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ES Punches Through Resistance as First Treasury POMO in Ten Months Closes

EB's picture




 

Just in case there was any doubt...

The helicopter is back.

 

Coming full circle to scoop up last year's 5's the FRBNY couldn't get to on a dwindling $300 billion budget.  Isn't that about the time the direct bidder showed up with size?

 

Daily market timing and analysis here.

 

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Tue, 08/17/2010 - 16:21 | 526859 hunglikehorse
hunglikehorse's picture

I don't understand the logic behind the POMO event that you describe. In a QE program such as this the fed will buy treasuries and other short term gov't debt directly from the banks and credit them with RESERVES not cash. Reserves, which are essentially a special type of bank-traded short term debt, are then used to promote inter-bank lending. Henve these operations are meant to stimulate lending by making the inter-bank market more liquid. They do NOT credit the banks with cash to use however they see fit, ie buy stocks.

Thu, 08/19/2010 - 13:57 | 530881 EB
EB's picture

First, the Fed buys coupons--primarily 2-10 yrs--not short term debt.  Reserves are sterile when they're kept at the Fed (i.e., not avail to loan against).  Reserves can, however, be taken from the Fed during the business day and used for whenever and for whatever purpose (including buying stocks or lending) that the banks want.  In the Fed Funds market, reserves can be lent to other banks.  However, there's no need to promote interbank lending as Fannie and Freddie are the biggest lenders of Fed Funds (as they cannot earn interest on their deposits with the Fed) and the market is very liquid, as evidenced by the FF rate relative to IOER.

Now, an astute question would be: why is the POMO-stock effect immediate or same day, when the transactions settle T+1?  My guess it has to do with the PD risk models that give instant credit for a Fed-guaranteed transaction.  If you doubt the effect, see pages 2 and 3 of this.  

Tue, 08/17/2010 - 13:42 | 526399 Reductio ad Absurdum
Reductio ad Absurdum's picture

Helicopters do take off vertically, don't they.

Tue, 08/17/2010 - 14:38 | 526551 Trichy
Trichy's picture

yeah, the same way they go down!

Tue, 08/17/2010 - 14:53 | 526608 EB
EB's picture

Expect an autorotation by opex.

Tue, 08/17/2010 - 13:27 | 526361 Bill Lumbergh
Bill Lumbergh's picture

I think after IWM fills the gap at around $64 the bullish momentum should begin to wane.

Tue, 08/17/2010 - 15:51 | 526779 EB
EB's picture

Tue, 08/17/2010 - 13:08 | 526321 DavidC
DavidC's picture

I've had a senior moment - can someone remind of what POMO (...Open Market...?) is the abbreviation for?!

Thanks!

DavidC

Tue, 08/17/2010 - 13:21 | 526347 Widowmaker
Widowmaker's picture

Permanent Open Market Operations

Tue, 08/17/2010 - 15:12 | 526669 DavidC
DavidC's picture

Thanks Widowmaker, just seen Tyler's other post about it as well.

DavidC

Tue, 08/17/2010 - 13:04 | 526303 newstreet
newstreet's picture

ES is breaking out , huh?

I'll sell you a few right here.

Tue, 08/17/2010 - 13:25 | 526350 EB
EB's picture

Thanks!  That was you at 94.25?

 

...Of course a few had to get dumped at 97.00

Tue, 08/17/2010 - 12:57 | 526287 Bankster T Cubed
Bankster T Cubed's picture

damn these criminals

Tue, 08/17/2010 - 12:50 | 526269 Bankster T Cubed
Bankster T Cubed's picture

the longer they interfere with natural price discovery,

the more the cancer spreads

the Fed is killing the US, killing humanity

Tue, 08/17/2010 - 12:18 | 526181 99er
99er's picture

Chart: ES

Broke through resistance but appears to be simply forming a new upper line of a down channel. Quick...get Ben more ammo.

http://www.screencast.com/t/MzFkMjg3MG

 

Tue, 08/17/2010 - 12:18 | 526180 wiskeyrunner
wiskeyrunner's picture

Sure it's rigged, has been for the last 30 years. Goldman and JP Morgan have been buying since last Thursday. They get in ahead the FRBNY jams the market up for them. They seel to the suckers who don't have the inside info. It's such a fraud.

Tue, 08/17/2010 - 13:28 | 526364 Widowmaker
Widowmaker's picture

Funny joke, and as anyone whom has ever stuffed their pockets full of other people's money knows it is much, much more rigged than you think.

The only way the entire financial racket even functions is fraud.   Sadly, that's all it has ever functioned on.

Hard to lose when it isn't personal, until it is.

Tue, 08/17/2010 - 12:16 | 526170 DavidC
DavidC's picture

Why do I get the feeling something bad is going to happen very soon?

DavidC

Tue, 08/17/2010 - 11:59 | 526115 william the bastard
william the bastard's picture

Meanwhile Fan/Fred sit with the steaming hulk of worthless claims on 90 percent of American residential real estate. Twenty to one bitchez!!!

Tue, 08/17/2010 - 12:16 | 526150 Problem Is
Problem Is's picture

LOL william...
Why just sit on a steaming hulk... why not accumulate more until the entire douche bag explodes?

BTW: Nice post EB...That is an excellent link to Fitts' logical analysis.

I am comforted to know everything is:

Same as it ever was
Same as it ever was

Tue, 08/17/2010 - 12:11 | 526149 EB
EB's picture

Assuming the claims to collateral ratio is even one to one, which it may not be.

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