Guest post by Azizonomics.
I admit the headline is a little sensationalistic, but after Wednesday’s WTF bond auction, I feel like slapping the market around the face with a rotten fish. Now certainly there are plenty of penny stocks headed to greater losses far sooner. And certainly, lots of people have made good profits on Treasuries by buying them and flipping them to a greater fool or a central bank. On the other hand, so did many on during the NASDAQ bubble, or during the ’00s ABS bubble. Bubbles are profitable for some, and that’s why there have been so many throughout history. But once the money starts to dry up they become excruciatingly painful.
Treasury yields are just going lower:
Some market commentary, courtesy Jessie.
When I talk about the ‘technical trade,’ I mean that fairly literally.
The market, in the absence of a major exogenous event, is running on autopilot, with the algorithmic computers and trend following traders driving it back and forth within pre-programmed levels of support and resistance.
The SP 500 futures are just an example. This same thing takes place in many other markets including important world markets such as metals, energy, and foodstuffs.
In low volume environments with no important exterior factors in the short term, the technical game tends to have a bias higher, because in this type of paper market there is no upward limit, and one wishes to draw in the ‘suckers.’ The word goes out in the pit that the trading desks ‘want to try to take it up.’ This is how the ‘pools’ operated in the 1920′s.
The drops tend to come quickly and pass even faster, since that is the reaping, not the planting and growing of the scam.
Peter Tchir gives some interesting insight into the LIBOR vs CDS prices.
Here are the 3 month USD LIBOR submissions for some of the banks, along with where 1 year CDS was quoted at the time. The 1 year CDS data is not the best, but is indicative and certainly reflects what I remember as the relative safety perception. I’m also looking into CD rates, bonds, and stock prices, but I find a few things interesting here.
Chris Whalen, senior managing director at Tangent Capital Partners, talks with Bloomberg Law’s Lee Pacchia about the recent controversy surrounding Barclay’s settlement with regulators over allegations involving Libor manipulation. Whalen says there is a need to turn the rate into a “real market price” through a process that employs greater transparency as it is currently an “18th century process that has suddenly come running smack dab into the perception of 21st century investors and the public”.
Full must see video below.
Guest post by Doug Short.
The current Federal Reserve intervention,Operation Twist, which was set to expire at the end of June, was extended through the end of the year at last month’s FOMC. We’ve seen several bouts of aggressive Fed attempts to manage the economy following the collapse of the two Bear Stearns hedge funds in mid-2007 about three months before the all-time high in the S&P 500.
Initially the Fed Funds Rate (FFR) underwent a series of cuts, and with the collapse of Bear Stearns, the Fed launched a veritable alphabet soup of tactical strategies intended to stave off economic disaster: PDCF, TALF, TARP, etc. But shortly after the Lehman bankruptcy filing, the Fed really swung into high gear. The FFR fell off a cliff and soon bounced in the lower half of the 0 to 0.25% ZIRP (Zero Interest Rate Policy), now in its fourth year.
If a picture is worth a thousand words, this chart needs little additional explanation — except perhaps for those who are puzzled by the Jackson Hole callout. The reference is to Chairman Bernanke’s speech at the Fed’s 2010 annual symposium in Jackson Hole, Wyoming. Bernanke strongly hinted about the forthcoming Federal Reserve intervention that was subsequently initiated in November of 2010, namely, the second round of quantitative easing, aka QE2.