The Fed now says it will purchase securities “in the amounts needed,” and will also expand the scope of those purchases to include agency commercial mortgage-backed securities.

In other words: The Fed has offcially begun unlimited QE.

That is pretty crazy. At this point, not much surprises me.

The Feds see a tsunami of businesses going under on the horizon. This is a terrible indication of the current health of our economy. No amount of bailout money will convince people to leave their homes amidst an outbreak and go back to spending again. Do the hospitals need money now? No, they need PPE and more bed capacity to handle more and more sick patients flooding the system. Entire cities are on lockdown to prevent the hospitals from being overwhelmed.

You want to fix the problem? Convince the public we have enough beds to take care of EVERY sick patient and have face masks and testing kits readily available everywhere. No one will leave their house to work or spend (which are the core elements to reviving this failing economy) without basic protection or assurance they can receive medical treatment without waiting in a line stretching out of the hospital.

Until that happens the Fed is revealing to us how much turmoil we are about to witness with these outlandish bailout programs.

Realistically, you have two options for actually stopping Covid19 worldwide: develop a vaccine, or physically restrain every person in the world inside their home for 30 days while it dies out, with 0 contact outside their home the entire time period. Even if all but a couple people in the world don’t have it it will see remission — it all started with 1 person to begin with.

One of those is not feasible, and the other one is months/years away. All we can do is flatten the curve so hospitals aren’t overwhelmed and give people a fighting chance. This thing will run rampant until a significant portion of the population has gotten it and has some immunity, or a vaccine is released.

People are bad at math and particularly bad at exponential growth. Also they’re bad at understanding that hospitalizations are delayed by 1-1.5 weeks from infection. And also that deaths are delayed by a further 1-2 weeks from hospitalization.

I’ve seen tons of people asking why can’t we just quarantine when we get to 50% utilization or something like that. Without measures in place to limit spread, it doubles every 2-3 days. If you wait for it to be a problem in your area to do something, even with total compliance from the population, you’ve already committed to a problem you can’t handle next week.

Importantly, just because a country has isolated itself and stopped the spread does not mean it is isolated from the economic virus spreading throughout the world. Japan, for instance, has only 1,100 reported cases — quite small compared to its neighbors South Korea and China with 9,000 and 81,000, respectively. Despite that, Japan will likely have to postpone the 2020 Summer Olympics, which will result in billions in lost revenue. 

Additionally, we’re seeing other monetary effects. The 1 and 3 month US Treasury just went negative.

It means that if you purchase a 1 or 3 month Treasury in the secondary market today your yield to maturity will be slightly negative. You will pay more than $100 per $100 of bond.

It DOES NOT mean bank accounts have negative interest. It DOES NOT mean you will lose money on previously purchased bonds (the opposite actually).

Most money market funds, banks and some insurance companies invest in US treasuries. T-bills are short term US debt (<1 year). If the yields on this debt go negative, it becomes possible to pay money to keep money in your brokerage “core” position or your bank. The Fed has previously expressed a desire to avoid negative interest rates and, I hope, will move to correct this.

When the interest rate is negative, that means banks are so pessimistic about short term prospects that they will effectively pay the Fed to take their money (in exchange for T-bills) because there isn’t anywhere else they feel comfortable keeping it right now.

So, it has to be said: this is not going to stop soon, and the effects will be felt for years.

We need to plan and be vigilant for insurmountable changes to our society and economies.