What Happened The Last Time A Major Central Bank "Tapered" QE?

Tyler Durden's picture

After having followed a zero interest rate policy strategy and facing a further deteriorating economy in an environment of falling prices (deflation), the Bank of Japan (BoJ) announced the introduction of QE on 19 March 2001 and kept it in place until 9 March 2006. The BoJ chose for a very orderly and gradual unwinding of its government securities portfolio, by continuing its regular purchases of these securities (i.e a taper and not sale).  The market rejoiced at the normalization for a week or 2... before dropping 24% in the following 2 months. Of course, that was a "policy mistake"; the Fed knows this time is different.



Think 24% is ok and Fed will just rescue stocks again?... things "esclated"...

to end -75%.

Awkwardly that lines up with the 1920/30s analog we have previosuly noted...


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Cult_of_Reason's picture

The market was manipulated today to condition Pavlov's dogs into new response "taper is good, buy stocks".

Conditioned Stimulus was paired with an Unconditioned Stimulus that Bernanke hoped would cause automatic Unconditioned Response in the future.

LetThemEatRand's picture

I could not agree more.  Every move of this market over the last 2+ years has been seemingly scripted to reflect the desired message, including the regular PM slamdown every time it becomes obvious that fundamentals should cause the prices to rise.  It's amazing what a few trillion dollars of someone else's money will make possible.

Cult_of_Reason's picture

Classical Conditioning (also Pavlovian conditioning):

Conditioned Stimulus (Taper) was paired with an Unconditioned Stimulus (Higher Stock Prices) that Bernanke hoped would cause automatic Unconditioned Response (Buy Stocks) in the future.

After pairing is repeated, although some learning may occur after only one pairing, the organisms exhibit the UR (Buy Stocks) in response to the CS (Taper) when presented alone.

LetThemEatRand's picture

If you put a monkey in a cage and he can press a button with his right hand to receive food every time he presses it, or a button with his left hand to receive cocaine at random intervals, he'll get blisters on his left hand hitting the cocaine button while he slowly starves to death.  

OutLookingIn's picture

The Fed chairman wears NADA!

Its the ToTo economy.

Taper-on, Taper-off.

So, deck the halls with boughs of folly. With dreams of a big bonus in your head!

Manthong's picture

it’s easy to be sleazy.. ask Jamie or Lloyd.

Ask Bernie or Jon if you cannot avoid

..the temptation to gamble your savings deployed.

And your wealth that they’re happy to watch be destroyed.

ho ho ho mo fo..

GetZeeGold's picture



We're gonna print less than before......and that's how you move a market.

The Mist's picture

This 'taper' is a non-event. From 85 to 75? That change is not only arbitrary but also irrelevant, it's only a minor change in degree.

What it shows? It shows that the FED has no idea what they're doing, but they've hit the unemployment level they aimed to achieve with QE, so they couldn't just continue the exact same way as before without arousing suspision. How to solve it? Give a MINOR decrease to the QE program and claim you're tapering, because all is well.

long-shorty's picture

damn LTER, you are on fire. should you ever visit these parts, feel free to stop in for dinner.

Wyatt Junker's picture

What happens when there's no taper?  That's easy.  Your asshole slams shut.

Leveraged Algorithm's picture

Not accurate - you may have been taught this at a young age but the last decade has proven the monkey/cocaine theory in error. It was bad research - period. Not that I support QE - but lets remember the framing of the research ahead of testing leads to poor results. That is exactly what the Fed's smart guys have done.

QE may result in a Japan like moment - or frankly it may be much worse - especially for the world. Act accordingly.....

Mugatu's picture

I guess you were the voice of reason who was complaining when QE was stoking gold up from 900 to $1900 in 4 years.  Lets face it, every asset class (including metals) has been pumped up by the Fed.  Gold is just the first asset class to fall.  The rest of them will in time too.  In the end when everyone is poor how will any asset class go higher?  The fundamentals for bread are probably great in Ethiopia but considering nobody can afford bread how high can the price go?

LetThemEatRand's picture

QE wasn't "stoking" gold, so much as gold was responding to a devalued dollar.   Wars were fought and continents conquered over gold before there were "asset classes."   Paper gold will likely be slammed down if there is general deflation in paper assets and real estate, so we agree as far as that goes.  How long they can keep that charade going is anyone's guess.  So far, just about everyone I've read who tries to call it has been wrong.

Leveraged Algorithm's picture

It seems that everyone missed a really important comment from "Big Ben" when he primed the pump by saying "other central banks can purchase corporate bonds and other securities" and we cannot because of the law. Japan can and is buying everything - Watch closely while a new law allows the Fed to buy ANY securities - if they are not already. You thought Obama care would never pass?

TheRedScourge's picture

As someone who is watching the gold markets intently, I can say rather confidently that the all in sustaining cost of mining an ounce of gold is roughly $1250 now, not counting any writedowns from falling demand rendering mines uneconomical, whether due to manipulation or not. Grades are falling, exploration is yielding fewer big mines, and costs are rising, especially energy as the cheap stuff gets used up. It will not be heading down to $900 again, unless we see a hell of a lot of deflation.

Colonel Klink's picture

Me thinks Pavlov's dog is going to take a beating!

rosiescenario's picture

....thank you B.F. Skinner........I agree, they are teaching the algos a new trick....most of the newer algos have built in modification programs which can adapt rapidly to changing conditions. Unfortunately, the algos are a bit like my rat terriers....once they lock onto a scent, there is not much thinking taking place as they are hard wired to chase, a genetic trait they share with momo investors in general.

Life of Illusion's picture



Richard Koo "Balance Sheet Recession" as it continues.


DirkDiggler11's picture

And the market was manipulated yesterday, and will be tomorrow, and the day after that and ( insert infinity symbol here)

LetThemEatRand's picture

I think he's going by Prince again.  Oh, sorry.  Different symbol.

HamyWanger's picture

The taper is only -$10B/month, still $75B/month left.

You're way overblowning this. 

Cult_of_Reason's picture

Markets (non-manipulated) are supposed to be forward-looking, like 6-12 months forward-looking and pricing in today no QE in 6-12 months from today.

rosiescenario's picture

...I'd say the markets today were pricing in no taper which will happen about 5 seconds after a 300 DOW point drop.

Does anyone seriously believe that Ben is going to phuque with Wall Street? Those are his bros.He is counting on them to come through with speaking engagements at $400k a pop after he retires.


...and I rather doubt that Yellen will want to lead off with a market crash.


After the dollar loses its status as the reserve currency, maybe then the Feds might seriously consider really tapering.

GetZeeGold's picture



The taper is only -$10B/month, still $75B/month left.


5 freshmen Econ 101 students blew their fuses and junked that comment.....now 6.....and expected to rise further.


Forgive them.......cause they just don't have a clue.

AngelEyes00's picture

Yes, SEVENTY FIVE  BILLION a month is nothing to sneeze at.   still a lot of inflation for Ferrari's and art.   If they had said tapering by 10 billion a month until QE zeros out then panic selling may have ensued.  But instead they parsed their words even on tapering, by saying they may adjust it up later.  So it's still QE game on, nothing has changed except a small (possibly temporary) reduction.  And who knows how long it will remain at 75b.  With ongoing adjustments we could be 10 years down the road with 75b or 175 billion a month.  Investors were relieved the news wasn't more taperish.

walküre's picture

Anyone have a suggestion where the money would go instead? Zirp in effect and all other CBs are in the same boat. Market will stay flat from here on out for the next couple years. The occasional IPO might be worth playing but for rest of the market, the upside is very very limited. Dividend stocks are less vulnerable to a correction. Unless a big shareholder needs to raise funds and liquidate a massive portfolio, I don't see the downside scenario playing out.

ZeroPower's picture

HY credit. Still space to run. The shittier the credit, the better.

disabledvet's picture

That was the play going into this spring. The Fed crushed that play...not that the equity space cared. Big mistake assuming "dividend players are safe." An IPO market like this can make your industry irrelevant. The move in Twitter has been astounding...WAY underpriced IPO imho. One could look at a company raising its dividend as bearish actually. A "defensive move" given what's going on in the market as a whole. Tesla shooting up to 200 from here wouldn't surprise me one bit. Nor would a massive roll out of their "Solar City" network. This does bring "displacement theory" into play however.

the question's picture

It would go to cash. But only until the market corrects. Then back to equities.

Being Free's picture

Anyone have a suggestion where the money would go instead?

A good question.

I would say PMs.  But then, it doesn't appear to be what the "market" is saying.  Draw your own conclusions on that point but as Patrick Henry put it:

I have but one lamp by which my feet are guided, and that is the lamp of experience. I know of no way of judging of the future but by the past.

and given the very long history we have to judge by it seems, to me, PM's are still the place to be running to despite the false flags.


TheRedScourge's picture

JP Morgan's actions seem to agree lately.

rosiescenario's picture

"Anyone have a suggestion where the money would g...?"


Well, we know it has already gone to art and various other collectibles, homes in the Hamptons, exotic cars, and $400k watches.


....and we also know where it has not gone, which fully explains why the serfs are buying guns and ammo.

Dr. Engali's picture

Down 75% would bring the market down to fair value. If we could get there without artificial fed intervention propping this shit up then we could find a true bottom.

BandGap's picture

Never gonna happen. The Fed has hung it's hat on the stock market being the bell weather for the health of the economy. Starting out with that misguided premise, if the market drops 10% they are ging to knee jerk the hell out of stimulus efforts.

My hope is that this will accelerate the decline.

disabledvet's picture

You have to have stimulus that works. So far all that's been an epic failure. ACA, Syria...rounding up the UN troupe for "Plan Save Fukushima." Nothing but crickets. We 'll see if this budget deal is the start of something truly material in DC. I would argue that deal is the first good news in six years actually. Whether that means the cop is on the beat here is another thing entirely.

Rip van Wrinkle's picture

Never is one hellofa long time.

Uber Vandal's picture

Well, I was mainly right....


But, saying is not doing. Lucy (Fed) can still remove the football (Taper) before Charlie Brown (Retail??) gets there.....

frankTHE COIN's picture

Patience fellas. Catalysts come from out of the Blue. In the mean time scalp around your main position ( Short term Buy some obvious opportunities swing or Day trading )
You'll keep your main position intact and have a small profit to break even while you await the Main Event.

disabledvet's picture

"swing traders." that's just the beginning of "bull crazy pants world." good start though. http://www.youtube.com/watch?v=utkTmI8tMkQ we're well past "buy the dips, sell the rips" now. and yes there are behavioral algo's to trade the trader here as well. at some point we might even get some real banking actually. http://en.wikipedia.org/wiki/Williamsport,_Pennsylvania what should you be buying right now? here would be my top pick: http://seekingalpha.com/symbol/gd?source=search_general&s=gd "no earnings/no problem."

max2205's picture

Pssss...one word, penny stocks will be the last blow off

RaceToTheBottom's picture

I am certain the fact that the planned top of Jan 16 2014 is right after a yearly option top is just a coincidence.

surf0766's picture

The taper will be turned off early next year. They can and will never tapper. This is just a bluff.

Number 156's picture

I agree. This so-called taper is planned for January. I believe February-March is when the action really begins.

And with this bunch, watch what they do, not what they say they're going to do.


From This article July 18th:

Bernanke also reiterated Thursday that the tapering down of the bond purchases is heavily dependent on continued growth in the economy and job market.

"Obviously, we're going to look at the data," he said.

Yeah, indeed you will.
Lets see if Janet Yellen can look a steamroller in the headlights come next year's jobless numbers.
In fact, Im sure they already have a good idea what the numbers are going to be.
(Not the phony numbers we see, but the real numbers THEY see.)

A Dollar Short's picture

You see the light - Number 156.

rosiescenario's picture

I suggested in a different post on ZH that we should really talk about Ben's "Virtual Taper" and what a normal person would consider a "True Taper". The Virtual Taper is created through the application of warm, humid air to vocal cords accompanied by the correct facial expressions. The "True Taper" will not be brought to us by the Fed but by a large Black Swan....such as the dollar losing its reserve currency status.

Renewable Life's picture

And when they taper, how will they monetize the 2 trillion yearly deficit???

Oh right, the Chinese will buy it for shit yields right???? Wrong!! Probably a major global military snafu on the horizon, I wonder if that's fucking priced into Dow 17,000 and this BS taper talk???

holdbuysell's picture

Yellen is so screwed starting January 14.

FieldingMellish's picture

ZeroHedge... forever looking for that market crash... ah well... maybe next year or the year after... I'm sure its just around the corner and then gold will spike "to da moon"... LOL!