PIMCO - IO Feb 2009 Gross Beep Beep

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PIMCO - IO Feb 2009 Gross Beep Beep: "The simplicity of the solution, however, is not easily achieved once deflationary momentum takes hold. Animal spirits, once dampened, are hard to reignite; “fear of fear itself” dominates greed. Under such circumstances, the benevolent hand of government is required and Keynes is reincarnated in an attempt to plug the dike via fiscal spending and imaginative monetary policies that support asset prices. PIMCO has recently been contracted to assist in several publically announced programs which have helped in that effort: the CPFF, which has benefitted commercial paper yields, and the Federal Reserve’s purchase program for agency-backed mortgage loans, which has lowered 30-year mortgage rates to 4.5% and fostered the affordability of new and secondary housing prices. These two programs, in our opinion, have been the major policy successes to date – not because of our involvement – but because they have supported and increased asset prices whose decline has been the major deflationary thrust behind the real economy. Stop asset prices from going down and with a 12-month lag, unemployment will stop going up, and President Obama’s targeted three million new jobs will have a fighting chance of being achieved."

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PIMCO - IO Feb 2009 Gross Beep Beep

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PIMCO - IO Feb 2009 Gross Beep Beep: "Example: CMBS or commercial real estate mortgage-backed securities are now priced to yield over 12% vs. 5% in recent years. As real estate financing comes due and rolls over in the next few years, it is imperative these yields return to mid-single digits if shopping centers, retail malls, and office buildings are to remain viable. How best to bring those yields down is debatable: another CPFF-like structure with self-insurance and contributed fees as its equity backstop? A generous portion of remaining TARP billions providing a reserve cushion for Federal Reserve funding? A good bank, bad (aggregator) bank structure? All three are being debated by policymakers and we should have clarity within a week’s time. But one thing is certain: an economic recovery is dependent upon commercial real estate prices stabilizing and most retail stores staying open for business in the months and years ahead."

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How The World Almost Came To An End At 2PM On September 18

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Zero Hedge: How The World Almost Came To An End At 2PM On September 18: "On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there.

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it."

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Fed Has Already Adopted Quantitative Easing

Image via WikipediaPer the latest Market Watch from Barclays Capital:

"In recent weeks, there has been a rather odd debate over whether the Fed will adopt Japanese-style quantitative easing: that is, flood the banking system with reserves to induce more lending. In our minds, the Fed has already gone well beyond anything the Japanese ever did. It has already dramatically expanded bank reserves, and unlike the Japanese, it has used these funds to intervene aggressively in many parts of the capital markets. This is quantitative easing on steroids.

If our baseline forecast is correct, it could mean a broad-based shift in the capital markets as a variety of risk aversion trades unwind. Once the markets believe policy-makers are succeeding in containing the capital markets and economic crisis, we would expect a rally in risky assets such as credit spreads and equities; a bear steepener in the treasury market, as the Fed holds down the short end and budget deficit concerns push up the long end; a weakening of the dollar as safe-haven inflows ease; and a rally in commodity markets as investors price in an eventual recovery in global demand."

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Recession’s Grip Forces U.S. to Flood World With More Dollars

Bloomberg.com: Exclusive: "Nov. 24 (Bloomberg) -- The world needs more dollars. The United States is preparing to provide them.

In an all-out assault on capitalism’s worst crisis since the Great Depression, the U.S. is taking on the role of both lender and borrower of last resort for the global economy.

The Federal Reserve, which has already pumped out hundreds of billions of dollars, might formally adopt a policy of flooding the world financial system with even more money. The Treasury, on course to borrow some $1.5 trillion this fiscal year, may tap global capital markets for even more to finance a fiscal stimulus package of as much as $700 billion and provide additional bailout money for banks.

“You want to do everything you can when you’re facing the threat of a deflationary breakdown of the economy,” says Michael Feroli, a former Fed official who is now an economist at JPMorgan Chase & Co. in New York."

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Still Holding Back - Barrons.com

Still Holding Back - Barrons.com: "Where do you see all of this going?

I want to emphasize how little I understand all of the intricate workings of the global financial system. I hope that someone else gets it, because I don't. And I have no idea, really, how this will work out. I certainly wish it hadn't happened. It is just so intricate that all I can conclude, by instinct and by reading the history books, is that it will be longer, harder and more complicated than we expect."

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