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mortiz

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Reply with quote  #1 

Since the Fed hiked the Fed Funds target rate to 5.00% a couple weeks ago, the effective Fed fund rates (rate the Fed charges member banks at the overnight lending desk), have been at or below par (5.00%), an unusual event over the past couple of months.

 

The blue curve in the below chart measures the premium or discount of the effective rate versus the target rate on a 10 day moving average basis.  For the first time since early March 2006, this indicator has risen above the zero line indicating the overnight effective rate has been less than the target rate consistently enough over the past ten days to park this measure above the zero line.

 

The indicator has exceeded the high posted in late February-early March, and is now at its highest level since mid-January 2006.  Circled in green are the first of the year liquidity infusions the Fed routinely executes.  The blue (on the price curve) and black (on the effective-target curve) ovals compare price action to those time frames when the blue effective rate-target rate curve is below zero...  prices often have difficulties in appreciating when the Fed has its foot on the brake.

 

Time will tell if the Fed's temporary easing in the effective rate will stimulate liquidity.  It will also be interesting to observe how this premium-discount indicator behaves in the week or so prior to the next Fed meeting.  The effective rate consistently telegraphs the target rate hikes for several days prior to the Fed's meeting.

 

 

FWIW

 

Randy

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Sigue_Lideres

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Reply with quote  #2 

Randy,

 

That would seem to support what i think i see developing in longer term bond yields.

 

Another recent observation (perhaps useless) ... the 20-year etf (TLT) seems to be tracking with near perfect negative correlation to the stock market intraday.

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da_cheif

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Reply with quote  #3 

it all boils down to the unfolding world wide inflationary economic boom of unparralled proportions......rates will rise.   simply put...wat the fed does is a reaction to the inevitable. and wat the fed does has no bearing on the stock markets......its the stock markets that has a bearing on what the fed does.......

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jmicou

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Reply with quote  #4 
da cheif,

On another thread, I alluded to that when it comes to the markets and the fed, many view it from a tail wags the dog perspective. Not only does the fed react to the markets, sometimes the market sends signals intentionally. Personally, that is what we have been seeing lately based on the feds foibles.

regards,

jmicou

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da_cheif

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Reply with quote  #5 

U are a prime example why this board is the home of knowledgeable market students......da best of luck 2 u....

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jmicou

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Reply with quote  #6 
Wow. Thanks!

best to you, too

jmicou

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