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Central Planner Exits Stage Left





And cash from clunkers begins...

 
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Guest Post: Psychoanalyzing The Fed





There is one last irony in Bernanke's constant promotion of his powers to unleash QE. Having talked up the market for years with his promises/threats of QE, the market has priced in ever higher doses of QE, in effect bidding expectations of QE's effectiveness to the sky. Bernanke has lost the power to surprise the market. Having raised expectations to the sky, he must deliver something beyond the stratosphere to surprise the market. But he doesn't have anything capable of matching the absurd expectations he's inflated, never mind exceed them. The only surprise left is a negative one. Chairman Bernanke and his fellow doves will soon realize the consequences of over-promising and under-delivering. It works better the other way around, but now it's too late.

 
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EURUSD Hits 1.30 - Unch Year-To-Date (While Gold Up 13.5%)





All that devastation, all that chaos, and the USD is now equally as weak/strong as the EUR compared to the start of the year... meanwhile, Gold is 13.5% stronger versus them both.

 
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Fed Releases Latest Economic Forecast Which Will Be Proven 100% Wrong





With a few minutes to go until Ben speaks, the entirely useless projections are out (as noted before by Reuters that the Fed has been constantly wrong in its forecasts). The stunning punchline is that according to the Fed things are not as bad as one would have expected given the dramatic open-ended shart-fest that Bernanke is portraying. In fact, things are improving per the FOMC! Though we assume that these projections are self-defeating since they likely include this new policy. Be interested to see the pre-policy projections.

  • *FED OFFICIALS SAY GROWTH WILL IMPROVE FASTER THAN JUNE OUTLOOK
  • *FED: 2012 GROWTH OF 1.7%-2.0% VS 1.9%-2.4% IN JUNE
  • *FED: JOBLESS END OF 2012 AT 8.0%-8.2% UNCHANGED FROM JUNE
  • *FED: JOBLESS END OF 2013 AT 7.6%-7.9% VS 7.5%-8.0% IN JUNE

One wonders, whether in addition to having excel models which appoarently do not recognize circular assumptions, if the Fed's forecasts also assume $10 gas, $100 loaves of bread, and $10,000 gold?

 
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Fed Folds: Will Do Open-Ended MBS Buying, Extends Operation Twist





Bernanke has acquiesced - and all is well in the world:

  • *FED TO KEEP POLICY STIMULATIVE FOR `CONSIDERABLE TIME'
  • *FED WILL ADD TO PURCHASES IF LABOR MARKET DOESN'T IMPROVE
  • *FED DOES NOT SAY WHEN MBS PURCHASE PROGRAM TO END
  • *FED TO BUY $40B MBS MONTHLY, CONTINUE `OPERATION TWIST'
  • *FED TO BUY MBS, EXTENDS ZERO-RATE POLICY INTO 2015
 
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The One Big Problem With QE To Infinity





There is one big problem with the Fed's announcement of Open-Ended QE moments ago: it effectively removes all future suspense from FOMC announcements. Why? Because the Fed has as of this moment exposed its cards for all to see from here until the moment it has to start tightening the money supply (which may or may not happen; frankly we don't think the Fed tightens until hyperinflation sets in at which point what the Fed does is meaningless). It means easing is now effectively priced into infinity. Now rewind back to that one certain paper by the New York Fed, which laid it out clear for all to see, that if it wasn't for the expectation of easing in the 24 hour period ahead of the FOMC meeting, the market would be 50% or lower than where it is now, and would have been effectively in negative territory in the aftermath of the Lehman collapse. What Bernanke did is take away this key drive to stock upside over the past 18 years, because going forward there is no surprise factor to any and all future FOMC decisions, as easing the default assumption. It also means that Bernanke may have well fired his last bullet, and it, sadly, is all downhill from here, as soaring input costs crush margins, regardless of what revenues do, and send corporate cash flow to zero. Unfortunately, not even in the New Normal can companies operate without cash flow.

 
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Correlation: 1





So far, the Fed's QuEnfinity has lifted cross asset-class correlation back up to near 1.00 and while stocks look marginally rich to their credit, rate, vol, precious metal, FX, and commodity cousins, its barely notable. The inexorable draw of 'risk-on' has once again dominated the smartest-guys-in-the-room's minds - and while calling a turn here is foolish, this level of systemic move often ends badly/quickly as one leg of the multi-factor correlation breaks down (keep an eye on 2s10s30s).

 
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Bernanke Unleashes The Path To New All Time Highs In Precious Metals





There was one thing, ONE THING only that Bernanke could do, to become a gold bug's best friend today, than merely announcing QE 3/4. It was to announce open-ended QE. This means this is the Fed's final shot and there is no way to frontrun the Fed any more by definition. It means the terminal start of currency debasement is now here. It also means that the path to all time nominal (and inflation adjusted) highs in gold, which is now just $160 away, silver, platinum, and all other metals, as well as all other hard assets is now clear. It also means that very soon stocks are about to realize what soaring "input costs" mean for the bottom line.

Thank you Chairsatan: you are truly a gold bug's bestest friend!

 
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Pundit Humor Extraordinaire Courtesy Of Brian Wesbury "Gold is done... and so is the Fed."





From financial pundit extraordinare Brian Wesbury, as of March 1, 2012: "The bottom line is that even though Bernanke wants to make the case for QE3, he can’t. In fact, better news on the economy has cut the Fed off from doing more massive easing projects. In the end, we believe the Fed has finally run out of justification for its excessively easy monetary policy. As the quarters ahead unfold, the prospects of more ease will continue to wane. This is good news for stocks – which do not do well with accelerating inflation – but, it is bad news for gold. Gold is done….and so is the Fed." Oops.

 
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Market Response: Gold/Silver/Treasury Yields Spike, Equities Less Sure





So far it is Gold and Silver that are being bought, Treasuries sold and steepening (as mortgage spreads collapse further). Stocks spiked, fell back to unchanged, have new respiked to new highs, and are leaking back now... Notably, equities are the most knee-jerky whip-sawy - Gold and Silver seems consistent as do Treasury yields. USD is down a little, Oil up a little, and AAPL underperforming the S&P for now...

 
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Goldman's FOMC Script/Playbook





With 20 minutes to go, we thought it timely to see the script (perhaps) for the frivolity to come. It seems like the fate of the known world is predicated on the words of a bearded academic this afternoon and whether you believe he must or must not LSAP us to Dow 20,000 (and Gold $2,000) in the next few weeks - even as the economy and jobs tail-spin - there are many questions, which Goldman provides a platform for understanding, that remain unanswered (and more than likely will remain vague even after he has finished his statement). Their expectations are for a return to QE and an extension of rate guidance into mid-2015 (and everyone gets a pony) but no cut in IOER.

 
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Freedom Fries Versus Suppression Soda





And so it is written; thou shalt not drink big soda upon the veritable streets of New York City. As the Village Voice reports, the NY Board of Health just passed Bloomberg's soda ban proposal banning sugary drinks in more than 16-ounce cups. Of course, none of this should come as a surprise as repression swings from financial to social - what next? No more 8-year-old chimney-sweeps? No more untested drugs on the market? Free-speech suppression on YouTube? As WSJ notes: During the first three months after the ban takes effect, the city will inspect and inform sellers when they are not in compliance with the law. The city will allow a three-month grace period before it begins issuing notice of violations that are subject to fines. Will there be soda hoarding? 'I Drink 17-ounces-at-a-time' T-Shirts?

 
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Treasury Issues $13 Billion In 30 Year Paper In Another Unremarkable Auction





The mood from yesterday's boring 10 year auction was carried over into today's earlier 30 year auction (not at the usual 1 PM time due to Bernanke's press conference). Moment ago Tim Geithner auctioned off another $13 billion in 30 year bonds, all of which will be promptly purchased by the Fed (as a reminder, the Fed already monetizes all monthly 10-30 year issuance courtesy of Twsit), at a yield of 2.896%, the highest since May's 3.06%. Unlike yesterday's 10 Year, the Bid To Cover rose modestly to 2.68 from 2.41, in line with the TTM average. The internals were boring as well: Directs: 12.4%, Indirects: 38.7%, Dealers: 48.9%. All quite meaningless, because as noted, all of these bonds will eventually be gobbled up by Simon Potter's open market monetization desk. And with this last auction for the week, US debt is now $16,081 billion in debt (current $16,054 billion plus this week's net new money of $27,918 billion), an increase of $80 billion in the few short days since the Democratic National Convention, when the US broke $16 trillion in debt. And rising.

 
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Foreclosure Stuffing





Back in November 2010, the robosigning scandal hit in which it was made clear that when it comes to keeping track of mortgage titles, nobody really knows what belongs to whom, except maybe for Linda Green. The immediate result of this was a complete collapse in the foreclosure process as banks no longer had leverage to evict those who don't pay their monthly mortgage bills, since the banks couldn't confirm they actually had rights to the underlying mortgage, and the total monthly foreclosure total dropped from a ~330,000 average houses/month to roughly 250,000. Then in February, to much administration fanfare, the banks, and the attorneys general, signed what we dubbed the Robo-settlement: an event which was supposed to be the "resolution" to the robosigning scandal, and which should once again unclog the foreclosure pipeline. This did not happen. Instead, as RealtyTrac has been diligently reporting month after month, the monthly foreclosure total has continued to decline, and in August hit a level of 193,508 total foreclosures. The immediately spin is that this was a 1% improvement from July's 191,925. The reality is that it was a drop of 15.1% from a year earlier. As the chart below shows, ever since the advent of fraudclosure, the average monthly foreclosure total has dropped from a 330K/month average to just 219K. And declining. So why did the robosettlement not undo the robosigning foreclosure crunch? Simple - foreclosure stuffing.

 
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Cue The Greek Denial





As expected: 

  • GREEK FINANCE MINISTER DENIES REPORT THAT GREECE NEEDS A THIRD BAILOUT
  • COUNTRY'S POSITIONS ARE FORMULATED ONLY BY HIMSELF AND PRIME MINISTER SAMARAS

Alas, the cat is now out of the bag, and any further denials out of Greece merely bring the moment of departure closer. Not even the EURUSD algos are buying it.

 
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