The Swiss National Bank Wishes You A Happy Holiday

Interestingly enough some customers asked me yesterday my opinion on EURCHF, and my opinion was: it's a fallin knife, and every time it reverses the market posts a bullish engulfing day. My thinking was also that despite some short interest in Euroswiss, there is very little priced in for Swiss rates, and a suprise would most likely come on the hawkish side, which would add to downside pressure. Therefore a reversal was most likely going to be driven by intervention. Little did I expect we would see that today! - Nic Lenoir

Why Is The Fed Actively Managing A $25 Billion Maiden Lane MBS Portfolio When Its $2.4 Trillion SOMA Holdings Have A $1 Billion DV01? (And Are...

An interesting thing happened when we were combing through the Fed's Maiden Lane 1 portfolio. After going through holding after holding of crap, that would make junk indignant if one were to call the Fed's adopted holdings of muni CDS, Subprime mezz bonds, and Agency CMO such, we ended up looking at the rate hedges section. As is disclosed by the Fed, the FRBNY holds 5000 TYM0 puts, 3825 TYH0 puts, short 4000 FVH0, short 7828 TYH0, short 2240 USH0, and is short a bunch of eurodollar positions. Also, the interest rate exposure is in thousands so the Fed has about 3 trillion in notional swap exposure. Now Maiden Lane is supposed to be an adopted, run off (or, as Geithner likes to boast, run on) portfolio, presumably without active management. Which is why we were surprised by the presence of the TYH0 and TYM0 positions: these did not exist at the time the Fed created Maiden Lane I! In fact TYM0 did not exist until March of 2009!

And that's just the beginning: why is the Fed concerned about interest rate risk on a tiny $25 billion MBS portfolio, when its DV01 on its $2.4 trillion in SOMA holdings is $1 billion, and is very much actively unmanaged.

Swiss Bank Intervention Time

A few weeks ago we discussed the record strength of the CHF versus the EUR and noted that a currency intervention by the Swiss Bank was only a matter of time. Sure enough, see below - all the grace of a drunk, frontrunning HFT trader in a non-child order algo world.

Domestic Equity Fund Flows Again Negative For Week Of March 24, $3.5 Billion In Outflows Year To Date

The broader public, where the first baby boomers begin retiring this year, continues rotating out of equities and into the safety of bonds. The ICI just disclosed that fund flows for domestic equity mutual funds turned negative for the week of March 24 to the tune of almost $1 billion, after a substantial spike the week before. Thisoccurred even as the market has barely had a single down day in the past two months. Year To Date the outflows have now hit a massive $3.5 billion, surprising when considering the performance of the actual stock market, which continues being bid up into the stratosphere by Primary Dealers, or as Rosenberg affectionately calls them, Pig Farmers, using free Fed money, as they merely trade with nobody but each other in a disappearing volume game of musical chairs in which each and everyone is just focused on the exit strategy and getting the market to a sufficiently high level where a 30% "bidless" drop doesn't destroy too many.

$165 Billion In Gross Treasury Issuance On Deck, $74 Billion In Coupons

The Treasury just announced the auction schedule for next week: a total of $165 Billion in gross issuance of which $74 Billion in coupons, and $8 billion in a 10 Year TIPS reopening.

Guest Post: The Federal Reserve Is Public Enemy #1 – With Bill Fleckenstein Of Greenspan’s Bubbles

Bill Fleckenstein has kept a hawk’s eye on what the government does to our economy. Most recently, Bill wrote an excellent article describing the new health care law as “the great health care bailout.”

I caught up with Bill to discuss three hot topics:

1) How the new health care law will affect our economy;

2) Whether the Fed has painted itself into a corner of low interest rates; and,

3) Whether the foreign debt crisis are an omen for what’s coming to the US.

Deep Thoughts From FX Concepts' John Taylor: "They Still Think The Government Will Save Them"

"The feeling that the government will ride in on a white horse to rescue the world is widely held. The vast majority believe that the government can control the economy, and the reason that they are so vociferous – or should I say violent – is that they really believe that if their party or ‘concept’ were in total control then everything would be fixed up and we all would be paying our bills and living the good life... Everyone with any skill in the money management or the economic forecasting arena is aware of how little he or she knows. The random nature of the variables is important, but the psychologically hardwired misconceptions that the behavioral economists have recently pinpointed make the problem much worse. None of the “blue ribbon” economists ever forecast a recession, but they do occur. More importantly we all see order when there is none and we all believe that we know more than we do. This applies to Geithner, Sarkozy, Merkel, Gordon Brown, and even Paul Volcker, as well as to you and me." - John Taylor