The fed can’t prop the market up by buying stocks due the Federal Reserve, but they can buy government securities to control the money supply and interest rates. These open market operations are one of three key tools the Fed uses to achieve its policy objectives, and arguably the most powerful and frequently used. The other two tools are banks’ reserve requirement ratios (which are now 0%) and the terms and conditions for bank borrowing at the Fed’s discount window.
Dr. Lacy Hunt, the Mac Daddy of Macro, said QE is deflationary. The only way for inflation is if the feds liabilities become assets. Steve Van Metre and Brent Johnson say QE and is deflationary and sucks liquidity out of the system, it increases Bank Reserves but banks are not making loans from those reserves and they can’t spend bank reserves. I think they are making shit tons of loans with a hot housing market.
Nearly 70 percent of homeowners with mortgages have loans somehow supported by the federal government, I bet higher now. Fannie Mae and Freddie Mac, two government-sponsored entities, buy many loans from lenders(Banks) and package them into investments that are akin to government bonds. MBS. Mortgage Backed Securities.
The government is guaranteeing these loans (government securities) and then using the FED to buy them from the banks. Their liabilities are becoming their assets. Tax payers are on the hook. Banks then use the money from selling the MBS to buy stonks. Asset Inflation.
How hot is the housing market?
New construction is up, Existing home sales are up, Prices are up.
Its one hot steaming pile of shit.
How much of this steamy shit is the Fed buying?
FED Agency MBS Historical Operational Results and Planned Purchase Amounts
From Jan 15 – Feb 15 they pledge to puchase 5 billions in MBS.
From Feb 14 – Mar 12 they pledge to purchase 2 billion in MBS.
From Mar 13 – Apr 13 they pledge to purchase amounts needed to support the smooth functioning of markets with NO LIMIT – UNLIMITED MBS. Actual amount – 458 billion
From Apr 14 – May 13 Unlimited. Actual amount – 203 billion
From May 14 – June 11 Unlimited. Actual amount – 119 billion
From Jul 14 – Aug 14 they pledged to purchase 109 billion. Actual amount – 161 billion, over 50% more than they pledged.
From Aug14 – Sept 14 they pledge to purchase 110 billion.
Erik Townsend said he thinks Corona is accelerating a trend, Millennials buying houses. His nerd sidekick says its people moving to the suburbs or country because they can work from home. Millennials still largely live at home. No longer need to pay our student loans. The pool of first time home buyers is huge. How long can this last? How to make money off this? IDK stonks only up. If the Fed keeps ramping up MBS purchases, stocks can keep flying.
QQQ 310 9/25 SILJ 16 9/16
Once eviction moratorium and stimulus end, switch to UUP calls. And SPY Puts. Everyone will need $$$. Foreclosed houses will saturate the market and housing market will crash. Deflation will kick in hard, barring the fed doesn’t start buying stocks. No other time in history has there been massive unemployment with a housing market boom. Unemployment is now hitting white collar workers. But the stimulus and moratoriums could go on forever.