Displaying items by tag: fed

(Washington)

The Fed announced an unprecedented monetary stimulus package this morning. The central bank declared that its new bond buying program was unlimited, and that it would immediately start buying hundreds of billions of different types of bonds in an effort to unclog credit markets. They also extended lending facilities to new markets such as municipal bonds.

FINSUM: The Fed has been far from shy to in reacting to this crisis, but nothing it is doing seems to be helping markets much. Post-announcement, the Dow is already down over 3%.

(Washington)

The Fed sent a big message yesterday (or at least it tried to). The US central bank made a surprise Sunday move on interest rates, slashing them to near zero and announcing more asset purchases. The cut amounted to a full percentage point in addition to $700 bn of asset purchases and various liquidity boosting measures. Despite the efforts, markets have not reacted well to the news. Two circuit breakers have been hit already since the announcement and the Dow was down as much as 10% in early trading today.

FINSUM: The Fed is taking the right steps, but doing them in the wrong way. Better guidance and signaling would have been very welcomed.

(New York)

Stocks are roughly flat on the year, and there is a growing body of evidence that we may have finally come to the end of this economic and market cycle. Commercial construction is slowing, car sales have peaked, and banks are tightening lending standards even as demand is falling—all signs of an economy headed downward. According to Mike Larsson of Weiss Ratings “It is the type of stuff you see at the end of credit and economic cycles … I am concerned about the durability of this market and economic expansion”.

FINSUM: Only time will tell if the economy slows down. If so, markets will probably follow suit. Q4 GDP numbers were not nearly as good as they looked, as without trade war related boosts, growth would have only been 0.6%.

(New York)

Investors seem to have every reason to worry about bonds. Prices are high, yields are low, and low quality companies are accessing easy financing even in the face of an uncertain economic future. With all that said, there might not be any reason to worry at all. Central banks are still gaming the system. From the Fed being really conservative with rates, to the ECB and BOJ doing massive QE, the whole central bank mechanism is conspiring to prop up bond prices in a major way.

FINSUM: As long as that pre-condition of huge central bank support is in place, it is hard to see bonds taking much of a hit.

(New York)

Some investors live and die by it, but all should pay attention. The stock-bond ratio is an old investing indicator that can tell you when one asset class may be ready to head higher, and right now it is sending a strong signal. Ned Davis Research says that the ratio tends to bottom before economic recoveries. Therefore, if we have truly hit the bottom of the current economic cycle, then the ratio (S&P 500 divided by the US long-term treasury bond index) should start improving. “Barring an escalation in the trade war, we should see a recovery in early 2020 based on historical lead times”, said Ned Davis Research.

FINSUM: This is a very handy way to think about, and keep track of, risk-on/risk-off.