This page has been archived and commenting is disabled.
Fed Prepares For Bond-Fund Runs, Looking At Imposing "Exit Fee" Gates
It was two short years ago that the Fed, in its relentless attempt to push everyone into the biggest equity bubble of all time, did something many thought was merely a backdoor ploy to forcibly reallocate capital out of the $2.7 trillion money market industry and into stocks when, as we wrote in July 2012, it contemplated imposing suspensions of fund redemptions to "allow for the orderly liquidation of funds assets." Or in other words "gate" money markets.
Since then various iterations of this proposal have been attempted, either by the Fed or the SEC, however due to stern industry push back (and the relatively modest amount of money at stake) the attempt to force investors to rotate their funds out of money markets (because it is quite clear that if the Fed is hinting at gating issues with a given asset class, it is only a matter of time before the hint becomes a reality) has failed, and as a result the total amount of notional capital held at money market funds has been largely unchanged in recent years.
Here comes attempt number two.
Only this time it is no longer aimed at money market funds, but that other most hated, by the Fed, asset class: bond funds, whose relentless inflows, we shouldn't have to remind readers are the main reason why the propaganda myth of a recovery, and the resulting con game, keep crashing and burning, as it is impossible to spin a 2.5% 10 Year yield as indicative of anything remotely resembling a recovery, and shows at best, a semi-deflationary world. Said inflows also are recurring evidence that whatever retail money remains unallocated, continues to go into the one asset class which is actively disparaged by the Fed at every opportunity.
In brief, if anything, the Fed would prefer that all retail investors pull their money out of bonds funds (and money markets of course), and invest them into 100x+ P/E biotech stocks. Because after all, today's stock market is nothing but the biggest Fed-propped Ponzi scheme in existence.
And in order to achieve that, according to the FT, "Federal Reserve officials have discussed imposing exit fees on bond funds to avert a potential run by investors, underlining regulators’ concern about the vulnerability of the $10tn corporate bond market."
FT justifies this latest unprecedented pseudo-capital control by sayng that "officials are concerned that bond-fund investors, as with bank depositors, can withdraw their money on demand even though the assets held by their funds are long-term debt and can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter."
“So much activity in open-end corporate bond and loan funds is a little bit bank like,” Jeremy Stein, a Fed governor from 2012-2014 told the Financial Times last month, just before he stepped down. “It may be the essence of shadow banking is ... giving people a liquid claim on illiquid assets.”
The Fed's justification for this latest bazooka approach in forced capital reallocation:
Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.
"Oddly" there is nothing in the Fed's proposal about gating the most overvalued asset classes of all, equities, or say, biotechs and momo stocks, where the drawdowns, when they happen, are so fast and vicious, the bulk of hedge funds are still down for the year precisely because they were all led like obedient sheep into the Div/0 PE slaughter. Also, memory is a little fuzzy, but in the days after Lehman, it was equity hedge funds that promptly gated all their investors.... not bond hedge funds, which in fact were scrambling to deal with the influx of new funds.
Also, it goes without saying that "discouraging investors" from withdrawing funds is the last thing on the Fed's mind, which knows very well that when it comes to investor behavior all that matters is how the Fed's future intentions are discounted.
And with this unprecedented step, the Fed is sending a very clear message: it may be next year, or next month, or next week, but quite soon you, dear retail bond-fund investor, will be gated and will be unable to pull your money.
The only thing that was missing from the FT piece was a casual reference to Cyprus.
So what is the obvious desired outcome, at least by the Fed? Why a wholesale panic withdrawal from bond funds now, while the gates are still open, and since those trillions in bond funds have to be allocated somewhere, where will they go but... stock funds.
In other words, now that the Fed is pulling away from injecting tens of billions of liquidity into the market every month, it is hoping the investing population will pick up the torch. And since it has failed to incite the mass reallocation of funds from bonds to stocks, the Fed is willing to use every trick in the book to achieve its goal.
Sure enough, "introducing exit fees would require a rule change by the Securities and Exchange Commission, which some commissioners would be expected to resist, according to others familiar with the matter." However, those commissioners would be promptly silenced when a joint effort between the NSA and the Fed were to threaten the release of embarrassing photographs or conversations to the general public. And watch how all dissent promptly disappears, and the Fed once again demonstrates it is increasingly more helpless in not only preserving the biggest asset bubble in US history, but at modeling and nudging human behavior.
Sadly for the Fed, America is now on to its endless bullshit experiments. Because absent an executive order from Obama demanding that Americans invest every spare Dollar in a Ponzi scheme, this too attempt to forcibly reallocate capital from Point A to Point B will fail.
Which, however means one thing: since the Fed is so desperate it has to float trial balloons of this nature in the financial press, the untapering can't be far behind, and with it QEternity+1.
Finally, just like in Europe with its revolutionary NIRP experiment, it will also confirm that the real economy has never been worse than it is now.
»
- 76281 reads
- Printer-friendly version
- Send to friend
- advertisements -
Where would they all run to anyway? Greek bonds?
In a large part, it's the Princeton (Ivy League) PhDs that got us into this mess in the first place. It's called "cultural inbreeding" and it permiates the highest levels of government, business, and media. This is why we cannot solve these problems. What we need is an uncorruptable overlord like Gort in the movie, "The Day the Earth Stood Still".
It's so straightforward, like announcing all prisoners will be fired upon in the yard in precisely 5 minutes, to prevent a prison riot.
Get it while you can. 50% of your savings is better than 0%.
Most likely you’ll get paid in some type of IOU, payable within 50 years…. And canceled upon your death.
Well the mindset is we must keep the players at the table playing the game, they cannot be allowed to just walk away.
It comes at no real surprise to me they would attempt to close the exits and ring fence everyone in.
Such measures are to expected as things get more desperate.
Geez,
Did they ever think how the buyers would view this????
Beware the 'Idiot Genius' Syndrome.
Once upon a time some graduate students at a prominent university came up with a cruel prank. They payed off the psychology department that was doing routine intelligence testing of the students, to fudge an IQ test to declare someone completely average to have the highest IQ score ever recorded anywhere in the world.
The pranksters had intended to get a cruel laugh at the pretensions of an intellectually average person puffed up with arrogance. Then the prank got out of hand.
Soon faculty members sought the lucky student's opinion on a range of matters, and marvelled at the advice he gave. While the student's pronouncements SEEMED mundane, surely with such outsized intelligence, they must only be viewing issues too shallowly! And when they looked beyond the obvious meaning of the student's responses, they found deeper meanings. They all agreed it was so.
Before long the University was giving out an honorary Doctorate.
And then politicians sought out their 'genius' dupe, and the pranksters decided to come clean and pull the plug.
To their surprise no one believed them. They were ridiculed as jealous ingrates. And the band played on.
So they challenged their dupe to take more IQ tests, and replicate the results. To their horror he did. And when he took the new tests the tests authors at the university - who had all been previously fooled by the 'idiot Genius' - certified 'the dupe's answers as correct no matter how he answered.
The graduate students Theses were all subsequently rejected. They were forced from academia in disgrace and went on to live unremarkable existences.
Meanwhile, 'the dupe' rose to national, and then international prominence.
Reality may be constant, but the means and accepted methods of identifying it are as flawed as the humans who accept or reject them.
Be aware that any accepted reality - perhaps MOST accepted realities - might, just might be 'Idiot Geniuses'.
Chauncy Gardener!
http://youtu.be/YgGvd1UPZ88
AKA, Bush, AWOL, Shrub...etc.
Yes, "Idiot Geniuses" control the world more and more, as I commented in this article:
http://www.zerohedge.com/news/2014-05-30/goldman-even-has-say-shows-just-how-broken-markets-are
Goldman Sachs appears to be leading the way for idiot savants, or functional autistics, to increasingly dominate the world. However, all of the well-trained economists working for the Federal Reserve Board share similar traits, as I outlined in my comment on this story:
http://www.zerohedge.com/news/2014-06-14/who-are-best-paid-economists
... Economics, as currently practiced, is a "science" about enforced frauds, which manages to maintain attitudes of evil deliberate ignorance towards both the aspects of that, namely, "money" made out of nothing is a fraud, which only works because that is enforced by governments, which have the power to murder people who do not agree to live inside of that monetary system. ...
Those systems are necessarily run by "Genius Idiots."
People. PEOPLE. Of course they are going to announce exit fees on bond funds today. Tomorrow is TUESDAY!
This guy acts like this is a way to get people into stocks. It isn't it's obviously to keep people in bonds. Sure the fed wants stocks to stay up for their wealth effect but I think this is clearly a move to keep people in bonds if there is a rush out. It will start small but I could see them forcing people into making the decision to stay in the fund or lose 20% because of a fee. I'm stearing well clear of bonds and have been for a while.
I'm not going to get in the habit of funding an insolvent entity. Talk about picking up a penny infront of a steamroller.
I think that the Fed wants to keep stocks up, because they have promised the life insurers and pension funds, that their losses due to the ZIRP will be made good by gains in equities. It just shows how one manipulation leads inevitably to the next, until you find yourself juggling chainsaws.
Who will yell fire in the theater first? Great comments Zerohedge.
This organized gambling operation the feds got going is a straight up freaking riot. They were handing out whisky, cigars and matches in the W days and we've seen the results of the wild excess - those card games produced a bar brawl, and that bar brawl resulted in the entire bar nearly burning down. They've since gone and painted over the burnt wood and put up a nice new sign, but no matter how presentable the establishment now looks, it needs to be torn down. Now they want to force a bar full of gamblers (drunk on bourbon this time) off blackjack and on to the slot machines or face untimely payouts? Dont know about the other boys, but i best be gettin my cash or im fixin for a lynchin whether wyatt earp shows his scruffy face or not.
It's too late! Anyone who isn't brain dead already sold their bond holdings years ago. And anyone left who is still fooled by "historically low interest rates" deserves what they're gonna get.
That's not what Suze Orman and her dike mate told us do.
/sarc
So "exit fee gates" is the new lingo for "tax"
Something similar was recently done here in Denmark. Here it is common for 30-year mortgages to be financed with 1-year bonds. Every year new bonds are auctioned, and for the next year the home owners pay the new interest rate. Talk about interest rate risk...
To "protect the home owners against sudden interest rate increases" our politicians recently passed new legislation. With this legislation the fine print in the 1-year bonds sold to finance 30-years mortgages now says that under certain circumstances the duration of the bond will be one year longer, and the bond holder will get a lower interest rate than the market rate.
For example, if you hold one of these bonds with a yield of 0.3%, and the refinancing auction fails fails because of a sudden spike in short-term interest rates to 10%, you will be told that you have to wait at least a year longer to get your principal back, and that you will only be paid a 5.3% interest rate.
http://www.dlr.dk/docs/Overview_of_the_new_Danish_covered_bond_legislati...
We call that a ARM (Adjustable Rate mortgage). Does Lehman Brothers, Bear Stearns, and AIG come to mind?
where can i buy these?
They are traded at Nasdaq OMX Copenhagen: http://www.nasdaqomxnordic.com/obligationer/danmark?languageId=1&Instrum...
But, for obvious reasons, I would not recommend them...
Why they are doing this: FEderAl Reserve
ECB announces negative rates and FED creating gates for potential sellers of bond holders?
The big reset can't be too far off now. Partial defaults, restructuring of debts, pensions and so on are coming in only a few months, couple years tops.
Debt servicing is the shits when your incomes and balance sheets are all fairy tales.
Ths measure highlights how, due to competitive pressures, banks and mutual funds have been forced into ever more dangerous practices. The result is that, at all costs, these practices have to be protected and maintained to prevent a sudden breakdown. It also demonstrates how hopelessly ineffective have been any attempts to prevent the offering of dangerous investments, in an atmosphere of "the free market is the solution." Watching teenagers trying to organize a soccer match without umpires teaches us how absolutely necessary it is to have umpires who can enforce the rules without fear or favour. The greedsters on Wall Street and in Washington, babbling against any and all regulation have created a situation that is unsustainbable and bound to crash.
They want the momo monkeys spooz dream to go on forever but they know it won't/can't. The line in the sand (which will too ultimately fail) is USD and UST.
Fed to Sheeple:
"Jump out now and join the fun in stawks cuz when bonds implode it's gonna be after we locked you all inside for the descent down. Have a nice day."
Now let me hear three cheers for MyRA yahoo!
ooh, i'm so scared, some anonymous fed henchmen said something unsettling to ft.com. being frightened i will most likely sell something and buy something else, ooh, i'm so afraid, maybe i should buy first, then sell. what to do omg omg oh noes, oh noes! lolololololololol
"And with this unprecedented step, the Fed is sending a very clear message: it may be next year, or next month, or next week, but quite soon you, dear retail bond-fund investor, will be gated and will be unable to pull your money."
Just sell everything, including stocks, before they gate those, too.
"Only this time it is no longer aimed at money market funds, but that other most hated, by the Fed, asset class: bond funds"
Don't forget stock funds. The stock market has crashed twice in the previous decade.
Bernanke pulled in the slosh (liquidity) during the TARP debate, to crash the market.
What are they gonna call this one? "Watergate 2.0"?
"Finally, just like in Europe with its revolutionary NIRP experiment, it will also confirm that the real economy has never been worse than it is now."
Until it gets even worse. That crashing sound is 100 trillion dollars in global debt.
We tapered until unforeseen circumstances unfortunately forced us to UN re taper!
"So what is the obvious desired outcome, at least by the Fed? Why a wholesale panic withdrawal from bond funds now, while the gates are still open, and since those trillions in bond funds have to be allocated somewhere, where will they go but... stock funds."
They could go to cash. People just aught to get their money out of the financial system altogether, before funds are confiscated by the government. Poland confiscated pension funds. Nothing is really safe.
Yank the cash and pay-off the mortgage.
Aren't "Bail In"s really an exit fee at the gate too?
Exit fee, entry fee, standing fee, sitting fee, breathing fee?
OK, I'm semi retired and have a fair amount of money in bond funds for fixed monthly income. So the fed proclaims "exit fees have begun" so I say "so what, I'm in this for fixed income. I have no plan to exit my income funds". Does the fed then say.....that exit fee includes bonds & bond funds that mature? Hmmmm, different story. Is this just a scare tacttic, never to be implemented, just to spook me into cashing out bond funds as noted in article once bonds mature?
ME, CONFUSED...NAH' NOT AT ALL.
WELLCOME TO SOCIALISM!!! I GREW UP IN IT, LEFT IT NOW I AM BACK TO IT! NOT FOR LONG! I AM OUTA HERE JUST LIKE THE SMART BUSINESS PEOPLE THAT LEFT AFTER 07!FUCK YOU OBAMA AND RIP USA!
Where to? It seems that every country is infected with the socialist virus ... I have been thinking of Nicuragua.
Really? When did that happen?
The people collectively own the means of production?
No?
Then it's not socialism.
CORPORATE MERGER to government is FASCISM, 100% anti-socialist anti-communist anti-capitalist.
What is Fascism - John T Flynn - Von Mises - youtube
http://youtu.be/4Ml7-aDXrgQ
in one fell swoop the Fed could juice the 10 yr/30yr by 300 beeps, cause 40% bond market losses, and buy trillions for 60 cents/dollar with newly digitized money. they own us.
Then the Fed itself would be insolvent... unless gold went exponential.
Maybe they'll buy us with Bitcoin, since the NSA holds about 40% of that.
"if you don't like your bond fund you can keep your bond fund"
they don't give a damn about protecting anyone or anything. They are just trying to create another crisis so they can implement a new tax.
tax tax tax that's all this is. It's for the children.
A new tax? How about Inflation. With all the debt created on paper when the Markers are called in the is not enough cash to go very far and everyone in debt will lose any collateral they hold. The Fed which has taken 1/3 of the QE money will still have control as that money flooded the stock market buying up everything , no risk on their part soon they will own all..... You can't Handle Money..... You can't handle decisons ..............You can't see what is/has been done..........
Fubar...........................X 99.99 %
No matter who or what you are......when the SHTF know which way you are pointing your weapon.
Treasuries, MUNIs & CD's, oh my!
This is the kind of story that emerges inside of the overall context of flabbergasting frauds, done in unprecedented ways, e.g., from MF Global, to Libor, which make economic predictions almost impossible, since one has to include attempting to predict the next unprecedented level of astronomically sized frauds being engaged in, IN WAYS THAT NEVER HAPPENED BEFORE!
The future will be frauds done in astonishing new ways, which will perhaps suddenly be discovered, BUT those discoveries will again make no coherent difference to the masses of Zombie Sheeple, and so, even more astounding frauds will happen next. The financial affairs of the bankster controlled Federal government of the USA are ridiculous riddles, unless one jumps up levels of INSANITY, to the realities of the plans to start more wars, and impose martial law. Of course, those are even less possible to understand in any rational way, however, those utterly irrational plans appear to be the real reasons behind puppet politicians allowing the financial problems to become runaways, whose numbers are NUTS, because there are no longer any mathematically sound ways to calculate any sane solutions. THERE ARE NO SANE WAYS OUT ... Attempting to predict the future of flabbergasting frauds is attempting to predict the psychotic breakdowns of political economy systems whose foundation IS enforced fraud.
http://theeconomiccollapseblog.com/archives/the-united-states-of-debt-to...
What has happened, so far, are but tiny speed bumps in the exponential growth of debts, to "pay" for strip mining the planet, which little bumps have been, as much as possible, cushioned by the Federal Reserve Board.
The optics of this are very, very bad. Do they really think we are that stupid. If so, that only speaks to their own stupidity.
is this before or after ww3?
in Fed speak.. "it could be weeks, months or years away" ... all depends on how quickly Iraq spirals out of control and oil hits $150/barrel?
funny when the Fed pretends they're not in charge and unable to predict the timing .. AS IF
And you wondered where all the former Enron accountants went? Wall Street, baby!
AMZN now has a 500 P/E ratio.
Should I buy?
Didn't Nortel hit 800 ? I mean before hitting Infiniti.
Sounds like a bargain. I have seen their PE ratio as high as 1300.
Like herding sheep. Oh wait...
Did not little bush 2008
do the executive order thing
pertaining to money market funds.....
"the ability to suspend or limit removal of funds
due to threats of national security
or economic crisis ..
This market and the economy are a joke. I see a great deal of ugliness ahead. I love the way it is always being kicked out a year or two and never going to happen tomorrow. It is as if we can't handle what is coming at us and need more time.
For a long time I have been trying to develop a scenario for a market "super crash" and a reasonable map that would arrive at such a situation. Below is an article looking at how it could happen sooner rather than later.
http://brucewilds.blogspot.com/2013/01/flash-crash-on-steroids.html
If people are afraid of stocks, bonds then at what point will they have to start turning to precious metals?
Never. There is no return on precious metals. Especially since in the long run, the smart money is betting on civilization, not against it.
Silly fool.
Betting on gold is betting on civilization, betting on paper is betting on fraud.
don't hold your breath at today's nosebleed prices
Won't matter.
At that point those who have precious metals would demand 500% more cash knowing cash's failure or would demand physical tangible goods. Most of those seeking gold or silver at the end will have nothing of value to trade.
Is anyone asking who gets out first in this scenerio before the gates are shut?
I facetiously ask: "What safeguards will be put in place to ensure that women and children are let out first and then the captains (of industry)?" and then laugh myself silly.
Or is the pecking order already determined and I'm the last to know?
LOL.
The time to get out is NOW and YEARS AGO.
Those who dumped it all & went to cash, gold, silver, property, booze & tobacco, ammo & such, are all stocked up and ready.
It's too late to run for the gate as it's closing.
Near zero yields and now exit fees. Negative interest rates by another name - but only for small investors, specially those who want to keep their money safe.
Vel kome to AmeriKa!
You won't know how safe your bank is... until the FDIC shuts it down.
http://www.globaldeflationnews.com/how-safe-is-your-bank-you-wont-know-u...
Horse shit. There are plenty of private bank-rating agencies. You dont' have to rely on the FDIC unless you're a lazy schmuck.
Also, you can almost certainly gain access to your bank's balance sheets, if you have any inclination at all to do so.
if your money is in an unsound bank, that's an INDIVIDUAL problem, not a failure of government.
And after all, a FREE MARKET will allow banks to do business no matter how unsound they are, and rip as many people off as possible before they go bankrupt Corzine-style, right? AFter all, HANDS OFF! No regulation! Caveat emptor!
Read a call report lately?
ALL those banks are corrupt & insolvent under the UN-freemarket.
ONLY banks with no fractional reserve backed by gold are solvent & will survive, and that's a free market.
That's the bank of my own fucking pocket & I won't use any others.
Bonds. What an appropiate name.
GTFO ASAP
The Fed intervening to stabilise a market by correcting a "free market" error, such as the free-market error of allowing speculators to have liquid ownership access to illiquid assets, is NOT AT ALL the same as a tax (confiscation) of bank deposits such as what happened in Cyprus.
And by drawing a comparison between the two, the author demonstrates that he is plainly out of his mind.
The Fed intervening to stabilise a market by correcting a "free market" error, such as the free-market error of allowing speculators to have liquid ownership access to illiquid assets, is NOT AT ALL the same as a tax (confiscation) of bank deposits such as what happened in Cyprus.
And by drawing a comparison between the two, the author demonstrates that he is plainly out of his mind.
Oh Sure!
The banks can have every crazy-assed derivative, invest in bets on bets, shell companies, secret transfers to Belgium and bizzare high levels of leverage.
But you, Joe Dickweed, can't even have a lousey 2.5% and liquidity in a bond fund. Nope and you shouldn't aughta' have it guaranteed in any way.
Seems to me that the FED's job was to do that for the plain old saver in a savings account BEFORE the Fed started shunting, expropriating, extracting, and now investing 27 Trillion in overleavered stocks; all for the benefit of the mega rich.
No they can't let this atrocity go on, why... why... YOU MIGHT WANT YOUR MONEY BACK!
That simply can't be tolerated.
Only way out is sale to big banks with 10% discount.
http://www.bloomberg.com/news/2014-06-16/bond-market-s-liquidity-threat-...
The crash must be imminent, if such anti-investor measures are being introduced.
hold me
HA! You ugly little gnome, you made me laugh. +1000...
We don't need new laws to protect us from government.
We just need the definition of rape to be modified to include government actions.
When the lemmings are ready to bail for the exits, this is what it will look like.
http://www.youtube.com/watch?v=Xf4_RNRkT_U
Inflationary Reservoir is the term Keynesians use to describe a place where all the money they print gets stuffed into. The sovereign bond market is the one they most refer to. But it doesn't matter when it is full. or when the money stops flowing into it. You can't control or shape market opinion. People only bought bonds to front run the Fed...period. No one thinks bonds are safe or a good investment.
This is meaningless.
The only reason the Fed might resort to capital controls such as bond fund "gates" is because they can.
When you can simply print your way to stardom, minor details are more about keeping the sheeple zombies (thanks, Radical Maijuana) in line than anything else.
It took Rome centuries to self-destruct. The Fed has been at it for only 100 years. I give them 10 more, at least. Probably more like 80 before it's all gone, but we don't have to worry about the end, just the slow slide to slavery. Personally, I've got maybe 30 more years at most, and am tired of bearing witness to madness.
I prefer growing stuff in my garden, playing jazz, getting drunk, stoned and stroked. The Fed, the NSA and the rest of the nitwits in DC and Wall Street can go F themselves. I ain't playing.
Rome was the only empire at the time. There was no competition. There was no place else to go if you wanted civilization. That is not the case anymore, and the world moves much faster. The Fed and the US Government bury this country before anyone even realizes it. I suspect they already have. We are coasting on the momentum of the stupid people who didn't get the memo. But they will starve and die soon enough.
Cool comment,"eat drink & get laid".......I'm starting to see the wisdom in that!
I rarely comment or reply on the site anymore but happened across yours and am moved to say, amen, brother. Having made my nut I'm investing the last years I have in wine (smoke actually), women, and song, the rest will just go to waste.
I do worry about my kids though so I'll make sure to include a map to the guns and supplies in my estate planning.
Next thing you know, every Tom, Dick, and Harry is gonna' want 2.5% and access to his money!
I shagged a 19 yo non hooker chinese chick last night. Maybe the most perfect body in the history of the world if you're into the scarlett johansen look, minus the hairy legs etc. Its brought my perspective into a new realm. While my nuts are in recovery mode, articles like this honestly dont have as much impact as they should.
Aaaaand - it's gone!