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wutangfinancial
LSU Fan
Dallas, TX
Member since Sep 2015
4798 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
He's talking about money market mutual funds vs the S&P not outstanding M2


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RedStickBR
LSU Fan
Member since Sep 2009
13982 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
quote:

Ya BIS is a great source for data on money flows. I've seen a guy try and piece together how many dollar denominated assets he thought the CCP held offshore using BIS data. Really spooky stuff.


The below is a must read on this topic:

LINK

quote:

The only thing I can see taking us the second leg down would be another credit event. It seems to be the only thing that matters for risky assets. That seems most likely in 2021/2022 time frame.


I'm eyeing a second round of shutdowns.
This post was edited on 7/1 at 10:42 am


wutangfinancial
LSU Fan
Dallas, TX
Member since Sep 2015
4798 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
quote:

The below is a must read on this topic



And that's the same guy I was a referencing lol

quote:

Using this management style, it wouldn't be far fetched to believe that the Chinese Communist Party would be fully capable of orchestrating and directing a symphony of 90 million people, investing and managing money exactly the way they are told to. Under the direction of the CPC this giant hive, comprised of 90 million individual worker bees, has been buzzing away for decades, redeploying their $27.321 Trillion, slave-labor trade surplus to Western bank deposits, financial assets, stocks, bonds, Real Estate and businesses, etc.


I've been told I'm crazy for thinking this is possible on this board before ^ despite what the average person knows the CCP is capable of.

That's another risk. Domestic assets held by foreigners. Foriegners are desperate for dollars. They don't have updated foreign direct investment statistics for Q1 or Q2 that I can find.

quote:

I'm eyeing a second round of shutdowns.



God help us if that happens again


RedStickBR
LSU Fan
Member since Sep 2009
13982 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
Here's another good article that helps make sense of this quote I previously provided in one of the Druck articles:

quote:

However, while liquidity is very strong now, that’s only because the Federal Reserve has bought trillions of dollars in assets over the last couple of months, pumping money into markets. All that excess liquidity won’t last. The US budget deficit has soared and so the Treasury must issue trillions more in debt over the next few months. This will mop up everything the Fed has already injected and more.


LINK

With that, here's where I am in terms of framework. Check me:

* Economic Scenario Overview: Accomodative Fiscal Policy characterized by large deficits; Accomodative Monetary Policy characterized by significant liquidity injections into the financial system; there are other factors that are indicative of accomodative fiscal/monetary policies, but these are the ones most relevant to our immediate purposes of analyzing liquidity in financial markets

1. Fed Reserve, in an attempt to calm financial markets, "prints money" and uses the proceeds to buy previously outstanding Treasury securities from Primary Dealers. This can be measured most directly by reviewing the Total Assets on the Federal Reserve's balance sheet, but also by looking at the money supply (M2 being among the most widely used examples). Flows: treasuries come out of circulation; currency goes into circulation. Effect: Liquidity (i.e. currency) is injected into the economy.

2. The liquidity injection described in #1 puts upward pressure on Treasury prices and downward pressure on Treasury yields. In order to maintain equilibrium (meaning, in this case, a similar risk premium over Treasuries as before the liquidity injection) equity prices rise and equity yields decline.

3. As mentioned in the economic scenario overview, we also have a highly accomodative fiscal policy characterized by large fiscal deficits. These deficits, while not funded immediately, must be funded eventually. The government pays for these deficits by issuing new Treasury securities. Flows: new treasuries go into circulation; some of the existing money supply comes out of circulation. Effect: Liquidity (i.e. currency) is withdrawn from the economy.

4. If the liquidity injections described in #1 outpace the liquidity withdrawals described in #3, we are in a net positive liquidity environment, which could correlate with appreciation in equity prices, especially during periods of heightened uncertainty when prices are most prone to becoming detached from fundamentals. This is basically the state of affairs we are in today. Of course, this is a double-edged sword. If markets are going to trade on liquidity vs. fundamentals, they are also susceptible to price depreciation when that net positive liquidity begins to decline.

Other factors that are related to flows but not Fed Reserve / Treasury flows:

5. It's also important to state the obvious that the Fed Reserve is not the only source of liquidity in financial markets. You also have individuals and corporations who can supply liquidity to financial markets. One way to get a sense for this is to study the velocity of M2, which is GDP divided by the money supply. The higher this ratio, the more individuals and corporations are spending vs. saving. Where saving is increasing relative to spending (i.e. the velocity of M2 is decelerating), it could be assumed that these savings are making their way into financial markets. This also appears to be a reality at the moment, given all of the recent headlines about the # of new retail brokerage accounts created, etc., but there is disagreement here.

6. Finally, you have flows within asset classes and flows between countries that can impact the liquidity of (i.e. demand for) certain asset classes. The former won't show up in measures such as the Fed's balance sheet and the M2 because the net effect on total liquidity in the economy is zero. It is unclear to me at this point what impact the latter has on the money supply; I want to say it is neutral (French investor sells euros to US bank in exchange for dollars, but then takes those dollars and puts them right back into the economy in exchange for the financial interests he/she wanted to purchase). So, really, all you have here is a transfer of USD from a bank's balance sheet to the financial markets.

7. I think the main point here is that we can broadly identify two types of flows that could impact domestic asset prices: flows that are a result of increasing or decreasing currency in the economy (the focus of #1 - #4) and flows that aren't related to overall currency levels but involve existing currency simply transferring from one asset class into another (the focus of #5 and #6).

ETA: Re: the latter part of #6, fascinating read linked below. We can tackle this piece next if there's appetite to do so:

LINK
This post was edited on 7/2 at 10:06 am


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RedStickBR
LSU Fan
Member since Sep 2009
13982 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
Bumping to see if WTF has any thoughts. Are we on the right track here? Next step would be to attempt to put some numbers on it that we can track in this thread, particularly net liquidity.


RedStickBR
LSU Fan
Member since Sep 2009
13982 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
Going to update the framework on account of this blog post, which reveals a direct link between Fed liquidity and ETF purchases via one or more of the Fed’s newly-formed SPVs:

LINK /

From the weekly Fed Balance Sheet report linked below, here is the quote revealing the direct purchase of ETFs, which I assume includes equity ETFs, although the volume is relatively minimal:

quote:

Note on consolidation: The Federal Reserve Bank of New York (FRBNY) has extended loans to several limited liability companies under the authority of section 13(3) of the Federal Reserve Act. On April 14, 2020, FRBNY began extending loans to the Commercial Paper Funding Facility II LLC (CPFF II LLC), a limited liability company formed to purchase three-month U.S dollar-denominated commercial paper by eligible issuers. The assets of the CPFF II LLC and the amount provided by U.S. Treasury as credit protection to the FRBNY are used to secure the loan from the FRBNY. On May 12, 2020, FRBNY began extending loans to the Corporate Credit Facilities LLC (CCF LLC), a limited liability company formed to purchase eligible bonds or portions of syndicated loans or bonds at issuance through the Primary Market Corporate Credit Facility and to purchase eligible individual corporate bonds and exchange-traded funds through the Secondary Market Corporate Credit Facility. The assets of the CCF LLC and the amount provided by U.S. Treasury as credit protection to the FRBNY are used to secure the loan from the FRBNY. On June 5, 2020, FRBNY began extending loans to the Municipal Liquidity Facility LLC (MLF LLC), a limited liability company formed to purchase municipal notes from eligible issuers. The assets of the MLF LLC and the amount provided by U.S. Treasury as credit protection to the FRBNY are used to secure the loan from the FRBNY. On June 25, 2020, FRBNY began extending loans to the TALF II LLC, a special purpose vehicle that was formed to help support the flow of credit to consumers and businesses. The assets of the TALF II LLC and the amount provided by U.S. Treasury as credit protection to the FRBNY are used to secure the loan from the FRBNY. The FRBNY is the managing member of CPFF II LLC, CCF LLC, MLF LLC, and TALF II LLC. The Federal Reserve Bank of Boston (FRBB) is the managing member of MS Facilities LLC (Main Street Lending Program). Consistent with generally accepted accounting principles, the assets and liabilities of each LLC have been accounted for and consolidated with the assets and liabilities of the FRBNY or FRBB, in the preparation of the statements of condition shown on this release. As a consequence of the consolidation, the loan from the Reserve Bank to the LLC is eliminated as are any balances held at the FRBNY for LLCs consolidated to FRBNY or FRBB for LLCs consolidated to FRBB. Treasury contributions to credit facilities are held at FRBNY until invested. Net assets of the LLC appears as assets on table 6 (and in table 1 and table 5), and the liabilities of the LLC to entities other than the FRBNY or FRBB, including those with recourse only to the portfolio holdings of the LLC, are included in other liabilities in this table (and table 1 and table 5). The amount provided by U.S. Treasury as credit protection to FRBNY and FRBB appears as liabilities on table 6 (and in table 1 and table 5).


LINK /
This post was edited on 7/4 at 12:40 pm


Mr Perfect
Lamar Fan
Member since Mar 2010
17836 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
fed balance sheet dropped 4 straight wks. guess what stonks did since then? that right dude, down we go

once jpow fire up printer we will rise again
This post was edited on 7/4 at 5:48 pm


LSURussian
LSU Fan
9 acres of paradise in Baton Rouge
Member since Feb 2005
122464 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
quote:

guess what stonks did since then? that right dude, down we go
Nah, the S&P 500 Index is up two out of the last 3 trading weeks and is up almost 100 points over that three week period.


Mr Perfect
Lamar Fan
Member since Mar 2010
17836 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
i said 4 weeks you lying pos


LSURussian
LSU Fan
9 acres of paradise in Baton Rouge
Member since Feb 2005
122464 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
You said the Fed's balance sheet dropped 4 straight weeks and the stock market followed. Two of the four weeks the stock market went up.
quote:

you lying pos
You're the one lying here, not me.


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31
RedStickBR
LSU Fan
Member since Sep 2009
13982 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
More on the Fed (potentially) buying stocks. Apparently one of their SPVs directs BlackRock to buy stocks on their behalf, with funds from the Treasury:

LINK

LINK
This post was edited on 7/5 at 11:06 pm


Mr Perfect
Lamar Fan
Member since Mar 2010
17836 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
huge fed pump released yesterday. let's see what stonks do


LSURussian
LSU Fan
9 acres of paradise in Baton Rouge
Member since Feb 2005
122464 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
quote:

huge fed pump released yesterday.
All Federal Reserve banks were closed yesterday.


Mr Perfect
Lamar Fan
Member since Mar 2010
17836 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
I said the news was released yesterday. can you fn read?


LSURussian
LSU Fan
9 acres of paradise in Baton Rouge
Member since Feb 2005
122464 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
Link?

Eta: I just went to the Fed’s monetary policy implementation web page where it announces its open market operations and it shows no monetary announcements since June 29.

LINK
This post was edited on 7/5 at 11:52 pm


Mr Perfect
Lamar Fan
Member since Mar 2010
17836 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
quote:

 it shows no monetary announcements since June 29
not too bright are you dude? your link show July 2 and it was released over the weekend. like I said. this is why I know there no hope for boomers. my generation much better at this than them bc we are pure facts and boomers just lie and lie. even China doing the money printer brr

LINK

LINK
This post was edited on 7/6 at 7:12 am


LSURussian
LSU Fan
9 acres of paradise in Baton Rouge
Member since Feb 2005
122464 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
quote:

your link show July 2 and it was released over the weekend.
Neither of those July 2 news releases had anything to do with Fed open market operations, meaning balance sheet changes.

One was about enforcement actions against two banks and the other was announcing the meeting dates for the FOMC for 2021. And neither had anything to do with changes in the money supply.

And the money supply graph you posted was through July 2 which was last Thursday and, not "yesterday" as you previously posted.

That’s how stupid you are. You don't even know what day this is.
quote:

my generation much better at this

This post was edited on 7/6 at 8:58 am


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51
wutangfinancial
LSU Fan
Dallas, TX
Member since Sep 2015
4798 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
quote:

LSURussian



I think I found someone more annoying than me on this board

Hey Redstick: here's a really good podcast on passive flows. Mike Green is the go to on passive flows and their effects on asset prices.

Grant Williams - The End Game w/Mike Green
This post was edited on 7/6 at 10:53 am


wutangfinancial
LSU Fan
Dallas, TX
Member since Sep 2015
4798 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
quote:

my generation much better at this than them bc we are pure facts


This is probably the most ignorant thing I've ever read on tigerdroppings. Congrats


Mr Perfect
Lamar Fan
Member since Mar 2010
17836 posts

re: Discussion of Fed Liquidity’s Impact on Equity Markets
show your gains dude. boomers invest in bonds and what Jim cramer says. I already posted my screenshotted ytd earnings. what's yours? I see the advice you guys give to each other, "fundamentals" and "technical analysis" lmao. pure astrology. that why I know I follow jpow and papa Elon and lord bezos and just keep stacking


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