A Look At How $58 Billion In USD Purchases Buys You 4 Days Of FX Intervention

Tyler Durden's picture

It was just 4 days ago that the BOJ purchased Y4.5 trillion (or $58 billion) worth of dollars in the open market to lower the Yen against the dollar. Well, that intervention last not even a full 4 days. As the chart below shows it is time for Shirakawa and Noda to start watching... watching... watching... the yen as it once again approaches all time highs against the dollar. But at least the equity market is confused enough to believe that 2 years of projected deflation is good for risk. Ben wins.... if only for a few hours. The irony is that everyone expected that a fixed inflation (or in this deflation) calendar language is the weakest of the Fed's options. Now that this is precisely what has been utilized, a soft form of Operation Twist 2 which locks in the rates on the 2 Years as explained previously, the market is cheering it deliriously. Once the market has slept on it, it will likely realize why it was so skeptical as recently as 2 hours ago on the viability of this approach.

And after all that, for all those still confused by what is going in the market, here is Peter Tchir with another attempt at an explanation:

I was definitely thinking it was bad for risk assets at first.  It stopped short of any QE3 and definitely didn't hint at the ability to do more.  I really didn't think much about the 2013 date for virtually zero Fed Funds.  Probably because I'm bearish on the economy and haven't been betting on a raise in rates any time soon.  In the end, that single line item may be doing more than QE3 could have.  QE3 would have gotten a pop, but would of had a whiff of desperation.  Keeping rates at zero certainly isn't a ringing endorsement of the economy, but in seems more like an extension of an existing policy, rather than a knee-jerk reaction to the market.  He keeps QE3 in his back pocket and as of now is managing to get stocks and treasuries to go up!  They were also able to say that the economy is showing signs of weakness.  Although I believe it is heading weaker than they anticipate, they did give other investors a reason to remember why they were bullish as recently as a week ago. 

It is pretty clear now that the S&P cut had no impact on the desire to buy treasuries.  Yesterday's move in stocks may have used S&P as an excuse, but it also had BAC to push it down (which has stabilized today), and continued fears of European markets (where the ECB has been able to keep rates stable two days in a row). 

I am not sure we are out of the woods on this sell-off, but for once I have to give credit to Ben and the Fed. They have come out with a statement and policy that seem to be working at least for an hour, which these days feels long term.  Personally I find it a lot less objectionable that they plan on holding Fed Fund rates at zero for a couple of years than QE3 (knowing they will change that if they need to).  I have to think about it more, and that ultimately it is the same thing, but my initial reaction is that I find it less offensive.  And probably far easier to exit from.  I am always quick to complain about Ben and the Fed, but for now I'm willing to give him credit for coming up with this plan.

One thing I have been viewing as positive is the move in Italian and Spanish yields.  I am being told that this was done with somewhere between 3 and 8 billion euro. That seems like an incredibly low number to get such a big impact on over 2 trillion of debt.  To move yields so much with so little just shows how illiquid that market is.  The bull argument would be that means that the ECB has plenty of money to keep rates low.  The bear argument would be that such little money is likely to have a long term impact.  The big question I'm trying to get my hands around, is what were the volumes that went through on the move wider?  I've known the markets were illiquid, but this is even less liquid than I would have ever guessed.  Have I been over reacting to the move wider in Spain and Italy?  Trying to dig out more volume data.

And once again, gold has been strong all day.

Given how oversold assets like high yield and stocks are, this might just be enough to keep the markets going.  Though I'm certainly going to see if the current PPT-like stick-save can last until 4 pm.

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SloaneSquare's picture

So do we think the BOJ will come in tonight and reverse this? CHF the same?

Silver Bug's picture

QE3 is coming. They have no choice expect to do QE to infinity. The question is, when will it cease to work. I think we can all agree that we are not far off.



Archimedes's picture

400 pt rally on BS from the Fed? I think the shorts got cought with there pants down. Time to fade this rally again!

Frankie Carbone's picture

This short's belly is full. I have 6 staggered SDS calls open with a Jan expiry and that's it. 

I've got a meal to digest for now, to lick my chops, and let all the fresh lambs stampede into the corral. 

I figure I'll be getting hungry again soon. Plenty of lamb for the slaughter. Thing is that I'm fair about it too. I warn them not to go into the pen but they are just dying to go munch on some of that tasty value clover. 

This last week was a blast! Wind this bitch up and let's do it again. 

Internet Tough Guy's picture

So many complicated explanations. All they had to do was turn the dial to BUY.

kaiten's picture

If SNB and BOJ want to reverse the flight to safety they need to start buying italian and spanish bonds en masse. That´s the only possibility.

ads56's picture

idiot website costs me thousands today you fear mongering bastards


WonderDawg's picture

So, you decided to roll the dice today, and you lost. Now you want to blame the guy that handed you the dice. Nice.

DormRoom's picture

You don't read zerohedge for the analysis  (it's usually perma-bear, and has a hard on for Mises, and gold).  You read it because they are a bear news aggregator.  Then you go off and do your own research.

TruthInSunshine's picture


(sell the bernank)

Debtless's picture

It's not like the $58 billion cost them anything. You get what you pay for i guess.

reefermadness's picture

And after that nothings changed much, buy gold.


adr's picture

From 10627 to 11239. 612 points in an hour and fifteen minutes. WTF to infinity man. Nasdaq up 125 points.

That is just too much. GREAT HOCKEY STICK CLOSE PPT!!!

Cursive's picture

This idoit Tschir is cheering The Bernanke and considers illiquid markets a good thing? Next, please.

sheep92's picture

Careful playing poker with the bernank.  He has sleeves that no one has ever seen....

rosiescenario's picture

Noticed the silver miners stock prices appear to have de-coupled today from the metal price.


This may get very interesting...JP Morgue may be able to manipulate the spot price of silver at will, but trying to control the miners' prices is quite a different story....maybe I am misreading this, but it sure seems that there was a sea change on these stocks today.....

gratefultraveller's picture

Might that have to do with the info given by the Silver Bears that the big players are cutting out the middle man (COMEX) and buying directly from the miners?

Raynja's picture

The bernank, who has admitted he could raise rates in fifteen minutes, puts an arbitrary date on extended period language that can be changed at any time and reminds everyone he didn't get rid of his printing press and markets go ape shit......... Wow, fucking wow.

WonderDawg's picture

Yep, well played by the Bernankster. After the statement, have the PPT come in and stop the bleeding, drive the market up some, at which point the late shorts started freaking and covered, providing the last 30 minutes worth of ramp up. People are getting killed. Late longs got slaughtered the last 10 days, late shorts got slaughtered today. 5% swings in under 2 hours. Sheeeit!

Glad I'm mostly on the sidelines watching this show. Might decide to buy some more shares in my bear fund, though. This baby's turning back down soon, and the trend will stay that way for the foreseeable future, I believe.

rosiescenario's picture

"Might decide to buy some more shares in my bear fund..."


Thinking the same thing, but I am going to also be using out of the money calls on top of the shorts....this market is just too crazy right now to try and pick one direction.....like a schizo taking a crack and meth cocktail...if your EKG looked like today's market chart, you'd be in ICU...having been given last rites 3 times already...

WonderDawg's picture

Like a schizo taking a crack and meth cocktail... That's awesome. It's funny, I was thinking the same thing about the chart, the market was having a massive coronary. Wild shit. You have to be a little bit insane to try to trade this market right now.

Grand Supercycle's picture

Equity counter trend short covering rally begins from very oversold levels.


ThirdCoastSurfer's picture

$86 billion! 1% of Japan's GDP. Thru 2013, exceptionally low rates. Asset, bond even equity purchases in the US, Japan & the EU, what do these counties represent, like 85% of global GDP?  

You can be sure that the invisible hand keeps a balance sheet,  is an excellent accountant which cannot be deceived,  but is not overly concerned with micromanaging.

As with all balance sheets, assets always equal liabilities; and it is important to note that the reverse is also true. In this instance however, debt over assets (not GDP) what you get is negative shareholder equity -something distinct from assets because it is external to the corporation.  

The effects are readily observable in similarly situated corporations. Shareholders need only arrive in sufficient numbers to support an offering or issuance or ignore what amounts to a unrealized loss. 

In the global market this is achieved through fiat. But in either case a funny thing begins to happen to assets. Liabilities are aptly named. Debt forces an defensive strategy, like a bear market does, you can force a bull rally, but the trend is not your friend. 

I need to go so I skip ahead without conclusion: Only growth can turn the tables. Growth is demand, demand is a want, a need, an insatiable obsession of the masses. Cheap desalinated water is the best answer so as to aerate huge swaths of land and make them available, desirous to the masses for a century or more. 

Oil, production, energy, not enough. 


Librarian's picture

August 2011 was the third time Japan has sold its currency after six years of a hands-off approach that ended in September 2010.
The BOJ sold 692.5 billion yen ($8.8 billion) on March 18, and on September, 2010  Japan sold 2.12 trillion yen.  The BOJ also now expanded its asset-purchase fund to 15 trillion yen from 10 trillion yen and also enlarged a credit facility by 5 trillion yen to 35 trillion yen.

choorles's picture

lol... they pretty much just printed up the entire silver market... and nothing happened


if you do not think silver is going to the moon.. then its time to educate yourself


crash jp morgan, end the fed, buy silver!

chinawholesaler's picture

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