The Fed is going to buy ETFs. What does it mean?

[Yo_Mama_Been_Loggin]

Source: Market Watch

The Federal Reserve on Monday announced a fresh round of stimulus designed to calm markets and buffer the hit to the economy from the coronavirus pandemic. Among other steps, the Fed said it would buy exchange-traded funds that track the corporate bond market, a first for the U.S. central bank.

“This will provide much-needed liquidity to the bond market and to ETFs,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA.

Financial markets have been pummeled over the past few weeks. The global oil market has been collapsing just as a virulent pandemic sweeps the world, sapping resources and shutting down economies. Investors across all kinds of markets are racing to “sell everything.”

But the dysfunction may be particularly acute in the market for more highly rated corporate bonds, which aren’t as risky as “high-yield,” or junk-rated, bonds. Investors aren’t used to contemplating such a massive wave of defaults and bankruptcies as the one that might be upon us as companies from cruise ship operators to oil pipeline operators face near zero cash flow.

Read more: https://www.msn.com/en-us/money/markets/the-fed-is-going-to-buy-etfs-what-does-it-mean/ar-BB11B2hh?ocid=DELLDHP

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So another artificial stimulus.

[IronLionZion]

1. For explaining the news

I look to Vox or Christine Romans on CNN Business. They don't have it yet, but they'll eventually have videos explaining what it means.

[3Hotdogs]

2. I think what it means ..... These "securities" are shit and the pros know they're shit.

And they will become shittier when no one has money to buy the shit that's supposed to be manufactured and sold, the proceeds from which were supposed to pay the bond holders.

So the Fed is now guaranteeing to buy shit.

There was a D.U. post a couple'a days ago. It said there are some 43,000 publicly traded companies. 17% of those are making only enough money to pay their bond debts. That was two months ago.

Today?

[I_UndergroundPanther]

3. Time to get rid of

The profit imperative.

[elleng]

4. 'An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks.

An ETF holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occasionally occur.'

Exchange-traded funds (ETFs) have become tremendously popular because they allow investors to quickly own a diversified set of securities, such as stocks, at a low cost. They also allow investors to get very specific exposure to areas of the market, such as countries, industries and asset classes.

[yaesu]

5. ETF's are baskets of stocks so the Fed is going into more debt by buying stocks to prop up the

big casino.

[LaurenOlimina]

8. Bingo

[mathematic]

9. The very first paragraph says these are bond ETFs n/t

[Yo_Mama_Been_Loggin]

6. 4 & 5 I Know what ETFs are.

I own a few. I just don't believe it's the Fed's job to create an artificial support.

[Happy Hoosier]

18. I think that IS one of the roles of the FED.

Stabilizing markets is in their portfolio.... insofar as they have the tools to do it. My concern is when that support is unwarranted. Junk assets should be allowed to whither.

[rickford66]

7. Will they buy my car loan ?

[lastlib]

11. They may already have (indirectly)

Your lender probably securitized the loan almost as soon as you signed the paper. As a result, it already exists as a bond in someone's portfolio, and some ETF very likely snagged a slice of that bond in their portfolio, which the Fed will now (or in the near future) hold.

[rickford66]

12. I'm a derivative ???

Didn't they end up being worthless ?

[IronLionZion]

14. Not necessarily

Derivative just means a security that derives it's value from it's underlying securities. So ETFs of all types are derivatives. Even many mortgage backed securities are still good investments for income as people continue to pay their mortgage. They are arguably safer than stocks if done right.

The problematic derivatives 12 years ago during the Bush years were made up of subprime mortgages packaged up in a way to deliberately hide their worthlessness and sold to unsuspecting retirement funds who didn't know any better.

[rickford66]

15. So I'm not going to be bailed out ?

[IronLionZion]

16. I don't know. Ask your lender

For my mortgage, I know who bought my loan. Could be the same with your car loan.

[paleotn]

17. Ha!

We're awash in a sea of derivatives. There's more value value (value?) tied up in derivatives than the entire global economy several fold.

[roamer65]

10. Unlimited QE.

That’s means most US government debt will be monetized, like Japan.

[bucolic_frolic]

13. That 'splains it

The downdraft in ETF that are not bond funds, but act like them, yield like them, and are regarded by investors as almost the same. There are stock funds write index or stock covered calls to augment income. As well as ETF's that invest primarily in mortgages, commercial or residential or both. And money market funds, which are not bond investments, but hold short term loans, commercial paper, corporate notes, sometimes even some near GMNA instruments.

I guess they're telling us most of those funds will not be bought by the Fed since they are not bonds. Hence the non-money market hybrids are being driven down. There was an article on Yahoo from Zacks on dividends to buy, early March article I think, picked Macy's, Pfizer, REIT NRZ, and one other that I can't recall. All three are down sharply, not so much Pfizer though it is down below 30. These were #1 rated by Zacks. NRZ dropped from about 18 to around 5. Macy's competitor Kohl's has shuttered for 2 weeks, haven't heard if Macy's followed suit.

It's really just the same thing as 1929, 1973-75, 1987, 2001, 2008 ... the economy is built on debt and the Fed's remedy is to print and reflate the pregnant hippo. With so many debt instruments, and so massive a problem, they must be really worried about a cascading liquidation.

[Pantagruel]

19. Big picture

As we go farther into debt as a nation you might want to have a little gold buried in the backyard. JMHO, helps you sleep at night.