Author: admin

As the global revival of air-travel traffic continues (much to the consternation of public health authorities in the US) Southwest just warned that 13% of its workers could face possible layoffs. It also sent furlough warnings to 6,828 employees. 

The latest warning applies to flight attendants and pilots, and comes as Boeing 737 MAX 8 is set to return to the skies. Southwest, as we noted earlier, is one of the biggest global buyers for the 737 MAX 8. It also comes as shares of United Airlines and Boeing are helping to bolster the market as the outlook for air travel improves, according to Bloomberg.

Southwest’s inability to secure a 10% reduction in 2021 spending for each working group – fractious talks with union leaders are still ongoing, the company says – means the company is being pushed toward its first ‘involuntary’ job cuts in its 49-year history. With travel demand languishing at about 40% of last year’s levels, the airline says it has 20% more employees than it needs, with an expected cost next year of $1 billion.

Since seniority provisions for some unions mean Southwest can’t know which individuals will ultimately be let go, 7,990 workers received the latest notices that they could be affected, which is more than the number of positions that the airline is planning to eliminate.

Workers currently receiving wages include 2,551 ramp workers, 1,500 flight attendants and 1,221 pilots. Already, about 17,000 employees already have left Southwest, either temporarily or permanently, this year.

“Due to a lack of meaningful progress in negotiations, we had to proceed with issuing notifications to employees who are valued members of the Southwest family,” Russell McCrady, vice president of labor relations, said in a statement. “We are willing to continue negotiations quickly to preserve jobs if we can achieve the support that allows Southwest to combat the ongoing economic challenges created by the decline in demand for air travel.”

The furloughs would occur between January and April, by which time “superforecasters” believe vaccinations in the US will be well under way.

Though obviously Southwest hasn’t pulled the trigger on the furloughs – at least, not yet – it’s still a disheartening sign as corporate layoffs continue to pile up.

This isn’t the first time we’re hearing such warnings from Southwest: it’s actually the third time in four weeks that it has sent notices of potential layoffs. Earlier letters went to 445 mechanics, employees who manage parts inventory, and technicians who clean aircraft and other workers.

Talks began in October, with the goal of securing agreements by the end of that month. The airline had reached deals with two work groups earlier.

Southwest has said it would burn as much as $11 million a day from October through December, while the Dallas-based company reported a $1.2 billion adj. loss in Q3. Airlines broadly expect ‘burn’ to continue at least through Q12021. Airline traffic is roughly 40% what it was last year, airlines say.

Last month, a top airline lobbyist warned that more than 90,000 airline jobs could be destroyed this year thanks to COVID .

And while the layoffs could be prevented if Congress approves a new financial stimulus package that includes additional financial aid to help cover airline payroll costs, employees must be notified of potential furloughs as much as 90 days in advance according to their contract and Southwest is covering its behind as Congress prepares to vote on a stripped down deal that could still offer some support to the industry.

At any rate, without travel rebounding past pre-pandemic levels, airlines will continue to cut back, and workers will likely bear the brunt of that.

Chinese state media is reporting that its probe, called “Chang’e-5”, has lifted off from the surface of the moon and is in the midst of completing the first stage of its return to Earth. 

The probe was tasked with collecting a sample of lunar rocks, a task not undertaken by China in its last two trips to the moon, which occurred in 2019 and 2013. 

We reported two days ago that the spacecraft had landed on the moon. China’s National Space Administration declared on Tuesday morning that it’s “Chang’e-5 successfully landed on the near side of moon.” 

The probe’s mission included using a robotic arm, from the lander, to drill into the lunar surface to collect about four pounds of moon rocks, storing them in a container on the ascent module on top of the lander, before returning to Earth. 

The goal of the mission was to collect 4.5 pounds of samples in a previously untouched area called Oceanus Procellarum, or “Ocean of Storms”. BBC News’ Jonathan Amos tweeted a CCTV clip of Chang’e 5 approaching the lunar surface earlier this week:

The Verge predicts that the craft could return to Earth “around December 16th or 17th” and that “China is targeting somewhere in Inner Mongolia for the landing spot.” 

If all goes well on its return, China will become one of three countries to retrieve rock samples from the lunar surface. We first reported on the mission in late November, noting that it could be the beginning of another era of “space races”.

The U.S. Apollo missions had previously landed 12 astronauts and brought back a total of 842 pounds of rocks and soil. The Soviet Union’s Luna missions had brought 6 ounces of samples in the 70s. Both countries visited different areas of the moon than the Chinese visited.  

James Head, a planetary scientist at Brown University, said in late November: “The Apollo-Luna sample zone of the moon, while critical to our understanding, was undertaken in an area that comprises far less than half the lunar surface.”

China says it has plans to establish a “robotic base station” on the moon within the next decade. It plans on doing so using its Chang’e 6, Chang’e 7 and Chang’e 8 missions. 

As we noted earlier this week, it’s becoming pretty clear why President Trump launched the Space Force – as it appears both the US and China now have competing interests on the moon.

To remind readers, apparently, the moon has an abundance of rare earth metals.  

Authored by Charles Hugh Smith via OfTwoMinds blog,

As for stock markets… the devil take the hindmost.

Let’s keep it simple: US dollar up, stocks down. US dollar down, stocks up. Stocks up, billionaires get richer. Since that spot of bother in March 2020 when the US dollar (USD) soared and stocks cratered, the USD has been in a free-fall, boosting the wealth of America’s Robber Barons and various other skimmers, scammers and other undeserving scoundrels.

Chief among the undeserving scoundrels feasting on the decline of the USD are global stock markets which have soared not because revenues and profits are soaring but because the USD has plummeted.

The Federal Reserve is widely worshiped as the Ultimate Power in the Universe, a kind of financial Death Star. The Fed has seen fit to crush the USD to further boost the wealth of billionaires and save global stock markets from their well-deserved ruin. Saving the world, ho-hum, just another day for the god-like Fed.

But something doesn’t quite add up here, for as the all-powerful Fed devalues the US dollar, it destroys the exorbitant privilege of America’s reserve currency. What’s the exorbitant privilege? Simply this: the owner of a reserve currency can create “money” (USD) out of thin air and trade it for autos, oil, semiconductors–real-world goods that were not created out of thin air. Rather, all these real-world goods required tremendous investment and significant costs to be produced and transported.

The exorbitant privilege is something for nothing–a remarkably good deal. And yet the universal expectation is the Fed is going to throw that privilege in the dumpster by pushing the USD into the ground, first by devaluing it relative other currencies and then by letting hyper-inflation destroy what’s left of its purchasing power.

It is not an exaggeration to say that the ability to create “money” out of thin air and trade it for real-world goods is the foundation of America’s global power, what I call the Imperial Project. The same can be said for the other reserve currencies, the euro and the yen. (Since China’s currency is pegged to the US dollar, it is not a true reserve currency; it is only a derivative of the USD.)

So let me get this straight: the Fed is consciously choosing to undermine and then lay waste to the foundation of American power–just to boost Robber Barons and zombie global stock markets? I don’t think so. That the Fed would pursue a suicidal destruction of the purchasing power of the dollar just to boost stock markets and billionaires–that beggars belief.

The Fed is not the Empire, it is the handmaiden of the Empire. The Fed’s dual mandate– for PR purposes, stable employment and prices–is actually balancing the conflicting demands of a global and domestic currency–Triffin’s Paradox writ large.

The inherent problem with a reserve currency is that it must meet global economic needs and domestic needs, and these are intrinsically in conflict. America’s billionaires and pension funds want the US stock market to loft higher on the back of a declining USD, but that diminishes the global purchasing power of the USD–a trend heading for economic ruin.

The Fed has had numerous reasons to weaken the dollar since March: a desperate need to “save” global stock markets from well-deserved collapse, and an equally desperate need to keep the dollar weak so global debtors with loans denominated in dollars can manage to service their trillions in USD-denominated debts.

But drawing a line extending this short-term necessity all the way to hyper-inflationary oblivion is a grave misreading of the Empire’s need for the exorbitant privilege of a strong dollar.

The Fed is about done with its “rescue” of billionaires and global markets and debtors. Against virtually all expectations of seers, pundits, gurus, etc. the USD is about to start serving the Empire in its foundational role. As for stock markets–the devil take the hindmost.

*  *  *

My recent books:

A Hacker’s Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook coming soon) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

*  *  *

Become a $1/month patron of my work via patreon.com.

By a completely partisan vote of 48 to 47 (though Rand Paul voted against), The Senate confirmed Trump nominee Christopher Waller to the Federal Reserve Board of Governors – filling one of the two vacant slots on the influential economic body.

Christopher Waller, the research director at the Federal Reserve Bank of St. Louis, was confirmed to a term that runs through January 2030. He has attended meetings of the rate-setting Federal Open Market Committee this year in his capacity at the St. Louis Fed. He headed the University of Notre Dame’s economics department before joining the regional Fed bank in 2009.

Interestingly, as WSJ reports, the confirmation marked the first time the Senate had seated a governor in a lame-duck period that follows the November election before the president’s term ends in January, according to Peter Conti-Brown, a Fed historian at the University of Pennsylvania.

Given the vote count and shifts to come (she has lost key Republican support and the Democrats have officially gained another seat), it would appear the chances of Judy Shelton, who was nominated alongside Waller, getting confirmed are shrinking rapidly.

This means Joe Biden, if confirmed by the electoral college, will have one vacancy to fill at The Fed as he begins his term.

Two weeks ago we dubbed Morgan Stanley’s Michael Wilson, the bank’s chief US equity strategist, Wall Street’s most accurate forecaster. Here’s why:

Over the past year, Morgan Stanley’s Michael Wilson has done something virtually none of his colleague have been able to do: he called market moves correctly before they happened and also timed the market’s inflection points with uncanny precision: turning bullish at the depths of the March crisis, when most of his peers were apocalyptic, then remaining bullish until just over a month ago, when he warned “brace for a very difficult trading environment over the next five weeks” – which followed with the early September tech dump – and then two weeks after he again correctly predicted that US stocks were due for their second 10% correction in as many months as “investors were a bit too complacent on the uncertainty surrounding the election outcome, unlikely passage of a fiscal stimulus before the election and second wave of Covid-19”, the S&P 500 has indeed fallen 9% while the Nasdaq and Russell 2000 have fallen 10% and 7%, respectively.

He was, again, right.

Then, at the start of November, he reversed his bearish bias, when as we reported he predicted that “the correction we expected is now mostly finished and adding to equities on further weakness this week is recommended.”

Since then, the S&P is up +13.5% to a new all time high, the Nasdaq is up +10.8% also to a record high, and after today’s Pfizer news, the Russell has exploded 16% higher.

In short, he was right again.

As we also pointed out, just ahead of the “Pfizer vaccine” news,  Wilson said he remained a “committed bull” even though the S&P had broken above his price range of 3,150 to 3,550, it appeared clear that most of the “good news” associated with a covid vaccine has been priced in. That did not prevent stocks from continuing to rise as they shifted their attention away from covid vaccines to the fiscal stimulus debate in Congress where a targeted deal now appears imminent.

Wilson, however, was not impressed, and cautioned that in the last few remaining weeks of 2020 he saw the risk of yet another drawdown in stocks, which would be the third 10% correction since September. This will be catalyzed by the market’s realization of the “bad news” that “the vaccine won’t be ready for mass distribution for another 3-4 months as case counts and deaths increase.” Still, once this small correction is in the rearview mirror, which perhaps may even trigger additional Fed easing during the Dec FOMC meeting when the Fed is expected to extend the maturity of its TSY purchases, Wilson remains “a steadfast bull on a 12-month view in terms of both the earnings outlook and the market.”

Wilson’s most important point, as we discussed two weeks ago, is not that stocks may or many not dip before grinding higher, but his conviction that rising 10Y yields will hit tech stocks and other equities with record-high duration, while propping up cyclical and value names…

… to wit: “With our economists forecasting 7.5% nominal US GDP growth next year, a 1% 10-year Treasury bond looks awfully mispriced on a 12-month view. This has implications for equity valuations, especially longer-duration ones like the Nasdaq and S&P 500. Conversely, shorter-duration cyclical stocks should get a boost from better growth and higher interest rates – hence the rotation we have been witnessing in the equity markets from the Nasdaq to the small-cap Russell 2000 over the past few months as markets contemplate a full reopening of the economy. We think this rotation has further to go if we are right about the economy and rates.”

Since then the 10Y has continued to rise, with the 10Y briefly hitting a post Nov high of 0.96% yesterday before easing modestly on Thursday even as sticky breakevens remained at the highest level in 18 months.

This dynamic, which is precisely what Wilson warned about a month ago, is why the Morgan Stanley strategist appeared on BBG TV overnight, again warning that equities are overbought and at risk of a correction after their recent surge.

And as he did a month ago, Wilson said that one key risk that most people are overlooking is that Treasury yields continue to march higher, which could create jitters that send stocks lower.

“The market is overbought and the market is probably a little bit overvalued quite frankly because interest rates are finally now starting to catch up,” Wilson said on Bloomberg TV adding that “the risk in the market now is that as 10-year yields finally start catching up, we have a valuation reset because stocks are a long duration asset, particularly the U.S. stock market.”

Needless to say, so far stocks are ignoring his warning and the risk that higher rates will hit long duration equities and even the Nasdaq is up 25bps this morning. We expect that to change as soon as the 10Y rises above 1.0% in the next few days/weeks.

Finally, as in November, Wilson remains bullish and said any selloff in stocks may be a buying opportunity. “It’s gotten a little frothy here in the last couple of weeks,” he said. Any correction would be welcome, “because it would make me more comfortable putting additional capital to work.”

Authored by Tomas Forgac via The Mises Institute,

Central bank digital currencies (CBDC) are being sold with the narrative of protecting consumers who are increasingly moving to cashless payments. Some say that these cashless payments will rob us of the privacy advantages of cash while exposing us to bank runs, payment network blackouts, and foreign financial adversaries.

Yet while these risks are real, they would be negligible had it not been for the central banking and financial regulators’ interventions into the market. CBDCs make these interventions worse and introduce some new, much bigger ones.

Design Implications

While the stated intention behind CBDCs is to keep the commercial banks in the picture, these digital currencies will bring their end users closer to the central banks. This is because blockchains and blockchain-inspired distributed ledger technologies are built on a single common ledger, which is distributed either in a permissionless or permissioned manner. The permissionless distribution exposes a lot of information about the network participants but in combination with proof-of-work verification makes it very difficult for an adversary to attack and overtake the network and, e.g., change the inflation rate.

A permissioned network with no proof-of-work or similar consensus algorithm not only doesn’t provide the immutability feature, but by having a single permissioned ledger gives potential control to those who grant the network privileges. As a result, the central bank as the ultimate permission issuer would have much stronger control over the monetary system and payment network than it has right now.

This gives the central banks three very dangerous capabilities.

1. Helicopter Money

The reason why we’ve seen such an elevated business cycle over the past century is the central banking fiat money system. Unnatural expansion of the money supply causes booms, which are unsustainable, and markets try to clear them when they are exposed as such.

Economists of the Austrian school understand that the boom is the real problem and the economic crisis is the necessary and positive cleansing mechanism. Unfortunately, the (neo-)Keynesian response to such an event is to prop the markets up by further monetary interventions.

The problem is that the current design of the banking system requires the intermediary role of commercial banks in issuing credit to businesses. Central banks get frustrated when the commercial banks exercise caution in an economy that hasn’t fully cleared the previous misallocations and hasn’t brought prices of capital goods to more sustainable levels. Needless to say, commercial banks’ cautious approach to consumer credit in a period of growing unemployment doesn’t align well with the central bank’s goals either. During the covid crisis, the governments managed to an extent to get around these hurdles by issuing benefits en masse, but those are complicated by logistics, bureaucracy, or legislation. Since the predominant Keynesian narrative is that spending drives the economy (hint: it doesn’t—capital investments do), the central banks would like to spur more consumer spending by issuing money supply directly to consumers. 

With closer integration of the monetary spigot and the end consumers and businesses, the central bank can much more easily issue credit or just outright cash-outs to the private individuals and commercial entities by simply “airdropping” new tokens to the existing users. They would not even compromise their stated intention of keeping the commercial banks in the picture—they would still serve as custodians of the token keys and even have the ability to issue credit along the traditional lines.

This would lead to disastrous consequences. Economies get easily addicted to central banks’ dope. With every new crisis, the chief monetarists have had to increase intervention doses the same way as junkies have to do with their drug of choice. As with every addiction, the longer it lasts and the stronger it grows, the more difficult it is to cure. And while monetary overdoses such as we’ve seen in Zimbabwe or Venezuela might not come for a long time, if ever, junkies don’t perform well, as Japan’s three lost decades of Bank of Japan (BOJ) interventions have demonstrated.

2. Negative Interest Rates

Hoarding is evil—or so the modern monetarists’ narrative goes. In the Keynesian framework, there is no space for the function of cash as a hedge in times of uncertainty. Savings are just money that doesn’t work in spurring the miracles of spending- and money supply–driven economic growth. Negative interest rates, then, are potentially the most effective method of preventing hoarding—by incentivizing savings account holders to spend their depreciating balances. Currently, the central banks have to rely on commercial banks to pass the negative interest rates on to their customers, but commercial banks instead are trying to convince the account holders to move their deposits from negative-yielding accounts to interest-yielding products and are consuming the negative rates on most of the outstanding cash balances.

With the central bank tokens being tied more tightly to their issuance authority, it would be much easier for the monetary interventionists to impose negative interest rates on all tokens in circulation. This would certainly increase the consumers’ and businesses’ propensity to spend and would also drive asset prices up as people tried to offload their cash savings. But to think of this as something beneficial is foolish. It was massive spending, record-low savings, and unsustainable asset valuations that led to the credit bubbles and crises of the past decades. To think that more of the same recipe will lead to a different, let alone better, outcome is ludicrous.

3. Financial Surveillance

The final major implication of cash tokenization is the potential it creates for financial surveillance. The central banks are ostensibly introducing digital tokens to protect people’s privacy in the face of those reducing their anonymous cash usage. But the idea that a branch of government that imposes KYC/AML rules on existing crypto token platforms, limits physical cash use to prevent tax avoidance, and uses financial surveillance to catch nonviolent “criminals” cares about our privacy is laughable.

They’re not even hiding the fact that tokenization of money would allow them to run what they call “data analytics.” To think that they would not make the leap from aggregate analytics to individual data processing would be naïve.

It’s not a coincidence that China is the global leader in CBDCs. The surveillance potential of centralized tokenization is extremely attractive to a government that tries to keep tabs on every aspect of the lives of their underlings.

Pro-CBDC Arguments Are Misleading

The proponents of the central banking tokens argue that consumers need to be protected against targeted attacks on a country’s payment network. While such a risk exists—for example, if a country like Switzerland tried to provide anonymity for foreign depositors (as it used to) and as a result Visa and Mastercard were pressured to shut down their payment networks for the country—if it materializes, the economy can always temporarily revert to cash, supported by a vast network of local ATMs and bank branches.

If anything, the biggest attacks on monetary exchange in the Western world have come from the governments themselves suspending or limiting cash withdrawals in times of liquidity crises, as was the case in Cyprus or Greece (not to mention that central banks themselves caused those crises with their credit bubbles of the preceding periods).

The argument about the protection of consumer privacy doesn’t pass the laugh test considering the history of continuous erosion of financial privacy by central banks and financial regulators.

CBDCs Will Come and Will Make Things Worse

In conclusion, the reasons why central banks champion CBDCs are the strongest reasons for which people should oppose the transition toward them. But while the pretense of an investigation into fiat money tokenization gives the impression of there being a debate on the topic, the reality is that there is no debate: the digital currencies will go through and give central banks more control than they had before with all the disastrous consequences such control brings.

Boeing shares popped Thursday morning as the first new orders for the newly refurbished 737 MAX 8 (this time with zero software flaws that could literally drive the plane into the ground nose-first) hits the tape, with Ryanair putting in a big order as expected.

In a major sign of confidence in the product, Ryanair has ordered 75 more Boeing 737 Max 8s in anticipation of its return to service in Europe (for context: the basic models go for roughly $120MM apiece).

The Dublin-based airline announced the deal – which brings its total to 210 orders for the Boeing aircraft to be delivered between spring 2021 and December 2024 – on Thursday.

Source: Bloomberg

According to Bloomberg, all of Ryanair’s planes are the -200 higher capacity variants, which will allow the airline to pack more passengers onto planes while simultaneously lowering fuel burn to be more efficient and “eco-friendly”. Ryanair and Boeing also agreed to revise delivery dates for the MAX following its idling, together with compensation to cover direct costs incurred. Some of that money was factored in as a “modest reduction” in the final pricing of the new aircraft.

While investors celebrate, let’s remember that Boeing has lost hundreds of orders for the MAX this year thanks to the plane’s troubles along with COVID’s impact on the airline industry. This means Boeing has ceded more ground to Airbus, its European archrival, and enabled Airbus to widen its lead in the critical market for narrow-body jets.

Boeing is still seeking new homes for about 100 so-called “white tails” – jets built after the grounding and later abandoned by buyers, who were allowed to walk away from the delivery if it was delayed by more than a year.

Ryanair boss Michael O’Leary said the board is confident that customers will “love” the new planes.

“They will enjoy the new interiors, the more generous leg room, the lower fuel consumption, and the quieter noise performance, but most of all, they will love the lower fares, which these aircraft will enable Ryanair to offer not just in 2021, but for the next decade, as Ryanair leads a strong recovery of Europe’s aviation and tourism industry out of the 2020 Covid-19 crisis.”

He continued by saying he anticipates travel “snapping back very strongly over the next year” as vaccinations are rolled out and the global economy recovers, and added that “we are working closely with Boeing and our senior pilot professionals to assist our regulator Easa (European Union Aviation Safety Agency) to certify these aircraft in Europe, and to complete the training of our pilots and crews across our three new Boeing Max simulators in Dublin and Stansted.”

Boeing president and chief executive Dave Calhoun said the company remains focused on safety, as it operates a global situation room to field any questions or problems with the MAX

“Boeing remains focused on safely returning the full 737 fleet to service and on delivering the backlog of airplanes to Ryanair and our other customers in the New Year. “We firmly believe in this airplane and we will continue the work to re-earn the trust of all of our customers.”

BA popped on the news, though shares rolled over headed into the afternoon.

The Supreme Court has sent a lawsuit over religious gatherings brought by a California church against Gov. Gavin Newsom (D) and the state of California back to a lower court for a do-over, in light of the court’s decision that New York Gov. Andrew Cuomo’s restrictions on religious gatherings are unconstitutional.

The plaintiffs in the case, Harvest Rock Church, requested immediate court intervention while the state asks the Supreme Court to allow restrictions on religious gatherings to continue.

According to Just the News:

Newsom has banned indoor church services in high-risk areas – the majority of the state — yet other gatherings like sporting events, protests and Hollywood film productions are allowed to continue.

In moderate-risk California counties, churches can hold 25% of the normal capacity indoors.

*  *  *

“California is experiencing an unprecedented surge in COVID-19 cases, creating an even greater public health need for restrictions on prolonged communal gatherings in indoor places,” California Attorney General Xavier Becerra’s office said in a filing, which opposed Harvest Rock’s request for the restrictions to be lifted.

According to Newsom, the “perils” of indoor gatherings – such as dining at the French Laundry – justify further restrictions.

“Scientific evidence demonstrates why those activities pose a particularly grave threat of virus transmission during the current pandemic,” argued attorneys for Newsom and the state.