The world is ablaze – that’s about the only way to describe the current situation.

The US and Canada jointly agreed to close their border on Wednesday as the rollout of unprecedented emergency protocols continues across Europe and North America in a bid to stop the spread of coronavirus, which has claimed more than 8,200 lives and infected more than 200,000 people globally.

Although the trajectory of cases in Asia has flattened, the US, Europe, and Iran are still on a disconcerting upswing.

Breaker, Breaker

US equities hit the circuit-breaker on Wednesday afternoon, as administration officials held their daily virus press briefing which failed to assuage concerns (and may have even made things worse), despite everyone staying generally “on message”, as it were.

The Bloomberg dollar index surged to an all-time high, exacerbating an already bad situation across assets. This recent bout of dollar strength isn’t the “good” kind, and it hit escape velocity on Wednesday.

FX liquidity has gone missing. Sterling was down 5% at one juncture. It’s in free fall.

That’s the weakest for the pound since 1985. The Aussie fell below parity with the kiwi for the first time. The move in the dollar is near parabolic.

“Liquidity has another, more fundamental, meaning: the ability to transact in the market at a given price”, Bloomberg’s Cameron Crise wrote Wednesday, distinguishing between the dollar-funding crunch that’s dominated headlines and a more simple definition. “And there, FX liquidity has given up the ghost today”, he added.

Bill Ackman – who suggested Trump close down the entire country for 30 days – warned that private equity will go bankrupt if the crisis lasts 18 months. Nobody is going to shed any tears for PE – I mention it just to underscore how precarious things are. The leveraged loan market has been essentially vaporized. “What surprises us is how uniform the selloff has been across credit quality”, Citi said, in a note. “This is not a case of a few outliers dragging the average price down”.

Credit spreads have ballooned wider, and the “BBB apocalypse” spook story is starting to seem more real everyday.

“Comparing today with 2008/2009, we should recognize the fundamental differences between the two events”, SocGen’s Kit Juckes wrote Wednesday. “This time [it’s] the damage the pandemic is wreaking on companies in exposed sectors and on the economy more widely as the crisis spreads”, he went on to say, adding that “while market participants scramble to de-leverage, the banks need money to lend to companies whose cashflow situation has changed almost overnight”.

Primary dealer credit facility or no, the fact of the matter is that in the post-crisis years, the size of the corporate credit market has exploded, while dealers’ capacity and willingness to warehouse risk is curtailed.

The problem inherent in the above visual isn’t going be “fixed” overnight by the reinstatement of PDCF.


It feels more and more like wartime.

Donald Trump on Wednesday invoked the Defense Production Act. The Navy is sending a floating hospital to New York. In addition, the White House said HUD is suspending foreclosures and evictions through April.

Italy is now pondering an outright ban on outdoor activities, Sports Minister Vincenzo Spadafora told RAI. Germany has paused its refugee resettlement program. Both Austria and Italy have begun utilizing mobile phone geo-tracking data in order to determine how effective (or not) containment measures have been. The UK is trying to figure out how to keep renters from being evicted. In Israel, the Public Security Minister told police to prepare to enforce a lockdown. Japan banned visitors from Spain and Italy.

On the front lines of America’s worsening corporate crisis, Gap is closing its North American stores, effective tomorrow. Delta said March revenue will be down $2 billion from last year. April will be even worse, the carrier lamented.

“Essentially every business in the United States, if not the world, is withdrawing 2020 guidance”, JonesTrading’s Mike O’Rourke said. “Right now, the key fear among investors is liquidity and leverage [as] the regionalized, ad hoc national shutdown has cut off cash flows”.

“The need for funds to flow into the economy isn’t going away any time soon”, SocGen’s Juckes warned, in the same note cited above. “The result is that while direct financial effects of this crisis might be less acute than in 08, they will continue being felt for a long time”.



8 thoughts on “Ablaze.

  1. Bill Ackman literally presaged the end of the United States as we know it live on broadcast television. This is textbook max fear.

  2. Any guesses on how long this fx liquidity issue is going to cause the dollar to keep rising? Days or months?

    1. Days. Months would imply a financial apocalypse.

      Central banks have to get credit markets to some semblance of functionality, otherwise the rest of the emergency financial measures won’t work for any length of time.

  3. “Although the trajectory of cases in Asia has flattened, the US, Europe, and Iran are still on a disconcerting upswing.”

    Based on the word of the Chinese government? Didn’t China just ban our reporters? I would say it’s safe to say we have little idea what’s going on in China.

    1. Far be it for me to interrupt your China bashing (after all, you are only following the example of our beloved president). It is worth noting though that while they are Asian – which, in case you were unaware, is not the same as Chinese – both South Korea and Japan managed to flatten their infection trajectories.

      1. Please, spare me. China is where the virus originated and thus the likely home of vast numbers of undocumented cases. Nothing China says has any credibility. But, yes China is a despotic police state, and one of the biggest threats the US faces. Trump is a saint by Chinese political standards.

        Political correctness can kill you.


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