Don't fight the FED

[aja8888]

I realize that they are not yet buying stocks... yet... but it would not surprise me if they tried to finagle a way to do so despite their not having the legal authority to do so. .

Didn't the gov buy GM stocks when they went BK 10+ years ago. I recall them selling off what they had when GM got going a few years later.

 

[USGrant1962]

Didn't the gov buy GM stocks when they went BK 10+ years ago. I recall them selling off what they had when GM got going a few years later.

Yes, that was a specific law passed by Congress (TARP) and not the Fed.

 

[LARS]

Not yet. Sometime in the next year, especially if there is another major leg down.

The Federal Reserve is legally precluded from owning Equities. It would take an Act of Congress for the FED to legally purchase stocks.

Now that is not to say in this era of our Government doing what they want regardless of Laws that the FED wouldn’t find a way to purchase Equities and ask forgiveness later.

 

[ejman]

The Federal Reserve is legally precluded from owning Equities. It would take an Act of Congress for the FED to legally purchase stocks.

Now that is not to say in this era of our Government doing what they want regardless of Laws that the FED wouldn’t find a way to purchase Equities and ask forgiveness later.

How about this https://www.thestreet.com/opinion/federal-reserve-buy-stocks

"How would the Fed do it? The Fed isn't going to pick specific stocks. Just as it’s leveraging ETFs to provide ballast to the bond market, that’s the path it woild take to support equities. This is not an approach without precedence, as the Bank of Japan has been supporting its own stock market this way for quite some time (to rather uninspiring effect). Due to how ETFs are created and redeemed, if the Fed starts buying an index-tracking ETF it forces the managers of the ETF to go out and buy the stocks the index tracks, effectively supporting a vast array of stocks with one symbol"

 

[Dtail]

The Federal Reserve is legally precluded from owning Equities. It would take an Act of Congress for the FED to legally purchase stocks.

Now that is not to say in this era of our Government doing what they want regardless of Laws that the FED wouldn’t find a way to purchase Equities and ask forgiveness later.

Exactly and exactly.

 

[kjpliny]

I don’t necessarily mind the Fed propping up the market to create liquidity, but I do have issues when they start picking winners and losers.

Let's stop using their word "liquidity" and call it by it's true name..."debt". They're adding more debt.

 

[KenZ71]

I'm quite conflicted here.

An ounce of prevention is worth a pound of cure. Much easier to give something a nudge vs pick it up and move it.

With rates being at historic lows are Fed market buys a nudge or crane?

Markets are supposed move on their own.

Of course these are strange times. One week we have worst unemployment numbers ever. Next week it is biggest rise in consumer spending ever.

 

[USGrant1962]

I'm quite conflicted here.

An ounce of prevention is worth a pound of cure. Much easier to give something a nudge vs pick it up and move it.

With rates being at historic lows are Fed market buys a nudge or crane?

Markets are supposed move on their own.

Of course these are strange times. One week we have worst unemployment numbers ever. Next week it is biggest rise in consumer spending ever.

Markets cannot move on their own when the government shuts down the economy by edict and executive order. Hence the government's responsibility to mitigate. You can certainly argue about how to mitigate, but the obligation is clear.

 

[BigMoneyJim]

The Federal Reserve is legally precluded from owning Equities. It would take an Act of Congress for the FED to legally purchase stocks.

Aren't they legally precluded from buying corporate bonds, too? They made an end-run around that law without Congress. At least that's my current understanding.

 

[USGrant1962]

Aren't they legally precluded from buying corporate bonds, too? They made an end-run around that law without Congress. At least that's my current understanding.

The Secondary Market Corporate Credit Facility was authorized by the CARES Act - so by Congress.

 

[USGrant1962]

I thought this article was interesting: https://www.cnbc.com/2020/06/24/the...int3-trillion-it-hasnt-come-close-so-far.html

So far, the Fed has hardly used it's advertised $2.3B economic infusion. They have loaned out only $143B, caused by a combination of slow start setting up these new programs, unattractive loan terms, and generally less demand than expected.

And the corporate bond buying thing has so far been a drop in the bucket at $7B total. They are buying up government debt at a rate of >$120B/month.

Last week the Fed's balance sheet assets actually declined for the first time since February, though it is still north of $7T. https://fred.stlouisfed.org/series/WALCL