Disrupt fiscal currency, support U.S. real estate, suppress small and medium-sized enterprises
They are still trying their best to mess up the fiscal and monetary policies of the United States and increase the hostility between the two sides.
Both sides want to stimulate, but both want to make the stimulus policy their own credit.
On October 6, as soon as Trump was discharged from the hospital, he announced that Trump had announced the cancellation of negotiations with the Democrats. On the same day, Federal Reserve Chairman Je Powell called on the US government to take more economic stimulus measures to support the most vulnerable groups in the United States. “Too little” financial support may lead to “unnecessary hardship” in all parts of the US economy.
The relationship between the Trump administration and the Fed is not harmonious.
At a critical moment, the Trump administration hit the Fed hard again, like “withdrawing the survival boat from the Titanic.”
On November 19, U.S. Treasury Secretary Steve Mnuchin announced that the Federal Reserve was required to repay the US$455 billion that had not been used in the March pandemic rescue plan.
Other convenient tools supported by the Ministry of Finance will not be renewed after the authorization expires on December 31.
Primary and secondary market corporate credit facilities, municipal liquidity financing for state and local governments, direct loan programs for small and medium-sized enterprises, and non-renewable fixed-term asset-backed securities loan mechanisms, corporate short-term commercial paper, money market operations, and salary protection programs (PPP) 90 days extension,
The emergency tools that the Fed immediately stopped using include two tools for purchasing corporate bonds in the primary and secondary markets, Municipal Liquidity Facility, a tool for purchasing municipal bonds of state and local governments, and Term Asset-Backed Loan, a tool for maintaining the liquidity of asset-backed securities Facility; and Main Street Lending Program, a tool to support SME loans.
Stopping these tools will affect the liquidity of US municipal bonds, small and medium-sized enterprises, and consumer credit securities markets.
Used to purchase short-term bills of up to 500 billion US dollars provided by the state and municipalities, and 35 billion US dollars of credit protection provided by the Ministry of Finance.
The picture below is a K line chart of municipal bond ETF. The rise in the price of municipal bond ETF will not have much impact on the market.
Term Asset-Backed Securities Loan Facility (TALF) is directly related to ABS. The Federal Reserve provides loans through TALF in exchange for certain AAA-rated ABSs. These ABSs are derived from newly issued consumer loans and small businesses. Corporate loans.
The lack of SME loan facilities may cause tens of thousands of SMEs to run out of food. Small and medium-sized enterprises have become the biggest losers. Originally, the Main Street Lending Facility could provide them with a minimum of $100,000 in small loans. Now, they can only wait for the Fed and the Treasury Department to reach a new agreement.
According to the United States Small Business Administration (SBA), there were approximately 30.7 million small businesses in the United States in 2019, accounting for approximately 99.9% of the total number of US businesses.
Since the outbreak of the epidemic in the United States, 100,000 small companies have gone bankrupt. In the future, tens of thousands of small and medium-sized enterprises will go bankrupt.
Mnuchin’s actions directly reduced the Treasury Department’s credit guarantee and took away the weapons of the Federal Reserve.
On the surface, the U.S. and global markets are fairly stable and have not fallen sharply, and the U.S. benchmark interest rate has not risen sharply.
But UBS believes that if the Federal Reserve’s emergency plan to support corporate bonds is withdrawn, the US credit market will deteriorate. UBS strategist Matthew Mish raised the year-end risk premium forecast for high-yield bonds by 0.5%.
Mnuchin’s actions were within the scope permitted by law and did not violate the law, and the Fed could not refuse.
The Fed’s future rescue steps were disrupted, expressing disappointment: “The Fed hopes that all the urgent things established during the epidemic will continue to play an important role and provide a backstage for the still tense and weak US economy.”
The U.S. Chamber of Commerce severely criticized Mnuchin, unexpectedly terminating the Fed’s emergency liquidity plan, prematurely and unnecessarily restricting the incoming government, and closing the doors of companies when they needed liquidity the most.
The tools originally claimed by the Federal Reserve were suddenly taken away, and whether to give weapons or when to give them, once again became a bargaining chip in the game.
Next, the Republicans and Democrats will start fierce negotiations on a new round of stimulus policies, so that American companies, consumers and the bottom of the United States firmly believe that they are the real guardians.
We are very familiar with Mnuchin’s gameplay, and it looks like a replica of Trump’s game with other countries.
The deal was done well, but Trump suddenly announced that he would take it away, and even sanction the other party. As a result, Trump has a lot of chips in his hands.
Do other countries still suffer from Trump’s losses?
Gold has a bottom, RMB has no top
The increase in US currency uncertainty is related to China. Gold was supported, the US dollar fell, and the renminbi rose sharply.
On November 19, gold made a short pull-up behavior and then returned to normal, indicating that the market was panicking slightly, and the increase in debt and uncertainty gave gold bottom support.
In 2021, the U.S. dollar will continue to fall and the renminbi will remain high.
The renminbi asset has become one of the most eye-catching assets in 2020, especially after May, the renminbi will not stop without a break, soaring sharply.
Look at how much the RMB exchange rate has risen against the US dollar.
In 2021, RMB assets will still be sweet and delicious.
On November 19, Goldman Sachs issued a research report that the U.S. dollar is overvalued by about 10% and may fall by 6.0% in the next year. The reasons include the Fed’s interest rate cut expectations and the improvement of global macroeconomic prospects.
The U.S. dollar short estimate is coming, and emerging markets, especially the Chinese market, are facing a massive influx of funds.
The short-selling wave of US debt is coming.
On November 18, the U.S. Department of the Treasury released the latest international capital flow data, showing that the scale of U.S. Treasury bonds held by foreign investors fell for the second consecutive month in September, setting a record of the lowest value of US$7.071 trillion in the past three months. There has been 22 months of net selling of US Treasury bonds in the past 26 months, totaling US$1.1 trillion, which is about 5.4% of the total size of US Treasury bonds.
China’s financial regulators are ready.
Recently, Guo Shuqing, Secretary of the Party Committee of the Central Bank and Chairman of the China Banking and Insurance Regulatory Commission, wrote an article in Qiushi, criticizing the U.S.’s unprecedented unlimited quantitative easing policy for consuming the credit of the U.S. dollar, and also causing imported inflation, shrinking foreign currency assets, exchange rates and capital for emerging economies. Multiple impacts such as market shocks.
Sheng Songcheng, the former director of the Department of Investigation and Statistics of the Central Bank, pointed out that China should be careful of the large inflow of short-term speculative funds and implement two-way opening of capital flows to cope with the pressure of capital inflows and prevent the RMB from revaluing too quickly.
In 2021, international funds will continue to flow into the Chinese market.
The rise of the renminbi and the fall of the dollar are not Trump’s first consideration.
As a developer, as a landmine planted for the Democratic government, Trump has to consider untie the real estate market.
The Wall Street Journal disclosed that people familiar with the matter revealed that the Trump administration, with more than two months left, is accelerating the lifting of federal supervision over Fannie Mae and Freddie Mac.
After the subprime mortgage crisis in 2008, the two houses have been under the supervision of the US federal government for 12 years. Mnuchin will carry out complex recapitalization, and ultimately reduce the government’s equity in these companies, opening the door to new private investment.
In this way, American real estate has returned to before 2008.
This is the true purpose of Trump’s fiscal officials, to lower the price of the dollar, increase housing prices, and lower interest rates.
This is why China is unwilling to release its currency and accelerate the internationalization of the RMB exchange rate.
The next few years will be years of market turbulence, and the renminbi and gold will generally rise.