FRED:WALCL
Balance Sheet: Assets: Total Assets: Total Assets (Less Eliminations from Consolidation): Wednesday Level
The FED's monetary policy is a lot like that scene in the Wizard of Oz where they think they are communicating with a great and supremely powerful wizard, but Dorothy's dog incidentally pulls back the curtain while sniffing his leg. To the disdain of Dorothy, Tin and Straw man, it's just some goofy looking guy pulling levers and talking through a loudspeaker while pressing buttons to release fire and smoke. Dorothy proclaims "You are a very bad man!", and the wizard says "No, I'm just a very bad wizard."
Look it up if you haven't seen it. Highly recommended!
This is exactly what's happening to the FED. Lots of fire, smoke, ego stroking going on among the board members who think they are all powerful, supreme beings. Oh and don't forget about the insider trading and general theft of what is supposed to be the public's money supply. In GOD we trust? More like, In SMOKE we trust. Eventually, the curtain will be revealed and the irrational belief of the wizard will be no more.
If you look at ONLY junk bonds (orange), which is what this idea is about, as opposed to other facets which the FED is able to "bail out" the economy, you can see that the market was beginning to signal in 2008 that investors should avoid risk. Yields were going up, bond prices were declining. An economy with such conditions where people save and preserve wealth is blasphemous behavior in the church of the FED and WILL NOT BE TOLERATED. Bonds were quickly bailed out over the next few years while rates were suppressed and the entire market was coerced into the FED's vision.
If you adjust the junk bond index in real terms and simply divide by the money supply (teal line), you can see that with the 2020 bailout, the current purchasing power of bonds has been eroded to the 2008 level, right at the point where people were beginning to save money. Other things have been bailed out as well via the money supply this time around, so we're certainly looking at a skewed metric here. But in junk bond terms, It looks like we would need even more stimulus to stop a deflationary spiral beyond what was seen in 2008-2010 if bond investors are looking at real M2 adjusted terms. The money supply ALWAYS speaks the truth, historically speaking.
Now, contrast this with the current outlook of the FED where they are soon going to be selling "assets" off their balance sheet at a maximum of about 90 billion per month. How are WE, the general public, supposed to believe that a deflationary spiral is avoidable if real bond valuations are already at a level where a bailout was "necessary" to these "wizards" in 2008, while at the same time, they haven't even begun offloading these "assets" which they have recently accumulated, which someone is suddenly supposed to want to buy at a record pace not seen before??
Maybe they will finally raise rates and will buy all junk bonds? I mean who else is buying junk bonds, seriously? If something has to be labelled as "high yield", we should probably be skeptical beyond the point of being able to be persuaded UNTIL the market speaks otherwise. But at the same time, they cannot raise rates very far, at least not to the point which is necessary or was necessary in 1980, for example.
Just something to think about.
In my opinion, there is NO WAY the M2 can ever be contracted, at least not by the amount the FED wants. You pretty much need exponential expansion forever. And at this point, why would anyone believe them? In 2018 they released a projection that their balance sheet would be down to 2T by 2022. Their credibility and foresight is awful. A randomized monte carlo simulation was more accurate than their predictions, so why should we believe in a delirious vision? As far as I'm concerned, until the FED lets their 7T bag of crap rot, we've got a communist monetary policy where the government owns a stake of everything. Just think of how many businesses are backed directly or indirectly by mortgage backed securities and junk bonds, which the FED has purchased using the wealth of the public. I couldn't think of a more pure definition of communism. Those "assets" were paid for with stolen wealth and these actions are a repellent to any free market economy or dynamics. In a free market, bankruptcy is allowed and malinvestment is left to crash and burn and is NOT ABLE to bring the rest of the economy down with it. We don't have that.
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How I got the values in the chart:
Pay no attention to the actual values in the chart other than M2. The other values are purely to make a side by side comparison that looks decent on a log scale chart.
520W(10 year) MA of M2 = 4845136
520W(10 year) MA of HYG = 87.68
M2 is in millions, HYG is not, but we can ignore this because we are adjusting for relative averages.
4845136 / 87.68 = 55259
Now we simply chart HYG*55259, and now HYG in 10 YR terms is charted relative to the 10 YR MA of the M2.
In order to chart HYG/WM2NS, I simply stuck a multiplier at the front, and added zeroes until it looked good on the chart.
-----------------------------------------------------------------------------------
Thank you for reading! I really do appreciate your time and I hope my perspective was somehow useful to you. Don't forget to hedge your bets! :)
Look it up if you haven't seen it. Highly recommended!
This is exactly what's happening to the FED. Lots of fire, smoke, ego stroking going on among the board members who think they are all powerful, supreme beings. Oh and don't forget about the insider trading and general theft of what is supposed to be the public's money supply. In GOD we trust? More like, In SMOKE we trust. Eventually, the curtain will be revealed and the irrational belief of the wizard will be no more.
If you look at ONLY junk bonds (orange), which is what this idea is about, as opposed to other facets which the FED is able to "bail out" the economy, you can see that the market was beginning to signal in 2008 that investors should avoid risk. Yields were going up, bond prices were declining. An economy with such conditions where people save and preserve wealth is blasphemous behavior in the church of the FED and WILL NOT BE TOLERATED. Bonds were quickly bailed out over the next few years while rates were suppressed and the entire market was coerced into the FED's vision.
If you adjust the junk bond index in real terms and simply divide by the money supply (teal line), you can see that with the 2020 bailout, the current purchasing power of bonds has been eroded to the 2008 level, right at the point where people were beginning to save money. Other things have been bailed out as well via the money supply this time around, so we're certainly looking at a skewed metric here. But in junk bond terms, It looks like we would need even more stimulus to stop a deflationary spiral beyond what was seen in 2008-2010 if bond investors are looking at real M2 adjusted terms. The money supply ALWAYS speaks the truth, historically speaking.
Now, contrast this with the current outlook of the FED where they are soon going to be selling "assets" off their balance sheet at a maximum of about 90 billion per month. How are WE, the general public, supposed to believe that a deflationary spiral is avoidable if real bond valuations are already at a level where a bailout was "necessary" to these "wizards" in 2008, while at the same time, they haven't even begun offloading these "assets" which they have recently accumulated, which someone is suddenly supposed to want to buy at a record pace not seen before??
Maybe they will finally raise rates and will buy all junk bonds? I mean who else is buying junk bonds, seriously? If something has to be labelled as "high yield", we should probably be skeptical beyond the point of being able to be persuaded UNTIL the market speaks otherwise. But at the same time, they cannot raise rates very far, at least not to the point which is necessary or was necessary in 1980, for example.
Just something to think about.
In my opinion, there is NO WAY the M2 can ever be contracted, at least not by the amount the FED wants. You pretty much need exponential expansion forever. And at this point, why would anyone believe them? In 2018 they released a projection that their balance sheet would be down to 2T by 2022. Their credibility and foresight is awful. A randomized monte carlo simulation was more accurate than their predictions, so why should we believe in a delirious vision? As far as I'm concerned, until the FED lets their 7T bag of crap rot, we've got a communist monetary policy where the government owns a stake of everything. Just think of how many businesses are backed directly or indirectly by mortgage backed securities and junk bonds, which the FED has purchased using the wealth of the public. I couldn't think of a more pure definition of communism. Those "assets" were paid for with stolen wealth and these actions are a repellent to any free market economy or dynamics. In a free market, bankruptcy is allowed and malinvestment is left to crash and burn and is NOT ABLE to bring the rest of the economy down with it. We don't have that.
-----------------------------------------------------------------------------------
How I got the values in the chart:
Pay no attention to the actual values in the chart other than M2. The other values are purely to make a side by side comparison that looks decent on a log scale chart.
520W(10 year) MA of M2 = 4845136
520W(10 year) MA of HYG = 87.68
M2 is in millions, HYG is not, but we can ignore this because we are adjusting for relative averages.
4845136 / 87.68 = 55259
Now we simply chart HYG*55259, and now HYG in 10 YR terms is charted relative to the 10 YR MA of the M2.
In order to chart HYG/WM2NS, I simply stuck a multiplier at the front, and added zeroes until it looked good on the chart.
-----------------------------------------------------------------------------------
Thank you for reading! I really do appreciate your time and I hope my perspective was somehow useful to you. Don't forget to hedge your bets! :)
Comment:
I submitted a bug report. Maybe the chart will change in the future? Spoooooooooky
Comment:
Even though the chart plotted above has incorrect trajectories of the orange and teal symbols, my overall commentary is still valid here as the chart above makes bonds look better than they actually are. The sideways teal trend is actually a downtrend and appears that it's about to break into an even deeper sloping channel, which raises a few more questions:
Comment:
At this point you are probably more confused than when you got here. Sometimes we trust charts without questioning whether they are right. I just happened to notice an hour after. But hopefully you still got something out of this rocky ride and I thank you for reading :D
I also accidentally labeled the green WALCL line in the chart as M2 (whoops). Sorry about that. How dare I confuse the two, right? I mean, WALCL is practically the new M2, the FED's own M2, now including 30% of mortgages via mortgage backed securities. How dare I, right? :D
I also accidentally labeled the green WALCL line in the chart as M2 (whoops). Sorry about that. How dare I confuse the two, right? I mean, WALCL is practically the new M2, the FED's own M2, now including 30% of mortgages via mortgage backed securities. How dare I, right? :D
Look at the HYG/55259 symbol (orange line above) plotted by itself:
It's on a totally different trajectory for some reason
Now look at the 10000000000*AMEX:HYG/FRED:WM2NS symbol (teal line) above plotted by itself:
?? doesn't make sense