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On the swap
I had this to say on August 20th regarding a big central bank swap deal:
I maintain the next move by the Fed is to massively open up the dollar swap lines with European central banks. I don’t think Bernanke wants to announce this significant step at Jackson Hole. It is an EU issue and the Fed can’t take the lead on this. Opening the swap lines will prove to be very unpopular in the US. Politicians will jump on it as a bailout of Europe while America is struggling.
Bernanke is going to take some heat, when this happens (I think this is now a certainty, just not sure of the timing).
The folks at Zero Hedge and FTAlphaville (and others) were of a similar mind.
I would love to convince you that we were just smart. Actually the evidence was everywhere you looked that something like what was announced this A.M. was in the works.
My point. People who actually move money around (versus writing about it) were also aware that this was pending.
Even more to the point:
This could not have happened without substantial discussion amongst all of the CB’s involved. Dozen of folks knew that this was coming a week ago. That means that dozens more got the tip.
The market action (buy Euro sell gold) the past few days smelled of something. I think this was it.
My conclusion:
Sell on the news. I don’t think the positive reaction will be long lived. There is a flip side to the swap announcement.
This is an acknowledgment of profound weakness in the funding markets in Europe.
The swaps may mask the problem for a few months. But it's going to come back with a vengeance. How could it not?
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now what to do with this cash?
If your smart you BTFD.
Which one? I can only assume that you mean the dip in paper gold. Spot price pretty much the same as it ever was.
I say BTFD in solid companies with impressive balance sheets and nice divi's. Excluding the FIN's from my accumulation at this time but was really tempted to buy the devil himself at $100. Accounting shenanigans & legal troubles = too much uncertainty for me. I think we have seen the bottom of this correction BTW.
BTFD bitchez. Even if BK is right about only a couple of months, money to be made. This week was a nice slow ride up. CB's got our back, volatility should level off absent some swans.
Ordered three more Krugs this morning, bitchez! If it pulls back any more, I've got a fistful of fiat just begging to be unleashed so that they can morph into shiny metals.
It's so nice to be able to convert paper into gold. Who said there's no magic in the world?
You can order Paul Krugman? I thought he was un-controllable...
Spot is currently down $43.
Back up the truck.
What physical price are you seeing? Here in london I'm seeing about £50 above AM fix. I think I might be going shopping tomorrow.
Okay, I see that. My local coin dealer isn't so accommodating.
I'm gonna assume the swap is neutral to the overall size of the Fed's balance sheet; i.e. Treasuries/MBS/Agencies are run-off or sold and replaced to make room for the FX swap.
Buiter called this qualitative easing.
Bruce,
Is this going to be bad for the bond market. The Fed is essentially crushing the short end of the curve aready. Please help, many of us enjoyed the bond market rally along side equites during and after QE2, now what to do with this cash?
If you think owning the ten-year at 2% is safe I think your nuts. There is huge price risk in that.
As for the cash, sit on it. Between now and Thanksgiving there just might be some very cheap things to buy. If I'm wrong. I'm wrong. There is nothing that is priced right today IMHO. Not even gold.
you're wrong. and you've missed a massive gain in Treasuries over the past few months. You're in good company though: the word PIMCo comes to mind. And of course "nothing is ever priced right" because the only people who look at prices are the media...and people who shouldn't be playing this game to begin with. Perhaps you mean "how much something costs?"
The price chart says "buy the S&P500"; agree about gold; something's fishy there. The Bonds are instruments of financial confistication.
Bruce:
Thanks again! You have been awesome on this (and other topics).
Question: Why do you think it took them so long to address this swap issue when the pressure in the USD funding market in Europe has been acute all summer?
I think it's because banks have had to sell assets as a result (BNP Paribas is selling 96b of assets). More asset sales would weigh heavily on markets.
All's quiet around here again. Hmmmmm.
Bruce - Thanks for the heads up in August. What comes next?
No QE3 as the swap lines perform the same function.
Global inflation increases as western govts inflate away their liabilities.
Increased unrest in rest of world as food becomes more expensive.
In effect the Chinese yuan is being focibly devalued against the dollar. Will further squeeze an already squeezed China export market. China tanks?
EDUCATE ME. HOW DO SWAP LINES PERFORM THE SAME FUNCTION AS QE3??
WHAT ARE THE DOWNSIDES/UPSIDES ETC.
You exchange your wife and two daughters for my old saab. That's why its called a swap...and QE-3...
The downsides are that I have to feed three women...with..well whatever. And you have to feed gas to my old saab!
The upsides are that...need I continue? BTW my Saab NEVER breaks down. Its a relief cos SAAB is going belly up!
Skol!
You may take the women but you must also take their debts and credit lines.
...never breaks down you say...(sigh..............)
No problem I'll call my central bank friend and tell him I have a liquidity problem. He is strong on lubrificants. That spiggot will be wide open if I say I have three new clients for bail outs. Bail outs are a banker's trip to nirvana zone. Debt slaves, females, wow, imagine the excitement at the IMF! With or w/o DSK!
The Chinese were whining about American treasuries and bonds yesterday. My guess they are actually getting ready to buy again. Pinning the Yuan to the dollar was their first mistake. They want the reserve currency, fuck em, let them have it! The dollar will become the new Swiss Franc.
Of course not. The Dollar is done as soon as the Euro consolidates which is where China's bets are placed.
US debt vs. European debt doesn't even compare. Federal, corporate and private debt in Europe are substantially lower than in the US.
This is a debt crisis, remember?
Then why in the hell are U.S. equities rallying? I agree that all fiat will eventualy burn, but always good to try and stay just slightly ahead fo that wave. Where are you getting the numbers on the debt? I see Europe's debt being pretty similar, and the ECB is taking another loan as we speak. Certainly these dollars aren't free?
It's QE3 from around the corner; it's a reach around job. Everyone agreed the market would rally if saw liquidity; here's the liquidity; here's the rally. There's something wrong in Precious Metals; I've got a big loss over-night in my Silver contract, I'll be getting out later today, hoping for a little more rallying; still losing 5k there and making 5k on the S&P; shit. way it goes. I'm officially ignorant what's going on with the metals so don't ask me. Maybe a major down wave if the Funds start selling to participate in the Stockeroony. God only knows.
God's IQ is only 100 as the common man is in His image...what happened indeed.
Assuming God's eternity and the way IQ is defined, his intelligence drops to zero.
but, but the Sauds...will burn...and the petrodollar hegemony will end. Abiotic oil's laws of physic will be the only option for land of Ole Glory. Maybe you live in Swiss alps...in which case...you are fine.
Edit:
Bruce,
This temporarily solves the dollar funding crisis but in the event of a Greek default the European banks are still on the hook for their losses of EURO debt. This buys time until the eventual Greek blow-up correct?
Yes, that is what you're supposed to look at. But if you look a bit further, you may find that the debt purchases were insured.
"Rumor" has it that one major US bank is the counter party to that trade and could blow up to Smitherines in the event of a Greek default.
Think AIG x100.
That IS THE ONLY reason why the US financial cartel is interested in keeping this show going and why Germany's Merkel and France's Sarkozy are pulling out all stops to keep Greece funded despite a vast majority of people showing their opposition!
If Greece defaults officially, the French and German banks have insurance on that via a US bank.
Game over, kapputt, alles vorbei, fini!
Let me guess - BAC? This rat should've dissappeared down the sewer hole long time ago.
Nobody knows for sure except the inner circle. We can speculate all day long.
Either MS or JPM would be my guess.
I just love a Fascist who knows when to keep his mouth shut.
Crystal night or night of the long knives...silent, dark, fascist nights.