Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

[shiny!]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

A simple question from someone who can't do math:

If the Fed is determined to print, why doesn't it simply give the money directly to The People? Or to small businesses? That would directly stimulate spending and employment, I would think. Not that I advocate this, but at least we'd get some use out of the money we'll all be on the hook for.

[Slimprofits]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

A simple question from someone who can't do math:

If the Fed is determined to print, why doesn't it simply give the money directly to The People? Or to small businesses? That would directly stimulate spending and employment, I would think. Not that I advocate this, but at least we'd get some use out of the money we'll all be on the hook for.

How could the Fed do that? That sounds like something the FedGov would have to do.

[aaron]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

A simple question from someone who can't do math:

If the Fed is determined to print, why doesn't it simply give the money directly to The People? Or to small businesses? That would directly stimulate spending and employment, I would think. Not that I advocate this, but at least we'd get some use out of the money we'll all be on the hook for.

I think the best way would be for the FED to buy (in conjunction with the treasury/Obama admin) all student loan debt and tear it up. That would be a great stimulus to the economy; about a trillion dollars. It would be fair to the students... they did not build this great FIRE economy that made college so expensive.

[shiny!]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

I think the best way would be for the FED to buy (in conjunction with the treasury/Obama admin) all student loan debt and tear it up. That would be a great stimulus to the economy; about a trillion dollars. It would be fair to the students... they did not build this great FIRE economy that made college so expensive.

Brilliant.

[gwynedd1]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

A simple question from someone who can't do math:

If the Fed is determined to print, why doesn't it simply give the money directly to The People? Or to small businesses? That would directly stimulate spending and employment, I would think. Not that I advocate this, but at least we'd get some use out of the money we'll all be on the hook for.

Most of the time only those not educated in economics can see these simple truths. It would fall under fiscal policy however. Did they ever try using this decision maker army? This is exactly what they should do but it should also be in conjunction with stopping the bad things we do. We should tax shift on petroleum to discourage its use for example. In other words, give people credit but force it away from conspicuous consumption.

[jk]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

When central banks on net -- some are buying while others are selling -- increase gold reserves the number of units needed to buy an ounce of gold increases for all currencies and the price of gold rises in all currencies. As you’d expect, since the purchase results in a change in the gold supply the price remains at the new higher level, with some price changes at the margin, on an all-currencies basis until either the next net positive gold purchase rumor causes a further rise or the next net negative central bank gold transactions occur -- not any time soon. Since 2009 when central banks became net buyers, the gold price has made many such step function jumps in all currencies. A Fed policy hope driven price spike, on the other hand, doesn’t tend to hold.

but incr dollar supply – not just reduced gold supply- works too to raise gold prices

the Fed has no intention of unilateral action unless there is a major crisis to provide political cover, not so close to elections, and not with so little dry powder left to cope with a new crisis.

the fed STILL HAS DRY POWDER.

In the famous “making sure ‘it’ doesn’t happen here” paper, bernanke lists the following options:
1. Buy treasury paper [done],
2. Buy agency paper [did some, now doing more],
3. Lend indirectly through the banks to support purchases of “a wide range of private assets,“ “including , among others, corporate bonds, commercial paper, bank loans and mortgages deemed eligible as collateral.”
4. “Buy foreign government debt” [! Might help out draghi here!] he notes that this would in effect be direct intervention in the exchange rate of the dollar, i.e. “the sure way.”

And although there were certain problems in transmission—for example, the housing market has not been as responsive as it’s been in some times in the past—we do think that they were both effective in providing support for the economy, and in particular, so called QE2 ended what looked to be an incipient deflation problem when we first introduced it.

housing is the prime DIRECT transmission mechanism to the real economy, while financial assets are indirect. This is because interest rates directly affect affordability of mortgages, and so will impact house prices, housing turnover and home construction. Also note this is targeted at tangible, ans somewhat less at financial, assets. Also buying mbs is less regressive if it stimulates housing. Poz posted a quote from bernanke’s press conference in which he speaks of housing prices as part of the transmission mechanism.

We prefer the index built of actual home sale transactions. It's more reliable even if it doesn't supply fodder for the endless debate about the bottom of the housing market. As you can see there are no bounces in the transactions data but a continuous decline.

if the current market is only starter homes, the actual sales prices will decline because of changes in the mix of transactions. That tells us SOMETHING about what’s going on in the housing market. Case-shiller, iirc, is based on “same store” sales.

QE can reflate financial assets but not home prices. For that we need declining unemployment and rising incomes first and a functioning mortgage finance market second.

by lowering mortgage rates still further, the fed does what it can to support home prices. However, because of tight credit conditions, home “owners” trapped by underwater mortgages, large shadow inventory of homes yet-to-be foreclosed, and an uncertain job market, we can’t expect the housing market to pick up. As I’ve posted elsewhere, the main beneficiaries will be well-off home owners who can benefit from another round of re-fi’s. this is probably a somewhat less regressive wealth effect than pumping up the stock market.




Are Treasuries a bubble? I think we need to distinguish a greed bubble versus a fear bubble. Treasuries in part reflect artificial demand from the fed, but also the fear trade while the dollar is still seen as a safe haven. Gold has yet to experience its real greed bubble, but that will be followed by another “stage” to the rocket, a fear bubble.


Bond panic? Why can’t the fed tiptoe out of very low administered rates by continuing to administer them, but pushing them gradually higher, as they did after wwii? I suppose they are constrained by the dollar. In the scenario in which the market would price rates much higher than the fed allows, the dollar will be dropping sharply. Conclusion: you can trade off a bond panic for a dollar panic.




Coordinated easing? China and draghi’s printing promise is the current coordinated set.


Most important, again: The fed is NOT “out of bullets.”

ps. under current conditions, i think printing is a good idea, relative to the alternative. i blame the fed for its part in creating the current conditions, however.

[terrygor]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

It not only appears to be QE, but QE with Bernanke's finger held down on the money printing button as he's warned he'll keep printing till unemployment improves significantly. Draghi also went " unlimited " and I suspect the Fed and ECB co-ordinated their strategies.

[vinoveri]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

....and rent back to poor slobs
http://www.businessweek.com/news/201...rcent-of-value



http://online.wsj.com/article/SB1000...756462974.html

Check out this from Marc Faber where he points out the exact same thing (skip to 7:10 to hear this specifically)

[Southernguy]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

How strange: QE on course but interest on 10 year Tīs up a lot. I donīt understand.

[ProdigyofZen]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

EJ writes in:

We haven't quite decided yet. We are tending toward the assessment that I was wrong.

The stock market and global currency markets got exactly what they expected but the gold market got more.

If we can call this QE3 then the post-mortem on the prediction will be enlightening. I'll defer to the opinion of our members.

Again it appears I have erred on the side of optimism. It is quite remarkable just how hard the Fed has to paddle just to stay in one place.

This accelerates our time table for a U.S. bond market crisis.

Inflation expectations suggest 5% inflation is in the cards.....

http://www.zerohedge.com/news/inflat...nflation-cards

How are they going to raise rates if inflation rises to 5% within the next 3 to 6 months?

[AlanMB]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

My opinion is that 10 year UST yields are up because the bond market is pricing in higher NGDP growth. This is one of the outcomes Bernanke hoped for with yesterday's announcement, and he has achieved it.

[gvozden]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

A simple question from someone who can't do math:

If the Fed is determined to print, why doesn't it simply give the money directly to The People? Or to small businesses? That would directly stimulate spending and employment, I would think. Not that I advocate this, but at least we'd get some use out of the money we'll all be on the hook for.

The Fed said it will buy $40 billion of mortgages per month in an attempt to desperately foster a recovery in the real estate market. The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve.
Of course, this will also fail if they are buying mortgages from the bankers. Bankers will use this as a means to dump what they have been trying to get rid of all along, while it is not necessarily guaranteed to stimulate employment or housing prices. FED just created a dumping ground and golden parachutes for the bankers.

FED will never do anything to help 99% they are only concerned about 1%. It would be interesting to see when that will change if ever. As EJ has noted many times the only people that benefit from current policies are the connected ones.

[Chris Coles]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

The Fed said it will buy $40 billion of mortgages per month in an attempt to desperately foster a recovery in the real estate market. The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve.

In the recent past we were told that China was a significant purchaser of Fanny and Freddie MBS paper; is it at all possible that China has made this market uncertain in a way that might spook the Fed?

[Chris Coles]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

A simple question from someone who can't do math:

If the Fed is determined to print, why doesn't it simply give the money directly to The People? Or to small businesses? That would directly stimulate spending and employment, I would think. Not that I advocate this, but at least we'd get some use out of the money we'll all be on the hook for.

There is always the proposal I keep on plugging; to take $2.2 Trillion of dodgy paper, (originally proposed as Ģ450 billion to create 6 million new jobs here in the UK), convert the dodgy paper into vanishing bonds and then use them as free enterprise equity capital to directly create 30 million new jobs right down at the grass roots. The money thus gets removed from the wrong end of the FIRE systems bank balances and is re-deposited back into the Main Street banks as new business banking deposits. http://www.chriscoles.com/page4a.html

[FRED]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

How strange: QE on course but interest on 10 year Tīs up a lot. I donīt understand.

EJ writes in:

It was QE technically but not the QE the markets were expecting.

This QE3 forecast was typical: "RBS looks for the Fed to announce open-ended asset buys, but to commit to buying at least $600 billion in Treasurys and MBS between October and March, and to announce it will keep buying both beyond March."

Instead it was limited to MBS only and was only $230 billion over six months rather than $600 billion with no additional Treasury bond purchases.

I'm calling it QE Lite.

By failing to commit to the full QE3 that markets expected, bonds sold off.

That did not happen after QE1 and QE2.

QE Lite was aimed at the housing market and at currency depreciation.

QE Lite succeeded in weakening the USD. That's why gold popped.

A bigger bone for Bill Gross than I expected, but not full-on QE, either.