Thursday, May 27, 2010

The Fake Bailout Continues (Federal Reserve division)

The Federal Reserve currency swaps have collapsed.

In the last week, the Fed conducted only $1 billion in swaps (this was with the ECB). The Fed is now also reporting that the initial $9.2 billion swap conducted on 5-19 has matured and was not rolled over.

Bottom line: There is near zero Fed participation in the "bailout" and on Tuesday we will see if the data indicates any strong bailout activity from the ECB, but, at this point, it appears that the central bank bailout operations consist  pretty much of smoke and mirrors press releases.


  1. VIX seems to be showing massive complacency in the financial markets in the face of impending downside correction/doom. It "has to" bounce because it always has in the past!

    Whoops, there goes the nest egg.

  2. Is this a result of the euro's slide? It depends on the nature of the swap, but I'd imagine the ECB could end up on the hook for a whole lot of euros to buy all the dollars they need to close it out.

    They don't want to do that if they could avoid it, as they'd basically be going long on the euro vs. the dollar at the same time everyone is watching it slide down.

    Maybe I'm wrong. I have no idea what these swaps really look like.

  3. Taylor - if you want some snake oil, there is a nice h&s-pattern evolving in the stock markets. I am not sure that the complacancy can last long enough to complete it though. SP500 looks like it might crack before 1060.

  4. I think you missed the 1.032 trillion 3-month swap agreement with the ECB.

    Sure the press reported the 1-week 9.2 billion swap wasn't rolled over while neglecting to mention the outstanding swap agreement with the same counterparty only two orders of magnitude larger.

  5. Ignore my comment about the 3-month swap. It was clearly factually incorrect. My bad.

    Thank god I was wrong! We'd be in for a world of pain otherwise!