Fed “Normalization” Has Fallen Behind Schedule. Here’s What to Do…

The Fed has fallen behind schedule. The schedule called for a total of $30 billion in reductions in Q4 of 2017, $60 billion in Q1 of this year, $90 billion in Q2, and $120 billion in Q3, which is now complete. So the total scheduled through the end of September was $300 billion.

Here we are at the end of Q3, and the Fed has only shrunken its balance sheet by $276 billion since last October, when it started the “normalization” program.

Here’s a look at how things have been unfolding throughout the past ten years:


Perhaps the draining operations will never reach $50 billion a month. They may get stuck at $35 or $40 billion per month. That would lengthen the time it takes for the Fed’s balance sheet to reach a normal tight reserve position.

That doesn’t matter however! The combination of Fed draining, the US Treasury pounding the market with new supply month in and month out, and soon, the end of the ECB’s QE program, will still be lethal for US stocks.

If there’s pressure on the market in October like we’re now starting to see, just wait till November. It will be much worse. And if there’s little pressure in October, I’d certainly expect it to show up in November.

I still advise being out of stocks to the greatest extent possible. And to take advantage of big profit opportunities that are sure to come on the downside, I’d buy near in the money puts on the SPY with about a month until expiration. It suddenly looks as though the market is finally breaking down. This time, I think it will stick.

I’ll keep you posted on the timing of those trades right here at Sure Money. So stay tuned!

Sincerely,


Lee Adler

4 Responses to “Fed “Normalization” Has Fallen Behind Schedule. Here’s What to Do…”

  1. Lee,
    “The schedule called for a total of $30 billion in reductions in Q4 of 2017, $60 billion in Q1 of this year, $90 billion in Q2, and $120 billion in Q3, which is now complete. So the total scheduled through the end of September was $400 billion.”

    Your math doesn’t add up. $30B + $60B + $90B + $120B = $300B ≠ $400B

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