Posted on 02/12/2020 8:14:30 PM PST by Pelham
The problem with Thomas More, Hegel and Marx is they looked at history and thought it had reached some kind of pinnacle where ‘elites’ needed to divide up the goods and ideas because there’s nothing new under the sun.
We’re going through that now with people’s fears of AI and robots... that we’re come to the end of striving, now let’ sit and ponder how to become Utopians.
It’s silly.
We’re in the fight of our lives and will be ...forever. The Pentagon needs to get real, redo self-serving norms’ or toss them - - and start protecting the country again.
So far we’ve always had a few in our military who understand the coming threat and aren’t wedded to the past. They don’t always get listened to in a timely fashion.
A bigger problem today is a shared belief among our business and political elites that they are Citizens of the World. You wed that with a libertarian worship of the market and you can end up without the ability to manufacture things vital to your survival.
Centrals banks can easily manipulate whatever rate they want, through market operations.
Some central banks (EU and Japan) have been buying government and corporate bonds for years to suppress their rates
https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html#pspp
You don’t call it “money printing,” but many, many people do. Here’s just one.
https://seekingalpha.com/article/4293900-qe4-begins-fed-printed-extra-161_7-billion-last-week
As to bond vigilantes, it seems odd to me that no one would be tempted to take a juicy 10% interest rate overnight or for very short terms to lend with the highest quality of government bonds as collateral. Yet the Fed is willing to loan at around 1.5%. since the start of repo operations, we’ve had nearly $4 Trillion in such deals through Fed market operations. Savings glut?
“Centrals banks can easily manipulate whatever rate they want, through market operations.”
In fantasyland maybe. In the real world bond investors determine long rates. The Fed had no ability to control long rates when they tried to do just that in the 70s. The Fed’s Open Market Operations, which I assume that you mean, are for adjusting the money supply in the banking system, not for determining long rates.
Your second two links appear to concern the short term cash crunch that occured in the fall of 2019. It had something to do with taxes and delay in payments IIRC. The Fed met the extra demand for liquidity via repos. Repos get extinguished usually overnight so there is no long term addition to the money supply by using them, contrary to what you appear to believe.
I saw this and thought of you, particularly paragraphs 3 & 4
I’ve exceeded my free article limit at Bloomberg and can’t see anything beyond the 1st paragraph
Bernard Arnault, the boss of LVMH Moet Hennessy Louis Vuitton SE, exceeded even his own incredibly low yield expectations in his company’s giant bond sale this week — which included the biggest corporate issue in euros since 2016. The luxury giant raised 7.5 billion euros ($8.3 billion) and 1.55 billion pounds ($2 billion), over a range of maturities from two to 11 years, to help finance its $16 billion purchase of Tiffany & Co.
Two of the five euro tranches were placed at negative yields, meaning investors are paying single A-rated LVMH to borrow money. Arnault’s expectations back in November for yields from the sale of “between 0% and 1%” have been surpassed. Even the 11-year tranche has a coupon of just 0.45%. M&A has never been cheaper.
France’s richest man can thank the European Central Bank for this state of affairs. The restart of its 189 billion-euro Corporate Sector Purchasing Program has driven credit spreads ever lower. While the central bank wants to lessen the funding costs of European companies — and local subsidiaries of global firms — to make it easier for them to invest, it may not have been meaning to help a French luxury behemoth snap up an American jewelry icon.
It’s almost certain that a bond of this size will have been bought by the ECB (or will be picked at some point in the near future). Often the bank takes up to 20% of eligible issues, and there has a been a real paucity of high-quality credit since the Quantitative Easing program kicked back into life.
LVMH Gets Paid to Borrow
Its three-year bond issued last year has moved negative in yield
Source: Bloomberg
There was another jumbo corporate sale in Europe this week by U.S. Media giant Comcast Corp., which issued notes worth 3 billion euros and 1.4 billion pounds. This type of sale is known as a “reverse Yankee,” where an American company issues debt, but not in dollars. Maybe we could refer to LVMH’s use of dirt cheap funding in its home currency to buy an American company as a “reverse, reverse Yankee.” The world of finance is ever flexible.
International Business Machines Corp. also pulled off a bumper bond deal in Europe earlier in the week; the euro credit market is truly open for business. Although January was a record month for issuance, it was dominated by financials and sovereign, supranational and agency (SSA) issuers. Credit spreads have now also moved close to their tightest ever levels, amid the general flight-to-quality sparked by the Coronavirus outbreak.
Credit Frenzy
The premium investors will take corporate risk is close to a record low
Source: Markit
It’s just a shame that most of these jumbo deals are being used to refinance existing operations more cheaply — rather than spurring an investment boom, or local European mergers and acquisitions that would help the continent’s moribund corporate environment. Still, the ECB is doing what it can; if the financing heads over the Atlantic sometimes, that’s the price you pay for the ocean of quantitative easing that’s been made available. No wonder corporates everywhere are filling their boots.
The ECB investing in private debt. That raises cronyism to new, higher levels. The Fed primarily, and maybe only, buys Treasury paper to avoid conflicts like that. I think it can purchase private debt from banks in extreme circumstances to prevent a collapse, but it isn’t doing anything like this Vuitton deal. That’s for American investment banks.
Negative interest rates bother me. And I hope that we don’t resort to them, but if the Fed can’t get its Fed funds rate back into its sweet spot of 2.5% - 5.0% we may get them when the next recession hits.
AFAIK over here negative rates only affect banks rather than depositors. They won’t punish us for having savings- my guess is that we would get zero interest- what they apply to is the bank’s own money.
IIRC James Grant’s book on the history of banking and money, during the classical gold standard you didn’t earn any interest on money that you deposited with commercial banks. They simply safeguarded it for you. Zero interest rates for depositors all the time.
I’m still inclined to think that a return to the gold standard would be a good thing but it’s not without its own problems. JP Morgan’s bank was vastly more powerful under that regime than any bank today. If people think that the Fed has power today they have no idea of the power that big private banks wielded in the past. Banks ran their own foreign policy. Presidents went hat in hand to New York to ask Morgan and other major banks to save the American economy.
It blows my mind that LVMH, or any company, can actually charge people to take its debt - and who are lining up to do so.
Every time economists think they’ve figured out all possible economic phenomena, something new happens.
It would make sense to buy the LVMH bonds if the negative interest rate that they are charged on deposits left in the bank is greater than what they are losing on those bonds. But that information is not included in the article, so who knows. If they took their money out and kept it in cash they wouldn’t be losing anything.
For their economy as a whole it seems that their money supply would be shrinking.
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