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Jon Hilsenrath Is Wrong: Why Operation Twist Will Not Be Extended

Tyler Durden's picture




 

Yesterday, Goldman's Jan Hatzius, piggybacking on what has now become a prevalent belief among Wall Street economists following a "leak" from the WSJ's Jon Hilsenrath, predicted that the FOMC minutes would hint at more easing, in the form of "sterilized" interventions, or in other words, an extension of Operation Twist. There is, however, one problem with this analysis. It is total BS, for a simple reason that for every bond on the long end that the Fed buys (and it has bought a whopping 91% of the 20-30 year gross Treasury issuance), it has to sell one in the 3 Month - 3 Year maturity interval. And therein lies the rub. As Bank of America shows below, at the end of Twist in June there will be just 2 months worth of Treasurys available for sale. What could fix this? Well, instead of ZIRP until 2014, Bernanke could say the Fed would keep rates at zero until 2016 or even 2018, and proceed to sell all Fed holdings in the 3 month - 5 year or 3 month - 7 year intervals. This however, would make the entire bond curve an epic farce, shifting the belly to beyond the 10 year point, and in the process blowing up the MBS market due to total collapse of traditional convexity heding strategies. Which we don't think is likely unless the world is coming to an end. In other words, anyone hoping that Twist will be extended, is wrong, and in turn it means that any real option for the Fed's NEW QE will be the outright monetization (aka LSAP) of either USTs or MBS, ala QE1 and QE2.

BofA explains further:

Extending Twist is a limited option, as the Fed will have only about $175 bn of short-dated Treasuries (3 months to 3 years) in its SOMA portfolio on June 30. That would allow two to perhaps three months of further twisting at the current pace — i.e., into September. That does buy some time, but the Bernanke Fed has not been one to go for half-measures or small steps since the crisis began. If the outlook warrants more easing, we still see QE3 as the most likely tool chosen.

Math - it's fundamental.

 

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Wed, 04/04/2012 - 11:24 | 2316482 Stoploss
Stoploss's picture

WHEN can we put that little cocksucker Hilsenrath in jail???

Wed, 04/04/2012 - 12:14 | 2316671 strannick
strannick's picture

The pigs ear has been twisted all it can. The pig now needs to be stuck in the butt again with the QE pitchfork if the market is to squeal higher

Wed, 04/04/2012 - 19:08 | 2317901 Buck Johnson
Buck Johnson's picture

The market is down today because they believe no QE but if the market continues down they will have to do something along the lines of a QE and they don't want too.

Wed, 04/04/2012 - 11:30 | 2316493 SheepDog-One
SheepDog-One's picture

So now we're not going to number QE's and like Apple just call it 'New QE'?

You conclude more outright monetization is coming, well has anyone figured out at what point monetization is done? Could be already done? My point is you dont just monetize the debt in perpetuity, at some point the debt is monetized, and I suspect theyre pretty much done. But hey go ahead and 'NEW QE', I'd like to see what happens when gas shoots over $7, hey go for it.

Wed, 04/04/2012 - 11:33 | 2316514 HarryM
HarryM's picture

This is a Reuters headline today - freaking sad isn't it?

 

US STOCKS-Wall St tumbles on waning hopes of Fed stimulus
Wed, 04/04/2012 - 11:36 | 2316524 SheepDog-One
SheepDog-One's picture

I got a tear reading it, boo hoo.

Wed, 04/04/2012 - 11:38 | 2316531 HarryM
HarryM's picture

11:35 - will the Invisible Hand appear today?

Wed, 04/04/2012 - 11:42 | 2316554 SheepDog-One
SheepDog-One's picture

Well they keep talking about needing a 'crisis', why not just go with it now and let stocks fall and declare it their 'crisis' and perform 'New QE'? No time like the present Ben.

Wed, 04/04/2012 - 11:45 | 2316566 HelluvaEngineer
HelluvaEngineer's picture

Heck, people are already trying to front-run it

Tue, 06/05/2012 - 20:30 | 2497982 Soul Train
Soul Train's picture

so true, lots of frontrunning and others just buying at the 200sma. If their expectations aren't met, look out!

Wed, 04/04/2012 - 12:04 | 2316623 earnyermoney
earnyermoney's picture

Obama giving a speech today? If not, you'll see the hand that moves his lips move the market.

Wed, 04/04/2012 - 12:55 | 2316842 Vince Clortho
Vince Clortho's picture

There is only one man who can save the financial system now. 

He has saved the financial world many times.

He did it again last month.

In his fortress of solitude BernankeMan can hear the cries for help.

[... to be continued]

 

Wed, 04/04/2012 - 15:04 | 2317293 Carl Spackler
Carl Spackler's picture

Could easily say...

US Addicts - Herion addicts suffer withdrawal on waning hopes of Fed pushing

Wed, 04/04/2012 - 11:35 | 2316517 schoolsout
schoolsout's picture

What happens when Pensions, States, etc. can't meet obligations?  Do you think people will be happy that gas is only $1-2?

Wed, 04/04/2012 - 11:38 | 2316533 surf0766
surf0766's picture

I'll be hapy then. Redo the contacts.. Better yet follow the GM model and cancel all public union contracts for starters.

Wed, 04/04/2012 - 11:45 | 2316565 schoolsout
schoolsout's picture

I just have that feeling that the people that rely on the gov't for many things will be out in the streets taking whatever they see/want.  It's obvious the people can't connect the dots between the QEx's and rising commodity costs, but they can connect the dots to the gov't not providing them with their monthly dose of freebies...

 

You pickin' up what I'm puttin' down?

Wed, 04/04/2012 - 11:49 | 2316576 LawsofPhysics
LawsofPhysics's picture

Better yet, what happens when the pensioners are wiped out and gas stays high.  Why would a commodity sold around the world suddenly drop simply because a few Americans went broke?  The BRICs have plenty of "money" to spend on this commodity and (unlik America) their demand is growing. $1-2 gas, right, Michelle Bachman is that you?

Wed, 04/04/2012 - 11:58 | 2316606 schoolsout
schoolsout's picture

Why did the price of gas drop so much back in '08-'09?  Liquidity dried up...people couldn't leverage what wasn't there.  The same thing has very good chance of occurring again should the CB's of the world choose to stop "printing."

I think that is what we need, by the way.  I just don't see the Central Banks who have kept the debt/credit bubbles going for decades as coming to the same conclusion.

Wed, 04/04/2012 - 12:03 | 2316621 LawsofPhysics
LawsofPhysics's picture

Looking at the charts I don't see gas going anywhere near $1.00 or $2.00. back then.  You said specifically $1.00-2.00.  Ain't going to happen.  Numerous examples of inflation occuring regardless of "liquidity" or "demand" (look at every currency collapse).

Yes, you are right the CBs will fight reality to the death, they always have.

Wed, 04/04/2012 - 12:21 | 2316715 schoolsout
schoolsout's picture

Gas was below $2 in 2008...just before the flood of liquidity started from the Fed/Gov

Wed, 04/04/2012 - 12:24 | 2316726 LawsofPhysics
LawsofPhysics's picture

I see it below $2.00 before the 2001 crash, not the 2008 crash.

Wed, 04/04/2012 - 12:39 | 2316782 schoolsout
schoolsout's picture

http://www.reuters.com/article/2008/12/21/us-energy-gasoline-retail-idUS...

 

Nat'l Avg in the $1.6x range...it was lower here in SC

 

Then the bailouts/QE/whatever was announced...and prices went up as liquidity flooded the markets once again.

Wed, 04/04/2012 - 12:43 | 2316804 LawsofPhysics
LawsofPhysics's picture

SC, well that explains it. Just another example of rural areas being taxed in numerous ways to bailout the northeast and west coast.  Unless you see a big raise in your future, I'd leave.  This will continue and SC is not well represented among the thieves running the show.

Wed, 04/04/2012 - 12:48 | 2316817 schoolsout
schoolsout's picture

What are you talking about?  The national average was in the $1.6x range...SC was lower.  You were claiming there was no sub-$2 gas after 2001.

 

 

Wed, 04/04/2012 - 13:09 | 2316892 LawsofPhysics
LawsofPhysics's picture

Not in San Diego.  Again, I see more "rob from the rural folks to bail out the cities" moving forward.

Wed, 04/04/2012 - 11:49 | 2316577 surf0766
surf0766's picture

I got ya. It is way past time people stop putting their well being on someone elses' shoulders.  The last time I saw $1.00 gas or close to it was on the way toe Cape May NJ the day we started in Afghanistan. It was 77 cents that morning.

 

Peace.

Wed, 04/04/2012 - 12:16 | 2316682 lotsoffun
lotsoffun's picture

the 'people' can't do basic math, read or write or speak correct english.  anybody posting on this blog is really well into the top 10% if not 1 or 2 %

it's easy to lose track of how little people really know, or care.  i don't know farmland areas, but i know big cities and in big cities education is how to sign up

for this and that, and that is the kind of education people give each other.  they don't explain 'you know pal, the national debt is so large, that, in order not

to bankrupt the nation, they might start taking away our benefits, and inflation may sky rocket and we won't have anything to sustain us, so maybe

we should start looking for a job'.

doesn't exist.

 

Wed, 04/04/2012 - 11:39 | 2316537 SheepDog-One
SheepDog-One's picture

No I dont think people will be happy with what theyre going to do next at all, seizing all their pensions and 401K's will make mom and pops bummed out.

 $1-$2 gas? I dont know about that, what would be causing all time lows in oil and gas pricing? $1 gas?

Wed, 04/04/2012 - 11:43 | 2316557 schoolsout
schoolsout's picture

An economy that can only stand on the Fed's legs...when they pull the rug, the money is gone and we go back to 2008

 

I guess...Hell, I don't know.  I just don't see them not providing liquidity/more QE in the future.

Wed, 04/04/2012 - 11:50 | 2316580 SheepDog-One
SheepDog-One's picture

Yep, and its telling the Wall St media keeps wringing their hands over why retail isnt showing up to buy like mad. What they really need to do is pass off their money printing top here, not print more, but they never considered that theyve bankrupted everyone and there is no one to come in and buy.

Wed, 04/04/2012 - 11:50 | 2316585 LawsofPhysics
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FYI- ZIRP is free money or QE by any other name.  Unfortunately those zero-interest loans are not for you.

Wed, 04/04/2012 - 11:56 | 2316597 SheepDog-One
SheepDog-One's picture

Right, and now banks are sitting on so much 0% free money in so many trillions no one can even keep count, and wondering why 'credit' is not catching up with 'costs'? And why 'retail' is not swarming back in to panic buy the top of their market pump here? Laughable.

Wed, 04/04/2012 - 11:27 | 2316495 Dr. No
Dr. No's picture

The Treasury could come the rescue by selling a bunch of short term to make up the difference?  This would require more government spending but I am confident they can determine projects to spend it on.

Edit: but this would require the FED to increase money supply significantly.  which I dont think they will do.

Wed, 04/04/2012 - 11:28 | 2316498 Cursive
Cursive's picture

Scylla, meet Charybdis.

Wed, 04/04/2012 - 11:31 | 2316507 Dumpster Fire
Dumpster Fire's picture

two to perhaps three months of further twisting at the current pace — i.e., into September.

 

Gonna need something else.  November is the operative month here.

Wed, 04/04/2012 - 11:32 | 2316512 SheepDog-One
SheepDog-One's picture

Maybe, maybe not. Could be theyre done with ObaMao and want a new puppet to call the bad guy for whats coming next.

Wed, 04/04/2012 - 11:43 | 2316558 Dr. Engali
Dr. Engali's picture

They're not done with him yet. The rest of the crowd is just a side show.

Wed, 04/04/2012 - 11:46 | 2316567 SheepDog-One
SheepDog-One's picture

I dont know what theyre going to do, but I suspect the 'conventional wisdom' conclusions on it all will prove to be totaly wrong.

Wed, 04/04/2012 - 11:31 | 2316508 Shizzmoney
Shizzmoney's picture

 Bernanke could say the Fed would keep rates at zero until 2016 or even 2018

They can't raise interest rates.  Otherwise the ponzi gets exposed.

Wed, 04/04/2012 - 11:32 | 2316510 Buzzworthy
Buzzworthy's picture

No need to call it QE by any number.  The objective is obfuscation, right?  Considering the Fed is already in the process of monetizing 50%-60% of debt issuance every auction without calling it anything why is a name necessary?

Wed, 04/04/2012 - 11:35 | 2316519 SheepDog-One
SheepDog-One's picture

Its what fascism looks like.

Wed, 04/04/2012 - 11:36 | 2316528 Jason T
Jason T's picture

Woud love to see them lose control and the backlash of this deal with the devil money printing.

Wed, 04/04/2012 - 11:37 | 2316532 Nathan Hale
Nathan Hale's picture

Looking at the eurodollar STIR market, it seems as if operation twist is in effect as we speak. massive  flattening going on between 2013 and 2014. they are bungholing everyone that positioned on the fed minutes yesterday!

Wed, 04/04/2012 - 11:42 | 2316549 Dr. Engali
Dr. Engali's picture

Damn the DAX got creamed today. All that money printing wiped out in a flash.

Wed, 04/04/2012 - 11:44 | 2316562 SheepDog-One
SheepDog-One's picture

Aaand, its gone. Gone? Yep, gone.

Well I guess it shows easy free money come, easy free money go.

Wed, 04/04/2012 - 11:46 | 2316568 Dr. Engali
Dr. Engali's picture

Just like clock work. Europe closes and the robots start churning the markets higher. Europe needs better robots.

Wed, 04/04/2012 - 11:52 | 2316587 SheepDog-One
SheepDog-One's picture

Working hard to regain market losses here, seems to me they both need a 'crisis' and terrified of letting a crisis appear anywhere, or even letting -100 DOW points stick. 

Wed, 04/04/2012 - 11:49 | 2316569 Heiman Van Rock...
Heiman Van Rockerchild's picture

That is exactly what they have been doing and will continue to do. All through massive fraud, lies, deceit, propaganda and manipulation.

Shining The Light of Truth on The IRS with Former CID Agent Joe Banister

https://www.youtube.com/watch?v=iEL2uOG9Jrc&feature=player_embedded

Constitution Class

http://video.google.com/videoplay?docid=-8577731528746978991#docid=50858...

http://archive.org/details/Michael_Badnarik

 

Wed, 04/04/2012 - 11:58 | 2316605 Son of Loki
Son of Loki's picture

Murtha Airport, brought to you by American taxpayers

 

http://news.yahoo.com/blogs/power-players-abc-news/murtha-airport-brough...

 

the Fed will need to print forever to fund this and other similar pork projects...

Wed, 04/04/2012 - 12:12 | 2316660 Sutton
Sutton's picture

Ben broke on through to the other side.  And there is no way back.  He will end up owning every US Bond out there, and  at all time highs.

He can not waver, even just a minute.

Wed, 04/04/2012 - 12:25 | 2316730 Gigantor
Gigantor's picture

CNBC is getting in on these proclamations as well and as a conduit of Stock Pushing Pimps (TM) that means something....something here is being telegraphed or they wouldn't put it out as headline.

"Will the Fed Intervene if Stocks Fall Too Far?"

http://www.cnbc.com/id/46952253

 

And other CNBC headlines stories about "Can the market survive without money printing?" and such.

 

Something big is going to happen soon...it has too for Big Dumb Ben to have his beloved QE3.

Wed, 04/04/2012 - 13:08 | 2316884 arm50
arm50's picture

they can the reverse-repo the shit out of short end. 

Wed, 04/04/2012 - 13:45 | 2317038 ffart
ffart's picture

Come on, what's the big deal? Just buy gold contracts after pit hours and sell them before Europe opens. It's the easiest goddamn market to trade in the world.

Wed, 04/04/2012 - 14:07 | 2317100 slewie the pi-rat
slewie the pi-rat's picture

L0-fuking-L!

jHilsenrabbit  is wrong that chubbyChecker will not be extended past june b/c the FED has only enuf short-term Ts to EXTEND IT INTO SEPTEMBER?

keep drinking, tyler!

i agree the FED will almost certainly hafta "print" to fund the Treasury's "needs"

when?  it is pretty difficult to say, right now, isn't it? 

however, perhaps some are paying close enuf attention to see that right  now, the FED isn't too interested in announcing any new policies around the T market or anything else

today we see some "capital" being annihilated by "deflation in the 'markets'"

as i said yesterday:  if we consider that the unspoken focus of the FED may be to finance the Treasury for the fuking goobermint spending, without letting the balloon of inflation get untethered and streaking aloft too fast, headed for the strat~0~spear, a little deflation would be just the ticket, here, for our hero

with soybeans up to $14.20 a bushel and green again, today, one wonders when the guys at theSquid will notice, so tyler can talk about what their "advice and analysis" are about soy protein...  something about being able to eat it, perhaps...

Wed, 04/04/2012 - 14:01 | 2317113 Yancey Ward
Yancey Ward's picture

Haven't they already laid the groundwork for the workaround on this problem?  Didn't they float the idea of creating short term Fed paper to raise the funds for longer term bond purchases?

Wed, 04/04/2012 - 14:12 | 2317151 slewie the pi-rat
slewie the pi-rat's picture

i think so, Y

but as i recall, that was a plan the "sterilize" a LSAP into MBS, not Ts

of course, they should keep their fuking hands offa housing at this point.  they've done more than enuf, already, BiCheZ!

to allow these clowns to "fix it" while lining their cronies' pockets with public funds?  Hahaha! 

Wed, 04/04/2012 - 20:53 | 2318109 WhiteNight123129
WhiteNight123129's picture

You have to love money throwing on a bar of Silver...

 

Fri, 07/27/2012 - 10:37 | 2656475 lucas991
lucas991's picture

And you were wrong!

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