FOMC Statement: As Previous Announced, Will Buy $1.75 Trillion in MBS, Agency Debt and Treasuries
Because a shit sandwich in your left pocket doesn't stink as much as one in your right. besides that frees up your right pocket to accept more shit sandwiches.
"This is basically the Fed single-handedly creating the status-quo-ante MBS market."
I have been saying this for some time - trust me - I am in that market - they are the ONLY buyer of MBS, other than MSR hedgers. Repeat after me, they are the ONLY buyer of agency MBS.
The Fed could give a sh*t about where the 10 year is marked IMHO, they only care about keeping mortgage rates low. That is Bernanke's major goal.
He is going to be shocked when he sees the effect of the new wave of foreclosures hitting the market. That is what is going to drive him to up the ante on MBS purchases.
Stormtrooper: Let me see your identification. Obi-Wan: [with a small wave of his hand] You don't need to see his identification. Stormtrooper: We don't need to see his identification. Obi-Wan: These aren't the droids you're looking for. Stormtrooper: These aren't the droids we're looking for. Obi-Wan: He can go about his business. Stormtrooper: You can go about your business. Obi-Wan: Move along. Stormtrooper: Move along... move along.
The hope that more debt will fix things... tragic but it must go down this way...
1 quarter of consumer contraction....
then
1 quarter of business contraction in response to lower sales....
then
1 quarter of consumer contraction in response to the layoffs....
round and round she goes... where's the bottom? nobody knows!
crispy & cole wrote: "they see things improving and so do I!"
Crispy,
That's not what I see in the statement. If I may,
"In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
"the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term."
Short term inflation to produce long term "price stability"? In what? Not dollars, evidently. It gets more Orwellian each time.
If I'm destined to contract swine flu, please let it be quick and painless. I don't want to be around after all the ramifications of this clusterf**k become reality.
Wana Bet mmckinl? It is statistically impossible for the American taxpayer to cover all that debt. Just liquidate the Fed and write off all their debt when the time comes.
Wana Bet mmckinl? It is statistically impossible for the American taxpayer to cover all that debt. Just liquidate the Fed and write off all their debt when the time comes.
~~~~
The Weimar Republic did it ... Zimbabwe did it ...
I was thinking of doing a screen capture and sending it to CR, the spread to Treasuries is basically unprecedented, I will see what I can do. Would be a good topic, so people can tell their grandkids why a loaf of bread costs $1500 in 2030.
"they only care about keeping mortgage rates low. That is Bernanke's major goal"
Yes.
It's the highest leveraged item they can control to try and rebalance the thing.
I'm not surprised at all.
They'll have to drive mortgage rates well under 4% to get a partial reboot, which might last a few years, but they'll eventually have to drive rates down below the rate of true growth (minus all the weird feedback effect) AND down enough to make up for all the other debt drag in credit cards, commercial paper, etc.
Longer term how does this all work again? Our financial system was addicted to cheap credit before...now that we have cleared that all up with free credit from the Fed, what happens when we take rates back up again? Or how do we do that?
Arbitrage_Macht_Frei (profile) wrote on Wed, 4/29/2009 - 11:37 am Maybe there are enough dupes to buy UST positions, judging from how easily they fished Jas in?
There might be enough suckers but there isn't enough chicken feed. This will end when other sovs start using capital controls to preserve their own ability to borrow, or someone important to the context loses the ability to borrow and crashes and pulls the USD down with it.
If you read Greenspan's comments from post-1992, he was using 1937-1945 as a model. Basically, they're going to force existing debt down below the true rate of growth. Because it's a zero-sum system at any point in time, the delta between what bond holders receive and true growth HAS to divert to debtors, to boost their balance sheets and eventually grow them out of debt.
Wana Bet mmckinl? It is statistically impossible for the American taxpayer to cover all that debt.
Unless the Fed finds a way to flood the consumer economy with new money in a way that creates inflation.
That's one way of defaulting, which is the only real solution to the current debt burden. But inflation is basically a lawless, deceptive, dishonest way of default. It hides the crimes of the guilty and bypasses our system of rules.
Why do this when we have other means of default that are far more just and transparent?
The only conclusion I can come to is that our leadership believes they can only control this country by deception and coercion.
Now way can our system handle higher rates. In that light, Jas's treasury theory makes sense. But at 2 or 3% before taxes, it's just not worth the bother imo.
"I was wondering if the fed was doing a stealth bank recapitalization by over-paying for existing MBS issues."
Well, for every new mortgage originated the banks make about 100bps.
Plus a lot of the crap being refied are loans in the portfolios of the banks.
So, yes, they are doing a bank recap, but don't need to buy existing MBS to do it. They just roll the loans from the portfolios into MBS and buy that, while paying the banks to originate it.,
Will they ever get the fact that we DO NOT HAVE liquidity problem?
hellooooo, earth to the Jupiter, helloooo
wonder, if their efforts hit the fan, what will the next "logical" step be, sending the market to the summer break?
yo guys, why don't you all take vacations till we fix the toxic assets issue.
even better- yo guys, you MUST buy toxic assets at the book values or else....
" This will end when other sovs start using capital controls to preserve their own ability to borrow"
If the Feds can coordinate action by the major players, they may be able to force the majority of capital flows to go where they want, i.e. into refinancing American debtors at rates far below rate of true growth. I've seen rumors that the Chinese may go along in order to preserver the existing order of things.
"That's one way of defaulting, which is the only real solution to the current debt burden. But inflation is basically a lawless, deceptive, dishonest way of default. It hides the crimes of the guilty and bypasses our system of rules."
I think some people were expecting more printing... er I mean quantitative... er... I mean "credit easing".
The news is that there is no news. This statement is just a rephrasing of what they already announced last time.
Yup - but can't imagine why they expected anything else. I was driving across country yesterday - listening to news - and they reported the fed was meeting. My first thought was 'that must be one boring meeting - sign in, have a few laughs & go home'... probably what happened.
If you have a big pile of money, you lose.
If you have no leveraged position, you lose but less so.
If you borrowed heavily but couldn't hold on during the past three years, you also lose.
Big winners are people who borrowed "moderately" and held on to their jobs and kept making their payments.
"This is really about jamming money into the hands of mortgage-holding consumers. "
I think the consumers are lucky bystanders. this is about jamming money into the hands of large mortgage originators (who also happen to hold a lot of mortgages on their books - WFC, BofA, JPM).
I'm reading a history of the German hyperinflation -- 'The Economics of Inflation' by Brescia-Turroni, 1931 -- and the parallels with our Fed's actions are clear.
Stocks rose in nominal terms, but much less than the cost of living, wholesale price index, wage index, or dollar exchange rate.
Conclusion -- Bennie and Timmy's inflationary pranks are going to kill the (real) stock market.
Damn, and here I am starting a new job where I can't short. Not that I like doing it, but this stock market worries me.
For those who don't follow the bonds markets closely, not many really good deals in the last couple of weeks. There is not enough fear.
For anyone scheduling a job interview, get it done fast. You don't want to be interviewing during a market freefall. I was lucky enough to get my interviews and offer during a rising market.
I was thinking of doing a screen capture and sending it to CR, the spread to Treasuries is basically unprecedented, I will see what I can do. Would be a good topic, so people can tell their grandkids why a loaf of bread costs $1500 in 2030.
I think Cramer is right, for once. Those people have worked hard and saved money, why shouldn't they get a TV. But if he thinks they'll pay all that juice for a Whirlpool or Sony label he's really certifiable. They make the damn things, they know how much labor goes into putting on a label.
The Big Casino stays open only when FED spends another 1.75Trillion. How much more money doe sit need to print and spend to protect the Wall St crooks welshing on their collective gambling debts ? Or perhaps the rest of world will just fed up ( pun intended ) and not buy US Treasuries.
The USA economy is just one BIG Ponzi scheme where elite monied interests still make the rules even for shitty bets and where US taxpayers play the fool and foot the bill.
It's easy to see how we're getting into the trillions here, when we're feeding these people millions to fool us.
Does anyone have a way to find out how much money has flowed from NSF/NBER/CEPR/I-Banks,etc, into the university econ departments over the last decade? If so, let's try to correlate it with the prizes awarded and specific schools. Ech.
Wana Bet mmckinl? It is statistically impossible for the American taxpayer to cover all that debt.
Unless the Fed finds a way to flood the consumer economy with new money in a way that creates inflation.
~~~~~
Until the dollar is devalued ... and imports skyrocket ... especially oil ...
@AS: I was wondering if the fed was doing a stealth bank recapitalization by over-paying for existing MBS issues.
I don't think it's so much that as it's a way of getting around the slice-and-dice/securitization and servicer problem...anyone who's remotely healthy can refi out of the garbage...it's adverse selecting the good stuff out. You get some price discovery on the underlying assets AND you get to clear out some fraud (if you enforce decent underwriting on the new agency originations) and what's left behind is concentrated garbage. It is only a bailout of the owners of the toxic MBSes insofar as the healthy mortgages get paid off. That's my neophyte/amateur interpretation of what they're up to.
I'm still not positive this is super-inflationary...but it's an attempt to prevent severe 'overcorrection' in the housing market. But that $$$ amount should be enough to cover some estimates of the size of the garbage...ISTR Roubini suggesting 2T?
@NEMO: I don't recall that they put a $$$ amount on the previous announcement.
Broward: If the Feds can coordinate action by the major players, they may be able to force the majority of capital flows to go where they want, i.e. into refinancing American debtors at rates far below rate of true growth.
Then they'd run the world out of capital and still want more.
What percentage of world savings did the US previously consume?
Now, that the whole world has stepped down off the flight to yield bubble via deleveraging, how much is available, versus how much does America now need to meet its accelerated indebtedness curve?
Relatedly, do you think the US can possibly stop spending money at the current burn rate without a crisis?
John Law's Perpetual Company of the Indies would long ago have supplanted every other form of economic activity on the planet if it could. Tarponomics is mighty.
Bah, the cost of everything I'll need during my forthcoming 4-week trip to Europe just went up.
I have first-hand experience with high inflation. I wish that was not the case. I would be less desperate and frustrated if it was my first time.
"If you have a big pile of money, you lose." Yes, if you were in stocks, MBS, or real estate. If you had an actual pile of cash or FDIC insured CDs in 2008, you now have a lot of opportunities, and have had almost no losses.
"If you borrowed heavily but couldn't hold on during the past three years, you also lose." Maybe. A lot of people extracted huge amounts from refi and helocs. They either have already spent the money, or will likely keep it when the foreclosure happens. The losers are people who borrowed right at the peak and never got to extract anything. I know a few of those, including a couple who both have high paying jobs and are paying something like 35% of their gross for the next few decades for a house that's already dropped 50% in value.
"Big winners are people who borrowed "moderately" and held on to their jobs and kept making their payments." Borrowing moderately and getting an affordable house means losing a larger % of your investment than a medium or expensive house in most markets. Fortunately, the $ loss is generally less on less expensive homes.
"Wage slaves win!" And slackers win. People who basically didn't participate much as borrowers or lenders came out pretty well. I have a feeling people graduating from college in 2012 will be in great shape. The economy will be in recovery, some sectors will be doing well, and an awful lot of people will be stuck in their current homes, providing more opportunity for those who can move, like fresh grads.
Remember, you can have more money without price inflation, if there's an economic "freeze" that depresses the velocity of money as well.
Until the velocity of money increases worries about inflation are premature.
Meanwhile: "Will they ever get the fact that we DO NOT HAVE liquidity problem?"
Individual banks have solvency problems, but at the global level, is it still a solvency issue, or might it still be simply a liquidity issue? In the end the world's debts are just promises made amongst ourselves. The economy is just a series of exchanges of products for promises. Some will be kept, some will be defaulted on, and some will be inflated away or otherwise renegotiated. The tricky part is figuring out which products and promises will retain their value.
[Edit: added "products and" to "products and promises".]
Hope the Bastards are happy they made America a Fucking joke! What are we to the world...what value do we give the world? Give us your money and we will give you crappy MBS junk......What a deal....How about liberating our people from Gov't Tyranny before we bitch about Castro and the Rest of those same types of A-Holes.....Our greed was pushed upon the world and they will soon push back!
I think Cramer is right, for once. Those people have worked hard and saved money, why shouldn't they get a TV. But if he thinks they'll pay all that juice for a Whirlpool or Sony label he's really certifiable. They make the damn things, they know how much labor goes into putting on a label.
They absolutely will DEMAND a Whirlpool or Sony label - they just won't be made in Japan or USA. The only way the 'platform' business model could have EVER worked is if the goods produced offshore were consumed offshore... if that actually starts to happen then the world recession is over. But not until.
Personally I heard the Cramer schpiel too - I think he is too early. Next year at the soonest before China consumes more of China and America produces more for America. Then then the heal begins for real.
An artist's interpretation about the "simplicity of America". I don't know what he means, though. (in other words, off topic. But then, sometimes I think the topic is Financial Dadaism).
I'm reading a history of the German hyperinflation -- 'The Economics of Inflation' by Brescia-Turroni, 1931 -- and the parallels with our Fed's actions are clear.
I don't think post-WWI Germany is worth much as a parallel; the context was entirely different as was the origin of the debt. Germany was defeated and under military occupation and was facing crushing reparations debt owed to the countries occupying them. We have options that they did not.
"I think the consumers are lucky bystanders. this is about jamming money into the hands of large mortgage originators"
I don't think so. I watched Greenspan closely during the 1991 Crash and reboot. Around 1997 he all but admitted that he was using 1937-1945 as a model, when "investors" were forced into low-yield gov't bonds (i.e. below true growth) to support the war effort.
Mortgage originators aren't a pipeline for buying consumer goods.
Market started off strong before the announcement. Some of the big boys were obviously in the know about what was to be released later in the day. I dont want to play their game. I want them to stop playing their game. It is very disheartening and makes me sad
what value do we give the world? Give us your money and we will give you crappy MBS junk
I think it's even worse than that. The Fed said it was going to purchase MBS, not give it away.
So the lesson is: Buy crappy assets imprudently and the Fed will hand you perfectly good $$ for them, the same $$ for which the rest of us peons work our ass off.
I realize the flu meme is in a temporary lull since the market has been fooled by accounting changes at Mexico and the WHO (downward revision to "confirmed" cases), but here is a really excellent map that shows the progression of the "officially confirmed" (current data) flu cases: BBC NEWS | Americas | Swine flu: mapping the outbreak
My interest in this is in figuring out how rapidly this virus will spread. There are some issues with the measurement methodology, but it looks like my previous estimate of a doubling in cases every 4 days may be "slower" than the actual spread. If the flu infection total continues to double every 4 days or less, and the cross-border transmission continues, then the entire process MIGHT play out globally in 2 months or less! This is much faster than the previous pandemics, and can be explained by the greater interconnectedness & speed of transportation in our globalized world.
The other concern is the mortality of those infected. Currently the evidence I've seen suggests individual cases are significantly more severe than a typical winter flu, but not as deadly as the 1918-1919 pandemic flu. However, as the virus evolves the mortality impact can evolve as well.
If the virus continues to propagate at this speed, and remains this severe or gets worse, then individuals should be preparing "kids camping at home" plans, to reduce interactions with others during a period of some weeks when schools are likely to be shut down and some workplaces may also cut back to "essential personnel only".
Here is what I wrote for Zacks. The bold and italics will probably not come through, but the first paragraph in a set is the current release, the second the March statement and the thrid is my translations of the statement.
(Me) Below we present both the most recent Federal Reserve statement and the previous one from its mid March meeting (in italics) along with my translation and interpretation (bold) interspersed between the paragraphs.
(today) Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
(March) Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.
(me) Very little change from what they were saying in March, just a little bit more upbeat tone. The economy is still very weak, but the Fed thinks that the actions taken so far, both by it and by the Treasury will eventually turn the economy around. Credit market indicators have more or less returned to normal from the off the charts awful levels of last fall, and eventually that should filter through to the real economy.
(today) In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
(March)In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
(me) Word for word the same as last time. The big threat is deflation (i.e. inflation below rates that foster economic growth). The Fed will fight that by keeping the printing press running at full speed. This is no surprise, Bernanke told us that he would do this long before he ever became Fed Chairman (hence the nickname Helicopter Ben). While inflation is not a prolem for the short term, over the longer term, this level of expansion of the Fed balance sheet and the money supply raises the possibility of very high rates of inflation once the economy picks up.
(today)In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of financial and economic developments.
(march) In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.
(me) No significant change here. Quantitative easing continues but was not expanded. Dropped mention of the TALF, but that is already underway (off to a very slow start, but underway). The Fed is effectively now the only buyer of mortgaged backed securities and by the end of the year will be holding about 20% of all Fannie Mae (FNM) and Freddie Mac (FRE) backed securities outstanding. This is a lot of credit risk for a central bank to be taking on, but if it were not doing so, mortgage rates would skyrocket, rather than falling to historically low levels. Those low levels are allowing people to refinance and thus have more money to spend on other things. This may be why consumption spending was so unexpectedly strong in the first quarter. Still, this is a violation of one of the central tenants of Central banking, namely that Central Banks do not take on significant credit risk. Given that both Fannie and Freddie are on government life support, the fact that these securities are insured by them does not provide much comfort about the level of credit risk being undertaken. Unprecedented conditions call for unprecedented actions.
(today) Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
(March) Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
(me) Well not much action taken this time around, but everyone agreed.
(me) Overall, the Fed is taking a wait and see approach. In previous meetings it has taken extremely aggressive measures (indeed the could turn out to be recklessly aggressive). Monetary policy always works with very long time lags. They want to see if what they have done so far works, rather than further increasing the odds that they have already overshot the target. If not for the easing moves that the Fed started to take well over a year ago, the economy would be in far worse shape than it is today. Those actions are not, however, without cost. Just how big a price we will end up paying will not be known for some time yet.
Eric says "I mean, I've worked at places where you couldn't be in a stock (short or long) if the firm had a position, but flat out banning?
Do they explicitly forbid the inverse ETFs too?"
At my last job, since the company did M&A, IPO (remember those?), and provided investment advice, there were a lot of rules. No short selling was one of them. We also temporarily got locked out of investing in a particular type of investments I knew very well and the returns had become quite high. Couldn't do day trading either.
I'll have to check about the ETFs at the new firm. At the old one, ETFs required preclearance, just like stocks, even if they were S&P 500 tracking funds.
Yalt, you would be surprised. The Germans began spending hand over fist in 1914, and began printing money when demand for their Treasuries dried up in 1915. Germany's fiscal stupidity -- skyrocketing expenditures for their socialist state in the face of crumbling receipts -- began long before they began post-War reparations in the '20s.
Really, the German experience of 1914-1920, when there was strong inflation, followed by hyperinflation in '22-'23, reads much like the American experience today.
"Relatedly, do you think the US can possibly stop spending money at the current burn rate without a crisis?"
BR, you have to admit that the Feds are doing a better job than you expected.
Yes, I think the thing has to break but the problem is that (I think) I understand what they're trying to do. From a relative value standpoint, I see how it can work. From the absolute view of the long-term credit cycle and interest rate direction, I don't see how it can work for very long as it's dependent upon another leg downward in interest rates. Perhaps they can drive rates down one more time.
Jobs sure suck.
More than 50% of the Dice jobs for Seattle are at Amazon.
Sigh.
Only when 50T worth of aggregate US debt is rationalized ... not until ...
'bout half that is what we can support ... 2.0x GDP
The Forex will take care of a lot of that 50T - debasement is inevitable, de facto or by fiat - that is very likely to happen once China decides to consume Chinese as opposed to give it away to Walmart. I don't think that day is terribly far off but isn't here yet... when it happens PBoC will NOT be terribly interested in supporting the dollar & the reset happens for real. That is the day we get earnest about making more of our own stuff or our consumption goes to zero [not by choice either].
Dirk,
(me) Overall, the Fed is taking a wait and see approach. In previous meetings it has taken extremely aggressive measures (indeed the could turn out to be recklessly aggressive).
Big winners are people who borrowed "moderately" and held on to their jobs and kept making their payments."
I do not think that we are big winners we just haven't lost as much. But believe me the losses are there, especially for us late boomers with kids heading off to or in college. Some of us may still have our jobs but we know many professionals who don't.
Toured my neighborhood in North Palm Beach County today on Zillow and resales and homes on the market are nearly flat. Prices are off 40% from their highs. We have always been a high demand upper income family neighboorhood. Better than nice ammenties (tennis, pool, gym, gated boat storage) but not the high homeowners fees associated with a gated comunity. A - Schools, large student population with access to the top magnet(gifted) high schools in the country. People have done well here but nothing is moving and no one is buying. Have not seen any new cars or the large number of new furniture trucks that normaly breeze thru our neighboorhood. 200 homes sold between spring of 2005 and fall of 20007. Most where probably Alt A because most people would do anything to move here. We are representative of an educated population intermixed with small business owners. Times are not good.
Serious suggestion (are the senate staffers reading?). Buy up a bunch of illiquid MBS based on a lowest % of par auction. Give the MBS to public pension funds and prepaid tuition funds run by states, or even put them in the Medicare Trust Fund. Make them keep the securities until expiration, prepayment, liquidation etc.. If they can't resell them, they can't depress market prices. If they got them for free, they can't have a loss. Since pension funds and prepaid tuition trusts have long time horizons and little or no leverage, they don't need to sell or churn the stuff.
Setting my stopwatch and seeing how long it takes for this to turn up in the media.
"According to the BIS, which acts as a central bank for central banks, total bank claims shrank by $1.8 trillion in the fourth quarter, or 5.4%, to $31 trillion. This was the largest decline ever recorded."
"Unlike in the 1930s, when central banks actually aided and abetted the collapse of the banking system, today's leaders responded to the unprecedented crisis in the fourth quarter with equally unprecedented force."
Now here's what I find amusing:
"Real output in the finance industry fell 3.0% in 2008, compared to the previous record of a 1.6% decline in 1958. Because finance looms much larger in the economy, last year's contraction shaved a hefty 0.24% from GDP, compared to just 0.05% in 1958."
So, what "real output" does the financial industry generate?
Nothing real, just funny money scalped off of other endeavors that generated something real.
Cramer,
The Chinese counterfeit, that's what they do best. All Sony and electronic making technology is already within their borders. Slap their own label on the goods and sell them to themselves at 75% off, and cut out the Sony middle man. And your multinationals are going to profit from China How?
Really, the German experience of 1914-1920, when there was strong inflation, followed by hyperinflation in '22-'23, reads much like the American experience today.
I'm not sure how the experience of 1914-1918 reads anything like the American experience today. And you can pretend that the war reparations "in the early '20s" don't belong in your one-sentence summary of the decade, but that's a pretty tendentious reading of the situation IMO.
But my basic point was the Germans did not have the option of default, or even a credible threat to do so, because their creditors were militarily occupying their country. Again, we have options that they did not have. (Note that the remaining debt WAS canceled after Hitler came to power, the occupation was over and Germany once again could pose a credible military threat.)
And yes, TCA, that's also one of the options they didn't have.
Bottom line: great big chunks of Big Shitpile aren’t "impaired," or "illiquid," or "distressed," they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored.
The author of this post nailed it !
Today we learn the Fed will Buy $1.75 Trillion in MBS, Agency Debt and Treasuries to try and get real estate bubble going again !
Complete transparency for those who are 'clued in'
The United States of Ponzi Schemes at its finest !
Is there such a thing? Or are we just accepting the banks and Fed's definition of an "illiquid security" as any security held by a bank that is unwilling or unable to accept the market price as payment?
WS: "The tricky part is figuring out which promises will retain their value.
~~~~
mmckinl: "especially when the rules change very day ..."
AMEN! When the rules change all the time, you have to monitor everything a lot more because the premises of the investment may no longer make sense.
And hell, I'm not used to having to worry about my entry/exit points for MONEY MARKET funds!
One of our retirement plans had the Vanguard Treasury Money Market fund as an option. Vanguard closed the fund to new investors. Now the plan is changing to another fund that charges much higher fees, is far less transparent in terms of process, holdings and shareholder protections, and has like a 0.01% yield. Then Fidelity (which runs the plan) tosses in a fixed per-quarter fee that amounts to another 0.5% cost. It's going to COST ME MONEY to hold cash. (We don't need Bernanke to figure out how to implement negative interest rates, when Fidelity does it for us!!!)
So now I'm trying to figure out if any of the limited set of other horrifyingly bad investment options might actually eke out a gain. And of course we can only move the money every 30 days, so the sort of trading that might actually work in this market is out of bounds.
I suppose this is all the grand plan of the Invisible Hand, giving those of us with a bit of free capital a bigger incentive to find a productive way to invest it. But when the rules change every day and none of the changes reward productive investment, what can you do? (Besides whine on CalculatedRisk, that is!)
Today we learn the Fed will Buy $1.75 Trillion in MBS, Agency Debt and Treasuries to try and get real estate bubble going again !
If you just learned that today you really haven't been paying attention. How many times can they make the same announcement and have people read it as if it were news?
"awful lot of people will be stuck in their current homes, providing more opportunity for those who can move, like fresh grads"
Might turn into a myth.
Lots of immigrants to provide "labor mobility".
If existing home owners refinance into a 3% 30-year mortgage, I submit that they will be "winners" in that they'll be able to pay off their house and still buy consumer goods (unlike a scenario of 6% interest rates and lower house prices when they sell at retirement).
Meh...I don't think they're meaningfully distinguishable...I think if you have monetary inflation (net, after the credit destruction), then price inflation will follow, maybe not right away and not in all things (ie, it's in commodities but assets may continue to fall).
I guess my question is: is this the point where the amount pumped in, targeted at the most highly levered stuff in the system flips us to the other side of the knife...from deflation to inflation. If so, there is your massive move into equities: kermit wins.
"I dunno, Comrade Chaos. I've been a 'short' for two years, now. You just have to allow prices to move up 10-15-20%."
2 years ago, I would recommend going short. Right now, it's trader's market & the possibility of not covering on time is just too large.
It's all about your risk tolerance. Most of the people can't tolerate 20% + weekly drop, that's why I wouldn't recommend going short right now.
I am not recommending going long as well. Taking a chill pill & re-evaluating your next strategy, with some small purchases here & there if market break over 900 might be the best.
P.S. I am about 10% short, 30% long & 60% heaven (relatively Safe heaven.) Losing 10% in one day for myself, is perfectly fine.
Yeah, being down 25% after having been up 45% (I should have covered in early March, as my wife told me then and reminds me daily, now) is not so much fun.
But, I feel perfectly comfortable that we are in 18 months into a 60 month Greater Depression, and that the S&P will fall markedly from here.
a completely corrupted government being led around by the short ones by wall st. crooks, a global pandemic, the bond market calling BB's bluff, Chrysler on the verge of BK and UE exploding.....green shoots for everyone!
We still have a moderate upwards trendline in stocks. The 200 day moving average is around 975 (SP500)... I dont know who would be a buyer here other than someone playing intraday moves, and I'm still looking for a move to 600... Meanwhile - a little up, a little down, no big deal...
I keep thinking about all those NOD's that went out in the last month - in my zip code, about 750 homes showing NOD or foreclosure - and it's not that big of a place... If half of those actually go vacant it is really going to change the landscape around here and I will probably have to start dealing with the bandos, which have not been a problem here up to now... I havent clipped up the big artillery yet, but that might be coming...
You are right, Yalt. There are no parallels with the U.S. today.
I didn't say there were no parallels. The parallels don't suffice to make valid predictions because the differences between the two situations are so enormous.
Really, I don't have time to argue with someone that can't see a significant difference in the world positions of Germany in 1922 and the United States in 2009. Or between the wartime experience of Germany from 1914-1918, when they were fighting a major war against just about every other world power, and the experience of the US from 2002-2009, when they were fighting a war halfway around the world against a local insurgency while piling up enormous domestic debt just to keep aggregate demand high in the face of falling real wages. The purposes of the debt were completely different, the imbalances arising from the debt were different, the options for dealing with the debt were different.
(And yes, I know Germany also piled up debt during the war trying to stave off the war's effects on domestic living standards. Still a very different scenario from the US today.)
Most importantly as respects an eventual hyperinflation, we have the option of not paying.
""Will USD cash be a bad position in the next 2 years?"
If you see the inflation (CPI) jump 4-5%, USD cash will become a bad position. Unless the spike happens, having a large part of your investments in the cash is a OK.
"...President Barack Obama plans to announce tomorrow morning that Chrysler LLC will be placed into Chapter 11 bankruptcy..."
Obama as Economics Commissar is tedious. Are there no adults in the administration who worked in the private sector, other than at Golden Schmucks, who could announce this, instead?
@sam.2: "a completely corrupted government being led around by the short ones by wall st. crooks, a global pandemic, the bond market calling BB's bluff, Chrysler on the verge of BK and UE exploding...."
Don't forget an incipient civil war in a hard-to-govern Muslim country with nuclear weapons. (Not to mention Iraq and Afghanistan.) Or those nagging concerns about global warming. Or the droughts afflicting Australia, California and many other primary agricultural regions!!!
Frankly this is one of those days when I think I'm just glad to see that Obama hasn't fled the White House in terror.
But, I feel perfectly comfortable that we are in 18 months into a 60 month Greater Depression, and that the S&P will fall markedly from here.
I can be patient. "
Honestly, I don't know. At this point everyone who say he knows the direction of market for sure is a liar. What I do know, is that people who were short in the last stage of the last bear market were hurt. Think of it as getting into the NASDAQ before it crashed. Are your trading skills / luck good enough to get out on time?
Mine aren't so my short position is minimal.
That really is offensive to call the banksters "industry" with "real output" - they should have to work a while in a steel mill, or at a car wash - then they would know what "real output" is....
Sure, but the "real economy" will provide a floor for that...real activity can't stop altogether. So far it looks like credit destruction is outstripping the "printing presses". It seems to me that if we have to dramatically increase repurchase agreements to offset the destruction of capital reserves (via worthless MBS for example) then you kind of net-out M3 - and if you do, then the velocity might drop to zero and you get stable prices. If the FED really does overshoot in creating funny money, then they'll get price inflation restarted...if the banks are recapitalized they'll start lending...and consumers will pick right back up. I'm not articulating this well; I need to go pick up my money and banking text book.
I was neutral 2 months ago now I am a F'ing Grizzly
Look at 3 months charts of UPS and BBY two names that have performed well and led up higher are starting to show a mirror image down(?) maybe. I covered these to raise cash but something to watch IMO
Shadow, I have run into an assortment of people who are employees in the banking and insurance industries who ask questions like "What do we do?" "Why do people pay us?" and "How do we get so much money for doing this?"
Complex answers, but there is some real work involved. However, many people both inside and outside of banking don't understand how much of this is really a disguised version of sales. I personally find it surprising how few people or institutions get good advice from someone who isn't trying to sell them something. Even real advisory people want to sell more of their advisory services.
if the banks are recapitalized they'll start lending...and consumers will pick right back up.
That's the part of the argument I'm not getting. Capitalized or not, why would banks lend to consumers unless those consumers will be able to repay the loans? It seems to me you have to repair the balance sheets of potential borrowers first before you can get the game going again. In the meantime I'd expect recapitalized banks to simply sit on their money...or, more likely, put it to work in the markets somewhere.
Well it may bite me in the nether regions, but I keep moving money from bank to bank chasing yield. Everything is under FDIC limits, which will be well and good until PPIP destroys the DIF. Still finding 2%+ yields on Jumbo MM accounts.
Small hedge with TBT and seriously considering a UDN hedge as well.
if the banks are recapitalized they'll start lending...and consumers will pick right back up
This is complete BS who said this? The banks will take years repairing balance sheets and never lend the same.
If you almost got killed skydiving would you jump out of plane again?
Tim ... exactly right ... more like "if the banks are recapitalized they will ramp up their proprietary trading" ... which is intended to elevate the stock market ... which in turn leads to some return of the "wealth effect" (or less of the "poverty effect").
Russia defaulted without hyperinflation. A default would have consequences to the value of the dollar but I don't see why it would result in the printing of quintillion-dollar bills.
I'm having trouble thinking of an example of a militarily powerful country suffering a true hyperinflation. It's quite possible the US will be the first, but I don't see how to extrapolate to that from the examples of war casualties like post-WWI Germany or post-WW2 Hungary or militarily insignificant countries like Zimbabwe or even Argentina. There were some fairly serious inflations in the post-Soviet republics (though nothing like the German or Hungarian experiences), so I'll agree that if the US breaks into its component states all bets are off.
I am thinking about starting a blog.. Not so much colorful economic graphs (which CR does very well), but on what can be done to create a better system..one that can function without extensive life support.
I have some wide ranging ideas that span a number of fields (economics, drug research, patent system and required changes, ways to encourage innovation, giving exposure to unpopular but scientifically tenable theories, exposing speculation based on "popular" scientific ideas, etc)... I have been somewhat circumspect about it because a lot of what I might say, especially in my professional area, can reveal more about me (my views) than I am presently comfortable with.
I have toyed with the concept of such a blog, but was never sure whether I had the commitment to maintain if for any length of time. However, I now see it as an experiment rather than anything that I am personally attached to. It is funny how many possibilities open up once you stop caring about a given thing personally.
If and when I do that, I will keep everyone and the haters posted.
It took them two days to come up with that?
This is all "as previously announced", isn't it?
Print that money!
OMG.
Now that's a commitment to growth. It's not like we already have 19 million unoccupied housing units or too much government debt.
the bond market sure liked it.
not.
When the FED extends credit.....everybody loses
they see things improving and so do I!
No new action: All those green shoots need to develop without any watering (other than tears.)
btw, no way is 1.25T going to be enough for the MBS market, that is short by 0.5T IMHO. and that is for this year.
next year, another 1T probably.
FOMC Statement: As Previous Announced, Will Buy $1.75 Trillion in MBS, Agency Debt and Treasuries
Because a shit sandwich in your left pocket doesn't stink as much as one in your right. besides that frees up your right pocket to accept more shit sandwiches.
C&C: Please elaborate... are you seeing increased orders? (You were in agricultural iirc?)
Truly lender of last resort...isn't this pretty close to Roubini's estimate?
This is basically the Fed single-handedly creating the status-quo-ante MBS market...so that we can refi the world out of those toxic loans.
Yow....just...Wow. Okey dokey...here comes the inflation!!!
JAM IT UP, BOYS!!!!!! THE GREEN SIGN IS ILLUMINATED.....
KEEP CLAPPING!!!!!
Are they a loose cannon?
"a range of liquidity programs."
~~~~~
and the tax payer will be obliged to swallow ...
That's up $200 billion from the last announced helicopter dropinto the bank vaults. I guess that hole in the bank universe is bigger than we thought.
If the CONgress and the American people won't recapitalize the banking system, then the fed will do it for them.
And don't forget, it's all about the bonus.
Holy TNX...
GLD shitting the bed here.
Rob Dawg.
+100
Big Brother, can you spare 10.75 Trillion Dimes?
The FED is privately owned by it's member banks. I hope they buy even more and choke themselves to death on all the the debt they created.
"This is basically the Fed single-handedly creating the status-quo-ante MBS market."
I have been saying this for some time - trust me - I am in that market - they are the ONLY buyer of MBS, other than MSR hedgers. Repeat after me, they are the ONLY buyer of agency MBS.
The Fed could give a sh*t about where the 10 year is marked IMHO, they only care about keeping mortgage rates low. That is Bernanke's major goal.
He is going to be shocked when he sees the effect of the new wave of foreclosures hitting the market. That is what is going to drive him to up the ante on MBS purchases.
"Fed officials made no changes to their plans to buy Treasurys and other securities to support the flow of credit to the economy."
http://www.marketwatch.com/news/story/FOMC-only-changes-economic-outlook/story.aspx?guid={29192B63-F6DF-489D-883D-559522A196D8}
Nemo is right. No news here. Move Along.
Stormtrooper: Let me see your identification.
Obi-Wan: [with a small wave of his hand] You don't need to see his identification.
Stormtrooper: We don't need to see his identification.
Obi-Wan: These aren't the droids you're looking for.
Stormtrooper: These aren't the droids we're looking for.
Obi-Wan: He can go about his business.
Stormtrooper: You can go about your business.
Obi-Wan: Move along.
Stormtrooper: Move along... move along.
Time to abolish the Fed ?
Even Congress can't stop them from bailing out their buddies ...
"Federal Open Market Committee"
Oxymoron of the century.
FED wants to maintain price stability ... tells the whole story.
"This is all "as previously announced", isn't it?"
Probably already done. They are just admitting it.
I think some people were expecting more printing... er I mean quantitative... er... I mean "credit easing".
The news is that there is no news. This statement is just a rephrasing of what they already announced last time.
"10y bond 3.09% +0.09 (3.00%)"
Wow! Hope everyone got their re-fis done.
"The FED is privately owned by it's member banks. I hope the buy even more and choke themselves to death on all the the debt they created."
~~~~
The UST is on the hook for everything the privately owned and operated Fed does ... by law ... full faith and credit ...
The hope that more debt will fix things... tragic but it must go down this way...
1 quarter of consumer contraction....
then
1 quarter of business contraction in response to lower sales....
then
1 quarter of consumer contraction in response to the layoffs....
round and round she goes... where's the bottom? nobody knows!
Ghostfaceinvetah,
Is the Fed buying new or existing MBS?
For those of you with a Bloomberg, type in this command:
GT10 govt MTGENFCL index HS
You will see something that will blow your mind.
"Federal Open Market Committee"
Well, I guess you could make a weak case for the "Committee" part. All the rest? NFW.
"some risk that inflation could persist for a time below rates that best foster economic growth and price stability"
madness.
FED wants to maintain price stability ... tells the whole story.
Actually the Fed also has a mandate to maintain full employment which basically makes it a central planning organization by law.
crispy & cole wrote: "they see things improving and so do I!"
Crispy,
That's not what I see in the statement. If I may,
"In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
Only buying new issuance. Most existing isn't even at the coupons they are targeting (4%).
"Is the Fed buying new or existing MBS? "
"the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term."
Short term inflation to produce long term "price stability"? In what? Not dollars, evidently. It gets more Orwellian each time.
ghost,
can you screen capture and post or email for same?
"Wow! Hope everyone got their re-fis done. "
MBS haven't moved much. The spread is contracting like crazy. This is BB's favorite market these days.
If I'm destined to contract swine flu, please let it be quick and painless. I don't want to be around after all the ramifications of this clusterf**k become reality.
Wana Bet mmckinl? It is statistically impossible for the American taxpayer to cover all that debt. Just liquidate the Fed and write off all their debt when the time comes.
Clarification. When the Fed says "price stability" this time they mean MBS price stability.
I just wish these evil men would leave our country and never come back.
Oh yeah, here we go now............
"Clarification. When the Fed says "price stability" this time they mean MBS price stability. "
BINGO!
Looks like the boyz are dumping the emerging market atm...
Money Flows: Selling on Strength - Markets Data Center - WSJ.com
Eric (profile) wrote on Wed, 4/29/2009 - 11:33 am reply Ignore user
Oh yeah, here we go now............
Shouldn't you be busy weeping for your shorts or something?
I think there's a mistake there, I'm sure someone must have accidentally put "trillion" in their statement.. that can't be right... can it (!???!)
We are going to deF-Con 4 now.
Wana Bet mmckinl? It is statistically impossible for the American taxpayer to cover all that debt. Just liquidate the Fed and write off all their debt when the time comes.
~~~~
The Weimar Republic did it ... Zimbabwe did it ...
But then again I like your solution better ...
"Is the Fed buying new or existing MBS?"
Yes
I was thinking of doing a screen capture and sending it to CR, the spread to Treasuries is basically unprecedented, I will see what I can do. Would be a good topic, so people can tell their grandkids why a loaf of bread costs $1500 in 2030.
Looks like The Fed will be the only buyer of long-term Treasurys, if they want to keep yields below 3%. That'll mean lots of printing.
Shouldn't you be busy weeping for your shorts or something?
I honestly don't know what to root for anymore.
Although that May near put spread I have on is making me a little teary.
Of course, I meant, "if they want to keep 10-Year Treasury Yields below 3%."
LMAO - who came up with Potemkin market - works too well!
The Russell is up 5% on this...mp stay frosty but we gotta be getting close!
Most existing isn't even at the coupons they are targeting (4%).
Ghost,
I was wondering if the fed was doing a stealth bank recapitalization by over-paying for existing MBS issues.
Market distortions always screw someone.
Maybe there are enough dupes to buy UST positions, judging from how easily they fished Jas in?
"they only care about keeping mortgage rates low. That is Bernanke's major goal"
Yes.
It's the highest leveraged item they can control to try and rebalance the thing.
I'm not surprised at all.
They'll have to drive mortgage rates well under 4% to get a partial reboot, which might last a few years, but they'll eventually have to drive rates down below the rate of true growth (minus all the weird feedback effect) AND down enough to make up for all the other debt drag in credit cards, commercial paper, etc.
Very interesting.
I see that they missed a zero.. It should have been 17.5 Trillion, not 1.75 Trillion.
ghost,
I'll toss it up if he takes a pass, use my handle at yahoo dot com...
ghostfaceinvestah,
What spread to treasuries do you mean?
OK,
Longer term how does this all work again? Our financial system was addicted to cheap credit before...now that we have cleared that all up with free credit from the Fed, what happens when we take rates back up again? Or how do we do that?
"What spread to treasuries do you mean? "
Constant maturity 10 year to par MBS (a Bloomberg construct but a good proxy).
"I was wondering if the fed was doing a stealth bank recapitalization by over-paying for existing MBS issues."
~~~
Of course they are ...
The privately owned and operated Federal Reserve must put their shareholders first ...
The Member Banks ...
OK, what did I say last night about announcements that make SRS tank and the REIT turds look like gold? Just another example.
Arbitrage_Macht_Frei (profile) wrote on Wed, 4/29/2009 - 11:37 am
Maybe there are enough dupes to buy UST positions, judging from how easily they fished Jas in?
There might be enough suckers but there isn't enough chicken feed. This will end when other sovs start using capital controls to preserve their own ability to borrow, or someone important to the context loses the ability to borrow and crashes and pulls the USD down with it.
Fox is reporting a deficit in 2014 of 17 TRILLION.
If you read Greenspan's comments from post-1992, he was using 1937-1945 as a model. Basically, they're going to force existing debt down below the true rate of growth. Because it's a zero-sum system at any point in time, the delta between what bond holders receive and true growth HAS to divert to debtors, to boost their balance sheets and eventually grow them out of debt.
The Treasuries aren't so much "spread" as they are "bent over."
I'll go out on a limb (and likely loss some flesh) but I see a circuit breaker day within three weeks.
So is it finally time to be concerned about inflation? Or will all the previous (and ongoing) wealth destruction make this not a concern for now?
This may help keep mortgage rates low, but from what I see that's not going to help a whole lot.
Big currency moves around the FOMC release... the yen moved from ~97 to ~98 in just over ten minutes...
take comfort in volatility being down 6%
http://finance.yahoo.com/q?s=^vix
Wana Bet mmckinl? It is statistically impossible for the American taxpayer to cover all that debt.
Unless the Fed finds a way to flood the consumer economy with new money in a way that creates inflation.
That's one way of defaulting, which is the only real solution to the current debt burden. But inflation is basically a lawless, deceptive, dishonest way of default. It hides the crimes of the guilty and bypasses our system of rules.
Why do this when we have other means of default that are far more just and transparent?
The only conclusion I can come to is that our leadership believes they can only control this country by deception and coercion.
Rule by ponzi and confidence schemes.
energyecon,
Now way can our system handle higher rates. In that light, Jas's treasury theory makes sense. But at 2 or 3% before taxes, it's just not worth the bother imo.
"I was wondering if the fed was doing a stealth bank recapitalization by over-paying for existing MBS issues."
Well, for every new mortgage originated the banks make about 100bps.
Plus a lot of the crap being refied are loans in the portfolios of the banks.
So, yes, they are doing a bank recap, but don't need to buy existing MBS to do it. They just roll the loans from the portfolios into MBS and buy that, while paying the banks to originate it.,
Will they ever get the fact that we DO NOT HAVE liquidity problem?
hellooooo, earth to the Jupiter, helloooo
wonder, if their efforts hit the fan, what will the next "logical" step be, sending the market to the summer break?
yo guys, why don't you all take vacations till we fix the toxic assets issue.
even better- yo guys, you MUST buy toxic assets at the book values or else....
AMF on a roll...[note the pun]
at what price? 100% of marked value? How does this unravel these securities? Won't the Feds eventually have to sell these for current market value?
$1.75 trillion is enough to pay all of the residential mortgage payments in the US for almost 3 years.
FRB: December 2008 Statistical Supplement--Mortgage Debt Outstanding
" This will end when other sovs start using capital controls to preserve their own ability to borrow"
If the Feds can coordinate action by the major players, they may be able to force the majority of capital flows to go where they want, i.e. into refinancing American debtors at rates far below rate of true growth. I've seen rumors that the Chinese may go along in order to preserver the existing order of things.
god. jim cramer is talking about massive influx of plasmas, washers, and dryers to rural china...
" they are doing a bank recap, but don't need to buy existing MBS to do it"
This is really about jamming money into the hands of mortgage-holding consumers.
Are we near peak stupid in the equity markets yet?
"That's one way of defaulting, which is the only real solution to the current debt burden. But inflation is basically a lawless, deceptive, dishonest way of default. It hides the crimes of the guilty and bypasses our system of rules."
One currency now.
I think some people were expecting more printing... er I mean quantitative... er... I mean "credit easing".
The news is that there is no news. This statement is just a rephrasing of what they already announced last time.
Yup - but can't imagine why they expected anything else. I was driving across country yesterday - listening to news - and they reported the fed was meeting. My first thought was 'that must be one boring meeting - sign in, have a few laughs & go home'... probably what happened.
Are we near peak stupid in the equity markets yet?
I'm pretty much there based on today's action.
If you have a big pile of money, you lose.
If you have no leveraged position, you lose but less so.
If you borrowed heavily but couldn't hold on during the past three years, you also lose.
Big winners are people who borrowed "moderately" and held on to their jobs and kept making their payments.
Wage slaves win!
Yea, Team America!
The minimum wage in China is under a buck, so all the goodies they make there would cost about 8 times as much, as wages to acquire them here.
"This is really about jamming money into the hands of mortgage-holding consumers. "
I think the consumers are lucky bystanders. this is about jamming money into the hands of large mortgage originators (who also happen to hold a lot of mortgages on their books - WFC, BofA, JPM).
Stupidity is as infinite as is the capability to print ....,000,000's...
I'm reading a history of the German hyperinflation -- 'The Economics of Inflation' by Brescia-Turroni, 1931 -- and the parallels with our Fed's actions are clear.
Stocks rose in nominal terms, but much less than the cost of living, wholesale price index, wage index, or dollar exchange rate.
Conclusion -- Bennie and Timmy's inflationary pranks are going to kill the (real) stock market.
As of the latest data, they have purchase $362.6 billion MBS; so they still have $1.4 trillion that they have authorized but not spent.
"Big winners are people who borrowed "moderately" and held on to their jobs and kept making their payments."
While us renters with cash in hand, looking to buy, are not amused. It is going to take just that much longer to get the idiot out of my house.
Damn, and here I am starting a new job where I can't short. Not that I like doing it, but this stock market worries me.
For those who don't follow the bonds markets closely, not many really good deals in the last couple of weeks. There is not enough fear.
For anyone scheduling a job interview, get it done fast. You don't want to be interviewing during a market freefall. I was lucky enough to get my interviews and offer during a rising market.
"jim cramer is talking about massive influx of plasmas, washers, and dryers to rural china"
and it is going to lift us up since we provide all of the... financing
Whether the FED's actions are legal may depend on the definition of "unusual and exigent circumstances." That's their lending authority.
I was thinking of doing a screen capture and sending it to CR, the spread to Treasuries is basically unprecedented, I will see what I can do. Would be a good topic, so people can tell their grandkids why a loaf of bread costs $1500 in 2030.
PLEASE DO IT!!!
I think Cramer is right, for once. Those people have worked hard and saved money, why shouldn't they get a TV. But if he thinks they'll pay all that juice for a Whirlpool or Sony label he's really certifiable. They make the damn things, they know how much labor goes into putting on a label.
The Big Casino stays open only when FED spends another 1.75Trillion. How much more money doe sit need to print and spend to protect the Wall St crooks welshing on their collective gambling debts ? Or perhaps the rest of world will just fed up ( pun intended ) and not buy US Treasuries.
The USA economy is just one BIG Ponzi scheme where elite monied interests still make the rules even for shitty bets and where US taxpayers play the fool and foot the bill.
This is fascinating. Check out the $1.5M in grants over 3 years from the NSF and Barclays for this fellow to do pretend research:
http://www.santafe.edu/~jdf/JDF-CV.pdf
It's easy to see how we're getting into the trillions here, when we're feeding these people millions to fool us.
Does anyone have a way to find out how much money has flowed from NSF/NBER/CEPR/I-Banks,etc, into the university econ departments over the last decade? If so, let's try to correlate it with the prizes awarded and specific schools. Ech.
Wana Bet mmckinl? It is statistically impossible for the American taxpayer to cover all that debt.
Unless the Fed finds a way to flood the consumer economy with new money in a way that creates inflation.
~~~~~
Until the dollar is devalued ... and imports skyrocket ... especially oil ...
@AS: I was wondering if the fed was doing a stealth bank recapitalization by over-paying for existing MBS issues.
I don't think it's so much that as it's a way of getting around the slice-and-dice/securitization and servicer problem...anyone who's remotely healthy can refi out of the garbage...it's adverse selecting the good stuff out. You get some price discovery on the underlying assets AND you get to clear out some fraud (if you enforce decent underwriting on the new agency originations) and what's left behind is concentrated garbage. It is only a bailout of the owners of the toxic MBSes insofar as the healthy mortgages get paid off. That's my neophyte/amateur interpretation of what they're up to.
I'm still not positive this is super-inflationary...but it's an attempt to prevent severe 'overcorrection' in the housing market. But that $$$ amount should be enough to cover some estimates of the size of the garbage...ISTR Roubini suggesting 2T?
@NEMO: I don't recall that they put a $$$ amount on the previous announcement.
Broward:
If the Feds can coordinate action by the major players, they may be able to force the majority of capital flows to go where they want, i.e. into refinancing American debtors at rates far below rate of true growth.
Then they'd run the world out of capital and still want more.
What percentage of world savings did the US previously consume?
Now, that the whole world has stepped down off the flight to yield bubble via deleveraging, how much is available, versus how much does America now need to meet its accelerated indebtedness curve?
Relatedly, do you think the US can possibly stop spending money at the current burn rate without a crisis?
John Law's Perpetual Company of the Indies would long ago have supplanted every other form of economic activity on the planet if it could. Tarponomics is mighty.
Damn, and here I am starting a new job where I can't short.
Really? That's an odd restriction.
I mean, I've worked at places where you couldn't be in a stock (short or long) if the firm had a position, but flat out banning?
Do they explicitly forbid the inverse ETFs too?
Bah, the cost of everything I'll need during my forthcoming 4-week trip to Europe just went up.
I have first-hand experience with high inflation. I wish that was not the case. I would be less desperate and frustrated if it was my first time.
So is it finally time to be concerned about inflation? Or will all the previous (and ongoing) wealth destruction make this not a concern for now?
Define 'inflation' - monetary or price?
p.s. I wouldn't recommend shorting right now, being the victim of a short squeeze is not pretty.
Soo..I should wait to refinance my mortgage?
Unemployment up, GDP cratering and....200+ on the DOW?
WTF
US Ten-Year Treasury yield is holding at aorund 3.10% ....
Broward says,
"If you have a big pile of money, you lose." Yes, if you were in stocks, MBS, or real estate. If you had an actual pile of cash or FDIC insured CDs in 2008, you now have a lot of opportunities, and have had almost no losses.
"If you borrowed heavily but couldn't hold on during the past three years, you also lose." Maybe. A lot of people extracted huge amounts from refi and helocs. They either have already spent the money, or will likely keep it when the foreclosure happens. The losers are people who borrowed right at the peak and never got to extract anything. I know a few of those, including a couple who both have high paying jobs and are paying something like 35% of their gross for the next few decades for a house that's already dropped 50% in value.
"Big winners are people who borrowed "moderately" and held on to their jobs and kept making their payments." Borrowing moderately and getting an affordable house means losing a larger % of your investment than a medium or expensive house in most markets. Fortunately, the $ loss is generally less on less expensive homes.
"Wage slaves win!" And slackers win. People who basically didn't participate much as borrowers or lenders came out pretty well. I have a feeling people graduating from college in 2012 will be in great shape. The economy will be in recovery, some sectors will be doing well, and an awful lot of people will be stuck in their current homes, providing more opportunity for those who can move, like fresh grads.
Not so optimistic for grads in 2009 and 2010.
"I think Cramer is right, for once. Those people have worked hard and saved money, "
I disagree. There are little money saved in the rural China. You can't save if you don't make any.
Remember, you can have more money without price inflation, if there's an economic "freeze" that depresses the velocity of money as well.
Until the velocity of money increases worries about inflation are premature.
Meanwhile: "Will they ever get the fact that we DO NOT HAVE liquidity problem?"
Individual banks have solvency problems, but at the global level, is it still a solvency issue, or might it still be simply a liquidity issue? In the end the world's debts are just promises made amongst ourselves. The economy is just a series of exchanges of products for promises. Some will be kept, some will be defaulted on, and some will be inflated away or otherwise renegotiated. The tricky part is figuring out which products and promises will retain their value.
[Edit: added "products and" to "products and promises".]
Hope the Bastards are happy they made America a Fucking joke! What are we to the world...what value do we give the world? Give us your money and we will give you crappy MBS junk......What a deal....How about liberating our people from Gov't Tyranny before we bitch about Castro and the Rest of those same types of A-Holes.....Our greed was pushed upon the world and they will soon push back!
I dunno, Comrade Chaos. I've been a 'short' for two years, now. You just have to allow prices to move up 10-15-20%.
100% of my short-term/intermediate term money is short the S&P.
I'll be right, again (as I was in fall '08) -- eventually!
I think Cramer is right, for once. Those people have worked hard and saved money, why shouldn't they get a TV. But if he thinks they'll pay all that juice for a Whirlpool or Sony label he's really certifiable. They make the damn things, they know how much labor goes into putting on a label.
They absolutely will DEMAND a Whirlpool or Sony label - they just won't be made in Japan or USA. The only way the 'platform' business model could have EVER worked is if the goods produced offshore were consumed offshore... if that actually starts to happen then the world recession is over. But not until.
Personally I heard the Cramer schpiel too - I think he is too early. Next year at the soonest before China consumes more of China and America produces more for America. Then then the heal begins for real.
blessed be bernanke! we are up over 8200 and 875!
The tricky part is figuring out which promises will retain their value.
~~~~
especially when the rules change very day ...
Why do zeros still matter in my own finances.
An artist's interpretation about the "simplicity of America". I don't know what he means, though. (in other words, off topic. But then, sometimes I think the topic is Financial Dadaism).
SIMPLICITY of AMERICA
Promise sorry notes are a dime a dozen, and worth about a dime on the dollar.
Unemployment up, GDP cratering and....200+ on the DOW?
WTF
Investors are pretty excited about an impending pandemic.
Not a good day for B Gross.
I'm reading a history of the German hyperinflation -- 'The Economics of Inflation' by Brescia-Turroni, 1931 -- and the parallels with our Fed's actions are clear.
I don't think post-WWI Germany is worth much as a parallel; the context was entirely different as was the origin of the debt. Germany was defeated and under military occupation and was facing crushing reparations debt owed to the countries occupying them. We have options that they did not.
Maybe there is some sort of House Swine Flu being devised that eats vacant homes.
"I think the consumers are lucky bystanders. this is about jamming money into the hands of large mortgage originators"
I don't think so. I watched Greenspan closely during the 1991 Crash and reboot. Around 1997 he all but admitted that he was using 1937-1945 as a model, when "investors" were forced into low-yield gov't bonds (i.e. below true growth) to support the war effort.
Mortgage originators aren't a pipeline for buying consumer goods.
Then then the heal begins for real.
~~~~
Only when 50T worth of aggregate US debt is rationalized ... not until ...
'bout half that is what we can support ... 2.0x GDP
Bernanke is certifiable.
You're certifiable Ben You know that.
You're certifiable.
Yeah Yeah Yeah.
Market started off strong before the announcement. Some of the big boys were obviously in the know about what was to be released later in the day. I dont want to play their game. I want them to stop playing their game. It is very disheartening and makes me sad
Some investor guy - someone else posted this link yesterday...
Mish's Global Economic Trend Analysis: Extreme Home Makeover Depression Edition
Depression eats houses!!!
what value do we give the world? Give us your money and we will give you crappy MBS junk
I think it's even worse than that. The Fed said it was going to purchase MBS, not give it away.
So the lesson is: Buy crappy assets imprudently and the Fed will hand you perfectly good $$ for them, the same $$ for which the rest of us peons work our ass off.
I realize the flu meme is in a temporary lull since the market has been fooled by accounting changes at Mexico and the WHO (downward revision to "confirmed" cases), but here is a really excellent map that shows the progression of the "officially confirmed" (current data) flu cases: BBC NEWS | Americas | Swine flu: mapping the outbreak
My interest in this is in figuring out how rapidly this virus will spread. There are some issues with the measurement methodology, but it looks like my previous estimate of a doubling in cases every 4 days may be "slower" than the actual spread. If the flu infection total continues to double every 4 days or less, and the cross-border transmission continues, then the entire process MIGHT play out globally in 2 months or less! This is much faster than the previous pandemics, and can be explained by the greater interconnectedness & speed of transportation in our globalized world.
The other concern is the mortality of those infected. Currently the evidence I've seen suggests individual cases are significantly more severe than a typical winter flu, but not as deadly as the 1918-1919 pandemic flu. However, as the virus evolves the mortality impact can evolve as well.
If the virus continues to propagate at this speed, and remains this severe or gets worse, then individuals should be preparing "kids camping at home" plans, to reduce interactions with others during a period of some weeks when schools are likely to be shut down and some workplaces may also cut back to "essential personnel only".
I'm not playing in your market no more. I'm taking my ball and going home!
"Bernanke is certifiable."
~~~
Bernenke is performing his mandate ...
Putting his shareholders first ...
The Member Banks of the privately owned and operated ...
Federal Reserve
Flu - Work from home! Spend quality time with your family!
Drive everyone nuts...
Here is what I wrote for Zacks. The bold and italics will probably not come through, but the first paragraph in a set is the current release, the second the March statement and the thrid is my translations of the statement.
(Me) Below we present both the most recent Federal Reserve statement and the previous one from its mid March meeting (in italics) along with my translation and interpretation (bold) interspersed between the paragraphs.
(today) Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
(March) Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.
(me) Very little change from what they were saying in March, just a little bit more upbeat tone. The economy is still very weak, but the Fed thinks that the actions taken so far, both by it and by the Treasury will eventually turn the economy around. Credit market indicators have more or less returned to normal from the off the charts awful levels of last fall, and eventually that should filter through to the real economy.
(today) In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
(March)In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
(me) Word for word the same as last time. The big threat is deflation (i.e. inflation below rates that foster economic growth). The Fed will fight that by keeping the printing press running at full speed. This is no surprise, Bernanke told us that he would do this long before he ever became Fed Chairman (hence the nickname Helicopter Ben). While inflation is not a prolem for the short term, over the longer term, this level of expansion of the Fed balance sheet and the money supply raises the possibility of very high rates of inflation once the economy picks up.
(today)In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of financial and economic developments.
(march) In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.
(me) No significant change here. Quantitative easing continues but was not expanded. Dropped mention of the TALF, but that is already underway (off to a very slow start, but underway). The Fed is effectively now the only buyer of mortgaged backed securities and by the end of the year will be holding about 20% of all Fannie Mae (FNM) and Freddie Mac (FRE) backed securities outstanding. This is a lot of credit risk for a central bank to be taking on, but if it were not doing so, mortgage rates would skyrocket, rather than falling to historically low levels. Those low levels are allowing people to refinance and thus have more money to spend on other things. This may be why consumption spending was so unexpectedly strong in the first quarter. Still, this is a violation of one of the central tenants of Central banking, namely that Central Banks do not take on significant credit risk. Given that both Fannie and Freddie are on government life support, the fact that these securities are insured by them does not provide much comfort about the level of credit risk being undertaken. Unprecedented conditions call for unprecedented actions.
(today) Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
(March) Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
(me) Well not much action taken this time around, but everyone agreed.
(me) Overall, the Fed is taking a wait and see approach. In previous meetings it has taken extremely aggressive measures (indeed the could turn out to be recklessly aggressive). Monetary policy always works with very long time lags. They want to see if what they have done so far works, rather than further increasing the odds that they have already overshot the target. If not for the easing moves that the Fed started to take well over a year ago, the economy would be in far worse shape than it is today. Those actions are not, however, without cost. Just how big a price we will end up paying will not be known for some time yet.
Eric says "I mean, I've worked at places where you couldn't be in a stock (short or long) if the firm had a position, but flat out banning?
Do they explicitly forbid the inverse ETFs too?"
At my last job, since the company did M&A, IPO (remember those?), and provided investment advice, there were a lot of rules. No short selling was one of them. We also temporarily got locked out of investing in a particular type of investments I knew very well and the returns had become quite high. Couldn't do day trading either.
I'll have to check about the ETFs at the new firm. At the old one, ETFs required preclearance, just like stocks, even if they were S&P 500 tracking funds.
Market fading into the close?
I was hoping Gavshire would call the top for this rally today; he seems to nail those.
Yalt, you would be surprised. The Germans began spending hand over fist in 1914, and began printing money when demand for their Treasuries dried up in 1915. Germany's fiscal stupidity -- skyrocketing expenditures for their socialist state in the face of crumbling receipts -- began long before they began post-War reparations in the '20s.
Really, the German experience of 1914-1920, when there was strong inflation, followed by hyperinflation in '22-'23, reads much like the American experience today.
@Dirk, would it really cost you that much to put in the <b> and <i> tags that Ken's system so helpfully provides us?
[edit: get tags to show? maybe...]
god. jim cramer is talking about massive influx of plasmas, washers, and dryers to rural china...
As if rural China has a reliable power grid...
"Relatedly, do you think the US can possibly stop spending money at the current burn rate without a crisis?"
BR, you have to admit that the Feds are doing a better job than you expected.
Yes, I think the thing has to break but the problem is that (I think) I understand what they're trying to do. From a relative value standpoint, I see how it can work. From the absolute view of the long-term credit cycle and interest rate direction, I don't see how it can work for very long as it's dependent upon another leg downward in interest rates. Perhaps they can drive rates down one more time.
Jobs sure suck.
More than 50% of the Dice jobs for Seattle are at Amazon.
Sigh.
Oh well, the low mortgage rates were nice while they lasted.
Only when 50T worth of aggregate US debt is rationalized ... not until ...
'bout half that is what we can support ... 2.0x GDP
The Forex will take care of a lot of that 50T - debasement is inevitable, de facto or by fiat - that is very likely to happen once China decides to consume Chinese as opposed to give it away to Walmart. I don't think that day is terribly far off but isn't here yet... when it happens PBoC will NOT be terribly interested in supporting the dollar & the reset happens for real. That is the day we get earnest about making more of our own stuff or our consumption goes to zero [not by choice either].
We have options that they did not.
Yeah, fissionable options.
@Dirk, another option would be for you to post the link to the Zacks piece so we could get the formatting there.
Dirk,
(me) Overall, the Fed is taking a wait and see approach. In previous meetings it has taken extremely aggressive measures (indeed the could turn out to be recklessly aggressive).
Big winners are people who borrowed "moderately" and held on to their jobs and kept making their payments."
I do not think that we are big winners we just haven't lost as much. But believe me the losses are there, especially for us late boomers with kids heading off to or in college. Some of us may still have our jobs but we know many professionals who don't.
Toured my neighborhood in North Palm Beach County today on Zillow and resales and homes on the market are nearly flat. Prices are off 40% from their highs. We have always been a high demand upper income family neighboorhood. Better than nice ammenties (tennis, pool, gym, gated boat storage) but not the high homeowners fees associated with a gated comunity. A - Schools, large student population with access to the top magnet(gifted) high schools in the country. People have done well here but nothing is moving and no one is buying. Have not seen any new cars or the large number of new furniture trucks that normaly breeze thru our neighboorhood. 200 homes sold between spring of 2005 and fall of 20007. Most where probably Alt A because most people would do anything to move here. We are representative of an educated population intermixed with small business owners. Times are not good.
Ranieri Says Housing Is Shouting Distance From Bottom (Update2) - Bloomberg.com
I would think this guy has very little credibility by now.
Serious suggestion (are the senate staffers reading?). Buy up a bunch of illiquid MBS based on a lowest % of par auction. Give the MBS to public pension funds and prepaid tuition funds run by states, or even put them in the Medicare Trust Fund. Make them keep the securities until expiration, prepayment, liquidation etc.. If they can't resell them, they can't depress market prices. If they got them for free, they can't have a loss. Since pension funds and prepaid tuition trusts have long time horizons and little or no leverage, they don't need to sell or churn the stuff.
Setting my stopwatch and seeing how long it takes for this to turn up in the media.
What's today final 30 minute dance? Close red, now? Or, jam it back up to +200?
If only all government bureaucrats could be as creative and energetic as our bankster/fraudster employees/minions.
From Barrons online:
Fed Fights a Record Global Bank Run
"According to the BIS, which acts as a central bank for central banks, total bank claims shrank by $1.8 trillion in the fourth quarter, or 5.4%, to $31 trillion. This was the largest decline ever recorded."
"Unlike in the 1930s, when central banks actually aided and abetted the collapse of the banking system, today's leaders responded to the unprecedented crisis in the fourth quarter with equally unprecedented force."
Now here's what I find amusing:
"Real output in the finance industry fell 3.0% in 2008, compared to the previous record of a 1.6% decline in 1958. Because finance looms much larger in the economy, last year's contraction shaved a hefty 0.24% from GDP, compared to just 0.05% in 1958."
So, what "real output" does the financial industry generate?
Nothing real, just funny money scalped off of other endeavors that generated something real.
Only when 50T worth of aggregate US debt is rationalized ... not until ...
'bout half that is what we can support ... 2.0x GDP
"The Forex will take care of a lot of that 50T - debasement is inevitable, "
~~~~
Then there is the price of oil ...
That excess debt is going to have to be largely written off.
And it will be ...
as our economy crashes ...
Oh well, Jas lost money AGAIN today. Another day, another loss for Jas.
Cramer,
The Chinese counterfeit, that's what they do best. All Sony and electronic making technology is already within their borders. Slap their own label on the goods and sell them to themselves at 75% off, and cut out the Sony middle man. And your multinationals are going to profit from China How?
What's today final 30 minute dance? Close red, now? Or, jam it back up to +200?
Dow close around 8070, but I'm not putting my money where my wild-ass guess is.
Really, the German experience of 1914-1920, when there was strong inflation, followed by hyperinflation in '22-'23, reads much like the American experience today.
I'm not sure how the experience of 1914-1918 reads anything like the American experience today. And you can pretend that the war reparations "in the early '20s" don't belong in your one-sentence summary of the decade, but that's a pretty tendentious reading of the situation IMO.
But my basic point was the Germans did not have the option of default, or even a credible threat to do so, because their creditors were militarily occupying their country. Again, we have options that they did not have. (Note that the remaining debt WAS canceled after Hitler came to power, the occupation was over and Germany once again could pose a credible military threat.)
And yes, TCA, that's also one of the options they didn't have.
I hope it goes back down that much. We'll see.
MGM shares halted?
Daily Kos: Chocolate Covered Cotton
Daily Kos: State of the Nation
Bottom line: great big chunks of Big Shitpile aren’t "impaired," or "illiquid," or "distressed," they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored.
The author of this post nailed it !
Today we learn the Fed will Buy $1.75 Trillion in MBS, Agency Debt and Treasuries to try and get real estate bubble going again !
Complete transparency for those who are 'clued in'
The United States of Ponzi Schemes at its finest !
Buy up a bunch of illiquid MBS
Is there such a thing? Or are we just accepting the banks and Fed's definition of an "illiquid security" as any security held by a bank that is unwilling or unable to accept the market price as payment?
Huge deficit spending. Treasury repurchases by the central bank when private demand dropped off.
Quiescent inflation, until folks lost confidence in the mark.
And this was before reparations were assessed in 1919.
You are right, Yalt. There are no parallels with the U.S. today.
WS: "The tricky part is figuring out which promises will retain their value.
~~~~
mmckinl: "especially when the rules change very day ..."
AMEN! When the rules change all the time, you have to monitor everything a lot more because the premises of the investment may no longer make sense.
And hell, I'm not used to having to worry about my entry/exit points for MONEY MARKET funds!
One of our retirement plans had the Vanguard Treasury Money Market fund as an option. Vanguard closed the fund to new investors. Now the plan is changing to another fund that charges much higher fees, is far less transparent in terms of process, holdings and shareholder protections, and has like a 0.01% yield. Then Fidelity (which runs the plan) tosses in a fixed per-quarter fee that amounts to another 0.5% cost. It's going to COST ME MONEY to hold cash. (We don't need Bernanke to figure out how to implement negative interest rates, when Fidelity does it for us!!!)
So now I'm trying to figure out if any of the limited set of other horrifyingly bad investment options might actually eke out a gain. And of course we can only move the money every 30 days, so the sort of trading that might actually work in this market is out of bounds.
I suppose this is all the grand plan of the Invisible Hand, giving those of us with a bit of free capital a bigger incentive to find a productive way to invest it. But when the rules change every day and none of the changes reward productive investment, what can you do? (Besides whine on CalculatedRisk, that is!)
Comrade Scott --
I don't recall that they put a $$$ amount on the previous announcement.
You might want to re-read the previous statement.
There is literally nothing here that they did not already announce in March. (That is why the bond vigilantes are feeling emboldened.)
Today we learn the Fed will Buy $1.75 Trillion in MBS, Agency Debt and Treasuries to try and get real estate bubble going again !
If you just learned that today you really haven't been paying attention. How many times can they make the same announcement and have people read it as if it were news?
"awful lot of people will be stuck in their current homes, providing more opportunity for those who can move, like fresh grads"
Might turn into a myth.
Lots of immigrants to provide "labor mobility".
If existing home owners refinance into a 3% 30-year mortgage, I submit that they will be "winners" in that they'll be able to pay off their house and still buy consumer goods (unlike a scenario of 6% interest rates and lower house prices when they sell at retirement).
@dryfly: Define 'inflation' - monetary or price?
Meh...I don't think they're meaningfully distinguishable...I think if you have monetary inflation (net, after the credit destruction), then price inflation will follow, maybe not right away and not in all things (ie, it's in commodities but assets may continue to fall).
I guess my question is: is this the point where the amount pumped in, targeted at the most highly levered stuff in the system flips us to the other side of the knife...from deflation to inflation. If so, there is your massive move into equities: kermit wins.
"I dunno, Comrade Chaos. I've been a 'short' for two years, now. You just have to allow prices to move up 10-15-20%."
2 years ago, I would recommend going short. Right now, it's trader's market & the possibility of not covering on time is just too large.
It's all about your risk tolerance. Most of the people can't tolerate 20% + weekly drop, that's why I wouldn't recommend going short right now.
I am not recommending going long as well. Taking a chill pill & re-evaluating your next strategy, with some small purchases here & there if market break over 900 might be the best.
P.S. I am about 10% short, 30% long & 60% heaven (relatively Safe heaven.) Losing 10% in one day for myself, is perfectly fine.
@NEMO - thanks for the link - I didn't mean to sound like I doubted you...just my own lousy memory.
"There is literally nothing here that they did not already announce in March. "
That's not exactly true.
I don't see an actual $1.75 trillion number listed that document.
Monetary, price-- to be really honest, my real question is, "Will USD cash be a bad position in the next 2 years?"
OK Yalt @12:42 pm we learned AGAIN.....Happy now !
I think if you have monetary inflation (net, after the credit destruction), then price inflation will follow,
Not if velocity drops thru the floor.
Report : Bloomberg
Chrysler BK tomorrow ...
~~~~
Now all those unemployed workers will have more time to spend money ...
Yeah, being down 25% after having been up 45% (I should have covered in early March, as my wife told me then and reminds me daily, now) is not so much fun.
But, I feel perfectly comfortable that we are in 18 months into a 60 month Greater Depression, and that the S&P will fall markedly from here.
I can be patient.
let's see here
a completely corrupted government being led around by the short ones by wall st. crooks, a global pandemic, the bond market calling BB's bluff, Chrysler on the verge of BK and UE exploding.....green shoots for everyone!
Save us kermit!
the "boo" sign went on.
i don't know what to do!
better play it safe and keep clapping.
the "boo" sign went on.
Elmo better hurry if he wants to make the playdate this afternoon.
We still have a moderate upwards trendline in stocks. The 200 day moving average is around 975 (SP500)... I dont know who would be a buyer here other than someone playing intraday moves, and I'm still looking for a move to 600... Meanwhile - a little up, a little down, no big deal...
I keep thinking about all those NOD's that went out in the last month - in my zip code, about 750 homes showing NOD or foreclosure - and it's not that big of a place... If half of those actually go vacant it is really going to change the landscape around here and I will probably have to start dealing with the bandos, which have not been a problem here up to now... I havent clipped up the big artillery yet, but that might be coming...
totally OT, but if anybody wants to watch Jimmy Cayne ( Bear stearns fame ) play, you can see him at table #1501 at Bridge Base Online ...
I impressed with his partner - Lorenzo Lauria ..
Markets have sold off no ?
-K
You are right, Yalt. There are no parallels with the U.S. today.
I didn't say there were no parallels. The parallels don't suffice to make valid predictions because the differences between the two situations are so enormous.
Really, I don't have time to argue with someone that can't see a significant difference in the world positions of Germany in 1922 and the United States in 2009. Or between the wartime experience of Germany from 1914-1918, when they were fighting a major war against just about every other world power, and the experience of the US from 2002-2009, when they were fighting a war halfway around the world against a local insurgency while piling up enormous domestic debt just to keep aggregate demand high in the face of falling real wages. The purposes of the debt were completely different, the imbalances arising from the debt were different, the options for dealing with the debt were different.
(And yes, I know Germany also piled up debt during the war trying to stave off the war's effects on domestic living standards. Still a very different scenario from the US today.)
Most importantly as respects an eventual hyperinflation, we have the option of not paying.
""Will USD cash be a bad position in the next 2 years?"
If you see the inflation (CPI) jump 4-5%, USD cash will become a bad position. Unless the spike happens, having a large part of your investments in the cash is a OK.
Wisdom Speaker
Whipsaw the little guy
while taking care of
Wall Street Banks ...
Think the Fed isn't
telegraphing their moves
to their Member Banks ...
"Since pension funds and prepaid tuition trusts have long time horizons and little or no leverage, they don't need to sell or churn the stuff."
Dude, I'm pretty sure that's the existing plan.
OT Breaking news...OUTBREAK OF SWINE FLU IN US TRACED TO RUSH LIMBAUGH (Satire)
OUTBREAK OF SWINE FLU IN US TRACED TO RUSH LIMBAUGH (Satire) - Care2 News Network
Per mmckinl:
Chrysler Will File for Bankruptcy, Official Says (Update4) - Bloomberg.com
"...President Barack Obama plans to announce tomorrow morning that Chrysler LLC will be placed into Chapter 11 bankruptcy..."
Obama as Economics Commissar is tedious. Are there no adults in the administration who worked in the private sector, other than at Golden Schmucks, who could announce this, instead?
@sam.2: "a completely corrupted government being led around by the short ones by wall st. crooks, a global pandemic, the bond market calling BB's bluff, Chrysler on the verge of BK and UE exploding...."
Don't forget an incipient civil war in a hard-to-govern Muslim country with nuclear weapons. (Not to mention Iraq and Afghanistan.) Or those nagging concerns about global warming. Or the droughts afflicting Australia, California and many other primary agricultural regions!!!
Frankly this is one of those days when I think I'm just glad to see that Obama hasn't fled the White House in terror.
"Real output in the finance industry fell 3.0% ..."
This the best news of the day, as their "real output" has been extremely toxic.
Ok, This just ridiculous!
What ammunition? This is a lot like Hitler comanding imaginary divisions in his final days
Gross Says Fed ‘Saving Ammunition,’ to Buy More Debt (Update1)
Gross Says Fed ‘Saving Ammunition,’ to Buy More Debt (Update3) - Bloomberg.com
By Kathleen Hays and Dakin Campbell
STORY TO FOLLOW.
Last Updated: April 29, 2009 15:46 EDT
I'm sure the Canadian Auto Workers union will be highly pleased with the Chrysler bk after they gave up $19/hr to save their jobs....
Steve Wynn to buy MGM? That would be nice. I own some.
"Comrade-Dope jg
But, I feel perfectly comfortable that we are in 18 months into a 60 month Greater Depression, and that the S&P will fall markedly from here.
I can be patient. "
Honestly, I don't know. At this point everyone who say he knows the direction of market for sure is a liar. What I do know, is that people who were short in the last stage of the last bear market were hurt. Think of it as getting into the NASDAQ before it crashed. Are your trading skills / luck good enough to get out on time?
Mine aren't so my short position is minimal.
So today the Dow gives us both a 240 point rally AND a 100 point decline?
That really is offensive to call the banksters "industry" with "real output" - they should have to work a while in a steel mill, or at a car wash - then they would know what "real output" is....
@JP Not if velocity drops thru the floor.
Sure, but the "real economy" will provide a floor for that...real activity can't stop altogether. So far it looks like credit destruction is outstripping the "printing presses". It seems to me that if we have to dramatically increase repurchase agreements to offset the destruction of capital reserves (via worthless MBS for example) then you kind of net-out M3 - and if you do, then the velocity might drop to zero and you get stable prices. If the FED really does overshoot in creating funny money, then they'll get price inflation restarted...if the banks are recapitalized they'll start lending...and consumers will pick right back up. I'm not articulating this well; I need to go pick up my money and banking text book.
Yeah, WHEN the U.S. defaults OR prints, there will be no huge drop in the value of the dollar, i.e., inflation/hyperinflation.
fast clapping
YouTube - Fast Clapping
clapping without hands
YouTube - clapping without hands
N/BCY , R/PK and N/HLT have gotten a lot of use on my Thomson today
I own Wynn and MGM bonds, and Wynn and MGM puts. Steve can do what he wants, I want to straddle something in Las Vegas.
I was neutral 2 months ago now I am a F'ing Grizzly
Look at 3 months charts of UPS and BBY two names that have performed well and led up higher are starting to show a mirror image down(?) maybe. I covered these to raise cash but something to watch IMO
Shadow, I have run into an assortment of people who are employees in the banking and insurance industries who ask questions like "What do we do?" "Why do people pay us?" and "How do we get so much money for doing this?"
Complex answers, but there is some real work involved. However, many people both inside and outside of banking don't understand how much of this is really a disguised version of sales. I personally find it surprising how few people or institutions get good advice from someone who isn't trying to sell them something. Even real advisory people want to sell more of their advisory services.
WHO conference call underway ... rumored that they will be moving to Stage 5 alert ... we'll see
(good they waited for the market to close)
if the banks are recapitalized they'll start lending...and consumers will pick right back up.
That's the part of the argument I'm not getting. Capitalized or not, why would banks lend to consumers unless those consumers will be able to repay the loans? It seems to me you have to repair the balance sheets of potential borrowers first before you can get the game going again. In the meantime I'd expect recapitalized banks to simply sit on their money...or, more likely, put it to work in the markets somewhere.
Well it may bite me in the nether regions, but I keep moving money from bank to bank chasing yield. Everything is under FDIC limits, which will be well and good until PPIP destroys the DIF. Still finding 2%+ yields on Jumbo MM accounts.
Small hedge with TBT and seriously considering a UDN hedge as well.
It's official ... Phase 5 ... we have a pandemic according to the WHO (albeit still a mild pandemic)
That's from someone listening to the conference call.
if the banks are recapitalized they'll start lending...and consumers will pick right back up
This is complete BS who said this? The banks will take years repairing balance sheets and never lend the same.
If you almost got killed skydiving would you jump out of plane again?
Starbucks cliff diving. Ladies and Gentlemen welcome to the bottom of PCE!!!
Tim ... exactly right ... more like "if the banks are recapitalized they will ramp up their proprietary trading" ... which is intended to elevate the stock market ... which in turn leads to some return of the "wealth effect" (or less of the "poverty effect").
Kind of clever, actually.
WHO:
"All countries should immediately activate their pandemic preparedness plans."
Could start seeing more serious hits on travel here.
Russia defaulted without hyperinflation. A default would have consequences to the value of the dollar but I don't see why it would result in the printing of quintillion-dollar bills.
I'm having trouble thinking of an example of a militarily powerful country suffering a true hyperinflation. It's quite possible the US will be the first, but I don't see how to extrapolate to that from the examples of war casualties like post-WWI Germany or post-WW2 Hungary or militarily insignificant countries like Zimbabwe or even Argentina. There were some fairly serious inflations in the post-Soviet republics (though nothing like the German or Hungarian experiences), so I'll agree that if the US breaks into its component states all bets are off.
Or how do we do that?
We don't.
"We're..remaking America"
...............No, "WE'RE" not.!
....How much was wasted on Chrysler? Lets see if THAT'S addressed tomorrow...........I obviously need a nap....later
I am thinking about starting a blog.. Not so much colorful economic graphs (which CR does very well), but on what can be done to create a better system..one that can function without extensive life support.
I have some wide ranging ideas that span a number of fields (economics, drug research, patent system and required changes, ways to encourage innovation, giving exposure to unpopular but scientifically tenable theories, exposing speculation based on "popular" scientific ideas, etc)... I have been somewhat circumspect about it because a lot of what I might say, especially in my professional area, can reveal more about me (my views) than I am presently comfortable with.
I have toyed with the concept of such a blog, but was never sure whether I had the commitment to maintain if for any length of time. However, I now see it as an experiment rather than anything that I am personally attached to. It is funny how many possibilities open up once you stop caring about a given thing personally.
If and when I do that, I will keep everyone and the haters posted.
@Lucifer, I would be interested in that. Especially since we disagree on many things and I therefore find your ideas stimulating.
Then there is the price of oil ...
That excess debt is going to have to be largely written off.
That is what the debasement does - writes off the debt in real terms... a little at a time [or a lot if we go Zimbabwe].
I hear and understand your points, Yalt. We'll see.
hey dryfly.
At the Intl. Reprographics Show. Is that too far up the technical chain for your esteemed presence? Anybody else here?
Just liquidate the Fed and write off all their debt when the time comes.
No! Assign the debt to Greenspan, BB, Paulson, Timmy, Bush, Lord Blankfein, etc., and their descendants and extended families for 70 generations.