Here We Go: SocGen Warns There Is "Possibility" Fed May Increase QE Next Week

Tyler Durden's picture

And so, one by one, the crazy pills theories start rolling out. Yesterday, as we first pointed out, Deutsche Bank made waves when it became the first "serious" organization to suggest that the Fed has now missed its tapering window, and will plough on thorough until the next downturn without ever lowering the pace of Flow (of course the reflexive paradox that the economy would be in an out of control depression without QE in the first place somehow does not figure in that calculation).

And while this has not been a novel idea (we first predicted that once perpetual QE starts it will never taper, long before QE 3, aka QEternity was even publicly announced last summer)  today, all the penguin "pundit" copycats have jumped aboard this theory. Well, not all. SocGen has decided to make waves of its own with an even crazier pills idea: instead of no taper... ever... the Fed, that glorious redistributor of wealth from the middle class to the 1%, while happy to adhere to that old saying: "a funded welfare program a day, keeps the guillotines away" will not only not announce a Taper in next week's FOMC meeting but will in fact hike QE!

From SocGen:

Although we assign a very low probability to a decision by the FOMC to increase asset purchases at its October meeting, it is not a possibility we can ignore. Assuming the Fed does not increase asset purchases this year, we consider the bottom of the range on the 10yT to be 2.40%. The market impact of an increase in Treasury and/or MBS purchases would be to rally the long-end of the curve back towards 2.00%, destroy volatility (again), possibly tighten the mortgage basis, and supporting equity, credit and emerging markets.


The potential downsides to increasing asset purchases would be that (1) the market would assume the FOMC was focusing on a very grim economic picture; (2) the perceived risk of inflating asset bubbles in various market segments would rise; and (3) the FOMC may run into a credibility problem (again) by whipsawing the market.




The question now may very well be whether or not the FOMC will choose to increase asset purchases at the next meeting, or whether it will include language in the FOMC statement that indicates they are strongly considering the option. A simple interim solution would be to reinsert the language that appeared in the May through July FOMC statements that “the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriatepolicy accommodation as the outlook for the labor market or inflation changes.”


Market Impact


The outcome for the US rates market going into year-end could vary dramatically based on what the FOMC signals next week.

Scenario 1: The FOMC statement is relatively unchanged, recognizes recent economic weakness as potentially temporary, and suggests that a reduction in asset purchases within the next six months has not been removed from consideration. Probability: 50%.


Lower end of range on 10yT: 2.40% through November; possible sell-off in December if data begins to improve.


Scenario 2: The FOMC statement reinstates language that asset purchases could be increased or reduced, and raises greater concern about recent economic weakness. Probability: 40%.


Lower end of range on 10yT: 2.30% through November; sell-off muted or unlikely unless December FOMC statement and communication begin to reinstate possibility of tapering in Q1 14 in response to improving fundamentals.


Scenario 3: The FOMC increases asset purchases by $10-20bn in October. Probability: 10%, with full disclaimer that our economics team thinks this probability is closer to 0.0001% and that your author is nuts!


Lower end of range on 10yT: 2.00%. The bull flattening of the Treasury curve will run us all over.

In retrospect, this suggestion as ludicrous as it is, makes sense. After all, the Fed has lost so much credibility, it will never make up for it with a taper in October, December, March or June. In fact, the longer the Fed delays tapering (which it now will never do), the greater the confidence loss. So since there is no downside to going full retard and never tapering again, the Fed may as well go the other way: after all, it is not as if anyone on the FOMC understands what a collateral shortage is, or how dire its implications are, despite the TBAC's best efforts to educate the clueless academics in America's Politburo.

And the other upside from the Fed announcing a $15-20 billion, or moar, increase in October or shortly thereafter, is that it will merely bring the grand reset that much closer. Which, considering the centrally-planned, crazy pills New Normal world we live in, is easily the best possible outcome.

So do your worst: Janet.

We, who are about to drown in your liquidity, salute you.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
PRO.223's picture

That's for sure. Faber saying the Fed would be doing a Trillion a month before this ends looks right on.

hedgeless_horseman's picture



The Twelve Steps

  1. We came to understand that our government is powerless over its spending - that our nation's debt had become unmanageable.
Pinto Currency's picture

I think Marc Faber is right and the Fed has lost control of the bond market.

All the jumping around we are seeing is just the Fed and friends trying to make it appear that they are causing the market action.

The market is just doing what it wants and the Fed is pretty much just nude at the side of the road.

King_of_simpletons's picture

I have a number and it is $150 Billion.

Pharming's picture

That sounds like a perfect number.  Remember the good ol days when $867 billion was a big number?  Yeah...good times...

Pinto Currency's picture

Ben's song:


Well, I wound it up to
Nine hundred and ten
Twisted the speedometer
Cable right off the end

Had my foot glued
Right to the floor
Charlie Evans said,
There's still much, much more

Went around a corner
And passed a truck
I crossed my fingers
Just for luck

The fenders clicking
The guard rail post
Janet Yellen beside me
White as a ghost

I guess they thought
I'd lost my sense
The telephone poles
Were going by like a picket fence

kaiserhoff's picture

Yellin is on record as saying she wished interest rates could be negative.

   What an ugly, stupid cow.

Pinto Currency's picture


The problem is she's blind driving The Hot Rod Lincoln just like Ben, not her looks.

Manthong's picture

A taper with a line and a one over the top?

TruthInSunshine's picture

If the Fed actually increases their asset purchases, strap in tight because it will be an open admission on their part that they have lost all control of a crisis that their very tools significantly exacerbated.

If this were to happen, I'd become MUCH more bullish on precious metals, too.

I believe one really can make a credible case that the economy is in far worse shape now than prior to implementation of QE & LSAP programs, since it is primarily debt assumed by government, businesses (corporate bonds), and consumers (now at a new record) that has fueled a massive % of GDP and consumption since 2009, not to mention that the real numbers regarding employment & wages are still horrid (despite the fed & gov't throwing trillions "at the wall").

The orthodox view that deflation should be avoided at all costs is probably one of, if not the most fallacious dogma in mainstream economics, and it ties into the points and metrics I spoke of above; we know that deflation would automatically rein in government deficit spending, while boosting business & consumer purchasing power, while allowing both businesses & households to deliberate (as it is, Americans are now going into debt at a rate that's multiples higher than the rate at which they're allocating any monies towards retirement savings).

DosZap's picture

Yellin is on record as saying she wished interest rates could be negative.


Shows how stupid she is, they ARE.Anyone getting 2.5% (their #), return on any CD's IRA?.(more like .35/.5% for preferred customers FOR a year investment).

Night Hawk's picture

My bank is offering .95% for a TEN year CD.

I told them no thanks, I'll make more money by picking up change from the sidewalk.

andycrazn's picture

interest rates is negative if you factor in inflation. so yellen is right about that

Ctrl_P's picture

+1 for you. I have a copy of this on a 45.

BigJim's picture

Why do they need to QE to infinity? The (official, I know) debt is 'only' $17T. If they were to purchase, oh, I don't know, $12T over the next 6 years, forgiving it as it matures, they could taper off QE and allow rates to rise.

Still means we have a lot of QEing to do though.

kaiserhoff's picture

They can't forgive the debt without someone eating the loss.

That's why the fiction of repayment some time in the distant forever future is so important.


donsluck's picture

Um, the FED would eat the loss and issue more 1s and 0s.

kaiserhoff's picture

The Fed has a balance sheet like any other private entity, and the owner banks would not like to lose control.

More directly to your point, the losses would flow through to the treasury.  There are many ways to do it, but all would swiftly lead to hyperinflation, as printing has in dozens of places in the past.

FL_Conservative's picture

Initially, the market will rally on the news of an increase in QE.  Then, once they have a chance to ponder what the Fed did, the market will sell off because they'll realize that the Fed is shooting blanks (i.e., QE isn't working).  That's when things will get VERY interesting.  


BTW, I'm calling for Yellen to increase QE from $85BB to $125BB during Q114 and the market to snap by summer.

MeMadMax's picture

I say spring because of the dismal holiday earnings reports.

NotApplicable's picture

I say it will snap within a week of the next false-flag, and not a day sooner.

"Shock and Awe," FTMFW!

Oldwood's picture

There is nothing to ponder. Its like we are in a space ship with a gaping hole in the side and ground control is piping in more oxygen. There just isn't enough to offset the losses so those in the capsule crowd ever closer to the oxygen inlet trying to get moar. Those farthest back will be expiring soon but for those few that can get their lips clamped firmly on the nozzle, they won't let go. This will continue until inflation takes hold strongly and they will just keep pumping for all they're worth until money is practically worthless, and even then they will have it piled in their rental storage buildings like Walter White.

gatorengineer's picture

i Dont doubt your hypothesis of increasing QE.  I just dont understand what the catalyst for the snap would b?.  Would 20% more bubble really be that crazy?  30%?  why cant we go hyperbolic for a period....  Algos can do amazing things...  Reality was suspended long ago.



Lewshine's picture

QE, any amount, by its nature is FRAUD. A simple manipulation of value - That's all! The Fed and the banks have been able to manipulate, jimmy rig, freeze and flash every asset class available for investment. Why are we having this 2008-2009 discussion? Here, let me help everyone on the board - Tomorrow morning precious metals will lose 3 to 5% mysteriously. Spy will be up another 1%, Naz 1.25%, and the Dow .50% - Oil will remain flat and below 100 to offset the real inflation rate the Fed is happy to ignore. WTF?


Ham-bone's picture

seems entirely plausible...

Keyser's picture

More like Groundhog day as it's been SSDD for a while. 


bank guy in Brussels's picture

In above article Tyler boasts

« we first predicted that once perpetual QE starts it will never taper »

Whoa ! As I recall, there were several ZH pieces about 'Why Bernanke MUST Taper' ... ZH claims about silo-ing collateral and all that ...

And ZH was WRONG ... Bernanke said 'I am the f-cking Bernank, Taper MY F-ckin' Ass !'

Even the great Tyler is allowed to make a mistake ... but funny to pretend Tyler didn't make one, when he did ... Now Tyler is pretending to have been always 'QE to Infinity !' like Jim Sinclair

Ha !

fonzannoon's picture

Yes ZH went for "the fed must taper". whoops.

Bay of Pigs's picture

Yes, and many posters here called BULLSHIT on that call too.

The USD bulls and deflationists were sure the FED had to stop QE and raise rates.

fonzannoon's picture

the funny thing is the USD bulls still think they will end QE next year. It's amazing. 

El Vaquero's picture

They may dabble in tapering, but it'll be short lived if they do, and their reaction to what happens will be that the untaper is much bigger than the taper was. 

fonzannoon's picture

what is the point of dabbling in the tapering? The economy supposedly has weakened since september, when they said they would not taper. So it's worsened since then and they would taper now? Just to dabble?

I don't see that at all. I see moar, if anything.

El Vaquero's picture

It depends on what comes apart next.  Taper in the next couple of months?  No, I don't see that.  Taper if there isn't a debt ceiling fight in three months?  Quite possibly.  I wouldn't place any bets on any actions the Fed might take for a short time, just raise the possibility.  Long term, yes, they're going to print and print more.  One reason they might try to taper is all of the grumbling about dropping the dollar for international trade.  They've long since lost control and are just along for the ride.  Doesn't mean they won't panic or do something just for show. 

Zero Point's picture

Perhaps they might discuss some huge, expansion, then taper off on that discussion.

That would be responsible. Yeah.. responsible... *begins to dribble*

Pharming's picture

The Bizarro Jerry world becomes more and more like reality every day...  Down is up, backwards is FORWARD, left and right are the same...God help us.  Time to reset.  

buzzsaw99's picture

yes. zh mocked commenters for months who were (they thought overly) confident there would be no taper. I give them wiggle room because zh loves to sensationalize but they NEVER ONCE mentioned the anti-taper scenario before the september meeting. They were also hyper-bearish on bonds which I consider the height of folly.

Greenskeeper_Carl's picture

Peter Schiff called it. He also called Jante Yellen a while back. I believe his words were something like "Ive always known it would be yellen, because she was the absolute worst choice obama could make, so thats why i knew he would choose her"


HardlyZero's picture

Yes, it is difficult to predict when the tipping point will occur, but it appears Yellen will be at the helm.  Hopefully collapse will be quick and decisive.

Crime of the Century's picture

I'm also pretty sure that the hated Rickards was the first to explain stock vs flow on King World News before the Tylers© ever brought it up. It was originally from an arcane Fed paper that Rickards highlighted.

TheGardener's picture

ZH is KWN translated for the sanest of doomsters..

Ham-bone's picture

I don't think many (any?) of us have truly original thoughts...just compilations of what makes sense and/or serves our purposes. 

TheGardener's picture

You are replying to me ? Original thought is my trademark here.. :-)

Urban Redneck's picture

What's more scary, that this post might be an orginal thought, or that it might be plagarism of an actual script?

Tall Tom's picture

What is more scarey is that you forgot the encore.


Every audience deserves an encore.




The American People are destitute and homeless as Jefferson predicted. There is a Hyperinflation as worthless Dollars flood the Economy. With little or nothing to purchase there is a massive Famine and Social Upheaval. The lights then go out.

debtor of last resort's picture

The point of no return could not be defined during the messy timespan. ZH is not doing Gods work.

gatorengineer's picture

They could taper into either a European or Chinese collapse...  Those countries would need to get their dollars out at a much higher value than now.


Other theory would be to slam the Chinks hands in the cash register and take it to 1.60 to the euro...


I dont see them staying at 85 B.....  one way or the other in a big way and right after the first.

SafelyGraze's picture

"Fed May Hike QE"

this is great news for equities!

more rain for the green shoots!


carry on!