According to insiders, CalPERS removed one of its two hedges against tail-risk just a few weeks before the coronavirus caused the stock market to plummet.
Lifting state lockdown orders should provide a boost to economic activity, but will not be sufficient on its own to bring most economic activity back unless the virus is also under control.
"Our base case view is that the market already had its successful re-test the week of March 30, meaning that week's lows of 2450 should not be challenged again"
...global capital markets remain extremely fragile...Investors seem to ignore the fact that while the global economic shutdown is synchronized, the spread of the virus is not...
"Surprisingly, the largest shock to the global economy in 90 years has left equities only 18% below the record highs of mid-February and roughly in line with the market price in June 2019, just 10 months ago."
This is just the beginning and is bound to get much worse... As system failures go, nothing remotely approaches the possibility of a quadrillion dollar derivative implosion, a real nuclear issue...
Ash Bennington hosts Real Vision’s Managing Editor Ed Harrison to discuss the events of recent days as the coronavirus crisis grinds forward. Harrison and Bennington focus on the role of banks in financial crises as a transmission mechanism to the broader economy. The pair also consider risks to the high yield market and the role that exchange traded products play in providing liquidity in the global debt markets.
Economies will re-open to a greatly diminished demand environment, with high saving rates and very low discretionary spending. This argues for a U-shaped recovery and a persistent, large output gap, in our view.
COVID-19 and its huge economic damage and uncertainty mean that global confidence has been smashed, and our Eurodollar Matrix risks buckling as a result.
"At the extreme, central banks could become permanent command economy agents administering equity and credit prices, aggressively subduing financial shocks."
