Category: zerohedge

Back in November of 2017, this website was the first to suggest that a flood of “fallen angels”, or the lowest, BBB-rated investment grade bonds that are downgraded to junk, will be the event that triggers the next corporate debt crisis. In “Hunting Angels: What The World’s Most Bearish Hedge Fund Will Short Next“, we quoted from the IMF’s Oct 2017 “Global Financial Stability Report”  which issued an ominous warning:

… BBB bonds now make up nearly 50% of the index of investment grade bonds, an all time high. BBB bonds are only one notch above high yield, and are at the greatest risk of becoming fallen angels, that is bonds that were investment grade when issued, but subsequently get downgraded to below investment grade, or what is known these days as high yield. It then points out that investors have never been more at risk of capital loss if yields were to rise. In addition, it notes volatility targeting investors will mechanically increase leverage as volatility drops, with variable annuities investors having little flexibility to deviate from target volatility

Following this article, the topic of a tsunami in “fallen angel” credits took on greater urgency, because with over $3 trillion in bonds on the cusp of downgrade, as we discussed in “The $6.4 Trillion Question: How Many BBB Bonds Are About To Be Downgraded“, countless asset managers warned (here, here and here) that this was the biggest threat to the credit pillar of both the US economy and stock market (recall the bulk of BBB rated issuance was used to fund the trillions in buybacks that levitated the stock market over the past few years).

However, despite a few close scares, and the downgrades of some massive IG names to junk such as Ford and more recently, Macy’s, there never emerged a clear catalyst that would trigger a wholesale downgrade of IG names to junk, especially since the Fed ending its monetary tightening in late 2018 and unleashed another rate cut cycle coupled with QE4 in 2019 sent IG and HY yields and spreads to record lows, even though as Morgan Stanley pointed out no less than 55% of BBB-rated investment grade bonds, would have a junk rating based on leverage alone.

But the bandwagon of fallen angel optimism that prompted the mockery of anyone who warned about the risk of a fallen angel tsunami resulting a corporate bond crash, came to screeching halt last month when Saudi Arabia started an all-out price war with Russia and US shale producers, destroying the OPEC cartel overnight and causing the biggest one-day drop in oil prices in almost 30 years. As a result, more than $140 billion of bonds issued by North American energy companies are at risk of losing (or have already lost) their investment grade status, while a prolonged downturn could affect an additional $320 billion of triple-B rated midstream debt.”

And oil is just the beginning. As the full extent of the coronavirus forced shutdown coma emerges, with the US economy locked down indefinitely, the long awaited moment when the corporate bubble bursts has finally arrived, appropriately enough with a bang, and as thousands of companies suffered an unprecedented cash flow collapse and slowly make their way toward their nearest bankruptcy court, they first have to be downgraded.

And that’s exactly what is happening as the pace of rating downgrades has materially accelerated over the past few weeks. As shown below, Goldman analysts find that the amount outstanding of newly minted fallen angel bonds has jumped to $149 billion this quarter, a higher amount than the previous peak reached in the second quarter of 2009 (though comparable when scaled back by the overall size of the IG market). The downgrades have been quite concentrated, with three issuers out of seventeen (Occidental Petroleum, Kraft Heinz, and Ford) accounting for roughly three quarters of the overall amount of downgraded bonds.

At the same time, the pick-up in negative rating actions has also been visible within the broader IG and HY markets. In total, over $765 billion worth of IG and HY-rated bonds have experienced at least a single notch downgrade by at least one of the three major ratings agencies, so far this year.

Now that the angels are in freefall, just how bad could it get? To assess how much fallen angel risk remains in the IG market, here are some observations:

• First, focusing on bonds with a notch rating of BBB or BBB-. Historically, 97% of the bonds downgraded from IG to HY were rated BBB or BBB in the quarter prior to the downgrade. This initial step results in a universe of bonds worth $2.2 trillion (including both index eligible and non-eligible bonds).
• Second, Goldman classifies industry groups into two categories: “distressed” and “non-distressed”. Examples of distressed sectors include Oil & Gas, Retail, Airlines, and Autos. Examples of non-distressed sectors include Tech, Pharma, Telecoms, and Utilities. While not every firm in a given distressed sector will necessarily be downgraded to HY (and vice versa), it is helpful to differentiate between sectors based on their sensitivity to the oil-virus twin shock.
• Third, for each rating bucket and industry category, the bonds that are either on Downgrade Watch or Negative Outlook are isolated .

With this final iteration, each rating bucket is divided into four subcategories based on the industry type (distressed vs. non-distressed) and Downgrade Watch/Negative Outlook (Yes or No). Using the above decomposition, Goldman assigns a subjective probability of downgrade into HY over a six-month horizon, for each subcategory. These probabilities range from 90%, for bonds in distressed sectors, on Downgrade Watch/Negative Outlook and rated BBB-, to 5% for those in non-distressed sectors, not on Downgrade Watch/Negative Watch and rated BBB. In assigning these subjective probabilities, we rely on some empirical stylized facts. For example, while unexpected downgrades do happen, the bank finds that around 75% of fallen angel bonds were on outlook negative or downgrade watch just prior to downgrade (though that figure has only been 67% in 2020).

As shown in the next chart, summing up across all the subcategories implies that a total $555 billion worth of bonds (in notional value) would migrate from IG into HY over the next six months, in addition to the $149 billion that have already been downgraded year-to-date. This amount represents 7.6% of the $7 trillion outstanding of IG-rated bonds, and 15.7% of the BBB bucket (again including both index-eligible and non-eligible bonds).  For context, over the seven-quarter period encompassing the global financial crisis, from fourth quarter of 2007 to the second quarter of 2009, there were a total of $260 billion of fallen angels, representing 7.4% of the overall IG market.

That said there is some good news: recent policy measures, especially the Fed’s newly announced corporate credit facilities have reduced the risk of a substantial contraction in credit availability, however the persistence of the current downturn remains a key source of upside risk to Goldman’s $555 billion estimate of fallen angel bonds. On the positive side, government support for distressed issuers could result in a lower amount. Moreover, past experience shows that most managements on the verge of losing their coveted investment grade status typically fight hard to retain it by slashing dividends, suspending share buybacks, selling assets, etc..

And just like that, it was gone!

Following the biggest daily surge in oil prices ever… and another major surge in prices today, things have gone a little bit slightly turbo for “investors” in one leveraged oil ETN.

Source: Bloomberg

Unprecedented spikes in price along with a record ‘super-contango’ have left the VelocityShares Daily 3x Inverse Crude exchange-traded notes, or DWTIF, worthless, according to Credit Suisse.

Source: Bloomberg

“Because the Closing Indicative Value of the ETNs will be $0 on April 2, 2020 and on all future days…

…investors who buy the ETNs at any time at any price above $0 will likely suffer a complete loss of their investment,” Credit Suisse said.

As Bloomberg reports, that’s one of the final chapters in a once-popular product that amassed more than $1 billion in assets at its peak over four years ago.

Source: Bloomberg

Until the last two days, the bearish triple-leveraged ETN, had screamed higher in 2020 as oil prices have collapsed at a record pace amid a double-whammy of supply- and demand-concerns. At its peak on March 18th, DWTIF was up a stunning 978% year-to-date…

Source: Bloomberg

But now, as Morningstar’s co-head of passive strategy research, Ben Johnson, notes:

“I can say with confidence that this is a bad investment.”

Oh the wonders of leveraged-ETFs…

Earlier today we said that ahead of Monday’s (virtual) R-OPEC conference, a new ask had emerged from within the oil producing nations – any production cut would have to include the US, which alongside with Russia, Saudi Arabia and others R-OPEC nations, would to around 10 million b/d.

Then moments ago, Vladimir Putin confirmed just that. The Russian president said that he had spoken with US President Trump saying “we are all worried about the situation” and that he is “ready to act with the US on oil markets” with 10mmb/d in oil production needed to be cut, adding that cuts must be taken from Q1 2020 levels which was a jab at Saudi Arabia which is hoping to “cut” by 3 million b/d to go back to where it was in February. And by we, he meant the “we” that includes the US, because as he explained “joint actions” are required on oil markets, i.e., shale too.

Observing that the situation on global energy markets remains difficult and that demand is falling (by 26mmb/d according to Goldman), Putin said that he wants “long-term stability” of the oil market, and that he is comfortable with $42 oil.

The Russian president was also kind enough to summarize the reasons for the oil price collapse which he blamed on the coronavirus, the lack of oil demand and, drumroll, the Saudi withdrawal from the OPEC+ deal.

At this point Russia’s energy minister Novak chimed in and explained what it would take to get such a cut: speaking to Putin, the Russian energy minister said it is necessary to cut oil production for everybody, including Saudi Arabia and the US, and that output should be cut for the next few months and gradually recovered thereafter.

Novak also said that Saudis are still negatively influencing oil market, and that oil storage could be filled for next 1.5 to 2 months only.  

Finally, there was some speculation that Russia would not be present at next week’s R-OPEC conference, so Novak defused any confusion, by confirming that the meeting is set for April 6th.

There was no reaction in the price of oil which now awaits to see how Trump will respond to the Saudi/Russian demand that shale join equally in any upcoming production cut.

Meanwhile, as noted earlier, even a 10MMb/d cut is woefully inadequate to restore price stability, because in a world where there is 26mmb/d less demand, cutting supply by 10mmb/d simply means that oil storage capacity will be hit about 30% slower.

No business is immune to the country’s coronavirus shutdown, including the President’s. In fact, it was was reported yesterday that the Trump Organization is actively seeking out concessions from Deutsche Bank, one of its lenders, due to the pandemic.

Representatives from the President’s company reached out to Deutsche Bank late in March and talks between the company and the bank are ongoing, according to Bloomberg. 

Or, as one person simply put it on social media: “Two broke organizations restructuring debt”. 

TRUMP ORG TALKS TO DEUTSCHE BANK ABOUT DELAYING PAYMENTS: NYT

Two broke orgs restructuring debt, great

— Quoth the Raven (@QTRResearch) April 2, 2020

Deutsche Bank is said to be having similar talks with other commercial real estate companies in the U.S., as well. The pandemic, and ensuing economic shutdown, has squeezed both borrowers and lenders across the world. Central banks have worked on a plan to try and backstop banks and provide relief to companies, even considering lending to some businesses directly. However, it is going to be tough to paper over every single company that is facing a default. 

The request from the Trump organization is noteworthy, since President Trump is arguably the most powerful person in the world and Deutsche Bank has been under scrutiny for years, with many speculating the bank could have solvency issues behind the scenes. The loans, which were taken out by Trump between 2012 and 2015, include a personal guarantee from Trump.

That means that in the case of a default, the lenders would have to collect from a sitting President. 

The loans that the bank has provided for the Trump Organization include money for a Florida golf resort, a Washington D.C. hotel and a Chicago skyscraper. 

Doral, Trump’s golf resort near Miami, has closed all operations. Trump’s hotel in Washington has shut down its restaurant and its bar. Additionally, a sale of the hotel’s lease has been halted while the commercial real estate market goes up in flames.

Deutsche Bank has been under scrutiny since Trump first took office back in 2016. The bank had previously considered the idea of extending Trump’s maturities to his loans to 2025, after the end of a second potential term, but ultimately decided against entering into any new business with a sitting President. 

Here are the key takeaways from Michael Hartnett’s latest Flow Show:

• Lows on corporate bonds & stocks to hold on extreme bearishness & policy stimulus.

• Policy ended credit crunch but not yet recession…US dollar, oil, HY bonds will signals worst of recession priced-in.

• Big EPS headwinds: bias asset allocation toward growth, yield, quality alongside stagflation hedges (gold & small cap).

And before we get into the meat of Hartnett’s latest weekly must read, a quick reminder that it’s one of those years where gold is the top performing assets: gold 3.6%, US dollar 3.4%, government bonds 3.0%, cash 0.5%, IG bonds -5.7%, HY bonds -14.9%, global equities -24.2%, commodities -41.6% YTD.

With that in mind, here are the key themes of the current week:

• March capitulation: historic $284bn out of bonds and $658bn into cash in past 4 weeks ($64bn out of equities = sideshow).

• Bond capitulation: record month of redemptions from IG bonds ($156bn), EM debt ($47bn), Municipal bonds ($24bn), HY bonds ($23bn).

• Tech indestructible: $4bn inflows to technology funds in March & inflows throughout 2020 (Chart 3); IG bonds = “glue” holding Wall St together, but tech “glue” for stocks (Nasdaq currently defending v imp asset allocation resistance level vs. T-bills – Chart 2).

• Weekly flows: record $194.2bn into cash (Chart 3), $8.1bn into equities (largest in 7 weeks), $3.2bn into gold (2nd largest inflow ever), $27.1bn out of bonds; notable weekly flows…record inflows to HY bond ($6.9bn), big redemption week in government bonds ($4.3bn – Chart 9), tech inflows ($1.5bn – Chart 10).

• Most important flow to know: March 11th-18th crash centered on Commercial Paper market & redemptions from Prime MMFs; Fed stepped in as buyer of last resort to end short-term funding panic; $148bn outflows from Prime MMFs past 3 wks but Fed CP buying program has ended systemic panic & outflows stabilizing (Chart 4).

• BofA Bull & Bear Indicator: cross-asset measure of positioning pinned at 0.0 (Chart 1), i.e. investors are extremely bearish which always leads to big bounce except when “Ghost in the Machine”, e.g. Lehman in 9/08; since BofA Bull & Bear Indicator “buy signal” 3/17 SPX (2386) +5.9%, ACWI +5.2% following staggering losses.

• Brave New World: Q2’2020 begins with investors nursing $20tn loss in global equity market cap, Main Street in midst of $4.4tn H1 annualized forecasted loss in US & Eurozone GDP (Chart 5) & 10 million Americans unemployed in past 2 weeks, $12tn in announced global monetary & fiscal stimulus ($7tn QE + $5tn fiscal), and Money Market Funds holding a record $5.5tn in AUM.

 

Which brings us to Hartnett’s summary of “Good, Bad, What to Do:” Tough for asset prices & volatility to subside until human beings can safely leave their homes; that said here’s why BofA believes that lows on corporate bond & stock prices are in:

• Magnitude of crash stocks (>$20tn in market cap) & credit (IG credit spreads 100bps to 400bps) means bulk of selling behind us.

• New lows require 1929 or 2009 redux; 2020 monetary/fiscal bazooka launched much quicker than in 2008, and Fed credit programs have short-circuited credit event; re 1929 monetary, budget, trade, policies completely different, no Gold Standard, there is FDIC insurance…; extreme bearishness (see BofA Bull & Bear Indicator) + policy stimulus (+ IMF $1tn war-chest for EM, more US/EU/China fiscal stimulus to come) investors buy SPX 2150-2350 range.

• Second wave virus & credit event can induce fresh Treasury buying but note “safe haven” Treasury yield significantly lower today than in 6 big crashes of past 100 years (Chart 6).

• EPS in collapse but SPX 2150 low justified via -25% drop in EPS to $120 and a policy-success PE of 17.5 (Chart 8).

• And April v likely to be “peak negativity” for COVID-19 and economy; note “mutually-assured destruction” of Saudi/Russia/US oil policy may be coming to end.

After that surprisingly optimistic recap, Hartnett next lays out “What are risks…”:

• Outperformance of HY vs. IG, value vs. growth, global vs. US stocks, homebuilders vs. utilities, higher Treasury yield & oil price yet to begin, yet to signal worst of COVID-19 & recession priced-in… much of past 10 years macro a sideshow, but economy now main event and in deep recession (BofA economics team downgrades 2020 US GDP growth to -6.0%, Euro-area to -7.6%, US unemployment rate peak at 15.6% in Q2).

• Similarly US dollar (only true “safe haven” in March) has not convincingly turned lower…concerns of EM dollar-denominated debt blow-up or European financial system event (European ban on bank dividends has destroyed ability to lend – link) and recession preys on peripheral European sovereign debt & €250bn of Spanish and Italian IG credit, 90% of which is BBB).

• And recovery in EPS in 2020 and 2021 may be tougher than recovery in GDP: US dividend futures imply S&P 500 dividend yield will fall from 2.5% to 1.5%; and economic, financial, social, political, geopolitical secular trends don’t look corporate sector friendly (Chart 7); and of course history teaches that the solutions to debt deflation are either inflation, confiscation, endemic low growth, or war.

So What to Do? Here is the checklist of BofA’s CIO:

• In April…SPX to hold 2350, LQD to hold $120…stick to deflation playbook.

• Buy growth: e.g. tech, pharma, biotech, staples (companies that improve quality & quantity of health & education).

• Buy yield: e.g. high quality munis, MBS, corporate bonds.

• Buy quality: e.g. best of breed stocks

• Buy humiliation: via the best stocks in distressed sectors, i.e. “the best house in the worst neighborhood”.

• Buy stagflation hedges: such as small cap & gold: higher than expected inflation (policies to raise wages, MMT, weak dollar, supply chain disruption/less globalization) and lower than expected growth (higher taxes/regulation, lower wealth, globalization, corporate leverage) coming.

• Diversification: 25/25/25/25 gold/cash/bonds/stocks likely to preserve wealth in 2020s.

And finally…

• Sell US dollar: German & Japanese psyche scarred by hyperinflation after World War I and World War II respectively, US carries scars of the Great Depression, i.e. Americans fear unemployment, Japanese & Germans inflation…US electorates more tolerant of currency debasement; once US$ starts to fall investors to shift toward 1970s inflation or stagflation portfolios as corporations forced to pay for the recovery out of earnings.

Google has launched a website which uses anonymized location data to show where people are taking social distancing more seriously than others.

Collected from their various products and services, the COVID-19 Community Mobility Reports site will show changes in behavior – such as shopping and recreation, from a top-down look at entire countries – to individual states.

The website will track changes over several weeks – for time periods as recent as 48-to-72 hours prior, and will include 131 countries and certain counties within several states.

Google says the data will be collected in aggregate, rather than at an individual level, and it won’t show absolute numbers of people showing up at parks or grocery stores. The idea instead is to outline percentages, which highlight potential surges in attendance. For example, its first reports states that San Francisco County has seen a 72% drop in retail and recreation, a 55% decline in parks’ population, and a 21% increase in residential population between Feb. 16 and March 29. –CNBC

[below data since updated]

According to the report, public health departments may find this data useful in detecting the next potential coronavirus hotspot when used in conjunction with data collected at the local, state and federal level such as symptoms patients are reporting in emergency rooms. It may also help officials to target residents of certain areas with messaging about social distancing.

“This information could help officials understand changes in essential trips that can shape recommendations on business hours or inform delivery service offerings,” reads Google’s announcement.

That said, the project is bound to raise privacy concerns. While the new site says that it uses anonyized information from people’s “location history” setting in Google Maps and other services – which the company says is “turned off by default,” their location tracking has been the subject of controversy in the past.

April 2019, CNBC’s Todd Haselton found that Google had been tracking his location for years without him realizing it, and explained how to turn tracking off. In October 2019, Australian officials accused Google of misleading consumers in 2018 and earlier about the settings necessary to turn off location tracking. –CNBC

Meanwhile, Google’s parent company, Alphabet, has been trying to work with government officials during the pandemic. Their life-sciences subsidiary, Verily, has already partnered with the Trump administration for a screening and testing website.

 

Today in bankruptcy news that isn’t related to the coronavirus, Dean & DeLuca, the grocery chain that closed its New York stores last year, has officially filed for bankruptcy in Manhattan and now hopes to re-open some of its stores. 

The chain had been open for more than four decades and was one of the first grocers to introduce Americans to numerous international gourmets. Amidst a rising tide of other “fancy” international grocers popping up in Manhattan, the chain lost its spot at the top and eventually fell victim to lackluster sales.

The chain is seeking to restructure its debt under Chapter 11 and eventually re-open its stores. The newly filed bankruptcy petition shows that the store tried to negotiate its debt outside of bankruptcy but was unsuccessful. The chain ceased its operations in mid 2019 after running out of cash, according to Bloomberg.

In its petition to the court, the chain listed $500 million in liabilities and and assets of “no more than $50 million”. It owes its junior creditors about $275 million, which is inclusive of $250 million to its owner. 

Many other grocers in New York are now also feeling pressure, some as a result of the ongoing pandemic lockdown across the city and others simply due to the heightened competitive environment. Names like Fairway Group Holdings and Lucky’s Market are both also seeking Chapter 11 protection. 

Meanwhile, Dean & DeLuca has just one employee left, while some of its franchise locations continue to stay open. Pace Development Corp., the owner of the chain, defaulted on about $315 million in total debt last year. 

Authored by Michael Snyder via The Economic Collapse blog,

Approximately ten million Americans have filed new claims for unemployment benefits over the past two weeks.  To put that in perspective, the all-time record for a single week before this coronavirus pandemic hit was just 695,000.  So needless to say, 6.6 million claims in a single week puts us in uncharted territory.  Just check out these charts…

We have never seen a week like this before, and we may never see a week quite this bad again.  Of course millions more jobs will be lost in the months ahead as this pandemic stretches on, but it is hard to imagine another spike like we just had.  When you add the last two weeks together, somewhere around 10 million Americans have filed new unemployment claims during that time period…

The torrent of Americans filing for unemployment insurance skyrocketed last week as more than 6.6 million new claims were filed, the Labor Department reported Thursday. That brings to 10 million the total Americans who filed over the past two weeks.

Economists surveyed by Dow Jones had expected 3.1 million for last week, one week after 3.3 million filings in the first wave of what has been a record-shattering swelling of the jobless ranks. The previous week’s total was revised higher by 24,000.

As I have documented repeatedly in my articles, survey after survey has shown that most Americans were living paycheck to paycheck even during the “good times”.

Now that those paychecks aren’t coming in anymore for millions of Americans, a lot of bills aren’t going to get paid.

Just like we witnessed in 2008, mortgage defaults are about to skyrocket, and Wall Street is bracing for the worst…

Borrowers who lost income from the coronavirus, which is already a skyrocketing number as the 10 million new jobless claims in the past two weeks attests, can ask to skip payments for as many as 180 days at a time on federally backed mortgages, and avoid penalties and a hit to their credit scores. But as Bloomberg notes, it’s not a payment holiday and eventually homeowners they’ll have to make it all up.

According to estimates by Moody’s Analytics chief economist Mark Zandi, as many as 30% of Americans with home loans – about 15 million households – could stop paying if the U.S. economy remains closed through the summer or beyond.

As I noted yesterday, the St. Louis Fed expects the unemployment rate to eventually hit 32 percent.  That won’t happen immediately, but if we do get there it will be worse than anything that we witnessed during the Great Depression of the 1930s.

Because of all the shutdowns that have been instituted nationwide, economic activity has already dropped to levels that we have never seen before in our entire history.

Personally, I was absolutely astounded when the latest box office numbers were released…

The Domestic Box office (movie theaters) brought in a whopping $5,179 for the week of Mar 20-26. Down 100% from $204,193,406 the same week a year ago… These numbers are just incredible.

And even once all the “shelter-in-place” orders have finally been lifted, a substantial portion of the population will not want to go to movie theaters anymore due to fear of catching the virus.

Many movie theaters that have closed down will simply never open up again.

Another thing that has really surprised me is how rapidly many Americans have run out of food.  A Daily Mail article that documented a line of vehicles a half mile long at a church in Orlando that was giving out food received a lot of attention today…

Today, the hundreds of families flocking to a church parking lot across town from Orlando’s iconic resorts and theme parks are here for a starkly different reason: survival.

‘In the amusement parks, the purpose or the outcome is about having joy or a thrill,’ says mom-of-three Glenda Hernandez, winding down her window to speak with a DailyMail.com reporter.

‘This is about having a child’s belly full for the night or the next couple of nights on whatever they give us.’

How is it possible that so many families are out of food already?

And apparently charities and food banks all over the country are seeing similar surges in demand.  Here are just a few examples that were shared by the Guardian…

• In Amherst, home to the University of Massachusetts’ largest campus, the pantry distributed 849% more food in March compared with the previous year. The second-largest increase in western Massachusetts was 748% at the Pittsfield Salvation Army pantry.

• The Grace Klein community food pantry in Jefferson county, which has the largest number of confirmed Covid-19 cases in Alabama, provided 5,076 individuals with food boxes last week – a 90% increase on the previous week.

• In southern Arizona, demand has doubled, with pantries supplying groceries to 4,000 households every day – double the number supplied in March 2019. “We saw an increase during the federal government shutdown but nothing as rapid, massive or overwhelming as this,” said Michael McDonald, CEO of the Community Food Bank of South Arizona.

If things are this bad already, how much worse will the suffering be a month or two down the road?

Meanwhile, U.S. farmers are facing problems of their own.

Because of all the shutdowns, it has been difficult for farmers to get enough workers into their fields.  The following comes from CNN…

April and May are critical planting and harvesting times for many US farmers. They need skilled laborers to work their fields, and a reliable supply chain to deliver their goods. And they don’t have any time to waste.

If farmers can’t find enough workers or if their farming practices are disrupted because of the pandemic, Americans could have less or pricier food this summer. And because international farmers and their supply chains face similar problems, we could receive fewer food imports, potentially limiting supply and driving up prices.

Of course the main thing that is going to drive up prices is the fact that the system is being absolutely flooded with new money.  Many Americans have applauded the recent moves by the Federal Reserve, and just about everyone seems thrilled that big government checks are coming, but they won’t be so thrilled when a loaf of bread costs five dollars and a gallon of milk costs ten dollars.

As the virus spreads, many are concerned that it will sweep through low wage communities particularly hard, and that is a huge problem because low wage workers are absolutely vital all along the food chain…

By law, food manufacturers must prevent anyone who is sick or has a communicable disease from handling, processing or preparing food for human consumption. But much of the food supply chain is staffed by low-wage workers, many of them undocumented immigrants with limited ties to health services.

So what are we going to do if there are not enough healthy workers to get our food from the farms to our dinner tables?

Already, confirmed cases are starting to pop up at quite a few food production facilities…

The first case of a worker at a major U.S. meat producer testing positive for the virus was reported last week at poultry giant Sanderson Farms Inc. Since then, infections have cropped up everywhere from JBS SA plants in Iowa to Harmony Beef in Alberta.

While scattered factories have closed temporarily or cut output, generally companies are keeping plants running when workers get sick. Rather than shutting entire plants, they’ve focused on identifying areas where infected people have had direct contact.

Fear of the coronavirus is going to paralyze even “essential” industries such as food production.

We are now being told that authorities hope that cases peak in April and that this crisis will hopefully be behind us by June.  Let us pray that is true, but what most Americans don’t realize is that this pandemic is just the beginning.

Even before any of us ever heard of “COVID-19”, our world was already descending into madness, but now this pandemic has certainly accelerated things.

Millions of Americans have already lost their jobs, and the days ahead are going to be exceedingly challenging.

This is what an economic collapse looks like, and it is just getting started.

Yet another SpaceX experiment has gone “up in smoke”.

Just a month after the company’s SN1 Starship had an unplanned “incident” on the launch pad during testing, the company’s SN3 Starship test vehicle was seen crumbling like a cardboard paper towel roll wrapped in aluminum foil on the launch pad in Boca Chica, Texas yesterday. 

The Starship was planned to undergo a series of tests on the ground and in flight, but it failed its cryogenic proof testing. The test includes filling the vehicle with liquid nitrogen at cryogenic temperatures and and flight pressures. SN3 “failed” during the end of the test, NASA Space Flight reported, although to the untrained rocket scientist eye, it looks to us that it simply just crumbled to the ground.

Elon Musk said on Twitter: “We will see what data review says in the morning, but this may have been a test configuration mistake.”

Yeah, we would say so. You can watch HD video of the Starship’s “structural failure” here:

Also recall, we pointed out at the beginning of March that SpaceX’s first “Starship” SN1 also bit the dust during testing. We are starting to notice a pattern, as is the general public.

As one person on social media asked: “What’s with the grain silos not holding pressure?”

Back in early March, another product of Elon Musk innovation wound up blowing up on the launch pad at the company’s South Texas facility, also after being tested for pressure with inert liquid nitrogen. The photographs from the morning after show the extent of the damage on the rocket, which we’re certain will not be reused. 

Reports claimed that the tank suffered a structural failure during pressurization and information about injuries and the extent of the damage was not readily available from SpaceX at the time. The protoype ship was designed only for an “initial round of tests”, according to Yahoo News, who said that future prototypes would be used for more ambitious tests.

To stupidity, and beyond!

It’s the first day that America’s small businesses can apply for the SBA’s Paycheck Protection Program, i.e., the $350BN program that is part of the bigger $2 trillion bailout package designed to provide small businesses access to capital for payroll and other overhead costs to the tune of 2.5 months of average payroll and which must be accessed via an existing banking relationship – and the rollout is predictably a mess, with some banks such as BofA already accepting loans (which convert to grants if used exclusively for payrolls and business continuity purposes), while others like JPM delaying the roll out to 1pm; a third group of banks such as Wells Fargo has conspicuously failed to provide its rollout plans – perhaps it is scheming how to cross-sell bailout loans with auto insurance or engage in some other typically Wellsfargoian fraud.

$WFC will not be ready to take applications for #PaycheckProtectionPlan today. They’re doing all the can and testing constantly. When you and running you will have to have a checking account and be an online banking customer to qualify. No previous loan requirement.

— Wilfred Frost (@WilfredFrost) April 3, 2020

But a recurring shock as millions of small business owners head to these bank websites to apply for the PPP funds is that contrary to the SBA’s guidance that any small business with 500 or less employees can apply, going to lender portals shows that only a very narrow subset of America’s millions in small businesses are be eligible.

In fact, only those companies that already have a lending relationship, i.e., an outstanding loan with a given bank are – at least as of this moment – able to apply for the rescue funds.

Moynihan making clear on @SquawkStreet that small businesses should not only apply to their existing bank – but primarily to their existing LENDER. Just having a small business checking account will not suffice initially – you need to have borrowed from $BAC in recent past. https://t.co/LvSqMg3Rf8

— Wilfred Frost (@WilfredFrost) April 3, 2020

Bank of America’s website confirms as much, stating on its eligibility page that only “clients with a business lending and a business deposit relationship at Bank of America are eligible to apply for a Paycheck Protection Program through our bank.” In other words, any business that only has a deposit account and no loan or business card is out of luck.

And the kicker, literally, for those BofA clients who would like to become eligible and open a business loan account, well it’s too late: as the bank makes clear, this should have happened as of Feb 15.

To apply for the Paycheck Protection Program through our bank, you must have a pre-existing business lending and business deposit relationship with Bank of America, as of February 15, 2020. A Business Credit Card, line of credit or loan may be the lending product used.

Said otherwise, business who ran a clean balance sheet without debt are seen as riskier than businesses that carry loans, and are unduly penalized just because they never opened a loan with BofA.

JPMorgan is even more draconian in its selectivity of whom it will hand out Treasury-guaranteed money to. As the bank notes in its ironically-named “CARES” website, “You must have a Chase Business checking account as of February 15, 2020.” Anyone who does not is straight out of luck.

And as countless other banks follow suit, the question becomes is this how the banks that were bailed out by ordinary Americans in 2008 will treat those same Americans when they need a rescue too? Alternatively, what happens to these banks when millions of small business fail and America’s economy plunges into an even deeper depression. One final question: how is it logical for banks to only bailout those companies which already have debt and are by extension riskier, than to provide funds to their ordinary clients who only now, for the first time, need a helping hand.

We eagerly await Steven Mnuchin’s answers to these questions.