Category: zerohedge

The restaurant industry is in collapse. More specifically, small restaurants have been crushed by the virus-induced recession. We’ve noted at least half of the restaurant closures on Yelp are now permanent. 

The National Restaurant Association has determined that at least 15% of all restaurants will close. This number could be a lot higher at the end of the year as Goldman Sachs reports the economic recovery is now reversing.

Small restaurant operators, who fear a double-dip recession, have now resorted to liquidating their eateries on Facebook Marketplace.

A simple search of “restaurant” on Facebook Marketplace, within 80 miles of Trenton, New Jersey, comes up with dozens and dozens and dozens of mom and pop eateries that are trying to get out of the game. 

Another search on the social media marketplace for “restaurant” around the Baltimore–Washington metropolitan area shows even more small business operators are calling it quits.

Here’s Miami, Florida… 

Here’s Denver. 

Small restaurant owners in San Diego, California, are trying to sell their eateries on Facebook Marketplace. 

Here’s the Bay Area in California. 

Elsewhere in California… 

The volume of small restaurants trying to liquidate on Facebook Marketplace is so massive that we weren’t able to show the complete disaster unfolding across America.

To sum up, there’s no V-shaped recovery this year – the administration has no plan to revive economic growth except for bailing out Wall Street that has angered Tea Party Republicans.

The country is imploding from within – all the Trump administration cares about is optics ahead of the election and the stock market.  

Authored by Tho Bishop via The Mises Institute,

Judy Shelton’s long and bumpy Federal Reserve nomination cleared an important hurdle last week when the Senate Banking Committee voted on party lines to send her for final consideration before the full Senate. Right away, Shelton’s nomination received pushback from the resistance wing of the Republican Party, with Mitt Romney and Lisa Murkowski going on the record as opposing her nomination. With unanimous Democratic objection to Shelton, it would take just two more Republican dissenters to eliminate the most interesting Federal Reserve nominee in recent history.

While it’s easy to simplify the political intrigue as just yet another inner-DC Trump proxy war, the battle over Judy Shelton’s nomination – particularly in the context of the Fed’s actions over the last few months – is very useful as an illustration of our wise senators’ remarkably shallow grasp of monetary policy. It is true that there are reasonable criticisms of some of Shelton’s past work, including her more recent pivot toward a more Trump-friendly championing of an interest rate cut last summer. However, these criticisms seem trite in a world where the Fed is engaging in unprecedented actions, such as buying up corporate junk bonds and utilizing BlackRock to effectively nationalize large parts of America’s financial market.  

It is noteworthy that many of Shelton’s loudest critics have been completely silent on this matter.  

One of the most common critiques waged against Dr. Shelton is that she would be a political loyalist and has questioned the value of Fed political independence. Ignoring the fact that documented American history has shown the notion of “Fed independence” to be a noble myth, I am curious to know what a politicized Fed would look like in practice. After all, the Fed has long tossed aside its traditional policy tools in no small part so that it can accommodate the political decisions made by the legislative and executive branches.  

The proudly independent Jerome Powell had already bent the knee to the White House’s wishes when he failed to follow through with a gradual reduction of the Fed’s balance sheet as stock market turbulence created political headaches. Naturally, there were no cries then from the faux populist Sherrod Brown, who has long been in lockstep with fellow progressives in opposing any sort of monetary tightening. It is unclear whether these alleged working-class champions are intentionally advocating for policy that enriches the billionaire dollar class by boosting financial asset prices, or whether they simply don’t understand the real-world consequences of what they parrot in public hearings.

Among Dr. Shelton’s Republican critics has been Senator John Kennedy of Louisiana, who made the snide comment that “Nobody wants anybody on the Federal Reserve that has a fatal attraction to nutty ideas” following her testimony in February. Unfortunately, that seems to be precisely what we have, with a Federal Reserve engaging in levels of economic intervention beyond anything America has seen. Rather than rail against Jerome Powell’s apparent dedication to turning America into Japan, during the last Senate oversight hearing he asked a few courteous questions of our wise Fed chair and signed off early.  

In Senator Kennedy’s defense, it’s easy to take silly potshots at a public figure who has become something of a pinata to a certain class of Serious People in American financial punditry. It’s much harder to be a critic of America’s central banker at a time of crisis when elected officials are struggling to keep up with daily news. But it is precisely the fact that legislators are utterly ill-equipped to provide serious checks on Federal Reserve “expertise” that someone like Dr. Shelton would be the rare plus to the Fed’s board. 

While it is unlikely that if confirmed Dr. Shelton would masterfully reveal that she is actually the gold bug the media has depicted her as, what is clear is that she would give the Federal Reserve something it desperately needs—ideological diversity. This is also why Very Serious People hate her. Shelton’s willingness to challenge the deified “PhD” standard of modern fiat money and question such sacred cows as Fed independence makes her a potentially dangerous threat to the groupthink that has become far too pervasive in central banks. Dr. Shelton understands the dangers of central banks becoming de facto central planners in modern economies, and she understands the valuable role that gold played in past monetary systems. She reads and respects the ideas of serious heterodox monetary scholars whose perspectives have long been completely ignored within Fed deliberations. She even received her education in places like Portland and Utah, quite a different resume from most of her Ivy League–trained colleagues. 

If confirmed, will Judy Shelton be a revolutionary force within America’s central bank? Almost certainly not. Just as no election will truly drain the swamp in Washington, no Fed nominee is going to restore humility to the Eccles Building.  

Instead, Shelton’s nomination is best seen as a litmus test for Republican senators. Are you interested in actually promoting ideological diversity within American institutions, or are you simply willing to stand with the academic gatekeepers that have given us the Federal Leviathan that we have today? 

We know where Mitt Romney and Susan Collins stand. We shall soon see where the rest of their colleagues fall.

A depressionary perfect storm continues to crush households as tens of millions of Americans are reporting they didn’t have enough to eat last week (the seven days through July 21). 

Bloomberg cites the Census Bureau’s latest weekly Household Pulse Survey, revealing almost 30 million Americans went hungry last week. About 23.9 million of 249 million respondents said they had “sometimes not enough to eat.” Around 5.42 million indicated they had “often not enough to eat.” This is the highest total of hungry Americans in the survey since early May, which was around the time when food bank lines across the country were swamped with jobless and hungry folks.  

Last Sunday, we noted food bank lines reemerged in Baltimore as the crisis in households persists. 

behind the scenes: food bank line in Baltimore just getting started – a lot of hungry and broke families as fiscal cliff begins pic.twitter.com/30C1OBJDSP

— Alastair Williamson (@StockBoardAsset) July 26, 2020

Tens of millions of folks are going hungry in mid-July as the recovery stalled in late June. At the same time, a fiscal cliff is hitting where $600-a-week federal unemployment benefits are now expiring. Another stimulus bill is set to be rolled out in the near term, but Republicans and Democrats are at odds over how large the next round should be. 

White House chief of staff Mark Meadows said both parties are “nowhere close to a deal,” one day before the fiscal cliff hits. This would undoubtedly lead to a decline in overall consumption. 

“This follows a deep recession resulting from the pandemic, which put millions of Americans out of work. Unemployed Americans have been receiving an extra $600 per week benefit, which is set to expire at the end of July as Congress debates a new relief package,” Bloomberg said. 

To make matters worse, millions of Americans behind on rent payments, now face imminent eviction as an eviction moratorium expired last Friday. The disagreement on Capitol Hill about another round of stimulus means no imminent moratorium extension which could lead to an eviction wave, more massive than 2008. 

The Trump administration can pretend all they want that the economy is on the verge of re-booming for reelection purposes, pointing to the stock market of how great everything is, but everyday Americans are suffering amid the worst depression since the 1930s. 

More concerning still is the fact that, as permanent job losses affect millions, the Republican establishment may be forced (politically – in an election year) to embrace leftist doctrine (universal basic income and all its socialist overtones), just to avoid social unrest among yet another section of America (and a landslide loss in November). This has already angered Tea Party conservatives, and is perhaps among the reasons why gold is soaring to record highs as the dollar sinks.

Authored by Steve Watson via Summit News,

The Associated Press reported Tuesday that more than 100 police agencies across the country have ditched previous agreements to provide security for the Democratic National Convention, scheduled to take place in Milwaukee in August.

The report notes that the move by cops is a reaction to Democrat responses to the anti-police unrest that has raged throughout the Summer.

“They were concerned with directives placed on the police department, including not allowing tear gas or pepper spray,” said Milwaukee Police Chief Alfonso Morales.

“It is apparent there is a lack of commitment to provide the Milwaukee Police Department with the resources it needs to ensure the safety of peaceful protesters, attendees, citizens and police personnel,” noted Wisconsin, Franklin Police Chief Rick Oliva.

“I can not send personnel if they are not properly equipped or will not be allowed to engage in appropriate actions which would ensure their safety,” Oliva added.

“I understand that use of chemical irritants and pepper spray is serious and those are to be used only when legally justified. But when you take that out of the continuum that doesn’t leave the officers much other than getting harmed or using deadly force and that’s not good for any officer or the public,” Waukesha Police Chief Daniel Thompson also warned.

The reaction of police is hardly surprising given that Democrats have introduced reforms to hamper police, and even expressed support for calls to defund the police.

Democrat Ilhan Omar (MN) even described police as a “cancer,” adding “we are saying we don’t want your damn reforms.”

When this whole thing fails, take note that Congresswoman Ilhan Omar also supports the dismantling of the Minneapolis Police Department. pic.twitter.com/cW3O745oq5

— Benny (@bennyjohnson) June 8, 2020

“The Minneapolis Police Department is rotten to the root, and so when we dismantle it, we get rid of that cancer, and we allow for something beautiful to rise, and that reimagining allows us to figure out what public safety looks like for us,” Omar said during a speech at a protest in June.

With the science behind the use of hydroxychloroquine (HCQ) to treat COVID-19 far from settled, more than a few people have noted the aggressive campaign against the widely-prescribed anti-malaria drug.

The anti-HCQ push has infected Silicon Valley as well – as tech giants have been labeling pro-hydroxychloroquine content as ‘misinformation’ – most recently banishing a press conference by a group of doctors touting the drug from just about every platform.

To that end, Yale epidemiologist Dr. Harvey Risch has accused Dr. Anthony Fouci of waging a “misinformation campaign” against the drug, according to Just The News.

On Tuesday during an interview on “Good Morning America,” Fauci further downplayed the drug’s purported benefit, claiming that “the overwhelming prevailing clinical trials that have looked at the efficacy of hydroxychloroquine have indicated that it is not effective in [treating] coronavirus disease.“

Risch, however, is sharply criticizing Fauci’s approach to evaluating the drug’s effectiveness, arguing that repeated trials and tests have shown that it is markedly effective at treating COVID-19 so long as it is administered properly. 

…

On Tuesday, Risch went further, charging in an interview with Just the News that Fauci is perpetrating a “misinformation campaign” in his opposition to the drug. 

Fauci “has been maintaining a studious position that only randomized controlled trial evidence has any value,” Risch said, “and everything else he calls anecdotal.” –Just The News

In a Newsweek Op-Ed published last week, Risch called HCQ “the key to defeating COVID-19,” and said it was particularly effective in conjunction with one of two antibiotics and zinc, saying it has “shown to be highly effective.”

Risch said the drug could save 100,000 lives if widely deployed.

Meanwhile, Food and Drug Administration (FDA) Commissioner Stephen Hahn noted that some medical observational studies “suggest a benefit” to the drug, also according to Just The News.

“So the FDA looks at all what we call ‘the totality of data,’” Hahn said in a Tuesday morning radio interview with Florida radio host Drew Steele. “There are observational studies that suggest a benefit. There are five randomized trials that did not show a benefit to hydroxychloroquine, both in the prophylactic setting and in the treatment — both early and late.” –Just The News

More recently, Rep. Louie Gohmert (R-TX) announced that he would be taking “zinc, erythromycin and hydroxychloroquine” after being diagnosed with COVID-19 on Wednesday.

If you’re looking for those positive studies, click into this thread:

It’s not perfect as HCQ was also used in Belgium and Spain and later in Italy, but the idea is that Western Europe as a whole never embraced the ‘treat early and often’ strategy. Mostly they tried it with sick patients, didn’t work..moved on

They mainly followed the WHO position

— Gummi Bear (@gummibear737) July 16, 2020

And for an even longer thread on positive reports involving HCQ, click this tweet:

Health officials from China, Korea, India, Taiwan, Malaysia, Bahrain, Turkey, Jordan, United Arab Emirates, Qatar, Morocco, Algeria, Nigeria, Senegal, Cuba, Italy, and 65 scientific studies have shown hydroxychloroquine is effective when used early against COVID19. A thread. pic.twitter.com/ol4Z3VxmkY

— CryptoNephilim (@cryptonephilim) July 29, 2020

Authored by Egon von Greyerz via GoldSwitzerland.com,

The global financial system has for half a century undergone an act of contortion that few believed was possible. This has led to a warped system with fake money and false markets.

Just like the picture on the below, few understand how the world can be in such a contorted position. Or is it all an illusion?

Let’s be clear, it is not just an illusion but a totally deluded and twisted system that can never be bent back into a natural shape again without destroying many vital parts.

VERITAS AND GOLD

You wonder where Veritas, the Roman goddess of truth is in all of this. Few people have realised that she has always been there throughout history although not many have noticed her in recent years. In the financial system, gold has always told the truth even when governments try to suppress or manipulate it. All financial systems have over time been destroyed by greed. Not a single fiat currency has survived in its original form.

It was Nixon (not a truth teller) who demolished the current system. Once the gold standard was abolished in 1971, it has been a free for all money printing bonanza for 50 years.

CRESCENDO OF QE

Since August 2019, the Fed and the ECB have orchestrated a crescendo of QE, requiring ever more fake money in a futile attempt to stop the inevitable collapse. As the world is now in the very end game of the current currency system, there had to be a vicious catalyst to finish it off. Sadly that came in the shape of a pandemic which the world is coping extremely badly with.

NEITHER DEBT NOR WEAPONS CAN KILL CV-19

In the beginning, every country thought that they would not be affected. And once they were, they didn’t take it seriously. Also Trump initially thought that the US was too strong and mighty to be severely affected. But neither more debt nor more weapons can beat the invisible CV enemy.

The few countries that did take early stringent measures have so far escaped with much less damage. What is scandalous in this globalist era is that there has been no cooperation between countries in how to treat CV-19. It shows that all these glorious unions, like the EU for example, only work in normal times. When a crisis starts it is every man and country for himself.

The hope is now that a vaccine will solve it all. Firstly, history tells us that vaccines always take longer to develop and test than hoped. So two years seem a minimum before we have any certain results. And even so, the success rate so far of these type of vaccines are normally less than 30%.

In the meantime the number of cases and deaths worldwide are increasing rapidly. And we still have the risk of a second wave. In Spain for example it seems to have started already. I doubt that the world and the world economy will function normally a year from now.

Whatever the course the pandemic takes in the next few months, it has already had major effects on the world. Firstly there is the loss of lives and the long term effects of the disease for survivors that are often severe and chronic. Then we have permanent loss of jobs, businesses closed with major sectors like leisure and travel which will never get back to where they were. Same with retail, town centres, offices etc. And world trade will contract substantially for a very long time.

THE FINANCIAL SYSTEM WAS SICK LONG BEFORE CV

On top of the above problems, is the financial system that was already bankrupt before CV. The combination of massive printing of fake money, credit expansion to unsound debtors and bad debts will be the death knell for the system.

Accelerated money printing will ensue in a desperate attempt by governments and central banks to save the world. But printing worthless money will of course have no positive impact. Instead we will see the end of the currency system as all currencies fall to their intrinsic value of ZERO.

Governments and central banks are doing a stellar job in withholding the truth about the destruction of their country’s money. All currencies are down 98-99% measured in gold since the Fed was created in 1913. But also since Nixon closed the gold window in 1971, the US dollar, the Canadian, British, Australian and Swedish currencies are all down 98-99%. – See Chart below.

And if we look at the last 20 years since 2000, all currencies except for the Swiss franc are down 82-88% in real terms or gold.

No wonder that governments don’t tell their people that they are totally destroying the currency and the economy. The trend has been clear for over 100 years and accelerated since 1971 and turned exponential since 2000.

HISTORY AND GOLD ARE THE TRUTH TELLERS

Again, history tells us the truth (Veritas is always present) but more than 99% of the population swallow the lies that governments and central banks feed them with. It is really so simple, history tells us where to look for the truth and what will happen next and gold reveals governments deceitful actions in destroying the currency and the economy.

So with two simple factors – history and gold – we can find the truth. That governments will not let the people know the truth is obvious. The truth is their biggest enemy. When any honest person becomes a politician, he turns into a spinner of yarns and a liar. In this sense, a central banker is also a politician.

I HAVE BEEN STANDING ON A SOAPBOX FOR 20 YEARS

But most people don’t want to hear the truth because it is uncomfortable. I and a few others have been standing on a soapbox for 20 years warning people about the destiny of the financial system and the importance of gold.

When one of my daughters got married 18 years ago, I even told the 150 guests to buy gold – quite an unconventional part of a father of the bride speech! But then I have never been accused of being conventional. Still, I doubt that a single person who attended bought gold then or has since.

Instead people invest in stocks, since they always go up. But no one has told stock investors that is has been a very poor investment. Virtually nobody knows that the Dow for example is down 70% against gold since 1999 (excluding dividends). No conventional journalist or analyst will ever mention this. They are just too lazy to check out the real facts.

The Dow – Gold ratio is today 14, having been 45 in 1999. It went down to 6 in 2011, corrected up until 2018 and has now resumed the downtrend. In 1980, Dow-Gold reached 1 to 1. The long term trend (not shown) projects a target 0.5 to 1. This means that the Dow is likely to fall at least 95% from here in real terms or gold.

So stock investors including the recent retail investor mania are in for a total shock as stocks and the economy collapse together.

DOLLAR COLLAPSE VS GOLD ACCELERATION

Finally a word about the gold price. This week it broke the 2011 all time high of $1,920. I have never considered the $1,920 level important. Since gold has in the last couple of years made new highs in all other currencies, it was always clear that the high for gold in dollars would be breached. Only surprising that it took 11 years.

But we must remember that gold is not going up but the dollar is collapsing. Just this century the dollar has lost 85% of its value in real terms – gold.

As the dollar reaches its intrinsic value of zero in the next few years, it is obviously totally meaningless to measure gold in dollars since the price in worthless fiat currency will be infinite.

Instead we can be certain that gold will maintain its purchasing power as it has over 5,000 years. But due to the overvaluation of most assets and the undervaluation of gold, gold is likely to perform much better than just keeping up with purchasing power. The shortage of physical gold and the failure of the LBMA system and gold futures markets will be major factors in this as I discussed last week.

It is fascinating that only 0,5% of global financial assets are invested in the only asset that has held its purchasing power in history. In the next few years investors, from retail to institutional, will all want gold. GOLD will be the SINE QUA NON investment that everyone wants to own.

Future gold supply will be extremely limited and demand massive. So the only way to get hold of gold will be at prices which will be multiples of the current price, even measured in today’s money. But remember to hold physical and don’t store one ounce within the bankrupt financial system.

What better way to get the Democratic party “fired up” for what is increasingly looking like Hillary 2.0 than to put up a website encouraging them to “settle” for the party’s nominee?

Enter the folks at Settle For Biden. 

Yes, it’s a real campaign and no, it doesn’t appear to be a joke. You can now head over to SettleForBiden.org to check out the Democratic party’s latest brain child, which appears to be a campaign acknowledging the same message the organization tacitly put out back in 2016: we know our candidate sucks. 

The website reads: “If Biden wasn’t your first choice this primary season, but you’ll do anything to get Trump out of office, Settle for Biden is for you. Join us in our mission to (begrudgingly) put Joe in the White House.”

The site denotes that Settle For Biden is an organization comprised of Elizabeth Warren and Bernie Sanders supporters who are simply hell bent on getting Trump out of the White House – regardless of who the Democratic candidate is. The mission statement reads: “Settle for Biden is a progressive grassroots organization comprised primarily of former Bernie Sanders and Elizabeth Warren supporters. We firmly believe that Donald Trump is an existential threat to the future of our people, our nation, and our planet.”

It continues with brutal honesty: “We don’t like all of Joe Biden’s policies but we recognize that he is running on the most progressive platform in American history and that not supporting him would literally endanger the lives and livelihoods of millions of Americans.”

In addition to its mission statement, it offers a half-assed endorsement of Biden, stating: “Former Vice President Biden will be prepared on his first day in office to restore America’s place in the global sphere. He will be prepared to bring about the unity we need in the wake of recent civil unrest spurred by the deaths of George Floyd, Breonna Taylor, and the countless other unarmed Black Americans killed by police in this country.”

“Joe Biden will restore the United States’ place in the world,” it continues. “He will be a president for every American, not just those who voted for him. Joe Biden will be a president who won’t keep us up at night. And right now, that’s the least the American people can possibly ask for.”

Yeah, if he can remember what day it is. 

Authored by “The Progressive Ensign”‘s Patrick Hill via RealInvestmentAdvice.com,

Will Consumers Bailout the Economy?

“Absent any policy and behavioral changes…most likely (will lead) to an overall GDP contraction for 2020 in the 8% to 12% range, assuming no second round of infections in improving states such as New York. Moreover, the recovery of lost output would not be completed in 2021. And the uncertainty surrounding these predictions would notably increase, with the balance of risk tilted to the downside.”

– Mohammed El-Erian, Allianz, Chief Economic Advisor, 6/30/20

The nation faces the worst economy since the Great Depression. The National Bureau of Economic Research – NBER has declared that a recession started last February.  Uncertainty is increasing as there are signals that the recovery is stagnating and the recession worsening not improving.

Over 35M workers are receiving unemployment assistance with 1 in 5 workers receiving government financial support.  Corporate debt to GDP is at the highest level on record.  The federal deficit is now at nearly the same ratio to GDP as the record federal deficit during WWII.  Analysts look to the consumer to ‘start spending again to jumpstart the recovery’ in the hopes of bailing out the economy. 

Will consumers bailout the economy?  As consumer spending is 70% of GDP, resumption of robust consumer buying is crucial to shift the economy back onto a growth track.  In this post we examine the status of the consumer, factors that are affecting spending and possible policy initiatives to ensure increased spending resumes.

We will offer an analysis of the following points to understand the likelihood of the consumer bouncing back and spending at pre-pandemic levels:

• Two Key Megatrends – Driving Consumer Spending

  • Health & Spending – virus driving fear

  • Financial Insecurity – fear throttles spending

• Outlook for Consumer Spending – Stalled Today, Future Decline Likely

• Initiatives for Long Term Recovery – shift from relief transfer payments to investing in: long term infrastructure and job creation, economic bridges to increase trade, new business economic centers, and sick leave and child care

Consumer buying is composed of many factors, yet the core factor is confidence based on security.  Let’s look at consumer psychology and how uncertainty is eroding confidence. Understanding the emotional and social factors buffeting consumers will inform our analysis of how their behavior has already changed and may change in the future.

Psychological and Social Factors Affecting Consumer Behavior 

The pandemic has shocked people, changing almost everything and everyone in their lives. Workers lost their jobs. Shops closed their doors. Schools were closed leaving children at home. Children at home has created a dilemma for essential worker parents who must decide either to go to work and find scarce child care or stay home and lose income. If parents had a job that allowed them to work remotely, they could work online and stay home with their children.  In a just a week or two, families had to learn how to live 24 hours a day at home, buy groceries, and manage children learning online while working at home. Most health services were suspended except emergency rooms and coronavirus treatment. Anxiety and stress increased for all workers but especially for first responders, healthcare workers, grocery clerks, gas station attendants, meat processing workers, and farm laborers. 

Large crowd social activities that could reduce stress like sports events, concerts, church meetings, movie shows, and parties were closed or prohibited.  Entertainment shifted into ‘at home’ versions of talk shows or variety shows.  Production stopped in mid-season for some television programs and movies. Subscriptions to streaming services were substituted but are not the same as in person events.

Many things have changed in our lives.  A continuous stream of out-of-the-ordinary things increase anxiety including: signs at stores telling us ‘to keep 6 ft apart and wear a mask’, wearing masks, store closures, shelves empty of basic paper goods and some meat products, lines of people in front of stores, social distancing Xs on sidewalks and in stores, plastic screens installed at counters, and roads being almost empty of cars and trucks. In addition areas where groups and crowds used to meet are closed for example: stadiums, movie theaters, churches, meeting rooms in bars and restaurants.

Added to these visual reminders are changes to social interactions such as:  not traveling to visit friends or family, not hugging, or no handshakes, Face Time calls or Zoom chats replaced in person visits.  Online multi-player games offered game enthusiasts 24 hour access to play day or night.

It is as if some tsunami of social change flooded our nation transforming every aspect of our life all at once. The social change from the virus pandemic has created deep psychological changes: for some, injuries and for others a loss of a family member or job. The psychological stress maybe similar to strains and losses of a generation during the Great Depression. The Great Depression changed attitudes, beliefs and values for decades afterward. The ‘greatest generation’ felt the need for increasing job security, having savings, working hard, and paying off debt.  Plus, they saw the need to help each other, work as a team and dig in with self-sacrifice to turnaround their lives. Unfortunately, many of these values are submerged in the divisive narrative of our present society.

The pandemic is already changing how we interact, buying patterns, work attitudes, health and financial security.  It will take time for people to get over the shock, the visual reminders of the threat to their health and job loss creating financial insecurity. The uncertainty surrounding all these emotional and social forces will undermine consumer confidence until they are mitigated or removed.

There are two key megatrends triggered by the virus that are driving the changes in our society and spending patterns. We look at these trends next.

Megatrends

Health & Spending – Virus Driving Fear

The threat of virus infection is driving uncertainty and fear to new heights as new infections and deaths continue to accelerate while still in the first wave.  Yet, other countries like Germany and European Union members implemented national strategic containment programs which have successfully contained the infection’s first wave.

Sources: EU Center for Disease Prevention and Control, Bloomberg – 7-20-20

Sources: Johns Hopkins Center for Systems Science & Engineering – The Wall Street Journal – 7-20-20

Consider where the U.S. would be today if the virus was contained like the EU has done.  Schools would resume classes, businesses reopen, workers return to their offices. More importantly, consumers would have confidence to begin spending, not at pre-pandemic levels but buying more. Plus, increased consumer spending gives executives’ confidence to reopen and begin recalling staff. While the EU has still prohibited super spreader events like sports games, concerts and conferences, for the most part social life is returning to some semblance of normal. 

In the U.S. fear of becoming infected has transformed consumer behavior causing steep declines in retail location shopping, in-restaurant dining (in many areas is still closed) and travel in spite of reopening in many states.

Sources: Deep Macro, Veraset, US Census Bureau, The Wall Street Journal, The Daily Shot – 7/14/20

Source: Statista – 7/20/20

Source: TSA, Wolfstreet.com, The Wall Street Journal, The Daily Shot, 7/22/20

The lack of mobility means consumers are staying home due to fear about becoming infected, regardless of officials relaxing social distancing policies.

Consumer spending in some industry sectors has increased during the pandemic as fear of the virus created new demand.  Used car sales increased by 16% from May to June, though the sales level was still 20% below the same month last year, according to ALG Inc. Many of these vehicle purchases were likely made by drivers looking for private transportation as public transit use has dropped by 80% nationwide.  In a possible permanent shift in buying patterns most car purchases were made online, so dealerships had skeleton staffs. As families made plans for summer trips recreational vehicle sales have soared. Airstream sales increased by 11% in May compared to the same month last year with sales ‘going through the roof’ in June.  In the stay-at-home market Netflix increased subscriptions in the first quarter by 16.1M and in the second quarter by 6.8M. Yet, the company forecasts a flattening of sales to 2.5M for the third quarter as the market for streaming services becomes saturated. The pandemic lockdown forced people to buy groceries versus going out to dinner. Thus, location grocery sales increased by 20% during the first three months of the lockdown with online grocery sales spiked by 35%.

Online shopping for general merchandise soared by 18% in the first 6 months of this year. However, general retail sales including auto and fuel categories is expected to drop by 10.5% for all of 2020, reports eMarketer.  Home prices have increased in suburban markets as city dwellers leave the city permanently to get away from the densely populated cities where the virus was rampant. Also, some employers have allowed workers to permanently move out of the area and work from home. For example, San Francisco with the highest pre-pandemic rents in the country has experienced a 6.4% drop in rental prices from May to June as residents leave for the suburbs, or Sacramento where housing is 25 – 30% cheaper. In New York, the prices of homes in the Hamptons outside of New York City have soared to a 13 year high. Once resettlement has been completed for workers with income and wealth, we expect rental prices to fall. In the future we expect home prices to flatten or even decline as the number of qualified buyers dwindles. Many virus triggered consumer segments are likely to flatten or decline slowly as the virus comes under control.

Finally, a key consumer segment, Baby Boomers are uncomfortable with the economy.

Sources: Bloomberg, The Wall Street Journal, The Daily Shot – 7/10/20

Boomers provide 31% of all consumer spending, according to Visa.  Boomers are highly vulnerable to catching the corona virus and have a much higher mortality rate than other age groups. Most seniors are sheltering in place even in those areas that are reopening. Their reluctance to go out shopping, go to restaurants, take trips and just general sense of anxiety will cap spending until the virus is contained. 

Even with some increases in spending in a few sectors, overall consumer spending is down about 10% from pre-pandemic levels. The lack of a national containment program has led states to develop containment programs of their own. New York has announced a quarantine requirement for all travellers from 31 states in the U.S. as officials become concerned about travellers from states causing increased infections. The quarantine requirement will significantly reduce tourism revenue. A few other states are considering quarantine requirements as well further restricting mobility and income from visitors. As long as virus infections rates are out of control, consumer fears will grow and spending will be throttled.

Financial Insecurity – Fear Throttles Spending

Consumers in the bottom 80% in income were struggling financially prior to the pandemic hitting theircommunities. Most workers in this segment were borrowing at record levels to sustain their standing of living and a Federal Reserve study showed many do not have $400 in saving even to pay for an emergency.  The pandemic hit causing widespread layoffs and furloughs at rates not seen since the Great Depression. The Department of Labor reports that 36.4 million workers are on unemployment or have applied and are waiting for benefits.

Sources: Department of Labor, Economic Policy Institute, The Wall Street Journal, The Daily Shot – 7/17/20

The virus infection rate continues to drive initial unemployment claim increases in many hotspots including Texas, Arizona, Florida and California.

Sources: Department of Labor, Morgan Stanley, The Wall Street Journal, The Daily Shot – 7/14/20

Rising virus infection rates will continue to drive unemployment claims as more workers are laid off permanently due to declining sales or companies closing. For the week ending July 18, the Department of Labor reports an increase of 109,000 initial claims to 1.4M. This is the first increase since March.  This uptick in initial claims is another indication of increasing weakness in the labor market.

Consumers receiving unemployment insurance funds are anxious about whether their unemployment benefits will continue while they manage tight budgets. Making budgets tighter for households is the fact that states are slow in actually sending checks to unemployed workers.  Bloomberg reports that over $100 billion of approved checks have not been sent to claimants as of July 24th. When the pandemic hit in March state unemployment departments were under staffed, using old computer systems and experienced funding cuts. The states were not ready for millions of claims to be filed in just days.

Over 31M Americans are receiving unemployment benefits or 1 of every 5 workers.The unprecedented lack of employment prospects drives extreme worker anxiety and stress.

Sources: Department of Labor, Wolfstreet.com, The Wall Street Journal, The Daily Shot – 7-24-20

Recent employment reports show the effects of the reversal of reopening efforts. The Census Household Pulse Survey between mid-June through mid-July showed there was a drop of 6.7M jobs due to jobs losses becoming permanent and possible shifting to white collar workers. Analysts are now expecting an increase in the number of initial unemployment claims in the coming weeks. 

The status for many of 31M small businesses is fragile. A July survey by Alignable of 13,600 small businesses showed that without further aid 40% of business owners had only 30 days of cash left – even with Payroll Protection Program (PPP) funds and other pandemic loans. Confirming the small business predicament, a Goldman Sachs small business survey found 84% of business owners said they would not have enough money to keep paying staff after August 8th when the PPP loans end.  In addition, 15% of small businesses or 4.65M businesses have shut down their operations either temporarily or permanently. These business owners and their employees could become the next wave of unemployed if they don’t receive relief fast.

Based on health and financial security trends we have developed an outlook for consumer spending based on present programs and ideas for new relief funding being discussed in Congress.

Outlook for Consumer Spending – Stalled Today, Future Decline Likely

The Federal Reserve moved swiftly when the stock market hit a low in late March and has continued to flood the economy with 12 different business relief loan and credit programs totaling nearly $4 trillion including QE cash injections. The federal government provided relief funding to businesses and consumers including: on-time direct payments of $1,200, Payroll Protection Program funding to small businesses, and enhanced unemployment of additional $600 with coverage for contract workers and sick leave benefits all totaling $2.1 trillion. To monitor the results of this $6.1 trillion relief effort Oxford Economics has developed the following recovery tracker:

Sources: Oxford Economics – et al, The Wall Street Journal, The Daily Shot – 7/247/20

The economy fell by 50% in all six categories from the January 31st baseline, and has come back about 25%. Though the tracker is still 25% below January’s level.  Of immediate concern, the Recovery Tracker shows three declines in the last five weeks. As we have noted recent indicators show a stall in consumer spending.

In the following chart, consumer spending bounced back from a dive of 35% and has begun to stall at minus 10%. The present 10% decline in spending below pre-pandemic levels is in line with the forecast we quoted in the introduction to this post by Mohammed El-Erian of a contraction of 8 – 12 % in GDP for 2020.

Source: Scotiabank, Opportunity Insights – 7/10/20

Consumer confidence levels track spending and shows how consumers have become a little more confident after March when the pandemic first hit. But recently, their economic concerns have grown. In the lower section of the chart, the magnitude of the drop is beyond the levels in the 2002 – 2003 recession.

Sources: University of Michigan, Lehman Economics, Bloomberg – 7/21/20

The confidence decline illustrates the heightened level of fear we noted related to the psychological and social fears the pandemic has triggered.

Congress is now considering a range of relief programs from the House proposal of $3.1 trillion to a Senate initiative for $1.1 trillion.  The issue is that without effectively containing the virus these relief programs to keep consumers spending will likely fail to jumpstart a recovery. There are two fears: becoming sick and losing their job. The relief efforts will not in and of themselves overcome fear of virus driven job losses. Consumers and businesses will hoard cash until they feel the virus is contained and it is safe to resume normal activity. The emerging danger is that the lack of a strategic dedicated focus on virus containment will cause continued temporary spending which precludes the ability to invest in long term recovery initiatives.

Congress can help to alleviate the job loss issue with unemployment funding and related programs.  The Federal Reserve can keep businesses operating with relief loan and credit programs. Yet, building a thriving economy will require a five to ten year perspective by making innovative investments today to meet the economic challenges of tomorrow.

Initiatives for Long Term Recovery

The way to grow the economy is through investment leading to productive investment that supports wage growth. Wage growth will lead to increased consumer spending.  Investment will lead to building a solid foundation for a recovery.

Sources: Deutsche Bank – et al, The Wall Street Journal, The Daily Shot – 7/24/20

To spur wage growth here are a few investment ideas to build a solid foundation for recovery.

Shift From Relief To Investing

Relief programs only buy time to get the virus under control.  Relief programs will support workers, employment and consumer spending only on a temporary basis.  Companies and consumers are hoarding cash now due to the high level of uncertainty.  To break this cycle, both executives and consumers need to see that our policy makers are serious about investing with a long term perspective.  Initiatives like infrastructure spending have bipartisan support, but will need the political will to implement.  Funding job training on a national scale to match unemployed workers with new jobs in information services, renewables, automation software, and health services. We need to build on vision that brings all workers into the mainstream of the economy, benefiting from a capitalist system.

Safety Net To Support Workers

Returning workers to their jobs will be challenging as child care may not be available during the day when parents are working. For example, in California the University of California surveyed child care centers and found 25% were closed and many others were losing money due to caring for fewer children. Reopening restrictions on ‘same groups’ and social distancing force care centers to care for fewer children. As a nation we need to support child care businesses and non-profits as part of the critical infrastructure for a solid recovery. Sick leave has become a major issue during the pandemic where workers were forced to decide between working and taking sick leave even though they had virus symptoms.  We need our policy leaders to ensure that all worker have sick leave to make the right choice in a pandemic situation and stay home until they are not infectious.

New Business Innovation Infrastructure

Silicon Valley and other areas of the country have developed strong innovation ecosystems.  These ecosystems establish a comprehensive supportive environment for new businesses to start and thrive. We can adapt the model by the federal government providing seed funding for innovation centers throughout the country as a priority. Center development should be focused on economically hard hit Midwest and Southern rural communities and low income neighborhoods in our cities. These centers provide a nexus of training, university sponsorship and expertise, venture capitalists, local government and development of incubation centers to build new businesses.  Please see our post: COVID – 19 Triggers Transformation into a New Economy – Part 2 for more details on how this initiative could be implemented. The goal of these centers is to jumpstart economically depressed areas to create thousands of new businesses and employ millions of workers.

Build Trade Bridges

Over the past three years trade tensions, strident policies and tariffs have built a labyrinth of obstacles for executives to operate and build their markets overseas.  For S & P 100 companies 50-55% of their revenues and 60-75% of their profits come from offshore operations. World trade is forecast to decline by 10% or more over the next few years unless we make changes in our approach to international trade. That statistic is before any COVID related trade complications are accounted for. We need to rebuild our social and economic relationships again in a bipartisan manner that Democratic and Republican administrations have supported since WWII.  The goal was to build an international structure of cooperation, trade and shared social systems to manage an existing crisis or prevent a new crisis from erupting. We need to do our part as well with U.S. consumers providing 30% of worldwide consumption spending. By building economic bridges we ensure that nations have a vested interest in peace over war.  These multi-lateral relationships need to be built on partnerships that are equal and a win-win for both the U.S. and our overseas neighbors.  Our recovery will happen much faster by reopening international markets, and selling our products to their consumers.

We have the most diverse, innovative society on earth. Intelligent and innovative people from around the world want to be here to contribute and build a future that solves problems of our country and other countries.  To foster more growth we need to welcome immigrant innovators to our shores, particularly as our population ages.  The ratio of the number of workers to retirees is declining quickly, causing more dependency on government transfer payments. Instead, we need to boost the number of immigrant prime age workers in the labor force.

Our recovery initiatives must focus on Main Street. In a capitalist democracy Wall Street and Washington exist to serve all the people not a privileged few.  In this time of crisis, we are quickly discovering how inequitable our economic and social support systems are. Our capitalist democracy can do better.  Will consumers bailout the economy?  Yes .Consumers will begin buying again when they feel safe and feel financially secure. But, we need to pull together as a nation, focus on workers by investing in them, creating opportunities and ensuring a fair economic playing field for all.

Herman Cain, the former Godfather’s Pizza CEO and one-time Republican presidential candidate who campaigned on a sweeping tax reform plan called the 9-9-9 plan, died Thursday morning after a monthlong battle with COVID-19. He was 74.

Cain beat Stage 4 colon cancer back in 2006, and has been described by friends and family as a fighter. He was admitted to the hospital due to his COVID-19 infection on July 1. He was diagnosed with the virus two days prior, roughly a week after attending Trump’s Tulsa, Oklahoma rally.

However, it’s impossible to say for certain where Cain was infected (though several of Trump’s campaign staff from the event did contract the virus). Initially after being admitted to the hospital, Cain’s spokesman said he didn’t need a ventilator, and was in “good spirits”.

Cain grew up in Georgia, where he lived at the time of his death. He was the head of “Black Voices for Trump” and had recently signed on to host a new show on Newsmax called “Herman Cain’s America”.

Cain’s name returned to the front page last year when President Trump was considering him for an open seat on the Fed board of governors. However, Cain’s path to the nomination was sabotaged by complains about the sexual indiscretions that helped undermine his 2012 GOP primary campaign (for the nomination eventually won by now Sen. Mitt Romney). However, he once served as director of the Federal Reserve Bank of Kansas.

Dan Calabrese, a longtime writer, and editor of Cain’s website, published a touching obituary written by a longtime friend and staffer. Read it below in full:

* * *

You’re never ready for the kind of news we are grappling with this morning. But we have no choice but to seek and find God’s strength and comfort to deal with it.

Herman Cain – our boss, our friend, like a father to so many of us – has passed away. He’s entering the presence of the Savior he’s served as an associate minister at Antioch Baptist Church in Atlanta for, and preparing for his reward.

Romans 2:6-7 says: “God ‘will repay each person according to what they have done.’ To those who by persistence in doing good seek glory, honor and immortality, he will give eternal life.” By that measure, we expect the boss is in for some kind of welcome, because all of us who knew him  are well aware of how much good he did.

Let me deal with some of the particulars of the last few weeks. We knew when he was first hospitalized with COVID-19 that this was going to be a rough fight. He had trouble breathing and was taken to the hospital by ambulance. We all prayed that the initial meds they gave him would get his breathing back to normal, but it became clear pretty quickly that he was in for a battle.

We didn’t release detailed updates on his condition to the public or to the media because neither his family nor we thought there was any reason for that. There were hopeful indicators, including a mere five days ago when doctors told us they thought he would eventually recover, although it wouldn’t be quick. We were relieved to be told that, and passed on the news via Herman’s social media. And yet we also felt real concern about the fact that he never quite seemed to get to the point where the doctors could advance him to the recovery phase.

Herman was 74. Although he was basically pretty healthy in recent years, he was still in a high-risk group because of his history with cancer. We all prayed so hard every day. We knew the time would come when the Lord would call him home, but we really liked having him here with us, and we held out hope he’d have a full recovery.

Herman had just started hosting a new show on Newsmax TV. He was so excited about it, and so pumped up about playing a role in the 2020 election campaign. At an age when a lot of people are looking to slow down, he was taking on new projects, booking speaking opportunities. Ever the dealmaker, he would fill me in with details of his negotiations with people on any number of things. I would always tell him I should have him negotiate my deals with my business’s other clients, because he did them better than anyone.

The last time I talked to him was when he was getting ready to start the Newsmax show. He was really pumped about it, and I was happy for him because he’d walked away from a nice contributor gig at Fox a couple years early to head a Super PAC. When that ran its course, Herman really wanted to get back into TV, and this afforded him a beautiful opportunity. Alas, he only ever got to host one episode.

But there was so much more to him than the public saw, and certainly more than the media presented to you. Most people heard of Herman for the first time when he ran for president in 2011. What they didn’t know was his business background. They didn’t know how he had started his career as a civilian employee of the Navy. It was funny to us because sometimes political pundits portrayed him as kind of a goof – having no idea that during his time working for the Navy, he was literally a rocket scientist.

Many people don’t know about his years climbing the corporate ladder at Pillsbury, at Burger King and finally as CEO of Godfather’s Pizza. I will always remember the first time I became aware of him. It was 12 years before I worked with him for the first time. It was the now-famous encounter between Herman and Bill Clinton in which the boss schooled the president on the finer points of small-business finance, and I can’t describe it any better than I can just let you watch it:

Herman could handle himself in a situation like that because he knew who he was, and he wasn’t intimidated by anyone, including the president of the United States.

When I launched the North Star Writers Group syndicate in 2005, I was looking for good writers and thinkers who were not signed to syndicates, and I was surprised to learn that Herman Cain – the guy who had schooled Bill Clinton on national TV – was a free agent. I tracked down contact information for him and told his office I would like to syndicate him. Two days later I had a signed contract, and it kicked off a 15-year professional relationship and friendship that I will treasure for the rest of my life.

It was only a few months later that he informed me of his cancer diagnosis, but he assured me he would continue writing his column every week. Even though I told him that was the last thing he needed to concern himself with, he did it. He never told me he would do something that he didn’t come through on.

In 2007, my business was struggling and I was having a hard time finding a direction for it. Herman welcomed me to come see him in Atlanta, and he spent an entire day with me going over the particulars of my business. Together we drew up an action plan, and he gave me some firm and pointed advice on some things I needed to do. This guy had helped lead some of the biggest companies in the world, and he could have charged massive consulting fees for this sort of thing. But he did it all for free, and he kept working with me over the years to make sure things stayed on the right track.

I haven’t even gotten into his experiences as what he called an ABC – an American Black Conservative – because his politics seems so low on the list of things I want to tell you about him right now. He was one of the most important figures to ever come into my life, and I can’t wrap my head, or my heart, around the fact that he’s gone. I don’t think I’ll be able to for a long time.

But I want you to understand just what our world has lost today. There aren’t many people like Herman Cain, and it behooves us to truly cherish the ones we’re given. His wife Gloria – his children Melanie and Vincent – and his grandchildren…they need our love, our support and our prayers. Nothing I talked about above meant as much to him as these wonderful people did, and because he loved them so much, we will continue to feel his impact on the world through them.

I’m sorry I had to bring you bad news this morning. But the good news is that we had a man so good, so solid, so full of love and faith . . . that his death hits us this hard. Thank God for a man like that.

Rest well in His presence, Boss. We love you.

* * *

Source: HermanCain.com

On top of the Fed-described “extraordinarily uncertain” economic outlook, this morning’s GDP data spooked oil prices lower and it appears $40 stops have been busted…

While fears of a US resurgence of COVID have moderated modestly in recent days, the market remains caught between output cuts from some of the world’s biggest producers and anxiety over demand as Asian nations begin to see a 3rd wave.

“Positive and negative factors still appear balanced on the oil market, with concerns about weak demand being offset by the voluntary OPEC+ production cuts,” said Eugen Weinberg, head of commodities research at Commerzbank AG.

This won’t help the economy ‘recover’ as energy-related job losses transform from temporary to permanent, and as OilPrice.com’s Nick Cunningham notes, several analysts argued this week that the bigger picture is murkier, with economic and pandemic-related risks looming.

“While upwards momentum has stalled over the past month, we still think prices are overdue a downwards correction to reflect the flattening of oil demand recovery and the darkening of economic prospects,” Standard Chartered analysts wrote in a note.

The investment bank added that “consensus views” on the oil market balances in the second half of the year have “weakened significantly over the past month.”

“We now only rarely hear talk of V-shaped demand recoveries and extremely tight markets, the views that allowed Brent to rally beyond USD 40/bbl,” Standard Chartered said. “Instead the main talk among traders seems to have shifted to precisely how much demand will disappoint and how long will it take to normalise inventories.” 

That assessment stands in stark contrast to the behavior of crude prices in the last six weeks. Volatility has vanished, with WTI remaining rooted at about $40 per barrel, and Brent a few dollars more. Prices have been stuck at those levels even as the optimism surrounding economic re-openings has dissipated. The only sign of a more pessimistic outlook creeping into oil markets is the shift from backwardation towards contango. As Standard Chartered pointed out, the discount for front-month Brent contracts relative to fourth-month Brent contracts has widened over the course of July.

“In our view, Brent above USD 40/bbl seems increasingly discordant with the flow of news regarding the coronavirus pandemic and the outlook for the global economy, and particularly jars with increasingly bearish oil market fundamentals,” Standard Chartered analyst concluded. 

However, on the flip side, U.S. gasoline demand jumped in latest EIA data through July 24, rising to 8.8 million barrels per day (mb/d), ending several weeks of decline, at least temporarily. That level of consumption is the highest in four months. 

Moreover, the surge in cases in the United States has eased ever-so-slightly, with key states such as Texas, Florida and California seeing infections coming down from recent peaks. “This could be a sign of retreating demand risks from possible slowdowns or targeted lockdowns, but the prospect of a second wave later in the year still presents looming risks,” ClearView Energy Partners wrote in a note to clients. 

The second wave in the U.S. may be plateauing for the time being, and the rebound in gasoline demand combined with the drawdown in inventories boosted oil prices midweek.

But the sentiment shifts from week to week, and it is not clear that the prevailing wisdom that oil markets would be in a substantial supply/demand deficit in the second half of the year will pan out. On Tuesday, Rystad Energy warned that the loosening of the OPEC+ production cuts could lead to a renewed surplus for the next four months.

Global supply is expected to increase rather significantly over the next several months, outpacing expected demand increases. “OPEC’s experiment to increase production from August could backfire as we are still nowhere near out of the woods yet in terms of oil demand. The overall liquids market will flip back into a mini-supply glut and a swing into deficit will not happen again until December 2020,” Bjornar Tonhaugen, Rystad Energy’s Head of Oil Market Research, said in a statement on Tuesday. 

On Wednesday, Tonhaugen stuck with that thesis, despite the price increase on the back of EIA data. Rystad pointed to the unexpected rise in infections in Europe, a negative development that has yet to be factored in to market expectations. In fact, data from Europe shows a decline in road traffic as virus cases rise. “[D]on’t be fooled by today’s price gains, they may be cancelled as soon as production exceeds demand, which is around the corner, and as this is expected to last for some time, traders will race to price it in,” Tonhaugen said.