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Reason Behind Fed Tightness Revealed

I had commented all week in the WSE Pro Fed report that it was surprising to see the Fed’s tightness all week, and secondly that the market was firm in spite of it.

I wrote yesterday that the source of the liquidity was probably a renewal of the foreign central bank (FCB) buying binge. Sure enough, the numbers out last night, while not a record, were huge. FCBs continue to massively subsidize US financial markets.

The FCB indicator published in the Wall Street Examiner Professional Edition suggests that this is a major inflection point. It is either the end of a multi month buying binge, second only to the one from August 2003 to January 2004, or it is a platform for a surge to even greater extremes.

My guess is that it’s the former, but we’ll get a signal one way or the other over the next month or so. The chart and a more complete analysis will be posted in the next WSE Pro Fed report on Monday.

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