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The Nasdaq 100 has been green for 2020 for a week and the broader Nasdaq Composite got close today as the fantastic five stocks lift the index against all rationality.

Source: Bloomberg

As CALSTRS CIO Ailman noted earlier:

“this market is divorced from reality,” adding – with a frown at its outlier nature, “there’s such a strong bid to this market – particularly in the overnight futures trading – it just doesn’t make any sense.”

And he is right…

Earnings recession…

Source: Bloomberg

Economic recession…

Source: Bloomberg

Employment ‘depression’…

Source: Bloomberg

Health recession…

Source: Bloomberg

But apart from all that, everything is awesome… BTFD!!

On the day, stocks were up…

Nasdaq led the day, Dow Industrials lagged…

Futures show the malarkey best with the late-day dump as Fed Vice-Chair Clarida starting speaking and dared to admit:

“We’re living through the most severe contraction in activity and surge in unemployment that we’ve seen in our lifetimes,”

“It’s important to make sure the rebound is as robust as possible, but can’t minimise that we are in recession.. a global recession.”

It’s not like he said anything we didn’t know!!?? BUT everyone dumped…

Nasdaq FUTs tagged the 76.4% Fib retracement again… and faded…

 

Oil was up… (WTI up 5 days in a row nearing $25 ahead of tonight’s API data)…

June WTI is up 140% in the last few days…

Bond yields were up…

Source: Bloomberg

Gold was up…

Bank stocks were NOT up…

Source: Bloomberg

The dollar was NOT up…

Source: Bloomberg

Cryptos were NOT up…

Source: Bloomberg

Finally, FANG Stocks…

Source: Bloomberg

And the S&P at 20x P/E…

Source: Bloomberg

And Copper/Gold is not buying this bullshit rally in stocks at all… just like in January/February…

Source: Bloomberg

“The bull market’s over” warns Chris Ailman, CIO of CalSTRS – the largest teachers retirement fund in the US, and the 11th largest public pension fund in the world – “and we’re in a bear market…”

“This market’s been highly concentrated in a handful of so-called ‘stay at home’ names… and we’re far from out of the woods.”

As CNBC’s Carl Quintinilla admits, this concentration is exactly what Goldman warned about – that this always resolves the same way… badly for the broad market as the small number of names are simply unable to carry the weight for long.

As the Nasdaq Composite nears unchanged on the year, Ailman notes that historically, “the other boats don’t rise up to [the handful of concentrated stocks] level, they usually decline down to the rest of the market… and currently those stocks are priced to perfection.”

“We’re going to be in bear market territory easily for a good nine months… with no return of the bull market anytime soon.”

Ailman does not see a cataclysmic decline from here but believes a 2950 to 2350 range for the S&P 500 is more likely, as he explains the ugly reality of what “re-opening” will really look like and it’s not a v-shaped bounce.

“We still have a long way to go [economically], especially if we have a resurgence [in the virus] in the fall.”

“While the optimism in this market right now is great, we’ll see some downward pressure on this market with all the uncertainty.”

As investors seem to willingly ignore the health and economic truths, Ailman says:

“this market is divorced from reality,” adding – with a frown at its outlier nature, “there’s such a strong bid to this market – particularly in the overnight futures trading – it just doesn’t make any sense.”

The bottom line is Ailman agrees with Buffett:

“there’s a big risk… it really seems surprising that there’s such a strong bid into this market… when the reality is that this is still a very serious virus with cases/deaths plateauing, not declining.

This is a health recession, not a financial recession, and we’re not seeing an improvement in the health data that we have to pay attention to in order to decide what’s going to happen in the markets… and prices should reflect that.”

Watch the full interview below:

Of course, when another CNBC anchor asked his so-called “investment panel” later in the show what they thought of Ailman’s less than bullish comments, the response was as obvious as it was ignorant and groupthink-like: “Don’t fight The Fed,” to which they added the ‘old chestnut’ that “markets are discounting mechanisms and are seeing the economy back to normal within 12-18 months.”

Trade accordingly.

Update (1544ET): As per Bloomberg, here’s part of the email Airbnb CEO Officer Brian Chesky wrote to employees:

“We are collectively living through the most harrowing crisis of our lifetime, and as it began to unfold, global travel came to a standstill,” the email said. “Airbnb’s business has been hit hard, with revenue this year forecasted to be less than half of what we earned in 2019.”

“While we know Airbnb’s business will fully recover, the changes it will undergo are not temporary or short-lived,” he said. “Because of this, we need to make more fundamental changes to Airbnb by reducing the size of our workforce around a more focused business strategy.” 

* * * 

So about that IPO this year? Well, it seems tough times are here for Airbnb Inc., as a new headline has hit the wires on late Tuesday detailing how the company is expected to lay off up to a quarter of its workforce, or about 1,900 employees, two sources told Reuters. 

Employees that are affected by the cuts will receive four months of salary, “accelerated equity vesting, and health insurance for a year,” one source said. 

Another source said the official announcement has yet to be made, as staff members will be told about workforce reductions on Tuesday. 

Reuters notes that the home rental startup suspended all its marketing activities to save $800 million in 2020 as the tourism industry has collapsed because of coronavirus lockdowns. The company has also said the founders will take no pay for six months, while executives will see a 50% reduction in salary. 

We noted last week that the pandemic had crushed overleveraged Airbnb Superhosts as bookings collapse. 

 

Market-research firm AirDNA LLC. said $1.5 billion in bookings have vanished since mid-March. Airbnb gave all hosts a refund, along with Superhosts, a bailout (in Airbnb terms they called it a “grant”). 

So about that IPO? Well, it seems the virus has put it on pause… 

Authored by Adam Dick via The Ron Paul Institute for Peace & Prosperity,

Talk about creepy…

The Georgia Department of Public Health has announced that it, the United Sates Centers for Disease Control and Prevention (CDC), and county health boards are together sending teams of government agents to randomly selected homes in two Georgia counties. These teams of government agents are charged with asking questions, including about household members’ health, and extracting blood from all the people living in the homes. The reason given for the home visits is — you may have guessed it — coronavirus.

J. Scott Trubey writes at the Atlanta Journal-Constitution that the government agencies are seeking the blood to test for “antibodies to the novel coronavirus to pinpoint who might have had COVID-19 and estimate how widely the virus has traveled.”

People who live at the 420 randomly selected homes are free, Trubey writes, to refuse the questioning and blood drawing by the government inquisition and phlebotomy teams that show up at their front doors. But, in reality, people often find it hard to muster the courage to say “no” to government agents who accost them in person “asking” them to comply. People are intimidated. They think that even if they say “no” the requested action will still be taken anyway plus they will suffer additional consequences for resisting. That aids police efforts both to get people to say incriminating things and to obtain “permission” to search people and property, even from people who know evidence of a crime is likely to be found.

A CNN report by Dakin Andone shows that the government teams knocking on doors are employing some of the look of cops in their effort to obtain maximum voluntary compliance. Uniforms, government badges, official letters are all part of the process, just like when cops show up for a home search holding a warrant. Andone writes:

“Health workers conducting the survey have CDC vests and badges, the news release said, and are carrying a letter from the CDC and the Georgia Department of Public Health.”

Plus, the goal of the people running the program is that the maximum number of people comply. Andone quotes Georgia Department of Public Health Commissioner Kathleen Toomey putting it this way:

“We encourage everyone who is visited by the teams to participate in this very important survey that can help public health officials assess how widespread Covid-19 is in certain areas.”

In a Tuesday Washington Times editorial, Cheryl Chumley discusses in detail the disturbing nature of the knock-and-draw-blood program. And she points out that a government that really was seeking volunteers, instead of seeking to pressure people to comply, would act differently. Chumley writes:

Government officials could just as easily put out a notification in the mailbox, or online, or via social media, or over the television and radio airwaves, asking for citizen volunteers to come down to the local health department clinics and donate blood for the purposes of tracking COVID-19 — for the purposes of helping the “investigation” into the spread of the virus.

Seeking volunteers through those methods puts the control in the hands of the citizens; those ways make clear the blood offerings are completely voluntary.

This looks like a program that could expand countrywide. In fact, it fits in well with moving into a forced vaccinations and “digital certificates” next phase of the coronavirus crackdown. Doing a test run in Georgia makes sense because the CDC headquarters is there.

So what’s your plan for when government agents come for your and your family’s blood? The government inquisition and phlebotomy teams are acting much like cops, seeking to pressure people into providing private information and even their blood. A generally sound course of action with cops is not to talk to them and not to give them permission to do anything. The same course of action can be employed when confronted by these new door-to-door blood suckers.

A quarter of issuers in the broad Russell 3000 index have reported their Q1 results so far, with an average Y/Y EPS drop of 12% (this figure is not materially different between large and small caps, with the former segment at -11% and the latter at -16%). In sectors, earnings were hit hard in energy, capital goods, autos, travel, financials, and healthcare providers. On the other side, earnings held in relatively well in staples, utilities, and real estate. Looking ahead, BofA expects earnings to contract 30% on the Y/Y scale in Q2, before beginning to recover gradually from there.

That’s about as far as any forecasts will go, as visibility for earnings growth a year from now is virtually nonexistent, however for some bizarre reason, bottom-up consensus numbers are showing a +15% growth for Q1 2021 Y/Y, and it’s unclear where this growth will come from. Like this website, BofA says that it “would take the other side of that view and assume a -15% drop in earnings in our models and base-case scenarios.”

Under such an assumption, US high yield total debt leverage is likely to reach 6.0x in a year from now, matching its 20-year highs last seen in early 2000s, and a 99th percentile on historical range.

In fact leverage would temporarily set a new all-time high based on Q2 numbers, before potentially recovering somewhat if there is some recovery in Q3 and onward. Unless, of course, instead of a V-shaped recovery in GDP we get an I-shaped surge in corporate bankruptcies.

From a technical standpoint, given current spreads of 790bps, investors are looking at 130bps per turn of next-12mo leverage, which is somewhat cheaper compared to the historical average of 110bps/turn and a 75th percentile on the historical range.

As BofA notes, both previous credit cycles have seen this measure averaging 150bps/turn through the cycle, implying 900bps OAS at 6.0x leverage. Worse, at peak levels this measure has reached 200bps/turn in both cycles, implying a 1,200bps OAS, which explains why the Fed intervened directly in the bond market to limit the blow out in spreads.

Of course, the one and only reason for this massive buildup of leverage is the Fed, which for years allowed companies to issue super cheap “junk” debt, and then when everything crashed, the Fed stepped in and said it would buy IG and fallen angel high yield bonds, ensuring that the debt bubble it had blown would get even bigger.

We discussed this dynamic in “Unprecedented Pace Of Corporate Debt Issuance Has Crippled Corporate Fundamentals” and today Bloomberg agrees, writing that “for years, the Federal Reserve warned that too many highly risky companies were engaging in fuzzy accounting that bumped up their earnings – making it easier for them to obtain loans. The practice was driving up corporate debt to excessive and worrisome levels, regulators chastised. But now, in its latest effort to keep credit flowing, the Fed has done a remarkable about-face. It essentially endorsed the dubious practice with a program that may serve to bail out some of America’s most leveraged companies.”

The Fed move “rewards the worst abusers,” said Mark Carey, a former Fed official and co-president of GARP Risk Institute, the research arm of an association of risk managers. “People will see this as a backstop and in the future they will be encouraged to take on really high leverage.”

The reversal came in the Fed’s announcement last week to expand its Main Street Lending Program to allow more small and medium-sized businesses to qualify for as much as $600 billion in loans. That was widely applauded. But less noticed was a provision that allows companies that had used the widely-abused accounting techniques in the past to seek the loans.

Well, no: last week when discussing the expanded Main Street lending program, we explicitly pointed out that “the Fed also added a third loan option for companies with higher debt.“

… Adding that “the launch of this new option will ensure that the already record debt bubble gets even bigger, this time with the explicit blessing of the Fed.”

It wasn’t just us however, because increasingly more “establishment” figures are lashing out at the central bank for now openly inviting not only moral hazard but also so much debt that not even the Fed will be able to bail out the next debt-driven crisis:

The Fed move “rewards the worst abusers,” said Mark Carey, a former Fed official and co-president of GARP Risk Institute, the research arm of an association of risk managers. “People will see this as a backstop and in the future they will be encouraged to take on really high leverage.”

Which is funny since leverage is, a shown above, already at all time highs, and just to make sure it is even higher, the Fed will accept adjusted EBITDA as its cash flow benchmark, a number that is literally whatever the company and/or underwriters want it to be.

The new Fed lending facility says debt can be no more than 6 times earnings to be eligible for two of the programs.

But for companies that have played the adjustment game, that leverage cap becomes less relevant, said Scott Macklin, director of leveraged loan strategies at asset manager AllianceBernstein.

“We foresee the ability for companies which are far more levered than 6 times to take advantage of the program given the creative adjustments to Ebitda often marketed,” he said.

Ironically, while the Fed is now accepting 6x “adjusted EBITDA”, just a few years ago the Fed was warning about the dangers of using adjusted EBITDA as a metric. A Fed official in 2018 noted “material loosening of terms and weaknesses in risk management,” particularly in adjustments to Ebitda. Just two years later we find that when one – i.e, a price indiscriminate central bank – is “investing” with recently printed “money” there are no concerns about a “material loosening of terms” and certainly no concerns about “weaknesses in risk management.”

 

Just two trading days after Goldman flipped bullish on oil, saying that “it now appears likely that the market is passing its test on storage capacity” and hiking its oil price forecasts to $25/$30 for Q2/Q3 Brent, and sees WTI at $20/$28 for Q2/Q3, respectively…

… Brent has already hit Goldman’s Sept 30 price target, and on Tuesday afternoon Brent was trading above $31, thanks to a torrid rally that saw a barrel of the black stuff trading at $25 just yesterday.

Meanwhile, in a market that goes all in from one extreme to the other, WTI is also surging, and was up 20% at last check, trading as high as $24.85 for the June contract before settling at 230pm …

… which is remarkable because just two weeks ago it was trading at MINUS $40.

The last time WTI was here, traders realized that with Cushing effectively full, and with demand still dismal, oil prices cratered as there was no space for the physical deliverable. And while there has been a modest improvement in global demand, the surging oil price means that supply that was put on pause in recent weeks will once again start pumping aggressively, and the global supply/demand imbalance will once again shift aggressively toward supply, and result in sharply lower oil prices. 

When? Look for another round of “April 20” fireworks on May 19 when the June WTI contract matures and becomes deliverable. And while this time there will be far less supply from the USO, the open interest is still around 258K, or the equivalent of 258 million barrels…

… which in the next few days will need some place to be stored. And something tells us it won’t find it, meaning we are about to go through the oil rollercoaster all over again…

 

Authored by Patrick Buchanan via Buchanan.org,

Where Barack Obama achieved notoriety for “leading from behind,” Joe Biden, these last two months, has been leading from the basement.

And, one must add, doing so quite successfully.

Since his rout of Bernie Sanders on Super Tuesday, Biden has led President Donald Trump in every national poll and, lately, opened up a lead in Michigan, Wisconsin, Pennsylvania and Florida. One poll has him tied with Trump in Texas.

Last week, however, reality intruded. Biden was forced to defend himself against the lurid charge of ex-aide Tara Reade that, as a senator in 1993, he had groped and assaulted her inside the Capitol complex.

Why did Biden go public?

Because witnesses were coming forward to say Reade told them of Biden’s misconduct years ago, and major media outlets began to give the charge credibility by moving the allegation onto Page One.

Media allies were signaling that they could not forever give Biden a pass on this, and he had to speak to the charges. Which is what Biden did Friday as he told MSNBC’s Mika Brzezinski:

“This never happened … and it’s as simple as that.”

With that flat denial, Biden put his credibility on the line — in defense of his character. For one cannot equate what Reade claims Biden did with the reputation he has built over half a century as a decent and honorable man. Biden now has to persuade the nation this woman is deluded, wildly exaggerating, misremembering — or is deliberately lying.

If “nothing happened,” Biden must explain how well he knew Reade and why she left a plum job in the office of a U.S. senator after only nine months.

This is not a matter any presidential candidate wants to discuss while conducting his campaign. But this is only the beginning of Biden’s problems — and of his party’s problems with Biden.

With four months left before his nomination in Milwaukee, and six months before the November election, there are still among Democrats gnawing concerns based on Biden’s performance in the debates and primaries, and since, that he has lost the ability to articulate issues clearly and cogently, or to complete complex thoughts.

The worry is that he is suffering from mental decline and could be destroyed by Trump in a presidential debate. Biden forgets, mumbles, misspeaks, loses his train of thought and appears, at times, confused.

Image Source: Ben Garrison at GrrrGraphics.com…

Moreover, Biden is no spring chicken. He would take office at 78, one year older than Ronald Reagan, our oldest president, was when he left office.

Biden has also signaled, by his references to being a “bridge” president, that he will be serving only the single term that would end in 2025 with him having celebrated his 82nd birthday.

“I view myself as a transition candidate,” Biden conceded last week.

This makes his vice presidential choice crucial. For that individual would not only become president instantly should something happen to a President Biden, but he or she would also become the leader of the Democratic Party, the probable presidential nominee in 2024, and possibly president.

Who will Biden select as America’s future leader, after him?

First rule: No white men need apply. Biden has ruled them out.

Indeed, no male candidate of any race or ethnicity need apply. The vice presidential nomination has been set aside for a woman.

A woman of color? Not necessarily.

But here Biden has another problem. It was a huge turnout among African Americans in South Carolina that rescued Biden’s failing candidacy and propelled him to his Super Tuesday triumph three days later.

Should Biden choose Minnesota Sen. Amy Klobuchar as his running mate in a party that celebrates diversity above all, that all-white ticket would dismay and conceivably enrage the political elites of the black and Hispanic communities in the Democratic coalition.

If he chooses Sen. Elizabeth Warren, that ticket would also be all white. Moreover, it would point to a Democratic Party future far to the left of the constituencies that turned out in panic for Joe Biden because he was the last man standing athwart the forced march to the left of democratic socialist Bernie Sanders.

If Biden chooses an African American like Stacey Abrams, who lost the Georgia governor’s race in 2018, or Sen. Kamala Harris, who did poorly in the primaries and savaged Biden for his opposing forced busing to integrate public schools in the 1970s, would Democrats welcome either as the party’s designated future leader?

Michelle Obama, as Biden wistfully says, would fit the bill perfectly.

But the former first lady is unavailable. And while Biden is mulling over his choice in his basement, Republicans will be attacking his character, credibility and mental competence. Before the fall campaign begins, they will have soiled his candidacy good.

“It has been said that democracy is the worst form of Government except for all those other forms that have been tried,” said Winston Churchill, after the British gave him “The Order of the Boot” in 1945.

Campaign 2020 may show us our own democracy at its worst.

In case the dire projections published yesterday by the NYT didn’t scare you enough, the NYT’s Maggie Haberman reports that the White House is planning to “wind down” the federal coronavirus task force without a “clear idea” of what – “if anything” – will replace it, the paper reports.

News w/@maggieNYT @SangerNYT The White House’s coronavirus task force is being wound down in the coming weeks without a clear idea of what, if anything, might replace it https://t.co/9KyQxwqEm3

— Noah Weiland (@noahweiland) May 5, 2020

The decision comes as the White House reportedly is shifting its focus to on testing and developing a vaccine or reliable cure for the virus. Jared Kushner is said to be heading the search for a “therapeutics czar” to take over from the task force.

The focus for the administration on coronavirus and health is expected to shift to testing, vaccine devel and therapeutics, with Kushner talking about finding someone for a “therapeutics czar” role @noahweiland @SangerNYT https://t.co/wJNjB8LcqX

— Maggie Haberman (@maggieNYT) May 5, 2020

According to the NYT, Olivia Troye, a top Pence advisor, has told senior officials involved in the task force to expect the group to wind down within the coming weeks. That command has reportedly been “echoed” by other top White House officials.

The task force, which is still nominally led by VP Mike Pence, ceased delivering daily briefings more than a week ago after a barrage of editorials in the NYT, Washington Post and elsewhere urged the media to start ignoring the briefings due to Trump’s penchant for back-patting and arguing with reporters. They finally ceased after Trump engaged in a semi-coherent tangent about cleaning products and sunlight and their ability to destroy the virus that was widely interpreted as a recommendation to inject bleach to protect from the virus.

The task force reportedly met Tuesday, but that was its first meeting since at late last week.

To be sure, a separate report from CNBC noted that the task force wouldn’t be wound down for ‘months’, though neither report offers a definitive number.

Now that Trump has mostly handed the reins to the states, is continuing with these task force meetings really all that critical? The story doesn’t say anything about Dr. Fauci and Dr. Birx, however, we assume that they will continue to play leading roles in the response because that’s what they do. They work for DHHS and we assume will continue to be deeply involved, unless we hear otherwise.

That question isn’t really answered by the NYT – thought the post did note that the pace of new cases outside the New York metro area is trending higher.