The Dollar Panic Nobody Seems to Grasp

Posted Mar 17, 2020 by Martin Armstrong

The moves by the Fed on the weekend were really stupid. The market plunged for 2 days since their emergency measures and this is what undermines confidence. When capital begins to witness the failed measures by central banks as we have warned, this sets the stage for the slingshot which requires the sudden shock of the incompetence of central banks to manage the economy. This is the gist of the Central Bank Crisis. Reuters reported: Markets crater as coronavirus fears overwhelm central bank emergency measures.

The demand for dollars has turned to a dollar panic taking place in the currency derivative markets which has escalated into a multi-year high. The Fed is responding trying to inject even more cash into the Repo Markets. This Liquidity Crisis our computer was projecting is becoming far worse than 2008 or 1998. The Fed’s attempt to return to its origins using the Commercial Paper Funding Facility (CPFF) in the United States should help corporations and this WILL prove to be more effective than the interest rate cuts and cash injections in central banks because (1) banks will hoard the cash and not lend (2) corporations need the cash or else they will have to layoff millions of workers as the press has created the potential for a Great Depression due to their total irresponsibility.

FX implied dollar borrowing costs have been blowing out as banks held on to their dollars and refused to lend as always despite the rise in demand of corporates for shorter-dated cash and a possible spike in loan defaults. I have been recommending that the Fed return to direct measures. I have been screaming this solution in Washington was vital for handing cash to banks results only in their hoard of cash – i.e. excess funds facility.

Only the CPFF offers direct funding in the very core economic sector under tremendous stress because of the irresponsible press. The corporate sector as the real economy which stands completely disrupted and aggressive monetary policy actions alone will not help. The central banks have lost real control and it is only a question of time before more people realize that the government is incapable of saving the system.

Three-month euro/dollar three-month FX swap spreads EURCBS3M=ICAP reached their widest since the 2011 Eurozone debt crisis at 124 basis points, then narrowed to around 59 bps. The rate had been around 20 bps in early March. The wider this spread has moved indicates market participants are willing to pay a higher premium for dollars. Moreover, the pound/dollar GBPCBS3M=ICAP swap spread narrowed to 53 bps after ballooning to 90 bps earlier, which was the widest since December 2008. Turning to Japan, the dollar/yen basis swap showed investors paying premiums over interbank rates to swap yen into three-month dollars. This too tightened to 95 bps JPYCBS3M=TKFX from 140 bps earlier.

The fact that these swap spreads have widened so much illustrates what I have been warning about that we have a Central Bank Crisis for whatever efforts they may make to keep cash flowing confirms that the press has been so irresponsible that they have singlehandedly undermined the entire global economy. The world is in serious trouble and the demand for dollars is tremendous. Many were borrowing yen for leveraged trading and they have been wiped out fueling the demand for the dollar.

Despite the Fed’s 100-basis-point cut on Sunday, some of the biggest banks in the United States will now access the Fed’s discount window in desperate need of emergency liquidity. On Tuesday, the Japanese central bank also pumped $30 billion into markets with an 84-day dollar funding operation. This was the biggest injection since late 2008.

Dr. Wolfgang Wodarg Confirms this is an Insane Panic

Posted Mar 18, 2020 by Martin Armstrong

What has taken place with this coronavirus is absolutely insane. This is seriously disrupting the entire world economy. We are staring into the eyes of a very serious Great Depression that will topple governments all because of an overreaction and hyping of this virus. Far more people die of the flu and even smoking than this virus. We do not shut down commerce because of such diseases.

I am bringing together all the economic forecasts. I will release this ASAP. Since this is an economic forecast rather than a market forecast, this is something for the general public. The price on this will be $9.95 in a downloadable file

Fake News & Coronavirus Panic – The Press Must Be Held Accountable!

Posted Mar 18, 2020 by Martin Armstrong

The Coronavirus Panic has been caused by FAKE NEWS and the press MUST be held accountable. The press is acting irresponsibly and has turned this virus into a major scare. They criticize any politician who dares to disagree as reflected in the Washington Post’s headline:

“As much of America takes drastic action, some Republicans remain skeptical of the severity of the coronavirus pandemic”

There should be an investigation of the press and restoration of the FCC Fairness Doctrine. This is so critical at this time. The press is NOT responsible and MUST be forced to present both sides.

Trump should IMMEDIATELY reinstate the Fairness Doctrine in the media that once existed at the FCC. The Fairness Doctrine was a policy of the United States Federal Communications Commission (FCC), introduced in 1949, that required the holders of broadcast licenses both to present controversial issues of public importance and to do so in a manner that was — in the Commission’s view — honest, equitable, and balanced. The FCC eliminated the Fairness Doctrine in 1987 and in August of 2011, the FCC formally removed the language that implemented the doctrine.

Expand this doctrine to print media – all newspapers! They lose their license if their reporting remains unbalanced and filled with propaganda. Freedom of the press is not the freedom to report only what they want in the way they want. If they claim to be reporting news, then it has to be the unbiased news. Opinion is for op-eds and they must report both views. STOP THE PROPAGANDA NOW!

The NY Post in New York City wrote an article calling out, “American journalism is collapsing before our eyes.” Indeed, journalists now come in near the bottom of the poll that ranks public respect for professions, according to Gallup Polls. Indeed, the NY Post reported the truth that is so obvious to us all that the media is more interested in hating Trump than reporting news. It’s time to clean up the press, and not just drain the swamp. They swim in the same stench.

The Coronavirus Panic & the Dollar Panic. Not bank but industry panic

Posted Mar 17, 2020 by Martin Armstrong

Following Mondays near 3k point drop in the DOW, today’s attention is brought back to the Repo market and the demand for US Dollars is off the charts! In the FX market, there has been significant demand for dollars with aggressive bids seen against the Euro -9, GBP -7 and CHF -10 for T/N (Tomorrow Next). This has also been reflected in the spot market, as people’s attention turned back to a month and quarter-end.

The banning of short selling in the Euro government bond market only increases the fear of the unknown. If you can’t sell the bonds, you sell what you can and that this morning it has been the currency in Europe. Back in the late 1980’s, when the Nikkei had peaked, we saw corporate spreads actually trade through government paper. Interesting that the FED is now providing assistance in the Commercial Paper market, offering support at 3M +200bp. Good quality paper will find bids in dollars, it just takes time. However, when panic selling hits – the time is the one commodity that is never on offer!

The Fed offering at least $1.5 trillion worth of short-term loans to banks did not save the day. The market still plunged showing the Fed is now powerless as is the case with all central banks. We are facing the collapse of Keynesian Economics where manipulating interest rates no longer works to stimulate the economy.

The government’s economic stimulus is set to quickly balloon into a trillion-dollar bailout in the coming days, which will be the largest rescue in modern American history. Instead of banks, this time we are dealing with major industries as they are screaming loudly to the Trump administration and Capitol Hill for aid. Vasts portions of the economy have been undermined by this coronavirus scare which the press has turned into a financial pandemic when the number of deaths are under 8,000 compared to 1 million annually between smoking and the flu. The press has unleashed an unprecedented economic crisis and they really should be haled in to account for what they have done.

In Britain, they are asking those 70 years or older to self-quarantine for 4 months! Borris Johnson’s father was on the radio and was asked if he will comply with that and he said no way. He would still go down to the pub.

Because Europe has been in the austerity philosophy and negative interest rates since 2014, there is a panic unfolding for dollars. We see this building from clients making markets even in the Middle East. Right now, the dollar is by no means “trash” but KING! The number of institutions now clamoring for help is skyrocketing. All the Relative Value Desks and Correlation Desks have been blown out of the water in the last week.

Marx v Aristotle

Posted Mar 17, 2020 by Martin Armstrong

QUESTION: Mr. Armstrong, you said that Marx was influenced by Aristotle. I have never heard that before. Would you care to explain?

HF

ANSWER: Aristotle recognized that the economy evolves, and to some degree, this also takes place with the generational shift in thinking. Aristotle’s writings actually influenced Karl Marx, for he was complaining about the evolution of Athens’ economy. Aristotle saw that Athens was emerging as the Financial Capital of the World. Athens was experiencing a Market Economy and this altered what I call the Villa Economy.

Traders emerged in Athens and were offering farmers to produce more crops than they needed so they could export them to other regions. This altered society by transforming it into a Market Economy compared to the self-sufficient Villa Economy. Aristotle called these people those who made money from money. Aristotle also wrote:

The life of money-making is one undertaken under compulsion, and wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else.

• • Book I, 1096.a5

Marx was influenced by this observation which led to his eventual ideas of communism (Villa Economy) against capitalists (Market Economy). Marx was studying Aristotle’s works at the British Library in London.

Fed Announcement – Speaking in Tongues. Shadow repo market and CPs

Posted Mar 15, 2020 by Martin Armstrong

QUESTION: Marty, you recently said that there was a shadow repo market. Nobody has ever heard of this. In the Fed’s statement, there is a curious announcement that’s talking about coordinated swap lines. They also said: ” both a collateralized and uncollateralized basis, to support the provision of liquidity to households and businesses and the general smooth functioning of payment systems.” Is this the commercial paper you are talking about?

ML

ANSWER: Yes. They call this “coordinated swap lines” between central banks. It is the shadow uncollateralized Repo Market. They are now coordinating this with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank. In other words, the Fed is providing liquidity to other central banks. I have said before. They actually had red phones connecting the central banks after the Plaza Accord. I was sitting there in the room when one of those red phones started to ring. I just call it the shadow Repo Market.

The “uncollateralized” loans mean commercial paper other than government treasuries.

Never Let a Good Crisis Go to Waste

Posted Mar 15, 2020 by Martin Armstrong

QUESTION: Do you think there is some single plot behind this Coronavirus scare?

SH

ANSWER: No. It seems that there are a lot of people using this Coronavirus for personal political agendas. Illinois Tollway is now using it to implement All-Electronic Tolling as Precaution Against Spread of Coronavirus. You have others in Europe saying they should be nationalizing companies since they cannot be bailout under EU rules. Others are using it and blaming Trump as if any government can really prevent such a pandemic.

I do not think this is a single-minded plot. However, history also demonstrates that they will always take advantage of a good crisis. In Europe, the central bank is already at negative rates. There is nothing left for them to do. This is now turning to emergency political measures. The drive to use this as the excuse to eliminate paper currency is a side-benefit on their wish list and this does provide the excuse to justify that action.

Whatever measures you see, they rarely ever reverse. They tend to be permanent.