US Manufacturing Production Contracts YoY For 8th Straight Month
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…
Neel Kashkari Defends Fed’s Actions After 12% Market Rout, Says Negative Rates “Not Off The Table”
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.
“Relax, everything’s under control.”
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:
Does Any Of This Look Like The Fed Has Anything Under Control?
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:
a reintroduction of the 2008 “Commercial Paper Funding Facility” or CPFF
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’.
Fed Injects $189BN In Repo Liquidity As Libor Explodes
In light of the frozen funding markets, which are now demanding the Commercial Paper bailout facility we discussed on Sunday, which the Fed failed to deliver and which CNBC’s Steve Liesman said may be coming any moment as without we will see a relentless barrage of companies drawing down on their revolvers as they are locked out of other sources of funding, moments ago the Fed continued to inject liquidity, by conudcing two repos amounting to just under $189BN.
The first one was an oversubscribed 14-Day repo, which saw $46.6BN in submissions, with the max available $45BN allotted.
This was followed half an hour later by the $500BN overnight repo which merely rolls over the prior day’s expiring overnight, and which saw some $142.65BN in usage.
With no other repos scheduled for today, and the next $500BN 84-day facility not due until Friday, banks may soon find themselves in another funding panic, and the Fed may respond as it did yesterday, with an ad hoc $500BN facility later in the day if funding conditions refuse to ease, which considering the biggest one-day jump in LIBOR since the crisis screaming systemic funding stress and now counterparty risk…
The most winningest quarterback in Superbowl history – with six rings, all won with the New England Patriots – is taking his talents elsewhere. With all sports suspended and sports news organizations hungry to fill the whole, Patriots QB Tom Brady just delivered in a big way: In a series of statements, the free agent revealed that the will not be renewing his contract with the Patriots, and will instead take his talents somewhere else – though exactly where isn’t yet clear.
In an emotional statement to the fans, Brady said “Pats Nation” will “always be a part of me” and thanked New England for accepting “this California kid as one of your own.”
At this point, it’s unclear whether the NFL season will start on time. But until we learn more about the fate of the Olympics, speculation about Brady’s future will likely become the biggest story in sports.
Brady holds the record for career SB appearances with 9…(via Insider):
His departure isn’t exactly a surprise: NFL analysts pointed out that the lack of flexibility in the Patriots’ salary cap and shortage of supporting offensive players meant Brady had a lot of incentive to play elsewhere. One analyst said Tennessee would be the ideal landing place for the aging quarterback, who has said he would like to continue playing through his 40s. But we suspect the speculation will soon ramp up, along with online betting market activity.
And there it is: a little over a year since Goldman boldly predicted 4 rate hikes in 2019 on expectations of a global, coordinated, reflating recovery, the Fed cut its fed funds rate to zero and unleashed a historic QE/repo bazooka meant to unclog frozen funding, Treasury and credit markets, moments ago Goldman’s chief economist capitulated declaring in a note that the world is in a recession.
While it’s hardly news for anyone who has followed the actual newsflow, and not just from the coronavirus but events leading into the current crisis, Goldman still has a certain cache on Wall Street, and now that the most reputable bank has broken the seal, watch for every other sellside researcher to follow suit.
Here are some of the highlights from his post:
Over the past few days, the escalation of the coronavirus crisis in Europe and the US, as well as the exceptionally poor January/February data out of China, have led us to downgrade our growth forecasts sharply across most of the world’s major economies. Consequently, our global GDP growth forecast for 2020 has fallen to just 1¼%. This would be less bad than the deep recessions of 1981-82 and 2008-09 but worse than the mild recessions of 1991 and 2001.
Consistent with this, our 2020 GDP forecasts across most of the major countries are in between the numbers seen in the mild recession of 2001 and the deep recession of 2008-2009. However, China now looks significantly weaker than in either of these episodes, when it sharply outperformed most other countries.
Exhibit 1 shows that we now expect the global economy—more precisely, the 40 economies under our coverage aggregated using purchasing power parity-adjusted GDP—to grow just 1¼% in 2020. Although there is no universally agreed-upon definition of a global recession, the chart shows that a 1¼% number should easily qualify. In fact, 1¼% would be the third-weakest year of the past four decades—not as bad as the deep recessions ending in 1982 and 2009 but worse than the mild recessions of 1991 and 2001.
Looking across the major economies, we now see several economies—most clearly the Euro area and Japan—with outright annual GDP contractions. More broadly, Exhibit 2 shows that our GDP forecasts across most of the major advanced economies are in between the numbers seen in the mild recession of 2001 and the deep recession of 2008-2009. The exception is Australia, which held up exceptionally well in the GFC. The emerging world is more of a mixed bag, with China looking much weaker but India somewhat firmer than in 2008-2009, according to our current forecasts
Although we expect the recession to be front-loaded, with a recovery in H2, the risks remain on the downside.
First, we have not yet built a full lockdown scenario into our forecasts for the United States and other advanced countries outside Europe, but several US states and cities now seem to be heading in that direction.
Second, we assume that new infections slow sharply after April. While this is consistent with the experience of China, Japan, and Korea, it is unclear whether the mitigation and testing actions taken by Western authorities are sufficient to produce a similarly rapid turn.
White House Unveils $850 Billion Economic Rescue Package, “Sending Checks To Every Household” A Good Idea, Dudley Says
Update (0830ET): Former NY Fed President Bill Dudley appeared on Bloomberg TV Tuesday morning to say that if the administration really wants to restore confidence, it should reconsider its insistence on a payroll tax holiday, and instead start firing off checks to every US household.
“I think one good idea is to actually send out checks to households” to provide support during the coronavirus outbreak, Dudley said, who added that while the Fed is doing “everything it can” to support the availability of credit, the central bank is virtually powerless to blunt the initial demand shock: Only fiscal stimulus can accomplish that.
“If that situation continues to deteriorate then I think we’ll start to see the kind of special emergency interventions that we saw in 2008.”
His comments come amid rumors that the Fed is about to intervene in the Commercial Paper market.
* * *
With the markets screaming for more federal fiscal stimulus to help cushion what will almost certainly become an extremely deep, but potentially short-lived, recession, the administration has unleashed headlines claiming that the third economic package will include $850 billion (more than 100x the $8.3 billion included in the first package).
The headline hit earlier this morning, with a barebones report in Politico’s ‘Playbook’ newsletter, which frequently publishes administration scoops.
NEW … PLAYBOOK: MNUCHIN seeking $850 billion from Congress …
… @united CEO: “The financial impact of this crisis on our industry is much worse than the stark downturn that we saw in the aftermath of the 9/11 attacks.”https://t.co/BQ70UXWH1G
Then, the Washington Post followed up that initial report with a lengthier story offering more details: The package would be mostly devoted to flooding the economy with cash, through a payroll tax cut or other mechanism, two of the officials said, with some $50 billion directed specifically to helping the airline industry.
Roughly 30 minutes after the Washington Post report, an administration official confirmed the story.
Mnuchin is reportedly planning to introduce the package to the Republic-controlled Senate on Tuesday, and would like to see the package pass the upper chamber of Congress by the end of the week, he told senators during a Monday evening call.
Some $50 billion in aid directed specifically for the airlines has also been earmarked, according to Sen. Marco Rubio.
“I think the assumption’s going to be that we’re going to do something, it should be big. Because we can’t assume that we’re just going to keep coming back,” Sen. Marco Rubio (R-Fla.) said Monday night leaving a meeting with Mnuchin and other administration officials.
Rubio said aid to airlines was likely to be included. “We still need to get people around the country. I have no doubt that’s going to be a major feature of the next step.”
Earlier this month Congress approved $8.3 billion in emergency spending for public health programs, and last week the House passed a package with paid sick leave, unemployment insurance, money for food stamps, free coronavirus testing and more, the Senate made modifications to the House package over the weekend that were billed as “technical corrections” but really scaled back the sick leave section of the bill’s benefits.
With America’s screeching to a halt, the intervention may need to be faster and even more extreme than the action taken during the financial crisis. In 2008, Congress passed the now-infamous $700 billion TARP package to bail out the banks. This time around, Trump is clearly hoping to make a statement by spending $850 billion – a larger number than TARP – to bail out Main Street.
This is why it’s imperative to go big now, and make plans to sustain the most vulnerable households and small employers not for two weeks but for six months – or however long proves necessary.
That governments around the world will be forced to distribute “helicopter money” to keep their people fed and housed and their economies from imploding is already a given. Closing all non-essential businesses and gatherings will crimp the livelihood of millions of households and small businesses that lack the financial resources to survive weeks without any revenues.
The only question is whether governments which can borrow or print fresh currency will get ahead of the implosion or fall behind, creating a binary choice: go big now or go home.
Half-measures in helicopter money work about as well as half-measures in quarantine, i.e. they fail to achieve the intended objectives. Dribbling out modest low-interest loans is a half-measure, as is cutting payroll taxes. Neither measure will help employees or small businesses whose income has fallen below the minimum needed to pay essential bills: rent, food, utilities, etc.
Meanwhile, the ruling elites will be under increasing pressure to bail out greedy financial elites and gamblers–the same scoundrels and parasites they bailed out in 2008-09. But this is not just another speculative bubble-pop, this is a matter of life and death and solvency for the masses of at-risk households and small businesses. It is a different zeitgeist and a different crisis, and bailing out greedy parasites (banks, indebted corporations, speculators, financiers, etc.) will not go over big while households and small businesses are going bankrupt.
The Federal Reserve, was just handed a lesson in the ineffectiveness of the usual monetary “bazooka” in bailing out the predatory-parasitic class of overleveraged gamblers.Nearly free money for financiers isn’t going to save the economy or non-elites sliding toward insolvency.
Instead of leaving the bottom 99.5% to twist in the wind while enriching the predatory-parasitic class, the ruling elites will have to let the top 0.5% twist in the wind and save the bottom 99.5%. This will require going against all the thousands of lobbyists, all the chums at the club, and all the millions in campaign contributions, but it’s a binary choice.
Either save your citizenry or sacrifice your legitimacy by bailing out the predatory-parasitic class. If the ruling elites save their parasitic pals, the public will demand the scalps of the predatory-parasitic class, and as the crisis deepens, they will eject every craven, greedy elected toady who caved in to the predatory-parasitic class.
So listen up ruling elites: either go big or go home. Either accept that it’s going to take several trillion dollars in helicopter money to insure the most vulnerable households and real-world enterprises remain solvent, or quit and go home.
The pandemic crisis isn’t going to end in April or May, though the urge to indulge in such magical thinking is powerful. It might still be expanding in August and September.
This is why it’s imperative to go big now, and make plans to sustain the most vulnerable households and small employers not for two weeks but for six months–or however long proves necessary.
Elon Musk Keeps Tesla’s Fremont Factory Open Despite Alameda County Lockdown
We already know that Elon Musk thinks the coronavirus panic is “dumb”. We also know Tesla’s track record for keeping a safe work environment is less than stellar.
So, in what appears to be dissatisfaction unless his workers are directly in the line of harm, Elon Musk is once again creating a new set of rules for himself – just as he has done with the SEC and the NHTSA – and is defying an Alameda County coronavirus lockdown by keeping Tesla’s Fremont factory open and running in the midst of a global pandemic.
The quick spread of coronavirus in the Bay Area has led to lockdowns and the shuttering off all non-essential businesses. Businesses in Alameda County are required to “cease all non-essential operations” at physical locations there, according to Bloomberg.
Alameda County has declared Tesla an “essential business” that is allowed to remain in operation, the LA Times reports.
When an Alameda County official was asked what makes Tesla “essential”, he responded: “That’s a good question. We’re in uncharted waters right now.”
When short seller Nathan Anderson of Hindenburg Research e-mailed Alameda County last night, asking if Tesla would stay open, they punted, telling Anderson he had to direct his question to Tesla. So, it looks like we know who is really running Alameda County.
I emailed Alameda County asking if Tesla is required to shut its Fremont factory down due to the shelter order.
Rather than answer, they redirected me to Tesla, which isn’t responding.
Musk apparently wrote to his staff in an e-mail Monday: “First, I’d like to be super clear that if you feel the slightest bit ill or even uncomfortable, please do not feel obligated to come to work. I will personally be at work, but that’s just me. Totally [OK] if you want to stay home for any reason.”
He continued: “My frank opinion remains that the harm from the coronavirus panic far exceeds that of the virus itself. If there is a massive redirection of medical resources out of proportion to the danger, it will result in less available care to those with critical medical needs, which does not serve the greater good.”
