Notes On Liquidity & The Stock Market

Liquidity

As the Fed expands its TAF, the FOMC dumps Treasuries and
cuts REPOs. The net result is negligible growth in basic
monetary liquidity measures such as Fed Bank Credit and the
Adjusted Monetary Base. The broader measure of credit driven
liquidity (in which I include commercial paper) did expand
a bit more quickly in January. However, both monetary
and the broader measure of liquidity are not growing fast
enough to sustain economic expansion. Thus the Fed continues
to run a high risk policy regarding prospects for the real
economy.

Stock Market

For the SP500, there is shorter term trend resistance in the
1360 - 1370 area. Earlier in the day, as the market pushed over
1360, the sellers came in, driving the "500" back down near
yesterday's 1339 close. But, with a late afternoon rally, the
market managed to close up decently on the day, thus setting
up a prospective directional test for the final days of this week.