The Fed Put?
“The ‘Fed Put’ is the widespread belief that the US Federal Reserve can always rescue the economy by decreasing interest rates.”.... As we amply pointed out last Monday and Wednesday...
6th pivot (+) mid Oct 2018: market correction Oct 3 - Dec 24
1st pivot (-) 3rd week Jan 2019: Santa bounce in progress Dec 25 - May 6
2nd pivot (+) mid Mar 2019: continuation of bounce till May 6th (market down Mar 21-27)
3rd pivot (-) May 5th 2019: market down May 6 - June 3 (market up May 14-16; June 4-11)
4th pivot (+) mid June TBD
5th pivot (-) July 21st TBD
Did seeming Fed dovish-ness bake in some future rate cut yeast, causing stocks to rise, or did the June pivot arrive early?
Our two cents.... The Fed will not admit to policy failure viz. cut rates until after GDP prints sub 1 or negative for 2 consecutive quarters. Other factors...
The June 18-19th FOMC meeting is synchronous with a June 17th PBOC action.
Factor in this weeks UST auctions: 5-Year TIPS 15B; 3 month 36B; 6 month 36B; 4 week 40B; 8 week 35B; 52 week 26B; Total 188B 3X bid to cover = 565B liquidity drain, net -
Factor the seasonal turn mid June (if polarity does not invert +), and let us not forget QUADRUPLE witching day on June 21st (-), and last but not least, any potential month and quarter end "liquidity" squeeze (-).
Under "normal" circumstances the market might run up from 4th pivot (+) mid June until 5th pivot (-) July 21. Given all the net negative above? TBD.
In December 2015, we spoke to a potential Fed raise in The Fed Behind The Magic 8 Ball? For a potential cut, one can just invert everything already stated there.
Whether the Fed cuts, or does not, this mandatory instructional policy video for FOMC chairs and presidents should give you an idea of what will happen either way.
Viewer warning: this video contains graphic material of a training session involving the "Maestro" and BKBen... fiscal and monetary discretion is advised.
More to come in Half Baked Hopes Souffle? Stay tuned, no flippin.
According to the SLOOS, outside of dot.com and the GFC, the demand for loan funds has cratered to an unprecedented low.Money is an IOU, and the demand for money is joined at the hip with the demand for loan funds, which is joined at the hip with REAL as opposed to imagined economic conditions.
The direct effects of trade restrictions on the U.S. economy are relatively small, but the effects through global financial markets may be larger. Financial markets appear to expect less growth and less inflation going forward than the FOMC does, a signal that the policy-rate setting may be too restrictive for the current environment." - FOMC St. Louis President BullardDemand for loan funds is following monetary flow (velocity), global trade and aggregate demand viz. shrinking much like market based and seeming FOMC expectations.
"If the Fed doesn't lower rates, there will be a big sell off - not because the Fed didn't lower policy rates, but because the market is currently being buoyed by the anticipation of lower policy rates. Otherwise, stocks would be falling." Jun 11, 2019. 01:49 PM @Salmo truttaBear in mind (pun intended) the seasonal pivot market polarity of late and market direction...
6th pivot (+) mid Oct 2018: market correction Oct 3 - Dec 24
1st pivot (-) 3rd week Jan 2019: Santa bounce in progress Dec 25 - May 6
2nd pivot (+) mid Mar 2019: continuation of bounce till May 6th (market down Mar 21-27)
3rd pivot (-) May 5th 2019: market down May 6 - June 3 (market up May 14-16; June 4-11)
4th pivot (+) mid June TBD
5th pivot (-) July 21st TBD
Did seeming Fed dovish-ness bake in some future rate cut yeast, causing stocks to rise, or did the June pivot arrive early?
The June 18-19th FOMC meeting is synchronous with a June 17th PBOC action.
A total of 530 billion yuan in reserve repos are maturing this week, while medium-term lending facility worth 463 billion yuan will be due on Thursday. ($143B potential drain)
About 100 billion yuan ($14.3B) might be injected into the market as the central bank's targeted cuts for the reserve requirement ratio for county-level rural commercial banks take effect on June 17.The mid June FOMC announcement (no cut -) concomitant with a PBOC action (RRR cut +) and (RR maturing -), IMHO net negative.
Factor in this weeks UST auctions: 5-Year TIPS 15B; 3 month 36B; 6 month 36B; 4 week 40B; 8 week 35B; 52 week 26B; Total 188B 3X bid to cover = 565B liquidity drain, net -
Factor the seasonal turn mid June (if polarity does not invert +), and let us not forget QUADRUPLE witching day on June 21st (-), and last but not least, any potential month and quarter end "liquidity" squeeze (-).
Under "normal" circumstances the market might run up from 4th pivot (+) mid June until 5th pivot (-) July 21. Given all the net negative above? TBD.
In December 2015, we spoke to a potential Fed raise in The Fed Behind The Magic 8 Ball? For a potential cut, one can just invert everything already stated there.
Whether the Fed cuts, or does not, this mandatory instructional policy video for FOMC chairs and presidents should give you an idea of what will happen either way.
Viewer warning: this video contains graphic material of a training session involving the "Maestro" and BKBen... fiscal and monetary discretion is advised.
More to come in Half Baked Hopes Souffle? Stay tuned, no flippin.
Comments