Blaming “Lower Interest Rates,” Northern Trust, the #3 Trust Bank, Quietly Laid Off 500 People Last Week. #2 BNY Mellon Quietly Followed This Week

“Lower interest rates… reduced our earnings in 2020 and will put pressure on our profitability this year.” After having promised, no layoffs in 2020. But this is 2021.

By Wolf Richter for WOLF STREET.

Northern Trust Corporation’s promise early in the Pandemic to abstain from layoffs in 2020 expired on January 1, and last week, the layoffs happened. There was no announcement of the layoffs, and as of this moment, there still hasn’t been a public announcement, but on January 7, two days after people started reporting that they’d been laid off, or that some of their colleagues had been laid off, Chairman and CEO Mike O’Grady sent an email to the remaining employees about the layoffs, the “majority” of which had been “completed earlier this week” he said – meaning January 4th through 6th.

Mike O’Grady said in the email, which WOLF STREET has reviewed, that the bank made “the extremely difficult decision” to lay off 500 people, or “about 2.5% of our partners.”

“To create value now, and in the future, we must adapt and improve,” O’Grady wrote.

Northern Trust, with $2.1 trillion in fiduciary assets, is the third largest FDIC-insured trust bank by fiduciary assets behind State Street Bank and BNY Mellon, and ahead of US Bank and JP Morgan Chase, according to the American Bankers Association. Its trust services cater to corporations, institutional investors, and high net worth individuals.

O’Grady also said in the email that the pay of the remaining employees would not remain unscathed: bonuses would “decrease meaningfully” and base pay increases would be “very modest,” with “many” employees “receiving no increase.”

As reason for the layoffs and compensation adjustments, he cited the “headwinds” that Northern Trust faces from the low-interest rate environment:

“Despite healthy equity markets, our company faces the headwinds of continued lower interest rates, which reduced our earnings in 2020 and will put pressure on our profitability this year,” he said.

Northern Trust has not yet released its Q4 earnings report and has not released an earnings warning.

On January 6, after people were already getting laid off, and the day before O’Grady’s email went out to employees, in good Wall Street manner where layoffs boost stock prices, Northern Trust’s shares [NTRS] jumped 6%. From the close on January 5 through today mid-day, shares have risen 8.4%.

BNY Mellon, the second largest trust bank in the US, followed Northern Trust’s example this week with quiet layoffs. TheLayoff.com is now teeming with comments from people that have gotten laid off. In one of the threads that started on Tuesday, one “heard” that the layoffs amount to “900” employees, another said “2-3%,” and another was “seeing 600.”

BNY Mellon employed about 48,600 people at the end of Q3. A 2% cut would be 970 people; a 3% cut would be over 1,400 people.

The Pittsburgh Post-Gazette reported yesterday that BNY Mellon “initiated a round of layoffs this week – just days into the new year and following a commitment last April not to cut any jobs through the end of 2020 due to the pandemic.”

When the paper reached out to BNY Mellon, a spokeswoman in an email yesterday refused to disclose the size or location of the layoffs, but said that “COVID-19 has redefined ‘business as usual’ and we will continue to optimize our global business structure to increase efficiency, enable faster decision-making and better serve our clients. As a result of these strategic actions, periodic staff reductions may occur.”

It is interesting that Northern Trust blamed the “lower” interest rates for the layoffs – a “headwind” that all trust banks face, and that BNY Mellon then follows with its own layoffs, the #3 and #2 trust banks by fiduciary assets, and that these layoffs happened quietly and quickly, in early January, after the banks had said during the Pandemic that they would not lay off people in 2020. Those laid-off people can thank the Fed.

But these promises early on in the Pandemic to abstain from layoffs in 2020 are now expiring all over the place, even at San Francisco’s tech darling, Dropbox, where corporate cost cutters are salivating over working from anywhere, and even the free gourmet cafeteria is gone. Read… Citing Permanent Shift to Work from Home, Dropbox Cuts 11% of its Workforce

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  167 comments for “Blaming “Lower Interest Rates,” Northern Trust, the #3 Trust Bank, Quietly Laid Off 500 People Last Week. #2 BNY Mellon Quietly Followed This Week

  1. be OK says:

    Competitiveness will fall. Happiness will rise.

    • K says:

      Amen, Brad Tifman. It makes me feel so sad for those many who sold their souls to the banksters, probably assisted their actions, and were now abandoned by them.

      Mind you, of course, not all of the employees of the banks are banksters or even their enablers. I mean the higher-level employees in so many of the banks who enabled the crimes of the banksters.

      See “CFTC Orders The Bank of New York Mellon to Pay $750,000 For Swap Reporting Violations” at CFTC.gov. See “BNY Mellon to Pay More Than $54 Million for Improper Handling of ADRs” at SEC.gov. See “The “Secret” Whistleblower at BNY Mellon: How Grant Wilson and his New Partner in No-Crime, Harry Markopolos, Are Changing the Game” in the excellent Forbes Magazine. See “BNY Mellon’s Pershing hit with historic criminal conviction” at afr.com.

      As to the majority of the banksters, not just these banks, read “Here’s what is changing after the FinCEN Files shook the world of banking” at icij.org and read “DIRTY MONEY POURS INTO THE WORLD’S MOST POWERFUL BANKS” at Buzzfeednews.com.

  2. Brad Tifman says:

    When the thieving is not as good, you’re gone.

    • Absur Ditty says:

      It’s not theiving. The banks need our help. There’s a really simple way the FED or the US Government can help the banks AND help the people AND keep rates low.

      They just need to pay a spread. Here’s what should be done:

      Borrower needs a loan. The bank offers them 0.5% for 30 years so they get the help they need.

      Then what the bank does is figure out what the interest rate SHOULD be and bills the difference to the FED. For example if the bank needs 18% to sustain it’s operations and keep it’s employees and contractors happy, then it would bill 0.5% to the borrower, and 17.5% to the FED.

      This way rates would still remain low, to stimulate the economy, and banks and other lenders would still be incentivized to offer loans.

      It’s really just a better way than what is being done now, setting the rates so low the banks cannot sustain their operations.

      • Sierra7 says:

        Absur Ditty:
        Can I do the same with the FED when my cost of living increases????
        The more we “save the banks” the more we increase the debt of the commons…….Somebody’s gonna pay and it won’t be the banks!
        Where the hell do we draw the line(s)????
        Absurd!

      • Right, and now the banks are complaining that ending LIBOR will destroy what’s left of their business. LIBOR may be bigger than Brexit. SOFR is a joke. Occasionally the banks game their “spreads” as you say, but nothing regulation and enforcement wouldn’t fix. If you give them LIBOR back with the stipulation they agree to play fair, they will no doubt agree:)

      • rhodium says:

        Yes, straight up welfare to bankers is exactly what we need. The solution is capitalism for the poor and socialism for the rich.

    • NBay says:

      Good posts, K and Brad, agree 100%.

      Large debt between nations and their big corporations at one time were settled in gold. But pirates being pirates, they quickly took advantage of this on the high seas.

      The City of London came up with the bright idea of having all the gold there and just moved it from room to room.

      Out of work pirates just put on fine clothes and moved their business to “The City”.

      I think these Trust bank problems are similar, but the pirates all are still doing business somewhere. My guess is these pirates just didn’t have a nice little hidden island somewhere, in the secrecy sense.

      Talk about “whack a mole”

      • NBay says:

        But in the history of piratry, I still don’t think they have ever produced a global civilization level problem on the scale of the Bronze Age Collapse. That one left no record of what actually happened, except for Homer’s poems, destruction layers of ancient cities, and some references to the dreaded “sea peoples”.

        Talk about a black swan……

        • NBay says:

          I’ve been trying to come up with a modern situation that might maybe duplicate that circa 1170 BC event, it falls way short, but maybe it goes something like this:
          Decently fortified and pirate controlled perpetual motion machines, all over the world, supplying all the energy people wanted, for the pirate’s chosen price (think: I want that lady, or drug, or toy….they wouldn’t give a damn about money, that would be for us to figure out, as long as their demands were met) delivered to me NOW or ELSE, but with a drunk swashbuckler captain and crew in charge and sitting at a self destruct button. Naturally, they would negotiate….a bit.

  3. MonkeyBusiness says:

    #BillionairesWealthMatter

  4. endeavor says:

    Hold the phone, bankers. Dems are going to ‘shoot the moon’ with a 2 trillion stimulus to be announced tonite by Mr. Biden CNN has reported. How can any Inc. not benefit. Surely these fine banks can scarf some up for themselves on behalf of the employees.

  5. MCH says:

    No need to fear, stimulus is here…

    Well, as soon as January 20th rolls around. $2000…. errr…. I mean $1400 in stimulus payments will be coming along with enhanced unemployment. (I am assuming the latter)

    • lenert says:

      MulfordTweets says “Just give everybody a Bitcoin.”

      • farmboy says:

        17 million Bitcoin is not enough to give everyone a bitcoin.

        • Thomas Roberts says:

          Yep, by design there can never be more than 21 million (i think that’s the right number) bitcoin. They can be divided up to 8th? decimal point. Bitcoin could never really really benefit the average person though. I’d always be suspicious of anyone in something like bitcoin, promoting it, when they directly benefit.

    • Hernando says:

      I don’t believe it. The election is over. Politicians only do what is expedient; there doesn’t seem to be any political upside other than a confetti party with cash since he got elected.

    • Old School says:

      Might be fun if everyone took the money and shorted the market just to make their job more difficult.

  6. Timothy McLean says:

    While I feel bad for the laid off employees, the banks are paying attention to profits and their shareholders. The investment bankers taking all the Zombie companies public via IPO’s and SPACs are preying on the stupidity of novice retail investors to be the greater fool. The bubble building in the market will make the 2000 crash seem like a non-event.

    • RightNYer says:

      Yes, and when it does crash, the worthless Powell and Yellen will be sitting around looking stupid, wondering “How could this happen?!”

    • PE Lipo says:

      An IPO creates new assets. The Fed bubbles assets. I sell some assets from time to time to keep the lights on (an IPO, a brick). Savings and loans “banks” get squeezed, but they’re not the only game in town.

      • Mel says:

        “An IPO creates new assets.”

        True as far as it goes, but note that the VALUE of the new assets depends on assets that already exist. I.e. people pay for their new shares with money they already have. The same money gets spread around in a different way.

        The old physical economy was different in that the money was deployed to create new products — that didn’t already exist — and those products added true net value to the new shares.
        In the new financial economy that doesn’t happen.

      • roddy6667 says:

        An IPO creates new assets if there is value in the company going public.

    • Thomas Roberts says:

      Timothy McLean,

      It’s very important to remember that most corporations and banks are run in a way that most directly benefits those running it and not the shareholders. Banks can be more complicated, when it comes to this principle though.

  7. DanR says:

    How clever is it to wait until January 2021?

    • Chang says:

      Beween Wolf Richer and the following guy, all one needs to know about your economic fate:

      “a map, courtesy of Brookings, showing the roughly 500 counties Biden won and the roughly 2,500 counties Trump won. This might seem like a chart of political polarization, and superficially that’s clear, but the real polarization is economic-financial: there are two economies in America, and there’s very little commonality in the two economies.”

      “70% of America’s economy is generated in fewer that 500 counties; the other 2,500 counties are left with the remaining 30%. The nation’s productive capital is even more concentrated in a few hands and regions, and since income and political power flow to capital, the financial disparity / inequality far exceed the 70/30 split depicted in this political map.”
      Charles Hugh Smith November 20, 2020

      • Jeremy Wolff says:

        But those economies also account for the population size split, with most people living in that 70% economy. People matter more than land.

      • RightNYer says:

        The problem with these numbers is that they forget about things necessary for human survival. Guess what happens if farmers don’t supply $25,000 worth of food or $25,000 worth of electricity to Facebook’s offices. Much more than $50,000 in “economic activity” is lost.

        • Chris Herbert says:

          We need to give back farms to farmers and let them practice regenerative farming. Industrial Ag is a killer. All those “pre-existing conditions” clogging up our hospitals, funeral homes and eventually, graves, is caused by the crap Industrial Ag introduces into our food system.

      • MJ says:

        So the 7 million more votes Biden won were just in 50 counties?
        In a majority-wins democratic voting system that shouldn’t matter.

        Trump won in 2016 with 3 million or so LESS votes, but won the electoral college. How did money flow work then?

        What about Citizen’s United? Doesn’t the money come from outside all counties irrespective of local wealth?

        Important to sort all this out.

      • Lisa_Hooker says:

        Two questions:
        How many counties account for 90+% of political contributions?
        Which county is Wall Street and the NY Fed in?

    • MCH says:

      Everybody is doing it. Virtue signaling at its best. No layoffs due to pandemic… in 2020… we all heard the loud proclamations. But come January, we had to come here to find out about lots of this small stuff.

      One thing though, I bet those bank workers never got the gourmet experience like the Dropbox employees. The perks doesn’t mean that tech workers are better or more valued, it’s just a misunderstanding. SUCKAZ

  8. Cas127 says:

    Considering that typical banks profit from the spread (ie, borrow from depositors, capital mkts, Fed at 0% and lend to borrowers at 3%…) this “lower interest rate” jive rings pretty hollow…

    Unless…

    Trust banks are really much closer to being asset managers (a la mutual funds, etc.) that charge asset management fees against their investors’ asset base.

    And considering that Trust banks specialize in the generally risk averse trust business (think very safe fixed income), then the Fed really, really gutting rates (SuperZIRP) means nobody wants to pay 1% in AUM fees to get 1% returns.

    So something has to give…and it is Trust bank employment.

    Just wait until NIRP happens…

    The mystery is why the CEOs can’t just be upfront about it.

    (Fed rage?)

    • Lisa_Hooker says:

      How about borrow from the Fed at 0.35% and lend to credit card holders at 12-24%.

    • J Keynes says:

      Great insight and commentary. I also wonder if the switch from high-cost active investment management to low-cost index investment management also affects their business.

  9. Martha Careful says:

    It’s interesting that low interest rates are now a mechanism for firing employees, yet revealing in regard to future value and projected GDP and growth.

    I contend that no matter what political party is “in control” — GDP was declining, as were interest rates and the economy was headed for a recession. The concept of secular stagnation, partly linked to a decaying workforce (which lacks necessary skill sets for the new economy) was firmly-in-place before The Pandemic. The virus has acted like a generational demographic economic supercharger, and it’s not done. Any recession-like dynamics of job instability are off the charts and just as we have a WTF economy acting in chaotic ways, it’s still possible this wobbling chaotic spinning from 2020 will continue in 2012.

    Thus, job layoffs and unemployment, which has been artificially supported, will probably begin to look a lot more like an actual recession, along with businesses closing, bankruptcy and more consolidation for the businesses that survived round one of the pandemic.

    Whenever 10-year Treasuries yield less than 3-month paper (a proxy for Fed Funds rates), a recession is almost certainly at hand. That trigger was hit around May 2019, then totally crashed in Feb 2020 — and while that all happened, the 10-Year Treasury Inflation-Indexed Security, Constant Maturity, has been hovering near zero and below since 2011.

    Interest rates have been weak for at least a decade — but now, banks and various corporations have a pandemic excuse to purge jobs. Perhaps they anticipate lower future rates and less liquidity as people have less money? A new administration (or old) isn’t going to turn a titanic-pandemic economy around easily and repair the deeply rooted decay of financial rot.

    The pandemic has exposed the cancer of low rates and the fragility of the stupid system we live with.

    • Cas127 says:

      “Interest rates have been weak for at least a decade ”

      From 1964 to 2001, 1 yr T-Bills *never* went below 3% (longer than that but I’ll have to track down a longer data set).

      For 9 of the last 12 years, the 1 yr T Bill never went above .62%

      That may sound like a small difference, but it is an 80% reduction from the 1964 to 2001 *floor*.

      And, that 80% difference is what matters in Discounted Cash Flow formulas used to calculate asset values (read, Stock and Housing Mkt phony booms).

      The US economy has been dying for 20 years and DC used the Fed to paper over it in order to maintain political power.

      • sunny129 says:

        Last year’s earning growth for S&P was NEGATIVE 14%. . Still it zoomed to 3755
        The last 50% of rise in S&P came from NEGATIVE growth of last TWO yars!
        (h/t northman trader)

        The power of Fed’s PUT, QE4 and Buy Back shares!
        Who needs earnings any way

        • cas127 says:

          Good stats, Sunny129.

          I don’t think DC knows how to rule if the citizens can see through all the bullsh*t, thanks to the internet.

          Actually, I’m very concerned that DC thinks it *does* have a way to rule when the citizens can see through all the bullsh*t.

        • Old School says:

          Fundamental numbers on SP500 are super scary when you plug values into any long term financial metric. If you are scared of the stock market and want to wait until you might get a 7 or 8% annualized 20 year return you are going to need not 3000, not 2000, but about 1000 on sp500. That’s a long way down. Pension funds going belly up without a bailout because they didn’t get their house in order when they could.

      • Paulo says:

        regarding: The US economy has been dying for 20 years and DC used the Fed to paper over it in order to maintain political power.

        I think it is more than that. It isn’t just the economy, rather, a general decline, overall. It started long before this era, and years from now I believe the beginning of real decline will be acknowledged to have started shortly after the Viet Nam debacle. Since then it has been virtually non-stop war and money printing. Perhaps this recent crisis, (Covid and attempted violent insurrection) will be a time for a reasoned reset and regrowth, but it’s not likely at all. People cannot even agree on what is fact and what is opinion these days. Seriously, what isn’t done for political gamesmanship, meaning power and money for a few? Stop the steal? Really? Or, I saved the US auto industry? Come on.

        Britain began real decline around WW1, and accelerated the fall after WW2. It is to their credit their eventual retreat from the World’s peak was mostly voluntary and they did manage to hold on to relationships/trade through the Commonwealth even as former colonies moved into independence. Mostly peaceful….. but they still began the process (with US help) to overthrow the democratic govt of Iran and install the Shah; for oil money, for their FF corporations, shareholders, and for their banks. And now look where we are in the ME. Same fight sometimes expressed as, “What is our oil doing under their sand”?

        I see no way in hell the US will ever regroup economically unless there is a total remaking of society starting with fair taxation, and increased opportunities for vertical migration. A $15 dollar minimum wage might be a start. Taxing the billionaires at 50-70%? might also help. Reform banking? Otherwise, the inevitable result will eventually mimic France 1789 or Russia 1917 as opposed to Britain’s slow and painful decline.

        Money debasement through debt spending is no solution, or any substitution for real reform. It will only make things worse in the end.

        Think if you ran your home finances the same way and tried to recoup losses by stealing from your neighbours (tariffs), bullying (embargoes and weapon sales) , or simply increased borrowing? It will not work for a home or for a country, ever. If anyone here thinks cohesiveness and a shared purpose to reform this mess is possible in a time of social media, they are deluding themselves.

        Regards,

      • Lisa_Hooker says:

        Cas, that 3% – 0.62% is the difference between a fun retirement and a comfortable retirement. That 37+ years is damn near my entire working life.

    • MCH says:

      No, that’s not right, we have had four years of pain and misery, before that, I think we can all agree we were in the best shape of our lives. (if anyone disagrees, they should be immediately branded *****, ***, ****… and be sent out for re-education)

      But fear not, the dark days of winter are almost over, a new dawn is almost upon us. (In fact, we’re less than a week from that seminal event that will be remembered in history as the day things got better) It’ll help us build back better and support justice, and equality for all.

      :)

      • Thomas Roberts says:

        Regardless of anything congress or the pres-elect does, because, the pres-elect is taking over during the vaccine stage of a pandemic, when it will start to improve (though 1 or maybe more large waves of infections is possible), if the economy naturally improved, because, pandemic is ending. I would bet that quite a few would automatically give the pres-elect credit for everything, no matter what he does.

        I’m not sure what his economic approach to the pandemic will be, but, considering the states have had control so far, it doesn’t seem likely he will really change the pandemic side (deatths and infections) of the pandemic, at this stage of the pandemic. It’s possible that he will be handed a “”national”” approach to pandemic side of pandemic, that the democrat states will then choose to implement (that in effect probably doesn’t really change anything) and then they give him credit. They could have done this without pres-elect though. States like California, Oregon, and Washington would then be supposedly cooperating with other states to end pandemic, there could even be some sort of western corridor, where pandemic rules will be synced between states and that will synchronize things and possibly effect movement for some people for some amount of time. On paper, sounds good, but, i doubt it would have any meaningful effects. And it would be even more impossible to later on prove if it actually changed anything.

        In contrast, the republican states (with 1 or more probably being a part of supposed national approach to pandemic) will have to be contrarian and do supposedly something else, without actually changing anything significantly (though some will be cooperating with the democratic states unofficially).

        If pres-elect was taking over during early stages of pandemic, he could have had real effect on pandemic side of pandemic (good or bad), but, for this particular pandemic, he is coming in way too late to actually have meaningful impact of pandemic (infections and deatths) side of pandemic.

        So it all comes down to how he will be perceived on the economic front. What actual economic policies he can actually push through. He will for many people automatically get credit for ending pandemic, but, whether he is given credit for economy is up for grabs. And depends on both what he does, how he’s perceived, and how the economy does regardless of him.

    • Chris Herbert says:

      And what stupid economists have we stupidly been listening too? Mainstream baby. Useless.

      • Old School says:

        I have been thinking about what should a person do exactly. I think Mrs. Reinhart chief economist at world bank is a straight shooter and she said companies and countries need to improve their balance sheet. I think the same is true for an individual if you want to do well in the crisis that is to come. Improve your balance sheet. Reduce debt. More savings. More income if possible. Be prepared. You don’t know how the crisis will unfold but a strong balance sheet gives you options.

  10. DanS86 says:

    Meanwhile credit card rates are 18% and above. Why doesn’t Congress investigate this?

    • MCH says:

      Do you want the truth?

      It’s hard to stick it to the banks without the banks sticking it right back at Congress.

      After all, did Lloyd or any of his buddies go to jail, how about Dick and James (CEO of Lehman and Bears respectively)? No…

      On the other hand, small time property owners, Congress can and do in fact stick it to them all the time. Eviction moratorium for example. What are they going to do? Riot and burn down their own buildings. LOL

      • Stephen C. says:

        On the eviction moratorium front, here in Marin County, just north of San Francisco, they’ve extended it to June 30th. I was feeling sorry for landlords until I read further into the new release about this. The State of California, and the Feds, will be covering the rent, per laws already made. Meaning current and future tax payers will be paying the rent. Good to know we can all pitch in and work together during these trying times.

      • Petunia says:

        Did you notice Lehman and Bear are no longer around? The victims refused to keep lining up and poof, they were gone.

        • MCH says:

          Sure did, but just because a corporation is gone, it doesn’t absolve the managers of responsibility.

          Consider the ITAR restrictions on certain dual use products, I think if a company went under, the government still comes after the responsible party.

      • Old School says:

        Banks are in the business of loaning money. Government is in the business of spending money. It has always been a troubled marriage for the kids.

  11. lenert says:

    Where can we wager on the timing and size of an upcoming buyback announcement?

  12. Yort says:

    The (M)agic (Money) (T)rain left the station in 2020, and is hitting full speed in 2021, per CNBC:

    $1.9 Trillion “American Rescue Plan”

    –>Direct payments of $1,400 to most Americans, bringing the total relief to $2,000, including December’s $600 payments

    –>Increasing the federal, per-week unemployment benefit to $400 and extending it through the end of September

    –>Increasing the federal minimum wage to $15 per hour

    –>Extending the eviction and foreclosure moratoriums until the end of September

    –>$350 billion in state and local government aid

    –>$170 billion for K-12 schools and institutions of higher education

    –>$50 billion toward Covid-19 testing

    –>$20 billion toward a national vaccine program in partnership with states, localities and tribes

    –>Making the Child Tax Credit fully refundable for the year and increasing the credit to $3,000 per child ($3,600 for a child under age 6)

    • Yort says:

      …. also confirmed that the president-elect still supports $10,000 in student debt forgiveness…

      The (M)agic (M)oney (T)ree is fully endorsed by “Team Blue”, “Team Red”, and “Team Gods on Earth (Fed)”…this is the way, resistance if futile…

      Per CNBC:

      ,,,Rubio wrote in a letter to Biden dated Tuesday.

      “It would send a powerful message to the American people if, on the first day of your presidency, you called on the House and Senate to send you legislation to increase the direct economic impact payments to Americans struggling due to the pandemic from $600 to $2,000,” he added.

      Most economists, including Federal Reserve Chairman Jerome Powell, warn that additional Covid-19 relief funding and economic stimulus may be needed to help businesses stay afloat until the broader population has access to vaccines.

      • Petunia says:

        I hear FL is still having problems paying out unemployment claims from early last year.

    • Seneca's cliff says:

      Tesla and EV’s are so yesterday. This is the year someone comes out with a new car that burns fed-bucks. because the supply of this fuel will be unlimited.

      • WES says:

        Well, if you pump “out of thin air” Fed bucks into shale, you get oil and gas!

        • Stephen C. says:

          Well, they say there is too much carbon in the air, so turning what was formally “thin air” into fuel, via turning into paper fiat first, makes some sort of sense. Who knew that in the basement of the Eccles building there was an experimental physics lab?

    • JK says:

      I have yet to see any message during Democratic primaries or presidential debates regarding helping small business, stimulate economy, deal with our deficits or debt, or anything productive besides these giveaways which require printing money. I’m not saying Trump didn’t blow it either, he did.

      When will the madness stop?

    • Cas127 says:

      Unless somebody goes over that $520 billion to government units with a microscope (fast) the public sector unions will direct a huge fraction of the money to do nothing more than cover (up) their multi decade pension shortfalls.

      Dems “never let a crisis go to waste” for their key, core supporters.

      Btw, without that extra $520 billion going to gvt units, the payments to the other 305 million US citizens (not in the political class) could come close to doubling.

    • Lisa_Hooker says:

      $1400 should cover a dinner for 4 at the French Laundry. With nice, but not extravagant, wines.

  13. Shiloh1 says:

    Who needs banks paying 0% interest while there are mattress stores in every strip mall?

  14. SocalJim says:

    Who needs a $2000.00 stimulus check anyway. Homes are going up more than that every single day. Why even work?

    • MCH says:

      And if you don’t have a home… go get a job…

      Oh, wait….

    • Yort says:

      With the US trade deficit with China hitting $78.2 Billion in December 2020, looks like $938.4 Billion ($78.2 x 12) of the latest $1.9 trillion stimulus will end up sitting in China by year end 2021.

      Perhaps with future central bank digital currency “stimulus”, they can force us to at least buy American made products with American printed fiat money?

      Funny thing is futures seem disappointed in the $1.9T, perhaps it was the $15 minimum wage and/or the $1,400 stimulus vs $2,000?

      • MCH says:

        “looks like $938.4 Billion ($78.2 x 12) of the latest $1.9 trillion stimulus will end up sitting in China by year end 2021”

        Comrade XJP is very grateful for the continued stimulus from the US government to help build China back better. (seriously, you didn’t think build back better meant the US, did you?)

        “Funny thing is futures seem disappointed in the $1.9T, perhaps it was the $15 minimum wage and/or the $1,400 stimulus vs $2,000?”

        No, the futures is disappointed because there is a decimal point there in that number. They wanted the decimal point removed, and so does Comrade XJP, after all, do you really want to help build back better? Then, go all out.

        Ok, Mitch can have more money to test horses for steroid, seriously, Mitch, just sign up.

        • WES says:

          MCH:

          Don’t laugh but in the first stimulas, horses got more money than a poor American did!

        • MCH says:

          @Wes

          I’m not surprised, hell, I think at this rate, the horses should be whipping the humans and riding them into the ground.

          No, I don’t think this is 1984, feels a lot more like Animal Farm.

        • RightNYer says:

          My guess is the $15 minimum wage. “Investors” like money printing that doesn’t end up in wages because it means consumer inflation will appear low, and Powell and the other sycophants can continue printing while lying about inflation. Much higher wages will cause the whole scheme to fall apart.

        • MCH says:

          @RightNYer

          Yep, that’s right, who needs small businesses, make them pay fair and equitable wage, or they should go out of business. Justice and Equality demands it. Oh, and never mind that cost of living differs vastly from Lubbock, TX compared to SF.

          We need to drive all of those greedy small business owners out of business. The streets should be lined with nothing but big box national brands and nothing else. Whether you’re the owner of a mom and pop grocery store in LA, or a hair salon in Rayleigh, NC, you need to be put out of business. Or your workers can all become contractors who work just slightly less than the full load so they don’t have to be paid benefits.

          And if you don’t like it…. off to the re-education camp with you… cause you are obviously not on board with build back better. (I was gonna say you can S**K it, but that’s too 1990s)

        • RightNYer says:

          @MCH, exactly.

          When you see big companies supporting “living wage” proposals and the like, you can bet that it’s because they feel that they can weather the storm, while their smaller competitors will not be able to. As it is, how can an online merchant make any money when they have to pay $8 to ship something that Amazon can ship for $1.50. The whole system stinks, and it’s only a matter of time before it implodes on itself.

      • Tom S. says:

        Looks like stocks and bonds are starting to move in a more “normal” price action. The fed will have to up their purchases. Jerome seems fully committed to the ideas of inflation as the only indicator of excess money supply. The way the numbers are collected right now is terrible, and there is no way the models can account for a dramatic shift in behavior such as when the vaccine starts to work and people become less afraid in the big cities. At some point in 2021 will have insane inflation numbers and nothing we can do about it.

        • endeavor says:

          I support the $15 min wage over free money. What would you rather have when both cause price inflation? At least a higher wade will encourage productive work vs a gimme attitude and all the social problems that come with it.

      • timbers says:

        We sure won that trade war with China, didn’t we? Boy we sure showed her who’s boss.

    • MonkeyBusiness says:

      I sold one brick yesterday for 3K.

      • WES says:

        Monkey:

        I was wondering where my brick went!

        Did you throw it through a banker’s window to boost GDP?

        • MonkeyBusiness says:

          I picked up a brick, and someone bid on it right away, sight unseen!!!

          Might be SocalJim!!!

    • Lisa_Hooker says:

      Why maintain a home and pay RE taxes. Just buy stocks. /s

  15. GotCollateral says:

    > BNY Mellon

    Uh oh… one of the biggest custodians of collateral is that cashflow strapped… and less people wanna repo with toilet paper…whocouldanode!!!!

    • SocalJim says:

      Big problem at BNY Mellon is the currency trading business has not been what it was. Some key currency traders found a new home and their currency business has never been the same. Such a sad story. I am rooting for BNY Mellon. It is a decent firm.

  16. DO says:

    This helicopter money stuff everywhere reminds me of Venezuela during. Of course no other similarity exists. Probably coincidence.

    • DO says:

      *during the happy days

      • WES says:

        Do:

        Venezuela now has a digital currency since they can no longer pay for the ink and paper to print fiat money!

        • roddy6667 says:

          The people in VE have not been using paper money very much for a few years now. They get paid by direct deposit and spend with debit and credit cards.

  17. David Hall says:

    Mortgage rates bounced. Unemployment stayed at 6.7% per the most recent report. Mega stimulus package proposed. Inflation rising. More forebearance. People are owning homes for more years than before. Most of the layoffs seem to be coming from the travel, hotel and restaurant side of the economy. I read an article by an American working from home in Costa Rica to supplement her retirement income.

  18. BuySome says:

    One day old Sammy was searching for someone forward thinking who might share his novel ideas for a small exchange of paper currency. Letting his fingers do the walking through the yellow pages he came across the name Madman Muntz. But, being perennially nearsighted, Sam didn’t realize it read Madman Mundt. So when he struck a deal, it never occured to him that what would be shared was pure infectous madness, nor that the payment would be due in rolling heads. Now he’s stuck with a contract with a lunatic in a burning hotel corridor. [The greatest trick the devil ever pulled was convincing the world he did not exist. The second greatest was to convince them that economies automatically always get better forever.]

  19. Swamp Creature says:

    I just heard on WMAL our local radio station here in the swamp that the Obamacare Individual mandate will be re-instated by the new administration. So all the middle class people in flyover country who can barely make ends meet, can look forward to being forced to pay for insurance they don’t want (covers unneeded procedures), at prices they can’t afford (high premiums) , for insurance they can’t use (high deductables). When the mandate was dropped insurance companies lost a lot of their customers and the insurance companies refused to provide an affordable alternative with basic coverage and the gov refused to come up with an affordable public option the public could sign up for.

    The insurance companies are salivating.

    Of course there is option to pay a fine, $600, that you can pay for the priviledge of not buying a product that you don’t want.

    • Lisa_Hooker says:

      When you get your $600 & $1400 checks just endorse them over to the IRS.

    • Old School says:

      Retired early and bought high deductible plan for $200/ month. Obamacare squeezed me out of that plan and I managed my income and bought cheapest obama care plan. Rounding it off I think Feds sent $100,000 to various insurance companies. I haven’t made one claim and paid virtually nothing in premiums or income taxes. Right now they are taking it out of my hide with 0.2% interest on my savings. Which dropped my income about $1500 per month. Oh well.

    • josap says:

      I had ACA from the first year until I qualified for Medicare. Low premiums, ok deductibles, not much in the way of insurance co choice after the first year or so. But it was ok.

      • Old School says:

        True story. I know someone who had out of pocket medical treatment. For out of pocket they send you a check and it is your responsibility to pay. The third party never sees how much they pay you. You have to be careful not to be caught in the middle. The insurance company sent her a check for $30,000 out of the blue. I said put it in the bank and wait for them to explain what it’s for or to ask for the money back. It’s been over two years.

  20. fred flintstone says:

    The fed is very close to entering the toilet swirl.
    Any further huge stimulus will drive the dollar down even more and drive up the cost of living….there by reducing demand.
    Most companies that years ago would have benefitted from the lower dollar have shifted their operations overseas.
    The corporate tax increase will take enough from companies to cancel any plans to increase employment.
    The 22% of the economy which is paper shuffling banks will finally be letting folks go due to lack of profitability and demand for loans.
    The plans for healthcare will rip the insurance industry.
    Retail is in full retreat.
    Most importantly….all the financial loans based on collateral which has value determined by cash flow are now having to be revisited due to folks working from home, retail collapsing and virtual visits.
    Its a depression we are looking at…..not a recession…..and one that the fed is too small to stop. The grand reckoning may not be as far off as we used to think.

    • Swamp Creature says:

      “The fed is very close to entering the toilet swirl.”

      You should say they have been “in the toilet” since Paul Volcker left as Chairman of the Fed. Its been downhill since 1987. There is no possibility of any smooth recovery from this disaster.

  21. Brant Lee says:

    All employees had better watch for the pink slip every quarter as corporations and banks have found a yet better way and excuse to feed their stocks. Most likely, every American worker is now on the chopping block due to coming layoffs and outsourcing. Gosh, service jobs sent overseas don’t even have container fees like manufacturing. It was a slow death before 2020, now the rock is rolling down the mountain accelerating the living standard decline thanks to companies taking advantage of the Covid situation.

    All of a sudden the markets are in love with the Democrat ideology of stimulus. Forever unemployment checks and monthly stimulus should hang on for another four years. Those with connection to 0% interest should own most discounted properties by then. American third world for the 90%. Move south to avoid the cold hungry Winters.

    • MCH says:

      Dear Brant,

      Stop with the counter-narrative (AKA fake news about service jobs being outsourced, it’s only conspiracy theories, and dangerous thought for the people). Remember, good paying service jobs (read baristas, and tech bus drivers) are the future, and worth much more than those menial hard labor factory jobs. Why? Cause the Audacity of Hope said so. And no one should dare to question the Audacity of Hope, and the supporters of equality and justice.

      If you don’t like it, it’s ok, re-education camps will be set up across the country to help you and your kind to understand the truth. Because in the end, all of us need to stop with the aggressions, both macro and micro, and stop triggering others in their safe space. When you do that, you will be given your fair share of universal basic income and services.

      This gibberish is brought to you by your overlords (the Wall Street in the digital ether)

      By the way, instead of moving south, suggest moving to Hawaii, where its tropical weather all the time.

    • Chris Herbert says:

      And of course it is the government’s fault. Unregulated capitalism is so efficient. And profitable too. Swapping spit in the financial markets is the way to go.

  22. Swamp Creature says:

    “BNY Mellon employed about 48,600 people at the end of Q3. A 2% cut would be 970 people; a 3% cut would be over 1,400 people.”

    What do these 48,600 people do? Most are working from home on Long Island and NJ. I have all my mutual funds stored with them. I haven’t called them in the last 10 years except to unload my Junk Bonds and move the funds into something safer. One good thing about this firm is that they never bother you. They are very professional.

    • sunny129 says:

      SC

      The managers of Mutual Funds won’t prevent loss in your funds. Checkout what they did in 2000 and 2008! Read also their prospectus and policies re cash position during down cycle/bear mkt.

      Most of my IRA are in various ETFs and very few MFunds including bear funds.

      • Swamp Creature says:

        I know that. They do send a lot of good information in the mail. They are very conservative. A lot better than Charles Shwabb. The later screwed me up with their management fees always going up and it was hell on earth to close my account out.

    • Cas127 says:

      I’m pretty sure that BNY (in addition to Trust Mgt business) is also heavily involved in a lot of the “behind the scenes” operational work of Wall Street (margin lending processing, etc) and, especially, the bond mkts (1 of the dominant bond trustee administrators…who distribute pmts and…much more importantly…theoretically enforce those 2500 page bond agreements against defaulting corps,

      • GotCollateral says:

        Yup… thus super worrisome of what’s going on behind the scenes there at BNY

        In other news… the lastest 30 year UST auction 5% of bids were at least below 8bps whereas the market was trading ~180bps north of that…

        Some one is SuperShort™ long dated collateral while others are liquidating…

        • Cas127 says:

          GotCollateral,

          Could you simplify and step through your post for those of us not quite at your level of knowledge?

          Thanks.

        • GotCollateral says:

          Cas127,

          BNY acts as an agent in tri party repo. Agents handle some post-trade processing-collateral selection, payment and settlement, custody and management during the life of the transaction.

          These agents often don’t require full amount of collateral to be posted, and can use posted collateral in ways they see fit, aka: rehypothication.

          Thus in order to lower downside risks of dealing with rephyothicated collateral, UST auctions are a good way to get them… “On the run”. All other UST issue before are “Off the run” and potentially “poisoned” by rehypothication…

          If one is short collateral though, you are pressured to get UST at auction at any price, even at 8bps on 30Y UST… far away from the market price. You should look up UST auctions on treasure direct and look at the xml for the auction statistics to get an idea of the numbers.

        • Cas127 says:

          GC,

          Trying to restate for us civilians…let me know what I get wrong

          1) Repo lending tends to be short term between banks and between other large financial institutions, who are continually long/short of funds as their own transactions with their own customers fluctuate. The repo mkt is an “inside” mkt among large financial institutions.

          To make these repos speedy, Treasury bills/bonds (the most risk free assets avl…heh) are used as the collateral.

          2) But because financial institutions like to live on the edge to squeeze out a few extra basis pts income on large sums, that Treasuries loan collateral can in turn be used as a second (third, fourth, fifth, etc) loan’s collateral in a process of chained “rehypothecation”.

          3) In theory, everything should work out okay, since everybody in the loan chains have a cascading legal right to the underlying Treasuries collateral.

          4) In the real world, however, problems crop up and somebody in the rehypothecation chain can’t get his collateral back fast enough…in order to turn over to his lender further up the chain.

          5) To avoid expensive penalties (or ruinous default) that party is forced to go into the general Treasuries mkt and immediately buy a Treasury identical to his missing collateral.

          6) This crisis means he has to pay above the mkt rate for that particular Treasury…as such crises become more common, mkt prices for certain Treasuries start rising above what their coupon/term/etc would normally be worth.

          7) Such pricing anomalies indicate that something is going wrong in the intra-bank lending mkt – perhaps a number of institutions are getting hinky about lending to/handing collateral back to some other large financial institution(s).

          Is that basically the “For Dummies” version?

          And the general public should care because it is an early warning signal of trouble at one or more large financial institutions (or in the Trust bank operations that handle the “guts” of such intra-bank loans)

        • GotCollateral says:

          Cas127

          > 2) But because financial institutions like to live on the edge to squeeze out a few extra basis pts income on large sums, that Treasuries loan collateral can in turn be used as a second (third, fourth, fifth, etc) loan’s collateral in a process of chained “rehypothecation”.

          It gets worse, if people dont have UST, they can usually swap into it with other assets (see negative swap spreads…they are negative because of the demand for UST) stocks, IG bonds, HY bonds, pretty much everything under the sun if someone would accept is as collateral. So you have have someones stock as collateral backed by someones elses UST backed by someones else HY bonds backed by someones else warrents backed by someone elses UST, etc.

          > Is that basically the “For Dummies” version?

          Wow, this was a great way of putting things, head on the nail overvall

          > And the general public should care because it is an early warning signal of trouble at one or more large financial institutions (or in the Trust bank operations that handle the “guts” of such intra-bank loans)

          Yup, showing right up in the auction market data for all to see…

        • Lisa_Hooker says:

          “So you have have someones stock as collateral backed by someones elses UST backed by someones else HY bonds backed by someones else warrents backed by someone elses UST, etc.” – Thanks GC. Now I’m more scared than I’ve ever been.

        • Cas127 says:

          Lisa,

          Not quite as horrific as it could be.

          No entity knows better than a bank just how full of baloney another bank can be (like gvts with gvts), so in practice the collateral is almost always Treasuries…short term speed is of the essence with Repos so few want to futz around with riskier/harder to value collateral.

          Actually, if outsiders could detect non Treasuries being regularly used as repo collateral that would likely be a big red flag (ie, bank borrower had run out of Treasuries!)

  23. Sergey says:

    Which departments are being laid off? If it’s retail, why the surprise Wolf?

    How many of you visited a bank in 2020 or are planning to do so in 2021? COVID brought forward the innovation and change that were already happening anyway.

    • Wolf Richter says:

      From what I have heard, it’s not retail, but trust banking, IT, etc.

      • Mr. House says:

        BNY hardly has any retail banking. I worked for them for five years, four in private banking. They eliminated almost all branches that were not sold to citizens around 2014 or 2015. It was one of the worst cultures i’ve ever worked in.

  24. Socal Rhino says:

    These banks are on the receiving end of continued fee pressure from their clients (like mutual fund complexes, not retail customers) who are themselves under fee pressure from their clients. They will claim efficiencies from automation but really, with little ability to grow top line they have relied on offshoring to low cost locations and plain old layoffs. Also, the lower the interest rates the less client cash is left in account, denying their ability to earn a spread – that’s a real thing. Lastly they all used similar wording promising no layoffs in 2020.

    • Petunia says:

      If they are laying off IT people, then more automation is off the table as the excuse. IT would be expanding if automation was increasing, to support the extra equipment and the users.

      I didn’t know these custodians were offshoring. This is actually scary. I wouldn’t want my securities in the custody of another legal jurisdiction. This is another $hit$how waiting to happen. Even just offshoring the accounting for these securities is nuts. Some days I’m glad I don’t have to worry about this stuff.

      • Wolf Richter says:

        I know someone who worked as a contractor on an IT project for Wells Fargo. Wells Fargo too has been laying off IT people and canceled IT contractors. This started before Covid, then stopped through 2020, but has now resumed. He got another job last year on his own because he saw what would be coming. And sure enough, it came to the group he used to work with.

      • Socal Rhino says:

        Sorry I wasn’t more clear. They need to drive expense reduction and say they’ll achieve that through automation and cutting heads, and that would be literally true even if the mix were 1% efficiency and 99% headcount cut. They are not blaming layoffs on automation but my statement looks ambiguous in retrospect.

        Your securities remain where they were but the worker bees are less and less in North America or Western Europe.

  25. Cas127 says:

    Wolf,

    Could you tote up Biden’s $1.9 trillion for a future post?

    I’ve casually added up the broken out amts and I’m not getting anywhere near $1.9 trillion (there may be expenditures…a lot of expenditures…the media aren’t highlighting).

    • MCH says:

      Shhhh.. no one has time to read 10,000 pages of legalese gobblygook from Congress. Besides, math is for losers. If you know how to add, you must be evil, in fact, math itself is very rac***.

      • WES says:

        MCH:

        It is much worst than that!

        The US Chamber of Commerce crime syndicate lawyers write the whole bill!

        Congress hasn’t written a bill for over 25 years now!

    • Wolf Richter says:

      Cas127,

      It’s premature. This was just a list of some bullet points of a longer wish list. And it’s just a wish list. They’ll hand it to Congress, which gets to write the actual 5,000-page legislation that no member of Congress will read, and that they will argue over to get all their pork into. And I don’t think it will be as smooth sailing as the first big stimulus bill.

      • MCH says:

        Wolf,

        surely you jest. 5,000 page legislation was for the 900B stimulus, if we more than double the size of the stimulus, we need to at least double the number of pages associated with the bill.

        After all, paper companies need to be stimulated too. Not to mention the tons of toner we have to buy for prints in order to print out those pages, cause you know, reading an epic novel like that just can’t be done staring into a screen.

        So, some math here: 10K pages * 535 members of congress, and let’s toss in some staff, we’ll call it 2000 people… that’s like 20 million pages… bah, not even a dent considering all of the avid readers we have up in Congress.

        • Stephen C. says:

          So how about they bring back Tolstoy to write the bills. Would the members of Congress then be willing to read it?

          Or should the task go to Potemkin? Not really a literary bright light but he did do his part.

        • Anthony A. says:

          It would be nice if Congress puts out a Kindle version for us underlings.

        • Sierra7 says:

          MCH (and others):
          As Ocasio-Cortez in Congress stated these kinds of multi-thousand page bills is not “democracy in action but legislation by hostage taking!”
          My you all see better days.

        • Lisa_Hooker says:

          Why not stream the text of the bill. Then we could have a continuous, never ending, real-time bill.

      • cas127 says:

        Wolf,

        I don’t know…CA and NY are going to be in exceptionally bad fiscal shape shortly (the slow moving ruin of unfunded public pension liabilities is starting to arrive and it will be huge and relentless).

        Plus Housing Bubble Bust 1.0 did significant damage to both and Housing Bubble 2.0 is even more transparently absurd.

        Given that CA and NY form the absolute spine of the Dems Congressional power, priority #1 in triple play DC is going to be to bail them out – while hiding the truth about it as long as possible.

        Speed is the ally of corruption in DC since exposure takes a bit of time unless the public is immediately on top of all the details as soon as they come out.

        Alternatively, DC may go the blind block grant route, delaying and dividing the attention of the public in the other 48 states.

        But a spotlight would point out that possibility too.

    • Petunia says:

      Let me summarize it for you. Half the money will go to consultants and studies which will analyze how the money should be spent. And the other half will go to plug holes in previous budgets. A tiny bit might go to the 20 million people they put out of work.

  26. California Bob says:

    re: “… But these promises early on in the Pandemic to abstain from layoffs in 2020 are now expiring all over the place, even at San Francisco’s tech darling, Dropbox …”

    Can Box.com–which is, as far as I can tell, offering the same service (server storage)–be far behind?

  27. WES says:

    They all promised no layoffs in 2020 because they knew joe was coming!

  28. SocalJim says:

    I just saw prices on non-remarkable 3/2 1950s homes in beach towns jump like never before. This makes 2006 look like nothing, This is scaring me. Something is really wrong. This is not a stable situation.

    • Cas127 says:

      In the end, the human race has not lost the knowledge of how to build big wooden boxes (houses).

      The more absurdly over priced they become (due to ZIRP Forever and Disease Stimulus), the more incentive to build more houses/apts (nearby if not next door).

      If you are looking to deploy savings, maybe you might want to look into original ways to invest in general contractors/subcontractors around the country.

      I wonder if there are any obscure invt funds out there that specialize in financing non publicly traded GCs and subcontractors around the country (providing protective diversification).

      • Jeff T says:

        Cost of a garage door opener installed went from $450 to $600 in one year. Garage doors and the rails have gone up also. Window are increasing. Everything related to building and repair of homes is showing lots of inflation. Don’t forget taxes and permit fees. Maybe housing will keep going up. Or maybe it is all about the decreased purchasing power of our dollar.

    • Wolf Richter says:

      Have you seen the crazy trading in OTC penny stocks? Worthless stuff is jumping by 1,000% in no time. 1 trillion shares traded OTC in December, multiple times more than in any month in prior years. You’re correct. Something is really wrong.

      • MCH says:

        You mean like when Elon tweeted about Signal, and everyone and their mother jumped onto SIGL.

        Hilarious.

        Oh sorry, SIGL is not an OTC penny stock. at least not single 1/8/21.

        Not saying that Twitter is bad or anything, but may be, just may be, it ought to be shut down for the good of the sanity of humanity. Cause most people don’t deserve to have their voices amplified.

      • Cas127 says:

        “Something is really wrong.”

        Wolf,

        I know you know all this but I’ll restate for the board.

        The one thing that gives me a *little* comfort is that I am learning more and more to ignore “market cap” implications.

        Stock prices are set by the marginal investor, whose valuation judgments tend to be, by definition, the most extreme.

        So,

        1) if some on edge, hopped up on Jolt Cola, recently laid off/disease stimulated 24 yr is

        2) trying to day trade his way into a sustainable living by

        3) paying a 200 PE for a Pink Sheet stock with $10 million in real world revenues…

        4) I’m not really going to worry excessively about real asset impacts – up or down.

        That puny company may have a $600 million mkt cap on $10 mil in real world revenues…but that $600 mil is only as real as the next hopped up sucker…once their supply vanishes…so does the goofy mkt cap.

        The Jolt Cola Robinhood newbie has pissed away his Disease Stimulus **but $600 million in damage has not been done** (when stock collapses back) by that one fool.

        The fatal flaw of mkt cap calculations is that they rather blindly assume that *every* shareholder can immediately sell *all* their shares at the price set by a *marginal* shareholder (ie, there is an infinite army of hopped up Jolt Cola Robinhoodies with Disease Stimulus burning a hole in their pocket, forever).

        Which is, of course, wrong.

        But by applying the valuation held by the most *extreme* investors to all shares, the mkt cap convention maximizes the seeming importance of the company (if mkt cap didn’t exist, the hype pimps at CNBC would have to invent it).

        Add to that the fact that professional mkt tools that apply *downward* price pressure to stocks (shorting, etc) are basically structurally designed to be weaker than upward price pressure tools…and you end up with systematically over valued stocks.

        But the significance of imploding mkt caps is as overestimated as their explosion…it is basically just the most extreme valuation dummies diddling one another.

        It is basically the financial equivalent of really bad amateur YouPorn.

        Ditto for the Apples of the world…albeit at unnervingly higher numbers.

      • Yort says:

        “Something is really wrong” is an understatement. Food prices are going to have to skyrocket if the commodity spike does not stop AND reverse soon. Corn for example is up from $3.08 Aug 3, 2020 to peak at $5.41 Jan 14, 2021. That is a 75.6% gain in 5 months, which would be a 181% gain YOY. How do landowners and famers price a commodity that is trading like TSLA calls and Bitcoin futures? Corn could be $6 at harvest, or back to $3, a 100% difference! The Fed is screwing with our food supply at this point in their grand global money supply inflation experiment. Your survival does not depend on bitcoin or owning a Tesla…yet you might need to eat???

        It is all fun and games until people go hungry, so yeah, “something is really wrong”…

    • timbers says:

      That San Fran Fed board member chick is among those who said she’s not even thinking about thinking of ending eternal ZIRP & QE because they’re such awesome jobs creators/preservers. So here Wolf provides a counter point.

  29. makruger says:

    With long term interest rates rapidly rising (e.g. 10 year yield up 24% in the last 2 weeks alone), I would think economic conditions would be soon begin improving a bit for the financial industry. Naturally I am curious to see the FED’s response. Does the FED even have any tools left to begin playing whack-a-mole with the yield curve to keep this all in check?

    • California Bob says:

      Oops … wrong article. Wolf, please delete.

    • Cas127 says:

      “any tools left”

      The printing press/poisoned chalice is the only tool they need.

      And it is infinitely self replenishing until the country dies of the inflationary cure.

  30. Nacho Libre says:

    Sucks to be without a job in these times.

    Locking everything down has real world societal consequences. We shouldn’t be surprised when we see examples of job loss.

    Are we really expecting private companies to run like charities? Hiring and firing are business transactions.

    Fed on the other hand has been looting from savers with artificially low interest rates. Seems it has also resulted in loss of business for some banks.

  31. KGC says:

    “the extremely difficult decision” to lay off 500 people, or “about 2.5% of our partners.”

    Redefining what it means to be a “partner” in 2021…

  32. YuShan says:

    The upside of the current out of control fiscal stimulus is that it could pull the end of the bubble forward. The bigger the stimulus, the sooner and bigger the spike in inflation expectations and the bigger the size of the resulting yield spike.

    The thing that most people get wrong is that high inflation makes the debt LESS sustainable, not more.

    Suppose you get 5% inflation, sustained for 3 years. That would not dent the debt in any meaningful way, but bond yields would rise sharply. Debt servicing costs for many companies could then easily triple or more, so they could get into trouble well before any significant reduction of the real debt has taken place. Of course increasing default risk will then increase yields further and a death spiral happens. Corporations will be forced to issue equity to replace the debt, but their shares will sell off before that, so it leads to massive dilution of shareholder equity.

    Everybody is now jumping on risk assets because of stimulus, but if the Fed gets its inflation wish, that could bring this whole thing down. Once CPI inflation runs hot, the Fed has lost its options to support asset markets, and that is the only thing that keeps the markets afloat.

    Another thing that nobody ever mentions is that because of the size of the Fed balance sheet (i.e. the amount of liquidity in the system) means that if inflation were to run hot and the Fed is forced to hit the breaks at some point, it would have to raise interest rates more than would have been necessary with a normal sized balance sheet, because a larger percentage of liquidity has to be demobilised or withdrawn from the system.

    I’m probably wrong, but I think there is a significant tail risk of much higher interest rates than anybody now thinks possible within a few years from now.

  33. historicus says:

    The financial history of this nation, until 2008, has been that Fed Funds equal or exceed inflation.
    We have been in an altered environment since 2009.
    With the exception of 2018, in which the Fed attempted to get Fed Funds equal to the then 2% inflation, rates have been abnormal.
    Defending portfolios seems to be the tactic of the Fed.
    Now the politicians want their turn at the Fed Fake rate trough…1.9 Trillion largesse. Inflation cometh and soon.

  34. Roger Bacon says:

    Perhaps all the productivity gains from WFH are paying off. 😉

    • Anthony A. says:

      What did WFH produce besides writing computer code and filling in client forms?

  35. Norma Lacy says:

    to Got Collateral. Thanks! I’ve always wondered why the rates for on the run vs. off the run could be a tiny bit different – and more importantly, why people cared so much about on vs. off. Yet another window of understanding opened up for me.

    • GotCollateral says:

      No problem! Kudos to Jeff Snider at AIP and Emil Kalinowski with their eurodollar university series (pretty much the only place where I see people digging into the bowels of the global monetary system)

  36. Swamp Creature says:

    Wells Fargo, BOA and and Citi just announced massive stock buybacks. They want to push up their stock prices in advance of laying off top management officials. The goal is to make sure their retirement bonuses which are paid in shares of stock are worth something.

  37. Xavier Caveat says:

    Wasn’t a bank run something the customers used to do?

  38. Swamp Creature says:

    Just got my interest statement for my WF $25,000 savings account reported to the IRS. 8 basis points yield. After taxes I will net about $12. Wooopee!! I’m going out to spend the interest on a cup of coffee and hot begal from Duncan Donuts which I will have to consume in my car since their is no indoor seating.

    • Wolf Richter says:

      You’re lucky you got 8 basis points :-]

      • Xavier Caveat says:

        Through the miracle of compound interest, I feel confident my money will double by the year 2525.

      • Swamp Creature says:

        I WAS lucky

        Got another statement in the mail from my BNY Mellon short term Treasury money market fund. Had the same fund in 1987/1988 with about the same amount (60k) and was getting a check every month for about $500 for the interest only. Guess what I got today.

        1 basis point

        or .57 for the month of Dec. I’m going to use these funds (2 quarters) to buy 14 minutes of metered parking while I’m downing my Duncan Donuts Coffee & begal. At least the Coffee is good. Buy it all the time even for home brewing.

        Thanks Jerome P

        I’m having a great retirement working 12 to 18 hours/day with my investments yielding zero.

  39. Swamp Creature says:

    I’ve noticed the banks moving more and more to $50 and $100 bills for routine transactions such as cashing checks and withdrawing money from ATM machines. They are now discouraging the use of $20 bills. DO they know something we don’t? This may be an indication that some huge inflation may be just around the corner. Or maybe they are doing this to track currency movements, and money laundering. Its easier to track a hundred dollar bill than five $20 bills. When the $500 bill returns then you know we are in serious trouble. Trivia question. Who’s picture is on that $500 bill?

    • josap says:

      The Chase ATM near my house offers $5. $10. $20. just take your pick of how many of which you want.

  40. Martha Careful says:

    Kinda related, maybe interesting?

    January 13, 2021

    Full Employment in the New Monetary Policy Framework
    Governor Lael Brainard

    The damage from COVID-19 is concentrated among already challenged groups. Federal Reserve staff analysis indicates that unemployment is likely above 20 percent for workers in the bottom wage quartile, while it has fallen below 5 percent for the top wage quartile.20 Black and Hispanic unemployment stood at 9.9 percent and 9.3 percent, respectively, in December, while White unemployment was 6.0 percent. Labor force participation for prime-age workers has declined, particularly for parents of school-aged children, where the declines have been greater for women than for men, and greater for Black and Hispanic mothers than for White mothers.

    • YuShan says:

      “Federal Reserve staff analysis indicates that unemployment is likely above 20 percent for workers in the bottom wage quartile”

      Soon to increase when minimum wage goes to $15 per Biden’s plan.

      • Martha Careful says:

        $15/hr will probably cause all sorts of problems with the Texas Miracle. They’ve had super low/slave labor wages for a very long time and I assume the people flooding in there now, along with the older generation will go into shock! I think the min wage there is $7.25 — so, that will be a YUGE shock.

        Not sure how that fits in with pandemic economics and interest rates that will stay low for at least 18 months

        • Anthony A. says:

          Martha, when the minimum wage here in Texas goes to $15/hr, I will grab one of those jobs to supplement my SS which is being eaten by inflation (which we really don’t have from whet I am told).

          In three years when I turn 80, I will trim back to part time. I’m trying to learn Spanish so I can fit right in to the main stream.

          Only in America do we get these opportunities.

      • Swamp Creature says:

        Biden’s economic plan is a combination of tax and spend and print and spend. Add in a little wage fixing to the mix. Price controls are just down the road once inflation kicks in. His economic program will fail before even gets started. He has no original ideas. Just wormed over bulls$it that has been tried numerous times and failed.

      • topcat says:

        Implementing or increasing a minimum wage has never resulted in increased unemployment anywhere at anytime. This is an experiment that has been run over and over again but the neoliberal MYTH that minimum wage = unemployment persists regardless of the evidence.

  41. breamrod says:

    As wolf stated in a recent post, people have been paying down their credit cards. The Fed doesn’t like this so I doubt there will be as much cash sent to us plebs as we think. I took my 1200 I received and paid down my home equity account. My motto in 2021 is “screw the bankers”

  42. NARmageddon says:

    When banks complain about “low interest rates” they are being rampantly dishonest. What banks really are doing is to complain that they cannot charge high interest on commercial and mortgage loans, because the Fed is suppressing such long-term rates. However, you never hear the banks complain about paying almost 0% interest to their depositors, this time because Fed also happens to suppress short-term rates.

    I’m calling a big fat “Bah, Humbug!” on the banks’ whining.

    Yeah, it would be great if lending rates where much higher so that we could get asset prices (housing, stocks, bonds) down to where they should be relative to wages. But what the banks want is both high asset prices AND high interest rates. Basically for banks to have the ability to steal a larger slice of the economic cake.

    On a related note, given that banks pays near 0% for deposits and charge 10-20% interest (sometimes more) on credit cards, it is hard to feel sorry for them that other forms of lending are not as profitable as usual.

    • Wolf Richter says:

      NARmageddon,

      The issue with trust banks is different. Northern Trust doesn’t do retail business, doesn’t have retail bank branches, and doesn’t lend money to retail customers. Its big business is working with institutional investors, such as bond mutual funds, and very wealthy individuals. They’re into investment-grade corporate bonds and Treasury securities (very conservative), and Northern Trust does the heavy lifting for them. It has over $2 trillion of these “fiduciary assets” on its books. But the yields of these bonds have dropped to such a low level that these clients put pressure on Northern Trust to lower its fees, and that has put pressure on earnings for Northern Trust. BNY Mellon and the other trust banks that deal with bonds are in the same boat.

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