I think the mistake most make when trying to compare the treasury actions and the market is they ignore the the effects of the permanent injections and fail to give them the full multiplier effect since it becomes permanent money in the system the banks can use.
I have to run to work so I don't have time to post my longer term charts on it but my stuff shows a better correlation, or at least one I think I can see.
I post the charts of pure REPO float and then the REPOs plus the POMOs times 9 added together once in a while and they seem to overlay fairly well.
Here was how last year looked.......
marketswing.com
It helps if you don't look for a perfect correlation but instead look for the "push" to get the market moving then the REPOs tend to slow. If the market falls too much, you can see the "push" start again as the floats move upwards again. Watching it on a day to day level, they tend to push, then if the market doesn't move, they push harder and keep pushing until the market momentum gets going. Once in a while you will see where they push but there just are no takers no matter what the price is. They will then back off, let the float drop for a week or two then push more all at once.
It is hard to explain but imagine a flat market that doesn't want to go up. They push the float up 2 billion, then another 2 billion, then another and another until the float has gone from 16 billion to 30 billion. The market refuses to move up. They will bleed it back down to 18-20 billion then suddenly fire off 30 billion within a day or two and then push another 10 billion a day in until they get to 40-50 billion and the market usually responds. They then ease off and try to let it back down to the mid 20 billion level but if the market starts to fall back, they will replace the difference between the 25 Billion and 40-50 billion needed to hold it up by doing a POMO for 1/10 the difference knowing the multiplier will make up the difference.
Late for work so have to run.
Good Luck,
Lee |
