What Bernanke Really Said, Or How The Chairman Just Lost Control Over Policy Again

Tyler Durden's picture

From Mike O'Rourke of Jones Trading

Fed Put Reiterated, Credibility Gone Again

Overall, it was a quiet trading day until the 2 pm release of the June 19th FOMC minutes. The release prompted instantaneous sharp moves in several assets that quickly reversed. June 19th was a press conference meeting. Could anyone really divine anything from 6 week old minutes considering the Chairman clearly shared the FOMC view that day? Nonetheless, the day’s real fireworks occurred after hours as the Chairman’s Q&A comments at a speaking engagement sent the Dollar crashing and risk assets (Gold, Oil, Bonds and Equities) flying. Yes, Bonds are a "risk asset" these days.

Having watched the press conference, we think nothing notably new was said to indicate a policy shift. When asked about the policy outlook, the Chairman said, “I think you can only conclude that highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy.” This is not new considering the Fed has promised to keep rates low until 2015 and the Fed has repeatedly stated that reduced asset purchases equates to additional easing. Most of the Fed Chairman’s remarks were consistent with the statements he made at the press conference.

The Chairman’s statement that caught our attention and that we could see exciting markets was "And I guess the final thing I would say in terms of risks of course is that we have seen some tightening of financial conditions, and that if, as I've said and as I said in my press conference and other places that if financial conditions were to tighten to the extent that they jeopardize the achievement of our inflation and employment objectives then we would have to push back against that." There is nothing like a clear affirmation of the “Fed Put” to create another round of risk taking and aggressive behavior in the markets. The simplistic interpretation is that the Fed will never take away the accommodation, because the central bank cannot let markets “tighten,” which is a euphemism for go down.

In a simple stroke, the Fed Chairman has undone the work of his communications of last month. The credibility that began to emerge from the June 19th press conference is gone. There is a large segment in the investment community that believes the Chairman cannot exit this policy, and his statement about not letting markets tighten only strengthens their case. The Chairman has returned the markets to the point where he has lost control of monetary policy, again.

Early in the Q&A when asked whether, with the benefit of hindsight, he would have done the press conference differently he answered no. He was willing to stem the risk taking behavior to avoid a larger problem in the future. "…where we don't provide any information -- it's very likely that more highly levered, risk-taking positions might build up, reflecting, again, some expectation of an infinite -- infinite Asset Purchase Program." In addition, he continued to refer to QE as a policy tool in temporary terms - "The first asset purchases, we have thought about, and I have frequently described as, providing some near-term momentum to the economy … We've made progress on that, but we still have further to go. But again, that's the objective of the asset purchases is to provide near-term momentum to try to get the economy moving forward more quickly." Despite having said he was glad the press conference had the result of reducing risk taking and referring to QE in short terms, the market only heard the Fed Put. Thus, the Chairman has reiterated the “Tepper Trade.”

We don’t believe the Chairman’s intentions have changed. Regardless, the Chairman’s credibility is once again damaged. If the Dollar breakdown continues, it will be a sign that the market believes the Chairman has again lost control over policy. The asset clearly in the best position in such an environment is Gold. After such a notable correction in the past 9 months, the precious metal once again becomes a very attractive global asset if monetary policy in the largest economy of the world spins out of control.

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fonzannoon's picture

You want to know when he has lost control? It's when he makes a statement like that and yields go up.


ShrNfr's picture

No it is the market that has lost it. It has happened over and over and over again. Once upon a time in the 1980s it was mumbles about money supply. This time it is mumbles about QE. This is all about giving portfolio manglers cover to do something. No more, no less. If they are right, well they are brilliant. If they are wrong then well, Bernanke said that .... and you can't fire all of them. Morons.

markmotive's picture

A quote by Agcapita basically shows how central banks have painted themselves into a corner:

While I believe that eliminating QE is the right thing to do for the long-term health of the economy, the recent equity and bond market declines are but modest harbingers of the unintended short-term consequences that the Fed's prolonged ZIRP/QE program and its termination will wreak - rollover and convexity risk. These are the proverbial pigeons that will come home to roost if the US Federal Reserve stops its massive bond-buying spree and rates normalize.


Cult_of_Reason's picture

Bernanke did not say anything new no matter how hard different traders/"market strategists" fantasize and trying to make things up in their letters. Bernanke could just simply fart, and they would interpret Bernanke farting as "Bernanke Put".

PDs were itching to mark up SPX during regular hours, but failed. So they pretended as if something significant was said by Bernanke and marked up the futures (including /ZNU3 on extremely low volume) on volume fumes during AH.

Tomorrow they plan to create a short squeeze and unload into panic/forced buying.


fourchan's picture

the dollar looks like dick against the yen.

Cult_of_Reason's picture

The currencies (desperate Watanabe housewives) are reacting to the Bank of Japan cutting its inflation and economic forecasts.

Nikkei is red, so Yen has to be stronger or USD/JPY weaker (this is how retarded the entire global financial system has become, courtesy of central banks).

TruthInSunshine's picture

The next crash (not correction, but crash) cake is already baked.

This isn't a hypothesis, but a mathematical certainty.

From equities to bonds to auto loans to student loans to new originaing AND refi'd mortgages (especially on underwater properties) to everything else that is or isn't nailed down where money was lent to buy, rent, invest in or otherwise borrow against (especially using leverage; the higher the better...or worse, to be more accurate).

Remember "shotgun Jim" hankerin' to get (and default upon) his used Suzuki Vitara, bitchez? It's worth a reminder at this juncture, in the wake of Bernanke's baffling with bullshit zzzZZZzzzZZZzzz fest today:

How the Fed fueled an explosion in subprime auto loans - Reuters

And Desperados want to bring back "can you fog a mirror" loans on R/E, BITCHEZ! (It's also a few months' old article, but has resurfaced as of late, since the push to NINJA our way to prosperity, oh yes we can! is back front and center!).

White House pushes for home loans to people with weaker credit

But that's the small potatoes stuff. The big stuff is what lay stuffed on either sides of banking balance sheets, how erroneous the valuations are in terms of reality, and the massive leverage that's like a tightly wound coil holding it all together.

Everything is bubblin' over [p.s. look at the Asian markets overnight...they ALWAYS get it wrong and are among the most incredibly reliable and leading contrarian indicators].

Look who's back; it's the VIX and the Asian Contagian, bitchez.

Bitchez, I'm about to make the call similar to the one I did in August 2007 that made me the stuff of legends of interwebz  history... (those of you who suddenly received imagery of medivac helicopters on the battle field know what I'm talkin' 'bout).

Remember these weee hours of the morning of 07-11-2013, bitchez.

YuropeanImbecille's picture

What made you legendary? I thought we were talking a November time frame?


I have heard there will be a litimed unwind off certain asset types today by CS, but nothing spectacular?

samcontrol's picture

ok, ush until you make the call, and get it right.

My call is pms bottomed.

TruthInSunshine's picture

yurop, I don't make trading calls, and especially broken spine calls (before the break), except in extraordinarily rare instances.

I have spoken of general trends regarding currencies (up until very recently, where that "market" became one of the most irrational and schizophrenic of all markets) and interest rates from time to time, and I have made at least two short term reversal calls regarding equities since that call of 2007 (or, two calls in 6 years, to put that into perspective).

I'm speaking now in terms of a complete equity dump that runs long and deep.

As for my indicator(s), I'm really not trying to be coy when I say that, and this is a very big hint in broad terms, "it's so easy [the catalyst for the impending equity indices shitting the bed], a caveman can understand it."

Panafrican Funktron Robot's picture

Given that the IR swap complex nearly shit the bed with the mere suggestion of "maybe-taper", in the words of a fellow central banker, "there is no plan B".

new game's picture

plan b requires; common sense, mathematics and survival skills, of which most humans lack.

should be very interesting; survival only not made for tb...

All Risk No Reward's picture

Coem on folks - stop being a sucker fo rthe false narrative.

Rates went up in large part because the Central Banks coordinated the interest rate rise.

Central Banks Sell Record Sums of US Debt


Ben knew rates were going up because his masters, Big Finance Capital, told his puppet *ss it was time for rates to go up.

Big Finance Capital is going all Art of War Prince on your *sses and most here have no clue...

Read Art of War and The Prince, for starters, so you can start thining like a nation conquering oligarch instead of a chump bamboozeld by their Art of War propaganda.

The mega-banksters blew the worlds largest debt bubble and all debt bubbles end in a debt bust - without exception.

The bust isn't a bug, it is a feature - a feature that will asset strip most of society leaving the banksters controlling almost everything outright.

Only a moron would conclude ending up owning nearly everything is a sign of "losing control."

You have to understand your enemy.  You have to understand your enemies agenda (same as it ever was).  You have to understand your enemy's overall strategy and the tactics they use to get there.

Hegellian Dialectic and False Flags are favorites of theirs.

The bottom line is big is bad so start living small.  Pay cash, shop local, buy small and smell the flowers.

new game's picture

up vote for one reason-what isn't rigged/manipulated?

price of 56 Chev?

Lets Buy The Dip's picture

nope! incorrect. markets are rigged mate!

They just planning on the financial crisis 2.0 coming. They are testing the waters to see if their bigger plan will work. Nothing more nothing less. 

THE BEARS are hating the market right now…trying to call a top and we keep going higher! They are spitting chips SEE HERE ==>http://bit.ly/15hvKkO

nbsharma's picture

Cannot agree with you more! That day the rise will be swift. US benefits coz every other country on the planet is suffering.

Cursive's picture


You call THIS benefitting?  I think what you meant to say is that the global 1% benefits because everyone else is suffering, i.e financial repression.

TeamDepends's picture

Commence Operation Rimlapper.  Grab your ankles.

(burn this document)

franzpick's picture

When Bernocchio's lips move, he means "If there's anyone here whose intellingence I have failed to insult, I apologize".

DaveyJones's picture

Beserk over the jerk who thinks math is just a quirk

new game's picture

til da faith hath gone bye bye

Cursive's picture


...so we will have dismal top line announcements for earnings and a new, record SPX...

fonzannoon's picture

Shit cursive I was pissed he is missing Jackson hole but you know what? The man deserves some time off. He can go to his nephew's 5th birthday now as a magician and show everyone how to put toothpaste back in the tube. Ten year is 2.58% and dropping. Lost control? I don't think so.

They are airlifting the hookers to the hamptons as I type this.

Everybodys All American's picture

The ten yr one day move does not change the trend which is higher. Remember we were talking sub 2 a month or two earlier.

fonzannoon's picture

Maybe EA. I thought they were going higher too. I still do. This garbage today I think was just to try to keep some order, and it worked. If gold were up $150 right now I'd think twice. $30? They will have that cut in half by the open.


Everybodys All American's picture

Remember, the game got out of control when Japan went all Abenomics. That's when our ten yr lifted out of sub 2.


Japan will do another round of QE shortly which will debase their yen further and then the EU and UK and it will then be our turn again. That's the plan. Debase the currencies in an orchestated manner hoping to pay off the sovereign debt in devalued fiat.

fonzannoon's picture

I don't see anyone paying off debt. What am I missing? I see the inflate the currency part, just not the part when they actually pay down debt.

Everybodys All American's picture

They are paying it back with in essence a cheaper devalued currency. That's what inflation is ... I agree in that it's unlikely they ever pay the debt off entirely. But this scheme allows the debt system to continue feeding upon inflation.

When it's done in an orchestrated manner by all countries the average joe tends to not notice the disfunction nearly as much imo.

mypetdrone's picture

if debt/gdp were dropping amidst this storm of money printing and non stop sovereign deficit spending i could buy this argument 

crazyjsmith's picture

Nobody is paying off shit. Just refinancing - like the peeps did in the boom - refinance and take cash out = increasing debt
Remember that 0% interest rate transfer game on those credit cards back in the glory days? Same shit, debt only gets bigger.

Imminent Crucible's picture

"paying it back with in essence a cheaper devalued currency"

I must need glasses. I can't see where any nation on earth is paying debt down.  The U.S. has not paid off a single dollar of federal debt since 1960. Federal debt doubled in 8 years of Bush the Inarticulate, and then doubled again in four years of Obama the Undocumented.

All they're accomplishing is to make debt service manageable on an exploding level of debt. The Fed has reopened past Treasury issues repeatedly to take the old bonds out, pay them off and replace them with new bonds at much lower yields.  It's just a game to buy time, but it has to blow up at some point as long as they keep adding a couple of trillion to the debt every year (and don't forget how much of the unfunded debt is now off-balance-sheet).

The on balance sheet deficit is growing by about a trillion bucks each year (forget that $680 billion crap projected by the CBO, we're well past that and the fiscal year has three months left). Meanwhile, the OBS debt plus net present value of unfunded future obligations grows by $6 trillion to $7 trillion each year.

And people are talking about "when will the Fed lose control?" They never had control.

All Risk No Reward's picture

The Fed and Big Finance Captial act as a duopoly.  In fact, the Fed is a Trojan Horse mechanism created by Big Finance Capital to force their agenda on an unsuspecting population.

And yes, they do have IMMENSE CONTROL.

They controlled the biggest debt bubble in human history.

They controlled the biggest peace time looting in human history.

They are going to allow the natural progession of all debt bubbles to occure - the debt bust.

They know what they are doing - do you?  Hint - they will own reality when they are done and most productive people will own nothing and will be ruled by these criminals.

The entire goal of these debt pushers is INEXTINGUISHABLE DEBT!

Anyone who thinks they are going to pay this debt down has no idea how debt money works and the fundamental goal of these debt money criminals.

Debt Money Tyranny

Yes, hyperinflation will likely be the endgame.  A pre-requisite, that so many people here are blinded to, is that the mega banksters will have turned their trillions in cash and debt holdings into real assets before they break the bond market and let hyperinflation loose.

There is a debt bust black hole spiked pit between here and the hyperinflation horizon.

Herd Redirection Committee's picture

In deflation the most highly levered lose the most.

Who is the most highly levered?  The cronies.  Hence?

new game's picture

are you ignoring math, percentages, growth and future tax receipts?

mt paul's picture

paying the coupon 

the interest 

with devalued fiat...


kito's picture

fonz, youre not getting this...he didnt lose control of his ability to coerce the markets.......its his show....but things arent going as planned............like a parent dealing with a recalcitrant child.....the parent can control the child......lock him in a room, ground him...doesnt mean the child will behave as planned..................



fonzannoon's picture

Kito I am no longer interested in analyzing the play by play. As you said yesterday, everytime we do that, we get it wrong.

As I said above, the child IS behaving. 2.58%.... If we get some weak bullshit data and head towards 2.5% you will see momentum pick up in the bond market as all of the sudden 2.5% looks attractive.

If we were sitting at 2.85% right now (and maybe that is coming) and Bernanke comes out and says "Did I studder motherfuckers? I said MOAR"....and we go to 3.25%.....then the child is not behaving.

All this proves is I am more jaded than you. So take that.


kito's picture

The parent gave the child a big fucking lollipop today....

Bear's picture

I feel that he gave the Bear something else

Its Only Rock N Roll's picture

respectfully disagree, this is more than coercion, this is Harvey Keitel in "Bad Lieutenant"

do not underestimate the hubris and arrogance of a central banker in believing he can control all outcomes

he has lost control



fonzannoon's picture

That seems to be the consensus on here. I won't fight it anymore.