We have noted repeatedly that Operation Twist served to benefit strategic areas (like housing) with its purchases of long dated Treasury bonds, which kept rates down on the long end. We have also noted that Twist sought to sanitize these asset purchases by selling short-term Treasury bonds to keep the yield curve tame and snuff out any inflation signals that would come from a rising money supply. Enter Goldilocks.
It’s all lies. It is a painting rendered by a most brilliant of Fed chiefs playing tricks with the nation’s bloated debt load. People are buying the stock market now and they (and their investment fund managers) probably don’t give a damn about what created the rally. It’s Goldilocks and that’s all they are concerned with.
I distinctly remember watching the first yellow highlighted bullish pattern form. Here, don’t believe me? I am a perma bear? Here’s the post from back then (7.3.12):
Housing Index Targets Higher
I did not buy it because I find it difficult to buy things that I either don’t believe in or are entirely dependent upon overly powerful people doing things that should be illegal in order to manage markets to desired outcomes.
But the chart was the chart and it was bullish. HGX has since gone on to much higher levels than I had anticipated as it carries along the absolute dumbest, most greedy money on the planet in tow. These people were hiding in foxholes last summer.
Just remember that if you want to go chasing this market. These people are your co-sponsors.
Risk vs. reward on the broad US stock market stinks. I was not afraid to call it bullish last summer and I am not afraid to call it what it is now.
“Inflation has been running somewhat below the Committee’s longer-run objective”
We have willfully put our big brains to use by manipulating the inflation picture over the last 1.5 years. The pivot point was Bond King Bill Gross’ epic bet on rising long term rates (and inflation). Now, as our ingenious Twist ends and we go forth in straight, unsanitized monetization of Treasury and MBS debt, we have a delightfully tame – errr, even below our objectives, LOL – inflation picture.
“The Federal Open Market Committee Fed’s bond-purchase programs, known as Operation Twist, expires next month. Under the program, the Fed has been buying long-term Treasurys and selling its holdings of shorter-dated Treasurys, effectively “twisting” the yield curve that charts the gap in yields between different maturities.
Investors expect the Fed to continue its buying of long-term Treasurys while letting the short-term sales expire, in effect expanding its program known as quantitative easing, or QE, beyond large-scale purchases of mortgage-backed securities — something to which the Fed’s committed to doing as long as necessary.”
Below is a look at what the Twist manipulation has done as various items – and notably, gold – have been held in a corrective grip by the “sanitized” aspect of Twist, which does not increase the money supply. It is of course bald faced (in that it is very official and not just in the realm of Tin Foil Hatters) manipulation of something that has traditionally been a ‘free market’ indicator of systemic stress or lack thereof.
Here’s a compelling view by a log scale chart of gold dutifully following the yield spread.
Both charts have been used in NFTRH, where we a deal in what is, not what should be. What is is a barbarous relic that also acts as monetary insurance and barometer of systemic problems towing the line with a yield curve whose structure has been manufactured.
What happens if they terminate (or are forced to terminate by lack of short-term bond supply) this operation in December as the currently announced Twist phase ends? Well then, inflation may become just a little bit more honest.
…and into Treasuries! Wheeeee!! Oh and it looks like the Fed is still Twisting and hence, working over the yield curve in a gold unfriendly manner. The indication is from long-term bonds out performing short-term ones, as people just gotta get that debt of Uncle Sam, who they trust is not an epic and chronic inflator.