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In this Real Vision Daily Briefing, managing editor, Ed Harrison, and senior editor, Ash Bennington, answer questions from Real Vision subscribers, about markets, their respective journeys, as well as Real Vision itself. Ed shares his experience of working in the foreign service, and he describes how his time spent working in the fixed income markets caused him to become more receptive to Austrian economics. Ash discusses his journey of transitioning from working in fintech to becoming a financial reporter, and he also explores his passion for cryptocurrency.

Expanded patios have been key to survival for some restaurants, clubs, and entertainment venues able to make up for the lost indoor space due to public health orders limiting capacity, or, in some cases, outright banning indoor gatherings. With fall and winter steadily approaching, some restaurateurs are fretting the cold season as it could put them out of business, reported CP24. 

“If the next few months of COVID does not go away or they don’t find a solution or medication or something, it’s going to cripple the city for sure,” said Charles Khabouth, who operates Toronto-based Ink Entertainment, a company that runs dozens of clubs, restaurants, entertainment venues, and music festivals.

Ink Entertinament Properties 

Khabouth warned, “It’s going to get worse because come October, November, December, it gets cold, there’s no traffic, people are not on patios and people are not walking around.” 

To his point, heating degree day (HDD), a measurement designed to quantify the demand for energy needed to heat a building, will steadily increase in Canada and the US through mid-Oct. 

HDD Canada 

HDD US 

In Canada and certain northern parts of the US, cold weather could render outdoor seating or standing areas for restaurants or clubs useless, further pressuring cash flows as indoor spaces continue to be limited or banned. This poses a significant problem for operators that must shrink operations in the colder months as people stay home, unwilling to have a meal or drink in freezing outdoor weather. 

Ahead of the winter season, operators must choose to keep staff and operations running at full tilt or reduce the workforce in anticipation of collapsing demand come October, November, December, January, and February. 

Some restaurants are purchasing electric and gas heaters to keep patrons warm during the upcoming cold season – with those added costs, does that mean operators will pass it along to patrons? 

Here’s the next question: Will Old Man Winter lead to an even larger bust cycle of restaurants? 

Authored by Bill O’Reilly,

A friend of mine has a sign on his lawn that says “Black Lives Matter.” Since I grew up with him in Levittown, New York, where blacks were not allowed to purchase homes, that piqued my interest.

He explained to me that justice is important to him and he believes African-Americans are denied a fair shake in America.

Millions of people believe that and their opinions should be respected.

I see the justice issue as more about poverty than skin color at this point in history.

My opinion should be respected as well.

Then I asked my friend if he was aware of the philosophy behind the Black Lives Matter movement. I mean a sign is one thing, a well thought out political plan is quite something else.

Most Americans, including my boyhood chum, have no clue.

Enter Alicia Garza, one of the founders of the Black Lives Matter Global Foundation and a proud Marxist, and we’re not talking Groucho here. Nope, Alicia is a follower of Karl Marx, one of the architects of communism. She freely admits that.

Ms. Garza is also an “opinion contributor” for USA Today and she lays it all out there – if you read between the lines.

On August 30, Alicia Garza wrote this:

“We are in the midst of a black rebellion, spurred by decades of unequal treatment and undue violence against our communities…

“My work is about uprooting structural racism from every aspect of our society – our economy, our government and our communities.”

You can read “uprooting” as “overthrowing” because that is exactly what the Black Lives Matter Global Foundation wants to do. The well thought out plan is to use racial disenchantment to batter the entire “white” power structure and eventually destroy the capitalistic system.

It could work because few understand the end game including the Democratic Party, and more than a few corporations that are pumping millions of donated dollars into the Black Lives Matter “movement.”

The smoke signals are key.

The far left including BLM are now demanding “economic” justice.

That means onerous taxation on the affluent and the seizure of private property through a series of “wealth taxes.”

Then there’s “housing justice.”

That means the government pays for sheltering low-income Americans.

“Education justice” means free college.

“Worker justice” means guaranteed jobs and a “living wage.”

You get the idea.

A central government run by “woke” activists would provide pretty much everything and would confiscate private and corporate wealth to pay for it.

So that’s what’s in play and, again, the pro athletes, the casual liberal folks, the corporate virtue-signalers have no blankin’ clue.

However, some in the media do understand but will not report the truth for fear their bosses will harm them.

So the next time you see a BLM sign please consider there is much more to this movement than words on paper or graffiti on a wall. Marxism is now being slyly mainstreamed in America. Somebody resurrect Paul Revere.

While Wall Street debates if it is time to move on from the Big Short 2.0 (malls) to the Big Short 3.0 (hotels), the broader commercial real estate market continues to implode and nowhere more so than in ground zero of the covid/riot crisis, New York City, where CRE deals have hit a brick wall as the pandemic continues to roil the local economy.

According to the Real Estate Board of New York, investment sales totaled $10.5 billion across 1,229 recorded deals in the first half of 2020, a 32% drop in transaction volume and a 54% plunge in total consideration compared to the first half of 2019, and a record low since the Real Estate Board of New York began reporting the data in 2015.

Apartment buildings suffered the biggest drops in prices, at 50% on average. Offices and hotels saw decreases of 28% and 37%, respectively, while prices for retail properties were flat.

Some more details:

• Citywide investment sales transactions declined 32%, consideration declined 54% and the average price declined 32% year-over-year.
• Multifamily rental, elevator transactions declined 7%, consideration declined 56% and the average price declined 53% year-over-year.
• Multifamily rental, non-elevator transactions declined 32%, consideration declined 42% and the average price declined 13% year-over-year.
• Office transactions declined 27%, consideration declined 47% and the average price declined 27% year-over-year.
• Garages/gas stations/auto transactions declined 31%, consideration increased 18% and the average price increased 71% year-over-year
• Vacant land transactions declined 30%, consideration declined 19% and the average price increased 15% year-over-year.
• Industrial transactions declined 37%, consideration declined 60% and the average price declined 37% year-over-year.
• Hotel transactions declined 70%, consideration declined 81% and the average price declined 37% year-over-year.
• Retail transactions declined 27%, consideration declined 27% and the average price remained flat year-over-year.
• Commercial condo transactions declined 68%, consideration declined 98% and the average price declined 93% year-over-year

“We continue to see the devastating and long-lasting impacts the pandemic has had on the health and stability of the New York economy,” James Whelan, the trade group’s president, said in a statement Friday.

“Real estate is a fundamental driver of the city’s economy”, he added summarizing perfectly just why NYC is in so much trouble.

The total tax revenue for the City and State generated from investment sales was $314 million, with $62 million in NYS transfer tax and $252 million in NYC transfer tax. Total tax revenue in the first half of 2020 was down 49% from the previous 6 months and 58% from the previous 12 months, suggesting that NYC will likely hike taxes on investment sales to make up for the shortfall, resulting in even greater declines in investment sales.

According to the REB NY, the largest transaction in the first half of 2020 was the $978 million sale of the Lord & Taylor Building, 424 5th Avenue, from WeWork to Amazon in March. As Bloomberg notes, many deals have been frozen as the gap between what buyers are willing to pay and what sellers will accept has widened to a record.

Tapping into the candidate of the 2016 campaign who repeatedly pledged to “bring back” US companies to American soil, the president has made some bombshell Labor Day remarks strongly hinting at decoupling the US and Chinese economies. 

“So when you mention the word decouple, it’s an interesting word,” Trump introduced at a White House news conference, and added:

“We lose billions of dollars and if we didn’t do business with them we wouldn’t lose billions of dollars. It’s called decoupling, so you’ll start thinking about it,” he said.

He had noted that China is buying more US agricultural products, suggesting an American loss wouldn’t be so great if such a dramatic strategy were pursued.

He further teased the possibility that American companies that outsource to China won’t get crucial access to federal contracts, though it appears he’s in the process of “thinking” about it, as many news sources noted. 

Furthering this theme, he said of the US economy that if re-elected “we’ll make America a manufacturing super-power.”

“I do not want them to build a military like they are building right now” — this is as bellicose as I’ve heard Trump be about China pic.twitter.com/8fNBn0d1Xn

— Aaron Rupar (@atrupar) September 7, 2020

He called it “the most important election in history” given that if “Biden wins, China will own this country.”

In perhaps the most bellicose statements he’s made on China thus far, Trump linked China’s expanding military capabilities to its lucrative trade deals and technology it can access from US companies: 

“We’ll end our reliance on China once and for all, whether it’s decoupling or putting in massive tariffs like I’ve been doing already. We’re gonna end our reliance on China, because we can’t rely on China. I do not want them to build a military like they are building right now – they’re using our money to build it.”

“We’re rebounding much more quickly from the pandemic” than other western economies, he underscored during the remarks.

Speaking of military readiness, another interesting section of the speech indirectly referenced the anonymously sourced claims that Trump recently insulted the troops: “I’m not saying the military’s in love with me. The soldiers are,” Trump said. “The top people in the Pentagon probably aren’t because they want to do nothing but fight wars, so all of those wonderful companies that make the bombs and make the planes and make everything else stay happy.”

Submitted by Masao Muraki, strategist at SMBC Nikko Securities

On 3 Sep, US tech stocks plunged and the VIX rose. Meanwhile, US bank stocks outperformed the S&P500 by 2.8%. Since March we have highlighted the possibility that the Fed’s measures to head off a liquidity crunch and collapse in asset prices (panic selling divorced from fundamentals) could in fact fuel a melt-up in asset prices (buying spree divorced from fundamentals).

The Fed’s balance sheet began to shrink from June, but tech stock valuations have continued to soar amid improving economic sentiment (ISM/PMI).

We attribute this to a resurgence in risk taking amid low super-long interest rates by investors with fixed liability burdens (who need high yields to meet these future obligations) such as pension funds, life insurers, and retail investors.

While the market environment itself has not changed, namely a peak-out in Covid infections, improvement in economic sentiment, and low interest rates, we believe the following factors triggered the 3 Sep stock market plunge:

1. the Fed has recently  adopted a strategy that considers financial stability;
2. long rates have risen temporarily;
3. the US presidential election is approaching (the biggest risk is a hair-tight race with disputed balloting);
4. rising tensions between the US and China;
5. growing concerns of a tech stock bubble forming.

We have received a number of inquiries from equity investors who are increasingly concerned about inflation due to rising expected inflation rates, Berkshire Hathaway’s selling of some US bank stocks and buying of commodity-related names, etc. Amid the prolonged low inflation and rate environment, for investors who are overwhelmingly overweight on growth stocks a resurgence in inflation represents a tail risk on par with the dislocation triggered by the GFC. However, we believe the strong recovery in value stocks such as life insurers in Aug indicates that investors have been establishing hedge positions to some degree.

On the flip side, we have also had many questions from fixed-income investors on the CECL reserve build by US banks in terms of when defaults may trigger drawdowns. They are notably cautious on the economic outlook, including the US-China tension.

In this report we discuss how the Fed plans to address the imbalance of financial markets.

Fed’s near-term stance: Wait-and-see mode, further easing put off till things get worse

The Fed expanded its balance sheet significantly to tackle the liquidity crunch back in Mar (jump in bank funding costs, Treasury market liquidity dried up) but started paring back from Jun after liquidity improved.

Beefed-up forward guidance and YCC (yield caps or targets, or YCT) essentially appear to have been kicked down the road for now because 1) the economy and financial markets are getting back on track, in part thanks to government help, and 2) bond markets are not expecting a Fed rate hike through end-2023. That said, the minutes for the most recent FOMC, released on 19 Aug, takes a pretty grim tone on the outlook ahead and the Fed seems ready to consider further action if things head south.

Given that the Fed expects economic conditions to worsen and banks are tightening up lending standards severely, we think it is unlikely the Fed will expend any monetary policy bullets to head off a surge in stock prices. At most they may try to talk it down.

Fed’s longer-term stance: How to address the imbalance in financial markets

On 27 Aug, Fed Chair Powell announced a new monetary policy framework in his Jackson Hole speech: the Fed will adopt average inflation targeting. This strategy amounts to trying to make up lost inflation when it misses the 2% target by allowing it to overshoot at other times depending on conditions (Figure 12).

The framework has been debated in earnest since Jan 2019. What was new this time: 1) a focus on maximizing employment in line with the receding risk that employment growth will trigger inflation; 2) positing that stabilizing the financial system is the key to optimizing both employment and prices (based on the example of several recessions in the past). The Fed will normally target maximum employment, but it has tacitly added an emergency escape clause that the Fed may give up on optimizing both employment and inflation in the short term when financial system imbalances are elevated (Figure 11 comments).

Regarding point 2) chairman Powell has pointed out since 2018 that the disruption in financial markets in the past two recessions (three if you count the current one) were exacerbated by excessive risk taking and the fallout from that more than inflation. Members have argued in three past FOMC meetings (Dec 2019, Jan 2020, July 2020) that prolonged low interest rates can fuel excessive risk taking and may worsen financial market imbalances, and that the Fed needs to change its stance on monetary policy in addition to macroprudential policy (regulation, supervision).

In light of the Fed hiking its view of financial system vulnerability in May from moderate to significant, we wrote the following in our 26 June report: We expect the Fed to address the following once the economic crisis passes:

1. removal/reduction of the easing measures,
2. reinstatement/increase of bank capital ratios through implementation of tough stress tests in light of recent developments,
3. increase in CCyB in light of imbalances such as excessive corporate sector debt,
4. identification of causes of liquidity crunch (vulnerabilities) and crafting of new regulations/supervision (may not be achievable by Fed alone), and
5. repositioning of the relationship between monetary and macroprudential policy (monetary policy that takes into account financial imbalances that have a major impact on prices and employment).

Even if tech stocks plunge, the impact on the financial system should be limited (though it could have some adverse impact on the wealth effect). The most important factors for financial stability are the debt-to-GDP ratio and credit prices.

Excess liabilities for non-financial companies are rising further as a result of Covid-19…

… but credit spreads  are tightening due to the Fed’s policies (Figure 1).

As the coronavirus impact eases, the Fed could fine-tune its balance sheet strategy to address financial market imbalances (even more carefully than before). Investors should closely monitor the impact on Fed policy of the melt-up in asset prices and excessive corporate debt problem.

An internal FAA memo, viewed by WSJ, reveals another crisis that could be developing at Boeing, and no, it does not involve the 737 Max that remains grounded. New details are emerging, the company’s 787 Dreamliner could have components within its fuselage that do not meet design standards. 

787MAX: The FAA is reviewing persistent Boeing quality-control lapses at a 787 Dreamliner factory: WSJ

— zerohedge (@zerohedge) September 7, 2020

The Aug. 31 FAA memo stated quality-control lapses at certain Boeing 787 Dreamliner production lines, located in South Carolina, could date back to at least a decade ago. The planemaker told aviation authorities that certain parts failed to meet its own “design and manufacturing standards.” 

The parts in question are “nonconforming” sections of “rear fuselage, or body of the plane, that fell short of engineering standards,” WSJ said, citing the memo. Sources told WSJ these revelations might spur accelerated inspections that could cover 900 of the 1,000 jets produced since 2011.

Boeing told aviation regulators that quality lapses of certain fuselage parts do not pose an immediate threat to the air safety of the wide-body jet airliner that is mainly used for international flights. 

These new developments come as Boeing pulled eight 787 Dreamliners in August for repairs, discovering they did not meet structural-soundness “requirements for safe flight and landing,” according to the FAA memo. 

Compound these developing 787 Dreamliner issues with the two fatal accidents of its narrow-body 737 MAX, and Boeing is experiencing widespread manufacturing quality-control lapses. 

Boeing has notified all airlines with 787 Dreamliners about the problems, the spokesman told WSJ. The memo said Boeing had requested more time to resolve some of these issues. 

According to one person briefed on the FAA’s discussions with Boeing, there is a new focus on why manufacturing breakdowns occurred and how computerized safeguards failed to alert production crew on parts that failed to meet design standards. 

WSJ said as Boeing engineers investigate flight records to identify 787 Dreamliners with possible issues, the FAA already has knowledge of one of the defects: “the planemaker didn’t test how it produces shims, or material that fills gaps between barrel-shaped sections of the jets’ fuselages, to ensure they meet requirements.” The shims are manufactured at Boeing’s factory in North Charleston, South Carolina. 

On top of 787 Dreamliner and 737 Max design woes, Boeing has seen six straight months (as of August) of airlines canceling narrow and wide body plane orders as the virus-induced downturn in air travel has doomed the industry for the next several years. 

The release of the WSJ story describing Boeing’s latest woes comes as the US is on holiday with financial markets closed. 

American Airlines has come under fire after announcing that flight attendants are now allowed to wear Black Lives Matter flair on their uniforms while on duty, angering some employees – including some whose spouses or relatives are cops that say BLM promotes or condones violence, according to the New York Post.

“I take offense to this,” one veteran flight attendant told management in an email obtained by The Post. “Serious offense. My husband is a LEO (Law Enforcement Officer), as was my deceased father and as far as I’m concerned ALL LIVES MATTER.”

“I am completely disgusted at the fact that we can’t show support for our GOD, our COUNTRY, our LEOs but when it comes to BLM organization (which is controversial in itself), American Airlines says that’s obviously different,” she continued. “And we can. How is that right? Well, I don’t feel included.”

#AmericanAirlines Instead of supporting Blue Lives or All Lives, this company is supporting a Hate group! BLM pins are being made for all their workers to wear! A Flight Attendant asked if they could wear a Blue Lives Matter pin instead, they were told, NO! COMMENTS? pic.twitter.com/wuT4rTqPVG

— sharannp (@sharann1gmailc1) September 6, 2020

Another flight attendant who asked to be identified only as John said staffers who refuse to wear the pin will now “be ostracized and labeled as racist,” and described BLM as “a terrorist organization that promotes violence to further their agenda.”

“If this pin is sanctioned, I will wear my NYPD pin supporting the police department,” he said. –New York Post

The airline’s senior vice president for flight services, Jill Surdek, defended the decision, saying she had been “taken aback” by “widespread” complaints from black employees about “implicit bias and direct racism from customers and other team members.”

“American is truly committed to having an inclusive culture that is welcoming to all and a reflection of our country and world,” said Surdek, in an email, adding “One symbolic way to show our support is through a uniform pin.”

“We are working with our Black Professional Network on designing a specific pin that may be worn with the uniform. In the interim until this pin is produced, to recognize the significance of this moment in history, we are allowing people to wear a Black Lives Matter Pin.”

In a statement to The Post on Sunday, the airline said the company has employee “resource groups” working on several pin designs for various causes, including charitable groups that include UNICEF and others.

“Our Christian, veterans and LGBTQ groups, for example, have developed their own pin that can be worn as part of the uniform,” the statement said.

American said it views the BLM pin push “not as a political cause but as a universal cause about humanity and equality. Fundamentally, Black Lives Matter is an expression of equality.”

“It doesn’t mean other lives don’t matter, rather that in our society black lives should matter and be valued the same as others. That’s not political.” –New York Post

According to the report, angry AA employees think their airline jumped on the BLM pin thing to keep up with Delta Airlines, which has reportedly designed its own BLM pin for flight attendants to wear.

A top aid to former White House Chief of Staff John Kelly has become the latest former Trump administration official to deny The Atlantic‘s hit-piece claiming President Trump called soldiers ‘losers’ and ‘suckers.’

Speaking with Breitbart News, former Deputy White House Chief of Staff Zach Fuentes suggested that Kelly would never have stood by while Trump disparaged fallen Marines, and that the paper may have conflated comments Trump made the following day.

“You can put me on record denying that I spoke with The Atlantic,” Fuentes said on Monday. “I don’t know who the sources are. I did not hear POTUS call anyone losers when I told him about the weather. Honestly, do you think General Kelly would have stood by and let ANYONE call fallen Marines losers?“

Life experience should tell all of us that if a major part of a story is proven false, the rest of the claims from the same author should be considered garbage, especially with anonymous sources. https://t.co/AK8hldmEsG

— Scott Adams (@ScottAdamsSays) September 7, 2020

Fuentes added that he thinks The Atlantic‘s sources “are unlikely first hand accounts,” adding “They are conflating those people from something the day after.“

Fuentes also told Breitbart News he is upset that Trump has been speaking negatively about Kelly.

“On a separate note, I am disappointed to see POTUS talk about General Kelly so negatively in the middle of being accused of saying negative things about the military,” Fuentes said. “If anyone understands selfless service, it’s General Kelly.”

The fact that Fuentes—Kelly’s closest ally—is now publicly denying the report from The Atlantic is a monstrous strike against the credibility of the report. Several Trump critics, including former National Security Adviser John Bolton, have also denied this happened.

Every person who was allegedly in the room who has spoken up so far has denied the account of what happened. Fuentes’ denial, reported here exclusive on Breitbart News first, deals another strike against The Atlantic’s credibility. –Breitbart News

“I also think any President, regardless of political affiliation, deserves to have candid and private conversations with trusted advisors,” Fuentes continued. “If the President decides to talk about it, that is his right, but generally, I don’t think it is my place to divulge private conversations I’ve had with him.”

In other words – Kelly and his top aide, neither of whom are known for being MAGA types, are supporting the president over The Atlantic.

Meanwhile, Atlantic Editor in Chief Jeffrey Goldberg conceded that they may have gotten part of the story wrong. Read about that here at The Federalist.