Fed announcement

[Vil]

https://www.federalreserve.gov/newseven ... 00323b.htm

And even in Europe we got Stoxx rocketing from negative to above the zero point, starting from what is 08:00 am EDT ..

Interesting part (was not aware of it): The SMCCF will purchase in the secondary market corporate bonds issued by investment grade U.S. companies and U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds. Treasury, using the ESF, will make an equity investment in the SPV established by the Federal Reserve for this facility.

[shekels]

https://www.federalreserve.gov/newseven ... 00323b.htm

And even in Europe we got Stoxx rocketing from negative to above the zero point, starting from what is 08:00 am EDT ..

Interesting part (was not aware of it): The SMCCF will purchase in the secondary market corporate bonds issued by investment grade U.S. companies and U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds. Treasury, using the ESF, will make an equity investment in the SPV established by the Federal Reserve for this facility.

To Big to Fail.
Just a Few questions I have along with others.

Which companies will the Fed give free money to?
How much debt should be allow for each company to Have?
What if companies issue bonds for another purposes ?
Which companies will they allow to go under?
What if a company defaults on the Fed?

Also How do get in on this Grand Heist to Steal Money?
If anyone out there knows a DYI to create Corporate Bond out of thin air that the FED will purchase,
Hit me up.
Is the name PP Corporation taken yet , pool assets and let the Fed buy back all the losses.

[pmward]

https://www.federalreserve.gov/newseven ... 00323b.htm

And even in Europe we got Stoxx rocketing from negative to above the zero point, starting from what is 08:00 am EDT ..

Interesting part (was not aware of it): The SMCCF will purchase in the secondary market corporate bonds issued by investment grade U.S. companies and U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds. Treasury, using the ESF, will make an equity investment in the SPV established by the Federal Reserve for this facility.

To Big to Fail.
Just a Few questions I have along with others.

Which companies will the Fed give free money to?
How much debt should be allow for each company to Have?
What if companies issue bonds for another purposes ?
Which companies will they allow to go under?
What if a company defaults on the Fed?

Also How do get in on this Grand Heist to Steal Money?
If anyone out there knows a DYI to create Corporate Bond out of thin air that the FED will purchase,
Hit me up.
Is the name PP Corporation taken yet , pool assets and let the Fed buy back all the losses.

They are buying these bonds in the secondary market. The money is not going directly to the underlying businesses. Last week the bond market froze and broke, similar to what happened in 2008. Bonds basically went no bid. Nobody was willing to buy them. This was caused by automated systems like Risk Parity, vol targeting, etc that basically all triggered sell bond signals simultaneously and were selling relentlessly to the point that they exhausted all possible buyers. The Fed is responsible for ensuring liquidity of the treasury bond market. I am a bit shocked at the "infinite" corporate bond purchases as well. But, corporate bonds are the next potential sub-prime mortgage scenario that the Fed is trying to prevent. Do you truly understand the sheer destruction that would happen if the corporate bond market started to collapse, we had a massive BBB downgrade, and an unprecedented level of corporate defaults? This literally would turn into The Great Depression take 2. So, while it is crazy they are doing this, what other choice do they have? The Fed has a dual mandate to sustaining inflation and to keeping unemployment low. They have no other choice. And, sadly, we all are probably better off for it. The real question is what is really broken under the covers that they have to keep doing this? There's nothing wrong with performing emergency surgery when it's needed. But, if the same patient keeps needing the same surgery time and time again, it definitely signals that something is wrong that the doctors have not been able to diagnose or treat yet.

[shekels]

CC39982_hi.jpg (693.01 KiB) Viewed 4148 times

https://www.federalreserve.gov/newseven ... 00323b.htm

And even in Europe we got Stoxx rocketing from negative to above the zero point, starting from what is 08:00 am EDT ..

Interesting part (was not aware of it): The SMCCF will purchase in the secondary market corporate bonds issued by investment grade U.S. companies and U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds. Treasury, using the ESF, will make an equity investment in the SPV established by the Federal Reserve for this facility.

To Big to Fail.
Just a Few questions I have along with others.

Which companies will the Fed give free money to?
How much debt should be allow for each company to Have?
What if companies issue bonds for another purposes ?
Which companies will they allow to go under?
What if a company defaults on the Fed?

Also How do get in on this Grand Heist to Steal Money?
If anyone out there knows a DYI to create Corporate Bond out of thin air that the FED will purchase,
Hit me up.
Is the name PP Corporation taken yet , pool assets and let the Fed buy back all the losses.

They are buying these bonds in the secondary market. The money is not going directly to the underlying businesses. Last week the bond market froze and broke, similar to what happened in 2008. Bonds basically went no bid. Nobody was willing to buy them. This was caused by automated systems like Risk Parity, vol targeting, etc that basically all triggered sell bond signals simultaneously and were selling relentlessly to the point that they exhausted all possible buyers. The Fed is responsible for ensuring liquidity of the treasury bond market. I am a bit shocked at the "infinite" corporate bond purchases as well. But, corporate bonds are the next potential sub-prime mortgage scenario that the Fed is trying to prevent. Do you truly understand the sheer destruction that would happen if the corporate bond market started to collapse, we had a massive BBB downgrade, and an unprecedented level of corporate defaults? This literally would turn into The Great Depression take 2. So, while it is crazy they are doing this, what other choice do they have? The Fed has a dual mandate to sustaining inflation and to keeping unemployment low. They have no other choice. And, sadly, we all are probably all better off for it. The real question is what is really broken under the covers that they have to keep doing this? There's nothing wrong with performing emergency surgery when it's needed. But, if the same patient keeps needing the same surgery time and time again, it definitely signals that something is wrong that the doctors have not been able to diagnose or treat yet.

I agree with what you are saying is the problem.
Who or what do you think caused this problem in the first place?
The Fed and their loose Monetary Policies.
Yes a Lot of Corporate Debt is just one step from Junk.
The Fed has know this for a long time, yet it was keeping interest rates artificially low.
To Big to FAIL is now part of our Market Economy..
So tell me what is a Fair Value for Stocks and Bonds if no one is allowed to fail?

[pmward]

https://www.federalreserve.gov/newseven ... 00323b.htm

And even in Europe we got Stoxx rocketing from negative to above the zero point, starting from what is 08:00 am EDT ..

Interesting part (was not aware of it): The SMCCF will purchase in the secondary market corporate bonds issued by investment grade U.S. companies and U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds. Treasury, using the ESF, will make an equity investment in the SPV established by the Federal Reserve for this facility.

To Big to Fail.
Just a Few questions I have along with others.

Which companies will the Fed give free money to?
How much debt should be allow for each company to Have?
What if companies issue bonds for another purposes ?
Which companies will they allow to go under?
What if a company defaults on the Fed?

Also How do get in on this Grand Heist to Steal Money?
If anyone out there knows a DYI to create Corporate Bond out of thin air that the FED will purchase,
Hit me up.
Is the name PP Corporation taken yet , pool assets and let the Fed buy back all the losses.

They are buying these bonds in the secondary market. The money is not going directly to the underlying businesses. Last week the bond market froze and broke, similar to what happened in 2008. Bonds basically went no bid. Nobody was willing to buy them. This was caused by automated systems like Risk Parity, vol targeting, etc that basically all triggered sell bond signals simultaneously and were selling relentlessly to the point that they exhausted all possible buyers. The Fed is responsible for ensuring liquidity of the treasury bond market. I am a bit shocked at the "infinite" corporate bond purchases as well. But, corporate bonds are the next potential sub-prime mortgage scenario that the Fed is trying to prevent. Do you truly understand the sheer destruction that would happen if the corporate bond market started to collapse, we had a massive BBB downgrade, and an unprecedented level of corporate defaults? This literally would turn into The Great Depression take 2. So, while it is crazy they are doing this, what other choice do they have? The Fed has a dual mandate to sustaining inflation and to keeping unemployment low. They have no other choice. And, sadly, we all are probably all better off for it. The real question is what is really broken under the covers that they have to keep doing this? There's nothing wrong with performing emergency surgery when it's needed. But, if the same patient keeps needing the same surgery time and time again, it definitely signals that something is wrong that the doctors have not been able to diagnose or treat yet.

I agree with what you are saying is the problem.
Who or what do you think caused this problem in the first place?
The Fed and their loose Monetary Policies.
Yes a Lot of Corporate Debt is just one step from Junk.
The Fed has know this for a long time, yet it was keeping interest rates artificially low.
To Big to FAIL is now part of our Market Economy..
So tell me what is a Fair Value for Stocks and Bonds if no one is allowed to fail?

Do keep in mind that for the last few years the Fed has been holding interest rates UP not down. The market has been dragging them lower by relentlessly buying bonds. The Fed has followed the market begrudgingly, not the other way around. The Fed were the ones that wanted to bring rates back up to 5% just a little over a year ago. Don't forget this. The problem is liquidity is tight. Money supply is still too constrained. There are not enough dollars in existence right now to adequately feed the U.S. economy, all global trade, bank reserves (domestic and foreign), and investment demand. If there were adequate cash available, we wouldn't keep getting into these massive liquidity squeezes. The problem is not loose monetary policy, the problem is TIGHT monetary policy. All things are relative. Tight and loose can only be judged based upon demand. When there is not enough money supply to satisfy demand, monetary policy is tight. Monetary policy can only be loose when there is excess money supply above demand. These regularly occurring liquidity squeezes (2020, 2018, 2016, 2011, 2008) are proof that policy is tight relative to demand and has been for years. The Fed is playing catch up to demand right now with their policies. The Fed is following the market, not the other way around. The fact that they are behind the curve is the reason they are having to be so extreme in this crisis.

[pmward]

Also, what happens when policy is too "tight", and the demand for dollars outstrips money supply? Debt has to increase to make up for the gap. Debt is money after all. The Fed buying the debt in the secondary markets now is essentially providing the dollars that were needed and not in existence in the past.

[Vil]

pmward, that's a nice and well thought comment on what has been happening.

Developed markets ex-US bonds suffer a lot, too. Actually ECB announced some vague plans (later this year ) for bond buying programs (750 bn EUR or so), too, but let'see. They mentioned corporate debts, as well, but no further details.

[shekels]

Also, what happens when policy is too "tight", and the demand for dollars outstrips money supply? Debt has to increase to make up for the gap. Debt is money after all. The Fed buying the debt in the secondary markets now is essentially providing the dollars that were needed and not in existence in the past.

I was not saying that the FED had to tight money supply.
What I am saying is the Fed has a obligation to allow some Corporation/Hedge Funds to fail.
Clear out the Dead Wood so to speak.

[shekels]

Do keep in mind that for the last few years the Fed has been holding interest rates UP not down. The market has been dragging them lower by relentlessly buying bonds. The Fed has followed the market begrudgingly, not the other way around. The Fed were the ones that wanted to bring rates back up to 5% just a little over a year ago. Don't forget this. The problem is liquidity is tight. Money supply is still too constrained. There are not enough dollars in existence right now to adequately feed the U.S. economy, all global trade, bank reserves (domestic and foreign), and investment demand. If there were adequate cash available, we wouldn't keep getting into these massive liquidity squeezes. The problem is not loose monetary policy, the problem is TIGHT monetary policy. All things are relative. Tight and loose can only be judged based upon demand. When there is not enough money supply to satisfy demand, monetary policy is tight. Monetary policy can only be loose when there is excess money supply above demand. These regularly occurring liquidity squeezes (2020, 2018, 2016, 2011, 2008) are proof that policy is tight relative to demand and has been for years. The Fed is playing catch up to demand right now with their policies. The Fed is following the market, not the other way around. The fact that they are behind the curve is the reason they are having to be so extreme in this crisis.

I agree we have Dollar Shortage issue, that the tail is waging the dog on this mess also.
So when was the approval given for the FED to be the Central Bank of the World, granted they may be the de facto Central Bank?
WE KEEP getting into these messes for a reason.
If a Hedge Fund or Zombie Company can keep getting Bailed out, then we will keep having these issues.
The Punch bowl was not taken away soon enough.
They are behind the curve from their own doing.
To me it just boils down to short term pain, long term gain (not knowing how short or long term)
or just kick the can down the road like we have for the last dozen years.

Edit
Let me add this about your question "These regularly occurring liquidity squeezes (2020, 2018, 2016, 2011, 2008) are proof that policy is tight relative to demand and has been for years."
If Corp/Hedge fund/Zombies were allowed to FAIL along the way. Would there be as big on a need for Liquidity today?

[pmward]

Also, what happens when policy is too "tight", and the demand for dollars outstrips money supply? Debt has to increase to make up for the gap. Debt is money after all. The Fed buying the debt in the secondary markets now is essentially providing the dollars that were needed and not in existence in the past.

I was not saying that the FED had to tight money supply.
What I am saying is the Fed has a obligation to allow some Corporation/Hedge Funds to fail.
Clear out the Dead Wood so to speak.

The Fed has no obligation to corporations or hedge funds. But the Fed does need to clean up the mess they created. This is what they are doing by providing liquidity. Liquidity can be provided in many forms. We are seeing them go about this in multiple ways, and the government is also providing Fiscal to help support the efforts.

One other thing I want to point out. The markets have been telling us the problem the whole time, as they always do. Have we all been paying attention? Have we been allowing our own subjective opinions or devotion to outdated economic models to blind us to the reality of what is really going on?

We have had liquidity events in 2008, 2011, 2016, 2018, and now 2020. What causes liquidity events? Tight money. What fixes liquidity events? Loose money.

We had a deflation in 2008, and another deflation in 2020. What causes deflation? Tight money. What fixes Deflation? Loose money.

Inflation has been befuddlingly low for a decade+ now. What causes low inflation? Tight money. What fixes low inflation? Loose money.

We have had a yield curve inversion going on for over a year now. What causes a yield curve inversion? Tight money. What fixes a yield curve inversion? Loose money.

Markets have been bidding bond yields lower than Fed funds rate. What causes low yields? Tight money? What fixes low yields? Loose money.

The USD keeps marching higher and higher. What causes a strong dollar? Tight money. What fixes a strong dollar? Loose money.

I could keep going here. The signs have all been there for years now. And Vil is correct that the issue isn't just a US only issue, it is a global issue right now. The good news is global central banks are waking up and providing liquidity, and global governments are waking up and finally unleashing the fiscal belts. This is what is needed to finally put this 12 year deflationary spiral behind us. The tricky part? Navigating this in a way that provides just the right amount of liquidity to the economy without going too far and creating the opposite problem, inflation.

[pmward]

I agree we have Dollar Shortage issue, that the tail is waging the dog on this mess also.
So when was the approval given for the FED to be the Central Bank of the World, granted they may be the de facto Central Bank?
WE KEEP getting into these messes for a reason.
If a Hedge Fund or Zombie Company can keep getting Bailed out, then we will keep having these issues.
The Punch bowl was not taken away soon enough.
They are behind the curve from their own doing.
To me it just boils down to short term pain, long term gain (not knowing how short or long term)
or just kick the can down the road like we have for the last dozen years.

Edit
Let me add this about your question "These regularly occurring liquidity squeezes (2020, 2018, 2016, 2011, 2008) are proof that policy is tight relative to demand and has been for years."
If Corp/Hedge fund/Zombies were allowed to FAIL along the way. Would there be as big on a need for Liquidity today?

The Fed became the central bank of the world in Bretton Woods. As long as we are the currency used for global trade, as well as the global reserve currency, we will inexorably be tied to global dollar demand.

Letting zombie companies fail alone wouldn't fix this issue. It goes way beyond that. It is also beyond short term vs long term pain. The pain your describing, pulling the punch bowl away and letting the system freeze, is the kind of pain that would literally collapse the entire global economy, and most governments (possibly even the U.S. government). It would send the entire world into poverty and suffering. What you're saying sounds good on paper, but trust me you would not want to live through it...

[shekels]

I agree we have Dollar Shortage issue, that the tail is waging the dog on this mess also.
So when was the approval given for the FED to be the Central Bank of the World, granted they may be the de facto Central Bank?
WE KEEP getting into these messes for a reason.
If a Hedge Fund or Zombie Company can keep getting Bailed out, then we will keep having these issues.
The Punch bowl was not taken away soon enough.
They are behind the curve from their own doing.
To me it just boils down to short term pain, long term gain (not knowing how short or long term)
or just kick the can down the road like we have for the last dozen years.

Edit
Let me add this about your question "These regularly occurring liquidity squeezes (2020, 2018, 2016, 2011, 2008) are proof that policy is tight relative to demand and has been for years."
If Corp/Hedge fund/Zombies were allowed to FAIL along the way. Would there be as big on a need for Liquidity today?

The Fed became the central bank of the world in Bretton Woods. As long as we are the currency used for global trade, as well as the global reserve currency, we will inexorably be tied to global dollar demand.

Letting zombie companies fail alone wouldn't fix this issue. It goes way beyond that. It is also beyond short term vs long term pain. The pain your describing, pulling the punch bowl away and letting the system freeze, is the kind of pain that would literally collapse the entire global economy, and most governments (possibly even the U.S. government). It would send the entire world into poverty and suffering. What you're saying sounds good on paper, but trust me you would not want to live through it...

The Punch bowl should have been pulled years ago.
I am not saying the Fed should Grow a Pair NOW.
After the Bank Fiasco would have counted if they actually had a pair. Before the fiasco would have been better but hindsight is 20/20.

So whats the message?
Bail out America and train Corp/ Hedge Funds that To Big to fail is Great.
Do whatever you can to keep The stock market always goes up.
The Fed has got your back.

Well then tell me a solution that will keep this from happening again and again.

By the way is this about dividends?

[Maddy]

CLAW IT BACK.

Is there any reason why the fiduciaries who made wildly irresponsible bets, and who profited handsomely during all of the last decade, shouldn't be required to disgorge their ill-gotten gains?

[pmward]

The Punch bowl should have been pulled years ago.
I am not saying the Fed should Grow a Pair NOW.
After the Bank Fiasco would have counted if they actually had a pair. Before the fiasco would have been better but hindsight is 20/20.

So whats the message?
Bail out America and train Corp/ Hedge Funds that To Big to fail is Great.
Do whatever you can to keep The stock market always goes up.
The Fed has got your back.

Well then tell me a solution that will keep this from happening again and again.

By the way is this about dividends?

I have said nothing about corporations or hedge funds. You keep injecting that in here. I have specifically said there are numerous ways that liquidity can be provided. Hell, it could go full on fiscal and completely go to the people. That would be fine. As long as liquidity is supplied. And once again, the punch bowl could not have been taken away before. We have been in tight money for 12 years now. There really is no punch bowl when liquidity is tight. It's a drought that we have been in for over a decade now. At what point would tightening tight money have been a good idea? Want to know how that would have turned out? They already tried that in 2018 and it failed miserably. The solution is globally coordinated monetary and fiscal stimulus, which is the exact path we are starting down. I agree with you, I would rather the money not go to bailing out zombie companies and funds that blew themselves up. I expect a lot of those companies/funds you're mentioning to go under during this crisis. I expect that you'll see more stimulus aimed at households and small businesses this time around.

[Maddy]

In the big picture, what does this mean for the future of the Permanent Portfolio? I'm not just talking about inflation; I'm talking about a market that is now 100% rigged. Is it rational to continue to place faith in the inverse correlations that underlie the PP philosophy?

[pmward]

In the big picture, what does this mean for the future of the Permanent Portfolio? I'm not just talking about inflation; I'm talking about a market that is now 100% rigged. Is it rational to continue to place faith in the inverse correlations that underlie the PP philosophy?

The markets are not rigged. They are working exactly as they should. They are exposing the liquidity tightness that is present. It's been the Fed that has been trying thus far to fight this by not loosening enough to let the markets get back to equilibrium. Homeostasis has not been reached in the money supply since before the GFC. All the liquidity issues going on are not directly caused by the virus, they were there before. It's just that in times of crisis the bottlenecks in the system become magnified. Nothing that is going on will effect the effectiveness of the PP. They can only do 1 of 3 things.

1) Keep undershooting the liquidity requirements, in which case we keep going through these liquidity squeezes every 2-3 years as we have like clockwork since 08. At which point, the PP will continue on just like it has the last 12 years. Bond yields eventually go negative, and 30 year treasuries continue to be both scary, and save our hides when the *&$! hits the fan.

2) They provide just enough liquidity. This places grease in the creaky gears of both the financial markets and the economy and we finally get the true recovery that we have not yet gotten from 08 (S&P 500 corporate profits in aggregate peaked in 2012... 8 years ago). In this case we finally return to true prosperity, and the PP will be carried by stocks, as it should be in prosperity (gold would likely do well coming out of this as well).

3) They open the liquidity fire hydrant until they don't just snuff out the deflationary flame, but they supply liquidity way over and above demand. At which case, inflation finally comes back. In this case, your gold and cash would work as it should in inflation, and if growth accompanies the inflation stocks would perform well also (if growth does not accompany inflation, it would just be a repeat of 70s stagflation).

So either way, the PP is fine.

[Maddy]

Thanks for your very thoughtful reply, pm.