This page has been archived and commenting is disabled.

Let's Twist Again? The Bond Market Is Hinting At A Huge Disappointment For Stocks On June 20

Tyler Durden's picture


When it comes to the future, suddenly torn by economic uncertainty driven by a plunging stock market and a tanking economy, the talking heads and the sellside brigade have opined: more QE, preferably in the form of asset purchases. After all it was none other than Goldman earlier today who said that "our confidence that the FOMC will ease policy once more at the June 19-20 meeting has also grown... Our baseline remains that Fed officials will purchase a mixture of mortgages and long-term Treasuries, financed via balance sheet expansion... If they decide to extend their balance sheet, they could add excess bank reserves or “sterilize” the reserve impact via reverse repos and/or term deposits." In other words: not sterilized, or bye bye Chubby Checker (recall that even Goldman finally admitted two months ago that when it comes to Fed intervention, what matters is flow - as a result Twist has been largely ineffective in recreating the effect of QE1 and 2). To be sure even more respected investors like Pimco have bet the house that the NEW QE will constitute primarily of more MBS purchases. Yet the real question is what is the bond market telling us: after all when it comes to matters such as these, one should completely ignore stocks, and certainly the talking heads, and instead focus on what bonds are saying. And here is where the stock market may be headed for a great disappointment: because now that the bar has been set so far, anything less than full blown LSAP, or a merely extension of Twist, would likely send stocks plunging. Which, ironically, and completely in opposition to stocks, is what bonds are expecting...

Recall that Zero Hedge first presented two months ago the refutation to Hilsenrath's manufactured leak that the Fed could do more QE if need be, in the form of more Twisting. Well "need be", however there is one small problem: the Fed will run out of bonds to sell in the sub-3 Year maturity window: after June 30, the Fed will have only $175 million of sub-3 year TSYs in the SOMA, which means an outright extension of Twist under the existing conditions could last at most another 2 months.

There is however one loophole: merely shifting the selling "detachment" point one year to the right: instead of selling 3 Years and less, the Fed could sell bonds maturing in 2016 and sooner. This would provide the Fed with enough dry selling powder to last it for quite a few months.

This is precisely what bonds are implying will happen, as the below analysis from Barclays.

It also means that the stock market, which is now fully ignroing the possibility of a simpe Twist extension, and demands unsterilizied Balance sheet expansion, will be very, very disappointed if on June 20, Bernanke announces what the bond market is saying right about now.

From Barclays:

Well I've been gone for a while, so I thought I'd just share observations on my return. With the poor report, chances of additional easing have increased. So far it seems the marktet has moved away from pricing in qe through sterilized reverse repos as 1yr OIS is moving virtually in line with overnight fed effective (chart 1).

This shouldn't happen if you expect reverse repos down the line. Instead, the market is pricing in an op twist extension into the 4yr point. Attached is a chart of the 3 week change in Tsy-OIS through the curve graphed against the remaining SOMA holdings within a 6 month range of each maturity point. As you can see, there has been a huge cheapening in the 4yr point where the Fed would need to move into to continue twist and the other notable mini spike being around the 2/14-4/14 area where the Fed still has large holdings.I'm still not sure what the Fed will do and haven't fully judged the valuations off these moves, but I thought it interesting to point out how the bond market seems to be voting so far in terms of additional easing.


Translated: when it comes to what is announced on June 20 at 2:15:01 pm (assuming there are no more Federal Reserve Xerox machine snags), bonds are bracing for the worst: which under the current circumstances is the Venn diagram intersection between full blown LSAP-based QE, which would at least send stocks soaring, and no QE at all, which would at least preserve the illusion that a virtuous cycle is still possible if only on paper.

Under these conditions, Chubby Checker would be the most unwelcome visitor for what is left of the equity bulls possible.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 06/04/2012 - 21:49 | Link to Comment pleseus
pleseus's picture

Has Wall Street seen the price of gas and food?  Additional QE will kill the real economy.

Mon, 06/04/2012 - 21:57 | Link to Comment SilverTree
SilverTree's picture


Mon, 06/04/2012 - 22:38 | Link to Comment The Monkey
The Monkey's picture

Large scale QE is unlikely to win the Fed any friends (other than the fellas at CNBC). Anything less than a large scale balance sheet expansion would be the proverbial fly on an elephant's ass.

My guess is that they do something along the lines Goldman described and also use verbiage to remind everyone that much more could be coming at any time. Leave it up to the market to make the case.

Mon, 06/04/2012 - 23:00 | Link to Comment flacon
flacon's picture

Hey Bernanke.... you gotta fuck shit up man! Zimbabwe is making you look like RuPaul, you lilly livered panzy! C'mon man, show us your sweet balls and give us some of your Zim-Stim!

Mon, 06/04/2012 - 22:18 | Link to Comment Matt
Matt's picture

So, which stocks will dive the hardest if there is no QE3 announcement? Financials?

Mon, 06/04/2012 - 22:45 | Link to Comment The Monkey
The Monkey's picture

Financials, high beta and the less liquid indexes (small cap). These are also the types of stocks that will rally the most on a dillutive balance sheet expansion, other than PMs.

Mon, 06/04/2012 - 23:11 | Link to Comment ootofthehoos
ootofthehoos's picture

commodity metal oil

Tue, 06/05/2012 - 01:55 | Link to Comment BlandJoe24
BlandJoe24's picture

Similar question for Tyler:

If Fed announcemnt is as you say above (extended Twist, NOT balance sheet expansion), what do you think will happend to USD, EUR, 10yr, and 30yr after the announcement?


Mon, 06/04/2012 - 22:24 | Link to Comment Overfed
Overfed's picture

You ain't kiddin'. Bought a bag of dog food and a few sundry items today, and spent like $70.

2% inflation? In a pig's ass!

Mon, 06/04/2012 - 23:03 | Link to Comment flacon
flacon's picture

Those were the good ol' days. Here in Canada a bag of JD dog food runs $120CDN for the big bag. I'm about ready to grab a banker and grind him up for feed. Ground banker. Mark CARNEY is a prime candidate. CARNE!

Tue, 06/05/2012 - 01:03 | Link to Comment Mark Carney
Mark Carney's picture

Blame bernake

Tue, 06/05/2012 - 01:42 | Link to Comment q99x2
q99x2's picture

Him too.

Tue, 06/05/2012 - 08:49 | Link to Comment Doubleguns
Doubleguns's picture

Flacon, at those prices I would be feeding my dogs road kill moose.

Mon, 06/04/2012 - 23:20 | Link to Comment eclectic syncretist
eclectic syncretist's picture

Uncertainty in Europe will stay the Fed's hand.  Banks need to get their balance sheets in order, and a hell of a lot less opaque, in a hurry if they want the Fed to issue them more credit.

Tue, 06/05/2012 - 02:50 | Link to Comment kita27
kita27's picture

What is all the commotion, the Dow hasnt even fallen below 12000 yet?!

Mon, 06/04/2012 - 21:56 | Link to Comment ACP
ACP's picture

So why can't the big (US) brokerages do this kind of analysis?

Oh yeah, their job is to screw people...


Mon, 06/04/2012 - 21:53 | Link to Comment fonzannoon
fonzannoon's picture

It would be awesome if the fed was stuck with only long dated maturities when the long end finally blows up.

Mon, 06/04/2012 - 21:53 | Link to Comment midgetrannyporn
midgetrannyporn's picture

Send my QE $3K check first.

Mon, 06/04/2012 - 21:56 | Link to Comment Mae Kadoodie
Mae Kadoodie's picture

Can I take my QE share in two Eagles instead of fiat?

Mon, 06/04/2012 - 21:58 | Link to Comment midgetrannyporn
midgetrannyporn's picture

no, that would be like $3200.

Mon, 06/04/2012 - 23:05 | Link to Comment flacon
flacon's picture

I'm trying to think of a good come-back line, but I just can't. I've been sipping the silver nitrate this evening and everything is so fucking blurry. 

Mon, 06/04/2012 - 23:07 | Link to Comment Matt
Matt's picture

But it's only $100 face value. Give me 60 X $50 coins please.

Mon, 06/04/2012 - 22:07 | Link to Comment veyron
veyron's picture

what exactly is your avatar depicting?

Mon, 06/04/2012 - 22:27 | Link to Comment Overfed
Overfed's picture

Something to do with transgnedered little people fornicating on camera for money, I suspect.

Mon, 06/04/2012 - 22:28 | Link to Comment Overfed
Overfed's picture

Something to do with transgendered little people fornicating on camera for money, I suspect.

Mon, 06/04/2012 - 22:34 | Link to Comment midgetrannyporn
midgetrannyporn's picture

You have to pay to get the whole picture. ;)

Mon, 06/04/2012 - 23:07 | Link to Comment flacon
flacon's picture

Ben Bernanke wearing a pink Romulan hat. If it's anything different then I'd probably be disappointed. 

Mon, 06/04/2012 - 23:21 | Link to Comment Problem Is
Problem Is's picture

"Send my QE $3K check first."

When Shrub Jr. tried to bribe me and buy my vote... He mailed out tax rebate checks with "Courtesy George 'Shrub' Bush" printed right on them...

This fucking idiot Barry Soetoro... can't even bribe people right...

Obama Bin Lyin'
What a worthless cock sucker...

Tue, 06/05/2012 - 02:15 | Link to Comment GernB
GernB's picture

Gotsta buy those thingamajigs.

Mon, 06/04/2012 - 21:54 | Link to Comment ISEEIT
ISEEIT's picture

Oh for fuck's sake... Do you people really need to be so NEGATIVE?

At least they trying right?

Mon, 06/04/2012 - 22:27 | Link to Comment narnia
narnia's picture

It seems to better for the career of someone in the government to intervene & fail miserably than do nothing, even if nothing produces a much better outcome.

Mon, 06/04/2012 - 23:08 | Link to Comment flacon
flacon's picture

Iseeit, you have to add a slash ess to the end like this "/s" so that people know you are kidding. /s

Mon, 06/04/2012 - 22:46 | Link to Comment Paul Atreides
Paul Atreides's picture

If you mean 'trying' to rip us off, steal our prosperity and deprive us of a future then yes...yes they are trying.

Tue, 06/05/2012 - 01:46 | Link to Comment q99x2
q99x2's picture

Yea they're trying. They are staffing the FEMA camps arming DHS with enough ammo for a 7 year war and putting up predator drones. They are preparing to kill us you freakin idiot. That's what they are trying to do.

Banksters going to get you.

Mon, 06/04/2012 - 22:05 | Link to Comment razorthin
razorthin's picture

Too hateful - had to retract.  I can hardly contain my anger.

Mon, 06/04/2012 - 22:54 | Link to Comment Crab Cake
Crab Cake's picture

Nope. This is fight club, you let that shit out full throttle. This is where its safe to do it. Do not bottle it, and dont scare your family and friends; you do it here motherfucker. Now put up your god damned hands and at least act like you mean it.

Mon, 06/04/2012 - 22:00 | Link to Comment LetThemEatRand
LetThemEatRand's picture

TPTB like Obama, but they prefer Romney.  O is a useful idiot they used in order to convince the masses that "socialism" is the problem with our economy.  Romney is literally one of the oligarchs.  They couldn't crash the economy during the primary cycle because it could produce an outlier candidate like Paul if people were freaked out enough.  Now that Romney is the locked nominee, they can crash the market ahead of the election and then have mainstreet begging President Romney to eliminate social programs, reduce taxes on the rich, and QE to infinity.

Mon, 06/04/2012 - 22:25 | Link to Comment ISEEIT
ISEEIT's picture

But at least obama got to be part of it right?

It was all going to blow up anyway and at least he was able to help.

Seems 'fair' to me.

Mon, 06/04/2012 - 21:57 | Link to Comment CClarity
CClarity's picture

Twist and Shout while you wait to see what it looks like when hundreds of trillions of derivative CDS implode and shut down markets everywhere.  There is no plan to avert that.

Mon, 06/04/2012 - 23:31 | Link to Comment CloseToTheEdge
CloseToTheEdge's picture

(OCC) showed that the top five SIFIs — Bank of America, Citibank, Goldman Sachs, HSBC and JPMorgan — collectively accounted for more than 50 percent of the $700 trillion OTC derivatives trades worldwide in total notional value. JPMorgan alone accounted for more than $70 trillion of the $700 trillion, the report said. “That [$70 trillion] represents one-tenth of the global OTC derivatives exposures.
The official said he found it alarming that, when the top five banks’ assets and total exposures to derivatives activities were added up, they showed a leverage of one to 45 times.

(an yet 'they' claim to be pricing them in)

be afraid.

Mon, 06/04/2012 - 23:41 | Link to Comment eclectic syncretist
eclectic syncretist's picture

Like the Fed thinks that banks are going to go out and lend huge amounts of money to all the underwater homeowners.  Or that the underwater homeowners want to take on even more debt.  LMAO!

Mon, 06/04/2012 - 21:57 | Link to Comment mickeyman
mickeyman's picture

They have to do something to get the price of diamonds back up? What are those poor diamond merchants going to do?

Mon, 06/04/2012 - 22:01 | Link to Comment LeonardoFibonacci
LeonardoFibonacci's picture

smuggle to London & Belgium for loads of cash

Mon, 06/04/2012 - 22:00 | Link to Comment ISEEIT
ISEEIT's picture

Kony took out the diamond dudes.

It's all on Obamommy now.

Mon, 06/04/2012 - 22:07 | Link to Comment casey13
casey13's picture

This is the free trading US bond market where the fed buys 61% of the total that is sending a message right?


Mon, 06/04/2012 - 22:11 | Link to Comment Bunga Bunga
Bunga Bunga's picture

As a reminder: June 17 - elections in Greece. Markets will tank for a while, if a radical leftist government gets into power. Why would Ben support them an try to ignite a stock rally? Better keep the powder dry and all will blame the leftist government for a global meltdown.

Mon, 06/04/2012 - 23:51 | Link to Comment erg
erg's picture

Let's hear some Benmosche Bernanke acronyms. I'll start.

Bankers Been Mochen

Edit: Menns Banker Beyoch

Mon, 06/04/2012 - 22:12 | Link to Comment lailapa
lailapa's picture

The end of the world is near... The ten plagues of Pharaoh “have been brought upon” the USA.


Total darkness covered all Egypt for three days, the kind of darkness “that could be felt” as if a thick fog (Exodus 10:21-29)

The attack had an immediate outcome. The outcome is everything we see, the kind of life the Americans are leading nowadays. They have lost everything and now they fail to survive. American “imperialists” stand hungry and sleepless around the fire and “feel” the Wall Street Index which describes the “darkness” of their foreign debt. They are unemployed, broke, insolvent and mostly lost, stripped of any hope for the future. They have no idea of their origins or destination. They can’t even plan their next step; so big is the size of their “darkness” that they can feel it.

Mon, 06/04/2012 - 23:12 | Link to Comment Shock and Aweful
Shock and Aweful's picture

That article was nothing more than some bullshit anti-jewish garbage about how Americans are doomed because we have been taken over by the Jew (or something to that effect....the whole thing is really just an opinion piece with no facts at all...opinions are like assholes ...everyone has one, and they almost always fucking stink.

I don't care if it's a  Jew, a Christian, a Muslim or a scientist...anyone who thinks they have the only answer is fucked in the head...and that type of thinking only causes problems for the few people here on earth that are still rational

This shit you linked to here is absolutely are more aguements based on sweeping generalities, superstitions, religious ideals or dogma...quite wasting our time by posting that fucking drivel.



Mon, 06/04/2012 - 22:17 | Link to Comment zorba THE GREEK
zorba THE GREEK's picture

Because the Bond Market is pricing in the Fed staying pat June 20, does not

mean The Fed won't ease. It just means it is not a sure thing, yet.

The gold mining stocks have priced in deflation for the long run, but

I am very confident that The Fed and TPTB (those who really run The Fed)

will do everything in their power to fight deflation, as it is their worst nightmare.

The Bond Market is just sending a signal to the Fed and the politicians that they

better ease or else feel the rath of the Bond Market.

Mon, 06/04/2012 - 22:27 | Link to Comment Sockeye
Sockeye's picture

Is deflation really their worst nightmare? Isn't the FEDs biggest concern loss of reserve currency status?

Tue, 06/05/2012 - 01:51 | Link to Comment Freddie
Freddie's picture

Yes. Saddam talked about trading oil without dollars. Now it is Iran and Iran is serious about it.  This is why there will probably be yet another war.

Who in the media questions these endless wars?  No one.  What purpose do they serve besides defense contractors.

They really go going with Poppy (Yale & CIA), Clinton - Balkans (Yale), Bush Jr. (Yale & Harvard?) Obama (Harvard) and soon to be Romney (Harvard).  Endless Ivy League wars but Yale was founded with China opium money.   Poppy and Hussein were also CIA men.

Carter (Naval Academy) and Reagan (Wheaton College) - no real wars.

Tue, 06/05/2012 - 02:15 | Link to Comment BlandJoe24
BlandJoe24's picture

Now that credit expansion has reached/passed  its peak and credit destruction is gaining steam, deflation is what the greediest of the greedy (ex: TPTB) seek. In a deflation creditor's power increases exponentially as debtors (which is almost everyone on the globe) have less and less cash and are compelled to surrender hard assets/ownership/rights. The few powerful entities  vacuum up everything they can at fire-sale prices and increase their power/ownership tremendously.

If you think the Fed and TPTB only seek to to preserve how things are, then you see them as trying to resist deflation.  But if you think the Fed and TPTB might actually yearn for the mad destruction/collapse that will leave only a very few entities incredibly more economically dominant than they already are while turning nearly everyone else into serfs, then you see that they (although perhaps only secretly) might strategically choose deflation.


Mon, 06/04/2012 - 22:23 | Link to Comment Beam Me Up Scotty
Beam Me Up Scotty's picture

I've got a FAZ insurance policy.  Market tanks, Im not hurt as bad.  QE3, my stack keeps me afloat.

Tue, 06/05/2012 - 01:27 | Link to Comment Sockeye
Sockeye's picture

Watch out for the slippage!

Mon, 06/04/2012 - 22:25 | Link to Comment lolmao500
lolmao500's picture

Basically, sell silver and gold... and wait for it to crash... then load up.

Mon, 06/04/2012 - 22:34 | Link to Comment ultimate warrior
ultimate warrior's picture

you might be waiting for awhile

Mon, 06/04/2012 - 22:30 | Link to Comment disabledvet
disabledvet's picture

and to think people still claim "war isn't the answer." to that i say "what's the question again? bailing out the most worthless flag burning phuckers in history?" should be an interesting election that's fer sure! "they say the Romans had slaves crucified ever 100 feet along the entirety of the Via Appia after they supressed the slave revolt of 73 BC." I forget the number. 30,000 i think.

Mon, 06/04/2012 - 22:34 | Link to Comment arrogantchef
arrogantchef's picture

Twist or QE3 to what? Like trying to get the 10 yr down below 1.5 is going to matter? Rates drop .25 and the economy will just take off? Spend another Trillion we don't have and things will be better next year? 


Mon, 06/04/2012 - 22:38 | Link to Comment booboo
booboo's picture

Benroid is like a kid in a candy store with a fist full of dollars, lets see, hmmmm, choco bonds, facebook wax lips, JP joo joo bees, Oooh, S&P Dots!!! yes, No!! Look my favorite, Chinese Jaw breakers!











Mon, 06/04/2012 - 22:41 | Link to Comment Bugsquasher
Bugsquasher's picture

I continue to be amazed that no matter how many of these analysist post their opinions about if and or what will happen when, the word derivitives dares not pass their figurative lips.

Mon, 06/04/2012 - 22:42 | Link to Comment EZYJET PILOT
EZYJET PILOT's picture

Its obvious, they will print just before the elections.

Mon, 06/04/2012 - 23:13 | Link to Comment hamstercheese
hamstercheese's picture

Let's pretend this whole system is run by greed.  And let's pretend those who run the banking system feels they now hold enough debt to foreclose on the entire economy...i.e., anyone, including governments, who cannot pay will have to hand over their collateral to satisfy the debts.  Now what do you have....everything owned by the banksters, including national parks.  Railroads.  Farms.  Oil wells.  When the arithmetic gets to this point of no return, that's when they would stop 'easing'..they only ease if they want more debt owed to them.  So, again, pretending the whole system runs on that level of greed, they will ease if they don't think enough is owed to them to consume the entire economic system through foreclosure.

Tue, 06/05/2012 - 01:44 | Link to Comment BlandJoe24
BlandJoe24's picture

makes sense

Mon, 06/04/2012 - 23:06 | Link to Comment Sutton
Sutton's picture

All Poltburo, all the time. 

Mon, 06/04/2012 - 23:16 | Link to Comment junkyardjack
junkyardjack's picture

Equities appear to be bottoming

Mon, 06/04/2012 - 23:22 | Link to Comment bulldung
bulldung's picture

When does the USA run out of money again?If it's right before the election they may print early to protect the incumbant from the negative of a Govt shutdown around the election.To print or not is the choice of the party in power.I don't think they care whether your dollar buys less.just that the SNAP cards aren't declined.

Mon, 06/04/2012 - 23:34 | Link to Comment zebrasquid
zebrasquid's picture

Gold rallied on QE3 back on, and probably goes back down if it ain't.

That said, Faber just wrote in his June 1 commentary that gold has bottomed, and his record is better than anyone's, for many years now.

He also thought a stock market "relief" rally was in the cards soon, but then down again, maybe even a crash.



Mon, 06/04/2012 - 23:35 | Link to Comment gwar5
gwar5's picture

Seems the FED usually talks up the market prior to QE to signal them.

Maybe they want to do the surprise thingamajig to have a greater impact.

Mon, 06/04/2012 - 23:35 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

you know my take, tyler:  i'm with the twist;  screwed down tight;  the chairsatan may be a bankster, but he's not gonna kill the goose here

he's gonna finance the Treasury and maybe help out the EU banks (not the sovereigns)  with some more swaps until the marioECB plan get's to the EU summit on the banking and political consolidation needed for the sodomy of the 'sovereigns' to continue

if angela is smart enough, she will just walk away and say:  "enjoy!"

Peppermint TwistJoey Dee & The Starliters

Tue, 06/05/2012 - 00:06 | Link to Comment chump666
chump666's picture

The Fed is going to print directly into the EZ (ECB) via USD swaps biggest in history, that and op twist extension.

We got maybe 3-6mths before the great bond reset and the zero trade on...everything.  cept for USDs/gold (physical).

All eyes should be on Asia, Europe's zombi-cation is a done deal. 

Tue, 06/05/2012 - 00:51 | Link to Comment Assetman
Assetman's picture

I agree with your take, chump (that made me laugh for some odd reason).

I'm not sure that the bond market is pricing in another swap salvo... and this one could be a biggie, given the acceleration in illiquidity in Europe (and the very liquid state in the US).  What people are missing from this is that it is essentially an expanding balance sheet action, since we all know that the Euro is essentially a worthless piece of crap.

The only thing missing from your equation is ZIRP... and I don't see why the Fed doesn't announce it out now to 4 years, or to 2016 in order to placate the banks for cheap 0% borrowing, so they can lend at 1.5% and still make money.  Ben couldn't give 2 $hits if grandma can't earn enough for retirement... but the banks are going to be just fine.

As for Asia, we all know Japan is very well zombiefied already.  Nobody really knows what the hell is going on in China, though.

If those are the actions, we get a lower USD and a spike in the equity markets... though it all may well be very transient, as economic momentum is slowing fast, and the Fed really hasn't done much to prevent that part of the equation.

Tue, 06/05/2012 - 02:32 | Link to Comment chump666
chump666's picture

The Fed first and foremost will try and keep US banks liquid (sans any help to the American economy) so yes ZIRP is infinity, 2nd would be the massive swap line to illiquid EZ.  I think the bond markets are miss-priced on a lot of things, hard to see if inflation/depression or stagflation is priced.  But fear and confusion is.   The inflows are into USDs the out flows are Asia.  That is the worry.  If Asia goes down hard it will take out the short end curve (liquidation 10s etc), so in that sense i think the Fed is stuck.  If op twist is extended the yields collapses further will signal to the equity market major sell signals

The tug of war will be with Asia, they are liquidation into USDs,So equity markets are capped in a tight range, no runaway rally like start year (which killed my shorts at the time).

Again Asia couldn't short squeeze that dramatically, near term bottom is appearing, slight rally.  Then...

maybe the end.

Tue, 06/05/2012 - 00:28 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture



After all it was none other than Goldman earlier today who said that "our confidence that the FOMC will ease policy once more at the June 19-20 meeting has also grown... Our baseline remains that Fed officials will purchase a mixture of mortgages and long-term Treasuries, financed via balance sheet expansion...

Once again GS hopes Fed will print currency and buy more of the near-worthless securities GS is holding.

QE doesn't help the economy one bit.  It just helps people like GS, maintaining a false market for debt securities that are dropping in value frighteningly fast as the underlying real world drops in value.

When the Fed buys MBS at near par, way above their actual market value, it sets a false high "market value" for MBS, and GS marks all MBS on their books at that false high value, maintaining the illusion that GS is solvent.

THAT'S why GS wants Fed to buy more MBS.  To maintain that false high "market value", so GS can keep MBS on their books marked at that false high value, and avoid showing the world how hopelessly insolvent they really are.

If Bernanke annonunces no more MBS purchases, that false high "market value" suddenly collapses, and GS is now insolvent, hopelessly insolvent.

The same thing happens with sovereign debt.  Fed, ECB, BOJ, print currency and buy up government debt paper, maintaining a false high "market value" for government debt paper that everyone holding government debt paper can use to maintain the false high "value" of government debt paper on their books, helping them avoid showing world how hopelessly insolvent they really are.

No, QE doesn't help the economy one bit.  It merely maintains a false high "market value" for debt paper that's actually worth way less, maintaining the illusion that people like GS are still solvent.


Tue, 06/05/2012 - 01:26 | Link to Comment Milton Waddams
Milton Waddams's picture

So funny that high finance and economics has degraded itself to the extent that it relies on old hollywood marketing tactics - i.e. the sequel.  QE, QE1, QE2; we've seen this movie before and it always ends the same way... retracement.   However, with inflation expectations collapsing, Bernanke has a greenlight to pump more fiat into already flush banking reserves.  The point of absurdity will be reached when you are paid to take out a loan.  And it's coming...

Tue, 06/05/2012 - 02:36 | Link to Comment Woosirsir
Woosirsir's picture


Tue, 06/05/2012 - 03:27 | Link to Comment besnook
besnook's picture

i think bernank uses the weak euro to do a hole shot with the printers and burns them up going into the election.

Tue, 06/05/2012 - 03:57 | Link to Comment Zero Govt
Zero Govt's picture

The Fed to buy more MBS's?????

that's a financial product meant to be sold to private investors, not to a Central Bank

what's the problem Benny, Blankfein and Dimon so inept they can't sell their garbage financial products anywhere?!!

bankers in nappies needing Nanny Ben to pamper them through the business cycle ..this ain't capitalism, it's beyond pathetic

Tue, 06/05/2012 - 05:35 | Link to Comment OhOh
OhOh's picture

Doesn't China have a stack of US MBS's it wants rid of?

Tue, 06/05/2012 - 03:58 | Link to Comment Alejandrito
Alejandrito's picture

What do you think about this?

Tue, 06/05/2012 - 04:56 | Link to Comment Bezukhov
Bezukhov's picture

Why, when I see the word "Twist" on the finacial pages, I have a vivid image of someone twisting on the end of a noose...

or what they taught us in bayonet training at boot camp; you twist the blade before you pull it out...

or, when I am mixing a gin and tonic, I twist a lemon wedge into the glass, and discard the worthless rind?

Tue, 06/05/2012 - 07:29 | Link to Comment chinaguy
chinaguy's picture

Why worry about the bond market?.....The Fed IS the bond market.

Tue, 06/05/2012 - 08:55 | Link to Comment Shizzmoney
Shizzmoney's picture

Methinks QE will be bad for AAPL

Do NOT follow this link or you will be banned from the site!