• Reggie Middleton
    03/19/2010 - 10:03
    As I warned in my Pan-European Sovereign Debt Crisis series and amid a depression, this Eastern European government has collapsed. Western European countries (and their banks) have material claims within this country, and when combined with pressure from the PIIGS, may be the ones that set off the financial/economic contagion daisy chain. It is difficult to determine who sets it off, which is why it is best to attempt to determine the path of the contagion instead...
  • Leo Kolivakis
    03/19/2010 - 07:34
    A recent joint poll by Responsible-Investor.com, the Network for Sustainable Financial Markets and AQ Research, showed more than 90% of investment professionals believe moral hazard has increased. And yet, global pension funds and wealth funds who manage trillions of dollars have not taken the lead to push for financial reforms. Why do they acquiesce, and not push for meaningful post-crisis reforms?
  • Econophile
    03/19/2010 - 00:48
    The fact that Google will not kowtow to Bejing and will walk away from the market of greatest potential is to me a commendable act. This is a companion piece to my series, "China's Fragile Economy, Its Housing Bubble, and What It Means To Us." China is not a liberal country, by far.

Open Market Operations And Statistics

Tyler Durden's picture




Zero Hedge stirred up a hornet's nest recently by bringing to popular attention Chris Martenson's post highlighting the very rapid "uptake" via Permanent Open Market Operations of a Treasury CUSIP that had been auctioned off shortly prior. The article angered among others such bloggers as former employee of the NY Fed John Jansen who penned a post titled "Monetizing the Debt: Disinformation in the Blogosphere" whose conclusion was that despite the 5 day turnaround to monetization of the particular 7-year CUSIP which represented roughly 47% of the total purchased by primary dealers "there is absolutely nothing unique or special about today’s transaction by the Open Market Desk." Subsequently Jansen proceeds to nitpick semantics but we will let that slide as it is not relevant for the time being.

Yet what neither Jansen, nor Yves Smith, who picks up the baton and calls Zero Hedge's style "hyperventilatory" (we most certainly do not mind - our style such as it is, hyperventilating or otherwise, at least brings broad attention to topics which may or may not be of relevance to the general public, as opposed to a closed group of highly sophisticated economists and financiers who enjoy debating among each other and perpetuating their closed group relationship, with no informational leakage into the broad arena - a theme that has persisted for many years and is significantly counterproductive to the ambition of bloggers to be an alternative venue to mainstream media), focus on, and what was the primary argument of my, and Chris Martenson's post, is that Ben Bernanke is essentially monetizing debt, despite potentially perjurious claims to the contrary, all within the legal framework of primary deal intermediation and the disadvantaging of indirect dealers (who are very hard to be seen at the table these days as is). Neither Jansen nor Smith point out the fact that a primary dealer, whoever it may have been, would purchase CUSIP 91282LD0 on July 30, and then sell it at a loss less than a working week later (purchased at 99-26 and sold at 99-07). Absent a backstop from another entity it would seem a rather  imprudent thing to do from a fiduciary point of view, especially with such a brief turnaround timeframe: primary dealers have the balance sheets to be patient when they acquire Treasuries.

All that being said, Zero Hedge decided to perform a statistical analysis of time series variance between Treasury auctions conducted in 2009 and the subsequent Permanent Open Market Purchases, in which we analyzed the size of the OMO transaction, the number of days passed between a certain CUSIP being auctioned and becoming purchased by the Fed, the percentage of primary dealer purchases as a total of the entire Competitively Accepted amount, and the percentage of the Primary allocation that would end up being purchased subsequently by the Fed in the OMO-to-Auction timeframe. The results were surprising.

But first, I will present the data set that Zero Hedge created with the assistance of reader Phaesed. The chart below highlights all Bond (not Bill) Treasury Auctions conducted in 2009, segregated by auction date, and highlighted by tenor.

Some datapoints: there has been $1.1 trillion in Bonds offered YTD, of which $1,156 billion has been accepted. Of this total, $600 billion has gone to primary dealers. The primary allocation has represented a (simple) average of 55% of the total bonds allocated competitively. For readers who would like to play around with this data, it will be posted shortly to google spreadsheets for open source enjoyment.

Next, Zero Hedge compiled all the YTD Open Market Operations Data, and filtered it by Bond issues auctioned in 2009, and subsequently purchased by the POMO program.The raw data is presented below:

Some facts: the Fed has purchased roughly $240 billion in OMO since QE was announced in March: on par to purchase $300 billion as the program was initially intended to expire by the end of September: according to media reports as of now there will likely not be an extension due to the "improving economy." (We have not focused on agencies in this report: we will perform that analysis at a subsequent date, yet one can argue the vast majority of Fed buybacks has occurred in the MBS realm)

Of this $240 billion, almost half, or $112 billion has been targeted at treasury issues auctioned off in 2009. The chart below demonstrates the global universe of all OMO purchases of 2009 issues indexed by total purchase size, as well as number of days of OMO transaction since original auction (horizontal axis) - this is the key topic in question, which both John and Yves seem to take offense to. Of course, while a normal distribution would not show a significant preference to a lumped clustering, the vast majority of the treasuries purchased by the Fed has been within a few weeks at most of the original Treasury auction.

The size of the various circles is a relative indication of the percentage the OMO purchase representated as a function of the original primary dealer allocation: potentially an indication of how unwilling the primary dealer may have been to purchase a given issue absent a backstop guarantee from the Fed that shortly after the auction the issue would be acquired via OMO. 

As the chart is somewhat noisy on the tail end, we have cleaned it up once by removing any OMOs that were less than $1 billion in size. The data is as follows:

What becomes notable is the mentioned clustering around the proximal side of auction-to-OMO time, with greater amounts purchased by the FED for CUSIPs that had large primary dealer allocation.

Last we perform one final filtration of the data, to remove any issues that were repurchased by the Fed more than 30 days after the Treasury auction:

The startling conclusion: $32 billion of Treasury Bonds spread across 7 CUSIPs, were purchased by the FED within 10 days of their initial auction and allocation to primary dealers. The amount purchased by OMOs represents an average of 32.4% of the total allocated to primary dealers in the respective auctions. Furthermore, almost two thirds of total OMO Operations for bonds issued in 2009, or $62 billion, affects Bonds issued within 30 days of the OMO purchase. These purchases account for a total average of 29% of the total amount allocated to primary dealers. While one may make the argument that on the run bonds are preferred on average by the Fed for purchasing and by the primary dealer community for selling, the data presents a marked skew in the Fed's desire to monetize very recently issued Treasuries.

The key questions remain: allocations to primary dealers in 2009 Bond auctions is an undisputed majority (55%) of all auctions - this is troubling due to the the recent change in the definition of indirect purchasers as well as the markedly reduced interest of foreign buyers such as China and other indirects, for US Treasuries. Could a reason for the Chinese lack of appetite be due to the fact that while primary dealers represent not just a majority of all Treasury purchases, that these dealers may also have an implicit understanding that come hell or high water for auctions that lack indirect interest, the Fed could potentially make any dealers whole on purchases and subsequent sales at a loss such as the highlighted CUSIP 91282LD0 example (explicitly, at a loss for taxpayers who have to fund the primary dealers shortfall, in this case the difference between 99-26 and 99-07)? Would the Chinese be interested in playing in a rigged playing field when indirects are potentially impaired vis-a-vis direct purchasers? Furthermore, is Bernanke pulling a Clinton and while claiming under oath the he is not monetizing debt, he is effectively doing just that on well over $30 billion in Treasuries, which the Fed acquires within 10 days of issuance? And lastly, is the rapid uptake by the Fed a means to goose up auctions which have a potential likelihood of failure: the 7 Year in question came hot on the heels of a 5 Year that for all intents and purposes was quite close to a failed auction? Absent an implicit backstop, which everyone knows the Fed is very keen on making these days: as the SigTarp demonstrated, to the tune of tens of trillions of dollars, what is the likelihood the 7 Year would have fared as well as it did, had not the primary dealers really stepped up, for reasons known and unknown.

Zero Hedge is not making any claims, but merely asking questions. And while we appreciate the opinions of self-professed experts such as John Jansen, these answers should really come from the proper authorities - the US Treasury and the Federal Reserve of the US.

As time allows, Zero Hedge will next conduct a comparable study on Agency and MBS debt repurchases by the Federeal Reserve.

4.92174
Your rating: None Average: 4.9 (115 votes)



by Anonymous
on Sat, 08/08/2009 - 17:27
#30501

MMM, Tyler if you were a piece of bacon I'd dip you in chocolate and sell you at hillbilly carnivals.

by D.O.D.
on Sat, 08/08/2009 - 18:16
#30531

I was going to say something to that effect, but not nearly as amusing...

by Anonymous
on Sat, 08/08/2009 - 19:42
#30581

Lies!!

by dnarby
on Sat, 08/08/2009 - 22:22
#30667

Heresy!!!

by My cognitive di...
on Sun, 08/09/2009 - 00:44
#30732

I don't believe!!!

by D.O.D.
on Sun, 08/09/2009 - 13:27
#30952

What are we not believing? That hillbillys would pay money for chocolate dipped anything?  For God's sake they pay money for a deep fried candy bar...think about it...there is your consumer driven icon....

by Anonymous
on Mon, 08/10/2009 - 11:02
#31508

I don't think you can credit hillbillies for the deep-fried candy bar. The fried Mars bar was a British invention. We've just copied it, as we have with so many things British.

by Anonymous
on Sun, 08/09/2009 - 02:19
#30761

Wow Tyler, a bunch of space monkeys! Ready to sacrifice themselves for the greater good. I'm impressed!

Listen up, maggots. You are not special. You are not a beautiful or unique snowflake. You're the same decaying organic matter as everything else.

by lizzy36
on Sat, 08/08/2009 - 17:42
#30503

What part of the market isn't being propped up by the fed/and or treasury?

The end of QE should be interesting.

I would love to see what the Agency and MBS numbers look like. 

I hope you continue to hyperventilate in the manner to which i have become accustomed(and frankly adore). The type of research presented herein, is why you should have the following (and perhaps the ego) that you do. 

 

 

by Anonymous
on Sat, 08/08/2009 - 22:09
#30664

well, it isn't going to be pretty, esp if, like thy reportd on bloomberg recently:

fed=10% tresury market
fed=25% mbs market

compared to the results posted in this post, I bet those mbs #'s are going to be interesting.

by Daedal
on Sun, 08/09/2009 - 00:46
#30734

by Anonymous
on Sun, 08/09/2009 - 04:21
#30779

25% 0f MBS market? try 95%. seriously.

by Anonymous
on Sun, 08/09/2009 - 08:51
#30830

Does anyone have exact numbers on this - the fraction of GSE debt and treasury debt the fed is buying? It'd make for an interesting future post.

by hbjork1
on Fri, 08/28/2009 - 09:14
#51610

lizzy36:

If you still believe in Freud, you certainly got your compliment right even though might have ment to say superego. With the ego in control, what you get is; "..Just the facts ma'me, Just the facts."

It appears to me that the republic can be safely handed off to the next generation.

by Anonymous
on Sat, 08/08/2009 - 17:32
#30505

I just read the Keynes-worshiping book Lords of Finance, which includes a profile of 1930s German central bank chief Hjalmer Schacht. After reading this post, I began to think of Bernanke as a Schacht-lite.

by Cheeky Bastard
on Sat, 08/08/2009 - 18:14
#30529

yes but the main difference between Bernanke and Schact is that Schacht was capable in transforming Germany from basically a third world country to an industrial superpower in a time period of 10 yrs .... Bernanke is a moron, Schacht, on the other hand, was not ..

by Anonymous
on Sat, 08/08/2009 - 19:32
#30574

how is bernanke a moron (in that respect)? or do you think he is going to transform us from an industrial superpower to a third world country in a matter of 10 yrs, if he is reappointed?

by Cheeky Bastard
on Sat, 08/08/2009 - 19:47
#30584

your reasoning is false. I have not state that in my comment; that is your false premise drawn from my critical observation about Bernanke and Schacht. Bernanke is, with all due respect, a moron because he is following his dogmatic view on the causes of the Great Depression and it is implementing that view in his policies in present time. If you did more research about Schacht, you would see, how his monetary and economical polices strengthened Germany's power in post-Versailles era and derailed the long term effects of hyper inflation experienced because of the Treaty of Versailles .... Schacht was, a goddamn Nazi, but that does not mean that the he was not a brilliant banker.He understood the power of a strong banking system combined with powerful industrial output and industrial base. Bernanke on the other hand is not so brilliant, because if you took your time and red the things he wrote about the Great Depression, you would see that Bernanke is nothing more than neo-Keynesian banker, who carries a premise that monetization and QE +  government spending can short the duration of this Depression. He does not take into consideration the future ramifications of that kind of policy. It is like he doesn't even think about the taxes that would need to be raised just to finance the debt in the upcoming years, and as if he does not understand the difference between the effects of private and public spending ..

by Anonymous
on Sat, 08/08/2009 - 20:11
#30603

You would consider Bernanke a moron if you thought he really beleived what he says. The guy is a charlatan, a wizard of sophistry. Do you really think he's that stupid? Do you really think that Bernanke beleives in QE? His work on the depression merely gives him the grounds to execute his handler's objective. That is to destroy the dollar and create the opportunity to construct a new world monetary system. Youre on point with the economics Cheeky Bastard....but have you considered the motive? Bernanke isnt a moron...he's just trying to kill the dollar and make it look like it wasnt intentional.

by Cheeky Bastard
on Sat, 08/08/2009 - 20:20
#30611

im not going into hidden motives he and his masters have. i judge by what i see and what i know, and i know that Bernanke is doing it wrong. his goal may be the destruction of the dollar, but that is simply idiotic, because, he can establish a one currency global system without destroying the dollar, he can introduce new currency trough the IMF and the WB, which then, can make obligatory to use the new currency as a way to trade among nations and private entities. and he can also, trough the IMF and the WB set the obligation that all dollars be replaced for the new currency issue in some mechanism from which the US can profit ... if the destruction of the dollar is the real goal here, it can be done in a more elegant and profitable way then blowing the world economy into the upper atmosphere ...

by Anonymous
on Sat, 08/08/2009 - 20:57
#30633

If his thesis proves false, can we at least revoke the Ph.D.? And if it is revoked, can we then get rid of him?

by Cheeky Bastard
on Sat, 08/08/2009 - 21:02
#30635

lol ... check this out, someone edited the article on ben on wikipedia ... hahahha

 

Bernanke was educated at East Elementary, J. V. Martin Junior High,somalia, and pillon High School, where he was class valedictorian. At age 11, Bernanke won the state spelling bee competition but finished 26th overall at the national competition in Washington, tripping up on the word “edelweiss.” Bernanke also taught himself calculus, edited the school newspaper, and achieved a near-perfect 

 

http://en.wikipedia.org/wiki/Ben_Bernanke

by dnarby
on Sat, 08/08/2009 - 22:31
#30674

Cheeky, they clearly came for a knife fight.  Please, put away the shotgun.

by Anonymous
on Sun, 08/09/2009 - 05:40
#30791

the problem with this argument is the debt remains. Destroy the dollar, close the banks and the debt is obliterated, Argentina style.

by Narcolepzzzzzz
on Sun, 08/09/2009 - 06:46
#30797

by Anonymous
on Sun, 08/09/2009 - 08:49
#30829

I'm not sure Bernanke is neo-Keynesian. Certainly Keynes would not have given approval of Bernanke's behaviors or actions.

That said, I'm not sure what I'd define him as. Friedmanesque, possibly, believing the money supply is nearly be all to end all. Though I'm not sure where Friedman would ever have approved of the degree of actions he has taken.

I also doubt he is stupid. Stupid would mean he is incapable of pulling off even the most subtle of challenging events. He clearly has pulled this off quite nicely - and with little coverage (save ZH's). I'd say he is a "political tool seeking to retain his position in an administration which does not admire his talents", which means he's basically an Obama policy monkey, rather than a shaper of policy.

by Anonymous
on Sat, 08/08/2009 - 21:00
#30634

germany was no more a 3d world country after
ww1 than hitler was a good jew....germany was
exhausted and prostrate but that is quite a
different state than being a 3d world country
from organic causes....it still had colonial
posessions and no one occupied germany as
a colony.....

i suspect that germany would have recovered no
matter who lead it although schacht may have
had a more beneficent influence than others...

by Cheeky Bastard
on Sat, 08/08/2009 - 21:17
#30639

you have got to be kidding me. First of all, Germany had no stable financial system and no defined economical program. Second of all the reparations which were meant to be payed gobbled most of Germany's budget. Third, Germany had no colonies, except some part in the North-West Africa, and that was lost in the Treaty of Versailles and was given to France. Forth thing is that there was no valid infrastructural net which could unify the country and facilitate economical development. The first highway was built during Schecht position in Deutsche Bundesbank ( later Reichsbank ) and Ruhr-Westphalia was industrialized so it could fully exploit the potential of its mineral richness. Schacht was there to bring order into Germanys banking chaos and restore some equilibrium necessary for further development of the country. So your little thesis without any arguments holds no water; Schacht was one of the most brilliant European central bankers, and he had accomplished that during one of the toughest periods. Oh and also, he reduced Germany's debt not by borrowing but by improving production and manufacturing output and capacity.

by Anonymous
on Sun, 08/09/2009 - 00:23
#30717

It's amazing, really, how Germany was able to accomplish all of this through an independent monetary policy, using a fiat currency (sovereign credit -- not a metallic standard) with an economic goal of full-employment. Despite the fact that it was in horrible shape, with ruinous war-reparation obligations and no prospects for foreign investment, the German economy was up and running within four years, even before the armament spending began.

by Cheeky Bastard
on Sun, 08/09/2009 - 01:21
#30745

yes, thank you, i knew something slipped my mind. one of the main causes of, oh so famous, hyperinflation in the Wiemar Republic was, beside the reparation cost, that their debt was denominated in another currency; that was one of the major flaws, and when they changed the exchange rates from fixed to the price of gold, to floating rates the currency simply imploded/exploded. combining that historical factor with the prevalent economical policies Schacht enacted, the concept of Lebensraum ( Living Space ) was a direct consequence in assuring vast natural wealth as a pool from which raw materials could be drawn. Strategically the Annexation of Poland made no sense, but when one knows that Poland had one of the largest iron ore, and other metal, quantities in Europe that move was completely logical. And Schacht went separate ways with the top officials in Nazi regime when there were visible signs od racial and religious cleansing. up until that point Schacht was close to Hitler, because Hitler was a perfect " pawn " in securing that Schacht's idea of economically strong Germany is enacted. 

 

And, one last thing i would like to say is; dont confuse the political environment in which Schacht was working; just look at what he has done. And it is well documented ( search the internet for transcripts from Nuremberg Trials ) that Schacht was in strong opposition to Hitlers idea of racial purity and the idea that Germans ( Goths, not Aryans, Aryans are a tribe from India which settled in northeast Iran after it was defeated 1000 BC and lost control over India, and who can still be found in Iran settled in a semi-close communities in some areas in Kurdistan ) were superior to other nations. Schacht even spent 4 years in a concentration camp. And i strongly recommend to any of you ZHers who are interested in the role of a central banker to read as much as possible about Schacht and his policies while he was on the helm of Reichsbank. It will give you valuable information about how should a central banker behave in a times of great economic disturbance.

by Anonymous
on Sun, 08/09/2009 - 09:06
#30833

Schacht may have been a Nazi, but that is debatable. His goal was national self-interest and not necessarily party policy management. The fact he wound up in a concentration camp and turned state's evidence at Nuremberg implies that at worst, he was an opportunist (much like Bernanke).
In addition, his goals of improving production and increasing output were as much fulfilled by the work of Albert Speer as they were by his own efforts....though I'd argue Speer was aware of the slave labor he employed to achieve some of these gains, while Schacht most likely was not aware.

All told, however, let's consider our current state of affairs. The primary issue is the increase of the money supply into a deflationary environment. This, in itself, is a "good" thing, though Keynes' called it "pushing on a string". It could have little or no effect. Or it could. And if it does, what would that effect be? Well, for one thing the effect is inflationary...because avoiding inflation is all about timing and supply management. Yet since there are so many sources of money supply out there (bonds, currency, etc.), you can't manage them all. Indeed, the issuance of stock is a money supply which is NOT managed by the Fed.

The question is - can Bernanke manage it the way he says he can? The answer MOST LIKELY IS NO. But maybe he can...I'm sure we all hope and pray he does. But I don't put my future in the hands of hope, like so many people did in November.

by Anonymous
on Sun, 08/09/2009 - 09:28
#30840

Embrace the deflation, my friend, embrace the deflation.

by Anonymous
on Sun, 08/09/2009 - 09:32
#30844

LOL. I expect hyperinflation.
However, I also recognize the next step AFTER hyperinflation is deflation.
Or a new currency.

by Anonymous
on Sun, 08/09/2009 - 09:30
#30842

Germany was only better than a 3rd world country due to its history of growth and stability. By all other measures of political and economic stability, it was a disaster after WWI. It's being kind to say they were a third world nation.

The difference was, they had the political will to rise above their station.

As many soldiers returning from WWII said, they saw more of themselves in Germany than in France or Britain. The German desire to improve oneself showed itself moments after the bombings ended, and they began to rebuild as best they could.

by Anonymous
on Sun, 08/09/2009 - 10:25
#30866

Define third world nation.

by Anonymous
on Sun, 08/09/2009 - 11:02
#30887

The "classic" definition of non-aligned Cold War nations no longer applies, obviously. Nor would it to post war Germany.

The pejorative definition of a "developing" nation would apply to today and Germany.

Being more specific - a nation whose total output is below that of large industrial nations or without a stable political environment.

It's a given Germany faced unstable political situations until the rise of Nazi Germany. This was partially due to economic instability.

Post WWI, it's unclear what Germany's total output was relative to the rest of the world since reliable statistics are unavailable (though many guesstimates abound). What IS clear is that while Germany may have improved its total output, it was a developing nation DUE to war reparations, which were overwhelming the economy. By 1920, this took a very visible form as monetization caused hyperinflation over the next few years.

To say Germany was anything other than a developing nation prior to the cessation of war reparations is to take a leap of faith regarding its place in the world. Third World nations typically see large portions of their output exported - just as Germany was seeing.

by Anonymous
on Sat, 08/08/2009 - 17:33
#30506

wow, TD, this is great. thank you for providing this analysis.

by Anonymous
on Sat, 08/08/2009 - 17:34
#30507

beautiful.

by . . .
on Sat, 08/08/2009 - 18:13
#30508

Three points.

***First, Jansen and Yves miss the point that the Federal Reserve may be acting illegally in purchasing at auction using an agent (assuming Jansen's description of the law is right).

Jansen says: "I believe that the Federal Reserve can only buy securities from the Treasury when it rolls over maturing holdings. The Treasury only resurrected the 7 year note in March and consequently the Federal Reserve would have no bonds to roll in the auction. Ergo there lack of participation."

Jansen says it is illegal for the Federal Reserve to buy Treasuries at auction, absent a rollover.  Based on Jansen's claim, it is presumably also illegal for the Federal Reserve to purchase at auction using an agent.  (The government doesn't bless arson, just because you hire people to do it for you.)  Moreover, it is not unheard of for the law to presume that a purchase and resale is wired with the purported buyer acting as an agent of the ultimate buyer.  So, why isn't it reasonable to suspect bad intent by the Fed, absent the Fed presenting evidence to the contrary?  This isn't a criminal trial, and ZH doesn't have the resources of a prosecutor and police officer.

***Second, Yves and Jansen don't really focus on the impact an auction fail, or successful auction at a higher rate, would have had on the market.  If there'd be a big negative impact, why not suspect bad intent, absent the Fed presenting evidence to the contrary?  Again, this isn't a criminal trial.

***Third, Bernanke has been drawing a Nixonian/Clintonian distinction about monetization.

Tyler says "Furthermore, is Bernanke pulling a Clinton and while claiming under oath the he is not monetizing debt, he is effectively doing just that on well over $30 billion in Treasuries, which the Fed acquires within 10 days of issuance?"

Yes, I have understood Bernanke's testimony to Congress to mean that he thinks having the Fed purchase Treasury Securities is not monetization if the Fed's goal is to ease credit conditions for consumers and businesses rather than reduce interest rates for the US government.

by arnoldsimage
on Sat, 08/08/2009 - 17:39
#30509

marla... how do i change my username?

by Miles Kendig
on Sat, 08/08/2009 - 18:00
#30517

Send her an e-mail and ask...

by assumptionblindness
on Sun, 08/09/2009 - 08:12
#30814

Change your username if you must but pleaaaassssssee keep your avatar!

by Anonymous
on Sat, 08/08/2009 - 17:40
#30510

Furthermore, is Bernanke pulling a Clinton and while claiming under oath the he is not monetizing debt, he is effectively doing just that on well over $30 billion in Treasuries, which the Fed acquires within 10 days of issuance? <<<<<

TD,

it all depends on what "is" .......is....

by rapier
on Sat, 08/08/2009 - 21:49
#30657

Bernanke really said he was not monetizing?  How odd.   There is nothing scandalous about this, it's what they do.  The current scope is unprecidented but for the life of me I can't understand why he would deny it.

What's the counter claim he makes? What does monetize mean?

If someone can link to the Bernake quote I would apprciate it. I want to get the whole context.

by texpat
on Sat, 08/08/2009 - 22:48
#30682

Monetizing (printing money to buy your own debt) is one thing... but buying treasuries (with printed money) to 'keep their yield low' is called 'quantitative easing'.

Whoa! It's the same or similar thing.

Someone more qualified may be able to identify whether the money so injected is 'sterilized', or if indeed, this is relevant or makes any difference at all.

by huubs
on Sun, 08/09/2009 - 18:05
#31111

e.g. listen at 1:15 in the video link at http://market-ticker.denninger.net/archives/2009/08/06.html (though it is a bit a truncated context)

by Anonymous
on Sat, 08/08/2009 - 17:45
#30511

Can't wait to hear from the experts. There must be a simple explanation that will render ZH concerns completely unfounded and hypochondriacal.

by simonsays
on Sat, 08/08/2009 - 19:12
#30562

in experts we trust.

by Anonymous
on Sun, 08/09/2009 - 12:24
#30923

Studies show and experts agree that people will believe almost anything if you say "studies show and experts agree that .. " I majored in sales and marketing because studies showed there was a far greater ROI from making people believe they are getting value than actually providing them with it.

-Pump Monkey-

by Anonymous
on Sun, 08/09/2009 - 14:07
#30979

I majored in sales and marketing because studies showed there was a far greater ROI from making people believe they are getting value than actually providing them with it.

You forgot to say "and experts agreed"

by Anonymous
on Sun, 08/09/2009 - 18:26
#31124

I am in sales.
Unfortunately, I do have to provide value, or I will not get a return purchase. If I didn't provide value, I would lose credibility and customers.

I haven't figured out why politicians continually get elected or reelected based on the low value they provide.

by Anonymous
on Sun, 08/09/2009 - 21:51
#31274

You make an excellent point. It is because the people in this country are fools who would rather vote on reality tv shows rather than even attempt to become informed and vote for actual change. Unfortunately it will take an economic fallout of cataclysmic proportions for people to wake up.

by Anonymous
on Sat, 08/08/2009 - 17:55
#30513

Excellent as always.

Q: any pattern that emerges if the set of under 30 Day Since Auction OMO Purchase have a chronological X axis as opposed a Days Since Auction X axis? Do the bubbles tend to cluster around certain negative market events/commentary (negative commnets on the dollar from the Chinese etc)? Have the frequency of these large OMO purchases been increasing?

by Miles Kendig
on Sat, 08/08/2009 - 18:13
#30528

excellent.

I would like to add extraordinary FX movements into this mix.

by TheDreadPirateR...
on Sat, 08/08/2009 - 18:00
#30516

Since it's true that this has been standard operating procedure since the Fed adopted the coupon pass as its primary policy implementation tool (buying treasuries, not all this other stuff), the argument that there is nothing new about this can't be categorically dismissed, as far as that goes. IMHO, the important datapoint here is the ratio of these auctions being taken down by the PDs in the first place. Since they are now increasing their take, for whatever reason, including that no one else wants to buy the paper, that's the thing to be hyperventilating about. So, you might consider that by definition, because the dealers are left with more of the paper on their books, that's who the Fed is buying them from. You might want to look at the historical evolution of the SOMA and understand what the historical ownership of US treasuries looks like. Until they did their wacky TSLF facility last year in a vain attempt to shuffle the pea under several shells and convince everyone the banking system was solvent, the Fed has been a rather large owner of treasuries, which might tend to lead one to think these benchmark rates have long been ridiculously distorted.

by Miles Kendig
on Sat, 08/08/2009 - 18:12
#30526

Indeed.  It would add sauce to the goose as to how the Fed plans to extricate themselves from QE with so much long dated paper, especially MBS on their books or under their direction.

by KeyserSöze
on Sat, 08/08/2009 - 18:02
#30519

CONGRESS WHAT MORE PROOF DO YOU NEED?!?!?

AUDIT THE FEDERAL RESERVE RIGHT FUCKING NOW!!!!!!

by Lothar the Rott...
on Sat, 08/08/2009 - 18:05
#30520

You math nerds have fun for a while.  I'm gonna take a nap and hope I catch a live spinsession tonight.

This discussion is so over my head even while I try comprehending it.

Oh, well.

by Equities In Dallas
on Sat, 08/08/2009 - 18:37
#30541

From Wikipedia

Monetizing debt

In the United States, and in many other countries, the government does not have the right to issue currency to pay its bills. In this case the government must finance its deficit by issuing bonds to the public to acquire the additional funds to pay its bills. However, if these bonds do not end up in the hands of the public, the only alternative is for them to be purchased by the central bank. For the bonds not to end up in the public hands the central bank must conduct an open market purchase. This action by the central bank increases the monetary base, through the money creation process. This process of financing government spending is called monetizing the debt.[1] Monetizing debt is a two step process where the government issues debt to finance its spending, the central bank purchases the debt from the public, and the public is left with high powered money. When government deficits are financed through this method of debt monetization the outcome is an increase in the monetary base, or the money supply. If a budget deficit persists for a substantial period of time, then the monetary base will also increase, shifting the aggregate demand curve to the right leading to a rise in the price level.[2]

To summarize: a deficit can be the source of sustained inflation only if it is persistent rather than temporary and if the government finances it by creating money, {through monetizing the debt}, rather than leaving bonds in the hands of the public.

by Bobby Fischer36
on Sat, 08/08/2009 - 19:48
#30585

You may want to utilize other resource references to make your point.

http://www.deepcapture.com/do-i-live-in-a-synthetic-reality-do-it-yourself-home-test/

Just helping a brother out

by Equities In Dallas
on Sat, 08/08/2009 - 21:37
#30647

Precisely what is wrong with the wikipedia explanation?  I find people who criticize wikipedia intellectually dishonest.  How is wikipedia any less valid a resource than this website?  

by dnarby
on Sat, 08/08/2009 - 22:39
#30678

...Ever try correcting an erroneous Wikipedia article, or adding something to an existing article?

If not, then you have yet to meet the gatekeepers of "All That is Factual According to the Wikipedia Editors".

by Anonymous
on Sun, 08/09/2009 - 09:27
#30839

I have done this. I've found the editors to be rather fair.

They won't go in for conspiracy theory, unless it is denoted as such, but they will allow factual data. I've updated several things on Wikipedia with facts - all of which are still there.

I'm afraid, and I'm sorry to say this because I don't believe it, that most of what is written here at ZH is considered "conspiracy" because it "hasn't come true yet". Or at least "hasn't been proven".

I have to admit, when I first arrived, I felt this was a borderline tin-foil hat site. It was only after I'd read some "predictions" which subsequently came true that I was convinced. These weren't predictions so much as absolutes - it was pretty clear GM would fail, after all - but the government was saying "NO, NO, NO" and ZH was saying "we have it on good evidence from internal government sources". Which to me posits a connection, if you will, to good information.

It's pretty clear by now that TD is well connected, is well versed in market behavior, has some kind of finance/economics degree or experience, and that he is worth AT LEAST listening to.

In the meantime, anyone on this site is likely to wind up listed at flag@whitehouse.gov as a purveyor of disinformation.....as our new leaders prepare to figure out how to deal with us.

by Anonymous
on Sun, 08/09/2009 - 12:29
#30927

Indeed. TD and FC get the benefit of the doubt.

by Anonymous
on Sun, 08/09/2009 - 18:33
#31130

I love this site, but I think TD, et al are a group of folks sharing the pseudonyms...

the volume of analysis does not seem possible for an individual...

that said, keep up the good work...

by UbuTranscendent
on Sat, 08/08/2009 - 18:06
#30522

Ben has a Special Double-Secret Prevaricator's Permission Pass, so... these aren't the correlated POMO transactions you are looking for...

 

You're a brave man, Tyler, goading the B-man that way.  Just remember, Timmay's got a Rancor downstairs.  Ubu.

 

by Miles Kendig
on Sat, 08/08/2009 - 18:10
#30525

It does not do much good to attempt to set the example by sitting on the porch..

by Miles Kendig
on Sat, 08/08/2009 - 18:09
#30523

From my admittedly neophyte position I would like to ask the government that is about to be formed in Japan what they consider to be the time frame for an "immediate" or at auction purchase by the US Central Bank and how these trades might effect their purchases of UST going forward.  I am asking this because I suspect from reports and the whisper that the new government there may well consider denominating all of their purchases, either central bank or public pension operations in yen.

I would be interested in discovering if there might be swaps of national debt between the primary international banking establishments in lieu of currency as a side to the Libor market for the obvious reasons.

Interesting analysis TD.

by Milton
on Sat, 08/08/2009 - 18:13
#30527

I've read some of John Jansen's articles on seekingalpha and he seems like a straight-up guy.  Maybe he's simply out-of-the-loop as to what is currently going on?

by Miles Kendig
on Sat, 08/08/2009 - 19:03
#30559

Naw...

His commentary in the media, including SeekingAlpha is an attempt to diffuse any discussion of the material that is being presented here and elsewhere.  For a media blitz to be effective the speaker must come across as a straight up, plain speaking sort of person.  Especially when discussing a nonsimplistic topic such as this one.

by Anonymous
on Sun, 08/09/2009 - 04:31
#30781

he spent much of his career at the Fed, nuff said.

by SWRichmond
on Sun, 08/09/2009 - 07:21
#30800

John has never responded to any of my comments or questions to his articles on SA.  He seems unwilling to press questions regarding the effect of monetization on Treasuries.  He halfheartedly takes up the topic in one post and then drops it.

by Anonymous
on Sat, 08/08/2009 - 18:17
#30532

It has always perplexed me why the auctions lack so much transparency. As much a Bernanke claims that the Fed is transparent...it's really not. If the Fed put all the data in user friendly graphs and charts, as ZH has wonderfully done for us, then China would probably realize what a farce the US balance sheet really is. Rates would explode overnight......Good Job ZH. Awesome work.

by Anonymous
on Sat, 08/08/2009 - 18:24
#30533

Quick (noob) question.. why would rates explode overnight? I can't seem to think of an explanation as to why that would occur. Thanks.

by Anonymous
on Sat, 08/08/2009 - 18:41
#30545

Rates increase when there is less demand.

Peace.

by Anonymous
on Sun, 08/09/2009 - 00:11
#30708

Sure, but then the Fed just increases the rate at which it monetizes the debt.

by Anonymous
on Sun, 08/09/2009 - 00:49
#30738

The Fed monetizing debt should concern everybody. They are a private corporation. What happens when the Fed, through quantitive easing/monetization, owns a significant portion of US sovereign debt? Here's the answer: you, me and our fellow citizens end up being owned by a private corporation. That, my friends, is also known by another name. Any guesses as to that other name? Here's the answer to that one: slavery. By the way, the Fed is not our only massuh, but that should be fairly obvious.

by Anonymous
on Sun, 08/09/2009 - 01:40
#30753

Not real scared of the fed, man. They don't know no fight club.

by ict558
on Sun, 08/09/2009 - 02:22
#30763

But privatised freedom will be sooo much better than government run freedom ever could be.

by Anonymous
on Sun, 08/09/2009 - 08:18
#30818

what, better the devil you know than the one you don't? go fight club. right now i have much greater faith in more numbers of my fellow plebes than i do in just about any of my "leaders".

by Anonymous
on Sun, 08/09/2009 - 17:37
#31078

Simply because I would like to see a so called "risk premium" for holding US government bonds for 2,5,10 and 30 years ????? Or doe you really believe that the US consumer / citizen is able to pay back what he borrowed from China / Japan / Germany and so forth in a reasonable time ? US interest rates belong into the range 12-16 % p.a.

by Pizza Delivery Man
on Sat, 08/08/2009 - 18:34
#30537

Ok. So inflation?

Is that what I am to understand by this article. This information is great absent potential ramifications of said information.

Fed loses total control and interest rates rocket to 20% overnight (at some point)? Hyperinflation?

It would be helpful if some insight was divulged into consequences of this as it pertains to the current situation (debt continually imploding) and is it even enough to offset the blackhole we are in.

Slightly confused and in need of some clarity.

by Anonymous
on Sat, 08/08/2009 - 19:26
#30570

No, deflation.

The underlying intent of these Treasury purchases is to act as a floor for other asset classes and their inflated valuations. It promotes liquidity flow into those asset classes, avoiding the dread deflationary spiral.

You ponder, 'if a Treasury auction fails, won't that drive up interest rates suddenly?' Perhaps, but only within a very brief time frame. What would actually happen is a deterioration of confidence in the valuation (deflation) of those other asset classes which the Treasuries are intended to support. Then, ironically, investors 'run home to mama', 'mama' being Treasuries in this case. The interest rate on Treasuries would not indicate a substantial increase, since demand would support the class, versus other classes. (I'm assuming the competence in place is sufficient to mitigate velocity).

by deadhead
on Sat, 08/08/2009 - 19:30
#30572

30570...nicely worded explanation. thank you.

by . . .
on Sat, 08/08/2009 - 19:38
#30579

People won't necessarily flee to Treasuries.  At some point, people may flee Treasuries to other currencies, high quality foreign sovereign or corporate bonds, gold, etc.  Of course, Japan's moving toward gov debt of 200% to GDP, so that might not happen for a while in the US.

by Anonymous
on Sat, 08/08/2009 - 20:01
#30597

People don't run home to mama being treasuries. They run to gold, silver, commodities.

by deadhead
on Sat, 08/08/2009 - 20:30
#30618

i don't know about that 30597. up to this point in the last several decades, the treasury is where the big money runs. as to the future, it is unfolding and commodities, including metals, seem to be capturing more attention than treasuries mainly because the usa ain't the 800 pounder it used to be.

I should add that in my view, the usa can snuff down the price of gold with its reserves....

by Anonymous
on Sat, 08/08/2009 - 23:20
#30691

That's not entirely accurate. The fed is based on monopolization and control of a single resource. After WWW1 the US was flush with gold and the FED didn't like it. So they gave most of our gold away getting rid of it entirely by say 1980. We had alot of silver and still do and when keneddy tried to move us to a silver based currency and get rid of the fed they killed him. The same thing is going to happen now except instead of a single authority trying to get rid of a powerful agency with a stupid public you will have a educated public demanding it from an authority that doesn't want it gone.
The powers that be used to have tons of control over our sympathies and with the advent of the draft and the beginning of secret unfunded wars starting with vietnam you see they are very aware of thier loss of control and power. They used to be able to rabble rouse us into a war under the guise of protecting some interest but the draft was a big deal in that it brought them to the realization that they no longer were capable of doing that.

The big US money runs to treasuries because that's the source of all the big money evil. But so much of our money is outside the US now you can't expect it to act like it has before because of other complicated entanglements. You are dealing with a true world market now and not just a selective tight knit group of people with complete and total sympathy and compassion for each other and no sympathy and compassion for anyone under thier thumb. They've tried everything. Mob rule during the roman age, pure outright brutality rule, sending wizards to try to teach us to be compassionate towards them and forgive them forever.
Now everyone has the unsavory job of limiting the power of those who will not limit themselves because trying to live with caligula is just the suck.

by Anonymous
on Sat, 08/08/2009 - 23:26
#30694

Hey! I got a new conspiracy theory for you:

Dennis Kneale = Tyler Durden

Or is that, Tyler Durden = Dennis Kneale?

Oh well, I'm sure you'll figure it out.

Let me know when you do! Thanks!!

by deadhead
on Sat, 08/08/2009 - 23:40
#30698

....US was flush with gold and the FED didn't like it. So they gave most of our gold away getting rid of it entirely by say 1980"

are you saying that the US has no gold reserves?

by Cheeky Bastard
on Sun, 08/09/2009 - 00:21
#30714

Audit Fort Knox and let us know ... ups; apparently that cant be done ... oh well we will just need to take their word for it ... or should we

by Hephasteus
on Mon, 08/10/2009 - 00:09
#31362

Absolutely yes. There may be 20 billion at 1000 an ounce in there but it's gone. The IMF has been letting dictators take over the undeveloped countries loaning them huge loans to build stupid stuff then letting the american or british governments kill the dictators off sticking the newly developed free government with the debt. That's the way the system works. When you allow an improvement or let things get better you include old garbage into it so that things are better but not really. As it stands now the IMF probably controls 60 to 70 percent of the above ground gold.

by Anonymous
on Sat, 08/08/2009 - 20:52
#30631

Yes, some people have, and would in the future. However, such people might soon question the intelligence of such a move once they realize that, when the current liquidity-induced, malinvestment bubble goes 'pop!', shares in such assets are not resistant to the outflow.

by Anonymous
on Sat, 08/08/2009 - 22:24
#30668

Wait until the true story of the COMEX comes to light. There are not enough commodities to deliver, nothing new to the gold dealers but it's a fact. The ICE contract went to paper in March--a 1/4 of a bankers bar paper committment for a kilo contract. They simply don't have the physical assets. Phantom gold and silver contracts. Woohoo. It's as bad as the naked short selling in the market. That said, bear market rallies can have dubious near term implications on said assets. If QE cessation is announced and is bitten off, chewed, and cheered these assets will correct significantly. And what does that leave-a great buying opportunity.

by Anonymous
on Sat, 08/08/2009 - 23:32
#30696

The true story of COMEX isn't that complicated. They simply use the computer speed and national security protection to pass metals back and forth between central banks without actually buying or selling anything. The prices get printed into the exchange system and it messes up how all the other buy sell orders flow. The central banks have decided to only allow 400 tons of fake sales to influence the market per year instead of 500 tons. But the above ground gold is so large in comparison to the in ground gold it's easy to swamp it and affect the rate and simply dictate what you pay miners for the stuff. In a sense they suppress the desire to mine and the willingness to mine to keep activity in that area at a minimum to keep the amounts and numbers more static. The scam never runs out of gold or silver because it's just like 2 guys sitting in a room full of auctioners bying and selling the same houses over and over again influencing what everyone else pays for houses but since it happens on computers in complete anonimity nobody notices that they are doing it. There could be some complicated 3rd party interactions but it could be that they have enough control over the system that just running the fake crap through reports to everyone's computers that the prices have changed and no orders outside of the swap spread go through. In other words you could put in an order for 100 gold at 967 and if they are pounding out the spread end up buying it for 957 cause Goldman Sachs just screwed over your seller.

by Anonymous
on Sun, 08/09/2009 - 09:49
#30851

sounds about right

by Anonymous
on Sun, 08/09/2009 - 17:41
#31085

Absolutely correct. Gold, Silver, safe haven currencies like CHF...

by Anonymous
on Sat, 08/08/2009 - 18:35
#30538

thank you tyler. there are no words. i love you. i've been watching this stuff for months, thinking my head is going to explode.

Of course, they are capitalizing on the sheer ignorance of the peasantry -- and having talked with some in Congress, I know that Ben knows as I do, most don't have a clue as to what is going on. Nor will they until it explodes in a mighty earth-leveling mushroom cloud.........

should we run Ben out of town on a rail? At this point, I'm afraid its too late......flip us, we're done....Ben's attempt to show us that all his theories were "right" and he could have prevented the 1930's depression are going to kill us ......

here, today, in a global economy in 2009.

by Anonymous
on Sat, 08/08/2009 - 21:06
#30637

I agree, we all are that bastards guinea pigs to prove his theory. Ben Bald Bastard (BBB)...

by Anonymous
on Sat, 08/08/2009 - 18:35
#30539

thank you tyler. there are no words. i love you. i've been watching this stuff for months, thinking my head is going to explode.

Of course, they are capitalizing on the sheer ignorance of the peasantry -- and having talked with some in Congress, I know that Ben knows as I do, most don't have a clue as to what is going on. Nor will they until it explodes in a mighty earth-leveling mushroom cloud.........

should we run Ben out of town on a rail? At this point, I'm afraid its too late......flip us, we're done....Ben's attempt to show us that all his theories were "right" and he could have prevented the 1930's depression are going to kill us ......

here, today, in a global economy in 2009.

by Anonymous
on Sat, 08/08/2009 - 18:36
#30540

no more QE from the fed, dollar up,
Higher fiscal deficit, interest rate going higher,
the remaining money hiding in treasury is coming out, where are they going to go? not over seas, dollar is up,
money going to stock??

victor wang

by TwoJacks
on Sat, 08/08/2009 - 18:38
#30543

by far the best work out there. i hope the experts are shitting themselves right now trying to figure out how to counter this analysis. unfortunately for them, cartoon reruns of bugs bunny are more entertaining, and more enlightening for that matter.  excellent work, tyler. excellent.

by Al Swearengen
on Sat, 08/08/2009 - 18:45
#30544

It's all a confidence game.  Truth is a dangerous thing in these times.  It won't totally end the game, but it could change it in a way that might potentially lower the living standard of Americans in some way.  Not being blamed as part of the reason for why something like that happened is what motivates the action, and is an example of groupthink, as well as clear evidence of just how scared the majority of supposed experts, pundits and policymakers are at this point. 

"If you do that, it will result in [MAKE UP SOME SCARY SCENARIO AND INSERT HERE]"

Whoever is best at using this formula will make more of a difference in these times than anyone else.  I equate what we're living through right now with the time after 9/11.  In that environment it was the same dynamic...

 

by RobotTrader
on Sat, 08/08/2009 - 18:42
#30546

No wonder stocks are skying.

No different than Zimbabwe in 2007.

JOHANNESBURG, South Africa - While markets across the world swoon, the Zimbabwe Stock Exchange has being seeing record gains as citizens turn to equities in a desperate attempt to protect their money from the country's stratospheric hyperinflation. The benchmark Industrial Index soared 257 percent on Tuesday up from a previous one day record of 241 percent on Monday with some companies seeing share prices increase by up to 3,500 percent.


by Gilgamesh
on Sat, 08/08/2009 - 18:55
#30554

by Anonymous
on Sat, 08/08/2009 - 19:52
#30589

When I read this article that chart of the Zimbabwe market sprung to mind, thanks for doing the post of the chart for me!

Oh and you are not allowed to use Zim money as toilet paper either...

Dollar loo rolls to be banned next week?

anyone got a JCB with large front loader to spare so I can go to the supermarket in October?

by Milton
on Sat, 08/08/2009 - 20:10
#30602

The Y axis is missing about 12 zeros, oops make that 15, oops...

by zeropointfield
on Sun, 08/09/2009 - 03:38
#30771

This is exponential growth you can believe in.

by Anonymous
on Sat, 08/08/2009 - 18:45
#30547

“The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output."

For those who are waiting for a Frankenstein ("That's FRAHNK-en-Shteen") moment, complete with pitchforks and Eliot Ness, you will find the above at the end of every FOMC Minutes release.

"Oh...Uhhh...we didn't INTENTIONALLY tank the World Economy...We just wanted to...You know...Have a little...(*Sssst*...Jeff...What's the word?...)...Have a little FUN.

Yeah...A little f__..."

by MYUSEDR (not verified)
on Sun, 08/09/2009 - 19:52
#31185

transaction methodology is basically "controlling" prices unless the situation is overpowered with news etc. . I've observed too many time where a stock trades lower while on balance volume

 

hat tip to good finance articles..

by Anonymous
on Sat, 08/08/2009 - 18:45
#30548

it is utterly stupid to nitpick amonst bloggers when the country is being looted to the tune of trillions.
we either stand in this fight together or fall apart.

by Anonymous
on Sat, 08/08/2009 - 18:46
#30549

I did NOT have sexual relations with that Treasury Bill.

by Sqworl
on Sat, 08/08/2009 - 20:47
#30629

hahahaha..

by Anonymous
on Sat, 08/08/2009 - 18:46
#30550

This will all end in a spectacular conflagration the likes of which we will never forget...until the next cycle of greed and arrogance comes around.

by RobotTrader
on Sat, 08/08/2009 - 18:48
#30551

Bubbles, bubbles, everywhere.

First we had the Nasdaq Bubble.

Then the Housing Bubble.

Then the Oil Bubble.

Now the Coffee Bubble.

 

"Surging stocks fan optimism and risk embracement – not to mention forcing many into the stock market with both nostrils plugged." - Doug Noland 8/6/09

by Anonymous
on Sat, 08/08/2009 - 18:54
#30553

Oh that sucks.

by Miles Kendig
on Sat, 08/08/2009 - 19:08
#30561

RT - The sugar chart of you please....

by deadhead
on Sat, 08/08/2009 - 19:16
#30564

RT...got any banking thoughts, like C, BAC, GS....are they doing that old eric clapton thing called "roll it over"?

by Anonymous
on Sat, 08/08/2009 - 18:52
#30552

Ok... market looks like it's gonna crash (deflationary)..printing presses go into hyper drive (inflationary)...massive amounts of debt issued (inflationary)...end of QE (deflationary)....
Fed owns a big chunk of QE debt (either?) depends what they do with it..
sigh.probably sell it at a discount to GS.

by deadhead
on Sat, 08/08/2009 - 19:15
#30563

Excellent analytical paper TD.

Seems to me the heart of this particular discussion is the genuine concern immediately following the (insert negative adjective here) 5s auction that the 7 could be (insert an even more negative adjective here). We understand that if this were to have happened, it would not have been a welcome transaction in the eyes of the ruling political elite.

The postulation posing as the elephant in the room is that an understanding was in effect between the Fed and the PDs i.e. Fed would purchase the noted CUSIP asap.  It would be almost impossible to prove this unless one of the insiders came out with a video or recording.  Given that, those of us who are on the outside must come to conclusions based on the information that we have.  Given further that there are some who simply don't trust the Fed, Treasury, Obama economic team, it is not unreasonable to conclude that a "deal" was in the works and that those purchasers of the referenced CUSIP have nothing to worry about because it will be taken care of as the risk of a failed 7 is not one that is acceptable.

Remember the duck theory; if it has big orange feet, water rolls off its back, and it makes loud quacking noise, it's not definitive but a good chance that you got a fucking duck.

 

by Anonymous
on Mon, 08/10/2009 - 09:19
#31438

Just like Marla reported on the Chrysler bankruptcy, I am 100% confident the tapes exist on these "agreements" with the fed. Why? Well, if you agree to do the Fed a favor and you can't get a contract, how do you protect yourself and ensure the fed buys it back?

by Anonymous
on Sat, 08/08/2009 - 19:20
#30565

if those 'experts' worked on the street for 20 years and still don't have enough $$ to retire, what does it tell about their expertise?

by waterdog
on Sat, 08/08/2009 - 19:20
#30566

Mr TD,

Thank you for this post. I will read it until I can recite it back in whole. When I finish learning from this website, how to use captured registered dealers as a tool to demonitize the pain and disgust of the American people, I will have a cornerstone for my post, wherein, I pick up my poison pen, in my plagiarizing nail gnawed little white hand and, I explain to the people of my neighborhood, why Jerry came home one Tuesday in May and shot his wife, three kids and himself.

by Anonymous
on Sat, 08/08/2009 - 19:25
#30568

if you comb through commentaries of Jansen's blog, there are posters Gary, Greg... who's been showing that John Jansen is not as competent as he seems to be.

by gookempucky
on Sat, 08/08/2009 - 19:30
#30571

The fed will always and continue to monetize-end of story and the main reason is from a statement I recieved from the administration today-I just turned 52.

 

Dear Citizen

Due to the current financial situation caused by the slowdown in the economy, I, President Obama have decided to implement a scheme to put workers of 50 years of age and above on early retirement.

This scheme will be known as RAPE (retire aged people early)

Persons selected to be RAPED can apply to congress to be considered for the SHAFT scheme (Special Help after Forced Termination)

Persons who have been RAPED and SHAFTED will be reviewed under the SCREW program (scheme covering retired -early workers)

A person may be RAPED once, SHAFTED twice and SCREWED as many times as I President Obama and GS deem appropriate.

Persons who have been RAPED could get AIDS ( additional income for dependents & spouse) or HERPES ( Half earnings for retired personnel early severance)

Obviously persons who have AIDS or HERPES will not be SHAFTED or SCREWED any further by the President and his associates.

Persons who are not RAPED and are staying on will receive as much SHIT(Special high intensity training) as possible.

I President Obama have always prided myself on the amount of SHIT we give our citizens.

 

Should you feel that you do not receive enough SHIT, please bring this to the attention of your Congressman who has been trained to give you all the SHIT you can handle.

PS-- Due to budget cuts and the rising cost of electricity, gas and oil as well as current market conditions, the Light at the END of the Tunnel has been turned off.

 

Thank You for Your Time

by Anonymous
on Sun, 08/09/2009 - 09:55
#30853

SHIT will be coordinated with mandatory democratic town hall meetings, thank you --- carry on.

by Anonymous
on Sat, 08/08/2009 - 19:38
#30580

Chris Martenson Responds

http://acrossthecurve.com/?p=7704

by poydras
on Sat, 08/08/2009 - 19:53
#30591

The Fed stated that they were buying 300B in USTs.  OK...So it's the fresh paper.  Does it really matter?  It's still QE or monetization.  Are they masking declining demand.  Seems so.

http://financialsense.com/Market/wrapup.htm

The MBS monetizing seems far worse.

by Anonymous
on Sun, 08/09/2009 - 04:46
#30785

The MBS monetization is bad, but in a different way. With the MBS, they are covering up the fact that foreign buyers have lost faith in fannie and freddie entirely, and without Fed sponsorship of that market, mortgage rates would be much higher today.

by poydras
on Sun, 08/09/2009 - 11:26
#30895

It's worse actually.  The Fed is monetizing long term mortgage debt.  This alone is frightening.  I find it impossible to visualize how they can unwind this.

by SWRichmond
on Sun, 08/09/2009 - 07:42
#30805

If there is any distinction between QE and monetizing, the distinction exists only in the minds of monetarists.  Printing money to buy a host country's sovereign debt can be nothing other than monetization.  Monetarists may try to obfuscate the fact by using big words they learned (or made up) in college.  "Expanding the money supply" is monetizing.

by Anonymous
on Sat, 08/08/2009 - 19:55
#30592

I would write an article thoroughly debunking this claim that the Fed is simply monetizing debt, but I'm not that good a liar.

by PragmaticIdealist
on Sat, 08/08/2009 - 23:39
#30697

ROFL.

by Anonymous
on Sat, 08/08/2009 - 19:56
#30594

I wouldn't call that purgery. Everyone knew the Fed was going to buy (monetize) $300B because they announced it March. No congressman asked Bernanke who he was buying from.

Reselling treasuries so quickly at a loss is the more interesting question.

by Cheeky Bastard
on Sat, 08/08/2009 - 20:00
#30596

they might be selling them back at a loss in a open market, but i, somehow suspect that, the difference between the purchasing price and the selling price is being settled between the FED and the dealer in some, uhmmmm " un-orthodox market mechanism"

by Anonymous
on Sat, 08/08/2009 - 21:13
#30640

Yes, that suspicion is what makes it an interesting question.

by Anonymous
on Sun, 08/09/2009 - 02:22
#30764

Do we know that the PDs held the bonds until the Fed purchase?

by Cheeky Bastard
on Sun, 08/09/2009 - 02:45
#30769

that is a great question. we can not be sure, but if the FED had an agreement with them about re-purchasing the Treasury bonds after a time period of x days and covering their loss occurred during that time period + a small premium of X.xx % the answer becomes self-evident

by Anonymous
on Sun, 08/09/2009 - 17:56
#31097

Hum...what happened to the 2,5,10 yr futures during that period ? Any chance to screw some international operating banks or hedge funds ??

by Anonymous
on Sat, 08/08/2009 - 20:05
#30599

These sorts of financial genius are always a Rob Peter to Pay Paul situation to buy time. It will juggle and juggle and juggle and then all balls will fall out of the air.

by Sqworl
on Sat, 08/08/2009 - 20:06
#30601

Mission Impossible...You found the *tell*...Brilliant..

by Anonymous
on Sat, 08/08/2009 - 20:16
#30608

I will not be the Fed Chairman that presides over the Great Depression II.

Coming hell or high water, I will not allow a failed auction happen under my watch. No F*** Way. Remember, I am the Fed Chairman and my way prevails.

by SWRichmond
on Sun, 08/09/2009 - 07:45
#30807

As an interesting side issue, and totally OT, IMO this is comparable to why Lincoln invaded the Confederate States of America (not wanting to be the president whose election caused the breakup of the USA).  Me me me.

by donethat
on Sat, 08/08/2009 - 20:23
#30613

x

by trillion_dollar...
on Sat, 08/08/2009 - 20:23
#30614

TD, using the info in the last chart you should compare the preceeding auction of the 1-10 day bond purchases with the preceeding auction of the 11-30 day bond purchases to see if there is a correlation between weaker auctions and the purchase of the next issuance of bonds in a shorter period of time.

by Anonymous
on Sat, 08/08/2009 - 20:31
#30620

So where do all the towering $TRILLIONS of Interest Rate Swaps figure into the story?

by assumptionblindness
on Sun, 08/09/2009 - 08:28
#30825

Man, that is indeed a question that I have been thinking about for a while too.  It could be the gun powder keg which is the source of the next financial crisis explosion.

by Anonymous
on Sat, 08/08/2009 - 20:31
#30621

I have for the life of me been attempting to figure out who the hell wants treasuries. I can't. Their movements makes no sense when compared to the stock market. So, you know something funny was going on.

My view is that they are attempting to hide the fact that in th=ruth they are having auction failure so the bidding process is rigged beforehand. Failed auctions get lost of big press. I knw about german failed auctions and they raise rates. It is also a confidence disaster, and considering that the fed comes out and alwyas says their is huge demand it makes what they are saying to not look very true. Considering how wrong Bernake has been all along about this crisis, and how what he has said hasn't been reflected in reality in my view they Td has earned the right to shoot and ask questions later.

There is an old saying fool me once shame on you. fool me twice shame on me. Well just how many times do geitner, summers, bernake, paulson, etc have to play this game before we shoot first and ask questions later. It is this kind of stupid uncritical thinking that got us intoa war in Iraq with false data and white house misinformation. Ejooug is enough. Anyone with even a bit f wits about himself at this time should be assuming poor/bad intent by our public officials. Why, because they have proven the do not deserve the benefit of our doubts anymore!!

These are the kind of thigs the fed is doing to lower rates, yes. But it is all getting pumped into a stock bubble and not going to a better economy. that means 1/2 of the money being spent ends up in bankers pockets in the form of a bonus. that is a huge encomic waste. I also have to pay this back via taxes at a higher rate than the banks pay to borrow and inflate the assets. it kills the dollr. and we all get punished except wall street bankers. that's the essence of what the hell is going on, nad it's time for america to wake up and realize the fed is directly putting out tax money into bankers pockets in the form of a bonus and profits that are a rigged in advance!!!!

by Anonymous
on Sun, 08/09/2009 - 18:02
#31107

I would like to soften your comments :

stock market bubbles are adding to wealth creation. After the Madoff desaster, subprime mortgage desaster, Wall Street desaster people need one straw of hope - doesn^t it make you feel good to see your portfolio's NAV grow ?

by phaesed
on Mon, 08/10/2009 - 15:33
#31994

Just to be clear.... I am purchasing Treasuries. The point of anything market related is to figure out what premise is wrong and then jump on the trend, you just gotta get off before it goes off the tracks.

by Anonymous
on Sat, 08/08/2009 - 20:35
#30624

"our style such as it is, hyperventilating or otherwise, at least brings broad attention to topics which may or may not be of relevance to the general public, as opposed to a closed group of highly sophisticated economists and financiers who enjoy debating among each other and perpetuating their closed group relationship, with no informational leakage into the broad arena - a theme that has persisted for many years and is significantly counterproductive to the ambition of bloggers to be an alternative venue to mainstream media"

And since the quarrel
Will bear no color for the thing he is,
Fashion it thus: that what he is, augmented,
Would run to these and these extremities;
And therefore think him as a serpent's egg,
Which, hatch'd, would as his kind grow mischievous,
And kill him in the shell

Julius Caesar Act 2, scene 1, 28–34

by Anonymous
on Sun, 08/09/2009 - 10:06
#30857

Safracide is painless, it brings on many changes

by Anonymous
on Sun, 08/09/2009 - 12:40
#30933

Actually, the line is:
Without pain, without sacrifice, we would have nothing.

by Pat Shuff
on Sun, 08/09/2009 - 13:12
#30945

Is that a Marty mashup?

HotLips: Just another piece of the Pi.

by Sisyphus
on Sat, 08/08/2009 - 20:39
#30626

An off topic request.

TD/Marla, could we please have the hit counter/sitemeter back? I use to use the numbers to buy my lottery tickets. And now I am clueless as to what to buy. Please assist.

by Anonymous
on Sat, 08/08/2009 - 20:44
#30627

NYT article on Paulson and Goldman chats.
http://www.nytimes.com/2009/08/09/business/09paulson.html?_r=1&ref=business

by Apocalypse Now
on Sat, 08/08/2009 - 23:53
#30703

Interesting article.  Conflict of interest ethics wavers were signed, what does that mean - You are free to violate ethics rules?  Their spokesmen stated they acted ethically (Goldman & Paulson) and that Paulson had to speak with a number of different firms during the crisis.  But the article stated they spoke at least 2 dozen times as recorded in his calendar and met on several occasions.  The reporter should have compared the # of times Paulson spoke with Lloyd to the # of times Paulson spoke with the other CEO's of banks.

Paulson originally stated he would be extremely ethical and operate at arms distance, he sold his GS stock before joining the treasury (tax free) .  Then he let GS's two main competitors Lehman and Bear Stearns fail, gave out 100% of swap contracts through AIG and loaned $10B to GS.

Can you imagine how much dirt Lloyd probably had on Paulson related to how operating profits were made (Flash trading / HFT / Bid Rigging / huge fixed income spreads).  If GS went down, there would be a government takeover and an investigation of their books.

by buzzsaw99
on Sat, 08/08/2009 - 21:04
#30636

Intent has nothing to do with it. BB sez he is easing to help the mortgage market, which is FUBAR, and everyone knows it. Meanwhile foreign bond vigilantes are baying out in the wilderness to no effect due to rampant monetization by the fed and treasury. Does anyone not believe that there is collusion to keep gubbermint borrowing costs down and the stock market up? Please. This will end badly.

by Anonymous
on Sat, 08/08/2009 - 21:17
#30641

TD, there is no comparison between your work and mindless posts of Yves or the Fed stooge Jensen. It is amazing you went through all the data and presented facts. We will let the useless bloggers such as Yves Smith to just post their worthless commentary on other people's posts or research. If other bloggers actually spent the time to do some research once a week I would check them out more often than ZH.
ZH so far is the best financial blog, period. Thanks to TD and other contributors to this data, as always.

by Anonymous
on Sat, 08/08/2009 - 22:18
#30665

This is Cindy (too lazy to log in)

Look, Yves is all jealous b/c no one reads their blog anymore.

BBBOOORRRRRRRIIIIINNNNGGGG

by lizzy36
on Sat, 08/08/2009 - 23:11
#30687

I never understand why it is necessary to verbally trash your peers in an attempt to make your self look good. I think it is far more effective to merely do better work than your peers (see this post for an example of how that works), and leave it at that. 

Yves work is not mindless. Clearly, ZH has i different purpose and thus a different style than Yves. That doesn't negate the merit of Naked Capitalism

In the early days of ZH, Yves was good to Tyler.  He contributed content to Naked Capitalism which no doubt allowed Tyler to grow his readership.

Perhaps, ZH is the best financial blog (for the record i think the work Tyler does is extradionary) but Tyler is not omnipotent.

by Anonymous
on Sun, 08/09/2009 - 00:22
#30716

I agree. I think Yves has done a tremendously good job with her blog. Her style, though, is to view things from a more detached perspective. Her site doesn't have the hyper-frantic pace that ZH has, but it's a very good place to start every morning to get a nice overview of the forest. ZH, meanwhile, does a great job of examining the state of the trees.

I don't know why someone would want to focus only on one of them to the exclusion of the other.

Incidentally, I also found ZH through nakedcapitalism.

by Anonymous
on Sun, 08/09/2009 - 01:57
#30755

Yves is writing a book currently, I seem to remember. She rocks IMO.

by Anonymous
on Sun, 08/09/2009 - 00:23
#30718

I think that's too harsh. Yves Smiths's blog is very good. Nowhere near as good as ZH (nothing is) but good all the same. I thought it was a shame for Yves to publicly criticise Tyler in such a condescending manner but also a shame that Tyler bit back.

They're both good blogs which compliment each other as they seem to have similar purposes -- providing a counterpoint to mindless MSM propaganda. ZH would be too radical for many people and perhaps come across as immature. Conversely, NC would be too conservative and boring for others.

For the record, if I had the opportunity to share a few beers with Tyler I would tell him that his biggest threat is himself. 99.99% of people who receive sudden attention and kudos cannot handle it. Their egos spin out of control and they turn into wankers. I really hope this doesn't happen to the human being behind Tyler. Perhaps it has already happened to Yves Smith.

Long live ZH and long live Naked Capitalism.

by Anonymous
on Sun, 08/09/2009 - 13:55
#30972

Agree that Yves provides some good information and commentary. When I read the post wherein she criticized ZH, I too thought it was much too condescending. However, I don't agree that ZH "bit back," if I correctly understand that to mean that the response was improper just because ZH made it or that it was too snarky. The criticisms from Yves and the Jansen fellow required a response, and ZH did that in a characteristically informal but good-natured and substantive manner.

by Anonymous
on Sun, 08/09/2009 - 18:43
#31139

"...our style such as it is, hyperventilating or otherwise, at least brings broad attention to topics which may or may not be of relevance to the general public, as opposed to a closed group of highly sophisticated economists and financiers who enjoy debating among each other and perpetuating their closed group relationship, with no informational leakage into the broad arena - a theme that has persisted for many years and is significantly counterproductive to the ambition of bloggers to be an alternative venue to mainstream media"

C'mon... surely that qualifies as biting back?:

"closed group... who enjoy debating among each other and perpetuating their closed group relationship with no informational leakage... significantly counterproductive to the ambition of bloggers..."

TD could have written: "it's a shame that Yves decided to wade in as she produces a solid blog." THAT'S not biting back...

by Cheeky Bastard
on Mon, 08/10/2009 - 09:46
#31451

she missed the point completely, while attacking ZH, TD and us who comment here on a personal basis via ad hominem arguments. Her lack of understanding of TDs post about Fed's repurchasing of Treasury Bonds from PDs resulted in her calling this whole blog a big conspiracy theory get-together. And her citing of Jensen as a legitimate and un-biased source is ridiculous given the fact that Jensen worked for NYFBR. She missed the point of that post because she did not understand that it was not a claim, but a question why does the FED repurchase the bonds just a few days later from their issuance. And her argumentation that the FED might have been purchasing older stacks of PDs TBs is completely untrue given the FACT that the CUSIP number of the issuance from the auction is the same number as the CUSIP number of the purchased amount of bonds. She missed the point completely while insulting all of us here on a personal basis. While i agree that her blog offers some good information most of the post i have been reading there are just re-cycled stories which were published in some MSM outlet days before they were posted on NK. And most of the articles there are about the macroeconomic picture of the US and the World and offer nothing more than a black-white type of argumentation and conclusion which we can get on any other blog site, newspaper site or on YouTube. It is stupid of her and immature to comment on the things she a) does not understand and b) does not what they mean when they were written. She can trash and bash TD and ZH all she wants, and call us TDs monkeys and whatnot, but THIS is the best blog on the Internet simply because of the fact that it explores the tiny and sophisticated market segment in a new and attractive way. Oh and BTW, most of these attacks started right after ZH got a award as the best financial blog on the Internet. Coincidence; maybe, but the fact is that the attacks on ZH started shortly after that. Her ego got in the way of her thinking and she has discredited herself by her style and her insults.

by Anonymous
on Sat, 08/08/2009 - 21:20
#30643

I fear Tyler Durdin and his ilk may find themselves among the 1st inmates at the FEMA camps.

I'd put money on their books then, but fear will win the day.

Until then, blogs away!

by Anonymous
on Sat, 08/08/2009 - 21:35
#30646

This is great shit, meticulously documented, falsifiable, what the world needs now even more than love sweet love but the adversarial tone makes me sad. TD may be the most rad just now but there's room for Yves and John Jansen too. Divergence and interaction is what distinguishes blogs from 1-way media bullhorns. We now have J.S. Mills' ideal of discourse because three of our most trustworthy minds disagree. I don't give a shit who's right yet, I'm just so happy that the days of ex cathedra pronouncements from asskissing journalists are gone. It's not a competition, it's proof we've won. They'll never control what we know again. Group hug!!!!

by Cheeky Bastard
on Sat, 08/08/2009 - 21:40
#30650

*hug*

by Anonymous
on Sat, 08/08/2009 - 22:42
#30679

I was wondering, though, about the striking synchrony in other bloggers' distancing themselves now from ZH. It might be that while CR does objectivity and Yves does advocacy, ZH goes beyond that to a kind of yippie activism that scares some respectable people. But nothing else can get at the institutionalized corruption we're facing. It might be that more could get done in a lower-profile place. If this gang had some, uh, I dunno, working groups at riseup.net, frinstance, people who know the pressure points, who've vetted each other offline, Who knows what they could accomplish?

by Cheeky Bastard
on Sat, 08/08/2009 - 22:44
#30680

don't prescribe distancing where jealousy fits perfectly 

by Anonymous
on Sat, 08/08/2009 - 23:04
#30686

I dunno, these aren't super competitive people. One's seen it all, one's made his pile, one's a chick and chicks don't give a shit about that stuff. Anyway my main topic was matrushkas nested in matrushkas - no matter how nuts you are, there's some things you just won't talk about in front of the whole universe. You need the equivalent of a city club that's everywhere.

by Anonymous
on Sun, 08/09/2009 - 10:16
#30863

Competition is a necessary good.

by Anonymous
on Sat, 08/08/2009 - 21:43
#30652

If I may comment, being a bond trader : TD, what your data is showing is just pure and simple front running. Dealers, at the end of the day, just want to make money - and they are smart. The treasury issuance calendar is public knowledge, and so also the fed buying program. There was, and is, much *free* money to be made by just being the intermediary and taking some risk between the two events. It is very very tough - if not impossible - for the fed, or the treasury, to enter into any "secret" agreement with primary dealers. But it is pitiable that, at the end of the day, dealers are printing money at the expense of the taxpayers (the MBS purchase program was also very profitable to them but that discussion for another day).

by deadhead
on Sat, 08/08/2009 - 21:58
#30661

i respect your point of view as a bond trader about the "free" money being made and suspect you are accurate.

as to your statement, "It is very very tough - if not impossible - for the fed, or the treasury, to enter into any "secret" agreement with primary dealers", I mean no disrespect but that is an incredibly naive viewpoint. It's almost like you are attempting a limited hangout approach.

by Anonymous
on Sun, 08/09/2009 - 04:51
#30786

that 7 year bond was sold to the Fed 19 ticks lower than it was bought at auction, how did they make money on it?

by Cheeky Bastard
on Sun, 08/09/2009 - 05:14
#30787

i can tell you, but its only speculation( i hate that ); but try this " pre-determined re-purchases with added value to the seller"

by Anonymous
on Sat, 08/08/2009 - 22:26
#30670

I want to have your abortion Tyler...I love you.

by e1even1
on Sat, 08/08/2009 - 22:32
#30675

listening to Stevie Ray Vaughan's - Tightrope right now.

but actually it's more like riding the tiger. just forget about getting off. i think it would be prudent now to revoke Ben's and Turbo's passports. outfuckingstanding column.

by Al Swearengen
on Sat, 08/08/2009 - 22:38
#30677

Been thinking about this since I read it earlier today...that 7yr auction two weeks back was so odd.  In another time we might have traded into that buzzsaw...the post-game institutional commentary wasn't overboard w/ "this is a sign that the market believes" hyperbole, unlike everyone everywhere after the employment data came out on Friday...the invisible fist

by Anonymous
on Sat, 08/08/2009 - 22:52
#30684

http://globaleconomicanalysis.blogspot.com/2009/08/what-growth-is-s-500-pricing-in.html

by Anonymous
on Sat, 08/08/2009 - 23:12
#30688

Nice work in adding proof to the pudding but I thought everyone knew the FED was monetizing debt. No?

by madmax
on Sat, 08/08/2009 - 23:23
#30692

I feel that the fed indirectly manipulated the stock market by stepping into the 7 year auction in the fashion that it did.   The 7 year treasury auction had the full attention of the stock market that day, especially after the 5 year was poorly received. 

Once the headline numbers were release on the 7 year, the stock market cheered and the 5 year auction was deemed a fluke. 

The fed knew that by the time the details of the 7 year auction were sifted through the stock markets attention would have moved onto the next big thing.

by Anonymous
on Sun, 08/09/2009 - 00:27
#30723

Why would the Fed risk screwing the bond markets to save the stock market?

I'm new to this, but I thought that the bond market was an order of magnitude bigger than the stock market, and that t he commodities markets were one order of magnitude bigger than the bond market, and that FX was one order bigger than that.

by madmax
on Sun, 08/09/2009 - 01:04
#30746

The treasury market has known for sometime that the fed was going to monitize 300 billion in UST debt. The big issue here is whether or not there is suffcient external demand for US tresuries to finance our ballooning debt.  The Fed created the illusion that there was regarding the 7 year auction and that apparent demand reassured the market.

 

by Anonymous
on Sat, 08/08/2009 - 23:25
#30693

http://baselinescenario.com/2009/08/07/how-to-blow-a-bubble/

courtesy of GS

by Anonymous
on Sun, 08/09/2009 - 00:02
#30705

Did you work at JPM in a past life? Those guys love their bubble charts....

by Anonymous
on Sun, 08/09/2009 - 00:21
#30713

How did you get passed the math question?
A friend needs to know.

by Anonymous
on Sun, 08/09/2009 - 00:27
#30722

That would be telling.

by George Orwell
on Sun, 08/09/2009 - 00:05
#30706

Tyler, you are quickly becoming THE blog on internet.

 

Can you go back and analyze the OMO data based on the maturity dates of the treasuries?  The reason why I ask is that according to this press release:

 

http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm

 

The fed is supposed to be purchasing 300 billion of "longer term" securities.  That 5 day flip of the 7 year treasuries is not "LONGER TERM".  Long term is 10 years or more.  The original intent was to lower the yield on the 10 year notes since mortgage rate are indexed based on the 10 year note.

 

We know for a FACT that the treasury department has been selling A LOT of 3, 5, 7 year notes instead of 10 or 30 year notes.  They know that demand is there for the short term notes but not for the term long term.  But if the fed is purchasing a bunch of these short term notes, that means...

 

Well, it means that the SHIT HAS HIT THE FAN.

 

If the Chinese and Saudis are shunning the short term notes, we are in deep shit.

 

Georgeo  Orwell

by e1even1
on Sun, 08/09/2009 - 00:27
#30721

... and the more active the fed becomes in creating demand, the less non-fed demand there will be due to the articial rate. he almost has to correct equities now to help him with demand. what a perfect mess.

by Anonymous
on Sun, 08/09/2009 - 03:05
#30770

Just look at the situation in the UK. The BoE holds the majority of certain gilt issues already...

http://ftalphaville.ft.com/blog/2009/08/06/65761/double-secret-qe/

Once completed, the 175bn GBP QE program will amount to about a quarter of all the gilts currently outstanding.

Interesting times.

by Anonymous
on Sun, 08/09/2009 - 10:32
#30870

Game over - stop issuing debt, mfers.

by Anonymous
on Sun, 08/09/2009 - 00:10
#30707

So much effort in collecting data and then wasting it with conclusions that make no sense at all, its just silly. It is clear you know nothing about bonds, the bond market, duration, bond holders, the flow of money. All you do is base your analysis on equity markets, where one stock is the same as the other when issued by the same company. Bonds are different and more complicated and you just don`t have a clue.
That is not to say part of your conclusion is not right, but just the way you get there and the amount of confusion created by screaming meaningless sentences in between is just not helping at all to say the least.
You miss the fact that the Fed can only buy what is offered, that they have to take the cheapest offers and can not just buy anything, that the on the run issues are more liquid and therefore cheaper to buy in most cases. And you even manage to conclude away the fact that if PD would have hold on to the issue they bought on the auction at 99.27, they would incur a loss (and a big one that is) selling them at 99.07. Obviously that would not make sense in any book.

One last, but maybe most important observation that you miss: in the auctions that did not go well, primary dealers got most of it. However, in the auction that did not go well, primary dealers only got a handful of the issue compared to others. Now how do you clarify that, if the primary dealers had an agreement with the FED, why did they not be more aggressive? It clearly shows that other participants had a vested interest in this issue, and to make sure they got it they put in a bid on the rich side of the market. It actually blows away your whole argument that FED and PD worked together to make this a successful auction, because it were not the PDs that made it successful.

To bad you blast someone as knowledgeable as John with stupid remarks, rather than making an effort to read what he writes and understand a little of the bond market. It would help you to actually understand what the FED is doing and point out the real things that are undermining the economy, rather than some fake issues that are actually no issues.

by George Orwell
on Sun, 08/09/2009 - 00:40
#30728

You are full of crap. Since you know so much about the bond market, can you please clarify why the March 18, 2009 press release from the fed:

 

http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm

 

Talks about buying 300 billion of "longer term treasury securities" and then the fed turns around and starts buying a bunch of 3, 5, and 7 year notes?

 

The definition of "OPEN MARKET OPERATION" means buying something in the OPEN MARKET.  You can pick and choose WHAT to buy at the open market.

 

The original intend was to keep buying the 10 year notes to drive down the mortgage interest rates.  But they ended up trying to PROP UP the short term notes.

 

From the spreadsheet that Tyler posted, there was hardly any 10+ year notes purchased.  And no, it was not because nobody was selling 10 year notes.

 

George Orwell

by Anonymous
on Sun, 08/09/2009 - 03:58
#30775

My point was against the theory that the Fed works with the Pds to guarantee their buys at the auction. This data clearly does not proof any of that. It doesn't stop many of you of fantasizing about it, but that is a different story.
As for longer dated treasuries, if you knew anything aboud how the fed always has worked, you would have known that in order to manage short term interest rates, the Fed has bought and sold treasuries all the time. However, that would meanly have been in maturities less than one year. Therefor anything longer falls within the definition. 10 years is not where short stops and long starts.

by deadhead
on Sun, 08/09/2009 - 10:25
#30867

30775 said: "My point was against the theory that the Fed works with the Pds to guarantee their buys at the auction. This data clearly does not proof any of that. It doesn't stop many of you of fantasizing about it, but that is a different story.
"

If it has big orange webbed feet, quacks,.....never mind.

by Anonymous
on Sun, 08/09/2009 - 22:46
#31316

Exactly my point. That thing with big webbed orange feet, quacking all the time is no elephant, no matter how much Tyler tries.

by PragmaticIdealist
on Sun, 08/09/2009 - 00:54
#30741

"You miss the fact that the Fed can only buy what is offered, that they have to take the cheapest offers and can not just buy anything, that the on the run issues are more liquid and therefore cheaper to buy in most cases. And you even manage to conclude away the fact that if PD would have hold on to the issue they bought on the auction at 99.27, they would incur a loss (and a big one that is) selling them at 99.07. Obviously that would not make sense in any book."

That is the damn point Tyler is making... It's fishy that they are taking such a loss...

"One last, but maybe most important observation that you miss: in the auctions that did not go well, primary dealers got most of it. However, in the auction that did not go well, primary dealers only got a handful of the issue compared to others."

HMM, maybe it's because when the Fed anticipates a poor auction showing they incentivize primary dealers more?!?

Logical thinking is your friend...

 

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