Disinformation in the Blogosphere: Chris Martenson Responds

August 8th, 2009 2:43 pm | by John Jansen |

Late Thursday evening I pennned a piece which responded to a post at the blog Zero Hedge which had originally been written and posted at the blog of blogger Chris Martenson.The piece by Mr Martenson discussed the most recent 7 year note auction and the subsequent Open Market Desk purchase of nearly $ 5 billion of those bonds while the ink han not yest dried on that bond.

Mr Martenson posted a response to my post in the comments section of that post. It is  well written and I think that more eyes will have a chance to read his thoughts here rather than in the comments section.

Here is his response in its entirety:

Hello, Chris Martenson here.

[Note: I left a similar comment at Naked Capitalism]

Just wanted to say that while I applaud the interest in this subject, and I am in awe of the knowledge on display here, I believe that some of my words and intent have been taken out of context or misinterpreted.

1) My only point in raising the specific 7-year CUSIP purchase by the Fed last week was in the context of the troubled 5-year auction being followed by a miraculous 7-year auction that now appears less-than-miraculous due to that fact that the fed took 47% of the Primary Dealer take off their hands a few days later. Yes, that’s a dot-connection that seems entirely relevant to me not because it reveals a greater degree of manipulation (the $1.25 trillion MBS target seems a tad larger to me…) but because it possibly reveals that there’s rebellion brewing in the Treasury auction world. While this may be over-reaching, it could also be legitimate spoor to be read as we try and illuminate some of the path before us. I was not, repeat not, making any overt claims about the extent of monetization in my post, just that one odd coincidence concerning the 7-year auction. I do collect and have all the base data for all the auctions and I track them closely and the Fed is very much on track with what it said it was going to do so there’s not much of genuine interest there for me yet. But stepping in to assure a “good appearance” at a critical auction. I consider that quite interesting and newsworthy.

2) My comment about “A more honest and open approach…” for the Fed to pursue, as my long-time readers will attest, was not a comment about what is legally permissible by the 1913 FR Act (yes, I’ve read the whole thing) or normal operating procedure (yes, I know how the Fed & Treasury operate) but rather just another statement about another way that complexity obscures our official monetary and fiscal actions. I regularly opine that we would be better off by being more straightforward in our official reporting and actions. I honestly didn’t know that this piece, out of the thousands that I have written, would catch a bit of internet-lightening and so I wrote a quick piece with my usual audience in mind. In retrospect I wish I would have framed that sentence a bit more because it is now being bandied about as proof that I don’t know how the Fed actually operates and, therefore, the rest of the piece (and maybe more!) is bunk as well. Ah well, such is life on the intertubes.

So that’s it, I think it smells that the 7-year auction seemingly went so well the day after the 5-year fiasco and then days later we find out that the Fed bought nearly half of the total load carried by the Primary dealers.

Perhaps it’s just a quirk in the largest bond auction week in history, or perhaps it portends a dangerous shift in Treasury appetite and is a sign that the greatest bubble of them all (Treasuries) has a small tear developing at the edge. I will continue to track the edges of this fascinating story because I personally don’t want to be in the position of someday reading about it above the fold in the NYT with everybody else.

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  1. 21 Responses to “Disinformation in the Blogosphere: Chris Martenson Responds”

  2. By Jorge on Aug 8, 2009 | Reply

    John,

    Your commitment to open and respectful dialogue is uplifting.

    Thank you for the blog, please keep it up.

    Best trading,

    Jorge

  3. By Wallie on Aug 8, 2009 | Reply

    To CM and JJJ:

    Thanks to you both for your respective blogging but more importantly, your tough but refreshingly civil engagement on a topic. Many have picked sides, some of us still trying to understand the fight. Nice to see a 17th century duel at 50 paces instead of a WWF brawl.

  4. By franko on Aug 8, 2009 | Reply

    ibid

    or shud that be “op cit”??? no mater, i second wallie’s sentiments

  5. By jck on Aug 8, 2009 | Reply

    perhaps the problem is with the view that the 7-year auction was “miraculous.”
    it was anything but, as indicated by the 91.73% allotted at the high yield, far worse than the previous 7-year auction (13.17%…).
    the purchases by the fed, a week later, were met by heavy dealers offers beating the fed bid by a factor of 7 to 1, again not a healthy sign. the reality is that the fed is just another marginal buyer, too small to affect the prices for any length of time given the monstrous supply.

  6. By nades on Aug 8, 2009 | Reply

    As Wallie says above. Thanks to both of your for your honest and gentlemanly discourse…. It helps my understanding of things to read the back and forths…

  7. By Al on Aug 8, 2009 | Reply

    well, it’s not really a secret that PDs with the FED on a short leash.
    you help the country by buying UST, the FED can help you by buying your toxic stuff at par since M2M accounting is a relic.

    there’s a new post on Zerohedge about ‘monetizing’. it’s a good research, actually.

  8. By cars on Aug 8, 2009 | Reply

    John,

    The new post at Zerohedge about this issue labels John Jansen as a “self-professed expert.” This “Tyler Durden” fellow, who nobody knows what he’s an expert of as he hides under a pseudonym, has some issues and is only interested in talking to his little echo chamber. But I bet a dialog with folks like Chris will be a lot more constructive.

  9. By GYSC on Aug 8, 2009 | Reply

    Now we arrive at:
    The FED has used QE as a bond buster,
    We are monetizing debt big time
    -As of September that is over unless the program id done HAQHAHHHAH’
    No way

  10. By DOD on Aug 9, 2009 | Reply

    The Fed is monetizing the debt, and that is that. If you don’t agree, don’t, it’s not like a deity that requires your belief to rationalize it into existence, believe it or not the truth will come crashing down around all of us, and there will be no need for “I told you so”. I will apply a wait and see, but methinks they doth protest too much, prolly won’t have to wait to long.

  11. By Sabregold on Aug 9, 2009 | Reply

    Cars,

    So its material to post your resume when discussing finance? Tyler exposed the fraud that is Flash trading and it looks like Congress might act (little echo chamber, really?). Would he have been more effective if he wasn’t anonymous?

    Was Mark Twain less effective as Samuel Longhorn Clemens?

    Anyone that believes that the Federal Reserve, its primary dealers, the Us Treasury, Finra and the SEC all have your best interests at heart have never traded with the too big to fail banks, who neither admit nor deny wrongdoing as they go on raping the world.

  12. By Chris Martenson on Aug 9, 2009 | Reply

    John,

    I want to thank you for your open approach and refreshing civility. Both are necessary and rare these days.

    I will defer to the greater experience here on the intricacies of the bond markets and be referencing your work from here on forward when I can.

    My main offering to the world is called the Crash Course which skips across the mountaintops in an effort to hold a wider angle view on converging forces within the Economy, Energy, and the Environment. I made it at considerable personal expense and then made it completely free for all to view (link: http://www.chrismartenson.com/crashcourse).

    At any rate, because of this work, I hold the view that everyone who is seeking to cast light on where we are where we are headed is a natural ally of mine. Whenever internet ego battles erupt, diverting important energy into relatively unimportant gullies, I feel as though I am on a team that is squabbling and losing the game.

    I feel the opposite here and you’ve made at least one ally with your actions, and I suspect a few more besides.

    Thank you for leading the way.

    Best,
    Chris Martenson

  13. By John Jansen on Aug 9, 2009 | Reply

    Chris,
    You are quite civil and write with grace and if our friendly contretemps continues I will be more than happy to post your response.

    Peace.

    JJJ

  14. By fredw on Aug 9, 2009 | Reply

    John and Chris , I appreciate the civil discussion of your different points of view – refreshing actually. Here’s the 64,000 buck question , if the Fed removes QE regarding treasuries mid – september ( as has been suggested by some ) , where does the additional support for ongoing auctions come from ? I don’t believe FCBs will step into the breech and therefore yields should move higher . With the current need for treasury sales to support government spending over the next two years , do either of you believe stopping this aspect of QE premature ? Thanks in advance.

  15. By Allen C on Aug 9, 2009 | Reply

    Focusing on the bigger picture is critical. We all smell without an occasional shower and some need more showers than others.

  16. By Allen C on Aug 9, 2009 | Reply

    I concur with the conclusion that these events indicate potential or even likely demand issues.

    financialsense has a good piece on the foreign appetite for the massive supply.

    It sure makes me uneasy…

  17. By Pat Shuff on Aug 9, 2009 | Reply

    Many thanks for educational substance in place of attitude.

  18. By DavosSherma on Aug 9, 2009 | Reply

    “…will continue to track the edges of this fascinating story because I personally don’t want to be in the position of someday reading about it above the fold in the NYT with everybody else.”

    +1

    I think bashing bloggers is best left to Dennis Kneale.

    Bloggers can point out valid merits, additions and subtractions from posts without tearing each other up.

    IM never so HO: We should all be on the same side so we don’t wind up reading what just happened in the last fold of some arcane news establishments last fold.

  19. By S on Aug 9, 2009 | Reply

    JJ

    What do you personally call what the Fed is doing buying treasuries? Putting aside that they are doing what they announced, what is it?

    Also, as a pure mechanical issue, if the Fed is buying from PDs (and putting aside the recent dispute over the 7 year, which amounts to grey area conjecture), by buying off the run securities, are they indeed printing money? Same question for the MBS?

    Finally, in your view, assuming they are printing money – ie expanding the base – how do they pull it back. bernanke says he has the tools but they will NEVER do it in time and the political forces will be overwhelming to let it ride, particularly as the economy stagnates.

    Finally, what do you envision as the likley outcome for Gov’t bond market – in other words will the market eventually capitulate to the fact the the sovereign is incapble of being repaying the tsunami of issuance?

    Thanks

  20. By pebird on Aug 10, 2009 | Reply

    All I can add is another thank you for a civil discourse on a complex (for me) subject trying to track event in somewhat real-time.

    For all the criticism about Zero Hedge – a reasonable reader can get the sense that they shoot quickly, their aim isn’t too bad, but not all shots are going to hit the middle of the target. Thankfully there are blogs like this and Chris’ that gently provide another perspective.

    FWIW, without Zero Hedge shouting it out I would not have discovered Chris’ blog and his excellent crash course.

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