I have warned for several years that such stock retirements are a two way street, that when prices get high, companies will reverse course and start issuing more stock. That is starting to happen.
What else is new? Tomorrow, the Fed talks. But Fed talk is cheap. The Fed wants you to think that talk – its talk – moves the markets, or keeps them stable. That’s just utter bull. You and I know that from simply tracking the data for as many years as we have. Bottom line,…
The US Treasury’s attempt to rescue the Treasury market began in mid February. It’s not going well. They’ve managed to stop the hemorrhaging. Prices have stopped falling over the past two weeks. But they haven’t turned the tide. And that’s the problem. Primary Dealer inventories accumulated since last March are way under water. The dealers…
The bear market in Treasuries that started in August devolved into an outright crash last week. Meanwhile, evidence shows that cash in Primary Dealer accounts has exploded to the highest level in history, with the biggest weekly increase in history. There’s also circumstantial evidence that that cash came directly from US Treasury, away from the publicly visible means that we already saw last week.
And I’ve spewed a whole lot of words over the past 3 weeks. Scary words. Words including warnings that one of the titans of the trading and brokerage industries has now echoed. Words about QE, the Primary Dealers, and the twin issues of current and expected Treasury supply, and the Treasury’s huge pile of cash,…
There’s so much confusion out there about how money gets from the Fed into the stock and bond markets. I see the comments in my Twitter feed. People are clueless. Like how M1 is causal. Or how the Fed pumps money into the banking system and that doubles back somehow to speculative bubbles.
The Primary Dealers always hedge their fixed income portfolio positions in the futures markets. Looking only at their bond portfolio positions may not give us an accurate picture of how screwed they are, or are not.
Back in 2008-2009, I chronicled how the Primary Dealers caused the stock market crash. They were the most important and least recognized cause of what the media has labeled the Great Financial Crisis.
The dealers were overleveraged and positioned wrong then. They are overleveraged and positioned wrong today.
In the mid month QE update, I concluded the intro summary with this warning:
1/16/21 At this point, it seems like we are on the edge of the precipice. The risks are enormous. At the very least, I don’t see the likelihood of significant upside for either stocks or bonds.
Likewise, this could very easily go south in a big way. The Fed would need to act. Would it be too late? Would the market even respond?
Stock market analysis requires many disciplines. Unlike, physics, for example, it’s not rocket science. Hell, it’s not even science. But while physicists and astrophysicists understand more and more about how the universe works, there is much more that they don’t understand. For every theory that they confirm, more questions arise.
They say that approximately 80% of the mass of the universe is “dark matter.” They don’t know what it is. And there’s “dark energy,” that they don’t understand either. They see their effect, but they can’t see the cause, and don’t know what either of them is. So they observe and measure the effects, and make predictions and develop theories based on that.