Month: January 2020

Authored Tsvetana Paraskova via OilPrice.com,

UK newspaper Guardian will not accept advertising money from the fossil fuel industry, even if this means a financial hit for the media, making it the world’s first large news organization to ban oil and gas adds.

The Guardian has been active in recent years in covering climate change and reporting on the climate crisis. Last year, the Guardian changed its style guide to use stronger language to describe the climate emergency, using words such as ‘climate crisis’ and ‘climate emergency’ instead of ‘climate change.’

Now the Guardian is outright banning advertising money from oil and gas companies, with immediate effect, the newspaper said on Wednesday.

“Our decision is based on the decades-long efforts by many in that industry to prevent meaningful climate action by governments around the world,” the company’s acting chief executive, Anna Bateson, and the chief revenue officer, Hamish Nicklin, said in a joint statement.

The Guardian has also recently pledged to become a carbon neutral organization at a corporate level by 2030, and to almost entirely divest its Scott Trust endowment fund from fossil fuels.  

Guardian Media Group (GMG) generates 40 percent of its revenue from advertising, so rejecting ads from oil and gas companies would be a financial hit to the organization, the managers said.

“The funding model for the Guardian – like most high-quality media companies – is going to remain precarious over the next few years. It’s true that rejecting some adverts might make our lives a tiny bit tougher in the very short term. Nonetheless, we believe building a more purposeful organisation and remaining financially sustainable have to go hand in hand,” Bateson and Nicklin said.  

Greenpeace UK welcomed Guardian’s move, saying that “This is a huge moment in the battle against oil and gas for all of us! Guardian have just announced they won’t let dirty oil and gas companies advertise with them anymore because we’re in a climate emergency.” 

The environmental organization called on other media to follow suit because “Dirty oil and gas companies are making the climate emergency worse. They belong in the history books. Not in our news outlets.”  

Global equity markets are taking a beating on Thursday as the death toll climbs to 170 from 132, with 7,711 cases of coronavirus confirmed in China and 7,814 worldwide. 

The developments over the last several weeks could force the World Health Organization (WHO) to issue a global alert over the alarming infection rate of the deadly virus. 

Evidence shows the virus can be transmitted from person to person before any signs or symptoms, which is one of the reasons why the WHO could soon declare a Public Health Emergency of International Concern (PHEIC), as the virus spreads across the world. 

Dozens of cities are shut down across China, more than 50 million folks are quarantined to their homes, and experts have warned there’s no vaccine for at least one year, suggests the deadly virus will continue to spread across China and the world. 

Airline carriers started to cut flights to and from China on Wednesday. Western companies have announced factory and retail store closings across the country, and this will likely result in a massive loss of business that could produce an economic shock felt around the world. 

Late last week, a Wuhan nurse made an emotional video on social media, claiming more than 90,000 have already been infected. 

I just received an urgent new video uploaded by the Chinese doctor from the #coronavirus quarantine zone in Wuhan. I need your help with translation and it’s very important we get it right before it goes out to major media outlets. I’m posting it in 3 parts. (1 of 3) pic.twitter.com/qNxuP3tXuG

— Max Howroute▫️ (@howroute) January 24, 2020

On Wednesday, the Epoch Times tweeted an interview with a Wuhan citizen, who says people in the outbreak areas “can’t get any medical treatments” nor “a diagnosis” because hospitals are overloaded with patients. He said people “sit and wait to die.” 

“Imagine being a Wuhan citizen…they can’t get any medical treatments, they can’t even get a diagnosis. They can only sit and wait to die.”

“Imagine being a Wuhan citizen…they can’t get any medical treatments, they can’t even get a diagnosis. They can only sit and wait to die.”

A #Wuhan citizen speaks out about the #Coronavirus, and says the symptoms of the virus do not match what authorities are saying. pic.twitter.com/CWDMdbnWDU

— The Epoch Times – China Insider (@EpochTimesChina) January 29, 2020

He warned that transmission of the deadly virus isn’t just “oral” but also “through the eyes.”  

He said the government isn’t telling the truth about symptoms, because in many cases, there are no symptoms as people spread the disease during the incubation period, which could be 7 to 10 days before signs are seen. 

Another perspective of life in Wuhan is nothing short of an “apocalypse,” said 21-year-old US-born college student Nicholas Schneider, who was interviewed by Reuters on Wednesday. 

“It’s like a ghost town, barely any people and cars. It’s a weird feeling. I feel like I’m in an apocalypse somehow,” Schneider said via a phone interview.

It’s only a matter of time before cities outside of China are locked down on coronavirus fears as there’s no vaccine for 12 months.  

According to Bloomberg’s latest survey, confidence among Americans climbed to a 20-year high amid record optimism about personal finances and the buying climate.

Bloomberg’s index of consumer comfort rose 1.3 points to 67.3 – the highest since the peak of the DotCom bubble in 2000…

Source: Bloomberg

Additionally, Bloomberg’s measures of finances and buying were the strongest in more than 34 years of weekly surveys.

And everyone’s in… The composition of the comfort survey showed broad-based gains as several sub-indexes advanced to records, including measures for those ages 45-54, home owners, married individuals and full-time workers. The category for high-school graduates jumped 3.1 points to match a previous peak.

Even Democrats are coming around… The comfort reading for Republicans rose 1.2 points to a record 82.7, a sign they’re looking past President Donald Trump’s impeachment proceedings, though measures for Democrats and independents advanced even more on the week, notching gains of about 2 points.

Source: Bloomberg

That is the highest level of comfort among Democrats since 2001!

We suspect, with things as good as they have ever been… ever… that this will not end well.

Authored by Michael Every via Rabobank,

A slightly more dovish Fed (see below), and the corresponding perceived increase in the odds of further stimulus by the US central bank, failed to excite investors much as the coronavirus continues to dampen the mood on global markets. Asian equities are down sharply again, with the Hang Seng index losing 2.9%, and both the Nikkei 225 and the KOSPI currently down 1.7% on the day. While it appeared like the initial virus scare had faded, this risk-off sentiment was reinvigorated by news that the virus may spread unnoticed, and news that the WHO may reconsider declaring a global emergency as “progress of the virus in some countries, and especially human-to-human transmission” are worrying them.

US Treasury yields fell on the back of the risk-off sentiment and reassessment of the FOMC’s likely next policy move. The 10y Treasury has dipped below 1.6%, dragging German Bund yields down alongside.

As we note in a report published just prior to this Daily, experience with virus outbreaks in the past shows that markets often bounce back quickly, but even if the virus outbreak turns out be comparable to SARS, its global economic effects are likely to be larger, as China has a much bigger share in the global economy nowadays. At this point, we don’t expect any permanent damage of the epidemic to the Chinese economy or other regions across the globe, but in case of a further spread of the virus globally or in case of defaults among China’s highly indebted non-financial corporates due to the containment measures, the risk of permanent damage increases significantly.

Barring such a scenario, the effects of the risk-off sentiment are probably temporary.

Yet, to the extent that the fall in yields wasn’t driven by the coronavirus, but by a re-evaluation of the FOMC’s future policy stance, this decline may be a bit more permanent.

The FOMC kept the target range for the federal funds rate unchanged at 1.50%-1.75%, but the Board of Governors, as expected, did make an upward technical adjustment of 5bp to the IOER and the ON RRP rate to force the effective federal funds rate closer to the midpoint of the current target range.

Powell repeated that it would take a ‘material reassessment’ of the economic outlook to change the current stance of monetary policy. But, overall, the FOMC statement and Powell sounded dovish with a slight downgrade in their assessment of household spending; a more explicit commitment to get inflation back to target; an acknowledgement of the serious nature of the coronavirus; and the acknowledgement of remaining trade policy uncertainty. Finally, Powell said that the phase one trade deal and the USMCA were potentially positive developments, but he stressed also that trade policy uncertainty remains elevated with businesses having a wait and see attitude whether this is going to be sustained.

As our US strategist, Philip Marey, concluded: on balance, it sounded as if any ‘material reassessment’ of the outlook is more likely to lead to a rate cut than a hike. Of course, he has long warned that the US economy is actually already late in the cycle, rather than the Fed’s assessment that their ‘mid-cycle adjustment’ will be sufficient to keep the economy humming along nicely. And, Philip argues, it is just a matter of time before the FOMC realises this as well. Therefore, we expect the Fed will be forced to cut rates all the way back to zero before the end of the year.

Furthermore, the FOMC decided to keep supporting the repo market, directing the Open Market Desk to continue its purchases of Treasury bills at least into Q2, and to continue its term and overnight repo operations at least through April (instead of January). Given the recent expansion of the balance sheet, Philip estimated that a 5 to 10bp technical hike to the IOER should be sufficient to push the effective federal funds rate back up towards the midpoint of the target range. The Fed opted for the lower of these two options yesterday. So, with the Fed continuing to expand its balance sheet, we may see the Board make another 5bp hike in the IOER and ON RRP rates (at least relative to the target for the federal funds rate) somewhere down the road.

Anxieties about the knock-on impact to the global economy from the coronavirus outbreak, which appears on track to shave whole percentage points off China’s GDP, have pushed stock futures back into the red Thursday morning.

But during an interview with Maria Bartiromo that aired on Thursday, Commerce Secretary Wilbur Ross argued that the North American economy might benefit from the outbreak as companies “reevaluate their supply chains” to factor in emergent outbreak risk.

While Ross insisted that he didn’t want to appear insensitive, it’s pretty clear to him that the outbreak could help “accelerate the return of jobs to North America.”

“First of all, every American’s heart has to go out to the victims of the coronavirus. I don’t want to talk about a victory lap over a very unfortunate very malignant disease. But the fact is, it does give business another thing to consider when they go through their review of their supply chain. On top of all the other things – you had SARS, you had the African swine virus there, now you have this – it’s another risk factor that people need to take into account.”

“I think it will help to accelerate the return of jobs to North America, some to the US and some to Mexico as well,” Ross said.

Watch the clip below:

Secretary Wilbur Ross says coronavirus will be good for [checks notes] American jobs: “I think it will help to accelerate the return of jobs to North America.” pic.twitter.com/Y4SbDIcTi4

— Aaron Rupar (@atrupar) January 30, 2020

Bartiromo conceded that Ross had made an interesting point.

“Ah, that’s a good point,” Bartiromo responds.

While it might sound callous, we’ve heard this argument before: Remember when all the sell-side research departments advised that Hurricane Harvey would help boost GDP in the ensuing quarters?

Life, which you so nobly serve, comes from destruction, disorder, chaos…”

“Look at all these little things, so busy now”…just some food for thought.

Authored by Charles Hugh Smith via OfTwoMinds blog,

All of these guarantees and redundancies are as illusory as the “unsinkable” technologies of the Titanic.

The past three decades of global growth are rarely attributed to luck: it’s all the result of our brilliant fiscal, monetary and trade policies. Those in positions of wealth and power are delighted to take credit for this tremendous success, but as a general rule, the more knowledgeable you are and the higher up the food chain you are, the greater your awareness of the role of luck in any unbroken chain of success.

There are various moving parts in what we call luck. One is what we don’t know but think we know, or put another way, we know enough to be confident everything will work as intended and expected.

I described how this worked in the Titanic disaster in Why Our Financial System Is Like the Titanic (March 15, 2016).

The technologies of the early 1900s enabled shipbuilders to construct enormous steel-hulled ships almost 900 feet in length capable of steaming at 24 knots, transporting passengers across the Atlantic in comfort. The technologies that made such ships and transits low risk were largely already present but in forms that were deeply flawed in ways that were not readily visible or understood.

Unbeknownst to the era’s designers and shipbuilders, the Titanic’s hull plates were brittle due to high sulfur content in the steel, especially at cold temperatures (the water was near freezing at the time of the collision with the iceberg).

Rather than deform as the iceberg scraped against the hull, the plates and rivets fractured, opening the irregular gash that sank the ship.

The watertight bulkheads appeared to make the ship “unsinkable,” but this was only true if the hull was compromised across no more than four watertight compartments. The bulkheads may have actually accelerated the sinking, as later studies found the ship would have stayed afloat an additional six hours without any watertight bulkheads, as the ship would have settled evenly rather than sinking bow-first as the forward compartments filled.

The presence of lifeboats seemed to offer a guarantee of safety, yet outdated regulations only required enough lifeboats for half the crew and passengers.

The new technology of radio (“wireless”) seemed to provide a reliable way to call for help, yet regulations did not require all ships to staff wireless stations 24 hours a day, so nearby ships never received Titanic’s distress calls.

Assuming that human lookouts could detect icebergs soon enough to change course seemed realistic, and favoring the first class passengers in lifeboat access was unquestioned until after the sinking.

After the disaster, all these inadequacies (except the high sulfur steel deficiencies) became obvious, but this “obviousness” only manifested because of the disaster: if the Titanic had narrowly missed the iceberg, everyone would have continued to be resolutely confident that the ship and all the life-safety systems were not just adequate but beyond adequate.

The fact that large ships and powerful engines could be built created the illusion of low risk, because the risk factors were invisible until after the fact. The high confidence in the technologies of the day now seem quaint: the flaws in the steel plates and rivets would remain invisible until the technologies of steel production finally caught up with the other shipbuilding technologies, and better detection and tracking of icebergs would have to wait for radar and better navigational technologies.

But how different is our current extreme confidence in our healthcare technologies?

Much of what we take for granted as essentially guaranteed by our fabulous technologies and systems is more akin to the Titanic than we care to admit. That the world has avoided seriously disruptive global pandemics for a hundred years is more luck than most people understand. RNA viruses mutate at a very high rate (i.e. they replicate with imprecision, generating a high rate of mutations). Whether these mutations end up being “good” or “bad” for the human hosts is a function of randomness, i.e. luck.

The global economy has been astonishingly lucky for 30 years–or even 75 years. Like the passengers on the Titanic, we have unquestioned confidence in our technologies and systems because they appear so “guaranteed”, so resilient and so redundant.

All of these guarantees and redundancies are as illusory as the “unsinkable” technologies of the Titanic. The irony is that the more knowledgeable the individual, the more they understand the role of luck in avoiding failure or catastrophe. The less we know, the more trusting we are in compelling illusions of safety and security.

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