
The Fed now owns Walmart debt - uptown
https://www.cnn.com/2020/06/29/investing/premarket-stocks-trading/index.html
======
credit_guy
The correct title should be "The Fed now owns Walmart debt", not "Walmart's
debt". Walmart has more than $60BN long term debt outstanding. The Fed has
bought exactly $8,668,097.01 of that. You can find the actual amounts the Fed
has bought for different issuers at

[https://www.federalreserve.gov/monetarypolicy/smccf.htm](https://www.federalreserve.gov/monetarypolicy/smccf.htm)

~~~
mshanowitz
Notwithstanding the relatively small amount purchased, the question remains
still: is this something the federal reserve should be engaged in in the first
place? And what are the long term consequences of even the _perception_ of
such behavior?

~~~
axlee
If the alternative is the Fed lending that money to banks who would then cut a
profit on it, lending it again to private companies while assuming very little
risk, I'd rather have the Fed buy the bonds directly without a middleman.

Of course, that's not the only alternative. But as far as injecting liquidity
into the economy, I'd rather see the government having agency into deciding
where to inject it rather than letting for-profit companies who don't have the
best interests of the economy at heart do it on its behalf. Same should have
happened for the covid helicopter money: letting banks allocate public funds
was a mistake. Public funds, public decisions.

~~~
deleuze
How about direct cash payments to consumers instead of involving any private
enterprise.

~~~
rmah
Direct payments to consumers is a 100% loss on those funds. Buying Walmart (or
other corporate debt) means the Fed gets the money back when those firms pay
down that debt. So very very different.

~~~
slg
A loss for whom? It is all taxpayer money. Does it matter if the Fed makes a
profit or if the money is refunded back to the public? It is the equivalent of
a stock dividend.

~~~
rlucas
A bit of a nit. Treasury money is taxpayer money. Fed money is ... not. It's
seigniorage.

But the point of this subthread remains; corporate loans are expected to be
paid back (less some loss reserve, but plus some credit spread), whilst direct
payments to individuals are not.

[Edit: should speak of corporate bonds, not loans, for precision. There is a
big difference though for this thread it's minor.]

~~~
slg
Any profit from the Fed goes back to the Treasury and seigniorage is basically
a tax on all USD holders through inflation so it is largely a distinction
without a difference. It is our money. Giving it back to us isn't a "loss".

~~~
deleuze
Exactly right. But I'd even take it a step further, if we use that money to
create material things like infrastructure (rather than endless financial
instruments) is that really a loss? The dollar could cease to hold any value
and we'd still have bridges and roads afterwards.

~~~
slg
I might not have said it in that comment, but I totally agree with you. It is
one thing to talk about the efficiency of government spending, but it is
almost always stupid for us to talk about government programs or projects in
terms of profits and losses.

------
beervirus
“The Fed has bought a relatively small amount of Walmart’s investment-grade
bonds” would be a less alarmist way of saying that.

~~~
markkanof
Your point makes sense when talking about this action by the Fed when looking
at it as a standalone action, but a lot of people, including myself, might
think the raised state of alarm is justified given that this is a situation
where the Fed is essentially investing in/bailing out individual companies.
One of the huge issues with this is that it puts the Fed in a position to be
choosing winners and losers, which is very much against the idea of operating
in a free market economy.

------
radicaldreamer
The largest grift in US history is taking place while we're failing on the
entire point of these programs: to prevent unnecessary deaths and suffering.

We're going to end up with a huge amount of debt, a financial crisis, and the
most deaths of any industrialized country at the end of this.

~~~
jaekash
> We're going to end up with a huge amount of debt, a financial crisis, and
> the most deaths of any industrialized country at the end of this.

What industrialized country has a higher population than US? Do you not get
how proportions work or something?

EDIT: And if you think this phenomena of central banks buying debt is somehow
unique to the USA ... I mean ... the media is actively trying to prevent
people from having a balanced picture of the world ... so it is not a surprise
... but yes ... you should try inform yourself of the reality. Almost every
industrialized nation and non industrialised nation is doing similar things.

~~~
deleuze
Most doesn't just have to refer to absolute quantity, it can also refer to a
relative measure. Either way, it's a shit load of dead people, not sure what
your point is.

~~~
jaekash
Industrialized countries with more deaths per capita than USA: Belgium (2.1
more) UK (1.6 times more) Spain (1.5 times more) Italy (1.43 times more)
Sweden (1.3 times more) France (1.1 times more).

Yes it is a shitload of deaths. Lets talk about it being more than every other
industrialised nation in proportion when that actually happens.

------
jameslk
> This crisis is expected to be severe but short, lowering the risk of
> propping up inefficient "zombie" firms that should be allowed to fail. That
> may not be the case next time around.

I can't tell if the author is referring to the ongoing state of the economy
here, but this is claimed so nonchalantly. I wonder if this reflects a
majority view of those with an economics/finance background. From my point of
view it seems we're nowhere near out of the woods yet with COVID-19 and its
continuing impact on the economy. How long should a large number of businesses
remain closed and a large number of individuals remain unemployed before we're
back in a crisis again?

------
98codes
Privatize the profit, socialize the debt.

~~~
LoSboccacc
I hate that too, especially when it's megacorps.

however I'd like to introduce two points of discussion:

[https://www.foxbusiness.com/economy/fed-bought-debt-from-
wal...](https://www.foxbusiness.com/economy/fed-bought-debt-from-walmart-
mcdonalds-berkshire-hathaway-and-microsoft-as-part-of-coronavirus-response)

first, Walmart is not the most outrageous of the list. coca cola is much
worse. For all it's shortcomings, Walmart has a lot of domestic employees,
around 1.5 millions. If the money from the fed directly went into welfare for
these workers, it would have covered a couple months top, so it becomes a
question of efficiency: if restructuring the debt buys a year or so before
bankruptcy, it's still a net gain, under the assumption that being unemployed
now would be much worse than being unemployed in 10 months after the current
crisis is over.

second, Walmart effectively is the American version of social welfare. It's
the kind of job almost anyone can get to get back on their feet. It's not too
big too fail, nobody should be, but it's also not so bad a company to have
around.

~~~
harryh
_if restructuring the debt buys a year or so before bankruptcy_

Walmart is currently worth, _checks notes_ , 336 Billion dollars. It is one of
the most valuable companies in the world.

It is in no danger of going bankrupt.

~~~
clairity
yes, they should sell equity if necessary, not expect cheap debt from the
government.

shareholders especially need to feel the downsides of risky decisions too,
otherwise it distorts pricing mechanisms and imbalances the proper allocation
of capital across the economy.

~~~
harryh
They haven't expected cheap debt from the government. Large corporations
routinely cary debt to finance short term cashflow needs. Right now Walmart
has about 60B worth. The FED, as part of a large program of corporate debt
purchases, has bought a grand total of about 9 million dollars worth of this.
That's .015%.

Whatever gave you the idea that Walmart had this expectation is wrong.

~~~
clairity
ah, sorry, i misread it as $9B, which would have been a significant portion of
their outstanding debt.

~~~
harryh
Those 3 fewer zeros do make a bit of a difference. ;-)

------
vmception
This is only interesting if you are an issuer, or a corporate debt trader.

This should only become interesting if any corporate debt the Fed owns
defaults, and the Fed becomes a shareholder.

For now, what this article wrote, is not the interesting part of this
phenomenom.

~~~
cinquemb
Asof EOD friday from about 1145 trackable CUSIPs in firna trace underlying
HYG, there's 20 of them either in default or companies that have applied for
bankruptcy protection. A lot more have be rolled out from HYG though.

~~~
vmception
nice, yeah thats something I find interesting too but the Fed's junk bond ETF
purchasing has already been active. this article is about its investment grade
primary and secondary market corporate credit facility, which was authorized
with the CARES Act but took till June to get started.

~~~
cinquemb
Yeah, nothing in default yet from EOD friday in LQD. Of about 2272 CUSIPS in
LQD then, 58 are rated BB, Baa1 392, Baa2 406, Baa3 251. I expect that it will
happen soon that at least a few of these go into default.

~~~
vmception
Unless they directly issue to the fed and use the proceeds to pay off prior
debt

This is very commonplace in corporate credit, aside from issuing directly to
the federal reserve, which has offered verbatim to be the sole investor!

Free money!

I read the whole CARES Act and found this extra large bailout to be the
biggest market distortion and thought it should have more air time than PPP or
unemployment insurance boosts

~~~
cinquemb
> Unless they directly issue to the fed and use the proceeds to pay off prior
> debt

True, it could happen, but it would take away from the profits banks and
secondary market participants get from issuing it directly them selling the
debt to treasury dept leveraging fed bucks :P

~~~
vmception
haha thats also happening, the fed is operating two new programs

Check it out

Primary Market Corporate Credit Facility

Secondary Market Corporate Credit Facility

[https://www.federalreserve.gov/monetarypolicy/pmccf.htm](https://www.federalreserve.gov/monetarypolicy/pmccf.htm)

[https://www.federalreserve.gov/monetarypolicy/smccf.htm](https://www.federalreserve.gov/monetarypolicy/smccf.htm)

~~~
cinquemb
Yup, i've been following the alphabet soup of insolvency for a while[0]

[0] [https://wolfstreet.com/wp-content/uploads/2020/07/US-Fed-
Bal...](https://wolfstreet.com/wp-content/uploads/2020/07/US-Fed-Balance-
sheet-2020-07-02-SPV-.png)

------
hankchinaski
> The action by the Federal Reserve has been lauded by investors for easing
> conditions in credit markets after they rapidly deteriorated in March,
> avoiding a potentially catastrophic corporate cash crunch that could have
> triggered a wave of bankruptcies.

I wonder why BKR is in the list, it does seem to have a strong balance sheet
and no need for a credit lifeline like say PM that does have for example
negative equity.

~~~
nappy-doo
I assume you mean BRK. If that's the case, BRK borrows at a very cheap rate
(in the case the bonds purchased, their coupon is 4%, which is kinda high for
BRK).

BRK borrows for a couple of reasons, but chief among them are that sometimes
it's better to write bonds (for tax reasons), than it is to use cash. At 4%, I
can see that being the case.

~~~
hankchinaski
right makes sense - noob here

------
mlacks
This is probably not the correct way to ask this, but does the ‘investment’ of
the fed into a company verify its stability, or is the investment force the
gov to ensure it’s solvency?

------
7thaccount
Why does Walmart have so much debt?

~~~
frandroid
It's at war with Amazon, and it's able to produce an ROI which exceeds the
cost of borrowing anyway.

------
brutal_chaos_
Could this be a big move towards the harvest box?

------
nemo44x
The more they interfere the worse it will be one day. Kicking the can of the
inevitable meltdown. The first mistake was allowing banks to be “too big to
fail”. The second mistake was bailing them out.

Buying corporate debt is simply another piece of the mistake puzzle. This
making the entire system more and more fragile.

At a certain point you either believe in capitalism and free markets or you
admit that you like a special type of socialism.

------
Animats
Do they get a seat on the board?

~~~
harryh
Equity holders vote on board seats, not debt holders.

~~~
Animats
It's not unheard of for creditors to get a seat on the board when a company is
in trouble.

------
ur-whale
The first mistake was allowing the federal reserve to exist.

Here's Jefferson on the topic [1]:

"And I sincerely believe, with you, that banking establishments are more
dangerous than standing armies; and that the principle of spending money to be
paid by posterity, under the name of funding, is but swindling futurity on a
large scale."

[1]
[https://web.archive.org/web/20150711012438/http://memory.loc...](https://web.archive.org/web/20150711012438/http://memory.loc.gov/cgi-
bin/query/r?ammem/mtj:@field\(DOCID+@lit\(tj110172\)))

------
blackrock
I feel we are no longer getting our money’s worth from our taxes.

We are taxed at almost an effective rate of 40%. This includes federal, state,
and sales taxes.

Then, the other 40% goes to rent, or mortgages.

And you have to make due with your remaining 20% to pay for your medical
expenses, food, gasoline, car, entertainment, etc. And god forbid, if you have
to pay to help your aging parents, which is an added burden on your remaining
20%.

What will it take to get the attention of these Washington elites, that we,
the people, are getting fleeced for our money?

Meanwhile, all this low interest rates, are going to do one thing, which is to
further increase asset prices. Namely, housing prices, and stock prices.

------
mindslight
The unstated assumption underlying all of this intervention is that interest
rates must not be allowed to go up. There is _not_ a lack of investors willing
to buy bonds - there is a lack of investors willing to buy bonds _at the
ridiculously low interest rates the Fed has forced over the past two decades_.
We should currently be experiencing a cyclic market correction where stock
yields go down and bond rates go up. But the government is insisting that this
shall not happen, as it would make politicians and fiscally irresponsible CEOs
look bad. Savers and non-politically-connected small businesses lose out via
monetary supply inflation, and are left with nowhere to go besides staying in
the stock market bubble or hedging into gold in case this bubble finally pops.

~~~
harryh
Inflation? What inflation?

[https://fred.stlouisfed.org/series/FPCPITOTLZGUSA](https://fred.stlouisfed.org/series/FPCPITOTLZGUSA)

This is a yearly graph, but if you look at the month by month data you'll see
that inflation has actually been _negative_ recently.

~~~
mindslight
I explicitly said "monetary supply inflation" to avoid a reply with that
disingenuous chart. The overt price inflation is occurring in assets,
preventing the majority of people from achieving financial stability instead
of assorted monthly rents to service debt. In general, we would expect
consumer prices to trend downwards reflecting technological progress,
increasing productivity, and offshoring. The Fed's policy is to erase that
distributed progress, contributing to our growing divide between the rich and
the poor.

