We’re All Dumber For Hearing It



The overwhelming call for the Fed today is an extension of the Operation Twist activity because "they have a couple hundred billion in securities left to use and it would be easy to implement." Monetary policy has somehow morphed into "easy choices." This Fed will not be remembered for crafting policy that was easy to do. Even the original message of "credit easing" for ZIRP and LSAP 1 was a palatable description of something much more complex.
A quick look at the steady rise in GC rates -our call in January - shows the structural cost to the system of Twist. The 2 year note hovered above 25bp even as Schatz went nominal negative.The EZ debacle has been an accelerating event  squeezing collateral based monetary regimes. We were/are vocal opponents of Twist as it extends the date and complexity of Exit - a strategy that used to garner much attention but is now accepted as "held to maturity."
Let's view the mess from 20,00 feet. The Fed has a zero rate policy that uses its balance sheet to enforce negative yields at the zero bound. They have tempered skeptics views by adopting a "stock" characteristic to the size of the balance sheet. The market, however, prefers the flow aspects of Fed operations whether in commodities or Treasuries and equities. Easy it ain't.
We like steep curves, low oil, and accommodating Central banks. That's as close to "easy" we can get.

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