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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Watch: Riots Erupt In Israel As Police Enforce COVID-19 Quarantine, Synagogues Shuttered
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.”
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
פשטו כעת על שטיבלך זיכרון משה
ברחוב חפץ חיים.
עימותים ומעצרים במקום pic.twitter.com/v5hAW7quRp
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.
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
after they attacked Policemen when they were asked to disperse a gathering which violated the Health Ministry restrictions. pic.twitter.com/IMegFgfDIQ
— Emanuel (Mannie) Fabian (@manniefabian) April 1, 2020
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.
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.
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.
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.
Governments in the United States are restricting freedoms to unprecedented degrees in an effort to slow the spread of COVID-19. As dangerous as this expansion of power is, in some ways, federal, state, and local governments are also reducing their intrusions into our lives by cutting many regulations.
This deregulation falls into three categories: help people deal with the virus (including those who are confined to their homes with children who need to be home-schooled); help businesses stay open and cater to their consumers under these unusual circumstances; and free the private health care sector to better respond to the virus.
Here are just a few of the rules that were lifted to enhance our freedom and our safety:
In New York state, the government has suspended a regulation mandating that child care providers undergo criminal background checks. The state’s governor also eliminated almost two dozen other regulations, including those that artificially restrict the number of children allowed in day care facilities to ones that set minimum staffing requirements.
Many states have also lifted restrictions to home-based instructional policies. The Federal Communications Commission waived existing E-Rate rules to allow schools to issue Wifi hotspots or devices to students who lack internet access at home. And the U.S. Department of Education has eased rules that made it unnecessarily difficult for colleges and universities to shift classes online.
To help avoid shortages in stores, the Department of Transportation (DOT) announced a nationwide exemption to some rules forbidding most commercial truckers from driving more than 11 hours in a 14-hour span. The DOT also relaxed a rule requiring that drivers’ rest periods be a minimum of 10 hours; now each rest period can be split into two separate breaks. In Texas, trucks are now allowed to deliver both groceries and alcohol at the same time. Some states, like Alabama, are also allowing prescriptions to be filled for longer than 30 days. But the best deregulation of an unnecessary rule is that the Transportation Security Administration, at least during this crisis, now allows passengers to bring liquid hand sanitizer containers of up to 12 ounces in carry-on bags.
Many businesses that deal directly with the public may now cater to consumers in ways that were once forbidden. For instance, several states, including Texas and New Hampshire, now allow restaurants to deliver alcoholic beverages with carryout and delivery orders. New Jersey just allowed microbreweries and brewpubs to deliver beers. Other jurisdictions—in order to reduce the spread of the virus—have lifted their bans on plastic bags and single-use cups. And some states now allow spirit distillers to produce hand sanitizer. Meanwhile, North Dakota now recognizes expired occupational licenses.
On the health care front, many states now recognize physicians and other medical professionals who are licensed in other states. Colorado, California, and other states extended a grace period for lapsed licenses for retired doctors and nurses who want to practice. And the Department of Health and Human Services is lifting the rules preventing doctors and medical professionals to practice across state lines.
Many states also lifted certificate of need regulations, rapidly increasing health care capacity. HHS and many states have eased restrictions on the practice of telemedicine, too, thus allowing patients to see their doctors from the comfort and safety of their homes.
The Food and Drug Administration—an agency that has rightfully been shamed for the role it played in our current lack of COVID-19 tests and face masks—is eliminating some of its counterproductive rules. For instance, the agency is streamlining the process to expedite COVID-19 tests. It’s allowing private companies to market the COVID-19 test without prior approval as well.
The Trump administration is also relaxing some of its tariffs on certain medical equipment and supplies. And the Federal Emergency Management Agency lifted the protectionist Buy American Act, now giving Puerto Rico and other territories discretion to acquire personal protective equipment from non-U.S. sources.
The large number of rules lifted by federal, state, and local governments in response to this pandemic reveals the sad reality that many regulations serve little to no good public purpose. Hopefully, people will realize how counterproductive these rules were and will not allow them to be reinstated after the crisis is over. In the end, we’ll all be freer and safer.
Governments in the United States are restricting freedoms to unprecedented degrees in an effort to slow the spread of COVID-19. As dangerous as this expansion of power is, in some ways, federal, state, and local governments are also reducing their intrusions into our lives by cutting many regulations.
This deregulation falls into three categories: help people deal with the virus (including those who are confined to their homes with children who need to be home-schooled); help businesses stay open and cater to their consumers under these unusual circumstances; and free the private health care sector to better respond to the virus.
Here are just a few of the rules that were lifted to enhance our freedom and our safety:
In New York state, the government has suspended a regulation mandating that child care providers undergo criminal background checks. The state’s governor also eliminated almost two dozen other regulations, including those that artificially restrict the number of children allowed in day care facilities to ones that set minimum staffing requirements.
Many states have also lifted restrictions to home-based instructional policies. The Federal Communications Commission waived existing E-Rate rules to allow schools to issue Wifi hotspots or devices to students who lack internet access at home. And the U.S. Department of Education has eased rules that made it unnecessarily difficult for colleges and universities to shift classes online.
To help avoid shortages in stores, the Department of Transportation (DOT) announced a nationwide exemption to some rules forbidding most commercial truckers from driving more than 11 hours in a 14-hour span. The DOT also relaxed a rule requiring that drivers’ rest periods be a minimum of 10 hours; now each rest period can be split into two separate breaks. In Texas, trucks are now allowed to deliver both groceries and alcohol at the same time. Some states, like Alabama, are also allowing prescriptions to be filled for longer than 30 days. But the best deregulation of an unnecessary rule is that the Transportation Security Administration, at least during this crisis, now allows passengers to bring liquid hand sanitizer containers of up to 12 ounces in carry-on bags.
Many businesses that deal directly with the public may now cater to consumers in ways that were once forbidden. For instance, several states, including Texas and New Hampshire, now allow restaurants to deliver alcoholic beverages with carryout and delivery orders. New Jersey just allowed microbreweries and brewpubs to deliver beers. Other jurisdictions—in order to reduce the spread of the virus—have lifted their bans on plastic bags and single-use cups. And some states now allow spirit distillers to produce hand sanitizer. Meanwhile, North Dakota now recognizes expired occupational licenses.
On the health care front, many states now recognize physicians and other medical professionals who are licensed in other states. Colorado, California, and other states extended a grace period for lapsed licenses for retired doctors and nurses who want to practice. And the Department of Health and Human Services is lifting the rules preventing doctors and medical professionals to practice across state lines.
Many states also lifted certificate of need regulations, rapidly increasing health care capacity. HHS and many states have eased restrictions on the practice of telemedicine, too, thus allowing patients to see their doctors from the comfort and safety of their homes.
The Food and Drug Administration—an agency that has rightfully been shamed for the role it played in our current lack of COVID-19 tests and face masks—is eliminating some of its counterproductive rules. For instance, the agency is streamlining the process to expedite COVID-19 tests. It’s allowing private companies to market the COVID-19 test without prior approval as well.
The Trump administration is also relaxing some of its tariffs on certain medical equipment and supplies. And the Federal Emergency Management Agency lifted the protectionist Buy American Act, now giving Puerto Rico and other territories discretion to acquire personal protective equipment from non-U.S. sources.
The large number of rules lifted by federal, state, and local governments in response to this pandemic reveals the sad reality that many regulations serve little to no good public purpose. Hopefully, people will realize how counterproductive these rules were and will not allow them to be reinstated after the crisis is over. In the end, we’ll all be freer and safer.
Broken Markets: A Visual Odyssey Through All The Market’s Dislocations In 56 Charts
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.
Some highlights:
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.
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.
China Reports Surge In Divorces As Marriages Crumbled Under Lockdown, Dashing Hopes For ‘Baby Boom’
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.
US Sues To Unwind Altria’s $12.8 BN Investment In Juul
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.
