Yesterday I posted an article from Zero Hedge on a likely year end liquidity squeeze in the US as warned by financial czar Zoltan Poszar.. well well the Fed has responded (see article below) so there must be some truth in it
There's more: add in the incremental liquidity from the expanded overnight repo of about $50 billion and another $60 billion in T-Bill purchases, and the Fed will inject a total of just shy of $500 billion in the next 30 days!
This also means that by Jan 14, the Fed's balance sheet would have grown by a cumulative $365BN in "temporary" repos, and together with the expanded overnight repos, and the $60BN in monthly TBill purchases, and by mid-January, the Fed's balance sheet, currently at $4.066 trillion, will surpass its all time high of $4.5 trillion!
The question then is whether this will be sufficient to refute the repo Doomsday predicted by Pozsar, one which was supposed to launch QE4, or will the Fed's gargantuan liquidity injection still not be enough and lead to a collapse in the repo market. We will find out in the next three weeks.
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My comments
Imagine under this existing façade of calm and increased positivism, we have the Fed undertaking this massive injection of liquidity into the US system unwinding totally all the QT (quantitative tightening since the end of QE)....it says something is not quite right and reflects desperation!
You can expect the common people to be the last to know what the h*ll is going on , but I have already informed here before that the smart money and tycoons like Warren Buffett have already moved out of the markets.
This is what I do here - tell you what you are unlikely to know even reading the AFR let alone the Herald.
If you recall, I indicated that there is a wide divergence between the US equity markets and corporate earnings fundamentals and only animal spirits are keeping US equities propped up because this divergence only gets wider as equities move higher independently of earnings growth and that is eventually unsustainable...and when equities move down, expect that it will go down very quickly. The same herd that followed the markets up will exit just as quickly to avoid being the last man (or woman) remaining. Hesitant fund managers who held to their belief that the US market is overvalued had to do the very thing that has been against their conviction - and that is to be long in the market to avoid underperforming the market (that is moving higher)- since their bonuses depend on it. Don't fight the markets as they say. So that's why higher gets higher, until.....the day the bubble bursts.
Perhaps this QE4 will fuel a massive rally in Wall St to 30k and beyond in 2020 some of you will surely say - perhaps, but this will be become increasingly like the Tulip Bubble when buying is premised purely on the expectation and assumption that prices will only go higher (irrespective of earnings and corporate prospects fundamentals) based on cheap money ....we know it never ends well. And.. what good is that if the euphoria is everywhere else but Australia?
