For those who follow the Fed's daily intervention in the stock market, today is a historic, if bittersweet day: this is the day when the Permanent Open Market Operations (or POMO) as a result of the QE3 program launched in December 2012, finally die (at least until they are reincarnated yet again). Today, at 11:00 am [8], the NY Fed's market desk will conclude its 933rd POMO since August 25 of 2005, when it will inject just about a $1 billion in the stock market in the form of a $0.85-$1.05 billion buyback of long-end bonds. And with that, Simon Potter's open market operations desk located on the 9th floor of Liberty 33 [9], will be put on temporary hiatus.
A chart showing the daily history and 30-day average of the Fed's direct intervention in capital markets and mispricing of risk is shown below.
And with that, QE3 will end.
Or not. Recall the most important chart for the Fed's centrally-planned regime of the past 6 years is the one "correlating" the performance of the S&P500 with the size of the Fed's balance sheet.
And this is what happens when the Fed threatens to pull away the punchbowl...
... in short relentless "Risk On" quite quickly becomes Risk Off the moment QE comes to a close. More importantly, stock market levitation most certainly is put on hold if and when the Fed isn't injecting daily liquidity (because "fundamentals.")
And with hopes of the ECB picking up the torch from the Fed and proceeding to monetize public debt rapidly fading, especially after such headlines:
- ECB SOURCES CITE BARRIERS TO QE, NEED TO LET OLD MEASURES WORK
... one can only hope the BOJ itself doesn't taper any time soon or else all bets are off.
So while we all look forward to today's celebration when the Fed will step away from the market, we will keep it muted because we know it is only a matter of time, or a 10% or so correction, before Yellen rushes to the rescue of stocks everywhere.
After all, that's all the Fed has left...



