Has Powell's vacuum stopped?

and why stocks go up

The money supply report came out from the Fed this week and we continue to see sideways movement in the supply of M2.

We’ve dipped backwards and are again in negative territory in the 13-week annualized money supply. This is a seasonally week period until about week 42-45 when the money supply usually gets a good push to finish out the year.

I thought I should check in on the market player sentiment via the margin debt statistics…

2023 is the green line and it looks like market players are holding their margin use steady. There was a push higher in margin use from May to July and it has since fallen off slightly.

Cash on the sidelines has also moderated from its drop-off which started in June of last year.

My guess is that the allure of higher short-term rates via US Treasuries put some of this money to work. The rest was dumped in money market funds that are offering rates that are competitive with short-term US Treasuries. We are now seeing the flow out of the free credit balance moderating.

While the market is building up short-term funds, Powell’s Fed has seen some of their savings deplete.

Repo use is shrinking. I wrote about the Fed’s vacuum two years ago. In it I quoted John Williams, the NY Fed President.

But fear not for John Williams, the New York Fed President has stated that this is all working exactly as designed.

"It's effective and I'm not concerned about the amount of uptake on that ... or whether it would increase further," Williams told reporters. "It would just be a sign that it's working as planned."

By John Williams stating that this facility is “working as planned”, it signals to me that the Fed is doing this on purpose. They want to suck up funds from the system and this facility allows them do to that. They are wielding the most powerful vacuum in the world.

Powell and Williams are draining, what they see as, excess liquidity from the system. Draining these “excess funds” is causing the economic tide to go out.

I think we can see that it is Europe that has been swimming naked and their excesses are being exposed. Europe’s inflation is still too high, their interest rates aren’t high enough, the euro currency is losing ground quickly, and now their bond market is selling off.

Why DISH?

I got some great emails from the last post. They can be put into two buckets, DISH 0.00%↑ and uranium. First, yes I do still follow uranium. I got shook out by the volatility. The underlying commodity has shot up in recent weeks and has caused all the miners go to on runs higher.

I’m confident that this run isn’t done. I may review uranium miners again.

I got several emails about DISH. I figured I would write up a summary of what I’m seeing. DISH is known for their satellite TV. It is their bread-and-butter but they are also working hard to built out the largest 5G network in the US. They are in the cellular business with Boost Mobile. Many market players are concerned about DISH’s ability to stay a going concern and they have been priced for bankruptcy.

My belief is that DISH will not go bankrupt. They will find a way to roll-over their debt, raise capital, and continue on. However, that doesn’t guarantee that their stock will go higher. Like all other things, stocks are governed by the rules of supply and demand. When there are more buyers than sellers, the stock price goes higher to find a clearing price. This works in reverse when there are more sellers than buyers. This can become very psychological and develop a herd mentality.

Stock price movement is dependent upon sentiment in the short-term and fundamentals in the long-term. The best time to buy is when the sentiment is worst. I feel this is where volume plays a big key. When the price is flat and volume picks up, it means that the marginal sellers are getting exhausted and long term holders are picking up shares. Then all the company needs to do is not go bankrupt. I think DISH has the financial position and management team to do that.

I would not recommend anyone dedicate a large portion of their portfolio to any one idea until it starts to go on a run. This is why I’m more heavily positioned toward oil. It is running and looks to have legs to run longer.