Did Today's Flow of Funds Report Predict the Fed's Next Confession?

Tyler Durden's picture


Submitted by F.F.Wiley of Cyniconomics blog,

In return for speaking fees reported to be “at least” $250,000, Ben Bernanke confessed a few of the Fed’s missteps while speaking to guests of the National Bank of Abu Dhabi on Tuesday:

  • “Bernanke says he underestimated impact of subprime problem.”
  • “This is going to sound very obvious but the first thing we learned is that the U.S. is not invulnerable to financial crises,” Bernanke said.
  • “Bernanke says he thought slowdown would be ‘moderate’.”

Bernanke’s gentle mea culpas had us wondering what kind of confessions we may hear next. It’s probably not surprising that we didn’t have to wait long for clues.

Consider this chart created from the household balance sheet in today’s Flow of Funds report:


feds next confession

As shown, the aggregate equity allocation for U.S. households is now at a level that’s only ever been reached in the Internet bubble years of 1998 to 2000.

This will surely lift spirits at the next FOMC meeting. (Cue the laugh track.) Higher equity allocations are exactly what the Fed tries to achieve with its so-called portfolio balance channel – their jargon for driving up the prices of a few assets by enough that you push investors into other assets (risky assets, such as equity, in the present case).

It doesn’t seem like such a good result to us, though. As we discussed here and here, there are a variety of indicators linking today’s S&P 500 valuation to at least the middle stages of the Internet bubble. Now the household balance sheet puts us right back in, well, the middle stages of the Internet bubble. What could possibly go wrong?

The Fed’s confessions haven’t gone far enough

Getting back to Bernanke’s speech on Tuesday, the conference attendees in Abu Dhabi were told that: “For the future, I’m in a mode of reflection.”

Unfortunately, such reflection – whether by Bernanke or his former colleagues still at the Fed – only extends so far. The Fed’s basic beliefs and workings are clearly sacrosanct, no matter how many times they fail. And as long as that continues to be the case, expect current and future Fed Chairs to follow Bernanke’s lead and draw up a list of boom-bust blunders shortly after leaving office. They can then offer a first-hand reading sponsored by large financial institutions at $250,000 a pop. It’s nice work if you can get it.

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Thu, 03/06/2014 - 15:48 | 4518228 ebworthen
ebworthen's picture

Who couldn't "succeed" with $17+ Trillion of other people's money?

Thu, 03/06/2014 - 16:15 | 4518363 WhiteWolf
WhiteWolf's picture

If they are judged by their charter FAILURE.   Lowest labor participation rate in 40 years while GDP barely surfaced for air.   SO FLOPPO.  $250 grand for failure.

Thu, 03/06/2014 - 16:21 | 4518394 tickhound
tickhound's picture

PONZI says it's the only way to bring the rains, or crops will fail... So we believe.

Thu, 03/06/2014 - 15:53 | 4518249 Cacete de Ouro
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I've one thing to say and that's dammit Janet, I love you!

Thu, 03/06/2014 - 15:57 | 4518264 moneybots
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Getting back to Bernanke’s speech on Tuesday,... “For the future, I’m in a mode of reflection.”


Reflection on what, the crash that Bernanke himself has set up?

Thu, 03/06/2014 - 16:00 | 4518283 Babaloo
Babaloo's picture

Looks like a 3 wave correction on the way to new highs.

Thu, 03/06/2014 - 16:05 | 4518303 Tsar Pointless
Tsar Pointless's picture

Yep. It'll get better before it gets worse.

Or worse before it gets worser. Or something like that.

Thu, 03/06/2014 - 16:02 | 4518294 Ancona
Ancona's picture

Eat a bag of dicks Ben Bernanke. As for the Fed, they need to come and hang out or a few days in my neighborhood if they really want to know how shit is doing.


Thu, 03/06/2014 - 16:08 | 4518318 Tsar Pointless
Tsar Pointless's picture

They can come to my neighborhood. Preferably between the hours of midnight and 4 a.m., when the weather is a little warmer. In a dimly-lit alley. They'll see some shit, for sure. And feel some, too.

Thu, 03/06/2014 - 16:14 | 4518353 Tsar Pointless
Tsar Pointless's picture

I get the sense that I'm being down-voted for reasons not relating to my actual comment.

Would I be correct in that assumption?

Thu, 03/06/2014 - 16:22 | 4518397 Mercuryquicksilver
Mercuryquicksilver's picture

I only downvoted the one above to fuck with you. I don't know who did the others.

Thu, 03/06/2014 - 16:22 | 4518401 Carl Popper
Carl Popper's picture

I think you enraged the tautology posse with your previous pointless comment further above, Tsar Pointless

Thu, 03/06/2014 - 16:06 | 4518306 Carl Popper
Carl Popper's picture

I am fucked either way so I gave up a long time ago

If I short the market it goes up.

If I go long then it goes down.

The best return on my money was selling a pallet of ammo during the shortage. I promptly spent it on chics. Best decision I ever made.

Thu, 03/06/2014 - 16:19 | 4518389 Carl Popper
Carl Popper's picture

Whatsa matter?
Someone doesn't like chics?

Thu, 03/06/2014 - 16:08 | 4518309 SDShack
SDShack's picture

Draw a trendline from the 97 crash, through the DotCom crash, through the Great Recession crash and see where they are trying to engineer the next crash to bottom out at. Anyone think MyRA is a coincidence?

Thu, 03/06/2014 - 16:07 | 4518316 NOTaREALmerican
NOTaREALmerican's picture


As long as the top 10% are happy the Red and Blue Team can keep creating high-quality bullshit for their dumbasses about:

1) the genitals
2) the children
3) the trrssss

Thu, 03/06/2014 - 16:16 | 4518369 SheepDog-One
SheepDog-One's picture

Comparing things today to anything in the past is for fools.

Thu, 03/06/2014 - 16:18 | 4518379 Tsar Pointless
Tsar Pointless's picture

Too true.

I'm sure I'll be down-voted for this comment, too.

Thu, 03/06/2014 - 16:23 | 4518406 Mercuryquicksilver
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Thu, 03/06/2014 - 16:22 | 4518399 Youri Carma
Youri Carma's picture
Nice work if you can get it
And you can get it if you try

Nice work if you can get it
And if you get it
Won't you tell me how?         Billie Holiday - Nice Work If You Can Get It (1937) https://www.youtube.com/watch?v=quXLYzCvB8c

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