Tuesday, December 18, 2012

AGEA : The US Fed Balance Sheet Is Alive



The US Federal Reserve balance sheet begins to grow. What does it mean?
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- The Fed is buying per month $45 Bn of US Treasuries (30 yr) to keep interest rates down. The FED is the only buyer in the long bond market. If they were not then interest would be rising fast. The truth is that a good economy has rising interest rates and not falling rates. This is a running bailout of the US Government spending.
- The Fed is buying per month $40 Bn of MBS or Mortgage Backed Securities (MBS) from the banks. This is a pure asset swap. The Fed is the only buyer in this market. They are buying MBS at full price, when they not even worth half of the original setup valuation. The Fed is giving good solid CASH to the banks to do as they wish. This is a running bailout of banks with MBS.
The banks will use the CASH to speculate. The banks can not make a buck with mortgage rates so low, there is no money in mortgages any more! The banks have to find yield from speculation in the markets, with greater leverage. You got it, nothing has changed. 
Consider …
1) The US Fed balance has been a laggard behind the ECB (EURUSD) and BOJ (USDJPY). The central bank laggard has the stronger dollar. Therefore the fed must expand the balance sheet to debase the currency to avoid a stronger dollar than its exporting partners.
2) The Fed is worried about the fragile US economically and cant afford to allow USD to appreciate.
3) The USD is cheap currency for the carry trade to fund risk assets. A rising USD would frustrate these transactions.

Disclaimer The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities. Visit Us www.deryworldscorp.web.id

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