Foreign Central Banks Have Left the Building - News and Current Events | futures trading

Go Back

> Futures Trading, News, Charts and Platforms > Traders Hideout > News and Current Events

Foreign Central Banks Have Left the Building
Started:November 1st, 2011 (10:18 PM) by Quick Summary Views / Replies:537 / 0
Last Reply:November 1st, 2011 (10:18 PM) Attachments:0

Welcome to

Welcome, Guest!

This forum was established to help traders (especially futures traders) by openly sharing indicators, strategies, methods, trading journals and discussing the psychology of trading.

We are fundamentally different than most other trading forums:
  • We work extremely hard to keep things positive on our forums.
  • We do not tolerate rude behavior, trolling, or vendor advertising in posts.
  • We firmly believe in openness and encourage sharing. The holy grail is within you, it is not something tangible you can download.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community. It's free and simple, and we will never resell your private information.

-- Big Mike

Thread Tools Search this Thread

Foreign Central Banks Have Left the Building

Old November 1st, 2011, 10:18 PM   #1 (permalink)
Quick Summary
Foreign Central Banks Have Left the Building

Courtesy of Lee Adler of the Wall Street Examiner

Tracking foreign central bank (FCB) holdings of US Treasury and Agency (Fannie, Freddie, and minor government agencies) paper has been one of the most important lines of inquiry in my analysis of market liquidity for the past 9 years. This information is available virtually in real time each week in the Fed's weekly H41 report. It tells us just how much the FCBs have been subsidizing the US financial markets.Their purchases of government paper were not only crucial to funding the US government's spending week in and week out, but to the pricing of the bond market as a whole, and to the US financial markets generally. By typically absorbing the equivalent of 25% of the new Treasury issuance week in and week out for years, the FCBs provided a huge subsidy for the US financial markets, pushing Treasury yields down to artificially low levels, removing competitive pricing pressures for other assets, and pumping excess liquidity into the US system. That action artificially pushed up the prices, not just of Treasuries, but of all assets, especially equities and, for a while, housing prices.

All that began to change a little more than a year ago when FCBs began to gradually reduce their rate of purchases. The change was so subtle that the markets hardly noticed. But the Fed noticed, and it was forced to step in with two rounds of quantitative easing (QE), or money printing, to help absorb the Treasury supply and make up for the reduction in FCB purchases of Treasuries and Agencies. With reduced FCB subsidies, the Fed had no choice. Had it not stepped in, both the Treasury market and the stock market might have collapsed. As it happened, the European meltdown provided a new subsidy source for Treasury paper, as capital flight from Europe boosted the Treasury market, so that the absence of the FCBs again was not missed.

Then about 7 weeks ago, the FCBs not only slowed their purchase rate of Treasuries and Agencies, they began selling outright, and have continued to do so at unprecedented levels. This is a whole new ballgame, where, instead of helping to absorb new supply, the FCBs are actually adding to that supply by dumping their own holdings into the market. This would present a crisis for the US market which the Fed would be forced to address were it not for the renewed meltdown in Europe, and now the situation with the collapse of MoFo Global. Once again, the Treasury market gets the benefit of the buildup of fear. The panic is leading to massive buying of Treasuries. The fact that the FCBs are absent hasn't been noticed.

But the underlying problem of the FCBs no longer subsidizing the US market remains, and once the panic into Treasuries subsides, the pus filled boil of the Treasury market will explode onto the mirror of the world market. Without FCB support, the US Treasury and equities market will both be in big trouble at some point in the not too distant future. Here's the chart along with a brief comment that I wrote about it in this week's Fed report update. This chart remains an ominous indicator.

Please register on to view futures trading content such as post attachment(s), image(s), and screenshot(s).

The FCBs were sellers again last week, which is bearish. The FCB indicator, based on a 4 week average, is still rising, but from an extremely weak level. While the direction is still bullish in the short run, the overall level is still bearish, with both intermediate and longer term bearish implications. Without a strong recovery, the next downturn in this indicator will have strongly bearish implications. Can Only Have One, Not The Other Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, and get regular updates on the US housing market in the Wall Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE’s Professional Edition risk free for 30 days!

More on ZeroHedge...

Reply to share your thoughts on this current event.


Reply > Futures Trading, News, Charts and Platforms > Traders Hideout > News and Current Events > Foreign Central Banks Have Left the Building

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Upcoming Webinars and Events (4:30PM ET unless noted)

An Afternoon with FIO trader bobwest

Elite only

NinjaTrader 8: Programming Profitable Trading Edges w/Scott Hodson

Elite only

Anthony Drager: Executing on Intermarket Correlations & Order Flow, Part 2

Elite only

Adam Grimes: Five critically important keys to professional trading

Elite only

Machine Learning Concepts w/FIO member NJAMC

Elite only

MarketDelta Cloud Platform: Announcing new mobile features

Dec 1

NinjaTrader 8: Features and Enhancements

Dec 6

Similar Threads
Thread Thread Starter Forum Replies Last Post
Central banks top up gold reserves kbit News and Current Events 0 October 31st, 2011 07:45 PM
Foreign Central Banks Selling US Treasuries at Unprecedented Levels GridKing News and Current Events 0 October 16th, 2011 12:52 PM
5 Central Banks Move to Supply Cash to Europe kbit News and Current Events 0 September 16th, 2011 05:09 PM
The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues kbit News and Current Events 3 July 7th, 2011 05:12 PM
Europe Stocks Seen Up Ahead of Central Banks' Decisions Quick Summary News and Current Events 0 July 7th, 2011 02:40 AM

All times are GMT -4. The time now is 10:16 AM.

Copyright © 2016 by All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts

Page generated 2016-10-24 in 0.08 seconds with 19 queries on phoenix via your IP