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New Debt Floated With Ease
Yet another masterful feat of market guidance by Bernanke, Geithner, LLP, billions of new debt sold with ease at absurd low interest rates by chain-selling commodity stocks and buying dollars.
Never fails, whenever big batches of U.S. debt needs to be issued, Skynet runs its programs to ensure ideal market conditions where global "investors" dump virtually all risk assets and immediately "flee to safety" by buying gilt-edged, AAA-rated confetti.
No J-Lo bottoms to be found anywhere today, probably more selling tomorrow to give the Fed an excuse to continue "easy money" policies yet at the same time tell everyone that due to commodity price pressure, "we are viligent in controlling inflation expectations".
Then day after the FOMC, we usually get a meltup day to re-substantiate the Fed's credibility in being able to manage stock prices and the economy as well.
The only fly in the ointment for the O-Team is that the HMO stocks were strong today, suggesting that the Obamacare plan will fall flat on its face.
Now we wait for AMAT's results to see if the news is bought or sold, as the "AMAT train leaving the station" materializes.
Splinter and "Sunny" Jim Morgan were experts at spinning the v-shaped, second half recovery story.
I'm on the road today, so no girls to show.
However, if the SMH takes off any time soon, there will be plenty displayed.....
Tomorrow is a FOMC day, where millions of traders will be staring bug-eyed at the screens watching the 5-min. charts on virtually everything, and the Hi-Fi trading machines will be turned off temporarily and all stock trades will be in the hands of the 19-year old joystick experts.
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lmao. They've all converted to the Wii controller now.
It's all about the force feedback..
'I'm on the road today, so no girls to show.'
rotten bastard
Not just inflation, we are talking of abnormal, uncontrolled inflation coupled with incentive to increase government
excellent market review, as usual.
T.D...and the rest of you Z.H´s,..
You are a breath of fresh air,.in fact more like an oxygenmask in a room full of toxic fumes,..I swear if I didn´t already have my wife,...I´d be on my knees now!
good point
I'll admit I'm no economist...can someone truly answer this question? What is wrong with the them buying debt? I don't want to hear about moral hazard and such; we've shattered that barrier with ease. I'm saying that if this will stabilize the economy...so be it. Inflation?...won't happen at any appreciable level because the gov't controls the figures. There won't be any genie out of the bottle because the dollar is backed by our military and our businesses. I'm not trying to be a snort...I just want to know what's wrong with it?
Not just inflation, we are talking of abnormal, uncontrolled inflation coupled with incentive to increase government spending. That's what happened and limited the growth of S. American countries in the last 20 years.
its like trying to run a business when instead of cutting costs/overhead as a typical response due to decreased revenue you take the high road and run up a bunch of credit cards to maintain a business-as-usual facade to your customers/employees/suppliers WITH no hope for increased revenue in the foreseeable future to service the growing debt. sooner or later you will not be able to pay your suppliers/employees/creditors/lease/mortgage/imports/military/social aid/infrastructure... then your employees get upset
CAPTCHA!
what's wrong with it? are you not joking?
they are rendering the system itself entirely ILLEGITIMATE.
and the result of THAT is collapse; if not of the S&P 500, most definitely of the economy and nation.
God damn them to hell.
it's market manipulation and a recipe for
monetary inflation which normally leads to price
inflation....
monetary inflation is a crime against humanity
because it is both a tax and a transfer of
wealth....
neither of which i will elaborate....
debt purchase artificially lowers interest rates
which is theft of wealth holders who rely on interst
income for various reasons...it encourages
speculative purchases of government debt in a way
which destroys private capital formation and hence
causes job losses....
there are many reasons to abhor market interventions
by the government....monetary and price inflation
will occur whether the government acknowledges it
or not.....
and accepting military bullying to sustain
an artificially contrived debt instrument is
proof of your barbarity...
Well stated response....
Okay ... adding to base money isn't really inflationary when money multipliers are on life support ...
See ... money is created by banks when any loan is made. If a bank gives you a credit card with a $10000 limit, it has 'minted' $10000. It is based on nothing but your promise to repay with interest. All loans by banks - including the Federal Reserve - add up to the money supply. No loans, simply put means no money floating around. No liquidity means no funds for investments, consumer or house purchases.
Lending multiplies itself; a bank can lend multiples of the funds it has on hand as much as it feels the market for risk can bear. Because of changes in the law and reserve requirements, banks can lend the same $10000 over and over again, ten - twenty - thirty times. The borrowed money is also put into bank accounts - usually the same day it is borrowed - and also relent over and over. All expenses - including taxes and interest charges - are paid out of this mushrooming accumulation of lent funds.
Right now, the banks aren't lending very much. Some banks have insufficient reserves, others are unsure how much reserves are in the banking system and are becoming conservative, others see the borrowers 'walking away' from repaying loans and other borrowers are incapable of repaying. Consequently there is no money multiplication, this despite the Federal Reserve lending and borrowing.
The Fed lends to banks, the largest are borrowing @ 0% and speculating in the stock market. This provides a return that is impossible to beat, since the same Fed will buy as many stocks as are required to keep the stock market from selling off. This is noticeable since no other banks do this - in fact if they did, the risk of loss in the stock market would cause interest rates on bond/lending to rise, to properly price the related risk.
Put together, the Fed lending is inconsequencial compared to the lack of lending in the remainder of the banking system. As a consequence, there is little chance of inflation, which is when money multiplication gets out of hand. There are other factors involved- see Irving Fisher's 'Quantity Theory of Money' and check out velocity - another factor missing that means no inflation on the horizon.
When the Fed buys Treasuries, it is simply putting them in the closet for the future. By doing so, the Fed suggests to the bond market that the demand for Treasury bonds will always exist at a certain elevated level. In other words, if the 'real' buyers of bonds don't show up, the Fed will buy at a certain price to maintain that price. Since bonds - more than stocks - are containers of risk - what the price of money will be in the future - having the Fed buy Treasuries mis-prices risk.
As others here point out, this buying is a manipulation of a market, a market essential to properly pricing risk.
A large part of the 'Great Crisis' we are living has been the mispricing of risk. Securities (bonds) issued against mortgages given to speculators, dishwashers and ditch diggers to purchase 'luxury' homes were rated 'AAA' and sold at a debt- inflated high prices to unwary investors. Mispricing Treasury risk - as it stands in place of the rest of the economy - is simply more of the same mispricing. The big difference is when Bear Stearns or Wachovia fail because of mispriced risk, it isn't the end of the world, but when the Federal Reserve ... and the US government by extension fail ...
"Insanity: doing the same thing over and over again and expecting different results. "
Awesome! Well said
You have to go back to the original incarnation to see the depth of the problems caused. Back in Rome, the emperor wanted to wage a bigger war than what was going on, but couldn't get enough silver to pay them. This problem was solved by making the coins smaller. Everyone that picked one up instantly knew that they just got hosed in their paycheck.
With the dollar, and other fiat currencies, each one represents the conceived wealth/power of the nation. When people buy treasuries, they provide outside affirmation to that value. A nation that has to buy its own treasuries instantly shows the whole world that our cash burn rate is higher than its perceived value. This makes other nations think that our value is lower than what they thought, so they buy even fewer treasuries, forming a nasty cycle.
as well as this one too...
RobotTrader- Do HFT SLP robots buy at the ask price or do they place bid orders?
If buying at the ask price, I would think this would bring markets up while buying by placing bid prices under ask price would tend to bring the markets down (since they are such a high percentage of volume).
Thanks
Whew, that's some serious conspiracy crap at work. And AMAT "... predicted fourth quarter sales and profit that topped analyst's estimates..." (of course, all those analysts are on Bernanke's payroll, so their opinion can't be taken seriously) and the stock traded up in after-hours trading.
As far as VIX is concerned, take a look at Implied Correlation today and the put-call for stocks vs put-call for indices...hhmm - interesting...also look at SPY vol skews - not so bullish as VIX might suggest...
I love this site. Thank you restoring my faith that not all Americans are idiots.
Seriously, robo i adore your posts but the first dude you ever post is bernanke?
I don't get what's so surprising about some genuine demand for the relative safety of U.S. debt in an environment with massive, unstoppable debt deflation for the forseeable future. Even with the dillution, the dollar should still continue to stay strong & appreciate against other assets (including tulip bulbs... I mean commodities).
You don't get it. The other markets were gamed lower to sell the Treasuries.
I see another day of treading water. Thursday stocks up. Friday flat. Next week up, up. Stock crash will come, just prior to "marketing a new product" time. October will be real ugly, economy will shed jobs at a faster rate again. No temp jobs for Holidays. Bottom of the cycle keeps getting pushed out.
How much of the $300 billion in Treasuries promised has the Fed already purchased?
I'm pretty sure its around/over 200-250
think they will get a extension?
that number is a good approximation.....the
official story is that it will die but there
is a strong case to be made that qe will
carry on my wayward son...
Yeah, I do think the number is about right.
Tough call on the QE going forward and here's why:
The Fed can continue buying notes around the auctions under an extended QE program-- but foreign investors will disappear off the map becuase the dollar is/will clearly taking a hit. This is especially true if risk assets are stable and/or trading higher. We've seen it.
The Fed could quit QE, but risk higher rates because they've been the subsidizer of choice and foreign sources will be slow to come back. However, if a correction was engineered in risk assets (equities), there would be a natural buyer for Treasuries in a (return) flight to quality trade. And there would likely be adequate demand to meet the upcoming supply (i.e., need rates lower, sell off equities more).
What would make more sense to do? The latter. Why? Because finding an outside source to provide capital is eventually better than creating capital out of thin air to finance the deficit-- if even that source is our own 401k's. You also placate foreign interests (the ones with the real capital) if you can keep the USD supported as well.
The issue with ending QE is whether it can be executed without things totally unwinding. Given the bulk of stimulas spending coming on board the next few months-- I think the Fed-ury can navigate this... though the equity markets might be sacrificed for the greater good. Keep in mind, this is only a temporary solution, as QE would likely be restared at some point to restore the equity markets (perferably after foreign buyers come back in to buy more Treasuries).
If QE is continued/expanded, it most likely means that the underlying losses to be absorbed in CRE/CMBS are a lot larger than we feared-- or we are left having to fund a new massive black hole called "healthcare reform". In that sense, the Fed may have no other choice but to turn the spigots on full throttle, regardless how low the dollar dips.
The MSM is being sold on the idea that QE will end, however, given all the green shoots and good feelings of the recession nearing an end. Let's see if the Fed plays along.
Oh - I totally get the premise. I just disagree.
You think the market is totally under control, and I think the market will get to where it wants to go in spite of the efforts at intervention.
You could be absolutely right with your near-term calls. I don't necessarily disagree with them.
I believe the late fall will be ugly - but I don't believe it will be on purpose. I think our "financial leaders" are nervous and desperate - not crafty and sure-handed.
Thank you for clearing this up. Despite frequent evidence to the contrary which this blog has had a great and important role to bring to a larger public, I also happen to think that desperation is the issue here, not conspiracy. Math question sucks.
's funny...(to me)..."investors" flee to the safety of they very things that have the highest degree of counterparty risk. USD, T-Bonds... I'd be running to GOLD, yet "investors" claim gold is "RISKY". So the dollar isn't? Commodities and gold decline WITH the markets???
By sheer force of will, I plan to WAKE this market UP. From now on the dollar will slide, the S&P will slump, bond auctions will have trouble finding any genuine buyers and gold will do well. That's an ORDER.
PM insurance gives restful sleep.
Sweet dreams!
excuse my naivity... what is PM insurance...
having trouble sleeping...
PM = Precious Metals
Stay away from the ETF's - buy physical and/or mining stocks.
Thank you for the clarification.
I have SWC and EGO.
They don't help me sleep all that much...
(If you have money) now is a good time to buy gold. The central banks are selling - to keep fiat values stable - and have the gold to sell. (China is buying, of course). But this won't last forever. The gold in reserves is finite ...
Keep in mind, there are no hedges against deflation, as values decline for assets, gold will also decline in value. It's the relative valuation that matters.
This 'no more QE' is a smokescreen. The Chinese don't like QE. It misprices risk and makes the Treasury look and sound like ... the Chinese treasury! The Chinese are just as scared as we are, have just about as many bad loans on their banks books (see Mike Pettis) and have the same productivity issues. They have $2trillion ... I spit on your measly $2trillion!
Plus, the Fed (and the other central banks) can screw over the FX guys at will and nobody will pay any attention. The more reserves parked with the Fed the more ammunition it has to cut the nuts off currency speculators. Just like it is doing to short- sellers (hedgers) in stocks.
So, the Fed will buy under the table, they have to or the long end starts pricing long term risk in ways the Fed won't like. In the short- term, inflation is out of the question, but five years from now? How about the risk of repudiation?
You want to see the long term future of American lending? Don't think inflation, think holders of GM and Chrysler secured debt. Twenty cents on the dollar, take it or leave it. The US government can declare a financial state of emergency (bankrupt) and simply pay what it likes.
"Fuck you!" is how Richard Nixon would put it ...
At the same time, who ... is ... going ... to ... lend ... Uncle Sugar (and his Euro and Japanese friends) ... all ... that ... money? Trillions upon trillions, unless the Fed buys there won't be any more (faux) bailouts.
Can't have that, can we?
You sound surprised, or chagrinned or SOMETHING. Like, so what that this happened? How do you propose to game the truth:
ECONOMIC ACTIVITY IS DECLINING.
Let's see all the petit bourgeois day traders in the world turn that around.
no name calling, this is a family site
Very astute; all the petit bourgeois day traders need the very same market existence / activity that Goldman's HFT bot needs in order to skim a living while neither producing nor aiding actual production. What would they do if the markets vanished, get jobs? Talk about "the horror."
This is what I tell people; you want to kick the bankers in the nuts?
Don't borrow any money! Simply pay (or walk away from) your debts and don't borrow. Just that simple. The banks will erode from within; it's just like putting salt on a slug.
It would be funny to watch Lloyd Blankfein hang a door. "Ow, I cut my finger (off with a saw)!"
Not chagrined...just jaded. As a surviving bear, maybe the last one standing, I expect anything from this Administration. Not from the markets, from the Administration.
I'm still here and still bearish as ever. You may recall a recurring theme of my posts on Mish's site that I expected the Fed and dot gov to do "everything you can think of and lots of things you can't" in order to keep the economy from collapsing and making them lose their control. They have not disappointed. I still believe none of it will work long term, because it's all based on lying about math. I am long cash, dollar shorts, and popcorn. It's a "buy and hold" position, except for the popcorn, which is tasty with butter and economic news (lies). Watching the markets has become just like watching the news has been for more than a decade: like watching theater. No resemblance to reality. You can see who the crooks are but the actors act like they can't hear you when you yell out their names and misdeeds. You cannot influence the final outcome. I watch and eat my popcorn, yelling sometimes anyway.
Robo is no doubt in Vegas for Slick Willy's bash. Everyone already long RICK and MRT in anticipation of some easy money policy.
Photos to follow.
Those who rail against this Administration amuse me, as they seem to have forgotten that the script for where we are originated with the prior one, or was it the one before that? They all kind of blur together.
Be ready for September rain and October pain. By year end the Truth Will Be out There. How many guns do you own, and how many days of food do you have stashed? Join the National Guard. Maybe you'll get to eat.
I think the underlying reason for "railing" those who now have The Power is one of disillusioment-- moreso than anything else. We were sold (and many voted) on the ideals of "transparency", "accountability" and "change you can believe in". So far, what we seem to be getting instead is: "Bush III - Chicago Style".
But point taken on prior administration misgivings, though-- it's not as if Obama wanted to inherit this mess. But he did, with full knowledge than things were not going to look good after the I-Day.
And as for The Truth? It knows no time table. Here's to storing condensed milk and hollowed tipped shells.
Obama didn't "inherit" this mess, they spent hundreds of millions to get this position, and over a year campaigning.
Obama is the worst nightmare this country has ever seen, and that is saying something since they are all crooks. As bad as wars are, ruining health care and imposing cap and tax affects EVERY citizen, and in a very bad way. These insane deficits affect every citizen, and in a very bad way.
The Russkies and Chinese must be laughing their asses off, watching us destroy ourselves, not from them, but from within.
You're funny.
Wrong, but funny.
Your last statement, though, is right on the mark.
I think your icon is not from the "More Cowbell" skit.
"Splinter and 'Sunny' Jim Morgan were experts at spinning the v-shaped, second half recovery story."
"Pump it up!!!" ~ J-Lo on Let's Get Loud
I remember the V shaped recovery in the second half of 2008.
Good times. Good times. For shorts
monetary inflation is a crime against humanity
because it is both a tax and a transfer of
wealth....
neither of which i will elaborate....
It is the dog and pony show. bring the markets down before auction. sell the debt, buy debt back at a loss, insert funds into market to increase liquididty. There have been papaers written about this, this is how it works and this is they way they are doing it. Give goldman a VaR variance, and exclusive SLP provider for the NYSE and see what happens. wash rinse repeate. This is the scam we are all being taken with , this is the new bubble and how it's funded with your tax dollars. This is how 1/2 of the money is going to end up in bankers pockets yet we do not riot, do not protest.
See PR campaign for Bernake, war criminal, destroyer of the American way of life, ruiner of hundreds of millions of peoples savings, etc. The man is getting praised by the street because the MF has given them our entire country on a silver platter. Hell, That's no surprise. Now the Ft has chimed in on what a genius he is. The guy has failed at each and every level only giving wall street all they could ask for. Paulson't Goldman buddies drop the market, he tells Ben: "We need to give them more money, and lower interest rates". The fool that Ben is doesn't realize he is being played.
You of course see the game. The press says Greenspan is the best, Bernake is the best. They are the best at doing what wall street wants. Somone like Volker who actually has enough balls to do the right thing gets marginalized. It's all smoke and mirrors. Look what happened when Lehman went down, well what happened is what goldman wanted to happen. Then blackmail!!
People keep talking aboiut a market meltdown, it should have happened already, but it ain't going to happen. The fed isn't going to let it happen even if we break the dollar, cause inflation, and ruin the lives of millions.
As ususal look for the market to break up after the bond sale when goldam et al get their liquididty injection. the S&P is the only index in the world that goes up as money flow drops.
indeed
I passed a few floaters myself this morning. Then I ran out of paper.