Monetary Disorder In Extremis 

Doug Nolan

November non-farm payrolls gained 245,000, only about half the mean forecasts - and down from October’s 610,000. It was the weakest job growth since April’s employment debacle. 

U.S. equities rallied on the disappointing news. 

A few Bloomberg headlines captured the aura: “Stocks Gain as Jobs Miss Boosts Stimulus Bets;” “Fed Case for Fresh Action Gets Stronger on Soft U.S. Jobs Report;” and “Jobs Data Was a ‘Perfect Miss’ for Fed and Aid.”

Bad news has never been more positively received in the stock market. Some analysts are now anticipating the Fed will soon supersize its already massive monthly bond purchases. 

Chairman Powell’s comments this week did little to dissuade such thinking: “We are going to keep our rates low and keep our tools working until we feel like we really are very clearly past the danger that is presented to the economy from the pandemic.”

The U.S. Bubble Economy structure has evolved into a voracious Credit glutton. 

There’s a strong case for significant additional fiscal stimulus. The case for boosting monetary stimulus is not compelling. Financial conditions have remained ultra-loose. 

Credit stays readily available for even the riskiest corporate borrowers, as bond issuance surges to new heights. While formidable, the remarkable speculative Bubble throughout corporate Credit is dwarfed by what has regressed to a raging stock market mania. 

Manic November will be chronicled for posterity. Future historians will surely be confounded. It is being called the strongest ever November for equities. 

Up 12% for the month, the Dow posted its largest one-month advance since January 1987. 

The S&P500 returned 10.9%, a huge bonanza relegated to small potatoes by the “melt-up” in the broader market. 

The “average stock” Value Line Arithmetic Index posted an 18.3% advance in November. 

The small cap Russell 2000 also surged 18.3%, and the S&P400 Midcaps rose 14.1%.

Melt-up dynamics were a global phenomenon – “developed” and emerging markets alike. 

Major equities indexes were up 25.2% in Spain, 23.0% in Italy, 20.1% in France, 15.0% in Germany, 15.0% in Japan, 10.3% in Canada, and 10.0% in Australia. 

In EM, equities rose 19.5% in Poland, 15.5% in Russia, 15.4% in Turkey, 14.3% in South Korea, 11.5% in India, 15.9% in Brazil, 13.0% in Mexico and 20.5% in Argentina. 

The Brazilian real and Colombian peso posted one-month gains of 10%, with the Turkish lira up 8.1%, the Russian ruble 7.2%, the Mexican peso 5.9% and the South Korean won 5.1%. 

U.S. stocks powered higher on election results. Both American and global investors were apparently enamored with the prospect of a Biden presidency held in check by a Republican Senate. The unwind of hedges played prominently in the market’s advance. 

Positive vaccine news then threw gas on the speculative fire. 

As equities turned wildly speculative, a historic short squeeze (losses on shorts spurring aggressive self-reinforcing buying to unwind positions) led to major outperformance by lagging sectors. 

This dynamic coupled with constructive vaccine news incited a major rotation into underperforming stocks, sectors and indices.

The Goldman Sachs Most Short Index posted a November gain of an astounding 28.4% (vs. the S&P500’s 10.8%). 

The Bloomberg Americas Airlines Index also jumped 28.4%, with the Bloomberg Americas Lodging Index up 25.1%. The NYSE Arca Oil Index surged 32.2%. 

The KWB Bank Index rose 17.4%, with the NYSE Financial Index and the Broker/Dealers both gaining 16.7%. 

From the New York Times: 

“In a sign that Mr. Biden plans to focus on spreading economic wealth, his transition team put issues of equality and worker empowerment at the forefront of its news release announcing the nominees, saying they would help create ‘an economy that gives every single person across America a fair shot and an equal chance to get ahead.’”

There’s more than a little irony in former Fed chair Janet Yellen shepherding the administration’s efforts to rectify inequality. 

Reuters quoting Yellen: 

“There really is a new kind of recognition that you’ve got a society where capitalism is beginning to run amok and needs to be readjusted in order to make sure that what we’re doing is sustainable and the benefits of growth are widely shared in ways they haven’t been.”

Fed policy is singlehandedly the greatest force in propagating inequality, with the past nine months the greatest episode of inequitable wealth distribution imaginable. 

Gross monetary mismanagement and financial excess are a principle cause of capitalism running amok. 

And how might egregious Fed stimulus measures now be expected to promote a more equitable and moral allocation of our national wealth across society?

Lost in the discussion is the fact that we’re in the throes of a historic experiment in central bank monetary management. 

The Fed some years ago abandoned the traditional mechanism of operating chiefly through the banking system with subtle adjustments to reserves and interbank lending rates – a process arguably superior at disbursing resources more proportionately throughout the economy. 

Having evolved over the past couple decades, the Fed now executes policy directly through the securities markets. 

Policy stimulus enters the system chiefly through massive purchases of Treasury and agency securities, creating liquidity excess for financial markets generally. 

Moreover, low (now zero) rates foster stimulus effects through both the promotion of leveraged speculation and by spurring speculative flows into higher-yielding (riskier) securities and other assets. 

This failing central bank experiment has unleashed myriad deleterious processes. 

Historic speculative Bubble Dynamics have become deeply ingrained throughout the financial markets – equities, Treasuries, agencies, corporate Credit, derivatives, leveraged lending, etc. 

In the real economy, increasingly oppressive inequality is ravaging the fabric of our society – fomenting deep social and political division along with economic instability. 

This brutal pandemic will run its course. 

Meanwhile, a runaway historic financial Bubble poses grave risk to our nation’s future. Inequality creates great risk to social and political stability.

It’s critical to identify and blunt Bubbles early. Wait too long and the mounting risk of reining them in ensures timid policymakers not only acquiesce - but turn increasingly compelled to accommodate Bubble excess. 

Today, the Fed doesn’t dare concede even the possibility of destabilizing financial excess, fearing any hint of possible policy restraint risks puncturing a fragile economic recovery. 

In a modern version of “trickle down,” policymakers cling to the notion that booming financial markets will promote broad-based economic gains and associated benefits. 

It clearly has not and will not. Policy focus almost solely on the unemployment rate is misguided.

There are today extraordinary uncertainties. Markets traditionally hate uncertainty. 

These days, markets love the certainty of unrelenting, unprecedented monetary stimulus. A frightening acceleration of Covid, economic fragility, fiscal stimulus uncertainty, political risks, rising Treasury yields, etc. all equate to persistent pressure on the Fed to do more.

“U.S. Infections, Deaths, Hospitalizations All Hit Record Highs,” read a dreadful Friday Wall Street Journal headline. 

Shockingly, daily Covid cases surpassed 228,000 (as reported Friday evening by Bloomberg). Nationwide, hospitalizations now exceed 100,00 and continue their rapid rise. Daily deaths are approaching 3,000. 

Alarmed by increasingly overwhelmed hospital systems, more states are adopting restrictive measures. Los Angeles and San Francisco Bay Area counties reimposed “stay at home orders”, with the entire state of California on the cusp. 

From Bloomberg: 

“Pennsylvania reported 11,763 cases, the second consecutive day of record infections. The number of hospitalizations has increased 10-fold since the start of October.” 

Alarming pandemic headlines and snippets could go on and on.

December 2 – CNBC (Will Feuer): 

“The next few months of the Covid-19 pandemic will be among ‘the most difficult in the public health history of this nation,’ Dr. Robert Redfield, the director of the Centers for Disease Control and Prevention, said… Redfield… said that about 90% of hospitals in the country are in ‘hot zones and the red zones.’ 

He added that 90% of long-term care facilities are in areas with high level of spread. ‘So we are at a very critical time right now about being able to maintain the resilience of our health-care system,’ Redfield said. ‘The reality is December and January and February are going to be rough times. 

I actually believe they’re going to be the most difficult in the public health history of this nation, largely because of the stress that’s going to be put on our health-care system.’”

The S&P500 gained another 1.7% this week to trade to all-time highs. But such gains would bore any purposeful day trader (equities or options). 

The Semiconductors jumped 6.1% this week, increasing 2020 gains to 51%. 

The KBW Bank Index rose 2.7%, boosting five-week gains to 24.3%, while the Broker/Dealers jumped 3.6% (up 23.1% in five-weeks). 

The small cap Russell 2000 rose 2.0% this week, with a five-week gain of 23.0%. 

The Philadelphia Oil Service Index jumped 7.8% and 63.2% over five weeks. 

The Goldman Sachs Most Short Index gained another 2.9% this week, boosting five-week gains to 33.8%. 

Perhaps the single best barometer of epic speculative excess, the Goldman Sachs Short Index has now surged 187% off March lows. 

Few strategies have proved as fruitful as targeting popular short positions. 

And over recent weeks, the bears have gone from being terribly impaired to pretty much blown out extinct. 

Furthermore, the melt-up in heavily shorted stocks unleashed bloody havoc for long/short and other hedge fund strategies, while helping instigate an extraordinary sector rotation.

The pandemic bestowed the Federal Reserve a license to print $3 TN for injection into the markets. 

The Fed’s pandemic response granted Washington a license to run a $3 TN plus fiscal deficit (without a whiff of market protest). 

And unparalleled monetary and fiscal stimulus gifted markets a license to partake in egregious speculative excess.

With vaccines on the way, no amount of Covid hardship has been sufficient to break the bullish spell ingrained throughout the securities markets. 

Zero rates, Trillions of liquidity, and a limitless Fed backstop are as captivating as it gets. 

And with the Fed ready to do whatever it takes, no degree of economic impairment is going to jeopardize market fervor. 

From the experience of the past nine-months, markets are highly confident that no number is too big when it comes to monetary stimulus. 

And going forward, fiscal stimulus shortcomings will surely be remedied by even larger Fed QE liquidity injections.

It’s become an only greater challenge to convince readers that what passes these days as normal is anything but. 

We reached a number of precarious junctures over recent years - that came and went like the passing of the seasons. 

But let’s not lose sight of historic crazy: speculative excess is by far the most egregious I’ve witnessed in my over three decades of obsessive market analysis. 

Not only will it renounce “leaning against the wind” (let alone tighten policy), the Fed is poised to continue injecting $120 billion monthly into Bubble markets as far as the eye can see. 

In the face of raging asset inflation (i.e. securities and home prices), the Federal Reserve is apparently more likely to boost QE than to tapper. Crazy.

How might all this end? 

There are facets of Credit Bubble Theory to contemplate. 

Speculative leveraging is dangerously destabilizing. 

Increases in leverage (“securities Credit”) create a self-reinforcing liquidity dynamic, whereby speculation fuels higher securities prices, greater liquidity excess and only more feverish speculative zeal. 

As I’ve stated repeatedly, the big problem is it doesn’t work in reverse.

The Fed in March faced a major deleveraging event – the piercing of a historic globalized speculative Bubble. After markets scoffed at their initial responses, the Fed was forced to resort to overwhelmingly forceful crisis-fighting measures. 

These reversed the de-risking/deleveraging dynamic. 

At that point, the Fed should have scaled back what was clearly exorbitant liquidity measures. Our central bank instead set a policy course that promoted market speculation and speculative leveraging. 

The closest parallel would be the wild speculative excess in the face of a rapidly deteriorating fundamental backdrop in 1929.

December 4 – Bloomberg (Katherine Greifeld and Lu Wang): 

“The coronavirus is raging again. Whole states are at risk of closure, November payroll growth was anemic and solvency risk is bubbling back up. That stocks could rally amid such a backdrop should probably, by now, surprise nobody. 

That it’s happening on the back of firms with the worst balance sheets might. Companies with shakier finances rallied 4.3% over the past five days, beating their sturdier counterparts for a fourth week, the longest streak in 13 months, data compiled by Goldman Sachs Group Inc. and Bloomberg show. 

Up 25% since the start of October, the weak-credit group is poised for its best quarter of relative performance since the last bull market began in 2009.”

I believe speculative leverage is greater today than prior to March’s near global market meltdown – in Credit, in equities, derivatives, at home and abroad. 

The next major de-risking/deleveraging episode (odds having increased following speculative “melt-up” dynamics) will demand another massive Fed response. 

Markets today, of course, enjoy unwavering faith in “whatever it takes.” 

But will the Fed be willing to pony up another $3 TN - or even more? 

Or was the pandemic a unique policy circumstance not to be extrapolated to future crisis responses? 

Moreover, might the sinking dollar have the Fed thinking twice before flooding the system with Trillions of new dollar liquidity? 

And it’s worth mentioning recent inklings of inflationary pressures. This week was notable for market indicators (i.e. 10-year “breakeven” rate at an 18-month high) along with elevated PMI Prices components (Services and Manufacturing surveys). 

Might a combination of rising inflation and Treasury yields, along with a faltering dollar, encourage the revival of some semblance of moderation from our central bank? 

Heresy, I know.

It’s been a longstanding CBB maxim: monetary inflation is not the solution, it’s central to the problem. 

M2 “money” supply is up $3.6 TN, or 23% annualized, over the past 39 weeks. 

We’re witnessing Monetary Disorder In Extremis. 

This has been a long time coming – with the situation now spiraling out of control. 

Today’s manias in monetary inflation and market speculation come at a very high cost.

Scaling back

Why commercial ties between Taiwan and China are beginning to fray

The relationship that helped build China’s economy faces new challenges

Hundreds of jobseekers lined up outside a factory gate on a recent autumn morning. Uni-Royal, a Taiwanese maker of electronic components for such brands as Samsung and Toshiba, was looking for extra help at its plant in Kunshan, an hour’s drive west of Shanghai. 

New factory hands could earn 4,000 yuan ($610) a month, double the local minimum wage. Kunshan is dotted with hundreds of Taiwanese manufacturers like Uni-Royal. More than 100,000 Taiwanese call Kunshan home.

“Little Taipei”, as Kunshan is known, illustrates a broader phenomenon. Exact estimates vary, but as many as 1.2m Taiwanese, or 5% of Taiwan’s population, are reckoned to live in China—many of them business folk. Taiwan Inc has not let fraught political relations with China, which views the island as part of its territory, get in the way of business. 

Taiwanese companies have invested $190bn in Chinese operations over the past three decades. Foxconn, a giant Taiwanese contract manufacturer of electronics for Apple and other gadget-makers, employs 1m workers in China, more than any other private enterprise in the country.

As the West grows increasingly suspicious of communist China’s rise—a trend that America’s next president, Joe Biden, may slow but not reverse—Beijing seems keener than ever to bolster cross-strait commercial bonds. It sees Taiwanese firms as a source of investment and critical technologies such as computer chips, the export of which to China Washington has tried to curtail. At the same time, corporate Taiwan is cooling on its giant neighbour. Geopolitics is not the only reason.

When China opened up to foreign investment in the 1980s, entrepreneurs from Taiwan were the first foreigners to open their wallets. Enticed by cheap labour and land across the strait, they quickly set up shop in the coastal provinces closest to Taiwan. To this day Jiangsu (which includes Kunshan), Zhejiang, Fujian and Guangdong attract most Taiwanese money (see map). 

A common language and shared culture helped reduce transaction costs. Foxconn built its first Chinese factory in Shenzhen in 1988. By 2008 around a sixth of China’s stock of inward investment came from Taiwan, making it the biggest foreign investor in China.

Today three of China’s 12 most popular consumer-goods brands by revenue are Taiwanese. Chinese gobble up Master Kong instant noodles, Want Want rice crackers and Uni-President juices. Apple’s three biggest China-based suppliers—Foxconn, Pegatron and Wistron—are all Taiwanese.

Now China is going out of its way to recruit more businesses from Taiwan. Between 2018 and 2019 the government unveiled no fewer than 25 policies aimed at luring them. 

Measures include tax credits and, more striking, a special right to bid on lucrative government contracts, from railway construction to “Made in China 2025”, an innovation scheme centred on advanced manufacturing. 

In May the Chinese authorities released an official directive, signed by five ministries, permitting Taiwanese-owned firms in China to “receive the same treatment as mainland enterprises”. 

It applies even to sensitive areas like 5g mobile networks, artificial intelligence and the hyperconnected “Internet of Things”. No other foreign firms enjoy similar treatment.

These efforts by Beijing have so far had limited success. Annual investment flows from Taiwan have fallen by more than half since 2015 (see chart). 

This growing reticence on the part of corporate Taiwan can be explained by three considerations. The first is geopolitical.

China’s goal of discouraging formal independence by strengthening business ties is increasingly transparent to many Taiwanese. 

Beijing’s special treatment of Taiwanese firms, which are designated as domestic ones in its drive for “indigenous innovation”, only stokes more suspicions. It may have helped Taiwan’s independence-leaning president win re-election in January. 

Chinese firms, which have been able to invest in Taiwan since 2009, are coming under fire from the island’s regulators, which suspect them of being a fifth column for the Chinese Communist Party. 

Last month Taobao Taiwan, the local version of Alibaba’s Chinese e-commerce platform, said that it would cease operations.

Trading partners

Geopolitical tussles beyond the Taiwan strait also play a role. Tariffs imposed by America on a long list of Chinese exports have prompted many Taiwanese producers to shift operations out of China. 

A recent survey by the National Federation of Industries, a trade body in Taiwan, found that four in ten Taiwanese bosses with factories in China said they already have or will “transfer capacity” elsewhere, mainly to South-East Asia. Taiwan’s Giant, the world’s biggest producer of bicycles, has identified Hungary as an alternative production base.

Making life even more difficult for some Taiwanese firms is America’s blacklisting of certain Chinese tech titans. 

Huawei, a Chinese telecoms champion that is a particular target of American ire, last year accounted for 15% of the revenues of Taiwan Semiconductor Manufacturing Company (TMSC), a huge chipmaker. 

This month TSMC confirmed it has set aside $3.5bn for a new plant in Arizona.

A second challenge for Taiwanese firms concerns competition. Zhang Yingde, a Taiwanese small-business owner in Shanghai, talks of a “red supply chain” which, Beijing’s directives notwithstanding, continues to favour Chinese bidders. 

Mr Zhang says he can only hope to get in on the action as a subcontractor. Jerry Huang, the head of Ningbo’s Taiwan Business Association, which represents some 300 Taiwanese manufacturers in the eastern Chinese city, says that none has won a big government contract to date.

Mr Huang does not blame discrimination against Taiwanese firms. He points instead to the capabilities of homegrown Chinese rivals, which are becoming more competitive and innovative. 

This month Wistron, a Taiwanese assembler for Apple, agreed to sell its factory in Kunshan to Luxshare, a low-cost Chinese competitor. 

The fact that Wistron was prepared to cede operations to a Chinese rival suggests that technical know-how in electronics assembly is no longer a barrier to entry that Taiwanese outfits feel compelled to guard.

Now that their dominance in manufacturing is fading, Taiwanese firms which want to succeed in China may need to ride on “Taiwan’s soft power”, says Keng Shu of Zhejiang University. This will be easier in services, he reckons, given Taiwan’s global reputation for warm customer service. 

But unlike manufacturing, where Taiwan enjoyed a first-mover advantage, China’s services industry has no shortage of established players, foreign and domestic.

The third reason for Taiwan Inc’s diminished zeal for China has to do with generational change. Uni-Royal in Kunshan is a case in point. Taiwanese expatriates who dominate its management are nearing retirement. 

Young Taiwanese are reluctant to take on the often thankless task of running Chinese factories. A common refrain heard from Taiwanese owners across China is that the impending “leadership vacuum” has made them cautious about big outlays.

To attract stripling Taiwanese entrepreneurs, China’s central government has in the past year opened dozens of “cross-strait entrepreneurship incubators” in big cities. 

These offer perks like free office space, introductions to potential Chinese clients, posh flats at discount rents and a chance to apply for up to 500,000 yuan in seed capital from the government. 

Weak pitches such as insufficiently differentiated mobile apps need not apply, says Zhu Yan, who operates an incubator in Jiaxing, in Zhejiang province. Still, the bar is lower than Chinese venture-capital firms typically set.

Mr Zhu’s incubator has lured ten Taiwanese startups. But schemes like it will not be enough to allay Taiwanese bosses’ concerns about pricier labour and stiffer competition—let alone about the new great-power rivalry. 

More likely than not, the golden era of Taiwanese business in China is over.


by Egon von Greyerz

You have been warned. The Biden – Yellen (BY) nightmare dream team will fulfil our worst fears of deficit spending, debt explosion and dollar collapse.

Not that a Trump win would have been that much different since the die had already been cast long ago for the final decline of the current financial system.

And the BY duo will be the perfect team to lead the US economy and the rest of the world into perdition. Biden is already an experienced player in deficit spending and massive debt accumulation. 

And Yellen was there for part of the time printing whatever was required.


Biden served as Vice President from 2009 to 2017. During those 8 years US debt went from $10.7 trillion to $20t. That is a massive increase of 85% or $9.3t.

When Reagan became president in 1981, US debt was just under $930 billion. It took the combined efforts of Reagan, Bush Sr, Clinton and Bush Jr 28 years to grow the US debt by $10t whilst Obama and Biden managed to grow it by almost the same amount in 8 years.

What we must remember is that the Great Financial Crisis was supposed to have been resolved in 2009. So there should not have been the same pressure to spend money freely when Obama and Biden came to power. But as good socialists Democrats, they threw frugality to the wind and spent recklessly.

The last three years of their reign, 2014-7 they had Yellen as accomplice in her role as Chair of the Fed. So this is a team with deep experience in creating money out of thin air.


When Trump took over in 2017 he had no intention of being outspent or outshone by any previous president. So Trump will have managed to increase the US debt by $8 trillion in just 4 years – a remarkable record!

I don’t believe that anyone back in 2017 forecasted that US debt would be $28t in January 2017, at the end of Trump’s four years. But that was very easy to forecast for anyone who studies history.

Since Reagan became president US debt has on average doubled every 8 years. Thus in an article a few years ago (US debt explosion & Weimar II) I forecasted a debt doubling to $40 trillion by early 2025 and $28t at the half way mark in January 2021. 

No genius is required for such a forecast nor teams of analysts or economists with supercomputers.

A brief study of history combined with a simple extrapolation is all that is required. 

But alas that is much too simple a method to take any notice of.


So if Yellen is appointed Treasury Secretary, we have a dream team with extensive executive experience in expanding debt and printing money. Talking about experience, has there ever been a president and treasury secretary whose ages add up to over 150 years? I doubt it and sadly their long money manufacturing experience is the wrong medicine for the US.

Ahead for the new administration lies the arduous task of keeping the sinking “SS US ECONOMY” afloat.

Certainly not an enviable task. Because the end game is virtually certain. Ships can go down very quickly or it can be a long drawn out affair.

This particular ship is already loaded with $80 trillion total US debt of which the government has issued $27 trillion and the Fed printed $7 trillion. 

Add to that derivatives and unfunded liabilities of at least $1/2 quadrillion. 

So say a total of $600 trillion in US debt including liabilities that will become debt.

DEBT WEIGHT – 150,000 747 JUMBOS

Just as an illustration, $600 trillion in $100 bills would weigh 60 million tons. This weight corresponds to 150,000 747 jumbo jets. 

With that amount of debt load, no wonder the ship will sink quickly.

It is obviously not surprising that governments are planning to do away with paper money in favour of CBDC (Central Bank Digital Currency). 

So much easier to stick the total debt of $600t on a small usb stick that weighs a few grams.


And that is the way that central banks will try to fool the world, by shrinking the money supply to a binary code of Zeros and Ones in a reset. 

But even if that does away with paper money, creating a digital currency does not change anything. It will just become a new form of fiat that can be expanded at will but with the same problems as paper money.

What we do know is that the exponential phase of global QE has just started.

Just three central banks, the Fed, ECB and BoJ have printed $7.5 trillion since March 2020, by expanding their balance sheets by 50% from $14.5t to $22t in November.

Morgan Stanley estimates that for 2021, central banks will print a total of $300 billion per month. This seems much too low, bearing in mind that major parts of the world are in lockdown with 100s of millions of people either furloughed or redundant and with many businesses going under.

The retail and leisure/travel industries for example are haemorrhaging and unlikely to ever recover fully. Thousands of small businesses are also going under every month.


QE in 2021 will not only be used for more support to the undeserved banking system. Also individuals and businesses will be direct beneficiaries of QE as Biden and Harris subscribe to MMT (Modern Monetary Theory).

Thus the money printing bonanza in 2021 is likely to far exceed the 2020 levels. This will not only put enormous pressure on the financial system, but will also be reflected in a collapsing dollar.

The biggest problem is the massive amount of treasuries being issued in 2020 and 2021 only has one buyer. The old buyers of US debt, China, Japan, Russia, Saudi Arabia etc are seeing the writing on the wall and are no more interested in buying depreciating dollar treasuries.


So the last man standing is the Fed and this is why Yellen is perfect for the job as Treasury Secretary. With her Fed experience she will, with ease, plan for the biggest monetising of US debt in history.

Initially the dollar will be the biggest victim as an ever increasing amount of dollars are created. 

Many currency observers watch the dollar index. But since this is not really a traded currency, I prefer the EUR/USD spread. 

The euro against the dollar is the commodity with the biggest trading volume in the world at $1.5 trillion a day. 

The S&P daily volume is around $150 billion and US treasuries $500b.


Below is a table of daily trading volumes that I have shown before (EUR volume not included). 

This chart was shown to point out that daily trading volume in gold is 850x daily mine production and twice as big as the S&P volume. 

I will not go into this table in detail here but suffice it to say that this massive gold trading by the bullion banks is a clear sign that they have major problems to balance their positions due to the naked paper gold shorts.

Coming back to the Euro-Dollar, this chart is now very bullish for the euro and thus bearish for the dollar. 

After a 12 year correction, the Euro is now breaking out on the upside against the dollar and looks very bullish. 

The Euro is already up 14% this year and is likely to strengthen considerably in 2021 as the dollar falls rapidly.


Many observers question how the euro can strengthen with the major problems within the EU combined with the ever growing ECB balance sheet. 

What most people don’t understand is that the Euro is not strong in itself. 

Measuring currencies against each other is a mug’s game. 

If two currencies are dying, there is no absolute advantage in dying slightly more slowly and being the second to the bottom. 

It is only a matter of relative timing since currencies can’t all fall against each other at the same rate.

It doesn’t really matter which currency wins the race since there is no prize for being first to the bottom. 

The fallacy is of course that currencies should not be measured against each other but against real money that over time has maintained its purchasing power.

And the only money that has survived in history in its original form is of course gold. All other currencies have gone to zero. The chart below shows what has happened to all currencies against gold in the last 100 years. 

This pattern has repeated itself throughout history.


So if you measure your money in depreciating dollars or euros, you are deluding yourself. 

It is like slowly sinking in quicksand. There is no support and no way out.

History must never be ignored but sadly few people study history.

So prepare for massive QE, a rapid dollar fall with a US and world economy in severe decline in 2021. 

There will be no recovery for years and maybe for a decade or more.


Your best friend and protector in this ignominious company of bubble assets and falling currencies are precious metals in the form of physical gold and silver.

But please ignore PAPER gold and silver (including ETFs) which one day will be worthless.

On the opposite side of the collapsing dollar stands gold which is about to start an accelerated rise.

Gold (and silver) has now completed the correction since August and is about to resume its 20 year uptrend.

The strength of the next move will take the gold market by surprise. 

And remember that gold is for long term wealth preservation and not for speculation.

The elusive promise of Bitcoin

Cryptocurrency has failed to provide investors with stability and protection

The editorial board

    © Ina Fassbender/AFP/Getty

Bitcoin promises to be digital gold: safe, valuable and rare. That could explain much of the cryptocurrency’s rally over the past year. 

Like the yellow-coloured metal, the price of bitcoin is supposed to surge as investors take fright at the possibility of inflation from central banks printing money or, for some, the potential collapse of society in the face of the coronavirus pandemic and civil disturbance following the US election. In those circumstances the two scarce assets are supposed to retain their value while others’ disappears.

Unfortunately, like gold, bitcoin’s status as a safe haven is more theoretical than anything else. Rather than stability it offers investors volatility and a chance to speculate on the market’s sentiment towards the currency. The recent rise in the cryptocurrency’s valuation is no different. Investors looking for a safe place to keep their wealth should look elsewhere.

The price of bitcoin in terms of the US dollar hit a three-year high of close to $18,000 this week, representing a nearly 250 per cent rise since January. Bitcoin’s price has spiked before: this year’s increase in the cryptocurrency’s price has seen it almost touch levels it reached in 2017. That peak did not last, however, and was followed by a deep crash and calls for tighter regulation.

Bitcoin holders have learnt to live with the volatility: as recently as March the cryptocurrency lost half of its value after investors realised the scale of disruption that coronavirus would bring and rushed to sell anything they could exchange to get hold of then-scarce dollars. Such swings in bitcoin’s value, both dramatically up and down in the space of 12 months, hardly suggest it is a stable store of value.

Instead of reflecting fears of geopolitical risk or hyperinflation, the recent rally in the cryptocurrency’s price has happened alongside other risk assets. Stocks have similarly done well on news of potential vaccines while traditional havens such as US treasuries — and gold — have seen their value slip.

Perhaps the main factor in bitcoin’s recent rise, then, is its potential for more mainstream adoption beyond hobbyists and speculators. Options on the digital currency are more frequently being traded on the Chicago Mercantile Exchange while payments company PayPal is offering the chance in the US to buy and sell bitcoin through its app. This has made it more feasible as a form of money; bitcoin is not widely accepted but PayPal is. 

Yet there are no fundamentals on which to base a judgment of bitcoin’s value. Its current price just reflects what people are willing to spend on it. That may be a result of central banks’ easy money policies worldwide; bitcoin looks appealing because other asset prices are already so high and returns so low. But it places it in a category more like fine art or famous sneakers, both of which have attained record valuations in auctions this year.

Bitcoin may have further to go, thanks not to its own merits but to a weakening of the dollar. Analysts forecast the US currency could weaken 20 per cent next year as a working coronavirus vaccine spurs growth and a greater appetite for risk among investors. That would be something to welcome — not just for what it represents but because it would help ease pressure on emerging market borrowers who rely on cheap dollar financing.

It may be precisely because the Federal Reserve has done such a good job of meeting the world’s need for dollars that investors feel comfortable taking a punt on bitcoin and venturing away from the comparative stability of fiat currency. 

If so, cryptocurrency advocates have the central bank to thank for their recent success.

Gold Tests $1,800 Support


November was a tough month for gold bullion, with the yellow metal1 losing 5.42%. 

Year-to-date through November 31, 2020, gold has gained and 17.11% and is up 21.38% YOY.1 Silver bullion2 lost 4.28% in November, but has risen 26.84% YTD and is up 32.99% YOY. 

Gold mining equities pulled back in November (-7.59%) but have gained 17.88% YTD and 26.85% YOY as of November 30 (as measured by SGDM3). 

This compares to 14.02% YTD and 17.46% YOY returns for the S&P 500 TR Index.6  

Gold Dips Below $1,800 in November

Gold fell $102/oz (-5.42%) in November to close at $1,777, dipping below the $1,800 level and the 200-day moving average. Although there were not any significant deterioration in gold fundamentals last month, there was an unusual and dramatic shift in market expectations and positioning that impacted gold negatively.

By late summer, the broader market was positioned not only for a chaotic U.S. presidential election outcome but for the post-chaos to extend into Inauguration Day in January 2021. 

Due to the idiosyncratic nature of hedging a large number of possible chaotic election outcome scenarios and market makers reducing exposures into yearend, protection was concentrated as longer-dated (November to January) volatility. The large size and expensive nature of these hedges can be best described as "crash hedges." 

Overall, fund positioning levels were also reduced, and a static activity level took hold, further decreasing the prevailing low market liquidity and worsening an already poor market depth situation. 

The market had positioned itself mainly for a chaotic U.S. election outcome with some dabbling on the edges for a Democratic sweep near the election date.

The actual results of the recent U.S. presidential election completely negated the crash scenario. Instead, it gave the market its ideal outcome: a clear presidential winner, no violence or any domestic crises, and a split government. 

Though there remain run-off elections for two Senate seats in Georgia, it is anticipated that the Republicans (GOP) will retain the two Senate seats and majority control of the Senate. A split government is viewed favorably by the market, and history confirms this view as well. 

The market now considers a GOP-controlled Senate as a firewall blocking any meaningful tax increase, a reversal of the Trump tax cuts and excessive regulation. The chances of massive fiscal spending will become unlikely (meaning a smaller deficit), but the hope of a scaled-back infrastructure plan and a compromise fiscal stimulus bill will provide some support.

Gold is the only effective right tail hedge for the majority of funds and individuals.

Though the split government result was a welcomed outcome for the market, the stock market's real fuel was unwinding the "crash hedges."  The large number of crash protection hedges were unwound into a steep decay. 

The effect was essentially a short squeeze, forced buying into higher market prices.

Caught in the Wake of a Factor Quake

If the unwinding of the "crash hedges" was the fuel for a general market lift, then the Pfizer vaccine news was the booster rocket that ignited the reflation rotation trade. Pfizer's vaccine news was well beyond the best-case scenario. 

With a 90% efficacy rate (optimistic range was 60% to 70%), vaccinations would only need to have about 60% coverage to achieve herd immunity, implying a much faster and more comprehensive recovery from COVID is now possible.

For the past five years, the market had been crowding more and more into the long duration trade (low growth, low yield, secular growth trade) until reaching extremes, such as having only five stocks comprise 24% of the weight of the S&P 500 Index, and growth versus value going parabolic. 

Pre-election, the market setup was extreme overcrowding in the long duration trade, severe factor crowding in quantitative funds, built-up massive crash hedges, all in a market with low liquidity and poor market depth. It was a completely one-sided trade gone wrong.

Post-election results and post-vaccine news, the market action may be best described as a "quant quake."  Several multi-standard deviation price movements were observed, some bordering on near mathematically impossible among the factor returns. Such violent moves are a sign of a market caught well offside and in the grasp of an equally fierce short squeeze exasperated by a thin market. 

As funds scrambled to reposition desperately, every safe haven (bonds, cash and gold) was reduced with the proceeds redeployed toward the reflation trade. At that point, it was immaterial whether a "real reflation" event was occurring; the pain trade dominates everything and overshoots will happen as funds get squeezed. 

We see gold's move from $1,950 to $1,777 as collateral damage in the flow-driven short squeeze and quant quake (Figure 1).

Gold Bullion Long-Term Secular Drivers

This sell-off in gold is its first real drop since the March lows, but gold's macro fundamental drivers are not the cause. The short squeeze was not a sign of a macro breakdown. 

Money supply and the Federal Reserve (Fed) balance sheet have reached new all-time highs. From the May levels (post liquidity surge), the Fed balance sheet and M27 are still outpacing any prior COVID growth rate (Figure 2).

If we use the consensus view of $1 trillion in fiscal stimulus for 2021, this high money supply growth rate will continue in 2021. The U.S. dollar (USD), as measured by the DXY, is making new lows. 

A more robust global growth outlook is viewed as leading to further USD weakness. As the global recovery takes hold and resumes, the need for USD funding will decline. 

Real interest rates will keep falling, especially at the short end curve as the Fed has gone the AIT (average inflation targeting) route. For example, to drive home the point, if the Fed does not hike interest rates until inflation exceeds 2%, the real Fed Funds Rate will be -2%. 

With WAM (weighted average maturity) extension expected by the December FOMC (Federal Open Market Committee) meeting, we will likely see the long end contained and if breakevens rise, real yields as a result will fall. 

We already see signs of this move as shown in Figure 3.

Figure 2. Fed Balance Sheet and U.S. M2 Money Supply at All-Time Highs

Figure 3. U.S. Dollar Making New Lows, U.S. 10-Year TIPsYield (Real Yields) Breaking Short-Term Uptrend

A Revisit of the Long-Term Gold Theme and a Tale of Tails9

Since the global financial crisis (GFC), the most significant risk has been solvency risk due to the extraordinary debt amounts at all levels. Pre-COVID, debt levels and leverage by any measure, far exceeded GFC levels. 

COVID starkly exposed the vulnerability of the financial system in quick order. In a matter of weeks this past spring, global central banks printed more than $12 trillion in liquidity, multiples of the GFC (Figure 4). 

The solvency risk situation is now the worst in history. As the GFC has demonstrated before, there is no real solution for solvency risk, only liquidity to delay the onset. If extraordinary amounts of liquidity could have created wealth, value or economic growth, the rewards would have been reaped during the past decade (Figure 4).

Figure 4. Combined Balance Sheets of U.S. Federal Reserve, European Central Bank (ECB) and Bank of Japan (BOJ)

A Deflationary Feedback Cycle

The central bank response of greater liquidity and lower yields to force capital into risk assets and spur economic growth to outpace debt has not worked in the past decade. 

What has happened instead is almost the opposite, a deflationary feedback cycle. It goes something like this: lower yields lead to suppressed default rates and increased excessive capacity, which drive yields lower. 

For example, in 2020, to prevent bankruptcies (and avoid a depression), the Fed has promised the credit market a backstop for corporate issuers. The result is over $2.2 trillion of debt added to corporations thus far in 2020 alone.

Corporate debt to gross domestic product (GDP) is now the highest ever, another addition to the solvency risk bucket. Capital is now flowing into unproductive businesses and increasing excess capacity. 

Excess capacity is deflationary, leading to lower yields. Low yields raise investors' need for higher-yielding junk bonds, and in turn, prop up more failing businesses resulting in additional excess capacity. The deflationary debt cycle continues.

The Bar is Being Lowered for More Extreme Risk Outcomes

There are two extreme outcomes at the end of the risk chain: a deflationary bust (the left tail) or an "inflationary blowout" (the right tail). In plain English: The tails on the far left and far right represent the least likely but most extreme outcomes. 

This inflationary blowout is not the common CPI (consumer price index) kind, but the debt jubilee (a clearance of debt, aka debt forgiveness or restructuring) and the extreme expansion of fiat-money-kind of blowout. The pandemic's effects in the spring of 2020 would be an example of a massive deflationary shock and gold's reaction to the shock was the expected response. 

The sudden decline in economic output spurs central banks to flood liquidity, collapse interest rates and unleash all manner of swap and credit facilities to ensure the continuation of functioning financial markets.

It is debatable whether central banks have run out of bullets, but there is little doubt that they have hit diminishing returns long ago. If the next shock occurs, it will likely exceed the COVID-level response just as the initial COVID response exceeded the GFC response. 

The stockpiling and compounding of legacy risks in the form of ever-greater debt levels ensure the reaction function will be greater than the last shock event. In other words, the bar is continuously being lowered for more extreme risk outcomes.

The inflationary blowout/debt jubilee/fiat money reset scenario is more challenging to envision because of its rarity (the last example was the end of Bretton Woods in the early 1970s). 

For the past four decades, secular deflationary forces have dominated. Due to QE's (quantitative easing) limitations, money printed is mostly stuck in the financial system, as evidenced by the near complete collapse of the velocity of money and the ballooning of financial asset prices. 

Ironically, a likely scenario for the right tail risk event would be another deflationary shock that forces full-on money printing. Because of the compounding of past excesses, the zero bound and the diminishing returns on central bank liquidity injections, a debt jubilee or full-on MMT (modern monetary theory) type money printing has moved up the probability curve.  

Policymakers and the winds of social change will likely determine whether it will be a left or right tail outcome. Social change is complicated to assess, but QE's effects (driving up asset prices to extreme levels but with a limited modest impact on the real economy) have created the most massive income and wealth disparity in history.

The vast majority of the population are in the have-not group saddled with debt but little financial assets, looking at inflated home prices while having no jobs or a subsistent employment level. 

From that perspective, an "inflate all away and reset it to zero" populist revolt has many historical precedents. For the minority with accumulated wealth, a "defend asset prices at all cost" would be the counter. There is not a lot of middle ground here. It is a complicated and risk-laden confluence of economics, politics, policies, social and cultural forces.

Gold Bullion: The Rare Right Tail Risk Hedge

For almost 40 years, bonds were one of the best tail hedges – deep, liquid, and the Fed liquidity function's primary beneficiary. But with ZIRP (zero interest rate policy) and the long end under compression from Fed policy (AIT), the ability for bonds to act as a "put option" is gone. 

Bonds will still have a role and function as a portfolio diversifier, but its best days as an effective hedge has ceased. As a left tail hedge, it is limited due to the zero bound. Bonds cannot function as the right tail hedge; it would be the worst asset class in this scenario.

The ability to hedge the right tail scenario is very challenging, even for sophisticated funds. Under the right tail risk scenario, the economic and capital market outlook would offset hard assets' valuation. A long volatility strategy may be useful but is limited to very sophisticated funds. 

A long volatility strategy would also be expensive as positive carry disappeared a decade ago. Gold is the only effective right tail hedge for the majority of funds and individuals. Gold is liquid, has no carrying cost, is easy to understand and has a long proven history against this type of tail risk that spans many centuries.

Pre-GFC, the probability of the right tail risk described above was remote at best, akin to science fiction. Post-GFC and pre-COVID, it was a possibility but rather unlikely. 

Post-COVID and with the entire world at the highest leverage-to-debt ever, it is now firmly possible though obscured by the sheer level of central bank liquidity. If there is another deflation shock, then the probability curve shifts higher again. 

The nature of this right tail risk is a significant wipeout of wealth, and history is replete with such examples. For large funds and wealthy individuals, this tail risk cannot be ignored entirely as the consequences are existential for capital preservation.  

Most funds are short volatility type funds from a risk point of view and have very little if any long volatility tail protection for either of the described left or right scenarios. 

The surge in gold holdings is early recognition of this risk, but gold still remains well under-owned.

Gold: Right Tail Optionality, Convexity and Lower Volatility

Gold price behavior under the right tail risk scenario will be different; it will likely feature very high levels of convexity. The first will be price movement similar to what we have seen this year. 

The second feature will probably be heavy call option buying and the accompanying dealer gamma hedging driving prices higher (i.e., Nasdaq summer 2020 type action). 

The third will be volatility expansion similar to the late 1970s when realized volatility tripled.

Holding gold in a diversified portfolio has a long history of lowering overall volatility and improving efficiency. As a left tail hedge against a deflationary shock, gold has now likely surpassed bonds as well. But as a right tail hedge, there is no other asset other than gold that we believe provides right tail optionality with convexity.  


1 1 Gold bullion is measured by the Bloomberg GOLDS Comdty Index.

2 2 Spot silver is measured by Bloomberg Silver (XAG) Spot Rate.

3 3 Sprott Gold Miners Exchange Traded Fund (NYSE Arca: SGDM) seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index, the Solactive Gold Miners Custom Factors Index (Index Ticker: SOLGMCFT). The Index aims to track the performance of larger-sized gold companies whose stocks are listed on Canadian and major U.S. exchanges.

4 4 VanEck Vectors® Gold Miners ETF (GDX®) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index (GDMNTR), which is intended to track the overall performance of companies involved in the gold mining industry. The SPDR Gold Shares ETF (GLD) is one of the largest gold ETFs.

5 5 The U.S. Dollar Index (USDX, DXY, DX) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies.

6 6 The S&P 500 or Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. (TR indicates total return and reflects the reinvestment of any dividends).

7 7 M2 is a measure of the money supply that includes cash, checking deposits, and easily convertible near money.M2 is a broader measure of the money supply than M1, which just includes cash and checking deposits.M2 is closely watched as an indicator of money supply and future inflation, and as a target of central bank monetary policy.

8 8 Treasury inflation-protected securities (TIPS) are a type of Treasury security issued by the U.S. government. TIPS are indexed to inflation in order to protect investors from a decline in the purchasing power of their money.

9 9 Tail risk is a form of portfolio risk that arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution. Tail risks include events that have a small probability of occurring, and occur at both ends of a normal distribution curve. 

Politics, Science and the Remarkable Race for a Coronavirus Vaccine

The furious race to develop a coronavirus vaccine played out against a presidential election, between a pharmaceutical giant and a biotech upstart, with the stakes as high as they could get.

By Sharon LaFraniere, Katie Thomas, Noah Weiland, David Gelles, Sheryl Gay Stolberg and Denise Grady

Stéphane Bancel, Moderna’s chief executive, agreed to team up with the federal government to develop a vaccine, a partnership that managed to sidestep the political meddling from the White House that had bedeviled other efforts to confront the virus.Credit...Cody O'Loughlin for The New York Times

WASHINGTON — The call was tense, the message discouraging. Moncef Slaoui, the head of the Trump administration’s effort to quickly produce a vaccine for the coronavirus, was on the phone at 6 p.m. on Aug. 25 to tell the upstart biotech firm Moderna that it had to slow the final stage of testing its vaccine in humans.

Moderna’s chief executive, Stéphane Bancel, a French biochemical engineer, recognized the implication. In the race to quell the pandemic, he said, “every day mattered.” Now his company, which had yet to bring a single product to market, faced a delay of up to three weeks. Pfizer, the global pharmaceutical giant that was busy testing a similar vaccine candidate and promising initial results by October, would take the obvious lead.

“It was the hardest decision I made this year,” Mr. Bancel said.

Moderna’s problem seemed fitting for late summer 2020, when the United States was reeling from not just a pandemic but unrest over racial injustice. Dr. Slaoui informed Mr. Bancel that Moderna had not recruited enough minority candidates into its vaccine trials. If it could not prove its vaccine worked well for Black and Hispanic Americans, who have been disproportionately affected by the pandemic, it would not make it over the finish line.

Both companies ultimately completed the crucial stages of their human trials this month and reported spectacular initial results, vaccines that appear to be about 95 percent effective against a virus that has killed 1.3 million people, a quarter million of them in the United States.

Few corporate competitions have unfolded with so much at stake and such a complex backdrop. At play were not just commercial rivalries and scientific challenges but an ambitious plan to put the federal government in the middle of the effort and, most vexingly, the often toxic political atmosphere created by President Trump. Betting that a vaccine would secure his re-election, he waged both public and private campaigns to speed the process.

Pfizer’s chief executive, Dr. Albert Bourla, had vowed to avoid the political minefield but was forced to maneuver through it nonetheless. After promising progress on a timetable that seemed to support Mr. Trump’s prediction of a breakthrough before Election Day, Dr. Bourla pushed back the schedule in late October, fearing his firm’s clinical trial results would otherwise not be convincing enough for federal regulators to grant emergency approval of its vaccine. News of Pfizer’s success was announced just after the election was called for Joseph R. Biden Jr.

Dr. Bourla had chosen from the start to keep Pfizer and its research partner, the German firm BioNTech, at arms length from the government, declining research and development money from the crash federal effort, called Operation Warp Speed.

Mr. Bancel, with a far smaller company, made the opposite bet, embracing the assistance of a government led by a science-denying president. Moderna got nearly $2.5 billion to develop, manufacture and sell its vaccine to the federal government and teamed up with the National Institutes of Health on the scientific work, a highly successful partnership that managed to sidestep the political meddling by Mr. Trump and his aides that had bedeviled other efforts to confront the virus.

Pfizer and Moderna alone would not meet domestic or global demand, but other companies in the United States and around the world are also rushing toward effective vaccines, some of them using more proven technologies, so other winners are likely to emerge.

Still, both companies, in their own very different ways, have pulled off a remarkable feat: developing a vaccine that appears safe and effective in a matter of months, rather than the years or decades that such developments usually take. They were aided by a confluence of three factors. A new method of developing vaccines was already waiting to be tested, with the coronavirus a perfect target. Sky-high infection rates accelerated the pace of clinical trials, the most time-consuming part of the process. And the government was willing to spend whatever it took, eliminating financial risks and bureaucratic roadblocks and allowing mass production to begin even before the trials were done.

Their apparent success showed that in an era of polarized politics, science was able to break down barriers between government, countries and industry to produce one of the few pieces of good news in a year of suffering and division.

The outbreak spreading in China in January had the hallmarks of a prolonged, pandemic. Credit...Hector Retamal/Agence France-Presse — Getty Images

‘Are you sure we should be doing this?’

Mr. Bancel was in Switzerland for a business conference in January when he heard of a deadly new viral outbreak in Wuhan, China. He immediately reached out to two N.I.H. vaccine experts with whom his company had been working for years to develop technology that could be used to design vaccines, a sort of plug-and-play system that would revolutionize how humanity confronts new pathogens.

If the systems worked, designing a vaccine would be done in days. The task remaining would include time-consuming trials to ensure the vaccine worked and was safe, a process that brooked no shortcuts.

Unlike older, slower ways of developing vaccines, which involve stimulating the body’s immune system by injecting inactivated or weakened viruses, Moderna and other companies created platforms that work like the operating system on a computer, allowing researchers to quickly insert new genetic code from a virus — like adding an app — and create a new vaccine.

The method employs a synthetic form of a genetic molecule called messenger RNA, or mRNA, to cause human cells to make a harmless viral protein called a spike, which then stimulates the immune system to make antibodies and immune cells that can recognize the spike quickly and counterattack when needed.

Earlier efforts to test new types of vaccines in outbreaks like SARS, MERS and Zika had fizzled when the threat from those viruses receded, before large clinical trials could be carried out. But the outbreak spreading in China had the hallmarks of a prolonged pandemic, a tragedy but also a perfect testing ground for the new biotechnology.

Mr. Bancel, 48, had what one former colleague described as a “warrior personality.” He had left a much bigger firm to become chief executive at Moderna in 2011, warning his wife that the firm’s mRNA bet had a 5 percent chance of success. But if that bet paid off, he told her, it would change the course of medicine.

In late 2019, he said, the Vaccine Research Center at N.I.H. agreed to stage a war game of sorts the following spring, a mock pandemic with a virus unknown to Moderna to see how quickly the company could come up with a vaccine.

Now, with an actual pandemic at hand, Mr. Bancel wanted to try out Moderna’s approach for real.

He described his team’s reaction as: “Here he goes again. He’s crazy.”

“Are you sure we should be doing this?” Dr. Stephen Hoge, the company’s president, asked him at a February executive committee meeting.

Moderna employed only 800 people, including a manufacturing team. Twenty vaccines and treatments were in development, but none were expected to come to market for at least two years. It had never run a Phase 3 clinical trial, the late-stage testing designed to determine whether a vaccine is safe and effective for humans.

Some Moderna executives suggested taking a stab at a vaccine for a few months, then reassessing. But Juan Andres, the company’s chief technical operations and quality officer, said he warned: “Sorry, guys, there is no exit on this highway. If we are in, we are in.”

N.I.H. got in with them. Dr. John R. Mascola, the head of the Vaccine Research Center, and Dr. Barney Graham, the center’s deputy director, proposed the partnership to Dr. Anthony S. Fauci, the director of the National Institute of Allergy and Infectious Diseases.

“Go for it,” Dr. Fauci said he told them. “Whatever it costs, don’t worry about it.”

Moderna’s goal was to get from a vaccine design to a human trial in three months. The design came quickly. “This is not a complicated virus,” Mr. Bancel said.

Dr. Graham said that after China released the genetic sequence of the new virus, the vaccine research center zeroed in on the gene for the virus’s spike protein and sent the data to Moderna in a Microsoft Word file. Moderna’s scientists had independently identified the same gene. Mr. Bancel said Moderna then plugged that data into its computers and came up with the design for an mRNA vaccine. The entire process took two days.

N.I.H. scientists were “really hot” on the mRNA approach, Dr. Fauci said. But it was not Moderna’s alone.

Before the pandemic, Moderna had never run a Phase 3 clinical trial, the late-stage testing designed to determine whether a vaccine is safe and effective for humans.Credit...Cody O'Loughlin for The New York Times

In Germany, husband-and-wife scientists Dr. Ugur Sahin and Dr. Özlem Türeci were on the same path. Their firm, BioNTech, had been working with Pfizer for several years to develop a new flu vaccine with the same mRNA technology that Moderna was using. Dr. Sahin said he asked a Pfizer executive on March 1 if the company wanted to chase a coronavirus vaccine.

Dr. Bourla, Pfizer’s top executive, conceded that when the virus first emerged, he “wasn’t under the impression at the time that this would become a major global issue that would require a major intervention from us.”

Born in Greece, a veterinarian by training, he had worked his way up over more than two decades from Pfizer’s animal health division to the chief executive’s office in 2019. Initially, the 59-year-old executive was mostly focused on protecting the company’s 90,000 employees in locations around the world.

But once he learned of the Germans’ proposal, he and his company moved quickly. Pfizer agreed to front BioNTech’s development costs and manage the clinical trials, manufacturing and distribution. BioNTech agreed to pay Pfizer back out of any profits, which would be split.

Some of Dr. Sahin’s colleagues cautioned him to wait for a formal contract before he gave Pfizer data about the vaccine. Dr. Sahin said he replied there was “no time to lose.” Pfizer dispatched its corporate jet to Germany to ferry samples of the BioNTech vaccine to the company’s research center in Pearl River, N.Y., to start testing it on animals.

“For Pfizer, this is as much public relations as it is a financial return — they very much want to be seen as part of the solution,” said Geoffrey Porges, an analyst for SVB Leerink, an investment bank in Boston.

“For Moderna,” he said, “this is actually a huge validation opportunity.”

Vice President Mike Pence and President Trump giving an update to Operation Warp Speed in the Rose Garden this month.Credit...Anna Moneymaker for The New York Times

Operation Warp Speed is born.

As the economy shuddered to a halt last spring and deaths mounted in New York, Detroit and Chicago, administration officials proposed a coordinated effort to develop tests, treatments and vaccines for what was now clearly the gravest public health crisis in a century.

Operation Warp Speed was the brainchild of Dr. Peter Marks, the top vaccine regulator for the Food and Drug Administration. A collaboration between the Pentagon and the Department of Health and Human Services, it was devised to support pharmaceutical and biotechnology companies with the full breadth of the government’s expertise from clinical trials to logistics. The goal for a vaccine was October, according to an early memo.

The president was especially enthusiastic about that aim. At a March 2 White House meeting, as Mr. Bancel and other pharmaceutical executives outlined their vaccine plans, Dr. Fauci cautioned that it would be a “year to a year and a half” before doses could reach the broader public.

Mr. Trump replied, “I like the sound of a couple of months better.”

Warp Speed had two leaders. In charge of science was Dr. Slaoui, who had led research and development at the drug maker GlaxoSmithKline for years and had served on Moderna’s board of directors. In charge of logistics was Gen. Gustave F. Perna, a four-star general who led the Army Matériel Command.

The operation, working out of a seventh-floor suite and a second-floor operations center at the Health and Human Services headquarters, had a military flavor. Its leaders discussed the book “Freedom’s Forge,” an account of how American industry armed the military in World War II, and imposed what they called a “battle rhythm” of meetings, including a daily 8 a.m. session on vaccines. Dozens of military officers reported to work in uniform.

The biggest decision, Dr. Slaoui said, was which vaccine candidates to back out of almost 50 possible contenders. His team decided on three types of vaccines, each to be pursued by two companies in case one firm failed. Federal officials referred to the finalists as “horses,” a nod to the race between them.

Moderna and Pfizer would pursue the mRNA vaccines, seen as the fastest to develop. The government was ready to foot much of the development bill, guide the clinical trials and even deliver supplies to factories.

Dr. Bourla was not interested. As one of the world’s top vaccine producers, Pfizer did not need federal help in developing a new product, he decided, and with nearly $52 billion in annual revenues, it did not need or want the subsidy.

“If we were unsuccessful, we would have to write off $2 billion” in vaccine development costs, Dr. Bourla said at The New York Times DealBook Online Summit this week. “This is painful for any corporation, but it was not going to break us.”

In an interview Friday, he said that he worried that government oversight would slow his firm’s work, not accelerate it. And he feared federal funding would come with strings attached.

“I didn’t feel that I wanted to end up getting into the political debate, which I’m not sure I was able to avoid by not taking money,” Dr. Bourla said. “But if I had taken money, it would have been much worse.”

Pfizer signed a $1.95 billion agreement in July to sell the federal government 100 million doses of its vaccine if it was successful, guaranteeing it a buyer, no small incentive. It also called on the Trump administration a few times to get access to manufacturing supplies. Otherwise it was on its own.

Moderna had no qualms about government help. “Guys, we don’t have a balance sheet like Pfizer,” Mr. Bancel said he told federal officials.

Nearly $2.5 billion in federal funds helped Moderna buy raw materials, expand its factory, and enlarge its work force by 50 percent. In return, it promised to deliver 100 million doses to the federal government.

It got expertise, too. Operation Warp Speed had created six teams of around 15 clinical trial specialists, epidemiologists and budget experts, each assigned to a different vaccine maker.

Senior leaders convened weekly check-ins with companies’ clinical trial heads, tracking recruitment of trial participants and covering whiteboards with potential distribution plans.

Moderna’s team was headed by a Defense Department official whom company executives described only as “the major,” saying they don’t know if his name is supposed to be a secret. One top Warp Speed official described an atmosphere of “utter terror” about a late fall and winter surge of infections. In one doomsday scenario officials envisioned, a Covid-19 factory outbreak could spoil three months of vaccine doses.

When Moderna discovered this summer that an air handling unit for its factory could not be delivered over a weekend because of Covid-19 limitations on interstate trucking, the major’s team stepped in. Warp Speed officials arranged a law enforcement escort to accompany the massive piece of equipment from the Midwest to its Massachusetts manufacturing plant.

The team again sprang into action when Moderna discovered that a specialized pump, needed to make the first batches of vaccine for the clinical trials, was marooned in a rail car and was not going to be delivered on time. Federal workers tracked down the train and rummaged through it until they found the pump.

“They put it on a plane, and it arrived on time,” Mr. Andres, the company’s operations chief, said.

The interventions, he said, were “absolutely instrumental.”

Cars in line at a testing site in Mandan, N.D., on Wednesday. The virus continues to ravage the midwest.Credit...Tim Gruber for The New York Times

‘We needed to speak up.’

By early fall, political pressures that had been building all year burst into the open. Federal regulators were trying to issue guidelines to ensure enough follow-up of clinical trial participants to make sure the vaccines were safe, but White House officials were blocking them. The president was attacking F.D.A. officials as antagonists intent on thwarting his re-election.

Dr. Bourla had been dragged into the political thicket, in part because of his own promises that Pfizer expected clinical trial results by October. The president ballyhooed that deadline on the campaign trail, and tried to publicly link himself to Pfizer’s leader.

Dr. Sahin, of BioNTech and Pfizer’s partner, said Dr. Bourla was trying to manage “an uncomfortable situation.” But when the president went after the F.D.A., Dr. Bourla drew a line, deciding that public confidence in a vaccine was at stake. “We had statements against the F.D.A., the deep state, et cetera, that really were concerning for me,” he said. “We needed to speak up.”

He called Alex Gorsky, the chief executive of Johnson & Johnson, another leading contender in the vaccine race, then recruited leaders from other companies. Together, they drafted a statement that said the industry would “stand with science” and follow F.D.A. guidelines. By Sept. 8, nine companies, including Moderna, had signed on.

At the same time, hitches in the design and execution of the clinical trials were emerging. Both Pfizer and Moderna were facing the problem of too few minority volunteers, but Pfizer had the deep pockets to solve it. The firm expanded its trial from 30,000 to 44,000, a decision that Dr. Eric Topol, a clinical trial expert with Scripps Research in La Jolla, Calif., estimated cost the firm hundreds of millions of dollars.

When Dr. Slaoui from Operation Warp Speed called Moderna’s chief executive to say Moderna had to recruit more minorities, it came as a body blow. Dr. Slaoui told a colleague afterward: “I just burned all our relationship” with Moderna.

Dr. Fauci met with Moderna’s trial investigators and enlisted N.I.H. experts to help the company reach more Black and Hispanic volunteers. While Moderna won plaudits for diversifying its pool, Pfizer, whose trial was already designed to reach a result quicker than Moderna’s, was now indisputably ahead.

But Pfizer faced its own crisis.

A researcher at the Center for Virology and Vaccine Research at Beth Israel Deaconess Medical Center in Boston. The center has been developing a coronavirus vaccine with Johnson & Johnson.Credit...Tony Luong for The New York Times

In a double-blind clinical trial, the gold standard for testing new medicines or vaccines, neither the company nor the participants know who receives vaccines and who gets placebos. Only an independent review board has access to that information.

The protocols for the trials lay out under what conditions the board can look at the results. Pfizer’s trial protocol was the most aggressive of all six vaccine candidates, allowing for a check of interim results once 32 participants developed Covid-19.

It was a lower benchmark than Moderna and the other companies had adopted and F.D.A. regulators warned Pfizer they were highly unlikely to issue an emergency use authorization for a coronavirus vaccine based on such a small data set. Outside experts criticized Pfizer for allowing itself to peek at the data too early and too often.

Pfizer decided it should drop that first benchmark and asked the F.D.A. to approve a new protocol on Oct. 29, effectively dashing Mr. Trump’s hopes of an announcement before Election Day.

The company also stopped processing test results from trial participants while it worked with the F.D.A. Protocol changes are discouraged once data is available, and Pfizer did not want to cross the benchmark before it got verbal approval to drop it. That approval came on Nov. 3, Election Day, or the day after.

The delay later enraged Mr. Trump, who claimed it was part of a conspiracy to damage his chance at re-election. Dr. Bourla said he turned a blind eye to the Election Day deadline.

“Before, people were saying it’s too soon,” he said. After the election, “people are saying, ‘Oh, it’s too late.’”

Once Pfizer resumed processing test swabs on Nov. 4, it quickly became apparent that the infection rate had skyrocketed, as it had nationwide and in other countries.

With 94 Covid-19 cases, the company asked the data monitoring board to reveal the results.

Heather Lieberman, 28, participates in a coronavirus vaccine trial at the Research Centers of America in Hollywood, Fla., in August.Credit...Chandan Khanna/Agence France-Presse — Getty Images

Stunned silence, then hugs and tears

On Sunday morning, Nov. 8, Dr. Bourla headed to Pfizer’s office in Cos Cob, Conn., to hear the verdict with a few top aides. “I couldn’t sleep very much,” he said.

A Pfizer statistician, who was walled off from the rest of the company, was to deliver the news from the data monitoring board in a video conference.

“We had a very good result,” the man announced in the early afternoon. He said Pfizer should immediately ask the F.D.A. to grant it emergency use authorization — a step the firm took on Friday.

The room erupted in cheers. Executives hugged, ignoring social distancing rules.

Then everyone was ushered from the room except Dr. Bourla and Pfizer’s general counsel, Doug Lankler, so the two men could hear a breakdown of the data that showed the vaccine was more than 95 percent effective. Of 94 people who had gotten sick, they were told, 90 were in the placebo group and only four were in the vaccine group.

“Repeat it,” Dr. Bourla demanded. “Did you say 19 or 90?”

“We were shocked,” he said in the interview. “We couldn’t believe it.”

That evening, Pfizer officials informed a key F.D.A. official of its news, along with a short list of others. Biden’s team was alerted to the development that night. But in a sign of the suspicions that mark the Trump administration, the president’s top health officials did not learn of the news until the next morning, when it became public.

Mr. Trump’s anger about the timing has not abated. In a news conference on Friday, he suggested Pfizer and other drugmakers had taken revenge on him for pushing drug price controls.

“They were going to come out in October, but they decided to delay it because of what I’m doing,” he grumbled. “They waited and waited and waited.”

Moderna had to watch Pfizer cross the finish line first. But Pfizer’s results buoyed the company’s hopes.

On Sunday, expecting the results from Moderna’s trial, Mr. Bancel closeted himself in a home office in his Boston townhouse. “I’m going to be totally a wreck the whole day,” he told his wife.

Just after noon, a notice shot across Moderna’s secure chat system to join a virtual meeting. With about a dozen other members, Mr. Bancel listened to the flat, disembodied voice of a representative from the outside panel.

The results were remarkably like Pfizer’s: Out of 95 infections, 90 were in the placebo group and five in the vaccine group.

Then the outside panel broke down the cases by severity of illness, a critical measure of the vaccine’s potency.

Eleven volunteers had developed severe illness, the voice said. Then came a pause that Mr. Bancel said “felt like forever,” before the final word: Every one of them had gotten the placebo.

He ducked out into the hallway to tell his wife. His 19-year old daughter raced down from the second floor. His 16-year-old flew up the basement stairs.

“The four of us were crying,” he said.

Carl Zimmer contributed reporting from New York. Kitty Bennett contributed research.

Sharon LaFraniere is an investigative reporter. She was part of a team that won a Pulitzer Prize in 2018 for national reporting on Donald Trump’s connections with Russia. @SharonLNYT

Katie Thomas covers the business of health care, with a focus on the drug industry. She started at The Times in 2008 as a sports reporter. @katie_thomas

Noah Weiland is a reporter in the Washington bureau of The New York Times, covering health care. He was raised in East Lansing, Michigan and graduated from the University of Chicago. @noahweiland

David Gelles is the Corner Office columnist and a business reporter. Follow him on LinkedIn and Twitter. @dgelles

Sheryl Gay Stolberg is a Washington Correspondent covering health policy. In more than two decades at The Times, she has also covered the White House, Congress and national politics. Previously, at The Los Angeles Times, she shared in two Pulitzer Prizes won by that newspaper’s Metro staff. @SherylNYT

Denise Grady has been a science reporter for The Times since 1998. She wrote “Deadly Invaders,” a book about emerging viruses. @nytDeniseGrady