Guest Post: Print It And They Will Come

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

Print It And They Will Come

I have to admit, I never understood Field of Dreams.  I "get" why it was popular - a quasi-mythical figure who just "knows" things.  Some good looking guys with enough sentimental moments to make women happy, and just enough baseball to make guys not cringe.  But honestly, I never understood the movie.

So, what does that have to do with printing money?  I guess I just don't understand the fascination with it.  Why is printing money the best solution?  Why isn't trying to pick up the pieces after some defaults, a better solution than printing.  With stock futures down again already, and Jackson Hole coming up, you know we will hear Wall Street (and anyone caught long) clamoring for the Fed and ECB to PRINT more money.  It seems to be the only "solution" to the debt burden too many countries are facing.  I agree that it is the only way to avoid some defaults and some pain.

But is the cure worse than the problem?  There will be problems if we let Greece default. It would drag down some banks, which would not be good - short term.  But I remain convinced that in 10 years, economists will praise FDR's patience.  They will talk about how waiting for the system to recalibrate was a difficult but important decision.  Only once the system had "reset" would the policies work to create a great rebound.  We will learn that throwing money out of a helicopter only gets the money caught in the blades, destroying most of it, and possibly damaging the helicopter.  Those who felt Countrywide needed to be saved, or Bear Stearns had to be saved, will be vilified.  Those that let Lehman go, will be questioned on why they didn't do a couple of things (guarantee swap lines, for example) but in the end, will be respected for their willingness to let excesses collapse, and let those that were prepared to prosper.

Every time we come up with a new "solution" to our problems, we gravitate towards "unknown" unknowns.  Maybe we should just take our medicine and try and deal with "known" unknowns.  I don't know much about Rumsfeld, but that phrase resonates with me.  We continue to put out new policies, attempt to solve problems, but only seem to create new ones, that are even bigger and more complex.  The Fed can misuse words like transitory or unintended consequences as much as they want. But many of the "unintended" problems could have been (and were) foreseen.  And even Dorothy couldn't just click her heels and wish bad things away as easily as Ben thinks he can make them disappear by uttering the word transitory.

I had a boss once who explained the difference between a structurer and a structured trader.  The structured trader would try and come up with a solution that left more risk, but the risk was quantifiable, and hedge-able.  They were nervous and analyzed their positions daily and tried to constantly adjust to a changing world.  The structurer would create a solution that solved most things that were likely to occur, but was left a few  disaster scenarios in place.  And the solution was unhedge-able.  All you could do was own the risk, and hope for the best.  The "structurers" were arrogant and were dismissive of anyone who questioned their idea, and somehow any rational argument about the potential downside was twisted, with a wave of the hand, a raising of the eyebrows, and a lightly uttered "hrmph" made it look as though you were arguing that leprechauns existed.  All of the Central Bankers, IMF, and World Bank, "Chairman", "Managing Directors", "or Supreme Commanders" are structurers.

So, we will get money printing.  That to me, is dangerous, since we don't know what printing so much more money will do. It doesn't in any way, shape, or form address the root cause of the problem.  It is hard to hedge (buy more gold?) and it potentially unleashes problems we haven't even contemplated.  Hyper-inflation causes riots in countries where China bought land to produce food and gives them an excuse to enforce their rights by sending in troops?  Maybe that is crazy, but in my defense, I am wearing my IG200 hat, not a tin foil hat.  I am not sure what can or can't happen in a world where we decide that printing money is the best way out of our problems.  So many bizarre things have come out of our alternative solutions, and few of them good, that we should spend more time thinking about accepting the default of the weak, and seeing what we can do with that.

If Greece defaults and there is a run on weak sovereigns, stocks will go down.  Things like gold will go up, though they may be held back by profit taking since so much else will get hurt.  Basic soft-goods probably hold in, as people still need to eat.  Steel and energy will go down, but maybe that isn't bad for most of the 6 billion in the world. 

We spend so much time worrying about the stock market (well, those of us not glued to American Idol, Jersey Shore, or Housewives of some city), but if QE2 showed us anything, it is that the wealth effect is exaggerated.  The wealth effect impacts a small portion of society, and the companies they buy stuff at - tiffany's.  The majority of people have very little invested in the market.  Maybe their 401k's are invested in the market, but few people are so stupid to get excited that their measly 401k is up 20% when everything else points to reduced pensions, reduced health-care, and higher taxes in the future.

I am short the market.  I felt that we were not going to get any new support announced over the weekend and I believe Europe will struggle tomorrow.  But at some point it will be time to cover.  The voices of important, smart, powerful, and rich people, will drown out any objections the fringe may have and government will embark on a program of printing. In the short term, that will be positive for risk assets.  In the long term, I suspect it will be disastrous.  I continue to hope that some leaders have the conviction to try and stop the "pretend and extend" program now.  It will be painful, but I think we could still pick up the pieces.  The longer this goes on, the harder it will be to fix it.

As an aside, if the dot-com bubble and Enron brought intense scrutiny on to Wall Street and to fortune 500 CEO's, shouldn't this crisis bring the same level of scrutiny on government?  Shouldn't Sarbanes-Oxley be adapted to fit government?  Maybe we should have access to their e-mails where they tell a colleague that there is no way we default, but that he (or she) is going to tell the press that the government might because it will scare the bejeezus out of their constituents and ensure that their next fundraiser is full of high paying donors.  Or that next time someone writes in a private e-mail that they agree with a bill but think if they hold out a bit longer, they can get a little earmark in the next bill, the public should know.

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Newsboy's picture

Banks will get more fiat, but how long will the world accept it?

CosmicBuddha's picture

I like your picture Newsboy!

Newsboy's picture

Daibutsu of Kamakura.

I used to live there.

Is your Buddha from Thailand?

Optimusprime's picture

I remember gazing up in awe as a six-year-old.  Many years ago.

oogs66's picture

that seems to be the key...china and everyone else is getting sick of paper money

DormRoom's picture

No QE3.

 

The parameters for QE2 were a high USD, and low inflation.  Now we have a very low USD, and above 2% inflation in Europe.  Even worse, for the emerging markets, especially China

 

QE3 would cause more instability (yen spike->yen carry trade unwind->systemic risk)

 

Also, current data indicates stagflation, not deflation.  More monetary stimulus is not the proper course of action. see Volcker case study

 

Bernanke will be like Noda.. He'll try to talk down the markets.

dwdollar's picture

Since when do they follow their own rules?  If the 2% mandate get's in their way, they will change it (either officially or through bastardization of it's meaning) or simply ignore it.

DormRoom's picture

externalities.  The Fed may weigh in externalities.  QE2 aided the Arab Spring. QE3 aids European Riots? But no quesiton Japan would break. Enter bond wolfpack to tear @ Japan.

 

Now you have 2 failing fronts: Europe & Japan

 

In order for there to be global price stability you need a stable reserve currency.  QE undermines this assumption.

ATM's picture

I think you are assuming that the rulers at the Fed want global stability where I would argue they certainly do not and prove it daily.

bid the soldiers shoot's picture

You're not going to get an argument from me.

What we are seeing is the strengthening of the American Banks by the Fed, before Peak Oil turns the world upside down.

thewhitelion's picture

And also assuming that the actions of those in power affect us al in a similar way.  Cui bono?

Newsboy's picture

MUST...SAVE...GLOBAL...BANKING...

dwdollar's picture

And that is the Federal Reserve's one and only true mandate.  It always has been.

slaughterer's picture

It has been clear for the last year to most everybody that the Fed will print into the next Presidential term.

TruthInSunshine's picture

PaaaaaRinttttt and hand out more fiatskis to the Wall Street/Banking elite, Bernanke, just like you really, deeply, urgently want to - do it again, Bernank!!!

Fiatski in the form of a massive Taxpayer Teet, milking that host dry - do it Bernank! Do it!

Wall Street Aristocracy Got $1.2 Trillion in Fed's Secret Loans
Bloomberg

Wall Street Aristocracy Got $1.2T in Secret Loans

Lazlo Toth's picture

I really like your posts so no offense. But you should really re-watch the movie.

MayIMommaDogFace2theBananaPatch's picture

I'm sure you mean Fight Club, not Field of Dreams...  ;)

 Lazlo Toth PO Box 245 Fairfax, California 94930

oogs66's picture

c'mon, this movie probably inspired the whole ethanol theory - if corn fields are only good for attracting ghosts, they might as well use food to make expensive gas?  beats outright subsidies, no?

HUGE_Gamma's picture

id be shorting AU above 1400 tonight

Ezra Pound's picture

i'm wearing my IG-88 hat

snowball777's picture

Oblique Star Wars reference...you may not be able to get the Feeb's attention with that one.

Destinapp's picture

Ben Dandy Bernanke is leaking his next move, via the WSJ, that he will buy foreign bonds to "help" Europe.

"according to people familiar with the matter."

"said the people familiar with the matter say"

"said a senior executive at a major European bank who has participated in the talks"

"a senior bank executive said"

http://online.wsj.com/article/SB1000...LEFTTopStories

From the article:

"Until recently, that hasn't been a problem. Thanks partly to the Federal Reserve's so-called quantitative-easing program, huge amounts of dollars have been sloshing around the financial system, and much of it has landed at international banks, according to weekly Fed reports on bank balance sheets.

This spring, foreign banks were able to build up ample cash cushions, thanks largely to quantitative easing

The latest Fed data "could be telltale signs that foreign banks are in need of dollars again"

So the foreign banks just "park" those worthless Italian and Greek bonds with the Fed, and Ben loans them money at face value.

It doesn't need congressional approval since Ben doesn't mark to market.

The stock market will rally and treasuries and gold will fall due to the fear premium diminishing.

But the Dollar will also fall causing food and gas prices to SOAR.

Too bad that it only helps the top 10% since they own 80% of stocks and spend on average 2% of their income on food and energy.

We the bottom 90%, will see our food and energy cost as a percentage of income go from 15% to 25%

I think Bernanke will have to wait for Europe to implode and the stock markets to go down further before we the sheeple allow him to buy Italian bonds "to save the economy" just like we allowed the first bailout.

oogs66's picture

i am scared you are right :(  but now that wsj is tied to squawk box all is good...full journalistic integrity

topcallingtroll's picture

It sucks to be bottom 70 percent.
The top third does ok. Not just top ten percent.

Diogenes's picture

They don't print because it is the best solution. They print because it is the easiest solution.

toady's picture

I keep hoping, but it just won't change!

chump666's picture

actually the Sun Tzu/Taoist saying is: "To know before knowing."

the Ben Bernanke's on the world are stuck in an academic and arrogant minded feedback loop.  They're probably slowly going insane.  And they know nothing.

As for the markets, yeah relief rally coming pre: Bernanke's QE3 announcement on Friday...But, volatility will still rule the game, might be tighter in the spreads, but I can't see HFT's adjusting that well to a investment bank bull run.  Sell on rallies galore

+ the global economy is a c-hair away from a total collpase

mcguire's picture

my instinct: no qe3.  i think things have to get worse... the deflationistas need to be getting bloomberg airtime before qe3 can be announced.. but i was wrong last year on this, no where near the pain that i imagined would be necessary. 

mcguire's picture

"But is the cure worse than the problem?"  of course it is, but from whose perspective.   "tin foil hat" logic demands that you consider the possibility that the disastrous consequences of quantitative easing are the desired outcome, not the unintended one.  "ordo ab chao".  

aaron russo does a good job here of setting the right perspective: http://video.google.com/videoplay?docid=-1656880303867390173

ATM's picture

Of course they are the desired outcome. Everyone knows what the outcome of printing money is so there must be a concerted effort to create that outcome.

As I view it the winners are those that take complete power once the system completely collapses and a new system rises from the ashes. They are the same people who are going to print us to oblivion and cause the collapse. 

They're banking on the stupidity and wails fromt he starving masses to herd us into cages but they still have some very large problems to overcome - namely the new conectivity of the masses and of course the prevalence of weapons in private hands.

Drag Racer's picture

did the BOJ just print as they had warned??? Asian market just jumped and JPY took a straight step down

IMA5U's picture

perpare to feel some pain peter

 

feels like some cooridnated international government magic is in the works to buy more time for the politicans to scramble for solutions

lybia is already falling.  there will be constant chatter of stimulus and currency manipulation to deflect from merkel's pushback of the eurobond.  obama will push a jobs bill and an infrastructure bank.  and if all else fails, The U.S. will kill Satan on 9/11 to show we are winning the war on terror

MsCreant's picture

They will dump Satan's body at sea because of his religious beliefs.

They will have DNA evidence this time because Michele asked to have the penis so she could stuff and mount it. The NSA likes it because it will keep her occupied.

Yes, that was awful of me to say and I intended all of the puns in there.

tictawk's picture

Ben can print money but but he cannot print WEALTH.  Wealth has to be created and earned.  We will have reached a point shortly where I think a declining dollar will not help the stock market and it will hurt the bond market.   The Fed cannot afford to f+*k with the bond market.  It has the potential to destroy all the credibility of the borrower.   Our lenders are acutely aware of this and I hope Bernanke is.

ShouldveLeftHer's picture

Fuck it bro. Get a bunch of credit, buy everything you'd ever need or want, including mad gold, make your minimums and wait for debt liquidation and evaporation. If it never happens then what's changed? In the current system you're born with debt and mostly die with debt. I haven't trademarked it yet but I'm the new breed of American born in the 80s. I read some old science books. Some bullshit about turning other elements into gold. So I applied it to the confines of our fucked up American life. I got some plastic and turned it into gold. The life of a Plastic Alchemist

RKDS's picture

I can't tell you how many times I've thought about doing just that.

It just makes less and less sense to be an honest player in this economy.

ATM's picture

There is the answer ofr the little people. Borrow as much as you can and get real things and "pay back" those lenders with worthless scrips of paper. No need to even default and ruin your credit rating! In fact you'll be AAA!

Trying to do a cash out refi right now. They say I have equity. LOL

I am Jobe's picture

Is Germany's Commerzbank in Need of Another Bailout?

http://globaleconomicanalysis.blogspot.com/

Drag Racer's picture

good for Korea.

 

Deutsche Bank Says Four Employees, Securities Unit Indicted in South Korea

The six-month ban was the first business suspension of any foreign brokerage in South Korea since the Financial Supervisory Service was set up in 1999, according to FSS data. The supervisory service is a privately funded agency that enforces policies set by government regulator FSC.

Korea Exchange Inc., the nation’s bourse operator, on Feb. 25 fined Deutsche Bank’s local brokerage a record 1 billion won for violating exchange rules.

http://www.bloomberg.com/news/2011-08-21/deutsche-bank-says-four-employe...

IMA5U's picture

thanks but shhh....

 

over the weekend i was out with some friends that don't follow the financial markets and i told them how fooked up europe was

they were shocked.  and said "but aren't europeans so much smarter than us?  they will be fine"

the general populace does not really want to believe there's a problem because its not on u.s. soil.  they think the sell off is because of the u.s. downgrade

Boston's picture

So, we will get money printing.

Nope.

Ben Bernanke's bitch at the Fed---Jon Hilsenrath---has just pretty much guaranteed that Ben will NOT announce more QE:

At Jackson Hole last August, Mr. Bernanke heralded a second round of bond-buying aimed at propelling the economy known as quantitative easing, or QE2. The Fed's recent declaration that it's prepared to take other measures to promote the recovery clearly opened the door to QE3. But don't expect the Fed chairman to rush through that door on Friday.

Hilsenrath has been spot on, for years now, with respect to Bernanke's intentions.  THIS is a tell.

I wouldn't be surprised if the markets are disappointed on Friday at Jackson Hole....

http://online.wsj.com/article/SB10001424053111904070604576518861203898904.html?mod=WSJ_hps_RIGHTTopCarousel_1

IMA5U's picture

joking aside peter, good post

 

structurers are bankers.  

bankers create the world's problems.  and traders have to deal with them.

TzaristBondHolder's picture

Peter Tchir is short.    He is not the only one.  I find it difficult to cut through the noise as one day we are down 5% another we are up 5%.  Looking at the Israeli Stock Exchange that is open on Saturdays  http://www.tase.co.il/TASEEng/  they were down 4-5% over the weekend.

Marcus Rose created an interesting software that suggests the market turn dates, continuing the research by Donald Bradley: www.rosecast.com

He feels the stock market (S&P 500) will make a closing price low on August 25, 2011. See the chart attached and visit Marcus' website for explanations:  http://inkom.com.au/sites/default/files/market%20turns.jpg

Three days to go?

fajensen's picture

Yup - The volativity created by the insane amounts of "stimulus" sloshing around in the markets must already have caused a lot of financial alchemy to blow up - imagine f.ex. writing a LEAP option in January and hedging it, assuming that volativity would be 2% based on historic data + fudge. OUCH.

Deutche Bank lining up again?? I am not suprised about Dexia, btw. Snot-rollers and navel-defluffers the lot of them!!!