[Ed. Note:
The $1700 level in gold Willie refers to below was breached TODAY, and
$32.50 silver appears to be a memory too. Next stop, $35.00.]
by Jim Willie, via Silver Doctors:
Bankers know they are finished, and are cutting deals to avoid prison
JPMorgan is losing control of the USTBond & Interest Rate Swap structures
The destructive Fascist Business Model is in its final chapter, the climax
A major bank scandal is brewing, from illegal usage of Allocated Gold accounts
All hail August and September, the months to kick precious metals
into gear. The year’s bottom was seen in May around the $1550/oz level.
The upward movement began at end July and early August. The momentum
picked up in late August, and has gained additional vigor in early
September. Rumors of a weakened JPMorgan monster have yet to come to
light, or be seen in the gold price from their relaxed heavy hand. No
limit of naked shorting gold futures is being enforced. The criminality
of the currency regime is complete, total, and profound. However, the daily chart shows some new life in a rather impressive reversal in progress. It has much more to run. The $1700 level should be breached very soon with confidence. There might be no looking back.
The ruined banks, the ruined sovereign bonds, the ruinous wars, the
struggles with mine output, the splendid citizen demand, it all adds up
to aggravated price structures pointing to higher prices.
Read More @ Silver Doctors
by Jim Willie, via Silver Doctors:
Bankers know they are finished, and are cutting deals to avoid prison
Read More @ Silver Doctors
Santelli And Grant Explain The ECB Reality
While illiquid short-dated Spanish bond yields plunge and short-sale-banned Spanish stocks (IBEX) surge back above their 200DMA the most in 16 months, one could be forgiven for falling into the age-old CNBC-trap of "well the market is up so it must be good" belief. Rick Santelli and Mark Grant, in a brief few minutes attempt to get below the surface of the actual words and perception of today's Draghi statement and explain just how the conditionality and size/roll constraints make this supposed unlimited "we'll fix it all" scenario rather ridiculous in that "The ECB is never going to be allowed to do anything." Perhaps just as IBEX fell 17% in 3 weeks after rallying 5.6% on EUR Summit-day hope, we will see some sense of reality sink back in to the circularity of this support.
Don Coxe Recommends Investors Read Lenin to Understand the Markets
China and India have always been crazy for gold, and the yellow metal remains the choice store of value in those two countries, says Don Coxe, a strategic advisor to the BMO Financial Group. In an exclusive interview with The Gold Report, Coxe explains how demographic shifts are affecting the price of gold and delves into the logic of investing in gold as a long-term strategy. Coxe also draws an important lesson in economics from his reading of Lenin.As Of This Moment, Obama, Who Is About To Speak At The DNC, Knows Tomorrow's NFP Number
While
the fact that the stock market soared to new highs hours ahead of
Obama's DNC speech may be a pure coincidence, we eagerly await to find
out if while it is Bush's fault the economy is in the dumps 4 years
after Obama took control, it will also be Bush's fault that the S&P just printed at 4 years highs. Something tells us that the answer is a resounding no.
One thing we know for certain is that as of this moment the incumbent
candidate knows precisely what seasonally adjusted nonfarm payroll
number will be when it is announced tomorrow at 8:30 am. And since the
TOTUS is very good at highlighting marginal moves in the economy, expect
a leak or two during today's DNC speech. Then again, since the August
number will not have to be discussed at the DNC, which ends this
evening, there is a chance that the number of part-time workers added
will be substantially below the 150,000 latest whisper number.
Naturally, if whatever is reported tomorrow had any bearing in reality,
the actual number would be negative.
But there is an election to be won in two months, and naturally there
are NFP reports after the election which can catch up with that
trendline. In the meantime, here is why Obama knows precisely what only
those select few other funds that are very, very close with the BLS,
know.ECB Sterilization Details Sketchy
Trader Dan at Trader Dan's Market Views - 1 hour ago
One of the big selling points by Draghi and those favoring the ECB bond
buying program, to assuage investor fears of its inflationary impact, was
that the purchases would be offset or sterilized so as to provide for
"price stability". I suspect that this was emphasized to deal with the
strong German opposition to the plan as the German experience with
hyperinflation during the Weimar republic has deep roots in the German
national psyche.
The question that myself and others have, is exactly how this sterilization
is supposed to proceed. What will the ECB buy in order to reduce the am... more »
"And She'll Have Fun, Fun, Fun, 'til the Bankers take the Punch Bowl Away
Trader Dan at Trader Dan's Market Views - 5 hours ago
Pardon an old Beach Boys fan for taking Liberties with one of their classic
song's titles but this popped into my mind today watching the market
response to the ECB's bond buying announcement.
US economy in the toilet? No problem - new 52 week high in the S&P 500.
While you are at it, give that 'ol Japanese Yen the Whack-A-Mole treatment.
Time for that carry trade again. RISK ON! Damn the Torpedos, Full Speed
Ahead!
I really think that some creative genius should make a spoof of the Star
Trek, the Next Generation series, involving Draghi and Bernanke as a
combination of the Borq Qu... more »
Italy And Spain: Are Equity Markets Safer Than Bank Deposits?
Admin at Marc Faber Blog - 5 hours ago
Also if you are an investor in one of these countries (Italy and Spain),
what are you going to be more comfortable holding — the deposits in one of
your banks or equities? So, I think a lot of money is flowing into these
equity markets because the perception is that they are safer than bank
deposits. - *in CNBC Asia*
Related: IBEX 35 Index, FTSE MIB Index
*Marc Faber is an international investor known for his uncanny predictions
of the stock market and futures markets around the world.*Oil And Bonds Slump As Stocks Get Draghi-Pump
Draghi
spaketh and the bulls taketh. Risk assets re-correlated in a hurry as
Draghi stopped speaking and the US day-session opened (and buoyed by
better than expected - though implicitly QE-off - data) risk was on
like Donkey Kong. We ripped through recent swing highs, up to the
year's highs, and then on to 4-year highs in the S&P and 12-year
highs in the NASDAQ. But it wasn't all faeries and unicorns; after the European close, CONTEXT (our proxy for risk-assets) diverged notably lower as stocks extending their trend for the day; Oil dropped hard on rumors of an imminent SPR release
and Gold and Silver trod water (after a busy night admittedly). The
S&P 500 e-mini futures (ES) stayed in a very narrow range just above
early August highs for the rest of the day as Treasury yields also
started to stabilize at last Friday's levels with the 30Y up around 12-13bps on the week
(notably more than the front-end). JPY weakness (carry-driven) as
Draghi spoke, faded in the afternoon and along with the drift lower in
TSY 2s10s30s there was a much less ebullient feel to everything - even
as stocks decided to close at their highs of the day
(as VIX fell back below 16% in the last few minutes down around 2 vols
on the day). Volume was mediocre, average trade size above average, as
the vinegar-strokes at the cash close saw bigger blocks come through.Goldman's Definitive Post-Mortem On Europe' Third Bond Buying Attempt
Yesterday, when Bloomberg leaked every single detail of today's ECB announcement, which thus means today's conference was not a surprise at all, yet the market sure would like to make itself believe it was, we noted that everything that was leaked, and today confirmed, came from a Goldman memorandum issued hours before. Simply said everything that happens at the ECB gets its marching orders somewhere within the tentacular empire headquartered at 200 West. Which is why when it comes to the definitive summary of what "happened" today, we go to the firm that pre-ordained today's events weeks ago. Goldman Sachs.
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I'm PayPal VerifiedThe One Chart To Explain Why Draghi's Blunt Tool Can't Fix Europe
The
monetary policy transmission mechanism is broken in Europe; we all
know it and even ECB head Draghi has admitted it (and is trying to solve
it). As Bloomberg economist David Powell noted though, Draghi may have to address the economic fragmentation of the euro area before undoing the financial fragmentation of the region. The latter may just be a symptom of the former. The Taylor Rule, a policy guideline that models a monetary authority’s interest rate response to the paths of inflation and economic activity, highlights
the drastically different monetary policies required across the
various EU nations as a result of their variegated domestic economic
conditions. This variation creates concerns over sustainability
and the rational (not irrational as Draghi would have us believe) act
of transferring deposits to 'safer' nations for fear of redenomination.
As Powell notes: Draghi will probably have to convince market
participants of the economic sustainability of the monetary union
before the financial fragmentation of the region is ended. The
large-scale extension of central bank credit to potentially insolvent
countries is unlikely to accomplish that - as economies remain hugely
divergent.The New Normal Of Investing: Bonds For The Price, Equities For The Yield
The
dividend theme has hardly run its course. As David Rosenberg of
Gluskin Sheff illustrates in his latest note, the income-starved
retiring boomers are being forced to garner income more and more via the
equity market where dividends are up more than 8% over the past year.
Because of ultra-low interest rates, interest income growth has vanished
completely. And here is the great anomaly. Back in the early
1980s, investors bought equities for capital appreciation and they
purchased Treasury securities for yield. Today it is the complete
opposite.It's Here, The Kindle Paperweight... Er Paperwhite
Please sit down before reading the stunning list of new features that Amazon has unveiled this morning for the new Kindle Paperwhite:- (ready)...
Front-Lit
Changeable Fonts
Better Resolution
Better Battery
Compelling stuff! No happy-ending? No buying of Spanish bonds, and (pseudo) sterilized money printing? No coffee-making attachment? Odd, it seems the news is being sold as AMZN slides from intraday highs...
The Death Of IPOs, And Why It Matters To You
The chart below by way of Grant Thornton shows something rather disturbing: in recent months, the number of IPOs that are trading "at or above their issue price 30 days after IPO pricing" has been collapsing in virtually a straight line since the early 1990s, and in 2012 was just shy of all time lows (which have been recorded during periods of great market crashes, not when the S&P is about to hit its yearly highs). As such the lack of success of such prominent recent names as FaceBook, Zynga, Groupon and many others, is not simply a function of valuation and investor sentiment, but related to the ongoing deteriorating in the underlying market structure for a variety of reason, many of which have been written about here in the past.
A Gentle Reminder Of The Effectiveness Of Prior ECB Bond Buying
Today's
announcement of the third-coming of the messiah-like Draghi's
Bond-Buying program - even if under a different, more catchy, name -
brings to mind a chart we offered by way of genuine concern the last
time he mentioned this as an option. While he insists it's different
this time (because they'll tell us the CUSIPs? we already knew when they were in; because its conditional? and revocable and who trusts their data; because its at the short-end?
simply crushing up sovereign funding capabilities and leaving the
roll/liquidity needs even greater; Unlimited? we don't remember a limit
before?), it is clear that the immediate gaps tighter in bond
yields (and spreads) on the announcement of the program was the best it
ever was and bonds sold off through each of the previous two SMP
efforts. Just saying...NASDAQ At 12-Year Highs, AAPL +9571% In Same Period
While partying like its 1999 is still a way away, the NASDAQ has managed to get back to December 2000 levels as it has only dropped by more than 1% once in the last six weeks #yay Retirement-On!
EURphoria
Forget the conditionality, Draghi said it would be solved and we should believe - and believe everything in Europe did! Equity markets soared 3-5% (with EuroStoxx catching up to Gold YTD), credit spreads - which had outperformed in the last few days - rallied rather notably, European sovereign bond yields (2Y yield down 15-20bps) and spreads tumbled dramatically (10Y spreads down 30-50bps), Europe's VIX collapsed 4.5 vols to 23%, and EURUSD surged back to the highs of the day into the European close (after being down immediately after the press conference). Capitulation? who knows? Reality? not even close.
The Bundesbank Replies To The ECB
Did the German Bundesbank roll over and die as Die Welt suggest,
by yielding to the will of the ECB and Goldman? Or is it merely
setting the stage for the inevitable German referendum? Many claim the
Italian head of the ECB won today in his ever escalating confrontation
with the last remaining German on the ECB governing council, although
in reality he is merely doing what he has already done twice before.
The outcome will be the same: abject failure to contain the crisis
which will not be resolved until and if Europe succeeds in
creating a united, Federal state, with one bond issuance authority.
That will never happen: after all, 17 European states will never hand
over their sovereignty to a third party, especially one which is
backstopped by German cash. But it can pretend. In the meantime, Buba
will not quietly go, instead it has already stated what it thinks, and
what it thinks is that what the ECB is doing (once again) is "tantamount to financing governments by printing banknotes" and that monetary policy is now subjugated to fiscal policy. Full text of the Buba's response below.
Jim Sinclair’s Commentary
The goal now is not what it was at $248. Then we were holding out for $1650 as an absolute real gold price objective that was certain to be fulfilled.
Now the goal is to know when and at what price gold will become fully valued. With the possibility that gold will again function in a repaired monetary system to guarantee the gains suggests there will be no 1980 fall that the bears have been waiting for during the last $1400 move.
These charts may be offering extreme possibilities, but in this attempt one must not rule out anything.
Dear Trusted Colleagues & Friends,
Thank you for your trust and support.
One of the benefits of working at BMG is the honour in sharing our findings. Today I want to share a very interesting technical chart on the likely ‘shape’ of things to come.
Using Elliott Wave theory in technical analysis, as it applies to gold, has created discussions in certain circles and has been used by some to try and discredit gold. The argument for applying Elliott Wave has tremendous merit when you also reference the debt levels. Whether we agree or disagree, with Elliott Wave, we need to be aware of what the exponential function means as there is no disputing the uncanny 0.9649 correlation between the nominal price of gold and the shape of this wave extension.
The math used in these calculations is also known as ‘The Golden Mean’. I find the irony of using it FOR gold amusing, and hope you see the humour too. We can all feel the pressure building in the gold market, and hope you feel it too. I can hear the whistle blowing.
![clip_image002[5]](http://www.jsmineset.com/wp-content/uploads/2012/09/clip_image00251.jpg "clip_image002[5]")
Albert Bartlett famously stated, “Man’s greatest weakness is his inability to understand the exponential function”. Said another way, as the correlation between the debt ceiling in the US and the price of gold are in lock-step, I think the banking and government officials should heed the direct words ofErnest Hemingway when he was asked how he went broke:
“Two ways: first gradually, then suddenly”.
More…
Jim Sinclair’s Commentary
On the subject of wealth and spirit:
Earning wealth is one of the legitimate objectives of human endeavor, without a doubt. It is one of the four objectives of every human life, the four being – righteousness, earning wealth, desire and liberation. The order they are mentioned in, has a purpose too. Righteousness has to direct and control the process of earning wealth and liberation has to be the regulating factor for one’s desires. All wealth accruing through unrighteous means is to be treated with contempt as unworthy. All desires that do not subserve the one supreme need for liberation are to be given up as beneath one’s dignity. So the spiritual basis of righteousness and liberation must be the root of both the pursuit of wealth and fulfilment of other desires. –SSB 1966
Jim Sinclair’s Commentary
To find a custodian that will cooperate in certificating your retirement account in the custodian name and name of the beneficiary will require some investigation. The hunt is worth your while as in certificate form even when held by the custodian is protection as the shares are not fungible without both signatures on a limited power. What you are looking for is a Self Directed Custodian. Use your search engines. Then check out their references.
Finding an IRA Custodian
One of the most difficult yet important tasks an investor faces when looking to participate in the self-directed industry is finding the right IRA Custodian. An IRA Custodian works as the bank and are highly regulated by the IRS, state and federal banking commissions and have to meet stringent federal requirements in order to keep their good standing. In most cases, your custodian or trustee will also serve as your administrator for the retirement account. They question is how do you find them and how do you know who to work with? A IRA Facilitator or Guidant Financial Group, works with most custodians nationwide and can help you better understand which one is right for you.
There are very few non-traditional IRA custodians simply because the business is not as profitable as it is for the brokerage houses and it require many more “man hours” to complete a real estate purchase. This is why the fees that non-traditional custodians charge seem so high. Because their systems, for the most part, cannot be automated, they have to charge you asset fees just for having the account and then transactional fees every time you make an investment. This is not unlike fees charged by high-end brokerages instead of commissions for trades.
Traditional brokerage houses don’t compete because it doesn’t fit within their business objectives. They make money by leveraging your money. A bank will charge you very little to administer your IRA (which can only buy securities) because they will take those deposits and lend them to someone else for a car loan, home equity line of credit and so on. You get less than a 1% return in your checking account—they get 5% to 20% for lending it to another party.
In the self-directed industry you get what you pay for. Unfortunately, if you buy cheap—you will likely buy twice. Because the IRA Custodians who allow non-traditional asset participation cannot implement as much electronic atomization, their fees are quite costly. The relationship between you and your custodian is much like that of a parent-child relationship where, if you find an investment, you have to go back to them to for permission. The custodian’s ability to react and service your request in a timely manner is crucial to your success with a “traditional” self-directed retirement account. The custodians who have the capacity to provide great service can be very expensive.
More…
Jim Sinclair’s Commentary
When paper loses value, gold gains.
There is a teaching in this transaction. In the case of war and sanctions, gold rules. Turkey however increased its exports by 70% in the dumbest way possible.
Turkey boosts lira bonds by selling record $6.2b gold to Iran [Times of Oman] Bloomberg News(Bloomberg News) Al Bawaba Ltd.
ISTANBUL: Turkey is more than making up for a slide in exports to Europe with record gold sales to Iran, steadying its current-account deficit and boosting lira bonds.
Sales of precious metals to Iran jumped to $6.2 billion this year through July from $21.9 million in the same period last year, accounting for 70 per cent of Turkey’s increase in exports this year.
The transactions helped narrow the current-account gap to 8.3 per cent of gross domestic product from 10 per cent in 2011, even as sales to the European Union dropped by $3.4 billion.
Yields on two-year lira bonds fell to a three-week low of 7.62 per cent on August 31, extending the biggest drop among major emerging markets this year to 336 basis points.
Turkey’s current-account shortfall is the world’s largest behind the United States and makes the country the most vulnerable in developing economies to any deterioration in global investor sentiment, according to Moody’s Investors Service.
More…
Jim Sinclair’s Commentary
Monetary Sterilization: The way to look at this is NOT how it affects a balance sheet (monetary base) but how each action taken in the series impacts economic momentum, and confidence as expressed in the velocity of money. The idea that you show no change in the monetary base and therefore nothing happens is absolute nonsense offered by academics to sell a case. Sterilization to be real, in the monetary sense, is the net impact of the tactics taken, not an accounting treatment. The BS that passes for wisdom is mind boggling. The effect of unlimited bond buying of weak paper (QE to infinity) will not be erased by neat accounting methods defining something that is hard to measure accurately, monetary base.
Definition of ‘Sterilization’
A form of monetary action in which a central bank or federal reserve attempts to insulate itself from the foreign exchange market to counteract the effects of a changing monetary base. The sterilization process is used to manipulate the value of one domestic currency relative to another, and is initiated in the forex market.
Read more: http://www.investopedia.com/terms/s/sterilization.asp#ixzz25dAbfSwl
Sterilized intervention
http://en.wikipedia.org/wiki/Currency_intervention
Sterilized intervention is a policy that attempts to influence the exchange rate without changing the monetary base. The procedure is a combination of two transactions. First, the central bank conducts a nonsterilized intervention by buying (selling) foreign currency bonds using domestic currency that it issues. Then the central bank “sterilizes” the effects on the monetary base by selling (buying) a corresponding quantity of domestic-currency-denominated bonds to soak up the initial increase (decrease) of the domestic currency. The net effect of the two operations is the same as a swap of domestic-currency bonds for foreign-currency bonds with no change in the money supply.[2] With sterilization, any purchase of foreign exchange is accompanied by an equal-valued sale of domestic bonds, and vice versa.
For example, desiring to decrease the exchange rate/price of domestic currency without changing the monetary base, authorities purchase foreign-currency bonds, the same action as in the last section. After this action, in order to keep the monetary base, governments conduct a new transaction, selling an equal amount of domestic-currency bonds, so that the total money supply is back to the original level.
Central bank purchase of foreign-currency bonds
| Central bank balance sheet | |||
| Assets | Liabilities | ||
| Foreign-currency bonds (+1) | Monetary base (+1) |
| Central bank balance sheet | |||
| Assets | Liabilities | ||
| Foreign-currency bonds (-1) | Monetary base (-1) |
| Central bank balance sheet | |||
| Assets | Liabilities | ||
| Foreign-currency bonds (+1) Foreign-currency bonds (-1) |
Monetary base (—) |
Jim Sinclair’s Commentary
The root cause and why nothing will change.
Top Bank Lawyer’s E-Mails Show Washington’s Inside Game By Robert Schmidt and Jesse Hamilton – Sep 5, 2012 11:25 AM ET
It had been two days since U.S. lawmakers negotiated all night to finish rules that would reshape the business of Wall Street. The 20-hour session left legislators, aides, lobbyists and regulators exhausted. Almost no one had a grip on all the details.
Annette Nazareth, an attorney with Davis Polk & Wardwell and a former commissioner on the U.S. Securities and Exchange Commission, testifies at a joint meeting between the and the SEC and the Commodity Futures Trading Commission in Washington, D.C., in this Sept. 2, 2009 file photo. Photographer: Brendan Hoffman/Bloomberg
Then Annette Nazareth stepped in. That Sunday morning, she e-mailed a dozen Securities and Exchange Commission officials about the bill that would become the 2,300-page Dodd-Frank Act.
Nazareth, herself a former SEC commissioner, represents the biggest banks and securities firms as a partner in the Washington office of Davis Polk & Wardwell LLP. She attached an annotated copy of the measure to her June 27, 2010, e-mail, marking changes made during the wee hours. It could be an invaluable tool for an agency hard-pressed to analyze the bill on a tight deadline.
“In case you would find it helpful,” Nazareth wrote to the group, many of them ex-colleagues.
More…
Jim Sinclair’s Commentary
You have to love demonstrations of intelligence in the business community. The following action is be taken by many airlines in light of the obesity problem in the USA.
You think all the pin heads are in finance?
Smaller seats, more passengers: Inside United Airline’s painful new plan
The carrier says it’s installing slimmer seats to offset climbing fuel costs. Will that make economy class feel even more like a cattle car? POSTED ON AUGUST 24, 2012, AT 12:52 PM
As rising fuel costs erode profits, United Airlines has come up with a claustrophobia-inducing way to boost income: Installing thinner, lighter seats onto some of its planes so it can cram in more passengers. Here, a brief guide we’ve managed to squish into less than a page:
How many more people is United packing in?
The seats, which United will begin installing next year, use a polyester padding — supposedly ergonomically superior to bulkier traditional foam cushioning. The new smaller seats let United add one row to the 12 to 15 rows in the economy sections of its 152 narrow-body Airbus jets. Net gain: Another six passengers per flight.
Does this mean passengers will have less room?
You’d think so. But United insists the change will give passengers more leg room. The smaller seats, made by German-based Recaro, will allegedly take up less space, increasing the amount of "living area" for each passenger’s knees. But many frequent fliers remain pessimistic.
What are travelers afraid of?
"Having more people on a plane makes it less comfortable," says Alex Davies at Business Insider. "Boarding and unboarding takes more time, there’s less space for carry-on luggage, bathroom lines get longer, food service (if there is any) is slower." Every change the airlines make to squeeze more people onto a plane, one traveler tells CNN, makes the cabin feel more like a "cattle car."
More…
Jim Sinclair’s Commentary
They might call it art but for the banksters things are getting hotter.
This is good for the business of security services protecting the bankster and hedges.
Burning Man 2012: Burn Wall Street, El Pulpo Mecanico, And More Spectacular Scenes (VIDEO, PHOTOS) Posted: 09/05/2012 3:22 pm
Maybe you were at the Burning Man Festival last week, or maybe you’d never go in a million years (that alkaline dust is no joke!). Either way, we highly recommend debriefing with a photo and video recap, straight from la playa.
This year, the installations ranged from new contributions to old standards, and all were assuredly weird. For instance, Duane Flatmo brought back his fire-spouting, 25-foot-tall metal octopus, and El Pulpo Mecanico delivered the usual antics. The Pier, which earned some fame last year, debuted new tricks as Pier 2, ending in a wrecked ship filled with trinkets — kind of like the Burning Man version of a Disney World attraction. Then there was the conversation starter of the week: Burn Wall Street, a non-partisan demonstration in which a re-imagining of the New York skyline — including the "Merrill Lynched" building — burned spectacularly to the ground.
Our personal favorite installation though, was the brand new Mayan TRIcycle, where each wheel represents a different calendar. Not only did the multi-wheeled contraption look like a giant hamster wheel for humans, it was designed to comfort people who think the world is going to end on December 21, 2012. How can one resist such a perfect storm of unorthodoxy?
More…
Jim Sinclair’s Commentary
Read about prior sterilized monetary interventions to better understand tomorrow, "Daughi Day," in markets.
I think in the long run the meeting today between Hollande of France and the President of the EU is more important.
Why sterilization matters March 9, 2008, 4:07 pm
Brad DeLong, commenting on my last post, misses the point, I think:
Foreign exchange markets are so large that even big exchange intervention efforts look like a drop in the bucket. But domestic financial markets are even larger–so that even big open-market operations not just look like but they are a drop in the bucket. Yet open-market operations are highly effective in changing interest rates.
The reason open-market operations are highly effective is that they change the monetary base — and the monetary base is only $822 billion (yes, “only” — we’re in the world of Very Big Numbers here). What’s more, there are no close substitutes for monetary base. So there, an intervention of a few tens of billions of dollars has a big effect.
But a sterilized intervention means an intervention that doesn’t affect the monetary base — swapping dollar t-bills for euro T-bills, or T-bills for mortgage-backed securities. And here the numbers are much bigger: $11 trillion in home mortgages, for example. And home mortgages are a better substitute for, say, long-term government debt than either is for green paper bearing portraits of dead presidents.
The point is that the effectiveness of conventional open-market operations offers very little reason to be optimistic about the super-TAF, or whatever they’re calling the Fed’s new role as pawnbroker of last resort.
I think a better guide is the failure of sterilized intervention in, say, the 1992 sterling crisis: $40 billion in intervention — about 4 percent of GDP — blown away by the markets in a couple of weeks. That’s why I’m not optimistic about the Fed’s plan
More…
Jim Sinclair’s Commentary
Follow the money is the best way to answer the sterilization issue. At first I see a comparison to the practically useless operation Twist.
You can academically sterilize the balance sheet accounting wise, but as the funds flow through the system it is much harder to sterilize the actual effect. More simply put, you cannot.
ECB Plan Said To Pledge Unlimited, Sterilized Bond-Buying By Jana Randow and Jeff Black – Sep 5, 2012 11:04 AM ET
European Central Bank President Mario Draghi’s bond-buying proposal involves unlimited purchases of government debt that will be sterilized to assuage concerns about printing money, two central bank officials briefed on the plan said.
Under the blueprint, which may be called “Monetary Outright Transactions,” the ECB would refrain from setting a public cap on yields, according to the people, and a third official, who spoke on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets and will target short-dated maturities of up to about three years, two of the people said.
The euro jumped half a cent on the report and traded at $1.2611 at 5:40 p.m. in Frankfurt. European stocks advanced. An ECB spokesman referred to an Aug. 20 statement in which the Frankfurt-based central bank said it was misleading to report on decisions that haven’t been taken yet.
Draghi told the European Parliament this week that the ECB needs to intervene in bond markets to wrest back control of interest rates in the fragmented euro-area economy and ensure the survival of the common currency. Policy makers are deliberating on the plan today and Draghi will announce whether it has been agreed to at a press conference tomorrow.
More…
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