2020-1-21 20:25 |
Federal Reserve Chairman Jerome Powell might have believed himself that his efforts to keep up funding markets are “in no sense” quantitative easing by repeating it enough times. But according to investors, it 100% is.
US stocks closed at all-time highs on Friday, marking the third-straight record close for the Dow Jones Industrial Average and S&P 500. Today, the US stock markets are closed in observance of Martin Luther King Jr. Day.
If enough people feel it, then it’s going to impact marketsThis time instead of pushing the long-term interest rates down to stimulate the economy, the Fed is buying Treasury bills to keep up the financial system. Jim Paulsen, Leuthold Group Inc.’s chief investment strategist told Bloomberg,
“Whether the Fed’s liquidity injection impacted directly the economy or the pricing of assets or not, it’s certainly true that a lot of people think it did.”
“Whether anything is going to change if the Fed takes it away doesn’t matter. If enough people feel it will, then it’s going to impact markets.”
In October, the Fed started buying $60 billion of Treasury bills each month, a “purely technical” move on policymakers’ part to improve the benchmark interest rates used to guide monetary policy.
Powell stresses that the growth of the balance sheet this time should “no way be confused” with the large-scale asset purchase programs deployed by the Fed after the financial crisis. But the market’s upward trajectory says something else.
Do not fight the Fed. Buy stocksDeutsche Bank observed that since the Fed started T-bills, the S&P 500 went up about 1% for every 1% increase in the Fed’s balance sheet. Torsten Slok, chief economist at Deutsche Bank AG said,
“So in that sense, Fed balance sheet expansion has at least been correlated with the increase in the stock market we have seen since October.”
And every time the central bank mentioned cutting down its holdings, a major equity correction followed, pointed out Gina Martin Adams of Bloomberg Intelligence. Now, the wind-down of these monthly purchases is the biggest risk that investors face this year.
This continued growth can also be caused by retail traders in part, who account for 20% or $7 trillion of the total US market ownership in 2019. According to a Goldman Sachs study, it is comparable to household equity allocation in 2007 but only surpassed by the 2000 dotcom bubble.
What goes up must come downArt Hogan, chief market strategist at National Securities Corporation said,
“To date, the market has had a long run of prosperity that makes investors nervous, because we all have good memories that what goes up must come down.”
As Jim Carney, founder and CEO of alternative investment manager Parplus Partners told MarketWatch,
“Every time, it looks good something happens…it’s almost frightening and that’s when it gets worrying.”
And this why as analyst Joe McCann says “Buy Bitcoin” because when things start unraveling there would be a need for an uncorrelated asset that is non-seizable, censorship-resistant, and has a limited supply.
Already this asset is up 9,000,000% in the past decade is on its way to another parabolic trajectory as it prepares for its third supply shock this year. According to Mati Greenspan, founder of Quantum Economics,
“Investors have realized that the central banks have forced them into a high-risk corner and they're jumping on it.”
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