Fed Damage Control Courtesy Of Elizabeth Duke (Update: And Dennis "Have My Cake And Eat It Too" Lockhart)

Apparently what the Fed thought was sufficiently well "telegraphed" to the market, was "telegraphed" only to Goldman, and maybe a few others. Here is how the Fed is now doing some serious late day damage control before Asia opens, with backtracking courtesy of Fed Board member Elizabeth Duke.

DUKE: DON'T EXPECT THURS DECISN TO LEAD TO TIGHTER FIN CONDTNS

DUKE: DISC WINDOW CHANGES ONLY A REVERSAL OF SPREAD REDUCTN

DUKE: EXPECT BNKS TO USE PRIV SOURCES FOR NORML FUNDNG

DUKE: CONTINUE TO EXPECT NO LOSS ON CREDIT TO BEAR STEARNS, AIG

DUKE: IF HAD TO REDO, WOULD VOTE AGAIN TO MAKE LOAN TO AIG

DXY: 81+

The dollar funded carry trade is now over.

And Some More Horrible News: Lipper FMI Reports $916 Million In High Yield Bond Outflows, Following $1 Billion Outflow In Prior Week

And just what HY investors did not want to hear after the Fed shocker: Lipper FMI just reported that High Yield bond funds saw $915.77 million in outflows for the week ended February 17, while bank loan mutual funds saw $160.9 million in inflows. Keep in mind last week was one of the largest outflows in HY in recent history at just under $1 billion. The high beta dumpage is officially on.

British Navy On Standby Over Falkland Oil Dispute, Gordon Brown Issues Explicit Warning To Argentina

"Royal Navy warships were on standby on Thursday to protect commercial shipping to the Falkland Islands as Gordon Brown said Britain would take a robust stand against Argentine encroachment on the resource rich South Atlantic territory." One would guess that a war between Britain and Argentina is simply the latest thing that would bring the market to an uncontrolled, frenzied melt up (on give or take 3 shares). And while the US market responds to no external stimuli any more, this latest development reported by Telegraph, will likely not help the Gilt's recent concerns. "This is modern defence diplomacy in action," an MoD official said. "The warships are there to protect the UK interests in the South Atlantic. If the Argentines were interfere with the free movement of shipping on the high seas that would be illegal and we would make a decision to use our deterrence force."

Are Bond Vigilantes Now Focusing On UK Gilts?

The chart left is not indicative of the widening in the sovereign credit of some backwater PIIGS country. It shows the rather substantial move higher in 10 year British Gilt yields over the past week. Are the bond vigilantes slowly but surely (and as very much expected) moving from the periphery, where all the low hanging fruit has been picked, to the core, where the acceleration is only just starting? To be sure, the Gilts are easy targets: with QE unaninmously voted out, and increasing budget deficit, there is little to like.

Expecting A Tax Refund? If You Live In Hawaii Or North Carolina (And Soon New York) You Will Have To Wait

Two weeks ago we warned readers who wanted to get 2009 tax refunds to file their taxes asap. It appears we were prescient. The state budget crisis is about to hit home. Again. Last year California delayed tax refunds due to simply not having any money which to refund. This year, the first states to announce a hold in refund processing for just the same reason are Hawaii and North Carolina. New York State is also considering a comparable action. If you have delayed filing your taxes, it is high time to do so now regardless of where you live as the same "money-saving" approach of halting refunds is likely about to become prevalent now that "everyone is doing it."

Guest Post: Are Repos Signaling A Buy Or A Sell Opportunity?

The study of repurchase agreements (or repos) gives us a recent insight into the big players’ view. Repurchase agreements are an important tool of the Federal Reserve that allows them short-term control of money. In the face of this market correction, is there going to be an encore of purchasing agreements that leads to a probable rebound? Up until about early 2008, the correlation had moved up to 0.86 or 0.75 squared. It broke down after that period. This is one reason that we will show the larger, updated version today. I feel that the ascending rate of cumulative repos is simply unsustainable.