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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: yard_man who wrote (4304)1/3/2004 10:24:07 AM
From: russwinter  Read Replies (1) of 110194
 
<Can't raise rates when everything is going to heck>

We will get a test of all our various theories next week. The Fed has ballooned their open market operations to one of the highest levels for a year: $40.25 billion. Ironically, the bond correction that's developed over the last week came even with this kind of cheap liquidity available to the Fed's speculator cronies. It is also fair to say that the USD doesn't like this kind of inflated outstanding balance number. Further it's my belief, that the drop Friday off the ISM report had more to do with the prices paid number (inflationary) than with so called economic strength (if it was that, why did the USD drop again)?
Message 19647381

So we will get a rubber meets the road message from the Fed, about what's more important: attempting to maintain a mispriced interest rate level, or begin to defend the USD, and focus on all the inflationary pressures that are cutting loose. Let's just call this a very awkward moment for the Fed.

On Monday 1/5, a whopping $16.25 billion of the temporary balance matures, and on Thursday the 8th, another $18 billion matures. If they replace the bulk of this then your theory would hold water at least in the short run, IMO. If they let it drop say down to $30 billion, then that may lend support to my theory. I have no predictions on what they will do here, so let's just see the whites of their eyes. I'd focus on a significant drop in the balance to under $27 billion as a trigger for a major stock and bond market correction, and perhaps a brief USD rally.
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