The Herd Panics

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There was nothing new in the Fed minutes. In December, the Fed said that it would slow the purchases by $30B/month. That means its balance sheet will continue to INCREASE until March. After that, it could start reducing it (QT), but so what? All it means is that the interest payments on the T-bonds stay in the private sector instead of being returned to the Treasury.The Fed has already been tightening in the ON RRP operations where the Fed provides Treasuries to the private sector. In fact, since they have slowed the balance sheet growth, the ON RRP has started to slow.They are buying at the front door…. then selling (lending) out the back door.The market does not need the liquidity. It DOES need fiscal support from the Treasury spending.

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They are buying at the front door…. then selling (lending) out the back door.The market does not need the liquidity. It DOES need fiscal support from the Treasury spending and, along with bank credit, is key to strength in the stock market.

The 20-day average net-spending of the Federal government has gone from a net-transfer into the private sector, to now a net-transfer out of the private sector. The BBB bill needs to be passed.

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The herd panicked into a headline-trade that will prove to be a mistake. I expect prices will recover over the next couple of days.

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