Did The Market Remove Its Own QE Punchbowl?

Tyler Durden's picture

There are only three words that send a chill down the spine of Ben Bernanke - Ron, Paul, and Deflation. His life's work is devoted to the avoidance-at-all-costs of the latter (and probably the former in reality). As we discussed here two weeks ago, his actions in extreme monetary policy have all occurred at periods when the market's expectations of future rapid de- or dis-inflation have increased rapidly. As we noted then: without inflation break-evens dropping, the Bernanke put will not arrive; but the market in its infinitely efficient wisdom has created a self-defeating spiral of BTFD reflexive front-running on any rapid spike down in future inflation expectations - which implicitly sparks a non-dis-inflationary reaction and removes Bernanke's punchbowl for another day. This has occurred 4 times this year - with this week's early plunge being caught by Draghi and Hilsenrath - and with inflation break-evens almost at their highest in 10 months, it would appear the 'desperate-not-to-miss-the-life-giving-rally' market just removed its own blood supply.


Each time the inflation break-evens have cracked down hard towards 2.0%, Bernanke has stepped up bowl-in-hand and ladled out the yummy QE Kool-Aid; 2012 has seen 4 'mini-spikes' which have all been triggers for responsive equity buying to front-run Ben's-Bowl. But as is clear, the more this occurs, the less likely the bowl is to actually appear!


Data: Bloomberg

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agent default's picture

There is a difference between BTFD and catching falling knives,  as many will eventually find out about this QE rumor /HFT driven market.

veyron's picture

Too much USD chasing after too few real investments ...

RockyRacoon's picture

I guess the volume shows how many are still playing the game.  But profits are made at the margins.

engineertheeconomy's picture

Money is created as credit, the National Debt is a hoax

The Monkey's picture

I disagree. When Hisengrath floated the stick save this week, it was locked in more easing was in the cards. The Fed knows the markets are in over their skis. After Italy and Spain dropped like rocks, Draghi pulled the emergency cord, and so did the Fed. Now at least one of them has to act to buy time, and it won't be the ECB.

Open market purchases are absolutely guaranteed at this point. Anything else you read on CNBC is just market makers trying to set the expectations bar lower.

Easy money coming up. Apparently speculators are in total control.

Make us happy Ben. You don't like it when we're in a bad mood.

Muppet of the Universe's picture

Stop selling so hard you f'ing bastards I'm trying to btfd!  ;D

Muppet of the Universe's picture

Seriously you fuckers are strait up crazy.  Calling for QE at 13000 dow, falling for whatever the drag miester or BBking says.  I mean don't get me wrong, I still bought at 6.

So I am wrong to criticize hypocritically, but I am tired of claims of QE, being tossed about as if words are as good as the actions themselves.

Truth be told, the markets are eclipsing expectations.  They are being kept afloat not just by expectations of QE (Only suckers think its coming).

The markets are operating as they should.  & eventually, the markets will reset and find fair market value.

But it is important that fair market value is found responsibly, and not wrecklessly. 

These markets are fragile, and there is no need to crash them when the reality, that QE isn't coming (for a while), sets in.

This is your home.  Treat it with respect.


CPL's picture

The home will be treated as a rental unit that is until private capital and ownership is respected.


You and I as investors aren't even a consideration.  We are chump change in comparison to people that can literally print money out of thin air.  The word self made millionaire doesn't even enter into the people running the show's vocabulary.  We are just something to fleece, butcher and then tax.  We aren't the target audience or even considered human in their eyes. 


230 people running the central banks are the only show in town.

The Monkey's picture

"(Only suckers think it's coming)"

We'll see about that.

All Risk No Reward's picture

>>There are only three words that send a chill down the spine of Ben Bernanke - Ron, Paul, and Deflation. His life's work is devoted to the avoidance-at-all-costs of the latter<<

A word of advice - question the establishment narrative because they are almost always false.

Bernanke is all about increasing the power and wealth of those that put him into his position - Big Finance Capital (BFC).  BFC runs the Fed for its own ends.

While it is true that criminally blowing the world's largest credit bubble (they broke Section 2A of Fed Res Act) has been the ply up until now, DO NOT ASSUME it will continue to be forever.

The reason to blow the bubble is to bust all the debtors and take their chit.  It is elementary.

Think of it this way - Greenspan was a fan of Ayn Rand and followed her precepts... including no regulation of the Big Finance Capital corporate fronts.  When that all blew up and it would actually cost BFC to follow Rand's "let them fail" prescription, let's just say that Rand and her philosophy ended up in the trash can in short order.

You see, Greenspan never followed Rand, rather, that was the narrative used to cover the idea of no regulation for the criminal corporate fronts controlled by his ultimat bosses.

This con is sophisticated, but if you understand basic Econ 101 cost / benefit and the actual power structure (government borrower is SERVANT to the lender, especially when the lender's operatives staff the government).

That's not to say hyperinflation isn't the end game - it probably is.  But only when it benefits BFC as a book keeping exercise AFTER they've busted all the debtors they criminally created.

These people aren't idiots, they are very, very, very sophisticated criminals - which is why they have you by the ears as they work you over and there's nothing you can do but pretend the ravaging and ear pain you are getting is due to "cluelessness."

jeff montanye's picture

but as john hussman notes, risk has probably not been removed from the financial markets or the economic cycle.  http://www.hussmanfunds.com/wmc/wmc120730.htm

front running qe3 has become a dominant force in the markets.  at some point might we expect, after all the rumor buying, some news selling?

yogibear's picture

Bernanke is guaranteed to QE as long as nobody stops him. Bernanke has to surprise the market with a much larger QE. As long as Bernanke keeps equities going up he perceives all the rest will follow with the wealth effect.

A surprise larger than expected QE would be a terrific boost for the commodities.  There is no turning back for Bernanke, he must buy Wall Street and investment losses with more and more printed money to prop everything up. Washington can keep pushing up debt limits higher and higher. 


Onward to a 30 trillion dollar debt limit make-believe  Keynesians. We'll how ridiculous the debt limit get until it fails under it's own weight.  


boogerbently's picture

" the more this occurs, the less likely the bowl is to actually appear!"

Quit complaining. A rally WITHOUT the added deficit is better than a rally WITH "printing".


Muppet of the Universe's picture

I completely agree.  Just because the market is not being fed QE, doesn't mean we need to crash it. 

But it does mean we as speculators need to do our best to find fair value.

Now make what you want of that statement.

But understand it means this point can be found... responsibly.

The Monkey's picture

Look at how many doves there are on the FOMC. Last time around Yellen went so far to put a nice if editorial presentation of the "facts and data" available for everyone.

There is tremendous and growing dissent within the Fed because the policies are aweful. But, if they print a lot and move crude oil, there is some upside:

1) Payday for me.
2) Maybe Romney will get elected and kick the bastard out.

Jake88's picture

you forget who works for who

The Monkey's picture

No, as a speculator I know they all work for me.

jeff montanye's picture

i don't think bernanke believes the rising stock market has a significant wealth effect (it doesn't).  it is certainly playing for time, hoping to get lucky, avoiding pain to his masters.  what else the plan is eludes me.  but the wealth effect is minimal and well researched.  as john hussman notes:

The more troubling issue is that Fed papers on the effectiveness of QE focus almost singularly on the effect of QE on interest rates and risk premiums in the financial markets, with the notable absence of any analysis of the resulting effect on the real economy. This is like showing that squirting gas into an engine will make the engine run faster, without any concern for the fact that there is no transmission that connects the engine to the wheels. In a nutshell, the problem with QE is the lack of any material transmission mechanism from monetary interventions to real economic activity. This is a problem that the Fed should have recognized years ago, because there is strong and consistent historical evidence that real economic activity has very weak “elasticity” with respect to financial market fluctuations, particularly in equity values. Invariably, a 1% change in the value of the stock market is associated with a change of just 0.03-0.05% in GDP, and even that change is transitory. What the Fed has been doing is little but bubble-blowing, while at the same time driving the global financial system further from equilibrium rather than toward it.

The Monkey's picture

Don't kid yourself. Greenspan made a career juicing the markets and has said as much.


engineertheeconomy's picture

Slap your monkey once for me. You fucking trolls are fucking pathetic

Skateboarder's picture

Schrodingerian QE following the HeisenBen Uncertainty Principle.

I don't think a QE package < 1T will make a dent. This one's gonna have to be rather well-timed and significant - all know that you can't milk the QE cow to QE4/5/6. It makes 'em look even more incompetent than they already are.

The Monkey's picture

Why? Because we have been making bank on a government mandated wealth effect? What is wrong with that? I didn't come up with the horrible idea, I just trade it.

dexter bland's picture

Just as with inflation, the expectation of stimulus plays a major part in the outcome. Perhaps its more important than the stimulus itself, as investors buy up stocks and bonds in anticipation but, may turn around and become sellers when it is actually announced.

So perhaps instead of actually implementing QE3 they should instead commit to issuing vague statements and leaks about imminent stimulus for an "extended period", through 2014 or so, so we could pencil in a date for the market top.


The Monkey's picture

True. We don't know the size and timing until they launch the nukes. So, your left with long / short, changes in volatility, specific issues & lapping up any sentiment overshoots.

francis_sawyer's picture

I wasn't the one 2 junk you Rocky... But I'd say profits are 'booked' at the margins (not MADE)... In my world ~ there is a difference... But that's just me...

The Monkey's picture

The Fed (kindof) put the brakes on heavy duty QE for a while, just to keep us guessing. But it will be clear this week. They are out of options except to engineer a speculative bubble.

fonzannoon's picture

Monkey what about the possibility that the fed says they want to see a little bit more information before they act. Then Friday you get a 150k on the NFP report? Then they bought themselves 3 more months of "needing more information".

The Monkey's picture

The clock is ticking, because we are nearing the election. They don't have 3 months unless the markets tanked hard. Best to put policy in place now.

Jake88's picture

the fed put the brakes on QE because the Chinese are not going to buy our debt if we keep cheapening the dollar. We need them to buy our debt.

The Monkey's picture

I bought those long term treasuries foreigners were selling. Right when they were yielding 4.6% in 2011 and retail was panicking. Yet another great deal created by the Fed.

Sorry Mom and Dad.

RockyRacoon's picture

I wasn't the one 2 junk you Rocky... But I'd say profits are 'booked' at the margins (not MADE)... In my world ~ there is a difference... But that's just me...

You are 100% correct.  I'll be more precise in the future.  It ain't profit 'til you put it in your pocket.

Today is my 3 year ZH anniversary so I should have learned that by now.

gwiss's picture

Bingo.  Perceived value of real assets has decreased faster than the volume of leveraged electronic money created on the back of those assets.  We haven't yet vaporized enough imaginary wealth for real assets to be valuable enough to once again start extending credit on them, which is why no organic recovery has occured.  Which is to say, total perceived value of real assets is declining at a faster rate than the money supply, which is a death spiral with no bottom.  This has occured because the central bank and government stopped imaginary wealth from being vaporized through bank failures, which would have allowed deflation to increase the perceived value of assets faster than business slowdown and selling into minimally bid markets could drop them.


Thus, we have oodles of cash with nowhere to go because everyone senses that all assets are overpriced, so it sloshes around with no exit desperately seeking yield until causality catches up with it and the imaginary wealth herd is thinned to a useful size.  In the mean time, the internet has allowed the market to become much more self aware then it ever was before, and it is learning faster and faster.  Thus, intervention breeds the failure of intervention, just as Hegel's dialectic would predict.  Question is, will the market ever drop?  Or, will it just go on believing while businesses all disappear, and we are left with a third world country with unusable infrastructure and the Dow still sitting at 13,000?

The Monkey's picture

Just make sure to review your charts. Speculative bubbles can go for a long time before they unwind.

600 billion should light everything green for weeks/months.

AND, makes for a great short at the end (just when retail has finally loaded up).

Ben "feed the wealthy speculator" Bernanke:

-- without a short-term, you don't get a long term (so we must print and satisfy the markets).
-- retail investors and the poor impacted by rising prices are unfortunate collateral damage.
-- the means justifies the ends because it is the wealthy professional investor that we cater to.

fonzannoon's picture

i think we are heading into uncharted territory

bigkahuna's picture

It does look uncharted right now. Eventually though, it is going to look like some event in the past. Yugoslavia was an example of a corrupt government printing money to finance war. It did not end well for them. It took 2 years for the wheels to come off after absurd inflation in the early 1990's. I know that the Dinar had nothing on the Dollar, however it does appear that is slowly changing. Once countries around the world reach some critical mass of transacting business in currencies other than the Dollar, things here in the US are going to start rhyming a little better with the examples of monetary disasters ala Yugoslavia, Weimar, Argentina. The whole process literally reaches critical mass and very quickly therafter - the crap REALLY starts hitting the fan. I mean we will be in a bad way the likes of which rarely seen in history with sickness, starvation, and brutality as the order of the day. Ask someone from Yugoslavia what happened on the streets there during the early 90's. That is very likely our future and I am not sure there is jack squat that can be done at this point to stop it.

The Monkey's picture

What's funny is that the price to avoid monetary perdition is not that high. Accept some deflation, higher unemployment for a lenghty period and a difficult fiscal consolidation. But, that would mean the party would have to end for a while. Politicians would have to administer hard medicine, etc.

ekm's picture

Absolutely. As I have expressed my thoughts in the past:

It used to be that retail were the suckers.

Now the traders are the suckers for FED and ECB. Sucker them into BTFD  with a speech right before a meeting and then justify no QE since the market is up.

Ah, those traders are so innocent, so pure, so virgins! I feel for them.

sessinpo's picture

Those traders are speculators. They just haven't been demonized because they aren't trading "certain" markets. If/when we get a short ban on equities like they have done sporadically in in Europe, those traders will be considered evil and part of the cause/problem of an equity melt down.

It happens in every market. When the house market crashed, house flippers became evil for driving home prices up to high to fast. Well a lot of house flippers also lost their shirts when the market collapsed. Same thing happens in energy. I can't beleive we haven't seen the same argument for the grain markets (corn specifically). The MSM and politicians are letting this one get by.

ekm's picture


Don't bother with MSM. 24/7 work for that little money. They will do whatever the boss tells them to do to have an income.

Who owns MSM? Do not even bother.

The Monkey's picture

I'll trade whatever the Fed gives me, and do it after the fact. They either overshoot (in which case I'm a buyer of the junk they are selling, because they have taken the risk), or they undershoot, in which case I'm a short seller.

It's a horrible policy, but they are in so deep, even the slightest correction these days sends shivers down their spines.

sessinpo's picture

And each additional jolt has had less effect. To compare it to a junky's situation, there are 3 scenarios.

1) Junky will go clean - no more debt. Immediate collapse of the markets.

2) Junky will get another dose from BB, but will less effect and junky will not be satisfied (QE failing). This has been the delay tactic of the FRB for years to avoid the inevitable. Junky is demanding more and more printing to keep that high, but BB is seeing it is not having the positive consequences intended.

3) BB will cut junky off and anger junky. Also immediate collapse.


All three lead to eventual collapse of the monetary system

Nadaclue's picture

The Monetary system is in its death throngs. imho

There is a term for the event. TEOTMSAWKI (The End Of The Monetary System As We Know It.) which is a term that is becoming more and more frequent. Google shows 5,140 instances so far but I expect the term to become in the hundreds of thousands by the election.

I believe it started housing pop, and we are into to it at some unknown point with no way of predicting when it will end. There is little doubt in my mind though, that it will end.

I'm prepping for Q1, 2013 but I hope it lasts much longer, as it will give me more time to prep.

As the saying goes, "Better to be 5 years early than 2 minutes too late."

Shizzmoney's picture

This is the Market today:

Bad ECB/EZ news, EU banks shenanegians, and rising yields; market tanks.  Merkel/Draghi says something that they'll be ready to bail out and market rises.  Nothing happens and market tanks.  Rise, wash, repeat.

Bad US Economy news (i.e. Unemployment, Consumer Confidence, etc) TBTF banking shenanegians, and sinking Treasuries; market tanks.  Hilsenrath/Bernanke says something that they'll be ready to bail out/QE and market rises.  Nothing happens and market tanks.  Rise, wash, repeat.

This is why bubbles happen: because the markets are mostly rigged and don't tell the real health of the economy you and I live in.  It's just a huge betting parlor.

thad78's picture

Equating the markets & the economy is like comparing grapefruit & sofas-few simularities except the economy is bad & getting worse; the market is but a rigged gambling house & getting worse. Only thing in common is worse...

engineertheeconomy's picture

The market is a freak show for people that don't have a life

grid-b-gone's picture

You know that rising market you bought into? You didn't make it go up. Someone made it go up for you.

trebuchet's picture

So Bernanke + CB puts have now worked as the market expectation is preventing its collapse........ things work, ... until they don't.