This page has been archived and commenting is disabled.

Twist Spin Begins As Morgan Stanley Tries To Pass Fed Action As Bigger Than Expected

Tyler Durden's picture


And so the Twist spin (pun and all that) begins after Morgan Stanley's Jim Caron tells clients that OpTwist will remove "more duration risk than expected." He says that the operation will remove more than $500 billion in 10 Year equivalents of duration risk from the market, which is far higher than the firm's expectations, and adds that he was "most aggressive on the street" saying the consensus was for $300 billion in 10 Yr equivalents, especially with QE2 removing $490 billion in 10 Yr equivalents. Well, Jim, the problem is that you are right about bonds - when it comes to Twist a lot of it was priced in, but judging by the 30 year reaction, not all. However, when it comes to stocks, the robots had been expecting not just Twist but a significant LSAP component, potentially up to $1 trillion. Which explains the unwind. And as for the opportunity cost of Twist, it is shown in the chart below. As SMRA just predicted, the average maturity on the Fed's balance sheet is about to soar by 33%, from 75 months to an all time record 100 months. This means the Fed goes all in on being able to control rates. Should the Fed have to print, and it will before long, at that time the Fed's interest rate risk will be unprecedented, and should it lose control, it will lose not only that, but all credibility it is capable of keeping something, anything, be it inflation, unemployment or price stability, under control. Then, it will be truly time to panic.

And for those who are confused, what just happened today is that Bernanke just agreed to sacrifice stocks (for the time being) until Congress starts cooperating, due to electoral pressure to get fiscal stimulus in order.

The problem with that line of thought is that the GOP will rather do nothing and get even more anger focused on Obama than actually pass even $1 in fiscal stimulus into the economy.

Which means the Fed will soon be faced with the double whammy of having to print even more, once it understands that its gambit has failed miserably.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 09/21/2011 - 16:19 | 1694262 wang (not verified)
wang's picture

I stepped out and returned just a couple of minutes ago  HF

Wed, 09/21/2011 - 16:34 | 1694335 covert
covert's picture

this seems unusally confusing


Wed, 09/21/2011 - 17:57 | 1694699 Manthong
Manthong's picture

So.. allow the market to unwind/crash a bit/a lot and then step in with the savior program of the week, LSAP, to unabashedly and repeatedly wind and unwind the market to simulate life?

Kind of like a mechanical heart with a variable power supply on the body of a brain-dead person?

Wed, 09/21/2011 - 18:37 | 1694868 CapitalistRock
CapitalistRock's picture

Exactly right. You nailed it. Take this opportunity to buy gold, silver, and other commodities.

Wed, 09/21/2011 - 19:24 | 1694996 Manthong
Manthong's picture

Ah.. the inverse of the LSGS program run by the ESF trolls in the basement of the FRBNY.


Wed, 09/21/2011 - 16:19 | 1694264 TruthInSunshine
TruthInSunshine's picture

The Bernank sayeth loudly:

Everyone - Get out of equities and into tnotes, or else yield will be the least of your worries, bitchez!

Wed, 09/21/2011 - 16:19 | 1694265 Henry Chinaski
Henry Chinaski's picture

To paraphrase Celenti.  When there is nothing left that the FED can do, they do it!

Wed, 09/21/2011 - 16:20 | 1694271 Cleanclog
Cleanclog's picture

Isn't this a big F-You to the States?  Their pension returns plummet and already most states and many localities are way behind what they "need" to meet obligations.  That should make their borrowing more expensive, despite lower Federal rates.  Unintended consequences abound in this thing.  Leaving many twising in the wind.

Wed, 09/21/2011 - 16:33 | 1694332 HoardeBilly
HoardeBilly's picture


Shirley, you jest?

Hmmm...if the endgame is to get the US labor pool to accept Chinese style wages...

And Austerity in other countries STARTS at pension cuts...

Looks a lot like part of the strategy to me.

Pension funds don't need return if we have NO pensions. 

Wed, 09/21/2011 - 21:55 | 1695390 Bring the Gold
Bring the Gold's picture

What are you saying we are seeing the fruition of a 40+ year plus plan to destroy the Middle Class and lower tier rich of advanced societies to create a one world government and associated two tiered society with a shadowy elite oligarchy that rules with an Iron fist?

Because if that is what you are saying I wholeheartedly agree!

Wed, 09/21/2011 - 16:33 | 1694334 mayhem_korner
mayhem_korner's picture

Not sure the "pension return" matters if the fund is raided like a fraternity house fridge on a Friday night.

Wed, 09/21/2011 - 16:41 | 1694365 dick cheneys ghost
dick cheneys ghost's picture

The states are fracked..........Super Congress looking to cut $500 billion from The States.........

Wed, 09/21/2011 - 22:04 | 1695418 Bring the Gold
Bring the Gold's picture

Yeah thank god we pay taxes to the Federal Government so they can redistribute our wealth to the truly needy corporations, banks and associated sociopaths. Someone needed to put a stop to tax money going to useful projects of a non-police state function variety. Heaven forbid this country be anything other than a glorified Super-Max prison.

Wed, 09/21/2011 - 16:23 | 1694273 Cognitive Dissonance
Cognitive Dissonance's picture



Twist Spin Begins As Morgan Stanley Tries To Pass Fed Action As Bigger Than Expected

Boys are always trying to convince other boys how much bigger theirs is.

Girls are usually much quicker to figure out who's faking it. (pssst.....Usually everyone.)

Wed, 09/21/2011 - 16:25 | 1694301 Market Efficien...
Market Efficiency Romantic's picture

re MS, true, only 'Benny the toothpick' couldn't do and had the crowd laughing...

Wed, 09/21/2011 - 16:21 | 1694277 Racer
Racer's picture

The Fed are like all gamblers... cannot stop and when they are losing start to double up to try to make it back

Wed, 09/21/2011 - 16:31 | 1694316 depression
depression's picture

Ron Paul and the anti-Fed crowd really don't need to do anything at this point. The Fed is going to bankrupt itself in due course. All the Chinese have to do is let the Fed push "All-In" here and then dump their $Trillions of Treasury holdings and buy all the available Gold on the open markets. The sudden spike in interest rates will flatten the Fed like a steam roller.

Wed, 09/21/2011 - 19:55 | 1695083 razorthin
razorthin's picture

Interesting.  Maybe we should call him kamikaze ben.  If the fed evaporates, does that make the $trillions in debt it bought also evaporate?

Wed, 09/21/2011 - 16:22 | 1694279 nonclaim
nonclaim's picture

Failure is actually a greater success!

You just have to believe it.

Wed, 09/21/2011 - 20:26 | 1695112 razorthin
razorthin's picture

When pressed with the fact that he had failed a thousand times in developing the incandescent light bulb, Edison responded, "I successfully discovered a thousand ways that it wouldn't work".

Wed, 09/21/2011 - 21:22 | 1695331 FreedomGuy
FreedomGuy's picture

Someone help me out. Going to longer maturities should be good, right? At least in the sense that if inflation takes off the government is holding long term paper at sub 4%. I understand the idea of Twist and think it will fail along with the other interventions in it's goal but it seems like a slightly better long term play for Uncle Sam.

You bond traders set me straight.

Wed, 09/21/2011 - 16:22 | 1694281 King_of_simpletons
King_of_simpletons's picture

Pretty soon it will only be banks trading against each other. They can spin how much ever they want, the other bank has to come up with an even powerful bullshit.

Wed, 09/21/2011 - 18:19 | 1694815 Outlaw Of The W...
Outlaw Of The Wasteland's picture

government vs government with the banks as proxies.

Wed, 09/21/2011 - 16:23 | 1694286 healey
healey's picture

What is LSAP?

Wed, 09/21/2011 - 16:24 | 1694290 healey
healey's picture

I see it's Large-scale asset purchases..but what is that exact? what type of assets? Is it QE3? ..that is is LSAP another term for quantitative easing?

Wed, 09/21/2011 - 16:32 | 1694298 TruthInSunshine
TruthInSunshine's picture

It's like TARP, but with Bernank & his mindless drone lackeys buying up toxic garbage from The Chosen Banks & Financial Firms, rather than Treasury, but still leaving the taxpayers with severe anal bleeding (as with TARP).

They use taxpayer monies (indirectly or directly - a case can be made for either way, but they do take taxpayer monies) and use them to buy the shittiest assets held by the likes of Fannie, Goldman, JP Morgan & other friends of William Dudley and Timmay at extremely overvalued prices (18x to 118x FMV), stuffing those toxic assets into any number of Maiden Lane I through XXXVI slush funds.

Large Scale Asset Purchases, aka Long, Scary Ass Pounding (of taxpayers).

Wed, 09/21/2011 - 17:43 | 1694635 sdmjake
sdmjake's picture

+1 more

Yes I gave you a 'green arrow click' but feel that your explanation needs a standing ovation. [clap clap] Well said.

Wed, 09/21/2011 - 18:44 | 1694891 TruthInSunshine
TruthInSunshine's picture

Nice shorts. Inspiring, actually.

Wed, 09/21/2011 - 18:09 | 1694766 adr
adr's picture

I'll even make it simpler. You have a car sitting on the street that you don't have full insurance coverage on. A tree falls on it and now it is worth about $100 in scrap. Bennie and the boys come along and say, hey we'll buy that car for book value. You are very happy because you know the car is worth $100 but you got what it was worth before the tree hit. Sure Benny is going to take a loss but he's got the treasury for that. They'll just print him more money to cover the loss.

For the banks it was even better. They got the value of what a security was going to be many years in the future and they didn't have to wait to realize the profit. It would be like getting paid your entire life's earnings at once. I bet you would go out and party along with making a few risky bets. Voila, stock market rally!!!

Wed, 09/21/2011 - 16:24 | 1694291 Atlantis Consigliore
Atlantis Consigliore's picture


quick put it on reality TV, hosted by the Bernanke,


call it Twist and Shout  backed by Band:the ANAL-ysts.....


no?  the crap on financial  cable is better,  ?


Dances with the W- ores?

Foodstamp Rock...?


I know,  Dope and Spare Change.....



Wed, 09/21/2011 - 16:26 | 1694293 razorthin
razorthin's picture

Big fukking wup.  Twist and spin -283.  In fact, sit and rotate on it.

Wed, 09/21/2011 - 16:25 | 1694295 no es bueno
no es bueno's picture

didn't MS drop 8.5% today? just sayin

Wed, 09/21/2011 - 16:32 | 1694328 GeneMarchbanks
GeneMarchbanks's picture

Good catch. Jim should explain how the 'Twist' is going to be the coup-de-grace for MS, now that would be worth reading.

Wed, 09/21/2011 - 16:25 | 1694296 DoChenRollingBearing
DoChenRollingBearing's picture

Bigger than expected?  Oh, please...

Wed, 09/21/2011 - 16:25 | 1694297 Carpathia
Carpathia's picture

The Bernank is a mad professor.  He will not let the ship go down on his watch.  He is a very creative academic who is pushing the central banking enveope past where it has ever been.  When this thing blows, his name will lived in infamy.  God help us.

Wed, 09/21/2011 - 16:30 | 1694318 Racer
Racer's picture

god hasn't a chance in hell against the CHAIR SATAN

Wed, 09/21/2011 - 17:02 | 1694458 CvlDobd
CvlDobd's picture

Who is this god you speak of?

Wed, 09/21/2011 - 16:26 | 1694302 NemesisteM
NemesisteM's picture

Does this mean that the Casino will stay open and drinks will still be served while the hordes of hungry people outside will continue to wait until the lights go off, storm the place and loot everything?

Wed, 09/21/2011 - 16:26 | 1694304 SaveTheGreenback
SaveTheGreenback's picture

They had to do something to try to fix the mess...Op Twist was expected...

It's becoming more apparent that the Fed is compleltely unable to control the volume of money it manipulates...there's no telling the impact this will have....It's totally unprecented....One thing is for sure, inflation expectations can only rise from here, rates can only go up, and hard money is coming to a continent near you...

Welcome to the Thunderdome, bitchez...

Wed, 09/21/2011 - 16:28 | 1694307 rambler6421
rambler6421's picture

F the Fed.  Losing big time on Shortin bonds.  Those cunts.

Wed, 09/21/2011 - 16:28 | 1694308 Col. Parker
Col. Parker's picture

So what does this mean for Gold?  Anyone has any idea? 

Wed, 09/21/2011 - 16:31 | 1694323 There is No Spoon
There is No Spoon's picture

A low interest rate environment is supportive of gold prices. However, gold prices are volatile, which provides buying opportunities on corrections.

Wed, 09/21/2011 - 16:31 | 1694325 boom goes the d...
boom goes the dynamite's picture

sell it now.

Wed, 09/21/2011 - 16:33 | 1694333 TruthInSunshine
TruthInSunshine's picture

boom goes the dynamite? Best handle ever, bro:

Boom Goes the Dynamite - YouTube
Wed, 09/21/2011 - 16:36 | 1694345 boom goes the d...
boom goes the dynamite's picture

thanks bro......Tosh.O gave the guy a web redemption, the kid has no shame.

Thu, 09/22/2011 - 08:17 | 1696307 boom goes the d...
boom goes the dynamite's picture

I told you, "sell it now" bitchez.

Wed, 09/21/2011 - 16:37 | 1694349 fdisk
fdisk's picture

Rally is over for now $1600-$1651 correction is zooming in..

Look at Daily, all f*cked up.

Wed, 09/21/2011 - 16:55 | 1694420 JohnG
JohnG's picture

Possibly, but I doubt it, I'm thinking that it should hold 1770.  But that's just the paper price.

We are well on our way to hyperinflation at this point.

Wed, 09/21/2011 - 16:38 | 1694354 depression
depression's picture

Hopefully a repeat of 2008-2009

Wed, 09/21/2011 - 16:53 | 1694417 JohnG
JohnG's picture

Gold will go up on Asian physical demand alone.  What you don't want is gold going up due to rising interest rates.  As long as there's demand (and there is) don't let the manipulated paper price bother you too much.

I sleep well at night knowing I own a LOT of gold, and also silver.  Carefully selected equities mostly GIANT consumer staples and miners), and a stake in MUB, which I'll likely sell soon depending on the "news" and stuff.

It's the physical demand that in the shorter rather than longer term that will make the difference.  Ferocious physical demand, don't play thier paper games.

Wed, 09/21/2011 - 16:28 | 1694310 There is No Spoon
There is No Spoon's picture

Should the Fed have to print, and it will before long...

So we'll get more debt monetization starting in November? Just like last year, only with higher risk. How low will the market go before whispers of LSAP's begin? I'm guessing ten percent.

Wed, 09/21/2011 - 16:29 | 1694314 PaperBear
PaperBear's picture

Of course, our modern monetary system is the modern day version of alchemy.

Wed, 09/21/2011 - 16:38 | 1694315 Mercury
Mercury's picture

But what about the WAM of treasury debt outstanding that is not owned by the Fed ??
Isn't that more important to USA solvency in terms of interest rate risk?
If rates spike the value of the Fed's SOMA goes down but that's mostly a shopping bag of assets bought with money that was printed out of thin air anyway and not as harmful as the Treasury's cost of borrowing shooting up.

If (money printing neutral) Twist2 raises the DV01 of the Feds portfolio, doesn't it do the opposite for Treasury debt outstanding net of remittances?

Wed, 09/21/2011 - 16:30 | 1694320 boom goes the d...
boom goes the dynamite's picture

How much will 10,000 shares of FAZ be worth at DOW 5000 after quantum fading shaves a few points off? That's a hedge bitchez.

Wed, 09/21/2011 - 16:32 | 1694331 NEOSERF
NEOSERF's picture

Well stated, the game is spinning out of control and unfortunately, net creditors are not our friends and not in a position to help.  As we further steal from future social security and future growth to try to revive the patient now, we set ourselves up for a bleak future where defaulting vs. 30 years of stagnation starts to look appealing...the slow grind down of the US military, financial, entrepreneurial hegemony we have enjoyed is now starting in earnest...we have made a mockery of capitalism by finding every possible way to steal from the future like the drug addicted consumerists we have become..going to rehab at this point causes what you see in is too late unless a miracle technology that require more vs. less people to run it and somehow actually increases productivity occurs...short of that a good bunker and cans of beans are starting to like a smart retirement strategy

Wed, 09/21/2011 - 16:41 | 1694371 topcallingtroll
topcallingtroll's picture

Essentially what politicians and the fed doesnt want us to know is there are more claims on future economic output in terms of current and future debt than there is ability to satisfy those claims.

Someone is going to get the shaft. Probably gen y and beyond.

Wed, 09/21/2011 - 16:44 | 1694376 topcallingtroll
topcallingtroll's picture


Wed, 09/21/2011 - 17:07 | 1694478 toady
toady's picture

Cops are gonna win that fight every time.

Now, if all those video cameras were handguns, this would have been interesting.

Just more lawsuits to clog the system. I suppose that is a way to fight 'the Man', but you will be figbting in 'the Mans' courtroom.

Wed, 09/21/2011 - 16:35 | 1694339 topcallingtroll
topcallingtroll's picture

If the troll suggests buying the spy again this year will someone please slap me?

Wed, 09/21/2011 - 16:36 | 1694344 fyrebird
fyrebird's picture

The GOP will cave in about a month maybe two. Things are just going to get too ugly for any sappy pol to toe the line. They are fundamental cowards. Stimulus to the moon, by then.

Doesn't mean an Obama second term. But that's where The Beard is headed.

Wed, 09/21/2011 - 16:36 | 1694347 TooBearish
TooBearish's picture

 Not what risk mkts wanted to see - they want the Crack cocaine baby - the juice of massive Liquidity and all we gots was a 50 yr old tee-shirt that says "Twist"

Ha fuk the banks

Wed, 09/21/2011 - 16:36 | 1694348 RobotTrader
RobotTrader's picture



Well today pretty much confirms that "Paper" rules over "Things".

Never before in world history have I seen such a mad panic into U.S. Fiatsco Paper.

Wed, 09/21/2011 - 16:38 | 1694355 toady
toady's picture

'then it will truly be time to panic.'

You mean it isn't time to panic now?

Everybody get your heads down, this is gonna be a big one...


Wed, 09/21/2011 - 16:45 | 1694370 Market Efficien...
Market Efficiency Romantic's picture

Trying to think, you can handle the market in expectation management is insane. It has become apparent from QE to QE, the market expects more and more, only the impact of the expectation wears off. When you cannot meet the expectations any more, the negative effect will be worse than the accumulated positive effects picked up on the way. And that relates to the direct market impact. Strategically, the Fed has gambled away a lot more, the firepower of any easing policy.

Did anyone consider that balance sheet expansion was not really in the cards since China committed to further treasury buying recently. They have their finger on the button and any additional balance sheet expansion would have taken out the by far largest buyer of future US debt. So, even if they wanted, the Fed could not expand, any expansion now wouold have told me, they are ready to kill the dollar very soon; but they actually need to milk the Chinese a little longer.

Wed, 09/21/2011 - 16:53 | 1694415 mr_sandman
mr_sandman's picture

Yep.  It's the manic-depressive action of a junkie.


When the financial junkies' last hit can't satisfy, the comedown is going to be epic.

Wed, 09/21/2011 - 16:44 | 1694385 RobotTrader
RobotTrader's picture

11,000 Dow about to get lost

Hanging by a thread

Wed, 09/21/2011 - 16:47 | 1694392 fdisk
fdisk's picture

"You mean it isn't time to panic now?" No, rally tomorrow :))) where the f*ck they going to put their money? under mattress in cash? Cause GOLD will be dropping faster than Market.

Wed, 09/21/2011 - 17:01 | 1694455 rambler6421
rambler6421's picture

"So what does this mean for Gold?  Anyone has any idea? "


Probably down 10-15%........then the Greeks will need another bailout.......then it'll go up.  So that means, it's going to be sideways for now. 

Wed, 09/21/2011 - 17:12 | 1694496 Everybodys All ...
Everybodys All American's picture

Dick Bove before he dicks you.

Wed, 09/21/2011 - 17:36 | 1694568 Outlaw Of The W...
Outlaw Of The Wasteland's picture

ah yes.  The Architect's doppleganger.

Cue vince farrell (with his 412th firm), bob dahl, and every dirtbag at cnbc asking handpicked "experts" if is this is a good time to "dip your toe into the financials"

Wed, 09/21/2011 - 17:13 | 1694500 vincent
vincent's picture

Banking brushfires lit today.

The firestarters just shut the water off.

Let us stand back and watch for a bit.


Wed, 09/21/2011 - 17:26 | 1694562 Outlaw Of The W...
Outlaw Of The Wasteland's picture

morgan stanley (13.82) is circling the bowl itself.   Judge the toilet water from the outhouse.

Wed, 09/21/2011 - 17:47 | 1694651 anonnn
anonnn's picture

 What is Morgan Stanley' exposure to French banking misadventures?

Wed, 09/21/2011 - 18:53 | 1694927 Carl LaFong
Carl LaFong's picture

It seems to me that buying more MBS is more than was expected and shows how much shit the banks are really in.  Or, did I miss something? Also, doesn't this actually expand the FEDs balance sheet?

Wed, 09/21/2011 - 19:07 | 1694964 oogs66
oogs66's picture

Zh got the fed statement right. Ms and gs wrong

Wed, 09/21/2011 - 21:04 | 1695283 Ned Zeppelin
Ned Zeppelin's picture

Isn't this Twist 2 just  a whole lotta nothing? I mean seriously - let's reduce long rates by 15 basis points if we're lucky and this is hailed as some sort of action? But I'd like to know - what are the profits to the PDs on this operation, and what were they for QE2? Is it as simple as guaranteed profits to a select few in the guise of gallant action on behalf of the many, and in particular, in furtherance of the twin (phoney) mandates? 

Joke. But not funny. 

Wed, 09/21/2011 - 21:54 | 1695394 beaker
beaker's picture

This article is really disturbing.  We are absolutely entered the twilight zone today. Words do not suffice...  This is as close to "this is IT" as I have ever seen.

Wed, 09/21/2011 - 23:08 | 1695551 PulauHantu29
PulauHantu29's picture

My girlfriend does not believe it either. I told her it is "bigger then expected" but she just gazes down at "it" and, it isn't.

Thu, 09/22/2011 - 02:34 | 1695868 hooligan2009
hooligan2009's picture

oh goody, we have the fed buying 400 billion out of the 2 trillion in rollovers in the next 6 months of fresh debt.

lets hope the muppets who think ten year bond yields at 2% with inflation at 3%, deficits at 15 trillion and maximum deficit reduction plans at 4 trillion over the next ten years keep holding on to declining value investments.

Kind of looks to me that this governement makes madoff look like a kindergarten bully, while they are intent on butchering (by starvation) the bottom 90% of taxpayers.

Do NOT follow this link or you will be banned from the site!