Despite the cocaine fueled rally in stocks, an emergency exists as the Fed desperately continues to distort markets and nationalize private assets.

What Emergency Exists?
June 16 (
King World News) –
Peter Boockvar:
  I argue that the main reason why the corporate bond market froze up in March was the inevitable result of the Volcker Rule which dramatically limited the ability of banks to make markets. The level of inventory that banks can hold is a fraction of what it used to be. Why did repo rates spike in September where a JPM for example couldn’t commit capital to receive a 9% annualized overnight rate with US treasuries as collateral? Regulation. What’s the Federal Reserve’s answer? Print money to buy bonds and rationalize it as ‘helping market functioning’ when it really was just QE. What emergency exists that the Fed needs to buy the bonds of IG companies? No discussion seen on dealing with the actual result of punitive regulation on the functioning of markets. 

Fed Distorting Markets And Nationalizing Private Assets
So with the Fed now distorting private markets and nationalizing private assets
what individual bonds will the Fed be buying? Well, looking at the holdings of LQD, which they are buying outright, the Fed will be buying Microsoft bonds and I’m sure they will buy some bonds from Apple and Amazon. Maybe Jay Powell will talk about this today during his Congressional visit about how he thinks this is necessary that he is now a FANG+M bond buyer. Here are some other company bonds in LQD, Anheuser Busch, Goldman Sachs, CVS, Wells Fargo, Bank America, Verizon, Visa, Comcast and even Berkshire Hathaway…

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This is the Fed’s idea of an emergency situation that they think they need to be doing this. Are there not private investors that will buy these bonds? How much will markets now misallocate capital to just these bonds, further inflating their price and taking away capital from those companies that really need capital? Lastly, what’s the transmission mechanism from buying Apple bonds to helping the US economy deal with a pandemic? Again, sorry about whining about the Fed but doesn’t someone have to ask these questions and not just give the Fed a free pass to do whatever it wants?

Surprised Not To See More Of An Up Tick
The May Cass Freight Index came out late yesterday and shipments fell 24% y/o/y. They said:

“Following what we believe was the trough in April, the Cass Freight Index showed some, but only little, improvement in activity last month…We were surprised not to see more of an up tick; the reopening schedule appears to have unfolded slower than we anticipated – and also because the freight data reported by some of the public companies showed a more significant sequential jump and better y/o/y improvements than Cass showed.”

They forecast 2021 the year we get back to 2019 freight activity levels. I’ll say lets wait until the July and August data before really judging the state of the economy as more businesses are still reopening and more people are venturing outside. 

Alarming Level
Reflecting still an alarming level but off the acute stage, UK jobless claims rose by 529k in May, about half the level seen in April and vs just about 5k in March and February. The numbers don’t need explanation and expect the number to continue to fall as more businesses reopen. 

The June ZEW investor expectations index for the German economy rose to 63.4 from 51 in May. That was 3.4 pts better than expected while the Current Situation at a still deeply negative -83.1 was about in line. ZEW said:

“There is growing confidence that the economy will bottom out by summer 2020…The expected earnings for the individual sectors in Germany still vary greatly. Earnings expectations are strongly negative for export oriented sectors such as automotive and mechanical engineering, as well as the financial sector. In contrast, forecasts are fairly positive for info tech, telecom and consumer oriented services.”

While European stocks are rallying, this number is never market moving. Sovereign bonds are mixed and the euro is unchanged but hangs in great vs the dollar at $1.13.

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This Is How Bad The Collapse Is
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