The Fed and the US Treasury are the 800-pound gorillas of the US stock and bond markets. Their actions have largely determined the direction of the markets for the past 15 years.
That’s why I developed the LAMPP indicator to track their combined impact, and why it has worked so well. I expect it to continue to do so far into the future. It behooves us to pay attention to its message from week to week.
At times when the LAMPP is yellow, some of the dozens of other market liquidity indicators that I track may help us to understand whether to stop or go.
When the Fed is not controlling the market, something else is – and it’s probably not what you’re being told.
Here’s how to understand the impact of foreign banks, and what it means for you…
“Proceed With Cautionâ€
There are times though, like recent months, when the Fed is less active and its actions more or less offset the Treasury’s actions. This leads to more neutral readings on the LAMPP.
That’s when we put up the yellow light, the caution signal. That signal says to proceed with caution, or stop until the light turns green again.
If you like to drive fast, then you’re probably one to take your chances and run the yellow. That’s fine if that’s your style, and if it’s appropriate for your investment needs or goals. If you are more risk averse, you’re probably someone who will stop, or at least slow down well before you get into the intersection.
There are a host of indicators that could turn the LAMPP yellow, and they are all relevant.
I track those indicators in the background and report to you when they become significant to the market’s direction. I don’t want to take our focus off the LAMPP. It’s the key. But I do want to acknowledge that there are always other things going on that we shouldn’t ignore, especially when the LAMPP is yellow.
Right now, there’s a force that is enhancing the bullish side of the LAMPP. It may explain why, with the LAMPP so close to neutral, the US stock market remains so bullish. That indicator measures the amount of US Treasury and Agency securities held by foreign central banks (FCBs). The Fed reports that data every week.
