Before we get started today, let's take a minute to review...
...and on Thursday? 4/02 216,722
That looks like exponential growth to us.
Now that the administration is "all in" on social distancing as America battles what is now the biggest novel coronavirus outbreak in the world, President Donald Trump warned that Americans are heading for a "horrendous" two or three weeks as they hunker down at home, reiterating his warning about "painful" times ahead, while raising the possibility that the government might shutter all remaining domestic flights between coronavirus 'hot spots' in the US like NYC and Miami.
Looking ahead, economists are bracing for Thursday's initial jobless claims to jump as much as 5 million - maybe even 6.5 million - after yesterday's ADP report on private employment, and after last week's record 3.3 million jump.
"I am looking where flights are going into hot spots.” Trump replied when asked if he was considering a temporary ban on all domestic flights. "Some of those flights I didn’t like from the beginning, but closing up every single flight on every single airline, that’s a very, very, very rough decision. But we are thinking about hot spots, where you go from spot to spot, both hot. And we’ll let you know fairly soon."
"We’re certainly looking at it but once you do that you really are clamping down on an industry that is desperately needed," Trump said.
On Thursday morning, the number of confirmed cases in the US climbed above 5,000 (it was 5,137 when we last checked), while the number of confirmed cases has climbed above 200k (to 216,722). This, after Vice President Pence said during last night's press conference that models suggest the US is facing a trajectory similar to Italy’s, the country with the highest number of coronavirus deaths with more than 13k.
NYC remains the epicenter in the US, with more than 1,374 deaths, more than double the death toll from the rest of the state (585). The global case count is quickly heading toward the big 1 million (last count: 939,436) as case numbers in the US and Europe surge (even as Italy and Spain show the first signs of a 'plateau' of new cases) while China, South Korea and other Southeast Asian nations and territories (Thailand, Malaysia, Hong Kong) report a second wave. Around the world, 76,836 cases were reported yesterday.
More than 10,000 people have now died in Spain after contracting coronavirus, with a record 950 of them dying on Wednesday, the latest in a grim streak of daily death-toll records. Death toll records released Thursday morning in Spain showed the official death toll hitting 10,003, up from 9,053 the day before.
Spain now has 110,238 confirmed cases of coronavirus, an 8% increase. Though that's slowed from the ~25% daily jumps seen earlier this month, it doesn't change the fact that Spain is 2.5 weeks into a shelter in place-style lockdown. Thanks to the lockdown, Spain recorded its biggest jump in unemployment in its history, with more than 800,000 people filing for benefits last week.
As it turns out, the US isn't the only developed western country that is ill-prepared to ramp up testing for the novel coronavirus: As angry tabloid headlines bash the British government, led by a currently sickened PM Boris Johnson, a top British health official expressed frustration with the government's struggles to provide enough tests, claiming that "everybody involved is frustrated" as the UK scrambles to ramp up testing, the FT reports.
Fortunately, London's Francis Crick Institute has developed a rapid diagnostic coronavirus test and says it hopes to test 500 frontline workers a day from next week.
Though the US government is preparing to bail out American airlines, international airlines remain locked in a free fall: On Thursday, British Airways is expected to announce plans to suspend about 32,000 employees as it seeks to cut costs now that nobody is flying unless they absolutely need to.
As businesses continue to struggle with planning for the future, a new report from the UN Department of Economic and Social Affairs said the global economy could shrink by almost 1% before year's end. Before the outbreak, they had anticipated growth of 2.5%, the Washington Post reports.
Now that the 2020 Tokyo Games have been officially postponed until next year (they're still the 2020 Games though), Japan can focus on fighting the virus without that albatross around its neck: But as the country stands "on the very brink" of a coronavirus crisis, Prime Minister Shinzo Abe has resisted calls to try and enforce a state of emergency and other measures. Instead, he's planning to send every household two small washable cloth masks, a decision that has earned him no shortage of ridicule.
Abe's "two masks" plan was brutally mocked on social media, with many questioning how the masks would be split between a whole family.
Tokyo alone reported 97 new cases on Thursday, a new record high, and the latest in a two-week resurgence that has turned back the clock on Japan's fight against the virus.
As more government officials catch the virus, the Philippine ambassador to Lebanon died of complications arising from the virus this week, the country’s Department of Foreign Affairs announced on Thursday. Ambassador Bernardita M. Catalla, a nearly 30-year veteran of the diplomatic corps., died in Beirut early Thursday morning.
Finally, as Indians continue to grumble about that the inept implementation of that country's three-week lockdown, imposed despite a relative dearth of cases as officials feared rapid spreading in the country's slums, the death of a middle-aged man in Mumbai’s Dharavi slum has stoked worries about the highly contagious virus ripping through what's widely regarded as the largest slum in Asia.
Germany and their moral poses... a century of Europe cries, “Enough!”
It’s hard for those living outside of Europe to understand the resentment towards Germany; Germans themselves often seem totally oblivious – the “German professor” only ever sees bad, unruly students, after all.
When I first moved to Paris in 2009 I remarked how all the Germans I met were so very nice. I was told, “They have to be, after what they’ve done.”
Hardly. Ignoring history is not politeness or PC progress or evidence of forward-thinking: it’s denial, hysteria and illusory thinking.
To paraphrase Henny Youngman: Take my Mutti – please. Angela Merkel is my generation’s Margaret Thatcher. When Thatcher died there were street parties in the UK, which were brutally repressed by cops, but the billionaire-directed Western Mainstream Media ordered paeans to be penned instead.
For Merkel there has similarly never been anything but fawning coverage, as evidenced – aggravatingly – by this recent story from the Associated Press: Merkel shines in handling of Germany’s coronavirus crisis.
Why such love for an abusive mother? Because she certainly hasn’t abused the German 1%: under Merkel German corporations have re-colonised much of Central Europe, they have extracted as much wealth as possible from weaker Eurozone nations like Greece, and downward pressure on wages was maintained on the German post-Hartz Re(De)forms workforce via the importation of hundreds of thousands of skilled Syrians and detested “minijobs”.
On a pan-European level ever since 2008, and even in the heat of the 2012 European Sovereign Debt Crisis, we have Germany’s constant refusal for “more Europe”, which is the only possible way to save this (atrocious, anti-democratic, unaccountable, corrupt, American-penned, socialism-detesting) version of the pan-European project. Germany refuses to collateralise Eurozone debt, even though it is Germany who would collect as they are the debtors, because Germany doesn’t want mere dead gold but living debt slaves.
The Eurozone is simply so riddled with contradictions and stupidities it just defies journalistic explanation:
Germany just doesn’t get it – for every country with an export surplus, there simply has to be a country with a corresponding deficit. It was German (and French) banks who signed off on the bad loans to the “immoral” Greeks which precipitated the biggest Eurozone problems, and yet it is German banks who got bailed out, despite their errors; and yet it is German banks who got QE to loan; and yet it is German banks which didn’t loan a dime of QE, and certainly not to Greeks. Germany is the biggest recipient of the ECB bond-buying, even though they don’t need it, whereas Greece was excluded even though they need it?
Crazy, but let’s look at Germany’s explanation for all these selfish actions action: moral hazard. They simply cannot perpetuate immorality, and deficits (even if to pay for the elderly, the poor, health care, education, etc.) are immoral. Haven’t you read your Kant, and his OCD-morality? German absolutism is absolute; their personal conscience must be clean no matter how many murderers must be let in the door to commit murder.
So… explain your €822 billion bailout, Germany?
Wait – what? A bailout worth 22% of annual German GDP?
What happened to budget rigour and the moral imperative of balanced budgets? What happened to the total, facile nonsense that a national economy is simply a household writ large? What happened to Yanis Varoufakis recycling absurd stereotypes like “Teutonic discipline” (has he never seen an Oktoberfest?)?
Oh, I get it… Germany is in a crisis – EU deficit rules need to be relaxed.
However: Greece and others were in a crisis for years – why didn’t their crises matter?
(Millions starving in Yemen, millions dying of bad water globally, deaths from natural disasters – indeed, why does the Corona crisis matter so very, VERY much more than those crises? I just can’t comprehend the West’s crisis criterion.)
But it gets worse with Germany: Bailouts for Greece and other crisis-hit nations were contingent on forcing open their economies. German and Dutch companies gleefully bought up assets and market share, and forced in their products but now Germany Will Block Foreign Takeovers to Avoid Economy Sell-Out?
It’s disgusting, German hypocrisy.
But Europeans have been dealing with this for quite some time. In January I wrote this article to explain Europe’s perpetual stagnation and unrest: 1941, 1981, 2017 or today – it’s still Germany’s fault.
Need more? In 2017, foolishly assuming that QE would actually end, I wrote France’s historic effort for an anti-austerity Eurozone, which detailed the self-harming, wooing efforts from De Gaulle to Mitterrand to Hollande aimed at ending this historical trend: “France wanted to not be conquered by the US-German alliance, so they kept proposing a Franco-German (capitalist) alliance.”
Ramin, you seem rather anti-German. Are you a tribalist-racist?
No. What I am is a daily hard news journalist in the heart of Europe and I am fed up with reading lecture after lecture from Germany; hypocrisy after hypocrisy; duplicity upon duplicity.
Just tell me this: where is the “moral hazard” in the Corona crisis, Germany?
Shine a light on that for me, Mutti Merkel.
She cannot. There is none.
There are healthy companies – who have as much Teutonic economic discipline, intelligence and good DNA as a pure and spotless German – in places like Italy which are going to go under without something like Corona-bonds to provide financing wrought by the Marxist logic-defying Western shutdown.
Forget it – shot down already by Germany and their Dutch toadies. Same old story….
The corona overreaction defies Marxist logic and is economic suicide (socialist-inspired nations like China and Iran control their economies, so they can do things which the corporate-dominated West cannot) but yet another German refusal to help, to pool debt and risk, to show solidarity means Germany must leave the Eurozone.
Hell, we KNOW they have the money – while they have had their boots on the throats of people like the Greeks the Germans have also been assiduously picking their pockets. Germany can afford such a staggeringly huge bailout because of these incredibly immoral profits! Oh no Ramin, you’re wrong – they got those profits simply because German capitalists are so very moral. Sure, sure….
German bankers entrapped poorer Eurozone countries into debt slavery, and now that their slaves are sick Germany wants a quarantine?
You’ll never read such analyses in the West, that’s for sure, but what is absolutely, absolutely certain is that the average Eurozone citizen knows what I am talking about already. Anti-German sentiment is going to absolutely explode if Germany’s historical pattern – pro-US imperialism, anti-European project, self-interest above solidarity – continues.
Everybody in Europe (and the whole world) has seen how China, and not Germany, is the one sending supplies to corona-hit Italy. Yes, the Eurozone’s terrible structure means it is always fiddling while Rome burns, but I truly believe that German (capitalist-imperialist) leadership simply doesn’t care.
Of course there are good Germans who want Corona bonds, but the simplest solution to the Eurozone’s crisis has always been to expel Germany.
“If Germany is unwilling to take the basic steps needed to improve the currency union, it should do the next best thing: Leave the eurozone.”
That’s an assessment from Nobel Prize-winning economist Joseph Stiglitz. Yes, I did write ‘The Euro’ by Stiglitz: Even fake leftists say ‘exit’, but the point is that only far-right neoliberals don’t see that a “Deutsch-parture” can painlessly end the Eurozone’s near-constant stagnation and dissension. The Netherlands can similarly be invited to leave as well.
Unless naked, would-be German emperors can finally get off their high horses and on board with morality and unity – via something like Corona bonds – a huge explosion of jingoism and neo-fascism in the Eurozone is around the corner.
Fine by me I guess – history shows that this is the last step before socialism because: how can fascism ever possibly succeed for the lower classes? It seems some Western nations need to go through this step (yet again) before accepting that the needs of workers, not bankers, and the poor must always be predominant in political policy.
As bodies pile up at New York City area hospitals, 45 refrigerated tractor-trailers were dispatched to the city to act as temporary morgues last month. We noted last week that morgues in the city were "nearing capacity" and would be full by the first week of April.
In a matter of weeks, the city has transformed into the epicenter of the COVID-19 outbreak in the US, with 1,714 deaths and 76,049 confirmed cases (as of Wednesday, April 1).
Makeshift morgues line the streets around some area hospitals in Manhattan, are being used to relieve the stress of the hospital system that has been overwhelmed with COVID-19 patients.
New video (not mine) from #NYC where bodies of the victims of #COVID19 line the sidewalk outside a hospital for transfer to a mobile morgue unit. #NewYork #coronavirus #FlattenTheCurve #CoronaUpdate #Quarantine @NYCEMSwatch pic.twitter.com/sJm6gQh7qT— Sam (@gotmybelton) March 29, 2020
“We’re putting them out near major hospitals as a precautionary measure to prepare for the worst-case scenario," a spokesperson said.— QuickTake by Bloomberg (@QuickTake) March 25, 2020
New York City is building a temporary morgue to deal with an expected influx of deaths from the coronavirus outbreak pic.twitter.com/xcc0fNB9Ex
For those of you who continue to think or say that #Covid-19 is being exaggerated or its not that big of a deal. You can see in this video hospital workers in New York dragging dead bodies into 53'ft trailers.— UNREGULATED MEDIA (@unregulatedm) March 31, 2020
Still dont think its that serious? #stayhome and #stayhealthy pic.twitter.com/5fmEMj2S8R
Hospitals in New York have rented refrigerated trailers to store overflow bodies from the Coronavirus.— Frank Woods (@quantumscribe) March 30, 2020
Never have I seen a more incompetent and evil President - one who is responsible for this.
Trump has now joined the pantheon of serial killers and mass murderers of the past. pic.twitter.com/6QRgqCZTKk
The lower building in foreground is the Office of the Chief Medical Examiner of the City of New York, and the "morgue" for New York County = Manhattan. The white 40' refrigerated truck-trailer is for... exactly what you think it is for. pic.twitter.com/srZwVlaThK— Nero Claudius Drusus (@drususclaudius) March 26, 2020
In lower Manhattan, a large tent and tractor-trailers have been installed, which is acting as an overflow for the central morgue.
Last week, a shocking video showed a forklift raising a body into a makeshift morgue outside a Brooklyn hospital.
Now there's something even more shocking. On par to what we showed readers several months ago with body bags piling up at a Wuhan hospital. This time it's allegedly happening at Lenox Hill Hospital, a member hospital of Northwell Health, located in Manhattan's Upper East Side.
The disturbing video first shows the makeshift morgue outside of the hospital. Then transitions into a building, presumably inside the hospital, with black body bags scattered across several rooms and lining a hallway, suggesting that this hospital could have already hit full capacity.
Jack could you confirm whether the is Lenox hill hospital in Manhattan?— Johnny Bling 🇺🇸⭐⭐⭐ (@Fightba40518677) April 1, 2020
WARNING: Disturbing video pic.twitter.com/ZCiY5ZZCpX
And just in case the Twitter police delete the video, here are some screenshots of the video below:
We noted on Tuesday that US hospital systems had restricted doctors and nurses from sharing their accounts of how hospitals are running out of medical supplies and are being overwhelmed with the fast-spreading virus.
Dr. Sucharit Bhakdi, Professor Emeritus of Medical Microbiology at the Johannes Gutenberg University Mainz, released a now-viral video in which he calmly explained why nationwide lockdowns are “collective suicide”.
Now he has written an open letter to Chancellor Angela Merkel and it is fantastic...
A medical expert with integrity asks the German Chancellor five devastating questions about her mindless coronavirus lockdown...
As Emeritus of the Johannes-Gutenberg-University in Mainz and longtime director of the Institute for Medical Microbiology, I feel obliged to critically question the far-reaching restrictions on public life that we are currently taking on ourselves in order to reduce the spread of the COVID-19 virus.
It is expressly not my intention to play down the dangers of the virus or to spread a political message. However, I feel it is my duty to make a scientific contribution to putting the current data and facts into perspective – and, in addition, to ask questions that are in danger of being lost in the heated debate.
The reason for my concern lies above all in the truly unforeseeable socio-economic consequences of the drastic containment measures which are currently being applied in large parts of Europe and which are also already being practiced on a large scale in Germany.
My wish is to discuss critically – and with the necessary foresight – the advantages and disadvantages of restricting public life and the resulting long-term effects.
To this end, I am confronted with five questions which have not been answered sufficiently so far, but which are indispensable for a balanced analysis.
I would like to ask you to comment quickly and, at the same time, appeal to the Federal Government to develop strategies that effectively protect risk groups without restricting public life across the board and sow the seeds for an even more intensive polarization of society than is already taking place.
With the utmost respect,
Prof. em. Dr. med. Sucharit Bhakdi
* * *
In infectiology – founded by Robert Koch himself – a traditional distinction is made between infection and disease. An illness requires a clinical manifestation. Therefore, only patients with symptoms such as fever or cough should be included in the statistics as new cases.
In other words, a new infection – as measured by the COVID-19 test – does not necessarily mean that we are dealing with a newly ill patient who needs a hospital bed. However, it is currently assumed that five percent of all infected people become seriously ill and require ventilation. Projections based on this estimate suggest that the healthcare system could be overburdened.
Did the projections make a distinction between symptom-free infected people and actual, sick patients – i.e. people who develop symptoms.
A number of coronaviruses have been circulating for a long time – largely unnoticed by the media. If it should turn out that the COVID-19 virus should not be ascribed a significantly higher risk potential than the already circulating corona viruses, all countermeasures would obviously become unnecessary.
The internationally recognized International Journal of Antimicrobial Agents will soon publish a paper that addresses exactly this question. Preliminary results of the study can already be seen today and lead to the conclusion that the new virus is NOT different from traditional corona viruses in terms of dangerousness. The authors express this in the title of their paper „SARS-CoV-2: Fear versus Data“.
How does the current workload of intensive care units with patients with diagnosed COVID-19 compare to other coronavirus infections, and to what extent will this data be taken into account in further decision-making by the federal government? In addition: Has the above study been taken into account in the planning so far? Here too, of course, „diagnosed“ means that the virus plays a decisive role in the patient’s state of illness, and not that previous illnesses play a greater role.
According to a report in the Süddeutsche Zeitung, not even the much-cited Robert Koch Institute knows exactly how much is tested for COVID-19. It is a fact, however, that a rapid increase in the number of cases has recently been observed in Germany as the volume of tests increases.
It is therefore reasonable to suspect that the virus has already spread unnoticed in the healthy population. This would have two consequences: firstly, it would mean that the official death rate – on 26 March 2020, for example, there were 206 deaths from around 37,300 infections, or 0.55 percent – is too high; and secondly, it would mean that it would hardly be possible to prevent the virus from spreading in the healthy population.
Has there already been a random sample of the healthy general population to validate the real spread of the virus, or is this planned in the near future?
The fear of a rise in the death rate in Germany (currently 0.55 percent) is currently the subject of particularly intense media attention. Many people are worried that it could shoot up like in Italy (10 percent) and Spain (7 percent) if action is not taken in time.
At the same time, the mistake is being made worldwide to report virus-related deaths as soon as it is established that the virus was present at the time of death – regardless of other factors. This violates a basic principle of infectiology: only when it is certain that an agent has played a significant role in the disease or death may a diagnosis be made. The Association of the Scientific Medical Societies of Germany expressly writes in its guidelines: „In addition to the cause of death, a causal chain must be stated, with the corresponding underlying disease in third place on the death certificate. Occasionally, four-linked causal chains must also be stated.“
At present there is no official information on whether, at least in retrospect, more critical analyses of medical records have been undertaken to determine how many deaths were actually caused by the virus.
Has Germany simply followed this trend of a COVID-19 general suspicion? And: is it intended to continue this categorisation uncritically as in other countries? How, then, is a distinction to be made between genuine corona-related deaths and accidental virus presence at the time of death?
The appalling situation in Italy is repeatedly used as a reference scenario. However, the true role of the virus in that country is completely unclear for many reasons – not only because points 3 and 4 above also apply here, but also because exceptional external factors exist which make these regions particularly vulnerable.
One of these factors is the increased air pollution in the north of Italy. According to WHO estimates, this situation, even without the virus, led to over 8,000 additional deaths per year in 2006 in the 13 largest cities in Italy alone.  The situation has not changed significantly since then.  Finally, it has also been shown that air pollution greatly increases the risk of viral lung diseases in very young and elderly people. 
Moreover, 27.4 percent of the particularly vulnerable population in this country live with young people, and in Spain as many as 33.5 percent. In Germany, the figure is only seven percent . In addition, according to Prof. Dr. Reinhard Busse, head of the Department of Management in Health Care at the TU Berlin, Germany is significantly better equipped than Italy in terms of intensive care units – by a factor of about 2.5 .
What efforts are being made to make the population aware of these elementary differences and to make people understand that scenarios like those in Italy or Spain are not realistic here?
* * *
This is an unofficial translation; see the original letter in German as a PDF.
In late January we asked whether a prolific Chinese scientist who was experimenting with bat coronavirus at a level-4 biolab in Wuhan China was responsible for the current outbreak of a virus which is 96% genetically identical - and which saw an explosion in cases at a wet market located just down the street.
For suggesting this, we were kicked off Twitter and had the pleasure of several articles written by MSM hacks regarding our 'conspiracy theory' - none of which addressed the plethora of hard evidence linked in the post. These are the same people, mind you, who pushed the outlandish and evidence-free Trump-Russia conspiracy theory for years.
Whether or not the virus was engineered (scientists swear it wasn't) - it shouldn't take Perry Mason to conclude that a virulent coronavirus outbreak which started near a biolab that was experimenting with -- coronavirus -- bears scrutiny. Could a lab worker have accidentally infected themselves - then gone shopping for meat at the market over several days, during the long, asymptomatic incubation period?
In February, researchers Botao Xial and Lei Xiao published a quickly-retracted paper titled "The possible origins of 2019-nCoV coronavirus" - which speculated that the virus came from the Wuhan biolab.
Now, mainstream outlets are catching on - or at least have become brave enough to similarly connect the dots.
Earlier this week, Fox News' Tucker Carlson suggested that COVID-19 may have originated in a lab.
Tucker Carlson is currently citing a report that he openly admits he can't confirm is true to question if coronavirus was made in a lab pic.twitter.com/CTxrJtw0Sh— Andrew Lawrence (@ndrew_lawrence) April 1, 2020
And now, the Washington Times is out with a report titled "Chinese researchers isolated deadly bat coronaviruses near Wuhan animal market."
Chinese government researchers isolated more than 2,000 new viruses, including deadly bat coronaviruses, and carried out scientific work on them just three miles from a wild animal market identified as the epicenter of the COVID-19 pandemic.
The coronavirus strain now infecting hundreds of thousands of people globally mutated from bats believed to have infected animals and people at a wild animal market in Wuhan. The exact origin of the virus, however, remains a mystery. -Washington Times
"This is one of the worst cover-ups in human history, and now the world is facing a global pandemic," said Texas GOP Rep. Michael T. McFoul - a ranking member of the House Foreign Affairs Committee. McFoul believes China should be held accountable for the outbreak.
Meanwhile, a video from December funded by the Chinese government shows Tian collecting samples from captured bats and storing them in vials.
"I am not a doctor, but I work to cure and save people," said Tian, adding "I am not a soldier, but I work to safeguard an invisible national defense line."
The mainstream theory behind the virus is that it crossed over to humans after first infecting an intermediary species - such as a pangolin.
Read the rest of the report here.
The 'Covidiots' have struck again. Authorities in the Swedish municipality of Eslov have warned residents that millennials are running around town "coughing, sneezing, and spitting beside the elderly in the so-called 'coronavirus challenge,'" reported RT News.
Eslov authorities have demanded parents in the town give their kids a stern "talk" after a surge in reports of Covidiots targeting the elderly with unsanitary behavior. At the moment, Sweden has defied the lockdown trend that is present across most of Europe, betting that its citizens will act responsibly during the public health crisis.
"Some of our elderly have experienced that youths deliberately cough, sneeze and spit near those that are in the city or in shops. Talk with your youths and especially react if you see that someone obviously is trying to provoke and behave disrespectfully. It is the responsibility of all of us to prevent infection, and make sure that everyone as much as possible can feel safe. Show consideration, take other people's concerns seriously and take care of yourself and others!"- Translated Facebook post from Eslov municipality.
However, public gatherings over 50 are banned, but there are limited restrictions on private meetings, parties, corporate events, libraries, and gyms.
Though standing at a bar is prohibited in the country, restaurants still offer table service, and all students over 16 have been asked to study at home.
With universities and high schools shut, that means some of the youth are running amuck across the country.
The Times of Sweden said the elderly do not feel safe in public with millennials running up to them coughing and yelling "corona."
YouTube account "Alpha & Ali," a couple of pranksters in Sweden, recorded video of them going up to strangers on the street while pretending to cough and claiming they have the virus.
Local Social Democrat politician Maria Hind Alias described Alpha & Ali as a "being general idiots and "pranking" the Corona virus. You think you're cool / cool."
Hej Xaliqasem och Xusseinmatar!— Maria Hind Alias (@mariahindalias) March 29, 2020
Ni går runt i min stad, skrämmer människor, är allmänna idioter och ”prankar ”på Coronaviruset. Ni tycker ni är häftiga/coola.
Jag noterar att ni spelar in i Eskilstuna. Kan ni vara vänliga och göra denna ”prank” på mig?
A new normal is setting in across the world, the virus isn't going away anytime soon, and will likely hit specific countries in waves. The youth, ignoring social distancing measures and lockdowns, and even in an extreme case, knowingly or at least attempting to spread the virus to the elderly, has made containment efforts rather hard for governments.
It's been a couple of days since my post on deaths per 100,000 in the USA and several other countries.
I'm very much a cautious "measure twice, cut once" type of person, so I went back and updated some of my calculations using more recent numbers.
Specifically, I've updated the third graph in the original post which is the number of deaths per 100,000 at the same point in the timeline since at least 1 case per million population was reported.
In the US, the first day to show more than one case per million population was March 7. So, counting up twenty days we arrive at March 26. On that day, there were 1,295 total deaths in the US. That works out to 0.391 COVID-19 deaths per 100,000. Meanwhile, in Italy, the first day with at least one case per million was Feb 22. Twenty days later, there were 1,106 deaths. That works out to 1.572 COVID-19 deaths per 100,000.
And so on:
And here's how things looked five days earlier, on day 15:
The gap between the US and Spain and the US and Italy became larger over these five days. At day 15, Italy's total for deaths per 100,000 was 3.9 times larger than the US rate. At Day 20, Italy's rate was up slightly at 4 times larger. At Day 15, Spain's death rate was 4.6 times larger than that in the US. At day 20, Spain's rate had grown to 5.6 times larger than the US rate.
As I noted earlier, there are many reasons why the deaths per 100,000 could be higher in Spain and Italy than in the US, Germany, and Switzerland.
One may be the quality of healthcare.
While the US, Germany, and Switzerland all have health systems with sizable government sectors, they have multi-payer systems that are more competitive and modern than the systems found in Spain and Italy (and the UK, for that matter).
Switzerland has a system similar to Obamacare.
Another major factor is demographics. Both Spain and Italy have some of the lowest birth rates in the world, and these relatively elderly populations are lopsidedly affected by COVID-19. These demographic trends can be seen a bit in their population growth:
Note how few people Spain and Italy add each day on average. Spain barely adds anyone at all each day. And Italy is declining in population. (These are historical averages, so this doesn't include deaths from COVID-19.)
Italy is simply a country with a very old population and very low birth rate. In fact, Italy's population is projected to fall more than 10 percent over the next thirty years. The US's population growth, while not high by global standards, is certainly more robust than we're seeing in Spain and Italy. This is true both in total numbers and proportional to the population overall. With the exception of Iran and Switzerland, the US is growing faster percentage-wise than all these countries.
These trends aren't carved in stone. It's entirely possible that something will happen in which the US's death rate accelerates so fast that it overtakes Spain and Italy in this regard. At this time, however, that is not the trend.
(Net population change data, COVID-19 deaths, and total population data are from Worldometer.)
Panama has so far recorded 1,181 confirmed COVID-19 cases and 30 deaths. The Central American country, bordering both the Caribbean Sea and the North Pacific Ocean, between Colombia and Costa Rica, has gone into mandatory lockdown to halt the spread of the virus.
Panama has taken unprecedented measures to flatten the pandemic curve, as its containment efforts are to alleviate hospitals from becoming overwhelmed. The government announced on Tuesday that new strict quarantine measures would be gender-based:
Starting on Wednesday, men and women will only be allowed to leave their homes for two hours at a time, and on different days, reported AFP.
Las mujeres podrán salir lunes, miércoles y viernes, y los varones, martes, jueves y sábado, y el domingo no se permitirá salir a nadie, indica el ministro de Seguridad Juan Pino, al detallar que se mantiene la regla del número de cédula o pasaporte. pic.twitter.com/HSIxPwLLoM— Tráfico Panamá (@TraficoCPanama) March 31, 2020
The Central American country's lockdown, until now, was not based on gender.
"This absolute quarantine is for nothing more than to save your life," security minister Juan Pino said at a press conference on Tuesday.
Men will be able to visit the supermarket or the pharmacy on Tuesdays, Thursdays, and Saturdays. As for women, they're allowed to travel to stores on Mondays, Wednesdays, and Fridays.
As for Sundays, the holiest day of the week, no-one will be allowed to go outside.
The new gender-based lockdown is scheduled for the next two weeks.
Pino said more than 2,000 people were detained last week for violating the national curfew.
Panamanian Public Forces were seen taking temperature readings of people and handing out food during the quarantine.
Unidades del @senafrontpanama remiten a nueve Nicaragüenses a @migracionpanama luego de que fueran ubicados de manera ilegal en el corregimiento de Breñon, provincia de Chiriquí. Al momento de las detenciones se les aplicaron todos los protocolos sanitarios. #ProtégetePanama pic.twitter.com/SKCsemSBJq— Ministerio de Seguridad Pública de Panamá (@MinSegPma) March 31, 2020
While countries across the world are taking unprecedented measures to prevent the virus spread, it seems Panama's gender-based lockdown is undoubtedly a new one.
We noted last week that much of the world remains in the accelerating period of the virus curve. And with lockdowns being extended across Europe and the US, it’s likely that many Central and South American countries will follow suit.
Having been one of the few European countries in the world not to impose a coronavirus lockdown, Sweden is now starting to abandon its liberal approach after a surge in deaths.
Up until now, Sweden had kept schools, bars, restaurants and cinemas open while only restricting gatherings that were over 50 people.
People were encouraged to observe social distancing measures, but there were no quarantine protocols enforced by force of law and unlike its Scandinavian neighbors, Sweden’s borders remained open.
Commentators warned that this was “like watching a horror movie” and that it would inevitably backfire.
Now that Sweden has recorded 239 COVID-19 deaths, more than Norway, Finland and Denmark combined, the country’s left-wing government is finally imposing a stronger form of lockdown.
“As the number of new cases and deaths from COVID-19 rises sharply in Sweden the government and the Public Health Agency have presented new measures for how people can further slow the spread of the novel coronavirus,” reports Radio Sweden.
The new “guidelines” encourage people to avoid public transport during rush hours, advise shops to stagger the number of people they let in, and tell sports clubs to cancel all upcoming matches and tournaments.
However, it doesn’t appear as though any of the measures will be enforced legally through police dispersal orders or fines.
In other European countries like Spain, Italy and the UK, it is forbidden to go outside except for “essential” reasons.
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Israeli media is reporting that riots have broken out in Arab as well as some Jewish neighborhoods of Israel over quarantine enforcement. Particularly violent clashes in Jaffa also erupted after police confronted and tried to detain a man for reportedly breaking quarantine.
"Dozens of people are demonstrating and rioting in Jaffa after police questioning of a man who apparently broke his mandatory self-quarantine led numerous residents to gather and confront the officers," the Times of Israel reports. "Protesters are clashing with police, burning tires and blocking roads."
לא רמאללה,יפו!! pic.twitter.com/Uwk7HeQ5Cu— dudi d💟lev (@dudid2428) April 1, 2020
At least four have been arrested so far, while confrontations with Israeli police have been filmed in other parts of Israel as well, over a week after Tel Aviv imposed some of the strictest quarantine measures the world has yet seen, which authorizes police to physically enforce court-ordered isolation of suspected and confirmed COVID-19 cases.
"Not Ramallah, Jaffa!! (in Hebrew Yafo) — the above video of the rare Wednesday clashes is captioned.
Large Police forces have arrived to disperse the riots in Yafo which started after the arrest of a man who refused to identify in routine Health Ministry checks. pic.twitter.com/gz2zwjYZ6W— Emanuel (Mannie) Fabian (@manniefabian) April 1, 2020
Typically such scenes have more commonly played out in occupied Arab West Bank neighborhoods, but increasingly it's also Israel's ultra-Orthodox community which has tended to defy and flaunt national quarantine and self-isolation policies.
Police arrested 4 during the riots in Yafo which started when Police questioned a man for being outside for a non critical reason and he refused to identify. pic.twitter.com/NS1UASjnIG— Emanuel (Mannie) Fabian (@manniefabian) April 1, 2020
Police have in some cases moved to seal synagogues which ignored orders and stayed open, issuing fines to worshipers.
י-ם: כוחות גדולים של משטרה ויס"מ— dudi d💟lev (@dudid2428) March 31, 2020
פשטו כעת על שטיבלך זיכרון משה
ברחוב חפץ חיים.
עימותים ומעצרים במקום pic.twitter.com/v5hAW7quRp
The Jerusalem Post reports the outbreak is set to get worse:
Israel’s total number of cases is “going up in a steady way, and that is not so good,” Tal Brosh, head of infectious disease at Assuta Ashdod Medical Center, told The Jerusalem Post. “But that is also because the number of tests being done is increasing.”
“My concern now is the haredim” who are not practicing social distancing, which could lead to a spike in cases “very quickly,” he said. “If Bnei Brak residents do not stop gathering at weddings, prayers, mikvaot… we could see a surge within a few weeks.”
Conservative neighborhoods have come to view police quarantine enforcement as a severe violation of religious freedom.
Riots in Yafo after policeman arrested a number of people for violating Health Ministry restrictions. pic.twitter.com/bo8El8tEtZ— Emanuel (Mannie) Fabian (@manniefabian) April 1, 2020
There are increasing instances of rabbis and synagogues defying orders to conduct services across the country such as the following, according to The Jerusalem Post:
Israel Police arrested six suspects belonging to the Peleg HaYerushalmi after they were found gathering in a synagogue in the Haredi city of Modi'in Illit, violating Health Ministry instructions issued to fight the coronavirus outbreak.
The suspects refused to listen to police instructions to leave and refused to identify themselves and began clashing with police.
This is not going well... Protests & burning of tires in Jaffa/Yafa after a resident was fined a #Covid19 Quarantine violation.— Joyce Karam (@Joyce_Karam) April 1, 2020
Fine by Israeli authorities can go up to $1,380: pic.twitter.com/PqgAcV6u35
The below video is from the Orthodox stronghold of Beit Shemesh, located 19 milies west of Jerusalem, during clashes with police:
Disgusting behavior: Ultra-Orthodox in Jerusalem coughing on Policemen and calling them Nazis. pic.twitter.com/k15UQQusU8— Emanuel (Mannie) Fabian (@manniefabian) April 1, 2020
A number of local outbreaks in Israeli cities have been traced to crowded and in some cases still-operating synagogues.
Towns close to more ultra-conservative neighborhoods have increasingly petitioned state authorities to crack down:
Ramat Gan Mayor Carmel Shama-Hacohen has written a letter to Prime Minister Benjamin Netanyahu and other government officials demanding a general closure on the neighboring city of Bnei Brak, which has become one of the main coronavirus hotspots in the country.
Police arrested a number of people in Yafa an-Naseriyye— Emanuel (Mannie) Fabian (@manniefabian) April 1, 2020
after they attacked Policemen when they were asked to disperse a gathering which violated the Health Ministry restrictions. pic.twitter.com/IMegFgfDIQ
Nationwide Israel is fast approaching 6,000 cases, among these 25 deaths, with numbers expected to climb much higher in the days ahead due to expanded testing.
“Everything can be taken from a man but one thing: the last of the human freedoms — to choose one’s attitude in any given set of circumstances, to choose one’s own way.”
- Viktor Frankl
We still have choices.
Just because we’re fighting an unseen enemy in the form of a virus doesn’t mean we have to relinquish every shred of our humanity, our common sense, or our freedoms to a nanny state that thinks it can do a better job of keeping us safe.
Whatever we give up willingly now—whether it’s basic human decency, the ability to manage our private affairs, the right to have a say in how the government navigates this crisis, or the few rights still left to us that haven’t been disemboweled in recent years by a power-hungry police state—we won’t get back so easily once this crisis is past.
The government never cedes power willingly.
Neither should we.
Every day brings a drastic new set of restrictions by government bodies (most have been delivered by way of executive orders) at the local, state and federal level that are eager to flex their muscles for the so-called “good” of the populace.
This is where we run the risk of this whole fly-by-night operation going completely off the rails.
It’s one thing to attempt an experiment in social distancing in order to flatten the curve of this virus because we can’t afford to risk overwhelming the hospitals and exposing the most vulnerable in the nation to unavoidable loss of life scenarios. However, there’s a fine line between strongly worded suggestions for citizens to voluntarily stay at home and strong-armed house arrest orders with penalties in place for non-compliance.
More than three-quarters of all Americans have now been ordered to stay at home and that number is growing as more states fall in line.
Schools have cancelled physical classes, many for the remainder of the academic year.
Many of the states have banned gatherings of more than 10 people.
At least three states (Nevada, North Carolina, and Pennsylvania) have ordered non-essential businesses to close.
In Washington, DC, residents face 90 days in jail and a $5,000 fine if they leave their homes during the coronavirus outbreak. Residents of Maryland, Hawaii and Washington State also risk severe penalties of up to a year in prison and a $5,000 fine for violating the stay-at-home orders. Violators in Alaska could face jail time and up to $25,000 in fines.
Kentucky residents are prohibited from traveling outside the state, with a few exceptions.
New York City, the epicenter of the COVID-19 outbreak in the U.S., is offering its Rikers Island prisoners $6 an hour to help dig mass graves.
In San Francisco, cannabis dispensaries were included among the essential businesses allowed to keep operating during the city-wide lockdown.
New Jersey’s governor canceled gatherings of any number, including parties, weddings and religious ceremonies, and warned the restrictions could continue for weeks or months. One city actually threatened to prosecute residents who spread false information about the virus.
Oregon banned all nonessential social and recreational gatherings, regardless of size.
Rhode Island has given police the go-ahead to pull over anyone with New York license plates to record their contact information and order them to self-quarantine for 14 days.
South Carolina’s police have been empowered to break up any public gatherings of more than three people.
Of course, there are exceptions to all of these stay-at-home orders (in more than 30 states and counting), the longest of which runs until June 10. Essential workers (doctors, firefighters, police and grocery store workers) can go to work. Everyone else will have to fit themselves into a variety of exceptions in order to leave their homes: for grocery runs, doctor visits, to get exercise, to visit a family member, etc.
Throughout the country, more than 14,000 “Citizen-Soldiers” of the National Guard have been mobilized to support the states and the federal government in their fight against the coronavirus. While the Guard officials insist they have not been tasked with martial law, they are coordinating with the Pentagon, FEMA and the states/territories on COVID-19 response missions.
A quick civics lesson: Martial law is a raw exercise of executive power that can override the other branches of government and assume control over the functioning of a nation, state, or smaller area within a state. The power has been exercised by the president, as President Lincoln did soon after the start of the Civil War, and by governors, as was done in Idaho to quell a miner’s strike that broke out there in 1892.
In areas under martial law, all power rests with the military authority in charge. As British General Wellington wrote, “martial law” is not law at all, but martial rule; it abolishes all law and substitutes for it the will of the military commander. Military personnel are not bound by constitutional restrictions requiring a warrant, and may enter and search homes at without judicial authorization or oversight. Indeed, civil courts would no longer be functioning to hear citizen complaints or to enforce their constitutional rights.
Thus far, we have not breached the Constitution’s crisis point: martial law has yet to be overtly imposed (although an argument could be made to the contrary given the militarized nature of the American police state).
It’s just a matter of time before all hell breaks loose.
If this is not the defining point at which we cross over into all-out totalitarianism, then it is at a minimum a test to see how easily we will surrender.
Curiously enough, although Americans have been generally compliant with the government’s suggestions and orders with a few notable exceptions, there’s been a small groundswell of resistance within parts of the religious community over whether churches, synagogues and other religious institutions that hold worship services should be exempt from state-wide bans on mass gatherings. While many churches have resorted to drive-in services and live-streamed services for its congregants, others have refused to close their doors. One pastor of a 4,000-member church who stood his ground, claiming that the government’s orders violate his right to religious freedom, was arrested after holding multiple church services during which attendees were reportedly given hand sanitizer and made to keep a six-foot distance between family groups.
It’s an interesting test of the First Amendment’s freedom of assembly and religious freedom clauses versus the government’s compelling state interest in prohibiting mass gatherings in order to prevent the spread of the virus.
Generally, the government has to show a compelling state interest before it can override certain critical rights such as free speech, assembly, press, search and seizure, etc. Most of the time, it lacks that compelling state interest, but it still manages to violate those rights, setting itself up for legal battles further down the road.
These lockdown measures—on the right of the people to peaceably assemble, to travel, to engage in commerce, etc.—unquestionably restrict fundamental constitutional rights, which might pass muster for a short period of time, but can it be sustained for longer stretches legally?
That’s the challenge before us, of course, if these days and weeks potentially stretch into months-long quarantines.
For example, the First Amendment guarantees “the right of the people peaceably to assemble.” While the freedom to travel has been specifically recognized only as in the context of interstate or international travel, the freedom of movement is implicit liberty given that government agents may not stop and question or search persons unless they have some legal justification.
As Supreme Court Justice William Douglas once wrote:
The right to travel is a part of the “liberty” of which the citizen cannot be deprived without the due process of law under the Fifth Amendment. . . . Freedom of movement across frontiers in either direction, and inside frontiers as well, was a part of our heritage. Travel abroad, like travel within the country, may be necessary for a livelihood. It may be as close to the heart of the individual as the choice of what he eats, or wears, or reads. Freedom of movement is basic in our scheme of values.
As a rule, people are free to roam and loiter in public places and are not required to provide police with their identity or give an account of their purpose for exercising their freedom.
However, as with all constitutional rights, these freedoms, as the Courts have ruled, are not unqualified. Even content-based restrictions on speech are allowed under the First Amendment if the restriction is needed to serve a compelling government interest.
The Supreme Court long ago “distinctly recognized the authority of a state to enact quarantine laws and health laws of every description[.]” Such laws are an exercise of the state’s police power, and if there is a rational basis for believing they are needed to protect the public health, they will be deemed to serve a compelling government interest.
The point was made over 100 years ago in circumstances similar to today’s COVID-19 outbreak when a smallpox outbreak occurred in Cambridge, Mass., invoking a state law allowing localities to make vaccinations mandatory and enforceable by criminal penalties. In upholding the law and local order against a claim that it violated the constitutional liberty to control one’s own body and health, the Supreme Court declared:
The possession and enjoyment of all rights are subject to such reasonable conditions as may be deemed by the governing authority of the country essential to the safety, health, peace, good order, and morals of the community. Even liberty itself, the greatest of all rights, is not unrestricted license to act according to one’s own will.
The Court went on to write that “[u]pon the principle of self-defense, of paramount necessity, a community has the right to protect itself against an epidemic of disease which threatens the safety of its members.”
Most states have enacted laws that recognize the need for prompt action in times of emergency, including epidemics, and have delegated the authority to and executive officer to take action to address that emergency. For example, Tennessee law provides that the governor is given the power to issue orders that have the force and effect of law to address emergencies, which include disease outbreaks and epidemics. That state’s law similarly grants mayors or other local chief executive officers the power to issue orders and directives deemed necessary, including closing public facilities, in order to address civil emergencies.
Courts have ruled that they will defer to the decisions of an executive authority on the decision as to whether an emergency exists and whether the means employed to address the emergency are reasonable and legal, although there could be situations where a court would declare that the executive decision is arbitrary and unreasonable.
When governments act under their police power to control plagues and epidemics, those laws are valid even though they may restrict individuals in the exercise of constitutional rights. As one legal scholar recently noted, the balance between individual rights and protection of the public “assumes that there will be times when there are truly compelling emergencies justifying severe measures. A global pandemic that spreads even among those who are asymptomatic and could exceed the capacity of the American health care system would appear to be just such a compelling situation.”
At the moment, the government believes it has a compelling interest—albeit a temporary one—in restricting gatherings, assemblies and movement in public in order to minimize the spread of this virus.
The key point is this: while we may tolerate these restrictions on our liberties in the short term, we should never fail to be on guard lest these one-time constraints become a slippery slope to a total lockdown mindset.
What we must guard against, more than ever before, is the tendency to become so accustomed to our prison walls—these lockdowns, authoritarian dictates, and police state tactics justified as necessary for national security—that we allow the government to keep having its way in all things, without any civic resistance or objections being raised.
Martin Niemoller learned that particular lesson the hard way.
A German military officer turned theologian, Niemoller was an early supporter of Hitler’s rise to power, having believed his promises to protect the church and not allow pogroms against the Jewish people. It didn’t take long for Hitler to break those promises, but by the time the German people realized they had been double-crossed, it was too late.
As Niemoller warned:
“First they came for the Socialists, and I did not speak out—Because I was not a Socialist. Then they came for the Trade Unionists, and I did not speak out—Because I was not a Trade Unionist. Then they came for the Jews, and I did not speak out—Because I was not a Jew. Then they came for me—and there was no one left to speak for me.”
The lesson for those of us housebound and watching from a distance as the Fourth Reich emerges from the shadows is this: all freedoms hang together.
Niemoller’s warning for our modern age would probably go something like this:
First the government went after the right to be free from unreasonable searches and seizures, and I did not object, because I had nothing to hide. Then they went after the right to not be spied upon, and I did not object, because I had done nothing wrong. Then they went after the right to criticize the government, and I still did not object, because I had nothing to criticize them for. Then they went after the right to speak—worship—and assemble freely, and I did not object, because I had nothing to say, no one to worship, and nowhere to congregate. By the time the government came to lock me up, there was no one left to set me free.
In other words, don’t be naïve: the government will use this crisis to expand its powers far beyond the reach of the Constitution. The Justice Department has already signaled its desire to suspend parts of the Constitution indefinitely.
That’s how it starts.
Travel too far down that slippery slope, and there will be no turning back.
Curiously enough, although Americans have not been inclined to agree on anything much lately, given the extreme polarization of the country politically, a recent survey indicates that “people of both parties seem rather okay with undermining core civil liberties in order to fight the pandemic.”
This way lies madness.
As I make clear in my book Battlefield America: The War on the American People, if you wait to speak out—stand up—and resist until the government’s lockdowns impact your freedoms personally, it could be too late.
What would be far worse, however, is handing over your freedoms voluntarily—without even a semblance of protest—to a government that cares little to nothing about your freedoms or your lives.
Instead of narrating - often in mind-numbing detail - how broken markets are, for once we will let the charts do the talking. In the visual odyssey through today's broken market, we summarize various measures of market dislocation and stress across asset classes.
In DM credit markets, the CDX-cash basis in both IG and HY has compressed notably but remain at historical wides. Agency MBS OAS has reversed much of the widening, while CLO and ABS OAS continue to tighten.
In the rates market, some pressure in front-end funding markets has begun to abate with some of the announced Fed facilities underway, visible in the recent stabilization of cross-currency bases. However, unsecured front-end spreads (such as CP and Libor) on the whole remain at elevated levels.
In emerging markets, while cross-currency bases on average have reversed most of the recent widening, swap spreads remain notably wider.
In equity markets, market depth and liquidity remain dismal.
Going down the list, first we show the most notable dislocations and moves in Developed Credit Markets.
Next up are Rates markets.
And finally, Emerging Markets
The Fed seems to have managed to halt the massive dollar squeeze and the associated strength in nominal yields and real-interest rate expectations. This has led to a reversal of the rather peculiar gold sell-off that started in early March. We think this short-term win for the Fed to come at the expense of sharp currency depreciation over the medium term. We expect this to be very bullish gold medium term.
Just a week ago, we published a report with the title “What is holding gold back?” (What is holding gold back, 20 March 2020). In that report, we analyzed the odd downward move in gold since early March amidst a global pandemic, crashing equities, unchecked central bank intervention and the prospect for the largest fiscal stimulus bills the world has ever seen. We conclude that the main reason for this sell-off – a sharp rise in real-interest rate expectations – was temporary and could turn on a dime. We didn’t have to wait long.
In order to get a better understanding of what was going on, in last week’s report, we took a closer look at the main drivers of gold prices, which we had identified in our gold price framework (Gold Price Framework Vol. 1: Price Model, 8 October 2015). What we found was that a sharp spike in real-interest rate expectations was mostly responsible for the move from $1700 to $1450. As we noted in our March 20 report:
Starting in late February, 10-year Treasury yields began to move sharply lower, in anticipation of Fed rate cuts. The Fed delivered in an emergency meeting on March 3, cutting rates by 50bp. Rates continued to move lower until March 9, 2020. By that time, 10-year treasury yields had fallen to just 55bps. However, simultaneously, long-term inflation expectations also began to fall sharply. By March 9, 10-year breakeven inflation expectations were just 1%. However, what happened next must have been a bit of a shock to the Fed. 10-year treasury yields began to rise. The Fed held a second emergency meeting on March 15, 2020, where it cut rates to zero. But this didn’t stop nominal yields, By March 19, 2020, 10-year treasuries rallied back to 1.15%. At the same time, long-term inflation expectations continued to collapse and are currently at just 0.5%.
The collapse in inflation expectations and the rise in nominal yields pushed real-interest rate expectations from -.057% to +0.55%. This is what caused the $250/ozt price decline in just 7 days (see Exhibit 1).
Importantly, this sharp rise in nominal interest rates and real-interest rate expectations happened amidst an extreme strength in the dollar. In our report, we also highlighted that in our view, the dollar strength and the sharp upward move in USD real-interest rate expectations were two sides of the same coin, caused by the massive shockwaves penetrating the financial system which led to an unprecedented demand for USD.
As we expected the Fed to continue to intervene and to do whatever it takes to get this dollar strength under control, in our view the strength in real-interest rate expectations was temporary and could turn on a dime. This is exactly what happened when the Fed announced open-ended QE three days later. This desperate measure seems to have achieved what the Fed was aiming for; namely stopping this dollar strength (and consequently, the rise in nominal and real-interest rates). At the same time, a gigantic $2tn stimulus package has been passed by the senate.
On the day of publishing of our report (20 March 2020), real-interest rate expectations and the dollar had already shown some signs of easing. Over the subsequent 3 days, we saw a massive reversal of this short-term dollar and rate strength, and as a result, gold prices rallied >$150/ozt from the lows (see Exhibit 2).
So, what’s next? We think this is just the beginning. The dollar tightness seems to be easing, but it will require the Fed to remain a permanent buyer of bonds. This will inevitably lead to a large expansion of the Fed’s balance sheet, at least similar in size to the expansion in the years 2008 to 2014. In fact, the speed at which the Fed was forced to expand its balance sheet last week is staggering. The Fed’s balance sheet rose from $0.9tn in summer 2008 to $2.0tn a year later, an increase of $1.1tn. It took the Fed just 4 weeks to do the same (see Exhibit 3). And we haven’t even received the latest numbers yet.
As for fiscal stimulus, the current $2tn will almost certainly not be the last package to be passed. Equity markets greeted the bill pre-emptively with a >10% rally, but since then, equity prices have stalled again. Given our view that the global economy had been slowing down sharply prior to the coronavirus outbreak, a roaring comeback of the economy, once the virus itself subsides, is unlikely. Hence, we expect more and most likely larger fiscal stimulus bills over the coming months.
On top of that, we are seeing a run on physical bars while at the same time, supply has become tight. The widespread lockdown due to the Coronavirus outbreak led to the shutdown of many refiners. Physical gold is also trapped at the wrong locations as usually bullion is shipped with commercial flights, which are now grounded. Many coin and bar dealers indicate huge premiums, or, are even sold out. Major Swiss banks have opened waiting lists for their clients wanting to buy physical bars. Over the past days we have also witnessed an epic short squeeze in the futures market as Goldmoney Head of Research Alasdair Macleod wrote in his latest market report (Bear squeeze on bullion banks, 27 March 2020).
We believe this to be the beginning of a substantial currency devaluation cycle. While the pressure on the dollar will be particularly large, other central banks will be unlikely to let their currencies massively appreciate against the dollar. We also expect fiscal stimulus packages (similar in relative size to the US) in most countries over the coming months. Hence, we expect all fiat currencies to substantially depreciate over the coming years.
There are no central banks that can print gold and other precious metals; hence, we expect substantial price gains over the coming years. In our last report, we set $2600 as the minimum target for gold over the medium term, but we also highlighted that this is the price target if central banks manage to kick the can down the road one more time (see Exhibit 4).
As this crisis rapidly unfolds, the risks for the alternative outcome – central banks are losing control over inflation - are steadily increasing.
"The jump has no precedent in recorded history..." is how one analyst described the stunning surge in estimated firearm sales indicated by data from the Federal Bureau of Investigation’s National Instant Criminal Background Check System latest report.
While actual gun purchases aren’t tracked in the U.S., the FBI system is largely considered a proxy for sales by the firearms industry and the table shows a 41% surge year-over-year (and a 33% spike month-over-month).
Jurgen Brauer, chief economist at Small Arms Analytics, told Bloomberg News, that handgun sales increased 91.1% year-over-year, per Brauer’s analysis, and long-gun sales were up 73.6%.
“We expect continued positive headline growth numbers in coming months as Covid-19 uncertainty lingers,” Brett Andress, a firearms industry analyst at KeyBank Capital, wrote in a note on Wednesday afternoon, according to Bloomberg.
The last time demand for protection even came close to this was the last three months of 2015 as a spate of mass shootings in the US put tougher gun controls back in the national spotlight.
The motivation for this sudden surge is evidently a concern that the current (and expanding) lockdown being enforced across The Land of The Free is rapidly transformed into a far more tyrannical control over Americans' constitutional rights.
“The government is trying to do everything it can to keep society intact. But if society is unraveling, it’s up to us to protect ourselves,” said Andrew Dominguez, 36, a real estate agent in Pacifica who waited near the end of the slow-moving line to buy ammo for his shotgun.
John Chen, 40, agreed. He lives in Oakland but has construction outlets around the Bay Area, including in Pacifica. He was at City Arms to buy his first pistol for personal defense.
“This virus gave me the motivation,” Chen said.
“I’ve always wanted to have a gun, but I’ve been lazy. I see the news now, and the outbreak and the chaos.”
Jackson Lu, 24, came bounding out of the gun store, carrying a new $500 Glock 19 in its black plastic case. He wasn’t about to open it to show it off, though.
“I feel like there’s a lot of crazy stuff happening around the world,” he said. “I want to feel safe.”
Don't think it could happen?
As a reminder, just last week, Los Angeles County Sheriff Alex Villanueva attempted to shutdown all gun stores (on the basis of safety concerns).
However, facing a lawsuit over his controversial decision, he has now changed his mind, citing a federal ruling that gun stores are considered “essential.”
The post-COVID-19 future is looking grim: economic collapse, censorship, production control, soaring surveillance, and increasingly martial law. So which dystopian future are we headed for?
It’s not like we weren’t warned humanity was heading south, however, and there’s a lot more doomsaying to explore beyond Orwell and Huxley...and, as Helen Boyniski notes, our curious historical moment owes just as much to some lesser-known nightmare futures, and since we’re all stuck indoors under coronavirus quarantine, we might as well get familiar with the ins and outs of some of these lesser-known dystopias.
At the very least, it will prepare us for what might be in store post-pandemic.
As we detailed earlier, it's only matter of time before this lockdown of American - leaving citizens jobless, broke, and without options - become the flashpoint that leads to an explosion of civil unrest and violent crime.
As China lifts its lockdown rules and the country gradually gets 'back to normal' following the outbreak of novel coronavirus and COVID-19, Bloomberg News reports that divorce rates have suddenly jumped as the quarantines caused unprecedented levels of interpersonal strike that was more than many marriages could withstand.
Arguments over money, children, household duties and suspicions of infidelity festered in many homes, driving many couples apart.
One Shanghai divorce lawyer said cases started climbing shortly after the lockdowns ended. The outbreak, combined with the Lunar New Year holiday, was just too much for some couples, forced to spend weeks trapped together, sometimes along with extended family, was just too much.
Shanghai divorce lawyer Steve Li at Gentle & Trust Law Firm says his caseload has increased 25% since the city’s lockdown eased in mid-March. Infidelity used to be the No. 1 reason clients showed up at his office door, he says, adding that “people have time to have love affairs when they’re not at home.” Like Christmas in the West, China’s multiday Lunar New Year holiday can strain familial bonds. When the virus hit in late January, on the eve of the festivities, couples in many cities had to endure an additional two months trapped under the same roof, sometimes with extended family. For many it was too much. “The more time they spent together, the more they hate each other,” Li says of his new cases. “People need space. Not just for couples—this applies to everybody.”
China only publishes data on divorce rates once a year, but there's been a wealth of anecdotal and preliminary indicators suggesting that the lockdowns led to a surge, as well as a wealth of data reports from individual cities backing this up. At this point, it's safe to say it's a nation-wide trend (or at least for the half of the population - 760 million - who were impacted by the lockdowns and restrictions on movement).
But more alarming, is that the situation on Greenland, where a "surge" in domestic violence cases led to a ban on alcohol sales, isn't isolated to Greenland, apparently. Across China, incidents of domestic violence also multiplied. The trend may be an ominous warning for couples in the US and Europe who are still in the relatively early stages of isolation.
Hopefully, we don't see too many couples re-enacting those scenes from "the Shining" in their living rooms. But it seems likely incidents will rise in the US and elsewhere.
Two provinces that reported sharp rises in divorce filings told BBG that simple trivial matters ended up becoming deal-breakers for many companies. In many cases, poor communication skills were to blame. It's just a lesson for individuals: Communication truly is critical for a healthy marriage.
The city of Xian, in central China, and Dazhou, in Sichuan province, both reported record-high numbers of divorce filings in early March, leading to long backlogs at government offices. In Hunan province’s Miluo, “staff members didn’t even have time to drink water” because so many couples lined up to file, according to a report in mid-March on the city government website. Clerks struggled to keep up, processing a record number in a single day, it said. “Trivial matters in life led to the escalation of conflicts, and poor communication has caused everyone to be disappointed in marriage and make the decision to divorce,” the city registration center’s director, Yi Xiaoyan, was quoted as saying.
As China's economy as grown, divorce rates have climbed, much as they did in the US during the 60s, 70s and 80s.
China’s divorce rate has been ticking up steadily since 2003, when laws were liberalized. More than 1.3 million couples divorced that year, and the numbers rose gradually for 15 years, peaking at 4.5 million in 2018, according to statistics from the Ministry of Civil Affairs. Last year, 4.15 million Chinese couples untied the knot.
Ironically, Chinese officials had hoped that locking up couples with nothing else to do for two months would lead to a mini 'baby boom' - of course, we've seen no shortage of speculation about a similar boom in the US. But these divorces are the first sign that the effect might indeed be the opposite: Instead of a jump in birth rates, divorces will skyrocket.
Unless that shortage in condoms lasts longer than we expect.
Back when Altria first announced it had jumped on the e-smoking bandwagon by purchasing a 35% stake in vaping startup Juul, we warned that it would end in tears. Little did we know just how many tears, and how much destroyed value less than two years later we would witness. But more importantly, we have also found the one industry that will not get a single dollar in bailout money.
Late on Wednesday, the Federal Trade Commission sued to unwind Altria’s $12.8bn investment into Juul, claiming the tobacco giant bought the stake to unlawfully eliminate competition in the sale of e-cigarettes.
This, of course, is ironic considering the shambolic state of the e-cig market. Nonetheless, the FTC's claims are the latest blow to a deal that was doomed ever since Altria first announced its interest in first struck in 2018 when Altria acquired just over a third in Juul. Since then, Altria has written off almost its entire investment as regulatory scrutiny over Juul’s marketing and the health effects of their products has mounted.
As the FT reports, the FTC alleged Altria bought the stake in Juul in an attempt to defuse the start-up’s challenge to its own line of e-cigarette products. In addition to the stake, the 2018 deal gave Altria board access and included a six-year non-compete agreement.
“For several years, Altria and Juul were competitors in the market for closed-system e-cigarettes. By the end of 2018, Altria orchestrated its exit from the e-cigarette market and became Juul’s largest investor,” said Ian Conner, director of the FTC’s bureau of competition, in a statement. “Altria and Juul turned from competitors to collaborators by eliminating competition and sharing in Juul’s profits,” he added.
In response, Altria's general counsel Murray Garnick said that “we believe that our investment in Juul does not harm competition and that the FTC misunderstood the facts,” adding that "we are disappointed with the FTC’s decision, believe we have a strong defence and will vigorously defend our investment", although it wasn't clear what investment there is left to defend.
The claims which were made in a complaint in the FTC’s internal administrative court follow a $4.5 billion writedown Altria made to that investment last year and a subsequent $4.1 billion charge in January, when it also scaled back its partnership with Juul. Altria, the parent of Marlboro-owner Philip Morris USA, has since ceased the sales and distribution services it had provided the San Francisco-based company.
The amended agreement announced in January also allowed Altria to resume developing e-cigarettes under certain circumstances, including if the value of its investment in Juul fell below $1.3 billion, a more than 90% drop on the initial deal. That trigger has almost certainly been met: Juul, which was valued at $38 billion after Altria’s initial investment, has suffered a crushing decline as federal and state authorities have increased scrutiny of vaping among teenagers.
Amusingly, KC Crosthwaite, Juul’s chief executive, told employees this year that the company’s internal valuation stood at $20bn at the end of the fourth quarter, down from $24bn in the previous quarter. Good luck finding a buyer at that price.
Juul's flavoured e-cigarette products have been accused of driving widespread vaping by young people, something which was obvious would happen to everyone except - unfortunately - the FDA. Juul discontinued most of its flavoured line last year ahead of a federal ban on flavoured e-cigarettes earlier this year.E-cigarette makers are in the process of seeking Food and Drug Administration approval for their products to stay on the market.
Fast forward to today, when on the verge of extinction, E-cigarette makers are seeking Food and Drug Administration approval for their products to stay on the market. The FDA this week asked a federal court for a four-month extension to a May deadline for submissions by e-cigarette companies, saying the global outbreak of coronavirus had halted necessary laboratory work.
As the FT concludes, the attempt by the FTC to unwind the investment comes as it increases scrutiny of completed deals involving start-ups. In February, the agency announced a study into a decade of such transactions by large technology companies.
The United States government has rolled out incredibly totalitarian measures that amount to human rights violations in an effort to slow the spread of the coronavirus. Unfortunately, long after this pandemic is a distance memory, the authoritarian controls will still be in place.
Local governments and the Centers for Disease Control and Prevention have received the anonymized data about people in areas of “geographic interest,” with the aim being to create a portal of geolocation information for 500 cities across the country. The development follows reports of other countries using cellphone data to monitor citizens and see if they are complying with curbs on movement, and elimination of income in order to defeat the viral outbreak.
European mobile carriers have reportedly been sharing data with health authorities in Italy, Germany, and Austria, while at the same time respecting Europe’s privacy laws. Earlier this month, Israel passed emergency measures that allow security agencies to track the smartphone data of people with suspected COVID-19 and find others they may have come into contact with.
Even if you end up making it through this pandemic without getting sick, the economic ramifications are going to be immense and it’s expected that the government will use the implemented mass surveillance and tracked to squash riots.
It’s likely that this pandemic will affect you for much longer than the virus will. The mainstream media is calling those who care about people’s livelihoods “greedy,” but that couldn’t be further from the truth. If people cannot feed their families, the social unrest and riots that could result from this lockdown may be overwhelming and could result in a massive amount of suicides and homicides. The mainstream media can continue to ignore that fact all they’d like, but people will get violent if they get hungry.
Pandemic-related unemployment and shutdowns are a recipe for social unrest, reported Reason. That’s a huge concern as forecasters expect the U.S. unemployment rate in the months to come to surpass that seen during the depths of the Great Depression. If that happens, the fallout from the shutdown will be worse than the deaths during this pandemic. Expect these totalitarian measures being put in place now to be used to control the public when they can’t make a living anymore.
As part of the $2 trillion fiscal stimulus package that was signed into law by Donald Trump on Friday, the Small Business Administration will offer $350 billion in loans to US small businesses meant to preserve business solvency as part of the emergency federal response to the coronavirus pandemic; the loans, part of the so-called "Paycheck Protection Program" will be offered through banks and credit unions to cash-strapped businesses employing under 500 people (it's not clear how a company employing 500 people is a "small business" but we can assume that this is just a stealthy bailout of some not so small businesses).
To be sure, the terms of the loans are generous: the full amount of the loan will be forgiven if it is used for payroll, mortgage interest, rent or utilities in the two months after the money is received. Less will be forgiven if the employees are sacked or salaries cut. Any amount that is not forgiven will accrue interest at just 0.5% rate and the principal will come due in two years.
Borrowers will need to fill out a two-page form and document that they were in business as of mid-February. Lenders will not need to wait for SBA confirmation before providing cash in hand, as soon as Friday. Businesses will be eligible to borrow the equivalent of 2.5 times their average monthly payroll with a cap of $10mm.
According to the SBA, there are 30m businesses with fewer than 500 employees in the US, employing 60m people, almost half of the private workforce. The National Federation of Independent Business, an advocacy group, says about three-quarters of its members have been affected by the crisis.
Yet some may be "shocked" to learn that like in any government bailout package, the biggest winners here will not be America's vibrant small and medium business sector, which at best will get the bare minimum cash to fund 2.5 months of payroll (this assume the pandemic will be resolved by mid-June) but - drumroll - America's banks.
As the FT reports overnight, banks stand to make billions by overseeing the distribution of these loans as they receive processing fees, paid by the federal government, for making the loans. The fees will vary with loan size: 5% for loans under $350,000, 3% for loans under $2MM, and 1% for loans greater than $2MM. The loans will not incur a capital charge.
This means that banks stand to earn as much as $17.5 billion - and $10 billion if one assumes an average rate of 3% - for doing something the government is incapable of doing: handing out hundreds of billions in loans/grants to America's businesses in the shortest possible time.
On the other hand, maybe this time the banks will actually earn it.
Claudia Sahm, a former research section chief at the Federal Reserve, said offering banks fee-based incentives to administer and distribute loans, which function like grants, is a way to make up for the limited capability of the SBA to administer a program that senior administration officials say could pull in millions of application requests.
Small businesses “are used to going to their local bank to get loans”, said Ms Sahm, now at the Washington Center for Equitable Growth. This will make it easier for banks to act quickly on existing relationships. It also means the SBA will rely on banks to contact their own clients, giving large banks and favoured clients an advantage.
“Speed is the operative word,” said Jovita Carranza, the SBA’s administrator. “Applications for the emergency capital can begin as early as this week, with lenders using their own systems and processes to make these loans.”
But wait, there is more pork at this trough: the SBA has also laid out a role for agents, such as attorneys or accountants, who can help prepare documents, and can claim some of the lenders’ processing fee. Sam Tuassig, head of policy at Kabbage, a fintech that makes small business loans, said: “It is essentially a grant program that, if the borrower doesn’t use the money to pay their employees, turns into a super-low interest loan.”
Initially, only federally insured banks and credit unions will be eligible to make the loans. Tuassig said Kabbage was eager to participate, but that it remained unclear whether online lenders and fintechs would be allowed to do so. The Treasury’s statement on Tuesday said that “additional lenders” were encouraged to apply to the SBA for approval.
And with billions of dollars at stake to those who merely take money from point A and deliver it to point B, one can be certain that everyone will be applying.
Over the weekend, when we last looked at the unprecedented frenzy by corporations both big and small to draw down on their revolver as they rushed to take advantage of the last traces of liquidity in a market that may soon slam shut all funding windows, we showed that according to JPMorgan's revolver tracker, corporates that have tapped banks for funding rose to a record $208 billion on Thursday, up $15 billion from $193 billion on Wednesday and $112BN on Sunday. In other words nearly $100 billion in liquidity was drained from banks in the past week.
Putting that number in context, according to JPM, the current aggregate corporate borrowings represent 77% of the total facilities.
And since by implication almost all companies have now drawn down on their full revolver, it stands to reason that the bank liquidity draining activity will slow down, and sure enough, according to a report from Goldman Sachs, that's precisely what is going on.
Confirming that the month of March was indeed an unprecedented frenzy for bank credit facility departments, Goldman calculates that as April 1, we have seen $183bn of line draws, up from $76bn last week, with 20% of these in the auto sector, and 14% in retail (other sectors are all
However, in a slightly conflicting conclusion from that of JPM, Goldman then notes that over the last week (since 3/24), there has been a modest slowdown in activity, with $40bn of draws, of which nearly 45% of these have been in autos (all by GM), 14% in retail, and 10% in tech.
Indeed, as Goldman writes, "we note that the pace of revolver draws has slowed nearly 50% so far this week relative to last week, with only $40bn over the last 5 business days, relative to an average trailing 5 business days run rate last week of $75bn."
Which, as noted above, makes sense: after all by now the only companies that are left hoping to draw down on their revolver, are those that - one way or another - won't get access to what they are contractually owed, most likely because their bank syndicate deems them a default risk, and with use whatever legal loopholes it needs to avoid wiring even one cent.
Finally, now that the revolver frenzy is almost over, here is the full list of all companies that managed to get their money in time: below are all the corporations that have fully (or almost fully) drawn down on their revolver.
Calls are mounting for a Congressional investigation into the World Health Organization's alleged role in helping China conceal the severity of the coronavirus outbreak.
On Tuesday, Florida Senator Rick Scott (R) issued a statement conveying demanding accountability over the WHO's handling of the crisis, according to American Military News.
"The mission of the WHO is to get public health information to the world so every country can make the best decisions to keep their citizens safe. When it comes to Coronavirus, the WHO failed. They need to be held accountable for their role in promoting misinformation and helping Communist China cover up a global pandemic," said Scott. "We know Communist China is lying about how many cases and deaths they have, what they knew and when they knew it – and the WHO never bothered to investigate further. Their inaction cost lives."
Scott called on Congress to open an investigation of the WHO, once it comes back in session, “To review whether American taxpayers should continue to spend millions of dollars every year to fund an organization that willfully parroted propaganda from the Chinese Communist Party.” -American Military News
Also calling for WHO to be held accountable is Gen. Rob Spalding (Ret.), who wrote in the same publication that "The first global war of the 21st century began in December without a shot fired. A Wuhan doctor in China noticed some patients admitted to the hospital were exhibiting viral pneumonia consistent with SARS. Only it wasn’t SARS. When he tried to sound the alarm, he triggered the Chinese Communist Party’s (CCP) authoritarian control on information. Discussion of the illness was prohibited, and the doctor – who tried to warn colleagues through social media – was detained. The results of patient samples that had been sequenced to reveal their genomes were quickly squashed, and the samples destroyed before the results could be made public."
More from Spalding via American Military News:
The WHO was notified early on, but they were prevented by the CCP to travel to Wuhan. Meanwhile, the CCP denied there was any danger to the public while 175,000 people traveled from Wuhan to all over China and the world. The virus was now set free to follow the new way of war detailed in the pages of Unrestricted Warfare. This book was written by two Peoples Liberation Army Colonels as a strategy to defeat a militarily superior United States.
The new way of war – trade, economic, propaganda and media – has now been unleashed to aid the Chinese Communist Party. To better understand this, forget everything known about how the world works. Instead, think of globalization and the internet turned into a weapon, in a no-holds-barred assault of competitive aggression unassociated with military might – and this is how China is waging war.
Following the Unrestricted Warfare thought, in CCP hands, globalization becomes weaponized. The CCP has spent decades utilizing globalization to slowly take control of the world’s trading system, dominate key industries and markets, build a global media and internet presence, and deploy subjects and diplomats around the world. Therefore, when the time comes these elements can easily be brought together for three intentional actions – deflect blame, cause panic, take advantage.
Deflect blame. Because the CCP controls Chinese language media everywhere with an iron grip, they can rile an army of ‘victims’ to deflect their own culpability for the pandemic. Chinese language social media uses the often-utilized practice of crying racism and stoking nationalism to instill fear and revenge in those inside and outside the country. These activated citizens can then be spontaneous in their response by creating “hug me I’m not a virus” campaigns. Meanwhile, the citizens under lock-down are blocked from sharing their boots-on-the-ground point of view as social media is further restricted and censored. Abroad, a full media and diplomatic blitzkrieg can be levied to ensure the virus is not named according to its origin, which gives way to another campaign to establish that it came from another country. Finally, flush with horded supplies the CCP can feign being good Samaritans as they earn profits on price gouging the world on personal protective equipment (PPE). Ultimately, deflecting blame props up the CCP message about the superiority of their Communist system.
Read the rest of the report here.
Last week, when consensus was expecting a "modest" 281K initial jobless claims, we said that SouthBay Research's Andrew Zatlin, who has regularly been the most accurate predictor of labor market prints, expected no less than 2.4 million initial jobless claims. He was off by a million: the actual number was a staggering 3.28 million, quadruple the previous record set in the depths of the global financial crisis. The number was also too low in light of anecdotal evidence of the tsunami of unemployed workers, with a New York State official saying that the unemployment system had received a record 1.2 million calls just this Monday compared to 50,000 per week prior to the coronacrisis.
In short, tomorrow's initial claims print is expected to be another catastrophe, the only question is just how bad will it get and how much above the consensus print of 3.7 million will the actual number be.
The claims report "will likely reflect both newly laid-off workers as well as states catching up on previously filed claims that had not yet been captured in the system due to overwhelming demand,” Wells Fargo economist Sam Bullard wrote in a note. He projects 3.15 million. He is also an optimist compared to some of colleagues.
Going back to Zatlin, he is now expecting around 6.5 million initial claims having revised upward his weekly estimate on at least two prior occasions. "We are in unprecedented waters and fast moving, on-the-ground data requires equally fast updates. Due to more recent information, I am raising the forecast again", he wrote in a note to clients, adding the following:
"At least 6.5M Americans filed for Initial Jobless Claims last week. States are unable to process the tidal wave of claims. I now believe that States will stop trying for accuracy and rely on estimates. After all, funding will flow based on the number they submit and States need to get funding asap."
If Zatlin is right and states do opt for shock value, we may even get a 10 million print or more. Not that anyone is predicting that: curiously Zatlin is not even the biggest pessimist: the most dire prediction sees tomorrow's initial claims at 6.5 million, and belongs to Thomas Costerg at Banque Pictet. BofA estimates 5.5 million, Goldman is at 5.25 million and Citigroup is at 4 million.
Trying to chart tomorrow's worst case scenario is simply meaningless:
A snapshot of the distribution of tomorrow's forecasts together with some of the high-fliers is shown below:
As Bloomberg notes, the new jobless claims report will come days after President Trump announced that social distancing would extend until at least April 30, amid rapidly rising infections and deaths across the nation. The president previously said he hoped that the economy would be "raring to go" by the Easter holiday, but that's no longer the plan.
Curiously, the weekly initial claims report - traditionally ignored and seen as a B-grade economic datapoint at best - now has more import than the monthly jobless report. The reason: while Friday’s payroll figures are forecast to show a more-modest decline in jobs in March, like today's ADP report, they reflect data from the first half of March, before most virus-related shutdowns. So, the bigger job losses - and an unemployment rate potentially rising by several percentage points - are more likely to show up in the April data due in May.
"The March jobs report will vastly understate the extent of labor dislocation occurring as a result of the economic ‘hard stop’ resulting from containments efforts of the Covid-19 crisis. Instead, the more important information regarding the speed of labor market deterioration will be the weekly data on filings for unemployment benefits, a.k.a initial jobless claims.”
Which is not to say the unemployment rate won't eventually reflect the unprecedented halt of the US economy. According to Goldman, in the next few weeks the US unemployment rate will rise to 15%, a level on par with the Great Depression.
We leave readers with the following big picture assessment from SouthBay Research:
By the time this mess settles, at least 20M American workers will have been furloughed. The math is relentless.
Self-isolation is crushing the Leisure & Hospitality sector (17M workers). Most of them are set to be out of work. Indeed, confirming the sector's pain, SouthBay's review of local job postings found a massive collapse: Leisure & Hospitality postings fell 80% compared to the same period last year. That figure will only worsen as more States and cities impose a lock down.
And that's just one sector. Every sector is taking a hit, some more than others, but the average drop in labor demand is >50% (as reflected in job postings). Things will get a bit uglier before they level off.
But a turnaround will happen and sooner than most expect.
In a different age, under these conditions, you would gather the family and head to a remote cabin in the hills. You would be very scared because conditions are ripe for riots and looting and worse: too many people with too much time and opportunity on their hands. At least 20M people will have nothing to do, no job to go to. Schools are closed (56M students K-12). They are at home and driving their parents crazy, who are also forced to work from home. All in all, some 150M Americans people are now hunkered down.
It's a classic recipe for public disorder, and officials know it. I was recently at a shopping mall where the only store open was Target. At the opposite end of the mall, the empty end, a lone police car was stationed. Forget protecting the public in case of a brawl at Target over toilet paper - the empty stores are of bigger concern because they have turned into perfect targets for theft. A case in point: a Van Gogh was just stolen from the COVID-shuttered Singer Langer museum.
Why aren't we scared? Because we have an even more powerful opiate of the masses: the Internet. Pacifying the people is Netflix. And Facebook and Disney+. And for old school players who require real opiates or something similar, cannabis is now broadly legal and sales have doubled.
Crowd control via the internet has become an important tool. Recently, on a long flight to New York, I was speaking to flight attendants about the move by airlines to provide free movies via wifi. Considering that airlines charge for everything, giving away movies seemed counter-intuitive. But the flight attendants explained that it was actually a huge cost savings. Fewer passengers were asking for drinks and snacks. Fewer drunks causing problems. Instead people sat docile for hours, entertained by their screens.
But it doesn't last. People will get restless. Pressure will build to get-back-to-business. Especially if the data suggests that things are 'less bad' or that only certain demographics are at risk (the elderly, the already ill) or that there are treatments that seem to work.
And that's the positive. As Americans emerge from self-imposed hibernation, they will want to go out. If you've ever been camping for an extended period of time, then you find yourself seeking out a hot shower and an equally hot meal.
Demand for services will return, and so will jobs. But it might be a while.
After President Trump's talk of up to 240k coronavirus-related deaths rattled markets on Wednesday, Bloomberg reported Wednesday evening that the Pentagon is seeking up to 100,000 body bags for FEMA, lending the federal coronavirus response a real natural-disaster feel.
Per BBG, the Federal Emergency Management Agency has requested 100,000 body bags, known in the business as "Human Remains Pouches", vian an interagency group that directed the request to the Pentagon. The Pentagon is looking into sourcing more bags, but will initially provide 50k from a stockpile of 50,000 HRP they have...probably languishing in some underground bunker in Virginia.
Bloomberg described the anxiety-provoking headline as "a somber counterpoint to the Pentagon’s highly-praised deployment of two hospital ships to New York and Los Angeles to help alleviate pressure on regional hospitals overburdened by the pandemic."
The Defense Logistics Agency’s Troop Support unit manages the Pentagon’s stockpile of the HRPs, which consist of green nylon, 94-inch by 38-inch body bags that are typically distributed to war zones. The unit has been in talks with a contractor about their production capabilities, but the agency has yet to place an official order.
President Trump said last night that he's preparing for between 100k and 240k deaths, as per the official White House projections, but some of the more alarming projections have called for as many as 1 million deaths, without the 'mitigation' efforts being enacted by millions of Americans, who are working from home, or otherwise staying inside.
FEMA hasn't requested a formal delivery date from the DLA, according to the report, but the agency has purportedly told the contractor that it wants the bags ready ASAP.
A spokesman for FEMA told BBG that the bags are part of the "prudent planning" process for anby potential future needs. The bags specifically apply to any "mortuary contingencies" from US states that might occur.
Earlier this week, the director for the Joint Chiefs laid out the liaison process for working with FEMA, and explained how the JC is working "in close partnership" to make sure all needs are addressed.
It sounds almost unimaginable that anybody in the country right now would wish harm on sweet, innocent Dr. Anthony Fauci, the gifted doctor whose pioneering work on HIV and AIDS has been credited with saving millions of lives, and whose work leading the federal COVID-19 response has been lauded as a "port in the storm" for millions of terrified Americans.
And yet, somebody somewhere apparently does.
The Hill reports that Dr. Fauci has been given a security detail after receiving threats, according to an anonymous "person familiar with the matter."
Before taking his job as a top figure on the White House federal task force leading the government's effort to suppress the outbreak, Dr. Fauci was the director of the National Institute of Allergy and Infectious Diseases, a position he has held since 1984.
The doctor's absence from two White House press briefings last week sparked rumors that Trump was sidelining him after he had "contradicted" the president (something the president has said he encourages his 'expert' advisors to do), and the PR hit was apparently enough of a concern that the doctor was swiftly returned to the lineup.
Asked whether he had been given security protection, Dr. Fauci refused to respond at Wednesday night's briefing. But President Trump interjected, saying "everybody loves" Dr. Fauci, while noting that the good doctor was a formidable basketball player during his younger days.
"He doesn't need security. Everybody loves him," Trump said. "Besides that, they'd be in big trouble if they ever attacked him."
Certainly, an attack on Fauci at such a sensitive time would garner very little sympathy, though there are some conservatives who have blamed the doctor for allegedly trying to undermine President Trump. As the Hill noted, Bill Mitchell and Tom Fitton are among those who have tweeted criticisms of Dr. Fauci recently. However, the motivations of those issuing the threats remain unclear, along with their identities.
Days after the FDA approved the use of hydrochloroquine as a treatment for COVID-19, weekly prescriptions soard from 100k to 300k in one week.
Compounding the issue is a study, which shows that the commonly used treatment for lupus, arthritis and other disorders which was touted by President Trump has proven to be effective in a small study reported by The New York Times. As such, the drug has been placed on the FDA's list of shortages - leaving those with the aforementioned afflictions at risk of not being able to refill their prescriptions, according to Bloomberg.
The news comes after Novartis AG's Sandoz donated over 30 million doses of hydroxychloroquine, while Bayer AG donated 1 million doses of chloroquine to the national stockpile.
While we are still waiting on the results from clinical studies, compelling anecdotal evidence of the drug's efficacy when combined with azithromycin (Z-Pac) and zinc sulfate has caused several countries to place them on their recommended treatment regemin for the disease.
Some of the nine companies on the FDA’s list that make hydroxychloroquine, including generic-drug giant Teva Pharmaceutical Industries Ltd., said there is a limited supply that is subject to allocation. 4
Others said the drug is available, particularly for existing customers. Increasingly larger shipments of chloroquine are scheduled over the next eight months, according to Natco Pharma Ltd., whose chloroquine is distributed by Rising Pharmaceuticals Inc. -Bloomberg
"The agency is working with manufacturers to assess their supplies and is actively evaluating market demand for patients dependent on hydroxychloroquine and chloroquine for treatment of malaria, lupus and rheumatoid arthritis," the FDA said in a Tuesday evening statement, adding that all manufacturers are ramping up production.
As US intelligence agencies dispute China's surprisingly low mortality stats, and as researchers ponder what's causing Italy's outrageous 10%+ mortality rate, one thing is indisputable: mortality rates are climbing even as the number of cases being reported in places like Italy are tapering off. And that is freaking out scientists, who are scrambling to find a cure.
As analysts at Commodore Research pointed out, the issue is not unique to Italy: Virtually every nation that has a large number of reported cases has continued to see mortality rates climb. In Spain, the mortality rate now stands at 8.7%. Ten days ago, it stood at 5.4%. In the Netherlands, the mortality rate stands at 8.3%. Ten days ago, it stood at 3.8%. In the United Kingdom, the mortality rate stands at 7.1%. Ten days ago, it stood at 4.6%. In France, the mortality rate stands at 6.7%. Ten days ago, it stood at 3.9%. In Belgium, the mortality rate stands at 5.5%. Ten days ago, it stood at 2.4%.
Even nations where the mortality rate has been relatively low have seen the rate climb: In Portugal, the mortality rate now stands at 2.2%. Ten days ago, it stood at 0.9%. In the US, the mortality rate stands at 2%, 10 days ago, it stood at 1.2%. In South Korea, the mortality rate stands at 1.7%. Ten days ago, it stood at 1.2%. In Austria, the mortality stands at 1.3%. Ten days ago, it stood at 0.4%. In Germany, the mortality rate stands at 1%. Ten days ago, it stood at 0.4%.
Italy's more detailed breakdown of virus-related data and other mortality statistics have showed that virus-related deaths in Milan and the surrounding area, which has a population of 10 million, has caused the mortality rate to double from normal times.
According to AFP, the region registered 12,399 COVID-19 related deaths last month, thousands more than officially reported by any other country. Meanwhile, last Friday, the civil protection service disclosed a record 969 deaths.
Some have speculated that the death toll in Italy simply doesn't add up, suggesting that Italy's 10% reported death toll might be too low.
It might sound hard to believe, but AFP reports that by comparing data from 2018, its journalists determined that the average monthly deaths from 2018 in the same region was 8,300, and that March 2018 was likely a "statistically average" month. However, the city reported 7,176 coronavirus deaths in March, which is 15% below the average in normal times. Some say that this suggests local officials are deliberately misreporting the numbers.
Even some public officials are suspicious. Bergamo Mayor Giorgio Gori said Wednesday he does not trust the official figures and thinks the real toll for the region may be twice as high. The mayor tweeted a newspaper analysis suggesting that the COVID-19 toll in the Bergamo province was "between 4,500 and 5,000, and not the 2,060" officially reported.
One expert in Italy said that the data suggest Italy's crisis has peaked, but that the peak in hospital deaths will arrive shortly, per the Hill.
"The data suggest that the increase in numbers of patients in intensive care in both the Lombardy region and Italy as a whole are likely to have peaked," the report said.
But ""he numbers of deaths in hospital will continue to increase at the maximum rate for several days to come."
To be sure, one new report published in the Lancet suggested that mortality rates might be smaller than initially suspected.
The study, published Monday in The Lancet Infectious Diseases medical journal, estimated that about 0.66% of patients who become infected with the virus will die. Previously, when undetected infections weren't being taken into account, researchers found the coronavirus death rate was 1.38%. That's still significantly deadlier than the seasonal flu.
Coronavirus disinformation is the hot topic of the day, with pressure mounting on social media platforms to censor incorrect information about the virus and mainstream news outlets blaring dire warnings every day about the threat posed by the circulation of false claims about the pandemic.
“As fast as the coronavirus has raced around the globe, it has been outpaced by a blinding avalanche of social media sorcery and propaganda related to the pathogen, much of it apparently originating in Russia,” the Washington Post editorial board .
“As always when it comes to its relations with the West, Moscow’s main currency is disinformation, and it spends lavishly.”
This would be the same Washington Post who falsely assured us that the Bush administration had provided “irrefutable” proof that the government of Iraq had weapons of mass destruction. The same Washington Post who falsely assured us that Russian hackers had penetrated the US electricity grid to cut off heat during the winter, and who circulated a McCarthyite blacklist of alternative media outlets designated “Russian propaganda” compiled by a group of anonymous internet trolls. The same Washington Post whose sole owner is a literal CIA contractor yet never discloses this brazen conflict of interest when reporting on the US intelligence community as per standard journalistic protocol.
If outlets like The Washington Post had done a better job of consolidating their reputation as a reliable news source instead of constantly deceiving their readers about very important matters, people would believe them instead of believing a “blinding avalanche of social media sorcery” (and web wizardry and internet incantations and electronic enchantments and net necromancy).
Funny, this is exactly what the US is doing to China, Iran, Venezuela & Cuba to deflect from its own abysmal failures that turned America into the world's largest corporate sacrifice zone https://t.co/yIXGZoZp9L— Abby Martin (@AbbyMartin) March 28, 2020
We’re seeing these urgent warnings about coronavirus disinformation and misinformation from mainstream outlets who’ve sold the public lies about war after war, election after election, status quo-supporting narrative after status quo-supporting narrative.
“Here’s How to Fight Coronavirus Misinformation” reads a headline by The Atlantic, whose editor-in-chief Jeffrey Goldberg once assured us that “the coming invasion of Iraq will be remembered as an act of profound morality,” and whose star writer is David “Axis of Evil” Frum.
“China and Russia have seized on the coronavirus outbreak to wage disinformation campaigns that seek to undermine the U.S. and its handling of the crisis, rather than addressing public criticism of their own struggles with the pandemic,” warns The New York Times, who played a leading role in the disinformation campaign to build support for the Iraq invasion and who aggressively pushed crazy-making Russia hysteria (including famously retracting its bogus “17 intelligence agencies” claim).
So it is understandable that people are suspicious and looking to alternate sources for answers. The outlets which are warning them about the dangers of this virus and defending massive, unprecedented changes which have an immense impact on the lives of ordinary people have an extensive and well-documented history of lying about very important things. People are aware of this, in their own ways and to varying degrees, and it doesn’t help that all the usual suspects are behaving in a way that feels uncomfortably familiar.
“This pandemic will be more consequential than 9/11. It probably already is. People just don’t realize it, because they still think — still feel — that once this is all over we’ll go back to the way things used to be. We won’t,” says The Bulwark, founder Bill Kristol was also the founder of the wildly influential think tank Project for a New American Century (PNAC). PNAC famously argued a year before the 9/11 attacks that the massive worldwide increase in US military interventionism they were promoting at the time would not be possible without “some catastrophic and catalysing event — like a new Pearl Harbor”. All of which miraculously came to pass.
“This pandemic will be more consequential than 9/11. It probably already is. People just don’t realize it, because they still think—still feel—that once this is all over we’ll go back to the way things used to be. We won’t.” https://t.co/WzorDyXIYR— Bill Kristol (@BillKristol) March 30, 2020
I personally believe there’s enough evidence that this virus is sufficiently dangerous to justify many of the significant precautions nations have been taking (though of course we must oppose and be vigilant against government overstepping into authoritarianism). The statistics are still very blurry and unreliable, but the mountains of testimonies by rank-and-file medical staff pouring in from areas where the outbreak is bad constitute enough anecdotal evidence for me to believe that this virus can very easily overwhelm our healthcare systems if we don’t collectively take drastic measures to contain it.
That said, I certainly can’t cast blame on people who believe the threat the virus poses is being greatly exaggerated. Not because I think they’re right, but because you don’t blame a population who’s been constantly lied to for their disbelief in what they’re being told by the very political/media class which has been lying to them. It’s not the fault of the rank-and-file public that they’re believing conspiratorial narratives, erroneous Facebook memes, right-wing pundits and the US president over the mainstream press; it is the fault of the mainstream press themselves.
I’ve taken a lot of flack in conspiracy circles lately for my relatively normie stance on Covid-19, but I also can’t really take it personally because it isn’t really their fault. Not everyone has the time and the resources to independently comb through many disparate bits of information about a single topic and synthesize a lucid understanding of what’s going on; that’s meant to be the job of the press, but since they’ve neglected to do their job time and time again they lack the credibility to demand that people believe what they’re reporting.
So I never join in the loud finger-wagging and aggressive demonization of those who express doubt in what’s really going on with this thing. I’ll leave that to those of a more mainstream bent, since they seem to enjoy it so much. As for myself, I will continue pointing out that the reason misinformation is so readily believed is the same as the reason Trump’s criticisms of the mainstream press are so readily believed: they have absolutely earned their garbage reputation.
The whole reason the world is the way it is right now is because people have been manipulated by the media-controlling class into accepting an absolutely insane status quo as normal. That’s the only reason anyone believes it makes sense for so few to have so much while so many have so little, for trillions of dollars to be poured into military expansionism and wars which benefit no one but the rich and powerful, for the environment to be destroyed to make a few more millionaires into billionaires, for a demented right-wing racist warmonger to be running against another demented right-wing racist warmonger for the most powerful elected office on the planet.
The big lies happen once in a while, but these little lies of normalizing our insane status quo happen every single day. On some level everyone is aware, however dimly, that our society is crazy and needs to change drastically, and so they are also aware that this is the opposite of the message they receive every day from the “authoritative” narrative-makers. The crazier things get, the more this awareness will necessarily grow, and the less people will trust the billionaire media whose only purpose is to maintain the status quo upon which its owners have built their respective kingdoms.
You can’t blame people for being distrustful when you make them that way. The people screaming the loudest about disinformation right now are the ones most responsible for it.
* * *
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To quantify the impact of COVID-19 on local businesses across the U.S., the data science team at Womply is conducting ongoing, daily data analysis of transaction trends year-over-year at 400,000 local businesses across the country, including 48,000 restaurants, 10,000 grocery stores, 4,600 bars, 64,000 retail shops, and 6,400 lodging businesses. You can view that ongoing analysis here.
Here’s what the data revealed about last week’s impact on local businesses nationwide:
Firearm and sporting goods stores
Arts and entertainment
We have been discussing the growing intolerance for free speech on our campuses and the ever-expanding scope of both hate speech and “microaggression” definitions.
Now, College Pulse has released s survey of 2,000 college students that finds six out of ten view offensive jokes to be hate speech - a view shared by many European countries which now regularly prosecuted people for such jokes.
There is a considerable contrast between the views of Democratic and Republican students. The poll found that 76 percent of Democratic students “believe offensive jokes can constitute hate speech” while only 36 percent of Republican students who hold that view.
We have previously discussed the alarming rollback on free speech rights in the West, particularly in Europe (here and here and here and here and here and here and here and here and here and here and here and here and here and here and here and here). We have seen comedians targeted with such court orders under this expanding and worrisome trend. (here and here and here).
Notably, comedians are refusing to perform on our campuses because of the threat of protests and shutdowns over jokes deemed by some to be offensive or discomforting. Comedy has always occurred on the edges of propriety and constitutes a long-valued form of social and political commentary. The effort to chill jokes and parody is part of a broader anti-free speech movement on our campuses.
For the US administration it appears now is as good a time as any to start a major proxy war with Iran inside Iraq.
Or perhaps the distraction of yet another Middle East war is just what the
doctor neocons ordered at a moment the United States and the world for that matter faces its biggest crisis since World War II in the form of the expanding deadly pandemic.
Wednesday afternoon the president tweeted out this stunner: "Upon information and belief, Iran or its proxies are planning a sneak attack on U.S. troops and/or assets in Iraq. If this happens, Iran will pay a very heavy price, indeed!"
Upon information and belief, Iran or its proxies are planning a sneak attack on U.S. troops and/or assets in Iraq. If this happens, Iran will pay a very heavy price, indeed!— Donald J. Trump (@realDonaldTrump) April 1, 2020
For most, the events of January which almost took the US to war with Iran after the assassination of IRGC Quds Forces General Qassim Soleimani, likely feels light-years away into the distant past.
But here we are again, with Trump suddenly threatening "Iran will pay a very heavy price" — clearly a threat of military strike. This after Pompeo and his gang of neocons and the State Department and Treasury have already ratcheted up sanctions further on the corona virus-ravaged Islamic Republic.
This also comes after last Friday the Pentagon was been ordered by Secretary of State Pompeo to begin planning to wipe out certain Iraqi militias which they believe are Iranian proxies, especially the large Kataib Hezbollah Shia militia.
However, the administration reportedly remains divided, given it would require an influx of thousands more American troops in Iraq, at a moment the Department of Defense is barely able to get a handle on containing the coronavirus outbreak in its ranks, which it should be noted has lately taken out a whole nuclear aircraft carrier.
The dollar extended gains to session highs immediately following the provocative tweet, with the Bloomberg dollar index climbing up as much as 0.9% on the day, reports Bloomberg.
Yesterday was another day ending in “y”, therefore there must be some new liquidity scheme being announced by the Federal Reserve. For a crisis that many seem confident has been put in the past, the optimists still are going to have to factor that even US central bankers feel they have to keep pulling repo rabbits out of their…somewhere.
Yesterday it is FIMA. Not just FIMA but the FIMA Repo Facility! The abbreviation stands for Foreign and International Monetary Authorities which once more uncomfortably points the world’s attention to US dollar conditions outside the United States. Offshore, you might even say.
Offshore and repo, imagine that.
Foreign officials. US Treasuries. Smooth functioning of financial markets. Temporary exchange in lieu of sale. International currency. What the hell is going on here?
I sincerely doubt Jay Powell reads this blog – I know he doesn’t and never will – but it’s exactly what I wrote yesterday. The Fed has certainly been in touch with the IMF, so they are all aware that the global dollar shortage, the real one, hasn’t actually shown up yet.
So, the idiots that a year ago screwed up the largest single bailout in the IMF's history, Argentina, now want the world to be reassured as we all face up to the prospects for eighty Argentina's.— Jeffrey P. Snider (@JeffSnider_AIP) March 30, 2020
Hey NYSE, real GLOBAL DOLLAR SHORTAGE isn't even here yet.https://t.co/sbnN1x6lUy pic.twitter.com/HBY3Dc6QYO
Thus, you can take FIMA one of two ways:
the Fed cultists will be relieved at this proactive stance Jay Powell seems to be taking;
or you can whisper HOLY SH%$ under your breath as you understand what it means when the IMF as well as Jay Powell acknowledge just what’s before us.
When even the normally self-blinded can see the thing, is that good or is it an indication of just how starkly abnormal this potential future reality might be?
After all, the Fed was being proactive in its September repo rumble aftermath – for all the good that it did.
There is a fundamental mismatch here that’s even more basic than bank reserves versus collateral. This gets to the very center of the whole issue; starting with the question, what is the Federal Reserve?
Asking members of the public, I would wager 99 out of 100 persons would get the answer wrong; and the one who got it right did so by accident. The Federal Reserve is not a central bank, not by any reasonable definition of one. It is instead a bank authority, more importantly a domestic one. This is no trivial distinction, I assure you.
This by no means is a judgment on the public’s judgment, instead it demonstrates just how distorted Economics has twisted reality. You’ve all been taught from the beginning, as I was, how Alan Greenspan’s Fed is the most powerful force in the universe; and how Ben Bernanke in November 2002 gave that force a nickname called “printing press.” It all sounds so very central bank-y that you are forgiven for believing (it took me a long time to make the leap, too; as Milton Friedman said just before he passed, central banks are good at one thing and one thing only: PR).
Being converted into a Fed true-believer right from the start you never ask any questions about the details. That’s the thing about faith. How does this purported central bank actually accomplish its central bank chores? Moving the fed funds rate around a quarter point here or there doesn’t quite add up.
And so, we are also taught about Open Market Operations, or OMO’s. The Fed doesn’t just move fed funds around, the textbooks all say it controls the short-term rate via OMO’s. The central bank can, if it chooses, add reserves or take them away by buying or selling securities from or to dealers. Voila! There’s your money printing.
Except, no. That may be the standard theory preached in Economics class, but it didn’t actually happen that way in practice. Throughout the eighties, nineties, and middle 2000’s, there were practically no OMO’s – the level of bank reserves, the accounting remainder the Fed does “print”, never really more than $10 billion or so total.
That $10 billion balance was supposed to have been the Fed’s control element (aside: this is the steep part of the curve they were talking about in recent repo papers) in a multi-tens of trillion system spanning the entire world? And that’s the other thing; where did this LIBOR thing come from?
LIBOR is the London InterBank Offered Rate. Developed in the late sixties for Iran, yes, sixties and Iran, as the name tells you these are dollars offered between banks in London. Everyone knows that the US dollar is the world’s reserve currency, but a big part of Fed faith is never asking what that means, either.
So, we have some vague notions about OMO’s and US dollars doing some things overseas. With Alan Greenspan’s “maestro” performance, there was never any apparent reason to get into specifics. Just go along with it; let the professionals sweat the small stuff.
On August 9, 2007, however, suddenly LIBOR and fed funds were dancing to someone else’s tune rather than Ben Bernanke’s.
That point was forever driven home on August 10 when LIBOR went further up while fed funds suddenly plunged.
What followed was first a plea to use the Discount Window followed by rate cuts, OMO’s, TAF’s, TALF’s, PDCF’s, MMFCF’s, etc. In other words, the FOMC attempted to put in practice what had been only theory. Balance sheet expansion, billions and then trillions of bank reserves. Still fed funds down, LIBOR up. Overseas dollar swaps and a healthy dose of foreign names on the TAF lists. Still fed funds down, LIBOR up. GFC1.
This was the whole crisis in one picture. But what did it actually mean?
The dollar’s presumed role as global reserve currency had been carried out for decades by a global banking network that only seemed to be responding to the “maestro.” In truth, so long as that monetary system was growing it felt stable with the appearance of the Fed in control (or random good luck). But that growth also meant what Alan Greenspan in June 2000 admitted had been a “proliferation of products” that had long ago expanded and superseded every conceivable monetary boundary – including geography.
Because the world needed and still needs dollars to function, this offshore US dollar bank system sprang up over the course of more than half a century to meet those needs. While it did, the Federal Reserve was never anything more than a domestic bank authority.
This point was driven home right at the outset of GFC1. As I wrote about back in 2017 on the 10th anniversary of the launch of our first lost decade, in September 2007 the FOMC discussed LIBOR and fed funds, specifically how the former was stubbornly persistent at high positive spreads despite their “best” efforts.
You would think the focus of such solemn discussion would be about what the Fed should be doing to bring them down. Instead, officials kept wondering whose problem this was. Seriously.
MS. JOHNSON. So the spreads of overnight pound LIBOR, relative to target, opened up widely, and they were not addressed. They were allowed to just sort of sit there. The term pound market had a problem, too. Of course, many of the dollar issues that we have spoken of— and that Bill talked about—are really being captured as a London phenomenon. But you might say that, from the point of view of the Bank of England or the U.K. economy, these dollar issues are somewhat separate from the domestic economy. [emphasis added]
Is the central bank responsible for money, in this case dollars – all of them everywhere? Or, is the Federal Reserve merely a domestic bank authority whose authority and attention applies only to banks operating within the US border? We are all taught to believe it is the former when in truth it has always been the latter, as Kathleen Johnson so dutifully pointed out in September 2007.
Let’s boil this down into specifics; if RBS, for example, a bank who had been heavily involved in the global, offshore US dollar system for decades finds itself in trouble for lack of US$ funding offshore, whose problem is that? The Federal Reserve says it is the Bank of England since the specific issue is an English bank, while the Bank of England understands this is a US dollar run.
The domestic bank authority, the Fed, is therefore totally ill-suited to handle the realities of a global monetary system. The inevitable result was the “somehow” Global Financial Crisis; those that might’ve wanted to strike at the crisis directly were unable, while those that, theoretically, could have wanted no part of it; or as little as possible.
To stay true to its mandate, our domestic bank authority came up with overseas dollar swaps in order to literally pass the buck. Bernanke’s Fed acknowledged the “London” dollar problem but in keeping true to its domestic mission simply offered dollar resources, bank reserves, to these other foreign central banks so that the foreign central banks might be able to take care of their own. In US$s.
They weren’t really suited to do that, either. That’s how the repo market ended up being the lender of last resort, until collateral was squeezed right out of it.
To this massive and growing global dollar shortage, Bernanke’s Fed said: not my problem, take some bureaucratically determined dollars and you sort it out!. What got our domestic bank authority moving was only how and where the raging GFC1 impacted their domestic banks (leading to the ridiculously fallacious doctrine of “abundant” reserves), which was guaranteed to happen because it was a world-spanning crisis. The whole house was a raging inferno but Bernanke’s firefighting crew only sprayed down the garage because that’s the instructions they had from the city.
Of course the garage (and house) burnt almost completely to the ground anyway.
The consequences of this mismatch are, and have been, disastrous. GFC1 was only the beginning. Not only are we looking at GFC2, in between them was a full decade without economic growth. I’m not sure how it could have been much worse.
It has only been recently that the official world has begun to understand the implications. Starting with the rising dollar. Not all that long ago considered a good thing, Janet Yellen’s King Dollar embarrassment, the easiest correlation in the monetary world to make was finally made by these Economists in the last few years.
But why does the dollar rise? How do we get it to stop?
If you think those are the questions Jay Powell is right now asking himself you’d be wrong. FIMA is yet more proof. The Fed is still behaving as if this is someone else’s problem.
What I wrote yesterday is that the world is facing an even larger dollar shortage ahead of us than what we’ve already experienced in March 2020. The IMF rarely gets more a single emergency request for funding. It’s gotten around eighty recently with more expected.
There are, by and large, two ways a foreign location can come up with the dollars it needs (the short) to participate in the global economy; and most places don’t have the luxury of being self-sufficient, so trade isn’t a choice and therefore dollar availability is a must.
The first is the old-fashioned way – mercantilism. You sell goods to other places around the world and they give you dollars in return. When people refer to the so-called petrodollar, that’s what it means where oil rich nations have been concerned (and it isn’t anything more than that despite years of people trying to imbue other purposes).
Global trade, however, is about to be curtailed to an extent that will probably exceed GFC1, in terms of depth and likely duration (for many places the Great “Recession” was sharp but ultimately short). Therefore, countries previously dependent upon mercantile trade to source a great deal of their dollar short requirements are about to be almost totally shut out. For the oil producers, it’s already in the price of oil.
That’s the double in the dollar double whammy; the financial system has already largely shut down. Once those trade dollars dry up, too, where does anyone go to get them?
But that’s not Jay Powell’s problem, he says. The Fed’s answer is banks in whichever country should apply for aid from whomever’s local central bank. Not the Fed.
What the Fed will do is supply limited dollar swaps with some other central banks. Since there are only a dozen or so of them, and the IMF has already reported massive interest from almost all other countries (one of my main points yesterday), in the case of countries whose central bank or monetary authority isn’t a counterparty to the Fed’s dollar swaps there’s now FIMA.
The extra wrinkle is FIMA’s repo piece. Normally, as I’ve been documenting for a very long time, when confronted with a dollar shortage (as have happened two other times in between GFC1 and GFC2) the foreign central bank would “sell US Treasuries” in the attempt to make up the difference. “Sell UST’s” is in practice a euphemism for foreign officials “supplying dollars” that the eurodollar market won’t.
But “selling UST’s” means mobilizing foreign reserves, driving down the visible stock for everyone to see; which advertises to the world just who has the biggest dollar problem (the nightmare scenario). It’s exactly like the Discount Window’s stigma problem only in this case for the dollar short of entire national systems.
The FIMA Repo Facility gives these overseas monetary authorities the option to bypass the “selling” of their UST’s by letting them instead exchange them (repo) with the Fed for cash (bank reserves). For six months (or longer, if extended), foreign monetary officials – and only foreign monetary officials – will be connected to the Fed for bank reserves in a way that hides who is doing what.
Whatever happens to those dollars from there is up to the foreign monetary officials.
If this sounds familiar, it should. The TAF auctions during GFC1 were nothing more than a re-invented Discount Window with anonymity, therefore no stigma. We now have entire countries who wish to hide their dollar shortages instead of just banks seeking to obscure individual funding problems.
As I wrote last October in my FTM series, it really is setting up to be a shadow shadow run (just once I’d really, really like it if I could be right about something good, fun, and happy).
In a shadow panic, like 2008, banks sought to remove liability exposure to other banks – to reduce interbank unsecured lending (that private liquidity I spoke about above). Because it was a bank panic of only banks panicking, it was called shadow (also offshore). As we’ve just been shown, banks are still protecting themselves from this risk – fighting that last war so to speak – by refusing to step in and provide liquidity even in the secured lending market (repo).
A shadow shadow panic might be where some other type of player beyond the visible depositories is hit hardest by liquidity problems. It’ll still be another big funding squeeze, but it’ll be the corporate market or maybe whole countries at the brink.
The FIMA Repo Facility is the Fed confirming that my shadow shadow run scenario is a very real, maybe even a likely possibility. Foreign governments are about to be overwhelmed by dollar problems as the full double whammy of GFC2 is still on the horizon.
Cheery, I know.
And here’s the worst part. With the Fed still refusing total dollar responsibility, no matter how big the eurodollar shortage facing the world, it’s as I wrote yesterday: ¯\_(ツ)_/¯. Hell of a way to face a global crisis.
FIMA doesn’t change anything. Instead of selling UST’s like foreign central banks would be doing they’ll now repo them to the Fed – ending up in the same way as other countries had been using dollar swaps. Did the swaps work? No, of course they didn’t.
None of these things solve the basic underlying dollar problem. This isn’t currency elasticity, it’s the appearance of elasticity without anyone officially acknowledging the real currency. At best, and this is tenuous, they attempt some cover for others to look like they are applying a solution.
Furthermore, instead of the funding markets being able to discern which countries are worst off by simply identifying where reserve balances are shrinking the most, eurodollar banks will now stop funding for everyone because, with reserve balances preserved by the FIMA repo, they can’t identify the weakest cases so, like in every crisis, they’ll just assume everyone is. Since nobody will know just who is the riskiest or how to separate merely a bad situation from an inescapably bad one, it becomes TAF revisited.
Fundamentally, we have a global (euro)dollar system in which the public still believes there is a central bank backstop (thank you, subprime mortgages!) Instead of a dollar central bank, we have a US bank authority whose primary interest is in making the public believe it is a dollar central bank – so long as no one asks questions or thinks too deeply about practical details.
All with a series of elaborate puppet shows, theater which now includes FIMA. Everything our banking authority does is designed to further hide even the biggest problems, not tackle any of them.
That means screw the mandates and regulatory restrictions; this is a crisis. Get them changed immediately. The US boundary doesn’t matter for the monetary system and hasn’t for decades, therefore the central bank (because that’s all we have available at this moment) isn’t a US central bank but a dollar central bank. There’s an enormous difference.
Gallup has been polling Americans on the COVID-19 crisis daily since March 13. Here are new results from Gallup's interviewing through March 29, as well as highlights from the past two weeks.
The percentage avoiding small gatherings, such as with friends and family, has surged 15 percentage points to 83%.
The percentage reporting they are avoiding public places, like stores and restaurants, has increased six points to 78%.
The percentage avoiding mass transportation, including air travel, has leveled off near 90%.
Gallup ceased asking Americans whether they are avoiding crowds after this reached 92% in March 20-22 interviewing.
Since Gallup's original measurement of social distancing, based on March 13-15 interviewing, all societal groups have adopted stricter social distancing practices, including avoiding public places - but certain differences have held constant. As shown in the table below, women, young adults, Democrats and residents of the most densely populated areas tend to be following this recommendation most strictly.
In another indication that Americans are taking social distancing more seriously, an expanding percentage of Americans, now 64% up from 58% last weekend, say they are very likely to comply with a potential public health directive to remain in their homes for 30 days.
According to Gallup polling over the weekend, 77% of U.S. adults approve of the recently passed $2 trillion economic relief package designed to help Americans and businesses weather economic dislocation caused by the public health crisis.
Learn more in this write-up by Gallup's Jeffrey M. Jones: Bipartisan Support for COVID-19 Rescue Legislation (March 30)
Gallup is monitoring changes in employment, worker productivity and worker engagement during the COVID-19 crisis. Megan Brenan's March 27 article, U.S. Employees Increasingly Seeing COVID-19 Effects at Work, summarizes the latest important findings from this research.
These articles from the prior week show how much has changed in workers' expectations for -- and experience of -- the crisis in a very short period of time.
The following articles document that Americans are well aware of the impact that the health crisis and measures being taken to end it are likely to have on the U.S. economy.
Americans' initial reaction to the job that various public health and elected officials are doing leading the country through the crisis is relatively positive. As detailed in Justin McCarthy's March 25 article, Coronavirus Response: Hospitals Rated Best, News Media Worst, approval ranges from a high of 88% for U.S. hospitals to a low of 59% for Congress. It also finds 82% of workers approving of their employer's handling of the situation, but only 44% approving of the news media.
Americans' worry about themselves or a family member being exposed to the coronavirus rose sharply between February and March. As the number of Americans afflicted with COVID-19 surges, that shift may also reflect Americans' growing understanding that the highly contagious virus is especially dangerous for those with certain common pre-existing health conditions, such as diabetes, asthma and heart disease.
A special analysis by Gallup's Dan Witters and Sangeeta Agrawal estimates that as many as 11 million Americans are at risk for experiencing severe complications from the virus should they contract it, a worst-case figure that assumes all Americans are exposed.
Read Frank Newport's recent summary of the latest polling by Gallup and others on the coronavirus in his March 27 piece, Six Emerging Conclusions: Public Opinion and COVID-19.
Why has the western United States suddenly been shaking so violently over the past several weeks?
On Tuesday, the constant barrage of headlines about the coronavirus pandemic was interrupted by an enormous earthquake that hit central Idaho. Of course Idaho is not exactly known for earthquakes, and so this was quite a surprise. In fact, the largest quake in Idaho history was the magnitude 6.9 Borah Peak earthquake in 1983. So when a magnitude 6.5 earthquake stuck not too far from Boise on Tuesday, it really stunned a whole lot of people. And according to the Spokesman-Review, this quake could be felt as far away as Calgary…
An earthquake hit southern Idaho on Tuesday afternoon, with shakes felt as far as Calgary, Canada, Boise and Spokane.
The United States Geological Survey measured a 6.5-magnitude earthquake at a depth of 10 miles just before 5 p.m. The center of the quake took place about 45 miles west of Challis, Idaho.
This is an event that those living up in the Northwest will remember for a long time to come. There was a tremendous amount of shaking all over the region, and according to at least one report some people actually “ran outside yelling”…
An entry in Volcano Discovery said: “Sustained moderate shaking for several minutes, Rumbling sound heard, people ran outside yelling. Knickknacks fell off shelf.
“Items suspended from ceiling/beams still slightly swaying 10 minutes later.”
All the way over in Helena, Montana someone described the shaking like being “on a small ship at sea during a storm”, and a restaurant owner in Stanley, Idaho reported that “the water next to me is still vibrating”…
Brett Woolley, a restaurant owner in Stanley, said he heard earthquake coming before he felt it.
“I heard the roar, and at first it sounded like the wind but then the roar was tremendous,” Woolley said about 10 minutes after the earthquake. “The whole house was rattling, and I started to panic. I’m sitting here perfectly still and the water next to me is still vibrating.”
The epicenter of this earthquake was approximately 78 miles from Boise and approximately 330 miles from Yellowstone.
Needless to say, any major seismic event anywhere near Yellowstone is a cause for concern.
And of course this quake comes less than two weeks after a magnitude 5.7 earthquake hit near Salt Lake City on March 18th…
An earthquake struck near Salt Lake City Wednesday morning, shutting down a major air traffic hub, damaging a spire atop a temple and frightening millions of people already on edge from the coronavirus pandemic.
Though there were no reports of injuries and no damage was immediately reported in areas along the Utah-Idaho border, there was damage scattered in the Salt Lake City area — with the earthquake showering bricks onto sidewalks and releasing a chemical plume outside the city.
In fact, that quake caused so much shaking that it actually knocked the trumpet out of the grasp of the statue of the angel Moroni…
The 5.7-magnitude earthquake that shook Utah Wednesday morning also dislodged a symbolic part of Salt Lake City’s iconic Mormon temple: the trumpet of an angel statue atop its highest spire.
The temple is the spiritual focal point for the 16 million members of The Church of Jesus Christ of Latter-day Saints.
Following that dramatic seismic event, there have been hundreds of aftershocks.
And remember, this is not a part of the country that is known for lots of quakes.
According to the University of Utah Seismograph Stations, there had already been 658 aftershocks from that event as of Monday morning…
More than 600 earthquakes have hit across Utah and surrounding areas after a 5.7-magnitude quake struck near Salt Lake City about two weeks ago, according to University of Utah Seismograph Stations.
As of Monday morning, the University of Utah Seismograph Stations, or UUSS, recorded 658 earthquakes as part of a series of aftershocks.
Of course there will be plenty of aftershocks following the quake that just hit Idaho as well.
As I write this article, there have already been five aftershocks greater than magnitude 3.0 that have hit the region. By the time you read this article, that number may be substantially higher.
With all of this shaking going on in Idaho and Utah, many on the west coast may be wondering if they are next.
According to CalTech, there have been more than 1,100 earthquakes in California and Nevada over the last 7 days. A couple of magnitude 5 quakes struck off the coast of northern California during March, and that certainly rattled some nerves, but everyone understands that something far, far larger is eventually coming.
For years, scientists have been telling us that “the Big One” is way overdue and that we are not prepared for it.
And for years I have been warning people about what will eventually happen if they remain on the California coastline.
We live at a time when everything that can be shaken will be shaken. The crust of our planet is becoming increasingly unstable, and this latest earthquake in Idaho is yet another example.
In Luke 21:11, Jesus told us the following about what things would be like in the last days…
And great earthquakes shall be in divers places, and famines, and pestilences; and fearful sights and great signs shall there be from heaven.
You may have noticed that a “pestilence” is rapidly spreading across the face of the globe right now.
And at the same time, enormous earthquakes keep popping off like firecrackers with frightening regularity.
Unfortunately, most Americans don’t understand the bigger picture, and what we have experienced so far is just the beginning…
China is no longer fixed.
Having lied for the past two months about the severity and the extent of coronavirus pandemic which its virologists started in Wuhan, eager to convey the message that the crisis "under control" just so people return to work, full of hope and enthusiasm, rejoicing at the surge in China's just as fabricated PMI numbers, and willing to work their asses off (with Beijing generously willing to risk everyone's lives as the alternative is a complete collapse in China's economy) earlier today the US finally cracked down on the relentless barrage of Chinese lies, when US intelligence accused China of deliberately lying about its coronavirus figures.
Then, in a miraculous coincidence, just moments later Reuters reported that a county in central China's Henan province announced on Wednesday it had "virtually banned all outbound movement of people, following several cases of coronavirus infection in the area."
According to a post on its social media account, Jia county - which has a population of about 600,000 - said that no one can travel out of Jia county without proper authorization. Additionally, residents are not allowed to leave their homes for work unless they have clearance to do so.
According to local media reports, on March 29, Henan Province broke its 30-day streak of reporting no new coronavirus cases, saying one person tested positive after a trip to Pingdingshan, where Jia County is located. Specifically, on Saturday, Henan province reported one confirmed case in Luohe city; local authorities said the infected person had been in contact with two doctors based in Jia county who later tested positive for the virus even though they had showed no symptoms.
As a result, Bloomberg adds that starting April 1, all residential compounds will be under "closed-off management" and all residents need to wear masks and have temperature taken entering or exiting the compounds.
And so the virus is back to China, despite the best intentions of the
Chinese World Health Organization and its Beijing sponsors to make it seem that China had managed to defeat the virus.
Needless to say this is a problem, because the risk of stop-start restrictions on people’s movements mean that any calls for a V-shaped rebound in global economies and stocks can now be ignored as China will soon be forced to go through the entire shut down exercise all over again.
Indeed, as Bloomberg's Simon Flint wrote presciently overnight, "as China’s economy restarts, there is every risk infection rates to tick higher once again, requiring renewed control measures and potentially the beginning of a stop-start pattern of lockdowns followed by eased restrictions."
"Multiply that pattern by the growing number of countries in lockdown - and the unknown impact of a rampant virus in nations with fewer restrictions - and the much hoped for V-shaped recovery could quickly become a series of W’s"... and since "there is no blueprint for jump-starting a stalled economy in the midst of a global pandemic, a fresh waves of infections following production restarts could quickly snuff out any rally in global stocks."
In other words, back to square one we go, only maybe this time China will tell the truth.
Shares of Conagra rose almost 4% on Tuesday and will likely continue to be volatile as the coronavirus pandemic prompts a nation full of locked down consumers without access to restaurants to make more trips to the food store than usual.
Since March 12, however, the company's stock is up more than 20%, according to Yahoo. Not unlike stay-at-home software names and online retailers, Conagra appears to be one of the few stocks getting a tailwind from the coronavirus outbreak.
Demand for the company's brands, which include staple snack and read-to-eat names like Birds Eye, Udi's and Vlasic, is on the rise as Americans rush to their local groceries to stockpile as much food as they can.
And with the President extending the nation's social distancing guidelines to the end of April, it's looking as though the tailwind can continue heading into the spring. Some analysts are predicting that social distancing guidelines could continue even further, into the beginning of summer.
Conagra said during Tuesday's earnings report that it has witnessed a "significant increase" in demand for its fourth quarter and that it expects improved top and bottom line numbers. It also boosted its full year guidance expectations.
For its fiscal year 2020, the company projects adjusted earnings from continuing operations to be above the high end of prior range of $2.00 to $2.07 per share.
"On a quarter-to-date basis, shipments and consumption in our domestic retail business have increased by about half, more than offsetting the effect of worsening trends in our food-service business," CEO Sean Connolly said.
These gains will help offset what is expected to be a 50% to 60% slowdown in the company's Foodservice sales.
Previously, the company had been mired by a slowdown in revenue and earnings that had caused it to lower estimates less than two months ago in February. Those worries have now been forgotten. The company now says it expects a more than 50% gain in domestic retail sales for its fourth quarter and says its supply chain has "effectively serviced demand" throughout the pandemic crisis so far.
Furthermore, surging food stocks were one leg of the "Virus fear" trade that, despite last week's easing, remains a winner in the last month...
Update (1200ET): Vice President Mike Pence just said during an appearance on CNN that it "would have been better" if China was more forthcoming with the US during the early days of the outbreak, and basically blamed the Chinese for the White House's slow response.
And there you have it, the purpose for this particular leak, is to begin laying out the administration's defense when accosted by critics who accuse Trump of not doing enough early on to combat the virus.
* * *
A day after China reported more than 1,500 additional "asymptomatic" cases that authorities said had been left out of the country's data, while promising to start reporting these cases (they've already reported 50 more on Wednesday, blaming most of them on travel) going forward, an intelligence report has been submitted to the White House accusing Beijing of deliberately underreporting cases.
The report, which was leaked to the US press by senior-level officials, revealed that the US believes China deliberately tried to conceal the extent of the outbreak, suggesting that Beijing's decision to lift its lockdown is probably premature, which is why they're pivoting toward blaming foreigners for these new "asymptomatic" cases that have supposedly been known to the government all along, they just simply 'forgot' to count them.
This shouldn't be a surprise to anyone, as it was widely speculated during the early phases of the outbreak. But this is the first concrete indication that US intelligence has been taking Beijing's deceptions seriously, and doesn't intend to just sit back and take it lying down. Secretary of State Mike Pompeo earlier this month blasted the Chinese for withholding data about the virus.
Here's the Bloomberg report:
China has concealed the extent of the coronavirus outbreak in its country, under-reporting both total cases and deaths it’s suffered from the disease, the U.S. intelligence community concluded in a classified report to the White House, according to three U.S. officials.
The officials asked not to be identified because the report is secret and declined to detail its contents. But the thrust, they said, is that China’s public reporting on cases and deaths is intentionally incomplete. Two of the officials said the report concludes that China’s numbers are fake.
The report was received by the White House last week, one of the officials said.
The outbreak began in China’s Hubei province in late 2019, but the country has publicly reported only about 82,000 cases and 3,300 deaths, according to data compiled by Johns Hopkins University. That compares to more than 189,000 cases and more than 4,000 deaths in the U.S., which has the largest publicly reported outbreak in the world.
Beijing has sought to convince the Chinese people that the virus was created and spread by the US military, a "conspiracy theory" that's been dreamed up by the government and spread via state-controlled media outlets, a type of advanced-level information warfare designed to distract from the possibility that the virus may have leaked out of a Chinese bioweapons lab.
China's lies have been exposed in surprising ways, like the deliveries of urns in Wuhan. Some leaked documents have suggested that China's real numbers were 52 times higher than what Beijing allowed to be reported.
President Trump's decision to refer to the virus as the "Chinese virus" was so aggravating for Beijing because it impeded the government's effort to convince its people that the virus was made in America - though of course they didn't say that, exactly, they couched their objections in accusations of racism and faux-outrage.
It’s no secret that the growth of U.S. shale oil has been a thorn in the sides of both Saudi Arabia and Russia. They have seen their market shares erode as the shale boom made the U.S. the world’s largest producer of crude oil. But Saudi Arabia’s national oil company, Saudi Aramco, is a single entity that produces 13 percent of the world’s oil and controls 17 percent of the world’s proved reserves. That puts them in a very powerful position. They can withhold a lot of oil from the market, or they can flood the market with oil and crash the price.
I have warned many times that Saudi Aramco’s power shouldn’t be underestimated, even as some were suggesting the shale oil had rendered OPEC (which they control) toothless. In an article I wrote in 2016, I observed:
“OPEC is a big reason oil prices fell into $20s earlier this year, and they were a big reason oil prices were at $100 a few years ago. What other organization has the power to move the price of oil so dramatically — both up and down? That is real market power. So they may sometimes behave like a paper tiger. But they are capable of rapidly moving the global oil markets.”
Saudi Arabia should not be underestimated. They started a price war in 2014 that drove oil prices into the $20s. No other single entity could have done that. The strategy temporarily stalled U.S. oil production, and although they did bankrupt a few shale oil producers, the industry proved resilient. So Saudi Arabia switched back to cutting production to prop up prices in 2016, and until recently they had maintained that strategy.
But this year’s coronavirus (COVID-19) outbreak has caused an enormous decline in oil demand, putting oil under tremendous price pressure. Saudi Arabia wanted more emergency production cuts in response. They had been working with Russia to enact this strategy.
This time, Russia said “Enough is enough. No more cuts.” So, Saudi Arabia responded by ramping up production. When they did so, we saw a mind-boggling 30 percent drop in the price of oil overnight.
However, this time Saudi Arabia may succeed where they failed in 2014. They struck at a very vulnerable time. U.S. producers were already reeling from the decline in production, and this now places them under tremendous pressure.
The energy sector is suffering from a triple whammy. The collapse of oil demand, the overall decline in the stock market, and finally – and most importantly – the price war that Russia and Saudi Arabia have started have crushed the U.S. energy sector.
Now I am seeing some sentiment from people that we should just let the industry go bankrupt. I have seen people cite the oil industry’s subsidies, or the fact that too many producers took on too much debt, and that it should therefore be allowed to fail.
Let me make a brief point about subsidies. Recently, President Trump suggested using funds from a program that helps low-income Americans afford heating oil to combat coronavirus. Some Democrats howled at the potential cut in this program.
Well, guess what? As I have pointed out in the past, that’s an oil subsidy. The reality is that the vast majority of oil subsidies in the world are consumer subsidies like this. The people who get angry about oil subsidies are sometimes the same people that complain about cutting these kinds of subsidies — because they don’t recognize them as oil subsidies.
Subsidies aren’t direct payments to oil companies, even though that’s what most people envision. So, they get angry about something they misunderstand.
That’s the first point. But a more important question to ponder is “What are the consequences of letting the U.S. shale oil industry go bankrupt?”
Look, you may think the U.S. oil industry deserves to go bankrupt. You may believe we should all be driving around in wind-powered electric vehicles or riding bicycles. But that’s not the world we live in today.
Should we use less oil? Yes. And we will over time. But right now the U.S. still uses a lot of oil, and we will continue to do so for several years, even as we transition to electric vehicles.
The real consequences of letting the U.S. shale industry fail is to hand global control of oil production back to Saudi Arabia. Millions of Americans will lose jobs, domestic oil production will fall, and our oil imports will soar. Saudi Arabia will then be free to once again withhold production to drive up the price.
Some producers will go bankrupt as a result of the current crash. And those that made really poor decisions should go bankrupt. But letting too much of the industry fail will begin toppling dominoes that will have enormous ramifications on the U.S. economy and on our national security.
Russia is going to make decisions about the interest of its domestic oil industry. Saudi Arabia is going to do the same, and it has a powerful instrument with which to do so through Saudi Aramco.
The U.S. must do the same, but there are those in government that seem like they would be glad to see the oil industry go out of business. Unlike Russia and Saudi Arabia, our oil industry has decidedly mixed support from the federal government.
The American economy runs on energy. The energy industry is a matter of national security. We can’t give up control of our energy security to Saudi Arabia. That is the consequence of letting this price war destroy the U.S. oil industry.
Across California, high unemployment and crashed economic activity are starting to pressure households as tens of millions of people have been forced by the government to "shelter in place" amid the COVID-19 outbreak.
A frightening new reality is starting to develop, one where households are becoming fractured because of the stress related to the virus outbreak. Many are experiencing job loss, limited savings, insurmountable debts, and or alcohol or drug abuse problems to cope with the financial pain as the economy dives into a depression in the second quarter. As a result of this unbearable stress, domestic abuse calls have skyrocketed in Sacramento, California, reported CBS13 Sacramento.
"Right now as we speak, one in five women are being assaulted, right here in Sacramento County," said Donna Brown, an employee at A Community Peace organization that helps victims of domestic violence. "It puts most of the abusers in the home with the family more frequently than usual."
Brown said she had seen a massive influx in the number of domestic violence calls in the last several weeks.
"Abusers that are maybe not going to work or the victims aren't going to work and the children are home, or there's a loss of income so it's just a pressure cooking the environment that they're in," said Incoming Executive Director Laura Clegg.
CBS13 called several county and state resources that would typically help victims, and some were operating on limited schedules and or others were entirely closed. Since the shutdowns began, the Victims of Crime Resource Center in Sacramento recorded a 40% jump in domestic violence calls across the county.
Cracking households suggest that the onset of social unrest is on the horizon. This is a huge concern for the Trump administration, who is attempting to dish out hundreds of billions of dollars in universal basic income in the next several weeks to prevent protests and riots.
We noted last Friday that the Federation of Red Cross and Red Crescent Societies warned that social unrest could unfold across major Western cities in the weeks ahead.
Americans should be deeply disturbed about the near-total meltdown of normal life – the unraveling's of the economy and social fabric could quickly result in protests. Stress starts at work, then transmits into the household, with millions out of work, households breaking down, it is becoming increasingly clear that a perfect storm of social destabilization is nearing.
Down the coast in Los Angeles, more specifically in Beverly Hills, high-end stores have boarded up their windows and doors in anticipation of civil unrest.
In Beverly Hills, the Pottery Barn and West Elm stores near Rodeo Drive were spotted with boards across the windows.
Meanwhile, stores in New York, San Francisco, Seattle, Chicago, Paris, Vancouver, and elsewhere were similarly boarded up.
The next chapter of the virus crisis could be social unrest. Maybe the US could take a page from Greenland and or even France, as local governments in those regions have banned alcohol sales to prevent social decay while in shutdowns.
Long-held investment equations are all changing. The laws of financial physics are not as unchanging as we think.
I got a call from a Swiss Broker chum y’day telling me they see a rise in demand for TIPs – Inflation Linked bonds. Although I’m not seeing any significant action in the inflation linked ETFs I watch, it makes sense to keep a weather eye on inflation: the global economy isn’t actually producing anything much, but we are still buying lots of stuff. If demand exceeds supply – that pushes prices higher = inflation.
You could argue that no one is earning any money, therefore can’t spend anything, that’s deflationary – but we just created billions of billions of cash. The real issue is where all that ersatz cash actually goes.
Last time we did that - 8 years of the experimental madness of QE - the result was massive inflation in financial assets, even as contradictory austerity policies in the real economy cut services. Money that would have been directed to building industrial and service capacity, therefore increasing productivity, and raising consumer wages, was siphoned off into financial assets, meaning we got deflation instead.. Too many goods were chasing consumers with stressed wallets whose real incomes tumbled for 10 years.
This time we’re talking about Helicopter money in some economies, and paying wages of otherwise unemployed workers in others by nationalising payrolls. It might just work this time and generate inflation...
Well, at least the ECB will be happy.
They should be careful what they wish for... Inflation – for those of you too young to remember – is a vicious and unpredictable bounder, destroying savings, and financial asset values.
If goods are in short supply then prices will rise through the mechanism of the market.
Governments can chose to avoid riots, and ration goods and services through legislation.
I am sure there will be many politicians thinking rationing will not be an issue… they’ve already done just about everything else… How long before we get food stamps entitling us to a rasher of bacon a month, a pound of lard and a packet of dehydrated mashed potato from the Government emergency stocks?
It begs a wider question. Where does government stop? When Jeremy Corbyn called for the nationalisation of the railways a few months ago we fulminated at his socialist communistic insanity. The government did it the week before last, and nobody even noticed.
Or Victor Orban promising to hand back power when the crisis is over. Sure. We know how that ends... although the inhabitants of the US city of Cincinnati could tell us the story of about the only example of a politician voluntarily laying down power.
I read a very interesting report y’day – The Crisis Sentiment Index (CSI) produced by the Directors and Chief Risk Officers group (DCRO). The CSI has been reactivated for the Covid-19 crisis. They surveyed over 200 CROs at leading investment firms. The higher the number from 0-100 the worse the crisis. Their current number is 68 – “indicating substantial stresses”.(No Sh*t Sherlock award winging its way to them.)
64% expect a 50% change of Global Depression with GDP falling 15%
64% are planning for significant disruptions in activity for 6 months or more.
93% believe there is 50% change of material unrealised global impact
10% believe it is likely the Pandemic will be under control within 3 months.
Interesting snapshots from the survey include:
“We are engaging with our people and teams to assess emotional resiliency – which has not been considered in prior planning.”
While China talks about recovery, a North American exec said: “for my industry, the estimate is for a 40% decline in global revenue for 2020.”
An Asian manager commented how China, Taiwan and Singapore have dealt with it through a combination of “social controls, social action and top-quality medical careavailable to all. The danger is re-contagion from the West where there is little social discipline and regressive health care systems.”
That last comment from Asia is particularly interesting, highlighting the increasing divide between the Occident and Orient in terms of society. Socialised or liberal?
Let me pose a question:
What is the difference between the state threatening to jail a doctor for complaining about the lack of preparedness to address a new disease, and a medical company threatening to dismiss and prosecute staff who go on social media to reveal the lack of protective gear in stressed hospitals?
I’d like to hope voters will eventually look back on the crisis and fundamentally assess just how well their elected representatives did. But you know that’s unlikely to happen. But maybe politicians will be smart enough to refocus priorities – perhaps its time to rebalance western economies… National Heathcare that’s properly acknowledged as the primary public good would be a great start. (And that’s going to be a massive investment opportunity!)
Because it made me laugh out loud, I’d like to finish by pinching a line from the daily blog of my old chum Ara Levonian at BGC:
“The US look all over the place in a coordinated response to the pandemic and the Trump administration is coming unstuck due to its lack of attention to detail. The problem is the administration seems to consist of 4 men, 2 of whom do not really believe in science.”
Two of Europe's largest banks tumbled on Wednesday, dragging down the broader Eurostoxx Bank Index, after they joined the rest of their peers in suspending shareholder payouts.
HSBC plunged in Hong Kong trading after scrapping its dividend and warning revenue and loan losses will be impacted in the first quarter from the coronavirus outbreak. The bank's shares dropped over 7% bringing this year's decline to 33%. Meanwhile, Standard Chartered tumbled 5.2% after it too announced a suspension of dividends and a buyback plan.
In a statement on Tuesday, HSBC said that "we expect reported revenues to be impacted in insurance manufacturing, and credit and funding valuation adjustments in global banking & markets, alongside higher expected credit losses." The bank had earlier said in the most extreme scenario, in which the virus continues into the second half of 2020, it could see US$600 million in additional loan losses.
In order to preserve liquidity amid a global depression, European (and US) banks have been scrapping shareholder payouts to protect their capital cushions. Along with other UK banks, HSBC decided to scrap dividend payments after urging from UK regulators. The lender said it would cancel an interim dividend slated to be paid this month and also make no payouts or do any buybacks until at least the end of the year.
In total, the UK's five biggest banks had planned to pay out £7.5 billion in dividends over the next two months, with Barclays due to pay more than £1 billion on Friday. That money will now go where it should have been from the start: a rainy day fund, i.e., money that will be spent first before banks ask for - and receive - a bailout.
* * *
But if shareholders are impacted, why not also the biggest source of bank cash: banker bonuses.
Well, it seems that's next on the docket, because as Bloomberg reports, European banks are coming under increased pressure to reconsider bonus payments and conserve money that can be used to support the economy. In its strongest warning to date, the European Banking Authority said banks should set pay and especially bonuses at a “conservative level” during the crisis. Firms should also consider deferring awards for a longer period and paying staff in shares.
Lenders should review pay plans to "ensure that they are consistent with and promote sound and effective risk management also reflecting the current economic situation,” the EBA, which coordinates standards across the region, said in a statement on Tuesday. The guidance followed a warning from the European Central Bank’s top supervisor, Andrea Enria, who said in a Bloomberg TV interview that lenders should be cautious about awarding bonuses.
“Banks, shareholders, managers and key risk takers should also take part in the rethink of where we are right now and try to preserve as much capital as possible,” Enria said. "Our recommendation to banks is to be very moderate on” bonuses, he added.
Later on Tuesday, the European Banking Authority issued a statement calling on banks to set bonuses at “a very conservative level” and consider paying them in stock rather than cash.
Perhaps realizing that this is a war not worth fighting, many European banks have already taken proactive steps in limiting bonuses, with Spanish lenders among the first to kick off the Europe-wide trend as Banco Bilbao Vizcaya Argentaria on Monday said that 300 of its top executives waived their 2020 bonuses, while Italy’s UniCredit SpA followed suit late Tuesday, and Intesa Sanpaolo SpA’s top management decided to donate some of their bonuses.
Credit Suisse AG Chief Executive Thomas Gottstein signaled to Swiss broadcaster SRF that the lender may also curb variable pay for 2020 to show “solidarity” amid the crisis. Eearlier this year the Swiss bank decided to pay out 3.17 billion Swiss francs ($3.28 billion) in bonuses for last year. Even insolvent Deutsche Bank distributed 1.5 billion euros.
“It’s a bit early to talk about the bonuses for 2020, but we are definitely thinking along the lines of showing solidarity,” Credit Suisse’s Gottstein said in the interview.
Of course, there were also those who were against the bonus cut: Stephan Szukalski, a representative for the German labor union DBV, said that broad-brushed bonus cuts could hit vulnerable staff:
“We oppose a general bonus cut because the bonus pool doesn’t only include staff with very high salaries,” said Szukalski, who also sits on Deutsche Bank AG’s supervisory board. “Many medium- to low-income earners -- of which there are many in Deutsche Bank -- have made a contribution over the past years through the previous cuts.”
Well, Stephan, maybe vulnerable staff should demand a higher base pay and eliminate the bonus, which in theory should only be paid to non-vulnerable producers who generate outsized gains for the company.
The worst news, however, is for Deutsche Bank staffers, who after years of getting virtually nothing following several consecutive near-death experiences for the biggest German bank, can now write off 2020 as well:
As Bloomberg reports, Deutsche Bank is considering scrapping bonuses for top management this year as regulators urge banks to preserve capital and keep lending through the coronavirus pandemic. Cutting bonuses is just one possibility and the bank is also looking at alternative measures that wouldn’t involve variable compensation, according to a person familiar with the matter. A decision could be announced as early as this week.
Austrians and Libertarians are well-established critics of central banking in general, and emergency monetary stimulus in particular.
There is near universal agreement that Alan Greenspan should not have cut rates following the Dot-Com Bubble, and that Ben Bernanke and Janet Yellen should not have quadrupled the monetary base following the Housing Bubble.
Yet if you mention this to someone who is not persuaded of our position, you will likely get a response along the lines of:
“well, what should they have done instead?”
“Nothing,” you reply.
“Well then wouldn’t things have been even worse?”
It’s this last question that I don’t believe we have answered to great effect. What would the effects have been if Greenspan, Bernanke, and Yellen had simply frozen the monetary base during their respective crises? More importantly, what would be the effect today if Powell did so?
We are currently in a situation in which many business’ revenues have dried up. Airlines, retail stores, restaurants and bars, cruise lines, oil companies, and others have seen their cash flow deteriorate over the first quarter of this year. Nonetheless, many of their obligations remain: rent still has to be payed; loan payments still need to be made; salaries still need to be paid, etc. As a result, the demand for loanable funds has gone through the roof. The Fed has responded to this situation by injecting hundreds of billions of dollars (if not yet trillions) into various lending markets such as the markets for repurchase agreements, treasury bills, municipal bonds, and mortgage-backed securities.
Don’t be intimidated by the technical specifications of these particular instruments. All of these various open market operations amount to different versions of the same thing: the Fed is responding to the demand for loanable funds by printing new money and lending it.
Given our opposition to these actions, it is worth playing through the exercise of describing what would happen if the Fed simply sat this one out. What prices would change? What levers would move? How would normalcy once again be restored?
As businesses begin to demand short term loans in order to meet their obligations, the first thing we would begin to see is that interest rates would rise. Likely they would rise a lot. For the sake of argument, let’s say the short term interest rate shot up to 15 or 20% on an annualized basis. The effect of this rate change would be two-fold:
First, it would push the marginal borrower out of the market. This would mean that borrowing for non-essential purposes would be curbed. Credit card rates, for example, would be much higher than normal, and people would be strongly incentivized to pay in cash whenever possible. This would free up funds that could flow to businesses facing financial distress.
Second, those who do keep cash balances would be strongly incentivized to enter the lending market. Those who had sidelined cash, and had been missing out on the excellent returns of the stock market would suddenly have the opportunity to return 10% in six months on a Certificate of Deposit (CD) account while the stock market is in a state of precipitous decline. This would add even more funds to the lending market, and provide a further lifeline to businesses in need.
All of this, however, starts with the premise that interest rates are allowed to rise. When the Fed suppresses short term rates, this mechanism is broken: there is no incentive to curb short-term borrowing for non-essential purposes, and there is no incentive for those with cash balances to supply short term loans. As of this writing, the yield on CDs at Bank of America is between 0.03 and 0.15% for balances under $10,000, andlittle better for balances above that threshold. As a result, a difficult situation is becoming a genuine liquidity shortage, and financial distress for under-capitalized firms has become a financial emergency for the entire system.
A concept that can help keep these conversations grounded is the acknowledgment that there is no free lunch. When the Fed buys treasury bills, and the federal government uses those funds for bail-outs, even though the money is being printed fresh, the purchasing power has to come from somewhere. In this case, it’s coming from the diluted value of cash balances. So as we can now see, regardless of whether central banks intervene, the lifeline to the economy must come from the cash balances of savers. There is nowhere else for it to come from. The question is simply who gets to profit from this state of affairs. In the absence of Fed intervention, it is the savers who profit. They are rewarded with handsome returns for rescuing those firms who did not prepare for the worst. When the Fed does intervene, the reward goes to under-capitalized banks, and over-extended businesses, who get loans at a price that does not at all reflect the cost they are imposing on society.
Needless to say, these incentives are perverse. Not only are we engaging in the ethically dubious practice of rewarding the profligate and punishing the prudent, but with each next iteration, we are incentivizing poor management decisions, and discouraging the very saving that has just been tapped as a lifeline. With each next business cycle; with each next monetary stimulus; with each next round of bail-outs, our society will find itself with fewer and fewer savers who can be squeezed to rescue the economy. Indeed we are approaching this point already, as a Bankrate survey in 2019 revealed that only 41% of Americans would write a check to cover a $1,000 unexpected cost. The longer these incentives remain in place, the smaller that pool of savings will be, and the dimmer our prospects will become of bouncing back from an unexpected supply shock like that brought on by the COVID-19 panic.
So in conclusion, I’ll contrast this dire picture one last time with the question: what would happen if the Fed did nothing?
Savers would profit very well over the coming year.
Viable businesses would eat the cost of borrowing at higher short-term rates, but would ultimately be able to weather the storm.
Some businesses would inevitably fail, and their resources would become available to more productive uses.
But most importantly, the signal would emanate through society that it pays to save.
It pays to be prepared for a rainy day. And next time, more would be.
On Tuesday it was revealed that Denis Protsenko, the head doctor at the infectious diseases hospital treating coronavirus patients in Moscow, tested positive for COVID-19.
Just a week ago Dr. Protsenko was photographed shaking hands with President Vladimir Putin, during the Russian leader's visit to the hospital, where he donned a full protective Hazmat suit to visit patients. But during most of his interaction with Protenko, Putin wasn't wearing the protective gear.
Putin's office now reports he'll conduct his duties remotely, in self-isolation after the exposure. "The president prefers these days to work remotely," Kremlin spokesman Dmitry Peskov told the press just before Putin was due to hold a cabinet meeting by videoconference Wednesday.
"We are taking all precautionary measures," Peskov said further. Joining a list of other leaders who have had to enter self-quarantine after potential exposure, most notably Justin Trudeau, and also Boris Johnson - who was actually confirmed for the virus - Putin will now work exclusively from his presidential residence in Novo-Ogaryovo outside Moscow.
The Russian presidency's office also now says he'll no longer shake hands. "Of course everyone is now social distancing," Peskov said.
"All of those who were with the president at Kommunarka are being tested daily for the coronavirus," Peskov added, while attempting to assure the public that "everything is fine" with Putin.
Denis Protsenko was the very doctor who gave Putin a tour of the COVID-19 treatment center in the Kommunarka area of Moscow last Tuesday in what we described at the time as clearly a "high risk" photo op.
Currently some two-thirds of Russia's entire population of just under 150 million is under strict 'stay at home' orders after last week Putin announced a paid 'work holiday' for at least a week.
This includes some 53 regions of the country under lockdown, which includes the following mandates, according to TASS:
All residents of these regions are ordered to stay home and can go out only to call at a nearby drug store or supermarket, walk the pet, as well as dispose garbage and travel to work if they cannot work from home on official days off declared nationwide between March 28 and April 5.
As of Tuesday Russia has 2,777 official confirmed COVID-19 cases, including 24 deaths, with most infections concentrated in Moscow.
“You better tuck that in. You’re gonna’ get that caught on a tripwire.”
– Lieutenant Dan, Forrest Gump
There is a popular game called Jenga in which a tower of rectangular blocks is arranged to form a sturdy tower. The objective of the game is to take turns removing blocks without causing the tower to fall. At first, the task is as easy as the structure is stable. However, as more blocks are removed, the structure weakens. At some point, a key block is pulled, and the tower collapses.
Yes, the collapse is a direct cause of the last block being removed, but piece by piece the structure became increasingly unstable. The last block was the catalyst, but the turns played leading up to that point had just as much to do with the collapse. It was bound to happen; the only question was, which block would cause the tower to give way?
Pneumonia of unknown cause first detected in Wuhan, China, was reported to the World Health Organization (WHO) on December 31, 2019. The risks of it becoming a global pandemic (formally labeled COVID-19) was apparent by late January. Unfortunately, it went mostly unnoticed in the United States as China was slow to disclose the matter and many Americans were distracted by impeachment proceedings, bullish equity markets, and other geopolitical disruptions.
The S&P 500 peaked on February 19, 2020, at 3393, up over 5% in the first two months of the year. Over the following four weeks, the stock market dropped 30% in one of the most vicious corrections of broad asset prices ever seen. The collapse erased all of the gains achieved during the prior 3+ years of the Trump administration. The economy likely entered a recession in March.
There will be much discussion and debate in the coming months and years about the dynamics of this stunning period. There is one point that must be made clear so that history can properly record it; the COVID-19 virus did not cause the stock and bond market carnage we have seen so far and are likely to see in the coming months. The virus was the passive triggering mechanism, the tripwire, for an economy full of a decade of monetary policy-induced misallocations and excesses leaving assets priced well beyond perfection.
It is safe to say that the record-long economic expansion, to which no one saw an end, ended in February 2020 at 128 months. To suggest otherwise is preposterous given what we know about national economic shutdowns and the early look at record Initial Jobless Claims that surpassed three million. Between the trough in the S&P 500 from the financial crisis in March 2009 and the recent February peak, 3,999 days passed. The 10-year rally scored a total holding-period return of 528% and annualized returns of 18.3%. Although the longest expansion on record, those may be the most remarkable risk-adjusted performance numbers considering it was also the weakest U.S. economic expansion on record, as shown below.
They say “being early is wrong,” but the 30-day destruction of valuations erasing over three years of gains, argues that you could have been conservative for the past three years, kept a large allocation in cash, and are now sitting on small losses and a pile of opportunity with the market down 30%.
As we have documented time and again, the market for financial assets was a walking dead man, especially heading into 2020. Total corporate profits were stagnant for the last six years, and the optics of magnified earnings-per-share growth, thanks to trillions in share buybacks, provided the lipstick on the pig.
Passive investors indiscriminately and in most cases, unknowingly, bought $1.5 trillion in over-valued stocks and bonds, helping further push the market to irrational levels. Even Goldman Sachs’ assessment of equity market valuations at the end of 2019, showed all of their valuation measures resting in the 90-99th percentile of historical levels.
The fixed income markets were also swarming with indiscriminate buyers. The corporate bond market was remarkably overvalued with tight spreads and low yields that in no way offered an appropriate return for the risk being incurred. Investment-grade bonds held the highest concentration of BBB credit in history, most of which did not qualify for that rating by the rating agencies’ own guidelines. The junk bond sector was full of companies that did not produce profits, many of whom were zombies by definition, meaning the company did not generate enough operating income to cover their debt servicing costs. The same held for leveraged loans and collateralized loan obligations with low to no covenants imposed. And yet, investors showed up to feed at the trough. After all, one must reach for extra yield even if it means forgoing all discipline and prudence.
To say that no lessons were learned from 2008 is an understatement.
Meanwhile, as the markets priced to ridiculous valuations, corporate executives and financial advisors got paid handsomely, encouraging shareholders and clients to throw caution to the wind and chase the market ever higher. Thanks also to imprudent monetary policies aimed explicitly at propping up indefensible valuations, the market was at risk due to any disruption.
What happened, however, was not a slow leaking of the market as occurred leading into the 2008 crisis, but a doozy of a gut punch in the form of a pandemic. Markets do not correct by 30% in 30 days unless they are extremely overvalued, no matter the cause. We admire the optimism of formerly super-intelligent bulls who bought every dip on the way down. Ask your advisor not just to tell you how he is personally invested at this time, ask him to show you. You may find them to be far more conservative in their investment posture than what they recommend for clients. Why? Because they get paid on your imprudently aggressive posture, and they do not typically “eat their own cooking”. The advisor gets paid more to have you chasing returns as opposed to avoiding large losses.
We are facing a new world order of DE-globalization. Supply chains will be fractured and re-oriented. Products will cost more as a result. Inflation will rise. Interest rates, therefore, also will increase contingent upon Fed intervention. We have become accustomed to accessing many cheap foreign-made goods, the price for which will now be altered higher or altogether beyond our reach. For most people, these events and outcomes remain inconceivable. The widespread expectation is that at some point in the not too distant future, we will return to the relative stability and tranquility of 2019. That assuredly will not be the case.
Society as a whole does not yet grasp what this will mean, but as we are fond of saying, “you cannot predict, but you can prepare.” That said, we need to be good neighbors and good stewards and alert one another to the rapid changes taking place in our communities, states, and nation. Neither investors nor Americans, in general, can afford to be intellectually lazy.
The COVID-19 virus triggered these changes, and they will have an enormous and lasting impact on our lives much as 9-11 did. Over time, as we experience these changes, our brains will think differently, and our decision-making will change. Given a world where resources are scarce and our proclivity to – since it is made in China and “cheap” – be wasteful, this will probably be a good change. Instead of scoffing at the frugality of our grandparents, we just might begin to see their wisdom. As a nation, we may start to understand what it means to “save for a rainy day.”
Save, remember that forgotten word.
As those things transpire – maybe slowly, maybe rapidly – people will also begin to see the folly in the expedience of monetary and fiscal policy of the past 40 years. Expedience such as the Greenspan Put, quantitative easing, and expanding deficits with an economy at full employment. Doing “what works” in the short term often times conflicts with doing what is best for the most people over the long term.
After its worst quarter ever, as COVID-19 lockdowns crushed demand, raising fears about overflowing storage tanks amid a price war that has flooded the market with extra supply, all eyes are glued to today's official inventory data (after API reported a major surprise build in crude and gasoline stocks) as Standard Chartered analysts, including Emily Ashford warned in a report, oil tanks around the world could fill in six weeks, a move that will likely force significant production shut-downs,
“Huge inventory builds, potentially exhausting spare storage capacity, will mean that market balance requires an unprecedented output shutdown by producers,” they wrote.
So, eyes down...
"There is the very real possibility that this week's storage reports could be the energy patch version of last Thursday's Weekly Jobless Claims," Robert Yawger, Mizuho Securities USA's director of energy said in a note.
"I would expect the numbers to be supersized and challenge multi-year highs/lows on multiple data points. Of course, I have been expecting big numbers for the past couple week, but the fireworks have not happened. That leads me to believe that the data explosion will likely happen this week ... Exports will likely be down big, and refinery utilization will likely pull back dramatically. That will leave a lot of crude oil on the sidelines ... EIA crude oil storage has been higher for nine weeks in a row. Storage will likely double up and increase at the rate of around 10 million for another nine weeks...at least."
Crude +10.485mm (+4.6mm exp) - biggest build since Feb 2017
Cushing +2.926mm - biggest build since Feb 2019
Gasoline +6.058mm (+3.6mm exp) - biggest build since Jan 2020
Distillates -4.458mm (-600k exp)
Crude +13.833mm (+4.6mm exp) - biggest since Oct 2016
Cushing +3.521mm - biggest build since Mar 2018
Gasoline +7.524mm (+3.6mm exp) - biggest build since Jan 2020
Distillates -2.194mm (-600k exp)
API reported a massive crude build (and gasoline build) overnight but the official data showed an even bigger 13.8mm barrel crude build - the biggest since Oct 2016 and a huge increase in stocks at Cushing...
Total US crude inventories are now at their highest since June 2019...
U.S. oil production has remained at a strong 13-13.1 million barrels a day in recent weeks, despite a big drop in the rig count last week (which could presage a shift)...
Bloomberg notes that it’s important to remember that while prices are low, we haven’t seen the sort of uniform production cut that many are expecting. There are a few reasons.
For one, many of these firms are hedged, so even with WTI trending at $20, that’s not necessarily the price a shale firm receives (there’s nuance here, but that’s another issue). Also, many of these firms may be just completing their wells instead of drilling new ones, which means production continues to rise. The trickle down effect of the rout isn’t quite here yet, but hold on - it might be here soon, particularly if oil remains at these levels.
WTI hovered around $20.20 ahead of the official inventory print and tumbled to a $19 handle after the big build...
How low can prices go? Well, as we detailed last night, the first crude stream to price below zero was Wyoming Asphalt Sour, a dense oil used mostly to produce paving bitumen. Energy trading giant Mercuria bid negative 19 cents per barrel in mid-March for the crude, effectively asking producers to pay for the luxury of getting rid of their output.
Echoing Goldman, Elisabeth Murphy, an analyst at consultant ESAI Energy said that "these are landlocked crude with just no buyers. In areas where storage is filling up quickly, prices could go negative. Shut-ins are likely to happen by then."
Finally, we note that Brent futures are signaling a historic glut is emerging.
The May contract traded at a discount of $13.66 a barrel to November, a more bearish super-contango than the market saw even in the depths of the 2008-09 global financial crisis.
When the Fed broke the last frontier of moral hazard - at least until it starts openly purchasing ETFs and single stocks after the next market crash, thereby fully nationalizing the market - and announced it, or rather Blackrock, would not only expand its QE to "unlimited" but also buy investment grade bonds and the IG ETF, LQD, it effectively tore the bond market into two categories: that backstopped by the Fed, and that which isn't (something we described in "Bond Market Tears In Two: Distressed Debt Is Cratering, As Fed Buying Of Investment Grade Sends LQD NAV Soaring").
It also unleashed the biggest debt bubble of all time.
Why? Because by explicitly guaranteeing investment grade debt, the Fed - by making BBB and higher rated debt effectively risk-free - not only precipitated the biggest one-day surge and inflow into LQD, but unleashed an unprecedented free for all as every single investment grade company - especially those soon to be fallen angels who will be downgraded to junk - have rushed into the bond market to issue debt and raise cash while they can at artificially low yields.
And the data confirms it: according to BofA, after the IG market was largely shut down in the two weeks ahead of the Fed's March 23 bond buying announcement, US new issuance reached a new monthly record of $260.7 billion in March 2020, bringing YtD to $509.7 billion - the fastest ever start to a year and 47% ahead of 2019's pace.
Looking at the use of proceeds, BofA observes that refinancings continued at a strong $79.8bn, but as the commercial paper market froze $51.8bn was specifically earmarked for terming that out. In addition, there was roughly $69bn of COVID-19 liquidity-related issuance from banks and companies that drew credit lines or mentioned liquidity in the use of proceeds language. What is more remarkable is that is that another $57bn was for frontloaded issuance for capex, M&A as well as - drumroll - share buybacks and dividends.
Yes, even at this moment, having seen the Boeing blowback which repurchased over $50BN in stock pushing its debt load to record highs and now demands a $60BN bailout, companies have the gall to issue debt and buyback stock! Something tells us there will be a lot of angry articles in the NYT singling out each and every one of those companies, especially if they have or plan to fire even one single worker.
And it's just starting. Looking ahead, BofA notes that April is seasonally a lighter month than March in primary, accounting for 7.7% of annual issuance on average with a five-year run-rate of $102bn.
However, with the economic shutdown IG companies will continue to issue bonds for liquidity needs while others frontload as the market is wide open. M&A issuance totaled just $2.2bn in March and that may continue in April as global markets remain fragile, and T-Mobile/Sprint using a $23bn bridge loan for the April 1st closing with the IG bond refinancing delayed till when market conditions improve.
On the other hand, 1Q20 earnings-related blackouts will begin in the coming weeks, somewhat limiting the industrial pipeline as far as seasonality goes. As a result, BofA now looks for a wide range of $150-200bn of gross issuance in April. With $36.7bn of maturities in April and another $4.6bn of additional redemptions announced so far for a total of $41.3bn, the implied net issuance in April is $133.7bn.
If correct, total issuance in just the first 4 months of the year could reach a mindblowing $700BN, an unheard of number and one which means the Fed will very soon end up owning equity stakes in hundreds of bankrupt companies once its bonds are equitized as dozens of formerly IG companies are downgraded to junk, and then file for bankruptcy, convering the pre-petition debt into equity.
We, for one, can't wait to see what the Fed will do when it ends up owning controlling post-petition equity stakes across countless US corporations.
Authored by Richard Breslow via Bloomberg,
Most of us have lower pain thresholds than we would like to admit. And have developed various coping mechanisms to deal with it. We opt to hear what we want to. This tendency is often accommodated by enablers who long ago realized that catering to this preference can win friends and influence people. It contradicts the dictum of under-promising and over-delivering. But is a sleight of hand that often buys time. It can also occasionally lead to heads-I-win, tails-you-lose outcomes, moments of severe disappointment and hurt people.
Today is one of those days. Maybe we can’t handle the whole, unvarnished truth, but would be better served getting more of it and earlier. I don’t want to suggest things are more nefarious than they might really be. But, consider today’s market price action as an example of this in microcosm. It’s also worth pointing out that, at least some of what is going on, is an unwind of the front-running and rote positioning that came with what was a well-advertised and potentially difficult month-end portfolio rebalancing exercise that we just completed. Possibly more than it seems. It won’t take long to find out.
Risk assets are not having a happy start to the quarter. Not horrendous, but certainly discouraging nevertheless. And there are a number of factors that have conspired to drag us down. We were told, yesterday evening, that we are still in the very dangerous stages of surviving the pandemic. “It will be a very difficult two weeks.” Should that have come as a surprise to anyone watching the news? Apparently so. There’s still light at the end of the tunnel, just not as soon as we were told to hope. And with potentially greater human toll. Sometimes, it is just so much better to get out ahead of things. That’s exactly what NIAID Director Anthony Fauci was trying to do. And then he suggested a believable path toward achieving a better result than the models they use suggest.
Global economic numbers are going to be disappointing. Today’s certainly were uninspiring. We know we are in recession. Bad data comes with that. The lesson to learn is to follow the trajectory, one way or the other, and not get solely hung up on the absolute levels. We are in danger of slipping from looking beyond the numbers to merely being unnerved by them. Accept that precise estimates are hard to come by and aren’t really the point. Just look at the dispersion of forecasts for Friday’s nonfarm payrolls.
What may have tipped the balance, given our current mood, is the new realization that the V-shaped recovery is unlikely to happen exactly on schedule as we were promised. New realization? It was an unrealistic expectation that shouldn’t have been stated as the base case. Have we not already been discussing a fourth stimulus plan?
European banks are having to cut out dividends and share buybacks. We’ve been discussing the weakness of this sector and other uses for these funds ad nauseam. This can’t have come as a total bolt from the blue. The market’s reaction should be taken as an object lesson in understanding the concept of asking, “whose ox is being gored” more than anything else.
Some fund managers are bearish. Earnings season will be disappointing and revenue expectations too high. Enough said. Although, I did read that cigarette companies seem to be doing just fine.
The point is, we know these are bad times. And sometimes the bad news gangs up on us. That surely can’t come as a surprise, nor should we pretend it does. If that is the case, we aren’t doing enough to overcome the challenges we face.
After a bloodbath in European PMIs (and a 'surprise' surge back to growth in China), and following some serious collapses in regional Fed surveys (and this morning's tumble in Canadian PMIs), today's US manufacturing survey data was expected to slide further into contraction (though not as much as the Services surveys collapsed).
Markit's US Manufacturing PMI fell modestly from 49.2 to 48.5 in March (modestly better than the 48.0 flash print) - a considerably smaller drop than many expected.
ISM's US Manufacturing survey fell modestly from 50.1 to 49.1 in March (far better than the 44.5 print expected)
This move follows the carnage seen in US Services PMI and shows very little relative declines (perhaps the survey was premature)...
Once again, the driver of this relatively positive print is the same as has caused problems with surveys since the crisis began - supplier delivery times rising at the fastest pace since 2005 - typically seen as a sign of expansion.
However, in this case it is caused by collapsing global supply chains, and along with prices paid rising rapidly means a stagflationary collapse in global trade... not exactly the positive signal the index is trying to send.
Chris Williamson, Chief Business Economist at IHS Markit said:
“The final PMI data for March are even worse than the initial flash estimate, with manufacturing output slumping to the greatest extent since the height of the global financial crisis in 2009.
"Growing numbers of company closures and lockdowns as the nation fights the COVID-19 outbreak mean business levels have collapsed. While some producers reported being busier as a result of stockpiling and anti-virus activities, notably in the food and healthcare sectors, these are very much the minority, and most sectors reported a rapid deterioration in demand and production.
"Orders for capital equipment have deteriorated at a rate not seen since data were first available in 2009 as firms stopped investing in machinery. Companies have meanwhile reined-in spending on inputs and households have pulled back sharply on many forms of spending, especially for non-essential and big ticket items. With export sales also sliding, factories are facing a broad-based slide in demand which is already resulting in the largest job losses recorded since the global financial crisis."
Finally, manufacturers cut their workforce numbers at the sharpest rate since October 2009, reporting an increase in redundancies and the need for lower operating capacity. Specifically, looking at ISM's Employment sub-index - at 2009's lows - suggests Friday's payrolls data will be extremely ugly (despite ADP's miraculously timed survey)...
We give the last word to Williamson: "Worse is likely to come as consumer spending falls further in coming months as lockdowns intensify and unemployment spikes higher."
Submitted by Michael Every of Rabobank
Another day, another trillion dollars.
After noting for the nth time yesterday that not all currencies are equal, and that the Eurodollar system--that is to say, offshore USD liquidity--remains a structural issue regardless of the recent introduction of (too small) Fed swap lines with (too few) central banks, it’s not surprising that we saw movement on that Front. Indeed, the Fed introduced a new repo facility for any central banks that with an account with the Federal Reserve Bank of New York, who can now swap their holdings of US Treasuries held on account for good ol’ USD cash. The key takeaways from this move are as follow:
In short, the Fed might, in its navel-gazing kind of way, only care about smooth functioning of the US Treasury market; yet this is still a step towards one of the only logical end-points of having USD as de facto global currency – the Fed as not just US but de facto global central bank. Don’t like that? Well, the other end-points are that the system collapses due to a lack of USD and/or USD being far too high for all involved, which will make what happened in Q1 look like a picnic; or that the system lasts in some places lucky enough for the Fed to look up from its navel at, which will be similar globally if not as bad.
One might not want to recognise any of this from a small, technical change in Fed policy, but it’s not hard to join the dots and project them forward. The only question is how far those dot-plots extend into the future. (As I have said before, if unsustainable systems didn’t ultimately change, we would probably all be Romans.)
On which front, in the US we yesterday had the President once again flipping between his two different characters - Dr.. Donald and Mr. Trump, the former this time urging people and businesses to take the virus seriously and promising a very difficult few weeks ahead as the range of virus deaths has been shunted up to 100,000-240,000.
Yet we also had Mr. Trump tweeting: “With interest rates for the United States being at ZERO, this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4”
Yes, it’s election season; and yes, it’s odd that the US last elected a real estate developer who in office has refused to develop any real estate; and it would need to pass Congress. However, when we already had a USD1 trillion deficit; then added USD2.2 trillion in a virus-fighting package; and are planning a UD600bn top up; why not go the whole hog and actually do something stimulatory and much needed like USD2 trillion on infrastructure rather than just trying to lean against the huge negative impact of the virus?
What fiscal deficits! USD5.8 trillion is being bandied around in the way USD580bn was two years ago. And yet, as Trump implies, what fiscal deficits? Rates are zero and are unlikely to be anything other than zero for a looooong time. The Fed will see to that. There is enormous domestic demand for some decent US infrastructure. And there is enormous global USD demand. In short, this is potentially about as clear an argument as one is going to see put forward by a politician for MMT – or here MMT-rump. As another aside, I had many conversations with colleagues when Trump was first elected, and the conclusion was always that if there was ever a US president prepared to use a crisis to go MMT, it was T: nobody even once went ‘Mmm’ about that prospect. Would you want to be a Democratic candidate running against spending USD2 trillion on infrastructure in a weak economy? Good luck with that!
Yes, once again we are dot-plotting here. But when a structural break of this size is presented, one should be paying attention. Particularly as while the rest of the world might be hearing USD2 trillion and licking its lips, I am sure that MMT will be M(MAGA)MT in the US case: buy American, use American, hire American. In which case, the bulk of that liquidity is going to be for domestic not global reflation – or at least that will be the aim.
Of course, if the US does this, expect other countries to go the same route. Today’s Tankan survey was bad but not as bad as had been feared for large firms: perhaps it was covering the period before the Olympics got cancelled - or perhaps PM Abe announcing USD554bn, 10% of GDP, in fiscal stimulus is helping? Of course, for those wanting to follow the US and Japan this will mean either having to run current account surpluses to protect their currencies while doing so, which means more protectionism, or watch their currencies collapse, which likely means more US protectionism and less USD flow: the Fed is going to be oh-so busy in coming years, even if rates are not going to be doing anything at all.
Elsewhere, in China we saw a further attempt to say all is well post-virus with the Caixin PMI suggesting we are now above 50 – when actually the report merely said things had stabilized. In Australia we saw the virus in action today: the mind virus of the housing bubble and its associated “The Block” mentality. Building approvals soared 19.9% m/m in February and CoreLogic house prices went up 0.7% m/m in March, even as everyone is locked down in their homes. Indicative of just how obsessed – and I mean obsessed – Australia is with housing, CoreLogic actually has a day-to-day house price index, so once can track how much “wealthier” one has become each morning. As MMT pointed out decades ago, if businesses won’t invest in capital stock, or the state in new infrastructure, and you still pump in liquidity, you just elevate asset prices. Look how well that has worked out. Fortunately, the latest RBA minutes show that they have finally woken up: a recession is expected; and policy is now to anchor both rates and 3-year yields for as long as needed while waiting for the government to do more on the fiscal front. Might that even include infrastructure at some point?
As the gold market continues to deal with global liquidity issues, and virus-lockdown-related disruptions between paper and physical pricing as extremely high physical demand creates shortages, Russia made a surprise announcement on Monday.
Starting April 1, Russia will be suspending its domestic gold purchases:
"Since April 1, 2020, the Bank of Russia has suspended the purchase of gold in the domestic precious metals market.
Further decisions on the purchase of gold will be made depending on the development of the situation in the financial market..." Russia's central bank said.
In recent years, as Kitco notes, the Russian central bank has dominated the gold market, consistently increasing its gold reserves every month for the last three years. According to data from the World Gold Council, the Russian central bank bought 158.1 tons last year. The WGC data shows that the central bank bought 8.1 tons of gold in January.
Although Russia will not be adding to its gold reserves in the near future, analysts are not expecting the central bank to start selling its gold anytime soon.
So the question is - why is Russia stopping its domestic purchases? We see four main possibilities...
1) Russia reached a limit on the relative size of gold reserves to overall reserves...
Gold accounts for over 20% of Russian international reserves, which is a high level historically and compared with other central banks.
“The central bank probably doesn’t want to increase gold’s share in reserves, while the size of reserves is falling,” said Tatiana Evdokimova, an analyst at Nordea Bank in Moscow.
2) Ease tightness in global gold markets
This would have a manifold benefit by helping enable increased ownership of physical precious metals around the world, and potentially supporting the case for more de-dollarization.
It would also reduce the huge premiums that are being paid for physical gold (why would they want to pay up for it).
3) Offer domestic producers profit opportunities
As we have detailed previously, even though there’s literally thousands of tons of gold bars sitting in vaults around the world, it’s been hard to get metal when and where it’s needed, and so premiums for physical bullion is extreme to say the least.
Given the huge physical premiums in precious metals (and a plunge in crude profits for the nation), it would make sense to enable producers to sell into global markets at a sizable profit
“The central bank is now signaling to gold sellers that they should redirect their supplies externally,” said Dmitry Dolgin, ING Bank’s chief economist in Russia. “Global demand seems to be high.”
4) They no longer like gold...
This seems unlikely, as Bloomberg notes, Russia’s relentless gold buying in recent years has been a key pillar of support for the market, putting a floor under prices as investors ditched safe havens and bought riskier, higher-yielding assets.
The bullion stockpile held by Russia’s central bank is valued at about $120 billion.
* * *
So why is Russia ending its domestic purchases when the rest of the world is piling in? Perhaps they see what's coming and are fully prepared...
What will $120 billion (at current prices) be worth when the dollar dies?
With what are sure to be ugly March sales numbers looming, Ford has now decided it is cancelling plans to re-start production in the U.S. and Mexico over the next two weeks.
Citing risks associated with the coronavirus, the automaker has said the the suspension is "indefinite" and has not set a timeline to bring its facilities back online, according to Bloomberg. The company is currently working with the UAW to establish new guidelines for safety procedures before re-opening.
The union announced the death of two Ford plant workers on March 28 as a result of the coronavirus.
UAW President Rory Gamble said on Tuesday: “Today’s decision by Ford is the right decision for our members, their families and our nation. Would I send my family member -- my own son or daughter -- into that plant and be 100% certain they are safe?”
The shutdowns continue to cost Ford billions of dollars. Despite this, there is no rush to re-open as demand will likely be "depressed for months". Meanwhile, Ford's plans to produce ventilators during the week of April 20, in conjunction with GE, remains on schedule.
Kumar Galhotra, Ford’s president of North America said: “The health and safety of our workforce, dealers, customers, partners and communities remains our highest priority.”
Recall, as we noted yesterday, the entire U.S. auto industry has basically entered full collapse.
The industry was already barely holding on by a thread before the coronavirus pandemic started, with China leading the rest of the globe's auto industries into recession over the last 18 months. Now, in a post-coronavirus world, automakers in the U.S. are expecting nothing less than full collapse.
And the things that were barely holding the industry up to start 2020, namely low rates and modest consumer confidence, don't matter. Businesses are closed, would-be buyers are strapped for cash and the country's economy has simply been turned off. The industry's annualized selling rate could slow to 11.9 million in March, according to Edmunds.
Jessica Caldwell, executive director of insights for market researcher Edmunds, told Bloomberg: “The whole world is turned upside down right now.”
Morgan Stanley analyst Adam Jonas put it simply: “There are basically no U.S. auto sales right now. Investors have fully embraced the reality that the U.S. auto industry may be shut down for one or two full months. We’re now being asked to run scenarios of six-month or nine-month shutdowns.”
The President's extension of his social distancing guidelines to the end of April will also act as a headwind for the industry. Factory shutdowns that started in March will now head toward their second month of no production, as the U.S. consumer, for the most part, remains stuck at home.
Jeff Schuster, senior vice president of forecasting for research LMC Automotive commented: “We just don’t know when and how this ends, and that’s the biggest problem right now. All of this uncertainty creates a lot of angst and that has been spreading really like a wildfire through the industry.”
He predicts that the industry's annualized selling rate will continue to plummet to between 9 million and 10 million vehicles. Those numbers are well below the 10.4 million autos sold in 2009, the year GM and Chrysler both filed for bankruptcy. J.P. Morgan has an even more pessimistic view, with estimates of a pace of 6 million to 7 million vehicles over the next month.
Talk about a coincidence: just as we were discussing why April would be "apocalyptic" for the oil industry, as Saudi Arabia just unleashed an unprecedented record amount of oil to buyers in a scramble to put its high-priced competitors out of business, warning that "countless oil producers would file for bankruptcy", former shale darling Whiting Petroleum did just that, filing a pre-packaged Chapter 11 deal in the Southern District of Texas Bankruptcy Court after reaching an agreement with certain note holders to pursue a "comprehensive" and "consensual" financial restructuring.
Whiting, which in Q4 pumped 123,000 bpd of which 80,000 bpd was nat gas, said it concluded that given a "severe downturn" in oil and gas prices resulting from the Saudi Arabia-Russia oil price war and COVID-19-related impact on demand a financial restructuring was the "best path forward." Creditors may disagree: the company's bonds due March 2021 were trading at par as recently as mid-January, even though we warned as far back as 2015 that it would be the first company to go under: truly a testament to how idiotic the junk bond market has been for the past 4 years.
The company said that the plan provides for de-leveraging of capital structure by more than $2.2 billion, and listed $1-$10 billion in debt and more than $585 million of cash on its balance sheet, noting that it expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing.
More importantly, it will continue to operate its business and pump oil for the duration of the Chapter 11 proceedings, meaning that oil production won't decline by even one drop.
The bankruptcy press release is below:
Commences Chapter 11 Reorganizational Process to Right-Size Capital Structure
DENVER--(BUSINESS WIRE)--Apr. 1, 2020-- Whiting Petroleum Corporation (NYSE: WLL) and certain subsidiaries (collectively, “Whiting” or the “Company”) today announced that they had commenced voluntary Chapter 11 cases under the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Company has more than $585 million of cash on its balance sheet and will continue to operate its business in the normal course without material disruption to its vendors, partners or employees. Whiting currently expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing.
The Company has also reached an agreement in principle with certain holders (the “Supporting Noteholders”) of its 1.25% convertible senior notes due 2020, 5.750% senior notes due 2021, 6.250% senior notes due 2023, and 6.625% senior notes due 2026 (collectively, the “Notes”) regarding a term sheet (the “Term Sheet”) that contemplates a comprehensive restructuring. The proposed financial restructuring, the terms of which will be set forth in a forthcoming restructuring support agreement between the Company and the Supporting Noteholders, would significantly reduce the Company’s debt and establish a more sustainable capital structure pursuant to a consensual chapter 11 plan of reorganization (the “Plan”) that would be supported by the Supporting Noteholders on the terms of such restructuring support agreement.
The Plan will provide for, among other things: (1) significant de-leveraging of the Company’s capital structure by over $2.2 billion through the exchange of all of the Notes for 97% of the new equity of the reorganized Company to be issued pursuant to the Plan; (2) payment in full in cash and/or refinancing of the Company’s revolving credit facility; (3) the payment in full in cash of all other secured creditors, tax and other priority claimants, and employees; and (4) the Company’s existing equity holders receiving 3% of the new equity of the reorganized Company and warrants (as described in the Term Sheet). Consummation of the Plan will be subject to confirmation by the Bankruptcy Court in addition to other conditions to be set forth in the Plan and related transaction documents.
Bradley J. Holly, the Company’s Chairman, President and CEO, commented, “In 2019, we took proactive steps to reduce our cost structure and improve our cash flow profile. We continue to build on these actions in 2020. The Company has also explored a wide variety of alternatives to address our balance sheet and looming note maturities in a highly capital constrained market environment.
Given the severe downturn in oil and gas prices driven by uncertainty around the duration of the Saudi / Russia oil price war and the COVID-19 pandemic, the Company’s Board of Directors came to the conclusion that the principal terms of the financial restructuring negotiated with our creditors provides the best path forward for the Company. We are pleased to have secured a highly constructive restructuring framework with a critical mass of our noteholders. Through the terms of the proposed restructuring, we believe a right-sized balance sheet will enable us to capitalize on our enhanced cost structure, high-quality asset base and successfully compete in the current environment.”
Mr. Holly continued, “I want to express my gratitude to the employees for their continued dedication and hard work, and to our service providers and business partners for their ongoing support during this time. Following the restructuring process, we look forward to having substantially less debt and a significantly improved outlook for our Company and its stakeholders.”
Moelis & Company is acting as financial advisor for the Company, Kirkland & Ellis is acting as legal advisor, Alvarez & Marsal is acting as restructuring advisor and Jeffrey S. Stein of Stein Advisors LLC is the Company’s Chief Restructuring Officer.
PJT Partners is acting as financial advisor for the Consenting Noteholders and Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal advisor.
End result: Whiting will emerge from bankruptcy in a few weeks, leaner and meaner, with almost no debt, yet pumping as much oil as before.
For those confused, this is confirmation that companies can and will continue to operate even under bankruptcy, something which the airline and cruise industry may want to realize, or perhaps the Trump admin, because if any company is to be bailed out, the existing equity has to be wiped out, period end of story.
Here is Whiting's bankruptcy filing: