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Joseph Stuber

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  • The Nuclear Option: Russia's Threat To Dump Treasuries [View article]

    Thanks for a reasonable response to at least one of the points I made. And I agree, it is completely logical to assume the announcement of possible QE caused the rate spike. But doesn't that raise another question - why would rates spike on just the possibility of a modest cut back in Fed bond buying? After all they weren't talking of anything but slowing down the pump a little. They were still buying after all.

    My point is this - China owns about $1.3 trillion in US Treasuries and the Fed currently holds $2.3 trillion. What do you suppose would happen to the rate if the Fed said they were no longer buying US Treasuries and in fact were cutting their holdings of Treasuries in half over the next 6 to 12 months?

    That is just a question - what do you think it would do to the rate if just the talk of reducing purchases almost doubled the rate?

    Mar 15 08:34 PM | 1 Like Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries [View article]


    I said Russian in the second sentence above when I meant China. I sure wish they would allow edit ability on these comments for more than a few minutes.
    Mar 15 07:53 PM | Likes Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries [View article]

    Great point on rate spike from 1.6% to 3.0% in 11 weeks. Coincidentally it coincided pretty close with the Russian dump of about $50 billion in Treasuries and the decision to start with bilateral trade agreements. The 10 year then drifted back to a low of about 2.5% before climbing back to 3.0% - again coinciding with China's second bond dump of another $50 billion in Treasuries.

    But not to worry - the market fully realizes that China was not the reason for the record spike in rates in percent terms. After all - we are the mighty US and we have the omnipotent Fed on our side.

    And believe me they are hard at work on our behalf as they have done an unprecedented $4 trillion in short term reverse repos this year. Surely we shouldn't be concerned about that though. Just saying - $4 trillion in reverse repos and a $20 billion taper in QE in 2 months seems to suggest the Fed is a little concerned about something. Clearly not evidence of anything though and I wouldn't want to be accused of promoting myths by stating facts.

    Oh, and surely the fact that the dollar fell from a July high last year of 85 to 79 today - a drop of 7% - has nothing to do with the bilateral trade agreements bypassing the dollar or China's and others bond sales.

    None of that is of any concern as we have the Fed to pick up the slack. By the way what do you make of $4 trillion in reverse repos and the Fed's taper plans? Do you suppose that has anything to do with the Fed being a little concerned over the weak dollar? No - surely not as we know the world loves us and values the dollar.

    Sorry for the rant - it is really of no concern and probably just a matter of me buying into the myth.

    Mar 15 07:21 PM | 1 Like Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries [View article]

    Well, perhaps we won't have long to wait to see who is the more prophetic on this matter. I don't think China will dump all their treasuries at once but I do think what they are doing is sufficient to crash the US dollar and if that happens we will see a sharp sell off in stocks, a knee jerk safe haven bid in bonds that is followed by a sharp sell off and an extreme move higher in gold.

    Let's cut to the chase - your call is for higher prices based on the mood of investors as explained by you here:

    "There are many reasons why I believe that US stocks still have very significant upside from current levels, but one of them can be gleaned by analyzing a series of indicators of investor mood/sentiment highlighted in a recent thought-provoking essay by Peter Atwater, who is one of the keenest analysts anywhere on the subject of social moods and financial markets."

    My call is a little more abstruse I guess and based on actions being taken to displace the dollar, unsustainable levels of debt globally and a beggar thy neighbor monetary policy.

    We can revisit this issue in 3 or 4 months to see who was right. And by the way your condescending and disparaging comments make it personal whether that is your intent or not. You did show up with a lot of contentious comments on my article recently and then wrote this piece claiming many shared my view but you only cited me and did so twice.

    In any event we will let the market be the judge as to who is relying on myth and who is relying on facts. One thing is certain - just because you say it's so doesn't make it so and that of course applies to me as well.

    Mar 15 04:05 PM | Likes Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries [View article]

    What a crock. You don't get to redefine arbitrage to suit your needs. Everything that doesn't agree with your position is summarily dismissed as a myth in your world it seems.

    This is a pretty good definition of arbitrage from Investopedia:

    "The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time."

    Your credibility is becoming very suspect by your unwillingness to accept any view other than your own. How can we assume you have an objective perspective when you categorize all positions that disagree with yours as myths.

    For instance you are of the opinion that my statement that China could destroy us by dumping a trillion on the market all at once requires that I "reflect on (my) unfortunate adoption and propagation of this myth and how it has negatively impacted many of (my) financial and economic writings."

    Or this statement by you:

    "It would be a shame for your work to be sullied by a continued insistence in promoting this fallacious premise and the concomitantly distorted world view that flows from it."

    I would suggest comments like that about any contributor by another contributor reveal an extreme lack of professionalism on their part. I constantly read articles by others that express views different than mine but I never, ever, ever choose to attack them in the way you have attacked me.

    This article - written as a rebuttal to my article - is your opinion and it is nothing more than an opinion. I can only hope that readers understand that you don't have some divine connection that permits you to express the truth while the rest of us mere mortals must speculate on such things.

    Mar 15 02:56 PM | 7 Likes Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries [View article]

    The article is meant to counter my view but I am not sure you fully understand my view in the first place. This is what Rubber Duck said in one of his comments:

    "I should add that I don't believe China will dump treasuries. They're not ready to detach from the dollar in that capacity, but if you've been following the chess pieces, they're setting the table for it."

    I think he sums up my view quite accurately in that statement. What I have said is that China/Russia have an agenda and they are taken very calculated and measured steps to implement that agenda. To date they have taken very cautious steps in selling US Treasuries. They have sold roughly $100 billion in US Treasuries.

    Make no mistake on my own perspective - I think China/Russia would love for the US to engage in negotiations for a new global reserve currency system that displaces the US dollar. That doesn't mean they want to completely destroy the US as the US represents a huge consumption pool.

    It is a dangerous game they are playing here and could result in much more severe consequences than they intend but I am certain they will continue to pressure the US on this matter.

    One other point - I don't think they would dump all their US Treasuries at one time or even a significant percentage of them but I do think they will continue to slowly dispose of US Treasuries. What happens when they do that? They get dollars and what happens to the dollars. They buy something with them - either yuan which is not entirely illogical at this point as the yuan has fallen significantly since the first of the year against the dollar or, as others have said they could buy gold. Either way the dollars move into the system and work to push the dollar down.

    You are inappropriately characterizing my view. You are suggesting that I think China or Russia will commit suicide to further their agenda and I don't think they will do that at all - at least not intentionally. What I do think - once again - is that they have an agenda here and they will continue to take measured steps to advance that agenda even if it exposes them to some short term harm such as the case with Russia and their stock market/currency reaction to their decision to move into Crimea.

    Make no mistake on this point though - if they did decide they wanted to bury us they could sell all their treasuries at one time and then dump those dollars and that would have a truly devastating and immediate impact on the US and by extension on the Chinese as well. I just don't think they would do that nor do I think they need to do that to advance their agenda.

    Mar 15 01:23 PM | 1 Like Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    You are correct as I pointed out above to Lawrence. I will add that the total increase from January to February was roughly $1.5 trillion to almost $1.9 trillion so the better way to view this is to look at actual business days to calculate the average meaning that the Fed's actions in January withdrew roughly $75 billion on the average and in February the number grew to roughly $95 billion in round numbers.

    My compliments to you for noting this point.

    Mar 15 12:27 PM | 2 Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    "There is no "monthly average . . . "

    You are right and in that one sense at least my methodology is flawed. I have been waiting for someone to call me out on that and you finally did. Good point but it in no way diminishes the validity of my primary thesis.

    Mar 15 12:03 PM | 3 Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    The reverse repos are only for a day except over weekends meaning that they withdraw cash one day and put it back the next. I summed the total repo's and calculated the average as it seemed a simple way to estimate how much impact they are having to total cash.

    If one wants to withdraw $80 billion in January from the system and does it with 1 day reverse repos he would have to do it each and every day and thus the really big total in terms of reverse repos but the relative small impact in terms of actual cash withdrawal from the system.

    Not sure I answered your question though as I may not understand what you are asking.

    Mar 15 11:33 AM | Likes Like |Link to Comment
  • The Nuclear Option: Russia's Threat To Dump Treasuries [View article]

    Arbitrage involves a temporary disparity in the price of two different assets and suggests a risk free trade opportunity. It involves the purchase of the under priced asset and the sale of the overpriced asset with the reasonable expectation that the disparity will quickly correct itself.

    For instance spot month gold futures versus deliverable physical gold. If the paper price is higher than the physical one simply buys the physical and sells the paper. If the two prices don't converge then one simply delivers the physical and is virtually guaranteed a profit.

    That is arbitrage.

    What you suggest is absolutely not arbitrage. It may be true that as price shifts occur between assets that money will flow from one asset to another but that is not arbitrage - that is just a shift in investor sentiment. It is entirely possible that both bonds and stocks could fall at the same time and the idea that arbitrage will compensate in some manner and prevent that is simply false.

    You know better.

    Mar 15 10:34 AM | 4 Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    "You are right the financial system is now more engineering matrix than human emotion."

    I am glad you took note of that point. Another writer on SA set forth the idea that investor sentiment was so negative that it suggested a continuation of the bull market in a recent article and then attempted to disparage my views by writing another article - specifically to attack my view.

    My own thoughts are that when the only reason you can come up with for why the markets will move higher is based on the idea that investors think they won't you are suffering from an extreme case of confirmation bias.

    The truth is emotion or sentiment is no longer a driver of market price and to cling to these old ideas is to ignore the reality of market drivers in the new paradigm.

    Thanks again for your comments.

    Mar 15 07:43 AM | 6 Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    "Where are the vaunted "Fed Watchers"? Surely they know the Fed is de-facto tightening by operating the reverse repo mechanism is such consistent time and by such hefty magnitudes. Why aren't they saying anything....???....hmm...

    I would like an answer to that question as well and there is virtually no coverage of this - even by ZH. Even if the reverse repo actions are inconsequential due to the short term duration, the magnitude and the frequency of the activity - starting in August of last year and steadily increasing through February, where they totaled roughly $1.8 trillion - should have raised some eyebrows.

    I think I know the reason - the dollar is under a vicious attack and the Fed doesn't want to panic investors by going cold turkey on QE or being honest about the matter. You just can't lightly dismiss these activities as they are too extreme.

    Mar 15 07:32 AM | 3 Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    I don't know why you made this statement:

    "I disagree with some elements of it. LJKramer has already touched on one and that is the methodological approach of looking at gross volume of reverse repos (rrpos) instead of net differences, . . . "

    This is what I said:

    "The Fed is effectively withdrawing on average $80.577 billion a month at the same time they are conducting asset purchases under QE. According to the Fed website their balance sheet assets totaled $4.02360 trillion on January 1, 2014 and $4.159972 on February 26. The difference between the two numbers is $136.322 billion. Using the average value of the reverse repos of $80.577 for two months the total value of the withdrawals from the system equal $161.114. In other words, the Fed has essentially reduced liquidity in the system from January 1st through the end of February by approximately $24.782 billion during that two month period."

    My statement above does look at the differences. And I will add - the sheer magnitude of the reverse repos can't be dismissed. The Fed's Treasury purchases under QE were $45 billion in Dec, $40 billion in Jan, and $35 billion in Feb. The fact that the average daily reverse repo is roughly $80 billion means that the QE Treasury purchases - on average - are fully sterilized and depending on the particular day, not only are the QE Treasury purchases fully sterilized but the Fed has in fact withdrawn liquidity from the system as it pertains to Treasuries.

    You accuse me of focusing on the total and not explaining the short term nature of the reverse repos but that is simply not true at all. You may dislike my averaging methodology but their is no embellishment or attempt at deception on my part. You have simply focused on an element of my presentation and ignored another element in an attempt to discredit or de-emphasize the significance of the Fed's actions.

    I am interested in what is really motivating the Fed to take such extreme actions and will say once more - to merely shrug your shoulders and say no big deal makes no sense. If the reason I set forth for this massive move is the wrong reason then why don't you suggest another reason. Believe me there is a specific reason for these actions and investors should strive to know what the Fed is thinking. Rather than attack my presentation maybe you can offer us a more plausible reason than the one I set forth.


    Mar 15 07:21 AM | 6 Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    "If they truly meant to remove liquidity in a meaningful way wouldn't they do repos for 65 days . . . "

    Seems to me they would but that is not what they are doing. Depending on who is on the buy side I guess they could be attempting to tighten up short term lending from money market funds that fund carry trades.

    I will say this - anything that is as extraordinary as the reverse repo volume and frequency we have been seeing since China started dumping bonds on us is not something you just shrug your shoulders and say so what - no big deal.

    I am certainly subject to changing my mind but I am sure not subject to ignoring this suspicious activity. Believe me there is a reason they are doing this and until someone offers an explanation that seems more plausible than the one I have offered I will go with my view.

    Mar 14 07:59 PM | 4 Likes Like |Link to Comment
  • The Fed's Reverse Repo Actions In 2014 Means QE Effectively Ended In December But They Forgot To Tell Us [View article]

    You are certainly entitled to your opinion as is Lawrence but maybe you can explain why the dollar has fallen so precipitously in the last 9 months. And maybe you can explain why it has continued to edge lower even in spite of the Fed's QE taper which should strengthen the dollar all things being equal. They of course aren't equal in that agreements to bypass the dollar are moving trapped dollars back into economy and producing a dollar glut that is weighing on the dollar.

    Why do you suppose the Fed is engaging in unprecedented levels and I mean unprecedented levels of reverse repos? There has to be a reason doesn't there. Perhaps you can offer a better explanation as such extreme policy should be explained.

    The truth is - once again - they are fighting with every tool they have to prop the dollar and the reason the reverse repos are so large in the aggregate is that they do little good if the daily level isn't close to the size of the QE asset purchases.

    Mar 14 07:42 PM | 3 Likes Like |Link to Comment