With the US dollar tumbling as we near the end of trading for 2019, here is a stunning look at 2020 as the Fed’s balance sheet continues its epic rise!

2020 – Fed’s Balance Sheet Continues Epic Rise
December 27 (King World News) – Peter Boockvar:  In the midst of the now 11 day winning streak in the NASDAQ, the 10 yr Treasury yield just sits there like a lump of coal remaining within the 1.80-1.90% level over the past 3 weeks. I’ll say this about this incredible stock market rally, if there was ever going to be a good test case of whether stocks are still a good discounting mechanism of what’s to come in a world of machine driven trading, 2020 should be a great example.

Meanwhile, the Fed’s balance sheet continues its epic rise. I say epic because it’s increased by $113b in December. In September it was higher by $98b, October by $162b and in November by $33b. That averages $101.5b per month. In the QE3 time frame, known at the time as QE Infinity, the Fed’s balance sheet grew by $80b per month. it’s hard not to imagine this influence on stock prices.

Fed’s Balance Sheet Continues Epic Rise!

One of my arguments against the Fed’s rate cuts this year was that with rates already so low, lowering them further wasn’t going to matter much. Well, from a corporate perspective, they’ve done nothing in terms of bank loans. Here is a chart of the fed funds rate in white and commercial and industrial loans in orange. Banks instead have been buying long term treasuries, likely also with the proceeds of all the T-bills they are selling to the Fed. Maybe that’s why long rates remain subdued in the context of the stock market rallying.

Quantifying how intense, relentless, impressive and overbought this stock market rip has been over the past few weeks, the 7 day RSI in the SPX is at 88 which compares with the peak of 91 in late January 2018. The 7 day RSI in the NASDAQ is actually above where it was in that January.

The only data of note overseas was from Japan. Helped by the VAT hike, December CPI in Tokyo ex food and energy rose by .9% y/o/y from .7% in November and vs the estimate of .7%. As inflation is just another tax on the consumer, it amazes me how many were against the VAT hike but think getting to a 2% inflation rate is a good idea.

Japan’s unemployment rate in November fell to 2.2% from 2.4% unexpectedly. The estimate was for no change. This was driven by a rise in the number employed and a drop in the size of the labor force. Also of note was the jobs to applicant ratio which held at 1.57, near the highest since the 1970’s. All Japan needs is a further pick up in wage growth which has been clearly missing.

Lastly in Japan, industrial production in November remained soft, falling by .9% m/o/m and 8.1% y/o/y but as expected.

The Nikkei closed down .4% and is little changed on the week. The 10 yr JGB yield closed exactly at zero.

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