1/9 Eric asks a reasonable question: what should be done about a future stock market slump? Specifically, should the Fed buy stocks? 🧵 tl:dr * The legal process for the Fed buying stocks means the Treasury actually owns them, the Fed finances it by extending loans to buy the stocks. * Trump will love this idea, as he wants a Sovereign Wealth Fund, and now has the Government holding several US companies. We suspect he will probably want these stocks as permanent government holdings, up to 20% of the stock market ($16n trillion of stocks). * This would balloon the Fed's balance sheet to $25 trillion (from $6.7 trillion now). * What would be the reaction to the balance sheet ballooning to $25 trillion? Bullish as that means massive buying of stocks? Bearish as the market fears another inflation spurt, and accompanied interest rate rise? Remember, 2022 inflation hit 9%, interest rates soared and the S&P 500 fell 25%. * We think the Fed buying of 2008 and 2020 worked to "save" markets as deflation was the bigger concern than inflation. But now with elevated inflation (as in the last 6 years), anything that looks inflationary would be received badly by financial markets. All these bullet points are detailed below.(Jim Bianco)