No Federal Reserve official is going to balk at the opportunity to print and spend money, expanding upon the Fed’s debt-financed portfolio. Federal Reserve Bank of Boston President Eric Rosengren is chomping at the bit to execute the Fed’s Main Street Lending Program.
The Credit Markets Are Functioning Properly
The Fed’s emergency stimulus was supposed to be aimed at maintaining functioning credit markets. Check. The credit markets are operating just fine. That did not stop the Fed from rolling out the Main Street Lending Program (“MSLP”), last week which covers small, medium and large-sized corporations, state and local governments and non-profits (see my comments to the Fed below in the public comments section RE: MSLP). The MSLP will be executed by the Boston Federal Reserve led by President Eric Rosengren. Rosengren provided commentary last week where he stated that he expects more fiscal and monetary stimulus will be required to support the economy. Under MSLP the Fed will lend to companies at a 4-6x EBITDA multiple based on 2019 EBITDA. A company’s current financial reality is irrelevant.
The Winners Are..
We believe the Fed’s next move will be to purchase equity index funds such as the S&P 500 Index. Who wins? Thus far the many high grade issuers that would otherwise be operating as high yield issuers were it not for the Fed. High Yield issuers that likely otherwise would be in default were it not for the Fed. The various fixed income ETFs that the Fed has purchased stakes in are winners (list below). Most of all BlackRock (tkr: BLK), and its founder & CEO Larry Fink whose firm has executed fixed income purchases on the Fed’s behalf and whom likely would benefit were the Fed to commence purchasing equity ETFs.
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