Trader Question: Any thoughts on what combinations of trigger(s) will prompt the Fed to fire its remaining bullet?
Trade Desk Answer: So long as there is enough paper and cotton hanging around to support a market through until mid-term elections in November the bullets may be saved for bigger targets, but as the Swiss National Bank and The Bank of Japan have seen, the global market has teeth.
The last bullet for the Fed? There may be a few in the chamber so long as Primary Dealers can pull up to the discount window lending rates from the Fed at 0.25%, and then drive round to the auction window and churn the 0.25% loan into a 0.70% note yield by lending the money back to the Fed, netting profit for doing nothing.
There is no inter-bank risk, in that the Fed is empowering bad behavior in that all of the excess printing of notes to stimulate are being lent back to the Fed at higher rates.
It is like the tourist who drives into a dusty Texas town, puts $100 deposit on top of the hotel lobby counter and asks to inspect a room before booking.
The Manager takes the note and runs down to pay his bar tab. The barman takes the note and runs down to pay the butcher his unpaid meat bill. The Butcher runs down to pay the local lady of the night who has been doing tricks on credit.
The lady of the night runs into the hotel to clear her room bill.
The tourist comes down the stairs, picks up his $100 note and says he will not be staying.
Without anything being spent the town cleared some unpaid bills and thought that things were picking up economically....
The Fed, the algorithms, the TBTF banks, the massive redemptions, the high cost of inter-bank trade, it all adds up to the Fed needing a Panza Tank if they are going to stop this shell game, one bullet will not do it, three or four may hurt but still may not be enough to drop the monster that they have created.
Fortunately memories are short, and attention spans are down to 160 words of twitter, therefore all will be OK in the world so long as the Federal Reserve Bank of New York can hold equity selling back, and at least get to mid-term elections with the algorithms holding S/P support.
However, with the wall of economics that hit on the week of 3rd October, none of which seem capable of offering too many upward surprises outside of the Non-farm Circus manipulation, the Fed may be running the printing press on overtime and in doing so the erosion of long-term Usd values continues.
Disclosure: N/A
