Monday, March 23, 2020

Bailout Deathtrap

Surveying the carnage across markets, it's clear that the Fed and Trump have done a great job of maintaining complacency while investors are lowered into the abyss. MAGA Kingdom policy-makers have only one more weapon in their arsenal: Non-stop lying. And they are using it to full effect...

Anyone who trusts these people deserves their certain fate:

-30% later: "My bad"

These two headlines on CNBC from this afternoon sum up the ongoing Fed debacle  - despite "unlimited" stimulus the market is going down at the fastest pace in history, the only benefit being that euthanized gamblers still believe in bailouts. 

After last week's EPIC and humiliating fail, including a 1% rate cut and record liquidity, the Fed realized they have lost control over the casino. So this morning (Monday), they ramped the S&P futures by announcing they will do whatever it takes. It's the crowning achievement of a decade of intellectual bankruptcy. Sponsored by the ubiquitous belief that printed money is the secret to effortless wealth:

This latest bailout "rally" was deja vu of the emergency rate cut on March 3rd. It lasted all of :15 minutes. The Dow and S&P closed at new lows.

This moment of Fed panic was inevitable and predictable. Last night, 2008 bailout king Neel Kashkari brazenly stated that the Fed has unlimited money printing powers. Clearly no one who once believed they are the master of the universe wants to learn that they have been cleaved of all powers. 

We need to remember that the Fed and its cohort central banks drove a massive gap between asset valuations and economic reality going into this Corona disaster. It was such a good con job that according to Mike Santoli, no one saw this coming. It was the crowning achievement of modern alchemy. Therefore, with global markets crashing at the fastest rate in history, they have every intention of keeping that gap from ever closing.

Of course it's not working. 

The Fed's sole achievement to date is to sponsor extreme complacency in the face of ongoing meltdown. Every time they come up with a new gimmick the market ends lower. It speaks to the desperate intellectual bankruptcy of the day, that anyone would believe that artificially inflating asset values while their intrinsic values crash, is a good idea.

What happened to worker paychecks? What happened to real demand, unadulterated by Ponzi debt and low interest rate gimmicks? A relic of a bygone era.

Sadly, the Fed can't rescue "stocks" while their real values head to zero. Most people are of the belief that stock values are indicated by the last price paid for them, when in fact the underlying values are dictated by their forward earnings. If earnings crash to zero as they are now, then the price of stocks will soon follow. No amount of S&P futures manipulation will keep that from happening.

Extending out to other asset classes, the story gets far worse. The Fed can't corner every market on the planet. They have officially started buying in the corporate bond and muni markets, but in those markets they will merely be price takers watching their portfolio of junk assets crash to zero. They haven't figured out that buying assets in secondary markets doesn't make those assets have greater value, it merely means the Fed is now the bagholder of last resort while smart money stampedes out the open door.

Does this look like they are fixing the credit markets?

"We will do whatever it takes"

Also today, a second Senate bailout vote failed. However, as I've said these bailouts for corporations will do nothing to save the actual economy. 

At this point, nothing the government does is going to save the economy. We are heading into depression, and the only thing policy-makers can do now is alleviate poverty and suffering.

Anything else they do is a waste of time and money.

The stock market is toast. It won't be a good "value" until it declines at least -80% from the all time high in my opinion, given the amount of economic carnage taking place.

I throw that out merely as a ballpark placeholder to say that at best we are halfway to the bottom. I believe that a large portion of the S&P 500 will be bankrupt by the end of this year. Which means stock holders will be wiped out.

Deflation is flooding the world and it's totally out of control. Policy-makers are out of conventional and non-conventional ammo. Next they will be forced to consider MASSIVE heli money for the masses. The current bill now stalled in the Senate is chump change compared to what will be needed. 

Until that happens ALL asset prices are heading lower. Maybe not every day, but certainly on a long-term basis.

The Fed as of today is not only out of ammo, they are totally out of credibility. The belief that they could control asset prices in divergence from the underlying economy went on for a decade straight. But now the divergence is accelerating to the downside taking gamblers for a ride to the bottom.