Begin The Benign?

Following up on The Perfect Storm?  So many wonder and ask why is the market correcting?  Santa Naybob has a Christmas bedtime story, so sit back and listen carefully Baby Ducks...

 After the Fed announcement in June 2017, we warned loudly and clearly in advance of what the repercussions of QT could be and laid it all out in black and white:
"the Fed Treasury float effect would be distributed as follows: Q1= 3.1%; Q2=6.3%; Q3=9.5%; Q4=12.7%; Q5=15.9% ; resulting in potential additional market float of 16% and rising cost of loan funds." 
"the Fed MBS/Agency float effect would be distributed as follows: Q1= 7.8%; Q2=15.6%; Q3=23.5%; Q4=31.3%; Q5=39.2%; resulting in potential additional market float of 39% and rising cost of mortgage loan funds." 
Only an insane religious order might think this not benign? - FED Devil In The Details?
Like a good Dr. we even gave medication side effect warnings... 
"When taking QT (quantitative tightening), be mindful of deleterious side effects. Open market effects can include rising yields and lower bond prices, viz. higher cost of loan funds and operating costs, further reducing profits and cash flow. Less loans, less dollars. 
In addition to rate diarrhea, economic capital asphyxiation may occur. Fed purchases drain "idle" liquidity; however, bank and private purchases consume dollars which might have been used for other productive purposes, viz. loans for investment in expansion and new activity. The resulting deleterious effect? Diminished potential and real GDP. Bank and private purchases, less dollars. 
Beware of balance sheet palpitation, constriction and angina. Depending who steps up, and if they do, in the case of dealers and commercial banks, precious balance sheet capacity gets squeezed, viz. liquidity and the ability to PPT or speculate elsewhere will suffer, and perhaps other holdings might have to be liquidated?" - Of Dollars, Bonds, Profit and QT?
In fact, in an effort to warn of a collision with this large iceberg, we fired multiple shots over the bow...

 History Repeating? - June 10, 2017
FED Devil In The Details? - June 16, 2017
Coffee, Crude, Tea or Me? - June 27, 2017
Of Dollars, Bonds, Profit and QT? - July 16, 2017

 In October 2017, when the Fed started their Treasury and MBS taper, the MSM and economoron narrative was muted...
The Federal Reserve’s plan to pare its $4.5 trillion balance sheet elicited barely a whimper in markets when it was announced last week, widely seen as a testament to the well-choreographed nature of the move. JPMorgan Chase & Co. has another read. 
Research from Nikolaos Panigirtzoglou, a global market strategist at the bank, suggests the benign reaction is because there will be plenty of central bank cash floating around even as the Fed pulls back. 
At a global level, the stock effect of QE will likely continue to operate over the coming years at the same intensity as today despite the Fed’s balance-sheet shrinkage - Forget The Fed Taper - Bloomberg
And if you think we're trying to make Nattering LIQUIDITY out of nothing, guess again Baby Ducks....
To repeat our top story tonight... on Sunday December 22nd, 2018, Treasury Secretary Steven Mnuchin called the PPT (Plunge Protection Team) to order? and ensured that there are NO LIQUIDITY ISSUES?
No big shakes, don't worry, be happy, benign even?  Is it starting to feel more and more like 1929? For some comfort, here's our play on words title song written in 1935, with film from 1938...
Apropos we think. More to come in A Case of Tape-r Worm? stay tuned, no flippin.

 Merry Christmas and Happy Holidays.

Recommended reading:
Timing Is Everything?
Know Your Limitations?
Parting The Red Sea?
A Little Shop Of Horrors? 
Where's Your Messiah?
Rapture?
Ro-BUST?
Beware The Ides Of Winter?
Meddling With Powers?
The Perfect Storm?

Comments

Post a Comment