Federal Reserve and Government Bazookas Not Enough to Stave Off Market Reset

Written by Nick Hodge
Posted March 18, 2020

We’re going big. 

That was the message from the Federal Reserve and the Federal government this week. 

"This is war," they said. So they unleashed the BAZOOKAS.

The Fed’s Jerome Powell strutted to the mic on Sunday as fear gripped the world. The economy came into this on sound footing, he lied, repeatedly, as he cut rates to zero. And that was after he unveiled $1.5 TRILLION in new repo and QE operations earlier in the week. 

He has since said the Fed would start making loans to American corporations — a clear sign that the credit markets are tightening, or worse. They’re throwing $10 billion at that but the commercial paper market is worth $1.1 TRILLION.

The Fed also re-opened an overnight lending facility to the 24 largest banks, allowing them to secure cheap loans with questionable forms of collateral, including stocks. 

Giving banks cheap loans and taking cratering stocks as collateral sounds like a great idea, doesn’t it? 

And we haven’t even gotten to the government yet!

Yesterday, Trump, with Mnuchin at his side — and without consulting Congress — announced a $1.2 TRILLION taint-tickling, er, stimulus package of his own. That goodie bag included:

  • $300 billion in small business loans
  • $300 billion in personal and corporate income tax deferments 
  • $250 billion in cash payments (everyone gets a $1,000 check!)
  • $200 billion in stabilization funds
  • $100 billion in tax credits for paid family sick leave

When the stock market opened up this morning… it told the government and the Federal Reserve precisely where they could shove all those efforts by opening up limit down. (All the king's horses and all the king's men and all that.) 

Here are some of my takeaways and what I’m doing…

- We’re gonna need a bigger bailout boat.

- That bailout should go to families and workers being affected by the shutdowns. 

- It should not be used to bail out airlines and casinos and fracking companies that have racked up obscene debt and used the past decade of cheap paper to buy back shares so executives could get bigger bonuses. I called both my senators and congresswoman this week to express as much.

- We are going to face depression-level reductions in spending and employment as a result of this essentially nationwide shutdown. Mnuchin said he could see 20% unemployment. 

- 2008 was about real estate and leveraged mortgage bets. This is bigger. This is economy-wide. This is affecting everyone

- We’ve only been in a bear market for a week. Bear markets are part of the cycle. The Fed has fought off natural forces for years, forcing the longest bull market in stocks in history. They are now making shit up, going full modern monetary theory. They may stave it off a bit longer, but this ends in a total economic reset. Gold will come screaming out the other side. But not yet. 

- Hypocrisy is going to be rampant. Remember Andrew Yang being made fun of for wanting to give everyone checks? Now everyone’s on board, including Trump and the Republicans. Shhhh, don’t call it socialism. 

Oil is telling us there is going to be significant pain ahead. It has plunged to its lowest level in 17 years with West Texas Intermediate below $25 per barrel. I know, I know, there’s a price war. But oil’s price in freefall means there is more to it than that. 

Copper is saying the same thing. It held up ok until late last week, when it fell off a cliff toward $2.15 per pound. Dr. Copper knows something sinister. 

Central Banks and Federal Governments cannot destroy the virus. And it will be the virus that ends up destroying governments and central banks. 

A reset was always in the cards. We’ve been writing about it for years. The catalyst is now here. 

Things are going to get weird out there as “officials” try everything they can think of. 

It’s no secret how I think it ends.

Stay safe out there. 

Call it like you see it,

Nick Hodge Signature

Nick Hodge

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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