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Something Weird Is Happening on Wall Street, and Not Just the Stock Sell-Off Something Weird Is Happening on Wall Street, and Not Just the Stock Sell-Off
(1 day later)
It has been an unsettling week on global financial markets, and not just because the stock market has fallen sharply enough to bring a decade-plus bull market to an end.It has been an unsettling week on global financial markets, and not just because the stock market has fallen sharply enough to bring a decade-plus bull market to an end.
Underneath the headline numbers were a series of movements that don’t really make sense when lined up against one another. They amount to signs — not definitive, but worrying — that something is breaking down in the workings of the financial system, even if it’s not totally clear what that is just yet.Underneath the headline numbers were a series of movements that don’t really make sense when lined up against one another. They amount to signs — not definitive, but worrying — that something is breaking down in the workings of the financial system, even if it’s not totally clear what that is just yet.
Bond prices and stock prices have moved together, not in opposite directions as they usually do. On a day when major economic disruptions resulting from the coronavirus pandemic appeared to become likelier — which might be expected to make typical market safe havens more popular — many of them fell instead Wednesday. That included bonds of all sorts and gold.Bond prices and stock prices have moved together, not in opposite directions as they usually do. On a day when major economic disruptions resulting from the coronavirus pandemic appeared to become likelier — which might be expected to make typical market safe havens more popular — many of them fell instead Wednesday. That included bonds of all sorts and gold.
And there were reports from trading desks that many assets that are normally liquid — easy to buy and sell — were freezing up, with securities not trading widely. This was true of the bonds issued by municipalities and major corporations but, more curiously, also of Treasury bonds, normally the bedrock of the global financial system.And there were reports from trading desks that many assets that are normally liquid — easy to buy and sell — were freezing up, with securities not trading widely. This was true of the bonds issued by municipalities and major corporations but, more curiously, also of Treasury bonds, normally the bedrock of the global financial system.
People, it is fair to say, are worried about bond market liquidity.People, it is fair to say, are worried about bond market liquidity.
Any one of these moves on its own wouldn’t really matter. Markets can move for all kinds of reasons, most of which affect only the investors and traders involved. But these types of swings give experienced financial market watchers a sinking feeling, the kind last felt widely during the global financial crisis when all kinds of obscure financial markets went haywire.Any one of these moves on its own wouldn’t really matter. Markets can move for all kinds of reasons, most of which affect only the investors and traders involved. But these types of swings give experienced financial market watchers a sinking feeling, the kind last felt widely during the global financial crisis when all kinds of obscure financial markets went haywire.
Suppose you looked at the score of a football game, and it was a 31-3 blowout.Suppose you looked at the score of a football game, and it was a 31-3 blowout.
You would have a pretty good guess about what had happened. The winning team’s offense must have gained huge amounts of yardage, enabling it to score all those points, while its defense was tough and prevented the opposing team from gaining much yardage.You would have a pretty good guess about what had happened. The winning team’s offense must have gained huge amounts of yardage, enabling it to score all those points, while its defense was tough and prevented the opposing team from gaining much yardage.
That guess would usually be correct, but once in a while, when you look deeper into the statistics you might see that the opposite happened — for example, a winning team that scored lots of points despite not gaining much yardage, with an opponent that did the reverse. It would tell you that a deeply strange game had been played.That guess would usually be correct, but once in a while, when you look deeper into the statistics you might see that the opposite happened — for example, a winning team that scored lots of points despite not gaining much yardage, with an opponent that did the reverse. It would tell you that a deeply strange game had been played.
The global financial markets this week, and especially Wednesday, have been that very weird game of football. At some point, the weirdness can be as important as the final score in terms of understanding what is likely to happen in the future.The global financial markets this week, and especially Wednesday, have been that very weird game of football. At some point, the weirdness can be as important as the final score in terms of understanding what is likely to happen in the future.
Consider the most basic two types of assets: stocks and bonds. Normally, especially in times of financial stress, these move in opposite directions. When there is good news and the outlook is bright, it is known as a “risk-on” day, meaning people are comfortable buying risky assets like stocks, driving up their price, while driving down the price of safer assets like bonds.Consider the most basic two types of assets: stocks and bonds. Normally, especially in times of financial stress, these move in opposite directions. When there is good news and the outlook is bright, it is known as a “risk-on” day, meaning people are comfortable buying risky assets like stocks, driving up their price, while driving down the price of safer assets like bonds.
A “risk-off” day is the reverse — a day that investors plow money into safe assets out of fear of what will happen next. It reflects a flight to safety and a reasonable expectation that if conditions worsen, the Federal Reserve is more likely to lower interest rates, which as a matter of arithmetic justifies higher bond prices.A “risk-off” day is the reverse — a day that investors plow money into safe assets out of fear of what will happen next. It reflects a flight to safety and a reasonable expectation that if conditions worsen, the Federal Reserve is more likely to lower interest rates, which as a matter of arithmetic justifies higher bond prices.
That has been an extremely powerful relationship through most of this year and, indeed, most of the 12 years since the global financial crisis. That’s why it was odd that on Wednesday and Thursday, as the S&P 500 was down an astonishing 14 percent, the benchmark 10-year Treasury bond yield rose by about 0.10 percentage points.That has been an extremely powerful relationship through most of this year and, indeed, most of the 12 years since the global financial crisis. That’s why it was odd that on Wednesday and Thursday, as the S&P 500 was down an astonishing 14 percent, the benchmark 10-year Treasury bond yield rose by about 0.10 percentage points.
There has also been a wide gap between the prices of certain “exchange traded funds,” which are easily traded, and the securities on which those funds are based. This is irrational, in theory — the equivalent of a 12-pack of soda selling for more than the price of 12 individual sodas. It suggests two things: sellers desperate to raise cash, and an absence of big banks or hedge funds in position to exploit the mispricing.There has also been a wide gap between the prices of certain “exchange traded funds,” which are easily traded, and the securities on which those funds are based. This is irrational, in theory — the equivalent of a 12-pack of soda selling for more than the price of 12 individual sodas. It suggests two things: sellers desperate to raise cash, and an absence of big banks or hedge funds in position to exploit the mispricing.
Gold futures have been falling, despite gold's historical role as a place for safety during tumultuous economic times. Its price has fallen to $1,610 on Thursday from $1,675 an ounce at Monday’s close.Gold futures have been falling, despite gold's historical role as a place for safety during tumultuous economic times. Its price has fallen to $1,610 on Thursday from $1,675 an ounce at Monday’s close.
All this suggests that major financial players are experiencing a cash crunch, and are selling whatever they can as a result. That would help explain the seeming contradiction of assets that should go up in value in a time of economic peril instead falling in value.All this suggests that major financial players are experiencing a cash crunch, and are selling whatever they can as a result. That would help explain the seeming contradiction of assets that should go up in value in a time of economic peril instead falling in value.
Updated June 5, 2020 Updated June 12, 2020
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.
So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.
Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.
Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.
As the 2008 experience shows, it’s also a type of problem that the Federal Reserve is relatively well positioned to understand and respond to. In its role as lender of last resort, the central bank’s job is to try to prevent a cash crunch in the economy, even if it has to take unusual means to do that.As the 2008 experience shows, it’s also a type of problem that the Federal Reserve is relatively well positioned to understand and respond to. In its role as lender of last resort, the central bank’s job is to try to prevent a cash crunch in the economy, even if it has to take unusual means to do that.
An announcement by the Fed on Thursday afternoon — it plans to inject up to $1.5 trillion in the financial system by the end of the week and begin buying a wide range of Treasury bonds — was meant to ease the strained liquidity. But in the hours after the announcement, there was precious little evidence it had succeeded.An announcement by the Fed on Thursday afternoon — it plans to inject up to $1.5 trillion in the financial system by the end of the week and begin buying a wide range of Treasury bonds — was meant to ease the strained liquidity. But in the hours after the announcement, there was precious little evidence it had succeeded.
In the global financial crisis 12 years ago, the Fed’s response included an alphabet soup of complex programs with names like “Term Securities Lending Facility” and “Primary Dealer Credit Facility.” The programs were meant to pump liquidity into various corners of the financial system. Fed officials are probably spending their days and nights trying to sort out exactly what is going wrong in the current episode and what approach is best for bringing markets toward normal.In the global financial crisis 12 years ago, the Fed’s response included an alphabet soup of complex programs with names like “Term Securities Lending Facility” and “Primary Dealer Credit Facility.” The programs were meant to pump liquidity into various corners of the financial system. Fed officials are probably spending their days and nights trying to sort out exactly what is going wrong in the current episode and what approach is best for bringing markets toward normal.
The volatility in markets in the last few weeks reflects the deep uncertainty about the near future of the world economy. But for now it is being compounded by something strange happening just beneath the surface, creating ripples like the ones that are evident in this tumultuous week.The volatility in markets in the last few weeks reflects the deep uncertainty about the near future of the world economy. But for now it is being compounded by something strange happening just beneath the surface, creating ripples like the ones that are evident in this tumultuous week.