No bottom in stocks or the economy until the test kits are ubiquitous.   We believe markets want an aggressive plan and action to treat the disease rather than focusing on the symptoms. Then markets will take care of themselves and find their appropriate levels.

WTF?  Where Are The Test Kits?

True story. A family member receives a text on the way to work this morning that her boss has a fever of 102 degrees with a diagnosis that she “ticked all the boxes for COVID-19.” They couldn’t test her because they didn’t have the test kits and she was put in quarantine for two weeks.

The Fed Steps Up

By the way,  this is from our Sunday night post, What Every Market Player Should Now Be Contemplating,

Can the U.S. government finance its $1.2 trillion plus annual deficits with an entire yield curve at less than 1 percent?  

We seriously doubt it and the Fed is going to have to step-up big time with QE, non-QE, or let’s just call it for what it is, monetization.

These yields are distorted and not true market rates, and now have become Airbnb rentals driven by haven flows, the MoMo crowd and ‘bots, and a proxy for stock shorts.

Long-term investors?  Think rent control distortions.   We will be closely monitoring  the monthly auctions for real demand.  – GMM,  March 8th

No Trillion Dollar Issuance At “Fake Yields”

After two shitty bond auctions this week showing tepid demand, bid/offer spreads blowing out in Treasury securities, and the 10-year yield spiking from 0.39 percent to 0.85 percent, the Fed steps up big time today.

The Federal Reserve Bank of New York will start adding fresh capital to money markets on Thursday to pad against coronavirus risks and ease stresses on the Treasury-bill market.

The extraordinary funding measure first involves a $500 billion injection at 1:30 p.m. ET on Thursday, the bank said. The cash will be added to money markets through a three-month market repurchase agreement, or repo operation.

One-month and three-month repos for $500 billion each will be conducted on Friday and continue to be offered weekly through the calendar month, the bank added.  – Market Insider

The term “capital” is a bit misleading, in our opinion.

Upshot

Marginal buyers, such as haven flows, momentum algos, and stock shorts using bonds as a proxy, who determine the price or bond yield on your screens, can set rates at zero or below.  But that is not a price or yield where $1 trillion-plus of new securities can be issued or where the market can liquidate an enormous position.

Just think of the S&P500 level at the peak of 3393-ish.  Marginal buyers drove the price there — irrationally in our view — and we all marked our positions and investments at that level but, in reality, it was not a level where all could liquidate.

Stay tuned as we are working on a more in-depth piece on this very important subject. We suspect all the distortions created by monetary policy and government intervention to prop up markets are coming home to roost at the worst time possible.

Marginal buyers set prices.  Make sure you know who are the marginal buyers.

Good night and good luck.