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Repo Market and QE 4
The Market Bull 2019

00:00 / 3:19

The Market Bull – October 9, 2019

The major averages closed with modest gains despite some disappointing data, seemingly unconcerned with the Repo Market and QE 4.

The Mortgage Bankers Association reports that mortgage activity increased 5.2% last week as purchase apps slipped .9% and Refi’s jumped 9.8%. The 30-year contract rate for a Jumbo Loan fell to 3.9% a 4-week low.

Wholesale Inventories missed expectations with a .2% gain in August. Sales were unchanged and have shown marked weakness in the last 5-months. The inventory to sales ratio was 1.36 for a 4th consecutive month and is a little on the high side.

Seems the Trade War with the Chinese just won’t die as the tit-for-tat on again off again charade continues. Trumps recent threat to blacklist Chinese tech companies gains teeth with 8-firms added to the blacklist. The Chinese were of course quick to promise retaliation. Other recent threats have included delisting Chinese companies and banning American Pension Funds from investing in China. You have to think that sooner or later something is going to “snap” from all the uncertainty and shoving, let’s hope it’s not the economy or financial markets.

When is Quantitative Easing or QE not QE? When the Fed says it isn’t. Chairman Powell’s recent remarks about getting interest rates under control by increasing Bank Reserves through the purchase of short dated issues was designed to quell recent Money Market volatility, aka the oversubscribed Repo Market. Mr. Powell went on to assure everyone that it was about market stability, and not another round of QE. Interesting statements to say the least. The recent Repo Market activity that saw short term funding demand far outstrip supply as rates hit 10%, is a real eye opener and suggests that trouble is brewing beneath the surface, ala 2007. With the Fed set to resume asset purchases joining the European Central Bank or ECB in the process, again the message is “were trying to head off problems before they start”. 10-years after the last crisis and emergency level interest rates are still the norm, as negative yielding debt becomes increasingly commonplace. Long term this will destroy every single pension plan out there. Additionally, asset prices have gone through the roof rendering real estate largely unaffordable and contributing to the epidemic of homelessness. The financial markets sport dangerous valuation levels while consumers and businesses hold record debt. Let’s all hope it’s different this time, as it sure wasn’t much fun last time, or the time before that.

Standard and Poors 500 Index closed at: 2,920.94 up 27.88
NASDAQ finished the day: 7,907.30 up 83.52
Gold ended trading at: $1,512.60 up $8.70


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