Buy high, sell low. Make money on the margin!

I guess that would explain the 10 yr yielding 2.71%.

Hey Ben will you buy my mortgage at 5.625%?

Actually I should call my mortgage broker to see what my refi opportunities are if we get below 5% on a 30yr or 4.5% on a 15yr I may have to consider it.

More monetization...

UST issues treasuries to finance 'stimulus' (sucks dollars into gov't that then goes out again as 'fiscal spending')...

Fed buys treasuries on open market (takes in treasuries & pumps out dollars) to DESTERILIZE the balance. Treasury lends dollars to Fed to continue both...

That is basically what they are doing, right?

So will this cause a loss of value in the USD or are the other currencies just as messed up?

Either way it'll be interesting....

....

CDS on our debt still going through the roof and this move won't help that. but the UK is still much worse off than we are on that front. it's a race to default!

US Treasury 10-yr CDS hits record high

Ten-year U.S. Treasury CDS widened to 68.4 basis points from Friday's close of 60 basis points, according to credit data company CMA DataVision.

US Treasury 10-yr CDS hits record high
| Reuters

Look - a depression is unavoidable at this point. The job losses in this country are going to be enormous, and I do not hestitate to forecast 10-15% real unemployment. There seems to be an infectious disease of denial going on in Washington which is only making this worse and worse and worse.

The T-market is a nightmare, and frankly, we're at the end-game. I've long avoided apocalyptic forecasts, but there's not a single glimmer of hope, in my opinion - not a single sector of this economy that can offset what's unraveling.

The bottom just fell out...

No circuit breaker for the last half hour too.. Wheee

Someone please make the bald man stop talking.

Oh boy...feels like...pushing on a string.

Mr. Beach writes:
The irony is stunning: the greatest student of GD1 crashes the world's largest economy into GD2.
Mr. Beach | 12.01.08 - 3:14 pm
I’m glossing the term “Banklar” instead of “Banker”.

Banker:Banklar::Wrestling:Rastlin’ (e.g. WWE)

I'm awaiting Benny coming out in a speedo heckling the crowd and flexing his faux monetary policies to the booing crowd.
"Being a heel has never felt so good!"

Yet, with this "dollar positive" news, why is gold tanking?

I, for one, am buying some more.

On gold: we are getting to the point where everything not nailed down is going to be sold, IMHO, and the Fed will fight gold tooth and nail. They did it in 1987 - they can do it again. I'm still waiting for blood on the streets of gold.

On gold: we are getting to the point where everything not nailed down is going to be sold, IMHO, and the Fed will fight gold tooth and nail. They did it in 1987 - they can do it again. I'm still waiting for blood on the streets of gold.
Anoddamoose

I think you're stepping on Bono's turf here.

Just to add to this theme.

IMO we are actually in a currency crisis. It isn’t perceived as much on this board because most posters here are U.S. based and the dollar has been rising.

However, as much as the rising dollar inspires confidence, I believe that it is a false sense of confidence as that rise is predicated on deleveraging/paying off dollar debt.

The present sharp rise in the dollar will only cause worse repercussions for the world economy and in turn be especially bad for the U.S.. U.S. exports are already suffering but will get much worse in the next few months. BRIC countries have been the primary growth engine of U.S. exports and China, in particular, will have to cut back significantly.

Indian banks according to some sources have to refinance $58 billion in dollar denominated debt in 2009. With a chart like this, this could mean quite a lot of dollar defaults (enter weekly in time scale).
http://www.netdania.com/Products/FinanceChart21/FinanceChart-2-1.asp?symbol=EURUSD|netdania_fxa&name=EUR/USD

India is not the only country in this position. Given the fact that the Chinese Yuan dropped the most since a fixed exchange rate ended in 2005, it will be very difficult for American companies and labor to compete on world markets if this continues. As a result, the U.S. economy will likely be mired in a recession/depression much longer than necessary. I should also note that the BRIC countries have the highest potential growth possibilities and therefore could act as the engines to pull the world economy out of its slump. If their dollar borrowings prevent them from doing that and pull them even deeper into the hole then there won’t be any decent growth engines out there.

I therefore expect action also on the currency front within months if not weeks of the Obama inauguration potentially leading off with the U.S. acquiring foreign debt as mentioned by Bernanke in his 2002 speech where he also first mentioned that the Fed may buy longer-term treasuries. Given the fact that high dollar reserve countries are now getting into trouble, there will not be anywhere near the resistance to a dollar devaluation that could be expected beforehand. I suspect Bretton Woods “3” is upon us within the next six months. Nobody can afford the present currency volatility. It is deadly for international commerce.

Comrade Clueless Dufus(Unrated) writes:
Dryfly -- Can you please explain 'sterilizing', or 'de-sterilizing' in terms of the Treasury and Fed? Why is it necessary? What does it accomplish?

'Sterilizing' (or opposite of that, 'desterilizing') is just a way of describing active money creation or destruction... so if the Fed 'creates' a bunch of money via some liquidity facility - but then simultaneously goes out and sells treasuries via some other 'open market operation' to bring money back in... the net increase can be greatly diminished and the new money in effect 'sterilized'.

Why do it?

Because they believe there is a big hole somewhere (like the banking system) that could take down the whole economy & they want to fill it but they don't want general inflation (overall system wide increase in supply of money).

So if what I read Ben having just said is... "We aren't going to sterilize or offset our other facilities anymore - in fact we might increase money supply even more by running our sterilization efforts in reverse. Think about that for awhile sub one percent bond market..."...

Again - somebody with a better handle on things tell me I'm wrong.

Great news would be if CNBC cut Dennis Kneale.

EEEEEEEEEEEEEK!

dryfly --

Your summary sounds good to me. And they are already engaging in "unsterilized" activity; that is what "expanding the balance sheet" means. I believe the commercial paper facility and (now) the GSE MBS purchases are unsterilized.

What started as sterilized interventions a year ago have slowly become something else entirely.

The T-market is a nightmare, and frankly, we're at the end-game. I've long avoided apocalyptic forecasts, but there's not a single glimmer of hope, in my opinion - not a single sector of this economy that can offset what's unraveling.

Eloquently said. I agree 100%.

icely done dryfly!

and for those liking nurd volumes of data on sterilization, but an easy read.

Economic Issues 7--Sterilizing Capital Inflows

Speed(Unrated) writes:
CNBC Plans Big Cuts Despite Huge Ratings
Speed | 12.01.08 - 3:34 pm | #

Employees asked to reapply for remaining jobs - applicants told to make sure they provide their age and bra size to be considered.

What started as sterilized interventions a year ago have slowly become something else entirely.
Nemo | Homepage | 12.01.08 - 3:39 pm | #

Hoocoodanode...

Re: sterilization

Are the companies trading junk assets for cash ever expected to return the cash and get back their garbage?

TIA

IMO we are actually in a currency crisis. It isn’t perceived as much on this board because most posters here are U.S. based and the dollar has been rising.

I would tend to agree - people often ignore the stress that violent movements represent when they're on the "winning" side of these movements.

In part I think what we're seeing here is not some vindication of the dollar, but more of an acknowledgment that the value of many foreign currencies was really a fiction.

A US manufacturer might think that the dollar has gotten too expensive and now they can't sell their stuff overseas.

But I think that's the wrong way to look at it:

The US manufacturer is experiencing stress because the world is realizing that these emerging economies don't really have the wealth necessary to pay for these goods.

In that regard it doesn't make much sense to correct this problem by devaluing the dollar, because the real problem lies with the real economy of the foreign country, not any problem the US can control.

We aren't going to sterilize or offset our other facilities anymore

We're all in the same boat.

Why can't we share needles?

Let me see if I got this straight.
Sterilization is exchanging one asset for another, ie. treasuries for currency, so that there is a zero sum gain in the money supply?
And non-sterilization is just printing money with taking some other asset out of circulation?
Does the whole sterilization thing work? Does it keep the money supply from becoming inflated?

Aren't we less than 100pts away from a circuit breaker?

Well, so much for Black Friday's magical healing powers... wonder what happens when we get past Jan. 20's magical healing powers. What's the next magic day... Easter Sunday?

awgee,

as i understand it the fed doesnt take treasuries but started taking other receivables. student loans, CC debt, CDO, RMBS etc..

then again i'm still trying to understand it

We're all in the same boat.

Why can't we share needles?
ac | 12.01.08 - 3:43 pm | #

LOL... ya and Keith Richards is in the boat with us. What could go wrong?

awgee: Yes, something like that. But what you take as collateral (the asset) has to be relatively liquid or else it's not really sterilization at all. And that's what is happening.

The best performing financial stock on my screen is USB, and it is down 8.9%.

Holy crap.

Monday, December 1, 2008
Conventional wiseguys

Now that the squints at Cambridge (NBER) have stated that the yellow ball of burning gas hovering in the sky is in fact the sun and the bloviators are proclaiming that this is good news because it suggests that we are more than halfway through let's consider some 'conventional wisdom.'

First if stocks did bottom in November and we stay true to historical form that stocks bottom 58% through a down cycle, this 'recession' is already the longest since the Great Depression.

Second, stock market bottoms happen before employment & GDP improves, usually to the tune of several months. However as most folks know, employment numbers have been overinflated due to the birth-death model. Make-believe jobs were created in the make-believe expansion that existed throughout 2008 until the wayback machine at NBER said au contraire. Now, unless the rules are changed, the birth-death model should be taking away imaginary jobs exasperating the employment numbers.

Third, a GDP contraction is expected in the 4th quarter.

Fourth, the most optimistic scenario for employment improving is mid-2009.

Fifth, earnings season starts in 38 days. Unless folks starting beating the 'numbahs' then the argument that stocks have bottomed has no shelf life.

To summarize we are now in at least the longest down cycle since the Great Depression, and unless we see GDP improving in the 2nd quarter of 2009 and employment improving coincidentally, the markets are going lower than November. If the November lows are it we got off extremely lucky for that would mean we came in at double digit PEs at a bear market bottom, much better than 1973-1975 & 1981-1982.

That seems unlikely

ok, so there was the short covering rally. Maybe some black box trades. Now where do we go?

Trading a mbs that is marked-to-fantasy for money from the Fed is not sterilizing anything, regardless of what they pretend

I'm going out on a limb here. Japan's stock market will decline tonight.

Decoupling. Yeah, that was a good one.

Sterilization means the Fed is expanding it's balance sheet without a corresponding increase in the money supply. Sterilized Fed intervention is non-inflationary, and what they tried to do until last month. Now their current round of balance sheet expansion is not only unsterilized, but they are rapidly reversing the previous sterilizations with Treasury. The Fed is now monetizing the federal deficit and pushing out more helicopter drops than California in fire season. Treasuries are the current bubble, because barring economic collapse, inflation is coming.

Meredith Whitney stated on CNBC that all the major banks will require additional capital.

awgee: You're right, he's not showing what he's buying. That is why Bloomberg is suing to try to have that info released....The reason it has to be high quality is because you won't be able to sell it otherwise, at least for more than pennies on the dollar. What these institutions think is worth $100 Billion is probably only worth $5 Billion. So if they trade those $100B in "assets" for $100B in money, only $5 Billion is s

Turbo - Why doesn't the Fed just keep on sterilizing?

thanks to all for the sterilization explanations.

very very good.

So was this a Satan Claws rally?

Re: who benefits from the treasury runup.

Because Treasuries are considered 0-risk weighted for capitalization purposes, this run-up in treasuries has got to be helping to keep banks solvent, relatively at least.

Because they're now scared to death of deflation, and are willing to risk a nasty spike in inflation down the road to avert deflation today.

mykillk - It may be obvious, but I do not see why Ben can't just go on buying crap paper without concern for selling it later. You and I have to be concerned with something is worth when we buy it, but does the Fed?

emo - Can't the Treasury just "print" more treasuries?

The Fed buying treasuries. So they are buying themselves. And this helps ???

The Fed and Treasury are not the same. When the Fed buys Treasuries, it is exchanging CASH for debt. In doing so, it (1) puts more money in the system and (2) by buying long-term debt, it's driving down the long-end of the yield curve.

Bernanke, Paulson and Geithner have no idea what they are doing.

Rest assured though, the unintended negative consequences of their actions will be borne by the middle and lower classes.

First and foremost the fed & treasury will secure the fictitious wealth of the rich.

This is the greatest financial travesty in history. The fed is a sham.

awgee --

It may be obvious, but I do not see why Ben can't just go on buying crap paper without concern for selling it later.

Because it is not their intention to destroy the economy or the currency...

The Fed is the central bank. They do not want to be exposed to credit risk if they can possibly avoid it.

At some point in the future, we may face a Fed telling Congress "You need to raise taxes to pay us back" and Congress saying "no". Should make for good times. But not soon.

awgee: Oh, he'll keep buying them alright. But that doesn't mean the "market" won't see right through it and call his bluff. The money supply is going to explode!

The FED should resign.

The entire organization.

Sold SDS in final minute of trading. Might be the last opportunity for a while, and I don't want to worry about that counterparty stuff.

"negative financial analyst"

I think she means

"prescient financial analyst"

Nightstand cowboy securely tucked away in the drawer today. The money honey has no need for it on a 700pt down day.

Hazard --

The Fed buying treasuries. So they are buying themselves.

Once again, the Fed is not part of the government. Yeah I know they have a ".gov" domain, but they are an "independent central bank".

awgee --

nemo - Can't the Treasury just "print" more treasuries?

Only if they can find someone to buy them. At some point, the crisis will be over -- or the Fed will assert the crisis is over, or that inflation is the greater danger again, etc. -- and then the Fed will become interested in getting paid back again. I imagine this showdown is a decade or two away.

[OT] Wow, that was quite a close.

Why does Maria keep asking if people know where their money is? Clearly it has gone out the chimney and up into the stratosphere where it is causing global economic cooling...

What the Fed is accepting is neither liquid nor realistically valued.
mykillk

totally concur. i thought the 'sterilize' part of it was killing the germs on the piles of sh*t they were trading the fed

I have been skeptical of the Fed's sterilization claims for a while. See the last thread about settlement failures.

Turbo,

I wouldn't rule out that economic collapse option, which is why I pulled out of TBT.

In a debased currency scenario, how will BB and HP hold down the price of gold??

You get the idea that Bernanke thought that when he pulled out the "we'll buy Treasuries" line, that the market would get a nice big boost up. And what did it do? Nearly crashed.

Im really beginning to think that this is approaching game set and match. They are practically out of weapons, PR isnt working at all, policy changes day by day, and the same fools are going to run the show in the next administration.

Is tomorrow full on capitulation, and the inevitable downhill path to GD2? Sure is starting to look like it.

What the hell is he planning on using to buy long term treasuries with...more long term treasuries? Oh wait, maybe he is going to issue treasuries in the Euro and then buy up dollar treasuries?

The scary part is ... Bernanke knows exactly what he is doing. The situation is that dire and desperate.

The fed can cut the rate below 1%, but, any rate that close to zero can generate adverse effect on the liquidity as it often squeezes the dealer margins.

At least, foreigners are still holding treasuries and deflation, not inflation, is the prime concern.

What the hell is he planning on using to buy long term treasuries with

Ben Bernanke's own words:

the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm 

Thank you Satan, couldnt have said it better myself. This was the equivalent of leaving your chips on the rack at the craps table and going to take a leak. Idiotic.

The FED has publically and officially acknowledged it's in a liquidity trap. First in a generation.

If you want inflation, better start spending the bucks, furiously, quickly, for no reason at all. Loan the worthless paper to anyone for any price.

Here's the rub, look at the facilities and credit extensions. Ben's in a pickle. He'll have to decide when to pull the punch bowl. This ain't no Greenspan punch bowl, this is the mother of all punch bowls.......and so it'll continue for years.

What's needed is what was denied during the Bush years--wage inflation. Until average take home pay goes up, houses will be overpriced and the country spirals down. Trickle up works much better than trickle dow

Original Eric: No, I do not think they dare sell it because establishing a market price would be disastrous to the balance sheets of all major financial institutions. There will be no sterilization I fear. . .

Brontide - my declaration assumes the close of US markets. When extended hours starts tomorrow, there is a good chance I will be able to make this statement again, considering I did not get back before the market closed.

Lucky lucky me!!!

The scary part is ... Bernanke knows exactly what he is doing. The situation is that dire and desperate.

I 100% agree - but the task might still be more than he can manage and THAT is what is really scary.

Today, Ben was the warm up act. Next on stage his partner in crime;Snake oil salesman Hanky: (reuters) U.S. working on new lending programs: Paulson
"... Treasury was working on additional programs to strengthen lending but offered no details. "When these programs are ready for implementation, we will discuss them with the Congress and the next administration," Paulson said.

He said the most important thing the government can do to slow the rate of home foreclosures was to make sure that mortgages were available at lower cost and professed some disappointment that they have not fallen more."

The more Ben and Hanky talk, the tighter I grip my george washingtons and the more savings I pull outta the banks and into my mattress.

dryfly(Excellent) writes:
Ben's comments should make every single one of us take pause before plowing head long into treasuries thinking they are some kind of lifeboat...

Good point dryfly, so where would you put your money these days, once you have as much real estate, gold and commodities as you can tolerate?

T-fund (99% short term) for me, but would love to have better alternatives. The Canadian and Euro currency trades didn't work out so well for my buddies.

Let me understand this. They want the 13-wk Treasury yields to increase, as low yields are a symptom of the credit crisis. They want long-term Treasury yields to go down, so borrowing is cheaper.

Doesn't the economy's growth depend on people saving and investing their money, which finds its way to projects to build new factors of production? Manipulating everything to encourage consumption doesn't make sense to me.

The problem with our system for the last 30 years (p*ss down economics)was that profit was NOT distributed to those who would spend the most.

I'm not disagreeing, just pointing out that domestic wage inflation requires government intervention to work.

So the govi is going to pick up the interest rate risk now?

....IMHO....but then I'm a veggie farmer....and own a milk cow.....and a few chickens.....(walking off grumbling)....