Author: admin

Authored by Bruce Wilds via Advancing Time blog,

Sunday on Meet The Press the moderator touted United States Postal Service (USPS) as the most respected institution in America. He even went further claiming it has been for decades. He then went on to attack President Trump on a series of fronts. This includes what he claims is Trump’s politicizing the additional funding needed by the USPS because it supports the idea mail-in voting can be done in an efficient manner. This of course was immediately confirmed and expanded upon by those on the show. Yes, Trump is making an effort to discredit mail-in voting claiming the system risk widespread fraud but he is not alone in thinking mail-in voting is not the way to go or the USPS is badly in need of reform.

USPS Claims It Cannot Guarantee Mail-In Ballots

Anyone asking whether something is going on behind the scenes can imagine that The Washington Post owned by Amazon CEO Jeff Bezos is partially behind focusing the direction of this dust-up. The Government Accountability Office (GAO) has made it clear that neither one-time bailouts nor higher prices for mail will save the USPS. For over ten years the GAO has designated the USPS as “high-risk.” This term is used to describe an agency or department that is vulnerable to waste, mismanagement, and in need of reform. With this in mind, it has been noted that for years Amazon has been a big beneficiary of having its packages delivered at below cost in a deal hidden from the light of day. This has given it an unfair advantage over competitors and boosted Amazon into a major force while at the same time damaging and destroying businesses across the nation.

While I never assume those reading this article will agree, I would like to argue, as I have for years, the USPS needs a total makeover.  It has become a bit of a dinosaur and it is time to rethink its mission. To be clear, I’m not claiming the USPS has not changed over the years. It has evolved into something far different than originally planned but in recent years it has not changed fast enough. For example, in 1917 the USPS outlawed the mailing of people, this was several years after a young child was mailed from her parents to her grandparents in Idaho. While that was a good move, changes to accommodate the lessening importance of first-class mail is lagging.

Some Efforts to Deliver Mail Cost To Much

It may be hard for some people to believe but since, “legally, the postal service has to deliver mail to all Americans” some of their efforts seem a bit much. The USPS uses mule trains to deliver about 4000 pounds of mail, food, supplies, and furniture to an Indian village of 208 people at the bottom of the Grand Canyon. Because some of the mail is perishable, the post office where this route originates has walk-in freezers. The USPS also employs a 45-foot mail boat to deliver mail to passing ships sailing on the Detroit River. This isn’t the only place where people receive their mail by boat. In Alabama’s Magnolia River, 176 homes on the 31-mile route receive their deliveries from a boat that pulls right up to fixed mailboxes on their docks.

To be clear, the USPS is huge and it is also a money-losing entity and has been for years. In 2015 it had 617,254 active employees and today it is the operator of the largest civilian vehicle fleet in the world. The United States Postal Service delivers to every address in America, from the biggest cities to the smallest hamlets. Many Americans see it as a vital part of the nation’s critical infrastructure. On its website, it highlights the size and scope of its operations. This includes such things as the number of retail post offices, the number of people it employs, and even the quantity of tires it purchased last year. A statistic that is often overlooked is that almost 100% of these active and retired postal workers are also voters, this results in a great deal of political pandering.

In an article published by Reason, Eric Boehm reports the USPS has lost $78billion since 2007. Because the pandemic has crushed mail volume it may lose as much as $13 billion this year. When looking at these figures it is easy to see their business model is “not financially sustainable,” a government audit has concluded. This is why the GAO has called on Congress to reevaluate all aspects of the Postal Service’s operations. To be clear, this is an institution that cannot even bring itself to drop Saturday delivery. With this in mind, how can we expect it to look at more radical changes? Still, in March, Congress extended a $10 billion line of credit to the USPS as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Over time the situation at the USPS has worsened due to declining mail volume, increased employee compensation and benefit costs, and increased unfunded liabilities and debt. A good indicator of the Postal Service’s structural problems is that even as the amount of First Class mail it delivers has declined by 44 percent since 2006,  the number of postal workers has grown. Another concern is the growing shortfall in funds to pay for pensions and other benefits for retired workers.

At the end of 2019, the pension fund had $50 billion in unfunded liabilities. Now the fund that covers health care expenses for retired postal workers is facing a $69 billion unfunded liability.

House Democrats are now seeking a $25 billion Postal Service bailout in the so-called “phase four” stimulus bill lawmakers are currently negotiating.

While some people don’t see this as a huge amount of money, it is.

This constitutes $75 for every man woman and child in a country where many people don’t even bother to go to their mailbox for weeks at a time because all they get is junk mail. Still, for old widow Jones who looks forward to Fred dropping off her mail six days a week, a few dollars more is a small price to pay to keep this inefficient dinosaur afloat.

The rise in violent crime this summer across some of America’s top metro areas continued over the weekend, with dozens of shootings seen in Chicago and New York. 

NBC Chicago reports violent crime surged over the weekend, with some of the highest numbers recorded for the month. More than 60 people were shot and five died of their injuries. The chaos started early Friday evening and continued into Monday morning. The most recent fatal shooting was early Monday when a 29-year-old was gunned down on the 2400 block of South Trumbell.

The weekend before, Chicago observed 40 shootings and four deaths. A noticeable tick up in violent crime has been realized on a week over week basis.

Crime stats website HeyJackass! provides visuals of the crime spike this past weekend. On a 30 day basis, 415 people have been shot, and 69 killed. 

Much of the violent crime this year is concentrated in the Southwest, Sout Side, and West Side parts of the metro area. 

Someone is shot in Chicagoland every two minutes and ten seconds, while a murder is seen every eleven hours and 30 minutes. 

Guns are used in a majority of homicides. 

Most of the people shot this year sustained upper body trauma. 

While Chicago continues to spiral out of control, New York recorded at least 50 shot and six deaths this past weekend.

As gun violence surges in the Big Apple, President Trump weighed in on Twitter:

“Law and Order,” Trump wrote on Twitter. “If NYC Mayor [Bill de Blasio] can’t do it, we will!”

Chicago, New York, and other top metro areas have seen a jump in violent crime since the virus-induced recession began, followed by months of social unrest. From May to June, homicides in 20 major cities soared by 37%, led by Chicago, Philadelphia, and Milwaukee. 

The increases coincide with depressionary unemployment, as liberal-run metro areas implode, forcing people to flee to suburbia. 

By Tony Pasquariello, global head of Goldman HF Sales

Starting in the third week of February — and, from all-time highs — S&P dropped 35% in just 23 trading days. In that moment, we were confronting the greatest collapse of the global economy in modern history — and, sitting in the US, specifically in New York, you knew with certainty that the crisis was about to hit your shores. 

If someone had told you back then that just five months later (a period covering less than 100 market sessions) the stock market would be within a whisker of those highs — without a vaccine or treatment yet in hand — you’d think they were nothing short of crazy. 

Again, this was a May of 1942 moment: things couldn’t have looked bleaker, yet what’s followed a historic collapse in risk assets has been a historic recovery.

Ex-post, one can rationalize the retracement: the composition of the stock market is skewed towards industries that don’t necessarily mirror the cyclical growth, the nature of stock operators is to look forward and the collective policy response has been both unprecedented and unbounded.

As we sit here today, with consideration for current asset values and the enormous set of challenges in front of us, let’s hope the GS call proves correct: global GDP growth should swing from -3.3% in 2020 to +6.5% in ’21 (link) … with no rate hikes until 2025 … and, along the way, the balance sheets of global central banks grow larger and larger.

Over the next month, we’ll enter a new phase of the game, as market participants shift from a policy trade to a proper re-opening trade; so, get your R&R in now, as the period from Labor Day through election day will surely be spirited.

What follows from here is quick points and charts. As always, a taker of your views and feedback:

1. One subplot of the past week has been significant stress on consensus positions across asset markets. In turn, within the equities space, the value question is coming up a lot these days. With respect for the structural trajectory of secular growers, I’d argue one should have tactical upside on value to position for “right tail” outcomes.  Given the formal GS view on vaccine (GIR expects at least one vaccine approved by end-’20 with wide distribution by the end of 2Q’21, link) … as well as the broad positioning setup (the market has shown its hand in the past week) … one can see a scenario where value (e.g. Europe, US small cap, transports) benefits the most on a vaccine-driven cyclical upgrade, if only short-term.  These are not the best houses on the block, but that’s essentially the point. 

2. The interplay between real rates and the stock market is a well-worn truism. At some point, it’s fair to ask: how much further can real rates go from here?  The informal blink from Dominic Wilson in GIR: given the Fed’s anchoring, it’s reasonable to expect a further drop in front end real rates; further out the curve things are likely to be a bit more sticky.  Now, while I understand that financial markets live in the future, I find this a little interesting: today, 10yr real rates are … -1%.  I don’t know how much further they can go.  But, I do know that back in March of 2000 they were … +4%.  my point here: we live in a world of extremely easy financial conditions with central banks who aren’t likely to change directions for a long, long time — that’s a positive undertow for risk in an absolute sense, even if scope for further drops in long-dated real rates is apt to be more constrained. 

3. As the US election becomes a more dominant market variable in coming months, one can argue that a Democratic administration — while perhaps not changing policy on China — may see some more certainty on trade policy.  This comment from GIR is on point: “while the dominant focus thus far has been on the potential tax changes from a Democratic ‘sweep,’ the chances of shifts in international and trade policy have received relatively less attention. The threat and imposition of tariffs, especially against China, was a key market dynamic in 2019 in particular. Even if the China-US relationship remains fractious, it is likely that a Biden administration would rely less on this tool and that the difference in policy between a Trump and a Biden administration could be significant on this front.”

4. within quick points, some very quick points:

i. the outcome of the fiscal stimulus negotiations remains unclear, which introduces downside risk to the market … that said, the official GIR view is a $1.5tr package becomes law in August … if it spills into September, the tail risks grow in both directions (link).

ii. ESG remains a theme that is still attracting serious capital … the charts in the attached email give a very good feel for the magnitude and trajectory of these inflows.

iii. for better and worse, realized volatility is melting in equities … on the margin, this is a bullish development (demand from vol control strategies — and, you can start to own call wings again at reasonable levels of implied).

iv. yes, the transports have underperformed the broader market in recent years … then again, in the context of everything that’s going on, is it not a little remarkable that this sector is just 5% off the all-time highs?

v. at some point, I suspect EUR strength will become an issue for European equities … I still like it for a “vaccine trade,” but with the understanding it’s just a trade.

vi. AAPL is a few good days away from a $2tr market cap … as pointed out by sales & trading colleague Pete Callahan, it was 38 years from IPO to $1tr … and would be just about two years from $1tr to $2tr.

vii. I saw this on a Boston sports blog: home runs hit by the great Hank Aaron, grouped in five year intervals:

– age 20 – 24 … 150

– age 25 – 29 … 202

– age 30 – 34 … 168

– age 35 – 40 … 203

5. It’s been a long road to recover the pre-GFC peaks in US housing stocks, but the retracement is now complete:

6. As mentioned before, on most any traditional metric — P/E, price/book, EV/sales — stocks are expensive.  The one exception, of course, is when stocks are compared with the bond market.  Thanks to Cole Hunter in GIR, the moral of this story is the spread between the earnings yield on S&P and 10yr nominal rates is currently 368bps … while off the wides, that compares to an average spread over the past 44 years of 230bps:

Pandering big-city politicians apparently still haven’t figured out that letting violent criminals out of prison during an economic downturn, and then not just asking, but demanding, that they wear masks whenever they’re in public is a recipe for disaster. But just in case you, dear reader, have recently started to question the progressive orthodoxy that imprisoning criminals during a pandemic is deeply unethical, here’s the New York Daily News to remind you just how badly treated prisoners are. 

The mainstream press and “liberal” publications would have readers sympathize with the prisoners, and rationalize the riot as an uprising prompted by COVID-19 outbreaks, and the strict measures adopted to prevent them. Prisoners have taken to rioting for better treatment. During a particularly deadly prison riot in San Diego yesterday afternoon (California’s prison system is notorious throughout the US for the ruthless gangs that run the state’s pens) a group of 20 prisoners surrounded and attacked six prison guards in broad daylight.

While the Daily News report offered scant details on the assault, it’s fair to say that the temporarily dominant prisoners savagely bludgeoned and stabbed the group of officers.

The six officers suffered stab wounds, lacerations and possible broken bones and were taken to a nearby hospital. Two inmates were also hospitalized and several others were treated on prison grounds.

The California Department of Corrections and Rehabilitation did not immediately return a request for updated information on their conditions.

Such brutal treatment, however, hardly compares to the indignities and depredations suffered by the prisoners on a daily basis. Imagine being told when you can eat, when you can sleep, when you can shower, instead of binge-watching Friends for six hours on a Wednesday while swearing to your girlfriend that you’ve been looking for work. Two of the prisoners were also hospitalized for wounds sustained during the ‘protest’, while others were treated at a prison infirmary.

A group of inmates at a San Diego prison allegedly attacked corrections officers in the recreation yard Sunday afternoon, according to the California Department of Corrections and Rehabilitation.

About 20 inmates were in the yard at the Richard J. Donovan Correctional Facility around 4 p.m. when “some began an attack on six correctional officers,” prison officials said.

The inmates allegedly ignored directions to stop and officers resorted to “less-lethal measures,” although the CDCR did not specify what said measures include. A warning shot was also fired.

The genesis of the incident is now being investigated. We’re definitely curious to see what the prison’s investigative unit turns up.

Prison riots aren’t unique to the US, but throughout the sweep of modern history, when stability wavers, institutions like prisons are often the first places where order deteriorates, supplanted by chaos, and all the brutality that comes with that.

Apparently, Donovan (the prison where the riot occurred) is no stranger to this type of violence, even before the COVID era. A similar riot unfolded last April.

While CNN covered that last incident, we didn’t see a story this time around.

I realize it’s a Sunday afternoon, but is there really no San Diego media reporting yet on the riot at Donovan prison in Otay?

— Xennialblade Chronicles 😷 (@CorporaCallosa) August 17, 2020

Which begs the question: is covering prison riots ‘racist’ now?