These charts are utterly amazing:

updated through 11/17/08

Monetary Trends
St. Louis Fed, December 2008

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

56 Responses to “Adjusted and Required Reserves”

  1. leftback says:

    Looks like gold has got the message.

  2. DL says:

    Leftback took the words out of my mouth. Gold has performed better than just about any other commodity over the last 5 months, and far better, of course, than the S&P.

  3. leftback says:

    Aint seen nuthin yet. Wait until the helicopters start dropping their loads.

    I am doubling down on my Treasury short this afternoon. The bid in the short end is understandable but the bid in the long bonds is ridiculous. The stampede out of insolvent banks and “AAA” credits will be nothing compared with the stampede we will see when Treasury yields start to rise.

  4. Winston Munn says:

    Dude, where’s the Dharma had an interesting point on U.S. finances:

    “While the Fed and Treasury didn’t have the firepower to strengthen the US$, foreign interests did, and it was used. The SWFs (shorthand for foreign interests both public and private) are having more of an effect on the US economy than the Fed and Treasury.”

    Therein lies the key to the surprise strength of the dollar – foreign wealth pouring into treasuries. Trouble is, much of this is short term. Who gets to make foreign policy next year when it’s time to roll over that debt?

    I’m shakin’ it up here, Boss.

  5. DavidB says:

    I see you found Algore’s hockey stick

  6. DavidB says:

    Zimbabwe’s getting jealous

  7. DL says:

    Gold may get a further boost if Obama starts pushing for all sorts of spending programs (stimulus packages, auto bailouts, healthcare expenditures) without any way to pay for them.

  8. leftback says:

    I just bought some TBT and a bunch of stuff that people have been shorting the crap out of.
    I think a big squeeze may get going today or tomorrow.

  9. Mannwich says:

    Ho-hum. Market will now rally on the latest bailout news and then proceed to slowly deflate below prior levels. Liking my GDX more and more these days. Picked up some more earlier this morning.

  10. Vermont Trader says:

    Those charts look like bank stock charts turned upside down. Like WM or WB or BSC or AIG or FNM or C.

    There is a lot of paper profits in puts at the moment. Do they pin it at 750, 800, 850 or 900. at expiration or does the bottom fall out?

    A lot of crazy shit has happened in the last 3 months. And it could get a lot crazier..

  11. I-Man says:

    Today’s tape is a daytraders dream!!!

  12. CNBC Sucks says:

    DL, don’t forget our “piggy bank”: I love it when people say the world’s richest and most powerful nation can’t pay for things. Time to loosen Larry Kudlow’s wallet. If Warren Buffett is so willing, so should he, Luskin, and the Little Ewok.

    As a non-trader, I may be treading on thin ice, but I am at a loss regarding your comment about gold’s performance over the last 5 months:

  13. leftback says:

    CNBC sucks: he means that gold has not been utterly destoyed by >60%. Even the “deflationary” PPI/CPI data did not annihilate the price, and that is especially meaningful. Gold has bottomed for now.

    VT Trader says: there is a lot of paper profits in puts at the moment. Do they pin it at 750, 800, 850 or 900. at expiration or does the bottom fall out?

    I think they start taking them today and tomorrow is a relatively uneventful expiration. Which is sort of what happened with the October expiration if I remember correctly (seems so long ago).

    Squeeze is coming. Treasury holders are going to squeal. ALL ABOARD…!!

  14. leftback says:

    If phb is watching this:

    @ phb said: “I hate fixed income…however, there has to be a return opportunity with the TIP/10-yr spread, I am just not smart enough to know how to play it. Thoughts anyone?”

    If you want to play this spread you can: Buy TIPS (eg VIPSX) and equal $ of an inverse bond fund: TBT (2x), PST, DXKSX (3x), RYJUX. Take your pick. I did the leveraged funds. I like this trade so much I doubled down on it today. Enjoy.

  15. leftback says:

    Check out the 12-month chart for JNK. Serious cliff diving…

  16. batmando says:

    @ leftback

    Trying to understand the play here on Treasuries…., the squeeze comes as yields rise and Treasuries fall, yes? Yields will rise because why? As in SWFs exit the Treasuries in a big way? or Treasuries are sold in a return to equities as they bounce off a “true” bottom?

    Whereas I just read in Mish’s blog:
    “In the midst of the biggest consumer led recession since the great depression, there is simply no reason to expect treasury yields to rise. Banks are hoarding cash and any cash infusions from the Fed will likely go straight into treasuries or perhaps used for mergers”

  17. constantnormal says:

    OK, so somebody is gonna hafta ‘splain it to me, in small words that I can unnerstand.

    What I see in these charts is a rather graphic demonstration of why the Fed’s strategy to fight deflation isn’t working. The money is being cranked out in record amounts, to be sure — but it just isn’t going anywhere. It’s piling up as “adjusted reserves”, with the “required reserves” staying pretty much flat.

    So if deflation is still vibrant and strong in the land, then why would anyone think that gold will be doing well?

    The only answer to that (that I can see) is if one expects the U$D to expire not via hyperinflation, but from a rather severe and abrupt lack of confidence. Maybe that will transpire, but I see a lot of reasons — mostly foreign ones — why the U$D will be maintained and kept stable, albeit controlled by foreign interests. If it were in any danger, would it still be the world’s exchange currency? Would be not be seeing a move to the euro/yen/gold/? That just ain’t happening, so far as I can see.

    And one thing for sure — if anyone can look at these charts and claim that we are amid the chaos of a credit bubble popping, then they simply don’t understand what they are looking at. This credit bubble is still expanding, and has yet to pop.

    Perhaps if/when we start seeing signs of distress in the Treasury markets — not just the “normal” crazed fluctuations that masquerade as a market nowadays, but something else a bit more concrete — then we might be seeing the beginnings of our credit bubble exploding. That will surely be something memorable, akin to being at a nuclear test site outside the bunker.

    At that time our financial waveforms will expand, and until they coalesce in the new reality, we will not know where we, or Todo are, or if we are at all.

  18. mark mchugh says:

    Hey Barry,

    I think it would be cool to have a daily open thread, so the community could share thoughts as the day unfolds.

    I’ll start:

    On CNBC, it looks like Nancy Pelosi is interpreting Paulson’s speech for the hearing impaired.

  19. Stuart says:

    Explains quite a bit why the charts look the way they do. Highly recommend the 5 minute read considering the implications to treasuries.

    By John Kemp
    Friday, November 14, 2008….

    Quietly, without fanfare, the Federal Reserve has turned on the printing presses. The central bank is flooding the market with enough excess liquidity to refloat the banking system — and hopes to generate an upturn in both economic activity and inflation in the next 12-18 months to prevent the economy falling into a prolonged slump.

    Since the banking crisis intensified in September, the Fed has been rapidly expanding the credit side of its balance sheet, providing an ever-increasing array of facilities to support the financial system (repos, term auction credit, primary discount credit, broker-dealer credit, commercial paper funding, money market mutual fund liquidity and term securities lending).

    Total credit extended by the central bank has surged from an average of $885 billion in the week ending August 27 to $2.198 trillion in the week ending November 12. Credit extensions surged another $142 billion last week alone — mostly in form of increased term auction credit (+$114 billion) and other miscellaneous credits the central bank does not break out (+$41 billion).

    Until fairly recently, the expansion on the asset side of the Fed’s balance sheet was matched by increased non-bank liabilities, mostly in the form of higher balances deposited by the US Treasury into its regular and special supplementary financing accounts at the central bank.

    Since the Treasury was borrowing this money in the open market by issuing cash management bills, the impact of the Fed’s balance sheet expansion was being fully sterilized.

    The Fed was providing liquidity in the narrow sense (helping commercial banks cover short-term funding problems arising from illiquid assets on their books) but not in the broader sense of inflating the money supply (money in circulation plus vault cash plus reserve balances).

    But in the last three weeks, something very significant has happened. The non-bank part of the Fed’s liabilities has stopped expanding: combined Treasury deposits with the Fed plus cash in circulation has actually fallen from $1.517 trillion in the week ending Oct 29 to $1.467 trillion in the week ending Nov 12.

    Instead, the Fed’s increased lending to the financial system over the last two weeks (+$325 billion) has been matched by an increase in the volume of deposits the commercial banks are hold with the Fed (+$331 billion).

    In other words, the Fed is now lending to the banks, which are now lending the funds back to the central bank. The Fed is no longer supplying just narrow liquidity needed to enable the market to function. It is now supplying excess funds (more than the banks need) which are being recycled back into the central bank.

  20. DL says:

    CNBC Sucks @ 1:18 pm

    As for gold, I just meant that it has performed RELATIVELY well, given the annihilation of crude oil, and the S&P500.

    As for your other comment from yesterday:
    “I have started to recognize the wealthy as that nice national piggy bank that we all have been putting our coins in for 28 years. There is more money within the wealthy of this country than anywhere else on Earth, worth more than all the oil in Saudi Arabia. Now, it is time to…crack the bank”

    I would like to see a specific tax proposal before commenting. In particular, what sort of marginal rate on earned income (and “unearned” income) are you proposing? What about taxing assets per se (like Sweden used to do)…?

    I’m not opposed to “soaking the rich”, to the extent that it is achievable. But I think that it is far more difficult to do than merely raising marginal tax rates, as we saw in the 1970’s.

    A wealthy person who owns holding companies in Panama and Hong Kong, and who has an army of tax lawyers, can be difficult to get money out of.

  21. bri says:

    agree w/ mark m.

    barry has somehow screened out the maniacs. besides a few of us.

    prettay, prettay impressive.

    although threads usually head in the “open” direction anyway, like the idea.

    can’t own enough puts here, although some stocks are getting ridiculous, but then again. . .

    most banks should be <$5, so we’re still expensive.

    enjoy the autotarp.

  22. These charts look like the EKG of something being born … or upside own … the EKG of something gone daid …

    But I’m not an emergency room physician.

  23. leftback says:

    @ batmando: Trying to understand the play here on Treasuries…., the squeeze comes as yields rise and Treasuries fall, yes? Yields will rise because why? As in SWFs exit the Treasuries in a big way? or Treasuries are sold in a return to equities as they bounce off a “true” bottom?

    I rarely disagree with Mish but I have Soros wth me on this one.

    1) Many dividend-paying stocks now have higher yields than the long bond.
    Any stock rally will drive an exchange into stocks.
    2) A declining $ will drive exchange into gold, yen swissy or other government’s securities.
    3) Any increase in inflation expectations will drive exchange into TIPS and gold.
    4) The process of quantitative easing is well underway (see Stuart above).
    5) Concern about US credit will drive #2.

  24. Mannwich says:

    Bloodbath into the close. Yikes.

  25. Byno says:

    I mentioned in the last (and, perhaps, final?) linkfest that the shape of the yield curve was a bright spot in an otherwise fugly landscape. Unfortunately, given that the ten year yield has fallen about 20% in the last few weeks, that last little sliver of something appears to be going away.

    If, and I can’t stress how big of an if this is, but IF the yield curve flattens at the long end over the next few months, welcome to Japan and ten more years of this shit. Or, to borrow from Red October, this business will get out of control and we’ll be lucky to live through it.

    Right now, I’m looking at really cheap S&P stocks with good interest coverage ratios and low leverage in in the hopes of pulling a John Templeton, knowing full well that if we circle the drain any faster it won’t really matter that I’m wrong on the stocks I’m snapping up. At this rate, I’ll take my hard earned gains to JPM, BAC, or WFC, since they’ll be the only three money center institutions left

    Good luck in these last twenty.

  26. CNBC Sucks says:

    Hey, it’s about time I checked back on a thread I commented on. Haven’t done that in like 7 weeks, when I think McCain was ahead in the polls. I know, I know…the registered Republican bit has been like an overused stink bomb that I regularly left for some of you. I apologize, although I really am a registered Republican!

    Lefty – thanks for the explanation, expanded upon by DL. I got it! I personally would have expected gold to go up, up and up, but the psychology of gold trading is fascinating. The metal has some intrinsic uses, which should govern its price by some tangible supply and demand, and then it should have a huge fear kicker. I guess the fear of being overbought has remained greater than the fear of the economy imploding, and then of course deflation has replaced inflation. Lots of moving parts. By the way, I will look into getting some absinthe for the holidays.

    DL – great point. I only bitch against the ideology of low taxes for the rich, not against reasonability in the application of a progressive tax structure, meaning wherever on the Laffer curve revenues are maximized is fine with me. Just make sure Art Laffer is not in charge of determining that optimal point on the Laffer curve! I suspect that maximum revenue is north of Obama the Democrat and south of Nixon the Republican. In any case, what I DESPISE is the blanket obfuscation currently being promulgated by Republican spokespeople asking “where is the money going to come from?” We all know that Larry Kudlow has some money and we should all try our best to get it from him.

    We should also develop some sort of idiot tax so we can nail Dennis Kneale as well.

  27. Byno says:

    Mannwich Says:

    November 20th, 2008 at 3:40 pm
    Bloodbath into the close. Yikes.

    Do you guys ever feel like we’re in that scene in Hot Shots 2 Where the screen keeps flashing updates such as “this movie is now more violent than Total Recall,” except instead the market keeps flashing “this is now the 7th 6th 5th 4th worst bear market in the last 100 years”?

  28. Mannwich says:

    @Byno: Like I said yesterday, I came back from a nice little vacation in sunny/warm CO for THIS?

    This is actually starting to feel normal. That’s what’s scary about this for me.

  29. I-Man says:

    Its a beautiful fuckin war.

  30. DL says:

    Vince Farrell called yet another bottom yesterday at the SPX 806 level.

    This must be about the 17th bottom for him.

  31. DKTrader says:

    Anyone buying into this? I think it’s time!

  32. DL says:

    CNBC sucks @ 3:45

    “We should also develop some sort of idiot tax …”

    If we could do that, we could wipe out the Federal debt in no time.

  33. R. Timm says:

    I’m buying the S&P when it gets into the 600s. I hope I’m not like Benjamin Graham who sunk all his money into the stockmarket in GD1 when he thought it was undervalued only to see it plummet further and wipe him out.

    I do expect another rocketship day 8-12% in the next couple of weeks though so I’m staying in cash and not trying my hand at the ultrashorts.

  34. DKTrader says:

    I took a chance and bought at the close.

    Where’s Andy Taboo with the EW? Probabaly not too good that we cratered through 780 and 769, but a bounce is due.

  35. DeDude says:

    Everybody seems so sure that gold is going to go up (so it will probably go down). But with oil below $50 what are the Russians going to do to get money? Would we expect massive selling of their gold? How do we know that the demand for gold will be able to keep up with that supply?

  36. joro says:

    DK, I am heading long. Market is 25% below it’s 50 day moving average, great things have happened in the past when you get this far below. Average daily gain has been over 5% on the rare occasions ( I count 7 in the past 40 years) it has happened.

  37. batmando says:

    @ DKTrader Says:
    Anyone buying into this? I think it’s time!

    Oh yeah! I took 80% of my “play” money and took all sorts of mini-bites, looking to sell into a rally into year’s end (then Molly bar the door), hoping to avoid the Ben Graham fate that R. Timm cites.

    @ leftback
    Along with CNBC Sucks, I say ‘many thanks for the exposition’
    Believe your point (5) the most telling, followed by (2) and (4)
    1) Many dividend-paying stocks now have higher yields than the long bond.
    Any stock rally will drive an exchange into stocks.
    2) A declining $ will drive exchange into gold, yen swissy or other government’s securities.
    3) Any increase in inflation expectations will drive exchange into TIPS and gold.
    4) The process of quantitative easing is well underway (see Stuart above).
    5) Concern about US credit will drive #2.

    I have long appreciated Mish’s fix on deflation, deflation, deflation long before MSM finally ever mentioned it (NPR report this a.m. at long last), but at some point…., there are “lots of moving parts” and Ben really seems committed to cranking up the presses until the gears strip.

  38. DP says:

    A rocketship 10% day at this point would put us back to, umm, Tuesday, woot.

    The consumer is dead, apparently. Someone forgot to tell the 2.4 million people who collectively spent 120 million dollars on the latest World of Warcraft in the first 24 hours of release. Then again, if I were about to hunker down for a long period of spending no money I’d probably go buy something like World of Warcraft too.

    Buying all the way down, or at least until my money runs out. Getting hit even harder than the overall market – commodities & energy (including coal, eek), alternative energy and healthcare.

    I guess this is capitulation, it doesn’t even matter anymore :) I got “System is current unavailable, please contact customer service” twice on Ameritrade today. I doubt the big funds are using Ameritrade. Starting to look like capitulation to me.

  39. kiltartan says:

    I got stopped out of wayyyyy more than expected, but spent time buying from 3:50-3:58. Nothing exotic: MO, AAPL, CB, WMB, PFE, JNJ, KCI, and (even if it’s doomed) SPY. I’ll set my stops tomorrow and if I get taken out, I’ll do it all over again.

  40. Byno says:

    Ameritrade is certainly a better deal than E*Trade

    E*Trade looks done: if you can’t pay your debt, you are done.

    [furtively glances at Scottrade account. Everything appears okay. Hand inches towards ‘panic/eject cash balance under mattres’ button. Mentally readies for beer…]

  41. CNBC Sucks says:

    DeDude, nice connection between Russia and gold prices. Russia has been an often overlooked X factor on so many economic issues, for so many reasons. I said there were many moving parts and that would be one, which is why I don’t trade gold.

    Wow, down 444. This crash no longer sucks.

  42. Mannwich says:

    Am regretting getting out of RXD last week. Struggling just to barely stand still in this market. Very humbling.

  43. bonghiteric says:

    Off topic:
    Dear CNBC producers,
    If you are going to put smart people on (like Dachille, Bockvar and Santelli) to talk about credit markets, the least you could do is give your daytime anchors some sort of primer on the basics of how they work. Not everything in the financial world is a bull equity market. Their mouth-breathing ignorance is astounding. I haven’t watched CNBC since CNBCSucks posted the gratuitous cleavage of MCC but now we have it on the plasmas at our new offices.

    On topic: Couldn’t one surmise from the charts above that the Republicans have conspicuously (maybe not so much) acheived their goal of reducing the ability of the Federal Govt. to fund social programs, any program for that matter other than the war? I don’t see how the incoming administration can fund anything without further debasing the $$ by printing more.

  44. jmborchers says:

    S&P at around book value around $500. S&P should at least go to 500. Terrible I know but that’s if book value is actually right. We know we are at least having an 80′s style recession.

  45. Byno says:

    bonghiteric Says:

    “I don’t see how the incoming administration can fund anything without further debasing the $$ by printing more.”

    All hyperbole aside, I talked with one of the best bond managers in the world this week, and s/he informed me that s/he believes the defecit is only a few trillion away from causing treasuries to be downgraded from AAA. A certain French agency might even take the lead.

    And, since I’m on my movie kick today, to echo Fight Club, let’s just say this person is ‘a major one’ in the fixed income markets.

    Ah Intarwebs anonymity, how I love thee sometimes.

  46. leftback says:

    @ bonghit: if they are going to put smart people on, then Kernen should shut up and let them talk. They have done this repeatedly with Dachille and Roubini. I am loving my short of high yield bonds, absolutely loving it. But I took some off today to short Treasuries. The buying of long-term govies this week has been insane.

    Can you imagine being a long only fund guy or a “financial select” long fund guy today? Hide the cyanide…

  47. DL says:

    DeDude @ 4:15

    I’m not ready to “buy and hold” gold. But for selected entry and exit points, it looks interesting.
    Alternatively, it could make sense as part of a “paired” trade, such as long GLD, short SPY; but I would wait for a 10% rally in SPY before putting this on.

  48. Byno says:

    RBC overtakes C today in market cap. Bank of Nova Scotia not far away.

    I’m a little dumbfounded.

  49. DL says:

    leftback @ 4:42

    “ if they are going to put smart people on, then Kernen should shut up and let them talk. They have done this repeatedly …”

    I’ve been watching CNBC Europe on occasion lately (on @ 1:00 A.M.) They have a whole different attitude there. They do let the bears talk without interruption; they don’t seem intent on trying to brainwash the audience so much like their U.S. counterparts.

  50. CNBC Sucks says:

    @bonghiteric: I didn’t think anyone paid attention to my posts.

    @DL: I actually wrote about CNBC USA vs. CNBC Europe in the early days of my blog, 5 months ago: I don’t know what is going on in the heads of the producers of CNBC USA, but they seem to want a network that caricatures American business. We are not the moneygrubbing, blindly optimistic, and extreme short-term focused idiots that one might think upon watching CNBC. Maybe they think this style draws viewers, but I would regularly watch a show of Ritholtzes.

    @Barry (Ritholtz, not Obama): You should get your own show on CNBC. You can call it “Puttin’ on the Ritholtz” or “Buy and ritHoltz” or “Everything tastes better when it’s sitting on a Ritholtz”. OK, maybe not that last one.

    Yeah, I suck.

  51. Pat G. says:

    Gathering ammunition for the next wave of issues?

  52. dogjawbull says:


    Scott in Chicago (still ultra short the SPs, but wishing I didn’t think I ought to be)

  53. DP says:

    Here’s a little piece of market irony. When GS was around 200, Goldman was calling for Oil the same price – $200.

    Today, Oil touched just under 50, Goldman’s intraday low was 49. They’re in a race to 40 it seems – anyone taking bets on which gets there first? Long term, the world still needs oil. Long term, the world would be a better place without Goldman Sachs.

    If one good thing comes out of all this, I hope it is the death of massive hedge funds. All those people pushing redemptions right now are out of the market, they may never return. I suspect a large number of those that do return will be a lot more interested in trusting their financial future to the only person who truly has it’s best interest in mind – themselves.

  54. DP says:

    Oh I forgot my silver lining, wanting to get this “great news!” out there before CNBC do:

    In actual point terms, the S&P cannot fall further from the top than it already has. We really are closer to the bottom than we are to the top, and we’re closer to the bottom than we were yesterday. Happy day :)

  55. wunsacon says:

    @ mark mchugh Says:
    >> On CNBC, it looks like Nancy Pelosi is interpreting Paulson’s speech for the hearing impaired.

    Is Pelosi interpreting Paulson like Garrett Morris would?