- British Doc: "Right Now, It Feels Like We're Heading Into The Abyss"
British Doc: “Right Now, It Feels Like We’re Heading Into The Abyss”
The UK government is now considering a partial lockdown in London to slow down the spread of COVID-19. Over 10,000 troops have been told they could deploy at any given time if social order deteriorates. The hospital system is being pushed to its “breaking point” with an influx of virus patients, all as the economy crashes.
On March 16, we noted that the UK missed the “critical containment window” to suppress the epidemic curve. Now cases and deaths are surging. It was also said that hospital beds and ICU-level treatment were nearing full capacity, indicating that the hospital system is nearing the point of being overwhelmed, which would result in a jump of the mortality rate.
Dr. Jessica Potter, a respiratory specialist in the UK’s National Health Service (NHS), confirmed our thoughts in a recent New York Times op-ed piece, where she said hospitals across the UK “are overwhelmed” and “on the brink of collapse.”
As people with the coronavirus flood our corridors, hospitals will be pushed to the breaking point. Britain is a rich country and may fare better than others. But the NHS is creaking at the seams after years of underfunding. A decade of cuts by successive Conservative governments has stripped the service of resources. Staff morale is low and retention is poor. We are already working at capacity.
When our hospitals are overwhelmed and we have to decide how to allocate scarce resources, how do we choose whom to ventilate and whom not to? Italy is nearly at that point, and its health service has many more intensive-care beds per person than Britain’s. Will I have to tell someone we can’t treat a loved one because we’re out of ventilators, oxygen, tubes, masks, hospitals, staff? Will we then impose an age limit, as some hospitals in Italy are considering, or will some notion of “deservingness” come into play?
Potter said there is much uncertainty surrounding where the country is in the epidemic curve:
But I worry about how we know where we are on the epidemic curve. Have we tested enough people? What if lockdown comes too late? Will we be overwhelmed too soon? Across the NHS this winter there have been patients in corridors and canceled surgeries. How many people will die because we’ve been working on the brink of collapse for too long?
She warned that the hospital system could struggle to treat the most vulnerable:
Britain has fewer intensive-care beds than most other European countries. Occupancy rates are high, and there’s a daily struggle to discharge enough people to make space for new patients. Even when a bed is available, we do not have the nurses to staff it. A decade of cuts and underfunding has left us dangerously exposed. This is the perpetual winter of the NHS.
Potter said, “right now, it feels like we’re heading into the abyss.” And that is right because the hospital system is at near full capacity, no one knows where the country stands on the epidemic curve, and until a complete lockdown of the country is seen, the virus will continue spreading.
If you thought UK’s collapsing hospital system was terrible, the economy has also crashed, resulting in the Bank of England to make a statement that said it would print unlimited amounts of money.
A secret government document was leaked earlier this week that said 80% of Britons could be infected, and the virus would not clear out of the country until Spring 2021.
Tyler Durden
Fri, 03/20/2020 – 02:45 - How The European Union Turned The Coronavirus Into A Pandemic
How The European Union Turned The Coronavirus Into A Pandemic
Authored by Con Coughlin via The Gatestone Institute,
The emergence of Europe as the new epicentre of the coronavirus pandemic has as much to do with the European Union’s inept handling of the crisis as it does with the resilience of the virus itself.
When the world first learned about the existence of coronavirus in China at the start of the year, the EU’s response, like much of the rest of the world’s, was to adopt a wait and see approach as to how it developed.
The problem for the EU, though, is that it has maintained this lackadaisical approach long after it became clear that the virus was going to develop into a global, rather than a specifically Chinese, issue. More pertinently, the EU’s failure to raise its game, after the rapid spread of the virus resulted in much of Europe coming to a standstill, means that the EU is now trying to play catch-up in terms of asserting a leadership role.
After weeks of prevarication, the EU finally imposed measures to ban travellers from outside the bloc for 30 days. The measure is expected to apply to 26 EU states as well as Iceland, Liechtenstein, Norway and Switzerland. The ban will not apply to citizens from the UK and Ireland.
“This is good,” commented European Commission President Ursula von der Leyen as she announced the new measures earlier on March 18.
“We have a unanimous and united approach [where] the external borders are concerned.”
That it has taken until now for the EU to act, when so many major European countries such as France, Italy and Spain are already in lockdown, illustrates the inadequacy of the EU’s response to the crisis. It also helps to explain why Europe has replaced Asia as the main epicentre of the pandemic.
By the time Mrs von der Leyen finally got around to announcing at the start of this week that the EU was planning to impose its travel ban, most member states had already taken matters into their own hands and made their own arrangements to restrict border access.
Moreover, by undertaking their own unilateral actions, the decision by some EU member states, such as Austria and the Czech Republic, to specifically ban citizens from other EU states, such as neighbouring Italy, represents a flagrant breach of one of the EU’s key founding principles, namely the free movement of its citizens across the borders of other member states.
Consequently, the EU’s failure to address the coronavirus issue earlier has resulted in the Schengen Agreement, which stipulates that the citizens of any EU state can travel freely throughout the union, becoming null and void.
The EU’s commitment to Schengen was one of the key factors that persuaded U.S. President Donald Trump to impose his initial travel ban on continental Europe, claiming — correctly — that the EU was being far too complacent in its response to tackling the virus.
Now, thanks to the EU’s ineptitude, the union has entered a new era in which the precedent has been established whereby it is the governments of the various constituent member states, and not Brussels, that decide who can, and who cannot, cross their borders.
The sudden imposition of new border controls in Europe is already having a serious impact on the trading arrangements between different EU member states. This week, for example, trucks trying to enter Poland from Germany have been subjected to a tailback dozens of kilometres long, as Polish border guards insisted on checking the temperatures, health and documentation of drivers seeking to enter the country.
Moreover, the EU’s inability to provide effective leadership in terms of responding to the coronavirus challenge has led to an increase in tensions between key member states, tensions that could ultimately threaten the survival of the EU in its current manifestation.
Perhaps the most shameful episode concerning inter-EU relations since the start of the coronavirus outbreak was Germany’s refusal to allow the export of much-needed face masks and ventilators to Italy after the Italian government made a direct appeal to the rest of the EU for help. Instead of demonstrating the so-called solidarity that is supposed to underpin the EU’s founding ethos, the German government issued a ban on the export of the equipment to Italy.
It was left to the Chinese government to provide the Italians with 31 tons of urgent medical supplies.
The EU’s handling of the coronavirus has not just been incompetent. It raises serious questions as to whether it is about to become yet another victim of the deadly pandemic.
Tyler Durden
Fri, 03/20/2020 – 02:00 - 50 New Infections Every Hour In Iran, One Death Per 10 Minutes: Health Ministry
50 New Infections Every Hour In Iran, One Death Per 10 Minutes: Health Ministry
Despite that between Tuesday and Wednesday of this week Iran witnessed its biggest ever single-day spike in Covid-19 cases, authorities are still struggling to get everyone to observe quarantine and self-isolation measures, especially after throngs of hardline Shia demonstrators have gathered to protest the closure of two of the country’s holiest shrines in the city of Qom.
Toward this end, Iran’s Health Ministry spokesman Kianush Jahanpur made an astounding statement to put things in perspective, saying the current soaring numbers show that—
“In Iran, every ten minutes one person dies from the coronavirus, 50 get infected.”
He added in the Twitter statement “And every 10 minutes one person dies.”
#Iran’s Health Ministry’s Spokesman: Every hour 50 Iranians contract #Covid19 and every 10 minutes 1 dies. Keep this data in your mind and think twice when you decide to visit relatives in Nowruz or travel to other cities. https://t.co/BBbYwv6czM
— Fereshteh Sadeghi فرشته صادقی (@fresh_sadegh) March 19, 2020
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He further urged citizens to think about this extreme risk every time they break national directives and go out to visit people or travel to other cities.
This as on Thursday the national number of cases climbed to 18,407 — a jump of 1,046 cases from the day prior.
The death toll in Iran from the coronavirus outbreak has risen to 1,284, state media reported on Thursday, among those 149 people dying of the virus in the last 24 hours, with 1,046 new cases emerging.
Earlier this week another top health official issued an ‘extreme scenario’ warning in order to urge citizens to stay home, saying he expects “millions” of Iranians to die of the disease.
Among other drastic measures the country has implemented, Tehran says it’s now temporarily sent some 85,000 prisoners home to ensure the pandemic doesn’t rip through the nation’s overcrowded prisons and jails.
Some countries in the West, including cities across the United States, are actually considering the temporary release of non-violent offenders from local jails for the sake of preventing the spread.
Tyler Durden
Fri, 03/20/2020 – 01:00 - Escobar: China Locked In Hybrid War With US
Escobar: China Locked In Hybrid War With US
Authored by Pepe Escobar via The Asia Times,
Fallout from Covid-19 outbreak puts Beijing and Washington on a collision course…
Among the myriad, earth-shattering geopolitical effects of coronavirus, one is already graphically evident. China has re-positioned itself. For the first time since the start of Deng Xiaoping’s reforms in 1978, Beijing openly regards the US as a threat, as stated a month ago by Foreign Minister Wang Yi at the Munich Security Conference during the peak of the fight against coronavirus.
Beijing is carefully, incrementally shaping the narrative that, from the beginning of the coronovirus attack, the leadership knew it was under a hybrid war attack. Xi’s terminology is a major clue. He said, on the record, that this was war. And, as a counter-attack, a “people’s war” had to be launched.
Moreover, he described the virus as a demon or devil. Xi is a Confucianist. Unlike some other ancient Chinese thinkers, Confucius was loath to discuss supernatural forces and judgment in the afterlife. However, in a Chinese cultural context, devil means “white devils” or “foreign devils”: guailo in Mandarin, gweilo in Cantonese. This was Xi delivering a powerful statement in code.
When Zhao Lijian, a spokesman for the Chinese Foreign Ministry, voiced in an incandescent tweet the possibility that “it might be US Army who brought the epidemic to Wuhan” – the first blast to this effect to come from a top official – Beijing was sending up a trial balloon signaliing that the gloves were finally off. Zhao Lijian made a direct connection with the Military Games in Wuhan in October 2019, which included a delegation of 300 US military.
He directly quoted US CDC director Robert Redfield who, when asked last week whether some deaths by coronavirus had been discovered posthumously in the US, replied that “some cases have actually been diagnosed this way in the US today.”
Zhao’s explosive conclusion is that Covid-19 was already in effect in the US before being identified in Wuhan – due to the by now fully documented inability of US to test and verify differences compared with the flu.
Adding all that to the fact that coronavirus genome variations in Iran and Italy were sequenced and it was revealed they do not belong to the variety that infected Wuhan, Chinese media are now openly asking questions and drawing a connection with the shutting down in August last year of the “unsafe” military bioweapon lab at Fort Detrick, the Military Games, and the Wuhan epidemic. Some of these questions had been asked – with no response – inside the US itself.
Extra questions linger about the opaque Event 201 in New York on October 18, 2019: a rehearsal for a worldwide pandemic caused by a deadly virus – which happened to be coronavirus. This magnificent coincidence happened one month before the outbreak in Wuhan.
Event 201 was sponsored by Bill & Melinda Gates Foundation, the World Economic Forum (WEF), the CIA, Bloomberg, John Hopkins Foundation and the UN. The World Military Games opened in Wuhan on the exact same day.
Irrespective of its origin, which is still not conclusively established, as much as Trump tweets about the “Chinese virus,” Covid-19 already poses immensely serious questions about biopolitics (where’s Foucault when we need him?) and bio-terror.
The working hypothesis of coronavirus as a very powerful but not Armageddon-provoking bio-weapon unveils it as a perfect vehicle for widespread social control – on a global scale.
Cuba rises as a biotech power
Just as a fully masked Xi visiting the Wuhan frontline last week was a graphic demonstration to the whole planet that China, with immense sacrifice, is winning the “people‘s war” against Covid-19, Russia, in a Sun Tzu move on Riyadh whose end result was a much cheaper barrel of oil, helped for all practical purposes to kick-start the inevitable recovery of the Chinese economy. This is how a strategic partnership works.
The chessboard is changing at breakneck speed. Once Beijing identified coronavirus as a bio-weapon attack the “people’s war” was launched with the full force of the state. Methodically. On a “whatever it takes” basis. Now we are entering a new stage, which will be used by Beijing to substantially recalibrate the interaction with the West, and under very different frameworks when it comes to the US and the EU.
Soft power is paramount. Beijing sent an Air China flight to Italy carrying 2,300 big boxes full of masks bearing the script, “We are waves from the same sea, leaves from the same tree, flowers from the same garden.” China also sent a hefty humanitarian package to Iran, significantly aboard eight flights from Mahan Air – an airline under illegal, unilateral Trump administration sanctions.
Serbian President Aleksandar Vucic could not have been more explicit: “The only country that can help us is China. By now, you all understood that European solidarity does not exist. That was a fairy tale on paper.”
Under harsh sanctions and demonized since forever, Cuba is still able to perform breakthroughs – even on biotechnology. The anti-viral Heberon – or Interferon Alpha 2b – a therapeutic, not a vaccine, has been used with great success in the treatment of coronavirus. A joint venture in China is producing an inhalable version, and at least 15 nations are already interested in importing the therapeutic.
Now compare all of the above with the Trump administration offering $1 billion to poach German scientists working at biotech firm Curevac, based in Thuringia, on an experimental vaccine against Covid-19, to have it as a vaccine “only for the United States.”
Social engineering psy-op?
Sandro Mezzadra, co-author with Brett Neilson of the seminal The Politics of Operations: Excavating Contemporary Capitalism, is already trying to conceptualize where we stand now in terms of fighting Covid-19.
We are facing a choice between a Malthusian strand – inspired by social Darwinism – “led by the Johnson-Trump-Bolsonaro axis” and, on the other side, a strand pointing to the “requalification of public health as a fundamental tool,” exemplified by China, South Korea and Italy. There are key lessons to be learned from South Korea, Taiwan and Singapore.
The stark option, Mezzadra notes, is between a “natural population selection,” with thousands of dead, and “defending society” by employing “variable degrees of authoritarianism and social control.” It’s easy to imagine who stands to benefit from this social re-engineering, a 21st century remix of Poe’s The Masque of the Red Death.
Amid so much doom and gloom, count on Italy to offer us Tiepolo-style shades of light. Italy chose the Wuhan option, with immensely serious consequences for its already fragile economy. Quarantined Italians remarkably reacted by singing on their balconies: a true act of metaphysical revolt.
Not to mention the poetic justice of the actual St. Corona (“crown” in Latin) being buried in the city of Anzu since the 9th century. St. Corona was a Christian killed under Marcus Aurelius in 165 AD, and has been for centuries one of the patron saints of pandemics.
Not even trillions of dollars raining from the sky by an act of divine Fed mercy were able to cure Covid-19. G-7 “leaders” had to resort to a videoconference to realize how clueless they are – even as China’s fight against coronavirus gave the West a head start of several weeks.
Shanghai-based Dr. Zhang Wenhong, one of China’s top infectious disease experts, whose analyses have been spot on so far, now says China has emerged from the darkest days in the “people’s war” against Covid-19. But he does not think this will be over by summer. Now extrapolate what he’s saying to the Western world.
It’s not even spring yet, and we already know it takes a virus to mercilessly shatter the Goddess of the Market. Last Friday, Goldman Sachs told no fewer than 1,500 corporations that there was no systemic risk. That was false.
New York banking sources told me the truth: systemic risk became way more severe in 2020 than in 1979, 1987 or 2008 because of the hugely heightened danger that the $1.5 quadrillion derivative market would collapse.
As the sources put it, history had never before seen anything like the Fed’s intervention via its little understood elimination of commercial bank reserve requirements, unleashing a potential unlimited expansion of credit to prevent a derivative implosion stemming from a total commodity and stock market collapse of all stocks around the world.
Those bankers thought it would work, but as we know by now all the sound and fury signified nothing. The ghost of a derivative implosion – in this case not caused by the previous possibility, the shutting down of the Strait of Hormuz – remains.
We are still barely starting to understand the consequences of Covid-19 for the future of neoliberal turbo-capitalism. What’s certain is that the whole global economy has been hit by an insidious, literally invisible circuit breaker. This may be just a “coincidence.” Or this may be, as some are boldly arguing, part of a possible, massive psy-op creating the perfect geopolitlcal and social engineering environment for full-spectrum dominance.
Additionally, along the hard slog down the road, with immense, inbuilt human and economic sacrifice, with or without a reboot of the world-system, a more pressing question remains: will imperial elites still choose to keep waging full-spectrum-dominance hybrid war against China?
Tyler Durden
Thu, 03/19/2020 – 23:45 - "He Must Resign From The Senate And Face Prosecution": Tucker Carlson Blasts Burr For Liquidating Stock While Downplaying COVID
“He Must Resign From The Senate And Face Prosecution”: Tucker Carlson Blasts Burr For Liquidating Stock While Downplaying COVID
Fox News‘s Tucker Carlson had some serious words for Sen. Richard Burr (R-NC), who sold off a significant percentage of his stocks on February 13 – raising between $628,000 and $1.72 million in 33 separate transactions.
Carlson noted Burr sold “more than a million dollars in stock in mid-February after learning how devastating the Chinese coronavirus could be.
“He had inside information about what could happen to our country – which is now happening – but he didn’t warn the public. He didn’t give a prime time address. He didn’t go on television to sound the alarm. He didn’t even disavow an op-ed he’d written just ten days before claiming America was ‘better prepared than ever for coronavirus.”
Instead what did he do? He dumped his shares in hotel so he wouldn’t lose money. And then he stayed silent.
Now maybe there’s an honest explanation for what he did. If there is, he should share it with the rest of us immediately. Otherwise, he must resign from the Senate and face prosecution for insider trading. There is no greater moral crime than betraying your country in a crisis, and that appears to be what happened.” -Tucker Carlson
Perhaps Burr was simply reading Zero Hedge’s coronavirus coverage?
Watch:
Wow. Add @TuckerCarlson to the list of folks calling on @SenatorBurr to resign. pic.twitter.com/HhTsDtP7Qv
— Andrew Feinberg (@AndrewFeinberg) March 20, 2020
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Meanwhile, a second Senator has come under fire for similarly selling stocks before the market took a dive – selling between $1,275,000 and $3,100,000 between January 24 and February 14.
Sen. Kelly Loeffler, R-Ga., has become the second lawmaker to have reportedly sold stock weeks before the coronavirus outbreak triggered a stock market downfall.
The Daily Beast reported on Thursday that Loeffler sold stock that was owned by her and her husband and January 24, which was the same day she sat in on a closed-door coronavirus briefing as a member of the Senate Health Committee with the Trump administration, which Dr. Anthonly Fauci was in attendance.
According to the report, she sold stock in Resideo Technologies “worth between $50,001 and $100,000,” whose stock price “has fallen by more than half” since January. –Fox News
27 out of 29 February transactions by Loeffler and her husband were sales. One of the buys worth $100,000 – $250,000 – Citrix, is a teleworking software company, which has risen since the pandemic has progressed.
Tyler Durden
Thu, 03/19/2020 – 23:25 - BofA Says "The Bond Market Is Broken" And Only Fed Buying Bonds Can Fix It
BofA Says “The Bond Market Is Broken” And Only Fed Buying Bonds Can Fix It
One week ago, Bank of America’s credit strategists issues a dire assessment of the current state of the bond market: the Treasury market was no longer functioning properly.
Fast forward to today, when Citi issued a similar warning about the overall state of the corporate bond market, noting that “order book has collapsed to 10% of historical average and trade impact cost has risen to more than x2 normal market function” pointing out that in terms of overall market liquidity “current levels are close to historical extremes.”
Bank of America also chimed in again, only this time instead of focusing on the Treasury market, it shifted its attention to the corporate market where its take was simple: the “market is basically broken at this point.” Why would the normally non-hyperbolic BofA credit strategist Hans Mikkelsen come out with such a shocking assessment? Simple: just like Janet Yellen and Ben Bernanke the day before, BofA is now confident that the only thing that can fix the bond market – where BofA had been busy herding its clients into corporates for the past year only to see the rug pulled from under them this week – is the Fed which should not waste any time in starting to buy corporate bonds.
Here is the section in question:
A Financial Times article [on Wednesday] – by no less than Janet Yellen and Ben Bernanke – suggested the Fed should start buying corporate bonds. That seems a small step since they just set up a facility to buy commercial paper and, if little else, would be useful to calm a market that is basically broken at this point, with large outflows that look set to continue and pent-up issuance.
Moral hazard? More like no-real hazard.
Corporate credit has become a big concern for investors and, as we have seen in Europe, central banks can sharply improve pricing given illiquidity. Obviously it will take some time for the Fed to set it up but the announcement itself would be very powerful. The ECB announced corporate bond purchases in March 2016 and began buying in June that year. Their justification was for monetary policy purposes and – unlike for the Fed – the ECB has no 13.3 requirement so there was no need to seek approval. We estimate an eligible universe in the US of $4.5tn outstanding (Figure 4) plus $49bn average monthly new issuance.
Oh wonderful, at least there is a lot of bonds the Fed can buy.
So sure is BofA that the Fed will come to its – and its clients’ rescue – that it is already preparing a list of bonds and monthly amounts that the central bank should buy:
Some of the decisions the Fed would have to make include what they buy. We assume no bank bonds for example, as that would cut a little close to home with the Fed being the regulator. In other words how do you define the eligible universe? Also, while the ECB buy anything that is eligible irrespective of what the company does, the Bank of England in their program checks that every company makes a “material contribution to the UK economy”.
The next question? How much could they purchase weekly/monthly?
Maybe $50bn/monthly. Do they buy in primary, which would give them access to a lot more bonds and hurts secondary liquidity less. Do they buy like an ETF, i.e. in a market neutrality way? If so the Fed – like the ECB – needs no credit analysts. How do you treat Auto finance units? How much of any single security can they buy as a maximum? They need to define IG – maybe one IG rating and at least two if there are more, which is similar to Bloomberg-Barclays index and the Feds methodology for the new CPFF. What happens to downgraded bonds from IG to HY? Etc.
And since we doubt that BofA is so dumb not to realize that a vast number of the corporate bonds the Fed buys will default in the next few months as a result of the coming global depression – as a reminder, buying a company’s securities does noting for its cash flow but merely drives an even bigger wedge between fundamentals and market prices – and will therefore be equitized post-reorg, BofA is now essentially working under the assumption that the Fed should be buying stocks, an assumption which we are confident all other banks will soon adopt, especially since Janet Yellen expressly said that the Fed should purchase stocks during the next crisis. i.e., right now.
Which, of course, is the final step before the nationalization endgame begins, because once monetizing corporate credit fails to lift the market and bail out both BofA’s client as well as its sellside research division whose only out now is to beg the Fed for a rescue, all that’s left is for the central bank to directly enter the stock market and end price discovery as we know it.
Come to think of it, life will be much easier when the trading day consists of just one daily press release from the Fed advising markets what the closing price is. The only possibly problem could be when just like Kuroda, the Fed chair is asked to explain how despite printing money out of thin air, the central bank is still facing trillions in paper losses.
Tyler Durden
Thu, 03/19/2020 – 23:16 - NASA Warns Two Asteroids Could Cause Atmospheric Explosion Over Earth This Week
NASA Warns Two Asteroids Could Cause Atmospheric Explosion Over Earth This Week
Authored by Aaron Kesel via TheMindUnleashed.com,
As if 2020 weren’t overwhelming enough, in addition to the potential start of World War 3, the massive fires in Australia, the locust plague in the Middle East and Africa, and the novel coronavirus, we are now dealing with multiple asteroids hurtling towards Earth. One of the asteroids may even collide with Earth’s atmosphere resulting in an atmospheric explosion tonight!
Two asteroids following Earth’s intersecting orbit known as 2020 EF and 2020 DP4 are approaching the planet, and information collected by NASA indicates the space rocks are big enough to create violent explosions in the atmosphere if they come too close to the Earth.
The asteroids are being closely monitored by NASA’s Center for Near-Earth Object Studies (CNEOS).
According to a report by IB Times, CNEOS estimates the 2020 EF asteroid has a diameter of 98 feet, making it a little longer than the distance between baseball diamond bases, with a velocity of 10,000 mph.
CNEOS sates that 2020 EF is what is known as an Aten asteroid, which means the object follows a normal orbit that crosses Earth’s path. NASA’s orbit diagram for 2020 EF shows the asteroid mimics a very wide orbit around the sun and almost follows the exact same path as Earth. The good news is NASA states in their diagram that the asteroid will have multiple near-approaches between 2020 EF and our planet—but it won’t hit us.
According to NASA, as a result of their size, 2020 EF will most likely not cause an impact event. Instead, it will break up into pieces if it enters Earth’s atmosphere. However, it will still cause an explosion in the sky that could be dangerous.
The last asteroid atmospheric explosion took place over the city of Chelyabinsk, Russia, which produced a flash 30 times brighter than the Sun and caused 180 cases of eye pain and 70 cases of temporary flash blindness.
So make sure you don’t stare at it with the naked eye, similar to how you shouldn’t stare directly at the sun, no matter how curious you may be.
2020 DP4 is coming our way and will cause a similar space spectacle this week on March 22nd at 2:36 p.m EST. Compared to 2020 EF, 2020 DP4 is much larger in diameter at 180 feet wide and traveling at a faster velocity rate at 18,000 mph according to CNEOS.
While 2020 EF is classified as an Aten asteroid, 2020 DP4 on the other hand belongs to the Apollo family of space rocks. Although the two asteroids are labeled differently, they are known to intersect Earth’s orbit as the planet makes its way around the Sun.
CNEOS states 2020 EF is expected to fly past the Earth from a distance of 0.04241 astronomical units or approximately 4 million miles. Meanwhile, 2020 DP4 will approach Earth from a much closer distance which according to CNEOS, is only 0.00901 astronomical units or around 840,000 miles.
While NASA has expressed that both asteroids won’t collide directly with the Earth, last year NASA and the U.S. government’s Federal Emergency Management Agency (FEMA) participated in an exercise with other international partners to deal with asteroids that could be a future impact danger. Last year, NASA also awarded SpaceX a $69 million contract to redirect an asteroid off its intended path under the Double Asteroid Redirection Test (DART) program, which uses a technique known as a kinetic impactor. The mission involves sending one or more SpaceX Falcon 9 rockets into the path of an approaching near-earth object, in this case, Didymos’ small moon in October 2022.
The European Space Agency (ESA) is also involved in that joint mission to slam a probe into the asteroid Didymos’ small moon.
Next month a third asteroid is expected to come close to hitting Earth called 52768 (1998 OR2). First spotted in 1998, the space rock much bigger than 2020 FE and 2020 DP4, at 1.1 – 2.5 miles wide, is expected to pass within around 4million miles—or about 17 times the distance from Earth to the Moon, moving at a velocity of 19,461 miles per hour. CNEOS states that the third asteroid will fly by the Earth on April 29, at 4:56 a.m. EST.
According to CNN, NASA also reassures that 52768 (1998 OR2) will not hit the Earth despite worries with its classification as “potentially hazardous.” However, the asteroid is “large enough to cause global effects,” according to NASA.
The next potential asteroid that could cause significant damage if it hit Earth is expected to fly through our solar system and pass near Earth on April 13, 2029. The giant icy space rock—known as 99942 Apophis, for the Egyptian God of Chaos—is 1,100 feet wide (340 meters) and will speed by at over 67,000 miles per hour. According to NASA, Apophis has a 2.7% chance to hit Earth—a very low probability.
Thankfully we shouldn’t expect an Independence Day scenario any time soon.
Tyler Durden
Thu, 03/19/2020 – 23:05 - "Very Intense Plunge": Top Hedge Fund Longs Suffer Historic Crash As Top Shorts Outperform… And Much More Pain Is Coming
“Very Intense Plunge”: Top Hedge Fund Longs Suffer Historic Crash As Top Shorts Outperform… And Much More Pain Is Coming
Total announced stimulus in the US, EU and UK this week was $4.2 trillion, and counting. But for those looking to buy this dip, the bears remain in control of a market paralyzed by its inability to decipher the true economic impact of the virus and the unprecedented dollar shortage just below the surface.
Meanwhile, following the fastest crash from an all time high on record and the biggest VaR shock in history, hedge fund deleveraging is now accelerating (as are mutual fund redemptions) and while realized P&L volatility remains high, and hedging with options expensive, it is unlikely to stop here, at least according to Morgan Stanley. And while the stimulus creates a better backdrop for sharp/short-lived rallies now (helped by clients’ $45bn net short in SX5E futs) the bank’s view remains that we have not yet seen the bottom in index levels.
Goldman agrees, pointing out that equity allocations were near all-time highs in February but have plummeted since the start of the bear market. As we pointed out previously, in February, households, mutual funds, pension funds, and foreign investors — who collectively hold 84% of the total equity market — were more or less “all in”, and had notably overweight equity exposure in their portfolios relative to history.
In aggregate, these entities had equity allocations ranking in the 95th percentile vs. the past 30 years. In contrast, these investors had cash allocations at the very bottom of their historical allocations. However, since the all-time high on February 19, the S&P 500 has fallen by 30%, while the allocation to equities has fallen by around 10 percentage points to 37% of financial assets (36th percentile) from 47% (95th percentile). At the same time, allocation to bonds and cash have risen to 30% of assets (98th percentile) and 14% of assets (35th percentile), respectively.
Institutional investor positioning indicators also show a significant decrease in equity exposures, but current levels remain elevated relative to the lows in past corrections. Based on data from GS Prime Brokerage, hedge fund net exposure registered 63% this week, well below the level recorded at the February 19 equity market peak (72%). Similarly, CFTC data also show a sharp decline in net futures length. However, both of these are well above the average observed during the past decade.
This 37% aggregate equity allocation among major investors currently ranks in the 36th percentile since 1990 compared with the 95th percentile in February. However, there is more selling to come, because despite the steep decline, equity allocations are still above the troughs in 2001 and 2008, and cash allocations are at just the 35th percentile vs. history.
Similarly, Goldman’s high-frequency Sentiment Indicator and the valuations of favorite hedge fund stocks remain more elevated than the bank would expect at the trough of a major correction. As such, Goldman notes that it “expects that investors will continue to rotate away from equities in the near term, leading equity prices even lower.”
Of note is the sharp underperformance this week of the most popular stocks among hedge funds and mutual funds, which suggests that institutional investor selling has accelerated. That’s putting it mildly: whereas Goldman typically takes pride in its Hedge Fund VIP basket which it frequently praises for outperforming the broader market more than 95% of the time, it is now safe to rename it to the Hedge Fund Very Intense Plunge (VIP) basket.
Here’s why: after mostly outperforming the US stock market since the coronavirus started rattling investors in mid-February, the HF VIP basket is now down almost 29 per cent for the year, more than the S&P itself. At the same time, Goldman’s index of popular short positions has – as we have repeatedly told our readers– been far more resilient than the US stock market over the same period, declining only 13% this year. The five-day outperformance of the hedge fund shorts index versus the VIP index is the most extreme seen since Goldman Sachs started collecting the data in 2001. And it’s not just hedge funds: during the same period, the most popular Mutual Fund Overweights have lagged the largest Underweights by 700 bp (-20% vs. -13%), confirming once again that the only way to generate alpha is to do the opposite of what most people on Wall Street do.
And yet, hedge fund leverage curiously remains higher than typical in periods of severe market stress, and the valuations of their favorite stocks remain elevated relative to history.
In short, Goldman expects that the rotation away from equities will persist in the near-term as “uncertainty around the global spread and economic impact of COVID-19 remains high, volatility is at extreme levels across asset classes, and liquidity is thin.”
In this environment, investors are likely to continue cutting portfolio risk, particularly because current aggregate equity allocation of 37% is still above the troughs in 2001 (35%) and 2008 (28%) and cash allocations are still only at the 35th percentile vs. history, despite what the BofA self-serving, and completely meaningless Fund Managers Survey says.
To summarize, “a further decline in investor equity positioning, in concert with thin liquidity and a reduction in corporate buybacks, should cause the S&P 500 to fall” to Goldman’s estimated trough of 2000.
Tyler Durden
Thu, 03/19/2020 – 22:45 - US Airlines To Burn Through $40 Billion By Year End If No Recovery
US Airlines To Burn Through $40 Billion By Year End If No Recovery
Most Wall Street analysts are predicting a V-shaped recovery for the US economy in the second half (even if it boggles the mind how the US economy can simply spring right back from a -14% GDP depression in Q2 without missing a beat). But if they are wrong, there will be hell to pay. Or at least 40 billion dollars to pay for the US airline industry.
According to a new from Vertical Research, US airlines will burn through $40 billion in cash by year-end if passenger revenue plunges to nothing for the rest of 2020, and there is now second half rebound.
“This is a dramatization, but isn’t far from the new reality as each capacity reduction far exceeds the one that preceded it,” Vertical analyst Darryl Genovesi said in a report which was seen by Bloomberg. His “no-longer-so-extreme” scenario also assumes that bookings dry up and carriers are forced to refund all advance ticket purchases.
Genovesi expects that carriers focused on the domestic market, which have cut about 20% of available seats so far, will in the next few weeks slash capacity more along the lines of 70% as Delta has done already.
“Passenger revenue could hit zero by the end of this quarter and stay there for the rest of the year”, he wrote, with cargo revenue disappearing in the third quarter. Annual operating income would then fall about $65 billion short of what had been expected a few months ago.
Major US carriers such Delta, American Airlines and United have already halted nearly all of their international operations as the virus’s spread spurred governments to restrict travel. Carriers now are making deeper cuts in domestic operations, parking planes, offering unpaid leaves to workers and securing billions in loans. Congress is considering $58 billion in loans and other financial help for the industry.
Genovesi’s outlook, which excludes new ticket sales, government aid, new sources of capital secured and about $45 billion in existing fixed financial obligations this year, would leave Delta and United with negative cash balances in the second quarter. American would follow in the third.
In short, all those companies will need to find an additional source of funding or they will have to file for Chapter 11.
“Government hasn’t completely shut down U.S. air traffic, but it may still,” Genovesi said. “And even if it doesn’t, demand is approaching zero as U.S. citizens are staying home.”
Tyler Durden
Thu, 03/19/2020 – 22:25 - A Disgusted Nikki Haley Quits Boeing's Board In Protest Over Bailout Demand
A Disgusted Nikki Haley Quits Boeing’s Board In Protest Over Bailout Demand
While Boeing’s shareholders await to see if they will be granted a taxpayer-funded bailout, or if all those billions they greedily pocketed from the company’s stock buybacks instead of forcing the company to allocate toward a rainy day fund may have doomed if not the airplane manufacturer, which will promptly re-emerge from Chapter 11 with a clean balance sheet, then themselves, today the first casualty of the Boeing crisis emerged when Nikki Haley, the former U.S. ambassador to the United Nations, announced she was leaving Boeing’s board after less than a year, saying she opposes the planemaker’s decision to seek a U.S. bailout amid the coronavirus crisis.
“I cannot support a move to lean on the federal government for a stimulus or bailout that prioritizes our company over others and relies on taxpayers to guarantee our financial position,” Haley said in a March 16 letter that Boeing disclosed late on Thursday, one day after it was revealed that the company is seeking a $60BN bailout.
“I have long held strong convictions that this is not the role of government” she added.
Whatever one thinks of Haley, she is absolutely correct on on this issue: that Boeing wasted tens of billions to push its stock artificially higher by repurchasing its stock in hopes of lifting management equity-linked comp and making its shareholders richer instead of even pretending to plan for a less than perfect future is inexcusable, and no bailout of Boeing should ever be allowed. If Boeing needs the funds, it can sell stock and raise cash – the opposite of what it did for decades. If that is insufficient, Boeing should file a prepackaged Chapter 11 where the creditors take over all the equity and the company emerges from bankruptcy debt-free in one day. Without a dollar of debt, Boeing should be able to weather any disruption no matter how long, and once the economy normalizes it can rehire all the workers that had been laid off.
In short, Boeing will survive but its existing shareholders will be liquidated, as they should in any system even vaguely resembling capitalism.
“Covid-19 is the biggest threat of all time to the airline/aerospace ecosystem and augurs sharp production cuts and liquidity issues” for Boeing, said Cai von Rumohr, an analyst at Cowen & Co. “It’s hard to tell where the stock may bottom.”
Well, if it bottoms at 0, so be it. It’s called a bankruptcy process and countless companies have emerged from it, and gone on to a prosperous, debt-free future. And with the aid of a DIP loan – whether private or public-funded – not one Boeing employee has to lose their job, especially since with a new and clean balance sheet, Boeing will no longer face an existential crisis to produce every single day.
Haley, who was elected to two terms as South Carolina governor, is a rising star in Republican politics who is widely expected to consider a run for president herself in 2024. She is one of the few people who left President Donald Trump’s administration on good terms, finding ways to occasionally distance herself from the boss but remaining a steadfast supporter after announcing her resignation as U.N. ambassador in October 2018.
Tyler Durden
Thu, 03/19/2020 – 22:05 - US Equity Futures Tumble After California State-Wide 'Stay At Home' Order
US Equity Futures Tumble After California State-Wide ‘Stay At Home’ Order
Having been ramped up to unchanged from post-close lows, news that CA Governor Newsom has issued a state-wide “stay at home” order, futures tumbled…
Dow futures are down over 300 points…
It’s Quad Witch tomorrow so we should expect plenty of high gamma swings between now and the open tomorrow.
Tyler Durden
Thu, 03/19/2020 – 21:53 - Alphabet Soup: CPFF, PDCF And MMLF Down; TAF, TSLF, MMIFF And TALF To Go
Alphabet Soup: CPFF, PDCF And MMLF Down; TAF, TSLF, MMIFF And TALF To Go
Authored by Phillip Marey of Rabobank
Summary
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On Sunday, the Fed set the discount window and the USD liquidity swap lines with 5 key central banks further open.
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On Tuesday, the Fed relaunched the CPFF and a few hours later the PDCF.
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On Wednesday, the Fed established the MMLF.
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Today, the Fed reopened the USD liquidity swap lines with a wider set of central banks.
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In this special we give an overview of the special lending facilities that are now in place, the special lending facilities from the previous financial crisis that are likely to make a comeback, and a few novel special lending facilities that could become reality.
Introduction
On Sunday, the Fed set the discount window and the USD liquidity swap lines with 5 key central banks further open. However, commercial paper markets were freezing up. The coronavirus outbreak is hitting the cashflow of businesses, who therefore need to raise cash. At the same time, the money market mutual funds – the regular buyers of commercial paper – are also trying to raise cash in anticipation of outflows from the mutual funds by investors. In other words, the commercial paper market had increasingly become dysfunctional. On Tuesday, the Fed relaunched two special lending facilities from the financial crisis, the Commercial Paper Funding Facility (CPFF) and the Primary Dealer Credit Facility (PDCF). While CPFF helps issuers of commercial paper, and PDCF supports primary dealers who remained stuck with large inventories of commercial paper, money market mutual funds were still in need of liquidity. So on Wednesday, the Fed established the Money Market Mutual Fund Liquidity Facility (MMLF). Today, in response to the global need for USD liquidity, the Fed reopened the USD liquidity swap lines they closed in 2010 with a range of non-G7 central banks.
As we indicated in Crash to zero a week ago, we expected the Fed to deploy a range of special lending facilities from the financial crisis. Several were indeed deployed in recent days. In this special we give an overview of the special lending facilities that are now in place, and the special lending facilities from the previous crisis that are likely to make a comeback.
The standard lending facility: the discount window
The Fed is the lender of last resort in the US financial system. In normal times, the Fed operates a standard lending facility that is accessible only to depository institutions, the discount window. This excludes a range of financial institutions and all non-financial firms, but under normal circumstances it is enough for the Fed to provide a backstop for depository institutions, who then in turn provide liquidity to other financial institutions and all non-financial businesses and households. When the US financial system comes under stress, the Fed may first try to stabilize the system by setting the discount window further open. On Sunday, the Fed extended the discount window to 90 days and slashed the primary credit rate by 150 bps to 0.25%. By providing liquidity to banks through the discount window the Fed tries to make sure that banks don’t have to withdraw credit to their customers during times of market stress. In this way, the Fed could support the smooth flow of credit to households and businesses.
Special lending facilities
The discount window is the Fed’s standard lending facility. However, it is restricted to depository institutions and there is a stigma to borrowing at the discount window. On Sunday, the Fed tried to reduce this stigma by encouraging banks ‘to turn to the discount window to help meet demands for credit from households and businesses at this time.’ In order to make this more attractive the Fed slashed the primary credit rate by 150 bps to 0.25%. This means that the spread between the primary credit rate and the top of the target range for the federal funds rate was reduced from 50 bps to zero. The discount window was also extended to 90 days.
However, when the financial system comes under stress and widening the discount window is not enough to stabilize the financial system the Fed also has the possibility to deploy special lending facilities. The special lending facilities are based on section 13(3) of the Federal Reserve Act, which is a ‘unusual and exigent circumstances’ clause. Unfortunately, after the financial crisis the US Congress – through the Dodd-Frank Act of 2010 – made it more difficult for the Fed to use this clause. The Fed needs the approval from the US Treasury Secretary. Why wasn’t CPFF included in Sunday’s emergency package when the Fed cut rates to zero, launched a new large scale asset purchase program, and set the discount window and USD swap lines wide open? Markets were screaming for CPFF. On Tuesday, Mnuchin sent a letter to Powell giving him permission to start CPFF2020. It seems that Congress has tied the Fed’s hands and this has not been beneficial to market functioning as we found out in this week. Perhaps something to reconsider once this crisis is over.
In this special, we try to discuss the ‘alphabet soup’ of special lending facilities in a systematic manner, by focussing on the beneficiaries of the special lending facilities. We start with the depository institutions, which even in normal circumstances have access to the Fed’s standard lending facility: the discount window. Then we look at the primary dealers, money market mutual funds, CP issuers, ABS issuers and foreign central banks.
Term Auction Facility (TAF)
If it turns out that the stigma of going to the discount window is holding back depository institutions too much, the Fed may relaunch a special lending facility known as the Term Auction Facility (TAF). Through TAF the Fed provided term loans to depository institutions, collateralized by standard discount window collateral. However, the funds were allocated through an auction, so that banks would not face the stigma of going to the discount window to ask for a loan. So TAF is basically the discount window without the stigma. During the financial crisis, TAF was the first and largest special lending facility employed by the Fed.
On Sunday, the Fed tried to make the discount window more attractive by slashing the primary credit rate to 0.25% and encouraging banks to use the discount window, but if these incentives would fail to get banks to the discount window – because of the stigma attached to it – then relaunching TAF could help alleviate bank funding strains. In fact, on Tuesday Loretta Mester (Cleveland Fed) mentioned TAF in addition to CPFF.
Primary Dealer Credit Facility (PDCF)
While primary dealers play a crucial role in the financial system, they have no access to the discount window if they are not part of a depository institution. The Primary Dealer Credit Facility (PDCF) provides funding to primary dealers, similar to the way the discount window provides a backup source of funding for depository institutions. On Tuesday March 17, the Fed relaunched PDCF. The PDCF will offer overnight and term funding with maturities up to 90 days. A broad range of collateral is allowed if primary dealers want to use this facility, including investment grade corporate debt securities, international agency securities, commercial paper, municipal securities, MBS, and ABS and equity securities. In case of ABS, only AAA-rated CMBS, CLOs and CDOs are accepted. In case of equity securities, ETFs, unit investment trusts, mutual funds, rights and warrants are excluded. Additional collateral may become eligible at a later date upon further analysis by the Fed. Note that PDCF supports primary dealers who remained stuck with large inventories of commercial paper in recent days when the commercial paper market became dysfunctional.
The loans under the PDCF will be made at a rate equal to the primary credit rate. So in practice this is a ‘discount window’ for primary dealers against a broad range of collateral. In this way, the Fed acts as a lender of last resort to primary dealers, who – if not part of a depository institution – have no access to the discount window. The PDCF is established under Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary. The PDCF will be in place for at least 6 months and may be extended as conditions warrant. Note that during the financial crisis the PDCF only offered overnight funding. However, the 2020 version of PDCF offers term funding up to 90 days.
Term Securities Lending Facility (TSLF)
During the financial crisis, depository institutions had access to the discount window and TAF. Analogously, the Fed created the PDCF and the TSLF for primary dealers. The roles of the discount window, TAF, PDCF and TSLF can be summarized in the following table:
The PDCF is a standing facility for primary dealers, while TSLF is an auction for primary dealers. In TSLF auctions the Fed loaned Treasury securities to primary dealers for one month against collateral that consisted of less liquid securities. An important difference between TSLF and TAF is that in TSLF the Fed offers securities for securities, while in TAF the Fed offers funds from the Federal Reserve in exchange for securities and loans. In combination, the PDCF and the TSLF offered the primary dealers access to funds and Treasury securities against a broad range of collateral. Following the widening of the discount window and the relaunch of the PDCF, we are likely to see a relaunch of TSLF (and TAF) in the coming days or weeks.
Money Market Mutual Fund Liquidity Facility (MMLF)
After discussing the Fed’s lending facilities for depository institutions and primary dealers, now we turn to the money market mutual funds. On Wednesday, March 18, 2020 the Fed established the Money Market Mutual Fund Liquidity Facility (MMLF). The Boston Fed will make loans of up to 12 months available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds. The aim of the MMLF is to help money market mutual funds in meeting demands for redemptions by households and other investors. Note that money market funds were scrambling for liquidity in anticipation of withdrawals. This also meant that they were not buying commercial paper from businesses. By introducing CPFF the Fed helped those businesses, but money market mutual funds kept struggling. Through the MMLF the Fed is stimulating financial institutions to buy assets from the money market mutual funds, so that they don’t have to sell them at a large discount if they are forced to sell when investors withdraw their money from the mutual funds. Eligible financial institutions are all US depository institutions, US bank holding companies, US branches and agencies of foreign banks.
Eligible collateral consists of two types with different rates at which the loan is made. The primary credit rate applies to US treasuries and fully guaranteed agencies and securities issued by US government sponsored entities. The primary credit rate plus 100 bps for ABCP or unsecured CP issued by a US issuer, rated not lower than A1, F1 or P1 if rated by at least two major rating agencies or in the top rating if rated by only one major rating agency.
The MMLF is in structure very similar to the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF) that operated from late 2008 to early 2010. The main difference is that MMLF will purchase a broader range of assets from financial institutions. The AMLF provided funding for depository institutions purchasing asset-backed commercial paper from money market mutual funds. This facility peaked at $140bn in 2008.
Money Market Investor Funding Facility (MMIFF)
Related to AMLF, in 2008-2009 the Fed also established the Money Market Investor Funding Facility (MMIFF). This facility was designed to provide liquidity for money market mutual funds, stimulating them to extend the term of their money market investments. Instead of scrambling for overnight assets because of liquidity fears, this would help maintain demand for term securities in the money market. Although no loans were made under the MMIFF, the facility could still be useful this time if MMLF would not be enough to support the money market mutual funds.
Commercial Paper Funding Facility (CPFF)
Markets were screaming for it, but finally on Tuesday, March 17, the Fed relaunched the Commercial Paper Funding Facility (CPFF) in order to deal with the freezing up of the US commercial paper market. At present, the coronavirus outbreak is hitting the cashflow of businesses, who therefore need to raise cash. At the same time, the money market mutual funds – the regular buyers of commercial paper – are also trying to raise cash in anticipation of outflows from the MMMFs by investors. In other words, the commercial paper market had increasingly become dysfunctional. The reintroduction of the CPFF brings in the Fed as a large buyer of commercial paper and should help stabilize the market.
Through this facility the Fed finances a special purpose vehicle (SPV) that purchases 3 month commercial paper from eligible users. In this way the Fed takes over the role of money market mutual funds and other buyers of commercial paper that stopped purchasing in recent days. This also reduces the pressure on banks providing credit to issuers unable to sell commercial paper anymore. By providing a liquidity backstop for issuers of commercial paper the Fed hopes to stabilize the commercial paper market. For more technical details we refer to our special report CPFF2020. Note that through this channel the Fed is also able to provide liquidity to businesses, not only depository institutions which already have access to the Fed’s discount window.
During the financial crisis the Commercial Paper Funding Facility (CPFF) was the second largest special funding facility. In this way the Fed took over the role of money market mutual funds and other buyers of commercial paper that were afraid to purchase unsecured debt during the financial crisis. This stabilized the commercial paper market and provided a liquidity backstop for issuers of commercial paper.
Term Asset-Backed Securities Loan Facility (TALF)
Stress in the financial system may also affect the market for asset backed securities (ABS). During the financial crisis the Fed came to the rescue of issuers of ABS by establishing a special lending facility. The Term Asset-Backed Securities Loan Facility (TALF) was launched in March 2009 after interest rates on ABS rose and issuance feel sharply in late 2008. Through TALF the Fed provided loans in exchange for certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. The Treasury Department provided $20bn of credit protection to the New York Fed in connection with the TALF. Through this facility the Fed tried to support the issuance of ABS. Problems in the ABS markets could lead to a relaunch of TALF. USD and foreign currency liquidity swap lines
After discussing the Fed’s special lending facilities for US depository institutions, primary dealers, money market mutual funds, and issuers of CP and ABS we turn to the international dimension of liquidity provision. The crucial role that the USD plays in the international financial system is also reflected in the fact that the USD liquidity swap lines with 5 other central banks never went away.
Also, the foreign currency liquidity swap lines that came in reciprocity were never used by the Fed, except for some pre-arranged small-value test operations. On Sunday, the Board of Governors enhanced the standing USD liquidity swap line arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the ECB and the Swiss National Bank by offering 84-day maturity, in addition to the 1-week maturity operations currently offered, and by reducing the pricing by 25 bps to OIS+25bps.
On Thursday, in response to the global need for USD liquidity, the Fed reopened the swap lines they closed in 2010 with a range of central banks of non-G7 countries: the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, the Norges Bank, the Monetary Authority of Singapore, and the Sveriges Riksbank. These USD liquidity arrangements will be in place for at least 6 months.
In the coming days and weeks, the USD liquidity swap lines could be extended to an even wider set of central banks, longer maturities could be offered and pricing could be reduced further. Of course, the main question is whether the Fed will open a USD liquidity swap line with the People’s Bank of China.
What’s next?
Now that CPFF and PDCF have been relaunched, MMLF has been established, and USD liquidity swap lines have been expanded to a range of non-G7 central banks it is only a matter of time before the rest of the Fed’s emergency toolkit from the previous financial crisis is reinstated. We may see the return of TAF, TSLF, MMIFF, TALF and the opening of new USD liquidity swap lines. We could also see new facilities, for example targeted at corporate debt, and focussed on lending to small businesses and households. After all, in contrast to the Great Recession, the current shock did not come from the financial system but from the real economy. Consequently, special lending facilities should be aimed more directly at businesses and households.
Tyler Durden
Thu, 03/19/2020 – 21:35 -
- Newsom: 56% Of Californians To Be Infected With COVID-19 Within Eight Weeks
Newsom: 56% Of Californians To Be Infected With COVID-19 Within Eight Weeks
Update (2215ET): During a Thursday evening announcement that California is now under a ‘stay at home order,’ Newsom clarified that the 22.5 million infected figure is a worst case scenario in which nothing is done (in a letter to Trump asking to borrow a Navy medical ship).
The next day he announces a major action to reduce the spread of COVID-19.
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California Governor Gavin Newsom says that an estimated 56% of the state’s population – some 25.5 million people – will be infected with coronavirus within the next eight weeks.
Newsom made the sobering claim in a Wednesday letter to President Trump asking for the US Navy’s Mercy Hospital Ship to be stationed at the Port of Los Angeles until September in order to provide backup to the region’s healthcare system.
“The acquisition of the Mercy here off the coast of the state of California would provide additional 1,000 bed capacity, provides support for pharmacists and other diagnostic equipment,” said Newsom, adding “This resource will help decompress the health care delivery system to allow the Los Angeles region to ensure that it has the ability to address critical acute care needs, such as heart attacks and strokes or vehicle accidents, in addition to the rapid rise of COVID-19 cases.”
“We have community acquired transmission in 23 counties with an increase of 44 community acquired infections in 24 hours. We project that roughly 56 percent of our population – 25.5 million people – will be infected with the virus over an eight week period,” the letter continues.
A spokesperson for the governor said the projection shows why it’s so critical that Californians take action to slow the spread of the disease – and those mitigation efforts aren’t taken into account in those numbers. The spokesperson added that the state is deploying every resource at its disposal to meet this challenge and is continuing to ask for the federal government’s assistance in this fight. –ABC 7
Newsom is working closely with Los Angeles Mayor Eric Garcetti to try and protect the state’s enormous homeless population from the disease – particularly those with pre-existing conditions. The city is also working with the American Red Cross to open 6,000 beds at 52 recreation centers.
California will also supply local governments with $150 million.
“If we take these emergency shelter beds and add in our bridge shelter beds, this means we can bring 7,000 unhoused Angelenos off the streets and into emergency housing – the most in recent memory, maybe ever in the city’s history,” Garcetti said.
Ten years ago, then-Los Angeles Police Department Chief Bill Bratton “said what would it take to clean up skid row and he actually said a pandemic,” said Any Bales, CEO of the Union Rescue Mission in downtown Los Angeles. “It’s unfortunate that that’s what it’s taken, but man am I glad to see so many people making so places for people to go.“
Bales with skid row’s Union Rescue Mission praised all the resources that are coming together to protect the homeless population against COVID-19. Three hundred hand-washing stations and 120 mobile bathrooms have already been set up at encampments.
“I’m hoping we don’t return to putting people on the streets,” said Bales. “That this all teaches us that we all live a better life housed than unhoused together when we immediately help people get off the streets and stay off the streets.” –ABC 7
Newsom said that the state’s typical 2,000 unemployment insurance claims had skyrocketed to 80,000 over the last week.
Tyler Durden
Thu, 03/19/2020 – 21:15 - BMO: The Market Ponders If This Is "The Spanish Flu" Or "The Great Depression"
BMO: The Market Ponders If This Is “The Spanish Flu” Or “The Great Depression”
For the past week, it’s been virtually non-stop: one central bank after another has fired a bazooka, rushing to frontrun its peers in hopes of big impact, only to find no response from the market, forcing it to fire another, even bigger bazooka. Consider that just over the past 24 hours we have gotten the following (via Nomura):
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Fed announced a new emergency program (MMLF) to aid money markets
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ECB “no limits” bazooka (“Pandemic Purchase Program w/ $820B of QE)
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RBA 25bps cut to ELB, introduces QE and targeted YCC
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Japan discussing $276B packed including “cash payouts” to households
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S Korea new $40B package
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Brazilian 50bps rate cut
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US Senate passes 2nd stimulus bill and negotiating the 3rd ($1.3T)
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BOE emergency rate cut to 0.1% and GBP200BN QE expansion
And yet, as BMO’s rate strategist Ian Lyngen writes this morning, “central bank intervention continues to mount, but its effectiveness in containing the fear evident throughout financial markets appears to be diminishing.”
The ECB has unveiled a €750 bn bond-buying program (to run at least until year-end) which will target sovereign debt, including Greek bonds, and is in direct response to this week’s spike in Italian yields. The Fed has also followed-through with another emergency effort; through the Market Mutual Fund Liquidity Facility (MMLF) “the Federal Reserve Bank of Boston will make loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds.” Providing another source of liquidity for the cash market is a crucial step in assuring the stability of the broader system, even if – as with all the efforts of monetary policymakers – it is not going to flatten the Covid-19 curve.
And, as Lyngen adds, to accomplish this objective, federal and local governments are increasingly the focus of investor angst. The initial phase of trading the official response was “wow – didn’t know things had gotten so bad. Better sell equities.” After a few weeks of gauging the actions of governments both domestically and abroad, a second phase has emerged; “wow – there isn’t enough being done or that can be done. Better sell equities.”
In short, the theme is clear – the market is pondering whether the situation is akin to the Spanish flu or the Great Depression, however facing this dire dilemma, BMO finds itself with a slightly different interpretation as the severity of the price action itself has given the bank pause. Here’s why:
It’s now well-known that the first half of 2020 is going to experience dismal real economic growth; that much is certain. In fact, JPMorgan now predicts a depression-like plunge in US GDP of -14%.
The operating assumption is that once the coronavirus curve has finally peaked (similar to what appears to be occurring in China), cities will reopen and consumption will return anew. This is also the basis behind JPM’s very optimistic assumption of a V-shaped recovery.
However, whether this indeed triggers a v-shaped recovery or a u-shaped one will depend on three unknowns:
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Fed/government liquidity measures,
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ability of authorities to contain or slow the spread of Covid-19 and
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length of the economic lockdown.
Essentially, the first ‘unknown’ is coming into focus as Powell delivers and the White House cobbles together a fiscal package that can make it through Congress.
The second, is even more difficult to judge because as more people are tested, more cases are discovered – the timeline of actual infections is unlikely to be definitively established. Said differently, even a ‘perfect quarantine’ of untested individuals will see a rise in ‘known’ cases as the testing commences.
The third element, the period of economic disruption, is the most angst inducing for investors. Every trading session that passes without either a turn in the pace of infection or a hope-inspiring development has resulted in a downward repricing of risk assets. As an alternative to the more dramatic reading of Spanish flu versus Great Depression, BMO suggests that investors are facing either Y2K (econ-ageddon that never was) or a severe v-shaped recession; akin to the 2009 financial crisis without the same degree of systemic risks.
In the near-term, the details coming out of Washington related to the fiscal response will inform the next leg for risk assets. Helicopter money has become an assumption at this point; however, the ability of businesses to stay viable during the shutdown is even more relevant.
To a large extent, this will depend on how money is funneled to small businesses and whether it is in the form of cheap financing or an outright grant. As an astute member of upper management highlighted, it isn’t in the best interest of firms to load up on debt owed to the government during a mandated closure only to use those moneys to pay workers. Why not simply furlough and rehire the workers; thereby creating a more direct path (via unemployment benefits) to the federal funds? Business owners could then simply negotiate with their landlords and creditors for bridge funding/forbearance until the economy reopens. Food for thought as the details slowly emerge on the >$1 trillion package. Punchline; grant and not cheap financing.
And speaking of the stimulus package, it is worth conetmplating what form the fiscal response from Washington will take. While the details are still unknown, some combination of a direct cash infusion, extended tax payment deadlines, money fund guarantees, and various industry bailouts are on the table. Regardless of how large the spending ultimately is, it will be funded via massive increases in Treasury issuance. This will be focused in the bill market, where the historically larger volatility in offering sizes will bear the brunt of ramp-up in borrowing. Several cash management bills of substantial heft would also follow intuitively. While on the margin, such increases in supply introduce a bearish relative value risk for the front-end, this should be at least partially offset by the flood into government money funds.
As BMO concludes, “as long as the dollar maintains its position as the global reserve currency, even with gargantuan supply sizes, a structural bid will continue to exist for Treasuries, a notion supported by 10s trading below 1.50%.”
Tyler Durden
Thu, 03/19/2020 – 20:55 -
- The Median US Stock Is Now Down 50% From Its Highs As World Loses $25 Trillion In A Month
The Median US Stock Is Now Down 50% From Its Highs As World Loses $25 Trillion In A Month
Global stock and bond markets have seen $25 trillion of ‘paper’ wealth erased in the last month, wiping out all the gains from the Dec 2018 crash lows….
Source: Bloomberg
Global bonds are actually still up around $5 trillion while global stocks have lost around $5 trillion since the Dec 2018 lows, and a lot of those losses come from the US markets where the median stock is now down 50% from its highs… (because the Value Line index below is based on a geometric average the daily change is closest to the median stock price change)
Source: Bloomberg
As Washington signs and promises more and more bailouts and helicopter money drops, USA sovereign risk is starting to get a little spooked…
Source: Bloomberg
Systemic risk remains extremely elevated…
Source: Bloomberg
Which makes sense when the world’s largest banks are seeing their credit risk explode like it did ahead of the Lehman crisis…
Source: Bloomberg
And despite the endless liquidity from global central banks and polititicians, financial conditions are tightening at their fastest rate ever…
Source: Bloomberg
And the real ‘fear’ trade is now at its most extreme since the peak of the Lehman crisis…
Source: Bloomberg
Policy Fail – The Dollar rallied for the 8th straight day, soaring to a new record high despite The Fed opening unlimited FX Swap Lines…
Source: Bloomberg
This is the largest 8-day rally in the DXY Dollar Index… ever! Greater even than when Soros broke The Bank of England in Sept 1992…
Source: Bloomberg
But The Fed will “never give in”…
Since the COVID-19 Malrarkey began, Chinese stocks remain the leaders (down only 12%), while Europe is the laggard…
Source: Bloomberg
US equity markets soared today (thanks to the biggest short-squeeze in 7 years), but failed to erase yesterday’s gains… (NOTE Nasdaq just tagged unch from Tuesday and then rolled over – algo-tom-foolery)…
On the week, it’s still a shitshow with The Dow worst, down 13%…
Today saw “Most Shorted” stocks soar 8% – the biggest short-squeeze since August 2013…
Source: Bloomberg
Directly virus-affected sectors rebounded today…
Source: Bloomberg
VIX fell notably today, testing below 70 ahead of tomorrow’s Quad-Witch option expiry…
Meanwhile, Boeing credit risk continues to soar (as questions rise about whether they should be bailed out or not)…
Source: Bloomberg
And Ford suspended its dividend and withdrew its guidance sending its credit risk soaring…
Source: Bloomberg
Credit markets were not buying what stocks were selling today…
Source: Bloomberg
Treasury yields were mixed with the long-end higher and rest of the modestly lower (despite a huge range)… (10Y yields briefly dipped below 1.00% today)
Source: Bloomberg
Another late-day purge in yields pushed 30Y to end higher on the day…
Source: Bloomberg
Munis were massacred today – 10Y yield spiking 47bps!! (MUNI-BOND OUTFLOW ALMOST THREE TIMES PREVIOUS RECORD)
Source: Bloomberg
EUR tumbled today to 3 year lows today in biggest loss since Jan 2001 (bigger than Jun 2016 Brexit vote loss)
Source: Bloomberg
And Cable crashed to the weakest since 1985…
Source: Bloomberg
Cryptos had a big day with Bitcoin Cash outperforming…
Source: Bloomberg
Today’s commodity markets were dominate by oil’s biggest rally ever…however, given the carnage in crude, WTI is still down 20% on the week…
Source: Bloomberg
Today was oil’s biggest daily gain… ever. Bouncing off a $20 handle and helped by talk of Trump intervention, WTI was up around 25%!! However, in context, it doesn’t look like much (apart from the insane $2 spike at settlement for a 35% surge intraday)…
Oil and the dollar both rallied together late on…
Source: Bloomberg
Gold was modestly lower on the day but silver actually managed gains, bouncing off $12 again..
And on a somewhat related note, is this the other reason why gold has been sold?
Source: Bloomberg
Volatile day in PMs with Palladium best and Platinum worst…
Source: Bloomberg
Finally, as Bloomberg notes, anyone referring to the past month’s plunge in U.S. stocks as a crash has history on their side. The S&P 500 Index’s volatility for the 10 trading days ended Wednesday was 122%, according to data compiled by Bloomberg.
Source: Bloomberg
Only two periods have produced higher readings: the aftermath of the 1929 Black Tuesday crash and the 1987 Black Monday crash. The volatility gauge climbed more than 17-fold from Feb. 19, when the S&P 500’s latest bull market ended, through Wednesday.
The FRA-OIS spread spiked once again today signaling major tensions in the liquidity markets remain…
Source: Bloomberg
And global basis swaps spiked again (led by JPY) as the dollar shortage worsened today…
Source: Bloomberg
In other words – whatever The Fed is doing – “It’s Not Working!”
Tyler Durden
Thu, 03/19/2020 – 20:45 - "Obey" – Covid-19 Global Lockdown & 'Disaster Capitalism'
“Obey” – Covid-19 Global Lockdown & ‘Disaster Capitalism’
Authored (satirically) by CJ Hopkins via Off-Guardian.org,
Let’s try a little thought experiment. Just for fun. To pass the time while we’re indefinitely locked down inside our homes, compulsively checking the Covid-19 “active cases” and “total death” count, washing our hands every twenty minutes, and attempting not to touch our faces.
Before we do, though, I want to make it clear that I believe this Covid-19 thing is real, and is probably the deadliest threat to humanity in the history of deadly threats to humanity.
According to the data I’ve been seeing, it’s only a matter of days, or hours, until nearly everyone on earth is infected and is either dying in agony and alone or suffering mild, common cold-like symptoms, or absolutely no symptoms whatsoever.
I feel that I need to state this clearly, before we do our thought experiment, because I don’t want anyone mistakenly thinking that I’m one of those probably Russian-backed Nazis who are going around saying, “it’s just the flu,” or who are spreading dangerous conspiracy theories about bio-weapons and martial law, or who are otherwise doubting or questioning the wisdom of locking down the entire world (and likely triggering a new Great Depression) on account of the discovery of some glorified bug.
Obviously, this is not just the flu. Thousands of people are dying from it. OK, sure, the flu kills many more than that, hundreds of thousands of people annually, but this Covid-19 virus is totally new, and not like any of the other millions of viruses that are going around all the time, and the experts are saying it will probably kill, or seriously sicken, or briefly inconvenience, millions or even billions of people if we don’t lock down entire countries and terrorize everyone into submission.
Which, don’t get me wrong, I’m all for that… this is not the time to be questioning anything the corporate media and the authorities tell us. This is a time to pull together, turn our minds off, and follow orders. OK, sure, normally, it’s good to be skeptical, but we’re in a goddamn global state of emergency! Idris Elba is infected for Chrissakes!
Sorry … I’m getting a little emotional. I’m a big-time Idris Elba fan. The point is, I’m not a Covid-denialist, or a conspiracy theorist, or one of those devious Chinese or Russian dissension-sowers. I know for a fact that this pandemic is real, and warrants whatever “emergency measures” our governments, global corporations, and intelligence agencies want to impose on us.
No, I’m not an epidemiologist, but I have a close friend who knows a guy who dated a woman who dated a doctor who personally knows another doctor who works in a hospital in Italy somewhere, and she (i.e., my friend, not the doctor in Italy) posted something on Facebook yesterday that was way too long to read completely but was a gut-wrenching account of how Covid-19 is killing Kuwaiti babies in their incubators!
Or maybe it was Italian babies. Like I said, it was too long to read.
Also, did you see the story about the baby that was born infected?! Or the stories about the people in their 30s and 40s who were more or less in perfect health (except for, you know, cancer or whatever) who died from (or with) the Covid plague?! And what about all those charts and graphs?! And those pictures of people in hazmat suits?! And those Italians singing Turandot on their balconies?! Doesn’t that just make you want to break down and cry over the sheer humanity of it all?!
No, there is absolutely no doubt whatsoever that Covid-19 is the deadliest global pandemic humankind has ever faced, and that we have no choice but to cancel everything, confine everyone inside their home, wreck the entire global economy, force working class people even further into debt, pour trillions into the investment banks, cancel elections, censor the Internet, and otherwise implement a global police state.
But what if it wasn’t? Just hypothetically.
What if this wasn’t the deadliest global pandemic humankind has ever faced? (I’m just posing the question as a thought experiment, so please don’t report me to the WHO, or the CDC, or FEMA, or whoever.) What if this new coronavirus was just another coronavirus like all the other coronaviruses that people die from (or with) all the time? What if the fact that this one is “new” didn’t really mean all that much, or possibly anything at all, because coronaviruses are always mutating, and every year there are a lot of new variants?
Relax, OK? I know this one is different, and totally unlike anything ever encountered by virologists in the history of virology. Remember, this is just a thought experiment. These are just hypothetical questions.
Here’s another hypothetical question. What if all the scary statistics we’ve been seeing (e.g., the death rates, the explosion of “cases,” etc.) weren’t unquestionable scientific facts, but rather, were, like other statistics, based on things like sample groups, and dependent on a host of factors and variables, which you kind of need to know to make sense of anything?
Say, for example, you tested everyone that died of acute respiratory failure on a given day in your Italian hospital, and you discovered that, let’s say, five of those patients had been infected with Covid-19. So you feed that number to the WHO, and they add it to the “total deaths” count, regardless of whether the folks who died had terminal cancer, or heart disease, or had also been infected with the common flu, or some other type of coronavirus. That would probably skew your “death” count, wouldn’t it?
Or, say you wanted to test for the virus to keep track of all the “active cases” and generate an infection rate, but you can’t test hundreds of millions of people, because no one has that many tests So, you test everyone who turns up sick, or thinks they’re sick and demands to be tested, or who touched someone sick who you already tested (though you’re not even sure that your test is accurate) and you come up with, let’s say, ten positive results. So you feed that number to the WHO, and they add it to the “active cases” count, regardless of the fact that everyone knows the real number is likely twenty times higher.
OK, so now you take your “active cases” number and your “total deaths” number and you do the math (keeping in mind that your “total deaths” include those cancer and heart failure people), and you end up grossly underestimating your “infection rate” and “active cases,” and grossly overestimating your “death rate” and the number of “total deaths.”
Just hypothetically, you understand.
I am not suggesting this is actually happening. I certainly don’t want to get censored by Facebook (or accidentally censored by some totally innocuous technical glitch) for posting “Covid misinformation,” or tempt the Wikipedia “editors” to rush back to my Wikipedia page and label me a dangerous “conspiracy theorist” … or, you know, get myself preventatively quarantined.
It probably won’t come to that anyway, i.e., rounding up “infected persons,” “possibly infected persons,” and “disruptive” and “uncooperative persons,” and quarantining us in, like, “camps,” or wherever. All this state of emergency stuff, the suspension of our civil rights, the manipulation of facts and figures, the muzzling of dissent, the illegal surveillance, governments legislating by decree, the soldiers, the quarantines, and all the rest of it … all these measures are temporary, and are being taken for our own good, and purely out of an “abundance of caution.”
I mean, it’s not like the global capitalist empire was right in the middle of a War on Populism (a war that it has been losing up to now) and wanted to take this opportunity to crank up some disaster capitalism, terrorize the global public into a frenzy of selfish and irrational panic, and just flex its muscles to remind everybody what could happen if we all keep screwing around by voting for “populists,” tearing up Paris, leaving the European Union, and otherwise interfering with the forward march of global capitalism.
No, it certainly isn’t like that. It is an actual plague that is probably going to kill you and your entire family if you don’t do exactly what you’re told. So, forget this little thought experiment, and prepare yourself for global lockdown. It probably won’t be so bad … unless they decide they need to run the part of exercise where it goes on too long, and people get squirrelly, and start rebelling, and looting, and otherwise not cooperating, and the military is eventually forced to deploy those Urban Unrest Suppression Vehicles, and those Anti-Domestic-Terror Forces, and …
OK, I’m getting all worked up again. I’d better take my pills and get back to Facebook. Oh, and … I should probably check up on Idris! And see if Berlin has gone to “Level 3,” in which case I’ll need to find whatever online application I need to fill out in order to leave my house.
Tyler Durden
Thu, 03/19/2020 – 20:35 - Kyle Bass Refuses To Say "COVID-19" To Virtue-Signaling CNBC Anchor, Claims Value Investing Finally Back
Kyle Bass Refuses To Say “COVID-19” To Virtue-Signaling CNBC Anchor, Claims Value Investing Finally Back
Kyle Bass, founder of Hayman Capital Management, took to CNBC yesterday for an interview about the investing landscape as a result of the coronavirus outbreak and the subsequent sharp sell off in markets. Bass talked about value investing, real estate, global banks and why he refuses to call the virus “Covid-19”.
Bass said he was really impressed by legislators working together and getting the spending bill through congress exceptionally quickly.
“When you think back to the financial crisis, it took months to get everyone on board with TARP. Here we’ve moved some spending bills through in light speed,” Bass said.
Regarding he virus’ impact, Bass took a long view:
“What’s most important is that these things do happen. Things like this Chinese virus come into the world and they ravage the world and then they leave. We develop some sort of herd immunity.”
“The Hong Kong flu was the last real big one,” Sullivan responds, perhaps unconsciously using the location of the virus origin to indicate which one he was talking about.
Bass continued with his longer term outlook: “One of the things that the U.S. does best is that we all come together during crisis and we work hard to get through it. And we’re getting through it. I don’t think the government is asking people to send their kids to battlefields. They’ere asking people to stay home for a month,” Bass says. “These spending bills should help.”
“There are drugs out there that have worked to head off the severity of this Chinese virus,” Bass continued.
Bass also said he thinks you can once again be a value buyer again:
“It feels to me like the panic is so much larger than the financial crisis of 2008 and I think calmer heads will prevail. I think the prices that some of these things are transacting at today will be buys of a lifetime.”
When asked about whether or not its a balance sheet problem with the banks, Bass says that instead of being the center of the problem, the banks are at the center of the solution:
“We have the strongest banking system in the world. Europe never recapitalized, so their banks are in real trouble. The US will be the anchor for the world this time.”
He continued:
“It was the biggest bull market in history prior to the Wuhan virus attacking our marketplace. It’s created dislocations in many companies that I think will be rectified on the back end. You can be a value buyer once again.”
On the housing market, Bass said he didn’t think there would be a crash: “I think with rates back to 0%, what’s likely to happen if you look forward. What you’re going to see is 0% rates, enormous amounts of liquidity, I think inflation’s going to run hot and I think it’s going to be a really interesting housing market at that time. I don’t expect housing prices to drop much in the U.S.”
“There will be a real big surge,” he says.
Later in the interview, the CNBC host takes exception with Bass using the term “China virus”.
“Let’s just call it Covid-19,” Brian Sullivan pleads.
“Not Wuhan or China or coronavirus. Let’s just call it Covid-19. I think that will bring us all together. Can we do that?”
Bass pushed back:
“Changing the naming convention for viruses that’s gone on for the last 100 years – the point of origin has always helped people understand which virus it is. The Chinese communist party has asked the world – actually, propagandized the world – with this Covid-19. If we start naming diseases after numbers, we’re never going to remember what kind of disease it is.”
“I want to make sure we don’t take it to a country level,” Sullivan responds.
“We call things West Nile Virus, why can’t we call it the Wuhan Flu? We can call it whatever we want to call it, I’m not going to call it what the Chinese government wants me to call it.”
You can watch Bass’ full interview here:
Tyler Durden
Thu, 03/19/2020 – 20:15 - The Problem With Pragmatism… And Inflation
The Problem With Pragmatism… And Inflation
Authored by Michael Lebowitz via RealInvestmentAdvice.com,
Pragmatism is seeking immediate solutions with little to no consideration for the longer-term benefits and consequences. An excellent example of this is the Social Security system in the United States. In the Depression-era, a government-sponsored savings plan was established to “solve” for lack of retirement savings by requiring contributions to a government-sponsored savings plan. At the time, the idea made sense as the population was greatly skewed towards younger people. No one seriously considered whether there would always be enough workers to support benefits for retired people in the future. Now, long after those policies were enacted and those that pushed the legislation are long gone, the time is fast approaching when Social Security will be unable to pay out what the government has promised.
Pragmatism is the common path of governments, led by politicians seeking re-election and the retention of power. Instead of considering the long-term implications of their policies, they focus on satisfying an immediate desire of their constituents.
In his book Economics in One Lesson, Henry Hazlitt made this point very clear by elaborating on the problems that eventually transpire from imprudent monetary and fiscal policy.
“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson.”
Inflation
One of the most pernicious of these issues in our “modern and sophisticated” intellectual age is that of inflation. When asked to define inflation, most people say “rising prices,” with no appreciation for the fact that price movements are an effect, not a cause. They are a symptom of monetary circumstances. Inflation is a disequilibrium between the amounts of currency entering an economic system relative to the productive output of that same system.
In today’s world, there is only fiat (“by decree”) currencies. In other words, the value of currencies are not backed by some physical commodity such as gold, silver, or oil. Currencies are only backed by the perceived productive capacity of the nation and the stability of the issuing government. If a government takes unreasonable measures in managing its fiscal and monetary affairs, then the standard of living in that society will deteriorate, and confidence in it erodes.
Put another way, when the people of a nation or its global counterparts lose confidence in the fiscal and monetary policy-makers, the result is a loss of confidence in the medium of exchange, and a devaluation of the currency ensues. The influence of those in power will ultimately prove to be unsustainable.
Inflation is an indicator of confidence in the currency as a surrogate of confidence in the policies of a government. It is a mirror. This is why James Grant is often quoted as saying, “The gold price is the reciprocal of the world’s faith in central banking.”
Confidence in a currency may be lost in a variety of ways. The one most apparent today is creating too many dollars as a means of subsidizing the spending habits of politicians and the borrowing demands of corporations and citizens.
Precedent
There is plenty of modern-day historical precedent for a loss of confidence from excessive debt creation and the inevitable excessive currency creation. Weimar Germany in the 1920s remains the modern era poster child, but Zimbabwe, Argentina, and Venezuela also offer recent examples.
Following the 2008 financial crisis, many believed that the actions of the Federal Reserve were “heroic.” Despite failing to see the warning signs of a housing bubble in the months and even years leading up to the crisis, the Fed’s perspective was that it exists to provide liquidity. As the chart below illustrates, that is precisely what they did.
Data Courtesy Bloomberg
That pragmatic response failed to heed Hazlitt’s warning. What are the longer-term effects for the economy, the bailed-out banking system, and all of us? How would these policies affect the economy, markets, society, and the wealth of the nation’s citizens in five, ten, or twenty years?
Keeping interest rates at a low level for many years following the financial crisis while the economy generally appears to have recovered raises other questions. The Fed continues to argue that inflation remains subdued. That argument goes largely undisputed despite credible evidence to the contrary. Further, it provides the Fed a rationalization for keeping rates well below normal.
Politicians who oversee the Fed and want to retain power, consent to low-rate policies believing it will foster economic growth. While that may make sense to some, it is short-sighted and, therefore, pragmatic. The assessment does not account for a variety of other complicating factors, namely, what may transpire in the future as a result? Are seeds of excess being sown as was the case in the dot-com bubble and the housing bubble? If so, can we gauge the magnitude?
Policy Imposition
In the mid-1960s, President Lyndon Johnson sought to escalate U.S. involvement in the Vietnam War. In doing so, he knew he would need the help of the Fed to hold interest rates down to run the budget deficits required to fund that war. Although then-Fed Chairman William McChesney Martin was reluctant to ease monetary policy, he endured various forms of abuse from the Oval Office and finally acquiesced.
The bullying these days comes from President Trump. Although his arguments for easier policy contradict what he said on the campaign trail in 2016, Jerome Powell is compliant. Until recently, the economy appeared to be running at full employment and all primary fundamental metrics were well above the prior peaks set in 2007.
Additionally, Congress, at Trump’s behest and as the chart below illustrates, has deployed massive fiscal stimulus that created a yawning gap (highlighted) between fiscal deficits and the unemployment picture. This is a divergence not seen since the Johnson administration in the 1960s (also highlighted) and one of magnitude never seen. As is very quickly becoming clear, those actions both monetary and fiscal, were irresponsible to the point of negligence. Now, when we need it most as the economy shuts down, there is little or no “dry powder”.
Data Courtesy Bloomberg
President Johnson got his way and was able to fund the war with abnormally low interest rates. However, what ensued over the next 15 years was a wave of inflation that destroyed the productive capacity of the economy well into the early 1980s. Interest rates eventually rose to 18%, and economic dynamism withered as did the spirits of the average American.
The springboard for that scenario was a pragmatic policy designed to solve an immediate problem with no regard for the future. Monetary policy that suppressed interest rates and fiscal policy that took advantage of artificially low interest rates to accumulate debt at a relatively low cost went against the American public best interests. The public could not conceive that government “of, by and for the people” would act in such a short-sighted and self-serving manner.
Data Courtesy Bloomberg
The Sequel
Before the COVID-19 pandemic, the Congressional Budget Office (CBO) projections for U.S. budget deficits exceeded $1 trillion per year for the next 10-years. According to the CBO, the U.S. Treasury’s $22.5 trillion cumulative debt outstanding was set to reach $34.5 trillion by 2029, and that scenario assumed a very optimistic GDP growth of 3% per year. Further, it laughably assumed no recession will occur in the next decade, even though we are already in the longest economic expansion since the Civil War. In the event of a recession, a $1.8 trillion-dollar annual deficit would align with average historical experience. Given the severity of what is evident from the early stages of the pandemic, that forecast may be very much on the low end of reality.
The 1960s taught us that monetary and fiscal policy is always better erring on the side of conservatism to avoid losing confidence in the currency. Members of the Fed repeatedly tell the public they know this. Yet, if that is the case, why would they be so influenced by a President focused on marketing for re-election purposes? Alternatively, maybe the policy table has been set over the past ten years in a way that prevents them from taking proper measures? Do they assume they would be rejected despite the principled nature of their actions?
Summary
Inflation currently seems to be the very least of our worries. Impeachment, Iran, North Korea and climate change were all crisis head fakes.
The Fed was also distracted by what amounted to financial dumpster fires in the fall of 2019. After a brief respite, the Fed’s balance sheet began surging higher again and they cut the Fed Funds rate well before there was any known threat of a global pandemic. What is unclear is whether imprudent fiscal policies were forcing the Fed into imprudent monetary policy or whether the Fed’s policies, historical and current, are the enabler of fiscal imprudence. Now that the world has changed, as it has a habit of doing sometimes even radically, policymakers and the collective public are in something of a fine mess to understate the situation.
Now we are contending with a real global financial, economic, and humanitarian threat and one that demands principled action as opposed to short-sighted pragmatism.
The COVID-19 pandemic is clearly not a head fake nor is it a random dumpster fire. Neither is it going away any time soon. Unlike heads of state or corporate CEOs, biological threats do not have a political agenda and they do not care about the value of their stock options. There is nothing to negotiate other than the effectiveness of efforts required to protect society.
Given the potential harm caused by the divergence between stimulus and economic fundamentals, it would be short-sighted and irresponsibly pragmatic to count out the prospect of inflation. Given the actions of the central bankers, it could also be the understatement of this new and very unusual decade.
Tyler Durden
Thu, 03/19/2020 – 19:55 - The "Risk Parity-Negative Gamma-CTA" Feedback Loop
The “Risk Parity-Negative Gamma-CTA” Feedback Loop
Authored by Ryan Fitzmaurice of Rabobank
Summary
- So far 2020 is off to a volatile start with out-sized moves observed across asset-classes.
- Many, if not all, of today’s prominent strategies utilize a volatility-adjusted position sizing method of some sort
- Markets have been suffering from feedback loops as volatility driven portfolio rebalancing triggers CTA trend and momentum signals as well as “negative gamma” from swaps dealers
So far 2020 is off to a volatile start for all asset-classes as virus contagion fears and global growth concerns have led to out-sized market moves. The spike in volatility has had serious implications for speculative flows across markets given the highly systematic trading regime we are in. Many, if not all, of today’s prominent strategies utilize a volatility-adjusted position sizing method of some sort. The thought being that to maintain a pre-determined portfolio volatility target, regular rebalancing of individual position sizes in conjunction with changes in market volatility is necessary. So given the heightened volatility we have witnessed, funds and asset managers have reacted accordingly by slashing position sizing across risk-assets which has unintentionally triggered selling from CTAs and Managed Futures programs as momentum and trend signals turn “bearish” on the back of the volatility inspired selling pressure.
Crude oil is a classic example of this dynamic and was one of the first markets to be impacted by the sell-off in risk-assets. In fact, oil started the year on a very firm note with Brent crude trading above $70/bbl in early January as news of the US strike on Iranian General Soleimani in Baghdad hit the wires. Unsurprisingly, oil spiked higher on the news, as is generally the case when tensions flare in the Middle East, however, that early spike marked the high point for the year so far and prices have been falling precipitously ever since. Many analysts and traders attributed the sharp reversal to a quick de-escalation in tensions between the two long-time foes but to our minds it was more a function of risk parity funds and systematic strategies, who were big “longs” at the time, being forced to liquidate due to the spike in volatility. The selling in oil then snowballed as China went into full-lockdown and further risk-off trades were initiated, leading CTAs to flip from an out-sized “long” position to a sizable “short” position, which is where they currently sit.
“Risk-off” mode
Global equity markets have experienced some sharp down-turns in recent weeks as traders and investors scramble to price in the economic impact of the coronavirus outbreak in China and beyond. Up until mid-to-late February, equity markets had mostly shrugged off the virus concerns that first arose in January, and many indices even rallied to all-time highs in February before panic hit and volatility spiked, initiating the same feedback loop that we saw impact crude oil markets.
Initially, risk-parity funds and systematic strategies, who held sizable “long” positions in February, were forced to sell holdings as a direct result of the sharp increase in the VIX that led to volatility-driven portfolio rebalancing. This dynamic was then amplified by swap dealer “negative gamma” positions, as many banks were short “puts” below the market which are now “in the money”. This combination of forces has led to wild swings as market makers are forced to sell into weakness and buy into strength to maintain a delta-neutral portfolio. Like crude oil, this forced selling ultimately snowballed and has very rapidly flipped many of the prevalent CTA trend and momentum signals from “long” to “short”. The aggressive selling has added to market volatility as bids continue to back up as natural buyers disappear.
The risk-off trade has also led to a “flight to safety” as investors aggressively pile into treasury bonds, a traditional safe-haven asset class. In fact, the 10 year US treasury yield fell to a new all-time low of just .3137 % in recent days. The sharp move higher has triggered a number of momentum and trend signals which has led to significant CTA buying, even as US yields approach zero. Needless to say, volatility across asset classes remains elevated as a result of the sharp virus-driven moves, albeit from a very low base. We fully expect market volatility to remain elevated in this environment and as systematic market flows shift into and out of asset classes.
CTA Positioning
Commodities
Commodity markets have suffered the brunt of the market impact from the virus contagion as the optimism surrounding Phase One of the US-China trade agreement has given way to fears of a deadly global pandemic. In fact, the diversified Bloomberg Commodity Index is down more than 20% year-to-date with precious metals being the only sub-sector hanging on to any semblance of “bullish” momentum. Energy and agricultural markets have suffered out-sized losses as China remains the key driver of commodity demand growth for those key industries. The moves have been ironic as 2020 was expected to be a strong year for commodities markets given the Phase One trade agreement between the US and China. Nevertheless, CTAs are now heavily “short” commodity markets with the exception of precious metals, although, we see risk that CTAs will start to reduce gold length in the coming days given the potential for short and medium term momentum signals to flip from “long” to “short”, as can be seen in the table below.
For reference: red = short, green = long, number = the # of days for a potential flip in signal calculated using the Average True Range (only displayed if 3 or less)
- Sell stops: Gold: $1500 USD/oz, $1480 USD/oz
- Buy stops: Silver: $15.30 USD/oz; Platinum: $830 USD/oz; Palladium: $1600 USD/oz, $1540 USD/oz
- Sell stops: Coffee: 103 USd/lb, 97 USd/lb
- Buy stops: Corn: 383 USd/bu, 378 USd/bu; Soymeal: 312 USD/T; Sugar: 12.84 USd/lb, 11.95 USd/lb
Equities
CTAs came into 2020 with across the board “long” positions in global equity indices given the strong performance in 2019 and especially in 4Q19. As noted, global equity markets initially had a delayed reaction to the economic impact of the virus outbreak, however, that has all changed along with the rapidly deteriorating global growth outlook. Losses for the major global indices are quickly stacking up with some down more than 30% in just a couple weeks’ time. Ironically, it’s been Chinese markets that have fared the best this year despite the virus originating there. CTAs are now overwhelming “short” global equity indices as a result of the “bearish” momentum and as indices erase over a years’ worth of gains in short order.
- Sell stops: Nasdaq: 7435 index pts, 8605 index pts
- Buy stops: Nasdaq: 7937 index pts; S&P: 500 2847 index pts
Rates
Interest rate futures started off the year with little optimism given that the US Fed was indicated to be on “pause” with respect to more cuts but also with little to no hope for hikes. This was reflected in the CTA positioning which came into the year mixed with no strong underlying trends in play. This has all changed rapidly, however, and CTAs are now overwhelmingly “long” interest rate futures as the “risk-off” trade has triggered a classic “flight to safety” trade. While the rush into bond futures has paid off thus far, the fact of the matter is CTAs are now extremely “long” yields that are already negative in Europe, zero in Japan, and not much better in the US.
- Sell stops: Euro Bund 10yr: 171.5 points, Japan 10yr: 153 points, 152.25 points
- Buy stops: No imminent stops
Foreign Exchange
Foreign exchange markets were very dull for much of the last year with the sector even registering record low volatility but that that has all suddenly changed and we could be headed for a prolonged period of heightened volatility as we see it. This is also apparent from the mixed CTA positioning currently in play across the FX space and the fact that we are seeing the “herd” begin to reverse direction in some long-held positions such as the bearish Euro trade that has been in place now for some time. As you, can see from the table below, the “short” and “medium” term momentum signals are only two days average “up” days from flipping to “buy” signals.
- Sell stops: US Dollar Index: 97.85; Japanese Yen: 92.67, 92.33
- Buy stops: British Pound: 125.8; Japanese Yen: 94.12; Euro: 112.63, 112.70
Looking Forward
Looking forward we see CTAs fully positioned for further “risk-off” moves given they are net “short” equities and commodities in a meaningful way while holding a sizable “long” position in interest rate futures. In our view, CTA portfolios are at risk of being whipsawed out of their current positions should things begin to improve with respect to the coronavirus and global economic growth, however, the timing of any relief is still a very big unknown. It is worth keeping an eye on the VIX and commodity market volatility levels as risk-parity funds will begin rebuilding “long” positions as volatility falls. This buying pressure could then work to trigger upside “buy-stops” just as it did “sell-stops” on the initial volatility spikes and subsequent price declines. It is also worth noting, that CTAs as a whole have fared quite well through these turbulent markets and have far outperformed the often cited S&P 500 benchmark and especially in recent days as global equity markets have collapsed. Ironically, this outperformance comes after a long period of prolonged outflows from CTA funds as investors became disillusioned with the strategy after years of poor performance, a fact we highlighted in an earlier note “CTA and Managed Futures primer”.
Tyler Durden
Thu, 03/19/2020 – 19:35
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