MESSAGE FROM THE CIRCUS:
Courtesy from the Federal Reserve Economic Data, “FRED” allows us to look at the two nearly God-like powers that the Fed has: control of the money supply and the interest rate. This chart will better allow you to time the market and have an understanding of things to come. The rules are as follows:
1)The Fed’s Total Asset (Balance Sheet) refers to how much money they have literally created out of thin air and given to economic agents such as global banks. As at January 2020 there is currently $4 Trillion that has been created. This money is actually a receivable to the Federal Reserve, meaning that somewhere in the world, $4 Trillion is owed to them.
2)The Excess Reserves as of January 2020 stood close to $1.3 Trillion. This means that from the existing $4 Trillion that was borrowed from the Fed, there was $1.3 Trillion that was given back to them so that banks could make interest for not lending money to the public.
3)The Effective Funds Rate as of January 2020 remained at approximately 1.55%, this rate remains around its historical all time low and is one of the most important benchmark rates in the world.
4)The Yield Curve is the difference between the 10-year minus the 2-year treasury. As of January 2020 was around 0.32%. Most mainstream economists will say that it’s a recession indicator when it goes negative, however, they fail to explain the reason and will often cite made up answers. However, there is no mystery behind the yield curve, and what the mainstream sees as a recession indicator is actually the result of the Fed raising interest rates; this normally coincides with a shrinking of the money supply resulting in an economic crisis.
Summary – The Fed creates the boom by inflation (i.e. increase in the supply of money and credit) and normally lowers interest rates at the same time. The bust is caused when the Fed decides to decrease the money supply and normally increases interest rates. Rule of thumb; be cautious when going long on stocks, bonds or real estate when the Fed is going short!