Month: May 2020

Submitted by Michael Every of Rabobank

The ‘Clause is Cause’ Clause

As we had flagged repeatedly in recent days, US-China relations have suddenly deteriorated. US President Trump claims to have evidence that Covid-19 started in the Wuhan Institute of Virology. Moreover, he is allegedly considering an executive order to prevent an initial USD50bn of government retirement savings funds held by the Thrift Savings Plan being transferred to Chinese capital markets in line with the increased weighting China now has in the MSCI All Country World Index – something several members of Congress have been calling for. Other reports have it that trade advisor Navarro is pushing hard to onshore US manufacturing of key health goods as soon as possible by executive order – and is seeing ‘wait-and-see’ push-back from Treasury Secretary Steven Mnu-China. But recall this Thrift Savings Plan tug-of-war was being won by the doves until yesterday.

Meanwhile, the word “reparations” is actually being bandied about by some China hawks in DC, with one story even suggesting there were even White House plans to default on US debt to China as compensation. Larry Kudlow had to be wheeled out yesterday to deny that the US to do so. That’s like being in a dispute with your neighbour over the line of a fence and them calmly telling you “I can assure you that we don’t plan to burn your house down over this.” Is one reassured by that kind of thing or not? The hows and whys and ifs and maybes of what was once a crackpot leftfield is now out there actually being discussed on trading floors.

Beijing, and much of Asia, is out for the May Day holiday today so there is unlikely to be any kind of official Chinese reaction. However, where we have seen a knee-jerk response has been in USD/CNH, which at time of writing was at 7.1280 having been as low as 6.87 back in early January when the Phase One trade deal was on the table (and as we were saying “Don’t believe the hype”.) This is likely to put a serious dent in the head-scratching, math-defying risk-on rally we have seen for much of the week. Indeed, now month-end positioning is out of the way it has the potential to open up an entire new phase of USD buying vs. EM in particular – and this time CNY and CNH not being the exceptions.

This time last year, when we were all still going abroad regularly (right now just ‘outside’ is becoming a psychological barrier if I am honest) I was traveling with a presentation titled “Clause is Cause”. This argued that from a geostrategic ‘Von Clausewitz’ perspective, not a neoliberal “Let’s assume world peace” version, the US would at some point realise the USD/Eurodollar was a weapon it could wield vs. China, and when it did we would see three key strings cut: trade; tech; and then capital flows. The first was evident during the trade war – which has not been concluded is likely to get far worse soon; the second is also abundantly clear on a variety of fronts, much to Silicon Valley’s chagrin; and potentially, now we see the start of that third step – because if the US does block this first USD50bn going in, other such steps will follow, just as they did on the previously unthinkable idea of US tariffs on China.

CNH is right to be selling off, albeit in a traditionally limited fashion, because if you don’t buy from China and you don’t help China up the value-chain and you don’t invest in China then China is not going to be getting much USD liquidity at all. The US hawks probably don’t get the Eurodollar iron logic there; they are likely just pressing buttons in anger. The outcome would be the same nonetheless.

I can hear the market bulls and technocrats of the world saying “But China has USD3 trillion in reserves!” Perhaps. Most think it’s far lower than that. And not earning USD means you have to dig into that stockpile. And when you do, the PBOC either has to contract the local money supply (because every USD is backed by 7.xx CNY on the other side of the balance sheet) or it just creates new CNY anyway and supply-demand sees CNY move sharply lower – as we have been seeing in all other EM FX. Looking at the drop in BRL, ARS, ZAR, TRY, etc., or even THB, this would be how we would get to the ‘unthinkable’ 8 (9? 10?) handle in CNY. That would also crush those other EM crosses in tandem – and AUD and NZD, as the former tries to navigate its own geopolitical spat with Beijing.

I can also hear the market bulls and technocrats of the world saying “But the US relies on Chinese capital inflows!” Really? Really?! As the Fed is creating trillions of USD on its balance sheet with no end in sight, and with yields at historic lows, are you really going to try to peddle the myth that the US needs Chinese capital? It is flooded in cash – and has shown it can create it as needed. The only issue is how it is *distributed*. Do you seriously think US Treasuries are about to sell off from any Chinese action? In a risk-off geopolitical trade environment? With an activist Fed? Also, please recall the simple fact that Chinese (or any) capital inflows to the US are always the inverse of the export earnings they are getting from the US! If they don’t sell the exports, they don’t invest the capital. That was going to happen anyway in this downturn.

So that’s Von Clausewitz on the Eurodollar – but on good old fashioned US muscle, the picture is the same. It has been revealed by Reuters that Trump told Saudi Arabia that if they refused to sign up to a deal to cut oil production that he would not stand in the way of Congress voting to remove US military protection from the country after 75 years. Recall that the Petrodollar deal was always that the Middle East could sell as much oil to the US as desired, but had to recycle the USD earnings back into the US. It’s just that now the US has shale… So guess who blinked? Not that it is working – so prepare for round two shortly.

Folks, please disabuse yourself of the naïve belief that we live one giant happy world market where supply and demand and acronyms are all that matter and where politics and national security are dinosaur anachronisms, but in a bloc run by people who fall almost entirely into that camp, despite also relying on US military support, yesterday saw the ECB meeting.

As GDP is seen falling -5% to -12% in 2020 the ECB: left the deposit rate unchanged at -0.50%, while keeping the refi rate at 0.00%; the existing asset purchase programmes were left unchanged, APP at EUR 20bn/month plus an EUR 120bn envelope, and PEPP at a total of EUR 750bn in 2020; the temporary discount on TLTRO-III was increased by 25bp and will now be priced at -50bp under the benchmark rate (either the refi or depo rate, depending on loan growth); and a new set of 7 Pandemic Emergency LTROs (PELTROs) was launched. These are priced at MRO -25bp and will run (in a staggered manner) between May 2020 and September 2021. As our ECB team conclude, it remains to be seen whether EURIBOR-OIS spreads will ‘normalise’; the ECB is taking a very open-minded stance; and they believe further action is still necessary. I think the latter at least is clear to most readers.

Following the utter devastation across all regional Fed surveys, it should be no surprise that this morning’s national manufacturing surveys (ISM and Markit) are a disaster.

• Markit US Manufacturing 36.1 – 11-year low (weaker than expected and worse than the flash print)

• PMI US Manufacturing 41.5 – 11 year lows (but better than the 36.0 expected due to the farcical surge in supplier delivery times)

April data signaled an unprecedented contraction in production across the U.S. manufacturing sector, overwhelmingly linked to measures implemented to contain the COVID-19 outbreak. Factory closures were widely reported and the frequent cancellation or postponement of orders resulted in the largest monthly drop in the new orders index on record. Spare capacity across the sector and pessimism about the year ahead meanwhile resulted in the fastest fall in employment since March 2009, despite efforts to furlough staff. Both input costs and output charges fell sharply as companies and their suppliers offered discounts to boost sales.

The headline reading was the lowest for just over eleven years…

Source: Bloomberg

Which confirms the collapse in regional Fed surveys…

Source: Bloomberg

New orders, employment and inventories fall at steepest rates since the global financial crisis and worse still, output expectations turn negative for first time in the series history.

ISM Manufacturing Employment crashed to a record low…

Of course, the PMI data continues to suffer from the farcical misinterpretation of a spike in supplier delivery times as a ‘positive’ thing – as opposed to being a terrible negative due to the global breakdown in supply chains caused by the pandemic and its concommitant economic lockdowns. A record collapse in new orders (and employment) and record surge in supplier delivery times.

Source: Bloomberg

What’s wrong with that picture?

Chris Williamson, Chief Business Economist at IHS Markit said:

“April saw the manufacturing sector struck hard by the COVID-19 pandemic, with output falling to an extent surpassing that seen even at the height of the global financial crisis. With orders collapsing at a rate not seen for over a decade, supply chains disrupted to a record degree and pessimism about the outlook hitting a new survey high, rising numbers of firms are culling payroll numbers.

“Consumer facing businesses are being hit by slumping demand from households as April saw widespread lockdowns, but business spending on inputs and equipment has also tumbled as companies slash production and investment.

“Smaller firms are being hit the hardest, and also reporting the highest job losses, but large firms are also seeing the sharpest downturn on record.

And as for hope, it’s not about to get any better…

As Williamson concluded, “with infection curves showing signs of flattening, it is naturally hoped that the economic downturn will also bottom-out. As restrictions are lifted, demand should gradually revive, but the trade-off between risking a second wave of infections and bringing the economy back to life looks set to be one of the greatest challenges faced by policy- and lawmakers in recent history. The process will inevitably be led by caution, meaning recovery will also be frustrating slow.“

Authored by Jonathan Turley,

Brittney Cooper, an associate professor in the Department of Women’s, Gender and Sexuality Studies at Rutgers University, is doubling down on her prior public comments denouncing Trump supporters and alleging a conspiracy to kill black people. 

She notably has invoked her tenure status with the latest tweet attacks:

“I have tenure. Rutgers won’t be firing me for tweets.” 

As many of you know, I have long taken the same position on the free speech rights of faculty on social media and public comments. However, schools have been less than consistent in punishing or investigating faculty based on the content of their views.  Cooper declaring “F— each and every Trump supporter” obviously would include many students in the university.  She blames “white depravity” and claims “when whiteness has a death wish, we are all in for a serious problem.”  As previously discussed, it is doubtful that these same attacks directed against African-Americans or other groups would be treated in the same fashion.

This week, Cooper tweeted “F— each and every Trump supporter. You absolutely did this. You are to blame” for the pandemic.  She brushed off past criticism and declared “I said what I meant. And I curse cuz I’m grown. I have tenure. Rutgers won’t be firing me for tweets.”

Just know a couple of things: 1.) I report threats to law enforcement and have had committed law enforcement support for many years now. 2.) I have tenure. Rutgers won’t be firing me for tweets. That is all.

— Brittney Cooper (@ProfessorCrunk) April 30, 2020

Cooper has insisted that the pandemic is part of a racist plot by white conservatives and Trump supporters. 

In unhinged screeds, Cooper claims that the pandemic is really “all about a gross necropolitical calculation that it is Black people who are dying disproportionately from COVID.”  She added  “Not only do white conservatives not care about Black life but my most cynical negative read of the white supremacists among them is that they welcome this mass winnowing of Black folks in order to slow demographic shifts and shore up political power.”

Not only do white conservatives not care about Black life, but my most cynical negative read of the white supremacists among them is that they welcome this massive winnowing of Black folks in order to slow demographic shifts and shore up political power.

— Brittney Cooper (@ProfessorCrunk) April 28, 2020

In another post, Cooper claimed Trump supporters’ loyalty to the president impaired their judgment about the outbreak:

“They are literally willing to die from this clusterf—ed COVID response rather than admit absolutely anybody other than him [Trump] would have been a better president. And when whiteness has a death wish, we are all in for a serious problem.” 

She has previously denounced “white depravity.”

As we have previously discussed (including a story involving an Oregon professor), there remains an uncertain line in what language is protected for teachers in their private lives. The incident also raises what some faculty have complained is a double or at least uncertain standard. We have previously discussed controversies at the University of California and Boston University, where there have been criticism of such a double standard, even in the face of criminal conduct. There were also such an incident at the University of London involving Bahar Mustafa as well as one involving a University of Pennsylvania professor. Some intolerant statements against students are deemed free speech while others are deemed hate speech or the basis for university action. There is a lack of consistency or uniformity in these actions which turn on the specific groups left aggrieved by out-of-school comments.

Again, I believe Cooper’s speech should be protected but the recognition of such free speech values seems to often exclude faculty and students from opposing political or social perspectives.  The protection of such speech continues to depend on its content in determining if actions will be taken by the university.

Joe Biden’s personnel records from his days in the Senate have come under the microscope after former staffer Tara Reade says she filed a formal sexual assault complaint against him – an allegation he officially denied on Friday.

Biden, who graduated from the University of Delaware and served as Delaware’s senator, transferred the records to the university in 2011 – which announced a change to their expected unsealing shortly before Biden announced his bid for the White House. Meanwhile, Biden has refused to allow a search of the roughly 1,875 boxes of documents and 415 gigabytes of electronic records, as detailed yesterday by Jonathan Turley.

Biden’s excuse? That the records could expose unrelated things he’s said or done which could be ‘taken out of context’ and used against him before the November election.

On Friday, however, Biden stammered through an awkward MSNBC interview in which host Mika Brzezinski pressed him on whether he would allow a narrow search for records only pertaining to Tara Reade.

Brzezinski: Personnel records aside, are you certain there was nothing about Tara Reade in those records – and if so, why not approve a search of her name in those records?

Biden: Approve a search of her name?

Brzezinski: Yes, and reveal anything that might be related to Tara Reade in the University of Delaware records?

Biden: There is nothing. They wouldn’t… They’re not there. And I, I, I… you know, I don’t understand the point you’re trying to make! There are no personnel records by definition.

…

Brzezinski: I’m just talking about her name, not anybody else in those records – a search for that. [awkward silence] Why not do a search for Tara Reade’s name in the University of Delaware records.

Biden: Look, I mean, who does that search?

Brzezinski: Perhaps the University of Delaware?

Watch (University of Delaware question starts at 55 seconds):

I don’t know what’s in Biden’s University of Delaware papers but he really doesn’t want people seeing them.

He won’t even agree to a search of documents just with Tara Reade’s name on them. pic.twitter.com/oavzsdRax2

— Benny (@bennyjohnson) May 1, 2020

Turley weighs in:

Biden should have no objection to a search of any reference to any complaint by anyone housed at Delaware. It is like a witness insisting that he is perfectly happy with a search of his farm but then becoming angry when asked if he would allow a search of his house…

— Jonathan Turley (@JonathanTurley) May 1, 2020

Via The Association of American Physicians and Surgeons,

In a letter to Gov. Doug Ducey of Arizona, the Association of American Physicians and Surgeons (AAPS) presents a frequently updated table of studies that report results of treating COVID-19 with the anti-malaria drugs chloroquine (CQ) and hydroxychloroquine (HCQ, Plaquenil®).

To date, the total number of reported patients treated with HCQ, with or without zinc and the widely used antibiotic azithromycin, is 2,333, writes AAPS, in observational data from China, France, South Korea, Algeria, and the U.S.

Of these, 2,137 or 91.6 percent improved clinically.

There were 63 deaths, all but 11 in a single retrospective report from the Veterans Administration where the patients were severely ill.

The antiviral properties of these drugs have been studied since 2003. Particularly when combined with zinc, they hinder viral entry into cells and inhibit replication. They may also prevent overreaction by the immune system, which causes the cytokine storm responsible for much of the damage in severe cases, explains AAPS. HCQ is often very helpful in treating autoimmune diseases such as lupus and rheumatoid arthritis.

Additional benefits shown in some studies, AAPS states, is to decrease the number of days when a patient is contagious, reduce the need for ventilators, and shorten the time to clinical recovery.

Peer-reviewed studies published from January through April 20, 2020, provide clear and convincing evidence that HCQ may be beneficial in COVID-19, especially when used early, states AAPS. Unfortunately, although it is perfectly legal to prescribe drugs for new indications not on the label, the Food and Drug Administration (FDA) has recommended that CQ and HCQ should be used for COVID-19 only in hospitalized patients in the setting of a clinical study if available. Most states are making it difficult for physicians to prescribe or pharmacists to dispense these medications.

As the letter to Gov. Ducey notes,

“Many nations, including Turkey and India, are protecting medical workers and contacts of infected persons prophylactically. According to worldometers.info, deaths per million persons from COVID-19 as of Apr 27 are 167 in the U.S., 33 in Turkey, and 0.6 in India.”

After Morocco and Algeria began using HCQ, a trend break and sharp reduction in their COVID-19 case fatality rate occurred.

Vaccines and results of randomized double-blind controlled trials of new drugs are at best months away. But patients are dying now, while affordable, long-used drugs would be available except for government restrictions, AAPS states.

The Association of American Physicians and Surgeons (AAPS) has represented physicians of all specialties in all states since 1943. The AAPS motto is omnia pro aegroto, meaning everything for the patient.

…time for Twitter and Facebook to ban/block/suspend more of America’s physicians and surgeons…