of least resistance [& really hammers home your point ~ whatever it is]...

Tue, 06/18/2013 - 14:47 | 3669050 nope-1004
nope-1004's picture

The FED can't taper.  Doing so will:


1)  kill equities markets and destroy pension values.

2)  remove liquidity from the large banking cabal, who are used to keep interest rates and PM's low in an effort to show USD strength

3)  remove liquidity from the Treasury purchase ponzi, where it is now going to finance government operations.

The .gov is full of shit.  The FED is full of shit.

On that note, is there any detailed accounting available to verify that they are injecting $85 Billion a month?  We are taking their word for it so far.  Could be $40 B/mo, or $120B/mo for all I know.


Tue, 06/18/2013 - 15:05 | 3669109 flacon
flacon's picture

The FED can't NOT taper.  NOT TAPERING will:


1)  kill equities markets and destroy pension values.

2)  remove liquidity from the large banking cabal, who are used to keep interest rates and PM's low in an effort to show USD strength

3)  remove liquidity from the Treasury purchase ponzi, where it is now going to finance government operations.

The .gov is full of shit.  The FED is full of shit.

On that note, is there any detailed accounting available to verify that they are injecting $85 Billion a month?  We are taking their word for it so far.  Could be $40 B/mo, or $120B/mo for all I know.

Tue, 06/18/2013 - 15:06 | 3669113 flacon
flacon's picture

Bernanke just fucked himself in his own ass just like Abe did. Fucked-himself-if-he-does, and fucked-himself-if-he-doesn't. 

Tue, 06/18/2013 - 16:08 | 3669250 gatorengineer
gatorengineer's picture

He can simply blow the bubble bigger and leave it for Yellen or Krugman........

If you actually think about it, his logic move for Posterity would be to double down and go to 120B a month....  Leave at all time high market prices...

Justification -- Fiscal uncertainty about the budget ceiling... Of course all of my positions would be instantly vaporized on the ensuing 10% uptick....



Tue, 06/18/2013 - 14:48 | 3669057 fonzannoon
fonzannoon's picture

Francis you think this market reflects the true underlying fundamentals of a budding economy?

Tue, 06/18/2013 - 17:32 | 3669114 francis_sawyer
francis_sawyer's picture



Short Answer = NO

Medium/ Short answer = Especially since 'Jackson Hole 2010', but REALLY since "Subprime is Contained" comment [whereby shortly after Meredith Whitney nails Citi, Bear is gone, Lehman goes, 'Hank the Tank' arrives, TARP gets passed, Obama gets elected, "Dream Economic Teams" & Czars are appointed, & all the bullshit DIRECTLY leads to QE4EVA...

Medium Term Answer = It's been a fucking hockey stick since Nixon took the bluebuck off the gold standard

Long Term answer = It's all been bullshit since 1913 when a small group of private families [known for getting governments to wage wars against each other & pile on debt] were given the franchise to PRINT MONEY [for themselves, essentially]...


True answer: I don't know what a 'budding economy' is, or if one ever truly existed throughout history...I'm fairly sure that if a REAL economy ever DOES exist, there will be no 'economists' around to report it... Either that, or shortly thereafter there will be a tribe of greedy scumbags along to insert themselves in between the supply chains, skim profits for themselves off of other peoples risk & labor, leverage their profits into prominent banking, MSM, jurisprudence, & political activism positions, seize control of the banking industry, use the wealth to corrupt politicians, start wars that kill & maim hundreds of millions...

While that all happens, everybody will "ooh & aah" & and talk about "economic progress", all the great wonders that Keynesian economic systems produce... But as always, the whole thing will, after perhaps a century or more, all go up in smoke leaving billions displaced, & the environment & ecosystems in shambles... The perps, who are just a few [perhaps just 2% of 2%] will mosey on off to private islands & wait a few generations for the rubble to sort itself out before starting the whole wheel turning again...


Tue, 06/18/2013 - 22:02 | 3670167 FiatFobia
FiatFobia's picture

FS, this may be your best post yet.  

Tue, 06/18/2013 - 14:00 | 3668888 CPL
CPL's picture

Not to be obtuse and generalize at all.  They are the people with the stuff and the things.  They know that guy that lives near the place.

Tue, 06/18/2013 - 14:08 | 3668919 cougar_w
cougar_w's picture

The guy who does that thing he does. You know? Just like last time.

Tue, 06/18/2013 - 14:29 | 3668997 CPL
CPL's picture

Like the other time with that group, best general event ever!!  Loved those things they served to everyone.


Tue, 06/18/2013 - 14:31 | 3669002 francis_sawyer
francis_sawyer's picture

I'm the guy behind the guy behind the guy...

Tue, 06/18/2013 - 15:07 | 3669116 CPL
CPL's picture

Gravy train?

Tue, 06/18/2013 - 13:59 | 3668870 Groundhog Day
Groundhog Day's picture

I am soooo fatigued by this market.  At this point i wish it would either go to 3000 or 30000.  either way i'll be out, rich or poor.

Tue, 06/18/2013 - 13:57 | 3668874 Yen Cross
Yen Cross's picture

  The usd is oversold.  The 10 year gilt(gbp) auction raised yields and demand for gbp, short term. I'm taking another ride on the short gbp/aud railroad, when the price action rears it's beautiful head.

Tue, 06/18/2013 - 13:57 | 3668875 fonzannoon
fonzannoon's picture

The greatest part about all this is that we all keep waiting for this rigged market to blow up, and when it does that will still have been rigged.

Tue, 06/18/2013 - 13:59 | 3668883 ekm
ekm's picture

Market is no longer rigged.

It is simply fully owned by primary dealers and pension funds, hence fully owned by the government.


No fundamentals or techincals matter.

Tue, 06/18/2013 - 14:03 | 3668905 fonzannoon
fonzannoon's picture

the market is no longer rigged? You kiddin me?

Tue, 06/18/2013 - 14:06 | 3668915 ekm
ekm's picture

It is fully owned. It's gone way beyond rigging

Tue, 06/18/2013 - 14:15 | 3668942 Ham-bone
Ham-bone's picture

EKM - not sure I can follow your logic...long leveraged "owners" seem to need be sure that somebody has there back...or else they would need to, Hedge (ie, sell to raise risk capital?).  Only by this rigging can they maintain / extend their leverage and maintain upward asset valuation movements.

Tue, 06/18/2013 - 14:22 | 3668960 ekm
ekm's picture

"RIGGING" means that there are still suckers ready to play.


If all suckers are gone, which they are, primary dealers are left with all stocks in their hands.

Federal Government is the hedge seller via Fed.


"rigging" is quite a misleading word at this stage.

"fully owned" is the correct term

Tue, 06/18/2013 - 14:24 | 3668986 fonzannoon
fonzannoon's picture

When I say rigging I mean that when those orders you talk about are given, it won't be an accident what happens next.

Tue, 06/18/2013 - 14:28 | 3668993 ekm
ekm's picture

All preplanned. No accident whatsoever

Tue, 06/18/2013 - 14:32 | 3669010 francis_sawyer
francis_sawyer's picture

"Rigging", as in, it's a rigged assumption that the emperor is wearing clothes...

Tue, 06/18/2013 - 14:49 | 3669061 fonzannoon
fonzannoon's picture

Are you kidding? As long as (almost) everyone is out there paying their taxes and using the dollar to transact business and playing their role the empror is wearing clothes.

Tue, 06/18/2013 - 17:35 | 3669463 francis_sawyer
francis_sawyer's picture

Yeah ~ & just about anyone who wants to can get a nightly blowjob from Christy Turlington just by using their computer...

Tue, 06/18/2013 - 14:42 | 3669017 Ham-bone
Ham-bone's picture

EKM - take todays melt up in equities and knock down in hard commodities?  What shall we term this in front of an FOMC statement?  Owners buying up everyting not nailed down while selling everything hard and heavy?  On what news?  POMO?  Not rigging (those taking action know before hand the outcome and front run position in ever greater levering?

All about infinite leverage and being fore told the actions to allow ever greater leverage into these positions.  call it what ever feels good and we agree this is not a market but a centrally directed entity w/ many important actors colluding.

Tue, 06/18/2013 - 14:43 | 3669047 ekm
ekm's picture

Primary dealers selling the same batch of stocks to each other over and over and over.


Commodities are where a lot of the printed money has gone to, which has led to commodities storage, hence economy is starving, hence economy has been in contraction since oil crossed $90 2 years ago.

Tue, 06/18/2013 - 14:54 | 3669078 fonzannoon
fonzannoon's picture

another nugget of truth released into the wild.

Run nugget of truth! Run away!

Tue, 06/18/2013 - 16:12 | 3669267 gatorengineer
gatorengineer's picture

Today is nothing more than shorts getting juiced and PM stops being tested......


What will be interesting is how many Nano seconds before the Announcement do the Algos get the news.....


By the way the drop in commodities is pricing in tapering, and rise in markets is predicting a continued printing... diametrically opposed as usual....

Tue, 06/18/2013 - 14:00 | 3668889 insanelysane
insanelysane's picture

It is truly all about control; they can make it and they can break it.

Tue, 06/18/2013 - 14:01 | 3668894 Yen Cross
Yen Cross's picture

     If the market blows up we all lose. Bond yields will fall in the dumpster initially. Then bonds will become "Duraflame firelogs".

Tue, 06/18/2013 - 14:06 | 3668912 fonzannoon
fonzannoon's picture

"Gold drops on fears of fed taper"

"Equities and Bonds rally on belief fed taper talk is overblown"

What a joke.

Yen the question on the table is, if the market is fully owned, and a major firm needs to get sacraficed on the alter of JPM in order to barf up some securities back on the market....can we get through that without the whole thing blowing sky high? What say you?

Tue, 06/18/2013 - 14:14 | 3668931 Yen Cross
Yen Cross's picture

    Fonz, you're an extremely intelligent, humble man. I hope to make your acquaintance some day.


     The market is about as fully owned as the NSA database. The moar sophistcated we we become, the moar out of control we are.

Tue, 06/18/2013 - 14:15 | 3668949 fonzannoon
fonzannoon's picture

Thanks Yen. Same to you.

Tue, 06/18/2013 - 14:20 | 3668968 ekm
ekm's picture

well said

Tue, 06/18/2013 - 14:12 | 3668939 Bay of Pigs
Bay of Pigs's picture

You see that JPM increased their SLV position by 500% fonz?

Tue, 06/18/2013 - 14:17 | 3668959 fonzannoon
fonzannoon's picture

Hey BOP no I have not seen that. Can you throw me the link?

I gotta be honest. I have not changed my mind about anything, but I am done getting caught up in physical inventory reads. Or who increased what etc. I just believe that this whoe thing is just a giant bag of shit at this point that just keeps getting bigger. Something will come along soooner or later and pop it.

Tue, 06/18/2013 - 14:38 | 3669030 Bay of Pigs
Bay of Pigs's picture

Banksters appear to be getting long now while trashing the metals to the public at large. (If we can trust these numbers, lol).


Tue, 06/18/2013 - 14:29 | 3668998 Bastiat
Bastiat's picture

Maybe they need those shares to sell to Comex for delivery in lieu of bullion.

Tue, 06/18/2013 - 13:58 | 3668877 Paper CRUSHer
Paper CRUSHer's picture


Tue, 06/18/2013 - 13:58 | 3668879 slaughterer
slaughterer's picture

Taper as Technical Reaction Function to Over-Tepperization.

Tue, 06/18/2013 - 13:59 | 3668882 insanelysane
insanelysane's picture

When you're headed for a cliff, it is usually best, to take your foot off of the accelerator.

Tue, 06/18/2013 - 16:15 | 3669277 gatorengineer
gatorengineer's picture

You never saw Thelma and Louise did you?

Tue, 06/18/2013 - 14:00 | 3668886 jjsilver
jjsilver's picture

I think they are the only ones left who believe their propoganda to deflect away from their criminal activities

Tue, 06/18/2013 - 14:00 | 3668887 Bryan
Bryan's picture

<=6.5% unemployment?  Simple, just change the formula so it says "6.5%" and voila, all fixed. 

>=2% inflation?   Easy, just change the formula to exclude anything that has less than 2% price inflation. 


Geez, I should run for office.

Tue, 06/18/2013 - 14:08 | 3668903 Bay of Pigs
Bay of Pigs's picture


"and inflation expectations (and realized) have been sliding notably..."

What kind of bullshit is this anyway? Pitiful. 

Tue, 06/18/2013 - 14:03 | 3668901 kralizec
kralizec's picture

Can hardly contain my excitement to read their minutes...wait, no...I mean't I can hardly contain my bile.

Tue, 06/18/2013 - 14:04 | 3668907 Yen Cross
Yen Cross's picture

  Since when have technical or fundamental techniques mattered over the last 5 years?

Tue, 06/18/2013 - 14:04 | 3668908 pragmatic hobo
pragmatic hobo's picture

Bernanke's policy of stealing from the poor to enrich the very wealthy is, of course, nothing new to countries like China where the same policy have stood for thousands of years, and in other third world banana republics. In the 80's we were all turning into Japanese ... now it seem we are all turning into Chinese. Where is our version of Tienanmen Square?

Tue, 06/18/2013 - 14:06 | 3668911 ekm
ekm's picture

It is fully owned.

It has gone beyond rigging.

Tue, 06/18/2013 - 14:08 | 3668918 kito
kito's picture

It appears the plethora of talking heads discussing the FOMC's potential decision to 'Taper' - and the subsequent sell-offs in a number of risk-assets - believe this action has stemmed from better economic data.....


and thats all you need to know to know that ben is still the motherfuckingman...........he still has his mojo.....and thats why stocks will continue to soar................

Tue, 06/18/2013 - 14:14 | 3668927 fonzannoon
fonzannoon's picture

"I remember when the candle shop burned down. Everyone stood around singing 'Happy Birthday.'

Steven Wright

Actually this one may perfectly explain Fed policy,

I hooked up my accelerator pedal in my car to my brake lights. I hit the gas, people behind me stop, and I'm gone.

Steven Wright



Tue, 06/18/2013 - 14:31 | 3669007 kito
kito's picture

great stuff fonz.......and yep that explains why im getting fresh mutz, roasted red peppers, grilled eggplant, balsamic vinegar on a fresh italian sub..................

Tue, 06/18/2013 - 14:47 | 3669054 fonzannoon
fonzannoon's picture

and no tomato's!

Tue, 06/18/2013 - 15:01 | 3669102 kito
kito's picture

not on that sammich!!!!

Tue, 06/18/2013 - 14:09 | 3668925 Kaiser Sousa
Kaiser Sousa's picture

"Sales of silver coins by the U.S. Mint are heading for the best start to a year since at least 1986 as prices slumped.  Sales in 2013 have reached 24.03 million ounces, according to data on the mint’s website. That’s the highest for the first six months of a year since records begin. Demand reached a monthly all-time high of 7.5 million ounces in January.

Demand remains at an “unprecedented level,” and sales of gold and silver coins may reach an annual record this year, Richard Peterson, the acting director of the mint, said on June 5. Silver coin sales were suspended in January for more than a week because of a lack of inventory. In April, purchases more than doubled from a year earlier after prices tumbled into a bear market.

Silver futures have declined 28 percent this year in New York, the biggest loss among the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index. The collapse of gold into a bear market, steady consumer prices and mounting concern about the strength of economies has diminished silver’s appeal."...


and the phony paper price is in the $20's????

fuck off bitch ass Bernanke and the rest of you sociopath cocksuker banker shits....


Tue, 06/18/2013 - 14:11 | 3668929 TheMayor
TheMayor's picture

Things are going to get ugly....

Tue, 06/18/2013 - 14:11 | 3668932 max2205
max2205's picture

Fuck...looks like I'll be on the sidelines for another 5% up move....fuck you Ben! 

Tue, 06/18/2013 - 14:13 | 3668940 Jake88
Jake88's picture

Whoopie deflationary depression

Tue, 06/18/2013 - 14:29 | 3668996 THX 1178
THX 1178's picture

Hmm... and what of the TBTF banks who are leveraged a jillion:1? I think this is the death of fiat, not the great depression II. Maybe there will be deflation in the short run, but it'll not be for long. PRINTPRINTPRINT...

Tue, 06/18/2013 - 14:13 | 3668941 hejss
hejss's picture

Is that an inverse hs in inflation expectations and rates?

Tue, 06/18/2013 - 14:13 | 3668945 JJ McApe
JJ McApe's picture

the central banks around the world are printing to cover up that the economy is totally destroyed.

companies are hoarding cash, not hiring at all. they are the wizards of oz. and they cannot print forever. ONE DAY the reality will kick through. u can see that everything is falling apart slowly.

greece was the beginning, cyprus needs more money already, france,spain, italy are next. the ship is sinking. detroit is bankrupt. this debt virus is spreading around the world. and they keep printing - while the economy is contracting they try to inflate it as much as possible. look at the real prices like food, energy, gas, cost of living. they are extremely high.

they also destroyed all gains for savers. i get .0125% in my savings account. pre 2008 i got 2-3%. thanks bernanke.

but sure blame it on the terrorist, blame it on the islamic culture, blame it on everyone else. in the end the greedy banking system destroyed it all. and chinese slave labor did the rest to take away the rest of the jobs.

i would not be surprised if there is a great war looming in the future. syria, and the middle east are already in civil war mode. iraq is completely destroyed, unemployed young people are rioting on the streets. they also want jobs and a nice life, you know??

the bankers want to keep the status quo forever but things will change. even if you have to destroy everything you know a new society will raise. even the great roman empire failed so why should this capitalistic system work in the long run. it is impossible.

markets are rigged, and only the top 1% is allowed to make the big cash. 99% poor guys will hold the bags soon enough.

Tue, 06/18/2013 - 14:15 | 3668950 ParkAveFlasher
ParkAveFlasher's picture

Time to rub DMT into my eyeballs and read Jim Willie.

Tue, 06/18/2013 - 14:20 | 3668967 wagthetails
wagthetails's picture

This has always been a game, but unfortuantley for the fed, nearly everyone now knows it is a game and will play accordingly...this will lead to the worst possible outcome.   It is like quicksand now, the more the fed moves, the more they'll (and the prospects of this economy) will sink.

Tue, 06/18/2013 - 14:23 | 3668977 RhoneGSM
RhoneGSM's picture

Repeat after me: There is no voluntary exit from ZIRP.

Tue, 06/18/2013 - 14:26 | 3668988 XRAYD
XRAYD's picture

So .. Ben has to figure out how to say _ "We F*ed up, but trust us! Don't buy or sell anything. All is well. We are in charge (but not in control)!"

Tue, 06/18/2013 - 14:28 | 3668994 desirdavenir
desirdavenir's picture

Still, the sell-side say there's no risk of taper, so why worry ?

Tue, 06/18/2013 - 14:30 | 3669003 TwoJacks
TwoJacks's picture

The Tuesday Effect seems to have returned

Tue, 06/18/2013 - 14:38 | 3669029 seek
seek's picture

LOL @ declining unemployment chart. Always good for a chuckle, especially when the % of population employed chart is run side by side.

Tue, 06/18/2013 - 14:42 | 3669042 Clowns on Acid
Clowns on Acid's picture

The "few" don't want a war in Syria now that Putin said he is willing to belly up to the other side. Too expensive for them with little return.

The Fed will throw some pepper on Tepper and taper the paper.

This also puts pressure on Obama to focus on burdensome regulations etc, and Fed deficit. Obama will do what he is told to do.... y'know after his pint of Guinness inj his "homeland" and his final tour of his African :"homeland".

It is really surreal that Obama chooses this time to go walk about when he has Benghazi, the IRS scandal, and the NSA scandal on his doorstep. He and his admin are indeed clueless. His handlers are even turning on him...

Tue, 06/18/2013 - 15:41 | 3669180 Never One Roach
Never One Roach's picture

Housesales sinking in my  area still no matter what MSM Spinmeisters say. Unemployment is not too bad in my area but wages stink. Most employers pay minimum and others have just cut salaries another 10%...oh yeah, don't even mention health care insurance coverage. An emplotyer will laugh you out the door.


Slogggin along as El Erian said a few weeks ago....for th enext decade at least.

Tue, 06/18/2013 - 16:02 | 3669227 nakki
nakki's picture

Soon or later the market will correct not because its due but because everyone can't be a winner. Some over leveraged bank will be blown out just like Lehman and just like Bear Stearns it has to happen. Its all one big game of Texas Hold'em and there can be only one winner in that game. My guess is JP Morgan same as it ever was and so it shall be.

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