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The reality on the ground in Australia is that many small businesses were struggling even before the coronavirus lockdowns began. Now, with the country on the verge of what Financial Review is calling “Lockdown 2.0”, it could be the last straw for many businesses.

Nellerichal ‘‘Sree’’ Sreeju, who owns a gift shop in Richmond said: “It was already hard and this has made it five times harder. It’s really uncertain.” 

He represents a microcosm of businesses in Australia who are begging for some sanity after the country has announced that “non-essential” retailers will once again have to close, starting at midnight on Wednesday this week. 

‘‘It has been a roller-coaster. In March, it was really eerie and quiet, and then there was the boost from the stimulus package. Luckily for us, people have been finding us online,’’ he said. His business did “fairly well in July” after pivoting and adapting to the post-virus world.

Just in time for the government to shut him back down again…

“We’ve been doing a few corporate jobs and that’s kind of keeping us afloat now but the street income, we’re doing maybe 10 to 20 per cent of what we would have done,” he said.

The country’s restrictions also mean that barbershops and hairdressers will have to shut down. Joshua Mihan, owner of The Bearded Man barbershop said: “I think for any business owner, six weeks of no trading, the amount of money we’ll lose is quite a lot but at the same time, I think the government has been really good to small business. Without government support, I would definitely be in a terrible position right now.’’

He has already been forced to permanently close his second shop. “I acted quickly so the business didn’t suffer as much because I thought I’d rather have one stronger business than two depleted businesses,” he said.

Now, with another shutdown looming, he has no business. 

Industry groups are calling this second shutdown the “final nail in the coffin” for many small businesses. Anne Nalder, chief executive of the Small Business Association, said: ‘‘A lot of very good businesses are going to be destroyed. Small business needs to be looked after financially. It’s going to mean a lot out of the government’s purses, but to do nothing, you will have no economy. Full stop.’’

Council of Small Business chief executive Peter Strong says there’s a “high number” of businesses that simply won’t survive the second lockdown: ‘‘At the moment, we’ve got to work to ensure this lockdown lasts only six weeks and people can open again because if it goes any longer, the damage will keep compounding. You won’t have an extra 10,000 businesses close, it’ll be 20,000 and we’re all afraid to put numbers on it.’’

Dani Zeini, who founded restaurant chain Royal Stacks and Grand Trailer Park Taverna, is deeply concerned about the toll of another lockdown on his businesses. He said: “The Melbourne CBD, 900,000 workers come to the city every week and that’s just disappeared not to mention there’s no shopping, football, tourists and then on top of that the little remaining workers we had, they can’t come.”

Meanwhile, we had just pointed out yesterday that Australia was implementing Draconian lockdown rules once again for its residents. Melbourne initiated its most severe restrictions yet, we noted:

The premier of Victoria plunged the region into a “state of disaster” on Sunday, announcing even stricter lockdown measures, introducing a nightly curfew and banning virtually all trips outdoors after Australia’s second largest state recorded 671 new infections in a single day.

Daniel Andrews told Victorians at a news conference that “we have to do more, and we have to do more right now,” as the state battles to contain a devastating coronavirus outbreak that had already stripped residents of their freedoms, livelihoods and social interactions and made it an outlier from the rest of the country.

The new rules include: 

• “Where you slept last night is where you’ll need to stay for the next six weeks.“

• Curfew between 8 p.m. and 5 a.m.

• Only one person per household will be allowed to leave their homes once a day — outside of curfew hours — to pick up essential goods, and they must stay within a 5 kilometer radius of their home unless nearest shop is over 5 KM away.

• Exercise can be taken for up to an hour a day, with one other person, but still within five kilometers of a person’s home. 

 

Authored by Andrea Widburg via AmericanThinker.com,

One of the claims Democrats love to tout about the Obama administration is that it was “scandal free.” For those who paid attention to the IRS targeting, Benghazi, Fast & Furious, and the cash smuggled to Iran, to name just a few illegal and/or immoral activities, that was always a peculiar boast. The Obama administration was up to its eyeballs in scandals. It was Obama who finally said what had really happened, which was that “We didn’t have a scandal that embarrassed us.”

In other words, the issue wasn’t that the administration was scandal-free. The issue was that the media protected the administration from voters’ wrath should they learn about those scandals.

The Russia Hoax has benefitted from the media’s continued unwillingness to report on Obama-era scandals. When it looked as if the Russia Hoax could achieve a coup against the Trump presidency, members of the press developed a form of Tourette syndrome that saw them obsessively mouth “Russia, Russia, Russia” all day, every day.

However, when Robert Mueller’s handpicked Democrat-friendly team, despite two years and 35 million dollars, was unable to find a smidgen of proof that Trump or his administration had colluded with the Russians, leftists inside and outside of the media fell silent. Sure, they’ll still raise the fact that Trump, at a press conference, said, “Russia, if you’re listening, I hope you’re able to find the 30,000 [Hillary Clinton] emails that are missing,” but their hearts aren’t in it.

They know that normal people understand that Trump was making a pointed joke about the fact that the Russians, the Chinese, and every other hacker on earth had read through Hillary’s emails for years. Aside from leftists being utterly humorless, the media learned that raising this statement periodically was chum to the true believers but not very interesting to anyone else.

When it came to burying the whole Russia Hoax, the Democrats and their media lackeys were helped by the fact that the story is so gosh-darned complicated. It involved dozens of people (some genuinely bad actors and some useful idiots), several countries, thousands of pages of cryptic papers, and a dizzying timeline. It’s hard to get people who aren’t political junkies excited about something like that, and even harder to arouse them to a sense of outrage over what the Obama administration did.

And that’s where Andrew C. McCarthy’s latest column comes in. His columns are always interesting because they help explain each new revelation about the hoax. This time, though, McCarthy has opted to open with an overview of the entire scandal and why it matters. With unusual clarity, he explains how the Obama administration used the vast power of the intelligence agencies to spy on an opposition candidate and then try to commit a coup.

I’ve cherry-picked a few relevant paragraphs, but I urge you to read the whole thing. Once you’ve read it, you’ll understand why the Russia Hoax isn’t just an inside politics thing that ultimately doesn’t matter:

As I contended in Ball of Collusion, my book on the Trump-Russia investigation, the target of the probe spearheaded by the FBI – but greenlighted by the Obama White House, and abetted by the Justice Department and U.S. intelligence agencies – was Donald Trump. Not the Trump campaign, not the Trump administration. Those were of interest only insofar as they were vehicles for Trump himself. The campaign, which the Bureau and its apologists risibly claim was the focus of the investigation, would have been of no interest to them were it not for Trump.

[snip]

You don’t like Donald Trump? Fine. The investigation here was indeed about Donald Trump. But the scandal is about how abusive officials can exploit their awesome powers against any political opponent. And the people who authorized this political spying will be right back in business if, come November, Obama’s vice-president is elected president — notwithstanding that he’s yet to be asked serious questions about it.

[snip]

Congress’s investigation was stonewalled. The more revelation we get, the more obvious it is that there was no bona fide national-security rationale for concealment. Documents were withheld to hide official and unofficial executive activity that was abusive, embarrassing, and, at least in some instances, illegal (e.g., tampering with a document that was critical to the FBI’s presentation of “facts” to the Foreign Intelligence Surveillance Court).

[snip]

The Obama administration and the FBI knew that it was they who were meddling in a presidential campaign – using executive intelligence powers to monitor the president’s political opposition. This, they also knew, would rightly be regarded as a scandalous abuse of power if it ever became public. There was no rational or good-faith evidentiary basis to believe that Trump was in a criminal conspiracy with the Kremlin or that he’d had any role in Russian intelligence’s suspected hacking of Democratic Party email accounts.

[snip]

In the stretch run of the 2016 campaign, President Obama authorized his administration’s investigative agencies to monitor his party’s opponent in the presidential election, on the pretext that Donald Trump was a clandestine agent of Russia. Realizing this was a gravely serious allegation for which there was laughably insufficient predication, administration officials kept Trump’s name off the investigative files. That way, they could deny that they were doing what they did. Then they did it . . . and denied it.

It is to be hoped that John Durham releases his long-promised investigative report sooner, rather than later. The American people need to understand just how scandalous the Obama administration and its holdovers were.

A Florida man has been arrested for grand theft after purchasing a brand new Porsche – and then several Rolex watches – using checks he printed on his home computer. 

Perhaps trying to take a page out of the Fed’s book, 42 year old Casey William Kelley has found out the hard way that you can’t print your way to prosperity. According to the Palm Beach Post, he used a nearly $140,000 bogus check at a local car dealership and was taken into custody one day later after trying to buy several Rolex watches with additional checks.  

He was arrested for grand theft of a motor vehicle and uttering a false bank note.

After the dealership sold Casey the car, they tried to cash the check. When it bounced, they immediately reached out to police to report the vehicle as stolen. 

The jeweler kept the watches and the check until the money cleared – which it never did. The checks came back fake but, by then, Kelley had already been arrested by authorities.

After his arrest, he admitted he had printed the checks at home. 

We wonder if Neel Kashkari could learning something from this analogue: apparently you can’t just create wealth from a printing press. Who would have guessed?

Authored by Cabot Phillips via Campus Reform,

As we’ve reported extensively at Campus Reform, professors across America are facing mounting pressure to fall in line with the Left’s “Social Justice” movement. While it sounds nice, oftentimes, supporting “social justice” means supporting socialist, Marxist policies and organizations. 

Increasingly, those within academia who fail to wholeheartedly support such movements are labeled “racists” and “white supremacists” and fired or suspended by their institutions. 

Here’s a list breaking down some of the most egregious examples of professors being discriminated against because of their unwillingness to support the far-left social justice movement.

UMass-Lowell

The Dean of Nursing at UMass-Lowell was fired by the school after saying “everyone’s life matters” in an email to students and faculty, following the protests and riots after the death of George Floyd. 

In her email, Dean Leslie Neal-Boylan said, “I am writing to express my concern and condemnation of the recent (and past) acts of violence against people of color… I despair for our future as a nation if we do not stand up against violence against anyone. BLACK LIVES MATTER, but also, EVERYONE’S LIFE MATTERS.”

That email was deemed “racist” by students and community members, and days later, Neal-Boylan said she was fired “without trial.”

University of North Texas

A professor at the University of North Texas was fired after making a joke about microaggressions. Nathaniel Hiers, an adjunct professor in the school’s math department, found a flyer in his classroom that warned students against using phrases like “America is a melting pot” and “America is the land of opportunity,” because they were microaggressions. 

In response, Hiers placed the flyer on the chalkboard, where he wrote “Please don’t leave garbage lying around.”

The following week, Hiers was “fired without notice.” 

University of California-Los Angeles

Gordon Klein, a lecturer at UCLA, was suspended after refusing to lower the grading standards for his Black students. When students demanded special grading privileges for Black students in the wake of the George Floyd protests, Klein told them in an email that it would be wrong to give “preferential treatment” to students based on the color of their skin. 

This resulted in outrage, with more than 20,000 people signing a petition for his firing, citing his supposed “blatant lack of empathy.”

West Virginia University

At West Virginia University, W.P. Chedester, the Chief of Police on campus, was forced to issue an apology after a “Blue Lives Matter” flag was visible in his office during a Zoom call. 

Students and faculty were outraged by the presence of a pro-law enforcement symbol and demanded he be fired. One professor at the school accused Chedester of sharing “white supremacist” images, while others demanded his termination or resignation. 

Chedester was allowed to keep his job after issuing a letter of apology and removing the flag.

Marymount Manhattan College

Professor Patricia Simon was accused of falling asleep during a campus “anti-racist” Zoom meeting, which resulted in a petition that garnered nearly 2,000 signatures calling for her firing, claiming she must be a racist if she wasn’t taking the call seriously. 

Simon disputes the claims made against her, saying “I was not asleep as is implied at any point during the meeting. The photo used was taken without permission when I was looking down or briefly resting my Zoom weary eyes with my head tilted back which I must do in order to see my computer screen through my trifocal progressive lenses. I listened with my ears and heard the entire meeting.”

Cornell University

Professor William Jacobson, an outspoken conservative professor, says there is “an effort from inside the Cornell community to get me fired.”

Citing his conservative views and unwillingness to support the Black Lives Matter movement as the main motivation behind efforts to oust him, Jacobson said people are “trying to shut down debate through false accusations of racism.”

Winthrop University

Mark Herring, a retiring Dean at Winthrop University, was censored by the school after publishing an op-ed referring to COVID-19 as the “Wuhan Virus” in an op-ed detailing China’s culpability in the current pandemic.

After complaints of racism and xenophobia, Herring’s op-ed was removed and he was condemned by the school in a university-wide email. In response, Herring told Campus Reform, “If everything is racist, we end up with nothing being racist. And particularly at this time and the horrific murder of George Floyd, I think we really need to be careful about how we label things. 

Virginia Commonwealth University

Javier Tapia, an associate professor at Virginia Commonwealth University, has been banned from campus after being accused of racial profiling, despite the fact that an investigation found no signs of racism or discrimination on his part. 

The controversy began when Tapia allegedly called campus security on his fellow faculty member, Assistant Professor of Art Caitlin Cherry, when he found her in an area restricted to faculty only. A letter from the school says that the two professors “did not know one another” at the time. Cherry believed that Tapia called security on her because she is black, but Tapia claimed that he mistook her for a student, due to her “youthful appearance.”

An investigation concluded that Tapia had not “initiated the security check based on Professor [Cherry]’s race and/or color.” Despite that fact, he later received a letter from the school informing him he’d been placed on leave, and was banned from appearing on campus or contacting any of his colleagues. 

The research departments at Wall Street investment banks have every incentive to provide clients with a stream of worrisome (but not too worrisome) reports about the future trajectory of the global coronavirus outbreak. After all, too much unpleasant fearmongering, and they might instead go somewhere else, where another broker can tell them exactly what they want to hear. A lot of people are like that

Which is why a research note published by Goldman’s top economist Jan Hatzius, who made his bones with a set of bearish calls just before the financial crisis, is so interesting. With public officials in the US, UK, China, Russia and elsewhere promising that a workable vaccine is just around the corner – Dr. Fauci has reassured Congress on multiple occasions that an FDA-approved vaccine by the end of the year is a realistic timeline – the market appears to be pricing in the best-case scenario. Stocks greet every new headline – even headlines that are simple rehashes of previously released early clinical trial data – with a modest rally.

At the very beginning of Hatzius’s note, he points out that his ‘base case’ calls for a COVID-19 vaccine to be widely available throughout the US and Europe by the end of Q22021, or the end of Q32021, at the very latest. There are more than a hundred vaccine candidates in the making, but all the major candidates are targeting the same protein. This means that once a vaccine succeeds, there should be at least a modest surplus – though, to be sure, governments are striking deals for future vaccine supplies left and right.

This base case, in turn, supports Goldman Sachs’ ‘house view’ for “above-consensus” global growth in 2021 (after all, so much of economics is influenced by perception).

But since most of the vaccine candidates are focused on the same approaches and are working off the same assumptions – that is, everything we currently know, or think we know, about SARS-CoV-2 – there is, of course, a risk that some unforeseen obstacle could disrupt this timeline.

And if that happens, things could go south in a hurry.

Or as Hatzius puts it: “the risks around this vaccine baseline…are clearly skewed…toward the downside…”

First, Hatzius starts off the note with a helpful summary of where most of what are seen as the biggest and most credible vaccine projects are at.

Then, Hatzius explains Goldman’s research on vaccine approvals. The firm found that the race to discover a vaccine for HIV was perhaps the best comparable example. Since in the beginning, many competitors were working on similar projects. Typically, the more parties are working on vaccine candidates, the more quickly a vaccine is approved by the FDA. But HIV was one interesting example where this wasn’t the case. Note: this isn’t the only time we’ve brought up HIV in our writings on COVID-19. 

Since all the big vaccine projects are focusing on one of only a handful of approaches – for example, AstraZeneca/Oxford and Moderna are both focusing on vaccines that rely on messenger RNA (known as mRNA). Others are focusing on antibodies culled from the blood of survivors. Because the number of approaches is so small, the outcomes for these trials are likely highly correlated…

As the left panel of Exhibit 3 shows, a large number of industry sponsored vaccine attempts typically goes hand in hand with many approvals. This historical relationship would suggest an eventual approval of 43 vaccines. Furthermore, six candidates are already in Phase III. The historic approval odds of a given Phase III vaccine targeting the median disease is 79%. However, the history of trials and the fact that all major vaccines currently target the same spike protein also suggest that vaccine approvals are likely correlated, with either many succeeding or all failing, as for HIV.

We tentatively expect FDA approval of at least one vaccine this fall. First, six developers running late-stage trials following solid Phase II results are planning to seek approval in 2020Q4. Second, regulators have ramped up the transparency, flexibility, and speed. The FDA, for instance, has released specific safety and effectiveness standards, works directly with developers, analyzes interim results, and can provide Emergency Use Authorization as soon as studies have demonstrated safety and effectiveness. However, conflicting expert views on the odds of 2020 approval highlight the risk to our baseline timeline (Exhibit 4).

Increasing the risk of an outcome like what we see in the chart below for HIV.

Once a vaccine is discovered, Goldman expects the US, Europe and China will all experience a pronounced economic boost (though Goldman expects the boost to the US to be bigger, since the virus is more widespread).

By that logic, if a vaccine isn’t forthcoming in the next year or two, the US is likely also the furthest along the path to herd immunity, if such immunity is even possible for COVID-19. Some studies appear to show some decay in antibody levels, though it’s impossible to draw any solid conclusions at this point. Virologists insist that infection definitely confers some level of immunity.

On the other hand, it’s also possible that another treatment will lessen the need for vaccines by proving to be a reliable and effective treatment for the disease. Dr. Anthony Fauci is now touting a new class of drugs called manufactured antibodies, as Reuters explained on Tuesday.

These “manufactured” antibodies are grown in bioreactor vats, and essentially replace the antibodies that your body naturally manufactures to fend off infections.

As the world awaits a COVID-19 vaccine, the next big advance in battling the pandemic could come from a class of biotech therapies widely used against cancer and other disorders – antibodies designed specifically to attack this new virus.

Development of monoclonal antibodies to target the virus has been endorsed by leading scientists. Anthony Fauci, the top U.S. infectious diseases expert, called them “almost a sure bet” against COVID-19.

When a virus gets past the body’s initial defenses, a more specific response kicks in, triggering production of cells that target the invader.

These include antibodies that recognize and lock onto a virus, preventing the infection from spreading.

Monoclonal antibodies – grown in bioreactor vats – are copies of these naturally-occurring proteins.

Scientists are still working out the exact role of neutralizing antibodies in recovery from COVID-19, but drugmakers are confident that the right antibodies or a combination can alter the course of the disease that has claimed more than 675,000 lives globally.

“Antibodies can block infectivity. That is a fact,” Regeneron Pharmaceuticals executive Christos Kyratsous told Reuters.

A timely vaccine will help drive a recovery and limit “scarring effects” on the economy, Hatzius said.

Since the race to find a workable vaccine is so intense, many are worried that a rushed job could produce a vaccine that’s ineffective, or worse, harmful. Even if at least one vaccine is approved before the end of the year as Goldman expects (though it admitted it’s still relatively uncertain on this) it’s possible that we could later find its effectiveness limited. Studies have shown COVID-19 antibodies start to decline after a few months. It’s likely that one’s antibody count doesn’t have much bearing on the body’s ability to fend off infection, since the body can always produce more. But it’s also possible that this could be a sign of fading immunity to the disease.

“An early approval does not imply full effectiveness or long-run protection,” Goldman writes.

And even once a vaccine is approved, there’s precedent for the FDA withdrawing its approval – however unlikely that might seem right now.

An early approval does not imply full effectiveness or long-run protection. On effectiveness, the FDA only requires the vaccine to show a difference of 50% between events, such as infection, in the vaccine versus control arms of the study. The effectiveness for the elderly also remains uncertain, with weaker antibody responses to the CanSino vaccine and no elderly testing for most other vaccine trials so far.4 On the length of protection, little reinfection so far and the potential of T-cells to provide long-lasting immunity are encouraging while a recent Nature study found that antibody levels started to decline after 2-3 months.

However, as noted by a recent NY Times Op-Ed by leading Yale immunologists, a waning antibody count does not necessarily indicate waning immunity because memory B cells can produce additional antibodies and lead to long-term immunity. Finally, approval could be overturned subsequently as happened with the yellow fever and rotavirus vaccines that were pulled from the market after rare severe side effects.

Thanks to all the government deals with big pharma, if most of the leading vaccines succeed and achieve their production and purchase targets, the US and the UK will probably have a big surplus, while the EU and Japan – which are currently reportedly in talks with producers – also should have large supplies.

Despite China’s promise to dole out vaccines to the developing world, the lack of their own pipeline makes the outlook for the EM universe less certain.

Now, for an equally important question: is the market under-pricing the risk of some delay in the process of finding a vaccine? As Hatzius explained, the ‘diversity’ of vaccine projects doesn’t confer as much security as some might be inclined to expect.

Authored by Michael Snyder via The End of The American Dream blog,

Nothing that you do on your phone is private.  In this day and age, most of us have become extremely dependent on our phones, and most Americans never even realize that these extremely sophisticated little devices are gathering mountains of information on each one of us. 

Your phone knows what you look like, it knows the sound of your voice, it knows where you have been, it knows where you have shopped, it knows your Internet searches and it knows what you like to do in your free time.  In fact, your phone literally knows thousands of things about you, and all of that information is bought and sold every single day without you knowing. 

And as you will see below, there are lots of companies out there that use information collected from our phones to create secret “surveillance scores” that are used for a whole host of alarming purposes.

It is really important to understand that your phone is a surveillance device.  The reason why the advertisements on your phone seem so perfectly tailored for you is because of all the information that your phone has gathered on you previously.

To this day, many people are still amazed when they see an ad pop up for something that they were just talking with a friend about, but that doesn’t happen by accident.  The following comes from Fox News…

Perhaps you’ve been talking to a friend about an island vacation, when suddenly deals for the Maldives or Hawaii pop up on your Facebook feed. Or you are talking to your co-worker about yard renovations when advertisements for lawnmowers litter your Twitter, or maybe you were talking about why you stopped drinking and a random sponsored article about the growing trend of “elective sobriety” is suddenly in front of your eyes.

Industry experts insist that our phones are not actively “eavesdropping” on us, but they do admit that our phones are “actually spying on us” in other ways…

“It’s easy to feel like our phone is spying on us. It is actually spying on us, but it is not eavesdropping,” Alex Hamerstone, Government, Risk and Compliance practice lead at information technology security firm, TrustedSec, told Fox News via email. “The reason why we see ads pop up that seem to be correlated to the exact thing we were just talking about is because technology and marketing companies gather extensive amounts of personal and behavioral data on us, but it’s not from eavesdropping — it’s from surfing the web, shopping, posting on social media, and other things people do online.”

Most Americans have come to accept targeted ads as a part of life, but what most people don’t realize is that the information our phones gather is being used for far more intrusive purposes.

“Surveillance scores” are being created, and these “surveillance scores” seem quite similar to the “social credit scores” that China has been compiling since 2014.

In China, if you do good things like paying your taxes or taking a parent to the doctor, your social credit score will go up.

But there are also lots of things that will cause your social credit score to go down…

It aims to punish for transgressions that can include membership in or support for the Falun Gong or Tibetan Buddhism, failure to pay debts, excessive video gaming, criticizing the government, late payments, failing to sweep the sidewalk in front of your store or house, smoking or playing loud music on trains, jaywalking, and other actions deemed illegal or unacceptable by the Chinese government.

And if your social credit score gets too low, the consequences can be quite dramatic…

Punishments can be harsh, including bans on leaving the country, using public transportation, checking into hotels, hiring for high-visibility jobs, or acceptance of children to private schools. It can also result in slower internet connections and social stigmatization in the form of registration on a public blacklist.

Here in the United States, private companies are doing something very similar.  Information collected from our phones is being used to create secret “surveillance scores”, and selling those scores has become very big business.  The following comes from the Houston Chronicle…

Operating in the shadows of the online marketplace, specialized tech companies you’ve likely never heard of are tapping vast troves of our personal data to generate secret “surveillance scores” – digital mug shots of millions of Americans – that supposedly predict our future behavior. The firms sell their scoring services to major businesses across the U.S. economy.

And just like China’s system, high scores come with rewards and low scores come with punishments.

For example, your scores can determine whether or not someone will rent a property to you, whether or not you will be hired for a job, and even how long you will have to wait for customer service…

CoreLogic and TransUnion say that scores they peddle to landlords can predict whether a potential tenant will pay the rent on time, be able to “absorb rent increases,” or break a lease. Large employers use HireVue, a firm that generates an “employability” score about candidates by analyzing “tens of thousands of factors,” including a person’s facial expressions and voice intonations. Other employers use Cornerstone’s score, which considers where a job prospect lives and which web browser they use to judge how successful they will be at a job.

Brand-name retailers purchase “risk scores” from Retail Equation to help make judgments about whether consumers commit fraud when they return goods for refunds. Players in the gig economy use outside firms such as Sift to score consumers’ “overall trustworthiness.” Wireless customers predicted to be less profitable are sometimes forced to endure longer customer service hold times.

To me, all of this is extremely creepy.

Eventually, it may get to a point where you are basically a societal outcast if you are not willing to conform to a particular set of politically-correct standards, values and behaviors.

You may not get thrown in jail the moment you do something “unacceptable”, but your phone will be watching you every step of the way.

Each mistake that you make will be recorded by your phone, and that information will be stored and used against you for the rest of your life.

I know that all of this sounds very strange, but without a doubt we are living in very strange times.

My advice would be to only use your phone when necessary, but of course the vast majority of the population will never listen to such advice.

Most of us have become highly addicted to these marvelous little devices, and in the process we are helping the elite construct a system of surveillance and control that is unlike anything ever seen before in all of human history.

As we noted earlier, Bloomberg on Friday published a story decrying the risks facing NYC as the northern hemisphere moves toward the fall. Three weeks ago, Melbourne entered lockdown that was supposed to last for 6 weeks. However, new infections have only continued to climb, and it’s currently unclear whether officials will abandon the lockdown, or extend it.

The problem? Some epidemiologists suspect that, since Australia is now in the heart of its winter season, most people are spending the bulk of their days indoors, relying on heat and ventilation systems in multifamily buildings that can, at least in theory, carry the ‘airborne’ virus from apartment to apartment, infecting unsuspecting neighbors without them even needing to leave their homes.

That’s all speculation at this point, however (though examples of the virus spreading rapidly within apartment blocks abound in Hong Kong and mainland China).

But the fact remains: Since June, the outbreak in Melbourne – suspected to have begun with failures in the hotel quarantine of travelers arriving from overseas – has exploded. Thursday and Friday saw the worst increases yet: 723 and 627 respectively across the state of Victoria, the second-largest state in Australia, where Melbourne serves as the capital.

These numbers have left Australian health officials stunned: Their models projected that the lockdowns should have crushed the outbreak by now. But even with strict social distancing measures in place, the virus has continued to spread.

The American press hasn’t done much reporting on the situation in Australia. It’s clear why: Not only is the country on the other side of the world, but it’s also raising uncomfortable questions about the efficacy of lockdowns, particularly as the world heads into the heart of winter/summer (depending on whether one is in the northern or southern hemisphere).

So, why isn’t Melbourne’s lockdown working? The BBC has some ideas.

Throughout the state of Victoria, most outbreaks have been traced back to aged care homes, meat factories, schools and public housing estates.

But as Bloomberg reported on Friday, the falling temperatures and growing reliance on air conditioning suggest that NYC could soon see a related comeback – even a Gov Cuomo pledges to investigate “outdoor” gatherings like a drive-thru concert in the Hamptons, while completely ignoring anti-police brutality protests.

Melbourne, Australia, with 5 million people, offers a case in point. With the Fahrenheit dropping into the 50s, Melbourne has seen an upswing in cases, a foreboding indicator of how tough it may be for cities like New York to control infections as the mercury drops. With fall and winter approaching, it’s “inevitable” Covid-19 cases will tick up, said Ashish Jha, director of Harvard University’s Global Health Institute.

“I am worried about complacency,” Jha said in an interview. “New York went through such a difficult few months, and I am worried that people are tired. A lot of people are looking at New York over the next six months and saying: ‘Could we possibly see a spike?’”

New York’s success is seen as somewhat of a beacon for the rest of the country. If the city can keep its rate low as it reopens through the fall and winter, then epidemiologists say its efforts can serve as a model for other big cities nationwide.

NYC entered Phase 4 of its reopening on July 20. Stores are now open, though capacity is limited, and New Yorkers can enjoy outdoor dining at restaurants, but there’s no clear timeline for the return of indoor dining. The wearing of masks, social distancing and aggressive hygiene practices are still being pushed as mandatory by local officials.

New York reported just 59 new cases citywide on Tuesday. But it hasn’t eased up yet. On Thursday, Gov Cuomo said the state is making $30 million available to counties to increase contact tracing as well as testing for the coming flu season, which generally hits in the fall and winter. Cuomo has warned that the flu could complicate the COVID-19 response by, among many reasons, upping the strain on laboratories.

If NYC can suppress a rebound of new cases in the fall, it could stand as a model for the rest of the country. If it fails, then maybe our medical experts will need to rethink their approach.

Authored by Eric Basmajian via EPBMacroResearch.com,

• Deflation remains the more credible risk, not inflation. The output gap suggests core inflation could sink below 0.5% in the coming years.

• FX hedged Treasury yields remain higher than yields at home. This will increase foreign appetite for US rates.

• From a longer-term secular standpoint, economic growth will fall into a new regime, sub 2% which will weigh on bond yields.

• Further stimulus from the fiscal side will delay the full extent of the deflationary output gap but will not change the end result in the final analysis.

• As part of your balanced portfolio, long-term Treasury bonds are still a valuable holding as the path to 0% remains a probable scenario.

The inflation vs. deflation debate remains one of the more hotly contested ideas in the marketplace today. The inflation hawks argue precious metals are a one-way street higher while cash is trash, and bonds are worthless. The deflationary crowd continues to play with the multi-decade trend arguing that interest rates are not done falling, and more gains are left with nominal Treasury bonds. 

In this three-part series, I am going to highlight the main reasons behind why I believe that the path to 0% interest rates is more probable than an inflationary rise to higher yields. Three main factors support the conclusion for lower long-term rates, including:

1. a more credible risk of deflation compared to inflation,

2. high and positive FX-hedged Treasury yields,

3. and a continued decline in trend economic growth. 

Each part will cover one of these factors in detail. 

While I reside in the disinflationary camp, I am not one to argue that an inflationary outcome should be disregarded. A blanket denial of the potential for inflation is unwise, but an over-exaggeration of the risks with faulty analysis of historical macroeconomic trends is more dangerous. 

The best path forward for the long-term, prudent investor is to start with a portfolio that is relatively balanced to each risk, inflation, and deflation. Depending on which risk is more probable over the next 12-36 months, tilting the portfolio from a balanced stance to an overweight stance in favor of the more likely outcome allows an investor to capitalize on the developing opportunity while allowing the possibility of the opposing scenario. 

A comprehensive review of macroeconomic trends firmly suggests that deflation or disinflation, not inflation, is a more credible risk. Many of the common inflationary arguments we hear today are repeats of decade-old analysis that came about during the first round of Quantitative Easing “QE” or “money printing,” which proved incorrect in assessing the direction of inflation and bond yields. 

In part I, we’ll review many of the common inflationary theses while arguing that deflation or disinflation is still a more credible threat. 

Having a balanced portfolio with bonds, gold, stocks, and commodities always makes sense, but it is still premature to rid your strategy of disinflationary bets such as Treasury bonds altogether. 

Deflation, Not Inflation, Is The Bigger Risk

Inflation is a highly consensus view among analysts. Typically this takes the form of “deflation now, but inflation later,” acknowledging the severe demand shock caused by the COVID lockdowns across the global economy. The “inflation later” part of the puzzle usually makes reference to Federal Reserve policy actions, including “printing” money and what is now a ubiquitous chart of money supply growth. 

The Federal Reserve cannot “print” spendable dollars but rather purchase assets using reserves. 

The inflation crowd has made frequent use of the following chart of money supply growth, quick to point out the record level. 

Decades ago, with profoundly different circumstances which will be outlined below, significant increases in money supply growth gave reason to be worried about rising inflation. Today, there quite literally exists no correlation between money supply growth and inflation. 

M2 Money Stock, Year over Year:

Source: Federal Reserve, FRED

The Federal Reserve quadrupled the size of its balance sheet over the last ten years before the COVID crisis, and the result was below average inflation and a decline in market-derived inflation expectations. Despite what should be considered a well-established fact now, the same arguments for rising Federal Reserve assets and inflation have reemerged. 

It is incomplete to present an argument regarding money supply growth and inflation without presenting a long-term chart of the velocity of money. To argue that a rise in money supply growth in insolation will cause inflation assumes that the rate at which money changes hands in the economy is stable. 

Velocity, noted below, has collapsed and will decline further in Q2 2020, which negates the inflationary impact of rising money supply growth. 

Velocity will undoubtedly rise in Q3 and possibly Q4 of 2020 as a pent-up demand recovery takes hold, but multi-decade secular trends must be respected and understood. 

It is easy to suggest that the velocity of money will suddenly break the near 30-year trend and start rising, along with a continued increase in money supply growth, but why? Putting money in the hands of consumers to spend on basic necessities such as rent, food, and clothing are not high-velocity uses of capital and will not meaningfully change the long-run trajectory of the ratio.

Velocity Of M2 Money Stock:

Source: Federal Reserve, FRED

High velocity uses of capital stem from productive investment into plant & equipment, products or properties that generate a lasting income stream. 

In order for the growth in money supply to have an increased chance of generating lasting inflation, the velocity of money has to be at least stable. 

Another consideration in the new era of QE is that the relationship between money supply and reserves in the banking system has meaningfully changed. Looking at the growth rate in money supply and jumping to an inflationary conclusion disregards the fact that the reserve multiplier is far from stable, and completely altered.  

The chart below is the reserve multiplier or the ratio of broad money supply to total reserves in the banking system. 

Reserve Multiplier:

Source: Federal Reserve, FRED

Another ratio that is assumed to be stable in the traditional money supply arguments is the relationship between broad money supply and the monetary base controlled by the Federal Reserve. The ratio of M2 money supply to the monetary base or the “money multiplier” is also highly unstable and has steadily declined over the last few decades. 

The money multiplier rose through the 1960s, 1970s, and peaked in the 1980s, a stark contrast to the recent multi-decade decline. 

The money multiplier ratio shows the ability and desire of private sector banks to turn high powered base money into broad spendable dollars. 

Money Multiplier:

Source: Federal Reserve, FRED

Dr. Lacy Hunt, in his Q1 2020 Quarterly Review, wrote about both the money multiplier and the velocity of money.

Two critical equations define the U.S. monetary structure. First, M2 = MB x m where MB stands for the monetary base and m stands for the money multiplier (known as little m). Second, GDP equals M2 multiplied by the velocity of money, or GDP = M2 x V and V is GDP divided by M2. It is important to note that both m and V are complex variables and their operation in determining economic activity is opaque. Our understanding is that the essence of m is that the banks and their customers must reach an agreement that a new loan will be profitable to both. Prior to reducing reserve requirements to zero, swings in currency and time deposits could change m, but that is no longer the case. As long as the required reserve ratio remains zero, total reserves and excess reserves are identical. Swings in Treasury deposits still have a role, albeit minimal. It appears that the key to V is whether a new loan is productive in the sense that it generates an income stream to pay principal and interest. It becomes apparent therefore that the Fed has extremely limited capacity to alter m or V. 

As a result of the weakening economy and high levels of public and private debt, banks are likely to maintain their reluctance in extending high quantities of new loans. Similarly, the capacity for borrowers to demand new loans for productive investment will remain low. 

The relationship between the monetary base and the money supply is unstable and currently in a declining trend. The relationship between money supply growth and inflation measured by either the Consumer Price Index or the Personal Consumption Expenditure Index is highly unclear. 

The chart below shows the relationship between the year over year growth rate in money supply and the year over year change in Core CPI, adjusted for a 12 and 18-month lag. 

Money Supply Growth Vs. Core CPI Inflation Rate:

Source: Federal Reserve, BLS, EPB Macro Research

Economists Stephen G. Cecchetti and Kermit L. Schoenholtz of the Money, Banking, and Financial Markets blog complied a more comprehensive chart of money supply growth and the core PCE inflation rate. They concluded:  

During the early period, when inflation temporarily rose above 10 percent, there was a positive relationship: increases in money growth were associated with higher inflation two years later. For the most recent decade, the period when the Fed’s balance sheet exploded, the two are nearly uncorrelated (see the red dashed line). In other words, at low levels of inflation, inflation appears to be unrelated to money growth. (While we do not show it here, another implication of this chart is that the velocity of money—the ratio of nominal GDP to money—is unstable.)

Money Supply Growth Vs. Core PCE Inflation Rate:

Source: Money, Banking, and Financial Markets

Cecchetti and Schoenholtz went on to note the lack of relationship between the size of the Federal Reserve’s balance sheet and long-term market-derived inflation expectations in a chart I recreated below. 

Fed Balance Sheet Vs. Market Derived Inflation Expectations:

Source: Bloomberg

Using the rate of money supply growth as the base of an inflationary argument has demonstrated poor results over the last ten years due to a multi-decade decline in the velocity of money and an unstable (currently falling) relationship between reserves, broad money and the monetary base (reserve multiplier and the money multiplier.)

While money supply growth is an unreliable determinant of inflation, the economic output gap has demonstrated a sound relationship to core inflation, particularly over the past two decades, when economic volatility dropped to record lows. 

The output gap is a measure of the potential growth in an economy relative to actual growth. When an economy is growing below trend potential, the difference is called the “output gap.”

The output gap is measured by using “potential GDP” and actual or projected GDP.

Potential GDP is published by the Congressional Budget Office “CBO” through a calculation of potential labor force growth and potential productivity growth.

The chart below shows nominal GDP in black, potential GDP in blue, and projected GDP through 2030 in red.

US GDP Vs. Potential GDP (Billions):

Source: Bloomberg, CBO, BEA, EPB Macro Research

The difference between potential GDP and actual or projected GDP is the “output gap,” graphed below. A negative output gap is deflationary because the economy has unutilized capacity, driving down the price of goods and services. Too many workers will drive down wages.

Using the projected estimates from the CBO, the output gap will reach nearly $2.5 trillion and will last through 2030.

The output gap after the 2008 recession lasted for roughly 39 quarters.

Using the projected GDP estimates from the CBO, the deflationary output gap is not only expected to be the largest in modern history but last more than 44 quarters, through 2030.

The chart below shows the output gap as a percentage of GDP.  

US Output Gap (% Of GDP):

Source: Bloomberg, CBO, BEA, EPB Macro Research

Over the past ~20 years, the output gap has demonstrated a strong correlation with core inflation. Typically, it takes about a year for underutilized capacity to flow through to consumer inflation.

The correlation between the output gap and core inflation has increased in recent years as overall economic volatility has compressed due to the increased use of automatic stabilizers such as government transfer payments as well as a general shift away from the more cyclical manufacturing sector.

Economic Volatility:

Source: Bloomberg, BEA, EPB Macro Research

At the trough in growth, the US economy will have an output gap of roughly -11% and a four-quarter average of approximately -7.7%.

Using the output gap for a point estimate of core inflation can be extremely imprecise and highly dependent on the variables in the analysis. Still, directionally the relationship makes a strong case for record low core inflation over the coming years.  

US Output Gap (% Of GDP) (4-Quarter Lag) & Core CPI:

Source: Bloomberg, CBO, BEA, BLS, EPB Macro Research

Using the output gap to determine the inflation bias over the coming 12-36 months is likely to have more success than arguments centered around the growth rate in money supply with variables that are far different than the 1970s, a common inflationary reference point. 

In the 1970s, the output gap was mild and oscillating between positive and negative. Over the last 15 years, the economy has been in a persistently negative output gap and expected to remain there through 2030 based on estimates from the CBO. 

US Output Gap 1960-1980 | US Output Gap 2005 – 2030:

Source: Bloomberg

From 1960-1980, the velocity of money was extremely stable, while the last two decades have shown a downward trend in velocity that hasn’t been experienced since the 1920-1930 period. 

Velocity Of M2 Money Stock:

Source: Federal Reserve, FRED

As noted above and presented again below, the money multiplier was stable and rising from 1960-1980 compared to unstable and falling sharply today. 

Money Multiplier:

Source: Federal Reserve, FRED

Lastly, total non-financial debt in the economy (government, household, and business) as a percentage of GDP was extraordinarily stable and below 140% from 1960-1980 compared to rising and north of 260% today, breaching critical thresholds discussed here. 

Total Non-Financial Debt To GDP Ratio:

Source: Z.1 Financial Accounts, Bloomberg, EPB Macro Research

High levels of public and private debt hinder economic growth and exert disinflationary pressure on the economy. 

Summary & Part II

Money supply growth is an important variable, but it must be used in context to explain future impacts to price inflation. Over the last decade, using the money supply growth or Federal Reserve balance sheet expansion to forecast inflation has been a losing proposition due to the consistent decline in velocity and the changing relationships highlighted by the reserve multiplier and the money multiplier. 

Commodity prices and other measures can provide a shorter-term indication regarding the direction of inflation, but the outlook over the next 12-36 months is most consistently identified by the output gap and long-term secular forces.  

Most of the arguments for higher inflation fail to consider rapidly changing relationships in the economy that more often than not stem from an extreme condition of overindebtedness. 

As mentioned at the start of this note, disregarding the possibility for inflation is unwise, and holding a portfolio with inflation-sensitive assets is a prudent decision for the conservative investor, particularly while short-term inflation indicators such as commodity prices are trending higher. 

The bias in the economy is still for deflation/disinflation, and holding an overweight investment in Treasury bonds continues to generate strong risk-adjusted returns as well as dampen the volatility of a balanced portfolio by offering a negative correlation to equity prices on average. 

In part II, we’ll take a look at another force that will keep downward pressure on US interest rates; FX-hedged Treasury yields. 

Many investors seek to make simple comparisons between US bond yields and foreign bond yields without adjusting for the cost of hedging the currency risk. This is a critical variable and one that we will tackle in the next part of this series. 

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