Bankster Bond Vacuum
OK, let's talk those Fedsters again. You know, those guys and gals at the top of the Financial Industrial Complex food chain? Yeah, the ones proclaiming to be advocating for Main Street ‘Merica?
In the last few days of June 2020, I came across more details about their Secondary Market Corporate Credit Facility Index (gotta love their obsession with long jingoistic names for all their facilities). (1)
Interesting to see the likes of Microsoft on the list. A company with stock trading at all-time highs? A stock with a market capitalization of $1.5 trillion? Net Income After Taxes at almost $37 billion as of June 30, 2019?
How about looking at a “smaller” company? What about McDonald’s? Yup, on the list. Maybe that’s because it’s about 16% off it’s recent all-time highs? Why else would a company with a market capitalization of $135 Billion be on the list? Perhaps the Fedsters are looking for some “fries what that” bond purchase?
I see the company with the highest weighting right now is none other than…a company that’s not ever American! Toyota? Getting bonds purchased by the Fedsters? So, helping a foreign company will help America’s Main Street? (2)
I can hear some of you thinking, what’s the big fuss? They’re just building a broad bond index of high-caliber companies. Who cares?
Ok, let’s talk straight and uncover what this truly is about. Building a broad bond index is one thing. But building it so you can also buy said bonds on index?
The Fedsters dump all this money into the system. Said money looks for a home so why not buy up more newly minted bonds from these upper echelon companies, so that these said companies can finance even more share buybacks and enrich their C-suites.
Yes, I can see that will help the middle-class in untold ways. Thank the high heavens we have these Fedsters looking out for everyone’s financial interests.
Oh, wait a minute…
“Fed Moves to Ensure Companies Can Tap Bond Market for Funds” (3)
That’s from the U.S. News on June 15, 2020, which also let’s Main Street know of the Fed’s benevolent actions: “The Fed’s purchases should hold down corporate bond yields, making it cheaper for companies to borrow…”
Aha! Got ‘em! Make it cheaper to borrow money. Makes sense, for small mom-and-pops but that ain’t where the money’s going. Back to the article…
“But by also lowering the return from investing in those bonds, the Fed’s actions will likely encourage investors to shift money from corporate bonds to stocks in the hopes of achieving a higher return.”
Got it! So, juicing up stock prices even more so that you and I can FEEL richer. In other words, we’ll feel richer than we are. That’s helping the middle classers, right?
Maybe this will help?
“When the Fed announced its bond-purchase program in March, few companies were able to issue bonds.”
So, it’s a problem that companies like Toyota and Microsoft and McDonalds and Apple and Walmart and Anheuser-Busch were having difficulty borrowing money? Even if that’s true, perhaps that should have been a lesson to them to run their companies better, no? Why the continued push to enable more and more zombies?
But let’s not forget most, if not all these companies have been running profits for years. Instead of borrowing more money, why not dip into all those profits?
Oh, I know, I know. The Fedsters are trying to help all those small companies find cheaper rates to borrow so that they can get through these difficult times. That’s understandable.
Here’s the problem. When an investor has more money to pump back into the bond market once his investment-grade bonds have been taken off his hands, is he sending that money to the small fries out there? Is Johnny Apple Seed Roadside Stands getting lent the money?
Or is the investor looking for more Microsoft and Apple and Walmart bonds to buy?
Crickets…that’s what I thought…
By the way, help for foreign companies doesn’t stop there.
Here’s a top four listing of the most active banks selling bonds to the Fedsters:
Morgan Stanley - $683 million
Bank of America - $600 million
Royal Bank of Canada - $594 million
Barclays Capital - $568 million
Two American banks followed by a Canadian bank and a UK bank. True, I’m Canadian so why should I fuss. But again, all this newly minted digital money isn’t going where the Fedsters will make us believe it goes. Au contraire, mon ami. These are only “so far” numbers. Still much buying and sucking up of corporate bonds to be done. Billions more in the pipeline.
We’re still getting lip service whilst bankster pockets are busting at the seams.
But I'm just a lowly recovering bankster, what do I know?
(2) All company data from ca.investing.com