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Strategies & Market Trends : The Art of Investing
PICK 45.79-1.7%4:00 PM EST
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To: benwood who wrote (1419)10/26/2020 1:15:11 PM
From: Sun Tzu  Read Replies (2) of 10489
 
Pushing on string refers to a situation where the central bank lowers the interest rates but the economy doesn't pick up b/c either the banks are not willing to lend or nobody trusts the economy enough to want to barrow to run a business.

The conditions set in the article are similar, but he is talking about something unprecedented in history, namely the inability of the central bank to lower the effective rates.

The Fed doesn't set the interest rates. They can only do two things: (1) set the rate at which banks can barrow from the Fed, i.e. the funds rate, and (2) Buy and sell treasuries in order to affect the money supply. Recently the Fed has done a 3rd thing, which is unprecedented, and I suspect is only the start of a very slippery slope. They are doing (3) Buying corporate and mortgage bonds. This is illegal, but the government has turned a blind eye to it. My guess is that they are doing #3 as a way of short circuiting foreign investors in participating in the Fed actions, as they won't be able to stop foreigners from selling their t-bills back to the Fed when the Fed holds an auction.

The ramification of this policy is that if you were to short 10-year treasuries and go long QLD, you will be making a mint at very low risk. And if you put the chart of the two next to each other, you see how right I am. Add in the leverage afforded to bond traders and you are talking about astronomical gains.
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