Always consider hidden risks
Fed s Stealth Tightening: Already Started ?
December 15 ( From FRED, IMF, TradingView )
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Must of us follow the shift in rates from Central Banks and try to
forecast their impact for the Financials Markets.
In fact, Monetary Agregates and Shifts within Central Banks
Reserves are also a must follow that very few of us do.
From an old IMF article:
When a central bank speaks publicly about monetary policy, it
usually focuses on the interest rates it would like to see, rather
than on any specific amount of money (although the desired
interest rates may need to be achieved through changes in the
money supply). Central banks tend to focus on one “policy rate”—generally a short-term, often overnight, rate that banks charge one another to borrow funds. When the central bank puts money into the system by buying or borrowing securities, colloquially called loosening policy, the rate declines. It usually rises when the central bank tightens by soaking up reserves. The central bank expects that changes in the policy rate will feed through to all the other interest rates that are relevant in the economy.
Very few of us realize that at this stage of the economic cycle, already a stealth tightening coming from monetary aggregates started at the beginning of 2014 and to include a global view from China:
1) St. Louis Adjusted Monetary Base growth
2) China Central Bank Reserves excluding Gold growth
3) US Treasury Bonds Securities held by the Federal Reserve growth
Interesting to note that the SP500 behavior is almost like the major monetary aggregates as shown by the chart below ( Red Line - SP500 Index )...
It seems obvious to me that the monetary policy is already restrictive since the beginning of 2014. Sorry for the guys who are waiting for the first rate hike from the FED in a while, it is just a technical factor for me...
Fed s Stealth Tightening: Already Started ? $SPY #Trading #investing #spy #SP500 #macrotrend
Year Over Year in %
St. Louis Adjusted Monetary Base (BASE) Billions$ ( Blue / Left Scale )
Total Reserves excluding Gold for China
( Green / Left Scale )
US Treasury Bonds Securities held by the Federal Reserve ( Purple / Right Scale )
SP500 Index ( Red / Left Scale )
The end of QE3 ( quantitative easing programs of the FED ) in October 2014 ( so end of Fed injecting cash into the system ) have bring a US Dollar skyrocketing ( Technical Break Out in September 2014 ), Commodity prices collapsing ( CRB index peaked in August 2014 ) and began the Major Deleveraging process from Emeging markets ( EEM ETF peaked in September 2014 ).
That FED Stealth Tightening process will have a bigger impact than in the past because the tremendous amount previously injected is unprecedent and as more debt and more leveraging than in 2007. and US Dollar Index at level not seen since 2003.
The Fed have started the most restrictive monetary policy move ever without knowing it as we re getting into uncharted territories by the experimental QE programs...
US Financial Assets are the next one on the list. We already had a shot across the bow from Commodities and Emerging Markets; we can t say now that Mr Market did not warned us...