Fed Balance Sheet QT: -$1.60 Trillion from Peak, to $7.36 Trillion, Lowest since December 2020

by Wolf Richter • May 2, 2024

Quantitative Tightening has removed 38% of Treasury securities and 27% of MBS that pandemic QE had added.

By Wolf Richter for WOLF STREET.

Total assets on the Fed’s balance sheet fell by $77 billion in April, to $7.36 trillion, the lowest since December 2020, according to the Fed’s weekly balance sheet today. Since the end of QE in April 2022, the Fed has shed $1.60 trillion.

After months of talking about it, the Fed has now clarified officially when, how, and by how much it will slow QT. They’re trying to get the balance sheet down as far as possible without blowing anything up, and easy will do it, that’s the hope.

Starts in June

Cap for Treasury runoff reduced to $25 billion from $60 billion

Cap for MBS runoff unchanged at $35 billion

Buckle Up, The Commodities Bull Market is Here

Dear Reader,

What’s about to unfold in the global financial markets will be referred to as,

“The golden bull market of the century”

You’ll be bombarded with headlines about how economic instability and soaring inflation are propelling the price of gold to unprecedented heights.

As a result, countless investors and funds will turn to gold, pushing its value to unparalleled levels.

Central banks and individuals alike will seek gold as a safeguard against diminishing currency value.

This is all happening, right now.

You, however, will be one step ahead, understanding that this gold surge is long-anticipated and a result of years of groundwork.

This shift signifies a major transfer of global wealth, offering substantial gains for those who act early.

Forget waiting for insights from the media, financial advisors, or governments. It’s crucial for you to understand and prepare for this shift.

But, it’s also important to remember that a massive bull market like this is going to make a lot of money for those who position themselves right.

The Best Way to Play Offense and Defense in the Markets

Is this a “good” or “bad” economy?

It’s like one of those inkblot tests psychologists give patients to learn about their state of mind.

When folks in the “bad” camp look at the economy, they see high inflation… rising interest rates… and collapsing banks.

Folks in the “good” camp see record-low unemployment.

And they’re both right to a degree…

To say the economy is good and bad at the same time isn’t a neat answer. But it’s the reality of the situation.

That means it’s more important now than ever that you play offense and defense in your portfolio.

So today we’ll look at why this is so critical. Then we’ll go over the necessary steps for you to apply this to your own wealth-building plan.

Diversification Is Key to Your Portfolio Performance

When you’re diversified, you have eggs in different baskets…

You don’t have all your money in only stocks… cash… bonds… real estate… gold… or crypto.

Instead, you make sure you own a mix of these different asset classes. (That’s Wall Street speak for a group of investments with similar characteristics.)

The Black Swan Rears Its Head: The Fed Has Negative Capital Using GAAP Accounting

By Pam Martens and Russ Martens

Federal Reserve Building, Washington, D.C.The Fed’s unprecedented experiments with years of ZIRP (Zero Interest Rate Policy) and QE (Quantitative Easing), where it bought up trillions of dollars of low-yielding U.S. Treasuries and agency Mortgage-Backed Securities (MBS) and quietly parked them on its balance sheet, are now posing a threat to the Fed’s flexibility in conducting monetary policy. (Since 2008, the Fed’s concept of conducting monetary policy has come to enshrine serial Wall Street mega bank bailouts as a regular part of its monetary policy. Large and growing cash losses at the Fed may seriously crimp such future bailouts.)

As of last Wednesday, according to Fed data, the Fed was sitting on $6.97 trillion of debt instruments it had predominantly purchased at very low fixed rates of interest. Because the interest rate (coupon) is fixed for these past purchases, when new bonds are issued in the marketplace at higher interest rates, they become more attractive and the current market value of the low-yielding fixed-rate bonds fall. U.S. Treasuries and agency MBS guarantee principal at maturity but if the securities have to be sold prior to maturity they will be sold at their current market value. This is what triggered the death spiral at Silicon Valley Bank in March of last year.

You Don't Need Great Timing to Build Great Wealth

By Sean Michael Cummings

Ronald Read led a humble life. He didn't bother with nice clothes. In fact, his appearance was so shabby that a pitying stranger once bought him a sandwich.

But by the time he died, he was worth almost $8 million.

His secret was long-term investing.

After serving in WWII, Read came back to the U.S. to work blue-collar jobs as a gas-station attendant and a janitor at JCPenney. And along the way, he put money into the stock market.

By buying great companies and holding them for the long term, Read amassed a seven-figure fortune. And he's a local legend in his hometown of Brattleboro, Vermont. The Brattleboro Memorial Hospital built a $23 million extension in his honor.

Sometimes, growing your wealth is as simple as owning great businesses over time. But Ronald Read's story isn't our only evidence...

As I'll explain today, we have more than half a century of market history to prove it.

10-Year Yield Hits 4.40% as Bond Market Begins to Adjust to Higher Forever: Higher Rates and Higher Inflation

Suddenly lots of talk the 10-year yield will revisit 5%, which is funny just a few months after Rate-Cut Mania.

By Wolf Richter for WOLF STREET.

The 10-year Treasury yield rose to 4.40% on Friday, the highest since November 27. During rate-cut mania in December, the yield had dropped below 3.80%.

Those moves in recent days and weeks added up, and they point to a gradual recognition in the bond market that inflation rates will be higher than what they’d been before the pandemic, that 2% inflation isn’t going to happen, and that the super-low interest-rate environment over the past 15 years – culminating in August 2020 when the 10-year yield was down to 0.5% – is over.

What comes next is unknown, but it’ll likely entail higher inflation of the type seen in the 1990s and before because the Fed isn’t willing to crash the economy and the labor market just to get to 2% inflation.