And The Most Unexpected Correlation To The Fed's Balance Sheet Is...

Tyler Durden's picture

While the Fed pays lip-service to its increased transparency, the volumes of caveats and wordsmithing we exposed last week continue to surge. The problem is becoming worse for the Fed and is showing up in the oddest correlation to the Fed Balance Sheet we have found yet. As Deutsche Bank's Thorsten Slok shows, as the 'unemployment rate' approaches the 6.5% 'threshold', FOMC statements have surged in their verbiosity. Simply put, as Slok quantifies, it is becoming more and more difficult for the Fed to explain (away) what it is doing (and more and more expensive). And another thing we can look forward to: when the Fed's balance sheet hits $1 quadrillion in a few short years, at the current pace of expansion the FOMC statement will be 25,000 words, or the equivalent of a 100 page book.



$6 billion per additional word... Will the taper means fewer or more words? (but as @Not_Jim_Cramer notes, Every additional word in the FOMC statement since 2008 was worth $18 Billion in equity market value.)

Remember, while the 'better' economic data provides the cover, there remain critical reasons why the Fed has to stop its QE program (or at minimum show it can reduce it) - even as the Fed itself admits to asset bubbles and risk concerns:

1. Deficits are shrinking and the Fed has less and less room for its buying


2. Under the surface, various non-mainstream technicalities are breaking in the markets due to the size of the Fed's position (repo markets, bond specialness, and fail-to-delivers among them).


3. Sentiment is critical; if the public starts to believe (as Kyle Bass warned) that the central bank is monetizing the government's debt (which it clearly is), then the game accelerates away from them very quickly - and we suspect they fear we are close to that tipping point


4. The rest of the world is not happy. As Canada just noted, the US monetary policy will be discussed at the G-20

Simply put, they are cornered and need to Taper; no matter how bad the macro data and we are sure 'trends' and longer-term horizons will come to their rescue in defending the prime dealers' clear agreement that it is time.

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Sudden Debt's picture

Oh... America will start to listen to the arguments of others and bleed if need be for those countries...

sure... taper... yeah....


fonzannoon's picture

The market is one yellen statement about possibly halting the taper away from a 10% rally.....and wtf is Canada going to do about it? Nada.

Boris Alatovkrap's picture

More money stolen, more word to explain. Boris is point to size of Obamacare and Internal Revenue Act of USSA as primo example.

fonzannoon's picture

we all know there is no unwinding this. Never going to happen. 

666's picture

The ultimate torture: listening to the above mentioned 25,000 word FOMC statement.

caShOnlY's picture

Cwtf is Canada going to do about it?

A taper is just what Dr. GreatWhite ordered. 

Canada must have a weak CAD/USD.  Their very survival depends on semis loaded with factory goods heading south.  Remember the ZH article on "Canadian stealth money printing"?   Beggar they neighbor! (even if he is shithouse broke). 

TruthInSunshine's picture

They have to taper unless they're truly not afraid of a more insolvent-er balance sheet (now over 4 trillion USD) and currency wars all over the globe (currency & trade skirmishes are already under way).

Just have Congress bless Paul Krugman's 77 trillion USD "When Mars Attacks Super Aggressive Defense Plan" and have Yellen monetize it.

News Headline Summary

US White House is concerned about reports Iran and Russia are negotiating an oil for goods swap

- Such a swap if true would be inconsistent with P5+1 agreement with Iran and could potentially trigger US sanctions.

Print 21:50 - Geopolitical

mess nonster's picture

Newspeak has always been plagued with clunky syntax.

Archetype's picture

Permanent Open Mouth Operations

markovchainey's picture

That statement is worth $18 billion right there...thanks for the freebie MMM!

pragmatic hobo's picture

oh, i'm sure they know exactly what they are doing ...

Alea Iactaest's picture

Like problems #1-4 weren't anticipated? Those are features, not bugs.

And LMAO at Canada being concerned. What, exactly, are they going to do about it?

Fish Gone Bad's picture

Is Canada even a real country?

Martin T's picture

The sorcerer's apprentice blew it again...

q99x2's picture

If they are cornered don't let them get rid of the stash. Arrest them.

yogibear's picture

 The Fed's balance sheet is mark to fantasy.  Just like their member banks. Trillions more in off-balance sheet debt. 

Ponzi accounting.

Frank N. Beans's picture

Sure! It's called blathering and it's done by idiots. 


Ulterior's picture

this is called - curve fitting, I can fit anything like this

The Gooch's picture

Still a myth. A Lie. Fraud. All other paragraphs are a waste on too many levels.

machineh's picture

HA HA HA ... R-squared of 0.88 and highly significant T-stats for the verbosity-assets correlation.

This satirical stat-smithing hits the Fed's PhD morons right where it hurts -- in language they can understand.

The null proposition -- that they are NOT morons -- is clearly rejected. 

cowdiddly's picture

Well corellation does not mean causation BUT..... in this instance.

Just imagine if even a quarter of the true 23% unemployed find jobs. You then have a negative unemployment rate. lol

The word cloud would be just one continuous unending screeching sound.

There going to have to hire a bunch of relief speakers for the bullshit-a thon and their dual mandate thingy.

"even though our unemployment statistics show that unborn fetuses now have jobs waiting on them at birth we plan on remaining extremely accomodative to support the rate until our economic models confirm the fragile recovery is not at risk." 

Thats the problem with Lies. You have to keep telling bigger ones to cover the ones you already made. 

Colonel Klink's picture

Yep, it takes more bullshit to cover up the lies which everyone's eyes are telling.

Bunga Bunga's picture

What's the price of a laugh?

mogul rider's picture

line up here to have your heads habded to you