We're now two and half weeks and three weekly balance-sheet releases into the QE unwind period. How much has the Fed actually reduced its balance sheet?... You read correctly: Since October 4, the balance sheet gained $10 billion, all of it in the week ending October 18. The Fed is supposed to unload $10 billion in October. But curiously, so far, it has done the opposite.


There is willfulness in it -- a sign that they're not ready, or that they want to give the markets more time to get used to the idea of it, etc. And this could be the case. [Or] They're seeing something that worries them, and they're holding off for now to get a clearer picture. But I doubt this because their decision to commence the QE-unwind on October 1 was unanimous, and since then nothing of enough enormity has changed.

We think it actually could be the latter reason -- but it's not that something ominous happened since the Oct. 1 planned start of the QE-unwind; rather, that the market condition has always been ominous since QE began (i.e., dependent upon massive credit inflation), and the Fed knows it's going to cause a crash.

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