To anyone who lives in the real world, it has always been clear that #inflation wasn’t truly cooling down as the official (politically adjusted) CPI data pretended to portray (TwitterX). If you want to have a live snapshot of the distorted reality “economists” see from the high rise ivory towers they live in, just take a look at the Trueflation website [Picture 1]… yes, ridiculous.
What are Jerome Burns and Janet Yellen going to do this time, behind closed doors of course (big credit to @FixTheFed – TwitterX), to kick the can down the road once more hopefully past US elections in November? For sure they won’t take a break from their daily jawboning:
“YELLEN HAILS INFLATION PROGRESS EVEN AS CPI M/M GAINS QUICKEN”
However, with so many people that piled up on leverage to #BTFD again on #stocks and #stocks derivatives in a crescendo that saw its craziness apex last week, I kind of doubt words will be enough to relax the nerves of all those that jumped blindfolded, head first, into this crazy market at the very top.
Investors love QE and anything that resembles that like Americans love
@taylorswift13
, this is why I expect the #FED and the #US Treasury Department will work hard to put out asap something that resembles that.
Clearly they already hinted at changes to the #FED Discount Window facility, however in an election year they must be extra careful that won’t look like another banks bailout in disguise. The only way I see them putting out there something that has chances to kill 2 🦅 with one 🪨 , meaning salvaging the US financial system while keep blowing hot air into the #stocks #MOAB, is to allow banks to borrow from the #FED Discount Window at their own Mark To Markets.
I am sure I just made many of your heads spin, please accept my apologies, but that’s the only thing I can see working right now and that can be ready by the time the #BTFP is officially retired in about a month.
We are in an election year, so the white house cannot be seen (again) throwing banknotes to banks like Floyd Mayweather loves to do in his night clubs. This is why banks will be strong-armed to revise their mark to markets first and (pretend) to show the public for once Wall Street will be the one picking up the tab and pay for its own mess.
Small problem, banks will not be very cooperative with that unless they get something back from the government. What could that be? Of course a “relaxation”, or even better a complete watering down, of the new Basel 3 capital rules expected to kick in soon and against which banks have been lobbying extremely hard (Picture 2).
Timing is going to be a big issue though since no one will be able to wait for the next earnings season for banks to come (a little bit) clean on their Mark To Markets. However, I hardly expect anyone will have the guts to put out a profit warning or anything that resembles that after the punishment $NYCB suffered in the past weeks for doing so. As a consequence, the #FED will work out a temporary solution, perhaps a Reverse Repo Facility of some sorts, that will allow banks falling into liquidity stress to pledge ☢️ assets, technically ineligible for the current discount window, for cash for a limited time frame till they can kick off the new rules and resume the disguised QE again.
Needless to say, what I just described is another temporary fix that will make the problem down the road even bigger and the cost for the population, in the form of #inflation, even greater in the future. This is something investors are slowly starting to understand and to worry about, reason why at some point they will stop drinking the cool-aid, figure out the burning building cannot be salvaged anymore and it’s going to be better to stop dancing and rush out of it before it collapses.
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