Wednesday, December 23, 2020

A Telling Internal Conversation

From our internal research thread this morning...
This is telling...


Nick 10:01 AM

Cathie Wood from ARK Invest says she treats the FAANG stocks like cash.....


Marty 10:04 AM

Yes... that's the problem, and that's what has the Fed so obsessed with the market...

They've essentially manipulated the return on "money assets" (savings, cds, etc) to zero, and forced everyone out on the risk curve... 

I.e., as people view stocks like they used to view their savings, systemic/economic risk rises exponentially...

Hence the Fed doing everything they can to keep stocks buoyant!



Nick 10:04 AM

and.. how long can interest rates stay at zero? 

forever?


Marty 10:05 AM

Virtually forever is the plan....


Nick 10:05 AM

do bonds exist in that world?

who buys them?



Marty 10:05 AM

Treasury bonds become like JGBs (Japanese govt bonds)... They're largely owned by the Japanese Central Bank, and they barely trade... They offer no market signal whatsoever anymore...

The Fed becomes (is) the bond buyer of last resort...


Nick 10:07 AM

so the gov continuously lends companies cash w/no interest rate?


Marty 10:09 AM

Not exactly (although, yes [or almost] on a real basis)... there'll be a cost to corporate debt... and I don't suspect they'll kick every company's can down the road... 

That said, with the market knowing that the Fed's there to buy up whatever's necessary to keep credit markets numb, yields will remain very low...

If/when the bond and/or currency market gets away from them (it'll be awhile I suspect), it'll be very very ugly... 

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