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Comments of the Day
19 March 2020
Video commentary for March 18th 2020
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: risk parity leverage imploding which is contributing to volatlity in everything. Pound and Norwegian Krone accelerate lower, oil remains weak very oversold conditions but recession risks rising.
Global Money Notes #28 Lombard Street and Pandemics
Thanks to a subscriber for this edition of Zoltan Pozsar’s report on global money market liquidity. Here is a section:
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
A point I have made repeatedly over the years is understanding how volatility shapes the size of positions in quantitative funds is essential to understanding market structure. The funds which deploy high leverage by betting on low interest rates and record low volatility look like geniuses when times are good but the deleveraging that arises from a spike in volatility can have a swift effect on both performance and the wider market.
Volatility on both equities and bonds is surging. At the same time the inverse relationship between bonds and equities is breaking down. That is particularly deadly for the much-vaunted risk parity strategy which is experiencing its biggest drawdown in years.
Impact of non-pharmaceutical interventions (NPIs) to reduce COVID19 mortality and healthcare demand
This report by Neil Ferguson and team at Imperial College may be of interest to subscribers. Here is a section:
In the (unlikely) absence of any control measures or spontaneous changes in individual behaviour, we would expect a peak in mortality (daily deaths) to occur after approximately 3 months (Figure 1A). In such scenarios, given an estimated R0 of 2.4, we predict 81% of the GB and US populations would be infected over the course of the epidemic. Epidemic timings are approximate given the limitations of surveillance data in both countries: The epidemic is predicted to be broader in the US than in GB and to peak slightly later. This is due to the larger geographic scale of the US, resulting in more distinct localised epidemics across states (Figure 1B) than seen across GB. The higher peak in mortality in GB is due to the smaller size of the country and its older population compared with the US. In total, in an unmitigated epidemic, we would predict approximately 510,000 deaths in GB and 2.2 million in the US, not accounting for the potential negative effects of health systems being overwhelmed on mortality.
For an uncontrolled epidemic, we predict critical care bed capacity would be exceeded as early as the second week in April, with an eventual peak in ICU or critical care bed demand that is over 30 times greater than the maximum supply in both countries (Figure 2). The aim of mitigation is to reduce the impact of an epidemic by flattening the curve, reducing peak incidence and overall deaths (Figure 2). Since the aim of mitigation is to minimise mortality, the interventions need to remain in place for as much of the epidemic period as possible. Introducing such interventions too early risks allowing transmission to return once they are lifted (if insufficient herd immunity has developed); it is therefore necessary to balance the timing of introduction with the scale of disruption imposed and the likely period over which the interventions can be maintained. In this scenario, interventions can limit transmission to the extent that little herd immunity is acquired – leading to the possibility that a second wave of infection is seen once interventions are lifted.
Eoin Treacy's view
Here is a link to the full report.
A friend in San Francisco was skiing in Colorado last week with ten friends. They are all now sick and one has been diagnosed. On Monday he was feeling ill and running a temperature of 103 so he called the CDC. They called back in about half an hour, told him to shelter in place, avoid the ER and gave him an appointment to be tested three days later. Today he is having difficulty breathing and still has not been tested.
Email of the day on the 10-year - 3-month yield curve spread
the 10yr-3mth graph for US Treasury bills....is it available in the Chart Library? What is its Bloomberg symbol? Thanks in advance for any info.
Eoin Treacy's view
Thank you for this question. If you go to the Chart Library you will now find this spread using “yield curve spread” as your search parameter.
Eoin's personal portfolio: last updated March 16th
Eoin Treacy's view
One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.