Saxobank CIO Warns "The Narrative Of Central Bank Omnipotence Is Failing"

Tyler Durden's picture

We have been discussing the widespread belief in "the narrative of central bank omnipotence" for a number of months (here and here most recently) as we noted "there are no more skeptics. To update Milton Friedman’s famous quote, we are all Bernankians now." So when Saxobank's CIO and Chief Economist Steen Jakobsen warns that "the mood has changed," and feedback from conference calls and speaking engagements tells him, there is a growing belief that the 'narrative of the central banks' is failing, we sit up and listen.


Via's Steen Jakobsen, CIO & Chief Economist Saxobank,

The Mood Sours

I have had several macro conference calls and speaking engagements over the course of this week – a few takeaways:

1.    The mood has changed – See the “confidence index” from T Theory below for data. The driver in my opinion is the gradual acceptance of disinflation/deflation – as Albert Edwards has been pointing out and as Russel Napier has substantiated that when inflation gets low enough it becomes a problem for risky assets. (Edwards–Napier)

2.    There is growing belief that the “narrative of the central banks” is failing. We've had such low yields for so very long now that it's becoming an issue. I've discussed this with several of you and the consensus opinion is that the European Central Bank's Mario Draghi lost out with his latest “wide in scope, small in size” programme; that the Bank of Japan looks like a deer caught in the headlights; and most importantly, Fed chief Janet Yellen and her team are doing a poor job in communicating their message.

There is even open resentment of Yellen as a female chair. I don’t condone any of the Fed's policies, but I firmly believe Yellen is misunderstood. She is more dovish than the market can figure out and in contrast to her predecessors, she allows more room for the opinions of fellow board members. This is why we are seeing Stanley Fischer being a new and much-improved voice for the Fed, as is also the case with William Dudley. Further, Yellen is considerably better than both Alan Greenspan and Ben Bernanke in terms of understanding the mechanics of the Fed and the economy.



 Janet Yellen is far more of a dove than people realise. Photo: Federal Reserve

Finally on the Fed – I never understood how the market could pay so much attention to regional presidents. They are politicians, representing either specific economic agendas relative to their own region or are subscribers to some specific economic theory. Let’s hope the “dots” die soon as they are without doubt the most useless pieces of information ever. (You can reach a specific growth forecast from many angles being one of the issues.)

3.    Central banks are now concerned about the velocity of foreign exchange moves (ECB and BoJ) and the Fed is explicitly worried about the impact on future US growth. This major change – a vocal change as often before initiated by New York Fed’s Dudley (September 21, 2014) and confirmed by Fed Minutes this week: "Officials at the Federal Open Market Committee’s Sept. 16-17 meeting warned that the stronger dollar may hamper exports, and said the economy could be hurt by a global slowdown." (Bloomberg)

Of course 95% of Wall Street and 98% of all hedge funds remain long US dollar as it’s an island of strength – my model, however, disagrees, as seen below. The vertical line is the present...


US growth

My only call (since Q4-2013) remains that global yields (G10) drop to all-time lows – and in this final phase will be lead to the US 10-year going to 1.5% and the 30-year to 2.5%. This creates a derivative trade which is that the US dollar's strength is about to top. There is a significant possibility of the US dollar retesting recent highs.

However, central banks, the momentum of the US economy, disinflation trends and a global geopolitical environment which sees the US lose power week by week, are all signs, although still early, of changes to the outlook. The world – growth-wise – does not work with a strong US dollar. Asia is linked and is suffering…

4.    It’s often “too easy” to find negative charts after big down move, but I think these three represent more than a day or two of sell-offs...

Confidence index
Advance Decline
A Low "Bear" count...

*  *  *

As we concluded previously,

I’m calling a top in the Narrative of Central Bank Omnipotence because it has, in fact, reached its asymptotic limit of influence and belief.


It’s a top because the cracks are starting to show and widen. A Narrative architecture can sustain amazing structures, much like the flying buttress allows Gothic cathedrals to soar, but ultimately it can only bear so much weight. Draghi’s language last Thursday was sloppy. His pitch was uncharacteristically poor as he sang his lullaby to the Red King. I think he’s bitten off waaaay more than even he can chew, a point I’ll review at length next week. As for the US, the Central Bank Omnipotence Narrative is actually counterproductive for equity market price levels at this point. Because we are such well-trained monkeys, we act by reflex today to buy-buy-buy whenever a headline of Central Bank activism surfaces, but the training starts to work the other way when the tightening starts in earnest and the Fed reserves hang out there unresolved, like the mother of all lead balloons draped around the long end of the curve. Remember what an inverted yield curve looks like? Ain’t a pretty sight. But draining the reserves could look even worse. Damned if you do. Damned if you don’t. And the equity market caught in the middle.


It’s a top because – like a Ministry of Industry or a Ministry of Culture – a Ministry of Markets and its dirigiste control of the human animal’s social behavior ultimately fails. Maybe not a failure in the sense of apocalypse and ruin (although sometimes), but a failure in the sense that The Next Big Thing never comes out of a Ministry. They have their successes, sure … some grand program or triumphant announcement … but they’re only successes because we are TOLD they are successes. Since when has a Ministry of Culture sparked great art? Since when has a Ministry of Industry sparked great commercial advancement? Ministries are well-meaning. Ministries are the darlings of the professional intelligentsia that controls the organs of the State and Media. Ministries are wonderfully effective instruments of social control. But neither art nor commerce nor investment comes well from on high.


It just doesn’t stick. The most powerful ideas in human history always come from below, not from above, and markets (and elections and revolutions) are the transmission mechanism of the idea engine. Watch out above!


An inflection point in the market Narrative doesn’t alter market price levels directly. It alters the informational structure of markets (for a refresher course on what I mean, see “Through the Looking Glass”). It alters the market’s response pattern to future signals and events. That’s why I think it’s silly to predict end of year S&P 500 levels or engage in any such crystal ball gazing, because I have no idea what will happen next. But whatever pops out of the woods next (and somehow I doubt the global economy is walking down a primrose path), I think that using an Epsilon Theory perspective based on information theory and strategic behavior can help me react quickly and appropriately, which is what I mean by Adaptive Investing.


I don’t know what the catalyst for The Next Big Thing will be, although I have my suspicions. Maybe it’s a realignment election in Italy or the US. Maybe it’s China saying whatever the Mandarin equivalent of no mas might be. Maybe it’s a liquidity seizure in the repo market or some other unanticipated structural market failure. But whatever it is, we’re no longer at a point where additional State intervention can claim additional Narrative firepower. It’s like buying a stock that has no short interest and where all the sell-side analysts are rabidly positive. No thanks! Just as a short seller today is the marginal buyer of your stock tomorrow, so is the skeptic today the convert tomorrow. There are no more skeptics. To update Milton Friedman’s famous quote, we are all Bernankians now. Or rather, we all have to profess our Bernankian faith through our market behaviors even as we privately yearn for the Old Gods of greed and fear and the Old Languages of value and growth. And that’s the inflection point.

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X.inf.capt's picture

if it crashes..

its because they got enough small investers to throw their money in the market...

wash, rinse, repeat...

why do people keep falling for this same, stupid game...

i got hurt pretty bad in 2008, but not as bad as most..


phyiscal PM's...thats how i roll...




Squid-puppets a-go-go's picture

"The world – growth-wise – does not work with a strong US dollar"

lets re-update Friedman's quote: we are all ZHers now

TruthInSunshine's picture

"Further, Yellen is considerably better than both Alan Greenspan and Ben Bernanke in terms of understanding the mechanics of the Fed and the economy."


Why does Zero Hedge even bother spreading this kind of garbage lately?

Yellen, the third successive tribe member head of the Fed, is just as clueless on efficacious, real life economic mechanisms as either Greenspan or Bernanke, and has no idea as to what to do other than attempting to blow and/or sustain bubbles created by incompetent monetary policy -precisely like Greenspan and Bernanke.

markmotive's picture

Fiat money has been the death of many an empire.

Richard Duncan on Fiat Money, Gold Standard and Monetary Economics

Farqued Up's picture

Snowdyke is the perfect bag-lady, er, man.

Clowns on Acid's picture

No... "We are all jews now"... is most accurate.

Fred Garvin's picture

Their omnipotence is failing, even after all that monetary viagra they have been taking


Yen Cross's picture

   It's the motion of the ocean  ;_0

  Rub your girl. Tic<> Tic

AdvancingTime's picture

It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward.  When this happens we are at the end game.

At some point the return on loaning money is simply not worth the risk!  Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.

The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.

Bangin7GramRocks's picture

As long as central banks can buy stocks and bonds to prop up the "markets", there are no markets and the central bank is in fact omnipotent. Sucks when you realize that everything you were taught in business school and your career was a big fat fucking lie. Ha!

alphamentalist's picture

i have seen the BoJ buy ETFs with my own eyes. i have seen the chinese "SWFs" buy stocks with my own eyes. that said, i know no individual buy or sellside whom has ever transacted stocks with the fed. i more than a little certain that is a myth. and the quatities the BoJ and chinese are buying are not enough to support US stawks at these full-retard prices. so good luck with that...

silverliberty's picture

I have 3 words for you, Plunge Protection Team, the orginal Team America.

alphamentalist's picture

just a market boogieman. and, there have been several major repricings since the team was alledgedly signed into existance. if they did exist, the best they seem able to do is to make sure people take the escalator instead of the elevator when exiting the building.

Bangin7GramRocks's picture

Just holding on to that last thread of reality in the "markets" huh? It's all fake dude. Get over it and embrace that your career is a fucking sham!

JR's picture

“The S&P would be 600 without Fed intervention.”

“The markets are holding up on hopes of additional stimulus from the Central Banks. Some bulls are even calling for QE 4 at the upcoming Fed meeting, despite the fact that QE 3 was launched a mere three months ago and was open-ended (meaning it would not end until the Fed deemed it time).

“This is extraordinary and proves point blank my concern that we’d reach the point at which additional monetary stimulus would no longer have a significant impact. This was always the End Game for the Fed’s response to the financial crisis: that by intervening as much as it did, eventually we’d get to the point that even extreme interventions had little if any impact.

“Given that the Fed has been the primary driver of stocks for the last four years (even the NY Fed admits the S&P 500 would be at 600 without Fed intervention) this is a major red flag that we could be due for a sharp correction to the downside…

“Thus, stocks continue to seesaw. The fundamentals want to pull stocks down while the hope of more intervention from Central Banks pushes stocks up.”

  --Phoenix Capital Research on 12/09/2012

Bangalore Equity Trader's picture


Let me be clear. We, the people, have chosen the central bank model as "THE" monetary authority.

We, the people, have given "THE AUTHORITY" the power and right to give orders, make decisions, and enforce monetary obedience.

These fully conscious decisions cannot be denied and "MUST" be respected.

All hail the central bankers! Give them a chance, in time we will all arrive in utopia with well balanced and very credible monetary policy for all people in the global union.

GooseShtepping Moron's picture

Listen. Go wrap a turd in your turban you monotonous rug monkey.

Farqued Up's picture

I think he may be on to something, the joke's on me. I wrap many turds in my turban quarterly and pay tribute to Uncle Sammy the Robber as my middle man to the banksters. They couldn't do it without my full consent. Pogo, you brilliant bastard.

Boomberg's picture

Look at that pic of Yellen and tell me that isn't Dr. Evil with a wig. 

Fred Garvin's picture

Her next strategy for the economy...Sharks with frickin' laser beams on their heads!

CuttingEdge's picture

She just looks like a tramp without her supermarket trolly to me.

GVB's picture


GVB's picture


silverliberty's picture

All central banks(counterfeiters) print up promisary notes backed up(on the word of) by the faith and good word of government(thieves).  And one wonders, what is wrong with this picture. 

silverliberty's picture

I don't want Yellen to be a dove.  I want her and the other high priests of counterfeiting to be lambs so they may be sacrificed at the alter while baygggging for mercy.

gwar5's picture

Yet another banker coming out of the QE closet doing a mea culpa. Now a daily occurrence. There be more as the reckoning quickens. All are admitting we are now totally screwed because of the nattering nabobs of the sociobankerpaths.


What they're all really saying here is, "Don't kill me with those pitchforks when the SHTF, I was just following orders."


The Duke of New York A No.1's picture

When QE fails it's all becuase of Ebola I's tells ya .... Bernanke is a genius!... that darn Ebola is going to ruin all of Ben's great wrok!!!!.

whidbey-2's picture

The analysis of Central banks is interesting, but not conclusive by any means.  The central monetary authority is a paragraph in all human history, but today the central bank remains  a fairy tale, and it has few followers.  Look at the governor- members, each shallow, each frighten of being seen as powerless,gullible. Yet the public wants to believe in the banks.  In the end the common man will be ashamed to have swallowed it all, and even depended on the tales. The pain will clear a few heads, but changed nothing. Russell is right.. it is history from which we can not seem to learn.

ekm1's picture

There are only two factors that ultimately matter and only two who ultimately take over:


- Pentagon

- Saudi Arabia


All the rest is secondary or tertiary or totally unimportant.

Central banks are just a bunch of academics told what to do so all can be blamed on them.


We soon we'll see a Pentagon Junta like in the 60s, 70s, in my view


Pentagon will be patient in order to keep the facade of rule of law, but eventually it will intervene.

Otherwise, Western World collapses


It is only Pentagon holding together the whole Western Civilization and we ought to get on our knees and thank God for Pentagon.

Yen Cross's picture

 I liked you better, cleaning "air conditioning ducts" .

  When you were [unbiased] EKM?

holdbuysell's picture

Let's see where this goes. EKM's perspective is interesting in how it shows a high level conflict.  We have the global bankers vs. the US military in EKM's paradigm. I'm guessing DHS is on the banker (Obama) side, which would make for some interesting fireworks in the clash of the titans.

In the end, getting out of the way of this 'clash of the titans' is the best strategy.

Yen Cross's picture

In theory EKM is correct.

 It's going to be a really difficult day for Humanity, when it happens.

 Pack your bags. next week is ugly

Farqued Up's picture

You may need another booster shot of Dr. Strangelove to stabilize the ole gyroscope. With their nails in over 100 countries, that bunch of ass kissing shit stirring hammers are the direct extensions of a collection of political psychopaths that think their dicks still work. Physically out is the only option and that portal is closing.

JR's picture

It’s difficult for one to wrap himself around the concept that the Pentagon is leveraging the central banks of the West and Japan.

It makes no sense that the military sets interest rates, buys equities, creates the bubbles and the busts, finds the money somewhere to buy politicians, support Israel… Where does the military get the money for Tomahawk missiles at $1.4 million each? Where does the money come from to pay for endless war around the globe: the carrier groups, the airpower, the bribes to allies to join in the wars?

It is ludicrous to believe that this money comes from the U.S. taxpayer.  Perhaps you know the truth, in that it is obvious, but would try to distract attention from the real tyrant.

Bottom line: wars are fought with money and the money comes from the financial inventions of the Federal Reserve.

The klngs of the 17th century could not fight wars until they gathered together enough gold; and the Pentagon cannot fight wars until the Fed gives it the money, i.e., the power.

It is the existence of the Federal Reserve that provides the capacity for endless war. 

I quote Lew Rockwell, chairman and CEO of the Ludwig von Mises Institute :

“If the goal of the state is the complete monopolization of money under an infinitely flexible paper-money system, there is no better path for the state than the creation of a central bank.  This is the greatest achievement for the victory of power over liberty…

“Before the creation of the Federal Reserve, the idea of American entry into the conflict that became World War I would have been inconceivable.  In fact, it was a highly unpopular idea, and Woodrow Wilson himself campaigned on a platform that promised to keep us out of war.  But with a money monopoly, all things seem possible.  It was a mere four years after the Fed was invented under the guise of scientific policy planning that the real agenda became obvious.  The Fed would fund the U.S. entry into World War I…

“Fast–forward to the Iraq War, which has all the features of a conflict born of the power to print money.  There was a time when the decision to go to war involved real debate in the U.S. House of Representatives.  And what was this debate about?  It was about resources, and the power to tax.  But once the executive state was unhinged from the need to rely on tax dollars, and did not have to worry about finding willing buyers for its unbacked debt instruments, the political debate about war was silenced…”

ekm1's picture

Reminder that money is created instantly in computers

However, even when money was only gold and nothing else in middle ages, whoever had the strongest army would simply kill the gold holders and expropriate the gold.

Romans did with Dacia.

Professorlocknload's picture

Inflection point coming right up. As Steen says, we don't know what it will be. If we knew, it could be discounted. Has to be a Black Swan to catch all, even the Fed off guard.

Yen Cross's picture

Latitude25 I figured you out.

   Man the Squid hates me that much?

Yen Cross's picture

 I'll challenge you to any chart, any time Latitude25  algo.


Yen Cross's picture

 I'm double checking this divergence chart. ( sucking rubbing alcohol)

  There's an anomoly. Here's why. The AD/ cl '13 line does converge. It's too early when you factor in the bear count.

  I'm surprised Tyler uses the " Bear Indicator"

     It's a back painting, Oscillator

Haager's picture

Interesting. All this doom and gloom news around 1% near an intermediary low, shy before stocks will snap back a little. There must be a reason to this but I can't figure it out. Hence, they wouldn't lie, wouldn't they?

GooseShtepping Moron's picture

I don't agree with very much in this article at all. Janet Yellen a dove when she tapered QE from $85 billion per month to zero? The rate increases will be here before March of 2015 as well. If that's a dove then what does a hawk look like? I realize she's starting from a very low base, but have no doubt about this: she is ending the greatest monetary intervention of all time, and the market smells it.

saveUSsavers's picture

WOW, she has you fooled! What about using dollar swaps to Belgium to buy USTs?

hedgiex's picture

YAWN ! There has always been that cluster of traders that CBs do not own to game CBs often dancing btw fears of the printing presses and defiance.

The charts are market traded data and you can spin anything from it. You can also spin flight to quality of US$. HFs and others holding US$ lately do not necessarily express their long strategy on $. (Arrogant for a small bit player like Saxo to conclude that 98% of HFs are long on $ strength).



Rip van Wrinkle's picture

Here in the UK there's a complete loss of trust in the political elite. Witness the rise and rise of UKIP.


There are rumblings that tell me there's going to be a loss of trust in the media, too. After all, these treasonous bastards have been and continue to toe the globalists line.


Just wait until there's a loss of trust in the central banks and the financial system in general. That's when the wheels completely fall off....

Last of the Middle Class's picture

Paging captain Obvious.

JR's picture

Yellen “allows more room for the opinions of fellow board members. This is why we are seeing Stanley Fischer being a new and much-improved voice for the Fed...” – Steen Jakobsen, CIO & Chief Economist Saxobank

Obviously, affirmative action Yellen was a stand-in for the real power coming to the Fed, Stanley Fischer, whose dual citizenship and former Israeli central bank chairmanship might have been a little too soon for the top job. Hence the sleight of hand Yellen-appointment trick.

By the way, your “much-improved” Fischer comment is disgusting, implying your favoring of “bail-ins” and  a more aggressive and tyrannical Federal Reserve.

saveUSsavers's picture