I figured when I took the stake shorting TMF that it might be a little premature, which is why I kept it small. Still, it’s crazy watching the longer end maturities crank higher on the Fed announcement of rollover. TMF is up more than 7% right now, like a scorpion nestled cozily between my fingers.
As you’ll recall, I stipulated this outcome exactly under the bullet “Things Cain is Afraid Of.”
So now the Fed, by attempting to turn over short end maturities into longer term debt, is socking the short end bonds and setting the 10 year plus material on fire.
I’m hearing their goal is to aid housing. Come on, I mean…if the last round of easing didn’t aid housing, this isn’t going to either. I think we all know the bigger issue at hand is the state of the consumer, and not the finance rate on a mortgage. I’ve talked about this issue previously, showing how the median household still needs to deleverage and build up savings before they’ll be able to partake in the home market again.
There’s a bigger, unspoken issue here, which is most likely the intended beneficiary of Bernanke’s announcement.
Here’s the thing; the Treasury is in deep for short term maturing paper. Way too much debt is coming due in the next 5 years. So my gut reaction is that the main buyer of the short term paper is going to be Treasury itself. Then they’ll re-issue 30 year bonds to fund themselves to the Fed, who will of course be paying them with their own cash.
This is likely a net neutral move, where the dollar is concerned. Stimulus for government, if you will…
This does nothing for the economy, the European crisis, or my nerves. Many, many people just got let down, if this is all that today has in store.
After treasuries and TMF settle down a bit, I’ll be looking to add to my short in another small, equal sized block.
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the only way it’s helping the housing market is perhaps by preventing from collapsing even further
i say this in the context of the housing market needing to be at the core of any growth out of recession
If their goal is to help the housing market, they are about to fail miserably.
Zero as a product of anything is zero. And right now, the consumer is a big zero.
The only way to help housing is to let the market work. Specifically stop the interventionist policies and let prices reach whatever the market clearing price might be. Liquidation needs to happen and would have already occurred by now in a truly freed market.
These policies are the exact opposite of what we should be doing. As you said, we need under consumption and therefore savings but who wants to save with such artificially low rates?