Helicopter Ben Turns into Ballistic Missile 33 comments
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Helicopter Ben is no longer the appropriate appellation for the Chairman of the Federal Reserve System. Under the tutelage of this former economics professor, Chairman Bernanke launched an ICBM into the market today and I will dub him ICBM Ben.
The Committee voted to expand the balance sheet of the Fed by a whopping $1.150 trillion. The Fed will buy an additional $750 billion mortgages, an additional $100 billion agencies, and for the first time they have added $300 billion longer dated Treasuries to the list.
The move in the market is huge, historical and hellacious.
I do not have Bloomberg and I am operating from a WSJ page with about a two minute lag, so treat this cautiously (and see update below).
The 30 year bond is getting smoked. It is underperforming dramatically. This morning as I wrote my opening post the 10 year/30 year spread was 82 basis points (3 percent and 3.82 percent). The spread is currently 100 basis points.
The 2year/5 year/30 year spread opened this morning at 90 basis points. It stands now at about 130 basis points.
The 2year/5 year spread opened today at 96 basis points. It is now 73 basis points. The 5 year has flattened 23 basis points against the 2 year note.
The 5 year/30 year spread began the day at 186 basis points and is now 207 basis points. That spread has steepened by 21 basis points.
Update: The Fed just announced that it will concentrate its purchases in the 2 year sector and the 10 year sector. That is why the bond is lagging so significantly.
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This article has 33 comments:
"Ain't you?!"
I don't have a mortgage (paid it off at the top of the market in 2005) and I didn't invest in toxic assets, but I do have lots of cash. Time to seriously look for some inflation hedges.
Oh - and I am very serious about this - until I die I will fight for the Fed to be abolished.
Venezuelan Bolivar,
Brazilian Cruzeiro,
Equatorian Sucre,
Portuguese Escudo,
what else?
ahh grennbacks!
On Mar 18 05:36 PM robert99 wrote:
> Gramps, that was funny...
And so here we are. This is probably the last step in monetary policy. Either this is the beginning of a fix, or the beginning of hyper-inflation. Bernanke made the call. Now it's our turn.
On Mar 18 05:52 PM The Real Deal wrote:
> Fed took this step because of one big thing - all actions thus far
> failed to fix the banks, and as economy further tanks, even more
> banks will be hit. There is no way to arrest the spiral. Except to
> print the money to absorb the banks' bad assets, and to fund Obama
> stimulus package. It is also a reflection that foreigners no longer
> will by Treasuries.
>
> And so here we are. This is probably the last step in monetary policy.
> Either this is the beginning of a fix, or the beginning of hyper-inflation.
> Bernanke made the call. Now it's our turn.
You complain when the Fed doesn't act and now you complain when they do act. Have any of you studied the Great Depression and seen the result of Government inactivity?! Bernanke is finally putting a floor under asset prices which is what we need before a recovery is possible. I understand we are financing this with more debt, and I understand our balance sheet is abysmal. But unless you want to go into another depression, this is what needs to be done.
And for all of you inflation-heads, start taking a global perspective and you will see inflation is NOT going to be a major problem. Our communist friends will continue to hand us billions of dollars year over year and other countries will follow suit as they look to stimulate their own suffering export-based economies.
All he is doing is causing the interest rates to deflate (killing retired investors), proving no one will buy US debt any longer so he has too and setting the stage for hyper-inflation.
As long as the market is not allowed to wprk and re-balance the extreme inbalance in debt over rreal assets no recovery can ever happen. Get ready for the great depression that Bernanke is pretending to prevent.
On Mar 18 06:12 PM Veneratio wrote:
> What is wrong with you guys? Honestly.
>
> You complain when the Fed doesn't act and now you complain when they
> do act. Have any of you studied the Great Depression and seen the
> result of Government inactivity?! Bernanke is finally putting a floor
> under asset prices which is what we need before a recovery is possible.
> I understand we are financing this with more debt, and I understand
> our balance sheet is abysmal. But unless you want to go into another
> depression, this is what needs to be done.
>
> And for all of you inflation-heads, start taking a global perspective
> and you will see inflation is NOT going to be a major problem. Our
> communist friends will continue to hand us billions of dollars year
> over year and other countries will follow suit as they look to stimulate
> their own suffering export-based economies.
>
This is is going to encourage further US gov't debt and also inflate house prices, preventing them from reaching proper historical levels vs. household income levels.
This is nothing more than the same shell game of the last few decades, played at the top of the paper-trail food chain.
Are you kidding me?! Until China has the infrastructure to support domestic driven growth, which is not going to happen anytime soon, their will always be a demand for U.S. Treasury Bills.
Yeah, that "free market capitalism" was really working out so well for us.
Why o why, did we have to go in and "mess it up"?
//sarcasm
All non government backstopped securitization facilities have now closed. The consumer is in serious retreat psychologically. Payrolls, the source of funds for 70% of domestic economic activity (70% is consumer spending consumers pay for purchases and debt service with their paychecks) are being slashed. The reduction in available credit (real supply of capital) is getting decimated.
Despite all of this the gold bugs and fear mongers continue to cry about inflation? What is going up in price? What asset class, product or service is showing pricing power and a shortage of supply? Where is this inflation magically going to come from?
Things and commodities that we need to import WILL go up. Oil and other imported commodities will not stay contained very long, as the producers will want a certain value for their production. Gold and silver will remain contained as long as the COMEX supply remains. I expect you will see imported food prices rising as well.
Three cheers for BB.
On Mar 18 06:12 PM Veneratio wrote:
>And for all of you inflation-heads, start taking a global perspective
> and you will see inflation is NOT going to be a major problem. Our
> communist friends will continue to hand us billions of dollars year
> over year and other countries will follow suit as they look to stimulate
> their own suffering export-based economies.
>
On Mar 18 10:16 PM User 377624 wrote:
> If the Communists hand over their dollars, that would contribute
> to dollar inflation.
>
> On Mar 18 06:12 PM Veneratio wrote:
All and all rather than austerity the Fed is proposing, not quantitative easing, but outright dollar devaluation.
On Mar 18 05:52 PM The Real Deal wrote:
> Fed took this step because of one big thing - all actions thus far
> failed to fix the banks, and as economy further tanks, even more
> banks will be hit. There is no way to arrest the spiral. Except to
> print the money to absorb the banks' bad assets, and to fund Obama
> stimulus package. It is also a reflection that foreigners no longer
> will by Treasuries.
>
> And so here we are. This is probably the last step in monetary policy.
> Either this is the beginning of a fix, or the beginning of hyper-inflation.
> Bernanke made the call. Now it's our turn.
In fact it could turn deadly the world is a mess and everyone is hating America for its short term, self centered policies. It wil be a sorry site to see our great war ships sitting in the ocean with no gas because we have no money and no one will give us credit.
Lets see what should I buy guns, gold, chocolate or toliet paper.
.....Guns wellI will run out of ammo before the dust settles.
.....Gold will get me murdered by neighbours.
.....Chocolate is a good batter item but it is not made in America
.....Toilet paper is it, yes everyone needs and it has a good shelf life.
America does not want to spend.
America does not want to invest.
Understandable considering what we have gone through.
Result is deflation and a spiralling bankcrupcies specially small scale businesses such as retailers. Deflation will feed on itself and depression will be the result as more small to medium size businesses go bankcrupt.
This action of the Fed is considered by many as highly inflationary. Exactly what we need to combat deflation and depression! Do we have any other "better" solution to combat deflation?
The sooner consumers and investors realize that if they keep hoarding their cash believing that Cash is King during deflationary period; they are going to lose in this gambit as the Fed is going to force inflationary pressures into the economy and thus those hoarded cash will start losing value as inflation rears it's ugly head.
Consumers will have to spend, moderately not excessively as before, in order to support the economy which is 70% dependent on consumer spending. Excessive belt tightening will only result in massive company bankcrupcies as 70% of them are dependent on consumer spending for their survival. The US economy does not have a "golden parachute". It will have to make do with what it has which is a Consumer-based Economy. Deflation is going to destroy that economy with impunity.
Business investments are needed right about NOW. We are losing more than half a million jobs per month. There is no way the economy is going to recover without new capital. There will be no new capital if investors are hoarding their cash in a deflationary environment. They are going to be forced to find alternative investments if they want to protect their cash from the threat of inflation.
Lets worry about inflation later on. Solve our current problems not potential future problems. The Fed has a lot more experience fighting inflation and very little or no experience fighting deflation and depression.
We are afraid of inflation because of our past experiences. We don't know what deflation and depression will do to us since we don't have any experience at all in this type of environment. We don't know what we are going to lose if deflation takes it's roots and depression sets in.
We better listen to people who have the knowledge if not the experience of how bad deflation and depression can be.
On Mar 18 05:31 PM Stephen Yu wrote:
> With this latest move, the FED is signaling that there are not enough
> buyers for US Treasuries. At the beginning of this crisis, it was
> hard to find buyers of "toxic" assets" like MBS' and CDOs. Now, even
> US Treasuries have trouble finding buyers and the FED has to step
> in as buyer-of-last-resort! Does it mean that Treasuries are now
> in the toxic asset category? If people do not trust US Treasuries,
> they do not trust the US. If they do not trust the US, they do not
> trust the dollar. And when the FED purchases Treasuries, it is printing
> money. This cannot be good for the dollar as it is getting debased.
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