Winston Smith of Oceania

Tuesday Outlook: Commodities, Global Markets

The FED is not a tool for the people but they are tools. Here is the article Dave referred to:

Wall Street profits from trades with Fed By Henny Sender in New York

Published: August 2 2009 23:04
Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say.


The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilise the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.
However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price.

The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage. Barclays, for example, e-mails clients with news on the Fed’s balance sheet, detailing the share of the market in particular securities held by the Fed.

“You can make big money trading with the government,” said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.”

A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.”

The central bank’s approach to securities purchases was defended by William Dudley, president of the New York Fed, which is responsible for market operations. “We believe that opting for transparency is a greater good,” he said. “If we didn’t have transparency, we’d be criticised on other grounds.”

However, another official familiar with the matter said the central bank “has heard that dealers load up on securities to sell to the Fed. There is concern, but policy goals override other considerations.”

Barney Frank, chairman of the House financial services committee, said the potential profiteering may be part of the price for stabilising the financial system.

“You can’t rescue the credit system without benefiting some of the people in it.” Still, Mr Frank said Congress would be watching. “We don’t want the Fed to drive the hardest possible bargain, but we don’t want them to get ripped off.”

The growing Fed activity has coincided with a general widening of market spreads – the difference between bid and offer prices – as the number of market participants declines. Wider spreads enable banks, in their capacity as market-makers, to make more profit.

Larry Fink, chief executive of money manager BlackRock, has described Wall Street’s trading profits as “luxurious”, reflecting the banks’ ability to take advantage of diminished competition.

“Bid-offer spreads have remained unusually wide, notwithstanding the normalisation of financial markets,” said Mohamed El-Erian, chief executive of fund manager Pimco in Newport Beach, California.

Spreads narrowed dramatically during the years of the credit bubble.

Brad Hintz, an analyst at AllianceBernstein, said he doubted that spreads would ever return to those levels, a development that could be pleasing to the Fed.

“They want to help Wall Street make money,” he said.

Thursday Outlook: Commodities, Global Markets

Cetin is a Cretin. He blows up every story with Uber-bull comments and links to his web page.

Friday Outlook: Commodities, Global Markets

Thanks Dave, while this may not be the place it bears being said. Death has a funny way of bringing a new outlook; the smiles from friends and strangers look bigger, flowers smell better and look brighter, sounds of birds, are more recognizable, and the awareness that smells are really more than just breathing. I am guilty and mad for living my life on this earth as if I was going to live forever. Why wait until we receive some bad news to really start appreciating the life we have today? Hopefully we all can start to live a more intentional life today. Ask yourself, what really matters? Greg's insight and humor will be missed. Sorry to hear of the loss.

Wednesday Outlook: Commodities, Global Markets

All this AIG noise... Does anyone know who is the plan sponsor for the congressional retirement account?

Thursday Outlook: Commodities, Emerging Markets

Hey Dave, Great as usual. Question: We have recently seen one of the most manipulated markets ever beginning back last fall. We saw the SEC step in and change the rules for shorts. What will keep them from going further if things deteriorate? When this market drops below the November lows, do we see more government interaction? Specifically, do you foresee the government coming in and effectively outlawing any or all of the inverse ETFs? Could the shorts be wiped out overnight?

Friday Outlook: Commodities, Emerging Markets

Might I also add from Lowry today: Our measures of the forces of Supply and Demand continue to suggest that any further rally in the days ahead will be a temporary pause in an ongoing decline toward the Nov. 20 bear market low.

Friday Outlook: Commodities, Emerging Markets

Ifi I recall what Nouriel Roubini said: there is a disconnect between the more and more aggressive policy actions of the government and the market direction. This indicates that the markets have lost confidence in the ability of congress or government in general to do the right thing. For instance, when the bailout of Bear Stearns occurred in March, there was a rally in the stock market that lasted about 8 weeks. Then when trouble started to occur in July with Fannie and Freddie, Hank Paulson went to Congress to get the power to stabilize Fannie and Freddie. The result was a rally that lasted about 4 weeks. Next, in early September, Paulson made trillions of dollars available to loosen up credit markets. The rally lasted 1 day. The next week when the collapse of AIG occurred, there was not even a rally, instead, panic. The market fell 5 percent. Then they went for the TARP legislation, and you would expect that that would have improved the markets. On the Thursday after the Senate passed it, and on the Friday when the House passed it, stock prices fell sharply. The government didn’t stop there. The following week they took more action to loosen credit. The market fell that week by 20 percent.

Don't expect too much. It won't last.

Friday Outlook: Commodities, Emerging Markets

Hey paultaut: I just laid both charts over one another for the time period you suggest....they don't look anything alike. What are you talking about?

Tuesday Outlook: Commodities, Emerging Markets

Dave, awesome job and as always, great points! Is this time different? A quick look back in history finds two big sell off periods in October. The first in 1929, where there was a 2-day sell-off in the Dow for -23.62% beginning on October 25 and ending on the 28th. The following two days produced a rally of 18.88%. However, it didn’t last. From the low registered on October 28, the market slid another 13.64% by November 13, which wiped out the two-day knee jerk euphoria.

The second period is Black Monday 1987, where the S&P 500 was down 20.47%. The two days following added back 16.6%. Again, measured from the low registered on Black Monday, by December 4, the S&P 500 was down re-testing the Black Monday low. The rebound rally was erased leaving the return at -.41%.

Wednesday Outlook: Commodities, Emerging Markets

Bill Gross: "One of the wisest men I know has this serious but admittedly impractical solution: have the government buy one million new/unoccupied homes, blow them up, and then start all over again. Absent that, he’s not quite sure what to do, nor am I, with the exception of the next paragraph’s proposal..."
Wiseman indeed and I like it. Why not limit supply in housing and give the unemployed a construction job?

Friday Outlook: Commodities, Emerging Markets

Hey Fry-guy,
Keep truth coming. Clearly this David White fellow has already drank the the kool-aid. It's too late to save him. And speaking of drinking the kool-aid... ol' "sieraromero" is a lunatic. Thanks for making the rest of us more idiotic be reading your post, sieraromero.