I’m From The Government And I’m Here To Help!
Fed Chairman Jerome Powell’s Strategic Plan 2020-23 tells us:
“The Federal Reserve Board’s highest priority is to promote a strong economy for the American people by fostering the stability, integrity, and efficiency of the nation’s monetary, financial, and payment systems.
| “The most terrifying words in the English language are: I’m from the government and I’m here to help.”
– Ronald Reagan |
We… remain vigilant. …. We know that our decisions matter for American households and businesses. Our long-standing, nonpartisan tradition is to make decisions objectively, …in the best interests of the American people.” (Emphasis mine)
Readers will take comfort with, “Five core values guide the Board’s decisions and the actions of its employees:”
“Integrity. The Board adheres to the highest standards of integrity in its dealings with the public, the U.S. government, the financial community, and its employees.”
We recently outlined the big banks, who own the Fed, have been fined almost $250 billion for criminal activity. “Standards of integrity???” Hang on! My BS meter just exploded!
Powell promoted “Fed Listen Events” around the country. How sweet!
Did he hire Mike Bloomberg’s PR firm to put lipstick on a pig? Maybe a testimonial from Baghdad Bob telling us not to believe our lying eyes?
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What’s the point?
The Fed serves one master, their member casino-banks. History has shown the #1 priority is looking after THEIR interests – period! Wall Street on Parade offers proof there is a banking cartel which congress ignores. Savvy investors know this.
| Our challenge is to keep from getting hurt financially, while protecting our income, every time the banks get bailed out. |
About the “best interest of the American people” malarky…. At Powell’s recent press conference, Mark Hamrick of Bankrate asked:
“I wanted to ask you a question about one of the unintended consequences over the years-long low interest rate environment, and that is that savers haven’t gotten as much return as would have otherwise been the case.
What would you say to those individuals who’ve seen the Fed again cutting rates, eroding their ability to get a higher return on their savings? And how much would you take their plight into consideration? How much can you sympathize with them?”
Using his best Fedspeak, he eventually concluded:
“I absolutely sympathize with people. If you’re living on just the interest in a bank or on fixed-income generally, then that’s a challenging thing. …. I mean, we have to do what’s best for the overall society and the economy. That’s-those are our orders from Congress. Thanks very much.” (He took no more questions.)
His predecessor called the unintended consequences “collateral damage”. Historic low rates destroyed most every pension plan and 401k projection in the country. The “American People” are up to their eyeballs in “collateral damage”; but it is comforting to know the Fed is sympathetic to our plight.
Don’t expect any change.
Bloomberg News reports on his senate testimony:
“We will have less room to cut,” Powell told the Senate Banking Committee …. “Low rates are not really a choice anymore; they are a fact of reality.”
| The comments show the Fed chief is prepared to lower rates to zero in the next recession…(using) tools that proved controversial with Congress. |
Understanding the game
The Fed will do whatever it takes to protect the banks and cover their misdeeds. The individual investor must protect themselves.
Pam and Russ Martens article documenting handouts is an eye-opener:
| “The obscene money spigot from the New York Fed to Wall Street’s trading houses didn’t start with the epic financial crisis of 2008…. It started following the dot.combust, which was fueled by fraudulent research from Wall Street’s trading houses. The money from the Fed to Wall Street simply flowed under the cover of the 9/11 crisis. (Emphasis mine) |
…. The stock market and Wall Street were in freefall before 9/11 occurred. The Nasdaq …. closed at 1695 on the day before September 11, 2001 – a stunning 66 percent drop from its peak in March of 2000. The dot.com bust had led to one of the largest destructions of U.S. wealth in…history.
The New York Times’ Ron Chernow wrote… “Let us be clear about the magnitude of the Nasdaq collapse. The tumble has been so steep and so bloody – close to $4 trillion in market value erased in one year – that it amounts to nearly four times the carnage recorded in the October 1987 crash.”
…. Fed Chairman Alan Greenspan effectively warned the Fed governors to keep a lid on how much they shared with the public.”
The 2008 housing bubble, same story, different crisis. Arrogant bankers packaged toxic mortgages, pawned them off to consumers as sound investments, made huge profits while joking about the “suckers” who bought them. The low interest destroyed the retirement plans of most baby boomers and generations that follow. Meanwhile the banks are fined a pittance in comparison to the fraud they perpetuated on the public.
Here we go again…
Our 2015 article, Buyback shares = BS 101, outlined how corporate America borrowed cheap money to pay dividends and buyback corporate stock.
Wall Street packaged many of these risky corporate bonds into funds, and sold them to the “suckers” once again.
Subscriber Alex E recently asked what happens now that the $66 trillion in corporate bonds are coming due, many rated BBB or lower? How will these bonds be paid off? Will they be rolled over? Will they be rated properly?
Even more risk
The stock market has had some wild swings over the last few weeks. Morningstar reports, “Taxable-bond funds had their best year ever with inflows of $413.9 billion in 2019, while U.S. equity funds lost $41.3 billion.”
Are these investors, pouring money into bond funds, thinking it is a flight to safety? Wolf Street reports, “But no one can remember ever having seen markets like these that have formed the Everything Bubble”:
“…. Nearly all asset prices are inflated. It’s not a secret. …. Yesterday, the government sold 30-year bonds at a yield of 2.06%, below the rate of inflation as measured by CPI (2.5%). …. To beat the current CPI with a little bit of a margin…you have to take fairly big risks and go to the low-end of investment-grade corporate bonds…just above junk bonds…. (NOTE: they currently yield 1.53%)
| Money managers – at least those with some experience and open eyes – see this too. But they have to invest their clients’ money. They can’t just send it all back. And they can’t just put it in Treasury bills and earn less on them than they charge in fees. So what should they do? They can lament, but they have to play the game. |
Wolf Street quotes Scott Minerd, Global CIO at Guggenheim Partners:
“…. A recent 10-year BB-rated healthcare bond came to market at 3.5 percent and subsequently was increased in size from $1 billion to $1.7 billion due to excess demand.”
…. The frantic race to accumulate securities has cast price discovery to the side. ….it has become common to see new issue bond underwritings ten times oversubscribed.
…. Many investors today don’t even buy individual bonds, they purchase a basket of bonds …. The quality of the bond doesn’t matter; no one is actually negotiating a rate or a price. …. In the ETF market, prices are set by pricing services that frequently use stale data…meaning nobody is negotiating individual bond prices. If it is in the index, buy it! This is what price discovery has become. …. This will eventually end badly.”
| When the music stops a lot of suckers will be holding the bag, let’s make sure we’re not one of them. |
Never let a good crisis go to waste
Much like 9/11, the Coronavirus is an excuse for another bailout. ZeroHedge tells us, “The Covid-19 pandemic is a godsend to …. the Fed.”
Christopher Elliott at Better Markets writes a blistering article, “Wall Street Biggest Banks Shamelessly Trying to Use Coronavirus to Get Federal Reserve to Weaken Rules”:
“It is shameless…that Wall Street’s biggest banks would use the coronavirus to attack the financial rules they have been trying to weaken for a decade…. They (directed) their request to their favorite regulators at the Federal Reserve, which secretly doled out trillions of dollars bailing out Wall Street in 2008-2009 with virtually no public transparency, oversight or accountability. That was great for Wall Street’s biggest banks, but a disaster for Main Street and should not be repeated now.”
Refuse to get caught in the trap
Jumping from one bad investment to another is panic investing. Moving money out of the market is one decision. Where to redeploy it is another. Holding cash or investing in very short-term interest rate CDs is an available option.
Today I prefer individual CDs and would avoid any bond funds until after the election. The Fed is gonna Fed and is NOT going to help us, despite all the reassurances.
This country & western song says it all:
“We appreciate the help that you’ve been giving,
And I’d even like to thank my congress man
This advice I wish you’d take, go jump in the lake
I’ve had all of your help that I can stand!”
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On The Lighter Side
Last weekend my son Dean took me to a baseball card show where I had several items of memorabilia authenticated. Most of the items I have owned for 25+ years. I was very disappointed to learn my two favorite pieces were fraudulent and worthless.
We were warned about knock-offs but dealers (many of which are now gone) reassured us they were valid. I suspect the forgers of the last generation are internet scammers today. Caveat Emptor, let the buyer beware, is advice that has stood the test of time.
On the positive side, I have four special baseballs:
- Signed by 11 members of the 500-home run club. Pretty cool with Mickey Mantle and Ted Williams in the sweet spot.
- Signed by perfect game pitchers, including the date they threw the perfect game. Don Larsen, who is the only pitcher to throw a no-hitter in a world series, is in the prime spot.
- Signed by members of the 3,000-hit club.
- Signed by several pitchers with 300 wins.
I suspect those will stay in the family for some time and continue to appreciate. I was lucky enough to see most of those who signed the baseballs play.
It was a fun father/son day. Much of the family arrives this week. We will soon have six generations that watched our beloved Cubs in some fashion over a hundred plus years. Generational memories for sure!
And finally…
We will close with some baseball humor from Courtenay W.
- He hits the ball from both sides of the plate. He’s amphibious. – Yogi Berra
- As a nation we are dedicated to keeping physically fit-and parking as close to the stadium as possible. – Bill Vaughan
- If a horse won’t eat it, I don’t want to play on it. – Dick Allen on artificial turf
- There’s no crying in baseball! – Tom Hanks in A League of Their Own
- I never threw an illegal pitch. The trouble is, once in a while I toss one that ain’t never been seen by this generation. – Satchel Paige
And my favorite:
- Never root for a team whose uniforms have elastic stretch waistbands. – Susan Sarandon
Until next time…
Dennis Miller
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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