The Economy

Yesterday, like clockwork Fed put out a press release saying they are going to be buying individual corporate bonds. ... $750 billion coming. So far they had only started buying corporate bond ETFs. That put a bid under the debt markets, which then created a frenzy chasing people into risky assets -- i.e. stocks. On the heels of that, stories hit that the administration is floating a $1 trillion "infrastructure" plan to Congress.

It's all about the Fed's asset purchases. That is it. The Fed only bought $3.7 billion last week and the "rally" hit a wall. They then strategically announce that corporate debt purchases (something that is brand new) are about to start and like Pavlov's dogs the algorithms kicked in.

They will have to buy incrementally more and more debt to keep the house of cards they have created from collapsing, and they are acting desperately.

The retail sales number was noise. The indexes rally and the financial news sites create a simplistic reason for it. But you could just as easily have focused on the fact that industrial production was down more than 15 percent year over year (number was released at the same exact time) and that manufacturing production was a negative surprise. But Trump tweets about the retail sales number, you get a few headlines, and suddenly it isn't that the Fed is buying up debt hand over fist with money it is creating out of thin air, to keep a bubble inflated, it's that narrative.

This is all about the Fed. Just follow the size of their balance sheet and you have a 1 to 1 correlation for what is happening with the prices of risk assets.

 

The SEC told bankrupt Hertz it has issues with its plan to sell stock, Chairman Jay Clayton says
Hertz halts plan to sell $500 million in shares after SEC review

Hertz has suspended its plan to sell half a billion dollars of worthless stock.

The SEC put the kibosh on it.

It's too bad. If there is a line of people willing to pay them for worthless stock, they should have every right to take advantage of the environment. My problem wasn't with the SEC acting as nanny -- it shouldn't be. It's what the Fed has done in destroying all price discovery in the debt markets, to create the absurdity of their offering in the first place.

 

I think Sven has been right on.