Today, the Federal Reserve has dramatically amped up its efforts to save the economy. The central bank is now adding junk bonds to the list of assets as businesses are anticipated to have trouble after the coronavirus pandemic hit.
The stock market jumped and Treasury yields rose while the dollar dropped after the Fed announced its $2.3 trillion program to cover small and mid-sized businesses. The statement reads,
“The Federal Reserve remains committed to using its full range of tools to support the flow of credit to households and businesses to counter the economic impact of the coronavirus pandemic and promote a swift recovery once the disruptions abate.”
You can't solve an economic crisis by creating a monetary crisis.
— Jake Chervinsky (@jchervinsky) April 9, 2020
Lender of all resorts
After the announcement, Fed Chairman Jerome Powell said the central bank could add other programs as well while announcing the expansion of its corporate lending programs that will include ETFs of companies that are rated below investment grade.
“Now outside of buying stocks, every asset class is open for the Fed to buy,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
“They’re worried about credit. They consider themselves a lender of last resort. They’re now the lender of all resorts.
Going below investment grade into the high-yield junk area is now a dangerous area they’re headed to, but that’ll be a discussion or another day.”
The US weekly jobless claims today further jumped over 16 million after 6,606,000 were reported from last week. The US job opening also fell in February, suggesting that the labor market is losing momentum.
Lucky to just be in a recession
With 90% of the US economy affected by the several weeks of state shutdowns, the economy is already expected to be in a recession. Chris Rupkey, chief economist at MUFG in New York said,
“The economy would be lucky to just be in a recession right now instead of what is looking more and more like the twilight zone of depression if Washington policymakers aren’t careful.”
JUST IN: IMF says it anticipates the world economy will have the 'worst economic fallout since the Great Depression'
— The Spectator Index (@spectatorindex) April 9, 2020
The Fed has been aggressive in its approach by slashing interest rates to zero, adding massive amounts of liquidity to the market and committing to purchasing a massive amount of Treasuries.
Congress has already authorized a $2.2 trillion aid package and is now discussing expanding it. “We acted forcefully to get our markets working again,” said Powell, adding their efforts have improved market conditions.
congrats America….we've now officially hit $24 trillion in debt! pic.twitter.com/MWd8o6MZAa
— Eric Pomboy (@epomboy) April 9, 2020
Bitcoin doesn’t care about the stimulus
On the back of stimulus, S&P 500 and Dow each jumped 1.3%, crude oil took a big spike of over 9% after reports that Saudi Arabia and Russia are pacing towards an agreement to cut output.
There are legit reasons to be negative U.S. stocks.
QE-infinity is NOT one of the reasons
In fact, QE-infinity is constructive for stocks
Think about it. Stock prices are expressed in fiat.
Long stocks is the same trade as short fiat.
— Peter Brandt (@PeterLBrandt) April 9, 2020
While gold increased 2.33%, Bitcoin unexpectedly in a reverse move is trading at $7,278, down 0.69%.
Crypto commentators like VanEck’s Gabor Gurbacs, digital asset strategists at VanEck, however, maintain that “Central banks buying assets from self-printed money” which is “a modern form of nationalization,” Bitcoin fixes this.
“Expect not a market meltdown, rather a gold & bitcoin melt-UP,” said Tuur Demeester of Adamant Capital.
Bitcoin (BTC) Live Price
1 BTC/USD =$10,479.8928 change ~ 0.94%