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- Post #7,981
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- Mar 24, 2020 8:10am Mar 24, 2020 8:10am
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
- Post #7,982
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- Mar 24, 2020 8:16am Mar 24, 2020 8:16am
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
Well, Forex Traders
My day's work is now done. As you can see my Limit Out closed my two Forex trades for today. I will not trade again today because I have reached my goal of $3000.00 US Dollars for today.
When you know how to trade Forex properly and you have invested 18 years of your life to get here you see my results.
Enjoy your day.
Bruce
- Post #7,983
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- Mar 24, 2020 10:04am Mar 24, 2020 10:04am
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
The markers were getting too too optimistic and there can be no solutions today regardless of the lies of the Politicians. So shorted two positions as you can see.
Bruce
- Post #7,984
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- Mar 24, 2020 10:56am Mar 24, 2020 10:56am
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
- Post #7,985
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- Mar 24, 2020 10:57am Mar 24, 2020 10:57am
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
UPDATE: 17 Forex Trades done and closed. Net Profit : $11,936.66 US Dollars.
3 Open Trades as you can see from my SCREENSHOT.
Bruce
From Earlier today WITH REASON...
Good morning Forex Traders
Mar 19, 2020 9:37:31 PM
Hello Forex Traders
I have a new student and is first name is Oliver. I opened this $50,000 FXCM UK Demo account in Turks & Caicos to get maximum leverage.
I am waiting for my associate to post here.
My goal is to double this account to $100,000 US Dollars in 28 days. I enjoy challenges.
For my students, all that they need to do is a 5% increase over 30 days for three months in a row !!! In other words bring the account to $57,5000 US Dollars
BWM - Forex Trader & Teacher
I created this $50,000 US Dollars FXCM UK Demo account on the date shown above.
I have made 14 successful Forex trades from March 20, 2020 until now that I have closed.
The locked in Net Profit is $8163.56 US Dollars.
I have two open Forex trades that I put on this morning as you can clearly see from my SCREENSHOTS !!!
BWM
March 24, 2020 11:02 NOTE: My last teaching post here will be on April 1, 2020. This is also known as April Fools Day !!!
There is no more point to post here as not one person has the brains or discipline or WORD to trade Forex successfully based on the posts here even after the results are shown.
Bruce
- Post #7,986
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- Mar 24, 2020 11:00am Mar 24, 2020 11:00am
- | Joined Mar 2014 | Status: Member | 802 Posts
Hi Bruce,
Just sent you an email at Tobyruth11. Plz check when you have time. Thanks,
Just sent you an email at Tobyruth11. Plz check when you have time. Thanks,
- Post #7,987
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- Mar 24, 2020 2:04pm Mar 24, 2020 2:04pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
https://goldswitzerland.com/swiss-go...-paper-market/
SWISS GOLD REFINERS CEASE PRODUCTION – END OF PAPER MARKET
March 24, 2020
by Egon von Greyerz
The Swiss Canton of Ticino, in the Italian part of Switzerland, has just ordered the gold refiners based there to close, initially to March 29th but this is expected to be extended. Three of the world’s largest refiners – Argor, Valcambi and PAMP are based in Ticino. We are likely to see major pressure on the gold and silver paper market. More later in this article.
WHO WILL PAY? – THE PRINTING PRESS, STUPID
The world will now see massive handouts to individuals and corporations, rescues of over-leveraged banks and hedge funds plus rapidly surging government deficits. But Who is going to pay for it? The printing press – stupid! Who else. The printing press has got the world into this financial disaster in the first place and all that is needed now is to speed it up 100x or more.
But who is controlling the printing press? That is an irresponsible elite of central bankers, the Deep State and governments who have all benefitted from the biggest financial bubble in history.
CENTRAL BANKS TOLD US ABOUT THE CRISIS BACK IN AUG-SEP.
The first signals of the latest crisis in the financial system was clear in Aug-Sep when first the ECB said they will take whatever measures necessary and the Fed started desperate money printing that one Fed governor called plumbing and not QE. Of course it was plumbing since the system was leaking like a sieve. I wrote at the time that what will happen next will be as momentous for the world as Nixon closing the gold window in 1971. And here we are 6 months later with the Fed’s balance sheet having expanded by almost $1 trillion. In addition all central banks and governments are now committing trillions to prop up failing economies and a collapsing financial system.
EUROPE IN LOCKDOWN
Most European economies are now at a standstill. Shops, hotels, restaurants, bars, most offices and many factories now closed. Virtually all European car manufacturing has come to a halt. The airline and tourist industry is collapsing and most small businesses haven’t got cash flow for more than a couple of weeks.
It is an unbelievably tragic catastrophe which is now hitting the world. I have talked about the coming collapse of the world economy for many years and done my best to tell people to protect themselves. Sadly, most people believe that good times will go on forever. Therefore the coming economic downturn will shock the world.
Although, there is always a catalyst for a downturn, the world could not have been hit by a worse trigger. The biggest economic downturn in history was due anyway.
Global money printing will increase to $10s and $100s of trillions and when the derivative bubble blows up, it will reach $ quadrillions. There can be no other outcome.
STOCKS WILL GO DOWN BY 90% FASTER THAN IN 1929-32
In 1929, it took the Dow 2 1/2 years to go down by 90% and the depression lasted for many years. This time because of Coronavirus (CV), the collapse will be very fast. It could all happen in 9-18 months. By that time the financial system will be unrecognisable or nonexistent. All the printed money will be valued at its intrinsic value of zero. And so will all the assets that were bought or created by this printed money. Stocks will be down 99% and most bonds down by 100%.
But even if markets will collapse very quickly, the world economy will go along the bottom for years and maybe decades.
Investors in property live under the false impression that bricks and mortar will always have a value. Sadly that won’t be the case. If there are no tenants or if they don’t pay the rent, the properties will be almost worthless. I have already heard from friends in the property business who say that the tenants can’t pay the rent. Governments in some countries have promised to help out with rent. But that help will consist of worthless printed money and therefore only have a very short term effect as its value declines daily. If printed money was wealth, we could all stop working.
FAKE MONEY, FAKE VALUATIONS, FAKE MARKETS
So we are now entering the end of a 100 year phase of fake money, fake valuations, fake markets and unlimited debt, all leading to the biggest bubble in history. This has also led to false ethical and moral values and the breakup of family values. Too many people have been chasing the golden calf or material values.
What makes the coming period particularly difficult is the combination of CV hitting many people combined with severe financial pressures. A very big percentage of the population will experience extremely hard times both physically and financially.
HOSPITALS FIGHTING A DESPERATE BATTLE WITH CV
As we have seen in many European countries, there are not enough intensive care units or ventilators even for a fraction of the patients who need it. Doctors and medical staff, in for example Italy or the UK, are fighting a desperate but losing battle and still working around the clock. Many elderly and severely ill people are not even admitted since there is no room and they are left to die.
The situation is made even worse because most governments have waited far too long to take strong action. If you listened to most leaders of state in Europe and the US, everyone thought that they had it under control and their country wouldn’t be severely affected. And then for every day that passed, they gradually changed the tone as they realised that their country would be hit badly too. All a country needed to do is to look at Italy where CV started only a few weeks ago but sadly is still growing exponentially. Just Saturday there were 800 fatalities making almost 5,000 total deaths. Other countries can just with some delay extrapolate Italy’s figures to forecast what will hit them. Also, in many countries the population is not taking the advice or instructions seriously and openly mixing with other people.
No one can tell how long this will last. Observers on the ground in China are saying that CV is still growing there as opposed to official government information. Some people are saying that it could last for 6 months or more and this doesn’t seem unlikely.
THE WORLD ECONOMY COULD DISAPPEAR IN A BLACK HOLE
If the economy closed for more than 6 months with most people not working and major parts of the manufacturing sector closed, then both the economy and the financial system will disappear in a black hole. Governments will have some very difficult choices in the next few weeks and months – the survival of people against the survival of the economy.
Looking at markets, the bull market is over and whatever outcome we will see of CV and government actions, the world is now entering a severe secular bear market which will be long lasting. All bubble assets, stocks, bonds and property will decline by 90% or more.
All major countries led by the Fed, the ECB, the IMF, BOJ, PBOC etc will print unlimited amounts of money. All currencies will decline by 100% as they finish the race to the bottom to their intrinsic value of ZERO. We will soon see high inflation, quickly leading to hyperinflation.
PAPER GOLD MARKET WILL COLLAPSE
Gold and other precious metals will maintain their purchasing power and most likely much more than that as the huge and manipulated paper market in gold and silver collapses. Comex and other futures exchanges will default combined with the whole LBMA system of bullion banks.
There is very strong demand for gold and especially silver currently. Small dealers are out of stock of most items. Bigger buyers like ourselves can still get hold of gold from the refiners but for silver there is a delay of a couple of weeks currently.
So there are many factors which will be extremely favourable for the precious metals:
SWISS GOLD REFINERS CEASE PRODUCTION – END OF PAPER MARKET
March 24, 2020
by Egon von Greyerz
The Swiss Canton of Ticino, in the Italian part of Switzerland, has just ordered the gold refiners based there to close, initially to March 29th but this is expected to be extended. Three of the world’s largest refiners – Argor, Valcambi and PAMP are based in Ticino. We are likely to see major pressure on the gold and silver paper market. More later in this article.
WHO WILL PAY? – THE PRINTING PRESS, STUPID
The world will now see massive handouts to individuals and corporations, rescues of over-leveraged banks and hedge funds plus rapidly surging government deficits. But Who is going to pay for it? The printing press – stupid! Who else. The printing press has got the world into this financial disaster in the first place and all that is needed now is to speed it up 100x or more.
But who is controlling the printing press? That is an irresponsible elite of central bankers, the Deep State and governments who have all benefitted from the biggest financial bubble in history.
CENTRAL BANKS TOLD US ABOUT THE CRISIS BACK IN AUG-SEP.
The first signals of the latest crisis in the financial system was clear in Aug-Sep when first the ECB said they will take whatever measures necessary and the Fed started desperate money printing that one Fed governor called plumbing and not QE. Of course it was plumbing since the system was leaking like a sieve. I wrote at the time that what will happen next will be as momentous for the world as Nixon closing the gold window in 1971. And here we are 6 months later with the Fed’s balance sheet having expanded by almost $1 trillion. In addition all central banks and governments are now committing trillions to prop up failing economies and a collapsing financial system.
EUROPE IN LOCKDOWN
Most European economies are now at a standstill. Shops, hotels, restaurants, bars, most offices and many factories now closed. Virtually all European car manufacturing has come to a halt. The airline and tourist industry is collapsing and most small businesses haven’t got cash flow for more than a couple of weeks.
It is an unbelievably tragic catastrophe which is now hitting the world. I have talked about the coming collapse of the world economy for many years and done my best to tell people to protect themselves. Sadly, most people believe that good times will go on forever. Therefore the coming economic downturn will shock the world.
Although, there is always a catalyst for a downturn, the world could not have been hit by a worse trigger. The biggest economic downturn in history was due anyway.
Global money printing will increase to $10s and $100s of trillions and when the derivative bubble blows up, it will reach $ quadrillions. There can be no other outcome.
STOCKS WILL GO DOWN BY 90% FASTER THAN IN 1929-32
In 1929, it took the Dow 2 1/2 years to go down by 90% and the depression lasted for many years. This time because of Coronavirus (CV), the collapse will be very fast. It could all happen in 9-18 months. By that time the financial system will be unrecognisable or nonexistent. All the printed money will be valued at its intrinsic value of zero. And so will all the assets that were bought or created by this printed money. Stocks will be down 99% and most bonds down by 100%.
But even if markets will collapse very quickly, the world economy will go along the bottom for years and maybe decades.
Investors in property live under the false impression that bricks and mortar will always have a value. Sadly that won’t be the case. If there are no tenants or if they don’t pay the rent, the properties will be almost worthless. I have already heard from friends in the property business who say that the tenants can’t pay the rent. Governments in some countries have promised to help out with rent. But that help will consist of worthless printed money and therefore only have a very short term effect as its value declines daily. If printed money was wealth, we could all stop working.
FAKE MONEY, FAKE VALUATIONS, FAKE MARKETS
So we are now entering the end of a 100 year phase of fake money, fake valuations, fake markets and unlimited debt, all leading to the biggest bubble in history. This has also led to false ethical and moral values and the breakup of family values. Too many people have been chasing the golden calf or material values.
What makes the coming period particularly difficult is the combination of CV hitting many people combined with severe financial pressures. A very big percentage of the population will experience extremely hard times both physically and financially.
HOSPITALS FIGHTING A DESPERATE BATTLE WITH CV
As we have seen in many European countries, there are not enough intensive care units or ventilators even for a fraction of the patients who need it. Doctors and medical staff, in for example Italy or the UK, are fighting a desperate but losing battle and still working around the clock. Many elderly and severely ill people are not even admitted since there is no room and they are left to die.
The situation is made even worse because most governments have waited far too long to take strong action. If you listened to most leaders of state in Europe and the US, everyone thought that they had it under control and their country wouldn’t be severely affected. And then for every day that passed, they gradually changed the tone as they realised that their country would be hit badly too. All a country needed to do is to look at Italy where CV started only a few weeks ago but sadly is still growing exponentially. Just Saturday there were 800 fatalities making almost 5,000 total deaths. Other countries can just with some delay extrapolate Italy’s figures to forecast what will hit them. Also, in many countries the population is not taking the advice or instructions seriously and openly mixing with other people.
No one can tell how long this will last. Observers on the ground in China are saying that CV is still growing there as opposed to official government information. Some people are saying that it could last for 6 months or more and this doesn’t seem unlikely.
THE WORLD ECONOMY COULD DISAPPEAR IN A BLACK HOLE
If the economy closed for more than 6 months with most people not working and major parts of the manufacturing sector closed, then both the economy and the financial system will disappear in a black hole. Governments will have some very difficult choices in the next few weeks and months – the survival of people against the survival of the economy.
Looking at markets, the bull market is over and whatever outcome we will see of CV and government actions, the world is now entering a severe secular bear market which will be long lasting. All bubble assets, stocks, bonds and property will decline by 90% or more.
All major countries led by the Fed, the ECB, the IMF, BOJ, PBOC etc will print unlimited amounts of money. All currencies will decline by 100% as they finish the race to the bottom to their intrinsic value of ZERO. We will soon see high inflation, quickly leading to hyperinflation.
PAPER GOLD MARKET WILL COLLAPSE
Gold and other precious metals will maintain their purchasing power and most likely much more than that as the huge and manipulated paper market in gold and silver collapses. Comex and other futures exchanges will default combined with the whole LBMA system of bullion banks.
There is very strong demand for gold and especially silver currently. Small dealers are out of stock of most items. Bigger buyers like ourselves can still get hold of gold from the refiners but for silver there is a delay of a couple of weeks currently.
So there are many factors which will be extremely favourable for the precious metals:
- Fear and loss of confidence in economy
- Financial system collapsing
- Failure of paper market
- Debasing of currencies and hyperinflation
- Exponential increase in demand
- All current gold production absorbed annually so no surplus
- We have reached peak gold and production will decrease
It is still possible to buy physical gold and silver at a very low price based on the fake paper market. This will not last long as shortages will soon develop and repricing of the metals is imminent. The previous sentence was written on March 24. Gold is up $100 since then. This is just the beginning of a major long term repricing of gold.
Please remember that the principal reason to hold physical metals is for insurance and wealth preservation and not for short term gains.
Finally please remember to look after yourselves and families and in particular the older generation.
STOP PRESS
PRESSURE IN PHYSICAL GOLD MARKET & END OF PAPER MARKET IN GOLD AND SILVER
The Swiss refiners in the Canton of Ticino closing due to CV is having a major effect on the availability of gold. We must remember that 70% of all gold bars in the world are produced in Switzerland and that the 3 biggest refiners are in Ticino where the local government has ordered non-essential factories to close.
Since last Friday when the Swiss refiners closed, gold is up $100 and demand is major and frantic. Bid – offer spreads have increased substantially and premiums on gold and silver are very high. Gold in bigger quantities is now very difficult to obtain but not impossible. There is a major silver shortage and virtually impossible to find. Smaller quantities of silver fetch a 100% markup on spot.
With very little physical available and demand substantial, there is soon likely to be pressure on the paper market. Investors who have bought gold and silver futures will be concerned of the contracts being honoured and ask for delivery.
What we are seeing now is probably the beginning of the end of the gold and silver paper market.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45
Matterhorn Asset Management’s global client base strategically stores an important part of their wealth in Switzerland in physical gold and silver outside the banking system. Matterhorn Asset Management is pleased to deliver a unique and exceptional service to our highly esteemed wealth preservation clientele in over 70 countries.
GoldSwitzerland.com
Contact Us
Articles may be republished if full credits are given with a link to GoldSwitzerland.com.
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- Post #7,988
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- Mar 24, 2020 2:06pm Mar 24, 2020 2:06pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
- Post #7,989
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- Mar 24, 2020 2:07pm Mar 24, 2020 2:07pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
- Post #7,990
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- Mar 24, 2020 3:13pm Mar 24, 2020 3:13pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
https://www.zerohedge.com/markets/ne...ops+to+zero%29
Authored by Jack Rasmus via Counterpunch.org,
Yesterday, the Federal Reserve crossed its latest liquidity free money Rubicon. It announced it will provide unlimited credit–and assume the bad debts, not just of banks, shadow banks, and wealthy investors but for what it called ‘Main St.’
https://zh-prod-1cc738ca-7d3b-4a72-b...%20%281%29.jpg
But by ‘Main St.’ it doesn’t mean consumers or households. It means that virtually any capitalist financial enterprise that has bad debt it can now dump it on the Fed.
In their announcement of its latest ‘lending facility’, as it is called, the Fed declared it would ‘support’ small business loans, student loans, auto securitized loans, and credit card debt. But that does not mean the Fed will ‘support’ consumers and assume their loans.
Oh no!
It means it will support the financial lenders making such loans for students, auto purchases, credit cards and small businesses.
It means these lenders can now dump their bad, defaulted, or otherwise non-performing debt from credit cards, auto loans, student or small business loans on the Fed.
The Fed will eat it for them, and add it to the Fed’s own $4 trillion plus indebted balance sheet–soon to rise to $8 trillion or more.
I propose therefore we erect a new Statue of Money Capital on the steps in front of the Federal Reserve building in Washington D.C. A companion to the Statue of Liberty in the New York harbour. And on it we should inscribe the following motto:
What are markets for at all if The Fed now backstops everything?
Authored by Jack Rasmus via Counterpunch.org,
Yesterday, the Federal Reserve crossed its latest liquidity free money Rubicon. It announced it will provide unlimited credit–and assume the bad debts, not just of banks, shadow banks, and wealthy investors but for what it called ‘Main St.’
https://zh-prod-1cc738ca-7d3b-4a72-b...%20%281%29.jpg
But by ‘Main St.’ it doesn’t mean consumers or households. It means that virtually any capitalist financial enterprise that has bad debt it can now dump it on the Fed.
In their announcement of its latest ‘lending facility’, as it is called, the Fed declared it would ‘support’ small business loans, student loans, auto securitized loans, and credit card debt. But that does not mean the Fed will ‘support’ consumers and assume their loans.
Oh no!
It means it will support the financial lenders making such loans for students, auto purchases, credit cards and small businesses.
It means these lenders can now dump their bad, defaulted, or otherwise non-performing debt from credit cards, auto loans, student or small business loans on the Fed.
The Fed will eat it for them, and add it to the Fed’s own $4 trillion plus indebted balance sheet–soon to rise to $8 trillion or more.
I propose therefore we erect a new Statue of Money Capital on the steps in front of the Federal Reserve building in Washington D.C. A companion to the Statue of Liberty in the New York harbour. And on it we should inscribe the following motto:
“Give me your busted financial speculators, your bankrupt businesses, your huddled hedge funds yearning for guaranteed high yield. The wretched of your banking system. Send me your former millionaires with now empty accounts and I will make them whole again. I lift my greenback lamp beside my free money door. Come in and get what you want!”
What are markets for at all if The Fed now backstops everything?
- Post #7,991
- Quote
- Mar 24, 2020 4:54pm Mar 24, 2020 4:54pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
https://www.zerohedge.com/geopolitic...ops+to+zero%29
Authored by Alastair Crooke via The Strategic Culture Foundation,
As the US and the UK, to stem Covid-19 infections, adopt a close-to-wartime approach, with intrusive levels of intervention into social life, these governments – as the corollary to lockdown – are proposing massive bail-outs. At first brush, this may seem both sensible and appropriate. But wait. Bailing out what? Well, financial markets of course, but then… just about everything: Boeing, the US Shale-oil industry, airlines, the tourist industry, and (in the US) every citizen – through posting them a $1,000, or a $2,000 check, this week – or, as is mooted in DC – perhaps one every month. Great! Just like Christmas.
The markets crashed: $½ Trillion in ‘liquidity’ here; $1.5 Tn there – and there – and there. An alphabet soup of lending facilities — pretty soon you are talking ‘real money’. The alphabet soup cloaks the collective size of liquidity available to banks. And likewise for individuals? 210 million US adults X $1,000, X 12 or 18 (months), is a staggering sum of money — closer to $4 Tn, or 18% of US GDP. Likewise, UK Chancellor Rishi Sunak pledged £330bn, or 15% of GDP, to support the economy, on top of a three-month mortgage payment holiday and a slew of tax deferments, and to do, as well, “whatever it takes”.
https://zh-prod-1cc738ca-7d3b-4a72-b...s/nystexch.jpg
So, how come? How is this money suddenly available – when we have repeatedly been told in the wake of the 2008 crisis that austerity must be the only answer?
Well, welcome to the ‘new orthodoxy’ (actually it is not new at all: France tried it in the eighteenth century when it ‘printed’ the Assignats). Call it ‘helicopter money’, or, the so-called ‘Modern Monetary Theory’: The principle is that it is okay to print money – if governments don’t otherwise have it. The point here is that ‘helicopter money’ (money conjured out of nothing: empty units reflecting no underlying real economic value) is a paradigm change.
A major paradigm change.
It is the legacy from 2008. That was primarily a banking crisis: Printing money seemed to work out pretty well then, in the view of the élites. The main reason that those ‘experts’ have thought that printing money worked in the wake of 2008 was because the Central Banks were able to reflate the financialised asset bubbles.
“But that wasn’t success, that was failure”, financial guru, Peter Schiff comments. It was a failure because it resulted in even bigger bubbles, and even greater debt – which precisely has set us all up for today’s crisis: For we are going into this crisis naked of any real tools to deal with supply-shock.
In 2008, everybody believed the money ‘printing’ was temporary: Bank balance sheets were all gummed up; and the Fed was going to be able afterwards to normalize interest rates, and shrink its balance sheet. Well, nobody is going to believe that, this time. No, debts will soar – and will be ‘forever’ debts.
Yet for today’s policy-makers, it all seems so reasonable, so plausible: If the Fed floods the financial system with money, interest rates can stay at zero for ever. What’s not to like about this? Certainly, it fits with Trump’s real estate career, built on low interest, easy debt. Governments now may borrow for a hundred years at zero interest; and banks can lend like fury, as the Fed has dropped the requirement for banks to keep any reserves against their loans (i.e. to ‘print’ more easy credit for the favoured).
Better still, governments can just conjure the money out of thin air (by monetizing its debts): It can use these funds to bail out all those businesses and citizens adversely affected by Covid-19, and become heroes. Welcome to the new ‘Orthodoxy’.
https://zh-prod-1cc738ca-7d3b-4a72-b.../munchnmny.png
What’s the alternative? Well that’s the point. The financialized, monetarist worldview dogmatically pursued through the last decades has left the toolbox with only one tool (more money, more liquidity). They have driven the world into this monetarist cul-de-sac. They will go on doing the same thing (liquidity and bailouts), over and over again, and (per Albert Einstein), always hoping for a different and better result. But it won’t work.
It won’t work because the problem is not lack of liquidity. It is that businesses have no business to do – under infection lockdown. We had better understand the consequences to this insanity. That’s all.
This time, the 2008 recipé will not work. The US is going to be hit hard. And Americans are only just waking up to this fact.
This New Orthodoxy is no more than a desperate throw of the dice to keep the western hyper-financialized system aloft. The ‘mobilized-for-war’ narrative is an attempt to justify authoritarian measures, and the false bail-out meme: There was no ‘free money’ during the Wars.
In the 2008/9 crisis, the public was bemused: The financial world seemed too arcane to grasp fully. Only later, was it appreciated that the banks were being saved by ‘socialising’ their mistakes and losses. These – the losses – were ‘socialised’ i.e. transferred to the public balance sheet, and the public were told to expect austerity – and pared down health and welfare systems, to pay for all these 2008 bail outs.
This time, it is not the banks, but corporations and their ‘junk’ debt, that the Authorities are hoping to preserve in aspic (just as the banks were, earlier). In simple terms, it will allow over-leveraged companies to go into even deeper debt – with those loans now backed by the US Federal government.
But, will a better informed public so readily agree that Boeing deserves a $60 Bn bailout, when all its cash was spent in the last years in buying back its own stock and paying large dividends. It may be argued that if the money simply is printed, austerity cuts may not be required. But printing money dilutes the underlying purchasing potential of the money that had existed before dilution. That is to say, it is the 60% who ultimately will pay the cost – again. The new austerity will be a covert wealth transfer through dilution of peoples’ purchasing potential.
As Schiff notes, monetary inflation “is probably not just the worst-case scenario, it’s probably the most likely scenario… the laws of economics apply here just like they did in the Weimar Republic of Germany, or in Zimbabwe, or in Venezuela. If we pursue the same monetary and fiscal policy they did, we’re going to receive the same monetary outcome they did (hyperinflation)”.
This all may seem a somewhat rarefied argument to some, but the implications (both political and geo-political) are huge. This wartime economic approach – of itself – is not going to bring radical change to our neo-liberalized institutional world, nor reform it. That window was shut after 2008.
The reality today is that to ‘touch’ the system now might induce a debt-deflation – a prospect which truly terrifies the Establishment – on top of impending supply-shock recession.
We are locked in through the errors of the Central Bankers: No wonder the Authorities are trying to kindle a war atmosphere in order to say that ‘helicopter money’ is okay. “It’s wartime”. And they will probably order the military out on the streets soon. Saying what is written here, will soon be held to be ‘enemy propaganda’.
The effect of a war-like command economy will not be to sweep society or the economy onto a new course, but rather, will be to re-situate it into the old grooves.
Will anyone believe that in this new ‘command economy’ era, the government directed bailouts and the credit lines, will not be channelled principally to the political élites and their allies?
Yet, just as after the sacrifices of two World Wars, there was ‘New Deal’ mood apparent amongst the people. So it was too, in the wake of 2008: There were calls for reform to a system that entrenched the richest one per cent; but instead we got austerity, and a return to business as usual. Policy was deliberately designed to prop up the old system, and make it function as before. Reform denied.
Today, people are fully focused on managing their lives under virus lockdown, but the political pendulum has been swinging markedly (so-called populist politics) against what is widely perceived as a politically and economically ‘rigged system’.
https://zh-prod-1cc738ca-7d3b-4a72-b...helicmoney.jpg
The question then is, firstly, will US monetary actions succeed? Will they succeed in saving the financial system, ‘as it used to be’? Well, take the call for helicopter money: the term refers to giving money directly to individuals as if dropping cash on everybody out of a helicopter. But Schiff points out, that when Milton Friedman (the father of monetarist economics) coined the term, he intended it as a joke:
And, secondly, will this approach – which anyway is not working, as markets continue to implode – provoke a more concerted opposition to financial excess and inequality, in all its various forms? Will the demand for reform of the neo-liberal system become unstoppable? Maybe the ‘community spirit’ of suffering the virus together, will not be so tolerant of leaders who have failed to take appropriate steps to staunch infection spread, in a timely fashion?
Here, it is the ‘war’ on Covid-19 – rather than the other ‘war’ to save the economy – that will play a key role in shaping the geo-political future.
Enough people have already commentated on the communal, national sentiment being generated by Corona virus. Here in Italy, Italians do feel far more linked empathetically – as if fighting a common enemy (which in a way they are). We all feel for the inhabitants of Lombardy and Bergamo. And, Italians know too, that they are on their own.
This feeling of Euro sauve qui peut (every country to its own) is palpable, and not confined to those just outside the EU borders, such as when the Serbian President (reacting bitterly to news that the EU had imposed an export ban on equipment such as masks and gowns to protect medical workers), said: “International solidarity does not exist. European solidarity does not exist”, to which most Italians would have responded ‘hear, hear’. The only help for Italy arrived from China.
It is the return of the nation-state. Covid-19 will change the course of Italian politics, as well as determine – in a significant way – the future of the EU. Let us be clear: The US and the UK can only make those offers of gushing liquidity and bail-outs – because they ‘print’ money. They control their own money-supply, their deficits – and to a much lesser extent, have some scope over interest rates. EU states do not. And arguments over EU financial mitigation for Covid-19 will ‘rack’ EU institutions and unity – perhaps to breaking-point.
And this more general attitude of sauve qui peut and lack of empathy is probably felt nowhere more deeply than in China. The more so, even than Italy. China has been denigrated, particularly in America, in a way that many Chinese feel borders on racism. Pepe Escobar has written:
“Beijing is carefully, incrementally shaping the narrative that, from the beginning of the coronovirus attack, the leadership knew it was under a hybrid war attack. Xi’s terminology is a major clue. He said, on the record, that this was war. And, as a counter-attack, a “people’s war” had to be launched.”
Europe and America will be facing a very different Chinese-Russian axis in the wake of the Coronavirus. The gloves are off. And Europe will be the first to feel the effect: No more Euro prevarication. That is to say, no more ‘one foot in; one foot out’ in relations with China (on Huawei 5G – as just one example).
Russia and China well understand: Helicopter money, and unparalleled ‘printed’ bail-outs, this is the game-changer. For now, the US dollar is soaring on demand from states who see their own currencies crashing, but who have borrowed in dollars – and see those dollar loans becoming shockingly more costly, day-by-day.
But, the G7 Central Banks finally will have to fight the inflation monster that will be unleashed by their ‘helicopter theories’. Confidence in the dollar will decline, as more and more dollar helicopter ‘drops’ are made. Interest rates will rise, and western junk debt will become toxic, and untenable at higher rates.
In a word, the world will come to see the US as much less powerful and less competent than appearances have projected it. Its lacunae will stare out.
Is the time approaching for that global monetary re-set, as the dollar loses its shine, President Putin must be mulling…?
Authored by Alastair Crooke via The Strategic Culture Foundation,
As the US and the UK, to stem Covid-19 infections, adopt a close-to-wartime approach, with intrusive levels of intervention into social life, these governments – as the corollary to lockdown – are proposing massive bail-outs. At first brush, this may seem both sensible and appropriate. But wait. Bailing out what? Well, financial markets of course, but then… just about everything: Boeing, the US Shale-oil industry, airlines, the tourist industry, and (in the US) every citizen – through posting them a $1,000, or a $2,000 check, this week – or, as is mooted in DC – perhaps one every month. Great! Just like Christmas.
The markets crashed: $½ Trillion in ‘liquidity’ here; $1.5 Tn there – and there – and there. An alphabet soup of lending facilities — pretty soon you are talking ‘real money’. The alphabet soup cloaks the collective size of liquidity available to banks. And likewise for individuals? 210 million US adults X $1,000, X 12 or 18 (months), is a staggering sum of money — closer to $4 Tn, or 18% of US GDP. Likewise, UK Chancellor Rishi Sunak pledged £330bn, or 15% of GDP, to support the economy, on top of a three-month mortgage payment holiday and a slew of tax deferments, and to do, as well, “whatever it takes”.
https://zh-prod-1cc738ca-7d3b-4a72-b...s/nystexch.jpg
So, how come? How is this money suddenly available – when we have repeatedly been told in the wake of the 2008 crisis that austerity must be the only answer?
Well, welcome to the ‘new orthodoxy’ (actually it is not new at all: France tried it in the eighteenth century when it ‘printed’ the Assignats). Call it ‘helicopter money’, or, the so-called ‘Modern Monetary Theory’: The principle is that it is okay to print money – if governments don’t otherwise have it. The point here is that ‘helicopter money’ (money conjured out of nothing: empty units reflecting no underlying real economic value) is a paradigm change.
A major paradigm change.
It is the legacy from 2008. That was primarily a banking crisis: Printing money seemed to work out pretty well then, in the view of the élites. The main reason that those ‘experts’ have thought that printing money worked in the wake of 2008 was because the Central Banks were able to reflate the financialised asset bubbles.
“But that wasn’t success, that was failure”, financial guru, Peter Schiff comments. It was a failure because it resulted in even bigger bubbles, and even greater debt – which precisely has set us all up for today’s crisis: For we are going into this crisis naked of any real tools to deal with supply-shock.
In 2008, everybody believed the money ‘printing’ was temporary: Bank balance sheets were all gummed up; and the Fed was going to be able afterwards to normalize interest rates, and shrink its balance sheet. Well, nobody is going to believe that, this time. No, debts will soar – and will be ‘forever’ debts.
Yet for today’s policy-makers, it all seems so reasonable, so plausible: If the Fed floods the financial system with money, interest rates can stay at zero for ever. What’s not to like about this? Certainly, it fits with Trump’s real estate career, built on low interest, easy debt. Governments now may borrow for a hundred years at zero interest; and banks can lend like fury, as the Fed has dropped the requirement for banks to keep any reserves against their loans (i.e. to ‘print’ more easy credit for the favoured).
Better still, governments can just conjure the money out of thin air (by monetizing its debts): It can use these funds to bail out all those businesses and citizens adversely affected by Covid-19, and become heroes. Welcome to the new ‘Orthodoxy’.
https://zh-prod-1cc738ca-7d3b-4a72-b.../munchnmny.png
What’s the alternative? Well that’s the point. The financialized, monetarist worldview dogmatically pursued through the last decades has left the toolbox with only one tool (more money, more liquidity). They have driven the world into this monetarist cul-de-sac. They will go on doing the same thing (liquidity and bailouts), over and over again, and (per Albert Einstein), always hoping for a different and better result. But it won’t work.
It won’t work because the problem is not lack of liquidity. It is that businesses have no business to do – under infection lockdown. We had better understand the consequences to this insanity. That’s all.
This time, the 2008 recipé will not work. The US is going to be hit hard. And Americans are only just waking up to this fact.
This New Orthodoxy is no more than a desperate throw of the dice to keep the western hyper-financialized system aloft. The ‘mobilized-for-war’ narrative is an attempt to justify authoritarian measures, and the false bail-out meme: There was no ‘free money’ during the Wars.
In the 2008/9 crisis, the public was bemused: The financial world seemed too arcane to grasp fully. Only later, was it appreciated that the banks were being saved by ‘socialising’ their mistakes and losses. These – the losses – were ‘socialised’ i.e. transferred to the public balance sheet, and the public were told to expect austerity – and pared down health and welfare systems, to pay for all these 2008 bail outs.
This time, it is not the banks, but corporations and their ‘junk’ debt, that the Authorities are hoping to preserve in aspic (just as the banks were, earlier). In simple terms, it will allow over-leveraged companies to go into even deeper debt – with those loans now backed by the US Federal government.
But, will a better informed public so readily agree that Boeing deserves a $60 Bn bailout, when all its cash was spent in the last years in buying back its own stock and paying large dividends. It may be argued that if the money simply is printed, austerity cuts may not be required. But printing money dilutes the underlying purchasing potential of the money that had existed before dilution. That is to say, it is the 60% who ultimately will pay the cost – again. The new austerity will be a covert wealth transfer through dilution of peoples’ purchasing potential.
As Schiff notes, monetary inflation “is probably not just the worst-case scenario, it’s probably the most likely scenario… the laws of economics apply here just like they did in the Weimar Republic of Germany, or in Zimbabwe, or in Venezuela. If we pursue the same monetary and fiscal policy they did, we’re going to receive the same monetary outcome they did (hyperinflation)”.
This all may seem a somewhat rarefied argument to some, but the implications (both political and geo-political) are huge. This wartime economic approach – of itself – is not going to bring radical change to our neo-liberalized institutional world, nor reform it. That window was shut after 2008.
The reality today is that to ‘touch’ the system now might induce a debt-deflation – a prospect which truly terrifies the Establishment – on top of impending supply-shock recession.
We are locked in through the errors of the Central Bankers: No wonder the Authorities are trying to kindle a war atmosphere in order to say that ‘helicopter money’ is okay. “It’s wartime”. And they will probably order the military out on the streets soon. Saying what is written here, will soon be held to be ‘enemy propaganda’.
The effect of a war-like command economy will not be to sweep society or the economy onto a new course, but rather, will be to re-situate it into the old grooves.
Will anyone believe that in this new ‘command economy’ era, the government directed bailouts and the credit lines, will not be channelled principally to the political élites and their allies?
Yet, just as after the sacrifices of two World Wars, there was ‘New Deal’ mood apparent amongst the people. So it was too, in the wake of 2008: There were calls for reform to a system that entrenched the richest one per cent; but instead we got austerity, and a return to business as usual. Policy was deliberately designed to prop up the old system, and make it function as before. Reform denied.
Today, people are fully focused on managing their lives under virus lockdown, but the political pendulum has been swinging markedly (so-called populist politics) against what is widely perceived as a politically and economically ‘rigged system’.
https://zh-prod-1cc738ca-7d3b-4a72-b...helicmoney.jpg
The question then is, firstly, will US monetary actions succeed? Will they succeed in saving the financial system, ‘as it used to be’? Well, take the call for helicopter money: the term refers to giving money directly to individuals as if dropping cash on everybody out of a helicopter. But Schiff points out, that when Milton Friedman (the father of monetarist economics) coined the term, he intended it as a joke:
“He was using it as an example of what not to do – about why Keynesian monetary stimulus doesn’t work. He said it’s a crazy, stupid idea … Because dropping money from helicopters doesn’t do anything. It’s just inflation. It just makes prices go up”.
And, secondly, will this approach – which anyway is not working, as markets continue to implode – provoke a more concerted opposition to financial excess and inequality, in all its various forms? Will the demand for reform of the neo-liberal system become unstoppable? Maybe the ‘community spirit’ of suffering the virus together, will not be so tolerant of leaders who have failed to take appropriate steps to staunch infection spread, in a timely fashion?
Here, it is the ‘war’ on Covid-19 – rather than the other ‘war’ to save the economy – that will play a key role in shaping the geo-political future.
Enough people have already commentated on the communal, national sentiment being generated by Corona virus. Here in Italy, Italians do feel far more linked empathetically – as if fighting a common enemy (which in a way they are). We all feel for the inhabitants of Lombardy and Bergamo. And, Italians know too, that they are on their own.
This feeling of Euro sauve qui peut (every country to its own) is palpable, and not confined to those just outside the EU borders, such as when the Serbian President (reacting bitterly to news that the EU had imposed an export ban on equipment such as masks and gowns to protect medical workers), said: “International solidarity does not exist. European solidarity does not exist”, to which most Italians would have responded ‘hear, hear’. The only help for Italy arrived from China.
It is the return of the nation-state. Covid-19 will change the course of Italian politics, as well as determine – in a significant way – the future of the EU. Let us be clear: The US and the UK can only make those offers of gushing liquidity and bail-outs – because they ‘print’ money. They control their own money-supply, their deficits – and to a much lesser extent, have some scope over interest rates. EU states do not. And arguments over EU financial mitigation for Covid-19 will ‘rack’ EU institutions and unity – perhaps to breaking-point.
And this more general attitude of sauve qui peut and lack of empathy is probably felt nowhere more deeply than in China. The more so, even than Italy. China has been denigrated, particularly in America, in a way that many Chinese feel borders on racism. Pepe Escobar has written:
“Among the myriad, earth-shattering geopolitical effects of coronavirus, one is already graphically evident. China has re-positioned itself. For the first time since the start of Deng Xiaoping’s reforms in 1978, Beijing openly regards the US as a threat, as stated a month ago by Foreign Minister Wang Yi at the Munich Security Conference during the peak of the fight against coronavirus.
“Beijing is carefully, incrementally shaping the narrative that, from the beginning of the coronovirus attack, the leadership knew it was under a hybrid war attack. Xi’s terminology is a major clue. He said, on the record, that this was war. And, as a counter-attack, a “people’s war” had to be launched.”
Europe and America will be facing a very different Chinese-Russian axis in the wake of the Coronavirus. The gloves are off. And Europe will be the first to feel the effect: No more Euro prevarication. That is to say, no more ‘one foot in; one foot out’ in relations with China (on Huawei 5G – as just one example).
Russia and China well understand: Helicopter money, and unparalleled ‘printed’ bail-outs, this is the game-changer. For now, the US dollar is soaring on demand from states who see their own currencies crashing, but who have borrowed in dollars – and see those dollar loans becoming shockingly more costly, day-by-day.
But, the G7 Central Banks finally will have to fight the inflation monster that will be unleashed by their ‘helicopter theories’. Confidence in the dollar will decline, as more and more dollar helicopter ‘drops’ are made. Interest rates will rise, and western junk debt will become toxic, and untenable at higher rates.
In a word, the world will come to see the US as much less powerful and less competent than appearances have projected it. Its lacunae will stare out.
Is the time approaching for that global monetary re-set, as the dollar loses its shine, President Putin must be mulling…?
- Post #7,992
- Quote
- Mar 25, 2020 7:31am Mar 25, 2020 7:31am
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
https://moneymaven.io/mishtalk/econo...hkOLzUDT3Huu2g
Huge Interest Rate Dislocations: Did the Fed Cut Too Much?
https://imageproxy.themaven.net/http...JkmAkF8QcDmQnA
Mish
https://imageproxy.themaven.net//htt...sion%3D1756462
A series of charts shows new fed-sponsored interest rate dislocations. Let's dive into the charts.
Note: Please stay with this post even if you do not understand the terms. I tie this all together so that you can see what is going on.
Yesterday afternoon, Randy Woodward, the @TheBondFreak pinged me with a chart of the SOFR rate vs LIBOR.
SOFR stands for Secured Overnight Financing Rate.
In June 2017, US Federal Reserve Bank's Alternative Reference Rates Committee selected SOFR as the preferred alternative to Libor. The committee has noted the stability of the repurchase market on which the rate is based. SOFR is based on the Treasury repurchase market Treasuries loaned or borrowed overnight. SOFR uses data from overnight Treasury repo activity to calculate a rate published at approximately 8:00 a.m. New York time on the next business day by the US Federal Reserve Bank of New York.
SOFR is the new replacement for LIBOR. As such, the rates should track closely. SOFR should also closely track the 3-month T-Bill rate which in turn should closely track the Eurodollar rate. All of these are interest rate products.
In September the SOFR rate spiked as high as 9% intra-day. Since then, the Fed managed to get SOFR under control, but now we see dislocations in LIBOR and the Eurodollar.
The important point is these products should all track within reasonable spreads but they don't.
LIBOR vs SOFR
The initial chart Woodward sent showed LIBOR spiking by over 100 basis points above SOFR.
To be more precise, LIBOR was at 1.23% and SOFR was at 0.02%.
I asked, why stop there?
Over the course of the next hour I kept asking for more and more things on the same chart, ultimately ending up with LIBOR, SOFR, Eurodollars, the 3-Month T-Bill, and Fed Funds Futures all on one chart.
Eurodollar Explanation
Eurodollars may be one of the worst named products in history. Eurodollars have nothing to do with euros. Rather it represents the interest rate on US dollars held overseas.
Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S. The term was originally coined for U.S. dollars in European banks, but it expanded over the years to its present definition. A U.S. dollar-denominated deposit in Tokyo or Beijing would be likewise deemed a Eurodollar deposit (sometimes an Asiadollar). There is no connection with the euro currency or the eurozone.
CME Eurodollar futures prices are determined by the market's forecast of the 3-month USD LIBOR interest rate expected to prevail on the settlement date. A price of 95.00 implies an interest rate of 100.00 - 95.00, or 5%. The settlement price of a contract is defined to be 100.00 minus the official British Bankers' Association fixing of 3-month LIBOR on the day the contract is settled.
To get Eurodollars on the same scale as everything else, we had to use inverse math as described above.
Hopefully, it is easy to see from the above explanations (even if you don't quite understand them), that these products are all related and should all reasonably track each other.
Five Key Interest Rate Measures
https://imageproxy.themaven.net/http...n0es1Nch3ExcqA
Note that Eurodollars (pink) are a leading indicator of what the Fed is expected to do.
The Fed Funds Effective Rate lags. This is why Jim Bianco and I suggested the Fed would cut and cut big. Bianco was confident enough to say the Fed would cut rates between meetings while I only mentioned the possibility.
Kudos to Bianco for his bolder call.
Not only did the Fed cut once intra-meeting but twice, again as discussed by Bianco and I. But look at the result.
Fed Fund Futures vs Fed Funds Rate vs Eurodollar Implied Yield
https://imageproxy.themaven.net/http...z0GwUl4Ju23xCg
Not only did the Fed's second cut totally blow up LIBOR by 120+ basis points, it also dislocated Eurodollars.
The implied Eurodollar rate suggests the Fed needs to hike interest rates by 1/4 point.
Well, good luck with that.
What Happened?
It appears the market was not prepared for the Fed to cut all the way to zero.
Moreover, the speed of the cuts caught nearly all the market participants off guard.
Take a peek at that top chart again.
Then recall the Fed's message for months heading into 2020: "No more cuts, no more hikes for a year."
Note how closely the 3-month T-Bill, Eurodollars, LIBOR, and SOFR all tracked each other, until they didn't.
Hooray!?
Hooray, the Fed has SOFR under control. But what about LIBOR and Eurodollars?
Eurodollars are the most widely traded futures contract. And despite all the time allotted, the market is still not prepared for the switch from LIBOR to SOFR.
Let's return to one of my opening statements "In June 2017, US Federal Reserve Bank's Alternative Reference Rates Committee selected SOFR as the preferred alternative to Libor. The committee has noted the stability of the repurchase market on which the rate is based."
But what about the stability of all those LIBOR and Eurodollar contracts?
Commercial Mortgages on Brink of Collapse
Here's a link that caught my eye: Real Estate Billionaire Barrack Says Commercial Mortgages on Brink of Collapse.
By any chance are those contracts LIBOR based?
Very Deflationary Outcome Has Begun: Blame the Fed
The Fed is struggling mightily to alleviate the mess it is largely responsible for.
I previously commented a Very Deflationary Outcome Has Begun: Blame the Fed
The Fed blew three economic bubbles in succession. A deflationary bust has started. They blew bubbles trying to prevent "deflation" defined as falling consumer prices.
BIS Deflation Study
The BIS did a historical study and found routine price deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.
For a discussion of the study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Deflation is not really about prices. It's about the value of debt on the books of banks that cannot be paid back by zombie corporations and individuals.
Assessing the Blame
Central banks are not responsible for the coronavirus. But they are responsible for blowing economic bubbles prone to crash.
The equities bubbles before the coronavirus hit were the largest on record.
System Wide Margin Call
Please note "The worst scramble for cash is happening in an opaque corner of the market that the Fed can’t control."
Unfortunately, We're Looking at a System-Wide Margin Call
The Federal Reserve ushered out a second wave of quantitative easing Monday. But the worst scramble for cash is happening in an opaque corner of the market, where Chairman Jerome Powell has little control. What we’re witnessing is a system-wide margin call.
With the coronavirus outbreak intensifying, asset managers are getting squeezed by a record outflow from bond funds and billions more from stock funds. Even bigger withdrawals are probably happening in the over-the-counter world, where trades are conducted out of public eye, through broker-dealers. When traders get margin calls, they resort to selling their most liquid assets, usually stocks and U.S. Treasuries. This only deepens the slide.
As of June 2019, the notional amount of such derivatives rose to $640 trillion, the highest since 2014, data provided by Bank of International Settlements show. Gross market value, which gauges how much money would be transferred if all trades shut down, totaled about $12 trillion in mid-2019, 30% lower than in 2014.
In ordinary times, gross market value is a better gauge of the amount at risk because of netting agreements. If a bank is $99 short on a trade and $99.10 long with other clients, its exposure is only 10 cents.
But we live in extraordinary times, and gross market value can also serve as a proxy for how much money the financial system has put aside to sustain that $640 trillion OTC derivatives exposure, according to research conducted at Prerequisite Capital. As of last June, the margin requirement, which the firm defines as the ratio between gross market value and notional amount, was 1.9% — a record low. In other words, there isn’t enough balance sheet provision for black swan events.
From risk parity strategies to statistical arbitrages, the coronavirus is unraveling the most sophisticated of trades. This is a reminder that there’s only so much hedging we can do. Today you’re in, tomorrow you’re out.
Mad Scramble to Rebalance $640 Trillion
So, we have a mad scramble for cash with $640 trillion in derivatives floating around.
If you prefer, the actual gage is a a mere $12 trillion of which interest rate derivatives are likely the single largest component.
Two Questions
Huge Interest Rate Dislocations: Did the Fed Cut Too Much?
https://imageproxy.themaven.net/http...JkmAkF8QcDmQnA
Mish
https://imageproxy.themaven.net//htt...sion%3D1756462
A series of charts shows new fed-sponsored interest rate dislocations. Let's dive into the charts.
Note: Please stay with this post even if you do not understand the terms. I tie this all together so that you can see what is going on.
Yesterday afternoon, Randy Woodward, the @TheBondFreak pinged me with a chart of the SOFR rate vs LIBOR.
SOFR stands for Secured Overnight Financing Rate.
In June 2017, US Federal Reserve Bank's Alternative Reference Rates Committee selected SOFR as the preferred alternative to Libor. The committee has noted the stability of the repurchase market on which the rate is based. SOFR is based on the Treasury repurchase market Treasuries loaned or borrowed overnight. SOFR uses data from overnight Treasury repo activity to calculate a rate published at approximately 8:00 a.m. New York time on the next business day by the US Federal Reserve Bank of New York.
SOFR is the new replacement for LIBOR. As such, the rates should track closely. SOFR should also closely track the 3-month T-Bill rate which in turn should closely track the Eurodollar rate. All of these are interest rate products.
In September the SOFR rate spiked as high as 9% intra-day. Since then, the Fed managed to get SOFR under control, but now we see dislocations in LIBOR and the Eurodollar.
The important point is these products should all track within reasonable spreads but they don't.
LIBOR vs SOFR
The initial chart Woodward sent showed LIBOR spiking by over 100 basis points above SOFR.
To be more precise, LIBOR was at 1.23% and SOFR was at 0.02%.
I asked, why stop there?
Over the course of the next hour I kept asking for more and more things on the same chart, ultimately ending up with LIBOR, SOFR, Eurodollars, the 3-Month T-Bill, and Fed Funds Futures all on one chart.
Eurodollar Explanation
Eurodollars may be one of the worst named products in history. Eurodollars have nothing to do with euros. Rather it represents the interest rate on US dollars held overseas.
Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S. The term was originally coined for U.S. dollars in European banks, but it expanded over the years to its present definition. A U.S. dollar-denominated deposit in Tokyo or Beijing would be likewise deemed a Eurodollar deposit (sometimes an Asiadollar). There is no connection with the euro currency or the eurozone.
CME Eurodollar futures prices are determined by the market's forecast of the 3-month USD LIBOR interest rate expected to prevail on the settlement date. A price of 95.00 implies an interest rate of 100.00 - 95.00, or 5%. The settlement price of a contract is defined to be 100.00 minus the official British Bankers' Association fixing of 3-month LIBOR on the day the contract is settled.
To get Eurodollars on the same scale as everything else, we had to use inverse math as described above.
Hopefully, it is easy to see from the above explanations (even if you don't quite understand them), that these products are all related and should all reasonably track each other.
Five Key Interest Rate Measures
https://imageproxy.themaven.net/http...n0es1Nch3ExcqA
Note that Eurodollars (pink) are a leading indicator of what the Fed is expected to do.
The Fed Funds Effective Rate lags. This is why Jim Bianco and I suggested the Fed would cut and cut big. Bianco was confident enough to say the Fed would cut rates between meetings while I only mentioned the possibility.
Kudos to Bianco for his bolder call.
Not only did the Fed cut once intra-meeting but twice, again as discussed by Bianco and I. But look at the result.
Fed Fund Futures vs Fed Funds Rate vs Eurodollar Implied Yield
https://imageproxy.themaven.net/http...z0GwUl4Ju23xCg
Not only did the Fed's second cut totally blow up LIBOR by 120+ basis points, it also dislocated Eurodollars.
The implied Eurodollar rate suggests the Fed needs to hike interest rates by 1/4 point.
Well, good luck with that.
What Happened?
It appears the market was not prepared for the Fed to cut all the way to zero.
Moreover, the speed of the cuts caught nearly all the market participants off guard.
Take a peek at that top chart again.
Then recall the Fed's message for months heading into 2020: "No more cuts, no more hikes for a year."
Note how closely the 3-month T-Bill, Eurodollars, LIBOR, and SOFR all tracked each other, until they didn't.
Hooray!?
Hooray, the Fed has SOFR under control. But what about LIBOR and Eurodollars?
Eurodollars are the most widely traded futures contract. And despite all the time allotted, the market is still not prepared for the switch from LIBOR to SOFR.
Let's return to one of my opening statements "In June 2017, US Federal Reserve Bank's Alternative Reference Rates Committee selected SOFR as the preferred alternative to Libor. The committee has noted the stability of the repurchase market on which the rate is based."
But what about the stability of all those LIBOR and Eurodollar contracts?
Commercial Mortgages on Brink of Collapse
Here's a link that caught my eye: Real Estate Billionaire Barrack Says Commercial Mortgages on Brink of Collapse.
By any chance are those contracts LIBOR based?
Very Deflationary Outcome Has Begun: Blame the Fed
The Fed is struggling mightily to alleviate the mess it is largely responsible for.
I previously commented a Very Deflationary Outcome Has Begun: Blame the Fed
The Fed blew three economic bubbles in succession. A deflationary bust has started. They blew bubbles trying to prevent "deflation" defined as falling consumer prices.
BIS Deflation Study
The BIS did a historical study and found routine price deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.
For a discussion of the study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Deflation is not really about prices. It's about the value of debt on the books of banks that cannot be paid back by zombie corporations and individuals.
Assessing the Blame
Central banks are not responsible for the coronavirus. But they are responsible for blowing economic bubbles prone to crash.
The equities bubbles before the coronavirus hit were the largest on record.
System Wide Margin Call
Please note "The worst scramble for cash is happening in an opaque corner of the market that the Fed can’t control."
Unfortunately, We're Looking at a System-Wide Margin Call
The Federal Reserve ushered out a second wave of quantitative easing Monday. But the worst scramble for cash is happening in an opaque corner of the market, where Chairman Jerome Powell has little control. What we’re witnessing is a system-wide margin call.
With the coronavirus outbreak intensifying, asset managers are getting squeezed by a record outflow from bond funds and billions more from stock funds. Even bigger withdrawals are probably happening in the over-the-counter world, where trades are conducted out of public eye, through broker-dealers. When traders get margin calls, they resort to selling their most liquid assets, usually stocks and U.S. Treasuries. This only deepens the slide.
As of June 2019, the notional amount of such derivatives rose to $640 trillion, the highest since 2014, data provided by Bank of International Settlements show. Gross market value, which gauges how much money would be transferred if all trades shut down, totaled about $12 trillion in mid-2019, 30% lower than in 2014.
In ordinary times, gross market value is a better gauge of the amount at risk because of netting agreements. If a bank is $99 short on a trade and $99.10 long with other clients, its exposure is only 10 cents.
But we live in extraordinary times, and gross market value can also serve as a proxy for how much money the financial system has put aside to sustain that $640 trillion OTC derivatives exposure, according to research conducted at Prerequisite Capital. As of last June, the margin requirement, which the firm defines as the ratio between gross market value and notional amount, was 1.9% — a record low. In other words, there isn’t enough balance sheet provision for black swan events.
From risk parity strategies to statistical arbitrages, the coronavirus is unraveling the most sophisticated of trades. This is a reminder that there’s only so much hedging we can do. Today you’re in, tomorrow you’re out.
Mad Scramble to Rebalance $640 Trillion
So, we have a mad scramble for cash with $640 trillion in derivatives floating around.
If you prefer, the actual gage is a a mere $12 trillion of which interest rate derivatives are likely the single largest component.
Two Questions
- What can possibly go wrong?
- Where to from here?
I will leave number one to your imagination.
In regards to number 2, US Output Drops at Fastest Rate in a Decade
More importantly, please consider Nothing is Working Now: What's Next for America?
I discuss 20 things that are likely.
Final Question
I leave you with one simple question:
Got Gold?
Mike "Mish" Shedlock
- Post #7,993
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- Edited 11:29am Mar 25, 2020 10:33am | Edited 11:29am
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
https://www.zerohedge.com/markets/wh...ops+to+zero%29
Authored by Michael Lebowitz and Jack Scott via RealInvestmentAdvice.com,
By formally announcing quantitative easing (QE) infinity on March 23, 2020, the Federal Reserve (Fed) is using its entire arsenal of monetary stimulus. Unlimited purchases of Treasury securities and mortgage-backed securities for an indefinite period is far more dramatic than anything they did in 2008.
The Fed also revived other financial crisis programs like the Term Asset-Backed Securities Loan Facility (TALF) and created a new special purpose vehicle (SPV), allowing them to buy investment-grade corporate bonds and related ETF’s. The purpose of these unprecedented actions is to unfreeze the credit markets, stem financial market losses, and provide some ballast to the economy.
Most investors seem unable to grasp why the Fed’s actions have been, thus far, ineffective. In this article, we explain why today is different from the past. The Fed’s current predicament is unique as they have never been totally up against the wall of zero-bound interest rates heading into a crisis. Their remaining tools become more controversial and more limited with the Fed Funds rate at zero. Our objective is to assess when the monetary medicine might begin to work and share our thoughts about what is currently impeding it.
All Money is Lent in Existence.
That sentence may be the most crucial concept to understand if you are to make sense of the Fed’s actions and assess their effectiveness.
Under the traditional fractional reserve banking system run by the U.S. and most other countries, money is “created” via loans. Here is a simple example:
Authored by Michael Lebowitz and Jack Scott via RealInvestmentAdvice.com,
“The process by which money is created is so simple that the mind is repelled.” – JK Galbraith
By formally announcing quantitative easing (QE) infinity on March 23, 2020, the Federal Reserve (Fed) is using its entire arsenal of monetary stimulus. Unlimited purchases of Treasury securities and mortgage-backed securities for an indefinite period is far more dramatic than anything they did in 2008.
The Fed also revived other financial crisis programs like the Term Asset-Backed Securities Loan Facility (TALF) and created a new special purpose vehicle (SPV), allowing them to buy investment-grade corporate bonds and related ETF’s. The purpose of these unprecedented actions is to unfreeze the credit markets, stem financial market losses, and provide some ballast to the economy.
Most investors seem unable to grasp why the Fed’s actions have been, thus far, ineffective. In this article, we explain why today is different from the past. The Fed’s current predicament is unique as they have never been totally up against the wall of zero-bound interest rates heading into a crisis. Their remaining tools become more controversial and more limited with the Fed Funds rate at zero. Our objective is to assess when the monetary medicine might begin to work and share our thoughts about what is currently impeding it.
All Money is Lent in Existence.
That sentence may be the most crucial concept to understand if you are to make sense of the Fed’s actions and assess their effectiveness.
Under the traditional fractional reserve banking system run by the U.S. and most other countries, money is “created” via loans. Here is a simple example:
- John deposits a thousand dollars into his bank
- The bank is allowed to lend 90% of their deposits (keeping 10% in “reserves”)
- Anne borrows $900 from the same bank and buys a widget from Tommy
- Tommy then deposits $900 into his checking account at the same bank
- The bank then lends to someone who needs $810 and they spend that money, etc…
After Tommy’s deposit, there is still only $1,000 of reserves in the banking system, but the two depositors believe they have a total of $1,900 in their bank accounts.
The bank’s accountants would confirm that. To make the bank’s accounting balance, Anne owes the bank $900. The money supply, in this case, is $1,900 despite the amount of real money only being $1,000.
That process continually feeds off the original $1,000 deposit with more loans and more deposits. Taken to its logical conclusion, it eventually creates $9,000 in “new” money through the process from the original $1,000 deposit.
To summarize, we have $1,000 in deposited funds, $10,000 in various bank accounts and $9,000 in new debt. While it may seem “repulsive” and risky, this system is the standard operating procedure for banks and a very effective and powerful tool for generating profits and supporting economic growth. However, if everyone wanted to take their money out at the same time, the bank would not have it to give. They only have the original $1,000 of reserves.
How The Fed Operates
Manipulating the money supply through QE and Fed Funds targeting are the primary tools the Fed uses to conduct monetary policy. As an aside, QE is arguably a controversial blend of monetary and fiscal policy.
When the Fed provides banks with reserves, their intent is to increase the amount of debt and therefore the money supply. As such, more money should result in lower interest rates. Conversely, when they take away reserves, the money supply should decline and interest rates rise. It is important to understand, the Fed does not set the Fed Funds rate by decree, but rather by the aforementioned monetary actions to incentivize banks to increase or reduce the money supply.
The following graph compares the amount of domestic debt outstanding versus the monetary base.
https://zh-prod-1cc738ca-7d3b-4a72-b...ages/1-9_2.png
Data Courtesy: St. Louis Federal Reserve
Why is QE not working?
So with an understanding of how money is created through fractional reserve banking and the role the Fed plays in manipulating the money supply, let’s explore why QE helped boost asset prices in the past but is not yet potent this time around.
In our simple banking example, if Anne defaults on her loan, the money supply would decline from $1,900 to $1,000. With a reduced money supply, interest rates would rise as the supply of money is more limited today than yesterday. In this isolated example, the Fed might purchase bonds and, in doing so, conjure reserves onto bank balance sheets through the magic of the digital printing press. Typically the banks would then create money and offset the amount of Anne’s default. The problem the Fed has today is that Anne is defaulting on some of her debt and, at the same time, John and Tommy need and want to withdraw some of their money.
The money supply is declining due to defaults and falling asset prices, and at the same time, there is a greater demand for cash. This is not just a domestic issue, but a global one, as the U.S. dollar is the world’s reserve currency.
For the Fed to effectively stimulate financial markets and the economy, they first have to replace the money which has been destroyed due to defaults and lower asset prices. Think of this as a hole the Fed is trying to fill. Until the hole is filled, the new money will not be effective in stimulating the broad economy, but instead will only help limit the erosion of the financial system and yes, it is a stealth form of bailout. Again, from our example, if the banks created new money, it would only replace Anne’s default and would not be stimulative.
During the latter part of QE 1, when mortgage defaults slowed, and for all of the QE 2 and QE 3 periods, the Fed was not “filling a hole.” You can think of their actions as piling dirt on top of a filled hole.
These monetary operations enabled banks to create more money, of which a good amount went mainly towards speculative means and resulted in inflated financial asset prices. It certainly could have been lent toward productive endeavors, but banks have been conservative and much more heavily regulated since the crisis and prefer the liquid collateral supplied with market-oriented loans.
QE 4 (Treasury bills) and the new repo facilities introduced in the fall of 2019 also stimulated speculative investing as the Fed once again piled up dirt on top of a filled hold. The situation changed drastically on February 19, 2020, as the virus started impacting perspectives around supply chains, economic growth, and unemployment in the global economy. Now QE 4, Fed-sponsored Repo, QE infinity, and a smorgasbord of other Fed programs are required measures to fill the hole.
However, there is one critical caveat to the situation.
As stated earlier, the Fed conducts policy by incentivizing the banking system to alter the supply of money. If the banks are concerned with their financial situation or that of others, they will be reluctant to lend and therefore impede the Fed’s efforts. This is clearly occurring, making the hole progressively more challenging to fill.
The same thing happened in 2008 as banks became increasingly suspect in terms of potential losses due to their exorbitant leverage. That problem was solved by changing the rules around how banks were required to report mark-to-market losses by the Federal Accounting Standards Board (FASB). Despite the multitude of monetary and fiscal policy stimulus failures over the previous 18 months, that simple re-writing of an accounting rule caused the market to turn on a dime in March 2009. The hole was suddenly over-filled by what amounted to an accounting gimmick.
Summary
Are Fed actions making headway on filling the hole, or is the hole growing faster than the Fed can shovel as a result of a tsunami of liquidity problems? A declining dollar and stability in the short-term credit markets are essential gauges to assess the Fed’s progress.
https://zh-prod-1cc738ca-7d3b-4a72-b...ke_Money_0.jpg
The Fed will eventually fill the hole, and if the past is repeated, they will heap a lot of extra dirt on top of the hole and leave it there for a long time.
The problem with that excess dirt is the consequences of excessive monetary policy. Those same excesses created after the financial crisis led to an unstable financial situation with which we are now dealing.
While we must stay heavily focused on the here and now, we must also consider the future consequences of their actions. We will undoubtedly share more on this in upcoming articles.
- Post #7,994
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- Edited 12:33pm Mar 25, 2020 10:46am | Edited 12:33pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
https://www.theburningplatform.com/2...e/#more-215005
Details Of $2 Trillion Coronavirus Stimulus Package Emerge
Via ZeroHedge
While it will take some time to sort through all the pork contained in the massive $2 trillion coronavirus legislation negotiated between the Trump administration and Congressional leaders early Wednesday, here are some of the major provisions via Bloomberg.
https://zh-prod-1cc738ca-7d3b-4a72-b...20pelosi_0.jpg
The bill – which still needs to be passed by the Senate and the House – provides direct help to citizens, businesses, hospitals and state and local governments. According to the report, a vote could come in the Senate as soon as today.
According to Senate Minority Leader Chuck Schumer (D-NY), checks would be cut April 6.
Key provisions via Bloomberg:
-- NOW, WHAT DOES A HOUSE VOTE LOOK LIKE? That's a good q. Both sides hope they will be able to pass this by unanimous consent or a voice vote, but just one lawmaker may object to the request, which will force them into a tricky plan B. We will keep you posted on where this lands
Details Of $2 Trillion Coronavirus Stimulus Package Emerge
Via ZeroHedge
While it will take some time to sort through all the pork contained in the massive $2 trillion coronavirus legislation negotiated between the Trump administration and Congressional leaders early Wednesday, here are some of the major provisions via Bloomberg.
https://zh-prod-1cc738ca-7d3b-4a72-b...20pelosi_0.jpg
The bill – which still needs to be passed by the Senate and the House – provides direct help to citizens, businesses, hospitals and state and local governments. According to the report, a vote could come in the Senate as soon as today.
According to Senate Minority Leader Chuck Schumer (D-NY), checks would be cut April 6.
Key provisions via Bloomberg:
- Big Businesses: About $500 billion can be used to back loans and assistance to companies, including $50 billion for loans to U.S. airlines, as well as state and local governments.
- Small Businesses: More than $350 billion to aid small businesses, including $10 billion in SBA grants of up to $10,000 for small business costs, and $17 billion for SBA to cover six months of payments for businesses with current SBA loans.
- Hospitals: A $150 billion boost for hospitals and other health-care providers for equipment and supplies.
- Individuals: Direct payments to lower- and middle-income Americans of $1,200 for each adult, as well as $500 for each child.
Unemployment insurance would be extended to four months, and increased to $600 per week. More workers will be eligible for coverage.
There will also be $30 billion in emergency education funding, $25 billion in transit funding, and $30 billion for the Disaster Relief fund.
Restrictions include:
- Any company receiving a government loan would be subject to a ban on stock buybacks through the term of the loan, plus an additional year.
- Executive bonuses will be limited.
- Steps to safeguard workers must be taken, and a tax credit will encourage employers to keep workers on the payroll.
- A ban on funds for any company controlled by President Trump or his children, as well as any owned by Vice President Mike Pence, any members of Congress, or heads of executive departments. It will extend to companies controlled by their children, spouses, or in-laws according to Bloomberg.
We will provide more details from the bill as they become available.
Looking ahead to the next round:
https://pbs.twimg.com/profile_images..._vc_normal.jpg
-- NOW, WHAT DOES A HOUSE VOTE LOOK LIKE? That's a good q. Both sides hope they will be able to pass this by unanimous consent or a voice vote, but just one lawmaker may object to the request, which will force them into a tricky plan B. We will keep you posted on where this lands
- Post #7,995
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- Mar 25, 2020 12:29pm Mar 25, 2020 12:29pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
Inserted Video
- Post #7,996
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- Edited 3:24pm Mar 25, 2020 12:46pm | Edited 3:24pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
http://www.whatdoesitmean.com/index3167.htm
March 25, 2020
Coronavirus War Leader Trump Throws Afghanistan To Wolves To Protect His Own “Zero Risk” Pampered Herd
By: Sorcha Faal, and as reported to her Western Subscribers
A very intriguing new Ministry of Foreign Affairs (MoFA) report circulating in the Kremlin today noting that President Putin still plans to participate in an emergency G-20 leaders video conference on the coronavirus tomorrow, says the timeliness of this decision is due to the explosion of violence occurring in Afghanistan, where over the past few hours radical Islamic terrorists belonging to ISIS laid siege to a Sikh religious complex in Kabul killing dozens—an explosion of violence coming 48-hours after President Donald Trump ordered his Secretary of State Mike Pompeo to secretly travel to Afghanistan and immediately obliterate $1 billion in aid to this war torn nation—a literal “throwing to the wolves” sacrifice of Afghanistan necessitated by “coronavirus wartime leader” President Trump having to turn his focus inwards towards his own nation as this global disease pandemic has exposed just how broken the American economy and society are—and most particularly is an American society living in a Western world populated with tens-of-millions of people having a pampered herd mentality demanding “zero risk” for everything facing them, none of whom are able to see true things any more—best exampled in the coronavirus panicked peoples living in the United States stripping their stores bare of bottled water, while at the same time they leave their store shelves full of water purifiers and jugs—but more ominously is exampled by these “pampered herd” peoples in America being forced to believe against all logic and reason the bogus coronavirus data sets created by radical socialist Democrat Party activists designed to scare local and State officials into making rash, economy-killing mandates—all of whose dire predictions have already been proven to be wildly wrong—and has led to it now being warned about these bogus coronavirus data sets: “How they became a ubiquitous resource across the country overnight, suggests something more sinister”. [Note: Some words and/or phrases appearing in quotes in this report are English language approximations of Russian words/phrases having no exact counterpart.]
According to this report, as to the “something more sinister” that’s occurring in the United States, it’s been printed out like a road map even the smallest school child could follow—and whose first stop on this road of demonic globalist-socialist insanity occurred three-days after President Trump was sworn into office on 20 January 2017—and was when, on 23 January 2017, Trump ordered a mysterious raid on the headquarters of Centers for Disease Control—a mysterious raid followed in December-2017 when Trump ordered an equally mysterious air evacuation of a heavily guarded convoy of vehicles coming from the CDC.
As to why President Trump targeted the CDC just three days after taking office, this report explains, becomes explainable when noticing that in the days just prior to his being sworn in, he was directly threatened by top socialist Democrat Party US Senate Minority Leader Chuck Schumer who warned him: “Let me tell you, you take on the intelligence community, they have six ways from Sunday at getting back at you”—and was a warning followed near immediately by the US intelligence community dragging President-elect Trump and his top aides into a tabletop exercise exhibiting a disease crippling the United States worse than the influenza pandemic of 1918.
Most critical to note about this early January-2017 “tabletop pandemic exercise” President Trump was dragged into by the US intelligence community in the days just before he was sworn into office, this report continues, is that it was led by Anthony Fauci, MD, who has been the director of the National Institute of Allergy and Infectious Diseases (NIAID)since 1984—and upon his emerging from this “tabletop pandemic exercise” that envisioned the United States being destroyed, saw Dr. Fauci shockingly proclaiming that there was “no doubt Trump will face will face a surprise infectious disease outbreak”—but after making this shock proclamation that Trump would be struck by a “surprise infectious disease outbreak”, saw a beyond stunning series of emails being revealed by Wikileaks sent from Dr. Fauci to top Hillary Clinton lawyer Cheryl Mills that said: “Very rarely does a speech bring me to tears…please tell her I love her more than ever…please tell her that we all love her…Please tell her that we all love her and are very proud to know her”—which makes it understandable as to why Trump ordered the series of actions he did against the CDC to see what they were planning—and why today Trump has now totally compliant Dr. Fauci on White House lockdown.
While at the same time having to deal with his own nation’s traitors who unleashed what history will record as one of the most monstrous crimes ever committed against humanity, this report details, President Trump is also closely monitoring Hillary Clinton’s co-conspirator Communist China—who after praising Clinton for attacking Trump this week, sees its leadership in peril, and who know that their economic fate depends on a Western world led by President Trump—the same President Trump whose Republican Party lawmakers in the US Congress are now calling for an international probe into China’s coronavirus cover-up—and in a sign of bipartisan rage against China, sees both Republican and Democrat lawmakers introducing a bill condemning the Chinese government for its handling of the coronavirus outbreak.
With their coronavirus crimes now being called “China’s Chernobyl”, this report notes, the staggering list of lies Communist China told to aid Hillary Clinton and her globalist-socialist forces in attempting to bring down President Trump are breathtaking in both vileness and scope—a fact known fully by top Chinese oligarch Ren Zhiqiang when he confronted head-on main Clinton co-conspirator President Xi with the stunning rebuke “Standing there was not an emperor in his ‘new clothes’, but a bare naked clown insisting on acting as emperor”—which, of course, led to President Xi “disappearing” Zhiqiang on 12 March—and has now ominously led to the cracking of the top Communist Chinese leadership ranks—as it wasn’t President Xi who addressed his nation a few hours ago, but was China’s second-in-command leader Premier Li Keqiang—who in knowing of the Trump wrath soon to be visited upon China, warned his nation’s local officials to stop hiding new coronavirus cases.
Most sickening to notice about this Hillary Clinton-Communist Chinese coronavirus pandemic plot to bring down President Trump, this report continues, is that at the same time it crashed US stock markets and decimated the wealth of over 500,000 American millionaires—nearly all of whom are small business owners—the same cannot be said about the globalist-socialist elites in America supporting both Clinton and China—such as leftist Clinton-supporting Washington Post owner Jeff Bezos, who along with other elites were forewarned of what was to come and grabbed their money out of US stock markets so they wouldn’t suffer like others had to at their expense—but all of whom failed to notice that in his dealing with the coronavirus pandemic launched against him by these demonic elite monsters, President Trump has used it to his utmost advantage—nowhere better evidenced than in the illegal Mexican population living in the United States by the tens-of-millions that last year sent a staggering $36 billion of American wealth back to Mexico—but whom nearly all of are unemployed today because of the coronavirus pandemic shutting down their main places of illegal employment in the massive US service industry (restaurants, hotels, etc.)—and aside from these illegal Mexican peoples in the US not being able to siphon off any more American wealth to send to back to Mexico, none of them are eligible for any economic relief—a reality sinking into the demented minds of socialist Democrat Party activists in the State of California who are now calling for new taxes to pay these illegal Mexicans—which one doesn’t see any way the already under economic siege American people will approve of any time soon—and explains why open border globalist-socialist maniac George Soros and Hillary Clinton’s Democrats are now spending millions-of-dollars of his vast wealth not to help the coronavirus stricken peoples of America, but to run advertisements slamming Trump.
With it now being reported that President Trump has agreed with US lawmakers on the “Largest Rescue Package In American History”, whose staggering cost will be $6 trillion, this report concludes, his socialist Democrat Party enemies were able to inflict one last wound on him by placing into this rescue package a law singling out Trump’s hotels as being the only ones in America not able to receive any monies to recover from this coronavirus pandemic crisis—an economic wound harming Trump’s devoted and loving personal family, however, that President Trump himself shrugged off by turning to his American Family and telling them of the Great American Resurrection soon to come—an economic resurrection of the United States he proclaims will see the American people “Rarin' to Go” by Easter—and whose support of President Trump a just released Gallop Poll shows now stands at an astonishing 60%.
March 25, 2020 EU and US all rights reserved. Permission to use this report in its entirety is granted under the condition it is linked to its original source at WhatDoesItMean.Com. Freebase content licensed under CC-BY and GFDL.
[Note: Many governments and their intelligence services actively campaign against the information in these reports so as not to alarm their citizens about the many catastrophic Earth changes and events to come, a stance that the Sisters of Sorcha Faal strongly disagree with in believing that it is every human being’s right to know the truth. Due to our mission’s conflicts with that of those governments, the responses of their ‘agents’ has been a longstanding misinformation/misdirection campaign designed to discredit us, and others like us, that is exampled in numerous places, including HERE.]
[Note: The WhatDoesItMean.com website was created for and donated to the Sisters of Sorcha Faal in 2003 by a small group of American computer experts led by the late global technology guru Wayne Green(1922-2013) to counter the propaganda being used by the West to promote their illegal 2003 invasion of Iraq.]
[Note: The word Kremlin (fortress inside a city) as used in this report refers to Russian citadels, including in Moscow, having cathedrals wherein female Schema monks (Orthodox nuns) reside, many of whom are devoted to the mission of the Sisters of Sorcha Faal.]
You WERE Warned About The Coronavirus “Telephone Disease”—But Lies Won Out Over Truth
They Died For The Crime Of What They Knew—Where Is Your Name On The Death List?
“KatyDid” Ends Democrat Reign Of Terror As Impeachment Enters “Game Over” Phase
Return To Main Page
March 25, 2020
Coronavirus War Leader Trump Throws Afghanistan To Wolves To Protect His Own “Zero Risk” Pampered Herd
By: Sorcha Faal, and as reported to her Western Subscribers
A very intriguing new Ministry of Foreign Affairs (MoFA) report circulating in the Kremlin today noting that President Putin still plans to participate in an emergency G-20 leaders video conference on the coronavirus tomorrow, says the timeliness of this decision is due to the explosion of violence occurring in Afghanistan, where over the past few hours radical Islamic terrorists belonging to ISIS laid siege to a Sikh religious complex in Kabul killing dozens—an explosion of violence coming 48-hours after President Donald Trump ordered his Secretary of State Mike Pompeo to secretly travel to Afghanistan and immediately obliterate $1 billion in aid to this war torn nation—a literal “throwing to the wolves” sacrifice of Afghanistan necessitated by “coronavirus wartime leader” President Trump having to turn his focus inwards towards his own nation as this global disease pandemic has exposed just how broken the American economy and society are—and most particularly is an American society living in a Western world populated with tens-of-millions of people having a pampered herd mentality demanding “zero risk” for everything facing them, none of whom are able to see true things any more—best exampled in the coronavirus panicked peoples living in the United States stripping their stores bare of bottled water, while at the same time they leave their store shelves full of water purifiers and jugs—but more ominously is exampled by these “pampered herd” peoples in America being forced to believe against all logic and reason the bogus coronavirus data sets created by radical socialist Democrat Party activists designed to scare local and State officials into making rash, economy-killing mandates—all of whose dire predictions have already been proven to be wildly wrong—and has led to it now being warned about these bogus coronavirus data sets: “How they became a ubiquitous resource across the country overnight, suggests something more sinister”. [Note: Some words and/or phrases appearing in quotes in this report are English language approximations of Russian words/phrases having no exact counterpart.]
http://www.whatdoesitmean.com/dok21.jpg
According to this report, as to the “something more sinister” that’s occurring in the United States, it’s been printed out like a road map even the smallest school child could follow—and whose first stop on this road of demonic globalist-socialist insanity occurred three-days after President Trump was sworn into office on 20 January 2017—and was when, on 23 January 2017, Trump ordered a mysterious raid on the headquarters of Centers for Disease Control—a mysterious raid followed in December-2017 when Trump ordered an equally mysterious air evacuation of a heavily guarded convoy of vehicles coming from the CDC.
As to why President Trump targeted the CDC just three days after taking office, this report explains, becomes explainable when noticing that in the days just prior to his being sworn in, he was directly threatened by top socialist Democrat Party US Senate Minority Leader Chuck Schumer who warned him: “Let me tell you, you take on the intelligence community, they have six ways from Sunday at getting back at you”—and was a warning followed near immediately by the US intelligence community dragging President-elect Trump and his top aides into a tabletop exercise exhibiting a disease crippling the United States worse than the influenza pandemic of 1918.
Most critical to note about this early January-2017 “tabletop pandemic exercise” President Trump was dragged into by the US intelligence community in the days just before he was sworn into office, this report continues, is that it was led by Anthony Fauci, MD, who has been the director of the National Institute of Allergy and Infectious Diseases (NIAID)since 1984—and upon his emerging from this “tabletop pandemic exercise” that envisioned the United States being destroyed, saw Dr. Fauci shockingly proclaiming that there was “no doubt Trump will face will face a surprise infectious disease outbreak”—but after making this shock proclamation that Trump would be struck by a “surprise infectious disease outbreak”, saw a beyond stunning series of emails being revealed by Wikileaks sent from Dr. Fauci to top Hillary Clinton lawyer Cheryl Mills that said: “Very rarely does a speech bring me to tears…please tell her I love her more than ever…please tell her that we all love her…Please tell her that we all love her and are very proud to know her”—which makes it understandable as to why Trump ordered the series of actions he did against the CDC to see what they were planning—and why today Trump has now totally compliant Dr. Fauci on White House lockdown.
http://www.whatdoesitmean.com/dok22.jpg
http://www.whatdoesitmean.com/dok23.jpg
President Donald Trump enacts “keep your friends close, and your enemies closer” policy to deal with traitorous Dr. Anthony Fauci.
While at the same time having to deal with his own nation’s traitors who unleashed what history will record as one of the most monstrous crimes ever committed against humanity, this report details, President Trump is also closely monitoring Hillary Clinton’s co-conspirator Communist China—who after praising Clinton for attacking Trump this week, sees its leadership in peril, and who know that their economic fate depends on a Western world led by President Trump—the same President Trump whose Republican Party lawmakers in the US Congress are now calling for an international probe into China’s coronavirus cover-up—and in a sign of bipartisan rage against China, sees both Republican and Democrat lawmakers introducing a bill condemning the Chinese government for its handling of the coronavirus outbreak.
With their coronavirus crimes now being called “China’s Chernobyl”, this report notes, the staggering list of lies Communist China told to aid Hillary Clinton and her globalist-socialist forces in attempting to bring down President Trump are breathtaking in both vileness and scope—a fact known fully by top Chinese oligarch Ren Zhiqiang when he confronted head-on main Clinton co-conspirator President Xi with the stunning rebuke “Standing there was not an emperor in his ‘new clothes’, but a bare naked clown insisting on acting as emperor”—which, of course, led to President Xi “disappearing” Zhiqiang on 12 March—and has now ominously led to the cracking of the top Communist Chinese leadership ranks—as it wasn’t President Xi who addressed his nation a few hours ago, but was China’s second-in-command leader Premier Li Keqiang—who in knowing of the Trump wrath soon to be visited upon China, warned his nation’s local officials to stop hiding new coronavirus cases.
http://www.whatdoesitmean.com/dok24.jpg
Communist Chinese criminal complicity with Hillary Clinton in the coronavirus plot to bring down President Donald Trump sees them now on the verge of total economic collapse.
Most sickening to notice about this Hillary Clinton-Communist Chinese coronavirus pandemic plot to bring down President Trump, this report continues, is that at the same time it crashed US stock markets and decimated the wealth of over 500,000 American millionaires—nearly all of whom are small business owners—the same cannot be said about the globalist-socialist elites in America supporting both Clinton and China—such as leftist Clinton-supporting Washington Post owner Jeff Bezos, who along with other elites were forewarned of what was to come and grabbed their money out of US stock markets so they wouldn’t suffer like others had to at their expense—but all of whom failed to notice that in his dealing with the coronavirus pandemic launched against him by these demonic elite monsters, President Trump has used it to his utmost advantage—nowhere better evidenced than in the illegal Mexican population living in the United States by the tens-of-millions that last year sent a staggering $36 billion of American wealth back to Mexico—but whom nearly all of are unemployed today because of the coronavirus pandemic shutting down their main places of illegal employment in the massive US service industry (restaurants, hotels, etc.)—and aside from these illegal Mexican peoples in the US not being able to siphon off any more American wealth to send to back to Mexico, none of them are eligible for any economic relief—a reality sinking into the demented minds of socialist Democrat Party activists in the State of California who are now calling for new taxes to pay these illegal Mexicans—which one doesn’t see any way the already under economic siege American people will approve of any time soon—and explains why open border globalist-socialist maniac George Soros and Hillary Clinton’s Democrats are now spending millions-of-dollars of his vast wealth not to help the coronavirus stricken peoples of America, but to run advertisements slamming Trump.
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Death toll in Hillary Clinton started wars in Libya, Syria and Ukraine stands at over 1,000,000—and she really lost her election against Trump because the American people were tired of their sons, daughters, fathers and mothers coming home in body bags.
With it now being reported that President Trump has agreed with US lawmakers on the “Largest Rescue Package In American History”, whose staggering cost will be $6 trillion, this report concludes, his socialist Democrat Party enemies were able to inflict one last wound on him by placing into this rescue package a law singling out Trump’s hotels as being the only ones in America not able to receive any monies to recover from this coronavirus pandemic crisis—an economic wound harming Trump’s devoted and loving personal family, however, that President Trump himself shrugged off by turning to his American Family and telling them of the Great American Resurrection soon to come—an economic resurrection of the United States he proclaims will see the American people “Rarin' to Go” by Easter—and whose support of President Trump a just released Gallop Poll shows now stands at an astonishing 60%.
http://www.whatdoesitmean.com/dok26.jpg
March 25, 2020 EU and US all rights reserved. Permission to use this report in its entirety is granted under the condition it is linked to its original source at WhatDoesItMean.Com. Freebase content licensed under CC-BY and GFDL.
[Note: Many governments and their intelligence services actively campaign against the information in these reports so as not to alarm their citizens about the many catastrophic Earth changes and events to come, a stance that the Sisters of Sorcha Faal strongly disagree with in believing that it is every human being’s right to know the truth. Due to our mission’s conflicts with that of those governments, the responses of their ‘agents’ has been a longstanding misinformation/misdirection campaign designed to discredit us, and others like us, that is exampled in numerous places, including HERE.]
[Note: The WhatDoesItMean.com website was created for and donated to the Sisters of Sorcha Faal in 2003 by a small group of American computer experts led by the late global technology guru Wayne Green(1922-2013) to counter the propaganda being used by the West to promote their illegal 2003 invasion of Iraq.]
[Note: The word Kremlin (fortress inside a city) as used in this report refers to Russian citadels, including in Moscow, having cathedrals wherein female Schema monks (Orthodox nuns) reside, many of whom are devoted to the mission of the Sisters of Sorcha Faal.]
You WERE Warned About The Coronavirus “Telephone Disease”—But Lies Won Out Over Truth
They Died For The Crime Of What They Knew—Where Is Your Name On The Death List?
“KatyDid” Ends Democrat Reign Of Terror As Impeachment Enters “Game Over” Phase
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- Post #7,997
- Quote
- Mar 25, 2020 3:22pm Mar 25, 2020 3:22pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
https://usawatchdog.com/greatest-dep...erald-celente/
https://usawatchdog.com/wp-content/u...20-208x300.pngBy Greg Hunter’s USAWatchdog.com
Gerald Celente, a top trends researcher and Publisher of The Trends Journal, says the world is already in an economic depression. Celente explains, “Never in the history of the world has the whole world, or most of the world, been shut down by politicians destroying people’s lives and their businesses. People are going to go bankrupt. You are going to see suicide rates increase. You are going to see crime escalate and people OD’ing on drugs because of depression. . . . Our leaders are totally closing down the economy. Again, this has never been done before. It’s not only Wall Street going down, Main Street went down simultaneously. That is unprecedented. Usually, the markets go down and then the ripple effects start hitting Main Street. This time–boom, they are both down. . . . It’s going to be worse than the Great Depression. It’s going to be the Greatest Depression.”
What’s the biggest problem the economy faces? Celente says, “The debt levels are phenomenal. We have more than $250 trillion of global debt and all the personal debt. How are you going to pay the credit card debt? How about paying the student debt, car loans and the mortgages? What about the electric bill, phone bill and people are out of work because my governor said I should stay home?”
The next play by global governments is to get rid of cash because it carries germs like the coronavirus. Celente says, “We are going to go from ‘Dirty Cash to Digital Trash,’ which is also the title of the current Trends Journal. They’ve got people freaked out. They are going to give us digital trash. That’s what they are doing. They are going to get rid of the currencies that you have.”
After talk of trillions of dollars in new stimulus from Congress this week, what about gold prices? Celente says, “You saw how much the markets went up. How about gold prices? It bounced back $200 per ounce since Friday. . . . The smart money is seeing the fake money being printed, and they are going into gold. Now hear this. Just like the crummy, slimy politicians going after your Constitutional rights and Bill of Rights, they are going to go after your gold. They did it in the last Great Depression, and they are going to do it in the Greatest Depression. You mark my words.”
In closing, Celente says, “I agree with Trump 100% because I have been saying this since the beginning that the cure is going to be worse than the disease. They are destroying the global economy. They are destroying people’s lives. We are going to see crime levels that are unimaginable. Why do you think people are going out and getting guns? Then you are going to see these liberals talking about gun confiscation. Crime is going to escalate, and deaths are going to go through the roof. When people lose everything and have nothing left to lose, they lose it. You are going to see gangs like never before. On the other end, the open borders issue, that is a closed story. They are closing borders all over the world. So, you are not going to hear people say let them in, let them in–that’s over. I agree with Trump. We should go back to business as usual.”
On Trump winning a second term this November, Celente, who calls himself a “political atheist,” says, “It’s a wild card, but I would still go with Trump at this point.”
Join Greg Hunter of USAWatchdog.com as he goes One-on-One with Gerald Celente, Publisher of The Trends Journal, as he gives his top trends and predictions for the virus crisis, the Greatest Depression, gold and silver prices and his pick to win the White House in November.
(To Donate to USAWatchdog.com Click Here)
After the Interview:
https://usawatchdog.com/wp-content/u...-3-232x300.jpgThere is free information on TrendsResearch.com. If you want to become a subscriber of The Trends Journal (which is now weekly) click here.
https://usawatchdog.com/wp-content/t...-connected.png
Related Posts:
https://usawatchdog.com/wp-content/u...20-208x300.pngBy Greg Hunter’s USAWatchdog.com
Gerald Celente, a top trends researcher and Publisher of The Trends Journal, says the world is already in an economic depression. Celente explains, “Never in the history of the world has the whole world, or most of the world, been shut down by politicians destroying people’s lives and their businesses. People are going to go bankrupt. You are going to see suicide rates increase. You are going to see crime escalate and people OD’ing on drugs because of depression. . . . Our leaders are totally closing down the economy. Again, this has never been done before. It’s not only Wall Street going down, Main Street went down simultaneously. That is unprecedented. Usually, the markets go down and then the ripple effects start hitting Main Street. This time–boom, they are both down. . . . It’s going to be worse than the Great Depression. It’s going to be the Greatest Depression.”
What’s the biggest problem the economy faces? Celente says, “The debt levels are phenomenal. We have more than $250 trillion of global debt and all the personal debt. How are you going to pay the credit card debt? How about paying the student debt, car loans and the mortgages? What about the electric bill, phone bill and people are out of work because my governor said I should stay home?”
The next play by global governments is to get rid of cash because it carries germs like the coronavirus. Celente says, “We are going to go from ‘Dirty Cash to Digital Trash,’ which is also the title of the current Trends Journal. They’ve got people freaked out. They are going to give us digital trash. That’s what they are doing. They are going to get rid of the currencies that you have.”
After talk of trillions of dollars in new stimulus from Congress this week, what about gold prices? Celente says, “You saw how much the markets went up. How about gold prices? It bounced back $200 per ounce since Friday. . . . The smart money is seeing the fake money being printed, and they are going into gold. Now hear this. Just like the crummy, slimy politicians going after your Constitutional rights and Bill of Rights, they are going to go after your gold. They did it in the last Great Depression, and they are going to do it in the Greatest Depression. You mark my words.”
In closing, Celente says, “I agree with Trump 100% because I have been saying this since the beginning that the cure is going to be worse than the disease. They are destroying the global economy. They are destroying people’s lives. We are going to see crime levels that are unimaginable. Why do you think people are going out and getting guns? Then you are going to see these liberals talking about gun confiscation. Crime is going to escalate, and deaths are going to go through the roof. When people lose everything and have nothing left to lose, they lose it. You are going to see gangs like never before. On the other end, the open borders issue, that is a closed story. They are closing borders all over the world. So, you are not going to hear people say let them in, let them in–that’s over. I agree with Trump. We should go back to business as usual.”
On Trump winning a second term this November, Celente, who calls himself a “political atheist,” says, “It’s a wild card, but I would still go with Trump at this point.”
Join Greg Hunter of USAWatchdog.com as he goes One-on-One with Gerald Celente, Publisher of The Trends Journal, as he gives his top trends and predictions for the virus crisis, the Greatest Depression, gold and silver prices and his pick to win the White House in November.
(To Donate to USAWatchdog.com Click Here)
After the Interview:
https://usawatchdog.com/wp-content/u...-3-232x300.jpgThere is free information on TrendsResearch.com. If you want to become a subscriber of The Trends Journal (which is now weekly) click here.
https://usawatchdog.com/wp-content/t...-connected.png
Related Posts:
- Global Markets Tank When Dems Impeach Trump – Gerald Celente
- 2020 Predictions on Trump, Economy, War and Unrest – Gerald Celente
- New Gold Bull Run Already Started - Gerald Celente
- Trump Bump, No Recession, Rate Cuts Coming – Gerald Celente
- Impeachment War on USA, Dems Take Guns, Economic Update
- Post #7,998
- Quote
- Mar 25, 2020 3:37pm Mar 25, 2020 3:37pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
https://www.zerohedge.com/economics/...ops+to+zero%29
Authored by Daniel Lacalle,
The Danger Of Estimating Rapid Recovery
In February, the general consensus among large investment banks and supranational entities was that there would be a one-time impact on GDP in the first quarter due to the impact of the coronavirus, followed by a stronger recovery in the form of V.
The IMF anticipated a modest correction to world GDP of 0.1%, and the biggest cut in growth estimates for 2020 was 0.4%.
Those days are over.
https://zh-prod-1cc738ca-7d3b-4a72-b...onomy-2013.jpg
The latest round of world growth reviews includes a reduction in growth estimates for the first and second quarters and a very modest recovery in the third and fourth quarters. Estimates of average GDP are now down 0.7%, and JP Morgan expects the eurozone to enter a deep recession in the next two quarters (-1.8% and -3.3% in the first and second quarters), followed by a very poor recovery that would still leave the estimate for the entire year 2020 in contraction.
The investment bank also assumes that the United States will fall by 2% and 3% respectively, but with modest growth throughout the year (considerably more than consensus)...
https://zh-prod-1cc738ca-7d3b-4a72-b...ges/bfm952.jpg
Capital Economics estimates a year-long blow to the US economy that would cut 0.8% from previous estimates, although it continues to predict growth, but a greater impact in the euro area, with growth throughout the year 2020 to an average of -1.2%, led by a prediction of -2% for Italy. This, unfortunately, seems only the beginning of a cycle of decline that adds to the problem of an economy that was already slowing down in 2019.
The decision to close air travel and to close all non-essential business is now a reality in the world's major economies. The United States has banned all European flights, while Italy enters a complete blockade, Spain declares a state of emergency and France close all public places and nonessential businesses. These decisions are key to containing the spread of the virus and trying to prevent the collapse of health systems, and our thoughts are with all those infected. Closing travel and business has a negative domino effect on the economy. It is an important measure to prevent a rapid spread of the disease and there will be more cancellations of events and activities.
By now, at least we have a clearer picture of the severity of the pandemic, and we can discuss the economic consequences, so I think it's important to remind readers of some important factors:
Authored by Daniel Lacalle,
The Danger Of Estimating Rapid Recovery
In February, the general consensus among large investment banks and supranational entities was that there would be a one-time impact on GDP in the first quarter due to the impact of the coronavirus, followed by a stronger recovery in the form of V.
The IMF anticipated a modest correction to world GDP of 0.1%, and the biggest cut in growth estimates for 2020 was 0.4%.
Those days are over.
https://zh-prod-1cc738ca-7d3b-4a72-b...onomy-2013.jpg
The latest round of world growth reviews includes a reduction in growth estimates for the first and second quarters and a very modest recovery in the third and fourth quarters. Estimates of average GDP are now down 0.7%, and JP Morgan expects the eurozone to enter a deep recession in the next two quarters (-1.8% and -3.3% in the first and second quarters), followed by a very poor recovery that would still leave the estimate for the entire year 2020 in contraction.
The investment bank also assumes that the United States will fall by 2% and 3% respectively, but with modest growth throughout the year (considerably more than consensus)...
https://zh-prod-1cc738ca-7d3b-4a72-b...ges/bfm952.jpg
Capital Economics estimates a year-long blow to the US economy that would cut 0.8% from previous estimates, although it continues to predict growth, but a greater impact in the euro area, with growth throughout the year 2020 to an average of -1.2%, led by a prediction of -2% for Italy. This, unfortunately, seems only the beginning of a cycle of decline that adds to the problem of an economy that was already slowing down in 2019.
The decision to close air travel and to close all non-essential business is now a reality in the world's major economies. The United States has banned all European flights, while Italy enters a complete blockade, Spain declares a state of emergency and France close all public places and nonessential businesses. These decisions are key to containing the spread of the virus and trying to prevent the collapse of health systems, and our thoughts are with all those infected. Closing travel and business has a negative domino effect on the economy. It is an important measure to prevent a rapid spread of the disease and there will be more cancellations of events and activities.
By now, at least we have a clearer picture of the severity of the pandemic, and we can discuss the economic consequences, so I think it's important to remind readers of some important factors:
- We cannot assume that the above estimates are too pessimistic. If we have learned anything from the history of world growth estimates, it is that most of us tend to be more optimistic than realists even in periods of crisis. Most analysts did not see a crisis in 2008 and, most importantly, most did not see it in 2009, when it was evident. It is true that 80 percent of the estimates at the beginning of any year have to be revised, but it is not because they are too pessimistic, but rather the opposite.
- Calls for large tax packages to offset the pandemic may be futile. Allen-Reynolds of Capital Economics warned that "even if governments agreed to a broader fiscal and spending package, the economic impact would be much less than in the past, particularly if the fiscal stimulus was concentrated in Germany," because the production gaps are almost non-existent. This is not a demand problem, but a supply shock, and supply shocks with bricks, mortar, and deficit spending are not addressed.
- A quick recovery in the third quarter is now virtually impossible. The collapse of the developed economies is already guaranteed and will probably take us more than a couple of weeks. The collapse of emerging economies is likely to start in May and affect estimates for 2020 and 2021. All the analyzes we've seen so far only take into account the factors of a recession in 2020, not a crisis, let alone a major impact on the economy in 2021, but the financial implications of an already over-leveraged world add a series of credit events to an economic collapse.
- The latest wave of downgrades is already a large-scale stimulus, rate cuts, and quantitative easing. The diminishing returns of monetary easing were already evident in 2018 and especially in 2019, with global manufacturing purchasing managers (PMI) indices contracting and growth estimates dropping significantly throughout the year. Average downward growth reviews by country averaged 20% between January and December, amid a coordinated and massive injection operation by the central bank that injected up to $ 170 billion a month into the economy (considering the Banco Popular de China (PBOC), the Bank of Japan (BOJ), the European Central Bank (ECB) and the Federal Reserve) and saw widespread cuts in rates.
- The economic implications of a pandemic will not be resolved with a massive increase in spending. Governments will implement large demand policies that are the wrong response to a collapse of the economy. Most companies will experience a collapse in sales and the consequent accumulation of working capital, and none of this will be resolved by deficit spending. A supply shock cannot be mitigated with demand policies, which increase debt and excess capacity in sectors already in debt and swollen and do not help sectors that are experiencing an abrupt collapse in activity.
- A forced temporary collapse must also include the collapse of the tax collection system. Governments already finance themselves at negative rates. They must eliminate (not defer) the payment of taxes to companies in the crisis period to avoid a massive increase in unemployment and a domination of bankruptcies, and facilitate working capital lines with zero rates to allow companies and self-employed workers circumvent a closure. Governments that make the mistake of maintaining the current fiscal structure or simply extend the payment period for six months will see the huge negative consequences of a closure in the next nine months.
If, as expected, the collapse spreads to more countries every week, the negative effects on the economy will be longer and exponential, and the mirage of a recovery in the third quarter will be even less likely.
It is very likely that the closure of the main developed economies will be followed by a closure of the emerging markets, creating a shock to supply that has not been seen in decades. The adoption of massive inflationary and demand-driven measures in a shock to supply is not only a mistake, but is the recipe for stagflation and guarantees a multi-year negative impact generated by the increase in debt, the weakening of productivity, the increase in inflation in non-reproducible goods while deflation is making headlines and economic stagnation.
- Post #7,999
- Quote
- Mar 26, 2020 1:10pm Mar 26, 2020 1:10pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
https://www.hussmanfunds.com/comment/mc200326/
Snippet:
As of March 1, 2020, the growth rate of COVID-19 cases in countries other than China is running at 25% daily. The expansion in the number of locations is also problematic, because the first person in each new location is local ‘patient zero.’ Unless serious containment efforts reduce this growth rate substantially, a continuation would produce a 1000-fold increase in cases over the coming month. Even that might not seem so bad, until the end of April, when the same rate of growth would push the number of COVID-19 cases beyond the 45 million U.S. flu cases observed in 2017-2018. That is exactly how this little coronavirus with twice the R0 of the seasonal flu, and a mortality rate that is evidently an order of magnitude higher, will produce utter chaos if containment efforts are not taken seriously.
– John P. Hussman, Ph.D., March 1, 2020
Public health notes
I want to begin with an update and extension of observations and analysis relating to SARS-CoV-2 (COVID-19) that I’ve included in these commentaries since January. As usual, I’ll try to separate my comments about this epidemic from investment discussion as much as possible.
As March began, there were 68 U.S. cases of SARS-CoV-2 (COVID-19). At present, less than a month later, there are over 68,000. Though containment efforts were broadly dismissed early in the month, they have become more pointed in the past two weeks, particularly in certain states like New York. Even with a 1000-fold increase in cases during March, several corners of the media characterize containment efforts as an overreaction, and describe this epidemic as “like the flu.”
We still have a chance of limiting the number of fatalities that result, but not with dismissive approaches to containment, which I view as menacing to public health.
A few observations regarding the public health implications surrounding the novel coronavirus may be helpful (see some of my research papers, this article in Nature for example, to assure yourself that I’m not shooting wildly from the hip).
First, this is not influenza (the “flu”). It’s actually a novel variant of SARS. The proper name of this virus is SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), and the associated disease is called COVID-19 (coronavirus disease 2019). As the name implies, SARS-CoV-2 can, in its severe cases, produce acute inflammation of the respiratory system, which is the typical cause of fatalities.
Outside of China, daily case growth has eased to 15% since January, down from 25% in early-March as a result of strong global containment efforts. In the U.S., case growth has averaged over 30% per day during March, but shorter-term compound growth has recently dipped to 29% a day.
With over 68,000 U.S. cases already, even if present containment efforts were to immediately crush the growth rate to just 10% per day, the U.S. will exceed one million cases during April. Needless to say, that’s a narrow window to boost equipment, personnel and capacity. Reducing case growth to a 15% rate would put U.S. cases over 4.5 million in 30 days, potentially with hundreds of thousands of fatalities. We need these numbers to be wrong, and that’s exactly why containment is critical. Lack of containment is exactly what produces 30 million U.S. influenza cases every year, though with a far lower fatality rate than SARS-CoV-2.
It’s common to quote a 2% fatality rate, but the observed case fatality rate (CFR) of SARS-CoV-2 is actually now 4.5% (fatalities/reported cases). By comparison, the fatality rate of the seasonal flu is just 0.13%
.
While I strongly believe that the true fatality rate of SARS-CoV-2 is many times the rate for influenza, I don’t believe that 4.5% is the actual number because there are clearly lots of cases that are unreported, and many are likely to be “sub-clinical,” meaning that they may not show symptoms. The problem is that regardless of whether you’ve got a high fatality rate and a smaller number of cases, or a small fatality rate with a larger number of cases, the number of fatalities is exactly the same. Emphatically, the “ascertainment rate” (reported cases/true cases) cancels out in that calculation.
So while reported cases depend on ascertainment, fatalities are “sufficient statistics” in themselves. Indeed, my impression is that the CFR has been trending higher precisely because reported cases are increasingly lagging actual cases. That’s good in the sense that the true fatality rate is probably much lower than the observed CFR, but it’s bad in the sense that true cases are probably growing much faster than we think. In any case, to dismiss the growing number of fatalities based on the idea of “unreported cases” is to lack an understanding of this arithmetic.
Understanding market volatility
A market crash is simply a low risk-premium spiking higher. That’s not hyperbole, and it’s not a market call. It’s just a fact. As I’ve noted in previous market cycles, every market crash is always driven first and foremost by a spike in risk premiums. During the 2000-2002 market collapse, I wrote: ‘Remember that favorable trend uniformity is essentially a signal that investors have a robust preference for taking risk. Right now, there is no evidence of the sort. In a market with razor thin risk premiums, any increase in risk aversion can lead to spectacular price declines.’
– John P. Hussman, Ph.D., February 25, 2000
A share of stock is nothing but a claim on a very long-term stream of expected future cash flows that will be delivered into the hands of investors over time. If a security is expected to deliver a single $100 payment, a decade from today, the return that investors can expect is directly related to the price they pay.
If investors pay $27 today for an expected future payment of $100 a decade from now, they can expect an average return of about 14% annually on their investment, provided that the $100 future cash flow is actually delivered.
If investors pay $39 today, they can expect an average return of about 10% annually.
If investors pay $56 today, they can expect an average return of about 6% annually.
If investors pay $82 today, they can expect an average return of about 2% annually.
If investors pay $100 today, they can expect an average return of zero.
If investors pay more than $100 today, they can expect to lose money for more than a decade.
The basic arithmetic that relates future cash flows, long-term returns, and current prices together is called “discounting.” For example, show me a security that will provide a $100 payment in 10 years, and tell me you need an expected return of 8%, and I can calculate the price: $100/(1.10)^10 = $46.32.
Conversely, tell me that the security is currently priced at $46.32, and I can estimate that the 10-year expected annual return is ($100/$46.32)^(1/10)-1 = 8%. Again, all of this assumes that the future cash flow will actually be delivered. Since there’s some uncertainty there, investors usually demand a “risk premium” well above the interest rate on Treasury bonds.
If investors drive valuations high enough to “price in” zero or negative returns, any substantial increase in the expected return demanded by investors will result in a price collapse. Value a security for extremely high returns, and any decline in the expected return demanded by investors will result in a price advance.
Here’s the thing. Given that a share of stock is a claim on decades and decades of discounted future cash flows, even entirely wiping the first year or two of cash flows does very little to the value of all those remaining cash flows.
But value that very long-term stream of future cash flows at extreme prices that imply zero returns, and even a modest increase in the expected return demanded by investors will trigger breathtaking losses.
That’s exactly what happened last month. When it comes to the financial markets, we don’t even need to talk our public health crisis, or build scenarios around it. We all just need to understand what the word “investment” actually means.
As I noted in February, “I continue to expect the S&P 500 to lose about two-thirds of its value over the coming years. Avoiding profound market losses over the completion of this cycle would require a permanently high plateau in valuations, at their present hypervalued extremes, and the absence of even one episode of significant risk-aversion in the future.”
What we’re seeing today in the financial markets is just an initial episode of significant risk aversion.
It’s worth noting that the deepest economic decline since the Great Depression involved a cumulative decline of 5.6% of annual real GDP. It’s difficult to imagine that this downturn will be smaller. Still, stocks are claims on decades and decades of future expected cash flows. Even if earnings are clobbered over the coming year, that’s a very small fraction of the entire stream.
https://www.hussmanfunds.com/wp-cont.../mc200326d.png
What’s likely to do harm to investors over the completion of this market cycle isn’t the impact of a year or two of lost cash flows. The likely source of actual damage is the roughly 65% loss in value (from the February high) that would be required simply to bring the most reliable valuation measures to their run-of-the-mill historical norms. The extreme financial valuations that preceded this crisis have made substantial additional stock market losses likely.
The other source of potential disruption will be a certain amount of bankruptcy that was largely baked in the cake, as years of Fed-induced yield-seeking speculation enabled companies to issue a mountain of junky paper in the form of BBB bonds, leveraged loans, and covenant-lite debt.
Though I was never a fan of recapitalizing the banking system after the global financial crisis by starving investors of safe yield, the bright spot is that the March 2009 accounting change to FAS 157 (mark-to-market) – which was really what ended the Global Financial Crisis – may reduce the likelihood of similar bank failures during the present crisis. That’s because even if the bond markets become distressed, banks will not have to mark their securitized loans to prevailing market prices if they reasonably expect the underlying borrowers to be solvent on the other side. In a crisis like this one, it’s good to have a bright spot.
Three considerations to know
The more glorious this bubble becomes in hindsight, the more dismal future investment returns become in foresight. The higher the price investors pay for a set of future cash flows, the lower the return they will enjoy over time. Investment is not independent of price. Whatever they’re doing, it’s not ‘investment.’ Presently, we observe the combination of hypervaluation and negative market internals, which I view as a ‘trap door’ situation.
– John P. Hussman, Ph.D., January 30, 2020
I’ve often observed that while we consider a very broad range of market conditions, a few factors have a particularly strong place in our investment discipline, particularly 1) valuations, and 2) market internals. To a lesser degree (especially since late-2017) we can also add 3) overextension.
Valuations provide a great deal of information about long-term investment prospects, as well as the extent of potential market losses over the completion of a given market cycle. The chart below, for example, shows our estimate of likely 12-year average annual nominal total returns for a conventional portfolio mix invested 60% in the S&P 500, 30% in Treasury bond, and 10% in Treasury bills. I noted in mid-February that this estimate had declined below zero for the first time in history. Even the September 1929 market extreme did not do that. The little arrow at the right side of the chart shows the impact of the recent market selloff on these return prospects (as of 3/18/20 at about 2400 on the S&P 500).
https://www.hussmanfunds.com/wp-cont.../mc200326e.png
Of course, if overvaluation alone was enough to drag prices lower, we would never observe hypervaluation like 1929, 2000, and February 2020, because those market advances would have been weighted down at much lesser extremes. Likewise, if undervaluation was enough to drive prices higher, we would never observe secular valuation lows like 1949, 1974 or 1982.
Instead, what drives market returns over shorter segments of the market cycle is the extent to which investor psychology is inclined toward speculation or risk-aversion. Since speculation tends to be indiscriminate, and risk-aversion tends to be selective, we find that the best gauge of investor psychology is the uniformity or divergence of prices across thousands of individual securities, industries, sectors, and security-types, including debt of varying creditworthiness. I describe this sort of uniformity with the term “market internals.”
The chart below presents the cumulative total return of the S&P 500 in periods where our measures of market internals have been favorable, accruing Treasury bill interest otherwise. The chart is historical, does not represent any investment portfolio, does not reflect valuations or other features of our investment approach, and is not an assurance of future outcomes.
https://www.hussmanfunds.com/wp-cont.../mc200326f.png
A third consideration is the extent to which market action is “overextended” in one direction or another. These measures include gauges of overbought/oversold conditions, as well as broad syndromes that combine extremes in valuation, investor sentiment, and price action. In other market cycles across history, for example, extreme combinations of “overvalued, overbought, overbullish” conditions were usually followed by abrupt air-pockets, panics, or market crashes.
Several instances of severe compression have emerged in recent weeks, one which prompted my March 1 interim comment Clearing Rallies and Crashes (Buckle Up) and was immediately followed by a scorching “fast, furious, prone-to-failure” clearing rally. Because investment conditions have been more volatile and time-consuming than more frequent market commentaries allow, I’ve tried to post general short-term financial market observations to my personal Twitter feed (https://twitter.com/hussmanjp). Again, I cannot respond to questions about our investment funds on that platform.
Though measures of “overextension” can be useful, we’ve abandoned our willingness to place these overextended “limits” above the condition of market internals – regardless of whether the market is overextended on the upside, or the downside. The main feature of the recent bull market that was truly “different” from history was this: once the Federal Reserve drove interest rates to zero, investors became willing to speculate regardless of overextended conditions, however extreme.
In late-2017, I finally threw up my hands and abandoned the idea that there was any reliable “limit” to speculation at all, and we adapted our investment strategy accordingly. While sufficiently extreme conditions can still justify a neutral market outlook, we no longer adopt or amplify a bearish outlook unless our measures of market internals are explicitly unfavorable.
Navigating turbulence
I expect that the most valuable aspect of our investment discipline over the completion of this cycle will be our ability and willingness to flexibly respond to changes in observable market conditions as they emerge. While my impression is that passive investment strategies will become nearly excruciating over the completion of this cycle, there’s no need to worry about various scenarios, to project targets, to predict market movements, or to become tied to any particular forecast about future economic or financial events. This is not about prediction, and projection, and forecasting. What’s needed is the ability and willingness to flexibly respond to changes in observable market conditions as they emerge.
Those changes will take several forms, and because they often compete, several principles are essential. What follows isn’t so much investment advice – investors can do what they wish – but a general description of how I think about our investment discipline.
First, neither valuations nor overextended conditions create “floors” or “ceilings” for the market. Our investment discipline has admirably navigated decades of market cycles, but my belief in overextended speculative “limits” was very detrimental in this one. Learn what we learned.
It’s true that lower valuations are better, in the sense that investors can have more confidence (but not assurance) that any near-term losses will recovered. Extreme valuations – like those we observed at the February highs – mean that investors might have to wait more than a decade to break even after a substantial market loss (see Going Nowhere in an Interesting Way for a detailed historical analysis of this point). In either case, it’s best to operate on the idea that there is no such thing as a floor or a ceiling.
Second, the condition of market internals helps to set the “boundaries” of our investment stance. If internals are unfavorable, it’s best to avoid a fully-unhedged position, much less a leveraged one. Some conditions might warrant a generally constructive outlook with a “safety net.” But to use current market conditions as an example, I would consider it terribly imprudent to step into an unhedged position, in a still-overvalued market with unfavorable market internals, just because short-term market action is highly oversold.
Conversely, the central adaptation to our investment discipline in recent years (late-2017) rules out adopting or amplifying a bearish market outlook – regardless of overbought extremes – when our measures of market internals are still favorable.
Finally, extremely overbought conditions can warrant a neutral market outlook even when market internals are positive, and oversold conditions can warrant a constructive outlook (with a safety net) even when market internals are negative. Again, however, just as I rule out adopting a bearish outlook when market internals are positive, I would also rule out adopting a leveraged or fully-unhedged outlook when market internals are still negative.
While my impression is that passive investment strategies will become nearly excruciating over the completion of this cycle, there’s no need to worry about various scenarios, to project targets, to predict market movements, or to become tied to any particular forecast about future economic or financial events. This is not about prediction, and projection, and forecasting. What’s needed is the ability and willingness to flexibly respond to changes in observable market conditions as they emerge.
The most positive and the most negative market conditions we identify typically occur when all of these components are aligned. For example, as I noted in February, the combination of a hypervalued market with divergent internals and extreme overextension increasingly suggested the likelihood of what I described as “trap door” market losses. Conversely, the combination of depressed valuations with fresh improvement in market actions following oversold conditions is typically what we observe at the beginning of a new bull market. Despite my mislabeled identity as a “permabear” (largely as a result of my admitted and addressed error in the recent bull market), the fact is that I’ve adopted a constructive or leveraged market outlook after every bear market collapse in over three decades.
What now?
A good way to place market fluctuations into perspective, is to think about them from the standpoint of long-term, intermediate-term, and short-term conditions. Those considerations are nicely captured by the central components of our investment discipline. Valuations are extremely informative about long-term returns and full-cycle risks. The condition of market internals is an essential gauge of speculation vs. risk-aversion across shorter segments of the market cycle. And extremely compressed “oversold” conditions or extremely overextended “overbought” conditions are often helpful in gauging the potential for short-term clearing rallies or air-pockets (again, the condition of internals should limit one’s bullish or bearish response to these).
If you’re a long-term investor, the recent decline has pushed likely 10-12 year S&P 500 total returns back above zero (they were negative in Feb). The “CURRENT” line is based on prevailing valuations as of 3/26/20, with the S&P 500 at 2570 intraday. For investors who are comfortable with estimated 10-year SPX returns of about 1.4% annually, we’re here. While this estimate is better that the S&P 500 prospects we estimated, in real-time, at both the 2000 and recent February market extremes, S&P 500 valuations are presently similar to those at the 2007 market peak, and still far from what we’ve typically observed at cyclical lows.
https://www.hussmanfunds.com/wp-cont.../mc200326g.png
From an intermediate standpoint, when investors are inclined to speculate they tend to be indiscriminate about it. Ragged, divergent action here reflects risk aversion. At present, our measures of internals remain unfavorable on this front. That may change, but given still rich valuations from a historical perspective, an improvement in internals would most probably encourage an investment outlook that might best be described as “constructive with a safety net.” Opportunities to embrace market exposure without hedges, or even using leverage, will likely arrive at substantially lower valuations.
From a short-term perspective, we’ve observed several instances of “short-term compression” in recent weeks, which are often permissive of fast, furious, “clearing rallies” to reduce that compression. I say “permissive” because while compression often permits scorching rallies, there’s absolutely no assurance that an oversold market will not become decidedly more oversold. I’m concerned and frankly distressed here that the current drivers of risk aversion continue to increase exponentially. It’s not at all clear to me that investors have fully accounted for what this is likely to mean for the economy or life as they know it, particularly over the coming months (not weeks). For my part, I’m encouraged when my work is helpful to others, but anyone who imagines that I take joy in this environment has utterly no concept of who I am.
Review all investment exposures
I’ve been asked whether it is “too late” to adopt a defensive stance. That’s a difficult question, but it’s also one that’s worth addressing.
First, “panic selling into a decline” is typically an action that ignores valuations and likely future returns.
Nobody should do that.
However, to the extent that an investor has more exposure than appropriate (for example, as the result of holding an investment position that could not actually tolerate a further 50% market loss without devastating one’s retirement plans), and provided that an investor fully considers the prevailing level of valuations and the associated level of estimated future returns, then yes – my view is that any inappropriate exposure should be corrected – ideally on strength – sooner rather than later.
That doesn’t mean “sell.” That means examine your risk exposure based on your own risk-tolerance, your own investment plans, and the potential market loss that would be required to draw valuations to run-of-the-mill historical norms. See my recent monthly market commentaries for more detail on those estimates.
The chart below offers some context regarding market cycles. Specifically, we can think of long-term market returns as having a “durable” component and a “transient” component. The durable component is the market gain that is not surrendered at some later date. If you examine the data, you’ll find that the durable component typically represents market advances that bring valuations up to historical norms. In contrast, the transient component is the market gain that is typically surrendered by some later date, often several years into the future. You’ll find that the transient component typically represents market advances that bring valuations far beyond historical norms.
Probably needless to say, I view the speculative market gains of recent years as almost wholly transient.
https://www.hussmanfunds.com/wp-cont.../mc200326h.png
The quick calculation is to consider the possibility that we actually see just 1.4% S&P 500 total returns over the coming 10-year period, from current valuation levels, with a potential (not “predicted” or inevitable) interim loss on the equity component of the portfolio on the order of about 50% from here, which would be gradually recovered. Consider what that would mean in dollars. If that outcome would be unfortunate, but tolerable, there may be no need to adjust your exposure to market risk. If it would not be tolerable, review your exposure.
Of course, my preference is to ask these questions when the markets are elevated, and I hope that I’ve succeeded in prompting these considerations already. As I wrote in early-October 2018 (just before the Q4 plunge), “The initial decline of a bear market tends to be rather violent. Once prices have dropped sharply, it becomes extremely uncomfortable for investors to reduce their exposure to risk by selling into a decline, even when the prospect of additional losses remains very high. Instead, they often ride out the entire bear market and eventually abandon stocks in a final panic. If investors don’t get out at the highs, they end up getting out at the lows.”
The S&P 500 is currently at about the same level it was in January 2019. Though market valuations are about 24% lower than they were at the 2000 and February 2020 highs, they’re actually about the same level we saw at the October 2007 market peak, and still about double the historical norm.
This is not the best time for investors to be examining and right-sizing their investment exposure, but it’s certainly not the worst.
One bit of advice that friends have often found helpful: Anytime you make a portfolio change, start by accepting that you are guaranteed to have regret. If you sell some of your holdings and the market goes up, you’ll regret having sold anything. If you sell and the market goes down, you’ll regret not having sold more. If you don’t sell and the market goes up, you’ll regret not having bought. The key is to balance a careful consideration of valuations, expected returns, potential risks, and prevailing market conditions, along with all of those potential regrets. If you begin by accepting that there will be regret of one form or another, you won’t feel paralyzed, and you’ll consider more possibilities than you might otherwise.
On gold, interest rates and inflation
Inflation has an enormous psychological component: it reflects a loss of confidence that the liabilities issued by the government will retain their ability to purchase the same amount of real goods and services that they can purchase today. The key uncertainty about inflation is that it is largely a psychological event, and depends heavily on the confidence, or loss of confidence, by the public that government liabilities (bonds and base money) can be held without deterioration in their value. Large shifts in inflation are typically linked to discrete events that provoke a loss of confidence in price stability itself – like the trifecta of Great Society deficits, Nixon closing the gold window, and an oil embargo, or the combination of money printing and a supply shock, like using deficit finance to pay striking workers in the Ruhr.
– John P. Hussman, Ph.D.
One of the knee-jerk responses to the current crisis is that investors have quickly responded as if we are facing the same deflationary conditions that emerged during the global financial crisis. While we can’t rule out contagion to the banking system, my impression – as I noted earlier – is that the ability of banks to mark certain assets “to model” rather than “to market” substantially lessens the risk of deflationary contagion.
Instead, my impression is that there’s a growing risk that we’ll see an extremely large issuance of government liabilities, both in the form of Treasury debt and in the form of monetary base (currency and bank reserves, resulting from Federal Reserve purchases of government-backed securities). The problem is that this issuance is also likely to be accompanied by a “supply shock” in the quantity of output produced by the economy.
Rapidly increasing government liabilities, coupled with supply shocks, form exactly the sort of combination that has historically provoked destabilization of confidence in the ability of government liabilities to hold their value in terms of real goods and services.
Again, it’s possible that a sufficient amount of financial stress and credit losses will encourage investors to chase cash as a safe haven (which would support the value of cash despite its increased quantity, and defer inflationary pressures). But given already large deficits coupled with the likelihood of constrained output, my impression is that inflation hedges may be useful for some portion of a diversified portfolio. Still, be careful to observe that some inflation hedges, like precious metals stocks, can also be quite volatile.
Meanwhile, I’m not at all convinced that a 0.86% yield on a 10-year Treasury bond can really be considered an “investment.” Rather, it seems to reflect speculation about zero or negative long-term rates, and the ability of the government to create liabilities in nearly unlimited quantities despite reduced economic output.
I’ll take the over.
Wishing you, your family, and your loved ones health and peace. With gratitude to all of you who make our work part of your life. Best – John
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As of March 1, 2020, the growth rate of COVID-19 cases in countries other than China is running at 25% daily. The expansion in the number of locations is also problematic, because the first person in each new location is local ‘patient zero.’ Unless serious containment efforts reduce this growth rate substantially, a continuation would produce a 1000-fold increase in cases over the coming month. Even that might not seem so bad, until the end of April, when the same rate of growth would push the number of COVID-19 cases beyond the 45 million U.S. flu cases observed in 2017-2018. That is exactly how this little coronavirus with twice the R0 of the seasonal flu, and a mortality rate that is evidently an order of magnitude higher, will produce utter chaos if containment efforts are not taken seriously.
– John P. Hussman, Ph.D., March 1, 2020
Public health notes
I want to begin with an update and extension of observations and analysis relating to SARS-CoV-2 (COVID-19) that I’ve included in these commentaries since January. As usual, I’ll try to separate my comments about this epidemic from investment discussion as much as possible.
As March began, there were 68 U.S. cases of SARS-CoV-2 (COVID-19). At present, less than a month later, there are over 68,000. Though containment efforts were broadly dismissed early in the month, they have become more pointed in the past two weeks, particularly in certain states like New York. Even with a 1000-fold increase in cases during March, several corners of the media characterize containment efforts as an overreaction, and describe this epidemic as “like the flu.”
We still have a chance of limiting the number of fatalities that result, but not with dismissive approaches to containment, which I view as menacing to public health.
A few observations regarding the public health implications surrounding the novel coronavirus may be helpful (see some of my research papers, this article in Nature for example, to assure yourself that I’m not shooting wildly from the hip).
First, this is not influenza (the “flu”). It’s actually a novel variant of SARS. The proper name of this virus is SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), and the associated disease is called COVID-19 (coronavirus disease 2019). As the name implies, SARS-CoV-2 can, in its severe cases, produce acute inflammation of the respiratory system, which is the typical cause of fatalities.
Outside of China, daily case growth has eased to 15% since January, down from 25% in early-March as a result of strong global containment efforts. In the U.S., case growth has averaged over 30% per day during March, but shorter-term compound growth has recently dipped to 29% a day.
With over 68,000 U.S. cases already, even if present containment efforts were to immediately crush the growth rate to just 10% per day, the U.S. will exceed one million cases during April. Needless to say, that’s a narrow window to boost equipment, personnel and capacity. Reducing case growth to a 15% rate would put U.S. cases over 4.5 million in 30 days, potentially with hundreds of thousands of fatalities. We need these numbers to be wrong, and that’s exactly why containment is critical. Lack of containment is exactly what produces 30 million U.S. influenza cases every year, though with a far lower fatality rate than SARS-CoV-2.
It’s common to quote a 2% fatality rate, but the observed case fatality rate (CFR) of SARS-CoV-2 is actually now 4.5% (fatalities/reported cases). By comparison, the fatality rate of the seasonal flu is just 0.13%
.
While I strongly believe that the true fatality rate of SARS-CoV-2 is many times the rate for influenza, I don’t believe that 4.5% is the actual number because there are clearly lots of cases that are unreported, and many are likely to be “sub-clinical,” meaning that they may not show symptoms. The problem is that regardless of whether you’ve got a high fatality rate and a smaller number of cases, or a small fatality rate with a larger number of cases, the number of fatalities is exactly the same. Emphatically, the “ascertainment rate” (reported cases/true cases) cancels out in that calculation.
So while reported cases depend on ascertainment, fatalities are “sufficient statistics” in themselves. Indeed, my impression is that the CFR has been trending higher precisely because reported cases are increasingly lagging actual cases. That’s good in the sense that the true fatality rate is probably much lower than the observed CFR, but it’s bad in the sense that true cases are probably growing much faster than we think. In any case, to dismiss the growing number of fatalities based on the idea of “unreported cases” is to lack an understanding of this arithmetic.
Understanding market volatility
A market crash is simply a low risk-premium spiking higher. That’s not hyperbole, and it’s not a market call. It’s just a fact. As I’ve noted in previous market cycles, every market crash is always driven first and foremost by a spike in risk premiums. During the 2000-2002 market collapse, I wrote: ‘Remember that favorable trend uniformity is essentially a signal that investors have a robust preference for taking risk. Right now, there is no evidence of the sort. In a market with razor thin risk premiums, any increase in risk aversion can lead to spectacular price declines.’
– John P. Hussman, Ph.D., February 25, 2000
A share of stock is nothing but a claim on a very long-term stream of expected future cash flows that will be delivered into the hands of investors over time. If a security is expected to deliver a single $100 payment, a decade from today, the return that investors can expect is directly related to the price they pay.
If investors pay $27 today for an expected future payment of $100 a decade from now, they can expect an average return of about 14% annually on their investment, provided that the $100 future cash flow is actually delivered.
If investors pay $39 today, they can expect an average return of about 10% annually.
If investors pay $56 today, they can expect an average return of about 6% annually.
If investors pay $82 today, they can expect an average return of about 2% annually.
If investors pay $100 today, they can expect an average return of zero.
If investors pay more than $100 today, they can expect to lose money for more than a decade.
The basic arithmetic that relates future cash flows, long-term returns, and current prices together is called “discounting.” For example, show me a security that will provide a $100 payment in 10 years, and tell me you need an expected return of 8%, and I can calculate the price: $100/(1.10)^10 = $46.32.
Conversely, tell me that the security is currently priced at $46.32, and I can estimate that the 10-year expected annual return is ($100/$46.32)^(1/10)-1 = 8%. Again, all of this assumes that the future cash flow will actually be delivered. Since there’s some uncertainty there, investors usually demand a “risk premium” well above the interest rate on Treasury bonds.
If investors drive valuations high enough to “price in” zero or negative returns, any substantial increase in the expected return demanded by investors will result in a price collapse. Value a security for extremely high returns, and any decline in the expected return demanded by investors will result in a price advance.
Here’s the thing. Given that a share of stock is a claim on decades and decades of discounted future cash flows, even entirely wiping the first year or two of cash flows does very little to the value of all those remaining cash flows.
But value that very long-term stream of future cash flows at extreme prices that imply zero returns, and even a modest increase in the expected return demanded by investors will trigger breathtaking losses.
That’s exactly what happened last month. When it comes to the financial markets, we don’t even need to talk our public health crisis, or build scenarios around it. We all just need to understand what the word “investment” actually means.
As I noted in February, “I continue to expect the S&P 500 to lose about two-thirds of its value over the coming years. Avoiding profound market losses over the completion of this cycle would require a permanently high plateau in valuations, at their present hypervalued extremes, and the absence of even one episode of significant risk-aversion in the future.”
What we’re seeing today in the financial markets is just an initial episode of significant risk aversion.
It’s worth noting that the deepest economic decline since the Great Depression involved a cumulative decline of 5.6% of annual real GDP. It’s difficult to imagine that this downturn will be smaller. Still, stocks are claims on decades and decades of future expected cash flows. Even if earnings are clobbered over the coming year, that’s a very small fraction of the entire stream.
https://www.hussmanfunds.com/wp-cont.../mc200326d.png
What’s likely to do harm to investors over the completion of this market cycle isn’t the impact of a year or two of lost cash flows. The likely source of actual damage is the roughly 65% loss in value (from the February high) that would be required simply to bring the most reliable valuation measures to their run-of-the-mill historical norms. The extreme financial valuations that preceded this crisis have made substantial additional stock market losses likely.
The other source of potential disruption will be a certain amount of bankruptcy that was largely baked in the cake, as years of Fed-induced yield-seeking speculation enabled companies to issue a mountain of junky paper in the form of BBB bonds, leveraged loans, and covenant-lite debt.
Though I was never a fan of recapitalizing the banking system after the global financial crisis by starving investors of safe yield, the bright spot is that the March 2009 accounting change to FAS 157 (mark-to-market) – which was really what ended the Global Financial Crisis – may reduce the likelihood of similar bank failures during the present crisis. That’s because even if the bond markets become distressed, banks will not have to mark their securitized loans to prevailing market prices if they reasonably expect the underlying borrowers to be solvent on the other side. In a crisis like this one, it’s good to have a bright spot.
Three considerations to know
The more glorious this bubble becomes in hindsight, the more dismal future investment returns become in foresight. The higher the price investors pay for a set of future cash flows, the lower the return they will enjoy over time. Investment is not independent of price. Whatever they’re doing, it’s not ‘investment.’ Presently, we observe the combination of hypervaluation and negative market internals, which I view as a ‘trap door’ situation.
– John P. Hussman, Ph.D., January 30, 2020
I’ve often observed that while we consider a very broad range of market conditions, a few factors have a particularly strong place in our investment discipline, particularly 1) valuations, and 2) market internals. To a lesser degree (especially since late-2017) we can also add 3) overextension.
Valuations provide a great deal of information about long-term investment prospects, as well as the extent of potential market losses over the completion of a given market cycle. The chart below, for example, shows our estimate of likely 12-year average annual nominal total returns for a conventional portfolio mix invested 60% in the S&P 500, 30% in Treasury bond, and 10% in Treasury bills. I noted in mid-February that this estimate had declined below zero for the first time in history. Even the September 1929 market extreme did not do that. The little arrow at the right side of the chart shows the impact of the recent market selloff on these return prospects (as of 3/18/20 at about 2400 on the S&P 500).
https://www.hussmanfunds.com/wp-cont.../mc200326e.png
Of course, if overvaluation alone was enough to drag prices lower, we would never observe hypervaluation like 1929, 2000, and February 2020, because those market advances would have been weighted down at much lesser extremes. Likewise, if undervaluation was enough to drive prices higher, we would never observe secular valuation lows like 1949, 1974 or 1982.
Instead, what drives market returns over shorter segments of the market cycle is the extent to which investor psychology is inclined toward speculation or risk-aversion. Since speculation tends to be indiscriminate, and risk-aversion tends to be selective, we find that the best gauge of investor psychology is the uniformity or divergence of prices across thousands of individual securities, industries, sectors, and security-types, including debt of varying creditworthiness. I describe this sort of uniformity with the term “market internals.”
The chart below presents the cumulative total return of the S&P 500 in periods where our measures of market internals have been favorable, accruing Treasury bill interest otherwise. The chart is historical, does not represent any investment portfolio, does not reflect valuations or other features of our investment approach, and is not an assurance of future outcomes.
https://www.hussmanfunds.com/wp-cont.../mc200326f.png
A third consideration is the extent to which market action is “overextended” in one direction or another. These measures include gauges of overbought/oversold conditions, as well as broad syndromes that combine extremes in valuation, investor sentiment, and price action. In other market cycles across history, for example, extreme combinations of “overvalued, overbought, overbullish” conditions were usually followed by abrupt air-pockets, panics, or market crashes.
Several instances of severe compression have emerged in recent weeks, one which prompted my March 1 interim comment Clearing Rallies and Crashes (Buckle Up) and was immediately followed by a scorching “fast, furious, prone-to-failure” clearing rally. Because investment conditions have been more volatile and time-consuming than more frequent market commentaries allow, I’ve tried to post general short-term financial market observations to my personal Twitter feed (https://twitter.com/hussmanjp). Again, I cannot respond to questions about our investment funds on that platform.
Though measures of “overextension” can be useful, we’ve abandoned our willingness to place these overextended “limits” above the condition of market internals – regardless of whether the market is overextended on the upside, or the downside. The main feature of the recent bull market that was truly “different” from history was this: once the Federal Reserve drove interest rates to zero, investors became willing to speculate regardless of overextended conditions, however extreme.
In late-2017, I finally threw up my hands and abandoned the idea that there was any reliable “limit” to speculation at all, and we adapted our investment strategy accordingly. While sufficiently extreme conditions can still justify a neutral market outlook, we no longer adopt or amplify a bearish outlook unless our measures of market internals are explicitly unfavorable.
Navigating turbulence
I expect that the most valuable aspect of our investment discipline over the completion of this cycle will be our ability and willingness to flexibly respond to changes in observable market conditions as they emerge. While my impression is that passive investment strategies will become nearly excruciating over the completion of this cycle, there’s no need to worry about various scenarios, to project targets, to predict market movements, or to become tied to any particular forecast about future economic or financial events. This is not about prediction, and projection, and forecasting. What’s needed is the ability and willingness to flexibly respond to changes in observable market conditions as they emerge.
Those changes will take several forms, and because they often compete, several principles are essential. What follows isn’t so much investment advice – investors can do what they wish – but a general description of how I think about our investment discipline.
First, neither valuations nor overextended conditions create “floors” or “ceilings” for the market. Our investment discipline has admirably navigated decades of market cycles, but my belief in overextended speculative “limits” was very detrimental in this one. Learn what we learned.
It’s true that lower valuations are better, in the sense that investors can have more confidence (but not assurance) that any near-term losses will recovered. Extreme valuations – like those we observed at the February highs – mean that investors might have to wait more than a decade to break even after a substantial market loss (see Going Nowhere in an Interesting Way for a detailed historical analysis of this point). In either case, it’s best to operate on the idea that there is no such thing as a floor or a ceiling.
Second, the condition of market internals helps to set the “boundaries” of our investment stance. If internals are unfavorable, it’s best to avoid a fully-unhedged position, much less a leveraged one. Some conditions might warrant a generally constructive outlook with a “safety net.” But to use current market conditions as an example, I would consider it terribly imprudent to step into an unhedged position, in a still-overvalued market with unfavorable market internals, just because short-term market action is highly oversold.
Conversely, the central adaptation to our investment discipline in recent years (late-2017) rules out adopting or amplifying a bearish market outlook – regardless of overbought extremes – when our measures of market internals are still favorable.
Finally, extremely overbought conditions can warrant a neutral market outlook even when market internals are positive, and oversold conditions can warrant a constructive outlook (with a safety net) even when market internals are negative. Again, however, just as I rule out adopting a bearish outlook when market internals are positive, I would also rule out adopting a leveraged or fully-unhedged outlook when market internals are still negative.
While my impression is that passive investment strategies will become nearly excruciating over the completion of this cycle, there’s no need to worry about various scenarios, to project targets, to predict market movements, or to become tied to any particular forecast about future economic or financial events. This is not about prediction, and projection, and forecasting. What’s needed is the ability and willingness to flexibly respond to changes in observable market conditions as they emerge.
The most positive and the most negative market conditions we identify typically occur when all of these components are aligned. For example, as I noted in February, the combination of a hypervalued market with divergent internals and extreme overextension increasingly suggested the likelihood of what I described as “trap door” market losses. Conversely, the combination of depressed valuations with fresh improvement in market actions following oversold conditions is typically what we observe at the beginning of a new bull market. Despite my mislabeled identity as a “permabear” (largely as a result of my admitted and addressed error in the recent bull market), the fact is that I’ve adopted a constructive or leveraged market outlook after every bear market collapse in over three decades.
What now?
A good way to place market fluctuations into perspective, is to think about them from the standpoint of long-term, intermediate-term, and short-term conditions. Those considerations are nicely captured by the central components of our investment discipline. Valuations are extremely informative about long-term returns and full-cycle risks. The condition of market internals is an essential gauge of speculation vs. risk-aversion across shorter segments of the market cycle. And extremely compressed “oversold” conditions or extremely overextended “overbought” conditions are often helpful in gauging the potential for short-term clearing rallies or air-pockets (again, the condition of internals should limit one’s bullish or bearish response to these).
If you’re a long-term investor, the recent decline has pushed likely 10-12 year S&P 500 total returns back above zero (they were negative in Feb). The “CURRENT” line is based on prevailing valuations as of 3/26/20, with the S&P 500 at 2570 intraday. For investors who are comfortable with estimated 10-year SPX returns of about 1.4% annually, we’re here. While this estimate is better that the S&P 500 prospects we estimated, in real-time, at both the 2000 and recent February market extremes, S&P 500 valuations are presently similar to those at the 2007 market peak, and still far from what we’ve typically observed at cyclical lows.
https://www.hussmanfunds.com/wp-cont.../mc200326g.png
From an intermediate standpoint, when investors are inclined to speculate they tend to be indiscriminate about it. Ragged, divergent action here reflects risk aversion. At present, our measures of internals remain unfavorable on this front. That may change, but given still rich valuations from a historical perspective, an improvement in internals would most probably encourage an investment outlook that might best be described as “constructive with a safety net.” Opportunities to embrace market exposure without hedges, or even using leverage, will likely arrive at substantially lower valuations.
From a short-term perspective, we’ve observed several instances of “short-term compression” in recent weeks, which are often permissive of fast, furious, “clearing rallies” to reduce that compression. I say “permissive” because while compression often permits scorching rallies, there’s absolutely no assurance that an oversold market will not become decidedly more oversold. I’m concerned and frankly distressed here that the current drivers of risk aversion continue to increase exponentially. It’s not at all clear to me that investors have fully accounted for what this is likely to mean for the economy or life as they know it, particularly over the coming months (not weeks). For my part, I’m encouraged when my work is helpful to others, but anyone who imagines that I take joy in this environment has utterly no concept of who I am.
Review all investment exposures
I’ve been asked whether it is “too late” to adopt a defensive stance. That’s a difficult question, but it’s also one that’s worth addressing.
First, “panic selling into a decline” is typically an action that ignores valuations and likely future returns.
Nobody should do that.
However, to the extent that an investor has more exposure than appropriate (for example, as the result of holding an investment position that could not actually tolerate a further 50% market loss without devastating one’s retirement plans), and provided that an investor fully considers the prevailing level of valuations and the associated level of estimated future returns, then yes – my view is that any inappropriate exposure should be corrected – ideally on strength – sooner rather than later.
That doesn’t mean “sell.” That means examine your risk exposure based on your own risk-tolerance, your own investment plans, and the potential market loss that would be required to draw valuations to run-of-the-mill historical norms. See my recent monthly market commentaries for more detail on those estimates.
The chart below offers some context regarding market cycles. Specifically, we can think of long-term market returns as having a “durable” component and a “transient” component. The durable component is the market gain that is not surrendered at some later date. If you examine the data, you’ll find that the durable component typically represents market advances that bring valuations up to historical norms. In contrast, the transient component is the market gain that is typically surrendered by some later date, often several years into the future. You’ll find that the transient component typically represents market advances that bring valuations far beyond historical norms.
Probably needless to say, I view the speculative market gains of recent years as almost wholly transient.
https://www.hussmanfunds.com/wp-cont.../mc200326h.png
The quick calculation is to consider the possibility that we actually see just 1.4% S&P 500 total returns over the coming 10-year period, from current valuation levels, with a potential (not “predicted” or inevitable) interim loss on the equity component of the portfolio on the order of about 50% from here, which would be gradually recovered. Consider what that would mean in dollars. If that outcome would be unfortunate, but tolerable, there may be no need to adjust your exposure to market risk. If it would not be tolerable, review your exposure.
Of course, my preference is to ask these questions when the markets are elevated, and I hope that I’ve succeeded in prompting these considerations already. As I wrote in early-October 2018 (just before the Q4 plunge), “The initial decline of a bear market tends to be rather violent. Once prices have dropped sharply, it becomes extremely uncomfortable for investors to reduce their exposure to risk by selling into a decline, even when the prospect of additional losses remains very high. Instead, they often ride out the entire bear market and eventually abandon stocks in a final panic. If investors don’t get out at the highs, they end up getting out at the lows.”
The S&P 500 is currently at about the same level it was in January 2019. Though market valuations are about 24% lower than they were at the 2000 and February 2020 highs, they’re actually about the same level we saw at the October 2007 market peak, and still about double the historical norm.
This is not the best time for investors to be examining and right-sizing their investment exposure, but it’s certainly not the worst.
One bit of advice that friends have often found helpful: Anytime you make a portfolio change, start by accepting that you are guaranteed to have regret. If you sell some of your holdings and the market goes up, you’ll regret having sold anything. If you sell and the market goes down, you’ll regret not having sold more. If you don’t sell and the market goes up, you’ll regret not having bought. The key is to balance a careful consideration of valuations, expected returns, potential risks, and prevailing market conditions, along with all of those potential regrets. If you begin by accepting that there will be regret of one form or another, you won’t feel paralyzed, and you’ll consider more possibilities than you might otherwise.
On gold, interest rates and inflation
Inflation has an enormous psychological component: it reflects a loss of confidence that the liabilities issued by the government will retain their ability to purchase the same amount of real goods and services that they can purchase today. The key uncertainty about inflation is that it is largely a psychological event, and depends heavily on the confidence, or loss of confidence, by the public that government liabilities (bonds and base money) can be held without deterioration in their value. Large shifts in inflation are typically linked to discrete events that provoke a loss of confidence in price stability itself – like the trifecta of Great Society deficits, Nixon closing the gold window, and an oil embargo, or the combination of money printing and a supply shock, like using deficit finance to pay striking workers in the Ruhr.
– John P. Hussman, Ph.D.
One of the knee-jerk responses to the current crisis is that investors have quickly responded as if we are facing the same deflationary conditions that emerged during the global financial crisis. While we can’t rule out contagion to the banking system, my impression – as I noted earlier – is that the ability of banks to mark certain assets “to model” rather than “to market” substantially lessens the risk of deflationary contagion.
Instead, my impression is that there’s a growing risk that we’ll see an extremely large issuance of government liabilities, both in the form of Treasury debt and in the form of monetary base (currency and bank reserves, resulting from Federal Reserve purchases of government-backed securities). The problem is that this issuance is also likely to be accompanied by a “supply shock” in the quantity of output produced by the economy.
Rapidly increasing government liabilities, coupled with supply shocks, form exactly the sort of combination that has historically provoked destabilization of confidence in the ability of government liabilities to hold their value in terms of real goods and services.
Again, it’s possible that a sufficient amount of financial stress and credit losses will encourage investors to chase cash as a safe haven (which would support the value of cash despite its increased quantity, and defer inflationary pressures). But given already large deficits coupled with the likelihood of constrained output, my impression is that inflation hedges may be useful for some portion of a diversified portfolio. Still, be careful to observe that some inflation hedges, like precious metals stocks, can also be quite volatile.
Meanwhile, I’m not at all convinced that a 0.86% yield on a 10-year Treasury bond can really be considered an “investment.” Rather, it seems to reflect speculation about zero or negative long-term rates, and the ability of the government to create liabilities in nearly unlimited quantities despite reduced economic output.
I’ll take the over.
Wishing you, your family, and your loved ones health and peace. With gratitude to all of you who make our work part of your life. Best – John
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- Post #8,000
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- Mar 26, 2020 3:27pm Mar 26, 2020 3:27pm
- | Commercial Member | Joined Dec 2014 | 11,460 Posts
https://www.zerohedge.com/markets/tr...ops+to+zero%29
On Tuesday, just as stocks posted what was the biggest dead-cat bounce (and short squeeze) since 1933, we cautioned bears that another "$850 Billion In Stock Buying Is About To Be Unleashed" when brought attention to the month- and quarter-end rebalancing, when some $850 billion in mandated stock buying would take place.
Specifically, according to JPMorgan estimates, balanced or 60:40 mutual funds, a $1.5tr universe in the US and $4.5tr universe globally, need to buy around $300 billion of equities to fully rebalance to 60% equity allocation. At the same time the $7.5 trillion universe of US defined benefit plans, would need to buy $400 billion to fully rebalance and revert to pre-virus equity allocations.
Finally, there are the "balanced" sovereign pension funds such as Norges bank and GPIF, which before the correction had assets of around $1.1tr and $1.5tr, respectively, and which according to JPM would need to buy around $150 billion equities to fully revert to their target equity allocations of 70% and 50%, respectively.
That firepower was only extended today when following news that the Norwegian sovereign wealth fund, the world's biggest and (formerly) at $1.1 trillion had lost $124 billion as markets crashed, we learned that the fund was doubling down, and according to outgoing Chief Executive Yngve Slyngstad, it would raise its stock market investments back to 70% of its portfolio from the current 65.3%.
And while declined to say when stocks would be back at 70%, or to comment on whether any stock purchases had taken place during the recent market crash, judging by today's action traders are convinced that much if not all of this repricing will take place today.
Certainly, there is anecdotal evidence of a 'forced' buyer coming in at the cash-market open each of the last three days.
https://zh-prod-1cc738ca-7d3b-4a72-b...26_8-02-53.jpg
Of course, whether or not today's action is the result of a giant pension/sovereign wealth fund whale lifting all offers in what has been the most illiquid market in history...
https://zh-prod-1cc738ca-7d3b-4a72-b...h%202020_1.jpg
... and thus resulting in overly pronounced moves, won't be known until the end of the month.
On Tuesday, just as stocks posted what was the biggest dead-cat bounce (and short squeeze) since 1933, we cautioned bears that another "$850 Billion In Stock Buying Is About To Be Unleashed" when brought attention to the month- and quarter-end rebalancing, when some $850 billion in mandated stock buying would take place.
Specifically, according to JPMorgan estimates, balanced or 60:40 mutual funds, a $1.5tr universe in the US and $4.5tr universe globally, need to buy around $300 billion of equities to fully rebalance to 60% equity allocation. At the same time the $7.5 trillion universe of US defined benefit plans, would need to buy $400 billion to fully rebalance and revert to pre-virus equity allocations.
Finally, there are the "balanced" sovereign pension funds such as Norges bank and GPIF, which before the correction had assets of around $1.1tr and $1.5tr, respectively, and which according to JPM would need to buy around $150 billion equities to fully revert to their target equity allocations of 70% and 50%, respectively.
That firepower was only extended today when following news that the Norwegian sovereign wealth fund, the world's biggest and (formerly) at $1.1 trillion had lost $124 billion as markets crashed, we learned that the fund was doubling down, and according to outgoing Chief Executive Yngve Slyngstad, it would raise its stock market investments back to 70% of its portfolio from the current 65.3%.
And while declined to say when stocks would be back at 70%, or to comment on whether any stock purchases had taken place during the recent market crash, judging by today's action traders are convinced that much if not all of this repricing will take place today.
Certainly, there is anecdotal evidence of a 'forced' buyer coming in at the cash-market open each of the last three days.
https://zh-prod-1cc738ca-7d3b-4a72-b...26_8-02-53.jpg
Of course, whether or not today's action is the result of a giant pension/sovereign wealth fund whale lifting all offers in what has been the most illiquid market in history...
https://zh-prod-1cc738ca-7d3b-4a72-b...h%202020_1.jpg
... and thus resulting in overly pronounced moves, won't be known until the end of the month.