Faber News Flow

There was a bizarre moment this afternoon, when in the 40 minutes heading into the final hour of trading, the VIX kept rising and rising, preventing the S&P from doing its sworn duty of spiking higher into the weekend. And then, just after 310pm ET (or 1210 PT), the VIX collapsed, plunging by as much as 14 vols from 54.39 - the highest print since Lehman - to 40.84, the low for the day, and unleashing another unprecedented stock buying cascade, which almost sent the Dow green.  What happened? As the following chat session between three individuals, which includes a former CME index option trader (X), all of whom wish to remain anonymous lays out, what happened is that the VIX ramped as a major Chicago market maker was caught in the infamous gamma short squeeze, which  forced them to keep buying the VIX as the VIX soared, in the process ending the VIX even higher, only to get margin called out of their position by their clearing firm,  puking their entire position while liquidating ...

Markets are calling for lower interest rates even after the Fed handed down an emergency half-point cut on Tuesday to combat coronavirus' potential impact on the US economy.  Seventy-eight percent of traders think the Fed will cut another 50 basis points, while nearly 22% think there will be a 25-basis-point cut at the next meeting March 17-18,  according to CME's FedWatch tool.   "Everything is on the table," James Bullard, president of the Federal Reserve Bank of St. Louis, told  Bloomberg TV in a Friday interview . Read more on Business Insider . The market is screaming for interest rates to fall even further just days after the Federal Reserve issued its  first emergency cut  since the financial crisis.  The central bank  slashed interest rates by a half percentage  point on Tuesday to combat the potential impact of a coronavirus outbreak on the US economy. But markets didn't react positively to the move —  stocks continued to fall,  and investors rushed into ...

And so castles made of sand fall in the sea, eventually. – Jimi Hendrix There's a widespread belief out there that the U.S. and the global economy in general is on much sounder footing ever since the financial crisis of a decade ago. Unfortunately, this false assumption has resulted in widespread complacency and elevated levels of systemic risk as we enter the early part of the 2020s. All it takes is a cursory amount of research to discover nothing was "reset" or fixed by the government and central bank response to that crisis. Rather, the entire response was just a gigantic coverup of the crimes and irresponsible behavior that occurred, coupled with a bailout designed to enrich and empower those who needed and deserved it least. Everything was papered over in order to resuscitate a failed paradigm without reforming anything. Since it was all about pretending nothing was structurally wrong with the system, the response was to build more castles of sand on top of ol...

It's damage control time for Jerome Powell: having cut 50bps on Tuesday, it's first 50bps emergency, intermeeting rate cut since Oct 8, 2008, the peak of the financial crisis (which in turn followed another panicked, 75bps rate cut when Jerome Kerviel put on a couple of terrible trades and blew up SocGen), stocks jumped... for about 10 minutes and then crashed, leading to an outcome which BMO politely said was "not what Powell had in mind." A less polite observation is that Powell's Fed - which for a few months appeared ready to undo the idiotic boom-bubble-bust policies of previous Fed chairs only to fold like a Made in Wuhan lawn chair after a little pressure from markets - finally shat the bed, and not only deployed a "bazooka" which turned out to be a sad water pistol, but the central bank now has about half the dry ammo it had this morning and stocks are tumbling. And now, in just two short weeks the Committee will be faced with an even more di...

Based on how Japan has fared over the last several decades it is difficult to see the green shoots of a global economic spring forth as a result of lower interest rates. In fact, the next economic downturn will likely envelope the planet and may last forever and a day. This is because central bank intervention and manipulation often carries with it negative unintended consequences. People often forget how lucky Japan has been during its trying times to be located next to China. Because of China's years of booming growth, Japan has been able to mitigate much of the pain that occurred when its economic bubble burst in 1992. In the decades since, Japan's stock market has never again come near the lofty peak it hit back then. During the years after Japan's fall from grace, it was able to soften the impact of its economic problems by strengthening ties with rapidly growing China which needed help in developing its export-driven economy. Today many people feel the global econo...

Commenting on the Fed's emergency rate cut, which while expected was extremely unusual and only the first one since the financial crisis, Obama's chief economic advisor Larry Summers laid out the problem Powell is facing, especially now that the Fed appears to have lost much of its remaining credibility: Fed Risks 'Scaring People' With Rate Cut. My interview today on the Fed's emergency rate-cut on @BloombergTV. When you have limited ammunition you have to conserve it. The Fed has limited ammunition with interest rates so low.  Interest rates don't cure the #coronovarius and interest rates don't repair supply chains. While Larry Summers' opinion has been repeatedly discredited over the years, he does bring up a valid point: why is the Fed wasting half of all of its ammo just to delay what is now an inevitable crash, and why scramble with an "intermeeting" cut when it could have jawboned for the next two weeks and waited until the regular March ...

Stagnating consumption amid the coronavirus epidemic has had a great impact on China's service sector in February, as one would expect. February PMI data signalled the first reduction in business activity across China's service sector on record due to restrictions implemented to contain the recent coronavirus outbreak. Firms across all sectors reported on the damaging effect that the virus was having on the economy via company closures and travel restrictions, with total new orders also falling at a record pace. Restrictions around travel also impacted firms' ability to source workers, leading a renewed fall in staff numbers. Consequently, backlogs of work rose at a substantial pace. Commenting on the China General Services and Composite PMI data, Dr. Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said : "The Caixin China General Services Business Activity Index fell to 26.5 in February, about half the reading of the previous month, marking its fi...

Investors are grossly underestimating the potential economic impact of Covid-19 as the first signs of China's supply chain meltdown are now washing ashore on US West Coast ports.  The Port of Long Beach, the second-largest containerized port in the US, has had two top officials  warn  in the last several weeks of chilling effects of supply chain disruptions from China.  Last week, the Deputy Executive Director of Administration and Operations for the Port of Long Beach Noel Hacegaba  warned  China's economic paralysis led to the increase of blank sails between China and the US. He said port activity plunged in January and February, with expected weakness to continue through March.   Hacegaba said the slowdown at Long Beach is starting to hit the local economy around the port. He said it could only be a matter of time before it triggers a broader slowdown in the region, and even maybe in the overall US economy.  As we've noted in many pieces of  creaking global supply c...

If Tesla was truly a story about  actual economics -  you know, things like demand and production - we might expect the fact that registrations are plunging to have an effect on the company's stock price. But, as it goes, the company's stock is and has been wholly disconnected from reality, which is why at the stock sits currently with a $700 handle, we're certain it won't be phased by the fact that registrations have plunged in top European markets.  For instance, Tesla recorded only 83 new cars in Norway last month, comparing to 1,016 vehicles last year. In the Netherlands, registrations also plunged, down 68% to 155 units , according to Bloomberg . It is not a good look for Tesla, as these are two of the only four countries that Tesla breaks out revenue for on a quarterly basis. For the first two months of the year (and first 66% of the first quarter), registrations were down 77% and 42% in Norway and the Netherlands -  and that was against easy comps.  The Mo...

There's no way IMF's Special Drawing Right, a poorly designed synthetic reserve asset, will replace the U.S. dollar as the world reserve currency. After several years of monetary madness—artificially lowering interest rates to the extent all asset prices are distorted—the world is slowly waking up to the fact that printing money by central banks is a one-way street. Once central banks enter this trajectory (and they have), they can't reverse. Markets have become addicted to cheap money, and central banks feel compelled to print more when the economy, or stock market, weakens. The Federal Reserve, the issuer of the U.S. dollar, is trapped too. Possibly, a paradigm shift in the international monetary system will transpire during the coming economic downturn, and the dollar will lose its status as the world reserve currency. Some analysts proclaim the next world reserve currency is standing ready to replace the dollar. This would be the Special Drawing Right (SDR), issued by ...

The market seems disappointed. After The Fed's 50bps rate-cut sent stocks spiking higher, all those gains have been erased... But the market (and trump) was asking for more and Wall Street does not seem impressed... as the market's dependence in Fed largesse is revealed for all to see ... Matt Maley, an equity strategist at Miller Tabak & Co: "This should be very positive on a near-term basis. If the coronavirus causes the market to roll-back over in the coming weeks (which will confirm that the Fed cannot fight a health-care crisis), it's going to mean that we're headed for a bear market. However, this should be quite positive over the near-term." John Augustine, chief investment officer at Huntington Private Bank: "The Fed responded proactively to the markets, which is very unusual and may be prelude to them also reacting at their scheduled meeting in March. Other central banks are going to respond in the interim," he said. "The mark...