The Credit Crisis Financial Stocks Short Journal

And what does this mean for someone long the short end of the curve ... is this a precursor to higher rates, or will the tightening effects of this move make it even less likely that short end rates go higher soon.
 
Actually nevermind, the MBS purchases will offset the effect in the EFF. As far as the timing of the exit I'm waiting to hear bernanke today to see how he sounds
 
Bernanke sounded dovish for the most part but the problem was that no congresspeople asked two important questions
-What does 'exceptionally low' means, whats his definition
-Was Bernanke involved in any way in the UST decision to bring back the SFP and if so why he advised in favor of it

We will see if today's senate hearing brings more interesting questions
 
Looking at the evidence here it doesnt seem that the fed can hike while using the 'exceptionaly low for extended period language'
1st - The Greenspan era 'In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period.' meant 1% were not going to be changed and the fed kept its word

2nd - The idea of putting a statement like that is to affect long-term interest rates expectations and bring down yields, you promise rates wont change, keep your word and the market prices that in, providing an interest rate stimulus. That would be inconsistent with putting a few hikes to 'adjust' things. Bernanke wrote
"One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period. Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time--if it were credible--would induce a decline in longer-term rates."

3rd Up to this point the FOMC nor any ex-Fed member that I know of has mentioned some kind of financial stress that is generated by 13bps FF that doesnt exist at 50bps. Yes, savers get screwed but helping savers are not part of the Fed's mandate. Maybe there is money market fund issues with this?I havent heard anything about this, if there was issues I'm sure Hoenig would use as yet another reason to hike rates
 
Hoenig isn't interested in a FF rate of .50%. He wants it at 3 or 4%. The hike in the discount rate was a bone thrown to the hawks. Absent evidence of severe economic weakness, the hawks are going to need a continued supply of bones to be thrown at them. To them, the status quo is unacceptable.
 
Once again Bernanke wasnt asked about the SFP, so at this point I still dont know why they did it. Steve Liesman reported some sources told him that the treasury wanted to bring the program back as soon as the debt ceilling was raised, maybe this is true. The question who is choosing the $500b/$200b/$5b numbers that this program had outstanding, that was almost surely decided in consultation with the Fed so it seems that Bernanke doesnt mind seeing $200b being drained right now from the system, who knows why

FOMC's Sandra Pianalto reinstated the need for low rates. I'm comfortable keeping my GE/ZQ positions here
 
I was listening on the radio and I'm pretty sure someone did bring it up - it may have been Bunning - I'm not sure if the Beard even responded to it though.
 
Quote from ralph00:

I was listening on the radio and I'm pretty sure someone did bring it up - it may have been Bunning - I'm not sure if the Beard even responded to it though.
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Yeah I remember a senator mumbling something about it, Bunning questioned the legality of it or something, bernanke just addressed that. In any event I'm questioning the credibility of the greenlaw hawk argument that the fed can hike with exceptionaly low out there based on bernankes own writings, so that extended is very likely to be in the next statement, add 6 months and the first hike comes in Sep 21 at the earliest
 
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