Market futures - Fed steps in to buy market 3/23/2020

[68Camaro]

Ok - there is virtually no ammo left in the Fed's sachel except straight money printing. Interest rates are zero - theoretically they could go negative to encourage lending but that ruins other investors. The Fed is buying treasuries because they are being dumped - why carry them if they don't pay anything. Where will people put their money - oh, wait they don't have any money left!

So it is back to QE to infinity - straight out of 2008-2011.

Print print print...

Near term I don't see anything to stop the free fall this week, except the PPT stepping in to buy stocks. If the government buys the market like the Japanese did in order to "save" it we'll have a socialist country via the back door. So while the PPT and trading limits may slow the free fall, I'm thinking we might see Dow 14000 again. Better than Dow 6000 I guess. But if a cascading sequence of further events kicks in then 14k may not be the bottom. I hope it doesn't get that bad.

3/22/2020 : Market doesn't like the weekend news. Futures limit is --4% but that is relative to Friday after hours - and the after hours trading then was already down 2%, so net opening will already be almost at the 7% limit for trading. Looks like another ugly start - we're blowing through the 18,000s and going straight from 19k to 17k.

3/23/2020: With congress at a stalemate and markets tanking, the Fed steps in to declare their intent to buy the market as needed - another form of money printing, and they are apparently going to print to infinity at this point. So price discovery on the market is now gone - the price is artificially supported by whatever the Fed thinks the price should be. This is another form of socialism. In limited amounts you can term this a "bail-out" or a "rescue", but this is way past that. The market responds in the moment, which is what the Fed wants for now - they don't really want to have to buy, but the threat of buying will provide some short-term support. Eventually they will actually have to buy.

[theo]

My God that looks bad! I think 14,000 or lower is a real possibility. I guess the Fed did not learn anything from the 50 basis point debacle two weeks ago. Now they are out of ammunition and everyone knows it. The likelihood is growing that this will lead to some type of financial reset. The current system is no longer functional.

I also saw where the administration is considering closing bars and restaurants. It seems like every week they are stripping another layer of civilization away. Between that and the school closings they are putting millions of young people out on the streets. This will almost certainly lead to a bad result ranging from unrest in some of the large cities to a partial or even total breakdown in civil order. Next we will invariably see curfews and travel restrictions. As I said in another thread, our leaders are either terrified of something (like COVID19 mutating) or they are trying to see how close to martial law they can get.

[Recyclersteve]

There is a movie I think many should watch. It is called Inside Job. It is a documentary about the 2008 financial collapse. It is narrated by actor Matt Damon and came out in 2010. It is very enlightening and will make your blood boil at the same time. Before you put ANYTHING more into the stock market, please watch this movie.

You can watch it on Youtube for free. I just saw it again this morning. When I first saw it in 2010 with my dad, I went and bought the DVD. I paused it to take notes and when all was said and done I had 7 typewritten single spaced pages of notes. I have never done that (or anything close) for any other movie.

On the cover of the box the DVD it says that it is the movie that cost $20 TRILLION to make.

I don’t make a nickel for recommending this, but, for your own sake, PLEASE watch this ASAP.

[theo]

The market is down almost 10%. The market halted after about 5 seconds of trading. . . just speechless.

[68Camaro]

Temporarily stable at -12%. This isn't yet the big drop - sorry. As bad as it is, more to come.

[theo]

Gold is finding some support as a safe haven, but silver (like Platinum and Palladium) is trading like a commodity. I worry that too much of silver's price is subject to demand destruction. Bitcoin is getting slammed too. I'm wishing I bought more physical gold than silver. I have way too much copper, but that is another thread.

I believe we will come out of this with a new financial system and gold (at least initially) will be the beneficiary. The FED has very publicly lost the ability to impact the markets, and with that most of its credibility. They are dumping trillions of dollars into the economy and watching dumbly as it gets consumed by the fires of market panic.

I agree with you Camaro. We will have one or more days where the markets will have to shut down for the duration of trading after sinking 13%.

[pmbug]

Ok - there is virtually no ammo left in the Fed's sachel except straight money printing. Interest rates are zero - theoretically they could go negative to encourage lending but that ruins other investors. The Fed is buying treasuries because they are being dumped - why carry them if they don't pay anything. Where will people put their money - oh, wait they don't have any money left!.
...

The scariest part of the fed move (IMO) is the elimination of reserve requirements for banks. Zero reserve banking. Bank deposits are now decoupled from credit markets. Is the fed signalling massive deflation on the horizon? Bank runs coming? Or were the recent repo operations symptoms of a more severe liquidity issue than is publicly known?

[68Camaro]

Quoting the Fed:

"106. Effective for the reserve maintenance period beginning March 26, 2020, the 10 percent required reserve ratio against net transaction deposits above the low reserve tranche level was reduced to 0 percent, the 3 percent required reserve ratio against net transaction deposits in the low reserve tranche was reduced to 0 percent. The action reduced required reserves by an estimated $200 billion."

They are clearly, desperately, trying to increase liquidity to the mmaximum possible. It does speak to implied concerns about some issue with underlying fundamentals. There were other signs of this even before covid19 came to the forefront in the past 2 weeks, such as when they started propping up the repo market.

[pmbug]

A corner of the financial system that provides corporate America with short-term IOUs to buy inventory or make payrolls is seizing up, triggering a scramble for cash elsewhere and fueling speculation that the Federal Reserve will intervene.

In the $1.13 trillion commercial paper market, yields over risk-free rates have surged to levels last seen during the 2008 financial crisis. The strains are causing companies to draw down on backup credit lines, according to people with knowledge of the situation.

The longer the commercial paper market remains stressed, the more companies will look to tap credit lines, increasing the risk that banks will need to raise funds themselves, Bank of America Corp. strategists Mark Cabana and Olivia Lima wrote in a March 13 note. Cabana said the Fed needs to start buying commercial paper to unclog the market.

“It’s prudent for everyone to try and raise liquidity, and the Fed needs to facilitate this,” he said. If not contained, the turmoil could increase risks for money-market funds that hold the debt, he said.
...

https://www.bloomberg.com/news/articles ... arket-rout

This explains the smashing of the bank reserve ratio I think.

[68Camaro]

Thanks for the reference - makes sense. Firms that are hurting are drawing on their credit lines big time, which is causing the liquidity of commercial lenders to drop - and it is happening all at once.

[theo]

Treasury Secretary Mnuchin: Want to send cash to Americans within next two weeks

"We are looking at sending checks to Americans immediately ... Americans need to get cash now and the president wants to get cash now," said Treasury chief Steve Mnuchin at a Tuesday White House briefing. "And I mean now -- in the next two weeks."

Speaking in the White House briefing, Mnuchin said that a payroll tax holiday would not work quickly enough and that the pandemic shutdown was "worse than 9/11" for the airline industry.

Wow. So checks are going to be sent directly to households? I believe we tried this in 2008 before the crisis hit.

[pmbug]

... Americans need to get cash now ...

Hey Steve!

[Recyclersteve]

I hope everyone is ready for a potential "bank holiday" where banks are shutdown for perhaps 1-2 weeks. Having some emergency cash on hand (even above and beyond PM's) is a MUST for times like this IMHO. Read up on the bank crisis in Cyprus (2012-2013) if you don't think this can cause some discomfort to a lot of people. Also, keep in mind that many banks don't think of customer deposits as being true property of the customers- they are considered to be unsecured loans. Caveat emptor. Spread your money around if you possibly can. If one bank is closed and you know another is open, it helps to have a second account at the bank still open while they are open. Things can escalate very quickly- as you can imagine from what's happened in just the last couple weeks.

[68Camaro]

Market circuit breaker trips again - 4th time in two weeks.

[theo]

Although I do have a cash reserve on hand, I'm not sure I see a bank holiday in the near future. The dollar is strong and currency velocity is low. I realize that some banks are insolvent, but the Fed seems determined to keep the system breathing, no matter what it costs. I was out a bit this morning and people are outwardly calm but appear close to panic. ANY unexpected bad news will likely send them over the edge.

Those of us who are paying attention might realize that the banking system is mortally wounded, but they will keep John Q, Public in the dark for as long as possible. I think bank runs will be more likely when there is an inflationary boom (probably next year). That is bound to happen with all this money sloshing around. All that being said, I think it is prudent to build up some cash in small amounts.

[Changechecker]

I agree with Steve and Theo also has a good point. Small denominations definitely can't hurt and sooner rather than later. Better to get ahead of the herd on this. Would really be a shock to go and be told there are now withdrawal limits.
My PayPal balance is low and I am thinking maybe putting some extra in there to have a residual balance outside the bank. Does anyone have any thoughts on this please.

[68Camaro]

Standard procedures for emergencies apply - modified for the specific emergency. Included in that is having a moderate in-hand cash position. (If you want to go bigger that's your call - but at some point it increases risk rather than decreases it.)

[68Camaro]

Updated OP title for latest limit down event of 3/22/2020 and added commentary.

[pmbug]

Big news items include Senator Rand Paul confirmed infected with covid19. Senators Mike Lee and Mitt Romney self quarantining. Because of that, none of them available for the floor vote on the covid19 stimulous which failed.

Also:

...
Federal Reserve Bank of St. Louis President James Bullard predicted the U.S. unemployment rate may hit 30% in the second quarter because of shutdowns to combat the coronavirus, with an unprecedented 50% drop in gross domestic product.
...

https://www.bloomberg.com/news/articles ... nd=premium

The UI numbers are due tomorrow I think.

Oh and:

Goldman Sachs Group Inc (GS.N) poured more than $1 billion into two of its prime money-market portfolios this week due to heavy investor withdrawals, according to a filing with the U.S. securities regulator.
...
Industrywide, investors pulled tens of billions of dollars from prime money-market funds, which buy top-rated corporate debt. ...
...
Goldman’s support is unusual, but it does not stand alone in supporting its funds during the coronavirus panic. Bank of New York Mellon Corp (BK.N) also stepped in twice this week with a total of $2.1 billion to prop up Dreyfus Cash Management.
...
The recent market panic has been reminiscent of what happened in 2008, when money-market fund problems threatened to freeze up global markets.
...

https://www.reuters.com/article/us-heal ... SKBN21810A

[68Camaro]

Updated to illustrate the Fed's latest reaction, which is a stated willingness to buy the market to support prices.

[68Camaro]

10 minutes after open, the brief market euphoria from the pre-open Fed announcement (shifted the futures from down 2-3% to up 2-3%) evaporated toward the opening, and the market is back down 3% and dropping. One commentator is explaining this to algo trading, but I think they are selling to see where the Fed is willing to step in, and show proof of their words, calling the Feds bluff. That puts price discovery more or less in the hands of the Fed. Sad, but even the big traders want to be led like sheep...

[coppernickel]

My 401K is held at T.Rowe Price. They sent a copy of a letter reminding everyone not to panic, the market will come back and he ok.

The original letter was sent in September 1939. The market did return, but not for 15 years and one war.

Really good example of trusting the market.