Dow Closes Friday Down 915 (Or 4%) As 10-Year Treasury Yield Drop 17 BPS (Fed Announces Reduction In QE)

Despite titanic intervention by The Federal Reserve and $2 trillion Congressional spending bill (packed with pork-barrel spending unrelated to the coronavirus), the Dow continued to nosedive.

Or as Buzz Lightyear once said “To infinity … and beyond!” He was referring to government  spending and The Fed’s balance sheet.

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The Dow has whipsawed over the week, but particularly Friday. When The Fed announced it will reduce Treasury QE from $75BN to $60BN per day, the Dow dropped.

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Oddly, the Dow has been fairly predictable .. until The Fed/Congress got involved.

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According to the Elliott Wave, the Dow has broken from the major wave.

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Equity markets are still hypersensitive to coronavirus news and its impact on the economy.

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At least Chilean markets are up!

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Mortgage Bonds Rattle Wall Street Anew With Invesco Joining Pain (Fannie Spread To Gov’t SOARS)

Margin calls, the focus of books and movies like Margin Call, The Big Short, etc., during the financial crisis, are back!!

(Bloomberg) — The $16 trillion U.S. mortgage market — epicenter of the last global financial crisis — is suddenly experiencing its worst turmoil in more than a decade, setting off alarms across the financial industry and prompting the Federal Reserve to intervene.

Unlike last time, risky mortgages aren’t the cause. Instead, the coronavirus pandemic is threatening to make good loans go bad — and simultaneously sapping the market’s funding. There are fears that government efforts to shore up borrowers and financing won’t be enough and that mortgage and property investors again face massive losses.

Measures to slow the spread of the deadly disease are slamming the brakes on commerce, threatening to prevent companies from making payments on their leases and commercial mortgages. Companies are also firing employees, who won’t be able to keep up on their own rents and home loans. Mortgage industry veterans warn of a cascade of defaults.

At the same time, holders of mortgage-backed securities are fielding redemption requests from clients, margin calls from jittery counterparties and drops in their valuations, forcing the funds to solicit offers on billions in assets in emergency sales over the weekend. The pain continued Tuesday with Invesco Mortgage Capital Inc., a real estate investment trust that invests in mortgage-backed securities, also saying it’s no longer able to fund margin calls. If forced sales accelerate, bond prices could fall and put pressure on other investors to mark down or sell their holdings too.

Yes, Invesco Mortgage Capital is getting slaughtered, plunging from $18 on February 20th to $2.64 today.

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The Fannie Mae to Gov’t 10 year has exploded indicating a troubled mortgage market.

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Margin calls … they’re ba-ack!

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Housing and COVID-19 (Existing Home Sales Rise 6.5% In February) -30% Likely In March 😩

The US housing and residential mortgage market have benefitted from the dreaded COVID-19 virus … in the sense that the 10-year Treasury yield and contemporaneous mortgage rates (30-year) have fallen since September 2019 (pre-COVID-19 breakout).

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But the recent EHS numbers are for February (+6.5% MoM), not March. Expect around a 30% decline in existing home sales for March.

Here is a Washington DC area Realtor in action!

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Liquidity Trap! 3M Treasury Yield At -0.025%

A liquidity trap is a situation in which, “after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rather than holding a debt which yields so low a rate of interest.”

Well, Buckaroos, we are in a liquidity trap with the 3 month Treasury yield at -0.025%.

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A closer look at the T-bill market today.

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So here we sit in a classic liquidity trap!

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Fed Chair Jerome Powell in a liquidity trap!

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Mega thanks to Jesse at Jesse’s Cafe Americain for the jail jpg.

Frankly, I like The Byrds version of Buckaroobetter with the great Clarence White on the Fender Telecaster B-Bender guitar.

10Y T-Notes Bid-Ask Spreads Widen To Financial Crisis Levels

The markets are over, under, sideways, down.

Bid-ask spreads on the 10-year Treasury Notes have exploded and is back to financial crisis levels.

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A steepening Treasury yield curve bodes ill for stocks … and volatility.

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Hedge, hedge, hedge!

Stimulypto II: Fed Opens Primary Dealer Credit Facility While Trump Pushes $1.2 Trillion Stimulus, $1,000 Checks in Two Weeks (Dow Jumps 1,000 Points!)

Its Stimulypto time again! The Fed and the US Government are going on a $1.2 TRILLION spending spree related to the infamous coronavirus.

(Bloomberg) — The Trump administration is discussing a plan that could amount to as much as $1.2 trillion in spending — including direct payments of $1,000 or more to Americans within two weeks — to blunt some of the economic impact of the widening coronavirus outbreak.

Treasury Secretary Steven Mnuchin pitched $250 billion in checks to be sent at the end of April with a second set of checks totaling $500 billion four weeks later if there’s still a national emergency, according to a person familiar with the matter.

“Americans need cash now, and the president wants to give cash now. And I mean now, in the next two weeks,” Mnuchin said Tuesday at a White House briefing alongside President Donald Trump.

“It is a big number,” Mnuchin told reporters later on Capitol Hill. “This is a very big situation in this economy, we put a proposal on the table that would inject $1 trillion into the economy.”

The administration had been discussing a total aid package of $850 billion, but discussions later included spending as much as $1.2 trillion, according to people familiar with the matter.

The cash payments would be part of a stimulus plan Mnuchin is negotiating with Congress. The administration hasn’t decided on how much to send Americans, but wants the checks to exceed $1,000, according to two people familiar with the matter.

Mnuchin’s proposal included $300 billion for small business loans, $200 billion in stabilization funds, $250 billion in cash payments and a possible second round of checks, people familiar with the matter said. Including tax deferrals, that would bring the cost of the plan to around $1.2 trillion.

Also, The Federal Reserve on Tuesday opened an emergency lending program for primary dealers in yet another step aimed at keeping cash flowing into a U.S. economy shuddering under the impact of the coronavirus pandemic.

The Primary Dealer Credit Facility “will offer overnight and term funding with maturities up to 90 days and will be available on March 20, 2020,” the central bank said in a statement.

The facility will run for at least six months, the statement said, and may be extended. It will be offered at the discount rate, which was cut to 0.25% on Sunday evening in an emergency move by the central bank when it lowered its benchmark federal funds rate to nearly zero.

The Dow jumped 1,000 points on the sea of spending.

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Stimulypto!!

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Sea of Red! Brent Crude Down 12.38% As Dow Closes Down 13% (Or 3,000 Points) Hedging Anyone??

We are in a Sea of Red.

Brent Crude is down 12.38% today while agriculture prices are down too.

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US, Europe and Asia are in red territory. With the Dow down 3,000 points or nearly 13%.

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It seems like a good time to hedge the stock market.

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A scene at your local grocery store.

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Virus Volatility! VIX, Gold, Oil, Europe, Emerging Markets (No Where To Run, No Where To Hide)

Volatility is spiking in virtually all asset classes.

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Even gold the most in over three decades.

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Wow. No where to run, no where to hide … from volatility. At least in terms of risky assets. Cash and Treasuries are the places to hide.

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Fed Announces “QE 4 (NOT!)” And Market Says “Big Whoop” (VIX Rises To 75 As Dow Dumps 10% In One Day)

Well, this didn’t go as The Fed hoped!

(Bloomberg) — The Federal Reserve took aggressive steps to ease what it called “temporary disruptions” in Treasuries, flooding the market with liquidity and widening its purchases of U.S. government securities in a measure that recalls the quantitative easing it used during the financial crisis.

The Federal Reserve Bank of New York said in a statement that the “changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak” and had been done at the direction of Fed Chairman Jerome Powell in consultation with the Federal Open Market Committee.

Under the Fed’s existing program to buy $60 billion a month in securities, the purchases will be widened to include coupon-bearing notes across a range of maturities to match the maturity composition of the Treasury market, it said. (or $1.5 TRILLION)

This is really QE 4 with a NOT! added.

The market reacted by saying “Big whoop.”

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Today, the Dow dumped 10% or 2,352.33 points.

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As the VIX hit 75, the highest since 2008 and the financial crisis.

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Powell tried a “Hail Janet” pass … and it went unnoticed.

At least the US Treasury yield curve lost its sag!

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Big Bubbles? Fastest Bear Stock Market (Down 20% From Peak) May Happen! Dow Closes Down 1,467

The WHO (World Health Organization, not the 60s/70s rock band) announced that the coronavirus is a new PANDEMIC.

Or it is a bubble pop? Not tiny bubbles as Don Ho sang.  But a BIG bubble … burst.

Yes, The Federal Reserve and other Central Banks kept their target rate near zero for almost the entire Obama Presidency, then started to raise rates only to lower them again. But the S&P 500 and NAREIT – all equity indices have risen dramatically as well.

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A bear market in equities is when prices fall 20% from their peak. Over the past month, we are almost in a bear market.

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Is this that fast 20% in history? Nearly.

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And there is lots of downward rotation in global equities.

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Yes, equity markets are fragile thank to the central banks. And now the bears have been awakened.

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