Is the Fed propping up the stock market? trump keeps bragging on the market

[empedocles]

https://www.thestreet.com/opinion/federal-reserve-buy-stocks

Will the Fed Buy Stocks? Here's What It Would Take to Do It

Deteriorating economic and coronavirus conditions may prompt the ultimate intervention by the Federal Reserve to stabilize markets.
JASON ORESTESAPR 3, 2020 8:55 AM EDT
The Federal Reserve has made clear its intent: It’s willing to do essentially anything to support markets and the economy. And it really, really means it.

Interest rates have been taken to zero, and unlimited quantitative easing, or QE, is in effect. The central bank then raised the ante with daily trillion-dollar engagements in repo markets, and its QE program is growing its balance sheet by about $625 billion per week. For context: one bout of QE post-2008 financial crisis was $600 billion over the course of eight months.

This is profound involvement. However, it’s all activity the Fed is allowed to partake in - it can transact in any asset that carries a government guarantee.

The Fed also has now begun purchasing “risk assets” or securities that carry no such federal guarantees. The Secondary Market Corporate Credit Facility has it buying corporate bond ETFs in the open market; its Commercial Paper Funding Facility and Primary Market Corporate Credit Facility has it transacting in commercial paper and corporate debt directly from businesses. The Fed also is about to begin acting like an actual bank for small business via the Main Street Lending Program.


“By any means necessary” probably deserves to be added right after “In God We Trust” on dollars at this point.

The Fed isn't legally able to do this by itself, and it’s making it happen through some creative financial engineering. The Treasury is officially the one making the purchases with the help of BlackRock (BLK) - Get Report via special purpose vehicles (SPV) that are financed by the Fed. So the Fed is essentially acting as banker to the Treasury, which is employing BlackRock as its broker to carry out the effective nationalization of parts of markets.

There are now rumblings the Fed may start buying the ultimate risk asset: stocks.

But how would it do so, can it actually do it, and when would there Fed start?

Can the Fed do this? No, the Fed would need congressional approval to begin directly intervening in equity markets. But as demonstrated by the inventiveness it's already displayed to buy assets it shouldn't be buying, there isn’t any reason to doubt it can’t move forward with the Treasury and an SPV to make it happen without formal approval.


How would the Fed do it? The Fed isn't going to pick specific stocks. Just as it’s leveraging ETFs to provide ballast to the bond market, that’s the path it would take to support equities. This is not an approach without precedence, as the Bank of Japan has been supporting its own stock market this way for quite some time (to rather uninspiring effect). Due to how ETFs are created and redeemed, if the Fed starts buying an index-tracking ETF it forces the managers of the ETF to go out and buy the stocks the index tracks, effectively supporting a vast array of stocks with one symbol.

When would the Fed start? The answer to this is less clear. A steep decline that breaks through the March lows of what has been the fastest bear market in U.S. history would be necessary. Whether that means Dow 18,000, 17,000 or 16,000 is not something we can pinpoint directly. An environment that would cause the Fed to begin what was unthinkable not even two months ago would have to include an escalation of negative news and sentiment around Covid-19, coupled with a plummet to new lows that possibly includes some degree of market dislocation.

The volatility we experienced in March was on par with what was seen during the Great Depression. If daily 5% moves like that are seen again, coupled with deteriorating virus conditions and a sense of market panic that takes us to new lows, expect the Fed to intervene like it never has'

[empedocles]

1. Pre-markets today looked 'pumped'.

[beachbumbob]

2. the FED has thrown TRILLIONS at the market to the point they were buying junk bonds, all to

prop up the money class/elites. The PPT came in countless times to lessen market losses. We may never know what the total extent is as the PPT has NO oversight and no accountability, almost like the FED itself which is NOT part of the govt but made up of the big banks with taxpayers as collateral

[empedocles]

3. Also, the stock markets are widely thought to reflect economic health perceptions.

Follows that a lot of people, and markets 'salespeople' powerfully promote the idea that things will be much better next year.

[Perhaps trump and minions, have so ordered? Not saying that a selling panic can't happen anyway, but a lot of powerful interests want the market supported - like pension funds, other locked in institutions, and the many usual suspects.]

[beachbumbob]

4. The rapid rise in gold and silver is indicative of not so good economic expectations as its a rush

to hedge against the dollar losing value. The silence from the financial commentators over historic price level of gold is bothersome.

[empedocles]

6. The precious metals are widely seen as a hedge against uncertain/bad times. The dollar

softness is a line from market commentators. Few retail gold buyers are aware of fluctuations of the dollar.

[2naSalit]

5. Does a bear shit in the woods?

[uponit7771]

7. Yes, it's squeezing bonds making equities only place for growth

[empedocles]

12. Read the link closely. 'They' can buy, indirectly and may buy ETF stock averages. [Not

individual stocks though].

There is a broad base of political support for keeping the stock markets up. Pensions are huge, and effectively locked in to stocks, for example. Who is going to fight/get blamed for a bear market? Even down here on DU posters have been critical of those looking for bear markets [ which will happen - 'permanent plateaus of prosperity' have bad karma].

I remember munchkins quoted remarks, to the effect, he was amazed at the 'tools' available to fight market downturns.

[There are a number of pitfalls for the trumper market fixers, however. Foreign investors and funds, individual investors here who are getting smarter, long history of market panics, sheer magnitude of trump corruption and inepititude, Japan directly supporting stocks experience [low averages still possible, realities, etc.].

[uponit7771]

16. They can't legally buy ETFs either cause they're technically equities too. They can't re-categorize

... etfs as what they want them to be legally.

This has been floated 4 times before at different inflection points for the indexes and each time the indexes reaches over an illogical height they float the idea of the feds legally buying equities and bonds.

Right now the feds are breaking the law even mentioning they're going to buy individual bonds, that spiked the market at a 200 week moving avg for the S&P ... I'm sure Jay isn't going to do the same for Biden.

[empedocles]

17. 2 points. 1) 'Legally', has not stopped the trumpers, especially on an issue with popular support,

enforcement is a collateral problem

2) from the link: 'How would the Fed do it? The Fed isn't going to pick specific stocks. Just as it’s leveraging ETFs to provide ballast to the bond market, that’s the path it would take to support equities. This is not an approach without precedence, as the Bank of Japan has been supporting its own stock market this way for quite some time (to rather uninspiring effect). Due to how ETFs are created and redeemed, if the Fed starts buying an index-tracking ETF it forces the managers of the ETF to go out and buy the stocks the index tracks, effectively supporting a vast array of stocks with one symbol'. Also, from the link, they pass through other agencies, who effectively 'broker' for the Fed.

[gratuitous]

8. One point of anecdata

Our congregation has some money squirreled away with the denomination's foundation. Not a king's ransom, but it serves to backstop our dedicated funds (money for a new roof, memorial funds, etc.) while leaving our operating money available to pay the pastor, cover the utilities, and pay outreach. The foundation invests the money in denomination-approved stocks and funds. For example, it's not invested in tobacco or gambling or defense contractor stocks, but rather in socially responsible investments such as renewable energy.

I just got last month's statement, and the value of the fund jumped by more than 4% in July. In ordinary times, that's insane. In today's economic climate it makes no sense at all.

[uponit7771]

10. +1, and I'm gob smacked at the number of money show host justifying these jumps

[empedocles]

13. Long time friend backed out of buying a new house on my advice losing down payment,

and glad now to have gotten out.

However, his 'life trust' with a broker, has limited losses, and he has stuck with it. [I haven't mentioned stocks/brokers again].

[Wounded Bear]

9. The short answer is yes. nt

[getagrip_already]

11. They are, and have been.....

This has been reported on many times. How else would the market be so high?

How would airline companies like united or american be trading at all, let alone near the mid point in their 52 week averages?

They have near zero revenue and billions in debt and operating expenses. They have no near term (as in years) positive outlook.

That goes for almost every company negatively impacted by the pandemic.

People are simply not going to start traveling, going to theaters and restaurants, or sporting events in the numbers they did pre-pandemic.

Yet the market it flying along. Why? Simple. It is being floated by the treasury. And when trump loses, it will come crashing down when all that stock gets dumped back into the market in revenge......

[Hotler]

14. The Plunge Protection Team.

https://www.crushthestreet.com/articles/who-exactly-is-the-plunge-protection-team

They lurk in the shadows.

[empedocles]

15. "lurking'' or ''operating'' in the shadows?

[RhodeIslandOne]

18. The stock market has nothing to do with the real economy

It's predatory.

[empedocles]

19. Predatory agreed. Often in short term seems to defy the news. However, longer term

should be affected by reality. Short term, it may be, as I noted above, give confidence to investors, which is why trump brags, and trump is all over voters and their retirement funds, etc. Also, may be outright market manipulation.

The real economy, 1/3rd unemployment, etc., may intrude on trump's 'rosy scenarios'.