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The Bernanke Put 'Strike' Is Now At 1200 For The S&P 500

Tyler Durden's picture


We have discussed at length the need for the equity market to be significantly lower in order for Bernanke to step in with his munificence. Critically, this is less about the absolute level of the S&P 500 (though anyone expecting the Fed chairman to step in with the S&P 500 within a few percent of multi-year highs is dreaming) but, as Barry Knapp from Barclays notes - based on Bernanke's writings - additional monetary stimulus is a function of a significant drop in inflation expectations (as opposed to a shallow drop in the S&P 500). It is the risk of deflation that will trigger a policy reaction. Current conditions are not even close to levels that have warranted additional stimulus in the past - which we estimate to be a 2% 5Y5Y forward inflation breakeven rate. In order for that level to be triggered - based on the post-crisis relationship between equities and inflation expectations - the S&P 500 trailing earnings yield would need to rise over 8.2% implying an S&P 500 level near 1200. Tracking inflation expectations is critical to any NEW QE hope - and for now, there is none on the horizon, no matter how much everyone clamors for it.

The trigger for previous extreme monetary easing has been around the 2% level (red dotted line) for 5Y5Y inflation breakevens...

The small red and green arrows above (as we noted in a previous post) show the risk flare around Europe's initial re-emergence into crisis which was quickly grabbed as managers bought the dip on the Bernanke Put hope.

This implies around an 8.2% trailing earnings yield or an S&P 500 level around 1200...


Simply put - without break-evens dropping, the Bernanke Put will not arrive (as the printer-in-chief would implicitly believe it to be too inflationary) and so asset values will need to fall (on the back of real earnings disappointment or fundamental macro deterioration) in order to bring the FOMC in - if the status quo of BTFD reflexive front-running continues, NEW QE will remain absent.

Data/Charts: Bloomberg


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Tue, 07/10/2012 - 13:22 | Link to Comment Shizzmoney
Shizzmoney's picture

 It is the risk of deflation that will trigger a policy reaction

Right, because the one thing holding consumers up, isn't good enough for who the Fed works for - corporations (and the banks who hold their bonds).

Deflation, then inflation.  Bubble pops.  Rinse, wash, repeat.  Neo-classical Keynesian policy in a nutshell.

Tue, 07/10/2012 - 13:30 | Link to Comment knukles
knukles's picture

Last time the big risk of deflation happened, we had QEwhateveritwas and the Ubiquitous They wanted, let, had, did a good job of letting gold prices run to the upside to Prove that Their Policies Were Working.
Grand Show of the Omnipotent Illusion of Power of the Anglo-American Central Banking Cartel.

Just remember folks, Last Time it Was Lehman and a Small Dent of a Global Slowdown.  This tim it's Big, Bigger, Biggest, Humongous slow down.  (giggle)


When's the Exchange Stabilization Fund gonna need replenishing?

Tue, 07/10/2012 - 14:30 | Link to Comment diogeneslaertius
diogeneslaertius's picture

id buy that for a dollar!

Tue, 07/10/2012 - 15:25 | Link to Comment The Monkey
The Monkey's picture

The earlier we get QE, and the resultant buying frenzy, out of the way the better.

This puppy is going to go down hard anyway. QE is just a fart in the wind.

Tue, 07/10/2012 - 15:26 | Link to Comment nope-1004
nope-1004's picture

The small red and green arrows above (as we noted in a previous post) show the risk flare around Europe's initial re-emergence into crisis which was quickly grabbed as managers bought the dip on the Bernanke Put hope.

Bernanke and PPT themselves bought the dip.  QE to infinity.


Tue, 07/10/2012 - 15:57 | Link to Comment vast-dom
vast-dom's picture

but if Bernank isn't quick on the keys, he may be scrambling cause SP could go from 1200->800 rather rapidly. Yeah I'm deluded, but I may be right too....

Tue, 07/10/2012 - 13:23 | Link to Comment 101 years and c...
101 years and counting's picture

that 1170 gap on spy must.



Tue, 07/10/2012 - 13:23 | Link to Comment Its_the_economy...
Its_the_economy_stupid's picture

Chart porn. The next print will be triggered by Swaps to bail the continent.

Tue, 07/10/2012 - 13:24 | Link to Comment ZeroPower
ZeroPower's picture

Nice analysis using break-evens. Though, as im sure youve noticed, 5y5y TIPS breakevens have surprisingly held up quite well considering the environment.

Tue, 07/10/2012 - 13:28 | Link to Comment midgetrannyporn
midgetrannyporn's picture

1200 sounds about right. JPM rigs the market as long as they can then orders the bernank to take action if it gets below a certain level.

Tue, 07/10/2012 - 13:29 | Link to Comment Mr_Wonderful
Mr_Wonderful's picture

Obviously there will be increasing pressure to sell in the second half before the higher capital gains tax kicks in after the new year.

Tue, 07/10/2012 - 13:35 | Link to Comment's picture

Bernanke is likely waiting for the very real possibility of war with Iran, and the need for massive monetary infusion at that time.  Depends on world and market reaction - likely horrible, gas prices soaring, stocks falling, bonds falling.  Can't go get taxes just yet.  The Chinese are not likely to lend it.  Europe is broke.

Obama has made it clear - when I need the money, it must be there and ready to spend.

We are past supporting trading desks with anything more than sweet words.

Tue, 07/10/2012 - 13:33 | Link to Comment MunX
MunX's picture


Tue, 07/10/2012 - 13:45 | Link to Comment Mr_Wonderful
Mr_Wonderful's picture

I don´t know. Corn is lower than it was in 2008. It´s even lower than last year.

Tue, 07/10/2012 - 14:26 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

It's OK because the US of A has a huge Iron Mountain environmentally-insulated hermetic facility that is stockpiled with three decades worth of Crispixtm for approx. 500 million people*, or, a smallish cadre of top politicians and their immediate advisors and aides for two centuries*.  Nuclear war, sun spots, and mad cow can not probe it's adamantine depths.

It is within Obama's executive powers to loose increments of this great treasure hoard of processed corn and rice product - part of a balanced breakfast, no less - in order to waylay vast swaths of downstream arcane financial products via the Fed's chief trading conduit, JP Morgan's finely-desiccated corpse ass that is now secured by drywall anchor in the interim foyer of 1 Liberty Tower.


*based on 1 cup recommended serving per sitting

Tue, 07/10/2012 - 14:27 | Link to Comment Dr. Engali
Dr. Engali's picture

08 was the result of a super spike. I don't know about you but I live in corn country. All the farmers are having a bad year. Many of them are cutting down their crops already for silage because it's dead. You have't seen anything yet.

Tue, 07/10/2012 - 13:40 | Link to Comment punxsutawney phil
punxsutawney phil's picture

1200 bull shit.  Fed sells puts short (SPX cash kind, no delivery needed) all week long now with this weeklies.  As long as they sell more delta than the mkt can take, it will settle their way on fridays.  An is no record since is cash settled


Tue, 07/10/2012 - 13:40 | Link to Comment hedgeisforpussies
hedgeisforpussies's picture

here we go. breaking it. next is 1340 and 1320? 

Tue, 07/10/2012 - 13:42 | Link to Comment Cursive
Cursive's picture

It is much easier for a fund manager to believe in the Bernanke Put than to try to understand this analysis.  Bernanke will all ways be there, no matter what, so the theory goes.  All in on the beta trade.

Tue, 07/10/2012 - 13:46 | Link to Comment slackrabbit
slackrabbit's picture


Was just doing some figures and on TV South Africa private debt is now at 1.2 trillion rand (1000 South African rands = 121.96900 U.S. dollars).

This time I was actualy 'shocked'

Tue, 07/10/2012 - 13:45 | Link to Comment SheepDog-One
SheepDog-One's picture

So ES is like 150 points 'rich' at least, yet they wont even allow it to drop 5 points. So whats really next, some big false flag event?

Tue, 07/10/2012 - 13:50 | Link to Comment Dr. Engali
Dr. Engali's picture

That is the only way to take out the front runners in the market. It's coming soon.

Tue, 07/10/2012 - 13:45 | Link to Comment hedgeisforpussies
hedgeisforpussies's picture

fund managers do not believe in BB put. but they trade on it because everyone else is doing it so if it goes wrong they wont get fired. its much easier to say i did so because of BB put and everyone else did the same. if fund manager is contrarian and he gets it wrong he will lose his track record and his job but if he is crowd follower and wrong than nothing happens because everyone else is the same. 

Tue, 07/10/2012 - 13:50 | Link to Comment time2blowitup
time2blowitup's picture

There will be intervention long before 145 handles..unfortunately

Tue, 07/10/2012 - 14:04 | Link to Comment cougar_w
cougar_w's picture

Deflation is the real monster here. And the whole world is in the jaws of the beast.

Okay Ben, what ya got? Play your hand or GTFO.

Tue, 07/10/2012 - 14:11 | Link to Comment GlassSteagall
GlassSteagall's picture

The Winds of Collapse are swirling about but cycles will win out for a while.

Tue, 07/10/2012 - 14:14 | Link to Comment trader78
trader78's picture

This chart is money!!

Beware of the Goldman Suchs call for Q3/Q4 of going long!

They will do it just to rip our face - scumbags!!

Tue, 07/10/2012 - 14:32 | Link to Comment bnbdnb
bnbdnb's picture

Someone needs to page Hilsenrath.

Tue, 07/10/2012 - 14:39 | Link to Comment hedgehog9999
hedgehog9999's picture

and 1150 -1250 area is exactly where we are heading bitchez.........

it is like a magnet to ultimately achieve what everybody wishes QEIII to levitate markets again and kick the can 'till early 2013.....just in time to help the present corrupt regime again.....

I wonder if anybody that got Corzined again this time gets the culprits in jail including Corzine who set the benchmark for helpings at segregated wonder everybody's selling..

foool me once .....fool me twice .....whatever, you know this one....

btw, this not a wave 5 down as many have hoped, it is the beginning of wave 3 down following a wave two correction this AM....

Tue, 07/10/2012 - 14:59 | Link to Comment JackT
JackT's picture

it's a self-fulfilling system. Those all in waiting for the put will get it, except it's will only, if even, get them back to where they were when they started waiting.  


Tue, 07/10/2012 - 15:24 | Link to Comment MFL8240
MFL8240's picture

Get rid of this clown!

Tue, 07/10/2012 - 15:41 | Link to Comment kato
kato's picture

"deflation" is a krugman word in this mess.

Tue, 07/10/2012 - 19:41 | Link to Comment mendigo
mendigo's picture

Conditions to justify QE do not exist.
There will be talk of other forms of stimulus going into elections - I a waiting for my check in the mail. Probably like $500.

Mon, 07/30/2012 - 13:56 | Link to Comment Remington IV
Remington IV's picture

Obama's fault

Fri, 09/14/2012 - 19:41 | Link to Comment WallowaMountainMan
WallowaMountainMan's picture

a blast from the future:

'We have discussed at length the need for the equity market to be significantly lower in order for Bernanke to step in with his munificence....though anyone expecting the Fed chairman to step in with the S&P 500 within a few percent of multi-year highs is dreaming'

on today, sept 14, old mr. b stepped in with markets sky highs. way be guessing its the collapse of china with europe on its heels, followed by the us of a, that be scarin the mr b to death. its in his voice.


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