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Is The Fed Back To “Quantitative Easing?”

by irdadmin | Feb 15, 2018 | Financial Markets, Gold, Housing Market, Market Manipulation, Precious Metals, U.S. Economy | 3 comments

The Fed added $11 billion to its SOMA account for the week ending yesterday. It purchased $11 billion in mortgage securities directly from banks. This injects $11 billion into the banking system. Cash is “high powered” money, meaning it can be leveraged 10x (banks need to hold 10% in reserves against “high powered” money. $11 billion is $110 billion of leverage for the banks to use for activities such as propping up the stock market.

This certainly explains why there appears to be another “V” recovery in the stock market after a near-10% drawdown in the Dow and the SPX. This is very similar to the 10% market plunges in August 2015 and January 2016, both of which were followed with highly unusual “V” recoveries.

This is also likely the catalyst that powered gold’s $41 rise since February 9th.

Clearly the Federal Reserve – not withstanding the fecal odor that emanates from Fed officials’ mouths when they speak – has an implicit monetary policy that targets the stock prices.

Furthermore, the Fed must be getting worried about the housing market. Removing $11 billion in mortgage securities from the banking system and replacing those securities with cash was likely a move targeting the rate spread between conventional mortgages and the 10-yr Treasury. Mortgage purchase applications plunged 6% last week. This was without question in response to mortgage rates pushed meaningfully higher by the rising 10yr Treasury yield and the widening of spreads associated with higher volatility in the markets.

I remain highly skeptical that the Fed will actually follow-through with its stated plan to raise monthly its balance sheet reduction to $30 billion this year. In fact, the Fed has yet to disclose a definitive schedule for said balance sheet reduction. I’m taking wagers that we do not see this occur.

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3 Comments

  1. RT Rider
    RT Rider on February 15, 2018 at 11:27 pm

    I agree there is little chance they’ll implement full QT – they’re trapped. They have lost control of all markets. When they implode, I doubt even a renewed QE will work. The outlet for this nonsense is manifesting itself in the dollar. It will collapse with more overt QE, and PM’s will go to the moon..

    Reply
  2. JB
    JB on February 16, 2018 at 8:52 am

    It’s the equivalent of attempting anal tightening midway through explosive diarrhea:

    https://www.youtube.com/watch?v=vYY78sBQ7Ts

    Reply
  3. Ozwaldo (Ozzie)
    Ozwaldo (Ozzie) on February 16, 2018 at 12:43 pm

    The dollar has started it’s decent and the next target is 80.0
    The only question is at what rate of velocity will it get there ?
    The end of the stock market’s salad day’s are upon us. Make sure
    you all have some preps and get ready. I hate Wal-Mart but when
    this hits the prices you see will having you think your shopping
    at Neiman Marcus.

    Reply

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