Things That Make You Go Hmmm... Like The Year That 'Weak' Worked

Tyler Durden's picture

Throughout 2013, the distortions created by intervention in once-free markets have left many scratching their heads. The interventions have worked - almost faultlessly - but for them to do so has required the suspension of one belief system (economic reality) and the adoption of another - namely, that everything will be OK because ... well, just because. Can the fantasy persist into 2014? Sadly, Grant Williams states "Yes. It most certainly can." Will it continue into 2014? Most likely. Will this new belief system become the new economic reality? Not a chance.



2013 was another year brought to you by the letters Q and E. Quantitative easing spanned the entirety of 2013 and, as was no doubt intended, the market, the public at large, and most certainly just about every single inhabitant of Capitol Hill became so inured to the creation of $85 billion each and every month that the enormity of that policy dissolved from the collective consciousness like early morning mist.

But amidst all the commentary and the debate surrounding QE, most people lost sight of what it actually is — even when we received the much anticipated news in December that there would, in fact, be a Taper after all.

Before we get to the Taper that happened, though, it's important to revisit the one that didn't.

On May 22nd, 2013, Ben Bernanke, in a question and answer session, said the following:

We're trying to make an assessment of whether or not we have seen real and sustainable progress in the labor market outlook. If we see continued improvement and we have confidence that that is going to be sustained, then we could in — in the next few meetings — we could take a step down in our pace of purchases.


The consequences of that statement — and in particular, the last 20 words — reverberated around the financial world and wrought havoc in all sorts of weird and wonderful places. (In a presentation entitled "A Confederacy of Dunces" that I gave to a small group in Spain in late June, after Bernanke's comments, I pointed out the effects of the Taper threat and pinpointed some of those weird and wonderful places.)

The effect Ben's pronouncement on both the S&P 500 and the US 10-year yield were immediately obvious:

The S&P dropped a quick 6%, and 10-year rates (seen inverted in the chart above) spiked from below 2% to 2.6% — a big move.

But some of the other instruments affected by Bernanke's carefully floated idea weren't quite so readily apparent. Nonetheless, they demonstrated just how pernicious and far-reaching the tendrils of QE had grown.


Bernanke also committed the cardinal error of announcing that QE would END once unemployment fell to 7% — a statement he had to back away from, rather embarrassingly, as the slump in the participation rate brought 7% unemployment closer, rather faster than expected:

(WSJ, Dec 6, 2013 ): Back in June, when Fed Chairman Ben Bernanke laid out a tentative timeline for winding down the bond-buying program, he said 7% is where the Fed expected the unemployment rate to be when it ended the purchases. He said central bank officials expected that to occur around mid-2014. Friday's jobs report showed the jobless rate hit that level in November, and the Fed hasn't even started scaling back the program.


The jobless rate for May, the latest data Mr. Bernanke had when he laid out that guide post, stood at 7.6%. Then it fell much more quickly than Fed officials expected, dropping to 7.4% in July and 7.3% in August.


In September, the Fed surprised many market participants and held the quantitative easing program steady. At his press conference after that meeting, Mr. Bernanke made no mention of the 7% guidepost he'd set out a mere three months earlier. When asked about it, he downplayed the importance.


"There is not any magic number that we are shooting for," he said. "We're looking for overall improvement in the labor market."

In short, the trial balloon floated to gauge potential reaction to a $20 bn per month Taper was a disaster, and that meant that when the September FOMC meeting came around, the governors in the voting seats just couldn't bring themselves to pull the trigger.


When the minutes of the October meeting were released in November, it became clear that the FOMC, lessons duly learned, were going to try out the Taper again — perhaps in December:

(Fox Business): Federal Reserve policy makers are still struggling to find the right message for conveying to investors their plans for scaling back their easy-money policies, notes from the Fed's October meeting reveal.


The minutes, released Wednesday, also said members of the policy-setting Federal Open Markets Committee could see the central bank trimming its $85-billion-a-month bondbuying program at "one of its next few meetings."

If at first you don't succeed...

But they had clearly realized that even a $20 bn Taper was going to be taken poorly by the markets, and so the FOMC (and in particular its soon-to-be-retired chairman) needed to pull off a delicate balancing act.

On the one hand, Bernanke would want to leave the Fed with the wind-down of his expansionist policy underway so that he would have the kind of plausible deniability that history has gradually been stripping away from Alan Greenspan. ("Hey, don't blame ME. We were exiting QE when I left office!") On the other hand, though, he wouldn't want to hand Janet Yellen an impossible situation.

The solution?

Taper Lite!

"All the goodness of the Taper with no bitter aftertaste!"

... and the markets, after the scares in May and June, LOVED it!!


Errrr ... sorry to spoil the party, but a couple of things here...

Grant Williams' full letter explains why below...

Ttmygh Dec 30 2013

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Al Gorerhythm's picture

Thanks to Ben, the American economy is in such great shape that it is able to support 50 million citizens on welfare. QE has been a great success.

GetZeeGold's picture



Heard some guy said Obamacare was really gonna pickup once the New Year hit.


No.....he didn't say why.

Citium's picture

Are the downvotes from newer zerohedge members or am I missing something here?

Bernanke articles. "Fuck Bernanke!" Thumbs up. Ad Nauseum...

2014 will be the Year of "Fuck Yellen!"

Bioscale's picture

Ben Bernanke, fuck you!

CrazyCooter's picture

Well, my personal opinion is that Safe Deposit Boxes pay ZIRP on cash deposits too ... without all the confiscatory voodoo risks being built into the system right now ...

And there isn't a SAR when you need to spend your dough in cold, hard fiat either!

Or, there is gold.

Or both!



Absinthe Minded's picture

I will hold your gold for free if you would like. Complete security. You won't even know where to find it.

GetZeeGold's picture



Vote up! 5    Ben Bernanke, fuck you!  

Vote down! -3



Three votes for Ben Shalom.....not bad!

Dick Buttkiss's picture

"Ben Bernanke, fuck you!"

Well, sure, but everbody needs to lay off the ad hominems and get back to the fact that it's not about who heads the Fed but that fact that the Fed exists.

Who gives a shit that Janetke has been appointed to continue this now-century-old succession of economic quacks and monetary cranks under the thumb of monetary fascism. What does it matter? Volker could be reappointed, and what could he possibly do at this point? Really tighten? Meaning bring the curtain down sooner rather than later?

Not. A. Fucking. Chance.

So just get ready — — and otherwise go about your business, urging friends and extended family to do the same.

If they thumb their noses at you, it's their problem, not yours.

bobert's picture

Even a well diversified portfolio of bonds (global,emerging market, short, mid, and long term, investment grade, high yield etc.) got killed last May-June.

Trust me I know.

NoDebt's picture

Yeah, even if you're just talking about interest rate risk (forget default risk or inflation for a moment), it's gonna hurt BAD when the big daddy of all interest rate benchmarks (USTs) almost doubles in a month.  Every fixed income instrument's value is pegged back to it one way or the other.  Not to worry.  A couple years of coupon payments and you'll be back to break-even.

Thomas's picture

The Crash Course is pure genius.

Absinthe Minded's picture

Nice to hear from you Professor. You have impressed upon me greatly.

Woodhippie's picture

Thank you for posting that.  For those of you who passed this link up, I would highly suggest it.  Although I found I knew much of what was presented, the value in it for me was I finally have information presented very well, that I can now pass on to friends and family that think I am just a .... a ... wood hippie.


SgtShaftoe's picture

It's truly amazing that they've been able to keep this going so long.  Though one day their luck will run out.  I just hope we're all still solvent when we reach that point.

GVB's picture

Correction: their GOLD will run out. ZIRP already killed 'money'. The game is on. 

A Nanny Moose's picture

Hope? If you are solvent, the witch hunt will simply turn in your direction. You will be labelled a hoarder.

As long as you have you mind, and are willing to think, you have all the wealth that you will ever really have, or ever need.

cynicalskeptic's picture

They've been TRYING for the usual 'out' - war - for some time.  It sure seems like the ultimate goal was a major Mideast War (Iraq and Afghanistan don't count) for some time - first Iran, repeatedly, then Syria.   But somehow they haven't been able to ignite things.  

Sadly, this is all SO predictable and expected - following past history - but things ARE different now.  The US doesn't HAVE an industrial capacity that can be 'revived' and is far too dependent on China for pretty much anything.  We had to buy NATO standard ammo from Israel when we ran short and had to equip the Iraqis and Afghans with ex-Soviet weaponry because we can't meet our own military's need.   China and Russia aren't likely to tolerate the US pushing for a major war in the Mideast either and given the financial leverage China has on the US.......   

It's going to get messy whatever happens - just glad I'm near the end of my life.  I pity my kids.

CrazyCooter's picture

War has to be plausibly legitimate. If a real kinetic war is started, and is proved to be a complete sham, it is a worse-er outcome for the elite. In the past, this was much easier. Alternative media is part of the problem.

The rest of the problem is an American public with a right black eye, left black eye, that isn't putting up with the abusive BF anymore (politically speaking). The Republican party barely held it together last political cycle (and lost multiple states to folks like RP and grass root conservative tea party types). The left got a Barry-ium enema.



orangegeek's picture

50M Americans on food stamps.


Let's make it a banner year and get 100M Americans on food stamps.


Right Barry?  You wretched fuck!!!!

I am Jobe's picture

Look on the bright side, Lockheed Martin was awarded 


Lockheed Martin awarded $263.41M government contract


Lockheed Wins Quarter-Billion-Dollar Patriot Missile Contract


Yeah, More wars need Barry you cunt . 

buzzsaw99's picture

can we make the rich even richer and the poorer much poorer? YES WEAK AN!

FieldingMellish's picture

PMs getting slammed at the open. They will be crushed going into Mr. Yellen's confirmation vote on the 6th.

bonin006's picture

Kitko says gold is down $0.70. Better sell while you still can!

Absinthe Minded's picture

Where is your /sarc ? Post it or die.

bonin006's picture

I leave it to the reader to decide.

cynicalskeptic's picture

China, Russia and the whole Middle East seem to be buying the dips - is there any physical LEFT to sell off?  Seems traitorous for the West's Central Banks to be selling off thier hard assets simply to make their paper currencies 'look' better.   But then it's all about appearances - 'reality' is how things LOOK, not how they 'are'.     

CrazyCooter's picture

When I was younger, after a few "price tags", I learned that a con is really about CON-fidence. In retrospect, I learned a valuable lesson dirt cheap and it has paid handsome dividends.

The West is in an increasinly uncomfortable position. At first, they thought they were in control, keeping gold prices down. As time passes, it becomes more clear they are finally wearing their ass for a hat, but they are so deep in there is no exit. This time it turns out it isn't a phase to be manipulated, but a structural change and they bet the farm wrong; very wrong.

So, what has been going on for years, decades, really is a CON-fidence game in dollars/gold. From the perspective of the Western leaders/elites, things have slowly changed and what used to work ... isn't. I kind of think the petro-dollar is the dam holding back a world of hurt for Europe and North America. Gold will be the new money for the productive countries in the world, with young populations. Oil is the energy everyone needs. The West is losing control of both.

The West is going to continue to hold prices down, because they have no choice. This goes on until the last moment when they just can't anymore ... and that will be a geo-political event that sets the whole thing in motion. It won't be about gold, it will be about oil and global trade.

If you live in the west, when the petro-dollar link breaks, god have mercy on us all.



shovelhead's picture

"Fill er up please"

"That will be 244 Yuan."


Greenskeeper_Carl's picture

We have been producing more and more oil in this country, and in our hemisphere, meaning that more and more of our oil imports are coming from places not in the Middle East. What I worry about is that it seems like we need to buy oil from the rest of the world to keep the facade alive. Through our trade deficit, of which oil makes up much of it, we are able to export our inflation by sending these dollars abroad, which helps prevent massive price increases here. Us having to buy billions of dollars or oil from all over the place, since until recently we were the worlds biggest importer of oil, is a big part of what makes the petrodollar.

SAT 800's picture

This is an unusual time. We already have the first anouncement of the Tapering; which we know will injure the Bond Prices; the thrity year Bond has been trending down in price, or up in yield, for six months or so. The CFE contract for this is ZB; that's for the Bond Price; so shorting it right now and rolling it over from month to month; we can have a very nice Christmas Surprise next year. The nice thing is this is guaranteed. It's one of those times when the market is telling you; "hey, want some free money? here it is; all you have to do is pick it up". I'm already short from 129-14; and will roll over as necessary; and will exit on zero loss. There's no reason to accept any loss in this trade. I expect to clear 2 or 3 hundred percent on this in 2014.

Hedgetard55's picture

This dude lost me when he said he "respected" Ambrose Evans-Pritchard, a shit for brains Keynesian criminal who can't think his way out of a paper bag, the Brit's Krugman.

disabledvet's picture

we just don't know. they don't know (Bernanke & Co.), I don't know, the "best of the best of the best" don't know. we're just gonna have to see how this all plays out. we WILL know...and I think in short order. the only one over-reacting (as usual) is equities. my guess...and we're all guessing that this leads to some type of conflagration somewhere. and I ain't talk in' South Sudan either.

Goldilocks's picture

Schrödinger's cat?

Taper Li(t)e!

jonjon831983's picture

"Only a tiny minority  buys companies anymore — everybody else just buys markets"


Yes, that's why there have been growing voices hammering in the investment strategy: "buy indicies".

ebworthen's picture

Yes, so how is "Lite" beer doing in America?

Not so well.  The big U.S. breweries used advertising to fool a generation into paying the same or more for beer with less malt and hops.

After a while, many became quietly dissatisfied and began brewing their own beer, then began starting micro-breweries; and now the "Lite" beer craze is dead.

Beside the American companies being bought by international conglomerates; the micro-brews are better.

Look for the same in economic markets; QE and the Wall Street bubbles are lite beer.

Fuck Washington and Wall Street, I'm brewing my own.