Global Markets: The End Might be Nigh
Mati Greenspan | Sep 20, 2017 10:29AM ET
- More Extreme Weather & Rhetoric
- Markets Calm Ahead of the Fed
- Something About Germany
Please note: All data, figures & graphs below are valid as of September 20th. All trading carries risk. Only risk capital you can afford to lose.
Our sincere empathy and compassion are with the citizens of Mexico today as they experienced the second major earthquake this month. This quake was a bit smaller, 7.1 in magnitude, but in a much more populated area very close to Mexico City.
Another quake hit the other side of the world last night in Fukushima Japan. The area is less populated and the magnitude was only 5.3 but the damaged nuclear reactor there is certainly a cause for concern.
As if two major earthquakes are not enough, Hurricane Maria is currently working her way through the islands and at the moment raining down on Puerto Rico.
With all this extreme weather one voice raises louder, that's the voice of President Trump at the United Nations yesterday. Trump's speech was strong and well accepted. It seems the world has now been fully desensitized to the warmongering tone of the new US President.
All this and the stock markets are calm. Things like natural disasters and talk of war no longer have any bearing because the Fed's in charge now.
The US Federal reserve bank has been the number one buyer of financial assets over the last decade. In order to support the economy after the crisis of 2008 they've been buying everything that Wall Street and the US government has been selling them.
So far they've managed to buy $4.5 Trillion worth of government bonds (blue), mortgages (red), and more. Of course, the Fed are the ones in charge of the money supply so in order to buy these things they simply created the money out of thin air.
The sheer amount of this investment has been causing markets to go up steadily, even in the face of fear, natural disasters, poor politics, and everything else that stands in their way.
This graph shows the Dow Jones over the same time frame as the graph above. So we can see the entire fall of 2008 and the ridiculous Fed-driven recovery.
Get The News You Want
Notice that the Fed stopped their printing program in 2014 but the effects continue to trickle into the stock market.
Today, the Fed is expected to announce that the end is nigh and that they will begin the process of reducing their balance sheet. Meaning, that rather than buying bonds and mortgages, they're going to start selling them.
Of course the markets are nervous, but they won't show it. The big questions people are asking are:
How will this go down?
How long will the process of unwinding all those assets take?
Will they have a sell quota per month as they did when they were on the buy side?
What's their target balance sheet? Meaning, at the end of the process, how many assets will they remain holding?
On top of that, many traders remain hyper-focused on interest rates. Though they are not likely to raise the rates today, any indication of an additional rate hike this year could strengthen the Dollar.
Oh yeah, elections in Germany over the weekend. At this point, it seems like everybody is ready for a sweeping victory from the incumbent Angela Merkel. Really, the matter of what her coalition will look like is a bit less important.
Still, it may be prudent to check your portfolio before the weekend for any assets that could be affected by a surprise.
Also, Friday should be fun to watch Theresa May's speech in Italy about Brexit. She really needs to get her act together and I have a feeling she's going to put on a good show.
Wishing you an amazing rest of the week and a peaceful weekend.
/h3
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