Hey There Income Hunter,
Two Fed policy errors have crushed small banks and forced the Fed to launch a stealth quantitative easing (QE) …
- Draining money from banks while depositors were pulling funds from them
- Raising rates too far, and creating $650 billion in unrealized losses at the banks
This week, the banking system convinced the Fed the system would collapse without an injection of funds …
So, the Fed scrambled to launch another form of “stealth QE” disguised as a bailout facility … plus one that can grow up to $2 trillion.
Read on to see what this means for the markets in the weeks ahead …
The Bank Term Funding Program
The usage of the BTFP, which depends on the bank’s needs, will build enough new bank reserves to reverse the tightening of the past year.
Here is a snapshot of the net change in money flow between the Fed and Treasury …
Powell Broke Out the Big Bazooka
I have been saying for months the Fed will tighten until they break something.
Well, now the banking system is broken.
Yes, the Fed will provide all the liquidity needed for the banks to survive – but at what cost?
Powell panicked once again at the slightest sign of systemic risk. This solution will undo all the tightening done over the past year.
This will not only fuel longer-term inflation but it will cause a disaster as we approach the debt ceiling battle … What happens as more banks fail and the FDIC runs out of money?
The Treasury will have to issue a lot more debt … but until the debt ceiling is passed Janet Yellen’s hands are tied.
That means QE infinity will be back until the debt ceiling is past.
Enter the Melt-Up Trade
This is why I have been pounding the table about a melt-up trade in stocks, commodities. precious metals and yes, Bitcoin.
QE will ignite a FOMO rally like we have never seen before. We are talking about 10-15% by the end of April I believe …
Just look back at the moves the S&P 500 index (Ticker: SPX) made during each QE cycle in the chart below.
We are dealing with multiple crises brewing, including auto loans, commercial real estate, a government bond market that is broken, just to name a few.
A massive unwind of all the debt will have to come but first I think we may see the QE bazooka blow away the bears …
Next week is an opportunity to buy on a Fed induced pullback as a hawkish bias makes one last appearance.
Join me in Win the Week to take advantage!
Live and Trade With Passion My Friend,
Griff