Federal Reserve Chairman Jerome Powell held a press conference today. It was the conclusion of 2 days’ worth of meetings with the Federal Open Market Committee (FOMC). The statement that came out of the FOMC meeting was very boilerplate. There was little new in the message. You can read it here. It continued the same old taper story.
“Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.”
The theme has been summed up by Zerohedge below.
The press release came out 30 minutes before the press conference and the market got a boost higher. Once the press conference started, the real fireworks started. Chair Powell reviewed the FOMC’s statement and then started to go off-script. He began to talk about how many members feel that “further substantial progress” had been made and that the taper should begin. He made it very obvious that he feels that it is time to start tapering the asset purchases and that the Fed should be completely out of the market by the middle of next year.
After this, Powell opened it up for questions. The first couple of questions hit on the taper and the “further substantial progress” question. Chair Powell elaborated further and insinuated that the taper will be announced and begin after the next meeting in early November. The next few questions hammered on the Fed officials who were trading stocks. It sounds like this could grow legs and turn into a story. The Fed is trying to figure out the best way to handle it. In time, I imagine it’ll get swept under the rug just like Congress’s insider trading issues. Time will tell.
After the initial boost higher and shock from the taper announcement, the market began to end the roller coaster ride and drift higher. Traders forgot that the taper had been fully priced in but now have come to their senses.
The story that was missed was that the NY Fed announced that the reverse repo counter party rate has been raised from $80 billion to $160 billion. I’ve covered the repo market in the past. The banks are parking money at the Fed in return for collateral assets. Now, some of these big guys are hitting their limit. So the NY Fed (who manages the repo markets) has doubled the limit that an individual bank can park at the Fed. This could have the ability to really suck money out of circulation. It will be important to monitor the reverse repo facility over the next couple of weeks to see how it reacts to this news.
Uranium
I wanted to spend a couple minutes talking about the uranium story. There are two developments that have acted as a catalyst for the uranium thesis. Sprott Physical Uranium Trust (SRUUF) has been busy buying uranium on the open market. A second competitor, Uranium Royalty Corp (UROY) has also begun to buy uranium on the open market. These two buyers have joined a few of the miners in soaking up the supply in anticipation of higher prices. This has caused the uranium price to take-off.
In a very short period of time, we have seen uranium gain 50%+! The stock price of many of the miners has been slow to reflect this fact but some of the OTC (over the counter) companies have had explosive days. Also, a large influx of money has found it’s way into the uranium miner ETF (URA). This story is still in it’s early stages. Uranium has the ability to run a lot higher. Here is a longer-term look at uranium.
Two takeaways from the above graph; the market has been in a steady upward move since November 2016 and uranium has the ability to run very high and very fast. There are many more nuclear power plants than there were at the height of uranium’s last run. The two trusts buying up open market uranium is simply adding fuel to fire. In time, the miners stock prices will come up to reflect the earnings that they will be raking in with higher uranium prices.