Tuesday, March 13, 2012
Another market "guru" misunderstanding how rates are set
Just heard Doug Kass ("Dougie" as they call him) of Seabreeze Partners and a CNBC Fast Money Contributor out with comments a few minutes ago that display his lack of understanding of the bond market and how rates are set.
He's advising shorting Treasuries because he says that they can "get decimated in a muddle through economic environment."
He mentions the "bond vigilantes" and other such nonsense.
Kass will get this wrong if he actually trades it this way. But if you listen to Kass you never really know what his position is. He'll say he's short bonds and two weeks from now if bonds go up he'll say he never said that or that he was long.
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7 comments:
I think one has to take Kass' public comments with a strong grain of salt!
I think most of them are setting the rubes up so they can unload their bad positions.
And I was just thinking long bonds were beginning to look cheapish again with yields well above 3% and the 10 yr over 2. A few more days and yields will be looking good for the slow growing economy. ... how high can the Fed let yields go on the 10yr in this environment without creating problems for housing and construction? 2.5? 3?
Ryan,
They are the ones causing the rates to go up. Their "twist" is becoming a "QE2 lite".
From Mike back in the QE2 days:
"The Fed is buying "scale down" and in effect, causing the selloff. They're doing this because they're fixated on quantity ($600 bln) as opposed to price (interest rate). I remember when I was a floor trader. I had clients in the oil business--big firms--who would sometimes want to protect a certain price. They'd give me an order that would be, "Buy 100 (crude), 'worst.'" That meant buy it up...aggressively. When Japan used to actively intervene in FX markets, they wouldn't scale down their dollar buying (or sell yen scale up), they'd buy dollars aggressively to put the USD/JPY exchange rate to a certain level. The Fed is not doing this. By signaling to the market that they will buy scale down, they are actually creating this selloff as nervous longs look to sell before the largest buyer lowers its bid again and as speculative shorts compete for a better price."
Mike documents some spec selling starting with Kass here and I heard Gross out today with a "who's gonna buy them now lite" pitch on CNBC.... so a little spec selling can go a long way with the Fed acting as a very large scale down buyer.... Gross was moaning that the Fed was in fact buying virtually ALL of the longer dated new issues in "twist"...
Resp,
lol. Matt, that is too funny for words, I get this image of college interns working diligently at the Fed order desk to get the best price for the taxpayers. Weird world we live in. QE that raises rates. Neo-Lib economists that have gotten everything wrong for decades are "hesitant and regretful" to embrace MMT which has been right on 95% of the time. Half the people that follow MMT break off and create a more realistic version that is more like the neo-classical wrong version. And to really make us wonder if we are in a parallel upside down universe, Bank of America Holding passes the new rigorous stress test a couple months after being unable to meet collateral calls without selling off illiquid investments and shifting liabilities to the fdic insured banking unit. And they still face 10s of billions in lawsuits and buybacks. Its like the freaking twilight zone economy.
Ryan,
It's right here in the NYT:
http://www.nytimes.com/2011/01/11/business/economy/11fed.html?pagewanted=all
Excerpt: "“We are looking to get the best price we can for the taxpayer,” said Mr. Frost, a buttoned-down 34-year-old in a striped suit and rimless glasses.
Whether Mr. Frost will reach that goal is uncertain. What is sure is that market interest rates have risen, rather than fallen, since the Fed embarked on the program in November....... That is the opposite of what was supposed to happen, ..... (Ed: here's a good one:) although rates might have been even higher without the Fed program." Ha!
Then explain why rates collapsed right after the Fed stopped the QE2?
We are in deeeep doo-doo with this crew in charge...
resp,
PS Ryan,
this whole stress test results after hours kind of stinks, and I wonder how long the Fed was sitting on that info while innocent people were buying Citi.
They should have worked with the exchanges to stop trading or something. They way they handled this really sucks.
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