I’ve been slow in posting about these, because I’ve been occupied with several briefs I’ve had to finish and file (I hope to blog about them soon), and because I’m still try to run down a few issues related to these libel lawsuits. But Jacob Gershman (Wall St. J.) has a very good story about them; here is the part that conveys my thoughts:
[R]ecent past presidents looked at libel lawsuits as a political loser or beneath their dignity, says Prof. Eugene Volokh …. He said Mr. Trump [departing from this tradition] may have spotted a chance to expose media bias and burnish his image as a politician who fights back.
But his lawsuits aren’t without risk, said Mr. Volokh. Mr. Trump and past presidents have avoided testifying as defendants in civil lawsuits by arguing that the proceedings would interfere with their public duties. It would be harder for Mr. Trump to dodge deposition when his campaign is the one doing the suing, said Mr. Volokh….
Should the lawsuits survive motions to dismiss, the Times and the Post would likely get an opportunity to examine and cross-examine Mr. Trump under oath about the articles in question and their assertions about his dealings with Russia …. “It’s hard to see how you could resist testifying about that,” said Mr. Volokh.
Note that the lawsuits are nominally brought on behalf of the Trump campaign rather than Trump himself, but I doubt that this would keep Trump from being deposed as to the factual allegations on which he may have personal knowledge.
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It doesn’t get any more pathetic than this. The Fed cuts the absurdly low money market rate by another 50 basis points at 10AM and before noon the Donald is banging the podium for more.
So if you ever needed a final warning to get out of the casino, today’s back-to-back eruption of financial insanity from the two most powerful economic actors on the planet should be it.
Even then, we might be inclined to give the Donald a tad bit of slack. After all, he’s an absolute dunderhead on economics and spent a lifetime as a leveraged real estate speculator, where, in fact, lower rates are always, but always, to be welcomed when you’re rolling the dice with other people’s money.
Still, it doesn’t get any more primitive or dangerous than the Donald’s current conviction that the price of money should be graduated lower based on the current year international league tables of GDP growth or the level of presidential braggadocio, as the case may be.
Effectively, however, the tiny posse of fools who run the ECB and the BOJ are burning down the financial foundations of their own economies. So the Donald insists we burn down ours, too.
Folks, that’s the sum, substance and full extent of his “thinking”:
“As usual, Jay Powell and the Federal Reserve are slow to act. Germany and others are pumping money into their economies. Other Central Banks are much more aggressive,” Trump said, referring to the Fed chairman.
“The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!”
By contrast, the empty suite and sniveling coward who announced this week’s emergency 50 basis point cut deserves no quarter whatsoever. The man is so petrified of a hissy fit by the boys, girls and robo-machines in the trading pits that he has just plain abandoned any pretense of rational financial thought.
In fact, you could dismiss his meandering comments at the post-announcement presser as risible drivel and be done with it.
Except, except….Powell and his merry band are so drunk with financial power that they now believe any ragged, threadbare, illogical excuse to display their muscle and placate the crybabies and bullies of Wall Street is all that’s required. That is, there are no tradeoffs, no risks – just cut and print, rinse and repeat.
Thus, spake Pusillanimous Powell, averring that the central bank’s action would provide –
“….a meaningful boost to the economy” by loosening financial conditions and shoring up business and household confidence.
“We saw a risk to the outlook for the economy and chose to act,” Powell said, noting the impact on tourism and travel and on company supply chains. “I do know that the U.S. economy is strong…I fully expect that we will return to solid growth and a solid labor market as well.”
“We do recognize that a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain; we get that, we don’t think we have all the answers,” Powell said. Still, he said, it will help support “overall economic activity.”
Needless to say, this is group think run amuck. There is apparently no longer a single Fed head who understands that interest rates are not merely one-way control dials, which exist solely to enable the FOMC to fine-tune the path of the nation’s $22 trillion GDP.
Somewhere over the last decades of Keynesian central banking, the truth that savers are being harmed every time the Fed pleasures Wall Street speculators with another rate cut has been lost completely. So has the notion that rate signals intended to encourage homeowners to buy a house or businesses to build a plant also foster ever more carry trade speculation on Wall Street and reward C-suites for investing in Wall Street pleasing buybacks and M&A deals, not productive investment in plant, equipment, technology, intellectual capital and human resources.
Accordingly, we have now reached the point were the Fed is no longer even in the business of safeguarding sound money and financial system efficiency and stability. Instead, it’s morphed into a grand macroeconomic underwriter, purporting to insure the US economy against any and all bumps in the road, regardless of their origin.
We already had them insuring against the Donald’s Trade War madness with 3 rate cuts last summer. Then with their repo facility madness in the fall, they were essentially insuring against the adverse rate and growth impacts of Washington’s borrowing binge.
And now they are throwing the untoward impacts of plagues and flood onto their underwriter’s table. So presumably anything could be next – even a mass outbreak of hangnails and toe fungus.
In fact, the true nature of central bank intervention in financial markets is just the opposite. To wit, tampering with asset prices is the most dangerous and potentially destructive thing any agency of the state could undertake because it fuels greed, recklessness, speculation, malinvestment and economic errors throughout the length and breadth of the system; and, to paraphrase Keynes’ famous observation about inflation, in ways that not one in a million central bankers could possibly comprehend.
In other words, what was announced this morning had nothing to do with central banking by any even loose historical definition of the term. It was actually another, even more over-the-top exercise in monetary central planning of the GDP and all that is subsumed under its $22 trillion girth.
But why in the world would anyone – even arrogant, self-regarding Fed heads – believe they can comprehend the infinite complexities and feedback loops of the GDP? That is, the $22 trillion here and the $85 trillion worldwide economy in which it is intricately and intimately intermeshed.
Yet if you presume to know that a 1.05% money market rate rather than a 1.55% rate will produce optimum economic outcomes under the shadow of Covid-19 uncertainty and disruption, then you positively do need to comprehend all the highways and bi-ways weaving through $22 trillion of input/output tables that only crudely comprehend the blooming, buzzing mass of activity which is actually the US economy.
Self-evidently, the Fed heads no longer even try to explain the macroeconomics of rate-cutting when they are cheek-by-jowl with the zero bound. They just assert ex cathedra that it will do some good – and not even from the actual quantitative flow economics that the Fed historically avowed.
That is, back in the day, if credit was not flowing to homeowners because high rates made borrowing prohibitive, it turned the rate dials lower in order to reduce bank disintermediation and thereby give S&Ls the means to lend, home-buyers the incentive to borrow and home-builders a boost to their order books.
And, by contrast, if rates got so low as to cause building activity to skyrocket, thereby fueling rampant wage, lumber and building lot inflation, they proceeded to dial up rates to cool things down.
We think the powers of the free market were always up to the task of credit flow regulation on their own: Freely mobilized interest rates always clear markets and bring forth more savings if needed, and more credit demand where economics require.
So central bank regulation of credit flows was never really necessary, but here’s the thing: In the present regime of massively subsidized and mispriced capital which the world’s central banks have fostered, there simply isn’t any credit flow channel to regulate.
Debt capital has become virtually unlimited and tantamount to free so there simply are no interest rate or credit supply barriers to spending and investment.
Likewise, the world economy has become so over-invested and malinvested in physical production capacity that the old-fashioned “demand-pull’” inflation just doesn’t happen. Or at least until now it hasn’t because the subsistence rice paddies and villages of the developing world had not yet been drained of cheap labor.
That’s why today’s monetary central planners don’t even talk about credit flows to the main street economy any more. There is no problem there for their ministrations to solve.
Instead, they talk about “easing financial conditions” and “supporting financial confidence”. That is to say, monetary policy is no longer even about money or credit; it’s an exercise in state-directed psy-ops.
And when you look into the real purpose of Fed psy-ops, which was the explicitly acknowledged purpose of today’s emergency rate cut, you quickly come to understand why Wall Street has morphed into a casino and the Fed its dutiful handmaid.
To wit, “easier” financial conditions mean low credit spreads and high stock prices or “risk on”. By contrast,”tighter” financial conditions are defined by widening credit spreads and falling stock prices and PE multiples and “risk off”.
Needless to say, in today’s debt-entombed main street economy, the Fed’s psy-ops with respect to “financial conditions” are neither here nor there. No wannabe homebuyer is influenced by the Fed’s psy-ops and no businessman stocks or destocks inventories or adds or subtracts from CapEx budgets based on whether the casino has been coaxed into a temporary risk-on or risk off mood by the Fed heads.
Stated differently, Fed policy is now almost exclusively about keeping stock prices high and rising, and nipping any even half-assed effort at correction in the bud, and violently so.
Self-evidently, this week’s grand exercise in psy-ops failed spectacularly and like never before. The casino shifted by 1200 Dow Points between the post-cut announcement high and the intra-day low. And in the wrong direction!
Moreover, that bust comes on top of the 4800 Dow point plunge from the February 19th high to the February 28th intra-day low, which was followed by a 2000 point rise from last Friday’s low to Monday’s insane closing high.
In other words, the Fed long ago exited the sound money business. After the great financial crisis and its balance sheet pumping spree thereafter it also existed the credit flow control business.
And with today’s monumental error, it has now, apparently, euthanized its psy-ops tool, as well.
In the days ahead we will elaborate on the truly dangerous new financial world that now exists in the wake of the Fed’s self-defenestration. But in the meanwhile, Gary Kaltbaum captured the madness now loose in the land in his trenchant commentary issued immediately after the Fed’s announcement:
Powell lowered rates in the past few minutes because the market was heading lower today. He wasn’t going to make the move today until he saw the DOW down 300 early. This is not about a virus. This is not about an economy. This is about the markets…AGAIN! This is about the Bernanke, Yellen, Powell, Kuroda, Carney, Draghi, LaGarde markets that have made markets addicted to their easier money moves with an unaccountable and limitless amount of conjured up money. Do you not think he sees what we have reported to you? That like a well-trained dog, markets react to his every whim?
So what did Powell just do…or at least try to do:
He screwed Aunt Mary and Uncle Bob…AGAIN! Yes…how dare you want risk-less income investments! How dare you want a decent money market rate! Screw you Mr. and Mrs. Saver.
The continuation of the asset bubble. (SEE A CHART OF ANY INDEX PAST 11 YEARS)
A widening of the wealth gap. Yes…all these politicians complaining about the wealth gap? Look no further.
The continuation of the distorting or price and yield in bond markets.
BOTTOM LINE:
Another in a long line of moves to stanch any bleeding in the markets. Mr. Powell is easily Mr. Obvious. By the way, do you know how pundits and futures markets give percentage chances of rate cuts in the future? Since we have nailed these rate cuts all the way down, here is our latest.
WE GIVE IT A 100% CHANCE THAT WE WILL NOT ONLY EVENTUALLY BE BACK AT 0% BUT WE WILL EVENTUALLY DO THE NEGATIVE RATE DANCE. BOOK IT NOW!
LASTLY:
If we ever get to the day where markets do indeed shoot the middle finger back at these market interlopers…head for the hills. If we ever get to the day where the markets see these moves as desperation…head for the hills. Initial reaction…rally 700 points in minutes…drop 600 points in minutes…rally back 300 points in minutes. Welcome to your central bank markets.
He got that last bit right. It may well have happened within minutes after he hit the send button.
Another ‘Nightmare At Sea’: California Scrambles To Test Passengers Aboard ‘Grand Princess’ Cruise Ship
It’s like the world’s most horrifying case of de ja vu. A cruise ship carrying 3,500 passengers and crew (2,700 passengers, roughly 800 crew) is floating listlessly in the waters off San Francisco after Cali Gov. Gavin Newsom barred it from docking in the Bay Area city, which reported its first two “presumptive” cases just last night.
California officials on Thursday confirmed that four others who traveled during a previous voyage of the ship have been sickened, and another passenger died in California, becoming the first US death outside the Seattle area earlier this week. The 71-year-old man from Sacramento was said to have had other underlying health issues. Two of the four passengers mentioned above are among the patients who have been hospitalized with the virus in Northern California.
The other two have been asked to self-quarantine at home.
A military helicopter delivered test kits to the ship on Thursday after reports claimed 35 passengers had shown suspicious symptoms. Newsom has said he won’t allow the ship to dock until its passengers have all been “properly assessed.” As of last night, officials had identified 100 people as priorities for testing, and as President Trump said during a press conference Friday morning as he signed the $8.3 billion aid package into law, people are being tested “as we speak.” The results from the first batch of tests are expected Friday afternoon.
Another American passenger who traveled with the other five during the prior voyage in question told the BBC that she and her husband had fallen ill after returning home, but hadn’t given it much thought until reading about the passenger who died. The two complained that they “couldn’t get a straight answer” about how to get tested.
“They’re telling us to stay home, but nobody told me until yesterday to stay home,” she said.
“We were in Sacramento, we were in Martinez, we were in Oakland. We took a train home from the cruise. I really hope that we’re negative so nobody got infected.”
Of course, the cruise ship situation immediately brings to mind the ‘Diamond Princess’, another ship, owned by the same Carnival Cruise subsidiary, that was for weeks home to the largest outbreak outside China, eventually, just over 700 cases were confirmed among its passengers and crew, and several governments, including the US, evacuated citizens from a quarantine overseen by the Japanese government. Six people eventually died. Several passengers have died, and the Japanese and the State Department have been criticized over their handling of the situation.
Another abortion case is now in the hands of the U.S. Supreme Court. At issue in this week’s oral arguments in June Medical Services v. Russo is the constitutionality of a Louisiana law that requires physicians who perform abortions to have admitting privileges at local hospitals. According to the state, the law serves a valid health and safety purpose and should be upheld as a legitimate exercise of government power. According to the legal challengers, the law is a bogus regulation whose only purpose is to harass lawful abortion providers and drive them out of business.
If all of that sounds familiar, it’s because the Supreme Court decided a nearly identical case just four years ago. In Whole Woman’s Health v. Hellerstedt (2016), the Court struck down a Texas law requiring physicians who perform abortions to have admitting privileges at local hospitals on the grounds that the law conferred no “medical benefits sufficient to justify the burdens upon [abortion] access” that it imposed.
In most cases in which the constitutionality of a purported health or safety law is at issue, the Supreme Court employs a legal standard known as the rational-basis test. Under this highly deferential approach, the Court effectively tips the scales in favor of the government. “The burden is on the one attacking the legislative arrangement,” the Court has said of the rational-basis test, “to negative every conceivable basis which might conceivably support it.” In other words, the legal challengers must defeat not only the government’s stated rationale for its regulation, but they must also defeat any conceivable rationale that the government (or even the presiding judge) might later invent. To say the least, the government usually prevails in rational-basis cases.
Abortion regulations—even though they also purportedly involve health and safety—are reviewed under a less forgiving legal standard. Here the Supreme Court employs something known as the undue burden test. It originated in Planned Parenthood of Southeastern Pennsylvania v. Casey (1992), in which the Court said that “unnecessary health regulations that have the purpose or effect of presenting a substantial obstacle to a woman seeking an abortion impose an undue burden on the right.”
One of the central questions that the Court grappled with this week in June Medical Services, in other words, was whether the Louisiana regulation, just like the Texas regulation before it, amounts to an undue burden and should be overruled.
These cases are also notable for the ideological contortions that they sometimes inspire. For example, as I wrote about the legal wrangling over Whole Woman’s Health, “the same left-wing legal pundits who normally say that the Court has no business striking down ostensible health and safety laws suddenly find themselves in the unusual position of favoring aggressive judicial action against Texas’ ‘burdensome and expensive restrictions’ and ‘sham health laws.’ By the same token, conservative legal activists have taken up the mantle of government regulation and are now accusing the other side of seeking ‘to use the Due Process Clause as a deregulatory tool.'”
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Another abortion case is now in the hands of the U.S. Supreme Court. At issue in this week’s oral arguments in June Medical Services v. Russo is the constitutionality of a Louisiana law that requires physicians who perform abortions to have admitting privileges at local hospitals. According to the state, the law serves a valid health and safety purpose and should be upheld as a legitimate exercise of government power. According to the legal challengers, the law is a bogus regulation whose only purpose is to harass lawful abortion providers and drive them out of business.
If all of that sounds familiar, it’s because the Supreme Court decided a nearly identical case just four years ago. In Whole Woman’s Health v. Hellerstedt (2016), the Court struck down a Texas law requiring physicians who perform abortions to have admitting privileges at local hospitals on the grounds that the law conferred no “medical benefits sufficient to justify the burdens upon [abortion] access” that it imposed.
In most cases in which the constitutionality of a purported health or safety law is at issue, the Supreme Court employs a legal standard known as the rational-basis test. Under this highly deferential approach, the Court effectively tips the scales in favor of the government. “The burden is on the one attacking the legislative arrangement,” the Court has said of the rational-basis test, “to negative every conceivable basis which might conceivably support it.” In other words, the legal challengers must defeat not only the government’s stated rationale for its regulation, but they must also defeat any conceivable rationale that the government (or even the presiding judge) might later invent. To say the least, the government usually prevails in rational-basis cases.
Abortion regulations—even though they also purportedly involve health and safety—are reviewed under a less forgiving legal standard. Here the Supreme Court employs something known as the undue burden test. It originated in Planned Parenthood of Southeastern Pennsylvania v. Casey (1992), in which the Court said that “unnecessary health regulations that have the purpose or effect of presenting a substantial obstacle to a woman seeking an abortion impose an undue burden on the right.”
One of the central questions that the Court grappled with this week in June Medical Services, in other words, was whether the Louisiana regulation, just like the Texas regulation before it, amounts to an undue burden and should be overruled.
These cases are also notable for the ideological contortions that they sometimes inspire. For example, as I wrote about the legal wrangling over Whole Woman’s Health, “the same left-wing legal pundits who normally say that the Court has no business striking down ostensible health and safety laws suddenly find themselves in the unusual position of favoring aggressive judicial action against Texas’ ‘burdensome and expensive restrictions’ and ‘sham health laws.’ By the same token, conservative legal activists have taken up the mantle of government regulation and are now accusing the other side of seeking ‘to use the Due Process Clause as a deregulatory tool.'”
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Even before Sen. Elizabeth Warren (D–Mass.) announced on Thursday that she is ending her campaign for president, her supporters began offering a simple one-word explanation for her failure to win a single primary race, much less the Democratic nomination: sexism. And if it wasn’t that, it could only be sexism’s even more evil twin: misogyny.
The feeling is nicely summed up by Jason Stanley, professor of philosophy at Yale and author of How Fascism Works: The Politics of Us and Them. “To repeat the obvious: there is no other explanation except for misogyny for what has happened to Senator Warren this year,” Stanley tweeted after Warren suffered across-the-board losses on Super Tuesday. He called this “profoundly depressing.”
This feeling was mirrored by feminist writer Jessica Valenti, who wrote in an essay that Warren had been “outright erased and ignored” by both media and voters. “Don’t tell me this isn’t about sexism,” Valenti wrote. “I’ve been around too long for that.” Sure, Warren may have been the most exhaustively covered female candidate since Hillary Clinton, and she may have one of the biggest war chests in the race, and she may have had among the most stage time at the debates, but still! She lost. The only explanation is that she’s been systematically ignored and erased.
The candidate herself addressed the issue of sexism at a press conference outside her home Thursday, when a reporter asked about the role gender (née “sex”) played in the campaign.
“Gender in this race?” Warren said. “You know, that’s the trap question for everyone. If you say, ‘Yeah, there was sexism in this race,’ everyone says, ‘Whiner!’ If you say there was no sexism, about a bazillion women think, ‘What planet do you live on?'”
I live on the planet where the Democratic electorate chose a woman to be their candidate in 2016—and where that same woman won the popular vote. I suppose it’s possible that the last four years of President Donald Trump have turned Democrats more sexist than they were before, but did that just temporarily stop for the several months Warren was at the top of the polls before Democrats realized they actually don’t want a woman after all? I doubt it.
At the same time, I find it curious that while Warren’s campaign was apparently cut down by sexism and/or misogyny, when other female candidates in the race dropped out, sexism didn’t often come up. One would assume that all female candidates would be subject to the same systemic prejudice, and yet few people claim that Tulsi Gabbard (D–Hawaii) or Amy Klobuchar (D–Minn.) have failed—or, in Gabbard’s case, will fail—because American voters hate women.
When it comes to Gabbard or Klobuchar or the men in the race, people evaluate their campaigns and generally determine it’s the candidate, not the voter, who is at fault. Gabbard isn’t losing because of sexism, she’s losing because she’s a fill-in-the-blank homophobe/cult follower/Bashar Assad apologist. Klobuchar wasn’t a victim of misogyny, she was an uninspiring candidate who abuses her staff and eats her salads with a comb if she can’t find a fork (a quality I personally find highly electable).
So why is Warren’s loss called sexist when Klobuchar’s was not? When I asked this question on Twitter, a number of people answered something along the lines of “because she is really a man”––a great example of actual sexism. But I think the answer is something else: Warren’s followers are both primed to see sexism everywhere and so enamored with their candidate—so sure of her (and their own) righteousness—that they are unable to see any of the flaws that are so apparent to anyone outside their bubble.
Ironically, this tendency to blame all of Warren’s failings on sexism comes across as somewhat…sexist. Every time she loses, she is portrayed by some of her most ardent defenders as a victim, as though she has no control over her own campaign or her own choices. It’s not just infantilizing and patronizing, but it also removes agency and responsibility from the candidate herself. And yet, claims that “sexism did it” are repeated so often they’re taken as a fact, even when no evidence is offered to support them.
Some people seem to think it’s just obvious: If a man with Warren’s qualifications, intellect, and talent ran for office, he would have won. That may be true, although the results of the last election make me fear that qualifications, intellect, and talent don’t matter all that much in American politics. So here’s an alternate explanation: Elizabeth Warren didn’t lose this race simply because of sexism but because she made a series of political miscalculations, starting with the disastrous unveiling of her DNA test, which managed to anger progressives and make conservatives point and laugh. Then there was her refusal to go on the most popular cable news network in America in order to make a political point, the condescending manner in which she spoke about voters she disagreed with, her bungled Medicare for All plan, and the fact that she positioned herself to split the progressive vote with Bernie Sanders—a candidate with grassroots momentum and a campaign that has been ongoing since 2015. Had she pitched herself as a capable, qualified, less ancient and more moderate Democrat instead of Bernie Lite, it’s possible it would be her running against him right now instead of Joe Biden.
Unlike most Reason readers, I was a Warren fan before this campaign—such a Warren fan, in fact, that six months before Trump was elected, I made a bet that Clinton would lose and Warren would be the first female president. But then she pivoted from the reformer who went after banks and stood up for the consumer into the sort of social media justice warrior who thinks she speaks for marginalized people while actually speaking over them. Despite this ill-advised rebranding, she still had plenty of ideas that I liked, from universal preschool to boosting small business to ending for-profit prisons and getting rid of the Electoral College. But her good ideas were too easily overshadowed by her bad ones.
Take, for instance, the LGBTQ town hall (which was a bad idea in the first place). Warren was asked by a 9-year-old trans boy named Jacob what she, as president, would do to keep kids like him safe. Instead of telling him the truth (“Jacob, bullying is sort of a local issue but I recommend a kickboxing class”), she said that she would let this 9-year-old kid vet the next secretary of education. This may have played well in that room, but she wasn’t running to be the president of the Gay-Straight Alliance; she was running to be president of the United States.
Now, I don’t think she actually would have marched Jacob into the Senate confirmation hearings any more than I think she would have passed Medicare of All with or without raising taxes. She was just pandering, and I don’t really fault her for that—pandering is part of campaigning and all politicians do it—but it doesn’t matter whether or not she would have actually let a third grader veto her cabinet picks. What matters is that she said it on live television, and had she won the nomination, it would have come back to bite her in the ass in the general election. There were a mountain of moments like this, and against Trump, she would not have stood a chance.
Warren could have focused on the working class; instead, she focused on the wokest class. She advocated for social positions that may resonate with highly educated, largely white activists, but just don’t appeal to a broad base of Americans across race and class. She talked about nonbinary driver’s licenses and advocated for trans women to play women’s sports and used the term “traffic violence” when the rest of us simply say “car crash.” She’s out of touch—or at least, her advisers are—and there aren’t enough Oberlin grads for her to win Ohio, much less the swing states that will likely determine the outcome of the 2020 race. So here’s why I didn’t vote for Elizabeth Warren: Because she would have given us four more years of Trump. That isn’t sexism; it’s math.
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Rumors Of Macro Fund Failure Amid Ultra Long Bond Explosion
Back in December, the BIS laid out a stunning, and heretofore unknown assessment of the factors leading into the September repocalypse: not only was the overnight repo surge to 10% a function of supply (or lack thereof), with banks – primarily JPMorgan – pulling liquidity from the repo market causing a panic scramble for any incremental dollar (end eventually forcing the Fed to open up its overnight and term repo lines for the first time since the crisis), but an arguably more important reason for the Fed stepping in to restore liquidity was that countless hedge funds were indirectly funding massive Treasury pair trades using repo, or as we put it, “the BIS found that hedge funds exacerbated the turmoil in the repo market with their thirst for borrowing cash to juice up returns on their trades.
US repo markets currently rely heavily on four banks as marginal lenders. As the composition of their liquid assets became more skewed towards US Treasuries, their ability to supply funding at short notice in repo markets was diminished. At the same time, increased demand for funding from leveraged financial institutions (eg hedge funds) via Treasury repos appears to have compounded the strains of the temporary factors.
There was more:
“High demand for secured (repo) funding from non-financial institutions, such as hedge funds heavily engaged in leveraging up relative value trades,” was a key factor behind the chaos, said Claudio Borio, head of the monetary and economic department at the BIS
The BIS’s finding was novel, and surprising, as it highlighted the “growing clout of hedge funds in the repo market” according to the FT, which notes something we pointed out one year ago: hedge funds such as Millennium, Citadel and Point 72 are not only active in the repo market, they are also the most heavily leveraged multi-strat funds in the world, taking something like $20-$30 billion in net AUM and levering it up to $200 billion. They achieve said leverage using repo.
Focusing on the trades in question, one increasingly popular hedge fund strategy involves buying US Treasuries while selling equivalent derivatives contracts, such as interest rate futures, and pocketing the arb, or difference in price between the two.
It was the fear that this arb would suddenly dislocate in chaotic fashion, culminating in a cross-asset liquidation cascade, that spooked the Fed into activity in September, forcing it to inject over $600 billion in liquidity in the ensuing months via both Repo and QE4.
Which brings us to today, and this morning’s unprecedented move in the Ultra long bond future…
… which has already swung higher by over 10points, is the biggest one-day move in history!
Now, as a reminder, most hedge funds are also clients of JPM, which for the past two months had been urging them passionately and over and over and over again to short the long-dated rates complex:
… and again…
… and again just last week…
… with catastrophic consequences for all those who listened, which based on trading desk rumors includes 2 especially large hedge funds, which are also getting crushed this week on their equity exposure.
The good news, for now at least, is that there are no notable dislocations between 30Y cash and Ultra futures – the clearest indication that someone has thrown in the towel, and there is a tradable arb in the most liquid security in the world, one which nobody wants to take advantage of due to counterparty risks. However, it is only a matter of time before the cracks do emerge, at which point the only question will be who it is that just blew up…
A week ago, the candidacy of Joe Biden was at death’s door.
On a taping of “The McLaughlin Group,” this writer suggested it might be time to “call the rectory” and have the monsignor come render last rites.
Today, Biden’s candidacy is not only alive. He is first in votes, victories and delegates, and is favored to win the nomination and, by most polls, to defeat Donald Trump in November.
“The World Turned Upside Down” was a song the British army band is said to have played at the surrender of Lord Cornwallis at Yorktown. That title applies to what happened in the U.S. political world in the five days from Feb. 29 to March 4.
Going into South Carolina on Feb. 29, Joe Biden had run a miserable and losing campaign.
Starting as the odds-on favorite for the nomination, he finished fourth in the Iowa caucuses, fifth in New Hampshire and then was routed by Bernie Sanders in the Nevada caucuses. His fundraising was anemic. His debate performances ranged from tolerable to terrible.
On the eve of South Carolina, his proclaimed “firewall,” the media conceded he might win but wrote him off as a probable fatality on Super Tuesday when 14 states went to the polls.
Then came South Carolina Rep. Jim Clyburn’s endorsement of Biden, which solidified and energized the African American vote in the Palmetto State and led to a Biden blowout in Saturday’s primary.
The nonstop free and favorable publicity Biden gained from the victory created a momentum that Mike Bloomberg’s billions could not buy. Over that weekend came the withdrawal of Mayor Pete Buttigieg and Amy Klobuchar and endorsements by both of Biden as the party’s best hope against Donald Trump.
Came then Biden’s sweep of 10 of the 14 states holding primaries on Super Tuesday. Wednesday saw the withdrawal of Bloomberg, who endorsed Biden and pledged his vast fortune to help Joe and the party defeat Trump in November.
Moreover, for Trump, as Claudius observed in “Hamlet,” “When sorrows come, they come not single spies but in battalions.”
For 10 days, the Dow Jones average has gyrated wildly, wiping out trillions of dollars in wealth, while the coronavirus slowly claimed victims and dominated the world’s media. Predictions of a pandemic, a global economic downturn and a national recession were everywhere.
All in all, a triumphal week for Biden, who racked up 11 state primary victories. Before last Saturday, he had not won a single primary in three presidential campaigns.
But if earlier reports of the demise of Joe Biden were premature, so, too, are today’s confident predictions of a Biden sweep this November, marching over the political corpse of Trump and bringing in a Democratic Senate and Democratic House.
As Yogi Berra said, “It ain’t over till it’s over.”
Bernie Sanders’ “Revolution” remains unreconciled to a Beltway-Biden restoration, against which many of the Democratic candidates railed before dropping out, including Elizabeth Warren.
Sanders, for whom this is the last hurrah, must decide whether he wants to go down fighting for his cause or stack arms and march into Biden’s camp.
If Sanders chooses to fight, he can, even in near-certain defeat, be victorious in history if his “movement” one day captures the national party as it has captured a plurality of the party’s young.
If Sanders goes into the coming debates and forces Biden to defend his votes — for George Bush’s war in Iraq and for NAFTA and WTO trade concessions to Communist China — he may still be crushed.
But Sanders is a true believer. And, for such as these, it is better to die on the hill you have lived and fought on than to march into camp to be patted on the head by an establishment that secretly detests you.
Then there is Biden’s vulnerability.
He may be hailed by a fickle media as a conquering hero today. But after the cheering stops, Biden is going to be, for the next eight months, the same candidate he has been for the last eight months. Here is a description of that candidate by The New York Times the day after his Super Tuesday triumph:
“Any suggestion that Mr. Biden is now a risk-free option would appear to contradict the available evidence. He is no safer with a microphone, no likelier to complete a thought without exaggeration or bewildering detour.
“He has not, as a 77-year-old man proudly set in his ways, acquired new powers of persuasion or management in the 72 hours since the first primary state victory of his three presidential campaigns.
“Mr. Biden has blundered this chance before — the establishment front-runner; the last, best hope for moderates — fumbling his initial 2020 advantages in a hail of disappointing fund-raising, feeble campaign organization and staggering underperformance.”
Pompeo Blames China For US Outbreak, Says Lack Of Transparency “Left Us Behind The Curve”
Mike Pompeo was the featured guest on “Squawk Box” Friday morning, and when asked about China’s grandiose claims about the country’s virus-fighting efforts, the Secretary of State accused the Communist Party leaders of deliberately delaying the sharing of data and other information that would have been of “great benefit” to the US during the early days of the outbreak.
Though he didn’t offer much in the way of specifics, Pompeo said China’s foot-dragging left the US “behind the curve” as it sought to contain the first signs of an incipient outbreak in January.
Working with the Chinese throughout the outbreak has been “incredibly frustrating,” Pompeo said, even as scientists sought to get information “which will ultimately be the solution to both getting the vaccine and attacking this risk.”
Over in China, state media is touting the Communist Party’s ‘triumph’ over the virus as areas and cities impose travel bans on foreigners as part of China’s national exercise in gloating. China once slammed the US’s travel restrictions and mandatory screenings and quarantines as “racist”, citing the WHO’s declaration that they weren’t appropriate at the time (Europe followed that advice and look how it turned out: every state on the Continent has confirmed at least one case, except for Slovakia).
Now, Chinese news anchors are telling the population that the global community owes a debt of gratitude to China for its “sacrifice” in containing the outbreak (referring to the draconian crackdown instituted by Chinese officials).
Apparently, the domestic propaganda channels are overlooking the fact that the virus originated in China and the government’s slow response unleashed the disease on the world.
Pompeo has called coronavirus the Wuhan virus. He explains he’s using that term because the CCP said that’s where the virus originated, and he says to take their word for it, on fox this morning.
As Pompeo added, Communist Party officials have confirmed that the virus came from Wuhan, even as China’s party-backed conspiracists continue to tout rumors that the virus was a tool invented by the Americans.
As he added, he calls the virus “the Wuhan virus” to remind the world where it came from.
“No less authority than the Chinese Communist Party said it came from Wuhan,” Pompeo said. “So don’t take Mike Pompeo’s word for it. We have pretty high confidence that we know where this began.”
“We have high confidence, too, that there was information that could have been made available more quickly and data that could have been provided and shared among health professionals across the world,” Pompeo added. “It’s most unfortunate.”
Pompeo blasted China for its lack of transparency.
“That’s not the way infectious disease doctors tell me it should work. It’s not the way America works with transparency and openness and the sharing of the information that needs to take place.”
In other Pompeo-related news, liberals were losing their minds on twitter over Pompeo’s interview with Fox News last night, where he took shots at Hillary Clinton’s “unlawful” behavior (now that Biden has a chance, many are reviving hopes that Clinton might be picked as VP contender).
“She has been investigated a lot. I think there might be a reason for that.” — here’s Secretary of State Mike Pompeo on Fox & Friends taking shots at Hillary Clinton and accusing her of “unlawful” behavior pic.twitter.com/aWCCzrDR8U
Of course, Pompeo’s boss, President Trump, has been catching a lot of flak lately for seemingly not taking the outbreak seriously enough (on Friday, he appeared to suggest that people could still go to work if they had the virus. Now that, as Larry Kudlow said on CNBC during a separate interview on Friday, Trump is essentially running against the virus, how much longer until President Trump incorporates these same talking points into his own rhetoric, and once again turns the heat up on China to win back some easy political points.
PPT In Da House? Stocks Suddenly Explode Higher As Gold Plunges
Out of nowhere – and following bad news that OPEC talks have ended with no agreement – US equity markets are suddenly miraculously and powerfully bid higher…
Some have suggested that the machines misinterpreted a headline from The WHO:
*WHO’S TEDROS SAYS SLOWING DOWN THE EPIDEMIC SAVES LIVES
Wait – “slowing down” – Buy Mortimer, buy!
Others have suggested it was a reaction to comments by White House Economic Adviser Larry Kudlow who told Bloomberg TV that “the Trump administration is considering immediate fiscal measures, separate from the tax cut plan crafted ahead of the election.”
