RealVision Daily Briefing
For a full screen play please see DAILY BRIEFING – AUGUST 4, 2020
Articles Discussed
- Gold Soars to New High Above $2000 While Managed Money Sat it Out
- Second Fed President Calls For More Free Money
- Gold Rose for 8 Straight Weeks: What’s Next?
- Consumers Use Free Money to Pay Down Debt
- Fed’s Kashkari Urges Congress to Hand Out More Free Money
- Income and Spending are Headed in Opposite Directions
- Over 62 Million People Had No Pay Last Week
- Huge Gap Between the GOP and the Democrat Stimulus Plans
Mish
Hey Mish, new reader here. With the deficit increasing faster due to the virus stimulus packages, why doesnt Congress authorize issuing a new class of savings bond, the “Covid19 bond”, with some creative features for term & interest rate. Maybe the Chinese will buy a bunch?
pffft !! who cares?? the stock market is up up up !!
Well, those who are counting on a big HEALS Act probably wish Mr Market to “cool it” till passage.
Raging stock market, hot services ISM, latest GDPNow for Q3 +19.5% growth.
All the above a big joke, but certainly gives leverage to Senate Republicans … and weakens Pelosi’s hand.
“I was on RealVision today with Ash Bennington discussing Gold, the Fed, Covid, consumer spending and a looming fiscal cliff.”
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All nice … and trends will likely continue … until
Credit tightening arrives in force.
On the move NOW.
From FR survey out the other day:
Over the second quarter, major net shares of banks reported having tightened standards for C&I loans to both large and middle-market firms and to small firms.3 At the same time, major net shares of banks increased the use of interest rate floors, collateralization requirements, loan covenants, premiums charged on riskier loans, and loan spreads over the bank’s cost of funds, and significant net shares of banks tightened all other lending terms across firms of all sizes.
Major net shares of domestic banks tightened standards on all three CRE loan categories over the second quarter.
Over the second quarter, major net shares of banks tightened standards for all RRE loan categories except for subprime residential mortgage loans, for which a significant net fraction of banks reportedly tightened lending standards.
Over the second quarter, major net shares of banks tightened lending standards on all categories of consumer loans. Major net fractions of banks also tightened important terms on credit card loans, including credit limits and minimum credit scores required.
Like a manager once told me, “The power of the pen” is the most powerful tool in any arsenal. Don’t fight the Fed.
“Don’t fight the Fed.”
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At least early … ie when sentiment still bullish.
Last go round markets / sentiment cratered despite Federal Reserve throwing everything at it …. slashing rates / QE / opening Discount Window to just about everyone / ginormous liquidity swaps … what arrested market fall was Congress browbeating FASB into changing “mark to market” to “mark to model” which gave GREAT latitude to banks to value opaque assets.
What’s yours, and anyone else here’s, take on whether we’ll have a “dollar is king” cash crunch for the next few years?
Or if The Fed manages to so thoroughly destroy the dollar that we’ll go straight to “Gold is King?”
Both are compatible with real economy deleveraging in over indebted economies.
And both have precedent in similar drawdowns. Although most of those are complicated by having readily available the “neither” option, of being able to lean on the US Dollar as king. So they don’t necessarily translate directly to what happens, when the Dollar itself is on the chopping block. (The problem with Gold, is the amount of friction, and uncertainty, it introduces into using it for day-to-day, or even month to month, transactions. So it’s not really safe to assume it can just take over the role The Dollar has played in other economies, once their local fiat got wobbly. Try paying for a clandestine Glock in much of Latin America with a Gold Eagle, and you’re as likely to be kidnapped, or followed home for an invasion, as you are to get the means to help protect yourself from exactly such a fate. While even if you do run into an honest merchant, who also keeps your privacy, he will likely demand quite a discount to take over the hassle from you.)
Economically, it comes down to who The Fed will ultimately care the most about, once it can only save one: It’s mighty Dollar (and the “system” and structures built around it being the reserve currency)? Or, it’s protected class of privileged rentiers, which includes largely all of Fed Chiefs’ social circles?
So far, The Fed has been able to have it both ways. As America has gotten, and continues to get, poorer and poorer from malinvestment and mismanagement, the day will inevitably come when it has to make a Sophie’s choice.
King Dollar still has another life … or two.
I know this a minority opinion, but here goes –
Deflation coming. It is a PROCESS to get there, but the process is following the path I expected. Massive debt overhang – which is fine and dandy as long as rates keep dropping and credit exceedingly easy. But now that rates at rock bottom (till NIRP)? Coupled with tightening credit (see Federal Reserve survey)? Banks also setting aside more in loss reserves (look at bank stocks / bank etfs … they are up from March lows … but no where near as well as rest of stock market).
WHEN (not IF) the losses arrive, credit will tighten further … pressuring asset prices lower … bleeding into overall prices.
There is some $10 trillion in Emerging Market debt priced in $US … deflating prices will lead to scramble for $US.
The final card will be a big devaluation by China (their so called rebound fueled by an insane amount of new credit … on top of there already staggering amount).
Q: Will there be a “dollar is king” cash crunch for the next few years?…the day will come when [the Fed] has to make a Sophie’s choice.
The Fed has already made its choice: Lend limitless money for free to any credit worthy borrower who will take it.
I think the consequences depend on how all the freshly borrowed money is spent and on the timing of the spending. The recipients of Fed lending have to decide where to spend the borrowed money and how quickly. They are not necessarily going to spend tremendous sums before the election.
I imagine corporations will be hesitant to make big purchases if they think there could be an economic cash crunch (they will wait for better prices). Government is likely to spend as much as it can as fast as it can, but politics favor Democrats in the election and they would benefit from an economic crises before November as long as Republicans are blamed.
Since Democrats want a sweep, I predict a cash crunch followed by Democratic victory, followed by massive government spending with heavy regulation and taxation. As the US economy staggers under the weight of wealth transfers that lead to lower productivity in the long term, I imagine the dollar will slide with the US economy.
This all assumes no major wars, etc. I would be interested in how others see this unfolding.
“The Fed has already made its choice: Lend limitless money for free to any credit worthy borrower who will take it.”
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Sure, if you are referring to US Government. Otherwise, the facts say no. Balance sheet has shrunk 4 out of last 5 weeks. The various lending programs – buying corporate bonds / etfs, municipal lending, commercial paper, Main Street lending? Stagnant after initial surge. All told “only” about $100 billion for all those programs.
“Main Street lending? Stagnant after initial surge. All told “only” about $100 billion for all those programs.”
I stand by my statement that the Fed has made its choice. That they have not be required to follow through with it is another matter. The Fed SPV has been lightly used because front-running has temporarily solved the problem. I do not doubt that the Fed/Treasury SPV will buy these securities if yields go above whatever their goal is. A chunk of the cash at the Treasury is likely earmarked for the SPV to use this way.
They’ll buy enough to “foam the airstrip” for crash landing. No More. And certainly not “lending limitless money”. US hegemony (not to mention $US) at stake at end of the day.
I enjoyed listening to you Mish.
thanks for being so open about your portfolio.
Congrats! That’s an awesome platform to be invited to!