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Today's Fed POMO Intervention In Play

Tyler Durden's picture




 

Just in case yesterday's $3.9 billion reliquification was insufficient, here is Mr. Sack's third market intervention of the week. The Fed has just announced it will monetize bonds with a maturity between 2012 and 2013. We expect today's action to be slightly less than yesterday's QE Lite total: probably enough to push stocks just 0.3-0.5% higher on the day. Assuming Basel III encouraged leverage of 30x, this means around $2.5 billion in new taxpayer money will be handed over to the Primary Dealers to rape and pillage the shorts. We will bring you the POMO results once they are available at the usual time of 11am Eastern.

 

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Thu, 09/16/2010 - 10:36 | 585222 Jack
Jack's picture

WTB a running total of "QE Lite" as this continues.  I wonder how "Lite" it will wind up being.

Thu, 09/16/2010 - 10:38 | 585229 reading
reading's picture

We thought "lite" stood for the amount...instead it will stand for the effect

Thu, 09/16/2010 - 10:45 | 585255 Double down
Double down's picture

What do I know, but I think that is a really relevant question.  I think what matters is how many and who they are that asks this question. 

I do not think QE is inherently gold positive, but the more contorted, complicated, sneaky and obfuscating the method better AU.

Thu, 09/16/2010 - 11:36 | 585230 Battleaxe
Battleaxe's picture

OK, the Treasury is issuing 50% more debt than balance sheet shortfalls: http://www.zerohedge.com/article/us-debt-deficit-difference-hits-fresh-record-treasury-continues-issue-50-more-debt-needed-fu#new.

Just this week the Fed has purchased $8.67 billion in treasuries: http://www.newyorkfed.org/markets/pomo/display/index.cfm?showmore=1&opertype=orig.

So $5.78 billion will go to pay off government debt, leaving $2.89 billion to goose the markets with at 30x leverage. So a possible $86.7 billion pumped into various markets by the PPT this week.

Just trying to keep track.

Thu, 09/16/2010 - 10:40 | 585233 Bearster
Bearster's picture

Wait you can't look at the total amount used to purchase bonds as new funds for the PD's.  The PD's had to buy those bonds originally.  To them, the new money is whatever the Fed pays them above their cost.

Thu, 09/16/2010 - 10:49 | 585262 hedgeless_horseman
hedgeless_horseman's picture

I agree with you.  Allow me to re-post the following.  Saves typing.

___________________________________

Can someone please explain, in layman's terms, the POMO process and how it injects market capital? I've a fair idea, but all the acronyms and financial shorthand gets confusing.

I disagree, for the most part, with the market capital injection thesis Tyler promotes, even assuming leverage.  I believe the POMO-pump of the equity markets is better explained by the following two points.

In the immediate to short term, rates move opposite of the price for bonds, so when The Fed buys bonds in the open market it (falsely) increases demand and decreases supply of USTs, so their price goes up, and their rates (yield/return/ROI) go down.  This causes money managers to look for yield elsewhere, such as the stock market.  Tyler calls this chasing Beta.  But it is not really new money, as much as it is a reallocation of money from FI to equities.

In the short to medium term, when The Fed does add money to the system (monetization), this clearly portends inflation, and so money managers will allocate capital to equities which tend to do better keeping up with inflation than bonds. 

http://www.zerohedge.com/article/wonder-why-market-just-surged-one-word-pomo#comment-583619

Thu, 09/16/2010 - 10:48 | 585264 Tyler Durden
Tyler Durden's picture

Wrong. This is money that was merely deferred from entering into stocks in the first place by collecting some premium both in interest and capital appreciation, only to be deployed in risky assets after allowing yet another potentially failed auction to break with a PD take down of 50%+. The full new capital is released today period, and all of that money will be used to ramp stocks. It is called buying on the margin for a reason.

Thu, 09/16/2010 - 11:00 | 585274 hedgeless_horseman
hedgeless_horseman's picture

Wrong?  I've never been good at double entry accounting.  Maybe we are in violent agreement?  Different facets of the same rock?  Or maybe I am just wrong, again?  Lord knows Tyler is never wrong, although he may exaggerate his case very occasionally, as any good soap salesman should.

Thu, 09/16/2010 - 11:34 | 585386 wowser22
wowser22's picture

TD is probably correct.  Otherwise why would treasuries be taking it in the ass?

Thu, 09/16/2010 - 11:51 | 585407 hedgeless_horseman
hedgeless_horseman's picture

Why? Paragraph 3:

...this clearly portends inflation, and so money managers will allocate capital to equities which tend to do better keeping up with inflation than bonds. 

...and away from bonds, including treasuries.

Thu, 09/16/2010 - 11:55 | 585445 wowser22
wowser22's picture

I am confused.  You said "when The Fed buys bonds in the open market it (falsely) increases demand and decreases supply of USTs, so their price goes up, and their rates (yield/return/ROI) go down".  T Bond prices are falling.  Please elaborate what I am missing.

Thu, 09/16/2010 - 12:16 | 585469 hedgeless_horseman
hedgeless_horseman's picture

I can't even spell PhD, but my guess is it ain't workin' so well no mo.  The Fed is runnin' out of ammo (and political backing). Maybe Ben must wait to fill up his helicopter AFTER the elections?  Until then, it is mostly scare tactics via the media.  The Bully Pulpit has traditionally been the Fed's most powerful tool.  Not their biggest tool; he is now SecTreas.

Also, interventions don't work forever.  Ask the Swiss and the Nips.

 

Thu, 09/16/2010 - 10:48 | 585265 Battleaxe
Battleaxe's picture

The market goosing funds are transferred "off the books" to the PPT until Mission Accomplished or somebody powerful enough comes along to ask what happened to all of the cash. Any MSM softball questions about all of this will be easily deflected by Timmy. If the SHTF then all records will be burned.

Thu, 09/16/2010 - 10:47 | 585257 TheGreatPonzi
TheGreatPonzi's picture

How long can the FED monetization last before the final firework?

Nobody knows the answer, so I guess it's better to go hibernate for a few years in a cave with gold than to trade markets.

Thu, 09/16/2010 - 11:20 | 585341 HelluvaEngineer
HelluvaEngineer's picture

The market is a freaking mess today, even on the 15 min.  Can anyone confirm if volume is picking up?  Is this a "distribution" day?

Thu, 09/16/2010 - 10:48 | 585263 Whatta
Whatta's picture

"this means around $2.5 billion in new taxpayer money will be handed over to the Primary Dealers to rape and pillage the shorts"

 

What are these "shorts" of which you speak. Are they an extinct species from some strange time in the past when up was up and intervention was trying to get your mom off the pipe?

Thu, 09/16/2010 - 10:54 | 585284 yakmerchant
yakmerchant's picture

When do they announce they are doing this?   Day of?   Any idea how much more of this is scheduled?   Messing with my VIX mojo.

 

Thu, 09/16/2010 - 11:11 | 585319 Battleaxe
Thu, 09/16/2010 - 10:55 | 585286 mjbommar
mjbommar's picture
Remember those SPY patterns and the algo lunch hour?

 

Intraday Correlation Patterns between the S&P 500 and Sector Indices

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1677915

Thu, 09/16/2010 - 10:56 | 585288 Hondo
Hondo's picture

The Fed and/or TSY are and have been manipulating every capital market in the country.  There is no price discovery and no free markets anywhere.....it's all a game to sepatrate you from your money....

Thu, 09/16/2010 - 11:43 | 585412 Waterfallsparkles
Waterfallsparkles's picture

I wonder if the FED has something to do with HFT Trading.

Thoughts?

Thu, 09/16/2010 - 13:30 | 585714 Battleaxe
Battleaxe's picture

SSSSSSSSHHHHHHHHHH!!!!!!!!!!!!

Thu, 09/16/2010 - 10:59 | 585297 SheepDog-One
SheepDog-One's picture

The markets will vomit up all their gains in a flash.

Thu, 09/16/2010 - 11:01 | 585301 Tic tock
Tic tock's picture

question please, what happens to the short positions in PMs' held by the large commercials while the metals rise? -how do they not run the risk of losing seriously? 

Thu, 09/16/2010 - 11:07 | 585310 unwashedmass
unwashedmass's picture

ah, yeah.

last night harvey organ estimated that JPM is short over 1 billion oz of silver.

not that it matters to them. Ben will just print up the cash, bill the taxpayers, and no one at JPM will miss a dime of bonus.

Thu, 09/16/2010 - 11:04 | 585305 unwashedmass
unwashedmass's picture

 

don't you all wonder about the conversations at the dealers' today....i mean, they've pumped the markets to the point that there are literally NO buyers.....no chumps whatsoever.....(for anything but those damn gold & silver stocks which, jesus, don't the peasants know what losers those are?)....

and the Fed hands them more money to conduct the daily pump o rama.....and....clearly....errrrr....the Fed doesn't know what's supposed to happen now.....the fourth day of Opex week......

they are supposed to drop the markets hard now to rape the call buyers.....having destroyed all the puts.....

and so.....how do they break this to the boobs at the Fed...."ah....its time for our usual rape/pillage/theft, so, ummmmmm, we don' think we want to pump today? And, yeah, it is theft and all, but....ummmmmm.....ah........why don't you guys just go back to your offices and watch some more porn?"

 

Thu, 09/16/2010 - 11:04 | 585306 unwashedmass
unwashedmass's picture

 

don't you all wonder about the conversations at the dealers' today....i mean, they've pumped the markets to the point that there are literally NO buyers.....no chumps whatsoever.....(for anything but those damn gold & silver stocks which, jesus, don't the peasants know what losers those are?)....

and the Fed hands them more money to conduct the daily pump o rama.....and....clearly....errrrr....the Fed doesn't know what's supposed to happen now.....the fourth day of Opex week......

they are supposed to drop the markets hard now to rape the call buyers.....having destroyed all the puts.....

and so.....how do they break this to the boobs at the Fed...."ah....its time for our usual rape/pillage/theft, so, ummmmmm, we don' think we want to pump today? And, yeah, it is theft and all, but....ummmmmm.....ah........why don't you guys just go back to your offices and watch some more porn?"

 

Thu, 09/16/2010 - 11:11 | 585318 PicassoInActions
PicassoInActions's picture

I am lost, since we constantly need to ramp up the market ,why we just don't ban all shorts lets say for a month? That will force the market to go up ( like it or not), and there will be no need to print more.

Thu, 09/16/2010 - 11:20 | 585339 reading
reading's picture

Tried that a couple of years ago...that didn't go so hot...

Thu, 09/16/2010 - 11:17 | 585331 Tic tock
Tic tock's picture

Nice, a several hundred million ounces.. no strange wonder their head of commodities said no-one was going to get crazy over renumeration.  

Thu, 09/16/2010 - 11:31 | 585372 topshelfstuff
topshelfstuff's picture

When can QE be going on but not seen or said to be QE? How 'bout
You do me and I'll do you ?

I was wondering if this is and has already been going on.

I'll use the US, the UK, as definite, and add on the most "under thumb" grouping next, the Anglo/Saxon Puppets, Canada and Australia. Other likely participants could be found in the EU group. Others too can be considered, but let me get to the thought and question.

If the US Buys UK Bonds, and the UK Buys US Bonds, isn't that QE in disguise?/ wouldn't that be doing QE in a hidden way? I'm just asking. You can see how much can already have been going on.

Somehow the old childhood rhyme popped into my mind. The "Ring Around A Rosie" one.
This might fit...for "Ring Around the Rosie" this could be the tightening ring, the running out of time on those who've been Painting the Rosie, everything is just fine, super fine, Picture, in "Pocket Full of Posies", Posies could equate to Fiat/Paper money, and the last line, "ALL Fall Down" is self explanatory

Thu, 09/16/2010 - 13:24 | 585692 topshelfstuff
topshelfstuff's picture

To Underline my thought/question, I grabbed this sentence from a  new Thread...so the UK was the Big Buyer of US Treasurys..."offically" Not QE on our part...to me this is simply a "You do me and I'll do you" quasi, but not listed as, QE and a "Ring Around the Rosie" Pocket Filled with Paper. paste from that Thread:

What may or may not come as much of a surprise is that of the $74.8 billion in total Long-Term investments, pretty much all of it came from capital originating in Japan ($29.7 billion) and the UK ($30.9 billion). Ah, good old UK, which as a covert depot for central bank operations, is now no longer content with accumulating Treasurys at a torrid pace, now holding a total of $374.3 billion (a $12 billion increase M/M), but is also aggressively bidding up bonds and stocks. In July the UK (which itself can barely fund its own QE-prompted deficit funding), also bought $12.4 billion in corporate bonds and $2 billion in corporate stocks.

Thu, 09/16/2010 - 11:39 | 585398 Waterfallsparkles
Waterfallsparkles's picture

Bernankie likes to skew the Call Options.  He likes them to be well into the Money.  That way when the Options are exercised they ramp the Market higher to maximize profits.  He seems to play into Option experation.

Very obvious during the year and a half ramp from 2008.

Thu, 09/16/2010 - 11:45 | 585418 Tic tock
Tic tock's picture

The mind of Bernanke is a wonderful thing to waste

Thu, 09/16/2010 - 11:58 | 585452 Bold Eagle
Bold Eagle's picture

Looks like $1.38b is not enough to keep market green.

Thu, 09/16/2010 - 12:14 | 585497 Battleaxe
Battleaxe's picture

OH NO! Someone at the Fed may need to perform a few more mouse clicks!

Thu, 09/16/2010 - 13:58 | 585813 defender
defender's picture

So when they buy these treasuries at par, are they paying prevailing market price, the amortized value, or are they paying the final value of the note?  What incentive do the banks have to sell?  How badly am I, the tax payer, getting screwed by this?

Thu, 10/07/2010 - 05:54 | 631609 Herry12
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