The market just discovered its black swan

[Pascal]

Hi Peter,


This might indeed be a possible scenario.
My theory is that markets are mainly moving on algos and algos follow liquidity. When there is no liquidity anymore, then no-bid and markets go down, even if there is only little selling. This is what we have today: the 20DMF does not show much selling, but base liquidity is drying out as the Cumulative Tick tends to show.

You are right to point that a small rate increase would not be bad and could even attract carry-trade money... only if rates on excess reserves are not raised too.

The second source of money could come from a stimulus package that a new administration could propose in 2017. I believe that the 20DMF will detect a positive money flow as soon as such discussions of a stimulus package start to be heard.

But this is for 2017. In the meantime, we have to deal with the everyday election drama.
For now, markets are still weak.

Pascal