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"What Changed?" - The Simple Reason For Yesterday's Sharp Selloff

Tyler Durden's picture




 

Following yesterday's sharp market selloff, the biggest drop in two months, pundits have been banging their heads to explain what changed: after all we have had bad news for 6 years in a row - it is not as if the latest bout of deteriorating economic reality came as a surprise to anyone but the most lobotomized permabulls. So to say that algos and/or the few remaining human traders finally reacted to the newsflow is clearly wrong. The question is why they reacted the way they did. For the explanation we go to Citi's Steven Englander who has the most comprehensive, and accurate summary of "what changed."

From Citi's "Don't bring a knife to a gunfight --asset markets and central bank policy effectiveness"

We are getting panic selling across markets today and panic buying of bonds on fears of slowing global growth. However, the new information on global slowing may be less important than the realization that policymakers have few tools to deal with any kind of slowing, let alone a major shock. G3 10yr government rates now average 1.27, within 10bps of the all-time pre-tapering low of 2013 (Figure 1).  So if the last 100bps of rate reduction did not stimulate global growth, it does not seem likely that another 20-30bps or so in the presence of negative demand shocks will do the trick.


 

Fed speakers such as Dudley and Kocherlakota may be thinking that they are spurring confidence by telling investors that the Fed is in no hurry to hike. But they are emphasizing the tentativeness of the recovery, the potential sensitivity to rate hikes, the possibility of negative shocks from abroad, and the view that full normalization remains years away. The market takeaway from their comments is that the US economy is not strong enough to stand on its own, leaving little hope for the rest of the world, which is already slowing. Moreover since investors and business do not have particular confidence that the policy response will be effective, any upgrading of the risk of negative shocks raises the probability that we may be put into a zone to which there is no adequate response.

This also explains why bad news has become bad news. Bad news for the economy is good news for asset markets if investors feel that the policy response will  be effective in stimulating both activity and asset markets. When investors see no effective policy response on the growth side, at most another dose of QE, which is both politically unpopular and widely viewed as marginally effective, they buy bonds as the all-weather safe haven, basically on the view that there will be more liquidity but not much else.

The more effective response to a negative shock would be fiscal policy financed by central bank policy expansion. I was surprised at a client dinner at how many clients thought that ‘true’ helicopter money – tax cuts financed by the Fed balance sheet if you are a Republican, bridges, tunnels and airports if you are a Democrat --   has become a prevalent view. This view has been around for a while but has been controversial and does not seem at all accepted within the Fed.

And in case the above was TL/DR, here is DB's Jim Reid with his own Cliff Noted version.

The news flow isn't any worse in aggregate than it has been in recent months and indeed over the last couple of years but perhaps investors are realising that we're very soon to be in a world without US QE and therefore bad news can actually be bad news for markets rather than in more recent times when bad news was often good news due to the extended liquidity it might bring.

In short: when Fed gods become fallen idols, run far away... and sell Mortimer, sell.

 

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Wed, 10/08/2014 - 07:55 | 5302386 Disenchanted
Disenchanted's picture

Oh they've had lots of tools...

Hank, Benny, Timmah, Janet. The list of tools is long.

Wed, 10/08/2014 - 08:07 | 5302405 GetZeeGold
GetZeeGold's picture

 

 

No matter how bad you screw up.....you can always get a job with the CFR.

Wed, 10/08/2014 - 08:16 | 5302422 power steering
power steering's picture

Yawn. Time for an Ebola update.  Need a new NFL wife beating count too. Hey! They find that missing plane yet?

Wed, 10/08/2014 - 08:19 | 5302438 GetZeeGold
GetZeeGold's picture

 

 

Over Diego Garcia?

Wed, 10/08/2014 - 08:21 | 5302447 NoDebt
NoDebt's picture

Over Macho Grande?

No, I'll never get over Macho Grande.

Wed, 10/08/2014 - 08:25 | 5302454 Headbanger
Headbanger's picture

Shirley you jest...

Wed, 10/08/2014 - 08:41 | 5302495 Badabing
Wed, 10/08/2014 - 08:51 | 5302520 Headbanger
Headbanger's picture

What I've said here that I don't see any road kill anymore!

But what is the correct moonshine with squirrel?

And does the glass or jug style matter?

 

Wed, 10/08/2014 - 09:15 | 5302607 bbq on whitehou...
bbq on whitehouse lawn's picture

Moonshine should be in lemonade or chiled icetea glass. same rules apply. Squirrel follow the same rules with a dark meat chicken. So be creative.

Wed, 10/08/2014 - 09:35 | 5302711 Badabing
Wed, 10/08/2014 - 09:45 | 5302761 eclectic syncretist
eclectic syncretist's picture

I prefer to soak mine in JD oak chips resulting in an "aged" whiskey, and the cats can deal with the squirrels. 

Wed, 10/08/2014 - 10:28 | 5302954 Headbanger
Headbanger's picture

Badabing that's what I'm talkin about.

See, I'm not so un-cooth after all.

Wed, 10/08/2014 - 09:46 | 5302771 GetZeeGold
GetZeeGold's picture

 

 

I've got a really good Saul Alinsky squirrel recipe.....wanna borrow it?

Wed, 10/08/2014 - 14:59 | 5302820 stant
stant's picture

Apple pie moonshine. Is all the rage these days. Knock you on your ass. Helps us hillbillys get over the 50 ft of stone wall we got to put back the texting heroin idiots keep crashing into

Wed, 10/08/2014 - 10:08 | 5302867 Metalredneck
Wed, 10/08/2014 - 08:25 | 5302453 RaceToTheBottom
RaceToTheBottom's picture

When the plane lands, you will see that it was a non-event.

Wed, 10/08/2014 - 10:05 | 5302858 Hulk
Hulk's picture

Unless it was a red eye flight...

Wed, 10/08/2014 - 08:44 | 5302504 B2u
B2u's picture

What about nuclear leaks in Japan?  Haven't heard much there lately.  Any nuclear waste washing up on the beach in Malibu?

Wed, 10/08/2014 - 08:44 | 5302505 Againstthelie
Againstthelie's picture

Did you read the article at all? And if your read it: reading means understanding.

The tool is even mentioned. And it works for 100% in fighting deflation in a fiat money system. The reason why they haven't used it yet, it means to take the last step before the cliff, when inflation could get out of hands, because hyperinflation is a psychological, not a monetary phenomenon.

Wed, 10/08/2014 - 09:18 | 5302629 bbq on whitehou...
bbq on whitehouse lawn's picture

When all the .gov start yelling and screaming for more funding or the world will end, hyperinflation is coming. Ebola will be seen as a money fairy, as if money could save them.

Wed, 10/08/2014 - 09:23 | 5302656 LordEffingtonTh...
LordEffingtonThreeSticks's picture

Helicopter money is not the answer ........it is the problem.

So you think deadening the nerves in your foot on a forced march get you to march further?  Well maybe but you are likely to lose the foot ala diabetics.

Wed, 10/08/2014 - 09:35 | 5302715 DeadFred
DeadFred's picture

The articla never answered the real question, what happened yesterday that gave everyone the idea that bad news is bad news. Someone send out a secret memo that didn't get to ZH? Something changed that affected the BTFD mindset and it wasn't some amorphous group realization that we have run out of bullets.

Wed, 10/08/2014 - 09:46 | 5302763 LULZBank
LULZBank's picture

What part of "simple reason" did you miss?

Wed, 10/08/2014 - 10:01 | 5302837 JRobby
JRobby's picture

The "articla" was not addressing your "real" questions?

Do you want to know how an economy "grows and inflates it way" out of a debt level that is so irresponsible and massive that a reset is the only answer without resetting?

Wed, 10/08/2014 - 12:45 | 5303901 DeadFred
DeadFred's picture

I don't believe the market moves on news as much as the news is massaged and interpreted to fit the movements being taken (already taken) by those with insider knowledge. What I would like to see is an articla that gives an indication of those inside moves. Banks moving from short to long on VIX exposure, ridding themselves of the puts they've sold and selling calls instead, that sort of thing. When this ponzi scheme fails it won't be because people realize the Fed has no tools left it will be because the ones on high, who already know the Fed has no bullets left, decide it's time to end the pump and harvest the dump. The market dies when BTFD dies so I want to know if someone sent out the memo to the 'real' players that it's time to go short. You'll know the memo was sent out when the dip doesn't form a V at the bottom. The market bounced off support on the 2nd and should have soared (in the old new-normal) but now we are hitting new lows, did the memo go out???

Wed, 10/08/2014 - 10:22 | 5302914 disgruntled hou...
disgruntled housewife's picture

Thanks- I went back and caught the answer. So when we see tax cuts and infrastructure being built we will be in trouble. The second part of your comment regarding hyperinflation was not as clear. Is it that economists do not have a definition for it or that inflation is inflation and the degree is represented numerically? I would like to know if you have time- thanks.

Wed, 10/08/2014 - 09:58 | 5302823 JRobby
JRobby's picture

6 year old news flash never gets old.

There is no way out of this.

Wed, 10/08/2014 - 13:06 | 5304037 KnuckleDragger-X
KnuckleDragger-X's picture

Your hearing the support timbers starting to crack in the coal mine and the smart people are starting to walk away and even the muppets are getting worried.

Wed, 10/08/2014 - 07:58 | 5302389 Bro of the Sorr...
Bro of the Sorrowful Figure's picture

i like rickard's take. when it happens, it'll happen overnight. go to bed and everything is fine wake up and SHTF. the entire financial system is based on confidence, backed with promises.

Wed, 10/08/2014 - 08:13 | 5302406 LULZBank
LULZBank's picture

It will not happen overnight. It will collapse gradually, with bits and segments shutting down step by step and then after a point, all of a sudden.

It started over a decade ago.

The collapsing economies you have seen on TV documentaries are usually instigated by TPTB to cause sudden chaos and come in as savioirs. The real collapse will not be like that.

Central planners can make the rules but its the people who have to follow.

Wed, 10/08/2014 - 08:17 | 5302430 Vooter
Vooter's picture

"...and then after a point, all of a sudden."

Right...as he said, overnight...

Wed, 10/08/2014 - 08:25 | 5302452 LULZBank
LULZBank's picture

But what he didn't say was, when it get to that "all of a sudden" point, it will be becuase everyone would have packed their bags and left and it wouldn't matter.

Coontrary to what you think it means i.e. you will go to bed with a full stomach after watching dancing with the stars and the next morning wake up in dystopia with no running water.

How long did it take for Detroit to collapse? Overnight or a couple of decades?

Wed, 10/08/2014 - 08:29 | 5302467 Bro of the Sorr...
Bro of the Sorrowful Figure's picture

in the past the large market correction that ushered in the subsequent depression has always happened overnight. for the readers of this blog, the slow collapse beforehand might be obvious, however to your average american it is not. we have been talking about the government bond, second real estate, student loan, central bank etc bubble since 2008. ask any idiot american and they will tell you we are in a recovery. the next major correction and reaction from the powers that be, although painfully clear to us, are invisible to everyone else.

Wed, 10/08/2014 - 08:32 | 5302475 Bro of the Sorr...
Bro of the Sorrowful Figure's picture

went to find some evidence, took me 30 seconds:

 

http://www.rasmussenreports.com/public_content/business/general_business...

Wed, 10/08/2014 - 09:35 | 5302485 LULZBank
LULZBank's picture

That is true, for majority not being able to see what is happening. For them, yes it will be an overnight thing. I was referring to the actual collapse and how it will happen, in my view.

To illustrate, ask any guy who has a mortgage, a car lease and a job if he would want this crony phony economy to collapse. He would be grinding his butt off and can clearaly feel the pinch but he would still say no and would want to support this economy.

People would be supporting this facade even long after the TPTB would have actually pulled the plug. Some might even write books about the "glorious days."

Some lucky ones might not be affected at all, and if dumb as brics, will not even see it happening.

Wed, 10/08/2014 - 08:29 | 5302469 fonzannoon
fonzannoon's picture

So Tyler, you are on record with this article as believing that QE is in fact ending. No backsies.

Wed, 10/08/2014 - 08:33 | 5302477 LULZBank
LULZBank's picture

Tyler will give you a smart ass response and in the meanwhile your logon would not be working (stealth ban), and when people would have moved on from this thread, than your logon would have been restored like nothing happened.

But this is fight club, remember that.

 

Wed, 10/08/2014 - 08:40 | 5302493 fonzannoon
fonzannoon's picture

He lets me talk I will give him that. It's more that 3 weeks after QE is over and we are hitting new highs there will be articles like "Still think the fed actually stopped QE" with the usual "as presented here and here" stuff. 

Wed, 10/08/2014 - 08:42 | 5302500 Headbanger
Headbanger's picture

You're still a fucking idiot!

QE is over, done, ended, deceased, passed away, gone you mook!

Wed, 10/08/2014 - 08:45 | 5302503 fonzannoon
fonzannoon's picture

I see my am shit has escaped the toilet

Wed, 10/08/2014 - 09:57 | 5302826 pods
pods's picture

If you don't have a toilet brush, you cannot eat Taco Bell. I don't know how I can be any clearer.

Just like the Pink Floyd thing about pudding and meat.

pods

Wed, 10/08/2014 - 08:53 | 5302523 LULZBank
LULZBank's picture

Lucky you.

Thank you for the explaination, the other day, about the bonds and national debt.

My subsequent question would be, if the FED owns all the bonds then the US Treasury has to pay interest to the FED now?

Also, in your view, what would be the end game, if any?

Wed, 10/08/2014 - 09:00 | 5302548 fonzannoon
fonzannoon's picture

Someone explained to me once the possibility of them splitting the debt markets up and basically pegging UST's to the floor but letting other interest rate markets do their thing. That is effectively what we are seeing right now with high yield blowing out while UST's fall in yield.

This way .gov can perpetually borrow at zero. I mean the bottom line is that no one is calling in our debt. I know this sounds crazy, but consider the possibility that debt does not matter. I know no one on here can accept that, but that's how it's playing out, This should have ended a long long time ago if it mattered.

As for the end game....I no longer am 100% sure there has to be an "end game". I think many on here need there to be one because they went in hard expecting it and also need to justify sitting on here 12 hours a day while life passes them by. Life has a way of laughing at us and ZH is smart enough to hit that register along the way. Whether it's pumping Schiff and hyperinflation or the Automatic earth and deflation. 

This is more about just keeping your own head above water at this point. That is all you can do.

Wed, 10/08/2014 - 09:13 | 5302594 Spastica Rex
Spastica Rex's picture

The predictive value of Zero Hedge is zero.

I think "collapse" looks like Wednesday morning.

Wed, 10/08/2014 - 09:14 | 5302599 Ghordius
Ghordius's picture

good points, but your bottom line... it's not that no one is calling in UST debt. it's more that every frigging time Uncle Sam issues boatfuls of them, "someone" picks up that tab. for decades it was us europeans, together with the Japanese. then China shouldered 2 trillions in the height of a crisis that Uncle Sam did not want to acknowledge

now it looks like we europeans have to shoulder that weight again, after the FED stopped doing it. meanwhile, your point about keeping the head above water is excellent

many here expect an endgame because they are premillenialists, imho, or grew up in this kind of belief/culture. believing that "things have to go down the drain"

Wed, 10/08/2014 - 09:32 | 5302700 fonzannoon
fonzannoon's picture

The bottom line is that everytime Uncle Sam issues boatfuls of them, there is always someone out there to buy them.

Wed, 10/08/2014 - 09:51 | 5302796 Ghordius
Ghordius's picture

which is what any baby on a stool loves to play at. throw the spoon to the floor, and someone picks it up! yet it isn't a perpetuum mobile, it's goodwill. someone loves this baby

Wed, 10/08/2014 - 09:54 | 5302808 fonzannoon
fonzannoon's picture

I completely disagree. If you think this is all run on goodwill I don't even know what to say to that. If that were the case every country would be throwing their spoon on the floor. I think you need to watch Goodfellas again for a refresher on how all this works.

Wed, 10/08/2014 - 10:04 | 5302846 Ghordius
Ghordius's picture

goodwill is the accounting term. you don't put Don Corleone under "debtors", at least not "debtors to be asked when they are going to pay"

Wed, 10/08/2014 - 10:05 | 5302859 fonzannoon
fonzannoon's picture

alright fair enough, lets leave it at that. We are pretty much on the same page.

Wed, 10/08/2014 - 10:05 | 5302848 LULZBank
LULZBank's picture

But there is another phenomenon which not not widely reported. Saudi's (probably also others) are buying up leases to Arable lands in vast quantities in exchange for a yearly supply of oil in some countries.

I dont think there will be any significant capital gain or returns as such when compared to, say, prime real estate in US or EU.

Whereas, they can buy as much produce as they want with their USD holdings.

There surely is some sort of panic and uncertainity under the surface.

Wed, 10/08/2014 - 09:20 | 5302639 LULZBank
LULZBank's picture

 

... This way .gov can perpetually borrow at zero...

So effectively something like a debt jubilee and/or the takeoever of the (independent) FED by the US govt.

Which, in a way, bring us to the scenario by ekm1 i.e. bankers losing out to the Pentagon.

Once the debt was rolled over a few times then it should be obvious that it will never be called in or paid off, it never was the intention.

Your scenario is logical but you didn't have to be so cruel in the end.

Dont take away our lollipops :p

Wed, 10/08/2014 - 09:25 | 5302662 fonzannoon
fonzannoon's picture

Listen it's nice of Tyler to allow me to post but it is even nicer for Our lady of the worthless miracle's "insane asylum" wing to allow ekm to post. I think I saw him last night pitching that Biden is a secret genius who made some statement on purpose because he was ordered to do it...and then ordered to apologize for it...because somehow that makes sense....and some other guy Leon Panera Bread made some comments that will have huge implications on the Steelers ability to run the ball.

Wed, 10/08/2014 - 09:29 | 5302686 Dr. Engali
Dr. Engali's picture

I think EKM has smoked a little too much peyote. 

Wed, 10/08/2014 - 09:23 | 5302654 sleigher
sleigher's picture

need or want?

Wed, 10/08/2014 - 09:26 | 5302664 Dr. Engali
Dr. Engali's picture

When all the western central banks are working together and China is dependent upon the U.S and Europe for so many of their exports, there is nobody to call our debt. If Japan has shown us anything, it's that the  central planners can keep this up for a long time and .gov can basically borrow for nothing.  

Wed, 10/08/2014 - 09:50 | 5302793 LULZBank
LULZBank's picture

Like I said the other day, USD will be there as long as there is oil, with a little support from the MIC.

Debt will be called when the US loses political power and it might be in the form of pound of flesh.

Wed, 10/08/2014 - 09:04 | 5302561 Ghordius
Ghordius's picture

if you find fonz's explanation so good, then please provide a link

re the other: second fonz, Tyler let's me criticize him on european monetary matters since 3 years and 19 weeks. of course he gives you a smart ass response, he (they) is a smart ass. with emphasis on smart

thanks, carry on

Wed, 10/08/2014 - 09:09 | 5302576 fonzannoon
fonzannoon's picture

Yeah but you are a lot more courteous and intelligent with your criticisms. I am more like an angry monkey throwing feces.

Wed, 10/08/2014 - 10:12 | 5302647 Ghordius
Ghordius's picture

...

Wed, 10/08/2014 - 09:14 | 5302606 LULZBank
LULZBank's picture

It was brief and good, (also thank you kito). You can find it on the first page of the below thread.

http://www.zerohedge.com/news/2014-10-06/why-stocks-just-wont-drop-companies-spend-almost-all-profits-buybacks

 

Wed, 10/08/2014 - 09:33 | 5302697 Ghordius
Ghordius's picture

brief and good, but does not involve... foreigners. now, remember Deutsche Bank talking about "Euroglut"? Look at their "figure 2" graph. if someone spends on credit, someone else has to save, or the first someone has to monetize

Wed, 10/08/2014 - 09:33 | 5302708 fonzannoon
fonzannoon's picture

Foreigners are desperate to own UST's to make sure they have a steady link to the dollar and a stable currency. 

Wed, 10/08/2014 - 09:41 | 5302748 Ghordius
Ghordius's picture

I'd say foreigners are more worried to be able to buy oil. Yet there is another little thing. Look for example when the Swiss "floored" the CHF to the EUR. After buying boatloads of EUR against CHF, they diversified. And then, of course, they bought... USTs (against EUR). Every large portfolio outside the US faces this "dilemma", and sustains so "King Dollar"

Wed, 10/08/2014 - 09:54 | 5302809 eclectic syncretist
eclectic syncretist's picture

Such has been the meme for decades now, but the dollar (indeed fiat) is under pressure over the long term.  The fed must take measures to ensure it is perceived as legitimate compared to gold and silver, which do not stealth steal via inflation.

Wed, 10/08/2014 - 09:43 | 5302759 LULZBank
LULZBank's picture

Think of USD as "energy coupons,"  having dollards ensures you will be able to buy energy and and continue your economic activity, also guarantees other commodities.

Having USDs also help with uncertainity, especially when Russia is being shaken.

Wed, 10/08/2014 - 09:57 | 5302824 Ghordius
Ghordius's picture

I remember when Japanese USDs were looking as if they would end up buying California. I also remember when Chinese USDs were looking as if they would end up buying American Politics. But I also remember when europeans said: stop! enough of them! and constructed the EUR. and just shortly China said: stop! enough of them! and Chinese students were allowed to laugh in the face of a US Treasury Secretary

Wed, 10/08/2014 - 10:02 | 5302840 fonzannoon
fonzannoon's picture

and Chinese students were allowed to laugh in the face of a US Treasury Secretary....and then quickly returned to Foxconn when their 3 minute break was over.

Wed, 10/08/2014 - 10:09 | 5302875 LULZBank
LULZBank's picture

Ghordius - I would think that is more a psychological thing, swinging between greed and fear. You take all your money into one asset class, hoping it will be the next best thing and then the fear settles in and then there is another opportunity elsewhere.

Even if Japanese would have ended up buying up all of California, then what? There's always Marc Faber and Jim Rogers buying up Singapore and Thailand :)

Wed, 10/08/2014 - 10:19 | 5302904 Ghordius
Ghordius's picture

LULZBank, there is a different undercurrent at work. Small portfolios swing between greed and fear. Huge ones... are different. I also remember when the Japanese forbade China to buy too much of Japanese sovereign debt. Japan was "kindly asked" to stop buying up California. China was told to leave US politics alone, to be touched only through select channels. Marc and Jim don't belong to the Trillion Club. Which isn't about return on or of capital, is about power

Wed, 10/08/2014 - 10:23 | 5302923 fonzannoon
fonzannoon's picture

Ghordius, fwiw someone who is a lot smarter than I am stumbled onto our conversation and emailed me this.

"But I also remember when europeans said: stop! enough of them! and constructed the EUR" right, which the Fed then had to completely underwrite with LTRO's and USD swaps 10 years later to prevent the total collapse of...
Wed, 10/08/2014 - 11:02 | 5303136 Ghordius
Ghordius's picture

...the giant, overleveraged, daisy-chain-City-of-London-hyperhypothecating megabanks. Remember what megabanks needed, and needed dearly? USDs. Because of all the deleveraging they had to do... of their dollar-asset exposures

the FED and the ECB swapped roughly one frigging trillion to cover that, and then closed slowly the deal. which was to save... the megabanks

they are not called for nothing Too Big To Fail, aren't they? (underwrite is the wrong term, and the LTRO's weren't yet born)

Wed, 10/08/2014 - 11:27 | 5303303 fonzannoon
fonzannoon's picture

His response to you:

 underwrote is the perfect word- If the Fed hadn't underwritten the ECB, the euro would have gone kaput, as simple as that. Its not for nothing EU sovereign yields were close to blowing before the Fed saved the day, it was precisely because the megabanks (and lets not heap it all on the city, DB had the dirtiest diaper) held so much EU sovereign debt that they were desperate to unload that they needed that USD liquidity in the first place. The bottom line is if the Fed hadn't come to the ECB's rescue in 2011-2012, there would be no EUR currency in existence right now... and let's not forget why the Fed had to help the ECB in the first place, it simply wasn't big enough (ie the EUR as a reserve currency is a joke) to fill that hole: and yes the Bernank most certainly did bail out europe with the LTRO: The Great Euro Bailout By The U.S. Federal Reserve | EconMatters
Wed, 10/08/2014 - 11:53 | 5303526 Ghordius
Ghordius's picture

I probably have to try to prove my point at another time, with a timeline, which would make it clearer

no, I still maintain that the FED did not "underwrite the ECB". they both decided to help the megabanks deleverage... because of the US mortgage crisis and it's effects on derivatives and exposure to all that

the main driver was the FED and the ECB was the assisting henchmen, for political reasons, the FED could not be seen "helping foreing banks", while the crisis was of USD assets, not EUR assets, for all megabanks. it would not have broken the EUR, it would have broken the megabanks, and so possibly both currencies

meanwhile we europeans don't want the EUR to be a reserve currency, and if it breaks... underneath the hood we have the old currencies, and debt redenomination options

Thu, 10/09/2014 - 04:00 | 5307392 Ghordius
Ghordius's picture

fonz, in case I don't get to contruct the case, a few thoughts about his response:

- a currency swap is not an "underwriting". it's a swap. one trillion of my IOUs against one trillion of your IOUs

- the TLROs were against "good" collateral. that collateral part is what really underwrites a TLRO

- DB is a megabank, too. the "Deutsche" moniker is a joke. the commonality among megabanks is their hyperhypothecating in the City and their straddling across currency zones, making them, together with their size, a problem for everybody

- as I wrote in the other comments, imo it wasn't the EU sovereign debt that was addressed with the swap, because it was 1) addressed by TLROs and 2) it was a eurozone problem, while the Big Swap was there to address dollarzone problems, in USD-denominated leveraged asset issues

- note Ilene's first sentence: "the FED is borrowing dollars to the ECB..." (wrong, it's swapping); "...to bailout European banks..." (wrong, it's lending against collateral); "And that is in addition to the TLROs" (so here even Ilene is making a distinction between The Big Swap and TLROs, actually sabotaging the whole concept that the ECB could not make TLROs without the Big Swap)

- the best sentence in Ilene's article is a quote from somewhere else:

"The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan."

and there it is: it is not technically a loan because it is in no way a loan. if I send you 1'000 EUR and you send me 1'000 USD and we agree to swap them back in a year, we are not engaging in what you could call a loan in the conventional sense. I'm just providing you with EUR liquidity and you are providing me with USD liquidity. we are both funding each other. it's a "double loan"... a swap

the real issue is political. the megabanks are a problem for both dollarzone and eurozone, and so for both the FED and the ECB. and they hyperhypothecate in the City. meanwhile, for American politics they are "foreign". to be frank, I would like to call them "foreign" too, but as long as the UK is with one toe in the EU and protects the City status, they are "somewhat" still "not foreign"

Thu, 10/09/2014 - 04:39 | 5307428 Ghordius
Ghordius's picture

meanwhile, some October 9th 2014 context to Ilene's January 3rd 2012 article:

- the Big Swap was at it's height, in 2012. afterwards, the megabanks paid back and all dollars and euros returned, and the Big Swap was estinguished

- the ECB balance sheet was 2 T in July 2011, it increased to 3 T in July 2012, and then the LTROs started to be repaid, and now the ECB's balance sheet is 1 trillion lower, at the 2 trillion mark in September 2014, which is the same mark as in October 2008

here the FRED source: http://fredblog.stlouisfed.org/2014/05/the-ecbs-balance-sheet-continues-...

what did the FED's balance sheet do at the same time? here the source: http://research.stlouisfed.org/fred2/series/WALCL

- in October 1st 2008, at 1.5 trillion. In November 1st, 2008, at 2.0 T. In July 2011, at 2.8 T. In July 2012, 2.8 T. Now, in September 2014... 4.4 T

Please give your friend my very best regards, and tell him that imho I could as well argue that "the ECB bailed out the dollarzone banking system"

In short, I could accuse the ECB to have saved the dollar, or saved the megabanks (terrible thought), or both, and so saved the Western Status Quo

Wed, 10/08/2014 - 09:21 | 5302644 nofluer
nofluer's picture

Ahh yes. Fight club. I'm surprised that no one has challenged Citi for it's comment.

From Citi's "Don't bring a knife to a gunfight

It is my understanding that if the distance between the "fighters" is less than ten feet when the fight is "on", the knife wins. (It is faster and easier to deploy, and accuracy is also involved.) So... how to apply this... Citi has the knife because they are on top of it all, so are closer to the "action" than anyone else? Or are they trying to discourage any who might have a "gun" and challenge their position "from a distance" with truth and a shot of restoration of Glass-Steagal, with a subsequent breakup of the monster that ate the Global Economy and the American Government - Citi?

Wed, 10/08/2014 - 08:31 | 5302470 buzzsaw99
buzzsaw99's picture

the collapse has already happened. the facade will come down in fits and starts.

Wed, 10/08/2014 - 08:34 | 5302478 Bro of the Sorr...
Bro of the Sorrowful Figure's picture

that's another way of looking at it. really we can say the collapose started in 1913, or if that's too big of a strech, then 1971.

Wed, 10/08/2014 - 09:36 | 5302724 Ghordius
Ghordius's picture

1971? French warships loading up gold in NY harbour? Why did the NY-FED refrain from offering them cheese, instead?

Wed, 10/08/2014 - 10:58 | 5303109 Goldbugger
Goldbugger's picture

I agree with what you say, But i think these arrogant assholes have sqrewed the pooch one to many times.  the question is what will be the tipping point? Or has it happend already? The derivatives are in the Trillions, War and now Ebola. If the Elliott wave charts and fibonacci analysis is correct then we are in for a couple ot terrible years, something we have never seen before.

http://elliottwavepredictions.com/

Wed, 10/08/2014 - 08:49 | 5302515 failure to perform
failure to perform's picture

LET.IT. BURN. And I hope it takes plenty of the evil fucks with it!! Sick of watching the yo-yo pony show. Budget for my dept has been cut and my boss is talking about "how great his 401k is doing and gee look at the market" and "unemployment is down regardless of the people who have stopped looking for work or retired". These idiots don't see it.

Wed, 10/08/2014 - 07:58 | 5302391 mcguire
mcguire's picture

its about flow, not stock, my dear Watson..

Wed, 10/08/2014 - 08:32 | 5302472 fonzannoon
fonzannoon's picture

Don't spike that football just yet

Wed, 10/08/2014 - 08:49 | 5302513 Duffy
Duffy's picture

Not really.

 

It's about rotation, and the direction thereof.

Wed, 10/08/2014 - 10:54 | 5303076 Atomizer
Atomizer's picture

It's about rotating the statistism crew. Same jackasses different job functions. 

Never any prosecutions. 

Trailer: Sick and Sicker—ObamaCare Canadian Style.

http://m.youtube.com/watch?v=FnqkIWwWDsg

Wed, 10/08/2014 - 07:59 | 5302393 ak_khanna
ak_khanna's picture

The stock, commodity and currency exchanges have been reduced to gambling dens whereby the more powerful traders with deep pockets move the markets to maximize their own profits at the expense of the remaining not so powerful players. The big boys have enormous money power to move the markets in the direction which results in maximum profits for themselves. They effectively use the media to lure the other players in the market to a position where they would incur maximum loss.

 

The markets fall only when the banksters have eliminated all the short positions and only they themselves have positioned themselves to profit when the market falls
OR
When an unexpected world event catches the banksters with their pants down and the softwares they use to rig the markets go berserk beyond their control.

http://www.marketoracle.co.uk/Article40231.html

Wed, 10/08/2014 - 08:30 | 5302466 dontgoforit
dontgoforit's picture

Traders 'suck' the well dry, create nothing, just pull wealth from the system.  Stocks used to be people's way of buying into a company based on the hope of dividends, splits and profitability.  When QE was brought on, all fundamentals got hammered, where bad was good and good was bad.  This is the inversion that is typical of apocalyptic literature and, unfortunately for us, current reality.

Wed, 10/08/2014 - 08:39 | 5302489 conscious being
conscious being's picture

I like your post, but you are going after the wrong -ers.  Its Banksters, not Traders that's the problem. Now if you had said traitors, I'd have to agree with you.

 

Wed, 10/08/2014 - 08:45 | 5302506 GetZeeGold
GetZeeGold's picture

 

 

Word up dawg, traitors can print money....traders can't.

Wed, 10/08/2014 - 08:53 | 5302528 madcows
madcows's picture

nope.  they just jerk it around.  traders suck, too.

Wed, 10/08/2014 - 09:05 | 5302565 GetZeeGold
GetZeeGold's picture

 

 

How do you feel about 401K participants?

Wed, 10/08/2014 - 10:02 | 5302839 madcows
madcows's picture

401k participants are not traders.  they're investors.  most 401ks have limits on duration between changes.  and, most of the options are mutual funds, not individual stocks.  traders work on "wall st" and yes, they fuck with the system to make the most money than can from it, including lying and misleading, and other dubious behavior.

Wed, 10/08/2014 - 07:59 | 5302394 mcguire
mcguire's picture

btw, i assumed the sell off was about the second blood moon in the tetrad.  duh..

 

Wed, 10/08/2014 - 08:22 | 5302449 conscious being
conscious being's picture

Watching the remains of it now.

Wed, 10/08/2014 - 09:51 | 5302787 Hulk
Hulk's picture

Interesting shit, the Ebola Moon, tetrads, shemittahs and jubilees. WHy the fuck did they stop observing the shemittah? A year off every 7 years, man that would be perfect, but it just doesn't make money...

Wed, 10/08/2014 - 08:06 | 5302404 Its Only Rock N Roll
Its Only Rock N Roll's picture

must....keep.....game.....going

Wed, 10/08/2014 - 08:42 | 5302497 onewayticket2
onewayticket2's picture

October Surprise.....?

 

MASSIVE 'stimulus' (that we cannot afford) proposed in the days to come....Student Loan Forgiveness or 0% financing, etc.....something to ignite the "war on women" bs....like free health screening (to check for ebola of course) of all the illegal alien women.  the F$A is HUNGRY....and the want to be fed.....MOAR.

Wed, 10/08/2014 - 08:09 | 5302409 dojufitz
dojufitz's picture

Picture having to go to the Bank to borrow to play a game of Monopoly......and the crazy thing is.......you do.

Wed, 10/08/2014 - 08:32 | 5302471 dontgoforit
dontgoforit's picture

It's a damned shame, too.  There have been a lot of real people, honest people, who worked hard and persistently to build a monetary system that was both conservative and effective.  Then, the 1913 monsters came ashore in Jekyll Island and it's been a struggle ever since.

Wed, 10/08/2014 - 09:31 | 5302690 hootowl
hootowl's picture

Joos and their co-opted/corrupted Joo-dupes have destroyed the country.  Anybody who doesn't understand that is part of the problem.

Wed, 10/08/2014 - 08:10 | 5302410 TomGa
TomGa's picture

What happened to all those "green shoots?"  Maybe another round of "cash for clunkers" is in order. Lol.

/sarc

Wed, 10/08/2014 - 08:53 | 5302526 Badabing
Badabing's picture

Green shoots?
We were mistaken, it was just mildew growing on the fallen trees of the economy forest.

Wed, 10/08/2014 - 08:59 | 5302532 TomGa
TomGa's picture

And we now have "Cash for fuckers for clunkers" in record amounts of sub-prime auto loans.

Wed, 10/08/2014 - 08:09 | 5302411 Tjeff1
Tjeff1's picture

The FED driven buisness cycle has morphed from a raising and lowering of interest rates into a starting and stopping of QE with interest rates forever at 0%.

0% Fed Funds with no QE is the tightest the FED will be.  Next round of QE due to the coming recession will be much larger than 85B per month.

FED balance sheet will only expand and never contract.  This will happen until complete loss of currency purchasing power.

Wed, 10/08/2014 - 08:20 | 5302441 Unknown Poster
Unknown Poster's picture

Any POMO can be turned right back into US gov. debt now, so goosing equities isn't a sure thing. Funny how $85B ripped mkts higher in 2013, but would have nuked them higher in 2009.

Wed, 10/08/2014 - 08:27 | 5302463 RaceToTheBottom
RaceToTheBottom's picture

Pushing that string...

Wed, 10/08/2014 - 08:21 | 5302445 conscious being
conscious being's picture

Zimbabwe Style.

Wed, 10/08/2014 - 08:30 | 5302468 GetZeeGold
GetZeeGold's picture

 

 

Take the cash out the back door.....but spend it quick.

Wed, 10/08/2014 - 08:12 | 5302414 NOZZLE
NOZZLE's picture

Commodities fell apart in July, same thing happened in 2008.  

Wed, 10/08/2014 - 08:13 | 5302418 madcows
madcows's picture

whats this?  In a world that is saturated with debt, flooding it with more cheap debt doesn't fix the problem?  Blasphemy!

Wed, 10/08/2014 - 08:15 | 5302420 Dr. Engali
Dr. Engali's picture

If there is one thing that I've learned over the years it's that the money changers have a never ending bag of tricks.

Wed, 10/08/2014 - 08:47 | 5302510 RattNRoll
RattNRoll's picture

Before anyone gets ass happy about a collapse, remember the money changers have the buttons on the military Ind complex/nuclear triggers as well. They will never let their precious dollar go w/o a fight.

Wed, 10/08/2014 - 09:48 | 5302774 Ban KKiller
Ban KKiller's picture

"Bag of tricks". Never heard congress referred to that way....

Wed, 10/08/2014 - 08:15 | 5302421 Duffy
Duffy's picture

you need to diversify yo bonds, nigga.

End to QE?

Well, maybe after the War...

Wed, 10/08/2014 - 08:20 | 5302443 Ginsengbull
Ginsengbull's picture

Wu Tang Financial

 

Thanks Bro

Wed, 10/08/2014 - 11:12 | 5303186 Kprime
Kprime's picture

you mean the new 30 year war?  I'll be dead before this war ends.

Wed, 10/08/2014 - 08:16 | 5302424 wmbz
wmbz's picture

It is a confidence game plain and simple, always has been. Capt.Jack Yellen and the masters of the universe will do whatever it takes to keep the con game running and there should be no doubt at that either. However once they do lose control and it will happen at some point, because it has to. Things will unravel a a rapid clip.

 

Wed, 10/08/2014 - 08:17 | 5302429 AdvancingTime
AdvancingTime's picture

The recent drum beats and flames of war have distracted many people from focusing on the economy. The markets are extended beyond beyond, all this comes at a time when the IMF is calling for more QE. It seems this might be a good time to review the reasons this is economically unsound and a bad idea.

Currently  markets are setting new record highs at the same time economies continue to struggle. The policies of the last six years have yet to produce the desired and expected results promised. As a consolation many economist, bankers, and those who have benefited greatly tell us we would be in far worse shape if we had not taken this course. Now it seems Central Banks and the IMF are clueless on how to proceed and a policy going forward. More on the lack of a clear path and the fact that no easy answers exist in the article below.

http://brucewilds.blogspot.com/2014/09/central-banks-and-imf-clueless-on...

Wed, 10/08/2014 - 08:23 | 5302444 Tinky
Tinky's picture

"Currently  markets are setting new record highs at the same time economies continue to struggle. The policies of the last six years have yet to produce the desired and expected results promised."

Thanks for the penetrating insights. How much is your newsletter, and where do I sign up?

Wed, 10/08/2014 - 08:46 | 5302508 Duffy
Duffy's picture

eh, so he's preaching to the choir - so what?

 

At least he's on key.

Wed, 10/08/2014 - 11:03 | 5303120 Mi Naem
Mi Naem's picture

By any chance, do you have a link to your blog where we might learn more about what you think about this? 

Oh, wait, I found it. 

right here: http://www.zerohedge.com/news/2014-10-05/jim-grant-we%E2%80%99re-era-cen...

and here: http://www.zerohedge.com/news/2014-10-02/why-christine-lagarde-suddenly-...

Wed, 10/08/2014 - 08:19 | 5302434 conscious being
conscious being's picture

Now we're talking. I'll take 'Reset' for $100.

Wed, 10/08/2014 - 08:19 | 5302439 Atomizer
Atomizer's picture

Algorithms had a three martini cocktail lunch. 

Wed, 10/08/2014 - 08:33 | 5302476 Latitude25
Latitude25's picture

Stealth QE to infinity.

Wed, 10/08/2014 - 08:37 | 5302483 toros
toros's picture

Last month the FEDS balance sheet expanded $45B and the market unexpanded.  The muppets are all on board, all the crap equity has been off loaded and swapped for cash re-capitalizing the banks balance sheets.  Mission accomplished.  This was the goal all along.  Now we just have to see who is the first to get out in size.

Wed, 10/08/2014 - 08:43 | 5302499 conscious being
conscious being's picture

Pension funds is OPM.

Wed, 10/08/2014 - 08:38 | 5302486 Refuse-Resist
Wed, 10/08/2014 - 08:43 | 5302501 Ewtman
Ewtman's picture

Yesterday's selloff was not a surprise. It was expected here:

 

http://www.globaldeflationnews.com/sp-500-indexelliot-wave-update-for-we...

 

Wed, 10/08/2014 - 08:50 | 5302518 vegas
vegas's picture

Can you move anything by pushing on a string? That's what central banks around the world have been trying to do with cheap money since 2007. What they don't seem to comprehend is that unless the environment for business and economic growth is "present" it makes no difference what the cost of money is [interest for you Chalky voters] to me. Lower taxes, regulation, and generally get the fuck out of the way would be nice but I'm not hopeful.

 

www.traderzoo.mobi

Wed, 10/08/2014 - 08:57 | 5302536 Wahooo
Wahooo's picture

Some day soon, a US politician will stand before the microphone and say "We must expand our global war on terror or risk hurting our economy."

After QE, war. We have made the transition.

Wed, 10/08/2014 - 09:07 | 5302567 Last of the Mid...
Last of the Middle Class's picture

QE has been tapered? I call bullshit! That's right up there with, the checks in the mail, it's my first time, and I'll only stick the head of it in. Anything coming from this government and it's included propaganda minions at any of the 3,4 or 5 letter stations is not only suspect, but should be completely disregarded until actually proven otherwise.

Wed, 10/08/2014 - 09:07 | 5302569 flow5
flow5's picture

Simon Potter fucked up. Drained money - RRPs, when the rate-of-change in money flows was already seasonally decelerating .

Wed, 10/08/2014 - 09:10 | 5302575 d edwards
d edwards's picture

What caused the sell-off? A rare dose of REALITY!

Wed, 10/08/2014 - 09:42 | 5302747 bbq on whitehou...
bbq on whitehouse lawn's picture

Not quite. The sell off is to scare people into bonds. Stocks were going up like hyperinflation was built in the cake and it is, but not before some tree shakeing.

Im expecting the S&P to drop under 1700 before it finds out that inflation is already here.

Wed, 10/08/2014 - 09:15 | 5302600 Smiley
Smiley's picture

The pit bosses are in pockets of the gangsters who are skimming the house take.  Bugsy Siegel would be proud and were he alive today exchange houses would have fine dining with a view of the pool.  We already get long shot hits voided and reset, pretty soon we will be taken into a back room and have our hands pulverized with a hammer if we hit a winning streak.

Stay away from the stock market; YOU ARE NOT ALLOWED TO WIN.  What do you have to wake up with your head in a vise to wise up to reality?

Wed, 10/08/2014 - 09:23 | 5302653 NewAmericaNow
NewAmericaNow's picture

It's only a matter of time before we see mass chaos on the streets of America. Have a plan and be adaptable. http://newamerica-now.blogspot.com/2014/02/beyond-collapse.html

Wed, 10/08/2014 - 09:31 | 5302659 SheepDog-One
SheepDog-One's picture

Almost time for the world war.

Wed, 10/08/2014 - 11:08 | 5303166 Kprime
Kprime's picture

purposely imported Ebola will work just as well.  Americans tired of war? Bring on the little buggers from the dark nation, that'll scare them into submission.

Wed, 10/08/2014 - 09:32 | 5302694 kraschenbern
kraschenbern's picture

Tyler:

What do you mean: "...no adequate response..."?  We still have austerity and market discovery.

Wed, 10/08/2014 - 09:32 | 5302703 Great Depressio...
Great Depression Trader's picture

Maybe it's time for a sell off. Even though the S&P is only down 4 percent from its recent all time high momentum appears to have slowed. I don't see any correction being deeper than 20 to 25 percent given that the US economy is doing pretty good relatively speaking. 

Too bad ZH missed the entire freaking rally. The whole dang thing from 652 to 2018. And the lesson learned? Bear market gains of 50% < bull market gains of 309%. So while ZH may finally get this one right, a broken clock is right twice a day!

Wed, 10/08/2014 - 10:10 | 5302878 arby63
arby63's picture

It's about far more than being "right or wrong" about a rally. I think what we read here is more about the long-term damage being inflicted on the U.S. economy through infinite printing and central planning. 

The long-term effects of the Fed's actions (and every other central bank) seep into the economy slowly. Damage is being done on a daily basis. 

The Market is not an indication of the health of the U.S. economy. Rather, it's an indication of the depths of corruption politicians and bankers will go to in order to maintain their control. 

Unfortunately, the control is truly slipping away. The metrics thrown around by the Fed and others are all manipulated lies. 

One simple truth is evident: Good jobs for average Americans is a dying concept.

Wed, 10/08/2014 - 12:29 | 5303787 Great Depressio...
Great Depression Trader's picture

It's about far more than being "right or wrong" about a rally

 

Actually it is about being right or wrong. ZH has been pontificating about being right in many ways. ZH has lambasted the financial media while it turns out the financial media was RIGHT while ZH was WRONG on so many levels. Not to say that the mainstream financial news media is so great (they are not as they are biased to the upside) but ZH is simply too biased to the negative side. 

ZH constantly focuses on negative stories while completely DISREGARDING any good news. Trade deficit DOWN. Federal deficit DOWN. Exports at record highs. Existing home sales are stable. Auto sales soaring. Companies hiring while rates are slammed at low levels. 

 

I used to read this site daily then I got a bit wiser. Now I come here just for the lolz. 

Wed, 10/08/2014 - 09:44 | 5302757 Atomizer
Atomizer's picture

We buy up ruble. Fuck that monkey in White House.

Butthole Surfers- Pepper

http://m.youtube.com/watch?v=FROlM3Ft5qQ

Wed, 10/08/2014 - 09:46 | 5302765 Calculus99
Calculus99's picture

As someone here said -

Never forget that Central Planners are masters at backing themselves into a corner....

Wed, 10/08/2014 - 09:46 | 5302772 gwar5
gwar5's picture

If Belgium is already tapped out with stealth QE buying UST at zero-ish interest rates to save the world then I fully expect Monrovia, then Malta, in that order to take over and keep the promary dealers happy and global assets inflated. After that city of Quebec, maybe Perth.

Wed, 10/08/2014 - 09:46 | 5302773 aliki
aliki's picture

DOVISH COMMENTS OUT OF FEDERAL RESERVE'S CHARLIE EVANS
EVANS SAYS 5.9% UNEMPLOYMENT STILL ABOVE LONG-RUN NEUTRAL LEVEL

EVANS SAYS WEAKNESS ABROAD COULD TRANSLATE INTO STRONGER DOLLAR

EVANS WILL BE AN FOMC VOTING MEMBER IN 2015

EVANS: STRONGER DOLLAR COULD HIT EXPORTS, HOLD DOWN INFLATION

EVANS: STILL SIGNIFICANT UNDERUTILIZATION OF LABOR RESOURCES

EVANS CONCERNED INFLATION WON’T RISE TO 2% IN REASONABLE TIME

EVANS REPEATS CALL FOR EXCEPTIONAL PATIENCE IN RAISING RATES

EVANS SEES FED GETTING CLOSE TO TWIN GOALS OVER NEXT 2-3 YEARS

Wed, 10/08/2014 - 09:49 | 5302784 aliki
aliki's picture

amazing that those comments turned futures from -85 to +25

holding this thing together with tape & glue ... umm, i meant words

Wed, 10/08/2014 - 10:03 | 5302850 FieldingMellish
FieldingMellish's picture

In before the "falling rates will hurt gold" meme gets started.

Wed, 10/08/2014 - 10:35 | 5302946 Atomizer
Atomizer's picture

We have one lazy ass negro residing in our White House collecting vacation reward points threw taxpayers debt credit card.

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