This page has been archived and commenting is disabled.

BNP: "The Bigger The Rally, The Worse The Sell-Off Will Be" And "When The Fed Tightens, Bad Stuff Happens"

Tyler Durden's picture


BNP's Paul Mortimer-Lee knocks it out of the park today with not one, not two, but pretty much all quotes in his latest note, "The Fed and QE: Hotel California?" A random sampling thereof (full note shortly).

From BNP

  • History tells us that when the Fed tightens, bad stuff happens. The bond sell-off this summer on the mere announcement of QE ‘tapering’ is a case in point.
  • Bonds will suffer when actual ‘tapering’ is announced. When it starts, we are likely to trade through the previous high for yields.
  • Equities may look fairly immune at first, but as QE buying fades and eventually stops, take care. Any equity sell-off will have a knock-on effect on bonds and the economy.
  • How large the effect on the markets will be will depend on how much the markets rally while QE is ‘on’. The bigger the rally, the worse the sell-off will be.


Our overall assessment is that when the Fed [ZH: again] decides to ‘taper’, there will be an adverse effect on markets. Bonds will suffer from a higher term premium and an upward revision of expectations about future levels of Fed funds. Equities are likely to suffer, too. How big the selloffs will be will depend on the circumstances – how robust the recovery looks, to what extent inflation remains quiescent and to what extent the current period of maintained QE leads to excess valuations in markets. Those markets that sold off most during the ‘taper tantrum’ tended to be those markets that had rallied most in previous months.

Clearly, this is one of the disadvantages of QE – one of its purposes is to distort markets. When QE ends, those distortions begin to unwind. Because of the disequilibria in financial markets under QE, relative valuations, as well as valuations of the risk-free asset, are distorted. Markets may go through considerable gyrations as they try to find the “right” constellation of equilibrium prices. It is possible that sufficiently vigorous reactions could adversely affect the economy.

It may be difficult to foresee all the effects of ending QE. After all, except with relatively brief breaks, the Fed has been using its balance sheet to stimulate the economy since 2009. Markets and the economy have gotten used to it. Will there be unexpected effects when QE ends? Seems like a good bet. What they will be is more difficult to say.


In the 1977 Eagles song, Hotel California, a luxury hotel appears inviting and offers a tired traveller comforting relief from his journey. It turns out to be something of a nightmare, however, and he finds that "you can check out anytime you like, but you can never leave".

Does that sound a little bit like QE and the Fed? The FOMC signalled its intention to check out of QE at its June meeting, but by September, it found it could not leave.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 10/30/2013 - 10:55 | 4104690 hugovanderbubble
hugovanderbubble's picture

Agree with BNP

Wed, 10/30/2013 - 10:58 | 4104704 insanelysane
insanelysane's picture

This article is completely silly.  The underlying economy is strong.  The FED isn't the reason the markets are at all time highs.

- Stevie "over lying" Liesman

Wed, 10/30/2013 - 11:03 | 4104723 LawsofPhysics
LawsofPhysics's picture 85 billion per month quickly becomes 180 billion per month.

I wonder what the November schedule will look like?

Wed, 10/30/2013 - 11:05 | 4104732 Obese-Redneck
Obese-Redneck's picture

The bad stuff happens when former chief Kessler becomes a security guard at you local Walls-Mart packing an attitude because he pissed away everything, EVERYTHING! because John Kerry is coming for yer guns LOL, whatta douche!

Wed, 10/30/2013 - 11:13 | 4104765 Headbanger
Headbanger's picture

Whoa!!   Check out the spike in VIX!

Wed, 10/30/2013 - 11:24 | 4104783 nope-1004
nope-1004's picture

Title of this thread confirms tapering will NEVER happen.

But then again, neither will Exit Strategy, Green Chutes, Hope & Change, Strong Dollar Policy, No monetizing the debt,.........

The lies emanating are extreme and obvious.  The truth is the FED will kill the dollar by printing to oblivion to keep the current banking elite in control, in the mean time placating the masses by the illusion that stawks are ok and at all time highs.

The economy is a joke, really.


Wed, 10/30/2013 - 11:20 | 4104792 Osmium
Osmium's picture

Fat Finger? Or are they losing control of all the spinning plates?

Wed, 10/30/2013 - 11:25 | 4104813 Pool Shark
Pool Shark's picture



Bad things happen?

But, that's unpossible! A Nobel Prize-winning economist said it would be a "non-event!"


Wed, 10/30/2013 - 11:27 | 4104826 Headbanger
Headbanger's picture



Wed, 10/30/2013 - 11:07 | 4104742 DoChenRollingBearing
DoChenRollingBearing's picture

Physical gold and physical US$ would be good diversification at this point.  IMO, this is a good time to SELL stocks and bonds.

The Fed and .gov have brought us to the brink of disaster.  How do we get out of all of this?

As ZH-er "NoDebt" wrote last night:

No easy answers.

Wed, 10/30/2013 - 11:17 | 4104772 DoChenRollingBearing
DoChenRollingBearing's picture


Edit: wrong thread, sorry.

Wed, 10/30/2013 - 11:08 | 4104745 DaddyO
DaddyO's picture

But someone just told us that the "Unwind" didn't matter, sheesh you guys get it together!

We're so close to the final tipping point that the info is coming so fast and furious it will boggle the mind if you let it.

Step back, reassess, and realign your thinking.

Returning to a simpler way of life is the best protection in the coming unwind.

Self-reliant living is the absolute surest way to protect yourself and your loved ones from the CB's and the harm they have unleashed.


Wed, 10/30/2013 - 11:18 | 4104774 NoDebt
NoDebt's picture

Do you normally listen to economists for investment advice?  They're about the biggest idiots on the planet when it comes to that stuff.  Only doctors are worse.

BTW- I am an economist.  But I've sworn that stuff off and I'm feeling much better now.

Wed, 10/30/2013 - 12:02 | 4104960 DOT
DOT's picture

There are real things (structures) and unreal things (measurement).  I feel ya bro'. If I can take you back a moment, do you remember the development of the general non-zero sum game by vonNumann and Morganstern? The neccessity of a 'ficticious' but essential third player, that has no ability to affect the outcome,yet retains the ability to alter the play. Some days I think I am the third player. Somes days I think it's the Fed (it makes me laugh!) Economists are soo funny.

Wed, 10/30/2013 - 11:10 | 4104754 Bearwagon
Bearwagon's picture

All the better. The more it becomes, the faster the shadows will run out of collateral. ;-)

Wed, 10/30/2013 - 11:14 | 4104769 NoDebt
NoDebt's picture

A wall St. guy namend Mortimer who ISN'T yelling "BUY!  BUY!  BUY!"??

Does he have the fix on Frozen Concentrated Orange Juice or something?

Wed, 10/30/2013 - 12:05 | 4104971 BoNeSxxx
BoNeSxxx's picture

Whiskey... Allllllllll you want.

Wed, 10/30/2013 - 11:18 | 4104778 game theory
game theory's picture

My guess is 85b/month until the people who are stockpiling all the cash learn some economics.  All the people and companies piling money into the banks and short-term treasuries...someone needs to do a profile on them...since it is halloween it would be appropriately scary stuff.

Wed, 10/30/2013 - 11:04 | 4104729 Running On Bing...
Running On Bingo Fuel's picture

If you agree, get long, push it up. Let's have some fun.


Wed, 10/30/2013 - 11:11 | 4104750 Headbanger
Headbanger's picture

Yeah no shit.  The bigger they are....

But what's going to be a lot worse about this crash is it will leave the populace stunned, dazed and bewildered that the Federal Government was so powerless to prevent it with all the money wasted trying. The despair will be palpable and followed by rage for trusting such imbeciles with their stupid economic theories! 

Don't ever admit you were or are an economist when the system collapses!

And be prepared for some pandemic to be launched by the government as a means for them to stay in control and power when the economy implodes!

They will blame it on terrorists of course!

Wed, 10/30/2013 - 11:33 | 4104854 OldE_Ant
OldE_Ant's picture

It may leave the 40% FSA stunned, dazed, and hungry, but the rest of us knew and know what is coming.  We planned, we are ready.

I will be the first to tell anyone who didn't see it coming to step out into that intersection because that is about as far as they deserve to go.

Or better, oh you didn't see that coming.  Don't worry you won't see this coming zombie.  "blam"

Wed, 10/30/2013 - 11:45 | 4104902 Headbanger
Headbanger's picture

Don't waste your ammo like that. Unless you want to serve up some Zombie for lunch maybe. Don't forget the fava beans and a nice Chianti.

Wed, 10/30/2013 - 11:13 | 4104768 bubblemania
bubblemania's picture


Wed, 10/30/2013 - 10:55 | 4104691 King_of_simpletons
King_of_simpletons's picture

The only reason Bernanke got kicked out and and replaced with Yellen is because Ben was not printing fast enough. His hands became sore very fast. Yellen is coming prepared with strong gloves. She is going to crank the printing presses like there is no tomorrow. Whiners and conspiracy theorists can cry hoarse as much as they want, but the fact of the matter is that this market is headed to 20K. Whether you make money off of it is your choice. Stock market is the only place to make money these days. Fed can never tighten. Look at Japan. Decades++ without any tightening.

Wed, 10/30/2013 - 11:05 | 4104726 in4mayshun
in4mayshun's picture

"...when the FED tightens..."
That's funny. And when I win the lottery my life will improve dramatically.

Wed, 10/30/2013 - 11:13 | 4104764 rubearish10
rubearish10's picture

it is truly funny. Btw, you have better odds on winning the lottery!

Wed, 10/30/2013 - 11:06 | 4104736 earnyermoney
earnyermoney's picture

"Look at Japan ..."

You might want to pull up a 30 Yr chart of the stock indexes in Japan. We're 15 years behind Japan but we're heading for the same conclusion.

Wed, 10/30/2013 - 11:20 | 4104791 FieldingMellish
FieldingMellish's picture

All hail Mr. Yellen.

Wed, 10/30/2013 - 11:23 | 4104809 banzai401
banzai401's picture

ben wanted out, ... he's bored with the job, and wants to
go back being a teacher, where he can always be treated
with respect.

yellen, wants the job, sort of for the same reason
hillary bitch wants to be president, ...power tripping

now that the FED is the only buyer of USA debt, that makes
the FED 'decider' the most powerful person in the USA.

I'm surprised hillary bitch doesn't want the job,

Essentially there is no taxpayer anymore, ... its only
the FED, thus the FED is the owner, ... albeit with
monopoly money, ...but its all a game anyhow.

Wed, 10/30/2013 - 10:55 | 4104694 Dr. Engali
Dr. Engali's picture

You're damn right you can never leave. TPTB are locking down all exits as we speak.

Wed, 10/30/2013 - 11:17 | 4104779 banzai401
banzai401's picture

Well this is to be expected if you bothered with your history,

Smart Jews got out after 1932, dead-jews waited until post 1938 to exit, and then it was too fucking late.

Same as now, most of the world doesn't want POOR US trash in their country, here in asia in the past year most places have changed the rules for obtaining long-term visa's.

Then there is the issue of getting your money out, that should have been done prior to 2010.

So talking about 'exit' is a little fucking late. But still I
I think Canada or Alaska, is better or mexico, than anywhere in the USA. Of course you got to have some money, and most americans ain't got shit, ... live paycheck to paycheck, and the world will not accept such lowlifes.

Wed, 10/30/2013 - 11:30 | 4104838 WillyGroper
WillyGroper's picture

"Then there is the issue of getting your money out, that should have been done prior to 2010. So talking about 'exit' is a little fucking late."


2001 Patriot Act.

It's a lot fucking late, Einstein.

Wed, 10/30/2013 - 11:19 | 4104780 kralizec
kralizec's picture

Hotel California.


Wed, 10/30/2013 - 11:42 | 4104886 butchee
butchee's picture

I hate the fuckin eagles, man.

Wed, 10/30/2013 - 11:20 | 4104790 Groundhog Day
Groundhog Day's picture

All the cheerleaders (JPM, GS, BNP, BLK, SOCGEN et al) are suddenly coming out with these statements of adverse effects of rising rates? Are they now fully positioned to fuck the sheep one last time before all hell breaks loose or are they just covering their asses so they can later say we told you this would happen (kinda like when they place a stuffer in your statement with all the changes taking place in super fine print so you don't bother to read it)

Inquiring minds want to know

Wed, 10/30/2013 - 11:42 | 4104892 Colonel Klink
Colonel Klink's picture

The key is to already be out of the system.

Wed, 10/30/2013 - 10:59 | 4104709 rubearish10
rubearish10's picture

BNP and SocGen are on the other side of your short position.

Wed, 10/30/2013 - 10:59 | 4104710 Bearwagon
Bearwagon's picture

It ain't over till it's over - but if time is up, time is up.

Wed, 10/30/2013 - 11:01 | 4104718 LawsofPhysics
LawsofPhysics's picture

"When the Fed tightens" - LMFAO!!!


Money is an illusion folks (especially in a fiat world), this is about maintaining power and control over real assets and resources (including the human kind).  Similar to when you child has a temper tantrum, just stand back and wait...

it won't hurt to hedge accordingly either.

Wed, 10/30/2013 - 11:42 | 4104888 Honey Badger
Honey Badger's picture

I don't know how you are invested, but if one believed that the Fed will never tighten again, you would hold minimal cash, maximum precious metals, and some stocks from time to time.  You would certainly hold stocks now, as the masses have not come to the belief that the Fed will never tighten.  Not trying to argue with anyone here, but I was a bit surpised by the negative responses to this article.  What am I missing? 

Wed, 10/30/2013 - 11:44 | 4104898 Sonic the porcupine
Sonic the porcupine's picture

The fed might consider tapering once the dollar is so devalued that people won't bother to stop to pick up a $10,000 bill sitting on the sidewalk.

Wed, 10/30/2013 - 11:01 | 4104719 No Way Out
No Way Out's picture

Meh...Eugene Fama said only yesterday it's no big deal and he's a Nobel Prize winner in economics don't cha know..

(i really hope I dont need to add /sarc here)

Wed, 10/30/2013 - 11:02 | 4104720 rubearish10
rubearish10's picture

....and when FED tightening is announced......

....and if it's not?


Wed, 10/30/2013 - 11:14 | 4104770 CrashisOptimistic
CrashisOptimistic's picture

Pending home sales cratered.  CPI just missed badly to the downside.  Ben's 2% target is a pipedream on that.

Employment (as opposed to unemployment) missed its expectations, also.

If taper truly is data dependent, there is no justification for it.

Wed, 10/30/2013 - 11:02 | 4104721 Calculus99
Calculus99's picture

Remind me, who was it that said 'for every action there's a REACTION"....


Wed, 10/30/2013 - 11:06 | 4104735 LawsofPhysics
LawsofPhysics's picture

Unfortunately there is a big difference between physics and finance.  In finance today, liquidity problems are easily fixed by creating an infinite amount of "credits" out of thin air.  Unfortunately, the calories required for any real business to create an actual product of real value cannot be created out of thin air.

See the problem yet?  In the meantime, could I interest you in a financial "product" of mass destruction?

Wed, 10/30/2013 - 11:14 | 4104766 banzai401
banzai401's picture

Not unlike Rome, once the Roman coin was worthless the food quit flowing to Rome,

Problem it took 500 years, and of course mercenary's took
over the gubmint, today DEA, DHS, FBI, CIA, NSA are all
merc's that have 'gone off the reservation'

How long can it last? So long as the paper money is
valued by the world, that said the majority of the 'world'
wants to see the USA DIE asap.

Simply amazing that the majority here on ZH don't even get it, that the USA has already GONE FULL ZOMBIE.

The walking dead, with their dead money, trading one another, and the gubmint printing fake money to hand-out to keep the zombies shopping.

How long before the world quits filling the shelves of Walmart?

Wed, 10/30/2013 - 11:17 | 4104776 CrashisOptimistic
CrashisOptimistic's picture

You do realize any kind of money fails as oil's joules ratio gets worse?  Money is an invented concept, and all things associated with it exist only via agreement.

Calories and joules exist regardless of agreement.

Wed, 10/30/2013 - 11:33 | 4104855 WillyGroper
WillyGroper's picture

"Simply amazing that the majority here on ZH don't even get it, that the USA has already GONE FULL ZOMBIE."

You're pretty full of yourself, aren't cha.

Wed, 10/30/2013 - 11:03 | 4104724 NoDebt
NoDebt's picture

Wow, that sounds grim.  Let's never do that.

Wed, 10/30/2013 - 11:05 | 4104731 Rainman
Rainman's picture

The Fed took a hundred years to tie this Gordian knot. All attempts to untie it will involve the usual methods...lying, cheating, blaming, etc. Even Alexander the Great couldn't have figured his way out of this mess.

Wed, 10/30/2013 - 11:06 | 4104737 OwnSilverPlayMusic
OwnSilverPlayMusic's picture

So all you have to do is just keep printing, duh!

Wed, 10/30/2013 - 11:07 | 4104740 banzai401
banzai401's picture

Years ago we were told 'bad shit happens' when the FED raises interest rates, and good shit happens when they lower,

That was in the 1970's,

Now 40 years later interest rates are permanently at near zero, and the there is NO buyer for US debt other than the FED.

Calling for a 'taper' is suggesting that the FED will quit buy US debt, ... that is like expecting the leisure class to quit paying their own fucking US Gubmint pensions, ... not going to fucking happen.

Now 'bad shit happens' means the END of the Pork for the 60% that get a gubmint check, and 'good shit happens' is when the rest of us watch the gubmint DIE.

Complete fucking paradigm shift.

Today's its Free Shit Nation, and 60% fuck the other 40%, and pretty soon 80% will be fucking 20%, ... and then when there is nobody left to fuck, the fuckers can fuck each other.

Smart men left the USA long ago.

Wed, 10/30/2013 - 11:13 | 4104760 Calculus99
Calculus99's picture


We're heading for a 10/40/50 world

10% very rich

50% no job, no eduation, no hope, and VERY pissed off.

So what about the 40%, the old 'middle class'?

They're employed by the 10% to protect them from the 50% who WANT BLOOD (and have nothing to lose).

Wed, 10/30/2013 - 11:21 | 4104789 CrashisOptimistic
CrashisOptimistic's picture

This is the inevitablilty of automation and IQ.

The low IQ jobs have been automated away, and 1/2 the population are under IQ 100.

The ladies who used to collect bridge tolls were put out of work by automated license plate scanners that bill the car owner.  Those ladies did not then transition to software engineering jobs coding the license plate scanners.  No.  They now are home on benefits burdening society.

See, this is progress.

Wed, 10/30/2013 - 11:39 | 4104875 banzai401
banzai401's picture


we all saw this coming, why are lawyers still employed? Why has that not been automated? or dumb fucking doctors?

soon when the majority have no money, the the fucking
professional class will once again be taking dogs, and corn for the services.

all mercantile economy's end this way, I'm surprised more people here don't read Sprengler's "Decline of the West"
, he wrote about this shit in the 1920's, ...his books
read exactly what's happening today,

now the praetorians are the nsa,cia,fbi, dhs and they will
fuck the citizens in the arse until they quit bleeding,
this is what happens when you have a democracy, the common man put's everybody on welfare the elects a 'bernanke' to hand out free money to all, and then one day it all ends, and the praetorians ( mercenary armys ) turn on the

Wed, 10/30/2013 - 11:34 | 4104856 banzai401
banzai401's picture

Nope, its just reversion to the mean.

long ago the USA was a penal colony, and 1% were plantation owners.

Today the 1% lives in Aspen or Bend, or Utah, or NYC.

The 99% can dumpster dive, they will not be pissed just hungry.

I grew up listening to 'depression parents', with subjects like deciding who didn't eat, those weren't better people than now, they were no different, un-educated american's then and now.

The Depression, will make many stronger, and get a lot off their ass, and back to the farm, let's be honest, there will be a migration away from the city's.

But in all post-penal to agrarian to industrial to info back to penal, ... its still going to be 99% and 1%, and the 99% will only see the ROBO-COP, the 1% will be living in their ELYSIUM in Aspen, or Bend, some high mountain paradise where good wines flows and busted women serve the wine.

Really the USA is simply reverting to what it always was a nation of hairlip's, who if they work hard get to eat.

Wed, 10/30/2013 - 11:38 | 4104868 Sonic the porcupine
Sonic the porcupine's picture

I think they were better people. The FSA didn't exist back then. People were more polite.

Wed, 10/30/2013 - 11:52 | 4104923 FeralSerf
FeralSerf's picture

". . . city's . . . hairlip's . . ."

I'm doing a study. When and where did you go to primary school, and when and where were you taught to use apostrophes in this context? Thank you for your help.

Wed, 10/30/2013 - 11:08 | 4104743 J Pancreas
J Pancreas's picture

This boob from BNP is showing us why his TBTF and the other banks are obsolete dinosaurs in the new epoch of the Bernank. I read better free analysis on ZH than anywhere else on earth and this troll is probably making near seven figures to state the obvious that ZH has been roaring for years. 


But any "baby taper" that causes the markets to crap the bed will be reversed and loaded up by Yellen's slophole.

Wed, 10/30/2013 - 11:08 | 4104744 stinkhammer
stinkhammer's picture

bashful, doc, dopey, grumpy,sleepy, ben and janet

Wed, 10/30/2013 - 11:11 | 4104755 buzzsaw99
buzzsaw99's picture

when the fed tightens. hilarious.

Wed, 10/30/2013 - 11:21 | 4104796 yogibear
yogibear's picture

The Fed's computers are set now to auto QE at $85 billion month and directly to the treasury, Goldman Sachs, JP Morgan and the rest of it's member banksters.

Yellen with just have to select the QE radio dial on the QE to infinty application from $85 billion/month to $170 billion/month , $340 billion/month, $680 billion/month  or $1 trillion/month.  

Janet Yellen just has to select the new amout. So easy a monkey can do it.


Wed, 10/30/2013 - 11:11 | 4104756 rastaman_management
rastaman_management's picture

Off topic

i was reading the financial french newspaper :

the official growth number of CHINA for the first nine month is 3.700 billions of Yuan

the official growth number for 28/32 CHINESE province for the same period is ... 42.400 billions of yuan

Big bonus for the head of provinces


Wed, 10/30/2013 - 11:11 | 4104757 FreeBull
FreeBull's picture

If the FED ever tightens the Stocks will Fall through the Floor & Bond yeilds will go through the Ceiling (opposite of what is happening now), which is why they will can't and never will tighten again

Wed, 10/30/2013 - 11:22 | 4104805 rubearish10
rubearish10's picture

Correct and that our debt will go poof like the 30% dissolution presented by CONgress of Gov't obligations to SS and Medicare. So, there's so much more room for deficit spending, new treasury issuance and further debt monetization by THE FED and a devaluing US Dollar. Results  = higher prices in US Dollar denominated assets which means DJIA 18,000 by next week which I think equates to 2000 on the widely held by the <1% Suckers and Poorass index, Russell 2000 +300% index and Social Media ETF automatic profit product made by hooligans.

Wed, 10/30/2013 - 11:18 | 4104773 CaptainSpaulding
CaptainSpaulding's picture

"Consequences, schmonsequences, as long as I'm rich!"

 -  Daffy Duck, from Looney Tunes Ali Baba Bunny (1957, Chuck Jones)

Wed, 10/30/2013 - 11:16 | 4104775 Waterfallsparkles
Waterfallsparkles's picture

Do not think the FED can taper.  At least until all of the 10 Bonds roll off their balance sheet.  Just think about all of the money they will lose on their book of business if interest rates go up

That is why many are projecting 2019.

Wed, 10/30/2013 - 11:37 | 4104836 Winston Churchill
Winston Churchill's picture

The guys I read predicted 2019 a decade ago.

With updates allowing for Govt & FedRes ongoing stupidity,they are now saying

2014. Staggering on for another six years is not possible.Coms speed is now

C, not a trotting horse as it was for Rome.

The US in not Japan.The implosion will be quick, and violent.

Wed, 10/30/2013 - 12:06 | 4104976 LawsofPhysics
LawsofPhysics's picture


Wed, 10/30/2013 - 11:24 | 4104786 Element
Element's picture


Hussman has written a very interesting discussion on where we're really at, right now with QE:


Hussman: The Grand Superstition - October 28, 2013

" When we examine the 2008-2009 credit crisis in retrospect, there’s no question that the central concern at that time was that massive bank failures would trigger a “global financial meltdown.” The risk of widespread failures was driven by losses in mortgage-backed securities and related assets held by major banks, and by highly leveraged financial institutions like Bear Stearns and Lehman, representing the “shadow” banking system.


Rather, the crisis ended – and in hindsight, ended precisely – on March 16, 2009, when the Financial Accounting Standards Board abandoned mark-to-market rules, in response to Congressional pressure by the House Committee on Financial Services on March 12, 2009. The decision by the FASB gave banks “substantial discretion” in the values that they assigned to assets. With that discretion, banks could use cash-flow models (“mark-to-model”) or other methods (“mark-to-unicorn”).


The Grand Superstition

The misattribution of cause and effect in 2009 created the Grand Superstition of our time – the belief that Federal Reserve policy was responsible for ending the financial crisis and sending the stock market higher. By 2010, this narrative was so fully accepted that the Fed’s announcement of further “quantitative easing” was met by equally great enthusiasm by investors.


In sum, the financial markets presently rest on a spectacular and exaggerated superstition about the power of Fed policy to impact the financial markets and the real economy. This superstition was born of crisis, and is likely to end in crisis, as investors re-learn what they should have learned about Fed policy in the 2000-2002 and 2007-2009 plunges."




i.e. not being able to stop the plunge, even with bucket loads of extraordinary QE.

Feel lucky now?

Wed, 10/30/2013 - 12:09 | 4104995 Quinvarius
Quinvarius's picture

I am pretty sure the 17 trillion in secret, later revealed, cash infusions they gave directly to the banks helped too.

Wed, 10/30/2013 - 13:20 | 4105316 Element
Element's picture

And Faber did correctly call bottom on March 6th 2009, 10 days before Mark-to-Make-Believe was announced. Looking at the chronology though, where does the $17T slot-in, with respect to this? (I thought it was more like ~$22T)

Wed, 10/30/2013 - 11:23 | 4104803 RhoneGSM
RhoneGSM's picture

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

Wed, 10/30/2013 - 11:27 | 4104824 Calculus99
Calculus99's picture


I think you've hit the nail there with the word 'voluntary'.

Wed, 10/30/2013 - 12:00 | 4104953 Quinvarius
Quinvarius's picture

So they won't taper then.  Please STFU BNP until you learn what our money is and where it comes from.

Wed, 10/30/2013 - 12:08 | 4104982 falak pema
falak pema's picture

some people like to read the wind in the opposite sense for 2014 :

This from a guru who is a reputed serial DOOMER; Paul Farrel...

Make hay before the storm. For those who enjoyed the ride in 2012, 2013 the road to 2014 looks rosy red!

I know that all those who bought into smaller financials since mid 2011 have not regretted it on both sides of the pond. 


Wed, 10/30/2013 - 12:44 | 4105153 Razzle Dazzle
Razzle Dazzle's picture

I was warned, they can print longer than I can hang out. The crash, hyper inflation or whatever black swan is so far in the horizon. It will happen, in the meantime I should sit in the corner with the big white pointy "D" hat. I just can't see what will trip the lunatics are in charge of the asylum. Play the long game...yeah yeah, opportunity cost has to come into it despite the risk. Too much stacked against the gold bulls, rigged casino, QE to infinity... more than wishful thinking is needed here.

Wed, 10/30/2013 - 12:07 | 4104983 sunny
sunny's picture

The Fed will tighten and start a meaningful taper shortly after Tyler is installed as the next pope.


Wed, 10/30/2013 - 12:13 | 4105006 Inthemix96
Inthemix96's picture

OT, but on topic really when I think about it.

As I've said before, I'm 36 years old, an old customer of mine for 15 years who is like a surrogate grandfather to me who is 84 years young told me last week, 'I'm damn pleased I'm my age 96 and not yours, I wouldnt like to run the gauntlet now as when I was your age'.

I love this old bloke as if he was mine.  I have two kids, 16 and 12, girl and boy.  This old friend of mine has so many pearls of wisdom to part with he should write a book, and being the age he is, has lived and seen the best, and worst we have to offer ourselves.  He has told me more than once, that in all his years he has never seen things as the way they are now, and you know what?  I have no reason at all to dis-believe him, none.

I often ponder, more so now than before the crash of '08, why I brought kids into this world.  I didnt wake up till '08, I was 'Unaware', I'm not now.  I know good will prevail in the end, some of you lot are proof of that fact, there is a damn sight good knocking around these and other parts, but I still wonder, why does it have to be like this?  I mean no harm, I treat others as I would like to be taken, and have lived as I was brought up, and brought my own kids up the same.

Rambling here I know, but as hard as I try, none of this makes even the slightest bit of sense to me, and as I have awoken, told others, some of who listen, others who look at me like I am bat-shit crazy of the times we live in under FIAT servitude, I still wonder and think how did these fuckers deceive nigh on the entire world with fancy accounting and outright theft?

My old 84 year part time grand dad is right, I only hope the good guys and you know who you are win through.

Humanity never deserved this.  It was forced, through deception on us.

Anyhoo, rambles over, take care ZH crew and staff.  A lifeboat in a sea of insanity.

Wed, 10/30/2013 - 12:37 | 4105131 J Pancreas
J Pancreas's picture

+1. I always enjoy your musings as well. Take care.

Wed, 10/30/2013 - 13:33 | 4105350 falak pema
falak pema's picture

I'm writing a novel about a guy your age and so I try and feel his rage thru his younger eyes at wake up call post 2008. 'Cos when he was 23 and professional life began for him the world was another place. It was boom times and the West had its tail up.

For those of us older, I learned when I was in my teens that you don't kill the most powerful man in the world and not find his real killers in what was clearly visible as being a conpiratorial crime, without consequence of major proportions.

A crime of that magnitude covered up showed the MIND SET and the deception went overt when the "greatest nation on earth" attacked a bunch of peasants in a forgotten country called Nam; all based on a fudged casus belli which gave them moral carte blanche. Asymmetric war, in an age when hot war between nuclear superpowers was not possible; fortunate legacy of previous crisis in Cuba; became à la mode, for no rhyme nor reason except hubris and shadow boxing your enemy; all the while making a killing selling arms to all and sundry. A way of life was born based on deception, lies and fear and it went planetary under the aegis of the West (admittedly the USSR standoff helped, having a useful villain teetering on his last legs).

There was a film made on Nam which best portrayed the betrayal of a generation of Americans who fought there and of a western ideal forever trampled into the ground.

Twilight's Last Gleaming   1977         R146 min.
Genre: Action 
Director: Robert Aldrich  
Cast: Burt LancasterRichard WidmarkCharles DurningMelvyn DouglasPaul WinfieldBurt YoungJoseph CottenVera MilesRichard JaeckelLeif Erickson 

  As his anti-Vietnam War statement, a deranged U.S. Air Force officer, Lawrence Dell (Burt Lancaster), takes over a nuclear missile base and blackmails U.S. government officials. 

It was a minor film in Lancaster's career but an awesome testimony to MIC madness; more sombre than Dr Strangelove. 

From then on the deception got bigger...Just providing a fragment of history. I know a lot of younger people have no memory as they live in the Internet world of Instant virtual frolicking...That's where we are and its gonna get wake up call bigtime for the young; like in Greece and Spain.

Wed, 10/30/2013 - 13:37 | 4105410 Inthemix96
Inthemix96's picture

What can I say falak pema?  Thanks?  Click on my name and I'll give you a straight up account of why I am here and how it happened.  You never know, I might be able to help somewhat in your book.

And keeping the burning rage, resentment and hostility may be something good that can be directed by the shitshow we endure daily??

Anyhow, thanks.  96

Wed, 10/30/2013 - 12:25 | 4105066 esum
esum's picture

just let me know right before the institutions smell the smoke and head for the EXIT, are safely out.... and then yell FIRE... to the retail side... 

Wed, 10/30/2013 - 12:41 | 4105146 Iam Yue2
Iam Yue2's picture

I'm sorry, but stating the fucking obvious.  We are all Zerohedge.

Wed, 10/30/2013 - 13:02 | 4105222 ToNYC
ToNYC's picture

Man can't fly; use shorter ladder next time.

Wed, 10/30/2013 - 13:49 | 4105463 bugs_
bugs_'s picture


and also....

When the Fed loosens.....bad stuff happens

Wed, 10/30/2013 - 15:21 | 4105902 deerhunter
deerhunter's picture

falak,  I get the greatness of the MIC.  We were warned.  The enemy now is the man in the mirror when one in six is being fed by EBT cards.  I am 58 and I think that a piece of ass and a quart of beer might kill most of those younger than 40 years old in this country.  We are raising our boys to become girls in an education system run by women for women to raise women.  America,  I was glad to know you but I fear for you now.  I missed Vietnam by one year or I would have been over there in the jungle.  I would have gone too.  Now,  I think the war is among us.  When is the last time anyone saw a male of any age get up on a train or a bus to give a woman his seat?  When do you ever see a man stand up when a woman joins them at the table or enters a room.  This virtual world has cost our society its manners,  morals and scruples.  I too can tend to get wordy but to In the Mix, my hope for you is you never regret bringing those kids into this world.  I spent last weekend in the north woods with 60 kids from 11 to 18.  I was the chief cook.  It was a riot.  I saw hope in thier faces.  I saw kids having fun.  I saw kids enjoying the outdoors.  I saw the future of this country.  My grandkids are now one and a half to nine years old.  IN the MIx your kids will bring you grandkids.  We will turn this bitch around and we ,, and most of those here I believe are willing to get their hands dirty.  We have been lied to, stolen from and used for long enough.  I honestly think this whole Obama Care thing might be the one that gets the pitchforks to DC.  Not sure on that but you can only kick a man,  even one without a whole lot of backbone so many times.  My daddy always said don't pick a fight with a quiet guy cause he will whip your ass.  We are the quiet ones and I say not yet but there is an ill wind blowing.  Keep your head up and thank God for those kids of yours.  They are the future.  I must be off,,,,,,,,

Do NOT follow this link or you will be banned from the site!