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Hokey Pokey Plan
(Taken from the Week Ahead Section of Stock World Weekly)
The Fed announced its upcoming schedule for “Operation Twist.” The Fed plans to buy approximately $44 billion long-term treasuries funded by its sale of approximately $44 billion short-term bonds in October. While this program was named after the dance craze of the early 60’s, a more appropriate name might be “Operation Hokey Pokey,” since it is a simple program of exchanging short bonds for long bonds, or in other words “you put your short bonds in, you pull your long bonds out, you put your short bonds in and you shake them all about.”
One of the purported beneficiaries of the Fed’s policy is the housing market because “Operation Twist” is expected to push interest rates down for home mortgages, which will (hopefully) put more money in homeowners’ pockets, and ultimately the economy at large.
The housing market can use the help. A recent survey of economists, analysts and real estate professionals concluded that the “housing market remains shaky and is unlikely to deliver significant growth in prices over the next five years.” On the other hand, many question the wisdom of the Fed’s intervention. Robert Shiller, cofounder of MacroMarkets, opined “markets and government institutions are visibly struggling to respond consistently to an unprecedented rash of crises and conflicts. These struggles diminish confidence, which compounds the underlying economic stresses and lowers expectations.” (Five more years of housing problems, with some stability in local markets)
Paul Craig Roberts questioned the potential efficacy of the Fed’s Hokey Pokey program. In Saving the Rich, Losing the Economy, he wrote, “The Federal Reserve announced that the bank would purchase $400 billion of long-term Treasury bonds over the next nine months in an effort to drive long-term US interest rates even further below the rate of inflation, thus maximizing the negative rate of return on the purchase of long-term Treasury bonds. The Federal Reserve officials say that this will lower mortgage rates by a few basis points and renew the housing market.
“The officials say that QE 3, unlike its predecessors, will not result in the Federal Reserve printing more dollars in order to monetize US debt. Instead, the central bank will raise money for the bond purchases by selling holdings of short-term debt. Apparently, the Federal Reserve believes it can do this without raising short-term interest rates, because back during the recent debt-ceiling-government-shutdown-crisis, the Federal Reserve promised banks that it would keep the short-term interest rate (essentially zero) constant for two years.
“The Fed’s new policy will do far more harm than good. Interest rates are already negative. To make them more so will have no positive effect. People aren’t buying houses because interest rates are too high, but because they are either unemployed or worried about their jobs and do not see a recovering economy.
“Already insurance companies can make no money on their investments. Consequently, they are unable to build their reserves against claims. Their only alternative is to raise their premiums. The cost of a homeowner’s policy will go up by more than the cost of a mortgage will decline. The cost of health insurance will go up. The cost of car insurance will rise. The Federal Reserve’s newly announced policy will impose more costs on the economy than it will reduce.
“In addition, in America today savings earn nothing. Indeed, they produce an ongoing loss as the interest rate is below the inflation rate. The Federal Reserve has interest rates so low that only professionals who are playing arbitrage with algorithm-programmed computer models can make money. The typical saver and investor can get nothing on bank CDs, money market funds, municipal and government bonds. Only high risk debt, such as Greek and Spanish bonds, pay an interest rate that is higher than inflation.
“For four years interest rates, when properly measured, have been negative. Americans are getting by, maintaining living standards, by consuming their capital. Even those with a cushion are eating their seed corn. The path that the US economy is on means that the number of Americans without resources to sustain them will be rising.”
Lee Adler of the Wall Street Examiner reported on unusual activity in the Treasuries markets recently. He wrote, “Foreign central bank dumping of Treasuries and Agencies reached record levels this week, far beyond anything seen in the 9 years since I started tracking this data. The last time anything remotely similar happened was at the top of the bull market in the summer of 2007, and those levels pale by comparison with what is going on today. Furthermore, this is no flash in the pan. This has been going on for 4 weeks, and has been growing for the past 3. Over the past 9 years, there has never been a time when FCBs were sellers of their Treasury and Agency debt for 4 weeks in a row. I do not believe that the bull market in bonds can survive under these conditions, regardless of what the Fed does. If the runs on European banks, bank paper, and sovereign debt subside, by even a little, it’s over.
“Furthermore, this withdrawal of FCB liquidity from the US market, combined with no net new liquidity from the Fed, should keep stock prices under pressure. For months falling stock prices have gone hand in hand with rising bond prices and falling yields. Any reversal in the trend of bond yields may not be accompanied by a similar reversal in stock prices, or at least not to the same degree. We need to be alert for any signs of a shift in these correlations in the weeks ahead.” (Foreign Central Banks Massively Dump Treasuries)
We will also be keeping an eye on the U.S. Dollar, which had been running in a channel between 73 and 76 from April through early September. More recently, it broke higher into the 76 to 79 range. Phil wrote, “We anticipate the rising Dollar to adversely effect the earnings of companies that earn a lot of revenues overseas. Clearly in this environment, it is very difficult to push through price increases and, if revenues are the same in Euros, then they will be lower when the company reports them in Dollars – a simple enough premise.”
The big question of the day is, are we going to see a strengthening economy, or are we going to backslide into recession? Many are thinking the latter. EconMatters sees multiple reasons that the economy is already contracting, including the falling prices of oil, cotton, copper and the S&P 500. (4 Market Signs Signaling a Recession)
And what about the stock market? Phil wrote, “Keep in mind, we are still around 2/3 cash in our (virtual) allocations. That keeps us flexible but it’s no reason to be careless. Our main job, as we retest the bottom of our range for the forth time since early August, is to decide if "this time is different." Is this case the same as 2008 when the Global Economy is going off a cliff and we can just throw VALUE out the window as panicked traders sell their stocks at any PRICE? Or is this another opportunity for us to be greedy when others are fearful, and pick up some great VALUES at low PRICES?
“With 500-point weekly swings and 1,000 point monthly swings since July – it’s a fantastic market to trade in but you have to have that balance and, if we do begin to fail our major supports – we also have to have restraint because what looks like a bargain today may not seem like one after Greece defaults or a major bank fails or AAPL misses earnings or some other kind of major catastrophe.” (Weekend Update - Are We Bear Yet?)
As always, determining the difference between “price” and “value” is critical for making good trading decisions in the markets. For now, we’re not quite bearish yet, and since our current strategy of “cashy and cautious” has been working for us, we’ll continue to stick with it until it makes sense to change our stance.
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The problem is, not everyone reads - much less every posting on ZERO HEDGE. So, for the many, instead of the few, yeah, I've posted this little pearl every fucking where. As in, look down , look waaaaay down - there it is again, bitchez!!!!!!!!!!!!!!!
The Debt Dance would be funny if it were just a dance. Make no mistake about Commerce being a battlefield and a war. To the victor, go the spoils. Unfotunately, we have been on the short end of the compound interest curve. The central bavks play a game of "heads, they win, yails, you lose". The daily spectacle that is the markets looks to me like horseplayers at the race track. I've never known one who got even, and stayed that way.
http://georgesblogforum.wordpress.com/2011/09/14/war-under-heaven-the-wo...
It's the premise, that somehow the Financial elite an prevent any sort of disaster - patently, this isn't practically honest. The issue isn't even about minimizing the disaster, rather it is about containing the disaster, either in time or in ripple-effect. So far, I haven't come across any implementations that suggest a transition to a stable financial system through any procedure... how long does it take government, and I use the term loosely, to define a known response? For months we've heard nothing concrete - what are they actually doing?
Of course not, why would we transition to any sort of stable financial system? This is especially true since the kleptocrats benefit from disaster and control the politicians. If you can't get on the other side of the "usury trade" then you need to be off the grid entirely and holding PMs, cash and anything the can be bartered in exchange for things you need for yourself, family, or business. Any questions?
well said, totally agree
German Gov Treasury Bonds 10 year yields 1.89% (Euro lower)
US FED Gov Treasury Bonds 10 year yields 1.92% (USD higher)
10 year Bond yields are closely linked to the USD currency exchange.
Bernanke wants to beggar thy Neighbour, so if the USD rises,
this will mess up the Fed's last and only game left.
The Fed devalues the USD, even though the USD is supposed to be the World "Reserve" currency.
Also, if the USD rises, Oil and Commodity Prices usually fall, and Europe becomes cheaper,
which is great for the World, but not so good for Bernankes plans of devaluing the USD.
On top of that Ben needs to keep Interest on the 15 trillion Debt below 2%
(300billion Interest p.a.) otherwise the US of A will soon look worse than Greece.
thanks for that post ilene,
everyone else seems to be more concerned with 10 million Greek people
instead their own 307 million People or so in the USA,
many of them Unemployed...
wr;)
"you put your short bonds in, you pull your long bonds out, you put your short bonds in and you shake them all about.”
While I was looking at my shorts, somebody pulled my long bond out and went down on it. :-o
There are economic consequences for an overleveraged situation....or maybe not. Is 'Twist' going to work? Did the 16Trillion that went to other banks 'work', did TARP 'work'...Is there some level in the market where all this stuff that 'worked' is priced in and we can go on with our lives?? In my opinion, NO. Everyone still uses old yardsticks and reason to assess the situation and forecast scenarios. How can that 'work'?? The size of the problem and associated government intervention is unprecedented.
In a sick way, the confusion created by rule changes and head-fake rule changes, bailouts etc gave us the miracle that is a higher mkt than the crash low and thus far prevented Limit Down. Think about it, are the banks broke or not? Accounting holidays and unaccounted for Billions sprayed over the situation has created so much confusion that they cannot be properly assessed for value. This may have bought the FED precious time to figure out how to shape the outcome to their liking...but if there is any real market left then I think it catches up with them. All at our expense of course.
Does anyone else find it fascinating that we have not seen a limit down sequence yet?
Besides offering up the obvious fact that it's already worked...let's offer up the obvious fact that it's already worked. Let me guess: "the original Operation Twist wasn't announced." Obviously not. So what is the effect of announcing it then? "It drives down the thirty year yield dramatically driving it's value up." Any of you that good? I didn't think so. So let's skip the retarded analysis..."Ilene"... and ask ourselves an actually serious question and then try and answer it instead of prancing around like a jack-ass who simply uses the web to spout off incredulities (but make them sound smart!). To wit: "what is the value of the Fed's public pronouncement campaign and is it working?" Let us start from where normal people do and say "it's suppose to be failing." Or is that too ambitious for you "Ilene"? (I can't stand your phucking attitude because it's phucking clowns like you that blew up Enron and wound up blowing up all of Wall Street btw. Witness "your nemesis" in an intellectual sense Harry Markopolis. He only spotted Madoff's scheme ten years before it blew up. Of course what he really was doing was spotting Wall Street blowing up long before you did--he just couldn't conceptualize something that big. Of course when the FBI come to question you about why you're contacting the SEC even though he wasn't even employed by Bernie Madoff then that should tell you everything you need to know.) THERE ARE NO MORE BUBBLES FOR THE TIME BEING PEOPLE! MOVE ALONG! MOVE ALONG.
http://www.youtube.com/watch?v=zAMT3NL5Z4w&feature=player_detailpage
Operation Twist, what a fucking joke, it was done in the 1960s because the old guard worried that the Keynesian morons Kennedy was brining in would fuck up the quasi gold standard, then in FY2004 Moron Bernanke writes that it was a failure.
Now he re-impliments it.
A trillion here, a trillion there, and pretty soon, we are talking some real (fiat) money.
Lol. "We're not bearish yet". Well, compare your portfolio to my SRTYs come monday, and again come friday next week. And then give up on this whole "playing investor" thing.
44 BILLION - is a drop in the bucket - the Fed already sucked the life out of the USA, and that noise you hear is the market toilet flushing us down the pipe of life. Thanks, Bennie!
The Federal Reserve is neither Federal nor a "Reserve". This private bank run by the "Bank of England" has been stripping the US of its assets since the days of Andrew Jackson. If the $16,000,000,000,000.00 given away secretly, since 2007, to the member banks isn't reason enough to overhaul our entire government financial system then our country is doomed to financial failure. You won't read this in the mainstream media....but it may emerge in the coming elections. Read about this first ever audit of the Fed and understand why we are in such trouble. Tuesday, September 27, 2011 First Ever GAO Audit Of The Federal Reserve(You can click on the site and read the report).
The first ever GAO audit of the Federal Reserve was carried out in the past few months due to the Ron Paul, Alan Grayson Amendment to the Dodd-Frank bill, which passed last year. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, led the charge for a Federal Reserve audit in the Senate, but watered down the original language of the house bill (HR1207), so that a complete audit would not be carried out. Ben Bernanke, Alan Greenspan, and various other bankers vehemently opposed the audit and lied to Congress about the effects an audit would have on markets. Nevertheless, the results of the first audit in the Federal Reserve nearly 100 year history were posted on Senator Sanderâs webpage earlier this morning.
sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3 (Summarized below)
What was revealed in the audit was startling:
$16,000,000,000,000.00 (TRILLION) had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the worldâs banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest.
Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs. To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is only $14.5 trillion.
The budget that is being debated so heavily in Congress and the Senate is only $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world. In late 2008, the TARP Bailout bill was passed and loans of $800 billion were given to failing banks and companies. That was a blatant lie considering the fact that Goldman Sachs alone received 814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion. ****
When you have conservative Republican stalwarts like Jim DeMint(R-SC) and Ron Paul(R-TX) as well as self-identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.
Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and super-corporations like Halloween candy.
The list of institutions which received the most money from the Federal Reserve can be found on page 131 of the GAO Audit and are as follows:
Citigroup: $2.5 trillion($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion* ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
IT WILL BE INTERESTING AS TO HOW MUCH ATTENTION (AS WELL AS THE SLANT) THE MAINSTREAM MEDIA GIVES THIS UNBELIEVABLE POSITION OF OUR GOVERNMENT HAS PLACED US IN WITH NEVER PREVIOUSLY HAVING AN AUDIT OF THE FEDERAL RESERVE.
I AM CONFIDENT THAT WE WILL HEAR SOMETHING LIKE THE FED HAD TO GIVE STIMULUS TO WHOM THE $16 TRILLION WENT TOO BECAUSE IF WE HAD NOT ALLOWED THIS IT WOULD BE THEIR COLLAPSE AND THE OURS.
HAS ANYONE EVER HEARD OF CLOWARD AND PIVEN ECONOMICS? (PARAPHRASING) IT INVOLVES TWO HARVARD PROFESSORS WHOSE BOOK SAID TO CHANGE ANY GOVERNMENTâS ECONOMIC SYSTEM INTO A SOCIALIST ONE, IT SIMPLY DRIVES THEIR ECONOMY INTO THE DITCH THEN THE CITIZENS ALLOW THE GOVERNMENT TO DO WHAT THEY WISH TO SAVE THEM
Silvergeddon...we get it...you have now passed this info along in at least 4 article comments...any more and it could start to look like spam...
Okay, so every one reads EVERY FUCKING POST ON ZERO HEDGE ? NO. So, is everyone familiar with this pile of banker fudge packing compliments of the Fed? NO. So, do I give a shit if all you have done today is bitch about information being posted in more than one topic! LMFAO! Readers read, concerned citizens disseminate knowledge, which is better than hiding in your hole doing absolutely nothing except waiting for the penultimate flush of the giant market toilet. Regarding your comment - go die in a fire.
Thomas Jefferson
This ISN'T a legitimate (referenced) quote by Jefferson (see http://www.snopes.com/quotes/jefferson/banks.asp).
I suppose that if Jefferson were alive today he'd say something like this, but that doesn't make the quote attribution correct. Sadly, Jefferson lost the battle with Hamilton: if we could only go back in time and fix THIS then we'd likely be in a far better position today.