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Top Tick Bernanke: How The Chairman Lost $46 On The Fed's Holdings Since The Launch Of QE2
We have long pleaded that with a DV01 of almost $1 billion, all of it unhedged, the Federal Reserve is massively exposed to portfolio losses (courtesy of the Fed's recent transformation into the world's largest hedge fund) should interest rates commence rising. Well, sure enough after a well over 1% rise in rates in the past few months, and specifically since the advent of QE2, once the market started calling the Fed's bluff for further monetary easing, the losses incurred by the Fed are sufficiently large to where people should start asking questions. John Lohman quantifies just how substantial the unrealized portfolio damage to the taxpayer balance sheet has become since Ben Bernanke top ticked rates almost to the dot with his launch of QE2.
If, in the spirit of antimatter, Jack Schwager were to compile a book entitled “Market Anti-Wizards”, chapter one would surely feature none other than The Bernank. How else to describe Uncle Ben’s trading prowess as evidenced in the chart below. Since that fateful November 3rd announcement that quantitative easing would be expanded, the Federal Reserve has lost roughly $46 billion in Treasury and Agency paper (note that this does not include the Fed’s MBS holdings, which have likely suffered similar losses). Indeed, QE2 may go down as one of the greatest top-ticks in trading history.
The American public can rest assured that Chip Kenyon, Tom Baldwin, and Hardy Brumfield are on the other side of their tax dollar trade.
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IT's time for another "talking bears" cartoon regarding The Bernank's losses.
And hopefully Jon Stewart will feature them on the Daily Show.
Sorry to cut the line her boys, but
TYLER, THE NASA CONFERENCE ABOUT EXTRATERESTRIAL LIFE IS ON IN 10 MINUTES!!!!
I've heard they'll come in golden ships!!! WE'RE SAVED!!!
could they be Tungsten ships...?
Nope.
Gold-Plated Tungsten ships.
Both the 10 and 30 should find some pretty serious resistance at around 115, so I think we have another 4-5% to go, might be a very short term oversell down as low as 108-110, but I think 115 is going to be the spot we'll keep returning to regardless of who's buying what when (unless we do actually lose the AAA rating, then all bets are off).
But, Tyler, the Bernank is 100% confident.
In fact, I even think he's averaging down AS WE SPEAK!!
And after QE4, they'll start to turn a profit. and if not, maybe after QE5 or 6 or 7 or 8 or 9...
RIEN VA PLUS BITCHEZ!!!
I wished I had the cheatcodes of my trading platform to add infinite funds...
in that game I just baught, Total War Rome II, the cheat is ADD_MONEY 20000
but it doesn't work on my trading platform...
Relax, losing $40 BILLION was part of the plan. Timnay just said, TARP is a winner!
Princetoonville.....is so proud of his loyalty to his MASTERS!!!......WHAT A DIPSHIT!
Can't wait for RP to get a hold of the Bernank.
http://www.lewrockwell.com/orig11/bauman-b3.1.1.html
Love the icon, and name.
Funny how people are surprised when someone with a beard barges into a room full of rotten shit and announces that he's gonna buy some of the shit, but only THIS MUCH *extends hands outwards* and everyone tries to offload this shit to the stupid buyer.
Anyways, I think this is unacceptable tot he beard so maybe some risk off trading to offset this behavior might be in order.
Ouch... glad he's not running our money. lol It'll get way worse before it gets better.
HURRY buy faster Ben!! :D
Tyler, that headline needs to be corrected. I'm sure you meant $46 BILLION rather than $46. I wish to heaven the $46 figure were only true.
Yeah, because then it would be obvious that somebody beat up the Bernank and stole his lunch money!
$46 won't cover the lunches of these guys
Or maybe $46 trillion.
THIS IS the goal of QE2 - to shift windfall profits to the banks, and for the Fed to absorb the losses! have you seen mortgage rates lately? They are clear proof that the Fed does not give a flying fornication about the home prices! Banks, after all, do not have to mark to market.
Fed will, of course , hold this paper "to maturity", so the market value doesn't matter.
But whats the banks plan to get out of the fiat? China and Russia are doing it bigtime, hoarding gold. What does it matter if the banks hold all the 'dollars', but the dollars are worthless?
The banks will not survive this. Hence the massive bonuses the last couple of years. The executives will do/are doing just fine. They kicked the can down the road hoping for a miracle. None came. The unwinding is coming - and is in the early, early stages. Now is your time to prepare. Prepare accordingly.
The day the banks die will be the same day that the Fed is officially nationalized, with any banks labeled as TBTF being its operating branches. Also, Fannie and Freddie will be relaunched as the new & improved 21st Century RTC, which will be run by the Dept. of Sustainability, and will be in charge of all mortgages, as well as a myriad of other local issues, such as homogenizing zoning amongst "regions."
http://www.newgeography.com/content/001761-the-livable-communities-act-a...
Banking is going to die as a profitable endeavor, only to be reborn as a political one. This is why I keep saying that rising interest rates are not going to be an issue for long. They will rise until there are no market players left, then, in true Wile E. Coyote fashion remain suspended in animation until TPTB allow reality to sink-in, and the cry "OMG DO SOMETHING!" becomes deafening.
At that point, the constitution will be suspended (as if that mattered anymore), so that drastic measures can be taken to save the world. From that point on, interest rates on various types of debt (and credit limits) will be set by politicians (ok, lobbyists).
possibly, yes.
but for the conspiracy theorists out there, the TPTB crowd, who thinks the collapse is engineered...we've got people on the precious FRN side who think that profitable real businesses will trade for a few scarce FRNs because no cash will exist.
Well, to that end, the major banks are sitting on a mountain of cash reserves at the Fed...trillions. If this were to be an engineered deflationary crunch, the banks are the only ones who have access to cash and will end up owning everything. That will cause a subsequent revolution, obviously.
Of course windfall profits to the banks. I also believe the Chinese notified BB that they would no longer buy longer-term UST's, and this is the only thing preventing failed bond auctions.
There is no exit strategy. Rates can never go up. Markets will collapse before then. Poof.
Someone with a big crayon should make daily marks part of the billboard schematic in times square. A great exercise would be tying the Fed's leverage ratios to daily marks. ZH should re-post the the WSJ Op-ed "High rollers at the Fed" for a glimpse by none other than a former Fed Governor as to the implications of what a 100basis point uptick in the 30 year fixed rate MBS rate has on their NON-TREASURY holdings.......i am off to Cracker Barrell and then Target.....of course with my tackle box full of heart pills.....
No worries, Ben has a solution. To restore confidence in the fixed income market he is going to put on a bow tie to prove that he is a serious economist.
LOL, exactly.
Perhaps add a 'billion' to the title in the article? He certainly lost more then "$46". Yes, I enjoy the typos, it's an amusing ZH quirk. I'll trade speed and quality for grammar and spelling any day.
maybe they just had to cut the zeroes off the bills like Mugabe did. You may all be billionaires without knowing it.
The Bernank - still one of the great pieces of cartoon comedy, if only it wasn't a documentary.....
"The Bernank" is up to 8,170 hits on teh Google, while "Bernank" is 30,700. LOL
If the Bernank manages our economy the way he manages the Fed's balance sheet, then total economic collapse is inevitable!
Ben will go on TV and mumble something about it not really being a loss because they plan to hold to maturity. The possibility of hold to default will not be mentioned.
Tommy Balwin is insignificant these days (lost most of his money several years back after he left the pits). Chip doesn't even trade much these days (if at all). And Hardy still needs his brother to get him out of bad, overleverged trades. Trust us, neither of these guys are on the other side of Ben's trades. A little history...
Ben really needs to mend those holes in his trouser pockets.
This old trader and me, were at the bar and we
Were having us some beers and swappin' I dont cares
Talking gold, silver and leveraged short etf's
Old calls and new shorts, and gold miners we just sold
We talked about Ben's pomo, and all the zombies it raised
Then I heard the ol' man say
Ben is great, the dollar is strong, and gold bugs are crazy
He said I fought bull markets, had shorts blown out and gold miners blowtorched
What brings you to BankofAmerica, he said chasing profits ya' know
We talked an hour or two, bout every financial & industrial we knew
What all we leveraged up, like two old traders will do
We pondered gold and silver, he lit a cigarette with an old gold miner derivative I.O.U'
Said these damn things will kill me yet
But Ben is great, the dollar is strong, and gold bugs are crazy
Last call is $1,420.00, I said goodbye to that
I never seen that price again
Then one sunny day, I saw the old mans face
Front page IBD, he was a millionaree
He made his fortune on shorting gold
Mr.T was mad as hell, but me, Im doing well
And I dropped another $100,000 on AIG today, to make my year
Ben is great, dollar is strong, and the doomers are crazy
Ok, you finally said it.
This guys johnny Bravo top for gold is 1420.
Title should say $46 Billion.
Hey, he may have lost money but unemployment went up. Let's get some fair and balanced reporting around here.
ok, that was a coffee out of the nose moment, right there!
Glad to be of service. :)
Let's cut down on the confusion.
1. Fed's money is not tax payers' money. USD is Fed's liability, and its balancesheet automatically nets to 0. Stop the hyperventilation, please.
2. Fed doesn't need an exit strategy on its bond holdings. It can simply hold to maturity. Stop the hyperventilation, please. When the bonds mature and principals are paid back to the Fed, it'd be a massive tightening. But that's a different problem and can be solved separately.
If ZH could filter out some of the crap, it'd be much more valuable.
I'll take the bait, whose money is it?
Sadly, 42, I think your response is *exactly* what Bernanke is thinking. I'm sure he anticipated that the Fed would record Record losses, but since he never planned to unwind the trades (there will be no withdraw of liquidity - ever), then when he holds to maturity, with a plan of ever increasing QE (ie Ponzi Scheme extraordinare!) there will be no losses to the Fed.
This is a stealth way of monetizing debt. Paper losses have no meaning to the paper manufacturer!
"Let's cut down on the confusion."
1. "Fed's money is not tax payers' money." Dollar devaluation raises the cost of government borrowing. Guess who pays for that borrowing?
2. "Fed doesn't need an exit strategy on its bond holdings. It can simply hold to maturity." It can, but that doesn't mean it's smart to do so, particularly if they (highly irresponsibly) continue to refuse to hedge. The value of the assets held by the Fed affects the overall balance sheet, and the Fed's overall balance sheet is critically important to the value of the USD.
Hopefully this cuts down on your confusion, sir.
You are all wrong.
1. You say "dollar devaluation raises the cost of government borrowing." Not if the dollars stay in the Big Boys' markets. If the dollars the Fed gives out to its owners stay in the hands of its owners, and a only a negligible amount trickles out into the hands of the common people of the USSA, then there won't be a dollar devaluation. Only an inflation in commodities in the markets after the banks deleverage their top debt priorities. Inflation in the commodities markets is a huge problem, and it will be a problem for poor, lower-class consumers, but it will not be a problem on their tax bill.
It's not like $1T of money from thin air to the banks from the Fed devalues the dollar by $1T. Very little of the money the Fed shits out reaches the pool of money that consumers can fight for.
A point greater than all that: it's not like the "taxpayer" has to pay for increased government borrowing.
We passed the illusion where the taxpayer was actually liable for this debt long ago.
The only thing the taxpayer is liable for anymore is the interest payments on the National Charge Card... and the chargers try to delay the day when we can't make the interest anymore by as much as they can.
So don't imagine that taxpayers will pay for Treasury debt.
2. IT IS SMART TO DO SO. The Fed doesn't need money to give money. The Fed is not actually a "bank" in this sense. The Fed is and has always been a backstop money machine for the member cartel banks (the "primary dealers"). Recently they've been abusing its powers to the point where no one can deny its fraudelent nature. They trade their bubble-gum wrappers with "IOU $10B in MBS. Sincereley -- AIG" for $10.01B from the Fed.
The Fed doesn't give two shits if the bubble-gum wrapper pays off. They sell the Fed a Treasury Bond... and the Fed DOES NOT CARE if the bond loses market value. The Fed has no perogative or agenda of its own. It is just a front company for the banking cartel.
So I hope this cuts down on your confusion, douche bag.
...
If the Fed's assets decline in value by 99%, the Fed has no less power to buy bubble-gum wrappers than it had before the decline.
"Fiat lux", said God.
"Fiat money", says the Chairman.
The Fed has (or had) $56.73B in capital as of 12/15 (see H.4.1 Statistical Release). It does not "net to 0."
While it can hold "assets" to maturity, it cannot give them value. A worthless pile of MBS are likely to remain so because either the borrower or the collateral is impaired. That value is gone and it's not coming back; i.e., there's no principal to be paid back. The value, in other words, is not a function of who holds the paper, but what that paper is worth.
To anticipate an objection here, run a brief thought experiment: if you were a bank, what would you sell Uncle Ben? Your good assets or the duds? Do you think Uncle Ben haircut the duds he bought? If so, by how much, and then, if so, where are the associated losses on bank balance sheets? If he paid par (or above market), then Uncle Ben has unrecognized losses in his portfolio, some of which are permanent depending on the quality of assets purchased.
One thing 42 did get correct, however, is that the currency (and bank reserves, btw) the Fed creates out of whole cloth are its liability and therein is its fatal flaw. One cannot solve a debt/solvency problem (even the Fed cant) by multiplying liabilities (in the Fed's case, FRNs and/or bank reserves). To do so, simply drives one further into insolvency. It's inability to manufacture value stems from the same root that prevents you from lifting yourself out of debt simply by writing checks (multiplying liabilities) when your bank balance is zero.
There ya go. Didn't hyperventilate once.
And their capital is what??? $57 Billion.......on a mark-to-market basis their toast, gone, done, put a fork in it.
Who needs to hedge when you can print all the money you want to pay bills. We The People and our tax dollars and life savings are the hedge. Like I’ve always said, the big scam in world scale banking is more about risk transfers than dollar transfers.
Extrapolate the forward buying of another $500 bil. with the exposure to losses with rising rates and you can understand why the Fed will end itself. Ron Paul will just be a side show to this disaster called Federal Reserve Bankruptcy.
If you look at the recently released "Prices Paid" doc @ NY Fed.. nearly 100% of every POMO was bought at the highest accepted price.
http://www.newyorkfed.org/markets/prices_paid_1112_1209_2010.xls
Well, you've almost come full circle back to the real world. Now tell me what this means in terms of an increase in unemployment in the Bachelors+ class. It's now 5.1%, official. Based on this, in what month and year will it reach 8.7%? You should be able to extrapolate and give me a prediction.
The Fed does not file a financial statement, nor does it have to mark to market.
Which means the losses mean nothing.
And the amount of trash they can shovel onto their balance sheet is infinite.
Reportable to no one.
Ron Paul will get stonewalled again, it's no use.
I admit, I could not even read this article. I confess it here. Even now, I have one hand over my eyes so that I do not actually see any of the content in this ONE article on ZH today. I can't look at it. I cannot know how much money The Bernank has pumped into bad banks, and how much garbage the The Bernank took in exchange. I can only take so much, you know?
But I did notice that you actually made a forward prediction, Robo, and I thought to suggest to you that this is NOT your baliwick.
Give the brothers more 12 month charts of things that have already happened...chop chop.
dont give up RainbowTrader, theres gotta be some more upside room in NFLX...
RainbowTrader...classic! :D
keep buyin those treasuries
Correction: the Fed does not file an AUDITED financial statement. They produce consolidated statements of position (balance sheets) every week. The losses are real, even if they're not recognized, and what they mean is the dollar is losing value even faster than one supposes (based on published data anyway) because the assets underpinning it arent worth the paper they're printed on.
So if we are not monetizing debt, then how do we have 110 billion of unusable $100 dollar bills sitting in a warehouse? Why don't they ever publish how much good money goes into the system?
You know damn well that Ben would love to come out with a $1,000 dollar bill, but it would be suicide.
The damage done is inreparable. Thanks Ben and Timmah, you have sold out the next generation, Team-O is didn't stop the reckless behaviour. The Anointed One and The Chairman don't know jack-shit about economics.
Fiat Prosperitas bitchez
Wait till Ron Paul starts poking them!!! Oh its gonna be great!
Ron Paul will lose in 2012 if he attempts any funny business.
We are in a fragile recovery (check up on the numbers), how dare Ron Paul try and steal that off the backs of hardworking Americans!
You are all aware that the gentleman that made the QE: Explained video is a huge bull, correct? He doesn't doom like everyone here.
Printing money works folks. Corporations are flush with trillions in cash. The "recovery" is there anytime you want it.
yeah, cause its not like a company to lie on their balance sheet for a few QTRs or YR's and restate later, is it?
Flush is right, flush with cash is wrong... just some hints from the inside of a biggie!
I am 100% certain that the bernank is my soulmate.
Are you saying that The Ben Bernank is Kuato ?
The Fed doesn't take losses
I mean, losses in WHAT? FRNs? It's their own obligation. If they owe someone some, they can just conjure them with a mouse click.
That is exactly the point. It means that the Fed can't stop inflation any more, because they can't get their printed money out of the system by selling their assets.
What is the Fed's cumulative "profit (loss)" on all purchases in QE1 and QE2 (vs just QE2)?? Not that it matters much (as others have noted), but just looking at QE2 is only part of the story.
$46 it says in the title. He loses that while flossing.
Check out PIMCO Total Return Bond Fund…. One year worth of returns wiped out in few days. So much for the safe bond investments and this fund is very big in 401ks…
The alternative is default. Some entity has to purchase the paper.
The mystery buyers in the UK are curious as well.
Some math:
-They lost 46b on their bond holdings
-That number does not include the MBS from QE-1. Add another 25b on that.
-The have a $2t portfolio and a 75b loss.
-The loss is about 4% of total holdings. (Sounds about right)
-4% is about one years income. The Fed got thumped.
-Total debt in USA=GDP. Total debt is about 15T.
-If you apply the 4% to all debt you get a total loss of $600b. (sounds about right)
-When the Fed reports that households are getting wealthy from increases in broad stock indicators they are not adjusting for the paper loss on bonds.
-We are not as "wealthy" as they are letting on.
They will probably lower rates to zero to bail themselves out---OOPS--been there,done that.
Now What--Crash the Stock market--now that will really work---ROTFLMAO