At first, I thought all this talk of the United States moving into another recession was just fake news to scare folks away from President Trump; However, I think there is more to it than just fake news now.
Several friends involved in the manufacturing industry are all reporting to me that orders coming in are slowing down. In some cases, lay-offs are happening and overtime has become a thing of the past. Then a friend in the investing world told me about the troubles the big banks are having with covering their expenses and investment shorts. I figured it was time for me to do a little research and to make up my own mind.
Based on what has been going on behind the banking scenes overnight makes the 2008 Troubled Asset Relief Program (TARP) pale in comparison. A common practice overnight between banks is to loan each other moneys to cover short term expenses or stock price purchases/payouts. The fee between banks typically is 1.75 to 2.0-percent. Over the past summer that gentlemanly rate between banks has risen to 10%. The main reason being money is in short supply. Short supply generally means loans by banks are at an all-time high.
Monday of this week, the Federal Reserve (Fed) jumped in and opened their discount borrowing window and offered banks money in the 1.75 to 2.0-percent rate. To put that into dollars, the Fed made available $55B of newly printed money Monday night of last week to loan out (Fed Repo). That money was exhausted in no time. The Fed increased the loan amount for Tuesday night to $75B and again the money was exhausted quickly. They did this for Wednesday, Thursday, and yes Friday too. A 2019, $350B version of TARP was loaned out without Congressional approval last week. Rumor has it that $2.2T has been set aside by the Fed to loan out going forward. Just for reference the 2019 Federal budget was $4.74T.
Reuters – The exact cause of the squeeze is a matter of some debate, but most market participants agree that two coincidental events on Monday were at least partly to blame. First, corporations had to withdraw funds from money market accounts to pay for quarterly tax bills, and on the same day the banks and investors who bought the $78 billion of U.S. Treasury notes and bonds sold by Uncle Sam last week had to settle up.
Now let’s look at the US Stock Market and why in part it is going through the roof. Many of us do not care why the market is doing well as our 401K’s are looking sweet. But what is causing it? In large part European investing houses are putting customers money into the US market because their markets are flat, and many European central banks are offering zero interest rates (Negative Interest Rates). The European central banks are doing this because if the economy goes down the toilet having 95% of today’s assets is better than having let’s say 50% of tomorrows assets.
Let’s look at US Treasury bonds now. If you buy some of the government’s debt the US Treasury is paying an interest of 1.88% for one year. Below are rates as offered Friday, from 6-months out to 30-years.
Compare the one-year rate to the 10-year rate. It is in essence flat so we are experiencing a Flat Yield Rate which is typically the harbinger of a recession.
With the tin foil hat firmly atop my balding dome, will a Democrat Socialist presidential candidate de jour win over Trump if we find ourselves in a recession as we approach the November 2020 election? If a Democrat Socialist won the presidential brass ring, I suspect the House would remain Democrat, and the Senate would flip to the Democrat side too. If the above did happen I hypothesize that America would become Socialist and Capitalism would be forced to ride in the back of the bus not unlike 1932-39 with the then new President Roosevelt in the White House. Remember what old Ben Franklin said, When the people find that they can vote themselves money, that will herald the end of the republic.
Add to the above horror story a natural or manmade catastrophe e.g. Hurricane, Tornado, Dust Bowl, Floods, an attack on our electrical grid et cetera, how far off would we be from bullets being traded in the streets I wonder.
If you too are concerned with the metrics I point out and others I have yet to address, may I suggest and for legal reasons they are only suggestions – You tackle the list below;
- If you have your money in a large corporate bank, move it to a local small (Under 6-branches) bank or credit union now.
- Have on hand a minimum of one month’s household expenses.
- Pay off and or down, your debts. No credit card debt would be optimal.
- Look at your three B’s on hand – Beans, Band-Aids, and Bullets. By not using credit shore up those areas of concern.
- Turn some saving’s and or investments into tangibles.
- Strategize on what you and or your family will do if the top breadwinner of the household loses their job.
- Get your Communications squared away. If your grid goes down so does your cell phone towers even if they are backed up with generators.
- Get right with God.
- If all of the above is squared away, maybe it is time to buy PM’s (Precious Metals). Focus on silver at first especially pre-1964 coins also known as junk silver. I like the ratio of 3:1 silver to gold. Remember you use silver for small purchases and gold for larger like a horse, cow, tractor, land, et cetera.
In closing, take a minute to do a “search” of these subjects; Fed Repo, Yield Curve, and EU & Negative Interest Rates. Get educated and act accordingly.
Pleasant dreams folks!
Freedom Through Self-Reliance®