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Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
Fed Expands MLF Program To States, But Rates Are Too High For Widespread Participation
Thursday, June 4, 2020, 6:06 am ET
The Federal Reserve's MLF (Municipal Liquidity Facility) is yet another way the nation's central bank is picking winners and losers in the struggle to survive economic collapse.
By offering fresh currency to struggling states and municipalities, the Fed - having already expanded their balance sheet by more than $3 trillion in just the past three months - says it wants to help out by buying issuance from states, cities and now, public transit, airports, toll facilities, and utilities, becoming the buyer and lender of last resort for everything from your local bus company to your regional energy supplier.
Not that the Fed may have some evil intentions of owning everything in America, they also want to be paid well for it as well, which is why most states won't take the Fed up on their generous offer.
Those states with poor credit ratings, like Illinois (BBB), New Jersey, California, and Kentucky are the likeliest candidates to use the facility, as they are offered better rates by the Fed than they would find in the usual muni bond market.
According to Standard and Poors, only nine states have credit ratings lower than AA, meaning the vast majority of states will not probably need backing from the Fed unless the muni markets seize up and rates skyrocket, a situation that was made somewhat more of a known risk during the coronavirus lockdowns.
Funding needs by the states are generally considered among the safest bonds available. In most cases they can be held tax-free, another reason for their popularity. Thus, most states are going to say "thanks, but no thanks" to the Fed, as their funding needs are going to be largely fulfilled in the open market.
A BofA Global Research report on Wednesday projected borrowing under the MLF with its current terms would only total $90 billion. That's out of $500 billion allocated to the program.
The Fed also said it will support lending to multi-state entities and revenue bond issuers, or RBIs.
"Eligible notes issued by eligible issuers that are not multi-state entities or designated RBIs will generally be expected to represent general obligations of the eligible issuer, or be backed by tax or other specified governmental revenues of the applicable state, city, or county," the Fed said. "If the eligible issuer is an authority, agency, or other entity of a state, city, or county, such eligible issuer must either commit the credit of, or pledge revenues of, the state, city, or county, or the state, city, or county must guarantee the eligible notes issued by such issuer."
Again, the Fed wants its pound of flesh, in the above instances, via actual tax receipts or guarantees.
Because response to the program has been tepid, the Fed has also lowered the bar for participation, allowing states with smaller populations to make choices for eligibility based upon their own populations.
"A governor that has the ability to designate one designated city or designated county may choose either (i) the most populous city in his or her state that has less than 250,000 residents or (ii) the most populous county in his or her state that has less than 500,000 residents," the Fed said in a statement.
Illinois was the first issuer to access the Municipal Liquidity Facility, with a trade of $1.2 billion of one-year general obligation notes and a rate of 3.82%. That deal is expected to close June 5.
New York's MTA (Metropolitan Transportation Authority), which operates the city's subway and commuter trains, last week asked the Fed for direct access to the program. Legislation is pending.
In their grand scheme to save the world, the Fed may want to own everything or at least have every entity on the planet in debt to them. With interest rates in the toilet, they're going to have to offer better deals to execute their plan. With that knowledge in hand, how long will it be before negative rates become the de facto norm?
Stocks ramped higher on Wednesday after ADP released its May private sector employment report. The private firm said the econly lost 2.76 million jobs during the month, far less than expectations of 7.4 to 8.6 million, based on weekly reports of initial unemployment filings.
ADP's figures, so far from expectations, had investors drooling over prospects for a less-substantial number from the government's non-farm payroll data due out on Friday. The thinking is that many firms rehired people in May, offsetting the number of people who lost jobs or were temporarily furloughed. It's just another way for skewed data to shift sentiment away from the prospect of long-term damage done to the economy by the coronavirus and lockdowns and toward the event being a one-off from which the economy will quickly rebound.
With that in mind, gold and silver were slaughtered after making substantial gain in the paper markets. Supply issues remain, however, with premiums for both metals well above the paper prices and normal range. Gold, which was pushing $1750, fell back below $1690 on Wednesday. Silver retreated from as high as $18.30 to $17.64. Both gold and silver were rebounding in overnight trading.
Thursday's release of another round of initial unemployment claims is unlikely to have a material impact on stocks, which will probably take a breather in advance of Friday's May non-farm payrolls.
At the Close, Wednesday, June 3, 2020:
Wednesday, June 3, 2020, 7:44 am ET
The protesting, rioting, and looting was noticeably on the downswing Tuesday night. It could be seen as a sign that cities and states have things under control or just a lull in the overall action. Depending on location, it's likely a little bit of each.
Before the curfews took effect, the Masters of the Universe on Wall Street managed to enrich themselves and shareholders just a little bit more, sending stocks through the proverbial roof, with most of the gains happening in the final half-hour of trading. The Dow, for instance, was up about 100 points at 3:30 pm ET. By the closing bell, it had gained 267 points.
Apparently, there's little to no downside for corporations no matter what happens in the real world. Pandemic? No problem. Print more. Widespread civil unrest? Meh. Print more. Supposedly, a nuclear holocaust would send the major indices to record highs.
What's amazing about the rally since late March is not that it has come with a background of lockdowns, over 100,000 deaths, street protests, rioting, looting, and assorted public dislocation, but that stocks were overvalued even at the low point. First quarter earnings reports were dismal, yet stocks continued their ascent to nosebleed levels that are now more overvalued than almost any time before.
The current CAPE ratio (Robert Shiller's 10-year P/E ratio) stands at 28.96. For purposes of comparison, the same ratio just prior to the 1929 crash was about 30. The figure before the panic of 2008 was around 27.50. Only the dotcom era produced a record high higher than Black Tuesday and the most recent levels, when it peaked at 44.19. For reference, the median CAPE is 15.78.
What we have is a market of zombie corporations controlled by financial manipulators, expert at buying back shares with borrowed money at near-zero interest, limiting the number of shares outstanding to goose the price of the stock higher. Many companies don't really make money anymore. They just play games with the books to make it look like they do.
In the background, other elements of the price-fixing regime that has become Wall Street back rooms, the NY Fed and controllers at Treasury and monolithic banking operations (primary dealers, but mostly JP Morgan Chase) keep gold and silver under wraps on the COMEX, as they did on Tuesday, slapping down the recent runaway rally in precious metals. That's a necessary evil under the control economy because the Fed doesn't like competition for their Federal Reserve (debt) Notes and gold and silver are real money, rather than just currency, like every other sovereign fiat.
Also well under the control mechanism is the price of oil, which is forbidden to fall to prices that comport to affordability for drivers of gas-powered vehicles. There was a brief opportunity to save a little at the pump, but that's now over, with oil pushing toward $40 a barrel. Truth be told, oil is old news. Renewables have taken a serious bite into the overall market share, especially solar, as advancement in solar panels have made self-generated electricity as cheap as what's supplied by fossil fuel plants and in some instances, cheaper.
The price of oil can go to $200, but people with solar installations and hybrid or EVs (electronic vehicles) will barely notice. What they will notice is the slowdown of the outlying economy, which would be crushed under regular unleaded at $6 or $7 a gallon.
There's no stopping this juggernaut monstrosity of a stock market nor the destructive money printing of the Federal Reserve. If and when stocks nosedive again, the Fed will just increase its balance sheet another for or five trillion, loan out money at negative rates and call it a day. By then, there will be no economy, just some cheap, fake import from China masquerading as a market.
Later this morning, ADP will release May private payroll numbers, which will be a disaster and a presage of Friday's non-farm payroll report for May. None of it will matter. Even with unemployment at 20%, stocks will still stroke higher. Welcome to the new world of finance, where nothing matters other than questionable or fraudulent bookkeeping and willful ignorance.
At the close, Tuesday, June 2, 2020:
Tuesday, June 2, 2020, 8:37 am ET
Rioting and looting in cities across America and Wall Street sends stocks higher.
I honestly don't have words appropriate to express my disbelief, because it all is so unbelievable.
Wall Street, tipping their collective hats to the corrupt politicians in Washington, DC, sent stocks soaring during the lockdowns and social distancing brought about by COVID-19. Now, they will ramp stocks even higher as the country self-destructs. It makes absolutely no sense unless the entire construct is a criminal enterprise without restraint.
Looters and rioters may be breaking laws but the money managers and politicians break them every day and are given a pass. Is that right? Isn't that what the rioting is all about? It's not about George Floyd. It's about unfairness, corruption, and enslavement of the middle and lower classes by a corporate and political elite, and so, since there is nothing more to be said on the topic, I'll leave it there.
Except for this: If you have gold or silver, get more. If you have guns and ammo, get more. If you live in a city, get out. The situation on the ground is only going to get worse. True patriots must begin to take action or we'll lose the country for good. The looters and politicians and bankers will steal from you and the police won't protect you. True American patriots are beset on all sides.
At the Disgusting Close, Monday, June 1:
Sunday, May 31, 2020, 11:45 am ET
Twenty percent unemployment. 20%.
That's the number likely to be presented when the monthly data series, non-farm payroll is released Friday one hour before the opening bell.
More than 40 million Americans are out of work. Another 12-24 million are underemployed, meaning they are working at jobs in which they are overqualified or their work doesn't provide a full week's employment (under 35 hours). Add to that the millions on welfare or disability and what you have is roughly half the working age population - with the bulk of them under 40 years of age - with no work, either no income or income of a size insufficient to service their expenses, lots of time on their hands, and anger building.
While these unemployed Americans were forced to stay home over a period stretching anywhere from three weeks to two months (and counting) because of ordered lockdowns due to the coronavirus, they watched the US stock markets crash and recover, aided by trillions of dollars thrown to market makers, banks, brokerages, corporations, and financial intermediaries from the Federal Reserve. The unemployed were assisted in their plight by an additional $600 a week in benefits and a one-time $1200 special payment, which for many took weeks to arrive. All along, the people at home watched the stock market recover at a record pace, wondering how long it will take for their jobs, their lives to recover back to somewhere near prior levels.
On Memorial Day, when four policemen in Minneapolis murdered George Floyd in broad daylight right in front of protesting bystanders, the fuse was lit for an explosion of pent-up frustration and anger. By Tuesday, people in Minneapolis took to the street to vent and the result was widespread violence, looting, burning of buildings, and utter disregard for authority as the police actually retreated from the swelling, uncontrolled mobs.
Wednesday through Saturday saw the protests turn violent in other cities. Denver, Atlanta, Louisville, Kentucky, New York, Boston, Los Angeles, Washington, DC, Portland, Oregon were among dozens which witnessed growing mayhem. By Saturday night, protests were witnessed in more than 75 cities and curfews imposed - with varying degrees of effectiveness - in 30 cities.
At a very early point the protests became no longer about George Floyd and police mistreatment and more about the disproportionate distribution of wealth, substandard living conditions, and a host of related issues.
For the most part, Americans don't like being told what to do or when to do it. By nature, Americans are bred for independence and freedom. The lockdowns and shelter-in-place orders clamped down on freedoms and shredded free speech, the right to assemble, freedom of choice, and freedom of movement. Prior to the violence of the week just past there were already anti-lockdown protests all over the country.
Now that we are amidst the overwhelming civil unrest that many had predicted, it's important to step back and view the carnage with an eye toward analysis and understanding. Authorities, such as the Democrat governor of Minnesota, Tim Walls, have asserted that as many as 80% of the people demonstrating in the streets are not locals, but imports from other areas of the country, their intent to spread unrest and wreak havoc on cities.
While this may or may not be true - it actually sounds ludicrous considering the sheer numbers - it's unlikely that the same numbers would apply in other cities. After all, with protests in more than 30 cities, the outsiders would have to have come from somewhere. Besides it being logistically inefficient, there would have been massive traffic spikes on the interstates. It just doesn't add up.
No doubt there are outside agitators, but there would also be agents provocateur from the authoritarian side of the equation.
The killing of George Floyd set this episode of violence into motion, but there's evidence that the main protagonist, officer Derek Chauvin, who pressed his knee into Floyd's throat for more than eight minutes, should have been aware of the death of Eric Garner, who was killed under similar circumstances in New York city in 2014. At least one or more of the other three officers holding down the handcuffed Floyd had to be aware of the similarities. These police knew exactly what they were doing. To believe otherwise is naive. Floyd's death, in a city notorious for mistreatment of minorities by the police, was very likely a set-up, to engender a violent reaction, just as the lockdown orders were conditioning of the public by authorities.
By the way, Floyd's supposed "crime" was passing a counterfeit $20 bill at a convenience store. Is it simply a coincidence that the image on the $20 bill is that of Andrew Jackson, "Old Hickory," who shut down the Second National Bank of the United States on September 10, 1833, and survived an assassination attempt on January 30, 1835? Coincidence? Maybe. Irony? Absolutely.
Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the Eternal God, I will rout you out.
When the violence began in Minneapolis, the police either backed off in fear of their lives or stood down purposely, allowing looting and burning of buildings, cars, and trash receptacles to take place without limit. Law and order proponents have made reference to left-wing groups such as ANTIFA for inciting the riots, but for whom does ANTIFA actually work? The case can be made that their agitation serves the interests of authorities in government. As the violence and mayhem spirals out of control, the mayors and governors build up their forces with more manpower and firepower, and now, military support, as nearly a dozen states have activated the National Guard.
California, Georgia, Minnesota, Missouri, Nevada, Ohio, Tennessee, Texas, Utah, and Washington state, in addition to the District of Columbia have called in Guardsmen to help quell the uprisings. Martial Law is the next logical step as the protests continue though there is likely to be a pause followed by random acts of civil disobedience on a massive, if unorganized scale. People have had more than enough of a financial systems that favors the rich over the poor and middle class, a two-tiered judicial system - one for the rich and connected, one for those who are not, extreme inflation in housing and educational costs, rising taxes without sufficient representation, injustices by the elite and the governing class going unpunished, and their emotions are boiling over into untenable conditions across the nation.
Those who make peaceful revolution impossible will make violent revolution inevitable.
Television media continues to push a narrative that the protests and violence are an outgrowth of racial tensions, rather than address the truth that the protests are more about generational and institutional inequality as evidenced by the massive numbers of black, white and Hispanics engaged, the vast majority of them under 30 years of age.
As cities burn, the obnoxious culture that is Wall Street is certain to respond, most likely in the wrong manner. All that matters in the realm of the economics of big business and central banking is higher share prices for the most-favored public corporations. While 40 million people were being laid off, fired, disengaged from jobs and income, the stock market indices gained back more than half of the losses initially incurred in late February and March. In the pretzel logic that is the inexorable ties between the Federal Reserve, the Treasury, and Wall Street, major cities erupting in riots and fires might be reason enough for fresh all-time highs in equities.
For the week, stocks continued their ten-week-long rally, tacking on 1.75 to over four percent on the major averages. The NASDAQ is within four percent of reaching all-time highs.
Over the shortened four-day week, treasuries were volatile with yields on the long end rising over the first three days but recoiling back on Friday as protests spread nationwide. The 30-year bond yield rose from 1.37% last Friday to 1.47% on Thursday, only to drop down to 1.41% Friday. The 10-year note closed out the week at with a two-week low yield of 0.65%.
Overall, the curve steepened to a spread of 125 basis points between the 2-year and 30-year with inversion between the six-month (0.18%) and 2-year (0.16%), indicative of recessionary conditions.
Oil prices seem to be consolidating. The July futures contract on WTI crude oil closed at $35.34 on Friday, in a range that appears to be suitable for all parties, considering the unlevel conditions on the ground.
The most volatility was evidenced in the precious metals space, especially silver, which advanced from a low of $16.80 per troy ounce to $18.05, closing out on Friday at $17.84. Gold finished up at $1728.70, off recent highs ($1748.30, May 20), though much improved from the week's low of $1694.60 per troy ounce.
On eBay, premiums remain elevated as shown by the most recent sales of one-ounce coins and bars:
Item: Low / High / Average / Median
Looking ahead, it's incredible how quickly the media focus changed from the fading coronavirus to the escalating street unrest. These are macro-issues, covering large swaths of people who are neither coalescing nor collectively unifying. If leaders emerge from the city protests, which is natural in large public movements, then it can be safely assumed that these protests and the background issues are real. If no leaders emerge, it's all more fakery and planned demolition of society, just like the pandemic, aka plandemic.
In the 1960s protests, leaders and organized groups were plentiful. Jerry Ruben, Abbie Hoffman, Dr. Martin Luther King Jr., Jane Fonda, Tom Hayden, Malcolm X, Eldridge Cleaver, Huey Newton, Angela Davis, and others are among the more memorable individuals from the era. Students for a Democratic Society (SDS), the Weathermen, the Southern Christian Leadership Conference, Black Panthers and many more splinter groups comprised peaceful and violent elements.
Songs expressed the prevailing movements of anti-war (peace) and civil rights. Joan Baez, Bob Dylan, Phil Ochs, Arlo Guthrie, Judy Collins, Pete Seeger, Peter Paul and Mary, the Byrds, Country Joe and the Fish, and many of the groups that played at Woodstock in 1969 were among the more prominent voices among the peace and civil rights movements.
One would expect leaders and groups to emerge and musicians to show the way forward. While it might be considered cynical to believe that current events are orchestrated by a devious deep state or other bad actors, it is not outside the realm of possibility. As the world has learned so often in recent times, conspiracy theory often emerges as conspiracy fact.
At the Close, Friday, May 29, 2002:
For the Week: