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.

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wang's picture
wang (not verified) Sep 21, 2011 3:19 PM

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

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?

CapitalistRock's picture

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

Manthong's picture

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


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!

Henry Chinaski's picture

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

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.

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. 

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!

mayhem_korner's picture

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

dick cheneys ghost's picture

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

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.

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.)

Market Efficiency Romantic's picture

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

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

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.

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?

nonclaim's picture

Failure is actually a greater success!

You just have to believe it.

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".

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.

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.

Outlaw Of The Wasteland's picture

government vs government with the banks as proxies.

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?

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).

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.

TruthInSunshine's picture

Nice shorts. Inspiring, actually.

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!!!

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.....



razorthin's picture

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

no es bueno's picture

didn't MS drop 8.5% today? just sayin

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.

DoChenRollingBearing's picture

Bigger than expected?  Oh, please...

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.

Racer's picture

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

CvlDobd's picture

Who is this god you speak of?

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?

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...

rambler6421's picture

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

Col. Parker's picture

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

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.

boom goes the dynamite's picture

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

fdisk's picture

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

Look at Daily, all f*cked up.

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.

depression's picture

Hopefully a repeat of 2008-2009

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.