What If There Is No "Fed Put" - Paul Brodsky Thinks Yellen Will Not Bailout Markets This Time
Earlier today, Art Cashin summarized most (very desperate) traders' thoughts when he said that as a result of today's market crash, "the Fed will try anything" to prop up the wealth effect it had so carefully engineered with seven years of central planning in the aftermath of the financial crisis. Perhaps the only question left is "where is the put", or where on the S&P 500 is the Fed's breaking point beyond which Yellen will have no choice but to make a statement, or take action, in support of the market.
Yet one person who is far less sanguine abou the latest in a long series of central bank bailouts of the stock market is Macro-Allocation's Paul Brodsky, who believes that instead of the Fed Put, the time of the Fed Call has come.
Here's why:
The Fed Put Call
Investors are blaming Fed rate hikes, and hence a strong dollar, for weakening global output, commodity prices, and global equity prices so far in 2016.
The Fed knows exactly what it’s doing.
Equity returns are certainly dismal thus far in 2016. Through January 14 at 14:00PM EST, the MSCI World Index had declined by 8.6%. Accordingly, “the markets” had begun to doubt the Fed’s resolve to hike rates four times in 2016. Fed funds futures implied the December Fed Funds rate at 0.70%, up only 34 basis points from the current rate (0.36%). This implies the market is betting the Fed will hike once or twice more.
Clearly, investors see the equity markets as the leading indicator of Fed policy. We disagree. The Fed no longer works implicitly for equity investors (i.e., “the Fed Put”); it is primarily working for the U.S. banking system by stabilizing and increasing its deposit base, and for the state by providing an incentive across the world to invest in Treasury debt. By raising rates, it increases the exchange value of the U.S. dollar.
We have argued that global output growth would have to naturally decline given the extraordinary leverage already built into the global economy, leaving observers to acknowledge in 2016 that recession is near. We have argued further that the Fed is very aware of an imminent global slowdown, and that a logical strategy in such an environment would be for it to import global capital by keeping the dollar un-challenged as a store of value (see King Dollar).
We would like to reiterate and refine our view: despite increasing discomfort among equity investors, we think the Fed will remain resolute in its effort to maintain or increase the interest rate differential between U.S. and foreign sovereign rates.
The one thing that would change the Fed’s current policy would be if global growth shows signs of increasing – not decreasing.
If the world economy were to strengthen then the Fed’s incentive to keep the dollar strong would fade.
Investors should consider this meaningful shift in policy when deciding how to allocate across asset classes. As we noted in The Pain Trade last year, falling long-term Treasury yields are the last thing speculative (i.e., levered) investors expect. Following this week’s auctions, it may be time for them to cover shorts.
His conclusion: "Global equity markets are suffering so far in 2016 because the Fed’s primary policy has shifted from protecting asset prices to protecting the exchange value of the dollar. Buy USDs and Treasuries"
If he is right, watch out below, especially if hints such as this one by San Fran Fed president John Williams, who famously admitted several days ago the Fed was wrong about the "benefits" from crashing out, are an indicator of broader Fed thinking:
- WILLIAMS DOESN'T SEE SIGNS ASSET VALUES DEPRESSED, BELOW NORMAL
With the WSJ adding that "Market Volatility Unlikely to Deter Rate Rises Over Next Few Years" - hardly what the abovementioned desperate traders wanted to hear...
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How? Having the EU's CBs buy dollars in each of their currencies? The ones we accuse of doing that to keep their currencies cheap?
the maggots know the exact number at which they will step in to "save" the "free market".
With their unicorn piss and pixie dust?
They threw jawboning an oil bottom and NIRP at it, and that didnt work..... I dont think Yellen throwing a quarter at it would do any good. To stop this it would have to be full frontal coordinated QE4 from BOC, ECB, Fed and BOJ..... BOJ have said they are out.... which means the Yen would run on intervention, (bad thing)..... In an election year for around the globe, they will go the free shit route, cash for clunkers, shovel ready yobs, maybe direct cash payments....
When on the brink of hyperinflation, tread carefully.
And don't say it can't happen here when the Fed uses the same fiat magic printing press all the other central banks do.
Buying Coffee in Caracas -
http://www.nytimes.com/interactive/projects/cp/reporters-notebook/moving...
Yet this idiot will vote for Bernie.
I agree they will keep raising, unless there is another banking crisis.
Banks own the fed. That is what they care about, not markets. Especially with Russia and China attacking the petro dollar. The goal is to keep the dollar king. This is their francise.
Gee, I thought the "Audit the Fed" bill would pass. :-)
Of course if they did, they'd see that the City of London owns the Fed, and they've been bailing out everybody everywhere. Elizabeth Warren, you're just a muppet with a Rothschild fist up your ass now.
What Janet is forgetting is that the government depends on high stock markets for its tax revenue.
wall street doesn't pay taxes, they collect them.
while dudley is head of the NY FED i can guarantee you that he will use all his balance sheet firepower to protect his bankster friends.
You're assuming his bankster friends haven't already got out of the long side of the market.
Rate hike was likely Fed 'officials' needing to manufacture a crisis in order to provide political cover to introduce NIRP to America without said officials all being thrown out of the country or lynched.
They will use the "We need to steal from you to save the children line."
To hell with these talking heads.
Lets:
Empty out
Wallstreet, K street and your neighborhood divorce attorney's office
All of DC
Every Fed regulatory department
Put them in coveralls
Hand them
A grinder
A stinger
A welding hood and gloves
Qualify what you can, make the rest laborers, boilermakers, pipeline helpers, carpenters and electricians
Rebuild
Sounds like the Pol Pot economic recovery plan.
And they can brownbag their lunch.
To hell with these talking heads.
Lets:
Empty out
Wallstreet, K street and your neighborhood divorce attorney's office
All of DC
Every Fed regulatory department
Put them in coveralls
Hand them
A grinder
A stinger
A welding hood and gloves
Qualify what you can, make the rest laborers, boilermakers, pipeline helpers, carpenters and electricians
Rebuild
Retraining Golgafrinchans has not proved profitable.
if there is no fed put who keeps miraculously arresting/reversing the overall downtrend? the jumps seem to be far more severe/short-lived than the declines. are these engineered short-squeezes, coordinated buying by tbtp banks, both, other, what? does this pattern seem plausible for organic demand?
serious ?
To hell with these talking heads.
We need production, not more wealth transfer schemes.
Lets:
Empty out
Wallstreet, K street and your neighborhood divorce attorney's office
All of DC
Every Fed regulatory department
Put them in coveralls
Hand them
A grinder
A stinger
A welding hood and gloves
Qualify what you can, make the rest laborers, boilermakers, pipeline helpers, carpenters and electricians
Let current tradesmen "supervise"
Repair, Replace and Rebuild crumbling infrastructure
That will restart the REAL Economy
The Federal Reserve is handing over power to global muffets. To comical to oversee.
And, the banks will create money out of thin air and buy assets on the cheap.
When the markets drop and all of the Saudi, Chinese, private and bank assets vaporize and there is a global margin call, there will not be too many dollars in the system, there will be too few. This is because all money comes into the world with interest owed and there is never enough to pay back what is owed.
Legally, the US government can pay off all of its debt by having the treasury mint a bunch of trillion dollar coins. But nobody else will be able to pay off their debt.
The banks will then create as much money as they want out of thin air and purchase as many assets in default as they want... as if they really needed more control over us. But there is that issue of consideration.
LOL!!!
Yes, bankers/financiers no longer have to face real risk or do any real work as they are nothing but overcompensated middlemen between the printer/computer (where money is "created" in an instant out of thin air) and the producer/consumer in the real economy.
However, the world has seen how such "let the majority eat cake" monetary experiments always turn out.
Soon enough no one will accept bullshit fiat and these fuckers will be lucky to keep their fucking heads from rolling...
+1000 Grandad
"This is because all money comes into the world with interest owed and there is never enough to pay back what is owed."
Good screed, please permit a clarification: purchasing media that "comes into the world with interest owed" is NOT "money", it's CREDIT, and this is a problem. It takes MONEY to pay off debt and, and money is not encumbered by interest. Do we have any money? Yes, our coin, as it enters circulation without interest attached. That means ALL our coin, sandwich counterfeits or real - silver and gold - at this point it is a matter of relative value.
hi i am from Canada...
spare change anybody? ...please...
cauliflower u don't need , half eaten... please send it to me...
Sorry about your currency, Abapom. Hope you are well. You can join us yanks in the coming revolution.
i imagine that once the revolution starts, the flow will be Northward
And we have a closed market on Monday for MLK day.
And we have a closed market on Monday for MLK day.
The "market" will probably retreat 30- 50% from here before the FED steps in again to "save" the day. Its not about helping the majority, its about consolidating more power and wealth for the few. The people that own the world don't give a shit about you me or 99% of the people on the planet. 80% of the people that post on ZH don't give a shit about the sheeple.
I'm sure that QE 4,5 and 6 will happen before we finally reach a tipping point 10-15 years from now what happens then is a huge reset.
The US federal and state governments will give up lands, assets and whatever else of value they have, and whichever 2 banks are left will own everything, redistributing it to us peons once again. After the next world depression the people that are left will take whatever they can get, and be greatful to our benevolent overlords.
what's a "market"?
ZH needs to PUT down the can of paint they have been huffin and post something of value.............these satanist arre worthless then the torn up dollars in my old game of monopoly.................
Markets do not exist in their own right; they are supposed to represent the value of the underlying companies and the state of the economy.
Companies provide real products and services into that economy.
Companies take raw materials and make them into products.
Cheap oil = collapsing global economy
Low commidity prices = lack of demand for raw materials from which real things are made
QE and low interest rates may have kept markets up, but the real economy is collapsing.
Maintaining the penthouse suite while the foundations are crumbling.
Central Banks policies just aren’t working.
The ultimate disaster would be to be caught in the middle of maintaining the penthouse suite as the foundations collapse.
The FED doesn’t want to be caught red handed.
cheap oil is relative. Is it cheap now or was it distorted the past 10-15 years due to expansion in China and the expectations that the expansion would continue into perpetuity? Also, is the relative collapse also a function of increased development(ehhem, shale) during the past 10 years driven by high oil prices? the current oil situationis not necessarily reflective of a collapsing economy, especially not in the US.
"Companies provide real products and services into that economy." ---
No, some companies do, others sell financial "products" of mass destruction and get a fucking bailout.
There is no way forward without a serious refund (return to mark to market and GAAP) or serious retribution.
Single digit p/e's.
what about AMZN, NFLX, UBER, TSLA, LYFT, etc, etc, etc.....?
Ya right. You lost me right there.
Keep in mind, the Democrats in the Senate just blocked the Audit the Fed Bill.
Even liberal hero Elizabeth Warren voted against it because she's knows the Fed meddles in the market to help Obama and the .1%
Remember this when you go vote.
We all know the Fed is buying stocks covertly.
It's called the Plunge Protection Team, or PPT
Versus when reality starts to kick in
The ministry's base scenario sees gross domestic product (GDP) shrinking by 0.8 percent in 2016, while a conservative one predicts a 1.0 percent decline, according to the document seen by Reuters.
Suspect Yeller has moved the Free Market Manipulator Control Switch from Ramp to Hold. There will be periods of managed volatility for the sake to ensure that prop and sales are content and the algos can play. We wouldnt want to be China after all those a bad manipulators.
This is the same set-up we saw in August and for the same reasons; the global dumping of Treasuries by China primarily in June, July and August of 2015. The reason noted in the article that they need Treasury buyers; so you "spoof" the equity markets to get people into the Bond market. Squeeze the longs followed by a super squeeze of the shorts; rinse and repeat while wrecking the rest of the financial world - that is the wealth effect.
All of the sudden the fundamentals matter? Since when? Technical usefulness appear to have some value.
Doesn't matter we are in and have been in deep shit as a nation & world for a 100 years or so. Get the spiritual house in order, then one is okay.
The fundamentals matter when major businesses are going broke in large numbers. Until then its just a paper game but you can't put a positive sharemarket value on companies that have gone out of business. That's the point we are now reaching.
They are trying hard, come on, keep at it old chaps
It is still the intervention trade though. Now it is just all about the level at which they will _have_ to intervene. I am afraid no one believes in uncontrolled markets anymore. So there is no fear. S&P500 will simply not be allowed to go to sub-1000 any more. Fed is likely just adding some "volatility" in a controlled way... Maybe 30%? It is good for the muppets who otherwise become too cocky and start acting stupid.
Beware the law of unintended consequences!
"The Fed knows exactly what it’s doing." MWAHAHAHAHAHAHAHAHAHA
It took a valiant effort but they managed to keep the close to less than 400 points down today! I wonder how much that cost them?