WSBASE and Fed Reserve Assets - Octane in the Gas

[twacowfca]

The Fed's QE3 Taper has officially ended, but what does that look like on the assets being held by the Federal Reserve and, more specifically, the metric most influenced by the asset-buying program - WSBASE?

 

Graphs showing the trend of WSBASE over the previous 18 months or so, WSBASE since 2009 and then as screenshot of the Bloomberg CERBTTAL index since 2009 tracking weekly Federal Reserve Assets.

WS_Base_02.11.2015b.pdf

02.11.2015_SPX_vx_Fed_Total_Assets.pdf

WS_Base_02.11.2015.pdf

[twacowfca]

WSBASE has been volatile since Yellen became Fed Chairman.  Coincidentally, there have been spikes upward on more than one occasion immediately before an important announcement by The Fed.  WSBASE has spiked down and then back up within the same range, since the above graphs were posted a few weeks ago.

 

On average, WSBASE has been flat for almost a year, with no sustained trend. In the past few years since the financial crisis, a pullback and a leveling off in WSBASE  triggered a significant correction on two occasions after a lag of a few weeks. The recent action of WSBASE suggests that The Fed may be concerned with stabilizing the US stock market while no longer injecting money into the banking system.

 

[meiroy]

 

Is it me, or is there indeed now a slight upward trend together with reduced volatility starting in May

 

[TwoCitiesCapital]

 

Is it me, or is there indeed now a slight upward trend together with reduced volatility starting in May

 

I can't tell if you're being sarcastic and funny or if you just slept through August/September.

[meiroy]

 

Is it me, or is there indeed now a slight upward trend together with reduced volatility starting in May

 

I can't tell if you're being sarcastic and funny or if you just slept through August/September.

 

I'm serious, that's how WSBASE looks to me.

 

[meiroy]

 

It has of course started to crash since the rise in interest rates was announced. Back to Oct 2013 levels.

 

[twacowfca]

 

It has of course started to crash since the rise in interest rates was announced. Back to Oct 2013 levels.

 

 

Yup!

 

The 10% decrease in WSBASE over the last three weeks, culminated with a 6% drop in the week ended last Wednesday.  That is not unprecedented, but the Saint Louis Fed series only records three other declines of similar magnitude over many decades.  All three of those huge WSBASE declines were closely associated with corrections in the market in 2010, 2011 and 2014.

 

We more than hedged our market exposure early last week with February SPY puts.

 

Our portfolio value actually increased last week.

[meiroy]

 

It has of course started to crash since the rise in interest rates was announced. Back to Oct 2013 levels.

 

 

Yup!

 

The 10% decrease in WSBASE over the last three weeks, culminated with a 6% drop in the week ended last Wednesday.  That is not unprecedented, but the Saint Louis Fed series only records three other declines of similar magnitude over many decades.  All three of those huge WSBASE declines were closely associated with corrections in the market in 2010, 2011 and 2014.

 

We more than hedged our market exposure early last week with February SPY puts.

 

Our portfolio value actually increased last week.

 

Nice.

 

I didn't hedge, just went to 60% cash and removed all leverage so it still went down. Might go back in this week, though just as a short term trade.

 

[twacowfca]

 

It has of course started to crash since the rise in interest rates was announced. Back to Oct 2013 levels.

 

 

Yup!

 

The 10% decrease in WSBASE over the last three weeks, culminated with a 6% drop in the week ended last Wednesday.  That is not unprecedented, but the Saint Louis Fed series only records three other declines of similar magnitude over many decades.  All three of those huge WSBASE declines were closely associated with corrections in the market in 2010, 2011 and 2014.

 

We more than hedged our market exposure early last week with February SPY puts.

 

Our portfolio value actually increased last week.

 

Nice.

 

I didn't hedge, just went to 60% cash and removed all leverage so it still went down. Might go back in this week, though just as a short term trade.

 

 

We have also been @ 50% cash most of the time during the last year as WSBASE and and the S&P 500 flattened.

 

Surprisingly, 2015 has been one of our best years ever as we closed out the last of our BRK leaps early in the year with a gain that was almost a double and converted another leap-like total return derivative on our largest holding at near the highest  price during the last couple of years to remove that leverage while maintaining the position.  We also managed to make a little money on our index options in a market that was flat overall  by referencing what was happening to the internal divergences of the indexes.

 

This turnover isn't the usual type of value investing, but those trades were not typical short term herd following trades either.  Instead, the trades were  anchored to the underlying values of those holdings, buying low and selling high around the underlying intrinsic value.  That seems appropriate in a market that is pricey while we also hold a lot of cash. :)