The Market Bull – October 15, 2019
The major averages closed with large gains on little news. 3rd Quarter earnings season gets underway with some decent results from the banks to start.
Below the calm surface of the markets trouble is brewing. As the Fed’s continued Repo Market Operations illustrate after the announcement that 60 billion per month of Repos would continue through the 2nd quarter of next year. Designed to ensure ample liquidity, the latest Fed move indicates that it is concerned about rising risks and contagion. Similar events occurred in 2007 just before the last crisis.
Additionally, Quantitative Easing or QE looks set to return as recent Federal Reserve discussions on the subject indicate that some 200-300 billion in direct asset purchases is being considered on a quarterly basis. Federal Reserve Chairman Jerome Powell confirms that the economy is growing at a good pace, that unemployment is at the lowest level in 50 years and that core inflation remains above the Federal Reserve threshold, or at least this is the official narrative. Yet they cut rates and move to resume QE and engage in significant Repo activity. Something doesn’t add up, and the explanation may lie in the need to keep an excessively leveraged market afloat and prevent the chain of bubbles in financial assets from bursting. Despite official denials that this is not QE, it in fact certainly is. All this a day after the Bank of International Settlements, states that “the unprecedented growth in central banks’ balance sheets, aka QE, since the financial crisis has had a negative impact on the way in which financial markets function.” Once again, the Fed has painted itself, the economy and the markets into a corner with debt. I’ve always said that the solution to a problem can’t be more of what caused the problem in the first place, meaning debt. Credit where credit is due, they have done an amazing job of creating the desired reality in the post crisis period since 2009, so far. I suspect the infamous statement that “debts and deficits don’t matter” is about to be put to the test. My money is not on debt, as I think it does matter a great deal.
Standard and Poors 500 Index closed at: 2,995.68 up 29.53
NASDAQ finished the day: 8,148.71 up 100.06
Gold ended trading at: $1,484.90 down $12.70