Markowski: Secular Nature Of The Stock Market & Fed’s Uphill Battle

Markowski: Secular Nature Of The Stock Market & Fed’s Uphill Battle

Tyler Durden

Thu, 05/14/2020 – 15:15

Authored by Michael Markowski via RealInvestmentAdvice.com,

The secular nature of the stock market is well documented.

The S&P 500’s rally from its March 2020 low to within 13.2% of its 2020 high has been primarily fueled by the US Federal Reserve’s monetary stimulus. The Fed has and continues to spend trillions to provide the economy with liquidity and to artificially prop up the markets. The rally will prove to be futile and based on my calculations below the S&P 500 will have declined by 85.3% when it reaches its final bottom in Q4 2022. There is no amount of monetary or fiscal stimulus that will enable investors to escape the secular bear which replaced the 2009-2020 secular bull market on February 20, 2020.

The stock market has been secular since its origin in 1802. Every secular bull has been followed by a secular bear and vice versa. The minimum declines from all of the secular bull peaks to the secular bear troughs have been 60%.  Secular bulls and bears are the nature of the stock market. You can’t have one without the other.

Secular Bulls & Bears

Secular bulls and bears are defined by “public” or consumer sentiment. Investor sentiment is completely irrelevant to a secular bull or bear. Neither government fiscal or central bank monetary stimulus change the mood of the public from negative to positive.

The blue line in the chart below depicts the growth trend for the Dow Jones index over the last 101 years. The 7.5% growth trend is the equivalent to sum of the percentage changes for population growth and inflation. For those periods in which the public is optimistic, such as the roaring twenties, the index for an extended number of years above the trend line. When public becomes pessimistic, as was the case after the 1929 crash, Dow trades for extended number of years below its 7.5% trend line.

The 1949 to 1966 bull in the above chart was due to the public becoming optimistic after the end of World War II.  The 1966 to 1982 secular bear included the Vietnam war, interest rates of 20%, the highest inflation rate since the civil war and the first and only resignation of a US President.

The circumstances around the crashes of the markets from their 2020 all time or multi-year highs and the ensuing collapses for the economies of the US and 12 other countries are eerily similar to the US’ 1929 crash.  The crash of 1929 resulted in the US unemployment rate surging by 400% from September 1929 to March 1930 and doubling to 800% in September 1930.  Similar to 2020, the President and US government in 1929 were proactive to mitigate damage to the economy.   Despite the enactment of fiscal stimulus consumers still cut back their spending.   See 1929 and 1930 excerpts from Herbert Hoover Presidential library archives:

1929

After the stock market crash, President Hoover sought to prevent panic from spreading throughout the economy.  In November, he summoned business leaders to the White House and secured promises from them to maintain wages.  According to Hoover’s economic theory, financial losses should affect profits, not employment, thus maintaining consumer spending and shortening the downturn.  Hoover received commitments from private industry to spend $1.8 billion for new construction and repairs to be started in 1930, to stimulate employment.

The President ordered federal departments to speed up their construction projects and asked all governors to expand public works projects in their states. He asked Congress for a $160 million tax cut while doubling spending for public buildings, dams, highways, and harbors.

1930

Praise for the President’s intervention was widespread; the New York Times commented, “No one in his place could have done more. Very few of his predecessors could have done as much.”  Together, government and business spent more in the first half of 1930 than in the entire previous year. Still consumers cut back their spending, which forced many businesses and manufacturers to reduce their output and lay off their workers.

Common Denominators

The common denominator for 1929 and 2020 crashes and collapsing economies for the US and a dozen other countries is what separates them from all of the other notable market crashes. That pivotal piece is the extreme and immediate polar opposite change in sentiment for an entire population within days of a crash commencing.

Consumer sentiment went from extremely positive with unemployment at an all-time low in 1929 to extremely negative by the beginning of 1930.   The University of Michigan’s recent US consumer confidence survey results is a great example.   The chart below depicts the sudden and significant decline in consumer confidence in April 2020 as compared to February 2020’s reading which was the highest since 2002.

Consumers worldwide are becoming increasingly pessimistic and are retrenching due to their concerns about being infected with the Covid-19 Coronavirus and also about losing their jobs.  The chart below depicts the 500% increase in US unemployment from February 2020 to April 2020.

The recovery from the fears of pandemics job losses will likely take years for consumers to overcome.  Thus, the probability is extremely low that consumer sentiment will reverse from extremely negative to even somewhat positive in the current decade.

What To Anticipate

Investors should anticipate that the PE multiples for all shares will contract to near historical lows by 2022. The chart below depicts the contractions and expansions of the PE multiples of the S&P 500 for the 1966-1982 secular bear and the 1982 to 2000 secular bull markets respectively. For seven of the 16 years for the 1966 to 1982 secular bear PE multiples were below 10 and the PE bottomed at 6.79 in 1980. For the 1982 to 2000 secular bull the PE reached a high of 34 in April 1999. The fall of the Berlin Wall and China opening its economy in 1990 resulted in the 1982-2000 secular bull being the longest ever since 1802.

As shown below, the S&P 500’s earnings and PE ratios from December 31, 1927 through December 31, 1932. The index’s earnings reached a 12 year high of $24.16 on December 31, 1929, and then declined by 66% to $8.08 on December 31, 1932. The high for the S&P 500’s PE multiple was 20.2 in September 1929 and low was 9.3 in June 1932.

Assuming the S&P 500’s 2019 peak to 2022 trough earnings mimic the 66% decline from 1929 to 1932 its earnings will fall from $162.93 at 12/31/2019 to $53.77 in late 2022. Assuming a low PE equivalent to 1932’s low of 9.3 the index based on its earnings will reach a low of 500.06. From the S&P 500’s 2020 high of 3393.52, the index will have declined by 85.3% when it reaches its final bottom.

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Wisconsin Supreme Court Says the State’s COVID-19 Lockdown Violated the Rule of Law and the Separation of Powers

After the Wisconsin Supreme Court overturned that state’s COVID-19 lockdown yesterday, Gov. Tony Evers, a Democrat, declared that Republicans “have thrown the state into chaos.” He was referring to how residents might react now that they are no longer legally required to remain at home and keep their businesses closed. But the justices were concerned about a different sort of anarchy: the kind that happens when governments impose sweeping restrictions on individual freedom, backed by the threat of criminal penalties, without proper legal authority.

The court’s decision focuses on a technical issue of statutory interpretation: Was Emergency Order 28, which acting Secretary of Health Services Andrea Palm issued on April 16, an “order,” as she maintained, or a “rule,” as the Republican leaders of the state legislature argued? If it was a rule, as the court concluded, it was clearly illegal, since Palm admittedly did not follow the statutory requirements for emergency rulemaking.

What might seem like an arcane dispute about administrative law has profound implications for the use of coercion to protect the public from communicable diseases. Can a single executive branch official do whatever she thinks is necessary to deal with an epidemic, or is she constrained by the limits the legislature has imposed on her authority? The answer tells us whether vital principles such as the separation of powers and the rule of law can be suspended or ignored whenever a governor declares a public health emergency.

Emergency Order 28 extended Wisconsin’s original March 24 lockdown, which would have expired on April 24, until May 26. The sorts of restrictions this entailed are by now familiar but are worth emphasizing, lest we forget the unprecedented extent to which COVID-19 control measures have interfered with the liberties and livelihoods of people throughout the country.

Palm’s order banned “all forms of travel” except those she deemed essential; required “all for-profit and non-profit businesses” she did not consider “essential” to “cease all activities” except for “minimum basic operations” and work done at home; prohibited “all public and private gatherings of any number” involving people who were “not part of a single household”; closed all places of “public amusement and activity,” whether “indoors or outdoors,” except for golf courses; continued the closure of bars and restaurants (except for takeout and delivery) as well as salons, spas, K–12 schools, and libraries; imposed a 10-person limit on religious gatherings, including weddings and funerals; and required all residents of the state, except for members of the same household, to maintain a distance of at least six feet from each other. Palm said violations were punishable by a $250 fine, up to 30 days in jail, or both.

The question before the Wisconsin Supreme Court was not whether these sweeping restrictions were sensible, proportionate, or necessary. It was whether Palm had the legal authority to impose them.

Palm, a former Obama administration official who was appointed by Evers to head the Department of Health Services in January 2019 but has not yet been confirmed by the state Senate, argued that her order was authorized by the statute that describes her department’s powers. That law says the health department “may authorize and implement all emergency measures necessary to control communicable diseases.”

More specifically, the department “may close schools and forbid public gatherings in schools, churches, and other places to control outbreaks and epidemics.” The law also authorizes the department to “promulgate and enforce rules or issue orders for guarding against the introduction of any communicable disease into the state, for the control and suppression of communicable diseases, [and] for the quarantine and disinfection of persons, localities and things infected or suspected of being infected by a communicable disease.”

Another statute explains what the health department is supposed to do when it issues one of those rules. An “emergency rule,” deemed necessary for “preservation of the public peace, health, safety, or welfare,” is not subject to the usual “notice, hearing, and publication requirements.” But the agency issuing it still has to follow certain procedures, including publication of a statement describing the scope of the rule in the Wisconsin Administrative Register, “a preliminary public hearing and comment period” if a co-chairman of the Joint Committee for Review of Administrative Rules asks for them, approval of the proposed rule by the governor, and a “fiscal estimate for the rule” sent to every state legislator.

Because Palm did not follow those procedures, the legislators who brought this lawsuit argued, her lockdown order was illegal. Palm contended that her order did not qualify as a “rule.” A four-justice majority of the Wisconsin Supreme Court disagreed, noting that state law defines a “rule” as “a regulation, standard, statement of policy, or general order of general application that has the force of law and that is issued by an agency to implement, interpret, or make specific legislation enforced or administered by the agency or to govern the organization or procedure of the agency.”

Even while insisting that her order should not be viewed as a rule, Chief Justice Patience Roggensack notes in the majority opinion, Palm purported to impose criminal penalties for violating it. “It has long been the law in Wisconsin that in order for the violation of an administrative agency’s directive to constitute a crime, the directive must have been properly promulgated as a rule,” Roggensack says.

Furthermore, Palm’s order defined the crime she purported to punish without referring to any statute. “The prohibited ‘criminal conduct’ to which Palm refers is factually defined solely by Emergency Order 28,” Roggensack notes. “Counsel for Palm admitted as much at oral argument when he said that there was only one element that needed to be proved in a criminal prosecution for a violation of Emergency Order 28: that a provision of the order was violated. Such an argument is without legal foundation and ignores more than 50 years of Wisconsin law.”

Roggensack emphasizes that the rules for making rules are not merely picayune requirements that can be ignored when an agency head thinks they unreasonably impede her ability to respond to an emergency. “Rulemaking exists precisely to ensure that kind of controlling, subjective judgment asserted by one unelected official, Palm, is not imposed in Wisconsin,” she writes. “Rulemaking provides the ascertainable standards that hinder arbitrary or oppressive conduct by an agency.”

Even if Palm’s order were not subject to rulemaking requirements, the majority says, it would exceed the scope of her legal powers. While the health department has the authority to “quarantine those infected or suspected of being infected,” for example, the lockdown goes much further than that, telling “all individuals present within the State of Wisconsin” they must “stay at home or at their place of residence” except for Palm-approved purposes. “She also prohibits ‘all public and private gatherings of any number of people that are not part of a single household or living unit,'” Roggensack notes. “Again, this directive is not based on persons infected or suspected of being infected.”

Other language in the statute—e.g., authorizing “all emergency measures necessary to control communicable diseases”—could be read to authorize Palm’s order. But it also could be read to authorize pretty much anything, which is a problem, as Justice Daniel Kelly suggests in a concurring opinion joined by Justice Rebecca Bradley.

“Under our constitutional form of government, the Legislature cannot possibly have given the Secretary the authority she believes she has,” Kelly writes. “In the Secretary’s view, the Legislature gave her plenary power to simply ‘act’ without the need of any further statutory or regulatory policy. Her brief candidly asserts there are no statutory or regulatory limitations on her authority to address communicable diseases….If we agreed with the Secretary’s reading of [the law], we would have to conclude the statute violated the separation of powers by conferring on the Secretary the power to make laws without going through the rule-making process.”

In a concurring opinion joined by Kelly, Bradley highlights the issues at stake in this case. “However well-intentioned, the secretary-designee of the Department of Health Services exceeded her powers by ordering the people of Wisconsin to follow her commands or face imprisonment for noncompliance,” Bradley writes. “In issuing her order, she arrogated unto herself the power to make the law and the power to execute it, excluding the people from the lawmaking process altogether.”

For those who think the separation of powers is a luxury we cannot afford during emergencies, Bradley quotes from Ex parte Milligan, the 1866 case in which the U.S. Supreme Court held that civilians could not be tried by military tribunals during the Civil War:

Those great and good men [the Framers] foresaw that troublous times would arise, when rulers and people would become restive under restraint, and seek by sharp and decisive measures to accomplish ends deemed just and proper; and that the principles of constitutional liberty would be in peril, unless established by irrepealable law. The history of the world had taught them that what was done in the past might be attempted in the future. The Constitution of the United States is a law for rulers and people, equally in war and in peace, and covers with the shield of its protection all classes of men, at all times, and under all circumstances. No doctrine, involving more pernicious consequences, was ever invented by the wit of man than that any of its provisions can be suspended during any of the great exigencies of government. Such a doctrine leads directly to anarchy or despotism, but the theory of necessity on which it is based is false; for the government, within the Constitution, has all the powers granted to it, which are necessary to preserve its existence; as has been happily proved by the result of the great effort to throw off its just authority.

“It is especially in times of emergency that we must protect the rights of the people,” Bradley writes, “lest we establish a dangerous precedent empowering less benevolent government officials in the future to oppress the people in the name of exigency.”

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The Irony of “The Plot Against America”

I have a new blogging gig over at the Times of Israel. You can find my first, autobiographical post, here.

My post today starts as follows:

The late Philip Roth is my favorite novelist, and his novel The Plot Against America, now a widely-praised HBO mini-series, is an excellent, disturbing book. The book posits an alternate history in which an isolationist, antisemitic Charles Lindbergh defeats FDR for the U.S. presidency in 1940, and proceeds to enact a series of increasingly draconian antisemitic measures. Among those measures are sending Jewish youths out to the country to live with Gentile families to become “real patriotic Americans,” away from the implied malevolent of their families, the Jewish community, Jewish culture, and Judaism.

The irony in the title of this post arises from the fact that while Lindbergh, while an isolationist not above antisemitic smears in his campaign to keep the U.S. out of World War II, never actually advocated anything remotely like the policies depicted in Roth’s book, FDR did.

I also note that “even as the reputations of traditional American heroes ranging from Thomas Jefferson to Woodrow Wilson have suffered due to their racism, FDR, depicted as the hero of the Great Depression and World War II, has thus far emerged relatively untarnished.”

You can read the whole thing here.

I plan, of course, to continue blogging at the VC, but future posts that may be of more interest to a primarily Jewish audience rather than the VC’s broader audience will likely wind up at TOI.

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Senate Renews FBI Surveillance Powers With Modest Reforms

An attempt by Sen. Rand Paul (R–Ky.) to completely end the Foreign Intelligence Surveillance Act (FISA) court’s authority to approve warrantless surveillance of Americans went down in flames this afternoon in a blowout 11–85 vote. The Senate subsequently passed a bill that renewed some of these powers with more modest reforms.

Paul’s legislation was essentially a Hail Mary pass: It would have forbidden the feds from targeting American citizens with any of the surveillance, wiretapping, and data collection tools authorized by the FISA court. The National Security Agency and the FBI would instead have to go through traditional federal courts and get a warrant. (The court could still allow surveillance of foreign targets.)

Prior to the vote, Paul took to the Senate floor to argue that the law has been woefully abused and twisted to target Americans, taking note that the FISA court had been specifically designed to make sure the FBI was not secretly surveilling Americans for engaging in protected or political speech. He said that the investigation of former Donald Trump aide Carter Page demonstrated that the FISA court “was manipulated and lied to” to get permission to wiretap Page.

“We should all be appalled at this abuse of power,” Paul said. He argued that the FISA court denies Americans their Fourth Amendment protections, noting that surveillance targets aren’t informed of the warrant submission and aren’t allowed legal representation at a hearing. He added that the court’s decisions are not based on “probable cause,” as the Fourth Amendment requires, but on a lesser threshold showing that the requested surveillance is “relevant” to an investigation.

“That’s not constitutional and we can’t make it constitutional,” Paul said.

The most recent transparency report from the Office of the Director of National Intelligence shows that despite reforms to the system, FBI officials secretly query records for information about U.S. citizens thousands of times a year. The report also says that the federal government has not opened any investigations of “a U.S. person who is not considered a threat to national security” based on this acquired information since the office started tracking this info in 2017. Last year, the government entered evidence gathered from FISA surveillance in seven criminal proceedings.

The failure of Paul’s bill should hardly come as a surprise after another surveillance vote yesterday. Lawmakers weren’t even able to push through a measure telling the FBI it can’t collect our browser and search data without getting a warrant. There was no chance the Senate was going to vote to stop all targeting of Americans via the FISA court. Still, 11–85 is a pretty sound defeat.

After Paul’s proposal failed, the Senate voted on H.R. 6172, a compromise bill to restore some USA Freedom Act surveillance powers (which expired in March) with some reforms. The bill easily passed, 80–16. The authority to engage in mass collection of Americans’ online and phone metadata is now officially gone. The bill specifies that the FBI can’t treat cell phone location and global positioning system data as part of a “business record” (meaning it’s harder for the feds to secretly collect that data from your phone service provider). The bill also bolsters the FISA court’s ability to bring in independent “amicus curiae” advisers to consult and defend the constitutional rights of any Americans who are being targeted for FISA warrants. (This process was bolstered further on Wednesday, when the Senate passed an amendment attempting to ensure that Americans aren’t targeted for political purposes.)

Because the Senate amended H.R. 6172 yesterday, the bill will have to return to the House for another vote. It will likely pass.

The renewal comes with another sunset in December 2023, so we’re not necessarily stuck with this system forever. But as today’s votes show, it’s a long road to convince senators to treat Americans’ Fourth Amendment protections seriously.

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via IFTTT

The Irony of “The Plot Against America”

I have a new blogging gig over at the Times of Israel. You can find my first, autobiographical post, here.

My post today starts as follows:

The late Philip Roth is my favorite novelist, and his novel The Plot Against America, now a widely-praised HBO mini-series, is an excellent, disturbing book. The book posits an alternate history in which an isolationist, antisemitic Charles Lindbergh defeats FDR for the U.S. presidency in 1940, and proceeds to enact a series of increasingly draconian antisemitic measures. Among those measures are sending Jewish youths out to the country to live with Gentile families to become “real patriotic Americans,” away from the implied malevolent of their families, the Jewish community, Jewish culture, and Judaism.

The irony in the title of this post arises from the fact that while Lindbergh, while an isolationist not above antisemitic smears in his campaign to keep the U.S. out of World War II, never actually advocated anything remotely like the policies depicted in Roth’s book, FDR did.

I also note that “even as the reputations of traditional American heroes ranging from Thomas Jefferson to Woodrow Wilson have suffered due to their racism, FDR, depicted as the hero of the Great Depression and World War II, has thus far emerged relatively untarnished.”

You can read the whole thing here.

I plan, of course, to continue blogging at the VC, but future posts that may be of more interest to a primarily Jewish audience rather than the VC’s broader audience will likely wind up at TOI.

from Latest – Reason.com https://ift.tt/2WQBoNG
via IFTTT

Senate Renews FBI Surveillance Powers With Modest Reforms

An attempt by Sen. Rand Paul (R–Ky.) to completely end the Foreign Intelligence Surveillance Act (FISA) court’s authority to approve warrantless surveillance of Americans went down in flames this afternoon in a blowout 11–85 vote. The Senate subsequently passed a bill that renewed some of these powers with more modest reforms.

Paul’s legislation was essentially a Hail Mary pass: It would have forbidden the feds from targeting American citizens with any of the surveillance, wiretapping, and data collection tools authorized by the FISA court. The National Security Agency and the FBI would instead have to go through traditional federal courts and get a warrant. (The court could still allow surveillance of foreign targets.)

Prior to the vote, Paul took to the Senate floor to argue that the law has been woefully abused and twisted to target Americans, taking note that the FISA court had been specifically designed to make sure the FBI was not secretly surveilling Americans for engaging in protected or political speech. He said that the investigation of former Donald Trump aide Carter Page demonstrated that the FISA court “was manipulated and lied to” to get permission to wiretap Page.

“We should all be appalled at this abuse of power,” Paul said. He argued that the FISA court denies Americans their Fourth Amendment protections, noting that surveillance targets aren’t informed of the warrant submission and aren’t allowed legal representation at a hearing. He added that the court’s decisions are not based on “probable cause,” as the Fourth Amendment requires, but on a lesser threshold showing that the requested surveillance is “relevant” to an investigation.

“That’s not constitutional and we can’t make it constitutional,” Paul said.

The most recent transparency report from the Office of the Director of National Intelligence shows that despite reforms to the system, FBI officials secretly query records for information about U.S. citizens thousands of times a year. The report also says that the federal government has not opened any investigations of “a U.S. person who is not considered a threat to national security” based on this acquired information since the office started tracking this info in 2017. Last year, the government entered evidence gathered from FISA surveillance in seven criminal proceedings.

The failure of Paul’s bill should hardly come as a surprise after another surveillance vote yesterday. Lawmakers weren’t even able to push through a measure telling the FBI it can’t collect our browser and search data without getting a warrant. There was no chance the Senate was going to vote to stop all targeting of Americans via the FISA court. Still, 11–85 is a pretty sound defeat.

After Paul’s proposal failed, the Senate voted on H.R. 6172, a compromise bill to restore some USA Freedom Act surveillance powers (which expired in March) with some reforms. The bill easily passed, 80–16. The authority to engage in mass collection of Americans’ online and phone metadata is now officially gone. The bill specifies that the FBI can’t treat cell phone location and global positioning system data as part of a “business record” (meaning it’s harder for the feds to secretly collect that data from your phone service provider). The bill also bolsters the FISA court’s ability to bring in independent “amicus curiae” advisers to consult and defend the constitutional rights of any Americans who are being targeted for FISA warrants. (This process was bolstered further on Wednesday, when the Senate passed an amendment attempting to ensure that Americans aren’t targeted for political purposes.)

Because the Senate amended H.R. 6172 yesterday, the bill will have to return to the House for another vote. It will likely pass.

The renewal comes with another sunset in December 2023, so we’re not necessarily stuck with this system forever. But as today’s votes show, it’s a long road to convince senators to treat Americans’ Fourth Amendment protections seriously.

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Quartz Fires Nearly Half Of Its Journalists, Blames COVID For Failure Of Subscription Strategy

Quartz Fires Nearly Half Of Its Journalists, Blames COVID For Failure Of Subscription Strategy

Tyler Durden

Thu, 05/14/2020 – 15:00

Quartz, once a pioneering and extremely trendy source for business and economic news that produced several journalist blue-check super-stars who have mostly since moved on to different outlets as the company became increasingly irrelevant after adopting a paywall, is planning to lay off 80 employees in the latest round of journalism job cuts.

The news, which comes after Buzzfeed furloughed dozens of employees and cut pay, while Wired also laid off a bunch of staff, is the latest blow to the digital news model that cropped up around the time of the last crisis, where a new wave of VC-backed “digitally native” sites like Buzzfeed and Quartz, which mixed news, opinion and “analysis” to produce a cheaply made product that failed to inspire enough readers to pay up for a premium edition.

The New York Times reported that the cuts are equivalent to 40% the company’s staff. It also noted that Quartz has offices “all around the world.” According to the report, Quartz, which has struggled to switch over to a subscription-based model from an advertising-based model, has fewer than 18,000 paying subscribers, meaning the company is probably only pulling in a few million dollars a year in revenue from subscriptions, hardly enough to sustain a newsroom.

Quartz’s owner, the Japanese financial intelligence firm Uzabase, announced the layoffs in a public filing Thursday. The company said that approximately 40 percent of Quartz staff members would lose their jobs, with the cuts focused on the advertising department. Quartz had 188 employees at the end of last year, Uzabase said.

The site’s EIC, who hasn’t tweeted since Tuesday, told the NYT that the layoffs were part of a plan to pivot, and also blamed them on the coronavirus, which he said dramatically cut into the company’s advertising take.

Zach Seward, the chief executive, said in a note to the staff that approximately 80 roles would be eliminated. A spokesman for the NewsGuild, which represents 43 journalists working at Quartz, said on Thursday that about half its members would lose their jobs.

Quartz is also trying to cut costs by closing physical offices in London, San Francisco, Hong Kong and Washington and by reducing executive salaries by 25 to 50 percent, according to the note.

Mr. Seward said the cuts were part of a strategy to make Quartz profitable by emphasizing subscriptions over advertising.

The site started charging readers for articles in 2018, shortly after Uzabase bought it from Atlantic Media, which founded Quartz in 2012. Many news sites have installed pay walls in recent years as the game plan of offering free content supported by advertising has begun to seem less tenable.

“Our strategy is to focus on what Quartz does best, which is analysis of global business and economics for our audience of young, ambitious professionals,” Mr. Seward said in his note to the staff. “The business model will still be a mix of subscription and advertising revenue, but as a smaller and more focused company, we’ll only do those things that serve Quartz’s core.”

The number of paid subscribers rose to 17,680 at the end of April, Mr. Seward added.

While the coronavirus has hammered many companies and many industries, several media companies have now blamed the virus as an excuse for cutting back staff or making other cuts in operational spending – but we suspect that’s not the full story.

As the company has previously claimed, it’s transition away from advertising started years ago. By now, if the owners at Uzabase who decided to buy Quartz away from the Atlantic had succeeded in their transition plan, Quartz wouldn’t be so reliant on advertising revenue growth to sustain its business. And the article – notably – says nothing about cancelled subscriptions, or a slowing in subscription growth.

Plus, data on ad spending by industry suggests that many of the biggest companies to say they’re cutting ad spending either haven’t yet, or no longer plan to.

It’s just the latest sign that sites like Quartz, which cater to young, urban professionals, just aren’t appealing to a broad enough range of readers. We wonder why that is…

Apparently, the Quartz union was powerless to stop the savage cutbacks – just the latest example of how little the ‘newsroom unionization movement’ has actually accomplished.

Maybe all the laid-off blue checks from Quartz, Buzzfeed, Deadspin and all the other digital news sites that are hemorrhaging ‘content writers’ with no real reporting or writing chops but like 8k+ twitter followers.

Adding insult to injury, the Atlantic signed up some 36,000 new subscribers in March alone, and has been building its subscriber base at a rapid clip. Maybe some of these laid off Quartz writers can ring up some of their old colleagues.

via ZeroHedge News https://ift.tt/3czIdd3 Tyler Durden

Fed Chair Powell’s ‘Solution’ Is The Root Of The Problem

Fed Chair Powell’s ‘Solution’ Is The Root Of The Problem

Tyler Durden

Thu, 05/14/2020 – 14:45

Authored by Michael Maharrey via SchiffGold.com,

Federal Reserve Chairman Jerome Powell went negative in a webcast speech on Wednesday, May 13.

I’m not talking about negative interest rates, although that could be coming down the pike as well. Powell went negative on the prospects of a quick economic recovery.

He’s right about the prospects for the economy, but he’s wrong about the solution. That’s because he doesn’t even realize it’s Fed policy at the root of the problem to begin with.

A lot of pundits and politicians have assumed that the economy will just snap back to normal once governments open things back up. Powell dumped cold water on that notion warning that the US could face a “deep, prolonged” recession. He said, “The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II.”

We are seeing a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased. Since the pandemic arrived in force just two months ago, more than 20 million people have lost their jobs. A Fed survey being released tomorrow reflects findings similar to many others: Among people who were working in February, almost 40 percent of those in households making less than $40,000 a year had lost a job in March. This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future.”

Powell warned, that “the path ahead is both highly uncertain and subject to significant downside risks.” He added that “A prolonged recession and weak recovery could also discourage business investment and expansion, further limiting the resurgence of jobs as well as the growth of capital stock and the pace of technological advancement. The result could be an extended period of low productivity growth and stagnant incomes.”

He’s right about all that. But he got just about everything else in his speech wrong.

After painting a gloomy picture, Powell called for more government spending and more extreme monetary policy.

We ought to do what we can to avoid these outcomes, and that may require additional policy measures.”

Powell promised that the Fed will “continue to use our tools to their fullest until the crisis has passed and the economic recovery is well underway,” but emphasized there is only so much the central bank can do. He practically begged Congress to borrow and spend more money.

Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.”

Costly seems like a bit of an understatement. The US government has already committed to spending trillions of dollars and Democrats in the House just proposed a spending bill with $3 trillion more. The budget deficit in April was a staggering $738 billion — and that’s just the tip of the iceberg. The Treasury Department already announced plans to borrow $2.99 trillion in the second quarter.

Powell said we can worry about the debt in the good times, but where was he when the Trump administration was running a trillion-dollar deficit before the pandemic? Powell was telling us the economy was great then – even as he cut interest rates and launched QE.

Therein lies the ugly truth: Powell’s prescription for low interest rates into perpetuity, quantitative easing, money-printing, and government borrowing and spending, are the very same medicines that already had the economy teetering on the brink of a meltdown before the coronavirus pandemic.

Keep in mind, everything Powell talked about was already happening before COVID-19. The economy was riddled with debt and was already being propped up by extraordinary Federal Reserve monetary policy. We had three rate cuts in 2019. The Fed was running repo operations to stabilizing the financial markets and the central bank had already launched quantitative easing, even though Jerome Powell and Company refused to call it that. The US government was on track for a $1 trillion deficit in FY2020 even before the government passed trillions in stimulus spending. The coronavirus just put everything into hyperdrive.

And now Powell wants to go into triple-warp speed.

It should come as no surprise that Powell is clueless about how we should move forward because he’s clueless about how we got here. The man displays no self-awareness whatsoever.

During his speech, he noted that past crashes happened after asset prices “reached unsupportable levels” or after “important sectors of the economy, such as housing, that boomed unsustainably.” Not this time, though.

There was no economy-threatening bubble to pop and no unsustainable boom to bust. The virus is the cause, not the usual suspects—something worth keeping in mind as we respond.”

Come on, Jerome! The air was coming out of your unsustainable stock market bubble before coronavirus. That’s why you were cutting rates last year and launching your little QE programs.

Yes, the coronavirus government shutdowns have created unprecedented disruptions in the economy. That’s not debatable. But that economy was rotten to the core before the pandemic due to the very policies you now want to ramp up in order to save the economy. It was a great, big, fat, ugle bubble blown up by debt. Powell’s prescription is not going to save the economy. At best, it will save the bubble – for a little while longer.

Maybe.

Peter Schiff hit the nail on the head in a recent podcast.

Nobody really cares at this point about the data or how weak it is because they simply attribute it all to the coronavirus. It’s a self-inflicted wound. Forgetting about the fact that we were actually wounded anyway. People don’t appreciate the problems that the US economy had – the very deep-seated structural problems that lay beneath that bubble that people still haven’t come to terms with. They’re still focusing on the effects of the coronavirus and not realizing that the economy was very sick long before we got infected with the coronavirus.”

And it was Powell’s policies – the ones he wants to triple down on today – that wounded the economy to begin with.

There is no easy path forward. The bubbles need to deflate. The distortions and misallocations in the economy need to reset. But that would create a great deal of pain that the political class isn’t willing to face. Instead, they will kick the can down the road by repeating the same mistakes of the past on a larger scale.

Peter said as somber as Powell was, he’s still too optimistic, and “his advice that the Federal government spend massively financed by deficits monetized by the Fed, guarantees the worst possible outcome.”

via ZeroHedge News https://ift.tt/2T57J1Y Tyler Durden

Traders Mock Powell As Negative Rate Bets Surge

Traders Mock Powell As Negative Rate Bets Surge

Tyler Durden

Thu, 05/14/2020 – 14:30

If Jerome Powell hoped that he had put to rest the topic – and debate- of negative interest rates in the US (if only for a few weeks) he failed.

One day after Powell’s ad hoc appearance in a Peterson Institute video chat in which Powell was very clear: the Fed doesn’t support negative rates even with downside economic risks – the question of when, not if, rates will turn negative continues to dominate.

In an attempt to amplify Powell’s message, BofA’s rates strategist and former NY Fed staffer Mark Cabana writes today that the Fed is rarely this unified in any view: “US negative rates are not an attractive monetary policy tool”, adding that Chair Powell was very clear in this view yesterday. It’s not just Powell of course, and below the strategist has assembled a summary “of the uniform and widespread opposition to negative rates from a range of Fed officials.” The most striking rebuke of negative rates came from the October 2019 FOMC meeting minutes when “all participants judged that negative interest rates currently did not appear to be an attractive monetary policy tool in the United States”. It is very unusual to see this type of broad based agreement on any potential policy stance, according to Cabana who adds that in order to see a material change in thinking on negative rates “it would likely require a leadership change and large scale Fed turnover. Neither of these is likely in the near term.”

As an alternative to negative rates, Powell has indicated the Fed can ease through forward guidance, UST & agency MBS asset purchases, or “13-3” extraordinary market programs. Indeed, just yesterday we noted that – using Deutsche Bank calculations – to catch down to where the current neutral rate of interest, or r*, is which is at roughly -1%, the Fed would need to conduct roughly $3.3 trillion in QE on top of what the market is currently pricing in.

Cabana expects that, in further distancing itself from NIRP, Fed official will “overweight these tools in support of expansive fiscal policies but not shift their thinking on negative interest rates in the near term.”

But far more importantly, Cabana writes that he does not think “the market can “bully” the Fed into adopting negative interest rates.” As he explains, while the market can push the Fed to adopt a number of policies, “the case for negative rates is fundamentally different. Negative rates have meaningful implications for the financial system and financial intermediation. If market participants want to position for a Fed that will ease further we would suggest better risk/reward tradeoffs are in lower longer-dated real rates or higher breakevens.

Cabana then makes an extensive list laying out all the various reasons – ranging from legal, to structural, to behavioral – why negative rates are virtually impossible (we will highlight these in a subsequent post) yet what we find fascinating is that despite Powell’s solemn admonition and the bevy of reasons why NIRP is likely not on the agenda, the market simply refuses to care, and as Bloomberg notes in an article explaining why negative rates “are the Only Game in Town” for eurodollar option traders, bets that negative rates are coming have soared, as calls that pay off if the Fed sets the low end of the fed funds target range below 0% between September 2020 and June 2021 “have been in steady demand over the past two weeks.

According to Bloomberg’s Edward Bolingbroke, the most popular trade expects a rate cut of 10 to 15 basis points by September. That’s just the beginning however, because in a clear mockery of Powell’s video address, this week demand has picked up for options that offer protection against a policy rate as low as -0.50% by the middle of next year.

At the same time, overnight index swaps are pricing in a rate cut as the Fed’s next move, with no rate increases for at least five years. Per Bloomberg calculations, the April 2021 OIS contract tied to the traded at about -1 basis point Thursday, 6 basis points lower than the effective fed funds rate, “pricing in more than 50% odds of a 10 basis point rate cut.”

Meanwhile, the implied January 2021 fed fund rate has continued to dip below 0% even after Powell’s speech, although it is well above its Friday crash low, where a -0.4% rate was expected.

The bottom line: far from not “bullying” Powell, the market is just waiting for the next opportunity to pounce on what now seems to be a monetary inevitability: negative rates in the US.

And why not: with the US becoming Japanified with each passing day, it’s only a matter of time before Powell imitates every wrong move in the Kuroda playbook, starting with negative rates and concluding with buying equities. All he needs is a catalyst for the next move, a catalyst… like for example the next sharp drop in equities.

via ZeroHedge News https://ift.tt/2TlObXF Tyler Durden

Arsenault: Beware The “Lazy W” ‘Recovery’

Arsenault: Beware The “Lazy W” ‘Recovery’

Tyler Durden

Thu, 05/14/2020 – 14:15

Authored by John Rubino via DollarCollapse.com,

Real estate investor Marcel Arsenault has racked up Warren Buffett-scale profits over the past few credit cycles by loading up on “empty buildings” at the bottom, filling them with paying tenants, and then selling at the top. In a recent message to investors, he warns that the current market is especially tricky.

Here’s an excerpt:

Our Rationale for a Highly Dangerous “Lazy W”

  • The U.S. is already experiencing extremely sharp job losses.

  • We project 26.9 million jobs lost between March and May, 2020.

  • This implies an unemployment rate of 21.4% by May, 2020 – the highest since the 1930s.

  • Because of the immense economic damage, RCS believes there will be intense political and economic pressure to reopen the economy (while unprepared);

  • Businesses rehire, hoping to rebuild lost sales.

  • RCS estimates nearly 10.0 million jobs will be regained, lowering the unemployment rate to 15.1% by August, 2020.

  • This premature “relapse” also happened in the 1918 Flu Pandemic.

  • Re-opening of the economy without the right programs in place causes a “second wave” of new Covid-19 cases in the Fall.

  • States reimplement Shelter-in-Place orders.

  • The weakened economy refreezes.

  • Weakened businesses capitulate and close permanently.

  • By October, 6.9 million jobs will be lost from the premature opening.

  • Many of these job losses will become persistent.

Conclusions and Implications of Our “Lazy W”

  • The Covid-19 Pandemic is setting the economy back several years.

  • By YE 2021, considerable demand for nearly every sector of the economy will have been permanently destroyed.

  • Employment levels by YE 2021 will be roughly the same as YE 2015.

  • It will take until mid-2024 for jobs to recover lost ground.

  • Interest rates will stay at historic lows into 2024.

  • With high unemployment, the Fed will have no incentive to raise rates.

  • Near-term, unemployment peaks at over 20%.

  • By YE 2024, the unemployment rate will still be at 6.4%.

  • Asset values that were at peak will decline precipitously.

  • Equities and commercial real estate will not hit bottom until late 2021.

  • Home values will hold up comparatively well.

Real Capital Solutions (RCS) believes it is crucial for market participants to keep an open mind to all scenarios and plan defensively.

This scenario is as reasonable as it is scary, especially for the retail investors who have, for some reason, been pouring into stocks lately. Consider:

Young investors pile into stocks, seeing ‘generational-buying moment’ instead of risk

The coronavirus market downturn spurred young people — in some cases, for the first time in their lives — to get started with investing.

A spike in new accounts at online brokers show that young and inexperienced investors saw the coronavirus downturn as an entry point into the world of investing and not a time to hunker down.

“New investors who sense a generational-buying moment but do not have much background in the equity space,” Citi chief U.S. equity strategist Tobias Levkovich said in a note to clients.

“We have heard anecdotally about younger individuals with less market experience viewing the March plunge as a unique time to start portfolios and often crowding into the tech arena, purchasing the stocks whose services or products they know and use.”

The major online brokers – Charles Schwab, TD Ameritrade, Etrade and Robinhood – saw new accounts grow as much as 170% in the first quarter, when stocks experienced the fastest bear market and the worst first quarter in history.

But young people apparently saw it as an opportunity and began buying familiar technology stocks.

So who are you going to follow? Millennial Mike and his momentum-chasing muppetry or someone who has actually been through a period when BTFD was not the only strategy and The Fed was not the only game in town.

via ZeroHedge News https://ift.tt/3buealH Tyler Durden