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Fed Frontrunning Update: The 5-7 Year Space Gives Best Returns As The Fed Prepares To Run Out Of Treasurys To Buy

Tyler Durden's picture

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Mon, 10/11/2010 - 12:58 | 641065 vote_libertaria...
vote_libertarian_party's picture

So I guess the Fed is going to create some fake Treasuries so they can buy them with fake money???

Mon, 10/11/2010 - 13:02 | 641075 Tyler Durden
Tyler Durden's picture

Actually, you are not too far off... What it means is that the government will need to increase its budget deficit, so that auction frequency goes up (as it is all funded by debt anyway). This is the Fed's reverse inquiry into greater government spending.

Mon, 10/11/2010 - 13:10 | 641088 Yikes
Yikes's picture

Sickening. With the change in control of the house and the Tea Party furor, I just can't see the Congress actually increasing the budget deficit. Naive? Perhaps. 

Mon, 10/11/2010 - 15:28 | 641415 Slash
Slash's picture

exactly tyler, the name of the game is making sure we keep getting credit/debt growth right?. New debt will be issued to deal with the states/pensions/everywhere else. this new debt will be montetized so we can get some new money in the system to pay interest on all the old debt. The ponzi needs constant linear debt growth to keep the game going.

am i close?

Mon, 10/11/2010 - 13:12 | 641092 101 years and c...
101 years and counting's picture

My first thought on how the US could possibly spend even more money:  TARP2 or $1 trillion in additional stimulus.

Just Print, BABY!!!


Mon, 10/11/2010 - 13:30 | 641126 FEDbuster
FEDbuster's picture

So Benron's helicopter is going to hover over the Capital building for the foreseeable future? Trillions from heaven.  To paraphrase Rep. Pete Stark, "the more the FED can print, the wealthier we are."

WB7 there has to be a picture in that idea.


Mon, 10/11/2010 - 15:26 | 641401 TBT or not TBT
TBT or not TBT's picture

Newbie question perhaps, but I thought the Treasury had a lot more debt to roll than just the absolutely new debt caused by deficit spending. 

Also, the outstanding treasury debt is marketable, so what stops the Fed buying that up?   There's plenty out there.

Mon, 10/11/2010 - 15:52 | 641484 macholatte
macholatte's picture

and consider the snow ball effect....

At some point, which might already be behind us, this is going to gather a momentum and compress time. What used to take years or months will happen faster and faster and faster..... that would be where you get the hyper in hyperinflation.

Is this a "conspiracy theory" or reality?

Mon, 10/11/2010 - 18:31 | 641933 Charles Mackay
Charles Mackay's picture

Nothing is stopping the Treasury from issuing 'supplmental bills' over and above the amount needed to finance the government.

Keep in mind that about $200 billion in these supplementals were issued about a year ago, and have since not been retired.  The objective back then was to prevent T-bill rates from going below zero.

I suppose it's possible to extend the supplemental concept out the yield curve.  The problem with supplementals is that if the Fed doesn't buy them, they soak up money out of the financial system.

Anyway, thanks Tyler for keeping on top of QE2.

Mon, 10/11/2010 - 13:25 | 641121 bugs_
bugs_'s picture

Just start bringing some off-budget stuff back on budget LOL

Mon, 10/11/2010 - 14:18 | 641225 Miles Kendig
Miles Kendig's picture


I am sure CALPERS, Illinois teachers, Chicago transit workers and Birmingham waste treatment folks will be mighty pleased to hear that the feds are going to take care of the state, county & municipal pension nightmares.  Should be good enough to carry 2012.

Mon, 10/11/2010 - 14:04 | 641193 pyite
pyite's picture

Exactly, this is a good time to lower taxes to 0.


Mon, 10/11/2010 - 12:59 | 641068 OnTheWaterfront
OnTheWaterfront's picture

T-bills Bitchez

Mon, 10/11/2010 - 17:23 | 641771 themosmitsos
themosmitsos's picture


Mon, 10/11/2010 - 13:00 | 641069 TooBearish
TooBearish's picture

Thanks Ty - thats the good ZH stuff!

Mon, 10/11/2010 - 13:00 | 641071 EscapeKey
EscapeKey's picture

Sorry for posting blatantly off-topic.

But does anyone know who CORN doesn't seem to be trading today? SOYBEANS has another significant increase today, but WHEAT is down.

Mon, 10/11/2010 - 14:29 | 641258 mtremus
mtremus's picture

See Committment of Traders with Options week ending 09/28/2010 latest available.

Both Corn and Wheat have reached extreme levels on the long side, so a correction in price should be coming.

After the price corrects both s/b a BUY.

Price objective Wheat 756 to 782

Price objective Corn  605 to 640

Fundamentals , supply and demand, weather, food inflation, declining dollar etc will all play a part in future price action.

Hope this helps


Mon, 10/11/2010 - 13:00 | 641073 doolittlegeorge
doolittlegeorge's picture

picture yourself on a boat on a river with tangarine trees and marmalade skies...somebody calls you you answer quite slowly it's the Fed with kaleidoscope eyeessssss.  Newspaper Taxi's appear on the shore waiting to take you away...Climb in the back with your head in the clouds and you'rrrre GONE.

Benny's in the sky...with Diamonds!

Benny's in the sky...with Diamonds!


Mon, 10/11/2010 - 13:03 | 641081 Cpl Hicks
Cpl Hicks's picture

I can Imagine that.

Mon, 10/11/2010 - 15:54 | 641496 macholatte
macholatte's picture


Mon, 10/11/2010 - 13:03 | 641079 Kaiser Sousa
Kaiser Sousa's picture

its about to b all over...

the debt coupon dollar is done....


Mon, 10/11/2010 - 13:21 | 641110 chopper read
chopper read's picture

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.


...follow the $$$$$?

Mon, 10/11/2010 - 14:15 | 641226 trav7777
trav7777's picture

Only a moron would invite China's currency into their basket.

Unless China is planning a MASSIVE deflationary appreciation and collapse in their export margins in order to sit at this table.

Look at what the USD reserve has done to the US...all our trading partners have pegged to us and systematically eaten every industry we had. 

Every single one of these effing nations is going to buy dollars with both fists in order to maintain their own cheapness!  Fuck them all.

Tue, 10/12/2010 - 09:50 | 642927 Eric Cartman
Eric Cartman's picture

lol. Look who got a job guys!!! He's not front running Tyler's ever post with an almost brainless "Bitchez" at the end of his half sentence comment! Congraduations Trav.

I don't care if you're just a bagger at my local grocery store, you're finally out of the basement!  

Mon, 10/11/2010 - 13:03 | 641080 Cognitive Dissonance
Cognitive Dissonance's picture

The problem, as we also concluded, is that there are simply not enough Treasurys across the entire curve, in existing or projected issuance, to satisfy the Fed's possible total monetization needs!

The "problem" is easy to solve. Just get those Congressional critters to ramp up Federal government deficit spending, which requires even more Treasury issuance, which can be bought by our accommodative Fed.

Remember, the more debt you have as a nation, the richer your nation is. I heard someone in authority say that once to some dunce who was interviewing him.

Now, where do I send my bill?

Mon, 10/11/2010 - 13:07 | 641087 SheepDog-One
SheepDog-One's picture

Was that 'someone in authority' named Helicopter Ben by chance?

Mon, 10/11/2010 - 13:20 | 641105 Rusty Shorts
Rusty Shorts's picture

Nope, Congressman Pete Stark, have you seen this SheepDog?



Mon, 10/11/2010 - 13:22 | 641116 chopper read
chopper read's picture

yes, this interview is one of the most disturbing that i have seen.  the inmates are running the asylum. 

Mon, 10/11/2010 - 13:27 | 641123 SheepDog-One
SheepDog-One's picture

OH Pete Stark, yes of course and I should have known because I saw that speech clip before!

Mon, 10/11/2010 - 13:43 | 641143 Cognitive Dissonance
Cognitive Dissonance's picture

"The larger the national debt, the wealthier we are. It's an indication of the wealth of the country."

It's an indication alright, an indication you're listening to a sociopath. 

Mon, 10/11/2010 - 14:26 | 641228 His Dudeness
His Dudeness's picture


It seems that the sociopath would not be Pete Stark here, but the economics professor(s) from whom he so thoroughly learned from and obsorbed his thinking. And further, does there exist a 'cognitive dissonance' (not sure where I got that term...), ours and theirs, between understanding/defining personal/business debt and national/government debt?

Is debt always debt or can debt ever be accounted as an asset from certain perspectives?

Death us typically considered a bad thing, except if you own a funeral home.

'get the fuck out of here before I throw you out the fucking window'... hey, sounds like your everyday ZH'er. Whereas every ZH'er is on guard to shoot people that are crawling in their windows... (smile)


Mon, 10/11/2010 - 14:29 | 641256 Cognitive Dissonance
Cognitive Dissonance's picture

Is debt always debt or can debt ever be accounted as an asset from certain perspectives?

Now I understand where he got these grand ideas. The man was placing liabilities on the asset side of the ledger since he was just a pup.

Before being elected to Congress in 1972, Stark was a successful businessman and banker.


Mon, 10/11/2010 - 14:38 | 641276 His Dudeness
His Dudeness's picture

And bankers know the utility of throwing people out windows... they 'know' economic theories to be true but Newton's law of gravity ... there might be an off switch.

Mon, 10/11/2010 - 13:16 | 641096 firstdivision
firstdivision's picture

And the all inclusive part of the equation on QE2 is, how will China react?  They were not too happy last time around, and they still have the US by the gonads.  Let us see what happens when they squeeze ever so slightly.

Mon, 10/11/2010 - 13:17 | 641101 belogical
belogical's picture

This is a little off subject, but does it seems that suddenly CNBC is sending the message things aren't great ever since Obama didn't sign HR3803. It's like we've got to make things sound worse so we can have a FED intervention without a market sell off 

Mon, 10/11/2010 - 13:22 | 641115 spartan117
spartan117's picture

Maybe China can sell their Treasurys to the Fed.  There's close to $900 billion right there.

Mon, 10/11/2010 - 13:37 | 641133 buzzsaw99
buzzsaw99's picture


Mon, 10/11/2010 - 14:04 | 641163 UnRealized Reality
UnRealized Reality's picture


Mon, 10/11/2010 - 14:12 | 641206 Miles Kendig
Miles Kendig's picture

We relieved the Chinese of most of their agency paper with the last round of QE so why not finish the job.  Then all this talk of global trade imbalances will be rendered moot

Mon, 10/11/2010 - 13:23 | 641118 godfader
godfader's picture

Sounds good. Time to go long bonds and collect some $$$ risk-free.

Mon, 10/11/2010 - 13:41 | 641136 99er
99er's picture

Not Enough Treasuries? Buy Agencies!

(Reuters) - A U.S.-wide foreclosure moratorium would be "catastrophic" and could unjustly impose losses on investors in the housing market, a major securities lobbying group said on Monday.


Mon, 10/11/2010 - 13:40 | 641137 MarkTwainsMustache
MarkTwainsMustache's picture

Can someone explain why sp vix is down so much today?

Mon, 10/11/2010 - 13:51 | 641159 chopper read
chopper read's picture

columbus day, i reckon.

Mon, 10/11/2010 - 13:40 | 641138 RobD
RobD's picture

Hmm what could the .gov do more of to increase spending? Let me think, what is really expensive and they even have special bonds for?


WAR Bonds here we come.

Mon, 10/11/2010 - 13:40 | 641139 Deep
Deep's picture

What I dont't understand is if it was this easy to move markets higher and higher, no down days, why haven't we been printing money since the beggining. We could have been at SP 36000, forgot about DOW 36000




Mon, 10/11/2010 - 13:40 | 641140 LeftCoastRefugee
LeftCoastRefugee's picture

So this puts the S&P at what? 2000..2500??

Mon, 10/11/2010 - 14:03 | 641190 Miles Kendig
Miles Kendig's picture

Hopefully it will put the S&P over 1350 while the 10 dives under 2%...

Mon, 10/11/2010 - 13:46 | 641145 Miles Kendig
Miles Kendig's picture

35% seems so arbitrary.  I am sure that this minor deficiency has been considered and proper remedies addressed.  Especially with the Chinese looking to diversify out of UST into those ultra hy instruments issued outta Japan.

Mon, 10/11/2010 - 13:49 | 641152 unum mountaineer
unum mountaineer's picture

Morgan Stanley's Igor Cashyn, whose track record of predicting what the Fed and the FRBNY do is second only to Bill Gross' (wink wink)


- exactly, so I'll wait a lil bit to see what PIMCO's doing. TD or anyone else, if you get a sniff of what they may be up to distribution wise please post.

Mon, 10/11/2010 - 13:50 | 641154 Internet Tough Guy
Internet Tough Guy's picture

How to be a Pigman. But Christmas dinner is coming.

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