I have been meaning for weeks to hunt for correlations in the data between bank loans to shadow banks and stock prices, and between bank repo loans to the direction of stock prices. The road to hell is paved with good intentions, right? I spent a couple of hours looking at the data every which way, and I found some occasional correlation, but other times there was none. Sometimes hunches don’t pay. It was a lot of time spent for nothing. But some time spent for something. Non-subscribers, click here for access.
Where I continue to find a strong correlation is between the direction of the Fed’s RRP slush fund (down) and stock prices (up). That has been persistent over the past year. The evidence supports the idea I first put out here a couple of years ago. That is that when the RRPs would start coming down, it would be a bullish signal for stock prices. Here’s the proof, with the amount of RRPs outstanding plotted on a negative (or inverse) scale. See chart in report. Non-subscribers, click here for access.
The implication here is that as long as the total RRPs are decreasing (rising on this chart), then stock prices are likely to continue rising. Non-subscribers, click here for access.
So, we will continue to keep an eye on that. This week, there was an uptick in the RRPs, and stock prices started to waffle. A precursor to something? Maybe… Non-subscribers, click here for access.
There are other signs that something big is about to happen. Non-subscribers, click here for access.
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