“The Fed is now all in. It’s no surprise that gold is up $42 in response.”
What A Day
April 9 (King World News) – Peter Boockvar: Initial claims totaled 6.61mm, about 100k more than expected but down slightly from the 6.65mm seen last week. Continuing claims, delayed by a week, rose to 7.46mm from 3.06mm last week but that was less than the estimate of 8.24mm. Bottom line, it is what it is but a reality we are well aware of. Because of expanded unemployment claims and a view towards the other side of this virus, the market has shifted its attention to what comes next.
The other big news just reported is a further expansion of the Federal Reserve into the markets and the private economy. Today’s bazooka is up to “$2.3 Trillion in loans to support the economy.” Here is what they are going to do but mostly is color on steps they’ve already announced:
1) Something they alluded to earlier in the week, they will provide term financing to banks that provide funds to small businesses via the Paycheck Protection Program.
2) Backed by $75b of equity financing into the Main Street Lending program, the Fed will buy up to $600b in loans. In other words, banks will originate loans of 4 yr term “to companies employing up to 10,000 workers or with revenues of less than $2.5b. Principal and interest payments will be deferred for one year…Banks will retain a 5% share, selling the remaining 95% to the Main Street facility, which will purchase up to $600b of loans. Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers.”
3) They are also enlarging the size of the Primary and Secondary Market Corporate Credit Facilities which are being used to buy corporate bonds. They will also expand the Term Asset Backed Securities Loan Facility and collateral can now be AAA CMBS and AAA CLO tranches. They calculate this will provide support of up to $850b with credit protection of $85b from the Treasury.
4) They are establishing a Municipal Liquidity Facility that will directly lend money to state and local municipalities of up to $500b. Treasury will provide equity of $35b to create this special purpose vehicle. This SPV will basically be used to buy muni’s.
Bottom line, the Fed is now basically back stopping every vehicle that is considered investment grade and now “Main Street” business loans which will consist of quality all over the spectrum. Outside of high yield and non AAA leveraged loans, along with stocks right now, anything is possible. The Fed is going to places that they’ve never gone before and god knows how this is all going to end. We appreciate their attempts to help as we buy time to the other side of this virus but we can now consider 100% that the Fed and Treasury are now one in the same and that monetary and fiscal policy are no longer separate. The discussion on the long term consequences, and which there will be plenty, though will be for another day…
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I have to correct myself. The Fed WILL BE BUYING HIGH YIELD BONDS. Under the Secondary Market Corporate Credit Facility: “The preponderance of ETF holdings will be of ETFs whose primary investment objective is exposure to U.S. investment-grade corporate bonds, and the remainder will be in ETFs whose primary investment objective is exposure to U.S. high-yield corporate bonds.” Outside of buying stocks, the Fed is now all in. It’s no surprise that gold is up $42 in response.
SPECIAL GOLD REPORT
***Also Released: JUST RELEASED SPECIAL REPORT: What To Expect Next For Gold After Wild Start To 2020 CLICK HERE.
Bullion Bank Troubles
To hear James Turk discuss what the corrupt bullion banks are up to in the gold and silver markets and much more CLICK HERE OR ON THE IMAGE BELOW.
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