Faber News Flow

Federal Reserve officials are increasingly turning to big data to provide them with a more accurate snapshot of the economy,  AP News reports .  The first evidence of this was during a government shutdown last year when officials turned to First Data, a payments firm that processes $2 trillion in transactions per year, for credit card data to gauge the health of the consumer, as it was evident the Fed was flying blind with most of its consumer datasets halted because of the shutdown.  "It was a big deal for the Fed in terms of having information about the economy when the retail sales data did not come out," said Claudia Sahm, a former Fed analyst who compiled the First Data consumer data for officials during the shutdown. Officials were "extremely interested in what those readings were." The Fed is becoming aware that government data to assess the status of the business cycle is not as accurate as thought, and the 106-year old central bank must leap into the 21st c...

As we have been detailing all week,   this has been the worst period for Risk-Parity (or vol-targeting) funds in history, with a massive breakdown in the stock-bond correlation from historical 'norms'... Causing  Risk Parity funds in particular are to suffer the worst 4 day period on record. However, as Nomura's Charlie McElligott believes,  vol-targeting funds have essentially nothing left to sell in the Equities-space, "only" -$7.4B sold yday in US Eq, as the aggregate Equities $exposure is currently "0 %ile" since 2000 CTAs are almost entirely -100% Short across the Global Equities futures strip with the exception of Nasdaq  ("just" -64% Short), and have added leverage into the move lower in recent days. However it is actually possible that  further extension of today's violent rally is at risk of triggering "mechanical" covering, with levels to buy "feasibly" within range over coming days,  and in light of this ...

 Yesterday ed pointed out the surprising collapse in both stock and bond prices in yesterday's markets, suggesting strongly that a Risk-Parity fund must have blown up, being forced to delever. As Morgan Stanley notes,  there are signs of a breakdown in stock-bond correlation , with stocks underperforming 10-year yields by nearly 5 standard deviations yesterday.  This puts  stress on all multi-asset portfolios , but  Risk Parity funds in particular are likely struggling, having the worst 3 day period on record... As a reminder,  Risk Parity funds are the class of the systematic strategies that are likely still running high leverage  – 50th %ile since 2012 and 70th %ile since 2005 on QDS's model.  This means  they could have $10bn or more of stock to sell/day  in these kinds of environments – and since they often will be  selling stocks and bonds together,  their flow can reinforce correlation breakdowns like we are seeing here.  Also note that a stock-bond correlation breakdown ...

The delicate balancing act to protect wealth is now in full crisis mode. The key players are central banks across the world and the corrupt bankrupt governments they seek to protect.  At risk is the global financial system that has served them so well over the decades.  For years these so-called guardians of the economy have siphoned wealth away from the many and into the hands of a few.  Now unless they can pull a few more rabbits out of their hats rubber may hit the road. President Donald Trump announced in a White House news conference that he would seek payroll tax relief and other measures to help businesses deal with the coronavirus outbreak.  The Associated Press reported  Trump said they were discussing "a possible payroll tax cut or relief, substantial relief, very substantial relief, that's big, that's a big number,"  Administration officials said the White House wasn't ready to roll out specific economic proposals, CNBC reported. Trump also said he was ...

In a stunning report published this morning by BofA's Marc Cabana, the rates strategist warns that the US Treasury market is no longer functioning properly, and will "likely requires a rapid & large near-term policy response from the US Treasury or Federal Reserve" to get back to normal. Prompting BoA's stunning admission that the world's most liquid market appears broken, was the unexpected plunge in Treasury futures which we  discussed yesterday ... ... with Cabana perplex by the 11bps surge in 30Y bond yield even as the S&P declined 5%: " In a risk off environment it would be expected to see UST yields decline; yields appear to have been overwhelmed by liquidity concerns yesterday. " Of course, it's not just yesterday's late day puke: as we noted earlier, the funding market itself is starting to freeze up, with the FRA/OIS, i.e., bank dollar funding stress indicator, exploding to the highest since the financial crisis... ... and globa...

Despite the constant imploring from administration officials that all is well... "We see no material impact on our economy,"  Larry Kudlow, director of the National Economic Council Director, told Fox Business Network. Almost 75% of companies have reported supply chain disruptions as a result of coronavirus disease , or COVID-19, according to a new  survey released by the Institute for Supply Management (ISM) .  Additionally, the first-round results of the survey focused on the effects of COVID-19 on business and supply chains, show that  more than 80% of companies expect to experience some impact because of COVID-19 disruptions . "The story the data tells is that companies are  faced with a lengthy recovery to normal operations  in the wake of the virus outbreak," said Thomas Derry, CEO of ISM. " For a majority of U.S. businesses, lead times have doubled, and that shortage is compounded by the shortage of air and ocean freight options to move product to the Un...

"In terms of unconvincing rallies, yesterday takes the Tunnock's Caramel Wafer – Scotland's National Biscuit."  During the last crisis we reassured ourselves there was a firm hand on the tiller, that the great ship of the global economy was being steered away from the rocks and the lee shore on which it so nearly beached itself.   Experts from the central banks, governments, finance and regulators pulled together with common purpose and steered us through - not without significant consequences, which we still suffer from today in terms of market distortions. Investors Make Plans for More Market Volatility So…. does an emergency 50 bp rate cut by the Bank of England to "support business and consumer confidence" fill you with confidence all is well with the World and we are going to miss the sharp pointy rocks?  Are you going to put your buying boots on because the BoE has made stocks look relatively better return value than Gilts… or are you going to critical...