The Brains Trust - 2021, page-1800

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paddington bear

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01/09/21

08:14

Post #: 55734257
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Originally posted by wolfcreek ↑

To gain an edge, this is what you need to know today.
Adjusting Protection Bands
Please click here for a chart of the Federal Reserve’s balance sheet.
Note the following:

The expectations in some non-momo circles were that Powell would finally wake up to the reality of the hard data and announce a taper in his Jackson Hole speech. The momo crowd on the other hand believed that Powell would continue his ways of excessive money printing and ignore the data.

Powell did not announce taper.

What Powell does is critical to the stock market because money printing is a part of the air that is inflating the stock market bubble.

Taper does not mean that the Fed will stop money printing. It simply means that the Fed will reduce money printing by a tiny amount such as $10 billion per month. In this scenario, the Fed’s balance sheet will still continue to grow.

In plain English, the Federal Reserve’s balance sheet is a fancy way of saying money printing.

Note from the chart that in 2008 the Federal Reserve’s balance sheet stood at $909.982 billion.

The chart shows that the balance sheet now stands at $8.257 trillion.

Note from the chart the recent rapid rise in the Federal Reserve’s balance sheet.

The Federal Reserve is increasing its balance sheet by printing $120 billion of new money each month.

The Fed started this emergency policy when the country was locked down and there was no vaccine. Since then, the stock market has doubled, house prices have skyrocketed, the number of open jobs is greater than the number of unemployed and the economic data that we share with you in the Morning Capsules has been the strongest in decades. Yet, the Fed has refused to change its emergency policy.

Powell has been wrong about every critical projection that he made to justify continued excessive money printing.

Here are the key considerations about investors adjusting protection bands.

If Powell’s speech was the only consideration, it would make sense to reduce cash and hedges to buy more stocks.

The next jobs report will be released on September 3. If the number is strong, there will be pressure on the Fed to announce taper at the next FOMC meeting on September 22.

September is historically the weakest month of the year.

Stock market crashes tend to happen in October.

The purpose of protection bands is to protect long-term positions.

The tactical short-term positions are grouped with cash.

The Fed is behind the curve. Sooner or later they will have to catch up and start tapering.

It is worth repeating that even with tapering, the Fed will continue to print excessive amounts of money.

With its asset purchases, the Fed has totally suppressed volatility in some fixed income markets. Even though the taper amount will be small, the Fed may not be able to suppress volatility in fixed income markets after the taper starts. The volatility from fixed income may creep into the stock market.

Based on the foregoing, there is no change to the protection bands at this time until September 3.

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@wolfcreek - after reading that a couple of times - what do you think - inflation, deflation or stagflation. I think we should have a vote on it....
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The Brains Trust - 2021, page-1800

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The Brains Trust - 2021, page-1800

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