| The Market's "Miracle Drug" Dear Money & Crisis Reader, The financial system is now completely addicted to Fed interventions. As I've noted over the last month, the Fed has implemented monetary programs to buy just about every asset class. As a brief refresher, the Fed is now intervening directly in: - The Treasury markets (U.S. sovereign debt).
- The municipal bond markets (debt issued by states and cities).
- The corporate bond markets (debt issued by corporations).
- The commercial paper markets (short-term corporate debt market).
- The asset-backed security market (everything from student loans to certificates of deposit and more).
Of the various programs the Fed announced, its daily quantitative easing (QE) program is the most important as far as stocks are concerned. The Fed first announced a daily QE program of $75 billion on March 23, 2020. That was THE day the stock market bottomed. It then reduced this operation from $75 billion per day to $60 billion per day on April 2… and again to $50 billion… then $30 billion the following two weeks. And last week, the Fed announced it would be cutting its daily QE even further to $15 billion. You'll note in the chart below that with each reduction in the Fed's QE programs, the market's momentum has slowed. The one exception to this was the week of April 2-9 during which the Fed announced another $2.3 trillion in monetary interventions, which negated the drop in its daily QE programs that week and sent stocks soaring. What does this tell us? That the markets are addicted to Fed interventions. |
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