Chart Of The Day: With All Of QE3 Priced In, The Only Way Is Down Should Bernanke Disappoint

Tyler Durden's picture

The following chart from Bank of America shows that with a few short hours ahead of the dangling strawman known as Bernanke's J-Hole address (now that Mario Draghi has more pressing issues to deal with elsewhere), expectations for QE3, in the form of what is actually priced in, just hit an all time high. So is, by implication, the potential for disappointment and that the petulant market, no longer caring about such trivia as fundamentals, technicals, newsflow or frankly anything except what the Chairsatan ate or what side of the bed Bill Dudley woke up on, will not get what it demands. It then begs the question: if the S&P is at 1400 with virtually all of QE3 priced in, what is the "fair value" if there is, gasp, no QE3 announced either today, in two weeks when the FOMC delivers it periodic oracular address to the plebs, or until the post-election FOMC meeting, which will take place on December 12, and just days ahead of the Fiscal Cliff arrival (which will certainly not be resolved by then)?

Some comments from Bank of America:

We anticipate a relatively dovish speech that signals a high probability of additional easing at the September FOMC meeting. But "easing" and QE3 are not synonymous. In our view, a change in the Fed's rate guidance is very likely, but Bernanke is probably not ready to preannounce QE3. Indeed, he is unlikely to front-run his Committee, so we would expect a speech that is long on historical defense of the Fed's easing to-date but short on details of any future actions. Given that the markets have priced in a high probability of QE3 (Chart of the Day), in our view that could be a disappointment.


A hawkish dove


In our view, more unconventional policy is just a matter of time. Thus, we expect Bernanke to emphasize three key points, without actually signaling the Fed's next steps. First, he is likely to underscore the bias statement in the minutes: if the economy does not improve substantively, the Fed will ease further. Second, he may discuss the Fed's options in more detail, building on some of the discussion already noted in the minutes. Third, he is likely to argue vigorously that unconventional policy is both necessary and effective. 


The Bernanke Fed has not been shy about introducing new ways to use language or its balance sheet to stimulate the markets. However, we do not expect an outright signal of QE3. Keep in mind that "easing" and QE are not synonymous. When Fed policymakers signal that they are ready to ease, they mean not only changes in their balance sheet but also changes in their forward rate guidance and other language changes. Further, Bernanke will likely remind everyone that monetary policy is not a panacea - without naming names, he will likely point to the pressing need to deal with the fiscal cliff. He is also likely to note that unconventional policy comes with costs as well as benefits.  


Rates market implications


In our view, the rates market could be disappointed by Bernanke's speech. Our model currently indicates that a greater than 85% chance of QE3 is priced into the market in the near term (3-4 months). This probability is at recent highs, indicating that the market is likely expecting some explicit signal of further QE by the Chairman at Jackson Hole - and the lack of one is likely to be taken as a disappointment by the market. 


One could argue that selling nominal 10y Treasuries may be the way to position for a Bernanke disappointment trade. However, at 1.61%, we do not believe that nominal Treasury levels are extreme by any means. A return to risk aversion or disappointment on the economic data can lead 10y rates lower: just a month ago, 10-year Treasuries were at 1.39%. Selling 10y real rates, at close to all-time lows of -0.72%, offers more compelling risk-reward, in our opinion. 


A significant portion of the rates market reaction will also depend on the reaction in risky assets. A risky asset sell-off triggered by the lack of a strong signal for QE could also mute the reaction of higher nominal rates, in our view. In this case, inflation expectations as priced in by TIPS breakevens should head lower. We recommend that investors tactically short 10y real rates and 10y TIPS breakevens to position for a disappointment from Chairman Bernanke.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Dick Darlington's picture

But but but, everybody's so bearish and noone expects QE is the mantra. LOL!

theMAXILOPEZpsycho's picture

Long treasuries is the no lose play

Gold has only one way to go...DOWN

malikai's picture

We've just put together a few screenshots of some of our models (silver, gold, usdx, and eurusd) as of this morning, worth a look:

Also, as usual, gold is running on the public console:

Will update throughout the day.

Muppet of the Universe's picture

NONONO. Tomorrow is VERY simple.  If BBking QEs Long PMs HARDASFUCK.

If BBking doesn't QE market fall should continue.  Now noting the historical trends of buy the fed meeting rumors sell the fed meeting news, and that the buy rumor portion has been moderately bearish at best, expect the sell the news portion to be a fucking shitshow.


Tomorrow is simple simple trade.  Long Gold silver, long vix futures. maybe short market as well.

But far as I'm concerned trading through the speech is just stupid. 

malikai's picture

Long term, absolutely. But today is Friday and it's a Fed speech day, so whatever makes rational sense is usually not what happens.

Now, come Monday, we can probably come back to a bit of rationality, if only a tiny bit.

Muppet of the Universe's picture

no doubt that post meeting dip sometimes takes a bit to occur.  But still, long pms if he QE's.  Say goodbye to 1600 gold.

Slack Jack's picture



China and Germany will no longer do business in USD, Euros and Yuan preferred;

Should I be buying EUR/USD ???????

Should I be buying Yuan ???????

Should I go out and buy a heap,...???????????

Should I wait,...???????????

What if they disappoint ???????? Is it all priced in ?????

So,... How come Tyler hasn't picked up on this?

Come on Tyler, why ain't you helping us out.

Slack Jack's picture

Seriously dudes,.... why is this topic being ignored ??????????

HellFish's picture

Probably because you are posting about it using a BOLD font.

i-dog's picture

Because you have been recognised already as a Zionist shill (either that, or you're as dumb as a box of rocks).

Congratulations! You've taken the award for the shortest-lived shill ever to appear on here. Even Max Fischer took longer!

Slack Jack's picture

Wow,... an award. Thanks.

Muppet of the Universe's picture

b/c ur a stupid fat fatty.  Now short the dollar and go long the euro.

Lewshine's picture

Uh...How wrong could anyone be in the least amount of words used? - We have a winner! C'mon, here's the trade TILL KINGDOM COME; Long anything that perpetuates the color of the Wallpaper draped over muppet's head. Short anything that reveals the hyper-inflation it causes (as a day trade). Why is this paint so hard for everyone to see? The Fed is the market, trade the Fed's ideal outcome (LIE).

QE is alive and well. You saw it yesterday in the Dow's 120 point drop. Slow, methodical...Theatre!! A pullback created for realism that has no chance of taking root. It was as FAKE as any upside move we've seen in last three years. Ben's got this market on a real short leash. Trade it based on the big lie, which means: buy every dip in equities and short every commoditiy ramp in anything that exposes inflation (as a day trade)!!!...Or get ROASTED. I'll short oil, gold and silver for a day trade today - I'm long spy, diamonds and Q's from yesterday's "fiddler on the roof"well placed pullback. I will cash in 50% my long ETF's before the Fed language release. Leaving half in the trade, knowing that Ben will flood equities during and immediately after speech...Leaving no doubt what the result will be (security before a 3 day weekend) - Regardless of what the language says!

fredquimby's picture

Au contraire psychofella, it can for sure go up too! As your comment is typical of the dominant comment this week, I just bought a load of Dec 2013 +3000 call options just to be a contrary git.

Bring it on :)



malikai's picture

Ballsy. I like that. I hope you see them in the money soon.

deez nutz's picture

Long treasuries is the no lose play

Gold has only one way to go...DOWN


theMAXILOPEZpsycho ...... yep.

Muppet of the Universe's picture

Durdens of Zerohedge:

Something is very odd in the agro futures and bond futures markets...

What is happening to the futures market?

What the Fuck?

I have no tradestation :( What is happuning?

malikai's picture

That shit looks bizzarre. Unless proven otherwise, I would expect that is some sort of problem with their feed. I just checked my feed source (CFD from futures), and I don't see that, nor do I see ridiculous spreads, so I don't think what finvis is seeing is accurate.

EDIT: Actually, it looks like finviz is rolling their quotes to the december contract. So it is probably correct. The price they are showing is the dec, while the previous price is probably the old contract.

Muppet of the Universe's picture

are they alternating contract months over to december?  What are they donig it so fucked up if so? 

I want my poot poot back.  Fucking bitch I gave it to ghosted the corrupt data back onto my newly wiped drive.  dumb bitch.

Edit: yea I'm sure that is what they are doing.  maybe they forgot to unlist the previous month so both months are streaming simultaneously? 

malikai's picture

It's definitely a strange way to do it. I don't know what they've got going on there. Most places I know roll the contract out on a Sunday night, not a Thursday. I guess this is why.

EDIT: I think you're right. It looks like they did forget to pull the old contract.

Muppet of the Universe's picture

but they rolled the nat gas yesterday, and that was seemless.  Prob just a glitch and we are wasting time figuring out something stupid.


TheFourthStooge-ing's picture


That shit looks bizzarre.

'tis an odd crap lying on yonder roadside.

Unless proven otherwise, I would expect that is some sort of problem with their feed. I just checked my feed source (CFD from futures)

The agro futures you read
reflect a problem with the feed.
The source, as you will see,
is indeed the CFD.

(Catastrophic Fucking Drought)

malikai's picture

LOL. The limerick king strikes again!

TheFourthStooge-ing's picture

The Limerick King operates on a level to which I can only aspire. His is truly the Majesty of Mirth.

EscapeKey's picture

Marketmakers went home, leaving a large bid/ask spread, which were traded lightly?


slewie the pi-rat's picture

not sure...  try playstation?   (sry;  couldn't resist!)

i'm seeing the 10-year got whacked which means (?) risk0n usually

and the index futures are up 0.2-0.4%

and the dollar is dipping but not more than randomly imo Chart for U.S $ 

we have had some articles here about how these "rates for Ts" can get moved around

tyler is w/ some girl that jumped outa a cake right now...  what have you been drinking?

TheFourthStooge-ing's picture

The big wooden barrel next to the cake is filled with swish.

Anasteus's picture

It's a regular pattern... perhaps an algo racing trying to increase/decrease the trend obstinately by the same value.

Anasteus's picture

Both t-bond charts are somehow related. The strange behavior starts at 8.00 PM yesterday on both charts but in opposite direction. It seems to me like 10y bonds are being sold in favor of 30y bonds being bought simultaneously.

resurger's picture

"We are ready to take further actions if the S&P drops another 20 points"

More of the same...

Fuck Chairsatan

Yen Cross's picture

  FUCKIN-A_     Post facto!

devo's picture

No QE, but a lot of bullshit.

slewie the pi-rat's picture

i don't buy the propwash abt the FED agreeing to more easing if the economy doesn't...  blahblahblah

WTF does the chairsatan care what the "markets" expect at this point?

he will say that while he was watching the animals rut the thought came to him:  gold and silver coinage as legal tender?

Yen Cross's picture

 slow the "meat ball"down Slewie\\   You are extremely, hyper smart!   I know you are Alpha.  CHILL out,\\\\

   i can relate 90 ():

slewie the pi-rat's picture

well you can regulate yer ass and i'll regulate mine, ok?

this isn't the first time you have "advised me" about my political speech here

really, bro

and :>  you need to stop pretending you don't know what i'm saying, ok?

if you don't know what my ideas (based on the constitution) about PM coinage are,  don't blame me

you are not here enuf to know what is happening on the ground and what i am doing at present

altho people may be "telling you"  or you "think" you have a very high level of absolute ignorance about many things and probably should just mind your own business as far as slewie's writing and blogging is concerned

i know you like to e-mail people whom you flatter and flitter with here, but leave me outa yer "social life" ok?

if you have "delegated" the job of following zH, you will be revealed as a fool

you don't get it do you?


LetThemEatRand's picture

I would not ordinarily do this, but the only way to go is down and it is late Eastern.  And Dio is literally doing "God's" work.

Hobbleknee's picture

QE never stopped, and it will continue, but they won't admit it.

economicfreefall's picture

I think they want a short-term correction between J-hole and Sept. 13. Imagine getting a 10-15% drop in PMs and stocks before launching a big QE package...must be every central banker's wet dream to come riding in on his white shiny printing press to solve the deflation fears...

Whether it’s disappointment or a hint that a further monetary boost to the economy is on its way, the speech on Friday from Federal Reserve Chairman Ben Bernanke is likely to trigger a strong swing in either direction in U.S. stock, currency and bond markets, which are sitting on critical technical levels, one analyst says.

Yen Cross's picture

 That QE-3 read is highly (in-effin) Flated.  Yes ! I can read stupid charts.

glide21's picture

let them eat USD when they get hungry, or maybe share certificates taste better

ebworthen's picture

"Get more sugar syrup ready and make sure that machine is on Timmy!"

If Ben doesn't spin more cotton candy there will be crying.

Yen Cross's picture

 Tyler was (            ) full of poop!  If you look @ the top (ascending) line you can clearly see, 20% max deviation.

    Technically, tyler posted,blue moon Theory

TheFourthStooge-ing's picture


It then begs the question: if the S&P is at 1400 with virtually all of QE3 priced in, what is the "fair value" if there is, gasp, no QE3 announced either today, in two weeks when the FOMC delivers it periodic oracular address to the plebs, or until the post-election FOMC meeting, which will take place on December 12, and just days ahead of the Fiscal Cliff arrival (which will certainly not be resolved by then)?

Fair value is 90 trillion dollars. This is calculated by consulting the chart:

How the chart works:

Monedas's picture

What an incestuous Socialist circle jerk .... and Bernanke is first fiddle !

Yen Cross's picture

Don't test me. Your cousin wants you  (evaporated)

GlomarHabu's picture



Should the election go badly for the democratic anarchists in Congress the matter of the fiscal cliff surely being resolved is far from a settled matter.

During Watergate,James McCord said he wasn't going down alone but that "every tree in the forest will fall"

ob-la-de-ob la-da obama has the best anarchist training that Bill Ayers et. al. could give him. he and his anarchist buddies will, during the lame duck period try everything in their power to burn this country down ....he hates the USA more than any other adversary we have.

Yen Cross's picture


                                                    I'm Boris, and you are "Slewies Benifactor"   ( Any Questions?)

slewie the pi-rat's picture

me!  me!

is your last name Bones?  i wanted to thank you!

is it the radiation?

i think i was channeling the spirit0comedyJihad last wekend