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Charting SOMA Twist: Here Is What The $55 Billion In Monthly POMO Purchases Will Look Like Starting Shortly

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Tue, 09/06/2011 - 13:42 | 1638775 BaBaBouy
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PRINT Bitchezz ...


And Gold $5K Next Stop.

Tue, 09/06/2011 - 13:43 | 1638794 The They
The They's picture

This is Qualitative Easing rather than Quantitative Easing.  All this is just semantics however: printing is printing.

Tue, 09/06/2011 - 14:20 | 1638950 TruthInSunshine
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Wrong. Even if this analysis was remotely rational, selling one class of bonds to buy another class of bonds adds 0 liquidity.

Tue, 09/06/2011 - 14:23 | 1638964 SheepDog-One
SheepDog-One's picture

'Monetize our own debt, then roll it over and refinance it'...never going to work FEDtards. The greater fools are already living under a bridge.

Tue, 09/06/2011 - 14:39 | 1639022 kengland
kengland's picture

Not true. PD's will most surely front run this selling short and buying long. When they take the proceeds and buy risk assets...



Tue, 09/06/2011 - 14:56 | 1639101 FreedomGuy
FreedomGuy's picture

Well, as far as I can see it does some good things for the Fed and the U.S. Indirectly. With the crushing amount of debt the US is taking on, spreading the risk and payments out 10, 20 or even 30 years is a gift. Does any sane person believe sub-4% 30yr treasury rates will hold up for 3 decades!?! If inflation takes off then traders will take huge losses and the Fed and US government will skate. Tax cheat Timmy Geithner needs to follow suit and roll the current debt from the stupid short terms to longer terms if he can. Right now, buyers are not buying them to make money but to avoid losses in the stock market.

Tue, 09/06/2011 - 16:34 | 1639439 Thomas
Thomas's picture

Won't this flip the yield curve on its head?

Tue, 09/06/2011 - 19:54 | 1640112 sun tzu
sun tzu's picture

Depends on how far they push it

Tue, 09/06/2011 - 14:34 | 1638994 DefiantSurf
DefiantSurf's picture

and how exactly does "operation twist" accomplish any of the FED's mandates?

I cannot see it doing anything other than dragging out debt servicing for the government, kind of like refinancing your house to pay off your car? I think in the credit markets they have a name for that, I think its called "kiting"


Tue, 09/06/2011 - 15:53 | 1639291 Withdrawn Sanction
Withdrawn Sanction's picture

This cannot be an accurate prediction. Such an action, if undertaken by the Fed, will flatten the yield curve and along with it, bank profits. Maybe they've given up trying to engineer a bank profit revival w/the yield curve.

Tue, 09/06/2011 - 16:36 | 1639448 Thomas
Thomas's picture


Wed, 09/07/2011 - 04:05 | 1641222 Anonymouse
Anonymouse's picture

I've been wondering about that for a while.

In addition, extending the duration of the Fed balance sheet adds risk to that balance sheet.  Should interest rates rise (i.e., the Fed's manipulation of the yield curve become anything less than perfect), the garbage backing the dollar will fall rapidly in value.

Yes, the Fed has created a negative liability to cover losses so that the book value of the equity stays above zero, but at some point 1) taxpayers will find out about how the Fed is not just screwing their investment and savings decisions, but also putting them on the hook for the crap investments they made to buy off the banks, and/or 2) the market may see an insolvent (whether actually or effectively insolvent) Federal Reserve as adding some minute level of risk to the USD.

That this doesn't seem to be a factor is just one more indication that we have gone past punting, gone past Hail Mary passes, to some as yet uncoined analogy to sporting desperation.

Tue, 09/06/2011 - 14:36 | 1639013 Todd Horlbeck
Todd Horlbeck's picture

I don't see how QE3, 4, 5, etc. is going to matter.  The Federal Reserve has to find a way to bypass the banks and get money to the public directly.  Until then, inflation is not a threat, because the banks are not going to lend and of the newly minted Fed money.  Taking a treasury off a bank's balance sheet and replacing it with cash is meaningless if the cash won't be lent.  It also doesn't fix thier problem assets which is the reason they won't lend.

The only way the Fed can inflate is via the banks, and if you know any bankers, ask them if they are willing to lend, or even loosen standards?  The answer will be NO.

My answer: put a "retail fed desk" in every bank to underwrite non-recourse consumer and home loans turned down by banks stricter guidlines. They can call these loans "retail treasuries" on their balance sheet, and create Federal Reserve notes to give to consumers.


Until I see this, gold's direction is unclear.







Tue, 09/06/2011 - 15:04 | 1639140 FreedomGuy
FreedomGuy's picture

Good point, Todd. I see it the same way. Deflation is balancing any Fed moves. Unemployed and underemployed and people with sinking incomes cannot buy much. Inflation is in check through the wrecking of the economy.

It's like giving one player (the banks) all the money in Monopoly. If that player sits on it nothing happens to the prices on the board. The Fed is limited in it's ability to get money to the public. That's why a credit expansion usually precedes inflation. Now, if Congress had done a tax holiday or some other direct distribution then Fed actions might have the desired effect...although no guarantees. People are still deleveraging themselves.

Tue, 09/06/2011 - 15:34 | 1639249 narnia
narnia's picture

TARP II is right around the corner.  that's their means of getting this "spending" in the politically favored pockets to supposedly drive the inflation.

I personally see a reverse twist.  I think they'll bury the 2-10 (below that is already buried) and force all the reinvesters, the people who think they're smart buying longer term to frontrun twist & risk off traders into longer term maturities.  

Then, the Treasury will play in the 1 - 4 space to finance the $4-5 trillion the 2011, 2012 & TARP II deficits will require.

Tue, 09/06/2011 - 16:38 | 1639454 Thomas
Thomas's picture

I think the Fed doesn't have a clue and is starting to hurl Hail Mary passes on every down because the wishbone isn't working anymore.

Tue, 09/06/2011 - 17:21 | 1639599 FreedomGuy
FreedomGuy's picture

Plausible. Fiscal responsibility tells me they should buy the longer term so they don't have to roll super low T-bills into higher rates down the road. However, the temptation for the negative real returns and short term free money is probably too much, TARP or not.

Mathematically an end game has to appear..

Wed, 09/07/2011 - 04:08 | 1641228 Anonymouse
Anonymouse's picture

But you are looking at the economy as a closed system.  It is not.

It has long been my opinion that the proximate cause of (hyper)inflation will be loss of confidence in the dollar.  We're not there yet, but the Fed cannot long alter the laws of physics.

Tue, 09/06/2011 - 13:37 | 1638776 kengland
kengland's picture

So will the PD's take the proceeds from the long end and buy risk assets? What will be the market effect of this?

Tue, 09/06/2011 - 15:06 | 1639145 FreedomGuy
FreedomGuy's picture

Good question...and at what price?

Tue, 09/06/2011 - 13:37 | 1638777 bgilliam83
bgilliam83's picture

Thank GOD i didnt unwind my spam trade.  This site is turning into a rag!

Tue, 09/06/2011 - 13:52 | 1638818 The They
The They's picture

Please expand and explain.  Until then -1.

Tue, 09/06/2011 - 13:53 | 1638824 kito
kito's picture

@bgilliam83-youre slipping there buddy. be wary of the dark side......



Tue, 09/06/2011 - 13:38 | 1638778 djsmps
djsmps's picture

That should create 2 million jobs.

Tue, 09/06/2011 - 13:43 | 1638793 urbanelf
urbanelf's picture

I doing the jumble in the morning paper thinking to myself that I might creates some new jobs if only someone would lower the long end of the yield curve.

Tue, 09/06/2011 - 13:57 | 1638837 pods
pods's picture

It is create or SAVED, that way they can make it whatever number they want.


Tue, 09/06/2011 - 13:41 | 1638789 adr
adr's picture

So what will all this paper pushing and debt swaps actually do for the common worker struggling to actually make it on his own?

With current job propects peaking around $10 an hour the average joe is better off on welfare, food stamps, and medicaid.

Housing is dead and full employment is dead. Inflation is destroying everything. Is deflation really that bad? We've tried everything else. We really don't need to deflate to 1950, just deflate prior to the dotcom bubble. We were actually OK in 1997. Homes were affordable, gas was $1.35 a gallon, food wasn't over $100 a week per person.

Tue, 09/06/2011 - 13:42 | 1638790 baby_BLYTHE
baby_BLYTHE's picture

This has got to stop.

The banks have had more than enough time to recapitalize. Enough is enough.
Time to put back into place Glass Steagall, unwind the derivatives and let the banks stand on their own.

None of this is helping the average American nor the overall economy. One man's thesis is destroying an entire nation and the livelihoods of future generations.

Tue, 09/06/2011 - 13:57 | 1638836 SheepDog-One
SheepDog-One's picture

Exactly, theyre just playing with themselves at this point. Time to let the banks flop and those responsible for this disaster be held accountable. But of course WW3 will happen instead.

Tue, 09/06/2011 - 14:09 | 1638886 Archimedes
Archimedes's picture

Rumor circulating that the EU is planning on suspending Mark to Market accounting for the banks!

Tue, 09/06/2011 - 14:37 | 1639017 DefiantSurf
DefiantSurf's picture

That's hilarious! I was under the impression they were already marked to skittles...

Tue, 09/06/2011 - 13:43 | 1638798 tickhound
tickhound's picture



Soma soma soma soma soma sham-eleon,

You come and go, You come and go-oh oh.

Life is so easy when everyone lives the dream,

That golden dream, Gold beats the gree-e-e-een.


Tue, 09/06/2011 - 14:17 | 1638799 TruthInSunshine
TruthInSunshine's picture

Love ya' Tylers & Zero Hedge, but The Bernank won't be able to sustain 55 billion/month in purchases from existing balance sheet twist, and he'll need an explicit go ahead (by decree and appropriation) by the Congress, which isn't going to happen.

Selling 420 billion worth of shorter duration bonds, even if the Fed did this, IS NOT adding additional money into the system, and it will have hefty consequences for the curve, and like you mentioned, who's the greatest fool of all (who will purchase short maturity USTs at this point)?

Do you mean to tell me that the Fed can "quickly dump" 1.5 to 4 yr USTs - "all of their holdings," while new USTs of the same maturity are issued by Treasury, without some major issues? Can you say "oversupply?"

The great paradox in this whole thesis is that only with The Bernank monetizing 65% to 70% of U.S. deficit spending for some 22 odd months were UST yields driven down (Paul Krugman, do you understand this? Do you understand that the U.S. treasury note market is manipulated, and not a free market price setting mechanism?).

Maybe The Bernank can both sell and buy those 420 billion worth of shorter maturity USTs (/sarc/).

Just a SWAG on my part, but I'll be surprised if The Bernank will be able to mustereven 15 billion in accretive buying monthly.

Finally, anyone who thinks 'twist' of any kind is interjecting new money for the PDs to play with (pumping stocks or any other risk assets) is not seeing life through a lens of reality, as 'twist' is NOT adding any liquidity or giving additional monies to prime risk asset trades - BTFD sheeple (and the big boys won't be doing the dip buying, not to mention that any real dip would mean equity markets about 40% lower than where they are now) are going to get sheered until their skin bleeds and they get sepsis.


p.s. - Just as I have stated previously, Kocherlakota wasn't backtracking on QE3 at the last FOMC meeting; he isn't inclined to go along later this month, either. His remarks only had to do with ZIRP policy. Kocherlakota is making it clear now, since so many misinterpreted his statements:

09-06 13:41: Fed's Kocherlakota says easing monetary policy in August was...

Fed's Kocherlakota says easing monetary policy in August was inconsistent with Fed's inflation goals
Tue, 09/06/2011 - 14:22 | 1638956 ThirdCoastSurfer
ThirdCoastSurfer's picture

Maybe The Bernank can both sell and buy those 420 billion worth of shorter maturity USTs (/sarc/).


A good Bank, bad Bernank scenerio? 

Tue, 09/06/2011 - 15:11 | 1639172 FreedomGuy
FreedomGuy's picture

"Maybe The Bernank can both sell and buy those 420 billion worth of shorter maturity USTs (/sarc/)."

Does this mean Bernanke is 420 friendly? Policy would suggest so.

Tue, 09/06/2011 - 16:17 | 1639385 Nascent_Variable
Nascent_Variable's picture

Correct me if I'm wrong, but wasn't Operation Twist 1 generally considered to be a failure?  If the markets of the early 60s couldn't do anything with it, what makes the Fed think that today's utterly broken market can make it work?

Long hype.  Short results.

Tue, 09/06/2011 - 13:44 | 1638801 gwar5
gwar5's picture

Thanks for flash, ZH, hot off the presses! 


I also think the Fed will do something in September. Obama's polls are dragging again and hitting new lows since QE2 stopped. SOMA, and the sooner he better as far as he's concerned.


Tue, 09/06/2011 - 13:44 | 1638802 RobotTrader
RobotTrader's picture

Another SocGen "Expert"

Soon to be out of a job when her company fails.

By the way, what's up with these freaking REIT stocks?

SPG has hardly corrected.  Shopping centers must be the new "safe haven".  Enough to drive a man to the poor house shorting these stocks.

Tue, 09/06/2011 - 14:02 | 1638853 Ruffcut
Ruffcut's picture

Let's get some MOMO from the POMO.

Just like ROBO, this country is a fucking JOKO.

Tue, 09/06/2011 - 15:24 | 1639208 kill switch
kill switch's picture


Yea, and King Kong plays Ping Pong in Hong Kong with his Ding Dong!!


While doing the Bernanke twist..


Tue, 09/06/2011 - 13:51 | 1638815 pcrs
pcrs's picture

selling these short term bonds would require a pancik belonging to a terrorist attack

Tue, 09/06/2011 - 13:52 | 1638820 RobotTrader
RobotTrader's picture

LOW, SBUX, WFMI, JWN, and the usual suspects are now green.

Tue, 09/06/2011 - 13:55 | 1638829 chancee
chancee's picture

So why wouldn't stocks go up again?  Last time the banks used all the free money they made on the spread and bought stocks so they went up.  Same things will be happening again... It doesn't really matter where or what the Fed is buying along the curve... as long as the banks are somewhere in the equation.  It's all just a front for the Fed to funnel free money to the banks under the instruction to buy stocks again.

Tue, 09/06/2011 - 14:05 | 1638862 TruthInSunshine
TruthInSunshine's picture

Because this isn't adding money to the PD pool.

Even if one assumes even a portion of this analysis is correct, it's akin to selling your 2003 Honda Accord with 85,000 miles so that you can buy a comparably equipped 2003 Toyota Camry with 85,000 miles.

There is no more POMO in the sense of QE1 or QE2.

There is no spoon.

Tue, 09/06/2011 - 14:08 | 1638881 SheepDog-One
SheepDog-One's picture

Its all BS, there are no more greater fools, no matter how much the FED wants a do-over. 

Tue, 09/06/2011 - 13:55 | 1638830 John McCloy
John McCloy's picture

So laughable that the 10 years is much lower than where it was where it was when the bond market was indicating a depression in 2008 and how disconnected the stock market is from the bond market. So which one is lying? I think we all know the answer to that. Amazing how volumeless stock markets are not seen for the charade that they are. 

Tue, 09/06/2011 - 14:05 | 1638855 scatterbrains
scatterbrains's picture

I'd luv to see TD's spread trade (2/10/30 vs. /es  on a 5 year weekly basis if possible... wondering how much air is being pumped up under the stock market longer term.

Tue, 09/06/2011 - 14:06 | 1638868 SheepDog-One
SheepDog-One's picture

Both stocks and bonds are now a total joke....so lets do some more of the same nonsense and make them go up! The time is here now where intervention no matter how much means nothing. 'Always a bigger fool somewhere'...yea right Im not betting on it.

Tue, 09/06/2011 - 13:55 | 1638831 chancee
chancee's picture

So why wouldn't stocks go up again?  Last time the banks used all the free money they made on the spread and bought stocks so they went up.  Same things will be happening again... It doesn't really matter where or what the Fed is buying along the curve... as long as the banks are somewhere in the equation.  It's all just a front for the Fed to funnel free money to the banks under the instruction to buy stocks again.

Tue, 09/06/2011 - 15:43 | 1639265 Howard_Beale
Howard_Beale's picture

Your assumption that the remaining primary dealers have gargantuan equity prop desks is faulty. The stocks have to get laid off to the hedgies, pension funds, etc. It's not like it's a buy and hold game for them.

And look where stocks are now after QE2 ended. Right where they started.

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