economy Markets

‘Do We Need To Wait For Lehman?’: One Bank Calls For Urgent Action To Avert ‘Snowball-Earth’ Scenario

Suffice to say some folks are concerned - palpably.

"The Snowball-Earth theory argues that during one or more ice ages, the entire earth (including areas around equator) were entirely frozen, with the latest episode occurring before the Cambrian explosion of life", Macquarie's Viktor Shvets begins, in a March 10 note which, to put it mildly, paints a grim picture of the future barring policy intervention. Over the past week, I've spent plenty of time documenting apparent signs of stress in dollar-funding markets and warning that various cracks are forming in credit. I've endeavored to avoid bombast in my assessments, although objectively speaking, Monday was a harrowing day for some measures of credit stress. CDX.IG, for example, widened the most since Lehman, and as the following scatterplot shows, the move was far more dramatic than even the steepest slide in equities since the crisis would have entailed. (BBG, h/t Luke Kawa) That suggests credit is in all kinds of trouble. The moves in junk spreads on Monday are hard to fathom. High yield spreads widened 92bps on the day, the largest single-session jump in percentage terms since September of 2001. That was presaged early on in a six standard deviation move for CDX.HY. High
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9 comments on “‘Do We Need To Wait For Lehman?’: One Bank Calls For Urgent Action To Avert ‘Snowball-Earth’ Scenario

  1. Ria says:

    If you invest for yourself or clients watch your risk…..

  2. calh0025 says:

    HY bond market is what? $2T? Cash em out, restart QE, drop interest rates to -1 percent. Should be good for another decade of the music going… oh wait… except for that virus thing… On top of that let’s start up the Yang Dividend retroactive to Jan 1st, provide government funded sick leave for 2 weeks to anyone affected and free Covid19 testing. That might right this ship. I mean if we also just agree buy US oil into the strategic reserve at $50 a barrel indefinitely. What are the odds on this policy response you think?

  3. Bob says:

    We spend trillions on wars and homeland security, but no one in the US govt has apparently planned for a biological attack. I can’t buy a mask yet everyone in China seems to be wearing one. It seems odd all the virus spread just after the trade deal with China occurred and China has all the required supplies to deal with it. Makes you go hmmm.

    But what we should do is print trillions of dollars and hand them directly to you US population. It really is the only way to weaken the dollar and stimulate global reflation. Trump aside, the US govt is dysfunctional, and should pay reparations to the population for all its misguided and damaging policies. Italy is under quarantine and Trump can’t figure out that flooding the US hospital system with the dying is a bad thing.

  4. Anaximander says:

    Why are all the “capitalists” so afraid of creative destruction? The FED going full BOJ and loading up on equities, and temporary nationalization of corporates, including zombies, sounds a lot like socialism by the back door (i.e. for the rich). Bailing out healthcare corporates at a time when both political parties insist Medicare for All is unaffordable and unrealistic will be particularly rich, the final ironic knife in the back.

    • Anonymous says:

      When you have an economy leveraged to the nth degree, creative destruction becomes rather painful.

      • mfn says:

        Can’t have your cake and eat it, too. Or maybe you can. ‘Merica.

      • Anaximander says:

        I’m well aware. But avoiding pain is different from solving problems; Actually in this case it is opposed to solving problems. Capitalism without creative destruction and losses is a just a word without meaning. I was in Japan a year and a half ago, and I felt I saw the future—decades of stagnation that is visible everywhere. There was little contemporary culture or activity. About the only thing new around was WeWork, and I laughed because it stuck out like a sore thumb and I was already convinced at that point it was just a scam.

  5. sippingblantons says:

    If only…if only we had taken our medicine at Christmas, 2018 – that market was making an honest effort at kicking the habit, had made it through the worst of the withdrawals and was close to being a price-discovery marketplace once again (as opposed to a political transfer payment mechanism, designed to give currently-alive people “retirement” at the expense of people not yet born, who don’t vote…). Instead, we got the pivot, 24 more wasted months of zero returns, massive additional leverage/buybacks, malinvestment, etc. There is no hope of getting off the pipe now, not in my lifetime…unless…unless the Black Swan really flaps her wings a few times. If corona really goes viral and does what God/Nature designed it for, we get a good/hard clean-out – weak firms with bad ideas fold when the string-pushers can’t save them, we get an unpleasant but productive lowering of the mean age of various national populations, reducing retiree/worker ratios and trimming chronic healthcare expenses. Like the guy says in Jurassic Park: “nature finds a way…”

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