EDITOR NOTE: Well, perhaps there is somewhat of a benefit (particularly to stock investors) in the Federal Reserve’s blatant overreach in printing more money to prop up established business at the expense of the smaller ones, picking winners and losers by funding “winners”--some of whom are virtually zombies, buying more “junk” instead of letting the market excrete its own waste, and taking near-full control of the US economy at the expense of capitalism itself. The new post-COVID economy?
The Federal Reserve in July bought up more bonds from blue-chip companies including Microsoft and Coca-Cola, while it added to its positions in junk debt and made its biggest Main Street loan to a ski resort and casino in the Pocono Mountains.
In its latest report to Congress on the myriad lending and liquidity programs implemented during the coronavirus pandemic, the Fed detailed a slew of new bond purchases as well as the first tepid steps in its much-touted loan program geared to small- and medium-sized businesses.
Though the Main Street initiative has the capacity for $600 billion in loans, the first month saw just 13 companies gain approval, with a total value of just over $92 million. That has come amid criticism that the standards are unattractive to both borrowers and lenders, despite the Fed reporting that it formulated the program after feedback from thousands of sources.
The biggest of the loans went to Mount Airy Casino Resort, which borrowed $50 million. The smallest of the loans was for $1.5 million and went to the Pablo Alfaro Group, a broker in residential and commercial properties based in Miami Beach, Florida.
On the bond side, the Fed reported an active month that closely resembled its buying in June. The total vale of holdings under the central bank’s secondary market credit facility rose to just over $12 billion, more than $2.5 billion above the total for the same period a month ago.
On the individual bond side, the central bank continued its buying across a broad spread of sectors on the secondary market.
Among a plethora of other firms, the Fed purchased bonds from Microsoft, Coca-Cola, McDonald’s, Exxon Mobil, Walmart, AT&T and Visa.
The central bank’s biggest position on the exchange-traded front remains the iShares iBoxx US Dollar Investment Grade Corporate Bond fund, with share purchases worth $2.47 billion. The iShares ETF family is owned by asset management giant BlackRock, which is helping the Fed run the credit facilities.
In addition, the Fed stepped up its buying of junk bonds, purchasing $331 million worth of the iShares iBoxx High Yield Corporate Bond ETF, a move up from June’s buying of $274.6 million. It also continued its purchases of bonds that were low-level investment-grade heading into the pandemic and then were downgraded. It bought $34.6 million of the VanEck Vectors Fallen Angel High Yield Bond fund.
The Fed has yet to make any purchases on the primary market.
Just one loan went out through the municipal lending facility, to the state of Illinois for $1.2 billion.
Originally posted on CNBC