Oct 16. Me worry?
–Approaching the disaster deadline for a government deal. Yesterday afternoon Fitch put the US on negative credit watch. From Reuters: North Carolina is first state to cut welfare amid federal shutdown. It all sounds pretty bad, right? And yet the range in SP’s in the month of October so far is smaller than the last five months and remains within spitting distance of new highs. (I know the month is only half over, but these seem like momentous days). Implied vol in interest rate futures is also going lower. In short, the markets don’t care. No bond vigilantes, no stock vigilantes to light a fire under Congress. But the bigger themes just continue to roll forward on a tide of liquidity. For example, Fed Ex announced yesterday that it’s buying 32 million shares back, or 10% of outstanding. The stock hit a new high.
–Beige book this afternoon. I’m sure it will note mixed conditions across the country. Yawn.
–Things that Make You Go Hmmm newsletter compares the current size of QE at $85 billion a month to previous financial crisis periods that required emergency cash infusions. “Now, a mere five years on [after Lehman] we find ourselves in the position of requiring roughly three Bear Stearns bailouts every month just to keep things humming. Put another way, we require 23.6 LTCM bailouts or 65.38 Baring Brothers bailouts every month, just to keep the global financial system from being brought to its knees.” I would add that TARP at around $700 billion is covered in just over 8 months of QE at the current rate. The markets don’t care about the Federal Gov’t as long as the Federal Reserve keeps working. Put a kink in the gears of that institution and you’ll see panic.
