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 billion 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 U.S. Treasury pounding the market with new supply month in and month out, and soon, the end of the European Central Bank's QE program, will still be lethal for U.S. stocks.
If there's pressure on the market this month like we started to see last month, just wait until 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 SPDR S&P 500 ETF Trust (NYSE: 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.
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Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.