The Treasury began to pay off the weekly $25 billion in SFP CMBs this week resulting in a net paydown of $12 billion at Thursday’s bill settlements. That was a bullish influence on stocks as expected, but indirect bid data suggests that the FCBs weren’t all that aggressive in their bidding at the regular bill auctions, and the dealers were even less so. Everyone seems content to sit in cash at zero interest, or to funnel just enough at the margin into stocks and commodities to keep those crack up booms boiling away.
This will end badly, but probably not until the Fed says Uncle. The troubles are showing up in the bond market though, as the foreign central banks have halted their subsidies, causing the Fed’s efforts to prop the Treasury market to fail.
The CMB paydowns will go on over 8 weeks in order to reduce outstanding debt as the statutory debt limit is approached. That will reduce the impact of the increase in supply, but the bad news is that the even the TBAC expects Treasury supply to balloon in the month’s ahead. The committee added another $95 billion to their estimate of net new supply for Q1, all of that coming in February and March. Part of that is due to the payroll tax cut. They showed no sign of recognizing the revenue impact of rising costs on consumers and corporate profits. Those impacts are beginning to show up in the first signs of ebbing of tax collections.
All of the Fed’s money printing is having the obviously expected effects. The dollar is weakening. Commodities are skyrocketing. Even gold may be getting in the act. Equities are inflating, and foreign governments who usually buy our bonds are facing raging inflation, weakening their economies, and increasing the cost of their manufactured goods in the US. It’s all bad.
Yet Bernanke in a speech today reportedly (I have only seen second hand reporting) refused to take any responsibility for the commodity price speculation that his damned “printing press in the basement” is fueling. He’s willing to take responsibility for the increase in stock prices, but not the increase in commodity prices that is wreaking havoc all over the world, and is about to wreck the US economy too. This kind of double talk is the hallmark of a narcissistic psychopath and pathological liar. Does Bernanke actually believe his own swill, or is he just evil? I prefer to believe the former, but it really doesn’t matter. The end result will be the same.
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