A dull market pulled back on Tuesday. The oldtimers on Wall Street are fond of saying, “Never short a dull market.” I wonder if that will hold true under current conditions.
We are in a strange environment. Bombs are going off left and right in the credit markets every day. The Fed has attempted to give the impression that they are manning the liquidity pumps to help put out the fires. We know that that is not the case. The Fed hasn’t been adding an unusual amount of liquidity. In spite of knowing that, I was dumbfounded today when the Fed drained over $6 billion from the market, on top of the announcement yesterday that they will be draining another $5 billion from the permanent pool on Thursday by not redeeming that amount in maturing 4 week T-bills that they hold. What the heck is going on here? At this time of year the Fed normally goes pedal to the metal to grease the skids for the holiday season surge in commercial activity.
All that notwithstanding, the current 13 week cycle up phase has gotten off to what appears to be a normal start, surging strongly for four days, then pulling back weakly for two days.
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