It worked well in theory and in practice for a dozen years. But at what is likely to be the most important juncture in our lives, if not in modern history, this indicator failed to warn us. Here’s why that’s terrifying.
We also take a look at the foreign central bank issue and tell why that’s also frightening.
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$321 Billion
That’s how much cash the Fed will pump into Primary Dealer accounts this week. Guess how much new Treasury issuance there will be over the same period. If you guessed $321 billion, you would be all but correct. It’s $328 billion.
That’s right. The Fed is buying all of the COVID19 rescue financing. It’s inventing imaginary money to pay Primary Dealers for that new supply. The Fed is printing the money to pay for the economic bailout.
And it’s not stabilizing the financial markets. Here’s why, and what it means.
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The Fed injected around $600 billion into the markets and the banking system last week. That’s about $2,000 for every American, and it was just one weekly installment. All in the valley of Death rode the 600. We are the 600 and the Fed is leading us into the valley of Death.
Meanwhile banking indicators suggest that the sickness is getting worse, not better.
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On March 3, the Fed converted Not QE into Panic QE. Since then it has pumped $766 billion in cash into Primary Dealer accounts. At the same time the US Treasury issued “only” $147 billion in new debt. So in essence, the Fed issued $619 billion in excess cash.
Other than the hyperinflationary implications, what good has it done? What does it mean for us looking ahead.
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The Fed has undertaken so many rescue programs since Friday that my head is spinning. It’s hard to keep track of it all. A schedule of repo offerings for the next month reads like the Old Testament. Even the rabbis are arguing over it, the underlying question being, “Where is G-d already?”
I’ve tacked it to the butt of this report.
Anyway, it’s irrelevant. The dealers can’t borrow a fraction of what the Fed is offering. Here’s what’s relevant. The markets are now a mass grave filled not with COVID19 victims, but victims of the greatest bubble in history. A bubble built by the Fed.
Here’s what’s coming next, and what you can do about it to preserve your capital and maybe even profit from the big moves that lie ahead. Assuming that trading systems continue to function at all.
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With no prior announcement or clue, the Fed bought $37 billion in Treasury coupons from Primary Dealers on Friday. To pay for them it deposited $37 billion into dealer accounts at the Fed.
It was the largest single day POMO (Permanent Open Market Operation) purchase since the days of TARP and QE 1 in 2009.
It came without warning. I was so glued to the intraday live charts on Friday, I wasn’t even aware that the Fed had taken this emergency action until after the close.
We sure as hell saw the result. But this is only the beginning of this story.
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Investors and leveraged speculators instead took the coronavirus panic straight to the bond market. Dealers, bless their little hearts, were long up the wazoo. Talk about smellin like a rose.
But somebody was short. Big somebodies. They’re dead. We don’t know where the bodies are buried yet, but the Fed will need to exhume them and fill the graves. We watching for the exhumations to see who the dig up, and what they fill the graves with.
Meanwhile, there’s plenty of liquidty in dealer accounts and more on the way.
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The market got way ahead of the amount of cash that the Fed was pumping into dealer accounts in February. That took a toll, and we’ve had a little “adjustment” over the past week. Here’s what comes next.
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We knew that Not QE would fall well shy of Treasury issuance in February, and that that would be a problem for the markets.
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The pause in the growth of the Fed’s balance sheet over the past 6 weeks isn’t what the pundits are telling you. Some are saying that it’s evidence that the Fed is not doing QE. They’re either gaslighting, or clueless. But we know what it is, and we know what happens now.
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Lee Adler