Friday, August 21, 2009

What Happens when the Hot Money Ends?

Wondering where the fuel for the recent rocket shot is coming from? Well, as Point put it, “The New York Federal Reserve bought a record $5.6 billion in agency debt today. There's your fuel for the equity fire today.”
Fed buys record $5.6 billion in agency debt

NEW YORK (MarketWatch) -- The Federal Reserve Bank of New York bought $5.605 billion in housing-agency debt on Friday, the biggest purchase since it began buying debt in the sector in December in the hopes of capping mortgage rates. It bought about half of the $11.209 billion offered to it by bond dealers, which analysts noted was rather high. The large purchase is a big switch from recent operations, which have slowly gotten smaller. Analysts hypothesized the central bank may have been trying to stretch out its purchases over a longer timeframe to improve the effect. "The size of today's purchase will lead many to pay greater attention to the next pass to see if the Fed is increasing the speed at which it purchases Agencies," said Dan Greenhaus, chief economic strategist at Miller Tabak. The Fed has bought $116.6 billion of the originally-stated $200 billion in debt issued by home-finance agencies.

Oh yeah, this is what happens:

Oh yeah, that also happens in China: