people in motion

people in motion

vendredi 14 décembre 2012

QEndless

Jingle Ben


(WilliamBanzai7)


Dashing for some dough
On a dog and pony show
O'er muppet fools we go
Laughing all the way
Bonus bells will ring
Making spirits bright
What fun it is to laugh and sing
A Keynesian song tonight
Oh, jingle Ben, jingle Ben
Jingle all the way
Oh, what fun it is to trade
When there's QE on the way
Jingle Ben, jingle Ben
Jingle all the way
Oh, what fun it is to trade
When there's QE on the way
A day or two ago
I thought I'd make a trade
And soon that Hopium dope
Was seated by my side
The horse was lean and stank
Misfortune seemed his lot
We broke into a grifted bank
And then we Mo Mo'd up
Oh, jingle Ben, jingle Ben
Jingle all the way
Oh, what fun it is to trade
When there's QE on the way
Jingle Ben, jingle Ben
Jingle all the way
Oh, what fun it is to trade
When there's QE on the way

No one wants to mention that the Fed Chairman has changed the rules of the game in the middle of the game but there you are; a backsliding Federal Reserve Bank whose statements are only crafted for the moment and future moments may be brief; we just don’t know. Apparently we have transitioned to a “whatever is convenient” policy at the Fed and we all should bear that in mind when assessing probable actions. When money talks, nobody pays any attention to the grammar. The Treasury issues, the Fed prints money and buys, the cost of financing for the country is incredibly low and the yields for investors are paltry. In the risk markets there will now be a demand as instigated by the Fed, that overwhelms the supply of new issuance. Between the coupons paid and the maturities for 2013 the figure is about $1 trillion in excess demand more than estimated forthcoming supply. Given the 36% loss in wealth that took place in America during the 2008/2009 period the odds of an asset allocation shift out of bonds and into equities is de minimis in my opinion and so the “Great Compression” will
Forever and Ever?
The world’s economies have been fostered and sustained since 2008 by the central banks of the planet working in tandem to make sure that the entire globe did not slide into the hellhole of Depression. To that extent the concept has worked but we are still on the lifeline to date and no one seems to want to get off of it. It is similar to a person being hooked on heroin with the inability to withdraw and so the habit continues. There are consequences of this behavior of course including irrational behavior, overblown promises and the increase of the risk that when withdrawal comes that the patient slips into convulsions. Those, however, are long term and systemic problems that will continue to haunt us but in the meantime more mundane issues abound.
Here is what the Fed has done to date in the Treasury market:
  • In the 6-8yr. sector they have bought about 50% of the gross issuance
  • In the 9-20yr. sector they have bought about 70% of the 10yr. gross issuance
  • In the 24-30yr. sector they have bought 100% of the gross issuance
  • In the MBS sector they are buying $45 billion a month all across the curve
The Treasury issues, the Fed prints money and buys, the cost of financing for the country is incredibly low and the yields for investors are paltry. 

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