For some, especially Bruins fans, it appears hockey is better than porn, but only until you lose the Cup... According to the people at pornhub.com, when the game ended around 11 p.m. ET, something funny happened. The people in Chicago were busy celebrating their second Stanley Cup in four years, so traffic stayed down. But in Boston? Obviously, it skyrocketed from people looking for a... relief.
The venerable UBS floorman asks (and answers) an interesting question. With the re-institution of the payroll tax and higher level rates and with spending lowered by sequestration, will the Treasury need to offer fewer bonds? And if so, will the Fed remain steadfast in its purchasing 'size' (good for bond bulls since secondary demand will increase) or reduce its 'size' to meet the lower monetization needs of the Treasury (bad for equity bulls since flow is all that matters.) Thoughts below...
The underlying question in Bill Gross' latest monthly letter, built around Jeremy Stein's (in)famous speech earlier this month, is the following: "How do we know when irrational exuberance has unduly escalated asset values?" He then proceeds to provide a very politically correct answer, which is to be expected for the manager of the world's largest bond fund. Our answer is simpler: We know there is an irrational exuberance asset bubble, because the Fed is still in existence. Far simpler.
Critical of the market's reaction to the 'no new QE' news, Biderman and Bianco wholeheartedly believe yesterday's plunge was entirely due to the fact that the 'Bernanke Put' - that we have become so conditioned to expect - did not appear at the levels many expected. Despite a federal deficit of $100 billion per month, it seems the Fed is now in agreement with Biancerman that US growth is limping along at best but notably Jim Bianco believes the fiscal cliff will end up more of a bump in the road as he sees politicians being forced to agree to extend or roll-back (maybe at the very last minute) offsetting the abyss. However, with the debt ceiling looking like it will be hit before the election, it will be interesting to see what political parlance is used if-and-or-when Geithner borrows from the trust funds to keep the government going this time (or not). Positive on Gold longer-term, Bianco sees it like other markets: "Gold is a junky that has not got its money fix" and the only reason to believe Gold is a sell is if you think CBs are done - they are not! Finally the two discuss the fact that 'nobody wants to be bearish anymore' when looking at sentiment surveys - setting up a 'trap-door' for the market.
Digging into the details of the Fed's balance sheet can sometimes be a thankless task but Charles Biderman and Jim Bianco have some fascinating insights into where the real money is being hidden. The stability of the Fed's balance sheet post-QE2, given we are borrowing-and-spending over $100bn per month is all down to Operation Twist and the Fed's creation of demand at the short-end (via telling banks that rates will be low forever and 'guaranteeing' positive carry returns on rolling overnight repo) and using this 'cash' to almost entirely fund longer-term borrowing. In a simple primer of the Fed's implicit risk-free carry trade, the two chaps note that the only downside is too much growth or inflation which would cause a massive unwind of these positions (leading only to further bailouts). Critically though, they explain the fact that Operation Twist (and its implicit off-balance-sheet funding of this risk-free carry trade) is nothing more than the Fed's version of the ECB's LTRO - as the banks are 'encouraged' to buy short-term government debt with risk-free-carry expectations - implying the Fed's balance sheet could in fact be considerably larger than it appears. Yet more ponzinomics explained in a simple way - that surely eventually will trickle down to the masses who will question the emperor's clothing.