Category: zerohedge

White House coronavirus advisor Dr. Anthony Fauci said during an interview this week with the NYT that convincing skeptics to take a COVID vaccine is a matter of paramount importance to safeguard the public health.

Many of these people “actually don’t think that this is a problem,” Dr. Fauci said during a conversation with the Hastings Center. He also pointed out that many people simply don’t accept the fact that a vaccine was developed so quickly, especially since experts during the early days of the outbreak warned that a vaccine could take years.

After slamming all the “fake news” surrounding the virus and the vaccine, Dr. Fauci complained that he was “stunned” by peoples’ reluctance to believe in the virus.

After the NIH estimated that 75% of the US population would need to receive the vaccine to establish herd immunity, Dr. Fauci insisted that he would like to see “the overwhelming majority” of people to receive the vaccines so we could “essentially really crush this outbreak.”

“Despite a quarter million deaths, despite more than 11 million infections, despite 150,000 new infections a day, they don’t believe it’s real. That is a real problem,” Fauci said.

Speaking earlier this week at the NYT’s Dealbook virtual conference, Dr. Fauci said that “if we have an effective vaccine and 50% of the population refuses to take it, you still have a considerable public-health challenge.”

Many Americans have pointed to the speed at which the vaccine was developed for making them uncomfortable with taking it. But Dr. Fauci tried to explain that the speed is largely a factor of scientific advances that helped unlock the mRNA approach being used by Pfizer and Moderna.

Additionally, once the data is ready for review – Pfizer is submitting its vaccine for an EUA on Friday, the company said – Dr. Fauci explained that the data are reviewed by both internal and external committees and researchers.

“By the time you get the FDA deeming that this is a safe and efficacious vaccine, you’ve had a independent and transparent process decide,” Fauci said. “We’ve got to keep hammering that home because for the group of people who are concerned about the process, the process is sound.”

At this point, only the naive should believe that Dr. Fauci is sincere in his hopes to convince skeptics to take the vaccine. In the end, only one thing is going to force people to take the vaccines, and that’s the “soft” pressure of exclusion – or a more heavy handed approach, like mandatory vaccination orders.

Could this be how the scene is set for the silencing of bastions of “free speech” like Parler, where all of this vaccine “misinformation” has migrated from ‘mainstream’ platforms like Twitter and Facebook?

Authored by Tsvetana Paraskova via OilPrice.com,

Arab Gulf oil producers are losing billions of U.S. dollars from oil revenues this year due to the pandemic that crippled oil demand and oil prices. Because of predominantly oil-dependent government incomes, budget deficits across the region are soaring.  

Middle East’s oil exporters rushed to raise taxes and cut spending earlier this year, but these measures were insufficient to contain the damage.

The major oil producers in the Gulf then rushed to raise debt via sovereign and corporate debt issuance. Bond issues in the region have already hit US$100 billion, exceeding the previous record amount of bonds issued in 2019.

Thanks to low-interest rates and high appetite from investors, the petrostates are binging on debt raising to try to fill the widening gaps in their balance sheets that oil prices well below their fiscal break-evens leave.

Saudi Aramco Taps International Debt Market Again

One of the latest issuers is none other than the biggest oil company in the world, Saudi Arabia’s oil giant Aramco, which raised this week as much as US$8 billion in multi-tranche bonds. 

Aramco is tapping the international U.S.-denominated bond market for the second time in two years, after last year’s US$12 billion bond issue in its first international issuance, for which it had received more than US$100 billion in orders.

Saudi Aramco prefers to considerably increase its debt to cope with the oil price collapse than to touch its massive annual dividend of US$75 billion, the overwhelming majority of which goes to its largest shareholder with 98 percent, the Kingdom of Saudi Arabia.

Analysts warn that the dividend windfall from Aramco will not be enough to contain Saudi Arabia’s widening budget deficit if oil prices stay in the low $40s for a few more years.

The massive dividend of Aramco cannot fund the widening budget gap of Saudi Arabia if oil prices remain low beyond 2021, Moody’s said last month.

The Saudi budget depends to a large extent on the royalties, taxes, and of course, the dividend from Saudi Aramco.

Bond Issuance Binge in the Middle East

The Saudi oil giant’s new debt is the latest in a series of sovereign and corporate bond issuances this year, with which Middle Eastern producers hope to fund their budgets to compensate for crumbling oil revenues.

Abu Dhabi, the emirate holding nearly all of the oil reserves of the United Arab Emirates (UAE), issued a US$5-billion bond in September, with one tranche of it maturing in 50 years—the longest term for a bond issued by a sovereign issuer in the Gulf Cooperation Council (GCC), which also includes Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia. Abu Dhabi’s latest issue was the third bond issue this year, following US$10 billion raised in the spring. 

Another UAE emirate, Dubai, issued US$2 billion in bonds in September, its first since 2014.

The sovereign bond binge began with Qatar in early April, when it raised US$10 billion in tranches of five, 10, and 30 years.

Oman and Bahrain, whose finances are on a more precarious footing than those of the larger oil producers in the region, also tapped bond markets this year.

How Sustainable Is Amassing Debt?

Loading on debt currently looks like a good way out of the crisis for the Middle East oil producers—it allows them to plug some of the shortfall without further escalating the already tough austerity measures, which could be highly unpopular in the oil monarchies.

However, the debt binge will come to an end sooner or later, and the Gulf oil economies will find themselves in an all-too-familiar position. They will hope and desperately aim, again, for higher oil prices that would help them strengthen their finances and credit ratings in order to be able to refinance debt or issue new debt at reasonable borrowing costs.

The mounting debt would likely delay all those promised oil-dependency-reducing reforms in the region, too.

The oil-producing nations in the Middle East will continue to depend on oil revenues and, by extension, on the price of oil in the future, regardless of all the plans, pledges, and priorities to boost their non-oil economies and reduce their dependence on the volatile nature of the crude oil commodity.

Gulf Arab producers continue to believe that they will outlast U.S. shale and all other higher-cost oil producers and will be the ones that will pump the last barrel of oil on earth.

This belief seems to reinforce the current modus operandi of the Middle East oil nations – borrow now and think of debt loads and reforms later.

The Gulf oil producers are now actively managing supply to the oil market after demand crashed in the pandemic. Yet, in the near to medium term, higher oil prices will depend on the pace of demand recovery. The sooner the market balances, the sooner the Middle East petrostates may be able to breathe a sigh of relief and enjoy the coveted higher oil prices.

However, as previous cycles have shown, higher oil prices could once again make Gulf producers complacent and slow to reform economies to cut dependence on oil income. The oil-exporting countries in the Middle East became rich and powerful because of oil, and they will never want to kill the goose that lays the golden egg.   

In retrospect, it was inevitable: after European growth hit a brick wall in October and early November after a second round of partial (or full) lockdowns were imposed, with even the ECB warning that Q4 GDP may turn negative after the record rebound in Q3, it was only a matter of time before the US – which is now experiencing a second round of creeping lockdowns across the coastal states – suffered the same fate.

As we showed earlier, the Citi econ surprise index has clearly pointed the way, having swung sharply lower (as one would expect after the biggest – and shortest – economic collapse since the Great Depression) in recent months, as the economy caught up to trendline on the back of trillions in fiscal stimulus.

Furthermore, with the US entering 2021 without any firm commitment for another much needed round of fiscal stimulus – which we hope everyone realizes is the only reason why the economy did not disintegrate in the summer and fall – even as the rising number of covid cases continue to dominate the economic outlook, the time for the realization that a double dip is imminent, was drawing close.

That time came this morning in a note from JPM chief economist Michael Farolil, who writes that while the economy powered through the July coronavirus wave, “at that time the reopening of the economy provided a powerful tailwind to growth. The economy no longer has that tailwind; instead it now faces the headwind of increasing restrictions on activity.” Meanwhile, “the holiday season—from Thanksgiving through New Year’s—threatens a further increase in cases. This winter will be grim, and we believe the economy will contract again in 1Q, albeit at “only” a 1.0% annualized rate.“

In other words, the double dip is about to hit.

The good news is that even without a major stimulus, JPM sees the Q1 recession reverse quickly, because “the early success of some major vaccine trials increases our confidence that such medical intervention can limit the damage that the virus has inflicted on the US economy. (Alas, some lasting damage still seems inevitable.)” As such, JPM expects that by 2Q the vaccine will be  available to health care providers, other essential workers, and at-risk populations. JPM then assumes “broader availability to the rest of the population by 3Q or 4Q” which means that while uncertainties abound, “if this timeline is broadly correct, a normalization of activity should give meaningful support to growth in mid-2021.”

And while (the lack of) a vaccine is certainly a downside risk, another potential risk is that the fiscal stimulus which JPM expects will be released next year, also fails to materialize:

By a wide margin, the course of the virus has been the most important factor shaping the outlook. But fiscal policy has been firmly in second place. This year’s unprecedented fiscal support was crucial in jump-starting the current recovery. We expect more fiscal  action next year—with a baseline assumption of $1 trillion by the end of 1Q. If realized, this would further support the case for strong growth in 2Q and 3Q.

This assumption appears overly optimistic assuming we enter 2021 with an even more polarized political climate than ever before (which judging by the unexpected Treasury-Fed right overnight is right on schedule) suggesting that the real risk is we get zero (or a token) fiscal stimulus in early 2021, something JPM also concedes is a distinct possibility:

If instead we get no further fiscal support, this year’s massive fiscal thrust is set to turn to fiscal drag. For example, Figure 4 presents the fiscal impact measure developed at the Hutchins Center at the Brookings Institution. If we get the fiscal support we expect, that drag gets dampened and pushed back, allowing a vaccine more scope to boost growth.

In this “fiscal-free” scenario, the question becomes how long after the economy double dips before the Fed sparks the next crisis that will allow it to unleash the next several trillion of liquidity into the market (thus allow stocks to hit JPM’s 2021 target of 4,100 which even the bank admits will happen purely on central bank liquidity).

With Joe Biden’s ‘irregularity-filled’ election win all but assured (unless the Trump campaign can pull off several upset legal victories), we now turn our attention back to the Biden family’s ties to Russia and China – a narrative which the MSM will attempt to suffocate out of existence – particularly if Republicans (and their investigative committees) lose the Senate after January’s runoff in Georgia.

In a “supplemental” release to a late September Senate report into Hunter Biden’s international business dealings, Sens. Chuck Grassley (R-IA) and Ron Johnson (R-WI) outlined additional information regarding troubling connections between Hunter Biden’s business associates and the Russian government, as well as ‘millions of dollars’ transferred from a CCP-linked Chinese entity to a Biden business associate who allegedly leveraged his relationship with the former Vice President’s family, according to the Washington Examiner.

“These new records confirm the connections between the Biden family and the communist Chinese government, as well as the links between Hunter Biden’s business associates and the Russian government, and further support the Committees’ September 23, 2020 report’s finding that such relationships created counterintelligence and extortion concerns,” wrote the senators in a five-page report which included 65 pages of evidence.

Elsewhere, they wrote that after their September report was issued, “new sources went public with additional information about business relationships and financial arrangements among and between the Biden family and their business associates, including several foreign nationals … The new information is consistent with other records within the Committees’ possession which show millions of dollars being transferred from a Chinese entity linked to the communist party to Robinson Walker LLC.” –Washington Examiner

A key focus of the supplemental report is Rob Walker, described as “Hunter Biden’s longtime business associate.” Walker is associated with three companies tied to Hunter according to the report, which includes new information from former Biden business associate Tony Bobulinski, who worked with the Bidens and Walker in 2017 to create a business which would establish a joint venture with a Chinese Communist Party-linked business, CEFC China Energy – which was run by a disappeared Chinese tycoon and has since gone bankrupt.

Bobulinski, who was tapped to lead the Biden JV through “SinoHawk”, repeatedly referenced $10 million in startup funding from a Chinese businessman – money which never materialized, yet which Grassley and Johnson conclude some or all ultimately wound up to accounts linked to James and Hunter Biden.

The Senate investigation update noted that in February and March 2017, a Shanghai-based company called State Energy HK Limited “sent two wires, each in the amount of $3,000,000, to a bank account for Robinson Walker LLC” but that “it is unclear what the true purpose is behind these transactions and who the ultimate beneficiary is.” State Energy HK Limited was affiliated with CEFC under the leadership of Ye Jianming, who had “ties to the Chinese Communist Party and Chinese military” and whose deputy, Gongwen Dong, another business associate of Hunter Biden’s, also received funds from State Energy HK. –Washington Examiner

“These transactions are a direct link between Walker and the communist Chinese government and, because of his close association with Hunter Biden, yet another tie between Hunter Biden’s financial arrangements and the communist Chinese government,” reads the Grassley and Johnson release, which also concludes that Hunter “received a $3.5 million wire transfer from Elena Baturina, the wife of the former mayor of Moscow” and that he also “opened a bank account with” Gongwen Dong to fund a $100,000 global spending spree” along with James Biden and his wife, Sara.

Read the rest of the report here.

Senate GOP – Biden Family S… by Washington Examiner

Authored by Mark Dittli via TheMarket.ch,

William White, former chief economist of the Bank for International Settlements, is taking central banks to task. Monetary policy over the past three decades has caused ever higher debt and ever greater instability in the financial system, says White. Fiscal policy must take over to deal with the current crisis.

William White has seen a lot in his professional life. He worked for central banks for almost fifty years, most recently for the Bank for International Settlements in Basel, where he was Chief Economist until 2008. Back then, he was one of the few officials who had warned of a looming financial crisis.

Today, the Canadian criticizes the central banks:

«They have pursued the wrong policies over the past three decades, which have caused ever higher debt and ever greater instability in the financial system.»

He suggests that the current crisis should be used to rethink in order to build a more stable economic system, one in which fiscal policy plays a greater role and that relies more on productive investment. In this in-depth conversation, White says what should be done – and he demands more humility from decision makers: «We know much less about the economy than we think we do.»

Mr. White, the pandemic has caused the deepest recession since at least the 1930s. How would you rate the reaction of fiscal and monetary policy makers so far?

First, this pandemic again shows how little we know. We’re dealing with a high level of uncertainty about its progression, and we all need a healthy dose of humility. Having said that, I’d say it was the right thing to do to open the fiscal policy spigots to prevent the economy from crashing. I’m more sceptical whether still easier monetary policy is the right answer for a shock of this character. In fact I hope we’ll use this crisis for some serious soul searching on whether the monetary policy of the past thirty years has done more harm than good. But to fight the immediate effects of the pandemic, there was not much else policy makers could have done.

Let’s focus on the fiscal side first: When is the time to withdraw the support?

Certainly not now. There is still room for manoeuvre on the fiscal side and we can still increase that room. Bond markets are wide open. Governments should use the current environment to borrow long and lock in cheap money while they can.

Are you not worried about rising government debt levels?

What I’d like to see is clear guidelines from governments about how they intend to get debt levels down in the future. I’m not talking about a German style debt brake here, but guidance on what types of expenditure cuts and tax increases they would be looking at. They should use this crisis as an opportunity to cut subsidies that often go to special interest groups that don’t deserve them anyway. But let’s be clear, this is not the time for austerity. I’d paraphrase St. Augustine: Lord, give me chastity – but not yet. That was the big mistake after the Global Financial Crisis: Most governments entered the austerity path too early and left it to the central banks to get the economy going. Sadly, that’s been the pattern for the past thirty years.

How do you mean that?

Once upon a time, it was accepted that fiscal policy could play a productive role in dealing with a severe economic downturn. This is what Keynes gave us with the General Theory. But some time in the 1980s, the belief system changed. Fiscal policy needed to be targeted, timely and temporary to be effective, but our legislative processes could not deliver. So fiscal policy grew out of favour. At the same time, starting in 1987 with Alan Greenspan at the Fed, monetary policy grew to be the instrument of choice for all kinds of crises.

And that was wrong?

We’re on a slope where monetary policy has become increasingly ineffective in promoting real economic growth. Every crisis was met with monetary easing that caused debt and other imbalances to accumulate over time, and that caused the next crisis to be bigger than the previous one. The next crisis then needed more punch from central banks. But since interest rates were never raised as much in upturns as they were lowered in downturns, the capacity to deliver that punch was decreasing.

In March of 2020, the financial system was on the brink of collapse with widespread panic in equity and bond markets. The Fed ended that panic by announcing they would buy corporate bonds. Is that not strong proof that monetary authorities are in fact very effective?

This episode perfectly encapsulates my view of what’s wrong with our monetary policy of the past decades. True, the Fed had no choice but to step in to prevent a financial meltdown. But this meltdown only happened because of the monetary policy followed over previous years. You see, by keeping interest rates too low and thereby trying to create economic growth, central banks are inducing corporations and households to take on more debt. To a large part, this debt is not used for productive investments, but for consumption or, especially in the U.S., for the buyback of shares. This creates a debt trap as well as rising instabilities in the financial system. These instabilities broke out in March and the Fed responded adeptly to stop the panic. But my point is: Central banks create the instabilities, then they have to save the system during the crisis, and by that they create even more instabilities. They keep shooting themselves in the foot.

Have central banks reached the end of the road?

Just read what Bill Dudley, the former president of the New York Fed, wrote in Bloomberg a couple of weeks ago. He warns that central banks have run out of firepower, and he warns that the side effects are getting worse. I agree with every word. That is the most dangerous effect of the past thirty years of monetary policy: Debt levels have constantly been building up, and so have the instabilities in the financial system.

Jerome Powell has tried to normalize monetary policy, but he had to stop after a market panic in late 2018. Is the Fed hostage to financial markets?

This is exactly my definition of the debt trap: Central banks know they can’t leave interest rates as low as they are, because they are inducing still more bad debt and bad behavior. But they can’t raise rates, because then they would trigger the very crisis they are trying to avoid. There is no way out but to keep doing what you are doing, but by doing that, you are making it worse. Pretty uncomfortable, right?

After the Financial Crisis, there was a lot of talk about deleveraging the system. Nothing happened. Why?

In 2008, the ratio of global household, corporate and government debt to GDP was 280%. Early 2020, this ratio had grown to 330%. And it’s not just the quantity of that debt, it’s the quality. Most of the new corporate debt is BBB-rated, covenant light, low quality stuff. The reason for that is the ultra easy monetary policy we have seen post-2008. Governments made the mistake of embracing fiscal austerity too early. By that, they left the job to the central banks to frantically try to create economic growth. This is a mistake we must avoid after this crisis. Fiscal policy will have to play a much larger part going forward.

Central banks have argued that their easy monetary policy is needed because inflation was too low. Were they correct?

No, that was a misconception. Starting in the late 80s, we had a series of positive supply shocks to the world economy, most important of all the establishment of China as a manufacturing economy, as well as the collapse of the Soviet Block. Hundreds of millions of workers thus entered the capitalist world economy. At the same time, the members of the Baby Boom Generation grew their way through the Western economies. This manifested itself in a sustained positive supply shock that had a strong disinflationary effect on the world economy.

So central banks tried to fight a disinflation that was in fact benign?

Exactly. There are periods of low inflation or outright deflation that ought not to be of concern for central banks. If prices want to go down because of productivity increases: What’s wrong with that? Productivity increases give you higher profits and lower prices, which is the way productivity gains are shared between the entrepreneurs and the consumers. There is a raft of pre-war literature on the topic of benign deflation, but our central banks have forgotten about it.

And yet, one of the most steadfast arguments for their policy is the undershoot of inflation. The Fed even changed its inflation mandate to achieve «on average 2% over time». What do you make of that?

When you have a lack of demand and high unemployment, then it absolutely makes sense to pursue an easy monetary policy. My problem is that, over many years, central banks have done everything to fight this perceived undershoot of inflation, regardless of its cause. They pulled out all the stops, not least by imposing negative interest rates in the Eurozone, which weakened their banking system. Despite measures of inflation being so imprecise and so unsure, as repeatedly noted by the late Paul Volcker, many central bankers have been willing to pull out all the stops in response to decimal point deviations. That, to me, is hard to justify.

Looking forward, can there be such a thing as normalization in monetary policy?

There is no return back to any form of normalcy without dealing with the debt overhang. This is the elephant in the room. If we agree that the policy of the past thirty years has created an ever growing mountain of debt and ever rising instabilities in the system, then we need to deal with that.

How?

In theory, there are four ways to get rid of an overhang of bad debt. One: Households, corporations and governments try to save more to repay their debt. But we know that this gets you into the Keynesian Paradox of Thrift, where the economy collapses. So this way leads to disaster. Two: You can try to grow your way out of a debt overhang, through stronger real economic growth. But we know that a debt overhang impedes real economic growth. Of course, we should try to increase potential growth through structural reforms, but this is unlikely to be the silver bullet that saves us. This leaves the two remaining ways: Higher nominal growth – i.e. higher inflation – or try to get rid of the bad debt by restructuring and writing it off.

Which way will it be?

Probably a combination, but they are all very hard to achieve. It’s fairly obvious that a number of policy makers will try to inflate the debt away. This was how they did it after World War II, through what we now know as financial repression: Get inflation above interest rates, and then the debt ratio gradually comes down. It’s just very hard to engineer the kind of inflation that is just right for this process.

A number of heavyweight economists are suggesting exactly that: Engineer inflation levels of 4 to 8% over a number of years to inflate the debt away.

Sure, that’s what Larry Summers and Olivier Blanchard are saying. Perhaps that’s possible. My only point is that they are starting with the assumption that the nature of the economy means it is understandable and controllable. But I’m saying we are dealing with a complex adaptive system, full of tipping points, and we should not assume that we can understand and control it. On the one hand, in depressed circumstances, it might prove impossible to raise inflation. On the other hand, given enough fears of fiscal dominance, you might get a lot more inflation than you bargained for.

The period of financial repression after World War II had another prerequisite: capital controls to prevent capital flight. Are they feasible today?

When I started working at the Bank of England in the late 1960s, the biggest department in the place was Foreign Exchange Control. In the modern world, is it really possible for a single government to control the outflow of capital in the way that would be required? I doubt it. Yet, if a number of large governments simultaneously embark on a path of financial repression, it raises the question of where capital might flee to? Gold? Bitcoin? In such an environment, I would be worried if I were Swiss. People might see the Swiss Franc as one of the currencies to flee into. Financial repression has the potential to be a messy process.

What about the fourth way: write-offs?

That’s the one I would strongly advise. Approach the problem, try to identify the bad debts, and restructure them in as orderly a fashion that you can. But we know how extremely difficult it is to get creditors and debtors together to sort this out cooperatively. Our current procedures are completely inadequate.

How so?

Let me give you two examples: It was clear that the best way forward for Greece after their crisis of 2010 was a comprehensive debt relief in return for structural reforms. However, policy makers in Berlin and Brussels never agreed to the level of debt relief that was needed, and so they pushed Greece into a destructive austerity spiral. Or look at government debt in Sub-Saharan Africa today: A lot of it has to be written off. Otherwise these countries are going to be forced to continue to try to pay, and they will do it at the expense of healthcare and so on. That’s a recipe for human disaster. But we are dealing with public, private and Chinese creditors, who are competing to be paid. Why should a Western private creditor give up his claim if the Chinese don’t? Unfortunately, recent legal rulings like NML Capital versus Argentina have taught creditors that it’s best to hold out. So, all over the world creditors don’t agree to restructurings but rather extend and pretend that the debt is still viable. And it’s all made superficially viable by easy monetary policy.

It almost seems the easiest way is to just keep doing what we are doing?

You are right. My colleagues at the BIS and I have been warning of this debt trap issue for twenty years. I am reminded of the economist Herb Stein who once said that, if something cannot go on forever, it will stop. To which Rudi Dornbusch quipped: Yes, but it will go on for a lot longer than you anticipate. One of the reasons for not changing anything is indeed the argument that it has worked so far. What is needed now is agreement that our policies of the past thirty years have created an ever rising level of debt and ever increasing instabilities. Should it be agreed that this path is not sustainable, as it leads to ever bigger crises, it’s an absurd proposition to stay on that path.

Knowing that complex adaptive systems are prone to tipping points: What could derail this system?

I don’t know. One of the conclusions of the complexity literature is that the trigger itself is irrelevant. If the system is unstable, anything could be a tipping point, even if the instability goes on without incident for years. Again, take the episode of March 2020, when these corporate giants in the U.S. were wobbling. The Fed stopped the panic. What if markets at that point had lost confidence in the ability of the Fed? We only know in hindsight that it worked. But we don’t know how the system will react in the future. In fact we know much less than we think we do, which is something that both Hayek and Keynes, commonly described as being at odds, totally understood. Central bankers, indeed all macroeconomists, should be much more humble than they are.

You said that we should use this crisis to build a better system. Apart from dealing with the debt overhang: What do you envisage?

One, I think population aging means we have to build a system that relies much more on productive investment to support both current demand and future pensioners. When I said that fiscal policy has more room in the next few years, it’s absolutely clear to me that there is a lot of potential for good, productive public infrastructure investment, particularly in America and Europe. Again, debt is not a problem as long as it is used for productive investments. Two, we need a corporate system that relies more on equity and less on debt. Managers, particularly in the U.S. and the UK, who took on more debt just to buy back shares to boost their stock options, have acted irresponsibly. Cutting back on capital investment for the same reason is even worse. This bonus culture is wrong. Three, we need a system in which there is more competition and less concentration. Monopolies have been quietly building in the past years, and these monopolies use their extra profits to gain political control. Four, we have to realize that the problems in our political system – populism, alienation, distrust – have their roots in our economic system: in particular, rising inequality. We’ll have to deal with that.

How?

When this pandemic is over, we will see rising marginal tax rates, we will have to talk about wealth taxes, and there must be a much more robust crackdown on the shifting of corporate taxes and criminal tax evasion. And, of course, we’ll have to deal with climate change, a clear and present danger that only people in denial refuse to accept. These are huge tasks.

Are you optimistic that we’ll master them?

I honestly don’t know. We’ll need a paradigm shift in our thinking, and we know from history how difficult that is. I mean, both Copernicus and Darwin delayed publishing their work for years because they knew how much their ideas would upset the establishment. Since the Reagan-Thatcher Revolution of the early 80s we’ve worked with a set of beliefs. And some of these beliefs have turned out to be wrong. These false beliefs need to be changed.

Such as?

The idea that price stability is sufficient for economic stability? Wrong. That easy money always stimulates demand? Wrong. That the economy is self-adjusting, back to a full employment equilibrium? Wrong. That financial markets are efficient and bad things can’t happen? Wrong. That wealth will trickle down to all levels of society? Wrong. These are big beliefs. And false beliefs are dangerous.

You know the saying attributed to Mark Twain: It ain’t the things that you don’t know that get you, it’s the things that you know for sure, that ain’t so! Never forget: We think we know much more than we really do.

Late on Thursday, when we commented on the implications of Mnuchin’s “political” decision to end various emergency facilities jointly operated by the Treasury and the Fed, including the muni liquidity program and Main Street lending program which many Wall Street strategist pointed out “present market disruption risks”, we said that the market is likely completely misreading this analysis, for the simple reason that less support from the Treasury – whether via Fiscal stimulus or helicopter money – means that the Fed will be required to do more, either in the form or more outright QE or expanded duration of existing debt monetization.

Overnight, Ben Emons, head of global macro strategy at Medley shared a similar view, writing that “the Fed may boost Treasury purchases and/or extend maturities of the securities it buys through its main QE program because of the dispute.“

Now, in his morning note, BMO’s chief rates strategist Ian Lyngen agrees with this take and writes that “there is little question that this increases the probability that the Fed pushes forward with an extension of the WAM of QE purchases at the December 16 FOMC meeting.“

Why is this important?

Because when it comes to capital markets, the Fed’s monetary policy – be it QE, YCC, or NIRP – is far more powerful and quick in raising risk prices, whereas any “spending-based” stimulus that goes through the Treasury is not only greatly diluted by the time it hits stock prices (after all it goes through the broader economy first), but it also raises the possibility of inflation. Remember: nothing crushes PE multiples faster than a jump in inflation.

In other words, while Mnuchin’s action may lead to an adverse impact for the broader economy, it is perversely stimulative for the markets. Or at least should be. Which is why today’s downbeat market response is – you guessed it – yet another dip buying opportunity for the army of 16-year-old Robinhood traders and/or Mnuchin’s immediate family which will be able to afford even bigger diamond rings.

Below we republish Ian Lyngen’s full note:

The opposing stances of Mnuchin and Powell on the extension of “the full suite” of bailout facilities has become the market’s primary focus as the weekend quickly approaches. Allowing the expiration of the corporate credit facilities (both primary and secondary) is the headline eyebrow raiser; however, ending the muni liquidity program and Main Street lending also present market disruption risks. We’re sympathetic to both sides of the argument; Powell advocates extending everything over year-end to ensure against dislocations whereas Mnuchin sees functioning in the credit and muni markets as sufficient and the monies would be better used as grants/bailouts. The question of ‘why not both continuing the facilities and providing further fiscal aid?’ falls well into the territory of the political and far afield from the tradition risk/reward calculations in financial markets. Alas, the fact of the matter remains that this debate is very much front and center as investors attempt to navigate the balance of 2020.

There is little question that this increases the probability that the Fed pushes forward with an extension of the WAM of QE purchases at the December 16 FOMC meeting. That said, it’s also incrementally encouraging that Mnuchin’s proposal includes the partial extension of the emergency facilities; perhaps leaving the door open (albeit slightly) for more flexibility with the remaining programs. Any further public comments on this issue in the coming days will allow investors a better sense of the balance of risks into the year-end turn. In the interim, it’s been impressive how limited price action has been in both US rates and global equities. To be fair, the bull flattening in Treasuries has been credited to the risk just such a scenario comes to fruition, thereby forcing the Fed’s hand via extending bond buying further out the curve.

We’re cautious of attempting to extract an overly bearish read on the fact Treasuries haven’t extended the bull flattening on the Mnuchin/Powell showdown, even if it’s tempting to put this episode in the crowded category of buy the rumor sell the fact in Treasury space. Simply concluding the issue has been ‘fully priced in’ at this stage is needlessly glib in light of the array of potential combinations of what programs ultimately get extended and how Congress chooses to utilize any freed up emergency funding. With all the caveats dutifully offered, it’s still encouraging that 10-year yields were unable to dip as low as 80 bp and appear to be stabilizing closer to 85 bp. This price action has occurred despite the building consensus that Fed action next month is much more likely than not and it will, by design flatten the curve and limit any decisive bear steepening.

This reality doesn’t entirely negate the underlying fundamentals that continue to support the potential for gradual upward pressure on yields further out the curve. That said, the prospects for a WAM extension in December and an outright increase in the size of bond buying beyond $80 bn/month at some further point if the situation warrants does limit the degree to which 10- and 30-year yields can back up over the next 12-18 months. This by no means takes 1-handle 10s off the table; in fact, incorporating more official buying further out the curve clears the proverbial deck for an attempt to price in a round of optimism for the year ahead.

It’s a no-data Friday with the overhang (can we stop calling it a benefit yet?) of working from home as the holidays rapidly approach. Cyber deals, coupon codes, free shipping, free returns, and that annoying little countdown clock that implies heavily discounted items are temporary aberrations rather than an initial misprice/overstock are much better positioned to occupy the market than the choppy price action and dueling policymaker headlines. Perhaps we’re just projecting… again. Nonetheless, the weekly closes in 10s and 30s will merit attention, if for no other reason than the technical implications as month-end and the holiday shortened week approaches.

Tactical Bias:

In addition to the unknown of any potential adjustments to the QE program that may be announced at the December 16 FOMC meeting, we’ve been contemplating what the next trend will be in terms of market moving developments over the next several quarters. At present, that designation rests squarely on the path of the pandemic, however as inoculation eventually proceeds and greater collective immunity develops, there will come a time when case counts fade as the timeliest tradable information. It is at this point we suspect the economic data will once again emerge as relevant for rates. Not necessarily as a function of Treasuries responding to the inherently backward looking information, but rather as an update on what hiring, wages, spending and inflation will look like the post-covid novel norm.

As has been exemplified by the collective disinterest in the fundamentals over the past few months, pre-second wave spending patterns are of little consequence when it comes to assessing what the world will look like once a vaccine becomes widely available and adopted.

We are of the mind regardless of the level of government restrictions, individuals will remain reluctant to resume spending in a fashion that was the norm in 2019. This means that presumably at some point in mid-2021, when vaccinations are widespread, the data will capture what growth and inflation – and thus Treasury yields – look like as the second half of the year unfolds and more information is in hand. An extension of the increase in goods spending would follow in such a world. Additionally supportive of this trend is a nuance surrounding the nature of consumption that has been deferred as a result of the pandemic.

Unlike goods spending, many service expenditures will not benefit from pent up demand that has accumulated over the period spent at home. Households will not double the amount of restaurant visits they make or move theater trips they take versus the levels that were the norm before Covid-19. Rather, a return to those levels seems to be a best case scenario given the lingering uncertainty, which in practical terms lengthens the time of the recovery and will ultimately limit the degree to which 10- and 30-year yields will be able to rise.

This doesn’t paint an especially uplifting outlook for the prospects for a trending market in US rates. Instead, the realities imply 1) the curve shape is little more than a directional trade, and 2) the duel between economic optimism and persistent headwinds will leave trading the extremes of the range as the most prudent strategy as the global economy slowly begins to emerge from the pandemic. There will continue to be sectors that are decided winners and losers; even if the prospects for a ‘relatively’ swift return to normal may ultimately save industries that might have been in greater jeopardy had lockdowns persisted for several years.

Authored by Michael Snyder via The Economic Collapse blog,

Do you remember earlier this year when consumers were feverishly hoarding toilet paper and we were seeing colossal lines at food banks all over the nation during the initial stages of the COVID pandemic?  Well, it is happening again.  Now that the vote on November 3rd is behind us, the pandemic has once again become the primary focus of the mainstream media, and a lot of people are completely freaking out.  Just like earlier this year, store shelves across the country are being emptied because Americans don’t want to be stuck at home without enough toilet paper and hand sanitizer.  Each new restriction that gets announced adds to the frenzy, and it has gotten to the point where new restrictions are literally being announced around the nation on a daily basis now.  And if the case numbers that we are being given continue to rise, it is inevitable that this new wave of lockdowns will get even tighter.

Over the last several months, Joe Biden has repeatedly told us that we have a “dark winter” ahead.  Here is just one example…

“There is a need for bold action to fight this pandemic,” Biden said in Delaware. “We’re still facing a very dark winter.”

Biden, whose campaign against President Donald Trump made the coronavirus a main focus, pledged to “spare no effort to turn this pandemic around once we’re sworn in on Jan. 20.”

Technically, winter doesn’t start until a little over a month from now, but the panic shopping has already begun.

In California, supplies of toilet paper are being voraciously gobbled up by fearful consumers…

Shoppers in Temecula had already emptied the paper and cleaning aisle in a local Walmart by Wednesday morning. Other storefronts, such as Trader Joes in the Silverlake neighborhood of Los Angeles and Ralphs on West 9th Street, were simply running low on such supplies.

A worker at a Costco in Los Angeles, who wished to remain anonymous, said the store was selling out of toilet paper every day, among other supplies, but also said that this could be attributed to the Thanksgiving holiday coming up next week.

Similar panic buying appears to be happening over in Spokane, Washington…

In a tweet on Sunday afternoon, KREM photojournalist Roger Hatcher said Target in Spokane Valley was “pretty quiet” but its toilet paper shelves were bare.

In fact, shortages are being reported all over the nation at this point.

I don’t know why there is such a focus on toilet paper.  To me, having enough food to eat for an extended period of time is much more of a priority, but when people get fearful they don’t necessarily think rationally.

And certainly there is a bit of psychology to all of this.  When people are told that there is a “shortage” of something, many of them inevitably feel motivated to run out and buy some too while they still can.  The panic buying has reached such a frenzy that many large chains are once again starting to put purchase limits on certain items.  The following comes from CNN…

At Kroger (KR), customers can purchase a maximum of two items when it comes to products like bath tissue, paper towels, disinfecting wipes and hand soap. Giant, a grocery chain in the Northeast, recently put a limit of one on purchases of larger toilet paper and paper towel sizes and four on smaller toilet paper and paper towel sizes.

H-E-B in Texas has implemented similar policies in recent weeks. Some H-E-B stores have instituted limits of two on purchases of disinfecting and antibacterial sprays, while other stores have limited toilet paper and paper towels to two.

This is just one of the reasons why I have always encouraged my readers to get prepared in advance.

If you have a large family, how long is two packages of toilet paper going to last you?

You could try to stretch out your supplies by limiting family members to a certain number of squares per defecation, but you will still run out very quickly.

When you try to prepare for any emergency at the last minute, you are almost certainly going to fall short.  One or two trips to the grocery store is not going to cut it, and anyone that thinks otherwise is simply being delusional.

Meanwhile, the decline in economic activity around the nation that is being caused by this new round of lockdowns is creating a renewed surge in economic desperation.

Just the other day I wrote about how some people were waiting in line for up to 12 hours to get handouts from a food bank in Texas, and on Wednesday it was being reported that “hundreds of cars” were lined up to get food in Miami…

Huge lines have been forming at a Florida food bank ahead of Thanksgiving and as the coronavirus pandemic worsened across the United States.

Hundreds of cars were spotted queuing for food boxes at Miami’s Gwen Cherry Park on Wednesday.

The boxes were being distributed by the Miami Marlins Foundation amid the ongoing COVID-19 pandemic that has forced thousands of Floridians out of work.

Sadly, the truth is that this is happening all over the nation, and this new round of lockdowns will continue to make things even worse as we head into 2021.

In so many instances, the people waiting in line at these food banks are wearing very nice clothes and are driving very nice vehicles.  This severe economic downturn has come upon them very “suddenly”, but those that have been reading my books were warned in advance that this exact scenario was coming.

Even if this pandemic disappeared tomorrow, I would still believe that we have a “very dark winter” in front of us.  If you have not prepared for the extremely challenging times that lie ahead, I would very strongly urge you to do so.

So far this year we have been hit by one major crisis after another, and the “perfect storm” that started in 2020 is only going to intensify during the coming months.

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Michael’s new book entitled “Lost Prophecies Of The Future Of America” is now available in paperback and for the Kindle on Amazon.

Despite optimism about a vaccine-driven return to normal, the glut in crude oil stocks is getting gluttier once again.

2020 has seen a record increase in stocks at Cushing and while COVID-lockdown Round 1 saw a bigger spike, this second COVID wave is forcing the energy complex into just as ‘glutty’ a situation as before…

Source: Bloomberg

In fact, stockpiles at Cushing, Oklahoma, the delivery point for West Texas Intermediate futures, stood at 61.6 million barrels as of Nov. 13, or about 81% of capacity, according to the most recent U.S. government data. That’s 3.83 million barrels shy of the levels seen in May.

Source: Bloomberg

As Bloomberg reports, though a repeat of the negative oil prices seen in April is unlikely, the mounting supply glut brings home how lockdown measures to contain the Covid-19 pandemic may soon force traders to store oil in every nook and cranny available, including ships and pipelines. Some are already doing that.

“Even as those facilities come back online, we are seeing excess inflows into Cushing overshadowing increased demand,” said Hillary Stevenson, a research director at Wood Mackenzie Ltd.

The reasons behind the buildup are similar to what happened before: Refineries are still coping with lackluster demand as coronavirus cases surge anew.

On top of that, some of them have also been undergoing seasonal maintenance.

This surge in crude stocks has added to the wild swings and speculation in the oil market as the two most influential developments have been Joe Biden’s victory in the U.S. presidential election and Pfizer’s vaccination breakthrough. Both of these events have the potential to significantly impact global oil markets. Then, as we at Primary Vision Network have been warning for months, the second wave of COVID-19 hit, and optimistic estimates of oil demand recovery collapsed.

While all of these events have impacted oil prices over the last few weeks, OilPrice.com’s Osama Rixvi notes that they will also have long-term consequences for oil markets. Joe Biden’s victory will have implications for both the Iran Deal and U.S. relations with China, while the second wave of COVID and vaccine success will significantly impact oil demand and, by extension, OPEC’s strategy in oil markets. Joe Biden’s win has the potential to transform geopolitical and economic policies that directly impact oil prices.

The Iran Deal, formally known as the JCPOA (Joint Plan of Action), is one of the most obvious areas to watch. Among many other promises, Biden has said he plans to “rejoin” the deal, which would involve lifting or easing sanctions on Iran. This would lead to some additional barrels of production from Iran and would directly impact the OPEC+ strategy. With Libyan production already returning and the UAE considering withdrawing from OPEC, an increase in Iranian production would put the fragile OPEC+ agreement under even more pressure. But with new elections scheduled in Iran in 2021, Biden may struggle to keep his promise of rejoining the deal.

Another key factor to watch, as I have highlighted many times, is the U.S.-China trade war. A Biden victory has the potential to ease tensions between these two giants and improve the global economic environment as well as boosting oil markets. It is important to mention here that China will not be able to fulfill its promise of buying an additional $200 billion of products from U.S. If Biden decides to honor the previous agreement and enforce the sanctions snapback clause that was included, the trade war would likely reignite and oil prices would suffer. 

The final factor to watch in 2021 is COVID19, the single most important factor for oil markets. While the news of a vaccine did temporarily boost oil markets, there is a long way to go before we overcome the pandemic. A vaccine is going to be vital is we are going to return to a pre-pandemic oil market and economy. But even if the vaccination is effective, its affordability, acceptability, and availability are all key factors is how effective it is.

Moreover, due to the time needed to roll out the vaccine, we will continue to see lower demand for a good part of next year. While we are waiting for demand to recover, the OPEC+ agreement will be vital. The group is currently considering the possibility of extending the agreement for another three to six months. Saudi Arabia even said that the markets can expect additional cuts if required – altering the production cut agreement. 

Sources: PVN 

According to Mark Rossano of Primary Vision Network (PVN),

“the main issues in the crude markets these days, are:

1) Crude Storage dynamics both onshore/ offshore

2) Crude differentials that promote varying grades

3) The oversupply at the refiners causing economic run cuts making the demand situation worse.”

So while a Biden presidency may change the geopolitical factors at play and a COVID-19 vaccine is providing markets with hope, the oil market will need time to address its fundamental issues.

Biden may have some protectionist tendencies too as he has said he will propose to Federal agencies that they procure only U.S. goods and services. He has also proposed a tax on companies that move their production facilities and jobs outside the U.S. These tendencies alongside his stance on the Senkaku Islands may make it a little difficult for him to seek rapprochement with China.

For the rest of the year, market observers should closely monitor developments related to Iran, China, and COVID, there is no doubt that these will be the three major drivers of oil prices in 2021.

Until now, evidence suggested that up to half of COVID-19 patients are asymptomatic “silent spreaders” of the disease who were unwittingly contributing to outbreaks. Some estimates even pegged the rate of asymptomatic infections as high as 81%.

Now, new evidence suggests that just 17% of those infected with COVID-19 will experience no symptoms, according to Nature, citing a meta-analysis of 13 studies published last month which involved 21,708 people. What’s more, asymptomatic individuals are 42% less likely to transmit the virus than those with symptoms.

The research, spearheaded by lead author Oyungerel Byambasuren of the Institute for Evidence-Based Healthcare at Bond University in Gold Coast, Australia, defined asymptomatic people as those who showed none of the key COVID-19 sysmptoms during the entire follow-up period. The authors only included studies which followed participants for at least seven days, as evidence suggests symptoms typically develop in 7-13 days (during which people are still contagious).

One reason that scientists want to know how frequently people without symptoms transmit the virus is because these infections largely go undetected. Testing in most countries is targeted at those with symptoms.

As part of a large population study in Geneva, Switzerland, researchers modelled viral spread among people living together. In a manuscript posted on medRxiv this month², they report that the risk of an asymptomatic person passing the virus to others in their home is about one-quarter of the risk of transmission from a symptomatic person. –Nature

That said, the analysis acknowledges that while there is a lower risk of transmission among asymptomatics, they may still present a public health risk due to the fact that they are more likely to be out in the community vs. isolating at home, according to Switzerland-based infectious-disease specialist Andrew Azman of Johns Hopkins Bloomberg School of Public Health, a co-author on the study.

“The actual public-health burden of this massive pool of interacting ‘asymptomatics’ in the community probably suggests that a sizeable portion of transmission events are from asymptomatic transmissions,” he said.

Nature notes that other researchers disagree over the extent to which asymptomatic spread contributes to community transmission. ” Byambasuren, the lead author, says that if the studies are correct that asymptomatic people are a low transmission risk, “these people are not the secret drivers of this pandemic,” as they are “not coughing or sneezing as much” and are “probably not contaminating as much surfaces as other people.”

So, while the ‘silent spread’ factor appears to be far less pronounced than previously thought, and the virus kills less than 1% of those infected under the age of 60, one still has approximately a 10% chance of becoming a “long hauler” – an infected person who essentially suffers from waves of flu symptoms for months on end. Is that worth shutting down the economy over?

Authored by Paul Joseph Watson via Summit News,

Former Secretary of State John Kerry attended a panel discussion at the World Economic Forum during which he asserted that a great reset was urgently needed to stop the rise of populism.

Kerry vowed that under a Biden administration, America would rejoin the job-killing Paris Climate Agreement but that this was “not enough.”

“The notion of a reset is more important than ever before,” Kerry said.

“I personally believe… we’re at the dawn of an extremely exciting time.”

The former Senator made it clear that this “reset,” which is merely a re-branding of the same new world order that has faced stiff resistance for the past two decades, is necessary to extinguish populism.

“I think Europe has to look at that with Brexit and the rising national populism – nationalistic populism,” said Kerry.

“Which is really one of the priorities that we all have to address. You can’t dismiss it.”

Speaking about how Trump increased his vote in 2020, Kerry noted, “What astounds me is that as many people still voted for the level of chaos and breach of law and order and breaking the standards and … I think that, the underlying reason for that is something that everybody has to examine.”

European Commission President Ursula von der Leyen also welcomed the prospect of Biden as a “friend in the White House” to the globalists and said the two entities would work on “a new rulebook for the digital economy and the digital society.”

“The need for global cooperation and this acceleration of change will both be drivers of the Great Reset. And I see this as an unprecedented opportunity,” said von der Leyen.

As we have exhaustively documented, “The Great Reset” is merely the latest incarnation of the agenda to centralize power into the hands of a tiny elite, disenfranchising Americans, lowering their living standards and forcing them to submit to a social credit score system that will eliminate all privacy and personal autonomy.

As we reported yesterday, legacy media outlets like the New York Times are still claiming the “Great Reset” is a “conspiracy theory” even as world leaders openly announce it.

For a full break down of what “The Great Reset” truly represents, watch the interview below.

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