Sky cracks open, walls falling to the floor- Just as well to keep it, a guessing game in store - You're with me now, will be again - All other points in between

And cruel cruel mornings - Have turned to days of swim or sink - If living right is easy, what goes wrong - You're causing it to drown

Didn't want to turn that way - You're causing it to drown. Doesn't make a difference now - You're causing it to drown.

Jay Farrar/ Son Volt - Drown

After not reducing Treasury positions into year end, Primary Dealer holdings hit a new high. As Foreign holders have offloaded inventory at record pace and the fed has gug deeper into Twist, the Street is bulging with notes 3 years to maturity and under. FT/Alphaville showed last week, PDs -for the first time EVER - hold more Treasuries than corporates.

And yet: Away from the T-complex, Freddie sold 7B in 10 year paper. Macy's returned to "investment grade" and placed long dated debt. And in the ultimate slap to the EZ, SAB/Miller sold 7B in  3s, 5s, 10s and 30s rated BBB+ (S&P). This was the largest corporate deal in 2 years and was 144a placed from 150 to 200 over  corresponding Treasury yields.

The implications of a beer company borrowing better than the nation of its take over target is odd if not amazing. (SAB is refi-ing the Australian Foster's purchase) It also shows that the Fed's QE  and the Euro Zone chaos have sucked all the debt "air"out of the room. Academic fears of crowding out are being upstaged by a rolling wave of debts. The economic consequence is minimal as the system locks into a catatonic exercise.  This is a situation we have described, not as a liquidity but a structural trap.

It didn't have to turn out this way - they're causing it to drown.

One thought on “Drown

  1. Ivan

    Calm the storms that drench my eyes
    Dry the streams still flowing
    Cast down all the waves of sin
    And guilt that overthrow me

    From Flood by Jars of Clay

    It’s hard to lay all the blame for the incessant liquidity waves solely at the feet of the monetary authority. They’re playing the game with one hand tied behind their back. The fiscal authorities known as the Legislative branch refuse to leave the on-deck circle. How can we expect the central bank to navigate the macroeconomic storms AND the political paralysis simultaneously. I like the independent model for the Federal Reserve. Now it’s time for its chairman to use that independence more forcefully with policy makers. At this point, to remain neutral on the specific *fiscal* policy measures that need to be taken (or avoided) in order to ensure we don’t “1937” this recovery is to join in the guilt that threatens to overthrow us.


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