US Services Survey Improves But “Business Confidence Subdued”
Following the mixed picture on Manufacturing (ISM spiked, PMI dumped), US Services data was expected to rise for both ‘soft’ surveys.
Take a look down the list and decide which fits your narrative…
Markit US Manufacturing PMI 51.9 (down from 52,4) to 3-month lows.
Markit US Services PMI 53.4 (up from 52.8) to 10-month highs.
ISM Manufacturing 50.9 (up from 47.8) to 6-month highs.
ISM Services 55.5 (up from 54.9) to 5-month highs.
Source: Bloomberg
Once again it seems a global pandemic is not enough to spook American business…
The ISM’s measure of new orders at U.S. service providers increased to 56.2 in January from a three-month low. Other details from the report were less upbeat. Measures of employment, order backlogs and exports all softened from the end of 2019.
The improvement in services activity and a rebound in the ISM’s manufacturing gauge show business optimism was building just as the coronavirus epidemic began to exact a bigger toll — both in terms of the growing number of lives lost and economic disruption.
The Markit Composite index rose to 10-month highs at 53.3. Commenting on the latest survey results, Chris Williamson, Chief Business Economist at IHS Markit, said:
“The PMI data indicate that the US economy is ticking along at a steady but unspectacular annualized rate of growth of approximately 2% at the start of 2020. Growth has gained some momentum from the lows seen in the fall as the service sector enjoys stronger growth and manufacturing has also shown signs of the trade-led downturn easing. However, factory activity remains worryingly remains subdued, and optimism about future growth across the business community as a whole continues to run at one of the lowest levels seen over the past decade.
“Business are concerned by the prospect of weaker economic growth at home and abroad in the coming year, especially with spending potentially being dampened in an election year. Fresh worries are also likely to appear. With the vast majority of the survey data having been collected prior to the 24th January, we’ve yet to see any impact from the Wuhan coronavirus outbreak, but the potential disruption to business and the associated financial market jitters pose additional downside risks to both the global and US economies in coming months.”
But of course, US data is meaningless – it’s all about China liquidity and fake virus data now.
Trader: “More Interest In Fading These Moves As Overdone”
Authored by Richard Breslow via Bloomberg,
Some days it’s best just to let things play out for a little while. Economic numbers that came out overnight haven’t hurt. Very dovish comments by a senior Bank of Japan official. Upbeat comments by the governor of the Reserve Bank of Australia. And then the big one, hopeful comments concerning potential progress in dealing with the virus outbreak. And the market has taken off. Given the impulsive, explosive, nature of the move, which came mid-morning during the London session, a fairly steady, mildly corrective day for risk was sent galloping higher. The reality is, you either had it or you didn’t.
There was no trading this move. Your only choices now are to go with it at what looks like very heady levels or fade it. An hour after the market got turned on its head, neither seemed like an easy and clear choice. Once the price action unfolds and news is digested it will be claimed to have been patently obvious.
Just listening to the chatter, however, there seems to be greater interest in treating the moves as overdone. There is not a great deal about the pressing of bets. Further indication that this caught traders by surprise and ill-positioned. Should the market give back some, or even all, of its newly found gains, resist the notion that it was motivated by profit-taking. These are likely to be new speculative positions. Which is fine, there is no intent to stop anyone from trading if they want to. But have stops in mind, so any squeezes are manageable.
Things seem to have settled down and moving into a holding pattern. European traders would now like to see how their North American colleagues react as they begin to settle in. They will have to evaluate for themselves the relative merits of the headlines and asset prices they went to sleep with and the new ones they have awoken to. That might be the best guide to what the next market gyration is likely to be.
You don’t need to deal only at extremes to make a really good trade – if it’s right. And so far, the price action is still warning of potential trend days. Meaning, letting it do something wrong first before counter-trading the move increases the likelihood of success. And if you were caught the wrong way around, it will be scant consolation, at least for the moment, if you think all this was an overreaction.
I was planning to write about some new developments on international trade being prepared by the U.S.. It’s a new development that the markets probably won’t like. Certainly not those overseas. Here we go again? But given where attention is likely going to be focused in trading rooms, it’s best to go with the famous adage, “tomorrow is another day”
Nearly 2,000 Quarantined On Hong Kong Cruise Ship; Mother Gives Birth To Baby Infected With nCoV
Summary:
First babies born infected with coronavirus
Hong Kong closes borders with mainland
Doctors say death rate exaggerated by Wuhan fatalities
24,628 cases, 492 deaths
President Xi says China ‘capable of suppressing outbreak
Cruise ship quarantined in Hong Kong
* * *
Two days ago, Chinese health authorities breathed a sigh of relief as a newborn tested negative for the hyper-contagious virus, which bears suspicious similarities to HIV.
Unfortunately, another newborn hasn’t been so lucky: media reports claimed the first case of mother-to-child transmission has been confirmed in Wuhan.
Picking up on reports in Chinese media, the Daily Mail reported Wednesday that the newborn baby of a coronavirus patient in Wuhan had been diagnosed with the deadly disease just 30 hours after birth, prompting doctors to reckon with the possibility that the virus could be routinely passed from pregnant mother to child, in addition to feces and aerosol transfer. The gender of the infected child, who was born on Sunday, has not been released. The baby’s condition is said to be ‘stable’ and it is being closely monitored.
“This reminds us to pay attention to a potential new transmission route of the coronavirus – vertical transmission from mothers to babies,” said Dr Zeng Lingkong, chief physician from the hospital’s Department of Neonatal Medicine.
The newborn is one of the two babies at Wuhan Children’s Hospital that have been found to carry the coronavirus. The other baby was infected by a wet nurse after being born healthy. In Wuhan, babies are being delivered by doctors in hazmat suits.
Funny thing is…
Funny that last week #zerohedge got banned over an HIV linked article and now 2 drug companies are offering their HIV drugs for help with the virus. https://t.co/JYlnJN1oOu
Meanwhile, after reporting dozens of new deaths late Tuesday evening in New York, total coronavirus cases remained at 24,628 Wednesday morning after a few new cases were reported around the world overnight. The global death toll remains at 492, according to SCMP.
Now that Wuhan has finished the first of two new coronavirus hospitals adding 1,000 beds, the city has started setting up three modular hospitals to provide another 3,800 beds for patients with mild symptoms of infection. A second hospital under construction is expected to be finished in the coming days.
As Beijing struggles to battle anti-Chinese sentiment around the world, Bloomberg reports that “Indonesia’s scariest market” has just taken bat soup off the menu.
* * *
During an emergency meeting of China’s highest policy-setting body on Monday, President Xi reportedly called on all Communist Party officials to work together to fight the viral outbreak, which has grown into a serious threat to stability on the mainland. In addition to emphasizing the seriousness of the virus, Xi also threatened to punish any local officials caught slacking (hundreds have already been published as part of his scapegoating efforts).
But after eight days of radio silence outside of the state-controlled media reports, Xi appeared in public on Wednesday for the first time since the outbreak caught the world’s attention.
During an appearance alongside Cambodian Prime Minister Hun Sen in Beijing, Xi said China had imposed strict measures to contain the outbreak, and promised to look after Cambodian students in Wuhan.
“China is confident and capable of containing the outbreak,” he said. He added that the Cambodian students stuck in Wuhan would be well taken care of by the Chinese government.
The president added that Chinese laws against eating wild animals (like…bats) must be fully enforced, along with all other strictures imposed to fight the virus (like all of those lockdowns requiring millions of terrified Chinese to stay inside).
“Currently we are at the critical moment of controlling the epidemic,” he said. “Offences jeopardising disease control, including resistance to control measures, violence towards medical staff, counterfeiting medical materials and the spreading of rumours must be severely curtailed.”
Despite Xi’s optimistic words, another Chinese official told state media that the situation in places like Wuhan is still “severe”, and that the city faces many “challenges and pressures.”
In other news, yet another cruise ship has been waylaid by the outbreak: After Japanese officials confirmed last night that nearly a dozen passengers aboard the “Diamond Princess”, a cruise ship presently being quarantined in Yokohama, had tested positive for the virus.
Now, Reuters reports that Hong Kong is testing more than 1,800 passengers and crew aboard a cruise ship for coronavirus after some crew members reported fevers and other suspicious symptoms. Authorities were not letting anyone leave the ship without explicit permission.
In the latest round of speculation about the virus’s fatality rate, doctors told Reuters that the fatality rate has been exaggerated because overwhelmed Wuhan is struggling with many more preventable deaths, along with underreporting of mild cases.
“In an outbreak your really have to interpret fatality rates with a very skeptical eye, because often it’s only the very severe cases that are coming to people’s attention,” said Amesh Adalja, an expert in pandemic preparedness at the Johns Hopkins Center for Health Security in Baltimore.
“It’s very hard to say those numbers represent anything like the true burden of infection” said Adalja, who estimates current fatality rates are likely below 1%.
That’s probably true, but still…one death in 23? The virus is clearly more of a threat to healthy people than Chinese authorities were initially willing to admit (remember when they said the virus only killed the elderly and those with serious co-occurring conditions?).
As people reflect on China’s extensive lockdowns forcing millions to remain inside Wuhan and other cities. In the central Chinese city, which has been on lockdown for more than a week, found a 43-year-old native of Wuhan who climbed up rusty pipes to the third-floor balcony of an apartment to gain entry into the home of a middle-aged couple – to feed 2 starving cats trapped inside 10 days. Locals have said they’re afraid to leave their houses for fear of being targeted by drones, or by police.
Reuters reports that many in Wuhan are taking drastic steps to feed starving pets.
BEIJING (Reuters) – A 43-year-old native of Wuhan, a central Chinese city ravaged by a virus outbreak, said he climbed up rusty pipes to the third-floor balcony of an apartment to gain entry into the home of a middle-aged couple – to feed 2 starving cats trapped inside 10 days.
Reuters: He found the animals under a sofa, barely alive. Lao Mao rang up their owners, who broke down and cried on the video call at the sight of their pets.
Their owners had gone on what was originally a three-day trip to the north but had been unable to return.
Reuters: “The volunteers on our team, me included, have saved more than 1,000 pets since Jan. 25,” said Lao Mao, declining to disclose his real name because he did not want his family to know he was out and about in the city.
Reuters: Without intervention, the pets will starve to death. Many owners, either in quarantine or stranded in other provinces and countries, have sought help from animal lovers like Lao Mao on social media.
“My phone never stops ringing these days. I barely sleep,” Lao Mao said
In the latest sign of how the virus is impacting airlines, Cathay Pacific has asked employees to take unpaid leave. On Tuesday, the airline, which is partially owned by the Chinese government, said it plans to cut about 30% of capacity over the next two months, including about 90% of flights to mainland China.
Dozens of airlines have suspended some or all of their routes to China. Jefferies analysts warned clients in a note that Cathay would report a loss in the first half of 2020 thanks to the outbreak, though they expect performance to rebound strongly in the second half.
In the US, former FDA Director Dr. Scott Gottlieb reiterated on CNBC that an outbreak in the US is inevitable (indeed it’s already started).
“We are very likely to see outbreaks of this virus here in the United States,” says @ScottGottliebMD. “It’s likely there are cases here in the U.S. right now where people are spreading this at a low level–we haven’t detected it yet–who haven’t traveled to China.” #coronaviruspic.twitter.com/QfKO2503Ks
After China accused the US of provoking unnecessary panic over the virus (why won’t everyone just listen to the WHO?), State TV published a report declaring racism to be “the most dangerous” aspect of the outbreak.
Racism is the most dangerous virus.
“When H1N1 virus broke out in the U.S. in 2009, no one called it “American virus’, When this coronavirus broke out in China, you call it ‘China virus'”, Chinese blogger calls for #coronavirus related racism and bullying to stop. pic.twitter.com/u3JTJnL4xU
More severe than a fast-spreading virus that shares characteristics of the flu, pneumonia and HIV?
In other virus news, earlier, Hong Kong acquiesced to striking health care workers and authorized the closure of all borders with China. Meanwhile, a WHO spokesperson said there are “no effective remedies” proven to treat coronavirus – this amid reports that AIDS meds and some flu meds had been found to be effective for some patients.
As rescue operations continue with Canada becoming the latest to dispatch a plane to evacuate citizens trapped in Wuhan, Canadian media reported that the plane sent for the evacuation is awaiting permission from Chinese authorities, mirroring delays that afflicted previous missions carried out by the British and others.
Finally, have you been dreading that inevitable conversation where you have to explain the coronavirus outbreak to your kids? Don’t worry – Time Magazine has got you covered.
For readers who may be interested, here is a list of my upcoming speaking engagements for the next several months. All are free and open to the public, unless otherwise noted. I will update this post, as necessary.
February 6, noon-1:15 PM, Georgetown University Law Center, McDonough Hall, Rm. 110, Washington, DC: “The Second Amendment Returns to the Court,” panel with Clark Neily (Institute for Justice). Sponsored by the Georgetown Federalist Society
March 3, 2-3:30 PM, Georgetown University Law Center, Washington, DC: “The Promise and Limits of Reducing Judicial Deference to Federal Agencies,” panel on “Agency Deference After Kisor v. Wilkie” (other panelists TBA). Sponsored by the Georgetown Journal of Law and Policy, and Georgetown Federalist Society.
March 4, 12:30-2 PM, Duke Law School, Rm. 3037, Durham, NC: “How Federalism Protects Sanctuary Cities,” panel on “Federalism and Sanctuary Cities” (with Duke law professors Ernie Young and Neil Siegel). Sponsored by the Duke Federalist Society.
March 6, time TBA, Washington College of Law, American University: “How to Reinvigorate Constitutional Limits on Presidential Power,” Conference on “Presidential Power Under the Constitution (tentative title and topic).
March 18, 3:40-4:30 PM, America’s Health Insurance Plans, National Health Policy Conference: Panel on “Texas v. US and Other Legal Issues,” with Prof. Nicholas Bagley (Michigan) and Prof. Abbe Gluck (Yale). This event is, I believe, only open to participants in the AHIP conference.
March 24, Time TBA (but probably around noon), Sandra Day O’Connor College of Law, Arizona State University, Phoenix, AZ: “The Free Market Conservative Case for Open Borders,” sponsored by Arizona State Federalist Society. Possible additional participants TBA.
March 31, noon, Georgia State University College of Law. Atlanta, GA: Debate on “What Does the Constitution Leave to the States” (tentative title). Debate with Prof. Eric Segall. Co-sponsored by the Georgia State American Constitution Society, and the Federalist Society.
April 1, 12-1:30 PM tentative time, Emory Law School, Atlanta, GA: “The Case Against Democratic Socialism.” Sponsored by the Emory Federalist Society.
April 29, Time TBA, Annual Lecture in Law Philosophy, and Public Policy, Legal Studies Institute , City University of New York, New York, NY: “Free to Move: Foot Voting, Migration, and Political Freedom” (lecture based on my book of the same title).
May 6, 12-1:30 PM (tentative time and date), Cato Institute, Washington, DC: “Free to Move: Foot Voting, Migration, and Political Freedom” (Book Forum on my book of the same title).
May 12, Time TBA, conference on “Trust: A Philosophical Approach,” University of Pisa, Pisa, Italy: “Trust and Political Ignorance”
May 13, Time TBA/tentative date, University of Pisa, Pisa, Italy: “Free to Move: Foot Voting, Migration, and Political Freedom” (Based on my book of the same title). I am not sure if people who are not students and/or faculty at the University of Pisa will be allowed to attend this event.
May 14, Time TBA, Istituto Bruno Leoni, Milan, Italy: “Democracy and Political Ignorance: Why Smaller Government is Smarter”
from Latest – Reason.com https://ift.tt/31sYBar
via IFTTT
For readers who may be interested, here is a list of my upcoming speaking engagements for the next several months. All are free and open to the public, unless otherwise noted. I will update this post, as necessary.
February 6, noon-1:15 PM, Georgetown University Law Center, McDonough Hall, Rm. 110, Washington, DC: “The Second Amendment Returns to the Court,” panel with Clark Neily (Institute for Justice). Sponsored by the Georgetown Federalist Society
March 3, 2-3:30 PM, Georgetown University Law Center, Washington, DC: “The Promise and Limits of Reducing Judicial Deference to Federal Agencies,” panel on “Agency Deference After Kisor v. Wilkie” (other panelists TBA). Sponsored by the Georgetown Journal of Law and Policy, and Georgetown Federalist Society.
March 4, 12:30-2 PM, Duke Law School, Rm. 3037, Durham, NC: “How Federalism Protects Sanctuary Cities,” panel on “Federalism and Sanctuary Cities” (with Duke law professors Ernie Young and Neil Siegel). Sponsored by the Duke Federalist Society.
March 6, time TBA, Washington College of Law, American University: “How to Reinvigorate Constitutional Limits on Presidential Power,” Conference on “Presidential Power Under the Constitution (tentative title and topic).
March 18, 3:40-4:30 PM, America’s Health Insurance Plans, National Health Policy Conference: Panel on “Texas v. US and Other Legal Issues,” with Prof. Nicholas Bagley (Michigan) and Prof. Abbe Gluck (Yale). This event is, I believe, only open to participants in the AHIP conference.
March 24, Time TBA (but probably around noon), Sandra Day O’Connor College of Law, Arizona State University, Phoenix, AZ: “The Free Market Conservative Case for Open Borders,” sponsored by Arizona State Federalist Society. Possible additional participants TBA.
March 31, noon, Georgia State University College of Law. Atlanta, GA: Debate on “What Does the Constitution Leave to the States” (tentative title). Debate with Prof. Eric Segall. Co-sponsored by the Georgia State American Constitution Society, and the Federalist Society.
April 1, 12-1:30 PM tentative time, Emory Law School, Atlanta, GA: “The Case Against Democratic Socialism.” Sponsored by the Emory Federalist Society.
April 29, Time TBA, Annual Lecture in Law Philosophy, and Public Policy, Legal Studies Institute , City University of New York, New York, NY: “Free to Move: Foot Voting, Migration, and Political Freedom” (lecture based on my book of the same title).
May 6, 12-1:30 PM (tentative time and date), Cato Institute, Washington, DC: “Free to Move: Foot Voting, Migration, and Political Freedom” (Book Forum on my book of the same title).
May 12, Time TBA, conference on “Trust: A Philosophical Approach,” University of Pisa, Pisa, Italy: “Trust and Political Ignorance”
May 13, Time TBA/tentative date, University of Pisa, Pisa, Italy: “Free to Move: Foot Voting, Migration, and Political Freedom” (Based on my book of the same title). I am not sure if people who are not students and/or faculty at the University of Pisa will be allowed to attend this event.
May 14, Time TBA, Istituto Bruno Leoni, Milan, Italy: “Democracy and Political Ignorance: Why Smaller Government is Smarter”
from Latest – Reason.com https://ift.tt/31sYBar
via IFTTT
State of the Union: Petty. When it comes to the State of the Union (SOTU), Reason‘s Zuri Davis put it best: “The SOTU is perhaps the greatest example of a meeting that could have been an email.” For all the pomp and public spectacle, President Donald Trump’s address to America last night was nothing more than a warmed-over collection of Trumpian tall tales.
We heard again how passing one (good but limited) bill in 2018 means Trump pretty much single-handedly “got it done” on criminal justice reform.
We heard about how Trump is “working to finally end America’s longest war and bring our troops back home,” despite the administration sending more troops to the Middle East.
That was just false: Trump is not working to end endless wars. ⁰He vetoed my WPR to end the war in Yemen, stripped my amendment to prevent a war in Iran, and is to blame for another failed surge in Afghanistan. Enough. #SOTU
We heard about how Immigration and Customs Enforcement (ICE) has arrested leagues of “wicked human traffickers” (sigh) and how protectionist trade policies are creating (dubious) manufacturing jobs.
And we heard about how opposed Trump is to socialism, in between the president praising big government initiatives and promising more of them.
For a person who claims to oppose socialism, President Trump spent a lot of time in his SOTU address touting central planning, federal intervention in nonfederal matters, and a big-government spending spree—policies that threaten our rights and undermine our long-term prosperity.
Also, right-wing radio personality Rush Limbaugh received a Medal of Freedom, triggering Democrats and delighting the #MAGA right. At least three Congressional Democratswalkedout during Trump’s speech and House Speaker Nancy Pelosi (D–Calif.) tore up the speech afterward—triggering Republicans (and one very melodramatic White House tweet) and delighting her base.
Pelosi told reporters it was the “courteous thing to do considering the alternative. It was such a dirty speech.”
If the whole thing seems stupid, petty, pointless, vomit-inducing, etc.…well, duh. These types of government spectacle always are. At least the waning “civility” fetish on the left and right and their rapidly devolving ability to put on shows about playing nice has left a lot of people beyond libertarians questioning why we even do this in the first place.
Things that are now meaningless:
– Presidential Medal of Freedom – State of the Union – Senate impeachment trials – Everything Republicans say, ever
(If only they had the power to remember that when their side wins the presidency back…)
ELECTION 2020
Pete Buttigieg and Bernie Sanders inching closer to victory in Iowa, as app-related confusion clears. Democratic voters in Monday’s caucuses seem to have favored Buttigieg, the mayor of South Bend, Indiana, and Sen. Bernie Sanders (I–Vt.), according to the results that were in as of Wednesday morning.
With a little more than 70 percent of Iowa precincts sending along their final tallies, Buttigieg and Sanders will still be in a close race for delegates, with Buttigieg ever so slightly ahead. (See exact tallies at FiveThirtyEight.)
Sen. Elizabeth Warren (D–Mass.) trailed slightly behind them, leaving former Vice President Joe Biden in fourth place and nearly tied with Sen. Amy Klobuchar (D–Minn.).
And Andrew Yang and Tom Steyer may have picked up at least a few delegates, but none so far for Michael Bloomberg or Rep. Tulsi Gabbard (D–Hawaii).
SaxoBank: Our View On The Short Squeeze In Tesla Shares
Submitted by Peter Garnry of SaxoBank
Summary: Tesla shares have exploded this year burning short sellers and the last two trading sessions have been an outright short squeeze detaching Tesla from meaningful fundamentals. It is quite likely that the stock will normalize. How it plays out and when we don’t know, but if investors want to play any normalization we go through the various options and the risks associated with them.
Tesla shares are up 36% in the last two trading sessions and up 111% year-to-date. We are observing a classic short squeeze where many short sellers are forced to reduce their position. The interesting math of short selling is that a short position increases in exposure (weight in the portfolio) as the position goes against you which is opposite of what is happening on long positions. So if a stock declines that you have short then you short even more to maintain the same risk exposure in the portfolio.
The price action in Tesla is compounded by other market participants smelling fatigue and weakness among the entrenched short sellers in Tesla. So they are forcing short sellers to buy back some of the shares they have borrowed. But several short sellers have openly said that they are continuing to short and new short sellers are taking the risk at current levels.
Depending on the will of the buyers trying to shake the short sellers and the short sellers’ stubbornness this short squeeze might not be over just yet. But everyone agrees that the move is not based on fundamentals and Tesla’s shares cannot support this market valuation of $160bn. That means that the market will most likely normalize Tesla’s shares at one point, but we want to stress that we don’t know when and how much the normalization will go.
But if investors believe Tesla shares will be down in the near term future how should investors do it?
If investors are shorting a delta one instrument (shares or CFDs) on Tesla then timing is everything and the potential losses are unbounded so this approach has extremely high risk. Another approach is to buy put options on Tesla. The current market price (premium) on a put option at-the-money with expiry on Friday next week is around 10% of the underlying. The put option provides the investors will pre-defined maximum loss (premium + commission paid) that cannot be exceeded. In such a volatile environment this maximum loss characteristic is attractive. But the risk with the option is naturally that the investor pays a high premium for a short period and thus could end up losing 10% of the underlying in a short period.
State of the Union: Petty. When it comes to the State of the Union (SOTU), Reason‘s Zuri Davis put it best: “The SOTU is perhaps the greatest example of a meeting that could have been an email.” For all the pomp and public spectacle, President Donald Trump’s address to America last night was nothing more than a warmed-over collection of Trumpian tall tales.
We heard again how passing one (good but limited) bill in 2018 means Trump pretty much single-handedly “got it done” on criminal justice reform.
We heard about how Trump is “working to finally end America’s longest war and bring our troops back home,” despite the administration sending more troops to the Middle East.
That was just false: Trump is not working to end endless wars. ⁰He vetoed my WPR to end the war in Yemen, stripped my amendment to prevent a war in Iran, and is to blame for another failed surge in Afghanistan. Enough. #SOTU
We heard about how Immigration and Customs Enforcement (ICE) has arrested leagues of “wicked human traffickers” (sigh) and how protectionist trade policies are creating (dubious) manufacturing jobs.
And we heard about how opposed Trump is to socialism, in between the president praising big government initiatives and promising more of them.
For a person who claims to oppose socialism, President Trump spent a lot of time in his SOTU address touting central planning, federal intervention in nonfederal matters, and a big-government spending spree—policies that threaten our rights and undermine our long-term prosperity.
Also, right-wing radio personality Rush Limbaugh received a Medal of Freedom, triggering Democrats and delighting the #MAGA right. At least three Congressional Democratswalkedout during Trump’s speech and House Speaker Nancy Pelosi (D–Calif.) tore up the speech afterward—triggering Republicans (and one very melodramatic White House tweet) and delighting her base.
Pelosi told reporters it was the “courteous thing to do considering the alternative. It was such a dirty speech.”
If the whole thing seems stupid, petty, pointless, vomit-inducing, etc.…well, duh. These types of government spectacle always are. At least the waning “civility” fetish on the left and right and their rapidly devolving ability to put on shows about playing nice has left a lot of people beyond libertarians questioning why we even do this in the first place.
Things that are now meaningless:
– Presidential Medal of Freedom – State of the Union – Senate impeachment trials – Everything Republicans say, ever
(If only they had the power to remember that when their side wins the presidency back…)
ELECTION 2020
Pete Buttigieg and Bernie Sanders inching closer to victory in Iowa, as app-related confusion clears. Democratic voters in Monday’s caucuses seem to have favored Buttigieg, the mayor of South Bend, Indiana, and Sen. Bernie Sanders (I–Vt.), according to the results that were in as of Wednesday morning.
With a little more than 70 percent of Iowa precincts sending along their final tallies, Buttigieg and Sanders will still be in a close race for delegates, with Buttigieg ever so slightly ahead. (See exact tallies at FiveThirtyEight.)
Sen. Elizabeth Warren (D–Mass.) trailed slightly behind them, leaving former Vice President Joe Biden in fourth place and nearly tied with Sen. Amy Klobuchar (D–Minn.).
And Andrew Yang and Tom Steyer may have picked up at least a few delegates, but none so far for Michael Bloomberg or Rep. Tulsi Gabbard (D–Hawaii).
“Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
John Maynard Keynes – The Economic Consequences of Peace 1920
“And when we see that we’ve reached that level we’ll begin to gradually reduce our asset purchases to the level of the underlying trend growth of demand for our liabilities.”
–Jerome Powell January 29, 2020.
With that one seemingly innocuous statement, Chairman Powell revealed an alarming admission about the supply of money and your wealth. The current state of monetary policy explains why so many people are falling behind and why wealth inequality is at levels last seen almost 100 years ago.
REALity
“Real” is a very important concept in the field of economics. Real generally refers to an amount of something adjusted for the effects of inflation. This allows economists to measure true organic growth or decline.
Real is equally important for the rest of us. The size of our paycheck or bank account balance is meaningless without an understanding of what money can buy. For instance, an annual income of $25,000 in 1920 was about eight times the national average. Today that puts a family of four below the Federal Poverty Guideline. As your grandfather used to say, a dollar doesn’t go as far as it used to.
Real wealth and real wage growth are important for assessing your economic standing and that of the nation.
Here are two facts:
Wealth is largely a function of the wages we earn
The wages we earn are predominately a function of the growth rate of the economy
These facts establish that the prosperity and wealth of all citizens in aggregate is meaningfully tied to economic growth or the output of a nation. It makes perfect sense.
Now, let us consider inflation and the role it plays in determining our real wages and real wealth.
If the rate of inflation is less than the rate of wage growth over time, then our real wages are rising and our wealth is increasing. Conversely, if inflation rises at a pace faster than wages, wealth declines despite a larger paycheck and more money in the bank.
With that understanding of “real,” let’s discuss inflation.
What is Inflation?
Borrowing from an upcoming article, we describe inflation in the following way:
“One of the most pernicious of these issues in our “modern and sophisticated” intellectual age is that of inflation. Most people, when asked to define inflation, would say “rising prices” with no appreciation for the fact that price movements are an effect, not a cause. They are a symptom of monetary circumstances. Inflation defined is, in fact, a disequilibrium between the amount of currency entering an economic system relative to the productive output of that same system.”
The price of cars, cheeseburgers, movie tickets, and all the other goods and services we consume are chiefly based on supply and demand. Demand is a function of both our need and desire to own a good and, equally importantly, how much money we have. The amount of money we have in aggregate, known as money supply, is governed by the Federal Reserve. Therefore, the supply of money is a key component of demand and therefore a significant factor affecting prices.
With the linkage between the supply of money and inflation defined, let us revisit Powell’s recent revelation.
“And when we see that we’ve reached that level we’ll begin to gradually reduce our asset purchases to the level of the underlying trend growth of demand for our liabilities.”
In plain English, Powell states that the supply of money is based on the demand for money and not the economic growth rate. To clarify, one of the Fed’s largest liabilities currently are bank reserves. Banks are required to hold reserves for every loan they make. Therefore, they need reserves to create money to lend. Ergo, “demand for our liabilities,” as Powell states, actually means bank demand for the seed funding to create money and make loans.
The relationship between money supply and the demand for money may, in fact, be aligned with economic growth. If so, then the supply of money should rise with the economy. This occurs when debt is predominately employed to facilitate productive investments.
The problem occurs when money is demanded for consumption or speculation. For example:
When hedge funds demand billions to leverage their trading activity
When Apple, which has over $200 billion in cash, borrows money to buy back their stock
When you borrow money to buy a car, the size of the economy increases but not permanently as you are not likely to buy another car tomorrow and the next day
Now ask, should the supply of money increase because of those instances?
The relationship between the demand for money and economic activity boils down to what percentage of the debt taken on is productive and helps the economy and the populace grow versus what percentage is for speculation and consumption.
While there is no way to quantify how debt is used, we do know that speculative and consumptive debt has risen sharply and takes up a much larger percentage of all debt than in prior eras. The glaring evidence is the sharp rise of debt to GDP.
Data Courtesy St. Louis Federal Reserve
If most of the debt were used productively, then the level of debt would drop relative to GDP. In other words, the debt would not only produce more economic growth but would also pay for itself. The exact opposite is occurring as growth languishes despite record levels of debt accumulation.
The speculative markets provide further evidence. Without presenting the long list of asset valuations that stand at or near record levels, consider that since the last time the S&P 500 was fairly valued in 2009, it has grown 375%. Meanwhile, total U.S. Treasury debt outstanding is up by 105% from $11 trillion to $22.5 trillion and corporate debt is up 55% from $6.5 trillion to $10.1 trillion. Over that same period, nominal GDP has only grown 46% and Average Hourly Earnings by 29%.
When the money supply is increased for consumptive and speculative purposes, the Fed creates dissonance between our wages, wealth, and the rate of inflation. In other words, they generate excessive inflation and reduce our real wealth.
If this is the case, why is the stated rate of inflation less than economic growth and wage growth?
The Wealth Scheme
This scheme works like all schemes by keeping the majority of people blind to what is truly occurring. To perpetuate such a scheme, the public must be convinced that inflation is low and their wealth is increasing.
In 2000, a brand new Ford Taurus SE sedan had an original MSRP of $18,935. The 2019 Ford Taurus SE has a starting price of $27,800. Over the last 19 years, the base price of the Ford Taurus has risen by 2.05% a year or a total of 47%. According to the Bureau of Labor Statics (BLS), since the year 2000, the consumer price index for new vehicles has only risen by 0.08% a year and a total of 1.68% over the same period.
For another instance of how inflation is grossly underreported, we highlighted flaws in the reporting of housing prices in MMT Sounds Great in Theory But… To wit:
“Since then, inflation measures have been tortured, mangled, and abused to the point where it scarcely equates to the inflation that consumers deal with in reality. For example, home prices were substituted for “homeowners equivalent rent,” which was falling at the time, and lowered inflationary pressures, despite rising house prices.
Since 1998, homeowners equivalent rent has risen 72% while house prices, as measured by the Shiller U.S. National Home Price Index has almost doubled the rate at 136%. Needless to say, house prices, which currently comprise almost 25% of CPI, have been grossly under-accounted for. In fact, since 1998 CPI has been under-reported by .40% a year on average. Considering that official CPI has run at a 2.20% annual rate since 1998, .40% is a big misrepresentation, especially for just one line item.”
Those two obscene examples highlight that the government reported inflation is not the same inflation experienced by consumers. It is important to note that we are not breaking new ground with the assertion that the government reporting of inflation is low. As we have previously discussed, numerous private assessments quantify that the real inflation rate could easily be well above the average reported 2% rate. For example, Shadow Stats quantifies that inflation is running at 10% when one uses the official BLS formula from 1980.
Despite what we may sense and a multitude of private studies confirming that inflation is running greater than 2%, there are a multitude of other government-sponsored studies that argue inflation is actually over-stated. So, the battle is in the trenches, and the devil is in the details.
As defined earlier, inflation is “a disequilibrium between the amount of currency entering an economic system relative to the productive output of that same system.”
The following graph shows that the supply of money, measured by M2, has grown far more than the rate of economic growth (GDP) over the last 20 years.
Data St. Louis Federal Reserve
Since 2000, M2 has grown 234% while GDP has grown at half of that rate, 117%. Over the same period, the CPI price index has only grown by 53%. M2 implies an annualized inflation rate over the last 20 years of 6.22% which is three times that of CPI.
Dampening perceived inflation is only part of the cover-up. The scheme is also perpetuated with other help from the government. The government borrows to boost temporary economic growth and help citizens on the margin. This further limits people’s ability to detect a significant decline in their standard of living.
As shown below, when one strips out the change in government debt (the actual increase in U.S. Treasury debt outstanding) from the change in GDP growth, the organic economy has shrunk for the better part of the last 20 years.
Data St. Louis Federal Reserve
It doesn’t take an economist to know that a 6.22% inflation rate (based on M2) and decade long recession would force changes to our monetary policy and send those responsible to the guillotines. If someone suffering severe headaches is diagnosed with a brain tumor, the problem does not go away because the doctor uses white-out to cover up the tumor on the x-ray film.
Despite crystal clear evidence, the mirages of economic growth and low inflation prevent us from seeing reality.
Summary
Those engaging in speculative ventures with the benefit of cheap borrowing costs are thriving. Those whose livelihood and wealth are dependent on a paycheck are falling behind. For this large percentage of the population, their paychecks may be growing in line with the stated government inflation rate but not the true inflation rate they pay at the counter. They fall further behind day by day as shown below.
While this may be hard to prove using government inflation data, it is the reality. If you think otherwise, you may want to ask why a political outsider like Donald Trump won the election four years ago and why socialism and populism are surging in popularity. We doubt that it is because everyone thinks their wealth is increasing. To quote Bill Clinton’s 1992 campaign manager James Carville, “It’s the economy, stupid.”
That brings us back to Jerome Powell and the Fed. The U.S. economy is driven by millions of individuals making decisions in their own best interests. Prices are best determined by those millions of people based on supply and demand – that includes the price of money or interest rates. Any governmental interference with that natural mechanism is a recipe for inefficiency and quite often failure.
If monetary policy is to be set by a small number of people in a conference room in the Eccles Building in Washington, D.C. who think they know what is best for us based on flawed data, then they should prepare themselves for even more radical social and political movements than we have already seen.
Did China’s Tencent Accidentally Leak The True Terrifying Coronavirus Statistics
Ten days ago, shortly after China first started reporting the cases and deaths associated with the coronavirus epidemic, a UK researcher predicted that over 250,000 Chinese would be infected with the virus by February 4. And while according to official Chinese data, the number of infections has indeed soared in the past two weeks, at just under 25,000 (and roughly 500 deaths), it is a far cry from this dismal prediction, about ten times below that predicted by the epidemiologists.
Is this discrepancy possible? Is the epidemic truly far less serious than conventional epidemiological models predicted? Or is China merely hiding the full extent of the problem?
After all, it the WSJ itself reported in late January , China was explicitly manipulating the casualty number by listing pneumonia as the cause of death instead of coronavirus. Subsequent reports that Wuhan officials were rushing to cremate coronavirus casualties before they could be counted did not add to the credibility of the official data.
But the biggest hit to the narrative and China’s officially reported epidemic numbers came overnight, when a slip up in China’s TenCent may have revealed the true extent of the coronavirus epidemic on the mainland. And it is nothing short than terrifying.
As the Taiwan Times reports in a report first spotted by user @IN_174, over the weekend, Tencent “seems to have inadvertently released what is potentially the actual number of infections and deaths, which were astronomically higher than official figures“, and were far closer to the catastrophic epidemic projections made by Jonathan Read.
According to the report, late on Saturday evening, Tencent, on its webpage titled “Epidemic Situation Tracker”, showed confirmed cases of novel coronavirus (2019nCoV) in China as standing at 154,023, 10 times the official figure at the time. It listed the number of suspected cases as 79,808, four times the official figure.
And while the number of cured cases was only 269, well below the official number that day of 300, most ominously, the death toll listed was 24,589, vastly higher than the 300 officially listed that day.
Tencent screengrab as of late Feb 1, showing far higher infections.
Moments later, Tencent updated the numbers to reflect the government’s “official” numbers that day.
This was not the first time Tencent has done this: as Taiwan Times notes, Chinese netizens have noticed that Tencent has on at least three occasions posted extremely high numbers, only to quickly lower them to government-approved statistics.
This is where it gets even more bizarre: contrary to claiming that this was just a “fat finger” mistyping of data, observant Chinese netizens also noticed that each time the screen with the large numbers appears, it shows a comparison with the previous day’s data which demonstrates a “reasonable” incremental increase, much like comparisons of official numbers.
This led many in the mainland to speculate that Tencent has two sets of data, the real data and “processed” data.
In short, two camps have emerged: one, the more optimistic, speculates that a coding problem could be causing the real “internal” data to accidentally appear. The other, far more pessimistically inclined, believes that someone behind the scenes is trying to leak the real numbers, as “the “internal” data held by Beijing may not reflect the true extent of the epidemic.”
Indeed, as repeatedly pointed out here and according to multiple sources in Wuhan, many coronavirus patients are unable to receive treatment and die outside of hospitals. Furthermore, a severe shortage of test kits also leads to a lower number of diagnosed cases of infection and death. In addition, there have been many reports of doctors being ordered to list other forms of death instead of coronavirus to keep the death toll artificially low.
What is the truth?
We leave it up to readers, but keep this in mind: on Jan 29, Zeng Guang, the chief scientist of epidemiology at China’s CDC, made a rare candid admission about why Chinese officials cannot tell people the truth in an interview with the state-run tabloid Global Times: “The officials need to think about the political angle and social stability in order to keep their positions.“
And then, on Monday, none other than China Xi’s called on all officials to quickly work together to contain the Coronavirus at a rare meeting of top leaders, saying the outcome would “directly impact social stability in the country.”
Well, if China is mostly concerned about social stability – as it should be for a nation of 1.4 billion – it is easy to comprehend why the entire political apparatus in China would be geared to presenting numbers which seem somewhat credible – in light of the barrage of videos of people dying on the street – but not so terrifying as to cause a countrywide panic.
Then again, if China indeed had over 154,000 cases and almost 25,000 deaths as of 5 days ago, then no attempts to mask the full extent and true severity of the pandemic have any hope of “containing” the truth.
