With everyone wondering what the next move will be by global central banks, “QT” is what is going to move world markets in the future and you heard it here first.
Peter Boockvar: First, After hearing Fed President Eric Rosengren yesterday afternoon again giving his support for allowing the balance sheet to “start the roll off now” as “we’re basically at our employment mandate and we’re basically at our inflation mandate. So ideally we don’t have to manipulate the yield curve” as he joins a growing line of Fed members that are supportive of reducing the size of their balance sheet, I realized one word has been missing from all of their comments on this important issue.
You Heard It Here First: “QT”
We’ve heard ‘shrinking/trimming the balance sheet’, allowing it to ‘roll off’, and ‘gradually removing accommodation’. We haven’t heard that this is another form of ‘tightening.’ I’m thus going to call it what it is, Quantitative Tightening, QT. No more shrinkage comments from me which I know you thought of that Seinfeld episode when you did.
While the fed funds futures market has reduced the odds of a June hike to about 50%, nothing tells me that the Fed wants to back off from moving again in June. I mean if they’re talking persistently about QT and that won’t start after more rate hikes, then we’ll get more rate hikes. Voting member Robert Kaplan today says because he expects a GDP pickup in Q2, he still sees two more hikes. But data dependency hasn’t gone away as he also said they can slow that down if the economy softens, and vice versa. Thus, 2 more hikes this year is his “baseline” scenario. By the way, Kaplan referred to QT as ‘balance sheet unwind.’
King World News note: “QT” is sure to become the new buzzphrase to describe what the Fed is really doing with monetary policy. Just remember that Peter Boockvar coined it.
And Now A Note From Art Cashin…
From legend Art Cashin: On this day (+1) in 753 B.C., the Ancient and Eternal City of Rome was founded. For the first quarter millennium of its existence it was ruled by kings – starting with Romulus (part of a notable brother act with a doggy home life) and ending with Tarquinius Superbus. (If your king sounded like an oversize van, wouldn’t you give up the monarchy?)
Next came the Republic: lots of success, gladiators, scholars, arch-ways, public baths, Spartacus and Caesar (but no salads). During this period, Rome dominated, educated and even enumerated virtually all of the known world. (Doubters may look up “Census – Tiberius et. al.)
So – okay – you’re sitting there saying “I learned all that in sixth grade.” And you’re also saying “does that dope expect me to believe he knows the ancient date when Ancient Rome was founded.” Well…the answer is – Yes! You see it’s the “A.U.C.” thing.
If you were living in Ancient Rome and wanted to count time, it was tough. You couldn’t do “B.C.” since you couldn’t anticipate the date of the birth you were counting before. (Huh?) So, without the birth of Christ as a date of demarcation, the Romans had a problem. If you were opening a toga shop would you put on the letterhead….er….parchment head….e.g. “Founded – ???”
At first they tried the obvious: “In the third year of Romulus…” But that got to be a problem as new kings were envious of the names of old kings still having their names around on walls, letterhead, etc. Even worse, it could get confusing, “Was he born in the 2nd year of Pliny the 3rd or the 3rd year of Pliny the 2nd?”
So the Romans opted for something a bit more permanent like the city itself. Thus, they began dating everything from the time the city was founded which you will recall from Latin class would be Ab (from) Urbe (the city) Condite (founding). Thus, they made cornerstones and time clocks possible. “Annus MMDCCLXIX A.U.C.”
It was not the founding of the city of Rome that traders were thinking about Wednesday. If they were thinking of any city, it was most probably Golconda – an ancient city in India, where myth said great fortune came to all who passed through it. (See John Brooks fabulous account of Wall Street in the roaring twenties, “Once in Golconda”. A must read for your library. In fact, anything by John Brooks is a must read for your library.)
Uneven Earnings Season And Oil Surprise, Buckle Dow And Dent Others – Most U.S. indices managed to open higher on Wednesday morning. The clear exception was the Dow Jones, which was left sputtering under the weight of selling in IBM on post-earnings disappointment.
That dichotomy lasted most of the morning but the game clearly changed shortly before noon. One of the catalysts for change was the price of oil.
Oil inventories hit the tape around 10:30. On the raw data, they looked somewhat neutral and by seasonal comparison they looked slightly bullish to some.
Somebody else had a different interpretation, however, and crude began to get crushed. Soon it was down a dollar and then quickly down two. (There was also a shift in contract that may have confused trading.)
The deterioration in oil spooked the stock market and bids quickly canceled, leaving a bit of a vacuum that allowed the selling in equities to appear to accelerate. …..more here