Just as I was wondering what to write about this week I just got an alert on my phone that the Fed is now raising the overnight repo- for the second time this week to $175 BILLION PER DAY. So far, the 2 week loans are staying at $45 billion twice a week and the $60 billion in treasury purchases have not been raised- YET.
The writing appears to be on the wall. Tons of “printing and buying” along with jawboning and promises of fiscal stimulus have had the effect of keeping markets opened and that is about it. I believe that without these massive interventions (along with massive interventions by all the other central banks also) these markets would likely be no-bid. (No willing buyers).
The hubris shown by central banks and the governments that allow their shenanigans is on full display. All of the promises of being able to fix the problems of the world by conjuring up money out of nowhere are now exposed. Fake money can’t cure a virus. It can’t produce one morsel of food or a unit of energy. It simply enriches a few at the top who buy real assets with virtually NOTHING. Leaving less and less for those down on the food chain. That would be me and you.
There is not only this repo scam that is going on but ongoing talks about bailing out industries yet again- just like in 2008-2009. Travel, oil and healthcare are all being talked about for bailouts- of course the banks are in full bailout mode already with over $7 Trillion doled out since September 2019 and the pace is getting faster all the time. It appears that you and I will be on the hook again this time- likely in the tens to hundreds of trillions to bail out the billionaire bankers and CEOs again. (I call the REPO a scam because the loans are supposed to be repaid in 24 hours but there is no evidence that is happening on the Federal Reserve website)
Congratulations! We learned NOTHING from the last crisis- which was only 12 years ago!
Stimulus measures will likely be useless in this crisis because the supply chains are disrupted, many events that lead to tremendous spending are being outright cancelled or- as in the case of the Golden State Warriors of the NBA- are playing games in an empty arena tonight because of a ban of gatherings in San Francisco. Look for this to expand. This is a tremendous hit on the economy. No crowd means no concessions. It means no bars or restaurants before or after the event. It means no mass transit riders, no LYFT or Uber rides, etc. This is a big deal and is set to expand- possibly nationwide in the next few weeks.
What good is a payroll tax cut if people are not working? What benefit will a rate cut deliver when the 10 year note is below 1%, the 30 year note is between 1-1.5% and the rest of the treasury yields are less than 1%? It appears the market has beaten the Fed to the punch.
This is likely why the Fed is floating out the idea that they need to buy corporate bonds like the ECB and stocks like the Bank Of Japan. My belief is that they are likely doing both already and not admitting it just like there is no admission of the $21 trillion that Dr. Mark Skidmore of Michigan State University and a group of Phd students found missing from the Department of Defense and HUD from 2000-2015.
Like I wrote last week when the banks got the “money” they asked for last week the markets rose. When they requested FAR more than the Fed provided the markets collapsed- even with up to $100 BILLION per day going in! The days they asked for far more saw the markets crater. This says to me that this illusion is only being kept alive by faux “money” purchasing assets to prevent a collapse in stock, bond and real estate values. It also allows them the ammo to keep gold and silver down. On the days that there was not enough “funding” gold had its largest up days then also.
If you are looking to buy low and sell high I would suggest buying the assets being suppressed rather than those being artificially elevated because when this ends the market will determine real value- not fake value. As I’ve said in the past most will be stunned when this takes place.
In a world without interventions would Greek bonds be 0%- even though they were 40% just a few years ago? Would the other Euro nations or even the USA have rates this low without massive central bank buying? Would negative rates exist at all without entities buying these bonds with “money” that has been produced with little effort and virtually no cost so the don’t care about losses? Just ask yourself if you would personally buy an asset that would pay you back less in a few years than you are putting in right now. That does NOT even include the inflation that would likely take place in the meantime.
It is truly sad that we are being bankrupted as a nation and so few have any idea what is happening right before our eyes. Too bad not many are paying attention.
Anyone reading this should not be surprised by any of this. The only surprise to me is how long they kept this illusion going so far. It appears to me that we are near the end of this scheme and we are likely to have some tough times ahead before we get a real recovery that is sustainable- not the fake recovery of the past 12 years which is nothing but a monster debt bubble blown to disguise the real state of our economy and finances. This debt is now coming due at a time when foreigners no longer want to purchase our debt, the global economy is slowing (has been for 18 months), demand is weakening, profits are falling and debts are being downgraded.
The Coronavirus is being blamed for this and I am sure has hastened our demise but it is merely the pin that appears to have exposed what candidate Trump called “a big, fat, ugly bubble” that he recognized then but has fully embraced since he entered the White House. I wrote years ago that taking credit for the economy was a BIG mistake. As a matter of fact, I agree with Peter Schiff. Nobody should be taking credit for this economy- they should be laying the blame.
The only things growing exponentially are the Coronavirus and our debts.
What could go wrong?
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