Foreign Central Banks
*FISCHER SAYS RATE LIFTOFF LIKELY WARRANTED BEFORE END-2015
With the world now convinmced that Janet Yellen is as dovish as she has ever been on rate hikes, today comes the first post-FOMC speech. None other than Vice-chair Stanley Fischer is due to address The Economic Club of New York on the topic of "Monetary-policy lessons and the way ahead." As Art Cashin warned this morning, Fischer "seems to feel that the Fed must raise rates this year. He is also the only Fed official to concede that any rate hike will be different than any seen before."
In the previous installments of this series, we discussed the hidden and often unspoken crisis brewing within the employment market, as well as in personal debt. The primary consequence being a collapse in overall consumer demand, something which we are at this very moment witnessing in the macro-picture of the fiscal situation around the world. Lack of real production and lack of sustainable employment options result in a lack of savings, an over-dependency on debt and welfare, the destruction of grass-roots entrepreneurship, a conflated and disingenuous representation of gross domestic product, and ultimately an economic system devoid of structural integrity — a hollow shell of a system, vulnerable to even the slightest shocks.
Perhaps inspired by our article that the 10 Year was trading very special in repo this morning, touching -1.79% as shorts had piled into the auction on hopes of covering ahead of what many had expected would be a weak auction, some "experts" predicted an imminent tail in today's auction. Well, moments ago the 10 year closed about as solid as they come, with the High Yield of 2.139% pricing 0.4 bps through the When Issued of 2.143%, dampening any hopes to cover profitable shorts into the auction, and ending any speculation about a tail.
Foreign Central Banks Buy More Than Half Of 3 Year Treasury Auction, Highest Indirect Takedown Since March 2010Submitted by Tyler Durden on 03/10/2015 13:13 -0400
In summary: a very strong auction, one in which foreign central banks dominated, and certainly another confirmation that nobody is concerned about a surge in short-term rates any time soon.
The entire formerly rich world is addicted to debt, and it is not capable of shaking that addiction. Not until the whole facade that was built to hide this addiction must and will come crashing down along with the corpus itself. Central banks are a huge part of keeping the disease going, instead of helping the patient quit and regain health, which arguably should be their function. In other words, central banks are not doctors, they’re crack dealers and faith healers. Why anyone would ever agree to that role for some of the world’s economically most powerful entities is a question that surely deserves and demands an answer.
In recent weeks, the Fed and its apologists in Congress and the media have launched numerous attacks on the 'Audit the Fed' legislation. These attacks amount to nothing more than distortions about the effects and intent of the audit bill. For over a century, the Fed has operated in secrecy, to the benefit of the elites and the detriment of the people. It is time to finally bring transparency to monetary policy by auditing the Federal Reserve.
Something curious has emerged as a result of the divergent "Fed-vs-Everyone-Else" central bank policy: as JPM observed over the weekend while looking at the dollar fx basis, the dollar funding shortage is back with a vengeance, and is accelerating at pace not seen since the Lehman collapse.
Overview of the major events in the week ahead.
If there was any debate whether Yellen's testimony today was hawkish or dovish, the bond market certainly made it clear what it thinks, when first the 10 Year yield tumbled back under 2.00%, and then moments ago, the Treasury auction of $26 billion in 2 Year paper continued to trend of strong demand for government paper, when 3.45 bidders lined up for every dollar for sale, at a closing yield of 0.603%, 0.5 bps through the When Issued.
The Federal Reserve Bank of Cleveland earlier this week tweeted out a notice of a working paper titled: U.S. Intervention during the Bretton Woods Era:1962-1973... a detailed report on the massive interventions in currency markets that the Treasury and the Federal Reserve conducted and is exceptionally critical of the market manipulations that took place during that period. It is probably no surprise then that the paper is no longer featured at the Cleveland Fed, and the tweet was quickly deleted.
Import prices dropped 8.0% YoY (modestly beating expectations of an 8.9% plunge) and 2.8% MoM. The last time import prices started to fall at this pace was a month after Lehman Brothers BK'd. Of course the crash of oil prices is largely responsible as imported fuel costs slumped 16.9% YoY - the most since Dec 2008 (petroleum -17.7%). However, even away from that the price of imported capital goods collapsed the most since March 2009 with the biggest rise in Japanese (foreign central banks) exported deflation since April 2013 (when QE really accelerated).
‘Coin bars’ is a bullion industry term referring to bars that were made by melting gold coins in a process that did not refine the gold nor remove the other metals or metal alloys that were in the coins. The molten metal was just recast directly into bar form. Because it’s a concept critical to the FRBNY stored gold, the concept of US Assay Office / Mint gold bar ‘Melts’ is also highlighted below. Melts are batches of gold bars, usually between 18 and 22 bars, that when produced, were stamped with a melt number and a fineness, but were weight-listed as one unit. The US Assay Office produced both 0.995 fine gold bars and coin bars as Melts. The gold bars in a Melt are usually stored together unless that melt has been ‘broken’.
While not quite as brisk as last month's 3 Year auction, today's just concluded sale of $24 billion in 3 Year paper was very solid for one more month, with the High Yield pricing at 1.05%, an impressive 1.1 bps through the When Issued, even as the yield jumped from January's 0.926%. The Bid to Cover, perhaps reflecting the extra pick of 12 bps in yield, rose ever so little, increasing from 3.330 to 3.345. But it was the internals where as usual the action was, with the recent trend of collapsing Direct demand not disappointing, and in January only 7.2% of the final takedown when to Directs: the lowest since April 2012. The offset: a surge in the Indirects, typically foreign central banks, which ended up with 48.9% of the paper - the most since May of 2010!
Since the creation of the Federal Reserve in 1913, the dollar has lost over 97 percent of its purchasing power, the US economy has been subjected to a series of painful Federal Reserve-created recessions and depressions, and government has grown to dangerous levels thanks to the Fed’s policy of monetizing the debt. Yet the Federal Reserve still operates under a congressionally-created shroud of secrecy. No wonder almost 75 percent of the American public supports legislation to audit the Federal Reserve.
After years of being blocked by Democratic leader Harry Reid, The Washington Times reports, the Senate will finally get a chance next year to vote on legislation to force a broad audit of the Federal Reserve's decision-making. Ron Paul's flagship legislative efforts have been picked up by his son and now has the backing of the leader of the new Republican majority, Sen. Mitch McConnell, whose office says the legislation will earn a floor vote. While the bill is not a sure thing, it appears to have The Fed worried as Reuters reports, Yellen and other Fed officials are lobbying Capitol Hill to drop the audit push.