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Deconstructing POMO As Fed Becomes The Second Largest Holder Of US Treasurys In The World
With today being yet another POMO day, it is only fitting to do the definitive summary of how the Fed's Open Markets Group distorts various asset classes with its liquidity ramps. So all those who doubt thet Fed has an impact on stocks, please look at the chart below. Incidentally, today is the day the Fed will likely overtake Japan as the second largest holder of US Treasurys. Recall that Japanese holdings of US paper were $821 billion as of July. Well, as of September 30, the Fed held $811.7 billion in Treasurys, and in the days following, there were two POMOs: one for $5.2 billion and one for $2.2 billion, bringing its total to $819.1 billion. Which means that if today's POMO operation, which launches imminently, is larger than $2 billion, the Fed will become the second largest holder of US paper in the world. And it won't stop there: China is merely $25 billion away. At a run rate of $10 billion in POMO purchases per week, the Fed will be the largest holder of US Treasuries in the world before the midterm elections.
Back to Pomo, where John Lohman has submitted all the narrative and data one needs to know why it is insanity to oppose Brian Sack.
The truth is stranger than fiction and here are a few numbers to prove it. I’d like to think this data came from The Onion, but it didn’t (and anyone with access to W’s ‘the Google’ and a calculator can prove it).
Brian the Sack’s website (here) lists POMO operations back to August 25, 2005 (yes, they were conducting POMO under the radar before announcing ‘an extension in maturities targeted’ in a bazooka waving move, a la Paulson style, in March 2009). In sum, the Sack & Company have POMOed the market on 203 of the 1,334 trading days since (as of October 5, 2010). As this is well more than the number of observations necessary for statistical significance (approximately 30) in order to draw conclusions about reality from a sample, we can draw some conclusions as to just how much the Fed is artificially chumming price levels in what was once a free market.
Now, I’m sure this is just coincidence. It just so happens that POMO funds received by primary dealers “appear” to be ramping stocks and causing (dare I say short) selling in gold. Only The Onion would post something as preposterous. It’s also interesting to note the doucherious impact the Fed is having on yields. Ironically, the Sack recently stated in a speech:
Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses.
Perhaps someone should tell Brian, Ben & Co. to mute Krugman and revisit the data (surely they have the Google and calculators at 33 Liberty). No, even professional BLS weasels couldn’t make this up (here and here). Proving, yet once again, that the truth is stranger than fiction, especially in post-crisis capitalism.
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There's no link to Brian Sack's website. I'd like to see the listing of all POMO days.
This has been posted only about one thousand times on ZH: http://www.newyorkfed.org/markets/tot_operation_schedule.html
That "tentative outright Treasury operation schedule" site is all so...PROFESSIONAL looking. So clinical and reasonable-sounding. As if it were an auction of art, a list of dividend payments or prices of rare stamps.
I rather like "tentative outright Treasury monetization schedule" because the truth may even set the Fed free...
other sites will put something like a stick, or a quck link on the front page to information.
I love the content, but some things deserve seperate areas.
thanks tyler. great post.
C'mon now Tyler, are you taking lessons from BLS? It has only been 23 times ;)
http://www.google.com/search?q=site%3Azerohedge.com+http%3A%2F%2Fwww.new...
doucherious?
wasn't in my vocabulary... but is now.
+10 for 'doucherious' alone
right up there with basicalier.
Treasuries, bitchez!!!
I don't think they see a downside to being the largest holder of treasuries in the world.
Further, if the link between POMO and stock ramps were proven - to their satisfaction - they would view rising stock prices as a plus.
We're dealing with hardcore idealogues here.
The Treasury doesn't like free money, doesn't like competition but sure likes counterfeiting.
It's kind of like me selling off my Morgan dollar coin collection, bit by bit at $30 a coin, to coin dealers. Then, using my legal (according to me), though illegal (according to the competition) printing press, I print off another batch of counterfeit Federal Reserve $1.00 notes and go buy my coins back from those same dealers at $32.00 a coin...
So counterfeiting is all relative, isn't it, to WHO IS HOLDING THE GUN...
Bought a few Morgans last week for $17 each. I like carrying them in my pocket. Feels like I'm in a spaghetti western.
Hang em high partner ..........................................
Hang em high partner .......................................... Soon will be the Wild West ... only it will be Wild West,North,South and East.
An interesting data series would be to look at the half-life of price level changes in each market, following POMO.
Any bets the half-life is decreasing?
Guaranteed that the law of diminishing returns is in effect for these control freaks
It's a given. That's the idiocy of the entire move. Any supposed "benefit" of QE is only maximized when asset prices have collapsed. Doing it while prices are at a high level minimizes its effectiveness unless the size is so overwhelming as to deluge current asset prices; something on the order of $5T. To be bullish on stocks at this point is rather silly. Gold etc is another story; though I think the metals have gotten a bit ahead.
uh..... so POMO works then rite?
As I look at the markets the Dow is the only one green by 8.20 points.
So I would say that it is just delaying the downfall to another day.
This financial Shitstorm is going to be the largest entry in future History books.
Gold is hitting the "proverbial" (something is wrong with the world economy) bell with a "Pile Driver" and the MSM hates everything it stands for. ?
Get ready for a Shitstorm never seen before.
POMO works until one day it does not work. That day is coming folks. That is the day the FED loses its mystical powers and the market will finally start correct. I see it coming.
It leads to misallocation of capital which never works long-term.
Download this from Cotzias Shipping:
http://cotzias.gr/reports/COTZIAS_ECONOMIC_OUTLOOK_2010_09_SEP.pdf
Navigate to the following charts:
S&P500 vs Baltic Panamax
S&P500 vs Baltic Supramax
S&P500 vs Baltic Handymax
Reality is a bitch.
Just buy any stock. It will tripple in 2 years time.
Yep. After you sell the stocks, you will have enough paper to buy a doucherious burger. With flies.
here in Europe, they only sell fresh Burgers... :(
Buy em' and freeze em'. You won't be able to finance a happy meal in about a year.
So the "greatest of stock pickers" and "investors" since 2005, in reality are either insiders with inside information, or just dumb stupid following the POMO rut in the dirt? That's what you are telling me?
The more I learn about this so called "industry" or "profession" the more I feel like I need to take a shower. The whole damned thing is rigged, and for ANYONE, and i mean ANYONE to defend this caldron of crapola the "bastion of caspitalism" makes me wanna puke. You could call your commode the very same. This just sucks.
THis is the "free market" we have heard so much about? WHy bother paying for an SEC, or a UST, or even a FED Reserve. Screw it, let's just embrace larceny and theft by deception. Seems all the rage and if the Fed's can do it, I am sure that the cases of insider trading can be overturned. How can the prosecuting arm be guilty of the very same activities of those that are breaking the laws???
My faith in everything this country stands for is at an all time low. I thought the last place to find this would be in the "bastion of capitalism", and I was wrong.
on Fri, 09/03/2010 - 09:41
#562073
Fundamental analysis? Earnings? Technical analysis? Charts? We don't have a prayer when Ben has his finger on the button under the table.
You can take the ghosts of Graham, Dodd, Edwards, and McGee, as well as every CFA on the planet to manage a portfolio. I'll take one insider at 33 Liberty and my performance will wipe the men's room floor with your's.
Capitalism? What a quaint notion!
Well said.
Insider trading at The Fed...
http://www.theatlantic.com/business/archive/2010/10/is-it-wrong-to-capitalize-on-nonpublic-fed-information/64043/
If you work at the Fed, own a trading account, and have not personally sucked Bernanke's shlomo in a long and satisfying manner, I would be very worried about becoming a sacrificial lamb in a CNN perp walk. Act accordingly.
Just kidding! It shall never be punished for national security reasons. Just imagine Mary Shapiro and her team of .gov subsidized tranny-porn addicts trying to investigate the pillar of transparency that is The Fed. lol.
Here is some data.
http://2.bp.blogspot.com/_pCDyiFUv9XU/TKtPMGME-1I/AAAAAAAAL2A/03WbmXSNZE...
Thanks, that is interesting...
That's an interesting chart (thanks for posting) but I looked at size impact across the full series last night and could not find anything conclusive.
John Lohman
Don't lose heart, Everyman. The market is still big enough to crush these clowns, just as the market has crushed the NIKKEI.
As I posted earlier, download this from Cotzias shipping:
http://cotzias.gr/reports/COTZIAS_ECONOMIC_OUTLOOK_2010_09_SEP.pdf
...and navigate to:
S&P500 vs Panamax
S&P500 vs Supramax
Those charts will tell you everything you need to know.
What happened to only using proceeds from mbs to buy treasuries? 10 billion a week is 520 billion a year. They "only" have 1.3 trillion in mbs.
DELETE Captain Sunshine's social security number
ENTER
ERASE Captain Sunshine's credit lines
ENTER
DELETE dental records Captain Sunshine
ENTER
You see! The government does work!
This is good news, it means the Fed will go ahead with QE2. It's all good. Bad economic data means Fed QE2. Good economic data means the recovery is gaining steam. It's all rigged people, stop fighting the trend.
Got Gold Miner ?
VGGCF up 17% yesterday, up another 14% today.... $ 0.715
Update - up 21% now.
48k shares average volume...
Am I reading this right? Gold, commodities, and oil go DOWN on POMO days, while the USDX goes UP? What kind of crazy, mixed up world is this?
Just wait: when the rocket scientists see this histogram their conclusion will be that you just have to make every day a POMO day to get a 50% ramp on the S&P (pinky nail in mouth, white cat on lap).
Yeah, thats weird.
Which POMO days do you see gold down on your screen?
So what, who's going to stop them? Does Ben answer to anyone except the people who want to inflate away our problems?
I know this isn't new, but I find it utterly mind-boggling. How is it even POSSIBLE that our own central bank is "buying" our own debt with "money" created out of thin air? Whose brilliant idea was it to allow this to ever happen in the first place? In what universe does this even make sense on any level?
I'd like to chalk this up to stupidity, but I know the people doing it aren't stupid. So that leaves only one other possibility: malicious evil.
You aren't from around here..., are ya stranger?
Did you ever pay off a credit card with a credit card?
PONZIPALOOZA!!!
So if I understand this correctly, Americans will be paying taxes for as long as the eye can see to the government, so that the government can give almost $1 trillion to the Federal Reserve Board as interest or principal payments, even though they can print money like crazy. What a bunch of thieves!
You just can't get any closer to risk free. Buy any US index, ZERO risk to the downside. Maybe a small correction like Monday's every now and then.
Unless what they're denominated in becomes worthless itself.
Did you miss that, or were you just being sarcastic on your post?
time for ben to tell us again - theres no inflation - its contained;
dont mind that 2000 gold
backdrop today - jobs down, individual companies cutting, reducing is so out of contrast to soaring equities
Yes the Federal Reserve is controlling the stock market vis the FRBNY, who then supplies Goldman and the other dealers with free capital so they can juice the stock market. How else are we going to get confidence back. It's a fact that a rising stock market promotes confidence. So hop on board at the next dip, it's all rigged to the upside.
It's a fact that rising confidence correlates with a rising stock market. Causation is up for debate (are you more confident now that FED has shot the tape with a fresh dose?)
It wont be long until the Fed is again the biggest holder of USA gov debt.
Stop the charade!
Cut out the middle man.
Let the Fed actually print the money and send out all the government checks.
Doesn't the Social Security Admin hold a couple of trillion in Treasuries?
Not really. As I understand it, the SS "funds" are a special sort of intergovernmental IOU that is completely unmarketable (worthless) on the outside - they aren't actually US Treasuries and can't be sold on the open market.
according to them it is not a ponzi:
http://www.ssa.gov/history/ponzi.htm
also, there is no gov't guarantee (implicit or explicit) on Fan/Fred toxic junk:
"But there is no guarantee, there is no explicit guarantee, there is no implicit guarantee, there is no wink-and-nod guarantee. "
http://www.taxfoundation.org/blog/show/23617.html
also, they will not monetize the debt:
"We're not going to monetize the debt," Mr. Bernanke declared flatly, ...
http://www.washingtontimes.com/news/2010/feb/25/bernanke-delivers-warning-on-us-debt/
these social programs (hud, CRA, social security, etc etc) will unfortunately be our undoing and this combination of corporatism and socialism will end up leading to full blown Marxism.
After today's Pomo sale, the next schedule won't be released until Oct 13, which means none until then.
Dollah, the markets, and the media are on their own. Buckle up, it's going to get bumpy.
NO, these fucking crooks have already figured out what to do those days, and will cheat on the downside.
Brian,
You are being schooled.
Go back to your books where you can do less harm.
http://blogs.wsj.com/economics/2009/04/17/who-is-brian-sack/
spill in aisle 9 - CTXS
I'd like to echo the previous post requesting trend analysis on the S&P/gold on POMO days. I seem to recall that lately the S&P in terms of Gold is neutral to negative on those days.
Could we have a trend rolling over here?
time to stock up on tea and crumpets. my dollars might not last through the weekend.
down with bloody big Fed.
Nice work, Lohman. Also, look at this study by Trading the Odds. We can surmise that every stock rally since 2005 was POMO induced.
Below is a bit stale, but the manipulations are nonetheless pronounced.
And Turbo Timmy is crying about other countries "debasing their money"! Is this for real or is this what wuold be called surreal?
http://www.bloomberg.com/news/2010-10-06/geithner-sees-damaging-dynamic-...
Please view this................hwo can this guy not know about POMO?
http://www.cnbc.com/id/15840232?video=1608189117&play=1
Well, once the Fed is the largest holder of USTs that can solve a lot of problems. For example, the Fed could unilaterally reduce the coupon on its holdings. Or, it could simply refuse payment from the Treasury. In fact, the Fed could simply write off the USTs and reduce the government's debt in half (or whatever % it owns).
You guys on ZH never look at the silver lining!
You mean the Fed could commit suicide? Right.
I don't see those bankers as suicidal -- not yet anyway.
You, sir, are hilarious!
<or were you serious?>
Tell them Jim! Tell then Jim! Tell them Jim!
http://finance.yahoo.com/tech-ticker/markets-soaring-%22but-the-world-is...
Paging Brian Sack. Paging Brian Sack.
Your presence is requested at the following address:
http://finance.yahoo.com/tech-ticker/markets-soaring-%22but-the-world-is...
Is Jimmy Rogers a midget?
http://247wallst.com/2010/10/06/cost-of-financial-bail-out-almost-too-good-to-be-true/
Now who can contest that as a justification for QE2. QE helps the American taxpayer make money.
Yes the Federal Reserve is controlling the stock market vis the FRBNY, who then supplies Goldman and the other dealers with free capital so they can juice the stock market. How else are we going to get confidence back. It's a fact that a rising stock market promotes confidence. So hop on board at the next dip, it's all rigged to the upside.
You can either make some free money or stand around kicking the dirt and muttering under your breath.
FINE! They want to do this, THEN LET US ALL KNOW IT IS HAPPENING, and JUST WHO IS GETTING THE MONEY, and WHAT ARE THEY INVESTING IN.
That is the problem. DISCLOSURE and that little thing called "Transparency" (as opposed to transexual, that is where the SEC gets a bit confused).
Hell yes, I'll, play, but as long as the Fed Res is slushing out the dollars to people, at least clue me in on the trades to make and when. They don't even have to give me money I will use my own. Just let me know the games and the "rules" at this moment.
I think the FX markets are showing the true value of "free" money.
I get a warm fuzzy feeling in the knowledge that just about every day is POMO day! I feel so secure knowing that my mutual fund and 401K are in safe hands. Ooops. It's medication time...
Virtually every Treasury purchase by our foreign debt enablers financing our $14 trillion deficit is now in a winning position.
How lucky is that?
Only if they sell before maturity, WHICH THEY CANNOT DO; so they are stuck with ZIRP yields. If I could post a chart of the portfolio's return it would look more like a horizon line than your hockey stick. If adjusted for inflation it would probably even be a red horizon line, rather than green.
Of course you know all of this, Robo. It's misleading posts like this one that causes others to dismiss your good stuff.
Would this be part of the 2008 campaign promise to return the wealth of the United States to its rightful owners? Redeamable or not?
And who is driving that little red line on the bottom of the chart? :D
can someone explain the data for treasuries presented.
if basis points goes up, doesn't that mean yeild goes up as well? or do I have it backwards
I have but one word for ya:
ENDTHEFED
"Afternoon,Printing Shop" - "The lads can,t work any more hours,were already at full pelt" -"what printing is taking to much time,use a colour photocopier instead" - Just another everyday story from those nice Fed Folk - Doing their best on your behalf everyday in Oblivionville"
If some institution of a country buys country's debt with printed money, doesn't it mean that both are f***ed? Isn't it just a feed-back loop?
Does it mean that the price of that papers is artificially leveraged by this purchases?
U.S. Bonds May Turn `Worthless,' Marc Faber Says In Handelsblatt Interview, 5 October 2010, by Tony Czuczka (Bloomberg) http://www.bloomberg.com/news/2010-10-05/u-s-bonds-may-turn-worthless-marc-faber-says-in-handelsblatt-interview.html
Marc Faber Interview in Handelsblatt (google trans from German) http://tinyurl.com/3yl4hv4
Do you ever get that funny feeling that an evil race of tyrannical devils runs this market -and most of anything else for that matter- since times immemorial?
Here's an excursus on Wall St. Belphegor Larry Summers, by the author of the upcoming documentary "Inside Job", Charles Ferguson.
October 3, 2010
Larry Summers and the Subversion of Economicshttp://chronicle.com/article/Larry-Summersthe/124790/
You need to go back to the Clinton years where the foundation for the destruction of America was laid which MSM will never do. The Community Reinvestment Act, the Repeal of Glass Steagal, NAFTA, GATT, WTO and so on. All Clinton. Sommers was there working for Rubin who was from Goldman and on Citi Bank's payroll while Sec of Treasury (he got $100M signing bonus when he left Treasury to go to Citi) and the granfalloon Greenspan as well as Soros. Never forget the Soros machine.
Bush II caused a delay in game or actually made things better for them, depending on your sun glasses. Then they got their wet dream, a college professor, Marxist who they could lead around like a bull with a ring in his nose, guided by the Soros funded organizations, they came back to the scene of the crime to finish the job.
It's history and well documented.
FINALLY someone says it. THANK YOU.
It's about time for the lunch rally, folks at lunch will get a glimpse at the market and feel confident.
Chart: ES and ZB
Hey, Big Boy, is that a bazooka in your pocket?
http://99ercharts.blogspot.com/2010/10/es-and-zb_06.html
If Fed runs gold to $3000 and remarks the portfolio it would fuilly offset the hit from a selective treasury defualt on owned debt. @ $7000/oz you have covered the MBS portfolio. Obviously leads to a freegold scenario as does zero to address the ongoing bleeeding (deficits/printing required) to fund the real economy. Gold afterall is the only asset on the balance sheet that can be revalued
Shadow Gold Price (SGP) ... that borrows from the Bretton Woods formula for valuing money in a gold-exchange regime (i.e. the fixed value of a currency equals its outstanding monetary base divided by official gold holdings). Under this formula the exchange rate of the US dollar to an ounce of gold would be about $8,250 presently, a figure that reflects the amount of monetary base inflation already engineered by the Fed. (The US monetary base approximated $2.15 trillion in September and reported official US gold holdings have remained relatively constant at about 8,133.5 metric tons or about 261.5 million ounces.) We approached the SGP from another angle last month and came away with a policy action we believe the markets will begin to discount. The Fed’s September 24 balance sheet reported the value of its “Gold Certificate Account” to be worth $11.037 billion, a figure that implies the Fed has claims on the US Treasury’s entire stock of gold and that it is carrying those claims on its balance sheet at Treasury’s official gold price — $42.22/oz ($11.037 billion divided by 261.5 million ounces).
http://zmarter.com/finances-opinions/who-is-john-galt.html
The financial news heads will say " markets are at there highs for the day" the lunch crowd will feel confident and order that juicy steak.
Yup.
And I sincerely wish there was a financial mass media that would declare how:
"today's gold price indicates that U.S. dollars are worth increasingly less and less when weighted in gold, and therefore you can buy much less gold with U.S. dollars than you could buy just one year ago" (instead of opposite perspective, where they report "gold is worth $300 more than it was a year ago").
Think it would be easier for Joe Sixpack to grasp that gold isn't becoming more scarce--it's his dollars in his pocket that are turning to shit.
I understand that the fed is pumping money into the market with POMO in theory but am having trouble grasping the specifics of bond purchases ect does anyone have a chart showing the process that they could share? Sorry if its been posted before and thanks in advance.
They WANT it to be complicated so that most people can't comprehent it! So sophisticated, you know. "Let them eat cake", and all that! That way, you have to be an economic elitist to understand how swiftly they're leading us into the abyss!
I would also love to see such a flow chart! More sophistication!
When do we begin calling it, "monetizing the debt"?