Here I was in Zadar, Croatia enjoying myself, while there was a little matter of a Fed Meeting Statement, and Chairman Jerry’s Dog and Pony show.
Wall Street was waiting with bated breath, that’s right, bated, but I had taken an afternoon stroll around the harbor, on the lookout for baited hooks. Just like walking on Wall Street. You gotta be on the lookout for baited hooks.
That was late this afternoon in Zadar, morning in New York.
I completely forgot about the Fed meeting!
The Market Forgot the Fed Meeting Too
I walked back to my apartment in the old town, looked at the charts, and saw that not much was happening. I didn’t expect much to happen. Nor did the market.
The Street’s big mahoffs know the Fed is trapped and simply cannot move the Fed Funds target, nor cut back on QE. Being on the front line, the dealers know that there’s not enough money in the world to absorb the constant tsunami of Treasury supply without the Fed buying or financing virtually all of it.
So I was getting kind of sleepy. I decided to take a little cat nap around 1:15 PM NY time, not thinking about the Fed non-event that was about to occur.
But Some People Were Paying Attention and Woke Me Up!
When I awakened around 2:30PM New York time, this note was waiting for me from Liquidity Trader subscriber, David, a professional investor and analyst.
David always sends me great questions that get me to thinking. When I start to think, that’s not always a good thing. It sometimes gets my blood boiling, and I say things that I probably shouldn’t, lest I offend some Wall Street folks and policy makers.
Alright, fuck ’em. I don’t care. 😄 Their policies and behaviors are offensive. So if they’re sensitive about it, maybe there’s hope.
So David wrote:
Most recent LT (Liquidity Trader) report was excellent.
Will you be parsing Powell’s statement tonight?
Oops. Apparently not. I slept through it. And thanks for the nice compliment.
But I did read the Wall Street Journal’s real time reactions to Tom and Jerry’s Dog and Pony Show for the Wall Street wholly owned media. I had a couple of reactions to that.
Dave went on:
I wonder if he’ll use the airplane travel restrictions and virus as cover to extend the NotQE purchases.
How else is he going to justify buying the 165B treasuries issued in March?
Repo rates are now under control . . .
Watch Not What They Say For Their Country, Watch What They Do To You
Well, they don’t need an excuse to keep doing what they’re doing. Whatever reasons they give, the market responds over time based not on the talk, but on the money.
As we all know, “Money talks. Bullshit walks.” When dealers and investors have money, they buy stuff. And with the Fed handing them $100 billion a month, there’s enough money so that they don’t need to sell stuff they already own just to buy new stuff. They just hold on to what they have and buy more.
As a result of holding on to what they have and buying more, prices rise. That’s what the dealers and big funds are doing. And that, not coincidentally, is what the Fed is doing. It’s buying Treasuries and holding on to them.
The dealers get cash for those bonds and bills. They buy a few more bonds and bills, and they buy stocks. The next week, the Fed buys all of the bills from them again. And round and round we go.
So let’s not overcomplicate it.
Now, as for the coronavirus thing. When the dealers don’t have enough inventory they find excuses to engineer little shakeouts. With those shakeouts, they get some inventory out of their customers hands and back into their own. That way they can mark it up and sell it again.
That’s what this could be.
Or it could be something more significant that causes the market to finally lose confidence. I doubt it, but too soon to tell.
And whether I doubt it or not doesn’t matter. Recognizing a trend change like that is what technical analysis is for. So rather than rely on doubts and hunches, I’ll stick to interpreting the charts as best I can.
Does He or Doesn’t He? Only His Hairdresser Knows For Sure
Powell said that the Fed will gradually end repo operations.
Duh. The Fed is cashing out the dealers directly by buying Treasuries from them at the rate of roughly $80 billion per month. That’s $60 billion of bills, and a variable of usually around $20 billion per month of coupons. So the dealers don’t need to borrow via repo, but as long as it’s available, they’ll take it.
I doubt that the Fed will end the repo operations completely. That’s play money that the dealers use to drive prices higher. But again, my doubts don’t matter. Follow the money.
Remember, money talks. Ignore speculative conversations.
Dave mentioned that repo rates were under control.
Are Repo Rates Under Control?
Control Could Go Up in Smoke and Mirrors