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Foreign Central Banks Accelerate Rotation From Agencies Into Treasuries
The recent trend that has been followed by various non mainstream media venues, which indicates rotation by Foreign Central Bans out of Agencies and MBS and into Treasuries, continues unabated. Whether this is facilitated by a Federal Reserve which at this point is openly acknowledging it is monetizing debt, (in whatever definition of the word) just "not that much" is irrelevant, however, it is obvious that the reason why the Fed's QE program has a 4x capacity for agency/MBS purchases is solely to facilitate the disposition of agencies by foreign CBs (don't worry, the GSEs have a lot of worthless debt to go around) and to promote the direct leveraging of the United States to unsustainable debt level as the country is set on financing its $9 trillion budget exclusively with newly issued debt and tax hikes.
The chart below indicates the almost one to one correlation between increase in foreign CB Treasury holdings and their respective decline in Agency/MBS positions.
The same rush out of agencies and into USTs can be seen on a 4-week rolling change, with the precipitating event being the conservatorship of the GSEs in August 2008. In retrospect, one can't blame foreign CBs for not wanting to be part of a bankrupt enterprise which is now refinancing loans at up to 125% LTV.
And lastly, the most recent quarterly data confirms this MBS->Treasury flight. In all reality, the Fed will likely have to expand the agency/MBS portion of QE even more than the Treasury monetization portion when it is time for QE 2.0, as foreigners want to have increasingly nothing to do with Fannie and Freddie. Yet their poison, is the eager involuntary meat of US taxpayers, or so Bernanke will like everyone to believe.
Source: NY Fed, Morgan Stanley
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"In all reality, the Fed will likely have to expand the agency/MBS portion of QE even more than the Treasury monetization portion when it is time for QE 2.0, as foreigners want to have increasingly nothing to do with Fannie and Freddie."
Agree 100%. As I have said, without a solution to Fannie/Freddie, which won't come until mid-2011 earliest, no FCBs will be buying agency MBS in size (with the exception of Ginnie's which have full faith and credit).
Thus, the Fed will have to buy agency MBS well into 2011.
Though I did read a report the other day from Wells Fargo (ex-Wachovia I believe) where their analyst doesn't think a Fed exit from the MBS market will have an impact, because FCBs are starting to buy again. Huh? Are you trading the same market I am?
Note that issuance is slowing due to slightly higher rates, but Fed purchases are increasing. Does this sound like a market that has more FCB interest?
It has to be a success. When you treat the symptom and not the cause, then problems just disappear.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
GIGO.
Garbage in. Garbage out.
This is the first step in US debt repudiation. It starts with non-guaranteed. Next with the longer maturities. Shorter. Finally the zero maturity dollar.
That seems like the proper order. The curve is going to be intresting to watch as it will literally provide a countdown to the post dollar world.
TD, another interesting data set would be monthly MBS issuance from Fannie/Freddie (which you can get from their monthly reports on their websites) and weekly Fed buying (from the FRBNY web site). There is a lag of course because MBS is bought forward, and the issuance is actual issuance. But nonetheless you will be able to see the % of Fannie/Freddie issuance that is being bought by the Fed.
The Fed - MBS === Hunt Brothers - Silver.
Off topic but T. Boone Pickiens $300 oil is taking a beating.
Oil (USO) getting pummelled like a chinese stock.
Green shoots turning to brown shoots turning to black shoots.....then burning up like a California wildfire.....POOF!
I don't think he meant it would go there in a straight line, starting today. :-)
As you probably realize, there are two ways of thinking of it. Oil could be worth 4 times the current amount in dollars; or dollars could be worth 1/4 the current amount in oil....
That's why we like market calls with a time frame! : p
GSE to be delisted and privatized soon. FSW are getting a swap deal....the rest take your chances.
Why are these GSE's still trading?
This audio archive will be available until Wednesday, September 9th 2009
Guns and Butter - Dress Rehearsal For Debt Peonage
"Dress Rehearsal For Debt Peonage" with economist Dr. Michael Hudson on why the banks are returning the bailout money; bank fees and penalties; banks prefer default to foreclosure; debt as wealth; Obama's Financial Regulatory Reform Proposal and its six major flaws; the deregulation-by centralization ploy; failure to reform the economy will lead to debt peonage.
http://www.kpfa.org/archive/id/53994
As long as there are the occasional 100 point down day in stocks, there will be a permanent and ongoing bid for Treasuries, no matter how large our deficits.
Robots are pre-programmed to buy Treasuries immediately upon the onset of a possible stock market correction.
2-year yields are on the verge of collapsing below 1.00%
Exactly.
It's not a matter of "if", it's a matter of "when" the Treasury and Fed want to engineer the flight to quality trade.
The danger behind all this is they may not be able to control the unwind, especially in the equity markets (not that they particularly care at this point).
My hunch is that they don't want it to happen quite yet, but it might not be their call.
An orderly unwind means a 3 year march to poverty and a 10 dollar index that used to be 120 but is what 78 now? A disordly unwind means a system without enough dollars to match up to it's assets becomes a big supply demand headache. To keep the FED from sharing the pain to all the creditor nations the creditor nations must crash the system to drive the need for dollars up so they can conver them to hard assets at a fair rate. If the FED was going to allow a real repayment we should look at several "crashes" and orderly repairs with the dollar pegging down then jumping up then pegging down.
Watch out for Putin. He may be taking accounting classes and looking for extra credit.
Excess liquidty at the Stress Test 19 bids up ALL financial assets: stocks, bonds, commodities.
Liquidity looking for yield.
Good thing the flap over the safety & soundness of the GSEs was just a shibboleth.
Right now equities are down, dollar's down, gold is down, oil is down. My TIPS etf is down.
I think gold is holding up okay so far. $950 ain't bad. I wouldn't even worry if we went back down to $800-850 area if there is liquidation of lots of futures contracts.
Like tectonic plates slowly slipping, until that fast dramatic move. You think these CBs are going to let everyone watch this go down in slow motion? Give everyone time to escape into precious metals or hard assets?
Or has all this monkey business of the last 2 years not taught us about weekend stick saves, sudden death market sensitive announcements, extralegal and illegal market manipulation?
My bet is on sudden death for the dollar. In all the possible outcomes it makes the best sense to a canny thief. Bank holiday, overnight deval
Just one huge surprise sweep of the sickle to devastate all us dumb bunnies, afterall we're their chattel to buy, sell, lease, lend, beat, abuse, kill and consume.
Here is longer piece on the article above.
http://www.chrismartenson.com/martensonreport/shell-game-how-federal-reserve-monetizing-debt
Observation / Question:
A high level look at the Federal Reserve Balance Sheet http://www.zerohedge.com/article/federal-reserve-balance-sheet-update-we... reveals a substantial increase in MBS, while much less Agencies. So why the title's focus on Agencies?
1) It's a minor point but there seems to be more of a "rotation by Foreign Central Banks out of" MBS rather than Agencies, if your (ie, Chris Martenson's http://www.zerohedge.com/article/fed-enabling-foreign-central-banks-swap...) supposition is true.
2) There is a material decline in Maiden Lane and Other assets. What is happening with these assets??? Could it be that these assets are being converted from one side of the balance sheet to the other, providing an alternative scenario to your supposition?
The MBS are agency issued.
The only thing trading these days is the TARP 5, and most of that is by their own prop desks as well as a massive Fed (& maybe Treasury) infusion (see BP today).
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Well since it's securitized by valuable highly sought after bear sterns corpse parts. I'm sure it will turn out good.
http://www.youtube.com/watch?v=DyWzsI3TPNA&feature=related
Does anyone else find it funny that Futurama Bender's Big Score totally explains the ENTIRE world.
The scammer planet takes over earth and makes everyone leave and then they have to fight the solid gold orbiting weapons platforms to get it back.
http://www.youtube.com/watch?v=5a4QiSMi9NE&feature=related
Don't second guess old Uncle Ben. The man is money, dude, pure genius. I bet he knows we will be making mad profits on the MBS he is purchasing when the market bounces back. Hey, the guy has a PhD in economics - he knows what he is doing, bro'. If Bernanke does not get a Nobel, he will get a President's Medal of Freedom for "saving the world". Book it.
Wow the delusions of grandeur are getting really good.
So one more reason to pump GSE shares. The irony of its all is that China "hates" US fed monetising but does not make the connection between the Fed buying back their GSE papers and money printing - where did these CBs think the money to buy back their GSE papers come from? fools rushing in......
that confused me as well - there was an article a while back about the Chinese being upset at the Treasury purchases, but not the MBS. They are one and the same - either the Fed buys Treasuries directly, or buys MBS, freeing up money for someone else to buy Treasuries. In either case, money is printed to ultimately support the Treasury market.
The fed buying MBS is limited due to risk, but can continue indefinetly for 0 risk treasuries.
As for MBS purchases subsidizing Treasury purchases - sure they do, but the MBS aren't coming from Fed/US banks so there isn't any additional USD creation due to fractional banking mischief.
China wants a strong USD, so it's trying to limit money supply creation.
China is trading longer maturity (generally 30 year) Agency MBS to the Fed in exchange for shorter maturity Treasuries. This means if "something happens" they can simply decide to not roll over their investment. The Fed, on the other hand, will be stuck with trillions of assets whose market value are a fraction of their original. Good deal for the Chinese, and maybe they demanded such to continue to buy. Not such a good deal for the US Taxpayer.
http://www.bundesbank.de/statistik/statistik_veroeffentlichungen_beiheft5.en.php
With the trade numbers who knows other than a computer what the SDR are so good luck.