So many unhappy returns...
The inflation calculator at a federal government's site (real "federal", not Federal Reserve "federal" which is the same as Federal Express; and real "government" as evidenced by the domain extension ".gov" instead of Federal Reserve banks' websites that end in ".org") shows the value of US dollar has dropped by 96% in 100 years since the Federal Reserve was created.
Quotes from Charles August Lindbergh Sr., the father of the famous aviator and who voted no to the Federal Reserve Act and later voted no to the US entry to the World War I:
"This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President Woodrow Wilson signs this bill, the invisible government of the monetary power will be legalized....the worst legislative crime of the ages is perpetrated by this banking and currency bill."
"The Aldrich Plan is the Wall Street Plan. It means another panic, if necessary, to intimidate the people. Aldrich, paid by the government to represent the people, proposes a plan for the trusts instead."
"To cause high prices, all the Federal Reserve Board will do will be to lower the rediscount rate..., producing an expansion of credit and a rising stock market; then when ... business men are adjusted to these conditions, it can check ... prosperity in mid career by arbitrarily raising the rate of interest. It can cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by a greater rate variation and in either case it will possess inside information as to financial conditions and advance knowledge of the coming change, either up or down. This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money. They know in advance when to create panics to their advantage, They also know when to stop panic. Inflation and deflation work equally well for them when they control finance."
Well, we'll see about their ability to "stop panic" going forward, after their balance sheet exceeds $4 trillion dollars.
I just saw this article at Zero Hedge "The Biggest Difference Between QE3 And QE2", which wonders aloud at the end:
But when more than half of the proceeds of QE to date... have ended up at foreign banks, perhaps at least a theatrical congressional hearing is in order?
That has brought to mind an article that I read yesterday in Japan's Nikkei Shinbun, which said part of the quantitative easing by the US Federal Reserve after the so-called "Lehman Shock" in September 2008 was not so much about helping the US domestic banks or the US housing market but about responding to the demand for the US action from foreign governments for their financial institutions, particularly from China and Japan, two largest foreign holders of the US treasuries AND mortgage-backed securities issued by Fannie Mae and Freddie Mac.
In the US, the purchase of mortgage-backed securities (MBS) issued by Fannie and Freddie by Federal Reserve has been explained as measures to support the housing market. It's that way even today.
From Nikkei Shinbun (11/10/2013; part):
リーマン・ショックから２カ月。米連邦準備理事会（ＦＲＢ）は緊急危機対応策として、米住宅公社が発行・保証する長期証券の買い入れに踏み切った。今なお続く異例の金融緩和の幕開け。ＦＲＢ議長、ベン・バーナンキの背中を押したのは、日本や中国など各国からの悲鳴と圧力だった。
Two months after the "Lehman Shock", the US Federal Reserve decided to purchase long-term bonds issued and guaranteed by the US government corporations [Fannie Mae adn Freddie Mac], as emergency response measures. It was the beginning of the extraordinary monetary easing that still continues today. What forced Chairman Ben Bernanke's hand was the cry for help and the pressure from foreign governments, including Japan and China.
2008年11月24日夜、米ワシントンのＦＲＢ本部。「あす発表する。追加対策のパッケージを大至急、仕上げてくれ。一枚紙の要旨で、すぐに」。事務方に指示したバーナンキの声はわずかに震えていた。
November 24, 2008 at night, Federal Reserve Board in Washington DC. "I will announce it tomorrow. Prepare the package for additional measures as soon as possible. One-page summary, and quick." Bernanke instructed the staff with a slight quiver in his voice.
翌25日早朝、ＦＲＢは緊急理事会を招集。米連邦住宅抵当公社（ファニーメイ）などが発行・保証する長期証券の買い入れを柱とする危機対応策を決めた。
Early next morning on November 25, Federal Reserve Board called an emergency meeting and decided on the emergency response measures that centered on the purchase of long-term bonds issued and guaranteed by Fannie Mae [and Freddie Mac].
米東部時間午前８時15分。ＦＲＢが発表した声明は紙一枚にわずか13行。だがＦＲＢが買い入れると表明した長期証券の総額は6000億ドル（約59兆円）にも上った。中央銀行であるＦＲＢが市場から直接、証券を買い入れる異例の措置の始まりだった。
8:15AM US Eastern time. The announcement by FRB was typed on one page, in 13 lines. The total amount of purchase by Federal Reserve would, however, be 600 billion dollars. It was the beginning of an extraordinary measures whereby Federal Reserve, central bank of the US, would buy bonds directly from the market.
「とにかく市場の安心感を最優先に考えた。金額の根拠は乏しかった」。当時の議長側近は振り返る。
"Our first priority was to assure the market. There was little basis for the amount," says an aide to the chairman at that time.
ＦＲＢが真っ先に住宅公社が発行・保証する長期証券の買い入れに動いたのはなぜか。「危機の震源である住宅市場の下支え」が表向きの理由。だが裏にはリーマン・ショック前夜、米国として示した「国際公約」があった。
Why did Federal Reserve choose to buy the long-term bonds issued by Fannie and Freddie? The official (ostensible) reason was "to support the housing market which was the cause of the financial crisis". However, there was an "international pledge" [as the real reason] that the US government had made right before the "Lehman Shock".
08年９月７日夜。ファニーメイなど住宅公社２社の公的管理を発表した米財務長官、ヘンリー・ポールソンは電話に飛びついて説明した。「これで米国政府が完全に後ろ盾になった」。相手は中国の当局者。ポールソンは主要７カ国（Ｇ７）の当局者との緊急電話会議も開催。米政府として初めて、住宅公社などが発行する米政府機関債の保証を対外的に公約した。
On the night of September 7, 2008. Treasury Secretary Henry Paulson had just announced the effective takeover of Fannie and Freddie, and he was now on the phone. "The US government will now fully back these companies." The Treasury Secretary was talking to the Chinese counterpart. Paulson also conducted a teleconference of G7 finance ministers, and made a pledge that the US government, for the first time, would guarantee the bonds issued by Fannie and Freddie.
住宅バブル崩壊で住宅ローンの保証を主な業務とするファニーメイなどが巨額の債務超過に陥っているのは明らかだった。一方で住宅公社など米政府機関が発行した長期証券の残高は当時の推計で１兆5000億ドル弱。暗黙の米政府保証がついた優良債券として、欧州やアジアの130を超える国の政府や中央銀行、機関投資家が保有していた。
It was clear that the collapse of the housing bubble left Fannie and Freddie deeply insolvent. In the meantime, the long-term bonds issued by them were estimated at that time to be about 1.5 trillion dollars. These bonds were considered high grade with implicit guarantee of the US government, and held by more than 130 entities such as governments, central banks, and institutional investors in Europe and Asia.
懸念を特に強めたのは保有残高が１、２位の中国と日本。中国の胡錦濤国家主席は、外貨準備で保有する大量の米政府機関債を損失覚悟で売却処分する可能性をちらつかせ、外交圧力を強めた。
The two most worried countries were China and Japan, whose holdings were No.1 and No.2. President Hu Jintao of China pressured the US by threatening to sell its large holding of the bonds even at a loss.
日本政府が中国の保有する米政府機関債を一部肩代わりする――。中国が米政府機関債を放出すれば、国際金融市場の動揺は計り知れない。幻に終わったが、一時はこんな構想が浮上。「日本は米国と真剣に内容を検討した」（国際金融筋）ほどの綱渡りが続いた。
At one time, a plan was being discussed whereby the Japanese government would take over (buy) part of the Chinese holding. If China dumped the bonds from Fannie and Freddie the damage to the international financial markets would be immeasurable. It didn't come to pass, but "Japan and the US were seriously considering the plan" (according to the source in international finance). The situation was very tense.
(Full article in Japanese at the link)
Slight quiver in his voice. That's poetic of Nikkei, but I think Mr. Bernanke's speaking voice always sounds like that.
By the way, how much Fannie and Freddie papers did China and Japan have at that time?
China had over 500 billion dollar worth of mortgage-backed securities from Fannie and Freddie, and Japan had over 250 billion dollars worth. The third largest holder was Russia, at slightly over 50 billion dollars.
From Nikkei (English labels are by me):
China and Japan were worried, Nikkei says. China threatened to dump, Japan was willing to buy what China would dump. In 20-20 hindsight, if China had dumped and Japan had picked up those MBS at a significant discount, maybe Japan would have no problem paying for the nuclear accident cleanup. Oh well.
Nikkei doesn't say why Federal Reserve was worried enough to start purchasing the MBS from Fannie and Freddie at that time. I don't remember the reason myself. All I remember was that the stocks of investment banks like Goldman Sachs, Citi, JP Morgan Chase were on a free fall in November, and a extra large downward pressure was on the stocks on November 21, 2008 which was Friday. After the announcement by Federal Reserve on November 25 next Tuesday, the stock markets were lifted somewhat, but all it did was to not fall for the duration of the year.
(UPDATE 2) Nikkei ended down 843 to 12,445. Chief Cabinet Secretary Yoshihide Suga says, "I will not comment on the stock market's moves, but Japanese economy is steadily growing."
Uh.. Mr. Suga, it doesn't matter. The investors who have been buying Nikkei and shorting yen are "macro" investors (and algo bots) who responds to monetary and fiscal policies of the government and the central bank. When those spectacularly disappoint (like PM Abe did by talking trivial "growth strategies", and Mr. Kuroda did by doing nothing), these investors (and algo bots) sell. Economy on the main street? Who cares.
(UPDATE) Nikkei is now down 760 points, after the news that Prime Minister Shinzo Abe and BOJ's Kuroda met over lunch and talked about financial markets. According to Reuters Japan, Kuroda said to Abe,
「日本経済は順調に回復傾向をたどっており、足取りは次第に力強いものになっている」
"Japan's economy is on a steady path of recovery and it will gradually gather strength" (Reuters English's translation)
「強い決意を持って質的・量的緩和を進め、日本経済を支える」
"With firm resolve, I will execute quantitative and qualitative easing, and support the Japanese economy."
「市場も次第に落ち着いてくる」
"Markets will calm down gradually."
Talk is cheap, Mr. Kuroda.
Between Ben Bernanke and Haruhiko Kuroda, they have managed to wipe out 2.5 trillion dollars of value from the world equity markets since May 22, according to Bloomberg.
==================================
Bank of Japan's non-action (or Klueless Kuroda, if I may) on Tuesday continues to reverberate, as Nikkei tanked nearly 900 points in the morning session, taking the rest of Asia with it. Nikkei is now solidly in a bear market. In the afternoon session, it recovered somewhat, as yen has halted (for now) its steep melt-up against US dollar to 94 yen.
(One of the idiosyncracies of Japan, the numbers in green means they are negative.)
Trigger? It is assumed to be the report by World Bank that withdrawal of monetary stimuli by the world's biggest central banks (the US Federal Reserve, Bank of Japan, among others) may crush the economies in the developing nations by 12%.
The report is being used by traders and bots to exit the stock markets around the world.
A cluster of Hindenburg Omen in the past few weeks has not been for nothing after all, it seems.
From Reuters (6/12/2013; emphasis is mine):
Emerging markets at risk when loose policies end -World Bank
(Reuters) - The World Bank said eventual monetary tightening in advanced economies could crimp growth in emerging markets as interest rates rise, lowering the nations' potential output by as much as 12 percent.
That long-term risk is likely greater than the short-term impact from volatility in emerging market currency and bond markets, as traders try to position themselves for when the U.S. Federal Reserve begins its exit from ultra-loose monetary policies, said Kaushik Basu, the World Bank's chief economist.
Basu was speaking ahead of the launch of the bank's twice-yearly Global Economic Prospects report on Wednesday.
The report argued that the euro area and fiscal uncertainty in the United States are receding as major risks to the global economy. Instead, developing nations have to be on guard against side effects from aggressive monetary expansion in advanced nations.
Japan launched a massive bond-buying program in April to prod the economy out of decades of stagnation, raising fears Japanese investors would flood into emerging markets in search of higher yields and cause overheating.
At the same time, global markets were battered this week as traders tried to read the tea leaves of when the U.S. central bank will decide to start winding down its own stimulus measures.
(Full article at the link)
Bloomberg News (6/12/2013; emphasis is mine) quotes a financial strategist in New Zealand who talks about markets wanting stability and unlimited stimulus at the same time. With BOJ's Kuroda seen not committed to expanding his program after the Tuesday's announcement, all eyes are on the US Fed:
...The global economy will expand 2.2 percent in 2013, the World Bank said yesterday, paring a January forecast of 2.4 percent. The Federal Open Market Committee meets next week after the Bank of Japan this week left its lending program unchanged. Global stocks have plunged 5.2 percent from their May 21 peak this year on speculation the Fed may ease stimulus.
“People are still trying to assess the prospects, likelihood, and timing of tapering from the Federal Reserve,” Chris Green, an Auckland-based strategist at First NZ Capital Ltd., a brokerage and wealth management firm, said. “Markets want stability in the economy but they also want unlimited stimulus. The two can’t continue to exist together.”
(Full article at the link)
This is really funny. What started as a joke on Twitter yesterday became real, sort of, today, as Jon Hilsenrath channels Federal Reserve (Dallas Fed Richard Fisher, in particular) and says the Fed has mapped out an exit strategy from its unprecedented easing of the past 4 years.
Mr. Kuroda of Bank of Japan, uh oh. My condolences, and best of luck holding the bag.
The news, for what it is worth still from the once-omniscient Hilsenrath, of course broke after the financial market is solidly closed for the weekend.
From Wall Street Journal (5/10/2013):
Fed Maps Exit From Stimulus
Timing of Wind-Down Is Uncertain, but Focus Is on Managing Unpredictable Market Expectations
Federal Reserve officials have mapped out a strategy for winding down an unprecedented $85 billion-a-month bond-buying program meant to spur the economy—an effort to preserve flexibility and manage highly unpredictable market expectations.
Officials say they plan to reduce the amount of bonds they buy in careful and potentially halting steps, varying their purchases as their confidence about the job market and inflation evolves. The timing on when to start is still being debated.
The Fed's strategy for how and when to wind down the program is of intense interest in financial markets. While the strategy being debated leaves the Fed plenty of flexibility, it might not be the clear and steady path markets expect based on past experience.
Officials are focusing on clarifying the strategy so markets don't overreact about their next moves. For example, officials want to avoid creating expectations that their retreat will be a steady, uniform process like their approach from 2003 to 2006, when they raised short-term interest rates in a series of quarter-percentage-point increments over 17 straight policy meetings.
"I don't want to go from wild turkey to cold turkey," Richard Fisher, president of the Federal Reserve Bank of Dallas, said in an interview Friday. "I think we ought to dial it back." Mr. Fisher is part of a contingent of Fed hawks who are wary of the central bank's easy-money policies.
...
Mr. Fisher said he advocated starting right away at the last Fed meeting. Some officials can envision taking a first step this summer, if strong data show the economy is weathering the tax increases and federal spending cuts that appear to be weighing on growth. But they might wait longer, especially if the economy disappoints, as it has for several years during the spring and summer months.
A Wall Street Journal survey of private economists this week showed that 55% expect the Fed to start shrinking its bond purchases in the third or fourth quarter this year, while 45% expect the Fed to wait until next year or later. None expected the Fed to increase its purchases as its next step.
(Full article at the link)
Dial it back. Just like that. The rich got way richer, the not-so-rich got poorer, says Pew Research; many lost all their assets in the form of home equities and even went into negative assets because of the foreclosure fraud by the major Wall Street banks. But what's that to the Fed? Nothing, as it is not their so-called mandate. Now these banks and hedge funds are landlords, having bought those houses on the cheap.
Dial it back. Really, Mr. Fisher.
You will never see an article like that in today's Japan on any paper. How dare you call Governor Haruhiko Kuroda's action a failure? It's all for us, our well-being, our future!
Volatility in Japanese Government Bonds (JGB) that Kuroda has unwittingly introduced in April is causing the investors to demand premium to compensate for the volatility, thus the rates rise. That's not what Kuroda or his boss Prime Minister Abe intended.
Federal Reserve's Ben must be chuckling, and saying under his breath, "Amateurs..."
Bloomberg News (5/7/2013; emphasis is mine):
Kuroda Stimulus Backfires as Mortgage Costs Rise: Japan Credit
By Masaki Kondo, Mariko Ishikawa & Yumi Ikeda
Bank of Japan Governor Haruhiko Kuroda’s stimulus policies are backfiring in the housing market, where mortgage rates are rising even as the central bank floods the financial system with cash.
While 35-year home-loan costs rose one basis point to 1.81 percent this month from an all-time low of 1.8 percent in April, any increase will be undesirable for the BOJ, according to Mizuho Securities Co. Federal Reserve Chairman Ben S. Bernanke’s monetary easing almost halved 30-year U.S. mortgage rates since 2008 to 3.35 percent on May 2.
The BOJ’s April 4 announcement that it would double bond buying to generate 2 percent inflation unleashed the highest government-debt volatility in a decade and pushed 10-year yields up by 4 1/2 basis points. The benchmark lending rate for large corporations, known as the prime rate, increased five basis points from its record low to 1.2 percent on April 10, despite the BOJ’s aim of stoking the economy through cheaper funding.
“It makes little economic sense for rates to decline when the BOJ says it will raise consumer prices,” said Toru Suehiro, a market economist in Tokyo at Mizuho, one of the 24 primary dealers obliged to bid at government debt auctions. “Yields are higher than before the monetary easing to reflect the volatility risk, and lending rates have risen because they are set based on bond yields.”
Volatility, as measured by the gap between the 10-year yield’s daily high and low, jumped to 30 1/2 basis points on April 5, the most since July 2003, after Kuroda unveiled a plan to buy more than 7 trillion yen ($70.7 billion) of Japanese government bonds a month, accounting for more than half of the total amount that the government plans to sell in the market this fiscal year.
“The BOJ’s buying is reducing the liquidity of government bonds, preventing market participants from finding appropriate yield levels,” said Satoshi Okagawa, a senior global-markets analyst in Singapore at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-largest financial group by market value. “That situation will make the market dependent on the BOJ’s purchases just like a morphine addict.”
(Full article at the link)
The US primary dealers wouldn't be able to do without that morphine from the Fed.
4 and a half basis points is 0.045%. What's the big deal, you may ask? Well, if Japan's 10-year bond yield was 0.5% before Kuroda's intervention, it was 9% jump in the yield. That's huge for bonds.
By the way, after breaking just about every financial market with his enormous liquidity, Federal Reserve Chairman Bernanke won't be attending the annual Jackson Hole confab of world's central bankers this year. Rumors is that he won't be seeking the next term.
(If and when SHTF, Kuroda will get the blame, I suppose.)
Dow drops 138 points after Ben and his gangs (aka Federal Reserve) say they could increase or decrease stimulus as they see fit.
From Reuters UK (5/1/2013); the best part of the article is the title:
US STOCKS-Wall St drops as steady Fed can't offset data, earnings
* Fed maintains stimulus measures despite job market improvements
* Merck, MasterCard shares slide after earnings
* U.S. companies hire less, factory growth slows in April
* Dow off 0.7 pct, S&P 500 off 0.6 pct, Nasdaq off 0.7 pct
By Ryan Vlastelica
NEW YORK, May 1 (Reuters) - U.S. stocks fell on Wednesday as the Federal Reserve's decision to stand pat on its current monetary stimulus was not able to offset weak economic figures and several lackluster earnings reports.
The U.S. Federal Reserve stood by its plan to stimulate the economy through bond purchases, and while the central bank noted some improvements in the labor market, it said recent budget tightening in Washington could be a risk to growth.
The statement came in largely as expected. While equities have performed well of late, with the S&P 500 hitting both intraday and closing highs on Tuesday, a trend of discouraging data indicated that the Fed wouldn't ease up on its accommodative monetary policy of quantitative easing.
"That the Fed won't end QE any time soon is positive for stocks in the near term, but the data we've seen is creating a lot of angst for investors," said Mike Gibbs, co-head of the equity advisory group at Raymond James in Memphis, Tennessee.
U.S. private employers added 119,000 jobs in April, well below economists' expectations. A separate report showed the U.S. manufacturing sector expanded only modestly in April.
...
"We're a bit overextended, which is leading to some profit taking," said Gibbs, who helps oversee about $400 billion. "But relative to historical measure, we're not in an expensive market, and we would view declines as buying opportunities."
(Full article at the link)
A "bit overextended"? The two of the major stock indices (Dow, S&P500) are at all-time high, and as far as the "93%" of the US household are concerned who have seen their net worth decrease since 2009 March market bottom, it's been overextended for over 4 years.
And what "data" is creating a "lot of angst" for the investor class? Just about everything on the real economy which is no longer reflected in the stock market thanks largely to the Fed's large-scale money printing for the past four years.
Much more interesting is the talk given by Kevin Warsh, former Fed Governor who resigned the position in March 2011, at Milken Institute on April 29, 2013. He says "There is no plan B", and that the Fed has enabled the federal government to do nothing (other than spending money on companies like Solyndra and Fisker, I may add, among many others). The US growth has been mediocre and will remain so because of the Fed policy, he says.
From Zero Hedge (5/1/2013):
...The entire discussion is worthy of attention but Warsh's comments begin around 18:00:
...but "the ability of a central bank, exclusively, without the rest of Washington doing any bit of the task, to turn an economy from a modest recovery to a robust one is an experiment that is untested - and will not prove to be successful."
...The Fed is taking on the problem of the shortfall in aggregate demand alone. Warsh does not believe that the Fed means to do this alone but their "good intentions" are simply not enough to get the economy to a 3-4% growth rate needed to create sustainable improvements in the labor markets.
... Warsh adds, "over the last several years, [the Fed] has over-promised and under-delivered," and the bank's most important asset - credibility - is under attack.
...The Fed has "enabled" Washington to do nothing, since the politicians expect the same "rabbit out of the hat" rescue that occurred in the darkest days of the financial crisis. This means no growth strategies ("the mix of policies has to be right") will occur - until the Fed draws the line.
...Since the financial crisis, Washington has done its level best to focus on GDP in the next quarter, or perhaps the election, and precious little beyond that short-term horizon. Warsh concludes, "There Is No Plan B." The Fed has fewer degrees of freedom and the rest of Washington is not coming to the rescue.
...In light of our status as reserve currency, the rest of the world's central banks feel empowered to match the Fed's efforts since "we do not act in a vaccuum" which due to economic and competive reasons, means "the US economy will not break out to the upside."
...It is not bad luck that is creating this medicrity, it is bad policy
Zero Hedge seems to leave out the best part of the speech, which you can view in their post.
(From what I watched, first pass)
The Fed's monetary policy is nothing but buying time.
The Fed shouldn't care about the stock market, instead of continuing to manipulate the financial market to stoke risk appetites of people.
Real effect is not trickling down.
I wonder if Mr. Kuroda, governor of Bank of Japan, knows about this video. Probably not. Japanese financial media? Probably not.
Economist and former NHK director Nobuo Ikeda dubbed Kuroda BOJ as "a whale in a small pond", whose slight move will splash all water in the pond. It's the same Mr. Ikeda who said radioactive cesium would disappear once you burned the contaminated wood, but on Bank of Japan, I share his assessment.
Shinzo "pork-cutlet-over-curry-rice" Abe is going to be the best friend of Ben "Blackhawk helicopter" Bernanke.
Bloomberg News quotes Nomura Securities, JP.Morgan, and ex-BOJ deputy governor among others who say the Abe administration has pledged to create a 50 - 100 trillion yen (US$558 - 1,116 billion) fund to buy foreign debts, with more than half that money going into the US Treasuries.
Abe's rationale? To make absolutely sure that Japanese yen gets depreciated and inflation rises, which he seems to consider as a sign of robust economy.
Well, I seem to recall a headline several days ago that Mr. Bill Gross of PIMCO, the world's largest bond fund manager, had raised the holding of US Treasuries in December. If these analysts in Japan knew (they talk like it's a given that Abe will create such a fund), Mr. Gross would have known about it long time ago.
From Bloomberg News (1/13/2013; emphasis is mine):
Abe Aids Bernanke as Japan Seen Buying $558 Billion Foreign Debt
Shinzo Abe is set to become the best friend of investors in Treasuries as Japan’s prime minister buys U.S. government bonds to weaken the yen and boost his nation’s slowing economy.
Abe’s Liberal Democratic Party pledged to consider a fund to buy foreign securities that may amount to 50 trillion yen ($558 billion) according to Nomura Securities Co. and Kazumasa Iwata, a former Bank of Japan deputy governor. JPMorgan Securities Japan Co. says the total may be double that. The purchases would further weaken a currency that has depreciated 12 percent in four months as the nation suffers through its third recession since 2008.
The support would help Federal Reserve Chairman Ben S. Bernanke damp yields after the worst start to a year since 2009, according to the Bank of America Merrill Lynch U.S. Treasury Index. Government bonds lost 0.5 percent as improving economic growth in the U.S., Europe and China curbed demand for the relative safety of government debt even with the Fed buying $45 billion in bonds a month.
“I can’t imagine the U.S. would be disappointed in Japan buying Treasuries,” Jack McIntyre, a fund manager who oversees $34 billion in global debt at Brandywine Global Investment Management in Philadelphia, said in a Jan. 8 telephone interview. “The Fed’s been doing all the heavy lifting.”
...Strategists are already paring back bearish forecasts for U.S. debt. The 10-year Treasury yield will rise to 2.2 percent by year end, according to the median prediction of economists in a Bloomberg survey. In July, the estimate was 2.7 percent.
Hiromasa Nakamura, a senior investor for Tokyo-based Mizuho Asset Management Co., which oversees the equivalent of $38 billion, is more bullish. Ten-year Treasury yields will fall to a record low of 1 percent by year-end as Japan ramps up purchases, while the yen falls to 90 per dollar, he said in an interview on Jan. 11. Japan’s buying “will be one of the positive factors in the market.”
...The fund could be twice that size or more as “there’s no upper limit,” said Masaaki Kanno, the chief Japan economist for JPMorgan and a former BOJ official. Abe can hold off on unveiling a large plan now until the next time the currency starts to appreciate, Kanno said by telephone Jan. 11.
...Whatever the foreign bond fund’s amount, more than half will probably be funneled into Treasuries because they are the most easily-traded securities, Yoshiyuki Suzuki, the head of fixed-income in Tokyo at Fukoku Mutual Life Insurance Co., which has about $64.8 billion in assets, said on Jan. 8.
(Full article at the link)
So much for the "independence" of the Federal Reserve.
Helicopter Bazooka Ben (aka Chairsatan at Zero Hedge) thinks buying up MBS (mortgage-backed securities, which by the way are probably made the same way as before - i.e. without properly (legally) transferring mortgages into trusts in order to securitize) at a furious pace will improve the employment situation in the US.
Huh?
From Bloomberg News (9/13/2012):
Fed Undertakes QE3 With $40 Billion MBS Purchases Per Month
The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.
“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today in a statement at the end of a two-day meeting in Washington.
The FOMC said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”
Chairman Ben S. Bernanke is enlarging his supply of unconventional tools to attack unemployment stuck above 8 percent since February 2009, a situation he has called a “grave concern.” The decision provoked a renewed backlash from Republicans, including Senator Bob Corker of Tennessee, who said Bernanke’s policies damage the Fed’s credibility while doing little to spur the economy.
Stocks soared after the Fed’s statement. The Standard & Poor’s 500 Index jumped 1.6 percent to 1,459.92 at 2:24 p.m. in New York. The yield on the 10-year Treasury note rose to 1.78 percent from as low as 1.71 percent.
“This is definitely a significant shift in FOMC policy,” said Julia Coronado, chief economist for North America at BNP Paribas in New York and a former Fed economist. “This is a very aggressive commitment to success on its mandates.”
The central bank released its economic forecasts for growth, inflation, unemployment and interest rates over the next three years. Twelve of the Fed’s 19 policy makers said interest rates should rise for the first time in 2015.
The Fed now expects the job-market outlook to improve more swiftly by 2014, with unemployment forecast to fall to 6.7 percent to 7.3 percent, compared with 7 percent to 7.7 percent in their June projections. In 2015, unemployment will fall to 6 percent to 6.8 percent.
Growth will improve to as much as 3 percent next year and as much as 3.8 percent in 2014, up from upper estimates of 2.8 percent and 3.5 percent in their previous forecasts. The so- called central tendency forecasts exclude the three highest and three lowest of 19 estimates.
(Full article at the link)
In the press conference, Mr. Bernanke emphasized the importance of keeping the mortgage rate low so that people can buy houses or refinance. Never mind that people need good-paying job to afford a house, regardless of the mortgage rate. By endlessly pumping money into the financial market by purchasing mortgage securities and selling short-term Treasuries and buying up long-term Treasuries (Operation Twist), what is he going to achieve, other than an extremely artificially inflated stock (risk) market?
Oh I forgot. For Mr. Bernanke, the stock market is the economy.
One funny thing about the US Fed - it wins admiration from the Japanese who firmly believe it's the duty of the central bank to print and inflate at all costs, and that Japan's 2 decades of doldrums are the result of Bank of Japan doing hardly anything. Never mind that just about the only thing BOJ is not buying at this point is gold.
Because there is always the "next month"! Hope springs eternal in the algo bots' mind (which went haywire earlier today).
The stock markets in the world are dead, as a price and value discovery mechanism. They have been, particularly since Helicopter Ben and Mighty Hank (Paulson, then-Treasury Secretary) pulled off a stunt in the summer/fall of 2008 to directly and openly intervene with the financial markets.
The only noticeable drop is seen in gold (down nearly 1%), with the reasoning that "since the central bank won't inflate anytime soon, risk is off!" The problem with that of course is that the riskiest and fluffiest class of asset (equities) which has defied the gravity remains unchanged. Risk off? What risk off?
From AP (8/1/2012):
Fed says US economy has slowed, takes no new steps
Federal Reserve says US economy has decelerated in first half of year, takes no new steps
WASHINGTON (AP) —
The Federal Reserve says the economy is losing strength and repeated a pledge to take further steps if the job market doesn't show sustained improvement.
The Fed took no new action after its two-day policy meeting. But it acknowledged that economic activity had slowed over the first half of the year, unemployment remains elevated and consumer spending has weakened.
Policymakers repeated their plan to hold short-term interest rates at record low levels until at least late 2014.
Most economists say the Fed is likely to go further at its September meeting by launching another bond-buying program to drive down long-term interest rates.
The statement was approved on an 11-1 vote. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissented for a fifth time this year.
that announced the ZIRP (zero interest rate policy) at least until the late 2014, with indication that the US central bank may further "accommodate" (QE3) the still-sluggish "recovery" of the US "economy". Probably just in time for the re-election campaign to be mounted in earnest by the incumbent.
Zero Hedge has a comparison of December and January FOMC statements, here.
As Japan could easily tell to Ben "Bernank" Bernanke, once ZIRP, always ZIRP. Or at least 2 decades and counting.
Collateral damage: UK households, with increasing inflation. It's worth it, says the governor, Sir Mervyn.
Last time the Bank of England did the QE - quantitative easing - was in 2009, when it digitally printed £200 billion. This time around, it is expected, according to the Telegraph article linked, to exceed that amount by next year.
From UK's The Telegraph (10/6/2011):
Sir Mervyn King was speaking after the decision by the Bank’s Monetary Policy Committee to put £75billion of newly created money into the economy in a desperate effort to stave off a new credit crisis and a UK recession.
Economists said the Bank’s decision to resume its quantitative easing [QE], or asset purchase programme, showed it was increasingly fearful for the economy, and predicted more such moves ahead.
Sir Mervyn said the Bank had been driven by growing signs of a global economic disaster.
“This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever. We’re having to deal with very unusual circumstances, but to act calmly to this and to do the right thing.”
Announcing its decision, the Bank said that the eurozone debt crisis was creating “severe strains in bank funding markets and financial markets”
The Monetary Policy Committee [MPC] also said that the inflation-driven “squeeze on households’ real incomes” and the Government’s programme of spending cuts will “continue to weigh on domestic spending” for some time to come.
The “deterioration in the outlook” meant more QE was justified, the Bank said.
Financial experts said the committee’s actions would be a “Titanic” disaster for pensioners, savers and workers approaching retirement. Sir Mervyn suggested that was a price worth paying to save the economy from recession.
(The article continues at the link.)
Just like the US Fed counterpart, Sir Mervyn must be thinking the stock market is the real indicator of the economy. Print money, give it to bankers so that they can bid up paper assets like stocks.
QE, or quantitative easing, is supposed to work this way:
Central bank digitally prints money and buy government debts (treasuries, gilt, agency bonds) from the banks (in case of the US, primary dealers including many foreign banks);
Bank lends the money to individuals and businesses, who will then use that money;
Economy grows; if it doesn't grow, just keep doing the step 1 and see what happens. It takes a whole lot of money to achieve the result, they say, without quantifying "a whole lot".
How it worked in the US:
Central bank digitally prints money and buy government debts (treasuries, agency, agency MBS);
Banks get the cash, park it at the central bank receiving a decent interest; the portion they do not park at the central bank, they use it to bid up the so-called "risky assets" - mostly paper assets like stocks and futures, or bonds that they think the central bank will buy next;
Banks don't lend to individuals and businesses who could use cheap money, but only lend to credit-worthy people and big businesses who don't need or want money;
Stock market levitates on low volume, and the economy stagnates and shrinks.
Go back to step 1, repeat ad infinitum.
And the US stock market goes all over the place. Dow was -60, but a mere second ago it had been -90. Then it was -60, and now +58. I believe the order is out to the traders and algo bots: "Don't you dare let the market end up in red." Occasionally my stock screen that has companies in different industries lights up all at the same time in green, except for those inverse ETFs, which indicates to me that they are buying up the indices (or futures on it or options on the futures or options on double- and triple-long ETFs on indices...).
Three Fed FOMC members (Richard Fisher, president of the Dallas Fed, Charles Plosser of Philadelphia and Narayana Kocherlakota of the Minneapolis Fed) dissented, who wanted to keep the rate low for "an extended period" without mentioning the time frame.
From Bloomberg (8/9/2011):
The Federal Reserve pledged for the first time to keep its benchmark interest rate
at a record low at least through mid-2013 in a bid to revive the flagging recovery after a worldwide stock rout.
The Federal Open Market Committee discussed a range of policy tools to bolster the economy and said it is “prepared to employ these tools as appropriate,” it said in a statement today in Washington. Three members of the FOMC dissented, preferring to maintain the pledge to keep rates low for an “extended period.”
The decision represents the biggest effort since November to spark the U.S. economy and revive confidence while stopping short of initiating a third round of large-scale asset purchases. Chairman Ben S. Bernanke and his colleagues acted after reports showed the economy was slowing and an unprecedented downgrade to the U.S. credit rating sent stocks tumbling from Sydney to New York.
.....
The vote was 7-3. Richard Fisher, president of the Dallas Fed, Charles Plosser of Philadelphia and Narayana Kocherlakota of the Minneapolis Fed all dissented. It was the first time under Bernanke that three FOMC members dissented.
(The article continues.)
Hong Kong's Hang Seng Index currently down 788 points (it was worse), or down almost 3.9% (from Yahoo Finance):
Shanghai Composite down 4%
Singapore Strait Times Index down 4.2%
Jakarta down 4.3%
Seoul down 4%
BSE 2.5%
Relatively modest loss ("relative" is the keyword) are:
Australia's All Ordinary down 1.8%
Japan's Nikkei down 2.1%
Gold (spot) hit the record high of $1,703.50 (from kitco.com).
US market futures are down, but off the low (from bloomberg.com):
Dow futures down 250
S&P futures down 27
Nasdaq futures down 46
In Europe, FTSE futures down 99. There was a report of riots in London.
While I was busy reporting the end of the world as the Japanese knew it, the world as the rest of the world had known ever since October 2008 was slowly getting unhinged, and now it is visibly, acceleratingly, irreversibly unhinged.
The US Federal Reserve will hold the FOMC meeting on Tuesday and Wednesday, and some analysts think the Fed has no choice but declare QE3 (and 4, 5, 6, .....n), mostly because there's not much else they could do. Why they should do anything is another question, but the justification for carrying out QE2 (from November 2010 to June 2011) was to give the US government "a break" so that the government has time to shape up and do something about the economy that was decelerating. Of course nothing happened.
The PPT and the NY Fed have a work cut out for them before the US market opens.
(These days, OT - other topic - means anything other than Fukushima... But this blog WAS once a financial blog..)
Gold jumped to a record high near $1,590 as the Federal Reserve chairman Ben "Black Hawk Helicopter" Bernanke indicated a further stimulus (digital printing of the Federal Reserve notes, fiat money) to create more inflation. (Remember, to him and the like-minded Fed economists who despise anyone without a PhD in (Keynesian) economics, inflation is growth, and a rising stock market is the economy.)
From Reuters (7/13/2011):
(Reuters) - Gold surged to a record near $1,590 an ounce on Wednesday as the possibility of more Federal Reserve stimulus coupled with Europe's deepening debt crisis fueled bullion's longest winning streak in five years.
Bullion's gains accelerated after Federal Reserve Chairman Ben Bernanke said the Fed is ready to ease monetary policy further if economic growth and inflation slow much more. Silver rallied nearly 6 percent, moving in tandem with commodities, U.S. stock markets and risk assets.
....Gold option volatility rose sharply on Wednesday, as bullion investors bet that underlying future contract prices could extend a record rally on signs of more Federal Reserve stimulus coupled with Europe's worsening debt crisis.
COMEX gold options floor trader Jonathan Jossen said one investor sold a huge position in $1,600 December call options and then bought twice as much in $1,750 December calls. Heavy call purchases suggest buyers expect underlying gold futures to rise further.
That option strategy is called "call backspread". Someone's expecting a very big and volatile move and wants to profit very handsomely.
In the meantime, the Fed chairman was put in a very uncomfortable position trying to deny gold is money but say totally fiat Treasury bills are financial assets.
From Forbes blog (Agustino Fontevecchia, 7/13/2011):
Chairman Ben Bernanke faced-off with Fed-hating Representative Ron Paul during his monetary policy report to Congress on Wednesday. The head of the Fed was forced to respond to accusations of enriching already rich corporations while failing to help Main Street, while he was pushed on his views on gold. When asked whether gold is money, Bernanke flatly responded “No.”
...As Bernanke began to sermon Rep. Paul on the history of the Fed (“we are here to provide liquidity [in abnormal situations],” the Chairman said), he was interrupted.
“When you wake up in the morning, do you think about the price of gold,” Rep. Paul asked. After pausing for a second, Bernanke responded, clearly uncomfortable. that he paid much attention to the price of gold, only to be interrupted once again.
“Gold’s at about $1,580 [an ounce] this morning, what do you think of the price of gold?” asked Rep. Paul. A stern-faced Bernanke responded people bought it for protection and was once again cut-off, with Ron Paul once again on the offensive.
“Is gold money?” he asked. Clearly bothered, Bernanke told the representative, “No. It’s a precious metal.”
After Paul interrupted him to note the long history of gold being used as money, Bernanke continued,”It’s an asset. Would you say Treasury bills are money? I don’t think they’re money either but they’re a financial asset.”
...The interesting exchange served as one of the few times Bernanke has been publicly pushed off his comfort zone by an elected official. Rep. Ron Paul brought up the issues that he’s famous for, namely, a sort of allegiance between the Fed and the nation’s most powerful institutions, the illusion of fiat money, and the gold standard. Bernanke, angered and bothered, had no option but to respond.
and gets beaten down to $1,495 or so. Next stop $1,550 or so, reverse head and shoulders on a longer-dated chart (6-month or one-year daily chart).
Thank you, Ben, for stoking the inflation in things we need, and the deflation in things we stored the wealth (like houses).
Congrats if you didn't listen to the MSM pundits proclaiming the imminent collapse of gold (and silver) prices.
So?
I'd suggest he use the very first one to announce his resignation, the second to announce self-destruction of the Federal Reserve before the Supreme Court deems he and his Federal Reserve are "domestic terrorists" for counterfeiting.
From AP (3/24/2011):
Let's see.. The Federal Reserve hired a lobbyist who lobbied for Enron. Who does it have for PR spinmeister?WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke will begin holding news conferences four times a year to explain the Federal Reserve's interest rate decisions and its views on the economy.
The decision announced Thursday comes after the Fed held an unusual videoconference last fall in large part to discuss the need to improve its communications strategy. A Fed committee also had been studying whether to begin holding periodic news conferences.
Bernanke's first news conference will take place after the Fed's April 27 meeting. That will augment the current communications strategy: a brief statement released after each of the Fed's eight policy-making meetings with no officials available to answer questions.
Desired Skills & ExperienceWhat a deal! You don't even need a PhD in economics!
- A minimum of 10 years of experience in a high-profile role involving transformative, communications management
- Demonstrated experience serving as a senior spokesperson in time-sensitive, critical situations
- Established contacts and relationships in the media/press community
- Deep knowledge of the financial services industry including the ability to write clear, concise communications on complex finance, market, and regulatory issues would be an advantage
- Familiarity with the Federal Reserve’s activities and the impact on key stakeholders at the local, regional, and national levels
- Proven ability to provide strategic, innovative leadership; extensive experience planning and executing broad communications efforts
- Bachelor’s degree or higher in public relations, communications, business, economics, political science, or related field
- Social media knowledge/experience a plus
- Must thrive in fast-paced, rapid-turnaround environment and be able to successfully handle multiple tasks on complex topics
(UPDATE 1:25PM EST) Here we go. Pump is on, for now. Dow recovers to -160.
--------------------------------------------------
After Nikkei dropped more than 1,000 points overnight, the US stock market is sustaining a significant but not so horrendous loss. Dow Jones Industrial is currently down 183; right after the opening it was down almost 300 points. The PPT and dip buyers to the rescue!
Finally a flight to safety and liquidity seem to have arrived, but not necessarily where you may think.
A quick scan of my stock screen shows ETFs on US Treasuries like TLT is getting a bid. TLT is up $1 or 1.17%, for the day so far.
There's another notable stock that has jumped: Netflix, up almost $15 or 7.44%. Goldman Sachs upgraded the stock to "Buy" today, and that seems to be enough for momo investors.
US dollar is FLAT.
Oh by the way, did you know that Ben Bernank and the gang are meeting today? The FOMC meeting results will be out any minute now. I don't think the so-called Fed hawks want to say no to Ben's super accommodating policy at this particular point in time. My guess is QE for eternity. I could be wrong. We'll see in about 3 minutes.
When I saw the headline at CNBC earlier, I couldn't believe my eyes.
Here's a more sarcastic headline from Zero Hedge (3/10/2011):
AIG Goes For Re-Broke, Offers To Repurchase Toxic Subprime Portfolio From Fed For $15.7 BillionWhen a bankrupt zombie company offers to purchase from the Fed the very instruments that put it in bankruptcy in the first place, and which the Fed was forced to put on US taxpayers in order to perpetuate the status quo farce, you know the words Banana republic don't even start to begin to express the describe the lunacy we live in.
From Reuters:
- Submits offer to buy all of rmbs owned by Maiden lane II for $15.7 billion in cash
- If accepted, this offer will substantially reduce the amount of outstanding government assistance to AIG
- If accepted, offer will guarantee frbny earns a profit on its interest in Maiden lane II
- Says total outstanding assistance from U.S. government will be reduced by about $13 billion to total of about $26 billion
- Says conditions that necessitated Maiden lane II have been resolved
- Aig's outstanding assistance from the U.S. government totals approximately $39 billion
- Says is offering to purchase all of the approximately 800 rmbs owned by Maiden lane II in a single transaction
- Anticipates more than 98 percent of Maiden lane II securities will be classified as naic 1 securities by regulators
- Says does not expect the transaction to have a material effect on its ratings
- Says set aside the cash necessary to pay the purchase price in full
Incidentally, $15.7 billion is below the value the Fed has Maiden Lane II marked at as of today, which is $15.9 billion. We are confident that this will not prevent the Fed from doing everything in its power to bend over to the nationalized insurer's demands.
Read the whole article at the link, which also reminds us why Maiden Lane II was created to begin with.
What's really hilarious about it is that AIG believes 98% of the toxic crap will be classified as "naic 1" securities. Here's the definition of "naic 1" according to NAIC (National Association of Insurance Commissioners):
NAIC `1' - Assigned to obligations exhibiting the highest quality. Credit risk is at its lowest and the issuer's credit profile is stable.
Now let's laugh out loud, rolling on the floor laughing our a-- off! LOLOLOLOLOL....
It is surreal. AIG is 79.9% owned by the US government, by the way.
Move over "Extend and Pretend"; we're about to past that merry stage, says Kliguy38, fellow ex-SKFer, on his post yesterday. He says we're about to enter a new stage of....
"Delay and Pray" (3/9/2011) [Emphasis is mine]:
Well, the slamming of commodities seems to have already started. Precious metals, base metals, oil are all down significantly, partly due to US dollar's sudden strength on bad economic numbers (unemployment up, trade deficit up). Commercial net long positions of US dollar futures have been increasing since February 2011 (speculators flipped to net long in October 2010, and after a jump flipped briefly to net short in November 2010 - see this chart from Breakpoint Trades guys).We have Extend and Pretend....but we are about to enter into another phase of the "Bernank Experiment"...Delay and Pray. This will be another marvel of financial engineering that will amaze you. It will occur when QE 2 ends. There are warning shots from several Fed Govenors that have indicated there will be an abrupt cessation of QE. If this occurs then the hope is the economy will have enough momentum by June to begin to carry itself. That employment by then will be growing at over 250K month over month. Of course longer term rates will nose higher slightly but this will hardly be felt by the housing industry and consumer. Now who will be buying those bonds......you know....ANYTHING over a year or two in maturity. I know I just can't wait with all of that money sloshing around that we've shoved into the system. Just waiting to wash back on top of us like a giant tsunami.
Are you starting to get the picture? We will still have a damaged and fragile economy in June and withdrawing QE is going to have very predictable consequences and Ben knows it. So the question posed is really how is he going to implement QE 3 in the face of an increasingly "tough" Republican congress led by the stalwart fiscal money manager John Boehner. How could anyone face odds like this and expect to be successful with getting a money printing scheme like QE 3 through?
Let me think....I believe I shall go to my Rolodex and look under "mass sucker play" and WALA! I found it........FEAR!....It says very clearly on my card that the sheep shall line up for anything if we bring in this little product. So there you have it. It is a self fulfilling game here. Stop QE and guess what is going to happen. Of course you will have some predict this economy will fly on its own as we draw near but it cannot and will not. If you also thing that the barometer of the economy "the market" is going to drop off a cliff then THINK AGAIN. They cannot let it. So you will see an engineered market drop just like last years pull back, but this one will need to have a little more volatility and FEAR in it so expect some better fireworks. NOT to mention they need to knock down some commodity prices with the temporary "withdrawal of liquidity". Hehehehe. Of course bonds will magically show money flowing into them as the dollar strengthens and gold and especially silver take hits. A caveate here....gold may not actually take much of a hit though so your core will survive. AGAIN...this will be managed as they let the sheep baaa for help. Ben will calmly and confidently reinstitue QE 3 and proclaim that just as QE 2 was successful so will 3. Saaaaved!!!!!
We can return to American Idol and I can find out who the next Idol is. Just remember little devil children.......nothing is for free.
So I predict you get to play in the Casino awhile longer just don't sit at the table too long. I have given you the plan. I cannot promise you they will keep the market up all the way through May....but then who knows.
This is the nastiest market you will ever trade and everything you hear on CNBS is intended to obfuscate and move you in a desired direction. Just learn how to interpret it. BTW gold will see 1650 before June and silver will see over 40.
Join Amazon Prime 
Shop Amazon Warehouse Deals - Deep Discounts on Open-box and Used Electronics
![[Most Recent Quotes from www.kitco.com]](http://web.archive.org/web/20150418181541im_/http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
Tokyo Time
