Apologies to the great Marvin Gaye. As the LTRO "experts" seamlessly morphed into sterilized QE "experts" this week, our anger meter rose 20 ticks. Our "Dog watching TV" (i.e. we see and hear but do not comprehend) perspective goes like this:
As EZ monetary pornography measures have increased and US data has held an improved tone in late Feb/early March (something we felt could be a tad weaker) the real rate for the US belly has become less negative. This marginal "improvement" incited a rapid $130.00 correction on the other side of the trade--gold. Higher inflationary expectations, a Fed metric of success, also means increased jawboning by the members. Hawks around certain data, Doves at other times. This is Fed policy of steering marketed as transparency.
Enter the concept of sterilized QE, or more directly LSAP/Twist. In a sterilized operation of Central Bank sleight of hand, a CB borrows back the newly electronically created money it used to purchase "assets" (Treasuries, MBS, Agonies, ETFs, ipads) from banks/PDs. Its a messy way of writing a PD a check. However, if market participants have not already pondered the activity, then discussion of it can be confused as advocacy. We think the idea lame, but we felt that way about Twist and voila'. The Fed was walking back the idea when most observers caught wind of it. The term we wished we'd coined belongs to Morgan Stanley - enforced negative rates. Contemplated in these terms, the policy, the trial balloon and the market's gyrations appear far more understandable. Keep in mind, once you go through the looking glass, everything's a bit strange.