The T-Report: Fed Hires Hunt Brothers [tfmkts]

When is a market not a market?

A market is not a market once it has been cornered.

There is growing concern about where rates are headed. That is normal. There is growing concern with the seemingly bizarre trading of the longer end of the curve. That concern is normal too. What isn’t normal is the nature of the bond market today and that goes a long way to explaining what we are currently seeing.

Let’s focus on the 10 to 20 year part of the curve for example. There will be no new issuance in that part of the curve if we count new 10 year bonds as part of the 5 to 10 year bucket. All we get is some small amount of roll down which doesn’t change the argument much.

Of the $221 billion of bonds in that 10 to 20 year bucket, the Fed already owns $93 billion, or 42%. Since the Fed is limited to no more than 70% of any one issue, they could buy up to their max position of $155 billion in under 2 months of QE. If the Fed decided they wanted to push aggressively on the 10 to 20 year part of the curve, they could own 70% of it by the end of March. Is there any reason to assume the Fed wouldn’t do this? Seriously, think about it. This Fed is aggressively trying to manipulate rates both across the curve and across products. They may well do things we never dreamed possible if it suits their policy agenda.

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Ponzi Finance – Ponzi Wealth [tfmetalsreport]

Offically released on Jan 1, 2013 the Boston Consulting Group’s “shock report” by Daniel Stelter and his colleagus on what 3 decades of Ponzi finance has done to real wealth in the developed-OECD group of countries has been available since mid-December but not widely commented. The title says it all: “Ending the Era of Ponzi Finance”

 

To be sure, equity and commodity markets kicked off Year 2013 with a traditional refusal and rejection of the real world – the financial markets need to drag in more hopefuls, more stupids and more greedies right up to the wire. That is their role and mission and has nothing to do with the economy, it is only a midsize but permanent Ponzi scheme. The BCG report describes what has become, in less than 30 years, a giant Ponzi scheme: the entire economic system of the developed world. It now has literally no choice but change. Real change has to come, not Ponzi-style loose change.


The BCG report details why the biggest threat of all has nothing to do with the world’s balance sheet, but its income statement. It is now crushingly evident that we, in the debtor countries of the formerly wealthy world, do not have enough cash flow to cover either the principal or the interest. Our only hope is that the asset used to try paying down the ever-growing debt bubble – this “asset” is the entire economic system – can grow and will grow faster than the total debt financing cost.

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Bill Gross: Fed Claims To Own Billions in Fort Knox Gold; “With Nothing In The Vault To Back It Up—Amazing!” [bullmarketthinking]

Bill Gross, founder of Pimco, the world’s largest bond fund with over$1.92 trillion under management, penned a new piece entitled, “Money for Nothin’ Writing Checks for Free.” In his editorial, he called attention to the near $10 trillion explosion in global central bank money issuance since 2006, and the impending doom historically associated with a “money for nothing” monetary policy.

His conclusion: The whole charade will soon hit a brick wall. 

Of particular interest were his comments on gold, commodities, and the“Fort Knox Fairy Tale…ie. Fed gold certificate claims on Fort Knox bullion holdings which may or may not actually exist.

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Time To IPO The Fed? [Zerohedge]

Forget Facebook; Bob Pisani would be cock-a-hoop. Imagine the euphoria and excitement from a Fed IPO? What better way for the rich to get even richer than to buy shares in the world’s most profitable hedge fund. And for those saying this is preposterous and that central banks should never trade publicly we bring you exhibit A: The Bank of Japan

 

 

We do note that since Abe’s re-election, the BoJ’s share price has risen a magnificent 37% (still think a Fed IPO is bad idea? – just think what fun the algos would have with it?)

 

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How A Handful Of Unsupervised MIT Economists Run The World [Zerohedge]

Ever get the feeling that the entire global economy is one big experiment conducted by several former Keynesian economists from MIT with a bent for central planning, who sit down in conspiratorial dark rooms in tiny Swiss cities and bet it all on green until they double down so much nobody even pays attention to the game? No? You should. Jon Hilsenrath, of all people,explains why.

From the WSJ:

Every two months, more than a dozen bankers meet here on Sunday evenings to talk and dine on the 18th floor of a cylindrical building looking out on the Rhine.

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No Limits [aucontrarian]

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and “The Coming Collapse of the Municipal Bond Market” (Aucontrarian.com, 2009)

            The European Central Bank’s latest maneuvers jettison limits to the expansion of its balance sheet. The ECB’s manner of improvisation is reminiscent of Federal Reserve Chairman Ben S. Bernanke’s dismissal of legal restrictions in 2008, when Bernanke talked his way around the law before pliant, ignorant, and frightened politicians.
European Central Bank President Mario Draghi’s abandonment of monetary restrictions would be, in due time, an incitement to unlimited price inflation. This is also true for the United States. However, practical matters (discussed below) will restrict this central bankers’ nirvana. After watching how swiftly opposition to the ECB’s latest decrees melted away, Ben Bernanke may feel reassurance of his freedom to roam. However, he too can only go so far. Maybe he’ll be stoned to death.
So, buy gold, silver, and gold and silver stocks.
It was not just Alan Greenspan. Now, central bankers the world round draw greater devotion than Britney Spears (who, according to Forbes magazine’s 2012 rating, is the world’s sixth most powerful celebrity, demonstrating once again that no matter how egregiously these mystical abstractions behave, they can do no wrong). On September 6, 2012, “Mario Draghi’s press conference was covered as if it were a soccer match. We are told that all across Europe shop stalls and bistros had TVs showing his presentation,” reported Art Cashin at UBS. (Cashin’s Comments, September 7, 2012). Comparisons with the waning of the middle ages are apt.

The Punchline In His Own Words: Bernanke Advocates Blowing Asset Bubbles As The Antidote To Depression [Zerohedge]

If there was one absolutely must see moment exposing everything that is broken with the Fed’s brand new policy of QE-nfinity, it was this exchange between Reuters’ Pedro da Costa and the Chairman. It explains, beyond a reasonable doubt, that the only goal the Fed now has is to reflate the stock market bubble to previously unseen levels, to focus on generating jobs although not for everyone but only for Wall Street, consequences be damned, because by the time the consequences arrive, and they will (just recall that subprime is contained) they will be some other Fed chairman’s problem. Bernake’s term mercifully runs out in January 2014.

From the official transcript:

[…]

Stock prices – many people own stocks directly or indirectly. The issue here is whether or not improving asset prices generally will make people more willing to spend.

One of the main concerns that firms have is there’s not enough demand. There are not enough people coming and demanding their products. And if people feel that their financial situation is better because their 401(k) looks better or for whatever reason — their house is worth more — they’re more willing to go out and spend, and that’s going to provide the demand that firms need in order to be willing  to hire and to invest.

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