Art Cashin, who lately looks like he is coping with the market's lunacy in a very liquid fashion, pulled a Rosie and basically went medieval on Ben Bernanke and the chairman's now infamous explanation that interest rates are up because they are really down courtesy of Richard Feynman and quantum chromodynamics, in some parallel universe in which QE2 is actually working. In a nutshell, the most famous face on the NYSE has offered to sell the Princetonian a piece of very valuable East River real estate in exchange for agreeing with the BS that the FOMC's committee is dishing out now on an almost daily basis.
“Declare Victory And Get Out” – That was the advice given to Lyndon Johnson in 1966 by Senator George Aiken of Vermont, as a means for the U.S. to extricate itself from the morass in South Vietnam.
Looking at the recent Fed minutes, the FOMC may be considering heeding Senator Aiken’s advice.
For weeks we, along with others, have noted the apparent anomaly of rates rising in the face of the Fed’s purchasing of billions and billions of treasuries through QE2.
It seems the Fed may have heard some of the concerns and criticisms on the topic and felt they had to discuss it at the FOMC meeting. Here’s a bit from the minutes:
"The decision to expand its holdings of longer-term securities by $600 billion by the end of the second quarter of 2011 was also roughly in line with market expectations, although market participants appeared to expect the purchase program would be increased over time. In the weeks following the November meeting, yields on nominal Treasury securities increased significantly, as investors reportedly revised down their estimates of the ultimate size of the FOMC’s new asset-purchase program. Incoming economic data that were viewed, on balance, as favorable to the outlook and news of a tentative agreement between the Administration and some members of the Congress regarding a package of fiscal measures also reportedly contributed to the backup in yields. Market participants pointed to abrupt changes in investor positions, the effects of the approaching year- end on market liquidity, and hedging flows associated with investors’ holdings of MBS as factors that may have amplified the rise in yields. Futures quotes suggested that the path for the federal funds rate expected by market participants rose over the intermeeting period."
Wow! Senator Aiken would have been proud. They throw a series of possible reasons on the table. Year-end position squaring. Mortgage hedging. The tax cut extension. Even the possibility that QE2 might be less than expected.
The primary reason they cite, however, is basically that the plan is working. The markets apparently seized upon the idea that QE2 was working and in the face of a re-charged recovery were demanding higher yields.
There’s a bridge on the East River that may be for sale. Rates began rising instantly as QE2 was launched. That could not allow time or samples to evaluate.
And, if QE2 was already so effective, why aren’t there discussions of winding down a program that was so quickly achieving its stated goals.
There are several pieces to this puzzle that still don’t fit.
h/t London Dude Trader