The U.S. economy post-Covid-19 will look a lot like the one that struggled to recover from the 2008-09 financial crisis — only in some ways worse. Growth will be disappointingly tepid after an initial rebound and, for a time at least, inflation dangerously lower and unemployment heartbreakingly higher than they were back then. Government debt and the Federal Reserve’s balance sheet — will be much bigger, while interest rates stay low. (Bloomberg Economics | May 13)
Some large money managers are asking exchanges to enforce a more narrow definition of exchange-traded funds. The firms want a new naming system reflected in exchange data feeds that go out to traders and investors. A proposal, shared with exchanges this week, would shut out leveraged and inverse funds that seek to amplify returns or losses from the definition of an ETF. It would also distinguish ETFs from debt notes and some funds that rely on leverage and commodity bets. (The Wall Street Journal | May 13)
Having boomed over the past decade, these complex securities could be vulnerable if loan defaults spike. The close cousin of collateralized debt obligations that became notorious during the subprime mortgage meltdown over a decade ago, collateralized loan obligations package up risky corporate loans to back payments on a group of new securities that have cascading exposure to default by any of the underlying borrowers. (Financial Times | May 13)
Market volatility has abated after a painful stretch of turbulence, flashing a green light for some funds to buy U.S. stocks. The Cboe Volatility Index, or VIX, fell Monday to 27.57, its lowest level since Feb. 26. That was before the stock market suffered its most volatile month in history in March and the VIX jumped to a fresh record high, topping its prior peak hit during the global financial crisis. The options-based gauge tends to rise when markets are falling as investors reach for options contracts to protect their portfolios. (The Wall Street Journal | May 11)
Rather than the V-shaped Covid-19 recovery
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a short, sharp collapse followed by a bounce back to pre-virus levels of activity
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they had hoped for, many policy makers and corporate executives now expect a "swoosh" recovery. Named after the Nike logo, it predicts a large drop followed by a painfully slow recovery, with many Western economies, including the U.S. and Europe, not back to 2019 levels of output until late next year — or beyond. (The Wall Street Journal | May 11)