Market On Close, Wednesday 10 December
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Civilization As We Know It Is Lost
by Alex King, CEO, Cestrian Capital Research, Inc
So FOMC is done, the 25bps cut confirmed, and the new QE is about to begin. This is in no way bearish for risk assets. We may get a selloff on Thursday but if so it’s just a way for market-makers to take out any new levered longs that jumped in overenthusiastically during the post-Powell run-up this afternoon. The price of money is coming down; the supply of money is going up. That supply will end up in bank reserves, and banks will make some of those additional reserves available to brokerage desks serving everyone from Connecticut’s Masters of the Universe to Chad Jnr sat in his mom’s basement YOLOing 0DTEs. And yea verily will everyone from the MOTUs to the YOLO brigade duly throw that money at securities. Meaning that in all likelihood, number go up into year end.
The reason for the New QE, by the way? Continuing difficulties in the interbank funding market. We explained as much back in November, here, citing Yimin’s work on the SOFR vs. EFFR rates (if that is alphabet soup to you, fear not, the link below explains all).
Alex King
It amused me greatly to see that Yimin’s erudition in explaining the mechanics of Fed-to-bank and bank-to-bank liquidity was not matched by the FT today!
If the FT is writing like a FinTwit memelord, civilization as we know it is lost.
No matter. Onwards.
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US 10-Year Yield
Yesterday I said - the yield needs a reason to start falling. Today Chairman Powell gave us the reason; the Fed will be adding to its balance sheet before too long. So this chart is updated. I think that low in November was a cycle low, and that the move up since than has been an a-b-c correction that has either ended already or soon will. I think the next big move in yields is down.
Now let’s talk about the Vix, equities, bonds, gold, oil, crypto, and key sectors.