How long can it be before the Fed starts buying stocks en masse? A week, two maybe?
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Replying to @shylockh
Has the Fed EVER bought stocks? That's not what they do. Their knobs are money supply and interest rate.
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Replying to @MorlockP
Indeed, they haven't. But they showed a willingness to buy "other stuff" in a crisis with TARP, to indirectly prop up equity values. To the extent that this is very much a real economy shock and not a financial shock, monetary policy may not do much. So what then?
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It's clear that at least one of the actual goals is "keep stock prices up". At what point do they just drop the mask on that?
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The original tweet was a little facetious. This probably won't happen, but it's definitely a non-trivial possibility.
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Replying to @shylockh
It's a trivial possibility / won't happen. My bet. As @unhygenicmacro said, there are other tools to do that job...and it's not even the right job. Fed is not opposed to stock market corrections which reflect actual truth on the ground. They're opposed to epiphenomena
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Replying to @MorlockP
You're probably right. The difficulty comes when real effects start producing financial effects, which was what happened in 2008. I think most people didn't expect the Fed would buy CDOs outright either.
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If they judge the decline to be "irrationally large", and that this is having real negative consequences, it seems less crazy to imagine.
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https://www.federalreserve.gov/newsevents/pressreleases/monetary20200317b.htm … Update - they're now taking commercial paper and municipal bonds as collateral. Still not equities, and still not direct open market purchases, but they're definitely taking non-trivial credit risk on their balance sheet with this.
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https://www.google.com/amp/s/amp.ft.com/content/cf485398-689d-11ea-800d-da70cff6e4d3 … No, wait, they ARE lending against stocks too. Genuinely interested to know if this is consistent with your prior expectations,
@MorlockP.1 reply 0 retweets 2 likes
ah, this is a tricky, and comes down to definitions. I pushed back against "will buy stocks" bc that implied, to my mind, socialism / backdoor nationalization / doing anything to keep stock prices up this is loaning AGAINST ... TOTALLY DIFFERENT! ... except ... >>>
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as with VCs taking convertible debt instead of equity, where we see that the line is actually pretty fuzzy, now we've got feds taking stock as collateral ... which can be forfeit if the debt isn't paid so I want to say "doesn't update my priors AT ALL"...but also realize I dunno
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perhaps someone who knows more about this (@unhygenicmacro ,
@ByrneHobart ) wants to weigh in ?1 reply 0 retweets 0 likes - Show replies
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