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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: mishedlo who wrote (29834)	4/1/2005 5:09:19 PM
From: russwinter	of 110194

April Fools by Charles Mackay, Friday April 01 2005 wallstreetexaminer.com The Fed and the bond markets were both fooled this April 1. The interbank Fed Funds ran up to an average of 2.96% on March 31 (as compared to the 2.75% target rate), possibly due to a missed guess Thursday by the Fed or a major bank. After starting the week off on a fast break with a $9 billion repo addition Monday, the Fed ending up only providing a net addition of $1.75 billion to the repo pool for the entire week. In addition, the Fed not only failed to monetize, that is buy, even a small part of the new two year Treasury bond, but actually bought only $8.0 billion in two year bonds to replace $8.2 billion in expiring ones. Clearly the position of the Fed is not only restrictive but somewhat puzzling in the face of the huge amount - $38 billion - the Treasury needs Friday. The Treasury will take from the financial markets $25 billion for settlement of a 14 day cash management bill Friday - plus another $13 billion that was previously lent out through the TIO*. Making fools of the bond market was the Institute for Supply Management's report. The ISM's March factory survey, released early Friday, was at first was mistakenly reported as a strong gain. Later it was revised to a tiny increase. Meanwhile the bond market was treated to a wild roller coaster ride. The actions of the Fed and Treasury are especially ominous this Friday. The Fed apparently intends to stick to its perceived 5 ¾% annual monetary base growth target. Newly emerging problems with AIG and MBI, for example, have not yet convinced it that a temporary departure from its longer term target is necessary. Investing on the long side of stock market the next few days may prove, well... foolish.

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