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Jim Bianco Says This Is QE, Like Y2K
Jim Bianco Says This Is QE, Like Y2K
In contrast to Hussman, Jim Bianco, at Bianco Research says the Fed’s repo actions are QE.
Earlier today I posted, Hussman Sides with Powell: It’s Not QE4.
If Hussman convinced you the Fed was not conducting QE, I will give you a chance to change your mind again.
“Not QE” Looks a Lot Like Y2K
This is a guest post by permission from Jim Bianco
Jim Bianco at Bianco Research says “Not QE” Looks a Lot Like Y2K
We would argue the special lending facility that started in late 1999 to support the feared Y2K computer glitch offers a historical analogy to the current period.
Stories 20 years ago sound like they are describing what is happening today:
Dow Jones News Service – (December 28, 1999) CASH IS FLOWING LIKE CHAMPAGNE FOR Y2K
The volume of cash that the Federal Reserve has temporarily given to banks to avert potential Year 2000 strains is rising to dizzying levels. Including nearly $20 billion it gave to the banking system in the form of term “repurchase” agreements Monday, the Fed has almost $100 billion in hard currency loans outstanding to banks. That’s the most money lent out through repurchase agreements ever, said Peter Bakstansky, spokesman for the New York Federal Reserve. For some perspective, the Fed had $23 billion in outstanding “repos” in December 1998, and around $9 billion in December 1997.
The Y2K special lending facility had a similar effect on the Fed’s balance sheet. It was also done for “plumbing reasons.”
And, as the [Champagne] story points out, the Fed supplied record amounts of repo never before seen at the time.
…click on the above link to read the rest of the article…
The Weird Obsessions of Central Bankers, Part 1
The Weird Obsessions of Central Bankers, Part 1
How to Hang on to Greenland
Jim Bianco, head of the eponymous research firm, handily won the internet last Thursday with the following tweet:
Jim Bianco has an excellent idea as to how Denmark might after all be able to hang on to Greenland, a territory coveted by His Eminence, POTUS GEESG Donald Trump (GEESG= God Emperor & Exceedingly Stable Genius).
Evidently the mad Danes running the central bank of this Northern European socialist paradise were reacting to the ECB Council’s decision earlier that day to carpet-bomb the euro zone economy with another dose of monetary napalm.
The sad spectacle was the outcome of the penultimate ECB meeting chaired by Mario Draghi, who will undoubtedly enter the history books in the “what not to do” section, inter alia as the only central bank chieftain who didn’t raise interest rates even once during his entire term.
Mario Draghi, the scourge of Old World savers
The Beatings Will Continue Until Morale Improves… or Something
The following tablet engraved with decisions was handed down from the Europe’s Central Planning Olympus:
(1) The interest rate on the deposit facility will be decreased by 10 basis points to -0.50%. The interest rate on the main refinancing operations and the rate on the marginal lending facility will remain unchanged at their current levels of 0.00% and 0.25% respectively. The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
…click on the above link to read the rest of the article…
Negative Interest Rates Threaten the Financial System
Negative Interest Rates Threaten the Financial System
Markets may need to be rebuilt on a new set of assumptions, but we don’t know what those should be or how they would work.
Jim Bianco is the President and founder of Bianco Research, a provider of data-driven insights into the global economy and financial markets. He may have a stake in the areas he writes about.
Former Federal Reserve Chairman Alan Greenspan recently said he wouldn’t be surprised if yields on U.S. bonds turned negative and if they do, it wouldn’t be “that big a of a deal.” That seems to be a sentiment widely held in central banking circles these days, but it’s wrong. Negative interest rates represent a threat to the financial system.
To understand why, let’s start with the existing fractional reserve banking system, which is more than a century old. For every dollar that goes into a bank, some set amount (usually about 10%) must go into a reserve account to be overseen by the central bank. The rest is either lent out or used to buy securities.
In other words, the fractional reserve banking system is leveraged to interest rates. This works when rates are positive. Loans are made and securities bought because they will generate income for the bank. In a negative rate environment, the bank must pay to hold loans and securities. In other words, banks would be punished for providing credit, which is the lifeblood of an economy. As German bankers recently explained to the European Central Bank:
We already have a devastating interest rate situation today, the end of which is unforeseeable,” Peter Schneider, who represents public-sector savings banks in the southern German state of Baden-Wuerttemberg, said on Wednesday. “If the ECB aggravates this course, that would hit not only the entire financial sector hard, but especially savers.
…click on the above link to read the rest of the article…
Negative Interest Rates Are Extremely Toxic
Negative Interest Rates Are Extremely Toxic
Jim Bianco, President of Bianco Research, cautions against evermore unconventional monetary policy interventions. He fears that the global slowdown is going to get worse and he spots opportunities in long-term bonds and gold.
The global economy is on the brink: Europe is headed for recession, Japan as well and China’s growth rate is the slowest in almost thirty years. Only the economy in the United States seems to hold up. But for how long?
Mr. Bianco, the summer is basically over and we are heading into the final stretch of the year. What’s ahead for the financial markets in the coming months?
There are two issues at play: First, the trade and currency wars where the situation reminds me somewhat of «This Is Spinal Tap». It’s a cult satire movie from the eighties about a rock band and they coined the phrase «up to eleven» because that’s how high their amplifier went. So the expression «turning it up to eleven» refers to the act of taking something to an extreme. I’m saying this because I think Trump is “going to eleven” on trade: He’s going to turn it up so high that there is going to have to be a deal. That’s the way he wants to do this. He will just make it intolerable so everybody has to sit down and cut a deal.
What’s the other issue?
The inverted yield curve. The three-month/ten-year curve has been inverted since May and this is the market’s way of saying the Federal Funds Rate is too high and must come down. It is interesting how hard everyone is standing on their head to dismiss the yield curve and tell me why it’s different this time.
…click on the above link to read the rest of the article…
Central Bank Musical Chairs
If the last few stock market days are interrupting your sleep, Jim Bianco and CNBC’s Rick Santelli are saying, get used to it. The total assets of all central banks hit $16.4 trillion plus (an all-time high) and these banks now, collectively, own 33 percent of all the world’s sovereign bonds (someone/something had to buy ‘em).
Santelli’s question to Bianco was, if the aggregate size of the world’s central banks is at an all-time high, and these bank’s have purchased a third of all government paper, will these banks be able to “normalize in size” (shrink) without “going through a lot more stock market anguish?” Bianco’s response was a flat, “no.”
Reversing trillions of dollars worth of securities purchases will create market turmoil. And now that price inflation has entered the equation, the ride is bound to be bumpy. So, who should 401k investors be worried about and keeping an eye on? Bianco and Santelli agree, that person is ECB head man Mario Draghi. Santelli believes Draghi may be caught without a chair in this game of monetary musical chairs. By the way, it’s not all about the Fed any more. “All central bank stimulus is fungible,” says Bianco, “it doesn’t matter who does it.”
The patron saint of central bankers, John Maynard Keynes, wrote in The General Theory,
“For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs — a pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated.”
…click on the above link to read the rest of the article…
