The last time the US held a 10 year auction was earlier than its usual time on December 12, just before the Fed announced QE4EVA. The result from that particular auction were a total jumble, where Primary Dealers took down a tiny 33.1%, and where Directs were stuffed with a near record 42.7%. That and a big, 1.7 bps tail. In this light today's 10 Year was a little more casual, with the Treasury just issuing another $21 billion in 10 year bonds, this time not premonetized unlike tomorrow's 30 year auction, although the internals were just as ugly. The When Issued was 1.855%, with the final High Yield of 1.863% tailing (84% allotted at high). The Bid to Cover was 2.83, the smallest for a reopening auction since December 2009, and well below the average for 2012 of 3.03. Indirects took down just 28.5%, the second lowest in years, and better only compared to December's 24.2%, while Directs ended up holding only 14.8% of the final allocation, a big drop from December's 42.7%, which increasingly appears to have been a year end window dressing by various credit funds to show "safe securities" on their books. Overall, an ugly 10 Year auction following another ugly 10 Year auction, even if the past week has seen the yield on the paper drop substantially from 1.97% a week ago to 1.86% today. Was that it for the great "bonds to stocks" rotation?

Back in December 2011, we previewed the rotation in the FOMC's voting block with "When Doves Laugh: 4 Weeks Until The Quiet Coup In The Fed Gives QE3 A Green Light", a post whose summary was that as a bevy of new voting doves came in, it made QE3, then very much a taboo topic - because, you see, "the economy was improving on its own" - virtually inevitable (despite some angry comments from even our own readers). Naturally, as 2012 played out, we got not only QE3 but QE4EVA. So now what? Well, with the new year comes the now traditional new roster of voting regional Fed president members. And while the supremacy of the Bernanke core supermajority group of 8 permanent voters (especially with the three new hires) will never be in jeopardy, 4 new regional presidents join the core group of Bernanke doves. The new voting FOMC members: Evans, Rosengren, Bullard and George. They replace Pianalto, Lockhart, Williams and consummate critic and sole voice of reason and opposition at the Fed in 2011, Lacker. So how does the layout of the 2013 FOMC nest of hawks and doves look like? SocGen summarizes.

There was a time when the Fed would repurchase freshly issued bonds a month, a week, or even a day after they were auctioned off by the Treasury (to avoid that whole perjury-inducing "no monetization" stigma). That's no longer the case. Moments ago the Fed concluded its most recent POMO as part of the now unsterilized QE4EVA, focusing on 2036-2042 maturities, i.e., the long-end. A quick look at the issues bought shows that the one CUSIP most put back by dealers to the Fed was the 912810QY7 30 Year. Curiously this is precisely the same CUSIP that, despite the debt ceiling being breached and all, will be auctioned off... tomorrow. Granted, it is a reopening (29 year, 10 month issue), but in a world in which nothing financial makes sense, and idiots come up with debt ceiling avoidance "schemes" that could have rolled right off a Lewis Black rant, we prefer to think of its as pre-monetization, much the same as pre-crime. That said, our hopes that Spielberg will consider putting the script of Monetization Report into a movie, with Paul Giamatti reprising the role of the man who prints the world, will likely not come true.

With the decision of the Federal Reserve to continue its policy of asset purchases (QE) as long as US employment remains depressed, we can say that inflation targeting as a tool of monetary policy, introduced in the early 80s under Paul Volcker, has finally been buried. Central banks are now moving towards a policy of targeting asset prices and other economic variables, primarily nominal GDP (or jobs per se). The consequences of this monetarist revolution on asset price formation are difficult to assess. However, we cannot overemphasise the potential disruption to the correlation and volatility regimes to which investors have become accustomed. In such conditions, proven investment strategies may prove obsolete. More than ever, investors will need to be able to challenge and fight against preconceived ideas. Lastly, and fundamentally, it is to be hoped that the policy of quantitative easing (QE) does not last too long, because, ultimately, it could lead to a massive distortion in the allocation of capital. However, as the charts below illustrate, every decade has been characterised by a different economic, monetary/fiscal policy, and investing environment and the limitations of Keynesian policy have been betrayed.

As reported previously, when Bloomberg broke the news two days ago, it now appears that the official appointment of Jack Lew as the new SecTres will take place tomorrow. From Bloomberg: "President Obama will announce tomorrow that White House Chief of Staff Jack Lew is his pick for Treasury secretary, person familiar with the matter tells Bloomberg’s Han Nichols." In other words - goodbye Timmah: best of luck writing your new book, which in the tradition of every ex-public servant who departs the government where they kept their mouths firmly shut, we assume will be all about bashing Tim Geithner.

Readers already know that when it comes to Europe, the scariest chart, from a political, economic, financial and social perspective, is that showing youth unemployment - youth, which engaged in idle, non-productive activity is a powder keg for both future economic instability and social upheaval. The monthly update is presented below. This time, we are happy to also present the "scariest heatmap" that goes with it, showing the geographic breakdown of unemployment in the critical 15-24 age groups. Those looking for geopolitical hotspots in the coming months and years, look no further than the dark shaded areas.