A Must Read: The Fed Buys Last Week’s Treasury Notes

This is a liquidity driven rally, not an earnings driven rally. With the Fed creating market manipulation in the Treasuries (they recently had the primary dealers front buying longer issues then the bought 50% of the issues in order to “hype” the bid-to-cover ratio) the stock market is reacting to manipulated news. The issue is what does the market do when they it finds out about the Fed buying (that can’t continue) and the coming restatement of the first half of 2009 unemployment?

Thanks Chris Martenson for revealing this game behind the scenes that ordinary folks like me wouldn’t know about otherwise.

“Here’s the Treasury announcement for the 7-year auction that came out on July 30 (last Thursday). Please note the specific CUSIP number circled. Every bond in this auction carries this specific identifying number.

And now let’s look at the detail for this most recent POMO:

Good grief! Just last week, when the auction results were announced it was trumpeted to great fanfare that there was “more than sufficient” bid-to-cover, “strong demand” and all the rest.

And now it turns out that 47% (!) of the bonds that were taken by the primary dealers in that auction have been quietly bought by the Fed and permanently secreted to its balance sheet.

They didn’t even wait a full week! A more honest and open approach would have been for the Fed to simply buy them outright at the auction but this way, using “primary dealers” and “POMOs” and all these other extra steps the basic fact that the Fed is openly monetizing US government debt is effectively hidden from a not-too-terribly inquisitive US press and public.

The speed of the shell game is accelerating.”

full article: http://www.chrismartenson.com/blog/fed-buys-last-weeks-treasury-auction/23880

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