Wonder Why Market Just Surged? One Word - POMO

Tyler Durden's picture

A boatload of bad economic news - check, full blown admission by all central bankers that the only way to preserve a broken system is by global market intervention - check, and stocks are... up? Instead of bashing your head in with a sledgehammer trying to explain this, here is your answer: POMO. The Fed just opened up to submitting bids for about $2.5-$3.5 billion in bonds dated 2014-2016, meaning there will be about $70-$100 billion in leveraged capital released by the Fed to the Primary Dealers to bid up all companies with a beta of 4.0+, as the Fed's number one task for the month of September is to get hedge funds, all of whom are now all in on the beta wave, if not above their high water mark, then at least to October 1 and prevent a tsunami of redemption requests.

Link to today's POMO.

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firstdivision's picture

The market loses its POMO highs pretty quickly.  Can we say diminishing returns to the max?

Kreditanstalt's picture

Yeah...noticed that too...used to last a couple days, didn't it?  ~ almost like the value of the 'money' itself is somehow DISApppppeeeeaaaaar - r- r-i-n-n  -n---n--g----g---g-------g

SheepDog-One's picture

Like heroin addict in downward spiral final stages, it takes so much more just to stay 'not sick' and then that hot shot does you in. FED policy is now nothing more than back alley heroin junkie story playing out.

Dr. No's picture

Because no matter how much you stash, or how much you steal,
you never have enough.  No matter how often you go out
and rob and f*ck people over, you always need to get up
and do it all over again.

overbet's picture

Here is the real story of the day:

The NYSE has determined to cancel all trades in NUVEEN MARYLAND DIVIDEND ADVANTAGE MUNICIPAL FUND 3 (NWI PRC), executed at or above $10.65 between 09:48:05 am and 09:50:52 am ET today.

This decision is not appealable.

They are busting trades of an algo error that occurred a mere 3.5% away from the market, not even close to the erroneous trade policy guidlines but during the flash crash investors had to eat the losses caused by the same system up to 20% Come the fuck on

Dr. No's picture

The great thing about casino gaming is the fixed rules for payout.  If you hit blackjack, you can expect to get paid.  If you place your money on black, and the ball lands on black, you can expect to collet.  If a card or wheel is mis-played by the dealer, there are rules in for what happens to the existing bets.  These rules make casino gambling superior to NYSE investing in my view.   and did i mention free beer?

StychoKiller's picture

"...a keno girl that can suck the chrome off a trailer hitch and kick back." -- Willie Nelson ("The electric Horseman")

doolittlegeorge's picture

"hey, hey I got somethin' to say...it's better to burn out than to fade away."

mule65's picture

I can't tell the difference between fact and sarcasm anymore.



bigdumbnugly's picture

but tyler, bashing my head in with a sledgehammer just seems so much more real...

doolittlegeorge's picture

endless irony combined with Pretzel Logic is hard way to run anything.  "How is one to know when an irrational" whatever "has taken hold"?

nmewn's picture

It helps if you're a boomer...it makes perfect sense...it's the same.

For instance...nice close today ;-)

StychoKiller's picture

Welcome to the Fun House with its warped mirrors...

D-Falt's picture

Oh, Please!


Option 2 involves telling our creditors "Tuff Shite!"


Option 3 involves actually reducing spending to the point where it can be paid in honest dollars.


Hmm, that leaves a humming sound, the sound of reality, the sound of trillions of happy, new dollars being born in the total absence of any underlying value to justify their creation.  And the Gubbermint said "Lux fiat!"

doolittlegeorge's picture

actually he said "we did not monetize the debt during the crisis."  his NY Fed Gov flatly contradicted him on CNBC although he didn't think it was a big deal and I agree.

hedgeless_horseman's picture

Then please post the retraction of this:

Rep. Brad Sherman, California Democrat, asked Mr. Bernanke directly whether the Fed would consider such a strategy, especially since IMF officials endorsed it.


"We're not going to monetize the debt," Mr. Bernanke declared flatly, stressing that Congress needs to start making plans to bring down the deficit to avoid such a dangerous dilemma for the Fed.


"It is very, very important for Congress and administration to come to some kind of program, some kind of plan that will credibly show how the United States government is going to bring itself back to a sustainable position."


I do agree with you that Bernanke saying one thing and doing another is no big deal, as long as our definition of no big deal is business as usual.  Magicians always lie.  It is the foundation of their profession.

Prestidigiflation, bitches!!!!!


[Quickly rips the tablecloth out from under the dishes, crystal, silverware, and flowers]

...and the BANKS are still standing!


Boilermaker's picture

This is getting fucking RIDICULOUS.

Turd Ferguson's picture

Again, this below is all you need to know. I read this Monday afternoon and proceeded to cover all my shorts. 


VFR's picture

more like fill your shorts Turd :-)

Cognitive Dissonance's picture

Tomorrow will be more of the same, with another POMO scheduled. Followed by Monday, Wednesday and Friday of next week and then Tuesday and Thursday of the week following next.

The Fed has begun obsessive Viagra pill popping in an effort to keep things ....er.....inflated. To hell with a 4 hour erection. The Fed wants one 24/7/365. It seems the Fed wants to service those 72 virgins in this lifetime.

Ragnarok's picture

To hell with a 4 hour erection. The Fed wants one 24/7/365. It seems the Fed wants to service those 72 virgins in this lifetime.


How will the Fed take a Piss? :)

Spalding_Smailes's picture

How will the Fed take a Piss? :)


No worries, Bill Gross has his lips wrapped tight...

Cyrano de Bivouac's picture

R-That's just our problem, one 4 hour erection too many.

Skeebo's picture

And ultimately it is a losing battle.  Markets are already beginning to pull back, we'll see short term market surges from the POMOs but that is about it.  Nothing sustainable out there.

Kreditanstalt's picture

Must be really helpful to my bullion holdings & silver stocks...take a look at silver price...

sethco's picture

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.

Biggvs's picture

Long story short, the Fed buys treasuries, putting cash into the sellers' hands. Those sellers then use that cash to buy something besides treasuries.

SheepDog-One's picture

'Something' besides Treasuries, but not necessarily equities? What if the sellers instead turn to buy pounds of gold instead of fluffy paper schtawks?

MachoMan's picture

they'll only get one opportunity for big gold purchases...  and if they let it accumulate in the meantime, they'd better hide it well.  Do not bite the hand that feeds.

hedgeless_horseman's picture

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. 

NOTW777's picture

more and more they appear to be buying PMs, healthy emerging markets and AG;  all the things Im trying to add to got popped quick this morning

keep an eye on the PGMs -  plat and pall had nice days yesterday (better than gold and silver)

NOTW777's picture

check out TRV this morning

Kreditanstalt's picture

They'll never buy gold.  These are the establishment of the establishment: primary dealers...they want dollar-denominated paper YIELD.  They can only comprehend stuff that pays more paper dollars.  That's all.  They don't even know what "store of value" means.  They want interest, coupons, dividends, rates.

Buy gold?   Hahahahahhahah.......!

Dr. No's picture

Why buy gold when they can lease it and sell it making a fortune in paper.

sethco's picture

to buy equities, presumably.

Who are the sellers of treasuries, who are these "primary dealers"?

And is this a good deal for them, because yields are so low?

sorry about the pestering...

RichardP's picture

A correction to the first answer to your question above - as it may lead to some confusion.  The Fed does not put cash into anyone's hand.  Accounts are credited through electronic transactions without cash or precious metals (PMs) changing hands.

Wikipedia is your friend:



And pester away.  That's how you will learn.  But seriously, you might Google or search Wikipedia on terms or abbreviations you don't recognize.  That could answer your question faster than waiting for a response here.

doolittlegeorge's picture

pester away indeed.  "if the Fed is engaging in a theoretical discourse to whom is it speaking?"

Battleaxe's picture

Don't bother trying to figure this stuff out. Once enough people figure it out they'll change all the rules again anyway.

bmusic's picture

How does this help Main Street again?

NOTW777's picture

lets have a battle - now we need yen intervention to knock it down; then rinse and repeat

French Frog's picture

if last night is anything to go by, then yen intervention will only drag the market higher

Boilermaker's picture


I struggle with this logic..."the Fed's number one task for the month of September is to get hedge funds, all of whom are now all in on the beta wave, if not above their high water mark, then at least to prevent a tsunami of redemption requests."

Wouldn't gunning the market actual prompt more redemption requests?  If everyone knows that it's being jacked by the FED...why wouldn't everyone want out while it's at the highs?

Am I stupid?

jefftheshark's picture

No, but the FED figures you are in the minority.

Ned Zeppelin's picture

and greed trumps intelligence