Fed Decreases Balance Sheet By $17 Billion (Half T-Notes, Half Agency MBS, Adds $1.8 Billion In Inflation Protection)

By Anthony B. Sanders

Fed Chair Jay Powell said he was going to pursue rate normalization (aka, letting rates rise). And he seems to be a man of his word: The Fed today deccreased their balance sheet by $17+ billion.

$9.6 billion was due to maturing Treasury notes and $9.3 billion was due to agency mortgage=backed securities (Agency MBS)/


On the other hand,  The Fed once again bought $1.8 billion of TIPs.

Here is a chart showing the SOM Holdings:


Here is Fed Chair Jerome “Jay” Powell reciting Shakespeare’s Hamlet: “I must be cruel only to be kind; Thus bad begins, and worse remains behind.” 


The Albatross Of Debt: Why The Fed’s Wall Street Based Steering Gear No Longer Drives The Main Street Jalopy, Part 6

By David Stockman

The heart of the Fed’s monetary central planning regime is the falsification of financial asset prices. At the end of the day, however, that extracts a huge price in terms of diminished main street prosperity and dangerous financial system instability.

Of course, they are pleased to describe this in more antiseptic terms such as financial accommodation or shifting risk and term premia. For example, when they employ QE to suppress the yield on the 10-year UST (i.e. reduce the term premium), the aim is to lower mortgage rates and thereby stimulate higher levels of housing construction.

Likewise, the Fed heads also claim that another reason for suppressing the risk free rate on US Treasuries via QE was to induce investors to move further out the risk curve into corporates and even junk, thereby purportedly boosting availability and reducing the carry cost of debt financed corporate investments in plant, equipment and technology.

Continue reading The Albatross Of Debt: Why The Fed’s Wall Street Based Steering Gear No Longer Drives The Main Street Jalopy, Part 6

Should You “Fret” Over the New Fed Chair’s Possible Actions?

By Elliott Wave International

Learn what really governs the trend of interest rates

Is new Fed Chair Jerome Powell a hawk — meaning, will he aggressively raise rates to curb inflation?

That’s what investors are asking as Powell makes his first appearance before Congress in his new role. The belief that Powell will be hawkish has already rattled markets, according to some observers (Reuters, Feb. 23):

Markets fret over Federal Reserve’s approach under new chair Powell

Investors are starting to doubt whether they can count on the protective embrace of an accommodative U.S. central bank when markets go haywire.

Of course, “accommodative” means leaving interest rates low, or raising them slowly and a little at a time. This is “accommodative” to the stock market because low rates are supposed to motivate investors to seek higher returns in the stock market. On the other hand, higher rates would provide competition for stocks.

Here’s something to keep in mind, before we go on: EWI’s studies show no consistent relationship between the trend in rates and the stock market. Even so, this belief remains widespread.

Continue reading Should You “Fret” Over the New Fed Chair’s Possible Actions?

Embarrassing Ag Problem

By Kevin Muir

Stock markets up on a stick. Valuations stretched. Bond yields near sixty year lows. Real returns basically zilch.

A decade of global financial repression has forced investors everywhere out the risk curve. Nothing is cheap. There is a reason that top quantitative research shops like GMO have forecasted future returns that look like this:

Cries of that awful acronym TINA ring through the halls of investment houses as clients take a big gulp and write blue tickets – despite the lofty prices. After all, everything is dear and their retirement still needs to funded.

Continue reading Embarrassing Ag Problem

Mirage? Inflation Still MIA as Number of Options Betting on Rise in Short Volatility ETF Surges

By Anthony B. Sanders

Like a mirage in the desert sand, inflation is still missing in action (MIA).

Core Personal Consumption Expenditures (PCE) growth YoY remains at 1.5% for January. The PCE deflator YoY remained the same at 1.7%.


But the number of options betting on a rise in short-volatility ETF is surging.


Yes, inflation is still a mirage (at least to The Fed). That should put a lid on further rate hike/unwinding activity. Or not!


Here’s Who Will Buy All That Treasury Supply

By Heisenberg

Now if we only knew the price…

10Y yields are back near their lowest levels since last month’s CPI beat, having given back Tuesday’s Jerome Powell-inspired spike that derailed equities.

They’ll be no shortage of narrative fodder on Thursday with Powell’s second act (this time in testimony to the Senate) and PCE on the docket, but panning out, the question still lingers: how high will yields go? And of course the follow-up that no one can answer: what is the magic number on 10s beyond which equities can no longer pretend not to care?

Here are the monthly yield changes for UST benchmarks from February:

  • 2Y +10.9bp
  • 5Y +12.6bp
  • 10Y +15.6bp
  • 30Y +18.9bp

As a reminder, the two-month rise in real yields (i.e. January plus February) was the largest since the election:


Just to be clear, folks are getting pretty deep into the weeds here when it comes to forecasting yield levels given a set of assumptions. And by “deep in the weeds” I just mean that people are bending over backwards to find a reliable framework for forecasting. It’s not so much that the methodologies being employed are particularly innovative (this isn’t exactly rocket science), it’s just that the amount of time being spent on it is probably some semblance of absurd considering the inherent futility of trying to accurately forecast this. Here’s BofAML’s latest:

Continue reading Here’s Who Will Buy All That Treasury Supply

Another Heavy Hitter Calls Bond Bear


See, the headline says so. You can click it for the article.

Hedge-fund veteran Paul Tudor Jones has joined the growing chorus of big hitters in the fixed-income world warning that bonds are well and truly in a bear market.

Well, they truly are not in a bear market sir. They are in a bull market. At significant issue is whether or not they will enter a secular bear market after the decades-long bull funded and nurtured all manner of bullish asset market excesses since the early 1980s.

The 30yr ‘long bond’ is not in a bear market because it is in an unbroken uptrend. Ugly 2014-2018 pattern? Sure. Concerning upside overshoot (attn: stock market, you did the same recently) that could trigger an equal and at least opposite response? Sure. Bear market? Easy boyz, stop making headlines for people to get hysterical over and watch the market.

30 year bond

The 30yr yield is only now approaching our anticipated target.

Continue reading Another Heavy Hitter Calls Bond Bear

KPMG Reports on Risks Faced by Top Mining Executives

By Otto Rock

TORONTO, March 1, 2018 /CNW/ – Overbooking at quality lunch establishments is the top risk facing mining and metals companies this year, finds an annual survey of Canadian mining executives by KPMG in Canada.  As volatility re-emerges in reservations markets, shifting prices will be a key theme as mining industry participants from around the world gather in Toronto next week for the 86th annual Prospectors & Developers Association of Canada convention to get absolutely lathered.

The latest issue of Insights into Mining shows a relatively consistent risk landscape compared to previous years as Canadian and global mining businesses continue to navigate Michelin three star restaurants in a highly competitive industry. Booking risk and the average price for Dom Perignon returned to the Top 10 this year, while access to private rooms, AMEX rhodium cards, controlling bowels and trying to drive Ferraris while drunk, maintaining an antisocial right to talk loudly and managing walking instability also figure high on the list of top risks.

“Restaurant booking risk is once again the leading challenge facing mining executives as they consider the downside of the recent upswing in prices,” says Heather Cheeseman, GTA Mining Leader and Partner, Audit and Risk Consulting, KPMG in Canada. “With weed and crypto stocks making gains, the competition for the best tables at lunch is now fierce and PAs are under pressure to secure the best lunch spots without going on long waiting lists, else incur the wrath of the utter pieces of shit who pay their monthly salaries.”

Below are the Top 10 risks facing Canadian mining and metals companies in 2018:

1. Restaurant lunch reservation risk
2. AMEX rhodium availability (includes risk of embarrassment in using a  mere Platinum or Black card in front of peers)
3. Access to best tables
4. Having to be pleasant to “the staff” else face discrimination lawsuits
5. Dom Perignon price risk
6. Private room availability
7. PDAC hangover risk
8. Ability to drive back to office without DUI arrest
9. Controlling bowels
10. Capital allocation of lunch on expense account without anyone noticing the line item

Each year, KPMG in Canada updates the market with critical insights into the risks, challenges and multi-year trends that are top of mind for Canadian miners. Learn more by accessing the Insights into Mining report.

The Authority Fallacy, Or The Quarles Quandary

By Jeffrey Snider

In early September 2007, just a month after the eurodollar system broke and still weeks before the FOMC would finally see the need to do something, anything, private equity firm Carlyle Group added six new “senior investment professionals” intending on making investments in global banking and insurance. The timing was, well, suspect.

Among those added to the firm was Randal Quarles, a former Treasury official in the Bush administration who had become Undersecretary for Domestic Finance. In that position, Quarles had delivered a speech in New York in May 2006 addressing the irregularities becoming undeniable throughout markets. It was, to say the least, an auspicious time to be talking his book.

It was, in reading it this much later, a far more realistic assessment than most that had been offered particularly by anyone in any official capacity. He addressed the potential issues with the GSE’s starting with their role in the then housing bubble mania, admitting quite frankly, “The concentration of risk inherent in these portfolios along with the GSEs’ thin capital structure are an important policy concern and a high priority for the Treasury.”  Priority in name only, apparently.

Continue reading The Authority Fallacy, Or The Quarles Quandary

The Big Dollar Question: Is This The Turning Point?

By Heisenberg

As noted on Wednesday afternoon, the dollar managed its first monthly gain in four in February, leading some to wonder if we’ve seen a turning point for a greenback that’s been more “beleaguered” than Jeff Sessions after a Trump Twitter tirade.


Of course the dollar story is complicated these days. On one hand, you’ve got a ballooning deficit in the U.S. and worries that the Trump administration is still angling for a weak dollar policy to bolster U.S. trade. On the other hand, you’ve got rising U.S. yields and a Fed chair who delivered a hawkish surprise earlier this week during his first public testimony on Capitol Hill.

Continue reading The Big Dollar Question: Is This The Turning Point?

Mortgage Refinancing Applications Tank 11.11% From Previous Week As Fed-or Mortis Sets In

By Anthony B. Sanders

Fed Futures Forecast 3 Rate Increase This Year

Yes, The Fed’s version of Rigor Mortis (aka, Fed-or Mortis) is setting in.

Mortgage applications increased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 23, 2018. This week’s results include an adjustment for the Washington’s Birthday (Presidents’ Day) holiday.


The seasonally adjusted Purchase Index increased 6 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 3 percent higher than the same week one year ago. The Refinance Index decreased 11 percent from the previous week.


Continue reading Mortgage Refinancing Applications Tank 11.11% From Previous Week As Fed-or Mortis Sets In

They’ve Done Studies You Know…

By Heisenberg

Ok, so we got through the first of two Powell testimonies, and it went ok, all things considered. The message was mildly hawkish on balance and the result for yields, the dollar and secondarily, for stocks, was predictable.

The comments that set the tone came early on when Powell suggested that his outlook on the economy had improved of late and although he said he “wouldn’t want to prejudge” anything about the rate path, he noted that for him, the data “add some confidence to the view that inflation is moving up to target.”

“We’ve also seen continued strength around the globe, and we’ve seen fiscal policy become more stimulative,” he added.

 Treasurys dropped on those comments as 10Y yields quickly moved above 2.90.


Zooming in on 2Y yields just as the comments excerpted above hit, you can really see the impact:

Continue reading They’ve Done Studies You Know…