“This Is Jay’s Market”: 73% On Wall Street Say The Fed Is Behind The S&P Rally

“This Is Jay’s Market”: 73% On Wall Street Say The Fed Is Behind The S&P Rally

Tyler Durden

Thu, 06/04/2020 – 14:47

As BMO rates strategist Ian Lyngen writes in “Jay’s Market, Just Trading in it“, a core theme of trading has been “the remarkable resilience of the equity market despite a shuttered economy, historic job losses and civil unrest across the US.”

So to get to the bottom of the question on every trader’s mind – just who is behind this rally – BMO sent out a poll to its clients where the first question showed a clear consensus for the driver behind the move; “73% offered the Fed as the inspiration behind the S&P 500’s impressive rally”, vastly more than those who cited labor market recovery/reopening optimism (6%) greater fiscal stimulus (5%), and progress on Covid-19 treatment (6%). And now that Powell owns this rally, he better not allow to reverse.

1. What is driving the swift recovery of equities?

a) Fed – 73%
b) Earnings Optimism – 0%
c) Labor market recovery – 6%
d) Further fiscal stimulus – 5%
e) Progress in treating/preventing Covid-19 – 6%
f) Other (please specify) – Reopening Optimism/ All of the Above/ Underinvestment

Less relevant to the market’s ramp but just as interesting in terms of what markets expect for the Fed to unveil next in the central bank’s creeping nationalization of capital markets, were responses to BMO’s second special question – when, or even if the FOMC will roll out yield curve control – which were not nearly as clear cut with a wide variety of opinions. 3-6 months was the most common answer with 33%, which points to the September, November, or December meeting as the most probable venue for the introduction of the new policy tool. Within ‘3 months’ or ‘not this cycle’ both took a roughly equal share as the second most frequent reply, so as Lyngen notes, “clearly investors are split on whether YCC needs to be deployed rapidly, or not at all given the state of the economy and recovery. 6-9 months and 9+ months both rounded out the replies with 14% and 12%, respectively.”

2. When will the Fed announce yield curve control?

a) Within 3 months – 21%
b) 3-6 months – 33%
c) 6-9 months – 14%
d) 9+ months – 12%
e) Not this cycle – 20%

Finally, an interesting snapshot on how investors respond to data is BMO’s question how respondents will react to tomorrow’s jobs report: In the event of a disappointment and a Treasury market rally, the clearest takeaway was a reluctance to take profits – only 25% would sell versus a 37% average and the lowest read since October 2019. Meanwhile 11% would join the rally and buy and 64% would do nothing compared to respective averages of 7% and 56%. The other meaningful takeaway was a positive skew on the belly of the curve as 36% thought the next 15 bp in 5-year yields will be higher; well below the 45% average and matching last month’s figure as the lowest since November 2019.

 

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The Simple Case For “Buying Everything” Right Now

The Simple Case For “Buying Everything” Right Now

Tyler Durden

Thu, 06/04/2020 – 14:26

Authored by Adam Button via ForexLive.com,

Suspend your disbelief and embrace the free-money future…

The enthusiasm in markets at the moment is bordering on euphoria. Retail money is pouring into the flavour-of-the-day and now FOMO is taking over more broadly.

You have to decide if you’re in or out. We all know the risks around the virus and the current economic data and it takes a huge leap of faith to pile in here but betting on humanity has been the best bet in world history.

1) We’re in the post pandemic world

You can look at this a number of ways:

  • The virus is somehow weakening and hopitalizations/ICU admissions are falling even with infections high

  • It’s only the elderly/sick getting very sick and the rare healthy person but numbers are low enough to be ‘acceptable’

  • Summer is helping to cut the numbers

Naturally, you need to watch the data as they’re reporting but at this point it’s going to take a significant spike to reverse the sentiment on the virus.

2) Fiscal conservatism is dead

Fiscal conservatism died in March when the pandemic hit. I’ve been writing about it since then.

This is a wholesale generational secular change that is far more important than the virus. The US might have an $8 trillion deficit this year if another stimulus bill passes. At the same time, the Treasury is borrowing at 0.80% for 10-years.

Deficits don’t matter anymore. Obviously there is no free lunch but fiscal conservatism doesn’t win elections anymore. So why not another $8 trillion deficit next year? What’s possible in the economy when government spending is unlimited?

The most-telling headline this week was that momentum had grown in Congress to hash out more stimulus because of the protests. The reaction function of governments is now to spend.

There will be a reckoning and it will mean currency debasement. The S&P 500 crossed 3000 last month on virus optimism but it will one day cross 6000 but not because of economic growth, but because of debasement.

I think this will go on far longer than almost anyone believes. I think it will define the decade as huge deficits everywhere become the new normal.

3) Low rates forever

The paradigm shift in central banks that was announced on Halloween is now complete.

Central banks spent the last decade forecasting inflation that never came. They hiked rates in anticipation of it coming or because they wanted a return to ‘normal’. The failure of the policy and forecasts was a constant source of embarrassment.

Now they’re flipping the script and the will keep rates low until the inflation actually arrives. Once it arrives they’re also talking about letting the economy run hot to make up for the previous shortfalls.

That’s a revolution in central banking and it means that zero-rates are here for the foreseeable futures.

There are so many knock-on effects from low rates. Namely, that they make bonds un-ivestible for the majority of investors. Savers have no choice but to pile into equities and hope for the best. The corporate debt-fueled buybacks will be return in no time.

What’s so important about the low rates and fiscally unrestrained story is that it lasts way longer than the virus, no matter if it ends this year, in 2021 or 2022.

The other side

I get it. This is all madness. We’re going to have 20% unemployment in tomorrow’s non-farm payrolls report and it will still be around 10% at year-end. Business are closing at unprecedented rates and they’re never coming back. The virus isn’t dead and could rage in a second wave. It’s all non-sense. The economy is aging and young people are crushed under student debt.

But the choice you have to is either believe in the bull case or get on the sidelines because this party is just starting. Of course it will end it tears and there will be an ebb and flow but unless virus numbers start to spike, it’s not going to end soon.

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“Monopolies Are Wrong” – Elon Musk Declares It’s “Time To Break Up Amazon”

“Monopolies Are Wrong” – Elon Musk Declares It’s “Time To Break Up Amazon”

Tyler Durden

Thu, 06/04/2020 – 14:13

A couple of weeks after telling his followers to “take the red pill”, Elon Musk is throwing his support behind a former NYT reporter whose new book about the coronavirus outbreak has just been ‘censored’ by Amazon.

Musk, who just the other day declared that he would be “taking a little break from twitter”, replied to a tweet from Berenson with a screenshot of an email he had just received from Amazon, claiming it wouldn’t carry his book about COVID-19.

“This is insane,” Musk replied, tagging his fellow tech CEO, Jeff Bezos.

Musk followed that up with a tweet declaring it’s “time to break up Amazon. Monopolies are wrong!”

Berenson is perhaps best known for his book “Tell Your Children” which told what he described as “uncomfortable truths” about the impact of today’s super-potent medical marijuana can have on the brains of developing children who have a natural disposition toward mental illness. Though we disagree with his claim that marijuana legalization is wrong, we acknowledge that the research and his basic argument,  namely, that research which suggests there are drawbacks to marijuana consumption (ie that it’s not “harmless medicine”) is deliberately suppressed by the media.

His new book purports to offer evidence that lockdowns were a strategic mistake, just one day after the architect of Sweden’s strategy claimed it led to too many deaths (though, to be sure, he didn’t offer a ringing endorsement for extended strict lockdowns either).

We imagine President Trump will be elated by Musk’s tweet, as he welcomes America’s most famous CEO to the GOP fold.

It’s nice to see Musk talking down the shares of one of his rivals for once, instead of complaining about Tesla’s overvalued stock price.

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Student Loan Relief Stalls After Wall St. Beats Consumer Financial Protection Bureau In Court

Student Loan Relief Stalls After Wall St. Beats Consumer Financial Protection Bureau In Court

Tyler Durden

Thu, 06/04/2020 – 14:05

On Sunday, U.S. District Judge Maryellen Noreika ruled in favor of a coalition of financial firms and rejected an agreement that had been made by the Consumer Financial Protection Bureau with 15 members of the National Collegiate Student Loan Trusts.

The settlement would’ve resulted in student loan relief for “hundreds of thousands” of borrowers, according to Bloomberg/LA Times.

But Noreika ruled that lawyers hired to act on behalf of the trusts lacked the authority to deal with the CFPB and although the trustee, Wilmington Trust, had the authority to – it didn’t agree to the proposed settlement.

The result of the settlement would have been the auditing of 800,000 student loans to help investigate and resolve allegations of collection agencies flooding the nation’s courts illegally with false paperwork. Some borrowers had luck in fighting the collection attempts in court, meaning the settlement would have likely paved the way for more relief. 



Protesters at Washington University

“Banks, insurers, debt collectors and hedge funds” all fought against the settlement, arguing that one equity holder of the National Collegiate trusts, VCG, didn’t have the right to approve the agreement with the CFPB. 

The trusts are owned billions of dollars and are among the nation’s largest owners of private student debt. Many of the loans, made more than 10 years ago, have ranked among the “worst-performing student loans ever packaged into securities.”

About half of the $12 billion that had been packaged into securities were in default at the time the 2017 settlement was proposed.

Donald Uderitz, who runs VCG, has been trying for years to change how the trust collects from borrowers. He has proposed ideas that involve forgiving some principle, but has been unable to convince other investors in the trust that his ideas are worthwhile.

Money managers have fought him in both state and federal court – and if this ruling is any indication, Uderitz, not unlike those burdened with the debt itself, may have an uphill climb ahead of him. 

Recall, we wrote back in February 2020 that the American taxpayer could face a $200 billion tab due to student loan relief programs. 

The CBO estimated then that the government would forgive $40.3 billion on new loans made from 2020-2029, or about 21% of the original amount.

There are more than 50 million Americans with student loan debt. The CBO estimated that most of the borrowers are stuck in low wage and low skilled jobs with large balances that may never be paid pack. Many of these folks are millennials, stuck in a renting society with absolutely no economic mobility.

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The Most Important Question In Finance Today

The Most Important Question In Finance Today

Tyler Durden

Thu, 06/04/2020 – 13:45

In his latest daily note to clients, DB’s Jim Reid writes that it was interesting for him to look back on the note he wrote from 20th April (in what he says feels a lifetime ago) where he wrote the following

“…. when central banks have so far pumped in an annualised $23.4 trillion into the financial system you can see how it’s hard to get a feel for where markets can go. Clearly they won’t keep up that pace of liquidity injections unless economies fall even further but could you really have a situation in 1-2 months’ time where economies are still struggling to fully open and yet equity markets are back at record highs? I don’t think so but you couldn’t rule it out given the ginormous liquidity injections. Crazy times and we haven’t even mentioned the government injections.”

Reid says the he has thought “a lot about the themes of this paragraph for the last 6-7 weeks and the only part of this that I now regret are the words I don’t think so” adding that “the rally has indeed been faster than surely anyone could have imagined but it was starting to be clear in late March and April that we were dealing with levels of stimulus that were going to be almost exponential relative to anything seen before in history.”

Which bring Reid to what is perhaps the most important question in finance today: will the trillions in stimulus end up being inflationary or deflationary?

For what it’s worth, Reid believes that the answer is inflationary, however to present a balanced take, below we lay out the cases for both inflation (by strategist Oliver Harvy) and deflation (by … ), so readers can decide.

The case for inflation

By Oliver Harvey

The covid-19 crisis will be remembered for many things, and among them will be the long-awaited return of inflation in developed markets. Three factors will support this: macroeconomic policy, political preferences and structural trends.

Take macroeconomic policy first. The policy response to the coronavirus looks very similar to the last financial crisis, except on steroids. Central banks have injected unprecedented amounts of liquidity into the private sector through purchases of private and public sector securities, swap lines and direct lending to the real economy. The Fed’s balance sheet has expanded more in the space of less than two months – from $4.29tn to $6.42tn – than in the four years following the 2008 financial crisis. The fiscal response has been just as aggressive. One calculation suggests that front-loaded US stimulus amounts to 9.1 per cent GDP, more than double that for the last financial crisis. Germany’s discretionary fiscal response – when including deferred measures – amounts to a fifth of its entire economic output.

The problem is that this crisis is very different from 2008, or for that matter 1929, where much of the macro playbook being used by policymakers today was written. 2008 was a classic demand shock caused by a loss of confidence in the banking sector. In a demand shock, fiscal and monetary tools should be used aggressively to bring confidence back.

The current economic crisis is not a demand shock, however. It is first and foremost a supply shock which is now spilling over to demand. Consumers did not start staying away from shops and restaurants because they were worried about their future economic prospects, but because governments told them to. Holidays were not cancelled to shore up household finances but because countries closed their borders. Workers were not furloughed from factories just because of insufficient orders but also because employers were worried about the risk of spreading disease.

Understanding this has very important implications for the policy response to the coronavirus. Most of all, it tells us that massive stimulus is not the answer. In economic parlance, policymakers are attempting to shift the demand curve back to where it was before the virus started, at the same time as holding the supply curve fixed. Less technically, the government is handing out $100 bills when there is nowhere open to spend them.

Government attempts to keep household incomes stable – through job retention schemes announced in Europe for example – have the best of intentions, but the result will simply be more money chasing after significantly fewer goods and services. The result of this will be inflation. Evidence is already growing. Our economists note that food prices in the United Kingdom have risen 0.8 per cent in the last week according to the ONS (an annualised rate of 54 per cent). Pet food prices have risen a truly hyperinflationary 6.2 per cent (annualised: 2,575 per cent). Of course, these two factoids don’t settle the matter, but it is significant that prices on the few number of goods the statistical office can still collect appear to be gathering steam.

Critics of the view of higher inflation like to point out two big disinflationary forces: rising unemployment and an increase in precautionary savings. But unemployment doesn’t have to lead to downward pressure on wages if the unemployed are simply shut out of the labour force which, in the case of workers in sectors such as hotels, restaurants, airlines and retail, is presently the case. For all intents and purposes those industries do not currently exist, and there is a major question mark as to whether they will return in anything like recognisable form for months, if not years, to come.

As for rising precautionary savings, households’ spending and saving behaviour is, as every economist knows, about expectations. As soon as households perceive the price of everyday goods and services starting to rise, their rainy day funds will quickly be raided to buy them.

The second reason that coronavirus will lead to the return of inflation is political. At a very basic level, it is in governments’ interests to generate inflation.

Many have invoked the spirit of the first and second world wars in the present coronavirus crisis. These two episodes in fact provide a useful history lesson as to the consequences of deflationary versus inflationary policy after large shocks. After the First World War, the British government pursued a deflationary macroeconomic policy aimed at shoring up its borrowing credibility, reducing its debt and returning the pound to the gold standard. The consequence was a decade and a half of misery, with persistently high unemployment rates and widespread industrial unrest. Worse, due to the unforgiving arithmetic of weak nominal growth and high interest payments, debt to GDP stood at roughly the same level by the end of the 1930s as it had two decades earlier.

After the Second World War, the British government took a different approach. Rather than seeking to reduce the deficit, it founded the modern welfare state, nationalised swathes of industry and pursued an incomes policy aimed at full employment. The result of this policy was relatively high levels of post war inflation (constrained only by the continuation of rationing) and strong nominal growth. Combined, these far outweighed ongoing budget deficits and interest payments, leading to a fall in the national debt from a peak of well over 270 per cent to below 50 per cent in the late 1970s.

Put another way, policymakers in the West (and for that matter China) simply cannot afford to go the way of Japan following the bursting of its real estate bubble in the late 1980s. Lacking Japan’s high levels of GDP per capita, impressive social cohesion and rapidly declining demographics, perhaps with the exception of Italy in the latter case, a deflationary ‘lost decade’ would spell disaster both in terms of debt levels and at the ballot box.

And when it comes to the electorate, there is no doubt that maximum pressure will be applied on governments to maintain, if not increase, their generous handouts. That includes those for furlough schemes, deferred tax payments and unemployment benefit increases that have been enacted over the last two months to cope with the current and future economic shocks. The political zeitgeist had already turned firmly against austerity before this current crisis hit. Now a Pandora’s Box of government activism has been opened: Reinhart and Rogoff have been replaced by Modern Monetary Theory when it comes to the prevailing mood not just among political commentators but respected economic institutions such as the IMF, who have called for fiscal activism and debt moratoria for well after the initial containment phase.

The third reason to believe that inflation will be the standout macro result from the coronavirus concerns structural forces. Here, we can briefly discuss two: retreating globalisation and the distributional consequences of government policy.

It is now widely understood that one of the key factors behind the secular decline in developed market inflation from the mid-1980s onwards was globalisation. The effects of globalisation on supressing inflation were twofold: first, cross border immigration and the offshoring of production increased the global labour supply, putting downward pressure on workers’ wages in developed economies, particularly among the lower skilled. Second, enhanced competition in the manufacturing sector led to a decline in costs of many consumer products.

Both of these are under threat from the coronavirus. As the World Economic Forum discusses in a recent blog, major companies are re-evaluating the commercial benefits of far flung supply chains in light of their fragility over the last two months.4 Political forces are also at work, with the present US administration pledging to end the country’s reliance on pharmaceutical products from abroad. Finally, immigration regimes are set to become significantly more restrictive, if not closed altogether, until a vaccine inoculates countries against the prospect of a second wave of infections.

Turning to distributional effects, a second round impact from both retreating globalisation and more expansionary fiscal policies is likely to be at least a partial reversal in the recent decline of the labour share of income. This should put upward pressure on inflation: the loss of labour bargaining power has been one important factor behind the weak relationship between labour markets and inflation over recent years.

It is difficult to think of any global event that has such a clear read across into future macroeconomic trends. Policy, political and structural factors all point to rising inflation as a result of the coronavirus. Of course, this has not stopped many economists and commentators from claiming the risk is deflation. In the near term, their argument has been buttressed by a price war between oil producers. The worry, however, is that this is a classic case of looking in the rear view mirror.

And here is “the Case for Deflation”, authored by Robin Winkler and George Saravelos

The case for deflation

By Robin Winkler, George Saravelos

Following the extraordinary event of oil prices turning negative, it seems odd to make a case against inflation. Yet a recent dbDIG survey found that a majority of our clients expect the pandemic to be ultimately inflationary. Remarkably, the disinflation argument is anything but consensus.

Don’t put the cart before the horse—this is a huge recession

Our starting point is that the current crisis is a bigger demand than supply shock. Let us assume that the virus disappears tomorrow or (more likely) a vaccine is in place by next year. Our ability to fly, build cars in factories, go to cinemas and football events will all be the same. Our willingness and ability to do so will not. Higher unemployment, more bankruptcies, greater “fear” of the unknown will scar our memories and wallets for many years to come. A group of Harvard economists that modelled the economy recently concluded the same.

Still, even many of those arguing for inflation agree this shock is deflationary in the short run. Eventually, the argument goes, a supply shock will dominate. The problem is that in the long run, as Keynes famously said, we are all dead. For many households and corporates, balance sheet repairs will be imperative for years to come. Corporate debt levels were high before the crisis and are now exorbitant. Government support has mostly come in the form of loans and guarantees —a perfect recipe for a severe debt overhang. Tens of millions of Western households will emerge from the crisis unemployed.

Once deflation takes hold, even in the short-term, it can become self-perpetuating in the long-run. It will clobber already weak inflation expectations and create an irresistible incentive to save. Large-ticket and capital expenditures will be deferred until the risk of further pandemic waves has vanished beyond doubt. With central banks unable to take rates lower, there is no penalty on hoarding cash—classic conditions for a liquidity trap. It will take years for confidence to be fully restored. In the meantime, everyone will spend less. As recent Fed research has shown, the main effect of pandemics over the last 1,000 years has been a big rise in precautionary savings.

Let’s not over-hype the fiscal boost – it is neither big or permanent

Governments have an enormous task on their hands. The fiscal numbers announced are large because the economic shock is huge. To argue that fiscal stimulus is a game-changer is to put the cart before the horse. The important question is not about current stimulus but whether huge deficits will continue deep into the future.

The starting point should be that a big chunk of the fiscal measures announced are loan guarantees rather than fresh new money. There is nothing stimulative about adding more debt to corporate balance sheets. But even the direct stimulus is designed to be temporary and self-calibrating. Consider the employment protection schemes in Europe whose size is purely a function of the unemployment rate and will disappear once employment goes back to normal. The bulk of the US fiscal stimulus is also temporary – households have received a one-off paycheck, more likely to be saved rather than spent, like in 2008. As things stand, the fiscal stance is set to be massively contractionary next year, not expansionary.

If stimulus is extended next year, it will be because unemployment and demand are still weak. Yet even the extension of the stimulus is not a given. The UK Chancellor is already in discussions about winding down the employment protection scheme. Germany suspending the debt brake to deal with a natural catastrophe doesn’t imply Germans are no longer committed to it or indeed bound by law. If things improve, the government will tighten back. Divided US government – as is likely following the US election – is just as likely to lead to partisan politics and restricted spending like the big fiscal tightening experienced during the Obama years. Austerity on public services may be more toxic than in the past. Indeed, the UK’s National Health Service is unlikely to ever be short on funding again. Yet, there is already a debate about raising taxes. This crisis has caused a massive redistribution of income from the young to the older generations. Higher taxation – especially on wealth – should be a far bigger concern than unlimited spending.

And let us not forget China. The Global Financial Crisis is a misnomer insofar as China came through it relatively unscathed thanks to truly massive stimulus. As the Chinese growth boom continued, it provided crucial support to the global economy in the wake of the financial crisis. The rise in commodity prices helped support inflation expectations. Today, China is a less reliable engine for global growth. For one, its growth mix has transitioned toward domestic services in the last decade. And more importantly, there is simply too much leverage in the Chinese system to pump prime the economy at the same rate as a decade ago. Other emerging markets, meanwhile, will likely face an even greater pandemic recession than the developed world. Add the global oil price war into the mix and the environment is highly deflationary. The West is truly on its own.

Deglobalisation — it is very slow

If the cycle won’t help inflation that leaves us with the trend. Where we have most sympathy with the inflation argument is that the pandemic will structurally raise business costs over time. Western manufacturers will need to reconsider their supply chains. The integration of global value chains reduced manufacturing costs by shifting production to locations with cheap labour (see our piece ‘Undermining global value chains’). Yet businesses will face pressure from shareholders, regulators, and governments to make supply chains more local and resilient to future shocks.

An unwinding of global value chains should strengthen the position of workers in Western economies. If Western workers have been the main victim of globalization, they stand to benefit from deglobalisation. But this structural effect will take decades, not years to feed through. It is unlikely to play any immediate role in driving up wages during the deepest labour market shock since the Great Depression. German trade unions will not emerge from this crisis pressing for higher wages just because the next generation of car factories is less likely to be built in Eastern Europe or South America.

And what about business costs? A negative productivity shock would indeed raise costs of production. But, in a recent paper, our economics colleagues have estimated that even a return to a pre-WTO trading regime will bump up inflation by a moderate amount. And it still doesn’t follow logically that higher costs will be passed on to consumers. With weak demand, price rises are more likely to be absorbed into profit margins. And even if they are passed on the last ten years have shown that weak and entrenched inflation expectations are extremely difficult to move up again–a very different story to the cost-push inflation of the 1970s.

Who really wants inflation?

Ultimately, to move back to a high inflation regime we need unlimited fiscal and monetary easing. Yet we would dispute the shift in thinking on both fronts. On the monetary side, central banks have not given up on their commitment to inflation targets and their independence does not seem jeopardised. Recently, the Bank of England governor authored a piece in the Financial Times emphasising the central bank’s independence. There is little reason to think that central banks could not turn around policy stance on a dime if inflation reared its head.

More importantly, what about politicians? The commitment to reduce unemployment rates should be indisputable. Yet to posit that this is the same as generating a shift in inflation thinking is an argument too far. Prime Minister Abe succeeded in reducing the Japanese unemployment rate to record lows and stepped off the fiscal gas pedal once this was achieved.

The thought of inflation in Japan did not prove very popular. The Germans – with very poor demographics – would almost surely not welcome inflation and neither would Italy with the tighter ECB policy and explosive debt paths it would entail. With the policy response already succeeding in averting an economic meltdown, the question is not whether policymakers will sign up to a 1920s depression but whether a disinflation environment similar to what prevailed in the global economy for centuries before the second world war would be attractive. As global demographics deteriorate, so disinflation becomes politically attractive; old people prefer low prices to protect their savings.

Monetary and fiscal policy-makers received much flak for rewarding moral hazard and sowing the seeds of inflation during the financial crisis. In the event, no advanced economy has managed to hit its inflation target. Today, critics argue this time is different because the pandemic is also a supply shock. That is true and will have ramifications for the global economy in the next decade. However, the demand shock is even greater, the slippage in inflation expectations is more dangerous, and the shift in fiscal policy over-hyped. If inflation did overshoot against all odds, there is little reason to think governments and central banks in particular would be more tolerant of it than in the last forty years. The world has lived with disinflation for centuries. We should worry about turning into Japan, not Zimbabwe.

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“We Still Expect To Be Paid” – America’s Largest Mall Operator Sues Gap For $70M In Back-Rent

“We Still Expect To Be Paid” – America’s Largest Mall Operator Sues Gap For $70M In Back-Rent

Tyler Durden

Thu, 06/04/2020 – 13:25

Largely shafted by the stimulus bills as Democrats tried to prevent any federal money from going to “Trump’s real-estate friends”, landlords have grown so desperate for revenue that they’re resorting to extreme and potentially burdensome tactics, like taking tenants to court to try and squeeze more blood from a stone.

Simon Property Group, one of the biggest – if not the biggest – mall operator in the US, us suing GAP, one of its largest tenants, claiming the retailer failed to pay more than $65.9 million in rent and other charges due during the coronavirus pandemic.

CNBC, which brought us the story, says the battle is unfolding in a Delaware state court. The lawsuit “highlights the mounting tension between retail landlords and their tenants, many of which stopped paying rent after the crisis forced them to shut stores.” It was filed on Tuesday. And a reporter at CNBC  was apparently told to “expect more” lawsuits, apparently by somebody at SPG.

That GAP hasn’t been paying rent isn’t a surprise; the company shared its plans to stop paying rent and other monthly expenses with shareholders, savings that it projected would put $115 million a month in GAP’s coffers. In total, SPG’s malls have 412 GAP stores, which makes GAP – and its Banana Republic and Old Navy brands – as one of the company’s biggest “in-line” tenants.

And GAP warned its shareholders about the prospects for litigating stemming from this decision back in April.

Gap also warned in late April that litigation could arise as a result of its skipped payments. “Although we believe that strong legal grounds exist to support our claim that we are not obligated to pay rent for the stores that have been closed…there can be no assurance that such arguments will succeed,” the company said in a filing with the Securities and Exchange Commission at the time.

SPG CEO David Simon said his company still expects to be paid for the months those stores were closed, payments that would be a massive burden on GAP, which is already allowing burdensome debt service to eat into profits.

“The bottom line is, we do have a contract and we do expect to get paid,” he told analysts during a May 11 earnings conference call.

While April was a bad month for CMBS delinquencies, May was even worse. According to data provided by Trepp from earlier in the week, we showed that the delinquency rate in May logged its largest increase in the history of the metric since 2009. The reading was 7.15%, a jump of 481 basis points over the April number. What’s more, nearly 5% of that number is represented by loans in the 30-day delinquent bucket.

in May the Delinquency Rate logged its largest increase in the history of this metric since 2009. The May reading was 7.15%, a jump of 481 basis points over the April number. Almost 5% of that number pertains to loans in the 30-day delinquent bucket, meaning that the jump in delinquencies is being largely driven by the coronavirus-inspired deterioration in economic conditions. More bankruptcy data released Monday found bankruptcies jumped nearly 50% year-over-year in May.

To be sure, the data included some highlights: given that about 8% of loans had missed payments for the April remittance cycle (in the grace period), the fact that delinquencies climbed less than 5% has to be viewed as a small “win.” Either that, or the backlog in delinquency reporting might be larger than we suspect.

Whatever the case may be, it appears that “win” won’t last, and will be reversed next month, when the delinquency rate hits double digits as about 7.61% of loans (by balance) missed the May payment but remained less than 30 days delinquent (i.e., within the grace period).

Be it commercial or residential, landlords in the US have largely been left holding the bag for the country’s economic losses, as Democrats weeded out details in stimulus bills that would help alleviate the financial pain for ‘all the president’s friends in real estate.’ Of course, small-time landlords are the ones who’ll likely suffer the most. As we reported a couple of weeks ago, the stage is set for a “bankruptcy tsunami”.

That’s great news for “Uncle Carl”, who’s currently enjoying his semi-retirement in Florida.

As for speculation about the outcome, we suspect this is one of those court battles where both sides lose. As one Twitter wit pointed out…

…Well put.

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DoJ Launches Investigation As More Evidence Emerges That Someone Is Orchestrating The Violent Riots

DoJ Launches Investigation As More Evidence Emerges That Someone Is Orchestrating The Violent Riots

Tyler Durden

Thu, 06/04/2020 – 13:05

Authored by Michael Snyder via TheMostImportantNews.com,

The Department of Justice has announced that it is attempting to determine if there is a “coordinated command and control” behind the violent riots that have erupted all over the United States. 

In recent days, officials all over the country have used words such as “organized” and “organizers” to describe the orchestration that they have been witnessing in their respective cities.  And all over the U.S., law enforcement officials have reported finding huge piles of rocks and bricks pre-staged at protest locations in advance, and scouts have often been used to direct rioters to locations where police are not present.  In addition, something that we have been hearing over and over again is that many of the people that are involved in the violence are not known by any of the locals.  At this point, the evidence appears to be so overwhelming that some sort of national coordination is taking place that the Department of Justice has decided to launch a formal investigation

Federal law enforcement officials are probing whether “criminal actors” are coordinating violent activities during protests and are looking into reports that “rocks and bricks” have been dropped off to throw at police and other law enforcement as cities across the country grapple with the uptick in violence, a senior Department of Justice official said.

“You see the hallmarks… We’re trying to see if there’s a coordinated command and control, you see those bread crumbs and that’s what we’re trying to verify,” said the Department of Justice official.

The orchestration of the violence appears to be most advanced in major cities such as New York.  According to the head of the NYPD, “caches of bricks & rocks” have been strategically placed all over the city during the past several days…

The New York Police Department’s top cop is calling out “organized looters,” who he says are “strategically” leaving piles or buckets of debris on street corners citywide.

“This is what our cops are up against: Organized looters, strategically placing caches of bricks & rocks at locations throughout NYC,” NYPD Commissioner Dermot Shea wrote in a Wednesday morning tweet, along with a video showing four blue boxes filled with gray debris.

Of course it is entirely possible that someone is buying bricks for the rioters, but Shea has pointed out that several construction sites in the city have had bricks stolen from them

“Pre-staged bricks are being placed and then transported to ‘peaceful protests,’ which are peaceful protests, but then used by that criminal group within,” he said. “We’ve had construction sites burglarized in recent days in Manhattan … during a riot, it’s interesting what was taken – bricks.”

Shea explained how bricks had previously been thrown at NYPD members in the Bronx, and water bottles filled with cement have also been used as weapons.

So it would appear that someone has been stealing bricks and leaving them in pre-staged piles for the rioters.

But at this point we don’t know precisely who is doing this or why they are going to so much trouble.

It is also being reported that teams of looters armed with power tools are systematically working together to loot one location after another in New York City.  The following is how one eyewitness described what she has been witnessing

One of the numerous police reports from eyewitnesses came from Carla Murphy, who lives in Chelsea.

Murphy, in an interview Tuesday, said she started hearing commotion from mobs of people along her street and neighboring streets about 10:30 p.m. Monday night. She first watched from her building and then went down to the street and saw organized groups of people working together to break in to store after store in the West Side neighborhood.

“Cars would drive up, let off the looters, unload power tools and suitcases and then the cars would drive away,” she said. “Then the cars would come back pick them up and then drive off to the next spot. They seemed to know exactly where they were going. Some of the people were local, but there were a lot of out-of-towners.”

This isn’t just a few angry protesters smashing a few windows.

This is organized crime at a very high level, and these people know exactly what they are doing.

Meanwhile, more evidence of coordination continues to emerge in other major cities as well

In Tampa, there were reports that members of the bomb team found mortars in bushes downtown, and bricks and other items were hidden in trash cans to throw at police officers.

In Seattle, a video out up online by an anarchist shows that around midnight, a crowd of 100-150 nearly all-white agitators with umbrellas started throwing bottles at police.

And for several more examples of this sort of orchestration, please see the article that I posted a couple of days ago.

It appears to be obvious that some sort of coordination is taking place, but now federal authorities are faced with the daunting task of trying to prove who is behind it.

According to Fox News, Justice Department officials are hoping to find “ways in which we can exploit phones and data communications that could give us a mosaic to see if there’s a coordinated command and control, that’s what we’re looking for.”

It is believed that social media is being heavily used to direct the movement of rioters and looters, and that would mean that there should be digital trails for investigators to follow.

Needless to say, many Americans believe that “Antifa” is behind much of the violence, and a brand new Rasmussen Reports survey has found that 49 percent of all U.S. voters believe that it should be declared a terror organization…

The latest Rasmussen Reports national telephone and online survey finds that 49% of Likely U.S. Voters think the “antifa” movement should be designated a terrorist organization. Thirty percent (30%) disagree, while 22% are undecided.

Hopefully those responsible for the violence will be discovered and brought to justice, because what we have been witnessing over the past week has been absolutely horrible.

Unfortunately, the level of anger in this country is likely to continue to rise the closer we get to election day, and more eruptions of violence are likely in the months ahead.

via ZeroHedge News https://ift.tt/3dwRRh2 Tyler Durden

Vegas Has Officially Reopened: This Is What It Looks Like

Vegas Has Officially Reopened: This Is What It Looks Like

Tyler Durden

Thu, 06/04/2020 – 12:45

After 78 days of silence, the clinking-clanking of slot machines, whoosh of fountains, and chink of cheers-ing glasses is back in Las Vegas as Casinos reopened for gaming at 1201am on Thursday.

While buffets and shows (and strip clubs) remain closed…

(and not all properties are reopening today), “Play It Safe” is supposedly the priority (plexiglass, masks and social distancing reminders)…



As the sun rose Thursday on the Fremont Street Experience, gambler Eddie Gonzalez emerged from the Fremont with three friends. He’d been putting some wagers down and hadn’t lost money, but he hadn’t won any either.

“Even,” Gonzalez said. “Even is winning.”

Drew Casen, a Henderson man who described himself as “an international grand master of a game called bridge,” was waiting for doors to open with a suitcase in hand.

The 70-year-old, wearing a face mask unlike the handful of other guests at 8 a.m., said he’s been coming to the casino for 20 years to play craps. He got a room for two nights to celebrate the reopening and “get out of the house.”

“I’ve been cooped up for almost three months at home,” Casen said.

But… it seems visitors are more than willing to get a little closer…





Much like the protesters on the streets?

And there is plenty of room by the pool… for once!

The Bellagio is ready…

All-in-all – let’s hope that “what happens in Vegas, stays in Vegas” as these gamblers (both monetarily and health-wise) head back to their homes.

via ZeroHedge News https://ift.tt/307zOdx Tyler Durden

CNN: White Children “Don’t Deserve Innocence”

CNN: White Children “Don’t Deserve Innocence”

Tyler Durden

Thu, 06/04/2020 – 12:25

Authored by Steve Watson via Summit News,

CNN gave airtime to an ‘anti-racist activist’ who suggested that white children should not be allowed to have an ‘innocent’ childhood, but rather be made to feel guilty about their ‘white privilege’ at an early age.

CNN host Poppy Harlow cited a letter sent to her from a school directing white parents how to teach their kids about their ‘white privilege’, and asked Tim Wise “When should parents do this with their kids and how?”

Wise responded that it should be at as young an age as possible, and that white kids need to be repeatedly told they are over privileged in order to sufficiently indoctrinate them.

“I think the important thing for white parents to keep in the front of our mind is that if black children in this country are not allowed innocence and childhood without fear of being killed by police or marginalized in some other way, then our children don’t deserve innocence.” Wise proclaimed.

“If Tamir Rice can be shot dead in a public park playing with a toy gun, something white children do all over this country every day without the same fear of being shot, if Tamir Rice can be killed, then white children need to be told at least at the same age, if they can’t be innocent, we don’t get to be innocent.” Wise continued.

“If we could keep that in the front of our minds, then perhaps we would be able to hear what black and brown folks are telling us every day and have been for many years.” he added.


Wise was also wheeled out Monday by CBS, where he claimed that white Americans have “been taught to have contempt for black life.”

CBS also featured a segment with Ibram X. Kendi, author of a book titled “Antiracist Baby” about how to indoctrinate children from birth on race by instituting ‘diverse baby play dates’ and the like.

So, white guilt sessions in the morning and the drag queen story time in the afternoon then?

via ZeroHedge News https://ift.tt/2z3taK9 Tyler Durden

US Exports, Imports Crater Most On Record As China Refuses To Comply With Trade Deal

US Exports, Imports Crater Most On Record As China Refuses To Comply With Trade Deal

Tyler Durden

Thu, 06/04/2020 – 12:05

While today’s trade balance print at $49.4 billion came generally in line as expected, the relative calm on the surface belies what has been a stunning collapse in absolute trade levels.

The problem is how the US got to that deficit print, and this is where it gets ugly: April exports were $151.3 billion, $38.9 billion less than March exports. In percentage terms, the 20.5% export drop was the biggest on record, going back to 1992. At the same time, April imports were $200.7 billion, $31.8 billion less than March imports, and a decline of 13.7%, also the most since records started in 1992.

The decline in merchandise exports was widespread with companies shipping less capital equipment, motor vehicles, consumer goods and industrial supplies such as oil. The nation also received fewer capital and consumer goods, vehicles and food from overseas producers as the US economy was put on ice.

Reflecting the global pandemic and lockdowns, the value of travel-related imports and exports slumped to $4.4 billion, an all-time low in data back to 1999.

Combined, the value of U.S. exports and imports decreased to $352 billion, the lowest since May 2010!

However, since both exports and imports tumbled by roughly a similar amount, the move in the total monthly trade balance was far more muted, sliding from $42.3BN to $49.4BN.

To be sure, foreign trade was already easing prior to the pandemic, and now, but faced with what Bloomberg called unprecedented supply-chain disruptions, a previously incomprehensible surge in U.S. unemployment and a drop-off in demand, the world’s largest economy has pulled back more dramatically.

Meanwhile, in a double whammy for the Trump administration, there was no sign of any real progress on the phase 1 deal with China, with soybean exports still lagging their 2019 pace.  



Source: Brad Setser

Furthermore, while China is generally obligated to elevate its imports from the US (on par with 2017 levels) as per the Phase 1 Trade deal, YTD data shows that there is virtually no pick up compared to 2018 or 2019.

Worse, food exports are at risk of declining after Chinese government officials this month telling state-run agricultural companies to pause purchases of some American farm goods including soybeans.

Meanwhile, in the latest slap for the Trump admin, the report showed the trade deficit with China growing as imports of merchandise from China rebounded in April to $35.2 billion from $24.2 billion in March, while exports edged up to $9.3 billion, leaving a deficit of $7.2 billion.

via ZeroHedge News https://ift.tt/2Y3HKdd Tyler Durden