Bull Trap or restarting a Bull run?

[pb4uski]

But interest rates were already low so I don't see how lowering them more was propping up businesses in a significant way.

 

[eytonxav]

But interest rates were already low so I don't see how lowering them more was propping up businesses in a significant way.

It makes it even easier for them to loan money.

 

[2177V]

Appreciate the response. It might come down to will the USA take on unlimited debt to stave off the market downturn.

The federal government will avoid a "collapse" but will not avoid a "market downturn". This is what happened during the 2008 recession. They did what was only necessary and then stop.......and let the recession happen.

For example, when the government took over GM, the government made sure that the existing GM bonds and GM stock are now worthless due to the bankruptcy. This is because the government was not going to accept any liabilities to the bond holders and stock holders using tax payer's money.

My manager at my former job had insisted that the government will not allow GM to fold. However, I gently told my manager that his statement is true but that does not stop the government from screwing the investors. When my prediction came true, I naturally never discuss that issue with my manager again.

I had worked for the federal government for 34 years prior to working for this local manager so I was more aware how the federal government work. "The government works for the people and not just for the investors".

Please note that the recent $2T bailout is designed to avoid a collapse and is designed for the people.

 

[Dtail]

While I can see that happening it makes no sense to me.... there is way too much focus on using monetary policy to prop up the stock market when only roughly half of Americans own stock directly or indirectly.

I'm not sure if the fed has its eyes on the right ball.

Well the most powerful folks are in that 50% ownership. It could go on for another let's say 7 months....

 

[brewer12345]

Way too early to buy and money market yields are grinding to zero. So I am contenting myself with stalking the very short term fixed income markets for high rated stuff that provides an actual yield. Have bought some 1 month brokered CDs yielding 1% and found a couple small muni pieces rated AA or better that mature in a couple months and yield 2 to 3% until they do. Will keep doing this sort of thing until it is time to start buying.

I really want to see a retest of the lows to have any kind of confidence in an upswing. We can't resume normal life and economic activity until it is safe to freely roam about. Short of everyone getting the virus or an effective vaccine rolls out, I don't see how that happens. Flattening the curve means restrictions have to stay in place for a long time.

 

[2177V]

But interest rates were already low so I don't see how lowering them more was propping up businesses in a significant way.

My wife owns a small business and the SMA interest rate is still 3.75% and not zero.

Reference:
https://www.sba.gov/about-sba/sba-n...mall-businesses-impacted-coronavirus-covid-19

I have complained about this but the banks did relax the eligibility standard so it is easier to get the disaster loans based on the corona virus.

Understand how this works: The fed loans money to the banks at near 0% interest and the bank then loan the money to small businesses at 3.75% in order to cover the higher risks by the banking industry because there may be wide spread bankruptcies even after getting the loans.

I wished my wife can acquire a small business loan at near zero interest but the bank needs this profit margin to cover the risk. There may be some banks who may lower the interest rates for small businesses with excellent credit but the demand is so great, I do not see an incentive for the banks to do so.

The government has a condition which the loan can be forgiven...but only if we do not layoff people. I suspect the 3.75% profit may also be used to fund this. There is some talk about a phase 2 for small business since it is obvious that the original loan program may not work out.