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$3.5 Billion POMO Closes, All Of It Used To Repurchase 3 Year Auctioned Off 20 Days Ago
The monetization continues: today's $3.5 billion POMO was practically all used to repurchase CUSIP LM0, a 3 Year Note auctioned off by the treasury a whopping 20 days ago: this one. Recall that the auction had $16 billion of Primary Dealers interest accepted. Not a bad way for PD's to offload 21% of their allocation in less than three weeks. Any questions why there was $81 billion in PD bids tendered? The answer: see chart below.
PS: the $30 million LH1 straw man also repurchased: a 3 Year auctioned off on August 11, 2009.
The good news: there is only $7.3 billion left in QE dry powder for USTs: two more POMOs and then the seemingly never ending liquidity-based lubrication of equities is over.
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10-year bonds
New Highs for the move....
As usual, the slightest whiff of trouble in stocks sends investors "fleeing" into treasuries.
Once the 10-year yield falls below 3.0%, "Animal Spirits" will be re-ignited and stocks will rally once again...
Wash, Rinse, Repeat..
You forgot 'Lather' - how can you trade this way?
(long article)
(Washington's Blog the head writer at Washington’s Blog – is a busy professional and a former adjunct professor.)
TD, is there a way to quantify what the spread is from what the PDs paid for these @ the auction, & what they unloaded them to the FED for? If its a big spread(big profit for PDs), then another case of Uncle Ben lining the pockets of the oligarchy w/ these bailout related programs.
expect a rather big piece on that soon. and not from ZH.
any hints? Glen Beck?
Ooooh - goody goody :-)
Go Lizzie Go!
Would also be interesting to know how much JPM is making in custodial fees for the MBS program, PIMCO from TALF, etc. Looks like these all require FOIA requests.
So ironic that Obama mentioned he wanted to distribute some of the wealth during his campaign. And he is indeed! Just went the other direction. Gotta love the blowback from this self-perpetuating, self-serving system.
We are living in a warped consensus-reality period, where the US has imo essentially experienced a Sudden Stop (of sorts) but the recognition phase has not set in. Example of the obfuscation and nonsense are seen in examples below, from academia and also the WSJ.
--Gregor
__________________________________________________________
Of course I will add my by-now-tiresome point that we do not have to worry about discretionary decisions by foreign governments as to whether or not they will continue financing the US fiscal deficit. Foreigners do not finance fiscal deficits. They finance current account deficits, and one (the current account deficit) cannot occur without the other (the financing). As long as the US runs trade deficits with China (or Russia or anyone else), those deficits will be financed, and the only thing that will stop that is a contraction in the US trade deficit, which is actually expansionary for the US economy and will reduce the need for fiscal expansion. --Michal Pettis, 15 June 2009
The buying (of US Treasuries) has defied worries that the U.S. government's borrowing binge would overwhelm demand for government bonds. This week the government is scheduled to auction a record $112 billion in debt...The Fed, bent on keeping the economy chugging through low rates and functioning credit markets, has been one of the biggest buyers of both U.S. Treasurys and government-backed mortgage debt. In effect, it has printed money to support stimulus efforts. --WSJ, 21 SEP 2009
If they want to devalue the dollar, what fiat currency is the bench mark for devaluation?
RE: gold and the dollar. Not a chance in hell QE ends as the Fed has stated. See Jim Rickards video (below)
http://www.cnbc.com/id/15840232?video=1275511738&play=1
I agree. They will keep the printing presses going and QE into the foreseeable future and then possibly beyond. The USD will continue to lose value.
So, essentially they knew this crisis was coming for 50 years?
And, every foreign government accepted it because they needed US demand for all their excess shit!!!!!? They stood by and watched Detroit go belly up into a hell hole of horrors - mute - and never let on it was all unnecessary.
Then what are we worried about - let it all crash...
Excellent video, thanks very much for posting it.
Makes me wonder why I never was taught about Triffin's Dilemma (undergrad finance major and MBA).
On the other hand, I guess I shouldn't be surprised.
Thanks for bringing this into the discussion. Mr. Rickards has a very wide frame of reference from which he summarizes a plausible direction for Fed action and cues for ending QE. If gold goes from bubble to mania on a worldwide basis it will be very hard for central banks,Fed, IMF, etc. to control gradual inflation. Who determines the asset that the Fed would use ? Is evidence to support shift to SDRs as fiat of choice?
"there is only 7.5 billion left". While it is true overtly,how much is left covertly?what about that secret account in Swizerland that Greyson was asking about?And how mnay secret accounts are there?
ft.com/alphaville highlighted this.
chart from BofA Merrill Lynch
http://ftalphaville.ft.com/blog/2009/09/28/74346/deflation-dead-and-dead...
Quote BofAML
Note that the US is off the line in this chart. We believe the Fed will be much more patient than its counterparts in Europe. In part, this reflects the fact that the US is the epicenter of the capital markets crisis, but in part it reflects a different mindset. The ECB worries more about inflation, particularly in the context of aggressively easy monetary policy.
http://ftalphaville.ft.com/blog/2009/09/28/74346/deflation-dead-and-dead...
the Fed is such a joke
and we are so fucked as a result
what does POMO stand for..
Permanent Open Market Operations, as in, buying stuff
buying implies an exchange of values. Printing money markers which dilute the larger pool just while contracting production occurs and using the counterfeit as a term of payment is open state-sponsored expropriation. Theft by device. It is contempt of the money masters for the workers, it is selective forebearance by government in the protection of life, liberty, property, and pursuit of happiness by the governed.
It is a high alert that the bill of rights, constitutional guarantees, and representative government no longer operate. It is the slippery slope of tyranny unchecked: to be introduced in mild form first until it chooses to mutate to its most virulent state.
POMO should stand for Permanent Open Miscreance without Oversight.
They've got all your money and future cash flows woven into the system, but the stripping of your liberty will be what you miss most.
As subtly as inflation has eroded the dollars purchasing power by 95% over the years, these assumptions of power which encroach on your "inalienable" rights will loot all the grandeur of the American experiment away and leave all bereft, and enslaved.
+10
http://www.newyorkfed.org/markets/pomo_faq.html
The question on everyone's mind at ZH regarding the Fed.
"Got KY?"
Too classic, they aren't even pretending anymore, I see this sort of monetization as a direct slap in the face of our creditors: "screw you mercantilists, we are going to directly monetize our debt and we know you aren't going to lift a finger."
Makes you wonder who is dumber - us for going into debt, or the Chinese for thinking we are going to pay it back?
Why hide it? "Survivor" and "Amazing Race" are back on with new episodes.
As for who is dumber? Well, I don't think the ChiComs are foolish enough to suspect we will actually pay it all (or even a significant chunk of it) back. Methinks they think of it as a "down payment" of sorts.
This will end when we eventually declare war on China for a minor disturbance. The Chinese should study how Hjalmar Schacht paid things back.
Heh. Glad someone still knows who he is (was).
For those who don't please acquaint yourselves with MEFO BILLS and the man who financed the 3rd Reich:
MEFO reflation: http://en.wikipedia.org/wiki/Mefo_bills
SCHACHT: http://74.125.155.132/search?q=cache:akpj8O-GXJUJ:en.wikipedia.org/wiki/...
Great work staying on this, sir.
Wow, that will be a fascinating (and damning?) study, on PD spreads at buy vs. sell.
Thanks rhinotrader. Learning by observation.
JTimothy
You possess a rather deep font of naivete regarding trading.No dealer would hold a bond for three weeks.
You have a hypotheses and then you bend the facts in such a way that it fits your bizarre theory.
"No dealer would hold a bond for three weeks,"unless they had actionable information about upcoming POMOs, and expected to be selling it for a guaranteed tidy profit.
There, fixed that for ya.
Note that the 3-year yield has fallen recently, so even the "open market" price is a nice deal.
Also note that an "open market" is not the same as a "manipulation-free" market.
+1
As an aside, I note that since the beginning of your jihad on the topic of POMO, you constantly reference bonds by their CUSIP.
In the instant post you refer to the old three year note, the 1.75 08/15/2012 as the LH1.
No one with background in the bond business would ever do that. A bond is referred to by its coupon and maturity and sometimes as I did in this case as the "old three year note'.
CUSIPS are rarely ever used except by back office people or by front office types when there is a settlement problem which requires total clarity and precision.
It is a seemingly trite point but demonstrates clearly that you do not have depth of experience in the topic nor have you been immersed in the fixed income business for any length of time.
I am happy you do not need "total clarity and precision" when talking about funding a $9 trillion deficit. Furthermore, I completely disagree with your statement. Lastly, if this is JJJ, you are welcome to register.
Busted! So now we know, you have been making stuff up...
82754/ATC?
"It is a seemingly trite point ..."
It is a very trite point. Ever hear the "old" saying about not being able to see the forest because of the trees?
WTF man, the Fed is monetizing a ton of treasury debt as well as one trillion + of shit mortgage gse paper (that we know about) and you're whining about the author's using one particular number vs. another to describe a note?
"CUSIPS are rarely ever used except by back office people..." Maybe TD is a back door kinda guy.....
I'm impressed that you have enormous bond experience....so did alot of guys at Bear Stearns. Seems to me that the non bond experts are going to have to be the ones to lead the charge in fixing this mess.
i'm glad for the err on the side of precision. lack of 'background in the bond business' or not it communicates the issue unambigiously. 'old three year note' is not a good citation especially when viewing this material in the future. coming from a science/engineering background i am amazed at how the trading business tries to hold onto the guild system by ridiculing interest which is not passed along through apprenticeship. perhaps this business is so complicated that it cannot be taught any other way than years of clerking under artful masters, or perhaps if its knowledge were ever cataloged there wouldn't be much use for the current masters?
if you have better experience, knowledge or insight i think we would all honestly appreciate hearing your take on the issue. i'll stop giving so much interest to the ZH articles when someone with more compelling observations steps up. (Step Up 2: The Street?)
I'm not a muslim but the term you are looking for is itjihad-which means basically a war of coniousness through independant thought.
I just thought I'd throw that out there just to mess with your self esteem before you get too uppity and believed that you can execute islamic concepts with total precision.
Cause sometimes I just like getting all crazy and controlling like that in an attempt to divert flows of conciousness through independant thought.
If you had credibility in yourself, you would show a registered name. I mean it isn't like Tyler can't see your computer unique ID number and know exactly the path to your door. It is just that we can't have faith in your point of view when you hid behind anonymous, and that goes for the rest of the anonymous users too.
If you have not the guts to ID yourself, then maybe you should just read only.
Buying the on-the-run three-year has more punch to move the yields in that part of the curve lower than buying a cheaper off-the-run. Pricing of other debt instruments is always done off of the on-the-run bonds.
David Merkel
Alephblog
"two more POMOs and then the seemingly never ending liquidity-based lubrication of equities is over"
A couple of objections:
1. Why focus on T-purchases only and not purchases of mortgage bonds? They also add to reserves.
Moreover, the purchase of T:s is reserve neutral:
Primary dealer buys T-bonds. Bank reserves are removed.
Fed buys T-bond from primary dealer. Bank reserves are added.
This operation is reserve neutral. Government has to spend the money:
Treasury makes payment for govt's consumption. Bank reserves are added.
2. When the stock market made its low in March 2009, bank reserves had been increased from $100B to $800B in October 2008. Why were not bank reserves "lubrication of equities" then?
/JN
Re: #1. If you imply that the real vulnerability on the Fed balance sheet is MBS purchases, then I certainly share your concern.
Regarding the following quote:
The par amount accepted by Fed may well be different than the price paid by mentioned primary dealer to facilitate the trade, so it may not be neutral in the sense you imply. In fact, it may be a deliberate subsidy and the lack of clarity regarding the whole process is, I believe, intentional. Perish the thought.
#2. The whole interbank market was dead in March. I believe the US Treasury CDS spread breached 100 on March 13. An 11% probability of default in four years, given an assumed 40% recovery rate! Every bank in the whole world was going to hoard cash and build Tier 1 capital ratios. Which, for good reason, they did. And then they moved cash out of treasuries and into equities when goverment guarantees of solvency became credible.
You appear to have some insider information on the monetization process. Please add some clarity for me if you have it. I'm an open-minded sort, quick to admit error.
"If you imply that the real vulnerability on the Fed balance sheet is MBS purchases"
No, I am just talking about the amount of bank reserves.
"The par amount accepted by Fed may well be different than the price paid by mentioned primary dealer to facilitate the trade, so it may not be neutral in the sense you imply."
Not sure what you mean. If the primary dealer collects fees or makes arbitrage, yes, this cost will be paid by the Fed and this will add to bank reserves. However, that should just be a few percentages of the $300B.
"The whole interbank market was dead in March."
OK, valid argument. Banks were paralyzed and therefore could not make use of the "lubrication". Now they can and therefore lubrication works.
"they moved cash out of treasuries and into equities"
Hey, for banks cash is reserves at the Fed. Banks can only move reserves between their accounts at the Fed, never withdraw it (other than as coins and notes). The amount of cash on the sidelines is constant no matter how many stocks or bonds banks buy or how much they lend.
Thanks for the reply.
You got what I meant. I didn't add the fees, commish, verbiage. Thought it was clear enough.
1. Except for any "leakage" from fees and arb.
2. Cash can be converted from reserves to other liquid assets and then reconverted into Treasuries as the Fed's changes its bid for Treasuries, right?
Buy low, sell high in equities, or pump finanical stocks (and everything else in the process) to shore up Tier 1 is a fine plan unless only big players are trading amongst themselves. Then it becomes pass the hot potato.
Tyler, since QE is "supposedly" going to end on October 30th("end of October"), are you going to adjust the x-axis on the chart to end then, as opposed to Sept. 30th?
That would make the coming plunge back to the diagonal trendline even more severe.
People deserve good life time and mortgage loans or just bank loan would make it better. Just because people's freedom is based on money state.