Long Reads Sunday #88
From unlimited QE to corporate socialism
Hello from the Hudson Valley
Lenin said “There are decades where nothing happens; and there are weeks where decades happen.”
These weeks have seen decades. Below are seven themes that shaped the week, from unlimited QE to dying for the Dow.
Happy Long Reads - NLW
Unlimited QE
This is how it started. In an interview on 60 Minutes, Fed president Neel Kashkari said the Fed had ‘infinite’ cash to help the market. Boy, they weren’t joking.
The week kicked off with an announcement that not only would the previous week’s $700B buying program for Treasuries and mortgage-backed securities be extended with an unlimited bank account, but that they would be getting into other (as Travis Kling might have put it) “more exotic forms of QE” including buying corporate bonds.
Out of this craziness was born the beautiful “money printer go brrr” meme. My favorite version is this remix:
Somehow, this was just the tip of the iceberg for how this week would go.
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Shifting the Overton Window on a ‘digital dollar’
While the Fed tried to reassure markets with its promise of infinite cash, legislators could not get it together to come to a fiscal stimulus package - for either main street or Wall Street.
Interestingly, when Nancy Pelosi proposed her deal on Monday it included a digital dollar as a mechanism to distribute the Stimulus to citizens.
Now to be clear, this proposal was basically DOA. As Lawson’s thread points out - it would fundamentally change the nature of the relationship between citizens, commercial banks, and the Fed in a way that no one was really ready to discuss.
Still, one has to think that even the appearance of the ‘digital dollar’ as a legitimate and credible answer to the problem of Stimulus distribution has to have increased the number of politicians thinking about the future of the infrastructure of money.
A Narrative Shift to Dying for the Dow
You could feel the narrative shift at the beginning of the week. All of a sudden, you were seeing the politicizations of shutdowns, and an attempt to create a partisan battle around whether more people were likely to die from the virus itself or from the economic depression the response might cause.
Epsilon Theory were all over it, and showed that the clusters of folks most likely to be pushing the new narrative had some significant overlap with the folks who had been in the “it’s just a flu camp” a few weeks earlier.
It got callous pretty quickly, with some going so far as to basically proclaim that our grandparents would rather die that see us live in depression.
Of course, the idea that health outcomes and economic outcomes are mutually exclusive phenomena that sit on two sides of some invisible poll is utter rubbish. But my goodness, did it get aggressive fast.
Stimulus as Corporate Socialism
When the Stimulus package DID finally come through, the final tab was $2 Trillion. The centerpiece of the main street package was a $1200 one time check. The centerpiece of the Wall Street package was, well….every company getting bailed out exactly as we knew they would.
Frustration ran rampant.
And definitely don’t miss that part where BlackRock was recruited to direct three of the bond buying programs, even though it means likely buying their own funds on behalf of the Fed.
Nassim Nicholas Taleb called a spade a spade. In a post called “Corporate Socialism” he made the point that these bailouts had nothing to do with capitalism, and what’s more, the justification for them owing to Coronavirus being a “black swan” event just didn’t hold up to scrutiny.
Trust’s Last Gasp
The frustrating thing about all of this is none of it had to be. We watched for months as China went into quarantine, did nothing except tiny show measures that were in and of themselves negated by a constant denial that this was anything worse than the flu.
It didn’t have to be this way.
Yet here we are and NO one is coming out looking good. Kosovo already kicked out their Prime Minister over this and he’ll be far from the last political head to roll.
Oh, and just to really rub it in - on the day that jobless claims hit their worst ever - 3.28 million - more people than ever in a single week by a factor of FOUR - the stock market soared back into bull territory.
Surveillance Creep
Of course, the long-term impacts of the real health pandemic of Covid-19 and the entirely botched incompetency made economic crisis of Covid-19 are going to go beyond our bodies or our money.
As part of the Stimulus package, the CDC was earmarked a half billion dollars to develop a health surveillance program. We’ve seen extraordinary tracking of health data in countries around the world and need to be vigilant that this doesn’t simply become the norm here, as well.
FWIW, Balaji was first out the gate on this one too:
Bitcoin Difficulty Adjustment
One last theme. Towards the end of the week, bitcoin had the second largest difficulty adjustment in its life (and the largest since the introduction of ASICs) at nearly 16%. And it just-kept-humming-along.
Good to know that not everything is broken. As QE continues and the halving nears, it will be hard for many to miss just how truly unique it is.
On The Breakdown this week:
Monday | Unlimited QE and Why Markets Can’t Price In COVID19
Tuesday | Cronyism, Zombie Companies and the True Cost of the Corona Crisis, Feat. Morgan Creek's Mark Yusko
Wednesday | How the U.S.' $2 Trillion Stimulus Will Expose the Monetary System’s Flaws
Thursday | How BlackRock Ended Up on Both Sides of the Bailout, Feat. Meltem Demirors
Friday | From Corporate Socialism to Dying for the Dow: 7 Themes That Defined the Week
