Federal Reserve Rains Money On Corporate America -- But Main Street Left High And Dry

[JohnWxy]

http://www.huffingtonpost.com/2010/11/03/federal-reserve-qe2_n_778392.html

Bill Gross will be one of the few to benefit from the Federal Reserve's announcement this afternoon.

The legendary money manager, who oversees more than $1.2 trillion at Pacific Investment Management Co., stands to profit off the plan hatched by the nation's central bank. The Fed announced that it will buy between $850 to $900 billion of U.S. government debt, also known as Treasuries, through June to spur the recovery. Over the coming months, the Fed will then communicate its specific plans well ahead of any such purchases, allowing wealthy investors and firms a chance to buy those assets first so they can sell it back to the Fed at a profit. Folks like Gross will be the biggest beneficiaries.

When it comes to helping Wall Street and corporate America, the Federal Reserve spares no expense.

It expanded its authority and bailed out securities and insurance firms. It tethered the main interest rate to zero. It more than doubled its balance sheet to $2.3 trillion by purchasing mortgage-linked securities and U.S. government debt. To arrest the free-falling economy and jolt it back to life, the nation's central bank has engaged in an unprecedented campaign to ensure banks have cash and corporations access to credit.
(MORE)

[old mark]

1. And Corporate America rains money on the GOP, but can't hire anyone or

afford to provide real health insurance...

Who wants to bet the employment rate rises almost immediately after republicans take office in January?


mark

[tom_paine]

9. They haven't been hoarding all that dough for nothing

Yes, openly coordinated monopolist-type movements are now made so very easily with meteoric increases in technological progress. "Legal" fraud performed right before our very eyes.

The customary pre-election "Fear PsyOp", those packages from Yemen. A little pre-election gas-price spike. (it goes the other way when the Repubs are in power - temporary gasoline price drops, as in '04, '06, and '08, make people subconsciously happier with the status quo)

If one studies the history of American Finance in the 1880s-1900s period, one can see that, even long before the massive technology advances, it was easily to fully and corruptly rig the stock market. As anyone can see who cares to look, we are headed back for the 1880s and perhaps the 1580s.

I could definitely see or even expect as you do, that Capital, with it's deep understanding of mass psychology, advertising, marketing, PR and human nature, would also now astheir pwoer grows, so boldy obvious to manipulate things in this way.

It's a brilliant move, and will only serve to further consolidate that already enormous, rampant, and out of control power of the Top 0.01% through it's Royal Intermediaries, The Corporations.

"The avalanche has begun. It's too late for the pebbles to vote."
--anonymous

[KossackRealityCheck]

2. What nonsense

Treasuries are basically like dollars. This is like saying, the Fed announced it's going to buy back billions in $50 dollar bills in circulation!!! Oh noes! The rich people will buy the $50 bills and sell them at a profit.

No, that won't happen because a $50 bill is worth $50. A $10,000 Treasury is worth $10,000.

[girl gone mad]

3. I think you need to spend a little more time pondering the details.

You've left a few relevant factors out of the equation.

[dixiegrrrrl]

4. Verily.

Guess I will go out and stock up on coffee, rice and toilet paper.

[femrap]

5. Treasuries fluctuate in value....

wildly sometimes. And it's rather unprecedented for the Fed to buy Treasuries. This Ponzi scheme is going to end very badly. VERY BADLY.

And remember CURRENCIES fluctuate in value as well.

And remember that the Chinese own boatloads of Treasuries that they can sell whenever they want.

And remember the Dollar doesn't necessarily HAVE to be the Reserve Currency of the world.

Get that Econ 101 book out....or go read some of Roubini.

[JohnWxy]

6. Yes, the Face value of a T-Bill is $10,000. You buy it discounted at the current going rate.

When the Fed goes to market (with a fat pocket of money) and buys billions of dollars in Treasuries, they drive the price of the T-Bill up (and the yield down). If you are managing a trillion dollar hedge fund it's feasible to buy say $10 Billion of Treasuries @ a discount of 'x'. When the Fed comes to market and buys billions of dollars of Treasuries and drives the price up (or shrinks the discount at which they are sold) you make money because the Fed drives the price of Treasuries up.


"Over the coming months, the Fed will then communicate its specific plans well ahead of any such purchases, allowing wealthy investors and firms a chance to buy those assets first so they can sell it back to the Fed at a profit. Folks like Gross will be the biggest beneficiaries."

If you bought Treasuries a few months earlier, you bought them at a lower price than what will be paid when the Fed starts buying up Treasuries. So now you will sell them to the Fed at a higher price. The percentages are slight but when you are talking Billions of $s it multiplies up nicely. The current discount on a 91 day treasury would yield you about .13% ....note that is 13 hundredths of one percent. That's why it takes considerable cash to really make some money in this 'action'. Even if the discount went to zero (not goin to happen) the move in price would be limited to .13% of the face value of the note.

The author's point is that you only can really make money in this situation if you are wielding considerable amounts of cash... like say millions of dollars, or hundreds of millions. THis is not something for the small investor to get involved in.

What I think is more important is that a bit more cash in the market provided by the FED, isn't going to make much difference to the small business who can't get his local bank to give him a 90 day loan for working capital (not for investment purposes but just to make payroll, buy inventory, etc - just to keep his business running..
this is about the lowest risk loan a banker can make.).

[KossackRealityCheck]

7. That's the whole point of announcing in advance

I know the price of bonds fluctuates with interest rates. But the price is calculated instantaneously. If the Fed announces its plans in advance it is not possible for some investors to purchase at one price and sell at another.

That's the whole point of announcing its intentions in advance -- the exact opposite of the conclusion drawn by the diarists article.

[elleng]

8. Doesn't sound useful to me,

and we need infrastructure legislation just proposed, and won't get. So I don't anticipate any activity, recovery-wise.