In Its Latest Nonfarm Payroll Mea Culpa, Goldman Stumbles On THE Answer... And Changes The Rules Of The Game

Tyler Durden's picture

One has to read very carefully and all the way through the latest Jan Hatzius NFP post-mortem, to catch what may be the most important piece of information Goldman has ever telegraphed to clients, and thus, to the Fed. But first, why the note? As a reminder, after predicting correctly just what the impact of the record warm weather would be on today's NFP print (recall "Is A Bad NFP Print Days Away - Goldman Says Warm Weather Added 70,000-100,000 Jobs; Now It's Payback Time", something Zero Hedge warned first 2 months prior in "Is It The Weather, Stupid? David Rosenberg On What "April In January" Means For Seasonal Adjustments", but that's beside the point) yesterday Goldman was kind enough to tell us precisely what to expect when it hiked its NFP forecast from 175,000 to 200,000 ("If Goldman's recent predictive track record is any indication, tomorrow's NFP will be a disaster.") Of course, betting against Goldman's clients continues to be the winningest trade of the year, if not the millennium.

But that's not the point. Neither is Goldman's attempt to mollify what little muppets are left following its latest faux pas ("we believe that the underlying trend in payroll employment growth is around 175,000 as of the March report"), or to once again shift its focus to a bearish one having flip flopped worse than Dennis Gartman in recent weeks (see The Muppets Are Confused How Goldman Is Both Bullish And Bearish On Stocks At The Same Time) after saying that "we would expect the headline number for April to fall short of this figure, partly because the weather payback is likely to be substantially larger in April than in March and partly because the underlying trend may be decelerating slightly." Nor is the point that Goldman once again attempts to handicap the next latest and greatest New iPad, pardon, New QE. What's the point - QE is inevitable, and it will happen. But at a time that Obama deems appropriate - the one overriding consideration this year is to boost Obama's popularity into the election by any means possible, with structural inflation and employment taking a back seat.

No, all of these are secondary items. Here is what is of absolutely critical importance in the just released Goldman letter, nested deep in Hatzius' final paragraph, where it would otherwise be missed by most:

...we have found some evidence that at the very long end of the yield curve, where Operation Twist is concentrated, it may be not just the stock of securities held by the Fed but also the ongoing flow of purchases that matters for yields...

For those who are aware of the Fed's sentiment vis-a-vis the debate of stock vs flow of money effect, this will be a stunning revelation. Especially since it vindicates what we have been saying since day one, namely that when it comes to securities price formation in a centrally-planned regime, it is flow not stock that matters. And as those who follow the Fed's thinking know too well, the Fed is convinced it is stock, not flow that serves as a consistent catalyst for subjective risk valuation. The above quote is just the first crack in the Fed's thinking, because if Goldman now believes this, so will Bill Dudley, following his next meeting with Jan Hatzius at the Pound and Pence, and shortly thereafter, it will become canon at the Fed.

One way of visualizing what this means is to think of a shark which has to be constantly in motion in order to survive. Well, the allegory of Jaws can be applied to liquidity addicted capital markets. Translated simply, it means that it is irrelevant if the Fed's balance sheet is $1 million, $1 trillion or $1,000 quadrillion. A primacy of flow over stock means that UNLESS THE FED IS ACTIVELY ENGAGING IN MONETIZATION AT EVERY GIVEN MOMENT, THE IMPACT FROM EASING DIMINISHES PROGRESSIVELY, ULTIMATELY APPROACHING ZERO AND SUBSEQUENTLY BECOMING NEGATIVE!

We don't have sufficient time to go into the nuances of what this revolutionary run-on sentence means on this good Friday, suffice to say that it makes virtually all the literature on modern monetary theory (in practice of course, the theoretical part is such gibberish that only fans of MMT and Neo-Keynesianism care about it - something nobody actually in the market gives a rat's ass about) obsolete. It also means that absent "flow" or instantaneous Fed monetization engagement at any given moment, risk will collapse, regardless of the actual size of the Fed's balance sheet (which of course has other structural limitations). What is most critical is that this one statement from Hatzius sows the seeds of doubt, and provides a decoupling between prevalent risk prices, and explicit levels of historical Fed monetization. Because what the ascendancy of the flow model means is that unless the Fed is willing to telegraph that it will monetize devaluing assets in perpetuity, thus providing the "flow", the Fed is assured at failing at its only real mandate: keeping the Russell 2000 pumped up.

And while the Fed may be happy to sacrifice its balance sheet at the altar of Dow 36,000 just to preserve the Wealth Effect fallacy, the other counterliability, the US Treasury stock, which by implication will have to rise as it will be the security monetized the most to keep the deficit funded, may not be quite as pliable, and eager to rise parabolically, especially in a time when more and more question the reserve status of the USD, when faced with the ascendancy of the CNY.

Finally, the market still having a trace of discounting left in it, will become quite aware of all these considerations and deliberations, and will promptly demand a practical application of the "flow" model. Which also means that absent constant, ongoing monetization, either sterilized or not (although as we pointed out earlier this week, the opportunity for ongoing sterilization by the Fed is now almost finished as it will have just 3 months of short-end bonds left to sell past June), stocks will crash.

Unwittingly, Goldman may have just resorted to the nuclear option to force the Fed to engage in monetization much faster than it would have otherwise done so, by diametrically changing how Goldman, the Fed, and thus the market perceives Fed intervention.

Or maybe it was all too "wittingly"...

Full Jan Hatzius note:

US Views : Payback (Hatzius)


1. The March employment report was a disappointment. Although the unemployment rate fell, this was due to a drop in the labor force as household employment gave back some of its prior big increases. More importantly, the job gain in the establishment survey of just 120,000 fell well short of anyone's estimate. The big question is how much of the slowdown from February’s 240,000 gain was due to special factors, including “payback” for the unseasonably warm winter, and how much reflects weakness in the underlying trend.


2. We do think the warm weather has been an important driver of stronger payroll numbers over the past few months. As we have shown, all of the acceleration in nonfarm payrolls since the fall has occurred in the (normally) cold states, and our state-by-state panel analysis suggests that weather has boosted February’s level of payrolls by 100k or a bit more (see “Payroll Payback?” US Economics Analyst, 12/14, April 5, 2012). This state-level model suggests that none of the inevitable payback for this boost should have occurred yet, since March was just as warm relative to the seasonal norm as February. That said, weather-sensitive sectors such as mining and building construction did show some weakness, so we would pencil in 10k-20k for weather “payback” in March.


3. In addition, the 37,000 drop in retail employment was partly related to one-off job reductions in the department store industry, and should probably not be included in an estimate of the underlying employment trend. Taken together, we believe that the underlying trend in payroll employment growth is around 175,000 as of the March report. At this point, we would expect the headline number for April to fall short of this figure, partly because the weather payback is likely to be substantially larger in April than in March and partly because the underlying trend may be decelerating slightly (as suggested, e.g., by the drop in temporary help services employment in March).


4. Largely because of the weakness in the employment report, our standard metrics for evaluating the US data flow have also started to send a less upbeat message. Our current activity indicator (CAI), which summarizes all of the key monthly and weekly activity data, is showing a preliminary 2.5% for March, down from 3.5% in February. Likewise, our US-MAP, which compares the data with the Bloomberg consensus, has averaged negative readings since late February, after six months of positive surprises. All this reinforces our view that the discrepancies in the US economic data will be resolved mainly via deceleration in the job market indicators rather than acceleration in GDP.


5. We admit to being puzzled by the twists and turns in Fed communications over the past few months. On January 25, Chairman Bernanke said that under the FOMC’s projections, he saw a “very strong case” for finding “additional tools” to support economic expansion. But in the March 13 minutes, only “a couple” (i.e., two) of the committee’s ten voting members—a number so small that it probably does not include the chairman, whose position makes it unlikely that he would be in such a small minority—thought that additional stimulus could become necessary, and even that only “if the economy lost momentum” or inflation looked likely to undershoot. All this would make perfect sense if there had been a sharp upgrade of the committee’s central forecast over the past few months. But the minutes also said that “…the economic outlook, while a bit stronger overall, was broadly similar to that at the time of their January meeting.” And Chairman Bernanke, in particular, last week went out of his way to cast doubt on the not on that the stronger jobs data through February were indicative of a sharp pickup in growth. Our conclusion is that there has been a shift in the Fed's reaction function back to the hawkish side, and there may be a bit more complacency about the risks to the outlook than suggested by the committee’s decision to retain the assessment of “significant downside risks” in the March 13 statement.


6. So what can we expect from the Fed? Easing at the April 24-25 meeting looks highly unlikely, although the tone of the statement and the Chairman’s press conference may take a fresh turn toward the dovish side. Easing at the June 19-20 meeting, in contrast, still looks more likely than not, at least under our forecast of weaker activity and benign inflation. Our baseline remains a renewed asset purchase program which involves Treasuries and MBS and whose impact on the monetary base is sterilized via reverse repos or term deposits, but it is also possible that the committee would extend Operation Twist; there is approximately another $200 billion available, and it would only take a small reduction in the flow of purchases to make this number last until yearend.


7. Stepping back from the tactics, we still see a strong fundamental case for following up Operation Twist with a successor program. First, even under its own forecast, the committee expects to be far from fulfilling the employment side of its mandate by 2013-2014, so it is easy to sympathize with Chicago Fed President Evans’s call for more action. Second, growth could well disappoint the committee’s forecasts, given all the usual uncertainties around the weather impact, the inventory cycle, energy prices, and the “fiscal cliff” at the end of 2012. Third, a failure to do more might imply a tightening of conditions, assuming financial markets are still discounting some probability of easing. In addition, we have found some evidence that at the very long end of the yield curve, where Operation Twist is concentrated, it may be not just the stock of securities held by the Fed but also the ongoing flow of purchases that matters for yields. And fourth, the risk of a material inflation overshoot seems low given the still-large amount of spare capacity, not to mention the Fed’s ability to reverse course and tighten financial conditions substantially via forward guidance, rate hikes, or even asset sales should the need arise.

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Seditious Blasphemer's picture

QE... To infinity, and BEYOND!

Straying from the flock's picture

The game is at it's end.  A dime a day will END the charade.  We cannot fix what is broken by doing the same thing over and over.  It has not worked yet, why do we think it will work the next time?  I have stopped looking for someone to print us out of this mess.  Take the matter into your own hands.

iDealMeat's picture

Better yet, cut your consumption in half and convert any and all FRN's you have to actual coinage change.



Max Fischer's picture



What is the point of taking all your FRNs and converting them into coins? 

Max Fischer, Civis Mundi

tmosley's picture

Really, you don't know the reasoning for that?

And you've been here how long, exactly?

It's like asking "what use are whale guts" after spending two years discussing Moby Dick at a daily book club.

UP Forester's picture

He might be confused, with the very end of the last point, about material inflation overshoot.

Like GM's channel stuffing, and such.

GetZeeGold's picture



We're calling Mulligans Muppets!!!!


Sir Muppet'd better stick to bars and ingots. Coins are round and harder to control....and you may confuse them for real money.


Max Fischer's picture



No.  I really don't understand why I should take all my FRNs in my wallet and exchange them for nickels, quarters and dimes this afternoon. 

What's going on?  What does this solve? 

Max Fischer, Civis Mundi

stocktivity's picture

They mean silver and gold coins

Richard Chesler's picture

Goldman kleptoparasites no longer bother to pretend.

Marginal Call's picture

All coinage is "metally".  It will always have value in the end. 


I run a "keep the change" program just like BofA in my house.  Everyday the left over change goes in a bucket, to be forgotten about.

streetcrawler's picture

I picked through about 30 pennies I had in my desk at work and about 20 were pre 1982. Doubled my investment!

rocker's picture

There was a time that a U.S. penny was the same size as a half dollar.  A half-cent was about the size of a quarter. Now pre-1982 cents are all copper and worth 2 cents melted. Nickels are 75% copper and worth over 6 cents.

And hey, what does Canada know about increasing zinc prices. They are discontinuing the penny altogether.  Just Sayin'.

Keep on printing Big Ben. Those who leverage to real stuff, physical metals will survive your devaluation of the dollar as planned by your central "Banking Cartel" of the NWO.

Hedgetard55's picture

Cocaine is a hell of a drug Max, and syphillis is a hell of a disease.

narapoiddyslexia's picture

Max Fischer

Silver and/or gold is part of the DNA around here. Everyone who reads the comment assumes he/she means silver/gold coins. Probably junk silver. Two junk silver dimes buy you a gallon of gas these days. They're from the 50's or early 60's when the price of gas was about $0.20, so it has come full circle.

Maybe you don't own any PMs.


sessinpo's picture

narapoiddyslexia                  2323800 =

Silver and/or gold is part of the DNA around here. Everyone who reads the comment assumes he/she means silver/gold coins. Probably junk silver. Two junk silver dimes buy you a gallon of gas these days. They're from the 50's or early 60's when the price of gas was about $0.20, so it has come full circle.

Maybe you don't own any PMs.



Maxfisher has been member for over 41 weeks. But that doesn't mean he reads material here regularly. I can only suggest that Maxfisher take some more time to read articles and posting. If Maxfisher has some sense, he may get an understanding and not ask such questions that seem so rediculous to the rest of us.



mr. mirbach's picture

Pennies, nickels, dimes, quarters, half-dollar dollar coins are Debt Free money, minted by the Treaury, NOT borrowed into existance. Might be a grand idea to have bulk coins and stop carrying FRN's. Treasury has 2 billion (?) dollar coins sitting in their vaults, trade FRNs for dollar coins - at least coins have value in the base metal whereas paper retains some value for ass-crack hygienics. The Treasury could easily mint $10, $20, $50 and $100 coins if 1) they had any idea about Constitutional money and 2) the head of the Treasury wasn't a Goldmanite and 3) Congress wasn't completely corrupt.

Prometheus418's picture

I've been writing one a month or so to my state representatives asking them to consider minting nickel (metal, not denomination) state commemorative coins without dollar denominations for just that reason.  I suggest that everyone do the same.

Not only would it help fund state and local projects, it could act as a stand-in currency in the future.  Forget congress, they're bought and paid for.

And for you, Fisher- I'm in one of the higher tiers for hot-money flow (if not income) and I know several people that are converting 10-20% of their holdings into coin.  Any by that, I do not mean silver and gold, I mean regular circulating US coin.  We argue about pennies vs nickels a couple of times a week, at least, because the value of the metal exceeds face value- making it an instant gain for zero risk.  As commodities continue to inflate, this will become true of more and more of the coin stock, until either coins are no longer minted, or they are no longer metal of any type.  When that day arrives, today's nickels are going to be tomorrow's mercury dimes- and even if you don't like silver and gold, only a fool would spend a merc at face value, when a $5 roll is worth over $125.

I kind of like regular old half-dollars as well.  I often buy a box of them and check them over for 40% silver that may have been missed, and use them for small purchases.  The principle is really simple- nobody uses them, but they are freely available.  When you use them as payment, it makes the person accepting them reconsider coinage in general, if only for a moment.  It lays the foundation for silver coin as functional currency, and is likely to hold value better than paper as time goes one.  If you don't believe that, ask yourself when the last time you heard of counterfeiting coinage was... it's not likely to be diluted the way notes are.  If we do have hyperinflation, gold and silver are likely to disappear entirely for a while, but nickel and copper might really shine- every system, no matter how ad-hoc, needs placeholders that do not rot to function.

@mr. mirbach- the Treasure does mint high-value coins.  I buy ASEs twice a month, and anyone else can do the same- even most po' folk can afford an ounce of silver now and then at these prices.

iDealMeat's picture

many reasons..  and  "I just like nickles."

Ned Zeppelin's picture

It is flow not stock that matters

I've ordered the T-shirts and bumper stickers.

It is a fascinatingly crisp statement of a core truth. But I have to say, I thought (and I am sure many here thought) that was the game all along.  The "stock" (i.e., quantity of "sidelined, sequestered, beyond the event horizon" assets"), is irrelevant if all the Fed has to do is to print (at no cost!) to acquire it - once the ponzi begins to slide, the real game is to keep on printing, monetize the impossible to repay debt, and maintain at all costs the illusion that nothing is wrong with this.  Look at the constant flow of rumors, phony LTRO money printing operations, and lies that supports Europe (which will be the first to collapse). How could it be otherwise? We here at Zero Hedge have been on this journey since 2008, maligned and criticized, unfairly, but watching and warning while the CBs continue to print, print, print for the simple reason of buoying the values of assets that are crippled if not dead.  The same assets that support an ungainly and structurally unsound colossus edifice of derivatives.  And why is that done? Ask Jamie Dimon, Hank Paulson, and the other criminal Masters of the Universe. How this does not end badly I do not know, but I predict that the final act will be martial law wherein  the primacy of fiat and this system will be enforced at gunpoint - remember, At All Costs.  As Cheney said, the American way of life is non-negotiable,  He just never said which Americans he was talking about.

YOU WILL BELIEVE.  Or else. But there is hope, we had one Revolution . . . many years ago. . .

Clockwork Orange's picture

The writing is on the wall. 

Proverbs over.

Show Time.


Lord Koos's picture

Global dependence on digital communication and modern survellience makes it much more difficult for any kind of modern revolution to be successful. The revolution, if there is one, will have to be organized offline.  Maybe snail-mail will make a comeback.

El Oregonian's picture

"I just like nickles."

"I just like nickels".

There, corrected for you.

Widowmaker's picture

You cant print metal, only lies and fraud to literally steal it from the unwilling.

The entire dillusional world thinks the latter makes it go around. They will be the first to die for that bullshit logic. Iraq and afganistan are two small examples. Starving children are starved on purpose, so is it the faggot in pinstripes or the kids fucking own parents that starve them? The answer is both in the name of the same fraud racket.

Kill a banker, save his family.

Kill his bank, save his city.

Kill his money, save his nation and him.

Remember these words.

optimator's picture

Remember Dr. Ron Paul's "Gallon of gas for ten cents right now" answer at one of the debates?  He meant one silver dime was enough to buy that gallon.

msamour's picture

I was thinking the same, there will be two economies (some argue there already is); the first one will be the "legitimate" economy whereby people keep some FRN's on hand to pay the minimum amount of taxes they must pay, and the second economy will be a grey/barter market whereby people will exchange stuff with one another.


A switch to this flow paradigm, will only accelerate the demise of the old monetary order.

HD's picture

"We cannot fix what is broken by doing the same thing over and over."

That's all central banks know how to do. When all you have is a hammer - everything looks like a nail.

Havana White's picture

Squid says Fed action is "highly unlikely" at April meeting but "more likely than not" at the June meeting.  The meetings are seven weeks apart, wtf.

Gully Foyle's picture


You seem to misunderstand just what is happening.

All currencies need to wither for digital currency to replace them.

No muss, no fuss, simpler to control and keep tabs on the populace.

RockyRacoon's picture

Coming to a country near you:

Canada unveils digital currency   Mintchip 'better than cash'; Royal Mint launches $50,000 contest to spur development of smartphone apps Read more:
Gully Foyle's picture

Straying from t...

A dime bag a day may curb your addiction but some of us don't want to travel down that road.

Quintus's picture

Quite right.  All this 'Will they, won't they' debate about QE resembles a medieval debate about how many angels can dance on the head of a pin.  It's meaningless.  

The simple fact is that there is an insufficient supply of muppets willing to lend the Treasury money at negative real yields.  Also, the US legislature have amply proved themselves absolutely incapable of exercising the sort of Fiscal retrenchment that would reduce borrowing requirements to levels the market might accept.  The final piece of the problem is that the Treasury cannot afford for yields to rise to a level that might attract sufficient demand.

Therefore, no matter how they dress it up in stock vs flow arguments or anything else, the Fed WILL continue to monetise the debt.  There is no Deus ex Machina that will save the day by some other means.

Arguments about Gas prices, inflation, asset bubbles or the political acceptability of QE are all utterly irrelevant.

Unless, that is, you honestly think that where option (a) is more QE and higher Gas Prices and option (b) is no QE and the Government shuts down due to lack of funding, Ben will chose option (b) because he is afraid of $5 gas.  Nonsense.

Zgangsta's picture


DormRoom's picture

The Fed can't get the US out of this liquidity trap alone.  It needs cooperation form the fiscal authority.  And has been signalling as much, by QE & Operation Twist flattening the curve, and intencizing the government to borrow @ historical low rates, and spend.


read this working paper:


The real f00king problem is that the US has a dysfunctioning political body that serves the interest of cronies, and not the nation..  Atomically, it's neither politics, nor economics, but political-economy, which is the fundamental unit.

UP Forester's picture

Sub-atomically, it's the fact that all the crooks are "in charge"....

lakecity55's picture

Ron Paul!

I'm not holding my breath, but it would be good to see Mittens give Paul a Job.

End the Fed!

DeadFred's picture

Third Party Candidate is what I yearn for. There is no way Paul can push much through congress but he will replace Holder with a human being. Wall St. crooks will do time!

roadhazard's picture

A third Party candidate only has a chance of winning if they start there campaign for 2016, NOW. And they damn well better have some street credibility going in. It's always boggled my mind that the Libertarian Party never campaign before the Big Boys do. Sorry, but it's too late then.

sessinpo's picture

lakecity55   2323760                                              

Ron Paul!

I'm not holding my breath, but it would be good to see Mittens give Paul a Job.

End the Fed!



That will NEVER happen. RP is at the end of his career. There is NO reason for establishment politicians to put RP into any position. The FR is also a part of the establishment. Until things go real bad economically, don't expect much scrutiny of the FR. The FR has to much power and frightens our dumbass politicians. Another comment I am fairly certain I will be right on.


Ron Paul supporters need to be looking forward to the future. Maybe Rand Paul?

pauhana's picture

You're ruining my enjoyment of The Masters.  Let's see what happens under this thesis on Monday when the muppets and their masters get back to work.

slewie the pi-rat's picture

speaking of blythe, tyler got a h/t+++ from these gataGuys for his take on our crimexia commoditae (?)

One of the 'Masters' of the universe gets a market manipulation question on CNBC

Watching today's CNBC interview with Masters, Zero Hedge's Tyler Durden figured things out quickly

yeah, BiCheZ!

the gata piece is great for it's historical perspective and contains linx to many of rKirby's essays about the fukers @ theMorgue

although it neglected to comment on how hot she is, it also stopped short of calling her a c*** but only by a hair, imo

KingPin 999's picture

Great, I can't wait for $250 per barrel oil. Then the FED's dream of the destruction of the middle class will be complete.

Benjamin Glutton's picture

maybe it's time to consider a new approach altogether. no amount of funneling money to WS bonuses will address the true dysfunctional nature of our current structure.


if you think of the economic devastation as a hurricane that destroyed the entire country what good would it do to send FEMA only to Wall Street?