Scientists Discover HIV-Like “Mutation” Which Makes Coronavirus Extremely Infectious
While mainstream scientists continue to perform mental gymnastics to insist that the new coronavirus wasn’t man-made, new research from scientists in China and Europe reveal that the disease happens to have an ‘HIV-like mutation’ which allows it to bind with human cells up to 1,000 times stronger than the Sars virus, according to SCMP.
Recall that at the end of January, a team of Indian scientists wrote in a now-retracted, scandalous paper claiming that the coronavirus may have been genetically engineered to incorporate parts of the HIV genome, writing “This uncanny similarity of novel inserts in the 2019- nCoV spike protein to HIV-1 gp120 and Gag is unlikely to be fortuitous in nature,” meaning – it was unlikely to have occurred naturally.
Fast forward to new research by a team from Nankai University, which writes that COV-19 has an ‘HIV-like mutation’ that allows it to quickly enter the human body by binding with a receptor called ACE2 on a cell membrane.
Other highly contagious viruses, including HIV and Ebola, target an enzyme called furin, which works as a protein activator in the human body. Many proteins are inactive or dormant when they are produced and have to be “cut” at specific points to activate their various functions.
When looking at the genome sequence of the new coronavirus, Professor Ruan Jishou and his team at Nankai University in Tianjin found a section of mutated genes that did not exist in Sars, but were similar to those found in HIV and Ebola. –SCMP
“This finding suggests that 2019-nCoV [the new coronavirus] may be significantly different from the Sars coronavirus in the infection pathway,” reads the paper published this month on Chinaxiv.org – a platform used by the Chinese Academy of Sciences which releases research papers prior to peer-review.
“This virus may use the packing mechanisms of other viruses such as HIV,” they added.
For those confused, what the latest scientific paper claims is that whereas the Coronavirus may indeed contain a specific HIV-like feature that makes it extremely infectious, that was the result of a rather bizarre “mutation.” However, since the scientists did not make the scandalous claim that Chinese scientists had created an airborne version of HIV, but instead blamed a mutation, they will likely not be forced to retract it, even if it the odds of such a “random” mutation taking place naturally are extremely small.
As a reminder, the running narrative is that the new coronavirus lie dormant in bats somewhere between 20 and 70 years, then ‘crossed over’ to humans through and unknown species – possibly a Pangolin – before it emerged at a Wuhan, China meat market roughly 900 feet from a level-4 bioweapons lab.
And what were they researching at said lab? Among other things – why Ebola and HIV can lie dormant in bats without causing diseases.
According to the new study, the ‘mutation’ can generate a structure known as a cleavage site in the new coronavirus’ spike protein, SCMP reports. “Compared to the Sars’ way of entry, this binding method is “100 to 1,000 times” as efficient, according to the study.“
The virus uses the outreaching spike protein to hook on to the host cell, but normally this protein is inactive. The cleavage site structure’s job is to cheat the human furin protein, so it will cut and activate the spike protein and cause a “direct fusion” of the viral and cellular membranes. –SCMP
(a recent paper published by Dr. Zhou Peng of the Wuhan Institute of Virology, meanwhile, is “Immunogenicity of the spike glycoprotein of Bat SARS-like coronavirus.“)
According to the report, a follow-up study from a Huazhong University of Science and Technology in Wuhn confirmed Nankai University’s findings.
The mutation could not be found in Sars, Mers or Bat-CoVRaTG13, a bat coronavirus that was considered the original source of the new coronavirus with 96 per cent similarity in genes, it said.
This could be “the reason why SARS-CoV-2 is more infectious than other coronaviruses”, Li wrote in a paper released on Chinarxiv on Sunday.
Meanwhile, a study by French scientist Etienne Decroly at Aix-Marseille University, which was published in the scientific journal Antiviral Research on February 10, also found a “furin-like cleavage site” that is absent in similar coronaviruses.
Chinese scientists speculate that drugs targeting the fuirn enzyme could potentially hinder the virus’ replication inside the human body. Drugs up for consideration include “a series of HIV-1 therapeutic drugs such as Indinavir, Tenofovir Alafenamide, Tenofovir Disoproxil and Dolutegravir and hepatitis C therapeutic drugs including Boceprevir and Telaprevir,” according to Li’s study.
The conclusion is in line with several reports from doctors who self-administered HIV drugs after testing positive for coronavirus, however there have been no clinical tests to confirm the theory.
President Trump’s ongoing purge of the intelligence community, along with Bernie Sanders’ surge in the Democratic presidential race, has triggered an unprecedented intervention of U.S. intelligence agencies in the U.S. presidential election on factually dubious grounds.
Brennan charges, “Trump is abetting a Russian covert operation to keep him in office for Moscow’s interests, not America’s.” But congressional representatives, both Democratic and Republican, who heard a briefing by the intelligence community about the 2020 election earlier this month say the case for Russian interference is “overstated.”
On February 21, it was leaked to the Washington Post that “U.S. officials,” meaning members of the intelligence community, had confidentially briefed Sanders about alleged Russian efforts to help his 2020 presidential campaign.
Special prosecutor Robert Mueller documented how the Russians intervened on Trump’s behalf in 2016, while finding no evidence of criminal conspiracy. Mueller did not investigate the Russians’ efforts on behalf of Sanders, but the Computational Propaganda Research Project at Oxford University did. In a study of social media generated by the Russia-based Internet Research Agency (IRA), the Oxford analysts found that the IRA initially generated propaganda designed to boost all rivals to Hillary Clinton in 2015. As Trump advanced, they focused almost entirely on motivating Trump supporters and demobilizing black voters. In short, the Russians helped Trump hundreds of thousand times more than they boosted Sanders.
The leak to the Post, on the eve of the Nevada caucuses, gave the opposite impression: that help for Trump and Sanders was somehow comparable. The insinuation could only have been politically motivated.
What’s driving the U.S. intelligence community intervention in presidential politics is not just fear of Trump, but fear of losing control of the presidency. From 1947 to 2017, the CIA and other secret agencies sometimes clashed with presidents, especially Presidents Kennedy, Nixon and Carter. But since the end of the Cold War, under Presidents Clinton, Bush and Obama, the secret agencies had no such problem.
Under Trump, the intelligence community has seen a vast loss of influence. Trump is contemptuous of the CIA’s daily briefing. As demonstrated by his pressure campaign on Ukraine, his foreign policies are mostly transactional. Trump is not guided by the policy process or even any consistent doctrine, other than advancing his political and business interests. He’s not someone who is interested in doing business with the intelligence community.
The intelligence community fears the rise of Sanders for a different reason. The socialist senator rejects the national security ideology that guided the intelligence community in the Cold War and the war on terror. Sanders’ position is increasingly attractive, especially to young voters, and thus increasingly threatening to the former spy chiefs who yearn for a return to the pre-Trump status quo. A Sanders presidency, like a second term for Trump, would thwart that dream. Sanders is not interested in national security business as usual either.
In the face of Trump’s lawless behavior, and Sanders’ rise, the intelligence community is inserting itself into presidential politics in a way unseen since former CIA director George H.W. Bush occupied the Oval Office. Key to this intervention is the intelligence community’s self-image as a disinterested party in the 2020 election.
Former House Intelligence Committee chair Jane Harman says Trump’s ongoing purge of the Office of the Director of National Intelligence is a threat to those who “speak truth to power.”As the pseudonymous former CIA officer “Alex Finley” tweeted Monday,
the “‘Deep state’ is actually the group that wants to defend rule of law (and thus gets in the way of those screaming ‘DEEP STATE’ and corrupting for their own gain).”
Self-image, however, is not the same as reality. When it comes to Trump’s corruption, Brennan and Co. have ample evidence to support their case. But the CIA is simply not credible as a “defender of the rule of law.” The Reagan-Bush Iran-contra conspiracy, the Bush-Cheney torture regime, and the Bush-Obama mass surveillance program demonstrate that the law is a malleable thing for intelligence community leaders. A more realistic take on the 2020 election is that the U.S. intelligence community is not a conspiracy but a self-interested political faction that is seeking to defend its power and policy preferences. The national security faction is not large electorally. It benefits from the official secrecy around its activities. It is assisted by generally sympathetic coverage from major news organizations.
The problem for Brennan and Co. is that “national security” has lost its power to mobilize public opinion. On both the right and the left, the pronouncements of the intelligence community no longer command popular assent.
Trump’s acquittal by the Senate in his impeachment trial was one sign. The national security arguments driving the House-passed articles of impeachment were the weakest link in a case that persuaded only one Republican senator to vote for Trump’s removal. Sanders’ success is another sign.
In the era of endless war, Democratic voters have become skeptical of national security claims – from Iraq’s non-existent weapons of mass destruction, to the notion that torture “works,” to “progress” in Afghanistan, to the supreme importance of Ukraine – because they have so often turned out to be more self-serving than true.
The prospect of a Trump gaining control of the U.S. intelligence community is scary. So is the intervention of the U.S. intelligence community in presidential politics.
A Great Debate Emerges On Wall Street: Are Men Or Machines Behind The “Panic Selling”?
Over the past few days, we have carefully tried to put together the pieces of the “liquidation puzzle”, to find out i) just who is selling, whether machines or people or some combination of both, and ii) is there more selling to go? Readers can catch up on some of our most recent articles on the topic below:
And while, as often happens with such opaque market positioning and flow topics, no clear answer has emerged, with contradictory and confusing evidence pointing to the recent sharp drop in dealer gamma, the triggering of CTA deleveraging, the unwind of record net long SPX speculative positions, forced selling by quant/systematic (vol targeting, risk parity) funds as well as liquidations by discretionary hedge funds operated by carbon-based traders.
What has emerged is yet another great Wall Street debate, with some, such as JPMorgan, claiming the selling was mostly systematic (i.e., algos and model quants), while others such as Nomura, confident that the recent bout of selling is largely man-made, i.e., discretionary hedge funds unwinding.
Starting with the former, in his latest note, JPMorgan’s head quant, who last week doubled down a trade that turned out to be catastrophic for those who put it on when he first recommended it last summer as a “once in a decade opportunity” (to lose money perhaps) namely buying value stocks over low-vol/growth, and which led to unprecedented losses for anyone who held on to this trade for the past 6 months…
… takes a victory lap and writes that “last Wednesday, we cautioned about high valuation and risk in certain market segments, i.e. factors and sectors. The publication date coincided with all-time highs on the Nasdaq, and over the next 2 trading sessions momentum, growth and tech stocks sold off significantly.” What he failed to mention is the absolute murder unleashed across his favorite “value” stocks, where some iconic names such as Exxon have cratered to a 15 year lows, its dividend yield approaching a record 7% (!).
But while the jury is still out on whether this time Kolanovic will be right on the great rotation out of low-vol/momentum/growth into value, the JPM quant focuses squarely on what he believes sparked this week’s near record selling. Echoing what we said earlier in the week, the Croat says, “in addition to broad risk-off sentiment from the virus, significant drivers of price action was selling from systematic strategies and option hedgers.” Laying out the various classes of investors, Kolanovic identifies:
Option hedging (gamma) which likely resulted in $40-50Bn of outflows,
CTAs ~$40-60Bn selling,
volatility targeting strategies ~$40-60Bn of selling.
At the same time, overall liquidity, or market depth dropped by over 50%, and confirming what has been obvious to everyone, Kolanovic observes that “this total selling of ~$150Bn produced a large market impact.”
Additionally, picking up on what we said about the plunge in dealer gamma, Kolanovic said that dealers’ gamma turned significantly short, so selling on account of option hedges was ~$15-20Bn on Monday, and ~$25-30Bn on Tuesday.
That said, as has been the case for much of the past 3 years, Kolanovic then quickly shifted to the silver lining, pointing out that gamma hedging works both on the downside and upside, and “should there be a move higher , option hedgers would need to buy a significant amount of equities and could prompt a market squeeze higher.” Alternatively, their selling may accelerate even more in the coming days: the truth is nobody knows.
Meanwhile, focusing on another group of investor, the JPM quant says that since CTAs’ starting point was high equity exposure, they began selling equities already Monday as SPX breached 20- and 50- day moving averages overnight, and then continued selling on Tuesday as SPX breached the 100-day moving average, something our readers already knew.
Where Kolanovic does provide some unique perspective, is his assertion that “CTA selling is now over, as 200d (~3045), 6M
(2900) and 12M (2800) signals are not likely being breached, in our view.” We are not so sure: with ES sliding after hours, the 200DMA is suddenly looking very, very close. And a close below 3,045 means the big trapdoor opens.
But don’t tell “bullish cop” Kolanovic, who instead focuses on the hypothetical scenario in which the market moves higher, and claims that this “could prompt CTAs to buy back equity exposure, so we think risk from CTAs is skewed to the upside.” Considering that stocks plunged since this note was published just around noon on Wednesday, we think that JPM is wrong, but that too may change eventually.
Next, Kolanovic looks at volatility targeters such as variable annuities, risk parity funds, which he says had relatively high
exposure going into the sell-off (~75th percentile), which he explains by noting that “bond moves had been offsetting equity moves in the first month of the virus epidemic.” However, equity moves on Monday and Tuesday were too large to be offset by bond moves, and that prompted significant selling from vol targeters, according to Marko who notes that “Monday alone likely prompted ~$30-40Bn of selling, and Tuesday another ~$20Bn. Volatility targeters will likely continue selling over the next few days, but following this adjustment, their exposure will have dropped to ~35th percentile, so selling pressure should ease thereafter.”
That is probably a correct assumption, the only question is where will the S&P be by then…
So where does this leave the oddly schizophrenic Marko Kolanovic who is bullish on the overall market yet believes that low-vol stocks are a bubble?
Well, in his Wednesday note he concludes that “option hedgers and CTAs are now more likely to buy than sell, and volatility targeters are still selling but at a lower pace, so we think a short term bounce-back is getting likely given month-end flows.” To underscore his point of an imminent bounce, he claims that over the next 2 days, given the significant underperfomace of equities vs bonds month to date, “there should be buying of stocks and selling of bonds” with JPM estimates indicating the
“rebalancing move could produce upside pressure on equities of 1-2%, which could be enough to prompt additional buying from gamma hedgers and CTAs.” Of course, we will check back in 3 days to see if this particular opportunity actually materialized.
And just in case Kolanovic is once again overly bullish as he tends to be, he hedged by saying that the risk to this outcome “is clearly coming from virus developments in Europe and the US; should the news significantly deteriorate, the bounce is not likely to happen.” He is absolutely correct on this one, we will add.
What about upside risk? Here Kolanovic leaves it in the hands of China, whose situation he claims is “steadily improving, with a net negative number of cases the last several days (number of recoveries is ~1000-2000 larger than the number of new cases). Because when all else fails, may as well put one’s faith in China’s grotesquely manipulated numbers. And if China fails, there is always the Fed to bail out each and every chronic permabull, to wit: “upside risk could come from significant stimulative policy measures that could be introduced. “
In sum, Kolanovic – as usual – remains positive on the market, “with a strong preference for cyclicals, value and EM exposure over momentum and low volatility stocks: the virus should go, but stimulative measures will likely stay.”
Kolanovic’s latest bullish reversal, just as we were commending him last week on once again turning “contrarian” and calling a market bubble a spade, what the JPM quant basically said is that discretionary investors were not part of the violent puke observed over the past three days, which was largely a systematic event.
* * *
It will hardly come as a surprise that not everyone agrees. In fact, in a note from Nomura’s, Masanari Takada, the Japanese quant reaches the opposite conclusion, writing that “equity long/short funds and global macro hedge funds unloading long equity positions, CTAs may have been late to move for the exit.“
Contradicting Kolanovic, Takada writes that “it is looking very likely that the main culprits in panic selling of DM equities were fundamentals-focused hedge funds, as we had originally posited. Recently equity exposure for hedge funds overall has plummeted, with the main driver being equity long/short funds and global macro hedge funds unloading long equity positions.” The reason for this is that while discretionary investors had been picturing a V-shaped recovery in the global economy and corporate earnings, when confronted with the surge in COVID-19 infections, “many are now being forced to drastically change their strategies.” And while the selling could be an overreaction, the situation is suggestive of global macro hedge funds and long/short funds turning to trades that prepare for a global recession.
Meanwhile, the Nomura quant argues that systematic traders (CTAs and risk-parity funds) are simply chasing the fundamentals-oriented funds and reducing their long positions in equities, and makes the point “that CTAs were late to head for the exit suggests that the latest sell-off was not necessarily driven by systematic trading“, contradicting what Kolanovic said. Be that as it may, with CTAs forced to cut losses, in the end their trades exacerbated the drop in US equities. CTAs are likely to step up sales of equities a further notch if the S&P 500 goes below 3,105.
Separately from the “man or machine” debate, Nomura writes that a particularly noteworthy point, one we touched upon earlier this week, is that “global equity sentiment and US equity sentiment have fallen past two standard deviations below their one-year rolling averages for the first time since December 2018.” In other words, if the view that pessimism about a global economic downturn has gone too far were to take root, then Takada – in borrowing a page from Kolanovic’s bullish playbook – “sees the possibility that the current situation will in hindsight appear to have been the darkest day.” If so, and based on past sentiment patterns, the timing could be approaching over the next one to three months to target a swing back from pessimism in each region and sector. The only question is just how much more will said regions and factor drop first.
In the end, despite Wall Street’s trivial ego pursuits of trying to reverse engineer who is behind the selling – an exercise in futility when stocks have plunged almost 10% in less than a week – the question whether the liquidation is “man or machine” is largely irrelevant due to the reflexive nature of the market (where humans sell if machines sell and vice versa), and all that matters is if indeed, it is now too late to stop a global viral pandemic, triggering the “Unthinkable” scenario posited by Rabobank last week, one in which one share of google will have far less intrinsic value than a bag of rice, a gallon of water or a 50-pack of bullets.
Roughly forty years ago we and the Chinese entered into a true Faustian bargain. We agreed to open our markets to Chinese goods, and the Chinese in exchange opened their nation to foreign investment and manufacturing.
We were motivated by greed. Factories in China would have access to seemingly unlimited quantities of low cost workers. It did not hurt that those factories would be unencumbered by unions, workplace safety laws or environmental regulations.
The Chinese were motivated by a desire to survive. The Soviet Union was tottering toward extinction, destroyed not by American forces on the battlefield but by rot and inefficiency in its economy. The Chinese would escape that fate by giving their people a higher standard of living and a more comfortable lifestyle in exchange for the continued acceptance of an oppressive, totalitarian regime.
The bargain was made. As with all pacts with the devil the bill has come due, this time in the form of the coronavirus.
Well over two months ago the coronavirus began to explode in China. The Chinese government did what it always does. It lied. It covered up the truth. It attacked those who claimed there was a serious problem and accused them of spreading disinformation and propaganda. On the internet, the Chinese deployed an army of bots, similar to those it used to bury the truth about protests in Hong Kong last year.
The Chinese had no choice. The continued existence of the Chinese Communist Party’s dictatorship is predicated on perpetual, explosive growth. Acknowledging the scope of what was happening would bring down the house of cards that had taken so long to construct.
Western observers, leaders and businessmen followed suit. They too believed they had no choice. They had bet everything on a system that made the entire global economy dependent on supply chains that seemingly all ran through mainland China. Contemplating what would happen if those supply chains suddenly stopped working was too awful. There was nothing to do but hope for the best.
As they say, hope is not a plan.
Today the stock market fell more than 1000 points on concerns that the coronavirus has so shut down the Chinese economy that many companies around the world will be unable to continue to supply consumers with products. Tech companies led the way, among them Apple, whose stock lost 5% of its value in a single day amid reports that the release of its new iPhone will have to be delayed due to virus related production problems in China.
The impact of factory shutdowns in China is already showing up here in the ports of Los Angeles and Long Beach – two of the busiest ports in the United States. Last year during the February – March timeframe there were a total of 17 cancellations of ship arrivals, largely due to the Lunar New Year. So far this year there have been 37 such cancellations.
The Port of Long Beach has seen cancellations skyrocket as well. In a typical year there may be 20 to 30 cancelled sailings. Already this year there have been 50. Noel Hacegaba, Deputy Executive Director of Administration and Operations at the port is crystal clear about the reason. It is, he said, “100% due to the factory closures” in China.
A ship docked at Long Beach on Friday of last week was the last one expected to come in from China for nine days.
Long Beach and Los Angeles are not exceptional. Many Chinese ports remain effectively closed. The number of cargo containers coming out of China each week has fallen by 300,000 since the virus hit. Worldwide the cost of shipping cargo is plummeting as ship owners compete for a rapidly diminishing amount of trade.
U.S. firms are already experiencing significant delays in getting shipments from China, but they are fortunate in the overall scheme of things. Given the distances involved, American companies have yet to experience the full force of shutdowns, because products were already in transit when the virus hit with full force. For a glimpse of the future, though, we need only look at South Korea.
South Korea’s giant Hyundai complex at Ulsan, the world’s biggest auto assembly facility, recently shut down. The complex, which includes five separate automobile plants and makes 1.4 million vehicles a year is offline, because it cannot get the critical parts it needs from China. Twenty-five thousand workers have been laid-off. Hyundai is not the only firm affected. Other major car companies in South Korea are either shutting down, limiting operations or considering doing so.
Here’s the real bad news.It is likely only going to get worse. The Chinese Communist Party has no choice. A citizenry out of work, out of money and faced with the truth that its government cannot combat the growing epidemic may finally revolt. The coronavirus is not just threatening lives. It is threatening the very existence of the regime.
So, in desperation, the Chinese government is forcing factories open and herding hundreds of millions of workers, many of whom were locked down and in isolation, back into the crowded dormitories where they live during the work year, half a dozen men or women to a room, using communal bathrooms and working on overcrowded factory floors. There could not possibly be a better petri dish environment to guarantee a disease – already defying all efforts to control it – explodes.
We made our deal with the devil. Like Faust the price we pay will be a terrible one.
Japan Cancels Sport And Cultural Events Amid Concerns Olympics Could Be Canceled
With the 2020 Tokyo Summer Olympics scheduled to begin on July 24, Japan has already started canceling sport and cultural events amid the broadening of the Covid-19 outbreak.
Tokyo’s Yomiuri Giants baseball team is expected to play two preseason games in an empty stadium to minimize the transmission of the virus.
The move comes as Japanese Prime Minister Shinzo Abe ordered all sport and cultural events to be halted for the next two weeks, reported Reuters.
“Taking into account that the next one to two weeks are extremely important in stopping the spread of infection, the government considers there to be a large risk of transmission at sports, cultural events, and large gatherings of people,” Abe told parliament on Wednesday.
Japan has at least 170 cases of infections, apart from the 691 reported from a cruise ship that has been quarantined at Yokohama cruise port.
International Olympic Committee (IOC) member Dick Pound told AP News on Wednesday that the Games would most likely be canceled than postponed if the outbreak continued to worsen in the months ahead.
Pound said there’s a three-month window to decide the fate of the Games: “You could certainly go to two months out if you had to,” he said, which would mean the decision would come around late May. “A lot of things have to start happening. You’ve got to start ramping up your security, your food, the Olympic Village, the hotels, the media folks will be in there building their studios.”
He noted that if the virus outbreak continued to deteriorate, then “you’re probably looking at a cancellation.”
“This is the new war, and you have to face it. In and around that time, I’d say folks are going to have to ask: ‘Is this under sufficient control that we can be confident about going to Tokyo, or not?'” he said.
He added: “You just don’t postpone something on the size and scale of the Olympics. There are so many moving parts, so many countries and different seasons, and competitive seasons, and television seasons. You can’t just say, we’ll do it in October.”
Pound said, moving the Games to another city is highly unlikely.
“To move the place is difficult because there are few places in the world that could think of gearing up facilities in that short time to put something on,” he said.
Shaun Bailey, a UK Conservative candidate for the city’s mayoral race, said last week that, if need be, the Games could be held in London: “We have the infrastructure and the experience. And due to the #coronavirus outbreak, the world might need us to step up.”
But Pound’s comments suggest that if the virus outbreak doesn’t diminish by May – then the Games are likely canceled – not moved to a different region or postponed.
Japanese Minister Seiko Hashimoto told parliament on Wednesday that “the IOC is preparing for the Tokyo Games as scheduled,” when asked about Pound’s comment. “We will continue our preparations so that the IOC can make sound decisions.”
Japan’s Chief Cabinet Secretary Yoshihide Suga also acknowledged the IOC’s decision of the Games would be made in late May.
We noted on Monday that IOC officials made it clear the Games wouldn’t be canceled, but since the outbreak of the virus continues to spread across South Korea, Japan, Iran, Italy, and other parts of Europe, along with the US preparing for an epidemic, the situation continues to deteriorate, suggesting the likelihood of the games could be canceled if the WHO labels the virus a pandemic.
Since 1896, the Olympics have only been canceled during wartime. And in 1976, 1980 and 1984 faced boycotts.
The longer the outbreak continues, the more uncertainty it would create for Olympic organizers. All eyes on May.
McKinsey Publishes Handy ‘How To Survive The Coronavirus’ Guide For Corporations & Governments
Consulting firms – particularly the elite private firms like McKinsey and BCG – are supposed to earn their keep during crises, at least in theory. Aside from helping companies ‘streamline’ their operations (i.e. justify painful job cuts), it’s really their only utility.
That’s why we weren’t surprised to learn that the only people on Earth who worked harder than the doctors and nurses in Wuhan over the past week have been the McKinsey marketing division, which managed to put together this colorful ‘Crisis Response Report’, a mix of widely-known information combined with some internal analysis, to try and drum up some business.
The report, entitled “Coronavirus COVID-19 Crisis Response” and dated Feb. 14, features a useful breakdown of where things stand (or at least where things stood a week and a half ago when they wrote the report), as well as a deck of slides explaining what McKinsey can do “for you” during this stressful time.
After reading the “executive summary”, we can grasp the report’s key takeaway: While China is expected to start ramping up production over the next week or two, it’s possible that over the long term, we may see only a partial recovery. Because of this, companies need to start thinking about how to ‘diversify’ their supply chains. That’s where the good people at McKinsey can help.
On the first slide, McKinsey started by explaining the history of coronaviruses, and where COVID-19 fits in, while also explaining that this is a “new” virus that has never infected humans before.
Slide No. 2 was dedicated to the topic of how the virus is transmitted, and how far it has spread. These charts are, of course, two weeks out of date, which means they’re not really helpful other than reminding us how quickly the virus has spread.
Another (dated) roundup of the outbreak’s “impact to date.”
The chart below, about key factors that could influence the severity of the outbreak, is still useful.
Introducing, “the Chart that Dr. Tedros wants the world to see”. The WHO director-general on Wednesday scolded governments and the press for using the word ‘pandemic’ in a way that sparks panic.
McKinsey’s “base case” echos most of the Wall Street players: Right now, the consensus is for some of the economic impact to bleed into Q2, leaving open the possibility of a rebound in H2.
Here’s a more detailed look at the potential fallout for the manufacturing sector.
Even though it’s a little stale, this might be the most important chart in the deck.
This breakdown of some of China’s most important factories is also helpful.
Again, McKinsey is taking some helpful travel data that we’ve seen before and presenting it in a handy visual.
For investors and business executives, McKinsey has created this handy ‘coronavirus preparation’ checklist.
The report also included some marketing materials for McKinsey, including information about the firm’s work on previous outbreaks, while also introducing its “team of experts in epidemiology, crisis management, supply chain and stress testing.”
But that material is a little too dry, so we figured we’d leave it out. However, if you’re an anxious kleptocrat worried about whether a coronavirus outbreak could undermine your regime’s grip on power, give McKinsey a call. They’re good with that kind of ting.
Unusually loud booing and jeering directed disproportionately at Sens. Bernie Sanders and Elizabeth Warren during Tuesday night’s Democratic presidential debate — particularly when the senators criticized billionaire businessman Michael Bloomberg — sparked probing questions about the class composition of the audience packed inside the Gaillard Center in Charleston, South Carolina.
Journalists and other observers pointed to local reporting from Feb. 6 on the Charleston County Democratic Party’s offer of a $1,750 to $3,200 sponsorship package that included tickets to the Charleston debate and other events.
Democratic debate in Charleston, South Carolina, on February 25, 2020. Getty Images/Vox
“This is something that the average person doesn’t usually get to go to,” Colleen Condon, chair of the Charleston County Democratic Party, told local television news station WCSC-TV.
Citing party officials, the outlet reported that “tickets are handed out to organizers like the Democratic National Committee, CBS, Twitter, and the Black Caucus Institute. Then, they are first given to paid sponsors and handed to campaigns to pass out extras.”
Critics argued that the prohibitively high price of admission may help explain why the crowd appeared more favorable toward Bloomberg — who will not even be on the ballot in South Carolina’s primary Saturday — and loudly antagonistic toward Sanders and Warren, who were both booed and heckled on several occasions.
Sanders was booed for highlighting Bloomberg’s “strong and enthusiastic base of support” among fellow billionaires:
Warren was booed and jeered for pointing to inappropriate comments Bloomberg allegedly made to women employees:
Asked about the crowd’s behavior in an interview following the debate, Sanders said “to get a ticket to the debate, you had to be fairly wealthy.”
“Most working people that I know don’t spend $1,700 to get a ticket to a debate,” Sanders said.
The Bloomberg campaign denied that it stacked the audience with paid supporters amid rampant social media speculation that the billionaire “purchased” a portion of the crowd to create the appearance of a strong performance following his poor showing in Las Vegas last week.
Wondering why Bernie keeps getting booed at the #DemDebate in Charleston?
The audience is full of rich people. Tickets to the debate cost between $1750-$3200. pic.twitter.com/GZcrM5YiuH
“One might be forgiven for being somewhat skeptical that those attendees hadn’t been paid by the Bloomberg campaign for their presence and energy,” wrote the Washington Post‘s Philip Bump. “This is a campaign, after all, that paid Instagram influencers to bolster his candidacy. The campaign paying people to send regular text messages to their friends promoting Bloomberg’s candidacy.”
Xochitl Hinojosa, a spokesperson for the Democratic National Committee tweeted that “the tickets were divided up between the DNC, campaigns (with equal allocation), SC Dem Party, CBCI, CBS, and Twitter.”
“We invited local and community leaders, and DNC supporters,” Hinojosa added. “This is the most diverse audience.”
China’s “Whatever It Takes” Moment (May Not Be Enough)
The COVID-19 outbreak is dealing a severe blow to China’s economy. Small- and medium-sized enterprises (SMEs) with tiny profit margins are especially bearing the brunt, but the impact is widespread, with the latest data point merely adding to concerns that, despite all the talk that Chinese are returning to work, the Chinese economy remains dead in the water.
As we detailed previously, here is China’s daily coal consumption which have barely pushed off the lows, and are roughly 50% where they were a year ago this time.
With coal demand in the doldrums, it is also to be expected that coal supply is depressed as well, and indeed coal volumes over the past week remain 25% lower than the past 3 years’ average, and roughly 33% below the 2019 level.
One of the better indicators of real-time commerce, traffic congestion, remains virtually unchanged, and substantially below where it was in previous years.
Yet, hilariously, this being China even with no transport, no commerce, and virtually no power plant use, pollution is finally starting to ramp up. One wonders what is causing this if it’s not coal demand, or transportation: maybe all those crematoriums working overtime?
And speaking of not transport, the number of passengers carried after the New Year is barely above 10 million, almost 50 million below last year’s levels.
Meanwhile, a brief silver lining in the economy was promptly snuffed out last week, when the property sales volume in 30 major cities crashed back to earth and remains well below 25% of the seasonal norm.
And with no end market demand, it is hardly a surprise that steel demand has continued to crater, and was below half the normal level from the past 3 years, with the most recent data showing full-country apparent steel demand -33% y/y vs -43% y/y last week:
Construction steel -78% y/y (in line with physical steel trading volume)
Flats -16% y/y
Last but not least, and perhaps most ominous of all, the earlier semi-official data print in the form of the February survey on business conditions showed a depression level plunge, with the index crashing more than 18 points, the most on record, to 37.3, which confirms Nomura’s expectation of a manufacturing PMI print later this week which may have a 30-handle.
And so it is little wonder that China just went all-in on monetary and fiscal support for the nations’ companies, following Mario Draghi’s lesson –
“whatever it takes.”
As Nomura’s Ting Lu details, to cope with this substantial shock, China’s State Council on 25 February unveiled a raft of targeted policy measures to support SMEs, especially those in Hubei province, the epicenter of COVID-19 (but, while more measures are coming, Nomura does not see “massive stimulus” as imminent, something we warned about two weeks ago)
This is in line with our view that Beijing is keenly focused on helping SMEs survive the epidemic and pushing for business resumption.
Following the containment of COVID-19, we expect Beijing to taper off these easing measuresin part to tame inflation and other issues amid an expected V-shaped recovery.
We do not expect Beijing to launch a round of significant stimulus packages to boost investment and consumption demand following the epidemic.
Beijing’s package to rescue SMEs amid the virus outbreak
Policy measures in the package include targeted liquidity and credit support, targeted tax cuts, targeted cost cuts and rental cuts. Details follow below:
On targeted liquidity support, the PBoC will increase the quota for banks regarding relending and re-discounting by RMB500bn to extend credit to SMEs, following the PBoC’s RMB300bn special-purpose relending (with a proportion of interest covered by fiscal subsidies) in early February. It will also lower the interest rate of re-lending designated for agricultural entities and SMEs by 25bp to 2.5% pa. According to the PBoC, as of end-2019, the outstanding amount of re-lending designated for agricultural entities and SMEs was RMB260bn and RMB283bn, respectively.
On targeted credit supply, Beijing encouraged financial institutions to provide a grace period for the virus-hit SMEs, upon application, in repaying the principal and interest of their outstanding loans, with the repayment date postponed to as late as 30 June and penalty interest waived; the policy applies to all companies in Hubei province. Beijing further required state-owned large commercial banks to achieve a 30% y-o-y growth in their outstanding loans to SMEs in H1, and lower the loan rates for SMEs from the level in the previous year. Policy banks will receive a special quota of RMB350bn for extending cheap credit to SMEs and the private sector.
On targeted tax cuts, the value-added tax (VAT) will be exempted for small-scale taxpayers in Hubei province between 1 March and end-May, while the VAT rate for small-scale taxpayers outside Hubei province will be lowered from 3% to 1% over the same period.
In addition, Beijing pledged a forceful implementation of lowering electricity prices for industrial and commercial businesses (excluding high energy-consuming industries) by 5%, and encouraged local governments to reduce urban land use taxes to support landlords’ rent cuts for individual businesses.
We expect more policy easing measures…
As COVID-19 is not yet under control and business resumption continues at a slow pace, most SMEs have been severely hit. We expect Beijing to further ramp up its policy support for SMEs and low-income individuals. We also expect some other easing measures in coming months to boost final demand and stabilise market sentiments:
We continue to expect Beijing to provide local governments with more flexibility in easing some tightening measures in their local property markets. In recent days a few banks have reportedly eased their minimum downpayment ratios for new home purchases in some cities. However, we think it unlikely that Beijing will launch another round of big stimulus packages to boost nationwide property demand like it did in H2 2015 after the stock market crisis.
We expect Beijing to ramp up investment in infrastructure during and after the fight against the virus, but the scale is unlikely to be massive owing to tight financial and fiscal conditions.
We expect Beijing to roll out some policy stimulus measures to stabilise auto sales, such as cutting auto purchase taxes, encouraging more cities to ease quota restrictions on vehicle licenses, and providing subsidies for the replacement of old cars.
However, it seems unlikely that Beijing will roll out another big round of stimulus packages because:
1) the room for policy space is limited after years of stimulus and rapid accumulation of debt;
2) current account balance is worsening while foreign debt is on a rise;
3) CPI inflation may remain elevated above 5% y-o-y in H1;
4) conventional stimulus to boost investment and consumption demand may not work well amid the virus outbreak;
5) we expect a natural V-shaped recovery following the containment of the epidemic, thus adding too much stimulus could lead to an overheating. After the containment of COVID19, we expect Beijing to gradually taper off some easing measures, with no repeat of the RMB3.6trn of the PBoC’s pledged supplementary lending (PSL) money, which was used for the property sector in low-tier cities between 2015 and 2019.
* * *
And so, while Goldman continues to believe that Chinese investors will look through weak current demand due to Xi’s policy put.
The question is – what’s already priced in for Chinese markets? It appears a lot…
One glance at the chart above and it’s clear that the support for Chinese stocks has been unprecedented.
And all driven by re-leveraging!!??
That can’t end well, no matter what Xi says or does. However, as Goldman suggests, in its always-a-silver-lining manner, “we know demand is bad now, it’s the 2nd derivative that matters.”
But, as we noted earlier and Nomura confirms, markets may be significantly disappointed as “big stimulus” is more than priced in… and is likely to be absent from CCP policy statements as they try to juice confidence through fabricated case/death counts.
It would be virtually impossible to find a better example of socialism here in the United States than the public schooling systems that exist in every U.S. state. Ironically, it is this socialist system that is primarily responsible for the widespread belief among non-libertarians that “the United States has never been a socialist country,” as New York Times columnist Timothy Egan stated in a recent NYT op-ed. (See my two recent articles “A Life of the Lie on Socialism” and “Socialism in America, 31 Years Ago.”)
It is worth noting that public schooling is a core feature of the educational systems in Cuba, North Korea, and Vietnam, all three of which are widely known as socialist countries. That’s because public schooling is a socialist system.
Perhaps it’s also worth noting that while we call it “public” schooling, a more accurate name for it is government schooling or state schooling. That’s because state and local governments own and operate the educational systems. If state and local governments owned and operated churches, would we call them public churches or state churches?
Under public schooling, the government owns, operates, controls, and dictates the provision of education in society. In a purely socialist system, like North Korea, this means that every child in the nation is required to receive his education in a government facility.
Things are done differently here in the United States. While everyone is required to subject his children to a state-approved education, there are two additional options that the state permits parents to have: private schools and home-schooling.
It’s worth reminding ourselves though that homeschooling is a relatively new option. Up until the 1980s, the only two options were public schools and private schools. Anyone who insisted on homeschooling his children would be hauled into court and jailed and fined until he complied with the law that required parents to submit their children to either public schools or private schools.
In fact, as late as 1979 state officials in Utah killed a man named John Singer for insisting on homeschooling his children. They called it “resisting arrest” but the killing stemmed from Singer’s refusal to comply with state orders to send his children into the state’s education system.
Even though the state permits these two additional options, most parents choose the public-school option, either because they can’t afford private schools or because home-schooling doesn’t suit them.
Oftentimes, however, private schools end up as mirror images of public schools, either because they are afraid of losing their state-issued license to operate the school or because the teachers and administrators are themselves products of the public-school system.
Moreover, in most states homeschooling parents are required to periodically meet with state officials to demonstrate that the children are being educated to the state’s satisfaction. If parents refuse to do that or if the state doesn’t approve of how the children are being educated, state officials will order the parents to send their children into the public-school system.
Whether in Cuba, North Korea, Vietnam, or the United States, the educational system is based on force. Under what are called compulsory attendance laws, parents are required to submit their children to a state-approved education. If they refuse, they are threatened with jail and fines until they comply.
In public schools, everyone, including the teachers, is an employee of the state. The state establishes the curriculum and determines which textbooks are to be used. The entire operation is run in a top-down, command-and-control manner, much like the military.
In fact, public schooling could easily be referred to as “army-lite,” given that the students are there as a result of compulsion and are receiving a government-approved education. Moreover, the core features of public schools are regimentation, deference to authority, and obedience to orders, just like in the military.
The worst part of public schooling is what it does to children’s minds. From birth to six years of age, children are wide-eyed and curious about life and the universe. They absorb everything they see and experience life with a sense of awe and wonder. When they learn to talk, they inevitably bedevil their parents with endless repetitions of that three-letter word, “Why?”
By the time they end their 12-year sentence in public schools, all of that has been smashed out of them. They have learned to memorize and regurgitate but they have lost the natural love of learning that characterized them before they were forced into the state’s educational system. Oftentimes, it takes people many years before they find themselves in life, if they ever do.
This is where the indoctrination takes place. Day after day, American students are ingrained with the notion that they live in a free country, one based on a “free-enterprise” system. Every day, they pledge allegiance to a nation which has “freedom and justice for all.” As an aside, I can’t help but wonder how many graduates of America’s public schools know that the Pledge of Allegiance, which many of them still loyally recite as adults, was written by a self-avowed socialist named Francis Bellamy.
By the time students graduate from this socialist educational system, they are totally convinced that America has never been a socialist country and will never become one. Their life of the lie and their denial of reality demonstrate that horrible “success” of public schooling.
That raises one of the distinguishing characteristics of us libertarians: We have succeeded in breaking through the years of state indoctrination. That enables us to recognize socialism when we see it.
We favor an educational system based on liberty, free markets, and parental control — that is, one that separates school and state.
Microsoft Slides After Cutting Personal Computing Guidance Due To Coronavirus; Intel Dragged Lower
After trying hard to ignore the deadliest global pandemic in decades, and pretending it would have no impact on future sales or demand, US corporations are starting to fall like viral dominoes, with one after another slashing guidance.
The latest to join Apple, MasterCard, United Airlines, Burberry and dozens more in slashing or pulling their forecast altogether, was Microsoft, which shortly after the close said that for the fiscal third quarter, it doesn’t expect to meet its More Personal Computing segment guidance as Windows OEM and Surface are more negatively impacted than previously anticipated by the coronavirus.
Specifically, the company had expected revenue for the More Personal Computing segment of between $10.75 billion and $11.15 billion as of Jan. 29
And while all other components of Q3 guidance remain unchanged, we expect those to join the same fate in the coming days, especially once Chinese enterprise demand falls of a cliff. Until then, however, Microsoft said that it (still) sees strong Windows demand in line with expectations.
The news sent Microsoft stock lower after hours…
… and hit Intel hard as a result of what appears to be a sudden shortfall for PCs, and by extension, CPUs.
