Category: zerohedge

Dramatic images released this week show thousands of cars  stretching for miles, lining up for provisions at a Texas food bank as the state continues to deal with the effects of its coronavirus outbreak.

At a food drive held in Dallas County on Tuesday, cars from “the other side of the state” showed up, according to the Daily Mail. Photographs show cars bumper to bumper while 90 volunteers worked to distribute 10,000 boxes of food. People had started lining up for the food before dawn, hoping to get boxes that included dairy, canned goods, noodles, peanut butter and other basics. 

Richard Archer, who showed up at the food bank this week, said: “If it wasn’t for this, we’d probably go hungry. With unemployment benefits cut, [my daughter’s] husband’s been laid off for three months. So, it’s just been a struggle. If it wasn’t for church, and food giveaways, the kids would be going hungry.”

Diana King, another person at the food drive, told CBS: “There’s times I open the refrigerator and there’s little there. We make do with what we have and we make it stretch. It helps pay a bill, so the water doesn’t get turned off. The gas doesn’t get turned off. Mortgage? We are right there on the borderline.”

The scramble for free food comes as about 30 million Americans surveyed last month said that they “didn’t have enough to eat”. This marked about 12% of all people polled. At the same time, the country is mired with record unemployment numbers. 28 million people remain unemployed nationwide as a result of the pandemic. 

According to the Daily Mail, the numbers in Texas are dire: “Dallas County has recorded 55,787 cases of coronavirus and 794 deaths. In Texas there are 524,814 cases and 9,552 deaths. The positivity rate in Texas is 24.5 percent – the highest since the start of the pandemic.”

The economic situation in Texas has been deteriorating even as the number of new covid cases in the state peaked one month ago and has been declining ever since (although some blame this on declining testing)

“I actually live in West Dallas. But I came this far just to get the help,” Rene Hightower told CBS Dallas. It goes without saying that if only these people had used their government benefits payments to buy deep out of the money Tesla calls, then everyone would be rich by now.

By Michael Every of Rabobank

The Woozle Effect & Heffalumps in the room

“I shall have to wait until I catch up with it,” said Winnie-the-Pooh. “Now, look there.” He pointed to the ground in front of him. “What do you see there?”

“Tracks,” said Piglet. “Paw-marks.” He gave a little squeak of excitement. “Oh, Pooh! Do you think it’s a—a—a Woozle?”

The Woozle Effect, also known as evidence by citation, occurs when frequent citation of previous publications that lack evidence misleads individuals, groups, and the public into thinking or believing there is evidence, and nonfacts become urban myths and factoids. Using that definition, contemporary neoclassical economics is a complete Woozles. Name the economic theory and it will have been proved wrong – yet that lack of substance doesn’t stop it being taught or given as policy advice to politicians. I have made similar points on economics before, but it really does matter if the assumptions we base our market thoughts on are Woozles, and so we find ourselves, like Pooh and Piglet, walking round and round a larch tree in the snow, following our own footprints, and thinking a sustainable recovery is always just ahead.

• It’s good news US jobless claims are below 1m again – but they are still nearly 1m, not the usual 250K. President Trump can proclaim he will cut the capital gains tax to 15% if re-elected, and that this will jumpstart investment and jobs, and he will find economic backers among those with capital, and maybe some voters, but he won’t find any scientific evidence.

• Turkish President Erdogan argues higher interest rates cause higher inflation and lower interest rates, lower: with TRY at 7.35, French forces in the Eastern Med, and an emergency EU Foreign Relations Council meeting today to address Turkish behavior, it is an interesting time to be talking about cutting rates again.

• Chinese data disappointed overnight, with industrial production at 4.8% y/y (vs. 5.2% expected), retail sales -1.1% (vs 0.1%) and fixed assets at -1.6% y/y YTD (in line), all as property investment leaped 3.4% (vs. 2.5%) as new home prices shot up 0.5% m/m. So production up and spending down. Not so much “dual circulation” evident there yet – unless it means another housing frenzy to try to mop up excess supply and exporting the rest as per usual.

Which brings me to the Heffalump in the room. ONE thing IS clear, yet the markets refuse to act on it: the deterioration in US-China relations. Yesterday saw Reuters report: “In China, fears of financial Iron Curtain as US tensions rise – a sharp escalation in tensions with the United States has stoked fears in China of a deepening financial war that could result in it being shut out of the global dollar system – a devastating prospect once considered far-fetched but now not impossible.”

‘Yawn,’ says the market, circling round the larch tree.

”A broad financial war has already started … the most lethal tactics have yet to be used,” an economist who previously advised the PBOC, says, adding China should make preparations, echoing the former director of the international payments department of SAFE says “We have to mentally prepare that the US could expel China from the dollar settlement system,” and arguing China should use its CIPS system and a digital yuan to circumvent SWIFT and the USD. Except this will mean others being paid in a non-fungible digital currency that can only be recirculated back to China for its goods. See the Heffalump in that particular room?

‘Stomp, stomp, stomp,’ goes the market round the same old tree.

The two Wall Street journalists who wrote endless pieces about how a US-China trade deal was always imminent now publish a book saying there is actually a deep Cold War (no!!!) and a rising risk of hot war; that as the editor of China’s Global Times tweets: “The PLA has conducted military exercises in the Taiwan Straits and at its northern and southern ends, showing PLA is capable of launching a full scale attack and capturing the island within hours, leaving US military no time to react. It’s a clear warning to Taiwan independence.” – and the US sends stealth bombers nearby.

‘Tiddley pom,’ hums the market round the larch tree.

Geostrategic shifts of historic dimensions are occurring, as Israel and the UAE strike a normalisation of relations, seen as likely to be followed by the rest of the Gulf Co-operation Council in time, a foreign policy victory for Trump’s controversial Middle East policies, and a finger in the eye to Russia, Iran,…and China. The US has also just designated Chinese Confucius Institutes as official foreign missions for propaganda, not educational/cultural centres: they can stay for now, but will be watched closely.

‘Sing Ho! for the life of a Bear!’ says the market round the larch tree.

Don’t forget that the US-China phase one trade deal is up for assessment this weekend. The very-best-case scenario is more larch tree-circling, and indeed Trump alluded to that overnight in saying that China is now placing record orders of US agri products. China will play along given it doesn’t know who will win the US election yet either (which now has the same odds as in 2016 from Nate Silver). Yet we remain of the view that this deal will still collapse at some point – and probably when most politically expedient to Trump. Which would push stocks down…and perhaps so focus the minds of Congress on the need to agree on a new stimulus package when they return in September. So all is well then!

Indeed, why should a clash/decoupling between the world’s two largest Heffalumps matter when there’s so much central-bank hunny to get gorged on…. though the awful 30-year US Treasury auction yesterday suggested the risk of rapid onset diabetes. Some voices are even arguing that in a decoupling world, it makes sense to put money into the US and China. That presumes that one understands that, unlike in Woozle theory, money is not always fully fungible, and is likely to get less and less so ahead as other Soviet-style central-bank jiggery-pokery is introduced.

On which note, the RBA’s Lowe didn’t *entirely* rule out negative rates today while making clear he really doesn’t like them; and it seems the BOJ, who has negative rates already, is trying to work round them by paying people to lend more. Just wait until we all get new Woozly digital currencies, eh?

——–

“I see now,” said Winnie-the-Pooh. “I have been Foolish and Deluded,” said he, “and I am a Bear of no Brain at All.”

Democrats are furious with President Trump this week after he rejected demands to fund the United States Postal Service (USPS) ahead of the upcoming 2020 election. The president spoke about withholding funds from the government-run mail service during an interview Thursday with Fox Business’ Maria Bartiromo. On the same day, Vice News’ Motherboard published a report outlining how mail sorting machines, the same ones used for sorting mail-in ballots, were being dismantled across the country for unknown reasons. 

“They [the Democrats] want three and a half-billion dollars for something that’ll turn out to be fraudulent — that’s election money basically. They want $25 billion for the post office,” President Trump said. 

“Now, they need that money in order to have the post office work so it can take all of these millions and millions of ballots. Now, in the meantime, they aren’t getting there. But if they don’t get those two items, that means you can’t have universal mail-in voting because they’re not equipped to have it.”

President Trump has been on a crusade, criticizing the fraud behind mail-in voting, calling it “rigged” and the “scandal of our times.” Last month, he even suggested the presidential election should be delayed due to the virus pandemic and the prospect of mail-in voting. 

Motherboard said the dismantling of sorting machines was widespread, and there was no clear answer behind their removal from processing facilities.

Motherboard identified 19 mail sorting machines from five processing facilities across the U.S. that either have already been removed or are scheduled to be in the near future. But the Postal Service operates hundreds of distribution facilities around the country, so it is not clear precisely how many machines are getting removed and for what purpose.

Even to local union officials, USPS has not announced any policy, explained why they are doing this, what will happen to the machines and the workers who use them. Nor has management provided a rationale for dismantling and removing the machines from the facility rather than merely not operating them when they’re not needed. -Motherboard

Motherboard spoke with USPS employees about the elimination of sorting machines and found no one had an explanation nor could point to any internal policy. 

“I’m not sure you’re going to find an answer for why [the machines being removed] makes sense,” said Iowa Postal Workers Union President Kimberly Karol, “because we haven’t figured that out either.”

USPS spokesperson David Partenheimer told Motherboard the remove of the machines is ‘routine’:

“The Postal Service routinely moves equipment around its network as necessary to match changing mail and package volumes. Package volume is up, but mail volume continues to decline. Adapting our processing infrastructure to the current volumes will ensure more efficient, cost-effective operations and better service for our customers.”

Democrats have denounced the president and longtime Republican fundraiser and GOP donor Louis DeJoy, who was recently appointed as Postmaster General.

Democrats allege the president and DeJoy are plotting to “sabotage” the mail service ahead of the election by causing massive bottlenecks in sorting during the time an influx of mail-in ballots flood processing facilities during or around November’s election.

While the consequence of the president’s stance to withhold billions of dollars in funding from the USPS and DeJoy’s initiative to dismantle sorting machines ahead of the election is mostly unclear, though it suggests the Trump administration could be trying everything in their power to prevent mail-in voting by Democrats from stealing the election. 

President Trump’s younger brother Robert Trump has been hospitalized in New York and is “very ill”, ABC News reports.

NEWS – Pres Trump brother Robert hospitalized in NY sources say “very ill” POTUS expected to visit him today – @PressSec confirms @ABC adding Trump & brother have “a very good relationship” & @realDonaldTrump would provide more details soon w/ @KFaulders https://t.co/tN1IHUW2YV

— John Santucci (@Santucci) August 14, 2020

Trump is expected to visit him on Friday.

 

 

 

 

 

 

 

 

 

 

 

 

Authored by Mohamed El-Erian, op-ed via The Financial Times,

Until recently, the rapid rise in the price of gold had more to do with opportunistic financial trading than any larger structural investment theme, let alone a drop in physical supply or an increase in industrial use.

Now, the metal is seen to offer something for everyone.

That is yet another unintended result in a lengthening list of the exceptional involvement of central banks in the functioning of markets. Their expanded interventions to counteract the effects of the pandemic have pleased many now but will create problems for the central banks and the economy at large, if a sharp and lasting economic recovery continues to elude us.

After rising 17 per cent in the first half of the year, gold prices surged to record highs before retreating on Tuesday to just below $2,000. In the process, investors went from treating gold as a short-term momentum trade to seeing it more as a legitimate standalone option in long-term portfolios. You need only look at real yields on government bonds after adjusting for inflation to see why so many investors are buying gold as a long-term option.

Contrary to what most textbooks would suggest, the recent drop in nominal yields has coincided with a rise in inflationary expectations. This makes gold a more attractive substitute for government bonds in two ways.

1. Investors who opt for gold forgo less income than they would if bond yields were higher.

2. They also hedge against what would be a dramatic loss in the value of those bonds, should central banks stop trying to keep interest rates low by flooring official rates and buying massive amounts of market securities.

Gold is also proving compelling for other reasons, collecting quite an unlikely cast of backers in addition to the usual bugs who worry about currency debasement and geopolitical shocks. Some believe it will protect investors against further depreciation of the US dollar; others want it as a hedge against a global economic depression and a collapse in stock markets that, already, are stunningly decoupled from corporate and economic realities. Today’s gold camp even manages to attract those looking to protect against competing outcomes: deflation and inflation. 

Gold is not the only asset to have developed this multiple and seemingly bipolar personality.

Big Tech stocks have also been seen as offering everything to everybody. They promise growth based on the shift from physical to virtual activities in the pandemic, but also downside protection because they have massive cash holdings, low debt and positive cash-flow generation. The collapse in nominal yields on government and safe corporate bonds is also leading some investors to ask whether non-investment grade “junk” bonds can be a safe place to park their money.

Underpinning these contradictory developments is investor faith that central banks will protect them from big losses by continuing to intervene whenever markets slide. Gold is evolving into a “must-have” asset. That drives the price upwards as the pool of potential buyers shifts from a small group of quirky bugs to the much larger pool of investors seeking risk mitigation. Like many sudden structural shifts, it is likely to involve an initial price overshoot.

Think of this as part of a broader shifting baseline. Investors are treating an ever growing number of traditionally risky assets as low risk, or even hedges against risk. In the short term, this pushes prices higher, reinforcing the attitude change and lulling politicians and central bankers into believing that the market cycle has been conquered.

But they are likely to prove as wrong as those who, before the 2008 financial crisis, erroneously believed they had vanquished the business cycle.

After disappointingly dropping last month, the preliminary August University of Michigan sentiment data was expected to fade a little further (from 72.5 to 72.0), with both current conditions and future hope falling too. However, the actual print was mixed with the headline sentiment up very modestly to 72.8 (from 72.5), current conditions dropped a little (from 82.8 to 82.5) while ‘hope’ improved modestly from 65.9 to 66.5…

Source: Bloomberg

Two significant changes since April have been that consumers have become more pessimistic about the five-year economic outlook (-18 points) and more optimistic about buying conditions (+21). Lower interest rates by the Fed prompted more favorable buying, especially for homes, and the DC policy gridlock was responsible for the weaker outlook.

The overall confidence in economic policies fell to the lowest level since Trump first entered office…

The policy gridlock has acted to increase uncertainty and heightened the need for precautionary funds to offset lapses in economic relief programs and to hedge against fears about the persistence and spread of the coronavirus as the school year gets underway. Bad economic times are anticipated to persist not only during the year ahead, but the majority of consumers expect no return to a period of uninterrupted growth over the next five years.

Democrats’ confidence has fallen back near its record lows as Republicans and Independents improved slightly…

Finally, consumers anticipate declines in the national unemployment rate to significantly slow and expect a rising rate of inflation during the year ahead. While a positive growth rate in consumption is anticipated in the 2nd half of 2020, it will hardly herald the end of the coronavirus recession.

But as is clear, the total and complete recovery in the stock market is not leading to a rebound in confidence in the real world.

A little over one month after Google parent Alphabet, Facebook and Twitter said they would temporarily cease processing police or other official requests for user data in Hong Kong in retaliation for the controversial National Security law, Google has apparently confirmed to the Washington Post that these changes are now permanent, and that it will permanently cease processing all such requests, effectively treating Hong Kong the same as mainland China, a market that Google left years ago, though the search giant is reportedly plotting its return.

Instead of processing these requests itself, Google notified Hong Kong police on Thursday that it would instead direct officials to pursue any requests for data through a Mutual Legal Assistance Treaty with the US, a difficult process, which would eventually lead to these “Requests” being processed by the American DoJ.

“As always, authorities outside the US may seek data needed for criminal investigations through diplomatic procedures,” Google said in a statement emailed to Reuters.

China, meanwhile, is suspending Hong Kong’s “legal assistance” treaty with other countries, including Britain and Canada, as these and others suspended their extradition treaties with Hong Kong. While the US treaty still technically stands, Trump has moved to suspend it via executive order.

However, as HK police arrest Jimmy Lai and sympathizers declare the death of press freedoms in Hong Kong, it seems nothing can stop the national security law from having “a widespread chilling effect” in HK.

The national security law already has had a widespread chilling effect in Hong Kong. Immediately after its passage, residents started deleting their social media accounts and some activists fled the city. This week saw the harshest use of the new law since it took effect, with the arrests of media tycoon Jimmy Lai, his sons, young activist Agnes Chow and six others, and a police raid on the offices of Apple Daily, a pro-democracy newspaper owned by Next Digital, the company Lai founded.

Google has had a mostly cordial relationship with China, where it operates an artificial intelligence office. U.S. Republican lawmakers have accused Google of being too cozy with China and working with the Chinese military, which Google has continually denied.

The move comes after the US moved to sanction HK Chief Executive Carrie Lam, and other top Chinese and HK officials, over their role in adopting and enforcing the new law.

Authored by Charles Hugh Smith via OfTwoMinds blog,

Here’s what denormalization means: there was no “New Normal” for the dinosaurs.

Everyone talks about the “New Normal,” as if there’s a guarantee that life will return to normal. But the “New Normal” is De-Normalization, which I define as everything that was normal is gone and will not be replaced with some new normal. In other words, normal is gone, done, over: old normal, new normal, doesn’t matter: normal is history.

Denormalization is currently used to describe a database optimization process, but it’s too valuable a concept to be limited to a narrow geekspeak term.

What I mean by Denormalization is the complete dismantling of what was taken for granted as normal and the loss of any future version of normal. Consider sports as an example. We all know the Old Normal that millions hope will magically return: $100 million player contracts, millions in TV ad revenues, pro franchises worth billions of dollars, NCAA playoffs, etc.: a dominant kingdom in the nation’s media and mindshare.

The dirty little secret that troubled the kingdom long before Covid-19 was a steady erosion in attendance at live games and in the viewing audience. Younger generations have relatively little interest in all the trappings and habits of Boomer sports manias. They’d rather watch the 3-minute highlight video on their phones than blow half a day watching games that are generally lacking in drama and are largely replaceable with some other game.

What few seem to notice is that the Old Normal had become insanely expensive, irksome and boring, activities that were habits coasting on momentum. Those embedded in the Old Normal acclimatized to the absurdly overpriced seats, snacks, beer, parking, etc. of live events and the insanely long commutes required to get to the venue and then back home, as their happy memories of $5 seats decades ago is the anchor of their lifelong devotion and habits.

The old fans coasting on ritual habituated to the cookie-cutter nature of the games, while those who never acquired the habit look with amazement at the seemingly endless dull progression of hundreds of interchangeable sporting events.

Advertisers will eventually notice that younger generations never acquired the habit of worshipping sports and so there is nothing to stem the collapse of the Old Normal but older fans, some percentage of whom will find they don’t miss it once they fall out of the habit.

Some other percentage will find they can no longer afford to attend live games, or they’ll realize they no longer feel it’s worth it to grind through traffic or public transit just to sit for additional hours and then repeat the entire slog back home.

Another percentage will suddenly awaken to the artifice of the whole thing; they will simply lose interest. Others will finally realize the corporate machine (which includes college sports) has long since lost any connection to the era that they remember so fondly.

This same Denormalization will dismantle fast food, dining out, air travel, healthcare, higher education and innumerable other iterations of normal that have become unaffordable even as the returns on the lavish investments of time and money required diminish sharply.

How many of you deeply miss air travel? You’re joking, right? Only certifiably insane people would miss the irksome hassle and discomfort, from the endless delays due to mechanical problems (don’t you people keep any spare parts, or is it all just in time like every other broken system in America?), the seats that keep getting smaller as the passengers keep getting larger, the fetid terminals, and so on.

Like all the other iterations of normal, the entire experience has been going downhill for decades, but we all habituated to the decline because we were stuck with it.

What few seem to understand is all the Old Normal systems can’t restabilize at some modestly lower level of diminishing returns; their only possible future is collapse. Just as fine-dining restaurants cannot survive at 50% capacity because their cost structure is so astronomical, the same is true of sports, airports, airlines, cruise lines, fast food, movie theaters, healthcare, higher education, local government services and all the rest of the incredibly fragile and unaffordable Old Normal.

None of these systems can operate at anything less than about 80% of full capacity and customers paying 80% of full pop, i.e. full retail. Since their fixed cost structures are so high, and their buffers so thin, there’s nothing below the 80% level but air, i.e. a quick plummet to extinction.

Here’s what denormalization means: there was no New Normal for the dinosaurs. A few winged species survived and evolved into the birds of today, but that is by no stretch of the imagination a New Normal that included all the other dinosaur species. For them, denormalization meant extinction.

De-Normalization: everything that was normal is gone and will not be replaced with some new normal. Normal is gone, done, over: goodbye to all that.

*  *  *

My recent books:

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World ($13)
(Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( 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).

*  *  *

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

The rebound in US Industrial Production was expected to slow in July (from +5.4% MoM to +3.0% MoM), and printed right on those expectations (along with an upward revision to +5.7% MoM on June). Year-over-year, Industrial Production remains down over 8%…

Source: Bloomberg

Manufacturing was also expected to slow (from +7.2% MoM in June to +3.0% MoM in July), but beat expectations with a 3.4% MoM rise, but remains down 7.7% YoY…

Source: Bloomberg

And finally, there’s this. The ‘real’ economy’s Industrial Production’s “V-shaped” recovery appears a little different from the ‘pretend’ market of the Industrials average…

Source: Bloomberg

 

It appears media organizations including Bloomberg have corroborated a CNN report published Thursday claiming that New Jersey Gov. Phil Murphy (a former Goldman Sachs executive) is preparing to announce Friday that the state’s November election will be conducted mostly via mail-in ballots.

The announcement, likely the latest bit of political posturing by a governor who clearly craves the national profile enjoyed by his colleague in Albany, comes as President Trump’s political opponents rail against Trump’s remark about defunding the US post office to ensure that mail in voting won’t be an option. Though these appear to be more inflammatory words as Trump continues his strategy of playing purely to his base, many critics on Twitter are complaining about Trump threatening “the last shred of democracy we have left”, even though he later said he “wouldn’t veto” a bill with the funding attached (it’s basically a re-run of when Trump suggested that the election should be delayed).

After conducting its primaries almost entirely by mail, NJ would become the ninth state to move to this type of voting for the Nov. 3 presidential vote. Washington DC also plans to automatically send ballots to registered voters.

News of the plan, which was first reported by a local paper by the New Jersey Globe before it was picked up by CNN, followed the controversy over Trump’s remark by just a few hours.

During an interview on Fox Business yesterday, Trump said that if USPS doesn’t get the $25 billion earmarked in the Democratic stimulus plan, then it won’t have the money to handle mail-in ballots. The Trump Administration has already approved a $10 billion loan to the Post Office back in the spring.

Of course, while liberals like to ignore the possibility for fraud, there are clearly millions of people around the US (many of them misguided leftists) who would have no problem with filling out a few ballots sent to deceased family members, pets, or people who have long since moved and submitting them in the name of “preserving democracy”.

Rigging an election to save Democracy? Sounds like a perfectly logical notion to us. And let’s not forget, NJ’s wave of remote voting earlier this year came with more than its fair share of problems, too.

The turnout expected in the November vote would be much, much larger – even if NJ is widely considered “safe” for the Democrats.