Beet L. Jooz

Yesterday, when looking at the details of the Fed's ongoing QE4, we pointed out that the New York Fed was now actively purchasing T-Bills that had been issued just days earlier by the US Treasury, and which settled the day of the permanent open market operation, or POMO.

As a reminder, the Fed is prohibited from directly purchasing Treasurys at auction, as that is considered "monetization" and directly funding the US deficit, not to mention is tantamount to "Helicopter Money" and is frowned upon by Congress and established economists. However, insert a brief, 3-days interval between issuance and purchase... and suddenly nobody minds. As we summarized:

"for those saying the US may soon unleash helicopter money, and/or MMT, we have some 'news': helicopter money is already here, and the Fed is now actively monetizing debt the Treasury sold just days earlier using Dealers as a conduit... a "conduit" which is generously rewarded by the Fed's market desk with its marked up purchase price. In other words, the Fed is already conducting Helicopter Money (and MMT) in all but name. As shown above, the Fed monetized T-Bills that were issued just three days earlier - and just because it is circumventing the one hurdle that prevents it from directly purchasing securities sold outright by the Treasury, the Fed is providing the Dealers that made this legal debt circle-jerk possible with millions in profits, even as the outcome is identical if merely offset by a few days"

So fast forward to today, when the Fed conducted its latest T-Bill POMO in which, as has been the case since early October, the NY Fed's market desk purchased the maximum allowed in Bills, some $7.5 billion, out of $21.9 billion in submissions. What was far more notable, were the actual CUSIPs that were accepted by the Fed for purchase. And here, once again, we find two particular issues that stick out: UB3 (due July 2, 2020) which was the most active CUSIP, with $5.245BN purchased by the Fed, and TM1 (due April 2, 2020) of which $1.2BN was accepted.

What's so special about the highlighted CUSIPs? Well, just as we first showed yesterday, the Fed - together with the Primary Dealers - appears to have developed a knack for monetizing, pardon, purchasing in the open market, bonds that were just issued. And sure enough, TM1 was sold just earlier this week, on Monday, Dec 30, with the issue settling yesterday, on Jan 2, just one day before today's POMO, and Dealers taking down $15.9 billion of the total issue...

... and just a few days later turning around and flipping the Bill back to the Fed in exchange for an unknown markup.

What about UB3, which was the most actively purchased CUSIP in today's POMO, representing 70% of the entire $7.5 billion operation? Exactly the same, as this particular 182-Bill was auctioned off on Dec 30, and settled on Jan 2, also one day before today's POMO. Here, too, Dealers were most active, taking down $23.5 billion of the entire auction... and just days later selling 22% of their entire takedown, or $5.245BN back to the Fed.

These are not isolated incidents as a clear pattern has emerged - the Fed is now monetizing debt that was issued just days earlier, only because it was held however briefly by Dealers, who are effectively inert entities mandated to bid for debt for which there is no buyside demand, it is not considered direct monetization of Treasurys. Of course, in reality monetization is precisely what it is, although since the semantic definition of the Fed directly funding the US deficit is violated by a temporal footnote, it's enough for Powell to swear before Congress that he is not monetizing the debt.

Oh, and incidentally the fact that Dealers immediately flip their purchases back to the Fed is also another reason why NOT QE is precisely QE4, because the whole point of either exercise is not to reduce duration as the Fed claims, but to inject liquidity into the system, and whether the Fed does that by flipping coupons or Bills, the result is one and the same.

Riot police in Hong Kong forcefully broke up a pro-democracy rally in solidarity with millions of Uighurs - Chinese Muslims living under oppressive conditions, many in so-called 're-education camps.'

Around 1,000 protesters gathered near Hong Kong's harbor, waving pro-Uighur posters and flags - in what appears to be the latest grievance between the pro-democracy movement and China's influence. While largely peaceful, police used pepper spray to disperse the protesters. In response, protesters threw glass bottles and rocks.

"We shall not forget those who share a common goal with us, our struggle for freedom and democracy and the rage against the Chinese Communist Party," said one protester holding a megaphone.

China runs Hong Kong under a "one country, two systems" model that grants the financial capital expanded freedoms not enjoyed on the mainland. Many Hong Kongers view China as encroaching on these freedoms and fear mainland policies will come to the city.

What started as a movement against Chinese meddling has morphed into broader calls for greater democracy and police accountability following months of often violent protests.

The huge scale of the surveillance and prison system in Xinjiang has been closely watched in Hong Kong, with many fearful that similar measures could befall the city. -DW

The United nations and human rights organizations have widely condemned China's treatment of Uighurs. Approximately 1 million have been forced to live in internment camps in the northwestern Xinjiang region. While Beijing calls them "vocational training centers" required to combat Islamic terrorism, those who have escaped tell shocking tales of torture and control.

"The Chinese government are control freaks; they can't stand any opinions they disagree with," a civil servant and protester named Kathrine told AFP before riot police moved in.

"In Xinjiang they are doing what they are doing because they have the power to do so. When they take over Hong Kong, they will do the same."

While the smug left clinks champagne for "Merry Impeachmas" after the House passed articles of impeachment against President Trump, they're fast losing the battle when it comes to America's judicial landscape.

Even if 20 GOP Senators somehow flipped on Trump and he was removed from office, he's already appointed 25% of sitting US circuit court judges, not to mention given us a conservative Supreme Court - after Senate Republicans stalled in 2016 on confirming Obama's choice to replace the late justice Antonin Scalia, Merrick Garland.

🚨🎄: You didn’t think @SenateMajLdr would leave town without confirming more judges, did you?

Since 2017:

Supreme Court: 2
Circuit courts: 50
District courts: 133
U.S. Court of International Trade: 2
Grand Total: 187

Merry Christmas America! pic.twitter.com/26xIBaHjke

— Senate Republican Communications Center (@SRCC) December 20, 2019

According to the Washington Post:

Trump nominees make up 1 in 4 U.S. circuit court judges. Two of his picks sit on the Supreme Court. And this past week, as the House voted to impeach the president, the Republican-led Senate confirmed an additional 13 district court judges.

In total, Trump has installed 187 judges to the federal bench. -Washington Post

And as the Post notes, "Trump's mark on the judiciary is already having far-reaching effects on legislation and liberal priorities."

For example, last week a Trump appointee on the 5th Circuit court of Appeals was one of two judges to strike down a key provision of the Affordable Care act. The case could move next to the Supreme Court, where two of the nine justices are Trump-appointed conservatives.

The 13 circuit courts are the second most powerful in the nation, serving as a last stop for appeals on lower court rulings, unless the case is taken up by the Supreme Court. So far, Trump has appointed 50 judges to circuit court benches. Comparatively, by this point in President Obama’s first term, he had confirmed 25. At the end of his eight years, he had appointed 55 circuit judges.

Trump’s appointments have flipped three circuit courts to majority GOP-appointed judges, including the U.S. Court of Appeals for the 2nd Circuit in New York. The president has also selected younger conservatives for these lifetime appointments, ensuring his impact is felt for many years. -Washington Post

Spearheading the effort to fill benches with conservatives is Senate Majority Leader Mitch McConnell (R-KY) - who is "almost singularly focused on reshaping the federal judiciary," having fast-tracked two Senate rule changes which speed up the confirmation process, despite objections from Democrats.

"Leave no vacancy behind," McConnell has publicly stated.

McConnell has bragged that blocking Garland in the off-chance Trump won the 2016 election was one of his greatest achievements. Consequently, Trump appointed conservative Justice Neil M. Gorsuch to fill Scalia's seat.

"I’ve always heard, actually, that when you become President, the most — single most important thing you can do is federal judges," said Trump at a November White House event to celebrate his "federal judicial confirmation milestones."

"Now, President Obama was very nice to us. He gave us 142 empty positions. That’s never happened before," Trump joked in the Oval Office on Thursday. "But, as you know, that’s said to be the most important thing that a President has."

What's more, "There is only one circuit court vacancy left for Trump to fill, but more could open up next year. And if Trump wins in November, there will certainly be vacancies in his second term. There’s also the potential for additional openings on the Supreme Court. Ruth Bader Ginsburg, appointed by President Bill Clinton in 1993, is 86 and has had health problems. Justice Stephen G. Breyer, another Clinton pick, is also over 80," according to the report.

This is not going well for the resistance.