False GDP Report Gives Fed Excuse To Print, But Capital Inflows May Be Reversing – Professional Edition

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The composite liquidity indicator rose last week as the Fed bought Treasuries and settled MBS purchases. The uptrend in market liquidity had been accelerating but it moderated last week as other components pulled back. This should be temporary as last week’s round of Fed purchase settlements sends cash coursing through the financial system and financial markets. That should show up in the data next week. Most of the lesser weighted components have had and should continue to have sympathetic upmoves as Fed cash flows through the system. Stocks should continue to oscillate along this upward wave.

Since mid November, just before the Fed began to settle its QE3 MBS purchases, SOMA has grown by $170 billion. The S&P 500 has risen by 152 points since those settlements began and the Fed started to cash out the Primary Dealers in earnest. This ain’t rocket science, but most mainstream analysts are confused most of the time because they’re looking at all kinds of irrelevant extraneous data—or being deliberately disingenuous.

The bogus news of fourth quarter GDP shrinkage gives the Fed the perfect excuse to keep printing. The idea that GDP shrank in Q4 just is not credible. The economy added a million new jobs, unemployment claims downtrended throughout the quarter, and government tax revenues were up sharply. The GDP number is flat out wrong, and should be revised up sharply over the next two months. But this data comes at a perfect time for an excuse for the Fed to continue QE. Gold traders have recognized that today, and gold is surging. Crude is pulling back, so I guess the oil traders haven’t figured out the game yet.

These are just two of the key threads in this profusely illustrated 117 page report that will help you understand the forces driving the bull market, and help you to recognize when those forces will reverse. Other topics covered:

Macroliquidity Component Indicators
Compendium of Updates
Treasury Auctions, Federal Revenues and Supply Impact, and Treasury Yields
Open Market Operations (OMO) and Monetary Policy Actions
Primary Dealers
Fed Funds Rate
Other Policy Tools and Total Fed Credit
Other Fed Balance Sheet Items – Liabilities
Bank Loans Outstanding
Foreign Central Banks
The Dollar
Commercial Paper
Fannie and Freddie
Money Supply and Fund Flows
Bank Holdings of Treasuries and Bank Condition
Composite Liquidity Indicator

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