Previewing Bernanke's Speech And Final Thoughts From Citi's Steven Englander And Other Analysts

Tyler Durden's picture

Below, for those who are still undecided we present RanSquawk's preview of what to expect, or as the case may be, not expect, from the Chairman in about 3 hours, when the embargo on his speech is lifted. Also attached is the final summary of Citi's Steven Englander of what the Chairman's thoughts would mean for the dollar, as well as various third party takes on implications for gold and other general asset prices. The consensus, as noted yesterday, is one of no immediate escalation in the push for QE3 as the stock plunge has been contained for the time being - a factor that has always been the primary catalyst for Fed decisionmaking. Granted should the S&P drop to around 1,000, everything will change. In terms of catalysts, the next FOMC meeting will be September 20, so at best silence from the Fed today will mean the market is on its own for 4 weeks, with an ugly NFP number inbetween. In other words, the next month is shaping up for yet more abnormal volatility, "as usual" for 2011.

From Ran Squawk:

Having navigated through another volatile week market participants will now turn their attention to Fed’s Bernanke and his interpretation of recent market events and which direction the Federal Reserve will take in order to maintain the recovery of the US economy. 


One of the biggest questions heading into this week was whether the Fed will embark on additional Quantitative Easing (QE3) but as the week has progressed expectations of further QE seem to have dissipated. It now seems the most likely scenario may well be one that sounds distinctly similar to the last FOMC meeting where by the Fed committed itself to keeping rates low until mid-2013. Nonetheless markets continue to lack confidence and unless Bernanke satisfies, whether that is by monetary change or a verbal commitment, there is a chance he may disappoint the market and as such run the risk of further downside pressure in US stock futures.


Looking at the situation more closely there are several reasons as to why further QE at this stage may be premature. Firstly, the Fed has only recently softened its stance to support the recovery in its last meeting and would risk jeopardising its credibility to change its direction so soon after. Also the highly accommodative stance of the Fed has already prompted several board members to be vocal in their opposition to the pledge showing that the regional governors are already divided in opinion. Secondly, foreign buyers who were already bulking at QE2 will likely continue their distain toward the US and its currency, a slippery slope considering China is the biggest holder of the US debt and with S&P already having cut the US’s AAA sovereign rating. Other key factors to consider include the recent rise in various US inflation indicators which Fed members will be mindful of if more money were to be pumped into the system. Then finally political timing is not favourable given President Obama’s approval rating is at all-time lows. With this in mind Bernanke may well look to adopt alternative tools in order to appease the markets and show that they are willing to act but at the same time saving some ammunition if the economy were to deteriorate further.


In terms of the language, it would be of no surprise to hear the Fed chairman reiterate that the Federal Reserve will do what is necessary to stimulate the economy and has the tools to do so. However, given the expectation heading into today he may well have to go one step further and unveil new measures. One step which has been spoken off by several institutions is the re-invention of ‘operation-twist’ a practise where by the Fed would sell shorter-dated securities held in its portfolio and target the longer end of the curve. Other less plausible but still realistic measures may be that the central bank opts to lower the interest rate paid on excess reserves. If in the unlikely event the Fed does go further and more QE is adopted it would be a big shock and would certainly result in the biggest reaction with T-notes and gold prices likely to soar at the determent of the USD.

From Citi:

Our economists don’t expect any QE commitment, let alone any ‘shock and awe’ radical policy measures. Investors also appear to have backed away from expectations that the Fed Chairman would present any sort of August surprise. However, he is expected willingness to take further policy measures, and probably would not exclude QE, if there was a further severe deterioration of the US economy.


We also have to acknowledge that there is a view in the market that the Fed Chairman sees an obligation to respond aggressively to weakness, and will look for a nod to measures beyond even QE or terming out rates (again not the view of our colleagues), so there could be a segment of the market disappointed if he delivers a conventional speech as described above. Such Krugman-like out of the box policy measures appear very premature right now, but it is interesting that the debate has started at least at the fringes.


Assuming that he presents as planned, the major effort of FX investors will be to gauge the body language of his comments. The key question would be how much of a significant further weakening it would take for him to take more aggressive action. The market reaction would probably be determined by whether the response is being seen around the corner, or quite a bit down the road. In that context, were he to express any kind of confidence in the US economic bounceback – i.e. that the economy is not as weak as current indicators, forecasts and asset price moves suggest -- that would probably be interpreted as more wait and see than getting primed to move. Given where asset prices are, an expectation of mediocre economic performance, rather than dismal, would represent an optimistic view of the economy, but might lead FX investors to sell USD if they think asset market relief will not be forthcoming soon.

And summarizing some selected third party thoughts (via Bloomberg):

  • Impact from another round of QE “more limited,” Saxo’s Steen Jakobsen says; 2-8 weeks of relief risk-on trading at best.
  • Start of QE1 created 78% rally, QE2 29%; most likely impact of QE3 7%-15 to 1250-1350 on the S&P 500,;may also signal  final leg of weak USD
  • Gold may rise as high as $3,000/oz, if not $4,000/oz, other metals “should follow suit”
  • Bernanke to emphasize constraints to U.S. growth, policy, offer some clarification on policy options, “no strong hints on when or what": Monument’s Marc Ostwald
  • Bernanke has been stressing inflation is key distinguishing factor between current situation and start of Q4 2010
  • Not a policy setting speech, Bernanke may re-iterate some options available to the Fed, will repeat ready to do  whatever is necessary: ING’s Rob Carnell

In other words, nobody knows what will happen.

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Bobbyrib's picture

Whatever happens gold is going up...

MillionDollarBonus_'s picture

I sincerely hope that Bernanke has some sympathy for those like myself who are heavily long equities. We trusted in his dovish rhetoric and his strong keynesian principles, and therefore it's only fair that he should reward us with more monetary easing.

bernanke al-sahaf's picture

If Bernanke´s lips are moving. The goldprice will be also. Up that is!

Snidley Whipsnae's picture

"In terms of catalysts, the next FOMC meeting will be September 20, so at best silence from the Fed today will mean the market is on its own for 4 weeks, with an ugly NFP number inbetween. "

Except support from the PPT... and more metal margin hikes by the EE... and secret loans to any on the Fed Favorite List... and unlimited swaps with insolvent banks everywhere... and ad nauseum...

At this point the only thing Ben could say to surprise me is "we are going to hike interest rates above the real rate of inflation to strengthen the dollar"...

Chances of that sentence appearing... Snowball in hell...

Keep stacking...

DefiantSurf's picture

Ugly NFP, Uglier GDP, both bullish (for gold)

whirlybird rules's picture

dollar goes up when the PBoC decides it will

EvlTheCat's picture


digitlman's picture

I see the margin hikes fixed everything.



Cdad's picture

That's all fine and good...until the next gold move is 100 points down, at which point I suspect you will be crying and calling foul.

If you are a true gold bull, then you know that a one day correction, and a one day 100 dollar bounce back was not what you wanted.  Instead, it is just the signal fire that the criminal syndicate is in your back yard, lighting fire to paper things, and preparing to arbitrage.  

I suggest you sell or hedge in the short term.

DormRoom's picture

wait till it accelerates.  Margin hikes blew up the Hunts Brothers in the 80s.  It will blow up funds using 40:1 leverage on gold.

Cdad's picture

My sense on gold yesterday was that bears were using it, pushing it, to pull down the S&P yesterday afternoon.  I think there still needs to be further liquidation within the GLD.

I expect no less than a half dozen more head fakes and computer generated whip saw moves.  The situation is set again, I think, for an oil/gold compression trade.

DefiantSurf's picture

I love the smell of fear in the morning

Cdad's picture

Given where asset prices are, an expectation of mediocre economic performance, rather than dismal, would represent an optimistic view of the economy, but might lead FX investors to sell USD if they think asset market relief will not be forthcoming soon.

There is so much wrong with this statement that I find myself dumbfounded.  And as in almost all base cases, and no matter what day it is or what is at hand, the criminal syndicate's solution to everything is selling dollars.

One day, Average Joe will finally discover the nature of this crime, and in so doing discover the true criminal nature of our financial service parasites.  

Lear jet exodus already!  GET OUT OF MY COUNTRY, YOU FUCKS!

Snidley Whipsnae's picture

Orwellian Speak... The azz hats live in a fantasy world... hell, they even marked their assets to fantasy...

How can one expect the azz hats to speak the truth when they are living in a fantasy bubble of their own creation?

Oh well, they will awaken to find their printing presses have become useless... one of these days...

The last laugher laughs best...

nah's picture

nigger slang that money fool

youngman's picture is going to be a wild ride...GDP revisions first...Actually Europe first..but that has been very quiet...then the Bernanke.....its a +0- option....

sudzee's picture

The growing weight of gold at the top of the derivative pyramid can't be held up for much longer. The collapse will be epic.

mendigo's picture

i assume "krugmanesque" was meant in to imply novel, insiteful and constructive - befitting the honor of a nobel prize winning economist (is his name and picture in the zh glossary?)

tom a taxpayer's picture


Breaking News: Bernanke hospitalized with bowel obstruction.

On the eve of perhaps the most important speech of his life, Fed Chairman Ben Bernanke was rushed to the Jackson Hole hospital at 6:08 pm suffering from a bowel obstruction. After two hours of intensive surgery, a hospital spokesperson announced the Fed Chairman is in the recovery room and is as comfortable as one can expect after removal of the anal obstruction: Steve Liesman's nose. 

Chief Surgeon Dr. Noh Fee Noh See said he tried many conventional and unconventional surgical procedures but could not dislodge Liesman's nose from the Chairman's ass. His team of surgeons could not pry Leisman's nose, face, arms, and legs wrapped around Ben like an octopus. The solution arrived by a Tweet from Larry Kudlow telling Liesman that Treasury Secretary Geithner wanted Leisman as soon as possible for an important interview, something about a bank holiday. Immediately, Leisman's nose popped out of Ben's ass like a champagne cork. 

The surgeons still had a hard time getting Leisman to leave, as he insisted on several glassfuls of Ben's "champagne".   When Leisman left, Ben perked up and asked the hospital staff "Wake me at 7am for my earth-shaking bowel movement, er, no, earth-shaking speech...sorry i'm a little groggy from the quantitaive easing, er, no, from the anesthetic"

UPDATE - 2 am MST: A nurse on a smoke break outside Ben's hospital room says she heard Ben on his cellphone saying: "Look Steve, no hard feelings. You are a  friend and a useful idiot. But sometimes you can be a pain in the ass. When I get back to D.C. I'll invite you to lunch at the Marriner Eccles cafeteria." 


DormRoom's picture

One of the objectives of QE was to push up equities using the shadow banking system (hedge funds), so  companies could return to the public markets for debt, bypassing distressed banks.  credit uncrunch. This objective was mostly achieved.  QE2 objective was to protect against a deflationary trap, which would put pressure on company revenues, creating more upside down balance sheets, and bankruptcies.


If the equity market fall, but the credit market remains strong, and there's not a trajectory of falling prices,  the Fed will not likely intervene with QE3. 



scratch_and_sniff's picture

"In other words, nobody knows what will happen" You could have said that at the start of the article ffs, ...should have made it the headline better still.

myztix's picture

There's an FOMC meeting announcement on Tuesday August 31st

Ramboy's picture

"Start of QE1 created 78% rally, QE2 29%; most likely impact of QE3 7%-15 to 1250-1350 on the S&P 500"


One has to wonder where these retards come up with these figures.  Anyone who denies what QE2 did in the course of 9 months f'ing shorts, and bidding one of the greatest satanic waves up in the history of the s&p is a blind man.

spanish inquisition's picture

The Fed has had no idea what to do to actually fix things since the beginning. It's been add liquidity and hope things work themselves out. Interestlingly, not only will too little water (or liquidity) kill you, too much will do the same thing. I like that everyone has been doubling down to the point of people talking of a simultaneous worldwide recession.

The next 2 steps are as follows

  1. Bernanke steady as she goes speech with green shoots of gold down, employment flat and investment up. Ready to spooge liquidity if needed. (if things don't magically work themselves out go to 2)
  2. Ben orders Wall Street to open accounts with Govt info in your name. They spend money on shit you don't need increasing the need for jobs at big box retailers and stuff made in China. Hiring increases worldwide at minimum wage and people go back to work. Bills are sent from the bankers for the shit they bought for you at 35%. Politicians are cut in on profits, I mean experience record campaign contributions. The world is saved!