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Is The Mysterious "Direct Bidder" Simply China Executing 'Quantitative Easing' On Behalf Of The Federal Reserve?
One topic that has caught the mainstream media's attention is the recent surge in Direct Bid take down participation in Treasury auctions, which as we pointed out previously (3 Year auction, 10 Year auction), has jumped from sub 10% average well into the double digit arena. Today the Financial Times dedicates an entire article to questioning just who may be "bucking the trend" in opinions and going all out in their purchases of Treasuries as direct bidder.
Market participants say the unusually high level of direct bidding
suggests that a large investor is looking to accumulate Treasuries
without alerting the primary dealers on Wall Street to its intentions.
"It
appears to us that someone is trying to hide their apparent interest in
owning these auctions from the rest of the market," said David Ader,
strategist at CRT Capital.
Rick Klingman, managing director at
BNP Paribas, said: "It is unusual to see such a spike in the direct bid
and I would imagine it is one big bidder. There is no way we will find
out who it is, not now, or ever."
We would disagree with Mr. Klingman. We also would disagree with Mr. Santelli, that the mysterious "direct bid" is merely the Fed doing an undercover Quantitative Easing. We all know that the Federal Reserve purchasing treasuries does so either directly (via Q.E., although that is now over) or though its Primary Dealer lap dogs, who come hell or high water will provide a bid floor as a failed auction is the number one "black swan" that will promptly set the whole house of cards tumbling faster than Lloyd Blankfein can yell Bank Run in the middle of a Group of 30 meeting. Primary Dealers will always satisfy whatever buying interest the Fed informs them to indicate. Which makes us believe we have to look offshore for the Direct Bidder.
What do we know? This week the PBOC will release it latest, Q4 FX reserve data. Estimates put the new total of reserves at around $2.4 trillion, an increase of about $120-$130 billion from Q4, when the number was $2.272 trillion (when the number grew by $140 billion over Q2, respectively).
Yet as we have pointed out repeatedly through TIC data, China's UST holdings have increased by a mere $35 billion since April, a period of time when the country's FX reserves grew by a whopping $363.35 billion, or ten times the disclosed Treasury holdings, which as of the most recent number were at $799 billion.
Now traditionally the relationship between FX growth and TSY holdings in China has not been a direct one, as the Chinese FX managers go to big lengths to hide their UST purchases. Yet from a trade balance perspective, the stability of the CNY versus the USD, at a time when the country continues to amass a major trade surplus (granted less so in 2009 than before, but still a sizable amount) is indirect evidence that China continues to buy US debt, even if purchases do not show up in TIC data.
The question then naturally becomes: how is China hiding its purchases. As Stone % McCarthy indicates, "The usual suspects for channeling backdoor purchases of Treasuries are the UK, Hong Kong, the Caribbean Banking Centers, Switzerland and Luxembourg. Taken together, additions to Treasury holdings for this group increased USD110bn over the period April 2009 - October 2009, with the bulk of the purchases coming from the UK and Hong Kong."
Furthermore, if China has indeed entered a very covert mode of stealth TSY purchasing, it would likely shun the indirect bid altogether and begin doing so at the Direct Bidder level. Whether this means that China is providing back door funds to a domestic asset manager to purchase bond exposure we do not know, although that would surely be one way of goosing the "Direct" bid.
Additionally, there is no doubt that China would have little to no interest in the long-end of the curve. Assuming the above theory is at least partially value, this would be indeed confirmed as the direct bid take down in the just completed 30 Year was a meager 4.9%: orders of magnitude less than its participation in the 3 and 10 year auctions earlier this week.
Which begs the question: why is China so intent to hide its holdings in US Treasuries from being exposed by traditional channels such as TIC data? And, the corollary to this, has the Fed blessed this covert accumulation? If the answer to the last is yes, this presents a very troubling conclusion: the Fed's Treasury Quantitative Easing has now been offloaded to China.
It is no secret that the two main beneficiaries of the current Keyenesian experiment in extend-and-pretend are China and the US - should there be a failed auction it would certainly destroy the economic recovery in the US; it would reverberate even more in China, whose currency has long been pegged to the US, forcing many to say that China is merely yet another state of the US (or alternatively, that the US is now just a vassal state of China).
With China FX reserve continuing to grow at a massive clip of about half a trillion per year, the country is stuck with great amounts of dollars that it does not need, yet can not sell without forcing a devaluation of the dollar. It is thus forced with only one possible "investment decision" - buying Treasuries. Yet due to reasons still undetermined, it is doing without notify the broader public. To assume that China has grown it FX reserves by a factor of 10 times what its UST purchases have been in the past half year is laughable.
Which is why we make the claim that the Fed has now informally offloaded the Treasury portion of Quantitative Easing to China, which does so via the elusive Direct Bid. It also explains why the Fed has generically been much less worried about TSY purchases under Q.E. (a mere $300 billion out of a total $1.7 trillion in monetization). It does beg the question of just how much Chinese holdings of US Debt truly are, as this number is likely hundreds of billions higher
than the disclosed $799 billion.
Of course, if this is proven, it will expose the fact that China's and the US' central bank (and broadly economic) fates are tied closer than ever. Furthermore, monetary policy in one country will immediately be met with a comparable response by the other. Additionally, if there is indeed an implicit understanding between Bernanke and his Chinese colleagues, it means that not only the housing market (via Agency and MBS security purchases), but the Treasury market as well, are both manipulated beyond recognition and implies that broad securities are massively overvalued due to the stealth purchasing of core "riskless" assets by the US and China, as investors look higher in the cap structure for yield. Lastly, implications for world trade are great, as Asian countries will have to deal not only with the Chinese behemoth, which will constantly seek to keep its currency as low as possible, thus exacerbating the rest of Asia's foreign trade balances, but that of the US itself. The immediate implication is that China (or the US for that matter) will likely not reflate their currencies out of their own volition any time in the foreseeable future. Look for a much weaker dollar in the coming months.
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Truly heartbreaking that the money went to buy Tsys when it could have been used to finish this much needed Dubai project:
http://www.theonion.com/content/news/dubai_debt_crisis_halts_building
historically every bid empire failed when greed and exuberance took over.. another lesson for the history books.
History don' apply to us 'cuz we're Americuns.
earned yourself a golf clap on that one Howard!
i presume you will be watching your favorite bank closely tomorrow.... not much of a bid the last several days, interestingly enough.
Absolutely watching that piece-o-jpm. Looking at long dated puts now since vol is so low and I am just so sick of this rally.
my bearishness, particularly longer term, continues to grow.
this rally has been most interesting. i thought sometime ago the Fed would exercise a bit of responsibility but i was wrong. whatever the case, every action has a reaction and i think i know what that reaction is.
i also remember what history has taught me about fear and greed and risk and aversion thereto.
though i used to be a type a driver, i've worked hard all of my life to overcome some of the associated weakness of that personality profile and i must say that i've become pretty darn good with my patience.....like the picture of a grizzly just hanging by the riverside waiting for the dumb fat salmon to come along cuz it does come by every single time to get itself eaten.
Yeah, I've become much more patient too and I was the quintessential Type A for a long time. Not anymore (at least 10 years). Lately I just look in on the market every few hours to see how much further it can stretch and then I do some stretches of my own on the floor.
I get much more bearish on the economy everyday, part of my job involves estimating mortgage performance, and all evidence I see points down. The jobs report on Friday was awful.
As for the market, no way would I stand in the way of the Fed's firehose at this point. The only decent shorts are companies that might go to zero, but if a company is a going concern, and someone wants to value it at 1000x earnings, there is nothing stopping them. It is all about liquidity at this point, and the Fed still has a couple hundred bil to print on MBS.
Did you say dubai? I have an analogy: the us is to china as dubai is to abu dabi. So what can we name after the chinese to show our appreciation? California?
Who compiles the statistics? Wouldn't it be a simple as just fabricating the report? IOW, the "direct bidder" allocation can be whatever I say it is.
Would not be surprised - at all - if that was the case.
"Yet due to reasons still undetermined, it is doing without notify the broader public.
Sounds like some other country, allegedly the most democratic and transparent in the world..oh yeah, the U.S.A. The reasons are called "We got the power, so fuck you."
We already know they're good at 'cut-n-paste'
There is a simple explanation for the larger direct bids. There are three dealers who are trying to become primary dealers. It was reported in the WSJ earlier this week. When that happens, potential primary dealers start to ramp up their bid action in auctions to show the Fed they are proper candidates for primary dealer status. They show up in the stats as direct bidders, since they are bidding directly through the Fed. That happened last year when Cantor was trying to become a primary dealer. It is likely the reason for the larger direct bids this time as well.
+1337
If your argument is correct, the three applicants (SocGen, TD and Scotia) would have had to buy $10 billion among themselves in two days to satisfy the Direct Bid differential to trending average. Maybe you can provide some info on why you think they have that kind of cash lying around. And obviously they don't have access to the discount window or repos (yet).
They do have customers who can put bids through them just like the primary dealers. Some of their customers could put bids through them rather than do it with a primary dealer. I am not sure if those bids would show up as indirect bids or direct bids. If customer did the trade with a primary, it would show up in the indirect category. Not sure if Fed has the capability to see customer bids from these dealers or not.
A potential primary dealer is more likely to have their positions hedged before the auciton, so the size of the bids could be somewhat misleading. More of their position could be hedged. The discount window is not a factor in this type of trade. They have access to the repo market so not doing repos with the Fed is not a bid factor either.
I would suggest that it is more than just the primary-dealers-to-be.....add in the top 10 US banks piling on treasuries to their balance sheet. There is a clear shift occurring with fewer sovereign purchases of our debt and more domestic financing.
The advantage of trading in the WI market is that you don't have to put up much collateral to trade. So the size of their balance sheet is not as important as if they were doing trades in active instruments.
i think that you have provided a reasonable
alternative explanation...i think that both
hypotheses require additional analysis...
somehow, i do not think that the chinese are that
involved at this point in usg debt but their
frn have to go somewhere....
i still want to know how indirect - interpreted
to be foreign - bids can be so high when zh reports
that the fed purchased 91% of us debt in 2009....
I don't know, I just can't see China piling on more treasuries, unless there's something afoot here that I don't understand (likely).
What does China gain by buying more treasuries? A stable Yuan? But for how long? Are they merely trying to push out the inevitable? Or is their strategy simply to continue indenturing the US with evermore debt purchases?
I am Chumbawamba.
Just gets better and better.. Sooner or later, "someone" is going to have to engineer a meaningful "correction" to suck the retailers back in, and whoever else is dumb enough to jump in.. Buy! Buy! Buy!
Did you see the article on CNBC (I just read it for Cashin and the occasional Santelli, okay...) where Cramer said that stocks are a great value right now?
The chutzpah of these people is overwhelming sometimes.
As long as we are idly speculating. I'm putting my money on al-queda
ROTFLMFAO! Considering they have to sell $2 Trillion worth of this shitpile, who knows? I guess at this point they are taking all comers. And what better way to screw Al Qaeda than to sell them soon-to-be-worthless financial weapons of mass destruction treasuries (move over derivatives - here come treasuries)? Just fucking brilliant - LOL!
Well, don't forget it's a tripple-A shitpile. And Fitch dosen't seem to think the papers will be wortless any time soon.....
"Fitch Ratings-London/New York-11 January 2010: Fitch Ratings has today affirmed the United States' (US) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'AAA', respectively. The rating Outlook on the Long-term ratings is Stable. Fitch has simultaneously affirmed the US' Country Ceiling at 'AAA' and the Short-term foreign currency rating at 'F1+'."
"The near-term risk to the United States' 'AAA' status is minimal given its exceptional financing and economic flexibility and the US dollar's role as the world's predominant reserve currency. However, difficult decisions will have to be made regarding spending and tax to underpin market confidence in the long-run sustainability of public finances and the commitment to low inflation," said Brian Coulton, Head of Global Economics and the Primary Analyst for the US at Fitch."
(Not that I personally have any respect for the rating agencies anymore....but a trippel-A is a trippel-A and can be sold in any market...)
how many rating agencies went out of business because of their bad calls? none. how many people working for rating agencies were picked up, put in handcuffs and arrested? none. so what has changed? nothing.
GG - Just remember that converting opium to treasuries carries decent conversion for all involved...
Howard_Beale,
Those palm tree beaches will make good bombing targets for US jets.
And that indoor golf course!!!! wowie zowie!!!
What a dumbass way to spend money.
I really liked the fact that the Onion included the vulcan activity within the mountains and the casino on top. Brilliantly funny stuff that skewered the shit out of Dubai.
Steal from your citizens to pay tribute to your competitor.
The world has truly gone crazy.
In for a penny, in for a pound.
When does reasonable turn into insanity? From the point of view of the desperate, never. From the point of view of the observer, last decade, last year, last week, inevitably.
Yes you should write it CD. My full response is up if you missed it. Using the classification of insanity may well provide a viable means for part of the job. Have a great weekend.
Miles,
I saw your post this morning. What is your e-mail? I seem to remember it was something Kendig. Or we can meet in chat and exchange contact info. I don't have a clear idea how to support this thesis but it sounds like you do. Want to collaberate on an article?
Please do guys.
I'm not sure what you guys are actually talking about, but it made me think of a blurb I heard on the radio about this article:
http://www.nytimes.com/2010/01/10/magazine/10psyche-t.html
I will read this tonight. I'm working on another article about waking a sleepwalking population and this article in the NYT looks like it might be interesting.
CD, are u writing articles?? I ve said it before, i ll say it again, i really enjoy your prose. Cant wait to read the article about sleep-walking.
Thank you Oso.
My one and only (so far) article is below. I've been doing some informal research for my next one, which I'm struggling to finish.
http://www.zerohedge.com/article/end-empire-%E2%80%93-propaganda-and-american-myth
keep going CD....you do a GREAT job and add much value.
thank you for your efforts.
CD- Just read your article- it is thoughtful and provocative. Thank you. If you haven't already done it, read Gibbons (1776) on the Decline and Fall of the Roman Empire. It certainly has many parallels with what we have going on.
The politicians are corrupt, the nation's treasury is squandered, but within the city it is BREAD AND CIRCUSES for all. By the time Alaric plundered Rome there was no physical or moral spirit left in the Roman people.
Just as Rome was divided by its Eastern and Western empires, America is divided in to two phony camps- the Remocrats and the Depublicans.
Kayman,
Thank you for your kind words. I actually read Gibbons in college as part of my effort to understand the past. I returned to the volume about 10 years ago when I began to think something was seriously wrong with the US and the world and I began to search the past for answers to today. Over the last 10 years I've re-read it so many times it became dog-eared and worn out and I rewarded myself with a new copy the other day.
As you said, the parallels are remarkable, which just goes to prove that while man's technology may have improved over the past 1500-2000 years, psychologically man has not progressed one iota. And the technology just makes him more dangerous to himself and to every natural animal, plant and mineral around him.
I recently listened to a 10 CD set of the history of the Roman Empire. The parallels to American society and empire are creepy, all the way down to the patronage system (if you don't think we have patronage in the US then you haven't been paying attention...now go blow some complimentary smoke up your boss' ass).
At this point I just gotta get a handle on how long it will take this ship to sink. Rome fell off pretty quickly at the end, but I'm wondering how close we are to the precipice. We may yet be 30 years away, which would be highly depressing, and which would make my search for a cave somewhere in a place no one can find me ever more urgent.
I am Chumbawamba.
You are certainly witty with a pen, but you are NO Orwell, why screw with perfection, its been done and guess what, it was received like a nice valium as the public drifting further into their slumber, waste of time if you want my opinion
Never claimed to be Orwell. But I find the argument that just because something has been said, it doesn't need to be said again, silly. Not everyone hears it the first or second time. And not everyone reacts to the same words the same way.
You may be correct, it may be a waste of time. But the primary purpose for my writing is my intellectual, spiritual and emotional growth. And I find that in that department two (or more) heads are much better than one. So I find that I grow from writing the articles and reading the comments. If just one person takes one more step towards personal growth because of my efforts, than all the better.
I believe that giving is infinitely better than taking. And that every time I give, I receive in return. So why not try? I also believe that a mind in isolation is a mind in decline. So I expand my mind and my conciousness on ZH and elsewhere. In defense of ZH, I've never met a group of people who, on the whole, are willing to learn and grow as much as ZH readers are. Sure there are some who just wish to disrupt. You find them everywhere. The benefits from ZH far out weights the cost in time and effort.
http://www.youtube.com/watch?v=bd2B6SjMh_w
That is one of the most original and unique music videos I've ever seen. Where do you come up with this stuff Miles? Too much time on your hands? :>))
So does that mean CD is on his own or are you DowntownRec?
None of the above?
Dynamic times provide dynamic conversation and interpretation. This is a diverse group of folks here from whom a good read can usually be found.
+ ... ZING!
Concise, and very irreverent.
I'll be around the chat
Miles, so good to see you're around. I've missed you!
So good to see you and your wit as well Howard.
Simply ask yourself, "What is in China's best interests?" The answer is to keep the USA economy (and imports) propped up until the rest of the world economy is capable of absorbing Chinese goods. Thus, the above theory is to me very plausible.
Anonymous,
Why doesn't China just let its currency rise which will give them over a billion consumers with plenty of new purchasing power to sell to? No more throwing good money after bad (ie. buying US Treasuries). Problem solved, no?
Because the last thing the Chinese want is their own middle class.
A lower US Dollar (in part because the 'Chinese aren't buying') along with a currency pegged to the USD keeps Chinese exports to the US cheap but makes it more expensive for European exports to the US.
I like the thesis that it is China but I am not sure
they would need the stealth. My instinct is that we
are looking at a large European buyer shifting assets
out of Euro sphere. This would better explain the
need for stealth in my view.
If true, I imagine stealth is necessary because a large number of the educated Chinese (and most likely Chinese leadership), are tired of paying taxes to the US... If they knew that their government was continuing to buy, there would be significant dissent.
My bet is on arm-twisting in Arabia.
By definition, wouldn't Chinese buying NOT be quantitative easing?
I think the Chinese are doing exactly what everyone thinks they are - staying on the short end of the curve, with the rest of their money going to buy commodities.
The banks are most likely the ones buying up the treasuries, straight from the Argentinian playbook.
+100
I agree. They are buying massive qtys. of commodities. I've never seen anything like this on this scale before.
Makes me nervous...
the need for stealth escapes me and I think this is one major flaw in this theory. However, with the Yuan pegged to the dollar, China is certainly amassing huge amounts of cash and they would have the biggest interest to prop the govies market since they are the biggest holders of US debt.
+10
look at the RTP iron ore numbers and the spot vs. contract (+100%). ditto for coaking coal, copper even the dog that isn al. $80 oil is the new $25 for purpsoses of gold accumuluation. China asset manageer for sovereign out saying dollar looks oversold and gold toppy. subtle.
+100
This makes no sense, and undermines the whole thesis: "With China FX reserve continuing to grow at a massive clip of about half a trillion per year, the country is stuck with great amounts of dollars that it does not need, yet can not sell without forcing a devaluation of the dollar. It is thus forced with only one possible "investment decision" - buying Treasuries."
Many important commodities are dollar denominated. China can continue to plow money into commodities instead of worthless treasuries. The commodities will have utility and relative value long after the dollar is dead and buried.
if such an agreement were true perhaps the US believes it can handle the cost push inflation via the CFTC and or exchange inertia (per position limits via CFTC via energy). It is interesting to look at the differential between moves in spot on benchmark commodities (iron ore, met) vs. the exchange traded ones. Seems like the benchmarks are outperforming the exchange traded base metals. A money laundering operation that keeps dollars flowing, commodities rising (with a collar on oil & copper). I believe the SPR is now full and perhaps it is a derivative bet on physical storage scarcity.
got gold
Excatly. Reposting my comment below:
So what is the end game? If China is a bubble and the US is insolvent, who crashes what and why? What is the ultimate outcome other than one world government and one global currency.
Any ideas on how to end the charade?
Ideas are legion. Here's one: prevent any and all shipments of baby diapers for one week.
Well stated Tyler. Here is the key sentence:
...it means that not only the housing market (via Agency and MBS security purchases), but the Treasury market as well, are both manipulated beyond recognition and implies that broad securities are massively overvalued due to the stealth purchasing of core "riskless" assets by the US and China, as investors look higher in the cap structure for yield.
We were told by a colleague of ours in Chicago close to the current administration, that privately, government officials are "scared shitless." Underneath, the current economic situation is very bad. We're nervous.
If this were indeed accurate, then why would the current "scared shitless" administration continue to do everything in it's power to make things worse? They can't be that stupid, can they?
They're following the universal playbook which is far more stupid than you apparently believe possible. Remember, senior government officials can never be held personally accountable for any decision they make or no one would ever serve. Or so what passes for bipartisan political reasoning is currently telling us.
When something seems too stupid to be believable, I begin to think in terms of it being deliberate under cover of stupidity.
"Never let a crisis go to waste" keeps ringing in my ears.
I would call George Soros unbelievably vulgar words but not stupid.
YES, in our opinion, they are that stupid. Go read the book "To Big to Fail." It gives you a little glimpse into how the smartest financial minds in the world blew themselves up and then scrambled in a chaotic panic making half-ass decisions to cover it up, and cover their own asses. The book gives you a small glimpse into human stupidity and self preservation. Worth reading. Good luck.
Governments are made up of people; with this in mind I'd like to ask you a question that I believe may in fact answer your question.
Have you ever done something you knew was stupid and when the time came to face the consequences you preferred to just lie or pretend the problem wasn't there?
AR and others in this part of the thread:
+1
I'll add basically the same by saying that when people are in pain, they just keep taking morphine if it is available...
Spear, I'll take a stab at answering the general question. The answer is sure. Here's the difference. We grew up in a very tough Italian/Irish neighborhood. In 18 years, we never saw a cop car. Why? Because when we screwed up, the big brothers would take our asses out back and beat us. The moral, we learned at an early age that you never, ever, screw your own, lie, cheat or steal. Why? Because it had consequences and we were made to "pay for those consequences." Today, in our firm, you lose money, you do something stupid, own up to it, work with the team to fix it -- period. You don't play bullshit games, lie, blame someone else, or cover it up. Today, we live a society of spin doctors and bullshitters. Life is pretty simple. Work hard, be honest, don't screw people, and take responsibility. Everywhere we turn today, and especially in government and in upper management, everyone is playing games and trying to cover their asses. That's STUPID. Because in the so-called end, when it's discovered you lied, stole, or cheated -- there is no one around to help you -- you screwed yourself. Obama and his one-finger sidekick elf, might take note, sit up, and be counted. They are leading America down a path of no return. And YES, in our opinion -- ther are STUPID.
AR
What you're saying makes all the sense in the world. This is how I live my life. But you're talking about rational thinking and moral conduct. Rational people don't piss on their carpet if they're going to live in the house and raise the family there. Good clean living makes moral and rational sense. I firmly believe that it only takes a few souls at the top to set the high moral rational standard before it trickles down.
Of course, it works both ways. And when insanity works its way into the system and into the minds of the players, crazy starts to look very reasonable to the insane.
now I know why I like your posts AR. I grew up pretty much the same way (with a mom and dad who drilled me on always telling the truth).
I never lied to my customers during my banking career. in fact, it was fun to always tell them the "bad news" about a product or service first, cuz the looks on their faces was priceless. it was the best way to establish trust cuz every other stupid ass out their lies like hell and tries to cover up or poo poo the downsides.
they would ask "why the focus on the downside" and I would tell them if the downside was bad enough for them, then perhaps it was a waste of time to discuss the benefits. a lot of people thought i was this great salesperson type but the truth of the matter was that i simply told people the truth. i got more business, repeat business, and referrals just because of that, honestly. i used to get a hard on when a stranger would call me and said "so and so" said that i could talk to you and you would be straight and honest with me.
as you said: " Life is pretty simple. Work hard, be honest, don't screw people, and take responsibility."
Amen to that.
CD and DH / Sorry, this will be my last post on this matter. But, you know what I sense really bothers all of us the most? The deceit, the lying, the game playing, the hidden agendas, the smoke-n-mirrors. America is in a world of hurt. This country is in trouble, big trouble. We're bankrupt amongst many other things. Yet, as CD mentions, we have no real leaders, or leadership. We ALL -- are just tired of it. Tell us where we really stand. Don't lie to us, don't cover it up. Shoot straight. Fix it. This country was build on "backbone" not bullshit. In the bigger picture, I'm truly affraid this gets much worse before it gets better. Hang in there everyone. Stay positive.
No, STUPID is great cover for doing the unpopular. The people in the know KNOW.
You could not act THIS STUPID (in terms of running an economy) other than buy PURPOSEFULLY setting out to do so. Think about that for a moment.
What their PURPOSE IS? That is the trillion dollar question isn't it.
But please don't tell me they are just "stupid", that is an insult to stupid people.
In the fullness of time, I think we will know WHAT, WHY and WHOM, but not until the next system for international settlement is already up and running and it's too late for any of us to do anything other live within the constraints of the "new system".
But please stop claiming that this was just a "stupid accident". To do so is to ignore the previous 50 year year history of US industrial, monetary, and economic policy.
"They are stupid" is the refuge of the intellectually lazy.
The PURPOSE is to cover the folly of TARP with a continuation of bailout policies and MBS cover, including the misguided Stim 1. A year ago the deflated valuation in RRE and CRE was an unseen.....or at least not near the level we are presently witnessing. Given the haste of decisionmaking, no one suggested that there was a larger systemic disease at work. If there was anything stupid, it was really that haste trumped proper analysis. The " problem" went undefined on the depth/duration front. Potential near term catastrophy became the mantra, without a proper definition as to what that means.
In Gubmint, cancelling out bad decisions with future correct choices is rare. And that's where either desperation or stupidity kicks in. I believe it is the former with a sprinkling of latter.
In Gubmint, cancelling out bad decisions with future correct choices is rare. And that's where either desperation or stupidity kicks in. I believe it is the former with a sprinkling of latter.
Very well said rainman.
I definitely go with the desperation and fear angle.
These folks are humans and they know well what the status is and are likely scared shitless like many of us. Unfortunately, they won't pull back on the all in bet they have made as you suggested and the forces of nature and economics will ultimately make the decisions.
stupid purpose or
purposefully stupid? does
it really matter?
Why clog the system with simple neighborhood business?
Well, this does beg the question "Why are they buying?"
esp. if we are heading into a "Covert War" with them as speculated earlier...
http://www.zerohedge.com/article/gues-post-google%E2%80%99s-mysterious-t...
Very good question, carbon... whay ARE they buying?
Very good question, carbon... whay ARE they buying?
They buy because their currency is pegged to the dollar. If the dollar drops so does their currency vs others and they can export more to others countries.
If China can't export efficiently someone else will step up and fill the void. However, if the US is unable to buy their goods there is nobody to fill the void and China's export economy is crushed.
bondscoop's post (#194004) does make sense.
DavidC
O.K. Assuming that the direct bidder is China,then I would argue that the FED wouldn't know that for a simple reason,better prices(higher yield in that case). If they show interest then prices of tbs will be higher. But the market is assuming that there are many less indirect bids,and hence demand lower prices,and bingo,enters PRCB through his agent and sweep cheaper TBs and keeping the peg still a live. Doesn't that make sense?.
I think this blog harps the conspiracy tune too aggressively some times. The "mystery buyer" is, as bondscoop pointed out, most likely the large array of would be primary dealers. While he referenced 3 prospects for primary dealership, the actual number of aspirants is larger. If you look at the direct/indirect bidder participation in the 10yr reopening yesterday you will see that indirects were down 5% MoM, and directs were up 9%. If you go back to the 3s auction 2 days ago you will see indirects down 22% and directs up 21%. It is good practice for aspiring dealers to participate in auctions, and take down a significant amounts per auction cycle. Since 3s are a less risky proposition than 10s or bonds, they have more participation by aspiring dealers who are not as robustly capitalized. Typically when these would be PDs started towards their goal, they were probably placing their auction orders through an existing PD and were counted under the indirect bid. Now that they've stated their intention, they are probably using the treasury TAAps program to place bids and are categorized as direct bids. No conspiracy necessary.
Seeing how we are supposedly in an era of "unprecedented transparency" with the current administration but yet the FED's books remain closed to scrutiny and the room is so dark and murky that we can not tell whose hand it is in our pockets, we are forced to speculate on fewer and fewer vetted "facts" about the finances of the government.
Your theory sounds plausible as well but there is no proof to back it up at this time (as you indicated with the use of the word "probably" more than once), hence it's a conspiracy that just happens not to be on the dubious end of the conspiracy spectrum.
just speaking from personal experience.
Nice terminology change... So now anyone 'buying' Treasuries is 'participating in Quantitative Easing'?
No way is that a misleading headline. Maybe I'll head down to the gas station and 'participate in some quantitative easing' on my way home.
Lets hope this 'Quantitative Easing' doesn't drive rates down and cause malinvestment - don't want Austrian economists to poop their pants again trying to explain why markets get bubblicious.
I wonder if there is any connection between the S&P volume spike and the unknown bond bidder. Seems quite a coincidence?
it makes perfect sense that the chicoms and the fed are on the same page about this. they both want the game to continue a bit longer, maybe for differing reasons of course. the chinese want their dollars to at least retain some value before they dump them. also the chicoms are trying to talk down the gold price so they can get that next 200 ton imf gold consignment at a better price and so they can dump some more worthless dollars too.
.
to exchange in google
http://www.reserve-bank.com/cb.htm
Just check out the number of Central Banks....
Now...
Now think about sovereignty and independence ....
Now think about ...
How all of this could be coordinated....
"The Central Bank Afghanistan" LMFAO!
The Subsidy That Won't Die
The big banks claim the government isn't helping them anymore. Not exactly. Check out this little-known subsidy.
But the big American banks aren't nearly so independent as they would have us believe. JPMorgan Chase, Goldman Sachs, and their peers are still benefitting hugely from significant post-crisis subsidy programs that boost their profits. I'm talking mostly about the Temporary Liquidity Guarantee Program (TLGP). This was a program started in the wake of the Lehman Bros. collapse to deal with the fact that banks were having a tough time raising short-term capital on decent terms. Under the TLGP, the Federal Deposit Insurance Corp., which is ultimately backed by the taxpayers, would guarantee debt in exchange for fees paid by the banks issuing debt.
The TGLP was ended to new entrants in June 2009 and thus far has gone without a loss. But the fact remains: Private companies were allowed to borrow massive amounts of money—$345 billion at the peak in May 2009—on the public's credit. At the end of the third quarter, there was still $313 billion outstanding.
http://tinyurl.com/ygk9zwm
i'm sorry but a black swan is an unknown unknown of low probability but devastating impact. the fact that you envisage a failed treasury auction as such a thing is not accurate - such an event would be more of a grey swan.
Don't eat the yellow swan.
I'd call this week's ES action a "Peeking duck."
could be or it could just be the street...and neither are willing to go out the curve.
first tim poster but along time lurker. Do not have half the grey matter that most of you folks have nor the understanding of the complexity of the issues. However, here is my 2c.
Why is it not possible that China is buying the long end (as someone suggested it is int heir best interest) and hedging their USD/treasury exposure through massive commodity purchases?
I don't think this is probable. The more likely scenario is that the Fed is trying to make it seem as if China is buying Treasuries covertly. Remember that the Fed is skilled at the art of the Ponzi scheme. This is just one more extension of that concept.
Besides, if the U.S. were approaching default, it would make it seem as if its biggest creditor, China, were buying its debt. It's classic deception.
in a nutshell.
Think about Chimerica as a single entity in the world.
Brains and brawn. Left-side:right-side:corpus collosum.
Tyler, you are tapping on one of the facets of this gem:)
40muleteam Borax
Still waiting for the 'meaningful event' Cashin predicited back in Sept!
Maybe he was planning to retire.
Poor Art, after all those years on the floor you think he would be able to identify a liquidity induced sugar high when you saw one.
Art went to cash (supposedly) back in October.
So when Bush Jr. sold Treasuries to China it was "bridging capitalism into China" but when they buy for Obama it's "Stealth QE"
You had the right question in there: Why the fuck bother to hide the purchases of Treasuries?
You never answered it, you quickly performed an analysis of "what if the Fed blessed these purchases?" Well fuck yeah they would bless the purchases, they would be screaming out loud "THE CHINESE ARE BUYING OUR DEBT, WE ARE SAVED".
I love the circular logic that is being invoked here if anyone has been on ZH for longer than 2 months because for several months the battle cry for higher rates was "THE CHINESE AREN'T BUYING UP THE SUPPLY AND IT WILL OVERWHELM DEMAND", now it's "THE CHINESE ARE INVOKING QE!"
So what? we're now issuing dollars back to the chinese to pay for this QE? The logic of your argument is seemingly pieced together in a ragtag fashion made to back your (continuing) failed call for higher rates (as of yet). This continues to beg the question, if ZH is smart enough to realize that the higher interest costs of the debt will break the American budget, why are your not pointing out this fact? Why the continued call for higher rates? Why the exclusion of Bill Gross's statement saying that he sold Fannie & Freddie securities but bought Treasuries? (http://www.zerohedge.com/article/exercises-supreme-hypocrisy-bill-gross-...)
Look, this is the best goddamn website out there, but why have the opinions of ZH started to swing to match those of CNBC (short of pushing individuals into stocks)? The push against AIG, the lambasting of the Fed, death to the Government.... about the only bank that receives criticism here is Goldman Sachs, every other bank is mentioned in a story that ridicules the SEC (such as the BoA prosecution). Even now stories released on ZH are moving to CNBC ever more quickly (which is good meaning they read the stories, but bad meaning they have passed banker approval).
I love the work here, but I no longer trust the opinions here. And yeah, I'll hold my nose and pay for a subscription (through paypal or a buy and throw away credit card of course... puhleeze, like I'd use my real name?)
Cmon, the site may be not a cnbc but it still a media.
U need hot stories and stuff to attract attention et all sometimes logic
and pure financial abc be damned, like this idiocy " china doing
qe " stuff.
There is no magic info source, u still need to have your bullshit
filter on and running.
Afterall opinions are like u know what - everybody got one, what
I value this site for is a good facts reporting, the kind of facts u will not find in conventional media, only in blogosphere, not the interpretations.
A direct purchase of T securities by China does not constitute quantitative easing.
You guys are confused at ZH.
Zero Hedge has been infiltrated, read the opinion of Obama's Czar (Propaganda) regarding infiltrating sites that promote conspiracy theories to leave comments and cast doubts:
http://www.wnd.com/index.php?fa=PAGE.view&pageId=121884
Notice he included the belief that global warming information was fraudulent as a conspiracy theory (before the emails were hacked and released showing manipulation) along with a number of other disputed historical events being listed as conspiracies.
“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.” - Joseph Goebbels
Keep an eye out for the trolls, since most of the stories running here could be deemed "conspiracy theories" that don't follow the propaganda.
We know what Obama says is propaganda. We know what Lloyd says is Propaganda. We know to laugh at the outright bullshit spewing from the mouth of Timmay and Zimbabwe Ben.
How do we know what is read here might not also be a form of propaganda?
Nevermind the amazing amounts of information provided by Zero Hedge for which we will all most likely be paying for in the future, what is said here is no different than Ron Paul, Chris Martensen and many others are saying publicly. I think too many forget that we have no clue who the author is in many of the posts here. Sorry, the Tyler Durden I know of is the one who was portrayed by Brad Pitt and stood for anti-capitalist interests, promoting socialism and terrorist acts protecting the little man. The one from here, despite his obvious and impressive intelligence (no bullshitting or asskissing, the guy knows his bond market and math), is a complete unknown. Until he is publicly revealed, I have to continue to wonder at the motivations. Zero Hedge might have been infiltrated, by commentators or something of the sort, but it might also have stood (and stands) for something different than we ever imagined. All I can say is "do your own homework and come to your own conclusions". Don't read the snippets and think you've read the gospels when in fact your reading the King James version, not the Septuagint.
With all due respect Tyler, I don't think China buying Treasuries - whether stealthily or openly - counts as quantitative easing as the dollars China holds were earned by supplying real goods in exchange, not by printing money out of thin air.
I don't really care who it is as long as teh maggot usa banksters are cut out of the loop.
speaking of the Fed, anything ever come out of them due to the mistake on the consumer debt number?
All I can think of for this mystery is what country did the U.S. threaten this time to shut down their grid? Im not saying that happened, Im just saying...it happens.
http://politics.slashdot.org/story/10/01/14/2226219/Obama-Appointee-Sunstein-Favors-Infiltrating-Online-Groups?
Watch your back Tyler.
"President Barack Obama's appointee to head the Office of Information and Regulatory Affairs advocated in a recent paper the 'cognitive infiltration' of groups that advocate 'conspiracy theories' via 'chat rooms, online social networks, or even real- space groups and attempt to undermine' those groups. More recently CENTCOM announced it would be engaging bloggers 'who are posting inaccurate or untrue information, as well as bloggers who are posting incomplete information.' "
Yeahhhhhh, see, once again it's hearsay going on hearsay and nobody does their own fucking homework.
If Obama stopped free speech I would be screaming that out. But what you are writing is a story reposted from a story from a blog in 2006.
http://www.rawstory.com/news/2006/Raw_obtains_CENTCOM_email_to_bloggers_1016.html
Raw obtains CENTCOM email to bloggers
RAW STORY
Published: Monday October 16, 2006
An email sent by United States Central Command (CENTCOM) to bloggers about the "global war on terror" (GWOT) has been obtained by RAW STORY.
CENTCOM announced earlier this year that a team of employees would be "[engaging] bloggers who are posting inaccurate or untrue information, as well as bloggers who are posting incomplete information."
The email was not addressed to RAW STORY.
"The main interest is to drive their readers to our site," Maj. Richard J. McNorton, chief of CENTCOM "engagement operations" said in a March release.
In the same announcement, McNorton said that the emails have a "viral effect," as many bloggers then link to the CENTCOM website, driving Internet news consumers to CENTCOM's Web site.
"Now [online readers] have the opportunity to read positive stories. At least the public can go there and see the whole story," he insisted. "The public wants to hear these good stories."
The email, in its entirety, follows:
#Subject: CENTCOM.mil: Just visited your site Date: Mon, 16 Oct 2006 11:36:07 -0400 From: "Erickson, Christopher J. SPC USA" [redacted by RAW STORY] To: [redacted by RAW STORY]
Greetings!
My name is SPC Chris Erickson with U.S. Central Command Public Affairs. I came across your blog today and noticed your interest in different topics, particularly on the GWOT.
As a member of the US military, I like seeing open discussions on the happenings of the world, although many times I’m not able to get involved (especially if it gets political). I would like to invite you to check out our web site, www.centcom.mil. It’s one more resource for information and you’re free to use any of it (video, audio, photos and articles) in conversations on your blog.
Also, if you would like, you can be added to our mailing list. We send out news stories and press releases about US military and coalition forces operations, humanitarian and reconstruction efforts. This information is also available via RSS on our site. Most of the time we can get CENTCOM information out to bloggers before it appears in the main stream media.
I appreciate your time today and I do look forward to hearing back from you.
V/R
Spc. Chris Erickson Electronic Media Engagement Team U.S. Central Command Public Affairs [redacted by RAW STORY] http://www.centcom.mil
----------------
See people? Do your own fucking homework.
Speaking of my outright disrespect to our leader above, did anyone else see that Blagovich said "I'm blacker than Obama"? That shit had me rolling in laughter... partly because I said nearly the same thing during the elections.
http://news.yahoo.com/s/ap/20100111/ap_on_re_us/us_blagojevich_esquire
err? the story he posted is about Cass Sunstein, and it's a rawstory article from yesterday.
http://rawstory.com/2010/01/obama-staffer-infiltration-911-groups/
The article refers to a paper written by Sunstein in 2008, in the Journal of Political Philosophy. I guess a blogger/activist discovered it and posted something about it.
MEMO
TO: Cass Sunstein
FROM: deadhead
Cass:
Firstly, please tell Rahm I said "Fuck you".
Secondly, on this whole conspiracy and intrawebs thingee, one of the best ways to dispel conspiracy theories, as you must know, is to tell the truth and back it with data and facts.
please email me at zhdeadhead at gmail dot com and i'll tell you how we can put to rest all the conspiracy theories about the Fed.
That's not the link he provided.
The very first link in his comment. If you click it, it will take you to a slashdot posting that references this article on rawstory: http://rawstory.com/2010/01/obama-staffer-infiltration-911-groups/
-------------------------
by ratava
on Thu, 01/14/2010 - 16:19
#194357
http://politics.slashdot.org/story/10/01/14/2226219/Obama-Appointee-Suns...?
Watch your back Tyler.
"President Barack Obama's appointee to head the Office of Information and Regulatory Affairs advocated in a recent paper the 'cognitive infiltration' of groups that advocate 'conspiracy theories' via 'chat rooms, online social networks, or even real- space groups and attempt to undermine' those groups. More recently CENTCOM announced it would be engaging bloggers 'who are posting inaccurate or untrue information, as well as bloggers who are posting incomplete information.' "
Which explains all the whiners that post about ZH credibility and their aversion to tin foil.
i should have edited out the context links as they point to old stuff, the first link looks like news to me
Me thinks you doth protest too much. Interesting that you replied to both comments regarding this infiltration story, that's what a troll would do.
Spastic statements about being anti-Obama do not seem sincere, and would appear to attempt to build credibility.
lol, considering I've been on Zero Hedge for at least 9 months now (that's right, since the wordpress days) and contributed the story material on the QE purchases on the 2009 issuances in excess of Martensen's find.... nahhh, not a troll.
Oh and as for Anti-Obama (despite the fact I voted for the man), I don't see how calling him a "house nigger" selling us, the 'field niggers' out to "Master" (a.k.a. the banking cartel) would exactly have me in the administrations favor.
Considering I've been buying treasuries I don't get what the issue is. We all know th emarket is overbought, and is near term over bought was well and due for a correction. You look at RSI indicators, money flow, head shoulders pattern, MACD and they all say time for a bit of a bounce while market sells off.
what's the big deal. they go up 5 % or so then folks jump back into the market.
Also candelsticks showed we were at a top.
I have only been trading the long term bond, as I didn't know where to buy short terms (shy is the symbol i know)
china is tighetning monetary policy which whouold bring down their market which may also cause other markets to drop. Germany GDP figures worse off.
I do not see what the fuss is with a good trade and as a hedge for a correction?
I'm more intersted in how these markets follow so closely the trend lines I draw. It shows how the computer algos really control the market.
When alcola results we awful and the pre trading was bad, you knew wall street wa going to buy, bring up the market so they would be able to control the loss and position themselves.
What's amazing is that the market keeps going up on bad news!!!.
will we go up tomm because that's where we are on the trends.
Also after each auction treasuries go up soon after. The primary dealers who are stuck buying need the market drop so they can sell the crap at a profit. since th egovernment forces them to buy, how do you think they are going to work this.
Take a look at symbol tlt and shy. Bottom for treasuries both at 12/31 why the short term moved but long didn't? when market is oversold I'm going to buy shy now. big difference between long end and short end of curve!!!
why?
shy now looks like it's about peak? so what does than mean?
if you look at the macd from 12/28 it should have been going up. just like shy. the issue is why hasn't it to me?
+1 "The primary dealers who are stuck buying need the market drop so they can sell the crap at a profit. since the government forces them to buy, how do you think they are going to work this."
Pretty much sums it up!
The bond market and stock market seem to have diametrically opposing views of the economy, as the bond guys seem to think there will be a very large panic demand that will allow them to distribute at a profit. Seems to me a risky gamble on the impending printus interruptus scheduled for this coming April fools. For long bond buyers, stealth QE that produces moderate "growth" would be the "ethiopian in the fuel supply" to use W. C. Fields quaint expression.
I am watching for prices to fall as the primary dealers distribute their new inventory over the next few days, and will short with extremely tight stops. Those shorting the long bond must take every short term gain the market hands them as the Fed has a powerful interest in generating the kind of volatility that will discourage shorting. If rates must rise, they want a slow and very bumpy grind upwards. I could care less who bond buyers are - whether wannabe primary dealers, China, Saudia Arabia (via London) or whoever. They are all going to find themselves in a selling competition with massive Treasury supply in due course. In the meantime I settle for nickles and dimes during the turbulence as I await the ultimate Acapulco cliff dive!!
>>Additionally, if there is indeed an implicit understanding between Bernanke and his Chinese colleagues, it means that not only the housing market (via Agency and MBS security purchases), but the Treasury market as well, are both manipulated beyond recognition and implies that broad securities are massively overvalued due to the stealth purchasing of core "riskless" assets by the US and China, as investors look higher in the cap structure for yield.<<
I reckoned as much. It's all a computer-generated scam.
How do the Chinese keep their currency down with massive purchase of treasuries?
I suspect they accumulate in part commodities (copper, oil, etc...) instead of currency reserves. This pushes the problem of accumulating dollars to commodity producers (like Gulf countries), and commodities went down a lot during the crisis. Commodities are sure to be useful later, contrary to dollars.
Granted commodities are not the most stable value container, but the goal is no longer to use as reserves but simply to keep down their currency.
I do not think that this is the Chinese government buying our Treasuries. If anything it is the Fed buying the Treasuries then swapping them with the Chinese at full dollar value for the remainder of the MBS on their bank's books. The Fed is more than likely keeping those assets in an off balance sheet custodial account looking to wash it through the system if/when the domestic real estate situation improves. In the interim, the commitment made under the Bush administration to guarantee the full dollar valuations of the holdings of the Chinese and other important overseas players is followed through to insure the dollar's reserve status. We lose that and it's game over instantly.
Just my 0.02 as there is not enough capacity within our Primary Dealers to buy all of this paper we are issuing, even laundering it via their Caribbean Banking Center holding companies and hedge funds.
Treasury report YTD through December expenditures are 180% of tax revenue. With China supporting the Treasury bid auctions this can continue for a long time.
One more week until American Idol!
Quote:
http://www.economist.com/daily/kallery/displaystory.cfm?story_id=14857805
I find this article means that China is desperate. They have too much CASH, so they buy UST's via their backdoor. They want at least some interest repayment, and cash is just sitting there(digital) rotting.
That cash is sent into the stockmarket by the FED via the BANKS.
The Chinese have so much cash they are building empty malls and apartment buildings for the future.
It would make sense.
I also think the FED, as TD has stated before, is just buying Treasuries offshore in a variety of ways a week after auction. Every auction begets cash, and cash is used to buy the next auction. Banks get the treasuries in exchange for toxic MBS's.
Banks, being the primaries, buy and dump for cash. Keeps the ponzi moving along...
The amount of national debt did not go up as a result which suggests to me that as people are moving out of either the short end or long end of the curve while somebody is picking up in the middle of the curve. One of the typical buyers of this type of duration treasury may well be Fannie and Freddie as they convexity hedge against consumers re-mortgaging. Typically when interest rates start to rise MBS, investors start selling longer-dated stuff so you would expect convexity hedging at the moment to be reducing demand for treasuries. However I am wondering if because convexity hedging was subdued on the way down due to massive buying by the Fed, now the Fed is beginning to slow down agency buying perhaps Fannie and Freddie have had to step into the treasury market again. Conversely if this was a real investor then I see this as a bit of bet that the US economy will go back into recession.