Shock And Awe

Wednesday, March 18, 2009

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.

The trades would appear to be:

1) buy equities

2) buy bonds (though the issue for a futures monkey like Macro Man is whether you buy TYM9 or USM9)

3) sell the USD (on the basis that everyone else is going to)

4) buy oil (on the basis of 3, and the inevitable projection uber-inflation moving forwards.)

Feedback welcome!

Posted by Macro Man at 6:31 PM  

33 comments:

About shopping lists: i wouldn't forget Spam, flour and canned beans.

Carlo said...
6:48 PM  

mm - count it!

-mpm

Anonymous said...
6:53 PM  

Nice shout, mpm. Makes me wonder who you and the Goldman boys have on speed dial... ;)

Macro Man said...
6:56 PM  

sell USD? Aside from Trichet aren't we all QE'ers these days?

Ian said...
6:58 PM  

i dont talk to people other than you. All tea leaves.

60min was the ace

Anonymous said...
6:59 PM  

The Federal Open Market Committee (FOMC) has announced that the Open Market Trading Desk (the Desk) will begin a Treasury purchase program of up to $300 billion to help improve conditions in private credit markets. The Desk will concentrate purchases in the 2- to 10-year sector of the nominal Treasury curve, although purchases will occur across the nominal Treasury and TIPS yield curves. Consistent with prior outright Treasury purchases, these purchases will be conducted with the Federal Reserve’s primary dealers through a series of competitive auctions via the Desk’s FedTrade system. On average, the Desk will purchase Treasury securities two to three times per week. Further details will be provided early next week after consultation with the primary dealers and other market participants. The Desk plans to hold the first purchase operation late next week.
10s30s is on... Whew, JL

Anonymous said...
7:04 PM  

To quote Double Down Trent....it is on baby...it is so on.

had to jettison my USM9 and go short vs TYM9!

Macro Man said...
7:06 PM  

Brutal moves in gold here... monster range of more than $60. Guess this was just against the dollar weakness.
Chris

Anonymous said...
7:17 PM  

buy TYM not USM - same thinking as BoE: very long end is for pension funds, short end is for CBs. They will buy in the middle

Anonymous said...
7:22 PM  

1) how about 10yr. 30yr steepner
2) one thing surprises me is commodity barely moved, any thoughts?

Anonymous said...
7:23 PM  

Ha, nice Swingers ref MM!
Not sure about 1 & 3 though, tape watching at mom...
Despite your "barbarous relic" stance, shurely buy XAU follows from the rationale at 3. JL

Anonymous said...
7:23 PM  

See my comment at 7.06 re steepeners...I'm with ya.

W/r/t gold, yeah everyone who got stopped is piling back in, which I understand.

I prefer oil because I like the chart and it's a consumable. N.B, I don't trade the front contract...despite negative carry, I prefer Dec 9 -Dec 12....

Macro Man said...
7:33 PM  

Here's a question: shouldn;t equities be doing better than this?

Macro Man said...
7:46 PM  

Im amazed
Eur should be 1.40
Crude should be 60
GC should be at new highs
SPX 850

simply, does the mkt know who they are messing w/?

Anonymous said...
7:52 PM  

do agree with you the equity should go higher. based on today's px action, it feels like a bear market rally. given the fed is all out, won't be surprised the treasury will follow right behind. and the sun/ibm deal could be real. the rally will last. but no more weapons left.

Anonymous said...
8:04 PM  

I would think gold would be at top of list too, or at least included

UrbanDigs said...
8:06 PM  

I prefer oil to gold, simply because oil is more off the radar, is a consumable resource, and is a higher beta play on reflation.

Today, at least, the market is focusing on gold, which I suppose is understandable. But I suspect when people think through the implications of today more carefully, they will conclude that oil will go up...a lot.

Gold is the better trade for a 15% move....oil is the better trade for a 150% move.

Macro Man said...
8:10 PM  

crude is the key for money velocity as well.

Anonymous said...
8:29 PM  

What's the best way a non-trader (average joe) investor can go long oil and short the dollar?

Anonymous said...
9:21 PM  

and buy gold

martino said...
10:16 PM  

isn't now everyone get lined up in the same direction,

my pref trades from here on would be 1) short equities/ esp tech, mat

2) short copper crude , scale up into rallies, shangai/ london arb over?, i would say crude inventories continue to remain high, and any quota comliance is NOT a factor of new found Opec unity, BUT a Lack of Demand, so one must look for less compliance to know that demand raelly has picked up.
3)short the eur/ $ ... cee risk is presents high risk, a drop in bunds/ euro yields will lead fall of the currency
4)long ger bunds 10 year... can ecb really stay behind?
5) long gold , 1000+

.....
would any one play this portfolio?

tigeram1 said...
10:31 PM  

My mooted trades (some of which fortuitously I am partially in, some not yet):
- buy 2/10 or even 2/5 steepening; the Fed wants low short rates and higher spreads for financials, not low long rates
- buy re-expansion of equity multiples, i.e., short defensive sectors, long everything else, net long; fade the prior some-earnings-at-any price market, in other words
- buy junior golds with lesser political and funding risk, but not in size and (as always with juniors) very selectively

My two cents. I need to sleep on it, but I think there are a few other plays I want as well.

wcw said...
10:52 PM  

So the Fed is going to buy 300 billion dollars worth of Treasuries? Tell me again what the net issuance of U.S. Treasury Bonds will be this year.

Anonymous said...
11:01 PM  

I have a question I hope someone can shed some light on:
If every single variable, be it credit risk, growth, inflation, etc affected by this move, is impacted in a way that should send treasuries lower, how does the Fed bid overpower all of them? I'm surely overlooking something here but I would intuitively assume that every private holder of treasuries would now wish to sell at these prices, with the Fed the sole buyer. No?

Anonymous said...
11:23 PM  

mm how do you upload bloomberg charts to the blog? and do you need their permissiom?

Hot Gates said...
12:19 AM  

MacroMan, can you explain how a similar exercise in quantitative easing failed to incite another inflationary asset bubble in 1990's Japan? Logically it makes sense that a central bank should easily be successful if their goal is to create Monopoly Money to clean up the balance sheets of profligate banks and individuals and lend to new profiligate individuals. If, like me, you think that the credit mechanism creates monetary inflation and asset appreciation then why was it never able to create such inflation in Japan? Thx...

Yossarian said...
12:26 AM  

certainly can't chase bonds after they moved so much...USD under bollinger band may be the same

GLD had too large volume into a lower low today, so by richard wyckoff method it will go back down there later or sooner

if the investor can trade american it's USO for oil etf and UDN for dollar down etf

M-M will have to be bullish china for the crude, as ellie clampett would say: golly the first .382 fib up from low to all time high would be in the 70's in the bubblin' crude

it seems to be performance anxiety over here on equities, and the options market makers must have felt the pressure as the market moved away from the 'pins' of 750 spx and 28 qqqq, so hard to tell when it will stop

can an individual investor buy equities when they're up +20% off the low in two weeks? -doesn't seem like a good risk reward to me
-deac

Anonymous said...
12:35 AM  

I'm no Macro Man certainly, but my amateur answer "why didn't BOJ's QE work" is

"It did work. BOJ inflated huge asset bubbles with funny money, but the bubbles didn't happen in Japan."

If the carry trade is possible then this always seems like a risk.

Where's the next bubble going to blow?

Anonymous said...
12:55 AM  

gates, you say you've been a manager for 22 years, so you've probably had children.
let's say you had a early teen daughter and she's getting on the internet chat room scene and says 'look daddy i've got a new friend named hot gates.'

what do you do?

you get her off that computer for good!

gatsey, lose that unprofessional nick!!!!!

Anonymous said...
2:03 AM  

Add this to TALF, BOE QE policy, Japan QE policy, etc, and hyperinflation doesn't sound like any kind of exaggeration. I think the credit spreads will collapse to, considering everyone is now getting on the short dollar, long commodities trade. Inflation is a serious threat to all of those dollar hoarders. I like long equity plays that will benefit off of eroding dollars i.e. battered manufacturers out of the auto industry.

2:07 AM  

mmm ...maybe its because http://blogs.cfr.org/setser/2009/03/18/a-bit-more-to-worry-about-foreign-demand-for-long-term-treasuries-has-faded/

Or maybe flattening the curve some more will really really help the banks.

Or is it the pressing need to do a competitive devaluation and get the beggar (bugger?)your neighbour bandwagon really rolling.

Or maybe the Fed has seen the light and converted to the Weimar/Harare school of macro economic management. After all whats the use of owning the reserve currency if you cant have some fun once in a while.

Anyway forget gold and go long wheelbarrows

Anonymous said...
2:16 AM  

the major indices are all short term overbought, SPX, INDU,XLF etc....GLD not so, dollar should remain weak against the Euro--but this is a massive experiement that failed in Japan--see Richard Koo's work on Japan QE--this is it, the last bullets--except for Obama on Jay Leno tonight--gee with Bernanke on 60 minutes, and all of his proxies on the Sunday talk circuit and Obama with a truly porr showin at a town meeting today and his Leno appearance to be followed up by more administration talking heads this weekend and his speach to the Nation next week--do ya get the feeling these guys are scared to death? They should be, especially since Dodd and the rest of the Dems knew very well what was in the AIG retention bonuc deal a long time ago--corrupt to the core. This will all end very, very poorly.

Anonymous said...
2:57 AM  

Why is everyone's attention on the AIG bonus only? Did they forget that Merrill paid $3.6 billion? Maybe that money is too difficult to claw back, hence everyone is onto the low hanging fruit.

Anonymous said...
3:13 AM  

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