Here Come the Coupon Purchases by the Fed

The Fed made this announcement and the ETF we use to short the Treasury bond, TBT, took a nose dive.

FAQs on Fed Monetization of US Debt





Fed to start buying Treasurys on Wednesday
By Deborah Levine
2:58 p.m. EDT March 24, 2009

NEW YORK (MarketWatch) -- The Federal Reserve Bank of New York will begin making purchases Of U.S. Treasury securities on Wednesday, starting with debt maturing between 2016 and 2019.

It will continue purchases on Friday and next week, with some days dedicated to purchases of maturities as short as 2-year notes with others for debt maturing in 17 to 30 years, it said in a schedule posted on its website Tuesday.

It did not indicate how much it would buy. The Fed announced last Wednesday it would purchase up to $3000 billion in Treasurys over the next six months. Treasurys rallied, with yields on 10-year notes (UST10Y UST10Y) paring an earlier increase to traded up 1 basis point to 2.66%.

Guest Blog: The Cheapest Call Option of All

No doubt Ben and Timmy have it all planned out, how they will use the trickle down machine to reinflate the financial system, and thereby float out loans again, at interest, to the hoi polloi.

From the Irish gnome in Zurich:

The cheapest call option on the planet is being provided by the world's largest HF//Prime broker: the US govt. Its also the best camouflage for a continuing rescue of Citi, GS et al that the Congress and the public cannot penetrate.

TALF Bait and Switch - Zero Hedge

And if it all goes wrong, Geithner is now looking for power to bail out the hedge funds, not to mention Pimco et al.

This sounds like a pretty cheap option to me.

But what has also gone unrecognised is the fact they will all make up this money on their CDS and S&P calls anyway.

If they pay banks their fictional book value, they will be able to pretend that the financial problems were overstated, just a 'liquidity' issue after all.

The banks can claim they HAVE been doing things right and we'll have a huge rally again. Anyone who participates will no doubt reckon on a reduced Prime Brokerage fee and extra leverage from the grateful seller - -which means asset inflation has another leg up.

Remember, ALL banking 'capital' is notional, so it is easy to conjure up the illusion of wealth creation once more.

SP Weekly and Monthly Charts Updated at Noon

The question one must ask is whether this is a technical bounce off a short term bottom, or the beginning of somthing more sustained.

Barton Biggs of Traxis Partners is saying today that he expects a thirty to fifty percent rally off this bottom. His reasoning is historic comparison off lows this severe.

If sustained, is this a genuine economic recovery or another monetary reflation and resultant bubble in financial assets.

The charts speak to this, not definitively, but with sufficient weight to be important. Yet another bubble sets us up for a great cascade fall down to 545, with a potential final bottom as low as 380.

The numbers may start to be skewed and distorted on the chart if a more serious monetary inflation in the dollar begins. The commodities and the quality of earnings in the SP 500 will be the 'tell.'

But make no mistake. The Fed and the Obama Administration are firmly committed to monetary inflation and a weaker dollar as another short term cure for the economy.

If the government does not make the fundamental reforms to the financial system and economy to bring back a balance with real wealth creation, it is difficult to see how the dollar and the bond will emerge intact from the next bubble without a further devaluation of 50 percent at least.

The Net Asset Value of Certain Gold and Silver Trusts and ETFs

GLD and SLV generally trade at a slight discount to spot because of their management fes. They are also used for arbitrage plays.

The premium on GTU is substantial as a result of the recent rally in gold. Personally I would not buy it at that level of premium preferring other investments.