James Bianco is founder and CEO of Bianco Research in Chicago. He has been producing fixed income research with a circulation of hundreds of portfolio managers and traders since 1990.
Jim’s commentaries have a special emphasis on: money flow characteristics of primary dealers, mutual funds, hedge funds, futures traders, banks, and institutional investors.
Prior to founding Bianco Research, Jim spent time in New York as Market Strategist for UBS Securities, and Equity Technical Analyst at First Boston and Shearson Lehman Brothers. He is a Chartered Market Technician (CMT) and a member of the Market Technicians Association (MTA).
- The Financial Times – Investors’ fears are eased on Talf
The Federal Reserve and the US Treasury on Monday extended a $200bn programme designed to revive the securitisation market, bringing relief to investors concerned that the supply of cheap government financing was set to end. The term asset-backed securities loan facility (Talf), in which the Fed lends to investors wanting to buy securitised loans, is to be extended by three to six months from the original year-end expiry date.
- The New York Times – U.S. Extends Effort to Ease Tight Credit Into 2010
With banks still tightening their lending standards, and borrowers skittish about taking on debt, the Federal Reserve and the Treasury extended one of their main emergency credit programs — the Term Asset-Backed Securities Lending Facility, or TALF — for several more months. Despite signs of an economic recovery, and vast government assistance to financial institutions, the Fed reported on Monday that banks were still tightening their lending standards and did not expect to reverse course until the second half of next year.
Last week we noted that the FOMC’s actions speak louder than words. Specifically we said:
[T]he Federal Reserve has been known to withhold some information from the statement, opting instead to release details of new programs or tweaks to old programs a day or two after the FOMC meeting…More often than not over the past year, the juicy details of the FOMC meeting are released a day or two after the statement. We’ll be watching over the next few days to see if the same happens after this meeting.
This happened Monday morning when the Federal Reserve posted the following on their website:
Release Date: August 17, 2009
For release at 9:00 a.m. EDT
[T]he Federal Reserve and Treasury approved extending TALF loans against newly issued ABS and legacy CMBS through March 31, 2010. Because new CMBS deals can take a significant amount of time to arrange, the Federal Reserve and Treasury approved TALF lending against newly issued CMBS through June 30, 2010. The Board will continue to monitor financial conditions and will consider in the future whether unusual and exigent circumstances warrant a further extension of the TALF to help promote financial stability and economic growth. The Federal Reserve and Treasury had previously authorized TALF loans through December 31, 2009.
Last week’s FOMC statement left market pundits with the idea that things are getting better:
As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
Both Treasury purchases and the TALF are important Federal Reserve programs. One program (Treasury purchases) was prominently featured in the FOMC statement, leading to a mind-numbing amount of analysis while the other program (TALF) was quietly revised in a press release yesterday. The Treasury purchases program was restricted and expected to end by October while the TALF was expanded. What are we to make of all of this?
As we also noted of the FOMC statement last week:
Could it be…that the Federal Reserve was afraid that the “teenagers” would misinterpret its meaning? If so, does this mean that the FOMC statement is now devoid of real information?
We believe yesterday’s press release underscores this idea. The FOMC statement is now a political tool and nothing more. By highlighting the Treasury program and not the TALF, the Federal Reserve was “leading the witness” to think monetary policy was going one way when, in actuality, it was going in other directions at the same time.