Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktIn a widely anticipated move, the Fed today announced Operation Twist, in which it will sell short term treasuries and buy long term treasuries. The last time the Fed employed such a strategy was in 1961, when, coincidentally, Chubby Checker won a Grammy for his song “Let’s Twist Again.”
30yr notes have rallied 20 bps since the announcement, down to 3.05%, while 2yr notes sold off by about 5 bps, yielding 0.195%. Stocks are down 60 points since the announcement, and a total of 110 on the day.
Filed under: Uncategorized |
All Things in Moderation 
So, what does this mean for us? Why are they doing it, and what will it do?If you had said to me, the Fed does this all the time, I would never have known the difference.
LikeLike
They were talking about this on Morning Edition this morning if you're at all interested, qb. Quick explanation that even I was able to follow.
LikeLike
Yes, we need someone to explain all of this to us. I can follow some of it, but I sure couldn't explain it to others without making a fool of myself. Trying to make-up for 58 years of economic ignorance in the last three years has been tough. You're it scott, since johnbannedagain is avoiding us…………Good link though michi.
LikeLike
I wonder if the current stock slide is attributible entirely to the Fed's announcement. I've read that there is a rumor that Greece will default as early as Friday.The WSJ had a real Mad Max editorial today by Brett Stephens. I for one welcome our new overlord, Humongous.
LikeLike
After thinking about my comment I realize I may have given the wrong impression. I do understand some economic basics. This is the second business we've run, I play the market a little and have actually made pretty good money in the last 10 years (dumb luck?), I understand a few things about trade and shipping as we're both importers and exporters and my dad taught me quite a bit about taxes. What I was clueless about before now was monetary/fiscal policy and global implications etc.
LikeLike
qb/lms:All it really means is that longer end interest rates will be driven down further without the Fed adding to its balance sheet. Look for mortgages (if you can get one) to become even cheaper. The Fed says this will "help make broader financial conditions more accommodative." But I think the consensus is that ultimately this will have little or no effect on helping the economy. The problem is not the level of interest rates.McWing….I think the post-announcement sell-off in stocks had mainly to do with the change in Fed language, from seeing "downside risk" to the economy back in August to seeing "significant downside risk" now. That, and with the announcement over, attention can now revert back to Europe where, as you point out, things are not looking good. Although I have not seen the rumors about a Greek default soon. Most indications that I have seen suggest that they will successfully kick the can down the road yet again.
LikeLike
"Look for mortgages (if you can get one) to become even cheaper."Eerrrghh. We are just in process of refinancing again, although it is necessitated by a property loan with a balloon coming up. (No. 3 on list of biggest mistakes ever.)
LikeLike
"Look for mortgages (if you can get one) to become even cheaper."How is that even possible? I mean, i'm seeing 5/1 ARMS advertised at below 3%. 30yr fixed at below 4.5%.
LikeLike
My take's pretty similar to Scott's.The problem isn't really interest rates. I think the market may have expected something more forceful in the Fed chief's language or actions and reacted in kind.The DJIA is still marginally higher than it was a month ago, though. Since Aug. 22 we've had three rides up and down the roller coaster. Unless you're a day trader, the short-term volatility is best ignored.I agree the main focus at the moment is Europe.
LikeLike
If there is a Greek default, do you see the kind of doomsday scenarios that Stephens in the WSJ wrote about? I kind of think the financial press is really hyping the negative side of default in order to try and spur (more) Fed action and perhaps U.S. Government action as a way to prevent bondholders from taking a haircut.Wouldn't it be cheaper just to pay off most or all of Greece's sovereign debt? I thought it was arond 350 billion Euro's
LikeLike
If I were any younger, I would so be buying houses right now.
LikeLike
Scott/MsJS: I know it's impossible to predict, but purely speculatively how long do you think mortgage rates will stay tanked like this? Next spring I'll have 20% to put down on a house in the price range that I anticipate I'll buy into, but for many reasons I don't want to move sooner than that.
LikeLike
*wiping off crystal ball*I don't expect rates will stay as low as they are/will be this fall, but they should remain pretty low through late winter/early spring, Michi.
LikeLike
Thanks, MsJS!
LikeLike
Not to be all "blog nanny," but Tarolya and Michigoose (Hi!) wrote some comments with personal information that they may not want to share outside this blog. It's my understanding that we're now (thanks to Scott;-)) public. I haven't seen any comments from Tar, so I thought maybe her comment could be hidden(?) until she can decide?Is that wise and/or possible?
LikeLike
Good point, Mr. T.Folks, time to take a look at your posts and do some housekeeping.Maybe put this suggestion in the next 'open thread' post?
LikeLike
Reuters has a piece up today about the effect of the long term lower interest rates on insurance annuities and life insurance. Of course the lower rates help most businesses and the real estate industry, but they don't do much for fixed income investments. It's always a trade off I guess. The Federal Reserve's latest move to stimulate credit for consumers and businesses, known as Operation Twist, is likely to threaten the earnings of some of the country's largest insurers for years to come.Wall Street in the past week has dimmed its view of MetLife, Prudential Financial and other big insurers, forecasting that they will have to cope with low rates and weak market returns through the end of 2011 and possibly well beyond.The problem is that returns on insurers' investment portfolios can't keep pace with the obligations they have accumulated from torrid sales of annuities and life policies over the past few years."Ultimately I think it's going to be a challenge to business models," said Gregory Staples, co-head of U.S. fixed income portfolio management at Deutsche Insurance Asset Management, the world's largest asset manager for insurers.Insurers were demonstrating sound financial management in purchasing long-term bonds with the premiums they collected to balance their long-term obligations. But if the Fed's Operation Twist is successfully executed it will push long-term rates lower and, according to some experts, force insurers to retrench on product sales.
LikeLike
Just saw this on James Pethokoukis' twitter feed: "Schumer: CR & FEMA can be in separate bills."Latest shutdown crisis averted.
LikeLike
Question to ponder as I sign off for the evening:Why do we park cars on driveways and drive them on parkways?
LikeLike
A few thoughts on jobs while we wait for the open thread.
LikeLike
MsJS, very reminiscent of George Carlin, funny.
LikeLike
Mich:The Fed has committed to keeping the Fed Funds rate at basically zero until the middle of 2013. The longer end of the curve is more difficult for the Fed to control and is subject to a lot more outside pressures, and so if inflation starts to become an issue, or Europe resolves its problems, or the stock market suddenly goes bullish, the longer end yields should start to rise back up. But I don't expect any of those things to truly begin to happen any time soon. I'm thinking low rates for at least a year. At least.
LikeLike
McWing:Stephens seems to be saying pretty much the same things I have said to you in the past. The Euro project is destined to fail, one way or another. It cannot succeed. (I liked the Madoff reference: Europe is a Ponzi scheme…discuss.)On the other hand, perhaps Germany has finally figured out new way to achieve its historical desire to take over Europe.
LikeLike