From: RICK WEISSMAN (GLEACHER & COMPANY S) At: Jan 4 2013 11:38:03 * Watch what they do, not

what they say: And so it is with the release of the Feds minutes from their QE-4-ever meeting in December. The Fed announcement and Bens post meeting conference were very dovish, and indicated a rational behind endless money printing. Ben made the forever nature of the FOMC mandate conditional in order to get everyone on board. Rest assured that he will concoct other reasons to keep printing money, even if inflation is rising above 2.5%, or if unemployment is below 6.5%. Yesterdays minutes reflected much dissent towards the QE-4-ever program. This is to appease the bond vigilantes; that selfdeclared important group of investors who are supposed to keep the Fed and our policy makers in line by causing rates to rise when the Fed, administration or Congress starts to act imprudently. In an age when the Fed is buying billions of dollars of MBS and treasury securities every day, the bond vigilantes have taken a licking trying to bet against the Fed in favor of higher bond yields. So, it was rather ironic that bond yields rose yesterday, when the minutes were released which indicated that not every member of the Fed sees QE forever. Instead the market was reacting to concerns that with the Fed out of the picture, that the worlds best bid might go away. In fact, every asset class, except for agency debentures under-performed yesterday, including commodities, precious metals, stocks and most credit bonds, after the release of the Feds December minutes. This is the typical good cop/bad cop routine. It used to play out with some Fed members sounding dovish at public speaking engagements while others would issue inflationary concerns. This managed to assuage those concerned about easy policy responses since they knew that there were those on the Fed who shared their same concerns. However, this did not stop the Fed from its lunacy, nor is it doing so today. Yesterdays minutes were another attempt at this routine. Instead of public speaking contradictions, the rhetoric has elevated to actual policy decisions being contradicted to a modest degree in the actual Fed minutes. My take-away is that Bernankes view has prevailed for the last 4 years, and he is likely to prevail in 2013, dissenters notwithstanding. * Debt ceiling and the absurd: a reader passed along a mention in a Morgan Stanley research piece that the Fed could give back, or cancel hundreds of billions or any portion of the $1.6 trillions of treasury debt they hold. As previously reported in this blog, this idea has already been floated in the UK, where the Bank of England owns 25% of the outstanding debt of the UK. Doing so would put the treasury well below its debt ceiling limits and buy another couple of years of profligate money spending. Is this likely to happen now, at a time when the treasury secretary is changing; Geithner is resigning? I would argue no, but this is clearly something to keep in mind as a possible scenario over the next few years. * Another preposterous idea, but not too far from the realm of possibilities: Art Cashin was quoted on the zero hedge web-site, saying that the Treasury, which has the ability to issue platinum coins, could issue a $1 trillion coin, keep it on deposit at the Fed, and write checks against it, so as not to have to borrow money in the public markets and go over the debt ceiling. While these all seem so far out there as to never be possible, consider that if I suggested to you in 2007 that the Fed would be printing $1 trillion a year in new money, and taking a like amount of treasuries and agency MBS out of circulation, you would have thought that such an idea is equally preposterous. * And what would happen if either of these two ideas, or some as of yet, un-thought of ideas along these lines were to occur. Would there be a violent reaction in the bond markets as a result? With the Social Security and Medicare Trust funds ($5+ T), the Fed ($1.6T), China and Japan ($1 T each) already holding over half the $16+ T of outstanding debt, the trade-able supply of treasuries is not nearly as great as one might think. Nor should anyone discount the ability of the Fed to back-stop the entire treasury yield curve with open market purchases against aggressive selling of treasuries by a major holder. * Obama-phone: I received a lot of good feedback on what the business is on the free phones which the welfare class is able to get for free. Back in the 1990s, a law was passed which required that the phone companies provide free phone service for those who are economically disadvantaged. Over the last few years it has morphed to include cell phones, so that the homeless can take advantage of this freebie. Along the way, this has been re-labeled Obama-phone. The service is not paid for by the government, but is supported by those who pay their cell phone bill with a universal service charge which appears on the bottom of your bill. In perusing the literature on who qualifies, I was left with the impression that if you are one of the 46 million people who qualifies for food stamps, then you should qualify for a free phone. What has this country turned into? Have a great weekend - Rick