The Fed is back in the business
Macro Perspectives
To those that partake, Happy St Patrick’s Day. To those that don’t, you should.
In recent weeks you’ve heard me use terms such as; US10Yr Manipulation & Intervention, Crisis Aversion, No Rules Central Banking, No Uncertainty, Whatever it Takes, Moral Hazard, Intervention with a Bow, etc. This testimony by Janet Yellen gives weight to the above and is simply stunning (from 1:39:00 to 1:34:33).
The European Central Bank met yesterday morning and stuck with another rate hike.
This, in the face of a confidence shock in U.S. banks that had already spilled over into a major European bank (Credit Suisse). Given that a liquidity problem has been exposed in the banking sector over the past week, driven by the level of interest rates, why would a major central bank add fuel to that fire?
Because they know the Fed (in the case of American banks) and the Swiss central bank (in the case of Credit Suisse) will do "whatever it takes" to restore stability, and quickly – no hesitation.
And they have.
In fact, Lagarde (ECB President) said that they, too, will "always stand ready to act" to preserve stability. Moreover, she said they "can also exercise creativity in very short order.”
As we’ve been discussing recently, this is the "no rules" era of central banking: Fix and manipulate.
With that, the liquidity holes appear to be plugged, for now. And, importantly, those holes, at this point, are found only in a very specific niche of U.S. banking: those that banked venture capital firms and startups (the tech ecosystem).
In the case of Credit Suisse, it has been a very troubled bank (but important bank), that perhaps gets the excuse of another lifeline because of the U.S. banking confidence shock.
Given this context, markets are bouncing back.
Have they done enough? Maybe. Let's revisit my note from Monday (here) on the significance of these "intervention" moments…
Again, this chart above is from Monday. Stocks closed yesterday back above the trendline (yellow line), and back above the 200-day moving average (purple line).
What's different now, relative to last Friday?
The Fed is back in the business of expanding its balance sheet.
AND, the interest rate outlook has swung about 125 basis points LOWER by the end of the year.
That formula tends to be good for stocks.
The GRYNING | Portfolio gives you the ability to access Hedge Fund Grade Analytics - see example below - for a fraction of the cost. BTW - we cover crypto too!
