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Fed's Bullard Urges Investors To Sell Bonds (But Not Stocks)

Tyler Durden's picture




 

Given the market's rapid surge to dismissing The Fed's stock-selling recommendations, we are stunned by the silence of "market defenders" as once again the Fed takes to the airwaves to demand investors sell their bonds...

  • BULLARD SAYS FED BALANCE SHEET POSES INFLATIONARY RISK; QE 'FORCED SOME INVESTORS INTO MORE RISK TAKING'
  • BULLARD SAYS HE WORRIES ABOUT A BOND MARKET BUBBLE BUT STOCKS RETURNED TO MORE TRADITIONAL VALUATION'

Of course we know why they are so desperate for investors to sell their bonds (aside from the economic growth reassuring meme it provides), because they are in full panic mode over the broken repo markets we discussed in detail here.

*  *  *

As if to embarass himself further, Bullard states...

  • *BULLARD PREDICTS FED WILL END QE WITHOUT DISRUPTING MARKETS

Which is NOT what happened the last 2 times... no matter how well telegraphed or discounted

*  *  *

As we explained previously,

But why do I care about some archaic money-market malarkey? Simple, Without collateral to fund repo, there is no repo; without repo, there is no leveraged positioning in financial markets; without leverage and the constant hypothecation there is nothing to maintain the stock market's exuberance (as we are already seeing in JPY and bonds).

Crucially, it should be inherently obvious to everyone that the moves we see in the stock market is not about mom and pop choosing to invest in the stock market (or not) as the 'cash on the slidelines' fallacy is "completely idiotic' but about the marginal leveraged machine (or human) quickly jumping oin momentum.

The spike in "fails to deliver" highlights a major growing problem in the repo markets that provide that leverage... and thus the glue that holds stock markets together.

Wondering why JPY and bond yields have diverged so notably from stocks in recent days... repo effects (it's just a matter of time before it hits stocks)...

 

So that explains why the Fed is so desperate to talk you into selling your bonds - most notably the short-end by demanding you listen to what Yellen said about raising rates.. as that reduces the shortfall of collateral that repo needs and restocks the banks with repo-able funds.

*  *  *

Is that why a noted dove like Jim Bullard was so visibly hawkish last time?

The irony of course of the Fed explaining how rates will rise faster is that it spooks stock investors who have grown used to exuberant liquidity supply and roitates them to bonds... which merely exacerbates the problem the Fed has

 

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Thu, 07/17/2014 - 14:43 | 4969253 basho
basho's picture

bullard = bullsh*t

Thu, 07/17/2014 - 14:45 | 4969260 El Vaquero
El Vaquero's picture

= bullish*

 

 

 

 

 

 

*Until it's not.

Thu, 07/17/2014 - 14:48 | 4969285 max2205
max2205's picture

i need a bonus chart...are we green yet?

Thu, 07/17/2014 - 14:56 | 4969337 Thought Processor
Thought Processor's picture

 

 

"Turn those machines back on..............."

Fri, 07/18/2014 - 05:36 | 4972366 saveandsound
saveandsound's picture

The FED has enough collateral (treasury bonds) in their books. Why don't they just sell it if there is demand?

Thu, 07/17/2014 - 15:00 | 4969362 Save_America1st
Save_America1st's picture

yeah...that last little bit at the end is the "gotchya" for them.  Trapped like the rats that they are.

The irony of course of the Fed explaining how rates will rise faster is that it spooks stock investors who have grown used to exuberant liquidity supply and roitates them to bonds... which merely exacerbates the problem the Fed has

Thu, 07/17/2014 - 14:48 | 4969287 H. Perowne
H. Perowne's picture

Never go full BullTard

Thu, 07/17/2014 - 16:29 | 4969962 yogibear
yogibear's picture

Bullard = Bulltard

Thu, 07/17/2014 - 14:44 | 4969256 buzzsaw99
buzzsaw99's picture

bond market bubble? you ain't seen nothin' yet. i will sell my bonds when the 10y is sub 1% bitchez.

Thu, 07/17/2014 - 14:46 | 4969277 knukles
knukles's picture

I'm with you, Buzz.
Just wait till the SReallyHTF and everybody starts issuing additional collateral calls on everybody else.

Circle jerk deluxe!

Thu, 07/17/2014 - 14:57 | 4969348 Al Huxley
Al Huxley's picture

You do realize that going against FED dictates, express or implied, will soon be classified as a treasonous activity?  Even now, while technically not illegal, it certainly is unpatriotic - somebody's gonna see-something-say-something your ass if you don't watch out.

Thu, 07/17/2014 - 15:07 | 4969412 Pheonyte
Pheonyte's picture

You're either with the Fed, or you are with the terrissts.

Thu, 07/17/2014 - 14:45 | 4969259 Pheonyte
Pheonyte's picture

Collateral shortage, bitchez!

Thu, 07/17/2014 - 17:13 | 4970184 Bastiat
Bastiat's picture

What exactly does that mean?  How can there be a collateral shortage?  Mulitple-hypothecated collateral?  Or a balance sheet full of such crap assets that they can't serve as collateral?  . . . . or what??  How does that work?

Thu, 07/17/2014 - 21:06 | 4971338 hobopants
hobopants's picture

US debt = highQ collateral. Less defict spending, along with the fed buying up a ton of it with QE means it's scarce. This recent ZH piece explains it pretty well.

 

http://www.zerohedge.com/news/2014-07-12/jpmorgan-blows-feds-we-can-control-crash-reverse-repo-plan

 

Fri, 07/18/2014 - 05:40 | 4972369 saveandsound
saveandsound's picture

This isn't consistent.

Zerohedge says there is a collatral shortage, that would be a good opportunity to sell for the FED.

Besides, predicting hyperinflation doesn't match with a prediction of a stock market crash.

Thu, 07/17/2014 - 14:45 | 4969262 SheepRevolution
SheepRevolution's picture

"BULLARD SAYS FED BALANCE SHEET POSES INFLATIONARY RISK; QE 'FORCED SOME INVESTORS INTO MORE RISK TAKING".

1. They are not investors, they are banksters.

2. The banksters don't take any risks at all, because if they loose, we the people will be forced to cover up their losses

Thu, 07/17/2014 - 14:46 | 4969266 Itchy and Scratchy
Itchy and Scratchy's picture

I think he urging investors to sell bonds back to themselves? Since they will be the ones who will be buying them!

Thu, 07/17/2014 - 15:16 | 4969477 JRobby
JRobby's picture

Who could seriously junk such sheer genius?

Thu, 07/17/2014 - 14:47 | 4969275 Dr. Engali
Dr. Engali's picture

Life would be so much easier if they would just let markets do what markets do, and that is correct the imbalances. These guys need an algorithm jus to keep track of the lies and bullshit.

Thu, 07/17/2014 - 14:50 | 4969293 Atomizer
Atomizer's picture

Next up, Dark pools and HFT Town Hall meetings. The Mantra, we are people too.

Thu, 07/17/2014 - 14:51 | 4969297 NoDebt
NoDebt's picture

They have one.  It's called their balance sheet.  The one you aren't allowed to audit.

Thu, 07/17/2014 - 14:47 | 4969282 Atomizer
Atomizer's picture

Someone pass me Hillary's easy button. 

/hahahah

Thu, 07/17/2014 - 14:51 | 4969300 NoWayJose
NoWayJose's picture

Overheard at the last Fed meeting, but left out of the minutes, as Yellen spoke to James Bullard about repos --

"Damn it Jim, I'm a doctor, not a miracle worker!  Well, a PhD at least..."

Thu, 07/17/2014 - 14:51 | 4969304 Kaiser Sousa
Kaiser Sousa's picture

trapped.

Thu, 07/17/2014 - 14:54 | 4969316 SheepDog-One
SheepDog-One's picture

Bawnds are just crazy to own, but stawks are 'traditionally valued' at around 300 P/e? I'm not buying any of it, Bulltard can piss off.

Thu, 07/17/2014 - 14:55 | 4969324 ekm1
ekm1's picture

Zerohedge keeps going with this nonsense, as if repo market is operating under the rule of law.

The law is dead. The market is suspended. Only central banks exists now.

 

Which part of 'world central banks buying all bonds and stocks' is not clear enough?

 

Repo market is irrelevant at this point.

 

World financial system is under central command which gives a giant elephant excrement about repo market.

Thu, 07/17/2014 - 14:57 | 4969345 ekm1
ekm1's picture

Dow can go 20k next week, if central power wishes so. Nobody gives a flying excrement about repo

Thu, 07/17/2014 - 15:04 | 4969393 LawsofPhysics
LawsofPhysics's picture

Yes, watch the supply lines closely.  When we start hearing about "promises to deliver" then some real shooting might start.

Thu, 07/17/2014 - 15:06 | 4969405 ekm1
ekm1's picture

.

Thu, 07/17/2014 - 15:06 | 4969407 ekm1
ekm1's picture

100% agree.

It's getting there, like it was about to get there in 2008 which forced George Bush to order oil dump and order the death of Lehman.

Thu, 07/17/2014 - 14:58 | 4969349 Thought Processor
Thought Processor's picture

 

 

Agreed.   All markets are rigged at the moment.   If you control the key points you control everything.

 

All else is moot.

Thu, 07/17/2014 - 14:59 | 4969358 ekm1
ekm1's picture

thx

Thu, 07/17/2014 - 15:13 | 4969457 Eyeroller
Eyeroller's picture

So WILL the Fed have a "controlled pullback" as reported last week?

Thu, 07/17/2014 - 15:19 | 4969491 ekm1
ekm1's picture

No such thing.

 

A pullback would mean extinguishing dollars, hence interest rate swap defaults, thus triggering $1.4 trillion derivative gambling network

Thu, 07/17/2014 - 15:21 | 4969498 JRobby
JRobby's picture

Contrasting how money markets currently operate vs. how it used to be will never get old for me. I know I will not be getting a refund on my tuition (in early 80's $$) or my student loan.

Thu, 07/17/2014 - 14:55 | 4969325 Al Huxley
Al Huxley's picture

Could the government not just initiate the construction of the death star, and fund it with some new issuance?  Surely that would provide the necessary collateral required for the repo market.

Thu, 07/17/2014 - 14:55 | 4969326 thismarketisrigged
thismarketisrigged's picture

here is all u need to know about how rigged equities r.

 

the fucking vix is up 20 fucking percent today and the dow, nasdaq and s&p r not even down 1 percent.

WTF

Thu, 07/17/2014 - 14:56 | 4969330 devo
devo's picture

That about sums it up, Tyler.

Bulltard must not know that the first rule of the bond market is you don't talk about the bond market.

Thu, 07/17/2014 - 14:58 | 4969352 RMolineaux
RMolineaux's picture

Is that why it is impossible to obtain a viable quote from anyone other than a participating broker?

Thu, 07/17/2014 - 14:56 | 4969332 RMolineaux
RMolineaux's picture

Maybe Tyler can explain why the re-po market is so important for the Fed when it has been participating in this market for less than a year.   Since the big money market banks remain, effectively, too big to fail, why not set up a list of institutions for which only reduced, or none at all, collateral is required.

Thu, 07/17/2014 - 15:00 | 4969365 Atomizer
Atomizer's picture

I have a vision for you. You'll need to create a new ZH account. 

Thu, 07/17/2014 - 14:56 | 4969335 Atomizer
Atomizer's picture

Reverse Repo and Beyond until Dollar Collapse. 

Thu, 07/17/2014 - 18:21 | 4970470 max2205
max2205's picture

1 for 10 reverse split on the dollar should fix everything

Thu, 07/17/2014 - 14:57 | 4969340 fiboman
Thu, 07/17/2014 - 15:50 | 4969679 Boston
Boston's picture

Yes. I'm not sure Bullard is talking about US government bonds. Could he be referring to US IG and HY?

Thu, 07/17/2014 - 15:53 | 4969680 Boston
Boston's picture

.

Thu, 07/17/2014 - 15:51 | 4969342 LawsofPhysics
LawsofPhysics's picture

If people were "forced into taking risk that they shouldn't have been"?  Shouldn't they be selling that risk?

Moron.

Go ahead motherfucker, stop jawboning and raise rates!!!!!!!!

Thu, 07/17/2014 - 14:59 | 4969354 SheepDog-One
SheepDog-One's picture

Bull tard predicts the Fed can cut off the market free crack binge without any problem.....yea sure.

Thu, 07/17/2014 - 15:06 | 4969404 Bastiat
Bastiat's picture

Sell your own goddamn bonds.

Thu, 07/17/2014 - 15:11 | 4969447 OC Sure
OC Sure's picture

When did bankers become dictators?

Thu, 07/17/2014 - 15:24 | 4969507 JRobby
JRobby's picture

1913

Thu, 07/17/2014 - 15:13 | 4969456 Seasmoke
Seasmoke's picture

well atleast he didnt say Sell all your GOLD ....

Thu, 07/17/2014 - 15:15 | 4969465 orangegeek
orangegeek's picture

LMAO!!!!!!

 

So bullard, is the Fed feeling a little cornered??

 

So printing cash short squeeze the fuck out of the market is fine, right??

 

Paybacks are a bitch.  Suck it bullard!!!

 

Hang onto your bonds folks - they'll be worth a ton very soon.

Thu, 07/17/2014 - 15:20 | 4969480 pakled
pakled's picture

So all of you understand the mechanics of the process being described? I can see what image the jigsaw puzzle conveys, thanx to the brilliance of ZH, but I can't quite make out the individual pieces... how exactly they all line up, or I should say, fit together. Love the clothing jobber analogy though on the flashback link. That helps.

 

Better to see the big picture if anything, but the particles I will continue to pursue...

Thu, 07/17/2014 - 15:17 | 4969483 Atomizer
Atomizer's picture

Exchange Bawds for Stawks. 

The government advises proper allocation of your funds. 

Thu, 07/17/2014 - 15:24 | 4969508 Cthonic
Cthonic's picture

covering some of the xiv short been trading around for almost a month.  bird in hand and all that jive...

Thu, 07/17/2014 - 15:35 | 4969587 huggy_in_london
huggy_in_london's picture

Sheer hubris from these fed people... as if they know what the worth of bonds or stocks should be.

You summed it up ... they just embarass themselves.  Thereis big trouble ahead for these markets.

Thu, 07/17/2014 - 15:48 | 4969669 sof_hannibal
sof_hannibal's picture

now's a good time to get into face book

Thu, 07/17/2014 - 16:24 | 4969925 rqb1
rqb1's picture

There's never been a better time.

Thu, 07/17/2014 - 15:59 | 4969728 MFL8240
MFL8240's picture

We are in serious trouble and the clown in at Marthas Vinyard on yet another taxpayer vacation!

Thu, 07/17/2014 - 15:59 | 4969734 MFL8240
MFL8240's picture

We are in serious trouble and the clown in at Marthas Vinyard on yet another taxpayer vacation!

Thu, 07/17/2014 - 16:05 | 4969779 Quinvarius
Quinvarius's picture

The markets are QE.  You can't end one without ending the other.  Markets move on easy money and that is it.  When they started cutting QE, that was all they had.  They already bought up all the collateral to borrow against at 0 percent.  The US markets are going to do exactly what the Japanese markets did after every monetary injection--Drop as if it had never happened.

Thu, 07/17/2014 - 16:33 | 4969971 realWhiteNight123129
realWhiteNight123129's picture

Bullard = Bulltard, fixed the missing t.

 

We will sell bonds again Bulltard, but on our own terms.

 

Thu, 07/17/2014 - 18:19 | 4970463 Loucleve
Loucleve's picture

Thirty-year treasury bonds appear to be undervalued based on the tepid growth rate of the U.S. economy. The past four quarters have recorded a nominal “top-line” GDP expansion of only 2.9%, while the bond yield remains close to 3.4%.

To put the 2.9% change in nominal GDP over the past four quarters in perspective, it is below the entry point of any post-war recession. Even adjusting for inflation the average four-quarter growth rate in real GDP for this recovery is 1.8%, well below the 4.2% average in all of the previous post-war expansions.

With U.S. rates higher than those of major foreign markets, investors are provided with an additional reason to look favorably on increased investments in the long end of the U.S. treasury market. Additionally, with nominal growth slowing in response to low saving and higher debt we expect that over the next several years U.S. thirty-year bond yields could decline into the range of 1.7% to 2.3%, which is where the thirty-year yields in the Japanese and German economies, respectively, currently stand

Thu, 07/17/2014 - 16:35 | 4969983 moneybots
moneybots's picture

"Fed's Bullard Urges Investors To Sell Bonds"

 

Reminds me of when Greenspan urged home buyers to get adjustable rate mortgages.

Thu, 07/17/2014 - 16:38 | 4969991 realWhiteNight123129
realWhiteNight123129's picture

Sorry some dupes and mixed up messages....

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