How End Of Quarter Window Dressing And Fed POMOs Were Used By Primary Dealers To Goose Stocks

Tyler Durden's picture Submitted by Tyler Durden on 10/10/2010 13:44 -0500

LehmanNew York Stock ExchangePOMOState Street

We have run some numbers using the New York Fed’s Primary Dealer Statistical database, which in combination with the Fed’s POMO operations in the second half of September, result in some peculiar conclusions. First, we have summarized all of the Fed’s coupon POMOs from September 15 through the end of the month (we excluded the $550MM TIPS POMO from September 28): as the table below demonstrates, in five operations Brian Sack repurchased a total of $16.4 billion in Treasurys. So far so good. Yet when juxtaposing these presumed repurchases of coupon securities, with the disclosed holdings of coupon Treasurys by Primary Dealers, something does not jive: to wit – PDs disclosed a total of $6.8 billion in coupon (not Bill) USTs held as of September 15 (split between holdings of 1-3 Year, 3-6 Year, 6-11 Year, and 11+ Year positions). One would surmise that courtesy of over $16 billion in Coupon (not Bill – this is important) monetizations, PD holdings would at least declined, if not by the fully monetized amount, then at least partially. No such luck: in fact UST holdings increased by $400 million headed into September 29, or the last end of quarter number. What did decline, however, and to a much greater extent, was the PDs holdings of Bill securities, which dropped by a 2010 record of $50+ billion over the same period. And it did not stop there: adding in changes in the other four PD disclosed security holding categories, Agency Coupons, Discount Notes, MBS and Corporate Bonds, and the total decline since September 15 was a whopping $62 billion in PD holdings! So while POMO was used by the PDs for everything but what it was intended to monetize, the same primary dealers who were the benefactors of the Fed’s guaranteed UST bid instead used the end of quarter, FRBNY-facilitated window dressing to not only not offload coupons, but to dump everything else, and use the proceeds to buy stocks, thereby explaining both the massive ramp into the end of September, and also the ongoing attempt to flush NYSE shorts, which as of September 15, were still near 2010 records.

The table below demonstrates the divergence between what PD UST holdings should have done and did do, despite $16.4 billion in FRBNY coupon monetizations.

So what does this mean: simple. PDs kept all Coupon Treasury asset classes flat, while dropping Bills holdings by $50 billion in two weeks, in exchange for investing said capital for risk assets. In fact, on September 29, total PD holdings (Bills and Coupons) dropped to just $6.3 billion, or the lowest level since February 24, when they were negative. This can be seen on the chart below.

To be sure, all of this is part and parcel of the ongoing end of quarter window dressing effort, which long after Repo 105 has been uncovered, and despite the SEC’s inquiries into such practices by all banks continues. Nowhere is it more visible than on the charts below: the first one shows total PD weekly holdings since 2005.

As is now completely expected, the September  asset plunge brought the total PD assets to within a hair of the lowest aggregated holding total seen during Q3, and $64 billion away from the total recorded just two weeks earlier! The chart below shows the min, max and EOQ PD positions during any given quarter. It is all too obvious that for the 6th quarter in a row, Primary Dealers closed their quarters with a flush of all assets, in hopes of closing at or very near lows recorded during the quarter.

As noted above, the primary culprit for the plunge in assets has to do with the liquidation of Bills and near-dated coupons. This is visible on the chart below which shows the weekly change in the five UST holding classes demonstrated by PDs. The summed two-week plunge in Bills is the biggest on record, and at $50+ billion, it is even greater than the $41 billion in Bill exodus recorded in the week following the Lehman crash, and the second highest Bill outflow recorded for $33 billion in June 2009.

We have no doubt that once the week of October 5 data is disclosed by the FRBNY, that the Bill holdings by PDs will surge, now that the latest window dressing period is over. The problem is that this will have required a major sell off in risk assets. Which begs the question: if indeed PDs saw their non-stock assets surge (and we will know this for sure shortly), and will retail investors continuing to withdraw money from the market, and with the Fed’s POMO actions having no impact on the one class (coupon USTs) it is supposed to be influencing, just who is doing all the stock buying out there?  Of course, that is a very rhetorical question. It is now obvious that the PDs wanted nothing more than to cause the short-covering spree in the second half of September to become self-sustaining. As we demonstrated earlier, the NYSE SI was at near 2010 highs despite the massive rally in the first half of September. We will soon know if this number has indeed declined after the ongoing blood feud the Fed and the PDs have with all shorts. Should this number not have declined, expect some wild activity from the PD-Fed contingent as the two throw every kitchen sink they can get their hands on in a last ditch attempt to stimulate the short covering rally. Already, as we pointed out last week, rumors of SPY and IWM buy-ins were proven correct, after the market surged by almost 2% the day following the rumor. Very soon State Street will be forced to recall all shorts, as any selling or shorting activity become virtually illegal. At that point, it will be time to go all in. However, not the stock market, but gold, which is where all the stock pessimists have moved to: after all, let the Fed have its Dow 36,000. If it is achieved at the expense of gold $36,000 pretty much everyone will be content.


5 Your rating: None Average: 5 (11 votes)
» Share/Save Login or register to post commentsPrinter-friendly versionSend to friend

by zenblkboi
on Sun, 10/10/2010 – 14:01

so many charts, so little time!!

Login or register to post comments by Thunder Dome
on Sun, 10/10/2010 – 14:20

None of this changes the fact that S&P is going to 1200 in very near term.

Login or register to post comments by Tyler Durden
on Sun, 10/10/2010 – 14:46

One wonders if those who had their money invested in Madoff were made aware it was all a ponzi, whether they would have kept it or pulled it…

Login or register to post comments by lizzy36
on Sun, 10/10/2010 – 15:11

Easy answer: they would have kept it with Madoff.

They would have assumed that his returns justified the risk, and further assumed that because they were all rocket scientists, they would be able to time pulling their money, just before the inevitable collapse.

If any long term Madoff investor had done their homework, they would have realized that his returns were a statistical impossibility.  Further, if they had checked their statements, they would have realized that they were bogus.

Ignorance is bliss, and greed is always good.


Login or register to post comments by LowProfile
on Sun, 10/10/2010 – 16:12


Login or register to post comments by Thunder Dome
on Sun, 10/10/2010 – 16:43

I don’t see how everyone directly involved in POMO does not know that it’s a ponzi.


I personally hope they all end up panicking for the exits so the market can be based more in reality.  But I’m not so sure these nice folks have anything left to lose.



Login or register to post comments by NOTW777
on Sun, 10/10/2010 – 14:29

saw a friends managed acct at a TBTF bank; most of the buys were on the last day of the quarter;  e.g.  all shares of AAPL in the acct were purchased end of 1st qtr, end of 2nd qtr; buying at the hi s;

oh yeah guess when fee percentages are figured?

Login or register to post comments by zaknick
on Sun, 10/10/2010 – 14:31

Talk about self-destructing economies!


Tyler, you rock man!

Login or register to post comments by Traveler-2
on Sun, 10/10/2010 – 15:02

Well, just when I think I am on top of what is happening, I have lost it……..

Are my gold and silver coins still good???  Is my oil stock still good???  Are my gold stocks still good???

I am so confused that I just about give up!!


Login or register to post comments by LowProfile
on Sun, 10/10/2010 – 16:14


If they’re Canadian, maybe.

Until they are nationalized.

Login or register to post comments by davidsmith
on Sun, 10/10/2010 – 15:20

It would make things a lot clearer if you would simply state that primary dealers are Fed proxies.  Then you don’t have to construct such a convoluted paper trail for yourself.


Isn’t it enough to say that the U.S. government directly controls 40% of the economy?  I mean, don’t you think that would get you control of any publicly held corporation?  I think so.


So you just concentrate on what they are doing this: they are doing it so they don’t scare the clerks.  That’s the part of the population who have a bachelor’s degree or higher and are still employed.


Wanna know what THEIR September jobless rate was?  4.4%  DOWN from 4.6%.


So don’t talk to me about a recession or revolution or anything else.  When this scum shows a 20% rate, then we’ll see some action.  Until then: looting.

Login or register to post comments by Duuude
on Sun, 10/10/2010 – 15:43




please elaborate on who the “clerks” are



Login or register to post comments by plocequ1
on Sun, 10/10/2010 – 15:47

Wow, Great detective work. The Fed and the dealers remind me of an old saying.. One hand washes the other and both hands wash the Cock. And yes Zen, There are too many charts. 

Login or register to post comments by Traveler-2
on Sun, 10/10/2010 – 16:00

Well, you know, I can’t get into Bernake’s mind or Obama’s mind or whatever.  I am trying to figure out how I can survive and maintain my standard of living and basic life-style  during and after whatever I thought was going on.  What I thought was going on seems to change daily, thanks to info in here. 

When you are an old man, it is very unsettling.  Last year I moved to Kansas (back to my “roots”) to retire and relieve myself from some California taxes.  Well, this place is bazzoro land.  If you saw those putting forth some Supreme Court case last week, then you know what all Kansans look like and think. 

I have lived all over the world–Asia, north and south America, Europe (before and after the Iron Curtain) and I have never been in a stranger or more perverse place than this.  It is an Oligarchy inclusive of Warren Buffet and his  “suck it up”  “partner;” imagine letting Warren Buffet run a State.  Well, it seems it is happening here.

Yes, next year I will move.  But my point is that this whole state, in my opinion, is subject to, and run by, a bunch of ego-maniacs and fraudsters (the same guys that grasped the silver market a few years back).  How many other states are in this situation?

The average Kansan is grey, surviving. Here, no one even knows that the US is in a recession, due to media control.  And, indeed, there is little unemployment, because the State is already at base-line.  If you are employed, you are one of the 25 percent of Topeka, Kansans who are employed by the government.  All others, well……. 

Employment for white men is mowing laws and calling onself a landscape “architect.” Mow two laws per day, $30.00.  Good for a pint of Vodka, some forgetfullness, and then back to the mower the next morning. Warren loves it. The Kansans think this is “freedom” and nirvana.  After all, this is the “Free State.”  My ass.

Young white men might get a job as a bank clerk at $22,000 per year if they are connected.

Well, you get my drift and despair. 

What you have is a picture of our wonderful heartland.  One which opened my mind, as a Californian who thought he was returning to a “kinder and gentler” and slower style of living.

Fool that I was. 

Login or register to post comments by QQQBall
on Sun, 10/10/2010 – 17:39

Over the years, i have seen many leave Cali and then try and come back after a real estate ramp and they are forced out into the “Inland Empire” to buy a home. They complain about many things, but mostly they just didn’t relate to the people in the new state. Not saying its anyone’s fault – just saying. But, I too will be bidding adios to Cali, although the weather today is the kinda day that could clear out Detroit if a Michigan vs USC Rose Bowl was being televised. State tax rate will be 15% here before too long and the Chippies are single-handly trying to balance the State Budget via Speeding Tix Revenues… I wonder how they look themseleves in the mirror? 

Login or register to post comments by michigan independant
on Sun, 10/10/2010 – 20:55

NO, my friend you are the mile marker to warn the next  Generation. DO not ever give up. Warn them to the logical steps they need to take.

Login or register to post comments by steveo
on Sun, 10/10/2010 – 16:07

The middle chart is GLD/SLV. You can see this is an excellent indicator, when this ratio is at a bottom, the market usually tanks, within 3 to 5 days, but sometimes immediately. The trick is figuring out when the bottom is. 
This top chart is SPY/VIX I plotted it just to see if any interesting effects came up….none really 
The Bottom chart is SPX, the S&P 500, follow each purple line from the GLD/SLV bottoms. Amazing methinks. The two highlighted candle patterns are similar, the first one started the Head of the infamous 2009 Head and Shoulders Bear trap. The second one is NOW. 
And finally, a boatload of other charts for your free consumption. 
Like this stuff? Sign up as a follower and then follow on your Google reader.

Login or register to post comments by Translational Lift
on Sun, 10/10/2010 – 16:59

Someone should report this to the SEC….Hahahahahahahahahahahahahahahahahahahahah………..

Login or register to post comments by WAYBACK …..WA…
on Sun, 10/10/2010 – 17:31

This is very informative, and if the PDs were required to report their trades within 2 trading days –which the SEC could easily require, just as they require insiders to report, the pump would be public in a rimely telling way.

Login or register to post comments by dcb
on Sun, 10/10/2010 – 18:09

what bothers me is how the rigged markets neve gets to the main media

Login or register to post comments by rocker
on Sun, 10/10/2010 – 19:58

Fear Not. 60 Minutes just did a special on HFTs tonight. I will all be better now.   Yup.   LOL

Login or register to post comments by TJ Parker
on Sun, 10/10/2010 – 20:32

So, the conclusion is what? Don’t fight the Fed. Tyler, dude, if you have it all figured out, you should be making great $$, not whining …


Login or register to post comments by michigan independant
on Sun, 10/10/2010 – 20:38

TD is a public service and no one can protect humans from themselves. ZH is homebase so enjoy history when you see it TJ.

Login or register to post comments by tony bonn
on Sun, 10/10/2010 – 20:41

i can’t believe that the primary dealers were not offloading all of the short term crap to the chinese and brazillians – not…

yes brian sack of shit is a member in good standing with the politburo and is doing the best little old job is criminal mind can do…

when the fed was established open market operations were illegal but the rockefeller class does not live by the laws as those are for the little people – i mean shits…

yes, when you are a central planner you cannot have generally rising fortunes… steal from one class to pay another…when one market falls the other rises in a round robbin game russian roulette….

fuck the fed.

Login or register to post comments by Milton Waddams
on Sun, 10/10/2010 – 22:04

Is this a decent approximation of what the fuck is exactly going on?

1.) I have a money printer and you have a problem — namely the rapidly collapsing value of risk assets you hold. Those collapsing risk assets threaten the status quo; you know, the same status quo that awards us with a disproportionate amount of wealth and power relative to our actual contribution to society overall.

2.) Ok, so here’s the deal … I’m going to print some money and exchange it for your risk assets (because I can hold them indefinitely without ever having to submit to a real audit — I’ll crash the market should the paid-off cheap whores even threaten it — a luxury not afforded to you).

3.) Got it? Good. So what you are going to do now — because our paid-off cheap whores want their pound of flesh — is use my printed money to purchase Treasury securities. Deal?

4.) Excellent, now what I’m going to do is print more money and buy those Treasuries from you and you are going to use the money to bid up the prices of the risk assets I originally agreed to purchase from you.

5.) If everything goes as planned, and your mindless bidding restores the value of the risk assets, the mark to myth becomes a reality. At that point, you give me back my money and I give you back your risk assets (or you keep the money and I let the risk assets “run-off” where applicable) and our status quo, and little game, remains intact.

6.) ???

7.) Profit!

Perhaps exchange risk assets for corporate and other distressed debt instruments and, in step 1, exchange currency for Treasuries, which serves to reconstitute balance sheets given their inherent “riskless” qualities — affording greater leverage opportunity.

Login or register to post comments by BabyShoes
on Mon, 10/11/2010 – 00:54

Not to forget that PD asset purchases smokescreen artifical demand to keep that attractive yield low, or else!

Login or register to post comments Comment viewing options Flat list – collapsedFlat list – expandedThreaded list – collapsedThreaded list – expanded Date – newest firstDate – oldest first 10 comments per page30 comments per page50 comments per page70 comments per page90 comments per page150 comments per page200 comments per page250 comments per page300 comments per pageSelect your preferred way to display the comments and click “Save settings” to activate your changes. Search Search this site: Latest News From RAN Squawk 10-11 04:26: Greek August Industrial Output -2.1% Y/Y vs. -8.6% in July 10-11 04:22: USD/JPY currently trading close to 82.00 option expiry at 10am NY cut (1500 BST) 10-11 04:20: CNY may gain 4% vs. USD in 2010, 5-6% in 2011 according to UBS 10-11 04:12: Euribor Rate Fixing 10-11 04:11: RANsquawk ‘EU morning briefing’: Video uploaded to 10-11 04:05: German 6-month T-Bill auction for EUR 4.5bln, bid/cover 1.8 vs. Prev. 1.7 (yield 0.6140% vs. Prev. 0.4148%) 10-11 03:53: Russian central bank says bought over 100 tonnes of Gold on domestic market this year, did not import any 10-11 03:51: According to the BOE UK banks raise cost of two-year fixed mortgages The Zero Hedge Team

Tyler Durden – Founder

Marla Singer – Foil

Travis – Author

Cornelius – Author

Sacrilege – Senior Researcher


tips [ at ] zerohedge [ dot ] com – Our Reader Tips Mailbox

Make sure to read our “How To [Read/Tip Off] Zero Hedge Without Attracting The Interest Of [Human Resources/The Treasury/Black Helicopters]” Guide

ads [ at ] zerohedge [ dot ] com – Advertising Inquiries.

abuse [ at ] zerohedge [ dot ] com – Abuse / Infringement Issues


It would be very wise of you to study our disclaimer, our privacy policy and our (non)policy on conflicts / full disclosure.


Zero Hedge Offices:

United States: (888.784.9376)

+41 43 501 6717

+44 20 3318 4753

copyright ©2009, 2010 zero hedge – limited reproduction (with attribution) permitted by request

zero hedge’s redundancy powered by:

Drupal e-commerce provided by Ubercart.

View the Original article


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s