Category: zerohedge

Authored by Michael Snyder via The End of The American Dream blog,

Is the United States on the verge of a complete and total “lockdown” like we have already seen in China, Italy and elsewhere?  As you will see below, the Trump administration has repeatedly brought up the possibility of “domestic travel restrictions”, and that means that this is something that is very seriously being considered.  The first step may be simply banning all non-essential domestic air travel, and that would be a major inconvenience for many Americans.  But beyond that, there is the possibility that we could see restrictions on all travel between states or even draconian restrictions on going out in public at all like we have already seen in China and Italy.  If we get to that point, where you are at that moment is where you will be staying, and I will be sharing more about this below.

But first, let’s review what the Trump administration has been telling the public about the possibility of “domestic travel restrictions”.  The following comes from a USA Today article that was posted on Saturday…

President Donald Trump and Vice President Mike Pence on Saturday said the government is considering domestic travel restrictions amid the coronavirus pandemic and added United Kingdom and Ireland to the Europe travel restrictions that went into effect late Friday.

They did not offer specifics on domestic flight restrictions but Trump said earlier in the week that they would be considered if “an area gets a little bit out of control” in terms of coronavirus cases.

I think that the phrase “is considering domestic travel restrictions” is pretty clear, and it should definitely send a chill up your spine.

Then on Sunday, a member of the administration said that officials are weighing “an outright halt to domestic air travel”…

The Trump administration is weighing “all options” to curb the coronavirus outbreak in the U.S., including an outright halt to domestic air travel, a senior official said Sunday.

Such a drastic step hasn’t been taken since the Sept. 11, 2001 attacks, and it would raise questions about U.S. airlines’ chances for survival without government support.

This came directly from acting secretary of the Department of Homeland Security Chad Wolf, and he went on to add that “all options remain on the table”…

“We continue to look at all options and all options remain on the table,” said Chad Wolf, acting secretary of the Department of Homeland Security in a press briefing when asked about the possibility. He said the administration is following guidance from the Centers for Disease Control and Prevention.

So would “all options” also include banning all travel in and out of states where this pandemic is the worst?

Apparently so, and this is something that Florida Governor Ron DeSantis is actually asking for…

Florida Gov. Ron DeSantis said the White House should consider restricting domestic travel from states that are seeing a rapid increase in coronavirus infections, saying the flow of people has made containment difficult.

He made the plea shortly before the state on Saturday announced its fourth death from the disease, a 77-year-old man from Lee County.

Could you imagine getting into your car and driving toward the next state only to be stopped at the border?

It could soon happen.

Hopefully we won’t get to that point, but this outbreak continues to spiral out of control.

And if the numbers just keep going up, it is inevitable that we will see things happen that would have been unthinkable only a few weeks ago.

At this point, even Dr. Anthony Fauci appears to be advocating some sort of a “national lockdown”…

Asked by CNN’s Brianna Keilar on “State of the Union” if he’d like a “national lockdown” where people are being told they need to stay home and out of restaurants and bars, Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Disease, said he’d “like to see a dramatic diminution of the personal interaction that we see” in those places.

“Whatever it takes to do that, that’s what I’d like to see,” Fauci added.

As Americans, we don’t like to have our movements restricted.

And hopefully the Trump administration will choose not to go in that direction, but they have already restricted domestic travel for members of the military…

A memo released Friday evening announced a ban on government-funded domestic travel for military members, Department of Defense civilians and their families, according to Stars and Stripes.

The Pentagon says Deputy Defense Secretary David Norquist has approved new travel restrictions on service members and Defense Department civilians assigned to military installations and surrounding areas within the United States and its territories.

And similar restrictions have been put into place for federal workers…

As the coronavirus outbreak continues across the U.S., the White House has told federal agencies and executive departments to suspend all work travel unless it is absolutely necessary.

The White House Office of Management and Budget issued new guidance on Saturday telling federal workers that “only mission-critical travel is recommended at this time.”

With all that in mind, I would like for you to watch this video.  According to John Grimm, a Republican candidate for Kootenai County Sheriff, it appears quite likely that we could potentially see some sort of travel restrictions in the near future.  And if there is eventually some sort of a total lockdown, he is warning that “where you stop is where you stay”…

So I hope that you are already at the place where you plan to ride out this pandemic.

If not, I would get there as quickly as possible.

Meanwhile, we continue to see major institutions shut down all over the country.

On Sunday, we learned that all schools in New York City will be shutting down “until at least April 20”…

In a decision he described as “extraordinarily painful,” New York Mayor Bill de Blasio said Sunday that he is closing the city’s public schools on Monday until at least April 20.

The mayor said the city would make every attempt to reopen schools at that point, but that it’s possible schools could remain closed for the rest of the school year.

Also, several states announced on Sunday that all restaurants and bars will be forced to shut down for the foreseeable future.  Ohio was one of the first to make such an announcement…

Ohio Governor Mike DeWine announced that he will be issuing an order to close all restaurants and bars beginning at 9:00 p.m. Sunday night.

“I’m aware that this will impact many, many good workers,” he said in a tweet. “I can’t tell you how sorry I am, but we will work to mitigate the suffering. It is our goal to get everyone through this.”

Most restaurants in this country are just barely scraping by financially, and many of those that are now being forced to close down may not ever open back up again.

Illinois is another one of the states that is closing down all restaurants and bars…

Illinois Gov. JB Pritzker announced Sunday afternoon that all restaurants and bars in Illinois will be closed effective at the end of the business day on Monday, continuing through March 30, due to the coronavirus pandemic.

“I cannot let the gravity of the choices prevent us from taking the actions that the science and the experts say will keep people safe,” Pritzker said.

In areas of the country where this outbreak is already wildly out of control, the restaurants and bars might as well be closed down anyway.  Restaurant traffic in New York City and Seattle is down more than 60 percent, and the more this virus spreads the more people are going to be afraid to go out into public to do anything.

Just a few weeks ago our lives seemed so normal, but now our entire country is steadily shutting down from coast to coast.

And life is not going to return to normal any time soon, because the CDC just issued guidelines calling for the cancellation or the postponement of “any events with 50 or more attendees for the next eight weeks”…

The Centers for Disease Control and Prevention is urging people across the U.S. to cancel or postpone any events with 50 or more attendees for the next eight weeks, the agency said in revised guidance issued Sunday.

The CDC said individuals and organizations should reschedule large events and that gatherings of any size should be reconsidered unless organizers can protect vulnerable populations, ensure proper hand hygiene and social distancing.

In other words, everything that is being shut down right now is going to remain shut down for at least eight weeks.

I cannot even begin to describe how damaging that is going to be to our economy.

And what happens if this pandemic is still raging after eight weeks have passed?

The Spanish Flu pandemic lasted for three entire years.  There is no way that authorities could keep us all locked down for that long.

This pandemic is rapidly becoming a national nightmare, and it appears that our freedoms are about to be restricted in ways that most of us never thought possible.

America is on the verge of being locked down, and for many of us it truly will feel like we have been put in prison.

Frequent readers will know the Bank of International Settlements as not only the central banks’ central bank and ultimate financial regulator, but also as the (not so) secretive group…

… which runs the world out of Conference Room E in the ominous circular tower block next to the Basel train station (strategically located to provide a quick and easy exit if things ever get heated), where the world’s top central bankers meet every other month on Sunday evenings at 7pm to determine the fate of the world.

Others will recall the BIS as the employer of Benoit Gilson, the man who runs the BIS’ trading desk and is in charge of both FX and gold, and who judging by his “green” light today, is likely quite busy.

Well, today the BIS also showed that while it may be immune to angry peasants revolting and demanding an overthrow of the monetary system, it is quite exposed to weaponized Chinese viruses, and on Monday, the FT reported that the Bank for International Settlements said a member of staff working at its Basel headquarters has tested positive for Covid-19. On Monday afternoon, the organisation reported that the individual had received medical treatment and was currently recovering at home.

A further nine staff members who had been working in close proximity to the infected employees had been told to to work from home temporarily.

News of the positive test came despite measures that BIS had put in place since the beginning of March. These, according to the FT, included cancelling or rescheduling all physical meetings due to take place in its offices, and having “almost all staff” work from home.

However, the institution said it had “rigorous business continuity measures in place” to ensure it can continue its normal operations.

For the monetary sake of the world, especially now that the Fed has no more credibility left, we certainly hope so. It also begs the question: is Benoit working from home?

Silver has been clubbed like a baby seal this morning, crashing to an $11 handle…

Plunging Silver to its lowest since January 2009

And while precious metals are getting pummelled…

Compared to gold, silver is a bloodbath…

As Mike Maloney notes below:

“At no time in human history has silver been this cheap relative to gold.”

Interestingly, even though gold and silver prices are down, dealers are facing shortages of one-ounce bullion coins. Maloney explains how in the past such imbalances have produced bull markets in precious metals.

Last week we mocked that Millennials using free-trading app ‘Robinhood’ were getting what they paid for when the site went down numerous times during the worst of the market’s downturns, implicitly forcing losses on users unable to hit the “sell” button.

However,  for those who really do pay a lot – or are worth a lot – it appears the problem is just the same (if not bigger).

Bloomberg reports that JPMorgan’s wealthiest clients suddenly found themselves shut out from trading at the height of this week’s drama in stock markets – just as prices cratered into the worst rout since 1987.

The outage hit the group’s Morcom electronic trading platform, which employees use to place orders on behalf of high-net-worth and ultra-high-net-worth clients, according to people with knowledge of the matter.

According to a message seen by Bloomberg, the system was overwhelmed by unprecedented volume. The outage began mid-afternoon and was fully resolved after regular market hours.

“Most of yesterday’s trades went through, and we’re working with clients to rectify any individual instances where trades were delayed,” said JPMorgan spokeswoman Jennifer Zuccarelli, confirming that a disruption occurred.

Notably, JPMorgan said that its “You Invest” online trading platform, which competes with Robinhood, wasn’t affected.

This latest ‘glitch’ comes two years after  another technical snafu that gave some customers logging in to online systems access to other clients’ accounts instead of their own.

So, rich or poor, young or old, the lesson is – don’t trust your brokerage platform to be there when you need it most… or perhaps, reduce exposure to a point where you don’t feel the need to panic-sell at the first downturn in 10 years.

 

 

 

 

 

Authored by Lance Roberts via RealInvestmentAdvice.com,

Is the bear market over yet?

This is the question that everyone wants to know. Why? So they can “buy the bottom.” 

For that reason alone, I would suggest the current “bear market” is not over yet. Historically speaking, at the bottom of bear market cycles, as we saw in 1932, 1974, 2002, and 2008, there are few individuals willing to put capital at risk.

Given the large number of people on social media clamoring to jump back in the market given the rally this past Friday, it suggests that “optimism,” and “recency bias,” are still far too prevalent in the market.

As noted in this past weekend’s newsletter, Bob Farrell, a legendary investor, is famous for his 10-Investment Rules to follow.

“Rule #8 states:

Bear markets have three stages – sharp down, reflexive rebound and a drawn-out fundamental downtrend.”

1. Bear markets often START with a sharp and swift decline.

2. After this decline, there is an oversold bounce that retraces a portion of that decline.

3. The longer-term decline then continues, at a slower and more grinding pace, as the fundamentals deteriorate.

Dow Theory also suggests that bear markets consist of three down legs with reflexive rebounds in between.

While the correction has been sharp in recent weeks, it hasn’t inflicted enough “emotional pain” to deter individuals from jumping back in. As I stated:

“That selloff sets up a ‘reflexive bounce.’  For many individuals, they will ‘feel like’ they are ‘safe.’ This is how ‘bear market rallies’ lure investors back just before they are mauled again in ‘Phase 3.’”

Just like in 2000, and 2008, the media/Wall Street will be telling you to just “hold on.” Unfortunately, by the time “Phase 3” was finished, there was no one wanting to “buy” anything.

That’s how you know a “bear market” is over.

Price To Profits & Earnings

From an investment view, I prefer more data-driven analysis to determine if the current bear market is over.

In a previous post, I discussed the deviation of the stock market from corporate profitability. To wit:

“If the economy is slowing down, revenue and corporate profit growth will decline also. However, it is this point which the ‘bulls’ should be paying attention to. Many are dismissing currently high valuations under the guise of ‘low interest rates,’ however, the one thing you should not dismiss, and cannot make an excuse for, is the massive deviation between the market and corporate profits after tax. The only other time in history the difference was this great was in 1999.”

It isn’t just the deviation of asset prices from corporate profitability which is skewed, but also reported earnings per share.

As I have discussed previously, the operating and reported earnings per share are heavily manipulated by accounting gimmicks, share buybacks, and cost suppression. To wit:

“It should come as no surprise that companies manipulate bottom-line earnings to win the quarterly ‘beat the estimate’ game. By utilizing ‘cookie-jar’ reserves, heavy use of accruals, and other accounting instruments they can mold earnings to expectations.

‘The tricks are well-known: A difficult quarter can be made easier by releasing reserves set aside for a rainy day or recognizing revenues before sales are made, while a good quarter is often the time to hide a big ‘restructuring charge’ that would otherwise stand out like a sore thumb.

What is more surprising though is CFOs’ belief that these practices leave a significant mark on companies’ reported profits and losses. When asked about the magnitude of the earnings misrepresentation, the study’s respondents said it was around 10% of earnings per share.’“

This is also why EBITDA has become an ineffective measure of financial strength. As I noted in “Earnings Lies & Why Munger Says EBITDA is B.S.:”

“As shown in the table, it is not surprising to see that 93% of the respondents pointed to ‘influence on stock price’ and ‘outside pressure’ as the reason for manipulating earnings figures. For fundamental investors, this manipulation of earnings skews valuation analysis particularly with respect to P/E’s, EV/EBITDA, PEG, etc.”

As Charlie Munger once said:

“I think that every time you see the word EBITDA, you should substitute the word ‘bullshit’ earnings.”

Corporate Profits Weaker Than Advertised

Before the recent market rout, the deviation between reported earnings and corporate profits is one of the largest on record. This is an anomaly that should, in reality, not exist.

However, it is worse than it appears.

There is an interesting company included in the calculation of corporate profits, which is not widely recognized in most analysis. If you are an astute follower of our blog, you may recognize this particular company by the size of their balance sheet as shown below.

Yes, you guessed it (and it’s in the title). It’s the Federal Reserve.

When the Treasury Department pays interest one the debt, an expense to the U.S. Government, the Federal Reserve takes that in as “profits” which is reported on their balance sheet. Then, at the end of the year, the Fed remits a portion of the “revenue” back to the Government (who also count it as revenue).

These “profits,” which are generated by the Federal Reserve’s balance sheet, are included in the corporate profits discussed here. As shown below, actual corporate profitability is weaker if you extract the Fed’s profits from the analysis.

It’s quite amazing, and with the Fed massively increasing their balance sheet, their profitability will expand further.

Nonetheless, since the Fed’s balance sheet is part of the corporate profit calculation, we must include them in our analysis. While the media is focused on record operating profits, reported corporate profits are roughly at the same level as they were in 2011. Yet, the market has been making consistent new highs during that same period.

Estimating The Risk

The detachment of the stock market from underlying profitability guarantees poor future outcomes for investors. But, as has always been the case, the markets can certainly seem to “remain irrational longer than logic would predict,” but it never lasts indefinitely.

“Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system, and it is not functioning properly.” – Jeremy Grantham

The impending recession, and consumption freeze, is going to start the mean-reversion process in both corporate profits and earnings. In the following series of charts, I have projected the potential reversion.

The reversion in GAAP earnings is pretty calculable as swings from peaks to troughs have run on a fairly consistent trend. (The last drop off is the estimate to for a recession)

Using that historical context, we can project a recession will reduce earnings to roughly $100/share. The resulting decline asset prices to revert valuations to a level of 18x (still high) trailing earnings would suggest a level of $1800 for the S&P 500 index.

Let me suggest that I am not being “overly dramatic” or “super bearish.”  There is a good bit of data to support the thesis. As I noted on Twitter, you can pick your valuation range, and do the math.

S&P Estimates still WAY too high.
Using historical drawdowns in earnings, and peak to trough ranges, earnings will drop to $100/share during the #recession2020 – Pick your valuation target for #SPY bottom.
20x = 2000
18x = 1800
15x = 1500 (Long-Term Avg)
13x = 1300 Undervalued pic.twitter.com/v4inJMdAlj

— Lance Roberts (@LanceRoberts) March 15, 2020

Don’t believe me?

We can support that thesis with corporate profits.

If we look at inflation-adjusted profit margins as a percentage of inflation-adjusted GDP, we see the same process of mean-reverting activity over time. Of course, these mean reverting events are always coupled with recessions, crisis, or bear markets.

More importantly, corporate profit margins have physical constraints. Out of each dollar of revenue created, there are costs such as infrastructure, R&D, wages, etc. Currently, one of the biggest beneficiaries to expanding profit margins has been the suppression of employment, wage growth, and artificially suppressed interest rates, which have significantly lowered borrowing costs. The oncoming recession will cause a rather marked collapse in corporate profitability as consumption declines.

The chart below shows corporate profits overlaid against the S&P 500 index. As with GAAP Earnings in the chart above, I have projected the potential reversion in corporate profitability as well.

When we measure the cumulative change in the S&P 500 index as compared to the level of profits, we find again that when investors pay more than $1 for a $1 worth of profits, there is an reversal of those excesses

 The correlation is clearer when looking at the market versus the ratio of corporate profits to GDP. Again, since corporate profits are ultimately a function of economic growth, the correlation is not unexpected.  Hence, neither should the impending reversion in both series.

To this point, it has seemed to be a simple formula that as long as the Fed remains active in supporting asset prices, the deviation between fundamentals and fantasy doesn’t matter. It has been a hard point to argue.

However, what has started, and has yet to complete, is the historical “mean reversion” process which has always followed bull markets. This should not be a surprise to anyone, as asset prices eventually reflect the underlying reality of corporate profitability.

Recessions reverse excesses.

Are we at the bottom yet? Probably not, if history is any guide.

While the Fed’s “shock and awe” emergency intervention late on Sunday failed to boost confidence and, on the contrary, resulted in a record long limit-down halt in S&P futures, central bankers will find at least some delight in that so far the bad news has been confined to the relentless liquidation in financial assets, while depositor confidence in their friendly, neighborhood bank has been unshakeable.

Alas, in Austria – the country whose infamous Rothschild-owned Creditanstalt Bank sparked the Great Depression – depositors are starting to get that joggy feeling.

Speaking to journalists in Vienna, central bank governor Robert Holzmann said that Austrians have been far more active in pulling money from their banks, and have withdrawn more cash from ATMs last week, double to triple the normal average daily volume of €200MM.

However, hoping to forestall a full blown bank-run, Holzmann said that the central bank has enough cash reserves for ATMs, companies, banks, that “deposits are safe because banks have made homework, built capital reserves”,  and that he “doesn’t expect a bank run.“

Of course, that’s precisely what he would say as he sought to restore the public’s confidence that there is enough moneey for everyone.

Meanwhile, in the US, eager to avoid any such discussion, US Treasury Secretary Steven Mnuchin told CNBC that “nobody has to pull money out of banks.” Translation… well, it’s self-explanatory.

Perhaps a bank run in the US can be avoided, although if the ongoing – and quite poetic – toilet paper run is any indication, US depositors will soon shift their attention to that other “paper”, but a greater concern is whether the Fed can prevent a money market fund run. As we explained yesterday, the one facility the Fed had to announce yesterday, a Commercial Paper backstop was strangely missing. This is a problem as BofA’s Marc Cabana explained:

The current concern is that if the CP market is frozen, prime MMF could see their weekly liquid assets fall below 30% as they experience outflows. If weekly assets fall below 30% this would need to be reported to the SEC, would be in the public domain, and could result in a liquidity fee. Such a drop in liquidity would like result in a run on the MMF which experienced a drop in their liquidity and could result in a run on the prime MMF industry more broadly. This type of run would then result in more forced liquidations which would worsen CP liquidity, increase front-end credit spreads, and weigh on market sentiment. We strongly suspect the Fed wants to avoid this.

The Fed certainly wants to avoid this, but it also hoped that by cutting rates by 100bps and launching $700BN in QE it would not be an issue. Whether that very critical assumption is accurate will be revealed at some point today…

Was that if for the US Federal Reserve? After 107 years of Fed history, was Sunday, March 15th the date the Fed lost its last shred of credibility as it fired its last round of ammo… and sent futures crashing limit down?

To be sure, the Fed still has a few more tricks up its sleeve – getting Congressional approval to buy stocks, coordinating with the Treasury to launch helicopter money – but all but the dumbest and most inexperienced people on Wall Street – read Millennial traders who have no idea what is going on – realize that the launch of these measures means the monetary endgame has arrived, and the time to shift away from financial assets into “hard” assets has arrived.

For a confirmation that we may have indeed entered the endgame, here are hot takes of several Wall Street pros, who have seen more than just one buyback-funded market cycle, courtesy of Bloomberg:

Michael O’Rourke, chief market strategist at JonesTrading:

“They blew it. The Fed panicked and the market is spooked. The S&P 500 registered all time highs less than a month ago and the Fed has expended all its conventional and unconventional tools. The key takeaway will be that they have truly expended all of their ammunition and this is the action of a central bank that is scared.”

James McCormick, global head of desk strategy at NatWest Markets:

“The fact is global equities are still getting slammed. It shows markets worried more about infection rates and growth and need to see a large fiscal response. Monetary policy will not have the same potency for financial markets — it is not enough on its own and there isn’t much ammunition left. The theme has been clearly on display in markets since the Fed’s first rate cut two weeks back. But this is not the end of monetary policy, not by a long shot. Fiscal policy announcements will now be watched more closely and discounted more quickly by financial markets.”

Roberto Perli, partner at Cornerstone Macro LLC:

“Overall, I believe the package is robust, but it also left something to be desired in some areas, like the unclear forward guidance and the reliance on the heavily stigmatized discount window. Nonetheless, Powell was clear that the Fed reserves the right to use other tools if appropriate.”

Peter Mallouk, president of Creative Planning, which manages about $45 billion:

“It’s largely inconsequential. The bottom line is this is a health issue. People are going to be surprised how little the economic incentives and plans are going to help until we start to see a change in the infection and death rate and I would take a 5% improvement in the war against the coronavirus over a 100% move in terms of economic incentives and initiatives.”

Mark Haefele, CIO, UBS Global Wealth Management:

“Broad fiscal spending and rate cuts are blunt instruments for dealing with the short-term economic impact of the virus, but should provide investors with some confidence that growth can be strong once the recovery gets underway. We expect the market to end the year at much higher levels than today, with China’s economy leading the way to recovery and the U.S. and European economies rebounding in the third quarter.”

Jeff Mills, chief investment officer of Bryn Mawr Trust:

“They had no choice, but it won’t be enough in the grand scheme of things. We need large fiscal programs, which based on the recent communication from the Treasury secretary it seems clear we will be getting. If we get the fiscal stimulus side of the equation, the eventual recovery will likely be more robust than it would be otherwise.”

Alicia Levine, chief strategist, BNY Mellon Investment Management:

“The Fed is leading global central banks. The mixture of policy action exceeds market expectations and, importantly, will help corporate credit markets as it unleashes a flood of liquidity. The disquieting message from last week’s market moves in the credit and Treasury markets was the contraction of liquidity and this action should help calm that dislocation. Expect the Treasury yield curve to steepen on this action.”

Joachim Fels, global economic adviser at Pacific Investment Management Co.:

“A global recession in response to a combination of a supply disruptions and a sudden stop of demand for (mostly) services appears to be a foregone conclusion. The Fed’s actions will help to restore an orderly functioning of the very core of the U.S. financial markets: the Treasury  market and the U.S. mortgage market. All said, policy makers including the Fed are in the process of pulling all the stops to mitigate the severe economic and financial disruptions caused by the most severe global health crisis in more than a century. More will be needed and will likely be forthcoming over the next few weeks and months.”

Ian Lyngen, head of U.S. Rates strategy at BMO Capital Markets:

“The coordinated action between the Fed/BoE/BoJ/ECB/SNB/Bank of Canada to lower the price on the central bank swap lines should help ease overseas funding stress by both reducing the cost of dollars for foreign banks, but also by adding the 84-day maturity option — in addition to the 1-week currently. This should help reduce the probability of global funding squeeze — whether it will be enough will be determined in the coming days.”

Krishna Guha, head of central bank strategy at Evercore ISI:

“Equity market futures continued to tumble following the announcement as he spoke. This troubling reaction likely reflects some combination of buy the rumor/sell the news from Friday, concern that the Fed has fired its bazooka and fiscal needs to step up too if this is to work, and missing elements on the liquidity/credit front. The Fed cannot do a lot about the first two but it can and should address the third. In our view the absence of TAF cash auctions and emergency 13(3) lending programs to shore up the credit markets starting with a CPFF backstop for commercial paper leaves the powerful package incomplete.”

Jason Daw, a strategist at Societe Generale:

“In normal circumstances, a large policy response like this would put a floor under risk assets and support a recovery. However, the size of the growth shock is becoming exponential and markets are rightfully questioning what else monetary policy can do and discounting its effectiveness in mitigating coronavirus-induced downside risks.”

Source: Bloomberg

US equity markets are opening down extremely hard this morning after futures traded limit-down from shortly after last night’s open.

@GreekFire23 summed up the stock market today best so far:

• 9:30am : Ding Ding Ding! Trading open!

• 9:30:00001am: Halted

The 10% surge in stocks to end Friday and provide hope into the weekend has been decimated…

And with the S&P 500 opening worse than 7% lower, (below 2521), the first circuit-breaker has been hit and trading will pause for 15 min.

SPY shows the move more effectively…

As a reminder:

• If declines 13%, (to 2358) trading will again pause for 15 mins

• If falls 20%, (to 2168) the markets would close for the day.

Oh and then there’s this…

After the sales process for Italy’s struggling former flag carrier Alitalia yielded no buyers, the Italian government has decided to re-nationalize Alitalia, the bankrupt Italian carrier.

The confirmation of the takeover speculation followed reports that the government would pump as much as €600 million into the bankrupt airline over the next year.

The Italian Economic Development Ministry didn’t immediately respond to a request for comment on the news. The latest deadline for potential buyers to bid on the airline is March 18.  Of course, Italy must rely on EU rules relaxing state aid to gain approval after no buyers were found over several years in bankruptcy.

Lufthansa and Delta Air Lines, which had both considered offers in the past, are now seeking government aid to weather coronavirus crisis themselves, and most other airlines are barely hanging on amid the biggest unanticipated exogenous shock to their business in decades.

While the government should hopefully get a ‘good price’ on the bankrupt carrier since no buyers were found, it will need to rely on the EU excusing some rules about government aid to private companies.

To that end, one Twitter user in Italy summed up the faults inherent in the Italian government’s decision: It’s tantamount to throwing more good money after bad, at a time when that money could be put toward a more productive purpose.

Authored by Richard Breslow via Bloomberg,

This is going to take time. Sorry to have to say it, but patience will be required and undoubtedly tested. By far the best thing that central banks can do is keep the global financial and funding markets functioning and not especially worry about whether the stock market, within some reason, has a good or bad day. We need to keep our eye on the ball. Unfortunately, the reality is that, until the virus starts to visibly recede, the best we should plan for is getting by as best we can.

The worst mistake that was made up until now was trying to pretend that it was business as usual.

I was reading through my emails and IBs this morning and was really surprised how many people essentially asked whether I thought the Fed‘s move over the weekend would “solve” the problem. What an extraordinary example of how we have been conditioned. The Fed can’t fix this. They can just help us get through it. It also was striking, how few people brought up the coordinated actions by multiple central banks. This is a global problem. The Fed isn’t in this alone. To think that way, misses the whole point. And, not to beat a dead horse, there will have to be some action on the fiscal policy side. We’ve seen that global monetary policy can be somewhat synchronized. Now we will see if the politicians can do the same.

One thing you can be sure of is that trying to trade these markets is unlikely to be easy. Equities will most likely be heavy. They should be. The real economy is taking a hit. I am not sure whether it is optimistic thinking or smart analysis, but, with so many analysts calling for a sharp rebound come H2, traders will continue to look for the dips to buy. There are going to be a lot of head fakes. If you must play things from the long side, buy a little bit and see how it feels. This is not an all or nothing situation.

Currencies will behave idiosyncratically. Try to avoid making blanket statements about what is or is not a safe haven. It is going to change based on the medical news and how different economies weather the challenges facing them. And it is unlikely to be apparent in a straight line. Are events euro positive or negative? It will change with the news. Will there be dollar shortages or will the swap lines be sufficient? These are the sorts of questions that need to be asked over and over. Not whether interest rate differentials have changed. It is hard, however, to see how emerging markets can avoid staying under pressure. At least until there is greater clarity. Supply chains will be difficult to keep functioning as we know them.

The world has changed, for the foreseeable future. Before planning what and when to buy, or, perhaps sell, for that matter, think about what assumptions we usually rely upon are applicable in this situation. This really is a time to think before you leap. As we all should.