Gold Macro

Before we start with some commentary around the IMF downgrade to Australian GDP last week, let’s deal with something equally as meaningful to investors.

In our last note, we tried to explain the US fed’s solution to a frozen short term lending market, to send fresh money, out of thin air, into said market. And 5 weeks later, they’re still doing it! Hard to get an accurate number on the amount, north of USD250 billion, so far.

But do not call it QE, The Fed said.

Then last week, The said Fed decides to “expand its balance sheet” to buy Govt. debt to the tune of (for now) USD60 Billion per month, out of thin air.

But don’t call this QE, or debt monetization or any other nonsense, the Fed said. “It’s not that”.

Got that? Whatever you think you’ve seen before as far as “temporary” emergency stimulus goes, it’s not that. Definitely not that.

It’s now LSAPP, Large Scale Asset Purchase Program. Got anything you want to sell?

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Well, for those waiting for a “tell” of stress in monetary plumbing issues, there is nothing like a blink by major banks. Like “primary dealers” not wanting to fund each other’s short term needs. 

This actually happened last week and continues through this week, so far. It’s a difficult story to simplify so please excuse us for having a go.

The shortest term lending rates among this privileged group is an overnight rate, usually it’s about pledging some quality “collateral” to keep order, allowing all to efficiently settle their current short term commitments. 

The duration is so short and the collateral of such “high quality” (High Quality Paper!) that the rate, generally, remains in line with the US Fed funds rate, about 2%ish right now.

Last week, these major “players” decided they weren’t going to play, or lend each other anything, at 3%, 4% and at one stage up to 10%, until The New York Fed came in and saved the day, again, then the next day and so on. The first day alone was USD 52BILLION!!!! More than a week ago. 

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Last weekend, in Europe, current Fed Chair Jerome Powell, in a reminder of 2008 (back when “the bank” Bernanke told us that subprime was “contained”) referred to current chances of global recession as “contained”.

Contained to where? Planet Earth?? This almost guarantees global a global recession is already under way. 

What a menagerie of over-educated monkeys these western central bankers will prove to be. Was there another choice to kicking the can down the road to avoid any stain on one’s own precious “legacy”? Of course, nobody wants to own it now.

One thing is for sure – if you add the actions of the central bankers of the last 10 years to the current slowing growth “everywhere”, plus indebtedness beyond anything ever seen before, to trillions of unfunded pensions, the chances of an enormous correction return to mean of some sort in the near future rises!

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