Treasury Market Screams the Fed is Dead ~ The Risk Averse Alert

Tuesday, October 12, 2010

Treasury Market Screams the Fed is Dead

Sometime over the next decade we might see some serious, concerted interest capable of sustaining a prolonged advance stepping up to the plate and buying stocks. In the meantime it appears a diminishing number of suckers continuing to believe the Fed actually has capacity to sustain the illusion of solvency of the U.S. banking system will help keep up appearances while a far greater number of equity investors cross their fingers and hold on for dear life.

Listen up. Do you think Treasuries are being bid up to the sky because the smart money consensus has it the Fed will succeed in inflating the financial system faster than it continues collapsing in on itself? Truth is the Fed is reduced to making reckless threats it cannot easily follow through on, and the financial system's further collapse only will be hastened were the Fed actually to make good on its promise to mop up more worthless MBS. The Fed, indeed, is stuck between a rock and a hard place (one made only more difficult by revelations of serious legal issues surrounding private-label MBS threatening to leave these securities unsecured). "Foreclosuregate" could not have come at a worse time.

Let's not forget, too, the Fed is an independent agency with no direct lifeline to the U.S. Treasury, and QE1 certainly would not have flown without Treasury's backstop via TARP. Thus, QE2 likely will need its crisis prodding the U.S. Treasury's backing. Good luck with that one, Bernanke! Doesn't the Treasury market know it, too.

OEX 1-min

If you were a capital-starved, yield hungry zombie whose partners in government and the media were working overtime bidding for business from the dumbest box of rocks within the investment universe, this is exactly how you would save the day and stick out your tin cup hoping the suckers hearing the "good news" from the Fed will step up and allow you to offload that dead equity you're choking on.


As predicted. Titanic's "unfathomable" sinking ahead.

Oh, and by the way...

Should any follow-through to today's turnaround ensue, there is more call open interest overhead in the October contract than you can shake a stick at. Considering that, the CME button — again, as predicted — is likely to be pushed yet again (following today's Fed signal indicating equity is a buy because large chunks of debt still remain hopelessly insolvent — sick!), another "fail" appears all the more likely given the October options open interest configuration.

Fast Money
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