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Widows, Orphans Hold Bag Again- Professional Edition Fed Report

The Fed did another outright purchase of Agency debt on Friday. Its little ploy to get foreign central banks (FCBs) and Primary Dealers off the hook, while leaving widows and orphans as the bagholders yet again, is working. Both PDs and FCBs continued dumping Agency paper at a breakneck pace this week, while the Fed took in only a fraction of that. But the Fed has conned the market into believing that it really is doing something good. So the market took the rest of the paper being distributed (and I won’t say where they took it) at sky high prices, as spreads plunged throughout the week. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.


  1. KAM

    As a subscriber I have partially lost the perspective on the inflation question. A summary might be helpful to understand if the Fed is inflating and by how much.

  2. Lee Adler

    There’s a reason that we are experiencing a lack of perspective. We have no clear view ahead of us, and neither does the Fed. I am trying to find the way, but we have entered a dense jungle where visibility is virtually nil and we are surrounded by unknown dangers, led by reckless and inexperienced guides who are lost themselves.

    They are trying to reflate, but so far it’s impossible to say whether they are succeeding or not. I think it will take a few months, if then, before a clearer picture emerges. The primary judge is the market, and judging by the behavior of the inflation hedge sectors, the Fed isn’t succeeding yet. It is still not a long term bet that I am willing to make. The deflationary forces that have been unleashed are awesome, and the Fed may be powerless to stop them.

    As for a summary, I can’t find a single overall number any more that might give us any clues, although it is quite clear that the Primary Dealers are still on a starvation diet. There will be no recovery until they get healthy and are well fed.

    I don’t believe the money supply numbers for one second. They are as bogus as a 3 dollar bill.

    I think that a clearer picture will emerge in due time, and when I see the pattern I will connect the dots and pull it together. At this point, I only see that the Fed is trying, but for each thing they try there are usually negative unintended consequences.

    At this point they also aren’t coming close to making up for the US assets the FCBs are dumping.

    There’s so much going on, there’s no coherent picture.

    In the weeks ahead, I will be particularly interested to see what happens with reserve deposits now that the Fed is no longer paying interest on them, and what happens on the asset side to offset the deposit reduction.

    My general sense of things is that the deflationary forces are still winning, that the Fed knows full well what they are up against, and that the Mr. Wizard experiments they are trying will do more harm than good, and in many cases have been themselves deflationary.

    The Treasury and FCBs are at least as important, if not more important actors in this drama, and must be monitored accordingly.

    There is no simple answer, unfortunately, and it is impossible to summarize what, at the moment, is nothing more than a myriad of loose ends.

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