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Fed Is 4 Times More Efficient At Selling Government Bonds Than The US Treasury... With A Taxpayer-Funded Twist

Tyler Durden's picture




 

Something curious happened today. As we pointed out earlier, for the first time as part of Operation Twist, the Fed, instead of buying bonds in the open market, actually sold bonds: a departure for Bernanke, and only the first time the Fed has practically rebalanced its portfolio since the first Operation Twist 50 years ago. In essence, by dint of its adjusted mandate, the Fed became the Treasury - what proceeded at precisely 11 am was the announcement of a sale of $8.87 billion in bonds with maturities from January 31, 2012 through July 31, 2012, bonds that were sold not by the traditional issuer of bonds, but by the Fed. Granted no new money was raised by the US in the process, but it was still a curious development. What was far more curious was the staggering turnout by the Dealer community, which indicated an interest for, wait for it, a whopping $242.6 billion in bonds!  Said in conventional terms, the Bid To Cover was an unprecedented 27.3, or there was $27 in demand for every $1 of bonds finally sold by the Fed. Why is this worthy of bolding. Because, in a traditional Treasury auction, the Bid to Cover by the Dealer community is far, far lower. In fact, as the most recent 52 week Bill auction demonstrates, there was $89.5 billion in Bids for $14 billion in bonds allocated to Dealers, or a 6.4 Bid To Cover. Said otherwise the Fed is about 4.3 times more efficient at finding buyers than the Treasury. How is this possible? And should the Fed take over Treasury in all future bond sales? Nope: the answer is that this is nothing but yet another taxpayer funded gift to the (recently expanded by 2 Canadian banks) Dealers. Let us explain.

First, here is what the mechanics of the most recent 52 week Bill sale looks like:

One can see how the Dealer Bid To Cover is a respectable 6.4.

Alternatively, here is what today's Fed's POMO looked like in its final form:

Bid To Cover? 27.4!

How is this possible? Is the Fed really 4 times more efficient at selling bonds than the Treasury? How and why can dealers have such a huge apetite for paper which yields inside of 0.1% and thus provides absolutely no real top or bottom line benefits?

Simple. As Zero Hedge has discussed many times in the past, POMO, in whatever format, be it under LSAP auspices or Operation Twist, is nothing but a taxpayer funded gift to the Dealer community.  As a reminder, the actual POMO process is conducted in the form of a reverse dutch auction, where the collusive Dealer Community (recently expanded to include 2 more Canadian Banks, BMO and Bank of Nova Scotia, which simply means that US Taxpayers are now on the hook to bailing out two more banks which are part of the supposedly safe and stable Canadian banking system) submits best bids or offers to the Fed, depending on whether the community is buying or selling bonds. Today, for the first time, it was buying, so it was Bidding. And while we can not prove it as the actual details of the price allocation are a non-public mystery, we are 100% confident that the answer lies precisely in the risk-free arbitrage, funded by the Fed, and hence the US taxpayers, consisting of a collusive wholesale bid at prices far lower than prevailing market rates, and the ability to immediately flip the bonds to the open market upon allocation for a tidy profit.

How tidy? We have no idea: the data is private. However, it is tidy enough to generate 4 times more buying interest than would be there normally. Hence the, pardon the pun, twist.

We are confident that the "99%" will be delighted to learn that Operation Twist, while flattening the 2s10s and 10s30s massively, a terminal scourge for the Net Interest Margin-reliant community, also contains in it the salvation for these very banks, and specifically the bonuses for their bond trading divisions: because all QE or Twist or whatever really is, is an ongoing subsidy via the bid/ask spread, funded by US taxpayers, to keep America's hurting banks solvent.

What is the ultimate top line benefit? We are not sure. But we are confident the result will be made immediately obvious once the monthly POMO details are revealed. We are eagerly looking forward to reverse engineering just how much money the middle-class is now funneling into America's banks via what is once again a daily POMO bail out.

And here is what the actual flip looks like in process: below we show the price chart of one of the cheapest bonds in today's POMO, 912828NS5, which accounted for $1.2 billion of total, and how its price changed starting at 11 am once the POMO was concluded. One can only imagine the amount of leverage involved in this operation...

And another:

 

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Thu, 10/06/2011 - 13:11 | 1746369 Zonker
Zonker's picture

That Bernanke is somthing else isn't he?  One of the Chosen ones heading into the most important Holiday.  g_d speed Big Ben!

 

Z

Thu, 10/06/2011 - 19:11 | 1747884 MFL8240
MFL8240's picture

He is a piece of doggie tar tar

Fri, 10/07/2011 - 01:03 | 1748703 Spirit Of Truth
Spirit Of Truth's picture

Indeed, "chosen" for what?

http://www.jpost.com/VideoArticles/Video/Article.aspx?id=240822

http://www.spiritoftruth.org/Thesis/Intro/#4d

Greed is not good.  How does God prove the point?

Thu, 10/06/2011 - 13:14 | 1746373 Smithovsky
Smithovsky's picture

My only question is, where do I sign up to be a bond dealer? 

I want to participate in this racket.  

Thu, 10/06/2011 - 13:14 | 1746394 mayhem_korner
mayhem_korner's picture

 

 

Trust me, you're participating in it.  You're in the "deferred benefits" section.  :0

Thu, 10/06/2011 - 13:44 | 1746520 Mactheknife
Mactheknife's picture

And then the dealers get another freebie when they turn around and sell the long bonds back. The Bernank knows who he works for.

Thu, 10/06/2011 - 15:13 | 1746970 The Limerick King
The Limerick King's picture

 

 

The Dealers are making a killing

That Kleptocrat Ben is so willing

To hand them our wealth

Through bond twisted stealth

Our assholes they soon will be filling

Thu, 10/06/2011 - 16:59 | 1747441 HCSKnight
HCSKnight's picture

Now work in the part where this helps the Dealer balance sheet move left on the curve to better weather the eventual economic inflation.

Thu, 10/06/2011 - 16:13 | 1747167 Slash
Slash's picture

sell short dated bonds back to dealers

wait a couple months while things fall apart

announce QE3

buy bonds back from dealers at hugely inflated prices

PROFIT!

Fri, 10/07/2011 - 01:30 | 1748724 Keri at Bankste...
Keri at Bankster Report's picture

This is exactly what (most) of the "Occupy Wall Street" crowd doesn't seem to get: a bunch of protesters "occupying Wall Street" yelling for "reforms" is like the "Guardian Angels" "occupying the neighborhood" and demanding that the FBI arrest the corner dealer....while the CIA flies another load into Mena, AR and the FBI brings the product right back to the 'hood. Both groups are protesting the wrong damn thing, in the wrong damn place.

We don't need to occupy Wall Street: we need to occupy Maiden Lane. And Liberty St, and Nassau St, and William St.  Surround the NY Fed.  Banksters don't need addresses (on Wall Street or anywhere else) to subjugate the world: all they need is a central bank. POMO is the perfect demonstration of this: its a cargo plane en route to Mena.

Banksters and dealers are a lot alike: both are powerless without some magical government backing. For the dealers, they need a federally-enforced contraband society in order to sell naturally cheap, renewable products (cocaine, weed, whatever) at exorbitant prices. For the banksters, they need a federally-enforced counterfeit society in order to sell products (credit, fiat, etc) that don't even EXIST. Occupy Wall Street all day---and see what happens. Run all the banksters out of NYC, and they'll find another nation to call home, and set up freakin' eurodollar accounts with the Fed and get right back to their same ol' tricks.

Occupy Maiden Lane, Liberty, Nassau, and William if you want to see something change. End the damn Fed.

Thu, 10/06/2011 - 13:11 | 1746375 Corn1945
Corn1945's picture

Is it really the middle class or is it China? Seems like China is the only player in town with real money.

Thu, 10/06/2011 - 13:48 | 1746539 rubearish10
rubearish10's picture

Not sure this is true. It is possible that the Chinese might be running low on cash flow. It is possibl ethat they (China) is borrowing against copper and other commodity stockpiles to fund cash requirements. This could explain the recent price declines in copper. What I think is happeneing is the market is beginning to realize there is a hoarding glut (i.e corn and copper) which is supported by lack of aggregate demand. The sham continues to become more exposed. At some point US TSYS will be for sale, BIG! Hey, this is just one view.

Thu, 10/06/2011 - 13:48 | 1746540 CapitalistRock
CapitalistRock's picture

The American middle class is several times larger than all of China. With all the talk of China it is important to keep in perspective how small their economy still is.

Thu, 10/06/2011 - 13:12 | 1746383 Ahmeexnal
Ahmeexnal's picture

Some bonds are more equal than other bonds.

Thu, 10/06/2011 - 14:27 | 1746719 knukles
knukles's picture

My coupon's bigger then your coupon.

Thu, 10/06/2011 - 13:13 | 1746387 Barnaby
Barnaby's picture

Nice analysis, Ty. So everything out of the shoe is a push yet the gambler still tips the house. Casino Nation.

Thu, 10/06/2011 - 13:17 | 1746389 GeneMarchbanks
GeneMarchbanks's picture

So... buy BAC?

Basically there is no way of starving this beast because there are 330 million hostages. As unpleasant as this news is, it is much appreciated TDs.

This'll give us something to meditate on for the next couple of months.

Thu, 10/06/2011 - 14:00 | 1746586 depression
depression's picture

exactly, now eat your peas !

Thu, 10/06/2011 - 14:13 | 1746649 Hook Line and S...
Hook Line and Sphincter's picture

Yes GMB, 

BAC. although insolvent, bankrupt, and seemingly a black swan will sit tight and pretty, knowing it has been dressed up in the black pidgeon costume. Website BofA antics aside, they're not going anywhere right now. 40 some odd Trillion of derivatives clearly speaks of continuation - kick the AmeriCAN down the road. The owners on the other side of the bet have to double down with FedTwisty. The captured gov won't let the insurer be tested anytime soon either this time (read AIG).

 

Thu, 10/06/2011 - 14:59 | 1746902 GeneMarchbanks
GeneMarchbanks's picture

Dude, my sarcasm was on. Even if there was a sure trade in BAC right now I wouldn't take it. I'm all about physical if you know what I mean;)

Also, fuck Buffett.

Thu, 10/06/2011 - 20:17 | 1748047 Hook Line and S...
Hook Line and Sphincter's picture

You weren't thinking of literally doing that to Buffet, were you?

(I was!)

Thu, 10/06/2011 - 15:34 | 1747046 AmericanFUPAcabra
AmericanFUPAcabra's picture

More like 270m. you hafta factor in the people on the dole. and the 50 week unemployment train or whatever redic figure it is. 

Actually anyone know how many people would be left out in / unable to pay into this? 

Thu, 10/06/2011 - 13:16 | 1746398 buzzsaw99
buzzsaw99's picture

:surprised: [/sarcasm]

Thu, 10/06/2011 - 13:16 | 1746402 Smithovsky
Smithovsky's picture

Is this why MS is doing so well all of a sudden?  

Thu, 10/06/2011 - 13:18 | 1746404 Cognitive Dissonance
Cognitive Dissonance's picture

For crying out loud, where the hell am I every time the Fed opens the (free) soup kitchen window? By the time I get there, all that's left are crumbs, used rubbers and lots of sore asses.

Dammit, I never get to have any fun.

Thu, 10/06/2011 - 13:19 | 1746411 GeneMarchbanks
GeneMarchbanks's picture

You & me & 99.98%

Thu, 10/06/2011 - 15:35 | 1747050 bigdumbnugly
bigdumbnugly's picture

it's a big club and 99.98& of us ain't in it.

Thu, 10/06/2011 - 13:22 | 1746424 Hephasteus
Hephasteus's picture

Buy a psychotic a gun. Get a free inkject cartdrige.  You just don't hang out with the right violent people.

Now it's time to celebrate the summer of stealing gaddafi's gold.

http://www.youtube.com/watch?v=47A-ZY6xG54

Thu, 10/06/2011 - 14:18 | 1746668 Hook Line and S...
Hook Line and Sphincter's picture

I'll try to get to the soup kitchen a little bit after you Cog. Sorry about the asses.

Thu, 10/06/2011 - 13:18 | 1746406 fyrebird
fyrebird's picture

The dealers are sharks and can smell money in the water.

You don't even have to see the money or know how it might have gotten there. The dealers can smell it they know it is there and they want it and will swim in from all corners of the financial world to devour it.

Nothing new. Not even much of a twist. It's the usual looting by the usual villians, aided by the same traitorous fiends.

Thu, 10/06/2011 - 13:44 | 1746527 macholatte
macholatte's picture

The dealers are sharks and can smell money in the water.

Maybe not. Maybe they're just a bunch of bankster panhandlers. The coke has their olfactory numbed so they just wait for a phone call, get their instructions and go from there. Clearly, what happened was not without notice to the banksters. They needed some time to prepare. You just don't raid the cookie jar if you don't know where it is.

This is not  a casino. It is premedited, cold blooded and calculated well in advance of execution. 

 

It is a rather pleasant experience to be alone in a bank at night.
Willie Sutton

Thu, 10/06/2011 - 13:19 | 1746413 LawsofPhysics
LawsofPhysics's picture

This is a shell game that the Fed controls.  No surprise that they are better at their own game.  Come on guys.

Thu, 10/06/2011 - 13:20 | 1746416 Bull v. Bear
Bull v. Bear's picture

Leeeeeeeeeeeeeeerrrrrrrrrrrrooooooooooyyyyyyyyyyyyy Jennnnnnnnnkkkkkkins.........

Thu, 10/06/2011 - 14:56 | 1746430 GeneMarchbanks
GeneMarchbanks's picture

For the second time today:   "At least I have chicken"

Thu, 10/06/2011 - 13:22 | 1746420 monopoly
monopoly's picture

This is all so totally screwed. Santelli could do a good job backing up Zero Hedge but then they would put him in another time out for a week. Not easy to understand all of this and that is why 95% of the population has no clue as to what is going on. So it will continue.

Interesting how rates have been creeping up the last 3 days, no big deal, but worth noting.

And what the heck got into silver today. I thought only Kodak used silver....

Thu, 10/06/2011 - 13:26 | 1746443 Hephasteus
Hephasteus's picture

How about that gold euro philharmonic price in dollars. Pretty schizophrenic.

Thu, 10/06/2011 - 13:46 | 1746531 moondog
moondog's picture

Silver is a barbaric relic like gold. A bunch of damn Luddites must have bought the shiny stuff. FIAT currency and government bonds are the future my friends!! Be a good American, buy bonds. If not, you're a damn dirty terrorist...

Fri, 10/07/2011 - 03:14 | 1748832 merizobeach
merizobeach's picture

Them damn turrrrsts!

Thu, 10/06/2011 - 14:19 | 1746677 jomama
jomama's picture

i don't know but it really pisses me off.  two weeks i bought 100oz. and the price crashed 10 bucks. 

now tomorrow is fiat payday and the price goes up two bucks!

it's a goddamned conspiracy, i tell you.

Thu, 10/06/2011 - 14:44 | 1746808 i_fly_me
i_fly_me's picture

Someday, you are going to remember how you once bitched about a $10 drop in virtual Ag and giggle.

Fri, 10/07/2011 - 01:47 | 1748757 Hephasteus
Hephasteus's picture

Or when it first started crashing and went down to 8 bucks an ounce at one point but nobody could get ANY of it for less than 10. It's hard to be jealous of people NOT being able to buy silver at 32 right.

Thu, 10/06/2011 - 13:23 | 1746426 Honey Badger
Honey Badger's picture

I think that the words "U.S. taxpayers" could be replaced with "U.S. dollar holders" because the debasement of the currency (money printing) is the only "solution" and this impacts all dollar holders, not just U.S. taxpayers. 

Thu, 10/06/2011 - 13:25 | 1746427 karzai_luver
karzai_luver's picture

Never forget, EVERYONE KNOWS , We made money on the bank bailouts, they proved it in the p/l doc they released!

 

Muahhhhahhaaaaaa

 

 

made money???? what a twist on a phrase - hahahahaa

 

it's a small club but without KY it don't matter much!

 

 

 

 

 

Thu, 10/06/2011 - 13:27 | 1746447 DaveyJones
DaveyJones's picture

and they're six times more efficient at selling bullshit

Thu, 10/06/2011 - 13:40 | 1746502 Cognitive Dissonance
Cognitive Dissonance's picture

4 out of 5 dentists agree.

Thu, 10/06/2011 - 13:27 | 1746449 disabledvet
disabledvet's picture

Look Mr. President! Zero Hedge is trying to destroy Christmas again! Now let me change that word "collusion" to "cohesion"..."voila la! It's all good people! Move along!

Thu, 10/06/2011 - 13:29 | 1746451 Barnaby
Barnaby's picture

Spooooky. That graph looks a lot like the Sears Tower.

Thu, 10/06/2011 - 13:39 | 1746499 NotApplicable
NotApplicable's picture

What'chu talkin' about, Willis?

Thu, 10/06/2011 - 13:50 | 1746551 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Don't give the CIA any ideas!

Thu, 10/06/2011 - 13:30 | 1746458 The Axe
The Axe's picture

Cider in my ear  http://www.youtube.com/watch?v=d8Wvgs9q3js    if some many bankers want a piece, they know the fix is in.....

Thu, 10/06/2011 - 13:32 | 1746469 Iam Rich
Iam Rich's picture

"Let us explain...".  Totally unnecessary.

Thu, 10/06/2011 - 14:16 | 1746640 xtop23
xtop23's picture

Actually I did appreciate the explanation.

Im not a stupid man but some of this stuff goes right over my head unless I get a little help with the context.

Thu, 10/06/2011 - 13:33 | 1746472 ShankyS
ShankyS's picture

Sensationsl and timely post - Everyone should be able to understand this one - plain, simple clear and concise - robbery at its finest exposed -  thanks TD. 

Thu, 10/06/2011 - 13:33 | 1746474 RobotTrader
RobotTrader's picture

Bottom line is this.

U.S. Treasuries have been flat out the best stellar performer investment of the last 35 years.

I doubt anybody is interested in selling TLT or TIP right now.

Hands down the biggest winning trades of 2011.

Who cares about $15 trillion in U.S. debt?

Nobody cares.  They are still buying Treasuries hand over fist.

Thu, 10/06/2011 - 13:43 | 1746516 Vincent Vega
Vincent Vega's picture

Who is the "they" of whom you speak?

Thu, 10/06/2011 - 14:03 | 1746591 Hearst
Hearst's picture

Bubbles are always bought hand over fist.  Few look objectively until it bursts..

Thu, 10/06/2011 - 14:04 | 1746593 slewie the pi-rat
slewie the pi-rat's picture

the FED sold it's short-term T's in the "market" , and has also comitted to buying newly-issued longer-term T's with the proceeds, so the PDs,as usual, get the bidness.  they can do whatever they want w/ the Ts they just bought, including mark them up, and they will be buying Ts at the next Treasury auction, too, partly for the FED!

these are the same dealer banks who provided the "100-day-swaps" for the europeon banksters' "assets" are they not?

the dollar is strong b/c it has already been "printed" and distributed;  the "recession" will be treated to tons of great liquidity and if greece or belgium or france catches on fire, we'll get to see then how many gazillions of multiples of "fire insurance policies" have been issued to arsonists by "counterparties" this time around, ok?  any bets? 

LetThemFail!  don't "bail out" the losers so the arsonists can get away with murder.  again.  i'm serious, too, dammit! 

oh!  we must stop this carnage and protect these "assets"!  bullshit!  if they're imaginary, you deal with it, this time! 

slewie's October bankster tip-0'the month:  if a TBTF bank needs a "bad bank", it IS a BadBank, BiCheZ! 

Thu, 10/06/2011 - 14:35 | 1746703 Vincent Vega
Vincent Vega's picture

Slewie, agree completely except for one small thing. The Fed sold maturities from 1-1-12 to 7-1-12. Currently treasuries in this range are yielding 0.0 to .02% so it doesn't leave any room for PD's to mark up and resell. Yes, the argument could be made that the PD's are taking them down for customers with large balances but I think it is most likely a part of the Op-Twist, all centrally planned. In any case, the only two things for certain (as you and others point out) are: 1) The PD's will make money on this. 2) John Q Public will be ass raped.

P.S. I was really just wanting to see if Robo would answer PD's for who "they" is.

Thu, 10/06/2011 - 14:58 | 1746893 Mike2756
Mike2756's picture

I was wondering if it more a sign of credit stress. Where else are you going to park cash?

Thu, 10/06/2011 - 15:12 | 1746965 Vincent Vega
Vincent Vega's picture

@ Mike2756  Yes, that is what I was implying with my comment about customers with large cash balances.

Thu, 10/06/2011 - 14:48 | 1746822 Rocket-Man
Rocket-Man's picture

I have silver stacked but work retirement account has precious few portfolio transfer options: 4 stock options, bonds, TIPS, cash and Real Estate.  That's it.   Based on Zero Hedge articles,  I started moving out of stocks and 75% into TIPS and 25% into cash back in January.   TIPS up nearly 12% YTD and stock portfolios that I got out of are in the dumper.  Thanks ZH.   Keeping my eyes open and continued to read.

Thu, 10/06/2011 - 13:33 | 1746475 Goldtoothchimp09
Goldtoothchimp09's picture

 

In the spirit of Occupy Wall Street - I put together a collection of videos for people interested in learning more about our financial system.  People here have probably seen some of these before... Some are must views, such as The Warning by PBS

 

http://jeffreygtc.blogspot.com/2011/10/resources-to-learn-more-about-us.html

Thu, 10/06/2011 - 13:36 | 1746486 ZeroPower
ZeroPower's picture

where the collusive Dealer Community (recently expanded to include 2 more Canadian Banks, BMO and Bank of Nova Scotia, which simply means that US Taxpayers are now on the hook to bailing out two more banks which are part of the supposedly safe and stable Canadian banking system)

 

CIBC used to be a primary dealer but withdraw at some point during 07/08. BMO has simply becom a larger player in international transactions now. As has Scotiabank Cap Markets (ie Bank of NS). Nothing wrong with 'border friends' repo'ing and helping each other in many ways.

Love the negative spin you guys put on this though...

Thu, 10/06/2011 - 13:51 | 1746560 Tyler Durden
Tyler Durden's picture

How about the Wall Street Journal's spin?

In Rough Times For Banks, Being A Primary Dealer Has Its Perks

Thu, 10/06/2011 - 13:59 | 1746582 ZeroPower
ZeroPower's picture

"Fair and balanced"

Thu, 10/06/2011 - 13:40 | 1746503 Belarus
Belarus's picture

Also interesting on the Dealer front, strangely getting no attention at ZH, is that JPM and HSBC have been unwinding their short contracts on silver. What's more interesting: I've talked to several dealers and they say they have sold enormous quantities of siliver bullion to unspecified and large, very large buyers. 

What's this mean? Okay, so JPM has been using the flogging in paper silver to cover their shorts, and at the same time you've got some big whales out there buying? Just who could these whales be? It's not massive buying from the collective little guys my channel checks tell me. Which makes sense, when something sells off big, when was the last time you heard the little guy in aggregate truly buying low to sell high? Never, right. Right.

Don't believe me, right? Well....remember all those folks that told you you'd get killed in the Sprott Physical Silver Trust once sliver corrected (drop in price plus compression)? Ah.....never happened, despite the current -26% pounding in silver from from recent highs. In fact, not only has the compression in Sprott's Silver Trust been non-existant in the sell-off, it has stayed relatively constant and inched higher, but it's now at all time highs and going parabolic:

http://www.sprottphysicalsilvertrust.com/NetAssetValue.aspx

What does this tell you? The run on physcial silver has been well underway while everyone is sitting around fretting about the silver spot price. And who will benefit most once this news goes parabolic--that there is ALMOST no silver?--why JPM of course. And all ya crazy silver bugs! Congrats folks, we're gonna be rich.

Thu, 10/06/2011 - 13:53 | 1746565 Belarus
Belarus's picture

Agreed, strange. But clearly forced liquidation paper selling on margin calls, etc. It's not about the paper, it's about the physcial indeed, right?

Thu, 10/06/2011 - 14:53 | 1746863 kito
kito's picture

belarus--what are you saying about jpm that silver holders dont already know? they constantly manipulate by letting prices rise and then slamming them back down. its not the first time theyve covered their shorts.

Thu, 10/06/2011 - 15:14 | 1746973 Belarus
Belarus's picture

@kitco, I'm saying we've entered territory that is far more than paper slamming and spinning. The tight market has become too very real--which explains the short covering. Remember what Goldman did? They sold all the toxic paper and made shitloads of money doing it in the MBS market, and at the peak of the subprime market in '07 they went 40% short their book (balance sheet) against subprime, and also bought CDS's to make sure they'd get paid. Remember? This is the template that JPM is using right now IMO only it's not long/short--it's short/long physical. 

 

Thu, 10/06/2011 - 16:05 | 1747160 kito
kito's picture

@ kitco--freudian slip, nice!!

it doesnt really explain the short covering. my point is they do this every year!!!!

Thu, 10/06/2011 - 14:55 | 1746876 GeneMarchbanks
GeneMarchbanks's picture

What I think Tyler was getting at is the paper specs are always suspect, they want you to think there is something's going when it's just the opposite. Paradoxically the specs being out now might mean the physical market starts to dictate going forward.

Thu, 10/06/2011 - 14:00 | 1746584 Sophist Economicus
Sophist Economicus's picture

While we're rumor mongering, a friend of a friend who consults at Treasury says they are brushing off that little nugget in the law books that FDR and Kennedy used to confiscate Gold

Simply 'war games' at this point to test validity, challenges, deal with potential populist agitation, etc

For what it's worth...

Thu, 10/06/2011 - 14:05 | 1746600 Belarus
Belarus's picture

Well...all I can tell you is that it is not a rumor that JPM has been covering, nor is it a rumor that the silver market has gotten tighter than a drum.

 

Thu, 10/06/2011 - 14:12 | 1746638 Sophist Economicus
Sophist Economicus's picture

Probably poor choice of lead in words. How about, 'while we're on the subject of precious metals and interesting possibilities...'

Didn't mean to question your point, sounds interesting

Thu, 10/06/2011 - 14:24 | 1746704 Hook Line and S...
Hook Line and Sphincter's picture

When those who apparently know the truth about the physical supply of Ag, yet continue to drop to their unpadded knees in front of spot paper Silver technical charts finally ceases, that's when the spot/phys divergence will be too late to really internalize. Even those who knew better will be f'd if they hadn't compartmentalized and done what they should.

Thu, 10/06/2011 - 15:03 | 1746834 Smithovsky
Smithovsky's picture

Let's get physical

Physi-cal

Thu, 10/06/2011 - 15:05 | 1746921 Scisco
Scisco's picture

Okay the post I replied to went to way of the middle class.

Thu, 10/06/2011 - 15:34 | 1746940 Smithovsky
Smithovsky's picture

Sorry Scisco, I got all paranoid and deleted it after I saw Sophist mention rumor mongering.  But I saw what you wrote (RRSP) before you modified yours and that's a very good reason, I hadn't thought about that.  

I'm just not a big fan of their premium being all over the place.  It's now 22%, trades heavily between 11 and 21 and has been as low as 2 and as high as 26%.  I assume it's reverse vertical skew so you make less than if you were trading physical, futures or ETFs.  Of course, you also lose less.  

Thu, 10/06/2011 - 14:51 | 1746847 Aguadulce
Aguadulce's picture

Yep.  I actually just got back from the only silver dealer in the great IL state capitol I just moved to.  They've been shipping out 50k oz. per week which they said was absolutely unheard of.  They also recently became a dealer for the US mint and therefore wouldn't tell me where it was going.  In their 50 ft long glass sales/display case they had 3 old 10 oz bars and maybe 20 tubes of silver eagles.....the other 49 ft were empty.

Thu, 10/06/2011 - 13:42 | 1746511 doomz78
doomz78's picture

Jesus Christ Leroy!!!!!!!!!!!!

Thu, 10/06/2011 - 13:43 | 1746517 Greater Fool
Greater Fool's picture

Sorry, the article's argument does not compute. Forget about the price of the Fed's sale for a moment: Fed sells $8b into the market and yields go down? Sounds like the real story here is a size surprise.

Thu, 10/06/2011 - 13:45 | 1746528 Mr_Wonderful
Mr_Wonderful's picture

Well, Operation Twist is about the FED selling notes and buying bonds, that is further pressing down long term interest rates. So this isn´t really news by now.

Thu, 10/06/2011 - 13:49 | 1746546 Tyler Durden
Tyler Durden's picture

Reread the post.

Thu, 10/06/2011 - 14:10 | 1746617 Mr_Wonderful
Mr_Wonderful's picture

It´s the urge for safe parking of cash.

The stock market has become increasingly unstable as we see and commodities are tanking although they´re presently experiencing a dead cat bounce from 1-2 year lows. The economy sucks, the debt bubble is bursting as businesses and individuals scramble to pay off debt and hoard cash in anticipation of falling prices. That´s my take on this Mr. Tyler.

 

Thu, 10/06/2011 - 14:19 | 1746676 kito
kito's picture

geez man, even my kids super duper ultra plastic bubble maker doesnt spit em out as large and as fast as ben...........

 

whats next? weve had internet, housing, now bonds..................

Thu, 10/06/2011 - 14:39 | 1746784 Stax Edwards
Stax Edwards's picture

Mr. Wonderful:

You have an interesting Avatar. WTF is what I thought also.  Panda lover?

Thu, 10/06/2011 - 15:19 | 1746987 Mr_Wonderful
Mr_Wonderful's picture

It´s a cheap take on the WWF.

The panda has become a victim of complacency if that term can be used for evolution. It has a special relationship with certain microbes in its gut which allow it to lead a very lazy life of consuming immense amounts of cellulose. So, it eats a whole lot of limited energy input which means that most of its time is spent on keeping the stomach full, limiting energy intensive endeavours such as #######.

 

Thu, 10/06/2011 - 16:48 | 1747387 kito
kito's picture

spending your whole day seeking and consuming bamboo would make me exhausted....

Thu, 10/06/2011 - 14:35 | 1746758 1Fatboy
1Fatboy's picture

Reread it too....thank you for the great perspective.

The question: que bono? To whose benefit does remain to be seen but a second question is ultimately what is the inflationary impact in comparison to other QE's for the 99%. As I recall there were a lot of pissed off people in the middle east when the price of rice took 80%+ of their take home.

Thu, 10/06/2011 - 13:46 | 1746532 Dingleberry
Dingleberry's picture

Pimpin' ain't easy.....

Thu, 10/06/2011 - 17:38 | 1747611 nyse
nyse's picture

"Frankly, pimpin' has never looked harder."

http://goo.gl/1MChU

Thu, 10/06/2011 - 14:15 | 1746629 Voltaire
Voltaire's picture

Maybe it's all about this...operation twist a.k.a operation payoff?

"Countries holding US treasuries face a two pronged dilemma: First, if they dump longer term treasury securities, they would suffer massive price declines because selling long term notes and bonds pushes their prices down. Second, foreign countries would suffer currency depreciation losses because selling dollars pushes the dollar down. If China and other central banks all sold their longer dated treasury notes and bonds, US treasuries would decline in price, causing long term interest rates in America to soar. At this time in American history when our economy is so fragile and weak, rising long term interest rates could spell disaster for our economy. This is the Obama Administration’s greatest fear especially as we approach an election year, so they had to come up with a plan so foreigners dumping their longer term US treasuries wouldn’t hurt us. Since monetary policy is all we’ve got, the Fed was called in to fix the problem.

So what else could the Fed possibly do to keep our economy moving in the right direction? Why not go to the Chinese and promise to pay them a big fat premium on their current long term treasuries (that were purchased at much higher interest rates) and let them swap them into short term treasury bills and notes. Indeed, looking at the prices of US Treasury notes and bonds, most are trading at premiums of 10 to 15 percent for recent issues, and 50 percent or more for those issued just a few years ago. By allowing other countries to get out of longer term treasuries at a time of record low interest rates, it will give them an extraordinarily large gift and potentially enormous profits that can be used in several ways: China would likely use the profits to offset currency losses when the Fed goes back to printing money in QE3 to fund our deficit; and, in Europe, the profits could be used to help recapitalize their banks which are loaded up with Greek, Irish, Italian, and Spanish debt. "

http://www.sfgroup.org/The%20Fed%20Pays%20a%20King's%20Ransom.htm

Thu, 10/06/2011 - 14:48 | 1746825 Mr_Wonderful
Mr_Wonderful's picture

It´s the great dilemma.

The U.S. economy is very heavily dependent upon consumer spending and it´s also very dependent upon those consumers buying imported goods, as evidenced in the chronic trade deficit. This spectacular consuming machine is obviously very important for export-dependent economies such as Europe (Germany) and Asia. They want a high and stable dollar in the interests of their export businesses  so they´ll continue buying U.S. debt paper for years to come. The likelihood that they´ll commit harakiri by dumping their U.S. bonds and crashing the dollar is zero.

On the other hand, a falling dollar results in more dollars to book as revenue and profits for U.S. multinationals, bolstering the U.S. stock market. Also a falling dollar results in demand for more dollars from foreign producers/extractors of commodities who pay their expenses in local currencies that rise against the dollar.

So, these are the great opposing forces that fight about the dollar. It´s a very big dilemma. Eventually the market will figure out the right course undoubtedly. The dollar is the big dog, stocks and commodities and useful and useless metals and other flea stuff sitting on that dog are unlikely in the long run to direct where that dog is going,

 

 

Thu, 10/06/2011 - 16:06 | 1747165 dcb
dcb's picture

the chinese would have to be idiots not to be selling some of their longer dated treasuries. yes it will move the market, but the yeilds are so low. take some profits, then rebuy at a lower level. they can move the market themselves I'd imagine to ensure they can make some kind of profit. I'd be dumping the long dated while ben is buying to prop up the price.

But, based on the last QE 1 and two, how they infact raised bond yeilds. and realizing pomo is a game to get money to prop up the market. I expect the real effect of twist will be to raise long bond yields, and inflation expectations, commodities. stocks. compine with the decreased margin requirements on financials. and the fed is setting up the primary dealers to buy their own stocks with leverage.

Thu, 10/06/2011 - 16:30 | 1747300 Mr_Wonderful
Mr_Wonderful's picture

Debt has collateral, although it isn´t mentioned in song and dance TV.  U.S. land is collateral. There is no reason at all for the Chinese to dump their dollar holdings, They want to keep the dollar high to maximize profit of their exports. Also, they´ll outgrow the U.S. by a magnitude of several factors in the next decades which will only maximize their profits in the next decades as they cash in.

Thu, 10/06/2011 - 14:12 | 1746643 Comay Mierda
Comay Mierda's picture

Every dollar bill printed should have a picture of Bernanke laughing and pointing his finger at you

"In Fraud We Trust"

Thu, 10/06/2011 - 14:19 | 1746672 Mr_Wonderful
Mr_Wonderful's picture

You have like 12 million Oct. put option contracts against the S&P 500. That´s a skyrocketing all time high. Obviously the stock market reacts to this with a big time rally, sucking in the highest number of victims for the eventual fall. Tuesdays the 11th and 18th would seem likely deep red days. For some reason big money likes October for their crashes, maybe it´s a ritual thing with them, and they seem partial to Tuesdays.

Thu, 10/06/2011 - 14:23 | 1746694 Georgesblog
Georgesblog's picture

This is the Bait-And-Switch. The taxpayers are left holding the bag on makingh good on borrowed debt.  As for the Shell Game, the Fed might have more than 3 shells to hide under.

http://georgesblogforum.wordpress.com/2011/09/13/federal-reserve-too-big...

Thu, 10/06/2011 - 14:25 | 1746706 Johnny Lawrence
Johnny Lawrence's picture

So they sell bonds at below market to the PDs, who immediately sell them to whoever...and when the Fed buys the longer-term maturities, they buy those from the PDs, who profit on that transaction as well.

Unfuckingbelievable.

Thu, 10/06/2011 - 14:38 | 1746779 the grateful un...
the grateful unemployed's picture

not sure the banks want to flip them, but rather leverage them. if this had been UST operation it would be normal monetization process, UST sells bonds, the Fed acts as middle man, in extending credit to charter banks, who can extend credit to their customers.

however UST is under the microscope, and therefore the Fed picked up the reins, and rather than extend credit to these Canadian Banks, who have Euro exposure probably, the Canadian banks can use these loans to build up their balance sheet and offset their exposure to Greece and whatever.

it also makes room on the Fed balance sheet to buy other things like assets. or they could be selling their balance sheet because interest rates are getting away from them.

 

Thu, 10/06/2011 - 14:25 | 1746708 the grateful un...
the grateful unemployed's picture

just guessing those Canadian banks have exposure to Europe.

and what about the currency exchange issues?

if we're going to have to prop up Canadian banks is some sort of currency peg going to happen?

and now I see China which does a lot of business with Canada somehow coming into the picture, three interlocked economies all pegged to one anothers currencies?

Thu, 10/06/2011 - 14:30 | 1746735 Alex Kintner
Alex Kintner's picture

Laws are for the commoners. And since commoners don't know what the word 'Arbitrage' means, this heist will continue until the dollar has a duel use as toilet paper.

Thu, 10/06/2011 - 14:37 | 1746773 Village Idiot
Village Idiot's picture

Hey, where are those historically low mortgage rates that twist was going to produce?  Plenty of media hype about "historical" lows but they are nowhere to be found.  Mortgage rates are currently higher than they were before twist was announced...except for the day twist was announced, of course.  Waiting...

Thu, 10/06/2011 - 14:42 | 1746793 Stax Edwards
Stax Edwards's picture

The 30 year fixed is now below 4%.  Lowest ever in history I believe.  

WTF over?

Thu, 10/06/2011 - 14:55 | 1746873 Village Idiot
Village Idiot's picture

Yes, 30 year fixed rates are below 4%...at a cost.  And the cost for those rates are higher than they were before twist.  The headlines are bullshit.

You are currently paying more for for those "historically low" rates than you were weeks ago.  WTF...

Thu, 10/06/2011 - 14:45 | 1746811 Ned Zeppelin
Ned Zeppelin's picture

ZH at its best, uncovering the covert, sub rosa and surreptitious activities of the oligarchs in fattening their wallets.

Thu, 10/06/2011 - 14:52 | 1746846 Village Idiot
Village Idiot's picture

dup

Thu, 10/06/2011 - 15:20 | 1746941 ThirdCoastSurfer
ThirdCoastSurfer's picture

Since these are not new issuance they carry with them not only the rate of the initial versus the market of the present but also that portion of the interest already accrued.

What was initially sold at $99.8 to return $102 is now selling at $100.12, when the accumulated yield, to include the interest payment, now equals $100.50. The Fed collects the $100.12 - $98.8 & the "risk-free" arbitrage is that .38 or so difference as who would not want to buy something at say $100.25 that includes a $.25 hedge (should you need to sell before maturity) and will pay $102 in a little more than a year (thus LTCG)? 

Thu, 10/06/2011 - 15:37 | 1747059 rufusbird
rufusbird's picture

Can I buy it with only 10% margin?

Thu, 10/06/2011 - 15:19 | 1746986 GeneMarchbanks
GeneMarchbanks's picture

Tyler,

Barring some event in need of front page notice please make this the highlighted exclusive article seeing that it's by far the most interesting.

Thu, 10/06/2011 - 16:12 | 1747200 evolutionx
evolutionx's picture

Have a look to the ECB:

European Central Bank commits suicide

 

Michael Mross (www.mmnews.de):

 

Our central bank is committing suicide. On the one hand they are helping banks with billions and billions. They are buying junk bonds, billions and billions. I mean, where does this lead to? It is one of the last nails in the coffin of our central bank.

see complete interview:

http://www.mmnews.de/index.php/english-news/8633-european-central-bank-commits-suicide

Thu, 10/06/2011 - 16:18 | 1747237 ivars
ivars's picture

It is 100% q1 2012-2014. I undertook little exercise to create:

Prediction chart of US debt max, default time, haircut,inflation

Its explained in more detail here:

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&p=34423#p34423

All in all, US debt will reach 21 TRILLION USD in early 2016 at default. Taking into account GDP 2011 = GDP 2010 (14,7 trillion USD) and 4% /year recession 2012-2015, the ratio DEBT/GDP may be close to 170-180%. In any case, >150%. That is a bit higher than the ratio Greece had in 2010 ( 140%) which prompted bailout from EU and IMF to avoid immediate default. No one is able to bailout the USA in 2016.

Haircut will be between 50-75% in 2017-2018, so inflation roughly 25% a year. This corresponds to USDX long term prediction chart (2012-2018) made here:

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&st=0&sk=t&sd=a&sta...

and as related to it, but made earlier and independently, long term  ( 2012-2018) EUR/USD rate prediction chart made here:

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&st=0&sk=t&sd=a&sta...

so everything fits wiht deflationary recession in the USA q1 2012-end of 2014.

 

WHAT DO YOU THINK?

Thu, 10/06/2011 - 17:19 | 1747521 Mr_Wonderful
Mr_Wonderful's picture

Big markets are very technical. The U.S. market has a very big urge to test its major technical level which is the falling 50-day MA at around 1180. The market fell below this technical indicator in August and hasn´t been able to recaputre it in spite of several quite manic rallies. It looks quite bearish to me. The market is also very much damaged internally as evidenced by the fact that Tuesday a third of stocks hit a new low. Now, BAC up 9%, I don´t know, it looks totally bankrupt to to me. Are zombies gonna rule the world? I don´t think so. I think you let bankrupt enterprises expire and others take the mess over if they want, just keep taxpayers out of that game. The market is about a level playing field, why taxpayers should be required to defraud it for losers is totally beyond me. The issue isn´t discussed however, all we have is song and dance TV and its corporate owned whores, excuse my French.

Thu, 10/06/2011 - 18:44 | 1747823 mvsjcl
mvsjcl's picture

Com'on, ZH. I expect much better from you. So you've analyzed what the whale has spouted from its blowhole. Now you know where it's taken a shit?

Thu, 10/06/2011 - 19:12 | 1747895 PulauHantu29
PulauHantu29's picture

KY selling out fast in the USA I read.

Thu, 10/06/2011 - 20:36 | 1748085 turicum
turicum's picture

I don't get it. If there is $27 for every $1 worth of bond, should that not drive up the price a lot?

Wed, 10/12/2011 - 09:45 | 1765289 karmete
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