The key is the level of money printing. It just flows into everything although often dictated by spin and propaganda
gulf-news.com
from the criminal enterprises in the background. That's why you periodically see the specs blown out of assets like oil. Because the "paper money" can't be used in the real economy for productive activities, it is just heroin for speculation. Right now it is running at extraordinary levels. I think I've been documenting that. Actual inflation must be running at 5-8% now, and is likely headed even higher.
Message 20896031
The question though is what happens if there is a lessening of the heroin dose? Is that even possible? They seem to have bailed out FNM for now, but the "socialization" of that comes at a cost to the broader economy. If they keep this up then the play is for a complete USD bust, even more deadly inflation, and probably in short order. However, what if they just pull back to normal? Huge downdrafts in about everything I'd say. It's THE importnat element to all this IMO. I've been playing with this concept, but I'd say "normal" is back to trend line on the monetization of the twin deficits. That would be $12 billion a week.
jessel.100megsfree3.com
Depending on how you construct the numbers, one can see that this excess paper monetization or heroin dose ran an average of $22.66 billion a week from from Oct. 20 to Dec. 8. How could there not have been a rally (and narrowing of credit risk spreads) with this kind of buying manipulation coming in from monetary authorities? I arrive at this number by taking permanent coupon passes and multipling by 9, add Fed bought outrights, and then adding foreign custodials (CBs). Now in the last three weeks this has abated: -1,212, +4,093, +5,736. That's heroin withdrawal.
However even here it gets tricky because another backdoor method are loans to the Boyz. This chart titled Jesse's Intervention Meter(*) shows that, as it adds the securities lending in.
jessel.100megsfree3.com
One could also add temporaries in. Notice that sec. lending faded in the 12-15 and 12-22 weeks. But then it came back in spades this week. $2-3 billion is normal.
ny.frb.org
Notice the temps are way up too.
What seems to be happening today is that the Fed is backing off the high octane heroin of direct "bought outright" and perm coupon pass monetization. Who knows why, maybe people are talking? Foreign custodials have been a little erratic but are running "about normal". The problem is that all these inflated securities and assets require higher and higher heroin doses now to sustain them. So the Fed seems to be experimenting with loans to the Boyz (the dealers, traders and offshore criminals who front run markets,
idorfman.com
and do the Fed's dirty work in auctions, etc.) instead. This week's sec lending has suddenly skyrocketed,
bullandbearwise.com
as have temps.
bullandbearwise.com
I'm pondering what to make of this, as in theory this is short term and temporary. If I had to guess, the Fed will sneak in a big coupon pass (more inflation, weak USD) into a thin holiday market, to take the inventory of the Boyz hands and pad their wallets, and in effect pay them off for taking the last poorly attended auction. If they don't, then a large market down draft could begin at any time.
(*) I'm frustrated. Have tried to get him (or others) over here from the Pru Bear chat site to develop a more meaningful discussion on this, but I seem to be largely alone in this endeavor. This is frankly disappointing to me, as I would like to learn more about this whole process. I seem to be mostly "talking to myself", and that gets tiresome, so this is a last appeal for a little help from others. Apparently many just don't think $20-$25 billion in direct intervention is meaningful, and that only Russ Winter should be discussing this here? |
