Tim Price on bond investors trying to front-run central bank purchases

As a direct consequence of the central bank manipulation of asset prices, today’s markets give the impression of risklessness, irrespective of price.  Why not buy conspicuously overpriced bonds if you know there is a greater fool out there, in the form of a central banker willing to pay even more for those bonds than you did?  After all, the central bank can print money out of thin air to make those purchases.  This must end badly: major financial accidents are typically born out of a misconception of risks, rather than returns.

~ Tim Price, "Regime Change is Coming," Price Value Partners, April 1, 2023

Michael Pettis on Evergrande and "too big to fail" in China

Borrowing for large Chinese companies like Evergrande has never been a problem in the past.  It was widely believed that they would ultimately always honor their obligations.  It was expected that local governments and regulators would always intervene at the last minute to restructure liabilities and, if necessary, recapitalize the borrower. 

As a result, there was very little differentiation in lending in the credit markets.  Banks, insurance groups and fund companies fought over issuing loans to large, systemically important borrowers. 

Nobody worried about possible losses.  In other words, the entire credit market was marked by moral hazard. 

~ Michael Pettis, "The significance of the Evergrande crisis for China," The Market/NZZ, September 21, 2021

Barron's on Jerome Powell, the Great Stabilizer

[T]he Washington leader... has done more than any other to stabilize the U.S. economy...

Faced with a pandemic that has forced Americans to stay in their homes and shut down their businesses, the Fed, under Powell’s leadership, acted swiftly to prevent a major financial catastrophe from unfolding. The central bank cut interest rates to near zero, unleashed enormous bond-buying programs, deployed new lending facilities, and went far beyond what any Fed had done in the past...

[M]onetary policy is set to remain a steadfast support for the U.S. economy, and a backstop that takes the worst-case financial-market outcomes off the table. At the center of that will be Powell, whose term runs until February 2022.

~ Barron's, "Fed Chief Steers a Steady Course in a Turbulent Time," by Nicholas Jasinski, October 31, 2020

"No matter what happens
on Election Day, count
on Fed Chariman Jerome
Powell as the stabilizing
force for the economy
and the markets."

Chamath Palihapitiya: recession "next to impossible" (2019)

I don't see a world in which we have any form of meaningful contraction nor any form of meaningful expansion. We have completely taken away the toolkit of how normal economies should work when we started with QE. I mean, the odds that there's a recession anymore in any Western country of the world is almost next to impossible now, save a complete financial externality that we can't forecast.

~ Chamath Palihapitiya, CEO of Social Capital and minority stakeholder of the NBA's Golden State Warriors, as appeared on CNBC's Fast Money Halftime Report, April 30, 2019

Paul Richards: "Trust the Fed"

Yeah, the markets did not get off to the kind of start we wanted.  But trust the Fed.  They would not be tapering if the economy was weakening. They know how to run the economy.  When we get to Fridays employment report, things will look a lot better.

~ Paul Richards, UBS Managing Director, as appeared on CNBC, February 3, 2014

(This quote is a paraphrase.)

David Sowerby: 2013 "will be a productive year for stock investors"

Last year we had two 10% corrections and we're up 16% to 20% in stocks.  Get ready for the same this year, but from point to point it will be a productive year for stock investors again because of all this monetary stimulation and stock valuation.

David Sowerby, CNBC, February 5, 2013

JPMorgan economist says Fed can boost confidence, not the economy

Those steps are all about bolstering confidence. It wouldn’t do tons to alter economic and financial conditions, but the perception that the Fed will act and do something is reassuring.

~ Michael Feroli, chief U.S. economist and former Fed economist, JPMorgan Chase in New York, Bloomberg.com, August 8, 2011

GaveKal MD unwittingly makes the case for avoiding Chinese financial system at all costs

[In a market system, with independent shareholders and more or less alert debt-rating agencies, the Chinese banks wouldn't last "five minutes".]

But because it's a closed system, they can last indefinitely, because it's in no one's interest to pull the trigger on these institutions and force them to do an instant mark-to-market.

This is a perfectly rational way to organize a financial system at China's level of development. Don't take the metrics and standards that are devised for a mature financial system and impose them on China. If you do, you come to the conclusion that it should fall apart tomorrow. But, by the same standard, the system should have collapsed 25 years ago.

~ Arthur Kroeber, managing director, GaveKal-Dragonomics, interview, Grant's Interest Rate Observer, May 20, 2011

David Tepper on comparisons between Japan and the US

No, we're not Japan.

We're not Japan because, what's your mortgage rate? Five and change. So, if it's 4%, you save money, right? Do you spend some of that money you will save? Damn, that will work!

Okay, the Fed can buy mortgages. They can make it work. We're not at zero, are we, on mortgages? No. So, we can go to 1%, 1.5%, 2%-- on that way, you're buying stuff.

~ David Tepper, president and founder, Appaloosa Management, CNBC's Squawk Box, September 24th, 2010

David Tepper says don't fight the Fed

[The Fed] said they want economic growth, and not only do we not care if there's inflation, but we want a little more inflation. Have they ever said that before? No. They said they want the market up, so what am I going to say, "No, Fed, I disagree with you, I don't want to be long"?

Right now, what's going to happen? Two things are happening, it's that easy sometimes. Either the economy is going to get better by itself in the next three months, and what assets are going to do well? Stocks will do well, bonds won't do well, gold won't do so well. Or, the economy is not going to pick up in the next three months and the Fed's going to come in with QE, right? Then, what's going to do well?

Everything... in the near term.

So, let's see, what I got is two different situations. One, the economy gets better by itself. Stocks are better, bonds are worse, gold is worse, if you want to talk about those three assets. The other situation is, the Fed comes in with money. Now, up until the point the Fed comes in with money the stock market can go down a little bit-- but not that much! Because I got a put. Ya gotta love a put, especially when the government is issuing it.

So, I can't go down that much. It doesn't mean I go up until that point, but after that it means I go up, so what do I do? I gotta buy! I can't take the chance of not being a little bit longer now.

It's that easy. That's how easy it is.

~ David Tepper, president and founder, Appaloosa Management, CNBC's Squawk Box, September 24th, 2010

David Tepper on how easy it is to invest alongside government bailouts

It was easy. It was real easy. The government told you what they were gonna do. Basically, the government put out a white paper, I can't remember the exact date, in March, a Treasury paper. You can't put out a paper and say you're going to buy securities, and not buy them. Even the government has to be subject to the laws.

They told me they were going to buy Bank of America at a six-handle, they told me they were going to buy other stocks. Nobody believed them and the market kept going down-- they actually did. So what we did is we didn't just buy stocks, we bought bonds and preferred at twelve cents on the dollar, fifteen cents on the dollar, twenty cents on the dollar. Then, you know, stuff went up.

You have to believe the government's not above the law. Now, at that point and time, people were confused, they thought that... I don't know what they thought. They thought that this was, habeas corpus in the Civil War? It wasn't that bad.

You can't put things in writing and say you're going to buy at a price, and then not do it. That's securities law fraud.

~ David Tepper, president and founder, Appaloosa Management, CNBC's Squawk Box, September 24th, 2010

Fred Hickey: "I don't regard the selloff as a great short selling opportunity"

Virtually all bear markets in this country's modern history have been preceded by Fed interest rate tightenings. [...]

Today, there's not even a hint of Federal Reserve rate hikes nor of significant liquidity draining. [...]

This kind of support from the Fed makes it unlikely that the current correction will turn into any kind of sustained bear market for stocks. The Fed would likely reinstate its QE [Quantitative Easing] program if stocks declined too sharply. Bernanke told Congress last month that there was nothing that says the Fed couldn't buy more mortgage-backed securities if conditions warranted. Therefore, even though I'm expecting this downturn to continue for a while, I don't regard the selloff as a great short selling opportunity, unlike what I had foreseen in the late 1990s-2000 and again in 2007 when interest rates were hiked.

~ Fred Hickey, The High-Tech Strategist, May 5, 2010

Joshua Williamson on the Fed move to pump another $30 billion into global markets

This is another weapon in the arsenal of governments aimed at boosting confidence. Hopefully it will help market sentiment, stop banks from hoarding cash and start greasing the wheels of the financial economy.

~ Joshua Williamson, senior strategist at TD Securities, "U.S. stock futures higher on Buffett's Goldman buy," MarketWatch, September 24, 2008

(This morning the central bank added $30 billion to the flood of dollars it is pumping into global markets. The new funds came in the form of new currency-swap agreements with central banks in Australia, Norway, Sweden and Denmark. The agreements allow those banks to trade their currencies for dollars.)

Abby Cohen: Fed's got our back (2001)

I am assuming this will be a very short-lived slowdown because policy makers have significant tools at their disposal. The Federal Reserve in adjusting rates last week stood up and said, ‘We are watching and will do more if necessary.’ That serves as a confidence builder.

~ Abby Joseph Cohen, Goldman Sachs, January 15, 2001

Abby Cohen: S&P 500 will rise 14% by end of 2008

[The Standard & Poor's 500 Index will rise 14 percent by the end of next year to 1,675] as recession fears fade.

U.S. stocks will offer moderate gains and will dramatically outperform bonds over a 12-month horizon. Recession will likely be avoided, due to strength in exports and capital spending by corporations and governments, and thanks to a vigilant and flexible Federal Reserve.

~ Abby Joseph Cohen, Chief Investment Strategist, Goldman Sachs, "Goldman's Cohen Sees S&P 500 Rising 14% by 2008's End," Bloomberg.com, December 4, 2007