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Massive Spike In S&P Futures Volume Rallies Market, Breaks Dollar Trend
With Greece imploding, the last thing we need is for the US market to do what it did when Dubai faced a near-death experience in November. Whether or not that is the reason, we don't know, but someone just purchased a massive order of ES futures contracts in the open market, causing a dramatic spike in the market.
Even absent this spike, the volume in ES has been quite healthy, regardless of the drop in global markets overnight.
Here is a longer-term comparison of what happens when Liberty 33's gloves come off.
Regardless of the cause, the goal has been accomplished: the upward intraday trend in the dollar has been definitively broken.
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Taunting perhaps
Here's a theory I came up with yesterday. I don't know if I am the first, but I had not read it before I wrote it over at TBP.
Perhaps around 1995, Greenspan noticed that a rising stock market increased tax revenues due to taxes on capital gains transactions. He also noticed that a rising monetary base helped pump the stock market to higher and higher levels. Since stocks are not a part of the CPI, this new form of asset inflation didn't count and wasn't illegal with respect to the Fed's mandate to maintain stable prices. His protege, Ben Bernanke, accepted this and filed it away as a good thing to remember.
Thus, the US budget surpluses of the 1990s were nothing more than the exploration and institutionalization of using asset bubbles in financial markets to raise tax revenues from capital gains and support binge spending. The Greenspan Put became a term to describe the requirement of a stock market floor that was necessary to maintain tax revenues from capital gains. Loose money and credit was the fuel and the stock market was the engine for what The Fed and the Treasury must have thought was a perpetual motion machine. Asset bubble bursts were only an inconvenience and a potentially useful tool to energize the markets again.
Somewhere along the line, it became dogma to say asset bubbles were impossible to spot and impossible to fix. This lie was one of the tools used to brush off any rubes who asked too many questions.Since everyone was making money, not too many people asked questions.
On the bright side, the asset inflation and monetary expansion helped finance the emerging markets and some real wealth appeared from the asset bubbles. Except now China is experimenting with their form of perpetual motion machines using national savings to finance excess capacity.
Last year, Ben Bernanke knew he had to reflate the stock market. Tax revenues from capital gains are dependent on a re-inflated stock market and the entire US budget is based on a bubble economy. Not to mention the detrimental effects that would appear from a missing wealth effect ... higher transfer payments due to even higher unemployment caused by even less spending than what we have now.
The Fed will continue to pump because it has no choice. The US Government would face bankruptcy if it didn't and will face it eventually if it can't re-inflate a new stock market bubble. QE2 is a foregone conclusion, as is QE3. The market can not be allowed to fall permanently as this would have a terrible effect on capital gains tax revenues and the US budget deficit. This is why commodity inflation is substantially ignored; it's a revenue enhancer from sales taxes and from taxes on traders. This is the real reason why deflation is the enemy.
Until now, many had speculated about the Fed pump and the Greenspan Put, but explanations have been superficial. The thought of a Fed pump was conspiratorial because there was no solid reason as to WHY. Now we have a reason. There is a cycle that uses printed money and loose credit to pump financial markets. Traders buy and sell, creating capital gains tax revenues so that an impoverished US Treasury can support binge spending. I suspect it looked like perpetual motion that could never stop because really smart people were secretly behind it and the scale was so massive that random events could be used as adjustments, and perhaps a kind of wall to bounce off of. If the only tool you know how to use is a hammer then reinflation is the only tool we can expect to see in the future.
Seriously, if the government is that dependent on capital gains taxes, we're all screwed. The counterbalancing issue in 2009 was that trading volumes were very low, especially in the retail side. If the intent here was to maximize capital gains as tax income, the Fed/Treasury may have already fallen short.
Perhaps the best way for the Fed to get additional tax income at this point is the engineer the mother of all bond rallies, instead of trying to squeeze out another percent or two in equities. Why? Not only does the government need tax income-- but they need a way to lock in low cost financing of the deficits already incurred. In this sense, they may be able to do both.
I never said they were smart or that their plan would be effective.
Rather, they were just using the same old trick in a new environment. It will fail this time because there is no room in the world for a repeat of the same bubble techniques. That being said, the need to inflate the market to support a wealth effect and stop transfer payment hemorrhaging did happen, I'm sure, as triage. These are desperate people who probably have no new ideas to manufacture the appearance of wealth. Thus, we will see the old tricks repeated and a general decline overall. Deficits will grow and more monetization tricks will be seen.
Manufactured flights to safety to lower rates, followed by reinflation of asset values, probably via direct injections, is a personal favorite guess of mine on what to expect. Thinking fiscally, it would be best to do this sooner than later. They might get two cycles in this year if they act fast.
I think we already had the mother of all
bond rallies, when the 30yr went to 2.5%
a year ago. How they managed to keep it
at that level for almost a month is a real
demonstration of power.
I don't know how much they sold at that
level, but if the inflation (they created)
shows up in a few years, the gains on
those (essentially short sales)
will be huge.
I wonder who will book those long
term gains, the US treasury or the FED?
Could the primary dealers,
(our favorite 3Amigos) have attached &
kept some put warrants to those sales?
After all, they know what inflation
will ultimately do to those instruments.
with
"Since stocks are not a part of the CPI, this new form of asset inflation didn't count and wasn't illegal with respect to the Fed's mandate to maintain stable prices."
http://www.zerohedge.com/article/jim-demints-questions-bernanke#comment-...
As Denninger observed, if one RTFMandate itself rather than the echo-chamber of mythology about it, then it certainly seems that in fact the Fed's overriding statutory obligation is to control "monetary and credit aggregates" in the broadest sense: the "stable prices" language later on in the paragraph doesn't narrow this obligation at all.
dh-
so . . . what will the Fed do if it loses the battle on treasury rates?
It would seem to me it would sacrifice the stock market all day long to avoid a crash in treasuries-
no?
probably just curl up and die. Or some spinmeister will sell a great new story about the value of monetizing something. This will delay the inevitable crash. Basically, nothing good is going to come out of this. Gravity always wins eventually.
"Or some spinmeister will sell a great new story about the value of monetizing something"
no doubt-
as long as it keeps the rally going-
as Colbert so eloquently said on the Colbert Report- that he was 100% in favor of capitalism unless he could profit from its demise(-:
.....and now, let's put our hands together for our next guest, Mr. Efficient Market !!
If QuEasing 1.0 monetized debt and QuEasing 2.0 monetized futures, what would QuEasing 3.0 be monetizing?
A 20%-odd Federal sales tax will make it all right. You know it's the future.
This has the ring of truth, dead hobo...asset price inflation as a way to boost federal tax receipts.
I'm going to give this some serious, serious thought.
Conspiracy? What Conspiracy - that is most certainly all natural buyers and sellers. Everyday I think I cannot be amazed more at the action in the market and yet everyday I am - it is very much like groundhog day.
SEC = HORSESHIT COVERED IN DOG SEMEN.
I cant tell you the god aweful things i would do if i ever see Marie Shapiro in person.
and yet they have a giant 10 yr auction today - how the fuck do they expect this to happen........
Oso, that phrase is the joint. Don't hold back now...
Let's see what time was that? Oh that was the S&P reacting to the Conan O'Brien news.
I laughed until I stopped.
TPTB will do whatever it takes to keep up appearances.
Watch your stops.
Nothing to see here folks - move along now. Everyday I think I cannot become more amazed by the 'free markets' I see - and yet every new day is very much like the last day. At this point, I am starting to question if I even understand what I see anymore...
manipulation continues at an astounding pace.
$120B tax on the banks is a plus right? perhaps barney frank endorsing this plan, is what caused the turnaround in XLF/BKX?
I always hate to correct you Lizzy but that $120 million tax on banks is not really a tax on banks. it is an indirect tax on the American peopel. Obama made a promise to us not to tax the middle class...Granted he has already blown it away, but he can;t do it again. So instead, he tells the banks....listen....i am gonna tax you guys. It will look good for me as everyone hates you right now. You pass it on in the form of fee hikes and new fees. You get paid, we get paid....and the people are happy that I am taxing you and not them. Yeah...they are too stupid to realize my hand goes through your pocket and into theirs. Got to love Amerika.
I hate to correct you but that's $120 billion, with a B coming out of our pockets.
This is clearly manipulation. I wouldn’t trust this government anymore than I trust the Chinese. The government has become corrupted along with the banking system. To invest in these markets is like giving them your money (of course they will probably end up taking all of it anyway).
The Plunge Protection Team at its finest!
There are now too many hands juggling too many plates.
Gold got crushed during the hearings, but Silver didn't budge. I haven't checked Copper, but I'm sure the Doctor is doing well, just as Gold is now.
WHAT A PATHETIC FARCE OUR MARKETS HAVE BECOME!!!
Bring on the Collapse, and let's rebuild this Nation...
There are enough people who know how, and why, and that only leaves "when".
Had to check... Cu has been up all day.
Breaking or building a nation involves much more than the markets. And some of the things you break, don't come back. It's not really the correct way to "fix" a broken marketplace. Would be better to recall the currency and default on foreign debt.
As for the markets, they stopped being investment vehicles about 30 years ago. That's just about a generation. Anybody "investing" now is a gambler and probably has been their entire career, retail investors twice so. But I think most of you accept that.
But as for fixing things, leave the rest of the country out of it.
cougar
basically what it's going take-
I wish we would just default and get it over with-
that the administration is trying to raise a few bucks w/ a tax against the TBTF is nothing more than posturing-
when you are running a deficit of 1.5 trillion and adding to the trillions to the outstanding debt-
when will the light bulb go on- that this debt will never- ever be repaid-
impossible
Another day looney toon land. I thought the PPT only bought futures Sunday nights. Changing up the game a bit I see....I keep thinking it's about time to put in a levergaed short position but the GOOD news just a keeps on coming.
If you watch SPY you can see a huge pump at the open, close and at least 2 times during the day. Every time the Market starts to sink you see a huge spike in the S&P index.
Lately though I have seen more than 3 to 4 spikes in the middle of the day which indicates to me that it is becoming harder and harder for them to keep the Market up.
OK, so maybe this is a stupid question, but if everyone thinks there's strategic buying going on by the Fed or PPT or whatever, when are they *selling*? I mean, are they going to end up owning the whole market or does it really take that little goosing to make it go up on this light volume?
Takes that little.
Anyone remember The Suitcase - seventh largest holder of US debt at the time - when it got detained at the Italian border.
How does a Suitcase earn $130 billion?
Strangely odd that we never got a follow-up on that from ANYBODY. How does getting caught $130b not make the evening news?
They were horribly fake. I think they had a picture of a spaceshuttle on them but the date said 1937.
More good work at ZH, I was wondering what caused the spike, now I know - nothing but Fed buying.
actually.... im not so sure about that. Doing this today makes it that much harder to get the bonds auctioned, dont you think?
I really wonder if the banks are becoming rogue-elements/ Fed has lost control of them.....
is it possible the banks are SO annoyed at being hauled up for the dog-and-pony show that they are purposefully pulling money away from bonds as a warning shot across the bow of the government????
But I should think that disrupting a government debt auction would be seen as an act of treason.
Oh wait, the banks own both ends of the deal. Never mind.
The control of this Market is unbelievable. Who ever is pulling the strings knows just what to pump to pull the market up.
Really does make me think that the Market was Crashed by the same People. If they can control the market to such a fine tune it also shows how they would have the ability to Crash the Market as well.
It is in my belief that the Crash was orchestrated for or by the Banks to Buy or eliminate their Competitors for nothing or a song. Once that was accomplished plus the robbing of every American and their unborn child everything is all of a sudden just fine.
Agreed. Also add in the very real possibility that the only losses marked down to reality during this downturn were stock losses on bank balance sheets, only to be bought right back during the early March trough. Those losses magically become gains as the market continues up.
The graph of the broader market over the past year is a likely representation of the path our economy would have taken if assets were marked-to-market without games.
Most of us have been suspecting this kind of manipulation for most of this rally since last March. I started to catch on in June or July....I'm a bit of a slow learner. IMO the markets have nothing to do with fundamentals and everything to do with extortion and politics. The market was tanked in early 2009 to get rid of mark to market accounting for banks. The crash of Sept/Oct. of '08 was done to secure the TARP bailout from congress and Benny's blessing to provide a dumping ground for all the shit on the TBTF's balance sheets. The market rising today and for the last 10 months is nothing more than the Squid et al honoring their promise to Benny and his friends in Washington. Oh and btw Benny's discount window has come in handy to his buddies at 85 Broad st.
Today the market is first and foremost a political tool used by our masters on Wall St. It's other functions are secondary.
I always believed the 3:45 sell-off every day from the fall of 2008 was manipulation. Day after day.
They can only control the market direction because there are now so few playerz, and volumes are tiny. That's one of the side benefits from having nuked the retail investors and BK'ed the shorts; smaller crowd to manage.
That, and the few playerz still in the game are large enough to have well-defined strategies. They cannot move quickly on spikes and short-term trends. Cannot upset the apple cart.
They are playing with fire, but playing carefully. They can continue this for a long time. I don't see any way to stop it.
I really don't care either. It's kabuki theater; all pantomime and scripted movments. The real market has been dead for about 20 months. And it's not coming back for a long time. If ever. PMs and oil are about all you've got. Good luck with those.
cougar
Looks like ordinary investing activity by J6P to me. Haven't you heard that the economy is rebounding and wages are up? Probably some retail clerk just blowing their bonus money.
What's over at Kitco? Oh here we go: "Gold falls after remarks from Chinese furniture salesman".
Which is why, when this blows up, and it will, it will be massive.
With all the lowering of interest rates, pumping the system with as much money as they can, they STILL have to resort to pumping the markets up.
They're not very bright. If markets aren't allowed to breathe, the resulting crash is all the more profound. This is why markets always fall faster than the they rise.
Still, we're at the 2010 year highs, we've had a Dow move of over 2% since the beginning of January and we're back at 15 month highs, so everything MUST be OK...isn't it?
DavidC
[when this blows up, and it will]
Will it? If they really are controlling it and can break any drop trades and move it upwards forever ... then what's to stop them?
This is not a market. It is not linked to any thing concrete. It is a vehicle for government propaganda; look we're up again today, all is well, go spend some money and don't forget to vote for the right people in the next election if you want to see more of the same.
It works because people want to be told a fiction that means they can go on with BAU.
The right kind of "black swan" event could undo all this. Propaganda is a useful fiction until reality eats enough people. But it would have to be a BIG event and would have to eat a LOT of people. Don't count on it happeing soon. And don't necessarily count of surviving it if it does happen.
cougar
Are you telling me that on the day of the grand dog and pony crisis show, you were short??
I thought there were some smart people here....
"Who ever is pulling the strings knows just what to pump to pull the market up."
None of these people are stupid. They might act dumb on TV when they get grilled, but they are very, very intelligent and have a firm grip on their manipulations.
However, things will get out of their control soon and intelligence and power will be useless. History is replete with intelligent and powerful men overthrown by the "unwashed masses" who acquiesced to theft, but drew the line at hunger...
just curious. What is the cost of 0.2 m E MINIS ?
it was $12.5 bl notional.
Margin would have been about $600 mm. Well worth looking into how much MBS the FED bought for settlement yesterday or today.
Face value roughly $11B, margin requirements would be something like $1B.
http://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500_co...
Barry Ritholz thinks the idea of the Fed buying stocks is nonsense. What a dumb-ass.
Free markets? Puppetmasters at work as usual. Little people beware.
I'm guessing it's option related rather than PPT. Given that guess, I'm awaiting a massive move over the next two days into expiration, with lots more vol to come through Friday. Somebody is making a huge bet on his/her ability to control expiration.
I subscribe to your thoughts Anonymous. It's not you is it?
Probably. In a market with more playerz something like that might be noticed but it wouldn't be as large a relative spike.
There is a lot more signal than used to be, but it's not meaningful signal. Just two or three people trying to keep their jobs this week, rather than the usual two or three thousand. We see a few people at work, it's interesting, it's not news.
Well it might be news that anyone is still working and with large sums.
cougar
Criminal
enough is enough, time for something to be done about this.....
Why can't this continue for much much longer? ES is a financial swap. It settles for cash. When it expires the "BUYING ENTITY" just keeps the farce going by purchasing again. In theory this doesn't require endless money as ES's will expire for cash that can be rolled into new length.
Kyle Bass, though a bit nervous, delivered a good opening statement at the hearings. Key points include noting that the GSE's were leveraged 95 to 1 and yet set aside a mere 18 pips in loss reserves, and were the largest political contributors and lobbyists in the country, spending more than $200 million in such activities over the last decade.
Not to negate all the thoughts here, it is triple op's expiration. Though, it could be anybody. Typically this op/ex is weak. If the market goes down big time, Dearest Leader et.al. takes it in the teeth. Think not. But when the NYT asks if there is a wimp in the WH, you gotta notice.
I am sure there are actual bulltards with a lot of money from last year's run eager to put it to work, since they probably cashed out "too early (as I did)." If Treasurys are a good short, bonds are a short, and commodities are stuck in neutral (note oil today) then the bulls are faced with buying emerging markets (EEM, FXI, EFA) which generally suck at the moment, or buying the SPY, something liquid. I'm buying the SPY on dips because I know somebody is pumping it and it hasn't yet failed. I'm stopped out a lot because of tight stops but I still go along with the idiots doing all the futures and SPY buying. Some day we'll wake up and realize stocks are 50% too expensive but I would guess we have a lot of months before that dawns on anyone.
to buy the spx because you think bonds are gonna tank is utter stupidity. if the yield curve shifts higher, the stock market will totally fucking crash.
That is the most ES vol ever recorded in 1 min (229k). Closest runner up is the closing ramp job on May 29 09 for 144k, then the close on Mar 31 09 w/ 105k. With a range of 1.25 pts for that 1 min bar today, the questions are: who was selling and who new there was a seller that large there?
That is my thought. That much volume should have moved the market farther it would seem like. Lots of buying met lots of selling. hmmm......
great comment, EB.
just insane volume there ... 214,636 up volume : 14,068 to the down at 12:06.
for that much volume, a 1.25 pt range with a 1 pt real body is just pathetically small.
Right on the mark.
There probably isn't a judge in the country who would hear the case, but at what point do short-sellers have a class action lawsuit on their side? If the government is buying futures there is no way for any fund with a business model built on shorting to make money and that fact ought to be made public knowledge and possibly even be written into law by a ban on short-selling (not that I support it, but a ban on it would at least stop people from throwing good money after bad in a rigged market), so that funds based on short-selling can liquidate and try a different business model.
This is ludicrous.
They will kill all Short Sellers until there all gone and everyone is long. That is when they will really kill the Market again. My guess is after the Elections.
May 29 09 trading top...
as I've said for months, this market is so rigged that if someone were to sell a million emini spooks at the market, there would be no downtick on the sale, and instead a surge afterwards
well it looks like somebody tested the theory...and proved me right
The Fed, the SEC, and the banksters all need to eat shit and die
what a sick fucking joke they've turned the markets into
The mattress is looking good right about now.
Bingo.
None dare call it capitulation...
If you look at the tape it's pretty clear that it was a rogue computer trading with itself. Too much volume at the same price levels without any real reaction. If there were real buyers that kind of volume would have moved the market a lot more than it did.
It really moved comodities.
If you look at the tape it's pretty clear that it was a rogue computer trading with itself. Too much volume at the same price levels without any real reaction. If there were real buyers that kind of volume would have moved the market a lot more than it did.
I believe in the PPT but this was a Primary Dealer putting on an option spread. That is a fact. Move along nothing to see.Yet.
Let’s start by setting the backdrop. The world is operating without a stable monetary regime. There is no gold standard. There is no functioning Bretton Woods currency stability regime. There is no longer even an ad hoc dollar reserve “system” that tended – at least on occasion - to discipline foreign Credit systems and restrain excesses. Like never before, Credit systems around the world operate unrestrained. It is my long-held view that pricing mechanisms – and Capitalism generally – function poorly in a backdrop of unrestrained (inherently mis-priced) Credit.
Most importantly, there is today no common understanding that stable international finance is wholly dependent upon individual Credit systems being operated with discipline and restraint. Quite the contrary, as the universal policymaking view these days is that aggressive stimulus and monetary looseness are essential for supporting financial and economic recoveries. The world is devoid of a monetary anchor and operating in a unique monetary environment that foments speculation, financial excess, imbalances, economic maladjustment, and potent bubble dynamics. As we begin 2010, inflationism is still seen as the solution instead of the problem.
The year 2008 marked the collapse of the Wall Street/mortgage finance Bubble. It specifically did not mark the end of the Chinese Bubble, the global Credit Bubble, or even the greater U.S. Credit Bubble. Last year saw the emergence of the Global Government Finance Bubble – quite possibly a monumental development. Accordingly, 2010 should be viewed as a Bubble Year. This implies a bipolar perspective when contemplating probable outcomes: On one end, the Bubble expands and makes it through the year. Or, on the other, the Bubble bursts and financial systems and economies sink right back into crisis. As a long-time analyst of Bubbles, I caution against predicting the timing of their demise.
Last year saw intense speculation reemerge in U.S. and global financial markets. It is the nature of speculation to intensify as long as it is accommodated by loose financial conditions. Similarly, it is the nature of Bubbles to expand and become more robust unless inflation dynamics are quashed through some type of monetary tightening. Excess begets excess… And the more protracted – hence powerful – the Bubble the greater the degree of tightening necessary to eventually rein it in. The more heated and expansive the Bubble the greater the dislocation associated with its bursting. I see no appetite anywhere in the world this year to aggressively suppress Bubbles.
The unfolding Bubble in China is historic, and their policymakers appear poised to tinker. Tinkering doesn’t quell Bubbles – certainly not seasoned ones. I have espoused the view that the Chinese Credit Bubble has entered the dangerous “Terminal Phase” of excess. How this dynamic and the course of policymaking play out is a Major Issue 2010. I expect Chinese authorities to work diligently in an effort to ration the amount of Credit available for real estate speculation. At the same time, the stated goal of stimulating domestic consumption implies huge growth in Chinese household debt.
I am generally skeptical in the efficacy of Credit rationing. This was a focal point of a great debate in the U.S. back in the late-twenties. One (dovish) camp believed that the focus should be on limiting the flow of Credit financing stock market speculation, while at the same time working to maintain ample Credit to fuel the booming economy. The problem is generally that years of expanding Credit create a (financial and economic) system with both a huge Credit appetite and a potent propensity for inflating the quantity of new Credit. Attempts to limit speculative Credit – or even lending to certain sectors – is generally ineffective in itself and fails to address the major issue of runaway total system Credit growth. Indeed, after Bubble dynamics have taken firm hold, attempts to restrict Credit by the nature of its use will tend to distract policymakers and delay efforts to contain systemic excesses. From my point of view, determined, decisive and independent monetary management provides the only hope for reining in “terminal phase” Credit Bubble excess. Such an approach seems in very short supply these days, and I’ll be surprised if much of it emerges in China in 2010.
Here at home, Chairman Bernanke apparently doesn’t discern Bubble risk. Incredibly, in his Sunday morning speech he even argued that Fed rate policy was about right during the 2002-2006 period – and that a low Fed funds rate wasn’t the cause of the U.S. housing Bubble. And we can also assume the he believes his speeches (including his November 2002 - “Helicopter Ben” - “Deflation: Making Sure ‘It’ Doesn’t Happen Here”) did not create a major moral hazard issue.
The markets have no fear that the Fed will tighten in response to financial speculation. I believe the Fed examines today’s real estate markets and fears “deflation.” I would imagine they see a stock market still 25% below all-time highs and worry of “disinflation.” They see stagnant (at best) household debt growth, declining bank Credit, and still impaired securitization markets and see no credible inflation threat. Looking in the rear-view mirror, they just don’t see problematic financial leveraging and lending excesses. They would surely view the reemergence of asset inflation as confirmation of their adept policymaking.
The Fed’s overriding focus is stimulating sustainable recovery. They will err on the side of caution when it comes to removing crisis-period liquidity measures. I will assume that they will not be raising rates meaningfully until they are confident that the markets and economy have first adjusted well to ending quantitative easing operations. Meaningful financial tightening is nowhere in sight. The Bernanke Fed still believes that monetary policy is a “blunt tool” and, as such, is inappropriate for dealing with Bubbles. They prefer stronger “regulation.” So, who is responsible for regulating Washington Credit excesses?
The Fed’s analytical framework and rear-view approach will not serve them well. Today’s domestic Credit excesses are concentrated in the Treasury and agency markets. In a replay of Mortgage Finance Bubble dynamics, Federal Reserve policies today accommodate the Government Finance Bubble. Dr. Bernanke’s talk of helicopter money and the government printing press was fundamental to creating an environment where the markets operated confidently knowing the Fed was there to provide a market liquidity backstop. The Fed’s fingerprints were all over the historic mispricing and over-extension of mortgage Credit. Today, “quantitative ease” and the perception of potentially unlimited Federal Reserve monetization (balance sheet growth) have greatly distorted the pricing mechanisms for government borrowings and debt instruments generally.
Because of the Fed’s words and deeds, the marketplace is dysfunctional when it comes to pricing risk. These days the price of government Credit has no relationship to the interaction of its supply and demand. If Washington seeks to borrow a couple hundred billion - or a few Trillion - it really has little impact on yields. In an ominous replay of the Mortgage Finance Bubble, government intervention has severely distorted the capacity of the marketplace to properly price risk, allocate resources, and discipline market participants (borrowers and speculators).
The Fed should have “leaned in the wind” in response to double-digit mortgage Credit growth in years 2002, 2003, 2004, 2005, and 2006. Instead, the Fed did the exact opposite, believing at least for awhile that the expansion of mortgage Credit was a mechanism to ameliorate deflationary pressures. Furthermore, it had convinced the marketplace that it was there to protect against any potential Credit bust. And then, once the housing/mortgage Bubble really gained a foothold, the Fed was unwilling to rein in the monster it had unleashed. The marketplace had become so dysfunctional that the best “trade” to profit from the inevitable bust was to load up (and further feed the mortgage Bubble) on GSE obligations.
Similar dynamics now promote the Government Finance Bubble. In a more orthodox financial world, our central bank would be expected to “lean against the wind” as our federal government sets course on destroying its (our) creditworthiness. Not these days, as the Fed holds short-term rates steadfastly at near zero, balloons its balance sheet with GSE MBS, and again convinces the marketplace that its balance sheet will always be there as a liquidity backstop.
Despite the prospect of the Fed ending its MBS purchase program in March, GSE MBS spreads to Treasuries ended today near 17-year lows. The marketplace must expect that Fannie and Freddie are to resume their balance sheet growth (and market liquidity-backstop function!); that the Fed will state its intention to provide future support for the MBS market; or a combination of both. There is no end in sight when it comes to the nationalization of mortgage finance. Clearly, the MBS marketplace is rife with government intervention and price distortions. It has, once again, succumbed to dangerous Bubble dynamics and how it functions through the year is a major Issue 2010.
As I mentioned again last week, combined Treasury and GSE MBS debt expanded $2.8 TN in the 15 months ended September 30, 2009. The emergence of the Global Government Finance Bubble was crucial for the stabilization of the U.S. and global economy. U.S. recovery is dependent upon the continuation of this Bubble, and this Bubble is dependent upon massive government fiscal and monetary stimulus. Optimism is now running high. Such a dynamic can be self-fulfilling for awhile, and the U.S. economy could make the bulls look smart in 2010. But this is very unlikely to change the very bearish secular thesis.
The nature of the unfolding economic recovery is an Issue 2010. Will private-sector Credit creation begin to expand sufficiently and, in the process, allocate ample Credit for sound investment and meaningful non-government job growth? Will a self-reinforcing Credit cycle commence, or is the system now trapped in government debt Bubble dynamics?
A respectable December for the retailers has optimism for consumer rejuvenation running high. The S&P Homebuilding index was up 14.6% this week, as the marketplace positions for a traditional economic rebound. But major questions for 2010 remain: How vulnerable is the housing market to higher mortgage yields? How long will the marketplace finance massive deficit spending and GSE debt issuance before demanding significantly higher yields?
My thesis that the unfolding reflation will be altogether different than past reflations may be tested in 2010. So far, massive government stimulus has stabilized both asset markets and national incomes. And some pent up demand throughout the economy is expected. At the same time, savers are receiving about nothing on their savings, while energy and many other prices continue their ascent. Surging financial asset prices have boosted household confidence and Net Worth. Yet a meaningful rise in market yields could easily pressure bond, stock and home prices. To what extent mortgage Credit growth can recover and foster a self-reinforcing housing recovery is a key financial and economic Issue 2010.
Unprecedented market interventions by the government played a decisive role in stabilizing mortgage finance, housing markets, and household spending. It played a similar role in stabilizing the municipal debt market. That cash-strapped state and local government regained access to inexpensive borrowings was instrumental to financial and economic stabilization. If a traditional recovery ensues, perhaps state and local governments can grow out of their debt problems. A more reasonable bet is that municipal finance faces serious and festering structural debt issues. California is an absolute fiscal mess. Do loose financial conditions continue to accommodate what will be enormous 2010 state and local borrowing requirements?
Today, the markets are infatuated with risk assets. From the perspective of Bubble analysis, this is not all too difficult to explain. The first week of the year saw about $45 billion of corporate debt issues. Despite enormous new supply, investment grade debt spreads are at pre-Lehman crisis levels. The same can be said for junk bond and emerging debt spreads. Credit conditions are loose for most creditworthy borrowers, which feeds market demand for these debt instruments - which translates into even greater Credit Availability. In such an environment, even commercial real estate doesn’t look so bad. But is such an accommodating financial landscape sustainable?
It is always impossible to know what developments will surface to upset the applecart: there are any number of festering financial, economic, political, and geopolitical issues that might impede the unfolding Bubble. At the same time, it is not unreasonable to suspect that policymakers might tend to delay dealing with tough issues. The federal deficit is out of control, and monetary policy is outrageously loose. There is an “exit strategy” with assorted doors. There is the looming issue of Fannie and Freddie. The FHA and Ginnie need to be reigned in.
Looking back, policymakers of all stripes missed their opportunities to make tough but necessary decisions in 2009. And now 2010 just doesn’t have the feel of a year that will witness a lot of decisive policymaking. In Washington, the focus will turn to the 2010 elections. The Fed will worry about its reputation and independence. Fearing for their jobs and fearful of mistakes, timid will win over bold. Bubbles treasure timid.
Until proven otherwise, I’ll project 2010 as a year of escalating Monetary Disorder – disorder globally across a broad spectrum of markets. A global Bubble would seem to ensure unsettled currency markets. Dollar optimism runs surprisingly high to begin the New Year. Yet the scenario of a dollar problem leading to a jump in U.S. borrowing costs still doesn’t seem all that nutty to me. Another spike in energy and commodities wouldn’t surprise me, but the best bet is numbing volatility. The emerging markets are poised for a wild year. And, of course, all eyes on interest rates.As I mentioned above, a Bubble Year suggests the likelihood of bipolar outcomes. I’ll conclude by admitting that I get that uneasy feeling that our central bank is quite determined to avoid learning lessons.
http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=103...
Fed officials are totally screwing themselves. They've interfered with the markets far too much. If this is legit its now being put at their door and rightly so by many. Trust has gone. The free market is dead.
Boy who cried wolf and all that.....
I sent this in as an official SEC Complaint of fraud and market manipulation.
It is clearly a manipulation and now there is an official complaint.
I told those assholes at SEC to get their shit together and start working for the people that are paying them...
the American Taxpayer.
This crap has got to stop, they are not even being "covert" about it.
The SEC can easily find out just whom made the 200,000 share purchase of $13,000,000,000 in one minute on these futures.
This shit is out of hand.
IF they don't stop doing this stuff, I think we are going to start ending up with violence in the street.
People have had enough.
Time to put lying thieves in jail.
Ineresting what happens when the FED is both the supply of dollars and the demand of dollars by doing these massive open market actions. When it gets seen through though. That's a horse of a whole different color.
The truth is now out.
It's officially a rigged casino.
This would NOT pass muster with the Nevada Gaming Commission.
Be advised if you are a Nevada Resident. You're better off at the crap table.
The CME sent an email saying the person who bought the 200K also sold it.
FYI
-----Original Message-----
From: CME Globex Control Center
Sent: Wednesday, January 13, 2010 4:54 PM
Subject: ESH0 Event
Importance: High
Between 11:03 and 11:04 CT today, there were a series of transactions in
ESH0 in which a market participant appears to have inadvertently traded
approximately 200,000 contracts as both buyer and seller. CME maintains
trade practice and risk management rules and procedures respecting such
matters. In keeping with standard practices and CME's self-regulatory
responsibilities, CME is reviewing the circumstances of this event.
Not sure if I would jump to some grandiose conclusions just by looking at the chart. Just 8 minutes later the ticker returned to just about where it started when the massive volume spike registered.
Y'all are a whiny buncha bitches. Either eat your shorts like a man or buy with the fed, JPM, the bots or whoever the hell else is buying right now.
"inadvertently traded
approximately 200,000 contracts as both buyer and seller"
Some computer programmer just got his "twinkie" bonus for the year ...
Hey boss, let's blast 200,000 bogus transactions through the casino, and see what coins fall out the bottom!!
You get to phuck with every running computer model!
Next time it will be 500,000.
The crucial question is who is the gamer?!
curbyourrisk
you read like the clown you pose yourself as.
you may want to change your face or importantly some of your thinking,
i've never found a clown credible.