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Operation Twist Is Coming To An End: A Preview Of The Market Response

Tyler Durden's picture




 

As macro data trends deteriorate and Dudley demurs, it is becoming increasingly clear that the risks for the US equity market are skewed to the downside as we head towards the end of Operation Twist (and seasonal factors subside). The Fed's 'upgrade' from modest to moderate growth certainly spooked Gold and Treasuries and saw small caps notably underperform but given historical precedence, if Operation Twist ends without a new program beginning, investors will likely expect a drop in equities (broadly) of 8-10% (which coincides with the QE1 and QE2 ends as well as the 1983, 1994, and 2003 normalizations in policy). Reiterating our recent theme, in order to avoid the end of Operation Twist, the Fed's economic outlook would need to deteriorate - which itself is a scenario likely to result in falling stock prices and just as the cause of a 'crash' in PCE towards the end of QE1 and QE2 was a function of higher inflation, we have the current spike in energy prices to ensure this time is no different.

 

 

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Mon, 03/19/2012 - 10:27 | 2269486 LookingWithAmazement
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Gold and silver will lower as well.

Mon, 03/19/2012 - 10:31 | 2269497 mayhem_korner
mayhem_korner's picture

 

 

Not in purchasing power.

Mon, 03/19/2012 - 10:39 | 2269525 Surly Bear
Surly Bear's picture

I do not believe they will allow the market to determine a yield curve much less alow it to steepen. They will change the name, implement a new directive, or stick their fat fingers into something else to keep the ball rolling.

Mon, 03/19/2012 - 10:50 | 2269579 The Big Ching-aso
The Big Ching-aso's picture

 

 

The unthinkable.   What if Bernanke cheated on his SAT?

Mon, 03/19/2012 - 11:35 | 2269763 WhiteNight123129
WhiteNight123129's picture

If you have great memory but no understanding I guess you can have a very high SAT.

Mon, 03/19/2012 - 12:36 | 2269991 TrafficNotHere
TrafficNotHere's picture

Question, does anyone know when "operation twist" is finalizing? IE, date / date range?

Mon, 03/19/2012 - 12:52 | 2270060 Jack Napier
Jack Napier's picture

Search engines reveal that it will be over on June 12. Right about when Jan Hatzius is calling for QE3. If they don't do QE3 then expect deflation to set in. They'll probably let the deflation scare happen for a minute so that people won't come with the torches and pitchforks when they do begin QE3.

Or maybe they'll start issuing negative yield bonds. Then the QE sky is the limit and no formal program or declaration is necessary.

Tue, 03/20/2012 - 00:44 | 2272252 Excursionist
Excursionist's picture

The Fed's intervention has comprised selling short-dated maturities and buying long-dated maturities.  No money printed.  That said, a second-derivative effect has been retail and institutional guys getting pushed into riskier asset classes (e.g., AT&T common stock effectively becoming a bond), since real returns of 20+ year USTs have been somewhere between 'dick' and laughable.

Question is whether these investors will come home and cause risk assets to correct once the long-end of the curve moves up.  Using TBT as a simple indicator shows this hasn't happened yet, but the upward trend in long-term yields seems to be only beginning..  I'd keep my eye on something like TBT instead of some arbitrary Fed date that the (alleged) smart money will price in long before you.

Tue, 05/01/2012 - 09:35 | 2387876 ATM
ATM's picture

If the fed sells short dated securities at less tham market price and buys long dated at above market price I call that MONEY PRINTING.

 

 

 

Mon, 03/19/2012 - 13:52 | 2270302 Pool Shark
Pool Shark's picture

 

 

Interesting; if you remove the light blue regions in that chart, and piece the white regions back together, you have the S&P right around 600.

Hmmmmm...

Mon, 03/19/2012 - 10:50 | 2269585 Carl Spackler
Carl Spackler's picture

Correct mayhem.

It's all about relativity.

Mon, 03/19/2012 - 10:53 | 2269601 LookingWithAmazement
LookingWithAmazement's picture

Not sure. If a new run on consumer goods arises, their prices will go higher, but PMs lower: not the same purchasing power.

Mon, 03/19/2012 - 11:01 | 2269640 mayhem_korner
mayhem_korner's picture

 

 

Give me a time horizon more than the half-life of any manipulation, and the purchasing power will hold.

Mon, 03/19/2012 - 11:22 | 2269716 LawsofPhysics
LawsofPhysics's picture

I'd argue the same for any physical asset.  Especially ones that can not be easily stolen and generate revenue, like my rental units or arable land that isn't currently being planted.  Funny how black markets and local favors can still be "purchased" with almost anything.  The only way a corrupt system ends is if everyone stops playing and then you would be fucking suprised exactly what things have "purchasing power".  What kitco says is true, so long as everyone is comfortable with the whole world becoming a cross between India and China.  Corruption in these countries is staggering and more than half of all transactions occur "off the books".  Fine, fucking bring it.

Tue, 05/01/2012 - 09:40 | 2387891 ATM
ATM's picture

What consumer goods have the durability of gold?

When the rush into everything real happens people will still demand something as a durable store of wealth. Gold has proven to be that perfect asset since the dawn of money. Gold is the perfect real money. 

When the general population across the globe realizes that fiat is a scam because every central bank is printing to the bottom then the rush to gold will happen with certainty. People aren't going to rush to digital money. They aren't going to accept paper promises any longer. It will be a something real.

Mon, 03/19/2012 - 10:42 | 2269542 kito
kito's picture

@looking, both will certainly drift lower at some point, and we will not be seeing any new highs in either metal until earliest next year, as ben hasnt printed since mid last year, and wont print again until earliest next year......and when that acute deleveraging event happens, and all of those digital dollars around the world vanish, all of bens horses and all of bens men wont put pms back together again......................physical dollars will be hard to come by.....stock up now............your home depot and your walmart will not be accepting eagles and buffalos to procure whats on their shelves, which wont last very long anyway......

Mon, 03/19/2012 - 10:46 | 2269561 mayhem_korner
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we will not be seeing any new highs in either metal until earliest next year, as ben hasnt printed since mid last year, and wont print again until earliest next year

You don't think the market can respond to all those fresh new digital Euros floating around?  Is it only US fiat that counts?

Mon, 03/19/2012 - 10:51 | 2269591 kito
kito's picture

for pms priced in dollars, yes........dont know about you, but the bulk of my purchasing power lies within the contiguous 48 states........

Mon, 03/19/2012 - 10:56 | 2269613 mayhem_korner
mayhem_korner's picture

 

 

Oh.  That makes sense.  Good thing that gold is not priced in other currencies...or that if it was, the dollar-denominated price would be immune to that.

/sarc

Mon, 03/19/2012 - 23:23 | 2272015 Lord Koos
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Globalism ring a bell?

Mon, 03/19/2012 - 10:52 | 2269578 Mr Lennon Hendrix
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When QE 2 ended gold shot up like a rocket.  What type of information do you clowns use to judge market reatcions?  Animal balloons?  When currency moves out of one asset class it moves into another one.  If cash runs out of stocks, everyone still thinks it will go to the dollar....like this is '87 or something. 

40 years into the Global Fiat Ponzi and people still do not understand your currency is worth nothing!

Mon, 03/19/2012 - 10:58 | 2269620 kito
kito's picture

gold shot its load about a month or so after qe2 ended....and hasnt been back since....people on hopium thought qe3 was up next....its wasnt............pretty straightforward stuff......

Mon, 03/19/2012 - 11:03 | 2269650 mayhem_korner
mayhem_korner's picture

 

 

The people on hopium aren't the ones making the market in physical gold.  Eventually you will learn this, but hopefully not too late.

Mon, 03/19/2012 - 11:05 | 2269659 The Big Ching-aso
The Big Ching-aso's picture

 

 

Speaking of shooting its load.   Get your hand off that thing.

Mon, 03/19/2012 - 11:06 | 2269671 LawsofPhysics
LawsofPhysics's picture

ZIRP is fucking QE idiot!!  There is a very real cost for creating capital and not adding any real value to the system.  Seems like people have not learned the lesson of Japan.  Fine with me, I have many physcial assets, many are generating revenue, so fuck it.  The paper fucks will learn the hard way, same as it ever was.

Mon, 03/19/2012 - 12:14 | 2269918 kito
kito's picture

zirp is not qe, and again, for the 10th time lawsphysics, when you see gold break through its high from last year only if qe3 is implemented, you will understand the difference....

Mon, 03/19/2012 - 12:47 | 2270047 Jack Napier
Jack Napier's picture

ZIRP is not QE in that it is not buying treasuries outright, but it is still expanding the money supply through more of a water drip method than a full on flood, because as long as banks can loan money for a higher intrest rate than they have to borrow at, and as long as all these loans use money conjured into existence for the purpose of the loan, the net result is the same.

P.S.
Your crystal ball is made out of meth.

Mon, 03/19/2012 - 14:27 | 2270355 slewie the pi-rat
slewie the pi-rat's picture

twist is QE, kito, not "zirp" as you "correctly" state

agreed: twist in its present known and reported form is not funding the debt with newly "printed" FRNs;  yet it is still QE, by definition, as far as i know from looking stuff up

thxz for the link to the article about israel;  more gobbleeygook to pretend that last week's gobbleygook has now been "fine tuned" around "iran"

Mon, 03/19/2012 - 11:18 | 2269701 J 457
J 457's picture

Any whisper of QE3 and metals will pop 10-20% in a week or less.  We've seen it countless times in the past few years. 

Mon, 03/19/2012 - 11:41 | 2269788 WhiteNight123129
WhiteNight123129's picture

Kito I think you should be a philatelist.

Mon, 03/19/2012 - 13:11 | 2270144 kito
kito's picture

what makes you believe im not?

Mon, 03/19/2012 - 11:09 | 2269676 Non Passaran
Non Passaran's picture

Not any more

Mon, 03/19/2012 - 11:14 | 2269690 SRSrocco
SRSrocco's picture

INSANITY & STUPIDITY

Anyone with a proper functioning BRAINSTEM will realize that QE has not stopped even though the BERNANKE and the CLOWNS on the BOOBTUBE tell the world otherwise.

What a fricken charade.  QE has been taking place all along as we sit and have to watch the LIES and GARBAGE from the FED.  I am simply amazed that anyone believes anything that comes from D.C. anymore. 

If you haven't placed your bets in little coins made of GOLD and SILVER and still think your PENSION PLANS, 401K, IRA or CD's will provide you future wealth....well then... its too late to try and KNOCK any sense it ya.

Mon, 03/19/2012 - 10:31 | 2269493 Biggvs
Biggvs's picture

When does Twist end? 10-years seem to think it has ended already.

Mon, 03/19/2012 - 10:32 | 2269501 prains
prains's picture

Ends with the start of hostilities

Mon, 03/19/2012 - 10:47 | 2269571 Zero Govt
Zero Govt's picture

that'll need funding

Mon, 03/19/2012 - 11:21 | 2269605 TruthInSunshine
TruthInSunshine's picture

I've been saying for a month that Bernanke has lost control of rates. He won't try to suppress yields on the long or intermediate end of the curve because he knows he doesn't have the firepower given the other dynamics at play to successfully pull it off (i.e. he won't because he can't).

I will be the contrarian. There won't be any expansion of the Fed's balance sheet. For all those claiming that Twist, ZIRP, or the rumored "sterilized QE" is the same as QE, they're wrong; none of the 3 truly expands the size of the Fed's existing balance sheet.

Watch for more and more frequent headlines of 'Modest Increase in Interest Rates A Positive Signal From Economy,' and such, as they spin.

Jeffrey Saut (a sell-side poster child, but I digress) was out over the weekend saying higher interest rates won't be a problem given the underlying strenth in economic fundamentals, and if anything, higher interest rates will confirm the underlying strenth in economic fundamentals, and this will be the new byline of sell-side.

Look at the rush of corporate share buy-backs (using cheap money) and the corollary rush to sell low yielding corporate debt.

Just this morning, there was a widely disseminated headline of "Expected Rush of Mortgage Re-Financings in Coming Month" or something similar.

Rates are going to continue to rise. The end.

Mon, 03/19/2012 - 11:34 | 2269759 DavidC
DavidC's picture

I don't know if rates will rise, but if they do then The Fed is toast, leveeraged at over 50 to 1. Bernanke knows he HAS to hold rates at the floor.

DavidC

Mon, 03/19/2012 - 12:21 | 2269868 TruthInSunshine
TruthInSunshine's picture

Can anyone credibly explain why it would matter, given the size of our deficits and aggregate debt, whether the interest paid on the debt is 250 billion annually or 350 billion annually (or 450 billion annually, for that matter)?

Also, why would "the Fed be toast," assuming interest rates rise?

They don't have to offload anything. They can keep twisting until the cows come home. In fact, they can just sit on the assets, many of them eroding in value, and toxic, for a long time. What would be the catalyst in the short or intermediate term that would put pressure on the Fed to try and seek a profit on its current holdings, or even avoid a loss?

 

*Spelling Nazis - I meant to write 'strength' in my prior post, rather than 'strenth' (I've been making many typos lately).

Mon, 03/19/2012 - 12:25 | 2269958 GeneMarchbanks
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You've (unknowingly?) asked a question that spans a multitude of categories: finance, bond investor sentiment/psychology and geo-politics. The latter is most important to interest rates. Think of rates as being outsourced along with everything else that matters to an industrial economy.

They will not be allowed to rise without some complete left-field shock.

Mon, 03/19/2012 - 12:37 | 2270002 TruthInSunshine
TruthInSunshine's picture

They are already rising.

Mon, 03/19/2012 - 12:53 | 2270071 GeneMarchbanks
GeneMarchbanks's picture

I'd say trading up, nothing conclusive at least for me. Twist will end then we'll see.

Mon, 03/19/2012 - 12:25 | 2269960 Greenhead
Greenhead's picture

It doesn't matter in the sense that the FED can monetize more debt to pay the interest and then refund said interest (minus a fee) back to the federal gov.  It does matter in that the projected deficit from the interest component and the taxes needed to pay the interest due can be used as a sledgehammer against the productive class in America.

Mon, 03/19/2012 - 15:18 | 2270130 TruthInSunshine
TruthInSunshine's picture

So you are saying that the Federal Reserve actually is concerned with, let alone significantly concerned with, whether the interest component on the national debt has an adverse impact on the "productive class?"

The interest expended on servicing federal debt was 451 billion USD in FY 2011.

Let's assume yields rise 33%, on a smoothed basis, over the next 18 months. They won't rise that much, but I will use higher figures to demonstrate a fundamental point.

That would result in an additional 148 billion in interest that would have to paid to service the debt (just assume for the sake of this debate that the debt doesn't increase; I know that it will, but let's try to keep this simple).

The expected 2012 federal budget is 3.73 trillion USD.

An additional interest component paid of 148 billion USD would represent less than 4% of the 2012 federal budget.

That's deficit pocket change for the fiscally looser than a Bangkok whore U.S. government.

Mon, 03/19/2012 - 10:42 | 2269539 dvsteenk
dvsteenk's picture

and Italian 2yr up 11%, 5yr up 6.7%

last Friday Belgium 2yr was up 30%

I guess ECB had pushed down yields far enough, now they'll throw money again on Portugal and Spain...

Mon, 03/19/2012 - 10:57 | 2269624 Voltaire
Voltaire's picture

I think it ends in June

Mon, 03/19/2012 - 11:48 | 2269826 knightowl77
knightowl77's picture

Why June? Elaborate....

I have thought this Ponzi scheme would have collapsed many times in the past and it just keeps chugging along....or circling the drain but never actually entering the drain....

Mon, 03/19/2012 - 11:12 | 2269684 DeadFred
DeadFred's picture

June is the scheduled date.

This is sad for me, having switched from a temporary bullish outlook to full bear last week. Long dated ZH posts are one of the most reliable bullish indicators in existance. I don't want to see a graph that shows the market is likely to turn over two month after the June 2012 end of The Twist. I want my downturn and I want it now! (mostly joking)

Mon, 03/19/2012 - 11:48 | 2269831 slaughterer
slaughterer's picture

Dead Fred, it all blows up in August.  Not until then.  Not until AAPL $1000.

Mon, 03/19/2012 - 11:43 | 2269800 WhiteNight123129
WhiteNight123129's picture

Well, given the rise in rice, sugar, barley, beef, pork, poultry, salmon in teh last 10 years. The long bond needs to yield at least 7% for money to be neutral between borrowers and savers. What happens for housing if the Long bond is that level? Humm?

So you have you answer on future QEs, Bernanke would have a crash with long bond at 7-8%...That is delightful for PMss...

 

Mon, 03/19/2012 - 10:35 | 2269510 SmoothCoolSmoke
SmoothCoolSmoke's picture

Dow down.  Gas down.  Job #s up.  Obama ratings up.  Then, on 11/7..... all bets off.

Mon, 03/19/2012 - 10:37 | 2269515 surf0766
surf0766's picture

Gas went up 14 cents at my local pump from Friday night.

Mon, 03/19/2012 - 10:44 | 2269532 SheepDog-One
SheepDog-One's picture

'Gas down'? Not here it isnt. Up $1 just last week. ObaMao ratings up? Where do you see that? 41% doesnt look too up to me.

Mon, 03/19/2012 - 10:49 | 2269581 kito
kito's picture

gas up by me from 3.49 two weeks ago to 3.53......not great but not terrible....meanwhile israel is backpeddling now...just as i said, they will wait till after elections, they wont bite the u.s. hand that feeds them..

 

http://www.politico.com/news/stories/0312/74157.html

Mon, 03/19/2012 - 10:54 | 2269595 SheepDog-One
SheepDog-One's picture

Well I dont believe a word from Israel. 'After the elections' what with gas by then $5? I dont believe any of this 'full suspension of disbelief till after elections' because no one can explain what happens after that. What then, 4 more years of suspension of disbelief till after the NEXT elections?

Mon, 03/19/2012 - 11:00 | 2269623 Dr. Engali
Dr. Engali's picture

If Israel doesn't know by now that Obama is not in their camp then they will never learn. My thoughts are they know exactly where he stands so I call bullshit on the article.

Mon, 03/19/2012 - 11:30 | 2269713 LongBalls
LongBalls's picture

Gold or any other asset/money/currency will not be allowed to trade for oil very long. This article is complete B.S. smoke screen. Tune out the noise boys. Western warmongers are simply trying to play the victim. They are provoking Iran while trying to seem like the peace negotiator. Next up. False flag.

Keep in mind; we have a debt ceiling to be raised this summer.

Mon, 03/19/2012 - 10:58 | 2269630 Carl Spackler
Carl Spackler's picture

Follow their track record as a mouthpiece.  Politico is just the current administration's propaganda outlet (and always citing unnamed sources), trying to make their viewpoint appear to be a mainstream viewpoint.

Don't fall for it.  The global petroleum markets are not.

And, just flip over to www.debka.com to see how the war preparations continue, and how the Middle East is getting closer to another battle of scale.

 

Mon, 03/19/2012 - 10:50 | 2269589 Zero Govt
Zero Govt's picture

yes will Bummas bottom poll ratings be able to claw past the bottom ratings of George W

it's a margin call for junk-bonds in Hope & Change

Mon, 03/19/2012 - 10:56 | 2269614 SmoothCoolSmoke
SmoothCoolSmoke's picture

I'm not saying that is what "is".....I 'm saying that's what the Buck Fernankie "wants/needs" going forward.

Mon, 03/19/2012 - 12:32 | 2269982 slaughterer
slaughterer's picture

Dow up. Vix up.  All makes sense. 

Mon, 03/19/2012 - 10:38 | 2269520 sablya
sablya's picture

When is the last day of OT?

Mon, 03/19/2012 - 10:40 | 2269521 Cognitive Dissonance
Cognitive Dissonance's picture

If one were to look at the above chart from the point of view of the Fed, they appear to have been wildly successful in inflating "asset" prices.

Mission accomplished. And only a "few" Muppet investors and pathetic savers harmed along the way.

Mon, 03/19/2012 - 10:44 | 2269535 Dr. Engali
Dr. Engali's picture

Unfortunately  a lot of other "assets" and those things that people need to survive got caught in the path of this artificial lift.

Mon, 03/19/2012 - 10:47 | 2269567 Cognitive Dissonance
Cognitive Dissonance's picture

I assume you are referring to the little people and they pitiful pathetic savings.

/sarc

The wealth extraction process is almost complete. Middle class has been downgraded.

Time to wash, rinse and repeat on the upper middle class in three.......two.........one.........commence market plunge.

Mon, 03/19/2012 - 10:49 | 2269577 malikai
malikai's picture

LOL. Poor people's problems.

Mon, 03/19/2012 - 10:42 | 2269540 SheepDog-One
SheepDog-One's picture

So now what?

Mon, 03/19/2012 - 10:50 | 2269587 Cognitive Dissonance
Cognitive Dissonance's picture

One more time......just for the fun of it.

Those sociopaths are a wild and crazy bunch SD1.

Mon, 03/19/2012 - 10:55 | 2269608 SheepDog-One
SheepDog-One's picture

Theyre just monetizing the debt thats all, while everyone looks at it thru an electron microscope. 

Mon, 03/19/2012 - 11:02 | 2269644 Cognitive Dissonance
Cognitive Dissonance's picture

Even a micro penis looks like a huge Fed Dickhead when viewed through the electron microscope. :>)

Mon, 03/19/2012 - 10:38 | 2269522 monopoly
monopoly's picture

Agree on gold. Dollar also might have one more leg up before it moves much lower. No rush. But until we get a dump in AAPL keeping my bets very small. Lots of confetti, which I hate.

Mon, 03/19/2012 - 10:39 | 2269526 Watson
Watson's picture

Do not worry about the end of twist.

Worry instead about what happens when the Fed starts to normalise it's balance sheet.

Mon, 03/19/2012 - 10:51 | 2269593 359766
359766's picture

noo ... there's a master mind exit strategy, isn't there? OooO

Mon, 03/19/2012 - 10:41 | 2269533 MFL8240
MFL8240's picture

More bullshit.  No one is buying US debt and no one wants it so they will print forever because theyhave no choice, lies nothwithstanding.

Mon, 03/19/2012 - 10:47 | 2269568 SheepDog-One
SheepDog-One's picture

They wont print forever, theyre just monetizing the debt. But people have problems seeing the forest for the trees.

Mon, 03/19/2012 - 10:55 | 2269594 Dr. Engali
Dr. Engali's picture

It is becoming increasingly obvious. I think the next round will be the last.

Mon, 03/19/2012 - 11:04 | 2269661 SheepDog-One
SheepDog-One's picture

Im not so sure theres a 'next round' myself, obamao just signed HR347 'Martial Law Lite' where the govt can sieze all your property and assets, and makes it a felony to protest the govt. Somethings set up to go down here.

Mon, 03/19/2012 - 11:28 | 2269738 LongBalls
LongBalls's picture

It's called war. It will be global. It will be big. The results will usher in the NWO and a new currency or basket of currencies trading in supply based on SDR's. Will the SDR's be backed by gold. Me thinks they will try everything to NOT let that happen.

What ever your opinion they are planning for something big. I suggest you do the same.

Mon, 03/19/2012 - 10:42 | 2269537 HD
HD's picture

I guess it's time to release from the Strategic Hopium Reserve...

Mon, 03/19/2012 - 10:44 | 2269553 prains
prains's picture

Bullish for skittles

Mon, 03/19/2012 - 10:43 | 2269547 sablya
sablya's picture

If yields jump so sharply in response to mere incremental changes in the Fed's language, these people say, the reaction could be quite extreme once a more substantive policy change is announced. Some fear a similarly sharp reaction if the Fed simply sticks to the June 30 end-date for its "Operation Twist" program, in which it has been buying long-dated bonds using the proceeds from selling short-dated notes.

"The Fed is facing a tremendous problem going forward," said Steve Blitz, chief economist at ITG Investment Research. "After getting everyone drunk at the punch bowl, they've now made themselves the designated driver."

http://online.wsj.com/article/SB10001424052702304459804577285722977603232.html?mod=googlenews_wsj

Mon, 03/19/2012 - 10:43 | 2269548 grid-b-gone
grid-b-gone's picture

The Fed has been successful with backdoor infusions that it doesn't need to discuss or justify. Expect quiet support to continue.

There will be no twist, or QE, or publicly announced program. As instruments mature, funds will be reinvested as the Fed has stated for the past few years. There will be new money added, as needed, but no high-profile programs.

Invisible hand meet invisible Fed. 

Mon, 03/19/2012 - 10:46 | 2269562 SheepDog-One
SheepDog-One's picture

Theyre monetizing the debt, the last act of all failed empires, thats all.

Mon, 03/19/2012 - 10:44 | 2269551 caconhma
caconhma's picture

Words investing and US financial markets have nothing in common.

The crooked game is going on. It is all

Mon, 03/19/2012 - 10:47 | 2269564 sablya
sablya's picture

The Fed is going to be left with tremendous paper losses as interest rates rise given their balance sheet bloated with long-term treasuries.  And not just the Fed but balance sheets of the ECB, PBC and BOJ as well are going to be crushed if interest rates rise substantially.  

What are the ramifications of these CBs sitting on huge paper losses?

Mon, 03/19/2012 - 10:48 | 2269575 SheepDog-One
SheepDog-One's picture

Nothing. Theyre monetizing the debt, with free money they imagined up out of thin air. It doesnt matter the VALUE of the 'assets' at all, just that THEY now own them all!

Mon, 03/19/2012 - 10:48 | 2269573 hyper-critical
hyper-critical's picture

And if people are looking for an 8-10% decline, especially given the slope of vix futures, it will take a hell of a lot more to clear markets.

Look for treasuries to catch a bid (my thesis is they were sold off to raise cash for cds settlement/adjustments to rest of cds book), the yen to catch a bid (after being wrong for a decade, sellside and real money don't really understand the intermediate-long term reasons why yen should weaken) and the markets to implode.

Oh, and fuck Apple. And Lloyd Blankfein.

Mon, 03/19/2012 - 10:50 | 2269586 SheepDog-One
SheepDog-One's picture

Well thats because everyone is looking at the mural thru an electron microscope. Theyre monetizing the debt, thats ALL!

Mon, 03/19/2012 - 11:05 | 2269668 Jayda1850
Jayda1850's picture

We all say AAPL is a bubble and the financials are on the verge of huge writedowns and collapse, but goddamn anyone putting money down on these bets is losing their dick. I mean seriously how low can FAZ go? These make believe markets make me question all the rules of fundementals. Probably safer just going to Vegas and putting all my money on black WTF.

Mon, 03/19/2012 - 10:51 | 2269588 VelvetHog
VelvetHog's picture

".....if Operation Band-Aid ends without a new Band-Aid beginning..."  One Band-Aid after another.  There  will be a new Band-Aid because its an election year.  Band-Aids to infinity and beyond!!!!!!!!!!

Mon, 03/19/2012 - 10:52 | 2269596 Rainman
Rainman's picture

Bernank has only one mission now....get the Kenyan-in-chief re-elected....or it's off to the ivory tower for both of them. Expect the unexpected.

Mon, 03/19/2012 - 10:57 | 2269619 SheepDog-One
SheepDog-One's picture

I dont believe this line that its all about getting the Asshole in Chief elected. HR347, signed over the weekend, 'Peacetime Martial Law Bill' is its being called...somethings set to go down.

Mon, 03/19/2012 - 11:24 | 2269726 Vince Clortho
Vince Clortho's picture

Arab Spring 2, Occupy v2?

My take is the most honorable Kleptoligarchy was displeased with the demonstrations by the ungrateful pond scum last year, so they are passing legislation  that will allow them to legally halt these distasteful free speech and freedom activities.

 

Mon, 03/19/2012 - 10:55 | 2269604 firstdivision
firstdivision's picture

Actually wouldn't the end of this push those out of bonds and into equities (assuming of course they don't mind gambling)?

 

*eidt*...or the Euro...lulz.

Mon, 03/19/2012 - 11:12 | 2269685 grid-b-gone
grid-b-gone's picture

Bond money, capital from a failing euro and austere Europe in general, money from a slowing China and related BRICs, and digital Fed money is all making its way into the U.S. market.

Even with mostly stagnant earnings and energy and commodity inflation, U.S. stocks will continue to look good on a relative basis. They are fully-priced now, but will continue their advance

Within a year, corporate P/Es will look so high that U.S. real estate will look cheap and catch a bid. That is the point at which the Fed will need to ease back and relinquish control back to the core market. 

Then, the debt hangover needs to be controlled, but active Fed pumping can be dialed back.

Humans do not tend to relinquish power. Just as Greenspan couldn't stop himself in 2003, will Bernanke be able to give the market back to the market? History says "no". 

Mon, 03/19/2012 - 10:53 | 2269606 JustObserving
JustObserving's picture

US Federal debt is increasing at $1.5 trillion a year.  Unfunded liabilities are increasing at $6.63 trillion a year. That is a net increase of $8.13 trillion every year.

There is no chance that interest rates stay low or affordable without continuous money printing or, more euphemistically-speaking, quantitative easing.

The Fed can never stop printing - our debts are too overwhelming and growing too fast.

Mon, 03/19/2012 - 12:02 | 2269877 LawsofPhysics
LawsofPhysics's picture

the grand failure of academic eCONomists in failing to understand exponential equations and what that implies for real growth.

Mon, 03/19/2012 - 10:58 | 2269629 JPM Hater001
JPM Hater001's picture

This time is different.

Mon, 03/19/2012 - 11:01 | 2269642 SheepDog-One
SheepDog-One's picture

Yep this time americans get a kornholing like nothing else ever seen in the world...HR 347 ObaMao just signed that he can take all your assets, cash, property, stocks, for any reason he feels like, also makes it a felony to 'dissent' and protest against the govt at all. How many people actually get whats going on here, 1 out of a million?

Mon, 03/19/2012 - 11:15 | 2269691 Vince Clortho
Vince Clortho's picture

QE1

QE2

Operation Twist

Operation Screw

 

Lyrics from an old Chubby Checker song?

Mon, 03/19/2012 - 10:58 | 2269631 SheepDog-One
SheepDog-One's picture

I dont believe any of this 'Its all about election year, nothing else matters' I think they have far different plans.

Mon, 03/19/2012 - 10:59 | 2269635 SmoothCoolSmoke
SmoothCoolSmoke's picture

OT.  Whew, what just hit the Euro's ball with a cattle prod?

Mon, 03/19/2012 - 11:24 | 2269728 surf0766
surf0766's picture

No one owning up to it?

Mon, 03/19/2012 - 13:51 | 2270134 slewie the pi-rat
slewie the pi-rat's picture

well. maybe it was operationTwistTM coming to an end

prob not, tho, b/c oTTM is still expected to run for just a tad over another, uh, 20 months; this is what i understand the chairsatan to have said, but who knows what "search engines" have been "fed"?  or if he issued a policy tweet and i didn't get it? 

but if there is a rumor about the FED abandoning its interest-rate "vigilance" on the long end, why not write/run an article leaving out any dates, about stock plummeting  if Operation Twist ends without a new program beginning? 

it is not impossible that oT is ending anytime soon but it is extremely unlikely due to the macro soup dilution and the projected goobermint funding needs unless we are going to re-vamp the taxCode and go with the negativeIncomeTax structure for a more efficient social "system" rather than keep shovelling all present production + savings needed to socialize TBTF losses + inflation directly into the gaping maws of established/organized interests, which can't happen b/c these interests have captured if not all opinion-making, decision-making, and review, then certainly enuf to control the "budget flows" and then "make-up differences" as needed on the backs of the working poor

as a matter of fact, looking at these ideas/"facts" and the present timing commitment, i don't see why oT should even end at the end of '013", unless the FED needs to "expand the balSheet" again to keep pace w/ goobermint waste and "promises" by just printing the required tril$ and taking the Ts (behind the curtain, of course), or unless it has "lost its effectiveness" and can't keep the borrowing rates down, or it runs outa short-end securities with which to enter chubby's dance contests

this assumes, of course, that the purpose/goal/teleo-econ of the "rockefeller interests" controlling the FED and the captured goobermint and its "deciders" is not to BK the nation ASAP, which, of course, would leave a little shortfall for the military arm of the NW0 aka the US military

so why not keep ye0ldeHomeland 'solvent, fed and entertained'?  really.  look at the bigPicture, and enjoy the aroma of rich, fresh coffee, too!

 why is the EUR getting goosed?  i don't know!  beyond that, the SNB is threatening to devalue the swissFranc again, against the EUR, so the jowboning may be having some effect, or "isiders" may know that this is more than "bullshit"?   the "dollar" was getting a bit strong, perhaps?  or the EUR "oversold, technically"? EUR buy orders or reversals of last week's "bets"?  who cares?  

that said, if you are short Ts here and "making lotsa b4-tax money" perhaps you have some company, eh?  as a matter of fact, the FED and its agents know every poisition and every stop, or at least every one they care to know, so perhaps the realDealCattle-prodAction will be when those shorts are forced to cover and the bids are pulled by the banksters in the same nanoMomo

or, maybe the FED will just announce "noMo dancin w/chubby in a short while like this "article" pretends to "ass-u-me";  we'll prob know for sure within about 2-3 weeks, and maybe even sooner, but beating the "dollar" down, short-term, is just encouraging more shorts, here, isn't it?  doncha think?  at the same time, the long bond could go down another 15 points and not really effect the US finances too much;  this lead to the idea of the FED pausing in its medical treatment to see what the "patient" does for a short time on its own regarding those vital signs such as T-curve rates and prices

while we piss into the wind, here, the FED (FED/Treasury would be better,here) knows its own plans/options and also has all the info, orders, and stops

so stay tooned, BiCheZ!

Mon, 03/19/2012 - 11:05 | 2269665 Bluntly Put
Bluntly Put's picture

Come now you are all so negative. What we are really talking about is what is considered "valuable". Obviously, storing labor above and beyond what is necessary for survival as traditionally deemed "value" was replaced by socially engineered and "agreed" upon principles via the electorate and those hidden hands that manipulate the public's perspectives. We call the toxic waste from that process debt.

As that debt has been degraded from it's own previously declared definition of value it is necessary to fabricate an entirely new form of illusion to replace that term humans hold so dear, that of "value".

I anticipate something on the order of a new public lottery for slots in a new TV reality show assuring the "winners" of an instant 15 minutes of fame regardless of talent or ability. A weeks worth of labor should afford everyone the opportunity of appearing in this charade and provide the liquidity necessary for the status quo to continue their illicit asset stripping brigage of insanity.

Mon, 03/19/2012 - 11:16 | 2269696 ekm
ekm's picture

10% my ass.

USA based primary dealers have bought so much crap at Fed orders, that one of them is on the line to be the 4th to be spermatized.

Reminder, they are NOT  lending to each other, regardless of the public perception that the Fed fixed the problem. Why are they not lending to each other?

I'm saying it's going to be at least a 20% drop and probably a 30% drop in order to clear the market.

- Bear Stearns

- Lehman

- MF Global

- Who is next?

Mon, 03/19/2012 - 11:19 | 2269702 buzlightening
buzlightening's picture

"Last act of a corrupt government is to loot the treasury." George Washington.  

Looks like we're way beyond that.  Nothing in the treasury except worthless promissory notes, from worthless politicians, having mortgaged the future unto several generations.  Sure wouldn't want to be the politicians left to face the angry public when the ponzi collapses.  

Figure with the exec order signed Friday evening by lil scambo, we'd expect some civil unrest in peace time.  bankster resignations, war drums beating, and goon platoon ready to throw US citizens into fema camps for civil disobedience begins to add up.  Don't need a calculator to see this leaning tower of jello ready to topple, with spineless politico holding it up. 

Mon, 03/19/2012 - 11:24 | 2269725 Shizzmoney
Shizzmoney's picture

99 Problems, and a Dip Ain't One.

If You Ain't Got Gold, I Feel Bad for You, Son.

Mon, 03/19/2012 - 12:05 | 2269888 JamesBond
JamesBond's picture

this chart matches our company's bottom line perfectly.....

(publishing)

Mon, 03/19/2012 - 12:34 | 2269987 blindman
Mon, 03/19/2012 - 12:43 | 2270030 MaggieL
MaggieL's picture

Wash: Well, if she doesn't get us some extra flow from the engine room to offset the burn-through, this landing is gonna get pretty interesting. 

Mal: Define "interesting" 

Wash: [deadpan] Oh God, oh God, we're all going to die?

Mal [on PA]: This is the captain, we have a little problem with our entry sequence, so we may experience some slight turbulence and then...explode.

Jayne: We're gonna explode? I don't wanna explode!

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