Economic Crash of 2020: The Fuckening

[Elvis]

^^^ That private equity stuff is gonna kill us all, thanks for those meaty pieces.
So I guess they're backing Biden as a hedge against a Trump loss...or do they actually prefer Biden?

[Wombaticus Rex]

^^^ That private equity stuff is gonna kill us all, thanks for those meaty pieces.
So I guess they're backing Biden as a hedge against a Trump loss...or do they actually prefer Biden?

They actually prefer Biden - no pretension of populism, history of serving their ends in Congress (instead of actively competing against them under FBI protection like Trump), and he's got dementia instead of megalomania. Biden is from Delaware, the bespoke jurisdiction of both the Fortune 500 and the spook finance class. To whatever extent there is a distinction between the two.

Biden is a servant, Trump is a rival.

[JackRiddler]

Yes, I expect they do prefer Biden, in a distanced way. They didn't get their preference last time, however. Sure, Trump is a rival [or even more of a liability, as WRex commented below], but the game remains the same. He's a rival like the Red Sox are to the Yankees, but nothing like barbarians knocking over the ticket booths and grabbing their own seats in the stadium.

Very unusual times. Clearly they feel they have won this thing either way, since Sanders has been declared the loser. (Funny how Sanders hasn't shared that view just yet. Yeah, yeah, "math," I know.) It's not like they don't understand the weaknesses and implosive potentials of Biden, and they were definitely trying on different models. But once the crunch came and he was the only option left against Bernie, they all fell in line.

But back to topic: PE. What a monstrous thing. Largest accumulations of disposable capital on earth, on the sidelines, always ready. They wait for literally this to happen, a crash, so they can burn and pillage. What a world, what a world.

Crossposting an ancient analysis of mine from the Rona Thread. Let's see how many things I got wrong (plenty) in my first stab at drawing the economic picture of Corona Capitalism. I wrote this four or five dog-years ago (March 6, 2020).

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(Who here has seen Gattaca? I'd guess everyone at RI, maybe not?)

This has enormous disaster capitalism potentials. Did you guys see how it went down in France? The PM claimed he could pass the long-protested pension package into law all by himself, by decree. So he decreed it. On the same day, he banned public gatherings due to Covid-19. The next day the workers started upping the ante, demanding closure of the Louvre on the same basis. With their contagion containment order the government has authorized the backfire of a general strike! I have no idea whether the "decree" in the meantime has been found to apply. But why not? As Mr. Jeff Wells said on Facebook, the ruling class has gone YOLO!

Once the precedents are established they cannot be forgotten. The liability fears alone will suffice to drive future panics about any developing outbreak. The insurance companies will start demanding all kinds of new coverage. It may become an annual thing, to go through the precaution program any time something novel might break out. They'd say it would be irresponsible not to, potentially thousands of deaths, etc. Infrastructure will be built. They will try to present it as a great case of international cooperation. In effect, this will contribute to what we might call the globalization of national lockdowns and aggressive, increasingly identical regimes in border, customs, travel surveillance, enforcement, etc.

I'm not in anyway arguing against responding to minimize spread and casualties from outbreaks of novel diseases, of course. The smartest measures in terms of lasting prevention would look like needed components in a strong program of ecological enlightenment and sustainability. (Examples: stop hunting and consuming the remaining wildlife to extinction. Clean drinking water for all.) I'm just telling you how the response never going to be separated from disaster capitalist exploitations of the crisis and statist-authoritarian growth. Not as long as the present global economic and political orders dominate.

For all cash-rich players on the market, the current crash or correction means now is the time to start up the next generation of bubbles. They'll be looking at related biotech and I expect especially at highly granular data/tracking applications, supposed prevention equipment, measures to secure enclaves from contagion, crowd control... plenty more I'm not thinking of directly.

Ha, how forward looking of me! According to FT and Prospect, what I wasn't thinking of directly was their usual business model. Like who doesn't see that this is the time to buy up insolvent restaurant chains, break'em up into unviable profit centers, load'em up with debt from some earlier failure, and launch torpedoes at'em.

Insurance is going to go nuts on this and basically act as a parallel body to the state for regulation, development and planing, as we've seen with many sectors.

538 or Ladbroke's should run a dystopia odds tracker, i.e., for people to bet on which of all our favorite dystopias will actually come true. The odds on Gattaca just shot up!

In Washington state (50,000 students) they canceled in-person classes through at least spring break, and replaced them with online classes. However that's going to work, on the fly. This may be a wet dream for a lot of higher education "reformers" who want to move in that direction anyway. Completing the casualization of adjunctification process. Laying off superfluous campus workers without impacting the all-important top 3% of administrators who get 20% of the salary pie. Hiring more of those, since this situation calls for a lot more control than we've had. Again, departments for insurance/liability compliance will mushroom.

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Meanwhile this has hit every other university.

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[Wombaticus Rex]

Very good points -- far more accurate to simply call Trump "a liability" -- he lacks the scale, institutional leverage, and ambition to truly be a rival.

Some good background on the extent of the volatility right now:

Via: FT

The early stages of the coronavirus shock to markets followed a familiar script: stocks fell hard while the government bonds that investors crave in times of stress shot higher. It was painful for many fund managers but a standard response to the risk of a looming global recession.

But that pattern has begun to break down, with big slides in safe assets at the same time as historic drops in equities. This week that intensified, creating a “sell everything” mindset that stunned industry veterans.

“[It] was mind-boggling,” said Bob Michele, chief investment officer at JPMorgan Asset Management. “I have been doing this now for almost 40 years, and this is the strangest market I have ever seen.” The lack of a reliable asset that rallies in bouts of nerves is unprecedented, he said.

Prices of government bonds, usually financial markets’ ultimate safe harbour and a key reference point for assets across the world, flailed wildly over the past five trading days. They frequently tumbled in tandem with stock markets as investors yanked money out of funds at a record pace and portfolio managers scrambled to sell whatever assets they could.

In the early stages of the pandemic, investors piled into government bonds, pushing the US 10-year Treasury yield to a record low of less than 0.4 per cent on March 9. The reaction was similar across the Atlantic: 10-year yields in Germany, Europe’s ultimate haven, collapsed to an unprecedented minus 1 per cent.

...

Central banks have been compelled to provide backstops for fixed-income markets, which have arrived at dizzying speed. After the Federal Reserve’s announcement of at least $700bn of asset purchases last Sunday failed to calm markets, the European Central Bank followed with €750bn on Wednesday and the Bank of England with £200bn on Thursday.

The recent losses for government bonds have called into question their traditional role in investors’ portfolios, where they typically serve as a counterweight that rallies as riskier assets fall.

“The value as a hedge is just not there,” said Rick Rieder, BlackRock’s chief investment officer of global fixed income. He said he had sold US government bonds over the past two weeks even as stock markets were melting down, judging that there was little potential upside in owning them — but plenty of room for declines.

With the Fed cutting rates to near-zero and relaunching bond purchases, 10-year Treasury yields look attractive based on valuations, but the volatility is off-putting, Mr Rieder said on Thursday. “Now it makes sense to just own risk assets in smaller sizes and nothing else. The best hedge in our portfolio is cash.”

The world’s largest asset manager is not alone in this dash for liquidity. Investors pulled a record $109bn out of bond funds in the week to Wednesday, according to data from EPFR Global. Money market funds, which invest in cash-like short-term debt, have had record inflows. Treasury bills, which mature in one year or less and are seen as more akin to cash, have been in such high demand that yields turned negative this week.

Via: WSJ

Mortgage bond markets have also shown severe strains in recent days, and the New York Fed said Thursday it would purchase $20 billion in those assets later in the day and $32 billion more on Friday.

The Fed purchased more than $3 trillion in Treasury and mortgage securities in three separate rounds of bond buying, dubbed quantitative easing or QE, between 2008 and 2014.

To get a sense of the scale of recent purchases, the current round is on pace to exceed in just weeks the $600 billion in the second round of bond buying, called QE2, that the Fed conducted between November 2010 and June 2011.

Those programs were deeply controversial, drawing attacks from Republican lawmakers, conservative economists and some Fed officials. They warned it would lead to runaway inflation, which it didn’t, or that it represented an improper incursion by the central bank into fiscal policy.

Thus far, the purchases have met with few, if any, objections from lawmakers on Capitol Hill.

...

The current purchases are focused squarely on reducing turmoil in financial markets, rather than on stimulating economic activity.

“There’s no monthly cap here. There’s no weekly cap,” Fed Chairman Jerome Powell said Sunday. The central bank will buy assets “at a strong rate that we think will restore market function, restore liquidity as quickly as it can be restored,” he said.

Rising interest rates, now, when inflation is likely to decline means monetary policy is growing tighter at a time when the central bank is trying to ease financial conditions. Long-term bond yields have risen in recent days. Yields on 10-year Treasury notes have risen to more than 1.2% Wednesday from 0.6% on March 9.

“Higher real rates are a huge problem for the Fed and the global economy if they continue. In economic terms, they raise the cost of the recovery,” said Jim Vogel, an interest-rate strategist at FHN Financial.

[Elvis]

Some good background on the extent of the volatility right now:

Those are great, thanks.

If the Fed is buying mortgage bonds, the government should be able to cancel the homeowners' debts. Just a thought in these fast-changing times when people need all the help they can get. Might be a path to instituting the right to housing.

[Wombaticus Rex]

I was not expecting Full BOJ quite yet, but then again, what the fuck else could I expect?

My friends who are far closer to the coalface than myself were telling me QE INFINITY was next, and they were completely correct.

This is why they have more money than I do.

Via: FT

Federal Reserve unleashes unlimited Treasury purchase plan
Historic pledge to buy corporate debt and securities backed by consumer loans but markets still slide

Global stocks fell on Monday despite the US Federal Reserve unleashing its full firepower to support the economy through the coronavirus outbreak when it pledged to buy government bonds in unlimited amounts.

The new measures, which include a historic step to buy corporate debt, add monetary heft to the effort to save the US economy, which is expected to contract sharply in coming weeks.

The Fed’s action came as senior Trump administration officials and congressional leaders clashed over a $2tn package of fiscal stimulus. There were more disagreements on Monday after friction between Democrats and Republicans had held up a deal over the weekend.

“The Federal Reserve is committed to using its full range of tools to support households, businesses, and the US economy overall in this challenging time,” the Fed said in a statement.

“While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate,” it said.

In an unprecedented move for the central bank, the Fed unveiled two new facilities that allow it to purchase corporate bonds, including new issues. The Fed stopped short of buying corporate debt during the 2008 financial crisis.

...

The first facility to prop up large employers involves bridge financing for up to four years for investment-grade companies, in exchange for purchases of newly issued corporate debt by the Fed. Businesses could defer principal and interest payment to preserve cash for up to six months, but they would not be allowed to buy back shares or pay dividends if they tap the facility.

A second programme would allow the Fed to purchase corporate debt in the secondary market.

The Fed also on Monday revived TALF — a facility dating back to the 2008 financial crisis — which gives the Fed the ability to buy securities backed by student, car and credit-card loans, as well as loans to businesses through the Small Business Administration.

The US central bank said TALF and the other new programmes combined would provide up to $300bn in financing for “employers, consumers, and businesses”, backed by the US Treasury department, which is offering $30bn in equity from its Exchange Stabilisation Fund to support the measures.

Note that $30b is approximately 30% of the entire ESF.

Separately, the Fed also expanded existing programmes to ease strains in the markets for municipal debt and the short-term loans known as “commercial paper” and said it would soon announce a “Main Street Business Lending Programme” to lend directly to small businesses.

...

Following a meeting of the Federal Open Market Committee, its monetary policy setting committee, the US central bank is no longer putting a numerical cap on its purchases of Treasuries and mortgage-backed securities, instead signalling that it is prepared to buy as much as necessary.

Some more supporting details from WSJ:

“This is the first time they’ve really basically turned into a commercial bank instead of a central bank,” said Michael Feroli, chief U.S. economist at JPMorgan.

...

The central bank punctuated its moves, announced 90 minutes before markets in the U.S. opened Monday, with an unusually explicit warning about the perils ahead.

”It has become clear that our economy will face severe disruptions,” the Fed said in its statement Monday morning. “Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”

...

The Fed’s latest lending facilities essentially bypass the banking sector and Wall Street dealers, which the Fed has flooded with cheap loans—so far to little effect. “The dealers and banks are supposed to intermediate markets, and they’re just not able to do it,” said Ms. Wilding of Pimco.

The big question now is how quickly the Fed, working with the Treasury Department and awaiting a potential infusion of funds from Congress, can limit a deepening working-capital crunch moving across the economy.

Once the facilities are launched, officials are likely to face tricky questions about how much farther to intervene in credit markets that remain in rotten shape, especially those for longer-dated municipal debt and riskier corporate credit.

While the Fed can’t directly purchase private-sector assets or longer-dated municipal debt, it has sweeping authorities that it has now invoked six times in the past week to lend on a broad basis during emergencies. These so-called 13(3) authorities are named for the section of its charter that authorizes this activity.

Still, there are limits to how far the Fed can go. The loans must be well secured, and the Fed often seeks a backstop from the U.S. Treasury when its lending could lead to significant credit losses, which it received for three lending facilities announced Monday and two others unveiled last week.

Economists now expect the economy to experience a severe downturn. Morgan Stanley expects the economy to contract at a 30% annualized rate in the April-to-June quarter, after a 2.4% contraction in the current quarter, which it said would send the unemployment rate to 12.8% this spring—the highest on records that date to 1948.

...

The Fed said it would soon roll out a Main Street Business Lending Program that will support lending to eligible small and midsize businesses. Such a program is likely to depend on additional money from the Treasury Department, and the Fed didn’t provide details about it Monday.

[Grizzly]

I keep being Gob-smacked by the magnitude of the Robbery here... Thanks Wrex! Optics and multiple psyops indeed...

Amid negotiations over how lawmakers should respond to the coronavirus pandemic, Rahm Emanuel has reprised his famous rallying cry from his 2008 financial crash: Never let a crisis go to waste.

Speaking during an interview on ABC’s “This Week” on Sunday, the former Chicago mayor and chief of staff to President Barack Obama brought back his infamous quote from the 2008 financial collapse in an attempt to highlight that the government can learn from its mistakes when dealing crises.

“Never allow a crisis to go to waste,” Emanuel said Sunday. “Start planning for the future. This has to be the last pandemic that creates an economic depression. We're going to have more pandemics, but this has to be the last economic depression.”

https://www.foxnews.com/politics/rahm-emanuel-on-coronavirus-response-never-allow-a-crisis-to-go-to-waste



A debt jubilee is the only way to avoid a depression
Michael Hudson
https://www.washingtonpost.com/opinions/2020/03/21/debt-jubilee-is-only-way-avoid-depression/

Full disclosure: I got this snapshot from James Woods Twitter thing. I hate this fucker, (Woods) cause I thinks he's a wingnut racist motherfucker.

[Grizzly]

Speaking of Pimco... Two things:
https://www.bizjournals.com/southflorida/news/2020/02/07/in-college-admissions-scandal-prosecutors-say-one.html



And..
https://www.bloomberg.com/news/articles/2020-02-28/pimco-s-head-of-canadian-portfolio-management-is-leaving-firm

[Elvis]

A debt jubilee is the only way to avoid a depression
Michael Hudson
https://www.washingtonpost.com/opinions ... epression/

Michael Hudson in the WaPo...cool.

[Nordic]

A debt jubilee is the only way to avoid a depression
Michael Hudson
https://www.washingtonpost.com/opinions ... epression/

Michael Hudson in the WaPo...cool.

That would be one of the best bread-and-circuses bribes ever, and it would work.

[Elvis]

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion

WASHINGTON—The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke



https://www.theonion.com/u-s-economy-gr ... 1819571322

[identity]

And the street-level fallout begins to materialize.

Coach, Dior, and Lululemon stores here have been boarded up with plywood due to attempted break-ins.

It is estimated that at least 30% of small retail/service businesses will go out of business within a month or two, unable to pay the $20,000+/month rents that are common in this city.

The city also has a large addict/homeless population, and it seems that reduction in the flow of traffic across borders has made drugs more scarce and therefore more expensive. No one is out and about in the downtown area, and there are no tourists to beg money from, so they are resorting to blocking building entrances and threatening to cough on you if you don't pay them.

How long before people are begging for martial law?

[kelley]

thank God the pesky idea of borrowing seems to have met its end in favor of simply printing more and more and more money

"This is not a slush fund. This is a massive liquidity program."

unlimited QE forever in perpetuity

oh happy day

[JackRiddler]

identity, you're in New York? (Sorry if I've forgotten, and feel free to answer vaguely if that's your preference. There are a couple of other cities with $20K rents for simple storefronts.)

If they don't suspend commercial rents and property taxes for a minimum three-month freeze starting 1 April, this is exactly what's going to happen. The retail extinction goes all the way. But at the same time, measures like these put the damn cities and states on the hook, since they don't own banks and can't issue money by fiat.

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[identity]

identity, you're in New York? (Sorry if I've forgotten, and feel free to answer vaguely if that's your preference. There are a couple of other cities with $20K rents for simple storefronts.)

No, but I am in one of the most overvalued property markets in the world (and unlike, say, London or NYC, average wages are those of a small city). In Canada. Because of the natural beauty of the setting, however, and the ease with which Chinese multi-millionaires have been able to purchase real estate and acquire residency, the place has tens of thousands of millionaires with money to burn, driving up everything from food costs to monthly rents for both individuals and businesses. At the same time, we have a HUGE population of addicts as well as what I believe is the highest rate of opioid-related deaths in the world; people who have moved here from London remark on the constant sirens heard in the city, day and night every single day, as crews rush to the scene of yet another fentanyl-related overdose. They say they never heard anything like this in London!

It's not going to be pretty!

edit: forgot to comment on this:

If they don't suspend commercial rents and property taxes for a minimum three-month freeze starting 1 April, this is exactly what's going to happen. The retail extinction goes all the way.

Amazon's business, however, is booming, and one would not be surprised to learn that Bezos was behind all this in order to finally sink ALL the competition.