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The Fed’s ‘Shock And Awe’ Part II: Open-Ended QE, Corporate Bond Buying, Credit ETF Purchases And More
The Fed on Monday morning announced open-ended QE, effectively promising to buy unlimited amounts of assets in an effort to assuage markets.
Although there will be plenty of finger-pointing when this crisis is finally over, nobody will be able to accuse Jerome Powell of not taking the most drastic measures imaginable, even if there will be a veritable chorus of folks accusing the Fed of ignoring the moral hazard inherent in limitless asset buying.
"The Federal Open Market Committee is taking f
In an illiquid market it is extemely difficult to price individual bonds that do not trade regularly. Particularly true in the municipal, junk and other specialized markets. The element of price discovery of ETFs is real, but it is related to the fact that in a market like this it is extremely difficult to determine NAV. WIth all the new Fed programs coming out and the firehose of liquidity being poured this may change. Right now, it is tough to figure out NAV- therefore it is tough to figure out discounts and premiums for funds.
This is all good and well, but the global economies will all be running in place with synthetic stimulation, which won’t impact supply or demand, in terms of real economic output and thus stability. Organic growth or anything resembling natural or normal consumption will be non existent. The backstops will be a starting point, but rebooting will take far longer than people are imagining at this early juncture. Although China may not be seeing new cases, their recovery timeline will be different than anywhere else and the damage that spreads will most likely be worse as the virus jumps from place to place. The GOP misguided fantasy that this is transitory blip that will receed in 2 weeks is highly dangerous thinking, as they fail to plan forward for the possibility of a far longer sustained decline. The dramatic likely hood of an extended period of infectious spreading 2 months from now has to be evaluated in terms of an economy that may be in full lockdown until later in the year. The misguided concept that the virus will decline with warmer temperatures, is a model that can be examined by looking at Australia, hence, if anything the virus will continue to travel and spread … This once again brings into focus the destructive nature of the GOP response to this biological attack and their inability to provide sane leadership, but that’s a rant for later. In closing, the vix can go above 200 …
The most vulnerable amongst us must be protected at all costs. Have you seen the credit-default swap rate at Goldman Sachs? Have you seen Jeff Bezos’s net wealth sink into eleven figures? Obviously the bankers, the corporate donors, the billionaires must be swaddled instantaneously and without any political discussion or public debate. Once they are made whole, maybe we can then have the luxury of possibly deciding if the poors can receive their $600 or whatever that they will doubtlessly blow on a steak dinner delivery and one month of Netflix.
Agree with what Sara Eisen just said on CNBC: This is “QE Infinity.” I think we’re turning Japanese…
Without the savings rate.. .
Remove the Tariffs…..
Exactly what I said in a post somewhere in one of these great H pieces. Why isn’t Tariff Man dropping this tax on American consumers? Oh right….because he would have to admit that tariffs are a tax on American consumers and not billions of dollars flowing into the Treasury from China. Amazing no one is publicly suggesting this (that I’ve heard)
I think it’s likely that even more restrictions are placed on trade with China in the future. At the very least China bungled the response to the virus and is likely fudging their virus case count stats ( China has a population 24 times the size of Italy. Italy has a death count of 6000, while China claims it only has about 3000 deaths which does not make much sense. (unless pasta depresses the immune system)
https://www.worldometers.info/coronavirus/
Based on a death count of 6000 in Italy, China should have 24x the deaths or well over a 100,000 dead.
I have no doubt many Americans will be clamoring for war with China after all the losses are tallied.
Trump will have a blank check to deal with China in the harshest way possible. Not to mention the fact that Trump probably believes they were trying to kill him. He might be a paranoid individual.
I suppose without cheap stuff from China American companies will just have to make real stuff again with real earnings.
https://slate.com/news-and-politics/2020/03/china-coronavirus-blame-victory-propaganda-trump.html
This crisis started with excesses and the solutions are also excesses….All political system have the primary goal of staying in power and perpetuating their loyal base…The virus is real (we assume ) and does not respond to the tools that are being used to combat it any more than the World community does to the 800 Billion annual defense budget that in Large part displaced the priorities that would at a time like this be invaluable… Maybe the question should be Who the Hell are we actually trying to bail out anyway….????? ( and why ???) I think the Political system has morphed into the problem…..
Metaphor of the year:. The Fed is giving the American economy an oil change for an economy out of gas. As we look deeper under the hood, we then see the GOP giving corporations new spark plugs, but the consumer in macro form will run out of gas on the freeway. The $1200 one-time effort Congress is fighting about, is the equivalent of a gallon of gas. The stranded motorist will be grateful for the hope to get to a gas station. But sadly the station will be closed. Congress needs to be thinking in terms of. What happens to all the stranded people who will be out of ways to get help, and obviously I your gonna be highly pissed, waiting in your car, listening to politicians wrangling ways to enrich their friends and family. Amen