Foreign Central Banks
In a prepared report, the Fed announces "U.S. monetary authorities did not intervene in the foreign exchange markets during the quarter." That's great, now if only they could do the same for all non-Treasury, MBS, and Agency (we know they more than intervened there) asset classes, everything would be peachy.
To fully understand today's economic crisis and where we are heading, one must find the origin of this crisis -- the event or the culmination of events that put us down this path.
Well, not really 4EVA, but the uberdovish FRBSF has just released a paper by Glenn Rudebusch, in which the author claims "that to deliver future monetary stimulus consistent with the past—and ignoring the zero lower bound—the funds rate would be negative until late 2012." In other words, a realistic outcome over the next two years will involve not only ZIRP, but additional QE to satisfy the differential to the zero limit. Furthermore, once the economy fully relapses into a double dip, which should be confirmed at the latest by September, Bernanke will have to flush even more money into a monetary stimulus rescue, as the president's fiscal hands will be tied in advance of a landslide mid-term election loss. One possibility is the passage of legislation which allows negative fed fund rates: when all else fails, US citizens will be directly penalized to save money. The recession will further push back the expiration of the "exceptional" and "extraordinary" language well past 2020, by which time all the primary dealers will have bought every single bond repoable back to the fed, gunned up stocks, paid up trillions in bonuses, and reinvested the proceeds in hard (gold) and liquid (Bordeaux) assets. And there you have your roadmap for the next decade. And just in case a prudent voice of opposition to this insane policy were to arise, the author stops it dead in its tracks with the following illogical and non-sequitur statement: "the linkage between the level of short-term interest rates and the extent of financial imbalances is quite erratic and poorly understood." And now you know.
Bernanke Says Fed Does Not Engage In Stock Market Or "Individual Stock" Manipulation; Some Loose Ends On FX SwapsSubmitted by Tyler Durden on 06/12/2010 20:27 -0400
In a response letter sent to Alan Grayson, the Fed chairman has the following brief retort to the question of whether "the Federal Reserve- alone or in concert with the Treasury Department or any part of the government- ever taken any action with the purpose or effect of supporting the stock market or an individual stock": "The Federal Reserve has not intervened to support the stock market or an individual stock." Shocking. And we are confident that the fine people at Liberty 33 just sit all day, twiddling their thumbs now that the Fed is no longer in the MBS and UST monetization business. Furthermore, anyone who reads anything into the fact that the FRBNY is continuously ramping up its hiring of traders, both credit and equity, as posted in assorted public venues, is simply paranoid and does not understand that this is only due to Brian Sack's fascination in being surrounded by 400 traders daily. On the other hand, at this point pretty much everyone is aware of the sad state of FRBNY intervention, whether it is in the FX market or the gold market, and indirectly via the discount window and the repo system, in which banks purchase bonds at auction, using discount window or other zero cost capital, only to repo it back, and to use the proceeds to bid up stocks. Maybe Mr. Grayson can ask the Chairman whether the Fed is actively endorsing primary dealers to bid up risky assets to create the impression that since the market is ramping higher (on no volume, mind you, but who cares) that the economy is doing so as well (we will shortly have something to say that refutes this thesis, compliments of none other than Goldman Sachs). All cynicism aside, Grayson at least still continues to ask the right questions: among these are 1) How does the fed plan on dealing with the $1.7 trillion in MBS on the Fed's balance sheet, 2) Why Greenspan and Bernanke were so wrong in keeping the FF rate for so long, and how does the Chairman plan to reconcile the same bubble creation that blew up the economy last time ZIRP was around, with the deflationary threat to the economy, 3) Why does the Fed think a Tobin tax is bad (and, incidentally, why does the Fed even have an opinion on tax policy), 4) Why is the Fed failing at pushing unemployment lower even with ZIRP and QE, 5) How the Fed is lobbying on behalf of its, and Wall Street's interest, 6) How much gold should the US government own, and many others.
On a variety of Senatorial hearing, Jon Kyl was a very vocal opponent of the Fed and the secrecy embedded in the system. Which is why we were pretty amused, if not surprised, by his recent vote against the Vitter amendment. Here is his explanation. We hope you buy it more than us. We also hope you enjoy this the next time Mr. Kyl theatrically crucifies Bernanke for daring to operate blatantly on behalf of bankers, but at least without a shade of hypocrisy. "The second amendment was offered by Senator David Vitter and largely tracked the original version of the amendment that Senator Sanders had offered. It would have permitted the GAO to probe the Fed's monetary deliberations, and it was rejected on a lopsided vote of 37 to 62. I voted against it. In addition to the concern noted above about injecting political considerations into monetary policy decision-making, I am concerned that a GAO audit of the Fed's open market operations could end up costing taxpayers billions by giving investors a road map to the Fed's trading strategies and the securities it intends to buy. Armed with information about the securities the Fed intends to buy (that is, information gleaned from an audit), investors could acquire the securities and then sell them to the Fed at a premium."
"At a time when Greece, Portugal, Spain and other countries are experiencing dire financial crises and have their hands out to the international community, we need to know if our Federal Reserve is at all involved in bailing them out. As weary as we are of bailing out companies, the American people would not stand for bailing out entire countries. Our government is wasteful enough in its own affairs without contributing to the waste of other countries. Yet the Fed currently has the tools it needs to do just this, and to do it in secret.
If we cannot take away the Fed’s ability to waste trillions of taxpayer dollars on failing companies and failing countries, at the very least, we can take away their ability to do this with no transparency or accountability to the American people. While the Sanders Amendment no longer contains a full audit, Senator David Vitter has introduced an amendment which contains the Audit the Fed language that passed the House last fall. The Senate must pass the Vitter amendment for full disclosure and full accountability going forward." Ron Paul
Pickpockets are getting needy again ...
Yesterday, the Fed disclosed that liquidity swaps have remained at 0 for the eleventh week in a row. This is not unexpected, as it is in line with the Fed's statement of eliminating emergency liquidity facilities (and the CB liquidity swap lines are among these). Of course, there is no way to truly verify whether or not the Fed is syphoning off US money to once again bail out foreign central banks as the Fed is shrouded in secrecy, and while we have to figure out just what exchange Bernie Sanders concluded with Chris Dodd, on the surface we are disappointed that the socialist is not sticking with his initial much stronger language for Fed transparency. Furthermore, we know all too well that the Fed would never lie to the US population, right - just look at the chart below, which discloses the Fed-determined values of Maiden Lane I-III. Somehow, the combined value of these three Bear/AIG rescue facilities have surged to one year highs in the last week. This is somewhat stunning as we reported a week ago that the Fed is about to be crammed down on its Red Roof portfolio holdings due to initiatied foreclosure proceedings. We have no figured out why REITs have been defying gravity for the past year - according to the Fed and the FASB, foreclosures are now a valuation enhancing process. How could we be so blind not to realize this.
Overnight 1,135 was a relatively obvious resistance on the bounce. We briefly traded through on the NFP release but it remains resistance hee. Technically my preference we remain to the downside as the wave pattern is not complete and there was no divergence on the lows in terms of momentum. 1,113 is the support to obsrve on the day, and on a break there is a risk of retesting the lows and the medium term support at 1,040 which will be key. All eyes on 1,135 and 1,113 for now.
What do you think ... good bill or bad bill?
Support the Sanders-Feingold-DeMint-Leahy-McCain-Vitter-Brownback Federal Reserve Transparency Amendment to the Financial Reform BillSubmitted by Tyler Durden on 04/28/2010 12:40 -0400
Enough with the Federal Reserve mafia syndicate and its endless array of bailouts, under the table deals, cronyism, politicized monetary decisions, and rampant theft of America's wealth already. We endorse the Sanders-Feingold-DeMint-Leahy-McCain-Vitter-Brownback Federal Reserve Transparency Amendment to the Financial Reform Bill. If the Fed's clowns won't end their endless rape of America, it should at least be fully transparent for all to see.
Caterpillar had what was perceived as a blowout quarter even though its Q1 2010 earnings were well below Q1 2009. As Karl Denninger summarizes: "Machinery sales were down 1% from a year ago - but I thought a year ago was the depths of the recession and we have been recovering since? So how do we get a negative year-over-year comparison? Worse, in North America (that's here!) machinery sales were down 15% with dealer inventories half of year ago levels. That is, not only is heavy equipment not selling, dealers don't think it will be in the near future either. So how did we get big increases? Asia, up 40%. Yep, that matters, and it's what drove the results. Engine sales were even worse, off 28%, and even in Asia they were down, in that case 15%." Yet what everyone is focusing on is the projected future so bright, all the sell-side analysts (note, they are called "sell" side) gotta wear shades. One caveat: as CAT itself points out, the future will be so bright only if the Fed and foreign Central banks continue their monetary lunacy. The WSJ recaps the earnings call: "The company raised it outlook for 2010, though revenue declined on
continued weakness in developed economies, especially the U.S. and
Europe. It cited concerns about central banks withdrawing stimulus too
soon." So let's get this straight: the company's actual top line results were worse than a year ago (and after firing everyone, the firm was hard pressed not to report better EPS), and its entire bet on the future, which is what is causing its stock to spike, is purely a function of Ben Bernanke's mood on any given day, or what "Firm Directive" his GS masters may have slipped him that morning. That sounds like a brilliant investment thesis. We will buy two big earth excavators right now and a whole lot of CAT calls to go with that.
The Greatest Shell Game Ever Continues As The Whole World Is Now Insolvent; Updated Thoughts From Chris Martenson On The Upcoming US Funding CrisisSubmitted by Tyler Durden on 04/08/2010 12:08 -0400
The shell game has continued this long without the bond market calling the bluff, and I am baffled by the extent to which the other world central banks have both enabled and participated in this game. Part of the explanation behind this unwavering support for the dollar and US deficit spending by other central banks lays in the fact that other Western and Eastern governments are equally insolvent. It's possible that they feel they really have no choice but to play along, because the alternative would be to inflict a vicious and deeply unpopular austerity program on their own country, while everybody else is partying on thin-air money. Who's going to be the first to do that? Nobody, that's who.
On April 15 the Treasury will issue its report on International Economic and Exchange Rate Policies. Following a massive push by politicians and economic pundits alike, the probability that China will be branded a currency manipulator is extremely high, if not certain. Following the last few days of adverse developments in the Google censorship saga, it is unlikely that China will accept that particular title with a wink and a smile. And while China was previously named a currency manipulator in the past, the last time this occurred was in 1994. To say that a lot has changed since then is an understatement. What happens after April 15, 2010 is anyone's guess, although for some perspective of the bullish cash, here is Goldman with their range of expected consequences. Of course, what is good for Goldman is bad for Goldman's clients so keep that in mind, especially since this is a sell-side piece.
GATA Presents New Evidence Of The Fed's Gold Price Supression Scheme, Combing Through Oddly Unredacted FOMC MinutesSubmitted by Tyler Durden on 03/14/2010 18:36 -0400
GATA's Adrian Douglas has done a tremendous job of combing through dozens of hundred-plus page FOMC transcripts, and has compiled numerous quotes by assorted FOMC-related personnel, including former Chairman Greenspan, which provides yet another piece of evidence, demonstrating the persistence of the Fed's gold price suppression scheme. As Douglas puts it: "My thinking was that if an organization is so inept at covering up that detailed transcripts were retained, then perhaps it is also inept at completely redacting sensitive and incriminating information. What I found is quite astounding and serves as documented evidence by the Federal Reserve itself that it manipulates the gold market." We present the relevant quotes dug up by Douglas, whom we applaud for his effort, together with his very relevant commentary, which once again exposes the Fed's covert gold price suppression intentions.