In watching the central banks throw everything at these “markets” it is obvious that they are fighting the last war. The last time there was a solvency problem that they solved with liquidity. (They conjured up trillions of dollars, yen, euros, etc. and more than doubled national debts and other debts to pretend individuals, companies, cities, states and nations were actually solvent when, without the faux “money” they would be unable to pay the bills).
There was too much debt so with lower rates the debt was easier to be carried. Of course, by lowering the rates the central banks had to buy the bonds to create demand that didn’t actually exist to push rates ever lower.
Some central banks (I believe ALL but most won’t admit it) actually buy stocks directly, Prior to last week The Bank of Japan owned 70% of all Japanese ETFs. That was before putting a billion dollars directly into ETFs just last week in one day. They also own 70% of all Japanese government debt and have bought all issues in the last 3 years. I guess nobody else likes to buy assets that don’t pay them to own them.
In googling Bank of Japan Stock Buys I noticed that the Japanese Central bank was a top-10 shareholder in 40% of all the Nikkei stock index in June of 2018. In April of 2019 they were a top-10 shareholder in 50% of the Nikkei index and now …70%!
The balance sheet for the Japanese Central bank is, as of March 12, 2020 -get this! 588,770,017,991,000 yen. That is 588 TRILLION, SEVEN HUNDRED SEVENTY BILLION 17 MILLION Nine Hundred ninety one thousand. And they keep saying if they do “more” it will work.
Their population has endured 30 years of hardship under these misguided actions. There have been zero interest rates for years, the Nikkei was over 39,000 in 1989 and today sits at less than 17,000. Again- WHERE IS THE PROOF That FAKE MONEY BUYING ASSETS WORKS? Except for those conjuring up the faux cash and buying real assets. I guess the other central banks Are trying to catch up quickly!
So why are the “markets” not reacting to all of this stimulus? As I said, the numbers have to keep growing or the “markets” could collapse. With the injections of “cash” daily by the Fed and other central banks it would appear that just from the Fed having a trillion dollars per day available should do the trick-no?
Well, the Fed is making a trillion dollars a day available. Yesterday, according to the NY Fed website even though a trillion was made available there were 3 repo operations of 46 BILLION, 142.65 BILLION and 10.1 BILLION. That is 198 BILLION and that is a massive amount of intervention BUT it is not enough.
Today, the first operation was $85.795 BILLION- again a HUGE number BUT- it’s really not enough as the markets are falling hard again.
My guess is that with all of the fake “money” printed in the past 10 years to keep the illusion of solvency alive the time has come when a finite world with finite assets have reached the limit where there are not enough assets to act as collateral to back the fiat currencies that have no real value on their own.
Just two days ago there was a trillion available and “only” 39 BILLION was requested as the markets declined at a record amount (DOW down 3000 points in one day). It appears that faux cash could have been used that day BUT my guess is that the banks did not have the collateral to collect the faux cash. This should be deeply disturbing to all of us who are spoonfed daily that the banks are well capitalized while they are taking trillions of dollars at the Fed’s trough. (Over 8 TRILLION since September according to Wall Street on Parade).
Just last week Jamie Dimon of JP Morgan discussed using the Fed’s discount window which generally means that a bank is in need of emergency funding. I guess the idea that the Fed will bail out the banks again means they are “well capitalized”.
The (all) fiat currencies are currently conjured up out of nowhere at virtually no cost so the only real value is the issuers ability to tax we, the peons. This new regime doesn’t even print actual cash. The new currencies conjured up are no more than a computer blip on a screen until a stock, bond or other asset is either bought or sold with it.
If this information doesn’t make one wonder if having some physical assets is a good idea there is nothing much more I can say. The US dollar will likely come under tremendous pressure as the spigots are opened with dollar liquidity to undo the lack of capital and liquidity in the markets. These astronomical numbers are still not anywhere near where they may have to go to stem this tide.
My guess is that as this takes place the value of our currency will fall, all hard assets will rise (mostly the stuff we need to live) driving up our cost of living at a time when the economy is imploding before our eyes.
Just this morning Steve Mnuchin (Treasury Secretary) said unemployment could rise to 20%. Too bad he is delusional. The unemployment rate was ALREADY above 20% for years now if they reported the unemployment rate the way the did in the 1980s. (John Williams Shadow Government Statistics). Already, the Labor participation rate was LESS than during the last financial crisis in 2009! (BLS)
So, what he should really be saying is that the unemployment rate could reach 35-40%.
The answer- conjure up some faux cash and send it out! This and reported bailouts for companies and industries could lead to a deficit far above $2 trillion just in fiscal 2020. This does not include the trillions in bailouts for the banks, the off-balance sheet items, etc.
Personally, I believe holding assets that will hopefully protect us from a falling dollar makes a lot of sense at a time like this.
After this passes, (as all things do) I expect to have purchasing power and I expect that there will be many stellar companies on sale.
For those who have not known me for more than 10 years virtually all believe I am a perma-bear. I am not. It’s just that the valuations of most companies have made NO sense for about that long. Times are changing. When this correction takes its course I believe that stocks and real estate will likely be screaming buys again. The key here is patience because unless the central banks come up with a new plan there is plenty of downside left in these “markets” in my opinion.
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