Tuesday, June 17, 2014

Federal Reserve Wants to Charge You for Pulling Your Money Out of Bond Funds

By Robert Wenzel

I have been pounding away in the EPJ Daily Alert that price inflation will be much greater than most expect as we move ahead. Thus, today's strong CPI number is not a surprise. I also expect interest rates to skyrocket and have been warning ALERT subscribers to get out of the bond market.

A new reason has just emerged to get out of bond funds fast

The Financial Times is reporting that:
Federal Reserve officials have discussed whether regulators should impose exit fees on bond funds to avert a potential run by investors, underlining concern about the vulnerability of the $10tn corporate bond market.
Officials are concerned that bond funds are becoming “shadow banks”, because investors can withdraw their money on demand, even though the assets held by the funds can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter...Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.
Got that? The Fed destroys the economy with their money printing policies (SEE: The Fed Flunks) and now that want to charge you a fee to get out of harms way.

Get out of bond funds, now! Consider yourself warned.

Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.com and author of The Fed Flunks: My Speech at the New York Federal Reserve Bank.


  1. "Federal Reserve officials have discussed whether regulators should impose exit fees on bond funds to avert a potential run by investors"

    But, pray tell Federal Reserve officials, what prompted you to anticipate and prepare for a potential run by investors? Why so skittish?

  2. In Tuesday June 17, 2014 marketplace trading, the see saw destruction of fiat wealth intensified, as greed turned to fear, specifically the fear that the world central bank’s monetary authority has crossed the rubicon of sound monetary policy and has mad money good investments bad, with the bond vigilantes calling the Interest Rate on the US Ten Year Note, $TNX, higher from 2.60% to 2.64%, thus causing disinvestment out of Credit Investments, causing Aggregate Credit, AGG, to trade lower. The 30 Year US Government Bonds, EDV, fell more than the 10 Year US Government Notes, TLT. The 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, steepened, seen in the Steepner ETF, STPP, steepening. Junk Bonds, JNK, traded lower.

    The failure of credit is evidenced in Floating Rate Notes, FLOT, topping out and in World Stocks, VT, unable to leverage higher over Aggregate Credit, AGG, that is VT:AGG, is trading lower.

    Out of the failure of credit, that is out fear that borrowers will not repay lenders, Headline Inflation is seen increasing; this is confirmed by the ratio of the Long Term Tips, LTPZ, to 10 Year US Government Notes, TLT, that is LTPZ:TLT, trading higher, and the Proshares UltraPro 10 Year TIPS/TSY Spread, UINF, trading higher. Headline Inflation was reported by Reuters in May 2014, Consumer Prices Post Biggest Gain In 10 months.

    Under Janet Yellen’s leadership, The Fed Reserve will be developing an exit strategy; it will be one of Financial Stability.

    Out of soon coming credit crisis and global financial system meltdown, coming from the rise of the Interest Rate on the US Ten Year Note, ^TNX, as well as derisking out of debt trades, and deleveraging out of currency carry trades, Money Market Funds, such as Vanguard’s VMMXX, Regional Banks, KRE, such as HBAN, and Asset Managers, such as STT, BLK, will be integrated into the government, and become known as the Government Banks, or Gov Banks for short. Please note that said fund charges a fee in excess of its yield, in order to maintain its constant one dollar value.

    The Primary Dealers, who hold Interest Rates Swaps, that they were literally gifted under POMO, and thus are short Treasuries, and whose customers are short 10 Year US Government Notes, TLT, will likely be forced into becoming Gov Banks as well.

    As presented here in this Robert Wenzel post, the first step in developing the Exit Strategy will be an exit charge, that is an exit levy, on withdrawing funds from bond funds as well as money market funds.

  3. The Nuclear Waste of Debt Issuance – Wave Division Issues $150 Million in PIK Bonds to Pay Owners a Dividend

    Yes, you heard that right. The money earned from credit issuance isn’t used to expand operations, it isn’t spend on R&D, or anything productive whatsoever. Rather, funds are used to pay money directly to the private equity owners. From a private equity owner perspective, this is free money and of course they will take it. The insane thing is that creditors are willing to buy this garbage, and buying it they are. By the billions. In fact, you might own some in your mutual fund or pension fund. Who fucking knows, but this is insane.

    The second sign of insanity is the increase in “payment-in-kind” notes. What this means is that interest on the debt can be paid back in, wait this is no joke, more debt! Even crazier, we are seeing examples of “payment-in-kind” notes being issued for the purpose of paying out dividends to private equity owners. I want to know which fund managers are buying these notes, and you should too.
    At this point, I’d like to extend a big thank you to the morons at the Federal Reserve. The fascist cartel that continues to intentionally feed billions into the pockets of the 0.01% at the expense of humanity.