Fed pulls out the bazooka

We may look back on QE3 as the long-awaited 'beginning of the end' of the great bond bull market.

By Bill_Fleckenstein Sep 21, 2012 1:58PM

© Hisham Ibrahim/Corbis
After months of speculation and anticipation about how many bullets he might have left, Federal Reserve Chairman Ben Bernanke finally pulled out a bazooka.

On Sept. 13, the Federal Open Market Committee released a statement revealing that the Fed was going to buy $40 billion of mortgage-backed securities a month unless job growth doesn't improve, in which case it might buy more.

Thus Bernanke is going to pursue an essentially open-ended program of asset-buying (aka "quantitative easing," or QE) that can become even bolder if he doesn't get the kind of economic performance he wants.

Oh, and by the way, the FOMC also extended its zero-interest-rate policy into 2015 and is going to continue its so-called Operation Twist.

Bennie and the Inkjets

I don't know what other folks expected, but this was about as large a round of QE as Bernanke was liable to pursue. Overall, however, the U.S. stock market response to the Fed announcement has been relatively tame.

While I think it is important not to underestimate what Bernanke has done, people should not blow it out of proportion, either. This is not a direct step to hyperinflation, and it doesn't mean that the value of cash is instantly going to zero. We may get there, but there are going to be a lot of steps in that process.


Always look for subjectivity-verb agreement

What is significant about what the Fed has done is not so much the amount of securities it is buying, but rather what the statement reveals about Bernanke's intentions. He wants the labor market to improve "substantially," and he doesn't feel compelled to cut back on what he is doing until after the economic recovery "strengthens."

That is a lot of subjectivity, meaning he can do what he wants as long as he wants, and that is a powerful statement, I think.

That doesn't mean stocks in general will go up. They could, or they might not. In addition to weak earnings, they are going to have to deal with the fact that interest rates are probably going to rise from somewhere around five years out on the yield curve. Once the bond market has realized that it has more to fear from inflation than to gain from the deflation-scare trade (which I think is essentially over), it may have an impact on stocks, though I wouldn't expect that to happen any time soon.

Then there are the consequences of the election and the so-called fiscal cliff.

Thus, stocks could go anywhere in the next few months.

Initially, they are probably headed higher, though at some point there is likely to be a very nasty sell-off. I don't really want to spend a lot of time thinking about the latter because, as I have been saying for years now, and as has been so aptly demonstrated since the lows of 2009, trying to get short in a money-printing world is a dangerous proposition. (Not that being long is easy, especially when you know how artificial everything is beneath the surface.)


Bonds away!

Given the fact that I feel strongly that a (long-awaited) inflection point for the bond market may be at hand, this week I initiated a small short position in the U.S. 10-year Treasury bond.

From a tactical standpoint my goal was to take advantage of the current bounce in the bond market, but I have no idea if this is going to work (anyone who claims to be sure is delusional).

For one thing, when the Fed is in buying as much paper as it is, it could make it difficult for a bond short to work. On the other hand, the bond market is even bigger than the Fed, so if I'm right about the shift away from deflation psychology, then I could have a winning position for quite some time to come.

At any rate, this is a very modest position, and I have no huge expectations. Thus, I won't hesitate to throw in the towel if I think my timing is not right, but I also probably will add to it if I think it is working, and then figure out how I want to manage my risk along the way.

In summary, I am in essence trying to capture the idea that the bond bull market has ended. But these things take time. I just want to test the market with a bit of a position. While this is the sort of tactic that works for me, no one should follow suit without doing his or her own research and carefully assessing the risks.

As a final note, regarding precious metals (my favorite long idea), and in which I do have a big position, I think the tendency for everyone will be to fight the last battle. So many people were so wounded, shocked and beat up mentally during the gold correction and slaughtering of gold stocks over the past year that they are going to be inclined to sell too soon rather than buy enough and net-net put a bid under the metals complex for some time.

However, if it weren't for the fact that we have an election coming up, which could theoretically upset the macro apple cart in some way, I would say the metals are almost a layup to close 2012 "high and last."


King World News

My latest interview with Eric King was a fun conversation to have and I think readers will really enjoy it. Readers can listen to it here


At the time of publication, Bill Fleckenstein held a short position on 10-year U.S. Treasurys and long positions on gold and silver.


Sep 23, 2012 5:20PM

VL said: "(Bernanke) isn't my equal nor even close. Not meant egotistically, just commonsense."   After explaining that his "career took my nationally and engaged in multiple tiers of credit and finance." Whatever that means.


What's worse than an egomaniac?  A clueless egomaniac in denial.


Sep 23, 2012 5:06PM
What bullets are left?  There are so many non-fringe, mainstream respected economists predicting major collapse at some point from decades of kick-the-can down the road economic policies that it is enough to scare one into hoarding and stockpiling food.

We've all been sold out by thieving, greedy money interests and the politicians they own.

Sep 23, 2012 3:49PM

" We can't depend on it. The Bank-the Monster has to have profit all the time. It can't wait. It'll die. No taxes go on. When the Monster stops growing it will die. It can't stay one size " John Steinbeck 1939.

The Grapes of Wrath - Some things never change.

Sep 23, 2012 3:41PM
Bernanke just guaranteed that unemployment will stay high. He just told the wealthy, or so called job creators that he will keep giving them cheap money and increasing their stock wealth if people don't get hired. Now the job creators have an even bigger incentive not to hire. Way to go Bernanke.
Sep 23, 2012 3:03PM

Part 2


well i can say that during the years of the wars in the middle east circa 2003-2009
people were briefly happy - smoke and mirrors will do that to you.

sadaam was caught but what did that really since it wasnt osama

oil prices did what they are doing now - rollercoaster riding

jobs were being sent overseas and we didnt realize it because we were looking at wars and not our jobs being removed and sent to countries like china and india - think of it as the magicians trick, i tell you to look here while i am really doing these other things over here

we were busy buying and selling our homes causing severe market fluctuations which unless you understand the stock market, you would not realize that there are consequences to these actions

we were so busy being war mongers due to revenge that the only thing we could think of was fight and kill but we didnt think of the lives of other americans who would be required to do this bidding


we now see the impact of the housing market

we now see the cost of many lives lost

we now see the cost of taking care of vets who have returned with injuries (mental/physical)

we now see that we are not allowing vets an opportunity to transition into the workplace

we see the cost of war in monetary value

we see the american work is being devalued by those who are greedy and keep their wealth and factories overseas - you can argue, its business, but, then dont complain when you dont have a job

the stock market still fluctuates, however the value of the dollar is constantly questionable

the price of oil is still at issue

what is happening with gold (thats a whole other story)

remember when we were all thinking platinum was a better precious metal - why is it that gold is more than platinum per ounce?

ask yourself - did the countries that we initiated war in come to like us or hate us more?

ask yourself - did the job market get better or did you come to realize many are out of work and have been during the 2003-2009 timeframe while we were looking at wars?

do you feel safer - remember everyone considering buying a box to hide in, "panic rooms" - and by the way people how long can you stay in a 10x10 without the bathroom or before going crazy?

[b]think about it people - we are all at fault, the citizenry to - its not just our government![/b]

i could go on ad infinitum, but i am going to stop here because i need to relax

Sep 23, 2012 3:02PM

i need everyone to be honest and blame both sides, republicans and democrats and a third side...

lets tell the truth, monetary problems didnt start within the last three and a half years or was in another world or planet.. and i am not an astronaut!

the average citizen has accepted what the parties in office have said

the average citizen was duped into thinking wars were good for america

the average citizen believed that they were going to be allowed into the wealthy and rich club

reality folks

instead of accepting what these parties are saying, stop just watching tv and pick up history books and read about financial institutions and their impacts on our societies. instant gratification, meaning watching these financial shows or talk shows, gives a one-sided viewpoint. you have now become subjects of the boob tube (they said it dummied us down but it wasnt as great then as it is now)

understand that there is a basic premise, in order for there to be a wealthy class, there has to be those who are not! (think about it this includes middle class - to keep people at bay and thinking some day i too can be rich, and the poor class - to keep people working at subpar wages)

when everyone was gung ho for war, i was opposed to it but silently because those who spoke out against it were ostracized and criticized. what most dont realize is that WARS COST!!!!!!!!!!!!!

wars cost lives and money. did everyone suddenly think it was a free ride to war and who was going to fight these wars?

discussion point
i remember talking to a few people at work when the attack on america took place. all i kept saying is i hope we dont go to war while others screamed, kill. i tried to get them to think of their families and the impact of war goes far beyond what we consider. most people who have either had family members fight in any war understand that they dont want their loved ones to ever have to go to war. instead, those i worked with who were screaming about war, when they heard there may be a draft started getting nervous. see, the thought of war was great when it was someone else's children or not them, as soon as it were possible that it could even be them, the screaming changed.


Sep 23, 2012 2:39PM
"True that vl, but beeny and the jets are just a long line of greedy progressive liberal dumbocrats and republicks who sold this country down the river."

Interesting choice of words that needs an exorcism. they are not "liberals" nor conservatives, they are incompetent. You can't attend college and have knowledge. You attend college, graduate, get a broom and grow knowledge by being there. I have a similar grasp of history as Bernanke, but my career took my nationally and engaged in multiple tiers of credit and finance. His did not. Ergo- he isn't my equal nor even close. Not meant egotistically, just commonsense. Instead of lowering the bank rate to near-zero and buying all the junk banks booked... the wiser approach was to fix the rate at 12% and agree to buy fully-documented quality-assured paper. the banks didn't have much of that so the pressure would have been on BANKS not Americans to get their act together. typically, it's: loose lending in prosperous times, ****-retentive lending during tighter times (no... really). By inverting the trend, Bernanke would have forced quality and quantity on banks, thereby FIXING everything out here. The higher rate would have subsidized the fall-out and forced paper-pushing fools off the job and restored PERFECTION in lending, a key component of relative Risk.

We are plagued now with millionaires. They are our handicapped. Enough cash to be fools and incompetent by how they acquired it. we won't need financiers, law firms lawyers, accountants, politicians or gamble-oriented insurers going forward. Software will help but the real expertise will come from cross-trained competence that can move here or there or wherever they need to for profit. It was like that in 1983 after down-sizing blew out so many followers of tradition when we were engaged in shift. You can't rest in business... even big business. You can't make Order and expect it obeyed... capitalism is defiant by nature, so is the entrepreneurial spirit. these are the vehicles that truly lead us.
Sep 23, 2012 2:22PM

I love the well meaning but misguided folks who want to force others into following policies that simply won't work. That history has shown won't, over and again.

Ban short selling! Confiscate wealth from the other guy! Give it to me!

We can change basic human nature, and force people to do something!

Make it fair, by government intervention!

Need a refresher? Read ATLAS SHRUGGED.

I know, it's a long book, and attention spans now days don't last longer than an episode of the Kardashians.

Sep 23, 2012 1:28PM
hmm when all said and done gusse what the goverment will own your house  not the bank  lol slaves to the goverment you dispise
Sep 23, 2012 1:06PM

Only a handfull of speculators anticipated the crash of 2008, and made money shorting the market.  I saw the morgage market collapse in the making, took my money out of the market,and have realized seven and one-half per cent in treasuries for 5 years.  Printing money to buy toxic assets is insanity.  Speculators are borrowing money at  almost zero interest to invest in what will be the next bubble.  shorting the market will seperate the men from the boys.

Sep 23, 2012 1:03PM

Want to fix the economy? Make ALL politicians have a 8 yr term limit. No pensions. No life time years in office. Only make them eligible for SS and Medicare. No special healthcare.

Stop ALL foreign aide. All of it. Close all military bases not on the 50 states soil. Bring the bases home to be built on our soil. The money stays here.

Sep 23, 2012 12:57PM

This is great news because I have no savings, onlly bills and if inflation goes crazy I then can afford my bills because your savings are worthless.



Sep 23, 2012 10:17AM

"While I think it is important not to underestimate what Bernanke has done, people should not blow it out of proportion, either. This is not a direct step to hyperinflation, and it doesn't mean that the value of cash is instantly going to zero. We may get there, but there are going to be a lot of steps in that process."


Finally some rational, common sense coming from Fleckenstein.  I actually agree with most of what he is saying in this article.


Sep 23, 2012 8:13AM
Hey this is such a great idea that has worked so well in the past. You keep printing more and more money to buy treasury bonds that one else wants. Every country that tries this goes down the tubes, Rome did it, they kept shaving more and more gold out ot their coins. And of course we have all seen the Hun with the wheelbarrow full of German marks on his way to buy a loaf of bread between the two great wars. And we have Zimbabwe where they have a trillion dollar bill. I can see barry on the front of a Federal Reserve note for 1 trillion, with that shix eating grim on his face. Boy all I can tell my peeps is that if your still in the stock, bond, house market, hoping for some change, your going forward off the financial cliff and real soon. Better liquidity and start buying gold and silver, there really isn't much time left for you.
Sep 23, 2012 5:15AM
We need to embrace President Obama's ideas to upgrade our power grid to support electric vehicles and embrace other sources of energy and the government should regulate home builders to build homes that include the most technologically-advanced energy features found on this planet so we can leave the Muslim countries alone for good. Enough money and American lives have been wasted there and all we have created is bad will on earth. We need to leave permanently and use the savings to rebuild our own country. We have U.S. government workers or soldiers in over 150 countries on this planet. Why are we policing the whole planet? Why are we still in Europe? It's time to reign in our resources and spend money on our own people. Look close to home: Mexico is in a hopeless civil war caught between Heroin and marijuana producers in Mexico trying to take over the government and cocaine in-flows from South America destabilizing the entire hemisphere. We have no money to control our own border or even fight this losing war. Even loud-mouth Sheriff Arpaio in Arizona had no control when the DEA outed his entire staff for being on the cartel payroll. We have to put on a smiley face for illegals who come here and commit crimes because we all know there is no work for them here but we have no money to find them and send them back. This market will only stabilize when common sense prevails again and there is no way the GOP will ever provide that. The founding fathers were well aware of the importance of separating church and state. Look at all the evil brought upon us by the GOP and the price we are still paying today for all these illicit wars which were fronts to protect oil companies when the whole time we had energy-saving methods that would have curtailed or eliminated our dependence on foreign oil.
Sep 23, 2012 4:52AM

I love the contributors to stories on MSN Money who kind of talk around short sales. Everyone on this website is a short-seller. This market will sell off badly at some point but not for any of the reasons above. It will be because the do-nothing Tea Party Congress refuses to address the budget package that President Obama presented over 2 1/2 years ago. If Congress recesses in mid-December without doing anything you do not want to be holding stocks over the Christmas holiday into January. Maybe sooner if Wall Street gets wind of their plans to shaft our country yet again. Also, conditions are ripe for an explosion of anti-American hatred and fighting again in the Middle East. These built-up emotions are because of the GOP's 35-year murder rate in support of stable dictators and BIG OIL and the muslims have had enough. Can you blame them? There are no muslim exports to the United States at all that I can even think of unless it's mutton or goat meat. No industry there, no muslim built-cars, artwork, woodwork, electronics, etc... What exactly have we been doing there and what do we have to show for it? I could go on but I see by the last line that Bill Fleckenstein is a fraud. Fleckenstein isn't even in the stock market BUT he wants you to be!!! Why? So he can short it!! Shorting bonds? Long gold and silver. What a great American you are, Bill. VOTE OBAMA and pray to God short-sellers like Bill are put out of business and it is made an illegal practice.

Sep 23, 2012 3:03AM

Bernanke is trying to shift money from bonds to equities but the last two rounds of QE didn't get people bellied up to the bar for his kool aid, either. Instead, they are readying for inflation  buying gold and silver.

There is a lack of trust in the Feds manipulation and strategy. People are still smarting from  the memory of the crash , and contrary to what the financial services industry wants you to believe, most 401 accounts have not recovered. Money was pulled out, and jobs with future contributers are gone.

The boomers closer to retirement are preserving capital accepting low bond and bank returns, rather than facing another 60% hit.. Young people are mired in student loan debt and working reduced hours, leaving little to sock away.

Fear rules, wealth is on the sidelines. Cash is king when returns are almost nil. Bernanke's done what he can, now the politicians have to act on the policy side. The election outlook is promising more gridlock.

Pull up the recliner, make some popcorn. This movie is still gonna last awhile.


Sep 22, 2012 3:17PM
Sounds like good advice.  Don't invest/gamble with what you cannot afford to lose. 
Sep 22, 2012 7:28AM

Hi Bill. Grubbers seem really excited about the prospects of more bank debt and more lift for stocks that have nothing to do whatsoever with America or the American economy. They are-- hellbent on being the wealthiest generations ever, just before the lights go out. When you look at the attacks on our Society by grubbers since 1998, you see a pattern. They got theirs and went about burning everthing that could provide for others. You tell me why financiers flourish. They contribute nothing to the good of the nation. They recommended termination of millions of jobs and careers, to offshore those jobs and force a suppression compression recession depression- the likes of which we cannot recover from. We will have to create something altogether new. Likely, in the pickled brain of Inflationists like Bernanke- we will be forced to borrow from them all over again. How about--- NO.

Romney said he wouldn't pass Ben another Term. Obama hasn't said much but I thought it was clever to give Ben 8 years to ensure that a monetary policy like this one was truly terrible. Obama can and likely will eliminate the Federal Reserve next term and dump the Dollar in favor of a newer more useful currency for the whole nation. The globe had about $50 to $60 Trillion in currencies about 15 years ago. It has $1 quadrillion or so in combined currency, fiat currency and debt made to look like yet another currency. The dumbest part is-- all three currency types have no collateral and don't serve the nations of the world, just Central Banks, Member Banks and a fraction of people.

It will only take a handful of key strategic and tactical moves to delink omnipotence from being the deciders of all things. If they can do it with paper, we can shred it. You tell me... which American corporations couldn't be fully flushed of Board Directors and hired-in executives and repurposed back to being an indigenous employer, manufacturer and integral component of a new economy? We STINK with platforms and financial manipulators. Change-out the currency and they return to the cardboard whence they were built from.

Say what you will, but Ben Bernanke sold us out. His banks are fraud. The Gramm Leach Bliley Act has to go, segregation between money touchers restored, wealth made fully financially dashed and New World Order-- trashed. Who will do it? Who won't? Those few will have to come out into the daylight sometime soon, well before Pauxatawny Phil does 2/2/13. You'll see.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.



Quotes delayed at least 15 min
Sponsored by:


There’s a problem getting this information right now. Please try again later.
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes

[BRIEFING.COM] S&P futures vs fair value: -4.30. Nasdaq futures vs fair value: -9.30. The stock market is on track for a lower start as futures on the S&P 500 trade four points below fair value.

Index futures have retreated from their overnight highs following another round of disappointing data from China. This time, it was the Foreign Direct Investment report, which revealed a 1.8% decline (previous -0.4%), leading to concerns about a potential hard landing.

The ... More


There’s a problem getting this information right now. Please try again later.




MSN Mobile: Go to msn.com in your phone's browser.