Jim’s Mailbox

Posted at 9:35 AM (CST) by & filed under Jim's Mailbox.

I asked Tony earlier today if he was going to stand by his mailbox waiting for a check?

Bill

Oh, the answer to your question as to what the $1000 Easter egg will buy is (drum roll please)……….nothing!
There’s no place open to spend it and the few that are open are out of goods!!!
What a shit show!

CIGA Tony

Jim/Bill,

Never trust what government stats tell you.

However, pay close attention to the long end of the bond market.

It speaks volumes.

Jeff Gundlach predicted during his DoubleLine call yesterday that the U.S. national debt likely to grow to $30 trillion in two or three years as spending explodes in response to the crisis, which means about $3-4 trillion in net issuance per year, and that upcoming supply tsunami is certainly sending bond prices lower, potentially dealing a deathly blow to the risk-parity/balanced “60/40” portfolio model.

Perhaps, over the last 2 days, it (bond market) is sensing impending inflation of a magnitude greater than we can imagine.

CIGA Wolfgang Rech

We told you about this on our recent subscriber call. It is game over once rates rise against the Fed’s wishes.

Bill

There Is Something About This Crazy Treasury Move That Nobody Can Explain
March 18, 2020

On one hand, the recent surge in 10Y yields is precisely what one – and certainly we – would expect: after all, the official arrival of helicopter money in the form of $1,000 checks to most Americans means that people’s expectations for government generosity repriced overnight, and now the political debate shifts to how much more free cash Americans should expect and for how long (with Bernie Sanders firing the first shot with a proposal to hand out $2,000 instead of $1,000). On this point, Jeff Gundlach predicted during his DoubleLine call yesterday that “the U.S. national debt likely to grow to $30 trillion in two or three years as spending explodes in response to the crisis”, which means about $3-4 trillion in net issuance per year, and that upcoming supply tsunami is certainly sending bond prices lower, potentially dealing a deathly blow to the risk-parity/balanced “60/40” portfolio model.

Yet on the other hand, Treasury inflation breakevens have plunged to record lows as if the market is saying that despite this flood of new money, there will be no actual inflation as much as a decade in the future. To put it mildly, this is bizarre, and as BMO’s Ian Lyngen writes this morning, “there are aspects of the overnight price action which resonate and others that confound. Mnuchin’s dire warning that the unemployment rate could spike to 20% in the absence of government intervention to address the coronacrisis had the foreseeable impact on the equity market; limit down. The shape of the yield curve has also performed in line with prior easing episodes with 2s/10s reaching 72.6 bp overnight and offering solace to those anticipating a cyclical resteepening.”

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Jim/Bill,

What good is a Payroll Tax Holiday, raising your take home pay, if you are no longer employed?

Businesses shutting down everywhere.

Political stunt?

CIGA Wolfgang Rech

Good point Wolfgang.

Bill

President Trump’s Payroll Tax Holiday: Budgetary, Distributional, and Economic Effects
March 12, 2020

· In response to the economic effects of the coronavirus, President Trump has proposed a payroll tax holiday that would temporarily eliminate all Social Security and Medicare payroll taxes through December 31st, 2020. PWBM projects that this payroll tax holiday would cost $807 billion if the holiday were run from April 1 through December 31, 2020.

· Households in the bottom 20 percent of the income distribution—those households with the highest willingness to spend their tax savings—would receive about 2 percent of the total tax cut and only a third of these households would see any tax savings due to low levels of taxable income. Tax savings would also accumulate slowly over time relative to direct government spending.

· PWBM estimates that eliminating payroll taxes would have little net impact on the economy in the short run and would reduce the size of the economy by 0.1 percent in 2030 and 0.2 percent in 2050 due to additional debt.

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Jim/Bill,

Slowly but surely the hints of coming Hyperinflation are coming to press!

The world, in particular the general public, should know.  Shout it from the rooftops.

CIGA Wolfgang Rech

Believe me Wolfgang we have tried, but people always laughed at us.  THIS is no laughing matter…

Bill

Bernanke and Yellen Tell the Fed to Monetize Everything.
March 18, 2020

Thus far in this crisis, the Fed has:

1)    Cut interest rates from 1.25% to 0.15%.

2)    Launched over $700 billion in Quantitative Easing (QE).

3)    Launched a $1.5 TRILLION repo program.

4)    Launched another $1 trillion repo program.

5)    Announced it will begin buying commercial paper (short-term corporate debt).

6)    Allowed primary dealers to start parking assets, including stocks, as collateral in exchange for short-term credit.

7)    Opened Euro-Dollar swaps (this implies systemically important banks in Europe are in danger of collapse).

Under any set of circumstances, the above set of policies would be considered the NUCLEAR option. The fact that the Fed has launched ALL of these in the span of three weeks is beyond incredible.

In the simplest of terms, the Fed has effectively used up ALL of its ammo in less than a single month. At this point, there truly is not much else the Fed can do.

And the markets continue to implode. As I write this, the futures markets are once again LIMIT down, meaning they had to be frozen after falling 5%.

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