Carnage in homebuilder sentiment following a record collapse in homebuyer sentiment means it really should not be a total surprise to see Housing Starts crashed 22.3% MoM (the biggest drop since 1984). Building Permits also plunged, but by a lower amount, down 6.8% MoM.
Source: Bloomberg
Under the hood, Single-family starts fell to 856k from 1,037K SAAR, a 17.5 drop, while multifamily starts crashed 32.1% to just 347K, the lowest since July, from 511K in February.
Permits were ugly too, although here multi-family units actually rose 5.2% to 423K, while it was single family that tumbled to 884K from 1,005K, a 12% drop.
And this is before the more national lockdowns came into effect!
Despite Stellar Trading Results Morgan Stanley Hit By Loss Provisions; Warning Of 30% Drop In April Trading Volume
While corporate America’s income statement has been hit hard by the plunge in revenue and cash flow, its balance sheet remains resilient for now, although not for long with the pain expected to come over time as cash and liquidity gets depleted. For the US banking system it’s been the other way around, with balance sheets emerging as the source of pain as banks scramble to predict the future and estimate how many billions in loans will default – so far the big 4 banks have taken $24BN in loss reserves – even as their income statements remain solid and in fact – largely thanks to the furious trading in March – many banks posted near record sale and trading numbers.
Morgan Stanley was one of them, with the bank rounding out Wall Street’s banner week for trading desks with a 24% first-quarter revenue surge, pushing the industry’s tally to the highest in eight years. The firm, which sports the world’s biggest stock-trading shop, said that business posted a 20% jump in the first quarter, with fixed-income revenue surging above $2 billion for the first time since 2012.
Some more details on the bank’s sales and trading prowess, which jumped by 30% from a year ago:
Equity sales and trading revenue 2.42BN (exp. 2.23bln, prev. 2.02bln Y/Y), driven primarily by Americas and Asia.
FICC sales and trading revenue 2.2BN (exp. 1.71bln, prev. 1.71bln Y/Y) “partially offset by declines in credit products, notably in securitized products and municipal securities, which were negatively impacted by market dislocation.”
The bank’s sales and trading group was also helped by gains on economic hedges that it put in place as part of its corporate lending activity.
Meanwhile, investment banking revenue decline by 1% to $1.144BN from $1.15BN as advisory revenues fell to 362MM from 406MM driven by lower completed M&A activity on a decline in volumes, particularly in large transactions. Fixed Income underwriting rose to 446MM from 406MM, “clients accessed the market to benefit from the lower rate environment and to raise additional liquidity in March.” At the same time, equity underwriting came in better than analysts expected, at $336 million, topping the $303 million average estimate, although the firm warned there was a “steep decline” in global equity volumes in the second half of the quarter. Other revenue -1.1bln (prev. +222mln Y/Y), “reflecting mark-to-market losses on corporate loans held for sale due to the widening of credit spreads and an increase in the allowance for credit losses for loans held for investment”
And yet, just like the rest of its peers, the bank was hit by the surge in market volatility as firmwide revenue dropped 8%, driven by more than $1 billion of provisions and writedowns on loans and the markdown of an energy-related investment. The result was a miss in both the top and bottom line, with revenue of $9.487BN missing exp. of $9.73BN, and EPS of $1.01, also below the exp $1.14, even as the bank said it had “not experienced any significant loss of operational capability as the company implemented pandemic related responses.”
“Over the past two months, we have witnessed more market volatility, uncertainty and anxiety as a result of the devastating COVID-19 than at any time since the financial crisis,” Chief Executive Officer James Gorman said in a statement Thursday. And for him it was personal: Gorman, 61, said last week that he tested positive for the coronavirus in March and had informed the board. He was never hospitalized and continued to run the bank while quarantined. Morgan Stanley didn’t disclose the diagnosis until the CEO had recovered and been cleared by his doctors.
There was more bad news: the bank also said the pandemic and its effect on the economy may “adversely impact our future operating results, and the attainment of our financial targets.” During the earnings call, CFO Pruzan says trading volumes in April are down as much as 30%. Morgan Stanley’s stock did not like the news, and was down 1.1% to $37.98 at 7:28 a.m. in early New York trading.
Curiously, the bank recorded a $1.079 billion loss in its “investments and other” unit, blaming that on a decline in revenue on investments primarily driven by a markdown on an “energy-related investment.”
The bank also saw revenue decline due to some mark-to-market losses on corporate loans held for sale due to the widening of credit spreads and an increase in the allowance for credit losses on loans it holds for investment. Those declines, the bank says, were due to the deterioration in credit that began in March.
The question now is how long will the boost from the March volatility surge persist: as Bloomberg notes, the outbreak of the coronavirus sparked wild price swings in stock and bond markets, a boon for Wall Street trading desks that became an island of prosperity as the pandemic attacked other businesses. The top five trading firms generated a combined $27 billion in revenue, rebounding from years of low volatility that kept trading operations underperforming.
Unfortunately that surge will hardly be enough to offset the tens of billions in loan losses that are coming as millions of Americans default on their loans.
The gains at Morgan Stanley showed its traders can still be counted on to help boost results even as the firm shifts more of its focus and resources to managing money. That operation had an 8% drop in revenue. Gorman has made expanding in wealth management his top priority in the years following the financial crisis. In February, the firm unveiled plans to purchase E*Trade Financial Corp. as Gorman turned to acquisitions to speed up Morgan Stanley’s makeover. It was the industry’s biggest takeover since the 2008 financial crisis, but the timing was particularly unlucky: The day of the announcement marked the start of a historic slide in the S&P 500 index that at one point erased a third of its value.
Although the researchers do note, over half of the unemployed reported being temporarily laid off, suggesting that many could return to work quickly if conditions improve.
However, what is most disturbing is that in the last four weeks, more Americans have filed for unemployment than jobs gained during the last decade since the end of the Great Recession… (22.13 million gained in a decade, 22.025 million lost in 4 weeks)
Finally, perhaps some good news, the latest Google Trends data also suggest that interest in filing claims waned somewhat.
Worse still, the final numbers will likely be worsened due to the bailout itself: as a reminder, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27, could contribute to new records being reached in coming weeks as it increases eligibility for jobless claims to self-employed and gig workers, extends the maximum number of weeks that one can receive benefits, and provides an additional $600 per week until July 31. A recent WSJ article noted that this has created incentives for some businesses to temporarily furlough their employees, knowing that they will be covered financially as the economy is shutdown. Meanwhile, those making below $50k will generally be made whole and possibly be better off on unemployment benefits.
Finally, it is notable, we have lost 710 jobs for every confirmed US death from COVID-19 (30,985).
“It was a closest run thing you ever saw in your life…”
Markets stumbled y’day – caught between hopes the global economy will shortly reopen versus the increasingly dire economic outlook and the complexities of reopening. Yesterday’s record 8.7% decline in US retail sales triggered a “wake and smell the coffee moment”. In a hope vs reality fight – guess who usually wins…
The good news is New York, the UK and much of Europe seem to be at the top of the C-19 curve. The bad news is it feels like a market “Judder” is underway – that moment when reality bites, market sentiment turns and reassessment occurs. I sense it’s happening. It doesn’t mean a renewed market collapse is nailed on, but certainly the mood is turning sanguine and ugly. The focus will shift from FOMO over the rally to digesting the dire economic news as it deepens in coming weeks.
The Judder will have profound implications for the longevity of the current rally.
I’m remaining selective: I’m still flat/short all but a few names. My portfolio includes Netflix which hit a record – although I still think it’s a long-term competitive loser. What happens in 6-months when I’m bored watching Narcos for the 10th time, and they’ve delayed series 3 for a year? Switch to Disney? (Guilty secret: my son and I watched Moana y’day.. and its rather good.) My six Tesla shares are apparently worth more than the rest of the global car sector – and that really doesn’t make any sense.. I want an E-Tron!
The only thing worse than a battle gained?
Mistakes were made, but UK hospitals are coping splendidly. The battle isn’t over, but none of them were overwhelmed by cases. There has been tragedy, but there is pride – and a certain amount of guilt that the people of Britain who’ve saved us; the supermarket workers, the delivery drivers, the nurses, the care assistants and the rest are on close to minimum wages. The story of the young pregnant nurse puts a tear in my eye – but her daughter lives. The massive new Nightingale Hospital out in Docklands has only seen a trickle of cases – and that is fantastic. It tells us the curve was flattened.
Time to get back to work?
Let’s listen to the scientists. If the Americans want a willie-waggling contest between governors and the president; their call.
There is a lack of data – we simply don’t know enough about infections, rates and numbers. It’s a clear lesson to learn about testing. It’s now about a trade-off between opening earl or delaying opening. In the absence of real data, it’s probably better we wait a little longer. The big risk is opening too early could result in a second spike in C-19 cases in around 2-3 months. That’s a repeat crisis worth avoiding.
I’m increasingly confident the economy will be reopening by Mid May, and we will avoid the worst of the economic predictions. There will still be pain, and the cascade effects of increased debt, missed payments, and SME failures will reverb round the economy for years.
Yesterday I was trying to help a chum who expected to sell his middle-sized business and retire comfortably this year – now he’s struggling to keep it open, and he’s finding applying for the much-vaunted Government loans a nightmare. The multiplier effects of SME slowdown will be enormous as that happens across the nation. Areas like prime residential property – much of which is fuelled by retirees selling their businesses – are going to struggle.
My chums at Economic Modelers Neuron Capital are doing the work on when to reopen. They’re not quite done yet, but their initial thinking is it looks like if we relax the lockdown 2 weeks after the peak, we’d need to maintain social distancing measures around 80% of today’s levels to avoid a second peak. If we wait for 4 weeks, we can allow that to drop to 60%. Exactly what that means in terms of distancing is one issue – but economic activity will resume! (If you want to sign up with Neuron – let me know.)
Why Government debt is a bad thing…. It encourages Bureaucracy
I got involved in an argument yesterday about why Government’s raising lots more debt when interest rates are so low is such a bad thing.
We talked through the usual stuff about public debt crowding out private investment, the inefficiency of spendthrift government spending creating private sector bottlenecks, the massive pension burden government places on productive workers, (like UK government pensions being about 110% of total tax receipts in a few years time), and issues such as the hidden hand, the public goods governments should pay for, against the likely failures of governments trying to set market levels.
The real issue is bureaucracy – and how it stifles any economy.
Come the summer I had intended to write The Book about how bureaucracy is the most dangerous force acting upon Global Economies. They are pernicious, but predictable. They economic goal of any entity is maximisation. Traders’ economic goal is to maximise profits. Managerial accountants’ economic goal is the maximise margins. Mine is to maximise time on my sailboat.
The economic goal of bureaucracies is to maximise how deeply they can entrench themselves and exert control over the area of responsibility. Providing services becomes secondary to ensuring their own criticality to that service. Read this story on Zerohedge to understand how policy deliverables just get in the way of bureaucratic objectives: “Somethings Gone Wrong”: UK Government, Banks Screw Up COVID-Loans, SMEs Near Collapse.
If you want examples of how, let me introduce Janice Hewitt, who was chief officer for health and social care integration (whatever that means) at North Lanarkshire council. She received a pay package of over £615k last year. It included a massive pension contribution and compensation for loss of office after she left with a “golden parachute for poor performance”, according to trade union Unison.
Knowing what care assistants are paid in Scotland – and how long pensioners and the long-term sick have to wait for the scarce resource to be allocated to them, that pay-package would have funded over 30 care workers.
Ms Hewitt is not even a national civil servant – she’s a local authority employee – of a local authority in a deprived area that cut $16 mm in services last year, and hiked council tax by 3%. She isn’t the only Local Authority employee living it big – around the UK over 660 earn more than Boris Johnson’s prime ministerial salary.
While we are all out supporting the NHS and the bravery of our Nurses and Doctors, last year 15 NHS Trust Chiefs – the bureaucrats earned over £250k. Maybe that is a fair rate for these jobs – but ten times what a front-line Nurse earns seems high. Take a glance at the website of NHS England, the body that leads the health service in England. Its big. It’s got lots of senior managers – I did a quick search to see what they are paid. Its obscure, but looks likely to be quite a surprisingly large number.
You may say these managers are a bargain compared to private sector CEOs. Good argument – but the private sector is accountable. For civil servants, the buck and responsibility always stops with government.
These health service managers are paid to ensure the NHS delivers and are responsible for long-term planning. You would have thought that after an in-depth wargaming exercise of a Virus Pandemic in 2016 they would have paid attention to the need for PPE and Ventilators – the main conclusion of the exercise. Nope. They apparently missed that particular lesson. They are happy to take the cash, but they don’t take the flack.
Instead, every night, at 6 o’clock we get politicians thrown into political bearpit so some BBC harridan can scream at them for their bureaucrats’ mistakes. After this is done, it’s time for the unthinkable. A root-and-branch examination, refocus and relaunch of the NHS and other bureaucracies. Root out entrenchment and run them like business.. AND PAY THE FRONT LINE STAFF!
Yesterday, the California Court of Appeal decided Fargo v. Tejas, a libel case in which a trial court had sealed the alleged libel; the court concluded that this violated the First Amendment and California rules. Congratulations to my First Amendment Clinic student Jenny Wilson, who drafted the briefs and presented the oral argument (both in the trial court and on appeal) on behalf of the Electronic Frontier Foundation and the First Amendment Coalition, which intervened to get the case unsealed. The facts:
Respondent sued Tejas in December 2017 for defamation, false light, and intentional infliction of emotional distress after Tejas posted to her Instagram account images of respondent and several paragraphs containing statements that were allegedly defamatory per se because they exposed respondent “to hatred, contempt, ridicule, or obloquy, by depicting [him] as engaging in improper, corrupt, immoral and/or illegal conduct.” The complaint did not disclose the contents of Tejas’s Instagram post but alleged that it was “read by numerous persons,” some of whom “commented about the post on Tejas’s Instagram feed.” …
Tejas failed to respond to the complaint, and respondent moved for default judgment. At the same time, respondent moved to seal paragraph 9 of his supporting declaration, on the ground that it contained “private medical information” relating to his damages from Tejas’s post. Respondent also moved to seal exhibits … to his declaration, which contained copies of Tejas’s post, arguing that sealing those exhibits was necessary “to ensure that the defamatory statements are not distributed on a wider basis than they already have been … further damaging [respondent], adding to his emotional distress, and potentially negatively impacting his occupation in the future.”
On July 12, 2018, the trial court granted respondent’s motion to seal but made no findings to support the sealing order. A default judgment was entered ordering Tejas to remove the post, prohibiting her from republishing the defamatory statements in the post, and awarding respondent $100,000 in punitive damages.
EFF and FAC moved to unseal, seeking access to all the documents except the part of paragraph 9 that contained private medical information, but lost in the trial court:
The court found that paragraph 9 of respondent’s declaration “was properly sealed because it contained private medical information relating to the emotional distress [respondent] suffered as a result of the defamatory post and the treatment he received therefor.” The trial court further found that [the] exhibits … “implicated third parties, including a minor, and the Court concluded that their right to privacy outweighed the right of the public to access this information.” …
The Court of Appeal began by observing that the right of access to court documents is recognized under California common law, under the First Amendment, and California court rules 2.550-.551:
“A strong presumption exists in favor of public access to court records in ordinary civil trials. That is because ‘the public has an interest, in all civil cases, in observing and assessing the performance of the judicial system, and that interest strongly supports a general right of access in ordinary civil cases.’ [Citation.]”
It then concluded that the trial court’s refusal to unseal should be reviewed without any deference to the trial judge’s decision:
Challenges to a sealing order or an order denying a motion to unseal premised on a common law right of access are reviewed under the abuse of discretion standard. [California] Courts are divided, however, on the standard of review applicable to challenges premised on the First Amendment right of access. (Compare People v. Jackson (2005) and Copley Press, Inc. v. Superior Court (1998) [de novo review] with In re Providian Credit Card Cases (2002) and McGuan v. Endovascular Technologies, Inc. (2010) [abuse of discretion standard].) …
Citing both United States Supreme Court and California Supreme Court authority, the court in Jackson concluded that “cases implicating First Amendment rights are subject to independent review.” … The court further explained that when the trial court does not take testimony, and there is no credibility of witnesses to determine, independent review is the equivalent of de novo review…. The court in Oiye v. Fox (2012) … [disagreed] that the Jackson court had independently reviewed the sealing order because First Amendment rights were involved …. [Instead, it concluded that] “… the [Jackson] court’s decision to conduct independent review [was] based on the state of the record, where no declarations were presented regarding the propriety of the sealing order, and not on the First Amendment….”
We disagree with the Oiye court’s characterization of the holding in Jackson. The court in Jackson plainly stated that independent review applies when reviewing sealing orders that implicate the First Amendment right of access….
The sealing order in this case implicates First Amendment rights. We agree with the courts in Jackson and Copley, that the order is subject to our independent review. Although the trial court here arguably took testimony, in the form of respondent’s declaration, witness credibility was not an issue given Tejas’s default and the default judgment subsequently entered in respondent’s favor. Independent review in this case is therefore the equivalent of de novo review….
The Court of Appeal then concluded that the trial court erred, under Cal. Rule of Court 2.550, in failing to initially make express findings required by that rule. “The trial court’s failure to make the required findings renders its sealing order deficient, and the order cannot support sealing the documents at issue.” And the later court order, entered after the EFF and FAC moved to intervene, was likewise inadequate:
The trial court subsequently made some of the required findings when it denied the motion to unseal, finding that paragraph 9 of respondent’s declaration “was properly sealed because it contained private medical information” and that exhibits … were sealed because they “implicated third parties” whose “right to privacy outweighed the right of the public to access this information.” Those findings were insufficient to satisfy the statutory requirements. Rule 2.550 also requires express findings that the “proposed sealing is narrowly tailored” and that “[n]o less restrictive means exist to achieve the overriding interest.” Because neither the sealing order nor the order denying the motion to unseal contain the required findings, they cannot support sealing the documents sought by appellants.
Finally, the court concluded that the documents should be unsealed, though with modest redactions:
Appellants do not seek to unseal any portions of paragraph 9 of respondent’s declaration that contain private medical information relating to the emotional distress respondent suffered because of the defamatory post and the treatment he received. The portions of paragraph 9 that refer to respondent’s medical condition and treatment are limited and can be redacted.
The balance of paragraph 9 contains statements that are unrelated to respondent’s medical condition or treatment but discuss harm to respondent’s reputation and future business prospects. The threatened harm to respondent’s reputation and business prospects is not an “overriding interest” sufficient to overcome the First Amendment right of access. (See NBC Subsidiary (KNBC-TV), Inc. v. Superior Court (1999), citing State v. Cottman Transmission (Md.App. 1988) [closure not justified to minimize damage to corporate reputation]; In re Marriage of Burkle (2006) [“the intrusions into family privacy that accompany the dissolution of intimate relationships … do not support [the] view that no First Amendment right of access exists in divorce cases”]; Gilbert v. National Enquirer, Inc. (1996) [threatened invasion to right of privacy and threatened harm to reputation “are not the sort of ‘extraordinary circumstances’ required to justify a prior restraint”].) …
In its order denying the motion to unseal, the trial court states that it did not seal exhibits … because of the possibility of reputational harm to respondent. Commercial harm or personal embarrassment are not sufficient grounds, in any event, for sealing the exhibits in their entirety. (Jackson.)
The sealing order states that exhibits … were sealed because they “implicated third parties” whose “right to privacy outweighed the right of the public to access this information.” Based on our independent examination of the record, we conclude that references to third parties can be redacted or substituted with pseudonyms to protect the third parties’ right to privacy without denying public access to the exhibits in their entirety….
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With the world experiencing the worst pandemic since 1918, many people may wonder if civilization is as secure as it might be. History offers insight into this question. Civilizational breakdown is a recurring historical process. Looking at how it has happened before can help us understand what causes it, the forms it may take, and how far away from it we may be. Civilizational crisis and collapse were given a formal scholarly definition in Joseph Tainter’s 1988 book, The Collapse of Complex Societies, and Tainter’s model underlies the work of later generations of scholars.
The model works this way. Since at least the advent of agriculture, people have responded to challenges and sought to improve their condition. One form this takes is through social cooperation and the division of labor, an approach that leads to more complex forms of economy, society, and politics. In the abstract, complexity means higher levels of heterogeneity, as opposed to uniformity. In concrete economic terms, it means a more elaborate division of labor, a larger number of distinct occupations, and greater specialization both geographically and among people. Socially, it means a greater number of roles and ways of living, more variety in the stages of life, increased differentiation, and more varied and changeable interpersonal relations. Politically, it means more structured political units, more elaborate administration, and higher levels of urbanization. Complexity in all of these forms brings a positive payoff in terms of more production, higher living standards, more inventiveness, and a more varied and commodious way of living. It therefore pays to move toward more complex ways of doing things and living.
But there are limits to this approach. Complexity has diminishing marginal returns: The gains from complexity become less as it increases, while the costs (such as information problems, ineffectuality, and difficulty in changing course) become greater. Eventually, increased complexity has negative returns. Moreover, as social, economic, and political orders become more complex they also become more fragile and brittle, less resilient and adaptable. They become less able to cope with unexpected shocks (or even shocks that are anticipated). As the system becomes more complex and interdependent—in ways that the people who are part of it do not fully understand—it becomes susceptible to a general breakdown caused by cascade effects. These happen when a failure in one part of the system leads to unforeseeable failures in other parts. These failures may have no obvious connection to the original problem, which in turn leads to further breakdowns elsewhere.
Underlying all of this for most (or all?) of history is the fundamental reality of limited resources. These impose constraints on the level of complexity that a given type of economic and social organization can support. These limits usually lurk in the background, but as the population, level of human activity, and complexity reach such constraints, they start to pinch in many ways. It is that pressure that brings the collapse of a complex order. For Tainter and his successors, the process is actually one of simplification, the breakdown and decomposition of complex forms of organization into simpler and less diverse ones. This has many aspects, including a decline in population and urbanization; a move from large polities to smaller, more local ones; and a decay of elaborate trade systems and divisions of labor. Sometimes the process is arrested or even reversed, and sometimes it continues until a new, simpler equilibrium is reached.
Importantly, collapse does not usually mean cataclysm: The process takes place over two or three human lifetimes rather than as a single, dramatic event. A number of indicators suggest that a society is entering such an episode: overproduction of elites, intensified social conflict, diminishing returns on investment across the whole range of assets, increasingly severe shortages of key resources and materials, conflicts over access to resources between groups and states, large-scale migration, and increasingly severe environmental degradation. One common feature is widespread epidemics. Another is famines, caused as much by interruptions to the food supply and distribution system as by natural events. All these things are both causes and components of the process of collapse.
Much of human history consequently has a cyclical quality. A society will start off relatively simple (“undeveloped,” we might say) and gradually become more complex, sophisticated, and wealthy. Eventually it reaches the limits of that process and a crisis ensues. It may adapt or surmount it, but more often it does not; the society returns to a simpler, less complex form. There are several well-known examples of this, such as the collapse of the classical Mayan civilization in the eighth and ninth centuries, the breakdown of the ancient civilizations of the Middle East and the lands around the Mediterranean in the sixth century, and the disintegration of the civilizations of the late Bronze Age in the 12th century B.C. It has happened several times in Chinese history. But the process is not straightforwardly cyclical. Sometimes civilizations rebound, as the Roman Empire did after the great crisis of the third century. The simplification process can be arrested at a number of levels of complexity above that of original simplicity, depending on a number of factors.
There is a force that works against the dynamic identified by Tainter and described above. That is the process of innovation, derived from the combination of human ingenuity and the liberty that gives it expression and encourages it. The innovative process can be spurred by the challenge of reaching a natural limit, opening up ways of pushing that limit further out and so checking or reversing the breakdown.
Since 1300, the world has experienced two major episodes of civilizational crisis on a global scale, one in the 14th century and the other in the 17th. On both occasions, although the damage was considerable, human civilization in all parts of the world survived the challenge. Since the middle of the 18th century, the world has pushed up against natural limits several times. On each of these occasions there was a major crisis, but the outcome was not a collapse but a breakthrough to a new level of technology and organization that resolved the crisis.
It seems very likely that we are currently experiencing the fourth such crisis since the early 18th century. We certainly see many signs of a crisis of complexity. This probably explains the current popular fascination with novels, movies, TV shows, comic books, and video games centering on the breakdown of civilization, with the precipitating disasters ranging from plagues to asteroid impacts to nuclear war to zombies. Alongside all this fiction is a flourishing prepper industry and subculture This sort of apocalyptic thinking tends to lull and surge, and lately we’ve been experiencing the latter. I don’t think that’s a coincidence.
A major pandemic is one of the classic aspects of a civilizational crisis. All of our systems—social, political, and economic—are being put through what we may regard as a stress test. We will discover which are resilient and robust, which are fragile and brittle, and which are actually antifragile, thriving on the breakdown of structures. Quite apart from COVID-19, if we look at the signs of systemic stress we can observe that, once again, human ingenuity is producing technologies and ways of doing things that will enable us to overcome this time of troubles. We may be facing a rather challenging time, perhaps lasting many years. But we should be confident that global civilization will overcome this, as it has before.
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On the first Monday in October, the Harlan Institute and The Constitutional Sources Project (ConSource) announce the Seventh Annual Virtual Supreme Court Competition. This year, the tournament focused on Espinoza v. Montana v. Department of Revenue. Twenty-one high school teams advanced to the semifinal rounds. They prepared briefs, and presented live oral arguments via Zoom. These students are very impressive. Here are their entries, with links to their briefs.
Earlier in April, we hosted the semifinal rounds. The top eight teams advanced to our “Elite Eight” round. Here are the new videos.
Futures Rebound Ahead Of 6 Million More In Jobless Claims
Europe rebounded from yesterday’s slump, reversing earlier weakness in Asia, pushing global stock markets higher on Thursday as tentative moves to reopen parts of the some of its larger coronavirus-hit economies offset some truly stinking global economic numbers. U.S. stock index futures edged higher on Thursday, with investors weighing the prospects of the economy re-opening against worsening macroeconomic data, dour first-quarter earnings reports and a 4th consecutive jobless claims report that will print in the millions. Oil rebounded from yesterday’s plunge, while Treasury yields dropped and greenback continued its surge from a day earlier.
On Thursday, BlackRock, the world’s largest asset manager, reported a drop in quarterly profit as investors pulled money out of its marquee funds and preferred cash management services. But that’s ok, now that the fund is frontrunning the Fed – and getting paid for it – earnings should rebound promptly with the blessing for Jerome Powell. Medical equipment maker Abbott Laboratories is scheduled to report quarterly results later in the day, while Morgan Stanley reported Q1 earnings that missed on the top and bottom line.
On Wednesday the S&P 500 sank from a four-week high on Wednesday as the big U.S. banks braced for a wave of potential loan defaults as the coronavirus crushed business activity, while economic data was catastrophic with American retail sales and factory output posting historic declines in March, and surveys in April looked even worse. Manufacturing in New York state and sentiment among the nation’s homebuilders plunged.
The pan-European STOXX 600 index rose over 1% in early trade, spurred by a drop in the virus death tolls in both Spain and Italy and reassuring statements from two of the continent’s big budget airlines about their survival prospects.
“We have had this big wave of big announcements by governments and central banks and now we need to get into the nitty gritty of how it all works,” said AXA Investment Managers chief economist Gilles Moec. “We need to see if it is working, how it is working and if we need to do more.”
Earlier in the session Asia had had a difficult day as a result. Tokyo’s Nikkei dropped 1.3% and MSCI’s broadest index of Asia-Pacific shares outside Japan lost almost 1%, wiping out early week gains that had taken it to a one-month high. Markets in the region were mixed, with Jakarta Composite and Thailand’s SET falling, and India’s S&P BSE Sensex Index and Shanghai Composite rising. The Topix declined 0.8%, with and Factory and Pipedo falling the most. The Shanghai Composite Index rose 0.3%, with Datang Huayin Electric Power and Pinggao Electric posting the biggest advances. Benchmark indexes in Australia and Hong Kong also posted falls between 0.4% and 1.3% and some emerging markets fell harder.
“A recovery timeline…remains impossible to predict,” said Ronald Lam, chief customer officer at airline Cathay Pacific, which has slashed nearly all its passenger capacity and lost a fifth of its value this year.
In rates, the 10Y yield was trading at session lows of 0.60%, down 15bps in two days. Given the rebound in EU equities, Eurozone periphery paper added to recovery gains.
In FX, the dollar climbed against all its Group-of-10 peers, while the Aussie dollar led declines. The Aussie slid to a one-week low even as a report showed Australian employers unexpectedly added jobs in March. The Kiwi dollar fell after Reserve Bank of New Zealand Governor Adrian Orr said the central bank hasn’t ruled out negative interest rates. The pound fell as the U.K. is expected to extend its coronavirus lockdown Thursday, while the Bank of England’s Tenreyro will speak. The Canadian dollar was supported as oil prices bounced from recent lows.
In commodities, crude sat at $20.22 per barrel, just over $1 above an 18-year low hit on Wednesday, and Brent crude rose 37 cents or 1.3% in European trade to $28.02 per barrel.
The International Monetary Fund is predicting zero growth in Asia this year for the first time in 60 years, as exporters are pounded by slumping demand and anti-virus measures force consumers to stay home and shops to shut down.
Today’s focus will be on the weekly jobless claims, which are likely to have surged past 5 million last week, taking total unemployment claims to an astounding 20 million in the past month as both corporate results and economic data highlight the severe hit from the shutdown of industry and commerce needed to combat the spread of the coronavirus. Ever more astounding – the market has surged the past three weeks when claims printed in depression territory, almost as if the market is cheering China’s destruction of the US economy with the help of a virus.
“The economic reality and corporate earnings reality, at some stage, needs to reconcile with the markets,” Tai Hui, Asia-Pacific chief market strategist at JPMorgan Asset Management, said in a phone interview. “The market hasn’t fully factored in the uncertainties or potential risks in terms of earnings downgrades.”
“We don’t know what the economy is going to look like over the next year – there is a lot of uncertainty with the virus,” said PIMCO’s Mark Kiesel on Bloomberg TV. “We are not through the woods yet — there could be a second wave.”
Meanwhile, President Donald Trump is expected to announce “new guidelines” for re-opening the economy as he said data suggested the United States had passed the peak on new coronavirus infections. Markets also seized on the fact that policymakers, however reluctantly, are starting to allow stringent lockdowns to ease. Germany is proposing to reopen schools and some retailers starting May 4, while around 20 U.S. states spared the worst of the coronavirus pandemic may start reopening their economies by President Donald Trump’s May 1 target date. Firms are looking to restart as well. Volkswagen has said its factories in Germany and Slovakia will resume some production from April 20 with others following a week later.
But the economic figures are dire. After the IMF’s forecasts for this year, markets are expecting China to report on Friday that Q1 GDP contracted for the first time on record, and hopes for a quick rebound are fading fast. A Reuters survey showed that most Japanese firms feel stimulus announced so far are insufficient and Wednesday’s U.S. data also showed manufacturing output there dropping the most in over 74 years.
Expected data include jobless claims and housing starts. Abbott, BlackRock, and Morgan Stanley are among companies reporting earnings
Market Snapshot
S&P 500 futures up 0.8% to 2,795.75
STOXX Europe 600 up 1.2% to 326.82
MXAP down 0.9% to 142.00
MXAPJ down 0.6% to 458.18
Nikkei down 1.3% to 19,290.20
Topix down 0.8% to 1,422.24
Hang Seng Index down 0.6% to 24,006.45
Shanghai Composite up 0.3% to 2,819.94
Sensex up 1% to 30,669.94
Australia S&P/ASX 200 down 0.9% to 5,416.28
Kospi unchanged at 1,857.07
German 10Y yield rose 2.8 bps to -0.437%
Euro down 0.2% to $1.0887
Italian 10Y yield rose 9.8 bps to 1.709%
Spanish 10Y yield rose 0.6 bps to 0.869%
Brent futures up 1.6% to $28.14/bbl
Gold spot up 0.4% to $1,723.74
U.S. Dollar Index up 0.3% to 99.75
Top Overnight News
U.S. President Donald Trump said he will unveil guidelines to relax stay-at-home rules on Thursday, citing signs that the outbreak is plateauing in parts of the country. Britain is expected to extend its lockdown
The coronavirus marked another grim milestone, reaching 2 million cases around the world. It took about four months for the virus to infect 1 million people and only 12 days for that number to double
The U.S. economy went into a defensive crouch as the coronavirus swept through the country, according to a new report from the Federal Reserve
Australian employers unexpectedly added jobs likely bolstered by hiring at supermarkets and associated supply chains to assist with the spending surge ahead of the lockdown and confounding the expectations of most economists
The U.K. coronavirus lockdown’s chilling effect on the economy was laid bare in data Thursday. Total retail sales slumped 27% in the two weeks following the government’s order to stay at home according to the British Retail Consortium. That compares to a 12% increase in the first three weeks of March as households stocked up on goods
Oil was anchored near $20 a barrel after closing at an 18-year low as concerns over virus-led demand destruction outweigh an agreement by the world’s biggest producers to curb supply
President Donald Trump said he will unveil guidelines to relax stay-at-home rules on Thursday, citing signs that the coronavirus outbreak is plateauing in parts of the country
The median estimate of economists surveyed by Bloomberg sees China’s gross domestic product contracting 6% in the three months to March, though forecasts range from -16% to growth of 3.6%
Germany agreed to backstop losses of 30 billion euros ($33 billion) for commercial credit insurers this year to keep trade flowing and prevent bankruptcies as the coronavirus crisis causes widespread disruption
Asian equity markets remained subdued amid the headwinds from Wall St where risk sentiment was dampened by the ongoing oil market rout, weak earnings from the large banks and poor data releases, with comments from President Trump not helping to brighten the mood as he threatened to adjourn Congress if administration nominations are not confirmed. ASX 200 (-0.9%) was dragged by broad weakness across its sectors aside from some resilient patches among defensives and with corporate updates also providing a catalyst for individual stock moves, while Nikkei 225 (-1.3%) was dampened as coronavirus-related disruptions and shutdown extensions hampered Tokyo blue-chip manufacturers. Hang Seng (-0.6%) and Shanghai Comp. (+0.3%) traded subdued as sentiment in Hong Kong was dampened amid the weakening economic climate with Hong Kong Financial Secretary Chan suggesting the government will likely downgrade its outlook, although losses in the mainland were limited as markets await tomorrow’s slew of tier 1 Chinese data including Q1 GDP which People’s Daily noted will remain positive despite the current expectations for a contraction of 6.5% Y/Y. Finally, 10yr JGBs were higher amid the weakness seen across stocks and with prices underpinned following firmer demand at the enhanced liquidity auction in the long to super-long end.
Top Asian News
China Says Factories May Halt Output Again on Costs, Weak Demand
Deadline Expires for Israel Power-Sharing Talks Without Deal
European equities hold onto most of their gains (Euro Stoxx 50 +1.0%) as prices were lifted around the entrance of European players following a less optimistic, more-so mixed, APAC lead. News-flow has been light thus far, although the price action seems to be more consolidation from yesterday’s moves. Late yesterday, France, Spain, Austria, Belgium, and Greece extended their short-selling ban on stocks to May 18th (originally set to expire in the coming days), albeit the respective bouses do not see significantly disproportionate price action vs. the region. Sectors are mostly in the green (ex-energy) but do not reflect a clear risk-tone. The IT sector outperforms as chip names see tailwinds from strong TSMC earnings, after the world’s largest contract chipmaker’s Q1 profit almost doubled on chip demand; albeit, H2 revenue is seen “flattish or may decline slightly”, the group also maintained its Capex guidance. Thus, the likes of STMicroelectronics (+3.0%), Infineon (+2.7%) and Dialog Semiconductor (+4.1%) remain underpinned. The sector breakdown sees Travel & Leisure towards the top of the pack amid tailwinds from easyJet’s (+3.0%) trading update in which it announced further steps to strengthen liquidity, which will be sufficient for a lengthy period of fleet grounding. Other individual movers include EDF (-5.9%) as shares feel the brunt of demand potentially falling to 20% of normal levels amid the virus outbreak
Top European News
Italian Bonds Extend Gains Across Curve Amid Hope of ESM Support
Germany to Provide 30 Billion-Euro Backstop for Credit Insurers
Merkel Moves Ahead With Gradual Return to Normality in Germany
Russia’s Oil Pain Deepens as OPEC+ Prepares to Cut Output
In FX, the Antipodean Dollars have both extended losses vs their US rival in wake of comments from RBNZ Governor Orr overnight reiterating that negative interest rates remain an option along with direct financing in response to the coronavirus, while a considerably better than expected Australian employment report was swiftly dismissed due to the early data reference period that preceded the closure of non-essential businesses due to COVID-19. The Kiwi is trying to hold above 0.5945 lows and Aussie reclaim 0.6300 vs 0.6266 or so at one stage as Aud/Nzd straddles 1.0550 ahead of key Chinese releases early on Friday, headlined by Q1 GDP, but also including March ip and retail sales.
JPY/EUR/GBP/CHF – All weaker against the Greenback as the DXY remains elevated within a 99.615-100.000 range, but with the Yen off worst levels and perhaps cushioned by decent option expiry interest at the 108.00 strike (1.8 bn) even though Japan is reportedly on the brink of extending its partial state of emergency from 7 prefectures to the whole country through to May 6. Similarly, the Euro could derive traction from multi-billion expiries under 1.0900 (1.0840-50 in 1.5bn, 1.0875 in 1.5bn, 1.0880-85 in 1.1bn) having derived very little if any support from not quite as bad as forecast Eurozone ip or ECB’s Schnabel ramming home the message that more conventional easing is counterproductive. However, the single currency did get some transitory momentum from Eur/Gbp cross flows as the pair bounced towards 0.8730 and Cable tripped some stops at 1.2460 awaiting official confirmation that UK lockdown will be prolonged until May 7 at least. Elsewhere, the Franc is still mixed just above 0.9700, but edging closer to 1.0500 vs the Euro following deeper Swiss producer and import price deflation (in y/y terms).
CAD/NOK/SEK – Relative G10 outperformers as some buoyancy in oil prices underpins the Loonie and Norwegian Crown after the former extended post-BoC losses, while the Swedish Krona has shrugged off softer Prospera money market inflation expectations and Riksbank-Riksdag wrangling over policy mandates amidst a modest upturn in broad risk sentiment.
EM – Although crude markets seem calmer to the benefit of the Rub, no such comfort for the Mxn in wake of Fitch downgrading Mexico to BBB from BBB-, as the Peso languishes under 24.4000 vs the Buck and not far from earlier April lows.
In commodities, Choppy trade in the complex as WTI and Brent front-month futures nursed earlier losses and extend on gains throughout the European session thus far, with the former initially faring slightly better than the latter heading into the OPEC+ monthly oil market report, albeit this has now reversed and the difference between the contracts widens. WTI potentially saw some support from reports that the US will be paying drillers to leave the oil in the ground amid the supply glut. Traders will now be eyeing the report for the group’s 2020 outlook, especially after producers hammered out a deal over the weekend. For reference, IEA predicts 2020 global oil demand to slump 9.3mln BPD whilst EIA downgraded its forecast by 5.6mln BPD. IEA report also stated that no feasible agreement could cut supply by enough to offset near-term demand losses, so it will be interesting to see OPEC’s take on the market balance. WTI trades on either side of USD 20/bbl after printing an ~18yr base yesterday at USD 19.20/bbl. Brent prices meanwhile gain ground above 28/bbl with its respective YTD base around USD 21.70/bbl. Elsewhere, spot gold is back on a firmer footing and remains comfortably above USD 1700/oz. Some note that the rally in the yellow metal has been underpinned by significant inflows into ETFs. Spot gold sees its recent high at 1747.75/oz. Copper meanwhile, mirrors the gains in stocks, albeit price action in the red metal remains muted/contained. Finally, aluminium prices continued to rise with desks citing rising expectations of supply cuts driving the market alongside modest improvement in the Chinese markets.
US Event Calendar
8:30am: Housing Starts, est. 1.3m, prior 1.6m; 8:30am: Housing Starts MoM, est. -18.7%, prior -1.5%
8:30am: Building Permits, est. 1.3m, prior 1.46m; Building Permits MoM, est. -10.47%, prior -5.5%
8:30am: Philadelphia Fed Business Outlook, est. -32, prior -12.7
8:30am: Initial Jobless Claims, est. 5.5m, prior 6.61m; Continuing Claims, est. 13.3m, prior 7.46m
9:45am: Bloomberg Consumer Comfort, prior 49.9
DB’s Jim Reid concludes the overnight wrap
One of the strange things about this lockdown in the U.K. is that after months of constant rain, since the lockdown commenced we’ve had almost wall to wall unseasonably hot weather. One silver lining has been that I’ve managed to fulfill a lifelong ambition during this episode and that is to wear shorts every day to work.
Indeed the shorts were out at home and in charge in the market yesterday as it was a rare risk off day yesterday in terms of the bull market of the last three weeks. Don’t fear though as we have initial jobless claims today to maybe help us change course? Over the last three weeks where we’ve seen a stunning 16.8 million people file, the S&P 500 has been up +6.24%, +2.28%, +3.41% in each of these sessions. For the record an extra 5.5 million are expected today. As our economists have detailed we are on track for a 17% unemployment rate in the US in April, which would be a new post-WWII high.
Global equities sold off as data releases for March along with company earnings showed that we are now going to enter the peak of the bad data/earnings news even if we may be past the peak of the epidemic for now. In fact equities were off the lows of the session just after Europe closed as Germany announced a cautious but planned exit strategy starting from May 3rd. Their plan is to open secondary schools, hairdressers and smaller shops with strict hygiene measures. Bars, restaurants, and hotels will remain closed until further notice, and large gatherings will remain forbidden until at least September.
On the virus development, global cases have climbed above 2 million in the last 24 hours. Worldwide cases passed 1 million on April 2, so we have doubled over the last 13 days, whereas it took 8 days previously to double from 500,000. The pace of new case growth is slowing along with fatalities virtually everywhere in the developed world. For more on this and all the latest virus news see our Corona Crisis Daily.
Back to markets and by the end of the session, the S&P 500 was down -2.20% (off session lows of -2.97% ), its largest move lower in 2 weeks, while in Europe the STOXX 600 was down -3.25%. As noted above, US equities recovered shortly after Chancellor Merkel’s press conference, where she outlined the initial exit strategy for the largest economy in Europe, before fading again into the close. Energy stocks led the declines thanks to oil’s move lower (more below), but every sector in both the S&P 500 and the STOXX 600 ended up lower on the day. The Energy sector was down -5.42% and -6.30% in the US and in Europe. Banks weren’t much better and were down -5.93% and -6.20% respectively as loan loss provisions in US results season so far has spooked investors a bit. Furthermore, and in a sign of investor jitters, the VIX index of volatility actually rose for the first time in over a week, moving up by +3.1pts, which is its biggest daily percentage move higher since March 16th when the VIX reached its highest closing level of the coronavirus pandemic. Another notable sign of the deterioration was in financial conditions, with the Bloomberg US financial conditions index snapping a run of 12 successive daily improvements to tighten for the first time since late March.
Overnight, markets in Asia have taken their cue from Wall Street with the Nikkei (-1.37%), Hang Seng (-0.79%), Shanghai Comp (-0.17%), ASX (-1.05%) and Kospi (-0.37%) all down. In FX, the New Zealand dollar is down -0.65% after the country’s central bank governor indicated that the option of negative rates are “not off the table” while the Mexican peso has weakened -1.70% after Mexico’s sovereign rating was downgraded to BBB- by Fitch. Elsewhere, futures on the S&P 500 are trading down -0.58% while yields on 10yr USTS are up +1.2bps to 0.644%.
In terms of overnight newsflow, President Trump has indicated that he will unveil guidelines today on how the US plans to relax stay-at-home rules. Meanwhile, Singapore has reported its highest daily increase of coronavirus cases with 447 new cases. Most of these cases (c. 90%) are tied to facilities that house migrant workers in close quarters. In South Korea, the government has unveiled a second extra budget this morning of KRW 7.6tn ($6.2bn) to pay for emergency cash handouts. Sticking with South Korea, in yesterday’s election President Moon’s Democratic Party of Korea and its satellite party are projected to win at least 180 seats in the 300-seat National Assembly, according to election results and projections compiled by Yonhap News Agency. The report further added that if projections indeed transpire to reality then it would amount to the biggest win since democratic elections began in 1987.
Moving on. Company earnings releases haven’t helped markets much so far. The US banks reporting yesterday painted a picture of lower profits and increased provisions for loan losses, with only the more markets oriented GS higher on the day. Goldman Sachs’ (shares +0.16%) net earnings of $1.21bn were down -46% on the previous year, and they put aside $937m in provision for credit losses in Q1. Bank of America’s (-6.41%) net income was down -45% on the previous year at $4.0bn in Q1, and they similarly made a $4.8bn provision for credit losses. Finally, Citigroup’s (-5.61%) net income of $2.52bn in Q1 was down 46%. Meanwhile ASML (-2.23%) didn’t even issue guidance for Q2 or full-year 2020 because of the increased uncertainty from the coronavirus.
Oil prices also continued to decline, with Brent Crude (-6.45% yesterday) and WTI (-1.19%) lower, even as oil prices rallied near the US close on news that the US may pay drillers not to produce, though it is not clear yet in what way. The earlier weaker moves came as the International Energy Agency said yesterday that they expected global oil demand to fall by a record -9.3m barrels per day in 2020 compared with last year. And for April, demand would be down by -29m b/d compared with a year ago, reaching levels not seen since 1995. Notably, they said that the implied stock build-up from the first half of the year “still threatens to overwhelm the logistics of the oil industry – ships, pipelines and storage tanks – in the coming weeks.” Oil-producing currencies suffered, with the Norwegian krone (-1.94%) and the Canadian dollar (-1.67%) both losing ground against the US dollar, although it should be said that much of that was as a result of dollar strength as investors sought out safe havens, with the dollar index up +0.58% yesterday in its largest daily appreciation since March 30.
Over in fixed income, there was yet another widening of sovereign bond spreads in southern Europe yesterday, with the spread of Italian (+18.7bps), Spanish (+10.8bps), Greek (+23.5bps) and Portuguese (+12.9bps) 10yr debt all widening over German bunds. Italian BTPs saw some sizeable intraday swings in particular, with the spread being up +28.8bps at the high, which would have been the largest single-day widening since March 16th. They closed at 235bps – the highest since March 18th. So investor concern over the debt piles in southern Europe haven’t gone away, in spite of the ECB’s Pandemic Emergency Purchase Programme and the Eurogroup meeting last week. The domestic debate over whether the ESM should be accessed in Italy rolls on. Europe will still need to pull off a diplomatic coup this time next week at the next Eurogroup meeting to flesh out the details of the recovery fund in a way acceptable to all.
Staying with spreads credit also had a set back after a good run. US cash HY and IG widened +29bps and +3bps with the equivalent in Europe +1bp and +6bps wider.
The flight to safety helped support core countries’ debt, with 10yr Treasury yields down by -12.0bps to 0.632%. Bunds also rallied strongly yesterday, with the entire yield curve out to 30 years negative-yielding once again. 10yr yields were down by -8.8bps.
The risk-off mood for markets came against the backdrop of hard data from the US coming in even worse than had already been anticipated by economists, which added to the already negative tone of yesterday’s session. Retail sales in March fell by -8.7% (vs. -8.0% expected) on a month-on-month basis, far exceeding the worst monthly performance in the financial crisis, which was “only” a -3.9% decline in November 2008. That said, there were some notable divergences between sectors, with food and beverage stores showing a +25.6% monthly increase as increasing numbers of people have been told to stay home, while clothing and clothing accessories stores were down by -50.5%. The picture wasn’t any brighter in the other releases however, with March’s industrial production falling by -5.4% (vs. -4.0% expected) month-on-month, which was the worst monthly performance since January 1946, less than a year after WWII had ended. And the April releases didn’t provide any respite either, with the Empire State manufacturing survey’s general business conditions index falling to a record low of -78.2 (vs. -35.0 expected), while the NAHB housing market index fell to 30 (vs. 55 expected).
Later, the Fed’s Beige Book showed economic activity contracted sharply and abruptly across all regions in the US as a result of the virus. As expected, the hardest-hit industries were leisure and hospitality, as well as retail outside of essential goods. Loan demand was high, both from companies accessing credit lines and from households refinancing mortgages. The near-term outlook was for more job cuts in coming months.
Elsewhere the Bank of Canada left its policy rate unchanged at 0.25% but announced new measures to buy both provincial and corporate debt. The bank will buy up to CAD50 billion of provincial debt in a new Provincial Bond Purchase Program as well as buy up to CAD10 billion of IG bonds in the secondary market as part of its new Corporate Bond Purchase Program.
To the day ahead now, and there are a number of key data releases out. From the US, there’ll be March’s housing starts and building permits, the Philadelphia Fed business outlook for April, along with weekly initial jobless claims. Elsewhere, we’ll also get the final German CPI reading for March, Euro Area industrial production for February and Canadian manufacturing sales for February. From central banks there’ll be a number of speakers, including the BoE’s Tenreyro, as well as the Fed’s Bostic, Williams and Daly. Finally, there’ll be earnings releases from Abbott Laboratories, BlackRock and BNY Mellon.
As the coronavirus continues to infect more and more people, food supply chains have started to become more strained in recent days. It was announced yesterday; the world’s biggest pork producer is closing a primary U.S plant indefinitely after a coronavirus outbreak amongst employees.
Smithfield Foods Inc. will halt its pork-processing facility in South Dakota, which accounts for 4% to 5% of U.S pork production. The company also warned that closures across the country are taking American meat supplies “perilously close to the edge” of shortfalls. This is just one of the latest examples of the coronavirus beginning to disrupt food chains at a more significant scale rapidly.
We anticipated this, as we reported on April 1 that food supply chains were in the early stages of being strained. Many countries were preparing many weeks ago by cutting back on exports to begin stockpiling. Surprisingly, dairy farmers in the United States are starting to dump milk because there was no place for them to go as the marketplace for dairy products has been affected by the closures of restaurants, schools, hotels, and food service businesses.
One would begin to believe history might not be repeating itself, but it is undoubtedly starting to rhyme. During the great depression of the 1930s, the hardest-hit industry was farming. Farm incomes dropped by nearly two-thirds at the beginning of the 1930s. Dairy farmers dumped countless gallons of milk into the street instead of accepting a penny a quart.
During World War 1, farmers had produced record crops and livestock to keep everyone fed. However, when prices started to fell, they tried to harvest even more to pay their debts and living expenses. In the early 30s, prices dropped so low that many farmers went bankrupt and lost their farms. In some cases, the price of a bushel of corn fell to just eight to ten cents. Some farmers even began burning corn rather than coal in their stoves because corn was cheaper.
However, there is a dramatic difference today. Prices are not dropping; in fact, grocery bills are getting more expensive by the day. Supply chains are being disrupted due to the transportation and of course processing of a vast selection of foods.
As we are beginning to learn, the country where the coronavirus started, China, may now be facing a food crisis. The country has just reopened its economy as the communist regime has even claimed a coronavirus victory.
However, there was a leaked government document made public last Thursday that shows that government officials have been planning for a shortfall in food supplies.
The document, dated March 28, was drafted following a meeting which was called to make special arrangements for food security.
Leaked #CCP official notification from Linxia Prefecture in #Guansu Province in #China issued on Mar 28. Main points: Enhance awareness of the urgency and crisis state of food shortage. Guide and motivate the mass to ensure each family maintains food storage for 3-6 months. pic.twitter.com/GLpGyeBvu4
“The State Party Committee and the state governments and counties and cities must do everything possible to transfer and store all kinds of living materials such as grain, beef, mutton, oil and salt through various channels,” the document said, according to a report from Radio Free Asia
The document also calls for the “mobilization of the masses to consciously store grain and ensure that each household reserves between 3 and 6 months of grain for emergencies.”
As we tweeted out, there seems to be a sense of panic food buying in response to rumors around food shortage in certain parts of the country:
BREAKING
People rushing to buy rice and cooking oil in #Chongqing, #China on Mar 31. Worry about food shortage has been spreading for a while. There has also been leaked internal official notice suggesting people store food supply of at least 3-6 monthspic.twitter.com/kTkyhpwjvB
Another alarming headline that came late last month was the warning from the United Nations Food and Agriculture organization who has now warned of global food shortages in the coming months.
“The worst that can happen is that governments restrict the flow of food,” Maximo Torero, chief economist of the UN Food and Agriculture Organization, said.
Harvests have been good and staple crops remain in demand, but a shortage of field workers brought on by the pandemic and a move towards protectionism — tariffs and export bans — could lead to problems in the coming weeks, Torero said, according to the report.
“All measures against free trade will be counterproductive. Now is not the time for restrictions or putting in place trade barriers. Now is the time to protect the flow of food around the world,” Torero added, the news course reported.
Some countries have begun to protect their food supplies by restricting exports, which Torero reportedly said could lead to an overall decrease in trade and a subsequent decline in food production.
“Trade barriers will create extreme volatility,” warned Torero. “[They] will make the situation worse. That’s what we observe in food crises.”
Another measure that could threaten the world’s food supply is that nations have issued stay-at-home orders at varying levels of enforcement. If agriculture workers are legally unable to harvest crops, it could cause a lapse in food flow.
“Coronavirus is affecting the labour force and the logistical problems are becoming very important,” said Torero.
“We need to have policies in place so the labour force can keep doing their job. Protect people too, but we need the labour force. Major countries have yet to implement these sorts of policies to ensure that food can keep moving.”
One thing is clear, there certainly are supply chain disruptions going on within the food industry globally, the question is, how bad will it get?
Yesterday, the California Court of Appeal decided Fargo v. Tejas, a libel case in which a trial court had sealed the alleged libel; the court concluded that this violated the First Amendment and California rules. Congratulations to my First Amendment Clinic student Jenny Wilson, who drafted the briefs and presented the oral argument (both in the trial court and on appeal) on behalf of the Electronic Frontier Foundation and the First Amendment Coalition, which intervened to get the case unsealed. The facts:
Respondent sued Tejas in December 2017 for defamation, false light, and intentional infliction of emotional distress after Tejas posted to her Instagram account images of respondent and several paragraphs containing statements that were allegedly defamatory per se because they exposed respondent “to hatred, contempt, ridicule, or obloquy, by depicting [him] as engaging in improper, corrupt, immoral and/or illegal conduct.” The complaint did not disclose the contents of Tejas’s Instagram post but alleged that it was “read by numerous persons,” some of whom “commented about the post on Tejas’s Instagram feed.” …
Tejas failed to respond to the complaint, and respondent moved for default judgment. At the same time, respondent moved to seal paragraph 9 of his supporting declaration, on the ground that it contained “private medical information” relating to his damages from Tejas’s post. Respondent also moved to seal exhibits … to his declaration, which contained copies of Tejas’s post, arguing that sealing those exhibits was necessary “to ensure that the defamatory statements are not distributed on a wider basis than they already have been … further damaging [respondent], adding to his emotional distress, and potentially negatively impacting his occupation in the future.”
On July 12, 2018, the trial court granted respondent’s motion to seal but made no findings to support the sealing order. A default judgment was entered ordering Tejas to remove the post, prohibiting her from republishing the defamatory statements in the post, and awarding respondent $100,000 in punitive damages.
EFF and FAC moved to unseal, seeking access to all the documents except the part of paragraph 9 that contained private medical information, but lost in the trial court:
The court found that paragraph 9 of respondent’s declaration “was properly sealed because it contained private medical information relating to the emotional distress [respondent] suffered as a result of the defamatory post and the treatment he received therefor.” The trial court further found that [the] exhibits … “implicated third parties, including a minor, and the Court concluded that their right to privacy outweighed the right of the public to access this information.” …
The Court of Appeal began by observing that the right of access to court documents is recognized under California common law, under the First Amendment, and California court rules 2.550-.551:
“A strong presumption exists in favor of public access to court records in ordinary civil trials. That is because ‘the public has an interest, in all civil cases, in observing and assessing the performance of the judicial system, and that interest strongly supports a general right of access in ordinary civil cases.’ [Citation.]”
It then concluded that the trial court’s refusal to unseal should be reviewed without any deference to the trial judge’s decision:
Challenges to a sealing order or an order denying a motion to unseal premised on a common law right of access are reviewed under the abuse of discretion standard. [California] Courts are divided, however, on the standard of review applicable to challenges premised on the First Amendment right of access. (Compare People v. Jackson (2005) and Copley Press, Inc. v. Superior Court (1998) [de novo review] with In re Providian Credit Card Cases (2002) and McGuan v. Endovascular Technologies, Inc. (2010) [abuse of discretion standard].) …
Citing both United States Supreme Court and California Supreme Court authority, the court in Jackson concluded that “cases implicating First Amendment rights are subject to independent review.” … The court further explained that when the trial court does not take testimony, and there is no credibility of witnesses to determine, independent review is the equivalent of de novo review…. The court in Oiye v. Fox (2012) … [disagreed] that the Jackson court had independently reviewed the sealing order because First Amendment rights were involved …. [Instead, it concluded that] “… the [Jackson] court’s decision to conduct independent review [was] based on the state of the record, where no declarations were presented regarding the propriety of the sealing order, and not on the First Amendment….”
We disagree with the Oiye court’s characterization of the holding in Jackson. The court in Jackson plainly stated that independent review applies when reviewing sealing orders that implicate the First Amendment right of access….
The sealing order in this case implicates First Amendment rights. We agree with the courts in Jackson and Copley, that the order is subject to our independent review. Although the trial court here arguably took testimony, in the form of respondent’s declaration, witness credibility was not an issue given Tejas’s default and the default judgment subsequently entered in respondent’s favor. Independent review in this case is therefore the equivalent of de novo review….
The Court of Appeal then concluded that the trial court erred, under Cal. Rule of Court 2.550, in failing to initially make express findings required by that rule. “The trial court’s failure to make the required findings renders its sealing order deficient, and the order cannot support sealing the documents at issue.” And the later court order, entered after the EFF and FAC moved to intervene, was likewise inadequate:
The trial court subsequently made some of the required findings when it denied the motion to unseal, finding that paragraph 9 of respondent’s declaration “was properly sealed because it contained private medical information” and that exhibits … were sealed because they “implicated third parties” whose “right to privacy outweighed the right of the public to access this information.” Those findings were insufficient to satisfy the statutory requirements. Rule 2.550 also requires express findings that the “proposed sealing is narrowly tailored” and that “[n]o less restrictive means exist to achieve the overriding interest.” Because neither the sealing order nor the order denying the motion to unseal contain the required findings, they cannot support sealing the documents sought by appellants.
Finally, the court concluded that the documents should be unsealed, though with modest redactions:
Appellants do not seek to unseal any portions of paragraph 9 of respondent’s declaration that contain private medical information relating to the emotional distress respondent suffered because of the defamatory post and the treatment he received. The portions of paragraph 9 that refer to respondent’s medical condition and treatment are limited and can be redacted.
The balance of paragraph 9 contains statements that are unrelated to respondent’s medical condition or treatment but discuss harm to respondent’s reputation and future business prospects. The threatened harm to respondent’s reputation and business prospects is not an “overriding interest” sufficient to overcome the First Amendment right of access. (See NBC Subsidiary (KNBC-TV), Inc. v. Superior Court (1999), citing State v. Cottman Transmission (Md.App. 1988) [closure not justified to minimize damage to corporate reputation]; In re Marriage of Burkle (2006) [“the intrusions into family privacy that accompany the dissolution of intimate relationships … do not support [the] view that no First Amendment right of access exists in divorce cases”]; Gilbert v. National Enquirer, Inc. (1996) [threatened invasion to right of privacy and threatened harm to reputation “are not the sort of ‘extraordinary circumstances’ required to justify a prior restraint”].) …
In its order denying the motion to unseal, the trial court states that it did not seal exhibits … because of the possibility of reputational harm to respondent. Commercial harm or personal embarrassment are not sufficient grounds, in any event, for sealing the exhibits in their entirety. (Jackson.)
The sealing order states that exhibits … were sealed because they “implicated third parties” whose “right to privacy outweighed the right of the public to access this information.” Based on our independent examination of the record, we conclude that references to third parties can be redacted or substituted with pseudonyms to protect the third parties’ right to privacy without denying public access to the exhibits in their entirety….
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