Fed Banana Hammer

Here it comes again, another Fed money printing operation to try to save the stock market and suppress interest rates.  After failing to pump up the futures in the previous 2 announcements, the Fed has just stopped pretending that they are putting  limits to their money printing and have signaled unlimited QE. 

Anytime time you use the words unlimited when its comes to printing money to buy bonds, that will catch the attention of stock investors.  Fed will even buy asset backed bonds backed by worse than junk student loans.  The Fed's balance sheet has gone from taking US sovereign risk to taking on credit risk from students, small businesses, and corporations. 

The big banks will have a field day securitizing all kinds of junk student, and small, medium, and large business loans to sell to the Fed at a hefty premium, pocketing the difference, taking their piece out of what will be a steadily depreciating dollar. 

The Fed is getting closer and closer to the day where it will stop pretending like its not Japan and will start doing QQE, buying equity ETFs and perhaps even individual stocks if the US public is dumb enough to give them that kind of political power. 

Those who decry socialism are the ones in charge of getting the US closer to it, as the Fed is making a mockery of the situation, hell bent on printing their way out of a health crisis, paving the way for the US dollar to lose reserve currency status as it becomes more and more of a banana republic. 

There is no going back once you make these precedents.  These programs will be around for a long long time, and more likely than not, be permanent facilities.  Just like when you start a path towards financial repression, it is a trap that is impossible to escape, as the Fed tried for a couple of years raising rates and look what has happened.  Stairways higher when raising rates, elevator plunge lower when cutting rates and implementing QE. 

It is a perverse situation because of the coronavirus, over the next 12 months, demand for commodities will be way down, and that will keep commodity prices in check and it will make it seem as if all the money printing didn't have any adverse effects. 

Expanding money to a whole new group, including students, small businesses, and corporations of all sizes increases the number of potential borrowers by orders of magnitude, which is potentially massively inflationary if not taken back right away when things normalize.  And I have a feeling that once the Fed becomes everyone's sugar daddy, they won't be able to go back to normal and take back the money.

And unlike most economists and market forecasters, I don't believe there will be a strong second half rebound, because I don't think the coronavirus will completely go away and a vaccine, if an effective one is developed, won't be ready for mass production till the middle of next year.  So that is at least 12 months of economic uncertainty.  That will be negative for commodities and stocks.  But in 2021, if an effective vaccine is ready for mass production (likely, but not definite), the pent up demand will boost economic growth for a few quarters, and that's when the inflationary effects of these Fed actions will appear, with a vengeance. 

But that is a while away, something that most of you don't even have to think about because the deflationary effects of this coronavirus are so massive that they will mask the effects of any kind of crazy inflationary monetary and fiscal policies over the next 9-12 months. 

I have been waiting for an ideal time to buy, hopefully into a mini panic, but they don't come around easily when the Fed is in there hammering away trying to prevent full blown panic.  I can only go by levels which I think are low risk entries, long and short, if they don't come, I will have to wait.  It is frustrating to miss your entry levels and then see the market go in the direction that you expected, but that's part of the game. 

I do expect a sell the news reaction to any kind of phase 3 stimulus bill that gets passed in Congress, so I definitely will not be buying ahead of that or right after that event. 

If there is no low risk long entry this week, the next best trade will have to wait a few days, which is to short a pension fund rebalance stock rally at month end.