Courtesy of the Fed's H.4.1 statement, a net $38.6 billion in Mortgage-backed Securities (MBS) are under a commitment to be purchased by the Fed from Fannie Mae and the other government-guaranteed entities. This is more than seven times the amount purchased last week and portends an increasing rate of purchase, news Bill Gross of Pimco will be delighted to hear. He recently levered up on MBS in the Total Return Fund, as we further discuss here.
Moreover, the Fed has increased swaps and other liabilities by over $108.8 billion over the course of the last year. The increase provides further covert printing while the ECB continues printing, doing its part to maintain the developed world fiat (decree by force) currency system.
The official Fed printing program, on the other hand, is less blatant and harder for many to understand, without also understanding the principle of time preference.
Time preference means that you prefer money now, as opposed to later. Money is worth more to you today.
In Operation Twist, the extension of which was floated a week and a half ago (we covered it here), the Fed buys 20-30 year bonds and sells short maturity bonds. The only problem is that the Fed is running out of short maturity bonds to sell. They could only continue to twist for 3 more months. The Bank of International Settlements (BIS), which acts on behalf of central banks, calls Operation Twist a Maturity Extension Program (MEP), and recently commented on both the proximity of further printing and the extent to which the program works in comparison to outright “unsterilized” purchases many times referred to as QE, LSAP or printing.
Meaning the Fed will have to increase the size of its balance sheet alongside the increasing quantity of long-dated U.S. issued bonds. In this piece the BIS implies that additional printing is inevitable, more than once. We agree, as there is no other trillionaire who has the ability to buy U.S. debt, keeping the promise of low interest rates, in turn, protecting both the banks and the solvency of the host country.
Equity markets are simply complacent (not that there are any individual investors left, as we describe here) in the light of Operation Twist 2 ending in June. The history is cyclical, showing markets sell off just prior to the end of printing (below).
As the old axiom states “credit leads stocks” and the end of printing is already being discounted by the bond market, just as it has so many times prior (below).
As Goldman Sachs’ chief economist recently understated, “Not easing might be equivalent to tightening.” Expect printing to be hinted at or an outright announcement at either the April 24-25 meeting or the June 19-20 meeting of the Fed’s Open Market Committee. The argument for an overt printing announcement in April is that it would leave more time before the end of the current Maturity Extension Program, and would thereby reduce the risk of the selloff as uncertainty regarding further Fed printing increases.
The argument for a June announcement is that this would allow the increased uncertainty more time to cause a decrease in oil prices alongside the market sell-off--especially considering the pattern of “no more,” which would be well established after the April meeting.
Waiting until after the June meeting would be a decision to wait until after the end of Operation Twist. This would signal greater comfort on the Fed's part with denying the economy additional stimulus, and the sell-off would be far too vigorous for their purposes.
Waiting to diversify into hard assets until after even more printing is confirmed is a clean decision to give even more of your money to the cartel.
Simply put, bonds are debt. Bonds basically say: "I owe you (IOU) X-amount of currency, plus X-amount of interest." —Michael Maloney, Guide to Investing In Gold & Silver. But, there is more to it than that. Bonds set the cost of borrowing, determine international currency flows, and play a huge role in determining the value of each nation’s currency. That means bonds have a direct effect on the dollars, euros, pesos or yuan in your wallet or bank account.