Global Macro Trading Journal

There is also another impact that I believe can be quite significant
When you are a bank you have the option to keep your cash at 25bps with the Fed or to reach for yield out the treasury curve. If you do buy treasuries USUALLY this will increase the money supply(M2), because the person who will get your cash(electronic or not) will be a non-bank(Since non-banks own most of them), that non-bank will have a bank account that will be credited(monetary base turns into M2)

Normal QE should affect this process by making longer dated treasuries yield a less initially, thus making a bit less attractive to engage in this yield reaching process(I'm aware that USTs tend to sell off after a rally when people start to become more optimistic and rates endup higher)

Sterilized QE by driving short rates up increase the attractiveness of the short end compared to the long end(flattening the curve), this leads to less of the yield reaching and more of just keeping cash idle to earn those rates(So its a double whammy compared to normal QE). Therefore they could hurt M2 growth(Maybe thats what the Fed wants)

If you think about it, if you have $1B deposited with the Fed you are more likely to go and reach for yield in a steeper curve than you are in a flatter curve. Under efficient markets it would make no difference as to which choice you make but I believe human tendencies are not always efficient
 
Quote from Ghost of Cutten:

How about a discussion on position size? For example, what about be an appropriate % of total trading capital to have in short the 30 year futures at the moment (if you agree with the trade)?
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Paul Tudor Jones: "Start selling"

Trader: "How much?"

PTJ: "Until I tell you to stop."
 
Quote from Daal:

Some people are saying that QE is that same as sterilized QE. I'm not sure I agree with that. Normal QE lowers both long and short terms rates whereas the sterilization is only successful to the extent that you are able to draw short-term funds by offering a higher interest rate than short-term money markets(or t-bills), therefore it raises those rates while lowering longer term ones

There difference in terms of bps is probably not huge but only if the program is not huge, otherwise the difference will be material
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Sterilized QE appears to be the same as Operation Twist in practice - the only difference being that they use a special deposit facility to absorb liquidity on the short end, rather than selling short-term Treasuries.

If the program doesn't result in money supply inflation then it's unlikely to have much effect - there's no additional money in the system, and the whole point of the 'sterilization' is to reduce the psychological impact on inflation expectations, etc.

If they do SQE, if the consensus view appears to be that it will gun markets just as much as regular QE, and if the markets actually seem to react, that to me would be a contrarian signal to look for a 'risk-off' phase shortly.
 
Quote from Specterx:

If they do SQE, if the consensus view appears to be that it will gun markets just as much as regular QE, and if the markets actually seem to react, that to me would be a contrarian signal to look for a 'risk-off' phase shortly.
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I can't help but wonder if QE and coming prospect of SQE are both more placebos than anything else. Meaning, the effect on equity prices can be very real, but almost wholly psychological.

Psychology and basic game theory: The vast majority of the street -- i-bankers, money managers, hedgies -- want asset prices to go up. The vast majority of profits are made on the long side.

So, when government provides a backstop against calamity and corporate earnings look solid, asset values go up the way the largest market participants want them to. They can all agree the catalyst is pixie dust, but as long as the signal is acted on in unison to buy, who cares? It's a mutually beneficial oligopoly: "If we all buy together for manufactured reason X, our actions are validated with real profits. Happy times." Zero Hedge can bitch about this all he wants and no one will care.

If anything, the persistent weakness in the 'real' economy has been good in this regard. All the pain and suffering has been a psychological positive in respect to government support, and a policy positive in respect to perpetually low interest rates.

The poor man's pain is the rich man's gain -- as long as social unrest is kept in check. But what derails this 'ugly goldilocks' environment? We've already seen that Wall Street doesn't really care about a shite economy. It actually prefers a shite economy, with its attractive low inflation and policy support features, as long as the winners (specialty retail etc) can bank on the top 30% of consumers to keep splurging.

Maybe the threat of genuine recession or a tail-off in corporate profits is what derails it all... or an oil blowup... or China breakdown / Europe meltdown... in other words, same old boogeymen that have been ignored forever now.

Me only simple caveman trader: buy what's going up, short what's going down...
 
basketball players topped out under 8',there is a limit just for the sake of too high .. spx is just above that all time high line at 1385-90 using the 1937 and 1987 highs if you want to draw your own,it was support between the 2 bubbles and has been res at 4 /2010 and feb-june 2011,,unless Ben can create a 3rd bubble out of magical enthusiam we should be at/just above resistance
 

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Quote from ammo:

basketball players topped out under 8',there is a limit just for the sake of too high .. spx is just above that all time high line at 1385-90 using the 1937 and 1987 highs if you want to draw your own,it was support between the 2 bubbles and has been res at 4 /2010 and feb-june 2011,,unless Ben can create a 3rd bubble out of magical enthusiam we should be at/just above resistance
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I'm no bull cheerleader, but color me skeptical re the "too high" argument, at least as far as timing goes... indeed trees don't grow to the sky and at some point AAPL will come down, as will earnings and sentiment generally, but trying to anticipate prematurely is the real challenge.

Ben doesn't have to goose a dead duck this time, he just has to lay chilly and hope China and Europe don't screw anything up. If earnings hold up and spenders spend, 2012 could wind up as a 1987 parallel, with bulls going nuts into Summer / Fall before the next hair-raising vertical drop, allowing Hussman to say he was right (he of the 18-month window) and traders responding with "so what." Use stops and move fast.
 
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