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Macroliquidity Still in Pause In Uptrend

The Fed will decide on Wednesday whether, and by how much, it will increase the rate at which it pumps cash through Primary Dealer trading accounts. What it decides will have an impact on how fast stocks are likely to advance, and how soon that advance will end.

A new program of QE that adds to the Fed’s balance sheet will probably cause commodities to catch fire again, which would short circuit any perceived benefits of renewed QE to the markets and the economy. A more modest buying program, consistent with holding the balance sheet level by replacing MBS being paid off and maturing GSE paper, would probably result in some short term selling, but should not disturb the trends in place. That could include a reversal in Treasuries (see Treasury update). Meanwhile stocks would probably resume their rally after some instability.

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