‘A Massive Margin Call On The Whole Financial Asset Rally Since 2010’

Wednesday marked yet another catastrophic day across assets, as equities careened lower and bond yields surged, wreaking havoc on balanced portfolios, in a continuation of the recent “sell everything, go to cash” trade.

On top of the rolling “VaR-down” environment, the bond rout is being exacerbated by the sudden realization that massive fiscal stimulus (and thereby potentially massive supply to fund it) is in the offing.

US yields climbed by as much as 20bp at the long-end of the curve, where 30-year yields hit 1.928%, the highest since February 28 (i.e., the highest since the day things started to unravel in earnest). 10-year yields jumped as much as 18bp to 1.259%. Bear in mind, this comes on the heels of Tuesday, which was the worst day for Treasurys since 1982.

If you held, say, the simplest of simple balanced portfolios, you suffered a catastrophic hit on Wednesday – and by that I mean a one-day loss of around 10%.

What you see in the following visual is an unmitigated disaster for anyone depending on bonds to hedge your equity exposure.

I spent a ton of time discussing this on Wednesday morning, both the narrow context of this week’s cross-asset armageddon trade and in a broader political context. If you haven’t read “‘When Risk Parity Goes Wrong’ And The Coming ‘New World Order’” yet, I would strongly encourage you to peruse it at your leisure.

Here’s another way to visual the same thing:

And here’s the latest read (current through Tuesday) on Nomura’s risk parity exposure model:


As horrible as things suddenly are for bond-stock correlation investors, crude is now squarely in “are you f**ing kidding me?” territory.

WTI fell to a $22-handle on Wednesday. If you measure from the peak ahead of Q4 2018’s bear market collapse, oil is down 70%.

Pretty soon, gas is going to be a loss leader at gas stations. “Buy a Slurpee and a Snickers and we’ll throw in five free gallons!” 

In FX land, Wednesday was chaos – utter chaos. There’s (much) more in “Ablaze“, but ING’s Chris Turner called it “armageddon”.

“Everything that could be sold was sold against the dollar. We’d be foolish to argue that this can turn around anytime soon [and] we may start to hear talk of intervention at least to calm disorderly markets, if not weaken the $”, Turner wrote Wednesday afternoon. He went on to deliver the following rather poignant assessment:

Despite some large-scale measures to address dislocation in USD funding markets, the dollar advance has not slowed. Instead, it has accelerated in a disorderly fashion. 4%-7% moves in the dollar against the likes of GBP and NOK are extremely rare. One-week implied volatility in the $/G9 pairs are in the 15-25% range, $/NOK at 40% — a new all-time high.

The moves smack of massive de-leveraging and a run into dollar cash — bearing all the hallmarks of a massive margin call on the whole financial asset market rally since 2010. There will be plenty of those out there saying ‘I knew this would all come crashing down’.

Indeed, Chris.

As noted midday Wednesday, the dollar rally is now parabolic. The moves across FX were described as “staggering”.

Things have improved in dollar funding markets, but we’re a long way from “normal”. The Fed’s enhanced swap lines were tapped on Tuesday (in Japan) and Wednesday (in Europe), but many observers see scope for the FX swaps market to trade persistently wide.

“The dollar funding needs of both banks and non-banks is what’s at risk and the assets that are being funded are US assets — Treasuries, MBS and credit — so the Fed has a vested interest”, Zoltan Pozsar wrote, in a new note, adding that while the swap lines “are now active… it feels like the operational aspects of it need to be fine-tuned”


Note that we probably shouldn’t wait around too long to get the new commercial paper funding facility fired up and running.

Gold fell more than 2% Wednesday, as everything not tied down is sold indiscriminately to raise cash for margin calls, fund outflows or to stuff inside the literal mattresses on the off chance anyone is still accepting fiat money once the viral apocalypse runs its course.

In a Bloomberg TV interview on Wednesday afternoon, Patrick Harker said the Fed is weighing additional measures to intervene including a term auction facility and/or buying municipal debt. His comments came after Janet Yellen and Ben Bernanke called on the Fed to do more.

After the bell, news broke that the NYSE will temporarily go to fully electronic trading, as New York’s COVID-19 crisis worsens.

For those desperately searching for a silver lining, I’ve got one for you: If you’re having a bad year, don’t sweat it too much. Because you’re in good company…


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12 thoughts on “‘A Massive Margin Call On The Whole Financial Asset Rally Since 2010’

    1. Great, went 100% cash when China decided to declare martial law in wuhan. Luckily convinced my father to do the same. Unfortunately I was a broke millennial depleted by the astronomical inflation of healthcare and education before so I didn’t really manage to save myself much but hey at least my father still gets to retire.

  1. Ok get real time, close market and stop food hoarding ASAP. Then have rescue program of 100 percent of GDP or prepare to provide 20 trillion. Then by shutting market prevent shorting to downside and stop bets aimed at grocery and essential stuff. Time for draconian tuff love to quell chaos

  2. Thanks for this one H………..cause I was just getting ready to dip in for some high quality bargains… Usually I am early in as well as out and needed a little dose of reality / humility….Short positions are getting a little scary as the Gold /miner hedges are not working as well as expected….Been a lot of fun lately and this site has been beneficial for triangulation .

  3. Looked like a bottom today, because humans can live in abject fear for three days and then adrenaline kills them … or they have taken whatever steps necessary to survive.

    The key word is – whatever

  4. Mark Cuban comment March 18, 2020:

    “It looks like we’re starting to get into a trading range. Up 5%, down 5%, up 5%, down 5%, and I’m not quite sure why,” Cuban said. “It felt like for a while we had active management doing all the work and trying to figure things out and now over the last three days it feels like we’re starting to get more algorithmic trading coming into the market.”

    Obviously, he doesn’t subscribe to TheRealHeisenberg…

  5. So the establishment (Fed, Congress, WH) pulled out all the stops in 2010 to save the economy and prop up asset prices. Which not only worked but served to inflate asset prices to even more unsustainable levels. And now, courtesy of the COVID-19 black swan, here we go again, x10. Which means that the next crash — assuming that all the emergency measures being taken now work — will be the last crash for democratic capitalism in the United States. Indeed, the next crash will likely be the end of that far from perfect but not half bad experiment we call the USA. I hope our elites are thinking along the same lines and are willing to put some meaningful guardrails in place to prevent such a scenario. (Not looking at you Congressional Republicans.) I mean, the only reason are banks are the “strongest” in the developed world (according to every analyst/advisor-talking-his-book on CNBC) is thanks to actions taken by Congress after the GFC to rein in the idiotic excesses of a financial system that had been drinking its own Kool-Aid since the 1980s.

  6. Congressional republicans have become decadent, surely democracy can deal with such traitors to the ideas of our experiment.

  7. Do current UST yield moves suggest that MMT isn’t all that feasible after all? After all, a $3TR deficit in 2020 is about what you’d look forward to under MMT.

    Or are the yield moves more due to liquidation and other dynamics?

  8. Not sure if anyone other than seekingalpha denizens have noticed, but UBS has extinguished not one, but 11 ETRACS ETNs in the last few days (8 since yesterday). MORL, BDCL, DVHL, and other 2x leveraged this-n-that funds are soon to be no more. All accelerated and subject to mandatory redemption. Speed kills, leverage thrills. Or was it the other way ’round?

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