Bernanke On Soaring Interest Rates: "We Were A Little Puzzled By That"

Almost exactly 8 years after Greenspan's now infamous "conundrum" comments about the unprecedented persistence of low, long-term interest rates, Bernanke is now "puzzled" at the dramatic rise in interest rates following his recent Taper remarks. Have no fear though, just as Greenspan noted, "I'm reasonably certain we would not automatically assume that it would mean what it meant in the past, " Bernanke said today that the "sharp rise in rates", was not about the Taper but "due to other factors, including optimism about the economy."

Perhaps more importantly, today for the first time someone, not Hilsenrath of course, had the guts to ask Bernanke the hardest question: is the Fed's "Stock not Flow" worldview broken, and was it wrong all along (as we have been alleging all along)? Of course, the implications of the Fed being wrong on this most critical aspect of monetary theory opens up a hornet's next of Pandora's boxes: just what else is the Fed wrong about, and how much will Bernanke be "puzzled" when one by one all of his flawed theories are revealed to be nothing but religious dogma.

And finally what happens to the BOJ when it too has to "taper" and it too realizes that it is all about the flow (in a country where the central bank is monetizing at a relative pace which is more than double the Fed's), and the second sentiment shifts, the entire liquidity bubble comes crashing down, taking not only Japan, but Europe - which is funded courtesy of the Japan carry trade - down with it?

To summarize: bonds collapsing - no worries... it's still the Stock... although not really... and optimism.

From today's press conference:

QUESTION: Mr. Chairman, you've always argued that it's the stock of assets that the Federal Reserve holds which affects long-term interest rates.

How do you reconcile that with the very sharp rise in real interest rates that we've seen in recent weeks? And do you think the market is correctly interpreting what you think is most likely to be the future path of the Federal Reserve's stock of assets? Thank you.

BERNANKE: Well, we -- we were a little puzzled by that. It was -- it was bigger than can be explained, I think, by changes in the ultimate stock of asset purchases within reasonable ranges, so I think we have to conclude that there are other factors at work, as well, including, again, some optimism about the economy, maybe some uncertainty arising. So I'm agreeing with you that -- that it seems larger than can be explained by a changing view of monetary policy.

It's difficult to judge whether the markets are in sync or not. Generally speaking, though, I think that what I've seen from analysts and market participants is -- is not wildly different from what, you know, the committee is thinking and trying -- as I tried today to communicate, I think the most important thing that I just want to convey again is -- is that it's important not to say this date, that date, this time.

It's important to understand that our policies are economic-dependent, and in particular, if financial conditions move in a way that make this economic scenario unlikely, for example, then that would be a reason for us to adjust our policy.

It's really the stock, stupid... (right?)

BERNANKE: And by the same token, as long as we're buying assets, we're adding to our holdings.

We do believe -- although, you know, there's room for debate -- we do believe that the primary effect of our -- of our purchases is through the stock that we hold, because that stock has been withdrawn from markets, and the prices of those assets have to adjust to balance supply and demand, and we've taken out some of the supply, and so the prices go up, the yields go down. So that seems to me consistent with the -- with the idea that we're still adding liquidity, we're still adding accommodation to the system.

Comments

[docj]

Show me someone who claims to have "optimism about the economy" and I'll show you

1) somoene on a bankster payroll

2) an elected official who's continued feeding at the public teet requires that the CONfidence game proceed apace

3) a SNAP card possessing Obamaphone user

4) a moron

5) any combination of the above

[Bryan]

Economists live in a world of ceteris parabus.  However, the rest of the world lives in reality.  That pretty much sums up his puzzlement.

[Yes_Questions]

This comes across as someone who is really bad at trying to conceal a very, very difficult truth.

His leaving the FED is probably a big relief for him personally so that he'll never have to be in a position to verbally, live on camera, hide the real motivations for his and his colleagues actions.  To have to hide the agenda behind the FED: as if its just "asset" prices and interest rates.

as if.

He's running cover and too lacking in constitution to hide THAT.

Ben, Good luck in your next endeavor.  I actually feel sorry for you you sad, sad man you.  

be sure to look the right way in The City when crossing the street.

[Tsar Pointless]

You can cry some tears for Bernanke. I will be awaiting his waterboarding.

I am a dreamer.

Dear NSA: Pass this message along to Chairman Ben for me.

FUCK YOU.

Thanks.

Tsar Pointless

[lolmao500]

Meh bond collapsing is transitory.

[Oldballplayer]

"I am not going to talk about my personal shit here. I am too busy trying to keep mt lies straight about the economy."

And then Ben walks away mumbling something. I think it was, "Are you fucking kidding me? I am so outta here...."

[khakuda]

Almost no one ever asks him real questions.  It seems the Fed sets the agenda, either explicitly with suggested questions, or implicitly by leading questioners with their statements about what they think matters and reporters are complicit, just getting details about what the Fed says and thinks.

How about these:

Why have your GDP estimates been too optimistic?  Why are gold prices and other commodities going lower after the US and Japan went insane printing money?  How can someone who has been so wrong be so confident they are right now?  Is it ok that asset prices (stocks, bonds, real estate) are skyrocketing when the economy isn't?  Is buying up and holding mortgage paper forever in the realm of social planning and not the Fed's proper role?  Isn't the Fed causing assets to be mispriced and capital to be misallocated and how is that good?  What about pensions and savers, isn't 5 years of ZIRP already too much cost put on one constituency.  How can you say there is no inflation when the government is constantly changing the benchmark and don't inflating asset prices count as inflation?  When is enough asset price manipulation enough, it's been 5 years now.

...and my favorite...

 Isn't it odd that you would speak of tapering when inflation seems to be falling and unemployment is still high?  Doesn't this imply that you are concerned about the size of the balance sheet OR doesn't it imply that you are looking to taper from $1 trillion annualized QE because the deficit projections are now $650 billion and in reality you have just been monetizing the debt to sustain fiscal profligacy?

[solidsteele]

Was it just me, or did The Bernanke seem unusualy collected as he gave his comments, unlike the the past where he looked like he had a gun to his head? and the water drink.... ok a little over criticle, but body language, a new message i would suggest, he had a hard time swallowing that bullshit.

[Colonel]

Sell the TSLA dips!

[f16hoser]

"Puzzled?" Are you fucking kidding me? Bennys' either senile or so corrupt, he's beyond any rational thinking. This is Time magazines "Man of the Year? Say's a lot about Journalism....

[dragoneyes74]

Yup, definitely the most puzzling comment of the day is Bernanke saying he's puzzled by bonds selling off when he's telling them to their face that he's planning to taper his buying.  When the biggest buyer in the room starts to slow down, unless you're blinded by your ideology, you take notice and get out.  Bonds are dead.  But I'm not necessarily saying right away.  I'm talking big picture dead.  The one thing US bond holders have going for them is Japan and Europe will fall apart first (most likely), so there will probably be a flight to safety still coming.  Not to mention the Fed can never actually wind down the program (but it can't last).  The whole world sees what will happen now and if anyone thinks the big bond holders aren't going sell the rallies, you're crazy.  I'm not saying we can't see sub 2% again, but I can guanantee you the same big bond guys (Gross and Gunlach), who just today before the Fed announcement said the recent selling is a buying opportunity, are going to reassess and I would be very surprised if they don't at least start to lighten up their holdings on big rallies, especially flight to safety rallies that push below 2% (if that ever happens), which is exactly how sentiment shifts and makes long-lasting high bond prices impossible to sustain, and when the day finally comes when inflation kicks in or when the QE unwind actually happens, the sell-off in bonds will be riotious.  If Bernanke extends or increases QE for too long, bonds are dead due to the inflation that will eventually come as stocks become overvalued and commodities look cheap in comparison.  And if Bernanke winds down QE, bonds are dead because Dr Hercules won't be there to hold up the market and provide that risk-free honey.  You can almost see the fear in Berananke's eyes that he's just now starting to realize he made a horrible situation in 2008 infinitely worse.  Only an academic could come up with such an idiotic plan to begin with.  Their economic targets will never be achieved, and even if they are, the moment they stop printing, all the fake economic progress that's been made will be undone because it's not real demand fostered in an interest rate environment that is market driven and sustainable; it's false demand created in a suppressed interest rate environment that only lasts as long as rates stay low.  Sentiment has shifted.  Big rallies will start being seen as a way to get out of massive bond positions.  Eventually, the Fed will lose control of rates and the US will default.  Maybe it takes a few years still and maybe the rest of the world falls apart first, but there is zero chance that this doesn't lead to default and massive losses for bond holders. The only remaining rationale for holding bonds is the belief that a flight to safety rally will be coming from Japan and Europe (let them hold the bag), but trying to hold on for a little more yield and hoping to time it perfectly is dangerous and the opposite of safety that bonds are supposed to represent, which is why the last month of selling is the first crack in an inevitably broken market.  Just like the housing bubble had a built-in seed that sowed its own destruction when people could no longer make the payments, so does the gov't debt bubble when countries can no longer make their payments as rising rates squeeze them like a snake.   

What Bernanke should be telling Congress behind the scenes is you better get spending again because Daddy Ben Bucks needs more bonds to purchase.  Crank up that war machine.  

[lamont cranston]

Gosh, I just have to repeat his punishment, which is to be tied up in a minivan going back and forth alone I-95 30 miles north & south of his hometown of Dillon, SC. And its icon "SOUTH OF THE BORDER" and its every 1/4 mile billboards. His punishment?...

Van is loaded with bratty children asking Ben "when we goona get there" every 20 seconds, forcing him to eat the food and sleep on the crappy mattresses when they get to SOTB every nite. With rain...every day.  

[jon dough]

Ben Bukkake...

Cum dump, extraordinaire...

[Peter Pan]

So Bernanke is a little bit confused?

Ben, that reminds me of the girl who told her father she was a little bit pregnant.

[MeelionDollerBogus]

OH, it's so much more serious than that. It's the father questioning the DAUGHTER about being pregnant with her boyfriend there, and either one of them is saying "hm, I'm puzzled by this"

[boeing747]

He will continue QE but change to a secret QE (off balance sheet) so Gold price will fall yet money still can be printed.

[boeing747]

Another way of QE is to put PIGs or Japs criss on CNBC 24X7, so money there will fly to safety of US bonds, then Ben can press 'Pause Print' for a while.

[Youri Carma]

Mortgage-Bond Yields Approach 14-Month High After Jobs Report
7 June 2013, by Jody Shenn (Bloomberg)
http://www.bloomberg.com/news/2013-06-07/mortgage-bond-yields-climb-after-jobs-data-amid-stimulus-concern.html

Mortgage-Bond Yields Jump to 14-Month High on Fed Statements
19 June 2013, by Jody Shenn (Bloomberg)
http://www.bloomberg.com/news/2013-06-19/mortgage-bond-yields-jump-to-14-month-high-on-fed-statements.html

[El Hosel]

Nice!  Bernanke says he is "puzzled" now and he will say "nobody saw this coming" later...  Cross a conundrum with a puzzle and you get a prolonged "clusterfuck" with extra denial on the side.