By mid-September, the junk bond market started heading south.
By Wolf Richter for WOLF STREET.
It has been a sordid market manipulation and bondholder- and particularly junk-bondholder bailout scheme all along. Today was the final chapter.
Remember the massive corporate bond-buying spree that the Fed announced in March 2020 and that the media hyped all over the place with gurus of all kinds claiming that the Fed would buy $750 billion in corporate bonds, junk bonds, bond ETFs, and junk-bond ETFs? It triggered a huge rally in corporate bonds and junk bonds and drove junk-bond yields to the lowest levels ever. And the Fed never actually bought a lot.
So today, the Federal Reserve Bank of New York, which handles the securities trades of the Federal Reserve asset purchase program, announced – after selling the small amounts of corporate bonds, bond ETFs, and junk-bond ETFs it had actually bought – that it had earned $513 million in interest and capital gains on those deals, and that it sent 90% of those earnings to the US Treasury today. And it’s washing its hands off the corporate bond market.
Since the Fed was effectively barred from buying corporate bonds, it set up a separate legal entity, an LLC it named “Corporate Credit Facilities” (or CCF). It lent money to this Special Purpose Vehicle while the US Treasury provided equity capital to the SPV. The SPV then bought the corporate bonds and ETFs. BlackRock was involved and then State Street, and a whole bunch of bond funds from which it bought the bonds, and everyone and their dog began front-running the Fed, and a huge rally in corporate bonds, junk bonds, and bond ETFs ensued because, you know, the Fed would be buying $750 billion of this stuff.
Well, OK, the Fed stopped buying bond ETFs in July 2020, and its purchases of corporate bonds were minuscule. At the peak, the SPV held only about $5.2 billion in ETFs and $8.6 billion in corporate bonds, $13.8 billion in total, of an $8.5 trillion-with-a-T pile of total assets on the Fed’s balance sheet.
The whole scheme was put on ice at the end of December, when the Mnuchin Treasury refused to extend the program.
On June 2, the Fed announced that it would sell bonds and bond ETFs outright, and then sold them into the hottest bond market ever, and the SPV received market value for these bonds. Other bonds matured and were redeemed, and the SPV received face value for those bonds. By the end of August, the Fed’s SPV had sold the last corporate bonds and bond ETFs.
In mid-September, the junk bond market peaked, with yields at the lowest levels ever, with the average BB-rated junk-bond yield falling to 3.01%, when inflation was already over 5%. But then prices U-turned and started heading south, and yields started rising. Currently, the average BB-rated yield is at 3.44%.
The CCF is the yellow section in the chart of the whole alphabet soup of bailout SPVs that the Fed set up in the spring of 2020. The Fed discloses this data on its balance sheet. By mid-September, the SPV paid back the loan it had received from the Fed, and it paid back the equity capital it had received from the Treasury, and the balance went to near-zero:
So today, the Federal Reserve Bank of New York said that this infamous CCF earned $513 million in interest and capital gains over its life from March 2020 to September 2021, and that it sent 90% of that profit, so $462 million, to the US Treasury today, and that it retained 10% of that profit, so $51 million, to cover costs, as spelled out in the CCF’s LLC agreement.
It said that the SPV is now being dissolved.
The SPV’s purpose was to bail out holders of corporate bonds, and particularly of junk bonds, which had gotten crushed during the March 2020 sell-off. By jawboning the markets and creating all this hoopla, the Fed didn’t actually need to buy $750 billion in corporate bonds.
Its words were enough to manipulate markets higher and cause fantastic gains for speculators in junk bonds. The junk bond rally triggered by the Fed’s announcement that it would buy junk bonds via junk-bond ETFs had a huge impact on the market, though the Fed ended up buying very little in the end.
The Fed enriched these speculators, while at the same time, it crushed the savers, first through its interest rate repression, and then since early this year, with the worst inflation in three decades. It was a massive wealth transfer, from savers to bond holders, accomplished in two slick steps. But OK. The savers, who’d refused to speculate, had it coming. To heck with them – that’s the official policy of the Fed.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Yes the FBI did, wait what was the question.
Yes.
I don’t know… was JFK a saver?
The FED IS the eCONomy. That’s the problem. They have their hooks in everything, picking winners and losers. It’s time to neuter or end the FED.
Have some fun with your brokerage buddies…
Ask them…
“Did you see what the Fed just did?”
And watch the look on their face……it will tell that ALL rests on the Fed and the decisions of a few unelected, unmonitored people.
The whole US economy is rigged by the FED and all the tax loopholes for billionaires.
It’s all a big club, and you ain’t in it.
Tax loopholes or tax code set up as planned?
Absolute maximum IRS tax rate of long-term capital gains is 20%.
Absolute maximum IRS tax rate of wage-earned income is 37%.
“In politics, nothing happens by accident. If it happens, you can bet it was planned that way.” -President Franklin Delano Roosevelt
“The real truth of the matter is, as you and I know, that a financial element in the larger centers has owned the Government ever since the days of Andrew Jackson.” -FDR corresponding to ‘Colonel’ Edward House on 21 November 1933
As true today as it was eighty-eight years ago.
It’s been incredibly frustrating to try and establish any conservative investment strategy for retirement in this environment. Even with careful analysis any investment that should win can be manipulated to lose instead or vice versa if the gov’t or Fed shift policy. I’ve lost a lot of potential upside by making sure to lock my gains and stay out of debt. It’s hard watching a bunch of people borrow money they don’t have,make huge reckless bets and win and win and win.
Because of today’s geopolitics, the central banks in the neoliberal pole (FRB, ECB, BoJ) can not risk asset deflation, so it’s gonna be money printer go Brrrr. See the Japan’s massive stimulus announcement this week? Who knows what hard assets Russia will demand from Europe to keep the heat on this winter, right as it goes into full lockdown again.
Got Popcorn?
Lockdown in the EU is one way of reducing energy demand. Just saying. Russia has promised to sell gas they don’t have. Russian energy assets are in decline. Imported LNG might help, if the US was still promoting lower interest rates, cheap credit, fossil fuels, and fracking. High Yield junk is what fueled the cheap energy (renewable) revolution. The situation is similar to COP26 when China didn’t show up, they were too busy burning coal to meet 40% higher export quotas and feed the US supply chain bottleneck. Somehow they have to prevent a strong dollar from making matters worse in EU/JAP. So just print more.
Marketmissing…
And I ask this question..
WHO KNEW?
For the history of the Fed, the reaction to inflation has been to raise Fed Funds to at or near the inflation rate.
YET, there seems to be a thread of certitude in the stock market insiders that this was not going to happen THIS TIME. Who knew? Who decided?
And why is it okay THIS TIME to have the Fed shirk their duties?
I submit my opinion, that there are those who are in the shadows who have HIJACKED the Fed, and that these coercers are the same ilk that coerce board of directors at major companies to jump through the “woke” hoop, dance to the climate change mantra. et al. Near free money, provided by Fed policy, for massive federal government spending programs that are socialistic and “woke” fit the scenario and would be a consistent ploy of this ilk.
Fed Fund-CPI
Never EVER happened to this degree…..
and with record stock and real estate prices….
https://thesoundingline.com/wp-content/uploads/2021/11/real-fed-funds-rate-cpi-oct-2021-1536×585.png
WEF?
Have patience my friend. Think about Buffet. Blocking and tackling all these years and his stock sells for 15 times operating earnings while Elon’s EV company sells for 130 times operating earnings.
Plus Berkshire is largest owner of wind energy in US if green energy and EV does take off. Both are smart. One has degree in old style finance and one is an entrepreneur.
One is a gambler on a huge winning streak strutting around the casino.
Nice way to put it. I’d add that the pit boss has been treating the gambler with kid’s gloves too despite the gambler’s overt manipulation of the table.
All that wind power was paid for by taxpayers geeesh wake up
When you think about it the big problem with Fed is their main tool is to change the value of money which is the one value people need to know to make rational economic decision. It doesn’t end well when people are on one side of the boat, because Fed has led them over there.
‘Jim Grant: “The Fed Reminds Me Of A Speculator On The Wrong Side Of The Market”
A big nugget in the gravel! Heck of a long read over on ZH Nov 20.
by the iconic author. In general agreement with WR although maybe more bullish on gold. Some wry humor: ‘we have the lowest interest rates in 4000 years, or maybe 3700 years because they have ticked up a bit.’
Points of note re inflation: A year ago Goldman predicted late 2021 inflation to be about 2 %. Missed!
Re: persistence and stealth. Grant says inflation took off in 70’s but began in sixties. It creeps up, smoldering before bursting into flame.
Although he doesn’t say this, the CPI helps the stealth by minimizing the actual rate with hedonic ‘improvements’ etc.
Re: Fed’s ‘nerve’: he wonders if it will panic as the market reacts to baby steps towards normal rates.
Many interesting thoughts including geo-politics, Taiwan etc.
The story the MSM never covers, because “if you don’t have anything good to say don’t say anything at all”? Nah, that doesn’t sound like the MSM. More likely, they are purposefully covering up the con, whatever the reason.
A lot of people have been educated in the power of a narrative. Most journalist are good at telling stories and that is about it.
A true investor had to try to get the big picture and estimate what earnings are going to be over the next couple of decades and then price it out. Most of the time doing nothing is best thing to do.
Just read Fidelity did research on 10 year returns by age and the best investors were accounts of deceased people.
Corporate media is all owned by the same Billionaires who profit from this scheme. From Fox to CNN to MSNBC none of them are non-profits, oh no, they’re all owned by the few billionaires at the top who profit from this crony system. After all, gotta keep the serfs fighting each other so they don’t see the big scam for what it is.
Not defending the largely indefensible MSM, but so-called “non-profit” status is basically meaningless (too many people carelessly assume it means “charitable/honest/fair/good”).
In real life practice, all it means is that revenues/profits that might have been routed to external shareholders are instead retained internally…mostly at the top.
Good example…many, many hospitals are ostensibly non-profit…but that hasn’t restrained wildfire medical inflation for 60 years or kept doctors/medical personnel from being the highest paid group by a considerable amount.
As part of tax favored “non profits”.
….savers had it coming. Won’t need to find a turkey for Thanksgiving, the fed already gave me the bird (and told me to stuff it!).
This is a great comment. Sums it up exactly.
“The savers, who’d refused to speculate, had it coming. To heck with them – that’s the official policy of the Fed.”
I’m still saving, Wolf. I refuse to speculate. I suppose I’m just a fool, but I’ve never liked gambling and so I continue to just stack cash as it loses value. But I still sleep well knowing I have zero debt and cash in the bank. Perhaps one day a saver will be rewarded again. Or I’ll die waiting.
Yes your a fool how dare you not be reckless and bet it all in retirement, we need idiots says the FED.
I’m the same. I refused to pull my savings out and gamble.
I never imagined that they would drop the rates to near nothing.I was wrong however when the rates do go up at least I might do alright then.
Seems to me the Fed is a bunch of crooks.
By the time rates go up cash might be a good fire starter
For the history of this nation, it has ALWAYS been an option to go slow…save and scrimp your way to financial stability. To save for major purchases instead of borrow, to save and NOT BE PUNISHED for having done so…
Yet now, the Fed has taken a different course. Powell says rates must stay low to promote employment….with record job openings!!
Powell says the bottlenecks caused the inflation, not the 30% jump in M2…
Every purchasing decision of late has been made with the anticipation of higher prices……”Buy all you can at that price, fill your inventories”….
THAT is what caused the bottlenecks, and that is a result of Fed promoted inflation.
Mr. Powell, anyone in your family history save money? Were they punished for having done so?
It’s not just money but the general pace of society that has accelerated. It’s exhausting to be alive, but maybe that’s just me getting older. But everything is accelerated and continually accelerating.
Depth,
You are exactly right. Ask anyone who has ever had an emergency to contend with, be it emergency repairs, a sudden health expense, an urgent need to travel? It’s pretty nice to have some cash in the bank and a cleared up credit card. I was taught, and taught my kids that this attitude was a life skill.
Due to flooding and road/rail/pipeline disruptions we presently have gas rationing and travel restrictions here until December 1. There are emergency laws about price gouging. I looked at my wife and we concluded we don’t have to change or do anything different…for months if need be. In addition to savings we always always have cash available. Does any of this take a big income? Not at all, I’ve never made big incomes. It is a mindset based on the paying yourself first method of retirement planning. You just extend it to household emergency preps. Live below your means.
Most believe in spending at least some of tomorrow’s income today, sometimes years of it or more.
Yeah, don’t have kids. There’s a non-zero chance they will have a medical condition and require lifelong care. /s
You can do everything right, have a cache of money behind, and still bust out because misfortune and mistakes carry heavy costs in our society. “A sudden health expense” can break *anyone.*
I’d like to address that rather than expect every person to be perfect when born, have a perfect education and to exercise perfect personal responsibility and financial management throughout their lives.
Simple rules buy food on sale get enough supply for a year then restock always worked for me redo car house insurance every 5 years buy used cars there’s to much want in this country do needs first
I find it ironic that Fed keeps pushing people out on the risk curve til the system blows up from excessive leverage.
These two factors usually balance the system, but the FED has neutralized them.
I have the same tactic, although I am 73 and retired for 8 years. In times like this, all you can safely do is cut back on your spending a bit to counter the effects of inflation on savings. To chase yield with riskier investments only means that eventually, you will lose. It’s gambling, plain and simple. Gambling is a tax on ignorance.
I have about 20% in PM’s, which have cancelled out the inflation losses, so far. We will see if that continjes.
There has always been inflation losses. Even in high interest years savers sometimes forget that the interest returns were only 5-6-7% because inflation was astronomical. It is just that our current 0% return heading into inflation rise looks terrible and feels even worse.
Still have my money though instead of debt. It works for me and when I look around I’m doing just fine. Maybe on paper it could be better but…..
Or move somewhere with a lower cost of living, including leaving the country. There are plenty of places outside the US providing a satisfactory quality of life for anyone with even a modest US income.
One Does Not Simply Emigrate.
Please suggest a few based on thorough research AF:
Have done such research, after thinking similar and having lived in UK, and IR years ago. They are not even anywhere close to as safe as ”most” of USA these days for USA citizens, in spite of the propaganda otherwise,,, and have not seen anywhere else based on similar deep study..
Perhaps drifterprof can weigh in here re Thailand, which I would love to hear…
I was thinking about how retail investors will chase narratives and lose money . Went back and looked at Aurora the marijuana company. They had a good story, but it went public and those that bought the mania at the wrong time lost 94.5% of their money.
I think, but am not certain of where we will be with the narrative stocks like Tesla and maybe Bitcoin, but it could be similar.
1) Dan Rostenkowski, Ill house speaker, saved the digital money, the fake money, from paying taxes.
2) Fake digital debt, the EUR/USD, built China.
3) JP built a $8T war chest to save the o/n digital money.
4) Last week, the house passed $10T to build digital infra and stimmie to save the sun & the wind.
5) The more sun spectrum, the higher the taxes on digital work and in the gas pump .
6) NDX made a new all time high. DX crossed it’s backbone – 95.775 from Jan 2015 high and 93.385 Feb 2015 low and closed at 96.08 . The German rates, all the way to 30Y, are underwater. The German 3M is minus 0.98%, and inverted at the front end. US long duration are inverted at the other end.
7) The DOW and IWM might have reached their terminal bars, retracing
38% of the move from Sept low.
8) The wild osc zone might spillover beyond Jan 2022, making few new all time highs before the deep freeze.
Great analysis, thank you Wolf!
I am betting on cash, as stocks are giddy-high and floating above rickety tiers of leverage (partying like its 1999, detaching from fundamentals), and a blip up in interest rates says big capital losses for bonds. The whole parfait of manipulations seems to be ripe for a mean reversion at some point, and I want liquidity to just meet necessities. I sold off stocks yesterday. I want dry powder and who knows, I might buy back in if it panics enough. But it seems possible that extend-and-pretend and repression can keep on bubbling? I am banking on the examples of history flashing red to me. The USA’s advantages postwar are being sold out, but that is not new. My latest studies say it was happening starting in the late 50s at least, certainly by JFK’s time. I agree savers are being badly mistreated. I am thinking of John Law’s France — the mean reversion did eventually happen, and those invested in bubble schemes and fake new assets did pay. And a freeze came for a long time (eventually a revolution — yikes).
It seems all of these stock gamblers are waiting until the FED actually starts raising rates, which the FED has signaled will not be until mid next year. So, we could continue to see this massive melt-up until the first rate hikes. Then TANTRUM!
You need constant innovation to keep growing the standard of living, because virtually everything becomes a commodity. First ball point pens were like $20 if I am not mistaken and it was long before Bic we as making them for $0.19.
Governments tend to over regulate and it’s very easy to kill the goose that keeps bringing the golden egg.
Nothing new here. The ‘savers’ were the ones front running the Fed and making a lot of money as a result. The average Joe was not involved. Interest rate suppression benefits the rich. The oligarchs who have an army of lawyers and accountants, not to mention insider information, can profit from just about anything the Fed does. Rising prices benefit the rich, who already own 80% of all assets in America. The only tool that can hurt the wealthy is taxes. Raise them on the rich, eliminate them from the wages of labor.
All the bills that have made it through Congress in the past 20 years did carried interest get dealt with? It’s basically how Soros got mega wealthy and then creates non profits to influence politics all over the world.
It’s not going to happen as long as politicians can be bought with campaign contributions, especially when Congress doesn’t even know what they are voting for.
Don’t you remember, they have to vote for the bill to find out what’s really in it? The regulatory agencies and courts will reveal it.
We repeatedly elect profoundly cynical politicians to Congress. While asset inflation ruins capitalism for younger generations these clowns sit on their thumbs and enjoy their ill-gotten gains. But there is no voting choice. So we’re stuck with the IBGYBG Fed gods. I finally realized there is no alternative but to play along enough to keep up with inflation. I have no clue how this regime ends.
It’s going to end with the majority of Americans ending up poorer or a lot poorer. You can take that to the bank.
During the last 20 years of substantial if not mostly fake prosperity, real median income and wealth have flatlined.
What does everyone think is going to happen when the asset mania collapses? (Tip, this is a rhetorical question.)
“that it retained 10% of that profit, ”
My first guess was it went to the INFLATION PROTECTED PENSIONS of the Federal Reserve Board of Governors. (they probably already have such)
Most of that $51 million went into covering the costs of setting up, running, and now shutting down that $13 billion program = 0.4% for the life of the program.
Compare this to the expenses charged by 80% of bond mutual funds: from 0.5% to 1.7% per year (and the Fed’s program ran over more than a year).
None of the $51 million was for interest back to the fed on the money it borrowed from them to seed the SPV?
Looks to me like they made roughly 10% in a year and a half, not bad at all.
But I don’t understand your assumption that savers were hurt while speculators were enriched. Who’d they make the half a billion profit from if it wasn’t the speculators that bid up the bonds trying to front run them? Maybe you could elaborate on that point. Seems to me whether savers were hurt or enriched would depend on their buy/sell timing, just like the speculators.
The reasoning is clear in the article:
“The Fed enriched these speculators, while at the same time, it crushed the savers, first through its interest rate repression, and then since early this year, with the worst inflation in three decades.”
Unfortunately, the Fed (club of big guys) chooses winners (surprise, the big guys) and losers (oh no! the little guys). Winners in this case were bond speculators, including filthy rich operators and various funds with insider knowledge.
The bond speculator windfall isn’t specifically / directly related to savers being hurt. However, meanwhile, for an extended period of time, the Fed has chosen retail savers to be losers. Retail savers, who hold cash or equivalent savings, steadily lose portfolio value through the Fed’s actions that: 1) keep interest rates artificially near zero, and 2) connive to turn a blind eye on inflation, which is tantamount to classic regressive taxation.
Is it legal for feds to set-up llc government was not mandated to be in business corruption
Of course it wasnt legal…but who is there to stop them?
They promote inflation …when they are charged with fighting inflation (stable prices)
Those SPVs involved the participation of the Treasury department, and that participation was authorized by Congress in the CARES Act.
Congress could stop the Fed from doing this, but didn’t. On the contrary.
Curious with all the new gun toting populists in Congress, you might think the debate would sharpen. Did McCarthy say anything about the Fed in his eight hour speech?
“Congress could stop the Fed from doing this, but didn’t. On the contrary.”
Of course, because Congress LOVES the money-printing at the expense of American citizens.
“There’s a floor under the stock market.”
~House Speaker Pelosi
“The California Democrat’s husband, Paul Pelosi, purchased 25 call options of the highly valued electric vehicle company weeks before President Joe Biden announced plans to replace the entire federal automobile fleet with electric vehicles.”
Follow the money.
This is legal go to for Federal government. Things that aren’t allowed by Constitution are done through private corporations. FINRA is one example. Purchasing information about you from corporations is another.
The US Constitution doesn’t provide for hardly anything done by the federal government today, except under the liberal interpretations mostly invented by the USSC starting in the 20th century.
How many of the Fed’s people made a nice little earner out of this market manipulation?
Well I can think of two Fed Governors who walked…..
Imagine the information network….
I recall, after the bounce off the March 2020 lows….a prominent hedge fund _________ Fool, gave an “all in” call…..first time ever. Good call……good info.
Educate the masses. Transfer power from the FED to the Treasury and print $ for the people not the banks. I’ve never understood why USA citizens have allowed a private banking cartel to control their monetary policy. Now the FED has become a TBTF systemic risk/problem for the USD, and all your assets (except AG/AU) are in jeopardy.
“why USA citizens have allowed a private banking cartel to control their monetary policy”
The greater question, and to the situation of today…
is why the FED is allowed to ignore the mandates/agreements/instructions under which they are ALLOWED to exist and operate?
the Fed is complicit, via their cheap money policy, in the employment predicament and the record job openings, unfilled. If the federal govt had to borrow at real rates, the doling out would not happen to this degree, or at all. Nice job Fed.
And we have 6.2% inflation with zero (.05)Fed Funds rates. Never happened before, and all at the hand of the Fed who promotes inflation.
And we have near record lows in long rates, immoderately low.
So, lets review.
*Mandate #1 The Fed is supposed to promote maximum employment yet what they do with rates has had the OPPOSITE EFFECT. The free money to promote inflation is borrowed by the federal government and paid out in a fashion that discourages employment. Fail.
Mandate #2 The Fed is supposed to promote stable prices, yet they promote just the opposite, INFLATION. Fail
Mandate #3 The Fed is supposed to promote moderate (not extreme) long term rates, but we have near record lows, 30yrs almost 2% below inflation. Those rates are IMMODERATE and EXTREMELY low. Fail.
*What should be done with J Powell for breach of Fiduciary responsibility in his post as Fed Chairman?
*What should be done when it becomes clear the Fed is answering to another voice than their mandates/agreements/instructions under which they are allowed to operate?
*What should be done with Fed Governors front running Fed policy and likely tipping off others (hedge fund managers and friends)?
The Fed is off the rails and likely HIHACKED
The U.S. Fed couldn’t exist without the guarantee that the small U.S. taxpayer is ultimately responsible for the Fed debt.
Yet it is amazing that those that benefit the most from dancing with the Fed, chose to ignore this fact.
JM, US citizens had no say in the creation of the FED. Read up on the folly of how it was created and passed in “The Gods of Money” book.
“Transfer power from the FED to the Treasury and print $ for the people not the banks.”
How about no money printing period? Inflation is destroying the people. WAGES and INCOMES are what lead to a prosperous people and economy, not fake money printing and bubbles which benefit precious few.
What you describe is only feasible in an alternative universe.
Educate the masses?
That’s about as likely as hell freezing over. The average American is a virtual economic illiterate, incapable of being educated or not interested, including spending their time on a smart phone and watching some dopey reality TV show.
The school of hard knocks would at least make them pay attention?
Brilliant market manipulation by the Fed – jawbone leverage on fundamentally illegal purchases. Probably all the regulators were insider trading in cahoots to boost the effect. Pelosi get her share?
So when does the SEC form SPVs?
Interest on the Federal debt of $562,388,232,682.17 in 2021 going higher in 2022.
The FED only returned $54.9 billion to the U.S. Treasury in 2019.
Something’s got to give.
You have the FOMO jones on you. I have had bouts of the FOMO jones for the same reasons you gave. I was forced to cash out in Jan 2020 when my covered call options executed. Most of my stock was in dividend paying utilities. I did not want to own them at the multiples after the call. The explosion of leverage and mass euphoria of the dumb money has or is close to the process of being under distribution from dumb to smart. The dumb always end up with the haircut on stock. This coming Monday or 6 months or 1 year I do not know when but the Fed Bubbles will pop. The Fed is trapped and I believe very worried. The Fed and Gov’t had a narrow window of opportunity to normalize monetary policy over a decade ago. They took the cowardly way . They failed to lead. Bernanke lied when he said QE and ZIRP was a short term emergency response. We are still in the emergency. Gov’t has failed to protect The Treasury and the sound money it should represent as Wolf pointed out in his article. The Fed with Gov’t approval took 4 Trillion from savers. This was eatin’ money for a lot of middle of the road joes like me. When it comes to money take a lesson from the Minute Men and keep your powder dry and Ol’ Blu’ ready to bark over here and bite over yonder.
” Bernanke lied when he said QE and ZIRP was a short term emergency response.”
We will normalize when unemployment dips below 6.5%……B Bernanke
Went to 3.5%……and QE went up.
Do you think this massive lie hurt his speaking fees ? (delayed paybacks)
Oh no not at all. Lying Ben And Then later Mrs. Magoo at the Fed and now the Treasury got a good wallow in the cash cairn also. It’s amazing how the Electorate accepts grifters in Gov’t. These people are not public servants. They are parasites.
” It’s amazing how the Electorate accepts grifters in Gov’t.”
H L Mencken
The voters seem to adore the politicians who tell the grandest lies, and abhor the candidates that tells them the brutal truth…
or something to that effect
We have runaway inflation for the masses, financially destroying the middle class and the poor, and Weimar Boy Powell is still printing over $100 BILLION per month in QE, saying rate hikes aren’t even an option for another 8+ months. This is not dangerous and reckless, it’s well beyond that. It’s diabolical.
If they can steal without personal consequence, they will continue to do so. At this point the only thing that’ll stop any of it is lead and an organized, informed populace – I’m not holding my breath for that. In the next downturn they will simply buy equities to preserve artificially elevated wealth disparities.
Wow! Junk bonds turning into junk. Who saw that coming?
This monetary environment is difficult for corporate bonds but its probably a buying opportunity. At the first sign of trouble in stocks yields drop hard. Inflation was negative in the decade of the 30’s. Rates remained above zero anyway. Bonds were a good play. Now with the Fed ready to step in and buy corporates, no reason not to like them. Corporations are a much larger part of the economy now. I think the Fed knows they’re in the deep weeds. Corporate bonds have revenue, Treasuries have none.
There is NO, let me repeat that NO market that isn’t manipulated is some fashion or the other by the Fed and its big money friends and buddies, anyone with less than $10, 000,000 is just a bit player who is going to get raped, get used to it. Saving is for fools and morons spend it all and then borrow a load more, and then borrow on top of that, there will be no retirement the new feudal overlords of money have decided to fuck the peasants and you will work until you die.
Wouldn’t the whole going around the rules to form LLC be a warning? The fact that they are barred from buying these and found a loop hole. Once used I can only imagine it will be used in the future with this as the basis for that. Sad?!?
Since the Fed was effectively barred from buying corporate bonds, it set up a separate legal entity, an LLC it named “Corporate Credit Facilities” (or CCF). It lent money to this Special Purpose Vehicle while the US Treasury provided equity capital to the SPV. The SPV then bought the corporate bonds and ETFs
So what are you or I going to do about it? Nada, maybe whinge a bit. And that’s why they’ll do that and more next time.
Clever…..but clearly outside their scope.
If only something was watching the Fed to keep it coloring inside the lines.
Apparently it wont be Sherrod Brown of the Senate Banking Committee.
What would interest rates be and what would
business be like without fed intervention.
My guess on the first is much higher and on the second much lower. Would we be clamoring for intervention if that were the case?
We would have a healthier financial system.
Savers and other lenders would be paid a fair return , which they would spend into the economy.
The book will be written…
Pushing rates low initially stimulates, but protracted,, it becomes damaging because of the yield chasing, over leveraging, and misallocation of resources. IMO
This is a very misleading article. If you look at OAS spreads of a basket of high yield bonds, the OAS spread is near record tights. There is no credit issue in the market.
The HYG has traded off a little because treasury rates rose. However, the OAS spread is as tight as ever. Remember, the high yield rate equals a treasury rate + an OAS spread rate. The treasury rates are rising because of hot inflation. The HYG is just tracking the Treasury rates.
In other words, Dems have done this whole country a lot of good!!! Imagine if they weren’t in charge!!!
It is because under inflation, companies have an easier time servicing old debt so they are less of a credit risk. So, if you want to give the Dems credit for inflation, ….
Dems haven’t done anything other than pass the stimulus bill Trump was in favor of. These things will take years to actually get into the system, and if the House flips they will never be funded. The US is the only nation that allows the election process every four years, to dictate long term policy for central bankers. The next financial crisis may be entirely out of the control of the bureaucrats.
Some big wall street investors have a different theory. Basically, a fiat currency is only as sound as the political system backing it. After last November when political corruption was censored, big investors are beginning to question the USD which is inflationary because free trade requires predictable and trustable forwards in currenty markets. This is ruining globalization and driving institutional investors to diversify into digital currencies.
There is no credit issue in the market? What exactly does that mean?
Spreads being near the lowest ever means the exact opposite of what you claim. It’s not entirely of the FRB’s doing but is one of the primary symptoms of this manic asset bubble.
Corporate balance sheets are garbage quality versus the historical norm. Even with today’s low interest rates, many businesses don’t deserve any funding at all using any sane financial analysis which includes actually making a profit.
Interest coverage ratios may or do look good for many companies, but that’s substantially if not entirely due to artificially low rates (lowering interest expense) and the fake economy which has massively inflated profits.
If you want to see what actual corporate financial health looks like without both, look back to the fall of 2008. It’s even worse now, much worse.
We didn’t get here overnight and even assuming the bond bull market dating from 1981 has actually ended, it will take awhile for the worst of it to be evident. It will become evident as debt is refinanced at consistently higher rates in a weak or contracting economy.
I’m with you Eastwind. The jawboning created a buying frenzy, but the actual $$ run through the program, though monstrous to any normal person, was miniscule in the big pic of QE, as wolf points out ($14B out of $8.5T).
If the assertion is that jawboning but not executing bond purchases was somehow forecasted to inside players who then acted upon that knowledge, timing bond purchases / sales to profit…then OK. However, I have seen no proof of jawbone pre-knowledge.
Once the jawboning started, anyone could speculate. Sounds like many did, and some got out when the gittin was good, but absent other evidence, looks like they saw limited Fed junk bond buying activity early and timed their selling, a fairly common technique.
500M profit only required the Fed to buy 4T and govt to spend trillions more. What’s the ROI on those trillions? Without including that, the 500M is imaginary profit.
Stop bailing out the CBs.
It can’t be fixed.