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KeyBanc Capital Markets outlines in a new report, using internal credit card data, that Apple’s iPhone sales recorded a “sharp decline” in April as coronavirus-related shutdowns crimped consumer spending and kept many of the company’s brick and mortar stores closed.

The report says iPhone sales plunged 77% on a year-over-year basis in April and were down 56% over the previous month. 

“Our Key First Look Data indicates a sharp decline in iPhone sales in April (-77% y/y, -56% m/m), which reflects the first full month that Apple brick-and-mortar stores were fully closed,” analyst John Vinh wrote. 

Apple closed US retail stores on March 14, which contributed to a significant deterioration in iPhone sales through April. Shipments in the month declined 57% year-over-year basis and 37% on a month-over-month basis. 

Vinh notes that “online sales did increase m/ m but were unable to offset store closures, so sales were still down y/y.” He said a “modest bump” in iPhone sales in 2H April was observed, likely the result of President Trump’s stimulus payments to the working poor, adding that iPhone sales in 2H April jumped by 14% compared to 1H April.

The KeyBanc analyst notes that consumers are shifting towards cheaper iPhone models over the month. This trend will likely persist as high unemployment, recession, and uncertainty plagues consumers. 

KeyBanc’s data is based on anonymous spending data from 2 million KeyBank credit and debit cards, showed the slowdown in iPhone sales at stores and online began last summer and accelerated into early 1Q20. By the time the pandemic triggered lockdowns in March, sales at stores collapsed. It wasn’t until April when store sales plunged to zero with a slight increase in online sales, but as noted above, the offset is not enough to stem year-over-year losses in iPhone sales. 

Apple investors have overlooked KeyBanc’s warning about plunging iPhone sales as Tim Cook continues to fuel debt-fuelled stock buybacks. 

Despite souring fundamentals, Apple’s stock continues to rise. It was noted that the Swiss National Bank’s latest 13F, as of March 31, said it purchased $4.4 billion worth of Apple in the market rout last quarter. Possibly explains Apple’s share price levitation. 

With tens of millions of Americans out of work and some might not be able to find jobs as the probabilities of a V-shaped recovery for the real economy in the back half of the year continues to wane — KeyBanc’s data is an eye-opener for a consumer that has been severely damaged and might not be able to afford expensive iPhones this year. 

A new report from the University of Chicago found that pandemic-induced layoffs will result in permanent job loss, which shreds the Wall Street narrative of how many of these lost jobs will return once lockdowns are lifted. As if the Wall Street consensus has a damn clue about the job situation in the back half of the year.

The U.S. economy lost 20.5 million jobs in April, and the unemployment rate spiked to 14.7%. Optimism on Wall Street last Friday ramped stocks higher as Wall Street cheered more than 18 million of those jobs lost were considered temporary reductions and were likely to come back once restrictions were lifted quickly. 

However, a recent working paper from the school’s Becker Friedman Institute for Research in Economics discovered there were only three new hires for every ten layoffs caused by virus-related shutdowns. The authors — Jose Maria Barrero, Nick Bloom, and Steven J. Davis estimated that 42% of the layoffs seen over the last several months would result in permanent job loss: 

“Drawing on our survey evidence and historical evidence of how layoffs relate to recalls, we estimate that 42 percent of recent pandemic-induced layoffs will result in permanent job loss. If the pandemic and partial economic shutdown linger for many months, or if pandemics with serious health consequences and high mortality rates become a recurring phenomenon, there will be profound, long-term consequences for the reallocation of jobs, workers, and capital across firms and locations,” the authors wrote.

The report went on to say that virus-related shutdowns have devastated the U.S. economy with nearly 28 million people filed for new claims for unemployment benefits over the six weeks ending April 25. It said at an annualized rate, the U.S. economy is expected to contract 4.8% in 1Q20 and 25% in 2Q20. 

The authors quoted a recent Wall Street Journal piece that noted, “The coronavirus pandemic is forcing the fastest reallocation of labor since World War II, with companies and governments mobilizing an army of idled workers into new activities that are urgently needed.” In other words, the pandemic has created a “major reallocation shock.” As for anecdotal evidence, the report said the new hirings by Walmart, Amazon, and Instacart are evidence of this.

They went onto say that “historically, creation responses to major reallocation shocks lag the destruction responses by a year or more,” adding that, “we anticipate a drawn-out economic recovery from the COVID-19 shock, even if the pandemic is largely controlled within a few months.” 

The authors said several economic forces will delay creation response. They said government intervention can prolong the creation response, slowing the recovery.

“In this regard, we discuss four aspects of U.S. policy that can retard creation responses to the pandemic-induced reallocation shock: Unemployment benefit levels that exceed earnings for many American workers under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, policies that subsidize employee retention irrespective of the employer’s longer term outlook, occupational licensing restrictions the impede mobility across occupations and states, and regulations that inhibit business formation and expansion,” they wrote.

“If we are correct that many of the lost jobs are gone for good, there are important implications for policy,” the report said.

What this report suggests is that Wall Street’s optimism about a V-shaped recovery this year is absolutely wrong and the recovery may not be seen until 2021 or beyond. 

A former Federal Reserve economist, Claudia Sahm, who is now director of macroeconomic policy at the Washington Center for Equitable Growth, has also shared similar remarks that some furloughed workers will have trouble finding jobs. 

“For a lot of those furloughed workers, a non-trivial number will have no job to go back to, because the company they worked for will have failed or will need fewer workers than they used to,” Sahm said. 

Since aggregate demand collapsed, and will likely not revert to 2019 levels for several years, factories are shuttering their doors across the country, resulting in permanent job loss. Here are several closings: 

“Factory furloughs across the U.S. are becoming permanent closings, a sign of the heavy damage the coronavirus pandemic and shutdowns are exerting on the industrial economy.

Makers of dishware in North Carolina, furniture foam in Oregon and cutting boards in Michigan are among the companies closing factories in recent weeks. Caterpillar Inc. said it is considering closing plants in Germany, boat-and-motorcycle-maker Polaris Inc. plans to close a plant in Syracuse, Ind., and tire maker Goodyear Tire & Rubber Co. GT plans to close a plant in Gadsden, Ala.

Those factory shutdowns will further erode an industrial workforce that has been shrinking as a share of the overall U.S. economy for decades. While manufacturing output last year surpassed a previous peak from 2007, factory employment never returned to levels reached before the financial crisis,” The Wall Street Journal reports. 

Scott Minerd, CIO Guggenheim Investments, believes it could take upwards of “four years” for a recovery to take place adding that “to think that the economy is going to reaccelerate in the third quarter in a V-shaped recovery to the level where the gross domestic product (GDP) was before the pandemic is unrealistic.”

Teddy Vallee, Founder & CIO of Pervalle Global, recently tweeted, “Global equities for the second time in a year price in a growth rebound that our Real-Time PMI model does not confirm.” 

And here we are, the Wall Street consensus is pricing in a V-shaped recovery this year that will likely not happen. 

With weeks to go before Donald Trump’s inauguration, former President Obama and VP Joe Biden were briefed by Deputy Attorney General Sally Yates, FBI Director James Comey, CIA Director John Brennan, and Director of National Intelligence James Clapper on matters related to the Russia investigation.

The January 5, 2017 meeting – also attended by former National Security Adviser Susan Rice, has taken on a new significance in light of revelations of blatant misconduct by the FBI – and the fact that the agency decided not to brief then-candidate Trump that a “friendly foreign government” (Australia) advised them that Russia had offered a member of his campaign ‘dirt’ on Hillary Clinton.

The rumored ‘dirt’ was in fact told to Trump campaign aide George Papadopoulos by Joseph Mifsud – a shadowy Maltese professor and self-described member of the Clinton Foundation. Papadopoulos then told Australian diplomat Alexander Downer, who told Aussie intelligence, which tipped off the FBI, which then launched Operation Crossfire Hurricane. Papadopoulos was then surveiled by FBI spy Stefan Halper and his honeypot ‘assistant’ who went by the name “Azra Turk” – while in 2017, Papadopoulos claims a spy handed him $10,000 in what he says goes “all the way back to the DOJ, under the previous FBI under Comey, and even the Mueller team.”

Meanwhile, the Trump DOJ decided last week to drop the case against former Director of National Security, Mike Flynn, after it was revealed that the FBI was trying to ensnare him in a ‘perjury trap,’ and that Flynn was coerced into pleading guilty to lying about his very legal communications with the Russian Ambassador.

And let’s not forget that the FBI used the discredited Steele Dossier to spy on Trump campaign associate Carter Page – and all of his contacts. Not only did the agency lie to the FISA court to obtain the warrant, the DOJ knew the outlandish claims of Trump-Russia ties in the Steele Dossier – funded by the Clinton Campaign – had no basis in reality.

And so, it’s worth going back in time and reviewing that January 5, 2017 meeting which was oddly documented by Susan Rice in an email to herself on January 20, 2017 – inauguration day, which purports to summarize that meeting.

Rice later wrote an email to herself on January 20, 2017—Trump’s inauguration day and her last day in the White House—purporting to summarize that meeting. “On January 5, following a briefing by IC leadership on Russian hacking during the 2016 Presidential election,” Rice wrote, “President Obama had a brief follow-on conversation with FBI Director Jim Comey and Deputy Attorney General Sally Yates in the Oval Office. Vice President Biden and I were also present.”

According to Rice, “President Obama began the conversation by stressing his continued commitment to ensuring that every aspect of this issue is handled by the Intelligence and law enforcement communities ‘by the book.’” But then she added a significant caveat to that “commitment”: “From a national security perspective, however, President Obama said he wants to be sure that, as we engage with the incoming team, we are mindful to ascertain if there is any reason that we cannot share information fully as it relates to Russia.”

The next portion of the email is classified, but Rice then noted that “the President asked Comey to inform him if anything changes in the next few weeks that should affect how we share classified information with the incoming team. Comey said he would.”

At the time Obama suggested to Yates and Comey—who were to keep their posts under the Trump administration—that the hold-overs consider withholding information from the incoming administration, Obama knew that President Trump had named Flynn to serve as national security advisor. Obama also knew there was an ongoing FBI investigation into Flynn premised on Flynn being a Russian agent. –The Federalist

And so, instead of briefing Trump on the Flynn investigation, Comey “privately briefed Trump on the most salacious and absurd ‘pee tape’ allegation in the Christopher Steele dossier.”

The fact that Comey did so leaked to the press, which used the briefing itself as justification to report on, and publish the dossier.

What Comey didn’t brief Trump on was the FBI’s bullshit case against Michael Flynn – accusing the incoming national security adviser of being a potential Russian agent. And according to The Federalist, “Even after Obama had left office and Comey had a new commander-in-chief to report to, Comey continued to follow Obama’s prompt by withholding intel from Trump.“

The Federalist also raises questions about former DNI James Clapper – specifically, whether Clapper lied to Congress in July of 2017 when he said he never briefed Obama on the substance of phone calls between Flynn and the Russian Ambassador Sergei Kislyak.

According to the report, accounts from Comey and McCabe directly contradict Clapper’s claim.

“Did you ever brief President Obama on the phone call, the Flynn-Kislyak phone calls?” asked Rep. Francis Rooney (R0FL) during Congressional testimony, to which Clapper replied: “No.“

Except, Comey told Congress that Clapper directly briefed Obama ahead of the January 5 meeting.

“[A]ll the Intelligence Community was trying to figure out, so what is going on here?” Comey testified. “And so we were all tasked to find out, do you have anything [redacted] that might reflect on this. That turned up these calls [between Flynn and Kislyak] at the end of December, beginning of January,” Comey testified. “And then I briefed it to the Director of National Intelligence, and Director Clapper asked me for copies [redacted], which I shared with him … In the first week of January, he briefed the President and the Vice President and then President Obama’s senior team about what we found and what we had seen to help them understand why the Russians were reacting the way they did.“

And now to see if anything comes of the ongoing Durham investigation, or if Attorney General Bill Barr will simply tie a bow on the matter and call it a day.

Illinois Democratic Rep. Bobby Rush has introduced the H.R. 6666 TRACE Act, which includes a $100 billion grant program which would authorize the Secretary of Health and Human Services to create an army of contact tracers operating through healthcare, schools and nonprofit entities, who would perform COVID-19 diagnostic testing “through mobile health units and, as necessary, at individuals’ residences, and for other purposes.”

Absolutely. My bill, the COVID-19 TRACE Act (H.R. 6666) would create a $100 BILLION grant program for local organizations to hire, train, and pay individuals to operate mobile testing units and conduct contact tracing in hot spots and medically underserved areas. https://t.co/5YGK34ifsU

— Bobby L. Rush (@RepBobbyRush) May 5, 2020

“Until we have a vaccine to defeat this dreaded disease, contact tracing in order to understand the full breadth and depth of the spread of this virus is the only way we will be able to get out from under this,” Rush says on his website.

And when will that be?

According to Heavy, Rush’s words echo those of Johns Hopkins Senior Scholar Dr. Crystal Watson, lead author of a recent report which concludes that contact tracing is vital to reopening the country.

“In order to save lives, reduce COVID-19’s burden on our healthcare system, ease strict social distancing measures, and confidently make progress toward returning to work and school, the United States must implement a robust and comprehensive system to identify all COVID-19 cases and trace all close contacts of each identified case.”

The bill’s co-signers include Reps. Rashida Tlaib (D-MI), Gwen Moore (D-WI), Debbie Wasserman Schultz (D-FL), Steve Cohen (D-TN) and Republican Jefferson Van Drew of New Jersey.

In addition to the petition, Rush has received a fair amount of social media backlash, mainly out of concern for privacy.

Reactions on Twitter have ranged from Third Reich and Hitler comparisons, to people suggesting that Rush wants to hire spies, make lepers of those who are identified as sick and waste money.

Senate Republicans have been working on their own bill focused on contract tracing privacy to “provide all Americans with more transparency, choice, and control over the collection and use of their personal health, geolocation, and proximity data (and) hold businesses accountable to consumers if they use personal data to fight the COVID-19 pandemic.” –Heavy

Last week, former President Clinton, NY Governor Cuomo, Chelsea Clinton and CA Governor Newsom called for an ‘army of contact tracers’ to monitor citizens who have tested positive for COVID-19 and their contacts – shortly after which the Washington DC Department of Health posted job listings for investigators with “Trace Force.”

Those who sign on will interview those who have tested positive for the virus – collecting “demographic, clinical, social and historical data,” while “conducting an assessment to determine whether safe isolation can be achieved at home.” The program is a 13-month appointment.

Those who have been in contact with a positive case will be contacted to assess whether they have symptoms and require quarantine, and will ‘appropriate escalate’ cases when needed. Investigators will also use ‘data management systems’ to log interactions.

Meanwhile, many believe it’s too late for contact tracing to work – and it’s simply going to allow government to intrude further into the lives of Americans.

Trouble is, a mountain of scientific evidence indicates contact tracing won’t work against the coronavirus. And given the virus’ nature, deploying it earlier probably wouldn’t have stopped the spread.

The coronavirus is fast-moving and transmitted in multiple ways, such as touching contaminated surfaces like subway poles and door knobs. It can become aerosolized when someone sneezes two aisles over in the supermarket or coughs in an elevator. The virus is found in feces and may even spread when a toilet is flushed and viral particles become airborne.

The “disease detectives” will have to ask: “Who was that at the supermarket or in the public restroom?” In many cases, they won’t have an answer.

Lancet Global Health scientists conclude that contact tracing will work when “less than 1 percent of transmission occurred before the onset of symptoms.” That’s the opposite of the coronavirus: Victims are most contagious before or just as their symptoms begin, research indicates. By the time they are diagnosed and asked for contacts, those contacts are already infecting others. Oxford University scientists also caution that the coronavirus spreads by too many mechanisms “to be contained by manual contact tracing.” –NY Post

Read the bill below:

In yet another unprecedented COVID historic first, insurance companies are actually turning away Americans who want to purchase a life insurance policy.

Who would have ever thought insurers would turn you away flat out? But the unthinkable is happening, details The Wall Street Journal:

The driving force behind the action: a collapse in interest rates tied to the spread of the new coronavirus and an expectation from insurers that rates won’t rebound significantly anytime soon.

Life insurers earn much of their profit by investing customers’ premiums in bonds until claims come due. In simplest terms, when they price policies, they make assumptions about how much interest income they will earn investing these premiums years into the future. The less they earn, the more they may need to collect in premium or fees to turn a profit.

The report includes stories of Americans being advised to act fast ahead of looming premium hikes.

“In 33 years, I have never seen more changes come more quickly to the life-insurance products we sell,” head of the Akron, Ohio-based ValMark Financial Group said. “It is unprecedented how fast and widespread — it is across lots of carriers.”

Another was quoted as saying: “It is difficult for consumers to have a lot of empathy for the life-insurance companies, but I can imagine they’re really getting squeezed by low rates.”

Via WSJ/A.M. Best:

WSJ summarizes:

Typically, life insurers hold about 70% of their general investment account in long-term bonds. In general, the yields on these holdings, many of them corporate securities, follow the 10-year U.S. Treasury. Its annual yield has been mostly declining since the 1980s, when it peaked at nearly 16%.

The yield dove after the 2008-09 financial crisis and was as low as 1.366% in 2016 before rebounding to about 3% in 2018. In March, it plummeted again as coronavirus sparked a rush to safer assets and investors feared interest-rate cuts from the Federal Reserve.

The yield on Friday: 0.679%.

Corporate-bond yields have held up better than the 10-year of late, but the overall trend has been tough on life insurers. Life insurers’ net portfolio yield averaged 4.4% last year, down from 9.9% in the mid-1980s, according to ratings firm A.M. Best Co.

In some cases insurers are reacting directly to the trend of coronavirus’ more devastating impact on the elderly: 

Penn Mutual Life Insurance Co., among others, has temporarily halted life-insurance sales to people 70 and older and who are in poor health. Insurance-industry executives say that analysis shows older people with underlying medical problems are dying at much higher rates from Covid-19 than younger people.

In a memo to brokers, Penn Mutual said it expects “to revisit these and other changes as we gain better insight into the impact of the Covid-19 pandemic.”

But in other cases even the type of 30-year “term-life” policies most often popular with young families are being temporarily suspended.

More specifically, Prudential halted sales of 30-year “term-life” policies, while Penn Mutual has ceased selling policies to people over 70 and in poor health. 

And further, Nationwide Mutual and AIG  have capped the size of guaranteed universal-life policies. No doubt this list is set to grow amid the extended COVID-19 crisis uncertainty.

* * *

The below clip illustrates the typical relationship in more ‘normal’ times between potential customers and insurance salesman, but apparently no longer while weathering the corona-storm:

In the first of the week’s refunding auctions, which as we discussed last week were not only supersized to pay for the government’s helicopter money, but also now include a 20Y auction on May 20 – the first such tenor since the 1980s – moments ago the Treasury sold a supersized 3Y auction – coming at a record high amount of $42Bn vs $40Bn last month…

… and a record low yield of 0.230%, which also stopped through the 0.231% When Issued, the first non-tailing 3Y auction of 2020.

The bid to cover jumped from 2.27 in April to 2.54, the highest since February and well above the 2.440 recent average,

The internals were quite solid as well, with Indirects taking down 54.4%, while Directs jumped from 4.1% to 13.1%, the highest since February, and leaving 32.6% to Dealers, the lowest since December.

Why the stellar demand? Because all the buyers know they just need to hold on the paper for a few days before they can flip it back to the Fed for some risk-free profits.

So a solid start to yet another upsized Treasury issuance slate – because those trillions in stimulus checks won’t pay for themselves – although the real question is how will the 20Y auction price when it is offered next week to the public.