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Like Eight Elephants Trying To Fit Through Three Small Doors

A report from Wharton. “Financially engineered collateralized loan obligations (CLOs) consisting of leveraged loans to highly indebted companies are today’s counterpart of the collateralized debt obligations (CDOs) of the last crisis, which contained subprime mortgage loans to highly indebted homeowners. These insights into so-called ‘free lunch’ strategies and their role in destroying wealth come from Bruce I. Jacobs, co-founder, co-chief investment officer and co-director of research of Jacobs Levy Equity Management.”

“Knowledge@Wharton: In your book, Too Smart for Our Own Good, you wrote about some quantitative free-lunch investment strategies that led to the formation of market bubbles that eventually burst, destroying enormous wealth. Do you see any similarities between those crises and the present stock market collapse?”

“Jacobs: Leveraged loans grew dramatically in the low-interest-rate environment of the last few years. By the fall of 2019, the amount of outstanding leveraged loans denominated in U.S. dollars was estimated at $1.2 trillion, roughly equivalent to the outstanding value of subprime mortgages as we entered 2008. More than half of these loans ended up in CLOs.”

“K@W: Can quantitative finance modeling help predict future crises? How? Jacobs: JLMSim considers the behavior of investors, security analysts, and traders, and how they affect markets. Security prices are determined by the interactions of these different market participants in the simulated market. One of our findings was that a simulated market with too many momentum investors led to bubbles and crashes. This is what happened during the internet bubble in 1999, when prices bubbled up and subsequently crashed, and this can explain other market bubbles as well.”

From Bloomberg. “As U.S. financial markets have rebounded feverishly this past month from the worst of the coronavirus-induced sell-off, one asset has been conspicuously absent from the rally: the collateralized loan obligation. Prices in key parts of the almost $700 billion market — which through large doses of Wall Street alchemy provides financing to companies with less-than-stellar credit scores — have remained deeply depressed, typically fetching less than 70 cents on the dollar.”

“Credit ratings on risky corporate loans that were stuffed into the CLOs are being downgraded at a pace so frenetic that it threatens to overwhelm safeguards that were put in place to ensure the securities’ financial strength. And if that happens, the firms that manage the CLOs will be forced to dump under-performing debt at fire-sale prices or suspend the cash payments they hand over to their investors.”

“‘Loan downgrades will keep coming and CLOs will be increasingly constrained,’ said Andrew Curtis, head of CLO manager Z Capital Credit Partners. ‘CLOs will become more motivated sellers’ of lower-rated loans.”

The Wall Street Journal. “The normally staid corner of Wall Street where companies and banks borrow money for days or weeks at a time was suddenly at the center of a near financial meltdown last month. Known as commercial paper, this more than $1 trillion market of short-term loans, used by companies to cover expenses such as payroll and paying suppliers, froze during March’s coronavirus-induced mayhem.”

“One problem, say market participants: Trading was dominated by a limited cast of big investors who were seeking to sell big slugs of commercial paper through a smaller number of banks that arrange the financing, known as dealers. This led to bottlenecks.”

“‘Like eight elephants trying to fit through three small doors,’ said David Callahan, head of the money-market management team at Lombard Odier Investment Managers.”

“The extent of the freeze shocked money-market fund managers. ‘Like: Wait a minute, you don’t have a bid on anything?’ said Tim Robey, manager of Eaton Vance’s in-house money-market fund, which manages spare cash on behalf of the investment firm’s wider group of mutual funds.”

“Although trading has restarted, commercial-paper borrowing rates remain elevated. Investors have sucked out $150 billion, or a fifth of assets from prime funds, since late February. With less money sloshing around, the cost to borrow in commercial paper markets jumped.”

From Yahoo Finance. “As the coronavirus pandemic keeps America’s retail stores closed, Michael McGrail is gearing up for what is shaping up to be a busy summer of running going out of business sales at some very prominent chains.”

“‘Some companies are just not going to survive this,’ says McGrail, who is the COO of one of the world’s largest asset disposition and valuation firms, Tiger Capital Group. It will be McGrail’s team — which often includes store associates of a stricken retailer — that hangs the ‘Everything must go’ signs and works to fetch top dollar on fixtures and other inventory.”

“McGrail declines to say which retailers have been calling him up for asset appraisals, except to note the names wouldn’t be any big shock. Such is the current life for McGrail and others in the retail bankruptcy and restructuring fields. In talking to a host of experts, one thing is abundantly clear: A thunderstorm of bankruptcies in retail are about to rain down on Wall Street thanks to the aftershock of the coronavirus.”

From Market Watch. “Mortgage rates remained near another record low for the third straight week. If a new low comes, it may not be because the U.S. housing market is struggling. Investors and lenders have grown concerned about borrowers’ ability to repay loans. That has limited interest in mortgage-backed securities, which in turn has limited lenders’ ability to lower rates much further than they already have. And with a growing number of Americans losing their jobs or being furloughed as a result of the coronavirus pandemic, lenders are growing stingier in terms of who they will give a mortgage to.”

“As a result, lenders may increase loan pricing in some cases to account for the added risk they’re facing right now. Some banks have also imposed more stringent underwriting standards for new home loans, including higher credit scores and down payment requirements. And borrowers who are looking for loans beyond those that qualify for government backing, such as jumbo mortgages, may face greater difficulty in getting them.”

“‘Limits to forbearance offerings, not to mention high degrees of uncertainty around the credit worthiness of some borrowers, continue to restrict market activity for non-agency and unconventional loans,’ said Matthew Speakman, an economist with Zillow. ‘The outlook for the coming months remains very uncertain, so the appearance of a calmer market of late could be a mirage as the likelihood of a sharp move in financial markets is still quite high.'”

“But if mortgage rates do move in the weeks and months ahead, it won’t necessarily be because the housing market is struggling. Recent data has suggested that the housing sector has begun to bear the brunt of the coronavirus pandemic’s impact. Economists have forecast a major decline in home sales, and new-home construction has slowed considerably as a result of stay-at-home orders.”

This Post Has 105 Comments
  1. ‘Like: Wait a minute, you don’t have a bid on anything?’

    This is a system wide credit event.

  2. Financially engineered collateralized loan obligations (CLOs) consisting of leveraged loans to highly indebted companies are today’s counterpart of the collateralized debt obligations (CDOs) of the last crisis

    I think it was Taibbi last year that said those would be the things to watch this time around.

  3. “Prices in key parts of the almost $700 billion market — which through large doses of Wall Street alchemy provides financing to companies with less-than-stellar credit scores — have remained deeply depressed, typically fetching less than 70 cents on the dollar.”

    It’s good to bear in mind that this just began a few weeks ago.

    IIRC, the comparable meltdown of the subprime ABX index started in December of 2006. It wasn’t until the following summer of 2007 when the prices bottomed out at below $0.10 to the dollar of par value.

  4. I just got this email:

    Flash: AEI estimates 3.5 million loans already in forbearance as of April

    ‘The MBA just released its mortgage loan forbearance report through April 12, 2020. Using data from other sources, we have made projections through April 19, 2020.’

    ‘As expected all three indices are estimated to have continued their upward climb for the week ending 4.19.20, with the overall forbearance standing at 6.86%, the Fannie/Freddie rate standing at 5.39%, and the Ginnie Mae rate standing at 9.34%.’

    ‘In terms of loan counts, this represents 3.5 million loans estimated to already be in forbearance, with 1.6 million Fannie and Freddie loans and 930 thousand Ginnie loans already in forbearance.’

    1. The Bloomberg article referenced in your article is even more scary.

      So they are trying to say that if Fed instruments are not available, they will crash each other like a NASCAR crash.

      These risks prompted Moody’s Investors Service to warn on Friday that it may cut the ratings on 859 CLO securities, accounting for nearly a fifth of all such bonds it grades. (The downgrades would be different than the ones on the underlying loans that have already been piling up; they would apply to the CLOs themselves.)

      The loan downgrades have come so fast, one after another, that Stephen Ketchum of Sound Point Capital Management likened it to a spill “at the Daytona 500, where the cars are crashing into each other.” It’s a lot different, he said, than the 2008 financial crisis, which “was a slow-moving train wreck.”

      The other big difference between then and now is that back in 2008, the CLO market emerged largely unscathed, an outcome that seems unlikely this time around. Corporate loans were far enough removed from the epicenter of the 2008 crisis — a housing bubble — to avoid much of the collateral damage and, besides, the CLO market back then was a fraction of its size today.

      1. “The loan downgrades have come so fast…”

        Lowering the interest rates would upgrade the loan quality, but the rates are already near zero. What would a Wharton scholar do?

      1. 🙂

        Don Harris
        4 years ago

        This is a song you kick back with a bottle of Boones Farm Strawberry Hill, a freshly rolled blunt and go cruising in your 1975 Monte Carlo. That’s how its done youngins

        1. “…bottle of Boones Farm Strawberry Hill…”

          I used to projectile vomit that stuff in my youth; had a great time doing it too. 🙂

        1. That’s a banger. All links were really good songs, thanks. DJ, your business must be really affected by the shutdown… Have you gone the DNice/IG Live route?

  5. Oil price chaos: Expert issues stark warning oil market chaos could last until May
    OIL MARKETS could continue to be in chaos amid the coronavirus pandemic until mid-May, and expert has warned.
    By Dylan Donnelly
    01:13, Tue, Apr 21, 2020 | UPDATED: 02:02, Tue, Apr 21, 2020
    Oil prices in US drop to below zero for first time in history

    US oil is currently trading at negative value for the first time in history, a historic plunge due to COVID-19 throttling demand. Jeff Currie, global head of commodities research at Goldman Sachs, has painted a dire picture for the oil industry’s economic performance for the next months.

    He said to CNBC on Monday that May delivery contracts expire on Tuesday, leaving traders paying buyers to avoid taking delivery of thousands of barrels of oil themselves.

    Currie also explained that the market strain remains on the supply side, but producers face major risk in slowing down their businesses.

    He said: “Shutting down a well is extremely expensive, and sometimes you damage the well forever.”

    1. This was absolutely brutal – but eyeopening.

      So all these moron headfunds and others were playing the financial market (probably very leveraged) – and then got caught have to take physical possession Tue at 2:30 EST.

      Rumor is that at last 1 asian and 1 us investment fund got into big trouble.

      CNBC this morning is reporting that USO (Oil ETF) will be slow trading.

      1. It’s a clusterfork.

        The Financial Times
        Harry Dempsey an hour ago
        Oil storage near full capacity onshore while demand for tankers rises

        Royal Vopak, one of the largest onshore tank storage companies, said that its infrastructure to hold oil is almost full, in a further sign that places to stock crude amid the price rout are running out.

        “It is fair to say that by the end of April, available capacity in our network is virtually sold out [for the second quarter],” said Eelco Hoekstra, chief executive of Vopak.

        Oil traders are storing crude — even on supertankers — to sell in the future as prices have collapsed because of a coronavirus-triggered drop in demand. West Texas Intermediate, the US benchmark, on Monday fell below zero for the first time.

        Vopak, like other onshore storage groups, is working to bring out-of-service capacity back online to meet the demand. However returning 10m barrels worth of capacity to the market is “not that simple” and takes three to six months, Mr Hoekstra warned.

        Traders have chartered supertankers as they turn to floating storage.

        “We are starting to see involuntary storage” in addition to oil storage to sell for financial gain later, said Brian Gallagher, head of investor relations at tanker company Euronav.

        He said that up to about 20 per cent of the world’s supertankers that can carry 300m barrels of oil are being used to store crude, more than most estimates.

        “As extreme as yesterday was in the US market, it is a reflection or a flag which is shining a light on a trend which is only going to continue to grow,” he said.

      2. Obviously the price pressures won’t decrease until supply decreases or demand increases. Tatonnement adjustment in the oil market following a sudden drop in demand is excruciating to behold, as it is visible in the MSM for all to see, including ongoing price and storage capacity announcements.

        Of course something similar may be going on in real estate, but there is no central exchange on which to observe inventory buildup or price levels in the absence of demand, the physical inventory is not changing rapidly the way oil is while being extracted, and housing cannot be moved around like oil so there’s no analogous shortterm capacity limit on housing. Nonetheless, when the situation is visible through the rearview mirror, I expect the housing market crash to resemble a slow motion version of the one presently playing out in crunch time for oil.

      3. Textbook equilibrium adjustment gets real when storage capacity constraints result in a hard ohysical barrier beyond which the demand price drops below zero. I can’t recall a textbook example of this, but I expect they will start showing up in the aftermath of the Unlimited Quantitative Easing era.

        The Financial Times
        Oil prices under pressure after sub-zero plunge
        Brent crude drops below $20 per barrel for first time in 18 years after WTI crash
        Prices are set to remain volatile due to the difficulty of storing US oil
        © AFP via Getty Images
        Myles McCormick in London and Hudson Lockett in Hong Kong an hour ago

        Global oil markets remained under intense pressure on Tuesday, with Brent crude dropping below $20 per barrel for the first time in 18 years while other major benchmarks across the world tumbled.

        Brent, the international marker, slipped as low as $18.10. The fall suggests markets see no immediate let-up to the collapse in oil demand that sent some US oil benchmarks plunging below $0 for the first time on Monday, leaving producers paying for buyers to take their oil away while available storage is scarce.

        Coronavirus has sent the oil sector into a state of crisis, with lockdowns implemented by authorities to contain the outbreak slashing demand for crude by as much as a third.

        The June contract, which held above $20 a barrel on Monday, has also come under heavy selling pressure, dropping as much as 42 per cent on Tuesday to trade at lows of $11.79, suggesting the blowout in the May contract was more than just a blip.

        While Monday’s slide reflected in part financial and storage issues, the fall in Brent — which can be stored on ships and more easily shipped to areas of higher demand — is “more reflective of the broader demand picture”, said Mr Haines.

        Analysts said the June WTI contract — which has pared some of its losses to trade down 20 per cent at $16.34 a barrel — was likely to face further downward pressure in the coming weeks, given the supply glut shows little signs of abating. A record cut by Opec and its allies does not start to take effect until May and has so far failed to prop up prices.

        Warren Patterson, head of commodities strategy at ING, said it was likely that “storage this time next month will be even more of an issue, given the surplus environment”.

        “And so in the absence of a meaningful demand recovery, negative prices could return for June,” he added.

    2. Hi engineering collegemate works at Schlumberger in Alberta. He runs a set of crews – and a few weeks experienced workers / managers at SLB were told to be ready to go out into the fields to help starting to shut things down. Other than for management reasons, he has not done active field work in a decade.

    1. “Morgan Stanley analyst Adam Jonas offered a potential way out of the demand slump. He recently suggested a second cash-for-clunkers program, revisiting a financial-crisis-era program that incentivized buying newer model cars.”

      Why doesn’t Adam Jonas just tighten his belt until next year?

      1. Another C4C wouldn’t make much of a difference. If you can’t afford a $35K car, a gimmick program won’t change that.

      2. “revisiting a financial-crisis-era program that incentivized buying newer model cars.”

        So long as dealers continue to slash prices on new cars, there is no need for another C4C.

  6. Link failure.

    Plan B: Go here, then scroll down until you find the videos. I was able to access it w/o hitting a paywall.

  7. A report from Wharton. Financially engineered collateralized loan obligations (CLOs) consisting of leveraged loans to highly indebted companies are today’s counterpart of the collateralized debt obligations (CDOs) of the last crisis, which contained subprime mortgage loans to highly indebted homeowners. These insights into so-called ‘free lunch’ strategies and their role in destroying wealth come from Bruce I. Jacobs, co-founder, co-chief investment officer and co-director of research of Jacobs Levy Equity Management.”

    “Knowledge@Wharton: In your book, Too Smart for Our Own Good, you wrote about some quantitative free-lunch investment strategies that led to the formation of market bubbles that eventually burst, destroying enormous wealth. Do you see any similarities between those crises and the present stock market collapse?

    “Jacobs: Leveraged loans grew dramatically in the low-interest-rate environment of the last few years. By the fall of 2019, the amount of outstanding leveraged loans denominated in U.S. dollars was estimated at $1.2 trillion, roughly equivalent to the outstanding value of subprime mortgages as we entered 2008. More than half of these loans ended up in CLOs.”

    – Financially engineered = financialization. That’s worked out well for Wall St. as they blew the bubbles, but then everyone has to deal with the consequences as the bubbles pop.

    – I’m glad that all of that Dodd-Frank oversight was working this time so that we didn’t have another meltdown. Oh, wait…

    – Financial engineering insturments are analogous to genetic engineering of a virus. It seems like a “cool” thing to do: “yeah, let’s splice in some human virus into this bat virus and see what happens.” However, the end result can end up like Frankenstein’s monster. One destroys wealth and financial health; the other destroys people’s physical health. Similar and effective in both cases.

    Quotes from “Jurassic Park”, 1993 (A movie about dinosaurs running amuck)

    John Hammond: All major theme parks have delays. When they opened Disneyland in 1956, nothing worked!

    Dr. Ian Malcolm: Yeah, but, John, if The Pirates of the Caribbean breaks down, the pirates don’t eat the tourists.

    Dr. Ian Malcolm: God help us, we’re in the hands of [financial] engineers.

    Dr. Ian Malcolm: If I may… Um, I’ll tell you the problem with the scientific power that you’re using here, it didn’t require any discipline to attain it. You read what others had done and you took the next step. You didn’t earn the knowledge for yourselves, so you don’t take any responsibility for it. You stood on the shoulders of geniuses to accomplish something as fast as you could, and before you even knew what you had, you patented it, and packaged it, and slapped it on a plastic lunchbox, and now

    [bangs on the table]

    Dr. Ian Malcolm: you’re selling it, you wanna sell it. Well…
    John Hammond: I don’t think you’re giving us our due credit. Our scientists have done things which nobody’s ever done before…

    Dr. Ian Malcolm: Yeah, yeah, but your scientists were so preoccupied with whether or not they could that they didn’t stop to think if they should.

  8. I’ve been following this blog for years and agree with a lot of the underlying reasons why housing should come down. We are in an everything bubble for a while now. I still haven’t seen any movement on housing dropping in California coastal areas though. It did drop drastically around 10 years ago with some good prices around me but I tried to buy a few times then and was outbid by all cash buyers. I don’t see anything bringing those prices back again. Even with this covid thing happening. Sellers are giving reductions but they start at such high listing prices that they are not really good deals at all. There is so much loose money still sloshing around I don’t see things changing much with California coming out of quarantine. To me a lot of houses are Priced $200-300 Thousand over What they are worth when you account for quality of house,taxes,mortgage cost etc. If this covid thing doesn’t lower prices I’m not sure what will.

      1. Yeah, six weeks isn’t long enough. Some of the cooler heads are predicting that the stock market bottom won’t hit until 8-10 months from now.

        1. 2025 for housing (much slower train wreck than oil or stocks, thanks to imperfect information and very gradual tatonnement adjustment).

    1. We have to het through the 5 stages of grief first. We seem to be at stage 3 (bargaining). Sellers ain’t going to “give away” their dream price shacks atm, some may be so stubborn that they will just end up walking away. I am seeing lower (still overpriced) listings than a few months ago but nothing to jump on yet. Patience, keep your powder dry, and more patience.

    2. Moorpark CA didn’t bottom until 2011-2012 and then only for a short time. It’s like they ( loan owners) all gave up at once. Summer 2012 everything was going back up fast. Pretty sure my house will be right back at what I bought it for in a year or two. Don’t care housing is an expense anyway.

  9. That was fast! It’s certain to be above $80 by year’s end (rechanneling AlbuquerqueDan’s prediction).

    US oil price back above zero after historic plunge
    Worries persist about level of demand for crude as coronavirus hits world economies
    Prices are set to remain volatile thanks to the continued difficulty of storage for US oil
    © AFP via Getty Images
    Hudson Lockett in Hong Kong 10 minutes ago

    The price of US oil clawed back above zero on Tuesday after plunging into negative territory for the first time as the coronavirus pandemic crushes demand in global energy markets.

    West Texas Intermediate, the US oil benchmark, was fetching $1.43 a barrel in afternoon trading in Asia after starting the session at -$14, meaning that producers were paying buyers to take oil off their hands given limited access to storage in the US.

    At one point on Monday, producers were paying more than $40 a barrel to get rid of their oil. A barrel of WTI crude cost $18.27 on Friday.
    Price of West Texas Intermediate for May delivery in $ showing Oil rebounds above $0 per barrel

    The negative prices were the latest sign of the crisis gripping the oil sector, with lockdowns implemented by authorities to smother the coronavirus outbreak having cut demand for crude by as much as a third.

    1. aq.dannyboy is still sittin’ on the hilltop$ counting all the train.loads of coal car$ & lookin’ up @ thee emptie$ $ky wonderin’ why Boeing’$ Dec 2019 tailwind$ have gone mi$$ing. … $ad.

  10. The good thing about different approaches to reopening across states is that it may be informative about what worked or didn’t through the lens of history. If everyone follows the exact same approach, counterfactual comparisons are a challenge.

    The Financial Times
    US southern states move to reopen economies
    Move comes as Facebook says will remove pages for some lockdown protests
    Lockdown protesters gather on Monday in Harrisburg, the capital of Pennsylvania, lobbing criticism against the state’s Democratic governor, Tom Wolf
    © Reuters
    Demetri Sevastopulo in Washington and Hannah Murphy in San Francisco
    2 hours ago

    Georgia and several other southern US states are moving to ease lockdown restrictions as early as this week, as sporadic protests erupt in other states over the strict measures governors have enacted to tackle coronavirus.

    Brian Kemp, the Republican governor of Georgia, said residents could visit gyms, hair salons, tattoo parlours and bowling alleys from Friday, and could then start going to movie theatres and restaurants from Monday.

    Henry McMaster, South Carolina’s Republican governor, rescinded a ban on residents going to the beach and eased restrictions on retail outlets to let them reopen if they implement social distancing measures. Bill Lee, the Republican governor of Tennessee, said his stay-at-home order would lapse at the end of April.

    Mr Kemp was one of the last governors to impose a lockdown and his move makes his state one of the first to ease restrictions. Georgia has not met the criteria outlined by the White House last week when it recommended that a state see a decline in cases for 14 days before starting to reopen.

    1. “Facebook says will remove pages for some lockdown protests”

      Can Facebook be sued for discrimination? Would Facebook have removed pages for the Women’s Pink P-hat March or climate change gatherings?

      1. To Fb credit……Ive seen a whole lot less banning and being put in FB jail , for racial equality posts.. It was ok for bashing white supremacists privilege mass shooters, but post the same about POC criminals and it was forbidden.

  11. An inconvenient truth…

    Coronavirus is largely spread by people without symptoms. Here’s what that could mean for reopening the economy.
    by Marie McCullough, Updated: April 20, 2020- 4:56 PM
    Coronavirus is largely spread by people without symptoms. Here’s what that could mean for reopening the economy.
    HEATHER KHALIFA / Staff Photographer

    Just two months ago, the discovery that two people infected with the coronavirus had no symptoms was such big scientific news that it was published in the New England Journal of Medicine.

    Now, it is becoming clear that much, if not most, of the spread of the virus is by infected people who don’t get sick. New evidence comes from a Boston homeless shelter, an Italian town, a California county, and a Navy aircraft carrier.

    With regard to COVID-19, we’re learning that stealth in the form of asymptomatic transmission is this adversary’s secret power,” Rear Adm. Bruce Gillingham, surgeon general of the Navy, said at a briefing earlier this month.

    That secret power has huge implications for curbing the pandemic, and further dampens the prospects for safely reopening the United States before therapies or a vaccine are available.

    1. There may never be a vaccine available. If being infected without symptoms confers semi-immunity, and therapies become available, the only way out may be having people get it and get it over with at a pace the health care system can handle, with the very old and ill perhaps locked in place for years.

      1. There will be a vaccine, it just means we can wait longer for it. You only need about 80% to have herd immunity. Once 80% of the population gets it, the 20% of old and infirm won’t need a vaccine, or to be locked away. The only hangup is that obese diabetics are also at huge risk, and they are more than 80% of the population. They can’t all rely on herd immunity.

        “having people get it and get it over”

        Inoculation theory says that a low initial viral dose results in a milder case. So maybe the best action is to give people a calculated very low dose of virus. A couple days later, have then come back to pick up their packet of Vit C, Vit D, Zinc, and a Z-pack. People who look like they would have a more serious case get the hydroxyquinoline.

        1. hydroxyquinoline

          Hydroxyquinoline is used to maintain healthy acid pH levels in the vagina, to prevent bacteria from growing and causing odor.

          Of all people to get the name wrong. It’s hydroxychloroquine.

          1. get the name wrong

            This is at least the third time I’ve posted this correction. qt caught the second one after my first one was perhaps a bit too subtle with just a hyperlink to hydroxyquinoline’s use. Your repeated use of the wrong drug has me seriously questioning where you get your information.

          2. Coronavirus: Rudy Giuliani Spreads Misinformation on COVID-19
            By Chuck Dinerstein, MD, MBA — March 31, 2020

            Just when you thought the pandemic of misinformation could not get worse, Rudy Giuliani…surfaces to add his misinformative spin. His website has two video presentations on suspect therapies for COVID-19. Let’s consider them in turn.

            Mayor Giuliani now thinks he’s Dr. Giuliani. His website is offering up two very bad videos on coronavirus and COVID-19.

            The first discusses hydroxy treatment. You might wonder why, hydroxy? I suspect because, at every opportunity, Dr. Giuliani refers to hydroxyquinoline rather than hydroxychloroquine, but what’s in a name? (It joins the millions of prescription errors made, identified and correct annually).

          3. Perhap$ Dr. Giuliani is subtly trying to “come.out” in a clever way. What did he really “get.done” whil$t in Ukraine?


            “Hydroxyquinoline is used to maintain healthy acid pH levels in the vagina, to prevent bacteria from growing and causing odor.”

      2. “…with the very old and ill perhaps locked in place for years.”

        At best.

        Health & Medicine
        One-third of California counties have an elder-care home with coronavirus. Here are the hotspots
        By Jason Pohl
        April 17, 2020 05:00 AM, Updated April 18, 2020 10:27 AM

        One in three California counties has confirmed at least one case of COVID-19 inside an assisted-living facility or nursing home, and the bulk of infected residents remain clustered in three metropolitan areas and a single Central Valley county, a Sacramento Bee survey of public health departments found.

        Los Angeles, Riverside and Santa Clara counties have suffered the brunt of COVID-19 outbreaks in these long-term care facilities for the elderly, with hundreds of residents sickened and at least two-dozen dead from the disease.

        Rural areas are not exempt either. Redwood Springs Healthcare Center in Tulare County is experiencing one of the most severe known outbreaks, with at least 73 infections and 6 deaths.

        1. Rural areas are not exempt either. Redwood Springs Healthcare Center in Tulare County is experiencing one of the most severe known outbreaks

          Once inside a big building full of dozens or hundreds of people, everything looks urban to the virus.

    2. “An inconvenient truth…”

      “Mother Nature is a serial killer. No one’s better. Or more creative. Like all serial killers, she can’t help the urge to want to get caught. What good are all those brilliant crimes if no one takes the credit? So she leaves crumbs. Now the hard part, why you spend a decade in school, is seeing the crumbs. But the clue’s there. Sometimes the thing you thought was the most brutal aspect of the virus, turns out to be the chink in its armor. And she loves disguising her weaknesses as strengths. She’s a bitch.” —Andrew Fassbach, World War Z

    1. It almost appears that someone tried to erect a floodwall at $20/bbl, which was breached and obliterated by a tsunami tide of supply.

      1. They used a $andbag levee to direct & $upport thee fla$h.flood of oil$ that they pumped out of the $and. … $ad.

        (Mother.Demand$ had her own idea$.
        “It’$ knot nice to fool with Mother.Demand$!”)

        1. The trouble with propping up the price above the market equilibrium level, in the absence of demand, is that the rate of physical production will contuously exceed the rate of consumption to the point where storage is exhausted.

          And the problem with not propping up the price is that it is apparently quite costly to shut down and restart extraction activities.

          It’s definitely a conundrum.

  12. The Orange King is shutting down immigration to the U.S.

    Three years late, but I’ll take it.

    1. The funny thing is, new immigration is practically shut….has been for over a month now.

      Orange smoke and cloudy mirror as usual.

      1. You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.

        — Rahm Emanuel

    2. The Orange King is shutting down immigration to the U.S.”

      High tech won’t like that. This was brought up at a company wide meeting a week or so ago. By A Chinese marketing director. The answer by an agitated CEO was we would move hiring overseas. He then really got pissed when asked if the company would supply masks. But the company is hitting all time highs and we are printing millionaires so its all good I guess. Weird times. And I went into work and its dead empty out there. I have a special letter saying I can go to work ( I’m expendable I guess ).

    1. Homebuilding faces the same problem of a collapse in demand as the oil market. But the physical capacity limits on homebuilding are not as rigid as for oil, and the price adjustment process is much slower.

      1. ” …and the price adjustment$ proce$$ is much $lower.”

        More $$$$$ = more “adju$tment” $$$

        (+ large.lo$$e$ become$ emotional)

        -10% of price of x1 barrel of @ $25 = $2.50

        -10% of price of x1 u$ed.$helter.$hack @ $486,000 = $48,600.86

        1. Yes. Lumpy assets are very illiquid, especially when leverage is typically used in their purchase and prices are falling.

  13. Will this be the first time in economic history that an all-out collapse in demand results in higher prices?

    1. Real estate prices always go up, no matter what. Really!

      Existing-home sales slump 8.5% in March due to coronavirus
      Published: April 21, 2020 at 10:11 a.m. ET
      By Jeffry Bartash

      Sales of previously-owned U.S. homes sank 8.5% in March just as the coronavirus pandemic began to shut down large parts of the economy and throw the real estate market into disarray. Existing-home sales dropped to an annual pace of 5.27 million the National Association of Realtors. The decline is likely to be a lot sharper in April.

      “Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak,” said Lawrence Yun, NAR’s chief economist. “More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.”


  14. Report: California has third-lowest U.S. coronavirus testing rate
    New York leads while California, Texas lag
    People with appointments pull up to be tested for coronavirus at the new drive-in testing center at the Forum in Inglewood, on Tuesday, April 14.
    (Courtesy County of Los Angeles)
    By John Woolfolk | Bay Area News Group
    PUBLISHED: April 20, 2020 at 1:22 p.m. | UPDATED: April 21, 2020 at 4:12 a.m.

    A new analysis Monday shows California is testing a smaller share of its people for the potentially deadly COVID-19 coronavirus disease than almost any other state — something that could delay lifting the stay-home order that has shuttered businesses across the Golden State.

    California has conducted 7.1 tests per 1,000 residents, according to an Associated Press analysis of data compiled by the independent COVID Tracking Project. Only Texas and Virginia, which conducted 6.4 per 1,000 residents, and Kansas, which conducted 6.2 per 1,000 residents, tested a smaller share of their people.

    That’s almost half the rate in Pennsylvania, 12.4 per 1,000 residents, and Florida, 12.2 per 1,000 residents, and a third the rate in New York, 31.6 per 1,000 residents, the second-highest in the U.S. behind Rhode Island, with 32.8 per 1,000 residents.

    1. Testing is so inconsistent that we have no way of knowing whether the rate of new cases is decreasing or not. For example, we could have a declining number of actual infections, but as milder and milder cases receive testing, the number of confirmed cases could remain constant.

      1. To a first approximation,
        (# of confirmed cases) =
        p × (# tested),
        where p = percent of positive test results for the subpopulation of people who get tested.

        In other words, the # of cases is largely independent of the actual number infected, and is mainly a function of who gets tested, how many get tested, and the rate at which the test throws out a positive result for those in the tested group.


    ‘WTI crude for May delivery has traded at large discounts to longer-dated contracts. That dynamic is playing out amid worry that a key storage hub in Cushing, Oklahoma, is nearing capacity, according to Bloomberg. Analysts were quick to comment on the historical significance of Monday’s moves, with one describing the unprecedented price drop as a “wake-up call” for markets.’

    I went to the store yesterday (suicide, I know) and noticed that gas prices were below zero. I didn’t need any so I filled up the back of my truck. They gave me a hundred dollar bill.

    “Yesterday was a wake-up call and investors would be remiss to ignore that low oil means lower inflation, higher defaults, lower growth and more political instability as less petrodollars circulate in the system,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham’

    ‘Sir, this is a Wendy’s”

      1. Funny how these .gov types thought they would be immune to the economy being shut down. It never crossed their minds that sale tax receipts would collapse.

        Disney’s already furloughed half their payroll (and they aren’t all low paid theme park flunkies), and many if not most of them will not be called back.

        Welcome to our (the real) world.

        1. I’m thinking as soon as some actual .gov employees lose their jobs it will all of a sudden be time to “reopen America” and “get back to work” Cause all the folks who love the shutdown are still getting paid.

    1. Why do stock HODLers care so much about oil prices?

      Stocks drop for a second day as oil wipeout continues
      Fred Imbert and Yun Li
      10 mins ago

      Stocks fell sharply again Tuesday as oil prices continued their unprecedented wipeout.

      The Dow was down more than 600 points, or 2.6%, while the S&P 500 dropped 3% and the Nasdaq fell 3.4%.

      Traders were focused on the strange happenings with oil futures once again, which raised concern about deep losses for the energy industry hitting the U.S. economy even further.

      On Monday, the May contract for oil futures expiring Tuesday fell to zero and then went to an actual negative price, meaning producers would pay for someone to take the oil off their hands.

      The bizarre move has to do with the fact that because of the coroanvirus shutdowns, big buyers of oil like refineries don’t need any more oil because their tanks are nearly filled.

      That May contract clawed back into the back in early trading Tuesday.

      “If we ever needed a reminder for the extent of the abrupt decline in global economic activity, it is the fact that WTI oil futures saw a negative price,” said Tom Lee, the head of research at Fundstrat Global Adivsors, in a note. “But oil is a residual issue of the broader global “stay at home” and this situation will not change until Western nations and US states begin opening up. And they cannot open up until each jurisdiction feels they have a handle on the healthcare crisis.”

      More concerning to traders Tuesday was the selling now occurring in later month contracts for oil futures. The more actively traded June oil contract was down 29% to $14.56 Tuesday. That contract expires on May 19.

      The United States Oil Fund, an exchange-traded security for the retail investors which buys oil futures, tanked 19.3% to just $3.02. Major oil stocks like Exxon Mobil were hit again. Exxon was down 2.8% while Chevron dropped 4.6%.

      1. Any thoughts on how long from now house prices will turn negative?

        The Financial Times
        Opinion Instant Insight
        The collapse in oil is a wake-up call for stock markets
        Any idea that economies are through the worst of coronavirus seems misplaced
        Katie Martin
        A barrel of oil changing hands at -$40 is simply not normal
        © AFP /AFP via Getty Images
        Katie Martin an hour ago

        The collapse in oil prices is a warning. Anyone who has been swept up by the rally in stock markets since late March would be foolish to ignore it.

        Even by the standards of the past couple of months in markets, the sheer scale of the fall in oil has been breathtaking. For the first time ever on Monday, it turned negative. Having started the day at about $10 per barrel, prices for West Texas Intermediate, the US benchmark, tied to delivery of the black stuff in May, cratered to minus $40.

        That means there is so much oil sloshing around, so little demand for it in a global economy in lockdown, and so little space left to store it, that sellers are paying buyers to take it off their hands.

        Optimists were quick to argue that this is just a market technicality. Short-term storage problems are simply pinching this particular contract in this particular part of the world, they said. They noted that it is not unusual for so-called front-month prices to drop below the cost of oil to be delivered at a later date. In other words: nothing to see here.

        But that looks like the financial markets equivalent of arguing that coronavirus is “just the flu”.

        A barrel of oil changing hands at -$40 is simply not normal. What is more, prices of oil for delivery at other times of the year, and from other parts of the world, are now plunging too. Prices for WTI for delivery in June tanked by as much as 40 per cent on Tuesday. It turns out that the world does not much want that oil either.

        This is a wake-up call. Since late March, stock markets and riskier bits of the bond market have been rallying, dragged out of the depths of despair by heavy-hitting central banks. The US Federal Reserve has pledged to buy a huge range of bonds, and is even supporting the high-yield debt market. This pulls down bond yields and encourages investors to snap up equities, which they have duly done. The Fed is not, however, buying oil.

        1. ‘A barrel of oil changing hands at -$40 is simply not normal’

          And it’s not what happened. It’s a contract, not actual oil. The MSMs shameless search for click-bait.

  16. Here’s a CLO article I saved from early March:

    Why a bomb like the one that blew up markets in 2008 may be ticking right now.

    “There’s currently $700 billion in outstanding CLOs around the world right now, with annual new issues of more than $100 billion, similar to what we saw in the infamous subprime CDOs in 2008.

    ‘There are too many parallels to 2008 for comfort.’
    — Satyajit Das

    Das said many aspects of the risks aren’t fully understood. For instance, the credit quality of loans packaged in most CLOs is below investment grade and the borrowers are highly leveraged, which increase the risk of higher losses.

  17. Colorado to start lifting restrictions:

    Gov. Jared Polis on Monday laid out more detailed guidelines for Colorado’s reopening after the statewide coronavirus stay-at-home order expires April 26.

    Retailers will have the option to open May 1, Polis said, as long as they have social-distancing policies in place. Business offices can reopen the following Monday, May 4, he said, although he added telecommuting should be maximized as much as possible, particularly with older employees.

    Restaurants and bars will stay closed initially but might be allowed to open in mid-May, he said. Schools will not reopen immediately. Personal service providers, like hair salons, will be able to reopen with some precautions on April 27, such as hair stylists wearing masks. One-on-one real estate showings — though not open houses — and child care can restart then, too.

    The state will need to shift from staying-at-home to being “safer at home,” Polis said, warning that Colorado’s reopening will be a long, painstaking process even after the order lifts.

    1. You’re all gonna die! Note how arbitrary it is. Lemonade stands, May 3rd at 1PM. Tattoo shops, June the 6th.

      Is the lotto cancelled? Oh hell no!

      1. 🤣🤣🤣

        Now these asshole governors are padding the count by adding “probables”.

      2. ‘USC and the Los Angeles County Department of Public Health on Monday released preliminary results from a collaborative scientific study that suggests infections from the new coronavirus are far more widespread — and the fatality rate much lower — in L.A. County than previously thought.’

        ‘The results are from the first round of an ongoing study by USC researchers and county health officials. They will be conducting antibody testing over time on a series of representative samples of adults to determine the scope and spread of the pandemic across the county.’

        ‘Based on the results of the first round of testing, the research team estimates that approximately 4.1% of the county’s adult population has an antibody to the virus. Adjusting this estimate for the statistical margin of error implies about 2.8% to 5.6% of the county’s adult population has an antibody to the virus — which translates to approximately 221,000 to 442,000 adults in the county who have been infected. That estimate is 28 to 55 times higher than the 7,994 confirmed cases of COVID-19 reported to the county at the time of the study in early April. The number of COVID-related deaths in the county has now surpassed 600.’

      3. Colorado is a soup sandwich or what is essential. Weed and booze shops, yes. Cigar shop, no.

        Now the Gov is backtracking on reopening, it’s all gonna be phased. Even said schools should not plan on reopening until Jan ’21. He’s worth 350 Million and getting his Governor pay so he couldn’t care less how many lose their jobs or businesses.

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