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Goldman's Take..."A Bold Twist"
A Bold Twist
BOTTOM LINE: Fed "does the twist", announcing plans to sell short-term securities and buy longer-term Treasury securities through mid-2012. Though IOER remains unchanged, overall the move is more aggressive than expected given a) a relatively large share of purchases at the long end of the yield curve, b) plans to reinvest prepayments of agency debt and MBS back into agency MBS, rather than in Treasuries.
MAIN POINTS:
1. As we had expected, the Federal Open Market Committee decided to "do the twist" and increase the duration of its securities holdings by selling shorter-maturity securities ($400bn of Treasuries with maturity of 3 years or less) and buying longer-maturity securities ($400bn of Treasuries with maturity 6-30 years).
2. The Fed chose to maintain the interest rate on excess reserves (IOER) at 25bp, contrary to our expectations of a small cut, but overall the details of today's action were more aggressive than expected in two respects: First, a relatively large portion of the purchases will occur at the long end (29% in the 20-30 year maturity bucket), implying a total impact of more than $400bn in 10-year equivalents, versus market expectations of perhaps $300-350bn. Second, the Fed will reinvest maturing and prepaid agency MBS and agency debt in agency MBS, rather than Treasuries, suggesting a bit more support for the housing sector. The statement retained an easing bias, noting again that the FOMC "is prepared to employ its tools" to "promote a stronger economic recovery in a context of price stability".
3. Consistent with the more aggressive policy easing, the statement emphasizes the weak state of the economy, suggesting "continuing weakness in overall labor market conditions" and "only a modest pace" of growth in consumer spending. The FOMC notes the moderation in (headline) inflation in recent months and, as before, expects it to "settle...at levels at or below those consistent with the Committee's dual mandate". While the FOMC still forecasts some improvement in the pace of growth, "there are significant downside risks to the economic outlook, including strains in global financial markets".
4. Once again, three FOMC members--Dallas Fed President Fisher, Minneapolis Fed President Kocherlakota, and Philadelphia Fed President Plosser--dissented, with the statement noting only that they "did not support additional policy accommodation at this time".
Source: Goldman
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They are shitting their pants
No, they are attempting to never do that by squeezing as hard as possible then using clothespins then using staples. The point is to avoid consequences for their 100 year denial that they are full of waste. Sooner or later, it is going to break out. The more they try to avoid reality, the more painful it will be when it is released.
Almost everyone had been telling me how Kocherlakota had turned into a dove, after misinterpreting his statements made after the last FOMC meeting.
As I had stated, Kocherlakota not only isn't more dovish, he regrets putting a time table on the ZIRP commitment, now.
Risk Off, and equity markets are going to catch up with the bearish economic fundamentals that bond markets have been signaling for some time now.
It's going to be a long, hard, painful fall (and Fall).
*p.s. Goldman's Take - We went short equities with massive leverage way before this announcement. We pay good money to former and current Federal Reserve decision makers, and it's not because they're intelligent.
**p.s. There are unconfirmed reports that Paul Krugman, upon hearing the FOMC announcement, attempted to commit suicide using a Montblanc fountain pen.
Please tell me the Thugman news is true. Please. I beg of you.
Total BS. It's 400bln out in short-term UST and 400bln in in long-term UST. This crap about 10-year equivalents is total nonsense. Fed doesn't care about market risk (as in DV01). Pathetic attempt by GS to give this a positive spin.
let them squirm
http://covert3.wordpress.com
Hey Goldie, how's that $99 stock price grabbing ya? BREEHEEHEE!!!
Source: Goldman
RFLMAO
I wonder how the asian markets will digest the FOMC news tomorrow....
New 52 week low on JPM.
Silver:JPM now at 1.3066.
C'mon let's break through $31. BOOM 30.59.
I need a smoke.
Damn can we break 30.50?
30.48...30.46...30.36...30.32...30.26.
Ended on a new 52 week low and already down $0.02 after hours.
Go Gold.....heavy metal thunder!
be interesting to see what
" Agency MBS "
the fed buys..
Goldman is so full of stock.
Extending the duration of the FED"s portfolio will only intensify their losses when this whole Ponzi needs to be unwound!!
stocks won t do anything i think. nor would gold or commodities of sort. most likely market will head lower.
Why they are swapping long term debt for short term one? I can't understand.
Well, they do exact appositive of what you are saying, by swapping short term for long term
instead. In intend to push longer term rates down, cause mortgage rates are based on 30-years
yield, hopping for more refinance mortgage activity to somewhat help housing market.
I see. +1 and thanks for the explanation.
GOLD getting punished by twisters :) even Silver is up
The FOMC meeting that people have been wringing thier hands over turned out to be a big nothing burger. Banks cost of funds is already, basically, zero. To think that somehow this will spur lending is a joke. Lending to who? The underwater homeowner? The small business owner who's future is unclear? Nothing has changed, merely another arrangement of deck chairs on the Titanic.
That's what you say when someone just pulled the trigger to murder you? A bold twist?
Goldman are a bunch of funny guys.
What is the big deal here? Ordinary Americans hungry for safety and yield have been selling off short maturities to get into long term bonds with higher yields for the past 3 years!
Can I ask a question?
If money markets and checking/savings accounts are based on short term debt borrowing-like what happens to the principle of the short note as it gets dumped?
Does the money market start losing principle? Are people encouraged to save if the yields in the savings system go up and there's some interest accrued?
Does even more lower rates really spur on lending if banks make:
1) Less money on the curve
2) People are on a higher default trajectory, and makes lending at a lower yield less profitable.
I seriously doubt this is going to do much if the market recrashes, europe goes as does China. We all be running into the Dollar in a huge panic driving up the cost of cash and debt anyway.
Way fucking stupid move...
Gold is betting punished as it should.
Yellow metal gold monkeys get powned by the Fed.
GS telegraphed the entire move, and year to date it has been infallible:
Is Goldman Sachs Telegraphing the September 21 FOMC results?All the big players can get into position, sell to whatever suckers are left out there-if they haven't been reading the news...
Everyone dumping short notes and going long bonds.
Unfortunately, the admininstered rate by the FED is not the floor of the borrowing market. nobody is going to go to their window or lend pretty soon. Commercial, retail, bank to bank.
So the entire yeild curve will get sucked lower-as banks start confiscating savings by charging for accounts. But preservation of cash will be huge so the run to CASH under the mattress and PM's will be enormous.
Holding onto your cash will be the hardest thing you have ever done.
Bernanke just turbocharging the market plunge
Time for Blankfein to take a fucking hike!