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Fed Begins Tightening Process: Discount Rate Raised To 0.75% From 0.5%, Futures Plunge, Dollar Surges, Curve Pancakes
Will the Steepener/Carry Trade/Long Stock bandwagon please proceed calmly in single file through the exit of the burning theater. Fed hikes discount rate by 25 bps - Hoenig, Plosser are finally heard. Futures plunge, dollar surges, 2s10s pancake.
For release at 4:30 p.m. EDT
The Federal Reserve Board on Thursday announced that in light of
continued improvement in financial market conditions it had unanimously
approved several modifications to the terms of its discount window
lending programs.
Like the closure of a number of extraordinary credit
programs earlier this month, these changes are intended as a further
normalization of the Federal Reserve's lending facilities. The
modifications are not expected to lead to tighter financial conditions
for households and businesses and do not signal any change in the
outlook for the economy or for monetary policy, which remains about as
it was at the January meeting of the Federal Open Market Committee
(FOMC). At that meeting, the Committee left its target range for the
federal funds rate at 0 to 1/4 percent and said it anticipates that
economic conditions are likely to warrant exceptionally low levels of
the federal funds rate for an extended period.
The changes to the discount window facilities
include Board approval of requests by the boards of directors of the 12
Federal Reserve Banks to increase the primary credit rate (generally
referred to as the discount rate) from 1/2 percent to 3/4 percent. This
action is effective on February 19.
In addition, the Board announced that, effective on
March 18, the typical maximum maturity for primary credit loans will be
shortened to overnight. Primary credit is provided by Reserve Banks on
a fully secured basis to depository institutions that are in generally
sound condition as a backup source of funds. Finally, the Board
announced that it had raised the minimum bid rate for the Term Auction
Facility (TAF) by 1/4 percentage point to 1/2 percent. The final TAF
auction will be on March 8, 2010.
Easing the terms of primary credit was one of the
Federal Reserve's first responses to the financial crisis. On August
17, 2007, the Federal Reserve reduced the spread of the primary credit
rate over the FOMC's target for the federal funds rate to 1/2
percentage point, from 1 percentage point, and lengthened the typical
maximum maturity from overnight to 30 days. On December 12, 2007, the
Federal Reserve created the TAF to further improve the access of
depository institutions to term funding. On March 16, 2008, the Federal
Reserve lowered the spread of the primary credit rate over the target
federal funds rate to 1/4 percentage point and extended the maximum
maturity of primary credit loans to 90 days.
Subsequently, in response to improving conditions
in wholesale funding markets, on June 25, 2009, the Federal Reserve
initiated a gradual reduction in TAF auction sizes. As announced on
November 17, 2009, and implemented on January 14, 2010, the Federal
Reserve began the process of normalizing the terms on primary credit by
reducing the typical maximum maturity to 28 days.
The increase in the discount rate announced
Thursday widens the spread between the primary credit rate and the top
of the FOMC's 0 to 1/4 percent target range for the federal funds rate
to 1/2 percentage point. The increase in the spread and reduction in
maximum maturity will encourage depository institutions to rely on
private funding markets for short-term credit and
to use the Federal Reserve's primary credit facility only as a backup
source of funds. The Federal Reserve will assess over time whether
further increases in the spread are appropriate in view of experience
with the 1/2 percentage point spread.
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This ought to be a great thread.
I guess the vampire squid finished selling equity calls this afternoon.
every last one of them, between spx 1106-1107....thought that quick rocket up just after 2 p.m. EST was kinda funny. there's always a reason.
The wisdom of the central planners is not be questioned.
I do wonder if those who make their living from stealing realize that they should stop after they've stolen everything. A bit of wisdom would suggest stopping before stealing everything because it is a bad thing when the rest of the country decides it has nothing left to lose.
(For those who lost their way and belong back on cnbc, the first sentence is sarcasm.)
+1
+191.3
Things did feel odd. Internals looked okay, but nothing to blow you away. Lots of indecision and coiling up in the afternoon. Knew there would be a break one way or another. Happened to sell my contracts at 1106.50. Nice to be right once or twice.
Hey DH / Yes, we're around and trading fiercely (and well). You stay alert, these are good markets for us old timers (you understand what I'm talking about). Stay FOCUSED our good friend. Tyler posted an article yesterday referencing JP Morgan setting aside $3-Billion for "quant" problems (this is a quiet "tell" for those paying attention). This gets messy. Be well...
thanks AR!
TD, Denninger has a graph showing 2MM SPY trading seconds before the announcement. It was a very noticeable spike. Have to wonder which computers algo wasn't in synch with the server, or who was pushing the package a little too hard.
S&P will hit 1300 tomorrow
Nope. They got 126B in treasuries to sell next week and came damn close to a failed auction on that last 30yr. Scare the money to the sides tomorrow so everything goes smooth.
This reality tv show has gone into repeats.
>They got 126B in treasuries to sell next week<
I think a different verb is required when a Treserve computer in NYC "sells" a bond to a Treserve computer in London.
Maybe "debase".
"consummate" seems appropriate.
Is that a polite way of saying "f*ck*d"?
I am sure the CNBC fokes would say this is to "slow the effective stimulus" but really it means nobody wants our dam debt- see the past two auctions... or maybe China wants a higher rate...the Treserve/ monitization agent maybe needs some help buying..
the Vix is low... or wait was low...will see here in bit
It went up almost 100 points today with unemployment claims increasing, annual energy inflation hitting 25% and a crazy homegrown terrorist flying a plane into a government building. A 1/4% rate increase is nada.
God Bless you Joseph stack for having the balls to fight for your freedom. The myth that Americans will not fight to preserve their rights and freedom will soon be ripped aprt one patriot at a time.
But if the Fed is going to start hiking rates, why would I buy bonds now?
Because massive debt burdens + higher rates = double dip
and one of these days buyers will stop proving that the Fed is right in their conviction that they really as as stupid as the Fed thinks they are.
Obama meets the Dali Lama, China makes good on their warnings (after setting up the disposal of all corporates & non-feds). So, US Fed has to wreck stocks to fund treasuries. Tyler predicted this Christmas Day with his post "Brace for Impact"...go back and read, then re-read again. No federal bailout, part 2, Scott Brown & Evan Bayh stopped that.
yes, and last weeks auctions have nothing to do with this right??? China wants a higher rate and given that the Treserve is having an issue monetizing our debt without our overseas helper...
CNBC says it is good bc things are fixed- sure-
the vix is cheap....
This is going to be a fun month.
Pump up the jam!
Great song, though Buffalo Stance by Neneh Cherry during that same time period is better imho.
And you'll find out if you do that...
http://www.youtube.com/watch?v=1K7fL5s_1ac
Imagine Helicopter-Ben and Timmay! dancing that groove! I just KNOW Lloyd Blankfein would be somewhere in that picutre too.. eightlegged dancegroves squid-stryle!
Nice one!
Ok, my take...
www.youtube.com/watch?v=JWsRz3TJDEY
Heli Ben with the gold $ sign (Neneh) with Godmaster L.B.Fein on the wheels of steel.
L.B. Fein then enters CONgress wearing his M2M Brioni suit while the beat contnues...
Who's that gigolo on the street
With his hands in his in YOUR pockets and crocodile shoes on his feet
Who's looking good today?
Who's looking good in every way?
No style CONgress rookie
You better watch don't mess with me...
Yo' man what do you expect?
The guy's a gigolo man!
You know I mean...
---------------------------
Well, either that or just go right to pure evil with Carl Orff – O Fortuna
www.youtube.com/watch?v=7HMQOX3h7ZI
Salt 'n Peppa's "Push it" seems like a better choice. But you need to change the refrain a little to something like,
"Ah, this is b*lls**t!, B*lls**t real good!"
Dr. Hoenig's dissent sounds like it was prescient...
Is this a joke?
It is a joke, but not in the way you mean...
I thought it might be another piece from the onion. As clear a case of market manipulation as we may ever witness.
Naah, if they wanted to manipulate markets and trash a lot of longs, they would have done this in the dark, right before options expiry.
Oh, wait...
Oh, so that is what happened to gold...
I was thinking Oil and others as well. Maybe even cotton.
Cotton. Yeah. Everyone is going to need new shorts now.
Long fruit-o-the-loom, baby.
+1000
I was getting depressed by the lousy news everywhere until I hit your comment about everyone needing new shorts. Hmm, better go change mine in case "something else" comes in tonight. Ugh.
duh
All it took was one small plane impacting an IRS building.
Exactly, now everyone will be paying attention to financial news and forget about the "Stack Manifesto."
In future they will refer to any suspicious Fed activity after-hours as "stacking" or "a stack event".
Nobody will remember where the term came from. Wikipedia will have an entry, but it will be totally wrong.
cougar
Sadly, one person is missing, presumed dead...2 injured.
The Suicide note was Classic though...........
Loosely paraphrased, Ok, you Bstd's,you took everthing except a pound of flesh, and I am going to give that to you and more.
At least he was lucid..and pissed.
The plane crashing into the building totally fries me. What a complete waste of a person willing to kill himself. In case there are any upcoming suiciders out there, at least put me on your life insurance policy!!!!
Yes Sir. You almost don't want to think about it.
The rationale for this totally FUBAR!!
IMF annoucement + Discount Window annoucnement...Is that China on the line, please hold..
Info campaign full stop
The day before Opex?
unbefuckinglivible
unbefuckinglivible.
Actually, not really.
Yep, really SOP (standard operating procedure). Like August 2007 in reverse.
I will never EVER forget futures action that morning - totally got murdered. Japan was down big and it was foregone conclusion we would drop then BAM. 200 points on the dow futures in 15 minutes - insanity.
Nice how they got the IMF talk in there too about selling in the same 24 hours... isn't it? If I wasnt already in the camp that believes in coordinated smack downs of gold ala GATA claims, this would surely make me more inclined to believe it.
On the other hand, with China's recent moves in getting rid of treasuries it looks like the fed just blinked. Bet you wont hear anything about China's currency for a while either now. Looks like they got their point across.
as i think i recall...didn't greenspan pull one of these the other way, i.e. dropped the rate (fed funds i think) just before opex? ouch for those holding puts then
Probably 9 years ago, mid morning, Feb or March, surprise cut at a very key level. Lot of shorts got fucked by 10 point moves in almost every financial, not to mention the tech stocks were still on roids.
I think Greeny liked the surprise cuts, kept everyone guessing as to how wise he was. Man ......
DH / Greenspan cut rates a full point on the Thursday before expiration in October 1998 at 3:11PM/EST right after the bond pit closed. S&P's gapped up 75 handles, Dow futures jumped approx. 500 points, bonds went limit down on the open on expiration Friday. Memories...it's good to be an old-timer.
CARNAGE in after hours.
i just want to see the big gap at 901 spx filled......like, soon!
whatever you do, don't close your shorts or sell your puts too early. this is going to be a fun two weeks for the bears.
We are never deceived; we but deceive ourselves.]
Johann Wolfgang von Goethe
jesse
My favorite quote of von Goethe's . . .
"None are so hopelessly enslaved as those who falsely believe they are free."
kudos to you John for so many correct calls...hope you enjoy
Any how much can the FED raise interests rates, really, when the Treasury is issuing billions in new debt each month, and billions more of short term debt matures and has to be rolled over. C'mon. They can tweek the rates but any meaningful rise in rates will mean an unservicable amount of interest, unless we go to quantitative easing part 2 (which we will have to, it's just math).
I think they have to. Almost had a busted auction last week. They need the foreign demand to come back. Bad luck for equities and commodities.....
It's "bad luck" for equities and commodities before big funding weeks. When the Fed needs to issue, they can cause a panic back into bonds, drive up prices and drive down rates. Crisis averted. Lather, rinse, repeat.
There were 50,000 March SPX puts bought yesterday in uniform manner at strikes of 600 thru 650. 5 purchases in increments of 10,000 contracts. I'm just saying...
That was me! What, are you logging my key strokes or something?
I can claim a few at 65
Man... that's just freaking AWESOME.
And not in a good way.
-
The day before OpEx? Seriously. Maybe the PPT was short 1110 SPX calls for tomorrow...
or the direct bidder banks were on the wrong end of too many trades that would end up in the black for investors. Just another way to help recapitalize the banksters...
Theres 126B in treasuries to sell next week. This shouldnt be a surprise. Scare all the money to the sidelines tomorrow to prep for 'unexpectadly good' bond sales.
Of course, I hope you know the Treserve will need to repeat this feat numerous times before they refinance all that is needed.
I'm surprised this has happened so soon, but it fits in with the Fed pulling back their special loan facilities.
Day before OP EX. Not a joke, but a fuckin nightmare to the bulls!
They need a collpase in equities. No one is left to buy the Treasuries, and now they know it!
not just Treasuries, MBS too.
In today's financial "architecture" full of circular references, I wouldn't be surprised if the hidden buyer of Treasuries via the UK, HK and the Caribbean was the US Gvt... on margin!
Bada Bing!
This is all about the generation of a pretext for QE 2.0
See the headfake and load up on gold.
Bingo. True Goldbugs absolutely love our little central bankers and live for dollar rallies.
Who wouldn't love some more time to accumulate gold under $1000?
I'm gonna grab me some sub $700.
Word
then youll be waiting a lonnnng time. Other central banks (ie China) are buyers and a floor in the price way above 700.
Gold is a bargain now. Gold will be a bargain at $1500. Gold would be a bargain at $800, but I don't think we'll ever see that again.
Think long term. Buy now. Buy later. Buy after that. Never sell, just give it away real quiet when you get old.
fofoa.blogspot.com offers an apparently unique and sophisticated take on gold as the ultimate wealth preserver.
what ! silver
The market will open lower in the morning and will soar tomorrow afternoon. This is one of those rare moments when you can make a killing on a quick trade. Short everything related to mining, materials and metals in the morning and buy them back cheap in the afternoon. Tech stocks, industrials, and probably banking stocks will go up in the afternoon.
This should be interesting.
Yeah.
Look, a unicorn!
Well, so much for the unending wall of liquidity which was supposed to make all assets except the U.S. dollar guaranteed winners.
Well, it looks like I will be buying more gold tomorrow. I love it when the inmates run the asylum.
This is worse than a grade B movie. Financial conditions improving. No, you can't make this stuff up. Fed begins tightening process. Right, next step in 2099, spring, I think.
Fed needs maximum chaos. Yes, we'll tighten and increase rates on a death-bed housing industry just as we've finished buying up gloploads of MBS to back effectively the currency.
Oh, and all those short positions by our crony banks won't be hurt when AU takes another nosedive.
Accelerator is crushed through the floor and we will now start working the brake into this hairpin turn.
Excellent
"They're coming to take me away, haha!"
ponzi artistry at work. soooo beautiful.
Currently awaiting CNBC spin:
"This is bullish for the markets, the Fed is getting comfortable with our economic recovery!"
Maybe ZH should change its tagline:
Higher Rates, the new green shoots.
No need to wait, heard that 5 min after the announcement.
Yes, that's how it will be spun. I don't expect these assholes at the Fed to have learned anything about "low interest rates for an extended period" from the last two collapses! Don't tell me they are taking note of their prior fuck-ups.
Bernanke probably had a hernia before announcing this.
Even though 0.25 is not a lot, it is more of a psychological rape for the momo's that have chased this pig at least 50% above its fundamental value. Bring it down.
Conveniently, CNBC on vacation for the
Olympics so 0 bragging on his accomplish
-ments.
Next stop 2% T Bills, 23% real
unemployment and anti-aircraft batteries
at every IRS Echelon office...
http://www.jubileeprosperity.com/
roflmao, ben's a wee bit scared of contagion if you ask me
europe is very shakey, very, he has no bullits for the bull side, just marking his terrortory
he says inflation is not immenent, although the numbers today said different
this economy can't take copper and oil moon shots without dissintegrating
This whole thing has crossed many times and then some the unbelievable level. What the F#*$ they want?
Equities up or down??????????
First they push all short sellers out and then this... Oh, maybe all of the members of the gang new about this and were getting the uninformed shorters out while simultaneously buying some nice puts? If so, is this to be a 2-hour, 2-day or 2-week long "deal" ???
This whole thing has crossed many times and then some the unbelievable level. What the F#*$ they want?
Equities up or down??????????
What do they want? They want you to put it in treasuries as they need tons of capital that foreigners aint gonna provide. So if they can make it so volatile that shorts and longs get toasted (except for the big prop trading desks anyways) people take assets out of specualtive stock investmetns and go to "safe" items such as treasuries - or so they hope.
Thank you for explaining at the lowest common denominator. I'm new to this and trying to grasp its effect on me.
+1
Perhaps the only safe investment is in improving ourselves.
+10
I hope all the futures jammers from earlier today are taking it in the @$$ right now. Lube not provided by the FED
say bye bye to gold
which do you mean, long or short term? check the fed funds rate from 2004-2007 and then check gold. raising the rate a 1/4 pt might not mean much yet unless you're a day trader.
only short term.
on the long term. we have the one and only SECULAR BULL TREND :)
yep
You mean by 2038?...
http://econocasts.com/
Don't worry about gold, it performs very well in a rising rate environment, historically.
Stocks and real estate will hit crush depth much faster. Don't expect this dog and pony show to go on long.
Nice big pile of MBS sitting at the Fed. So does the Fed plan to foreclose on all those houses or create enough inflation that the "renters" keep paying the mortgage?
Short answer? According to a friend (always!) who works for Fannie - YES
You need to read Lawrence Summers paper as a young PhD wherein he solved Gibson's Paradox re: gold. Basically, when the real rates rise gold does too. Which is where we are. A 1/4 point move by the Fed aint changing anything other than a little noise for a small while. And yes, please raise rates further another point or two. Lets see what happens to the economy then. Considering the majority of the last quarter was inventory replenishment and not going to happen again next qtr lets see them keep raising rates going forward. Lets me buy more cheaper. Wait till the next ten years are done. I believe gold will do extrememly well over that period. Small moves like today are more noise to the long term cycle than anything else.
You're quoting Larry Summers? HaHaHaHaaaHaHaHaaaaaHaaHaHaa!
doubtful. china is buying the dips with their unloaded treasury paper.
gold maybe to 1080 next week then up to new high
in april a sell off from a high ,,
the gold goodbuyers have now been wrong for 9 years
The final Pillar in the gold bull market is a bear market in US Treasuries.
The increase in the discount rate to 0.75% is driven by market realities and a desire to be able to sell US Treasuries as foreign demand falls off.
The bull market in gold moved from $400 to $887.50 in the 1970s as interest rates rose from 3% to 14 7.8% on Ten Year money.
Once again the knee jerk reaction is to sell gold and buy the dollar. Be assured this must happen.
Because the final Pillar is falling while Gold is over $1000, you can look at Armstrong’s $5000 prediction as a realistic possibility.
Stay the course.
Respectfully,
Jim sinclair
Breaking out the champaign tonight.
I'll toast to that.
>champaign
Are you in Urbana, or did you already tap the champagne?
Oh God you're a dickhead.
but perceptive (and witty).
our squid friends have been pricing this in all day yesterday
someone sold a lot calls at SPX 1100 and it got out of hand. That's how to get a settlement without paying a penny for making a lousy trade.
Scam to the fullest!
how the ....
can they do that 1 day before opex.
incredible.
Same way they print money:
UPDATE [Rates] WITH(ROWLOCK)
SET [DiscountRate] = 0.75
this is to much. i got a feeling today that something was wrong. with PA.
didn't have guts to enter long or short on the dollar.
the PA was really strange.
And I always expect something to happen before OPEX.
but this is to much.
China is supose to defend the 1,35 on EUR/USD.
Oh and China is closed. This is amazing.
The market failed to take the hint from the IMF announcement. Lots of options writers sweating out the Donchian buy signals.
TD -
I was right in the middle of a swig of scotch while I was reading the opening sentence.... I laughed so hard scotch came out my nose.
I just closed my day and was about to see a movie.
I came back my charts all went crazy.
Coulnd't believe my eyes
An Apollo 13 moment?
That has got to hurt!
And communism was supposed to be bad.
When do you thing air traffic is going to be forbiden above DC?
Have you seen D.C.? It's almost as bad as East St. Louis
So now we look at today's activity to see who knew about this before hand?
Er um, uh, can I have just a GuesssssS?
a couple of paragraphs from this editorial on the Fed.
http://financialsense.com/fsu/editorials/2010/0212.html
"The financial press has been fixated on interest rates influenced and/or set by the Fed, particularly when the Fed might begin increasing its target rate for federal funds (currently managed between 0% and 0.25%) as well as the discount rate (currently 0.50%). But focusing on these interest rates is not keeping the proverbial eye on the ball. Monetary policy targeting the federal funds rate (and discount rate) is impotent now (as discussed in the July '09 article). Massive bank reserve expansion by the Fed made sure of that. Banks are presently flush with reserves."
"But by speaking out about how the Fed is going to get tough with interest rates, Bernanke can fool most into thinking that the Fed is really tackling the tough problems and is executing a real exit strategy. But he is not. He is buying time ... allowing the Fed to determine the best option spread out over the longest time period possible. SUCH FED ACTIONS, WILL, HOWEVER, HAVE A PSYCHOLOGICAL IMPACT ON INVESTORS ACCUSTOMED TO MONETARY POLICY BEFORE SEPTEMBER OF 2008, BELIEVING THAT SUCH POLICY IS AS IMPACTFUL NOW AS IT WAS THEN.
At some point this year, the Fed will likely increase the interest rate it pays on reserves. The Fed may even move to increase the discount rate sooner (pinch me). In conjunction with the rate increase on reserves, the Fed will increase the target rate for federal funds to match. But this move to match will be meaningless for the reasons described above."
It will be interesting to see how they push the overnight futures... PPT at work to prop or not... normally they should have left itill after expiry?
But on the other hand, maybe this is the way to give the nod to the banksters before expiry and in more legal way
I believe they will prop. This actually might be a good buying opportunity for the /ES
oh hell yeah.... Wow can't imagine that Heli Ben got his days mixed up. He was exactly 24 hours early. Unless of course he was just sending a gentle howitzer shot across the bow of carry trade types globally. But I really cannot imagine that he seriously wants a strong dollar, so I think that he is merely saving face and appear to still have some sort of control by taking credit for a raise that the markets around the world were about to impose anyway
CNBC is currently prefacing the announcement by calling the discount rate "largely symbolic".
I'm not sure exactly what it symbolizes for the banks except major roll risk if indeed they are expected to raise money "privately". This smacks of Big O finally figuring out how to crack some skulls. The timing of this announcement is highly suspect. The idea that this was telegraphed is comical to me. In the last week I've probably spent 30 hours combing blogs and mm outlets from here to Asia and not a single one mentioned even the possiblity of a rate hike after the close, on a random Thursday, between FOMC meetings.
Oh, you and your need for "evidence" of an unsubstantiated assertion!
drain the liquidity
and use drain-o to unclog
And so much for exporting ourselves out of this mess.......
And see just look at those futures... now held steady and no doubt got big buy orders ready to bulldoze the market back up if they really have to, but why bother, they have staked the ground and dare any shorts try to cross... they will be skinned alive and murdered
Did they not try that at 1080 like three times?
The Squid Can do whatever it wants !!
All the fuckin morons buying equities at these multiples, chasing the momentum, are going to get what's coming to them. We are at least 50% overvalued. This is going to be ugly.
Mo' money headed for Treasuries. The last auction might have been a little close for comfort.
Sheep are for shearing.
Pigs get fattened
Hogs get slaughtered
"Amarillo Slim, the greatist proposition gambler of all time held to his fathers maxim; You can shear a sheep many times, but you can skin him only once."
Rounders.
Translation: American wealth=slow bleed. "Make the American people think they aren't loosing that much." Heard today in the squid's board room.
This is going to interesting. Just do "opposite George" and the war will be won vs. the cybers.