Friday, June 3, 2011

Fed Balance Sheet And Monetary Base Update - New Records All Around

Submitted by Tyler Durden on 06/02/2011 22:25 -0400

The Federal Reserve, just like Atlas, continues carrying the weight of if not the world, then certainly the stock market on its shoulders. As expected, both the Fed's balance sheet, and its economic equivalent, the Adjusted Monetary Base, just hit fresh all time records. This will continue for 4 more weeks at which point QE2 will end and what happens next will depend entirely on what side of the bed Bernanke wakes on.

First, a look at the balance sheet, shows yet another record breached, with total assets hitting $2.793 trillion. As usual, the bulk of the change comes form the Treasurys accumulated courtesy of weekly POMOs. In the past week, however, the rate has declined to just $12.9 billion, leading to $2.57 trillion in securities held outright. There was no change in MBS or Agency paper.

Total bank reserves also hit a new record of $1.59 trillion. At this point the SFP unwind is fully absorbed, and the change in the reserves matches changes in Fed assets one for one.
Other assets, while not back at record highs, are at $126.5 billion, following last week's periodic drawdown of whatever it is that comprise the "Other Fed Asset" line.
The notional of Fed assets under 1 year continues to be under $150 billion. So much for that stealth QE from Treasury rolls.
Courtesy of SMRA, we find that while the balance of assets grows to records, the actual average maturity of holdings has declined to all time lows, in the past week hitting just 62 months.
The most importantly variable, the Adjusted Monetary Base, just rose to another record. Yet even with the incremental weekly addition of tens of billions, there is no longer an impact on stock prices. When this number freezes and even goes into decline in 4 weeks, all bets (for the Russell 2000 at least) are off.

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