Go figure:

The US central bank discusses a slowing economy, and makes it plain to speculators that they are on their own, that there will no imminent rescue, no bail out, perhaps even the end of the Bernanke Put.

Markets throw a two day, 5% hissy fit.

The question surrounding this whackage that traders should be asking themselves is simple: Is this the beginning of a deeper sell off, or is this the end of a correction that began in the spring and has taken US markets down nearly 20%?

The parallels between 2010 and 2011 are obvious: Coming off a big Fed-induced equity rally, the slowing economy begins to make investors wonder about an earnings peak and potential reversal. A market sell-off of almost 20% gets the Fed chairman’s attention.

In 2010, a Jackson Hole speech leads to a broad based liquidity program, aka QE2. Its rocket fuel, and gets blamed for the next leg up of the equity rally, the gold rally, food inflation, and even the Arab Spring.

The difference, of course, is that there is no QE3.

Global equities plummet 5%; Copper gets shellacked, Gold and especially silver see sellers. Bernanke gets criticized, but so was Volcker (unjustly) lambasted, as was Greenspan (deservedly so).

The question all of this raises in my mind is this: Has Bernanke recognized the moral hazard of the Fed guarantee to traders formerly-known-as-the-Greenspan Put?

Asked differently, is the Bernanke Put now dead . . . ?

Category: Bailouts, Federal Reserve, Markets, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

52 Responses to “The End of the Bernanke Put?”

  1. Bill King says:

    It’s way out of the money, at the least

  2. dead hobo says:

    Asked differently, is the Bernanke Put now dead . . . ?

    Hell no, it’s just too early. My guess is November, 2011. It’s far enough off for the markets to fall and hit a congestion level. I’m thinking S&P 900ish or lower. It’s far enough to the end of the year to accomplish window dressing and make Q4 look like an improvement. QE3, Nov 2011, $1T.

    Also, Bernanke has built a career on money printing, trickle down economics, asset inflation, and wall street appeasement. He won’t declare his life’s work to be a wasted effort and a mistake by holding back on a big one. Japan has survived an explosion of money printing. So will the US.

  3. DeltaFreq says:

    The Bernanke putz is alive and well.

  4. TraderMark says:

    “Has Bernanke recognized the moral hazard of the Fed guarantee to traders formerly-known-as-the-Greenspan Put?”

    Nope. We just left QE2 literally 2.5 months ago. With 3 dissents the economy needs to worsen before QE3. The language in the statement left more action on the table for the future. We’ll be QE3ing within 2 meetings.

  5. urbandigs says:

    If its not, it should be

  6. Matt S says:

    the world is looking at 1100 before a counter trend rally commences. If the counter trend rally doesn’t hold on, then Bernanke will pull out his QE3 (my personal opinion).

  7. Veneziano says:

    The US central bank discusses a slowing economy, and makes it plain to speculators that they are on their own, that there will no imminent rescue, no bail out, perhaps even the end of the Bernanke Put.

    Way to be HONEST and speak in CLEAR LANGUAGE, Bernanke.

    Didn’t Greenspan teach you anything???

  8. kferry says:

    I think this a valid talking point -provided we agree that it existed. And the tone on floor today was on this pulse. My pedestrian comment wud be that you- as have most- substituted QE for LSAP. CB swap lines are a form of QE as they can create ex reserves. IF- and its iffy- the EU-ECB can create facilities of critical mass –then Fed’s balk on more LSAP but continued QE will look smart

  9. machinehead says:

    Instead of writing puts, Bernanke ought to be purchasing a put on long Treasuries.

    He’s levered more than fifty-to-one. He’s buying the top of a thirty-year secular bull market in bonds. And he’s unhedged. Or as ZZ Top put it: ‘He’s BAD … and he’s nationwide.’

    When long rates move back up, as they surely will do, Bernank-o will be carried out of the Eccles Building on a stretcher.

    Bernanke is Kweku Adoboli on steroids, coke and mushrooms. Who will stop the madman?

  10. AlaskanPete says:

    dead Hobo say:”Also, Bernanke has built a career on money printing, trickle down economics, asset inflation, and wall street appeasement”

    Uh, no. Ben built a career as an academic. Being the Fed Chair isn’t exactly a “stepping stone” position.

    Let’s hope that the Fed Put is over since then end result seems to be holders of wealth not doing anything productive with it (“investing” in gold, is not a productive activity, it is a bubble inflating activity).

  11. Moopheus says:

    Look at it this way: the S&P 500 is still about 10 percent over what it was ten years ago. So all is not lost yet.

    On the other hand–my credit union is now offering 3.85 with no points on a 30-year mortgage. It might actually be worth refinancing.

  12. wally says:

    What’s the opposite of the Bernanke Put? Is it the Congressional Call?

  13. constantnormal says:

    I’m not at all sure that the Bernanke put is dead … OK, it is and it isn’t.

    When the banksters squeal loud enough, and the politicians cry enough, there will be a QE3 — so it’s not dead. However, QE3 will have no impact whatsoever, most likely we will see a repeat of yesterday’s post-FOMC behavior upon its announcement. So it is dead.

    We live in a quantum reality. Call it Schroedinger’s QE.

    What WILL change things? Nothing that the government/Fed are willing to do.

    Start by fixing what is broken — restore the regulatory constraints (Glass-Steagall, limits on bank leverage, eradicate the Commodity Futures Lunacy Act of 2000, HEAVILY regulate credit default swaps (or better yet, ban their use by banks or any publicly-traded company, utilize the antitrust laws to break up TBTF companies), wipe out the insolvent companies and allow capitalism to work again. Jail the most visible perps, making a statement to the rest.

    Then we can move on to getting corporate money out of politics, establish term limits for Congress, and passing legislation that makes violation of campaign promises a breach of contract that is actionable by the voters — either by recall, no-confidence votes, or some mechanism.

    We do need to downsize government, but not the rank and file so much as the bloated administrative and legislative branches. And a limit on Supreme Court terms would be nice as well — something long enough to fulfill the spirit of the current “elected for life” nonsense, but not so long that the increased life spans of people today (as compared to that in the 1700s) leaves us with 9 grumpy old senile fools on the bench for decades. A dozen years at least for their terms, but two dozen is way too much.

    And then we need some ethics in our laws regulating business conduct. No more “anything goes”. For public corporations, we need laws that constrain what executives and board members can be paid, and especially limiting the cash payments to them. Some kind of formula relating the average non-management wage, the after-tax profits of the firm, and the medium-term performance of the firm, cranking out a range of values that executives can be compensated within. And when I say “average non-management wage”, I am referring to ALL the employees of the company, including those in China and other parts of the world. No more cutting wages for the average employee to bump profits so that the CEO can make his/her bonus. When employees take a cut in pay in order to make the company more competitive, I expect management to lead the way.

    Don’t like those rules? Then take the company private. But if you’re gonna sell stock to the public, be prepared to play by rules.

    Yeah, I know, we’re never gonna see ANY of those ideas put into practice. But that’s what it would take to make the system work again.

  14. Robespierre says:

    I think the selling is coming from the realization that congress will destroy liquidity regardless of what the FED does. It looks like austerity trumps FED:

    Republican Defections Defeat Bill With Disaster Relief Aid

    Sept. 21 (Bloomberg) — The U.S. House defeated a spending bill that included $3.65 billion in aid to victims of recent natural disasters and would keep the government operating past this month, delivering a setback to Republican leaders.

    Republicans objecting to the measure’s overall cost joined Democrats opposed to a spending cut aimed at shrinking the price tag to derail the measure, 230-195. Opposing the legislation were 48 Republicans and 182 Democrats; backing it were 189 Republicans and six Democrats.

    Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/09/21/bloomberg_articlesLRWDV31A1I4H.DTL#ixzz1YhBDqygo

  15. constantnormal says:

    I must say, I am impressed by the decline/rout following the Fed statement yesterday, and today’s rather muted (non-existent) follow-through. My guess is that some “artificial” mechanism is providing a veneer of fake prices, and that if any significant volume emerges, it would vanish in a digital heartbeat.

    Wile E. Coyote is doing a splendid job of not looking down, as he walks across the air between the cliffs.

  16. overanout says:

    The Ben Put has continued the Financialization of commodities which has retarded growth except for international money flows and traders. The continuing run up of oil and just about anything that has a futures market has finally shown a spot light on central bank policies that benefits the few and penalizes main street. The decision to buy MBS paper is a clear sign that another major leg down in housing is upon us with the combination of super low interest rates and FHA low down payment loans meant to spike up comps hoping to extract a few extra dollars for the MBS investors. The Ben Put continues to believe that financialization of a market in this case American housing is justified as another wave of foreclosed property will be hitting next Spring and Summer.

  17. Petey Wheatstraw says:

    The larger question is, does it matter, at this point? We’re damned if we do, and damned if we don’t (answer this question: what’s in it for you, personally, either way?). It’s fraud, either way, because the entire monetary system is based on it.

    Why is an overhaul out of the question, as it is truly the only way we can balance things? Austerity can only work if it is proportional to what we call “wealth.” Otherwise, society will fracture society (anyone who doubts this has never actually seen how the other half lives). Trust me on this: You don’t want to see what will happen if the middle class disappears. OTOH, Monetary stimulus only leads to perpetuation of the imbalances.

    You cannot see the big picture if you don’t do so from outside the framework of fraud.

  18. Petey Wheatstraw says:



  19. Petey Wheatstraw says:

    That is constantnormal @ 11:23 am.

  20. The only question I have is:

    What does all this have to do with the next election?

  21. AHodge says:

    end of the put?
    for the US not with a bang but with a whimper–and fiscal is whats left
    -QE effects get exhausted

    but the biggest prob is europe-the “solution” will come from there
    with us finance half broke and europe finance 3/4 broke
    as bankers know –halfway down after you fall off cliff
    is not the best time for reform
    pull the bailout ripcord the 100% no questions ask no haircuts bailout
    –mainly in europe where europe banks are insolvent w/o major new bailout where nobody had deep pockets ready yet
    so i trade this like the other big buyside vultures and bill gross
    lighten way up and wait for the panicked euro bailout
    only be short if you know they do nothing for 3 days
    i am only hurting small as big gasoline short covers most little BS longs i got
    where i even sell my treasures.

  22. jaymaster says:

    Way too much of a US centric focus here.

    Two major situations became clear this week:

    The end game is near in Europe. The contagion leap-frogged Spain and went straight to Italy. And the bank runs have clearly begun.

    And China didn’t quite manage to ramp up its internal demand in time to make up for the crash in European and US demand. And now their own central government is admitting that the local governments are not following the “command” of the central bank. They’ve gone rogue with their own lending to keep local demand pumped. That can’t end well.

    And the Fed, the Treasury, and the US congress can’t do squat about those problems.

  23. Petey Wheatstraw says:

    Oh, the carnage of it all. People’s 401K “retirement” plans taking a good beating/thrashing/pummeling/shellacking. I wonder who has the cash to buy the Dow when it stops dropping. Oh, yeah — the top 1%.

    This would be great fun if it was only numbers.

  24. Molesworth says:

    Boy did I f up.
    Yesterday I was looking into short Eur EPV, Short China YXI/FXP and short Brazil BZQ. But I dithered and wanted to research more. Need to go through BR’s Apprenticed Inv again.

  25. ottnott says:

    Ben’s not willing to have the Fed act alone at this point.

    We’ll see more from the Fed if the Europeans and Congress ever decide that deficits aren’t the most important problem right now.

  26. TLH says:

    It is time for the government to get their house in order. No more gimmicks. Let the markets work it out. We must totally rethink government and taxes. How much leverage is there in the bond market? Will this lead to a crisis?

  27. Molesworth says:

    I find it interesting that the news headlines are blaming this downhill run on the Fed when I hear FinTV suggesting its the bad numbers about China and EU that is driving the bus.

  28. herewegoagain says:

    As just about everyone knows, Bernanke’s primary field of academic interest was the cause of the Great Depression, his conscious or unconscious raison d’é-tat being the prevention of another depression. He imagines quantitative easing to be one of his most effective tools, and he will continue to use it until they pry it from his cold dead hands.

    The result will be the same pattern we’ve had for the last eleven years. Lots of cyclical Sturm und Drang in stocks, but no sustainable gains in the foreseeable future.

  29. prsnr24601 says:

    “Bernanke gets criticized, but so was Volcker (unjustly) lambasted, as was Greenspan (deservedly so).”

    Is there any way we could get Volcker out of retirement?

  30. louis says:

    Watch for a little mole hill forming, it will be the only way out of the malaise we are in.


    Chess anyone?

  31. jaymaster says:


    I’m not in the top 1% (maybe top 10% in a good year). But I took enough profits through out the year to have a nice chunk of cash ready to re-deploy when things look better.

    And I moved half my 401k equity balance into bond funds too.

    Maybe I’m a genius.

    Or maybe I just took Barry’s fricken advice that he constantly hammered on here….

  32. Gaucho says:

    I don´t believe bernanke will leave his Wall Street friends drying up in the sun. there´s no political support for more subsidies at this point. if no subsidies, the s&p gets killed… and everybody has a price. once it gets to the 900 level, people will look at the subsidies differently.
    it´s unfortunate but democracies never take painful choices unless they have no other choice. Argentina didn´t have a choice back in 2001, it was very painful, but short. the US, as Japan at the time, has its own currency and money can always be a temporary cure, so it still has a choice and it will have a choice for many years (just look at 10-year yields!). and that´s why the bernanke put is still alive, just dormant for a few months.

  33. Petey Wheatstraw says:


    I’m not talking about the small number of people who actually pay attention, and who have manages to preserve capital, or even withstand today’s shitbomb. I’m talking about simple working class people — the trusting hoi polloi, debt slaves.

  34. RW says:

    What Robespierre and jaymaster said:

    Everyone is focusing on the Fed but all Bernanke really said was the monetary response would be sufficient to provide a floor but no more than that. Not particularly shocking when all is said and done.

    The 800 lb gorilla (or two 500 lb if you like) in the room is (or are) a dysfunctional congress headed towards another budget battle and possible government shut down and a world economy that is contracting.

    Couple tepid monetary response with austere or downright insane fiscal policy in an environment of global contraction and you’ve got a macroeconomic witches brew for sure.

  35. eliz says:


    Like your perspective.

  36. Ny Stock Guy says:

    Barry, have you been out of town the last few days?

  37. ToNYC says:

    The Bernanke Put was all that was left of Paulson’s bazooka…turned out that currency swaps are now being kited since the digits were invented in the first place. The next “Q” will be a “U” as in “U”se it or Lose it. Money printed with an expiration date, or a GM _USA product.

  38. AHodge says:

    it occurs to me
    that geithner–rather than just jawboning europe
    has also granted big currency swap related funding to the big euro banks
    while there was some bs about this driven by $ funding needs
    i think these more like huge general liquididty support like discount windowing
    so now he has leverage- do it my way euro bailout for euro banks
    or no more swaps?

  39. [...] Barry Ritholtz, “With the Fed out of bullets, traders are now left to their own devices.”  (Big Picture, ibid) [...]

  40. StatArb says:

    Unemployment will certainly get back to 10% as the “wealth-effect ” losses trigger more belt -tightening , and our misguided policies make things more and more dire
    Expect the DJIA to fall to 8000 as a symptom along with 10-year yields staying below 2% for months and months with the 2-10 curve below 175 …… after August alful foreclosure news , we can expect at leastanother 1,000,000 more foreclosures and 1,000,000+ more job losses

  41. [...] the Bernanke Put Dead?September 22, 2011By Lance Paddock Download article as PDFInquiring minds and Barry Ritholtz wants to know:…there is no QE3.Global equities plummet 5%; Copper gets shellacked, Gold and [...]

  42. Sechel says:

    Of course its dead. Market has the benefit of seeing how QE2 turned out and the stock market has not held. Furthermore operation twist shows how the misguided the Fed is, over-leveraged consumers cannot refinance and take on more debt to spend. Until the Fed realizes this is a balance sheet problem on the part of banks and consumers we’ll just see more of the same failed policies.

  43. [...] – The end of the Bernanke put? [...]

  44. Robespierre says:


    Why are Democrats going along with this?

    “Senator Warner today announced that he has organized a bipartisan coalition representing more than one-third of the members of the U.S. Senate to encourage the members of the congressional “super committee” to seek the broadest possible bipartisan agreement to address the nation’s deficits and debt. This group of 38 Senators — 19 Republicans, 18 Democrats and one Independent — builds upon Sen. Warner’s yearlong efforts, along with Sen. Saxby Chambliss (R-GA), to craft a deficit and debt framework as the two co-founders of the Senate’s bipartisan “Gang of Six.””

  45. hdoggy says:

    There is always the possibility they are behind the curve. When they dropped 6% in 2008, they did not have to pony up a single dime to execute that. In normal circumstances, if funds are tight, they have to accomodate the market to keep the rate down, or withdrawal funds to push it back up, but in 2008, all they had to do was a press statement. If the treasury shortining their duration, which seems stupid as all hell, and the fed entering the market is the solution, go figure. Maybe rates are low for a reason. If you want to buy a house and it costs 3% but the value is dropping, it’s easily a 5% loan with or without the fed. The real problem is that no one but insurance cos buy and hold for 30 years. If the 30 year goes from .5% to .25% that is a 100% gain in the same way as if the 8% goes to a 4%. That’s the game we’re playing, but it’s capital destructive because all existing capital gets undercut in the process. People made decisions under different circumstances and they are paying. Lowering rates does not help sunk costs one bit.

  46. readerOfTeaLeaves says:

    Ditto RW @117

    But whether Bernanke publicly acknowledges that the problems in the Shadow Banking System (including off-exchange swaps) are simply too overwhelming for government to address, remains to be seen.

    Meanwhile, The ideologues in the GOP seem to assume that they can alter the laws of physics, markets, biology, the Constitution, and the markets. Nothing Ben could conceivably do would please them.

  47. blackjaquekerouac says:

    at this point concerns over so called “Central Bank puts” i think are little out there especially since it never existed in the first place. Now be a good Wall Street and keep depositing all your money with “those underpaid bureaucrats who really have no idea how important we are.”

  48. [...] Barry suggests, have we just seen the end of the Bernanke put? Based on the way markets are trading today it would appear Ken Rogoff was right that Bernanke [...]

  49. Shadowfax says:


    Well said! Nice to see someone digging through the noise to the root cause. Here are a few points your list made me think about.

    1) 20% minimum down payment for a house. They are not stocks to be traded; we were fools to let people speculate in property.

    2) We killed our jobs engine by letting folks offshore and bank the profits. Let’s require companies that offshore to essentially make up the difference in wages as taxes and pay them to Uncle Sam. If they are going to put U.S. workers on the sidelines, they can at least be asked to pay for the unemployment checks. Our $650B goods trade deficit is 10-15 million jobs overseas that we need to get back here.

    Our country has all the natural resources it needs, so eliminating this trade deficit and insulating ourselves from low-wage countries is a good start.

  50. [...] The End of the Bernanke Put? (September 22nd, 2011) PERMALINK Category: [...]