Let's Twist Again: Goldman's Take

Tyler Durden's picture


Goldman, which as recently as Monday night was pushing what clients it has left into believing the Fed may launch something as gargantuan as a $50-75 billion Flow-based QE program, has already come out with its take of today's action. For informative purposes, here it is.

From Jan Hatzius

BOTTOM LINE: Fed extends twist operation through year end; no change to “late 2014” funds rate guidance. Statement suggests downgrade to GDP and unemployment rate outlook.


1.    The FOMC announced today that it will continue its Maturity Extension Program (MEP)—better known as the “twist”—through the end of the year. The operation will include sales and purchases of Treasury securities totaling $267bn, according to a statement from the New York Fed. The maturity composition of purchases will match the first phase of the MEP. The Fed will sell securities with remaining maturity of “approximately 3 years or less”; the statement from the New York Fed said that once the program is complete, the Fed will hold almost no securities maturating through January 2016 (thus the Fed effectively extended the window over which sales could occur). It will continue to reinvest MBS paydowns into the mortgage market.

2.    The FOMC downgraded its views on the economy in its post-meeting statement. Although activity is still “expanding moderately”, they removed the phrase “labor market conditions have improved”. The statement also noted a downshift in consumption growth and the decline in headline inflation.

3.    The description of the outlook suggested Fed officials now see slower growth and have a more pessimistic view on the labor market. Committee members expect growth to pick up “very gradually” (adding “very” to the previous language) and think the unemployment rate will decline “only slowly” (as opposed to “gradually”). Fed officials continue to see “significant downside risks” due to strains in global financial markets. The description of the outlook in the statement suggests lower GDP forecasts and higher unemployment rate forecasts in the Summary of Economic Projections (SEP), to be published at 14:00.

4.    The committee retained the earlier language that the funds rate will remain “exceptionally low … at least through late 2014”. The fact that the guidance was not extended suggests the funds rate projections in the SEP may shift by only a small amount.

5.    Finally, the committee put in place a more clear easing bias in the statement. The concluding sentence now says that the FOMC "is prepared to take further action", whereas previously the statement said that the committee would "regularly review the size and composition of its securities holdings". Fed officials also added that promoting a "sustained improvement in labor market conditions" could be justification for easing (in addition to promoting "a stronger economic recovery").

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Wed, 06/20/2012 - 13:54 | 2544298 bigdumbnugly
bigdumbnugly's picture


if you are gullible enough to still be following us procede to Point Two.

Wed, 06/20/2012 - 14:01 | 2544326 SeverinSlade
SeverinSlade's picture

I just figured something out!

STEP 1: Collect Underpants
STEP 2: ......

GS answered our question about STEP 2.  See STEP 0 first.

STEP 0: Tell the muppets to sell underpants and buy socks.
STEP 1: Buy underpants and sell socks
STEP 2: When underpants market explodes, sell underpants and buy socks.

Wed, 06/20/2012 - 14:16 | 2544418 Biosci
Biosci's picture

...once the program is complete, the Fed will hold almost no securities maturating through January 2016 (thus the Fed effectively extended the window over which sales could occur)

That's it, then -- there can be no more Twist after this.  If a real QE/LSAP is going to happen, it will happen this fall, because there will be no alternative.

Buy your straddles & strangles now, ladies and gents, while they're on sale.

Wed, 06/20/2012 - 15:35 | 2544770 RoadKill
RoadKill's picture

I have to disgree. Only way you get QE 3 this fall given the election is if UE goes back to 9% and SPX collapses to an 11 handle. This FED clearly doesnt want to do QE3 because its scared it cant get out of QE 1&2 until 2020+.

Wed, 06/20/2012 - 17:08 | 2545096 Biosci
Biosci's picture

Ah, my friend, you misinterpret me.  All I'm saying is that if it is going to happen, it will happen this fall, because they won't be able to extend Twist any longer.  I'm willing to bet on a big move this fall, but not willing to bet which direction.

Wed, 06/20/2012 - 15:41 | 2544804 mikesswimn
mikesswimn's picture

Brilliant, sir.  Brilliant.

Wed, 06/20/2012 - 13:54 | 2544299 The Gooch
The Gooch's picture

Prepararing to be prepared for preparations...


Wed, 06/20/2012 - 15:50 | 2544834 rayduh4life
rayduh4life's picture

Don't forget the "H" while you're preparing.  You and the rest of us are going to need it.

Wed, 06/20/2012 - 13:55 | 2544301 francis_sawyer
francis_sawyer's picture

6. You're still a muppet

Wed, 06/20/2012 - 13:56 | 2544307 Cognitive Dissonance
Cognitive Dissonance's picture

Goldman must be lying because the ticker is moving.

Wed, 06/20/2012 - 13:58 | 2544316 bigdumbnugly
bigdumbnugly's picture

lol.   yeah, or "flowing"...

Wed, 06/20/2012 - 13:59 | 2544317 sdmjake
sdmjake's picture

"They whispered to Caesar that he was mortal, then sold daggers at half-price in the grand March sale.”

-Ray Bradbury (Something Wicked This Way Comes)

Wed, 06/20/2012 - 13:57 | 2544310 SemperFord
SemperFord's picture

Goldman is Al Bundy in this Video... http://www.youtube.com/watch?v=WEbaQESdB40

Wed, 06/20/2012 - 13:58 | 2544312 francis_sawyer
francis_sawyer's picture

looks like I picked a bad day to quit doing purple micro dot...

Wed, 06/20/2012 - 13:58 | 2544314 SeverinSlade
SeverinSlade's picture

GS: "Oops we were wronnnnnnnnng again.  But thanks muppets for buying up all of our long equity exposure.  We'll be happy to buy it back when the S&P is 10-20% lower."

Wed, 06/20/2012 - 13:59 | 2544315 Madcow
Madcow's picture

the "new paradigm" investment strategy:

1. Recognize that the bankers are powerless to stop the deflationary implosion

2. Short the rallies

3. Make plans to flee the country



Wed, 06/20/2012 - 14:04 | 2544337 SeverinSlade
SeverinSlade's picture

Good luck on #3.  Doesn't matter where you go in this globalized economy.  Authortarian totalitarianism will find you no matter where you go.

#3 should read: Stack PMs, and reload your your mags.

Wed, 06/20/2012 - 14:17 | 2544423 skepticCarl
skepticCarl's picture

Mr. Cow, the bankers have more power than ever.  Ever seen one of them go to jail, or even get charged with anything?  Ever seen the system get changed against their wishes? Are the big banks not bigger than ever?

Wed, 06/20/2012 - 13:59 | 2544319 kito
kito's picture

For informative purposes, here it is...

tyler, i believe you meant for entertainment purposes.....because nobody on this site cares about or believes their garbage......their lastest sell into the qe to be rally worked well, too bad they couldnt buy back on the cheap shortly after.........

Wed, 06/20/2012 - 15:03 | 2544626 WezTheJuic
WezTheJuic's picture

For informative purposes.


You might be termed as two things.

1) A short sighted person who believes in the dribble that come outs in the mainstream.  (Cattle IS Cattle)

2) One of those people who are being paid to spread dissent on the thruth on what is really going on in this Weatern Society.  (HAil the Homeland.)


At least I offered you two choices.





Ps. Just one question, are you one of those people who believe Mercury is good for your brain?  Maybe you should go and eat some more toothpaste instead.

Wed, 06/20/2012 - 14:02 | 2544330 Alejandrito
Alejandrito's picture

the Fed should be very worried at the sight of this graph.


Wed, 06/20/2012 - 15:05 | 2544639 Jena
Jena's picture

Chest compressions underway, ventilating with 100% O2 and CLEAR

Wed, 06/20/2012 - 14:02 | 2544331 Manthong
Manthong's picture

Geez, I’m so glad they put that “more clear easing bias” out there.

I was really worried for a moment that the government might decide to let genuine free market price discovery happen.

Wed, 06/20/2012 - 14:03 | 2544333 ATG
Wed, 06/20/2012 - 14:03 | 2544335 dracos_ghost
Wed, 06/20/2012 - 14:03 | 2544339 El Oregonian
El Oregonian's picture

... And suddenly in just one day, Poof. They gave up the ghost.....

Wed, 06/20/2012 - 14:05 | 2544344 DrDinkus
DrDinkus's picture


Wed, 06/20/2012 - 14:05 | 2544345 rsnoble
rsnoble's picture

At this point in time I could live with anything considered to be a recovery, All this bullshit talk of a "stronger" recovery is hogwasy. Of course all of the unemployed-etc already know this but they don't generally have any $ in the markets. We'd better pray for a collapse sooner than later before these clowns fuck it up even more.

The US can't even get by on $4gallon gas and they want to destroy Iran? Trust me......you and I aren't in the big picture. At the rate we're going ill be surprised if some other country doesn't decide to hit first.

Wed, 06/20/2012 - 18:02 | 2545265 Go Tribe
Go Tribe's picture

Isn't it interesting that the unemployed haven't organized into a voting bloc? They are well into this dismal economy, and yet, the poor victims according to the main stream. How come they never organize?

Wed, 06/20/2012 - 14:06 | 2544349 Snakeeyes
Snakeeyes's picture

I love Jeffrey Lacker at the Richmond Fed, the only dissenting vote on this madness!!!!



Wed, 06/20/2012 - 14:06 | 2544352 Hype Alert
Hype Alert's picture

So with the economic data deteriorating with every release and the Fed just announcing no changes, what could possibly happen next?

Wed, 06/20/2012 - 14:08 | 2544360 Gringo Viejo
Gringo Viejo's picture

"Stop it! You're killin' me!"

Wed, 06/20/2012 - 14:11 | 2544378 skepticCarl
skepticCarl's picture

What happened to "The FED is out of ammo....the FED is in a corner....it's end game for the Fed..."?

Bernanke can do anything that he wants, when he wants.  We muppets may not like it, but that's the way it works, right now.

Wed, 06/20/2012 - 14:15 | 2544379 printmoremoney
printmoremoney's picture

I wonder what the "growth rate" would be if they took out $1.3 trillion per year of federal spending of money they don't have.

I can grow my personal GDP if someone gives me a credit card with no limit and that I never plan to pay back.

Their numbers mean nothing, except to move the herd around trading vapor cash.

It is a wonder why people allow themselves to be led down a black hole by these idiots while the global controllers roll out their agenda of oppression and artifical scarcity. 

Until humans choose something besides slavery of their own species and war, and of course, total destruction of their natural habitat, there is no need to invest our lives in the Oppressor's Paradigm. 

Wed, 06/20/2012 - 14:14 | 2544402 fuu
fuu's picture

Let's Fleece Again

by Goldman Sachs

Come on let's fleece again like we did last summer
Yea, let's fleece again like we did last year
Do you remember when things were really hummin'
Yea, let's fleece again, fleecein' time is here

Yeah round 'n around 'n up 'n down we go again
Oh Benney let me know you love me so then
Come on let's fleece again like we did last summer
Yea, let's fleece again, fleecein' time is here

Wed, 06/20/2012 - 14:20 | 2544439 wagthetails
wagthetails's picture

I get what the Fed is trying to do, but isn't exchanging long term rates for short term rates the exact opposite of what you should be doing in a low rate environment.  What happens if rates take off when all these maturities come due?

We are either out of options and about to go over the falls, or the Fed realizes we are in a no growth/deflationary environment for a decade or so.  Personally, I'll take options A instead of the slow torture of deflation. 

Wed, 06/20/2012 - 14:23 | 2544459 Stuart
Stuart's picture

This meeting was clearly intent on paving the way for them to move at their next meeting if the payroll data between now and then deteriorates further.   If the next non-farm report is weak, then 90% certainty they will do 'something' looking like a QE program. 

Wed, 06/20/2012 - 14:29 | 2544493 Bubbles and Busts
Bubbles and Busts's picture

Fed only has ~175 billion left in short-term Treasuries...nowhere near enough for size or length Goldman hoped for. Even more troublesome for markets, the Fed is probably now on hold for any further action (QE) until after the election (http://bit.ly/N9GLe9).

Wed, 06/20/2012 - 14:41 | 2544533 sdmjake
sdmjake's picture

ya never know...perhaps they'll print up some more fiatsco's tomorrow and give em to Europe.

Wed, 06/20/2012 - 15:20 | 2544690 viahj
viahj's picture

the can was successfully kicked back over the pond to Europe.

next move, bitchez.

Wed, 06/20/2012 - 15:49 | 2544829 Ned Zeppelin
Ned Zeppelin's picture

Interesting as to the balance sheet number - I can only guess once the $175 are sold they will sell further along the maturity line in inventory.  But not much of an action, and yes, this puts them on the sidelines until after he election.  Where everyone assumed they would be anyway.  without QE, not much going on with these guys.

Wed, 06/20/2012 - 14:36 | 2544514 disabledvet
disabledvet's picture

I'll take Paul O'Neil over Jim O'Neil any day.

Wed, 06/20/2012 - 14:37 | 2544517 q99x2
q99x2's picture

promoting "a stronger economic recovery"

Maybe the Bernank will pay me to carry a sign that says, "THE ECONOMY NEEDS TO GO TO AA."

Wed, 06/20/2012 - 14:39 | 2544526 Tic tock
Tic tock's picture

Ball in London's court. but leopard doesn't change spots

Wed, 06/20/2012 - 14:39 | 2544527 Ned Zeppelin
Ned Zeppelin's picture



Your wish is granted and we give you more "Flow." We know, we know, this twisty kind of flow is sterile (no increase in our Financial Yucca Mountain balance sheet) so only a very, teeny, tiny, small group of people (bankers, actually, if you feel you must pry) benefit financially from our "policy"pronouncement today.  We figure at the very least the skim when $267 billion changes hands adds up to some real money, and we hope this meager effort, which certainly serves no other apparent purpose, may help our banker friends a bit during these tough times.   As always, we remain deeply concerned about the amounts of unearned compensation (is there any better kind of money?) the nation's bankers are receiving, even though we pretend to care about the "employment rate" for everyone, which we'd like to clear up right now is not our concern at all.  Not even close.  As for inflation, you wish (actually, we wish, but that's coming soon enough.) Nope, we pretty much just take care of the banks and that's it.  

I'm sure you noticed we decided not to buy any MBSs. That's because it is becoming too clear to everyone that our "efforts to help the housing market" aren't working as virtually no one can qualify for the low rates anyway.  That is, if you can even sell your underwater house.  So we decided that buying MBS would make us look even more impotent than we are, and otherwise be a waste of time, for now, even though we know you hoped to get some of those off your balance sheet at a nice profit (here's looking at you, Bill Gross <wink>)

So all you bankers take heart:  Flow may be supplemented by outright printing at a later date if we think our banker friends' compensation status is turning negative, and we are keeping a very close eye on that, as we always do. So, see you next time. Oh, and we almost forgot: Europe is completely fucked.  And our economy is still on life support. But hey, that's the way it goes.


cc: Dimon, Blankfein, et al


Wed, 06/20/2012 - 14:43 | 2544539 Let The Wurlitz...
Let The Wurlitzer Play's picture

Thank you for the analysis Mr. Hatzius.  I would have never realized that the Fed added "very" to the language.  Based on that analysis I will aggressively add to my positions in ammo, cigaretts and alchohol.   It also appears that they used additional commas in their statement - maybe you could also opine on the implications of the additional commas.




Wed, 06/20/2012 - 15:02 | 2544628 world_debt_slave
world_debt_slave's picture

who does the Fed think they are, Hasbro?

Wed, 06/20/2012 - 15:30 | 2544743 Hedgetard55
Hedgetard55's picture

Yea, the vig on $267 billion ain't shit to the banksters.

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