What Will Be the Unintended Consequences of Printing Trillions of Dollars to Backstop the Entire System?
Stocks are up somewhat this morning.
This marks the second Monday stocks will open in the green (last Monday was a green open as well) following two horrifically bad weekend sessions that saw stocks open limit down or close to limit down (March 2nd and 9th).
In the simplest of terms, the panic in the markets appears to be abating. It is clear stocks have broken the downtrend from the panic (blue lines). What is not clear is whether this rally will continue or not.
Stocks stalled out under resistance (red line) last week. A break above that line would open the door to a run to 3,000.
At the end of the day, stocks are actually a minor player in this mess. The BIG story is what happens with the bond markets.
Going into last week, it was clear the financial system was facing a debt crisis. Across the board everything from corporate bonds to municipal bonds were breaking down in a catastrophic fashion.
The Fed managed to stop this massacre by announcing it would backstop everything.
The question now is whether that will be enough. Bonds have staged a major bounce in the last five days, but what happens if they turn down again?
Will the Fed’s announcement that it intends to buy corporate bonds be enough to stop the $10 trillion corporate bond bubble from imploding?
What about the $16-$19 trillion commercial real estate market? Will the shutdown, which has closed so many restaurants and retailers, result in a crisis in this market as businesses begin skipping monthly payments or breaking contracts outright?
And what about the $23 trillion U.S. treasury bubble? Will the $2 trillion in stimulus, which both the President and the Democrats have suggested will be the first of several, be what finally pushes the U.S.’s debt loads into a crisis?
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