Breakfast with Jamie [Dimon]

Want to front-run the Fed? If you're Obama's favorite banker, Jamie Dimon, president of JP Morgan Chase, there's no need to parse FOMC statements or obscure speeches by Fed governors. No need to analyze hundreds of Treasury securities to make an educated guess as to just which ones Brian Sack (of the NY Fed) will buy any given week. Even hiring expert networks staffed with ex-Fed officials is unnecessary.

No, if you're Jamie Dimon, you go straight to the top and break bread with William Dudley, ex-Goldmanite president of the NY Fed. It just so happened that Dimon dined thrice with Dudley over the January 2009 to September 2010 period (plus one conference call), according to a document released by the NY Fed today. And perhaps only coincidentally, these encounters all occurred surrounding major changes in announced Fed policy.

The first meeting took place on February 18, 2009, only weeks after Mr. Dudley's ascension to the bank's presidency on January 27, 2009.

06:30 PM - 08:00 PM HOLD for dinner with Jamie Dimon Location: TBD in midtown

Exactly one month later, on March 18, 2009, the Federal Open Market Committee, under Chairman Bernanke's aegis, announced:

To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

This was the first round of quantitative easing (so-called QE1), which would eventually become a $1.75 billion trillion bank largess program. Wouldn't it have been helpful to speak with the NY Fed's top official (who, incidentally, was previously in charge of the Fed's buying and selling)? Or even get in on the decision making?

The second meeting was on April 22, 2009, just shy of one month after the commencement of large scale Treasury purchases. As it's purpose [putatively] was only to see how the front runnin's been going, it was merely a telephone call:

09:00 AM - 09:15 AM Conference Call with Bill Dudley and Jamie Dimon, JPMorgan Chase Location : Bill Dudley's Office

The third official meeting was once again more intimate and took place on January 25, 2010, two days before the FOMC would announce the exact date when the MBS and Agency purchases would terminate:

07:30 AM - 08:30 AM Breakfast with Jamie Dimon, JPMorgan Chase Location : 270 Park Avenue 49th Floor Dining Room (Stop off at Reception Area, then proceed to 49th Floor)

That January 27, 2010 FOMC announcement also signaled the termination of most of the lending programs the Fed had initiated in the wake of the Lehman collapse:

In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The Federal Reserve is in the process of winding down its Term Auction Facility: $50 billion in 28-day credit will be offered on February 8 and $25 billion in 28-day credit will be offered at the final auction on March 8. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

Thanks for the heads up Dudley! [Who, buy the way, is a permanent voting member of the FOMC by virtue of being president of the NY Fed.]

The next meeting between the two would be on July 14, 2010:

08:00 AM - 09:00 AM Breakfast with Jamie Dimon, JPMC Location : PCR, 10th floor

This was nearly four full weeks ahead of the pivotal August 10, 2010 FOMC meeting, wherein the resumption of Treasury purchases was announced (so-called QE Lite):

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.

The calendar curiously stops in September, 2010, but we'd be willing to bet crumpets to crustaceans there was an intimate dinner (or breakfast) date between the two cozy bank presidents in early October. This would be about a month's lead time ahead of the FOMC statement on November 3 that announced the gritty details of the Fed's much anticipated, full-blown resumption of its large scale Treasury purchase program (affectionately known to all as QE2, except by Bernanke himself).

Paging Ron Paul's subpoena committee.

Incoming Repub. Sets Sites on Regulators: Keep Your Hands Off My Margin

As CFTC Commissioner Bart Chilton chomps at the bit to get new position limits in place as of...well, yesterday, and Chairman Gary Gensler suggests mid-January 2011 might be too ambitious (but he'll try real hard), incoming chair of the "powerful US Congressional House Financial Services Committee", Spencer Bachus is happy to play obstructionist. And none too soon, as we had finally begun to hear the ominous sucking sound warned of by the Texas entrepreneur cum 1990's presidential candidate. And not with respect to jobs, but of an entire segment of the trading universe, as derivatives traders (including futures traders) are more prone to being agnostic as to their trading instruments and venues. GFS News reports:

In a letter seen by GFS News, Spencer Bachus warns Treasury Secretary Tim Geithner, Securities and Exchange Commission chairman Mary Schapiro, Commodity Futures Trading Commission chairman Gary Gensler and Federal Reserve chairman Ben Bernanke that implementing the Dodd-Frank Act "hastily or without due care" risks badly damaging the US economy.

The Republican from Alabama urges policy makers to reject attempts to force end-users to post margin requirements, to carefully consider swap dealer and security-based swap participant definitions and to ensure that foreign exchange swaps and forwards are exempt from clearing and exchange trading requirements.

"As our economy slowly recovers, we have serious concerns that Dodd-Frank will force American companies, which did not cause nor contribute to the financial crisis, to move billions of dollars in capital onto the sidelines to comply with the law," Bachus wrote in the letter, which is dated last week.

Whether this is mere base-pandering theater that will be dropped over chasers at La Lomita remains to be seen. But, Bachus may have bought a few months for what remains of Mr. Market.

Fed Monetized $11.4 Billion More Than Targeted Last Month; Will Monetize an Extra $97 Billion for Entire QE2 Program

As part of its new scared-shitless-of-Ron-Paul transparency initiative, not only will the first webcast of a Fed meeting take place on December 16, but today, in accordance with a pledge made concurrent with the last FOMC meeting, we get the first look of actual prices paid by the Fed for QE2 Treasury coupons.

Whereas previously, we were only privy to Fed disclosures of holdings on a par value basis, courtesy of ZeroHedge and some number crunching by John Lohman, we know that the Fed is now underwater $2.425 Billion on last month's purchases alone. In addition, because market prices for most issues purchased are materially above par (some by as much as 52%), we learn that the Fed actually monetized $116.4 billion in the last 30 days instead of $105 billion, as was announced on November 10.

Extrapolating this across the entire planned $900 billion in par purchases from QE2 and QE Lite, we can expect actual purchases to be just $3 billion shy of a cool $1 trillion. Good thing Bernanke's not printing any money.

Fed Data Dump Reveals More Contradictions About its $1.25 Trillion MBS Purchase Program

Following up on the new Fed document dump, being covered by RW at EPJ Central, our latest find is an aparent deception by the Fed about its MBS purchases. To wit, the Fed's new MBS page states as follows (brackets ours):

Outright [MBS] purchases were conducted via competitive bidding to ensure that trades were executed at market rates.

Here's what a paper says entitled "Large-Scale Asset Purchases by the Federal Reserve / Did They Work?", written in part by NY Fed SOMA Manager, Brian Sack (emphasis ours):

Because the MBS purchases were arranged with primary dealer counterparties directly, there was no auction mechanism to provide a measure of market supply. Instead, the pace of purchases of each class of MBS was adjusted in response to measures of whether that class appeared relatively cheap or expensive. To avoid buying at excessively high prices and to support market functioning, purchases were increased when market liquidity was good and were reduced when liquidity was poor.

Now I recognize the Fed has the tiniest bit of weasel room here because the terminology is slightly different and, in fact, the Fed is in the business of weasel phrasing, but it seems at the very least disingenuous to now claim that MBS securities were purchased via "competitive bidding" when no "auction mechanism" was used and they were arranged "directly" with the primary dealers.

According to the Brian Sack paper, it was market liquidity itself based on class-wide evaluation that was used to avoid paying excessively high prices (i.e., attempting to execute at market rates), and not any sort of competitive bid procedure (even if it were not an outright auction). Also, note that "high prices" devoid of the "excessively" qualifier might be deemed okay by the NY Fed.

So just what was the nature of this "competitive bidding" process that the NY Fed now says was followed? Perhaps there was merely a fuzzy price discovery process followed by a conference call and subjective award of the transaction at a mutually agreed upon price. Hardly sounds competitive, though.

Here's another thought: the new Fed statement is in the context of outright Fed purchases, so that those "bidding" would actually be the various investment managers acting on behalf of the NY Fed (e.g., Pimco, BlackRock, Wellington & Goldman). The primary dealers (also including Goldman) would be "offering". Thus, it may be that the Fed is imputing it paid market prices based on its own hired managers competing for the MBS assets of the PDs (did we point out that Goldman was on both sides?). That this would result in market prices being paid is facially absurd.

Either way, there are some questions to be answered next time Bernanke gets in front of Ron Paul.

CFTC Attack on Gold/Crude Prices to be Delayed Until Dec 16; Possibly Jan 2011

Engineering the command and control structure for the $600 trillion global derivatives is proving no easy feat, even for ex-Goldmanite Gary Gensler, Chairman of the Commodity Futures Trading Commission (CFTC). For background, see our previous posts here and here, which explain how the CFTC will attempt to keep Bernanke's mad money printing out of hard assets. The last post alerted the postponement from December 1 to the 7th or 16th. It looks like now it will be December 16th at the earliest, and possibly January 2011. Any later than January 17th, and the CFTC will be in violation of Frank-Dodd. Reuters explains below and, curiously, adopts a shifting stance on just when, exactly, the new position limits will be announced (emphasis ours):

WASHINGTON (Reuters) - The U.S. futures regulator intends to unveil on December 16 its long-awaited revised plan to limit speculative positions held by commodity traders, a source with direct knowledge of the matter said on Monday.

The Commodity Futures Trading Commission is grappling with how to set and police the controversial limits. Furthermore, due to its complexity there could be further delays, said another source closely monitoring the issue.

It would be unsurprising if the proposal was postponed until the new year -- one of several items that may be delayed as the CFTC races to meet deadlines set under the Dodd-Frank financial reform law, the industry source said.

The position-limit rule was supposed to be one of the first items tackled by the CFTC after the Wall Street reform act passed in July.

However, the matter will now be left to the agency's last scheduled rule-making hearing for the year, reflecting the difficulty the CFTC has had in writing a draft regulation.

The CFTC is pushing to release by the end of the year the first draft of 50 to 60 rules required to implement the Wall Street reforms -- a self-imposed timeline designed to ensure it meets July deadlines to finalize the regulations.

But Chairman Gary Gensler has said the agency could fall behind while other commissioners have complained the agency was moving too fast in its deliberations.

POSITION LIMITS "COMPLICATED"

The law required the CFTC to finalize speculative position limits for commodities futures and swaps by mid-January.

"The agency needs to get on with it and put forth a position limit proposal ASAP," CFTC Commissioner Bart Chilton told Reuters.

"We are required by law to move on implementation in January. Getting public comments prior to that time is critical as we finalize a thoughtful final rule," he said.

The CFTC is almost certain to miss the January deadline, however, because the agency will not have data on the size of swaps markets until it puts some of its other new rules for over-the-counter derivatives in place.

Full story here.