Lack of Liquidity Melt Up
No Mans Land
When we saw President Trump leave the presser to make his way over to St. John’s Church we couldn’t help but notice the disgraceful graffiti that adorned the white house exterior walls.
This is the kind of sight that we have been accustomed to seeing after decades of riding the Chicago Metra as we passed through the West Side of Chicago on our way to Union Station. Never did we think that we would see in our lifetimes this site on the walls of our very White House. Nevertheless this is where our world is right now and after months of economic destruction and fear mongering from the invisible enemy (virus) we now have all of this to contend with.
With all this division, I have yet to hear one single protester with an optimal outcome to all this protest and violence. I hear a lot of #BLM but in reality what is the ultimate goal here? Logic and normal distribution allows for ample data to determine that there will always be a few bad apples in the bunch. Do we just remove the entire structure, the entire social contract because everyone today has a phone and has an opinion? We hear this #BLM and yet these are the same folks that clamor for #Abortion and #FreeChoice. Somehow those concepts should be polar opposites, yet here we are in this insane time where logic seems to be completely tossed out and our we to believe that these protests have a clear cut solution to a problem that has existed since the beginning of time? Are we that arrogant of a species to think we can control others, yet be so illogical that purpose and duty fall well short of actual substance and solution.
With all this in mind we can’t help but think that its not racial divide that is the main issue, but rather a clear cut and continuing widening of income disparity. Is it not economics that seems to be at the very core of this underlying problem?
Which person is more dangerous, the one sitting on his throne with guards to protect him, or the pack with nothing to lose? With that we put together a chart displaying the Gini Coefficient and the Lorenz Curve used as a statistical tool to measure income disparity. The United States has by far the largest income disparity of the G7 countries. In fact we would bet that its much higher and subject to a more Pareto Distribution which we have outlined in this following graphic:
The fact of the matter is when you have central banks printing prosperity for decades allowing the ultra-wealthy to accumulate more and more of the total percentage of assets, then why wouldn’t a civil society expect revolt eventually?
With a massive 44% rise in the top 5% earners share of total income over the last 50 years let’s just say, we’re kinda surprised the uprisings haven’t been more constant.
We hope you understand that our point is very clear, that QE, ZIRP and all the artificial central bank debt stimulus that is used only enriches a very select few. It allows for corporations to sacrifice organic growth through savings and profit, for debt driven financial gimmickry.
In fact the equity markets themselves exhibit this rational and expected hoarding mentality, in fact why bother with diversification and an index fund when you can just buy the five most valuables:
None of this is a surprise to all our long time readers and we know that US equity markets continue their ascent on the heels of this continued liquidity and what seems to be FOMO out of new found retail bettors. Traditional worries like unemployment, earnings per share, GDP, need not apply here, in fact we have been critical of the Atlanta Fed prior and we would like to finally congratulate them for updating their model, which is now fantastically more dynamic and realistic:
They are predicting a -52.8% Q2 GDP print. I wonder what economists in the 1950’s would have said if we told them to price the return of the SP500 in a quarter with GDP falling 50%. Well I guess we will never know, but what we do know is QE and constant liquidity alleviate and negate these nominal numbers in the short run.
We have read lately that the FED is pulling back liquidity and yes they aren’t running at $300 Bln a month, but they have not taken their foot off the pedal. Magnelibra has noticed a nice little uptick in o/n Repo which hit $57.4 Bln the highest level in two and a half months:
So just to show you the liquidity today:
$35.95 Bln for the SLF (Securities Lending Facilities)
$57.35 Bln for o/n Repo
$7.54 Bln in UST and MBS Quantitative Easing (Buying Outright)
Add it all up today and you get, exactly $100.84 Bln in liquidity and this doesn’t include:
Central bank swap lines
Money Market Mutual Fund Liquidity Facility
Paycheck Protection Program Liquidity Facility
Other credit extensions
Commercial Paper Funding Facility II LLC
Corporate Credit Facilities LLC
Net portfolio holdings of Municipal Liquidity
So, its no wonder the Nasdaq continues unabated up 10% YTD because why would any RV Fund, any Pension Fund, any other Sovereign Wealth Fund (SWF) with a zero WACC (Weighted Avg. Cost of Capital) not buy equities? How can you lose?
It’s rigged, plain and simple and while scenes like this occur day in and day out now and right in our very own backyard, on what used to be the beautiful Magnificent Mile:
The real looting is going on, has been going on and continues unabated just a bit further down the road at a highly guarded HFund located on South Dearborn and a bit further west at the corner of Jackson and La Salle. While these peeps seek any hoodie, shirt, jumpsuit they can, maybe even a few Air Jordan 1s, these looters got nothing on the guys tossing around the real 0s and 1s adding and subtracting them with a click of a key stroke and laughing all the way to the fiat bank.
So with that we will leave you with a little quote we posted on our Twitter feed today:
In times of great darkness and tyranny, it only takes one light to illuminate the masses, wake them from their slumber and remove any fear from their eyes. The shadow of darkness gives way to full illumination and it is within that beacon that the road of courage is lit. That beacon resides in all of us, we only need to look in the mirror and then make it happen.
-Magnelibra Econemotions
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