At Barron's, Randall W. Forsyth explains how today's government bailouts and interventions are crossing a Rubicon. He writes: The government has used these moneys to intervene in the private sector beyond what has ever been done before, even in the great financial crisis, arguably distorting asset values in the process. What’s more, greater intrusions seem likely in the future, so long as the spending can be paid for by the expedient of the central bank’s monetary printing press. Current government policies have been likened to those once thought dangerously radical—such as “helicopter … [Read more...]

Howard Marks, the notable distressed debt investor, is out with a memo questioning the Fed’s decision to intervene in credit markets. The Fed panicked when it saw investment-grade bonds sell off a few percentage points last month. It decided to intervene under the auspices of providing liquidity to the market, but liquidity was not the problem. Bond prices were down because there were questions of solvency. Shutting down the economy for an indeterminate time will do that. There was and is plenty of liquidity in the bond market at the right price. We were an aggressive buyer of corporate … [Read more...]

The Wall Street Journal's editorial board explains in today's issue how the Fed's approach to coronavirus relief favors Wall Street over Main Street. They write: Financial markets reacted well to the news, but look below the price surface and the complications appear. The big winners included non-investment grade corporate bonds and real-estate investment trusts that will now qualify for Fed programs despite their credit risk. High-yield and municipal bond prices also rose. Growth companies like Amazon, Intel and Nvidia fell or were flat, and the overall market reaction was … [Read more...]

The Fed announced this morning that it is going to spend up to $2.3 trillion helping out municipalities and companies by purchasing their bonds. Where is the $2.3 trillion going to come from? The Fed is of course just going to print the money. Yup, Jay Powell (Fed Chair) & Steve Mnuchin (Treasury Secretary) have decided to turn the Fed into a hedge fund. Munuchin will provide the capital and Powell will provide the leverage by conjuring a few trillion out of thin air. 10 to 1 leverage works for Jay. Won’t all this money printing cause inflation? Of course it will. The Fed will deny … [Read more...]

The now-ubiquitous Dr. Anthony Fauci told reporters that America’s virus response “isn’t like a light switch on and off.” But that might not be entirely true for the economy. It may be more like a light switch than Fauci’s estimate for the response. After turning the economy back on, Americans will still have to participate in social distancing, but going from only essential economic activity to even half of former capacity utilization could be a pretty powerful boost. That said, the longer America drags out its shutdown, the more likely it is a negative feedback loop will form, causing … [Read more...]