Fed decision on interest rates today, but look at this…

Ahead Of The Fed
June 10 (
King World News) –
Peter Boockvar: 
Ahead of the Fed today, I particularly want to hear about QE4 which two months ago was meant to ‘improve the functioning of the US Treasury market’ but today is still consisting of $20b per week of purchases even though the markets are seemingly working just fine. The same can be hopefully explained by Powell about buying corporate bonds which don’t need the Fed’s help. Just get rid of the Volcker Rule and allow banks to make markets again. Also what they have to say about the Main Street Lending Program will be most interesting as the Fed’s balance sheet begins to take on a completely different complexion as 95% of loans banks will make to small and medium sized businesses will end up with the Fed…

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Lastly, I’m sure Jay Powell will get questions about yield curve control which I believe only helps debtor financing costs but at the expense of economic growth. Here is a chart on the very sharp increase in money supply growth (M2) engineered by the Fed. Jay Powell said a few weeks ago “We crossed a lot of red lines, that had not been crossed before…this is that situation in which you do that, and you figure it out afterward.” Let’s start hearing about the “afterward” now that the economy is reopening.

The dollar index is now lower for the 10th day in the past 12 to a level no higher than it was 5 years ago and while its coincided with the jump higher in stocks (flight from perceived safety), one has to wonder if the exploding US budget deficit (approaching 20% of GDP in the current fiscal year) in the largest debtor nation in the world is finally having an impact.

The housing market continues to chug along notwithstanding the challenged economic environment as we continue to assume that people are decamping urban areas for the burbs. With the supply of existing homes still limited, new home sales could continue to improve. Purchase applications rose 5.3% w/o/w and are higher 12.7% y/o/y. Refi’s finally bounced after a month of declines. They rose 11.4% w/o/w and are up 80% y/o/y. 

China said aggregate financing in May totaled 3.19 Trillion yuan, a touch above the estimate of 3.1 Trillion with bank loans making up 1.48 Trillion of this, below the forecast of 1.6 Trillion. The May figure compares with 3.09 Trillion in April. There was a sharp increase in the level of local government bond issuance typically used for infrastructure projects. Money supply growth, as measured by M2, rose 11.1% y/o/y, in line with the pace of April and the quickest pace since late 2016. Bottom line, as seen everywhere, the liquidity spigot is on and debt continues to rise faster than GDP growth.

What Is Really Happening
***Also Released: Forget The Propaganda, This Is What Is Really Happening CLICK HERE.

***To listen to Rob Arnott discuss what he expects to see for the rest of 2020 in global markets click here or on the image below.

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