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Another rousing success! Congratulations all around!
This reminds me of the weightlifter/strongman at the state fair blowing up a hot water bottle - you wince as it getting bigger and bigger and bigger, and when it bursts you know it's gonna hurt. Real bad.
5-yr. futures exploding to new highs for the move...
TIP @ 106.15 - new high for the year in case you all don't have enough to digest.
Do we sense the coming of the big unwind? Or will Ben and his Buck Busting Brigade keep the show going another year or so?
So SOMA (direct) was almost 1 Billion. Better buy some just in case.
One item expounding on the benefits of the FED for paying reserve interest.
Writing back in 2002, Marvin Goodfriend prophetically noted that payment of interest on bank reserves meant that a ‘central bank could increase bank reserves in response to negative shock to broad liquidity in banking or securities markets or an increase in the external finance premium that elevated spreads in credit markets. The increase in bank reserves would help to stabilise financial market by offsetting the temporary reduction in the private supply of broad liquidity. The latitude to pursue bank reserves policy and interest rate policy separately would be useful to the extent that shocks in financial markets and the macro-economy are somewhat independent of each other.'
Some times I read this stuff and wonder if the FED has any concept of what money represents. It seems that they are detached from reality, that it is all an academic exercise carried out in a macro-economic sandbox on some distant world.
Well dammit, its time to peg the chairmans salary to performance. For every 1% of unemployment above 5%, the chairmans gross salary is reduced by 10%. So if unemployment = 10%, Ben's gross salary would be cut by (10%-5%) x 10% = 50%, so his salary would be cut by 50%.
So, you don't want to show you have too much cash at year's end 2009 window dressing?
You buy Treasuries.....so what?
Is it possible to know how much of the auction was bought by fed dollars?
7 Year auctions have been the key area between everyone piling into the shorter dated treasuries and ignoring the longer term giving a steep yield curve. The FED will most probably be very pleased with the result. Some have suggested that this pick up is due to window dressing and to me this does not wholly ring true. Yes you can cycle some cash into treasuries, but you would most likely balance out your portfolio at the same time. There is not much evidence of anybody cycling out of anything with most assets still on the rise (with the exception of the dollar).
What I think is happening is the need for convexity hedging by the agencies is increasing, while at the same time banks are hedging against the carry trade. The problem is once the FED starts to wind down MBS purchases it could trigger a massive unwind in the bond markets. You end up with a highly volatile bond and currency market which will force investors out and reset assets to a very different price level. At the same time that volatility will prevent firms from being able to properly hedge their exposures triggering another wave of bankruptcies and job losses.
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