11/5/2010 Portland, Oregon – Pop in your mints…
Today it appears that word is spreading throughout the stock, bond, and commodity markets that indeed the FED will support them (and sacrifice the dollar) at all costs. Have any extra bonds laying around? The FED will buy them. In fact, according to one estimate, the FED may now be buying too many of them and "forcing" cash into the stock and commodity markets. From the Wall Street Journal:
"At RBS, Mr. Briggs noted that the Fed's $600 billion in expected purchases, on top of an expected $250 billion to $300 billion reinvested from maturing existing bond holdings, will absorb a large percentage of expected net new bond issuance in 2011. RBS estimates that in 2011, the net new issuance of "high quality" bonds issued by the U.S. Treasury, government agencies and corporations, will total $1.352 trillion.
With the Fed potentially buying $900 billion of that, "it leaves very little for the rest of us," Mr. Briggs said. That scenario would result in downward pressure on yields across nearly the entire bond market, he added."
Mr. Briggs, by recognizing that the FED buying "leaves very little for the rest of us" is simply stating the obvious strategy of the FED. You see, the recent flood of capital into Bonds is the equivalent of the lifeguard screaming "Everybody! Get out of the pool!" Yesterday, the FED announced that it will now begin to run around the pool and push all of the market participants back in, whether they want in or not! Does this seem insane? That is because it is insane!