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Primary Dealers Violently Expel Just Auctioned Off Three Year Bond, As Fed Monetizes Over Half PD Holdings In Under Two Weeks

Tyler Durden's picture




 

Today's POMO closed with the Fed monetizing its usual fare of $6.69 billion in various 3 Year bonds, at a 5.81 Submitted-Accepted ratio. The surge in the S/A ratio is not surprising: a quick look at the internals shows just what the reason for the Primary Dealers' urgency was. Of the entire POMO, one CUSIP: the just auctioned off QH6 3 Year which was sold by the Treasury not even 2 weeks ago represented a whopping 81.1% of the operation. Observant readers will recall that this was the Cusip that was massively monetized ten days ago, when $5.3 billion of QH6 was purchased by the Fed. In other words, in under two weeks, the Primary Dealers have flipped over 50% of their original take down of the auction, or $19,890,840,000! In other words, had the Primary Dealers indicated their true interest in the bond, not accounting for expectations of an immediate flip back to the Fed, the auction would have been a failure. In this way, the Fed has now monetized 33.5% of the 3 Year that was sold to the unwitting public and foreign banks. Luckily, there is a 35% SOMA limit on Treasury holdings. Oh wait, that was scrapped as part of QE2.

Today's POMO summary: note the highlighted QH6 monetization.

And compare it to that from the last 3 Year POMO as of February 18:

 

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Mon, 02/28/2011 - 12:38 | 1004026 slow_roast
slow_roast's picture

I sense that Ron Paul would be interested in these observations Tyler.  Seems like perfect ammunition for him to nail the Fed.

Mon, 02/28/2011 - 12:46 | 1004070 tellsometruth
tellsometruth's picture

run Ron run!

Mon, 02/28/2011 - 12:38 | 1004029 trav7777
trav7777's picture

Charades, bitchez?

Mon, 02/28/2011 - 12:46 | 1004067 Internet Tough Guy
Internet Tough Guy's picture

One word. Five letters. Sounds like donzi.

Mon, 02/28/2011 - 13:02 | 1004116 DaddyO
DaddyO's picture

 

Easy ITG, we don't want to demean a perfectly respectable and awesome boat like the Donzi.

http://www.tanch.com/images/Donzi32.jpg

DaddyO

Mon, 02/28/2011 - 14:07 | 1004315 baby_BLYTHE
baby_BLYTHE's picture

Henry Winkler?

Those women don't look healthy. Too much GMO, perhaps?

I drink alcohol breakfast, lunch and dinner.

I do not wish to live beyond 50. Death is just the beginning

Mon, 02/28/2011 - 12:58 | 1004105 Threeggg
Threeggg's picture

You think thats a charade ?

Wall Street Bets on GM Debt That Doesn't Exist

From WSJ:

"Sure, having CDS without debt looks odd, and people may balk because credit derivatives were at the center of the AIG collapse"

http://finance.yahoo.com/banking-budgeting/article/112209/wall-street-bets-on-debt-that-doesnt-exist?mod=bb-budgeting&sec=topStories&pos=3&asset=&ccode=

Mon, 02/28/2011 - 21:24 | 1005609 IQ 145
IQ 145's picture

 That's a good one.

Mon, 02/28/2011 - 12:39 | 1004033 buzzsaw99
buzzsaw99's picture

This is bullish right? I should buy bank stocks as an hedge against inflation?

Mon, 02/28/2011 - 12:49 | 1004076 hack3434
hack3434's picture

Try Junior Banking stocks. They are always exploring new ways to scam people.

Mon, 02/28/2011 - 12:41 | 1004042 tellsometruth
tellsometruth's picture

last week I was on the Jason Lewis show pointing out the 58.2% PD purchase of the 5yr... how come nobody in the MSM is pointing out the glaring obviousness of this?  (rehtorical)

Mon, 02/28/2011 - 13:02 | 1004118 Threeggg
Threeggg's picture

Because you should have went on his brothers show "Jerry Lewis kids" and people might pay attention.

Mon, 02/28/2011 - 12:42 | 1004045 Prof Gulliver
Prof Gulliver's picture

This is no longer news, kind of like the sun rose in the east this morning. It will be news when they stop doing it. Maybe around QE 1,254.

Mon, 02/28/2011 - 12:43 | 1004051 Alcoholic Nativ...
Alcoholic Native American's picture

Need moar anonymous billionaires saviors buying out debt!

 

Please save us anonymous billionaires overlords, you are our only hope.

Mon, 02/28/2011 - 12:43 | 1004052 ghostfaceinvestah
ghostfaceinvestah's picture

Gee, wonder why PMs are skying?

Mon, 02/28/2011 - 12:44 | 1004057 Sean7k
Sean7k's picture

They do it in plain sight and no one says a word. Bonds, silver, gold markets; the whole process is a joke. The common investor, much less common man has no idea what is happening. 

They will steal everyone's 401k's and leave them with monopoly money. You can probably time the crash with the inflection point where they have got as much as they can. Sell The Fuckin' Peak. STFP.

Mon, 02/28/2011 - 12:50 | 1004082 tellsometruth
tellsometruth's picture

idealic

Mon, 02/28/2011 - 12:44 | 1004058 ronin12
ronin12's picture

Can anybody tell me how this does NOT end in hyperinflation?

Mon, 02/28/2011 - 12:46 | 1004068 IrishSamurai
IrishSamurai's picture

Ex food, energy, and anything you need ... it will not cause inflation cause Big Brother says it won't.

Don't like that answer?  Tough.

Mon, 02/28/2011 - 12:51 | 1004091 Greater Fool
Greater Fool's picture

I guess it all depends where the US Congress is actually spending the money that the Fed is nice enough to print for them, since they don't actually have it. Perhaps you ought to ask them?

LMFAO at people saying that Ron Paul can go after the Fed and "fix the problem." Ron Paul has been a member of the House for nearly 15 years now and therefore is definitely part of the problem.

Mon, 02/28/2011 - 13:36 | 1004210 Drachma
Drachma's picture

Have the courtesy of looking at his voting record first before you judge the man. He is fighting in a sea of corruption.

Mon, 02/28/2011 - 12:58 | 1004109 NotApplicable
NotApplicable's picture

If it is discovered that the circulation of FRNs is the only thing that can inoculate the population against pig/bird flu.

Other than that, I can't imagine a level of demand for them to prevent the inevitable.

Mon, 02/28/2011 - 12:45 | 1004061 tellsometruth
tellsometruth's picture

Is the charlatan in charge so sure? Thought we would never get to the point of monetizing the debt? or was that so 2008/9?  Huh huh? yeah thats what i thought two tongues...

Actions speak louder than words... what are you all doing to voice your  concerns outside of this fantastic forum

 

Mon, 02/28/2011 - 12:47 | 1004071 IrishSamurai
IrishSamurai's picture

Buy PMs, ammo, and preparing to make the "Zombie Kill of the Week" ...

Mon, 02/28/2011 - 12:48 | 1004075 Bob
Bob's picture

81 perfuckingcent  two week turnaround off a lamely bogus auction.  Hi Ho Silver and away!

Mon, 02/28/2011 - 12:48 | 1004077 redpill
redpill's picture

"The Federal Reserve will not monetize the debt."

--Ben Bernugabe

Mon, 02/28/2011 - 12:49 | 1004078 Caviar Emptor
Caviar Emptor's picture

This is the Fed's 'Fear Trade' : keep dem banks super liquid during times of uncertainty, to keep one step ahead. Of course that game can go on and on as the fragile situation makes everything start to look spooky

Mon, 02/28/2011 - 12:49 | 1004079 101 years and c...
101 years and counting's picture

can we all just agree...POMO money goes to buying new treasuries (which the Fed will buy back). it doesnt go into equities or commodities.  the illusion that it does is what supports the markets.  afterall, since 8/27/10, the day bernanke came out of that hole in wyoming, short interest has collapsed, debt (margin) has soared and now retail has been fully sucked in......

 

 

Mon, 02/28/2011 - 13:17 | 1004134 Bob
Bob's picture

You're missing the billions they collect off the transactions.  How many billion is it again?  Somewhere around $60B per month, iirc.  Sure, it's grindingly slow, but it adds up. 

They sure as hell ain't retaining it for Loss Reserves.  They've got their ZIRP-sourced Fed reserves accounts for that--if they really cared, I mean. 

Look at the growth in M2.  The money is real.  Sort of. 

Mon, 02/28/2011 - 14:10 | 1004321 davepowers
davepowers's picture

I wouldn't be so sure that it (the POMO money) only goes to buying the next round of auctioned Treasuries.

There is a fed funds market that is largely ignored, but in which banks can loan or borrow excess reserves. This market may well be linked to commodity and stock speculation.

In the last three weeks, bank reserves have shot up over $200 bn, as the FED credits the reserve accounts to pay for 1. QE 2 purchases, 2. repaying $75 bn in loans from the Treasury under SFP (which loans were used for Fed balance sheet expansion for 2010) and 3. covering checks the Treasury wrote on its checking account at the FED to pay for whatever the Treasury has to pay for.

The Fed may not be 'printing' this money, but they are using a form of printing called 'typing.'

Until someone offers a clearer view of what happens with transactions in the Fed Funds market it is not safe to assume that FED 'typing' is not helping fuel commodity and stock speculation, along with providing wherewithal for the next round of Treasury purchases by the banks.

Mon, 02/28/2011 - 12:51 | 1004090 franzpick
franzpick's picture

Another possible failure could be the reopening tomorrow of Egypt's month-long closed stock exchange, which will close for 30 minutes when  index is down 5%, and close for the day when down 10%.  Like maybe the shortest exchange day in history:

http://blogs.aljazeera.net/middle-east/2011/02/28/live-blog-egypt

Mon, 02/28/2011 - 13:00 | 1004100 bankonzhongguo
bankonzhongguo's picture

It seems that someone should file a class action lawsuit on behalf of American taxpayers against the Fed, the PDs and of course the Fed's shareholders - who are also the PD list.

I just do not see this structurally different than the US government bringing charges against Kozlowski and Tyco for "unauthorized bonuses."

I bet a 2nd year law student could take a copy of the Kozlowski suit and substitute K-man with Federal Reserve and the Primary Dealers;

BNP Paribas Securities Corp.
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
MF Global Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International, Inc.
RBC Capital Markets, LLC
RBS Securities Inc.
SG Americas Securities, LLC
UBS Securities LLC.

Who on that list is a Fed shareholder?

Who is the MF Global newbie?  Hello Mr. Corzine.

Its funny.  The Secret Service would consider POMO to be a "structured transaction" and hence a money laundering criminal offense.

Good thing Eric Holder is on the job.

The only method of protest is to stop paying taxes and storm the Bastille, er Audit the Fed.

Mon, 02/28/2011 - 13:51 | 1004246 Blythes Master
Blythes Master's picture

"The only method of protest is to stop paying taxes and storm the Bastille, er Audit the Fed."

 

Finally, someone else said what I've been thinking all along.

 

To wit; If the Fraud, er Fed can monetize the debt away at will....then someone PLEASE explain to me why they have to confiscate our money through taxation?

 

A simply logical argument that when/if the masses put 2 and 2 together, the ponzi is over.

Mon, 02/28/2011 - 14:02 | 1004296 baby_BLYTHE
baby_BLYTHE's picture

I am a professional alcoholic. My albums are certified Gold in every country, especially Asia and Europe.

Mom, did I impress you?

http://bit.ly/eshZkT

Mon, 02/28/2011 - 21:10 | 1005582 crazyjsmith
crazyjsmith's picture

I figure if this country actually got off it's ass and staged a Tax protest, at least those of us who are still pay taxes, We would quickly see the purpose for all of these FEMA "residential" camps.

Mon, 02/28/2011 - 12:59 | 1004110 Temporalist
Temporalist's picture

As the DXY dips under 70

Mon, 02/28/2011 - 13:00 | 1004113 Josh Randall
Josh Randall's picture

So if I open a lemonade stand and buy $100 of my own lemonade, I DIDN'T make $100 that day ? Me NO understand finance

Mon, 02/28/2011 - 13:00 | 1004115 tahoebumsmith
tahoebumsmith's picture

Yeah and pretty soon the primarys will be flipping the bonds the same afternoon to get their 2.5%. And you wonder where the 130 billion in bonus money came from? Why don't they just give them the money and call it a bailout ? Oh that's right the American people wouldn't stand for a bailout...LOL.. Well at least Timmay has another week to pay some bills with the 2 week flip money. This is becoming almost comical now, but when the dollar crashes and becomes worthless it will be down right scary. For those who think this will end well please enlighten me on how the government will stay in business when the dollars printed to buy the bonds are not worth shit anylonger?

Mon, 02/28/2011 - 13:02 | 1004120 Henry Chinaski
Henry Chinaski's picture

People actually read those?  POMO schedules will cease to be released to the public.

Mon, 02/28/2011 - 13:02 | 1004121 DeltaFunctionToronto
DeltaFunctionToronto's picture

10 months

Mon, 02/28/2011 - 13:05 | 1004127 Johnny Lawrence
Johnny Lawrence's picture

I try explaining this to people, and a blank look just glosses over their face.  Nobody in this country understands.

Mon, 02/28/2011 - 16:40 | 1004805 Blythes Master
Blythes Master's picture

These are the same people who will show up on your doorstep when the SHTF with the same, dumbassed look on their faces.

 

Cognative Dissonance Kills.

 

Brother, can you spare a Mercury dime???

Mon, 02/28/2011 - 21:49 | 1005672 hamstercheese
hamstercheese's picture

Please explain it here, in this forum.  I like reading these comments more than the stories, some are hilarious, but there is this overtone of arrogance that bothers me.  Tyler's articles are always filled with trade talk and trader specific acronyms which throw me...I often have to interpolate meaning...so let me get this straight...the Treasury holds an 'auction', there are Primary dealers and Direct bidders....the Primaries are the JP Morgans, Goldman Sachs, Citibank, etc....the direct bidders are institutional investors, foreign buyers...etc...(btw, what catetory are foreign central banks?)  So to keep the auctions from 'failing' and from a bond market crash, the Primaries buy what doesn't sell with the understanding the Fed will create money out of thin air and buy them from the Primaries within...say, two weeks....so there you have the Fed monetizing the debt, using the Primaries as an intermediary....and the Primaries get great prices and are paid fees...and at the end of the day, the percentage of purchasing power the Primaires have denominated in dollars goes up....everyday this happens, this BS 'bond trading' goes on, they make a profit...at the expense of everyone else in the dollar pool....Please correct or append, I really want to understand this...thanks.

Mon, 02/28/2011 - 13:06 | 1004131 Milton Waddams
Milton Waddams's picture

Chartalism... it's whats for dinner.

Mon, 02/28/2011 - 13:17 | 1004159 ArkOmen1
ArkOmen1's picture

Banana Republic? Gold & Silver Protest!

Mon, 02/28/2011 - 13:18 | 1004160 baby_BLYTHE
baby_BLYTHE's picture

I know where you live... and I see where you sleep.

Mon, 02/28/2011 - 13:26 | 1004181 rlouis
rlouis's picture

They've got the rhythm now, smooth sailing ahead.  Weimar on.

Mon, 02/28/2011 - 13:44 | 1004231 InconvenientCou...
InconvenientCounterParty's picture

When Bernie Madoff is a beacon of truth, we have indeed reached the tipping point. No amount of preparation will prevent this wound from opening up.

I hope to hell the things I've learned on this forum will help. viva ZH.

Mon, 02/28/2011 - 14:09 | 1004288 baby_BLYTHE
baby_BLYTHE's picture

I have noticed a TON of interesting rhetoric out of the economic blogs as of late.

It seems investors, traitors and bloggers alike seem to be "upset" when the economy conditions don't deteriorate quickly enough to fit their Macro-Economic thesis.

case in point, one of the Internet blogs I frequent has the policy "think before you type". Every single word you utter on the Internet is tracked and traced... easily leading to your residence.

I do enjoy free speech. I must admit though, I AM PISSED OFF. I have no investment experience. I don't work for NASA nor the CIA, I do not have the knowledge or tools to protect my privacy on the interwebz.

Here is what I did... When Ben announced QE 2 at Jackson Hole, I dropped my pants and got LONG AND HARD equities. that strategy worked with my cash only non-margin account quite well.

I have no clue what I am doing investing, yet my trading account screamed higher. I sold out, I don't want to get caught with my pants down to long like what happened in 2008 (didn't invest at the time, but my family and friends were wiped off the face of the earth)

2008= PULL SYSTEM LIQUITY.

I just want to make money. I invest based off what I read on Marketwatch and other liscensed investment commentaries.

All I have to say, come to my home. You will meet the end of the barrel of my gun.

You are all millionaries, great. No one cares. People need to eat and desire only a warm bed to sleep

Mon, 02/28/2011 - 13:59 | 1004284 the rookie cynic
the rookie cynic's picture

Let's take a poll: How many more day/months/years of POMO until dollar is worthless?

Mon, 02/28/2011 - 14:10 | 1004314 Bob
Bob's picture

I'm thinking within 24 months it is either formally devalued, i.e., made just one currency in a WB/IMF basket, or replaced altogether. 

Mon, 02/28/2011 - 14:49 | 1004437 thedrickster
thedrickster's picture

Can someone shed light on the significance of a 5.81 Submitted-Accepted ratio? How does this compare to pre-QE POMOs?

Mon, 02/28/2011 - 19:42 | 1005398 Guy Fawkes Mulder
Guy Fawkes Mulder's picture

This is like asking someone to shed light on the significance of the engine lube oil temperature gauge decal on this.

Mon, 02/28/2011 - 20:23 | 1005474 Bansters-in-my-...
Bansters-in-my- feces's picture

Make me puke, Make me sick ,Up your ass With a POMO stick.

Guess whish end of the stick we get.

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