Making Unique Observations in a Very Cluttered World

Sunday, 4 October 2009

Fed accnts for nearly 1/2 of all Treasury bought in 2nd Q$164B of $339B Fed bought more than the nxt 3 purchasers combined

Fed accnts for nearly 1/2 of all Treasury bought in 2nd Q$164B of $339B Fed bought more than the nxt 3 purchasers combined http://j.mp/gMM9k

The Fed’s FOMC announcement came out…

We got exactly what I expected, a kind of wishy-washy, “hedging our bets” statement from the Fed. You have to remember that Bernanke was Greenspan’s right hand man for much of the bubble days of the ‘90s and early ‘00s, so the guy is an expert at walking both sides of the line when it comes to policy and public statements.

For instance, the Fed announced it would keep interest rates between 0% and 0.25% for an “extended period.” No surprise there. As I’ve noted previously, 80%+ of the $200+ trillion in derivatives sitting on US commercial banks’ balance sheets are related to interest rates.

For the Fed to hint at raising rates (let alone raise them) would kick off a systemic implosion that would wipe out the very guys the Fed has been bailing out. Suffice to say the Fed won’t be raising interest rates now or anytime too soon (within the next 3-5 years, unless inflation destroys the dollar).

The Fed also announced it would be slowing its purchase of Mortgage-Backed Securities (what I call the Fed’s “cash for trash” program). The Fed has stated previously that it will buy $1.45 trillion in mortgage-backed securities from US banks and that this program will end by the end of 2009. However, last week the Fed said it will be extending the program (but not the amount of money spent) until the first quarter of 2010.

Again, this is not much of a surprise. The Fed performed a similar act with its Quantitative Easing Program (extending but not increasing the amount). However, given the increasing public outcry about the Fed’s balance sheet, this issue of buying toxic debt (and the mortgage backed securities the Fed is buying are nothing if not that) may become a hot topic in the near future. If there is ever a successful audit of the Fed’s balance sheet, kiss the big banks’ equity (and share prices) good-bye.

The Fed did announce that it would let its Quantitative Easing program end in October. If you’re not familiar with this program, it’s basically a fancy way of saying that the Fed has been buying US debt in order to finance Obama et al’s massive deficit.

This particular development is key. A little known fact (and one totally ignored by the mainstream media) is that the Fed accounted for nearly

The Fed’s purchases outnumber foreign holders (foreign governments), US households, and Primary Dealers (mega banks) combined. One should also note that foreign holders reduced their purchases of US debt from $159 billion in 1Q09 to $101 billion in 2Q09 (a 40% decrease).

In simple terms, these numbers indicate that if it were not for the Fed, the US Treasury market would have almost assuredly had numerous failed auctions in the second quarter. It also shows us that foreign holders (China, Japan, etc.) are reducing their purchases of US debt at an incredible rate. This tells us two things:

1) China and pals are putting their money where their mouths are: refusing to service our debt as they did in the past

2) Treasuries will have to become a lot more attractive (higher yields) for foreign investors to start buying again

I’ve often stated that the Fed will have to sacrifice stocks or the US dollar. If the Fed does in fact end Quantitative Easing in October (as it has stated it will in last week’s FOMC), then we’ll see what the market really thinks of US debt as an investment class. It’s clear from the above data that foreign holders want higher rates (yields) in order for them to start buying more heavily. However, as I’ve stated before, the Fed cannot afford higher interest rates without blowing up US banks.

Keep your eyes on the Treasury market going forward. This could very well be the next major crisis brewing. It will certainly be our first taste of how a market operates without life support courtesy of the Fed.

I’m guessing the results won’t be pretty.

People vaccinated against seasonal flu TWICE as likely to catch H1N1 - And the sample size is 12 million people

Reading - people vaccinated against seasonal flu TWICE as likely to catch H1N1 - And the sample size is 12 million people http://j.mp/OoUKg

A “perplexing” Canadian study linking H1N1 to seasonal flu shots is throwing national influenza plans into disarray and testing public faith in the government agencies responsible for protecting the nation's health.

Distributed for peer review last week, the study confounded infectious-disease experts in suggesting that people vaccinated against seasonal flu are twice as likely to catch swine flu.

The paper is under peer review, and lead researchers Danuta Skowronski of the British Columbia Centre for Disease Control and Gaston De Serres of Laval University must stay mum until it's published.

Met with intense early skepticism both in Canada and abroad, the paper has since convinced several provincial health agencies to announce hasty suspensions of seasonal flu vaccinations, long-held fixtures of public-health planning.

“It has confused things very badly,” said Dr. Ethan Rubinstein, head of adult infectious diseases at the University of Manitoba. “And it has certainly cost us credibility from the public because of conflicting recommendations. Until last week, there had always been much encouragement to get the seasonal flu vaccine.”

On Sunday Quebec joined Alberta, Saskatchewan, Ontario and Nova Scotia in suspending seasonal flu shots for anyone under 65 years of age. Quebec's Health Ministry announced it would postpone vaccinations until January, clearing the autumn months for health professionals to focus on vaccinating against H1N1, which is expected to the more severe influenza strain this season.

“By the time the H1N1 wave is over, there will be ample time to vaccinate for seasonal flu,” Dr. Rubinstein said.

B.C. is expected to announce a similar suspension during a press conference Monday morning.

Other provinces, including Manitoba, are still pondering a response to the research.

New Brunswick is a lone hold-out, announcing last week it would forge ahead with seasonal flu shots for all residents in October, as originally planned.

So far, the study's impact is confined to Canada. Researchers in the U.S., Britain and Australia have not reported the same phenomenon. Marie-Paule Kieny, the World Health Organization's director of vaccine research, said last week the Canadian findings were an international anomaly and could constitute a “study bias.”

An international panel is currently scrutinizing the research data. “The review process has been expedited, so we're hoping for a response within days,” said Roy Wadia, spokesman for the B.C. Centre for Disease Control.

Dr. Rubinstein, who has read the study, said it appears sound.

“There are a large number of authors, all of them excellent and credible researchers,” he said. “And the sample size is very large – 12 or 13 million people taken from the central reporting systems in three provinces. The research is solid.”

The vaccine suspensions do not apply for people over 65. Seniors are considered more susceptible to severe seasonal flu symptoms. At the same time, they carry antibodies from a 1957 pandemic that seem to neutralize the current version of H1N1.

Even if the statistical link is proven, the medical link between seasonal flu shots and H1N1 remains mysterious. One hypothesis suggests seasonal flu vaccine preoccupies the cells that would otherwise produce antibodies against H1N1.

But, according to Dr. Rubinstein, the research shows that people who received the seasonal shot during the 2007-08 flu season remained vulnerable to swine flu well into 2009 – an interval that should provide most immune systems ample restoration time.

“We don't understand the mechanism,” Dr. Rubinstein said. “At the present time it is quite perplexing.”

Irish voters said "yes" to the 2007 Lisbon Treaty on Saturday – 16 months after rejecting it in a first vote

Reading - Irish voters said "yes" to the 2007 Lisbon Treaty on Saturday – 16 months after rejecting it in a first vote -http://j.mp/qGVqy

BRUSSELS, BELGIUM–Ireland's approval of a European Union reform treaty capped a two-decade-long roller-coaster ride to expand the union and widen its powers.

The experience has been so troubled that relief in EU capitals was palpable when Irish voters said "yes" to the 2007 Lisbon Treaty on Saturday – 16 months after rejecting it in a first vote.

But there are still hurdles. Politicians in Poland and the Czech Republic question the legality of changes enacted to get Ireland on board. After the 2008 Irish "no," Dublin won guarantees the EU will not gut its traditional neutrality, abortion ban or tax powers.

Experts say even if the treaty is passed by all members, EU governments may lack the will to take full advantage of reforms such as freer trade. A successfully reformed EU would have a president, a single foreign policy chief, less red tape and a European Parliament with more power over legislation. The assembly would get a say in drafting the EU budget. European voters able to collect 1 million signatures will be able force the EU to draft new rules. If a country was fed up, it could leave the club unilaterally.