Happy New Year 2024 (and sorry for the forum being offline some hours) /DM
Once the market value of global assets falls by $100 trillion, the world is insolvent.Everyone expecting the financial markets to magically return to January 2020 levels once the pandemic dies down is delusional. All the dominoes of crashing market valuations, crashing incomes, crashing profits and soaring defaults will take down all the fantasy-based valuations of bubblicious assets: stocks, bonds, real estate, bat guano, you name it. (Actually, bat guano will be the keeper of all the asset classes listed.)The global financial system has already lost $100 trillion in market value, and therefore it's already insolvent. The only question remaining is how insolvent?Here's a hint: companies whose shares were recently worth $500 or $300 will be worth $10 or $20 when this is over. Bonds that were supposedly "safe" will lose 50% of their market value. Real estate will be lucky to retain 40% of its current value. And so on.As net worth crashes below zero, debts remain. The loans must still be serviced or paid off, and if the borrowers default, then the losses must be absorbed by the lenders or taxpayers, if we get a repeat of 2008 and the insolvent taxpayers are forced to bail out the insolvent financial elites.
We are opening 100,000 new full and part-time positions across the U.S. in our fulfillment centers and delivery network to meet the surge in demand from people relying on Amazon’s service during this stressful time, particularly those most vulnerable to being out in public. We also know many people have been economically impacted as jobs in areas like hospitality, restaurants, and travel are lost or furloughed as part of this crisis. We want those people to know we welcome them on our teams until things return to normal and their past employer is able to bring them back. In addition to the additional 100,000 new roles we’re creating, we want to recognize our employees who are playing an essential role for people at a time when many of the services that might normally be there to support them are closed. In the U.S., we will be adding an additional $2 USD per hour worked through April from our current rate of $15/hour or more, depending on the region, £2 per hour in the UK, and approximately €2 per hour in many EU countries. This commitment to increased pay through the end of April represents an investment of over $350 million in increased compensation for hourly employees across the U.S., Europe, and Canada.
Almost every country is going to face a massive budget deficit. And countries like the US already have a trillion deficit in good times.
U.S. Markets- Stocks Halt After 7% Drop in S&P 500; Oil and Bonds Drop in Sync- Dow falls more than 1,600 points; oil hits lowest level in more than 18 years amid rising anxiety- Stocks, bonds and commodities fell Wednesday in a simultaneous selloff that suggests investors are seeking to raise cash quickly to cope with the economic disruption sparked by the coronavirus pandemic.The S&P 500 dropped 7% in midday trading, triggering a circuit breaker that halted trading in U.S. stocks for 15 minutes. The Dow Jones Industrial Average fell 1,661 points, or 7.8%, to 19577, and the Nasdaq Composite declined 6.3%.All three indexes are down about 30% from their mid-February highs.Oil, meanwhile, plunged 15% to its lowest level in more than 18 years.Investors are even shunning assets that are normally considered the safest, including long-term government bonds and gold. That rarely happens when riskier assets like stocks are also falling.Yields on government bonds in most major economies including the U.S., Japan and across Europe rose sharply Wednesday, while investors sheltered in the shortest-term government debt and cash.The yield on the U.S. 10-year Treasury note rose to 1.069% from 0.994% Tuesday as bond prices tumbled. The yield on the one-month U.S. bill briefly turned negative for the first time since 2015. Gold fell about 1%.The selling of government debt shows the market mentality has completely flipped, said Peter Boockvar, chief investment officer at Bleakley Advisory Group.“Now that they’ve gotten around to U.S. Treasurys, that tells you that legitimately nothing is safe,” he said. “There’s no place to hide other than cash.”The ramifications of the pandemic are spiraling quickly. The number of infections globally crossed 200,000, more than doubling in just two weeks. Governments are asking citizens abroad to come home and those already at home to stay there.“It’s happening so fast, it’s almost too much to grasp at this point,” said Frank Cappelleri, the executive director at Instinet. “It’s at the point where if you check the futures at nighttime and you’re not limit down, it’s a relief.”That has thrown the market’s “risk on” attitude into sharp reverse. A month ago, stocks were hitting new records daily. A week ago, investors were debating whether the pandemic would cause a recession. Now, the question is whether the economy will be thrown into its worst recession in decades.“When even silver and gold are getting crushed, that’s a panicked drawing of liquidity,” said Rob Arnott, founder of California-based investment firm Research Affiliates. “In the U.S., you can’t find toilet paper anywhere: This is the capital markets equivalent of that.”The pan-continental Stoxx Europe 600 index fell 4.2%, hitting its lowest level since December 2012. Most major Asian markets closed lower, with Hong Kong’s Hang Seng Index falling 4.2%. ...
USD / CAD 1.45Seems like the rush to US dollars is leaving everything else swamped in its wake.Terry
Jonathan Ferro (@FerroTV) 3/17/20, 6:28 PMChina getting back to workFedEx says...-Demand rebounded more than expected-65-70% of small business operating again-90-95% of large manufacturers operating
Over 43% of small and midsize enterprises in China’s manufacturing sector had resumed production as of Wednesday, Zhang Kejian, deputy minister of industry and information technology, told state media. This is crucial for these smaller firms, as many said in a recent survey that they could survive for only one to two months on their savings.Toyota Motor Corp. TM, +1.69% has restarted production to some degree at all its China plants, the company said Tuesday. And that’s good, because the Chinese people are driving again, according to measurements of traffic congestion and the Baidu Migration Index, which showed that more than 60% of people have returned to their workplace areas in China’s 100 biggest cities. The government has even chartered a number of planes to carry returning workers, the state outlet CCTV reported. …
Economies across the world are already experiencing a significant contraction in economic activity that will likely last through the first half of the year. JP Morgan economists predicted that the U.S. economy would shrink by 2% in the first quarter and as much as 10% in the second quarter, while the economy of the 19 nations using the euro would contract by 1.7% in the first quarter and 3.3% in the second. Economic activity will start to expand again in the second half of the year, they said—even sooner in China, which they say will see growth in the second quarter of 2020 as life there starts to normalize. ...
Since mid-February, the Dow Jones Industrial Average DJIA, +1.01%, the S&P 500 index SPX, +0.95% and the Nasdaq Composite index COMP, +2.99% have all declined nearly 30%, marking the fastest onset of a bear market in history. …
Don’t bank on a V-shaped rebound once the stock market’s coronavirus-driven plunge finally hits bottom, according to a Wall Street analyst who called the market’s late-2018 swoon.“Our S&P 500 model points to a long road back to a price over 3,000 for the S&P 500, probably due to major stress on growth versus value (amid populist reflationary policy),” wrote Barry Bannister, head of institutional equity strategy at Stifel, in a Tuesday note. ...
Some economists have suggested bond traders could be waking up to the fact that the U.S. government’s fiscal deficits will start to finally matter, and that the broader investment community will struggle to take down the U.S.’s yawning debts.According to that logic, the wave of debt supply from the fiscal stimulus packages discussed by U.S. policymakers this week could overwhelm investors and push values for government bonds lower, and yields higher.“Fed officials have often worried about increased government spending on the retiring, baby boom workers, and now it looks like the debt deluge that sends bond yields soaring could come years before it was expected,” said Chris Rupkey, chief financial economist at MUFG.But market participants said the real reason driving rates higher was more mundane and frightening — investors needed to raise cash to cover their losses. …
When the damage the coronavirus inflicts on the U.S. jobs market becomes clearer, it could be unlike anything the country has ever seen.Judging by numerous forecasts from economists, the avalanche of furloughs will easily break the record for most in a single month.Upcoming weekly jobless claims will shatter the standards set even during the worst points of the financial crisis and the early-1980s recession, with Bank of America forecasting a total of 3 million when the number is released Thursday. Those figures are expected to be so bad, in fact, that the Trump administration, according to several media reports, has asked state officials to delay releasing precise counts.While the headline unemployment rate is highly unlikely to approach the 24.9% during the Great Depression, it very well could be the highest in almost 40 years, something unthinkable for a jobs market that had been on fire as recently as February.Job losses will be counted not in the thousands or even hundreds of thousands, but rather in the millions. Although it's uncertain whether the total count from this recession ends up breaking previous records, it's a good bet that April's number will outpace by a large margin any single month in U.S. history for a drop in nonfarm payrolls.5 million in April alone?The worst month for job losses during the financial crisis was 800,00 in March 2009.Some forecasts see April quintupling that or worse. Forecasts for that month range from 500,000 to 5 million. ...
"We're going to have to either have a Great Depression, or figure out a way to send people back to work even though that's risky," Hassett told CNN's Poppy Harlow. "Because at some point, we can't not have an economy, right?"
I’ve spoken with Furman often over the years, and to put it bluntly, I’ve never heard him as alarmed as on Thursday. He believes the coronavirus could do more damage to the economy than the financial crisis did, and that policymakers aren’t even close to designing a large enough response. In addition, the virus is moving much faster than the financial crisis did, and the government officials who will need to respond to it are in danger of being infected by it.A transcript of our conversation, lightly edited for length and clarity, follows.
The program will work through the Money Market Mutual Fund Liquidity Facility announced earlier this week and offers an expansion of what had been a financial crisis-era program authorizing purchases of other assets. Expanding into munis is something that did not happen during the crisis. ...
The Dutch government expects its borrowing needs in the coming three months will be 45-65 billion euros ($48-$70 billion) more than expected to fund the cost of its response to the coronavirus outbreak, the country’s finance minister said in a letter to parliament.…The Dutch national debt was 395 billion euros as of the end of the third quarter, according to data from the country’s statistics office, approximately 49% of gross domestic product (GDP).*
The Central States Pension Fund, one of the largest multiemployer pension plans, is expected to go insolvent in just five years. Not only would this directly harm hundreds of thousands of workers and retirees, with compounding effects on the children, spouses, and parents they support, it would also result in a crippling domino effect on the U.S. economy. Economists estimate the failure of Central States will result in more than a $5 billion GDP shortfall, a loss of more than $1 billion in federal tax revenue, and 55,000 fewer jobs.… During the last fiscal year alone, six multiemployer plans were terminated, and eight others requested financial assistance from the Pension Benefit Guaranty Corporation (PBGC), the federal backstop for plans that can no longer cover promised benefits. For a time, the PBGC was able to step in and help pay retirees' benefits when plans like these were in trouble. But now, the PBGC is also projected to become insolvent in five years, making their "guaranty" not much better than a band-aid solution. When the PBGC runs out of money, retirees' benefits will be cut by an average of more than 94 percent. …
Based on what, one wonders...
This pandemic a global catastrophe that will play out over the coming years not months.
• Let us imagine a household that is in debt up to its eyeballs and every month spending more than its income by a large amount. Then a disaster hits. Income goes down substantially, and expenses go up substantially. What will the result be — bankruptcy? The U.S. is a resilient, strong and rich nation. However, the example of the hypothetical household applies. The eventual solution may be demonetization of the debt.• Yes, demonetization of the debt is ahead — the same debt that investors are rushing to buy for its perceived safety. …
The largest outflows in bond funds on record this week likely reflect how investors are raising cash in fear that market turmoil will hurt returns further.Funds and exchange-traded funds invested in bonds saw $108 billion of outflows this week ending on Thursday, nearly four times of the previous record. On the other hand, investors flocking to cash poured more than $90 billion into money market funds.“Seeking to liquidate assets without locking in big losses, investors cashed out of bond funds on an epic scale,” said Cameron Brandt, director of research at EPFR Global, in a Friday note.…The worry is that once fund managers get rid of their most liquid holdings to meet redemptions, some may be forced to eventually sell their most illiquid holdings at a hefty transaction cost.Money managers have been selling into fixed-income markets that have frozen up as primary dealers pulled back from their role as a facilitator of trading. These select group of dealers, who enjoy the privilege of buying bonds directly from the U.S. Treasury Department, have been reluctant to buy bonds and keep them in inventory, before selling them again, say market participants. …
In yet another a sign that the turmoil in financial markets is putting extreme stress on some firms, one of the CME Group's direct clearing firms was unable to meet its capital requirements, according to sources.The move forced the exchange to step in and invoke its emergency protocols to auction off the portfolios. Ronin Capital, based in Chicago, was confirmed to be the firm in question, according to sources. …
Germany is readying stimulus measures requiring about 156 billion euros ($166.83 billion) in net new borrowing and additional debt authorisation of up to 200 billion euros to fight the economic impact of the coronavirus outbreak, according to a draft law and senior officials.The package will include a supplementary government budget of 156 billion euros, 100 billion euros for an economic stability fund that can take direct equity stakes in companies, and 100 billion euros in credit to public-sector development bank KfW for loans to struggling businesses, the sources said. The combined sum of possibly 356 billion euros in new debt would represent roughly 10% of Germany’s gross domestic output. …
BRUSSELS, March 21 (Reuters) - The European Commission said on Saturday it had approved three French state aid schemes to support the French economy amid the coronavirus epidemic that would mobilise 300 billion euros of liquidity support for affected companies.Two of the schemes enable the French public investment bank Bpifrance to provide state guarantees on commercial loans and credit lines for firms with up to 5,000 employees.The third scheme provides state guarantees to banks on portfolios of new loans for all types of companies. This is direct aid to the companies that will enable banks to quickly provide liquidity to any company that needs it. ...
The Global Recession is coming here, but faced with death and life altering disease it's small potatoes until we've broken the back of CV19.Slowing the onset of CV19 is the only chance we have to come through this without being reduced to animals fighting for our next meal, our last breath. The kids dancing on the beach may return home and inherit their family wealth years earlier than expected. - if they survive until the paperwork has gone through....
Calls for large fiscal packages to offset the pandemic may be useless. Allen-Reynolds at Capital Economics warned that “even if governments agreed on a larger tax and spending package, the economic impact would be much smaller than it would have been in the past, particularly if the fiscal stimulus was concentrated in Germany,” because output gaps are almost inexistent. This is not a demand problem; it is a supply shock, and you don’t address supply shocks with bricks, mortar, and deficit spending.The shutdown of developed economies is now granted and will likely take us more than a couple of weeks afield. The shutdown of emerging economies is likely to start in May and to impact 2020 and 2021 estimates. Every analysis we have seen so far only factors in a 2020 recession, not a crisis, and even less a large 2021 hit to the economy, but the financial implications in an already overleveraged world add a string of credit events to an economic shutdown.The latest wave of downgrades already assumes 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' indexes (PMIs) in contraction and growth estimates coming down significantly throughout the year. Average downward growth revisions by country averaged 20 percent between January and December, in the middle of a massive coordinated central bank injection operation that injected up to $170 billion a month into the economy (considering the People's Bank of China (PBOC), Bank of Japan (BOJ), European Central Bank (ECB), and Fed) and saw widespread rate cuts.The economic implications of a pandemic will not be solved with massive spending increases. Governments will implement large demand-side policies that are the wrong answer to a shutdown of the economy. Most businesses will suffer from the collapse in sales and subsequent working capital build, and none of that will be solved with deficit spending. You cannot mitigate a supply shock with demand policies, which increase debt and overcapacity in the already indebted and bloated sectors and do not help the sectors that are suffering an abrupt collapse in activity.A forced temporary shutdown must also include a shutdown of the tax collection system. Governments already finance themselves at negative rates. They must eliminate (not defer) tax payments for companies in the period of crisis to avoid a massive unemployment increase and a domino of bankruptcies and facilitate working capital lines at zero rates to allow businesses and self-employed workers to navigate a shutdown. Governments that make the mistake of maintaining the current tax structure or who just prolong the payment period for six months will see the massive negative consequences of a shutdown in the next nine months.
What is happening is a shock to the American economy more sudden and severe than anyone alive has ever experienced. The unemployment rate climbed to its apex of 9.9 percent 23 months after the formal start of the Great Recession. Just a few weeks into the domestic coronavirus pandemic, and just days into the imposition of emergency measures to arrest it, nearly 20 percent of workers report that they have lost hours or lost their job. One payroll and scheduling processor suggests that 22 percent of work hours have evaporated for hourly employees, with three in 10 people who would normally show up for work not going as of Tuesday. Absent a strong governmental response, the unemployment rate seems certain to reach heights not seen since the Great Depression or even the miserable late 1800s. A 20 percent rate is not impossible.
