As we said, the Fed tightened as expected and indicated that there would be at least another move this year. Once again, Billy the Dud felt it necessary to comment on things with a bright, rosy outlook for the economy. The move and Billy bumped the two year up sharply but a funny thing happened; since the move and the jabbering, the 10 year actually declined to 2.18 % yesterday giving us the flattest yield curve in the past....well, as long as I can remember. What happened?
The Dud has one answer. Demand. Everybody wants U.S. Debt. Makes sense except I thought that everybody wants yield; Argentina...yeah, ARGENTINA...today announced plans for a $2.3 billion ONE HUNDRED YEAR private placement with a coupon in the area of 7.8 %. Maybe just crazy people want yield, but then again if the Argies pay interest for 9 years, you break even and every trader out there is absolutely sure he/she knows at the level this thing should be. So maybe, except for Argentina Sovereign Debt Billy is right.
Or maybe some folks actually paid attention to what else the Fed talked about, namely the intention to "normalize" it's balance sheet which in case you missed it is up to $4.6 Trillion. Nothing official, but number in the neighborhood of $300 Billion a year had been batted about. Call me in 2025 to tell me how that works out. Oh yeah, Mr Kaplan, new to the Dallas Fed says no problem so maybe you don't have to call me.
Anyway, that is a hell of a lot of money to spread about and a goodly portion of it is not straight treasury debt but mortgage backed...remember that stuff. And one should also keep in mind that the ECB is up to it's gills under it's own program and at last look, still buying! Then we have brother Carney at the Old Lady facing the May Mess and the Bank of Japan who was itself not an insignificant player. There is probably the better part of $10 Trillion of sterilized debt out there that at some point needs to be normalized. Of course we can all rest easy in the knowledge of the existing close cooperation and coordination that exists between the major central banks of the world. What Me Worry?
One thing to reduce concern is the number that this Administration seems to be doing on Dodd/Frank which will hopefully result in the recognition that the cost of unnecessary capital have proven to definitely reduce the liquidity of capital markets including the Treasury market and fix the situation. Quick. The problems we have faced in the past were, in many cases, begun with the mispricing of risk. I would suggest that a spread of 35b.p. between 2 and 10 year risk is no spread at all and as the 10 years is the starting point for all...or most...pricing of risk, may I further suggest that we haven't a real good handle..as we didn't at the turn of the century..as to how to price anything. 10 years ago with a theoretically far more liquid market, everything stopped. Perhaps The Dud should stop talking and start thinking about that.
Showing posts with label Tapering. Show all posts
Showing posts with label Tapering. Show all posts
Tuesday, June 20, 2017
Tuesday, February 18, 2014
THE BIG MELTDOWN
No, not the markets. It got to 43 F. today with sunny skies and you can't believe the amount of water that is sloshing around, so the next thing you will probably be hearing about is flooding in the fly-over zone. I can deal with warm.
It being a swamp out there I sat in today and did a bit of reading and thinking. I usually watch CNBC in the morning and one of the old timers that has been featured just about from the git-go is the floor manager for UBS, Art Cashin. Art has been around the market since you-know-who was a corporal and has reached the status and age in life when he can say pretty much anything he wishes. This morning was kind of a fun discussion rambling about credit, stimulus spending and tapering. One of the gorgeous young things which CNBC seems to attract in abundance had this exchange:
GYT: "Art, why do you thing the Fed is signaling that the taper is going to continue?"
ART: "Because it (the bond buying) doesn't work."
Well, that caused me to spill my Corn Flakes. Now I've been saying that for three years but I'm not Art Cashin. The other difference is I believed that the taper wasn't a 2014 event. I was pretty sure that in an election year, with all the intellectual investment that went into the bond buying program, it would be impossible for Yellen to essentially admit what Art figured out (and me) that it doesn't work. I learned a lesson: when a fact is so clearly evident it will be recognized as being such despite all the emotion and reputation that may be involved it declaring it not to be the case. If Cashin can say that out loud on CNBC, the taper is for real and why then certainly I was wrong. I'll try to learn from this. Oh, in case you missed it, a couple of days ago was the 5th anniversary of the Great Stimulus of 2009. That didn't work either.
Of course, one questions one's self when this occurs. Right now I'm asking myself why is the Euro trading like all is well Over There, the Pound is going through the roof with seeming no effect from the Loony Tunes up in the land of THE PEOPLE who are determined to follow the specter of Robert the Bruce right over the cliff and the Japanese who having witnessed the waste of a stimulus and print money schemes, are prepared to double down on all the stuff they have tried without success. My new found wisdom tells me that before I announce the answers to all these questions I damn well better have the answers myself. Right now I don't. It's also caused me to thing again about my comments about Chinese bubbles but I still think I have that one right. In the mean time, there is Italian politics, a cause of constant amusement…and no little concern…with Massimo somewhere in the flesh pots of Europe with his skis (and who know what else) AWOL when needed the most. We're working on that one.
One interesting little note was that the Troika is returning to Greece to discover what everyone knows, that the Greeks need a bundle to stay out of default and to figure out I suppose what new piece of legerdemain will be needed to get past this latest mess. The Greeks of course are quite convinced the current account surplus they've recently rung up is proof positive of they're sound condition setting aside for the moment that the surplus is a couple of million Euros and that they owe about a gazillion. It's going to be fun to watch but I've learned my lesson: I am not going to pre-judge it. Yeah, right.
It being a swamp out there I sat in today and did a bit of reading and thinking. I usually watch CNBC in the morning and one of the old timers that has been featured just about from the git-go is the floor manager for UBS, Art Cashin. Art has been around the market since you-know-who was a corporal and has reached the status and age in life when he can say pretty much anything he wishes. This morning was kind of a fun discussion rambling about credit, stimulus spending and tapering. One of the gorgeous young things which CNBC seems to attract in abundance had this exchange:
GYT: "Art, why do you thing the Fed is signaling that the taper is going to continue?"
ART: "Because it (the bond buying) doesn't work."
Well, that caused me to spill my Corn Flakes. Now I've been saying that for three years but I'm not Art Cashin. The other difference is I believed that the taper wasn't a 2014 event. I was pretty sure that in an election year, with all the intellectual investment that went into the bond buying program, it would be impossible for Yellen to essentially admit what Art figured out (and me) that it doesn't work. I learned a lesson: when a fact is so clearly evident it will be recognized as being such despite all the emotion and reputation that may be involved it declaring it not to be the case. If Cashin can say that out loud on CNBC, the taper is for real and why then certainly I was wrong. I'll try to learn from this. Oh, in case you missed it, a couple of days ago was the 5th anniversary of the Great Stimulus of 2009. That didn't work either.
Of course, one questions one's self when this occurs. Right now I'm asking myself why is the Euro trading like all is well Over There, the Pound is going through the roof with seeming no effect from the Loony Tunes up in the land of THE PEOPLE who are determined to follow the specter of Robert the Bruce right over the cliff and the Japanese who having witnessed the waste of a stimulus and print money schemes, are prepared to double down on all the stuff they have tried without success. My new found wisdom tells me that before I announce the answers to all these questions I damn well better have the answers myself. Right now I don't. It's also caused me to thing again about my comments about Chinese bubbles but I still think I have that one right. In the mean time, there is Italian politics, a cause of constant amusement…and no little concern…with Massimo somewhere in the flesh pots of Europe with his skis (and who know what else) AWOL when needed the most. We're working on that one.
One interesting little note was that the Troika is returning to Greece to discover what everyone knows, that the Greeks need a bundle to stay out of default and to figure out I suppose what new piece of legerdemain will be needed to get past this latest mess. The Greeks of course are quite convinced the current account surplus they've recently rung up is proof positive of they're sound condition setting aside for the moment that the surplus is a couple of million Euros and that they owe about a gazillion. It's going to be fun to watch but I've learned my lesson: I am not going to pre-judge it. Yeah, right.
Wednesday, December 18, 2013
SO SHOOT ME
OK, I got it wrong, the Fed tapered. Starting in January, $5 billion comes off the amount of bond purchases…whoope-damn-do. Forward guidance remains extremely dovish with the discount rate targeted to remain at between 0.00%-0.25% for all of 2014. Now what "forward guidance" does is beyond me, as the factors that enter into the creation of such a beast can change in an instant but all in all it was the nicest of Christmas presents to the stock market as the DOW closed up some 297 points. Free money forever!
The more interesting question is if you're talking about $5 billion out of $80 billion a month, whatsupwiththat especially since it was revealed that the vote to taper was 9-1. So I ask, 9-1 for WHAT and with what conditions attached? I bet the answer is that this compromise having more to do with the future make-up of the Board than good, solid, central bank economics.
There are a couple of open seats. Lael Brainard, late of the Treasury, gets the international seat. Ms. Brainard is frightfully bright and well-educated and loathed--wait, that's a strong word--let's say intensely disliked by almost all who know her. She is a pure political animal of the "Yes sir, yes sir, three bags full sir" variety. Owned and operated by White House Inc. She also, it was reported, made it very clear that the Vice Chairmanship was to be hers. As my cousin Guido, now retired from the family business might have said, "This broad got some stones." Guido was never an anthropological wiz. Enter Stanley Fisher.
Mr. Fisher, in regard to the QEs has publicly been in the camp of "It can't hurt but it doesn't do much either." Nothing new there. But Stanley Fisher as the Vice Chair expressing such views is a whole different kettle of fish. Now there isn't anyone on that Board without a pretty fair sized ego, but a disagreement with Stan Fisher, no matter how small is not a winning strategy. Stan has also been around long enough to realize that conditions change very rapidly and I wouldn't be the least bit surprised if his views in regard to future guidance are similar to mine. I was in the room where in a discussion of the financial condition of the Republic of Colombia late in the last century, we were reminded by my good friend--let's call him Bobby C.--that the country's financial condition could flip overnight depending upon the disposition of the latest container load. I doubt if anyone in that room has forgotten that little excerpt from Life Lessons Learned.
So what we have I think is a compromise looking to the new disposition of the Board; one which puts off possibly contentious issue for some point down the road. It was also made fairly clear by the Chairman in his remarks today that we should stop looking at things like the employment rate or the job rate as triggers for a change in Fed policy. However, the inflation rate, which remains below 2.00% is highly important to this Board (N.B. to readership: do these guys ever shop). In short, I don't think much of anything happened today other than the table being set for the next round of players. Of course, everybody got a wee bit suckered. The Fed figured out that the tapering of the bond buying spree, whilst it had little effect during it's existence, was scaring the hell out of the markets and therefore the announcement of the continuation of the Money for Everybody posture was necessary. Bingo. Got it right. Now everyone is focused on interest rates. We understand those, right? But here's one thing: the 10 year hardly moved. Why? I haven't a clue, but it has been my experience that if you want to know what's happening, watch the bond market. I guess nothing happened.
And as for Stanley Fisher. I'm pretty sure the fix was in somewhere with someone. From the standpoint of someone like me looking for reasons why Mr. Fisher would want or need this job much less take it it looks like madness, yet as some guy I once knew said, yet there's method in it. We will probably never know the goings-on that brought this rather remarkable event to fruition, but I'm convinced--based on a whole bunch of conversations and pure supposition on my part--that Stan didn't ask for this job but was convinced to accept it. The wags in D.C. are saying The Leader is delighted; I think The Leader got bagged and we know The Leader does not talk to Republicans. Then again, I'm delighted which of course is what really counts.
The more interesting question is if you're talking about $5 billion out of $80 billion a month, whatsupwiththat especially since it was revealed that the vote to taper was 9-1. So I ask, 9-1 for WHAT and with what conditions attached? I bet the answer is that this compromise having more to do with the future make-up of the Board than good, solid, central bank economics.
There are a couple of open seats. Lael Brainard, late of the Treasury, gets the international seat. Ms. Brainard is frightfully bright and well-educated and loathed--wait, that's a strong word--let's say intensely disliked by almost all who know her. She is a pure political animal of the "Yes sir, yes sir, three bags full sir" variety. Owned and operated by White House Inc. She also, it was reported, made it very clear that the Vice Chairmanship was to be hers. As my cousin Guido, now retired from the family business might have said, "This broad got some stones." Guido was never an anthropological wiz. Enter Stanley Fisher.
Mr. Fisher, in regard to the QEs has publicly been in the camp of "It can't hurt but it doesn't do much either." Nothing new there. But Stanley Fisher as the Vice Chair expressing such views is a whole different kettle of fish. Now there isn't anyone on that Board without a pretty fair sized ego, but a disagreement with Stan Fisher, no matter how small is not a winning strategy. Stan has also been around long enough to realize that conditions change very rapidly and I wouldn't be the least bit surprised if his views in regard to future guidance are similar to mine. I was in the room where in a discussion of the financial condition of the Republic of Colombia late in the last century, we were reminded by my good friend--let's call him Bobby C.--that the country's financial condition could flip overnight depending upon the disposition of the latest container load. I doubt if anyone in that room has forgotten that little excerpt from Life Lessons Learned.
So what we have I think is a compromise looking to the new disposition of the Board; one which puts off possibly contentious issue for some point down the road. It was also made fairly clear by the Chairman in his remarks today that we should stop looking at things like the employment rate or the job rate as triggers for a change in Fed policy. However, the inflation rate, which remains below 2.00% is highly important to this Board (N.B. to readership: do these guys ever shop). In short, I don't think much of anything happened today other than the table being set for the next round of players. Of course, everybody got a wee bit suckered. The Fed figured out that the tapering of the bond buying spree, whilst it had little effect during it's existence, was scaring the hell out of the markets and therefore the announcement of the continuation of the Money for Everybody posture was necessary. Bingo. Got it right. Now everyone is focused on interest rates. We understand those, right? But here's one thing: the 10 year hardly moved. Why? I haven't a clue, but it has been my experience that if you want to know what's happening, watch the bond market. I guess nothing happened.
And as for Stanley Fisher. I'm pretty sure the fix was in somewhere with someone. From the standpoint of someone like me looking for reasons why Mr. Fisher would want or need this job much less take it it looks like madness, yet as some guy I once knew said, yet there's method in it. We will probably never know the goings-on that brought this rather remarkable event to fruition, but I'm convinced--based on a whole bunch of conversations and pure supposition on my part--that Stan didn't ask for this job but was convinced to accept it. The wags in D.C. are saying The Leader is delighted; I think The Leader got bagged and we know The Leader does not talk to Republicans. Then again, I'm delighted which of course is what really counts.
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