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business newsFive Things You Need to Know: The Myth of the Fed's Unprecedented Bond Purchases
By
Kevin Depew
Apr 19, 2011 11:07 am
Also, the impact of higher gasoline prices on household spending, the decline of home ownership and more.
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1. The Myth of the Fed's "Unprecedented" Bond Purchases
At least one view of Fed bond purchases indicates the Federal Reserve's Treasury Holdings as a Percentage of Debt Owned by the Public is actually quite small. From Bloomberg last night:
Of course, keep in mind that prior to the onset of quantitative easing, the public and other institutions were massively under-invested in bonds, the result of a buildup of excessive risk-seeking behavior during the credit bubble. So while the Fed really is conducting a massive and, in certain respects unprecedented (due largely to the size and scope of Fed asset purchases) purchase of assets, the percentage of Fed holdings is actually appears to be within certain norms due to historic under-investment by the public and institutions. In other words, the Fed is first in line to monetize Treasuries before the public and institutions get a chance, the inevitable outcome of that being the 'natural' coppering of the public once they finish piling into Treasuries at precisely the wrong time.
2. The Impact of Higher Gasoline Prices on Household Spending
Yesterday the Capital Spectator blog took a look at the impact of high gasoline prices on household spending. Included in the piece was a chart from the St. Louis Fed overlaying retail gasoline sales as a percentage of total retail sales along with motor vehicles & parts, general merchandise sales, grocery store sales and health and personal care.
The chart shows how higher gasoline prices (the average regular gas price in the U.S. is up more than 90 cents from a year ago, according to the Energy Information Administration) are eating into general merchandise, grocery and health and personal care sales.
As Capital Spectator observes, "The issue is deciding if rising fuel costs will divert enough retail spending away from other sectors of the economy to trigger slower growth or even recession. The answer, of course, lies in the future price of gasoline."
Indeed. That IS where the answer lies. Perhaps a look at gasoline futures prices can help sort out what the future holds for gasoline prices.
Below is the MONTHLY view of the generic NYMEX gasoline futures contract. The specifications of the contract is one contract equals 42,000 U.S. gallons of gasoline. As you can see on the MONTHLY chart extending back five years, DeMark sell setups have marked at least one prior top, the peak in June 2008 when a 9 sell setup accurately predicted a decline. We are currently on bar 8 this month of a 9 sell setup that will record in May if gasoline futures close above 249.06.
What about a shorter term view? If we scale down to the WEEKLY chart, we can see that while the MONTHLY offered no signals at the December 2008 lows, TD Sequential on the WEEKLY did, recording a TD Sequential 13 buy signal in late December 2008. We now have a TD Sequential 13 sell signal which is recording this week. Perhaps fears of continued high gas prices are becoming exaggerated.
3. On Time and 'Possibilianism'
The most popular article on The New Yorker Website right now is David Eagleman and the Mysteries of the Brain. You should read it. The article concerns Eagleman's (presently an assistant professor of neuroscience at Baylor College of Medicine's) work in understanding how our consciousness perceived time. For example, why does time seem to slow down in life-threatening situations? Why does time seem to speed up when we age? These are important questions not only for neuroscience but particularly for time-delineated market exchanges.
Consider this quote from in the context of multiple time frame analysis of securities prices:
Layers built upon layers is how DeMark analysis of securities price patterns understands the interaction of multiple time scales. Also, this:
This echoes what Dr. Mark C. Taylor (Confidence Games and After God) has written about systems of thought (philosophy, religion, culture, economics), that there are layers of layers, networks of networks, all at various time scales displacing, rather than replacing, each other as events unfold.
Apart from the obvious connection to securities pricing with respect to time, the article near the end touches on what Eagleman describes as his philosophy of Possibilianism. It would be too early to call it a "movement" per se -- in fact, Eagleman may have been tongue-in-cheek when he first mentioned Possibilianism on a radio show two years ago -- but consider the idea he is discussing in a Socionomic context and it's the perfect "religion" at the perfect time:
4. Home Ownership Continues to Lose Appeal
An article on Bloomberg this morning caught up with something Peter Atwater wrote about on Minyanville last week: perceptions of the utility of homes have shifted from display and aspiration to pure functionality as shelter.
5. Kevin Depew Interview With Andrew Horowitz, The Disciplined Investor
Last Thursday I sat down with Andrew Horowitz, founder of Horowitz & Company and The Disciplined Investor blog and podcasts. We talked about markets, of course, and DeMark analysis, but I think the most important ground covered was the discussion about investor and trader perception of current events, extreme negativity and the incorrect interpretation of Black Swans as necessarily negative unexpected events. Download the podcast here or you can stream it.
P.S. In Case You Missed It: Why Apple Should Make a Play for Disney
Trade ETFs? Take a 14-Day Free Trial to Mike Paulenoff's MPTrader newsletter. Receive specific trades and strategies across all sectors. Learn more.
At least one view of Fed bond purchases indicates the Federal Reserve's Treasury Holdings as a Percentage of Debt Owned by the Public is actually quite small. From Bloomberg last night:
"[Carl Lantz, Credit Suisse AG's head of U.S. interest rate strategy’s] report sought to debunk “myths” surrounding the Fed’s bond purchases, or quantitative easing, and the Treasury market. They include the myth that the central bank’s share of the market is unprecedented.At the end of March, the Fed owned $1.3 trillion of Treasury bills, notes and bonds. Debt held by the public, a figure that excludes the holdings of government trust funds, totaled $9.5 trillion.Here is the chart from their Chart of the Day piece:
Of course, keep in mind that prior to the onset of quantitative easing, the public and other institutions were massively under-invested in bonds, the result of a buildup of excessive risk-seeking behavior during the credit bubble. So while the Fed really is conducting a massive and, in certain respects unprecedented (due largely to the size and scope of Fed asset purchases) purchase of assets, the percentage of Fed holdings is actually appears to be within certain norms due to historic under-investment by the public and institutions. In other words, the Fed is first in line to monetize Treasuries before the public and institutions get a chance, the inevitable outcome of that being the 'natural' coppering of the public once they finish piling into Treasuries at precisely the wrong time.
2. The Impact of Higher Gasoline Prices on Household Spending
Yesterday the Capital Spectator blog took a look at the impact of high gasoline prices on household spending. Included in the piece was a chart from the St. Louis Fed overlaying retail gasoline sales as a percentage of total retail sales along with motor vehicles & parts, general merchandise sales, grocery store sales and health and personal care.
The chart shows how higher gasoline prices (the average regular gas price in the U.S. is up more than 90 cents from a year ago, according to the Energy Information Administration) are eating into general merchandise, grocery and health and personal care sales.
As Capital Spectator observes, "The issue is deciding if rising fuel costs will divert enough retail spending away from other sectors of the economy to trigger slower growth or even recession. The answer, of course, lies in the future price of gasoline."
Indeed. That IS where the answer lies. Perhaps a look at gasoline futures prices can help sort out what the future holds for gasoline prices.
Below is the MONTHLY view of the generic NYMEX gasoline futures contract. The specifications of the contract is one contract equals 42,000 U.S. gallons of gasoline. As you can see on the MONTHLY chart extending back five years, DeMark sell setups have marked at least one prior top, the peak in June 2008 when a 9 sell setup accurately predicted a decline. We are currently on bar 8 this month of a 9 sell setup that will record in May if gasoline futures close above 249.06.
What about a shorter term view? If we scale down to the WEEKLY chart, we can see that while the MONTHLY offered no signals at the December 2008 lows, TD Sequential on the WEEKLY did, recording a TD Sequential 13 buy signal in late December 2008. We now have a TD Sequential 13 sell signal which is recording this week. Perhaps fears of continued high gas prices are becoming exaggerated.
3. On Time and 'Possibilianism'
The most popular article on The New Yorker Website right now is David Eagleman and the Mysteries of the Brain. You should read it. The article concerns Eagleman's (presently an assistant professor of neuroscience at Baylor College of Medicine's) work in understanding how our consciousness perceived time. For example, why does time seem to slow down in life-threatening situations? Why does time seem to speed up when we age? These are important questions not only for neuroscience but particularly for time-delineated market exchanges.
Consider this quote from in the context of multiple time frame analysis of securities prices:
"[Hudson] Hoagland [a physiologist] believed that timing was a “unitary chemical process” tied to metabolism. But later studies suggested a hodgepodge of systems, each devoted to a different time scale—the cerebral equivalent of a sundial, an hourglass, and an atomic clock. “Mother Nature’s a tinkerer instead of an engineer,” Eagleman says. “She doesn’t just invent something and check it off the list. Everything is layers on layers built on top of each other, and that provides tremendous robustness.”"
Layers built upon layers is how DeMark analysis of securities price patterns understands the interaction of multiple time scales. Also, this: "[T]he interesting thing about time is that there is no spot. It’s a distributed property. It’s metasensory; it rides on top of all the others.”
This echoes what Dr. Mark C. Taylor (Confidence Games and After God) has written about systems of thought (philosophy, religion, culture, economics), that there are layers of layers, networks of networks, all at various time scales displacing, rather than replacing, each other as events unfold.
Apart from the obvious connection to securities pricing with respect to time, the article near the end touches on what Eagleman describes as his philosophy of Possibilianism. It would be too early to call it a "movement" per se -- in fact, Eagleman may have been tongue-in-cheek when he first mentioned Possibilianism on a radio show two years ago -- but consider the idea he is discussing in a Socionomic context and it's the perfect "religion" at the perfect time:
"Science had taught him to be skeptical of cosmic certainties, he told me. From the unfathomed complexity of brain tissue—“essentially an alien computational material”—to the mystery of dark matter, we know too little about our own minds and the universe around us to insist on strict atheism, he said. “And we know far too much to commit to a particular religious story.” Why not revel in the alternatives?... “I’m not saying here is the answer,” he told me. “I’m just celebrating the vastness of our ignorance.”"
4. Home Ownership Continues to Lose Appeal
An article on Bloomberg this morning caught up with something Peter Atwater wrote about on Minyanville last week: perceptions of the utility of homes have shifted from display and aspiration to pure functionality as shelter.
"“I don’t see myself purchasing, even with all the great prices I see,” Pauli said. “Going to bed every night worrying about your home value doesn’t sound like a good time to me.""
5. Kevin Depew Interview With Andrew Horowitz, The Disciplined Investor
Last Thursday I sat down with Andrew Horowitz, founder of Horowitz & Company and The Disciplined Investor blog and podcasts. We talked about markets, of course, and DeMark analysis, but I think the most important ground covered was the discussion about investor and trader perception of current events, extreme negativity and the incorrect interpretation of Black Swans as necessarily negative unexpected events. Download the podcast here or you can stream it.
P.S. In Case You Missed It: Why Apple Should Make a Play for Disney
Trade ETFs? Take a 14-Day Free Trial to Mike Paulenoff's MPTrader newsletter. Receive specific trades and strategies across all sectors. Learn more.
No positions in stocks mentioned.
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