Topic: The Global Repricing Of Assets Can't Be Stopped (Read 111 times)

Speaking to journalists on a conference call, quoted by Financial Times, Bailey said the central bank is prepared to pump liquidity into markets via its new commercial paper facility. He said this would limit economic damage produced by the virus crisis.

He told members of the financial community that they must stop 'exploiting' vulnerable business by betting against them:

"Anybody who says, 'I can make a load of money by shorting' [aggressively betting on the value of specific companies continuing to fall] which might not be frankly in the interest of the economy, the interest of the people, just stop doing what you're doing."

Bailey made it clear that financial markets will remain open as a sign of confidence. He said firms who are thinking of reducing staff must reconsider because support from the central bank and government can lessen the shock.

He urged firms to "stop, look at what's available, come and talk to us [or] the government before you take that position," adding that support will be supplied to citizens as well.

The hardest-hit UK industries have so far been airliners, retailers, restaurants, movie theaters, and much of the services industry, as it has completely ground to a halt as the government enforces social distancing measures to flatten the curve to slowdown infections. As of 2018, the services sector accounted for at least 80% of the UK economy.

And sure enough, moments ago the Bank of England - in its second emergency move of the Global Covid Crisis - joined the overnight parade of similarly panicking RBA, ECB, BOJ and Fed, when it announced that as part of its covid-19 response it would cut rates to 0.1% from 0.25% in a unanimous emergency move, and boost QE, increasing its holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200 billion to a total of £645 billion.

As FX strategist Viraj Patel notes, the "BoE previously saw QE as a credit-easing measure too at times of market stress. So makes sense. BoE have now laid their cards on the table. Not a lot left in the monetary tank"

Perhaps in this context, it is not that strange that this announcement had virtually no effect on either the GBP, which remains depressed after its fastest drop in history, or on asset prices.

The full release is below:

Monetary Policy Summary for the special Monetary Policy Committee meeting on 19 March 2020

The spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary.  The role of the Bank of England is to help to meet the needs of UK businesses and households in dealing with the associated economic disruption.

So, what does The Fed decide to do?

Simple - increase its daily QE buying of bonds by 66%, buying a record $75 billion of US Treasury bonds each of today and tomorrow.

The bank had initially planned to purchase $50b of Treasuries on those days.

The buying is spread across 7 operations as listed below:

9:40 – 10:00 am: Treasury Coupons 7 to 20 year sector, for around $6 billion

10:30 – 10:50 am: Treasury Coupons 4.5 to 7 year sector, for around $11 billion

11:20 – 11:40 am: Treasury Coupons 2.25 to 4.5 year sector, for around $17 billion

12:10 – 12:30 pm: Treasury Coupons 0 to 2.25 year sector, for around $25 billion

1:00 – 1:20 pm: Treasury Coupons 20 to 30 year sector, for around $9 billion

1:50 – 2:10 pm: TIPS 1 to 7.5 year sector (Thursday)/TIPS 7.5 to 30 year sector (Friday), for around $7 billion

Just for some context, that is more than one month of 'old QE' in one day!!

The financial elites are pushing a narrative that asset prices, sales and profits will all return to January 2020 levels as soon as the Covid-19 pandemic fades. Get real, baby. Nothing is going back to January 2020 levels. Rather than the "V-shaped recovery" expected by Goldman Sachs et al., the crash in asset prices will eventually gather momentum.

Why? It's simple: for 20 years we've over-invested in speculative bubbles and squandered borrowed money on consumption and under-invested in productivity-increasing assets. To understand why the market value of assets will relentlessly reprice lower--a process sure to be interrupted with manic rallies and false dawns of hope that a return to speculative good times is just around the corner--let's start with the basics: the only sustainable way to increase broad-based wealth is to boost productivity across the entire economy.

That means producing more goods and services with less capital, less labor and fewer inputs such as energy.

Rather than boost productivity, we've lowered productivity via mal-investment and by propping up unproductive sectors with immense sums of borrowed money--money that accrues interest.

The poster child for this dynamic is higher education: rather than being pushed to innovate as costs skyrocketed, the higher education cartel passed its inefficiencies and bloated cost structure onto students, who have paid for the bloat with $1. 6 trillion in student loans few can afford. (See chart below.)