Bensane's Barking-Mad Blowout

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machinehead's picture
machinehead
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Bensane's Barking-Mad Blowout

It's official: Blackhawk Ben is a badder, crazier Bubble blower than even Mad Al 'Johnny Law' Greenspan.

I am not making up this Marketwatch news flash (though I wish I were):

2:16 Fed to buy $600 bln in bonds by Q2 2011

2:16 Fed says pace of bond buys about $75 bln per month

2:16 Fed makes no change in 0-.25% funds target rate

2:16 Fed keeps 'extended period' pledge

Lord help us all -- the gods are crazy!

Farewell to the dollar ... Money mouth

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cmartenson
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Re: Bensane's Barking-Mad Blowout

No wonder they took gold to the woodshed this morning and are holding it there.  Nobody wants that canary in this particular coal mine ominously predicting the end of the dollar.

Best to sell as much as it takes and worry later if we actually have it or not to deliver.

Alternatively, traders really are insane and have decided that they'd rather hold dollars than gold right here after this insane announcement.  Good luck to them with that strategy.

If this sounds cynical, I should note that I've seen this "pre-sell gold and keep it there" tactic deployed on numerous Fed OMO statement days....the more outrageous the statement, the bigger the effect.

 

machinehead's picture
machinehead
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Re: Bensane's Barking-Mad Blowout

Regardless of how one may have voted (or not voted, in my case), the Fed's announcement says, 'Our cartel has decided to ramp our securities holdings at public expense, by stealing your purchasing power to do it. Vote for whomever you want -- we don't answer to the sorry likes of you.'

Today, as always, we must watch what they do, not what they say.

 

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yobob1
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Re: Bensane's Barking-Mad Blowout

Farewell dollar, hello Euro, er uh Yen, no better make that a basket of Pesos (assorted flavors), Yuan and toss in the odd Franc and Lira. 

The FOMC also directed the Desk to continue to reinvest principal payments from agency debt and agency mortgage-backed securities into longer-term Treasury securities. Based on current estimates, the Desk expects to reinvest $250 to $300 billion over the same period, though the realized amount of reinvestment will depend on the evolution of actual principal payments.

Taken together, the Desk anticipates conducting $850 to $900 billion of purchases of longer-term Treasury securities through the end of the second quarter. This would result in an average purchase pace of roughly $110 billion per month, representing about $75 billion per month associated with additional purchases and roughly $35 billion per month associated with reinvestment purchases.

 

http://www.marketwatch.com/story/operational-details-of-feds-purchases-2...

Good luck with those principal repayments.  They've managed to put one of those cute cartoon character Band-Aids on a neck wound that demands a tourniquet.  Ben keeps bashing his head on a concrete wall hoping to ease his headache.  There can be little question that Ben is deeply mired in a liquidity trap that cannot be solved with more liquidity.  His "hope" of lowering long term rates to spur the economy may well get reinforced by long term rates declining, though not due to his actions - more like in spite of his actions.

Went to a live RE auction this morning - a 1983 vintage genuine HUD home in decent condition.  Minimum bid $10K.  Winning bid - $10K - one bidder.  The previous price history since being an REO was $95K initially dropping to $60K prior to the auction.  A WAG on the actual principal owed before foreclosure was likely in the $125 - $150K range.  It remains to be seen if the lender will accept the 10K bid.  There was some brief confusion during the auction that caused the lone on site bidder to think an online bidder had bid $12K at which point the local bidder said no thanks - so its pretty unlikely he'll raise his bid to the bank.  The reality will soon be that banks will be lucky to get 25 cents on the dollar for the "good stuff", let alone the crap that's got real problems. Templeton was right - 90% decline from peak to trough.  We haven't hit the trough yet.

 

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yobob1
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Re: Bensane's Barking-Mad Blowout

And here is the other, probably even more important, chart which breaks down the entire marketable debt curve, demonstrating how much debt matures in any given amount of time. Not surprisingly, on a relative basis, just 10% of the entire $8.5 trillion in debt as of September 30, only 10% matured in over 10 years. What is notable is the drop in debt maturing in under 1 year, which is now down to 30%, the lowest in a decade.

Again, as above, the only reason for this is the need to chase yield ever further to the right. The second there is any steepening in the curve, aka an improvement in the economy, there will be a rush to flee all positions, forcing Treasury refis to focus ever more to the left of the curve until it hits Bill (<1 Year) land. Which once again bring us to our original hypothesis, that it is not a failed auction as an actual rise in yields that is the colored swan.

In fact, in an ironic twist, the Fed has once again found itself in a catch 22: the second the curve stops flattening, especially in the 3M-5/7Y sector, whether due to the end of QE2-XXX, or due to actual, legitimate economic improvement (and you would see it here first, nowhere else), the interest paid on US debt will surge, and the Fed will have no choice but to roll all expirations into bills, creating a Frankenstein of a monster in which the entire US economy will live bill auction to bill auction, until even the rate on Bills become unsustainable

 

 

http://www.zerohedge.com/article/detailed-view-maturity-and-duration-dis...

The relative paucity of long term debt could also create demand for that debt in the yield chase game.  Who knows - the entire global monetary scheme is a ruse. should it begin to unwind ina disoprderly manner, the governments will do so also - just ask Ms. Antoinette who simply went to pieces.

 

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machinehead
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Re: Bensane's Barking-Mad Blowout
yobob1 wrote:

The relative paucity of long term debt could also create demand for that debt in the yield chase game.  Who knows - the entire global monetary scheme is a ruse. Should it begin to unwind in a disoprderly manner, the governments will do so also - just ask Ms. Antoinette who simply went to pieces.

Exactly. During the late Bubble era, the Fed was keeping its thin-air money creation discrete. Those who actually kept an eye on the Fed's balance sheet knew that it was adding $30 billion a year or so, creating 'thin-air money' in the process. But the level was low enough that it didn't really reach the public's attention.

Now the Federal Reserve is infected with the same hubris that eventually takes down many criminal gangs. Believing itself to be immune from the law -- bigger than the police and prosecutors -- it has made dollar-devaluing fraud the publicly-announced centerpiece of its policy.

This will prove to be a monumental mistake. Not only will QE2 be ineffective, but also it will forever trash the credibility of the Federal Reserve and the US dollar. It is utterly destructive in intent and effect.

Today the Federal Reserve has declared war on the American people. It is going to mulct them, big time, by sucking the value out of their currency. Return the favor: demand the abolition of the Federal Reserve. Fire its employees, sell its buildings, and close the sucker down.

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goes211
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Re: Bensane's Barking-Mad Blowout
machinehead wrote:

Today the Federal Reserve has declared war on the American people. It is going to mulct them, big time, by sucking the value out of their currency. Return the favor: demand the abolition of the Federal Reserve. Fire its employees, sell its buildings, and close the sucker down.

Does anyone know if there will be an "End the FED" rally at your local FED branch this year?  I have gone for the past 2 years and was thinking that the Tea Party phenomenon should make this years even more popular but I have not heard anything.  Kind of disappointing....

machinehead's picture
machinehead
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Re: Bensane's Barking-Mad Blowout

In this interview, Jim Grant calls a spade a spade -- it's not QE2, he says. It's 'money printing,' 'devaluing the dollar' and 'central planning.'

http://www.wealthdaily.com/articles/jim-grant-the-fed-is-out-of-its-lane/2814

 

"Comrades! The Federal Reserve is giving out tractors!"

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