Holy moly, what a mess. But here is our hilarious cartoon of Jerome Powell tearing out his hair. Gotta keep you sense of humor.
By Wolf Richter for WOLF STREET:
Sunday at 5 p.m., the frazzled Fed announced in a statement that it slashed its policy interest rate by a full percentage point, to a target range between 0% and 0.25% for the federal funds rate and that it “expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
It also slashed by a full percentage point to 0.25% the interest rate at its discount window, where banks can borrow from the Fed directly.
It also slashed the Interest on Excess Reserves that it pays the banks for parking their cash at the Fed to 0.10% effective Monday. In 2019, the Fed paid the banks $34 billion in interest on reserves – which is pure income for the banks. This income for the banks is now near zero going forward.
In the press conference following the announcement, Fed Chair Jerome Powel said for the umpteenth time that the Fed doesn’t see negative interest rates as appropriate – and that’s a good thing for the banks, because bank stocks have collapsed to multi-decade lows in negative-interest-rate Europe.
And while he was at it, Powell said that the FOMC meeting that was supposed to take place this Tuesday and Wednesday had been cancelled.
The also Fed announced $700 billion in QE-4 or QE-5 or whatever, promising to increase “over coming months” its holdings of Treasury securities by “at least” $500 billion and its holdings of mortgage-backed securities (MBS) by “at least” $200 billion. In the Implementation Notes, it specified that the Desk “conduct these purchases at a pace appropriate to support the smooth functioning of markets for Treasury securities and agency MBS.”
And this Treasury market the Fed is referring to has gone haywire. The 10-year Treasury prices fell all last week, with yields tripling in five days, from a historic low of 0.32% Monday morning to 0.98% late Friday, having briefly hit 1.02%. For the Fed that’s scary.
Upon the panicked Sunday afternoon announcement by the Fed, S&P 500 futures plunged 5% to hit limit down, and for now remain stuck at the limit down, which might make for, let’s say, an interesting Monday morning:
The whole Sunday afternoon maneuver, on top of the mega shock-and-awe maneuvers Thursday and Friday reek of sheer and outright panic – and they’re the opposite of being confidence inspiring. That stock futures plunged after the Fed had effectively put its biggest tools to work shows how obvious this panic is.
Here is Fed Chair Jerome Powell, upon seeing with his own eyes the plunge in the stock futures, as envisioned by cartoonist Marco Ricolli, exclusively for WOLF STREET:
The Sunday afternoon surprise announcement comes on top of the mother of all money-printing repo-market and Everything-Bubble surprise shock-and-awe bailouts that it had announced and kicked off on Thursday during afternoon trading hours: A series of $500-billion term repos at least through April 13, amounting to $4.0 trillion in new money over the four-week period. Of this, it offered $500 on Thursday, and two $500 billion repo operations on Friday, for a total offer of $1.5 trillion. But hardly anyone showed up to get this repo cash.
On Thursday, of that $500 billion three-month repo cash offered, only $78.4 billion were taken. On Friday, of the $500 billion in three-month repo cash, only $17 billion were taken; and of the $500 billion in one-month repo cash, only $24.1 billion were taken. In total, of the $1.5 trillion in cash offered through these three term repo operations, only $119.5 billion were taken – just 8% of the total the Fed had offered.
In addition to this fizzled $1.5 trillion in repos offered on Thursday and Friday, the Fed will also offer $500-billion in one-month repos and $500 billion in three-month repos per week through April 13, as announced on Thursday. But, given what happened on Thursday and Friday, it seems unlikely there will be enough demand for this cash.
These mega programs are on top of the smaller repo operations, the overnight repos that unwind the next day of up to $175 billion, and the $50-billion one-month repo on Thursday, and the twice-a-week $45 billion two-week repos, and the $60 billion a month in QE, now including Treasuries of all kinds and maturities.
These unprecedented measures show just how panicked the Fed has become about liquidity in the market, about the banks, about the Treasury market, about the repo market, and generally about the Everything Bubble that it had spent a decade inflating so assiduously.
A gigantic spike at the very end of trading on Friday crowned two of the craziest trading days I’ve seen. Here’s how my trades went. But that’s it for me. I’m staying out of this market, it’s just too crazy. Read... Historic Volatility Tells Me This Stock Market is in the Middle of an Equally Historic Crash
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TO INFINITY AND BEYOND
Trump’s ready to try and start firing Fed board members until they get the markets propped up thru November. Small wonder they’re nervous.
The market is acting like the FED is not relevant in the financial markets
And while everyone (including his backers ) knew that Trump was a pathological liar,no one even listens to his pronouncements anymore.
Trump has painted himself into a corner. He needs Congress to agree to any fiscal stimulus, but any stimulus that involves bailouts for any corporations is dead on arrival
All presidents lie. They rationalize the lies just like the average joe does , for the better good. Fed has reversed itself on every policy . The word “Appropriate ” means negative rates are coming and fast.
Actually It is
To insanity and beyond.
Ain’t it wonderful that they can steal unlimited $$ from the weekly paychecks of the poor and blow it in the markets with no consequences to themselves?
I couldn’t have said it better myself.
Coincidence? or is COVID19 situation a necessary part to enable the reset that was agreed upon many months ago.
A PearlHarbor event that overwhelms all other considerations to make clear that only the reset [to be announced in September] can save us, so united we stand and everyone knows we are all in this together.
Trust me! I am your friend. The new shackles won’t ever rust and it is your patriotic duty to love them. It even says so in the original Constitution, before all those confusing amendments.
Oh1 and by the way…
In my youth I talked with ex-slaves [me between 7-9 yo n them in 90s who were old enuf to recall being slave-kids before emancipation]. That was race-based slavery.
Slavery exists in many forms
The Government is a zombie playing with its zombie money. Those things no longer function. Learn to do without them. Let them die a natural death.
They learned their quarantine policy in the H1N1 virus outbreak in Texas, and from China. I am sure when the caseload peaks with minimal deaths the president and his people will start calling it a false alarm and deep state plan to get him out of office. In the intervening time the FEDs QE program will turn out to be an overreaction and they will blow up the bond market just as they did stocks, and Trump will blame him for that too.
It won’t go to infinity because so many retired folks will simply end up consuming their funds as there is NO YIELD. How will they live in retirement with NO yield ? Gird those loins…
Yes, Boomer Remover indeed…. if the Coronavirus doesn’t get them, the Fed will. Talk about crazy.
Only if you have true deflation
Why would they care about the retired and the performance of their funds? It’s not like they matter anymore — they are passed their usefulness date. They are no longer slaving it out to finance their home or car and they don’t consume enough of anything else either.
Ok, but you’re going to have trouble getting the next generations to trust their 401k and slave for the corporate masters.
When you see retirees get fed into the woodchipper you’re going to rethink whether ‘trust the markets’ is a sufficient retirement plan.
“intosh”….believe me, the retirees will consume enough alright….how about in medical, dental, Rx, acupuncture, chiropractic, physical therapy, private nurses, house keeping services, assisted living, etc., etc., etc., retirees still consume but different things. I’ve seen it with my parents and my wife’s parents. Thinking outside the box and having some empathy for others goes a long way.
As I’ve posted before, per Theoden King of Rohan who says in the movie – “how did it come to this”….in this case the thirst for DEBT at all levels of society that cannot seem be quenched. We now face a deflationary debt recession and possibly depression. “Who could ever see this coming”…..that’s why I’ve said many times “gird your loins”…this is biblical.
Gordian knot,
It’s important to state that it’s approaching negative infinity.
It will not make any difference. The US administration made gigantic mistakes in not dealing with the coronavirus on time with oncoming consequences which cannot now be avoided.
It is like watching a shark diving up at a little seal, about to bite it in two — except I like the seal. Also, we will all suffer too.
Until a fork bursts your bubble!
The ultra rich who own the media, banks, and most politicians will destroy a multi- trillion dollar US economy to keep $100 billion in profits from their parasitic private health insurers and HMOs. Coronavirus will remain so long as costs make poorer Americans afraid to seek testing and treatment.
These rich are like the monkeys in southeast Asia that get caught when a shiny object is put in a big, narrow-necked bottle. They will grab it, not let go, and cannot run with their fist in a heavy bottle, so they make good eating — reportedly.
The snake has begun to consume its own tail. Other than that, I’m speechless.
Welcome to the ouroboros economy. If I wasn’t so busy consuming my own tail my head would be spinning.
more like the fukushima economy;
derivatives are like nuclear reactor cores that need a constant flow of water or they will blow up;
derivatives need a constant flow of money over them;
stupid way to boil water, stupider way to ‘make money’
Yes, as energy expert Amory Lovins used to say, using a nuclear reactor to boil water is like using a chainsaw to cut butter…
If these trillion dollar Repos & the infinite QE has zero effect on stabilizing the markets, where’s all the cash going? Settling derivatives?
robgoren you would think so right? but the very weird thing is the banks are not hitting the money on offer at all….very weird, the fed offfered a bazooka and the banks took a sippy straw; maybe that’s why in ’08 paulson actually forced them to take the money or force majeure..
Is that called kissing your own ass
*Cough* Peter Schiff Cough*
Except Peter is saying this is because of too many dollars, when the FX, OIS, CP, etc… spreads coupled with the dollar rally recently all suggest that the problem is too few dollars availabile (probably mostly off shore.) So that is backwards.
this is insane. instead of buying $500bn of treasuries and $200bn of mbs’s cut every citizen a check for $2k. That will do more for the economy than anything the fed does!
apologies in advance for the lowercase
Or pass out 1/12 or 2/12s of last year’s income if they are just going to give money away. Do it with some purpose.
And have them spend it on what? We’re in the midst of a supply shock, or will be soon.
You can’t go out anyway. I hear everything’s closing. You could still order something online and have cov-19 hand-delivered, though.
It probably wasn’t a good idea for the US to export most of its pharm manufacturing to China, but maybe that’s just me.
we are in a *demand* shock because everyone is scared and hunkered down in their house. No flights, no hotels, no dinners out at restaurants, etc.
Personal consumption is the biggest driver of this economy and the only way we get out of this mess is if we get it growing.
Its going to be both. Its a demand shock right now but it will also become a supply shock relatively shortly.
It is an often repeated that personal consumption is the biggest driver of the U.S. economy. Before you can have personal consumption, an economy must have capital investment. Capital investment is the precursor of consumption, whether it occurs in the U.S. or China.
I am a dummy but I know this much: I am ready to consume! Just send me money! Now please! Please send it NOW!
No bars in CAL, restrictions in restaurants and those over 65 must self quarantine.
And the biggie, state owned liquor stores in PA are closing
Donald Trump is going to go down as the worst Fed chair of all time.
pauleaston
Lmao! Yes! I’m a dummy too, but give me money and I know how to stimulate the economy! AND even while sitting at home! That’s how dumb I am! ;-)
But legit question: y’all more informed on finance world than I, and you bring up a great point. Why don’t they cut checks to people instead of banks/corporations/etc? Is that even a suggestion amongst TPTB?
The Black Markets..soon to be Appearing..Worldwide amigo..lololol
Electric, Gas, Water/Sewer, Trash Pickup, Rent / Mortgage, basic groceries – bills all have to be paid. Oh, and local property tax.
QE basically is mmt at this point, and it doesn’t seem like it’ll stop, because how far into paring down their balance sheet did they really get before it started again? Is the spector of deflation real? Probably at the moment, but again, after all these huge increases to the balance sheet which barely shrunk, we’ve had ~10 years to witness inflation, which surely has not shown up in wages. I used to think Paul Krugman was a joke, but after the promises that deregulation and tax cuts would improve wages, and lo and behold they haven’t showed after 2 or 3 years, then how could anyone claim this is a supply side issue? It has to be demand driven as it’s the only explanation for why wages have failed to rise and most prices with them even as the fed blew money out the wazoo and is continuing to do so again. If they stick to the same playbook of qe for treasuries and mbs instead of qe for the people, we’re in for another decade of post corona excruciatingly slow growth and more inequality. Hell, idk, maybe Bezos can employ all these people as engineers in his rocket factories when amzn goes to $6trill market cap, provided they can keep the cheap crap cheap enough for everyone else in the meantime. Humanity will have to do what only meat machines can do to send the elites to new mansions on the moon.
“QE basically is mmt at this point”
No it isn’t and you have two misconceptions there.
Misconception 1 is that MMT = “helicopter money.” MMT has explainations for when helicopter money is and isn’t appropriate, but it isn’t equivalent to helicopter money as it precisely outlines when and where helicopter money should not be used (MMT only recommends helicopter money in demand shortages and not at any other times.)
Misconception 2 is that doing enough monetary policy (such as QE) becomes equvalent to fiscal policy (such as helicoptor money.) Basically all economics says the opposite. Only when there is little fiscal or monetary policy, and plenty of slack for either do they have effects similar enough to one another that some economists like say Milton Freidman say they can be substituted for one another. As more of either or both of them are done and policy slack lessens their effects begin to diverge more and more from one another. Thus as we have done monitary policy out the wazoo since 2008 more monitary policy at the moment is less like physical policy than it may ever have been.
Bingo! If money is going to be created out of nothing, at least distribute it democratically … every citizen gets the same amount. Every individual knows best where it can be put to the best use.
Stop Making Sense
Trusting the govt to distribute money to the citizen and also trust the citizen to be spend wisely? What planet are you from? :P
Trusting the govt to distribute money to the banks and also trust the banks to spend it wisely? What planet are you from?
What’s the point of capitalism if we’re going to just give the wealth back to the value creators? Pointless. Who gets rich?
Truest words.
What’s the point of capitalism if there’s less desperation to profit from?
This is not capitalism. USA is a socialist nation. Has been for several generations!
Oh come on, The Dynamic General Stochastic Equilibrium Model cannot be wrong! It’s all we’ve got besides ‘ Making it up as we go
OK give everyone 2K. But what about next month?
Is your shift key broken haha?
Somehow all that printed money goes to people who already have more money than God, but everyone else gets nada. Plenty of people bleat about giving free to the growing population of the ostensibly undeserving poor, but them supposed “job creators” and “wealth creators” always get that money for basically nothing.
I really don’t have as good an understanding of the Fed as I should have, but if all that money can effectively be given away to the already well-off, what is to prevent sending checks to every man, woman, and child in the United States? The average American would spend it in no time. That 900 billion dollars would equal just over 2,700 per individual. Often desperate individuals. Of course, most of that money then would not go the stock market, if it was given to the poor, working and middle classes.
I am thinking it should be the $900BB plus the $4 or $5TT that is being offered, basically for free, to the hedgies, etc., that should be distributed ASAP to everyone equally.
So, if your $2700 is correct, that would make approx $15K per person, and that, along with forgiving all regular payments, should enable We the People to get enough food and fuel to cook it to exist through the next 6 or 18 months before the ”everything bubble” can get up and running once again.
Otherwise, as has been said here before, ”we ain’t seen nothing yet.”
I had been planning to give my ”street sweeper” to my son, as I am slowly getting too challenged to hold it steady, but have changed my mind for now, though I still hope never to use it.
Just to prove your point, we spent our entire tax refund buying groceries because of all the panic over the flu. We had other plans for the money, instead we now have two extra weeks of groceries.
I needed a bailout in 2008 and didn’t get it, but I could still definitely use it.
Bailouts only go to those who don’t need it.
Remember all those “You Can’t Fight the Fed” Stock investors?
I’d like to see a cartoon of the Corona Virus with a giant spike or stick of dynamite in hand confronting JD and the Fed sitting on top of a giant Everything Balloon/ Debt Bomb saying, “Hey Wanna Fight?”
Didn’t the “brain trust” at the FED keep saying….”we don’t see no stinkin bubbles” ….
Powell said there was a bubble in the toilet after he dropped a turd. But that is the only one in sight.
+1
“that it had spent a decade inflation so assiduously.”
Maybe you meant “that it had spent a decade so assiduously inflating” ???
– Nope. The FED FOLLOWS the 3 month T-bill rate. But that remains heresy here on this blog, right ?
Last auctions of both the 13 week and the 4 week were about 0.39% so what the fuss over Fed funds target rate of 0.25 to 0.50?
Those buying Treasury Direct already got hit last week. I did.
Did they reduce IOER?
In other words the Fed has cured the flu. About time. And of course these are emergency actions that will be immediately reversed when the flu goes away. And have the bestest mostest smartyest people noticed the Fed has one and only new policy remaining if this fails to make Mr Market happy? NIRP’em
This ain’t gonna do a damn thing. The fed has lost control.
As widely predicted. It seems to have been the consensus opinion in this comment section for some time now.
I only indulge in groupthink when the group agrees with me. Makes it hard to keep up my contrarian pretenses, though.
I tend to be a reductionist as in the simplest answer is mostly likely the correct one.
Reduce all the easiest, simplest most logical explanation.
Here it is:
Jerome Powell and members of the Federal Reserve own lots of stocks. The Supreme Court has legalized bribery of government officials and fraud.
Ergo, Fed is doing what it can to make their stock portfolios go back up.
That’s great; gonna steal it.
When the FED has lost control the interest rates will sky rocket, like Volcker days late 1970’s, for now they keep the Int-Rates near zero, whose going to buy?
Is USA still a safe haven?? For who?
Last Corona Man Standing is the normal for USA, because of the way Trump Admin handled test-kits and ignoring the virus, the rest of the world will be fine, and they’ll be looking at sick-man USA, then who will buy our T-Bills? I know, I know the FED will buy
Then how will we pay the world for all the stuff we don’t make? Even if we make Med’s we have to buy raw materials from China.
Got Gold? USD only hope like last time is to pay out 21% INT-Rates, then they’ll come back to uncle-scam
If this was a liquidity or banking issue, all this cheap and easy money could help.
But this is not a liquidity or banking issue.
It is a health issue which threatens to collapse consumer demand and the services industry, at least in the short term.
agree, not a banking crisis. its a drop in consumption.
Joe six-packs across the country need to spend in order to get the US economy out of this pickle
It IS a drop in consumption, but the banking crisis just showed up on the radar… more below down thread…
If some bankers don’t get sick quick, Joe 6-pack is gonna be throwing cans of beans through some ATM screens.
I beg to differ. The health issue is the catalyst that is bringing to a head a liquidity and banking issue that was already in motion. The virus simply sped things up
Thank you.
Thank you from me as well!
Bingo. This is a demand collapse. As someone else said. Fire up the Helicopters and fill with pallets of $100’s. Start with say $200 billion and increase until something happens.
This is going to be fun to watch.
This is 50% a health issue and 50% a state sponsored oil cartel issue.
The games the Russians are playing with oil prices is only exacerbating panic selling. The pandemic is being used as smoke screen for oil market manipulation and putins power grab.
Over the next few weeks there are 2 narratives:
A: The impact of social distancing on consumer spending.
B: The strategic power grab VPutin is making against OPEC and U.S. Shale producers.
Sadly, i don’t think that U.S. leadership is making decisions with the best interest of its people in mind.
I’m not so sure it’s VP grabbing the power.
Looks to me like MBS/Saudi are opening the spigot to flood the market & drive out the highly leveraged US frackers.
I just read it is the commercial paper rate spike just like during the GFC but do not understand the details over at 0hedge from from so called expert who called it also related to Libor. The is some US $ shortage so central bank swaps agreed. Like I said before it is the plumbing in the back office financial market not working being restricted to capital reserve requirements. Now with zero reserve requirement it may fix it but with futures plummeting is not a vote of confidence.
Wolf could explain it better.
Companies spent too much money buying back their stock, now they can’t pay the debt they assumed to pay for the stock. That’s the condensed version.
As a saver, I’m done consuming in the US. Last month my savings rate was 65%, to 75% next to adjust for the Fed keeping its rates ultra-low.
My purchases the past 3 months. 12 Fruit Trees, 4 Nut Trees, 10 berry bushes of various flavors, 50-60 yards of compost and mulch, 15-30 vegetable seeds and plants.
Best investments I can make in this crazy environment.
I look up to you!!! Want to do exactly the same, one of my hobbies is in fact planting trees.
You’re gonna need a lot of toilet paper if you eat that much fruit
Steve V. Lewis,
I agree with you completely.
Bravo, Steve!
Look up Seed Savers, get their heirloom and other such seeds that are non hybrid; study up on how easy it is to save your own seeds, which does not work with seeds from any kind of hybrid. That way, once you get going, you can keep going without any outside input.
We had 5 generations of tomato plants that were more hearty and productive every subsequent year as they adapted to the local soil of ”USDA, etc., rocky clay” amended only with mulch harvested from our own fields, collected with cyclone vacuum thingy, little bit of miracle grow directly near each plant ( only thing bought in .) Starting with clay you could not dig with a shovel alone, ”friable” top soil was well over a foot thick after 3 years. ( BTW, we did not have much compost, as truly free range hens got it.)
And the flavor of the tomatoes was so incredible, we have stopped eating the imitations in the stores, similar to my not eating any seafood for 20 years after leaving, to go US Navy my native area where I had been harvesting my own fish and crab and eating within the hour it came out of the water.
I will add that I planted and tended, more or less conventionally, hybrid corn, especially the very early varieties available these days, and enjoyed immensely sharing that corn with Amish neighbors whose corn was weeks from harvest a couple of years, lost some too, eh. Pretty much everything else was from SS, non hybrid, and seed saved every year.
Good luck and may the Great Spirits do their best for us all!
Good basic information. Congratulations!
Our family has been following this and that part of your catechism for years.
Just think of all the high paying jobs this will create!
I’m a doctor so this is outside my area of competence but I really don’t understand how this is supposed to help. We are on the verge of major US cities going into total lockdown, likely for weeks at a time. We are likely to have overwhelmed hospitals and people dying for lack of medical system capacity (not enough ICU beds).
What exactly is this interest rate cut supposed to do for the economy? Are restaurants going to start hiring workers that can’t actually come to work just because loans are cheap? Are workers not collecting a paycheck going to go out and buy a new car/TV/house because interest rates dropped a bit? Are companies going to borrow cheap money to buy back stock when their entire business model is wrecked and the stock market is jumping all over the place? Are banks going to want to lend cheap money to airlines, restaurants, hotels, etc when we have no idea how long this will last?
Uncertainty surrounding the damage from the virus is what is going to wreck the economy. People don’t want to spend money because they don’t know what is going to happen with their jobs, their health, and society at large. I live in the Chicago area and even if you offered me a -2.5% rate on a mortgage I wouldn’t buy a house right now. There is way too much uncertainty for me to make any major purchases. I could lose my job (I’m a surgeon and the ORs at my hospital are closed, leading to a massive income hit for me for however long this lasts). Home prices could (and likely will) crash. Everyone (including corporate CEOs and the big banks) is going to just shelter in place and try to wait this out. We are in survival mode.
As a physician who seems to have a logical handle on the economic fallout, I have a question for you. Which will kill more people the Coronavirus or the economic fallout from the seeming overreaction?
The virus may be more deadly than the flu, but is the current reaction worse than the disease?
The main difference is that people perceive that the corona virus can infect THEM, unless they go into social isolation and go OCD with the hand sanitizing.
My medical career started at the dawn of the AIDS era, which was similarly botched by the CDC and the Federal government.
Millions of people eventually died. BUT, a key difference was that there was always the reassurance that you were unlikely to get the disease if you refrained from promiscuous sexual activity with promiscuous partners, or IV drug use, and blood product transfusions. AIDS was super deadly, but not that contagious.
AIDS changed a lot of social behaviors. People with elective surgeries started to line up designated donor blood for themselves, from people they knew well. Until the current era of Tinder and Grindr it even have changed social dating behavior for a period of time.
Total social isolation to prevent SARS-CoV-2 transmission is quite a step up beyond that.
As for deaths, in 2003, Europe had a heat wave that killed an estimated 70,000 people, beyond the usual mortality rates. Most Americans probably have never even heard of that heat wave in Europe
Over-reaction? If you and your family and loved ones get hit with it and suffer loss, will you think the same way?
Would you rather do a Rudy Gobert and poo poo the whole thing?
Good one Gandalf, please keep up the good work here. I was in Berzerkeley in the midst of the AIDS epidemic and lost a dear gay first cousin who may have known better, but was bailiff at the SF facility and he likely got it there.
Perhaps the most persistent rumour in those days, similar to the current “Boomer Remover” rumour these days, was that AIDS was introduced to target gay folks;
I doubt both, mainly because I don’t think those puppet/politicians who would make such a call then or now are sufficiently intelligent. Always a possibility though, eh?
I don’t know that I have much special insight on the virus since I haven’t yet treated anyone with it (there are a handful of patients at our hospital who have it but I don’t work on those floors currently). I personally think things are going to get very bad in terms of the virus. Maybe not everywhere but certainly in hotspots like NYC and Seattle.
Part of the issue is that our medical system (like everything in America) operates with just in time purchasing and the goal of maintaining 100% occupancy at all times (to keep the system maximally profitable for whoever owns the hospital). The hospital where I work was operating at 95-100% capacity even before the virus hit (Just last month I admitted someone from the ER and she didn’t get assigned a bed in the hospital for >36 hours. I routinely have patients waiting hours or even overnight after surgery to get assigned a room).
There are shortages of things like gloves, masks, etc here already (since the company we buy them from has said they are backordered for months now due to demand) and our ICU is full right now (and we only had 1 Coronavirus patient in the ICU as of yesterday). That’s why all non emergent surgeries are cancelled here. They need the personnel and especially the equipment for Coronavirus patients (especially ventilators). I think what is happening in Italy in terms of rationing / deaths due to inadequate care is likely to happen in areas where the system gets overwhelmed. Which areas those will be and how many we will have is yet to be seen.
Thank you Xentago for your first hand reporting; please continue to update here with your clear and helpful reports.
As a 75 year old with no spleen and challenged immune system after bad effects of sailboat ”bottom paint” and other similarly toxic chems, I have prepped for this since the first time I saw it come up.
USA has been stripped of manufacturing capacity since owners of world decided, correctly IMO, that USA could become next ”Nazi type” situation at some point, and do much worse than when mustache guy tried; so they did the rational thing and moved most of the actual production elsewhere in world.
Perhaps now that they have been proven correct, and again IMO we have passed that point, they will right that wrong to We the People of USA, as well as all other We the Peoples of earth upon whom they dumped the bad effects of that manufacturing the old ways, before Gaia, in self defense, wipes out our species, and tries again with another species.
I’m a doctor so this is outside my area of competence
Maybe we can stray back to your field of expertise for a moment. Don’t feel you need to divulge any state secrets, but could you offer any anecdotal insights on the availability of cov-19 test kits? Inquiring minds want to know.
Unfortunately here in Illinois test availability is very limited. Friend who works in the ER wants to test anyone who presents with a fever and tests negative for the flu but the local health department says we don’t have capacity to do that kind of testing yet. Basically, if a patient has a fever and respiratory symptoms (with negative flu testing) but doesn’t require hospitalization and has no international travel / direct contact with a known case they are sent home without testing and encouraged to self quarantine. At least this was the case as of last week. We will see what the coming week brings. It is very frustrating. Have another friend who works at a hospital in the South. His city has 200,000 people and as of Friday they’d done a total of 4 tests in the entire city because the test simply isn’t available to them.
I’m very curious on the capacity for testing. In essence the hardware associated with the test should be the same. Some form of PCR systems. The problem is the actual assay associated with the testing. For that, you need to get manufacturing spun up. What is interesting to me is how long this is taking.
One of the leading companies that can do this is Roche. It is just beyond me why they haven’t already started spinning up production of test kits back in mid February when this started becoming a problem. There are also a bunch of other companies that can do this.
Is this fundamentally a sourcing issue or one of lack of preparedness on the part of industry.
Similar situation in Phoenix. Local female physician has the symptoms but she has been denied the test because she does not meet the 3 criteria to consume one.
MCH,
Yes, there have been a number of reports that a key reagent or reagents used to isolate the RNA of the virus in the first steps of this test is (are) in severe shortage worldwide.
Qiagen, a Dutch company, is the main producer of this reagent outside of China. I’m pretty sure China ramped up production of whatever it needed to get millions of testing going in China.
We could ask China for help (haha… not happening with the current White House Inhabitant)
Ontario has only tested about 3,000 to date. Estimate about 100 tests per day available. Even if you have the virus they will still not test you! Just go home and self isolate! Test kits are reserved!
So same situation! Don’t Test. Don’t Tell!
Ontario has lost containment battle!
The objective is not to actually achieve a result, the objective is to be perceived as having “taken dramatic action”. This is about avoiding criticism, not making a difference.
^This.
Rent would have a lot to do with it. Restaurants with no customers could borrow cheaply to pay their rent, etc., the story goes. Ditto hourly workers who are locked out of work.
And, as we all know, there are a lot of things that cheap credit won’t fix. And credit just kicks the lack-of-cash problem down the road a piece; the loans will have to be paid back some way besides more loans.
I’m neither a physician nor an economist, but to me this seems like a desperate attempt by Trump to do something to goose the stock market, so he can keep yelling until November how great “the economy” is doing. IMHO.
Have you seen Trump in his latest tv appearance. He looks like death warmed over.Look for him to resign by the end of April due to stress.
Stress induced by witnessing his investment in stocks melt.
“I live in the Chicago area and even if you offered me a -2.5% rate on a mortgage I wouldn’t buy a house right now. ”
As a renter, after 10 years of inflating housing prices, if the government really wants me to stop being a renter, it will have to give me a house outright. Sorry, just my 2 cents.
As a buyer, if the government wants me to buy, it would crash current prices.
As a renter, I am also curious about the housing market.
In the middle of CA housing crisis, if prices went down significantly &/or we were give some sort of stimulus money, then I’d absolutely buy. I’m desperate for rent hikes to stop. *insert angry emoji girl*
Don’t worry J. Mortgage rates are going up not down.
I look at this as a longer bank holiday.
What horrifies me is people who buy up shelves of baby formula leaving none for people who actually have babies….stuff like that.
I hate this black Friday stampede.
Seeing people at their most selfish and shoving is worth staying away from anyway.
The Fed 84day term repo rate last March 12 was just 0.25%.
Why should anyone be surprised? Unless one ain’t paying attention.
Details of the QE will be interesting but not surprising.
We already know there is little room left for public T bill auctions and most of the new money has to come from longer term notes and bonds. I am surprised he only said $700 BILLION.
I doubt they’ll get much foreign synchronization. To each his own now.
The swaps was obvious and we already discussed that last time.
The rich must be pulling a great deal of cash from the system…
BANK RUN!!!
The fed announcement says they want to help households *AND* businesses.
The rate cuts seem to help businesses via banks, so I can partially understand that.
How does MBS purchase help households? Encourages banks to lend more mortgages?
The article seems to say mortgages are “central to the flow of credit to households and businesses”… Could someone help illuminate this?
How does MBS purchase help households?
It gaslights them into a false sense of prosperity, even though they can’t go out and the shelves are bare.
Where demand shock meets supply shock, hello balanced economy.
VIMAL – If 2008-2013 was any indication, even at a .025% interest payment for borrowed money left on account with the Fed, this will have the desired effect of killing smaller banks who can’t meet their Cap Ex obligations (tellers, leases, marketing) and enriching the big banks. Just $100B of that $4T available over the next 6 months will net Mr. Big Bank a cool $250M. Why lend it to anyone who has a “sketchy” balance sheet in the midst of CV-19’s wrath or even the 12-24 months thereafter…OR…Joe/Jane homeowner for a mortgage when real estate is likewise on loose soil and wages will probably be frozen for awhile (like 2008-2013).
It helps household by helping keep marginal businesses alive instead of letting the banking system lock up completely and trigger even greater mass layoffs and unemployment.
See below for more…
Banks maintain MBSs on their balance sheets and use them to meet capital requirements for general lending. If the housing market starts tanking, the value of those MBSs will begin tanking along with it. If that happens, banks will have to curtail their own lending because they can’t meet capital requirements. That general loss of lending across the market will impact banks who need to borrow daily to meet their own requirements. Potentially leading to another 2008 where a general loss of confidence crashed the banking system.
The Fed is saying that they see this coming down the pike and are ready to buy those MBSs at par for cash to keep their value from declining and are prepared to lend bad banks whatever they need to get over the hump.
This is an important part of what the Fed is designed to do. It keeps us out of real depressions. The other half of what it is designed to do is regulate bank lending and behavior so they don’t become weak/bad banks in the first place. However, the American people have demanded that the Fed end this activity over the last 40 years through their voting patterns.
The Fed cut rates to the banks and the banks raised mortgage rates to the consumer.
The logical thing is to send cards to every household…increase the amount when necessary. It could be like a prepaid VISA. But no cash to hoard. Of course, some would get around that, but generally it would get to heads of household, like black grandmothers and other responsible people.
There is effectively no limit to how many Federal Reserve Notes the Fed can spend – none. There is basically only one limitation to how many Treasury securities the US can issue, and no one really knows what that limit is until after it’s been hit.
That limitation is met when it becomes clear to a sufficient number of holders of Treasuries that the only future holders of the forthcoming issuance will be members of the Federal Reserve System, as in primary dealers or other banking members. Not only will there likely be few other holders of Treasuries, but they won’t want to hold their Federal Reserve Notes they get in the sale of Treasuries for long.
Will that limit be reached? No one knows until after the fact, but this situation looks to be better than any other we have seen in a long time. When Treasuries and Fed Reserve Notes become hot potatoes from the standpoint of no one wanting them other than for covering soon to be due obligations, that becomes a problem. Up until that point, the sky will seem to be the limit, right up until it isn’t.
Japan and Europe (and yes, probably China too) will see your currency-collapse scenario before the U.S.
Its the Corona virus vs the economy stupid. The Fed is trying to juice the economy by any means while ALMOST everyone else is hunkering down and practicing social distancing to slow the virus’ rapid advance. People clearly prefer to survive this virus and economy be damned.
Even though I as an individual can’t fight the Fed, perhaps the Fed is powerless when the public fears for its collective life. Life trumps money!!
I was shopping online yesterday, one really good sale – 80% off, and one necessary replacement purchase. Now I hope I can get the stuff delivered.
NIRP, NIRP, NIRP…. SAY IT WITH ME. NIRP, NIRP, NIRP….
This is beyond insanity. Basically the Fed is going to go full Euro style into this. I just don’t get why the Feds don’t learn, their last action did nothing, twice of nothing (last time I checked) is still nothing.
If he does more of this crap, I am going to say that JP is a Russian plant whose entire purpose is to tank the global economy and submerge the US in a depression.
I know it’s crazy, but I stand by what I said before: Raise rates, literally, get the markets out of this slump, because JP is going to induce stagflation at this rate. The market is going down anyway, help it on the way down, and wait until the right time to use the bazooka. Which is definitely not now.
Did you notice that last week rates exploded despite the Feds actions?
yep, certainly the mortgage rates didn’t drop at all. The reason was that too many people were applying at once.
But if this was going to happen anyway, raise the frigging rates. Do it… just do it. Let the stock market drop, screw the crybabies on CNBC.
I love their latest request: to shut down the markets for a few days. Please, all that’s going to do is to force more drops on the market. It is abundantly obvious that no one believes anything that is coming out of the mouth of the government, they close the markets for a couple of days will just result in more selling when it opens.
Let the flood happen now while it is still minor. Don’t build it into a tsunami.
JP is a globalist setting the stage for more globalist leadership. Think Milwaukee.
Hey everybody, the rich are getting free money! Meanwhile, the small businesses, laborers and most families living paycheck to paycheck are on their own. Just a few weeks without money coming in will leave so many in dire condition. Remember the government shutdown? So many are not prepared.
“So many are not prepared.”
And so whose fault is that?
The answer is multifaceted.
But no, it is not all personal fault which is what I assume you are alluding to.
Stop being so insensitive.
I really think TXR is right on the money,,, EXcept for one factor a lot of us older folks forget or don’t know, those of us especially who went to high school when that meant something, other than an extended child care facility, for everyone who was awarded a HS diploma.
In those day of yore, the HS folks at least tried to teach/taught us to think and read every word before we signed anything, and, in spite of some very bad actors, most, actually the vast majority of HS teachers, were very fine folks, with great moral values, (with or without any kind of religion,) and I still remember and honor those folks who at least tried to ”straighten me out.”
In summary, us older folks, including ”war babies” and even some of the older boomers, so far as I have heard, who are still kicking this side of the dirt, are prepared to sustain.
“So many are not prepared.”
And so whose fault is that?
It is called “The Masque of the Red Death”.
You might want to educate yourself.
“Masque of the Diseased Pangolin Crossed With Diseased Bat Crossed with Diseased Corporate Multinationals Supply Chain Crossed with Diseased Banks Crossed with Corrupt Politicians Death”
Unless the police bolt your business, it’s important to show up and open. This is not the time to give up…you want customers when this ends, and it will end.
To quote George W. Bush: “This sucker could go down.”
I think Clinton said that too, in the Oval Office no less.
Bobber,
Spectacular.
Love it!!!
Or at lease we can assume, eh?
It’s like that scene in Titanic when the ship is going down and the guy tries to bribe the sailor to let him on the lifeboat.
“Sorry sir, you’re money can’t save you now”
Yes and unfortunately the 1st class men faired better than all 3rd class. Only a matter of time until there is another European run on the banks.
About 2 months ago Kyle Bass said HSBC was going down. I think his thesis was that it was already terminal and virus would hasten its demise. See Bloomberg 1-15-2020 interview video.
Powell and the Fed are behaving as if they all PERSONAL own large amount of stocks. Thankfully our Ivy League educated Supreme Court has legalized bribery and conflict of interest in addition to telling us legal constructs like corporations are people.
I am heart attack level angry! With this ‘new money’ we could have wiped out the college tuition debts, car loans, provided a paid mortgage payment holiday for a couple of years, AND, gave a $1000 to every human being in the US. Oh yes, how many small businesses have survived without help after a 15% decrease in wealth? Talk to a small acreage farmer, or a restaurant owner operator, or a mall retail owner operator about surviving hits that reduce wealth sometime. Talk to a family that lost 10-20-50% of their wealth and listen to how they paid the debt off. And soon the FED will be buying equities—won’t the CEOs be pleased.
SOCIALIST!!!
Without this money all the banks would go belly-up, all the companies currently strung out on debt would not be able to refi and they too would go belly up, and you would see a scenario that would make the Great Depression look like a picnic on the beach.
channelling your inner hank paulson, i see?
What he’s trying to say is that this is how capitalism is SUPPOSED to work. Carry on.
Maybe. Maybe not…
I agree, WS. If the FED-bashing, conspiracy folks who rant about the Fed’s mistakes were to have had a “financial cleansing” back in ’08, you’d hear them bellowing that the FED sat on its hands while Rome burned.
You can’t make the ranters happy.
(That’s not to say that the FED did a great job, or even a specially good job, it’s just that they didn’t allow a complete collapse to take place, and did it on very, very short notice)
Short notice? Short notice to the public who didn’t follow the charts.
The biggies were setting us up…
WS,
In general I agree, but if these crippled companies had been allowed to go bankrupt over time instead of being propped up by ZIRP over the last 20 yrs, then you would not see the huge threatened “spike in the curve” happening all at once now.
Sound familiar?
After bankruptcy the debts would have been resolved and the companies able to start fresh.
Instead, now we have have an accumulated crush of even more crippled companies, requiring the maximum of intervention (with all its negative consequences) to keep alive.
Again, sound familiar?
I’m thinking. What in the world will this do?
The Government spend and the Federal Reserve buys Treasuries.
Is gold confiscation next? Or they can just tax it to kingdom come.
The public forced to buy stocks?
Guys,
This situation is an “Act of God” once in a lifetime, first in the markets.
The banks are in good shape, but the accumulated debt from the long binge..
What would you do if you were the Fed?
Remember 2008 when we all thought the world was coming to an end?
I do. Corona will be another bad memory.
Time to Sack Up.
Tuco’s Child
What would you do if you were the Fed?
Fake up false identities and defect to Russia before the WH staff beats you to it.
Maybe it did end in 2008, ever seen wiley coyote run off a cliff?
Seven years earlier than that in my opinion
“What would you do if you were the Fed?”
i think it is more important to talk about what you would NOT do if you were the fed. ill speak to this in the extremely time restricted window of the past week..
the first thing you would NOT do is:
to announce such a huge change in policy ON A SUNDAY and cancel your own meeting scheduled for later in the week.
why? BECAUSE IT LOOKS BAD. it also amplifies panic and fear, thereby negating the exact result sought: stability and confidence.
the second thing you would NOT do is: rinse and repeat the same action taken during the 2008 crisis, and use it again for this crisis.
why? BECAUSE IT WONT WORK. ask they fed if there is a financial crisis and what are they going to say? “there is no crisis”. oh really? well it sure looks that way since QE was just resurrected from the dead over a single weekend.
fool us once.. shame on you.. (2008) fool us twice.. shame on us (now)
whats that i hear? limit down already? *SMH* *FACEPALM*
Good comment IMO KNUNK,,, please continue to share here.
Clearly, ”this morning after” those actions, like many similar, reek of desperation, as Wolf described so well once again in the article.
So far, IMHO, FED has kowtowed to pres, but I don’t think that can or will continue, as the banksters/oligarchs who own the world get ”fed up” and realize the reality of this time,,, as opposed to the folks who claim this is just more ”deja vue all over again.”
I just turned to a CNBC talking head show to see their take on events and for once it was actually pretty good listening. The cure for the virus is actually in direct opposition to a robust economy. To kill the contagion they have to first kill the economy to keep people from interacting. As such, and as remarked above, there is absolutely nothing the Fed can really do.
The other thing that was interesting was the fall in the US dollar to the Japanese yen.
I think we are at the place where we devise/revise our plans and strategies for getting through the days and staying healthy. I just phoned my elderly ( age 79) tenant and have arranged to carpool him to town once per week leaving here at 6:15am in order to hit the large grocery store at first opening, which is 7:00am. We’ll split the gas cost and grab a fritter and coffee from the drive through for the way home and for a little treat. I used to shop at first go when I worked in town and there are only a few older guys shopping and absolutely no lineups at that time. If I need building materials the yard is open at the same time.
Oh, one more thing. My best friend phoned me last night and we had a long chin wag. A few months ago he invested 25K in a recommended package through is financial advisor. Last week he lost the 25K and another 10K on top of it. He is 61 and likely too old to recoup anything. I don’t know how his other investments are doing and did not ask.
In a vibrant economy, with adequate distribution of wealth and manageable debt loads, governed by market-based interest rates, the economy would be strong enough for a two-month shutdown.
Think of what a precarious position the Federal Reserve put us in by suppressing interest rates for 10 years and encouraging people and corporations to take on excessive debt.
Nailed it. Lack of distributed tangible wealth (not paper wealth) is going to be a killer.
But of course billionaires earned every penny.
Paulo,
The Asian countries have been way ahead of quarantining and testing and getting the corona virus under control.
The US is WAAAAAYYY behind. The lack of war-footing mobilization to deal with this virus means that it will continue to slowly roll out across the country.
In the middle of the country, most Americans still are going to restaurants, traveling, etc., as if the corona virus is just fake news.
So, the middle of the country is going to get hit in about one to two months. The US response and slow roll out and recovery are going to mean that everybody else who has responded faster and more vigorously, e.g., China, Asia, Europe, are going to be recovering economically while the US is reaching peak economic devastation!
Yes, as I’ve posted before, this could be the end of the USD as the world reserve currency. That will be the final shoe to drop in this economic collapse that is coming. This will mean the end of the Fed’s free money printer.
After everything the current Phantom of the White House has done to alienate everybody on this planet, there will be lots of people happy to dance on the grave of the USD, most of all China and Russia.
“The US is WAAAAAYYY behind (quarantining).
My mantra again: Don’t rely on “where the U.S. is”.
Nobody is preventing me from quarantining myself, which I have been long prepared to do and am now doing.
Related: Much angst about lack of WOO HOO! halo bug test kits.
If you self quarantine, you wont need one.
Folks just remember one thing. The Fed only cares about the banks and the “system”. Regular sheeple can go die for all they care! The banks are in trouble in Europe and soon to be here. That’s all this is about.
“The Fed only cares about the banks and the “system”.”
yeah, because the fed is OWNED by the banks in the system. wolf himself has spoken to this numerous times in posts on this site.
have you just now realized this?
I’m not very savvy about economics, but I just don’t see how this is going to save the economy from the effects of all the people who will be broke from being out of work and all the ones who are loaded with medical bills that will take years (if ever) to pay off.
What does this prevent economic disaster?
It’s going to prevent about half the layoffs that would otherwise have happened.
The market is freaking out because only now are they getting the idea that maybe COVID will take out financially weak enterprises even faster than it takes out 80-something obese smokers.
And Wolf has documented that most of the “investment grade” corporations were only one notch above junk before COVID hit. There is going to be a huge domino effect in the bond sector.
“It’s going to prevent about half the layoffs that would otherwise have happened.”
please do explain.
and also, QE policy does not allow the fed to buy corporate bonds, even investment grade. so why mention this?
I went out for pho today. That will prevent layoffs. I’m not sure history backs up this notion that the Fed does good. Job losses WOULD have been worse? Wow. Totally untestable claim. Maybe everything would impose if they didn’t exist. There’s a theory we can test!
I say let the layoffs happen and let the pitchforks come out. This crap has been going on since 1987. Time for it to end.
Really been going since more like 1930,,,
but really no one wants to talk about that, in spite of the very clear and continuing abnormalities/incongruities.
Personally been watching these kinds of events, major and minor, since the huge effect to my birth family in 1956.
Always at least some similarities, always some differences each and every time, including this one.
Would not be the least surprised for this event to be worse than 29 one, especially, (as noted this site many times, ) for the folks who are doing most of the manual labor of USA these days.
Not True…
“The trouble with socialism is that eventually you run out of other people’s money”
Reality says…
“The trouble with socialism is that eventually you run out of other people’s credit”
This is where we are heading with the Fed’s zero rate policies.
U.S. debt is “backed by the full faith and credit of the US government” but for how long?
That the Fed is willing to throw what little credit it has left in an attempt to mitigate the media induced threat of the coronavirus is very troubling to me.
Real threats to the US are everywhere and growing…
The full faith and credit of the US government is being stretched to its limit and beyond.
The full faith and credit of the US government is being stretched to its limit and beyond.
High time for the Chosen One to get on the tube and flame the teevee audience about how it’s everybody’s fault but his, maybe from an empty stadium. Pass the popcorn.
One imagines the End Timers are excitedly awaiting the Rapture right about now, so at least somebody’s happy about it.
Wolf, you forgot to mention FED also removed the banking reserve requirement with this emergency cut. I mean, what can go wrong with that? What a bunch of knuckleheads, all this is not going to patch up the giant demand hole from this Covid19 fallout, except more socialism for the banks once again.
Yes, there are a couple of other things I didn’t mention, such as the Fed’s reopening of the old swap lines with other central banks. It’s hitting the fan.
I didn’t believe you so I went to the NY Fed and found it and read it –
“In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26…”
Now I finally believe – our banking system is Doomed.
That’s actually standard procedure: during good times, they should (but don’t often don’t) raise the reserve requirements in order for banks to build up buffers; and during bad times, they relax reserve requirements so that banks can continue to make new loans and don’t shut down lending for regulatory reasons.
Oh dear, I’ll have to take advantage of rock bottom interest rates to buy assets at rock bottom prices. Yawn.
Mind the spreads…
What happens if the banks go into such distress that YOU don’t get “rock bottom” interest rates?
I’ll use cash.
Anger and fear will not make you rich.
The cows have come home as have the chickens, to roost. Now we wait to see if pigs can fly.
I find this to be awesome arrogance on the part of the Fed. The government has absolutely zero business trying to prop up the stock market. The Fed does have a responsibility to ensure smooth functioning of the financial system. And, it should do so by supplying liquidity when needed – at a premium price.
The Covid-19 virus is going to do major economic damage. It may not last long, but a down turn is coming. Consider Orlando FL: Three major theme parks shut down. That is going to be depression type impact for that area. That may be an extreme example, but everybody is going be impacted in some way.
Mr. Market is not one to wait and see on such things. The Fed is going to find out that it is not bigger than the market. The government money spigot has inflated the stock market way beyond economic reason. The Fed has created this monster and all they will be able to do is watch it turn on them.
A key unknown is whether we will see deflation or extreme inflation. Deflation is the current boogie man that the Fed is terrified of. Therefore, we may see them drive things the other way.
Your mistake is to believe they are trying to “prop up the stock market”.
They are propping up a massively indebted system that is severely lacking the large organic growth it needs to sustain.
There are decades/centuries of varied, and very, human reasons why we have come to this point but to this point we have come.
The stock market is just part of a fairly chaotic and sick system that we all better hope does not truly implode.
I certainly agree that there is a massive debt cancer throughout our fiscal and monetary systems. Is that what the Fed is worried about? Perhaps. But if that is what they saw, why would they not be making moves to fix the underlying problems?
As it is they are tripping over themselves every time there is a negative squiggle in the stock market. Could it be they know better but are kicking the can down the road so that the disaster does not happen “ON MY SHIFT”? Historians 50 or 100 years from now will be in a better position to figure that out.
For almost 20 years now I have heard the phrase: “now the Fed is trapped”. Someday that will be true. Is it now? That type of declaration is above my pay grade.
Eferg,
The Fed is not the government. When you comment “The government money spigot has inflated the stock market ..” I assume you mean the U.S. annual fiscal budget???
The Fed is indeed providing liquidity for no charge though. This is exactly what the Bank Policy Institute was lobbying for as reported on 2 March by Wolf’s ‘Wall Street Banks Shamelessly Try to Use Coronavirus to Get Federal Reserve to Weaken Rules: Better Markets’
Agree, the Fed is not the government. But it is part of the government and is the main monetary arm. I know there are elements of structural independence, but who appoints and confirms key members.
The government money spigot to me includes both monetary and fiscal aspects. The monetary one probably more directly inflates the stock market, but fiscal deficits also make a contribution.
Hey Dan,,, there is always and all ways a charge for the kind of intervention we are seeing the last few days.
Please do not let the PR efforts of the FED and the puppet/politicians who are owned lock stock and barrel by them as proxies for the oligarchy owners of the world destroy or divert your common sense.
We the People have seen the FED destroy our ”real” wages and earnings and savings time and time again; time and enough for our owners to step up; the possibilities if they do not boggle the mind.
Believe me, I am not a fan of the Fed.
Much of the income inequality can be traced to the Fed’s actions since the GFC of 2007 & 2008.
Long ago I studied physics. The Laws of Physics for motion and inertia are the same as they were when Sir Isaac Newton described them.
But the Fed and the world’s central banks have been breaking the Laws of Economics. When I studied these, capital had value. Now some time has passed, but according to the Fed capital has zero value. OK, zero to 0.25%.
Hey Interest rates are negative in a lot of places… maybe soon stocks will go negative? I’ll pay you to take my tesla shares..please please!
Somehow I was expecting a punch line about toilet paper.
Did you say I can get some toilet paper at the fed I’ve been looking everywhere. Thanks for the tip
Ah. Expectations exceeded.
The Fed’s printing money on toilet paper now?!
I hear unsecured 3.5% Boeing 2057 rated Baa1 trading 15% below par does wonders for removing excess fecal matter from posterior orifices.
I think the $700 billion QE will fund both the Fed’s and the Treasury’s Covid Fund. End of story.
Nope, this has little to do with treasury. This is all about swapping assets. It’s nothing. You don’t get it. Lowering the rate actually hurts that intent. They know it. It’s all for show.
Lets think like the Fed,
“Anyway stocks and economy are going to slowdown or for worse crash sooner. When the blame game starts, people need scapegoats like POTUS, CDC and hospitals. FED should not be blamed even if the strategy fails. Because if the FED fails, then confidence on whole capitalism will be ruined. Rates are zero, QE5 started, its not my fault”
i like this thought.. exactly the reason why the current state of everything is where it is. TOTAL LACK OF RESPONSIBILITY. its all about avoiding blame, as long as they are “doing something”. even if that something isnt beneficial.
also.. add that powell probably well understands that trump doesnt care about fed ‘independence’ and would quickly can him, and possibly more board members for not doing “more”. is that legit/proper behavior? not really. is the threat “real”? sure is.
the trouble is the “more” is the same old rehashed nonsense from 2008 that wont help this time around…
Inappropriate negative interest rates are the next step towards making money a service you pay to use instead of something you get paid to lend.
Negative interest rates mean you pay to play within any monetary system.
A cashless society facilitates this. Since money is no longer a store of value, the only value it has left is transactional value. NIRP implies a transaction fee on the use of money.
I have an alternate solution. Instead of QE-n of $700 billion let’s give that to the homeless and solve the homelessness crisis, the housing crisis and preserve the medical services system.
Supposedly there are around 500,000 homeless. Say that number is wrong and there are one million. That $700bn would be $700,000 per homeless person.
They would then all buy houses and Sea-Doos, supporting the housing and recreational market. They could also afford health insurance and keep that 20% part of our economy afloat. It would also get all the poo off the street and sell a lot of barbecues.
Correction, that isn’t 700 billion in $$$$$, but assets banks price in dollars. They aren’t going to get bids. The Repo already proved it.
Arg.
Next to the “buy gold” crowd, I am really beginning to get super annoyed with the “Fed is going to do Negative interest rates next” crowd.
Folks, please read up about what makes up the Federal Reserve and the differences with the ECB and the Bank of Japan.
Here’s a blurb I found with just a quickie search online:
While the Board of Governors is an independent government agency, the Federal Reserve Banks are set up like private corporations. Member banks hold stock in the Federal Reserve Banks and earn dividends. Holding this stock does not carry with it the control and financial interest given to holders of common stock in for-profit organizations. The stock may not be sold or pledged as collateral for loans. Member banks also appoint six of the nine members of each Bank’s board of directors
OK, so that means :
The Private.Banks.of.the.United.States.Control.the Federal.Reserve
Zero interest rates are great for profits for private banks! The Fed gives them free money, and the private banks loan it out at whatever interest rate the market will bear!
Negative interest banks kill profits for the private banks! Money that depositers (you and I and corporations needing banks to do hold their payroll and other cash flow accounts) for which we are getting paid exceedingly little interest, now (above a certain deposit limit) get TAXED, essentially, for just sitting there in an account!
There is no way in Heck that the private banks holding stock in the Federal Reserve would ever, Ever, and I mean EVER ALLOW THE FEDERAL RESERVE TO DO NEGATIVE INTEREST RATES!!
THANK.YOU!
What is the difference between zero interest rates, low interest rates, or high interest rates with regards to the banks ability to make money?
Honest question. The fed interest rate sets a floor on the interest rate that the banks can charge, and they all compete to stay as close to that floor while remaining profitable as possible.
So if the banks get it at 0%, they lend it out at 2% and make 2% profit.
If the banks get it at 1%, they lend it out at 3% and make 2% profit.
If the banks get it at 15%, they lend it out at 17% and make 2% profit.
What is the mechanism that you are saying allows the bank to charge a rate beyond 2% of the fed rate?
Zantetsu,
I didn’t say anything about 2%. Market forces, administrative costs, and profit motives set the interest rate spreads above the Fed Fund rate and 10-year Treasury yields, which are generally the benchmarks for short term and long term loans.
Usury laws govern how HIGH the interest rates can go, sometimes as over 500% for payday loans. Only half the states have usury laws. Suggest you google usury laws if you are interested in learning more about that.
Gandalf – I just picked 2% arbitrarily.
My point is that there is a ‘markup’, whatever it is, 2% or otherwise, that banks will make regardless of the fed rate.
Is there some reason to believe otherwise?
Repo
Zantetsu,
In addition to the other differences, there are the $34 billion that the Fed paid the banks last year in Interest on Excess Reserves, which went straight to revenues and pretax income. That will go to practically zero.
“money is no longer a store of value”
Money is force. Since the US has nuclear weapons that is infinite force and infinite money.
I guess there is one exception — a little bug. The selling will continue until the virus is stopped. Its all about return of capital and life preservation.
“I have an alternate solution. …solve the homelessness crisis.”
let me ask you something.. if “they” wanted that crisis solved, dont you think it would be over by now? all this money that has been wasted since 2000 on totally idiotic wars for nothing, the 2008 bailouts and etc?
no sir, you completely misunderstand. you are thinking too “rightly”..
Seems like whenever the Fed lowers rates, the markets drop big time. How many times does this scenario have to repeat before they try increasing instead?
I had to retire about two years back and used to wear steel toed safety shoes on the job. I feel like Powell just borrowed them and used them to kick me right in the teeth, along with other retirees, fixed income investors, pension plans, and god knows who else just for the sake of the almighty market. God knows how many people are going to get hurt by these insane rate drops, but I’m sure Powell and the Wall Streeters don’t give a damn anyway. BTW, all of you out there who are making just wonderful capital appreciation on bonds you hold please enjoy your profits because savers like myself and others are going to pay for it. Its really nice to know that working hard to save up and being responsible all my life doesn’t mean a damn because the gamblers are going to get covered no matter what. Moral hazard…. We don’t need no stinking moral hazard! Other than that Mrs. Lincoln how was the play? Christ, what’s next (don’t answer). It could be worse, I could be one of the poor souls employed by the travel and entertainment industries that are going to get laid off and hurt by all the cancellations and closures happening. A lot of small businesses and workers without much of a cash cushion are going to be in trouble, but I’m sure Powell and the Fed has a fix for them too. (I’m kidding). Going online to open up some one-year CD’s and lock in some rate before they drop to near nothing. Thank you Mr. Powell. (I’m trying to keep a sense of humor Wolf, but its getting damn hard)
Fed is very close to losing control of rates here, don’t go too far away.
Afraid we haven’t seen nothing yet. We have the perfect group installed who will not hesitate to do executive emergency orders. Absolute lunatics. Mnuchin is perfect for the part. Easy to see him and Trump bring down Bank holiday including withdrawal limits or perhaps just use your deposits in a now legal bail-in, tax pm’s to stop a run out of fiat or just make them illegal to own, mutual fund lock down, freeze broker accounts, you get the general idea here. Could be ugly. Especially now stuck at the zerobound when even the BIS said lowering rates have no effect anymore. They knew this but,but yeah, there is more to come.
What? We talking Greece and Cyprus coming to America? Don’t you know it can’t happen here? That’s right everyone, sleep sound.
i believe you are quite prescient with this comment, sir…
My reaction to confiscation of gold and guns is individualistic and by all evidence shared by millions: I won’t work. These essentials will be retained.
Nasdaq has a lot of catching up to do to Russel 2000, like 25-30% in short order. Fun to watch. Still have half of my puts left.
Fed should have started raising rates in 2014 latest. What a bunch of morons.
As there was little uptake on the $500 billion REPO operations could this be because the financial institutions need the money but don’t have the collateral? Could this be why the FED has gone down the QE road instead?
I remember reading somewhere that when the 07/08 crisis struck they soon stopped REPO as it wasn’t necessary once they started QE.
I don’t fully understand this stuff as I’m a programmer not a financial guy.
They have acted like that because every time they tried to raise interest rates Well st screamed bloody murder. Remember the “Wall St crybabies”? That’s what this all goes back to.
So, the fed is throwing around cheap money! Try to find a lender! We are Fifth generation small farmers with money in the bank, own some land and would like to take out a small loan to plant almonds. No go! It’s the economy they say. The truth is that banks are not going to partner with small business on cheap money!
The market is going down because the Fed announced lower interest rates and QE.
The market would have gone down if the Fed announced higher interest rates and reverse QE.
The market would have gone down if the Fed stood still.
Jay Powell got himself into a pickle.
Yes, the market is going down regardless.
Powell’s move is trying to keep the system intact so that the market’s final bottom includes more than a handful of surviving companies.
you and jerome go way back, eh?
its funny you suppose the system is “intact”. maybe it looks that way to you, when really it has been broken for quite a long time.
i presume you mean, the STOCK market?
there are many “markets” out there.
but actually, you are missing something.. the market would probably NOT have gone down if the fed announced a modified version of their new fancy scheme THAT INCLUDES A PROVISION ALLOWING THEM TO BUY STOCKS.
we would be seeing the biggest one day up move in history on monday if that were the case.
Who here thinks this will be worse than 2008/2009
I do, by a large order of magnitude.
Whatever it is, it will happen a lot faster. A market that goes down 20% in a week can go down another 20% in a week.
People said during the last recession that the market should be allowed to self-repair or else it’s kicking the can down the road and it will be a lot worse later. This may be the later.
Definitely worse, and I think the big drop will be in 2021 (second half of year) to less than 10,000 on the Dow, and the S & P possibly back to 666.
Why second half of 2021? Is your fortune teller better than mine?
Absolutely. This time it is the real economy, not the Casino Bank (2008/2009) or DotBomb (2000) economy.
Question. I sold shares of my Roth IRA this weekend. At the very last screen it said that since it’s a weekend, I will receive the following business day’s trade date. What if trading is pulled on Monday, would that still be considered “regular trading close”? I’ve never sold before—just taking my emergency fund and running. I’d call them but not open on weekend! Thanks.
@noname – The market will most likely trade tomorrow. If it doesn’t, be sure to cancel your order.
My approach for swapping mutual funds (that only trade at the end of the day) is to not trade them, but when I have no choice, I trade only in the last 30 minutes of the trading day. That’s the only time you actually know what price you will get (errr., somewhat… I could see a 5% move in the last 30 minutes on some days in the next 30 months).
Hi, Wisdom Seeker, thanks for the reply.
Friday’s 10% surge in the last half-hour was part of my mental agreement to just go ahead and put the sell order in today. I just wanted it in and not wait another day, and not facing another day (or two—I swear there was a time cut-off before actual closing and it sells the next day, but my mind is gone right now) of huge drops.
At what point are all going to wake up to the sad and alarming fact that money doesn’t and can’t really have any real value any longer. When central banks just keep creating hundreds of Trillions of Dollars,Pound or any other currency out of nothing how can it? It’s the biggest Ponzi scheme and debt enslavement con ever and all but the bankers are the victims expected to pay for it.
Bring on the Bitcoin.
Digital tulip decimation inbound.
To announce on a Sunday evening that you are cutting rates to zero reeks of fear, or coercion, or both. When they say they will not cut to negative rates, well that’s nice and all, but I have to plan now as if that might be a reality. The Fed has proven itself completely untrustworthy and not grounded in reality.
you and i share the same sentiments about this. please, do look over my comments scattered throughout this piece. i think you will find them worthwhile.
It appears that Chairman Powell was most interested in making one, and only one person happy.
Mr Trump was clearly pleased,and made this comment,
“I would think there are a lot of people on Wall Street that are very happy. And I can tell you that I’m very happy, I didn’t expect this. And I like being surprised.”
Its quite obvious that the Chairman has only one priority.
Damn the torpedoes,and full speed ahead!
If I remember correctly in Farragut’s days “torpedoes” meant “naval mines”.
Highly appropriate since the USS Jerome Powell struck one, went groaning on her beam ends and is now taking water in.
This was not an act of desperate bravery like Farragut’s mad dash at Mobile Bay but an act of idiocy worth of the drunken captain of the Exxon Valdez.
Guys, the Fed knows exactly what they are doing. They moved the meeting up from Wednesday to Sunday because they knew they would need big action this weekend.
They knew they would need big action because the interbank and corporate short-term lending markets are seizing up at a level not seen since 2008.
Key chart: rate spreads on corporate bonds and treasuries vs. eurodollar loans:
https://fred.stlouisfed.org/graph/fredgraph.png?g=qnuu
What’s going on is that nearly every company on the planet has simultaneously realized that it is in an existential cash-flow crisis due to COVID. The smart ones moved fast and drew down their revolving credit facilities. The slow ones are looking at an economic nuclear-winter scenario where revenue plunges for months and they can’t make their loan payments. Other market participants who depend on those loan payments have started dumping everything that hasn’t plunged in order to raise cash to meet their own commitments.
Everything Wolf has ever written about the potential for bond funds to suffer a run-on-the-fund now applies. And everything he’s written about too many corporates hanging over the edge of the downgrade-to-junk cliff.
One clue is that the NYSE composite (which has a lot of closed end bond funds in it) is getting hit harder than the other market indices. Another clue is that the bank-corporate bond ETF (LQD) is getting clobbered just like junk bonds (JNK).
Treasury and MBS based funds should be okay, the Fed can protect those. For everything else it’s going to be interesting.
This IS wisdom.
We are in a bear market that will go bad or horrible depending on how long this virus lasts.
Maybe only marginally on-topic, but AAPL is now “down” to only 50% gain in the past two years.
Even with these drops the appreciation of the stock market over the past two years has been phenomenal.
I personally got 40% out of stocks in the October 2018 dip, 70% out at the end of 2019 and 90% out last Friday (can’t get the remaining 10% out because it’s in instruments that I can’t control like college 529 plans).
I think stocks could drop another 20% and still have good returns over the last 3 years.
I think the only people truly upset by these moves are people who think that they should make 20% per year in the stock market in perpetuity, which is kind of ridiculous.
What’s much worse is the effect that this will have on unemployment. There is a lot of unemployment coming.
I think this is when Buffet comes in for the kill. He had Goldman by the nads last time.
I assume any company that had a revolver can still borrow against that revolver according to the contract, as long as the leverage ratios and other covenants are met. The banks can get the needed liquidity from the Fed.
If they haven’t drawn down yet, they should this week before credit rating downgrades come out. I’m sure the credit rating agencies will allow some time for this before downgrading, or else they’ll get a special invitation from the Oval Office.
The cartoon is great! I am foxed how there is not even one in the bunch who did not ask the question “of what use is a rate cut when people are locked down”. A more appropriate line of action would be suspending mortgages and compensating banks for that (like Italy) and supporting enterprises who will lose revenues due to the locked down. Basically it is all about fiscal policy. May be Powell should dial Trump.
I for one am glad that we are at a stage where monetary policy is ineffective and will show up the Fed for the incompetent bunch they are.
OMG, of what use is a Phd if you cannot think. Worse than that is the fact we are stooges to their machinations.
If after all this, the market is limit down, it is likely that “nothing goes down in a straight line” might well be proved wrong.
One difference between the Great Depression plunge (1929-1932) and the Great Recession plunge (2007-2009):
In the Great Recession you had a once-in-a-decade opportunity to buy the market at about half-off.
In the Great Depression, those who bought the market at half off had even that investment drop another 60% before it finally hit bottom.
One of the reasons I’ve made this website part of my routine (in no small part to the wisdom Wolf charitably shares) is the number of informed and reasonable commenters. Out of curiosity, what other websites/blogs do people here frequent to get a well-rounded perspective on the economy and financial matters? I don’t mean forbes or marketwatch or bloomberg but the relatively unpopular ones that are mostly shunned by the wall street types who don’t think asset prices are inflated or that there’s (‘was’ now) a bubble of any sort in any asset class.
Wolf, does your crystal ball show you another 10-20% drop next week if the rate cut’s already causing the futures to tank? If they don’t have any bullets left, what are they going to do on Mar 18 if anything?
I have close to zero doubt we will see the S&P < 1400 before the year is done.
History clearly tell me this to be true.
However, if this virus does not go away for a full year I believe we will test the GFC lows in 2021.
Remember, I am just a highly educated shmuck with an internet connection and a keyboard.
1400 wow! I was thinking at 1800-2000, i will cover all my shorts. You, sir, have a much stronger stomach than me. I hope you’re correct.
‘1666’ this time
Deer:. I am not sure futures being down limit tonight means much.
We will have see what the PPT does tomorrow morning.
The PPT might be content to leave futures down tonight so as to better burn them tomorrow!
This is our “normal” central bank market in action!
You guys and your belief in some mythical PPT.
The only PPT is the collective psychology of investors around the world and the realities of the economy on main street.
Psychology is being crushed as the economy is being bent over.
Period.
VeryAmused:.
I am very aware that there is no free market anymore!
As a saver and gold bug, I have suffered multiple near deaths at the hands of these central bankers!
Central bankers excell at destroying both fake and real wealth!
Maybe the virus will releave me of any troubles?
If you are a big bank or whale or the ppt, would you fight against sentiment and poor liquidity on a Sunday night or let futures fall where they may then buy everything tomorrow or Tuesday at a 10 or 20 percent discount? I don’t have a crystal ball but I’ve seen these things play out before; I wouldn’t be at all surprised to see a reversal of the limit down with significant gains by the end of tomorrow or by mid week. I guess what I’m saying is that when things get nuts like this or during gfc, I don’t read too much into overnight futures.
this is an interesting thought.. you’re the first to articulate it here as far as ive seen.
quite clever, but this time around i dont know.. im with wolf’s cautionary distance suggestion.
Nick: “poor liquidity”
How is liquidity any poorer than it was a month ago? Have dollars left the system?
I was referring specifically to trading in pre or post market vs when markets are open.
My crystal ball tells me to stay clear and watch this from a safe distance. It’s hitting the fan. And the Fed is throwing everything it has at it, and I have no idea how this will go on a daily basis. I do expect a HUGE amount of volatility (meaning big plunges and big surges), and if you want to stay glued in front of your trading screens, there might be some big opportunities for short-term trades. But if you’re off by a little, you could lose a lot too.
In terms of the economy, this sucker is going down. I see it everywhere. Businesses are shutting down, revenues are collapsing. People are not spending money on big ticket items. Home sales will come to a halt, as will auto sales. No one has ever been through anything like this.
It would not surprise me if this gets really messy.
It’s time to Lock and Load. The 4 horsemen are getting ready to right.
“No one has ever been through anything like this.”
I have (rather, my parents, mostly).
1929 – 1940s.
Oh, I don’t know. I just spent $10 on a bottle of genuine Vermont maple syrup. That’s pretty outrageous for me.
Wolf,
Apparently the survival guide to this (from the hoarding perspective runs something like this)
– Toilet paper
– Sanitizers of various types
– Paper towels
– Frozen and non-perishable goods
– Vitamins and any type of health boosters
– Large containers of water
– Cash
– Guns and ammo to said stash
I think everyone is expecting the logistics and the supply chain to break down. Next to go will be lumber, sheet metal, small tools, Home Depot needs to have its turn in the sun.
It feels like the Zombie apocalypse or something. I’m going to run out and get one last latte at Starbucks before those are closed down. :)
With any luck, the entire Federal Reserve Board will march out of the meeting room, bow to each other, pull out their wakizashi swords and commit ritual seppuku.
Don’t get my hopes up. With no sports on TV now we could all sit around and watch the “try to catch a falling knife” competition on Wall Street, should be interesting.
Include rest of government officials and TBTF hoodlums , make it a pay-per-view: problem solved!
Gandalf – to be replaced by whom?
This isn’t a matter of a few bad apples. The entire barrel is rotten.
No need for replacement. Abolishment.
Zero chance. That would take honor. And those larsonists have NONE.
Deerinheadlights,
I use Zerohedge.com for most of my news. It’s the site where I learned about WR.
My daily reading includes newspapers and websites as wide in the entire world as i can find, I started to list many of them and decided not to do so in hopes you will find your own, and at least one in every continent except polar, but including NZ, AU, etc.
IMHO, that’s the only way to be able to ferret out the truth, in spite of the very clear censoring and brainwashing currently continuing.
For several years I received DW (Germany) France24, Al Jazeera and CGTN (China Global Television Network) over the air on various channels. For some strange reason I cannot receive them for the past several weeks. Probably just some fluke. I miss my foreign new sources.
After being 100% in cash for the last few years I bought some names last week that are lower than they’ve been in 10 or 15 years after getting decimated these last few weeks; it is like having a time machine. If markets open down more than 5% tomorrow I’ve got a few more on my list. If the world ends my portfolio might lose 20 or 30% but I like the risk reward at this point. If the world doesn’t end and we follow China and start getting back to business by May I think I’ll be happy I bought. Remember that the biggest gains are made when buying during a crash when everyone else is talking about the end of the financial world. 87, 2001, 2009….I see these days as a buying opportunity for long term and I think even if we go down quite a bit more there will be enough face ripping rallies to sell calls at a high premium and cover losses.
Nick,
Like you and lots of others on this board, I’ve been in cash for a while.
I don’t think the corona virus will be over in the US by May. It’s hardly even started
China got control of the corona virus quickly by bringing the full weight of their Communist totalitarian surveillance and monitoring system (designed for rooting out and capturing spies and traitors and dissidents) to bear using incredibly vigorous applications of well known epidemiological techniques – contact tracing, rigid quarantines, neighborhood surveillance for new cases, and testing, testing, testing.
Here in the US, the story is almost the exact opposite of what was done in China:
The poorly funded public health folks are absolutely overwhelmed trying to do more than perfunctory contact tracing.
We still have not ramped up to full testing availability for everybody. Not even close
Social distancing – is that the best we can do?
Restaurants around me (I am not on the coasts) seem to still be full of people who don’t seem to think corona virus is going to get them. But it’s coming, in one to two month, my guess. Or, about the time you think the US will be in recovery. Which is why I think you are dead wrong. Sorry, but I’m saying this for your benefit.
Our President first denied this corona virus was even a problem, then bumbled around trying to figure out who would be in charge, and most recently has been trying to put lipstick on a pig, basically. All of his supporters (40% of America, still) believe him! Probably the same people I see still going to restaurants and living life like there’s no pandemic coming.
The first year quarterly earnings have not been announced (end of this month), there will be another plunge when they are, and then another one when the second quarterly earnings are announced (more fully reflecting the national epidemic)
This will lead to downgrades of corporate credit ratings and corporate bonds, which will lead to echos of the plunges caused by the corporate earnings reports as the futures of these companies are officially plunged into doubt by the ratings agencies.
The first major junk bond defaults have not happened yet. The failures of new bond offerings to help heavily indebted companies roll over their junk debt has not happened yet. Bond and stock ETFs have not seized up and gone belly up yet. All of this will happen. It’s just a matter of severity.
Underpinning all of this is the key issue of whether you think the US is on its way to recovering from the corona virus “scare” or whether this is a pandemic that is just now slowly rolling over the U.S., having not really hit the Heartland just yet. Obviously, you are in the camp that thinks this is just a “scare” affecting the coasts, and that things will be fine in two months.
I am not in that camp.
Thanks for the thoughts….I guess it matters whether those are from the grey pilgrim or the white wizard. One of the reasons I’ve been in cash is because I gave up trying to short the market a few years back when everything told me it was all coming down but I kept getting dinged anyway. I don’t think things will be fine in two months at all but I know the stubbornness of the country and the necessity to save markets at all cost, so I see two possibilities. One, it is all coming down, and if so I wont care about money lost in the market because my fruit trees, vegetable gardens, and other certain hard assets will be the only things of value….or two, calmer heads will prevail, post 911 patriotism and capitalism will rally, government intervention will backstop everything, and stocks that are down 60% or more will bounce long enough for me to sell at a nice profit.
You’re a tad early Nick, but you are the smart one in the room here. For those of us in the “opportunity of a lifetime” camp, we may be more challenged to start buying as close to the bottom as possible this time around. Not as much room for error. The reason I am thinking this is because our GDP growth rate in the USA has had a weaker and weaker recovery after each successive crash. Once we are on the other side of this crises, our recovery may be very weak, and the political situation may drive too much uncertainty.
Yes, I suspect a scenario more like the decade long crash combined with hyperinflation and decline of the USD as a world reserve currency that happened through the 1970s and into the mid 1980s
Re “USD decline as world reserve currency” – to be replaced by what exactly? The Europeans are getting hit worse. The Japanese are either geniuses or in complete denial, and it’s too soon to tell but based on the handling of Corona Princess quarantine and the insane bluster about Olympics, my money’s on denial. The Chinese hold a lot of good cards but no one in their right mind will trust the RMB as a reserve currency in any size. Gold standard ain’t gonna return either.
I think everyone will devalue more or less in parallel to backfill the gaping credit vacuum that is forming as a result of all the deflationary forces at work. Overall result will be relative balance amidst global decline; near-term deflation; longer-term inflation since demand may well pick up well before supply.
Wisdom Seeker,
If the US is still in the midst of a pandemic while the more tightly organized societies of Europe, Japan, and China are in recovery, whose currencies do you think the rest of the world will seek safety in more?
The reason this period of time reminds me of the 1970s is because Europe and Japan only had to do slightly better than the US, while the US went politically haywire and the USD went off the gold standard into a free float, and then combined with the supply shocks of the two Oil Crises, all of a sudden, the USD started to decline as a world reserve currency. Both Europe and Japan, like today with the corona virus, were better positioned for the Oil Shocks in the 1970s, having long had high gas taxes to discourage gas use.
Japan and South Korea got really nationalistic during the 1980s as their economies grew and they made lots of noises about no longer needing the US, etc. The Deutschmark started climbing as a world reserve currency.
The historical low for the USD was in 1991 when the USD was only 46% of the world reserve currency.
I got that figure from Grand Sifu Wolf himself, in his Sept. 30, 2019 post. The USD hit bottom at LESS THAN HALF of the world reserve currency in 1991.
This fact alone forced the US to seriously make efforts to reduce its budget deficit (not so massive by today’s standards) by raising taxes. If the USD was declining in value relative to other currencies, people were not going to line up to buy Treasuries at low low rates any more. Doing QE was unheard of then, and guaranteed to start another round of hyperinflation.
What happened next? Germany got swamped with the costs of reunification, then let its strong Deutschmark turn into the Euro, which then got sucked into the whole European Union welfare state/economic morass with perpetually debt ridden Greece, Italy, and Spain.
Then Japan, South Korea, and the rest of the booming Asian Tigers of the 1970-1980 period got swamped by the tsunami that was China, starting in the 1990s.
No more nationalists in Japan and South Korea, talking about being independent from US decisions and kicking the US military bases out.
Wisdom Seeker, the USD will not go away completely as a world reserve currency, but if you think it will continue to dominate at even the current +60% levels of today, forever, then you haven’t read history closely enough. And if you think that any USD drop below 50% of the world reserve currency won’t have economic consequences, then you are probably too young to be able to be able to remember the 1970-1991 period of US history.
We are now in a similar free-for-all competitive economic environment with the rest of the world – China, Europe, Japan, whoever.
The first countries to completely emerge from the viral pandemic will be the economic winners. That may be China, followed by Japan and Europe. It is NOT going to be the United States, given how things have been going.
Just remember that the stock markets are detached from the real economy. As soon as sentiment changes and the wizard of oz finds the right levers to pull, the markets will rebound much faster than the real economy. Happens every time. While some people will make extraordinary profit shorting in times like this, governments around the world need markets to go up long term, and if one cannot fight the Fed, what chance does one have against all the feds once they start working in concert.
It seems to me that the Fed is trying to save their fake paper wealth by destroying real wealth.
That’s exactly what they’re doing.
From the article: “These unprecedented measures show just how panicked the Fed has become about liquidity in the market,”
Wolf,
Why identify this as a liquidity issue? Is there less money in the system than there was three or four weeks ago?
From my vantage it is just a stock price issue. Buyers aren’t willing to trade cash for stocks at the same ratio they would three weeks ago. Money is out there, just not at current prices. The FED wants to create and infuse new money into the financial markets to support stock prices.
Liquidity means many things. It also means there is no bid at a given price, and prices have to drop until there is a bid. And at these lower prices, suddenly there is plenty of liquidity. But of course lower prices is precisely what the Fed doesn’t want.
When fear sets in, liquidity at a given price just evaporates, and suddenly there is no liquidity at this price, as there are no bids. And when prices drop far enough, there will be liquidity.
Beware the Ides of March.
None of this is going to the right people. With restaurants and venues shutting down it will be the small businesses that will need the loans. I can almost guarantee that the primary dealers and big banks will not come to the rescue. It will also be the hourly workers who get killed at first and then it will melt up to the middle class.
I find it ironic how the FED drops rates and then the banks raise mortgage rates. I assume they will tighten lines of credit and raise rates on these also.
If only the FED could loan a 0% loan up to $10K(?) for one year with deferred payments starting in September to every tax payer that applied for it because they needed it. These loans could be non dis-chargeable like student loans and if the payment is missed.
Also offering small business loans at 1% with deferred payments starting in September to keep these small businesses,
What we really need is normalized interest rates between 4 and 6% and get rid of these zombie companies out here. Unfortunately I fear we are too far down the rabbit hole. We had a chance to fix the system in 2009. It would have been painful but instead our leaders chose to make Lloyd Blankfein a billionaire.
Yes, and remember when Jamie JPM Dimon testified in congress wearing his White House cuff links with sh-t eating grin.
The Fed is essentially a two-trick pony (interest rate, printing press). With this they acted like gods. All their actions will come to naught. Unless you have fiscal action that benefits main street this cannot be stemmed. This is their comeuppance. Time too! It has taken a decade!
It looks like the value of toilet paper has clearly risen relative to stocks, bonds, and cash.
Dumb question: How does the ‘helicopter money’ get to your neighborhood mom-and-pop business? The banks and other TBTF can gorge at the repo desk, but if your local small biz goes to his/her/their bank are they doing to get a sweetheart deal? Are everybody’s credit card interest rates going to suddenly drop to 0.0-0.25? Will there be a Giannini at every corner, handing out low-interest loans, like SF after The Quake?
The Fed buys Treasury paper, conjuring the money out of thin air through nothing more than accounting entries, and DC gives private entities tax credits or the like.
Isn’t it obvious what’s going to happen.
President Trump is going to issue a credit card, with an image of his face on it and the words “Trump 2020”, that can be used for purchases at airlines, restaurants, hotels, apparel shops, and approved travel and entertainment venues, after the coronavirus is sufficiently under control. The credit card will expire before the election. The credit will be worth $2,000 in purchases and issued to every household. The federal government will pick up the tab as temporary fiscal stimulus.
Today’s T-bill rates indicate
it’s 1934 All Over Again.
http://Jeff-Relf.Me/1934.All.Over.Again.PNG
Did you forget the QE years? You don’t have to look too far away.
Hang on. Did I not read that the Fed would NEVER allow rates to reduce to the point where the US banks could not make money.
If that prediction was wrong then what about the sky is not falling predication?
‘It also slashed by a full percentage point to 0.25% the interest rate at its discount window, where banks can borrow from the Fed directly.
It also slashed the Interest on Excess Reserves that it pays the banks for parking their cash at the Fed to 0.10% effective Monday. In 2019, the Fed paid the banks $34 billion in interest on reserves – which is pure income for the banks. This income for the banks is now near zero going forward.’
The Ponzi is finally unraveling…
The Fed’s four decade “avoid hangovers, stay drunk” strategy is coming to an end. Their choices now are deflationary collapse or massive currency debasement and profoundly damaging the value of the dollar relative to goods and services (price inflation). They have already made the obvious choice. Tangible assets offer refuge, particularly liquid tangibles…namely precious metals.
Wolf,
Do you think the Fed will eventually succeed in raising stock prices or did they lose their power?
Nobody can predict such an irrational creature, but the Nikkei225 is downright ugly (down 420 points), the Hang Seng is horrible (down over 900 points) and the FTSE-MIB is collapsing again after the Friday vacation (down 1,600 points as of now, still trading).
While we wait for New York to open all I can say is that if jawboning stocks was Powell’s intention not only he missed the mark but he ended up punching himself in the eye. Not an easy feat.
PS: Wolf, us non-drinkers could really use some bumper stickers of your “Nothing goes to heck in a straight line”, and you could easily and cheaply ship them all over the world.
I second the idea of bumper stickers, maybe laptop stickers :)
LEO,
I don’t think stock prices have bottomed yet. This could get very messy. Once stock prices hit bottom, whenever that will be, they will rise, but it might take a very very long time for them to go back to the February peak.
But first, we are already giving up 2017 winnings.
I don’t think anyone is seriously thinking about the last Feb peak.
I might agree with you if the markets hadn’t dropped so precipitously. We are likely near the bottom if you believe this will harm the economy for at most two or three quarters. If you feel CV will have a much longer impact, then all bets are off. But when good news finally starts to hit the airwaves in a few weeks (as cv cases begin to level off) the markets will respond positively, and probably quite dramatically.
Centuries past, history teaches that leadership sometimes took the decision to remove all debt; cancel all of it and start again with everyone carrying a clean slate. As things stand, any other way forward inevitably involves massive disruption, possibly for at the least the next decade.
Writing off all debt will bring immediate calm right across the board.
Food for thought?
Well the thing is, if you’re going to gift a free house to anyone with a mortgage, then you’ll have to find a way to compensate all those 20/30/40 somethings stuck at home living with their parents ‘cos they’re priced out.
Otherwise, you’ll have a whole load of civil unrest IMO.
Anyway, due to the primacy of the finance sector and its ability now to – literally – crash the global economy with a few keystrokes (not a facility your Mesopotamian lender had,,,), you can absolutely forget any idea of a debt jubilee.
As Greece showed, the modern creditor will allow societies to go to hell in a handbasket than offer debt relief.
rather than offer debt relief.
Unlikely, would require international agreement, a big war seems more probable.
Someone’s debt is another’s credit.
Yes, however every debt-liability is a counterparty’s income-asset.
Yeah, I’ve hear that jubilee thingy. What I haven’t heard is what happened. Mortgagor holds the land, mortgagee holds the note. Debt is cancelled, but who has the land? Title could just as easily be assigned to the note holder as payment for the prior consideration and the debt disappears. Maybe that’s not what you’re thinking. Many seem to think the jubilee will benefit the debtor. That would be a first.
Like many people I’m at a loss to figure out why the lowering of IRs is supposed to fix a problem of supply chain disruption and people staying at home.
However I guess we are now totally reliant on financial speculators to hold up the stock market, hoping they will do so – using gifted money in astounding quantities – to make their gains on ‘momentum’, as capitalism has basically died…
All logic and rationality really has disappeared. Full on panic.
Janet Yellen has been quiet on this. No more crises in her/our lifetime, apparently. Man, how the fates have intervened to correct her on that assertion.
1) The DAX is down 39% from Feb peak without any bounce.
2) The DAX is down 7.5% this morning, but the German 10Y
is up to minus 0.55%. Short covering.
3) US10Y minus German10Y is almost the same as Fri close,
@1.38. The next wave will come.
4) The market forced the Fed to cut rates.
5) Fed chair Powell consolidate his power, thanks using China virus.
6) The Fed chair will avoid congress muddy water questions.
7) Market makers salivation.
8) SPX (C) on Wed Mar 18.
The internets say POTUS will fire Powell if he doesn’t do as POTUS commands.
POTUS wants NIRP.
Can the bestest mostest smartiest folks here, remind me again we can’t have NIRP?
If POTUS looks at the stock charts of NIRP countries, he’d want Powell to RAISE interest rates NOW.
Would you agree that NIRP policies imply a stronger EU currency? Bonds written in dubious third world script pay the highest interest rates. Yet the USD still commands a lofty valuation relative to the Euro? The dollar has various accolades, King, Petro, etc. Are we finally going to see where the dollar really belongs? What does that mean for all of us waiting in line at Walmart?
POTUS doesn’t read. Perhaps he doesn’t even look at pictures.
Wolf : That begets the universal question : “Can POTUS read and how good are his comprehension skills ? ” Anyone, anyone….Beuhler ??
:) FWIW : I had a large helping of buttered popcorn for breakfast today. Your day may vary.
Cheers
He is only concerned about his REAL ESTATE prices and value plus his variable rate loans to DB.
Duh… you’re making an assumption that he know how to read a chart.
The rates should’ve gone up already in my opinion. Let the blood out now. Make treasuries the place to go to.
1) SAD, lines for clorox and charmin toilet papers, but no lines for
green leafs, tomatoes and celery to strengthen the immune system.
2) ER don’t do pathology II testing for every American.
3) Long line in MCD takeout window.
Shopped early this morning, mostly fresh vegetables and deli meats/cheeses. Paper products shelves empty, but I didn’t need any.
Phoned one of my local bankers this morning. He has more than usual customers coming in for significant amounts of currency.
1) The DAX in spitting distance from the 2000(H) & 2007(H), near
Oct 2014 (L).
2) This panic is mfg and exported from Europe !!
The DAX is a total return index, which includes dividend returns. You cannot compare this to a price index, such as the S&P500. The DAXK is the price index, and it’s down something like 35% from its 2000 peak!!
If there is anything I’ve learned in my long life, it’s that there are unintended consequences to all government actions.
Seems to me there is a lot of shooting from the hip right now.
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The FED has to stop feeding the parasite and start applying a proper therapy. The patient is in a serious condition.
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First the fever needs to come down (stock market), then the patient needs to stop eating high suggar content food (NIRP and other), the liver and lungs need to be revitalised (the manufacturing sector), the blood pressure contained (banks) and some serious excercise (infrastructure buildup). Also frivolous spending on viagra (US military) should be reduced.
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Lowest overnight TREASURIES repo ever (except for technical adjustment last Nov 5 when a tiny 2-day repo was reported).
Only $5.45 billion was submitted despite a 0.15% interest. The rest were MBS.
I guess they are waiting for the 1 and 3 month repos.
Collapse.
Correction this was a one month repo, NOT OVERNIGHT
OVERNIGHT repo is 129.600 billion with Treasuries at 86.750 billion at weighted average interest at 0.107%
Cheaper interest cost therefore larger
To a hammer everything looks like a nail.
To the Fed, everything looks like a financial formula.
Looks like the Fed’s control cables are not really attached to much of anything.
SPX next stop 2350. Then 2150. Then… Don’t go there.
Funny cartoon. How about a caption contest?
Janet died!
They say Generals are always fighting the last war. That is what the Fed is doing. It is using what worked for them last time, regardless of the fact that it will clearly not work this time. Their actions have no chance of fixing the situation, because they do not address them.
What the Fed action does do is insure investment banks have plenty of capital to buy up everything in sight as this coming depression forces the sale of every asset in sight.
This is a war, and it is a war on the public. The public will lose badly, and when it is over the banks, and Wall St. will own most of what the public used to own.
Not really. People that have cash ready to buy the bottom and access to low interest rates with assets as collateral will not lose at all. Individuals that is. Not “banks” or “corporations” but just regular people like me. There are millions of us, as we are what help the country get back on its feet after a crises like this.
You are among the .01%. Most are in debt up to their ears, and will not be able to do any bottom fishing.
History proves what I say if you study it. In the great depression, the banks and corporations took most all the farm land, in 2008 they took a large percentage of the residential real estate. This will be much worse.
POMO announced this morning –
Maturity Range: 03/31/2020 – 06/15/2022
No amount yet but you can assume that we are kicking 2 years down the road.
More later …
The earliest maturing CUSIP is 912828X21 a 3 YR note issued 4/17/2017.
The lowest coupon is CUSIP 912828VA5 at 01.125 coupon issued 04/30/20.
Once the results are in we will see how many off the run vs on the run coupons will be QEed.
OK results are in only $10.001 billion was purchased.
Only $37.853 submitted.
Looks like the dealers do not have much to sell.
What happened to the $500 billion news?
The largest amounts of this (QE) Outright Coupon Purchase are all off-the-run OLDER notes issued 2019/15/13/12.
I guess the younger ones (especially on-the-run notes and bonds) will be used for repo instead.
Wonder who will be selling this $500 billion Treasury QE when if replaced with new ones, the coupon is close to zero.
Keep in touch.
How to you solve the grocery store problem? By raising prices. If prices double or triple, people will stop stripping the shelves clean. This is what is going to happen at the grocery store and in every aspect of American life. Soon, it will be clothes. And health care. Everything will jump in price.
When we come through this in a few months, prices on everything will be much higher. And, the printing press over at the fed will be supplying lots of cash. Your deflationary prediction is just wrong. After the weather warms in a few months, the health crisis will subside, and prices will be shooting up up up.
This is my base case scenario. A worse scenario is this was some kiind of a state or terrorist attack, then you can kiss your tail goodby. It is possible China released this on purpose …. unlikely but possible.
Well, since we all overbought all this stuff we use everyday, in a few weeks nobody will be buying. It is just a big blip. Supply lines will fire back up, It is not like the end of WWII in Europe when everything was blown to bits. Massive inflation in everyday goods and services is unlikely.
I would agree with you if the world’s central banks were NOT going to flood the world with cash. This time, some amount of this cash will drop right into consumer pockets. More cash chasing less goods because of the reduction of Chinese supply lines is the formula. Some of that supply line reduction will be demanded by the voters.
Interesting information for anyone thinking this will be a minor event / over quickly…
https://www.theguardian.com/world/2020/mar/15/uk-coronavirus-crisis-to-last-until-spring-2021-and-could-see-79m-hospitalised
Basically, internal document from Public Health England / NHS states that they estimate the virus will last until Spring 2021 with 80% of the population getting infected over the next 12 months, 15% of the population hospitalized (7.9 million hospitalizations), and 500,000 deaths (just in England).
Extrapolate to the US and we would be talking about close to 45-50 million hospitalizations and 3.5 million deaths. Would actually be a higher number of deaths here given how strained/weak our healthcare system is (no way we could hospitalize that many people over the next year).
I’m not saying this is what will happen, but IF these predictions were to play out, we could see massive social unrest in major cities. Not unreasonable for a worst case scenario to include mortgage/rent payments cancelled, squatters taking over buildings for housing, hotels and warehouses converted into quarantine areas / hospital wards, national guard / military enforcing quarantines, airports shut down, etc.
We definitely are living in interesting times.
All small business owners should feel compelled to increase employee wages far beyond the insulting and unworkable minimum wage at this point, they’ve had it too good far too long.
Mr. Richter, it looks like the Federal Reserve’s Keynesian Sunday response is not working as planned after Friday’s short squeeze covering and algorithm trading.
Wow, second Outright Coupon Purchase this morning $8.001 billion, submitted $21.594 billion.
Maturity Date Range: 06/30/2022 – 08/31/2024
Working harder or hardly working.
Third Outright Coupon Purchase this morning:
Accepted $9.001 billion, submitted $16.748 B
Maturity Date Range: 09/30/2024 – 02/28/2027
More to come?
For a few minutes anyway the FED has taken us back to the all in one market – (rising), and it only cost 1/2 a Trillion?? After they buy the bond market at zero rates and rates rise, as they must, how will their balance sheet look?? You see this virus hits the economic pause button, when the button flips off pent up demand puts pressure on credit and prices. Not an expert but how can the FED be this stupid?
When you panic, you do funny things.
I’m here to laugh at the details.
Twitterverse is trending Mitt Romney. Why? He’s pushing for a $1,000 a month stimulus per person. Sounds a lot like Yang’s UBI plan to me.
When the SHTF, even the most diehard conservatives morph into progressives. It’s common during election season, and it never lasts. Wolves in sheep’s clothing.
Oh I’m sure a Romney Version would include a stipulation money can’t be spent on women’s reproductive healthcare. Gotta control something! And nothing better than women’s bodies!
A Lysistrata movement is centuries overdue.
Fourth Outright Coupon Purchase this morning.
Accepted: $5.001 billion; Submitted: $9.200 B
Maturity Date Range: 05/15/2027 – 02/15/2040
We’re rally getting deep out there.
Some of the high yielding (more than 6%) OLD 30 year bonds are being QEed by holders who need CASH. Something is very wrong dude.
Sample:
Term Issued CUSIP Coupon Maturing Amount
30 year 8/16/1999 912810FJ2 6.125 8/15/2029 50,000,000
30 year 2/15/2000 912810FM5 6.25 5/15/1930 20,000,000
30 year 11/17/1997 912810FB9 6.25 11/15/2027 137,000,000
Aren’t people just selling bonds at the top and preparing to buy stocks near the bottom?
Possible response to a potential currency devaluation?
Just in case you are keeping track of totals for today:
4 Outright Purchases:: Accepted 32.004 Billion
Overnight Repo:: 129.600 Billion
28 day Repo:: 18.450 Billion
Try harder the market is falling.
Let’s see what’s more to come.
Here’s a new link from Ray Dalio’s Bridgewater Associates. Take the time to read it and pay close attention to his views on MP1, MP2, and MP3. Notice Ray’s view on Fiscal Spending through businesses and banks using government borrowed money. I would say MP3 will come about eventually. Note: This does not construe that I’m in agreement with Ray’s theories. What he is indirectly advocating is Keynesian economics.
https://www.linkedin.com/pulse/implications-hitting-hard-0-interest-rate-floor-ray-dalio/?published=t
Fifth Outright Coupon Purchase done.
Accepted:: $5.001 billion; Submitted:: $6.290 billion.
Maturity Date Range: 05/15/2040 – 02/15/2050
Note: They kept the coupon rate not exceeding 4.375%.
Many were lower. No one cares much throw the baby with the bath water.
Exhaustion noted. Looks at Accepted vs. Submitted
The next is a TIPs purchase. The sixth one. Overtime.
Outright TIPS Purchase, 6th one.
Accepted:: $2.999 billion; Submitted:: $5.688 billion.
Maturity Date Range: 01/15/2028 – 02/15/2050
Is the next one T bills?
Credit can not replace revenues and profits. The central banks, the IMF and the BIS are toothless.
Great interactive flowchart from NYF- of REPO’s:
https://www.newyorkfed.org/research/blog/2019_LSE_Markets_Interactive_afonso
Under left column title of: Transaction TYPES, select “US dollar Repo Investments down at the very bottom, Then a new flowchart popsup- over
the original flowchart….. Likewise for any of the other “transaction types.”
The biggie to notice, if you click on all the differing “TRANSACTION TYPES”, etc. there is NEVER any inclusion of RETAIL INVESTOR in any of the flow-chart paths. Great chart though.