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Art Cashin's No Frills Preview Of The FOMC

Tyler Durden's picture





 

The always pragmatic Art Cashin summarizes today's 12:30pm FOMC announcement. In summary: "look for the Fed to dangle a big carrot - some semi-specific course of
action that would be put in place if the labor markets continue to
worsen. Net/net, he needs to keep the door wide open and maybe outline certain milestone “triggers” that will allow the Fed to act later in an election year without being accused of being overtly political." Said otherwise, the happy ending will likely be deferred one more time. The market may not be very happy.

From UBS Financial Services

May I Have The Envelope, Please – This afternoon the FOMC will announce its decision on policy. At 2:30, Chairman Bernanke will hold a press conference to expand on that and take questions from reporters. The conventional wisdom is that the Fed will extend Operation Twist.

If that were so, we think the market would be disappointed. We also think that Mr. Bernanke knows that. Mr. Bernanke, throughout his tenure has scrupulously tried not to surprise the market. He has tried to make the Fed more transparent in order to avoid the risk of surprise.

Yet, Mr. Bernanke also knows that every Fed initiative is not greeted universally with open arms. The QE initiatives and even Twist have been criticized by some for producing spikes in commodities and even food prices. Within the FOMC itself, there are said to be critics who feel the recent efforts have run into the law of diminishing returns.

So, Mr. Bernanke is in a bit of a quandary. The economy may need some easing. The markets want more easing. Prior efforts, however, have not achieved the desired effect and may even have produced some unintended negative consequences.

That quandary was very much like the one that Bernanke was addressing in that speech back in 2002. So, once again we went to the file to go over the checklist. On page 5 of the speech, after introducing the concept of ultimately addressing deflation by the process of printing more dollars, Mr. B went back to monetary policy:

Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior).8 Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. Alternatively, the Fed could find other ways of injecting money into the system--for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities. Each method of adding money to the economy has advantages and drawbacks, both technical and economic. One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

Mr. Bernanke then details other means to lower rates further out in the yield curve (Operation Twist) and suggests buying mortgage paper along the curve.

If those measures fail, the bank could circuitously get money to private companies. The means would be to lend money to banks, interest free for 90 days or 180 days, taking as collateral private paper of the same duration. He then returns to the concept of devaluing the dollar and cites success of that effort in the early 1930’s.

And, finally, in a separate speech back then, Mr. Bernanke suggested that the Fed might announce a wider tolerance for inflation. That might spur some of the money to mobilize as folks bought “stuff” fearing the price might rise.

So where will we go today?

Look for the Fed to lower its forecasts, perhaps significantly, at 2:00. Then at the 2:30 press conference (or maybe even in the statement) look for the Fed to dangle a big carrot - some semi-specific course of action that would be put in place if the labor markets continue to worsen.

Net/net, he needs to keep the door wide open and maybe outline certain milestone “triggers” that will allow the Fed to act later in an election year without being accused of being overtly political.

 


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Wed, 06/20/2012 - 09:37 | Link to Comment emsolý
emsolý's picture

"Happy families are all alike; every unhappy family is unhappy in its own way." ~ Leo Tolstoy

Wed, 06/20/2012 - 09:41 | Link to Comment Thomas
Thomas's picture

"Dangle a big carrot" The Fed is filled with a bunch of big "carrots".

Wed, 06/20/2012 - 09:43 | Link to Comment FEDbuster
FEDbuster's picture

Operation Kick the Can will be announced later today.  It is expected to last at least through November 2012.

Wed, 06/20/2012 - 10:00 | Link to Comment Raynja
Raynja's picture

I assume you meant November 2102

Wed, 06/20/2012 - 09:43 | Link to Comment SilverTree
SilverTree's picture

Neeeah, ~whats up doc?

Wed, 06/20/2012 - 10:09 | Link to Comment Blammo
Blammo's picture

 

"Dangle a big carrot" The Fed is filled with a bunch of big "carrots".

Reply I'd say "horses ass radish, too"

 

Wed, 06/20/2012 - 10:15 | Link to Comment Cycle
Cycle's picture

Swing low, sweet carrot...

Honestly, the picture in my head provoked by "dangle a big carrot" has Bernanke swinging a very teeny penurious carrot...which might explain some of his inner angst.

Wed, 06/20/2012 - 09:43 | Link to Comment Floordawg
Floordawg's picture

It seems these FED meeting outcomes are getting easier and easier to decipher. I'm with Art on this one...

Place your bets people!

Wed, 06/20/2012 - 10:03 | Link to Comment eclectic syncretist
eclectic syncretist's picture

I'm guessing there will be some jawboning in the press conference about the need for political solutions to address the economic slump, which would essentially be an admission that the Fed can't do it.

Wed, 06/20/2012 - 10:16 | Link to Comment BlandJoe24
BlandJoe24's picture

"Place your bets people!"

So, what are your bets when Art's prediction is basically a mixed-bag fed announcement?  In other words, it seems he's saying that they will inject enough hopium to keep markets going, but not enough for a big high.  Sounds to me like possibility of a moderate drop, but what do you think?

I also think it's possible the fed may present something "new and innovative" that no one expected. 

 

Wed, 06/20/2012 - 09:43 | Link to Comment RobotTrader
RobotTrader's picture

Bernanke is the "King of Jawboning"

 

I'm sure he'll say the exact, correct thing today to steer the markets in the direction he desires.

I mean really, look what he has done the last 3 years.

He's acheived the impossible.

- 60-year low interest rates

- SPY up 100% off the lows

- Commodity prices crushed

- Panic buying in anything U.S., whether it be bonds or stocks

He's the "Master and Commander"

Wed, 06/20/2012 - 09:47 | Link to Comment Cleverbot
Cleverbot's picture

You stole that from The Hitchhikers Guide To The Galaxy!

Wed, 06/20/2012 - 09:47 | Link to Comment John Law Lives
John Law Lives's picture

Give ZH a break from your own jawboning.  Leave the Devil something to do...

Wed, 06/20/2012 - 09:52 | Link to Comment Floordawg
Floordawg's picture

RobotTrader is the "King of Mimicking."

Your worse than the real ROBOtrader, at least he's original. And a giant "Fuck You" to fake Slewie and MDB too.

Wed, 06/20/2012 - 09:49 | Link to Comment Stuart
Stuart's picture

and are you any wealthier....  

Wed, 06/20/2012 - 11:08 | Link to Comment Beam Me Up Scotty
Beam Me Up Scotty's picture

Commodity prices crushed?  Gas hit $4.09 here when crude was $150.  Crude is $82 and gas is STILL $3.67.  I can't put crude in my car moron.

Wed, 06/20/2012 - 11:10 | Link to Comment bdc63
bdc63's picture

In june of 2009 the price of gold was $1000 ... I would hardly call up 60% in three years "getting crushed" ... but hey, RobotTrader is never one to let the facts get in the way of a good story ...

Wed, 06/20/2012 - 09:42 | Link to Comment midgetrannyporn
midgetrannyporn's picture

meanwhile the dot com bubble just gets bigger and bigger.

Wed, 06/20/2012 - 09:43 | Link to Comment Eireann go Brach
Eireann go Brach's picture

I triple dog dare a member of the press to throw their shoe at Bernanke today at the press conference! Go on Liesman you pussy!

Wed, 06/20/2012 - 11:11 | Link to Comment Beam Me Up Scotty
Beam Me Up Scotty's picture

I'd rather have someone throw a shoe at Liesman.  I hate that pole smoking piece of trash.  So sick of him fluffing Bernanke all the time, its pathetic.

Wed, 06/20/2012 - 11:12 | Link to Comment bdc63
bdc63's picture

Liesman is MUCH more likely to suck Bernanke's dick -- on camera -- than he is to even ask a 'tricky' question today

Wed, 06/20/2012 - 09:43 | Link to Comment Stoploss
Stoploss's picture

"Lend money to the banks".                  

All you need to know, and therin lies one of the problem's.

Whatever Ben, just shut up and feed the vortex, she's hungry.

Wed, 06/20/2012 - 09:45 | Link to Comment Slope of Hope
Slope of Hope's picture

Cue the Risk Off Algos

Wed, 06/20/2012 - 09:46 | Link to Comment Conman
Conman's picture

OT http://www.cnbc.com/id/47888364

JPMorgan Chase has sold off 65 percent to 70 percent of its losing "London Whale" position, which led to a multibillion-dollar trading loss for the bank, CNBC reported on Wednesday.

 

Eh why would they tip their hand that they are still in the trade? Seems fishy, especially leaking from cnbc.

Wed, 06/20/2012 - 09:45 | Link to Comment John Law Lives
John Law Lives's picture

"Net/net, he needs to keep the door wide open and maybe outline certain milestone “triggers” that will allow the Fed to act later in an election year without being accused of being overtly political."

"The market may not be very happy."

What a pathetic tale of the tape.  The "market" is akin to a gerbil hitting its greedy paw on a lever and demanding yet another crack pellet.

100% BOHICA (bend over, here it comes again)

Wed, 06/20/2012 - 09:48 | Link to Comment Stuart
Stuart's picture

There is only one way out for the Fed, it's just a question of when and that in large part is caught up in perception management efforts. 

Wed, 06/20/2012 - 09:48 | Link to Comment Everybodys All ...
Everybodys All American's picture

I'll keep the noose wide open over the gallows for Bernanke as he is stepping ever so close to creating a spiralling dollar that will lead the US economy into the abyss. The only reason the bond markets have not already reacted much more negatively to the US fiscal policy is because Europe is so much worse off. Mark my words. If Bernanke goes into another large QE program the US debt will be downgraded yet again and that could cause an extreme financial crisis.

Wed, 06/20/2012 - 09:50 | Link to Comment web bot
web bot's picture

I also expect that he will say that the gov't needs to provide direction on the fiscal front and that the Fed, despite its range of tools and options, needs the government to fulfill its mandate in this effect.

Wed, 06/20/2012 - 09:50 | Link to Comment Rip van Wrinkle
Rip van Wrinkle's picture

Mr Bernanke, my name is Rock. Can I introduce you to my partner, Hard Place.

Wed, 06/20/2012 - 09:58 | Link to Comment Cycle
Cycle's picture

If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

Can it be that Bernanke does not understand that injections of money during deflation do not bring money back to life - they change the way debt masquerading as savings is destroyed -  in deflation it is destroyed by debt defaults, and in Bernanke's brainless scheme it is destroyed by dilution.

On second thought, Bernanke might understand this all too well - and in this corrupt cronycapitalist remnant of an economy, the Inner Party members first get the word which way it will go...

Wed, 06/20/2012 - 10:21 | Link to Comment eclectic syncretist
eclectic syncretist's picture

I'd like to propose a new economic theory based on Sir Isaac Newtons third law of motion, "for every action there is an equal and opposite reaction". 

For every inflationary event, there is an equal and opposite deflationary event.

After all, monetary inflation is equal to currency value deflation.

From which it follows that there is no net long-term gain from inflationary or deflationary policy.  Instead it is a mechanism to give free money away to a priviledged few.

Thomas Jefferson said pretty much the same thing.

Wed, 06/20/2012 - 09:59 | Link to Comment ptoemmes
ptoemmes's picture

If milestones are set for more easing the sociopaths will assure that they are met.

Wed, 06/20/2012 - 09:59 | Link to Comment Hedgetard55
Hedgetard55's picture

"He has tried to make the Fed more transparent in order to avoid the risk of surprise."

 

Cashin hitting the sauce again. Art, Ben cares for one thing only, his bankster masters, and feeding them money. Period. If he had any integrity he would have hung himself already.

Wed, 06/20/2012 - 10:19 | Link to Comment Village Smithy
Village Smithy's picture

Surely there has never been a Fed Chairman that has so wantonly condoned market manipulation by his own institution and the non armslength primary dealers that it serves. I don't think he really wanted to make the Fed more transparent he just knows that it is politically correct to talk in those terms.

Wed, 06/20/2012 - 10:02 | Link to Comment outamyeffinway
outamyeffinway's picture

Look out below!!!!

Wed, 06/20/2012 - 10:05 | Link to Comment JackT
JackT's picture

A carrot farmer and his carrots -- oh how he teases the starving markets. 

Wed, 06/20/2012 - 10:12 | Link to Comment localpacific
localpacific's picture

Art Cashin knows his shizzle if only he called some forex plays Forex4you Technical Analysis 

Wed, 06/20/2012 - 10:12 | Link to Comment BeetleBailey
BeetleBailey's picture

Fuck YOU Ben Bernanke!

Wed, 06/20/2012 - 10:18 | Link to Comment WallowaMountainMan
WallowaMountainMan's picture

"unintended negative consequences' i am sooo tired of that bull. the rationalization of continuing an action when its premise produces "unintended" consequences is insanity. all consequences are an evaluation of the merit of the underlying assumptions. there are NO unintended consequences. there are only consequences. they expose the merits or flaws in the assumption. bad/negative consequences can only be followed by more of the same unless there is a change in the original assumptions. people who accept those bad/negative consequences and advocate continued use of the base assumptions are fools or stooges or shills.

Wed, 06/20/2012 - 10:26 | Link to Comment RoadKill
RoadKill's picture

Yesterday He said the FED had to twist into mortgages to the tune of $699bbn because Bernake was afraid of disapointing markets and Benny couldnt afford a 3rd 20% drop in equity mkts without losing his wealth effect.

Now hes talking down expectations HOPING he doesnt give up his 5% rally on a dissapointment.

Wed, 06/20/2012 - 10:43 | Link to Comment oleander garch
oleander garch's picture

Why does he say 'disappoint markets' and 'the market expectations are' and such like phrases? Is he not aware that the markets consist mostly of software programs reacting to buzzwords in headlines?

Wed, 06/20/2012 - 10:49 | Link to Comment Snakeeyes
Snakeeyes's picture

It will be Twist which lowered the 7 and 10 year Treasuries a whopping 20 basis points!!!!

http://confoundedinterest.wordpress.com/2012/06/20/will-bernanke-twist-a...

Wed, 06/20/2012 - 10:59 | Link to Comment spanish inquisition
spanish inquisition's picture

If the markets want QE and the key is unemployment, then I would expect a round of layoffs to force the issue.

Wed, 06/20/2012 - 11:58 | Link to Comment Cycle
Cycle's picture

Capitalism got cancer with the bailout of LTCM and finally died with the Fed purchase of AIG shares and MBS.  It will rise again once the Fed rots away like Mao's and Stalin's "Five-year plans."

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