Category: zerohedge

Authored by Bill Blain via MorningPorridge.com,

“Well, it has to happen. Because if it doesn’t happen, we hit the wall next week. We’re already in breach.”

Happy St Patricks day. Extra points for identifying the moment in Irish history in this morning’s quote… 

Meanwhile… back in Today

Yesterday was another nasty day – uncertainty, panic and fear fuelling the worst fears for the market. The scale of capitulation was massive – Treasuries heading for zero percent, stocks biggest down day for 33 years, and gold sliding because investors literally have nothing else to sell to meet margin calls. If you aren’t out yet, you are stuck. Forget liquidity – it’s almost impossible to exit even liquid index ETFs.

Stop. Breathe deep. And relax. 

Today looks like it might be an up day. The market is swinging madly because of uncertainty and we just don’t knows. After yesterday’s Fed all-in-rates to zero and essentially unlimited QE, Lagarde at the ECB effectively apologising for throwing Italy under the bus, and the G7 giving us a Mario Draghi “do whatever it takes” moment to address the virus – its entirely possible we’re headed higher today on hopes of a relief rally. In other words investors might find a plank of wood to cling to in this raging market maelstrom. 

Hope is never a good strategy.  Don’t be fooled. It will get worse before it gets better.

At this stage in the Coronavirus No-See-Em shocker, It’s all about uncertainty. We just don’t know how critical the virus will go, the scale of the dislocation to come, and how deep the economic damage will go. 

What If We Knew?

What if we had a much clearer idea of what and when it’s going to happen? There is the brainpower, analytical and modelling experience out there in the marketplace to clearly model the multiple transmission, infection, and treatment scenarios plus the economic implications in terms of jobs, production, supply and demand, to give us a very clear idea of how this goes.

Here in the Shard Offices (actually, today I’m a home), we’ve been working out our own scenarios of when to put our buying boots on. We reckon the buy signal will be a slowing infection/transmission rate. That is when the market will start to anticipate recovery and we’ll see prices start to strengthen. 

What if we knew, with a high degree of certainty when moment is going to come? What if we had a high degree of confidence in the implications for the economy?

I’ve now spent some time looking at a superb virus model with clear potential to crack the numbers, handle multiple scenarios, and can process all that data to provide some very clear signals. IT provides answers to the critical questions. I’m looking to introduce institutions to the team behind the model. Its operational now. 

If you want to know more email me, or call me direct. 

Recovery? 

A number of firms have clearly been doing their own modelling of the crisis. Yesterday the Goldman Sachs crisis call suggested “Stock Markets should fully recover in the 2nd half of the year”. This morning Credit Suisse is on the wires saying something similar and positing a strong V-Shaped recovery, with markets swiftly undoing the damage this year. 

What TF are these guys smoking? I want some… 

It’s not going to be that simple. More than “psycological” damage has been done. It’s not about volatile market sentiment. This has been an economic shock and a correction. 

Let’s be brutally honest about what’s happened in recent weeks (and I shall be posting a note on Virus Timeline later today):

Markets hit all-time record highs just a few weeks ago. Stocks hit record levels. Corporate bond spreads had never been tighter. Most of the globes sovereign debt was trading at sub-zero or barely positive yields. The bull market was unstoppable – no matter how bad the news about virus, trade wars, and rising debt seemed.

Everything was perfectly priced – mispriced.

The market’s final euphoric top wasn’t driven by economic reality, phenomenal growth expectations, accelerating corporate profitability or rising consumer incomes and discretionary spending. Nope. The only real driver was the continuing expectation/belief Central Banking Authorities would continue to juice the market and distort prices the way they’ve been doing since they stumbled on monetary experimentation, QE and NIRP since the last crisis. 

Now we know they were not a cure. They were hits of monetary addiction. 

Just how dangerous we will shortly find out – just how damaging the unintended consequences the last eight years of market distortion have been. I suspect unravelling the damage will be long-term and extremely destabilising.

For instance; the obvious one is corporate debt. $14 trillion of new corporate debt in the last 7 years needs to be repaid. Was it spent on building new productive assets? Nope. Most of it was spent on stock buybacks which created wealth for owners, but has simply leveraged companies to the hilt. There is enormous balance sheet damage to be corrected – and that is not stock positive in the next few months.

The wealth effect of stock buybacks juicing stock markets has fuelled property, art, and luxury businesses around the globe. Remove the multiplier and these wealth effect markets all look vulnerable. 

And what about the consumers that have already lost jobs, spent their savings and are scrabbling to stay afloat today? I’m reading estimates saying 10 million US catering and entertainment jobs will be shuttered, furloughed or gone in next few weeks. They aren’t going to start consuming any time soon to drive recovery.

The consensus on Government debt is that nations can simply make QE debt effectively disappear. Maybe… but there will be a credibility gap at some point. The big one will be Yoorp – where the implausibility of agreeing de facto debt mutualisation (ie: persuading German car workers to fund French farmers pensions), ain’t going to happen unless its forced through in crisis.

They are so many reasons the market is not simply going to bounce back after the virus crisis has past. Unravelling the supply and demand side damage to the economy is not going to happen overnight. Mass tourism is not going to switch back on in a heart-beat. There will be millions of consumers who have seen their incomes collapse on the back of lay-offs. They will need time and opportunity to rebuild savings. Fear is going to be the primary driver.  

In the long-run the global economy will recover – but it won’t be overnight in a V shape undoing of what’s going on now in terms of contraction. In the short-medium terms we face at least months, if not years of rebuild. Stock markets are not going back to February’s levels anytime soon. THat doesn’t mean we won’t new highs as a new bull market takes hold – but it could be years.

Asset Price recovery will be more nuanced. There will certainly be opportunities.

This morning I’m thinking of buying aviation bonds on the basis: “if all airlines will be bankrupt by May”, then its highly likely we will see governments step into support them. Which means they will keep paying the leases on their aircraft, and we’ll see medium term recovery in tourism and business travel – the clock is not going to roll back to the 1930s!

Is it time to buy Asian banks on the expectation Asia is going to recover faster than Europe? Or what about wide-spread Italian and Spain bonds on the basis the ECB will bail them out? What about European banks on the basis the ECB, and nations, can’t afford national champions (ha! Are there such things in Yoorp) going to the wall? 

What about corporate bonds on the basis it’s a buyer’s market and easy to buy bonds…

However, the really, really interesting thing is the opportunity for Governments to do the right thing. 

Spend Money on Health

This crisis is not really about economics or market levels. It’s all about the ability of Health Services to cope with an unexpected shock and catastrophe levels of demand. Yet, anyone who uses the NHS regularly – as my dicky ticker requires – will know Health Services are financially stretched, in permanent semi-crisis, chaotic and understaffed. They are full of dedicated doctors and nurses, but inefficient managed by inflated bureaucracies. 

In 2008 the UK government bailed out failing banks to the tune of some £500 bln. In 2019 we spent some £125 bln on the NHS. We are now at a stage where credible governments can borrow/create (via a QE trick) unlimited sums at essentially zero interest cost. We are now used to Boris describing this crisis in terms of a war we can win. We can – imagine using this opportunity to rebuild and refocus the NHS into something modern, ready and prepared for this happening again, paying nurses properly, introducing proper AI and management. The opportunities are legion. 

Same thing in the US where the crisis will likely bite deepest. The US wins wars because it can outspend any enemy. In 2008 it spent $700 bln bailing the banks – and got the money back. Imagine if the US was to spend similar amounts on a proper free health service? That might truly make America Great Again.  

Just thinking out loud..

Last month, the market was shocked when despite strong payrolls numbers, the closely-watched JOLTS report – which as a reminder was Janet Yellen’s favorite labor market indicator – showed that in the two months ended Dec 2019, the number of job openings in the US economy tumbled by the most since the crisis, an early warning indicator that something was badly broken in the job market and was likely not captured by the BLS’s Establishment Survey.

Well, moments ago the BLS reported its latest JOLTs report and so often happens, it was a mean reversion kitchen sink, with job openings soaring by 411K, the most in three years…

… and pushing the total back up to 7 million.

Commenting on the data, the BLS said that the number of job openings increased for total private (+370,000) and edged up for government (+40,000). Job openings increased in finance and insurance (+65,000), federal government (+38,000), and mining and logging (+8,000).

The irony of course is that job openings are surging… and nobody cares for two reasons:

• First, the number is two months delayed (this was January data)
• Second, we now know that tens of thousands are being mass laid off at this moment as the US economy shuts down due to the coronavirus, which means that job openings are now completely irrelevant and what matters will be weekly layoffs announcement which soon may be in the millions.

It also means that after 23 months in which there were more job openings that unemployed workers, this series is about to reverse with a vengeance, as posted openings crater and as hundreds of thousands of Americans suddenly find themselves without a job.

Amazon has informed customers in a blog post that it has sold out of some household items, and prime deliveries could be disrupted during the Covid-19 outbreak.  

The online retailer updated its blog post on Saturday and told customers that “we are currently out of stock on some popular brands and items, especially in household staples categories.”

It said that certain items could experience longer than normal delivery times.

“We are working around the clock with our selling partners to ensure availability on all of our products, and bring on additional capacity to deliver all of your orders,” the post added.

In the last two months, Prime members have noticed notifications saying “inventory and delivery may be temporarily unavailable due to increased demand” for certain products, such as 3M N-95 virus masks. More recently, the shortage of products has significantly expanded to bottled water, hand sanitizer, toilet paper, and vitamins. Amazon noted that it has worked extremely hard to crack down on price gouging, especially seen with third-party sellers selling masks and hand sanitizers for many folds over the suggested retail price. 

Social distancing has led to the max exodus of shoppers at brick and mortar stores, who have now gravitated to online shopping to prevent spreading.

“As COVID-19 has spread, we’ve recently seen an increase in people shopping online,” Amazon wrote. “In the short term, this is having an impact on how we serve our customers.”

Amazon is gearing up for increased online activity as the virus crisis is expected to worsen in the weeks ahead. A Wall Street Journal report on Monday said the online retailer is expected to add 100,000 workers to cope with the surge in new demand. 

The virus crisis will forever change how consumers shop. Social distancing will ensure more online shopping. But in the meantime, Amazon has been caught off guard by the rapid surge and will result in shortages of products and shipping delays. 

Early on Sunday afternoon, just two hours before the Fed unveiled its ZIRP/QE bazooka, we wrote that the “Fed Is Expected To Announce CP Bailout Facility Within Hours Or Risk Money Market Panic.”

That, however, did not happen – perhaps the Fed was hoping that QE, ZIRP and enhanced swap lines would be sufficient to calm the market – even though the Commercial Paper market, so critical in funding short-term corporate liquidity, was the one most in need of a Fed backstop (one can debate the moral hazard of once again bailing out corporations at a different time) as the blow out in the 90 Day AA nonfin CP – OIS Swap spread to financial crisis levels demonstrated.

Meanwhile, in the absence of a CP backstop, the commercial paper market ground to a halt while rumors of money market runs only made things more challenging.  It also forced cash-strapped companies to fully draw down on secured credit facilities as they were suddenly locked out of the CP market.

And so, with funding markets freezing up even more on Monday despite the Fed’s bazooka, this morning first Steve Liesman, and then Reuters, both reported that the Fed would, as many had expected, reinstate the Commercial Paper funding facility…

• *FED TO REINSTATE COMMERCIAL PAPER FUNDING FACILITY: REUTERS

An announcement about a reintroduction of the Commercial Paper Funding Facility (CPFF) could be made as early as Tuesday, Reuters reports, citing unidentified people familiar

In other words, the Fed is about to reintroduce moral hazard by bailing out pardon backstopping Commercial Paper market in hopes of easing the dollar funding shortage which materialized in a continued blow out in the FRA/OIS and various currency basis swaps…

… of which the Yen specifically exploded the most since 2011.

And now we wait for the Fed to make the official announcement as it continues blindly throwing gobs of liquidity at a problem it ultimately is powerless to fix as the collapse of funding chains (which are simply supply chains in reverse) amid a crisis in confidence can not be resolved with even an unlimited amount of Fed bailout/backstop/rescue facilities.

…and just like that, it was gone.

And The Dow drops below 20k…

Authored by Mike Krieger via Liberty Blitzkrieg blog,

And it was in the midst of shouts rolling against the terrace wall in massive waves that waxed in volume and duration, while cataracts of colored fire fell thicker through the darkness, that Dr. Rieux resolved to compile this chronicle, so that he should not be one of those who hold their peace but should bear witness in favor of those plague-stricken people; so that some memorial of the injustice ad outrage done them might endure; and to state quite simply what we learn in times of pestilence: that there are more things to admire in men than to despise.

– Albert Camus, The Plague

It’s likely the past few weeks have been some of the most surreal you’ve ever experienced; I know it’s been the case for me. The largest cities in the U.S. are essentially on lockdown, the stock market is in free fall and grocery stores are being stripped bare. It feels like a very dark moment, but in such darkness I see the light of a new beginning. A new beginning that starts with each and every one of us.

One of the things that helped me navigate the last couple of months in a state of relative calm is a longstanding understanding that something of this sort was inevitable. Not a pandemic necessarily, but something was bound to come along and slam us unexpectedly, and that when it did, the impact would be shockingly disruptive given how completely brittle and phony our economies and societies have become.

It’s this deep-seated recognition that the world paradigm we reside in isn’t long for the ages which allowed me to stay focused and relatively unemotional as this pandemic unfolded. I’m also extremely lucky to have a wife who showed tremendous resolve and decisiveness by immediately taking preparations for our family all the way back in January, before even I was ready to act in a meaningful way. While people called what we were doing panicking, it was just thoughtful and reasonable preparation. Preparation that allowed us to remain calm in early March as things started shutting down, and as many found themselves flatfooted and confused.

As a result of our being emotionally robust as things unfolded, we were able to help friends and family in some small, but important ways. In one case, I was able to successfully help nudge a friend into convincing his wife not to fly overseas to a wedding just a few days ago. I was also able to share resources with a friend in Seattle early on, which made him more aware of the severity of the crisis and prompted him to get groceries before the crowds descended. Most importantly, I connected with a close friend who’s a doctor in a hospital in NYC, and was able to get key thoughts and information into his hands well before many people in his profession were taking it seriously. Knowing I was able to make a material difference in certain people’s lives, which they in turn were able to do for others in their own circles, has been a tremendous blessing.

I’m not sharing this to toot my own horn. Regular readers know I rarely discuss my personal life on these pages, but the reason I mention this now is to demonstrate that anyone can do what I did and have a meaningful impact. I didn’t need a blog or a big platform to have important discussions with friends. I was able to calmly take action and reach out to them because we had already prepared and accepted what was likely coming. Anyone can do this.

There’s never been a better opportunity to localize and decentralize than right now.

Start with yourself and your family, make them as robust as possible. Then work on your community and extend outward from there.

Think about who you can touch in a positive way and how. Go.

— Michael Krieger (@LibertyBlitz) March 12, 2020

It’s impossible to overstate the impact you can have as an individual in times like these. We’ve all seen the federal government response. From statements like “it’s just the flu,” to Trump signing charts of a short-covering rally in the stock market and the CDC’s inability or unwillingness to test Americans in the early days, this entire episode should prove to you once and for all that the centralized cavalry isn’t coming. You are the cavalry.

You have no leaders.

You must be the leadership you want to see in the world.

— Michael Krieger (@LibertyBlitz) March 9, 2020

In Part 3 of this series on localism, I described units of sovereignty starting with the most significant and basic unit: the individual. It’s in such moments of crisis that we’re each provided with a rare window of opportunity to see things a little differently, to alter our perspectives and even our consciousness. The financial crisis a decade ago was the most transformative experience of my life, specifically because it so completely shook me to my core that it changed me at my core. My entire life trajectory was forever altered in a positive way as a result of how I processed that crisis since it pushed me to see the world and my role in it from an entirely different, and far more healthy, point of view. I suspect the current moment in time will do a similar thing for countless others. It will give billions of people the space to question everything, which is precisely what we need to be doing.

What’s happening around us are the birth pangs of a new era being born. It’s gonna be scary because big change usually is, but I’m becoming increasingly confident a much better world awaits on the other side. Transition could take a few years. pic.twitter.com/sEQec1OVpI

— Michael Krieger (@LibertyBlitz) March 13, 2020

I know a lot of people are concerned the centralized government will use this crisis as an opportunity to become more authoritarian, and I get that concern. While I think it may seem like that at first, I truly believe the opposite outcome is what will transpire in the medium and longer-term. I think this moment will provide the space to question everything and to reverse course. It won’t come from the top down, it must come from the bottom up, and I think it will. Stay safe, stay focused, and do what you can.

*  *  *

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US Attorney John Durham charged a Connecticut man with threatening to kill Rep. Adam Schiff (D-CA) in November, when the California lawmaker was spearheading the impeachment of President Trump, according to the Justice Department.

“I want to kill you with my bare hands and smash your sick little round fat lying face in,” said 62-year-old Robert M. Phelps in an online meeting request sent to Schiff’s office. For the date requested, Phelps wrote “Measure your Coffin day.”

The FBI ultimately traced the message to Mr. Phelps in Torrington, Conn. When investigators interviewed him in December, he told them he was a Republican, he had a right to contact members of Congress and he needed to protect Mr. Trump, the documents said. He also suggested to investigators Democrats who were involved in Mr. Trump’s impeachment hearings be arrested.

Mr. Phelps was arrested Friday and released on bond. A lawyer for the man couldn’t be reached for comment. A spokesman for Mr. Schiff declined to comment. –WSJ

As chairman of the House Intelligence Committee, Schiff led the majority of the House Democrats’ inquiry that led to President Trump’s impeachment in the House in December. He also served as the lead impeachment manager in the Senate trial. From 1987 to 1993 Schiff was an Assistant US Attorney in the Central District of California.

Trump was acquitted by the GOP-controlled Senate in February, rejecting House findings that Trump abused his office when he asked Ukraine to investigate former Vice President Joe Biden and his son Hunter.

According to the Wall Street Journal, the case against Phelps was brought by Connecticut US attorney John Durham, who is currently leading a wide-ranging investigation into the origins of the FBI operation against the Trump campaign in 2016 to determine whether there were any ties to a Kremlin interference campaign.

Phelps faces up to 10 years for threatening to assault and murder a US official, and five years for making interstate threats. The matter is being investigated by the FBI.

Optimistic analysts expected a 0.4% MoM jump in US industrial production in February (rebounding from contractions in December and January), and were pleasantly surprised with a shocking 0.6% MoM rise (after a downwardly revised 0.5% contraction in January). 

This surprise jump shifted US Industrial Production into YoY growth for the first time since August…

Source: Bloomberg

The rise was dominated by Utilities, which rose 7.1% in February after falling 4.9% in January. Mining fell 1.5% in Feb. after rising 1% in Jan.

An impressive bounce but this was all before the virus impacts began.

Manufacturing production, however, continues to contract YoY for the 8th straight month…

Source: Bloomberg

Finally, we note that The Dow Jones INDUSTRIAL Average has crashed back to earth along with the real economy’s actual INDUSTRIAL production…

Source: Bloomberg

What happens next?

Neel Kashkari took to CNBC this morning to not only display his ignorance of the basic laws of economics and finance, but also of epidemiology and medicine. Who knew Neel was such a non-expert in so many fields?

Kashkari, who while the market was rallying spent his days on social media taking shots at the “Zerohedge” and “conspiracy” crowd, is now taking to TV to try and defend the Fed’s “effective” ideas that left the stock market crippled by 12% in one trading session after the Fed took unprecedented stimulus actions, including 150 bps in rate cuts in less than a month and more than $2 trillion in liquidity being injected into financial system.  

First, Kashkari defended the Fed for panicking and taking drastic action in what could be the very “early innings” of the coronavirus economic slowdown. “The notion we should have saved our cuts for later is a colorful metaphor, but it’s just flat wrong,” he told Joe Kernen. As we know now, the market disagreed, promptly plunging limit down about an hour after the Fed’s action on Sunday night.

Kashkari also gave a range of outcomes for the current situation, stating that his base case scenario is a 2001-like recession and his bear case is a 2008-like recession. Clearly clueless about the virus and the measures the rest of the world has taken, Kashkari said a best case would be people staying at home for a few weeks or a few months.

So, his prediction for this pullback is somewhere between a totally mild recession that lasts a couple weeks and the worst financial crisis the U.S. has had in almost 100 years.

Great. That helps, Neel.

He “hopes it’s more on the lines of a short, shallow downturn as in 2001 rather than something steeper like what hit the economy from 2007-09,” CNBC wrote. If only hope was an actual policy prescription.

“I hear we have plenty of tools left,” Joe Kernen says to Kashkari at one point, hosting the show from what appeared to be the study from the board game Clue. He then asked about the possibility of negative rates.

“You going to go below zero?” Kernen begrudgingly asks, sounding exhausted.

Kashkari responded: “The Fed’s authority is very powerful if the Fed chairman chooses to use them. Nothing is completely off the table, we need to see what is necessary to keep the economy moving. Hypothetically if the 10 year treasury were at zero, we might want to have a positive sloping year curve, I might want to go negative on the front end. But that’s not something any of us are planning for or expecting to happen.”

Kashkari concluded: “We’re going to do our part.”

Yeah, your part to further widen the inequality gap, your part to bail out companies that irresponsibly bought back their own stock while levered up and your part to part your boot on the neck of the purchasing power of the U.S. dollar.

You can watch Kashkari’s full stream of deep thoughts here:

The Fed has gushed trillions into the short-term money markets in an attempt to fill what appears to be a bottomless pit and now Treasury and the government are discussing direct loans to businesses and banks have used the discount window en masse “to avoid any stigma”

As one veteran trader – who has seen a few cycles, as opposed to just trading the last 10 years uptrend – exclaimed:

“Something is very wrong,” in the short-term liquidity markets.

He is not wrong.

The Dollar shortage is exploding to crisis levels as – despite unlimited Fed swap lines – global basis swaps are soaring…

And as that dollar shortage builds, so the dollar index is manically bid in a scramble for liquidity (and all other assets are sold – including gold and bonds)…

“Funding tensions and the direction of U.S. stocks will largely dictate movement for the G-10 currencies in the short run,” according to Shaun Osborne, chief foreign exchange strategist at Scotiabank

Broad credit markets are utter carnage… especially in Investment-Grade…

But the credit problem is much more short-term with Commercial Paper markets freezing…

As TD Economics warns:

Shortly after the collapse in the stock market into bear territory in December 2018, we produced analysis to argue against fearing stock market volatility. Granted the recent rout that dialed the S&P 500 Index back to late 2018 levels in a short period is not common. The sharp move corresponds to a 7 standard deviation from historical norms.

However, our eyebrows have been raised at the broadening of financial stress across multiple bond, credit, liquidity and corporate indicators. This is a cause for concern of a possible larger negative credit-event.

And the pace of tightening in financial conditions must be terrifying The Fed…

 

All of which explains why, as CNBC’s Steve Liesman reported earlier, The Fed and Treasury are considering a commercial paper bailout facility. Exactly as we warned on Sunday…

What, specifically, would the Fed announce?

To address the current frozen CP market BofA expects the Fed to announce two CP facilities, likely on Sunday night. These facilities include:

1. a reintroduction of the 2008 “Commercial Paper Funding Facility” or CPFF

2. a facility that would specifically target purchases of CP on dealer balance sheets which we will call a “Commercial Paper Dealer Purchase Facility” or CPDPF.

There is a potential hurdle in that both of these facilities – which would seek to explicitly bail out corporations in need of funding and MMFs – likely cannot be unilaterally authorized by the Fed due to law changes since the financial crisis. The existence of these facilities would only occur through the authority of section 13-3 of the Federal Reserve Act. The Federal Reserve used the “unusual and exigent circumstances” clause (i.e. “section 13(3)”) of the Federal Reserve Act to extend credit to financial firms during the Global Financial Crisis in 2008. Using this broad authority, the Fed created and implemented five funding facilities to provide liquidity to primary dealers and act as a backstop to the commercial paper and asset-back securities markets. BofA explains further:

Congressional action has reined in some of the Fed’s emergency lending powers. The new guidelines do not eliminate the Fed’s lending authority but raise the procedural bar. The new law still allows the Fed act as the “lender of last resort” and create broad funding facilities to help market functioning. However, there are more hoops to jump. The Fed is also restricted from providing “tailored” help to individual firms.

To recap, the Dodd Frank Act of 2010 changed the Fed’s 13(3) authority and requires programs established under this authority to have:

• Approval from the US Treasury Secretary

• “Broad based eligibility” is meant to include a program or facility that is not designed for the purpose of aiding any number of failing firms and in which at least five entities would be eligible to participate. It also suggests programs should not be for the purpose of aiding specific companies to avoid bankruptcy or resolution.

• Limited risk of insolvency: the definition of insolvency to cover borrowers who fail to pay undisputed debts as they become due during the 90 days prior to borrowing or who are determined by the Board or lending Reserve Bank to be insolvent.

All three conditions would easily be met in the current market panic.

Which brings us to the question of “when” will the Fed announce these facilities?  Here, as above, BofA repeats that “time is of the essence on these facilities and expect the Fed will announce them this coming Sunday night.”

We believe it imperative the Fed roll out these facilities on Sunday night given the looming expected prime MMF outflows and necessity of their ability to sell CP in order to raise cash. If the Fed waits too long the MMF outflow pressure could mount and the risk of a large scale MMF run could increase.

Will that work?

We suspect not as The Fed is mis-diagnosing – fixing the CP freeze will not solve what may reeally be happening under the surface – a major financial crisis in the global banking system.

Amid all this liquidity and largesse from the central planners, LIBOR is rising…rapidly…

Three-month Libor rose by 16.25 basis points to 1.05188%. That’s the biggest one-day jump since October 2008, the height of the global financial crisis.

They have entirely lost control.

As our veteran trader warned:

“Libor is spiking just like in 2008 suggesting counterparty risk concerns are spooking the interbank markets…”

And we wonder if this is the canary in the coalmine…

Why are traders panic-buying short-term Sub CDS protection against Deutsche Bank? This is a pure counterparty risk hedge and while it is speculation, it would not be a huge jump to suggest that under the hood, LIBOR is being sent higher by a systemic fear from ‘lending’ banks that one of the ‘borrowers’ is a far greater risk than ‘risk-free’.

When does The Fed, ECB bailout Deutsche Bank?