QUESTION: Mr Armstrong,
I have great respect for your work.
Can you explain how the Fed’s QE fits into the cycle of things. It seems to me that their interference in the markets is disrupting/altering the cycle. For example, the latest Fed purchases of T-bills every month in the amount of $60.
Who are they buying from? I assume Inv Banks, Comm Banks and hedge funds, and now these entities, instead of having low yielding bills on their books have zero coupon cash, which they then seek yield and put into the shares markets. It seems pretty clear and appears to extends the cycle. Can money printing just cause the 8.6 yr cycle for instance to extend to say a harmonic of that, 17.2 or 25. 8?
ANSWER: No. The Repo Crisis is on time. Our forecast for the start of the Liquidity Crisis was after Labor Day in September. The Fed is trying to prevent short-term rates from rising. They are not engaging in Quantitative Easing for the sake of “stimulating” the economy.
Things are getting bad and the rumor behind the curtain is that European banks will be prohibited from participating in repo for year-end. That is how bad things are getting.
So the cycle appears to be coming on time. All the implications are far too great to cover in a blog, which is why I have created a a report on the repo crisis that is around 150 pages.