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

[goadam1]

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

sickening... how these guys sleep at night...

I've been thinking about this in terms of how it effects my father and who he is demographically. He is 70. A little older than the retiring boomers. He is retired. He owns a house and a condo in Vegas. They are both underwater. Not too pretty. But lately he has been pulling money out of his thrift savings plan and spending it because it has grown with the market. He was able to get out of the house in a short sale because the market imropved enough and the bank was happy.

So I think there are a lot of people like him who benefit from the fed buying mortgage securities as a money pump into a corpse of an economy.

[Mn_Mark]

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

sickening... how these guys sleep at night...

The problem is not businessmen and speculators and investors taking advantage of stupid goverment/Fed policies that make vast amounts of money available at below-market rates. The problem is that the public wants a government that promises it will fix everything, that will smooth the business cycle, eliminate unemployment, and guarantee never-ending prosperity. And the poor understanding of economics (and human nature) that is taught to the people who grow up to be Fed chairmen and Senate banking committee chairs, etc, etc. It is ridiculous to expect investors not to act in their own self-interest and take the free money that the government is handing out to them. The problem is not the takers. It's the handers-out and the ignorance of the population that put the handers-out in power. Blaming the businessment and grumbling about "how do they sleep at night" completely misses the point.

[sishya]

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

ej tweeted qe3 lite...

It appreciate the humility for EJ to accept wrong so soon, in short term prediction about QE3,
But metalman you are wrong - this is not QElite but open ended QE^n.

Jim Rickards has been spot on this even though his dates slightly shifted by 2 months.
FOFOA was also right that US Govt will do QE, so long as Budget deficit > trade deficit. The reasoning being trade deficit is compensated by Foreigners buying UST or USDollar going down, but when budget deficit > trade deficit and growing, it will have to print via QE^n - this is a real bazooka. I fear Gold will run up even more than $3000/oz soon.

[goadam1]

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

I'm going to put on my tinfoil hat and get out the spitball gun.

A. Recent events in the middle east have forced Obama to soon take military action. A forewarned fed is front running the "downside" of this action.

B. European bankers have warned of a coming bank failure or an inability to save the eu union as is. The fed is front running.

C. A coup has happened or near happening in china. Those who are about to take power are unfriendly to the dollar position and will dump treasury bills regardless of money mad. The fed is trying to stimulate global demand in an attempt for stability. Also creating money at low rates creates liquidity now in the event of a bond crisis.

D. Bernake hates Romney and told him to kiss his t~bills.

[vt]

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

I had a bad feeling when CNBC started to doubt that the Fed would act in the 9 AM segment. I should have warned EJ and FRED

[askmes]

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

As expected ZH is all over this. I find it interesting from the NYFed FAQ on what they will be purchasing:

What types of agency MBS will the Desk purchase?
Agency MBS purchases will likely be concentrated in newly-issued agency MBS in the To-Be-Announced (TBA) market because these securities have greater liquidity and are closely tied to primary mortgage rates. The Desk may purchase other agency MBS if market conditions warrant. Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for purchase. These eligible assets include, but are not limited to, 30-year and 15-year securities of these issuers. Ineligible assets include CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents.

For those knowledgeable of that market, how big is the monthly "Newly Issued MBS of 30-year and 15-year" for residential anymore or is that obvious that housing is just a Red Herring to print?

Another interesting piece from ZH on a Forecast of the Fed's Balance Sheet by the end of next year. It should ONLY hit $4 Trillion or an increase of $1.17 Trillion according to their math; not sure that qualifies as QE 3 lite-maybe QE 3 medium. I'll be interested (or speculatively hopeful) to see if the market sells off a tad as it digests this.

And my favorite:

[ProdigyofZen]

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

Speaking of Bernanke, from ZH.

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:

QUESTION: My question is -- I want to go back to the transmission mechanism, because speaking to people on the sidelines of the Jackson Hole conference, that seemed to be the concern about the remarks that you made, is that they could clearly see the effect on rates and they could see the effect on the stock market, but they couldn't see how that had helped the economy.

So I think there's a fear that over time this has been a policy that's helping Wall Street, but not doing that much for Main Street. So could you describe in some detail, how does it really different -- differ from trickle-down economics, where you just pump money into the banks and hope that they lend?

BERNANKE: Well, we are -- this is a Main Street policy, because what we're about here is trying to get jobs going. We're trying to create more employment. We're trying to meet our maximum employment mandate, so that's the objective. Our tools involve -- I mean, the tools we have involve affecting financial asset prices, and that's -- those are the tools of monetary policy.

There are a number of different channels -- mortgage rates, I mentioned other interest rates, corporate bond rates, but also the prices of various assets, like, for example, the prices of homes. To the extent that home prices begin to rise, consumers will feel wealthier, they'll feel more -- more disposed to spend. If house prices are rising, people may be more willing to buy homes because they think that they'll, you know, make a better return on that purchase. So house prices is one vehicle.

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.

And there you have it.

[radon]

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.

It is almost as if they read EJ's critique of the housing market and decided to stomp on the gas. Have Federal Reserve spies infiltrated Itulip headquarters?

Pity they didn't have time to read the part about crashing the bond market..........

[metalman]

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

Thanks for the link. Stand corrected.
Pretty good quote nonetheless ... even if Hitler, Stalin and Pol Pot all said it.

The asset inflation (RE) inspired by cheap and free bank credit followed by bursting bubble and debt deflation in which foreclosed properties are now disposed in 1000+ unit chunks to investors who have direct or indirect access to Fed money is exemplary of the quote.

sickening... how these guys sleep at night...

[vinoveri]

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

it is fake... but he did say banks are more dangerous than standing armies.

Thanks for the link. Stand corrected.
Pretty good quote nonetheless ... even if Hitler, Stalin and Pol Pot all said it.

The asset inflation (RE) inspired by cheap and free bank credit followed by bursting bubble and debt deflation in which foreclosed properties are now disposed in 1000+ unit chunks to investors who have direct or indirect access to Fed money is exemplary of the quote.

[metalman]

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

I believe that is a fake quote. The word deflation didn't even exist until the 1920's.

it is fake... but he did say banks are more dangerous than standing armies.

[wayiwalk]

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

thanks FRED.

Btw, the link to part II, at the very bottom of EJ's article, is not enabled.

+1

Is the second part posted yet?

(Errr, never mind, I just noted the message at the bottom of the post that part II will appear later and subscribers will be given a heads up.....)

[davidstvz]

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

Jefferson's quote is particularly apt to describe the situation:
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."

I believe that is a fake quote. The word deflation didn't even exist until the 1920's.

[BK]

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

The commentary by Mr Bernanke was most enlightening. During the Q&A session you can sense the Bernanke FIRMLY believes that the Fed Actions today will cause Americans 401K investments to increase, their home values to increase, and this euphoria will lead to more shopping by Americans - which will naturally lead to higher employment. Wow!

Ben is so sure of himself and his ability to pull back liquidity when the time is right......... scary.

[metalman]

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

You can argue that this was a "small" coordinated move. China is doing more stimulus, the ECB is conditionally buying debt, and FED is doing a smaller, openended QE3. It seems like they've dipped their toes back in. Nobody is "all-in" here, because nobody wants to be, but it does seem coordinated.

I do agree with the overall thesis.

ej tweeted qe3 lite...