The market extended its near vertical upmove on Thursday. One of the reasons for the sudden turn is that foreign central banks have turned on the afterburners again, and are buying GSE securities at a record pace. This is almost single handedly reliquefying the market. The Fed certainly isn’t helping, in spite of cutting the Fed Funds target. They are still draining reserves. That’s like your broker lowering your margin interest rate, but doing a margin call at the same time. Fortunately, your rich Uncle Fukui and Uncle Zhou are funneling cash back into your account even faster than the margin man is taking it out. As long as this continues, the rally will go on. The details and chart will be posted in tomorrow’s Fed report.
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Lee, the money of Uncles Fukui and Zhou never seems to actually make it into the market. The money taken out or added by Little Ben while he tinkers with his science project does seem to affect markets, and quickly. Any thoughts?
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I frequently warn that there isn’t a direct a day to day correlation in either case. The correlations tend to be higher over the intermediate term. Sometimes the FCB correlation is extremely high, so I wouldn’t assume that the cash they use to buy Treasuries and Agencies doesn’t have a secondary impact on stock prices. It may not seem that way lately, but in the past the correlation has been much higher.
I think the Fed’s tightness right now is more important as evidenced by the market action.
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I discussed this somewhat more in today’s Fed Report.