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Talk To Your Elected Representatives Before Considering An Investment In Any US Security

Tyler Durden's picture





 

Update from Nic Lenoir of ICAP

Bonds are chopping quite a bit because of two key issues today. The latter one which triggered the sell-off is a rumor about a Medley report out "quoting" two senior Fed officials wishing to hike and end quantitative easing.

The other issue, which is less obvious in the direct price action, but of much more importance, is the decision this morning to reduce the Supplemental Funding Program from $200Bn to $15Bn. This was revealed by the WSJ, and our sources tell us the Treasury is very unhappy as they were scheduling a proper announcement at 11AM in line with their usual procedures. What this means is that $200Bn of funding provided through Bills to the Federal Reserve is being removed. Either this means the Fed is planning to start shrinking its balance sheet, either this is only a move to avoid hitting the debt ceiling. I strongly believe the latter is the answer. We are about 6 weeks away from hitting the debt ceiling, and while Fed or Treasury officials thought raising the ceiling would be a mere formality, it appears this will lead to a full blown political battle. In that sense, we definitely think that the object of this morning's move is to buy time in order to get Congress to pass a higher debt ceiling. Beyond this, there are many questions about whether the Fed is willing, and is capable, to withdraw a lot of the extraordinary policy measures in place. This move also helps Fed officials show they can flex a bit of muscle  and get things done when needed, though it was not the primary objective.

Short term the effect is that bill rates are likely to drop because there is less supply, and the Fed will instead find itself with an additional $185Bn in excess reserves, so the Fed Effective rate should be under pressure, and that could well translate onto Libor rates. Lower cash rates should be expected in the next few days/weeks.

The debate regarding Quantitative Easing, extraordinary policy measures by the Federal Reserve, and their possible removal, joins the concerns over deficit and currency valuation. Nouriel Roubini's stance "damned if you, damned if you don't" seems perfectly accurate. Personally my take is that the imbalances that have been built are such, that a smooth application and removal of never tried before policies is bound not to happen smoothly. Which way the market cracks (inflation/relapse) depends what the government will do. Talk to your elected representatives before considering an investment in any US security.

Good luck trading,

Nic

 


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Wed, 09/16/2009 - 11:14 | Link to Comment Whizbang
Whizbang's picture

If the debt ceiling gets raised, the people in this country are going to go f*cknuggets, and that rally in d.c. this past weekend will be nothing compared the the protests we can expect.

Wed, 09/16/2009 - 11:23 | Link to Comment aldousd
aldousd's picture

really? you think that many people know what the debt ceiling is?

Wed, 09/16/2009 - 11:34 | Link to Comment bchbum
bchbum's picture

I'm sure Glen Beck can explain it to them.  I mean, "debt ceiling" is pretty self-explanatory, don't you think?

Wed, 09/16/2009 - 13:14 | Link to Comment TumblingDice
TumblingDice's picture

youd be surprised. this is going to be an interesting debate to sell to the people.

On one side you'll have Ron Paul et al. saying, you got be responsible at some point and stop the madness. How about we just stop spending so much instead of increasing our debt, eh? This is madness, we should accept the pain now instead of putting it off. This is a road of selling our children's and grandchildren's future blah blah blah."

And on the other hand we'll see Turbo Timmy and Obama screaming "BANKRUPTCY, BANKRUPTCY! YOU DON"T WANT US TO GO BANKRUPT DO YOU?"

you can guess who wins the favor of the population that is already meek and scared shitless.

Wed, 09/16/2009 - 14:04 | Link to Comment Jim B
Jim B's picture

+1 Most don't know or care.  I think the hike in the ceiling will be a slam dunk!

Wed, 09/16/2009 - 11:46 | Link to Comment Anonymous
Wed, 09/16/2009 - 12:52 | Link to Comment Rusty_Shackleford
Rusty_Shackleford's picture

Yeah.  So how did that Bonus Army Protest work out in the end?

They all got their checks right?

 

 

Oh,... that's right.  They got the business end of a cavalry charge, 10,000 bayonets,  and adamsite gas as their tent city was torched.

 

"My country, 'tis of thee,
Sweet land of liberty,
Of thee I sing;..."

 

I guess no one had come up with those little magnetic yellow bows to put on the back of your Model-T just yet.

 

Thank God someone invented those things so we can finally support our vets now.

 

 

 

Wed, 09/16/2009 - 13:43 | Link to Comment Anonymous
Wed, 09/16/2009 - 23:16 | Link to Comment Rusty_Shackleford
Rusty_Shackleford's picture

Yes.  Good points.

Many horrible nasty surprises are on deck, that's for sure.

Wed, 09/16/2009 - 13:16 | Link to Comment Bolweevil
Bolweevil's picture

60% of the population opposed 'the bailout' and called their representatives in record numbers, we know how that ended (it hasn't yet).  The Fed has the masses by the short and curlies, some don't care, some can't comprehend the importance, some are complacent and those who disagree continue to be marginalized.  The point you make RE: 401K's is accurate and is plenty to keep some quietly on the fence.  It's reassuring that the Revolution was supported by a minority.   

Wed, 09/16/2009 - 11:19 | Link to Comment Assetman
Assetman's picture

It's very interesting to see that there appears to be real opposition (at least in some circles in Washington) to raising the debt ceiling.

The Fed is simply buying time here, hoping that the debt ceiling will be raised.

Did I say "hoping"?  I meant "expecting".

If the equity markets were to correct by another 30%, the Fed will get whatever the hell they want from Congress. 

Wed, 09/16/2009 - 11:24 | Link to Comment D.O.D.
D.O.D.'s picture

It's amazing, the power of 'Shock and Awe', in a military campaign.  The congress will fold faster than than a Chinese sweat shop worker...

Wed, 09/16/2009 - 11:22 | Link to Comment Anonymous
Wed, 09/16/2009 - 11:26 | Link to Comment AR
AR's picture

NIC  /  You wrote:  "but of much more importance, is the decision this morning to reduce the Supplemental Funding Program from $200Bn to $15Bn."  Political reasons aside, how in your opinion would this "reduction" affect the Dollar (if any, and are there any interpretations (positive or negative signals) the market may take away from funding reductions like this?  Thanks.

Wed, 09/16/2009 - 11:33 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

"Talk to your elected representatives before considering an investment in any US security."

Am I supposed to get an honest answer from these crooks? Not that I am planning to even go near any "US security" in the near future.

Wed, 09/16/2009 - 11:33 | Link to Comment Anonymous
Wed, 09/16/2009 - 11:37 | Link to Comment Anonymous
Wed, 09/16/2009 - 11:41 | Link to Comment I need more cowbell
I need more cowbell's picture

No matter. Nothing seems to implede the slowmotion daily melt up in equities.

Wed, 09/16/2009 - 11:46 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Crash the stock market again (like they did last Sept/Oct 08) and the sheeple will do whatever you want them to do. Don't forget that the average middle class Joe has his/her retirement completely invested in the markets.

Between their 401(k), their personal Schwab IRA and their traditional GE style defined benefit fixed pension, they are all in and desperate for the market to rise.

That's a very big gun to hold to the average Joe's head. Sadly, just say "Boo" and they will jump where ever you tell them. Just think what kind of leverage there would now be if SS had also been invested in the stock market.

Wed, 09/16/2009 - 12:14 | Link to Comment Anonymous
Wed, 09/16/2009 - 12:25 | Link to Comment Chippewa Partners
Chippewa Partners's picture

The only thing better than Judge Jess Rakoff taking on B of A would be Walstreetpro2 taking on Jim Cramer in his garage.

Wed, 09/16/2009 - 13:03 | Link to Comment Gilgamesh
Gilgamesh's picture

Thought I was supposed to contact my financial adwisor.

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