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Rosenberg Presents The Three Ways Bernanke Disappointed The Market, And Why It Is Dumping
With everyone chiming in with their take on Operation Twist, here is one of the few actually worthy ones on the matter.
From David Rosenberg
First, the Fed once again downgraded its outlook on the economy, citing "significant downside risks" (the word "significant" was not there on August 9th) and added "strains in global financial markets" as one of the reasons for the more downbeat assessment.
If there hadn't been so many trial balloons being floated in recent weeks over the prospect of an Operation Twist ("OT") style of policy easing, perhaps the stock market would have rallied as it did in rather dramatic fashion six weeks ago. At that time, the Fed did surprise the market by not merely signalling to investors that the central bank would remain accommodative beyond just what may be considered to be an "extended period", but by actually stating that rates would be kept near 0% through mid-2013 at the very least. That was something that both bonds and stocks were not anticipating — a specific date well into the future.
This time around, there was very little that was not anticipated, particularly from a stock market perspective. Considering that Mr. Bernanke made this a two-day meeting instead of the one-day confab which was originally planned (the last time he did that was in December 2008 when QE1 was pledged), there were high hopes that the Fed was going to go further than just embarking on OT yesterday.
But the reason why equities may have sold off hard in the aftermath of the press release could boil down to these three other factors:
- By radically flattening the yield curve in this Operation Twist program (where the Fed sells short-dated securities and buys maturities between six and 30 years), net interest margins in the banking sector will likely be negatively affected.
- The dramatic decline in the 30-year bond yield is going to aggravate already-massively actuarially underfunded positions in pension funds
- The Fed says it is going to extend this Operation Twist program through to June 2012. This is a subtle hint to the markets that barring something really big occurring, there is no QE3 coming — not over the near term, in any event, and certainly not at the next meeting on November 1-2. So a stock market that has continuously been fuelled on hopes doesn't have any in this regard for at least the next month and a half.
There is now likely to be very little talk about another round of Fed stimulus, and as such, one less crutch for the bulls to lean on. If the Fed, for instance, had said that the OT would have a December 2011 expiry date, the markets would be salivating over what would come next. But June 2012 is a good nine months away (it was deliberately drawn out). It would seem strange at this point, barring a cataclysmic event, to have the Fed embark on a new QE strategy at a time when OT is still in play, not that it can't happen. What is key is that the Fed did find a way to say to the market that this is it for a while, perhaps until we are well into 2012.
As for the fixed-income market, the big news was the size of the OT program ($400 billion versus market expectations of $300 billion), but the bigger news was that the switch was not merely going to be in the 7-to-10 year part of the Treasury curve — in a real 'twist', it will also include the long bond, as mentioned above. What the economic benefit of this will be is really anyone's guess, but it is making long duration bond bulls ecstatic. The yield on the 30- year Treasury bond has fallen all the way down to 3%, but it is the only maturity that has yet to make it all the way down to a new cycle low; there is still nearly 50 basis points to go before the December 18, 2008 interim trough of 2.53% is tested (back then, the recession was largely behind us, not ahead of us). While the "bond" may look overbought right now on a technical basis, there has never been a time when yields bottomed before the recession even began.
Besides, a normal curve from overnight to the long bond is around 200 basis points, so to see an eventual retest or piercing of that 2.53% close of 33 months ago is not out of the question. We should add right here and right now that 30-year German bund yields are now at their all-time low of 2.46% and they don't carry nearly as well as Treasuries. The yield on 30-year JGBs are now at 1.9% and in Switzerland the long bond yield is now 1.2%, added evidence that a further dramatic rally in the long-term Treasury is far from a radical viewpoint.
The mortgage market also got a bit of help today — though likely not much — from the Fed's move to reinvest the principal payments from its maturing agency debt and agency MBS securities into agency MBS (instead of Treasuries as it had been doing).
All in, quite a tepid response to an economic outlook that now has "significant downside risks" when benchmarked against what was priced into the stock market. But there still were three dissenters and the tone of the press statement suggests that the meeting was a lively affair and not short on compromises (the FOMC minutes will be released on October 12th). If there is a surprise, it is the inclusion of the long bond in the program. At the margin, this was a backhanded signal that, sorry, this was not Step One with Step Two coming any time soon as it pertains to further monetary policy intervention in the marketplace. And when you look at the chronology of events — taking rates to effectively 0% in December 2008; embarking on QE1 in March 2009; moving to QE2 in November 2010; and now this Operation Twist resurrection, it is abundantly clear that the Fed has moved from cannons to shotguns to water pistols.
Source: Gluskin Sheff
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Rosie has great 20-20 hindsight. Sheep Dog 1 called this, yet he is not making Rosie's money. An insane world.
Prepare for buying stocks: defense, tobacco, booze, and pharmaceuticals who repair the outcome of defense, tobacco, booze.
And physical PMs of course.
There should be at leat a footnote in this discussion that Operation Twist will also reduce net interest costs and therefore slow the rate of growth of the budget deficit.
The crack-head wanted its fix, Bernanke is shy a few rocks and so the crack-head went into withdrawls and got violently upset.
Later in the day the crack-head heard a rumor that Europe may have some good shit, stopped tweeking and calmed down a little - hoping tomorrow it may get its fix.
But if that crack-head doesnt get high shortly - watch the fuck out!
Soon, the crack won't do it anymore, as crack cannot make a corpse feel better. Time to top off the preps, methinks...
I thought the real story was the three no-votes on the FED - the fact that there was opposition to what was considered a "mild" easing says something about what is going on behind closed doors. Would there be more opposition to a larger print? Maybe the Bernak is feeling like he is going it alone and is being set up as the patsie? The Repubs send a letter, Perry calling him out, Obama not saying a word in support, a few people in his own ranks voting against him... Smells like a scapegoat in the making!!
Somewhat good call, but I want to look deeper.
Specifically, there were 3 dissents at the last meeting, too, and my money is on the following:
They were a different 3 dissenters this time.
"Would there be more opposition to a larger print?" Yes, the same 3 would've said "PLEASE Ben, don't" instead of just "Ben, don't." And that would've been it...............................
the Fed did surprise the market by not merely signalling to investors that the central bank would remain accommodative beyond just what may be considered to be an "extended period", but by actually stating that rates would be kept near 0% through mid-2013 at the very least. That was something that
both bonds and stocks were not anticipating — a specific date well into the future.
This time around, there was very little that was not anticipated,
Blah, blah, blah
Rosie's prediction of what the Bernank was gonna do was 100% incorrect. Now he's back with another explanation. Why does anyone give any credence to these predictors of the future?
You oughtta be ashamed to write another word......keep quiet for a little while at least.....PLEASE, ROSIE?
Essentially yes, thats what happened.
True, that is surely part of the rationale.
OTOH, it will make the shock all the greater when interest rates ultimately go up.
As much as I hate brinksmanship, DC needs something to kick them in the butt to get spending under control.
Suppressing interest rates just helps them continute to kick the can down the road.
Meanwhile, the underlying problems, instead of being addressed, get worse and worse.
I am among the financially unlearned and do not understand how going from the lower short end rates to higher rates decreases net costs to the US Treas.US gov needs more money and with twist there is no net money gain as it is a rollover that actually costs taxpayer more interest$. What am I missing?Will the new money go for the new, improved lower rate long bond?
Rosie is a really good economisct - so much better than almost all the rest that are cited. He doesn't trade markets and the super short term, but he has been very good at outlining his expetations over time. Long term or at least middle term investors do well to follow his views. For short term flippers he's not your guy.
He has been very good on balance sheet recession, interest rates, and the implications - especially macro. And to boot, he is a very funny, not self-impressed guy, generous guy. Had the pleasure of a dinner with him and multiple conversations at a conference back in the Spring.
Rosie is one I bother to follow. That said, I think he could extend his prediction about the status of further Fed easing. Probably nothing in Novemeber, which means probably nothing for a year or so. Not likely for the Fed to risk its *independence* by monkeying around too much in an election year.
Does this mean further easing is off the table? I don't think so at all. The door is still open for some kind of mortgage relief program -- the Romans gave out loaves of bread and this will be the U.S. equivalent. Also, there's no prohibition on the IMF greasing the skids. Will give the Fed plenty of political cover about easing and still accomplish the same result. May even be better, as the bulk of the IMFs 500+Bn liquidity program is funded with FRNs courtesy of the U.S. taxpayer.
Oh yeah. You don't want your tax dollars used to bail out Greece or any of the other Euros? Too bad.
Yeah! Legendary SD1!
Props to SD1. But the deeper truth si that the FED never needed to "announce" QE 3, because nothing has ever stopped. If there is ever an investigation, 5 years on, after a good FOIA request, the truth of Swap Lines and SPV's and dark pool will come tumblong out.
Or it could happen by November 9as per Clif High). Who knows.
BUt the truth is that it is stranger than fiction and an iceberg shows a small percentage of it's true size.
ORI
Troy Davis was a Ritual Sacrifice
"M1 and M2"
YTD M1:
http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=M1&scale=Le...
I don't think the PM ride is over yet, fellas.
re: troy davis was a ritual sacrifice...
sept 21 listed on occult calanders as 'illuminati human sacrifice night'.. its called "Mabon" http://www.rumormillnews.com/cgi-bin/archive.cgi/noframes/read/67592
if you close your eyes to the occult, you will never know what is really going on..
and, if you follow this kind of stuff.. what is happening through the 27th of September..
well, it will be nothing but shitstorms through rosh hashana.. cardinal crosses, obama in denver, it is a tin foil hat masterpiece.
Indeed McGuire. And so it was done, eh?
Thanks for the Link.
ORI
Oh yeah. We go way back. Back like $20 silver and $1300 gold.
yep 20 20 hindsight. no doubt........
Hedgetard
I am not certain what you are talking abouut......."Rosie has great 20-20 hindsight"
Maybe I missed something, but it seems to me than Rosie has in fact been one of the most consistent Bond Bulls on the Street.
Ormaybe you intend another meaning.
Bill
True. Was there not a Rosie post here on ZH prior to Bernanke speech predicting it would disappoint because the mkt had already priced in OT, and would expect a doozy of a plan to actually consider it good news?
More clown Cramer and less Rosie for the big fade (indexes need to be at the 70% off rack before the quality merchandise can be picked over).
imo, point #3 is the biggie. no money printing for at least 8 months (unless it is absolutely need at S&P 600).
Yeah....I got this too. So until then, expect the marekt to test 2009 March bottom lows at the very least. It's the only way the treasury gets funded over this time frame.
+2.53 This is really important to remember
Suck it in Buffett... BAC is fighting to hold 6.00 with everything its got right now
$5 and some change by the bell tomorrow.
My puts are finally in the green again.
And it held, wow. Not one sub-6.00 print today. There were some heavy bids when it printed 6.00 several times.
http://www.bloomberg.com/news/2011-09-22/satellite-may-fall-to-earth-in-...
Maybe it falls on the Fed building, who knows...
This is the same Rosie that said just a few days ago we were going to get Twist + QE3 large?
Rosie Palm more like...
Actually, he didn't say that. He just laid out a few different scenarios and what he expected the fallout to be from each of them .
You mean "Palmela Handerson"
Gold and Silver are down despite the worsening EU crisis, dollar now a safe haven.
Man today sucks a$$ ... but, physical can ride it out.
We're in deep doodie Mortimer!
http://www.youtube.com/watch?v=S8H2FIf1oH4
Back up the truck, Rhino. Ag will recover plenty in time for Halloween.
Backed it up Monday for proofs ... I'm still green and not THAT worried. We will never see $30 silver again. I know that much.
Don't say never. We may get a deflationary collapse before HeliBen starts QE3.
You're in good support around these parts. I backed up the truck about an hour ago and loaded up 50% of my cash. Going to dump the other 50% tomorrow if it dips more.
http://stockcharts.com/h-sc/ui?s=%24silver
Hell, what am I saying? I'll be dumping the other 50% of my cash tomorrow anyway.
Who the hell would hold paper right now? But... I could be wrong.
Decisions, decisions ;)
Gold is toast, Silver well....it's worth about $8, how's that for reality PM monkeys?
Rosie- hahahahahahaha, lmfao! This whale man has been consistently wrong about absolutely everything. Why does he get so much damn attention?!
safe haven, right ! lol. i'd rather invest all my $$ into a daycare center run by Casey Anthony , than put it in the USD .
Where's Barton Biggs?
I'd love to see an interview with that clueless, old bastard today, as he mutters something incomprehensible about price/savings ratios or meat/potato ratios, before nodding off to sleep mid-interview, just for the insanity of it all.
He was on bloomberg 20 minutes ago over the phone. he says he is 20% long and wishes he was -20%.
Says "officials" are at fault. Asia would be fine but thier cirrencies have slapped.
Really dynamic and negative. I'll try to find the clip.
Ahhhh, I see, the old "official's should plan the economy and markets for better returns" philosophy....
yup. "Officials" Officials are people like US sentators. Here a transcript of the recent debt ceiling debate. McCain (R) and Kerry (D) blaming it all on the tea partiers.
Is this the start of the "gentle" crash landing moment?
It's really very simple.
There will be NO MORE QE anything, until after the election, and only if Barack wins.
More QE, Obuhmuh ratings go into sub ZERO cat.
Plus the winner of the election this trip around is really the LOSER.
Sorry Mr Rosenberg but you have lost a lot of credibility with your earlier post on mammoth QE.
I believe that what he said was there needed to be mammoth QE or the market would tank.
Probably just another gig to save JPM's silver position; then print like a bitch.
Wait, I thought QE3 was "priced in" and a sure thing, bwahahahahahaahhaha!
To hell with this orderly decline bs. Crash already, CRASH!
I thought he predicted shock and awe to the upside...
Market is up 80 points off intraday lows so far, so RoboTarder's #winning
So Rosie is saying the Fed will do nothing from now on up to at least June 2012 - an election year?
Very hard to believe.
Agree , US gov borrowing needs will require new debt ceiling,printing and QE to achieve this.Nothing changes until jobs come back to USA or the gov brings it's spending in line with the new normal.Exponential printing rules.
Rules=Bitches
and just as expected for next weeks Gold/Silver options expiry !
Rumor being spread that ECB's selling their Gold..................
Just on Fox News and they called it a "Rumor"
LOL
Picked up a couple of my miners here. What a day. I am wiped and I hardly touched my mouse. How many times have we said even the best sectors do not go straight up. Too many weak holders. Actually today, I bet a few of the stronger positions got wiped out. Bernank not feeling to peppy right now.
WHEN THE CRUTCH IS THE CRIPPLING FACTOR FOR A PATIENT THAT NEVER REQUIRED IT, YOU KNOW SHIT IS GETTING REAL!
FUCK CRUTCHES!
Boo Hoo.. No QE3 coming (subsidy) and the wealthy "masters of the universe" will have to, well, master their intelligence and pull up their boot straps to make money, just like everyone else. However, kill all support for the poor and huddled masses. They're unproductive leaches afterall.
BAC 6.01 -5.80%
oh noes or no doze....
The writing was on the wall when Biden went to China to suck the Chinese dick. For now Strong dollar, Bitchez! When the QE3 arrives, its size will be 100 times bigger than that of QE2 though.
We could still close green, though. That was a big move up and there are more rumors forthcoming about how physics & mathematics don't work anymore.
And I had my Dow 10,000 hat out and everything.
But hey.......we are off the lows right CNBC?
Once upon six-months-ago, it was fashionable to predict that the Fed would gladly let the stock market collapse to help create a bid for government debt.
Maybe time to break out this old theory again? Only other thing I can think of is that the Fed knows a collosal blowup in Europe is imminent and is keeping their powder dry. May as well not start monetizing again until a bloodied and terrified public demands it.
U can't have a market that only front run's the fed. This is precisely how the market is "weaned" from the heroin of QE. Obviously the Chairman is doing this action collectively...and that does include the President of the United States. Insofar as your attempt to plagiarized me btw you have failed in the actuarial comment. The problem with pensions whose value is soaring right now because of the Fed is not growth estimates but benefits paid. In short "those that are financially irresponsible will merely be determined to be financially irresponsible."
How many hedge funds getting wiped out this month??
What ever boomers near retirement that didn't get out last August (many I know did) will surely get out at the next opportunity (if there is one) and stay out of the markets for good. It takes some until "fool me twice" to learn. Long HP?
Does anyone think this could force the banks to refinance mortgages just to keep fees rolling in? Might they have to consider refinancing underwater mortgages? Could this be a good thing?
doubtful. first, you have to prove that you don't really need the loan to get a loan these days. second, if i were paying you 6% for years and one day came in to reduce that to 2 or 3%, how willing would you be?
Wow! What a ramp!
Pump it up!
http://www.youtube.com/watch?v=tpprOGsLWUo
we have Christmas coming up and then an election. If you want to piss off an electorate , have a depressionary christmas.
And in order to have any chance of making a next QE effective, it has to be done ahead of when you want it to show results (assuming something can spiff the economy now)
So if Team Obama wants to show better jobs and retail sales and home sales to show we are at least headed in right direction (stabilizing would be a good first step) somwething has to be done now.
Hey-I have an idea: let our leadership stop talking about tax increases and new regulations and just try, just a little try, at being a leader and cohesive rather than divisive. Check his ego at the door and even if (wink wink) he thinks he is the smartest person in the room, let others have the privledge.
then work on Congress--a little team building needed there too, you think? Remind them they are supossed to solve problems not create problems. Either than or put them all on permanent recess. Children, bah. It would be less expensive for us if they did junkets 48 weeks a year.
Village Smithy, he gave 10 reasons why the FED would do "much much more" than Operation Twist.
http://www.zerohedge.com/news/forget-operation-twist-rosenberg-says-bernanke-about-shock-everyone-what-about-come
he gave 10 reasons but went on to say what he thought would really happen
to his credit Rosie called it perfectly in a backhanded sort of way on Sept 16.
only problem was that his rationale was a bit fuzzy
http://www.zerohedge.com/news/forget-operation-twist-rosenberg-says-bern...
I'll take point #3 for $500 Mr. Rosenberg
June 2012 ? It is obvious the Fed is saving QE3 FOR ELECTIONS
I agree, just in time for the class warfare mega smack down.
Another disappointing close. Not even close to capitulation.
for the past two weeks straight, i have totally nailed the prior day's action. is rosie accepting resumes?
Gold down, silver down - well, hell yes! Do you think we're playing with kids? One must keep one's eyes on the horizon, not looking at your next step....
wang
He covered his arse with the options:
"The consensus view that the Fed is going to stop at 'Operation Twist' may be in for a surprise. It may end up doing much, much more. And this may be one of the reasons why the stock market is starting to rally"
Many uses of "may". Fuck if only I could get paid for that insight.
Anybody know the stock on Ron Paul is it going up on him gettig the presidency and firing the Fed yet ????
haven't you heard the news? according to our fine folks at msm, it's a 2 man race between perry and romney. even the NPR says so.
Just Buy Stocks!
http://swingforceultra.blogspot.com/2011/09/q-wlarry-almost-time-for-qe4.html
Rosenberg was totally chicken before the FOMC meeting, not to discredit his macro, long term view, which has been spot on.
Saving QE3 for the Elections...??
It still comes down to the following decisions for the global banking and politicl order.
1. Default on sovereign debt and have a 10 to 20 year global depression, social and market chaos, revolution and the end of the TBTF's and most of the somewhat lesser banks.
2. Monetize the debt and devalue the currency
Assuming that the global financial hierarchy is still in operation, I continue to believe option 2 is the path that will be chosen. Thoughts?
I'm not selling gold or silver. I didn't in 2008 either. The long term conviction of the above is the basis of my decision. A day does not a trend make.
Wake up one moring to a 50% devaluation of the $$?
It's possible, ne pas?
Recognizing that an inverted yield curve predicts market tops and pending recession, why is it a good think to force collapse of the long end of the curve through these open market actions?
yep!
i went the same-same route last sat, when i cited doug noland's weekly wrap (Delta One) and pointed out that the BOJ 10-yr was returning roughly 1/2 of it's US counterpart!!!
with tyler, i've been calling the "recession" already started since late freaking MAY and have also tried to show, since then, that LSAP ain't a good idea even to a possibly-insane cental bankster at this point and he will most certainly try to insure the T's ability to borrow w/out "printing/funding the debt" and could care less about the fuking "stock market and general economy" at this point, since he has already provided the time and liquidity for ALL the rich fascist insiders to get outs dodge, which they have done, and anyone styooopid enuf to have 10 cents in these "markets" deserves exactly wtf they get shoved up his/her anal pore sidewayZ...
...not to mention that as the "bailout trolls" have been swarming in droves, i have repeated tried to tell these fuktards & asshats that dodd-frank is the new sheriff in town and forbids CB/T bailouts of insolvent corporate structure, if/when TSHTF and any and all "corporate geniuses and masters of the fuking play-pen" who have more leverage than prudent as per their crooked and imaginary "balance sheets" will be chopped up into little pieces, smoked, salted, and rolled into lunchmeats rather than re-financed at the expense of the PUBLIC purse. again
to any and all fukfaced trolls who so steadfastly told me and all reader that "they" don't follow any laws, ever:
not to mention that less then 24 hours ago i reported, after a second daily trip to my (v. highly respected and so-far-never-wrong-in-6-years of me asking him not more than 2X/year what his "call" is) coin dealer that he said silver would be "rough" as it made it's way back to $50 by year's-end and that the $39 support would most probably break down since the "launch from that level" had not materialized and silver was looking like a "squirrel on a limb" which (today) fell OFF to the tune of roughly 11% on the futures and is approaching what he deems the support @ "somewhere around the lo $30z~~~$33 or so..."
as bob dylan put it in idiot wind: "i can't help it if i'm lucky"
The case against UBS's Kweku Adoboli should be considered also, I mean here's a firm that promoted backroom boy two years ago because they wanted to give youngsters more opportunity (actually UBS wanted to save money and fired thier seasoned traders).But could it be that this rogue trader's executives were ignoring his activity because compensation is structured in a way that it creates a strong incentive to commit fraud?...then get the State to make up the loses
Whether the we have a global financial melt down or we have eternal debt monetization, in the long run, we have currency being worse less and less and less. Market wanted actual QE and got Twist, sold equities, commodities. Being the currency of settlement the dollar spiked. Everyone who heard what Ben said jumped into longer dated treasuries for a quick pop. I have been and gold and silver almost exclusively since way before 2008 and I didn't sell then and I'm not selling now.
Silver and Gold are a long term conviction play that currency which based soley on debt which is not repayable and that financial and economic systems based on ever expanding credit (debt) and consumption must ultimately collapse or be monetized through currency devaluation are all good reasons to store wealth in real money for the long term. The weak, margine longs, without any macro vision and conviction thereto were further flushed and given that the Pan Asian Gold Exchang opens next month, JP and other ultra short paper shorts took the opportunity to cover at lower levels and will continue to do so and then WHAM the macro picture takes over and the deeper pockets looking for cover realize there is only one real safe haven left and just as in 2008 dollars and euros and yen start looking for cover.
Look at the long term dollar chart and the long term gold chart, look away from your trading screen, decide what you actually believe and then do nothing. That is what I did today and its what I will do tomorrow. The benefit of experience helps in this and also trusting your own intelligence. Silver is a massively profitable play at this level even if it drops to $30 in the interim. That's my opinion. I could be wrong and have been before. None the less, I trust myself on this. I loved Jim Willie's article today called "Billboard Signals of Collapse".
The dramatic decline in the 30-year bond yield is going to aggravate already-massively actuarially underfunded positions in pension funds
I hadn't thought about that. Fuck me.
Freewheelin Franklin ,
The dramatic decline in the 30-year bond yield is going to aggravate already-massively actuarially underfunded positions in pension funds
Anyone still think they are trying to Not CRASH this system?.
The key is to try and appear to be trying to saving it, while making all the wrong decisions to do so.
Score!
I say people should treat the market like a needy fat chick.
Get yours if you can, but pull out before you end up paying for that shit for the next 18 -25 years.
BB didn't disappoint, the market was poised to sell-off no matter the outcome and it was damn obvious to me.
rosie is wrong; ben has 1 more bullet he is biding his time; he will use that last bullet (qe3) to heip obama"s reelction; they are in it together a republican victory means he has to return to princeton; the last thing he wants; my dad was an acedemic they live for the sabbatical.
Wasn't Dave the one who said there was a Massive Policy Initiative essentially that we should all wait with baited breath to see? Hmmm...
And how many ways has Rosenberg disappointed his readers over the last few years?
I'm a Rosenberg contrarian. Whatever he says, I do the opposite.