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POMO Summary And A Sack-Frost Frontrunning Cheat Sheet
Since the Fed has now purchased $320 billion in Treasurys since QE Lite (more than in all of QE1 combined) and $244 billion since QE 2, and the latest, but certainly not last, round of quantitative easing is more than a third done, it is once again time to provide a summary recap of what the Fed has purchased to date, as well as an advance frontrunning preview of both Monday's immediate POMO as well as of all POMO operations in the near future. Also, since the Fed no longer even cares about the optics of direct monetization as we disclosed first last week when we pointed out that Sack-Frost had monetized half of the Primary Dealer takedown from the just completed 3 year auction, the game is obviously starting to get quite dirty, and the FRBNY boys are fully convinced they can do whatever they want with impunity. Obviously, with all of a subservient puppet Congress bought off, they are absolutely right.
First, a summary of all 2010/2011 POMO purchases by maturity segment:
A complete breakdown of all POMOs in the last two POMO schedules.
An interesting observation, and one which we believe will be soon changed, is that comparing QE1 to QE2, the Fed is focusing far less on the 30 Year bond as can be seen by the OMO chart pattern. With the 30 Year now at 4.6% and rising, we are certain the next iteration of QE will see an increase in the 17-30 Year Segment from the current cumulative 6% to well double this tally. Of course, that QE2 will also see MBS and Munis as part of its "mandate" is also becoming increasingly more clear.
Looking at Monday's POMO, per Morgan Stanley's spline, the bonds most likely to be monetized are the 8.75% of 5/15/2017 and the 3.25% of 12/31/2016. The just auctioned off 2.75% of 12/31/2017 is not even among the top 10 cheapest bonds, which means that if on Monday the PN4 makes up for a material percentage of the $7-9 billion buyback, then something is very, very wrong.
And looking beyond just tomorrow, here are the bonds to buy in advance of the upcoming $80 or so billion in monetizations through the second week of February.
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I Love You! Man!!
JW: I'm particularly proud of my latest creation. Art...in its highest form:
http://tfmetalsreport.blogspot.com/2011/01/new-movie.html
Sorry, but I don't see why coming week the silver/gold price is expected to go down that much (for the last time), am I missing something?
Kris, try this:
http://tfmetalsreport.blogspot.com/2011/01/end-is-near.html
.
panic buying.. tomorrow the dollar will be up.. euro down... gold and silver up..
You really are mans best friend aren't you?
Now who's a good boy?
TD, you're so mean to keep calling Mr. Sack's program "monetization" over and over when you know very well POMO is an "asset purchase program." The Federal Reserve is just like any other good investor looking to lock in a reasonable return by buying the World's Safest Investment. Just like any prudent "Household" or "UK government."
Although, having said the above, I confess that sometimes my slumber is disturbed by the perturbing thought that in some way, maybe the phases of the moon or something, the Fed telegraphs to its "sellers," the PDs who just bought the Treasuries the Fed is now "purchasing," that it's okay for the PDs to buy those very issues because the Fed is planning to take them off their hands the following week, plus a bonus to boot. This is the kind of thing maybe Jesse The Body Ventura could look into with his Conspiracy Theory program.
I think J the B only looks into things that are illegal or unconstitutional. The above is only Grand Theft Taxpayer (GTP). Plus, his audience would be snoring after the first 3 minutes, unless, of course, they are ZH readers, in which case they will be shooting their TV.
got silver?
Sorry. Silver is done for the next 6 months. 21 is the bottom.
I hope that is true...
I wish it would go to $2.
I will split it with you cause your kool, but there was a time when I would have wanted it all.. lol
The full force of the fact that the "never admitted to" PPT morphed into the totally in-your-face PERMENANT Open Market Operations was quite a move.
A flood of money will float all boats till it becomes large enough to become unstable and then it will consume them. The question to be asked is what will float the longest?
ORI
http://aadivaahan.wordpress.com/2011/01/21/accidental-lives/
In Bernanke's 2002 speech:
"The most striking episode of BOND-PRICE PEGGING occurred during the years before the Federal Reserve-Treasury Accord of 1951. Prior to that agreement (which freed the Fed from its responsibility to fix yields on government debt), the Fed maintained a ceiling of 2-1/2 percent on long-term Treasury bonds for nearly a decade......Interestin... though, the Fed enforced the 2-1/2 percent ceiling on long-term bond yields for nearly a decade WITHOUT EVER HOLDING A SUBSTANTIAL SHARE OF LONG-MATURITY BONDS OUTSTANDING"
With Operation Twist the FED purchased 4.7% of Treasury debt, with QE2 it will end up purchasing 7%.
But nowadays the FED is the largest holder of U.S. government debt. I.e., the FED is rapidly losing its ability to influence long-term interest rates.
The rest of the world was still starved for dollars and dollar denominated assets.
Responsibility to whom? So much for "the Fed is a private for profit cartel".
I.e., the money supply can never be managed by any attempt to control the cost of credit. Keynes's liquidity preference curve is a false doctrine.
Thats OK. Our economy is run by false economists.
Totally agree Cossak.....In my view they're branded as fraudulent, boot-licking, bougth and paid for, parasitic, blood-sucking swine....but u were on the right track !!
Ok thems fighting words. Liquidity preferences exist and do change over time. Explain how keynes is wrong in this specific circumstance regarding his construct of liquidity preferences.
on Sun, 01/23/2011 - 13:29
#897259
I.e., the money supply can never be managed by any attempt to control the cost of credit. Keynes's liquidity preference curve is a false doctrine.
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so the austrian way is pure then? or what are you saying... its like half a fucking thought there.
Thank you
FRBNY boys are fully convinced they can do whatever they want with impunity
Are you saying that the Treasury market is a bubble?
The govt is creating trillions in imaginary money to buy newly-issued US debt because the world investors have stopped buying !!! The ponzi is unravelling. OMG ! Triplespeak from the Department of Truth ! Why aren't the major financial media headlines screaming this biggest story of our lifetime?
We know the answer: Immelt in bed with the govt.
And as of today's news, what is the response of a rational investor? Buy chocolate !
Under the influence of the Keynesian dogma, academicians have been trying for too long to analyze interest rates in terms of the supply of and demand for money. A “liquidity preference” curve is presumed to exist which represents the supply of money. In this system interest is the cost which must be paid, if lenders are to forgo the advantages of liquidity. All of this has little or nothing to do with the real world, a world in which interest is paid on checking accounts.
Interest, as our common sense tells us, is the price of obtaining loan funds, not the price of money. The price of money is the inverse of the price level. If the price of goods and services rises, the “price” of money falls. Interest rates in any given market at any given time are the result of the interaction of all the forces operating through the supply of and the demand for, loan funds.
Loan funds, of course, are in the form of money, but there the similarity ends. Loan funds at any given time are only a fraction of the money supply --- that small part of the money supply which has been saved, and is offered in the loan credit markets.
Unfortunately, Keynesian economists have dominated the research staffs of the Fed as well as the halls of academia. While monetary policy is formulated by the Federal Open Market Committee (FOMC), monetary procedures are determine by the “academic” research staffs. In their world, high interest rates are evidence of “tight money”, low rates of “easy money”; and, a proper rate of growth of the money supply is obtainable by manipulating the federal funds rate. Consequently, to bring interest rates down the money supply should be expanded and vice versa.
The only instance in which an expansion of the money supply is synonymous with an increase in the volume of loan able funds involves an expansion of commercial bank credit. When the depository institutions make loans to, or buy securities from, the non-bank public an equal volume of new money (demand deposits) is created.
To increase the volume of legal reserves in the member banks, the Fed buys governments, (usually T-Bills) in the open market in sufficient quantity to more than offset all legal reserve consuming factors (e.g., the withdrawals of currency from the banks by the non-bank public). These purchases tend to increase the price of bills, thus reducing their discounts (interest rates). The incremental reserves also add to excess reserves thus enlarging the supply of “federal funds”. Federal funds rates are thus held down, or are prevented from rising.
The long-term effects of these operations on short-term rates are just the opposite. The banks are able to (and do) expand credit on a multiple basis. This “multiplier effect” on the money supply, and money flows, puts additional upward pressure on prices. The long term effect, therefore, is higher inflation rates, and a higher “inflation premium” in both short and long-term interest rates.
Higher interest rates consequently are not evidence of “tight money”; rather they are the consequence, over time, of an excessively easy (irresponsible) money policy – money expansion so great that monetary flows (MVt) substantially exceed the rate of expansion in real output.
While interest rates are not determined by the supply of and the demand for money, changes in the volume of money and monetary flows (MVt), as noted above, can alter rates of inflation and, therefore, the supply of and the demand for loan-funds.
The significant effects of these monetary developments are long-term and involve an alteration in inflation expectations. Inflation expectations operate principally through the supply side for loan-funds. Specifically, an expectation of higher rates of inflation will cause the supply schedules of loan funds to decrease. That is to say, lenders will be willing to lend the same amount only at higher rates.
Inflation expectations and the expected volume of federal deficit financing now represent the principal factors determining long-term interest rates. If current projections of federal deficits materialize in this and the next few years, interest rates (both long and short-term) will be driven up sharply by the increased demand for loan funds. Any recovery in the economy will present a “catch 22” situation. An upturn in the economy will add increased private demand for loan funds to the insatiable demands of the federal government. The consequent rise in interest rates will effectively abort any recover.
To counter what Greenspan described as “irrational exuberance (at the height of the Doc.com stock market bubble), Greenspan initiated a "tight" monetary policy (for 31 out of 34 months). A “tight” money policy is one where the rate-of-change in monetary flows (our means-of-payment money times its transactions rate-of-turnover) is no greater than 2-3% above the rate-of-change in the real output of goods & services.
Greenspan then wildly reversed his “tight” money policy (at that point Greenspan was well behind the employment curve), and reverted to a very "easy" monetary policy -- for 41 consecutive months (despite 17 raises in the FFR, -every single rate increase was “behind the curve”). I.e., the evidence shows that: (using a 3 qtr rate-of-change), nominal gDp progressively increased until it finally peaked in the 1st qtr of 2006.
Then, as soon as Bernanke was appointed to the Chairman of the Federal Reserve, he initiated a "tight" money policy (ending the housing bubble in 2006), for 29 consecutive months (out of a possible 29, or at first, sufficient to wring inflation out of the economy, but persisting until the economy collapsed).
I.e., Bernanke didn’t initiate an “easy” money policy until Lehman Brothers filed for bankruptcy protection. The FOMC continued to drain liquidity despite its 7 reductions in the FFR (which began on 9/18/07). I.e., despite Bear Sterns two hedge funds that collapsed, the FED maintained its “tight” money policy.
And for the last 19 successive months (since Aug 2008), the FED has been on a monetary binge (ending at April’s month)...
Did you catch it??? Nobody got it. Greenspan didn't start "easing" on January 3, 2000, when the FFR was first lowered by 1/2, to 6%. Greenspan didn't change from a "tight" monetary policy, to an "easier" monetary policy, until after 11 reductions in the FFR, ending just before the reduction on November 6, 2002 @ 1 & 1/4%.
I.e., Greenspan was responsible for both high employment (June 2003, @ 6.3%), and high inflation (rampant real-estate speculation, followed by widespread commodity speculation – peaking in July 2008 – Greenspan’s inflection point).
Bernanke then drove the economy relentlessly into our Depression creating an unemployment rate nightmare of 10.1%.
The problem is that the Federal Reserve doesn’t gauge the volume and timing of its open market operations in terms of the amount and desired rate of increase of member commercial banks costless legal reserves, but rather in terms of the levels of the federal funds rates (the interest rates banks charge other banks on excess balances with the Federal Reserve).
By using the wrong criteria or wrong monetary transmission mechanism (interest rates, rather than member bank reserves) in formulating and executing monetary policy, the Federal Reserve became an engine of mass destruction.
I don't see why this can't go on forever. The Treasury issues notes, the Fed buys them, the Congress spends the proceeds. Wheeee this is simple.
Run away. Ritholtz has wised up and is now
theorizing half the S&P's 90% gain
came from QE ramp. Barrons
has picked up on it. Do you want
to even "rent" a jacked stock?
http://www.ritholtz.com/blog/2011/01/how-much-has-the-fed-distorted-the-...