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Despite the fact that Postmaster General Louis DeJoy has delayed his most controversial cost-saving measures until after the November vote, and endured a shellacking at the hands of Senate Democrats on the Homeland Security Committee, House Speaker and Democratic leader Nancy Pelosi forged ahead with the help of 26 defecting Republicans to pass a bill calling for $25 billion in financial assistance for the Post Office.

As more states announced plans to hold their elections largely by mail in November (a system that some used for the primaries) the Postal Service announced earlier this month that too much voting by mail could delay the arrival of some votes. Pelosi called a special session of the House during recess and on a Saturday to lend this piece of political theater even more impact.

The vote is the culmination of a Democratic crusade about late mail – literally, a few people complained about their mail being late, a few others posted some context-free photos of mail sorting machines being destroyed, and – boom – Democrats suddenly had an army of twitter trolls shrieking about veterans dying because their medication came a day late. One Connecticut family even complained that USPS had lost the cremated remains of a loved one and veteran (they were found 12 days later thanks to one dedicated worker who supposedly delivered the remains personally). They blamed DeJoy personally for the mistake, and ever since, the state’s AG William Tong has seized every opportunity to draw attention to “out of service” mail sorting machines.

DeJoy is due for round two before the House Oversight Committee on Monday, which should be even more brutal than Friday’s pile-on (at least, for DeJoy’s sake, the Senate is controlled by Republicans).

But in the latest transparent bit of political theater organized by “political mastermind” Nancy Pelosi – and surely this is right up there with her wardrobe choices during the unveiling of the Dems’ police reform bill  – is the victorious vote on Saturday, which has almost no chance of passing the Republican-controlled Senate.

As we mentioned above, 26 Republicans defected to help Democrats pass the bill 257 votes to 150. In addition to the money, the bill called for reversing certain operational changes imposed under DeJoy. Six states are also suing USPS and DeJoy personally (along with the chairman of the USPS board) claiming these changes infringe on states ability to hold free and fair elections.

House Oversight Chairwoman Carolyn Maloney, who introduced the bill, has said the postal service should not “become an instrument of partisan politics.”

On Twitter, Trump raged about the vote.

….that they are trying to pull off in violation of everything that our Country stands for. Vote NO to the Pelosi/ Schumer money wasting HOAX which is taking place now. Then fight the $51 million unasked for Ballots. Only ABSENTEE BALLOTS are acceptable!

— Donald J. Trump (@realDonaldTrump) August 22, 2020

Now, get ready for some strongly worded statements from Pelosi when Mitch McConnell inevitably refuses to call it for a vote. The Senate has introduced its own, scaled down, plan to help USPS as part of a proposed COVID relief bill that thanks to Democrats, likely will never become a reality.

Authored by Sven Henrich via NorthmanTrader.com,

Reality Check

This week the headlines declared the bear market over as the S&P 500 joined the Nasdaq to make new all time highs. A new bull market has begun so the celebratory narratives. It is true these indices have made new all time highs, but the actual market hasn’t. Not even close. These indices have made new all time highs as 6-7 stocks are experiencing the largest and most aggressive market cap expansion in human history distorting everything.

Yet perception is reality and the bullish narratives keep mounting as key tech stocks and their oversized weight are contributing to the main indices relentlessly drifting higher so let me at least provide some perspective as to what’s going on with the larger market.

Firstly note we continue to be in uncharted waters here in terms of the concentration of individual stocks vs GDP as well as the Fed’s balance sheet:

The market cap of just 7 stocks now equals 39% of US GDP.
The balance sheet of the US Fed now equals 36% of US GDP.

— Sven Henrich (@NorthmanTrader) August 21, 2020

The first top 5 stocks now represent 25% of the S&P 500, a concentration in weighting we’ve not seen since 2000. The market cap expansions we see on a daily basis in some of these stocks, such as $AAPL and $TSLA for example, put even the year 2000 bubble to shame.
Just on Friday $AAPL added over $100B in market cap out of thin air on no fundamentally driven news. The stock now having added over $1.1 trillion in market cap since the March lows.

None of this has even a historic approximate reference point and so one must recognize that this market phase is a unique one on its own.

And of course $TSLA is the other popular post child of this era:

1 year ago in August 2019 $TSLA was trading as low as $211, now it’s trading north of $2,000.

— Sven Henrich (@NorthmanTrader) August 20, 2020

None of these companies have produced results that justify these historic market cap expansions in such a short period of time, but they provide cover for the illusion that the bear market is over and that a new bull market has begun. There is little doubt these stocks are in a bull market. I call it a historic bubble, but don’t let anyone tell you the “market” is in a bull market.

It’s not and the value line geometric index shows you this clearly:

While the index made new highs the $XVG produced lower highs versus June and remains far below the 2020 highs or the 2018 highs for that matter.

Even in the almighty Nasdaq the internal picture is atrociously crumbling before our very eyes, be it on new high/vs new lows:

Or be it on the cumulative advance/decline:

Indeed we can observe that the relentless crawl to new highs on the index shows a correction underneath with $NYMO hitting below -50 while $SPX closed the week on a new high with equal weight deteriorating and volume entirely collapsing:

Banks dropped over 10% from the August peak and remain below the December 2018 lows and far below the June highs:

No, it’s all tech, and select tech at that as investors are relentlessly piling into $QQQ, an ETF that has a 56% market cap weighting exposed to just 10 stocks:

No, the “market” is weak underneath and is more reflective of the reality that 7 stocks and relentless artificial liquidity are masking:

This economy is far from recovered, yet markets are now trading at an all-time high of 179% market cap to GDP and the potential fuel of shorts has all but disappeared:

The most valued market in history, everybody long and the shorts are gone.
Have a good weekend!https://t.co/2SriTc7ckf pic.twitter.com/i1BPyoYseM

— Sven Henrich (@NorthmanTrader) August 21, 2020

Next week Jay Powell, who is personally killing it in this market, will speak at Jackson Hole. If there is any conscious recognition on his part as to the historic distortions created by his unprecedented liquidity injections shall remain unknown to all of us. If he has any sense of the enormity of the distortions created he’ll aim to softly try to ease participants off of the dangerous chase into tech stocks for fear that a bursting bubble will cause more damage down the road. But that would require him to not only have cognition of the distortions created, but also take some pain in his personal ETF portfolio. The obvious conflict of interest appears to be a taboo in the financial media for some reason.

Why not ask him: “Mr Powell, how much money have you personally made this year as a result of the liquidity injections you have implemented? In light of these amounts, while over 28M Americans are still claiming unemployment benefits, how can you claim the Fed does not contribute to wealth inequality?” Let him go on record:

Imagine being in charge of deciding unlimited QE while holding this long index portfolio and then saying the Fed does not increase wealth inequality. pic.twitter.com/m73AsAeZwb

— Sven Henrich (@NorthmanTrader) June 12, 2020

I’m sure these 28M Americans would love to know how the Fed is helping them by buying bonds in a $2.1 trillion market cap company.

Bottomline: The larger market is struggling, correcting even as the rotation trade once again was left in the dust of another vertical chase into key tech stocks which are now historically overvalued, technically extremely stretched and at ever higher risk of a violent technical reversion. Month end is again approaching and perhaps the rotation trade may once again be a vehicle of choice as these February gaps remain (see also $DJIA and $VIX).

I’ll leave you with a replay of an 30 min interview I recorded this Thursday evening with the folks over at PeakProsperity with my latest views on the current situation:

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For the latest public analysis please visit NorthmanTrader. To subscribe to our market products please visit Services.

New York property owners are begging the city’s largest businesses to return to work. 

Names like Goldman Sachs and BlackRock have been on the speed dials of New York landlords, who are reportedly reaching out to the businesses begging them to get back to work and, in turn, save the city’s economy. The landlords have formed a “loose coalition” according to a new report by Bloomberg. 

The group includes RXR Realty’s Scott Rechler, Rudin Management’s William Rudin and Marc Holliday of SL Green Realty. These landlords, facing a catastrophic collapse in the price of commercial real estate, argue that it’s safe to return to work and that most NYC businesses simply can’t survive a shutdown much longer. Some are even calling it the “patriotic” thing to do. 

So far, the reception hasn’t been overwhelming. And with every day that passes, it becomes a tougher sell. As businesses close up, there becomes less reason to return to work. As a result, landlords could see a major demand drought and prices could crater. 

Jeff Blau, the head of Related Cos., said: “I’ve been really pushing the CEOs to bring people back into the office. I’ve been using a little bit of guilt trip and a little bit of coaxing.”

He continued: “I am watching the city decay as nobody is here. Now is not the time to abandon the city and expect it to be in the same way you wanted it when you get back in a year from now.”

The landlords are also reaching out to corporations like law firms and tech companies to assure them that their buildings are safe. They are promising to make whatever concessions renters want in terms of safety and are also petitioning the governor’s office to start a “Get Back To Business” campaign. 

But employers have to weigh the risks of sending employees back to work – at the same time that they just figured out the advantages of having their employees work from home. Many businesses have considered keeping the “work from home” model regardless of how the virus pans out. 

Landlords argue that every commercial real estate spot also supports adjacent small businesses. Real estate companies are leading by example, recalling half of their workers and expecting the rest to return to work by next July. 

“The CEOs of several companies I’ve talked to have mentioned that it’s a patriotic duty to have their people come back to the office,” Rudin commented.

Blau continued: “This place is a pain in the ass. It’s crowded and it’s not the easiest place to live. But you make that trade because it’s got so many great things. We want to make sure that it stays that way and people continue to make that trade and have those things to come back to.”

Rechler concluded: “We’re creating our own fate by not bringing people back and restarting the largest economic engine in the country. It’s as much of a civic obligation as anything else.”

Authored by Jeffrey Snider via Alhambra Investments,

There is simply no way to spin these figures as anything good. Not just the usual ones were talk about here, but more so some new data that you probably haven’t seen before.

Beginning with the regular, it doesn’t matter that the level of initial jobless claims has declined substantially over the past few weeks. The fact of the matter is after 22 weeks of dislocation, at least eleven of them under reopening, these continue to rip along at around 1 million per week.

One million.

We’d never seen so much as 700k before (though the labor market is getting into the top range of 1981-82 adjusting for population, as if that’s some good thing). Forget about the first half of the contraction (which the shutdown caused) and just focus on this second set of weeks since early May. There’s no way to describe them, more than double anything we’ve ever seen before.

Not shutdown but the visible display of economic damage.

The rebound isn’t being very bouncy, for one thing, no matter how many gigantic gobs of purported “stimulus” has been thrown at the economy. It ain’t stimulating. The number of jobs still being lost this late into it is unthinkable; historic.

I wrote a couple days ago about another key factor which appears to be what the productivity estimates have revealed; the terrifying possibility that though there’s been more job losses than at any time in history there may not yet have been enough of the longer-run variety to balance business perceptions of far lower post-GFC potential.

Before even getting to July, this divergence between hours and headline payrolls had already suggested that companies may have been holding on to more workers than the decline in output would’ve demanded. In other words, the level of output and actual work performed had declined more than the reduction in headcounts, by a lot more, leaving us to suspect businesses were holding back a sort of reserve of their own workers (who were still on the books but idle nonetheless) having them at-the-ready for when reopening got started.

Those are both (unemployment and productivity) relatively familiar numbers. Now along comes the IRS, of all places, to put even more disturbing emphasis on this idea. The government’s tax collector is preparing itself for severe, and permanent, shrinking in the labor market.

Yesterday, the agency released its estimates for Publication 6961 (h/t Bloomberg). And the update to that release will make your blood run cold (while oddly explaining the NASDAQ).

Before getting to the latest publication, let’s start by going back to happier days or what had seemed like reasonably less awful days during 2017. Globally synchronized growth was the mandate as well as widely accepted as some meaningful acceleration in US and global growth.

Recovery at last.

Under 6961, the IRS estimates how many pieces of tax filings it will have to collect, sort, and manage. Perhaps the most important of all of them are the nation’s W-2’s, the way in which all workers report their incomes to verify withholding and calculate tax liabilities before the federal Leviathan.

A job means a W-2, but many workers hold more than one job at a time or during the year they may change jobs. So, it’s not an exact one-for-one, but when we’re dealing with big things it needn’t be perfectly precise. Even when we look at how 2017’s globally synchronized growth actually turned out in terms of managing all those paper and e-filed submissions:

The first year listed in each update series is the actual number of W-2’s (not including W-2 G’s) that were collected. As you can see already, the labor market disappointed right from the start; the IRS had expected to process closer to 275mm W-2s during 2017 but ended up with less than 260mm. Reflation #3, as it turned out, as bonds had warned the whole time, not Recovery #1.

Following that less robust labor market than expected, the IRS in 2018 and 2019 adjusted itself to lower levels – particularly after the big slowdown in employment that happened in 2018 when Euro$ #4 converted globally synchronized growth into the pre-COVID globally synchronized downturn.

Which brings us to the 2020 update to Publication 6961 released yesterday…and holy sh$%. Sorry, but an expletive is demanded in this situation:

The taxman thinks there may have been an uptick in W-2’s earlier this year associated with last year’s filing (I think they’ll found out that didn’t happen). But then, for next year, in 2021 as 2020’s W-2’s come rolling in, the agency anticipates receiving 37 million fewer of them than what it had been thinking this time last year.

Thirty-seven million.

Even more frightening, the IRS doesn’t believe the labor market is going to recover before 2028. And that is the biggest downside of all. Time is the greatest enemy.

That doesn’t mean 37 million jobs have been eliminated. Some of the gap is gig workers (a very small part) while much of it is probably going to be a whole lot less turnover; workers changing jobs and getting a W-2 for each during a year. If workers change fewer jobs because they’re uncertain or scared, as so often happens during the worst economic circumstances, then that would account for fewer total W-2’s being issued and turned in.

But at the baseline of these estimates, it has to be this or worse:

The “V” is not a V; the rebound is not a recovery. The IRS could be wrong, of course, but when it has been, like so many other official predictions, in which direction is it typically wrong? Using mainstream models, as they’ve done here, when are the models ever overly pessimistic about longer run situations?

More importantly, these numbers are all consistent with each other; horrible. Combined with real unemployment filings and productivity estimates, each coming at the same piece, the labor market, of what looks to be the stark reality of our economic situation.

These right here are the huge jobs numbers, not what got posted by the BLS several Fridays ago. How can the most gigantic of payroll positives in history possibly be disappointing to the point of being irrelevant? Quite easily, it may turn out.

An emerging trend in the classic car space is electric vehicle conversion, otherwise known as EV conversions, which is swapping out a car’s combustion engine and connected components with an electric motor and batteries to create an all-electric vehicle. 

In the last five years or so, EV conversion kits have allowed folks to transform the 1980s Porsche 911s to 1970s Volkswagen Super Beetles to many other vehicles into all-electric cars.

However, wealthy folks don’t have the time to purchase EV conversion kits and tinker with motors and wires – they rather buy a complete package, and that’s where Lunaz Design comes in. 

Lunaz, based in Silverstone, England, is the world’s leading restoration and electrification company, focusing on EV conversions of some of the most iconic post-World World II automobiles from Western nations. 

Lunaz has re-engineered, or let’s say electrified the Rolls-Royce Phantom V, Jaguar XK120, Royce-Royce Cloud, and Bentley S2 Flying Spur.

“Lunaz is basing their re-engineered Rollers on the 1961 Phantom V, which is certainly an iconic-looking Rolls design. Lunaz is only planning on building 30, and says the conversions will utilize its proprietary powertrain,” said Jalopnik. 

The electric Phantom will use a 120 kWh battery, larger than the Tesla Model S’ 100 kWh battery option, allowing the range of the vehicle to reach around 300 miles. 

Jalopnik said ‘Electrolls-Royce’ Phantoms have a list price of about $655,000, but EV conversions for a Rolls-Royce Silver Cloud are much cheaper, around $458,000. 

Authored by Matt Margolis via PJMedia.com,

They say you can’t teach an old dog new tricks, and when it comes to Joe Biden, it appears that really is true.

Joe Biden has been dogged by plagiarism accusations for years, and his Thursday night speech formally accepting the Democratic nomination for president will not go down in history as a speech he wasn’t accused of plagiarizing.

According to Alexander Panetta, the Washington correspondent for CBC News, “a number of Canadians” found part of Biden’s speech to be very “similar” to Canadian politician Jack Layton’s farewell letter before his death.

Here is what Jack Layton wrote:

My friends, love is better than anger. Hope is better than fear. Optimism is better than despair. So let us be loving, hopeful and optimistic. And we’ll change the world.

Here are the similar parting words from Joe Biden’s speech:

Let us begin, you and I together, one nation under god, united in our love for America, united in our love for each other, for love is more powerful than hate. Hope is more powerful than fear, and light is more powerful than dark. This is our moment. This is our mission.

There are undeniable similarities here, though nothing that can be said to be lifted verbatim. I’d actually be inclined to dismiss Panetta’s accusation, if not for one detail. Joe Biden delivered his speech on August 20, 2020. Layton’s letter was written exactly nine years earlier, on August 20, 2011.

A number of Canadians are struck by the similar parting words of Biden’s speech to the final words of Jack Layton’s farewell letter before his death. pic.twitter.com/pvd80XtoHF

— Alexander Panetta (@Alex_Panetta) August 21, 2020

Joe Biden was accused of plagiarizing a law review article in a paper he wrote during his first year at law school, and his 1988 presidential campaign was thwarted after being accused of plagiarizing a speech by British Labour Party leader Neil Kinnock.

While addressing the Welsh Assembly, Kinnock asked,

“Why am I the first Kinnock in a thousand generations to be able to get to university? Why is Glenys the first woman in her family in a thousand generations to be able to get to university? Was it because all our predecessors were thick?”

A few months after Kinnock’s speech, Biden gave a speech with nearly identical phrasing.

“Why is it that Joe Biden is the first in his family ever to go to a university? Why is it that my wife who is sitting out there in the audience is the first in her family to ever go to college? Is it because our fathers and mothers were not bright? Is it because I’m the first Biden in a thousand generations to get a college and a graduate degree that I was smarter than the rest?”

During the 1987 California Democratic Convention, Biden also lifted a phrase verbatim from John F. Kennedy’s 1961 inaugural address.

Earlier this year, Joe Biden’s campaign also copied Bernie Sanders’ platform last month.

On multiple occasions, Joe Biden plagiarized Trump’s coronavirus response plan by pitching ideas on what to do about the pandemic as his own, even though they’d already been done.

In March, Joe Biden said “no efforts should be spared” to get private labs and universities working to rapidly expand testing for coronavirus. Trump had already done this weeks earlier when he ordered the FDA to allow hundreds of private labs and academic hospitals to rapidly begin testing for coronavirus.

Joe Biden also called for relief for small businesses suffering from the economic impact of the coronavirus a day after Trump literally called for $50 billion in liquidity to small business owners. The former vice president also said insurance companies should waive copays for coronavirus testing, which is a good idea. And guess what? Trump had already done that, too, as well as getting commitments from providers to expand their coverage include treatment for the coronavirus in their plans. Biden also called for the acceleration of the development of a coronavirus vaccine. The Trump administration had already fast-tracked the development of a vaccine back in January… you know, when Democrats were distracted by their bogus impeachment of Trump.

Biden also called for Trump to invoke the Defense Production Act (DPA) to increase the production of medical equipment and other necessities after Trump had already done so.

It might be a stretch to say Biden is guilty of plagiarizing here. There’s nothing particularly shocking about two separate lists of cliché platitudes being similar. If anyone other than Biden had delivered those lines they’d likely be dismissed as just coincidental similarity. But with Biden, and his record of plagiarism, one can’t help but wonder.

*  *  *

Matt Margolis is the author of the new book Airborne: How The Liberal Media Weaponized The Coronavirus Against Donald Trump, and the bestselling book The Worst President in History: The Legacy of Barack Obama. You can follow Matt on Twitter @MattMargolis

Between an economy-wrecking pandemic and a blistering crime wave driven by race riots and a disbanded anti-crime unit, New York City residents are switching to Pace Picante and fleeing the metropolis in droves.

That, of course, is nothing new if you’re been following along. But if you need yet another data point, NYC moving companies are so busy they’re having to turn down business, according to DNYUZ.

While the moving industry is fractured among numerous small business owners, and official statistics are tough to come by, one thing is clear: From professionals who are downsizing following a job loss, to students moving back in with their parents, to families fleeing the city for the suburbs, New Yorkers are changing their addresses in droves.

According to FlatRate Moving, the number of moves it has done has increased more than 46 percent between March 15 and August 15, compared with the same period last year. The number of those moving outside of New York City is up 50 percent — including a nearly 232 percent increase to Dutchess County and 116 percent increase to Ulster County in the Hudson Valley. –DNYUZ

“It felt like move-out day on a college campus,” said former NYC resident, Bobby DelGreco, who moved out of his apartment of nine years in Stuyvesant Town, located in East Manhattan. DelGreco is now living in a long-term Airbnb in Los Angeles, so we assume he’ll be moving again shortly.

“All the doors were propped open, and there were moving trucks and furniture everywhere,” he added.

Matt Jahn, owner of Brooklyn-based Metropolis Moving, told DNYUZ that he’s been flooded with so many customers that he’s had to reject new business. “We are turning people away because we just don’t have the capacity,” he said, adding “Normally, in a given summer, we spend a bunch on advertising. But we cut it this year because we couldn’t afford it. And we have still had amazing demand.”

Moving trucks everywhere in our #Manhattan neighborhoods. Let’s work together to bring our borough back. Stay tuned. #NYC #2021 pic.twitter.com/kREnR1eFap

— Elizabeth Caputo (@elizabethcaputo) June 26, 2020

That said, things were looking dicey in March, as the COVID-19 lockdown meant a sharp dropoff in business for moving companies. “Right in the beginning, we weren’t sure if we were allowed to work, and a lot of businesses were in limbo,” according to Daniel Norber, owner of West Village-based Imperial Movers. “Everyone was wondering if they should close shop.”

Then, Gov. Andrew Cuomo announced that moving companies were considered an essential service, and the phones began to blow up.

“Within 30 minutes of the announcement I got a flood of calls,” said Jahn of Metropolis Moving, who added that things haven’t slowed down since.

“The first day we could move, we left,” said Jaime Welsh-Rajchel. In mid-March, Dr. Welsh-Rajchel, a dentist, and her young son, Henry, took refuge from the city with family in Pennsylvania, while her husband, Todd Rajchel, a dental anesthesiologist at Wyckoff Heights Medical Center in Bushwick, stayed behind to spend the height of the pandemic intubating Covid patients.

Dr. Rajchel has since accepted a position at the School of Dentistry at Creighton University in Omaha, and his wife, Dr. Welsh-Rajchel, returned to Brooklyn just long enough to help move their items. “Todd was saying we need a five-year period to decompress from this experience before we can come back to New York for a visit,” she said. –DNYUZ

Compounding issues for moving companies is a industrywide labor shortage while movers get sick.

“Everyone wanted to flee New York because it was the epicenter, but at the same time, our movers started getting sick,” said Norber of Imperial Movers, who added that the company lost a dozen workers who were either too ill or too afraid to show up. He has been using company vans to pick up movers instead of letting them take public transportation. Norber says he’s operating at around 40% capacity.

“We didn’t know what the summer would bring, so we didn’t ramp up hiring as quickly,” said FlatRate Moving CEO David L. Giampietro, who added that after it became obvious demnad was spiking, “all the moving companies were competing for workers.”

Read the rest of the report here.

Authored by Simon Watkins via OilPrice.com,

Having failed to achieve the slightest semblance of success in the two oil price wars that it started – the first running from 2014 to 2016, and the second running from the beginning of March to effectively the end of April this year – it might be assumed that key lessons might have been learned by the Saudis on the perils of engaging in such wars again.

Judging from various statements last week, though, Saudi Arabia has learned nothing and may well launch exactly the same type of oil price war in exactly the same way as it has done twice before, inevitably losing again with exactly the same catastrophic effects on it and its fellow OPEC members. 

At the very heart of Saudi Arabia’s problem is the collective self-delusion of those at the top of its government regarding the Kingdom’s key figures relating to its oil industry that underpins the entire regime. These delusions are apparently not discouraged by any of the senior foreign advisers who make enormous fees and trading profits for their banks from Saudi Arabia’s various follies, most notably oil price wars. It is, in the truest sense of the phrase, a perfect example of ‘The Emperor’s New Clothes’, although in this case, it does not just pertain to Crown Prince Mohammed bin Salman (MbS) but to all of the senior figures connected to Saudi Arabia’s oil sector. One of the most obvious examples of this is the chief executive officer of Saudi Arabia’s flagship hydrocarbons company, Saudi Aramco (Aramco), Amin Nasser, who said last week – bewilderingly for those who know even a modicum about the global oil markets – that Aramco is to go ahead with plans to increase its maximum sustained capacity (MSC) to 13 million barrels per day (bpd) from 12.1 million bpd.

Quite aside from the sheer pointlessness of this posturing in a world already awash in oil as a result of the negative demand effect of the COVID-19 pandemic and the output overhang from the oil price war just ended, this comment from Saudi Arabia’s third-ranking oil man (after MbS, albeit by the loosest possible definition, and Energy Minister, Abdulaziz bin Salman al Saud), is extremely misleading. As such, it feeds into the oil market’s collective understanding since the 2014-2016 oil price war that anything that Saudi Arabia says about its oil industry is not to be taken as true, without a lot of additional fact-checking. Regarding the ‘maximum sustained capacity’ statement, to begin with, this term is one that has been repeatedly used by Saudi Arabia since the first oil price war disaster to cover for two other long-running delusions relating to the real level of its crude oil reserves and to the real level of its spare capacity.

Before the 2014-2016 oil price war, Saudi had stated for decades that it had a spare capacity of between 2.0-2.5 million bpd. This implied – given the widely-accepted (but also wrong) belief that Saudi Arabia had pumped an average of around 10 million bpd for many years (it actually pumped an average of just over 8.162 million bpd from 1973 until 2020) – that it had the ability to ramp up its production to about 12.5 million bpd when required. However, even as the 2014-2016 oil price war dragged on and wreaked new heights of economic devastation on Saudi Arabia and its OPEC colleagues, the Kingdom could produce on average no more than just about 10 million bpd. Crucially here, the Energy Information Administration (EIA) defines spare capacity specifically as production that can be brought online within 30 days and sustained for at least 90 days, whilst even Saudi Arabia has said that it would need at least 90 days to move rigs to drill new wells and raise production by an additional 2.0-2.5 million bpd.

Instead, from that point onwards, Saudi Arabia began to attempt to obfuscate this spare capacity lie by semantic trickery. Senior Saudis spoke of ‘capacity’ and of ‘supply to the market’ rather than of ‘output’ or ‘production’ and these two groups of terminology mean very different things. ‘Capacity’ (or its synonym, as far as the Saudis are concerned, ‘supply to the market’) relate to the utilization of crude oil supplies held in storage at any given time in the Kingdom plus the supplies that can be withheld from contracts and re-directed into those stored supplies. It can also mean oil clandestinely bought in from other suppliers (notably Iraq in the last oil price war) through brokers in the spot market and then passed off as its own oil supplies (or ‘capacity’). Exactly the same semantic trickery was used to cover up the actual supply shortfalls in the aftermath of the September 2019 attacks by the Iran-backed Houthis on Saudi Arabia’s Khurais and Abqaiq facilities, with the Energy Minister talking of ‘capacity’ and later of ‘supply to the market’, which are absolutely not the same thing at all as actual production at the wellheads.

The reason why Saudi Arabia seeks to obfuscate its real production and also spare capacity figures is that oil has been the only true foundation-stone of the Kingdom’s geopolitical power since its discovery in the late 1930s and this is also why it lies about its crude oil reserves. Specifically, at the beginning of 1989, Saudi Arabia claimed proven oil reserves of 170 billion barrels but only a year later, and without the discovery of any major new oil fields, the official reserves estimate somehow grew by 51.2 percent, to 257 billion barrels. Shortly thereafter, it increased again to just over 266 billion barrels, a level that persisted until a slight increase in 2017 to just over 268 billion barrels, with, again, no major new oil field finds made, a figure which – depending on who you believe – has increased yet again. At the same time, as highlighted, Saudi Arabia took out of the ground an average of 8.162 million bpd from the beginning of 1973 to the beginning of 2020, which totals over 2.979 billion barrels of crude oil every year, or 137.04 billion barrels of crude oil taken out of the ground over that time period. Given this tangible and proven production, with no major new field finds (and declining production at many of its core oil fields as well, including Ghawar), it is mathematically very difficult to see how it is possible that Saudi Arabia’s crude oil reserves are not actually around 120 billion barrels (and that is using the highly-dubious 257 billion barrels base figure) and not the stated 268+ billion barrels.

Given the wider public realization that the core figures upon which Saudi Arabia’s remaining geopolitical and economic power is based are essentially nonsense, Aramco’s share price might – in the normal circumstances of a correctly functioning market – be regarded as vulnerable. However, such was the absolute desperation on the part of MbS not to lose personal credibility by allowing the omni-toxic Aramco IPO to be seen to fail – at least in Saudi Arabia – that very few of the share purchasers have much to lose. In order to even sell the 1.5 percent stake finally offered (cut down from the initially-mooted 5 percent), Saudi banks were ‘encouraged’ to offer to lend money to retail customers at a 2-to-1 ratio for every riyal they would invest in Saudi Aramco (compared to average leverage ratio limit for loans of 1-to-1). Additionally, the IPO’s international adviser banks were there to take up any slack in the offering left after the sovereign wealth funds of neighboring states were equally ‘encouraged’ to participate on the offering, as were various senior Saudis fearful of a re-run of their treatment in the Ritz Carlton in 2017.

Now, in addition to these levers, Aramco has also reassured this small cadre of investors that it will meet the minimum US$75 billion dividend payout that it was forced into promising in order to ensure that it sold even 1.5 percent of the company. As Aramco’s share price is now intimately connected to MbS’s standing at home, Aramco has little choice in the matter, despite the announcement last week that its net profit plunged by 73.4 percent in the second quarter of this year. This was entirely due, ironically, to Saudi Arabia’s starting yet another oil price war to destroy the U.S. shale sector by crashing prices through overproducing at a time when demand was already annihilated by the COVID-19 pandemic. Such figures, of course, will become entirely meaningless if Saudi Arabia embarks on yet another oil price war in the not-too-distant-future, as is the clear implication of the announcement that it will increase its MSC to 13 million bpd from 12.1 million bpd, as the result for Saudi Arabia next time could be the end of the al-Saud dynasty in the Kingdom.

Yesterday we showed that following the July 31 fiscal cliff, spending among unemployed workers – those impacted the most by the end of the emergency Unemployment Insurance fiscal stimulus program – declined substantially just as many had expected…

… with the decline affecting virtually all income cohorts, as the YOY growth rate slowed by 12% for the unemployed cohort (formerly) earning under $50K vs. a roughly 5% drop for the middle and upper income cohorts (more here), even as spending among all other Americans posted a healthy increase.

Yet despite some marginal fluctuations, spending continued as per the norm for a society where 70% of GDP comes from consumption (mostly funded by debt).

So using the latest Bank of America data, what have Americans been spending more – and less – on during the pandemic? Well, as the chart below shows, the latest weekly data shows that total card spending, as measured by aggregated BAC credit and debit card data, dipped a modest -0.1% yoy for the 7-day period ending August 15th, meaning that overall spending is virtually identical compared to last year, and is also consistent with the rate of growth since late June. In fact, excluding autos, spending is up a whopping 8% likely reflecting the tail end of the government’s extra generous benefits.

However, the composition of spending has changed dramatically, with spending on “person to person” service industries still dismal, with airlines, entertainment and lodging all down between 42% and 83%. Separately, spending on restaurants & bars, transit, gas and clothing is down double digits Y/Y.

At the same time spending on online shopping for electronics has exploded, up 95% compared to a year ago, and everything home related – in a time of universal Work From Home – also soaring (Home improvement up 29%, furniture up 27%) to go along with the great migration from cities to suburbs.  But the biggest beneficiary is overall online spending – read Amazon – where Americans have spent a massive 69% more compared to last year.

Another notable observation: spending on credit remains depressed on a Y/Y basis, down 12% Y/Y, as Americans remain unwilling to incur more debt in a time of great uncertainty about the future (unlike their corporate peers). So where is the funding coming from? As the chart below shows, it’s all debit cards – which are up 10% Y/Y – as Americans for once drain their savings generously funded by Uncle Sam.

So with all that in mind, here is how aggregate US spending by major category has changed compared to this time last year:

Below is some additional spending spending as broken down by state of reopening…

… and which shows that for the most part spending across various segments has caught up regardless of when a state reopened. As BofA notes, over the past several weeks, there has been a convergence in spending trends between the states regardless of the timing of the initial reopening and path of the virus. That said, there is some differentiation in beauty salons and recreation services which likely reflects the decision of some states – most notably California – to roll back the reopening.

We next look at spending on a regional basis, comparing the largest US Metro Statistical Areas to find that the biggest declines can be found in liberal West Coast cities – San Fran, Seattle and Portland – while the most notable rebounds have been observed in Detroit and such sunbelt MSAs as Atlanta, Tampa and Miami.

The same chart but broken down by state:

One final observation: the bulk of the spending boost continues to be led by low income (those making <$50K) Americans, while those in the mid-range ($50-$125K) are unchanged from last year, while the upper cohort of Americans making >$125K remains subdued compared to 2019.

This is problematic because as noted above, it is these lowest-income Americans that will be most adversely impacted now that the fiscal cliff has resulted in a material decline in government stimulus checks, and implies that – all else equal – consumption, and US GDP in general, are about to post a sharp decline.

By Rosie Bradbury of Restaurant Dive,

• New York City’s restaurants may be forced to return to only takeout and delivery in the fall to stall a second wave of coronavirus cases, New York Gov. Andrew Cuomo told reporters on a conference call Wednesday, CNBC reports.

• Cuomo claimed that New York City’s restaurants have “a much bigger problem” with lack of compliance with COVID-19 restrictions than in surrounding areas, though that assertion has been disputed. Unlike other parts of the state, the city’s restaurants have not been allowed to return to reduced-capacity indoor dining.

• Restaurant operators in the city have indicated their willingness to pursue legal action in the face of an indefinite halt to indoor dining, according to Restaurant Business. Executive Director of NYC Hospitality Andrew Rigie predicted this week that restaurant closures could be “in the thousands” over the next six to 18 months.

Restaurant operators have expressed concerns that as temperatures drop, diners’ openness to outdoor dining will dwindle. However, Cuomo’s remarks in a press conference this week reflect his continued reluctance to progress toward reopening, citing the potential of a second wave of coronavirus cases, the risks posed by the city’s high population density and impending flu season.

But operators warn that without a dine-in plan, the city’s restaurant industry will be decimated. Prior to the pandemic, the city had more restaurants, cafes, and food stores per capita than anywhere else in the country

A recent NYC Hospitality Alliance reports found that over 80% of the city’s businesses were not able to pay full rent in July, and many independent businesses raised alarm in May that solely takeout and delivery were not bringing in enough revenue to cover their costs. A New York Times report on Yelp data estimated that over 2,800 businesses in the city have closed since March 1, and the city’s financial budget documented a 90% drop in restaurant spending in late March, when operations were restricted to solely takeout and delivery ordering.

For many of the city’s restaurants, especially those concentrated in business districts, outdoor dining may not be financially sustainable in the long term, and a return to delivery and takeout-only could be devastating. 

Statewide, 150 restaurants and bars have had their liquor licenses revoked for failing to adhere to coronavirus safety requirements as part of Cuomo’s “Three Strikes and You’re Closed” policy. Cuomo asserts that compliance with social distancing has been particularly lax in the city, however a Politico report found that the city’s enforcement measures were largely in line with that in municipalities elsewhere in the state.

Local and state officials have mentioned the difficulties of enforcing mask wearing in dining rooms, as well as upsurges in coronavirus cases across multiple regions as their justification for indefinitely halting indoor dining. A significant portion of community outbreaks this summer have been traced to bars and restaurants, including roughly a quarter of Louisiana’s cases since March and 12% of Maryland’s cases in the month of July. 

Epidemiologists say that outdoor and patio dining carries a lower likelihood of virus spread. Lindsey Leininger, a health policy researcher at Dartmouth, told The New York Times that they “hadn’t traced a major U.S. outbreak of any sort to an outdoor exposure.” However, restaurant staff serving a number of parties are placed at greater risk than with takeout service. Restaurant architect Marites Abueg suggested that restaurants could minimize the danger to workers by reducing touchpoints, such as eliminating table service in favor of window ordering.