The Beginning of the End
The Beginning of the End BY SVEN HENRICH for Northman Trader
They sure are trying their best. To do what? To goose markets higher. It’s been quite the spectacle all year, but this Friday sure took the cake. The entire week had been a giant jerk fest of sudden rips and dips as headline chasing algos were ripping through support and resistance levels unleashed like fat kids at the candy shop. But this Friday was something else, almost designed to have markets overdose on an insulin spike.
Ever more hyped up on an impending China deal, every meeting, and movement of negotiators caused market spikes, a Trump tweet about “warm feelings”, a $82.7B repo operation by the Fed to keep things tidy, a sudden out of the blue $60B/month Treasury buying operation announced by the Fed, multiple Fed speakers to boot, what a scene.
And really Fed? You are throwing this $60B a month announcement out on a Friday with the $DJIA already up 350 points? What are you thinking here? The Fed knows this kind of announcement juices up markets. The Fed sheepishly claims it’s not QE. Oh piss off already. Expanding the balance sheet by $60B a month is a massive intervention any way you cut it or slice it. How big? Do the math. $60B per month is a run rate of $720B a year. And while they claim they’ll stop it in Q2 next year who really believe anything they say? Did you believe QT was on autopilot last year? Lol. Fool me once.
You know what else is $720B a year or $60B a month? The ENTIRE US MILITARY BUDGET. The largest military budget on the planet. Millions under arms, submarines, aircraft carriers, nuclear arsenal, bombers, fighter jets, military bases across the globe, satellites, drones, laser guided missiles, you name it. All of it runs at $60B per month.
So lest everyone is blind to numbers these days as everything is so monstrous our eyes glaze over I trust this comparison highlights how massive the Fed’s announcement was on Friday. But not QE. Right. Believe it if you so choose.
And yet, despite 2 rate cuts, the liquidity and news spectacle on Friday, no new highs. Everything including the kitchen sink is being thrown at these markets. The hype is palatable. And here we are. One year after rate hikes and balance sheet unwind on autopilot we’re back into crisis management, because that’s what rate cuts and balance sheet expansion is.
The ECB has cut and relaunched QE, the Fed has cut twice and is now running a US military budget size balance sheet expansion program.
Take these actions and place them anywhere else in history (2000, 2007, any time) and this would be called an emergency intervention program.
Why is nobody calling it that now? Because all of our senses and perceptions have been dulled by the constant droning on of central bankers telling us that without their existence the stone age is coming back? Please.
Yes they are all afraid of the consequences of debt/credit monstrosity they have unleashed and their only choice to blow an even bigger bubble.
Whether they will succeed is another question. But know that all this frantic action to manipulate the liquidity and rate equation is in response to one chart, the chart that says we are at the beginning of the end.
First comes the yield curve inversion, then comes the steepening, and that’s exactly what happened this week: