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Update on the Fed’s QE

Update on the Fed’s QE

No Wonder the Cry Babies on Wall Street are clamoring for more. Five SPVs, already on ice, will expire on December 31.

The Fed released details today of its corporate-bond purchases in November ($215 minuscule millions) and corporate-bond ETF purchases in November (zilch). Last time it bought any ETFs had been on July 23. It released details about its other activities in its Special Purpose Vehicles (SPVs), which are essentially on ice. Five of them will expire on December 31, including the SPV that handles the corporate bond purchases.

The Fed unwound its “repo” positions in early July down to zero, and more recently most its “central bank liquidity swaps.” Its purchases of residential mortgage-backed securities (MBS) have been in a holding pattern since mid-September. What it is still buying at a steady clip are Treasury securities, thereby monetizing part of the debt the government is adding monthly to its gigantic pile.

The net effect is that its total assets have edged up just 1.0% since June 24, with a dip in the middle, after exploding higher in the prior three months. This is the Fed’s tool to bail out asset holders during each crisis, and enrich them when there is no crisis:

There is now clamoring among the crybabies on Wall Street that the Fed should increase its asset purchases, and they’re pressuring the Fed to announce a big increase at the next meeting, because, I mean, how else are markets going to keep on going up?

In terms of 2020: Total assets on the Fed’s balance sheet for the week ended December 9 rose by $20 billion from the prior week to $7.243 trillion, but were down a smidgen from the peak on November 18, having gone essentially nowhere over the past five months:

…click on the above link to read the rest of the article…

Fourth Turning Election Year Crisis

FOURTH TURNING ELECTION YEAR CRISIS

“The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.” – Strauss & Howe  The Fourth Turning 

How a contested election could send the U.S. into a constitutional crisis - MarketWatch It's not the chairman of the Joint Chiefs' job to remove Trump from office if he won't leave.

“There is no darkness but ignorance. The devil can cite Scripture for his purpose.” William Shakespeare

I read The Fourth Turning in 2006, after seeing it described in John Mauldin and Doug Casey’s newsletters as an uncannily accurate assessment of American history based upon generational configurations which recur on eighty-year cycles, a long human life. Strauss and Howe wrote the book in 1997 and used their generational theory to predict the Crisis that would begin in the mid-2000’s and come to an indeterminate climax in the mid-2020’s.

 

As a student of history, the theory spoke to me. I have been writing articles since 2009, using the Fourth Turning as a guide to interpreting what has been happening and what might happen as this crisis period accelerates towards its violent culmination. The quotes above perfectly capture exactly what has happened since this crisis began in September 2008, with the Fed/Wall Street created financial collapse. The existing social order is disintegrating, but they are willing to destroy the country rather than relinquish their wealth, power and control.

…click on the above link to read the rest of the article…

The Fed Has Given Big Business A Huge Advantage

The Fed Has Given Big Business A Huge Advantage

And Its Gone!

The last few months have been painful for small businesses across America. These businesses often have a difficult time getting a bank loan. Bubbling up to the surface is the recognition the Fed has played a major role in pushing inequality higher. This was highlighted when Federal Reserve chairman Jerome Powell admitted it’s tough for the Fed to boost lending to smaller businesses. “Trying to underwrite the credit of hundreds of thousands of very small businesses would be very difficult,” Powell said. He acknowledged that many of these small loans are really nothing more than the personal promises of people struggling to keep the doors of their business open.As the financial pain from the pandemic and government restrictions placed on businesses continue, much of the money thrown out to ease our pain has rapidly flowed into the hands of Wall Street and big business. The reality that most small businesses close in failure underlines the risk involved in loaning money to such concerns. Still, it is difficult to deny the importance of small business in the overall economy. It plays a major role in communities by both creating jobs and allowing individuals to better their lot in life. 

During a recent exchange between House Financial Services Committee Chairwoman Rep. Maxine Waters of California and Powell, it became evident that Powell was not rushing to implement changes in the way things are done in an effort to aid small businesses and level the playing field. Waters suggested the Fed and Treasury Department lower the minimum size of the loans under the Main Street Lending Program to $100,000 from the current $250,000 to help a larger number of small companies that have been hurt by the pandemic. Powell even went so far as to claim there was little demand for loans below $1 million.

…click on the above link to read the rest of the article…

“Inflation” and America’s Accelerating Class War

“Inflation” and America’s Accelerating Class War

Those who don’t see the fragmentation, the scarcities and the battlelines being drawn will be surprised by the acceleration of the unraveling.

I recently came across the idea that inflation is a two-factor optimization problem: inflation is necessary for the macro-economy (or so we’re told) and so the trick for policy makers (and their statisticians who measure the economy) is to maximize inflation in the economy but only to the point that it doesn’t snuff out businesses and starve workers to death.

From this perspective, households have to grin and bear the negative consequences of inflation for the good of the whole economy.

This narrative, so typical of economics, ignores the core reality of “inflation” in America: it’s a battleground for the class war that’s accelerating. Allow me to explain.

“Inflation” affects different classes very differently. I put “inflation” in italics because it’s not one phenomenon, it’s numerous phenomena crammed into one deceptively simple word.

When “inflation” boosts the value of homes, stocks, bonds, diamonds, quatloos etc. to the moon, those who own these assets are cheering. When “inflation” reduces the purchasing power of wages, those whose only income is earned from their labor suffer a decline in their lifestyles as their wages buy fewer goods and services.

They are suffering while the wealthy owners of soaring assets are cheering.

The Federal Reserve and federal authorities are not neutral observers in this war. The Fed only cares about two things: enriching the banking sector and further enriching the already-rich.

…click on the above link to read the rest of the article…

The Fed Just Pulled Off Another Backdoor Bailout of Wall Street

The Fed Just Pulled Off Another Backdoor Bailout of Wall Street

Source: Federal Reserve.

The Federal Reserve has authorized 11 financial bailout programs thus far. Despite Fed Chairman Jerome Powell’s reassurances at his press conferences that these programs are to help American families, a full 10 of these programs are actually bailouts of Wall Street banks or their trading units.

The latest Wall Street bank bailout to come out of hiding is the Fed’s Secondary Market Corporate Credit Facility (SMCCF). This program was supposed to buy up corporate bonds in the secondary market in order to help corporate bond markets regain liquidity. Thus far, the only thing the SMCCF has bought up are Exchange Traded Funds (ETFs) holding investment grade and junk-rated bonds.

The SMCCF program began operations on May 12. By May 18 the Fed had spent $1.58 billion buying up ETFs. The ultimate goal of the facility, at this point, is to spend $250 billion on ETFs and secondary market corporate bonds. The U.S. Treasury Department was supposed to hand over $25 billion of taxpayer money to eat losses on the SMCCF program. Instead, without explanation, the latest data from the Fed shows that the Treasury deposited $37.5 billion into the SMCCF, suggesting the program is expecting losses of greater than $25 billion.

The bulk of the purchases of ETFs were those issued by BlackRock, the company to whom the New York Fed has outsourced the program. The Fed is allowing BlackRock to buy up its own, previously sinking, ETFs as well as those of other ETF issuers. The New York Fed gave BlackRock a no-bid contract to run the program as investment manager. But that’s far from the only outrage.

…click on the above link to read the rest of the article…

Retail Store Closures Have Huge Impact On Communities

Retail Store Closures Have Huge Impact On Communities

Across America many buildings stand empty or under-leased. They once housed thriving businesses that provided Americans with good-paying jobs.Over the last several years retailers have been closing stores and as the carnage rapidly accelerates this will be back in the news bigger than ever. The impact of these store closings all across America will be huge and take a huge toll on communities with a great number of jobs being lost forever.Much of this is linked to small businesses having its clock cleaned when forced to shutdown because of Covid-19, however, a lot is related to paying higher wages, compiling with new government regulations, and being forced to compete with big businesses backed by Wall Street money.

Retail closures come with a hidden cost to society that the average person fails to internalize. Retail closings will result in lots of other small businesses closing their doors. Not only will the retail employees lose their jobs but these stores support many local businesses.People often forget that the brick and mortar stores suffer several expenses not fostered upon online companies. All these constitute a sort of tax on these stores which benefits the community in which they are located.

These costs rapidly add up and include such things as maintaining landscaping, ensuring safe ingress and egress, or providing a parking lot for customers. Staffing for longer hours, for the convenience of customers, often results in being open when foot traffic would indicate a store should be closed. Dealing with security and shoplifters is another expensive burden. Over the last few years, stores such as Target and Macy’s have even had to face a slew of dishonest shoppers trying to sneak defectives products purchased online back as exchanges and trading them for a fresh unbroken product. I have seen this costly abuse recommended by several online shoppers that see this as an “easy fix” on how to handle defective merchandise.

…click on the above link to read the rest of the article…

How the COVID-19 Bailout Gave Wall Street a No-Lose Casino

How the COVID-19 Bailout Gave Wall Street a No-Lose Casino

While ordinary Americans face record unemployment and loss, the COVID-19 bailout has saved the very rich

taibbi, covid-19 bailout, Illustration by Victor Juhasz

This story appears in the June 2020 print edition of Rolling Stone.

In late April Marko Kolanovic, a financial analyst for JPMorgan Chase, wrote to clients with good news. Pandemic aside, investors should expect stock prices in S&P 500 companies to return to record numbers some time early next year!

“The S&P 500 should attain previous all-time highs,” Kolanovic wrote, “if the monetary measures are sustained.”

The key part of this phrase was the last bit, “if the monetary measures are sustained.” In countries that did not have a Federal Reserve Bank shooting a bazooka of cash daily at Wall Street, Kolanovic suggested the coronavirus would result in a 30 percent decline in the present value of earnings.

In other words, without intervention by the Federal Reserve, the United States in the coronavirus era would be looking at a Depression-level contraction.

Assuming the Fed bazooka keeps firing, however, a large portion of the investor class is already on a road leading back to champagne and confetti. And that, as Robert Frost would say, has made all the difference.

On the road more traveled, on the real side of the coronavirus economy, the pain has been historic. As of this writing, 30 million people have filed jobless claims during the COVID-19 crisis, and millions have lost their employer-based insurance.

At least one in three can’t make their rent, millions more can’t afford groceries, and workers in supermarkets, medical clinics, warehouses, and other professions are now in a macabre race to see if they’ll turn blue and die before corporate employers decide to slash their salaries or retirement benefits — which has already happened to front-line caregivers in some cities.

…click on the above link to read the rest of the article…

Congress Sets Up Taxpayers to Eat $454 Billion of Wall Street’s Losses, Where is the Outrage?

Congress Sets Up Taxpayers to Eat $454 Billion of Wall Street’s Losses, Where is the Outrage?

Photograph by Nathaniel St. Clair

Beginning on March 24 of this year, Larry Kudlow, the White House Economic Advisor, began to roll out the most deviously designed bailout of Wall Street in the history of America. After the Federal Reserve’s secret $29 trillion bailout of Wall Street from 2007 to 2010, and the exposure of that by a government audit and in-depth report by the Levy Economics Institute in 2011, Kudlow was going to have to come up with a brilliant strategy to sell another multi-trillion-dollar Wall Street bailout to the American people.

The scheme was brilliant (in an evil genius sort of way) and audacious in employing an Orwellian form of reverse-speak. The plan to bail out Wall Street would be sold to the American people as a rescue of “Main Street.” It was critical, however, that all of the officials speaking to the media repeat the words “Main Street” over and over.

It was decided that Larry Kudlow would first announce the plan at the White House press briefing on March 24 followed by an unprecedented appearance of Fed Chairman Jerome Powell on the Today show on March 26.

This is how Kudlow explained the program that was going to be tucked into the stimulus legislation known as the CARES Act at the White House press briefing on March 24:

Kudlow: “This package will be the single largest Main Street assistance program in the history of the United States. Phase Two delivered the sick leave for individuals, hourly workers, families and so forth. Phase Three – a significant package for small businesses, loan guarantees will be included. We’re gonna take out expenses and lost revenues…And, finally, I want to mention the Treasury’s Exchange Stabilization Fund. That will be replenished.

…click on the above link to read the rest of the article…

Fed Cut Back on Helicopter Money for Wall Street & the Wealthy

Fed Cut Back on Helicopter Money for Wall Street & the Wealthy

Tapered QE-4 Further, Still Hasn’t Bought Junk Bonds or ETFs, Was Just Jawboning.

Total assets on the Fed’s balance sheet rose by $205 billion during the week ending April 22, to $6.57 trillion. Since the week ending March 11, when the bailout of the Everything Bubble and its holders began, the Fed has printed $2.26 trillion.

But the $205 billion increase was the smallest increase since the mega-bailout began with its Sunday March 15 announcement. The Fed is tapering its purchases of Treasury securities and mortgage-backed securities (MBS). Repurchase agreements (repos) are falling into disuse. Lending to Special Purposes Vehicles (SPVs) has leveled off. And foreign central bank liquidity swaps, after having spiked initially, only ticked up by a small-ish amount.

The sharply reduced increases confirm that the Fed is following its various announcements over the past two years that during the next crisis – namely now – it would front-load the bailout QE and after the initial blast would then taper it out of existence, rather than let it drag out for years.

This concept was further confirmed by Fed Chair Jerome Powell on April 10 when he said that the Fed would pack away its emergency tools when “private markets and institutions are once again able to perform their vital functions of channeling credit and supporting economic growth.”

Overall, the Fed has cut the big QE purchases by 65% since the peak week (week ending April 1, $586 billion), to $205 billion:

Purchases of Treasury securities get slashed.

The Fed added $120 billion of Treasury securities to its balance sheet, the smallest amount since this began, down 67% from the $362 billion it had added during the peak week:

…click on the above link to read the rest of the article…

Disunited States: Government Failure to Address Coronavirus is Sparking a Mutual Aid Revolution

Disunited States: Government Failure to Address Coronavirus is Sparking a Mutual Aid Revolution

As state and local authorities struggle and the federal government focus on saving Wall Street, a volunteer-driven mutual aid revolution is taking hold in disenfranchised communities across America.

I‘m not from DC, but I live here. I’m now a part of this living, breathing being that is a city. This city. It helps me to think of cities that way, even ones that I don’t fully feel at home in – like a body. And I’m like a blood transfusion. I know this isn’t my city, my body, but it’s where my life flows now, and so I best flow with it. This body holds me – it is my literal and figurative structure. I am one of the millions of cells rushing through the veins of this place, and although I’m a relative newcomer, I can feel that this body is not well. I can feel that familiar illness – it’s the same as any city I’ve ever lived in..

Every body is weakened and bowed under the weight of capitalism. Yet, there is a new illness – one that found a foothold in our immunocompromised bones and at the same time exposes the severity of that underlying sickness so old it’s etched in our souls.

Now, with the renewed vigor of a body on high alert, cells rush in symbiotic aid to save each other. A new fever awakens dormant fighters and engages new ones. The city pulses with ancient knowledge and emergent ideas.

…click on the above link to read the rest of the article…

The very complex Jigsaw

The very complex Jigsaw

Blain’s Morning Porridge – 14 April 2020.

“If you try to take a cat apart to see how it works, the first thing you will have is a non-working cat.”

On Thursday I posted a note on the Fed doing exactly what I predicted – a programme to buy high-yield junk. A sniffy Wall Street trader called me an imbecile – which is quite a big word for a Wall St trader. He told me the Fed is not buying junk bonds, just ETFs related to junk and levered finance. He yelled at me to get it right. Really..? Go figure. Same difference. Its detail. I confidently predict the Central Banks will be buying equity ETFs soon enough – which is buying equity. End of. 

*********

After a glorious 4 days Easter staycation over the best April weekend in history, do I feel refreshed enough to face another week in markets? As analysts simultaneously forecast global depression and record stock markets by year end, are we are into the realms of financial insanity? I have some seriously dark dystopian forebodings about where this could go…. 

Get over it… Smile.

But before we talk ourselves into giving up.. REMEMBER – things are never as bad as you fear they might be. (It doesn’t mean they are looking particularly good either.) If you are prepared for the worst, then you are less likely to be disappointed if it happens…  

Work out why the market is fooling itself. Markets are scared of change, with a default position things will revert to “as-they-were.” This time they will not. There are a number of dangerous narratives playing out in markets at present – all of which expect things to revert to “same-as”. 

…click on the above link to read the rest of the article…

Takeover

Takeover

We can’t print ourselves out of this crisis again, but that isn’t stopping the Federal Reserve from trying. Thursday’s intervention program, the latest in a string of panic moves to keep the financial system afloat, constitutes a complete takeover attempt of the market ecosphere, only the buying of stocks directly is last missing piece of eventual complete central bank control of equity markets. But seizing control of the bond market is the nearest equivalent step.

Not only that, the Fed is buying junk corporate debt propping up companies that should be let to fail as Chamath Palihapitiya pointed out poignantly this week. But not this Fed, no, with its actions it is again setting up the economy for yet another slower growth recovery, financed by even more debt.

QE doesn’t produce growth, that is the established track record:

Nobody wants to talk about the consequences to come following this crisis, but that doesn’t mean the consequences won’t be a real and present reality.

No, the Fed, while trying to save the world, is once again engaged in vastly distorting asset prices from the fundamental reality of the economy. It is in essence again laying the foundation for the next bubble, while the bursting of this bubble has yet to be fully priced in.

Even the Wall Street Editorial Board has made it perfectly clear what this is all about:


The @WSJ Editorial Board tells you what the new price distortion is all about: Save Wall Street and the top 1% and hope for trickle down economics later:https://www.wsj.com/articles/the-feds-main-street-mistake-11586474912 …

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Asset price inflation to save markets in the hopes of trickle down growth to come.

Absurd.

The message the Fed is again is sending is to invite reckless behavior on the side of investors, the same reckless, TINA, fueled behavior that got us the bubble blow-off top in February.

…click on the above link to read the rest of the article…

Wall Street Has Now Morphed Into A Full Blown Soviet Sausage Factory

Wall Street Has Now Morphed Into A Full Blown Soviet Sausage Factory

To paraphrase the police officer who told me my old neighborhood had burned down during the 2017 NorCal fires,  “the markets are no more.”

After the Fed announced it is bailing out junk bonds today,  Wall Street has now morphed into a full-blown  “Soviet Sausage Factory.

Jay Powell probably had no choice and needed to blunt the blow of another 6 million-plus print of new unemployment claims but isn’t Socialism and state intervention dandy?

We can understand providing support to local and state municipalities,  now strapped with severe cash flow problems as their tax revenues have gone to near zero,  but junk?

Employment

You know, like many of the same companies that levered up to buy back shares while shitting all over their employees or, say, the wildcat and shale-oil drillers?   Even Jed Clampett and Ellie May understood Texas Tea is risky business.  Come on, man.

Chapter 11 and debt restructurings are not only the right thing to do but the only thing to do lest we lose an entire generation to stagflation and a zombie economy.  That’s probably the best case unless the economy miraculously snaps back, which assumes the economy was structurally sound before the virus took it out.   We seriously doubt that.

Here’s to hoping the bailouts are just a bridge to a major economic restructuring with the long-needed structural reforms.

Waste Of Time

There’s no sense in wasting time analyzing the markets anymore.

We will sit on cash and gold, hope and pray the virus soon passes, and try and tune out this shit show until the major political dislocation that is surely coming on the other side.

…click on the above link to read the rest of the article…

How black swans are shaping planet panic

How black swans are shaping planet panic

A case can be made that the current financial panic will only subside when the ultimate black swan – Covid-19 – is contained. 

Is the planet under the spell of a pair of black swans – a Wall Street meltdown, caused by an alleged oil war between Russia and the House of Saud, plus the uncontrolled spread of Covid-19 – leading to an all-out “cross-asset pandemonium” as billed by Nomura?   

Or, as German analyst Peter Spengler suggests, whatever the averted climax in the Strait of Hormuz has not brought about so far “might now come through market forces”?

Let’s start with what really happened after five hours of relatively polite discussions last Friday in Vienna. What turned into a de facto OPEC+ meltdown was quite the game-changing plot twist.

OPEC+ includes Russia, Kazakhstan and Azerbaijan. Essentially, after enduring years of OPEC price-fixing – the result of relentless US pressure over Saudi Arabia – while patiently rebuilding its foreign exchange reserves, Moscow saw the perfect window of opportunity to strike, targeting the US shale industry.

Shares of some of these US producers plunged as much as 50% on “Black Monday.” They simply cannot survive with a barrel of oil in the $30s – and that’s where this is going. After all these companies are drowning in debt. 

A $30 barrel of oil has to be seen as a precious gift/stimulus package for a global economy in turmoil – especially from the point of view of oil importers and consumers. This is what Russia made possible.

And the stimulus may last for a while. Russia’s National Wealth Fund has made it clear it has enough reserves (over $150 billion) to cover a budget deficit from six to ten years – even with oil at $25 a barrel. Goldman Sachs has already gamed a possible Brent crude at $20 a barrel.

…click on the above link to read the rest of the article…

MARKET MAYHEM: Silver Eagle Sales Surge While U.S. Shale Energy Stocks Get Crushed

MARKET MAYHEM: Silver Eagle Sales Surge While U.S. Shale Energy Stocks Get Crushed

Black Monday hit Wall Street in a BIG BLOODY WAY today.  With oil being the main driver of the economy, U.S shale stocks lost nearly half of their value… IN ONE SINGLE DAY.  That’s correct, the average decline from eight of the top U.S. shale companies saw their stock prices decimated by 48%.  While the energy stocks lost almost 50% of their value today, the precious metals held up rather nicely.

Gold closed up about 0.4%, while silver declined 1.9%.  Of course, not all precious metals investors are happy with the silver price action.  I see some people complaining that silver is selling off with the markets, and it isn’t a good investment.  I wouldn’t be so pessimistic on silver because it takes time for the fundamentals to kick in.

For example, the U.S. Mint sold another 670,000 Silver Eagles over the past three days since it published its last update showing 675,000 sold. So, the total as of March 9th is 1,345,000 Silver Eagles sold versus 650,000 for February:

It’s been quite a long time since the U.S. Mint sold 1.3 million Silver Eagles in the first week in a month. Thus, this provides an indicator that precious metals investors are concerned with the Global Contagion and are once again buying Silver Eagles in larger volumes.  While this increased buying won’t impact the silver price currently, it shows us that investors have ramped up physical silver bullion purchases to protect wealth during a time of extreme market mayhem.  And I believe, the worst is yet to come.

Shale Oil & Gas Stocks Destroyed On Bloody Monday

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Olduvai IV: Courage
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Olduvai II: Exodus
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