The line items of the Fed’s Pandemic Panic Emergency Programs get a lot of media and analyst attention these days. What a waste of time and energy. Let me explain why.
We’ve watched this bizarre scene unfold where the Fed is gradually reducing QE, the Treasury keeps pounding the market with new supply and stock prices keep rising. Here’s how they did it, and what changes ahead will force a change in the outlook.
We knew this was coming. $265 billion in MBS settlements for May are almost done. Now we reap the whirlwind. Here’s what to expect and why it’s time to GTFO.
Treasury issuance has caught up with QE. There are no more excess funds lying around for dealers to use to mark up stock and bond prices. The balance has shifted. It’s not as bullish as it was, that’s for sure. And it could get much, much worse in the weeks ahead before the Fed reacts.
Macro liquidity has slowed slightly in recent weeks as the Fed has taken its foot off the accelerator. But it continues to grow at an historic pace. What does that mean for the short term and the long term.
There is no long term.
The Fed has cut back its POMO purchases to an average of $8 billion per day of Treasuries and $6 billion of MBS this week. That’s down from $10 billion and $8 billion last week, and hundreds of billions in the peak of the panic in April.
The effects of that are beginning to show up in stock prices. Be prepared because here’s what happens next.
The Fed just posted how much help it will give the market next week and son of a gun! It’s cutting again. The implications of this are yooge! Apparently Jaysus saves not! At least not the stock market. Doesn’t he care? Is this ritual sacrifice?
Here’s what you need to do now to protect yourself from Jaysus Powell’s Revenge.
Today’s the day. The Fed announces its next plan. You may have already seen it by the time you read this.
But really. What difference does it make? The Fed has trashed its plan without notice 3 times in the past year and a half.
In the past 2 months, it has had no plan at all. It just responds willy-nilly to whatever happens in the news. My god! The Fed bailed out Carnival Cruise Lines. You know we’re in trouble when the Fed bails out Carnival. The blatant cronyism of the plutocrat class is breathtaking. And the sheep just yawn, placated by a few crumbs thrown their way.
So Jerry and the JayJays will sing yet a new song today. Maybe they’ll stick with the new tune for a few weeks or months. Maybe they won’t. We just have to keep tracking what they do and watching the market response.
Here’s what you need to know.
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 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. Be afraid. Because the Fed doesn’t have a clue what to do next. Follow the money. Find the profits!Liquidity is money. Regardless of where in the world that money originates,…