A great analysis of the present moment for the market at large.

As shared by Cameron Crise:

Subject: Today’s Crash Will Be One for the History Books: Macro Man

Today’s Crash Will Be One for the History Books: Macro Man

(Bloomberg) -- For a number of years, grumpy market veterans have grumbled that the young men and women manning many of today’s trading desks haven’t been properly stress-tested in the crucible of crisis-like conditions. Complain no longer, my friends, because things have gotten very crazy very quickly, and in some markets it exceeds anything that we saw “back in the good old days.” I don’t know how Monday will eventually pan out once the final scores are tallied, but at the time of writing everything looks incredibly grim. Barring a miraculous comeback in everything, oil’s “Black Sunday” and the following day’s repercussions may well go down in the history books. 

• There are times for sober analysis, and there are times for running to the nearest foxhole. In a sense, it doesn’t matter how crazy some of the market pricing may be; it can always get crazier. If you are a mark-to-market trader, in some ways it doesn’t matter if the asset you’re looking at has a great expected return on a one-year hold-to-maturity basis if you step in too early ... and thus aren’t around to reap the rewards of the eventual normalization. If you have the wherewithal to warehouse the risk, then great, but remember: in markets like this, rational price forecasts are worse than useless.
• It obviously doesn’t add much value to present a list of superlatives here, but let’s just say that none of you have seen a bond market like this. The rally in Treasuries is unlike anything observed for the last 40-plus years, and market pricing suggests a nuclear winter for the finance industry. Thirty-year OIS swaps in the U.S. are now trading where Japan’s were in mid- January, when the coronavirus first hit the global consciousness. That looks like a great fade, for sure ... but I would have thought the same thing 70 bps ago. Life moves pretty fast, and in this market your first priority is to stick around to see tomorrow.
• There have been a few attempts to spin the oil-price collapse as a positive, and if this were 1980 I’d be inclined to agree with that take. But the evidence of the last oil price crash is a little inconclusive. The initial crash from $100/bbl to $50/bbl or so does appear to have stimulated consumption, but the next phase of the drop down into the $20s had much less impact. Meanwhile, there was a clear headwind from reduced investment in exploration, etc. It’s true that mining and gas exploration investment has never fully recovered from that episode, so there will be less negative contribution to GDP as a result of this oil decline. However, non-financial corporate debt has risen from $8 trillion to $10 trillion since the end of 2015, so markets are more vulnerable than ever to a credit event. Oil is now well through the level where the impact on high yield goes parabolic.
• Meanwhile, European banks are “enjoying” their second-worst day ever, which speaks to how unstimulative much of the supposed monetary stimulus actually is once you reach zero rates and below. Markets clearly expect the Fed to slash rates again forthwith, and given the price action I suppose that’s close to inevitable. Insofar as the Fed or any other central bank can have an impact, though, it’s likely to be via ensuring the efficient (or at least effective) transmission of credit through the economy, though whether this should extend to buying up the junk bonds that low rates encouraged is perhaps another question.
• What we can say, though, is that carry -- the cornerstone of both banking and investment portfolios -- has been brutalized. A simple metric for the vol-adjusted carry of cash bonds (comparing the U.S. 10-year yield to the 200-day volatility of a total return index) has unsurprisingly collapsed, and is now the worst ever. How bad is it? Well, MXN/JPY is down some 10% today, and that currency pair STILL has a better carry-to-vol ratio than Treasuries!
• Obviously, this is an overly simplistic view of carry, but it reflects the zeitgeist where return of capital now trumps all short-term considerations of market gains. Eventually things will quiet down, of course, but who knows when and from where. For those constrained by daily P/L considerations, adding risk a day late will almost certainly be better than adding it a day early. In the meantime, when possible try to stop and look around. When all is said and done, this episode is going down in history.

Indeed, a grim moment. Let's see how things will pick up with the adopted stimulus from the various players of the market to come.