This page has been archived and commenting is disabled.
S&P Vs Fed Treasury Holdings: Spot The Correlation
When the Fed announced that MBS/agency purchases would be a part of QE1 way back in 2008, few were surprised. After all that was the easiest way to lower interest rates on mortgages: a topic that back then seemed critical as there was still hope that the Fed had some control over housing (a premise since proven false now that housing is well into its double dip round). Yet the Fed's purchases of Treasurys seemed somewhat arbitrary: after all, why buy the most liquid rate security, and more importantly, which derivative asset class was the Fed targeting through UST purchases? And just before QE Lite and QE2 was announced there were additional rumors that the Fed would go after MBS again to assist housing (recall all those Pimco purchases of MBS on margin - of course, only later was it discovered that Gross hopes to get them all put back to Bank of America). To the surprise of many, the Fed picked Treasurys as the preferred security of choice once again. The debate was open: if the Fed is targeting the housing market it should be buying MBS again. No such luck. So now that two years of QE (in their 1, Lite and 2 iterations) are in the history, we finally can run some correlation analyses to see just what asset class the Fed had been targeting all along. The attached chart presents the very simple result.
The chart below shows total Fed holdings of USTs and of the SPY.
Now here's a thought: the Fed has another $800 billion in UST purchasing dry powder left under QE2 alone...
...Of course the chart above excludes the price of gold in US currency, which confirms that on a real basis, the value of the black line has declined over the same period as it has gotten progressively more diluted with pieces of linen courtesy of the red line.
»
- 19559 reads
- Printer-friendly version
- Send to friend
- advertisements -
"Now here's a thought: the Fed has another $800 billion in UST purchasing dry powder left..."
That means the Dow Jones (which is already at its pre-Lehman level) will go back to its pre-2007 level. As if no crisis never happened.
Can't wait to see this discussed by CNBC anchorettes.
what is this I don't even. How does creating money, using it to buy UST from the open market/PD's, make stocks go up? Is it just inflation being reflected in stocks? halp me understand!
Is there an implicit agreement between the FR and PD's to put the newly created money into equities?
"Is there an implicit agreement between the FR and PD's to put the newly created money into equities?"
Implicit and explicit. With equities deleveraging, the banks are dead and so is the FED.
Take a look at this horrific graph (http://research.stlouisfed.org/fred2/series/WSECOUT). So much money HAD to go somewhere, and there is more on the way.
yikes.....
ZH does a magnificent and unparalleled dissection of the developed world's economic disasters. But most of the time it's too inside baseball for me.
I just watched Glenn Beck online and he has been harping for years about the debt crisis in an infinitely more superficial, but understandable way. Tonight he had on one of his friends, an econ prof from Columbia, and they made the situation understandable enough to be terrifying.
California: 1.8 trillion in debt. New York: 1.1 trillion. Illinois .6 trillion. New Jersey .5 trillion. About 4 trillion of state debt for the top 4 states. The GDP is only 14 trillion.
National debt is 14 trillion.
Without slashing spending, which is tough because much is untouchable entitlements like Medicare, Medicaid, Social Security, etc, the Fed has no choice but to monetize the debt and just keep printing dollars. Without those dollars from the Fed the whole system would collapse.
The only way the debt can be serviced or repaid and keep the system afloat is through the continuous creation of money.
Absent that, the lights go out, commerce halts, and the ATMs go dark.
Heck, what do you think is going to happen to the economy if 2 million people suddenly lose their unemployment checks at the same time? Chaos.
Congress can either start addressing entitlements and defense spending soon - as in reductions in benefits to existing and future recipients, or have their hand forced via a currency crisis. However, given a few polls I've seen recently where 60% to 70%+ of people don't want entitlements touched, most people don't have a clue how bad the situation is, and therefore won't apply the needed political pressure needed to overcome special interest groups. Unless politicians are willing to take one for the team (dream on), we're not likely to see reform quickly enough.
Monetizing the debt just delays even further the negative feedback from decades of poor fiscal policy, giving the short-term illusion that all is well, while dangerous imbalances build at an accelerating rate behind the scenes.
daaamn.. oh and I love the shaded area marking the end of the recession. They should have put some skittles in that part of the chart.
So based on this chart, I see something very interesting. Why did their holdings tank right around 2007? Were they (panic) selling like everyone else, only to further cause the asset crash? Or is this chart showing their market value, and that value simply declined with other assets?
http://wallstreetexaminer.com/uploads/iamge316.png
I've never figured out why they chopped liquidity like that and triggered the crash, unless you buy into the conspiracy theory that it was all part of The Plan. Hell, I wouldn't take much convincing at this point. Plan or no, it's sure going like one.
The reason the Fed withdrew liquidity "back then" was they were trying to prop the $'s value, because oil was approaching $150/barrel. Well they succeeded in bringing the price of oil down......and all other assets!
Thanks, that makes sense. That reminds me, I need to read "The Prize".
So many people don't realize that the banks are broke and they plan on keeping that secret. Already talk has begun not to let Ron Paul be chairman and the banks have started donating to Republicans now.
Quote:
Five GOP leadership aides, speaking anonymously because a decision isn't final, say incoming House Speaker John Boehner has discussed ways to prevent Paul from becoming chairman or to keep him on a tight leash if he does.
http://www.businessweek.com/magazine/content/10_50/b4207035613107.htm
False. Banks were made whole by the Fed. The Treasury [read- taxpayer], by extension of the Fed, is broke [er, increasingly encumbered, I mean].
The Fed can hold the toxic assets into perpetuity without the risk of an audit [see: flash crash]. The Fed is doing everything within it's expanded powers to make good on bad loans. Fuck, they are a hares breath from printing out the money to pay it all off. However, guaranteed interest payments are greater than principal repayment. Remember all the talks of a bad bank -- newsflash -- the Fed is the "bad bank", literally and figuratively.
The problems have become so unmanageable that the Fed is monetizing debt that underwrites government welfare programs [both labor and 'business'] in the hope that both parties use some of the cash to meet their debt obligations [the great unwinding]. The latter has while the former- not so much.
What's not to understand? Fake money makes fake stock valuation...from the Japanese kettle into the Zimbabwe fire.
yeah the more I think about it, the more it makes sense. Good old fashioned "CONfidence multiplyer".
load up those credit cards b/c happy days are here again! tomorrow will always be better than today b/c stocks are up!
march 2011 is gonna suck ass.
lolwut.
Ben Bernanke accidentally the whole stock market
If banks are allowed to use equities as collateral against Fed short term lending, its very important that those equities keep rising in value ? simple ?
Essentially. In the past, the PDs were, de facto, required to suck down any Trashury issuance that wasn't scarfed up by chumps like the BOJ and PBOC. The Fed would provide them with liquidity for this purpose. They could use what was left over to game stock prices. If there was a big Trashury issuance calendar the PDs would have to puke up equities to make room for Trashuries. This preserved the illusion that the Fed wasn't simply monetizing the debt. Now, of course, since they realized no one cares, they just do it directly.
http://wallstreetexaminer.com/do-the-fed-and-primary-dealers-collude-to-...
The WSE has been reporting on this crap for years. I have no relationship to them, except as a sometimes subscriber.
All in with leverage.
Oh yeah?
http://www.hobotraveler.com/photos/c_cote-divoire_2010-00451.php
Uh, the fed has an unlimited supply of "Dry powder".
But not an unlimited leash from the people if gas hits $5 a gallon and wages/jobs don't increase
Another $800B in dry powder?
Looks like about SPY 240 to me.
Time to jump in with both feet. /s
Buy the SPY Dec.16, 2011 call 210 for .04 -.08 cents .... and your "Golden" ..
(PM position, not withstanding)
800 billion factored allotment for the continuing inversely proportional outflows?
rallycaps
http://www.rallymonkey.com/oldvideo.php
whoever made fun of my "buy buy buy" on BAC blam! right in the kisser
Not me. The financials were my cue that this pig was gonna fly.
kabooom!
People actually call that music?
Ben Bernank listens to it right before every POMO!
http://www.youtube.com/watch?v=kzlWozb21Lk
Love it! The Irish sense of humor!
Ben was at the wheel of his Bently while Timmah rolled a blunt as his passenger. In the back rode Trichet and Summers. Ben had his stereo up. He started singing:
"If you want to, we can supply you, got enough work to feed the whole town, they won't shoot you unless you try to come around and try to stomp on our ground."
Summers started singing and Trichet backed him up:
"Cuz we takin' over, [one country at s time], said we takin over [one country at a time] said we taken over..."
Timmah started in:
"Bounce, its what I does. I get monie eryday eryday I does dat Benz is how I ride black flag on the left two girls at right you better move, ak all day get shot up like shine thats on my neck. Monie that come run it like water...."
"Pass the blunt, Timmah!"
DJ KHALED, AKON & TI "We Takin' Over":http://www.youtube.com/watch?v=D9g2szHsoz0&NR=1&feature=fvwp
I understand that cussing is not great lyrical content but what matters is the implied emotion.
Lil' Weaze is almost the best in the game. Eminem is a brilliant musician. If ryme ain't no thang everybody would be doing it.
People actually call that music?
Nope. It's gansta rap crap.
Every genre has bad music. Lil' Wayne and Em went mainstream and comprimise themselves on many songs. They ryme well enough to compete in the underground.
Music implies the use of a musical instrument.
I play music (guitar). It takes practice and dedication.
Rap is NOT music. Perhaps it can loosely be described as poetry.
But music, no way.
that's not music, it's trash.
I don't know if there is a word that describes it accurately. Whatever you want to call it, it isn't music. It must sound like the shit rolling around in The Bernank's head when he presses CTRL+P.
You remind me of my father talking about Miles Davis, John Coltrane, Leon Russell and Jimi Hendrix when I was a kid. Very sad ... expand your horizons.
http://www.youtube.com/watch?v=RQthFDpYCys&feature=related
Abstract Rude - 213 to 619 Adjacent:
http://www.youtube.com/watch?v=Qr3GOE-TUp0
Moka Only & MF DOOM "More Soup":http://www.youtube.com/watch?v=JvRPQrAF9rY
If there has been any lesson learned the last 18 months:
"Infinite Fiat Rules"
O'dool rules!
-
Flanagan, a professor at the University of Calgary and former adviser to Canadian prime minister Stephen Harper is such a hypocrite. Flanagan has openly called for the assassination of Assange.
Video ~
http://globaleconomicanalysis.blogspot.com/2010/12/former-canadian-prime...
And what good comes from advocating cold blooded murder without a trial. By some definitions it would be considered assault and calling for terrorist acts.
IMO the immoral turd should grow up and remember that what goes around comes arounds.
University Of Calgary Professor And Senior Advisor To Canadian PM Calls For Julian Assange Assassination On National TV
Castro couldn't even go to the bathroom unless the Soviet Union put the nickel in the toilet.
-Richard M. Nixon
He laughed while he said it too. What a creep.
@Lennon
Nixon may have been a creep, but he was an effective creep. Nobody, from Brezhnev on down, messed with Tricky Dick.
?
nobody messed with Napoleon, either.... until they did.
I remember Kruschev pounding his shoe at the U.N. ...
all he was saying was, his people will walk on our graves.
http://www.google.com/imgres?imgurl=http://www.crestock.com/uploads/blog...
The USSR has retreated and retreated, just as they did before Napoleon's army.
The genius americans have marched into Moscow,
into Iraq, and Afghanistan, and the largest military expense in world history.
Now, the US government owns as much of the industry and real estate as any Communist nation inhistory.
Tomorrow, it collapses anyway.
how droll ....
The level of hostility aimed at Assange is interesting. They must be
really afraid of what might float to the surface. And we all know
what floats...
Well now that it's not only considered "assassination" to call for the murder of the un-elected, but apparently considered 'legal', as well: would it be considered equally justifiable to call for the assassination of Bernanke? Or are the lives of central bankers somehow more sacrosanct? Those in power need to be made afraid of the example they set forth. So far we have learned that accounting fraud, market manipulation, outright lying and suppression of constitutional rights are apparently acceptable in the USA. Now we are being taught that so is the threat of murder. The government must be exceedingly cautious here, as there are many who would redily accept the rules of this new game.
Nice graph, Tyler. Now, what are the consequences, and when will we see them? Alas, trees don't grow to the sky, even when watered by the Fed.
the only real threats to the bond market/USD are our creditors if they decide to dump....
looks like benron is taking care of that threat....eventually there will be so much debt outstanding that China/Japan will be a drop in the bucket. If they dump, the fed will just eat it up. With them neutralized, the middle east is the next problem child......gotta make sure people need USD to buy oil.....so we'll need a really strong military presence in the ME....oh wait, we already got that one done too.
The fact that the Fed has bought Treasries in the face of Fraudclosuregate makes me think they are liable for neglect. Do they not have a treaty with our government to act in its [government's] best interest?
Fed thinks risk premium for equities is "elevated". It is in the minutes. Fed purchases are meant to have a "portfolio" effect that makes investing in risk free assets like treasuries so unappealing that investors migrate towards stocks, real-estate and risky bonds. They got their desired effect. The question is what happens when the economy does not grow fast enough to support elevated asset prices. I think we know the answer.
Yeah, TD, ya got a point there. So, will oil over a $100, 10yr T's over 3% (and mortgage rates over 4.5 or 5%...oh, and sliding housing) and inflation in China, EM cause any resistance to the Fed's galactic spending spree? Seems they can keep spending but law of diminishing returns likely in effect. I wouldn't spect a crash but I also wouldn't spect further movement w/out real troubles causing simply more volatility and sideways movement?
One economic idiots viewpoint.
Look, first Greenspan from the sidelines then Bernanke have said it openly: Inflating the stock market is considered good for the economy and one of the prime directives of the Fed.
Here's the problem, which has gotten more serious and potentially lethal over time: when the training wheels come off and Fed assistance ends so that real economic growth is supposed to take over there's a problem. First, in the last 3 iterations of this (1984, 1992, 2004) there were major blowups that the Fed needed to rescue. Second and more ominously, job recovery has lagged longer and longer with each iteration leading to 'jobless recoveries' especially in 2002-5. Worse yet, the unassisted expansions have gotten briefer and shallower in terms of GDP. And the falls, including the stock market, have gotten far deeper, provoking ever more drastic measures.
The Fed is already sowing the seeds of the next crisis and arguably chocking off the chance for real growth by pushing anti-competitive economic practices and undermining free markets.
With regard to Greenspan, if one looks into his history
one could possibly deduce that he purposefully attempted to crash
the system. Or at least get closer to that day. He could never
admit to such a thing but I believe it was his objective.
To da moon, Alice!
Think I'll stay right here on the ground, thank you.
the second 800B is direct monetization, so don't expect similar results, although the Fed does seem willing to keep pushing regardless of signs of an economic recovery, which is bubble mania again. How did they push up housing asset prices without moving the CPI? They're baccckkk..
exactly, that's what i have been trying to get at. the amount of treasuries on bank balance sheets is finite. does anyone have the number by chance? at some point QE will have depleted the treasuries from their balance sheets and it will be instant monetization as you mention.
if we start to pay attention to the vintage of the bonds purchased every day we can get an idea of percentages that are older versus brand new.
"Of course the chart above excludes the price of gold in US currency, which confirms that on a real basis, the value of the black line has declined over the same period"
http://stockcharts.com/h-sc/ui?s=$SPX:$GOLD&p=D&yr=13&mn=0&dy=0&id=p70227023799&a=206062683
the recent POMO where they didn't allow a freshly sold treasury to be POMO'd is a sign that the Fed does not want to do direct monetization, because that doesn't help the banks, it only helps the US govt stay solvent.
if we get to the direct monetization point, then our economy will rely on govt spending made possible via POMO.
Yo Husky, consider this correction -
we've got to the direct monetization point, our economy relies on govt spending made possible via POMO.
i wish we could get some of the Whalen's of the world to comment on what happens when the bank balance sheets run dry of treasuries?
"I just watched Glenn Beck online and he has been harping for years about the debt crisis in an infinitely more superficial, but understandable way"
The problem lies in your statement above. He's not really telling you what is going on but twisting it so that he is telling you what he wants you to believe. The bailout of the banks has nothing to do with the so called "entitlements" medicare, medicaid, social security, etc... It has to do with the bailout of the banks period. Beck would have you believe it's the little guy's fault and therefore we should kick them to the floor (even though they have already been kicked to the floor). It's really pretty chicken shit.
Sooooo .... Baby Boomers getting ready to retire (yes, it starts this year folks), got their money tied up in 401k's and mutuals and other big stupid equity holders, and the housing market implosion threatened to take the equity markets down with it.
So friend of BBs, the Ben Bernanke (arrr, that's scary, Ben Benanke, Baby Boomer ....), gets out the old electronic printing press (that takes no cotton or ink, but makes money), and starts purchasing treasuries to drive the yield down and send the investors back into the worthless equities, and will continue to do so until the majority of BBs are retired with their now worthless money ... (or just until the rich people can get their money out without a BB revolt?) ... and then BOOOM?
If you are a GenXer, move to Asia now, coz this shiz is gunna get heavy.
We opened our show this evening - a day early since we had such demand. Amazing turnout on a cold, cold night. If we didn't sell another product this weekend, it's been a roaring success. International licensing agreement was inked and sealed today and it was th the best pre-open ever for our company this eve.
I went out of my way to ask people buying merchandise what they thought of the economy. To a person, all I heard was, "I'm so glad that's over" and "I waited two years for things to get better and now I can go out and buy what I need for my home."
Amazing!
I imagine these were regular joe and jane types? If so, then what you're saying is that the retail investor is finally showing up to the party.
Don't know if they're showing up to the "investment party" but are certainly spending like I haven't seen since '04 - '07. Incredible.
Stay long this market, retail sales will drive manufacturing and in turn create hiring. We're part of this as we're going to ramp up to basically quadruple our production by Q2 2011. And all the way down the supply chain the same is happening.
This recovery is real and picking up momentum. It's exciting - like the old days again!
The old days? You mean the ones that led to imbalances in 2000 and 2008, and subsequent collapses? There is no doubting economic strength recently in certain areas, but there is doubting whether anyone has learned anything from history.
If I am bullish, the questions I better be able to answer are;
what happens when the Fed stops QE?
what happens when the Fed raises rates?
what happens when FASB 157 is re-instituted?
what happens when the BAC hard drive is released?
what happens when the an EU country chooses default?
If I weren't so dead tired, I'd take on those questions but I have a huge couple of days coming up here. Numbers could be skewed by a winter storm moving in but we adjust for that as final Q revenue picks up on line when nature interferes.
More updates as I have time. Looking for much more upside into EOY.
Where have you been for the past 2 years. They will do what ever is necessary to keep it going for as long as needed. The Fed is going to underwrite your risk, so get over the facys and join the party. Speculate with the rest of us, if the markets decline, you can count on Bernank to bail us out.
Where have you been for the past 2 years. They will do what ever is necessary to keep it going for as long as needed. The Fed is going to underwrite your risk, so get over the facys and join the party. Speculate with the rest of us, if the markets decline, you can count on Bernank to bail us out.
You're truly a wanker beating the
drum for a shitty low growth nothing
of an economy with stock prices
already overvalued by double digits.
http://www.businessinsider.com/three-key-valuation-indicators-all-signal...
TROLL.
Wangman is being sarcastic,aren't you Wangman?
The Nikkei and Shanghai are not impressed with the ECB/Fed antics today, both are mildly down.
A quick look at Japan PMI shows 2 months of contraction in a row. In other words, a recession may be here for Japan, no doubt partially thanks to the Yen's appreciation.
Dec. 3 (Bloomberg) -- China will shift to a “prudent” monetary policy next year, from a relatively loose monetary policy, Xinhua News Agency reported, citing a work meeting of Political Bureau of the Communist Party of China Central Committee.
Haven't those indices been on fire the past few sessions? Forgive me since I've been so buried in work but haven't they been moving in lock step with our indices?
Akak was right you are a troll. Go away. Your methods are treasonsitic.
They followed yesterday's move. Not today's though.
Shanghai has been in a downtrend since Oct 2007. Lower highs. More recently, since July 2009. Lower highs.
Nikkei is only halfway back to its April 2010 high right now.
Erik,
Harry is simply getting ridiculous tonight - I do believe Americans in general want to believe things are better and feel better. God knows living under fear ain't fun.
HOWEVER, to say this is like '04-'07 is stupid (nothing personal Harry). Absent (or even with) wage gains (not seeing that), for those days to return you need massive assets to borrow against (called homes) and generally better if they are worth a lot (not underwater) and somebody (a bank) is willing to lend in excess of a half trillion a year against them to lift all boats. Plus, you need consumers who feel so good they want to leverage out, they think nothing down, no principal loans are a good idea. Houses sell the day that hit the market at above asking price (and double, triple what you paid for it). Things are like that Harry? C'mon, simmmma down.
Better, I believe it. Like '05, not a chance. Oh, and there is that small issue of the massive debt that's been added to the system to get us back to this state where the world ain't visibly falling apart. Only issue is it's not sustainable nor is the tax structure nor is the fed / state / muni unfundeds nor are interest rates nor are trade deficits. We have kicked the can but man is it getting heavier and harder to do so each time.
If Harry believes his tripe bout a new bull market and sustainability...well, then I guess he like many of his customers have learned nothing and are confined to repeat their mistakes.
Harry should get a job on the street
pumping this overpriced dogshit to
retail. The buy the fucking dip types
always appear when any value is
long gone.
It seems like Harry is saying the velocity of money is finally increasing, I guess hyperinflation will start in Q1 2011 just as John Williams and others have predicted
Let's just wait and see what the Ben Bernanke does today.
We've got a 1220 ceiling on the S&P, and a 1400 ceiling on gold.
Gary Shilling should be out today, I await with baited breath. (Actually garlic breath)
By the way, I've already marked this post as junk.
Huh? If the data points can be verified, the correlation is undeniable. The issue then becomes causation. This is the single most readable graph (for me at least- a novice non-economist) I have seen.
The import is that the FED, through its PDs etc., has been pumping this market. Of course if the FED decides that S&P at 1200 is a high enough cushion, then it can always direct the PDs to resume paying themselves more bonus money instead!
Weird, the lines converged.
.
.