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Tumbling Treasury Yields Signal Possible Fed 'Policy Error' Being Priced In
Look at the long end of the curve if this is a "policy error" - BofA
— zerohedge (@zerohedge) November 18, 2015
"If they do hike, watch the long-end," was the warning in September for clues to a possible policy error by The Fed, and between yesterday's mainstream narrative confirming the FOMC Minutes practically guarantee a December rate hike; and our discussion of the lower-for-longer 'natural rate' QE hints, it appears the bond market is already beginning to price in a "policy error."
As BofAML previously warned,
If the Fed does raise rates, however, that doesn’t mean the “all clear” signal will have been sounded.
To the extent investors view the hike as a policy error, a flight to quality is likely to follow with the Treasury curve bear-flattening and risk assets selling off. Even if investors don’t overtly seem to believe a rate hike is a policy error, it appears that many investors believe a rate hike will be accompanied by extremely dovish language, possibly to offset the sting of the rate hike.
As such, it is likely that the accompanying language will be dissected syllable by syllable as investors and economists try to quantify whether or not it is dovish enough. The problem with this as we see it, however, is that this line of reasoning appears to be so widely accepted that we worry about how investors will react if the actual accompanying language is interpreted as “not dovish enough.”
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Charts: Bloomberg
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We have to kill the economy in order to save it.
Yes, likewise, we will have to kill every last banker, financier, and all their political puppets in order to save the monetary and political systems as well...
human technology does indeed evolve, humanity, not so much...
Policy error? There's been 100 years of policy "errors."
Bingo. However, the last real connection between the Federal Reserve Note and reality was severed in 1971. At that point it became The Federal Reserve Promissory/DEBT note.
So, IMO, we have really only had 40+ year of true full retard monetary policy error....
We don't have to kill them, first we fail to pay back the debt (this is likely to happen anyways) then we stop the government from bailing them out (this part will be much harder).
And, to my nigga H. Minsky: rest in peace
If we increase interest rates there will not be panic bond selling.
Janet Yellen
Because, well, becauseeee ... Well you see if we increase interest rates the value of bonds will decrease.
WTF ??????!!!!!!!!!!
Not if held to term. If you hold a bond to term, you get the principle plus interest, period. Who fucking cares what the bond is being traded at. Fuck the paper-pushers!
Now, whether or not the fiat your bond is "priced" in actually has any purchasing power is another issue...
The Fed knows that if they go NIRP in real terms (already have this in nominal terms) they kill the FRN much faster.
I don't understand why the fed wants to cause so much uncertainty. If they wanted people to be confident about what will happen in the future, wouldn't they just say the rates will not move up or down for X number of years? The same thing happened in the 1930s. There was general fear in the market because the government was doing very unconventional things. Taxes went way up, new jobs programs were created. Nobody knew what was going to happen next week, and that uncertainty crippled the market.
The problem is, things have gotten serious, so the Fed has to lie.
Japan just entered its 5th recession despite BOE's "QE to the Moon" policies.
The Fed knows we are following in Japan's footsteps.
If they told the truth, the markets would collapse.
So, they're taking a page from Juncker's playbook...
This is NOT the 1930's. We now have damn near 8 billion people on this rock and a global trading network. Moreover, at least in 1930, the monetary system (as corrupt as it was) was still attached to something fucking real.
Since 1971, there has been no real collateral requirement for new money creation. In fact, bankers and financiers have been nothing but useless overcompensated middlemen stuck between the printer/computer (where money is created) and the producer/consumer in the real economy.
I'd like to be optimistic and think that the real reason we have uncertainty is because the planet is waking up to this fact and is preparing to execute the middlemen.
economies do evolve, the middlemen do get cut out eventually. About damn time if you ask me!
"In fact, bankers and financiers have been nothing but useless overcompensated middlemen stuck between the printer/computer (where money is created) and the producer/consumer in the real economy."
That statement hits on something not often discussed - the surreal, Alice-in-Wonderland region between actually making something and exporting it, and $skimming/$inflating 'paper'. We're quite possibly in the final/vertical area of the hockey stick which got started as you pointed out, in August of 1971.
In the opinion of BOFA a "policy error," seems to be anything that gives back to Main Street what Wall Street has stolen.
Moar bullishness for a hike : Baltic Dry drops to lowest on record
http://www.bloomberg.com/news/articles/2015-11-19/baltic-dry-ship-index-drops-to-record-as-iron-ore-growth-slump
more "off the books" fed purchasing
I would argue that money laws today is a lot tighter and more closely regulated than the 1930s. That period between 1920 and 1940 was the wild west of finance. It was like China today. You could get margin on top of margin on top of margin. There was insane asset inflation from 1921 to 1929, and it was all credit. It was such an insane period in history that many of our financial laws are a direct result of what we did wrong in those days. Today, it's illegal to use debt as collateral to get more debt. When I was buying my condo, I had to prove that the money I used as a down payment was actually my money. In 1925 or whatever, nobody checked that. You could borrow $100, use that $100 to borrrow $1000, use that $1000 to borrow $10,000. There was no limit on it. People could leverage themselves 1000x if they wanted to.
You've eaten up the propaganda that freedom is somehow flawed and must be taken away by the state to provide security and sanity. Check out mises.org alternative histories of the era.
The excesses you refer to were levered off banking laws and Fed policies of the day. No sane businessperson with his own real money or money he was personally on the hook for would loan it out without substantial collateral and thorough due diligence on the borrower.
bingo. See my post above. money creation in the U.S.S.A. has not required any real collateral since 1971.
CORRECTION:
Since 1914.
Otherwise there'd have been no impetus in the form of reserve drainage to cause the closure of the gold window in 1971. (Or to have had the previous gold confiscation in 1933.)
Notice that the cycle of reserve "reconstitution" to repeated failure right up to the present day is between 30 & 40 years.
Bullshit. If this were true, then there would be no problem reinstating Glass-Steagall!
For llittle people like you, yes, tighter "laws".
but you are NOT in the real club...
You DO HAVE margin stacked on margin stacked on margin, worse than ever in history.
That was the whole point of closing the gold window in 1971.
Each major move since then, consumer credit, mortgage expansion, subprime, through to today's student debt and reinvested mortgage bubbles are whole new tiers of credit stacked upon previous credit, until the real economy cannot service it, much less pay it back.
And since 2008 all new credit has been pyramids upon government and central bank monetization, which has in itself further impaired the real economy.
The only way out is a totally new monetary system. A mere coninuation of the old one under theoretically new management does not resolve the fundamental imbalances of accumulated credit vs real accrued income world wide.
The system must be replaced.
The sooner that happens, the less painful the transition.