Category: zerohedge

Amid an ever-escalating guess at the size of pension fund re-allocations funds (latest we saw was $150 billion) into month-end, both bonds and stocks were bid early on today, but as the day wore on, bonds weakened as stocks gained (driven by record IG issuance-driven rate-locks)…

Source: Bloomberg

But while some are rebalancing into stocks, the scramble for cash among average Americans has almost never been more panicky…

Source: Bloomberg

Just as notably, crude oil prices crashed to multi-decade lows today, completely decoupling from stocks (correlation crashed)…

Source: Bloomberg

The question is – how long will the bounce last? If it’s month-end, then 2008 is still in play…

Source: Bloomberg

Maybe it’s better not to play…

And most of all, some context shows that today’s ramp merely unwinds the carnage from the last 30 minutes of Friday… (note this was a 1300 points rally off overnight lows)

S&P and Nasdaq managed to erase that late-day plunge…(Note the Dow ended perfectly unch from Friday highs)

Breadth was very weak with declining volume dominating advancing volume for most of the day…

Source: Bloomberg

The Dow pushed back above the Dec 2008 lows today…

Source: Bloomberg

Defensives outpeformed cyclicals today…

Source: Bloomberg

US IG credit has dramatically outperformed Europe since The Fed promise to start buying…

Source: Bloomberg

Treasuries were bid overnight but selling pressure accelerated as the US day session wore on (month-end rebalance and record IG issuance-driven rate-locks – U.S. companies borrowed a record $109 billion, which was met with $550 billion of demand, in what one dealer called a “food fight” for new bonds, according to Bloomberg)

Source: Bloomberg

Intraday, 10Y Yields fell back to a 59bps handle before the US session sell-off…

Source: Bloomberg

Mission Accomplished for The Fed as Agency MBS dislocations have corrected…

Source: Bloomberg

The Dollar Index managed gains today (the first in 5 days and best in 7 days)…

Source: Bloomberg

Cryptos rallied today but were unable to erase the losses from the weekend…

Source: Bloomberg

Commodities were all lower today led by crude’s carnage…

Source: Bloomberg

WTI broke down to $19.27 at its lows (before bouncing back above $20.00 on the settle)…

And finally, as the oil market struggles with an unprecedented hit to demand caused by the coronavirus, its main measure of supply and demand is screaming that a historic glut is emerging.

Source: Bloomberg

As Bloomberg details, Brent crude futures for May are now trading at an incredible $13.30 a barrel discount to November prices, a deeper and more bearish super-contango than the market saw even in the depths of the 2008-09 global financial crisis. Consultants say that, as things currently stand, the world is just a few months from running out of places to stash crude.

And we note that the ‘Virus Fear’-trade started to pick up again today…

Source: Bloomberg

Looking at the future of oil prices, Goldman was downright apocalyptic in its short-term forecast, when in a note published this morning, the bank’s chief commodity strategist Jeffrey Currie speculated that as the current production glut “shock” cripples the crude transportation networks, “a producer would be willing to pay someone to dispose of a barrel, implying negative pricing in landlocked areas.” To wit:

The global economy is a complex physical system with physical frictions, and energy sits near the top of that complexity. It is impossible to shut down that much demand without large and persistent ramifications to supply. The one thing that separates energy from other commodities is that it must be contained within its production infrastructure, which for oil includes pipelines, ships, terminals, storage facilities, refineries, and distribution networks. All of which have relatively small and limited spare capacity. We estimate that the world has around a billion barrels of spare storage capacity, but much of that will never be accessed as the velocity of the current shock will breach crude transportation networks first, which we are already seeing evidence of around the world. Indeed, given the cost of shutting down a well, a producer would be willing to pay someone to dispose of a barrel, implying negative pricing in landlocked areas.

A quick look at two of the most popular landlocked oil producing areas demonstrate that Goldman is precisely right, and as the following chart shows, as of this moment Texas Midland WTI was trading at just baove $10/barrell, while the price of oil produced in the notoriously landlocked Western Canada, as represented by Canada Western Selected index, was just above $4 per barrel, or a little more than what a gallon of gas costs in California.

Looking at the chart above, when it comes to the dash for zero (and negative prices), Canada will take the gold, but Texas won’t be too far behind.

There was some good news: waterborne crudes are unlikely to suffer a similar price implosion. Again, Goldman explains why:

Waterborne crudes like Brent will be far more insulated, staying near cash costs of $20/bbl with temporary spikes below. Brent is priced on an island in the North Sea, 500 meters from the water, where tanker storage is accessible.

In contrast, WTI is landlocked and 500 miles from the water. This illustrates an important point. Shut-ins will be not be based upon where wells sit on the cost curve but rather on logistics and access. High-cost waterborne crude oil that can reach a ship (storage we have historically never ran out of), are better positioned than landlocked pipeline crude oil sitting behind thousands of miles of pipe, like the crude oils in the US, Russia and Canada. In 1998, when surpluses last breached storage capacity, it was these landlocked crude oils that were the hardest hit.

So while markets like WTI, particularly WTI Midland, or Canada’s WCS can go negative, Brent is likely to stay near cash costs of $20/bbl. Ultimately, the market never hits nameplate capacity, as other bottlenecks are also at play. During 2008 and also in this crisis, dollar funding and credit constraints that prevent oil owners from accessing storage and transportation capacity also played a role. We believe that the Fed’s actions last week alleviate some of this risk, but oil itself creates dollar liquidity given its importance in global trade and setting the price of other traded goods and another sharp drop in oil prices could create additional dollar shortages.

In other words, with most of US WTI production landlocked, while Russia and Saudi Arabia all within easy access to seaborne transit, Putin and MBS are at this very moment sharing a big toast via Zoom, and laughing at the wasteland that US shale will be in just a few weeks.

Shortly before the close on Monday, the New York Fed issued a surprise announcement according to which it pushed forward the start time of tomorrow’s month and quarter-end Overnight Reverse Repo operation to 12:30 PM ET from 12:45 PM ET, while keeping the end time of the operation at 1:15 PM ET, effectively increasing the operation time from 30 minutes to 45 minutes.

Why? The Fed explains:

This change has been made to ensure the Desk has sufficient time to obtain all bids from eligible counterparties on quarter end in light of remote working arrangements of eligible counterparties.

Yeah right, because those 15 minutes will “make or break” the quarter end repo.

The real reason? As we showed last week, in a “stunning development“, Dealers had either run out of securities to pledge to the Fed, or simply chose to hold on to their TSYs and MBS (and especially the latter in light of the ongoing MBS shortage which has sparked a visious margin call spiral among mortgage servicers), perhaps with the expectation of selling these securities to the Fed at much more economic conditions.

This can be seen in the chart below, which demonstrates the collapse in TSY submissions to the Fed’s repo operations ever since QE Unlimited was launched, which also meant that instead of parking their bonds at the Fed for up to 3 turbulent months, with an avalanche of new debt coming down the pipe, Dealers could just sell them to the Fed instead.

“Why on Earth you would tie something up for three months in repo with the Fed buying,” said Ian Burdette, managing director at Academy Securities, who followed up with a very apt observation:

“I think people are getting wise to the fact that an absolute tsunami of global sovereign debt issuance is on its way. Best to sell it all to the fed now probably.”

Meanwhile, instead of worrying about the repo – which thanks to Unlimited QE is now irrelevant – the Fed shoudl be much more focused on what is going on with uptake of its reverse repo operation, which likely due to quarter-end window dressing and various other strcutural reasons (especially when it comes to Bill yielding <0%), has seen a surge in usage to a record $237BN today, up from $210BN on Friday, in a bizarre reversal of liquidity dynamics which late on Friday we described - tongue in cheek - as a "treasury shortage."

 

 

For nearly a month, the high yield market was understandably frozen without a single junk bond deal pricing as yields exploded higher, forcing the Fed to step in with an unprecedented intervention to prop up investment grade debt, going so far as to buy the LQD ETF.

That changed on Monday, when the first junk bond in nearly a month was marketed, a sign that even the high yield market is starting to recovery.

According to Bloomberg, YUM! Brands is looking to sell $500 million, the first high-yield bond to hit the U.S. market since Charter Communications on March 4. As we first observed last week when we noted that the “Bond Market Tears In Two: Distressed Debt Is Cratering, As Fed Buying Of Investment Grade Sends LQD NAV Soaring“, the investment-grade bond market has been pumping out deals in record volumes, but the high-yield market has been slower to ignite, amid a surge of debt trading at distressed levels.

Confirming that nobody has learned any lessons, the YUM! offering was met with tremendous investor demand, and with $3 billion in orders, or 6x oversubscribed, the syndicate has already increased the deal size to $600 million from $500 million.

While the high yield market has been slow to recovery, in the investment-grade market, companies still able to raise funds are doing massive debt offerings. As Bloomberg reports, Oracle and Anheuser-Busch InBev are among those offering multi-tranche bond deals Monday between the U.S. and Europe, rushing to boost their liquidity and take advantage of the open window in case markets seize up again. It follows a blank session in Asia’s dollar bond market, where there’s been no issuance for several weeks.

Oracle is in the market for the first time since 2017 with a six-part offering, with maturities ranging from five to 40 years. AB InBev’s 4.5 billion euro ($5 billion) sale includes bonds due in seven, 12 and 20 years.

“As corporates should remain keen on retaining liquidity to weather the growing pain of lockdowns, we expect issuance windows to continue to attract issuers,” Commerzbank strategists said in a note to clients this morning.

Sure enough issuance is not only continuing, but soaring, and last week alone U.S. companies borrowed a record $109 billion, which was met with $550 billion of demand, in what one dealer called a “food fight” for new bonds, according to Bloomberg. It was a similar story in Europe, where investors placed more than 310 billion euros ($340 billion) of orders for about 75 billion euros of bonds. Asia’s dollar bond market, however, hasn’t had any issuance for several weeks.

Why? Because as the Fed has demonstrated should the market turn south, the Fed will have no choice but to double down and bailout both issuers and bond buyers all over again.

Authored by Simon Black via SovereignMan.com,

As you’ve probably already heard, the US government unleashed a giant tsunami of money on Friday, passing a $2 trillion stimulus bill to help boost the economy during the Covid pandemic.

Let’s put that number in context:

• $2 trillion is more than it cost to wage 18+ years of war in Afghanistan and Iraq.

• It’s nearly THREE times the size of the bailout from 2008.

• It exceeds ALL corporate and individual income tax revenue collected by the IRS last year

We are clearly living in unprecedented times… and that this bailout is equally unprecedented.

Among the bailout’s many provisions (which go on for more than EIGHT HUNDRED pages!) is a whopping $350 billion to the Small Businesses Administration.

The Small Business Administration is ordinarily a tiny federal agency. But this funding exceeds the budgets of the Army and Navy COMBINED. It’s 8x the size of the United States Marine Corps. It’s more than the entire market capitalization of Walmart.

You get the idea.

The SBA just became one of the biggest organizations in the world.

Now, in normal times, the SBA’s mission is to help startups and small businesses obtain bank loans; it’s usually pretty difficult for a startup to borrow money from a bank loan because the business is too risky, and banks don’t want to lend.

So the SBA’s role is to provide a guarantee for the loan. They’re essentially telling the bank that if the business fails and doesn’t pay back the loan, the federal government (i.e. American taxpayers) will make up some of the difference.

This guarantee doesn’t make a small business loan risk-free for banks– there are still things that can go wrong. But the guarantee helps reduce the risk.

But typically, in order to receive an SBA guarantee, business owners have to provide their own ‘personal guarantee’ to the government. In other words, if the business owner defaults, the government can seize their assets in order to recover loan losses.

That’s the way SBA loans normally work.

But these times are not normal.

According to this new bailout legislation, “no personal guarantee shall be required,” and the government “shall have no recourse against any individual shareholder, member, or partner . . . for nonpayment”.

In other words, the legislation implies that these loans don’t have to be paid back.

Moreover, the law also states that “no collateral shall be required for the covered loan.”

So you don’t even need any assets to qualify. In fact you need barely anything to qualify… except a pulse.

According to the legislation, “any business concern, nonprofit organization, veterans organization, or Tribal business. . . shall be eligible to receive a covered loan” as long as you have fewer than 500 employees.

Honestly the only real requirement is that you have to keep paying your employees. That’s the entire point of the legislation– lawmakers wanted to provide funds so that small businesses could continue paying workers.

The maximum loan amount is equal to your payroll costs over the last 12 months multiplied by 2.5.

*Payroll costs include salaries, wages, and payments paid to employees and independent contractors, including yourself, up to $100,000 each. It also includes medical insurance payments, retirement benefits, state/local tax, and payments for sick leave, family leave, or vacation.

*Payroll costs do NOT include federal income or unemployment tax withholdings, or compensation for employees based outside of the United States.

So if you had, say, $400,000 of qualifying payroll costs over the past year, your maximum loan amount is $1 million.

And the maximum interest rate (according to the legislation) is just 4%.

[If you have a pulse qualifying business and you want free money to apply for a loan, you can do so here: https://covid19relief.sba.gov/]

Now, I’m sure that plenty of people will use these loans as intended– to stay in business, continue paying workers, etc. And eventually they’ll do the honorable thing– pay the loans back, with interest.

But let’s be honest. Countless people are going to completely abuse this. They’ll borrow as much money as they can with absolutely no intention of paying back a single penny.

This means there’s going to be a ton of loan losses.

Remember– banks are the ones who will be making these loans, using their depositors’ money. YOUR money.

And even with the SBA guarantee, there are still things that can go wrong. If the paperwork was wrong, if the loan wasn’t made in the prescribed way, if the business didn’t actually qualify, etc. the banks can still suffer losses.

(Taxpayers will obviously suffer huge losses as well.)

But despite these risks, the legislation specifically tells banks that “a covered loan shall receive a risk weight of zero percent.”

Translation: banks should count these small business loans as ‘risk free’ even though there’s a strong chance that tons of people will never pay them back.

The legislation also says that banks “shall not be required to comply” with accounting rules that require them to disclose when their loans go bad.

So the government is essentially telling banks to make loans to everyone, with no personal guarantee, no recourse, and no collateral… and to maintain these loans on their books as risk free. And even when these loans default, to continue reporting them as risk-free.

What could possibly go wrong???

It’s clearly a great time to be a borrower. That’s one thing we learn from bailouts—they’re always going to take care of people in debt, and help people go into more debt.

But it’s more concerning to be a depositor.

Even with the SBA guarantee, it’s obvious that banks are riskier than they want you to believe.

And to continue learning how to ensure you thrive no matter what happens next in the world, I encourage you to download our free Perfect Plan B Guide.

We’re all for free speech, but maybe the height of a global crisis isn’t the best time to “floss” your $8 billion net worth like you’re making a cameo in a Cash Money Records music video.

That’s the lesson someone should have told DreamWorks co-founder David Geffen, who pissed off the world when he posted photos of his “quarantine” on his superyacht on Instagram last week. Geffen posted photos of his yacht, which according to the Washington Examiner, cost $590 million, accompanied by a caption that said:

“Sunset last night…isolated in the Grenadines avoiding the virus. I’m hoping everybody is staying safe.”

Social media users instantly became outraged with Geffen, pointing out that his post was “tone-deaf” in light of the hardships that many people dealing with the coronavirus outbreak in the U.S. are facing.

The View co-host Meghan McCain tweeted: “David Geffen is worth 8 billion dollars! For God’s sake help this country get ventilators, our health workers masks and the medical supplies they need! Or no, just stay on your f—ing yacht instagramming. This is just shameful and grotesque.”

New Yorker writer Lauren Collins tweeted out Geffen’s photo with one word: “psychopath”.

psychopath pic.twitter.com/0tCQhuuhco

— Lauren Collins (@laurenzcollins) March 28, 2020

Film producer Robby Starbuck asked: “Is anyone shocked that Democrat donor David Geffen posted such an out of touch photo? He might as well have take a picture flipping everyone in America off.”

Starbuck continued: “David Geffen’s thought process: ‘Hey you know what, millions are losing their jobs, can’t pay their rent and they’re worried about a deadly pandemic, I bet they’d love to know how I’m doing. Fire up the copter so we can take some more pics of my yacht! They’ll love this!!!'”

Blog site A.V. Club destroyed Geffen, writing last week: “It’s getting to the point where it almost feels like some sort of cash-induced brain disease, a hideous and infectious need to say something about their vast reserves of wealth, safety, and power, when “nothing” would certainly have sufficed.”

Geffen has now locked down his Instagram account, but of course, the damage has already been done. With forward thinking and impeccable timing like that we’re surprised Geffen isn’t working at a portfolio manager at one of Wall Street’s “forward looking” long only funds. 

Via SchiffGold.com,

All eyes have been on the stock market in recent weeks as it has reflected the fears about the coronavirus-induced economic shutdown and the hopes of massive stimulus. It’s been quite a rollercoaster ride. But in his podcast on March 27, Peter Schiff said there’s an even bigger problem looming on the horizon that people aren’t paying any attention to – the potential destruction of the dollar. He said Americans are in for a rude awakening.

The Dow Jones finished its best week since the Great Depression with a 915.39 point drop. But even with that big plunge, the Dow was up about 13% on the week, all on the strength of the spectacular rally on Tuesday, Wednesday and Thursday. In fact, the Dow had a bull market condensed into three days. But Peter said it was not really a bull market. He called it a “vicious correction in a horrific bear market.” And he said that bear market is “a long way from over.”

But while most eyes are on the stock market, Peter said we’re missing a more significant looming bear market — the bear market we’re going to have in the US dollar.

Peter has already explained how the actions of the Federal Reserve and the US government has set the stage to devalue the dollar, saying the dollar is cooked. He said that with the central bank and government response to the coronavirus, hyperinflation has gone from being the worst-case scenario to the most likely scenario.

A bear market in the dollar can mask some of the other problems in the economy. Consider in the 1970s, the dollar fell by nearly 70%. That means that while nominal stock market losses in the decade weren’t terrible, the real losses were significantly larger.  It was a destruction of the value of US stocks and Peter said it’s going to happen again.

A plunge in the dollar means losses on all dollar-denominated assets — stocks, bonds, real estate. It also means price inflation and rising interest rates, which pushes down the value of bonds even lower. Peter said he thinks the dollar is going to be a lot weaker in this decade than it was in the 1970s.

I think the US is certainly starting off the decade in a much worse financial position.”

The main reason the dollar fell in the 1970s was because the US went off the gold standard. But the dollar remained the reserve currency, even though it was backed by nothing.

It got marked down, but it didn’t get knocked out.”

During the 80s, the US enjoyed the privilege of being able to issue the world’s currency without having to back it by gold.

That basically gave us a license to print and we’ve been abusing that ever since.”

Peter said this time he thinks the world is going to kick out the dollar as the reserve currency. If that happens, the dollar will just be another currency.

And that means Americans are going to have to have to abide by the same economic rules that govern everybody else. That means if we want to consume, we’ve got to produce. If we want to borrow, we’ve got to save. And Americans are going to be in for a rude awakening.”

Peter said this may well crush the retirement dreams of many Americans. With the erosion of the dollar’s purchasing power, retiring simply won’t be an option for many people.

Most Americans who are already retired, well, they’re going to have to go back to work. And the people who were planning on stopping working, well, they’re just going to have to keep working until they’re dead, basically. Unless you can do something now to protect yourself.”

Peter also talked about the passage of the massive stimulus bill. He said it’s possibly the most socialist bill ever passed. Basically, America is already a socialist nation.

Last week, with stocks at 2016 lows, without a buyer in sight, with stock buybacks dead and buried, we first reported that according to JPMorgan calculations, some “$850 Billion In Stock Buying Is About To Be Unleashed” largely due to pension fund quarter-end rebalancing, which promptly served as the straw clutched by bulls everywhere who were hoping that with at least one set of investors forced to buy, the S&P500 may have hit a bottom, if only for the time being.

This is what we said:

According to JPMorgan estimates, balanced or 60:40 mutual funds, a $1.5tr universe in the US and $4.5tr universe globally, need to buy around $300 billion of equities to fully rebalance to 60% equity allocation.

At the same time the $7.5 trillion universe of US defined benefit plans, would need to buy $400 billion to fully rebalance and revert to pre-virus equity allocations.

Finally, there are the “balanced” sovereign pension funds such as Norges bank and GPIF, which before the correction had assets of around $1.1tr and $1.5tr, respectively, and which according to JPM would need to buy around $150 billion equities to fully revert to their target equity allocations of 70% and 50%, respectively.

Then, a few days later, as stocks exploded higher, entering a bull market a record short 4 days later, yet with nobody knowing exactly why, the same strawman reappeared and as we reported according to desk chatter, “Traders were Betting That “$850BN Buyer” Is In The Market.”

It didn’t take long for desperate permabulls everywhere, both institutional and retail, to hang their hats on the pension rebalancing strawman, with that relentless optimist, JPMorgan’s Kolanovic, doubling down and after last week’s bull market, betting that the forced buying would continue, with supposedly another $125BN in buying on deck.

JPM Kolanovic: We estimate that re balance for the month end which is Tuesday could be around $100-$125B now. We think 60% still needs to be done 40% in a relatively short period of time… Trump is now on point risk reward is to be long time to risk some $$$ GL

— FxMacro (@fxmacro) March 30, 2020

By now we had entered “make up numbers” territory: since nobody can determine for sure how much pensions are buying, may as well throw out very big numbers. After all, the whole point of the exercise is to spook the market into covering shorts, starting a buying cascade.

And while this self-fulfilling prophecy certainly worked last week and for much of Monday’s ramp, a glitch emerged late on Monday when Reynolds Strategy strategist, the eponymoys Brian Reynolds, said that this most transparent exercise in stirring stock euphoria may have just suffered a potentially terminal blow after “a large California pension has postponed their scheduled quarterly rebalancing” adding that as California pensions are the “thought leaders in the pension community”, it is likely that “others will either follow along in postponing or reducing anticipated rebalancing.”

Reynolds was referring to an article in P&I online, according to which “Los Angeles City Employees’ Retirement System’s board temporarily modified its asset allocation and rebalancing policies, which includes allowing the staff to defer rebalancing its asset allocation if deemed appropriate, said Rodney June, CIO of the $15.1 billion pension fund, in an email.”

“The market conditions are unusual and volatility is well beyond historical norms,” said a staff memo for the board’s meeting Tuesday. “Staff believes that while extreme market volatility is present owing to the decline in the total portfolio value … shoring up liquidity within the UCA (unallocated cash account) is important to ensure that LACERS can readily meet ongoing cash flow obligations of approximately $95 million per month.”

The memo also said suspending rebalancing during extreme periods of volatility is prudent.

“Understanding that an out-of -balance asset class due to large market swings may later ‘self- balance’ due to a stabilization of the market may help prevent premature rebalancing that may incur costly market impact and transaction costs,” the memo said.

To many efficient market supporters (what’s left of them now that the Fed has nationalized capital markets) this comes as a long overdue measure: after all, why do Pensions wait until the last few days of the quarter to buy stocks, knowing well that they will be frontrun by other investors who are all too aware of their buying intentions, in the process yielding far lower returns for their stakeholders by buying stocks at higher prices; which one can argue is a breach of their fiduciary duties as pension funds can easily get far better prices if only they kept their rebalancing times and dates a secret.

By the looks of things, that’s precisely what they are doing.

In short, pension rebalancing – which so many bulls have relied upon it to stir up buying demand in the last few days of the month – may have just gone extinct. The only question is whether this revision is effective as of this quarter, and are investors not frontrunning pension buying but merely themselves… first on the way up and then on the way down.

Via S&P Global Platts Insights blog,

Demand destruction from the coronavirus outbreak will be top of mind for power and gas traders this week, while the ripples in the oil market are being felt in Saudi Arabia and Vietnam, albeit in different ways. The iron ore market, which is faring better, rounds out this week’s pick of commodity charts by S&P Global Platts news editors

1. Lockdowns in Europe, Asia push TTF gas price to 16-year low…

What’s happening? The coronavirus lockdowns in Europe and now India are hitting gas prices hard, with the TTF month-ahead falling to its lowest level since S&P Global Platts began assessments in 2004 of just Eur7.15/MWh. Reduced industrial activity in Europe has led to lower gas demand while declarations of force majeure by Indian LNG buyers mean deferred cargoes are likely to land on European shores.

What’s next? With the lockdowns likely to endure for weeks if not months, the bearish sentiment is not expected to lift, especially as maintenance work on gas fields and pipelines offshore Norway has been largely shelved on coronavirus fears. That means a market share battle between Norwegian gas, LNG and Russian supplies is set to intensify.

2. …and US sees power demand decline as coronavirus pandemic spreads 

What’s happening? New York City electricity loads have been weaker year-over-year this winter so far due to milder weather, but are now trending significantly below the recent five-year average, indicating a virus-related slowdown, according to Manan Ahuja, manager of North America power at Platts Analytics. These demand numbers could slow down even further as people stay home and businesses remain shuttered to prevent spreading the virus.

What’s next? US power system impacts from the coronavirus pandemic are beginning to emerge, with shifting load patterns, significant load declines in a number of areas and projections that mild weather and business shutdowns will continue to suppress load during the coming weeks.

3. Saudi Arabia poised for ramp-up in production, exports

What’s happening? Saudi Arabia has directed state oil company Aramco to supply 12.3 million b/d of crude to the market starting in April, once the OPEC+ accord expires. Aramco CEO Amin Nasser has said that 300,000 b/d of that amount will come out of the company’s inventories, leaving 12 million b/d to come from production. That is Aramco’s maximum production capacity, and Nasser has said the company can maintain that level of output for a year without any additional investment.

What’s next? Aramco, which has the exclusive right to pump all crude within the kingdom, has never produced that much before, and some analysts doubt its ability to sustain such high volumes. Aramco may also have difficulty finding enough buyers for its barrels, with many refineries cutting runs due to the coronavirus outbreak’s hit to gasoline and jet fuel demand. Countries seeking to fill up their strategic reserves may snatch up the barrels, but for commercial buyers, inventory costs are getting more expensive, especially for floating storage, amid a growing crunch in tank space availability.

4. Low prices to hurt Vietnam’s sweet crude output and sales

What’s happening? Vietnam, a major participant in Southeast Asian spot trade, is suffering from low global oil prices. Crude sales and export earnings for the country are estimated to fall by $225,000/day for every $1/b decline in outright prices. If prices are quoted at around $30–$35/b, state-run PetroVietnam said the company is likely to lose $3 billion in annual sales. Platts assessed Vietnam’s Bach Ho crude at record lows in March. The grade had an average outright price of $42.45/b to date this month, falling more than $25/b from $68.34/b on average in 2019, Platts data showed.

What’s next? The Southeast Asian sweet crude market may witness spot cargo volumes decline sharply as Vietnam scales back exports. PetroVietnam aims to produce 10.62 million mt of crude oil in 2020, down 18.9% from 13.09 million mt in 2019. Vietnam will pay more attention to building crude reserves than exports as low prices open new opportunities for PetroVietnam to stock up at lower costs, general director Le Manh Hung said. Building strategic reserves to ensure energy security is becoming more relevant to Vietnam as its import requirements have risen sharply in recent years, according to JY Lim, oil markets adviser at Platts Analytics.

5. Iron ore prices hold firm in face of lockdowns

What’s happening: Iron ore prices have held firm in recent weeks on supply side factors, even as steel prices have slumped on weaker demand as automotive and other industries have closed amid coronavirus-related curbs.

What’s next: Disruption to shipments due to 21-day lockdowns announced last week in South Africa and India – where iron ore exporters have declared force majeure – and new government directives from Canada may continue to support iron ore prices, offsetting the current collapse in European demand, which accounts for 9% of seaborne iron ore demand.

In a veritable treatise on all that was wrong with The Fed’s actions, Jim Grant – founder and editor of Grant’s Interest Rate Observer – was somehow allowed nine minutes on CNBC’s Squawk Box to put America straight on what we are facing and the consequences of these unelected and unaccountable officials terrifying experiments.

Grant began by slamming Jay Powell’s seemingly blinkered proclamation that “he sees no prospective consequences with regard the purchasing power of the dollar” as “very concerning” adding more pertinently that he thinks “that wilful ignorance is a clear-and-present-danger for creditors of The United States.“

It appears his fears are starting to be warranted as USA Sovereign credit risk is rising…

“I am in favor of life going on,” says Grant when asked by the anchor, “shouldn’t The Fed do something amid this massive global shutdown?”

The alternative, the venerable bond guru exclaims is the direction we are heading – “shutting everything down and putting the government in charge.”

Bernie Sanders may (or may not) be out of the presidential race but, as Grant highlights, “his programs are being implemented in fact daily.”

“One can die of despair as well as disease,” warned Grant, reminding viewers of the consequences of mass self-incarceration.

“There are health consequences to isolation, and health consequences to unemployment.. and life as it must go on is is a precious thing too and we ought to at least consider what we are condemning ourselves to if we choose to shut everything down for another month or two or three.”

“I think it would be a fatal error.”

Once again, the CNBC anchor urged Grant to support massive intervention but exclaiming “desperate times call for desperate measures.”

His retort shut down her argument quickly:

“experts are not expert in a dis-positive way, there is no certainty about this, just as there is no certainty in finance or indeed life,” and Grant adds ominously that “the cure is prospectively worse than the disease.”

“The delegation of political and economic authority to the US government to suppress this crisis is a clear and present danger.”

Finally, Grant, whose wife is a physician, reminded the anchors that the current actions (and consequences) have a direct analogy with the opioid crisis, as “in the early 2000s, the medical profession got it into its head that pain was the vital sign, and that no one ought to be in pain… this led to the deadly over-prescription of opioids.”

By the same token, Grant analogizes, “The Fed has intervened at ever-closer intervals to suppress the symptoms of misallocation of resources and the mis-pricing of credit. These radical interventions have become ever-more drastic and the ‘doctor-feel-goods’ of our central banks have worked to destroy the pricing mechanism in credit.”

Simply put, credit and equity markets “have become administered government-set indicators, rather than sensitive- and information-rich prices… and we are paying the price for that through the misallocation of resources.”

Grant ends on a hanging chad of a rhetorical question “what do corrections correct? Is there no salutary role for recessions and bear markets?”

Of course there is, he answers, “they separate the sound from the unsound, they separate the well-financed from the over-leveraged and if we never have these episodes of economic pain, we will be much the worse for it.”

Watch the full interview below: