Fed slashes rates, rips open crisis tool kit to cushion coronavirus blow

[worgeordie]

The next step....Banks charging you to look after your money,

back to the 1700's interest rates have never been so low,not

a good time to be a saver,cash is no longer King,maybe time

to get into debt,like the majority of people,whom if their car

broke down would not have available cash to fix it.

regards worgeordie

[englishoak]

NYC and Los Angeles to close all bars and restaurants as from tomorrow. Maybe POTUS  will evoke the stafford act..the president could then order a two week mandatory quarantine for the nation. Lockdown is imo now imminent and needed anyway if the US is to get a breather and even a  chance to get on top of this now.. Close the markets possibly too.  

 

Meanwhile I hear Chatuchak market is deserted and down 95% so the kindly owners are allowing sellers 50% rent discount for the next few months... woohoo....

 

[spidermike007]

What’s more, in a service-sector dominated economy much of the lost output is never going to be recovered. If people do not go out to their weekly meal at their favourite local restaurant for the next two months they are not going to eat out four times a week when the fear of infection has been lifted. It also seems likely that the economic pain will go on for longer than originally estimated. There is also a question of how long it will take consumer and business confidence to recover. Policy action by central banks and finance ministries can help in this respect but only so much. The chances are that the imminent recession will be U-shaped: a steep decline followed by a period of bumping along the bottom. There will be recovery but it will take time and only after much damage has been caused.

 

https://www.theguardian.com/business/2020/mar/15/prepare-for-the-coronavirus-global-recession?CMP=Share_iOSApp_Other

[Eric Loh]

7 minutes ago, worgeordie said:

The next step....Banks charging you to look after your money,

back to the 1700's interest rates have never been so low,not

a good time to be a saver,cash is no longer King,maybe time

to get into debt,like the majority of people,whom if their car

broke down would not have available cash to fix it.

regards worgeordie

May trigger bank runs when savers get frustrated with the zero returns and withdraw their money. When that happen, banks will shut down as their liquidity is insufficient to meet up with the demand for cash. The end of world stuff. Thanks Donny.

[bristolboy]

3 minutes ago, Eric Loh said:

May trigger bank runs when savers get frustrated with the zero returns and withdraw their money. When that happen, banks will shut down as their liquidity is insufficient to meet up with the demand for cash. The end of world stuff. Thanks Donny.

Won't happen. The feds can extend as much credit to the banks as necessary in the unlikely event this occurs. As savers return money to banks, Fed will reabsorb disbursed credit.

[jany123]

Many saw trumps election as the precursor of a recession.... looks like they were right. MAGA.

[Eric Loh]

1 hour ago, bristolboy said:

Won't happen. The feds can extend as much credit to the banks as necessary in the unlikely event this occurs. As savers return money to banks, Fed will reabsorb disbursed credit.

Inflated the balance sheet with paper credit just wouldn’t stop bank running out of cash. At it is, banks fractional reserve banking system where only a small proportion of their assets are in cash. Bank runs will deplete their cash in no time as customers fear the financial institutions going insolvent. I read that the Bank of America in Minnesota is experiencing a bank run as people withdraw money for safer more tangible assets. If the runs gain momentum across the country, it will be very damaging. 

 

[Monomial]

The similarities with the 1930's today are uncanny. The wealthiest 0.1% own nearly as much as the bottom 90%. Populism is exploding because of this. Everyone is talking about a reset in the economy. It took WWII to cause a global reset last time. By the 50's the wealth gap had finally been quelled and things were back to normal again.

 

Too many people look at the 1930's and think that the "depression" was the problem. They entirely miss the point. The depression was simply the result of the wealth gap. And whether or not we can stave off a technical depression this time is irrelevant. The figure that truly matters is the wealth gap. It is the real problem, and we are already there. I just hope it doesn't take another war to reset the global economy this time.

 

[bristolboy]

13 minutes ago, Monomial said:

The similarities with the 1930's today are uncanny. The wealthiest 0.1% own nearly as much as the bottom 90%. Populism is exploding because of this. Everyone is talking about a reset in the economy. It took WWII to cause a global reset last time. By the 50's the wealth gap had finally been quelled and things were back to normal again.

 

Too many people look at the 1930's and think that the "depression" was the problem. They entirely miss the point. The depression was simply the result of the wealth gap. And whether or not we can stave off a technical depression this time is irrelevant. The figure that truly matters is the wealth gap. It is the real problem, and we are already there. I just hope it doesn't take another war to reset the global economy this time.

 

Yes there was an interesting study from the right wing Manhattan Institute that was recently published.

The Cost-of-Thriving Index: Reevaluating the Prosperity of the American Family

https://www.manhattan-institute.org/reevaluating-prosperity-of-american-family

The major takeway from this study was that while it used to take a male head of a household of 4 about 30 weeks to meet the basic cost of living decently, it now takes 53 weeks. Maybe these workers should migrate to a planet with a longer year?

[placnx]

3 hours ago, Vigilante said:

The system was insolvent long before Trump came to power.

You may have missed the lessons of the 2006 crisis

Even the much maligned Soros said in the aftermath of those days..

'The system is not fixed'

The low (Fed) rates kept everybody pouring money in the stock exchange

12 years later it's a gargantuan bubble...quadrillions in derivatives and other voodoo 'financial instruments'

The system is insolvent...most govts are insolvent.

 

The word 'reset' is been heard more often in the last year or two.

The virus crash/mayhem offers the perfect cover.

My 2 cents

You are correct. China reported today that industrial production was down 50% in February compared to February last year; the figure for retail sales was -20.5%. In the 2008 financial crisis it was China that bailed out the world economy. That will not be possible now.

 

A new approach is needed in the US: First the Congress will have to pass laws OMG to support small & medium business and the big sectors directly affected such as the travel industry, not to mention vulnerable individuals and families. The Fed will then direct credits to the entities that will execute this policy, or through banks, without the sales of bonds that would normally "sterilize" this creation of liquidity.

 

This might create further weakness in the US dollar, though that depends on the market view of US actions versus those of other countries. This should cause inflation, which is the other goal of such action.

 

We are in this situation because the Obama administration flubbed the rescue of homeowners in the 2008 crisis. This led to an anemic long-winded recovery and possibly history's greatest financial bubble, since the excess liquidity in the US and Europe was not targeted and therefore ended up in stocks, bonds, and megabucks penthouses in NYC, while many of those affected in 2008 are still waiting for a recovery.

 

This will lead to the "reset", but the question remains how the destruction of asset values - stocks and bonds, real estate - will not affect small investors and their pensions. Hopefully funds will take action to protect their assets, but who would be foolish enough to take the opposite side of the trade? Only government and central banks can do that.

 

This may well be the culmination of the deflation caused by 1) China's wanton overinvestment in steel, aluminium, etc, domination of other commodity markets, 2) the internet depressing prices by showing the lowest available.

 

If action is not taken to mitigate the debt spiral caused by numerous debtors unable to pay, 

 

The Coronavirus is simply the catalyst for an financial smashup waiting to happen. As long as it continues to ravage the world, it will be difficult to launch a sustainable recovery. The key to ending this pandemic in the near term is to create and widely distribute a 15-minute test which can be widely deployed, at airports prior to boarding, in local clinics. This would be a point-of care, nucleic acid test. Next year further circulation of the virus can be limited by this testing plus ring vaccination of outbreaks or clusters. After that, when enough vaccine was available, old people should be vaccinated.   

[bristolboy]

2 hours ago, englishoak said:

NYC and Los Angeles to close all bars and restaurants as from tomorrow. Maybe POTUS  will evoke the stafford act..the president could then order a two week mandatory quarantine for the nation. Lockdown is imo now imminent and needed anyway if the US is to get a breather and even a  chance to get on top of this now.. Close the markets possibly too.  

 

Meanwhile I hear Chatuchak market is deserted and down 95% so the kindly owners are allowing sellers 50% rent discount for the next few months... woohoo....

 

What, and close down Mar y Lago?

Coronavirus in Florida: More Mar-a-Lago visitors test positive; Trump negative

 

While President Donald Trump calls Mar-a-Lago the Winter White House, his club on Palm Beach is earning a reputation as a coronavirus hotspot after four recent visitors have tested positive.

After attending a lavish birthday party for the girlfriend of Trump’s oldest son March 7, three top Brazilian officials later tested positive for COVID-19, according to statements they have released.

Republican Party officials said an unidentified donor tested positive after joining roughly 1,000 others at a Sunday luncheon at Mar-a-Lago that was hosted by Trump Victory, according to a Washington Post story late Friday night.

https://www.palmbeachpost.com/news/20200314/coronavirus-in-florida-more-mar-a-lago-visitors-test-positive-trump-negative

 

Only a thousand people at this gathering? Clearly, Trump is taking the advice of the CDC seriously and demonstrating the wisdom of his leadership. MAGA!

 

[placnx]

4 hours ago, englishoak said:

Question.. 

 

You dont think this has been a zombie market since 08 anyway ?. With all the fake value and QE and bailouts it must all come down crashing at some point.. not just JPM, but all major US banks are ending stock buybacks now ... Corporate run on banks already started last week.  Boeing shocked the investing community when it announced that due to "market turmoil", it would immediately draw down on its full $13.825 revolving credit facility, thats unprecedented. Others no doubt will be following suit on drawdowns as they too will need liquidity just to survive.   Negative rates are coming next and then there will be no point joe public keeping cash in the bank but for bills. Until markets are allowed to crash/unwind as cycles demand and the market finds fair value again ( probably overshooting as usual ) things are imo going to get a lot worse from here on for quite some time. 

 

Sub 10,000 maybe as low as 5000 Dow anyone ? 

 

 

Corporate buybacks of the shares in the US is a major reason that corporate debt has reached unprecedented levels, so there are many companies with bond ratings at the lowest investment level. Further downgrade, based on negative earnings outlooks, would cause their bonds to be dumped because many institutional investors cannot hold junk bonds, so some such investors must be already selling in anticipation of downgrades. This explains the rapidly widening spread of BBB vs Treasury bonds.

 

The worst case scenario is that the upward trend of the DJIA that began in 1982 (after Paul Volcker drove interest rates to 15~20% to kill inflation) will be retraced, but by how much? Looking back at such movements, here is a 90-year chart of S&P500:

https://www.macrotrends.net/2324/sp-500-historical-chart-data

Some relative points (precise highs & lows difficult to pinpoint on the graph):

Sep 1929 = 439.40
May 1932 = 82.23
Jan 1937 = 323.36 (top of failed recovery)
Jun 1956 = 435.22 (took 24 years to recover to 1929 level)
Oct 1968 = 738.35
July 1982 = 276.83
Dec 1991 = 762.44 (recovery to high in 1968 - 23 years)
Aug 2000 = 2214.30
Mar 2009 = 945.48
Feb 2015 = 2319.16 (recovery to high in 2000 - 15 years)
Feb 2020 = 3386.15 (last high)

 

This recession will be much bigger than the so-called Great Recession of 2007-8. How bad depends on whether sustained, coordinated fiscal action to mitigate deflation in major economies can happen. First of all, we need a solution through rapid testing and vaccine to the Corona crisis. By that time how much cascading default will have happened? Will it by then be "Little Depression"? Negativity warranted!

[zydeco]

5 hours ago, englishoak said:

Sub 10,000 maybe as low as 5000 Dow anyone ?

Certainly possible. Unless Trump goes for the Venezuela option, so he can have his stock market go up 3000 percent--and a loaf of bread will cost $300.

[zydeco]

4 hours ago, Berkshire said:

The Fed is also planning more QE to the tune of around $700 billion. 

This will only be the beginning. They will print trillions out of thin air. US debt screaming towards $30 trillion plus.

[zydeco]

4 hours ago, otherstuff1957 said:

So, how long before we start seeing negative interest in the US?  Will it be days, weeks or months?

It's already happened. https://www.zerohedge.com/markets/nirp-arrives-treasuries-trade-negative-yield

[zydeco]

3 hours ago, Eric Loh said:

May trigger bank runs when savers get frustrated with the zero returns and withdraw their money.

Already has in the Hamptons.

[Tayaout]

The Asian and European markets are bleeding. Can't wait to see the US waking up. 

[WalkingOrders]

Translate as we got trouble. Think 6 months, to 1 year out, wondering if China be triggered into greater melt, and globe as well, and how low can she go. Thai bank? Expect they cut as well.

 

As usual despite certain screams of derision, this has nothing to do with world leaders, except, in how the teams in place manage the crisis. Of course, the non-economically inclined will be lining up to post comments about the correct way to handle such crisis. 

 

My belief is USA is on right track, as are all the central banks it seems, all taking similiar measures. Same playbook, different crisis.Question is about long term weathering of the storm. Hope it all ends soon.

[zydeco]

And the end result will be what we just saw happen in Japan today, where the Bank of Japan is buying ETFs (they already own 75 percent of them), stocks, bonds, and negative interest rates. Trump is jealous. 

Quote

The Bank of Japan announced after an emergency policy meeting that it will expand its purchases of stocks, bonds and other assets and provide zero interest, one year loans to companies running short of cash to help the economy weather the impact of the virus outbreak.     https://www.usnews.com/news/business/articles/2020-03-15/bank-of-japan-holds-emergency-policy-meeting-after-fed-cut

 

[zydeco]

Quote

CNBC Now

 

BREAKING: 8 of the biggest U.S. banks say they will suspend share buybacks though Q2 of 2020. The banks are: Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street & Wells Fargo.

The fools. All those billions and billions of buybacks at much higher prices all throughout 2017-2019. They deserve to be roasted. That's where all the 2017 tax cut money went, stock buybacks. And now they'll be wanting a bailout, because they took loans to buy back their own shares and get executive bonuses. Should put them all in a Thai prison.

[placnx]

8 minutes ago, zydeco said:

The fools. All those billions and billions of buybacks at much higher prices all throughout 2017-2019. They deserve to be roasted. That's where all the 2017 tax cut money went, stock buybacks. And now they'll be wanting a bailout, because they took loans to buy back their own shares and get executive bonuses. Should put them all in a Thai prison.

True. These buybacks and the lending that supported them will kill those stocks. 

 

15 minutes ago, zydeco said:

And the end result will be what we just saw happen in Japan today, where the Bank of Japan is buying ETFs (they already own 75 percent of them), stocks, bonds, and negative interest rates. Trump is jealous. 

 

If the Fed could buy SPY and QQQ ETFs that could keep the market from finding a bottom for even longer!

[unsubscribe]

6 hours ago, Vigilante said:

The system was insolvent long before Trump came to power.

You may have missed the lessons of the 2006 crisis

Even the much maligned Soros said in the aftermath of those days..

'The system is not fixed'

The low (Fed) rates kept everybody pouring money in the stock exchange

12 years later it's a gargantuan bubble...quadrillions in derivatives and other voodoo 'financial instruments'

The system is insolvent...most govts are insolvent.

 

The word 'reset' is been heard more often in the last year or two.

The virus crash/mayhem offers the perfect cover.

My 2 cents

Bingo! This almost everything bubble has been looking for a pin and CV will do nicely.

 

Now are we headed for long term deflation (like Japan since the 90's) or will the obscene helicopter money trigger hyperinflation?

[unsubscribe]

47 minutes ago, zydeco said:

Already has in the Hamptons.

"The Hamptons is not a defensible position. It's a low-lying beach. Eventually people will come for you" - M. Blythe

[URMySunshine]

13 hours ago, englishoak said:

Question.. 

 

You dont think this has been a zombie market since 08 anyway ?. With all the fake value and QE and bailouts it must all come down crashing at some point.. not just JPM, but all major US banks are ending stock buybacks now ... Corporate run on banks already started last week.  Boeing shocked the investing community when it announced that due to "market turmoil", it would immediately draw down on its full $13.825 revolving credit facility, thats unprecedented. Others no doubt will be following suit on drawdowns as they too will need liquidity just to survive.   Negative rates are coming next and then there will be no point joe public keeping cash in the bank but for bills. Until markets are allowed to crash/unwind as cycles demand and the market finds fair value again ( probably overshooting as usual ) things are imo going to get a lot worse from here on for quite some time. 

 

Sub 10,000 maybe as low as 5000 Dow anyone ? 

 

 

Bank runs and bank holidays are baked into this toxic stew now think 5 - 10 year depression not a quick recovery. Things will be more valuable than money moving forward. A lot of money sitting on the sidelines from a crashing market may get some enforced haircuts. Wealth is being lost at an astounding rate. 

[bristolboy]

9 hours ago, WalkingOrders said:

Translate as we got trouble. Think 6 months, to 1 year out, wondering if China be triggered into greater melt, and globe as well, and how low can she go. Thai bank? Expect they cut as well.

 

As usual despite certain screams of derision, this has nothing to do with world leaders, except, in how the teams in place manage the crisis. Of course, the non-economically inclined will be lining up to post comments about the correct way to handle such crisis. 

 

My belief is USA is on right track, as are all the central banks it seems, all taking similiar measures. Same playbook, different crisis.Question is about long term weathering of the storm. Hope it all ends soon.

Actually, as economists note, there's not so much the Central Banks can do. Before they could slash interest rates to stimulate the economy. But since interest rates are so low already, that tool is not available to them. If, in fact, this turns into a severe recession, then the best tool is fiscal stimulus. Of course, if right wingers are consistent, they'll ask for big cuts in spending like they did when Obama was President. 

[Roy Baht]

And rearranging the chairs on the deck of the Titantic did not prevent the great ship from sinking.

[heybruce]

40 minutes ago, bristolboy said:

Actually, as economists note, there's not so much the Central Banks can do. Before they could slash interest rates to stimulate the economy. But since interest rates are so low already, that tool is not available to them. If, in fact, this turns into a severe recession, then the best tool is fiscal stimulus. Of course, if right wingers are consistent, they'll ask for big cuts in spending like they did when Obama was President. 

Right wingers only care about deficits when there is a Democrat in the White House.

 

Had Trump worked to reduce the deficit after he inherited a strong economy, as responsible leader do, the government would have a little more flexibility to stimulate the economy.  Unfortunately Trump ran the deficit up bigly.  Republicans do that.

[DaRoadrunner]

By lowering rates the Fed panicked the market and made things worse then they would have been.

[URMySunshine]

We are where we are in the foothills of possibly a world war because that is what humans do from time to time. The virus is the starting gun. 

[bristolboy]

1 minute ago, DaRoadrunner said:

By lowering rates the Fed has panicked the market and made things worse then they would have been.

I'm not sure that it made it worse. I think investors just realized that with interest rates so low, it doesn't make much difference if the fed lowers them further. It does highlight Trump's ignorance about basic economic and financial issues though.