Saturday, April 11, 2020

fed junk bonds catastrophe

I am social distancing to avoid the virus.
Californians already have herd immunity,
got the virus months ago and did not know it.

We have China communist students around here so I may have already got the virus too.
The virus is mild and most cases are asymptomatic.

It appears Negroes get diseased the most because their black skin does not allow sun to make enough Vitamin D.
Negroes should emigrate to Africa and make Africa great again.
East coast big city people spend winter indoors so complete lack of sun Vitamin D,
and blow germs all over each other while indoors.

Lots of communicable diseases can be avoided by just staying away from people and practicing cleanliness.
Seems to me the family farm may make a comeback.
Live far from diseased big cities.
Self-sufficient food, water, quiet.
Amish families around here average 7 children per family and use horses, mules,…
no cars or electronics!
It can be done.

Also city dwellers need home delivery of milk, eggs, bread, ….
Home delivery was common 60 years ago,
Milk truck.
Bypass stores all together,
easy on dairymen and consumers ….
avoid getting diseases in the stores.

Shocking moves by the Federal Reserve.
Trillions to buy junk bonds, debt from possibly bankrupt companies?
Where is the accountability?
Which companies should be bailed out?
Why allow some to fail while others get their debt bailed out?

This is in addition to $Trillions of Federal Debt so the Treasury can send out checks to some people and companies but not others.

With so much money being pumped into the economy then it looks like hyperinflation may spread.
Already New York City and San Francisco rents are way too high, before the crash.
Malinvestment everywhere.
Looks like a catastrophe!

Fed fires an even bigger bazooka, expands its shopping list to include junk bonds

• The Fed vastly expanded its efforts to save the economy with $2.3 trillion in programs aimed at helping businesses and state and local governments.

• The announcement sparked a jump in stocks, drop in the dollar, sell-off in bonds and a rally in gold.

• The Fed announcement included some surprises, including its purchase of junk bond ETFs.

The Federal Reserve dramatically expanded its efforts to save the economy,
even adding junk bonds to the list of assets it can buy,
as a wave of businesses are anticipated to have trouble surviving the expected recession.

Stocks jumped,
Treasury yields rose and
the dollar sagged
after the Fed said it would would provide $2.3 trillion in programs that expand its operations to reach small and midsized businesses and U.S. cities and states.

Gold futures surged $51, a 3% gain to $1,735 per ounce on the view that the Fed initiatives could be inflationary.

The Fed provided details of some programs it had already announced, but added some new ones and some surprises.

Fed Chairman Jerome Powell said after the announcement that the Fed was aiming its efforts at the part of the real economy
that need the most help and that other programs could be added.

As part of its announcement, the Fed expanded its corporate lending programs to take it into an entirely new area,
including ETFs of companies that are rated below investment grade.

It had previously announced a program to buy investment-grade corporate debt and ETFs.
It also will now accept triple-A-rated commercial mortgage-backed securities
and collateralized loan obligations
as part of its Term Asset-Backed Securities Lending Facility, first created in the financial crisis.

The Fed provided details on its Main Street business lending program,
setting a target of $600 billion
in loans of $1 million to $25 million for midsized businesses.

It also said it would provide term finance to banks involved in the Payroll Protection Program, authorized by Congress to help small businesses.

The Fed also said it would create a new Municipal Liquidity Facility that will offer states and municipalities up to $500 billion in lending,
and it will be backstopped with $35 billion from the Treasury to protect it from potential losses.

"Now outside of buying stocks, every asset class is open for the Fed to buy,"
. "They're worried about credit.
They consider themselves a lender of last resort.
They're now the lender of all resorts.

Going below investment grade into the high-yield junk area is now a dangerous area they're headed to,

The Fed said most of the ETFs it will buy
"will be of ETFs whose primary investment objective is exposure to U.S. investment-grade corporate bonds,
and the remainder will be in ETFs whose primary investment objective is exposure to U.S. high-yield corporate bonds."

"I thought they would do it if things turned down again.

They keep doing things day after day, it makes you wonder how bad the data is they're seeing,"

The economy is already expected to be in a recession,
after several weeks of state shutdowns,
now impacting about 90% of the U.S. economy.

Economists expect the current quarter to be the worst with estimates of a record 30% decline in GDP.
The economy is expected to start to pick up in the third quarter,
once the economy reopens.

"The Main Street stuff looks good.
I just didn't think they'd venture into junk bond ETFs.
It's just going to be who's next to complain,"
"They're not going to buy investment-grade bank paper.
I think it's interesting they're buying junk bonds.
How do you price risk going forward, they'll take anything?"

Targeting high-yield debt may especially help energy companies,
many of which are rated junk and are struggling with the oil price collapse.

• CNBC's Jim Cramer on Thursday praised the Federal Reserve's $2.3 trillion in loan commitments to help businesses and municipalities survive

• "The Fed is what is needed because we've got to fight off a depression,"
"We've got to get America open for business."

• Cramer said the final piece needed to restart the stalled economy is the science

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