Buckle up campers, it's gonna get bumpy

[solarbird]

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.

Comments

[brombear.livejournal.com]

What gets me is how in the hell do we stop this? (Mind you, I'm economically ignorant in most of the details, and this was intended moreso as a general question)

When so many groups are saying all of this is a bad idea, why does the Government think this is the right thing to do?

[king-chiron.livejournal.com]

I don't know about so many groups thinking it's a bad idea, here's a breakdown of some more, er, conventional economists on the Fed's move.

http://economix.blogs.nytimes.com/2009/03/18/economists-reactions-to-fed-announcement/

Keep in mind that Karl Denniger, who I don't believe is actually an economist, is consider a kook by many. He's a permabear who has been going on about the end of the world for quite a while, I would have loved to see his pre-Y2K postings but they're not available.

He also believes there's no peak oil problem (because he's a big fan of shale oil), thinks we need to round up all illegal aliens and deport them, doesn't believe in global warming, etc etc.

[solarbird]

I don't know about so many groups thinking it's a bad idea, here's a breakdown of some more, er, conventional economists
who have been massively wrong on everything of importance leading up to and thorughout this crisis. The ones who didn't see it coming, didn't think it would be substantial, believed Mr. Bernanke when he kept chanting "subprime is well-contained," and so on.

The only one in this list I recognise with any decent track record on this mess - Peter Schiff - notes that this is "great news for current holders of those instruments looking to bail out, but horrific news for just about everyone else, particularly long-term holders of U.S. dollars-based assets." The key phrase being "horrific news." Even supporter Joseph Brusuelas calls it "a tragedy," even if he thinks it's necessary.

Keep in mind that Karl Denniger, who I don't believe is actually an economist
I don't have much formal economic training either, of course.

is consider a kook by many.
...wow, okay. Weasel-word much?

He's also had the desperate impudence to have a pretty good track record on this crisis. That's why I link to some of his posts; he's been getting shit right. (By no means would or do I link to all. He's been wrong, too. But he's good at catching interesting data, as he did here with the bid/tender ratio on UK bonds.) He's a little, shall we say, "excitable," and moreso lately, particularly on the chat boards where he acts like he's on Usenet again. But I would not say "kook."

He's a permabear who has been going on about the end of the world for quite a while
Okay, as someone who has been reading him regularly, I would call this an unfair mischaracterisation. He has wigged out in some posts, overreacting to policy decisions which he thinks are disastrously bad. And I'm well aware of actual permabears (c.f. Kunstler, who is a kook, albeit a kook with good ideas about architecture; the Prudent Bear crowd, who at least acknowledge their permabear status; most of the gold bugs; a lot of other people I simply don't read). He's a bear, but he's still data-driven as far as I can see, and still spending a lot of time being, you know, correct. When I see that change, I'll stop linking to him.

I would have loved to see his pre-Y2K postings but they're not available.
Oh now what the hell? Insinuating he was a Y2Ker because you didn't see any pre-Y2K posts on his blog? He was running MCS and being a dickhead on Usenet at the time, you can find archives if you want. (And he was a massive dick, I'll go ahead and warn you. And he'd go off on these misdirected spam tirades. Ah, ISPs in the 90s, so many lulz, so few clues.) I went poking when I first stumbled across his site and wanted to see what kind of history he had. He's a Gingrich Republican disaffected with his party.

He also believes there's no peak oil problem (because he's a big fan of shale oil)
In the posts of his I've seen on the topic - which are not many, I only read the news boards, not the politics or any of the Bar crap or any fo that - he's said that 1. oil supply is a major issue, 2. massive electrical systems upgrade is key and it'll have to be nuclear, but 3. that's not enough, and massive offshore drilling and tar sands and shale are vital. He also thinks oil shale is solvable. He could be right. I don't think he is, but he could be. I don't consider that position kooky. Shell and other companies also think it is and are still working on projects to try to crack it.

Note also that peak-oil people are also still called "kooks" in many quarters, and were consistently called so until the last year and a half. (And if you want to talk about a crowd with some kooks in it, let's look at peak oil, shall we? And yet, I still think it's a serious, serious problem, and spent a lot of time posting about it.)

thinks we need to round up all illegal aliens and deport them, doesn't believe in global warming
And it's a good thing I'm not linking to him for politics or climate science.

[king-chiron.livejournal.com]

Right, he's a permabear in the middle of a huge bear market that got a fair number of short-term predictions correct. Where are his 2005/6/7 predictions? I looked on his site at old postings and found relatively few if any about a housing bubble, instead his permabear rantings were based around Social Security and and Medicare and illegal aliens and such. It indicates to me that he doesn't have any mad predictive skills and he just got lucky.

The kook comment - Karl was Usenet Kook of the Month.

Y2K - Yes, the guy is a half-step from a foaming-at-the-mouth survivalist. He's predicting collapse of the US, blood in the streets, etc. My guess is this is not the first time he's done that.

Peter Schiff, how's his fund doing? Because people keep talking about how spot-on he is, and then I'm hearing his fund is down 50-70%. Doesn't sound to me like he's beating the market.

[solarbird]

And I've ... I was going to say posted, but I'm not sure. I think I've posted about Schiff's lousy performances. I'm not actually a fan. But he did talk about the bubble before it happened, and in the most recent surveys I've seen, almost nobody's funds are above broad market, which was also just recently down 50+%, and 90% in some sectors. So there you are. I think that's pretty brutal commentary on all these guys, really.

I don't typically talk about this, but I personally am up (very, very slightly) from December 2007, if that sort of thing matters to you. I'm worried about a Treasuries bubble and that this may not last, because that's where I've been hiding, and I don't really know where else to go from here.

Thank you for a source on the "kook" commentary. I see, 1998, yeah, when he was at MCS, frothing about in an infamously misdirected Usenet war about spam. I'd buy that.

See below for my comments on political instability. He's been freaking out about that, I agree. It's not without precedent in the US, as I mentioned below, but I think he's wrong. But if we get currency failure, things will get ugly. I just don't think the ugly will be so much where and how he thinks.

None of this has anything to do with bid/cover ratios on bond purchases, mind you. Which is what I linked to his post.

[solarbird]

For the record, I also think he's wrong in his ideas about the degree and kinds of political instability you'd get even in the worst cases. I think he's got more than one racist bone in his body, and it shows up there. The kinds of thing he worries about in this regard have precedent in the US, but I still think he's wrong.