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sdholloway56
Senior Advisor

Will QE4ever gain traction?

other than unjamming the repo market I don't see why it would. 

10 yr. yields have been near 2% or below for 6 months, current 1.75. I don't see where there's going to be a lot more demand for borrowing from that, this late in the cycle.

Growth is currently somewhere near 1% or below. Let's say that trade has cut a point off and tax cuts and deficit spending added 1 back and call it a wash. SP earnings are in a recession even though we just got through the WS sell side game where they cut expectations to nothing then crow about the beat. Companies have used up a lot of their GAAP and buyback tricks already.

https://www.marketwatch.com/story/earnings-recession-is-expected-to-swallow-all-of-2019-after-holida...

BTW, here's what I think happened with the repo blowout. Our POTUS screamed from the rooftops that he was going to make the Fed cut rates and hedgies et al all piled in to buy the long bond and make a killing- and funded those trades in the short term market. A disorderly unwind of that trade would be catastrophic. I see the Fed action as defensive in nature.

And speaking of no one in particular that's why Presidents should keep their yaps shut on Fed matters (even if they're jawboning privately). That may turn out to be the fatal mistake for this administration.

Anyway, Velocity of Money is very weak so I don't think pumping the money supply will get a lot of traction but who knows when Wall Street gets the message.

BTW also, a top in the market is far from confirmed. But from where ever it is I expect the major indexes to return 0% over a decade or more as they did '68-'81 and '00-'13. But they go nowhere in an interesting way.

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sdholloway56
Senior Advisor

Re: Will QE4ever gain traction?

On the other hand, 2/10 yield curve has tightened about a basis point a day for ten days. Currently back to .16.

An the move into more cyclical stocks got whacked this week even if the broad averages firmed on poor breadth on Friday.

So maybe it  is what the simple answer is that the market is saying that growth is lousy. That's actually pretty obvious from the data but there was a hopey thing going on about how the Fed and a trade deal meant there was a light at the end of the tunnel.

BTW, mostly from slightly better residential housing numbers but NY Nowcast growth now up to .7%, Atlanta at .4.

I'm at a loss for what will juice it to a sustained 2 or better at this point. The best thing that can be offered on trade is a small interim agreement and the belief that matters are on a path of deescalation. But that isn't going to inspire a lot of business investment until it is more clear. 

Bond markets are a lot smarter than stock markets although they both ultimately come to the same conclusion.

 

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