Russ Certo: "The Fed Just Basically Announced Recession"

Tyler Durden's picture

From Gleacher's Russ Certo"

Market Commentary

I have never seen such bearish language used out of the Fed.  Words or phrases like inflation “moderated”, indicators suggest “deterioration”, spending has “flattened out”, growth is “considerably” lower and “downside” risks to economic outlook.  Further, the veracity of the statement that the “Fed is to keep rates at record lows AT LEAST through Mid-2013 is perhaps most shocking and powerful.  The Fed understands the gravity of the words it chooses and the consequent extrapolation from the Fed watching and analytic community. 

The Fed just basically announced “recession” and has consequently lowered rates REAL TIME and even set parameters for negative rates.  There was some empirical analysis PRIOR to S&P downgrade which suggested historical tendency (not tendency forecasts) of rates to be 50 bps to 70 bps lower after an industrial sovereign downgrade like Japan, Canada, Australia and others.  We were surprised at all the news conferences harping on the political save egg on face conclusions of lower rates yesterday.  Many, not all, were looking for it.  We are humble given volatility as no one has the answers. 

Today, the curve originally ratcheted steeper as the front end extrapolated the 2013 language and by contrast the long end was left behind.  The market, I think, then realized that this is a deflation/recession announcement by the Fed and it really is constructive for the long end.  Until the equity response. 

The equity response is positive as the Fed is FORCING grandmas and anyone who relies on a fixed income into alternative higher yielding asset classes.  Dividend paying stocks look delicious.  Convertibles, OMG, as you get a higher yielding fixed income instrument with a free equity option?  EQUITIES and other perpetual assets that are being discounted by these rates.  Pension funds use the lower rates to discount valuations. 

Congratulations, the 10 year note finally nearly achieved that 2% metric.  2yrs are trading along with repo and near overnight funding at 16 bps earlier.   

So, the trade is to be long equities and that is the third  leg of the bond trade.  They got rinsed on initial steepener, then surged on deflation/recession reality, now crater on dis-intermediation from the asset class. 

New QE’s ironically haven’t been kind to the bond market and I’m wondering what our creditors are thinking as they are spending reserves in effort of futility to WEAKEN their currencies.  The BOJ spent $50 billion dollars recently.  The Swiss franc was up 6.5% on the trading session earlier.  How are these central banks feeling about the Fed creating these conditions.  Look at Canadian and Aussi right now.  We talked about subsidizing other asset classes.  Let’s just hope it works.  Russ

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augie's picture

I need to buy stock in anti-acids. 

Popo's picture

Stupid pills.


I need some to understand this post.   The Fed priced in a depression,   offered zero stimulus except some jawboning...  and the OP says the trade is to be long equities.


Yeah... better pass me the stupid pills.  I'm still not seeing it.

Dr. Porkchop's picture

I think the gist of it is that bonds will be paying shit, forcing people into equities.

SheepDog-One's picture

Thats saying you have only 2 choices, bonds, or stocks. Ridiculous.

Thomas's picture

That's especially true when grandma really doesn't have a choice. They are not forcing grandma to take a risk. They are forcing her to bend over and suffer Death by Bongo. Those fucking assholes. Normally I try to keep it tame, but I would put the Fed in front of a firing squad if I had my say. Send Bernanke back to Princeton. Those goddamned wankers at Princeton deserve him anyway. (They just stole a couple of my colleagues with their ill-gotten gains in their endowment. I am still pissed at them for that.)

Thomas's picture

Just in case we forget, the Steinhardt blast is a classic...

SheepDog-One's picture

Big bottles of stupid pills needed to 'understand' at all whats going on now. I guess the logic is 'Just get in there and buy stocks left and right'...see my primitive brain just doesnt get that.

kito's picture

@popo  --have to give you a a click of the imaginary up arrow button that no longer exists on zh.

so now, no QE has the same effect as QE, which is to raise equities, which we should all be in. 

why do i belong to this site again?

Boop's picture

I think Tyler just likes to merely entertain us sometimes.

ads56's picture

idiot website costs me thousands today you fear mongering bastards

MajorityRules.'s picture

bahahaha man, thats exactly whats going on here. and then the last post is BUY STOCKS...

SheepDog-One's picture

Buy stocks, nevermind the dollar is in its death throes. As long as markets close 'green' thats all that matters.

warchopper's picture

The time to go short isn't when it's time to go short. 


when are the muni downgrades coming? can't be too far away from more cities going bankrupt.

dwdollar's picture

Bear markets have some of the highest percentage gain rallies.

MajorityRules.'s picture

sry about the thousands btw man.

homersimpson's picture

Obviously you didn't complain when you shorted yesterday, right?

SMG's picture

You should be afraid, the global economy is on the verge of collapse.   Exact date and time is unknown by us peons, but you can be sure it's going to happen.  So the Plunge Protection Team juiced the market today, that is not the fault of this site.   You should be angry at the Oligarchs who pull the strings of the world financial system these days.  They are the ones who engineered the phony rally we had today.  If you really want a better world help overthrow them and stop blaming this site.

You get more truth at this Zero Hedge than any other website in the whole world. This site is awesome.

trav7777's picture

the REAL economy is NOT on the verge of collapse.  The financial economy IS.  And they are holding everyone else by the nuts.

There is no reason your car won't run if the dollar vaporizes tomorrow.

Derpin USA's picture

Because the real economy doesn't use the dollar as a means of exchange and its disappearance wouldn't herald a complete grinding halt to economic activity.

You trollin, brah?

Smiddywesson's picture

Maybe it's because people have a lot of cash laying around and won't go hungry when the ATMs stop working, eh Trav?

Or employees won't show up when they go unpaid?

Or shelves will go empty in 3 days when trucks don't run.

The real economy runs on trust.  If you go down to your local Walmart and just explain that you really do have money, the manager will extend you credit, just like the local store owners did during the Depression, right?

Spitzer's picture

Trav is right.

The millionaires and billionaires will sterilize their savings by buying gold and assets with minimal currency risk, not by emptying store shelves.

The peasants might get a one day bank holiday to straighten a few things out but otherwise it might not be as bad as you think.

Ahmeexnal's picture

Who needs the USD?

Or the GBP for that matter.

Just look at the large number of flat screen TVs and other numerous items that people aquired the past 3 days in Londonistan and other cities in the UK. 

No fiat money involved in those transactions.  Pure old fashioned barter. 

That monetary system will soon begin in pretty much...the whole world.


BeetJuice's picture

No, Trav is right.

The Bank holiday? At that time the banks did close, and people went to the movies paying in script.

The government would of course nationalize the trucking companies and sent out the military to deliver foodstuffs.

In short, yes, capitalism would break down, but capitalism is in the end a political, social system, a human institution that will be quickly replaced when it fails to serve its purposes any more.

Bicycle Repairman's picture

So capitalism and markets become a thing of the past and the USA enters its Soviet phase?

gangland's picture

us (US as in us) enters human phase ...the naive hope

MachoMan's picture

If the dollar died (and I think it will be a quick death...  not that it won't take a long time to get there, but when we do...), then I would expect, at the very least a short to medium term massive increase in price volatility, supply shortgages, and a shaking out of non-productive jobs (with a smaller decline in "productive" jobs).  Grind to a halt, I don't know, but certainly not anything pleasant (hence why we can willingly kick the can).  Between the two sides, I'd say yours was closer...

Ahmeexnal's picture

When the dollar dies, everyone and their dead grandpa will celebrate by going out on a shopping spree like the Londoners have been doing for the last 4 days.

kito's picture

derpin youve been here a handful of weeks, travs been here almost two years, whos the one that might be trollin?

Smiddywesson's picture

I'd be interested to hear your notion of the real economy Trav.  Is it all the people who were working in housing realted jobs, all the contractors and sales people and loan originators, is that the real economy because they lost their jobs.

Is it the 85% of new college grads living in mom's basement?

Is it the millions of people in jail?  The two million in the military?  The gazillion working for the USG?

How about all the people on pensions or disability, are they going to keep the economy humming along when the dollar collapses?

Where is the economy that won't be affected by the collapse of the USD? Because I don't see much of an economy before that collapse.

Dick Fitz's picture

True, Trav, to a point. If the dollar collapsed the homes wouldn't be destroyed, the roads wouldn't fall apart overnight, and the food in your pantry would spoil, and the gas at the station would still be in the tanks.

But, getting more food/gas/electricity would require a FAST adoption of some form of currency. Gold would be the natural choice, but that would mean millions of citizens would be flat broke. Millions would be out of jobs.

Who is going to buy clothes, or eat in restaurants, or do anything that requires discretionary spending when there is chaos and uncertainty?

A full reset/breakdown of the fiat system is necessary, but it won't be pretty!

Smiddywesson's picture

But, getting more food/gas/electricity would require a FAST adoption of some form of currency. Gold would be the natural choice, but that would mean millions of citizens would be flat broke.

Ding!!! We have a winner, and Dick gets the prize.  Yes indeedy, when we switch to the new currency "backed" by gold, which two entitites hold all the gold and will become solvent?  The big banks and the soverign governments who impoverished themselves bailing them out.  they even bailed foreign banks out, because everyone in the club benefits from this scam.

They don't have to tax you to ruin you.  They are not stacking gold, under the most harsh financial conditions, out of a sense of fear or tradition.  The new gold standard will be a massive stealth tax scam where the value of their gold goes up exponentially, which is just another way of saying the value of everything else goes down (hence, just another form of taxation, like inflating paper was over the last 100 years.)

They are the chief holders of gold, so they will be the chief winners.  Everyone thinks gold is a panacea.  They don't have to seize your IRA, or even the paltry amounts of gold we hold.  Wait until the reality sets in.  All they have to do is manipulate the value of gold up and they have already won. 

This is what I call A Gold Standard To Die For.  All that is staying their hand is they are still keeping prices relatively low and acumulating.

kito's picture

the dollar will have collapsed before most of society knows it. they will wake up and sdrs will be in their accounts. most of the problems occur well before and leading up to the actual collapse. 

theotheri's picture

Eat shit racist bastard. You fuckhead.

Manthong's picture

"There is no reason your car won't run if the dollar vaporizes tomorrow."

Your car won't run if you don't have a job to make money to pay for repairs or gas.

And you won't be driving far if the mobs are in the street yanking drivers out of their cars and beating them.

Bicycle Repairman's picture

"There is no reason your car won't run if the dollar vaporizes tomorrow."

As long as gas is available and affordable.

d00daa's picture

hahahahaha you got whipsawed!  don't play with the big boys on fomc day, could you not see this reversal coming??

they're going to pump this suckers rally, ride the bounce into resistance, short, rinse and repeat.  we're just at the start of a bear market in equities, after a 20-25% crash across the board over two weeks.  did you seriously not believe we were going to bounce at some point??

and believe me, they're not done fleecing longs yet either.  just be patient, play the counter-trend rally or if you can't stomach that, wait to short against resistance.  it's that simple, we're getting at least one more big down leg on this sucker.

RobertJ's picture

Don't blame the site for your poor execution.  Bears make money, Bulls make money, Pigs got slaughtered.  You obviously got piggish on one of the sell offs instead of taking your money and running!

LFMayor's picture

They should have never given you ijits money in the first place.  Go Weep.

Things that go bump's picture

Gimme a break.  Even I knew there was going to be a bounce today.  

Smiddywesson's picture

You are kidding, right?

You have three choices:

  1. Stop playing the paper game, move to PMs for the win
  2. Play the paper game, win, but still lose everything when the system crashes.
  3. Lose the paper game and get it over with fast.

Unfortunately, you chose option number 3.  Would you like to play again?  Playing the paper game requires you to perfectly time the trade, and perfectly time the end of the system.  That's not easy.

You know, I give up, it's the web sites fault.  Buy!!!!!!

El Viejo's picture

They are not fear mongers they are cynics. (and damn proud of it) Didn't you see Bloomberg screen. (On same screen: Dow up over 400 and: US economy weaker) Maybe you should have read earlier post:

The economy is the dog and the market is the tail.

SheepDog-One's picture

LOL ads56 you deserve it.

Whatta's picture

thimk for yourself?

I use zh as my bearcase scenario,  I use cnbc and some other blogs as bullcase scenario...and know between the two cases lies (closer to) the truth.

just sayin...

navy62802's picture

If you're trying to make quick bucks in this market, you should expect to take a few on the nose. The real money will be made by holding out until the market bottoms. There will be many massive gains and losses on the way to the bottom because investors don't know where to go to find the quick bucks right now ... only the moneymasters do. For an example, go back and look at all of the MASSIVE RECORD SETTING point swings that happened in October 2008. Then realize that the market bottomed out five months later and another 20-25% lower. Early 2009 was where the money was made for us hoi polloi.

Thomas's picture

Grow up. You can't just read the web; you need to think.

Eagle Keeper's picture

Alright, who the hell was doing the buying?!?!?!?