Three weeks ago, when discussing the failed (yes, failed) Maiden Lane 2 auction by the New York Fed, we said: 'Something quite disturbing happened during today's latest attempt by the Fed to sell $3.8 billion in face amount of Maiden Lane 2 assets: it had a busted dutch auction. In fact, the auction was so massively busted, the New York Fed managed to sell only half of the bonds for sale, or $1.898 billion in 36 Cusips of the total 73 Cusips offered for sale." Subsequently we noted the sudden radiosilence from the Fed on
this issue on Twitter. To be sure, every MBS trader and the kitchen sink promptly complained that the Fed was saturating the market with toxic AIG garbage, which prompted us to declare that: "unless someone opens up a release valve, we are about to see a massive regurgitation and even more massive repricing of credit risk, first in IG, then in HY and ABX/CMBX, and lastly, and most massively, in equities, which continue to exist in their own world and which are now totally disconnected with HY, which they used to track so very closely." We just got the release valve: from Bloomberg: "
The Federal Reserve Bank of New York is halting its sales of mortgage bonds acquired in the rescue of American International Group Inc. "Given prevailing market conditions” for residential mortgage-backed securities, “we do not anticipate any sales of bonds in the near term or until such time as the New York Fed deems it will achieve value for the public," Jack Gutt, a New York Fed spokesman said in an e-mail." Uh, what prevailing market conditions: a Nasdaq which has ripped over 100 points in one week (granted on no volume and on unprecedented market manipulation but so what). Regardless, this is a huge slap in the face for the Fed, which has just proven that even in a surging market
it can not unwind an amount from its book that is less than 1% of its total asset holdings without actually crashing the market.
Q.E.III
Author: goldnews | Filed under: Central Bank News, Forex News, Precious Metals News Today is the final day of QE2, the Federal Reserve’s balance sheet expansion program, but the real end is far from sight. Despite the expected slowdown in purchases, the buying of Treasury securities will continue as the Fed reinvests their maturing principal on current assets. Over the next year, the Fed will purchase another $300 billion in Treasuries alone, a pace about four times slower than during QE2, but still a significant chunk of the total supply coming to market.
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Submitted by Tyler Durden on 06/30/2011 19:48 -0400
In another case of purely coincidental serendipity,
three days ago Zero Hedge informed readers that the "NYSE Boerse [sic] has just announced its purchase of Kingsbury International Ltd., which surveys managers for the Chicago Business Barometer,
also known as the company that hosts the Chicago PMI data, in order to bring PMI data direct to feed subscribers. Net result: expect even more market volatility at each PMI release, now that the market is
not two but three-tiered, and consisting of regular HFTs, HFTs with access to the Deutsche Boerse feed, and everyone else." We concluded: "It is unclear if the ultra-speed, HFT friendly feed would be activated before its next release on June 30. That said, we will certainly coordinate with our friends at Nanex for any trading abnormalities, primarily in the critical ES futures, this Thursday at 9:42am, keeping a close eye on the tape, and indicating precisely when the tiered data release hits." Well, as promised here is the Nanex data.
As expected, it's a stunner.
It was really easy getting that mortgage in Hungary, and the best of all, denominated in Swiss Francs, so the interest rate was low. Such a great plan, if it wasn’t for that currency risk.....
America's Oil Price Inflation Crisis is Yet to Come
NIA is very disturbed by President Obama's decision to sell off oil from the U.S. emergency oil reserve, in an attempt to drive down oil prices. One week ago it was announced that the U.S. and other oil-consuming nations that are a part of the International Energy Agency (IEA) will begin releasing 60 million barrels of oil from their reserves, with 30 million barrels coming from the U.S. government-owned reserve. They hoped that by flooding the market with excess supply, they would cause an artificial forced liquidation of oil futures contract holders who bought using leverage.
The U.S. Strategic Petroleum Reserve is the world's largest government-owned stockpile of emergency crude oil reserves and is maintained by the U.S. Department of Energy (DOE). It holds 727 million barrels of oil reserves at four different sites along the Gulf of Mexico. Considering that the U.S. is releasing 30 million barrels of oil from these reserves, we are reducing the size of our emergency reserve by 4.1%.
After Obama's decision was announced on June 22nd, crude oil prices originally dipped as much as $5.71 per barrel from $95.41 per barrel down to a low of $89.70 per barrel on June 23rd. Oil prices declined slightly more during the next two trading days, reaching a low this past Monday of $89.61 per barrel and closing Monday at $90.61 per barrel. However, oil prices have surged $4.81 during the past three days and are currently $95.42 per barrel. Oil has recovered the entire dip that came after Obama's decision was announced and is now a penny higher than before his announcement. Unlike 2008 when most oil futures contract holders were hedge funds using leverage in an attempt to make short-term profits, today most oil investors are much stronger hands who bought with cash, because the world is now flooded with dollars thanks to Federal Reserve Chairman Ben Bernanke.
It certainly wasn't worth jeopardizing the homeland security of this country by reducing our emergency oil reserve by 4.1%, just to see a $4 reduction in oil prices that lasted for only 3 days. If the White House had any faith whatsoever in Bernanke's assertion that rising oil prices are only transitory, there would be no reason to release 30 million barrels of oil from our emergency reserve. The rising oil prices we have experienced so far is far from an emergency. The emergency will come soon when the world turns its back on the U.S. dollar and we see a rapid decline in its purchasing power. The emergency will be here when the U.S. can no longer import oil from foreigners at any price due to hyperinflation, and we are forced to live with only the oil produced in this country.
At any time that they choose, China has the power to set off in our country the economic equivalent of a nuclear bomb. China can at any time announce that they are no longer going to buy U.S. treasuries, but they are going to take their $2 trillion in U.S. dollar reserves and use them to buy gold. The price of gold would double overnight, with the U.S. dollar immediately losing half of its purchasing power. The yuan would then skyrocket in purchasing power, automatically giving China the world's largest economy with the Chinese GDP soaring past U.S. GDP. There would be a massive rush out of the U.S. dollar with our trading partners unwilling to export any oil to us.
The U.S. currently produces only 5.5 million barrels of oil per day, but consumes about 19.3 million barrels of oil per day, with total input into refineries of 14.7 million barrels of oil per day. This means the U.S. currently needs to import 9.2 million barrels of oil per day. U.S. commercial crude oil stockpiles are currently 359.5 million barrels or enough to last for 24 days without any domestic production. In the event of hyperinflation where the U.S. is cut off from oil imports, if we were forced to live off of our own oil production of 5.5 million barrels of oil per day, our commercial stockpiles would be gone in 39 days.
Without an emergency oil reserve, in the event of a major oil shortage due to hyperinflation, after a period of just 39 days, farmers won't have enough oil to produce food, manufacturing plants won't have enough oil to process and package food, and logistics companies won't have enough oil to get finished food products into our supermarkets. This is why we have an emergency oil reserve, to prevent store shelves from becoming empty in our supermarkets due to a fuel shortage.
It takes 13 days for oil from our emergency reserve to begin entering the market and once it does, the most it can add to the market on a daily basis is 4.4 million barrels of oil. Therefore, in a crisis we must first use only our commercial stockpiles for 13 days, which would cause our commercial reserve to decline down to 239.9 million barrels of oil. Beginning on the 14th day of a crisis, 4.4 million barrels of oil per day can come into the market from our emergency reserve with 4.8 million barrels of oil per day entering the market from our commercial reserve.
After 50 additional days, our commercial reserve will be depleted and all that will be left is 507 million barrels of oil in our emergency reserve. That will give us 115 more days where we can withdraw 4.4 million barrels of oil per day, but the U.S. will be forced to reduce its daily oil consumption by 33% during those 115 days. This is based off of an emergency reserve of 727 million barrels of oil. With Obama this month prematurely releasing 30 million barrels of oil from our emergency reserve, we will actually only have 108 days where the U.S. will be able to consume 2/3 of its normal oil consumption, after 63 days of full oil consumption.
The solution to high oil prices is not more government intervention, but is less government interference in the free market. Instead of trying to manipulate oil prices down using artificial methods that will only last temporarily, the U.S. government should look at the root cause of rising oil prices. Oil is rising due to the U.S. government's deficit spending and the Federal Reserve's willingness to monetize our deficits and debts. If they want to see lower oil prices, the government should start out by eliminating the DOE. The DOE was created in 1977 to make the U.S. less dependent on oil imports. In 1977, we imported 44% of the oil used in U.S. refineries. Today, we import 63% of the oil used in U.S. refineries. Eliminating the DOE would save this country $27 billion annually.
Priced in terms of real money (gold), oil prices haven't been rising at all. The Federal Reserve's QE2, in which it printed $600 billion out of thin air, has created artificial demand for oil. If it wasn't for the Federal Reserve working tirelessly trying to prevent a much needed recession, Americans would be cutting back on oil consumption and oil prices would be declining. If the free market was allowed to operate, falling oil prices would make it easier for Americans to live with the real unemployment rate currently at 22.3%.
It is important to spread the word about NIA to as many people as possible, as quickly as possible, if you want America to survive hyperinflation. Please tell everybody you know to become members of NIA for free immediately at: http://inflation.us
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