Bizarre ‘Road Rage Among Superpowers’ Incident In Syria Caught On Film
A bizarre incident was captured on film Wednesday involving American and Russian military patrols.
The dangerous encounter took place in northeastern Syria near the town of Qamishli, site of prior recent stand-offs involving US special forces attempting to block Russian military patrols from going near oil fields in the region.
In the now viral video, a US armored vehicle is seen veering aggressively at a Russian military vehicle as it attempts to speed past the Americans.
As the Russian vehicle careens off the side of the road, a Syrian bystander appears to be almost hit.
Analysis of the “crazy” road rage among superpowers footage offered by The Drive notes that the two vehicles actually hit each other during the high speed incident:
It’s not entirely clear why, but the Russian Tigr also makes to pass the Americans on the right at the same time, deliberately going offroad, and then wedges itself between the American M-ATV and the MaxxPro vehicles. The crew of the M-ATV responds by first attempting to block the Russians from passing any further and then drives them off the road. The two vehicles appear to actually hit each other at one point.
A civilian bystander on the roadside is seen leaping out of the way of the Tigr just in time. The Russian and American vehicles then come to a stop as the vehicle carrying the camera drives by.
The whole thing took place on a roadway in the same area of an exchange of gunfire between Syrian villagers and a US patrol that took place a week ago.
Local villagers were demanding the American occupiers depart, and blamed them for the prior death of a teenager.
The exchange of fire, later confirmed by the Pentagon, left a Syrian dead and resulted in the minor injury of one US soldier.
Kolanovic: The Tech Bubble Is Driven By Central Banks And Will Collapse; “This Time Is Not Different”
Having been a must-read voice of contrarian originality and market structure insight especially in the arcane realm of quant finance and derivatives for much of 2013-2016, about 3 years ago something flipped and JPM’s head quant, Marko Kolanovic abandoned his traditional skeptical perch and became ideologically aligned with the pro-central bank cabal of Fed apologists who refuse to see any signs of an asset bubble, claim the Fed can do no wrong, and generally mock anyone who warns that the injection of nearly $20 trillion in liquidity into the stock market will have a very unhappy ending. Kolanovic’s bizarre reversal went so far as to calling sites, such as this one, “fake news” as he continued to push for a bullish outcome to the debacle that was Q4 2018, if for all the wrong reasons (as this site explained repeatedly). In fact, Kolanovic’s forced transformation resulted in in-house confrontations with other JPM quants such as Nick Panigirtzoglou.
Well, in a world devoid of any logic or sense, some normality could have finally returned today when in his latest market commentary note, the real Kolanovic may be finally bacl, calling the market, or rather it best performing strategy – the low-vol/growth/momentum factor which is really just a fancy name for the handful of market-leading tech stocks- for what it is, namely one overinflated asset bubble, made possible by “central banks pushing global yields into negative territory (propping up defensive and secular growth/tech bond proxies), growth of passive indexation and momentum strategies (pushing assets into momentum, mega caps and low volatility stocks) as well as flows based on simplistic ESG schemes that just exponentiate the same crowding trends (e.g. very high correlation of ESG with low volatility, large size and momentum scores as well as sector concentration in tech).”
That said, there may have been an ulterior motive behind Kolanovic’s transformation: after all it was last July when the JPM quant said value stocks were a “once in a decade” buying opportunity, and that traders should bet on a convergence between value and low-vol (aka growth) stocks.
“While there is a secular trend of value becoming cheaper and low-volatility stocks becoming more expensive due to secular decline in yields, the nearly vertical move the last few months is not sustainable,” Kolanovic argued in a July 2019 research note. “The bubble of low volatility stocks versus value stocks is now more significant than any relative valuation bubble the equity market experienced in modern history.”
To justify his case, Kolanovic showed the following chart (which will reappear in an updated format later in this post)…
… and claimed that the stabilization of economic data and progress in the U.S.-China trade war could be the catalyst that triggers this long-overdue convergence. “This rotation would push significantly higher all the laggards such as small caps, oil and gas, materials, and more broadly stocks with low P/E and P/B ratios.”
Well something funny happened when the trade war finally ended in January and economic data stabilized at the end of 2019. Nothing.
Indeed, after a very brief period in which value stocks did modestly outperform which was triggered by the great value-growth quant reversal in early September, the divergence not only resumed but as stocks hit all time highs, they were led by just a handful of tech – i.e., low-vol, growth and momentum – names, and the result has been a divergence between growth and value the likes of which have never been seen before.
In short, Kolanovic may have picked the right catalysts, but had the absolutely worst possible trade to go along with them, and the result has been a -20% loss for anyone who held on to the long value-short low vol/momentum convergence trade in just the first two months of 2020!
This outcome – which one can describe as a “once in a decade” loss – may have also prompted some very angry comments from JPM clients, and led to today’s note, in which Kolanovic, no longer pretending to be JPMorgan’s “good quant cop”, penned an angry rant in which he slams not only the ridiculous, disconnected from all fundamentals market leadership but also goes after those responsible (which apparently also includes the coronavirus). To wit:
Our view that cyclical and value assets should rally in the first quarter was set back by the COVID-19 epidemic. Instead, bonds, momentum stocks, and low volatility stocks rallied – pushing the valuation spread between defensive and cyclical stocks to a level 2x worse than during the peak of the late-‘90s tech bubble.
And here again, Kolanovic reposts the same chart he used last July to demonstrate the ridiculous factor divergence, which has now reached even more ridiculous levels. In fact, the last time tech vs value was so stretched was just before the tech bubble peaked.
Commenting on the charts above, Kolanovic says is that “the bubble we are describing is expressed in equity factors (sector-neutral momentum and low volatility factors), however signs of this bubble can be seen in sectors’ performance as well.” A bubble which the Croatian quant compares to events during the dot com bubble to get a sense of the prevailing market exuberance:
For instance, the ratio of the S&P 500 technology to energy sector is now the same as during the tech bubble.
He then goes on to note what we pointed out last week, namely that signs that “certain segments of tech are trading at unsustainable valuations are supported by the record level of speculative call option activity and outsized gains in certain tech stocks (Figure 2).” Sound familiar? This is precisely what we wrote one week ago in “Frenzied Traders Send Option Volumes To All Time High; Go All-In Tesla, Tech Calls“
So back to Kolanovic who next asks, rhetorically “how was this factor bubble inflated”, and answers:
While this could be a topic for another report (or a book), in short it was driven by central banks pushing global yields into negative territory (propping up defensive and secular growth/tech bond proxies), growth of passive indexation and momentum strategies (pushing assets into momentum, mega caps and low volatility stocks) as well as flows based on simplistic ESG schemes that just exponentiate the same crowding trends (e.g. very high correlation of ESG with low volatility, large size and momentum scores as well as sector concentration in tech).
If this list sounds oddly familiar, it’s because this website, which Kolanovic in late 2018 called “fake news“, has repeatedly and constantly pounded the table on as the only factors, pardon the pun, that matter in a market that no longer has any relationship to fundamental drivers as a result of floating in an ocean of excess liquidity.
So what about Kolanovic’s favorite value stocks?
Value stocks are typically on the other side of all of these trends that inflated this bubble. We caution investors that this bubble will likely collapse, i.e. this time is not ‘different’, with valuations reverting closer to 2010-2020 average.
Yes, Marko, we agree that you will be right eventually on being long value, but not before the central banks, whose blatant and direct intervention in markets for the past 3 years you ignored or merely mocked those who pointed it out (despite it now being abundantly clear as shown in “Here It Is: One Bank Finally Explains How The Fed’s Balance Sheet Expansion Pushes Stocks Higher“) decide you should be right. And as the past 11 years have shown, that can take a long, long time.
Or maybe not and Kolanovic will have the final laugh. Because instead of capitulating, Kolanovic is once again doubling (or is that tripling down) on the value-lowvol convergence trade, which he now sees as being catalyzed not by the end of the trade war (which for all intents and purposes is over, even if there has been absolutely no change in trade flows between the US and China), but by the fading of the coronavirus pandemic.
In January, hedge funds’ allocation to momentum stocks reached all-time highs (Figure 3 below shows the percentile of factor beta based on HFRX data). Over the last few weeks, funds started to shift their allocation away from momentum and into defensive low volatility exposure which now also has a record allocation. Surprisingly, funds increased exposure to value stocks from low levels (Figure 3). Perhaps some market participants realize that the value rally can happen quickly if the virus epidemic subsides, and are starting to position for reversion. A key question is what will mark the inflection point when bond yields move higher and factors snap back. We think it will be containment of the epidemic and broader reopening of businesses in China.
Yes, well, as we noted earlier, don’t hold your breath on that. But in any case, yes, China (eventually) rebooting its economy would likely be a notable event, and one which if Kolanovic is right, could trigger a bigger quant storm than the one observed last September:
Given extreme positioning, and various monetary and fiscal stimulative measures employed or in the pipeline, the snap-back could be more significant than last September’s event.
In theory: yes, of course. In practice: what will likely happen is a continuation of the absolutely ridiculous move higher in tech names which are no longer moving on fundamentals, but on the hundreds of billions in liquidity injected by the Fed since the start of QE4. What we find odd is that not even once does Kolanovic even consider this alternative, and instead is betting it all one just one event: China’s return to normalcy, which he even goes so far as to put on the calendar as taking place “within 1-2 weeks”.
Given the severity of the outbreak, the market may wait to see not just a decline in the absolute number of cases, but a significant pick up in datasets capturing real-time economic activity. Our base case is that this would happen within 1-2 weeks.
So for all those who got crushed buying the “once in a decade” value-lowvol convergence, Kolanovic has some words of encouragement: hang in there, cause he will eventually be right, even though as he himself admits, he has absolutely no better visibility into what is going on in China than anyone else, demonstrating just how great the dangers of getting wed to a given trade can be, especially when trading without a stop loss threshold:
We reiterate our call to sell out of defensive assets and rotate into cyclical assets such as value stocks, commodity stocks and EM. Risks to our base case include the potential for new epicenters of the disease and reacceleration of new cases. Most investors are not even trying to forecast various scenarios, but rather look to bond yields for an ‘all-clear’ signal for rotation and rerisking. In various discussions, clients indicated that 10Y bond yields reaching 1.75% would be a signal to sell momentum, sell tech (secular growth) and defensives, and rotate into cyclicals and value.
We’ll check back in three weeks – when as JPM’s “base case” says predicts the Chinese chaos should be over – to see if maybe this time Kolanovic was finally correct.
While the public cannot identify exactly how the system is rigged, it is nonetheless correct: elites in business and government collude regularly to run the American economy to their own advantages and have increasingly done so for decades.
IT IS no secret that Americans have rebelled.On both the left and the right, people have made clear their disgust with business-as-usual. For the Republicans, the Tea Party rebellion began to alter the established party, and the election of Donald Trump rendered the change nearly complete. A comparable rebellion against established practice has pulled the Democratic Party far to the left. Polls show a common complaint: that the system is “rigged” in favor of a self-serving business and government elite. While the public cannot identify exactly how the system is rigged, it is nonetheless correct: elites in business and government collude regularly to run the American economy to their own advantages and have increasingly done so for decades. Public disgust and resistance to this pattern is entirely understandable. Indeed, for all the disruption and frustration brought by this resistance, it is welcome.
Though collusion might usually spring from a conspiracy, the economy’s movement in this direction seems actually to have developed with little malice and in many respects even unconsciously. When politicians, corporate executives, pundits, journalists, academics, and activists alike propose ways to make society more just or efficient or globally competitive, they invariably call for some kind of government-corporate cooperation. But the cooperation, once initiated, seems always to lead to collusion. The pattern has built over time so that a corporatist approach to economics has come to dominate this economy—to the detriment of all, except, of course, the colluders. Little wonder, then, that the public, whether leaning left or leaning right, has had enough. Given what is at stake, the struggle against this government-corporate elite promises to go on for a long time.
HOWEVER INNOCENTLY and naturally these collusive, corporatist arrangements have developed in the United States, there can be no mistake about their origins. The approach was pioneered in the 1920s and 1930s, first under Benito Mussolini in Italy and later in Germany under Adolf Hitler. Popular imagination immediately and understandably links fascism to government-sponsored violence and worse. America is free from such horrors, but the economic impulse nonetheless looks remarkably similar.
The fascists wanted control of their economies. Having rejected government ownership of industry—the means by which the communists and socialists achieved centralized control—Mussolini, and after him, Hitler, settled on something subtler. They allowed private ownership and acquired control by offering huge benefits to firms that cooperated with their agenda—government contracts, protections from foreign and domestic competition, freedom from certain regulations (even from the law), and help in calming labor disputes—effectively all the advantages of monopolies. It was a prize hard for managers and stockholders to resist. Fascist agendas were, of course, very different and far uglier from those of the United States, but that is a different matter from the means used to serve them.
Except in wartime, no U.S. government has ever insisted that business follow its lead. The only demand on businesses is that they follow the laws and rules made by the government. Obey these rules, and a firm can proceed by its own lights. That still goes for many companies, particularly smaller ones. But as our government has grown, it has developed three mechanisms central to a corporatist approach.
First, it has acquired an increasingly explicit social and economic agenda.
Second, government presence has become pervasive because of its control over extraordinary amounts of contracting dollars and an ever-increasing regulatory structure and body of business law.
Third, it has reserved for itself considerable discretion in how it spends its funds and applies its rules.
Washington has come to press on all economic activity and also direct a great deal of it. Through its contracts in defense, research, technology, and many other activities, it decides revenue flows for much of the business community. By applying, more or less severely, the rules and regulations embodied in a federal regulatory code (which verges on 180,000 pages), it has exerted enormous influence on the profitability of all businesses and, consequently, on how they behave. Washington, for instance, recently gave Apple a partial exemption from the China tariffs. Other companies must pay in full. When the legality of collusion among automakers to comply with California’s fuel economy standards came into question, Congress—for its own political reasons—objected so strongly that anti-trust concessions for the automakers are now more than likely. In these ways, Washington, for decades now, has picked favorites and directed economic activity—often in directions contrary to market expressions of what people want.
Legally speaking, a business can choose to ignore government preferences and follow its own prerogatives—presumably market signals. But managers are neither blind nor stupid: they see what government wants and the benefits it offers to firms that cooperate. Government exemptions from difficult regulations have become commonplace, and they bestow on some firms a powerful competitive edge. Administrative decisions to stay anti-trust action have given favored businesses license to merge or expand in ways that less-favored businesses have not enjoyed. Over time, these government-business interactions have created a virtual merger of government and business power, something Mussolini described as the essence of fascism when he wrote, in the 1932 Enciclopedia Italiana: “Fascism should more properly be called corporatism, because it is the merger of state and corporate power.” It may be just this association that prompted President Dwight Eisenhower to warn publicly on January 17, 1961, of what he called a “military-industrial complex.”
When I label the present American economy a corporatist system, I do so without the enthusiasm exhibited by political radicals when they fling those terms around. My own feeling is one of sadness. I am a forty-five-year veteran of Wall Street and a conservative economist. I believe that an economy’s strength lies in its ability to follow market signals about what people want, and not what political interests want. I have long understood that markets are far from perfect, but because I believe they do the best job of creating prosperity and getting people what they want and need, I long resisted evidence of our economy’s reality. But I can no longer deceive myself. For me, the last straw was Washington’s behavior during the 2008–09 financial crisis, in which the government ignored ways of proceeding equitably in favor of ad hoc measures that gave grants to favored firms, forced others into bankruptcy, and even took over the management of one.
IT SHOULD then be no surprise that Americans, who in many ways are very different from each other, find the existing corporatist system so obnoxious. Collusive economics is certainly contrary to past American practice. From this country’s beginnings, it has resisted the concentrations of power that typify the present system, whether in commerce or government. Our founders, of course, had little concern over commercial concentrations. Though Adam Smith’s 1776 bestseller, The Wealth of Nations, warned about commercial monopolies and state-sponsored corporations, these were less of a threat in undeveloped America than in Great Britain. The United States, having just won independence from the British crown’s abuses, worried mostly about concentrations of government power. James Madison, in The Federalist No. 10, made his concern about government monopoly crystal clear. If governments were administered by “angels,” he wrote, people would have no need to worry about concentrations of power. The natural goodness of government administrators would serve as a safeguard against abuse. But because human beings administer governments, he saw a need for institutionalized checks on power. A “greater variety of parties and interests,” Madison argued, “would make it less probable that [any one of them could] invade the rights of other citizens.”
Efforts to create such competition for power framed the entire political organization that Madison and the other founders created. The federal system gives the various states “sovereign rights” which, the founders expected, they would jealously guard against pressure from the federal government. The U.S. Constitution made this explicit in the Tenth Amendment: the central government has only those powers delineated to it in the Constitution, with the rest given to the states or the individual citizen. The founders created a senate in which voting power was diffused among the nation’s various regions so that the more populous areas, those presumably having a common commercial or ideological agenda, could not force their wishes on the rest of the country. The Electoral College reflected similar concerns. The founders famously also established “checks and balances” within the federal government. If the Senate provided a regional check on the more population-centered House, the two houses of Congress could check the power of the president, and the president, if necessary, could bring a countervailing competition—the power of the veto as part of it—to Congress. In turn, federal courts, led by the Supreme Court, could check the power of the administration, the Congress, or even a combination of the two.
The history of the nineteenth century, most especially the Civil War, made the imperfections in these efforts clear, but showed also how the founders had nonetheless accomplished many of their aims. However, by the last third of that century it had become apparent that developing capitalism had presented society with new concentrations of power that the founders did not envisage. These would require a different check. Corporate monopolies, and the aggregation of businesses into great trusts, had created loci of power that came near to challenging the political authorities. These capitalist machines manipulated financial markets, abused workers, and forced higher prices on consumers even as they limited consumer choices by controlling the flows of products to market. True to the ideals of the founders, the government moved to check the growth of such concentrations. Senator John Sherman made that link clear when he promoted his Sherman Anti-Trust Act of 1890: “If we will not endure a king as a political power,” he argued, “we should not endure a king over the production […] of the necessities of life. If we would not submit to an emperor, we should not submit to an autocrat of trade.”
Despite Senator Sherman’s efforts, the U.S. government had only spotty success in checking concentrations of commercial and financial power. As fast as the senator’s legislation broke up some trusts, new ones formed. Commercial and industrial monopolies thwarted government efforts by corrupting politicians and administrators, practices that today we call “crony capitalism.” Yet, at the same time, Washington saw how concentrations of corporate power could serve its aims. In a forerunner of today’s cooperative-collusive arrangements, Washington offered the railroads vast tracks of land if they bowed to government direction. The most successful check on concentrated commercial power emerged not from the government but from the countervailing and competitive power of newly formed labor unions, which began in the 1860s with the Knights of Labor and grew into a broader movement with the founding of the American Federation of Labor in the 1880s. In this way, the nation recovered Madison’s goal of checking power with a “variety of parties and interests.”
WASHINGTON UNDER Franklin D. Roosevelt made the decision to shift from a competitive, market-driven economy toward a corporatist one that accepts, indeed embraces, concentrations of power. As with other manifestations of government-business collusion in this country, the approach grew out of the best of intentions—namely FDR’s heroic efforts to fight the Great Depression. It is ironic to think of FDR colluding with big business. His rhetoric was, if anything, openly hostile to business. In one of his famous fireside chats he expressed satisfaction with how much business leaders hated him. But for all his talk, Roosevelt nonetheless strove to co-opt corporate power. Nor did he make a secret of his model. Early on, FDR’s administration made clear its admiration for Mussolini’s Italian state. One of Roosevelt’s original “brain trust” of advisors, a Columbia University economist, Rexford Tugwell, openly spoke of his enthusiasm for the fascist leader, as did the man Roosevelt picked to head the National Recovery Administration, General Hugh Johnson, who several times referred to the “shining name” of Benito Mussolini. Roosevelt himself expressed interest in “bringing to America” the programs of “that admirable Italian gentleman.”
Such public talk ceased abruptly when Italy invaded Ethiopia in 1935 and Mussolini lost sympathy among the American public. Even Cole Porter dropped from his popular hit the lyric, “You’re the top. You’re Mussolini.” The Roosevelt administration was also sobered by the Supreme Court’s decision to strike down as unconstitutional the National Recovery Act. But then World War II, and afterwards the Cold War, furthered the journey toward government-business collusion. The war effort in the 1940s demanded a close working relationship between business, finance, and Washington. The administration and the War Department set the agenda, and those who supported it enjoyed the contracts and useful exemptions from certain regulations. After the Second World War ended, the long Cold War that followed institutionalized and deepened this collusive approach.
Especially conducive to these developments was America’s confrontation with communist ideology. At one and the same time its anti-communist stand made Washington reluctant to command business openly, as it had during the war, but also not wanting to seem anti-business, by, say, aggressively pursuing anti-trust actions. Since the nation’s ongoing war footing gave Washington so much power and money, it had little trouble enticing the cooperation of business simply by threatening to exclude uncooperative firms from what became a torrent of money. When people reflect on President Eisenhower’s concerns about this developing pattern, they mostly associate it with defense contracting. But even as Eisenhower introduced the phrase “military-industrial complex” into the national lexicon, he likely saw the broader picture of government-business collusion run comfortably by a corporate-government elite.
The auto industry is a case in point. Washington had long protected it—no doubt a legacy of the auto companies’ enormous cooperation during World War II, and later as part of the Cold War effort. In an earlier time, the government might have used anti-trust legislation to break them up, especially the behemoth General Motors. Indeed, for years there were calls to do just that. As it was, Washington allowed the industry to become what economists call an oligopoly, and what the public then referred to as the “Big Three”: General Motors, Ford, and Chrysler. Giving voice to these arrangements, General Motors president Charles Wilson, at the peak of General Motors’s dominance, declared before Congress in 1953 that what was good for the country was good for General Motors and vice versa.
These firms hardly competed with each other. They drove out any potential competition, including Packard, Studebaker, American Motors, and even the Checker cab––that square and roomy conveyance beloved of taxi passengers. Washington throughout turned a blind eye, even as the lack of competition allowed the Big Three to build ever-shoddier vehicles, preferring tailfins to engineering innovations and guaranteeing themselves future sales by producing vehicles whose obsolescence was built in. Because this structure generated huge cash flows, which managers wanted to keep uninterrupted, the Big Three eagerly bought peace with the United Auto Workers (uaw) union by sharing the monies taken from hapless consumers. Thus the uaw, along with government and the Big Three, became the fifth party to this collusion. The comfort and protection afforded by these arrangements leaves little wonder why this crowd had so much trouble coping when real automotive competition docked from Japan in the late 1970s and 1980s.
Rather than adjust to the market realities of Japanese competition, the collusive parties used Japan as a substitute for the Cold War to justify corporatist, fascist-like economics and secure the position of the corporate-government elite. A perfect example emerges from President George H.W. Bush’s late 1980s visit to Japan. In asking for concessions for U.S. auto manufacturers, his rhetoric focused on jobs for Americans. But that was a veil: by then, Toyota, Nissan, and Honda had already moved production facilities to the United States and were employing about as many people as General Motors, Chrysler, and Ford. Instead of protecting jobs, Washington was serving its well-established partners: American corporations, as well as the United Auto Workers, which had power in Detroit but not in the Japanese factories. Shortly after, a new president, Bill Clinton, found another way to use Japan to bolster government-business collusion: he announced that this cooperative model had produced Japan’s economic success, and that America needed to imitate it. What he did not say was that his way forward offered Americans nothing new. Nor did he point out, even as he plugged the cooperative approach, that Japanese commentators were complaining that their country’s ongoing government-business collusion was a continuation of its prewar and wartime militarist, fascist structure.
By the time Japan’s economy unraveled later in the 1990s, China’s economic power had grown sufficiently to take Japan’s place as a justification for America’s continuing corporatist arrangements. Washington may have appeared to become harder on business as its regulatory agencies grew, but behind the seemingly harsh rhetoric the explosion of rules—especially from Democratic administrations—served only to bind established and favored firms closer to Washington. Think of it this way: the more pervasive the regulation, the more value to business of any government-issued breaks, and so the more motivated managements become to secure these breaks by cooperating. Additional government licensing and regulatory hurdles also benefit established cooperators because those rules make it more difficult for new firms—potential competitors—to enter existing industries. By both pushing the government’s agenda and effectively protecting cooperative firms, what is sometimes called “the administrative state” has become a key to securing this centralized, collusive organization—an approach that is antithetical to Madison’s plea for countervailing interests.
Technology firms, often viewed as symbols of independent entrepreneurial effort, nonetheless also exemplify the workings of this fascist-like economic system. The Obama administration certainly offered favored firms protection and even lavished subsidies on them when they did what the government wanted; energy alternatives and electric cars stand out as examples. Even such firms as Facebook and Google, which reached near-monopoly status without government assistance, have embraced the cooperative approach. A stark example is Mark Zuckerberg’s recent plea for government regulation of his company. No doubt he would prefer to continue abusing his customers as in the past, but because public outcries have moved Washington to question Facebook’s practices, he has had to make a difficult choice. Fearing the competition that anti-trust action would bring, he has opted for greater regulation with new rules that he no doubt would have a hand in writing. Embracing regulation would also allow him to head off any possibility that Washington might thwart ongoing efforts by Facebook—presently valued at over $500 billion—to stifle competition. He would have no need to do it for himself, because the regulations laid down by Washington, by making entry into the industry more difficult and expensive, would do it for him.
PROBABLY THE clearest illustration of government-business collusion can be found in the 2008–09 financial crisis. In the long run-up to that disaster, Washington had enlisted the cooperation of the banking industry to promote a political interest—widespread homeownership among less affluent Americans. Washington pressured banks to lend mortgage money to those with sub-par credit ratings, and thus a questionable ability to repay the loan—the so-called sub-prime borrowers. Under the 1992 Housing Community Development Act, the two federal agencies designated to support private mortgage lending, the Federal National Mortgage Association and the Federal Home Loan Mortgage Cooperation, announced they would extend such support only to lenders who made many subprime loans. By the aughts, those two agencies limited that support to banks that reserved fully half their mortgage lending to subprime borrowers.
Because these demands put the banks in an unusually risky situation, government regulators stepped in to help their cooperative colleagues. They allowed banks to shed the risk through questionable financial devices. One, “credit default swaps,” allowed insurers to sell indemnification insurance to lenders against the risk that a borrower would default. The authorities also allowed these arrangements to stand outside normal insurance regulations and, consequently, also outside the usual security protocols. To further spread the risk of these sub-prime loans, Washington also encouraged “securitization,” by which banks created a bond backed by a bundle of individual mortgages. The banks could then rid themselves of the sub-par risks by selling those bonds on the open market to individuals, foundations, pension funds, and even foreign governments. Washington promoted this effort by also willfully ignoring the credit rating agencies that were giving undeservedly high safety ratings to these bonds, even though they included a large proportion of risky sub-prime debt.
Despite all this maneuvering, by 2007, this house of cards began to collapse. The always-risky sub-prime borrowers began to fail on their mortgage obligations. In the face of such widespread default, the firms that had so actively cooperated with Washington’s guidance faced insolvency, as did those who bought that questionable debt. Washington’s response? It sprang into action, to save, it claimed, the financial system. But, as it turned out, Washington did so also to protect its corporate partners.
The fate of Bear Stearns is instructive. When, in 2008, this New York-based global investment bank first showed signs of having trouble, it was in complete compliance with all federal and international regulations. It was solvent. What it did face was a temporary shortage of liquidity. It was well within Washington’s power and experience to simply advance an emergency loan to protect the firm and those parts of the financial system that depended on Bear’s ability to meet its obligations. That is what Washington did later for several firms, using the more than $430 billion of tax money it put at risk through the Troubled Asset Relief Program (TARP). But Bear Stearns it treated differently. It surely was no coincidence that this broker-dealer had always been a disruptive and uncooperative agent in financial markets. Perhaps because the people who ran Bear had less social pedigree than those who ran Goldman Sachs and the other established financial firms, the company never had much inclination to cooperate with Washington or other companies. It is notable how Bear Stearns some years earlier had refused to join a Federal Reserve effort to arrange loans for the failing Long-Term Capital Management, whose top executives, not coincidentally, had exceptionally good Wall Street, Washington, and academic connections. So instead of smoothing over Bear Stearns’ troubled moment, Washington forced the company to sell itself at a bargain price to J.P. Morgan, a firm notably cooperative with Washington.
It was only after the forced sale of Bear Stearns that Washington passed the TARP legislation and the consequent huge flow of money that assisted Citibank, Chase, and other banks with less obstreperous reputations than Bear Stearns, and who could boast of their cooperation with Washington’s subprime push. TARP also assisted Goldman Sachs—so renowned for its links to Washington that one standing Wall Street joke holds that Goldman’s url has a “.gov suffix,” while another joke, playing on the firm’s name, refers to it as “Government Sachs.” Because TARP funds could only go to banks, and because Goldman at the time lacked a commercial banking license, the authorities rushed a license through for it. But they made no such effort for Lehman Brothers, a firm that, despite its long pedigree, was well outside the collusive establishment. Washington simply let it go bankrupt. Then the government, in a remarkably novel move, effectively nationalized the insurer AIG. This firm, too, had a less-than-cooperative reputation. It was also disputing the value of credit default swaps it had sold to Goldman Sachs. Goldman insisted that the loans in question had become riskier and demanded that AIG put up more assets to ensure that it could pay should the loans fail. AIG resisted. Once the federal government took over, it forced AIG to pay the full amount Goldman had demanded—in excess of $4 billion. These particular default swaps were one of the few assets that paid in full during the crisis of 2008–09.
This elaborate cherry-picking of winners and losers is all the more revealing, because Washington all along had at its disposal a more egalitarian and coherent approach. In the early 1990s, when a similar crisis developed among savings and loan associations (s&ls), the government had a very different plan. Because most of these institutions were too small to “qualify” for government-business collusion, the authorities had little need to protect some and not others. Unlike in 2008–09, Washington treated all the s&ls equally. To oversee the orderly bankruptcy of many of them, it established and funded the so-called Resolution Trust Cooperation (RTC), which sold off their good assets to meet their obligations to creditors and which, for the sake of financial stability, took their questionable assets onto its own books for resolution over time. Over the long-term, the government actually made a profit on the taxpayers’ monies involved. That a solution like the RTC was never considered in 2008–09 suggests that either everyone in Washington had suffered memory loss or that their desire to pick winners and losers impelled them to a less consistent approach than would have been possible with a revival of the RTC.
EARLIER EVIDENCE of collusive behavior appeared in the 1990 destruction of Drexel Burnham. Washington worked hard to put down this aggressive investment bank, not so much because it was resisting the government’s agenda but because it was attacking established firms that were cooperating with Washington. Drexel Burnham’s “sin” was its invention of what became known as the “leveraged buyout,” which enabled relatively small players to take over large, established firms. A group of investors would identify a company with an ineffective management and attempt to take over the firm by buying out its shareholders. To pay for these purchases, the takeover group would issue bonds through Drexel Burnham, which would promote these bonds by offering the assets of the targeted company as a form of repayment guarantee. If the targeted firm had a good competitive position in its market but was saddled with an inefficient management (as is usually the case with monopolies or companies otherwise protected by government), Drexel Burnham’s promise was compelling.
Such “hostile takeovers” were long considered taboo among established firms because they disrupted the accepted business practices and ordered hierarchies with which managements were comfortable and on which Washington depended for cooperation. Mutually agreed-upon mergers were fine (especially those blessed by Washington), but usurpations such as those orchestrated by Drexel Burnham were deemed simply too disruptive. Drexel, for instance, backed T. Boone Pickens’ attempt to take over Gulf Oil in 1983 and Unocal in 1985, as well as Carl Icahn’s 1985 bid for Phillips 66. These efforts failed, but came close enough to succeeding to unsettle managers, as did Ted Turner’s success in 1985 using Drexel’s leveraged buyout techniques to take over MGM/UA and Kohlberg Kravis Robert’s famously successful 1988 takeover of RJR Nabisco.
The consequent widespread disruption attracted Washington’s attention. Its partners in economic management were suffering. Before the authorities made any accusation of wrongdoing, the Securities Exchange Commission investigated Drexel intensively. Eventually, it uncovered illegalities on the part of one Drexel Burnham employee. Instead of an individual prosecution, the discovery generated a deeper examination of Drexel. Such investigations were common enough—one illegality often leads to another. What was unusual is that the U.S. Attorney used the RICO (Racketeer Influenced and Corrupt Organization) statute to freeze Drexel’s assets during the investigation, even before uncovering any major wrongdoing. The asset freeze effectively made it impossible for Drexel Burnham to meet its obligations. It was a death sentence for the firm, as it would have been for any financial institution, and Drexel closed its doors in early 1990. The firm never admitted to guilt but it did accept the judgment of the authorities. It had little choice. Only later did it emerge that Drexel Burnham had indeed broken laws, also common enough because the rules are so extensive that few firms can remain entirely compliant all the time. Something other than common compliance failures, however, must explain the zeal with which the authorities attacked Drexel, even before they discovered any wrongdoing. It had less to do with law than with stopping Drexel’s disruption of the cooperative-collusive system.
Imagine the action in Silicon Valley today had Washington not crushed Drexel Burnham, and with it, its practices. Tesla, for instance, has management difficulties, enjoys a leading competitive position, has missed several self-imposed production deadlines, and what is most important, enjoys considerable public subsidy. If leveraged buyouts were still the order of the day, Tesla would present a ripe takeover target for an aggressive outside management. Apple, Microsoft, Google, and other technology giants have enormous—and enormously attractive—pools of cash on their balance sheets. These liquid assets earn little and support no project to improve their companies’ technologies or expand their businesses. Were a takeover as feasible as it was in the past, a management team would view these hoards of cash as an easy way to promise repayment to bond buyers in a leveraged buyout. But having crushed Drexel Burnham, Washington has warned off any such behavior, and in doing so has assured Tesla, Apple, Google, and others that no such threat exists, that they face neither competition nor pressure to use these idle funds—to further research, for example, or to increase employment. Washington has these and other cooperative, comfortable managements under its protective wing. Nor do recent privacy hearings alter this protective posture. Regulation could serve these firms as the earlier description made clear it could serve Facebook.
IN PART, Donald Trump’s election may well express public revulsion at this corporatist system. People may not know the intricacies of the system or its ugly origins, but they feel and voice disgust with the “rigged system,” complaining how the elite—those with influence within government, business, and finance—work together for themselves and their political agenda and not for the public weal. When people say these things, they are describing the fallout of the collusive system, even though the public hardly uses that terminology, much less the words corporatist or fascist. The leftward lurch of the Democratic Party no doubt has similar roots. Here, too, left-leaning supporters view any moderation that would support existing practice as hateful and unfair because it would continue to provide benefits to those who least need them, and at the expense of the working and middle classes. Both those trends, Trumpian rule on one side and the leftward shift on the other, offer reason for optimism—not because they offer solutions but because they reflect a reaction that might actually begin to unwind this country’s long-entrenched, fundamentally abusive economic system.
If the United States were to conduct such an unwinding, the place to start would be the regulatory system. Allowing regulatory exemptions for cooperation with Washington is a fundamental way agencies direct business toward the government’s agenda and frequently away from the market’s expression of the public’s wants and needs. If Congress, or an executive order from the White House, forbade such practices and insisted that the government set the rules and then stick to them in all cases, this primary lever of the country’s corporatist economic system would fail. Trump has moved marginally in this direction by dispensing with some regulations. By limiting the regulatory burdens placed on business, he has—no doubt inadvertently—reduced the value of the government-issued exemptions used to exact corporate cooperation. But because much regulation is also essential to protect the public welfare, Trump’s approach can only go so far. Ending this abusive system is less a matter of limiting the scope of regulations than stopping the discretion the administrative state has in applying them. For similar reasons, our country needs clear and consistent criteria, not bureaucratic discretion, in regulatory matters generally and especially in directing anti-trust measures.
Though such avenues of relief are clear enough, the prospect of meaningful progress remains remote. Powerful interests that are not subject to the ballot box have deep stakes in maintaining the existing arrangements. For industry and finance, the monopoly-like privileges offered by the long-established approach are simply too tempting. Indeed, one could argue that corporations have operated under this system for so long that they have lost the institutional ability to respond to anything other than government signals, and certainly not to those of the market. As for the government, those in power in the bureaucracy as well as those in elective office will want to maintain their ability to direct the still powerful American economy.
Trump, for all that he is a reflection of public discontent, shows only slight inclination to root out this corporatist, fascist-like system at the base of the “swamp” that he once promised to “drain.” He apparently does not even grasp the most fundamental conditions that underlie the discontent that helped bring him to office (talented as he is at playing to his “base”). Most of his behavior seems to indicate that he wants less to rid the country of the collusive system’s basic character than simply to redirect it toward a different agenda with different favorites. The tariff break offered to Apple might count in this regard, or the efforts to bend environmental regulations to enable more oil drilling on public lands.
The same can be said of Trump’s efforts to restructure the country’s trade deals—to make, in his words, a “better deal.” It has become increasingly evident that NAFTA, the Trans-Pacific Partnership, and other treaties benefited the established collusion between government, industry, and finance, and did so to the detriment of others who have operated outside the country’s cooperative-collusive system. As for Trump’s tariffs, whatever else he intends them to accomplish, they only bring different elements of the economy into the collusive system while excluding others. His volatile mix of rhetoric and behavior creates confusion about where the administration is going and makes it unclear whether it knows—at least when it comes to economics—with what and with whom it is dealing. It certainly provides little hope of remedying the present problems of America’s economics.
Nor would a rise to power by the Democratic Party’s left help in this matter, even though it, too, reflects an intense public discontent with present economic arrangements. Specifics, of course, depend on which candidate is speaking and to which audience, but the general theme is to replace fascist-style direction with something more socialist, in which the government would control industry and finance directly rather than through collusive deals. Admittedly, this approach has one appeal in that it presumably would withdraw the unfair privileges and protection long secured by some businesses. But if the history of socialism is any guide, the businesspeople and industrialists thrown out would be replaced by a different favored group chosen to direct the economy’s effort and the government’s agenda. A government-affiliated elite would continue, no doubt little changed, indeed maybe even including the same individuals.
Because there is little hope of a remedy from either the right or the left, it seems likely that the battle between a dissatisfied public and a collusive elite will continue. Future years may witness ebb and flow in the intensity of feeling against the fascist economy, but unless the public gives up its objections and accepts this abuse, the hostile politics of today will surely continue. The collusive elite will mount a formidable defense. After all, it controls the levers of power. It also has proved itself adept at finding allies on the left when the challenge from the right gains ground and allies on the right should the challenge from the left appear threatening. The elite has used Trump’s vulgarity and the unsavory attitudes among some of his followers to distract from the basic motivation of this opposition and to enlist allies on the left who otherwise would happily see this elite put out of power. Should the left gain power, the elite would no doubt do something similar to gain allies on the right who otherwise would happily see it out of power.
As for those who despair of seeing politics of good feeling anytime soon, there is compensation in an ongoing dispute. Turmoil should be preferable to supine acquiescence.
Terrifying Charts Show China’s Economy Remains Completely Paralyzed
In our ongoing attempts to glean some objective insight into what is actually happening “on the ground” in the notoriously opaque China, whose economy has been hammered by the Coronavirus epidemic, last week we showed several “alternative” economic indicators such as real-time measurements of air pollution (a proxy for industrial output), daily coal consumption (a proxy for electricity usage and manufacturing) and traffic congestion levels (a proxy for commerce and mobility), before concluding that China’s economy appears to have ground to a halt. These observations were subsequently reaffirmed when we showed that steel demand, property sales, and passenger traffic had all failed to rebound from the “dead zone” hit during China’s Lunar New Year hibernation.
Meanwhile, as every investor scrambles for clues to find the upward inflection point in China’s economic output which would at least partially validated the unbridled euphoria in the stock – and, ironically, the bond market – we have some unpleasant news: more than one week after our initial report on “alternative” high-frequency (read daily) indicators in China’s economy, any tangible improvement in China’s economy has yet to be observed.
We start with some base commodity market observations courtesy of Goldman Sachs, which when looking at preliminary weekly demand data, finds that:
Finished product production -7.4% w/w
Mill stocks +18% w/w
Trader stocks -19% w/w
According to Goldman’s Adam Gillard, the above implies full country apparent demand is down a massive -66% y/y.
Picking up where Goldman (and we) left off, UBS writes that while there are official announcements for each province or cities to end the extended Chinese New Year (CNY) holidays, “the actual work resumption faces many constraints and is hard to track.” And so, piggybacking on what Capital Economics did previously, UBS constructed a China Daily Activity Tracker to assess real time development, which covers many of the same indicators we have already noted previously including:
daily average transport congestion index for 100 cities,
daily coal consumption of 6 large independent power plants (IPPs);
daily property sales in 30 major cities;
daily passenger volume; and
weekly steel furnace operating rates.
Alas, as we have noted previously and as Goldman shows above, UBS’ indicators show that “China’s activities remain very subdued vs the same time after previous CNYs.”
Here are some of the Swiss bank’s key observations:
Coal consumption and property sales: Daily coal consumption of 6 large IPPs has been only 60% of average level of that in the same period in 2017-2019 (Fig 3). The daily property sales volume of 30 major cities is currently only around 10% of 2017-2019 average, but already up from a week earlier (Fig 4).
Transport congestion index: The index is measured as actual transport time relative to the theoretical time at free-flow speeds. 100-city average transport congestion index is below 1.2 of late, much lower than around 1.6 for the same period of 2017-2019.
UBS also constructs a Heat Map by province in Fig 5 to show each province’s index change compared with their previous low on Jan 25-26 (CNY day). As one would expect, there has been virtually no rebound for the vast majority of cities.
Passenger volume: Latest daily passenger volume is only 19% of that in the same period during CNY travel season in 2019 (Fig 12). Overall, total numbers of passengers carried has been around 18%, or 82% below, the 2019 level!
Accumulated passenger volume since the CNY day is 308mn person*time, 18% of 1.7bn person*time one year ago. While the drop is partly due to cancelled trips, a big part is likely due to delayed returns of workers, who will eventually come back over the coming weeks, assuming of course China manages to contain the coronavirus and the population believes the communist government.
We then move to a similar daily-activity tracker, this time from Goldman which confirmed the terrifying paralysis China’s economy finds itself in:
Daily coal consumption of major electricity producers was still 33% weaker in the first 18 days of February this year than normal seasonality would suggest. Needless to say, one can’t claim there is even a remote possibility of a return to normal if electricity output (and demand) is running almost half compared to where it was this time last year.
The real estate market remains frozen. As Goldman notes, daily property sales volume in 30 major cities over the past week has climbed up to 13% of the average level in the previous 5 years. It was better than the 0% it was for much of the previous week.
Last but not least, while hardly coming as a surprise, movie box office revenues have been unchanged for the past three weeks, and remain frozen… at zero!
And, as we noted previously, one can argue that the most ominous chart is not what is frozen in China right now – which is almost everything – but what is soaring. Thanks to Capital Economics we know what that is: food prices.
As we warned previously, a paralyzed economy, with 750 million people in some form of lock down, where the people are becoming increasingly angry at Beijing’s now openly over propaganda, where countless workers will soon be fired as companies run out of funds, and even more companies will soon be bankrupt due to lack of ongoing operations, and where the price of food is surging makes for the most volatile combination possible, one which if not arrested soon could lead to a very violent climax.
* * *
Putting it all together, one may ask why are global stocks not only not falling but are in fact soaring to record highs? The answer, as Goldman accurately puts it, is that “rightly or wrong, it just doesn’t matter because investors continue to price policy support.“
Market sentiment is still on. Most clients have priced in that more loosening in liquidity and property will come. Tomorrow the Feb LPR data will be out and consensus is 10bps cut as MLF rate cut. Treasury futures may see some correction unless the rate cuts is greater in magnitude. But my survey shows that the short term sentiment will not be hurt. From retail wise, we have seen craze from retail subscription of mutual funds recently and Foresight, an all-star PFM, has raised Rmb12bn within 8hours which made the new record high in history.
In short, don’t worry about a thing, the Fed’s got this.
Once upon a time we used to joke that if the world is facing an apocalyptic situation, stocks may hit “limit up” because all traders would ask is when the Fed will start buying stocks, as Janet Yellen said last week the central bank will probably do in the next crisis. Unfortunately, it is no longer a joke.
The “quarantine” of passengers on the cruise ship, Diamond Princess, drew toward an end yesterday when several hundred people were allowed to disembark.
Those who were released tested negative for Covid-19. They’ll be issued a certificate by Japanese health authorities stating that they were not infected at the time they left the ship. When the passengers left, they were, according to Japan’s health minister Katsunobu Kato, going to “have to find their own way home to from the port” which most likely means public transport for many of the passengers.
Is it possible that all the Diamond Princess quarantine did was infect more people with Covid-19 and that the aftermath of the poorly-executed quarantine will spread the virus across the globe?
Was this quarantine done correctly?
The entire quarantine of this ship seems to have run contrary to my understanding of what “quarantine” actually means.
First of all, being on that ship cooped up in tiny quarters with all of the sick people in rooms next door had to be nightmarish to people who only wanted to go on a nice vacation. The entire time, I wondered why a more suitable facility was not made available for quarantining passengers who were at risk.
There on the ship, people were constantly exposed, even though they had to stay in their rooms. The food had to be prepared by somebody and delivered by somebody. Fresh towels? Somebody laundered and delivered those too. Drinking water? Also delivered. From staff onboard a ship where literally 4-5 people per hour were confirmed to be infected.
With a rate of infection like that, the likelihood of contracting the virus was extremely high. I can’t imagine that keeping 3700 people on board a floating death trap was the best way to contain the outbreak. That ship was the site of the largest cluster of infections outside of China.
Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases at the National Institutes of Health, told USA Today bluntly that the quarantine effort had been a failure.
…the original idea to keep people safely quarantined on the ship wasn’t unreasonable. But even with the quarantine process on the ship, virus transmission still occurred…
…”The quarantine process failed,” Fauci said. “I’d like to sugarcoat it and try to be diplomatic about it, but it failed. People were getting infected on that ship. Something went awry in the process of the quarantining on that ship. I don’t know what it was, but a lot of people got infected on that ship.” (source)
And Dr. Fauci is not the only public health expert who felt the quarantine was not carried out correctly.
Kentaro Iwata, professor at the infectious diseases division of Japan’s Kobe University, described the situation on board as “completely inadequate in terms of infection control”.
The expert said he was more afraid of catching the virus on board than he had been working in the field in Africa during the Ebola epidemic and in China during the Sars (severe acute respiratory syndrome) outbreak. (source)
We have to remember, this quarantine was carried out by folks who work on a cruise ship, not by infectious disease specialists. While I’m sure they did the best they could given the circumstances, the quarantine seems to have been poorly conceived.
The continued spread throughout the quarantined passengers and crew led the United States to evacuate American citizens from the ship and fly them back to the US. About 300 passengers are being further quarantined in Omaha, Nebraska. Fourteen Americans who were infected on the ship are hospitalized. According to Dr. Fauci, health officials expect to see more cases among the quarantined evacuees.
I think that the US had the right idea. Leaving people on that floating death trap for a longer period of time just puts them at higher risk of contracting the virus.
While the quarantine was poorly executed, the end of the quarantine is even worse.
I don’t think just letting people disembark and hop into the nearest taxi is the best way to “end the quarantine.” Granted I’m certainly no public health expert, but the biggest question I have is this:
If people aboard that ship are being infected at the rate of 4-5 per hour, shouldn’t the clock restart on the quarantine after the most recent infection? Shouldn’t it be fourteen days after the most recent confirmation?
I guess they don’t think so in Japan. Because they’re releasing several hundred people per day based on a negative test (a test that may not be reliable – keep reading) after those people have been in a veritable petri dish of novel coronavirus.
The released passengers made their way onto waiting coaches or into taxis, reports the BBC’s Laura Bicker, who is at the port in Yokohama.
They will be allowed to return to life as normal, but will be contacted over a period of several days to check on their health, Japan’s health ministry said. (source)
The only folks who are remaining in quarantine are those who were sharing a cabin with infected people and each day a few hundred more people will be released willy-nilly into Japan’s public transportation system to make their way back to 50 different countries– most likely on public transportation.
A person is quarantined for the entire duration of the illness’ incubation (latency) period. For Wuhan coronavirus, the current guidance for a quarantine for a person for 14 days.
However, there was one study suggesting the incubation period is actually 24 days. If this is the real incubation period, then our current measures for quarantine are insufficient, and may be allowing the virus to spread. This is not the only explanation. It could also mean that the initial exposure opportunity did not result in an infection, and then there was a subsequent exposure opportunity when infection did happen. If this is the case, the 14-day period is probably the correct one.
As always, err on the side of caution. I would quarantine for 24 days until this is proven incorrect. (source)
So if one were to follow this advice, the people disembarking from the Diamond Princess should really be isolated at the very least, not hopping on a plane.
How sure are we that the folks disembarking are truly not infected?
We don’t know a lot about this illness yet – it’s brand new. But one thing we do know is that the Covid-19 nucleic acid test is not extremely reliable. According to Medicinenet:
Reports suggest some people test negative up to six times even though they are infected with the virus, according to the BBC and Chinese media. Such was the case with Dr. Li Wenliang, the ophthalmologist who first identified the outbreak and was reprimanded by Chinese authorities when he tried to warn others…
…False-negative test results, where patients are told they do not have a condition when they actually do, cause several problems. Patients may be turned away from hospitals and medical facilities when they require care. They may infect others at home, work, school, or in the community. Patients’ conditions may also worsen without treatment.
When faced with a highly infectious, potentially deadly pathogen, even a small number of false negatives can have a potentially serious and widespread impact on the larger population. (source)
This, of course, is the reason that the people repatriated to the United States are being put into further quarantine.
Although the folks who were released all tested negative and are not showing symptoms, it seems extremely likely we will see more cases sprouting up all over the world from former passengers of the Diamond Princess.
The CDC agrees and is not allowing any of the disembarking passengers to return to the US without restrictions.
CDC believes the rate of new infections on board, especially among those without symptoms, represents an ongoing risk. Therefore, to protect the health of the American public, all passengers and crew of the ship have been placed under travel restrictions, preventing them from returning to the United States for at least 14 days after they had left the Diamond Princess.
Currently, there are more than 100 U.S. citizens still onboard the Diamond Princess cruise ship or in hospitals in Japan. These citizens have been placed under the restrictions, as have the ship’s other passengers and crew.
After disembarkation from the Diamond Princess, these passengers and crew will be required to wait 14 days without having symptoms or a positive coronavirus test result before they are permitted to board flights to the United States.
If an individual from this cruise arrives in the United States before the 14-day period ends, they will still be subject to a mandatory quarantine until they have completed the 14-day period with no symptoms or positive coronavirus test results.
Because of their high-risk exposure, there may be additional confirmed cases of COVID-19 among the remaining passengers on board the Diamond Princess. (source)
South Korea has also said they’re blocking entry to Diamond Princess passengers.
The BBC reports that “Japanese officials have defended their approach, saying that the majority of infections likely occurred before the quarantine period.”
Will this lead to new clusters of Covid-19 outside of China?
This morning, the day after the quarantine officially ended, 79 more people who are still on the Diamond Princess tested positive for the novel coronavirus, bringing the total of infected people to 621. Meanwhile, those leaving the quarantine are “finding their own way home.” Zero Hedge sums it up:
As we’ve noted several times, the notion that thousands of people are about to be released while hundreds of cases of the virus are still being confirmed seems like insanity. While most of the patients will face two more weeks of quarantine when they return home, how are they planning on getting there? There’s been no word of an official government transport. (source)
I think it’s a pretty safe bet to believe that out of several thousand exposed people heading to 50 different countries, at least a few of them are going to be bringing a little something with them.
It’s difficult to imagine this won’t make its way to the United States and elsewhere. I suggest you pick up this book and get prepared for the possibility of real quarantines before the word becomes official.
If we’ve learned anything throughout this debacle, it’s that governments will try to cover their rears and “not cause a panic.” Unfortunately, this means that we don’t get crucial information until it’s too late to act on it. There are already shortages in the United States of things like gloves and masks – they’re practically nowhere to be found. Look for bleach, antibacterial product, and hand sanitizer shortages next.
This whole thing could end up being like the Ebola scare of 2014, something legitimately unnerving, but ultimately not widespread outside of the hot zone. We may get lucky and Covid-19 may by some miracle be contained.
WaPo Claims Elites Should Run Elections; Quietly Edits Article After Public Outrage Ensues
The Washington Post is taking heat over a Tuesday op-ed authored by Marquette University political science professor Julia Azari, titled “It’s time to give the elites a bigger say in choosing the president.”
Azari argues that the Democratic party’s primary process is overly-complicated and convoluted, and the process of choosing the nominee should instead be placed in the hands of politicians instead.
After outrage ensued, the Postchanged the headline to the far less inflammatory “It’s time to switch to preference primaries.”
There’s a reason I take screenshots.
The illustrious Washington Post changed its headline after too many peasants made fun of it. pic.twitter.com/yeqgbHa0Ve
The current process is clearly flawed, but what would be better? … A better primary system would empower elites to bargain and make decisions, instructed by voters.
One lesson from the 2020 and 2016 election cycles is that a lot of candidates, many of whom are highly qualified and attract substantial followings, will inevitably enter the race. The system as it works now — with a long informal primary, lots of attention to early contests and sequential primary season that unfolds over several months — is great at testing candidates to see whether they have the skills to run for president. What it’s not great at is choosing among the many candidates who clear that bar, or bringing their different ideological factions together, or reconciling competing priorities. A process in which intermediate representatives — elected delegates who understand the priorities of their constituents — can bargain without being bound to specific candidates might actually produce nominees that better reflect what voters want.
Instead of primaries in which caucuses are held to pick primary delegates, Azari suggests that the parties should use “preference primaries” which would “allow voters to rank their choices among candidates, as well as to register opinions about their issue priorities.”
This would allow the ‘elites’ to choose a nominee based on what the voters want – a strategy Azari admitted is “labor-intensive and a little risky,” according to Breitbart.
The headline right below “democracy dies in darkness” is some A+ work
Why not forego the Primaries/Caucuses, and have the SuperDelegates meet behind closed doors. After a few days, a white cloud of smoke coming out of the chimney would be a sign that they have chosen a nominee.
WTI Extends Gains Despite Bigger Than Expected Crude Build
Oil climbed to the highest level this month amid U.S. sanctions on Rosneft Trading and mounting tensions in Libya threatened global crude supply and the ongoing optimism that the peak impact of the virus on China demand is behind us.
“It’s a big turnaround,” said Mike Hiley, head of OTC energy trading with LPS Partners. “There’s no doubt the market is getting a lift from Libya and sanctions.”
However, another big crude build will wipe some of that smile off the markets.
API
Crude +4.2mm (+2.5mm exp)
Cushing +400k
Gasoline -2.7mm
Distillates -2.6mm
This is the 4th weekly crude build in a row (and bigger than expected)…
Source: Bloomberg
WTI traded up to three-week highs today hovering around $53.50 ahead of the data
And extended gains despite the bigger than expected crude build…
Why is the mainstream media so scared of asking difficult questions about this coronavirus outbreak? At one time the United States had the greatest investigative journalists in the entire world, but today it is very rare to see any of our major news outlets go much beyond the basic facts of a story. In particular, the coverage of this coronavirus outbreak has been absolutely abysmal. Other than dutifully repeating the basic information being fed to them by the CDC and the Chinese government, mainstream media coverage of this crisis has amounted to little more than assuring everyone that everything is going to be just fine. As a result, Americans are increasingly turning to independent journalists for some honest coverage of this outbreak, because they know that they aren’t getting the whole truth from the usual suspects.
There is still so much we don’t know about this virus, and very few of our “journalists” are willing to dig deeper to find the answers we need.
The public is hungry for information, and getting to the truth starts with asking the right questions. The following are 10 very important questions that the mainstream media should be asking about this very alarming coronavirus outbreak…
#1 The Washington State Department of Health has announced that 746 people are currently being “monitored” for coronavirus symptoms. Are all 746 being quarantined, or are they being allowed to mix with the general public? According to the agency’s official website, it is unclear what “monitoring their health” actually entails…
The number of people under public health supervision includes those at risk of having been exposed to novel coronavirus who are monitoring their health under the supervision of public health officials. This number includes close contacts of laboratory confirmed cases, as well as people who have returned from China in the past 14 days and are included in federal quarantine guidance.
#2 In Hawaii, a local resident named John Fukiwara recently had very close contact with a Japanese man that later was confirmed to be infected by the coronavirus. After contacting health officials, why was Fukiwara told to “go about his normal day-to-day routine”?…
That said, the Times reporter did manage to find John Fukiwara, a local resident who said he believes the Japanese man is a friend of his whom he would not identify by name. The man recently visited the island and had coffee with Fukiwara before they exchanged gifts of chocolate.
Fukiwara then contacted a local newspaper and then reached out to state health officials, with whom he offered to self-quarantine. But amazingly, state health officials told him to simply go about his normal day-to-day routine and to be sure to report any symptoms.
#3 If this coronavirus outbreak “isn’t that serious”, then why has everyone in Hubei province now been ordered to stay at home until further notice?
The central Chinese province of Hubei escalated its restrictions to contain a coronavirus epidemic on the weekend, ordering the province’s residents – including 24 million people in rural areas – to stay home until further notice.
#4 If this coronavirus outbreak “isn’t that serious”, then why did Russia just ban all Chinese citizens from entering the country?…
Russian Prime Minister Mikhail Mishustin signed an order temporarily banning Chinese citizens from entering Russia for tourism, personal reasons or work starting Thursday, Interfax reported, citing Deputy PM Tatyana Golikova’s office.
#5 Chinese officials have just released data which show that this virus “could be 20 times more lethal than the flu”. Why does hardly anyone in the western world know about this?…
The director of a Chinese hospital at the epicenter of the coronavirus outbreak became one of its victims Tuesday despite “all-out” efforts to save his life, Chinese health officials said.
The death came the same day Chinese officials released data indicating the new virus could be 20 times more lethal than the flu.
#6 Why is this virus killing 15 percent of all victims that are over the age of 80?…
The deadly coronavirus rapidly sweeping the world kills up to 15 per cent of patients over the age of 80, scientists have revealed.
Chinese health officials carried out the biggest ever study on the never-before-seen strain of the virus, using data from 72,000 cases.
#7 On the flip side, why are so few children being infected by this virus?…
Scientists are still learning about the coronavirus outbreak that has killed 1,384 people and infected more than 64,000 in China. One of the biggest mysteries is why so few children have gotten sick.
The outbreak was first reported on December 31, but no children younger than 15 years old had been diagnosed as of January 22. A study in the New England Journal of Medicine said at the time that “children might be less likely to become infected or, if infected, may show milder symptoms” than adults.
#8 What is this coronavirus outbreak going to mean for the entire global economy? This is something that I have written about repeatedly in recent days, but the mainstream media in the western world continues to insist that this crisis will just be a small bump in the road. Meanwhile, over in India there are warnings that there could be “massive disruptions” and “shortages” if this crisis doesn’t end soon…
Pankaj R. Patel, chairman of Zydus Cadila, said prices of medicine in India have exponentially jumped in the last several weeks, thanks to much of the medicine is sourced from China.
The Indian pharmaceutical industry is experiencing massive disruptions that could face shortages starting in April if supplies aren’t replenished in the next couple weeks, Patel warned.
A top health official at the National Institutes of Health acknowledged that the quarantine aboard the coronavirus-infected Diamond Princess Cruises ship failed while discussing the decision to evacuate hundreds of American passengers – 14 of whom tested positive for the virus.
Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases at the National Institutes of Health, said the original idea to keep people safely quarantined on the ship wasn’t unreasonable. But even with the quarantine process on the ship, virus transmission still occurred.
#10 The number of confirmed cases outside of China has doubled in less than a week. If the number of cases continues to double every week, how bad will this crisis eventually become?
I’ll answer that one.
If the number of confirmed cases outside of China doubles every week, there will be a million cases just 10 weeks from now.
And once there are a million people with coronavirus walking around all over the planet, nobody is going to be able to “contain” it.
So let us hope that the measures that authorities are currently taking to control the spread of this disease will work.
President Trump believes that this outbreak will start to fizzle when warmer weather arrives, and I truly hope that he is correct.
Because right now this outbreak is getting worse with each passing day, and we definitely aren’t getting good information about this crisis from the mainstream media.
Another day, another new record high in stocks as the Powell-Put is well and truly priced in to save the world no matter what – global pandemic, no problem, hold my beer… the assumption seems to be that The Fed will print again and it’s more than priced in…
Gold outperformed post-Fed Minutes as stocks lagged…
Source: Bloomberg
Chinese stocks limped lower overnight…
Source: Bloomberg
European stocks were all higher with Italy’s FTSEMIB leading the week’s charge…
Source: Bloomberg
US equity markets were all higher again today, once again led by new record highs in Nasdaq (and The Dow briefly lifted back into the green for the week, but slid back into the close)… stocks closed weak for the 2nd day in a row after a solid day.
Source: Bloomberg
Record highs for S&P and Nasdaq
It would appear the world and their pet millennial has decided that owning stocks is for loser boomers and the real game is buying calls as the put/call ratio across US equity markets has collapsed back near its lowest in 7 years (and lowest ever)…“There are very, very high volumes in options markets – and historically you don’t see volume spikes when the market is going up. People are buying options to get exposure to rallies, not to hedge.”
Source: Bloomberg
AAPL erased all of the losses from its outlook cut…
Cyclicals dominated Defensives today…
Source: Bloomberg
And momo is dominating value this year…
Source: Bloomberg
HY Credit is not playing along with the equity exuberance…
Source: Bloomberg
Treasury yields were mixed today with the short-end slightly higher and long-end slightly lower…
Source: Bloomberg
30Y yield hovered around 2.00% today…
Source: Bloomberg
The yield curve remains inverted (which if The Fed’s Neel Kashkari is to be believed, is a sign of confidence that the Fed knows what it’s doing)…
Source: Bloomberg
The Dollar extended its recent gains – up 11 of the last 13 days… to the highest since Oct 2019
Source: Bloomberg
The yen tumbled today to its weakest since May (biggest drop in JPY vs USD since Aug 13th), decoupling notably from gold…
Source: Bloomberg
Cryptos were flat today, but Ether and Vitcoin back towards unch on the week…
Source: Bloomberg
Notably both Bitcoin and Gold have been rising as the volume of global negative-yielding debt has resurged…
Source: Bloomberg
Silver remains the week’s best performer but oil surged again today…
Source: Bloomberg
Gold continued to rally, pushing to its highest since March 2013 against the dollar…
Source: Bloomberg
And back near record highs against the yen…
Source: Bloomberg
WTI extended yesterday’s gains ahead of tonight’s API inventory data…
And while Gold and silver are doing ‘ok’, Palladium hit a new record high today (at $2850), up almost 40% YTD…
Source: Bloomberg
Finally, you have to laugh…
Source: Bloomberg
And it looks like Nasdaq 10k is inevitable now…
Source: Bloomberg
And ahead of tonight’s debate, it appears Bloomberg has peaked and Bernie is the man…
Source: Bloomberg
And as Bernie leads so the odds of a Trump win in November surges…
Sanders Widens Lead Over 2020 Dems After New Poll Reveals 32% Support
Vermont Senator Bernie Sanders has widened his lead against the other 2020 Democratic presidential candidates, according to a new national poll by the Washington Post/ABC News.
Sanders scored a 9% boost over the outlets’ January poll, garnering 32% support among Democrats and Democratic-leaning voters following strong results in Iowa and New Hampshire contests, Bloomberg reports.
Joe Biden, meanwhile, sank to 17%, followed closely by Michael Bloomberg at 14% and Elizabeth Warren at 12%.
Sanders’a [sic] lead tracks with the 31% support among Democrats and Democratic-leaning voters that the Vermont senator posted in a NPR/PBS Newshour/Marist poll released Tuesday. Sanders garnered 27% in a Wall Street Journal/NBC News national poll also released Tuesday.
The Post-ABC poll found 30% of Democratic-leaning voters choosing Sanders as the most electable against President Donald Trump. Sanders was the top choice of 50% of voters under age 50. –Bloomberg
And while Biden has the most support among blacks at 32%, Sanders has the most support from nonwhites overall at 35% to Biden’s 22%.
While Bernie may have a massive lead over the pack right now, Bloomberg has made great strides – and may pose a serious challenge to the Vermont socialist in the coming weeks.
