
The Fed says it is going to start buying individual corporate bonds - BtdTom
https://www.cnbc.com/2020/06/15/the-fed-says-it-is-going-to-start-buying-individual-corporate-bonds.html
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jdhn
Absolutely unreal. Either things are worse than people are letting on, the Fed
is simply refusing to let the market drop any further due to optics, or both.

I hope anybody who is bearish on stocks has closed out any short positions
because at this point, I can't see how stocks will be allowed to go down.

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totalZero
One thing that comes to my mind:

At the end of July, when the CARES Act unemployment benefits expire, people
will have to tap into savings to pay their living expenses. If those savings
are held in the form of equity (via Robinhood or whatever), then the markets
will face a substantial amount of selling pressure.

At that point the corporate bond purchases make little difference.

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throwawaysea
As others have mentioned, this suggests there is large scale dilution of
currency happening. When people realize that, it can be extremely
destabilizing. We are somewhat protected just because everyone else trades in
Dollars and there’s good demand for it, but there’s a limit to how far that
goes. At some point, sentiment catches up to fundamentals.

Also isn’t this a sort of nationalization by financial instrument?

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ssivark
Is there a point at which the SEC could/might consider the Fed’s activities as
market manipulation, or is that outside the scope of the SEC mandate?

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redis_mlc
The financial markets have been propped up since 2008.

It started off as backstopping counter-party risk, and kept expanding.

The markets are nothing but manipulation at this point. There is no market
that's independent of the Fed.

Our "leaders" should have fixed this in the decade after 2008, but now we've
arrived at another crisis.

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nojs
Can anyone explain how this doesn’t lead to hyperinflation in the long run?
The Fed is saying outright that they’ll continue to print more money whenever
the stock market drops. At some stage that money will have to hit consumer
prices, right?

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DjMojoRisin
The Fed announced these measures on March 23, and they are just now going to
start buying these issues.

The Fed is trying to just "replace the wealth destruction that has happened".
Keep in mind that even though the equity markets are back up close to pre
covid levels, a lot of companies have had to take on Debt to weather the
storm. This debt needs to be paid back with interest and in general can be a
drag on company earnings.

The fed is also being somewhat judicious and buying shorter term securities
(less than 5 years), so in essence they are only creating the money for the
term of the bond they buy - they can choose to remove the money from the
system when these bonds mature.

I also think that people are confusing the Fed trying to keep businesses
solvent by providing short & medium term liquidity with them trying to raise
equity prices.

Also the ECB & JCB have been doing this for the last several years with no
inflation on the horizon there.

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nojs
> The fed is also being somewhat judicious and buying shorter term securities
> (less than 5 years), so in essence they are only creating the money for the
> term of the bond they buy - they can choose to remove the money from the
> system when these bonds mature.

I don’t think the Fed has any plans to shrink its balance sheet in the near
future or probably ever. And what happens when these BBB- bonds turn out to be
junk and the companies default?

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DjMojoRisin
If the bonds default, then the fed get's left holding the bag, and their
balance-sheet shrinks by default :)

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download13
Definitely a good sign things are looking up guys!

