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Reversals In Progress

Tyler Durden's picture




 

From Mark Grant, author of Out of The Box and Onto Wall Street

Reversals In Progress

There are people that are paid significant amounts of money by many large institutions to study each word and nuance of any pronouncement by the Fed. I am not one of them. Often there is so much commentary in the Press that tries to dissect, interpret, and identify each inflection point of the Fed’s minutes that it is not just the minutia where you can get lost but you can hear so much noise that it is quite impossible to hear anything but noise. Usually I do not comment on the Fed’s minutes because of all of this but yesterday’s announcement marked a turning point, a reversal and careful examination and consideration is today important.

First and foremost, the Fed turned off the monetary spigot. Not only was it turned off but eight out of the ten voting members clearly signaled that the tap was tightly closed. Now I had been calling for this while some were rushing around buying mortgage securities thinking the next QE move was going to head in that arena and so I am sure there was a flurry of activity in some trading rooms yesterday as their hopes were tossed into the circular bins where unclaimed dreams perish in the light of the unexpected sun. Then there were those who tried a new spin and said that the Fed’s actions must mean that the economy will be getting better; oh please Cato spare me the ignorance of those that see copper and declare it iron. The Fed’s decision to end monetary easing is a BACKWARD looking pronouncement and while it may contain some hope for the future now that things have somewhat stabilized; it is clearly based upon where the economy was and is and a spin of some other sort is an incorrect assessment. The economic world, for the last several years, has eaten at the trough of the money pumped into the system by the Fed and by the ECB and risk assets have risen as a result while the LTRO injection was partially used to drive down yields of European sovereigns but this game is ending. Money is placed, sustenance is maintained and when the money spigot is closed reversal begins to take place. Over my decades on Wall Street I have witnessed this game many times and while the circumstances are always different; the end result is not. The yields on risk assets will be higher, equities will decline, the Dollar will strengthen and profits should be taken. The sounds of the famous Moody Blue’s tune rings in my ear, “Go Now.”

The other notable point in yesterday’s minutes was the comment that keeping short term rates at close to zero was “conditional.” If there was one word that glittered and sparkled in yesterday’s minutes it was the word, “conditional.” It had been hinted at before but there it was in black and white and all of the reliance by the players in the bond markets that rates were going to stay near zero through 2014 was just dashed upon the stone floor of reality like some Greek taking his glass and smashing it soundly against the cobblestones as he yells “Opa” and dances around in feverish delight. So what was taken at face value has just become a “maybe-maybe” and while Treasuries may head up some as a reaction to the continuing deterioration in Europe; risk assets will probably begin to widen once again as relative certainty erodes and become transformed into relative uncertainty.

Today’s Spanish auction results were, in a word, awful. Not just higher yields, but a terrible bid-to-cover and perhaps even worse; all of the funding could not be accomplished. The effects of the LTRO are rapidly diminishing as the money has now generally been utilized and the national banks of a nation can no longer support the funding needs of the countries in the periphery. We have reached the turn here and I predict much higher yields to come now for the troubled nations in Europe including Italy. What could be accomplished by liquidity has been accomplished but solvency problems cannot be cured by liquidity alone and that lesson is about to be re-learned again.

“You do not have the power to change the winds but you do have the power to re-set your sails.”

                                                                                   -The Wizard

 

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Wed, 04/04/2012 - 10:28 | 2316255 GetZeeGold
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Didn't see it coming really.

 

Wed, 04/04/2012 - 10:33 | 2316271 WakeUpPeeeeeople
WakeUpPeeeeeople's picture

Sept 1929 all over again??????

Wed, 04/04/2012 - 10:40 | 2316302 Manthong
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I don’t know about anybody else, but I’m in the mood for a lot of crucifying about now.

Wed, 04/04/2012 - 10:41 | 2316312 walküre
walküre's picture

well, Easter is coming up... but please skip the resurrection part.

Wed, 04/04/2012 - 11:42 | 2316551 WAMO556
WAMO556's picture

Know any bankers? Lets forget the crucifying part, it is labor and lumber intensive. How about we find some good ol texas sisal and find some of them thar banksters and let them dance for a bit. Just saying

Wed, 04/04/2012 - 10:39 | 2316303 Mr Lennon Hendrix
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More like '33 all over again.  Looks like JPM will continue to make loot off of the SNAP program, since they run it for the US government through overseas book keepers in India while Americans eat cat food for breakfast, lunch, and dinner.

Wed, 04/04/2012 - 10:54 | 2316321 WakeUpPeeeeeople
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So then its the dead cat bounce and the cat may have finally stopped bouncing. We can now eat the cat-fire up the barbi.

Speaking of cats, here in central TX a few years ago there were people buying houses that had no business owning so much as a cat or a dog, let alone a house. As a slumlord, I should know since I rented houses to some of them.

I believe it was Grandpa Kennedy, back in the ‘20s, that said he knew the market was near the top when he was getting hot stock tips from his shoeshine boy.  Well, how’s this for a joke.  During the summer of ’07, I was passing thru DFW Airport and had some time to kill so I stopped in at one of the shoeshine stands in the terminal. While talking to the shoeshine guy I told him how I was a smalltime slumlord down in Austin. Anyway, he then proceeded to tell me about the “flip house” he had just closed on somewhere in east Dallas that was going to make him rich. I then remember thinking that now might be a good time to cash out of real estate. And of course, I didn’t.  

 

Wed, 04/04/2012 - 10:50 | 2316363 Dr. Engali
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Have you seen the price of cat food? It's not cheap.

Wed, 04/04/2012 - 11:04 | 2316394 hedgeless_horseman
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People buy food for their cats?  No way.  Mice and birds are free. 

Next thing I know, you are going to tell me people buy cats!  No way.  Cats are free.

Wed, 04/04/2012 - 11:38 | 2316538 WAMO556
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Exactly - the stray that walked in through the front door. Kinda like the stray from Jekyl Island - and it has eaten soooo many birds! Just saying.

Wed, 04/04/2012 - 12:54 | 2316832 URZIZMINE
URZIZMINE's picture

They say a cat makes a fine meal.

Wed, 04/04/2012 - 10:41 | 2316308 jekyll island
jekyll island's picture

So how is this different than the last time the fed "provided guidance" that they will "stop" printing?  

Wed, 04/04/2012 - 10:44 | 2316332 walküre
walküre's picture

******** BINGO *********

Timing is everything.

Wed, 04/04/2012 - 10:50 | 2316358 SheepDog-One
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Oh, well last time, gas was about $2.50.

Wed, 04/04/2012 - 10:45 | 2316258 hedgeless_horseman
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Slaughtered be the sheep in bond funds when the yield rally finally cometh.

"This account statement can't be right.  Baaaa.  How can this be?  Baaaa.  My wolf broker said this bond fund was safe!  Baaaa.  What the flock?  Baaa baaaa.  Where is our shepherd, The Bernank?  Baaaaaaaaa."

Wed, 04/04/2012 - 11:17 | 2316456 CrashisOptimistic
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Seem to be making back about half of the loss today.  The rest tomorrow.

Wed, 04/04/2012 - 10:34 | 2316266 WakeUpPeeeeeople
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Dupe

Wed, 04/04/2012 - 10:32 | 2316267 walküre
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Controlled demolitions everywhere. Not 9.5 seconds but 9 days before markets collapse in their own footprint. Nobody saw it coming of course and nobody lit the fuse.

Wed, 04/04/2012 - 10:33 | 2316270 DOT
DOT's picture

They have collected all the dumb money.

 

Wed, 04/04/2012 - 10:38 | 2316295 SheepDog-One
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Maybe theyre realizing 'retail' will NEVER show up to buy their trillions in pumping, and its just no option but skip to the next step. Crash down everything, declare national economic emergency, and seize mom and pops pensions and 401K's. 

Wed, 04/04/2012 - 10:45 | 2316317 AssFire
AssFire's picture

Actually, April 17th is the dumbest money collection day of the year (this year). One day April 15th will stand as a revolt holiday and people will vow never to allow the government to steal as it has for 90+ years.

Wed, 04/04/2012 - 10:33 | 2316272 ffart
ffart's picture

The spigot is closed? B-but who's going to buy all the debt that needs to be monetized over the next 40 years? Not the broke-ass retail trader. I guess we'll all just PRETEND the dollar is strong until everything suddenly goes to hell one day.

Wed, 04/04/2012 - 10:40 | 2316293 Quintus
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Indeed.  Is Benny just going to stand by and let one of Timmay's many, many, many planned debt auctions end up like today's Spanish one?

I don't think so.

Conversely, where are all the trillions that are going to buy negative (real) yielding US debt if Benny won't do it?

Europe?  Nope.

Japan?  Hahahaha.

China?  They seem less than keen recently.

US Institutions?  Not unless stocks crash and Obama won't like that in an election year.

It doesn't add up.  Literally.

The Fed will extend QE because (a) They must in order to maintain the status quo and (b) It doesn't cost them anything - it's just imaginary money springing forth from Ben's keyboard.

Wed, 04/04/2012 - 11:10 | 2316429 viahj
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Conversely, where are all the trillions that are going to buy negative (real) yielding US debt if Benny won't do it?

maybe there will be a sacrifice of one of the soon to be ex-TBTF which has a shit ton of excess reserves sitting at the Fed.  would make for a great Obama campaign highlight, throw one wall street bank to the masses and claim that he's fighting wall street.

 

 

 

Wed, 04/04/2012 - 12:18 | 2316693 Amagnonx
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That might raise an eyebrow - but barely a dime - in fact, it is more than likely to cost money.

Wed, 04/04/2012 - 10:34 | 2316281 Waffen
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So QE to infinity, but only after the market collapses like it should have last August when QE ended.

My silver is desperately waiting for 3 trillion new Benny bucks.

Wed, 04/04/2012 - 10:35 | 2316284 JohnKozac
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Dow in "Plunge Mode"

Wed, 04/04/2012 - 10:36 | 2316287 Dr. Engali
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I disagree with the fact that the "spigot is closed". It might be temporarily closed but the are going to have to print. There is nobody to buy up all of our debt.

Wed, 04/04/2012 - 10:38 | 2316296 walküre
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Yields are going down as debt is rallying. Someone is buying US debt and it probably isn't the Fed today.

Wed, 04/04/2012 - 10:41 | 2316313 Dr. Engali
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That's just the normal "fear trade". I'm talking about new issuance.

Wed, 04/04/2012 - 10:42 | 2316325 walküre
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Oh yes, new issuance. You mean 1yr at 200% just like in Greece and then a subsequent 75% haircut?

Greece was just the appetizer.

The RESET cometh.

Wed, 04/04/2012 - 10:41 | 2316309 SheepDog-One
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So then forever on out theyll just print to buy up all the debt? Anyone who has ever done that is short lived...its not a perpetual permanent process to monetize the debt. I think theyre past the point of diminishing returns and will skip to the next step in the collapse now. Tell mom and pops to keep a close eye on their pensions and 401K's, that is their next target.

Wed, 04/04/2012 - 10:46 | 2316338 Dr. Engali
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I agree the 401k and IRA's are a target. But I still think they will have to print. I have clients already getting itchy fingers about the feds targeting their IRA's. It's a topic that comes up in every meeting.

Wed, 04/04/2012 - 10:49 | 2316353 SheepDog-One
SheepDog-One's picture

Theyll do what everyone least expects.

Wed, 04/04/2012 - 11:37 | 2316529 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture

So you're predicting a return to the gold standard?

Wed, 04/04/2012 - 19:25 | 2317937 John_Coltrane
John_Coltrane's picture

No, he's not crazy.  A gold standard won't happen until Dr. Paul is elected or hell freeze over-whichever comes first.

Wed, 04/04/2012 - 10:53 | 2316376 LawsofPhysics
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Yes, and you will see sell-offs right after everyone's contributions go into their 401k accounts (like today, contributions from most employers went in last week).  "Skimming"

Wed, 04/04/2012 - 10:38 | 2316292 the not so migh...
the not so mighty maximiza's picture

Crazy, there is nothing left but money printing and rumors of money printing. 

Wed, 04/04/2012 - 10:39 | 2316297 Quintus
Quintus's picture

And the printing of rumours.  Lots of that going on too.

Wed, 04/04/2012 - 10:38 | 2316294 youngman
youngman's picture

Why buy a bond today at 5% yield...when you can wait a month for a 10% yield...or 20%....on the other hand why buy a bond at all....gold is a much safer investment

Wed, 04/04/2012 - 10:40 | 2316304 LawsofPhysics
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there you go.  Many I know have been going to cash for about two weeks already.

Wed, 04/04/2012 - 10:39 | 2316298 LawsofPhysics
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Consequences of world ZIRP.  There is and will always be a cost associated with the creation of capital.  Especially if that capital does not add any real value to the system.

Wed, 04/04/2012 - 12:06 | 2316628 Bam_Man
Bam_Man's picture

Digital money created by a Central Bank and then lent at zero percent interest is not "Capital". It is about as far removed from "Capital" as can be.

Wed, 04/04/2012 - 12:22 | 2316692 LawsofPhysics
LawsofPhysics's picture

right, and this isn't a solvency crisis.  try again.  That money or capital does in fact exist on someone's balance sheet.  better yet, troll harder.

Wed, 04/04/2012 - 10:45 | 2316334 3FrenchHens
3FrenchHens's picture

"Solvency problems cannot be solved by liquidity..."   Why don't they just try a Spongebob band-aid? yeah. that makes more sense.

Wed, 04/04/2012 - 10:47 | 2316344 SheepDog-One
SheepDog-One's picture

'Solvency problems can not be solved by liquidity alone'? 

What kind of anti-FED policy blasphemy is this? Most everyone agrees Ben will of course come and see, and print! 

Wed, 04/04/2012 - 10:58 | 2316391 Nukular Freedum
Nukular Freedum's picture

This distinction between a liquidity and a solvency crisis I find somewhat fallacious:

http://pearlsforswine.wordpress.com/2011/12/11/how-to-handle-liquidity-t...

Wed, 04/04/2012 - 11:13 | 2316443 Salah
Salah's picture

There's a fatalistic theme in Spanish culture, "Que sera, sera" (whatever will be, will be)...and NO, The Bernank is not dressed in Doris Day Drag.  But the Spanish are...this close...to telling Europe to go pound sand.

Wed, 04/04/2012 - 15:11 | 2317314 Not Too Important
Not Too Important's picture

One can tell the EU anything they want, but unless they're invited to join the BRICs and buy their oil on the Iranian bourse, they're fucked.

 

Wed, 04/04/2012 - 11:16 | 2316452 q99x2
q99x2's picture

Rise of the Kraken from the depths of the unconscious to forever plunder the modern myth of man. Where there is a will there is a way. All is lost. All is lost.

Wed, 04/04/2012 - 11:33 | 2316511 pods
pods's picture

Well if they shut off the spigot how will the FEDs pay for their 1.3+ trillion yearly deficits?

If they really did stop, we would realize immediately that we are in the depression we are in.

Coffin corner.  Print is all they can do.

pods

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