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The Fed Just Picked the “Big Guys” (Again) Over Individuals
The Fed Just Picked the “Big Guys” (Again) Over Individuals
In a recent disclosure to Congress, the Fed revealed that it just purchased $429 million in bonds from 86 corporations.
They did this through something called a Secondary Market Corporate Credit Facility (SMCCF). Buried on the Fed’s website, the press release explains the intention behind this purchase of bonds:
The SMCCF will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds. This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity, and other criteria.
According to Agora’s 5-Minute Forecast, the Fed also plans to purchase an additional $320 million of corporate bonds in the near future.
If you read the bolded phrase above from the Fed’s press release, you might think they intend to use this as an opportunity to help the “little guy” weather the recent economic storm.
But the “broad, diversified market index” that the Fed claims it’s rescuing doesn’t appear that broad… or that diversified.
The list includes giants like AT&T, Walgreens, Microsoft, Pfizer, Apple, Walmart, Comcast, Ford, Boeing, Cisco and Visa.
It goes without saying that these behemoths can weather out the storm while the smaller corporations struggle and lay off employees.
Fed Doing Its Best to Make Sure the “Big Guys” Keep Winning
The same edition of Agora’s 5-Minute Forecast sums up another example of a confused Fed:
The fact the Fed is buying corporate bonds at all signals favoritism toward big existing players — indebted lumbering behemoths that can’t innovate. It’s not as if the Fed is going to take the largesse it creates from thin air and spread it around to a plucky but capital-starved startup, right?
…click on the above link to read the rest of the article…
Big Banks Win, You Lose (Volume 32,836)
Big Banks Win, You Lose (Volume 32,836)
Part of the 2010 Dodd-Frank Act, the “Volcker Rule” was intended to prevent big banks from taking irresponsible risks.
It’s named after a former Fed Chair, the late Paul Volcker, who used this concept to curb out-of-control inflation in the 1980s.
But in spite of an already-uncertain economy, regulators are now proposing to ease these rules. According to CNBC:
The Volcker Rule was designed to prevent banks from acting like hedge funds. The general principle is that they are allowed to facilitate trades for clients, but not allowed to strap on risk for big proprietary bets.
The amount of risk a big bank can take on is about to change, thanks to the easing of these regulations.
The same CNBC article points out: “The change, which was floated earlier this year, will allow banks to invest more of their own capital in venture capital funds that invest in start-ups and small businesses alongside clients.”
So basically, the money you deposit into your bank account can be used by your bank for riskier investments that have greater potential of backfiring.
According to a ThinkAdvisor article, one of the reasons these changes were proposed in the first place was the difficulty in deciding which investments did or did not pass the Volcker Rule:
FDIC Chairwoman Jelena McWilliams argued when the final changes passed that simplifying the post-crisis Volcker Rule, ushered in by the Dodd-Frank Act in 2010, was needed, as Volcker has been “the most challenging to implement” for regulators and the industry. “Distinguishing between what qualifies as proprietary trading and what does not has proven to be extremely difficult,” she said.
Now that the changes are finalized, an estimated $40 billion could be freed up. It gives the impression of a “backdoor bank bailout” being given to banks, which were feeling financial pressure thanks to COVID-19 lockdowns.
…click on the above link to read the rest of the article…
How Surging Bank Deposits May Collapse the U.S. Dollar
How Surging Bank Deposits May Collapse the U.S. Dollar
In another episode of “Strange 2020”, banks have become flush with deposits. But not in the way you might expect.
According to CNBC, “A record $2 trillion surge in cash has hit the deposit accounts of U.S. banks since the coronavirus first struck the U.S. in January.”
In one month, deposits grew by $865 billion, which beat the record for an entire year.
You can see the incredible jump in deposits in the official chart below, starting as the pandemic hit earlier this year:
When you see such a large deviation from the norm, you don’t have to have a degree in economics to suspect something is fishy. According to CNBC, the Fed appears to be partly responsible for this anomaly:
The Federal Reserve began a barrage of efforts to support financial markets, including an unlimited bond-buying program. And an uncertain future prompted decision-makers, from two-person households to global corporations, to hoard cash.
Fox Business notes, “About two-thirds of the [$2 trillion in deposits] flowed to the nation’s biggest banks.” So if $1.34 trillion in deposits flowed from retail, asset managers, government programs like the Paycheck Protection Program, and big company lines of credit over the last five months or so, and only to big banks… that should raise suspicion.
But that much cash flowing into big banks has another potentially big consequence…
Crash of the U.S. Dollar Could Be “Inevitable”
The U.S. dollar may be headed for trouble in the near future, and the CNBC piece finishes with one possible reason why:
A lot of banks are saying, “There’s frankly not much we can do with it right now”… They have more deposits than they know what to do with.
If banks have trillions of dollars, but there isn’t anywhere for that money to go, that has a number of potential outcomes.
…click on the above link to read the rest of the article…
Big Banks Report Their Ultra-Wealthy Clients Are Rushing Into Gold
Big Banks Report Their Ultra-Wealthy Clients Are Rushing Into Gold
This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: The ultra-wealthy aren’t sold on the stock market recovery, Powell’s dovishness boosts gold prices, and Goldman rolls out yet another optimistic forecast for gold.
Big banks are moving their clients’ assets into gold as the stock market soars
Reuters recently spoke to representatives of nine big banks, which manage around $6 trillion of wealth for the world’s ultra-rich. And, in stark contrast to the action in the stock market, gold appears to be the asset of choice for both money managers and the clients themselves.
Of the banks that provided a forecast for gold prices, all four are calling for higher prices by the end of the year. Additionally, all nine have recommended and adjusted to a portfolio allocation of up to 10%. The respondents cited gold’s ability to shield investors against both inflation and deflation, as well as a variety of other downturns, as the main reason for rebalancing. As Lisa Shalett, Chief Investment Officer of Wealth Management at Morgan Stanley noted, the bank’s clients hardly needed convincing, sharing that Morgan Stanley’s wealthy clients, with decades of experience in investment, were particularly keen to hedge their bets with gold.
Representatives of UBS, Wells Fargo Investment Institute and JPMorgan Private Bank’s United Kingdom and Ireland branch likewise stated that client interest in the metal has increased exponentially over the past few months. Andre Portelli, co-head of investments at Barclays Private Bank, pointed out that the supply glut caused by the pandemic made his bank’s clients favor bullion over other options.
In terms of forecasts, JPMorgan’s Oliver Gregson sees $1,750 as a likely target for gold by the end of the year. UBS is slightly more bullish on the metal with a year-end target of $1,800, adding that a return of coronavirus-related issues could bring the metal to $2,000.
…click on the above link to read the rest of the article…
U.S. Debt Has No Meaning Anymore (Until It Eventually Does)
U.S. Debt Has No Meaning Anymore (Until It Eventually Does)
Photo by Wikimedia.org | CC BY | Photoshopped
The national debt currently looks like a runaway freight train. Not only is it clocking in at $26.1 trillion at the moment, but it has made the jump of the last few trillion dollars fast.
Really fast.
Wolf Richter summarizes the frenzied ascent in a recent article, appropriately calling it “debt out the wazoo”:
Trillions are now whooshing by at a breath-taking pace. The US gross national debt – the total of all Treasury securities outstanding – jumped by $1 trillion over the past five weeks, from May 4 through June 8, and by $2.5 trillion for the 11 weeks since March 23.
The debt, which had been growing by as much as $1 trillion per year since 2012, suddenly increased 2.5 times as much in a span of only 11 weeks. (See graph below for the spike.)
This dramatic increase comes along with a 5% increase in business debt and a staggering 29% increase in commercial loan debt – but we’ll set that aside for another article.
When you stop and think about how much of an anchor that $26 trillion in debt could represent for the U.S. economy if anything more goes sideways, it’s mind-boggling.
Byron King from Agora Financial sums up the state of the insanity…
“That $26 Trillion of Debt is Utterly Unpayable”
When the average person incurs debt, they pay the debt back plus a certain rate of interest.
Byron King thinks the U.S. is at the point “where even paying interest will be problematic.” Assuming this is true, at minimum, the U.S. could get stuck in a perpetual state of paying just the interest on its mountain of debt.
…click on the above link to read the rest of the article…
“Trash Stock” Speculation Signals Dangerous Trend
“Trash Stock” Speculation Signals Dangerous Trend
Last year’s yield curve inversion and repo market troubles are both longer term signals for the end of a market cycle.
While not perfect, we can add an increase in “trash stock” speculation as another potential signal for the peak of the market cycle.
That signal may have arrived, according to ZeroHedge:
In nearly every market cycle, speculation in low-quality, virtually valueless and literally bankrupt stocks, marks a market top.
This brings into question the Dow’s recovery that began in late March, which has humbled Stanley Druckenmiller:
That Fed stimulus, combined with investor excitement about the gradual reopening of U.S. business, is leading to broad outperformance among those stocks hit the hardest in March… He added that the technical momentum the market has right now, what he called “breadth thrust,” could carry equities even higher.
The Fed stimulus pumped trillions into the markets. Investor excitement can inflate stock prices. Reopening businesses can spark more optimism.
However, if Doug Kass at Seabreeze Partners is correct, he may be seeing through the hubris. In a recent piece, he directed attention toward another fact:
If you look carefully at the Nasdaq… you would be surprised to see how many stocks have underperformed – as a handful of large stocks coupled with a group of speculative (but valueless) equities have been carrying the weight of the Average.
It’s those “trash stocks” that have the potential to take the wind out of the market recovery and the overall cycle. And this wouldn’t be the first time this has happened.
The 1999-2002 “dot-com boom” is the most recent such instance, filled with examples of overvalued “trash stocks” that eventually left investors hanging.
Which leads us to today…
Those Who Fail to Learn From History Are Doomed to Repeat It
…click on the above link to read the rest of the article…
The Fed Needs Your Help
The Fed Needs Your Help
It’s hard work keeping an asset bubble inflated. This is the biggest one in human history. The Fed needs your help. And you’re not doing your part.
For starters, you can’t go hoarding cash every time you get worried. The Fed tried to make this clear by pulling large bills from circulation.
$10,000, $5,000, $1,000 and $500 bills went out of circulation in 1969. The $100 bill is the largest denomination today. Those are for foreigners.
The Fed estimates 80% of $100 bills are overseas. 60% of all bills are overseas. It wants foreigners to hold savings in dollars, not you.
Granted, most of you are cooperative. Branding cash as only something a criminal would need mostly did the trick. The average young person has $10 in their pocket and keeps the rest on plastic. That’s easier to control.
Hoarding cash in a savings account keeps it in the banking system. That used to be good. Now it’s a problem.
Every time there’s a crisis, you can’t go stuffing cash into the bank. That takes it out of the money system. This asset bubble can’t shrink. The walls start shaking. Things fall apart quickly.
According to Bloomberg Professional Terminal, through May this year, there have been 99 major bankruptcies. That’s in line with the average annual level of bankruptcies and we’re only five months into the year. It puts the U.S. system on track to top the number of bankruptcies in 2008.
Airlines, cruise ships, rental car companies, department stores… they’re levered to the hilt. If spending slows, they’re doomed. The system can’t handle defaults. They’ll expose the true value of assets. That blows up the whole thing.
…click on the above link to read the rest of the article…
As Economies Reopen, the USD Faces this Triple Threat
As Economies Reopen, the USD Faces this Triple Threat
The U.S. dollar’s status as the global reserve currency has been under attack for many years. But today, these attacks seem to be expanding and intensifying. Let’s look at three recent developments.
Big Bank Bets Against the Dollar
Now that most state economies have at least started to reopen, Goldman Sachs is betting against the dollar, according to a recent CNBC article:
In a note over the weekend, Goldman strategists said that while they had maintained that it was too early to look for “outright and sustained Dollar downside given the balance of cyclical risks,” shorts on the dollar now looked attractive in certain currency crosses.
The article continued by explaining precisely what “short selling” the dollar means:
Short selling a currency involves borrowing that currency, selling it at the current market price and then waiting for the price to fall in order to buy the currency back at a lower price and return the loan.
Specifically, Goldman is betting on the Norwegian krone to outperform the dollar, and thinks the krone is well positioned to do just that.
Recent performance of the dollar (DXY) could be revealing that Goldman Sachs is off to a good start with their bet:
As you can see at the far right of the chart, the dollar’s value is dropping close to levels not seen since early 2018. It’s also severely under the moving average.
Meanwhile, the krone is still above the moving average, and doesn’t appear nearly as “flat” as the dollar.
But the krone is not the only challenge to the dollar’s hegemony; changes to China’s currency represents another one.
4-Letter Potential “Nightmare” for the U.S. Dollar
Right now, the main currency in China is the yuan.
…click on the above link to read the rest of the article…
The Fed Just Got the Perfect Cover for the Collapse of the U.S. Economy
The Fed Just Got the Perfect Cover for the Collapse of the U.S. Economy
The scapegoating has already started. In almost every sector of the economy that is collapsing, the claim is that “everything was fine until the pandemic happened”. From tumbling web news platforms to small businesses to major corporations, the coronavirus outbreak and the subsequent national riots will become the excuse for failure. The establishment will try to rewrite history and many people will go along with it because the truth makes them look bad.
And what is the truth? The truth is that the U.S. economy – and in some ways, the global economy – was already collapsing. The system’s dependency on ultra-low interest rates and central bank stimulus created perhaps the largest debt bubble in history – the Everything Bubble. And that bubble began imploding at the end of 2018, triggered primarily by the Federal Reserve raising rates and dumping its balance sheet into economic weakness, just like it did at the start of the Great Depression. Fed Chair Jerome Powell knew what would happen if this policy was initiated; he even warned about it in the minutes of the October 2012 Federal Open Market Committee, and yet once he became the head of the central bank, he did it anyway.
For a year leading up to the pandemic, the Fed was struggling to maintain and suppress a repo market liquidity crisis. National debt, corporate debt and consumer debt were at all-time highs. Companies were desperate for new stimulus, and they were getting crumbs from the Fed, rather than the tens of trillions that they needed just to stay afloat. The central bank had sabotaged the economy, but they had to keep it in a state of living death until they had a perfect cover event for the collapse. The pandemic and inevitable civil unrest do the job nicely.
…click on the above link to read the rest of the article…
This Time, the Fed Can’t Avoid Inflation, Says Expert
This Time, the Fed Can’t Avoid Inflation, Says Expert
This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Is the latest QE program finally going to spike prices, gold cannot be printed by central banks, and virus intensifies the flow of gold to U.S. vaults.
Can the Federal Reserve avoid inflation once again?
As the dust around the 2008 financial crisis settled, some may have been surprised that the eagerness of the Federal Reserve to print money did not cause inflation, or even hyperinflation. Yet those who are expecting the same turnout this time around should look at the underlying nature of both crises.
FXEmpire’s Arkadiusz Sieron points out that 2008 was, in essence, a banking crisis, and banks were the ones receiving aid in the form of bank reserves. While they function in a similar capacity, these notes differ from actual money as they do not enter the economy but are rather used as a medium of exchange between banks. Adding to that was a lack of appetite among individual creditors to take on debt combined with a lack of willingness to issue loans on the banks’ part, as shown by the growth rate of credit supply reaching negative territory.
Now, the scenario appears to be the exact opposite, as consumers and business owners are the ones primarily affected by the crisis. Sieron argues that there is no question as to whether the stimulus will enter the money supply, as programs like the Term Asset-Backed Securities Loan Facility and Main Street Lending Program will ensure funding for eager debtors.
…click on the above link to read the rest of the article…
California Just Put Washington in this Economic “Catch-22”
California Just Put Washington in this Economic “Catch-22”
Government bailouts are being revived, and this time, unlike during the 2008 recession, it appears large financial companies won’t be the only ones asking for help.
The problem is, the government may not be able to help this time.
In response to a bloated state budget and a massive debt of over $550 billion, Newsmax reports that California Governor Gavin Newsom is looking for a bailout from the federal government:
Without an infusion of at least $14 billion from Congress, Newsom said the state would have to cut billions to public schools, not to mention hundreds of millions for preschool, child care and higher education programs. It’ll also need to eat into health benefits for the poor, among other things.
“The enormity of the task at hand cannot just be borne by a state,” Newsom said. “The federal government has a moral and ethical and economic obligation to help support the states.”
Obviously, Newsom’s decision to impose lockdowns in response to the coronavirus pandemic, resulting in more than 746,000 unemployed, partly explains the sudden need for cash.
Economist Robert Wenzel thinks the “lockdown is projected to lead to a state budget shortfall this year of $54 billion,” which is bound to make things more complicated.
Wenzel added another sharp critique of Newsom’s request for a bailout, and a comparison to Greece’s economic bust in 2007:
[Newsom] is now in begging mode just like Greece was, but, whereas a lot of Greece’s financial trouble was about paying off old debt, California’s problem is about running the current state government (and also local governments).
It sure seems like California has been playing a dangerous debt game, first ignoring economic realities prior to the pandemic, and then asking the federal government to send bags of cash so things can keep running smoothly.
…click on the above link to read the rest of the article…
Fed Chair Just Made This Inadvertent Case for Gold
Fed Chair Just Made This Inadvertent Case for Gold
This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Powell boosts gold in Fed speech, why gold is the best bet to make now, and gold remains undervalued as an asset.
Fed Chair Powell gives a nudge to gold during speech
A much-awaited speech by Federal Reserve Chair Jerome Powell last week, held at the Peterson Institute for International Economics, dispelled any notion that the central bank is optimistic in regards to an economic recovery. In fact, Powell was very clear in his belief that many could be disappointed by the sluggishness of the recovery and the various uncertainties that might be scattered across its path.
Powell commented on the state of U.S. employment, noting that more than 20 million people have lost their jobs in just two months. The chair added that existing growth problems have been exacerbated and that any job gains posted over the previous decade have been erased.
Looking forward, Powell said that the Fed isn’t open to negative interest rates right now, but did not completely discount the possibility should the need arise. Although it remains historically low-performing, this now makes U.S. Treasuries one of the few sovereign bonds that haven’t dipped into negative territory.
Having just printed trillions of dollars in short order to stimulate the economy, Powell appeared to not be fully content with the extent of the stimulus that the state has issued. Although Congress has already spent $2.9 trillion on coronavirus mitigation, Powell’s words could be interpreted that a bigger debt bubble is on the way, keeping in mind that the federal budget alone went from being $160 billion in the green as of April 2019 to a deficit of $737.9 billion a year later.
…click on the above link to read the rest of the article…
Overpriced Stocks May Be Bubble Ready to Pop
Overpriced Stocks May Be Bubble Ready to Pop
Even if local and state governments hadn’t shut down businesses in attempts to mitigate the coronavirus, the U.S. economy was still set up to take on a number of economic challenges.
But now, there’s one additional challenge being considered by billionaire David Tepper: over-inflated stock prices:
Billionaire hedge fund investor David Tepper told CNBC on Wednesday the stock market is one of the most overpriced he’s ever seen, only behind 1999. His comments sent stocks to a session low… He also said some Big Tech stocks like Amazon, Facebook and Alphabet may be “fully valued.”
If we take Mr. Tepper’s concern at face value, the U.S. could be on the verge of another major stock bubble explosion.
He did add that he thought stocks were even more overvalued in 1999, but of course time will tell if that ends up being true.
Tepper also had words of warning on the Fed’s recent infusion of liquidity into the markets, saying, “The market is pretty high and the Fed has put a lot of money in here… There’s been different misallocation of capital in the markets… The market is by anybody’s standard pretty full.”
If the market is “pretty full,” then good fundamentals can’t be in play. Another CNBC piece reinforced this observation by comparing 30 million unemployment claims to the still-rallying stock market:
Stocks, though, are rallying in the face of historically awful economic numbers, in a bet on higher profit margins and an aggressive recovery that seems increasingly risky.
At some point, profits and other business fundamentals have to justify a company’s stock price. Media hype alone can’t cut it for the long term.
This chart from the same CNBC article further reinforces the idea that fundamentals are not yet factored into stock prices:
…click on the above link to read the rest of the article…
The Elites Are Already Prepared for the Coming Collapse of the Dollar Bubble
The Elites Are Already Prepared for the Coming Collapse of the Dollar Bubble
Today, stock market investors are hoping desperately for Weimar-style hyperinflation to boost equities prices to dizzying heights in what some call a “crack-up boom”. In terms of money creation, we are not there yet, but such levels of fiat printing could happen within the next year. Unfortunately for investors, this “boom” in stocks may not happen again. In fact, it already happened over the course of the past several years, and now the party is over. In the past few months, the U.S. dollar has entered a massive liquidity crisis, and despite all expectations, the Fed’s attempts to compensate with stimulus measures have done little to boost markets back to their previous glory.
In Weimar Germany, stocks did get an epic rally, until it all came crashing down in 1924 and then again in 1927. The notion of the endless fiat-driven bull market is a lie perpetuated by central bankers and their cheerleaders.
As I warned in past articles, when the Fed finally decided to step in to “stall the crash”, it was after it was far too late. The Fed has no intention of stopping the crash, they WANT a crash; they created all the conditions necessary for the collapse of the Everything Bubble to happen. Their goal now is only to make it appear as though they “did everything they could” to save the economy while staging the collapse of the final bubble: the U.S. dollar and its global reserve currency status.
…click on the above link to read the rest of the article…
How the Fed Created a QE “Monster” for the Markets
How the Fed Created a QE “Monster” for the Markets
Like Victor Frankenstein, the Fed may have created its own monster. It’s been called many things, such as Quantitative Easing (QE), QE Lite, QE/Not QE, “Organic” Balance Sheet Growth, and more.
But no matter what you choose to call it, the bottom line is this:
The Fed is growing its official balance sheet at a frantic pace to provide liquidity to various banking operations, including the repo markets.
In fact, the balance sheet has grown about $400 billion since August, as reflected in the uptick at the far right of this chart:
Along with the Fed’s decision to increase its balance sheet is a rise in risky asset prices. According to a piece at Newsmax, this is raising eyebrows:
Prices for stocks and other risky assets are also rising at a fast clip – a state of affairs that a growing chorus of investors, economists and former Fed officials say is no coincidence, and potentially a problem.
This pattern of rising prices in risky assets is similar to what happened when the Fed initiated the first three rounds of QE.
The potential problem behind a pattern like this is the “monster” that the Fed is creating. Addressing the problem means answering a critical question…
When and how does the spigot of Fed cash flow get turned off?
Peter Boockvar, chief investment officer with Bleakley Advisory Group, thinks we will have to wait and see what happens:
The risk is what happens when the Fed stops increasing their balance sheet… What will stocks do when that liquidity spigot stops? We’ll have to see.
Of course, if we “wait and see”, any potential damage to the economy will already have started.
…click on the above link to read the rest of the article…
