It's the end of QE (as we know it)
With the Fed’s $300 billion gift card to PD’s Treasure Island maxed out, one wonders who will support the vendors chomping at the bit to offload Uncle Timmy’s 3 to 7 year wares (much less the 30 year, being so two-thousand-and-late). But with the sun setting, the Japanese tourists trickling out, and the kids tired from a hard day of play on the S&P 500 Coaster and the SPY IOI Whack-a-Mole, it would be easy to settle into a semi-euphoric complacency, thinking ahead to a frolic-filled night on Pleasure Island.
This is the season when retailers typically look ahead with glee and patriotic investors hit the buy button on their stock accounts, not to return to their screens until January. With equities awash in the greatest liquidity bath since Emperor Claudius built up Aquae Sulis from a Celtic mud pit, one hopes the proverbial plug has not been pulled here because, without the foundation of a stable and growing money supply, equities need the spigots set to max.
True, we still have QE in the form of Agency and Agency MBS, the latter of which could be considered a $1.25 trillion fire hose astride the puny Treasury QE faucet. Then, there’s always the odd SFP wind-down. But the sun rises and falls with the 2s10s and, should they get out of hand, already-difficult-to-secure business funding costs will rise along with mortgage rates. This, ahead of record CRE resets, cannot be had. Worry not–Uncle Ben has a plan (aside from backstopping E-Trade in exchange for removing the sell button from their platforms). All will be revealed soon–not at the next FOMC meeting, mind you, but surreptitiously, through the back channels of the Fed’s PR page.
Update 12:53 pm EDT: Ironically, a crashing stock market relieves the yield bloat. Perhaps the Fed is content to watch the carnage for a while.