Off The Rails.

It was not pretty across markets on Monday, as traders and investors attempted to price something that isn’t priceable – namely a total shut down of the US economy.

It doesn’t help that liquidity is the worst since the crisis (or the worst ever, depending on your preferred metric and also which asset class you’re looking at). The situation improved for Treasurys on Monday, but that’s not saying much considering how bad it was last week. “Better, but still very illiquid”, is how John Fath, managing partner at BTG Pactual Asset Management and a primary Treasury dealer from 1993 to 2008, described things to Bloomberg.

Reuters reported midday that the White House is in the process of drafting what sounds like a bailout package for airlines. It’s “expected to include direct assistance, loans and tax relief”, officials said. Suffice to say anyone holding “JETS” has experienced some severe turbulence of late.

Airlines for America, the trade group which represents American, United, Delta and Southwest, among others, is looking to secure $25 billion in grants, $25 billion in loans and tax relief in order to survive. That’s how acute this situation is.

Larry Kudlow insisted Trump is still keen on the payroll tax holiday idea and that discussions are ongoing in that regard.

“They all want to do whatever it takes”, Kudlow told Fox, after a call Trump convened with G-7 leaders. The White House is also battling an online misinformation campaign about a nationwide quarantine. “Martial law” (along with every, imaginable misspelling) was trending on Twitter.

Meanwhile, the Fed decided to conduct another O/N repo on Monday despite the morning op being undersubscribed. The total on offer in the afternoon action was $500 billion (so, basically unlimited) in order to “ensure that the supply of reserves remains ample and to support the smooth functioning of short-term US dollar funding markets”.

“Mnuchin has said markets will stay open, but at this level of volatility investors will start preparing for market halts”, Evercore ISI’s Dennis DeBusschere said.

That chatter is getting much, much louder with each passing day.

On the fundamentals front, you’re reminded that Goldman last week changed their forecast to include an earnings recession. It’s worth a quick mention of the specifics given the rather rapid pace at which the US economic machine is shutting down.

“We forecast the earnings collapse will be concentrated in 2Q (-15% year/year) and 3Q (-12%)”, the bank’s David Kostin says, adding that the bank’s “base case is that the extreme weakness will last two quarters before EPS rebounds by 12% in 4Q”. Here’s some context:

So much for that “hockey stick”-style inflection consensus was baking in headed into 2020, although to be fair, nobody could have predicted a pandemic.

Oh, and just in case you needed another reminder, cash is most assuredly king right now. “Flows into ultra-short term debt ETFs are already at $5.7 billion for March, the most ever for a month and it’s only half over”, Bloomberg’s Eric Balchunas marveled on Monday.

(BBG)

On the political front, there are further signs that local officials are losing confidence in the federal government’s capacity to respond. For example, governors Andrew Cuomo of New York, Ned Lamont of Connecticut and Phil Murphy of New Jersey acted together to ban crowds of more than 50 and shut bars, restaurants and gyms from 8:00 PM on Monday.

A statement cites “a lack of federal direction and nationwide standards”.

”If the federal government doesn’t step up quickly states are going to be forced to do stuff on their own”, Cuomo snapped.

Things are, in three words, off the rails.

But not according to the president. “Everybody is so well unified and working so hard. It is a beautiful thing to see”, Donald Trump said, in a tweet. “God Bless the USA!”

Read more: Analysts Pile On As Virus Lockdowns Presage ‘Domino-Style Economic Collapse’