Home About Archives RSS Feed

@theMarket: Fed Stimulus Continues to Pump the Markets

By Bill SchmickiBerkshires columnist
When asked, the members of the Federal Reserve Board continue to argue that the almost $500 million they have pumped into the overnight repurchase market since September is not quantitative easing. The stock market disagrees.
 
"Not QE" is the term most often used by the Street in describing this fairly hefty expansion of the central bank's balance sheet. Because the purchases that the Fed is making are categorized as debt instruments that mature in 12 months or less, they escape the hard and fast definition of what the Fed labels as quantitative easing. QE is the purchase of longer-dated maturities of debt instruments, so the Fed is technically correct.
 
However, traders are folks who like things simple. Over the past decade or so, when the Fed expanded its balance sheet (bought bonds) the stock market climbed. As far as the Street is concerned, it has happened again starting in September, and so far, there is no end in sight.
 
There are various explanations (none proven) for exactly why the Fed is making these purchases. Officially, the Fed argues the entire exercise is simply technical in nature. The Fed explained that for various reasons — quarterly tax payments, bonuses, etc. — corporations need more cash to make ends meet, but this trend will soon fade. The problem is they have been saying that for over four months.
 
Others worry that some big bank is in trouble, or that this is a new strategy by the central bank to ensure a soft landing in the economy by graduating over time from purchasing short dated debt to full-fledged QE purchases of longer majorities somewhere down the road.
 
I ask myself what could the Fed be worrying about that the market doesn't see quite yet? It is fairly obvious to most economists that the manufacturing sector in this country is in recession. We are also in our third quarter of falling industrial production. The good news is that the manufacturing sector represents less than 8.5 percent of overall jobs and less than 10 percent of the economy. So far, none of the woes in that area has spread to the overall economy.
 
There is a chance that if the downturn in manufacturing persists, it might at some point start to impact consumer spending, which is the locomotive that drives the U.S. economy. However, there is no evidence of that as of yet. In the meantime, the stock market continues to make record highs. And as long as the Fed keeps the spigot in the "on" position, the stock market's cup should continue to runneth over.
 
The signing of the Phase One China trade deal also cheered investors this week. The vast majority of Wall Streeters have not been fooled by the hours-long signing and celebration of the event by the administration. The deal, if one can call it that, is a win for China and not the United States. The fact that the really difficult issues remain and will not be resolved until after the election (if ever) reduces the upside from this event.
 
About the best that can be said for the deal is that it does reduce tensions somewhat going forward. It also gives the president a chance to claim another success (no matter how lame) among his followers.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

 

     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Scoil Rince Bréifne Ó Ruairc Participated in North American Open Championships
Pittsfield Police Participating in US 20 Speed Enforcement Project
MassDOT Project Will Affect Traffic Near BMC
Dalton ADA Committee Explores Expanding
Milne Public Library Trustees Announce New Library Director
Clark Art Presents Free Thematic Tour on Music in Art
BCC, Mill Town Partner to Support Philanthropy Through 40 Under Forty
SVMC' Wellness Connection: March 15
Pittsfield Community Meeting On Rest of the River Project
Slavic Easter Egg Decorating At Ventfort Hall
 
 


Categories:
@theMarket (480)
Independent Investor (451)
Retired Investor (183)
Archives:
March 2024 (5)
March 2023 (4)
February 2024 (8)
January 2024 (8)
December 2023 (9)
November 2023 (5)
October 2023 (7)
September 2023 (8)
August 2023 (7)
July 2023 (7)
June 2023 (8)
May 2023 (8)
April 2023 (8)
Tags:
Crisis Banks Fiscal Cliff Rally Stock Market Commodities Interest Rates Markets Employment Congress Europe Currency Election Selloff Oil Japan Pullback Stocks Taxes Energy Deficit Euro Jobs Metals Debt Ceiling Banking Retirement Debt Bailout Economy Recession Europe Stimulus Federal Reserve Greece
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: Sticky Inflation Slows Market Advance
The Retired Investor: Eating Out Not What It Used to Be
@theMarket: Markets March to New Highs (Again)
The Retired Investor: Companies Dropping Degree Requirements
@theMarket: Tech Takes Break as Other Sectors Play Catch-up
The Retired Investor: The Economics of Taylor Swift
@theMarket: Nvidia Leads Markets to Record Highs
The Retired Investor: The Chocolate Crisis, or Where Is Willie Wonka When You Need Him
The Retired Investor: Auto Insurance Premiums Keep Rising
@theMarket: Melt-up in Markets Fueled by Momentum