Ben Bernanke Has Created The Ultimate Bondsy Scheme

Tyler Durden's picture

Since January 2007, long-only equity funds have seen redemptions of $545 billion. In the same period bond funds have seen inflows of $630 billion. In the last few months, cumulative flows into equity funds have retraced all the way back to 1996. While every day is a QuEasy day for stocks, it seems the 'financial repression' is working as instead of getting everyone else to do the opposite of what the Fed is doing by making yields on other 'riskless' assets meaningless, all that the Fed has succeeded in doing, is getting everyone in the world to frontrun it in buying bonds. Period


Source: BofAML

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SolidSnake961's picture

maybe he is a genius for the us treasury

flacon's picture

He can't stop, but he can't continue for ever either. Is there another option in a binary decision? Yes or No?

NotApplicable's picture

Capitalism without capital.

Honestly, who knew?

Mr Lennon Hendrix's picture

Crash the Fiat Bondsy - Buy Silver!


The Monkey's picture

Now, Lockhart is calling for action, if the economy doesn't improve. The Fed is setting up a magnificent top. If they punch in more stimulus before a correction, the S&P will lurch upward yet again, real interest rates will fall and the party will get another drunken leg.

One by one, the FOMC board members will cave. It doesn't look like any further deterioration in prices is required at all.

Welcome to 1928.

Aziz's picture

Like in any bubble, there are just as many sellers as buyers.

Good for them; get out, and put it into gold. 

SilverTree's picture

Wine Me, Dine Me, 69 Me

mkkby's picture

All I can say is when bond investors start heading for the exits, it's gonna be ONE HELLUVA SHOW.  Long popcorn and the deer in the headlights.

Harlequin001's picture

Bond investors won't head for the door. Bond funds have a licence, which means they'll do as they're told by whoever is in charge.

This ends when the sheeple decide they've had enough and refuse to continue funding pension funds and 401K's from wages.

Bond fund money has to go somewhere and they're not allowed to buy pm's, so until then it will be one write down after another and no one could ever have seen this coming...

SWRichmond's picture

all that the Fed has succeeded in doing, is getting everyone in the world to frontrun it in buying bonds. Period

Antal Fekete has repeatedly pointed out the role of 'risk free bond speculation' and the regime of constantly falling interest rates in capital destruction.

The Monkey's picture

We don't really know what will happen with the Fed's massive experiment. The U.S. is actually fairing pretty good under Bernanke.

If they turn the printers on, just like eveyone else, I'll be a buyer of the highest beta junk I can find. If the Fed encourages high leverage and high asset prices, the way to play it is with in the money calls on financials, crude and junk bond ETFs. Or, puts on levered short ETFs such as FAZ.

Like most everybody else, I think this is a silly destructive game, but we really don't have the last page of the book yet. Might as well sit back and let the free money come in. Seriously.

Harlequin001's picture

'The U.S. is actually fairing pretty good under Bernanke.'

Can't help thinking that must be a bit like the Captain of the Titanic, "Full speed ahead, starry skies, calm seas, excellent view, and this is the best ship in the world this is...'

swiftly followed by "er, what the fuck was that?"

disabledvet's picture

Club Fed is getting away with murder...without a doubt. But we will pay in the long run...and we already have the budget and trade deficits to go along with the last experiment along these lines. The irony that it is the responsible Europeans and Japanese that are getting annihilated in this environment should be lost on no one. "Respect pure evil" perhaps is the best approach. Still the theory that "muni debt should be bought because the market does nothing but go up" is not a good strategy in my view. Especially now that the bankruptcies are under way. The consequences of a massive implosion of the EU AND Japan will be felt here in the USA...but i still believe the weight will be felt heaviest on State and municipal finances. And of course with an extraordinary amount of force "waiting for a an excuse" surrounding the entirety of the ME and, well

Michael's picture

This guy has come to some of  the same conclusions I have made many years ago, arriving at it in different ways. Fascinating.

The Road to Roota Theory: Bix Weir

The Monkey's picture

They won't be able to hold the charade up forever. The bigger the top they create, the more likely it is that Bernanke will be out on his kiester. Hopefully, we can get someone who does not keep a crack pipe hidden in his droor.

andrewp111's picture

ZIRP is destroying the finances of States and Localities where unions are strong and pension benefits are high. ZIRP destroys anything that is dependent on interest income.

TrulyBelieving's picture

Yea, well this ain't capitalism, and it's sure not a free market. What a disgrace these people are.

infinity8's picture

The "maybe" is "the hook". I like to think Berstanke reads ZH and feels like an asshat after reading the scathing sentiment. . . but then, I come down, and I see him rubbing his hands together and giggling, thinking "I'm making them all Craaaaaaaazy!"

The Monkey's picture

They can't really come out and say, "Hey, we want to reduce the cost of capital to encourage greater credit growth. This will also ramp asset prices, so if I were you, I would be a buyer here."

Instead, we get Greenspan coming out with statements like, "Stocks are cheap. (wink wink).". Greenspan doesn't really know whether they are really cheap or not, but he is saying, "the Fed has your back, invest in stocks and we won't let you down.". Think about what that means. Neither Greenspan or the Fed control the entire world economy.

There used to be this idea that stocks and yes, even high yield bonds, came with risk. Now the only thing that has risk is being out of the market in cash.

Scary as shit. They want you to invest because lack of investor confidence in their eyes IS the problem, whereas I see the central banks continued backstops as the problem. If we did not have decades of risk bailout by the Fed we never would have had such an indebted manic society in the first place.

infinity8's picture

Well, first of all, Greenspan is gone. Second, who is "they": They can't really come out and say, "Hey, we want to reduce the cost of capital to encourage greater credit growth. This will also ramp asset prices, so if I were you, I would be a buyer here."


Agree, scary as shit. The Fed is "independent". So, who's in charge? Mr. Pres. X says "do this" or "don't do that" - do the Fed doos or dont it? Oh checks and balances - you make it so hard to point a finger.

The Monkey's picture

"They" is the Fed. I mention Greenspan, because he is the one out there inviting speculators to be the greater fool. The only logic is that someone else will buy your security for a higher price, because the Fed has your back and has guaranteed a put for risk.

Americans have been suckered into a ponzi scheme fully backed by the Fed. Few are even trading fundamentals these days, just pile into high beta and wait for the Fed to burn the tires (they will).

The Monkey's picture

"They" is the Fed. Greenspans remarks on the stock market are sick. He is saying, "we are inviting you to speculate on stocks and commodities, and we will have your back."

That is really fucked up.

This idea that they will now hit the gas without any indication from the market that policy action is necessary is plain nuts. We'll end up with a gigantic bubble and once it pops are economy will be in shambles.

But, if we QE on soft employment data, I'll trade the bubble along with everyone else. 1929!!!

LeBalance's picture

the transcendence of the no / yes question is the VOID.  aka Ka-POOOOOOOM! /lol/

but being as this is a rigged theft, we all know the answer.

its the grinch!

are you a sheep?

do you still need, ever so badly, the fucking?

vmromk's picture

Bernanke's day of reckoning is quickly approaching.

Al Huxley's picture

And maybe he's Mickey Fucking Mouse in Fantasia.

tmosley's picture

That was Calvin Coolidge.  Bernanke is just the most recent bucket wielding lunatic broom.

Also, the wizard and the apprentice are long dead.  No-one can stop this flood.

ReactionToClosedMinds's picture

what have you got against Calvin Coolidge?   There was disastrous inflation (serious stuff) and unemployment post-WW! with destroyed Europe and Europe looking to crucify an unrepentant but no wealth or industry Germany.   Arguably 1920 was worse (as was 1905/6) than 1931 (the real start of the Depression when Creditanstaldt started the massive global bank run).  Coolidge was a pretty good economic Prez ... unless you think the New Deal was not soft fascism .... 

vast-dom's picture

hey ty wouldn't it be called ULTIMATE BONDZI SCHEME?

vrabobabo's picture

infinite zerorate

El's picture

And this helps them with their dual

Ignatius's picture

Right.  What the Fed is 'succeeding' in is fueling speculation.  The root of the problem is the dilema of saving in the primary medium of exchange, the reserve currency.  Saving in gold that is physical only, non-fractionalized and unambiguously owned solves the savings problem (the preservation of value over time).  See FOFOA for detailed analysis of these issues.

rufusbird's picture

Instead of a "Moving Target" we have a "Moving Mandate". What ever will keep the ponzi going and bring the most profits to the Money Center Banks.

TrulyBelieving's picture

And rufusbird, 'whatever will keep the ponzi going and bring the most profits to the Money Center.' Literally whatever it takes is correct. That means there is absotulety no concern whatsoever about society. If it means serfdom for us or haulacaust, or war, or your very life, that price is not to much for these sociopaths.

rufusbird's picture

Quite chlling isn't it. "We need a prvate Army as big as our National Army" makes me think of brownshirts and bullys...

YesWeKahn's picture

Every thing bought has to be sold.

DUNTHAT's picture

What are the chances that they will sell those bonds over an orderly 3 year period like they purchased them???

cossack55's picture

Probably about the same as the discount rate.

andrewp111's picture

The Fed will hold the bonds on its balance sheet to maturity. They will never be sold.

cranky-old-geezer's picture



Yep, bond market is the last American ponzi bubble. When it pops, game over for America.

I should be working's picture

Maybe the Bernank needs to raise interest rates, you know finish the bondsy scheme with a quick kick in the nuts.

alfred b.'s picture


  Next to Barnanke, Al Capone was a sweetheart!

  Buy physical gold and silver.


greensnacks's picture

Might this  be more of a function of the US being a safe haven for the EU disaster, than front running the fed?

Not Too Important's picture

More of a gravy train for the bond banks. Is this money buying old issues or new?

Is buying newly issued municipal bonds in the US really any safer than buying Spanish or Italian muni bonds? Meredith was just a ahead of schedule, but on a long enough timeline . . .


fonzannoon's picture

this has been good for pensions as what they lack in yield they are getting in total return. cant go on forever though. at some point they will be locking in negative interest rates which will eat into the total return.