7 ms·

Keep in mind they're only able to buy US treasuries and mortgage backed securities. If Congress changes the rules to allow the Fed to purchase stocks, we'll be

Keep in mind they're only able to buy US treasuries and mortgage backed securities. If Congress changes the rules to allow the Fed to purchase stocks, we'll be in for some very interesting times. It could be that we get an economy of zombie companies, or valuations soar beyond what we've come to expect as normal. In any case, this is unprecedented and in my opinion not the right move. They're sacrificing our future in order to inflate stock prices now so that the current president can get re-elected.

nabla9 7y ago
> or valuations soar beyond Can you explain why you think Fed purchases would cause stock market soar instead of decline to slow down a little?
dntbnmpls 7y ago
> Keep in mind they're only able to buy US treasuries and mortgage backed securities. They announced they will buy municiple bonds also. https://www.cnbc.com/2020/03/20/the-federal-reserve-is-expanding-its-asset-purchases-to-include-municipal-bonds.html https://www.cnbc.com/2020/03/20/the-federal-reserve-is-expan... > If Congress changes the rules to allow the Fed to purchase stocks Corporate bonds first. If that fails, then stocks. Baby steps.
- deleted 7y ago
  [deleted]
- mrfusion 7y ago
  Why didn’t congress have to approve the munis?
  - thoughtstheseus 7y ago
    They’re government securities.
- 12elephant 7y ago
  They're already buying corporate bonds: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200323b1.pdf https://www.federalreserve.gov/newsevents/pressreleases/file...
rubber_duck 7y ago
Wouldn't this mean that FED, which already has the control over the money supply, can now go and buy companies with the money it creates ? If you define FED as a private entity - this sounds like theft. If you define it as a part of the government then you are transitioning to socialism (government ownership of means of production). Neither of these sounds like something that would be acceptable in the US political system - am I missing something here ?
- akmarinov 7y ago
  It's not socialism if the poor unwashed people don't get anything for free. /s
- deleted 7y ago
  [deleted]
- Anon1096 7y ago
  The Fed doesn't control the money supply. That's the job of the Treasury.
  - davidgh 7y ago
    By controlling the amount of loans made to banks, the Fed controls the money supply. Money is created out of thin air (without a printing press) by issuing new loans, which is what the Fed does.
spdy 7y ago
Look at the ECB they are buying stocks for quite some time now. https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.h...
- squaresmile 7y ago
  and BOJ https://www3.boj.or.jp/market/en/menu_etf.htm https://www3.boj.or.jp/market/en/menu_etf.htm The scale of BOJ's ETF purchases is quite something.
  - toomuchtodo 7y ago
    A foreshadowing of all developed country central banks’ actions. It’s only a matter of time before the Fed, BOE, and the ECB do so at similar scale. Incredibly disappointing as an educated investor that you must be judicious about asset acquisitions and allocations, and yet central banks just make the money printer go brrrrr when they deem it necessary (something, somewhere is always “too big to fail”).
    - QuesnayJr 7y ago
      What would you prefer? 20% unemployment? Anyway, central banks don't really do asset allocation -- they buy the least risky assets they can. Their real goal is to keep the currency from deflating.
      - toomuchtodo 7y ago
        Whoa there with the false equivalency. Helicopter money would be more helpful than propping up the wealth of the top wealth brackets using price floors through broad scale asset purchases. Literally give away hundreds of billions of dollars to citizens who will spend it right this minute. Have the government be economic demand of last resort to steady the ship until people can actually move about again. There will be no inflation to speak of due to how GDP has plummeted over the last few weeks. Monetary velocity > asset price protection. The stock market isn’t the economy, people producing, consuming, and exchanging fiat in the process are.
eternalny1 7y ago
> Keep in mind they're only able to buy US treasuries and mortgage backed securities. It's those MBS that were the real problem. Total panic on Wall Street with those, because everyone is so heavily tied into them and with all these unemployed people, foreclosures are going go through the roof. Now that they can offload them to the Fed instead of trying to sell them for pennies on the dollar, it's all champagne and caviar back on Wall Street.
- QuesnayJr 7y ago
  These are agency MBS, which are already backed by the US government, so Wall Street was already pre-bailed-out on them. They already had that champagne and caviar.
- vsareto 7y ago
  There's already a 2 month freeze on foreclosures. If they give checks to Americans, it'll go to mortgages most likely. This is absolutely bonkers territory. 10,000 years from now, I wouldn't be surprised if archeologists find money between the rock layers.
aww_dang 7y ago
"Fed to lend against stocks and bonds in bid to stabilize markets" https://www.ft.com/content/cf485398-689d-11ea-800d-da70cff6e4d3 https://www.ft.com/content/cf485398-689d-11ea-800d-da70cff6e...
mrfusion 7y ago
Regarding the zombie companies. A high stock price wouldn’t keep a company from going bankrupt. They could try to do a capital raise but that’s going to raise a lot of eyebrows if the fed is buying your newly released stock. I’d be curious how that works.
roymurdock 7y ago
it's not so our current president can get re-elected (Fed is largely independent of executive branch) but to prevent massive riots, social unrest, and ultimately a large amount of human suffering now at the cost of pushing it down the road
- Frost1x 7y ago
  Agreed, these actions are to prop up the existing economic system. It's my opinion our economic system needs a major overhaul, one that is preppered to address real situations like this without setting unrealistic growth expectations across the board and better stabilizing the majority of the workforce/labor market. This national economic stress businesses are feeling is quite similar to the stresses a large portion of the US workforce/families feel every single day/week in respect to future financial stability, risk valuation, growth, etc. It's about to get even worse for most Americans and may strain mass acceptance economic policy and acceptance of our system. That questioning of the system may be a good thing. I don't think a knee jerk correction where many are hungry, suffering, rioting, without healthcare, etc. is the way about correcting these problems to be clear. It doesn't seem like the issuees we're seeing will gradually self-correct (concentrated wealth, increased wealth inequality, massive barriers to entry in markets, declining workforce/labor economic growth, ever consolidated market share to fewer big businesses...) Perhaps this is the invisible all-knowing hand of the market self-correcting?
  - dillonmckay 7y ago
    American Gosplan.
dcolkitt 7y ago
> They're sacrificing our future in order to inflate stock prices now You're trivializing the issue. It's not just "inflating stock prices". Credit markets that are required for the basic functioning of the economy have completely frozen up. Companies that are completely solvent can't meet short-term obligations because the commercial paper market has frozen. Money market funds, which are basically savings accounts, have fallen below par despite only containing short-term high-quality bonds that would never default in any reasonably scenario. Repo markets are forcing mortgage providers to de-leverage positions (which will in turn lead to foreclosures) based on the fact that there's no liquidity for the collateral. International trade for basic and necessary goods in the supply chain has grinder to a halt because banks are no longer extending trade finance. Whether you like it or not our economy is completely dependent on having a well-functioning "money market", where short-term bonds, notes, and IOUs from high-quality issuers are used interchangeably with cash. And it's been this way for at least 150 years. Once the money market stops functioning economic activity grinds to a halt. At least in 2008, there was maybe some moral hazard argument against the Fed intervening. From 2001-2007 banks and other financial institutions were playing fast and loose with their risk. Maybe in 2008 it might have made sense to let banks stew in the financial crisis they created to teach them a lesson. But in this crisis what would be the point? This is a pandemic that came out of nowhere, that nobody could have possibly been prepared for. "You guys should have really had a contingency plan for global quarantine" doesn't make sense. I'm not even that big a fan of the Fed, but if there's any time ever to print money to prop up the economy, it's in the middle of a literal global pandemic when the government can already borrow money at zero percent interest.
- lisper 7y ago
  > would never default in any reasonable scenario Our reality is about to stray pretty far from any reasonable scenario.
- roymurdock 7y ago
  bill gates saw this coming in 2015 [1] and proposed many solutions so we could better prepare including assembling a medical reserve corps, simulated "germ games", and investments in medical R&D along with increased investment in 3rd world health infrastructure to stop the infections before they spread also many asian countries were better prepared due to their exposure to mers/sars [2]. so there was a precedent and influential people calling for change but investing health infrastructure is not the Fed's job, that is congress/government's job - AKA the job of corporations through lobbyists who have no incentive to do any type of preparation, just perpetuate the consumption cycle the fed is just responding to an economic crisis by trying to bail water out of a sinking boat, but they don't have the power to actually rebuild/fix that boat [1] https://www.ted.com/talks/bill_gates_the_next_outbreak_we_re_not_ready?language=en#t-500682 https://www.ted.com/talks/bill_gates_the_next_outbreak_we_re... [2] https://www.ft.com/content/e015e096-6532-11ea-a6cd-df28cc3c6a68 https://www.ft.com/content/e015e096-6532-11ea-a6cd-df28cc3c6...
12elephant 7y ago
The Fed is also buying corporate bonds as of today: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200323b1.pdf https://www.federalreserve.gov/newsevents/pressreleases/file...
- miohtama 7y ago
  Let's see how this is going to play out! https://thesoundingline.com/do-not-allow-the-fed-to-buy-corporate-bonds/ https://thesoundingline.com/do-not-allow-the-fed-to-buy-corp... > Which companies will the Fed give free money to? Which companies will they allow to fail? How low should corporate borrowing costs be and for which companies? How much debt should they allow each company to carry? What if companies issue bonds to buyout competitors? What if a company defaults on the Fed? The Fed can’t answer any of these questions. That won’t stop them from showering America’s largest and most indebted companies with free cash
miohtama 7y ago
It is expected that they change their mandate and start buying corporate bonds directly https://thesoundingline.com/do-not-allow-the-fed-to-buy-corporate-bonds/ https://thesoundingline.com/do-not-allow-the-fed-to-buy-corp...
onlyrealcuzzo 7y ago
We already have zombie companies with 10 years of 0 rates. This was exposing that. Once you start with this shit, you never get out of it. The market starts pricing it in, and if you ever try to back off, asset prices fall, and that's the end of the world to the 0.001%. See us with 0% rates since 2008. See Europe with negative rates since 2012. See Japan since 1989. We will have a zombie economy if this happens, just like Japan.
rahimnathwani 7y ago
From the article: "The Fed will be moving for the first time into corporate bonds, purchasing the investment-grade securities in primary and secondary markets and through exchange-traded funds."

nabla9 7y ago

> or valuations soar beyond Can you explain why you think Fed purchases would cause stock market soar instead of decline to slow down a little?

dntbnmpls 7y ago

> Keep in mind they're only able to buy US treasuries and mortgage backed securities. They announced they will buy municiple bonds also. https://www.cnbc.com/2020/03/20/the-federal-reserve-is-expanding-its-asset-purchases-to-include-municipal-bonds.html https://www.cnbc.com/2020/03/20/the-federal-reserve-is-expan... > If Congress changes the rules to allow the Fed to purchase stocks Corporate bonds first. If that fails, then stocks. Baby steps.

deleted 7y ago
[deleted]
mrfusion 7y ago
Why didn’t congress have to approve the munis?
- thoughtstheseus 7y ago
  They’re government securities.
12elephant 7y ago
They're already buying corporate bonds: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200323b1.pdf https://www.federalreserve.gov/newsevents/pressreleases/file...

rubber_duck 7y ago

Wouldn't this mean that FED, which already has the control over the money supply, can now go and buy companies with the money it creates ? If you define FED as a private entity - this sounds like theft. If you define it as a part of the government then you are transitioning to socialism (government ownership of means of production). Neither of these sounds like something that would be acceptable in the US political system - am I missing something here ?

akmarinov 7y ago
It's not socialism if the poor unwashed people don't get anything for free. /s
deleted 7y ago
[deleted]
Anon1096 7y ago
The Fed doesn't control the money supply. That's the job of the Treasury.
- davidgh 7y ago
  By controlling the amount of loans made to banks, the Fed controls the money supply. Money is created out of thin air (without a printing press) by issuing new loans, which is what the Fed does.

spdy 7y ago

Look at the ECB they are buying stocks for quite some time now. https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.h...

squaresmile 7y ago
and BOJ https://www3.boj.or.jp/market/en/menu_etf.htm https://www3.boj.or.jp/market/en/menu_etf.htm The scale of BOJ's ETF purchases is quite something.
- toomuchtodo 7y ago
  A foreshadowing of all developed country central banks’ actions. It’s only a matter of time before the Fed, BOE, and the ECB do so at similar scale. Incredibly disappointing as an educated investor that you must be judicious about asset acquisitions and allocations, and yet central banks just make the money printer go brrrrr when they deem it necessary (something, somewhere is always “too big to fail”).
  - QuesnayJr 7y ago
    What would you prefer? 20% unemployment? Anyway, central banks don't really do asset allocation -- they buy the least risky assets they can. Their real goal is to keep the currency from deflating.
    - toomuchtodo 7y ago
      Whoa there with the false equivalency. Helicopter money would be more helpful than propping up the wealth of the top wealth brackets using price floors through broad scale asset purchases. Literally give away hundreds of billions of dollars to citizens who will spend it right this minute. Have the government be economic demand of last resort to steady the ship until people can actually move about again. There will be no inflation to speak of due to how GDP has plummeted over the last few weeks. Monetary velocity > asset price protection. The stock market isn’t the economy, people producing, consuming, and exchanging fiat in the process are.

eternalny1 7y ago

> Keep in mind they're only able to buy US treasuries and mortgage backed securities. It's those MBS that were the real problem. Total panic on Wall Street with those, because everyone is so heavily tied into them and with all these unemployed people, foreclosures are going go through the roof. Now that they can offload them to the Fed instead of trying to sell them for pennies on the dollar, it's all champagne and caviar back on Wall Street.

QuesnayJr 7y ago
These are agency MBS, which are already backed by the US government, so Wall Street was already pre-bailed-out on them. They already had that champagne and caviar.
vsareto 7y ago
There's already a 2 month freeze on foreclosures. If they give checks to Americans, it'll go to mortgages most likely. This is absolutely bonkers territory. 10,000 years from now, I wouldn't be surprised if archeologists find money between the rock layers.

aww_dang 7y ago

"Fed to lend against stocks and bonds in bid to stabilize markets" https://www.ft.com/content/cf485398-689d-11ea-800d-da70cff6e4d3 https://www.ft.com/content/cf485398-689d-11ea-800d-da70cff6e...

mrfusion 7y ago

Regarding the zombie companies. A high stock price wouldn’t keep a company from going bankrupt. They could try to do a capital raise but that’s going to raise a lot of eyebrows if the fed is buying your newly released stock. I’d be curious how that works.

roymurdock 7y ago

it's not so our current president can get re-elected (Fed is largely independent of executive branch) but to prevent massive riots, social unrest, and ultimately a large amount of human suffering now at the cost of pushing it down the road

Frost1x 7y ago
Agreed, these actions are to prop up the existing economic system. It's my opinion our economic system needs a major overhaul, one that is preppered to address real situations like this without setting unrealistic growth expectations across the board and better stabilizing the majority of the workforce/labor market. This national economic stress businesses are feeling is quite similar to the stresses a large portion of the US workforce/families feel every single day/week in respect to future financial stability, risk valuation, growth, etc. It's about to get even worse for most Americans and may strain mass acceptance economic policy and acceptance of our system. That questioning of the system may be a good thing. I don't think a knee jerk correction where many are hungry, suffering, rioting, without healthcare, etc. is the way about correcting these problems to be clear. It doesn't seem like the issuees we're seeing will gradually self-correct (concentrated wealth, increased wealth inequality, massive barriers to entry in markets, declining workforce/labor economic growth, ever consolidated market share to fewer big businesses...) Perhaps this is the invisible all-knowing hand of the market self-correcting?
- dillonmckay 7y ago
  American Gosplan.

dcolkitt 7y ago

> They're sacrificing our future in order to inflate stock prices now You're trivializing the issue. It's not just "inflating stock prices". Credit markets that are required for the basic functioning of the economy have completely frozen up. Companies that are completely solvent can't meet short-term obligations because the commercial paper market has frozen. Money market funds, which are basically savings accounts, have fallen below par despite only containing short-term high-quality bonds that would never default in any reasonably scenario. Repo markets are forcing mortgage providers to de-leverage positions (which will in turn lead to foreclosures) based on the fact that there's no liquidity for the collateral. International trade for basic and necessary goods in the supply chain has grinder to a halt because banks are no longer extending trade finance. Whether you like it or not our economy is completely dependent on having a well-functioning "money market", where short-term bonds, notes, and IOUs from high-quality issuers are used interchangeably with cash. And it's been this way for at least 150 years. Once the money market stops functioning economic activity grinds to a halt. At least in 2008, there was maybe some moral hazard argument against the Fed intervening. From 2001-2007 banks and other financial institutions were playing fast and loose with their risk. Maybe in 2008 it might have made sense to let banks stew in the financial crisis they created to teach them a lesson. But in this crisis what would be the point? This is a pandemic that came out of nowhere, that nobody could have possibly been prepared for. "You guys should have really had a contingency plan for global quarantine" doesn't make sense. I'm not even that big a fan of the Fed, but if there's any time ever to print money to prop up the economy, it's in the middle of a literal global pandemic when the government can already borrow money at zero percent interest.

lisper 7y ago
> would never default in any reasonable scenario Our reality is about to stray pretty far from any reasonable scenario.
roymurdock 7y ago
bill gates saw this coming in 2015 [1] and proposed many solutions so we could better prepare including assembling a medical reserve corps, simulated "germ games", and investments in medical R&D along with increased investment in 3rd world health infrastructure to stop the infections before they spread also many asian countries were better prepared due to their exposure to mers/sars [2]. so there was a precedent and influential people calling for change but investing health infrastructure is not the Fed's job, that is congress/government's job - AKA the job of corporations through lobbyists who have no incentive to do any type of preparation, just perpetuate the consumption cycle the fed is just responding to an economic crisis by trying to bail water out of a sinking boat, but they don't have the power to actually rebuild/fix that boat [1] https://www.ted.com/talks/bill_gates_the_next_outbreak_we_re_not_ready?language=en#t-500682 https://www.ted.com/talks/bill_gates_the_next_outbreak_we_re... [2] https://www.ft.com/content/e015e096-6532-11ea-a6cd-df28cc3c6a68 https://www.ft.com/content/e015e096-6532-11ea-a6cd-df28cc3c6...

12elephant 7y ago

The Fed is also buying corporate bonds as of today: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200323b1.pdf https://www.federalreserve.gov/newsevents/pressreleases/file...

miohtama 7y ago
Let's see how this is going to play out! https://thesoundingline.com/do-not-allow-the-fed-to-buy-corporate-bonds/ https://thesoundingline.com/do-not-allow-the-fed-to-buy-corp... > Which companies will the Fed give free money to? Which companies will they allow to fail? How low should corporate borrowing costs be and for which companies? How much debt should they allow each company to carry? What if companies issue bonds to buyout competitors? What if a company defaults on the Fed? The Fed can’t answer any of these questions. That won’t stop them from showering America’s largest and most indebted companies with free cash

miohtama 7y ago

It is expected that they change their mandate and start buying corporate bonds directly https://thesoundingline.com/do-not-allow-the-fed-to-buy-corporate-bonds/ https://thesoundingline.com/do-not-allow-the-fed-to-buy-corp...

onlyrealcuzzo 7y ago

We already have zombie companies with 10 years of 0 rates. This was exposing that. Once you start with this shit, you never get out of it. The market starts pricing it in, and if you ever try to back off, asset prices fall, and that's the end of the world to the 0.001%. See us with 0% rates since 2008. See Europe with negative rates since 2012. See Japan since 1989. We will have a zombie economy if this happens, just like Japan.

rahimnathwani 7y ago

From the article: "The Fed will be moving for the first time into corporate bonds, purchasing the investment-grade securities in primary and secondary markets and through exchange-traded funds."