Are Central Banks and Key Insiders Working Together?
Let’s wind back the clock two weeks.
The stock market was collapsing. Wave after wave of selling was hitting stocks with barely a bounce here and there.
Behind the scenes, the debt markets were imploding.
High yield corporate and municipal bonds had broken their bull market trendlines from the 2009 lows. Put another way, the debt markets were facing their first REAL crisis since the 2008 meltdown.
To stop this, the Fed made an emergency announcement the Sunday before last (March 22, 2020).
The full list of monetary interventions is truly jaw dropping. The Fed announced it would:
- Make its quantitative easing (QE) program “unlimited.” Meaning it would simply print money and buy assets ad infinitum.
- Increase the scope of its QE program from simply buying U.S. Treasuries and mortgage backed securities to include:
- Corporate debt (debt issued by corporations).
- Corporate debt-related ETFs (stock funds linked to corporate debt).
- Municipal debt (debt issued by states, counties, and cities).
- Expand its money market QE to also include a “wider range of securities” including certificates of deposits (CDs).
- Expand its commercial paper QE program.
- Introduce a new QE program to buy any asset-backed security (ABS) including student debt.
- Soon begin a bailout program for small- and medium-sized business.
- Lower the interest rate on its repo programs from 0.15% to LITERAL ZERO (meaning NO interest charged).
This is what we in the investment industry would consider “the kitchen sink.” And out of this list of policies, two items stand out:
- The Fed announcing it would be buying municipal bonds.
- The Fed announcing it would be buying corporate bonds.
Bond Market: “Someone is Receiving Crucial Fed Intel”
The Fed has never bought either of these assets before. Even during the depths of the Great Financial Crisis of 2008, the Fed didn’t do this.
Even more interesting to me is the fact that BOTH of these asset classes bottomed THREE DAYS before the Fed made this announcement.
Municipal bonds bottomed on the morning of March 19. Corporate bonds bottomed that afternoon. The Fed made its announcement March 22… three days later.
This strongly suggests the Fed leaked its plans to certain key players in the markets… particularly when you consider that stocks didn’t bottom until March 23, the first day the markets were open AFTER the Fed announcement.
Put another way, someone knew well before the stock market just what the Fed would be doing. And that someone/s started buying municipal bonds and corporate bonds ahead of time…
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Editor, Money & Crisis