Category: zerohedge

Authored by Robert Stevens via Decrypt.co,

Covid-19 cases are now above 120,000 worldwide, and the World Health Organization has officially determined it’s a pandemic. It’s torn families apart, tanked the global economy, and world leaders are calling it the biggest global crisis in decades. 

So, uh, how’s the coronavirus affecting crypto? Though some claim that Bitcoin doesn’t track regular markets – this week it… did. Just as global markets sharply dropped this week, on early Friday morning, the price of Bitcoin sunk to its lowest since March, 2019, briefly below $4,000, according to metrics site CoinMarketCap. Like global markets, it’s recovered slightly, now valued at around $5,425.

So, are people getting rid of magic money so they can feed themselves under quarantine? Or will Bitcoin’s price pump back up as global markets decline, proving it to be a safe haven after all? We asked the crypto-experts, in the latest edition of Bulls vs Bears.

Bitcoin and the coronavirus: the bull case

Eric Wall, CIO at crypto investment firm Arcane Assets, told Decrypt that this short-term volatility is down to people de-risking their portfolio—crypto’s a risky asset, even when the economy’s doing well. But in the longer term, Wall said, “coronavirus-related stimulus packages from governments are likely to further bankrupt fiat’s reputation as a form of store-of-value.”

He thinks that the crisis will reveal to investors that cryptocurrencies “represent the only non-inflatable monetary asset that exist in a digital form that we have access to.” COVID-19 is a much greater stress test to the fiat currency system than to cryptocurrencies, Wall pointed out: “In a way, they’re excellently positioned to benefit from this tragedy.”

Jack O’Holleran, CEO of SKALE Labs, a decentralized application startup, thinks it’s business as usual for Bitcoin, “except we’re doing more virtual events and less handshaking.” He acknowledges that public market drops will “certainly affect new financings in crypto and overall assets flowing in,” but that crypto won’t feel the economic shock as much as the travel, oil, and gas industries. 

If anything, the funding shortages that follow the coronavirus will cut the fat off of the crypto economy, “allowing well funded and well executing projects to come out of this in an even stronger position.” 

Mike Alfred, CEO and Co-Founder of Digital Assets Data, which builds software for crypto hedge funds, told Decrypt that Bitcoin is “setting up for a very bullish 18-20 months, and I don’t think coronavirus will have any long term impacts on it.” He thinks that Bitcoin “has behaved well amidst coronavirus scares; some days it appears to be correlating with certain assets, but in the long run it is not correlated with anything,” he said. 

If anything, Alfred said, the recent interest rate cuts are “bullish” for Bitcoin, as they create more liquidity for investors. And in 2020, Bitcoin has the highest daily average price over any year of its existence, he said. Granted, 2020 hasn’t lasted that long, but this “further supports a more bullish backdrop” for the upcoming Bitcoin halving—when, in mid-May 2020, the supply of Bitcoins issued as mining rewards will cut in half. (Some think the halving will lead to a price bump for Bitcoin.)

Bitcoin and the coronavirus: the bear case

Dan Schatt, CEO of Cred, a crypto loans company, told Decrypt that “the euphoria that had been predicted in the run-up to Bitcoin’s May halving looks to have been dampened.” He pointed out that governments around the world are creating fiscal stimulus packages, including the delivery of so-called helicopter money. But aside from further rate cuts, which are already historically low, “there’s not a lot else that policymakers can do,” he said. He expects high volatility over the next few weeks, though thinks that the market will pick up following the Bitcoin halving. 

Brian McCabe, Head of Market Insights at Paxful, a peer-to-peer crypto marketplace, takes a cautious approach. He thinks that Bitcoin could benefit from economic pain caused in countries that must pay debt back in the US dollar. 

If the coronavirus continues to weaken local currencies and makes the dollar stronger, McCabe said, “money will continue to flow out of these economies and their relative debt will increase.” That could lead to Bitcoin once again becoming the alternative, if these economies continue to come under pressure and people are unable to preserve wealth in their own currency.

But equally, McCabe said, “Margin calls and investors losing money in equities and other higher-risk markets should lead to more people having to close positions in Bitcoin to reduce overall risk exposure.” He notes that it’s a similar “flight to safety” to that which caused the yield on US 30-year treasury bonds to reach a record all-time low this week.

David Gerard, blockchain critic and author of Attack of the 50 Foot Blockchain, pointed to the impact of the coronavirus on crypto conferences. “Conferences are important for generating buzz around coins and new crypto financial instruments as well,” Gerard said. “Video can replace the main sessions, but it can’t replace the “hallway track”—meeting people you didn’t expect to and talking,” he said. 

The death of conferences is not, of course, fatal to crypto, but if companies can’t meet investors, then business can’t flow, and deals won’t be made. Decisions might be postponed until the conference circuit is revived, whenever that may be. 

New challenges

Of course, with Bitcoin forming such a minor part of the global economy, crypto’s future may be out of the hands of a group of pundits. According to Ido Sadeh Man, founder and chairman at the board of Saga, a reserve-backed global currency: “If coronavirus teaches us anything is that we live in a hyper-globalized world, whether we like it or not. The exact same virus in the 1980’s would have been a Chinese crisis, not a global one.”

Sure, Man adds, “in such unstable times, people seek first to regain the security they feel is not provided by their national institutions.” But perhaps a truly international currency like Bitcoin will show its worth. “As uncorrelated as it maybe, Bitcoin may reside in the side of crisis opportunities,” he said. 

But one thing’s for sure, as Sinjin David Jung, founder and Managing Director at the International Blockchain Monetary Reserve, a social impact economic development reserve and advisory, pointed out: “There are no bulls or bears when the entire global economy is being brought down to its knees as the very issue of life and death now take center stage.” 

Earlier today Trump declared that Sunday would be a national day of prayer.

TODAY IS A NATIONAL DAY OF PRAYER. GOD BLESS EVERYONE!

— Donald J. Trump (@realDonaldTrump) March 15, 2020

With Americans having far bigger concerns on their minds, we doubt many will have time for prayer today, although there is one person who certain could do with some divine assistance: Fed chair Jerome Powell.

And there is a specific reason for that… or rather 12 trillion reasons.

But first, let’s back up to a post we write back in October 2009 explaining how the Fed’s emergency response during the financial crisis – which included credit facilities backed by corporate bonds and even stocks, all the way to unlimited FX swap lines with foreign central banks – was first and foremost in response to a massive dollar margin call that resulted in the aftermath of the Lehman and AIG collapse as conventional cross-border funding pathways froze up, forcing the Fed to step in and flood the world with dollars to avoid a catastrophic surge in the dollar as the entire world scrambled to obtain the world’s reserve currency.

Back then the BIS published a paper titled “The US dollar shortage in global banking and the international policy response” which explained how then-Fed Chair Ben Bernanke in essence bailed out the entire developed world, which was facing an unprecedented dollar shortage crisis due to the sudden deflationary shockwave unleashed by the financial crisis, which also ground the global economy, and conventional dollar funding pathways to a halt while heightened counterparty risk after Lehman’s collapse and liquidity concerns compromised short-term interbank funding, resulting in a lock of shadow banking conduits and money market funds “breaking the buck.” In short: an unprecedented crisis as a result of a global dollar margin call. 

This is how the BIS quantified the peak dollar shortage at the heights of the financial crisis:

… European banks’ US dollar investments in nonbanks were subject to considerable funding risk at the onset of the crisis. The net US dollar book, aggregated across the major European banking systems, is portrayed in Figure 5 (bottom left panel), with the non-bank component tracked by the green line. By this measure, the major European banks’ US dollar funding gap had reached $1.0–1.2 trillion by mid-2007. Until the onset of the crisis, European banks had met this need by tapping the interbank market ($432 billion) and by borrowing from central banks ($386 billion), and used FX swaps ($315 billion) to convert (primarily) domestic currency funding into dollars. If we assume that these banks’ liabilities to money market funds (roughly $1 trillion, Baba et al (2009)) are also short-term liabilities, then the estimate of their US dollar funding gap in mid-2007 would be $2.0–2.2 trillion. Were all liabilities to non-banks treated as short-term funding, the upper-bound estimate would be $6.5 trillion (Figure 5, bottom right panel).

Had the Fed not stepped in with a barrage of liquidity-providing instruments and facilities, the rest of the world would have simply collapsed as the $6.5 trillion dollar funding gap closed in on itself, causing an indiscriminate sell off of all dollar denominated assets. It also triggered the first ever launch of virtually unlimited dollar swap lines between the Fed and all other central banks:

The severity of the US dollar shortage among banks outside the United States called for an international policy response. While European central banks adopted measures to alleviate banks’ funding pressures in their domestic currencies, they could not provide sufficient US dollar liquidity. Thus they entered into temporary reciprocal currency arrangements (swap lines) with the Federal Reserve in order to channel US dollars to banks in their respective jurisdictions (Figure 7). Swap lines with the ECB and the Swiss National Bank were announced as early as December 2007. Following the failure of Lehman Brothers in September 2008, however, the existing swap lines were doubled in size, and new lines were arranged with the Bank of Canada, the Bank of England and the Bank of Japan, bringing the swap lines total to $247 billion. As the funding disruptions spread to banks around the world, swap arrangements were extended across continents to central banks in Australia and New Zealand, Scandinavia, and several countries in Asia and Latin America, forming a global network (Figure 7). Various central banks also entered regional swap arrangements to distribute their respective currencies across borders.

The newly created swap lines which served as a “letter of credit” underwritten by the entity that prints the US currency…

… soared in usage in the early days of the financial crisis, and were critical to contain a far greater liquidation cascade.

Why do we bring all this ancient history up? For two reasons.

First, it may come as a shock to some but ever since the financial crisis nothing has been actually fixed, and instead the Fed stepped in at every market stress event to inject more liquidity, aiding the issuance of even more debt, and kicking the can while while helping mask the symptoms of the crisis, only made the underlying financial instability even more acute. Meanwhile conventional wisdom that the US banking system was rendered more stable now are dead wrong, with the public and countless financial professionals fooled by the nearly two trillion in excess reserves (we all saw what happened when this number dropped to a precarious “low” of “only” $1.3 trillion in September of 2019) injected by the Fed in recent years. All this liquidity upon liquidity has only made the system that much more reliant on the Fed’s constant bailouts and liquidity injections.

Ssecond, as the events of last week so ominously demonstrated, the dollar shortage is back with a vengeance, as confirmed by last week’s concurrent surge in both the Bloomberg Dollar index and the FRA/OIS spread, a closely followed indicator of interbank dollar funding availability.

Indeed, as of Friday, and following a rollout of various “bazooka” interventions by the Fed including a massive $5 trillion repo facility and the launch of QE5, as well as an emergency six POMO operations on Friday to unlock the freezing Treasury market which failed to boost risk sentiment, the FRA/OIS not only failed to respond but surged to the highest level since the financial crisis.

At the same time cross-currency basis swaps – especially for Japan – are screaming dollar shortage…

… which is not worse only thanks to the trillions in excess dollars already sloshing in the system as well as last week’s emergency liquidity injections which boosted the Fed’s balance sheet by over $200 billion in just a few days in the form of expanded repos and quantitative easing.

And yet – as the market’s response to the Fed’s bazooka announcement demonstrated – it does not appear to be enough.

Why?

Because, and going back to the original topic of a massive dollar margin call, there is now – in JPMorgan’s calculations – a global dollar short that has doubled since the financial crisis and was $12 trillion as of this moment, some 60% of US GDP.

So what can the Fed do? For one possible answer we go to Zoltan Pozsar who last week laid out precisely why the coronavirus pandemic (and subsequent oil crisis) would led to a historic run on the dollar (as he so aptly put it “the supply chains is a payment chain in reverse… and so an abrupt halt in production can quickly lead to missed payments elsewhere”), and concluded that to offset the dollar scramble, the Fed would need to “combine rate cuts with open liquidity lines that include a pledge to use the swap lines, an uncapped repo facility and QE if necessary.“

So far the Fed has already launched stealth QE, which will likely transform into an official, full-blown QE5 this week when the FOMC meets, and all that’s missing are swap lines and an uncapped standing repo facility, both of which cross beyond the purely monetary realm and have political implications. Whether those are also announced today will depend on if the Fed will pursue another intermediate step first, in the form of a Commercial Paper facility, which Bank of America believes will be unveiled in just a few hours.

An unnamed journalist reportedly from a Chinese-owned English language outlet was denied access to a White House press briefing on Saturday after registering a fever at a checkpoint prior to entry.

Journalist turned away after temperature screening. His organization appears to be CGTN an English language channel that is Chinese owned. pic.twitter.com/DFvVasbxd5

— Kelly O’Donnell (@KellyO) March 14, 2020

The person was tested three times over a 15-minute period, and registered above 100.4 degrees Farenheit – the CDC’s guideline for what constitutes a fever, according to Vice President Mike Pence’s press secretary, Katie Miller.

According to the White House Medical Unit, the temperature was taken three times over a 15 minute period – all three registered above the @CDCgov 100.4 guidelines. https://t.co/E2uORqvcxS

— Katie Miller (@VPPressSec) March 14, 2020

“Out of an abundance of caution, temperature checks are now being performed on any individuals who are in close contact with the president and vice president,” said White House spokesman Judd Deere, after the checks began on Saturday.

During the briefing, President Trump admitted that he had been tested for COVID-19, saying “I also took the test last night,” adding that the results were sent to a government lab and would be available in a few days, according to The Wrap.

After being denied entry to a port in San Juan and several other Caribbean ports, the cruise ship MS Braemer is the latest cruise ship to be dangerously stranded at sea after at least five cases were confirmed on board, and another 40 passengers and crew have been quarantined in the hold after exhibiting flu-like symptoms.

Puerto Rico denied the ship entry yesterday after a rumor about another ship allowing infected passengers to disembark in San Juan sparked a public uproar, leading the governor to ban all cruise ships from docking. The transatlantic cruise ship, which is carrying some 600 passengers, is frantically searching for somewhere to dock after it was refused entry at several Caribbean ports.

The vessel, which is carrying 682 passengers and 381 crew members, arrived in the Bahamas on Saturday. The ship was prevented from docking, but was given permission to drop anchor southwest of Freeport, according to CNN.

In a statement, British cruise company Fred Olsen Cruise Lines said on Sunday that “no other Caribbean ports were willing to accept the ship because of local sensitivities towards COVID-19 coronavirus.”

Presently, the Braemar is anchored about 25 miles offshore from the Bahamas waiting for clearance from the local government to bring aboard vital food, fuel and medications and two doctors and two nurses who are preparing to assist the cruise’s onboard medical team.

“No other Caribbean ports were willing to accept the ship because of local sensitivities towards COVID-19 coronavirus,” the company said in a statement. The British government was engaged in a diplomatic effort to find a solution to the drama.

A spokeswoman for the cruise line told CNN that “all options on where to go” were being considered, including returning to the cruise’s starting point in Southampton, back in the UK.

“We are exploring a number of opportunities and working extremely hard to find a resolution,” she said. “It is an option to do a transatlantic crossing but we need to weigh that up against other options.”

“The key thing for us is to get guests home as quickly and as safely as possible.”

Most of the passengers aboard the ship are British, but the group also includes Canadian, Australian, Belgian, Colombian, Irish, Italian, Japanese, Dutch, New Zealand, Norwegian and Swedish citizens.

Last Monday, March 9, the company reported that two people who had been on the Braemar were diagnosed with the coronavirus after returning home. Six people reporting flu-like symptoms on the ship were tested, and five cases were confirmed on Wednesday, four crew and one passenger, with another testing inconclusive (it’s unclear how these tests were conducted or what kinds of tests are being used).

The ship was refused permission to dock at Curaçao on Tuesday, or Barbados on Thursday and changed course to the Bahamas, the ship’s flag state, with the captain hoping to allow passengers to disembark there.

Before the ship arrived in the Caribbean, there were no confirmed cases in the area. The first cases weren’t confirmed until two passengers who had disembarked tested positive back in the UK.

The cruise line was unable to drop passengers on its Caribbean cruise in La Romana in the Dominican Republic on February 27 after a number of influenza-like cases on board were reported.

Instead, it made an unscheduled stop in St. Maarten on March 2 to allow passengers to disembark and take the cruise’s charter flights back to the UK. New passengers boarded and the vessel set sail for Jamaica as it continued to the Western Caribbean and Central America.

It was due to continue to Costa Rica, Panama, Colombia, Curacao, and reach Barbados on March 12.

The captain told passengers in an announcement that he was in talks with local authorities and asked passengers to “bear with me in this incredibly frustrating time, where rumor is plentiful and facts are in short supply.”

But the Bahamas has promised nothing beyond humanitarian assistance.

It’s just the latest nightmare at sea as cruise line stocks get hammered.

Submitted by Joseph Carson, Former Director of Global Economic Research, Alliance Bernstein

Two of largest quarterly declines in economic activity during the post war period occurred during a financial crisis and a widespread cessation of consumer and business activity triggered by uncertainty (and panic) following the federal government announcement of credit controls. The current environment has some elements of both prior episodes raising the possibility that the decline in economic activity in upcoming quarters could rival the large declines that occurred in 1980 and 2008.

GDP’s Largest Quarterly Declines

In the past 60 years, the US economy experienced two exceptionally large quarterly declines in real GDP. In Q4 2008 real GDP dropped an astounding 8.4% annualized and in Q2 1980 real GDP contracted 8.0%. The forces behind each decline, as well as the composition, were markedly different but both episodes can still provide some guidance on what to expect.

For example, in 1980, the sharp decline in real GDP was driven by the imposition of credit controls by the federal government, and the uncertainty surrounding the actions of the new policy. Consumers interpreted the Fed directive to “stop using credit cards” and a poll showed 58% of consumers used credit less than before, resulting in a record contraction of 8.7% annualized in real consumer spending in Q2 1980.

In Q4 2008, the sharp drop in economic activity occurred during the abrupt and sharp collapse in the financial markets, following the bankruptcy of Lehman Brothers. In Q4, the plunge in real GDP was driven by 20% to 30% annualized quarterly declines in business investment, housing and exports, as the financial crisis became a global crisis, much like the coronavirus. Real consumer spending took a hit as well, but fell only half as much as overall GDP.

The economy in 2020 faces a number of the same issues. To be sure, there is growing uncertainty (and in some cases panic) surrounding the coronavirus. And there is also confusion and fallout following the federal and state governments imposing widespread restrictions on all types of domestic and foreign travel, work-life, as well as social and business gatherings, events and conferences. The coronavirus is also a global crisis, impacting business activity in a number of major trading partners while also disrupting global supply chains. On top of all of that there is sharp drop in the equity markets that has wiped out over $7 trillion in household wealth in a span of a month or more, which will weigh heavily on consumer confidence.

Many of the consumer and business service sectors are likely to feel the brunt of the drop in sales and revenue. Unfortunately, there is no “real time” hard monthly numbers on sales and revenues for the service sector. The Census Bureau quarterly report on service sector revenue is released almost 80 days after the end of quarter, so a full assessment of service sector revenue and sales for Q1 will not be known until June and Q2 data will not be known until the end of September.

Conversation with a senior official at the Bureau of Economic Analysis indicated that government statisticians are discussing how to properly assess the “data” shortfall, and for now will be monitoring many of their “early” indicators, such as jobs. But its important to keep in mind that during downturns sales and revenues per employee fall hard, so the jobs data will not provide a full assessment of the drop off in service sector revenues.

Given the speed and breadth of events investors should brace for a decline in economic activity that’s more than twice consensus estimates, with company sales and profits declines that prove to far larger than what equity analysts currently expect.

With the stock market plummeting as the realities of the COVID-19 outbreak sink in, nervous New Yorkers flooded a Midtown Manhattan Bank of America – taking out large sums of cash into the tens of thousands of dollars at a time.

So much so, in fact, that the branch at 52nd St. and Park Avenue ran out of $100 bills according to the New York Times, citing three people familiar with the branch’s operations. Of note, the problem was limited to large bills – with smaller denominations remaining stocked. Two days later, the bank was resupplied.

The shortage hit after a rash of requests for as much as $50,000, said two people who witnessed the rush.

The problem was limited to large bills — the bank’s A.T.M.s stayed stocked and customers with routine transactions were still able to take out cash. By Friday morning, the bank had refilled its supply of big bills, two of the people said.

But the desire for cash persisted: A teller at a JPMorgan Chase branch across the street said on Friday that there had been a “nonstop” stream of customers stockpiling cash over the past two days. –NYT

“We don’t keep large amounts of cash in big bills in the branches because it’s dangerous for our employees and there is low demand,” said Bank of America spokesman Bill Halldin, who added that the bank had enough cash available to meet its clients’ needs.

As the Times words it, “it appears the deep level of fear that has set in on Wall Street — as weeks of market gyrations have wiped trillions of dollars of wealth — has also permeated people’s personal lives.”

Notably, cash transportation company Brink’s reported “a big spike in demand” last week from some of its bank clients according to company spokesman Edward Cunningham.

“They’re putting more cash into branches, they’re requesting more frequent replenishment of A.T.M.s,” he said.

Panic began to set in last Monday after the S&P 500 triggered a “level one circuit breaker” following a drop of 7%. Google searches for “Black Monday” spiked, along with inquiries for “Vix,” “NYSE circuit breakers,” and “what was Black Monday.”

The Fed, meanwhile, announced a $1.5 trillion repo intervention to try and calm the markets as the S&P 500 tumbled nearly 10% on Thursday – its worst day since the Black Monday crash of 1987. That said, markets were pleased after President Trump declared a national emergency which freed up billions in funding to fight the epidemic.

In short, it’s no mystery why people facing a potential quarantine are pulling out large sums of cash.

Most people use far less cash than they did even a decade ago, as credit cards and other forms of digital payment have become the norm. Still, stacks of bills are psychologically reassuring, and are often what people, even the wealthiest, turn to in an unpredictable world.

The Park Avenue bank branches — just steps away from the headquarters of MetLife and BlackRock, the world’s biggest investment management firm — draw an unusually affluent clientele. The typical American household has around $4,500 in its bank accounts, according to a SmartAsset analysis of the latest Federal Reserve data. –NYT

Still, banking industry officials say that the system has plenty of cash to deal with a surge in withdrawals. The Fed, meanwhile, says it hasn’t experienced pronounced increases and has “had no difficulty meeting demand,” according to a spokeswoman who added that the central bank has plans in place to address a range of contingencies. 

To keep money on hand for banks, the Federal Reserve Bank of New York keeps billions of dollars in custody in an East Rutherford, NJ storage facility. It typically sees surges during holidays and long weekends which can send demand up by 20%. The facility has the capacity to more than double its shipment volume if needed, according to the Times, citing two people familiar with its operations.

So far, they say demand has been within fairly normal levels and is nowhere near the surges seen during disasters such as Hurricanes Maria and Sandy. After the 9/11 terror attacks, the supply of cash in circulation rose by $4 billion according to a study by the Federal Reserve Bank of Richmond.

Meanwhile, banks and trade groups have been working with officials from the Fed, government agencies, and the CDC to deal with the fallout from the coronavirus outbreak. Topics include how to handle a flood of mortgage refinancing applications as well as tips for disinfecting high-touch surfaces such as ATMs.

As for people stockpiling cash, Cunningham of Brink’s said that the uptick in requests was so far limited to the largest banks, and may taper off as customers hole up in their homes.

“I don’t know how long it will persist,” he said. “It’s kind of hard to predict what’s going on right now.”

In the aftermath of Saudi Arabia’s declaration of an oil price war last weekend, which sent the price of crude tumbling about 30% overnight, and making profitability life for US E&P companies virtually impossible, it didn’t take long for US shale producers to take the hammer to their spending plans, and following a historic cut to Occidental dividend, which was slashed from 79 cents to just 11 cents, the first such cut in almost three decades…

… coupled with a massive cut to the company’s capex plans, which are now expected to be just $3.5- $3.7 billion, down from from $5.2 billion to $5.4 billion, a torrent of other shale names has followed suit in announcing massive capex cuts to reflect the new price war reality:

• Devon energy reduced its 2020 capex by $500MM to $1.3BN.
• Murphy Oil reduced 2020 capex from $1.4-$1.5Bn to $950mm.
• Aoache reduced 2020 capex from $1.6 – $1.9Bn to $1.0 – $1.2Bn
• ONEOK reduced 2020 growth capex by -$500mm to $1.6 – $2.4Bn
• PDC Energy cut 2020 capex of $1.0 – $1.1Bn by 20-25%

It’s not just US shale companies that are forced to retrench as they scramble to survive in a world where the price of their key commodity was just whacked by a third: overnight the world’s largest oil producer, Saudi Aramco, announced it will slash planned spending this year in the first sign that plunging demand and the oil-price war which the Saudi unleashed are starting to hit home.

In a statement, Aramco said that its capex budget for 2020 will be cut by almost a third, and will be between $25 billion and $30 billion in 2020 as spending plans for next year and beyond are being reviewed. Prior to the cut, Aramco had expected a planned capex in the range of $35 billion to $40 billion per its IPO prospectus, and compares with $32.8 billion in 2019.

The capex cut comes as Aramco’s profit tumbles 21% in lower oil prices and production. Of course, the worst is yet to come as none of the numbers below capture the historic crash in the price of oil which is the primary driver behind the company’s revenue and profits:

• Net income including minority interests: 331 billion riyals ($88 billion) vs 417 billion in 2018
• Revenue: 1.11 trillion riyals vs 1.19 trillion riyals
• Operating profit: 675 billion riyals vs 798 billion riyals

“We have already taken steps to rationalize our planned 2020 capital spending,” Aramco CEO Amin Nasser said. Given the impact of the coronavirus pandemic on economic growth and demand, Aramco is adopting “a flexible approach to capital allocation.”

“That was the surprise,” Ahmed EFG Hermes analyst Hazem Maher. “They’re adding production in a low price environment so their cash flows could be impacted.” Cutting investment could help absorb some of the impact of the drop in oil prices, but it would also have substantial consequences on the local economy as far fewer people are employed.

The capex cut is just the start. As Bloomberg writes this morning, echoing what we said last weekend, the oil-price war led by Saudi Arabia and Russia will mean more pain for Aramco as producing nations prepare to boost supply. Discounted pricing to markets already reeling from weak demand and crude that lost roughly half its value since the beginning of the year is likely to hit revenue further.

It also means that anyone who bought into the Aramco IPO is ruing the day: the Saudi oil giant’s shares fell as much as 0.9% on Sunday, extending the decline this year to about 18%. Aramco’s market value has slumped from a peak of over $2 trillion in December to about $1.5 trillion, and it has much more to drop if the oil price war does not end soon.

What is odd is that Saudi Arabia pledged to supply 25% more oil in April than it produced last month, and Wednesday ordered Aramco to boost output capacity by 1 million barrels a day. However it is not clear how the oil giant will do that if its capex is slashed by $10 billion.

The coronavirus’ blow to oil use has overwhelmed OPEC’s initial optimism for demand this year, with analysts now expecting a drop in consumption. The OPEC+ group’s failure on March 6 to agree on further cuts is only exacerbating a glut as buyers search for storage tanks and vessels.

While Aramco took a machete to its capex plans, its shareholder-friendly actions have yet to be affected, and the company reiterated its plan to pay $75 billion in dividends this year, as it scrambles between its pledge to pay investors with spending on its upstream projects – such as maintaining oil production and expanding fields – and boosting its global refining and chemical operations – the downstream segment of the business. Of course, just like its US peers, it is only a matter of time before Aramco is forced to slash its dividend spending as well, sending its stock price cratering.

“Aramco can restructure the strategy to concentrate more on the upstream expansion rather than downstream,” said Mazen Al-Sudairi, head of research at Al Rajhi Capital. “They can do it easily from their cash flow. But it might affect the money transfer to the government for one or two quarters.”

Or more longer, depending on the severity and duration of the oil price war will be. One thing we do know: Russia has already said it can last at –. If that’s the case, Saudi Arabia as we know it, will cease to exist.

Putting the price of oil in context, Brent crude averaged $71.67 a barrel in 2018, dropping to $64.12 in 2019. It traded in the low 30s this week. Meanwhile, Saudi production slipped to an average of 9.83 million barrels a day from 10.65 million in 2018, however the company has pledged to pump 12mmb/d or more as it scrambles to steal market share from its higher-cost peers.

That said, Aramco will be ok for the near future: the company netted $111 billion , which made it by far the world’s most profitable company, exceeding the combined incomes of some of the world’s biggest companies including Apple, Samsung Electronics Co. and Alphabet.

Over the past week, Wal-Marts across the country have been overwhelmed by panicked shoppers stocking up on toilet paper and other non-essentials as the coronavirus hysteria has rattled communities coast to coast, in many cases before a single incidence of community spread had even been detected.

With many stores running out of stock before new shipments can arrive (some due to a mix of panic-buying and supply-chain disruption), Wal-Mart corporate has decided to compress the hours of its 24-hour stores across the country.

Beginning Sunday, and lasting until further notice, 24-hour Wal-Mart stores will be open from 6 am to 11 pm, according to a statement from the company.

As the largest grocer in the US, Walmart has been dealing with “a significant increase” in sales as customers panic buy groceries, hand sanitizer and toilet paper. But it’s hardly alone in making changes to adapt to the new circumstances. Some grocers, including H-E-B, have adjusted by limiting purchases of food and cleaning supplies. Others, including Kroger, are advertising immediate job openings to keep up with heightened demand (with many suffering from pay reductions or other cash-flow problems, they might be able to help out a few people while keeping up with the massive demand).

Wal-Mart has also given managers discretion to limit purchases of items that are in high demand.

Stop & Shop, which is owned by Ahold Delhaize, said most stores will be open only between 7:30 am to 8 pm starting Monday. The company is also suspending its online delivery service.

President Trump is expected to hold a call with the CEOs of America’s largest grocery chains on Sunday.

As we reported last night, the first death in the state of Louisiana tied to Covid-19 was announced by Gov. John Bel Edwards. A few hours alter on Saturday, a 70-year-old man in Multnomah County became the first person in Oregon to die from the coronavirus, according to the Oregon Health Authority. Officials said the man was hospitalized at the Portland Veterans’ Affairs Medical Center and died Saturday. He tested positive for the virus on Tuesday.

According to the Washington Post, 2,952 cases of the virus have been confirmed by states and the CDC. Meanwhile, the death toll in the US climbed to 58 overnight.

According to USA Today, 20 states and a number of large urban school districts, including LA, the nation’s second-largest – are shutting down all K-12 schools as part of a sweeping attempt to contain the spread of the coronavirus. Alabama, Alaska, Delaware, Florida, Kentucky, Illinois, Louisiana, Maryland, Michigan, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, South Dakota, Utah, Virginia, West Virginia, Washington and Wisconsin have made plans to close all schools. Major metropolitan districts such as Atlanta, Denver, San Francisco, San Diego, Washington, D.C. and Austin, Texas, have also shuttered. And a growing number of smaller districts around the country have also chosen to close.

West Virginia is the last US state to have not confirmed a single case of the virus, though its governor, Jim Justice, insisted that the “monster” is “looming” over his state.

In a blow to the credibility of the mainstream news networks and their White House reporting staff, Trump revealed Saturday night that he had tested negative for Covid-19.

In California, Gov. Gavin Newsom said he would commandeer hotels and motels across the state and press them into service as quarantine centers, if necessary.

The Trump Administration is riding high right now thanks to its twin triumphs of invoking the national emergency and winning a compromise with Dems. Treasury Secretary Steven Mnuchin said Sunday that he “doesn’t expect a recession” to result from the outbreak – yet another example of a Trump Administration official saying what needs to be said to try and keep the public’s confidence from completely collapsing.

“Later in the year, obviously the economic activity will pick up as we confront this virus,” Mnuchin said Sunday.

Over in Europe, the Netherlands reported a nearly 200-case jump on Sunday, bringing its case total up 176 to 1,135. Portugal, whose President is still in self-quarantine, saw confirmed cases climb to 245 from 169. Norway saw cases climb to 1077 from 907.

After Israel banned gatherings over 10 and closed its borders, its central bank on Sunday launched a QE program to buy government bonds.

Japan, which has largely faded from the headlines this week, confirmed a total of 31 new cases bringing its total to 1,513. Iran confirmed another 1,209 cases on Sunday, bringing its total to 13,938. Another 113 people died, bringing the death toll to 724, according to Anadolou.

During an interview with CNN Sunday morning, Dr. Anthony Fauci, the NIH infectious disease specialist who is helping to direct the federal response, said that yes, of course it’s possible that “thousands could die” from the outbreak.

But the goal is for the government to make sure the response is successful, and that this doesn’t happen. To help the government, Fauci said Americans should brace to “hunker down” even more.

An Israeli broadcaster has aired dramatic video in an eerie dystopian sign of where things are possibly headed in terms of securing quarantined zones in urban areas, and at a moment various governments around the world are militarizing their Covid-19 outbreak response planning. Security forces in Tel Aviv are seen in full protective gear surrounding and then subduing to the ground a man who had allegedly violated his home quarantine and made his way to a nearby train station.

“Israel Police stated that a man, 47, was found on Bograshov St. in Tel Aviv after refusing to stay in quarantine,” according to The Jerusalem Post. “He had been involved in an attack on security guards at the city’s Hahagana train station.”

Dystopian scene of a man in Tel Aviv being arrested for violating his coronavirus quarantine. pic.twitter.com/miEf8XzSDC

— Emanuel (Mannie) Fabian (@manniefabian) March 14, 2020

A subsequent Israeli police statement issued Saturday night said: “The police call on the public to listen to directives and instructions from the Health Ministry; not following them disrupts the national effort to fight the outbreak of the virus and its spread in Israel.”

This was followed in the same statement with a directive on not “spreading fake news” about coronavirus in Israel: 

“Additionally, there is an absolute prohibition on spreading fake news whose sole purpose is to plant panic throughout the public. Relevant and authoritative information, including updates and official directives, will be published only by authorized officials and on the Health Ministry website.”

Another angle of the bizarre incident in Tel Aviv Saturday night:

Another angle of the arrest in Tel Aviv of a man violating his coronavirus quarantine. pic.twitter.com/DDfm35EWZ2

— Emanuel (Mannie) Fabian (@manniefabian) March 14, 2020

Also on Saturday Israeli Prime Minister Benjamin Netanyahu revealed the government will utilize counter-terrorism technologies and measures to track coronavirus carriers. 

“We will very soon begin using technology… digital means that we have been using in order to fight terrorism,” Netanyahu said.

This just as Tel Aviv announced the closures of all restaurants, pubs, threaters and public gathering places – essentially placing the country on lock down. “We are at war with an enemy: the coronavirus,” the prime minister said, “an invisible enemy.”

Once these “emergency measures” are implemented, they will never ever be repealed.https://t.co/cu5EDpQglY

— Jack Murphy (@JackMurphyRGR) March 14, 2020

With ‘wartime’ tactics and rhetoric increasingly being deployed by government leaders in countries where the outbreak is spreading, and military checkpoints and quarantines being set up, further with talk of putting “the collective interest above all” — get ready for more insane Orwellian scenes like the above to possibly come to a neighborhood near you.

As the rest of the globe is busy locking down borders amid the Covid-19 pandemic, Turkey has reportedly kept it migrant wave to the EU corridor open, resulting in continued chaos at Greek-Turkey border points, as desperate asylum seekers try any way possible to gain EU entry. 

This now includes not just an ongoing militarized response on the Greek side to keep thousands from crossing illegally, but reportedly now erecting huge concrete blocks at key land crossings.

The completely shuttered border crossings with Turkey are beginning to resemble war zones akin to WWI trenches and fortifications:

“Greece on Friday placed 5-foot concrete blocks at its Kastanies border crossing with Turkey to stop the entry of asylum seekers,” Turkey’s Anadolu Agency reports.

For weeks since Erdogan said he had in an act of retribution aimed at uncooperative EU states ‘opened the gates’ on hundreds of thousands of Syrian refugees from Idlib seeking entry into Europe, the border situation has seen running battles between throngs of migrants and Greek border guards. 

See the massive concrete blocks being put in place in the footage below, also fortified with barbed wire: 

Turkish media and officials have played up the ‘violent’ response by Greek security while downplaying and ignoring Turkey’s leaders actively facilitating the confrontations: 

In the two weeks since asylum seekers were able to reach the border, nearly 2,500 have been wounded by Greek border guards who use disproportionate violence.

Last month, Turkey opened its borders to Europe for asylum seekers accusing the EU of failing to keeps its part of a 2016 refugee deal.

Athens, for its part, has slammed the accusations of Greek border guards firing on migrants as “fake news” and lies spun by the Turkish state. 

Athens has the backing of the EU for its zero tolerance stance preventing mass entry of migrants out of Turkey, per The Greek City Times: 

The Greek Army have been fortifying the Greek wall as the Turkish Prime Minister, Recep Tayyip Erdoğan still refuses to engage in the EU directive, which aims to make all migrants move back from the border and return into Turkey.

Τhe Turkish side continued to provoke Greece by lobbing Molotov Cocktails and starting fires at several points along the border fence, to try to weaken the steel fence.

Interestingly, the dominant Syrian identity of the migrants has been widely questioned given video from the clashes often shows asylum-seekers speaking all kinds of regional languages from Pashtun to Urdu to Farsi, and not Syrian Arabic (Levantine dialect).