U.S.: CHEAP MONEY PUMP, PUMPING


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The Dow dipped lower on Friday and was down 250 points yesterday, posting its biggest decline in nearly two months on weak manufacturing activity, and, of course, on “trade uncertainty.” 

Today, as we go to press, it’s down 350 points on news that President Trump suggested he may want to delay a trade deal with China until after the 2020 presidential election.

This year the Dow is up 20 percent, and the S&P 500 Index is up 25 percent, on trend to have one of its best years in two decades. 

According to the hard numbers, the Federal Reserve Banksters will keep giving the Wall Street money junkies their fix to keep it going.

As noted in the 19 November Trends Journal “… since 17 September they [Federal Reserve Banks] injected ‘upwards of $3 trillion,’ according to the Interest Rate Observer.” 

On Monday, 25 November 2019, the Federal Reserve Bank of New York pumped a grand total of $118.5 billion into the U.S. financial system.

The following day, Tuesday, 26 November, the Federal Reserve Bank of New York added another $92.7 billion by purchasing $72.75 billion in overnight repos and $19.95 billion in 14-day repos. 

On Wednesday, 27 November, the Fed of New York again injected a total of $108.95 billion by accepting all $87.9 billion in overnight repos and $21 billion in 15-day repos. 

On Friday, 29 November, the Fed Reserve of New York went back at it on Friday, when it flooded $88.45 billion into the financial markets in the form of overnight repos. 

Yesterday, The Federal Reserve Bank of New York pumped in another $97.9 billion.

Why?

Because the White Shoe Boy gambling addicts need their fix.

Clearly, these monetary methadone injections do nothing to improve the economic health of the general public or the nation’s economy.

The 2 December Wall Street Journal, using White Shoe Boy lingo, makes it perfectly clear:

“Central banks want to ensure that markets remain well behaved over year end, and they have signaled they will be flexible in achieving that. The Fed has already increased the size of other temporary operations, making it possible future term operations could be bigger as well.

The Fed’s interventions are aimed at ensuring that the financial system has enough liquidity and that short-term borrowing rates remain well-behaved… Since the large interventions started, money-market rates have been well-behaved.” 

As clear as can be, the money-pumping scheme serves one purpose, “to ensure that markets remain well-behaved.”

There it is: “well-behaved” markets. 

As we have long noted, the rewards of lowering interest rates to zero/negative territory following the Panic of ‘08 have gone to Wall Street, not Main Street. The Fed plans to extend these liquidity operations through the middle of 2020.

Will it be enough?

TREND FORECAST: The global economy is slowing and so, too, is America’s.

GDP for 2019 is expected to average around 2 percent.

The manufacturing report released yesterday, with a reading of 48.1 (below 50 represents contraction), was the fourth straight month below expansion levels.

And, it should be noted that manufacturing, while only accounting for one-fifth of the nation’s GDP, is considered a reliable economic indicator for the entire economy.

As we have long forecast, by this time next year, the U.S. Fed will bring interest rates to a negative/zero range to prop up the slowing economy.

TREND FORECAST: Despite President Trump’s announcement today that he is considering waiting until after the 2020 election to finalize a trade deal with China, we view this as just another chapter in his “Art of the Deal.”  

We forecast Trump will secure a trade deal with China prior to Election Day 2020 in an effort to boost his odds of getting re-elected.

Corporate Money Junkies

Whether on The Street or in the corporate world, with interest rates at such record lows over the last 10 years, corporations have sold a historic number of bonds to yield-hungry “investors.”

Equivalent to 47 percent of the GDP, U.S. corporate debt is at nearly $10 trillion.

It is important to note that these corporate bonds are rated just one step above junk bonds. Investors hold almost $4 trillion in these risky bonds – $2.5 trillion just in American companies alone.

According to rating agency Standard & Poor’s, these near-junk bonds sold to investors have come from well-established companies such as Hasbro, Nordstrom, Marriott, and Hyundai. 

According to the IMF, companies exploiting these low interest rates, including AT&T, CVS Health, and Ford Motor, have borrowed not to reinvest in their core businesses but for stock buybacks and investor payouts.

Buying out competition is another way to spend cheap money from lowered interest rates.

On a single day last week, $70 billion was made in takeover deals. Charles Schwab bought the brokerage TD Ameritrade for $26 billion, and LVMH (a French luxury powerhouse) bought out Tiffany and Co., the jeweler, for $16.6 billion. 

Novartis bought out the biotech The Medicines Company for $9.7 billion, and Mitsubishi Group led a €4.1 billion buyout of Dutch utility Eneco. Ebay sold StubHub, its online ticketing business, to Viagogo for $4.1 billion.

TRENDPOST: As noted, these takeover deals eliminate competition. 

Anu Aiyengar, the head executive of JPMorgan Chases’ Mergers and Acquisitions (M&A) for North America said, “Companies need growth, and that is a big driver for M&A.”

Citigroup investment banking chair for Europe, Luidi De Vecchi, said, “Cash-rich companies are once again targeting the U.S. market as many emerging markets represent a more dangerous risk-reward equation.” 

The growing trend of immense concentration of wealth and power among the few, while the inequality gap widens, is a major factor contributing to escalating popular uprisings around the world, which we extensively cover in the Trends Journal.

Moreover, in the free market lands of opportunity, eliminating competition and creating monopolies is reported by the media as the way of the world without addressing the implications. 

PUBLISHER’S NOTE: There’s Big Business concerns that if Bernie Sanders or Elizabeth Warren win the 2020 race to the White House, they will reverse crucial Trump administration’s pro-corporate/deregulation policies… while raising corporate and taxes of the very, very rich.

Minus a wild card/black swan event, we forecast that Donald Trump will beat any of the Democrats currently leading in the polls.

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