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Pimco's Observations As The US "Reaches The Keynesian Endpoint" - The QE2 Ponzi Scheme Is "Nothing But A Profit Illusion"
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Once again, it is the world's biggest bond manager which either is really tempting fate by telling the truth in an increasingly more aggressive manner day after day, or is engaging in the most acute case of reverse psychology ever seen, coming out with the most critical opinion of the Fed's actions on the verge of the Fed's historic first press conference. And this one is truly a stunner, far more real than anything even Bill Gross has said in the past: "Just as Charles Ponzi needed donuts to turn back a suspicious crowd
of investors, the Fed needs “donuts” in order to fill the bellies of
the literally millions of investors worldwide who worry about the
alarmingly large U.S. budget deficit and the impact that the U.S. debt
dilemma could have on their Treasury holdings...Their
collective buying has created what we believe to be a profit illusion
with many investors mistakenly believing they can continuously reap
profits from perpetually falling bond yields and rising bond prices,
just as they have had opportunity to do over the past 30 years, amid the
great secular bull market for Treasuries and the bond market more
generally...For many reasons, this “duration tailwind” for Treasuries can’t
last, particularly because the United States has reached the Keynesian
Endpoint, where the last balance sheet has been tapped."
Must read
Summary of "The End of QEII: It’s Time to Make the Donuts"
- ?With quantitative easing the Federal Reserve has in essence picked the pockets of Treasury bond investors throughout the world.
- Ultimately, the U.S. must own up to its past sins and let the deleveraging process play itself out.
- The U.S. must invest in its people, its land, and its
infrastructure, as well as promote free trade, to achieve economic
growth rates fast enough to justify consumption levels previously
supported by debt.
In 1920 the Boston Post contacted Clarence Barron, the founder of
Barron’s, to investigate a man who claimed to be racking up remarkable
gains for investors in an arbitrage involving the purchase and sale of
postal-reply coupons. Charles Ponzi, the developer of the scheme, sought
to convince investors that differentials in inflation rates between
countries had created an opportunity for investors to purchase the
postal-reply coupons on the cheap in one country and redeem them in the
United States, an arbitrage that Ponzi said would enable investors to
grow their money by several fold if they invested with him.
In fact, there were indeed differences between the prices of
postal-reply coupons postage bought in foreign countries and their
redemption value in the United States. But there were also substantial
barriers preventing any actual arbitrage, including enormous logistical
challenges having to redeem the coupons, which were of low
denominational value. Ponzi nonetheless started and then perpetuated the
scheme.
Barron sought to expose Ponzi’s scheme, noting in articles that
eventually brought the Post a Pulitzer Prize, that to support the
investments Ponzi had supposedly made there would have to be 160 million
postal-reply coupons in circulation. There were only 27,000 of them.
These and other questions led an angry and suspicious crowd to gather
outside of Ponzi’s Securities Exchange Company, which was located in
Boston on School Street.
eventually brought the Post a Pulitzer Prize, that to support the
investments Ponzi had supposedly made there would have to be 160 million
postal-reply coupons in circulation. There were only 27,000 of them.
These and other questions led an angry and suspicious crowd to gather
outside of Ponzi’s Securities Exchange Company, which was located in
Boston on School Street.
Ponzi, who was famous for his deceptions, convinced many in the
angry crowd to stay calm and leave their money with him, enticing them
with little more than his charm, donuts and coffee. It wasn’t the first
time that investors would be misled by the potential for future profits
and simple trappings, but donuts and coffee? Really? Is it this easy to
get investors to part with their money? In many cases yes,
unfortunately.
angry crowd to stay calm and leave their money with him, enticing them
with little more than his charm, donuts and coffee. It wasn’t the first
time that investors would be misled by the potential for future profits
and simple trappings, but donuts and coffee? Really? Is it this easy to
get investors to part with their money? In many cases yes,
unfortunately.
From Donuts to QEI and QEII: The New Profit Illusion
Just as Charles Ponzi needed donuts to turn back a suspicious crowd
of investors, the Fed needs “donuts” in order to fill the bellies of
the literally millions of investors worldwide who worry about the
alarmingly large U.S. budget deficit and the impact that the U.S. debt
dilemma could have on their Treasury holdings. Investors are no doubt
worried they may have bought into an unsustainable scheme: the creation
of a scourge of debt so large that the Fed itself has had to purchase
the debt to keep the game going.
of investors, the Fed needs “donuts” in order to fill the bellies of
the literally millions of investors worldwide who worry about the
alarmingly large U.S. budget deficit and the impact that the U.S. debt
dilemma could have on their Treasury holdings. Investors are no doubt
worried they may have bought into an unsustainable scheme: the creation
of a scourge of debt so large that the Fed itself has had to purchase
the debt to keep the game going.
All that the Fed has had to do thus far to keep the game going is
press the “on” button to its virtual printing press, crediting the
account of the U.S. Treasury. In the process, the Fed has kept the
demand for U.S. Treasuries high, perhaps deceptively so, attracting with
its redolence many classes of buyers, including households, banks,
pension funds, insurance companies and foreign investors. Their
collective buying has created what we believe to be a profit illusion
with many investors mistakenly believing they can continuously reap
profits from perpetually falling bond yields and rising bond prices,
just as they have had opportunity to do over the past 30 years, amid the
great secular bull market for Treasuries and the bond market more
generally.
press the “on” button to its virtual printing press, crediting the
account of the U.S. Treasury. In the process, the Fed has kept the
demand for U.S. Treasuries high, perhaps deceptively so, attracting with
its redolence many classes of buyers, including households, banks,
pension funds, insurance companies and foreign investors. Their
collective buying has created what we believe to be a profit illusion
with many investors mistakenly believing they can continuously reap
profits from perpetually falling bond yields and rising bond prices,
just as they have had opportunity to do over the past 30 years, amid the
great secular bull market for Treasuries and the bond market more
generally.
For many reasons, this “duration tailwind” for Treasuries can’t
last, particularly because the United States has reached the Keynesian
Endpoint, where the last balance sheet has been tapped. In addition,
with inflation expectations rising in the context of low levels of
initial jobless claims, and with Federal Reserve officials themselves
expressing reluctance to go beyond Quantitative Easing (QE) II, the
Fed’s Treasury buying is expected to end in June, leaving others to
carry the Treasury’s heavy load.
last, particularly because the United States has reached the Keynesian
Endpoint, where the last balance sheet has been tapped. In addition,
with inflation expectations rising in the context of low levels of
initial jobless claims, and with Federal Reserve officials themselves
expressing reluctance to go beyond Quantitative Easing (QE) II, the
Fed’s Treasury buying is expected to end in June, leaving others to
carry the Treasury’s heavy load.
The Federal Reserve’s colossal bond purchases therefore will
likely, to the chagrin of millions of unsuspecting Treasury bond
investors, be one of the markers for the latter stages of the bull
market for Treasuries. For now, however, the Fed’s purchases have the
sweet aroma of freshly baked jelly donuts and many a Treasury bond
investor has been drawn to their savory, sugary, scrumptious taste.
likely, to the chagrin of millions of unsuspecting Treasury bond
investors, be one of the markers for the latter stages of the bull
market for Treasuries. For now, however, the Fed’s purchases have the
sweet aroma of freshly baked jelly donuts and many a Treasury bond
investor has been drawn to their savory, sugary, scrumptious taste.
What they should instead smell is the whiff of rotten eggs. But
this is easily hidden with a nose pin, which the Fed through QEII places
on the noses of each investor, with the goal of creating perpetual
serendipitous moments that in the eyes of investors transform the rotten
stench into something far more delectable. Ultimately, however, the
stench of the Federal Reserve’s bond purchases will seep into the
nostrils of investors all around the world when it becomes glaringly
obvious to them that the Fed can’t possibly continue as the Treasury’s
main source of demand.
this is easily hidden with a nose pin, which the Fed through QEII places
on the noses of each investor, with the goal of creating perpetual
serendipitous moments that in the eyes of investors transform the rotten
stench into something far more delectable. Ultimately, however, the
stench of the Federal Reserve’s bond purchases will seep into the
nostrils of investors all around the world when it becomes glaringly
obvious to them that the Fed can’t possibly continue as the Treasury’s
main source of demand.
Treasury investors will also realize that not only has QE
suppressed the rates they earn on their Treasury holdings, QE promotes
financial and economic conditions that hurt Treasury bond holders,
primarily because it boosts economic growth and inflation, resulting in
confiscation of the skimpy Treasury yields they earn. Foreign investors
have the added discomfort of a decline in the foreign-exchange value of
the U.S. dollar. To top it off, Treasury investors face the potential
for capital losses for having bought into the Fed’s scheme at prices
inflated by QE, sort of like playing a game of hot potato and getting
stuck with the potato when the Fed abruptly leaves the game.
suppressed the rates they earn on their Treasury holdings, QE promotes
financial and economic conditions that hurt Treasury bond holders,
primarily because it boosts economic growth and inflation, resulting in
confiscation of the skimpy Treasury yields they earn. Foreign investors
have the added discomfort of a decline in the foreign-exchange value of
the U.S. dollar. To top it off, Treasury investors face the potential
for capital losses for having bought into the Fed’s scheme at prices
inflated by QE, sort of like playing a game of hot potato and getting
stuck with the potato when the Fed abruptly leaves the game.
House of Pain
With QEI and QEII the Federal Reserve has in essence picked the
pockets of Treasury bond investors throughout the world. To be sure, QE
fattened the bellies of many Treasury investors, owing to substantial
price gains.
The problem, however, is that the Fed essentially
robbed Peter to pay Paul by pushing yields below inflation and by
undermining the value of the U.S. dollar. Peter was the unsuspecting
investor in Treasury securities drawn into the Fed’s scheme by the
allure of ever-rising Treasury prices; Paul was everyone else invested
in everything else.
pockets of Treasury bond investors throughout the world. To be sure, QE
fattened the bellies of many Treasury investors, owing to substantial
price gains.
The problem, however, is that the Fed essentially
robbed Peter to pay Paul by pushing yields below inflation and by
undermining the value of the U.S. dollar. Peter was the unsuspecting
investor in Treasury securities drawn into the Fed’s scheme by the
allure of ever-rising Treasury prices; Paul was everyone else invested
in everything else.
The movement into this “everything else” that was prompted by QEI
and QEII can be visualized by looking at concentric circles, with the
riskiest assets at the perimeter of the circles. The migration toward
the perimeter was encouraged through not only a decrease in term premia
for longer-term bonds resulting from the Fed’s large-scale asset
purchases, but also by the Fed’s zero interest rate policy, or ZIRP. It
created a “house of pain,” an investment climate in the money market so
punishing that it drove investors to seek refuge in other assets. No
wonder $1 trillion of money has flowed out of money market funds over
the past 2 ½ years.
and QEII can be visualized by looking at concentric circles, with the
riskiest assets at the perimeter of the circles. The migration toward
the perimeter was encouraged through not only a decrease in term premia
for longer-term bonds resulting from the Fed’s large-scale asset
purchases, but also by the Fed’s zero interest rate policy, or ZIRP. It
created a “house of pain,” an investment climate in the money market so
punishing that it drove investors to seek refuge in other assets. No
wonder $1 trillion of money has flowed out of money market funds over
the past 2 ½ years.
It’s Time to Make the Donuts
QEI and QEII were necessary solutions at a time when the U.S.
financial system was on the brink, but they are unsustainable means of
funding the U.S. government. Ultimately, the U.S. must own up to its
past sins and let the deleveraging process play itself out. It can’t
pretend that previous levels of demand for goods and services can be
restored simply by turning on the Fed’s printing press.
financial system was on the brink, but they are unsustainable means of
funding the U.S. government. Ultimately, the U.S. must own up to its
past sins and let the deleveraging process play itself out. It can’t
pretend that previous levels of demand for goods and services can be
restored simply by turning on the Fed’s printing press.
The United States instead must recognize that only by increasing
investment in its people, its land, and its infrastructure, as well as
promoting free trade, can it achieve economic growth rates fast enough
to justify consumption levels previously supported by a wing and a
prayer – by debt.
investment in its people, its land, and its infrastructure, as well as
promoting free trade, can it achieve economic growth rates fast enough
to justify consumption levels previously supported by a wing and a
prayer – by debt.
For the Federal Reserve and the U.S. Treasury, it is time to make
the donuts. There is a crowd standing outside and, although there is no
wrongdoing to make them as angry as the crowd that stood outside of
Charles Ponzi’s office before he was busted, they are just as anxious,
and it is going to take a lot of convincing to get them to show up at
the next Treasury auction and the one after that, and the one after
that, and….
the donuts. There is a crowd standing outside and, although there is no
wrongdoing to make them as angry as the crowd that stood outside of
Charles Ponzi’s office before he was busted, they are just as anxious,
and it is going to take a lot of convincing to get them to show up at
the next Treasury auction and the one after that, and the one after
that, and….
Across the Pond and Around the World
Now, let’s turn to Ben Emons for a walk through the evolution of
QE, its goals, its effects, and its upcoming end, before turning to
other PIMCO colleagues for discussions on central banking in Europe and
the emerging markets. Comments from PIMCO experts throughout the world
are a regular feature of the Global Central Bank Focus.
QE, its goals, its effects, and its upcoming end, before turning to
other PIMCO colleagues for discussions on central banking in Europe and
the emerging markets. Comments from PIMCO experts throughout the world
are a regular feature of the Global Central Bank Focus.
The Evolution and Ending of QEII
Ben Emons
The Fed’s long-term securities asset purchases – dubbed
“quantitative easing,” or QE, for short – link asset prices to the
economy. The Fed engineered such a linkage via a sequence of signals
that were met with anticipation in the financial markets for an
aggressive style of monetary easing.
“quantitative easing,” or QE, for short – link asset prices to the
economy. The Fed engineered such a linkage via a sequence of signals
that were met with anticipation in the financial markets for an
aggressive style of monetary easing.
The sequence began in the fall of 2008 when the federal funds rate
moved toward the zero bound, resulting in November 2008 in the
announcement of the Fed’s first asset purchase program consisting of
agency securities and agency mortgage-backed securities. At the time,
the purchase of Treasury securities was being evaluated for their
potential benefits.
moved toward the zero bound, resulting in November 2008 in the
announcement of the Fed’s first asset purchase program consisting of
agency securities and agency mortgage-backed securities. At the time,
the purchase of Treasury securities was being evaluated for their
potential benefits.
The Fed had two initial intentions for its asset purchases: to
address distressed credit markets and to support the housing sector.
Both goals were facilitated largely by liquidity support programs such
as the Term Asset-Backed Securities Loan Facility. Anticipation of
additional action grew when in December 2008 Fed Chairman Ben Bernanke
made a stronger case for quantitative easing, driving Treasury yields
sharply lower.
address distressed credit markets and to support the housing sector.
Both goals were facilitated largely by liquidity support programs such
as the Term Asset-Backed Securities Loan Facility. Anticipation of
additional action grew when in December 2008 Fed Chairman Ben Bernanke
made a stronger case for quantitative easing, driving Treasury yields
sharply lower.
This occurred in a similar fashion with QEII when Bernanke in
August 2010 spoke to the effectiveness of asset purchases at the Fed’s
annual summit in Jackson Hole. The intention of quantitative easing
however was different from credit easing; it was a rebalancing effect.
By signaling quantitative easing, investors’ anticipation drove
portfolio allocations into Treasuries.
August 2010 spoke to the effectiveness of asset purchases at the Fed’s
annual summit in Jackson Hole. The intention of quantitative easing
however was different from credit easing; it was a rebalancing effect.
By signaling quantitative easing, investors’ anticipation drove
portfolio allocations into Treasuries.
When Treasury yields became very negative in real terms, it pushed
investors into equities, corporate bonds and other assets that had
positive real rates. The premise of this strategy was that portfolio
assets are imperfect substitutes. By changing drastically the yield of
‘risk-free’ assets, a domino change occurred in other assets, which is
the portfolio rebalancing effect. As a result, the expansion of the
Fed’s balance sheet became very positively correlated with returns on
the S&P 500 index during QEI & QEII, as shown in Figure 3.
investors into equities, corporate bonds and other assets that had
positive real rates. The premise of this strategy was that portfolio
assets are imperfect substitutes. By changing drastically the yield of
‘risk-free’ assets, a domino change occurred in other assets, which is
the portfolio rebalancing effect. As a result, the expansion of the
Fed’s balance sheet became very positively correlated with returns on
the S&P 500 index during QEI & QEII, as shown in Figure 3.
The true intention of QE therefore was to generate a self-feeding
mechanism of expectations building on expectations in a way similar to
the money multiplier. During QEI as well as QEII, the Fed succeeded with
this strategy as the portfolio balance had a knock-on effect on its
favorite gauge of inflation expectations, the 5-year/5-year forward
break-even derived from Treasury inflation-indexed securities. This is a
market-based measure where investors believe inflation will be in five
years looking five years out.
mechanism of expectations building on expectations in a way similar to
the money multiplier. During QEI as well as QEII, the Fed succeeded with
this strategy as the portfolio balance had a knock-on effect on its
favorite gauge of inflation expectations, the 5-year/5-year forward
break-even derived from Treasury inflation-indexed securities. This is a
market-based measure where investors believe inflation will be in five
years looking five years out.
The positive correlation between the change in the Fed’s balance
sheet and forward break-even inflation shows a direct connection with
the rise in asset prices (Figure 3). Hence the Fed has created a
transmission channel it can call upon if it wishes to utilize QE in the
future. The success of this transmission hinges on several associated
costs. There is the stock effect represented by assets on the balance
sheet and a flow effect from the Fed’s daily purchases. Fed research has
shown that the impact on interest rates from the flow effect is
relatively small (~3 basis points) mainly because operations are
preannounced, but the stock effect can be larger when either announced
(~70 basis points) or signaled (~30 bps). Other Fed research has
estimated projected deficits (flow) and debt (stock) can be worth 25
basis points in terms of risk premium.
sheet and forward break-even inflation shows a direct connection with
the rise in asset prices (Figure 3). Hence the Fed has created a
transmission channel it can call upon if it wishes to utilize QE in the
future. The success of this transmission hinges on several associated
costs. There is the stock effect represented by assets on the balance
sheet and a flow effect from the Fed’s daily purchases. Fed research has
shown that the impact on interest rates from the flow effect is
relatively small (~3 basis points) mainly because operations are
preannounced, but the stock effect can be larger when either announced
(~70 basis points) or signaled (~30 bps). Other Fed research has
estimated projected deficits (flow) and debt (stock) can be worth 25
basis points in terms of risk premium.
QEI saw essentially two ends when the Treasury and MBS programs
finished respectively on 10/29/09 and 3/31/10. As Figure 4 shows, the
premium in forward rates was then relatively small (10 to 25 basis
points), and it consisted in part of premiums for liquidity, term to
maturity, and future rates on top of expectations for QE’s end. For the
period ending when the Fed is scheduled to end QEII in June, there is
only a small premium in the forwards, but through December 31, 2011 the
premium is larger (40 to 70 basis points) partially because interest
rate hike expectations have increased.
finished respectively on 10/29/09 and 3/31/10. As Figure 4 shows, the
premium in forward rates was then relatively small (10 to 25 basis
points), and it consisted in part of premiums for liquidity, term to
maturity, and future rates on top of expectations for QE’s end. For the
period ending when the Fed is scheduled to end QEII in June, there is
only a small premium in the forwards, but through December 31, 2011 the
premium is larger (40 to 70 basis points) partially because interest
rate hike expectations have increased.
The cost associated with the end of QEII therefore appears to be
mostly factored into forward rates and so the true exit cost lies in
different areas. At the end of QEI, the Fed’s 5YR/5YR forward inflation
stood near 2.9%, but the European sovereign crisis dampened inflation
worries and reversed those quickly. Today, however, fears of contagion
stemming from Europe’s debt dilemma have fallen, boosting the 5YR/5YR to
about 3.1%, posing a challenge for the Fed to create a smooth exit from
QEII.
mostly factored into forward rates and so the true exit cost lies in
different areas. At the end of QEI, the Fed’s 5YR/5YR forward inflation
stood near 2.9%, but the European sovereign crisis dampened inflation
worries and reversed those quickly. Today, however, fears of contagion
stemming from Europe’s debt dilemma have fallen, boosting the 5YR/5YR to
about 3.1%, posing a challenge for the Fed to create a smooth exit from
QEII.
Coinciding with the end of QEII is the debate on the federal debt
limit. As QEII has kept the real Treasury rate persistently negative and
thus supported the portfolio balance effect, the risk is that real
rates suddenly turn sharply positive on inflation or debt concerns, thus
feeding a negative effect from the link between asset prices and the
economy. This is why the Fed is likely to finish QEII as planned with
sufficient communication to provide as smooth an exit as possible.
limit. As QEII has kept the real Treasury rate persistently negative and
thus supported the portfolio balance effect, the risk is that real
rates suddenly turn sharply positive on inflation or debt concerns, thus
feeding a negative effect from the link between asset prices and the
economy. This is why the Fed is likely to finish QEII as planned with
sufficient communication to provide as smooth an exit as possible.
European Central Bank Focus
Andrew Bosomworth
What Next?
Earlier this month the Governing Council of the European Central
Bank (ECB) decided to raise the rate on the main refinancing operation
(MRO), which provides the bulk of liquidity to the banking system, by 25
basis points to 1.25% having left it unchanged for almost 2.5 years.
Investors seeking to comprehend why policy was tightened despite the
dire state of public finances in Europe’s periphery perhaps took comfort
from ECB President Trichet’s response to a question whether more rate
hikes are in store: “We did not decide today that it would be the first of a series of interest rate increases.” Phew.
Bank (ECB) decided to raise the rate on the main refinancing operation
(MRO), which provides the bulk of liquidity to the banking system, by 25
basis points to 1.25% having left it unchanged for almost 2.5 years.
Investors seeking to comprehend why policy was tightened despite the
dire state of public finances in Europe’s periphery perhaps took comfort
from ECB President Trichet’s response to a question whether more rate
hikes are in store: “We did not decide today that it would be the first of a series of interest rate increases.” Phew.
Was that not a signal that Europe’s already steep yield curve
prices in too many hikes: 2% by the end of this year and 2.5% by end
2012? Indeed it likely does, but two things – history and loan growth –
suggest investors should draw little comfort from President Trichet’s
answer.
prices in too many hikes: 2% by the end of this year and 2.5% by end
2012? Indeed it likely does, but two things – history and loan growth –
suggest investors should draw little comfort from President Trichet’s
answer.
In December 2005, the ECB also raised the MRO rate by 25 basis
points, back then to 2.25%, having left it unchanged at “historically
low levels” for exactly 2.5 years. And in response to a similar question
about whether there were more interest rate hikes to come, President
Trichet said, “There is not an ex ante decision of the Governing
Council at today’s meeting to engage in a series of interest rate
increases.” Yet three months later the ECB hiked again, to 2.5%,
and it continued doing so in regular two and three month intervals until
reaching 4.25% in June 2007. Upshot: the ECB makes its mind up one step
at a time and what is important is the medium-term direction of the
economy. While history never repeats itself, a similar dynamic may be in
store again.
points, back then to 2.25%, having left it unchanged at “historically
low levels” for exactly 2.5 years. And in response to a similar question
about whether there were more interest rate hikes to come, President
Trichet said, “There is not an ex ante decision of the Governing
Council at today’s meeting to engage in a series of interest rate
increases.” Yet three months later the ECB hiked again, to 2.5%,
and it continued doing so in regular two and three month intervals until
reaching 4.25% in June 2007. Upshot: the ECB makes its mind up one step
at a time and what is important is the medium-term direction of the
economy. While history never repeats itself, a similar dynamic may be in
store again.
To start with, growth in loans to the private sector is responding
positively to the previous years’ stimulating monetary and fiscal
policies. Within the recent 2.6% year-on-year growth in private sector
loans, loans to non-financial corporations have finally stopped
contracting, and lending for house purchases in the entire eurozone has
picked up to 4%, a rate that masks a very heterogeneous pattern of
credit creation across member states from contraction in Spain to boom
in Slovenia.
positively to the previous years’ stimulating monetary and fiscal
policies. Within the recent 2.6% year-on-year growth in private sector
loans, loans to non-financial corporations have finally stopped
contracting, and lending for house purchases in the entire eurozone has
picked up to 4%, a rate that masks a very heterogeneous pattern of
credit creation across member states from contraction in Spain to boom
in Slovenia.
More troubling for a central bank, however, measures of inflation
expectations continue to rise. The European Commission’s survey of
consumers’ price expectations over the next 12 months, for example, show
they have risen consecutively since autumn 2009 and are back at levels
last seen in the heyday before Lehman Brothers defaulted.
expectations continue to rise. The European Commission’s survey of
consumers’ price expectations over the next 12 months, for example, show
they have risen consecutively since autumn 2009 and are back at levels
last seen in the heyday before Lehman Brothers defaulted.
A 1.25% policy rate thus appears consistent neither with the
improving health of the eurozone economy nor with the firm anchoring of
inflation expectations. And even if the ECB were to raise the rate to
the level of next year’s forwards at 2.5%, it is important to realize
that even that rate is low by historical standards. Indeed, the policy
rate in modern-day Germany and the eurozone has averaged 4.5% since
1875. So what’s next? Another rate hike, I would presume.
improving health of the eurozone economy nor with the firm anchoring of
inflation expectations. And even if the ECB were to raise the rate to
the level of next year’s forwards at 2.5%, it is important to realize
that even that rate is low by historical standards. Indeed, the policy
rate in modern-day Germany and the eurozone has averaged 4.5% since
1875. So what’s next? Another rate hike, I would presume.
Emerging Markets Central Bank Focus
Lupin Rahman
Central Banks Get Prudent in Emerging Markets: Is It Enough?
Brazil’s recent increase in the tax on financial transactions
related to foreign investments, the IOF tax (Imposto sobre Operações
Financeiras), to limit short-term external borrowing and restrain
consumer credit highlights the increasing use of macroprudential
measures across emerging markets as a key component of monetary policy
(Figure 5). But how effective are such measures likely to be, and what
are the risks?
related to foreign investments, the IOF tax (Imposto sobre Operações
Financeiras), to limit short-term external borrowing and restrain
consumer credit highlights the increasing use of macroprudential
measures across emerging markets as a key component of monetary policy
(Figure 5). But how effective are such measures likely to be, and what
are the risks?
Brazil may be the most visible example, but it is far from the only
one. The People’s Bank of China (PBOC) explicitly adopted the broader
use of quantitative measures, with reserve requirement ratios (RRR)
effectively replacing rate hikes as the main monetary tool. In the last
six months, RRR have been hiked a cumulative 350 bps while the prime
lending rate has been raised 75 bps.
one. The People’s Bank of China (PBOC) explicitly adopted the broader
use of quantitative measures, with reserve requirement ratios (RRR)
effectively replacing rate hikes as the main monetary tool. In the last
six months, RRR have been hiked a cumulative 350 bps while the prime
lending rate has been raised 75 bps.
In Korea’s case, the focus of recent measures has been on affecting
the composition of capital flows with the central bank (CB) imposing a
bank levy on non-deposit foreign currency liabilities and imposing a
leverage cap on banks’ FX derivatives positions. Meanwhile in the most
unorthodox move so far, Turkey’s CB hiked reserve requirements 800 bps
for short-term deposits while cutting the policy rate by 75 bps to reduce incentives for short-term foreign portfolio flows.
the composition of capital flows with the central bank (CB) imposing a
bank levy on non-deposit foreign currency liabilities and imposing a
leverage cap on banks’ FX derivatives positions. Meanwhile in the most
unorthodox move so far, Turkey’s CB hiked reserve requirements 800 bps
for short-term deposits while cutting the policy rate by 75 bps to reduce incentives for short-term foreign portfolio flows.
A cursory look at the recent measures implemented across emerging
markets points to the broad scope and somewhat undefined nature of
macroprudential policies. It is truly a case of incremental
experimentation.
markets points to the broad scope and somewhat undefined nature of
macroprudential policies. It is truly a case of incremental
experimentation.
At their most basic, macroprudential measures are
targeted/rule-based techniques implemented to limit the buildup of
financial risks and improve the resilience of the financial system to
shocks. As such they may include capital controls or prudential
regulations on selective flows (e.g. Brazil’s tax on corporate foreign
borrowing with less than two years maturity), reserve requirement ratios
which target the ability of banks to extend credit, and taxes on
specific credit sectors, e.g. auto loans or consumer credits. Broader
definitions include all microprudential measures on financial
institutions as well as broad measures to limit asset market bubbles,
such as via strict lending rules for second mortgages.
targeted/rule-based techniques implemented to limit the buildup of
financial risks and improve the resilience of the financial system to
shocks. As such they may include capital controls or prudential
regulations on selective flows (e.g. Brazil’s tax on corporate foreign
borrowing with less than two years maturity), reserve requirement ratios
which target the ability of banks to extend credit, and taxes on
specific credit sectors, e.g. auto loans or consumer credits. Broader
definitions include all microprudential measures on financial
institutions as well as broad measures to limit asset market bubbles,
such as via strict lending rules for second mortgages.
Underlying this shift in CB policy focus has been the combination
of accelerating capital inflows into emerging markets following the
Fed’s pursuit of QEII and a zero policy rate that results in rising
interest rate differentials. These global factors have not only resulted
in appreciation pressures on currencies, but they have also led to a
rapid increase in short-term inflows into domestic equity and debt markets and concurrently encouraged a surge in short-term foreign exchange liabilities of the private sector.
of accelerating capital inflows into emerging markets following the
Fed’s pursuit of QEII and a zero policy rate that results in rising
interest rate differentials. These global factors have not only resulted
in appreciation pressures on currencies, but they have also led to a
rapid increase in short-term inflows into domestic equity and debt markets and concurrently encouraged a surge in short-term foreign exchange liabilities of the private sector.
Moreover, rising liquidity in the banking system is driving
interbank rates lower, reducing the efficacy of policy rates in the
monetary transmission mechanism. Emerging markets central bankers are
understandably concerned about these phenomena particularly given the
additional macroeconomic risks posed by rising inflationary pressures as
commodity-price increases feed through and domestic output gaps close.
interbank rates lower, reducing the efficacy of policy rates in the
monetary transmission mechanism. Emerging markets central bankers are
understandably concerned about these phenomena particularly given the
additional macroeconomic risks posed by rising inflationary pressures as
commodity-price increases feed through and domestic output gaps close.
Will the Policies Work?
The extent to which macroprudential measures are likely to be
effective in limiting distortions as well as dampening inflation remains
an open question.
effective in limiting distortions as well as dampening inflation remains
an open question.
There is some evidence suggesting that quantity-based measures can
affect the composition of capital flows as well as broad credit
conditions. Nevertheless, insofar as macroprudential policy frameworks
are less developed and less tested than more orthodox interest-based
policy frameworks, there is good reason for pragmatism in terms of what
they can deliver. There is also the issue of the extent to which they
can be circumvented given their (typically) narrower focus, and the
ability and costs of regulation for supervisory authorities playing
catch-up with the private sector.
affect the composition of capital flows as well as broad credit
conditions. Nevertheless, insofar as macroprudential policy frameworks
are less developed and less tested than more orthodox interest-based
policy frameworks, there is good reason for pragmatism in terms of what
they can deliver. There is also the issue of the extent to which they
can be circumvented given their (typically) narrower focus, and the
ability and costs of regulation for supervisory authorities playing
catch-up with the private sector.
The challenge for markets is therefore to assess the overall impact
of these measures together with any spillover effects on monetary
conditions, inflation and ultimately policy rates. Macroprudential
measures are most likely to be effective in reducing systemic financial
risks when they are undertaken alongside a traditional, rate-driven
tightening cycle as opposed to being enacted in place of
interest rate hikes. While this has been the case so far in some
emerging markets – e.g. Brazil has hiked a cumulative +325 bps since
2010 as well as putting forward a 0.5% of GDP fiscal consolidation plan –
this has not in others – e.g. Turkey.
of these measures together with any spillover effects on monetary
conditions, inflation and ultimately policy rates. Macroprudential
measures are most likely to be effective in reducing systemic financial
risks when they are undertaken alongside a traditional, rate-driven
tightening cycle as opposed to being enacted in place of
interest rate hikes. While this has been the case so far in some
emerging markets – e.g. Brazil has hiked a cumulative +325 bps since
2010 as well as putting forward a 0.5% of GDP fiscal consolidation plan –
this has not in others – e.g. Turkey.
The risks are many, led by the increasing challenges to emerging
market central banks’ credibility in fighting inflation and achieving
stated inflation-targets. EM policymakers will have no choice but to be
pragmatic, while also pointing fingers at others (in this case, the
U.S.) for the source of their headaches. Meanwhile, investors will need
to adapt, including positioning for rising one-year forward inflation
expectations in emerging markets and local curve steepening.
market central banks’ credibility in fighting inflation and achieving
stated inflation-targets. EM policymakers will have no choice but to be
pragmatic, while also pointing fingers at others (in this case, the
U.S.) for the source of their headaches. Meanwhile, investors will need
to adapt, including positioning for rising one-year forward inflation
expectations in emerging markets and local curve steepening.
»
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Gross is obviously buying Treasuries. When your AUM and ego is this large, headfakes are all you have going for you.
Yup, he's looking for better prices to buy.
But it's not working. Just look at the 10-year over the last 2-3 weeks: going UP in price almost every day.
And if prices continue to rise, he might be forced to buy. What's THAT gonna to do yields?
Negative alpha Bill is about to Peter Lynch himself. Last rant of a bondtard who has lost his touch.
There's a blatant inherent contradiction there. Can't have your cake and eat it too.
Plus 10
No, the top quote is in reference to longer maturity treasuries which have been in rally mode for ~30 years, most recently artificially juiced by QE 1 & 2.
The bottom quote refers to <1yr maturity (the only area that the Fed has direct control over) "money market" instruments which have been yielding near zero for some time now (thanks to ZIRP). Some investors/savers have been seeking out higher yielding (and riskier) places to park their money as a result.
I have to come to the same conclusion. Either the Fed pissed in his flakes or else he's got a conundrum in terms of the expected return of his AUM. He can't make his numbers on the pisspoor yields that the UST is paying.
So he has to hope for better absolute returns in deflation. He wants austerity so he can be a "wizard" and lock up bonds at higher coupons and keep TRF humming along before his flock deserts him.
Gross doesn't fucking care about the country; he cares about making his numbers. Funny how the assholes who profited the most from the bond runup are now demanding that their cash become more worthful.
That's what I'm thinking too.
And a few more "war games" won't hurt either.
With REAL deleveraging, will either beget hyperinflation or must restructure debt.
BINGO
But isn't that the trap? With austerity cometh default and a whole lot of hurt on the economy in general.
Gross is obviously buying Treasuries--concur. Bernake told him already. He'll surf the wave as capital runs screaming into Treasuries once Ben announces QE2 is going to end.
Expect prices for silver and gold to drop in the short-term. BTFD. QE3 will start about 5 minutes after Gross dumps his position.
Is it even POSSIBLE that Bernake would resist implementing QE3 if the stock market tanks and both political parties start sharpening guillotines from Bernake's temporary tight money policy?
"The good thing about socialism is that at a certain point, they shoot each other."
Yuri Maltsev
Stalin looked harmless once.
Dup
We're fortunate Ron Paul has no adult children
Your posts are the equivalent of finding a turd on the sidewalk.
Greece Nr.2:
http://www.saposjoint.net/Forum/viewtopic.php?f=14&t=2626&start=180#p31991
http://www.saposjoint.net/Forum/viewtopic.php?f=14&t=2626&start=180#p31988
Useless posts on another blog.
2 pictures are better than thousand useless words. They tell the story of the USA near term future, easy to understand.
did the fit hit the sham?
The Fed misunderestimated global growth. They used 20th century calculus to solve 21st century problems.
They were fighting the last war: what should have been done during the Great Depression of the 1930s was used as their guide and model.
In applying the wrong measures in a changed world they created a novel economic phenomenon in the US: Biflation, which threatens to be undermine the economy far more severely than if they had allowed deflation to cause a reset.
Succinct.
Props for the 'misunderestimated' Bushism.
+ 5 Internets. Well said.
CEO bonus profits are no illusion my friends. They really are making off like bandits.
an excellent point
the effects of ppt qe pomo are a nice backwash on the repriced executive options. fortunes have been made with no discussion. inflation makes you rich if your options are 500 handles in the money even if the dollars are worth a third as much. this needs to be thought about more...
Many say this but I'm not buying it. So, after all the juice dries up who is left holding bag? No doubt it cannot be the fascists who rule but the peons. Look forward to austerity, depression, joblessness, reduced or eliminated entitlements. The banksters will still skim off the top and feed their trolls in CONgress. Sheesh.
The U.S. has been disrupted dismantled and defeated
Praise Allah.
You are right ,all this "war" against terrorism and our Government did it for them ,Destroyed America , who cares people like being slaves it gives them a warm fuzzy feeling knowing there master is looking after them. If this was not the case then we would be rebelling and going against the Government , I would say it was more a case of the stockholm syndrome.
Darn tootin.
Austerity is for the suckers.
http://www.youtube.com/watch?v=czcUmnsprQI&feature=related
Love Tom.
What a whore.
Hes positioning himself for the day when the torches and pitchforks come out. I believe that not only was he a participant in the great ponzi, put an insider as well. This guy is Bruce Bigalow male Gigolo working Washington DC.
He's positioning himself for the day ...
Yes, but what timing. I was looking for the hammer that would be thrown at PM's/Commodities.
That's a sledge-hamma'.
PIMPCO = Fred Garvin
Ben spoke to the bankers about two years ago (if I remember) and told them to get cash. I often wondered why. My first thought was to pay down debt but that seemed to go against the fractional system- My second thought is use the cash to buy up assets-- that seems more in line with wealth accumulation which the banks like. If the above blog speaks true then devaluation of assets is just around the corner and the banks will have their holiday picking up assets for less. (buy low)
The banks that did increase cash and pump it into distressed assets (other failed banks, etc.) had a short boost to earnings/position, but now many of the inhereted skeletons are banging on the closet door. Often, the transitions aren't perfect and whatever liabilities that could be transferred were and are now lead weights.
The concept of hoarding cash only works when the assets you can purchase (banks' portfolios are limited mind you) are open to the entire gambit... and, most importantly, you not only choose wisely, but you time the purchase correctly. The banks are not stocking up on "real" money/assets... they're stocking up on depreciating bullshit with an endless amount of liabilities attached. The simple fact is that there is little way out except to toss out the traditional investment and operational paradigms and begin anew, forged in a much stronger alloy.
Ben was directing banks to become even more systemically important (consolidating the industry) so that the proverbial gun to congress' head would be that much bigger. I think we're long past the point of death should the gun fire, but for whatever reason, each time the gun gets bigger, they pretend to be more scared... strange.
Good points. In addition the banks are going to be forced to purchase treasury instruments going forward, as mentioned in this interview from Warton by Proff Herring and Taleb...
"Taleb: That is true. But I'm looking at ... what would be the worst thing that can happen to us. The U.S. has to raise $1.5 trillion for next year, okay? We're going to have to find buyers. We have some domestic savings -- a few people willing to spend. Okay? The rest of the world may buy some. And then we have no buyers. So they have to call Bernanke to come and do his quantitative easing again.
Herring: And we have a set of rules developing for banks that will require them to buy bonds, which is a bit worrisome the world over.
Taleb: Yes, instead of lending.... This is what I call the situation of failed options or not being able to find buyers and then having to fudge things so they can play that game. The rest of the world would see it and I would say, "Okay, I'm not touching that currency."
Herring: That's surely going to be a hard landing.
Taleb: Definitely. That would be a rude awakening. In my new book Anti-Fragility I look at a few things.... You keep postponing the blow up, but the longer you wait, the worse it gets. But we have solutions. One of the solutions is to cut right away. Clean out the cancer right away.
Herring: Do we have the political will to do that?
Taleb: No."
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2755
I agree, I think Benocide knows the end of QE2 will pull the rug out from under the asset markets, and now that his banks are flush with cash, they are ready to take advantage. I have been slowly moving to cash the past couple weeks, and will continue, and then eventually go short, very soon.
Unless they managed to eliminate significant amounts of debt, their cash is already spoken for... further, deflation will not allow them nor their debtors to repay any credit owed...
Basically, there has not been enough time nor organic growth since they were last hanging off the edge of the abyss... the FED did everything it could to buy them more time, but it could not buy enough (like we all knew).
The entities aren't going to be buying shit... the entities are saddled with liabilities... rather, it's the principal actors of the fraud (individuals) who will purchase distressed assets and prosper... they may also create new entities, not saddled with debt or other liabilities (for example, mortgage putbacks).
Right, the banks are going to have gov paper shoved down their throats and will have no cash. None to lend, none to buy 'depressed assets'.
Meanwhile, PMs are a great alternative... if you are listening Bill G...
this shit caused the last Holocaust.
A sliver of one clan ended up, through their control of the monetary machinery, with ownership of the entire nation.
We must hope that we get someone like Putin who only levies his sword against the sliver, and not the entire group.
Who is that "clan"? Blaming your favorite "clan" again? Loser.
+1506.60 Quatloos
QE + ZIRP = effectively negative interest rates. This negatates the time-value of money assumption upon which the financial system rests.
nice
Yes.
Thanks PIMCO....a bit late...don't you think?
We knew this shit already 2 years ago. There is no way back now.
You should have opened your mouth when it was necessary, you useless piece of paper.
Gross is just pissed off being such a public politically correct image prevented him purchasing gold a few years ago. This covering his ass talk will go on for while before Fed pulls the plug and we get deflation.
Sure, the Fed will get religion and stop the QE and we get deflation, you bet. They will not print to save their positions, their wealth, their skins and their lives.. Yes, yes they will.. No one in a position of power has the balls to go deflationary while there remains a press and a single helicopter.
How many people really take into account that US GDP, the DOW, and corporate profits are denominated and reported in USD which may be giving a false impression of how things are really doing, even as the numbers are routinely massaged anyway?
US GDP up 2.5%? But if USD is down 5% YOY? Gross is a Fed manwhore but saying what needs to be said. US debt sucks and our bonds suck.
...As the 'market' just continues to ram rodded higher by 'mystery' forces.
They'll need a 'big day' to goose the news conference tonight.
Surreal.
Not to change topics, but....
US Treasury Secretary Timothy Geithner vowed Tuesday that the United States would never follow a strategy to weaken the US dollar.
"Our policy has been and will always be, as long as I will be in office, that a strong dollar is in the interest of the country," Geithner said at a New York conference organized by the Council of Foreign Relations.
"We will never embrace a strategy to weaken the dollar."
http://www.breitbart.com/article.php?id=CNG.bb8d29de016b5320311c96de8bce...
so fucking what? Tim Geithner has lied on almost every speech he's given. Robert Rubin also said the same thing, and he's the one that accelerated the suppression of precious metals and interest rates, which btw, are not USDollar-conducive. How did that "strong dollar policy" work?
Voice from on high: Timmah, it's time to make the "strong dollar" statement.
Geithner: Shit, even I can't stand up there and say that. My head will eplode or something. No way!
VFOH: It does what it's told or it gets the hose.
LOL
Amazing, isn't it? One bare-faced lie after another by a public official, and the MSM do nothing to call him on it.
Thanks, I needed a laugh. Poor little Timmy, telling fibs.
Uhm... didn't Bill short Treasuries? He's just trying to make sure his decision turns out to be profitable. Expect more Treasury bashing from Bill as at a minimum he needs to buy some back to cover PIMCO's massive short position. What a joke.
Bill kickin butt, again. Boy, someone's backing him on these public commentaries. No way he'd just do this on his own. He's reping a consensus view of a large and well endowed constituency.
About eight months ago Bernanke and Geithner testified before the congressional committee investigating the 2008 crash. Their testimony was broadcast on C-Span. Both Bernanke and Geithner testified the economy could recover only if America's negative balance of trade were reversed into a positive balance of trade.
They both testified there is no possibility of rescuing the economy if the balance of trade continues to be negative. They said it is essential that the balance of trade must go positive within two years or there is no hope.
It's been eight months and the balance of trade deficit is the same as it was when they testified.
Of course, the news media ignored their testimony.
They always ignore balance of trade. Some jerks even point to it as proof of the power of the American consumer! "Look, we can buy and buy and buy and never have to create wealth on our end". It is all down to Debt accumulation.
Geithner is a Rubin protoge and Rubin cared only about capital account surplus for god's work
AmeriKKKa, a true Frankenstein society collapses into a cauldron of hate of its own making. That passport thingy yesterday? That tells you what the ethnic cleansing, genocidal scum fascists YOU -TYLER DURDEN punk- have supported, cheered and profited from as they preyed on the innocent have in store for you.
Amerikkka, the true slimy face of evil will feed on it's own now.
WTF?
WTF? Indeed.
WTF!
OMG!
BBQ!
Makes RoboBitch seems normal.
if we are eating our own? I have dibbs on sheepdog.. becuase he looks like a lamb to me! Yummie! sorry Bro?!
Can I have Muir?
AmeriKKKa, a true Frankenstein society collapses into a cauldron of hate of its own making. That passport thingy yesterday? That tells you what the ethnic cleansing, genocidal scum fascists YOU -TYLER DURDEN punk- have supported, cheered and profited from as they preyed on the innocent have in store for you.
Amerikkka, the true slimy face of evil will feed on it's own now.
************************************************************
Boehner says “Lazy Un-Employed Scumbags are to Blame for the Recession” I am paraphrasing a lil. http://goo.gl/8ep0F
Boehner: "Can't pay your student loan? Face it your parents were lazy and you couldn't afford college. The world needs ditch diggers and you were born into a family of them. Can't pay your mortgage? Your house was too expensive and you couldn't afford it. Your taxes going up too much? That's what you get for electing a democrat president. Never had a job after you got a degree? You learned nothing in school and you're lazy. I didn't get to be a congressman by watching jersey shore or playing xbox. You think there's no jobs for you? There used to be. There was when I was your age. You don't have fee time because you have to work all days of the week for 16 hours a day and you don't get paid hourly? Thank the unions. They made decent jobs so out of price range of the average American company that they can't hire anymore people and the works' gotta get done. These unions... I tell you they won't be happy till no one in America has a job. And health care? Don't get me started on health care- doctors study their entire lives and they barely make enough to live and yet Obama, who had his entire life handed to him on a silver plate wants to cut their pay. You know that's gonna do? Increase costs- the average persons going to have to work even harder just to see a doctor. "
Taibbi: "With mounting unemployment what do you think is the possibility that we'll see an Egyptian style uprising of the youth? Should we be worried?"
Boehner: "It's not going to happen in the US. The kids here are too fat, too lazy, to addicted to TV, fast food, cheap credit, and facebook. I have news for you- there are plenty of jobs out there- the unemployed don't want them. Today's college student feels entitled to make at least $24 right after college. When they find out they can collect unemployment they would rather do that. You know the average college educated unemployed person is collecting $60k a year? The CATO institute did a study- and I mean, you and me we're hard workers we could just sit around and live, but these kids today- that's all they've been doing their entire lives. I'm not worried for this country- there are a few of them who actually want to work, take Mark Zucker(sic). You don't build a site like facebook out of thin air- it takes talent and hard work. I went to a community college and all I saw were people sitting in front of computers typing away, their eyes were fixed. Probably just facebooking away."
**************************************************************
Boner says that the young ones are to, too busy facebooking to care to participate in a "Day of Rage" here in the U.S.! I say Popiecock!
here is some food for thought..
Michigan, Police have been downloading info from cell phones during stops since 2006! http://goo.gl/qIM4I
Military Helicopter Exercise startles Miami residents http://goo.gl/itJiJ (YouTube Video) BlackHawks flying downtown Miami at Night. (why do they only practice with the BlackHawk Evac's from the Bank of America Building?
Is something happening soon that would require a full on evac from the B or A Building? seems fishy..
Bill finally got a whiff of what the shit soup sandwich being served up by chefs Ben, Janet & Bill really smells like. Must have happened when he got called to his duties as bucket boy on that clean up job on isle 7. Now if only Mohamed El-Erian could be reasoned with regarding his presumption that dropping these shit soup sandwiches, aka blocks of WIC cheese from helicopters is the be all & end all Mohamed and the rest of the super economectric crowd believe it to be.
Good luck Bill
http://youtu.be/k55NuWQCh78
He offered up a solution to the housing disaster to the White House--and was arrogantly "carted out the door." that would be the REAL treasury secretary carted out the door and "not the poser with the title." he's done the right thing to PRESERVE wealth--which is the goal of any bond guy. How interesting "the equity guy is in agreement"! We shall see...but "the White House can't escape blame"--and "all those bad words" that they attach to you--THEY'RE TRUE!
Thought some would like a morning chuckle, especially since this guy got his dates wrong:
http://boston.craigslist.org/nwb/wan/2346789218.html
LOL! I'm thinking that guy will get offered all the "pre-1975" dimes he wants.
Here's 234 pages of the FED talking about a housing bubble in 2005. They knew exactly what was going to happen, the impairment to banks balance sheets, the borrowers that would get hurt...everything.
http://www.federalreserve.gov/monetarypolicy/files/FOMC20050630meeting.pdf
Meanwhile they came out to say everything was fine. They know the party is over in Treasuries, but let's see what Ben says tomorrow, probably "everything is great, buy T's, by stocks, buy life and love because blue skies are here again"
Then what?
Of course they knew. It's a giant scenario developing in front of our eyes. For benefit of banksters, their utilities and top 1% corrupted. On account of citizens.
THEY not so smart in general, the most important thing they STILL have is control.
Until....
Does anybody have the original URL for this. Would like to cite and forward. Thanks.
What did someone not cuddle with Bill Gross after sex or call the next morning? Pretty sour grapes all around all of a sudden.
Let's not forget this guy was one of the biggest PT Barnum ringmasters for the game for a long time.
A little Animal House here for good measure: (Bill Gross as Flounder)
http://www.youtube.com/watch?v=zOXtWxhlsUg
Bonds have gone straight up the last month. TIP is actually pretty close to 52-week highs, believe it or not....
Got a piggie for you Robo...ACG...70%
treasuries with a 6 duration selling at
a 13% discount to NAV.
Next thing you know Gross will go into PMs.
the dingy can't hold that elephant
pimco has enough cash to decouple the physical from paper PM markets
then FED interest rates would rise
at least pimco would wildly profit on its short treasury position, but the rest of the paper portfolio might hurt
The little target chart of securities is careful not to mention PM. Instead they are relegated to "Private equity...blah blah stocks, Oil, etc"...the etc is all he could muster. For someone who is now so mad at the Fed I am more than a little suspicious...if he wants to get their attention then take physical delivery of 5 billion in silver at the new PIMCO vault in the Sierra Nevadas. Otherwise he is an actor.
Here is the link:
http://www.pimco.com/EN/Insights/Pages/The-End-of-QEII-It%E2%80%99s-Time...
And to all those who think PIMCO is part of the crooked gang that forms Wallstreet, remember this: Pimco is one of the largest managers of pension funds. So think about them as the guys who try to protect YOUR savings, vs the bankers who have raped the American taxpayers.
If he had to go with the flow to ensure his investors (ie American savings) are protected, so be it. But at least, he knows when to get out of the burning house. As much as PIMCO likes to talk their book, their analysis is not wrong, which makes one think: If they know the game is up, who else does?
Thank you.
Tyler is correct, this is must read.
+100
Right now somebody's looking through their data base on "accidents" and "suicides."
. . . and sudden onset fatal medical conditions.
Gross has some rare disease giving him only a few months to live is my take. He's going way beyond any reverse psychology/talking his book with some of his latest criticisms and bashing of our core institutions.
Or maybe he found his soul and conscience after 40 years of being a pigman chieftan...nah, dude is probably dying.
or "don't blame me" alibi for when SHTF and he helicopters to his island with his billion dollar fortune.
The real money quote is the bit early on about the US having to invest in it's real economy and people in order to generate economic growth that can justify the consumption level that has been covered by debt accumulation for decades. Or that was what was said in so many words.
We have had a GDP growth rate built on debt accumulation, not real economic activity. Here is a line I heard from a Russian after the collapse of the Soviet Union and before the Russian currency crisis. This was a time when Russians were first getting acquainted with a free market. She said "Everybody wants to sell or trade, nobody wants to produce anything". She could have been talking about 2011 America! Everybody trades their way to wealth, who produces any real wealth, the kind economic growth is built on??
Your response reminds me of a line from the wire... Frank Sobotka: "You know what the trouble is, Brucey? We used to make shit in this country, build shit. Now we just put our hand in the next guy's pocket." BTW The wire is the best tv show ever created.
IMO- Atlas Shrugged should be a required reading for all American high schoolers. As americans we need to reconsider who we idolize. oh and fuck the looters, banksters, mindless media puppets.
When Debt is the vehicle to create the medium-of-exchange used in an economy the end result is a exponential growth rate function for the economy and debt. Resolve this before you invest at home or anywhere for that matter.
When Debt is the vehicle to create the medium-of-exchange used in an economy the end result is a exponential growth rate function for the economy and debt. Resolve this before you invest at home or anywhere for that matter.
When Debt is the vehicle to create the medium-of-exchange used in an economy the end result is a exponential growth rate function for the economy and debt. Resolve this before you invest at home or anywhere for that matter.
But the whores at Blackrock love Treasuries. So happens that Fisher is steering the ship. A look at his background (Q surprise ):
Peter R. Fisher joined the FSA Board in January 2007. He is Senior Managing Director of BlackRock and is Head of BlackRock's Fixed Income Portfolio Management globally.
From 2005 to 2007, Mr. Fisher was Chairman of BlackRock Asia responsible for the firm's businesses in Japan, Korea, the People's Republic of China, Hong Kong, Taiwan, Singapore and Southeast Asia. Prior to joining BlackRock in 2004, he served from 2001 to 2003 as Under Secretary of the U.S. Treasury for Domestic Finance and in that capacity served as the Treasury's representative to the Pension Benefit Guarantee Corporation (PBGC) and on the Board of the Securities Investor Protection Corporation (SIPC). Before joining the Treasury, Mr. Fisher spent 15 years at the Federal Reserve Bank of New York, concluding his service there as Executive Vice President and Manager of the System Open Market Account for the Federal Open Market Committee. In that capacity, he was responsible for the conduct of domestic bond market operations, foreign currency operations and for the management of the foreign currency reserves of both the Federal Reserve and the Treasury.
He earned a BA degree in history from Harvard College in 1980 and a JD degree from Harvard Law School in 1985.
Oct 21, 2001 Fisher said the US would suspend sale of the 30 yr bond - "we do not need 30 yr bond to meet the gov't current financing needs, nor those that we expect to face in the coming years." Bear Stearns Report 2001 "US to Stop Selling 30Yr Treasury Bonds" Oct 2001
I feel like a poorly thought out snarky strawman from a certain "Keynesian" professor writing for nearly bankrupt news organization could easily retort this. We need a hero!
USA might already be insolvent since 15. Sept. 2009. See http://www.heise.de/tp/artikel/34/34589/1.html No bid for the 5 billion dollar US bonds was received in the Swedish auction. QE is just a technical trick to delay official insolvency. Original note: http://www.centralbank.se/templates/Page.aspx?id=32728
And when it all comes down, what are good ETF against US treasuries to make money?
Now THAT'S a bullish trend right there! Mmmmm....
<a href="http://stockcharts.com/h-sc/ui?s=udn&p=d&b=5&g=0&id=p248..."><img src="http://stockcharts.com/images/static_share/wordpress_sxb4db6e571zno.png" alt="" /></a>
DEFAULT ALREADY! jeeesh! What we have HERE is a fucking failure to communicate. We've got Big Ben stayin up late at night with timid Timmy figuring out more lies for the worldwide sheeple to consume. 2% max of the world population knows what the hell is going on, HELLO? They've been taken in by the Banksters/DC Whores for so many years now, it's just the sweet smell of the Ponz luring them to the cliffs. We have the most corrupt government of ALL time, the most Corrupt Financial "system" ever, WE have the Red Chinese Dragon of communism, world dominance goal oriented, just waiting in the wings. WE have a 50/50 chance that the majority of our oil will be controlled by people that want to kill us, much less sell it to us. WE have multiple wars going on, draining digital trillions from our empty coffers, WE have 50%+ of our country either unemployed, or on the tit from the rest of us. WE have our number one import/export partner scuttled from a fucking nuclear disaster. WE have a failing/falling infrastructure in this country, ie., power grid, roads, bridges, educational system. WE have a dollar not worth the paper it's printed on. WE have debt that couldn't be repaid in a thousand years, if ever! I could go on and on, but I think I'm probably preachin to the choir here. Just get this SHIT over with, so I can start unloading some of these 5 gram Pamps I've been collecting since 2001! Have a GREAT day!
U.S. government debt is growing at 12% per anum, and the U.S. economy is growing at about 2% per anum. If that's not a Ponzi, what is?
DEFAULT ALREADY! jeeesh! What we have HERE is a fucking failure to communicate. We've got Big Ben stayin up late at night with timid Timmy figuring out more lies for the worldwide sheeple to consume. 2% max of the world population knows what the hell is going on, HELLO? They've been taken in by the Banksters/DC Whores for so many years now, it's just the sweet smell of the Ponz luring them to the cliffs. We have the most corrupt government of ALL time, the most Corrupt Financial "system" ever, WE have the Red Chinese Dragon of communism, world dominance goal oriented, just waiting in the wings. WE have a 50/50 chance that the majority of our oil will be controlled by people that want to kill us, much less sell it to us. WE have multiple wars going on, draining digital trillions from our empty coffers, WE have 50%+ of our country either unemployed, or on the tit from the rest of us. WE have our number one import/export partner scuttled from a fucking nuclear disaster. WE have a failing/falling infrastructure in this country, ie., power grid, roads, bridges, educational system. WE have a dollar not worth the paper it's printed on. WE have debt that couldn't be repaid in a thousand years, if ever! I could go on and on, but I think I'm probably preachin to the choir here. Just get this SHIT over with, so I can start unloading some of these 5 gram Pamps I've been collecting since 2001! Have a GREAT day!
I want a "USA Will Default 3 X Leveraged ETF" immediately.
yeah--"it's called the greenback."
U.S. government debt is growing at 12% per anum, and the U.S. economy is growing at about 2% per anum. If that's not a Ponzi, what is?
"What they should instead smell is the whiff of rotten eggs. But this is easily hidden with a nose pin, which the Fed through QEII places on the noses of each investor, with the goal of creating perpetual serendipitous moments that in the eyes of investors transform the rotten stench into something far more delectable."
I don't think they use a nosepin. It's more like Febreze:
How Febreze WorksThe cyclodextrin molecule sort of resembles a donut. When you spray Febreze, the water in the product partially dissolves the odor, allowing it to form a complex inside the 'hole' of the cyclodextrin donut shape. The stink molecule is still there, but it can't bind to your odor receptors, so you can't smell it.
http://chemistry.about.com/od/cleanerchemistry/f/how-febreze-works.htm
So, in actuality...there's some sort of FEDbreze operating.
If Bernanke has acted correctly to save America from the drop in demand when the wealth evaporated, he ONLY saved rich people. The beauty of the great depression is EVERYONE SUFFERED. With Bernanke's actions, only the income controlling individuals will protect their wealth and everyone else will suffer. Personally, I believe Al Qaeda won...think about it? All our low interest rate driven policy and war consuming dollars started in 2001. Interest rates were dropped because Greenspan thought the attack would create a great recession right after the Technology bubble.....and here we are today! Asymmetric warfare typically defeats the giant. (Note: I am American and am very SAD about my hypothesis that may be proven correct.)
People are focused on how grandma will suffer under Paul Ryan's budget proposal, Bernanke's actions will cause grandma to starve to death under the stars. Bernanke's power makes Obama's economic power meaningless.
Well well, the old Good Cop - Bad Cop routine, eh Gross ? Why don't you support an Audit the Fed or Abolish the Fed movement and make this criticsm complete ?
Thought so
:-)
What the f*** is going on with the Dow and S&P today?
DavidC
Silver shall rise if the US defaults!
Deftones tonight!!!!
Breitbart: Geithner vows to defend strong US dollar policy
http://www.breitbart.com/article.php?id=CNG.bb8d29de016b5320311c96de8bce...
morning denial...leads to laughter.
A day late and $3 Trillion short.
dupe
That is hysterical.
no donuts for you! the Fed is still a long ways from being out of ammo. they can buy farther out on the curve. they can set up a shell entity, (new balance sheet) and provide it with the means (sort of like creating a shadow Federal Reserve). people eat donuts, which are just sugar and fat, so people aren't real bright. the essence of selling debt is selling future earnings. we may have saddled the next generation with debt, what about the next two, or three? the only thing that will stop the Fed is a conspiracy of free market forces, whether they are countries or hedge funds. as long as the global economy remains conspiracy proof (think OPEC in the 70's) then it all works to their advantage.
"rising equities." that dog "don't hunt" with QE. It's calling out the government--not the Fed which is just "working for the man" (as they should and must of course!) what Ben has no control over is Libya--"that's the White House department." And God has shined on his "convoluted thingermadohickey" with the insanity of Europe and the shocking and still unreported tragedy of Fukushima. I say Ben "sticks to his knitting" which is "keeping that credit flowing" courtesy of "Ben" of course and "tells Wall Street he'll reward the politically correct banks" which would be those that "get's the consumer moving again."
agreed, in the same fashion the Fed was brought into Treasury, the charter banks will be brought into the Fed. Especially investment firms would have no trouble being given room to expand their balance sheet, and work directly with Treasury. I see a whole bunch of Lil Fed Banks, conducting monetization, and providing reserve requirements for other banks. Not that I understand banking all that well, but it seems that the dividing line between the Fed and its charter banks is already a bit fuzzy, in that they are complict in the monetization process by accepting additonal reserves. At some point there are lots of lenders, and not too many borrowers, but who cares if you can run expanded monetary policy, and the private banks set their own rates, and private investment in so minor that as a free market force, they have little or no effect on the final interest rate product.
Has anyone noticed that the euro took a dive between 11am - 12, but the dollar stayed side ways (already at a low support level). Also dollar down, gold down and silver down?? Why?
Futures contract expirations coming due--smash the price down the day or two beforehand.
As per "uzshe".
Has anyone noticed that the euro took a dive between 11am - 12, but the dollar stayed side ways (already at a low support level). Also dollar down, gold down and silver down?? Why?
The markets dont jive today for sure : i think Wall St are trying to throw the kitchen sink at breaking the run in PMs whilst jacking Stocks to fresh cycle highs. Some mind games going on. I dont think they have the firepower to make it stick. Not without the dollar rallying. These nominal gains for stocks now are a joke.
It's amazing how fast this attitude will change if the FED starts to tighten the discount rate...
very powerful opinion. i have to believe some of the hacks in the fed are quite upset with this article.
Naah. This is the last rant of an old man about to peter lynch himself. This is the second time negative alpha bill has tried to time qe and he has failed both times.....so far
here is a crowd standing outside and, although there is no wrongdoing to make them as angry as the crowd that stood outside of Charles Ponzi’s office
No wrongdoing? Theres alot of wrongdoing to go around , plenty of it at PIMPCO.
As soon as Bill gets put outside the circle of trust he throws a tantrum. Bless him.
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Well, maybe I am not jaded enough but I find this turn of events jaw dropping stunning.
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So he is attempting to crash the economy for 50 basis points?
Dumbass knows his market timing strategy of dumping treasuries is going against him.
He should have learned his lesson the last time he tried it at the end of qe1
Negative alpha Bill should be his new nickname.
Someone out there is feeling all butt hurt 'cause mr. 10 year came in 15 from where that someone put his short on.
And by someone, I mean a mega-wealthy blowhard living in a mansion in Newport Beach, CA.
And by butt-hurt, I mean filling the water level in his castle moat tears cause he wasn't right for once.
And by moat, I literally mean a body of water designed to keep the have-nots away from his stuff.
Fuck you Gross. You forgot the golden-rule. Markets can rally longer than you can stay solvent. Especially markets as stupid as these.
As an aside, it is wierd that the 10 yr has rallied all the way through this SPX rally even with this douchebag predicting a sovereign implosion.
P.S. It's not that I disagree with his thesis. Nonetheless, he is a douchebag.
"
What they should instead smell is the whiff of rotten eggs. But this is easily hidden with a nose pin, which the Fed through QEII places on the noses of each investor, with the goal of creating perpetual serendipitous moments that in the eyes of investors transform the rotten stench into something far more delectable. Ultimately, however, the stench of the Federal Reserve’s bond purchases will seep into the nostrils of investors all around the world when it becomes glaringly obvious to them that the Fed can’t possibly continue as the Treasury’s main source of demand. Treasury investors will also realize that not only has QE suppressed the rates they earn on their Treasury holdings, QE promotes financial and economic conditions that hurt Treasury bond holders, primarily because it boosts economic growth and inflation, resulting in confiscation of the skimpy Treasury yields they earn. Foreign investors have the added discomfort of a decline in the foreign-exchange value of the U.S. dollar. To top it off, Treasury investors face the potential for capital losses for having bought into the Fed’s scheme at prices inflated by QE, sort of like playing a game of hot potato and getting stuck with the potato when the Fed abruptly leaves the game." - pure poetry. -The risk for Pimco and the bond bears - Washington comes to its senses and cuts spending (including the sacred cows) and gets the Repubs to agree to keep income tax rates for higher incomes at 35% but limit deductions to 15% effective rate (in effect a tax hike and baby step towards flat tax). Economy slows dramatically and takes Brics with it. Fed gets religion and realizes that QE is just a wealth transfer with no longer term benefits but keeps rates near zero forever - dollar strengthens - bond yields go to 2.5% as stocks reprice and drop 25% but then stablize down 15% from here. In other words, the idiots in Washington and the Fed stop kicking the can down the road and finally allow the pain to be felt by the wealthy.
...and then Peak Oil grinds all this to shit
Yeah, any second now.
"Washington comes to its senses and cuts spending"...
Bwa ha ha ha ha ha ha ha ha haaaaaaaaaaaaaaaaaa.
+ $14T.... Your comment is the most perfect reply possible.
"Fed gets religion and realizes that QE is just a wealth transfer"
You are grossly underestimating your adversary if you believe that the masters of the Fed have not known for a very long time that QE, and the Fed in general, are wealth transfer mechanisms.
I want what you're smoking, thankyouverymuch.
and then your alarm wakes you,
"time to make the donuts".
our "keynesian endpoint" is bigger than yours
So Congress pitches in with $350M of cuts to defend the dollar?? And this is fiscal sanity? This is the best that can be done. How the hell does our balance sheet not implode. Congress will turn on the banks and bankers as soon as they are not fed; this is the way it works with corrupt officials.
Let's ask ourselves WHO elected these people and who backs them? It ain't Bill Gross. He doesn't have the juice to do that.
The powers that be like inflation and debt. Maybe there is some point at which no more debt can credibly be sourced and then the sliver of the clan tries to apply their claim tickets against the real assets and economy.
Gross will be getting in line behind them.
Deflation won't help anybody, least of all the people who back the Congress. Scarcity of money means scarcity of campaign contributions.
Voters are scared and want deficits and debt cut - politically pain will need to be spread across all income groups. Inflation of -1 to 1 percent is only bad for banks. It is possibly good for everyone else -including the government which can finance at low rates.Zero inflation is not dangerous but one of the feew benefits of gloabalization. It should not be feared
Pigmen getting nervous?
The wealthy Long Island village is planning an extensive network of security cameras that scan license plates to help reduce the number of property and home invasion crimes.
The 3.3-square mile North Shore community is home to 5,000 residents. The plan calls for 44 cameras to eventually be installed at the village’s 19 entrances. That’s about one camera for every 120 people.
http://newyork.cbslocal.com/2011/04/26/exclusive-kings-point-plans-extensive-surveillance-network/
some wealthy Cali place had already done this...but yeah, if you're not a resident, expect the automated system to pop an alert up on some cop's computer and a vector to your location as you pass through the area