Fed buying stocks and corporate bonds

Discussion of the Stock portion of the Permanent Portfolio

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doodle
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Fed buying stocks and corporate bonds

Post by doodle » Mon Apr 06, 2020 10:27 am

https://www.reuters.com/article/us-usa- ... SKCN11Z2WI

Don't fight the Fed? Time for 100 percent stocks? Once again our societies institutions removing any need for caution and responsibility in every facet of our lives. What kind of fire are we playing with here?
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Kriegsspiel
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Re: Fed buying stocks and corporate bonds

Post by Kriegsspiel » Mon Apr 06, 2020 10:36 am

That article is a few years old, here is a newer one:
Former Federal Reserve Chair Janet Yellen thinks the central bank is not in a position where it needs to buy equities but thinks lawmakers should give it more leeway for the future.

“It would be a substantial change to give the Federal Reserve the ability to buy stock,” Yellen told CNBC’s Sara Eisen on “Squawk on the Street.” “I frankly don’t think it’s necessary at this point. I think intervention to support the credit markets is more important, but longer term it wouldn’t be a bad thing for Congress to reconsider the powers that the Fed has with respect to assets it can own.”
There's this very disturbing set of studies where about half the articles printed in Science and Nature magazines, the two leading publications, involved experiments that could not be repeated by anybody.
- Peter Thiel
pmward
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Re: Fed buying stocks and corporate bonds

Post by pmward » Mon Apr 06, 2020 10:48 am

They currently do not have the lawful ability to buy stocks. That doesn't mean congress won't give it to them if this crisis goes down the worst case scenario path. But as of the moment, they've already twisted the current laws as far as they can can bend with buying corporate bonds.
doodle
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Re: Fed buying stocks and corporate bonds

Post by doodle » Mon Apr 06, 2020 10:52 am

So in other words Yellen doesn't believe in free markets where participants actions have consequences. I think the issue with the permanent portfolio is that it is designed for a world with free markets. It makes little sense to me to have a portfolio that protects me against the harsh realities of a free market if the government is going to basically prop it up if it drops more than 20 percent. Why would I worry about diversification or insurance? The society has been told that they will not have to take responsibility for their bad decisions anymore. Stocks as a part of Americans wealth have become too big to fail and will get bailed out in order to save people time and time again. Harry Browne envisioned a different world than the one we live in. The rules have changed.
doodle
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Re: Fed buying stocks and corporate bonds

Post by doodle » Mon Apr 06, 2020 10:56 am

If you haven't seen, I loved this line of thought regarding corporate bailouts:

https://mobile.twitter.com/keziyahl/sta ... 97?lang=en
pmward
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Re: Fed buying stocks and corporate bonds

Post by pmward » Mon Apr 06, 2020 11:07 am

doodle wrote:
Mon Apr 06, 2020 10:52 am
So in other words Yellen doesn't believe in free markets where participants actions have consequences. I think the issue with the permanent portfolio is that it is designed for a world with free markets. It makes little sense to me to have a portfolio that protects me against the harsh realities of a free market if the government is going to basically prop it up if it drops more than 20 percent. Why would I worry about diversification or insurance? The society has been told that they will not have to take responsibility for their bad decisions anymore. Stocks as a part of Americans wealth have become too big to fail and will get bailed out in order to save people time and time again. Harry Browne envisioned a different world than the one we live in. The rules have changed.
Can the Fed and congress prop the economy up through this virus? Absolutely. Matter of fact, I'm betting on it (I'm short term bearish but looking for the right time to start deploying cash to stocks). But they cannot keep doing this forever. Look at how much larger of a response they are having to do here than they had to do in 2008. We are currently doing more QE each week than we did in the entirety of QE2. There is diminishing returns. Now, we also have the fiscal levers being pulled in unison. We are officially testing MMT in real time. This fiscal response is what will wind up "saving" the economy this time. And just like QE over the last decade, fiscal will begat more fiscal in the coming years. But what else happens as the system becomes more and more levered? Volatility goes up. Look at all of the regular harsh selloffs in the last couple of years. This is likely to continue, and to increase in both frequency and intensity. Eventually the Fed and congress will paint themselves into a corner. When is that day? I have no idea, I just know it is not today. It could be a year from now it could be a decade from now (or more). When that day does inevitably come, the only safe place to be will be real hard assets. 100% stock and bond portfolios will be destroyed. It will be a day of reckoning beyond what anyone currently alive has ever seen. But markets likely can stay irrational longer than you can stay solvent. And in the meantime, people that hold a diversified portfolio AND rebalance will likely do better than those in all stock portfolios over the coming volatile years.
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Re: Fed buying stocks and corporate bonds

Post by doodle » Mon Apr 06, 2020 11:14 am

Hard assets look good until the government makes owning them illegal or imposes a 90 percent tax on their sale. We are operating under assumption that government is referee , but they are saying directly that this is not the role they are going to take.
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Re: Fed buying stocks and corporate bonds

Post by pmward » Mon Apr 06, 2020 11:18 am

doodle wrote:
Mon Apr 06, 2020 11:14 am
Hard assets look good until the government makes owning them illegal or imposes a 90 percent tax on their sale. We are operating under assumption that government is referee , but they are saying directly that this is not the role they are going to take.
Eh, I think this scenario is very unlikely. So unlikely that it is not worth considering in constructing a portfolio today. Cross that bridge if/when you come to it. By the way, there are more "hard assets" than just gold... are they going to make real estate illegal or tax it 90%? Are they going to default on their TIPS? Are they going to make owning farm land illegal and tax it 90%? Are they going to make commodity trading illegal and tax it 90%? Are they going to make owning foreign stocks illegal and tax them 90%? All of these are also ways to play it. It would be silly for them to do any of the above, just as silly as it would be for them to make owning gold illegal or taxing 90% of it.
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Re: Fed buying stocks and corporate bonds

Post by doodle » Mon Apr 06, 2020 11:25 am

They have done it before and already subject it to collectible tax instead of more favorable long term capital gains rate...if they lose control over currency to gold then of course they will do this.
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Re: Fed buying stocks and corporate bonds

Post by pmward » Mon Apr 06, 2020 11:29 am

doodle wrote:
Mon Apr 06, 2020 11:25 am
They have done it before and already subject it to collectible tax instead of more favorable long term capital gains rate...if they lose control over currency to gold then of course they will do this.
They will not do this. They do not care enough. We are on a fiat system, gold is meaningless to them (which is why they view it as a "collectable"). Congress isn't sitting around every day wondering how they can screw over people that hold gold.
doodle
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Re: Fed buying stocks and corporate bonds

Post by doodle » Mon Apr 06, 2020 11:31 am

I find it frustrating trying to be cautious and responsible in the way I have lived my life and when events unfold that should allow me to be rewarded for my prudence, the government steps in and saves those individuals who have been making riskier or perhaps reckless decisions. What incentive is there for caution?
doodle
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Re: Fed buying stocks and corporate bonds

Post by doodle » Mon Apr 06, 2020 11:33 am

pmward wrote:
Mon Apr 06, 2020 11:29 am
doodle wrote:
Mon Apr 06, 2020 11:25 am
They have done it before and already subject it to collectible tax instead of more favorable long term capital gains rate...if they lose control over currency to gold then of course they will do this.
They will not do this. They do not care enough. We are on a fiat system, gold is meaningless to them (which is why they view it as a "collectable"). Congress isn't sitting around every day wondering how they can screw over people that hold gold.
I disagree with you. If the government loses control over currency and thus power of taxation then they will absolutely do this.
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