Senate Unanimously Passes $2T Stimulus Package

The Senate unanimously passed a massive stimulus package late Wednesday night in an effort to jumpstart the US an economy. As reported in The Hill

The bill provides more than $2 trillion for workers, small business and industries impacted in recent weeks by the virus. 

The bill marks an unprecedented attempt by the federal government to revive the economy and prevent a deep recession. The 2008 Troubled Asset Relief Program (TARP), by comparison, was $700 billion. 

The Senate’s vote comes one week after they passed a $104 billion “phase two” coronavirus package. 

The wide-reaching bill includes a $1,200 one-time check for individuals who make up to $75,000. That amount would scale down until it reached an annual income threshold of $99,000, where it would phase out altogether.  

It also provides $377 billion in small business aid, would defer federal student loan payments through Sept. 30, 2020, and would prevent money given under the bill to the Pentagon to be transferred to the border wall.  

The bill also provides $100 billion for hospitals and $200 billion for other “domestic priorities,” including child care and assistance for seniors. 

The unemployment provision includes four months of boosted unemployment benefits, including increasing the maximum unemployment benefit by $600. 

The 700-plus page bill includes a $500 corporate liquidity fund to corporations; $25 billion would be set aside for U.S. airlines, $4 billion for air cargo carriers and $17 billion for other distressed companies related to critical national security. 

Is There Still A Property Market Front Line? – With Chris Bates

Financial Adviser and Mortgage Broker Chris Bates and I discuss the late breaking news about property. Who are the winners and losers?

Chris can be found at www.wealthful.com.au & www.theelephantintheroom.com.au plus via LinkedIn: https://www.linkedin.com/in/christopherbates

CBA Provides Advice To Customers

A large scale communication campaign has been launched by CBA to clearly address customers’ most common questions and concerns. It is one of the clearest I have seen yet, and provides some really helpful advice. Kudos to them on their Financial Guide for Customers.

In what is a concerning and confusing time for many Australians, Commonwealth Bank is launching a mass coronavirus communication campaign from today, across all mainstream and social media channels, to help customers access the support and information they need.

CBA’s financial assistance contact centres are currently receiving up to eight times the usual call volumes with a significant number of customers wanting information on how to access support from CBA as well as the recently announced Government assistance measures as they face job loss and business closures.  

This new campaign, centred on a detailed Financial Guide for Customers, aims to provide clear, concise, consistent and reliable information to help customers navigate the large volume of recent announcements, as they try to comprehend what support they are eligible for and how to access it quickly.

Customers are also looking for reassurance as well as the tools that will help them regain control of their financial wellbeing.

With the Federal Government designating banking as an essential service, Commonwealth Bank intends to keep as many of its branches open as possible while also encouraging customers to use digital banking for all banking needs other than those for which a visit to a branch is unavoidable. Branches have a range of safe distancing, health and hygiene measures in place.

At such an important time for customers in need, CBA will do whatever it can to help keep as many businesses afloat, as many people in jobs, and as many people in their homes, as possible.

The new Financial Guide will be regularly updated in its easy-to-read format and is available at www.commbank.com.au/coronavirus. 

Australian Businesses Report Widespread Impacts In March


The Australian Bureau of Statistics (ABS) has released the results of the first Business Impacts of COVID-19 survey as part of a series of additional product releases over the coming months to help measure the economic impact of coronavirus.

This release provides information on the prevalence and nature of adverse impacts from COVID-19 experienced by businesses operating in Australia in mid-March 2020.

Approximately half of the Australian businesses surveyed (49%) had experienced an adverse impact as a result of COVID-19 during the mid-March data collection period and 86% of businesses expected to be impacted in future months. The collection period pre-dated the Australian Government’s announcement of Phase 1 Social Distancing Measures.

Adverse impacts were most prevalent in Accommodation & food services with over three quarters of businesses (78%) already reporting impacts and 96% of businesses reporting that they expected impacts in coming months. Businesses in Professional, scientific & technical services (21%), Electricity, gas and water supply (34%) and businesses in Mining (37%) were the least likely to have been adversely impacted by COVID-19 in the collection period.

A reduction in local demand was the most common impact experienced (82%) and was also the most common impact expected in coming months (81%). Of impacted businesses, over a third had experienced staff shortages (36%) and 59% expected to experience staff shortages in coming months.

White House, Senate $2 Trillion Deal Done

The White House and Senate leaders reached a deal early Wednesday morning USA time on a massive stimulus package they hope will keep the nation from falling into a deep recession because of the coronavirus crisis, reports The Hill.

The agreement caps five days of intense negotiations that started Friday morning when Senate Majority Leader Mitch McConnell (R-Ky.) convened Republican and Democratic colleagues, with talks stretching late into the evening each of the following four days.

The revamped Senate proposal will inject approximately $2 trillion into the economy in the form of tax rebates, four months expanded unemployment benefits and a slew of business tax-relief provisions. The deal includes $500 billion for a major corporate loan program through the Federal Reserve, a $367 billion small business rescue package, $130 billion for hospitals and $200 billion for other “domestic priorities,” such as transportation, veterans, child care and seniors.

The bill will give a one-time check of $1,200 to Americans who make up to $75,000. Individuals with no or little tax liability would receive the same amount, unlike the initial GOP proposal that would have given them a minimum of $600.

“At last we have a deal. … the Senate has reached a bipartisan agreement,” McConnell declared during a speech on the Senate floor after 1:30 a.m.

“We are going to pass this legislation later today,” he added.

Hundreds of billions of dollars in buffer capital for the Treasury Department will allow the Fed to hand out an additional $4 trillion in loans to distressed companies such as U.S. airlines and Boeing, the nation’s leading airplane manufacturer. Their stocks have been hit the hardest in the recent stock-market selloff that had erased the gains made since President Trump took office.

The Fed loan program, which Democrats bashed as a corporate bailout program and Mnuchin’s “slush fund,” was one of the biggest sticking points during the late rounds of the negotiations. 

Republicans argued the Treasury Department needed $500 billion to help the Fed inject enough liquidity into the economy, while Democrats were enraged over a provision they said would let Mnuchin provide loans and guarantees and then wait six months before disclosing who got the assistance.

The S&P 500 Futures was little changed after the news.

A Speedy Journey Downward

This trifecta of risks – uncontaminated medical emergencies, insufficient economic-policy arsenals, and geopolitical white swans – will be enough to tip the global economy into persistent depression and a runaway financial-market meltdown. After the 2008 crash, a forceful (though delayed) response pulled the global economy back from the abyss. We may not be so lucky this time.

From Project Syndicate. The shock to the global economy has been both faster and more severe than the 2008 global financial crisis (GFC) and even the Great Depression. In those two previous episodes, stock markets collapsed by 50% or more, credit markets froze up, massive bankruptcies followed, unemployment rates soared above 10%, and GDP contracted at an annualized rate of 10% or more. But all of this took around three years to play out. In the current crisis, similarly dire macroeconomic and financial outcomes have materialized in three weeks.

Earlier this month, it took just 15 days for the US stock market to plummet into bear territory (a 20% decline from its peak) – the fastest such decline ever. Now, markets are down 35%, credit markets have seized up, and credit spreads (like those for junk bonds) have spiked to 2008 levels. Even mainstream financial firms such as Goldman Sachs, JP Morgan and Morgan Stanley expect US GDP to fall by an annualized rate of 6% in the first quarter, and by 24% to 30% in the second. US Treasury Secretary Steve Mnuchin has warned that the unemployment rate could skyrocket to above 20% (twice the peak level during the GFC).

In other words, every component of aggregate demand – consumption, capital spending, exports – is in unprecedented free fall. While most self-serving commentators have been anticipating a V-shaped downturn – with output falling sharply for one quarter and then rapidly recovering the next – it should now be clear that the crisis is something else entirely. The contraction that is now underway looks to be neither V- nor U- nor L-shaped (a sharp downturn followed by stagnation). Rather, it looks like an I: a vertical line representing financial markets and the real economy plummeting.

Not even during the Great Depression and World War II did the bulk of economic activity literally shut down, as it has in China, the United States, and Europe today. The best-case scenario would be a downturn that is more severe than the GFC (in terms of reduced cumulative global output) but shorter-lived, allowing for a return to positive growth by the fourth quarter of this year. In that case, markets would start to recover when the light at the end of the tunnel appears.

But the best-case scenario assumes several conditions. First, the US, Europe, and other heavily affected economies would need to roll out widespread testing, tracing, and treatment measures, enforced quarantines, and a full-scale lockdown of the type that China has implemented. And, because it could take 18 months for a vaccine to be developed and produced at scale, antivirals and other therapeutics will need to be deployed on a massive scale.

Second, monetary policymakers – who have already done in less than a month what took them three years to do after the GFC – must continue to throw the kitchen sink of unconventional measures at the crisis. That means zero or negative interest rates; enhanced forward guidance; quantitative easing; and credit easing (the purchase of private assets) to backstop banks, non-banks, money market funds, and even large corporations (commercial paper and corporate bond facilities). The US Federal Reserve has expanded its cross-border swap lines to address the massive dollar liquidity shortage in global markets, but we now need more facilities to encourage banks to lend to illiquid but still-solvent small and medium-size enterprises.Subscribe now

Third, governments need to deploy massive fiscal stimulus, including through “helicopter drops” of direct cash disbursements to households. Given the size of the economic shock, fiscal deficits in advanced economies will need to increase from 2-3% of GDP to around 10% or more. Only central governments have balance sheets large and strong enough to prevent the private sector’s collapse.

But these deficit-financed interventions must be fully monetized. If they are financed through standard government debt, interest rates would rise sharply, and the recovery would be smothered in its cradle. Given the circumstances, interventions long proposed by leftists of the Modern Monetary Theory school, including helicopter drops, have become mainstream.1

Unfortunately for the best-case scenario, the public-health response in advanced economies has fallen far short of what is needed to contain the pandemic, and the fiscal-policy package currently being debated is neither large nor rapid enough to create the conditions for a timely recovery. As such, the risk of a new Great Depression, worse than the original – a Greater Depression – is rising by the day.

Unless the pandemic is stopped, economies and markets around the world will continue their free fall. But even if the pandemic is more or less contained, overall growth still might not return by the end of 2020. After all, by then, another virus season is very likely to start with new mutations; therapeutic interventions that many are counting on may turn out to be less effective than hoped. So, economies will contract again and markets will crash again.

Moreover, the fiscal response could hit a wall if the monetization of massive deficits starts to produce high inflation, especially if a series of virus-related negative supply shocks reduces potential growth. And many countries simply cannot undertake such borrowing in their own currency. Who will bail out governments, corporations, banks, and households in emerging markets?

In any case, even if the pandemic and the economic fallout were brought under control, the global economy could still be subject to a number of “white swan” tail risks. With the US presidential election approaching, the crisis will give way to renewed conflicts between the West and at least four revisionist powers: China, Russia, Iran, and North Korea, all of which are already using asymmetric cyberwarfare to undermine the US from within. The inevitable cyber attacks on the US election process may lead to a contested final result, with charges of “rigging” and the possibility of outright violence and civil disorder

Similarly, as I have argued previously, markets are vastly underestimating the risk of a war between the US and Iran this year; the deterioration of Sino-American relations is accelerating as each side blames the other for the scale of the health emergency. The current crisis is likely to accelerate the ongoing balkanization and unraveling of the global economy in the months and years ahead.

Author: Nouriel Roubini, Professor of Economics at New York University’s Stern School of Business and Chairman of Roubini Macro Associates

The $16 Trillion US Real Estate Trusts Are In Trouble

The US has an estimated $16 trillion dollar Market for Residential & Commercial Mortgage-Backed Securities .

The business model of a mortgage REIT is to buy long-term residential and/or commercial mortgage-backed securities and leverage them up by borrowing short-term, including in the repo market if they can, while posting the RMBS or CMBS as collateral. A mortgage REIT makes money off the spread between the borrowing rates and the yields of the mortgage bonds, and they multiply their profits through leverage.

As Wolf Street says, during the Good Times, it was like free money, and the mortgage REITs paid big-fat yields. But suddenly, the Good Times were up.

Everyone was trying to unload them, and their prices dropped, and therefore collateral values dropped, and financing counterparties sent out margin calls to get more cash or collateral to make up for the dropping collateral values. And then all heck broke loose.

On Monday, TPG RE Finance Trust — sponsored by private-equity giant TPG which had spun it off in an IPO in 2017 — announced that it had still been able to meet margin calls by posting cash collateral, but “if the requirements to post additional cash collateral continue to be material,” there is “no certainty” it would be able to meet future margin calls. To preserve liquidity, it would “delay” paying its previously announced dividend.

TPG RE’s shares [TRTX] plunged 30% on Monday and 13% on Tuesday to $4.30 and are down nearly 80% from last glory-day February 20.

“The Company is engaging in active discussions with its lenders and other potential sources of financing, but it cannot predict whether it will be able to agree to terms with such parties on an expedited basis,” it said.

And it’s going for a government bailout, it said: “The Company is also monitoring the potential availability of government programs.” Taxpayer to the fore.

On the same day, AG Mortgage Investment Trust, announced that it had not been able to meet margin calls “as a result of market disruptions created by the COVID-19 pandemic.” Shares [MITT] plunged another 24% today, to $2.14, having collapsed from over $16 on February 20.

“In recent weeks, due to the turmoil in the financial markets resulting from the global pandemic of the COVID-19 virus, the Company and its subsidiaries have received an unusually high number of margin calls from financing counterparties,” it said

It was able to meet margin calls until Friday March 20, when it “missed the wire deadline” and notified the financing counterparties that it would fulfill the margin calls on Monday March 23 but would not be able to meet the anticipated future margin calls.

AG Mortgage said that it’s trying to get the financing counterparties to enter into a forbearance agreement and not take ownership of its securities that back the margin loans.

On Tuesday, it was mortgage REIT Investco Mortgage Capital that issued an announcement that it had failed to meet margin calls on Monday, blaming “the turmoil in the financial markets resulting from the global pandemic”

The announcement caused the already beaten down shares of Investco Mortgage Capital [IVR] to crash another 53% to $2.52. Back on February 20, they were still over $18. Investco Mortgage Capital added:

Through Friday, March 20, 2020, the Company had timely met all margin calls received. However, on Monday afternoon, March 23, 2020, the Company notified its financing counterparties that it was not in a position to fund the margin calls that it received on March 23, 2020, and that the Company did not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic.

It said it is trying to get the counterparties to enter into a forbearance agreement and not take ownership of the securities that back the margin loans.  And “to preserve liquidity,” it said it would also “delay” paying the already announced dividends on its common stock, and on its three series of preferred stock.

Also on Tuesday MFA Financial announced that it had received “an unusually high number of margin calls from financing counterparties,” and that by the close of business on Monday, it couldn’t meet those margin calls.

Its shares (MFA) had started out the day in the positive at just under $3 and then plunged 87% during the day, to $0.36. On February 20, before the market chaos started, shares were still over $8 a share. MFA Financial blamed the repo-market where it “had experienced higher funding costs,” and the mortgage market turmoil triggered by COVID-19.

And MFA Financial said:

On March 23, 2020, the Company notified its financing counterparties that it does not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic.

If MFA fails to meet the margin calls, the financing counterparties can take ownership of the securities that secured the margin loan. The company is now trying to get its financing counterparties to enter into forbearance agreements, where the counterparties would refrain from exercising their rights and remedies they have in case of default, but it could not “predict” whether these talks would succeed.