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Art Cashin Deconstructs The Fed's Paradoxical QE Approach

Tyler Durden's picture




 

Yesterday we were quite amused to note that following the Hilsenrath leak (pre-backpeddaling as a result of some FRBNY spanking) of a sterilized QE that for supposedly tries to avoid "generating" inflation (hence confirming that QE does in fact stimulate inflation instead of being a tool to lower rates and make housing affordable) the market reaction was... inflationary, with stocks rising, but far less than crude and gold. So much for the Fed's trial balloon to see if it can intervene in the market without costing Obama a few million ballots. Today, Art Cashin observes precisely the same paradoxical response in his daily note.

So the Fed is looking for a way to lower rates without producing any inflationary pressure. That’s because critics have claimed the inflationary impact of prior easing managed to push up oil, gold and other commodities. It also weakened the dollar.

 

Okay, now put on your Sherlock Holmes hat and examine yesterday’s action. Stocks rallied but so did gold and oil and lots of commodities. The dollar also fell. Those actions were just the ones that the supposed new program was designed to avoid.

In other words, it is safe to say that with Brent in the mid-$120s (or much higher courtesy of the perpetual threat of an Iran attack), any and all incremental dollars courtesy of iCTRL+B(ernanke) will go into commodities first, and stocks (whose margins now get disproportionately whacked due to rising input costs) a distant second. Which in turn means that just like in the summer of 2008, a major exogenous deflationary event may be needed soon to purge the system of latent leverage and inflation concerns.

So the question, again, is - who will be the next sacrificial Lehman?

 

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Thu, 03/08/2012 - 12:19 | 2236064 Careless Whisper
Careless Whisper's picture

The Careless Whisper Morning Update & Threadjacking

Pimpin' Ain't Easy; Wall Street "Banker" Set To Fund Online Prostitution Company

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Judge Denies Customer Demands For Information On MF Global; Called Victory For JP Morgan

http://www.bloomberg.com/news/2012-03-07/mf-global-parent-allowed-to-restrict-some-information-about-brokerage-unit.html

TSA On Worthless Body Scanners; So What

http://gizmodo.com/5891383/the-tsa-doesnt-deny-that-its-really-easy-to-fool-tsa-naked-body-scanners

Addidas Releases Cowboyboot/Sneaker Hybrid

http://latino.foxnews.com/latino/lifestyle/2012/03/07/adidas-releases-cowboyboot-sneaker-hybrid-shoe/

Abercrombie Orders Employees Who Forget To Smile; Drop And Give Me Ten!

http://www.dailymail.co.uk/femail/article-2112032/Abercrombie-Fitch-employees-ordered-press-ups-make-mistakes-according-leaked-email.html

Miami Court Hires Judge's Wife For 1 Hour A Week With Full Health Benefits

http://www.miamiherald.com/2012/03/07/2681726/report-details-unusual-job-arrangement.html

4 Real?; The Road We've Traveled Trailer Released; VIDEO

http://www.youtube.com/watch?v=NXtJhLUOFXE

PICS OF THE DAY; Chinese College Students Have Lingerie Fashion Show

http://shanghaiist.com/2012/03/07/photos_chengdu_students_put_on_vict.php#photo-1

 

 

Thu, 03/08/2012 - 13:24 | 2236467 LowProfile
LowProfile's picture

PICS OF THE DAY; Chinese College Students Have Lingerie Fashion Show

http://shanghaiist.com/2012/03/07/photos_chengdu_students_put_on_vict.php#photo-1

 

More like this plz.

Thu, 03/08/2012 - 17:09 | 2237239 Xkwisetly Paneful
Xkwisetly Paneful's picture

"the market reaction was... inflationary, with stocks rising, but far less than crude and gold."

Without the retail equity investor as you have pointed out numerous times now.

I don't know about oil but the same certainly cannot be said for au and ag.

 

 

Thu, 03/08/2012 - 11:56 | 2236078 SeverinSlade
SeverinSlade's picture

Seems like the final deflationary scare required before all out CTRL+P will result in the physical price of PMs decoupling from the paper (as more and more sovereigns are moving to repatriate their physical gold holdings from the NYFED).

Thu, 03/08/2012 - 12:09 | 2236136 youngman
youngman's picture

That is just Germany...I bet London gets hit hard too..and that is where the GLD "holdings" are held....lol....I bet other countries start bring it on back home....and then some of this leased gold will be exposed.....and an OH OH moment will happen....as the vaults get emptied....panic will start....this will seperate the men from the thieves......lol...but the thieves have a lot of political power and tricks....

Thu, 03/08/2012 - 12:16 | 2236149 Cognitive Dissonance
Cognitive Dissonance's picture

"(as more and more sovereigns are moving to repatriate their physical gold holdings from the NYFED)."

It seems mighty strange that some sovereigns seem so worried about the physical safety of their barbarous relic (aka Gold). I suspect there are many whispered phone conversations going on worldwide about various nation's Gold holdings and its proximity to the NYFED.

I'd call that a Cognitive Dissonance.

BTW intersting article in the WSJ.

http://blogs.wsj.com/brussels/2012/03/08/what-is-it-about-greece/

I loved a link found in the article to a .pdf file on the history of sovereign defaults.

http://mitpress.mit.edu/books/chapters/0262195534chapm1.pdf

Thu, 03/08/2012 - 13:27 | 2236475 LowProfile
LowProfile's picture

Personally, I'm hoping it happens at much higher price levels.

I'd like as much time as possible to convert what little I earn from my job in the serf-mines into PMs before the world fiat complex hits the event horizion of hyperinflation.

Thu, 03/08/2012 - 11:56 | 2236081 uno
uno's picture

isn't inflation under control with the new IPAD out, same price more features, makes me hungry

Thu, 03/08/2012 - 12:03 | 2236094 Dr. Engali
Dr. Engali's picture

That's called hedonic regression. It's a good thing they are edible.

Thu, 03/08/2012 - 12:04 | 2236115 Translational Lift
Translational Lift's picture

new IPAD out, same price more features, makes me hungry

They may be nice but still not edible...........

Thu, 03/08/2012 - 12:17 | 2236169 SheepDog-One
SheepDog-One's picture

They need to design an 8 month long IPad game to keep americans in a beta wave coma thru the end of the year. 

Thu, 03/08/2012 - 12:23 | 2236186 Dr. Engali
Dr. Engali's picture

They have an app for that called "Enduring Relieve Iran From Their Gold and Oil". Coming as a shock and awe app to an ipad near you.

Thu, 03/08/2012 - 12:44 | 2236315 SheepDog-One
SheepDog-One's picture

If I was Iran right now I would be giving all my gold to Russia for safe keeping, with a promise to Russia they get dibs on their oil for $40 a barrel in trade for defending it....also I'd be deep rigging the deep wells for explosion should anyone try to attack.

Thu, 03/08/2012 - 11:59 | 2236090 Dr. Engali
Dr. Engali's picture

R.I.P  Bank of America I'm sorry but you are toast.

Thu, 03/08/2012 - 12:50 | 2236340 uno
uno's picture

I heard BofA was going to charge 5 FRN to close an account in some states, can you imagine the look on people's face when they hear it.  Priceless.

Thu, 03/08/2012 - 12:07 | 2236113 SheepDog-One
SheepDog-One's picture

Bring forth the deflationary sacred scapegoats to the courtyard to be drawn and quartered in sacrifice to the Gods of inflation!! LOL...I dont know about you guys, but this shit really cracks me up!

Thu, 03/08/2012 - 12:08 | 2236114 e92335i08
e92335i08's picture

I've been pondering a scape goat and why not just use a greek default and CDS trigger to spiral it all out of control. to deflate oil pressures and the rest of the market. Bernake will have the perfect excuse for QE 3 then, oh Europes financial crisis is spinning us out of control, we need to prevent the US from going into a Major Depression because of there insolvency.

OR Some headlines about Iran that pushes Brent to 150 and everyone can get agressively short the market and cause massive deflation that way. Remember Brent at 125 is only gonna last so long before the data turns very negative around the world because of declining consumer spending.

Maybe its also perfect to use Greece and a European recession to let China deflate their bubble as well. A global recession all blamed on Greece and the triggering of CDS's that causes a massive credit shock to banking institution.

Europe wants Greece out of the Euro anyways they know if they keep Greece in it will just drag them down again later down the road. They need to boot them out so they can go back to their own curency so they can print massive amounts to QE their way of out deflation. (Greece FYI QE is a lie, so just take the pain of deleveraging and restructure the right, but why QE IS SO EASY CTRL+P)

ANYONE AGREE WITH ME +1??

Thu, 03/08/2012 - 12:08 | 2236130 SheepDog-One
SheepDog-One's picture

They definitely need SOMETHING big, no doubt!

Thu, 03/08/2012 - 12:15 | 2236161 kito
kito's picture

I can't take this diet anymore!!!! Give me my triple scoop qe hot fudge sundae with whipped cream and shredded coconut flavored dollar flakes!!!!!!...........

Thu, 03/08/2012 - 18:45 | 2237563 TeresaE
TeresaE's picture

Though you may be right E92.. but my guess is war with Iran.

Will nicely explain the continued increase in gas, and go a long way to "explaining" why our "friends" are holding us over a barrel.

May we live in interesting times.

Wish I was bored.

Thu, 03/08/2012 - 12:06 | 2236119 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Obama can't have a Lehman event in the US during the election year, so it will have to be a European event.  The Europonzi will have to be tossed into the flames their firewall was trying to prevent; a firewall, mind you, made from fiat, which is ironic, since paper burns.

At the same time, why would we need a collapse in equity?  Who would not vote for Obama who already is if we did another bailout?  "Maybe that is what we need", says liberal utilitarians everywhere.

It is for the greater good.  What you don't want to help the greater good?  You must be a terrist.

Thu, 03/08/2012 - 12:12 | 2236143 SheepDog-One
SheepDog-One's picture

Cant have a Lehman event, yet the only way out is a Lehman event.....rock, meet hard place.

Thu, 03/08/2012 - 13:08 | 2236410 rosiescenario
rosiescenario's picture

....perhaps it will be a South American event....making it more black swan like?

 

How about a war over the Falklands?

Thu, 03/08/2012 - 12:06 | 2236120 AbelCatalyst
AbelCatalyst's picture

The move since the beginning of the year has pushed equities far above the 200DMA due to the worldwide printfest.  NOW the FED leaks a story about more QE on a minor down move??!!  The FED must be very scared as this seems reactionary and fearful.  Why not wait for a deeper down move to make the leak? - me thinks they fear the momentum of a cascading downdraft and are jumping in on any downward move...  They are playing with fire and we are all going to get burned!

Thu, 03/08/2012 - 12:10 | 2236137 SheepDog-One
SheepDog-One's picture

1 down day after a 2 month 20% market meltup cause the FED to totaly panic and blurt out a QE rumor? 

Things are FAR shittier than people want to realize here....thats a total panic desperation move.

Thu, 03/08/2012 - 12:19 | 2236177 Cdad
Cdad's picture

You are dead on there, Dog.  There are signals everywhere right now...and in the last 48 hours or so.  That QE rumor yesterday, and the market's response to it, was total desperation personified.  

Don't know if you twitter, but there is a lot of desperation pouring through that feed...today especially.  You have supposed financial services experts that are literally tweeting completely incomprehensible utterances.  The triple back flip gainer on why buying is right...is simply too much for folks to overcome.

Dislocations directly ahead.  Watch SPG as the earlier warning indicator for a complete bearish reversal on the entire market.

 

Thu, 03/08/2012 - 12:24 | 2236192 SheepDog-One
SheepDog-One's picture

'Buyin is right, because selling is just WRONG'!

But wait, Mr Financial Tweeter....If I BUY like you say, that means someone SOLD to me...so youre saying that my buying is right as long as youre doing the selling?

 

Thu, 03/08/2012 - 12:34 | 2236262 Cdad
Cdad's picture

This is SOOOOOOO clearly happening today on the bullish side of the Tweetisphere.  It is laughable.

This is one of those days that the investment guru's are literally tripping over themselves to commit credibility suicide.  A nice example of this can be found here:  http://www.bespokeinvest.com/thinkbig/2012/3/7/sp-500-sector-trading-range-charts.html

Prepare for dislocations.  We have arrived.

Thu, 03/08/2012 - 12:40 | 2236293 SheepDog-One
SheepDog-One's picture

It all looks exhausted.

Thu, 03/08/2012 - 13:36 | 2236500 Clowns on Acid
Clowns on Acid's picture

Black is white.....these days....

Thu, 03/08/2012 - 13:10 | 2236419 rosiescenario
rosiescenario's picture

When do we get the new Twitter reading algo's launched....the headline reading ones are so passe.....

Thu, 03/08/2012 - 12:13 | 2236144 Dr. Engali
Dr. Engali's picture

 

 

"me thinks they fear the momentum of a cascading downdraft and are jumping in on any downward move"

 

That is exactly why.  The S&P should be trading around 450 to 500 right now. Once this freight train starts down hill there is no amount of liquidity that will stop it.

Thu, 03/08/2012 - 12:07 | 2236128 Jim Cramer
Jim Cramer's picture

It's time to, "BUY, BUY, BUY"!  This has to be bullish and if it's not then the opposite of this decision has to be bullish.  If those two options aren't bullish then definitely the third option is bullish.

Thu, 03/08/2012 - 12:17 | 2236134 DormRoom
DormRoom's picture

The political and economic system in the US is in disarray (years of neglecting the Triffin Dilemma).

  The Central Bank is acting as an economic trianche unit. But the Central Bank cannot force ppl into more risk.  It can not create high paying jobs.  It cannot create innovative products, and new categories, and verticals. They are distorting incentives, and masking risks throughout the yield curve.

 

The more it tries to rescue a faltering economic order (underpinned by a dysfunctional political superstructure), the more expedient the end of said order.  You cannot substitute a handful of mandarins, tinkering with over-simplified economic models to the great adding machine that is capitalism.

 

Everyone turns to the Central Banks for easy solutions (easy credit), instead of the harder choice, of participating in democracy, and reshaping the political & financial order that has weakened the economic order over the last 30 years.

first step: campaign finance reform.

Thu, 03/08/2012 - 12:33 | 2236260 blu
blu's picture

+1 Well said

Thu, 03/08/2012 - 12:13 | 2236142 Zero Govt
Zero Govt's picture

Bernanke the Clown is conducting economic policy from a Po-Go stick, up down, up down, up down ...it's insane

"Sterilized QE" (WTF?) is pouring money in, then taking it out 1-2 months later so as to "avoid inflationary effects" ... squirt it in, siphon it out, squirt in, siphon out, squirt in, siphon out ..are you fuking kidding me?!! 

Anyone guess how they'd run a business if their bank offered them a loan on this basis? ...seriously this is a joke right?!!

The Fed are completely deranged, can't believe anyone in the global economics community is swallowing this garbage without tearing their sides out laughing... Bernanke has completely lost his marbles (resign you moron)

Thu, 03/08/2012 - 12:25 | 2236155 SheepDog-One
SheepDog-One's picture

Bernank pumped way too much too fast....now theyre faced with trying to suspend disbelief and coasting on fumes thru an entire year with oil at all time highs? This is just retarded.

QE 'Sterile' is what the FED had to blurt out after a 1 day market drop following a 2 month 20% market melt-up? Theyre THAT desperate? omfg

Thu, 03/08/2012 - 12:15 | 2236160 JPM Hater001
JPM Hater001's picture

Cue SWAT for his Indefinite Detention.

Thu, 03/08/2012 - 12:13 | 2236146 lizzy36
lizzy36's picture

Sterilized QE is a Jedi mind trick.

Thu, 03/08/2012 - 14:52 | 2236153 Zero Govt
Zero Govt's picture

more like Benny has deep on-set of senility of being a Jedi knight 

Fed 'Flash-Cash' strikes the economy, in, out, in, out, in, out

Thu, 03/08/2012 - 18:16 | 2237469 GoinFawr
GoinFawr's picture

"These are not the worthless mortage 'backed' securities we're intending to foist onto the public..."

Thu, 03/08/2012 - 12:14 | 2236150 JPM Hater001
JPM Hater001's picture

I will!!! I will!!!  Pick me for the sacrafice.

"No.  This ones gotta hurt."

Me thinks HSBC.

Thu, 03/08/2012 - 12:26 | 2236176 Mercury
Mercury's picture

In other words, it is safe to say that with Brent in the mid-$120s (or much higher courtesy of the perpetual threat of an Iran attack), any and all incremental dollars courtesy of iCTRL+B(ernanke) will go into commodities first, and stocks (whose margins now get disproportionately whacked due to rising input costs) a distant second.

It would be cool to see a "heat map" of various assets/commodities/goods/services displayed in  a hierarchy of price changes over a given period ('Flation Station!).

BTW - What's up with all these "Sugar Daddy" ads?   I know sites like ZH don't control what ads are displayed but are there really significant barriers between rich men and pretty women that I'm not aware of? Barriers high enough to provide the basis for a business model?  They should call it "Virtual Manhattan" instead.

Thu, 03/08/2012 - 12:27 | 2236220 GoldenGal
GoldenGal's picture

Why is everyone worried about this being an election year? More then likely we will be at war with Iran and Obama will say there is too much chaos going on and we need the "continuity " of govt and name himself Lord and emporer indefinitely.

 

Thu, 03/08/2012 - 12:33 | 2236256 SheepDog-One
SheepDog-One's picture

Theyre tyrannical dictator fascists, yet are cowards too....theres NOTHING stopping them in their plans, yet they pretend there is? For what? They could just stage huge market collapse today and take over it all as 'continuity of govt' and who would do anything to stop them? No one! So why all the high drama? Theyre just cowards, bottom line.

Thu, 03/08/2012 - 12:41 | 2236302 DOT
DOT's picture

I prefer the term empoorer.


Thu, 03/08/2012 - 12:27 | 2236221 DOT
DOT's picture

It's not the Fed and QE, it's those pesky speculators !

 

This is how the story goes :

  http://lacrossetribune.com/news/opinion/our-view-oil-speculators-put-squ...

 

 

Thu, 03/08/2012 - 12:29 | 2236230 bania
bania's picture

I'm thinking big bang, huge deflation followed by a massive inflation.

Thu, 03/08/2012 - 14:00 | 2236601 BeerBrewer09
BeerBrewer09's picture

Question is: What triggers the big bang?

Thu, 03/08/2012 - 12:33 | 2236253 Angus195
Angus195's picture

"There is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings."

Aristotle, 340 BC

"Government is the only agency that can take a useful commodity like paper, slap some ink on it and make it totally worthless."

Ludwig von Mises

"The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.... The law of supply and demand is not to be conned. As the supply of money increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods . When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes.... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold... The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirade against gold. Deficit spending is simply a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

From "Gold and Economic Freedom," in Capitalism: The Unknown Ideal, 1967, Alan Greenspan

Thu, 03/08/2012 - 12:35 | 2236270 GoldenGal
GoldenGal's picture

Mercury, the adds are personalized to what the computer user tends to look at....looks like you been looking for a sugar baby have you? Well if you have lots of gold and silver I might be able to help you out...48yr old overweight menopausal female  with lots of mood swings looking for low maintenance sugar daddy who will  generously support her with lots of gold and silver gifts...In exchange , You will get hormonal mood swings, an occasional warm meal, (hamburger helper or chicken alaking), good conversation, on the elite, the nwo, the economy, and various other conversations requiring some actual critical thinking ....Oh and sex...well I'll keep the bathroom stocked up with plenty of girlie magazines  for you to have a peek at but  that's about it in that dept from me.

Thu, 03/08/2012 - 12:37 | 2236283 SheepDog-One
SheepDog-One's picture

They need a deflationary event...who knows maybe Greece today will be it. But I doubt it, these people could have let markets slide yesterday to let the pressure out, but they couldnt do that probably because a -200 day would have been followed by -1,000 day from the looks of it. 

I dont think they CAN let markets go down any more than rolling a snowball down 100 feet deep new powder wont prevent a mass Shitalanche.

Thu, 03/08/2012 - 13:30 | 2236484 Clowns on Acid
Clowns on Acid's picture

We have already had the sacrifical "Lehamn"....it was the account holders at MF Global....

Sat, 03/10/2012 - 02:20 | 2242658 top3rab
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