During this season of thanksgiving, I’d like to publicly acknowledge my gratitude for the Federal Reserve.
I know the FED has its haters and detractors, but I’m not one of them. Of all the government and quasi-government institutions, I hate the Federal Reserve the least. In fact, my admiration for the FED is even greater than for the US Marine Corps. If I were an idealistic and enthusiastic youth, I might even consider getting a FED tattoo.
We should all be grateful for the Federal Reserve and the way they keep our economy and stock market afloat. Sure they print money out of thin air, but would you rather have it done by Trump or Pelosi?
The past few trading sessions are a perfect example of the FED’s supremacy. Just six days ago, Beijing was furious over the US passing a resolution in support of the Hong Kong protesters; President Trump even had to acknowledge that the Trade Deal might have to be postponed till after the 2020 election. The stock market started to tank. I was hoping for a drop to the 50 or 200 day moving average so that I could buy the dip. But no such luck. The S&P 500 bounced off its 20dma like a Shen Yun sissonne.
Why? Because the FED is back to easy monetary policy. (see chart)
The Federal Reserve is again expanding its balance sheet. Just over the past few months they’ve added about $300 billion in short duration Treasuries. Voilà…no more inverted yield curve.
And don’t think this resurgence of intervention is a temporary Overnight Repo Operation. They’re not calling it QE4 (yet), but Wells Fargo is estimating that over the next decade, the FED’s balance sheet will expand by over $2 trillion, and that estimate was made before the recent Repo intervention.
The bottom line is that an easy FED if good news for a high valuation stock market. So don’t forget to acknowledge the Federal Reserve when you count your many blessings.
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