CL Redux
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The Fed
Aug. 8, 2011, 4:27 p.m. EDT
QE3? Expect, at most, QE 2.1 at Fed meeting
By Steve Goldstein, MarketWatch
WASHINGTON (MarketWatch) â The Federal Open Market Committee meeting on Tuesday, which just two weeks ago was expected to be an almost throwaway gathering, has suddenly morphed into a major event.
Thatâs what Thursdayâs 513-point one-day hammering on the Dow Jones Industrial Average, followed by Mondayâs 635-point nosedive, will do.
Risks of recession rising
Three former top officials at the U.S. Federal Reserve, including Donald Kohn, tell WSJ's Jon Hilsenrath that the chances of a double-dip recession have risen to between 20% and 40%.
âIt wonât be a boring meeting,â said Lawrence Creatura, co-portfolio manager of small-cap value investments for Federated Clover Investment Advisers. âWeâre in an entirely different orbit today than we were two weeks ago.â
The Fed will have weighed both the marketâs slide as well as recent economic data, such as the deterioration in manufacturing sector sentiment and the weak gross domestic product reports for both the first and second quarter, said Karen Dynan, co-director of the Brookings Institutionâs economic studies program and a former senior adviser to the Federal Reserve Board.
âThe question for them is whether this is a soft patch or a sustained slump in activity,â she said. âWe donât know and they donât know.â
The marketâs major question is if the Federal Reserve, which will deliver its interest-rate decision at 2:15 p.m. Eastern on Tuesday, will give any hints on the initiation of a third round of quantitative easing, a so-called QE3. The August meeting wonât be followed a press conference with Federal Reserve Chairman Ben Bernanke, so any information the Fed wants to convey will have to be transmitted through its written statement.
Bernanke will be making his annual major policy address in Jackson Hole, Wyo., at the end of the month.
âInvestors will be obsessed with any information regarding the probability of further easing,â Creatura said.
But Fed followers say thereâs not much ammunition left in the central bankâs cannon. And more broadly, monetary policy isnât really the problem.
âI donât think you have a money problem right now,â said Jerry Webman, chief economist for OppenheimerFunds. âMonetary policy is about controlling the supply and price of money, and right now thereâs ample supply, and money can be had at a very cheap price.â
Webman likened a third round of bond purchases to drinking too much coffee. The next cup, he said, probably wouldnât wake up the economy and might even cause it to get drowsier.
Thatâs not to say the Fed doesnât have any options. But there arenât many, even as the Fed tries to communicate some change in its view.
âThe skittishness of markets following the [Standard & Poorâs] downgrade has probably increased the potential costs to the economy of the Fed appearing hesitant to deliver further accommodation,â said Michael Feroli, chief U.S. economist at J.P. Morgan Chase.
Steven Ricchiuto, chief economist for Mizuho Securities USA, said one option for the Fed is to put more meat on the âextended periodâ language in the statement.
The last FOMC statement said: âThe committee continues to anticipate that economic conditions â including low rates of resource utilization and a subdued outlook for inflation over the medium run â are likely to warrant exceptionally low levels for the federal funds rate for an extended period.â
âThatâs one of the tools they have talked about,â Ricchiuto said of altering language. âThey have said they will hold interest rates low for an extended period, but they could hold it even longer,â he said.
While tinkering with the language could make an impact on the whole rate curve, itâs unlikely to give the economy much of a shot in the arm.
âThe economy has fundamental imbalances,â Ricchiuto said. âA lot of policy tools are not working.â
Another option that Bernanke has publicly broached is to lengthen the average maturity of the $2.9 trillion in bonds that itâs holding.
The Fed has said it plans to hold its balance sheet constant by reinvesting the proceeds of maturing bonds, so the central bank could buy longer-maturity bonds, in a bid to get investors holding riskier assets.
âIf you want to do something interesting, you could replace [maturing bonds] with longer-dated mortgages,â Ricchiuto added.
But the Fed legally would have trouble buying mortgage securities from the private market (as opposed to those issued by Fannie Mae or Freddie Mac), where the central bankâs intervention would be more productive, Dynan of Brookings said.
Another option the Fed is toying with is cutting the quarter-point of interest they pay to banks on reserves parked with the central bank, an action which Bernanke in July said could put downward pressure on short-term interest rates.
One other point is that the market has done some of the Fedâs work for it. The yield on the 30-year Treasury note (ICAPSD:30_YEAR) has fallen roughly a half point over the last two weeks.
âWhen we expect a slower economy, market rates go down, which helps offset the negative impetus,â Dynan said.
Creatura of Federated said the best advice may simply be for the Fed to hold tight.
âWhat the Fed can provide is stability and maturity and allow other components of our corporate and governmental structures to solve their problems,â he said.
âYou donât hire a carpenter to solve a plumbing problem,â he added.
Aug. 8, 2011, 4:27 p.m. EDT
QE3? Expect, at most, QE 2.1 at Fed meeting
By Steve Goldstein, MarketWatch
WASHINGTON (MarketWatch) â The Federal Open Market Committee meeting on Tuesday, which just two weeks ago was expected to be an almost throwaway gathering, has suddenly morphed into a major event.
Thatâs what Thursdayâs 513-point one-day hammering on the Dow Jones Industrial Average, followed by Mondayâs 635-point nosedive, will do.
Risks of recession rising
Three former top officials at the U.S. Federal Reserve, including Donald Kohn, tell WSJ's Jon Hilsenrath that the chances of a double-dip recession have risen to between 20% and 40%.
âIt wonât be a boring meeting,â said Lawrence Creatura, co-portfolio manager of small-cap value investments for Federated Clover Investment Advisers. âWeâre in an entirely different orbit today than we were two weeks ago.â
The Fed will have weighed both the marketâs slide as well as recent economic data, such as the deterioration in manufacturing sector sentiment and the weak gross domestic product reports for both the first and second quarter, said Karen Dynan, co-director of the Brookings Institutionâs economic studies program and a former senior adviser to the Federal Reserve Board.
âThe question for them is whether this is a soft patch or a sustained slump in activity,â she said. âWe donât know and they donât know.â
The marketâs major question is if the Federal Reserve, which will deliver its interest-rate decision at 2:15 p.m. Eastern on Tuesday, will give any hints on the initiation of a third round of quantitative easing, a so-called QE3. The August meeting wonât be followed a press conference with Federal Reserve Chairman Ben Bernanke, so any information the Fed wants to convey will have to be transmitted through its written statement.
Bernanke will be making his annual major policy address in Jackson Hole, Wyo., at the end of the month.
âInvestors will be obsessed with any information regarding the probability of further easing,â Creatura said.
But Fed followers say thereâs not much ammunition left in the central bankâs cannon. And more broadly, monetary policy isnât really the problem.
âI donât think you have a money problem right now,â said Jerry Webman, chief economist for OppenheimerFunds. âMonetary policy is about controlling the supply and price of money, and right now thereâs ample supply, and money can be had at a very cheap price.â
Webman likened a third round of bond purchases to drinking too much coffee. The next cup, he said, probably wouldnât wake up the economy and might even cause it to get drowsier.
Thatâs not to say the Fed doesnât have any options. But there arenât many, even as the Fed tries to communicate some change in its view.
âThe skittishness of markets following the [Standard & Poorâs] downgrade has probably increased the potential costs to the economy of the Fed appearing hesitant to deliver further accommodation,â said Michael Feroli, chief U.S. economist at J.P. Morgan Chase.
Steven Ricchiuto, chief economist for Mizuho Securities USA, said one option for the Fed is to put more meat on the âextended periodâ language in the statement.
The last FOMC statement said: âThe committee continues to anticipate that economic conditions â including low rates of resource utilization and a subdued outlook for inflation over the medium run â are likely to warrant exceptionally low levels for the federal funds rate for an extended period.â
âThatâs one of the tools they have talked about,â Ricchiuto said of altering language. âThey have said they will hold interest rates low for an extended period, but they could hold it even longer,â he said.
While tinkering with the language could make an impact on the whole rate curve, itâs unlikely to give the economy much of a shot in the arm.
âThe economy has fundamental imbalances,â Ricchiuto said. âA lot of policy tools are not working.â
Another option that Bernanke has publicly broached is to lengthen the average maturity of the $2.9 trillion in bonds that itâs holding.
The Fed has said it plans to hold its balance sheet constant by reinvesting the proceeds of maturing bonds, so the central bank could buy longer-maturity bonds, in a bid to get investors holding riskier assets.
âIf you want to do something interesting, you could replace [maturing bonds] with longer-dated mortgages,â Ricchiuto added.
But the Fed legally would have trouble buying mortgage securities from the private market (as opposed to those issued by Fannie Mae or Freddie Mac), where the central bankâs intervention would be more productive, Dynan of Brookings said.
Another option the Fed is toying with is cutting the quarter-point of interest they pay to banks on reserves parked with the central bank, an action which Bernanke in July said could put downward pressure on short-term interest rates.
One other point is that the market has done some of the Fedâs work for it. The yield on the 30-year Treasury note (ICAPSD:30_YEAR) has fallen roughly a half point over the last two weeks.
âWhen we expect a slower economy, market rates go down, which helps offset the negative impetus,â Dynan said.
Creatura of Federated said the best advice may simply be for the Fed to hold tight.
âWhat the Fed can provide is stability and maturity and allow other components of our corporate and governmental structures to solve their problems,â he said.
âYou donât hire a carpenter to solve a plumbing problem,â he added.
BCE, I use FF for news--good interface and you can filter to show only US news items which cover it pretty well for oil:
http://www.forexfactory.com/calendar.php
BTW, good trading on TF and good call on the rebound. Also nice job on the adds, good stuff! You are holding those trades at least 15 minutes, much better than me, I'm out waaay too quick too often.
http://www.forexfactory.com/calendar.php
BTW, good trading on TF and good call on the rebound. Also nice job on the adds, good stuff! You are holding those trades at least 15 minutes, much better than me, I'm out waaay too quick too often.
Thanks, JD. And thanks for the link. I've been trading this a little differently than usual and even holding through some bigger pullbacks than I usually do. I have to pay more attention to when I post here as I totally missed the pullback right after the market open which I knew was coming. Lost track of the time. Redemptions from people who called their broker wanting out. At least I caught a good portion of the rebound.
I'm just cooling my heals now and doing other things and we'll see what happens when Bernanke speaks. I like to trade when it's easiest which is usually earlier. I try to let the chop go. Wish I had been tuned in last night but wasn't around a computer with a connection. Oh, well.
ADD: We'll see what the inventories are tomorrow.
10-year T-Notes yield last one month
http://money.cnn.com/2011/08/08/markets/bondcenter/treasuries_downgrade/index.htm?iid=EL
In fact, investors rushed to buy Treasuries on Monday, the first day investors could react to Standard & Poor's downgrade. The buying drove yields down to 2.34% on the 10-year Treasury, from 2.56% late Friday.
The U.S. Treasury Department plans sell $72 billion in bonds in auctions this week.
The sale will begin with $32 billion in 3-year notes Tuesday.
The Treasury will auction $24 billion in 10-year notes Wednesday,
and conclude with the sale of $16 billion in 30-year bonds Thursday
"The U.S. Treasury sector remains the largest and most liquid fixed-income market in the world with the greatest degree of price transparency and few genuine alternatives," said BlackRock, the world's largest money manager, in a statement.
----------
Bond Basics
http://www.investopedia.com/university/bonds/bonds4.asp
Government Bonds
In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories:
Bills - debt securities maturing in less than one year.
Notes - debt securities maturing in one to 10 years.
Bonds - debt securities maturing in more than 10 years.
Marketable securities from the U.S. government - known collectively as Treasuries - follow this guideline and are issued as Treasury bonds, Treasury notes and Treasury bills (T-bills).
http://www.investopedia.com/university/bonds/bonds7.asp#axzz1UYRJ2wWn
Bond Concepts: Yield and Bond Price
http://www.investopedia.com/university/advancedbond/advancedbond3.asp
http://money.cnn.com/2011/08/08/markets/bondcenter/treasuries_downgrade/index.htm?iid=EL
In fact, investors rushed to buy Treasuries on Monday, the first day investors could react to Standard & Poor's downgrade. The buying drove yields down to 2.34% on the 10-year Treasury, from 2.56% late Friday.
The U.S. Treasury Department plans sell $72 billion in bonds in auctions this week.
The sale will begin with $32 billion in 3-year notes Tuesday.
The Treasury will auction $24 billion in 10-year notes Wednesday,
and conclude with the sale of $16 billion in 30-year bonds Thursday
"The U.S. Treasury sector remains the largest and most liquid fixed-income market in the world with the greatest degree of price transparency and few genuine alternatives," said BlackRock, the world's largest money manager, in a statement.
----------
Bond Basics
http://www.investopedia.com/university/bonds/bonds4.asp
Government Bonds
In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories:
Bills - debt securities maturing in less than one year.
Notes - debt securities maturing in one to 10 years.
Bonds - debt securities maturing in more than 10 years.
Marketable securities from the U.S. government - known collectively as Treasuries - follow this guideline and are issued as Treasury bonds, Treasury notes and Treasury bills (T-bills).
http://www.investopedia.com/university/bonds/bonds7.asp#axzz1UYRJ2wWn
Bond Concepts: Yield and Bond Price
http://www.investopedia.com/university/advancedbond/advancedbond3.asp
