The gnomes at the NY Fed ramped up to $203bn net temporary open market operations (TOMO) outstanding. A day late and a dollar short. These guys are so behind the eight-ball it’s a travesty. Nevermind they blew the bubble in the first place. It makes me wonder if they are part of the Biden campaign. By the way, get ready for President Joe.
All in, they now stand at TOMO 1.4x the est. Primary Dealer equity and an astounding 4x that equity in combined TOMO and cumulative permanent open market operations (POMO) since Apr 2019.
In a big bag of I-told-you-so, remember that figure of the assets at risk implied by these operations thru the Primary Dealer leverage? Here’s an old figure on the losses from the top, in one of the swiftest corrections ever: value lost. $6 trillion. Granted the market first rose from Sept 2019. But, we may not be done yet and as previously noted, the Fed may be able to shift losses, but they eventually land somewhere.
In a further signal of “we have no idea what the f-ck we’re doing and we’re making it up as we go along”, the Fed posted a modified repo plan today to notify the market of intent to increase: Statement Regarding Repurchase Operations
IMHO, here’s what needs to happen, stat, to stand a chance of stabilizing things.
First let me state I’ve never been a fan of government intervention. This is just a practical analysis from an investment standpoint and based on how markets have been manipulated in the past.
#1 There better be emergency meetings going on NOW, not leisurely on Wednesday when ‘Wall St. executives are invited to the White House’. I’d be shocked if there are not emergence meetings being run by the Fed right now.
#2 Trump, if not right before, is right now. The Fed target rate is now above the entire treasury curve. They need to drop it under. Reasserting an old reality, in my opinion, the Fed controls nothing. The market is dictating a lower rate.
#3 Given where rates are, the government should take advantage of the circumstance and ramp up issuance of ‘coronavirus bonds’ (that’s just my nickname). The ducks are quacking, feed them. Raise funds for whatever these stimulus plans are to be discussed tomorrow, or fund the deficit. Whatever.
#4 If you’re going to offer corporate tax credit, do so for MAINTAINING event planning, etc. The lemmings are all following each other off a cliff and cancelling everything. Guaranteed recession if not turned around.
#5 Somebody stuff a sock in Trump’s mouth and lock down the coronavirus status communications into a cohesive, transparent process. The panic is worse that the virus. And realize to a guy with a hammer, everything looks like a nail. Realize if you work for the CDC, the NIH, etc you are likely looking to make hay while the sun shines. Someone needs to put a tight control on what these people are saying. I’m chicken little, for Christ’s sake, but this is STUPID! Never thought I’d agree with Elon Musk…
#6 Get it over with and service JPM (and maybe others) at the discount window. We all know it’s coming. And go big or go home.
Heart of Gold 