Will the Fed buying ETFs help aid in a V-Shape recovery?

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tvubpwcisla
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Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by tvubpwcisla » Mon Mar 23, 2020 8:01 pm

Would like to hear your thoughts?
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UpperNwGuy
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by UpperNwGuy » Mon Mar 23, 2020 8:18 pm

I don't understand the question. I thought the Fed was buying bonds, not ETFs. What am I missing?

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tvubpwcisla
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by tvubpwcisla » Mon Mar 23, 2020 8:23 pm

UpperNwGuy wrote:
Mon Mar 23, 2020 8:18 pm
I don't understand the question. I thought the Fed was buying bonds, not ETFs. What am I missing?
https://www.marketwatch.com/story/the-f ... 2020-03-23
The secret to building wealth is to have a plan, keep expenses low, become an expert in your craft, consistently buy the market, diversify, establish multiple income streams, and always smile.

alex_686
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by alex_686 » Mon Mar 23, 2020 8:23 pm

UpperNwGuy wrote:
Mon Mar 23, 2020 8:18 pm
I don't understand the question. I thought the Fed was buying bonds, not ETFs. What am I missing?
They are buying bonds via bond ETFs.

And no, it won’t. It is fixing the short term liquidity crisis so the economy won’t crash. It won’t have much affect long term. The economy and stock market will do what it will do.
Last edited by alex_686 on Tue Mar 24, 2020 6:20 am, edited 1 time in total.

Dominic
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by Dominic » Mon Mar 23, 2020 8:32 pm

UpperNwGuy wrote:
Mon Mar 23, 2020 8:18 pm
I don't understand the question. I thought the Fed was buying bonds, not ETFs. What am I missing?
As far as I can tell, they were just buying Treasuries, mortgage-backed securities, and money market instruments last week. Today, they dipped their toes into the investment grade bonds. Supposedly, they're buying via ETFs rather than individual issues. This makes sense, since ETFs are more liquid than the underlying assets, and the corporate bond ETFs have been trading at discounts for short while.

I don't see this directly helping the stock market, other than by providing liquidity to financial institutions. It should help bond investors, and it also signals to the markets that the Fed is willing to buy assets it hasn't bought before. If things get worse, it's not impossible that they buy stocks as well (Yellen floated the idea a few years back).

Northern Flicker
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by Northern Flicker » Mon Mar 23, 2020 8:38 pm

Dominic wrote: As far as I can tell, they were just buying Treasuries, mortgage-backed securities, and money market instruments last week. Today, they dipped their toes into the investment grade bonds. Supposedly, they're buying via ETFs rather than individual issues. This makes sense, since ETFs are more liquid than the underlying assets, and the corporate bond ETFs have been trading at discounts for short while.
The ETFs have been less liquid, which is why they are trading at a steep discount. I think the motivations of using the ETFs are:

Fewer and less complex trades
Doesn’t favor particular companies
Buying ETFs at steep discounts provides the most liquidity at least risk for taxpayers
Risk provides no guarantee of return.

Seasonal
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by Seasonal » Mon Mar 23, 2020 8:42 pm

Helping the economy by keeping credit markets functioning is good for stocks, especially compared to the alternatives.

A v-shaped recovery will require a healhcare solution.

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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by watchnerd » Mon Mar 23, 2020 8:49 pm

Also, as far as I can tell, they haven't said they plan to hold these long term.

They seem to just be acting like a market maker since Dodd Frank doesn't let banks do it as much anymore.
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alex_686
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by alex_686 » Tue Mar 24, 2020 6:16 am

Northern Flicker wrote:
Mon Mar 23, 2020 8:38 pm
Dominic wrote: As far as I can tell, they were just buying Treasuries, mortgage-backed securities, and money market instruments last week. Today, they dipped their toes into the investment grade bonds. Supposedly, they're buying via ETFs rather than individual issues. This makes sense, since ETFs are more liquid than the underlying assets, and the corporate bond ETFs have been trading at discounts for short while.
The ETFs have been less liquid, which is why they are trading at a steep discount. I think the motivations of using the ETFs are:

Fewer and less complex trades
Doesn’t favor particular companies
Buying ETFs at steep discounts provides the most liquidity at least risk for taxpayers
Mostly right, except that ETFs are more liquid then the bond market. There are multiple issue going on here, but the NAV's are a accountant's estimate based on market prices. The data quality on prices have been poor and stale. Since ETFs are currently more liquid than the underlying bonds, their market price is probably closer to the truth. Multiple threads on this forum. Here is one.

viewtopic.php?f=10&t=308778&sid=4b1b9e4 ... 8#p5127304

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Phineas J. Whoopee
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by Phineas J. Whoopee » Tue Mar 24, 2020 8:42 pm

There is no reason to believe the Fed will buy shares of ETFs. That the Fed acts to shore up capital markets is a common and incorrect conspiracy theory.

The Fed has two objectives delegated to it by Congress: to maintain maximum employment; and to maintain stable prices. They work in opposition to each other, which forces the Fed to try to find a balance. The Fed does not always succeed.

PJW
Last edited by Phineas J. Whoopee on Tue Mar 24, 2020 8:49 pm, edited 1 time in total.

alex_686
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by alex_686 » Tue Mar 24, 2020 8:45 pm

Phineas J. Whoopee wrote:
Tue Mar 24, 2020 8:42 pm
There is no reason to believe the Fed will buy shares of ETFs.
PJW
Follow the link at the top. They are.

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watchnerd
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by watchnerd » Tue Mar 24, 2020 9:47 pm

Buying ETFs to facilitate liquidity and making money on the spread is different from buying bad assets like in TARP.

Very very different.
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by Corsair » Tue Mar 24, 2020 10:25 pm

watchnerd wrote:
Mon Mar 23, 2020 8:49 pm
Also, as far as I can tell, they haven't said they plan to hold these long term.

They seem to just be acting like a market maker since Dodd Frank doesn't let banks do it as much anymore.
Why wouldn’t they? Look at this chart, 6% in 2008 and up since:
https://twitter.com/biancoresearch/stat ... 06433?s=21

“The Fed's balance sheet is now 21% of GDP. It peaked at 25%. If it doubles, and nominal GDP has a massive contraction, this ratio can shoot to 33% to 40% of GDP in the next several months.” - Jim Bianco

guyinlaw
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by guyinlaw » Tue Mar 24, 2020 11:02 pm

tvubpwcisla wrote:
Mon Mar 23, 2020 8:01 pm
Would like to hear your thoughts?
Would a V shape recovery be possible with employment going above 10%, consumer sentiment plummeting and lots of corporate debt issues?

I don't think so.. this will be long WWW

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watchnerd
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by watchnerd » Tue Mar 24, 2020 11:08 pm

guyinlaw wrote:
Tue Mar 24, 2020 11:02 pm
tvubpwcisla wrote:
Mon Mar 23, 2020 8:01 pm
Would like to hear your thoughts?
Would a V shape recovery be possible with employment going above 10%, consumer sentiment plummeting and lots of corporate debt issues?

I don't think so.. this will be long WWW
+1

The Fed can't create a recovery those parts of the crisis that aren't financial.
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by guyinlaw » Tue Mar 24, 2020 11:19 pm

watchnerd wrote:
Tue Mar 24, 2020 11:08 pm
guyinlaw wrote:
Tue Mar 24, 2020 11:02 pm
tvubpwcisla wrote:
Mon Mar 23, 2020 8:01 pm
Would like to hear your thoughts?
Would a V shape recovery be possible with employment going above 10%, consumer sentiment plummeting and lots of corporate debt issues?

I don't think so.. this will be long WWW
+1

The Fed can't create a recovery those parts of the crisis that aren't financial.
I meant unemployment >10%..

Whole world is in a shutdown..

Korea -- which has only 5,400 active cases and adding < 100 per day, is deciding not to open things yet. Schools are closed beyond April 6th

India -- Shutdown for 21 days.. 1.37 Billion people asked to stay at home..

China -- Even as they open, the export orders from US, Europe and rest of the world have paused....
https://twitter.com/jenniferatntd/statu ... 8431178753

Seasonal
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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by Seasonal » Wed Mar 25, 2020 6:43 am

Phineas J. Whoopee wrote:
Tue Mar 24, 2020 8:42 pm
There is no reason to believe the Fed will buy shares of ETFs. That the Fed acts to shore up capital markets is a common and incorrect conspiracy theory.

The Fed has two objectives delegated to it by Congress: to maintain maximum employment; and to maintain stable prices. They work in opposition to each other, which forces the Fed to try to find a balance. The Fed does not always succeed.

PJW
Those are the mandates. The Fed believes that maintaining liquid and functional credit markets, and generally preventing economic collapse, is necessary to fulfill its mandates.

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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by Northern Flicker » Wed Mar 25, 2020 1:57 pm

alex_686 wrote: Mostly right, except that ETFs are more liquid then the bond market. There are multiple issue going on here, but the NAV's are a accountant's estimate based on market prices. The data quality on prices have been poor and stale. Since ETFs are currently more liquid than the underlying bonds, their market price is probably closer to the truth.
That may be true, but I would point out that when the gaps have narrowed a couple of days later for a Vanguard funds with multiple share classes, they have narrowed to an interval closer to where the mutual fund share price was when the gap was wider.
Risk provides no guarantee of return.

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Re: Will the Fed buying ETFs help aid in a V-Shape recovery?

Post by Phineas J. Whoopee » Wed Mar 25, 2020 6:07 pm

Seasonal wrote:
Wed Mar 25, 2020 6:43 am
Phineas J. Whoopee wrote:
Tue Mar 24, 2020 8:42 pm
There is no reason to believe the Fed will buy shares of ETFs. That the Fed acts to shore up capital markets is a common and incorrect conspiracy theory.

The Fed has two objectives delegated to it by Congress: to maintain maximum employment; and to maintain stable prices. They work in opposition to each other, which forces the Fed to try to find a balance. The Fed does not always succeed.

PJW
Those are the mandates. The Fed believes that maintaining liquid and functional credit markets, and generally preventing economic collapse, is necessary to fulfill its mandates.
Liquid and functional credit markets, yes. Profitable for investors in fixed income and equities, no.

PJW

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