The Fed increased its scheduled bloodletting of the banking system to (up to) $50 billion per month in October. We’ve seen the effects.
The Fed calls this program “normalization” but I call it “bloodletting,” in honor of the medieval medical treatment for disease. That barbaric treatment used leeches to suck the blood from sick patients. The Fed is bloodletting bloated financial asset bubbles by shrinking its balance sheet. It is letting assets mature and is redeeming them, which gradually reduces the size of its balance sheet to normal levels.
Most importantly, as it redeems its holdings, that sucks money out of the banking system.
Click here to see how this works, why it’s so important to the health of your capital, and what you can do to profit from it.
The Fed’s Two Pronged Attack Is Sucking The Market’s Blood
Since 2017 however, the Fed has not only stepped back from inflating the market, its draining operations are indirectly causing the market to deflate.
In early October I wrote in the Wall Street Examiner,
“A growing shortage of money will eventually result in a bear market in stocks that won’t end until the Fed reverses policy.
“The exact pace of these drains does not matter. This is not a case of the Fed pulling cash directly from dealer accounts. QE was added directly to the market via trades with Primary dealers with cash flowing into their accounts. That was a measurable, predictable, direct impact. Under the Fed’s balance sheet bloodletting, the effect on the stock market is indirect, diffuse, and delayed.
” Very delayed. Investors have decided that they will use whatever remaining cash they have to buy stocks. And they’ve decided to use leverage on top of that… When this burns out, the turn will be violent and merciless because the cash to support the markets will simply no longer be there.
There Are Still Ways to Profit!
Some time ago I suggested that if you had been in the market over the past 9 years you have probably made some money, and that it was time to take your money home and let it hug you. Hopefully you are enjoying that hug!
But you can still participate in and potentially profit from the violent swings that are so typical of a bear market. You could use a small percentage of your total capital as your risk capital to buy either short term put or call options depending on the market’s short term direction. Several of the gurus here at Money Map Press specialize in just that kind of trading advice.
|My colleague, Tom Gentile, has one of the best methods I have ever seen for using your risk capital to potentially extract profits from the swings in individual stocks, regardless of the market’s direction! It’s called the Money Calendar. To learn more, click here.