Rather than the short quote you read in most stories which is; " the risk for reward for equities is maybe as bad as I’ve seen it in my career here. " You need more content to understand why he thinks that given the unprecedented Fed stimulus. Here is his actual quote:
The consensus out there seems to be, “don’t worry, the Fed has your back.” …There’s only one problem with that is our analysis says it’s not true… I stated earlier that the Fed has increased their balance sheet from four trillion to eight trillion. While they’ve done that, the Treasury Department, I’d say the budget deficit estimate for this year has gone from maybe a trillion a year ago to three-and-a-half trillion… So in March and April alone, the Fed net of Treasury issuance, to pay for the new spending, created a trillion in QE more than Treasury issuance. So it’s the biggest liquidity injection relative to history I’ve ever seen… The problem is as you look forward, because the Treasury deficits are not only still gonna be there, they’re just rolling out aggressively now the financing of them, the Fed front ran this with their actions of a month or two ago and so what the Fed bought was a trillion more than treasury issued. What’s going to happen now is Treasury issuance has caught up with the Fed and if they stick to the schedule they’ve outlined the net difference between those two actually goes to zero in May and net borrowing by Treasury relative to Fed purchases in June very minor, pretty much flat through September. And then liquidity shrinks as far as the eye can see as the Treasury borrowing crowds out not only the private economy but even overwhelms Fed purchases… That leads me to believe… the risk for reward for equities is maybe as bad as I’ve seen it in my career here.
Submitted May 27, 2020 at 09:45PM by Admirable_Nothing https://ift.tt/3dam59y
