Bill Gross Warns QE3 Is Coming In The Form Of “Operation Twist” For The 2 Year

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Johnny Oxygen's picture
Johnny Oxygen
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Bill Gross Warns QE3 Is Coming In The Form Of “Operation Twist” For The 2 Year

Bill Gross released a very troubling tweet earlier:

"QE3 likely to take form of 'extended period' language or interest rate caps on 2-3 year treasuries."

Why is it odd? Because as David Rosenberg predicted two weeks ago when he expected that Operation Twist could be coming back with the Fed “capping” the 10 Year, Bill Gross, who has Larry “Fed Expert Network” Meyer in his ear and thus knows better than most what is coming, is predicting some “Twisting” though not at the 10 Year mark, but at the very short end. This is very disturbing. Because as we suggested at the end of May, QE3 will in reality be Operation Twist 2…

This means that Rosie’s prediction that “the Fed would basically lose control of its balance sheet” could be about to come true, and in fact be far worse than expected, because it would mean that not only is the Fed no longer able to control the 10 Year but is concerned about controlling the 2-3 Year sector, a place on the curve that the Fed chairman has typically never had much to worry about.

Incidentally, we wondered earlier why not a single OTR 2 Year bond was tendered to the Fed during today’s POMO. Here is you answer: why sell today at 0.44% when you can wait a month and sell them back to Brian Sack at 0.00%

Below we repost the article from May 31, as this topic may suddenly be everything that people are talking about.

Johnny Oxygen's picture
Johnny Oxygen
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Peter Schiff also weighs in on this.



Johnny Oxygen's picture
Johnny Oxygen
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China's 'short term' holding of US treasuries.

I was wondering how much 'short term' or 2-3 year treasuries China was holding So I'm posting this info for the curious. It looks like, from this info, that China only holds 17 billion in short term out of its total 699 billion of US securities.

    1. What are China’s Holdings of US Securities? (12)

“There are no official estimates of what share of China’s foreign reserves are held in dollar-denominated assets (assets that were bought with dollars and are cashed in dollars), but the Treasury Department conducts an annual survey of foreign portfolio holdings of US securities by country, and reports data for the previous year as of the end of June,”note Morrison and Labonte. (11,13) In addition the survey does not distinguish between government and private holdings of US securities.

Whatkind of US securities does China hold? US securities held by Chinese investors include

  • Long-term US Treasury securities
  • Long-term US government agency securities
  • Long-term corporate securities (some of which are asset backed)
  • Equities (such as stocks)
  • Short-term debt.

What is each of these types of securities? Morrison and Labonte answer, “Long-term securities are those with no stated maturity date (such as equities) or with an original term to maturity date of more than one year. Agency securities include both federal agencies and government-sponsored enterprises created by Congress (e.g., Fannie Mae and Freddie Mac) to provide credit to key sectors of the economy. Some of these securities are backed by assets (such as home mortgages). Short-term debt includes US Treasury securities, agency securities, and corporate securities with a maturity date of less than one year.” (14)

At the end of June 2006, China held $699 billion in US securities. These holdings do not include holdings by Hong Kong ($110.1 billion) and Macao ($1.4 billion), which are reported separately to the Treasury Department. The $699 billion in US securities held by China break out by category as follows,

  • Long-term US Treasury securities—$364 billion
  • Long-term US government agency securities--$255 billion
  • Long-term corporate securities (some of which are asset backed)--$59 billion
  • Equities (such as stocks)--$4 billion
  • Short-term debt—$17 billion.
ashvinp's picture
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Posts: 412
Just created a new thread

Just created a new thread about this before seeing this post, sorry.

Here is my take for those interested - Monetary Psy-Ops With a "Twist"

dshields's picture
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Posts: 599
QE3 (or what ever you want to call it)

If the Fed Res does not continue to purchase America's excess deficit, the part of the excess the world will not purchase unless interest rates are a lot higher and in line with risk, will simply not be purchased and there will be a financial emergency.  It is going to be interesting to see what happens.  An exciting but sad time to live.  The downfall of America.  My mother is 81.  She graduated top of her college class (my dad was second and she never let him forget it) and she has seen a lot.  She says the best days of America were the 50's, 60's, and 70's.  She is probably right.  At this point it appears that America can not control spending.  As a result, the Fed Res is going to have to keep buying our excess debt or there will be a collapse.  Nobody wants a collapse.  So, there will be a QE3 or some other program or set of programs to continue "printing" money and buying the excess debt.  There has to be.  Printing money is negative for the dollar but buys us time to try to get our house in order.  While Europe quakes everyone is distracted from the major issues here in America.  This will buy us some time.  Will we use this time correctly ?  Probably not.  Oh well.


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