FIRE AT WILL
It’s been very hard to find words this week to describe what is happening on the financial side of the twin pandemics this week.
The US Fed finished the week with a USD100 BILLION QE purchase of treasuries and mortgage-backed securities. IN ONE DAY.
The most QE got to at the height of the GFC was $80B per month. Chicken feed.
It seems like every other day another $TRILLION bailout promise of some sort was introduced over the last two weeks. Fire at will, if you like, it’s been hard to keep up.
By the way, have you seen any these $$$ floating around? Neither have we.
This is because most or all of said “new” money is being poured into markets for one main reason: to avoid a credit event.
It may sound simplistic to smart financial types, but at some point people are going to start asking, what if the same money was spent on front line Covid-19 support and medical development, rather than bailing out a financial system that was done already done for?
Any credit event at this juncture will cause a break in the debt’n’derivative collateral daisy chain, as it did in 2008, and is game over for a financial system that would have been that way anyway, without Corona.
So, the race is on for financial authorities to keep the system and all its debt and derivatives “in tact” whilst the medical industry furiously finds ways to deal with the virus.
On that note, Dr. Chris Martensen of Peak Prosperity points out , there seems to be some effective medicines surfacing, “Chloroquine (and hydroxychloroquine), an anti-malarial drug, is in the news today, prominently mentioned during President Trump’s morning press conference.
Research does indeed indicate that chloroquine has ‘apparent efficacy and acceptable safety against Covid-19 associated pneumonia’, and has shown to help patients recover more quickly from the coronavirus.
Other treatments — azithromycin, antiviral remdesivir, and Kevzara — are now thought to make a positive difference, too.
This encouraging news comes none too soon, as countries around the world are now in a race against time with Covid-19.
Entering the hockey-stick BOOM! phase, cases are jumping dramatically and health care systems world-wide brace for the coming tsunami of seriously ill patients”.
Unfortunately, it will matter little to Central Banks. The malarkey they’ve imparted over the last 10 years is coming home to roost. Whatever they’re doing isn’t working, their credibility is toast and the ramifications of what happens to the financial system over the next month or two will be felt long after the virus is under control.
Amongst all the bailouts last week, the money market fund bailout support is the sure sign of a frozen credit market.
Primary “Dealers” in the US are now able to present their busted up office chairs and coffee makers as collateral for Fed money as well as corporate credit of any kind.
The main event, the credit event, is now under way and investors feeling “smart” about the extra 30 points of “yield” they’ve been picking up on their “cash” are now stuck under the steamroller they’ve been picking it up in front of.
But don’t think for a minute Central bank authorities won’t try to do even more. They will, and as we’ve shared many times before, it won’t work, one way or another. Debasement or reset.
If there is one financial product/instrument that takes a special place in the derivative casino, it’s the humble Credit Default Swap (CDS).
Institutions can purchase them as “protection” against certain types of corporate and sovereign credit risk, a kind of insurance.
For just one example below, is the USA 5YR Bond CDS. Let’s just say the US does default (the CDS exists because there must be a chance), its assumed the issuing counterparty will pay the claimant out.
Like, the CDS’s AIG had an obligation to pay Goldman Sachs on in 2008. Goldman was short “subprime”, AIG couldn’t pay up until US Treasury secretary, Hank Paulson (ex Goldman CEO), arranged the infamous TARP to help with the 20 billion problem.
It’s just laughable and the sooner it’s all bought to a head the sooner we can move on. It won’t be easy, and you’ll need to be prepared. Afterall – it’s been a long time coming.
Move on to what, should be your next question.
There are many a “thesis” floating around. The IMF’s Special Drawing Rights is one, some Blockchain concoction is another.
We obviously like any solution that includes putting precious metals back where they should be, if only a percentage.
Exters inverse pyramid below.
Please remember, both for now and in the near term, investors are selling EVERYTHING to stay afloat. Everything is on “sale”.
Both the rise of the US dollar are weakness in gold price are temporary. Here’s wishing all we all find ways to stay positive and encourage one another with our own actions.
