5:50: In this latest issue of my weekly podcast, I discuss which equities crashed and by how much. Energy and financials have fallen the fastest. Energy due to the plunge in oil prices, and financial due to the plunge in the yield curve. Around the rest of the world, the equity plunge was equally steep. The Global Dow is down 15.2% over the last 10 days and was down 7.7% yesterday. The markets that have fallen the most are mainly emerging market countries in Latin America and the weaker economies of Europe.
10:20: Last Tuesday, the FOMC enacted an emergency rate cut of half a percent. And yes, on cue, the yield curve de-inverted. But here's the interesting thing. If the Fed Funds rate had simply sunk to the Fed's lower bound of 1.0%, we would still be brutally inverted given how far the 10Y has gone down. Typically, when the markets are not expecting any future Fed cuts or hikes, the 3M Treasury yield should be very close to the overnight Fed Funds rate. Undoubtedly, the markets think that the overnight Fed Funds rate will soon be lower. Much lower. Are you prepared for the possibility that the Fed could be hitting the zero bound on near-term rates by as early as March 18… or April 29?
18:45: How much will the virus slow down the global economy? We can't yet measure what it's doing to economic activity outside of China because the spread has been too recent. But we do have some idea of what has happened inside China. Their PMIs came in last week for February at the lowest levels ever seen. the Caixin Manf PMI was 40.3; it has never before been below 47. The Caixin Services PMI was 26.5; it has never before been below 50. Right now, the data on subway traffic, rail and plane tickets, migrant traffic, and so on indicates that people are still very slow to return to work and that the deep freeze is still on.
23:20: The price of crude oil sank. What set the stage for the drop was steady downward global pressure on oil consumption and prices over the last 18 months, due to cooling global trade and industrial production. But what delivered the sudden hit was Russia's refusal to go along with Saudi Arabia's steady plan to ratchet down oil exports. Why did Russia refuse? Apparently, Putin is furious that American shale oil producers are getting a free ride from all this production cutting by OPEC and its Vienna Group allies. U.S. producers sure aren't cutting their production. Putin thinks that a somewhat lower price would put a lot of high-cost U.S. producers out of business.
37:30: Is it all over for Sanders? The odds favor Biden, but Sanders still has a shot. All eyes are on the Michigan primary. If Bernie loses Michigan by a significant margin, well then maybe we can start really marking down his odds. But if he wins or comes close, his campaign could recapture vital momentum. Right now, Biden is ahead in the polls in Michigan by 22 pp. But remember, that was exactly how much Hillary Clinton was ahead of Bernie in the state back in 2016--when Bernie staged an amazing come-from-behind victory and beat her.
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