Monday, August 27, 2012

The Decreasing Impact of "Fed Cash to Primary Dealers" on the Stock Market

I donned the academic hat for the headline, pretty boring, huh?
From Winter (Economic and Market) Watch:

Lee Adler’s Fed Cash to Primary Dealers Indicator
Lee Adler uses a Fed cash indicator which he defines in the Q&A below.  To me in eyeballing it, markets show a positive effect from this priming when stock values and assets were very cheap such as 2009 and near fair value in 2010.  I don’t see this Fed cash as having much effect when asset values are inflated as they are now, although it might be a factor in maintaining inflated asset prices for an undetermined period of time.  The Fed has increased this total Fed cash to primary dealers by 50% since January 2011, and the market has climbed about 10%, and punctuated by several steep corrections.  But it seems that just to maintain these levels requires a parabolic angle of ascent.   I say the heroin from this Fed cash effect is greatly diminished or even finished.
Question : Explain who the primary dealers are and their role in facilitating “fed cash”. What is Fed cash exactly?...MORE