4 replies to this topic

[jjc]

Operation Date: 05/02/2007 Operation Type: Outright Coupon Purchase Release Time: 10:32 AM Close Time: 11:00 AM Settlement Date: 05/03/2007 Maturity/Call Date Range: 01/15/2011 - 02/15/2013 Total Par Amt Accepted (mlns) : $1,340 Total Par Amt Submitted (mlns) : $8,741

[jjc]

Operation Date: 05/02/2007
Operation Type: Outright Coupon Purchase
Release Time: 10:32 AM
Close Time: 11:00 AM
Settlement Date: 05/03/2007
Maturity/Call Date Range: 01/15/2011 - 02/15/2013
Total Par Amt Accepted (mlns) : $1,340
Total Par Amt Submitted (mlns) : $8,741

Run shorty, run



There is a pattern here to be exploited.

[arbman]

Yes, this is one of the interesting times, they are pushing long term liquidity and trying to curb the short term liquidity with the reverse repos. The rates are still high though, is the Fed basically saying? Inflation is too high now and they don't know how to control, but at least they are trying hard so that a deflation will not follow this blow off?!? I expect a pull back into the summer, however, the existing liquidity is still rampant and buying all of the dips...

[jjc]

Yes, this is one of the interesting times, they are pushing long term liquidity and trying to curb the short term liquidity with the reverse repos. The rates are still high though, is the Fed basically saying? Inflation is too high now and they don't know how to control, but at least they are trying hard so that a deflation will not follow this blow off?!? I expect a pull back into the summer, however, the existing liquidity is still rampant and buying all of the dips...

I’m not at all sure. The empirical evidence leads me to believe that controlling inflation is not of utmost concern to the FED. Is it a case of:
1) The FED can’t do it so why try? or
2) Deflation is a larger problem to price stability?
I don’t know.

The longer I play at this game the more I like to think of the FED (along with the large institutions) as just yet another market participant with a serious edge.

[arbman]

The longer I play at this game the more I like to think of the FED (along with the large institutions) as just yet another market participant with a serious edge.

The Fed, it appears, is entirely setup to fight against the price deflations. The excessive inflation always ends with the price deflations too, the very existence of Fed means the inflation anyway. They actually failed completely and caused the depression in the 1930s, not only the deflation wave was bigger, they also drained liquidity into the cycle through! They did pump and created excessive inflation during the cycle throughs of 1970s, yet it also caused a deflation afterwards and a severe housing correction back then. This time, they pumped ahead of the 36 yr cycle low that happened in 2003 and somewhat diverted a larger deflation into the cycle low, but it again caused a real estate bubble...

The Fed now pumps aggressively only when the shorts pile up and hence adds to the liquidity as efficiently as possible to maintain its price stability targets. Everytime they fail, it only magnifies the price swings up or down, so the Fed is really the boss of the markets. It is amazing how much they can control the markets with the little money they inject at the important price balance points. It simply causes the bears to cover and spike the prices into the next resistance level and eventually have the funds to buy. It is all about keeping the moving averages long enough around a certain price, so that the supports are raised gradually. They achieve this either by manipulating the currency or increasing the liquidity in the commercial banks, or outright giving cheap credit with the lower rates...

- kisa



BTW, yes the Fed is just another participant, they are a group of commercial private banks anyway...