The Curse Of The Reserve Currency

Is reserve currency status an economic blessing or a curse? The answer might seem obvious, as reserve currencies have been shown to confer lower borrowing costs on their issuers. But what of the borrower who, enticed by low interest rates, borrows more than they can pay back? Naturally the result will be a default. However, [...]


Are Chinese Stocks Signaling Yet Lower Lows In U.S. Interest Rates?

What do Chinese equities have to do with U.S. interest rates?  Perhaps more than one would think.  This is a multi-year chart of the Shanghai Composite (stock) Index:


Anyone who has a passing familiarity with what’s happened to U.S. interest rates the last several years can see there is a close correlation between [...]


Gather Your Yield Where You May

A growing number of people “get” the message that utility stocks are today’s techs.  From Charles Hugh Smith’s blog post that was reposted on Zero Hedge yesterday titled What’s So Bad About Deflation?, he concludes:

Everyone assuming the Federal government has the power to create inflation and that inflation is “good” should examine the interests of [...]


JPM’s Whale of a Problem and Futures Market Scandals May Help Lead to Negative Rates on Bank Deposits

The Telegraph (U.K.) had a terse description of JPM’s Chief Investment Office that helped crystallize my thinking:

The bank stunned Wall Street when it disclosed that a series of bets made by the CIO on the health of major companies had triggered the . The CIO’s job is to invest deposits that the bank has yet [...]


Is the U.S. Stock Market Three-Peating Its Way To Yet Another Summer Downturn?

Three months ago, I posted The Fed Three-Peats, in which I led with:

Oops!  They’ve done it again.  Maybe.

Here’s the evidence that the Fed aborted a mini-recession with Operation Twist, which in association with enlarging its balance sheet by reinvesting dividends from its mortgage-backed securities portfolio was essentially the QE 3 that Jeff Harding [...]


Bernanke: Economy “Close To Faltering”

This headline is not exactly news, because the Fed has been saying this since its last FOMC meeting when it announced Operation Twist, and even earlier. But Chairman Bernanke’s testimony today at Congress underscored his frustration with the economy’s stagnation. In the usual laconic way that all chairmen speak, he said, “[I]t is clear that, [...]


Gold on Hold; The New Play May Be in Munis

On Monday, Sept. 19, I suggested that the price of gold was vulnerable, and also suggested that the stock prices of miners were a better intermediate-term bet.  This was two days before the FOMC meeting, which much of the “smart money” expected would produce a Jobsian “one thing more” in addition to the expected Operation [...]


Operation Twist: The Consequences

For months, even before the end of QE2, analysts and prognosticators have been saying the Fed will have to do another QE and another, endlessly.  These folks were surprised when it didn’t come last month, and predicted confidently that it would come this month especially because Bernanke extended the September meeting to two days.  I [...]


Wall Street Rejects Operation Twist

The markets didn’t like the Fed’s announcement today. When the FOMC announcement hit the tape at about 2:21 p.m., the market nose-dived. I think they were expecting more, such as a lower FF rate, or some QE, or reducing interest paid on bank reserves. Alas. 

Here is a chart of the S&P 500 today. You [...]


Fed Announces Operation Twist

The Fed announced Operation Twist today:

 the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount [...]


Goldman Says ‘Operation Twist’ Is Going To Be $300-$400 Billion

Will the Fed adopt “Operation Twist”, that failed policy tried in the 1960s? Goldman Sachs thinks so:

Economists at Goldman Sachs said in a note late Monday that they expect the Fed, in increasing the average maturity of its bond holdings to stimulate the economy, to purchase a net $300-$400 billion in 10-year equivalent debt — [...]