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‘The NYSE Alone Has Lost $3.3 Trillion In Value’: Don’t Blame Fed Balance Sheet Runoff For The Bear Market

Or at least not entirely...

Or at least not entirely...
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7 comments on “‘The NYSE Alone Has Lost $3.3 Trillion In Value’: Don’t Blame Fed Balance Sheet Runoff For The Bear Market

  1. My, admittedly non-expert, understanding of QE and QT is that, by buying treasuries in QE, the Fed drives up the price which lowers the yield. Presumably the reverse happens with QT – treasuries mature; the government needs to roll over its debt; the Fed doesn’t buy more, so demand is reduced; and the prices go down and yields up.
    What this means to me is that the first order effect of QT is on the yield curve, which, as noted above, seems not to have noticed QT. I’d like to better understand the other effects, such as the effect on liquidity, which is often mentioned, but which I’m having a hard time getting my head around.

    • John you are exactly correct. But as H points out in isolation that works but there are other factors. Deficits/new supply, inflation and economic trends (demand for capital), flows, other asset valuations (stocks at 100 times earnings QT would be less of an issue stock at 3 times QT would drive up rates) etc.

      Liquidity is how easy it is to trade and not move the price. So if i trade $100 and the price moves $5 (up or down depending if i am buying or selling) liquidity is poor.

      If I trade $1Bn of a stock and it moves by $0.05 (up or down depending if I am buying or selling) then liquidity is great.

      Right now if someone wants to sell there are few buyers around the current price so it has to go lower to find the volumes to transact. Sellers are aggressive and buyers cautious and lower.

      QE was done to encourage risk taking, increasing capital available, and lower the cost of capital. It did drive up asset prices and provided some benefit but I contend less than expected. Real tax reform, smart regulation/deregulation, education, etc are much better drivers of prosperity.

      Hope that helps.

      • Those are better drivers of prosperity and the key, productivity growth. But, this collection of Republicans can’t deliver any of that.

  2. Richard Haider

    All you need is powerful enough blow torch to melt the “Steel Slats”. the five billion barrier can go up in smoke.

  3. How much of the selloff can be laid at the feet of the stable genius in the White House and his band of merry disrupters? I figure it at 60 percent headed to 70.

  4. My take on the past ten years is that the FED used its options to stem the downturn in 2008 and with QE in 2011 to ensure a coutinuing recovery. The result of these strategies was to grow the money supply sigficantly in excess of our country’s need as shown in GDP growth. The excess money supply growth needed to find a home which it did in financial assets: stocks, bonds,commodities and real estate. The result of the excess money supply was an increase in the broad stock averages of 400%+, recovery of real estate prices, stabilization of commodity prices. My expectation is a give back of some of the gains as the FED reverses its course should be expected.

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