With stocks trading lower once again today, this is the real reason why markets are plunging.
March 2 (King World News) – This email came from one of the global KWN readers (Kevin W.): “QT is about to wag the dead dog of a fake economy. If you listen closely you can hear a sucking sound that isn’t a trade war but the dehydration of the life blood in the stock and bond markets…
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Ending March 1, on the asset side looks like the Fed dumped $1.3B in notes and bonds but bought $.374M in inflation indexed TIPs while also dumping $2.0B in mortgages. Total QT about $3.1B. On the liability side they retired some $3.1B in reverse repo’s thereby putting the securities back into the hands of those institutions who appear to be selling them in competition with the Fed. This is still a smidgins compared to what is on the agenda for 2018 and 2019.
Knowing in 2018 that Fed has claimed that it would reduce its balance sheets by $20 billion per month ($5.0B/wk) from the start of January ’18, the recent reduction is still way short. And looking into the abyss of the remainder of the 2018, where Fed QT reaches $50B/month, that sucking sound isn’t a trade war but the life blood of the stock and bond markets.
For all of 2018, Fed QT will add up to $420b ($8B/wk). Add that to another $420B in additional net Treasury debt issued and the number is staggering. But it gets better. Add that to the $530b of ECB QE here in 2017 but not coming in 2018 due to the taper, and markets face about $1.4 trillion of CB tightening and new government debt issued in 2018. 2019 faces another $1.4T of tightening from the Fed and ECB relative to 2017 not including new net issuance of Fed debt. And now BOJ is talking about ending its QE in April 2019. Soon the markets will realize that what they thought was real was only a mirage. What they thought was water was only the CB’s pissing down their back.”
And this today from Peter Boockvar…
Kuroda said they will start thinking about exiting its policy of nationalizing the country’s publicly traded securities in 2019. This also helped the yen and hurt JGB’s. Kuroda has been challenged this week by politicians in Parliament and that is why we’ve heard a lot from him this week. Thanks to ‘yield curve control’, they have already been in a subtle taper of asset purchases. What this means for the rest of us is that 2019 could be quite a year in that the BoJ will join the Fed taking out another $600b of liquidity (more than $1T in total), the ECB’s QE will have ended and they will start getting out of NIRP. I worry big time about long term bonds.
ALSO RELEASED: John Embry – Expect Violently Higher Gold & Silver Prices CLICK HERE TO READ.
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