収束ゾーンでのライフ: Life in the Convergence Zone

Good afternoon.

The Federal Reserve has just announced that it's going to buy US$300B in treasury bills. This follows a Fed statement that eliminated any reference to a recovery this year, and which now openly talks about deflation. And that's just part of an expansion of US$1.15 Trillion (million million), "doubling in one pen stroke the amount of 'credit easing' it's already accomplished."

Stock markets are shooting up on this, showing that the equities traders really are just that clueless - somehow, they think this is a good thing. In fact, this is a really, really bad thing, and is probably in part a reaction to foreign capital flight in January of $148.9B, including $60.9B in "long" securities such as the 2-year to 10-year issues the Fed says it will mostly be buying.

The Bank of England executed a similar manoeuvre of buying its own government bonds recently, with results that should induce severe caution - once there was an overpaying market, a huge rush to sell appeared. Remember that bad scenario I've talked about, with selling pressure on Treasuries sending rates through the roof? Remember that. At the time of writing the linked commentary, Karl was betting Mr. Bernanke wasn't going to pull this trigger as a result, because Mr. Bernanke knew what would happen to, say, the US dollar. Karl was wrong.

The dollar index, by the way, has fallen off a cliff on the news, falling over 2% in a matter of minutes. It's in a bounce right now, but it's time to start looking at support layers. The Canadian dollar is up 3¢ against the US, the Euro is up 3.34% and climbing, the yen spiked 2.8% - it's a slaughter for dollar bulls.

Meanwhile, we have a transfer from Citigroup to the Treasury, as the incompetent Lewis Alexander becomes a "counselor" to Secretary Geithner. This is the kind of buffoon-like clownery this jerk was spouting as late as 2007:

"I think that's not going to spill over more broadly into the economy, and so I think we're going to have a normal kind of housing cycle that's going to last through the middle of this year," Mr. Alexander said in a 2007 interview on PBS.

Nice call, jackass. And now you're in Treasury. This'll be fun.

More later, I'm doing some recording right now. Good luck.

Picking up where I left off.

Brad Setser has a substantial analysis of treasury flows today. Foreign long-term Treasury bill demand is gone. Foreign demand for US corporate bonds is gone. And now short-term T-bill demand is falling off a cliff. January's negative flows data was mostly privately driven; governments, in net, kept buying short-term Treasury bills, but there's now a question about even China:

There are about $40-50 billion in unexplained outflows and however you look at it there it is hard to believe that we haven’t seen at least $20-30 billion of hot money outflows in January... If there are hot money outflows from China large enough to cause the central bank to lose reserves, the central bank will not only stop buying US Treasury bonds and/or other dollar assets, it will have to sell something, which is most likely to be US dollar bonds. It has no choice.

What everyone is wondering is whether the Fed has seen enough February data to decide that foreign short-term T-bill purchases are also gone, and are taking this step now because of that. Remember: they have all this data long before we do. Others are speculating that China wants to dump a bunch of its T-bill holdings and the Fed is going to deal primarily with China sellers. Both of these are speculation at this point only.

In other news, Glenn Greenwald has links outlining how the Obama administration has been attempting to pin the AIG bonus situation on Senator Chris Dodd, who was actually a primary opponent.

At least one person at AIG knew this was coming in February 2008, and to their credit, spoke up at the time. This February 2008 article in Reuters is interesting to read.

Idiots On Patrol.

ABX tracking indiates that AAA mortgage-backed securities are now trading at new lows, around 25¢ on the dollar. All other tranches have been setting new lows in the low single-digits, AA at 4¢, A and BB at around 3¢ on the dollar. CMBX spreads are not at new records in AAA, but are in the upper range of the November trading band, which indicates significant stress in commercial real estate.

Finally, clickie, if you want. It's a lulMurrow. But it's important to remember that Cramer and his uncritical spouting of propaganda lines handed him by CEOs (or politicians) is typical of American "news" media, not the exception.