Apr 11, 2020
- Market Completes A 50% Retracement
- MacroView: Is The “Debt Chasm” Too Big For The Fed To Fill
- Financial Planning Corner: Top Planning Questions Answered
- Sector & Market Analysis
- 401k Plan Manager
Catch Up On What You Missed Last Week
Market Completes A 50% Retracement
“If you wonder why we’re seeing such a HUGE divergence the past 3 weeks between the economy and where investor psychology has taken the market…just remember…it’s all about the Fed.
Market psychology is having a ‘V’ shaped recovery from total panic while the economy still looks horrible. S&P futures implied volatility is down 50% from the ‘max panic’ level it hit mid-March.
Can the ‘psychological rally’ be sustained? Is this just a vicious ‘Bear Market Rally?’ Will the ‘reality’ of a devastated global economy pull the market back down? And if market price action shows us that investors are growing fearful again will the Fed just throw up their hands and say, ‘Sorry, we gave it our best shot and that’s all we could do?’ I don’t think so. In for a penny…in for a pound.” – Victor Adair, PI Financial
Victor is correct.
As I noted in Friday’s #MacroView:
“In the short-term, the Fed is massively increasing the liquidity of banks (excess reserves) through the various ‘Q.E’ facilities to stave off a second ‘financial crisis.’ Given the banks do NOT want to loan out any funds not guaranteed by the Federal Reserve, the excess liquidity flows into asset markets.”