Status Quo Antisellem

The Fed’s balance sheet resumed its growth in August after a bit of a stall in July when dealers paid off Fed repos. That program has been at zero since then. Dealers don’t need to borrow from the Fed when the Fed is cashing them out every week with QE.

And there’s the rub for bears. There’s still enough QE to keep this farce going, short term factors notwithstanding.

Liquidity moves markets!

Follow the money. Find the profits! 

Last week was MBS settlement week (see last week’s QE update). That pumped $100 billion into dealer accounts. Not all of that showed up on the Fed’s balance sheet total assets because other assets were paid down in the. MBS get paid off in the normal course of business during the month. Some of the Fed’s superfluous alphabet soup programs have also had reductions.

But that stuff doesn’t really matter to the stock and bond markets.

Our focus is on the Fed’s securities holdings, in what’s called the System Open Market Account (SOMA). That’s where the action shows up. It’s the money that the Fed pumps into the financial markets through its straw men, the Primary Dealers. And that is still steadily growing.

Here’s what that means for the outlook and strategy.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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