Evidence is increasing that we will not see the March low materially exceeded in nominal terms. This may have little meaning in terms of the future purchasing power of a dollar, but at least nominally the worst seems over. The Fed has won this round and is, for now, again in control of the stock market.
Ever resolute, the Fed kept pumping the cash into Primary Dealer accounts. It kept at it until, as I calculated elsewhere, it had pumped in about $800 billion more than the dealers, and indeed the entire world, needed to absorb the flood of Treasury supply that was hammering it. That happened by the middle of April.
It was enough for the dealers to get back to their fun business of acquiring inventories of stocks, marking them up, triggering short squeezes, and convincing their herds of institutional sheep customers to follow the shorts and dive back into the market with whatever cash they had raised on the way down.
It worked, as we all know. Stocks have recovered around 55% of what they lost in the crash.
But the Fed has started to do the tighten up. Here’s what you need to know.
The market is on easy street today. It’s getting its usually daily injection from the Fed, while the Treasury is sidelined, not doing any borrowing today. So all that cash gets to sit around for a whole 4 days until a new wad of Treasury supply hits.
Meanwhile, at the Dear Leader’s suggestion, Trump supporters inject themselves with bleach or isopropyl alcohol to stave off infection with the virus. That’s a good thing. Let’s hope it’s the start of a trend that flattens the curve so we can all get back to normal lives.
The Fed gives Primary Dealers money every day now. The dealers use that money to buy Treasury paper from Uncle Sam. Whatever the dealers don’t need for that purpose, they use to create mischief in the financial markets. You really need to know how much money they’re getting, how much they need, and how much mischief is coming as a result, every day. I’m happy to help you get that information.
So much for social responsibility. Sweden’s rate of new infections is 3-5 times greater than its neigbors Norway and Denmark. Its death rate is 15 times greater.
The dealers got a windfall from the Fed over the past couple of days. They used that to foment a rally in stocks. But it has been kind of puny relative to what we’ve gotten used to in recent weeks. And it looks suspiciously like a potential right shoulder of a head and shoulders top pattern on the hourly chart.
Of course, wishful thinking will kill you as a trader, and seeing a potential right shoulder is wishful thinking.
The Fed gives Primary Dealers money every day now. The dealers use that money to buy Treasury paper from Uncle Sam. Whatever the dealers don’t need for that purpose, they use to create mischief in the financial markets. You really need to know how much money they’re getting, how much they need, and how much mischief is coming as a result, every day. I’m happy to help you get that information.
The Fed has taken its foot off the gas pedal. We’ve been watching this for a couple of weeks now. Crunch time is almost here.…
There used to be enough to absorb the pounding of daily gargantuan Treasury paper issuance, but $15 billion a day is way short of enough. We saw the results in the stock market yesterday. Something has to be liquidated to raise the money to pay for all that nice shiny new Treasury debt toilet paper that everybody wants but nobody can pay for.
What does it mean, then, that the futures are up overnight.
The ES futures have broken the uptrend line from the March low. Is it healthy or ominous?