We are so screwed!

[rb]

So we get 100 bp cut to zero. $700 billion QE to be executed in weeks. And USD swap lines.

 

On a SUNDAY night, 2 days before an FMOC meeting.

 

Either Donald Trump had the Secret Service kidnap Jay Powell and put his pecker in a meat grinder New York style or they're scared shitless and have no idea what to do. I'm leaning towards the latter because Trump wouldn't know what a swap line was if it took a dump on the front lawn at Mar-a-Lago.

[Guest]

Yeah, I'm not even sure how the market is going to interpret this. It's like yay zero rates, more qe but also like...are things really that bad that this needs to be done?

[valueinvestor]

So we get 100 bp cut to zero. $700 billion QE to be executed in weeks. And USD swap lines.

 

On a SUNDAY night, 2 days before an FMOC meeting.

 

Either Donald Trump had the Secret Service kidnap Jay Powell and put his pecker in a meat grinder New York style or they're scared shitless and have no idea what to do. I'm leaning towards the latter because Trump wouldn't know what a swap line was if it took a dump on the front lawn at Mar-a-Lago.

 

On a general sense yes, and although I not happy with this very sensible panic - however this could be one of those once-in-a-lifetime opportunities.

 

I don't think increasing rates at this moment, where people for the most part are incentivized to save is the best solution. This is one of those moments, where people need to invest (albeit prudently), otherwise how are we going to get through this if investors, people, businesses stay at homes and not spend.

 

Yeah, I'm not even sure how the market is going to interpret this. It's like yay zero rates, more qe but also like...are things really that bad that this needs to be done?

 

The other way is to increase rates, allow us to have more purchasing power as savers, but bankrupt a lot of companies in the process. Maybe a short term pain, but I'm leaning towards to the former. I don't think compounding a very real virus pandemic where it could infect 500,000 to 1M+ worldwide with increasing rates (and increasing unemployment) at the worst time is prudent, besides they had chances any time in the great bull market.

 

A simplistic view of course, but I would argue any view will only be part of a multivariate equation.

[rb]

Yeah, I'm not even sure how the market is going to interpret this. It's like yay zero rates, more qe but also like...are things really that bad that this needs to be done?

Well we can start taking bets on how quickly the futures hit limit down. But you better hurry or you don't get to play.

[rb]

too late

[ander]

Is there any limit to this stuff? So much commentary that the Fed will likely buy corporate bonds and then later equities. What is the consequence of all of this? I guess is worked out ok after the GFC. There was no substantial inflation (or were we just not measuring the right goods).

[rb]

Inflation is not a concern. In fact some inflation would be good.

 

The general worry is the fed firing its bullets too quickly. Basically cutting when it would do no good. If you're not shopping cause you're scared for your life, you're not gonna go shopping cause of a 100 bps rate cut. Then the Fed has nothing to cut when it actually needs to.

 

The specific worry here I think is that they've basically fired everything they have. Which would be interpreted as things are much worse than we think they are. Of particular worry are the swap lines which say that there's liquidity problems in a world awash with liquidity. I see what just happened akin to the Fed heading to Costco to load up on toilet paper.

[alwaysdrawing]

Inflation is not a concern. In fact some inflation would be good.

 

The general worry is the fed firing its bullets too quickly. Basically cutting when it would do no good. If you're not shopping cause you're scared for your life, you're not gonna go shopping cause of a 100 bps rate cut. Then the Fed has nothing to cut when it actually needs to.

 

The specific worry here I think is that they've basically fired everything they have. Which would be interpreted as things are much worse than we think they are. Of particular worry are the swap lines which say that there's liquidity problems in a world awash with liquidity. I see what just happened akin to the Fed heading to Costco to load up on toilet paper.

 

There will be no inflation.

 

Massive deflation. 

[alwaysdrawing]

The Fed is scared because liquidity is drying up, as banks are scared to lend to one another.

 

They need to get banks to lend, but banks are not because they don't want to be holding the bag during a bank failure.  That's why repo and swaps markets are going crazy.

 

The Fed is firing their last bullet because THIS IS ALREADY A FINANCIAL CRISIS.  Corporate debt markets have already frozen up, and new issues are barely getting priced, and things are only getting worse.

 

We are looking at the biggest financial crisis in our lifetimes, and it will make 2008 seem like a mild recession.

[Kaegi2011]

The Fed is scared because liquidity is drying up, as banks are scared to lend to one another.

 

They need to get banks to lend, but banks are not because they don't want to be holding the bag during a bank failure.  That's why repo and swaps markets are going crazy.

 

The Fed is firing their last bullet because THIS IS ALREADY A FINANCIAL CRISIS.  Corporate debt markets have already frozen up, and new issues are barely getting priced, and things are only getting worse.

 

We are looking at the biggest financial crisis in our lifetimes, and it will make 2008 seem like a mild recession.

 

At this rate I'm wondering what's the probability the markets will be shut for a while.  Politically I can see Trump wanting to limit the damage, and reopen in 6-8 week when things are on the upswing.  I don't know the potential downstream impact would be though when trillions of dollars are tied up and can't be used. 

[alwaysdrawing]

At this rate I'm wondering what's the probability the markets will be shut for a while.  Politically I can see Trump wanting to limit the damage, and reopen in 6-8 week when things are on the upswing.  I don't know the potential downstream impact would be though when trillions of dollars are tied up and can't be used. 

 

I am preparing for that possibility.

[petec]

Inflation is not a concern. In fact some inflation would be good.

 

The general worry is the fed firing its bullets too quickly. Basically cutting when it would do no good. If you're not shopping cause you're scared for your life, you're not gonna go shopping cause of a 100 bps rate cut. Then the Fed has nothing to cut when it actually needs to.

 

The specific worry here I think is that they've basically fired everything they have. Which would be interpreted as things are much worse than we think they are. Of particular worry are the swap lines which say that there's liquidity problems in a world awash with liquidity. I see what just happened akin to the Fed heading to Costco to load up on toilet paper.

 

There will be no inflation.

 

Massive deflation.

 

Won’t happen in a fiat world - there simply isn’t the political will to accept it, even if it takes UBI with printed money to stop it.

[alwaysdrawing]

Won’t happen in a fiat world - there simply isn’t the political will to accept it, even if it takes UBI with printed money to stop it.

 

Post your bets at 930

[Guest cherzeca]

At this rate I'm wondering what's the probability the markets will be shut for a while.  Politically I can see Trump wanting to limit the damage, and reopen in 6-8 week when things are on the upswing.  I don't know the potential downstream impact would be though when trillions of dollars are tied up and can't be used. 

 

I am preparing for that possibility.

 

unless you are already 100% cash, how can you prepared for that?

[Spekulatius]

Futures are limit down, interest rates are zero. That went well. Bank stocks are not going to like this.

[DRValue]

The Fed is scared because liquidity is drying up, as banks are scared to lend to one another.

 

They need to get banks to lend, but banks are not because they don't want to be holding the bag during a bank failure.  That's why repo and swaps markets are going crazy.

 

The Fed is firing their last bullet because THIS IS ALREADY A FINANCIAL CRISIS.  Corporate debt markets have already frozen up, and new issues are barely getting priced, and things are only getting worse.

 

We are looking at the biggest financial crisis in our lifetimes, and it will make 2008 seem like a mild recession.

 

At this rate I'm wondering what's the probability the markets will be shut for a while.  Politically I can see Trump wanting to limit the damage, and reopen in 6-8 week when things are on the upswing.  I don't know the potential downstream impact would be though when trillions of dollars are tied up and can't be used.

 

I thought about the option and need for a market closure for a few weeks, perhaps even until the crisis is over.

 

There are no catalysts until significant progress is made. Relief rallies on lower cases maybe. But this could go on for months.

[wabuffo]

Futures are limit down, interest rates are zero. That went well.

 

Limit down just takes the S&P back to where it was at 3:30 last Friday before the big last half hour ramp.  That move felt unnatural (perhaps short-covering) and was bound to be given back - rate cut or no.

 

This rate cut isn't to help now.  It's to get the economy going again quickly after this virus-induced shutdown of the economy is over - hopefully soon.  Better to do it too soon, than too late.  If too soon, you can always mop it up later.

 

wabuffo

 

 

[Castanza]

The Fed is scared because liquidity is drying up, as banks are scared to lend to one another.

 

They need to get banks to lend, but banks are not because they don't want to be holding the bag during a bank failure.  That's why repo and swaps markets are going crazy.

 

The Fed is firing their last bullet because THIS IS ALREADY A FINANCIAL CRISIS.  Corporate debt markets have already frozen up, and new issues are barely getting priced, and things are only getting worse.

 

We are looking at the biggest financial crisis in our lifetimes, and it will make 2008 seem like a mild recession.

 

At this rate I'm wondering what's the probability the markets will be shut for a while.  Politically I can see Trump wanting to limit the damage, and reopen in 6-8 week when things are on the upswing.  I don't know the potential downstream impact would be though when trillions of dollars are tied up and can't be used.

 

I thought about the option and need for a market closure for a few weeks, perhaps even until the crisis is over.

 

There are no catalysts until significant progress is made. Relief rallies on lower cases maybe. But this could go on for months.

 

What happens to people drawing on their 401k? Or just in general, how do you deprive people of their money? Just trying to think of what that would actually look like.

[opihiman2]

Just like always, you guys are behind the curve.  The big issue isn't so much the coronavirus, but what's been happening in the repo markets since 2018.  Basically, we're going to see widespread financial contagion like what happened during the GFC, because stupid ass companies took on too much leverage with cheap credit, and now the pied piper is coming.

 

If this is worse than the GFC, don't be surprised.  The Fed just prolonged that bullshit out 10+ years, and now the real shit is hitting the fan.  Even the risk parity trade is no longer working. 

[Jurgis]

The general worry is the fed firing its bullets too quickly. Basically cutting when it would do no good. If you're not shopping cause you're scared for your life, you're not gonna go shopping cause of a 100 bps rate cut. Then the Fed has nothing to cut when it actually needs to.

 

This.

[rb]

The Fed is scared because liquidity is drying up, as banks are scared to lend to one another.

 

They need to get banks to lend, but banks are not because they don't want to be holding the bag during a bank failure.  That's why repo and swaps markets are going crazy.

 

The Fed is firing their last bullet because THIS IS ALREADY A FINANCIAL CRISIS.  Corporate debt markets have already frozen up, and new issues are barely getting priced, and things are only getting worse.

 

We are looking at the biggest financial crisis in our lifetimes, and it will make 2008 seem like a mild recession.

 

At this rate I'm wondering what's the probability the markets will be shut for a while.  Politically I can see Trump wanting to limit the damage, and reopen in 6-8 week when things are on the upswing.  I don't know the potential downstream impact would be though when trillions of dollars are tied up and can't be used.

 

I thought about the option and need for a market closure for a few weeks, perhaps even until the crisis is over.

 

There are no catalysts until significant progress is made. Relief rallies on lower cases maybe. But this could go on for months.

 

What happens to people drawing on their 401k? Or just in general, how do you deprive people of their money? Just trying to think of what that would actually look like.

It won't happen. Markets were open throughout the GFC. It would be the dumbest move ever. For weeks? It's insanity. The result of that would be a de-rating of EVERY single public company.

 

Public markets exist to  provide liquidity. That's all. You can't decide to allow liquidity only when the markets are going up and cut it off when the markets are going down.

 

Moreover it's not even gonna matter. Derivative markets are gonna stay open and they're gonna trade. They're gonna create derivatives as markers for stocks and they're gonna fiddle with the settlement to make the whole thing work. You'll be surprised how quickly it'll happen. Of course the spreads are gonna blow up.

 

To castanza's point, "regular" people with 401Ks and such will not be able to take part in the party because they will either not know what to do or won't be allowed to do it due to the nature of the instruments. They'll only have access to their money when the "regular" markets open and they're portfolio is worth significantly less.

 

Nice work Sherlock!

[AzCactus]

Yeah 100 bp rate cut + what the fed announced last week means things have to be really bad.  Better early than late I guess but---this is what happens when pain isn't allowed to happen.  In a world where rates are higher, borrowing is done in a more conservative way and leverage doesn't get out of hand.  I don't always agree with him, but Dave Ramsey does say you can't borrow yourself out of debt as a country (maybe the world too), that's what it sounds like we are trying.

[Spekulatius]

Futures are limit down, interest rates are zero. That went well.

 

Limit down just takes the S&P back to where it was at 3:30 last Friday before the big last half hour ramp.  That move felt unnatural (perhaps short-covering) and was bound to be given back - rate cut or no.

 

This rate cut isn't to help now.  It's to get the economy going again quickly after this virus-induced shutdown of the economy is over - hopefully soon.  Better to do it too soon, than too late.  If too soon, you can always mop it up later.

 

wabuffo

 

Explain to me what economic activity is worthwhile undertaking with 0% risk free interest rates can’t be done with 1%. Europe and Japan went this route and have nothing to show for it, other than the destruction of their financial system. US is probably next.

[LC]

Wow, Trump is really showing his lack of ability. “How not to lead a nation” on display here.

[mcliu]

I think this is to ensure that liquidity is available to companies taking a revenue hit. Financial system needs to lend, especially to borrowers in need. It’s not going to generate more activity, people aren’t investing or buying right now. But you need to ensure companies that are short on cash can roll debt, won’t default and cause a chain reaction. The economy is still solvent, not like 2008, this is a liquidity issue..