Pre-Fedline Open Thread

120
Wed, Jan 29, 2014 - 8:59am

With just five hours to go, here's a thread for your guesses as to what The Bernank and The Fellen will announce this afternoon.

My personal guess is a series of probabilities. I was on the record since August claiming that The Fed would offer a BLT to everyone in December. A BLT? A Bernank Legacy Taper. By trimming $10B off of the stated monthly money-printing, The Bernank could claim that "before he left office, he set The Fed on a course to eliminate QE by the end of 2014. The fact that they didn't is my successor's fault, not mine".

The Bernank is technically still the Fed Chair until Saturday so I think there is a 0% chance of a hike in QE, at least for this meeting. Instead, I see this:

  • A 50% chance of a further reduction of the stated number by $10B/month. IF this happens, do not be surprised if the entire $10B is taken from the MBS side, leaving the total stated number at $40B treasuries and $25B MBS.
  • A 10% chance that the only reduction or "taper" is $5B/month off of MBS, leaving the stated number at $40B treasuries and $30B MBS.
  • A 40% chance of no change at all due to "economic conditions", "emerging markets", whatever excuse they need to borrow this month.

Why would they need an "excuse"? Just be sure to check these charts before you post your personal prognostication:

TF

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  120 Comments

ggnewmex · Jan 29, 2014 - 9:01am

First

Wow, what bummer of a speech from O'bummer!

My the new MyRA will be great. I am sure he promises you can keep your old IRA

!!!

· Jan 29, 2014 - 9:07am

Gold price is saying 10b taper to me

Looks like a setup for a "suck and smash" on taper news, to me... suck in longs prior to the announcement with a nice pop, then harvest the new longs on "news" of taper (that everyone expects so it isn't really news at all). Suck them in, run stops, then move on. Also known as the Devil's tower Formation:

Personally, I am hoping for a quick 24 hour churn and burn, then resumption of our nice uptrend with silver doing a little more to play catch-up to gold.

JMO- and Happy Wednesday Turdites!

Sir Peter Latterman Fortenton · Jan 29, 2014 - 9:09am

always seems to get smashed

always seems to get smashed down at some point during these meetings, i agree with Pining, i've seen it rise higher pre meeting and then get smashed $30 instantly as the minutes are released

Peoples Front of Judea · Jan 29, 2014 - 9:16am

currency devaluation

looks like the race to the bottom has finally started....how long can the usa hold back interest rate rise.....taper away USA

· Jan 29, 2014 - 9:29am

$10 Billion Taper, MBS Only

Playing off TF's amazingly accurate prediction from August, let's look at things keeping residential real estate in perspective.

The Fed bought MBS because all that paper was worthless, and if valued at market, would have caused TBTF banks to fail.

But now, those banks have had five years to sell off their bad paper at 100 cents on the dollar, where it is parked at the Fed. I have got to believe that the big banks have sufficiently offloaded enough of that crap paper such that the Fed can taper off those purchases gradually so as not to leave too much non-performing paper on the banks' books.

$10 Biliion is about right to both create the impression of actually, gradually stopping the free FRN flow, while at the same time telegraphing to the banks that the bad paper can continue, so the banks better not dawdle in offloading that junk paper.

As for US treasurey purchases, the Fed is trapped, and the whole world knows it.

Those purchases cannot ever stop or taper at all. If there is any slowdown at all, the interest rates will have to rise to attract bidders, and if rates rise, it will escalate the hyperbolic collapse of the western fiat scheme.

I give it closer to a hundred percent chance of this scenario.

Next month, Yellen will be tested with a crisis, and there will be a massive print fest. So for now, it is simply more perception management. The Fed is still in control, all is good, nothing to see here, keep moving, turn on the Kardashians . . .

Sandiaman · Jan 29, 2014 - 9:38am

Do Nothing

Whatever they do it all a bunch of lies.

sierra skier · Jan 29, 2014 - 9:54am

AAAHHhhh Yes, The Fed Again

Here we go again. Do we QE or do we Reduce QE and what will be the consequences?

ivars · Jan 29, 2014 - 9:58am

OK added more shorts of S&P.

OK added more shorts of S&P. Taper should be above 10 billion-25 billion-if not then 10 but I would expect above now or in some session prior to next FOMC. And most will come from UST side, if not all. There is only so much political time. This is crucial day, as Turkeys CB actions proved. It is panic time , in fact.

If FED tapers strongly Japan, UK, will follow, Swiss are already ahead. EUR shall ease.

As for usage of USA pensions, obvious that they will be used either or to recapitalize FED ( and so pay down part of debt, meaning pensions in asset side of FED, extra reserves in equity ( liability) ) and of course to mandatory purchase UST after FED will be excluded from the game. In the name of protecting pension accounts from excess risk. Fair game, easy to sell to retirees especially after stocks tank 30-40%. Which shall happen in one-2 months time.

Ability to mobilize own countries pensions to pay for UST is very good for currency as we have seen from Japan experience and also keeps interest rates low without QE. So no QE to infinity.

Silver may tank now pretty fast. Could be bottom is not far away. Gold will hold better as long as Turkey manages to continue imports on top of China; India seems to be calmed for time being but who knows what will happen in preelection months till May. Thailand though keeps fighting to maintain India's gold grey import flow through it.

Also I expect govt closing in late Feb-early March. And it could last some time since while govt is closed, there are no statistics to show economy is already in downturn after Q1 2014, and so tightening exercise can continue. Probably till Israel hits Iran and Obama on July 4th announces executive action to stave off inflation from high oil prices.

infometron · Jan 29, 2014 - 9:59am

My two bits worth (revisted)

I think Turd's predictions are more nuanced, especially the conditional he placed on this:

  • A 50% chance of a further reduction of the stated number by $10B/month. IF this happens, do not be surprised if the entire $10B is taken from the MBS side, leaving the total stated number at $40B treasuries and $25B MBS.

If the $10B is taken, in this case, from the MBS side, would that mean the TBTF banks are at greater risk of insolvency? Or would that mean they are just backing away a bit on their on-going highway robbery (with signals to that effect out of Davos and the Whitehouse with all the faux concern about income inequality)? Either way, it would seem the effect on stocks would be bearish...

If the $10B is taken away 100% from the treasury side, perhaps that would mean the FED has something else up its sleeve to compensate (e.g., compulsory MyRA's or just more clandestine purchasing?), and that the stock melt-up party is still on.

If the $10B is taken away 50% 50%, I suppose all of these considerations would still obtain to some extent, no? In any case, it appears the FED is on a tightrope here. The one thing that seems to be 100% certain is that no matter what happens, it will be used as an excuse to smash precious metals, but if not, wouldn't THAT be a surprise!!

Here were my two bits worth from last week...

https://www.tfmetalsreport.com/comment/374496#comment-374496

Mr. Fix · Jan 29, 2014 - 10:00am

It really doesn't matter what they say:

 The only thing that is guaranteed, is that the size of the lie will increase!

buzlightening · Jan 29, 2014 - 10:02am

LOLOL Sandiaman

A paper taper caper is only fed fud speak for get the freak out of the paper assets! Vampire squids sucking the financial life out of the paper taper caper fiat ponzi. Reverse repoing a black EEE cold financial polar vortex with continued crashcading passed mid March. 12k bow wow dow now and with more reverse repoing, we head into 11k territory according to simple math of the Fall '08 crisis . It is all lies for public consumption. The fear factoring in markets from the get go this morning, says a continuation of global market crashcading. The fed fud speak is only a freak show go round for fane stream media mocking bird regurgitation of the agenda from hell. Rape, pillage, and plunder every last penny from the pockets of US citizens. When the citizen complains, the fed fuds cut the zinc penny in half and say we the people are saved; you get the bigger half. 

infometron · Jan 29, 2014 - 10:03am

Devil's Tower formation in Ag, right on cue Pining!

Devil's Tower formation in Ag (on the 1 minute chart), right on cue Pining, you mystic, you! :^)

opticsguy · Jan 29, 2014 - 10:06am

Quantum tapering and uncertainty

It sounds like the recognition of a taper means you can't know how much it will be. A classic uncertainty principle. You can know one or the other, but not both.

Now Turd has gone all Schroedinger on us and assigned probabilities of the existence of taper at a given time and space, a taper "electron orbital cloud", per se. Genius.

buzlightening · Jan 29, 2014 - 10:11am

Cheers Mr. Fix

I like kiss or keep it simple stupid sheeple. The analysis of paralysis puts me to sleep. Lets pull the whole of the fed fud goon speak up by the roots and shake it to see if it's living? It's dead head fed fuds all the way. A living entity would have mercy on we the people. EEE all the way and reprobate. As ole santa himself says. The vampire squids would throw their own mothers into full burn down mode micro waves for profit and gain.

junoroland · Jan 29, 2014 - 10:25am

fed

don't forget the other slights of hand like extending the ZIRP policy out even further.

Hilarously Steve Leisman just on CNBC seems to have become an advocate of capital controls if necessary , coz the IMF think it might!

Gamble · Jan 29, 2014 - 10:26am
H8Fiat · Jan 29, 2014 - 10:32am

Fed prediction

With just released information about ISM beat becoming a miss, EM issues, IMF screaming moar, NFP sucking hind tit with over half of them being temp, and most of all APPL being off it's highs. Old yellen will stand pat on QE. 

No such luck that Travis will have to put her down, except not many people would cry at this ending.

H8

BTW, Brazil Real hit 2.44 per USD today. Boom, boom, out go the lights.

Clarki Stomias · Jan 29, 2014 - 10:43am

I think it's some sort of token MBS taper

I lean towards that probability. $5-10 Bil on MBS. No way they can touch the treasuries.

wholetthedogsout · Jan 29, 2014 - 10:44am

5B BLT finger sandwich!

With a sickening giant glob of old, old mayo.

Kansascrude · Jan 29, 2014 - 10:47am

Lots of cover for the Fed to

Lots of cover for the Fed to do nothing, Emerging markets and U.S. stocks will crash IMO if they announce any moar taper reductions. My guess is they do nothing

bullion only · Jan 29, 2014 - 10:49am

And if they do taper

And if they do taper will we get a rise in gold like the last time they tapered?

Clarki Stomias · Jan 29, 2014 - 10:54am

Interesting Turkish Gold Smuggling write up in Bloomberg

Still don't understand why there is all the fuss about gold smuggling since it's just a barbarous relic...

https://www.businessweek.com/news/2014-01-28/turkey-scandal-places-jailed-millionaire-at-center-of-gold-trail

ButchCassidy · Jan 29, 2014 - 11:09am

China

They're still buying Treasuries, as the graphic shows nicely, and will continue to buy Treasuries. Stop suggesting they will somehow try to break the US. They're dependent on the US bubble not blowing up. The US blows up, China goes down - ain't gonna happen.

mac · Jan 29, 2014 - 11:11am

Fed Prancing Time Eh?

"The Royal Bankers Group", the Boss and gang-

- they are coming! All media is alerted and given instruction, the plebs have to know cuz that is what MSM wants - us to follow the Fed: The Boss.

 The Boss shall deem to murmur at us some placating tonic, basic namby pamby, give a "number" that really is not relevant anyway, as QE continues in many submerged fashions, in roll overs, in foreign money transfers. Each month may be up to 150 Billion, but don't worry, popcorn and 2pm it's Fed Prancing Time!

Gonna mope us out...?

tyberious · Jan 29, 2014 - 11:27am

Does the Fed Really Create


Does the Fed Really Create the Boom-Bust Cycle?

By Jeffrey J. Peshut

Janet Yellen takes over as Fed chair at the end of January, stepping into Ben Bernanke's big shoes. Bernanke was Time's Person of the Year in 2009, and The Atlantic magazine dubbed him "The Hero."

However, those who understand Austrian business cycle theory believe the Fed causes more problems than it solves. Sure, maybe Bernanke's policies averted an economic meltdown in 2008. But Austrians believe that's akin to commending an arsonist for putting out a fire he set in the first place… while at the same time creating favorable conditions for the next blaze.

Austrian Business-Cycle Theory: The Basics

According to Austrian business cycle theory, if interest rates are allowed to reflect underlying market conditions and coordinate production over time, the resulting economic growth will be sustainable. There will be no boom-bust cycle.

However, if a central bank like the Federal Reserve forces interest rates down, those manipulated rates send false signals to businesses. Lower rates tell businesses that consumers are saving more today to increase consumption in the future—and so now is the time to take advantage of those low rates by investing in longer-term production projects that produce future products.

But when ultra-low rates are a result of phony credit rather than actual increased savings, businesses investing in long-term projects are acting on false signals. Since the resultant boom is not based on reality, the bust is inevitable.

That's the story. What's the data say?

Empirical Data

Figure 1 illustrates that the five US credit crises and four recessions since 1975 all share a common theme. Each was preceded by a period of loose monetary policy followed by tight monetary policy, as represented by the fed funds rate—a boom followed by a bust.

Figure 1: Fed Funds Rate, 1975-2013

The fed funds rate and the money supply move inversely: low rates accommodate easy money, and vice versa. There are many ways to measure the money supply, but for my analysis, I'll use Murray Rothbard's "True Money Supply" (TMS), which quantifies only the amount of money in the economy that is available for immediate use in exchange.

Overlaying the TMS growth with US crises and recessions since 1975 shows a close relationship. The Fed first sows the seeds of crisis by aggressively expanding the money supply. When the economy gets too hot, the Fed hits the brakes, and the slowing of money supply growth causes a crisis or bust. The Fed responds by opening up the money spigots once more, and the cycle begins anew. You can clearly see it in action.

Figure 2: True Money Supply (YOY%), 1975-2013

We can also see that each crisis or recession occurred shortly after the rate of growth of the TMS approached or broke below zero.

The Next Crisis

Until the most recent credit crisis and recession, the Fed was able to loosen monetary policy by simply lowering the fed funds rate. In the fall of 2008, however, the Fed ran out of room to manipulate in that manner, as the funds rate approached 0%. To continue to force down interest rates and increase the growth of the money supply, the Fed provided loans to key players and purchased Treasury securities, GSE debt, and mortgage-backed securities. This package of policy tools is commonly referred to as "quantitative easing," or QE for short.

Figure 3: Fed Funds Rate and Federal Reserve Balance Sheet, 2007-2013

More recently, the Fed's Operation Twist and QE3 were designed to force down long-term interest rates through the simultaneous sale of $45 billion of shorter-term Treasury securities and purchase of $45 billion of longer-term Treasury securities per month, as well as the purchase of $40 billion of agency mortgage-backed securities per month.

On December 18, 2013, the Federal Open Market Committee announced that it would reduce its aggregate bond purchases from $85 million per month to $75 million per month beginning in January of 2014. That's notable because although the TMS has been increasing during Operation Twist and QE3, its growth rate has been slowing, which is what really matters. The Fed's reduction of bond purchases will likely decelerate growth of the TMS even further, setting the stage for the next credit crisis.

When might that crisis hit? I extrapolated the TMS's current growth rate forward a few years. If the current trend holds, TMS growth should approach zero in early 2015, setting the stage for a crisis near the end of 2015 or the beginning of 2016:

Figure 4: True Money Supply (YOY%), 1975-2013 Actual, and 2014-2015 Forecast

While that trajectory could easily change, it's our baseline scenario. Watch what the Fed's doing to the money supply for early warning of the next crisis.

Thank you to J. Michael Pollaro, author of The Contrarian Take, for the data used to construct the charts in this article.

Jeff Peshut is a strategic institutional real estate investment manager in Denver, Colorado and is the creator of RealForecasts.com, a website that provides market forecasts and investment strategies to real estate investors. He holds a B.S. in finance and a J.D. degree, both from the University of Illinois.

beinki · Jan 29, 2014 - 11:30am
· Jan 29, 2014 - 11:33am

Last night's speech

Well, I sat down last night, put the trash bucket from under my desk in my lap, and proceeded to read Zero’s speech. After finishing, I this one thing stood out—namely, that nothing he said stood out. In my field of rhetorical criticism, the gist of what we do is to examine particularly influential speeches and critical moments in history, illuminate the persuasive strategy that is being used, and then evaluate it as ethical-logical or unethical-sophistic. Even the sophists use logic that seems reasonable to the uninformed. They make the worse case appear to be the stronger one. But they do start with a case.

But this speech had nothing. It was based in cherry-picked anecdotal stories, lies built upon flawed statistics, ambiguous promises, and blame-shifting to Congress.

On the single difficult issue he addressed, Zero calls for Congress to take action—prevent a housing collapse taxpayer bailout. To this he taunted congress: “send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations.” Therein is the problem Zero: how do you give freeloaders houses of their own and keep risk off the backs of the working citizens who pay for that largesse? This fine president of ours doesn’t seem to understand that you shouldn’t “throw your pearls before swine,” that they will trample them and then turn on you.

So we received a handful of emotional stories, a plethora of lies and a batch of promises that cannot be kept.

This MyRA plan needs to be watched. Can it fill the T-bill gap that tapering leaves for a trillion a year of taxpayer based QE purchases? Maybe so, and thus continue the US reserve-currency-fiat-ponzi a few years longer.

The dragon doesn’t want to rouse the eagle until the eagle is too poor to fight back. China is taking the right approach—slowly collect the world’s gold, slowly build an Asia-centric world economy, slowly introduce gold-backed world trade mechanism and finally, so carefully, let the US slide into financial ruin so we cannot afford to use this powerful and vicious military of ours against scapegoat nations to re-enrich the US for a wash, rinse & repeat of our imperialism. But I fear we will start a war somewhere this year—to distract and pillage.

I also fear we will have to endure Zero’s executive orders monarchial edicts for a while longer, and perhaps the next Potus’ lies & promises after that, while a divided congress continues to create millionaires of themselves through their dirty politicking. Frankly, I expect Asia to continue eating our lunch. My only hope is in God and the decency & strength of the hard-working American citizens to peacefully put our house back together after the US slides down into the river of chaos and poverty.

unwired Doctor J · Jan 29, 2014 - 11:43am

Speech

Amen.

The appearance of MyRA after ''taper" is likely no coincidence. Classic capital controls... first enticing... then requiring citizens to eat crap when foreigners won't any more... and the FED has balance sheet indigestion.

· Jan 29, 2014 - 11:44am

I am no chartist...

But to me it looks like these last two smackdowns in gold have not broken us out of a bullish pattern. Even today's stall is at the midline of this chart. Support has held twice recently. I like what I see since last December's low.

· Jan 29, 2014 - 11:47am

fwiw

If things get a little crazy this afternoon, watch for support/resistance around the MAs.

For Feb gold, the 20-day is near $1242 and the 50-day is near $1238. Look for support there

The 100-day is near $1279. There you will likely find some resistance.

There will also be continued support near the intersection of these two trendlines, in the area between $1255 and $1260, and there will be resistance near the top of this nearly 6-week channel:

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