The Oliver Twist - Operation Twist 2

The Oliver Twist - Operation Twist 2

This was otherwise known as 'operation twist'. There is certainly nothing preventing the Fed from targeting the 10-year Treasury-note any more than the Fed funds rate. But the funds rate is already near zero and as such there is no incremental move there that can benefit the economy. But targeting the 10-year note in much the same fashion is probably worth a try.

Oliver Twist

Oliver Twist is the second novel by English author Charles Dickens, published by Richard Bentley in 1838. The story is about an orphan Oliver Twist, who endures a miserable existence in a workhouse and then is placed with an undertaker, from whence he escapes and travels to London where he meets the Artful Dodger, leader of a gang of juvenile pickpockets. Oliver is led to the lair of their elderly criminal trainer Fagin, naively unaware of their unlawful activities.

Oliver Twist is notable for Dickens' unromantic portrayal of criminals and their sordid lives.

An early example of the social novel, the book calls the public's attention to various contemporary evils, including the Poor Law, child labour and the recruitment of children as criminals.

Initiative to kill the then gold exodus

From Zero Hedge:

In Preparation Of The Fed's Last Doubling Down: David Rosenberg Believes QE3 Will Be Nothing Short Of "Operation Twist 2"

The next iteration of QE will be nothing short of a redux of the 1961 initiative to kill the then gold exodus known as "Operation Twist" (recently dissected by the San Fran Fed). Incidentally it was the same Fed that compared QE2 to Operation Twist.

From David Rosenberg:

"Now it is doubtful that the Fed would ever target the long bond. In fact, the Fed may even want it to be higher in yield to ease the pressure on radically underfunded pension funds. While the Fed can either target its balance sheet, which it has been doing with these QE measures, or target interest rates, it cannot do both at the same time. So the next 'QE' will not be called 'QE' but rather something else - maybe Operation Twist 2 (OT2 - you heard it here first).

The Fed would buy up all the 10-year notes needed to clear the market at the target "price" (yield). So depending on supply conditions and demand from the private sector, the Fed would basically lose control of its balance sheet, but if in return this policy is the one that blazes the trail for a turnaround in the housing sector and a durable revival in the economy, so be it."

The true unspoken reason for Operation Twist 1

The reason for this was to terminate the outflow of gold from the US to foreign bank vaults, we find ourselves agreeing with Rosie that an insane idea such as OT2 is precisely what the Fed would do to avoid a recurrence of the 1961 gold exodus (and attempt to give housing one last failed boost).

Housing prices are 80% Down from Peak in 2000, In terms of Gold:

There is little doubt that the housing market is suffering from a variety of obstacles, but what is clear from the consumer survey data is that households do not believe that interest rates will come down any further.

Capping the 10 year note?

If, say, the 10-year note were to be capped at 2 1/2%, where it was at ahead of the QE2 program last fall, compared with the current 3%-plus level, the total return for a 10-year strip would come to over 10% in a 12-month span.