This page has been archived and commenting is disabled.

POMO And Market Intervention: A Primer

Tyler Durden's picture





 

With FRBNY Brian Sack's Permanent Open Market Operations (POMO) now firmly back on the scene, and by all appearances about to grow orders of magnitude larger than the prevailing $10 billion a week levels following implementation of QE2, we have been bombarded by requests to explain the methodology behind what the 10:15 am - 11:00 am liquidity intervention by the Fed means in terms of asset prices. We recently presented Nic Lenoir's observations on how POMO impacts rates on an intraday basis. However, the most comprehensive report on the issue comes courtesy of Bob English as the Precision Report. His analysis titled A Grand Unified Theory on Market Manipulation is a must read for everyone who dares to trade ahead of the Fed on POMO days (which, incidentally, this week will be on Tuesday and Thursday). While the report is as of August 2009, the logic behind it is as relevant and applicable today as it was when first written.

Here is Bob English' summary on the topic:

There is much speculation and anecdotal information regarding the rally that began March 6 2009, which have suggested the gains are the result of massive manipulation on the part of the Federal Reserve (FR) and the large institutions that dominate Treasury securities dealing, program trading and the derivatives markets.   Traders have reported that traditional indicators and metrics used for market analysis stopped working for periods of time or altogether, and that correlations among markets have been erratic and quick to change.  Record program trading by Goldman Sachs as reported by the NYSE, heightened focus on high frequency trading (HFT), outsized profits by the large and well-connected banks, along with unprecedented intervention by the FR in the markets only fuel the manipulation speculation.

If we had a big picture model (a Grand Unified Theory, or G.U.T.) that described the intentions, motivations and actions of the influential players, we could attempt to predict future market direction.  A limiting factor is that the rules of the game have changed quickly, and what we believe is important to the major players now may not necessarily have been important twelve or even six months ago.  Accordingly, while we will present as much supportive data as possible, our sample sizes will be small and we will rely on educated conjecture when necessary.  As such, we would expect to be, at worst, self-referentially coherent and, at best, correct in our predictions for the coming weeks and months. 

Full report, courtesy of The Precision Report (link)

 

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 09/26/2010 - 12:21 | Link to Comment bugs_
bugs_'s picture

Interesting thought that FRBNY and the FED might not be on the same page.

Sun, 09/26/2010 - 12:52 | Link to Comment Sudden Debt
Sudden Debt's picture

did you ever know a government service that shined in communication?

Sun, 09/26/2010 - 14:12 | Link to Comment Oracle of Kypseli
Oracle of Kypseli's picture

Based on this article there are a thousand leaking faucets at the same time. Neither Bernanke nor anyone else can plug them successfully.

He is snooker and he knows it. He will eventually use his Glock 40 and end it all in his den with no note left, unless he does not get re-appointed.

You're snookered Benny. Or as they say in the United States of Entertainment: You are behind the 8 ball.

Sun, 09/26/2010 - 14:26 | Link to Comment Oracle of Kypseli
Oracle of Kypseli's picture

And one more thing:

Since we are talking unified theories, which is in the quantum mechanics territory, let's ask Mr. Ben if he is familiar with Heisenberg's uncertainty principle and Planck's constant

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

Good luck with that.

Sun, 09/26/2010 - 15:35 | Link to Comment SRV - ES339
SRV - ES339's picture

...

Sun, 09/26/2010 - 17:07 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

lol "self-referentially coherent ". That one is going into my contortionist repertoire.

Sun, 09/26/2010 - 17:56 | Link to Comment knukles
knukles's picture

Frankly, it amazes me that anybody even thinks that QE 1 ever even slowed down let alone QE 2 beginning.

The FED is Out of Ammo.  They have No further Unused Tool.  All they can do is More of the Same.  Either Expand the balance sheet or Degrade its quality, and both have been done in Biblically Large Zimbabwean Proportions.

Furthermore, with the Maiden Lane's and AIG rescue when viewed opposite the "permitted" (another story for another time) demise of Lehman, the FED's even trod into Fiscal Policy. 

Sun, 09/26/2010 - 20:28 | Link to Comment Prof Gulliver
Prof Gulliver's picture

"No further unused tool. All they can do is more of the same."
How did "more of the same" work out for Nagasaki?
I've been reading "the Fed is out of ammo" for two years.
They're not.
What part of "Don't fight the Fed" do you not understand?

Sun, 09/26/2010 - 23:51 | Link to Comment knukles
knukles's picture

Didn't.  They only got nuked once.  A second time would have made no difference.

 

Mon, 09/27/2010 - 01:04 | Link to Comment Prof Gulliver
Prof Gulliver's picture

Umm, Hiroshima first, then Nagasaki. More of the same had quite an explosive result, no?

Sun, 09/26/2010 - 18:10 | Link to Comment Dollar Bill Hiccup
Dollar Bill Hiccup's picture

It's tough to go to the beauty contest every day, especially if you have a view that there should be some consistency to reality and that the overweight one with warts does not portray the ode to a grecian urn.

Remember, have a bucket to buy what you hate. POMO stocks up yields down is certainly antithetical to free markets as fundamental analysis, technicals etc. all are ground down into so much chaffe. But it's working. Mr. Tepper. Hello, Mr. Tepper ?

Maybe it would be easier to jump aboard the cynic / gravy / train if you were a professional politico since that is how your bread gets buttered at any rate ...

Buy what you hate. Repeat after me ...

Sun, 09/26/2010 - 21:35 | Link to Comment tom a taxpayer
tom a taxpayer's picture

Tyler, Bob English and The Precision Report - Thank you for the peek behind the curtain.

Fri, 10/15/2010 - 03:06 | Link to Comment nikejordan
nikejordan's picture

Canada youthful singer Justin Timberlake · niederbieber at Cheap UGG Boots
large so common these times also issued the feelings of his UGG Boots girlfriend. 16-year-old uncle admitted that he hoped than uncover a talk she on the normal schedule collectively clinging to his girlfriend, but he has his individual standards. He said, "I like funny, self-confidence, courage to create your individual girls. "He UGG Classic Cardy also disclosed that he doesn't like girls positioned on that common Ugg boots as well as a especially large sunglasses. "I really feel Ugg shoes are ugly, but really large dim eyeglasses really are a little exaggerated, I like large sunglasses, but do not like as well large bird, specifically the round. "Although the girl's gown merely a little picky, but really he doesn't have UGG Classic Boots very much time to acquire collectively with his girlfriend, and he hoped that from the age of 17 may be UGG Bailey boots busy with their individual business. "I want a next album and tour, wish I can have its individual charitable organizations. "Niederbieber also briefed the mass media revealed that his current really obsessed with over the net lookup your individual news, a collaboration with niederbieber Eenie Meenie was the song", "named Sean Kingston man mentioned this UGG Tall Boots than Bo lookup with ease," niederbieber will do that, he enjoys movement photo local community and lookup website lookup yourself. ”

Tue, 11/09/2010 - 04:46 | Link to Comment shaoye
shaoye's picture

Find ugg and Australian sheepskinAuthentic Ugg boots, learn the history behind the Cheap ugg boots, and when and what to wear with Ugg boot, as well as cleaning and caring for ....we sell new style Ugg boots on sale,You can find the wholesale discount Ugg boots here.

Fri, 11/12/2010 - 21:48 | Link to Comment shaoye
shaoye's picture

The Wholesale Giveaway Materialin this article is just a taste of what you will find in the shopping bag. This quality Gold Guide includes useful money making information for every Umbrella china wholesale, every profession, and every level of player. Currently, when you order the golf umbrella supply, you also receive three free folding umbrella covering additional aspects of making money in WoW. To get more information, visit the Custom Logo Imprinted site.

Do NOT follow this link or you will be banned from the site!