"Remember, the Fed has injected into the market nearly 4 Trillion dollars. That’s $4,000,000,000,000.00. To put this into perspective... the equivalent in dollar amounts to have purchased 510 B-2 Stealth Bombers, 72 Nimitz Class Air Craft Carriers, 120 Ohio Class Submarines. and still have Two TRILLION or so left in my pocket left to spend." As far as what we have to show for all this spending at the end of QE this month? Who knows, but I do know – we didn’t even get a lousy T-shirt.
"Everyone" knows that yields have to rise when the Fed tightens, right? With yields so low, "everyone" knows that bonds are the worst investment if The Fed begins to hike rates, right? Wrong! As the following chart from Goldman Sachs shows - over the last 32 rate-hike cycles, 10Y bond yields have compressed after the rate-hike cycle begins... So be careful what you wish for on Fed tightening!
Goldman Cuts 2015, 2016 EPS Forecasts On "Diminished Global GDP Growth" Just As Fed Surprises With Hawkish OutlookSubmitted by Tyler Durden on 10/29/2014 - 16:48
It is perhaps the definition of irony that just two hours after the Fed issued a surprising statement that was so bullish on US growth it is as if the past month never happened, as if Williams and Bullard never threatened with QE4 just because the market almost entered a correction, and that made Goldman's chief economist Jan Hatzius to a express "modest hawkish surprise" that the very same bank, Goldman, whose alum is in charge of the NY Fed (leading to hours of secret tapes exposing the white glove treatment Goldman gets at the Fed), just announced it was cutting its 2015 and 2016 EPS forecasts "diminished global GDP growth and lower crude prices."
Government is corrupt and rotten to the core – it is honorable only for brief shinning moments when the dark clouds leave a crack.
Stocks slid slowly lower into the FOMC statement, then tumbled as no matter how hard talking heads tried they could not find a silver lining in the hawkish tone reflected across near universal sell-side confirmation. Stocks tumbled, commodities tumbled, and the USDollar surged but the Treasury curve flattened dramatially as 30Y was well bid and the rest of the curve offered (2Y surged higher in yield). The last few minutes saw the ubiquitous levitation to VWAP which lifted Small Caps briefly into the green briefly and stocks all ended higheer from the FOMC statement. By the close, the USDollar was up notably, stocks lower, gold down 1.5%, oil up over $82, and the Treasury curve flattened dramatically (5Y +8bps, 30Y -2bps).
QE destroys societies, economies and financial systems, it doesn’t heal them. So maybe it’s a touch of genius that the great powers of global finance have first pushed Keynes into the academic world and then academics like Bernanke and Yellen into positions such as head of the Fed, making everyone blind to the fact that what they think is beneficial, including many who think they’re real smart, actually hurts them most. This whole thing is so broken and perverted it’s getting hard to understand why anybody would want to continue clinging on to it. But then, what does anybody know? 95%+ of people have been reduced to pawns in someone else’s game, and they have no idea whatsoever.
The spread between 30Y Treasury yields and 10Y yields tumbled 4-5bps today post-FOMC back to its flattest in 4 weeks as hawkish sentiment sparked bond-selling out to 10Y and buying at the long-end. The reason this is notable is that yesterday, as Nanex details, there were two "monster" sized trades in 10Y and 30Y Treasury Futures putting on a significant steepening bet.
"The dove dissenting says it all," trader quips. "Fed comes in with a bit of a Hawkish tilt as it rids of key policy line around labor market..." If they are only fighting inflation now, they have less ability to enact more dovish policy. I think this should be a "risk off" trade.
The Fed's implicit tightening and simplification of monetary policy was not apparent merely in the message conveyed by the FOMC moments ago: it was also clearly visible in the grammar of the statement itself, and specifically in the word count. Because after hitting a record 895 words last month, the October statement tumbled in complexity and its message to just 707 words: this is also the fewest words the Fed used to explain its actions in over a year, or since July of 2013.
Pointing to “solid job gains” and a falling unemployment rate, the Fed said a range of labor market indicators suggest that labor market slack is “gradually diminishing.” In the process it struck from the statement an earlier assessment that labor market slack was substantial, a phrase investors have been watching closely for signs the Fed is becoming more confident about the economy. If all goes as they plan, officials will turn their attention in the months ahead to discussions about when to start raising short-term interest rates and how to signal those moves to the public before they happen. Many expect to move on rates by the middle of 2015.
"Steady as she goes" was expected... having kept the "considerable time" dream alive last month, the FOMC ended QE3 on schedule but remained 'data-dependent' on reviving it... (even as Kocherlakota dissented)
- *FED ENDS THIRD ROUND OF QUANTITATIVE EASING AS PLANNED
- *FED SEES `SOLID JOB GAINS' WITH LOWER UNEMPLOYMENT
- *FED REPEATS RATES TO STAY LOW FOR `CONSIDERABLE TIME'
And so now the "flow" has stopped; given that "bond buying" did not work, we are reminded of Alan Greenspan's warning that "I don’t think it’s possible" for the Fed to end its easy-money policies in a trouble-free manner. Full redline below.
If, as Lacy Hunt explains "debt is an increase in current spending in lieu of future spending," then we have some 'un-spending' to do...
Bond Buyers Spooked By Imminent FOMC, Lead To Tailing 5 Year Auction, Lowest Bid To Cover Since July 2009Submitted by Tyler Durden on 10/29/2014 - 13:11
A Treasury auction an hour before the Fed is set to announce the end of the latest (if not last) iteration of QE may not have seemed like the best idea, and sure enough moments ago the Treasury sold $35 billion in 5 Year paper in what can be described as a miserable auction, when the 1.567% high yield tailed by 1.5 bps to the 1.552% When Issued. Not only that but the Bid to Cover tumbled from 2.56 to just 2.36: this was the lowest BTC since July 2009 when it actually had a 1-handle. Finally, the less exciting internals showed that Directs were largely in line with recent auctions, taking down 10.5% of the auction, above the TTM average of 13.5%, as Indirects bought just less than half or 47.8%, leaving Dealers with 41.7% of the final allotment, slightly above the 39.3% 12 month average.