The “danger zone” referenced in the chart above by Lewis Alexander of Nomura is a kind of arbitrary area between the Fed’s owning 50 per cent of the outstanding stock of Treasuries in a certain category (and thus potentially starting to affect market liquidity) and the 70 per cent threshold at which the SOMA desk will stop buying outright.
As you can see, it will be a little while yet before the Fed approaches that threshold, even if it increases purchases to $65bn a month. Read more
FT Alphaville does like a good Senate Banking Hearing. Especially when they feature a political body slam on proper statistical methods. And so we are proud to announce this month’s Ultimate Statistics Fighter… [dramatic pause]… is Senator Elizabeth Warren!
Warren demonstrated her moves on Thursday during a hearing on Outsourcing Accountability? Examining the Role of Independent Consultants. (Don’t let the incredibly dull title of the hearing deter you. That would be a mistake. Don’t be that person.) Read more
In March we noted that the Federal Reserve had issued a request for information on who is holding large positions in the 2023 US Treasury note, following reports that the issue was experiencing repo difficulties. Not only was the issue trading in negative territory in the repo markets, there were reports of significant fails.
As ever with repo markets, information was scarce. Given the risk-on sentiment at the time, this seemed strange. Read more
A grateful hat tip to the FT’s Shahien Nasiripour for constructing and sending us the following basic spreadsheet.
It shows the discrepancy between the Fed’s estimates of how the largest banks would perform in its latest stress test scenario, versus how the banks themselves said they would fare (click to enlarge): Read more
Like Top Trumps, just not as much fun…
Western markets were all a-jitter on Thursday. Obviously we can blame the Fed. Bickering between central bankers just doesn’t look good, whether they are American, British or continental Europeans.
An immediate question is raised: are we witnessing the end of ‘fast and loose’ policy? The quick answer is probably ‘not yet,’ although yes, it will end, and maybe sooner than some had come to assume. This presents a fresh challenge for policy markets, as noted by Lloyds’ Charles Diebel: Read more
Bloggers on FT Alphaville are, from time to time, asked how we decide what topics or events to write about. This post is no tell all, but is rather an example of exactly how funny the road travelled can be.
The end of the road saw us reading about whether banks still can get much bigger (to fail), despite the regulatory and legislative efforts of the last few years, particularly in the US. What we found is that there’s a big escape clause in the legislation that makes us a bit queasy. Read more
Dario Perkins at Lombard Street Research has a great little note out on Tuesday arguing why it’s absolutely wrong to assume the current bond sell-off is in any shape or form a repeat of 1994.
As he notes (our emphasis): Read more
The great debate over interest on excess reserves (IOER), base money and short term debt used ‘the floor’ analogy to describe what happens to short term interest rates. But that might not have been quite the right analogy, at least in the US case.
Izzy has already covered Manmohan Singh’s excellent paper and presentation. In it he raises a few points in regard to the supposed floor that IOER sets for rates, and it is worth exploring it a bit more. Read more
Forget about the $1 trillion coin debate.
The most exciting wonky discussion being had right now is between Steve Randy Waldman and Paul Krugman over whether “base money” and short-term debt are perfectly substitutable or not, and what that may or may not mean for central bank policy.
We confess that we have a bit of a vested interest here because for a long time we’ve been arguing much the same point as Waldman.
That’s not to say that Krugman is necessarily wrong; he may just be taking Waldman slightly too literally. Read more
Nowadays, the idea of not having an independent central bank is seen as being a bit backward. One could even say that central bank independence is widely accepted as the optimum set-up for any country’s monetary system, a reflection of its developmental status.
“Independent central bank? Check.”
“This country must be civilised. ”
Yet, can we really be so absolute about the matter? Read more
Take note of the following story from IFR. It could turn out to be very important:
Jan 4 (IFR) – The yield-to-worst in the high-yield market dipped to its lowest level ever this week, as risk markets rallied on the fiscal cliff agreement. Dropping below 6% for the first time in history, the yield to worst on the Barclays high-yield index fell to 5.96% on Wednesday and pushed even lower to 5.90% on Thursday. This compares to 6.13% on Monday and 8.14% at the start of 2012. Read more
What we love about Bank of America Merrill Lynch’s ‘Liquid Insight’ team is that when they make calls on Treasuries and rates, they account for the impact of collateral markets and the repo effect — not to mention the general shortage of safe assets.
Take the following chart from their latest note: Read more
“Mad. Mad. Mad. Bernanke’s gone totally MAD, I tell you!”
“What’s he thinking with QEternity? It’s so inflationary. AGHH!” Read more
UPDATE:
The biggest change is in the very first paragraph. In June the Fed had written that the economy “has been expanding moderately”. Now economic activity has “decelerated somewhat over the first half of this year.” Read more
Caption if you wish. On the Libor front — asked if it’s reliable… Bernanke told senators that “I can’t give that assurance with full confidence”. (Testimony here) Read more
Goldman Sachs’ Jan Hatzius, in his response to the Friday non-farm payroll figures, says the bank’s central case of 1.5 to 2 per cent GDP growth in the US over the next four quarters “still feels right” although there are risks it will be weaker.
If that central case is right, Goldman expects further Fed easing. Read more
Click for Goldman’s ‘living will ‘ for regulators, listing how it would try to resolve by selling parts of its business under bankruptcy:
The BIS Annual report released this Sunday is jam-packed with data, charts, observations and analysis. Joseph has already stuck up some of the most compelling…
But one of the other key points to emerge is in its chapter on the “limits of monetary policy”. There is, it appears, a marked admission that central banks may be losing control. Read more
Click the image above for the NY Fed’s announcement… Read more
From the WSJ’s Jon Hilsenrath:
Disappointing U.S. economic data, new strains in financial markets and deepening worries about Europe’s fiscal crisis have prompted a shift at the Federal Reserve, putting back on the table the possibility of action to spur the recovery. Read more
It was inevitable that the abysmal payrolls report last Friday would make louder the calls for another round of quantitative easing from the FOMC, which meets later this month.
QE can take various shapes, but we wanted to mention something about the specific idea of the Fed buying up more US Treasuries: as a few analysts have pointed out recently, there’s a pretty good chance that rates will stay low no matter what the Fed does. Read more
… a Chinese sovereign wealth fund, its bank-investing subsidiary, and China’s largest bank by assets (which is ICBC).
Click image for the full Fed approval doc: Read more
As we discussed in Part 1 of this post, Manmohan Singh and Peter Stella believe the system is in the grips of a negative money multiplier effect, because banks have been depending too much on shadow banking for funding.
The Fed may even have inadvertently made things worse by intervening in more than just the illiquid security markets which shadow banks abandoned. Read more
Or, why hyperinflationists are wrong. And why everything you were ever taught about the money multiplier is not applicable to the here and now.
The following observation comes from a new VoxEu piece by Manmohan Singh and Peter Stella: Read more
Full statement below. Short version: “expanding moderately”, rates on hold, and a Lacker dissent. Bolded para is a copy and paste job from the last statement. Zzzzz.
Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable. Read more
1. The central bank bashing doesn’t start and end with Bernanke.
Central banks just about everywhere make fantastic political punching bags, and the popularity of this tactic is growing. For example:
Read more
Older entries
1Man walks into a gold bar. Au!
2The end of QE?
3The persistent supply-side constraints in US housing
4Bird, plane, Abe
5Bove vs Bloomberg, redux
Show more6A glorious episode in the history of the Revenue
7Risk goes on, Risk goes off
8Stress you next year
9"Something to ponder while hoping for the best": Cyprus and the IMF
10The short arm of the SEC
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