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Primary Dealer Treasury Holdings Surge At Fastest Pace Since Summer 2007 Market Peak In Anticipation Of Twisting, Market Dump

Tyler Durden's picture




 

Back in the summer of 2007 two important things happened: the market hit an all time high, and the smart money realized what was about to happen (following the subprime and the Bear hedge fund blow up, it was pretty clear to all but Jim Cramer) and bailed out of stocks and into bonds, with Treasury holdings of Primary Dealers soaring at the fastest pace in history. Well according to the Fed, in the past few months Dealer holdings of Treasurys due in more than a year have soared by a whopping $90 billion, from a $75 billion short on May 6 to a $15.1 billion long on September 7. As Bloomberg reminds us, "the last time dealers bought bonds at such a rapid pace was between July 2007 and September 2007, as losses on subprime mortgages began to infect credit markets and the central bank unexpectedly cut interest rates." Also, as noted above, all hell was about to break loose. So what explains this surge in Dealer bond holdings? Well, expectations for said hell breaking loose all over again is one reason, as is the imminent announcement of Twist, QE3+, and who knows what else Bernanke has up his endless sleeve that will make the 2s10s as close to inverted as possible, putting Bank of America permanently out of business. To quote from Bloomberg again, "The problems are endless” for the economy, William O’Donnell, head U.S. government bond strategist at RBS Securities Inc., a primary dealer, said in a Sept. 13 telephone interview. “What will surprise people is how long this period lasts of very, very low rates.” Judging by leading market indications, perhaps people will not be surprised after all.

 

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Mon, 09/19/2011 - 08:31 | 1684005 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

WARNING: Treasuries contain no treasure.

Mon, 09/19/2011 - 08:41 | 1684026 spiral_eyes
spiral_eyes's picture

germans voting for the pirate party hoping that they will get some treasure out of those treasuries will be disappointed.

Mon, 09/19/2011 - 08:44 | 1684032 SheepDog-One
SheepDog-One's picture

Damn straight!

Mon, 09/19/2011 - 09:17 | 1684112 rocker
rocker's picture

Just a Parking Place without a toll booth.

Mon, 09/19/2011 - 09:22 | 1684128 flacon
flacon's picture

They do contain obese American slaves though. 

Mon, 09/19/2011 - 09:44 | 1684233 Smiddywesson
Smiddywesson's picture

WARNING: Treasuries contain no treasure.

Neither does our Treasury

Mon, 09/19/2011 - 08:32 | 1684006 oobrien
oobrien's picture

Here comes the deflation!

Can you say "commodity bubble".

It's all going down hill.

We might as well jump off our Soviet-style apartments.

What else is a boy to do?

http://geraldcelente.proboards.com

Mon, 09/19/2011 - 12:40 | 1685095 narnia
narnia's picture

the market has been signalling deflation since the latin american debt crisis.  the Fed didn't let that happen.  the Fed hasn't let it happen on any of the subsequent rollercoasters.  you'd be a fool to think they are just going to let it happen now. 

the Treasury will cut checks. the FDIC will pay depositers. the game will continue until the checks have no value.  

maybe master central planner will announce a great new balance sheet expansion for the Fed, consistent in value with all of their other holdings...  premium buyouts of all green technology companies.

Mon, 09/19/2011 - 08:33 | 1684007 props2009
props2009's picture

Crude and SPY regression is 0.91

How intertwined are they? Also CORN and CRB index charts

http://capital3x.com/?p=1411

 

Mon, 09/19/2011 - 08:44 | 1684031 fdisk
fdisk's picture

Talking about crude. We better draw "who say what and when"/
"She said, He said"
chart, cause it's same as S&P moving on the News lines rather
than technicals.

Mon, 09/19/2011 - 09:00 | 1684051 SheepDog-One
SheepDog-One's picture

Carrot and stock from here on out, once decoupled from fundamentals and now all market moves depend on news of an impending phone call, theres no going back.

Mon, 09/19/2011 - 08:36 | 1684015 msmith
msmith's picture
USDCAD bullish price action. A large move higher could be developing. http://bit.ly/pYLx6u
Mon, 09/19/2011 - 08:37 | 1684016 Moneyswirth
Moneyswirth's picture

Meanwhile, this:

 

Investors have pulled more money from U.S. equity funds since the end of April than in the five months after the collapse of Lehman Brothers Holdings Inc., adding to the $2.1 trillion rout in American stocks.

 

 

Mon, 09/19/2011 - 08:38 | 1684021 LawsofPhysics
LawsofPhysics's picture

Which is precisely why the smart money has been going the other way.  

Mon, 09/19/2011 - 08:50 | 1684034 Zero Govt
Zero Govt's picture

is that the same "smart money" (Goldman Sucks, JP Morgue et al) that can't trade (make money) unless they're rigging the market?

Remember the human brains liquid super-intelligence has been replaced on Wall Street by unconscious pre-programmed toilet flush mechanisms (computers). That's how "smart" Wall Street is!!!

Answers on a Postcard to: Village Idiots, Dept for Elite-Educated Morons, Wall Street, Postcode: LOW IQ

Mon, 09/19/2011 - 09:06 | 1684074 LawsofPhysics
LawsofPhysics's picture

You are ignoring the venture capital markets.  These guys are the real smart money as they always get their pound of flesh.  These guys have been steady buyers of value with plenty more cash on the sidelines.  This is the "smart money" I am watching, fuck wall street and propietary trading desks, after these idiots eat each other we can get back to productive markets.  Just unfortunate that it may take 20-40 years for them to do so.

Mon, 09/19/2011 - 09:22 | 1684089 Zero Govt
Zero Govt's picture

i'm all for productive markets but the stock market is no such thing... it's 'a game' (which I like nonetheless) where you put money to punt (risk your capital to make a profit). A productive market is a shopping mall, a bizarre or farmers market, internet commerce etc

what i don't get is why anyone thinks pulling money out of equities and putting them into Govt Bonds is "smart"? You're earning sweet nothing in interest!!

'Smart Money' would surely short the markets if they thought they were going to tank and pick up a handsome profit doing so if the bet was right or putting it into the bull market of precious metals. Piling into Govt Bonds is about as 'smart' as punching yourself in the face

so this 'smart money' is actually running scared like a herd of cattle into a safe haven earning nothing in interest (being eaten by inflation in fact) ...this is in truth very dumb scared clueless money

Mon, 09/19/2011 - 08:37 | 1684017 LawsofPhysics
LawsofPhysics's picture

History rhyming, not repeating.  Commodities are just fine Ben, China and India need them and China remains pegged to the dollar.  India is experiencing hyperinflation and so will China of they de-peg.  Deflation only in things no one needs.

Mon, 09/19/2011 - 08:47 | 1684035 SheepDog-One
SheepDog-One's picture

Deflation/inflation definitions ONLY apply to FED so-called 'assets'.

Mon, 09/19/2011 - 08:39 | 1684022 lolmao500
lolmao500's picture

Interest on the bonds is about to soar. You betcha.

Mon, 09/19/2011 - 08:40 | 1684023 spiral_eyes
spiral_eyes's picture

I personally find the spike in reverse repo scarier, but they essentially confirm the same thing:

http://azizonomics.com/2011/09/11/big-change-for-europe/

Mon, 09/19/2011 - 08:44 | 1684025 Zero Govt
Zero Govt's picture

 

"...it was pretty clear to all but Jim Cramer.."

Don't blame Cramer, he's paid handsomely to avert his eyes and spread bullshit on CNBC ..Hey, it's just his and Steve Liesmans job alright!

Mon, 09/19/2011 - 08:42 | 1684028 ziggy59
Mon, 09/19/2011 - 09:00 | 1684071 lolmao500
lolmao500's picture

What the hell? Is it me or they are already selling what Europe has not agreed to?

Mon, 09/19/2011 - 08:43 | 1684029 Cursive
Cursive's picture

I won't deny that we have had substantial inflationary periods since 2001, but the inflationary factors are always contained by the systemic deflation caused by too much debt.  Until the debts are repudiated, our global economies will be fighting deflation time and again.

Mon, 09/19/2011 - 08:56 | 1684061 Robslob
Robslob's picture

" our global economies will be fighting deflation time and again."

 

It is the time and time again part that Governments Love!

Mon, 09/19/2011 - 08:45 | 1684033 SheepDog-One
SheepDog-One's picture

So now Mondays will be 'Rule 48' opens?

Mon, 09/19/2011 - 08:50 | 1684039 Sambo
Sambo's picture
Hush-a-by baby
On the tree top,
When the wind blows
The cradle will rock.
When the bough breaks,
The cradle will fall,
Down tumbles baby Ben,
Cradle and all.
Mon, 09/19/2011 - 08:55 | 1684059 SheepDog-One
SheepDog-One's picture

And on top of everything, the markets and Rosie expect Bernank to pull some kind of a golden unicorn out of his ass in 2 days? Im watching from the nosebleed seats, protective raingear on for this shitstorm!

Mon, 09/19/2011 - 08:54 | 1684053 firstdivision
firstdivision's picture

Have no fear, for The Bernak is here!  The Fed will just put through ~$900B QE3 + Twist to make sure stocks stay levitated.  The Fed does not care about 98% of the population, and whether or not they can survive on their wages.  The Fed has only one mandate, and that is to keep stock prices up.

Mon, 09/19/2011 - 09:05 | 1684066 SheepDog-One
SheepDog-One's picture

No the FED's mandate was to transfer the wealth. 

Go ahead Ben I dare ya, Print...but I know you wont, its only the carrot and stick youve been living on for the last 9 months and that game is over now, 2 previous can kicks and Wednesday youre out. At best we'll get some more mumbo jumbo about rates, extended periods, tools, watching and waiting, etc that everyone will 'word jumble' and read the tea leaves trying to figure out 'what did he really say'? It will be pathetic. 

Mon, 09/19/2011 - 09:48 | 1684259 DosZap
DosZap's picture

SD One,

"It will be pathetic. "

Is there EVER a time when it hasn't been when the Fed speaks, and no one understands them, even them.

Someone pulled the THERE WILL BE A DROP IN PM's lever, on time, as predicted.

Could be some GOOD reloading time ahead.

$1400.00 Bitchezz.

Mon, 09/19/2011 - 09:55 | 1684289 Smiddywesson
Smiddywesson's picture

Yeah, the big announcement will be the next meeting is so important it has been stretched to three days.  Yawn.

Mon, 09/19/2011 - 08:58 | 1684067 Robslob
Robslob's picture

These algos have been keeping this market up in order to sell the news....otherwise...Priced in for hand off.

 

Mon, 09/19/2011 - 09:03 | 1684076 SheepDog-One
SheepDog-One's picture

Yea last week was a market crown jewel of full-retard.

Mon, 09/19/2011 - 10:01 | 1684311 Smiddywesson
Smiddywesson's picture

LMAO, +1800

Mon, 09/19/2011 - 09:05 | 1684085 fdisk
fdisk's picture

EZ is the nightmare for Bernank, he might very well spend 1T
dollars on any QE, but EZ bullsh*t will undo any positive
effect in couple of days.. They need World-wide "QE", otherwise
ain't gonna work.

Mon, 09/19/2011 - 09:07 | 1684092 SheepDog-One
SheepDog-One's picture

Yea and the world is saying 'go back home Geithner we dont want your money printing'.

Mon, 09/19/2011 - 09:08 | 1684093 buzzsaw99
buzzsaw99's picture

shorting treasuries, how patriotic. die bitchez!

Mon, 09/19/2011 - 09:18 | 1684117 warchopper
warchopper's picture

The real treasury yield is negative for 0 to 30 yrs right now. Good job Geitner and Bernake! Keep up the good work!

Mon, 09/19/2011 - 09:21 | 1684135 vote_libertaria...
vote_libertarian_party's picture

Or maybe they know they can't unload them without crashing the price...

 

Thus holding them waiting for the Fed to buy them at a nice premium.

Mon, 09/19/2011 - 09:23 | 1684139 lolmao500
lolmao500's picture

Shorting treasuries is awesome man.

Mon, 09/19/2011 - 11:24 | 1684733 Mike2756
Mike2756's picture

Time to fade via tbt? lol

Mon, 09/19/2011 - 09:26 | 1684158 Ned Zeppelin
Ned Zeppelin's picture

"What will surprise people is how long this period lasts of very, very low rates."

Japanifornication, bitchez.

Mon, 09/19/2011 - 09:41 | 1684221 lolmao500
lolmao500's picture

We're turning japanese we're really turning japanese I really think so!

Mon, 09/19/2011 - 09:27 | 1684161 Caviar Emptor
Caviar Emptor's picture

Don't you see, the defult has already begun. It's not that Greece can't pay it's mega Euro-creditors, it can't pay it's most basic bills. It's not in the future but now that the economy is sinking to third world status. This is something they won;t recover from for along time

Mon, 09/19/2011 - 09:36 | 1684190 Ignorance is bliss
Ignorance is bliss's picture

Since the Banks are gov't owned, I believe they may have been ordered to buy treasuries so that China doesn't flood the market with U.S. treasuries and drive up interest rates. It also hides the fact that the Fed is the buyer of first and last resort. 

 Why would anyonebuy a negative interest bearing product. If fear and wealth preservation are your primary motivators you are better off in cash.

It makes sense that treasuries are being bought by defacto Fed controlled banks both in the U.S. and Europe. It makes treasuries look like a safe haven. Its a good fix for China's diversification from U.S. debt and it means the U.S. has somewhere they can continue dumping debt at negative interest rates.

 

 

Mon, 09/19/2011 - 10:40 | 1684493 Bob Paulson
Bob Paulson's picture

But which bank are you going to store your cash in? Bank of America, Societe Generale, Commerzbank?

The US Treasury may be ugly, but it's not as ugly as the banks.

Mon, 09/19/2011 - 12:26 | 1685030 Ignorance is bliss
Ignorance is bliss's picture

The real question is how convertable will your treasury holdings become if or when the next crises hits. Even if you were to sell your treasuries you need to convert it to cash which is either mailed to you in the form of a check or deposited into your bank account. In either case you need a bank. Banks are ugly and you can't rule out a bank run especially in Europe.

 

We could potentially be seing a flight to treasuries not so much because they are a good investments but rather as one of the escape routes of capital from Europe. The elite might be battening down the hatches for European defaults. If so...the treasury purchase makes sense for Europeans. Not so much for Americans. Gold and Silver should make sense to everyone.

Mon, 09/19/2011 - 14:17 | 1685465 nekr-hedgfund
nekr-hedgfund's picture

maybe the answer lies in the reverse repo the Fed http://www.nowandfutures.com/images/fed_repos_reverse.png

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