Category: zerohedge

Submitted by Adam Andrzejewski, originally published in Forbes,

Illinois could soon be the first state in history to have its bonds rated as “junk.” Last month, both Moody’s MCO and Standard & Poor’s downgraded Illinois debt to just one notch above junk status.

Last week, the Illinois State Senate President Don Harmon (D-Chicago) wrote a letter to Congress requesting a $41.6 billion bailout. Critics balked.

In many ways, Illinois may have already crossed the Rubicon.

Our analysis at OpenTheBooks.com shows that an Illinois family of four now owes more in unfunded pension liabilities ($76,000) than they earn in household income ($63,585). In a state of 13 million residents, every man, woman, and child owes $19,000 — on an estimated $251 billion pension liability.

Our auditors discovered 110,000 public employees and retirees who earned more than $100,000 last year.

We found tree trimmers in Chicago making $106,663; nurses at state corrections earning up to $277,100; junior college presidents making $491,095; university doctors earning up to $2 million; and 111 small town managers who out-earned every governor of the 50 states ($202,000).

Our interactive mapping tool allows users to quickly review the 110,000 public employees and retirees across Illinois making more than $100,000 (by ZIP code). Just click a pin and scroll down to see the results in your neighborhood rendered in the chart beneath the map.

Auditing Illinois’ large pay and pension systems

Here’s a system by system break down with the head counts of employees and retirees who made more than $100,000 per year:

Public schools (35,000) – Last year, nearly 22,000 educators earned a six-figure salary while more than 13,500 retirees received six-figure pensions. Six retired superintendents pocketed $300,000+ pensions, including Lawrence Wyllie (Lincoln-Way CHSD 210 – $341,019); Henry Bangser (New Trier Township HSD 203 – $331,489); Gary Catalani (Wheaton-Warrenville Unit SD 200 – $330,015); Laura Murray (Homewood-Flossmoor CHSD 233 – $324,677); and Mary Curley (Hinsdale CCSD 181 – $315,336).

Chicago (22,000) – We calculated that the city paid out $521.2 million in extra pay (overtime, vacation, supplemental, fitness, etc.) above base salaries. Four deputy fire chiefs made between $314,983 and $351,715. Police officers made up to $272,672 and EMT’s up to $270,851. The Chicago Transit Authority (CTA) paid line workers up to $300,135, telephone line workers up to $282,123, and escalator mechanics up to $203,855.

Colleges & universities (16,000) – Bradley Underwood made $2.9 million as the basketball coach at the University of Illinois. Junior college power couple Dale Chapman ($491,095) and Linda Terrill Chapman ($242,070) combined for a $733,000 income at Lewis and Clark Community College. Fady Toufic Charbel ($2 million); Mark Gonzalez ($1.1 million); and Konstantin Slavin ($1 million) are million-dollar doctors at University of Illinois at Chicago (UIC). A UIC pension paying out $524,865 goes to a retired doctor, Tapas Das Gupta.

State of Illinois (15,000) – Six-figure salaries and pension payouts amounted to $1.8 billion last year. Five barbers at Corrections made over $100,000 while eight nurses at Veterans, Human Services and Corrections made between $200,000 and $277,100. Eight troopers and police officers at the Tollway Authority made between $200,000 and $277,000. A court-ordered monitor, Dr. Stewart Pablo, cost taxpayers $327,600 to report on the lack of mental healthcare availability within the prison system — $1 million in total during the past three years.

Cities & villages (8,000) – Small town managers rake in the pay, perks, and pension benefits. These administrators include Michael Ellis (Village of Grayslake – $296,654); Richard Nahrstadt (Village of Northbrook – $290,603); Dane Bragg (Village of Buffalo Grove — $280,000); Patrick Nagle (Village of Rosemont — $279,523); Michael Cassady (Village of Mount Prospect — $278,282); and Reid Ottesen (Village of Palatine – $274,067). The Wheaton Park District conferred a $273,243 pension on retired administrator Elizabeth Kutska.

Private associations, nonprofits, and retired lawmakers

Consider the many ways that private associations, nonprofits, and retired lawmakers have exploited the legal loopholes.

• Retired Chicago Mayor Richard M. Daley (D) double dipped the pension system for nearly $232,000. Daley made $149,009 per year in state lawmaker pension payouts after a short eight-year career as a state senator plus another $83,784 per year in city pension payouts for his 22 years as the mayor of Chicago.
• Three of the highest earners within the municipal pension system work for private associations – not government. Peter Murphy, executive director of Illinois Association of Park Districts, made $359,287, while Brett Davis, executive director of the Park District Risk Management Agency, brought in $331,817. Brad Cole of the Illinois Municipal League pulled down $313,997. These private nonprofits muscled their way into the government system.
• Former Illinois Governor Jim Edgar (R) double dipped pension systems: General Assembly pension ($175,951 per year) and University Retirement System pension ($85,140). After “retiring” from the University of Illinois, he was hired back part time for another $62,769. Last year, Edgar’s total payout from all sources was $323,860.

We estimate that Edgar earned $2.4 million in compensation from the University of Illinois (2000-2013) and another $2 million in pension payments already paid-out from his 20-year career as legislator, secretary of state and governor.

Highly compensated locals

DuPage County employees have a history of hefty salaries and pensions. Anthony Charlton, director of Stormwater Management, made $253,420. Five more county administrators made over $202,000 last year. Dewey Hartman, a chief deputy police officer, received $324,431 – a $159,574 bump in his final year. Hartman now receives a $176,872 pension.

Local park district administrators outearned the state director of parks ($116,500). These included James Pilmer ($212,794) at Fox Valley; Raymond McGury ($209,443) at Naperville; and Michael Bernard ($206,819) at Wheaton. However, the top two pensions exceeded the highest salaries: Elizabeth Kutska ($273,242) from Wheaton; and Steven Messerli ($215,484) from Fox Valley.

Library, forest preserve and even water district employees tapped into the largess. Brian Dorn pulled down $247,071 at North Shore Water Reclamation while Edward Stevenson made $214,856 at the Forest Preserve of DuPage County. Gayle Mountcastle made $190,318 at the small Park Ridge Public Library and out-earned Brian Bannon, CEO of the Chicago Public Library ($167,004).

Possible solutions to the Illinois crisis

Illinois Governor J.B. Pritzker wants to hike the income tax during a recession. The proposal would change the state constitution to allow for a progressive income tax. Currently, the Illinois income tax is a flat rate tax.

Last week, Illinois State Senate President Don Harmon wrote a letter to Congress asking for a $40 billion bailout. $10 billion in bailout would be used for pension plan solvency.

This week, U.S. Senate Leader Mitch McConnell suggested another path, “I would certainly be in favor of allowing states to use the bankruptcy route.” McConnell specifically mentioned Illinois along with Connecticut, California, and New York.

In a sign that maybe it won’t take years for consumers to get over their aversion to public spaces (as CNN has suggested), Reuters reports that visits to retail stores ticked higher across the US last week, with the biggest upticks seen in states that have started lifting at least some restrictions.

A report from Unacast used ‘anonymized cellphone location data’ to measure consumer foot traffic at retail ‘hot spots’, and it showed that the number of store visits climbed significantly week over week, in yet another reminder of how hedge funds will be among the biggest beneficiaries of the massive expansion of public surveillance that has accompanied the outbreak.

Traffic increased ~25% from the prior week, according to the report.

Unacast maps cellphone location data gathered through applications and overlays it with a wide range of shops, travel facilities and other consumer-facing retail sites. It tracks visits only, not sales, but generates a massive amount of data to identify trends.

Americans made more than 103 million stops at retail spots nationwide on Friday, April 25, up from 86 million on the previous Friday, but 20% below the previous year, Unacast said.

In coming days, the data may start to answer a critical question: How quickly will consumers, the engine of the U.S. economy, react to any easing of coronavirus restrictions even as the death toll from the virus, now at 55,000, continues to increase?

States like Georgia (which allowed most of its economy to re-start last week) and Ohio and Wisconsin (which allowed some businesses to start reopening) saw the biggest increases week-over-week, suggesting that reopening may have a more-or-less immediate stimulative effect.

In Georgia, where Gov. Brian Kemp has taken perhaps the most aggressive steps to restart the local economy, traffic to retail locations jumped 35% from Thursday to Friday, when his first easing orders took effect, and remained high on Saturday.

Traffic to retail spots in Georgia averaged about half the 2019 level from April 1 to April 19. The gap narrowed to around 40% over the weekend, the data showed.

Traffic to home improvement stores nationwide surged above 2019 levels for three days in a row, ending Saturday, in at least 18 states, the strongest such jump since late March.

Some of those states, such as South Dakota, never imposed stay-at-home orders.

The increase in traffic also extended to states like Ohio and Wisconsin, which have begun allowing a broader range of stores to begin restoring operations.

Recent U.S. economic data has generally painted a bleak picture as mandated shutdowns and weak demand have led to a massive 26 million new unemployment claims over the last four weeks.

However, the insights we can extrapolate from these data are somewhat limited.

The data offer no insight into consumer spending – they only measure foot traffic. So we still don’t know whether people are buying more nonessentials, or if they’re merely stopping to window-shop during their infrequent trips to buy ‘essential items’, and fantasize about the ‘before time’. That would make sense considering that millions are now unemployed, and probably saving their pennies until more state unemployment or federal stimulus money hits.

And there’s already reason to suspect that the latter scenario might be more accurate, as David Rosenberg points out.

The Conference Board confidence report showed that just 34% of consumers, that 70% chunk of GDP, believes that business conditions are “normal”. That jives with an 18-year high 20x forward P/E multiple how, exactly? pic.twitter.com/9Hzgj2STb1

— David Rosenberg (@EconguyRosie) April 28, 2020

Authored by John Solomon via JustTheNews (emphasis ours),

The surprises keep coming in former National Security Adviser Michael Flynn’s legal battle to overturn his conviction in the Russia probe.

Just days after the FBI belatedly produced possible evidence of innocence to Flynn’s new legal team led by Attorney Sidney Powell, his old law firm on Tuesday informed the judge it had located 6,800 documents that it failed to turn over as required by a court order in 2019.

Covington & Burling LLP told the court its search team failed to search all of the law firm’s records and missed the documents, mostly emails. The documents were produced to Powell on Tuesday.

“Covington determined that an unintentional miscommunication involving the firm’s information technology personnel had led them, in some instances, to run search terms on subsets of emails … rather than on the broader sets of emails that should have been searched,” Flynn’s former attorney Robert Kelner told the court in a motion.

“We now have performed another search, using search terms and manual reviews, on a broader universe of material to correct the earlier error and to transfer additional documents that are part of the client file,” Kelner wrote, saying his firm was willing to assist Powell on any other matters and to address any questions the judge may have about the oversight.

You can read the motion here.

2020-04-28 Second Supplemental Notice re Transfer of Client File.pdf

 

Flynn was forced to step down as President Trump’s former national security adviser just weeks into his new job after a transcript of his calls with the Russian ambassador was leaked to the media, raising questions about whether he was part of an effort to collude with Moscow.

Flynn eventually pled guilty to a charge of lying to prosecutors and became a cooperating witnesses for Special Counsel Robert Mueller, who ultimately concluded there was no evidence Flynn or any other Trump official conspired with Russia to hijack the 2016 election. His plea deal was reached while he was will represented by Kelner.

Powell took over as Flynn’s new lawyer last summer, and the judge in the case order Covington to turn over all defense documents to her.

Powell has tried to reverse Flynn’s guilty plea, dramatically alleging that FBI agents sought to “frame” her client on an unwarranted charge of lying and that Mueller’s team and Covington improperly hid from the court that Flynn’s plea deal was connected to a side deal not to prosecute his son.

The court is expected to make public soon the new, but still sealed, FBI documents that were belatedly turned over to Powell, which she argued in a Friday court motion provided evidence that agents engaged in misconduct during the Russia probe.

*  *  *

Response from Judge Sullivan:

Covington must “re-execute a search of every document and communication” re: Flynn – and produce it to Powell. pic.twitter.com/9ZvpzOmHBj

— Techno Fog (@Techno_Fog) April 28, 2020

Many Americans who haven’t been closely following the stream of research, evolving opinions and changing recommendations of health-care professionals and organizations probably don’t realize just how little we know about the virus.

Few realize that when health care professionals and epidemiologists recommend these shutdowns, they’re doing so based on evidence that, if left unchecked, the virus can overwhelm health-care systems relatively quickly, like it did in Wuhan. And while we know the lockdowns and social distancing have certainly helped, researchers and doctors can’t say much more with certainty, which is why at least one ER doctor in New York City is pushing the state to lift the lockdown over suspicions that the virus is far more widespread than we believe, and restrictions on non-COVID-19 medicine may be hurting the public health more than it’s helping.

But the most critical unknown by far is how long do people remain immune from the virus once they contract it and recover? A number of COVID-19 patients have seen the virus mysteriously resurface after initially contracting it, leading some to question whether antibodies truly do confer permanent and complete immunity on all recovered patients. That’s why the WHO has pushed back against immunity passports, much to Bill Gates’ chagrin.

And in this article by the MIT Technology Review, scientists explore the possibility that COVID-19 immunity just simply doesn’t last.

*         *          *

Starting in the fall of 2016 and continuing into 2018, researchers at Columbia University in Manhattan began collecting nasal swabs from 191 children, teachers, and emergency workers, asking them to record when they sneezed or had sore throats. The point was to create a map of common respiratory viruses and their symptoms, and how long people who recovered stayed immune to each one.

The research included four coronaviruses, HKU1, NL63, OC42, and C229E, which circulate widely every year but don’t get much attention because they only cause common colds. But now that a new coronavirus in the same broad family, SARS-CoV-2, has the world on lockdown, information about the mild viruses is among our clues to how the pandemic might unfold.

What the Columbia researchers now describe in a preliminary report is cause for concern. They found that people frequently got reinfected with the same coronavirus, even in the same year, and sometimes more than once. Over a year and a half, a dozen of the volunteers tested positive two or three times for the same virus, in one case with just four weeks between positive results.

That’s a stark difference from the pattern with infections like measles or chicken pox, where people who recover can expect to be immune for life.

For the coronaviruses “immunity seems to wane quickly,” says Jeffrey Shaman, who carried out the research with Marta Galanti, a postdoctoral researcher.

Whether covid-19 will follow the same pattern is unknown, but the Columbia results suggest one way that much of the public discussion about the pandemic could be misleading. There is talk of getting “past the peak” and “immunity passports” for those who’ve recovered. At the same time, some hope the infection is more widespread than generally known, and that only a tolerable death total stands between us and high enough levels of population immunity for the virus to stop spreading.

All that presumes immunity is long-lived, but what if it is fleeting instead?

“What I have been telling everyone—and no one believes me, but it’s true – is we get coronaviruses every winter even though we’re seroconverted,” says Matthew Frieman, who studies the virus family at the University of Maryland. That is, even though most people have previously developed antibodies to them, they get the viruses again. “We really don’t understand whether it is a change in the virus over time or antibodies that don’t protect from infection,” he says.

Critical factor

We’re currently in the pandemic phase. That’s when a new virus, which humans are entirely susceptible to, rockets around the planet. And humanity is still a greenfield for covid-19—as of April 26, there were about three million confirmed cases, or one in 2,500 people on the planet. (Even though the true number of infections is undoubtedly higher, it’s still probably only a small fraction of the population.) Takeshi Kasai, the World Health Organization’s regional director for the Western Pacific, recently warned that until a vaccine is available, the world should get ready for a “new way of living.”

Further out, though, changes like social distancing or grounding airline flights may not be the biggest factor in our fate. Whether or not people acquire immunity to the virus, and for how long, will be what finally determines the toll of the disease, some researchers say.

Early evidence points to at least temporary protection against reinfection. Since the first cases were described in China in December, there has been no cut-and-dried case of someone being infected twice. While some people, including in South Korea, have tested positive a second time, that could be due to testing errors or persistence of the virus in their bodies.

“There are a lot of people who were infected and survived, and they are walking around, and they don’t seem to be getting reinfected or infecting other people,” says Mark Davis, a researcher at Stanford University. As of April 26, more than 800,000 people had officially recovered from the disease, according to the Johns Hopkins case-tracking dashboard.

Researchers in China also tested directly whether macaque monkeys resisted a second exposure to the new coronavirus. They infected the monkeys with the virus, and then four weeks later, after they recovered, tried again. The second time, the monkeys didn’t develop symptoms, and researchers couldn’t find any virus in their throats.

What’s unknown is how long immunity lasts—and only five months into the outbreak, there is no way to know. If it’s for life, then every survivor will add to a permanent bulwark against the pathogen’s spread. But if immunity is short, as it is for the common coronaviruses, covid-19 could set itself up as a seasonal superflu with a high fatality rate – one that emerges in a nasty wave winter after winter.

The latest computer models of the pandemic find that the duration of immunity will be a key factor, and maybe the critical one. One model, from Harvard University and published in Science, shows the covid-19 virus becoming seasonal—that is, staging a winter resurgence every year or two as immunity in the population builds up and then ebbs away.

After testing different scenarios, the Harvard group concluded that their projections of how many people end up getting covid-19 in the coming years depended “most crucially” on “the extent of population immunity, whether immunity wanes, and at what rate.” In other words, the critical factor in projecting the path of the outbreak is also a total unknown.

Seasonal virus

Because so many other human coronaviruses are mild, they haven’t gotten the same attention as influenza, a shape-shifting virus that is closely followed and genetically analyzed to create a new vaccine each year. But it’s not even known, for instance, whether the common coronaviruses mutate in ways that let them evade the immune system, or whether there are other reasons immunity is so short-lived.

“There is no global surveillance of coronavirus,” says Burtram Fielding, a virologist at the University of the Western Cape, in South Africa, who tracks scientific reports in the field. “Even though the common cold costs the US $20 billion a year, these viruses don’t kill, and anything that does not kill, we don’t have surveillance for.”

The Global Virome Project in Manhattan, led by Shaman with funding from the Defense Department, has been an exception. It set out to detect respiratory viruses with the eventual aim of “nowcasting,” or having a live tracker on common infections circulating in the city.

One finding of the research is that people who got the same coronavirus twice didn’t have fewer symptoms the second time. Instead, some people never got symptoms at all; others had bad colds two or three times. Shaman says the severity of infection tended to run in families, suggesting a genetic basis.

The big question is what this fizzling, short-lived resistance to common cold viruses means for covid-19. Is there a chance the disease will turn into a killer version of the common cold, constantly out there, infecting 10% or 20% of the population each year, but also continuing to kill one in a hundred? If so, it would amount to a plague capable of shaving the current rate of world population growth by a tenth.

Some scientists find the question too dark to contemplate. Shaman didn’t want to guess at how covid-19 will behave either. “Basically, we have some unresolved questions,” he wrote in an email. “Are people one and done with this virus? If not, how often will we experience repeat infections? Finally, will those repeat infections be milder, just as severe, or even worse?”

Immune surveys

Big studies of immunity are already under way to try to answer those questions. Germany has plans to survey its population for antibodies to the virus, and in North America, 10,000 players and other employees of Major League Baseball are giving pinprick blood samples for study. In April, the US National Institutes of Health launched the COVID-19 Pandemic Serum Sampling Study, which it says will collect blood from 10,000 people, too.

By checking for antibodies in people’s blood, such serosurveys can determine how many people have been exposed to the virus, including those who had no symptoms or only mild ones.

Researchers will also be scavenging through the blood of covid-19 cases in order to measure the nature and intensity of immune responses, and to figure out if there’s a connection to how sick people got. “What we are seeing right now with the coronavirus is the need for immune monitoring, because some people are shrugging this off and others are dying,” Davis says. “The gradient is serious and no one really understands why.”

Our immune system has different mechanisms for responding to germs we’ve never seen before. Antibodies, made by B cells, coat a virus and don’t let it infect cells. T cells, meanwhile, regulate the immune response or destroy infected cells. Once an infection is past, long-term “memory” versions of either type of cell can form.

What sort of immune memory will covid-19 cause? Stephen Elledge, a geneticist at Harvard University says the severity of the disease could put it in a different category from the ordinary cold. “You might have a cold for a week, whereas if you go through three weeks of hell, that may give you more of a memory for longer,” he says.

Other clues come from the 2002-03 outbreak of SARS, a respiratory infection even more deadly than covid-19. Six years after the SARS outbreak, doctors in Beijing went hunting for an immune response among survivors. They found no antibodies or long-lived memory B cells, but they did find memory T cells.

Because doctors managed to stop the SARS outbreak after about 8,000 cases, there’s never been a chance for anyone to get infected a second time, but those T cells could be a sign of ongoing immunity. A later vaccine study in mice found that memory T cells protected the animals from the worst effects when scientists tried infecting them again with SARS.

To Frieman, at the University of Maryland, all this uncertainty about immune response to coronaviruses means there’s still little chance of predicting when, or how, the outbreak ends. “I don’t know when this goes away, and if anyone says they know, they don’t know what they are talking about,” he says.

*       *        *

Source: MIT Technology Review

Authored by Steve Watson via Summit News,

US intelligence officials believe that the true scale of China’s coronavirus outbreak is at least FIFTY times worse than the communist state is admitting to, and that 60,000 dead bodies per month could have been processed by the funeral homes in Wuhan.

Speaking with Fox News, a Trump administration official said that “PRC numbers as reported today seem to be arithmetically impossible.”

“Again, we don’t know the real numbers today, but we do know the about 80,000 infections and 4,000 deaths as reported by the Chinese Communist Party propaganda are not even remotely close,” the official added.

It is believed that US intelligence has in its possession satellite images showing funeral homes in Wuhan overwhelmed by dead bodies. Officials believe that incinerators have been in constant use for 24 hours a day since the outbreak began.

The intelligence sources have noted that in a two week period between March 23 and April 4, over 500 urns were delivered to Wuhan families every day, which equates roughly to one urn per minute.

US intelligence therefore calculates a conservative estimate of 45,500 corpses having been incinerated during this time.

The figure jives with estimates highlighted by The Washington Post earlier this month.

Intelligence officials have known for some time that China is lying about the true extent of cases and deaths inside its borders, calling CCP figures “fake”.

The UK government has removed China’s numbers from its coronavirus spread comparison list, because it is certain they have no relation to the truth.

A recent estimation of the true death toll, released by The American Enterprise Institute suggested that China must have had at least 2.9 million cases outside the Hubei province and that the total number of deaths is likely well over 100,000.

The study also noted that China is capable of hiding millions of deaths because of it’s size and population.

“Chinese respiratory illnesses of all kinds could easily exceed 100 million, hiding 2.9 million COVID-19 cases,” the report noted, concluding that:

“In a typical three-month period in ex-Hubei China before COVID-19, nearly 2.5 million people died. Even that many deaths would be easily obscured.”

Read the full report below:

After yet another day of chaos in crude markets, as indices/ETFs shift their weightings, WTI (June) is flat on the day ahead of tonight’s inventory data from API

“The June contract is going to be like what happened with May,” said Tariq Zahir commodity fund manager at New York-based Tyche Capital Advisors LLC.

“You always see contangos when storage starts filling up,” Zahir said. “The spread getting out to these levels is being exaggerated with these funds. Just them selling the June contract and buying the July contract, that alone is going to widen the spread.”

But while the technicals may be driving the insane vol intraday, it’s the growing glut that most are focused on.

API

• Crude +9.978mm (+11mm exp)

• Cushing +2.486mm

• Gasoline -1.108mm (+2.7mm exp)

• Distillates +5.462mm (+3.7mm exp)

This is the 14th weekly crude build (though smaller than expected) and gasoline surprised with a draw after 4 weeks of builds…

Source: Bloomberg

All eyes are on Cushing data too – Crude storage at Cushing has 76m bbl of working storage capacity; inventories totaled ~60m bbl last week, with about ~2m bbl in transit by pipeline, water or rail, meaning remaining 58m bbl held in tank farms at Cushing, implying that storage is 76% full.

WTI (June) was hovering just above $12.50 ahead of the API data and jolted back above $13 after the smaller than expected crude build (and surprise gasoline draw)…

As Zahir notes, “it could go to twenty dollars, it could go to four dollars, it could go negative. You’re in unprecedented times. June could be all over the place.”

After a worse than expected earnings season so far (so far US EPS of -24% yoy has come in some 9% lower than consensus expectations among companies reporting so far), traders were especially curious to see what Google earnings would look like today for two reasons: Google, as Goldman cautioned over the weekend, was one of the big five tech names that had been spared much of the pain that hit the rest of the S&P500, opening up a giant and unsustainable gap from the rest of the market with the largest 5 “FAAMG” stocks in the S&P500 now accounting for 22% of market cap, even higher than during the dot com bubble…

… while at the same time anecdotal industry updates suggested that online ad revenues  – the lifeblood of Google – had collapsed, something that GOOGL stock clearly failed to reflect. Which is why today’s Google Q1 earnings could be so critical: if indeed as bad as some had suggested, a Google crash would hammer the group that was clearly the market’s leadership. And needless to say, the health of Google’s ad business will be a bellwether for other tech platforms. Facebook and Twitter report later this week. 

With that in mind, this is what Google reported moments ago:

• Q1 Net Revenue (ex TAC) of $33.71BN, beating estimates of $32.6BN
• Q1 EPS $9.87, missing estimates of $10.35, but higher than the GAAP EPS of $9.50 a year ago (but below the $11.90 non-GAAP EPS).
• Q1 Operating Income of $7.98BN, missing the estimate %8.06BN, and up 19% Y/Y

Visually:

A breakdown of Q1 gross and net (ex-TAC) revenue:

Here is how Google did on some other performance metrics:

• Q1 Google properties revenues $28.54 billion, beating exp. $27.91 billion and +11% y/y,
• Q1 Google advertising revenue $33.76 billion, beating exp. $33.56 billion, and +9.9% y/y,
• Q1 Google other revenue $4.44 billion, beating exp. of $4.28 billion and -19% y/y,
• Q1 Other Bets revenue $135 million, missing exp. of $194.4 million and -21% y/y,
• Q1 Google Cloud revenue $2.78 billion, +6.2% q/q
• Q1 Youtube Ads Rev. $4.04B, -14% Q/Q
• Q1 capital expenditure $6.01 billion, +29% y/y, a curious increase in a time when everything is shutting down.
• Q1 Operating margin 19% vs. 18% y/y

Commenting on the earnings, CFO Ruth Porat said that “our business, led by Search, YouTube, and Cloud, drove Alphabet revenues to $41.2 billion, up 13% versus last year, or 15% on a constant currency basis. And while “performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues. We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities.“

So a beat on the top line but miss on the bottom with several key indicators mixed. Certainly it was not as bad as some had expected, and explains why initially kneejerking lower, the stock is now higher.

Bloomberg points out a “telling stat” that may reflect the impact of the virus: Alphabet’s APAC sales grew 19% annually, compared with 27% growth last year; quarter-on-quarter, APAC fell 3%, likely a sign of slowing Google ad spending in the region.

Of course, one word out of place during the conference call can sink all the gains, especially as analysts will certainly want to know just how bad the March “significant slowdown” was and how long it will persist. But for now, it appears that FAAMG may have escaped the momentum crash that Goldman warned about.

Authored by Nouriel Roubini via Project Syndicate,

After the 2007-09 financial crisis, the imbalances and risks pervading the global economy were exacerbated by policy mistakes. So, rather than address the structural problems that the financial collapse and ensuing recession revealed, governments mostly kicked the can down the road, creating major downside risks that made another crisis inevitable. And now that it has arrived, the risks are growing even more acute.

Unfortunately, even if the Greater Recession leads to a lackluster U-shaped recovery this year, an L-shaped “Greater Depression” will follow later in this decade, owing to ten ominous and risky trends.

The first trend concerns deficits and their corollary risks: debts and defaults. The policy response to the COVID-19 crisis entails a massive increase in fiscal deficits – on the order of 10% of GDP or more – at a time when public debt levels in many countries were already high, if not unsustainable. Worse, the loss of income for many households and firms means that private-sector debt levels will become unsustainable, too, potentially leading to mass defaults and bankruptcies. Together with soaring levels of public debt, this all but ensures a more anemic recovery than the one that followed the Great Recession a decade ago.

A second factor is the demographic time bomb in advanced economies. The COVID-19 crisis shows that much more public spending must be allocated to health systems, and that universal health care and other relevant public goods are necessities, not luxuries. Yet, because most developed countries have aging societies, funding such outlays in the future will make the implicit debts from today’s unfunded health-care and social-security systems even larger.

A third issue is the growing risk of deflation. In addition to causing a deep recession, the crisis is also creating a massive slack in goods (unused machines and capacity) and labor markets (mass unemployment), as well as driving a price collapse in commodities such as oil and industrial metals. That makes debt deflation likely, increasing the risk of insolvency.

A fourth (related) factor will be currency debasement. As central banks try to fight deflation and head off the risk of surging interest rates (following from the massive debt build-up), monetary policies will become even more unconventional and far-reaching. In the short run, governments will need to run monetized fiscal deficits to avoid depression and deflation. Yet, over time, the permanent negative supply shocks from accelerated de-globalization and renewed protectionism will make stagflation all but inevitable.

A fifth issue is the broader digital disruption of the economy. With millions of people losing their jobs or working and earning less, the income and wealth gaps of the twenty-first-century economy will widen further. To guard against future supply-chain shocks, companies in advanced economies will re-shore production from low-cost regions to higher-cost domestic markets. But rather than helping workers at home, this trend will accelerate the pace of automation, putting downward pressure on wages and further fanning the flames of populism, nationalism, and xenophobia.

This points to the sixth major factor: de-globalization. The pandemic is accelerating trends toward balkanization and fragmentation that were already well underway. The United States and China will decouple faster, and most countries will respond by adopting still more protectionist policies to shield domestic firms and workers from global disruptions. The post-pandemic world will be marked by tighter restrictions on the movement of goods, services, capital, labor, technology, data, and information. This is already happening in the pharmaceutical, medical-equipment, and food sectors, where governments are imposing export restrictions and other protectionist measures in response to the crisis.

The backlash against democracy will reinforce this trend. Populist leaders often benefit from economic weakness, mass unemployment, and rising inequality. Under conditions of heightened economic insecurity, there will be a strong impulse to scapegoat foreigners for the crisis. Blue-collar workers and broad cohorts of the middle class will become more susceptible to populist rhetoric, particularly proposals to restrict migration and trade.

This points to an eighth factor: the geostrategic standoff between the US and China. With the Trump administration making every effort to blame China for the pandemic, Chinese President Xi Jinping’s regime will double down on its claim that the US is conspiring to prevent China’s peaceful rise. The Sino-American decoupling in trade, technology, investment, data, and monetary arrangements will intensify.

Worse, this diplomatic breakup will set the stage for a new cold war between the US and its rivals – not just China, but also Russia, Iran, and North Korea. With a US presidential election approaching, there is every reason to expect an upsurge in clandestine cyber warfare, potentially leading even to conventional military clashes. And because technology is the key weapon in the fight for control of the industries of the future and in combating pandemics, the US private tech sector will become increasingly integrated into the national-security-industrial complex.

A final risk that cannot be ignored is environmental disruption, which, as the COVID-19 crisis has shown, can wreak far more economic havoc than a financial crisis. Recurring epidemics (HIV since the 1980s, SARS in 2003, H1N1 in 2009, MERS in 2011, Ebola in 2014-16) are, like climate change, essentially man-made disasters, born of poor health and sanitary standards, the abuse of natural systems, and the growing interconnectivity of a globalized world. Pandemics and the many morbid symptoms of climate change will become more frequent, severe, and costly in the years ahead.

These ten risks, already looming large before COVID-19 struck, now threaten to fuel a perfect storm that sweeps the entire global economy into a decade of despair. By the 2030s, technology and more competent political leadership may be able to reduce, resolve, or minimize many of these problems, giving rise to a more inclusive, cooperative, and stable international order. But any happy ending assumes that we find a way to survive the coming Greater Depression.

The “Virus-Fear”-trade continues to tread water despite hopeful moves in the major indices this month…

Source: Bloomberg

But Dr. Fauci’s comments overnight seemed to spoil the party for the big momentum stocks…

Source: Bloomberg

“So it’s not going to disappear from the planet, which means as we get into next season, in my mind it’s inevitable that we will have a return of the virus or maybe it never even went away. When it does, how we handle it will determine our fate,” Fauci commented overnight, adding that he was “almost certain” the virus will return in the winter.

So Fauci’s warning to the world is simple “Winter is coming”

Nasdaq was the biggest loser for a second day in a row with S&P and Dow failing to cling to unchanged as Small Caps and Trannies squeezed higher again… (another weak close)

A third day of opening short-squeeze today but the squeeze ran out of ammo fast…

Source: Bloomberg

And FANG stocks, for instance, suffered their biggest 2-day drop in six weeks…

Source: Bloomberg

Crude markets were total chaos as Index/ETF shifts and imminent futures contract rolls did not help with the front-month illiquidity…

Rather surprisingly, given the endless commentary last month-end, we have barely heard a peep from the likes of CNBC about the massive equity outperformance in April and the need for rebalancing flows against stocks and into bonds…

Which may help explain why bonds were aggressively bid today…

Source: Bloomberg

10Y broke back below 60bps intraday…

Source: Bloomberg

The Dollar dived for the second day in a row (note all the dollar selling pressure comes in Asia)…

Source: Bloomberg

Cryptos were generally flat today except for Ripple which surged…

Source: Bloomberg

Gold was marginally lower today (second day of dollar and gold lower together)

Total chaos in crude markets as the front-month swung violently around, only to end almost unchanged…

Finally, as consumer confidence plunged by its most ever, hunkered-down Americans show no appetite at all for a vacation anytime soon…

Source: Bloomberg

As Bloomberg notes, a record-low 32% of consumers said in April that they’re planning to take a vacation in the U.S. or outside the country, the Conference Board’s consumer confidence report showed Tuesday. While not surprising, that’s bad news for a travel industry hoping coronavirus-mitigation efforts will ease health concerns and get the economy on its feet a little quicker.

 

Jeff Gundlach isn’t the only one who thinks the market’s April rally has been way overdone.

During an interview with Squawk Box Tuesday morning, Hyman Capital Management Founder Kyle Bass said he was surprised by the market’s rebound in April, particularly since official data have shown that virtually all of the jobs created over the last ten years and then some have been destroyed.

While many retail and food-service workers might be hired back once their employers reopen, there’s still no guarantee that many of these employers will reopen.

No matter how you slice it, “economic and financial realities” of the post-corona world are too uncertain to justify anything close to the ~30% rally we’ve seen this month. Whatever happens with the unemployment rate, it’s not going to just bounce back right away.

“We’re going to have a very long grind here, trying to get these people back to work,” Bass said, referring to service-economy workers who represent the bulk of those who have lost their jobs.

“I don’t believe people are going to immediately go back to where we once were, I think it’s going to take a lot of time,” Bass said of the service economy.

Furthermore, once we reopen, there’s plenty of reason to suspect that businesses won’t bounce back, and won’t have the wherewithal to re-hire staff, especially if public officials adhere to overly draconian social distancing requirements, even as new surveillance data suggests that as many as 40% of the population in the Bronx, part of one of the biggest hot spots in the country, might already be infected.

As Bass pointed out, the economic model for most shops and restaurants simply won’t work if they can only have half the maximum number of customers at a time.

“Not at 25% or 50%,” Bass said, bringing up something that economists and talking heads have bizarrely glossed over: The American economy simply can’t sustain social distancing for more than a few months.

And as companies like the Los Angeles Lakers continue to gobble up much of the funding that was supposed to go to small businesses, much of the stimulus – both fiscal and monetary – might simply flow straight to the top of the pyramid, leaving everybody else worse off than they were before.

“In a perfect world maybe we’ll be back to 7-10% unemployment,” Bass said.

Bass bet big against the yuan and other southeast Asian currencies (including the Hong Kong dollar, which remains pegged to the dollar despite all the tumult that unfolded in the city last year) last year, a trade that has probably paid off nicely for him as the dollar has continued to strengthen. If it wasn’t for the Fed “kitchen sinking” its asset purchases, Bass suspects the market would be in a much different place.

“The Fed has come in and done everything that it possibly could and then some,” he added. “The Fed’s buying everything but equities.”

And if things don’t improve quickly enough, as Bass suspects, pretty soon, the Fed might start buying equities, too – even if Secretary Mnuchin thinks that’s “highly unlikely.”