Jim’s Mailbox

Posted at 9:56 AM (CST) by & filed under Jim's Mailbox.

Yes Wolfgang, as we have said for several years, it really is all about debt…TOO MUCH of it!



Let this sink in!

“Never before in human history have we seen so much debt.  Government debt, corporate debt, shadow-banking debt, and consumer debt are all at record levels. Not just in the U.S., but all over the world.

If you are thinking this is a “Goldilocks economy,” “there is no recession in sight,” “Central Banks have this under control,” and that “I am just being bearish,” you would be right.

But that is also what everyone thought in 2007.”

Being prepared, for what’s to inevitably come, is half the battle.

CIGA Wolfgang Rech

What Could Go Wrong? The Fed’s Warns On Corporate Debt
May 5, 2019

Authored by Lance Roberts via RealInvestmentAdvice.com,

“So, if the housing market isn’t going to affect the economy, and low interest rates are now a permanent fixture in our society, and there is NO risk in doing anything because we can financially engineer our way out it – then why are all these companies building up departments betting on what could be the biggest crash the world has ever seen?

What is more evident is what isn’t being said. Banks aren’t saying “we are gearing up just in case something bad happens.” Quite the contrary – they are gearing up for WHEN it happens.

When the turn does come, it will be unlike anything we have ever seen before. The scale of it could be considerable because of the size of some of these leveraged deals.” – Lance Roberts, June 2007

It is often said that no one saw the crash coming. Many did, but since it was “bearish” to discuss such things, the warnings were readily dismissed.

Of course, what came next was the worst financial crisis since the “Great Depression.”

But that was a decade ago, the pain is a relic of history, and the surging asset prices due to monetary policies has once again lured both Wall Street and Main Street into the warm bath of complacency.

It should not be surprising warnings are once again falling on “deaf ears.”



Not off base Wolfgang, right on point!



Still more Moral Hazard?

First of all, isn’t that what QE is?  Buying bonds to inject cash?

Only, instead of arbitrarily buying bonds, you’re targeting specific issues.

Secondly, now bond investors don’t have to worry about losing money.  The FED would have their back.

Moral Hazard.  Throw caution into wind.  Damn analysis.  Just buy, buy, buy.

You’re creating a demand for paper which the rest of the world is shying away from.

Thirdly, what happens when interest rise?  Imagine the losses the Fed would take.

Am I off base?

CIGA Wolfgang Rech

Fed Launches “Rate-Peg-Instead-Of-QE” Trial Balloon For Next Crisis
May 10, 2019

Authored by Wolf Richter via WolfStreet.com,

Wall Street hype artists and assorted QE mongers would be deeply disappointed.

This came packaged into the middle of a speech by Federal Reserve Board Governor Lael Brainard, on “How Does Monetary Policy Affect Your Community?” It was under the subheading, “Some Issues to Explore.” And it would be a huge shift in how the next crisis will be handled.

During the next crisis when short-term interest rates are already at zero – for the Fed, that is still the lower bound – the Fed might not do the type of QE it did during and after the Financial Crisis when it set a target to buy a fixed amount of securities every month.

Instead, during the next crisis, when 0% short-term interest rates are no longer enough to stimulate the economy, the Fed might announce a target for slightly longer-dated interest rates, such as one-year rates, Brainard said. And it would buy just enough securities with those maturities, to bring the one-year yield down to the target range. And if more stimulus is needed, it might target two-year rates, she said:

Under this policy, the Federal Reserve would stand ready to use its balance sheet to hit the targeted interest rate, but unlike the asset purchases that were undertaken in the recent recession, there would be no specific commitments with regard to purchases of Treasury securities.