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Goldman Previews The Fed's Statement, Plays Down Expectations Of A "Dovish Surprise"

Tyler Durden's picture


As widely expected by Zero Hedge, barely a few months after the arrival of former Goldmanite Mario Draghi to head ECB, the ECB's balance sheet exploded by nearly $1 trillion. Naturally, such is the way of central banks infiltrated by tentacles of the squid: no surprises. Which brings us to the first Fed meeting of 2012 and its public manifestation: the FOMC's January 25 statement. As is well known, while the Goldman addition to the ECB is a recent development, its agent at the Fed, the head of the FRBNY Bill Dudley has been there for a quite a while - in fact ever since the tax-challenged Mike Judge character impersonator left to become Treasury Secretary. As was suggested on Zero Hedge, it was the meetings of Bill Dudley with Goldman's Jan Hatzius at the Pound and Pence, and of course elsewhere but these are the only public recorded ones, that have shaped monetary policy more than anything. In other words, if anyone can predict, not to say define, US monetary policy, it would be Jan Hatzius. Below are his just released "thoughts" on what to expect on Wednesday. What is odd is that whereas a month ago Goldman was convinced that an LSAP version of QE was imminent, now the firm has become substantially less optimistic. Is it time to manage down expectations? To wit: "Given the improvement in the economic indicators and the easing of financial conditions that has occurred in the meantime, we believe it is less central now. While Fed officials are certainly not targeting a tightening of conditions, we doubt that they will "bend over backwards" to deliver a dovish surprise relative to current market expectations." So just how much QE3 is priced in if Goldman is already doing disappointment damage control. Or did Goldman finally wise up and realize that the only effective Fed statement is the one that surprises. So if Goldman does not publicly expect QE3, and we do in fact get a notice thereof, it will have an immediate knee jerk reaction on risk, and of course, Gold. These and many more questions shall be answered at 12:30 pm on Wednesday.

FOMC Preview

  • We expect the inaugural set of FOMC forecasts for the federal funds rate--or more precisely, the projections of the appropriate level by the 17 meeting participants in the Summary of Economic Projections (SEP)--to be clustered around a median of 0.75% by the end of 2014.
  • We believe the committee will eliminate the "mid-2013" rate commitment from the FOMC statement because it is now redundant and potentially confusing. However, this is a fairly close call. It is also possible that the committee will keep this phrase for one last time, in order to avoid sending what would likely be perceived as a hawkish signal before the new framework has been fully explained to the public.
  • It appears that a discussion of the outlook for the Fed balance sheet will not be available until the full SEP is published alongside the FOMC minutes on February 15, although Chairman Bernanke may reveal some of the committee's thinking in the press conference.
  • The committee might also release a statement on its longer-term goals and strategy, which would probably involve adoption of a flexible inflation target coupled with a reinforced commitment to the employment part of the dual mandate. However, it is unclear whether this statement is ready to be published yet.

Q: What will happen on Wednesday?

A: Following its two-day meeting on January 24-25, the Federal Open Market Committee (FOMC) will publish the following:

12:30 pm: The regular FOMC policy statement.

2.00 pm: Materials from the Summary of Economic Projections (SEP). These will include:

1. An expanded version of Table 1 showing the range and central tendency--the range excluding the top 3 and bottom 3 entries--of the 17 FOMC meeting participants' projections for real GDP growth, the unemployment rate, the headline and core PCE price index, and presumably the federal funds rate, by year through the end of 2014 as well as for the "longer term." (There will be no "longer-term" projection for the core PCE index.)

2. The entire distribution of 17 projections (without attribution) for the federal funds rate by year through the end of 2014, as well as the "longer term."

3. The entire distribution of 17 projections (without attribution) for the year of the first rate hike through 2016. Somewhat to our surprise, the template for the projections released on Friday afternoon suggests that the date of the first hike will only be specified in annual terms; we had expected quarterly or at least semiannual information.

2.15 pm: Opening statement for the chairman's press conference.

Q: Will we get a qualitative discussion of the outlook for the Fed balance sheet?

A: Probably not until the full SEP is published on February 15, alongside the FOMC minutes. However, Chairman Bernanke might reveal some of the committee's thinking in the press conference, which is virtually certain to feature questions about the outlook for the balance sheet.

Q: Anything else?

A: The FOMC might also release a statement about its longer-term monetary policy goals and strategy. This would probably involve an explicit--but flexible--inflation target formulated as a headline PCE inflation rate of 2% over the medium term, but with room for significant deviations in the shorter term. We do not view this as a big change relative to the current language about the "mandate-consistent" inflation rate. In order to counteract the impression that this is a "hawkish" shift, we believe the committee would also find a way to strengthen the employment side of the dual mandate, perhaps by talking about a target of zero for the gap between the unemployment rate and its structural level (i.e. the "longer-term" projection in the SEP).

It is clear that some type of statement is in the works. However, we do not know whether it will already be released on Wednesday or at a subsequent meeting. The minutes of the December FOMC meeting were noncommittal on timing, and remarks by some Fed officials in the meantime had pointed to a later date. But an article by Jon Hilsenrath in the Wall Street Journal on Friday suggested that the statement might be ready to go after all.

Q: What will the forecasts show?

A: Our estimates are in Exhibit 1 below:

Exhibit 1: Our Estimates for the Fed's Summary of Economic Projections

The key point is that while we expect the fed funds rate projections to range quite widely, we think that the median participant will project a funds rate of just 0.75% by the end of 2014 (see Sven Jari Stehn, "Forecasting the FOMC's Forecasts," US Economics Analyst, 12/01, January 7, 2012). This would imply that the median participant expects the first rate hike in 2014.

Also, we expect a long-run estimate for the federal funds rate--which may be interpreted as the committee's view of the "neutral" rate--clustered around a median of 4%.

Q: What will the statement show? In particular, will the phrase that "economic conditions…are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013" be retained, expanded, or eliminated?

A: We don't expect significant changes in either the growth or inflation paragraphs of the statement. Although the data have been generally stronger than expected, the basic message of "moderate expansion" still looks appropriate.

However, we expect the committee to eliminate the "mid-2013" phrase. The whole point of the SEP funds rate projections is that they are a better avenue for providing guidance on future policy than the statement, not that the Fed needs an additional avenue for such guidance (see "Why the FOMC Should Forecast Its Own Policy," US Daily, October 24, 2011):

1. They are more informative than the mid-2013 language because they provide an entire path for the funds rate, not just the timing of the first hike.

2. They are more clearly conditional because the funds rate forecasts are published in the same document as the economic forecasts, which makes it very clear that changes in the latter would cause changes in the former.

3. They provide a more natural avenue for acknowledging both uncertainty and disagreement within the committee, without forcing it to settle on the lowest common denominator. This is a key reason why we think that the projections will show the first hike in 2014, while the FOMC statement was only able to promise no hikes before mid-2013. (Of course, Fed officials have said that even the mid-2013 language is not a full commitment; our view is that it is somewhere in between a commitment and a mere forecast.)

In our view, it would be quite problematic to have the SEP projections and the FOMC rate guidance co-exist, as many market participants seem to be expecting. If they are consistent with one another, nothing is gained by retaining both types of guidance. And if they are inconsistent, this could cause great confusion.

Q: But wouldn't an elimination of the mid-2013 language from the statement be viewed as a hawkish signal?

A: We don't think it should be. All else equal, it is true that a date in the statement is more of a commitment than a forecast path in the SEP, as noted above. But all else is not equal; the SEP is very likely to point to a significantly longer period of near-zero rates than the mid-2013 guidance in the statement. And we do not believe that replacing a slightly stronger (but still conditional) commitment not to raise the funds rate until mid-2013 with a slightly weaker commitment not to raise the funds rate until 2014 would be a net tightening; if anything, we would view it as an easing.

That said, there is a timing issue because the FOMC statement is released at 12.30 but the SEP materials do not come out until 2. This could conceivably trigger an adverse market reaction in the short term. We doubt that this looms very large in the minds of Fed officials, but if it is a concern it is possible that the committee will decide to keep the mid-2013 guidance in the statement one last time, and then have the chairman explain in the press conference why it will disappear in the future.

Q: Would an elimination of rate guidance from the statement reduce the chairman's influence?

A: To a degree, yes, because all FOMC meeting participants including the 7 nonvoting presidents--whose views are on average more hawkish and less aligned with the chairman's--will contribute to the forecasts. We flagged this issue in our October 24 piece and suggested one way to address it, namely to distinguish between the projections of voting and nonvoting participants. Judging from the templates for Wednesday's release, however, Fed officials seem to have decided against such a distinction, probably because it would be too divisive.

But we should not forget that the introduction of press conferences has increased the chairman's ability to shape the overall message. If the chairman uses the press conference to shed light on the outlook for the Fed's balance sheet (in advance of the full SEP to be released three weeks later) this will imply a further increase in his ability to shape the message. This puts the partial loss of control over the rate guidance into perspective.

Q: How do your expectations stack up against the market's view?

A: Our estimate of the median funds rate forecast of 0.75 percent at the end of 2014 is in line with current market pricing. However, it is important to remember that the permanent voters generally hold more dovish views than the rotating voters, and that the Fed's funds rate forecasts are likely to be based on somewhat above-consensus views of the economic outlook. Both of these points suggest that the message about the reaction function might look slightly dovish relative to current market pricing.

Against this, however, there are other aspects that might look more hawkish:

1. The "mid-2013" language. The Goldman Sachs US Rates Trading desk conducted a survey of its clients last week in which 82% of respondents indicated that they expect the committee to either retain or expand the "at least mid-2013" commitment in the FOMC statement. In contrast, our expectation ias that they will replace it with the funds rate forecasts. If we are right, some disappointment is certainly possible.

2. The neutral funds rate. We believe the FOMC will show a median estimate of the longer-run funds rate of 4%. In contrast, 72% of survey respondents thought it would be below 4%, and 39% thought it would be below 3.5%. We would be very surprised by such a low number.

3. QE guidance. The Fed seems set to provide less guidance on the outlook for the balance sheet than many market participants are expecting. This may be viewed as a disappointment.

4. The motivation for moving to the new framework. Many market participants seem to believe that the primary motivation is to ease financial conditions. In contrast, our view is that the primary motivation is that Fed officials view monetary policy forecasts as a structural improvement in their communication with the markets and the public. The desire to ease financial conditions probably played a more important role when the move toward the new regime first got underway 3-6 months ago. However, given the improvement in the economic indicators and the easing of financial conditions that has occurred in the meantime, we believe it is less central now. While Fed officials are certainly not targeting a tightening of conditions, we doubt that they will "bend over backwards" to deliver a dovish surprise relative to current market expectations.


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Mon, 01/23/2012 - 20:14 | 2090790 AbruptlyKawaii
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QE forever bitchez

Mon, 01/23/2012 - 20:34 | 2090832 rajat_bhatia
rajat_bhatia's picture

What is this? Is the world economy Bernanke's private playground?

Mon, 01/23/2012 - 21:27 | 2091044 ZeroSpread
ZeroSpread's picture

Timing, Gentlemen, is a bitch. QE3 is not there YET. Hope and prayer is not the path to money unless you are either the pope or a certain presidential candidate.


Or with the words of the old chipmunk..

Mon, 01/23/2012 - 21:45 | 2091102 Caviar Emptor
Caviar Emptor's picture


DOT: Vehicle miles driven declined again for November 2011, for a cumulutaive total 49 straight months! For 2011 miles driven were -1.4%. 

This is a sign of an economy in depresison. And it's proof that 'fuel efficiency' is not reponsible for delining gasoline sales. 

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months. 

Currently miles driven has been below the previous peak for 48 months - and still counting! And not just moving sideways ... the rolling 12 month total is still declining.

Mon, 01/23/2012 - 21:56 | 2091123 HungrySeagull
HungrySeagull's picture

Our vehicles have driven the same this year, the last year, the year before that etc.

Especially since we changed employment to really local.

Cost of gas doubled and change, we really dont care anymore.


Ask me again at 15 dollar gas and burned gas stations.

Mon, 01/23/2012 - 22:09 | 2091148 Caviar Emptor
Caviar Emptor's picture

Nice going. Too bad the rest of the country is  no longer able to do the same. This kind of "grass roots" in the trenches data is very revealing of economic distress, as shown in the past but on smaller scales. It also shows that there is no sign of "healing" yet. Just paints a picture of distress when placed along side other data like the moribund BDI. In a debt-ridden economy the last thing we need is less transportation

Mon, 01/23/2012 - 22:23 | 2091168 Caviar Emptor
Caviar Emptor's picture

In further confirmatory signs of contracting energy demand (from a global economy in the grips of a biflationary depression):

This year's outlook is grim for the U.S coal industry, which after two years of rising profits has begun closing mines, signaling a new wave of production cutbacks and, possibly, another round of industry consolidation.

Mon, 01/23/2012 - 22:58 | 2091245 chump666
chump666's picture

Caviar is on the money.

Markets hate oil/energy inflation, operational costs (mines/industry) blowout etc. 

Tue, 01/24/2012 - 02:15 | 2091536 sitenine
sitenine's picture

Speaking of both surprise and inflation, China just made a deal with UAE to trade oil for Yuan.

Draw your own conclusions.

Tue, 01/24/2012 - 04:23 | 2091626 Snidley Whipsnae
Snidley Whipsnae's picture

RE: QE Whatever Number...

But, but, but... Plosser said on Jan 11 that the Fed may need to raise rates by mid 2013.

Of course Plosser is a non voting member of the Philly Fed... a non job, sort of like being Vice POTUS... excepting Cheney, of course.

Perhaps Plosser is the only member of the Fed without access to a telephone ... This could explain why he isn't on the same page with the guys calling the shots at the NY Fed. Or maybe he is just jawboning... or dumb as a sack of hammers... At least Cheney made himself a hero in the eyes of those that believe hunting lawyers should be legal.

Mon, 01/23/2012 - 23:55 | 2091353 falun bong
falun bong's picture

Don't miss Bill Moyers and David Stockman on the banks: "as a result we get neither capitalism nor democracy"

Ron Paul, bitchez

Tue, 01/24/2012 - 04:34 | 2091633 Snidley Whipsnae
Snidley Whipsnae's picture

"as a result we get neither capitalism nor democracy"


Correct. Instead we get a poorly managed police state in which those running the machine are paid far more than they are worth; their worth in a republic or democracy being ZERO.

If the azz hats reducing us to serfs want to know how to really lock this joint down they should import some of those formerly employed by the STAZI in East Germany.

After the collapse of the CCCP and the records of the STAZI were examined, it was found that 2/3rds of the citizens were ratting each other out... and that half of the 2/3rds of the rats were lying to the STAZI to put a competitor out of business, get rid of an unwanted mate, or kids ratting out parents that insisted the kids do their homework. What a great system, eh?

Moyers and Stockman ain't seen nothing yet.

Mon, 01/23/2012 - 22:55 | 2091232 DaveyJones
DaveyJones's picture

Close, it's Goldman's


Tue, 01/24/2012 - 00:19 | 2091393 Assetman
Assetman's picture

Dear World -

We will provide you with what ever the hell transparency we want.

And you will like it.


BS Bernanke

Tue, 01/24/2012 - 00:22 | 2091405 DaveyJones
DaveyJones's picture

let them eat fake

Mon, 01/23/2012 - 20:40 | 2090846 HedgeAccordingly
HedgeAccordingly's picture

natural gas - perhaps is the new distruption

Mon, 01/23/2012 - 21:11 | 2090988 xamax
xamax's picture

Regardless what the Fed's statement is on Wednesday, stocks will (must)  go up !


Mon, 01/23/2012 - 20:17 | 2090793 hotkarlandthecl...
hotkarlandtheclevelandsteamers's picture

Joe Granville calling for 4k point drop in 2012...a case of the bagholder blues..

Mon, 01/23/2012 - 20:29 | 2090816 XRAYD
XRAYD's picture

Does Granville still have a chimp?

Mon, 01/23/2012 - 20:35 | 2090835 Randall Cabot
Randall Cabot's picture

That was very entertaining. So friday jan 20 was the high? I'll be watching. It doesn't seem that he concerns himself at all with QE and that sort of thing.

Mon, 01/23/2012 - 21:19 | 2091016 SHEEPFUKKER

Don't fight the Fed Joe Six. 

Mon, 01/23/2012 - 22:56 | 2091239 DaveyJones
DaveyJones's picture

pack or feet under?

Mon, 01/23/2012 - 22:19 | 2091162 chump666
chump666's picture

He is still sharp for his age, give him a ton of respect for that.  He has called this market top (as have others).

Good on him.

I hope he gets his 4000 wipeout.  A HFT crash might just do it for him

The OBV is one of the best indicators, everyone uses it -  ala dumb money distribution etc

Mon, 01/23/2012 - 20:22 | 2090801 Everybodys All ...
Everybodys All American's picture

Does anyone remember when front running the market was illegal?

Mon, 01/23/2012 - 20:36 | 2090838 rajat_bhatia
rajat_bhatia's picture

Define illegal. a certain Mr Morgan was doing it from the beginning.

Mon, 01/23/2012 - 20:42 | 2090852 blu
blu's picture

Illegal [adjective] 1. Forbidden by law or statute. 2. Contrary to or forbidden by official rules. 3. Any business deal, charter or transaction Mr. Morgan ever consummated or even touched from day one.

Mon, 01/23/2012 - 20:52 | 2090902 UpShotKnotHoleGrable
UpShotKnotHoleGrable's picture

illegal is such an uncouth word. vile really.  boss tweed rolling.

Mon, 01/23/2012 - 21:28 | 2091033 disabledvet
disabledvet's picture

well he did finance a thing called a "telephone monopoly." nobody knew what "that" was until he made something that would not being competed against. Of course it's a public network now that the government can phone tap at will--and of course as all the "insider traders" who are being thrown in the clink now know the government is doing just that. of course "who wants to front run with the twisted pair" when "cable is so much faster." with the Wall Street Journal bitchen for years about how "internet spying services are so much faster in Korea" (hardy har har!) than they are in "loser America"--how can one argue with front running? (leaving aside the fact that mom said you'll lose your mind if all you do is watch television all day...i mean does anyone do anything anymore?)

Mon, 01/23/2012 - 21:23 | 2091029 Harbanger
Harbanger's picture

If it's undocumented it's not illegal.

Mon, 01/23/2012 - 21:29 | 2091045 disabledvet
disabledvet's picture

try "if you own its yours."

Mon, 01/23/2012 - 21:40 | 2091087 Harbanger
Harbanger's picture

If you're a Vet like me, you know it's yours when you can take it and keep it.  And you know keeping it is often harder than taking it.

Tue, 01/24/2012 - 04:40 | 2091635 Snidley Whipsnae
Snidley Whipsnae's picture

"try "if you own its yours."


That's what those holding warehouse receipts at MF Global thought.

Perhaps you should ask them what they think now?


Mon, 01/23/2012 - 22:59 | 2091244 DaveyJones
DaveyJones's picture

statutes or enforced statutes? I hear there's a difference

Mon, 01/23/2012 - 20:54 | 2090921 Everybodys All ...
Everybodys All American's picture

Well crony capitalism is again live and well thanks to this Justice Department. Anyone that thinks otherwise is perhaps part of the problem.

Tue, 01/24/2012 - 05:11 | 2091649 Snidley Whipsnae
Snidley Whipsnae's picture

"Well crony capitalism is again live and well thanks to this Justice Department."


Nothing has changed except that the curtain has been pulled back a bit since the wheels are coming off the 'modified' Bretton Woods system of floating fiats. Actually, there was no formal modification... Nixon simply closed the gold window. This current modified BWoods system isn't taught because it was not a concept, invention, plan, theory, idea... nothing. It simply evolved and has been running, more or less, on autopilot since the closing of the gold window.

...and on governments...

Under every form of government the laws are written and enforced by those in power... and, those in power are above the laws that they write, or, they are until they are replaced.

This debate about creating a benign form of government, and if such a creation is possible, was raging between Greek philosophers many hundreds of years BC.

Have governments attitudes toward the governed changed since the debates between Socrates and his contemporaries were on going? The answer can be 'yes' only if you believe that human nature has changed.

Thrasymachu's reply to Socrates...


"the different forms of government make laws democratical, aristo- cratical, tyrannical, with a view to their several interests; and these laws, which are made by them for their own interests, are the justice which they deliver to their subjects, and him who transgresses them they punish as a breaker of the law, and unjust. And that is what I cratical, tyrannical, with a view to their several interests; and these laws, which are made by them for their own interests, are the justice which they deliver to their subjects, and him who transgresses them they punish as a breaker of the law, and unjust. And that is what I mean when I say that in all states there is the same principle of justice, which is the interest of the government; and as the government must be supposed to have power, the only reasonable conclusion is, that everywhere there is one principle of justice, which is the interest of the stronger."
Mon, 01/23/2012 - 20:24 | 2090804 pauhana
pauhana's picture

No matter how hard one tries, one cannot manufacture growth from thin air, unlike fiat.  With every government facing the reality of less expansion, it is mathematically impossible to increase growth absent demand in the REAL world.  Get ready for the inevitable.  Gold, bitchez!  

Mon, 01/23/2012 - 20:30 | 2090819 dracos_ghost
dracos_ghost's picture

Forced credit expansion (aka World War) is the last salvo of the Keynsian playbook.

Mon, 01/23/2012 - 20:54 | 2090928 itstippy
itstippy's picture

" is mathematically impossible to increase growth absent demand in the REAL world."

You've never read any of Lawrence Yun's seminal works on mathematics, have you?


Mon, 01/23/2012 - 20:26 | 2090812 The Big Ching-aso
The Big Ching-aso's picture



At the rate things are going, 'Legal Tender' will be replaced with 'Legal Tinder'.


Mon, 01/23/2012 - 20:30 | 2090820 Dr. Engali
Dr. Engali's picture

Are you referring to the unconstitutional illegal tender we have now?

Mon, 01/23/2012 - 20:26 | 2090814 TooBearish
TooBearish's picture

Joe Grandville should get together with Barton Biggs and see if they can put a complete sentence together without drooling....stoopid old bastards

Mon, 01/23/2012 - 20:37 | 2090834 The Deleuzian
The Deleuzian's picture

Ya...But you still know what your grandad was trying to tell you...Even if he couldn't spill it out right...

Mon, 01/23/2012 - 20:48 | 2090893 Randall Cabot
Randall Cabot's picture

Granville is 89 years old, you twit.

Mon, 01/23/2012 - 21:24 | 2091022 The Deleuzian
The Deleuzian's picture

Here's my two cents for what it's worth...

Equity markets are at such high levels...The algo's don't even believe it with volume where it is...

The real economy keeps drifting lower...Even the Stats guys are having a hard time fudging the data points in their charts and graphs these days...

Retail investors (except the few and proud like ZHer's) have all but disappeared for a myriad of reasons...

The Fed is really caught been Scylla and Charybdis...

On the one hand, the need to QE:

1) Strong dollar bites!!

2) Confidence is slipping/Hiring has hit a wall...again!!

3) Opportunity cost of not 'QEing'...The economy could slip from here...Too late for any monetary gauge and knob twisting as far as they're concerned...

On the other hand...The Fed has taken a lot of criticism from Main street and Washington...Maybe it would be best to stay out of any 'formal' QE...(oil prices, Gold, The Occupy Movement, printing money for banks only etc...)

I personally expect a formal QE to be announced some time in late Q1 or early Q2...Like all Gamblers and Egomaniacs...They can't stay away for long!!!...


Mon, 01/23/2012 - 21:32 | 2091055 disabledvet
disabledvet's picture

and on the other hand "they've just a glob of silver shoved up their ass." diesel went over 4 bucks today. it was 3.79 but a week ago. is there any price of anything that can be believed? and is the United States better off being a net importer of food? as with losing every war on planet earth that would also be another "first" for this regime.

Mon, 01/23/2012 - 21:58 | 2091130 HungrySeagull
HungrySeagull's picture

No different than waking up post 9-11 nap the same afternoon in a sheltered part of the Midwest and learn that fuel was over 6 dollars.


Good thing we took on our 300 gallons 4 hours before the attacks. That fuel carried us through the next 5 days.

Tue, 01/24/2012 - 06:01 | 2091686 Snidley Whipsnae
Snidley Whipsnae's picture

Deluzian... If you are going to use Bill Bonner's material you should give him credit.

It's the right thing to do.

Mon, 01/23/2012 - 20:30 | 2090823 I am Jobe
I am Jobe's picture

Sucking on each others dick, Fucking GS and Feds.

Mon, 01/23/2012 - 20:32 | 2090827 SolidSnake961
SolidSnake961's picture

how many layers of reverse psychology has goldman built into their fed view?

Mon, 01/23/2012 - 20:37 | 2090828 blu
blu's picture

You think they want QE because they say it's not coming. But that's exactly what they want you to think! Because they really think it is coming or at least that's what you think they want you to think but they don't think so because you need to think they are thinking what you thought they were not thinking regarding what they thought the last time they told you what they were not really thinking wasn't going to be happening that time when it really did happen.

Hold on everyone -- um -- oh you know what I think my head just exploded.

Mon, 01/23/2012 - 20:55 | 2090923 Poor Grogman
Poor Grogman's picture

My thoughts exactly

Tue, 01/24/2012 - 04:41 | 2091636 Blank Reg
Blank Reg's picture

I fear you.

Mon, 01/23/2012 - 20:34 | 2090831 Dr. Engali
Dr. Engali's picture

If we keep this up we are going to be on the other side of the coin(pun intended) of the reserve currency. Then they will export their inflation to us in order to keep their rates artificialy low, and it's going to suck.

Mon, 01/23/2012 - 20:36 | 2090840 Thomas Jefferson
Thomas Jefferson's picture

Do we really need that cheap Chinese junk anyway?  I mean come on. 

Mon, 01/23/2012 - 20:40 | 2090844 Dr. Engali
Dr. Engali's picture

Can't think of any of it that I need. It is hard though not to own any of it. Unfortunatly.

Mon, 01/23/2012 - 22:26 | 2091174 jelyfish
jelyfish's picture

Great point

Mon, 01/23/2012 - 20:34 | 2090833 Thomas Jefferson
Thomas Jefferson's picture

Pretium Resources Bitchez!

In Bob Quartermain we trust.

Mon, 01/23/2012 - 20:36 | 2090839 I am Jobe
I am Jobe's picture

and HP printers.

Mon, 01/23/2012 - 20:48 | 2090887 chump666
chump666's picture

QE whilst oil is at 100? aint going to happen. yes a sleight of hand somewhere, but what is new.  the CB's of the world will print into overdrive once the CDS market goes (via Greece via the PIIGS etc).

C'mon Iran weave ya magic you've seen our volumes.  won't take much to sink this, and the CDS market...payback on Europe, send a panic should hit credit markets.  You win.

Then our nutty central banks will print...till then, not yet.

Mon, 01/23/2012 - 20:52 | 2090912 xela2200
xela2200's picture

The EU already placed an oil ban on Iran, and they froze their central bank's assets. I don't know why I haven't seen more about it in this forum.

Mon, 01/23/2012 - 21:08 | 2090960 chump666
chump666's picture

I know.

EU/US/Israel have been forcing hyperinflation onto Iran via finaical war (attacking the Rial).

Iran can do several things drive the oil price up and send oil inflation back to the US, and create an incident in the Straits of Hormuz.  Say missile test near Saudi waters/close the straits.  Should flip stocks and credit markets, EUR will sell and spreads will widen.  If they time it with the Greek BS, they just might cause a spread blowout amidst debt negotiations.  Create chaos and blow the CDSs out.  That would, IMO, finally take out the EU/PIIGS.

It would then be all out war.


Tue, 01/24/2012 - 05:58 | 2091683 Snidley Whipsnae
Snidley Whipsnae's picture

chump... If you had ever spent a single day in a war zone you would not discuss 'all out war' so glibly.

It ain't like the movies or dumb ass computer games.

Mon, 01/23/2012 - 21:35 | 2091070 disabledvet
disabledvet's picture

cuz "George Washington" here has told us "the military hoi paloi have argued against war with Iran!" that's why...

Tue, 01/24/2012 - 05:25 | 2091657 Snidley Whipsnae
Snidley Whipsnae's picture

xela... "The EU already placed an oil ban on Iran,..."


Many oil tankers registered in many countries load millions of bbls of oil in ports of oil exporting countries each day.

Once the tankers are at sea who is to say what the final destination of the oil will be.

iows... don't believe that Iran will have trouble selling their oil to the highest bidder regardless of political bs about 'oil bans'. Oil loaded into tankers in Iran can be delivered to holding tanks anywhere in the world and then reloaded into tankers destined for any port in the world.

Tue, 01/24/2012 - 16:57 | 2093884 xela2200
xela2200's picture

Good point. Just like the drug trade.

Mon, 01/23/2012 - 20:49 | 2090894 dogismyth
dogismyth's picture

of course Goldman knows what's to come...are you kidding me?  They're just fucking with you and you all are still trying to guess which way the coin will land.  The game goes on as long as there are attentive players.

Mon, 01/23/2012 - 20:51 | 2090895 RobotTrader
RobotTrader's picture

Granville had a massive heart attack back in the 1990's because he was heavily short during one of the strongest bull markets ever.

Mon, 01/23/2012 - 20:59 | 2090942 Hulk
Hulk's picture

and to think I thought that heart attacks were caused by blocked heart arteries...

Mon, 01/23/2012 - 22:00 | 2091134 HungrySeagull
HungrySeagull's picture

Heart attacks or Heart failure can be sometimes caused by certain situations.

Some will drop dead, others linger for years on useless measures to improve life. A lucky few will get a new heart, the rest will be deemed on the waiting list.

Everything in the heart must work well. Only then you are running well.

Mon, 01/23/2012 - 22:45 | 2091211 Hulk
Hulk's picture

I was on the nordic track the other night, boring myself to tears,when suddenly I had a massive heart attack.

But I powered right on through that heart attack and now all is well...

Mon, 01/23/2012 - 21:01 | 2090950 blu
blu's picture

"Non Sequitur of the Day" Award

Mon, 01/23/2012 - 21:10 | 2090979 chump666
chump666's picture


Mon, 01/23/2012 - 21:18 | 2091006 Reese Bobby
Reese Bobby's picture

Why is one of your Avatar's boobs seemingly leaving the photo?

Mon, 01/23/2012 - 21:42 | 2091089 disabledvet
disabledvet's picture

actually some of my favorite's were the "barfing in the garbage can" moments in the book "The Confidence Game" cuz "sovereigns never default" but "US banks had 100's of billions" (hahahahaha! hundreds of billions! how quaint!) in "debt owed to them by Latin America." Don't worry: everything's just fine now. "They're hedged"!!!!!

or is that "hedgeless"?
where's hedgless horseman on this?

Mon, 01/23/2012 - 22:03 | 2091138 luna_man
luna_man's picture



Thanks, didn't know that...Me too!...Perhaps, I'll be pushing up daisy's tomorrow!  Gotta go sometime, why not "shorting", this puppy!!

Tue, 01/24/2012 - 05:26 | 2091662 Snidley Whipsnae
Snidley Whipsnae's picture

Robortrader has morphed into a heart specialist. Who coulda knowed? His talents know no bounds!

Mon, 01/23/2012 - 20:50 | 2090896 xela2200
xela2200's picture

I don't know how much a disappointment is priced into the PM, but I don't expect a free fall if don't get it on Wednesday. There might be some buy into the rumor and sell the news effect. People are already felling desensitized to the QE rumors. Although, QE or another program would be interesting coincidence with the State of the Union Address.

Mon, 01/23/2012 - 20:51 | 2090903 JohnR
JohnR's picture

Game ON

It is interesting to watch people watch a world-wide financial crisis unfold and take no action whatsoever to protect themselves from what they know is coming and the outcome which is so crystal clear. I am always surprised at how much people are aware of the crises and the issues, yet hope someone else will fix it.

Whenever a discussion arises about the economic malaise arises it quickly evolves into blaming the Republicans and Bush or the Democrats and Obama or the repeal of Glass-Steagall and the political push to expand home ownership under Clinton or Greenspan or Bernanke or Trichet or Hu or (I would name the leader of Japan but it would fill 8 pages to list them all for the last decade). No one takes responsibility themselves or wonders about where the legendary can kicked down the road winds up or what it means for them.

We all know that Greece cannot pay the debts that have been accumulated. Nor can Portugal. Nor can Ireland. Nor can Hungary (which along with Argentina are at the forefront of governments who have seized their citizens pension funds setting a precedent for predatory bureaucrats world-wide). Nor can Spain. Nor can France. Nor can the United States. Nor can Japan.  The reason the debts in Greek have not been restructured is because no one can agree on the percentage that the holders of the debt will accept “voluntarily”. The 50% default agreed upon only drops Greek debt to 120% of GDP from 180%, both levels of which are unsustainable, so the write-down must be much larger to drop to a level where the debt can be paid and the interest as well. A number as high as 70% has been suggested. The catch is that the debt-holders won’t accept it and if the default then becomes involuntary it triggers Credit Default Swaps and other derivatives which then become the responsibility of the parties that underwrote the debt instruments to begin with.

No one will advance Greece any more money (sic!) until this issue has been settled. With huge numbers of Euro coming due in the near future, the cradle of democracy must receive this funding to roll-over the debt and negate the deflationary contractions to the balance sheets of the holders. If you hold the debt, your gamble is that if the “insurance, the hedge, the safety-net” is triggered that the party who sold you the coverage (and collect the premiums for that protection and took it as income) can pay. The reason you would not trigger this clause is because if they cannot your write-off goes to 100%, not limited to whatever number is agreed upon. You have figured out how to live with 50%, more becomes a problem for your balance sheet. You also know the CDS are worthless-the major banks of Germany, France and the UK are holding this debt and HFT hedge funds  bursting in and out trying to make a short-term, highly-leveraged .1% are all players-and add the major US gamblers with customer deposits who hold the vast majority of the $707 trillion in nominal derivatives all trying to squeeze fees and trading profits out of the circumstances on the premise that the US Government, the Fed , the ECB, the Water district of Poughkeepsie will absorb the paper and make them whole (logical, because this is how it has worked so far).

This story will play-out in each of the crises mentioned and more besides which are awaiting their 15 minutes of fame. Each of these stories have their  happy-endings predicated on their economies growing at a faster rate than their interest costs are rising, without adding any new debt or growing the principle amount owed on which the interest can be paid, so that tax revenues (and collections) can increase to reverse the spiral.  Reinhardt and Rogoff have chronicled how this turns out in This Time It’s Different and have shown that the serial defaulters seem to be able to repeat this performance every 30-60 years. The debt  is always “paid” by default.

In Currency Wars, James Rickards has detailed how every government seeks to find growth through exports and how each government than seeks to protect their own markets while seeking access to others. Neither of these brief synopses do justice to the depth, breadth and insights of these two books, which are really essential reading for investors hoping to survive.  An insight repeated frequently in Currency Wars is that when your currency becomes worthless, the assets held in that currency become valueless as well.

Let’s now make you a citizen in Athens, deposits in a Greek bank-the rising tide of sentiment now seems to be that Greece will default, withdraw from the Euro, and reinstitute the drachma-immediately converting all the Euro debts to drachma and “pay off” the debts with the new currency. Your Euros when converted to drachma will have a small fraction of their current purchasing power. Do you just sit there and wait for this to happen? Multiply this by the number of crises and the number of people who will be seeking safe-haven and think about what a safe-haven is in the context of devaluing currencies.

Let’s bring this closer to home-foreign holdings (read primarily China and Japan) of US Treasuries are dropping every month. The supposed safest entity in the world, and an increasingly risky world, and fewer are being held by those who own the most. The debt is being financed by the Federal Reserve and computer blips. China has just worked out deals with Japan so that the trade will be done in yen and renmimbi instead of the Reserve Currency of World, the US Dollar. China has eliminated the dollar in trade with Iran (one of their key oil suppliers). Iran and Russia have eliminated the dollar. The drop in usage for the dollar drops the demand which lowers the value which increases your cost at the gas pump. It also puts and keeps those dollars in circulation.

Other countries that have positive balances of trade, and , consequently, pile up dollars are finding means to protect themselves against the policies, regardless of administration, which lead to a cheaper dollar to get that doubling of exports in 5 years that President Obama is striving for, and diminish the value of their holdings.

Central banks are buying gold..this is all easily documented by country and trends plotted..and buying with increasing frequency and in increasing amounts and buying them with dollars..which puts the dollars back into circulation.

The expansion of the money supply has been astronomical-when the velocity of turnover begins to grow-and it will-because the longer you hold the more you lose in purchasing power, the falsified low-inflation numbers, will explode-and the velocity will increase as people convert to real assets. This will have the effect of doubling, tripling, quadrupling the supply and the rapid loss of its value to the extent that growth exceeds the growth of production. This will seem like it happened overnight.

Rickards has a really interesting matrix showing how when a certain number of people do a certain things, it triggers another group doing the same, which triggers another group, each exponentially larger-think of the housing bubble, the tech stocks in 1999-2000 for real-world experiences. In essence, every one wakes up on the same day with the same conclusion.

Dollars are being dumped for hard assets by central banks and government. All governments have a policy of debasing their currencies for competitive reasons. The velocity of expanding money supplies is going to increase. Everyone will wake up on the same day and want to own precious metals to protect their personal assets. Everyone knows in their heart that this is true.

Mon, 01/23/2012 - 21:52 | 2091113 disabledvet
disabledvet's picture

again "RAIL LINE SERVICE HAS BEEN CUT OFF FOR MONTHS" in Greece. Hmmm. "The last time that happened the Nazi's invaded." Why the phuck under any circumstance is rail line service cut? I can't think of ANY reason having to do with economics...AND CERTAINLY NOT FINANCE. in other words "the whole point of Greece is not about money...never has been...never will be." here's the latest video in case you haven't heard what's really going on:

Mon, 01/23/2012 - 22:00 | 2091132 The Deleuzian
The Deleuzian's picture

The best analogy I've come across explaining what Rickards is referring to...The 'Crowd moving phenomenon'...

Is 'Smoke in a Movie Theatre'...

One person in the movie theatre smells smoke...But when looking around somewhat nervously...Fails to see anyone else smelling smoke or looking around nervously like he is...

Some moments pass and he still smells smoke...But this time...He sees another person looking around nervously in the movie theatre...

Pretty soon...Several people are smelling smoke and nervously looking around and talking over the movie itself...A few who noticed it early are getting up out of their seats and going for the Exits!

Then a sort of pre-panic moves in to where most people in the movie theatre can sense something is wrong...some can smell smoke...Even those who can't smell smoke are nervously looking around...Then!!!

Someone yells fire...Twisting red sirens are going off and popcorn is f**kin flying everywhere...Everybody is rushing to the exits...


Tue, 01/24/2012 - 05:55 | 2091678 Snidley Whipsnae
Snidley Whipsnae's picture

Excellent analysis John R...

Kyle Bass, among others, has predicted that the eventual outcome of the Greek Debt will be a 100 % write down for the holders. If that is true then there is no way that a CDS default trigger can be avoided... even though many of the counterparties to the CDS will be unable to pay off on their wagers. The Fed, working in cooperation with all central banks, will not be able to save the TBTF of the FIRE sector when the chain of CDS triggers begins. Hell will be coming to breakfast.

Any that do not now have some protection in the form of PMs, and in physical possession of same, better start thinking of what is coming and take action accordingly.

Having PMs might not save one, but not having them will be a recipe for disaster. What will happen to us individually will depend on luck, happenstance, location, preparedness, and nimbleness of mind and body. Stay loose.


Tue, 01/24/2012 - 17:07 | 2093926 xela2200
xela2200's picture

" The catch is that the debt-holders won’t accept it and if the default then becomes involuntary it triggers Credit Default Swaps and other derivatives which then become the responsibility of the parties that underwrote the debt instruments to begin with."

Thanks. I finally understand why Greece has not done an Iceland.

JohnR, Since you enjoyed the book, here is a link to the presentation that Rickards mentions in his book.

Mon, 01/23/2012 - 21:06 | 2090964 RiverRoad
RiverRoad's picture

It's too early for QE3.  QE3 will be timed precisely for Obama's reelection.

Mon, 01/23/2012 - 21:40 | 2091090 ZeroSpread
ZeroSpread's picture


Mon, 01/23/2012 - 23:20 | 2091302 sabra1
sabra1's picture

no, it'll be the iran war! QE never ended!

Tue, 01/24/2012 - 04:55 | 2091645 Blank Reg
Blank Reg's picture

Yes, but aren't there two types of QE. The stealthy kind used to plug holes in the dyke. Then the overt kind, used to move markets up.

Mon, 01/23/2012 - 21:15 | 2090997 Reese Bobby
Reese Bobby's picture

I get a chubby before the side-to-side statements now.  Just scintillating!

Mon, 01/23/2012 - 21:32 | 2091057 Rockfish
Rockfish's picture

GS's game is simple "Heads I win, Tails you lose"

Mon, 01/23/2012 - 21:35 | 2091072 TheCanimal
TheCanimal's picture

What about Elaine Garzarelli?

Mon, 01/23/2012 - 21:38 | 2091079 metastar
metastar's picture

I don't think the FED would do anything to publicly discredit the squid.

Mon, 01/23/2012 - 21:46 | 2091106 847328_3527
847328_3527's picture

Deflationary Depression Death Spiral Downward!



Mon, 01/23/2012 - 21:47 | 2091108 slewie the pi-rat
slewie the pi-rat's picture

keep yer powder dry, maties!

you too, BiCheZ!


Mon, 01/23/2012 - 21:55 | 2091121 Caviar Emptor
Caviar Emptor's picture

(Reuters) - The regulator for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) told lawmakers that forcing the two mortgage firms to write down loan principal would require more than $100 billion in fresh taxpayer funds.

 The Obama administration wants to secure widespread principle reductions in a legal settlement between the government and some of the biggest mortgage servicers that is aimed at cleaning up alleged foreclosure abuses.



About 22 percent of U.S. homes have negative equity totaling about $750 billion, according to CoreLogic.

Mon, 01/23/2012 - 21:56 | 2091128 EndTheMedia
EndTheMedia's picture

What Bernanke really means by “controlling inflation while supporting the banking system.”

Mon, 01/23/2012 - 22:46 | 2091213 non_anon
non_anon's picture


Mon, 01/23/2012 - 23:04 | 2091237 seventree
seventree's picture


Superhackers secretly enable videoconferencing cameras in corporate boardrooms, but fear "crossing a line" at Goldman Sachs site...

“Any reasonably computer literate 6-year-old can try this at home.”

Mon, 01/23/2012 - 23:27 | 2091314 sbenard
sbenard's picture

Blah, blah, blah!

Mon, 01/23/2012 - 23:49 | 2091343 zerotohero
zerotohero's picture

I'm having a hard time distinguishing between reality and my dream state lately.

Tue, 01/24/2012 - 06:10 | 2091693 Blank Reg
Blank Reg's picture

This is a dream zerotohero. In a minute you'll wake up and be back in high school about to take a test you haven't studied for.

Tue, 01/24/2012 - 00:09 | 2091372 ch25061
ch25061's picture

Obama cannot wait too long to force QE3 (the great stock market pump)....otherwise, it would seem even more a cynical

attempt to affect the election than it already is and may backfire.

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