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Here is Why Zero Hedge is Wrong!
What does a politician telling the truth, the federal reserve pausing from money-printing, and Tyler Durden being wrong have in common?
Although rare, they do happen.
Recently, Zero Hedge has been frothily arguing that, upon the conclusion of QE2 POMOs, appetite for U.S. Treasurys will abrubtly plunge and send yields sky-rocketing. Unfortunately, such a hypothesis fails to take into account forward-looking expectations and is therefore wrong.
This is not to say that Treasury prices will continue fall, which may or may not occur and depends upon a myriad of variables. But it will not happen because QE2 stops. Here are the three main reasons as to why:
1. Markets are forward-looking and are not impacted by known variables (also known as market efficiency)
Although market efficiency as a theory is not widely accepted by any means, any reasonable person would agree that upcoming and certain events should have no material effect upon market prices. Given that the termination date of QE2 has been sufficiently telegraphed to the market, there is little doubt that it is already priced in.
2. The maturity profile of the Federal Reserve`s assets is irrelevant. What matters is the extent to which the market believes that they will roll over their holdings in the future.
Even if there are 0 prepays and most of the Fed`s asset run-off is concentrated 2, 3 or 5 years from now, the market understands that the Fed will have the option of reloading at that time. Further, if the economy begins to deteriorate and succumbs to deflation, the Fed could even signal to the market that they will be rolling a portion of their assets in the future.
3. Don`t Fight the Fed.
The Fed will find a way to maintain inflation and debase the currency and its weapon of choice will be to stimulate artificial demand for Treasurys. This has always been the modus operandi of the Fed and there is no reason to believe that the end of QE2 will mean the end of propping up the Treasury market when necessary.
To conclude, the end of QE2 will not and can not result in the demand for Treasurys immediately falling off the cliff. Of course, Treasury yields are likely to slowly rise as horizon inflation comes to the fore and as investors lose faith in the U.S. government and the U.S. dollar. Yields may even spike as investors panic and flee out of the dollar.
But yields will not rise simply because the pre-announced QE2 date arrives.
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Markets aren't forward looking, the operate on mechanisms driven by the fuel that is money. It's show me the money baby. Now I'm agnostic on if Treasuries will fall if QE ends for it's probable if stock and other assets fall and the withdrawl of liquidty then a strong bid in Treasuries is likely.
I agree with your post about rates going down after QEII; however, it would have carried alot more weight had you not posted this right after Jeffrey Gundlach's conference call where he said the same thing. Where is the full disclosure?
As a sidenote two things I have been wanting to say: The merits to owning silver are numerous and have been so for the past decade; however, most of the groupthink clones commenting on zerohedge seem to like it more the higher the price goes. Also, everyone dogs on robot trader but the guy's analysis has been more prescient than most of the goons commenting on zerohedge. There should be a way to filter for who gets junked the most because as a general rule those guys have the most unique insights into the markets. Alot of the commenters on zerohedge are a bunch of inbred monkeys who feed off each other and feel threatened by anyone who disagrees.
The only problem with ZH, and similar efforts, is that it remains relegated to the 'all talk, no walk' side.
It is certainly a great outlet for financial analysis and rants, but nonetheless it has not produced anything socially or politically viable in terms of alternatives to the current system.
At some point instead of crying wolf all the time, we should just go kick the wolf's arss.
IdiotsincracY, you've only been a member for 4 weeks and 6 days! Sheesh!
"The only problem with ZH, and similar efforts, is that it remains relegated to the 'all talk, no walk' side.
I disagree with this part of the statement. ZH (Tyler's, et al) have made tremendous strides in educating the willing and constantly hammering home the truth that many already know.
And then there are the armchair douche bags who just want to flex their intellectual muscle around here. This is the "all talk" crowd that blathers away, day after day.
There are a handful who have put forth actionable ideas around here. I consider myself part of this group. The Village Idiot Laughs at you. You know who you are. Get off your brain and do something.
I tried to get a gang to storm the squid's lair. Got three takers.....then i got bored with it when it was clear no one was interested, not even talmud kid the supposed expert bombmaker. But we were probably too peaceful for him. Give us an email in a post. I'll bite.
Agent provacateur? No doubt
You mimic, but your kung fu is weak.
Sorry, junked for being an IdioT.
Got silver? It's socially acceptable, and does not require anti-virals.
Comment on original article: very brave. Stupid but brave. Have you been on Uranus for the last 5 years? "Market" DUH? The entire Ponzie is so...Just went off there. Calm now. Have you heard of Ludwig Misus, or Mr. Rothbard? How about Dr. North?
Going off to have another vodka beverage...
by Mr Lennon Hendrix
on Tue, 04/12/2011 - 19:30
#1163381
The Market is a controlled beast, a gimp on a leash, it does what it is told by the Fed, other Central Banks, their proxy banks known as Private Dealers, and large corporations acting on their own benefit.
.......A hunchbacked bellringer claiming sanctuary in a Church of Lies......
Sheesh! ... This "Guest Article" appears to have been written by Nicole "Snookie" Polizzi ...
The Author points out something we all know ... there's a difference between the public announcement of the Fed buying Treasuries and the under the table purchase of treasuries channeled through cooperative banks in the UK and Caribbean banking centers. (see: http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/...). The Fed has another hundred ways of sneaking Treasury purchases with newly minted cash. Laundering drug money and third world dictator money into treasuries is good for $200 billion a year. Selling arms and drugs is good for $200 billion. Blackmailing Russian world criminal organization leaders is good for $50 billion. Manipulating markets is good for $500 billion. There are also raffles, bake sales and lemonade stands.
But how am I supposed to add to WF profits if I can't find a dealer with product?
"Markets are forward looking". What, 5 minutes?
SB, HFTs are forward looking by 30 microsieverts.
Dude rocks for posting a magnet article.
I don't understand why this got posted as an article on zerohedge. There's no there there.
Chat thread for the rest of the night.
Wake the fuck up.
Bing!!! We may as well discuss Scott Adams excellent article on education in the journal.
http://online.wsj.com/article/SB1000142405274870410160457624714338349665...
Fight fight fight
You can't fight the Fed using Fed's own currency. You CAN fight the Fed by spreading awareness, mounting political will, and finally by force.
BUT America will have to get worse before masses will have the courage to fight. Elites are playing the game well for now by keeping the masses fed through welfare.
It is by no accident that a BLACK men was chosen to be a president with 90% of black approval....keep the rioters at bay.
Let's get something straight about the usurper: he is not Black. He is caucasion and arab- I hope that Trump is sincere and drives home the fact that Sotoro is not a constitututional natural born citizen and therefore ineligible to be POTUS. Even if he was born in HI, his father's allegiance to britain/kenya disqualifies smokin' barry as a natural born citizen. Any riots that ensue. should be directed ar federal legislatures who failed to uphold the Constitution.
His father's allegiance was to Britain and Kenya, but he's Caucausian and Arab. That's hot.
There is a kernel of truth there; also, have you wondered why all the rioting in Africa? When they pick one of your own, that's when they fuck you the most.
t.
Maybe if you could spell "treasuries" properly I'd consider what you were saying...
Nah, I doubt that would do it either...never mind.
"demand for Treasurys" is the accepted usage when using it as shorthand for "Treasury instruments".
Using "Treasuries" implies that you want to own the Treasury of Greece, the U.K. Treasury and the U.S. Treasury. Not likely, unless your name is Rothschild.
QE2 is damn well priced in. POMO is priced in. PD kickbacks are priced in. TBTF, Moral Hazard and shitty deals are all priced in.
The relevant question is WTF is the FED going to fuck-up next (QEx.x) and how do investors profit or at least not get splattered when TSHTF.
People have different levels of vesting in these answers. I look to people with a lot vested, like PIMCO.
Bill Gross: Master of Monetary Psy-Ops
http://theautomaticearth.blogspot.com/2011/04/april-12-2011-bill-gross-m...
Bond money is the smart money.
Even though i have posted several times that the end of qe2 is priced in I still think it is strange that bill gross doesnt think so.
One of us is wrong. The troll or the Gross.
FED MARKET MANIPULATION IS NOT FREE MARKET CAPITALISM, IT'S A FARCE THAT WILL FAIL.
That was the most bullshit article I have ever read on this site. Fitting. That was an opinion piece, and there is absolutely no evidence backing up the assumptions that i) the Market is some all knowing creature that has priced everything in. "It has priced it in" is the most overused metric used to sum up the Market. The Market is a controlled beast, a gimp on a leash, it does what it is told by the Fed, other Central Banks, their proxy banks known as Private Dealers, and large corporations acting on their own benefit. Interestingly, the author refutes his own point in the last point "Don't Fight the Fed" when it is stated that the Fed will find a way. That way is perpetuating QE. ii) Obviously they will be rolling their assets, what the hell else are they going to do with them? They can not sell them to other Banks, except maybe, maybe the IMF/World Bank Cartel. If that is the case, then goodbye dollar as the reserve currencie.
Revised:
That was the most bullshit article I have ever read on this site. Fitting. That was an opinion piece, and there is absolutely no evidence backing up the assumptions that i) the Market is some all knowing creature that has priced everything in. "It has priced it in" is the most overused metric used to sum up the Market. The Market is a controlled beast, a gimp on a leash, it does what it is told by the Fed, other Central Banks, their proxy banks known as Private Dealers, and large corporations acting on their own benefit. Interestingly, the author refutes his own point in the last point "Don't Fight the Fed" when it is stated that the Fed will find a way, because it controls the Market. If the Fed controls the Market, then there is no "priced in". The Fed prices it in, and that means, the Market is not an entity outside of itself. The logic refutes itself. ii) Obviously they will be rolling their assets, what the hell else are they going to do with them? They can not sell them to other Banks, except maybe, maybe the IMF/World Bank Cartel. If that is the case, then goodbye dollar as the reserve currencie. At the same time, who will buy the newly issued debt, if not the Fed? QE is forever, unless interest rates are going to rise substantially. If that happens, the interest on the dollar will crush liabilities, and either taxes will have to be raised, or the fiat ponzi ends.
+1 Logic Points
I still have to say the supersmart bond money can anticipate the end of qe2 and it is definitely priced in. We may see a bond rally.
I agree that bond yields will continue to go up. In fact, one of my main thesis is that government bond prices will collapse, while corporate debt butterflies them. We have never seen this said move before, but when governments collapse, where will the money turn? Corporrate debt. That is why the PDs are holding onto their corporate debt, and why the President's Working Group on Financial Markets most likely has its fair share of corporate debt as well.
I think we are miscommunicating on price and.yield. because i think bonds may rally and yields.drop a bit at the end of qe2/p>
Are you surmising that there will be no QE 3? Because if there is no more QE, who will create the demand to raise prices?
While it is hard to imagine natural demand for UST at current yield levels I think one should at least consider that artificial demand can be created through regulation (e.g. force banks to keep capital in UST, force asset allocation rules on pensions plans, etc), tax incentives or similar measures. QE forced people into risky assets when nobody wanted them and clearly the people writing the rules can do the same for UST demand should they so desire, the tricky part will obviously be maintaining the illusion of a recovery.
I would simply expect the QE to go "underground" and not really cease. The Fed may quietly expand the foreign currency swap lines, using them to funnel dollars to foreign CB's and commercials, who then expand the indirect takedown.
I'm sure they have a plan on deck already.
Changes in risk appetite and a slowing economy and.expextations of deflation.
Treasuries are the riskiest play out there. The economy is at a standstill now. Japan and the UK are running well over 200% debt to GDP and the US is not far behind. Deflation would have to jump past the inflation that is in the system currently, and the inflation gauge is around 10%. If that happens, rates will rise substantially, and the interest on the US debt would crush the taxpayer. Basically, the system is on its deathbed, and soon they will raise the debt ceiling, sealing its fate.
As much as it makes sense the ending of QE2 will cause rates to spike...this did not happen last time QE1 ended. In fact rates went down. Bill Gross went short treasuries then and lost out. Seems he is making the same bet.
Lest we forget all central banks (except likey not China - cant seem to confirm this one yet) around the world are part of the same fraternity and really are owned and controlled by the same group of international banksters. Who do you think owns the Bank of Japan? The Japanese? Sure after WW2 the Fed and Bank of England just gave it to them. The major CBs of Japan, UK, EU and US are all the same group...they only pretend to be independent.
So when QE2 stops, it has been largely pointed out that QE has pushed the stock market higher..conversely no QE would suggest stocks crumble...money then would likely run into T bills at that point...and if not then Japan (CB), the UK (CB), ECB could come in and mop it up. They can likely cross monetize the ponzi scheme for sometime. Do we think the auctions go off with totally unknown expected results by the central banks?
I do not say any of this in agreeing with the system...but more on how it likely is...it is false, corrupt and rigged. At some point I do think it will fail but I think that is more likely 3 to 4 years off...as they kick the can further and further.
Bonds may rally again at the end of qe2
for fuck's sake, first we have to put up with paid advertisements, and then you have retards who have bathed in the liquid of idiocy for a full 2 years respond?
I need a hobby. I hate retards. I hate retards bathed in the liquid of idiocy even more.
I suppose I understand the junks, but goddammit, this is some funny shit. Who among you can think "retards bathed in the liquid of idiocy" without cracking up?
Anything that is so widely known as the end of qe2 has to be priced in. Gross may have analyzed japan and realized.they will be too weak to buy treasuries in the expected quantities. That is definitely not priced in.
"The Fed will find a way to maintain inflation and debase the currency and its weapon of choice will be to stimulate artificial demand for Treasurys. This has always been the modus operandi of the Fed and there is no reason to believe that the end of QE2 will mean the end of propping up the Treasury market when necessary."
So the premise here is...if only one "market participant" values straw, the straw will hold it's value?
What happens when a wolf knocks on the door? ;-)
Remember the days before QE when everyone here knew they were monetizing debt already? The TIC reports showing BIG buyers in the Cayman Islands etc.... I thought I'd put this out as I don't see many mentioning it anymore. I guess that is how far we've already fallen.
It's pretty sad really...the practice is a complete farce.
In a bureaucracy or any other dying enterprise this is called shuffling papers around to make the day go by.
But underneath, nothing productive is happening...the "money" isn't real (in any quantifiable sense) as it never goes into circulation, just digits on a screen...a flower without any scent, water that does not quench the thirst etc...simply a ledger entry that is meant to show a negative number as having a positive aspect, which it never can.
You know, I think this could have been a healthy discussion by considering an alternative view point such as the one you are proposing here...
blah blah blah...
However, when the markets are manipulated, how exactly do they rationaly price everything in?
You are attempting to apply some reason and logic to an illogical situation.
We have an irrational, now centrally planned and controlled decent into the abbys, but in a speedy rocket into the stratosphere...
This crap is outta this world.
agree-it's like trying to find you're way out of a forest when someone keeps moving the trees around. We can speculate forever, but without full disclosure and transparency, it will ALWAYS remain speculation!