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The Fed Flattens The Curve – Stocks Follow

Today’s the day. The Fed announces its next plan. You may have already seen it by the time you read this.

But really. What difference does it make? The Fed has trashed its plan without notice 3 times in the past year and a half.

In the past 2 months, it has had no plan at all. It just responds willy-nilly to whatever happens in the news. My god! The Fed bailed out Carnival Cruise Lines. You know we’re in trouble when the Fed bails out Carnival. The blatant cronyism of the plutocrat class is breathtaking. And the sheep just yawn, placated by a few crumbs thrown their way.

So Jerry and the JayJays will sing yet a new song today. Maybe they’ll stick with the new tune for a few weeks or months. Maybe they won’t. We just have to keep tracking what they do and watching the market response.

Here’s what you need to know.

These Charts Show The Fed Is the Market Ventilinflator

Fed QE QE

Ever resolute, the Fed kept pumping the cash into Primary Dealer accounts. It kept at it until, as I calculated elsewhere, it had pumped in about $800 billion more than the dealers, and indeed the entire world, needed to absorb the flood of Treasury supply that was hammering it. That happened by the middle of April.

It was enough for the dealers to get back to their fun business of acquiring inventories of stocks, marking them up, triggering short squeezes, and convincing their herds of institutional sheep customers to follow the shorts and dive back into the market with whatever cash they had raised on the way down.

It worked, as we all know. Stocks have recovered around 55% of what they lost in the crash.

But the Fed has started to do the tighten up. Here’s what you need to know.

What Happens When Fed Makes Moral Hazard Permanent and Structural

The Fed’s massive bailout of Primary Dealers and its alphabet soup loan programs for all other big financial players, have now made moral hazard permanent and structural. Why worry about risk when you know that the Fed will always take you off the hook when the shit hits the fan?

How can we know how this will play out? How can we know if these loans can ever be repaid? Will they be repaid through inflation, perhaps hyperinflation? Or will the borrowers simply default if the markets and economy recover too slowly?

Then who will be on the hook for the Fed’s guarantees when the Fed must assume the losses? Who pays? Taxpayers? Depositors? Everyone, again through massive inflation?

Of course, there’s always a chance that everything turns out just fine. The world returns to normal in a few months. The economy bounces back, and all the trillions lent by the Fed gets repaid timely, with no financial price to be paid.

We don’t know, but there will be telltale signs in the weeks ahead that will give us a heads up.

No Different than Venezuela or Zimbabwe

Macro liquidity measures have absolutely gone through the roof, blown the lid off, set off a tsunami, as US government spending skyrockets to the moon and worlds beyond. US bank deposits aren’t just soaring, they are exploding.  These deposits are backed mostly by US Treasury paper, future claims on American taxpayers. These claims for which there’s no reasonable expectation of repayment, other than with severely depreciated dollars. Your stocks may soar, and they may still be worthless.

As the stock market began to rebound, one indicator shows the banks started buying shit like crazy. Like the South Park’s Kyle, the kid who always believed in Mr. Hankey the Christmas Poo, the banks believe in Mr. Powell.