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One by one the world’s legendary deflationists are taking one look at the following chart of the global money supply (as shown most recently by DB’s Jim Reid) and after seeing the clear determination of central banks to spark a global inflationary conflagration, are quietly (and not so quietly) capitulating.

One month ago it was SocGen’s Albert Edwards, who after calling for a deflationary Ice Age for over two decades, finally threw in the towel and conceded that “we are transitioning from The Ice Age to The Great Melt” as “massive monetary stimulus is combining with frenzied fiscal pump-priming in an attempt to paper over the current slump.”

At roughly the same time, “the world’s most bearish hedge fund manager“, Horseman Global’s Russell Clark reached a similar conclusion writing that “all the reasons that made me believe in deflation for nearly 10 years, do not really exist anymore. China looks okay to me, and potentially very good. Commodity supply is getting cut at a rate I have never seen before. The US dollar is strong but will likely weaken from here. And it is clear to me Western governments will only ever attempt fiscal austerity as a last resort, not a first. The conditions for both good and bad inflation are now in place.“

And now, it is the turn of another iconic deflationist, Russell Napier, who in the latest Solid Ground article on his Electronic Research Interchange (ERIC) writes that “we are living through another deflation shock but [he] believes that by 2021 inflation will be at or near 4%.”

Why the historic shift in monetary perceptions? Because similar to Albert Edwards’ conclusion that MMT, i.e., Helicopter Money, is a gamechanger, Napier writes that “what has just happened is that the control of the supply of money has permanently left the hands of central bankers – the silent revolution.” As a result, “the supply of money will now be set, for the foreseeable future, by democratically elected politicians seeking re-election.” His conclusion: “it is time to embrace the silent revolution and the return of inflation long before such permanency is confirmed.“

What does this mean for asset prices? According to Napier, “a trading opportunity does now exist in European equities in particular. With the impact of bank credit guarantees not yet fully positively impacting broad money growth, we can expect Eurozone broad money growth to go even higher. Eurozone M3 is already growing at 8.9% year on year and in just a few months will likely exceed its peak of 2007.”

An even more dramatic picture emerges in the US (see top chart), where Napier highlights the surge in M2 which is now the biggest since the Great Depression:

In short, money creation is shifting away from central banks and is being handed off to governments. And that, in a word, will have catastrophic consequences:

This explosion in money supply will eventually have an impact on interest rates with Napier’s best guess is that “ten year bond yields will have to be forced to settle between 2% and 3%. This level comes from working backwards from the highest rate of inflation that governments might dare target to bring escalating debt-to-GDP ratios under control. At levels of annual inflation above 6% there is a growing risk that the velocity of money could shift markedly higher and the prospects of controlling inflation thus reduce.”

The take home here, is that Napier expects inflation to approach 4% by 2020 with velocity of money troughing soon and then surging to 1.4x.

Does the coming surge in inflation mean buy stocks hand over fist? Yes… and no: as Napier explains, “at this stage it is probably best to hold equities as the market begins to discount the silent revolution and, with a lag, inflation itself begins to rise. Should you hold them for the entire journey to 4%? The Solid Ground is skeptical that the rise in equities will last for the duration of inflation’s journey to 4%.“

But what if rates are simply capped a la Japan or the US ca. 1943, with the help of Yield Curve Control? Surely such a disconnect between the yield curve and inflation expectations would be beneficial for stocks? Here, too, Napier pours cold water:

… at some stage in the reflation the government will have to move to cap yields in the knowledge that it is probably too risky to allow inflation to rise above 6%. Many investors seem to believe that this combination of a capped yield curve and rising inflation will be positive for equity prices. That will depend upon what savings institutions are selling in order to fund their compelled purchases of government debt. The most likely asset for liquidation will be equities and, as yields are to be capped possibly for decades, that liquidation could be prolonged.

Needless to say this is clearly at odds with prevailing convention wisdom that yield curve control would “unleash a mindblowing stock rally.” And incidentally Napier seems to agree with this, at least in the short-term:

Time will tell whether that is a good or a bad guess but for now inflation is low, long-term inflation expectations are ridiculously low and equities will benefit from the change in inflationary expectations that are still before us.

While there is much more in the full report below, here are his conclusion:

And so, without further ado, here is Russell Napier and his latest ERI-C note:

Equities & The Rise of Inflation: How Much Inflation Before Repression? (07/07/20)

In 1Q 2009 The Solid Ground called for the bottom of the bear market in equities and then went on to recommend that investors should hold US equities until inflation reached around 4.0%. This proved to be good advice for those who followed it but unfortunately your analyst was not one of them! By 2011 The Solid Ground saw problems ahead for the global banking system in boosting credit growth and thus, with the likelihood that broad money growth would remain anemic, inflation would decline and deflation was likely. Inflation did peak just below 4% in 2011 and by early 2015 the US was indeed reporting mild deflation. The problem was that the journey of inflation from close to 4% back to just below zero was not negative for US equities. Only in the latter period of that journey, when inflation went below 1% and corporate earnings declined, did the S&P500 index decline. The original advice from mid-2009 – hold US equities until inflation nears 4%, even if you think it will subside from that level back towards zero – was the best advice. Now we are living through another deflation shock but The Solid Ground believes that by 2021 inflation will be at or near 4%. Can your analyst take his own advice this time and learn to stop worrying and love the early reflation?

In the 4Q 2019 report (Inflation, Disinflation & Deflation: Their Impact on Equities & Problems for Europe) The Solid Ground revisited the advice from mid-2009 and concluded that those who believed in rising inflation should buy European equities. While that quarterly report forecast a deflation shock, it was clear that European equities would be a major beneficiary of rising inflation if that forecast proved to be wrong. Since the publication of the 4Q report we have had a deflation shock, with probably some expected deflation to come, and equity prices and inflation break-evens on Indexed Linked Bonds (ILBs) have moved sharply lower. If European financial markets were pricing in prolonged low inflation in December 2019, they are pricing in even lower inflation now. So if The Solid Ground is correct in expecting inflation, even in the Eurozone, to near 4% by next year, there must be an opportunity to profit from a rise in European equity prices?

A trading opportunity does now exist in European equities in particular. With the impact of bank credit guarantees not yet fully positively impacting broad money growth, we can expect Eurozone broad money growth to go even higher. Eurozone M3 is already growing at 8.9% year on year and in just a few months will likely exceed its peak of 2007. Most investors your analyst has spoken to in the past few weeks then expect bank loan growth and money supply growth to subside, as emergency lending ends, and this brief surge in broad money growth to become an historical aberration with almost no impact on inflation. While that is possible, The Solid Ground believes it is not probable as politicians fully recognize the possibilities of commercial bank balance sheet control and launch a series of new initiatives, probably focused on guarantees on loans for green initiatives. The more the duration of this guaranteed lending extends, the more investors will come to realize that there is nothing temporary regarding governments use of commercial banks balance sheets to create credit and in the process to create money. Already the Spanish government’s bank credit guarantee programme has been extended from EUR100bn to EUR150bn. While cautious investors will want to wait to see the permanency in the bank credit guarantee policy, your analyst suggests it is time to embrace the silent revolution and the return of inflation long before such permanency is confirmed.

It is now probable that deflation will be reported across the developed world. It might also be somewhat irrelevant for investors. If The Solid Ground is correct what has just happened is that the control of the supply of money has permanently left the hands of central bankers – the silent revolution. The supply of money will now be set, for the foreseeable future, by democratically elected politicians seeking re-election. Imagine two economies, identical in every way, except that in one an independent central banker seeks to control the supply of money while in another a democratically elected government directly determines the supply of money through commercial bank balance sheet control. Would these two economies have the same level of long-term interest rates? The Solid Ground’s answer to that question is that they would not and it is because they would not that long-term interest rates should now rise – even if the near term outlook is for deflation. The 2Q 2020 report (The Birth of the Age of Inflation: Why It Is Now and What to Own) shows just how governments have seized control of money creation and thus your analyst believes that financial markets will soon be pricing in this silent revolution long before the inevitable inflation, governments so crave, has actually been created.

So at this stage it is probably best to hold equities as the market begins to discount the silent revolution and, with a lag, inflation itself begins to rise. Should you hold them for the entire journey to 4%? The Solid Ground is skeptical that the rise in equities will last for the duration of inflation’s journey to 4%. The key reason for that skepticism is that it seems highly unlikely that governments will accept the likely long-term interest rates that would probably follow if inflation reached 4%. With total debt-to-GDP ratios just below record highs before the COVID-19 crisis, they are now spiraling even higher – in both the government and private sectors. These record high debt levels risk crushing any reflation if the cost of interest rises dramatically in any recovery. The Solid Ground has long forecast that no such rise in interest rates will be permitted — see Capital Management in An Age of Repression: A Handbook (3Q 2016). So when might government action begin to stop such a rise in interest rates and what does it mean for equity prices?

Judging what level of long-term interest rates will be deemed unacceptable by policy makers is one of the most difficult calls in investment. It is probable that policy makers do not currently know the answer to that question themselves. They might not know the answer until there are negative economic impacts from higher long-term interest rates and only then might repressive action be triggered. Your analyst’s best guess is that ten year bond yields will have to be forced to settle between 2% and 3%. This level comes from working backwards from the highest rate of inflation that governments might dare target to bring escalating debt-to-GDP ratios under control. At levels of annual inflation above 6% there is a growing risk that the velocity of money could shift markedly higher and the prospects of controlling inflation thus reduce. Perhaps some governments might flirt with higher levels and of course there is always the risk of over-shooting any economic target, whether of a government or a central banker. However if we conclude that governments will not want to risk inflation rising above 6%, what level of long-term interest rates would they need to pull off a successful financial repression? Perhaps they could allow long-term interest rates to reach 3% but as the success of a repression is based primarily upon the gap between inflation and interest rates, any smaller gap might just slow the process of inflating away debts by too much. These are very clearly back of an envelope calculations but they suggest that even if inflation is permitted to rise as high as 6%, investors should expect aggressive moves to repress long-term interest rates once they are even as low as 2% to 3%. Allowing interest rates to rise to higher levels risks too slow a de-leveraging or a need for a rate of inflation that is too destabilizing.

In the last newsletter (The Silent Revolution: How To Inflate Away Debt… With More Debt) The Solid Ground explained why central bankers would not be able to control long-term interest rates in a world of rising inflation expectations. Such a cap on interest rates would only be possible by forcing savings institutions to buy government debt at the targeted yields. So at some stage in the reflation the government will have to move to cap yields in the knowledge that it is probably too risky to allow inflation to rise above 6%. Many investors seem to believe that this combination of a capped yield curve and rising inflation will be positive for equity prices. That will depend upon what savings institutions are selling in order to fund their compelled purchases of government debt. The most likely asset for liquidation will be equities and, as yields are to be capped possibly for decades, that liquidation could be prolonged.

The conclusion from all of the above is that equities will benefit on the road to higher inflation. That will occur even if deflation happens first as markets begin to discount the impact from the shift in the powers of money creation from central bankers to governments. However the move to cap interest rates between 2% and 3% may well come before inflation hits 4%. As one would normally expect long-term interest rates to be above the rate of inflation, a forced purchase of government bonds by savings institutions is likely before inflation reaches 4%. If the move to force savings institutions to cap yields occurs before inflation reaches 4%, then the mass liquidation of equity portfolios by those institutions also begins before inflation hits 4%. That does not suggest that equity prices can rise ever higher into the financial repression and the liquidation may be met by high equity issuance in a period when non-bank debt availability will be significantly curtailed (see The Silent Revolution: How To Inflate Away Debt… With More Debt).

Is your analyst guilty of once again ignoring his own advice? Perhaps, but tactically the advice is the same. Equities can be held as long as the markets continue to discount higher rates of inflation and only when the move to the forced purchase of government debt securities is likely is that upward movement in equities likely to end. We cannot be sure when that will be but should receive some warning on the timing as higher longer term interest rates begin to impinge on the economic recovery. Your analyst, seeing this move as part of a much longer financial repression, would be surprised if long-term interest rates were allowed to rise above the 2% to 3% level, given the implications for the acceptable rate of inflation. Time will tell whether that is a good or a bad guess but for now inflation is low, long-term inflation expectations are ridiculously low and equities will benefit from the change in inflationary expectations that are still before us.

Authored by Peter Earle via The American Institute for Economic Research,

As data accrues on both a national and state-by-state basis, the parameters of COVID-19’s lethality is firming up. Two new papers from Dr. John Ioannidis point to the growing shortfall between apocalyptic pandemic predictions and the vastly more destructive policies implemented in observance of them.

The first, entitled “Population-level COVID-19 mortality risk for non-elderly individuals overall and for non-elderly individuals without underlying diseases in pandemic epicenters” offers more evidence supporting the assertion that the government reaction to the virus has been vastly overwrought. 

Using data from 11 European countries, 12 US states, and Canada, Ioannidis and his team show that the infection rate is much higher than previously thought, which suggests that both the incidence of asymptomatic and mildly symptomatic cases is higher than thought, and the fatality rate much lower than previously estimated. 

As regards the age of victims,

People [under] 65 years old have very small risks of COVID-19 death even in pandemic epicenters and deaths for people [under] 65 years without underlying predisposing conditions are remarkably uncommon. Strategies focusing specifically on protecting high-risk elderly individuals should be considered in managing the pandemic. 

In the other paper, “Forecasting for COVID-19 has failed,” Ioanndis and co-authors take aim at the reasons for which the predictions were so incredibly inaccurate. Early predictions included that New York needed up to 140,000 hospital beds for stricken COVID-19 victims; the total number of individuals hospitalized was 18,569. In California on March 17th, 2020, it was predicted that “at least 1.2 million people over the age of 18 [would] need hospitalization from the disease,” which would require 50,000 additional hospital beds. In fact, “COVID-19 patients [ultimately] occupied fewer than two in 10 beds.” On March 27th 2020, Vice Provost for Global Initiatives at the University of Pennsylvania, Ezekiel Emanuel’s prediction of 100,000,000 COVID-19 cases in the United States in the four subsequent weeks — slightly less than one in three of all Americans — has since been taken down.

Divination, accurate or not, is harmless in and of itself: that’s obvious. But when made by scientific dignitaries, in particular in the process of informing politicians amid crisis circumstances, it often leads to knee jerk reactions at all levels. The causative factors cited are, or should be, well known to economists: they include use of poor data or the wrong use of high quality data; improper or incorrect assumptions; wrongful estimates of sensitivity; wrongly interpreted past results or evidence; problems of dimensionality; and groupthink/bandwagon effects.

From a high level, epidemiological forecasts failed for the very reason that econometric predictions often flounder: the uncritical importation of modeling techniques from physics or applied mathematics into social science realms. This should not be especially revelatory. In “The Counter-revolution of Science” (1956), F. A. Hayek noted the pernicious effects of applying rigidly quantitative concepts where human action is at work, attributing them to “an ambition to imitate science in its methods rather than its spirit.”

Using Ioannidis’ guidelines, a subset of the elements which lead to predictive failures in epidemiology can not only be examined, but analogized directly with economic and econometric counterparts.

Data Problems

The issue of data quality and application in economics is one which arose from the growing quantification of the social sciences. Data which is either erroneously recorded, speciously accurate, or completely fabricated has been a problem of legendary proportions in econometrics and in the crafting of economic policy.

Although first identified as a serious issue 70 years ago (less than three years after the publication of this pivotal work), the mathematization of economics has proceeded apace with virtually no embracing of Oskar Morgenstern’s cautions. (While not waxing conspiratorially, it bears mentioning that low-quality data can be as much a political tool as a source of imprecision in both epidemiology and economics.) 

Similarly, there is growing evidence that some COVID-19 related data has been problematic: erroneous or miscalculated. Where testing is concerned, even a 1% error in the tens of millions of coronavirus tests being conducted would amount to hundreds of thousands of misdiagnoses, with the knock-on effects that such results give rise to. 

Erroneous Assumptions

Untenable and oversimplifying assumptions in economic formulations are often defended as pragmatic or unavoidable. These are problematic even when methodologies are appropriate, the data sound, and the calculations correct: 

Many [epidemiological] models assume homogeneity, i.e.all people having equal chances of mixing with each other and infecting each other. This is an untenable assumption and in reality, tremendous heterogeneity of exposures and mixing is likely to be the norm. Unless this heterogeneity is recognized, estimates of the proportion of people eventually infected before reaching her immunity can be markedly inflated.  

Epidemiologically, the homogeneity oversight is seen at its starkest and most tragically in comparing the outcome of insufficiently protecting the most vulnerable populations while simultaneously closing schools and excoriating teenagers/college students — among the least affected groups — for their social inclinations.   

Sensitivity of Estimates

Determining how an independent variable or groups of independent variables affect dependent variables is the focus of sensitivity analysis. Depending upon the regression (or other operation) being performed, and in particular the presence of exponents, a small error in independent factors can lead to huge variances in outcomes. (This is one of the characteristics of a chaotic system: the so-called butterfly effect refers to systems where ultimate outcomes or states show a tremendous degree of sensitivity to initial conditions.) 

There are techniques which can be used to determine where, when, and to what degree estimates have a disproportionate impact on the outcome of simulations or calculations, whether that comes in the form of wildly overblown or unrealistically diminished outcomes. Often, though, sensitivity is seen not in models, but in the real world events they are designed to approximate. 

Ioannidis cited the “inherent impossibility” of fixing such models, as the ubiquity of models employing “exponentiated variables [lead to] small errors [that] result in major deviations from reality.” Morgenstern evinced similar concerns in 1950 regarding the curve-fitting propensities of the new wave of economic practice; here in production functions, but the criticism is certainly extendable:

Consider, for example, the important problem of whether linear or nonlinear production functions should be considered in economic models. Non-linearity is a great complication and is, therefore, best avoided as much as possible. True non-linearity in the strict mathematical sense is avoided in physics as far as possible. Even quantum mechanics is treated as linear on a higher level. Many apparently nonlinear phenomena, upon closer investigation, can well be treated as linear . . . The distinction is largely a matter of the precision of measurement, which is exactly where the weakness is strongest in economics. It is astonishing that economists seem to hesitate far less to introduce non-linearity than physical scientists, where the tradition of mathematical exploration is so much older and the experience with observation and measurement so much firmer.

I would not deign to correct such a luminary as Dr. Morgenstern, but I would add that the weakness is not strongest in economics alone, but in all undertakings which quantitatively rigidify human action, whether individual or en masse. 

Poor past evidence on effects of available interventions

Unbeknownst to the vast majority of people who are or will suffer from the effects of the lockdowns, the “flatten-the-curve” efforts were informed by information from the Spanish Flu of 1918. Thus data of impeachable quality, from a pandemic event which occurred over one century ago, involving a different pathogen — as a major world war was ending, and when living conditions, longevity, the state of medical science, the tenor of social interactions, and countless other variables were immeasurably different — were applied to sculpt the government response to the outbreak of the novel coronavirus. 

 Ioannidis and his co-authors comment that “[w]hile some interventions . . . are likely to have beneficial effects, assuming huge benefits is incongruent with the past (weak) evidence and should be avoided. Large benefits may be feasible from precise, focused measures.” 

The idea that a single (or even a small handful) of studies might be used to buttress indefensible arguments or to support questionable plans is occasionally seen in economic policymaking as well.

Dimensionality

“Almost all models that had a prominent role in [pandemic] decision-making,” Ioannidis continues, “focused on COVID-19 outcomes, often just a single outcome or a few outcomes (e.g., deaths or hospital needs). Models prime for decision making need to take into account the impact on multiple fronts (e.g. other aspects of healthcare, other diseases, dimensions of the economy, etc.).” Some remedies to this include interdisciplinary scrutiny of model outcomes and a look at past implementations in the face of pandemics — including those to which there was no response at all. 

While dimensionality as a specific problem afflicts economic modeling as well, general comments in this regard closely echo the battered-but-unmoved screeds against one of the earliest fixtures of economic education: ceteris paribus, by which one considers causal or empirical relations while holding other influences equal. While a useful tool for educational purposes, when it creeps into crafting policies the results can be costly. 

(At times, the ceteris paribus approach is defended by econometricians who liken it to the practice of ignoring air resistance in gravity experiments. It’s a shamefully underhanded argument that immingles physical with social science phenomena.)

Groupthink and Bandwagon Effects

Ioannidis cites groupthink among epidemiologists as a source of forecasting error. When a doomsday prediction is made — especially by celebrity scientists — the act of introducing a more mitigating prognosis may bring substantial risk to one’s career, and thus be suppressed. Alternately, the published or broadcast results of thought leaders may be a form of anchoring. As Ioannidis and his team write,

Models can be tuned to get desirable results and predictions, e.g. by changing the input of what are deemed to be the plausible values for key variables. This is true for models that depend upon theory and speculation, but even data-driven forecasting can do the same, depending upon how the modeling is performed. In the presence of strong groupthink and bandwagon effects, modelers may consciously fit their predictions to what the dominant thinking and expectations are – or they may be forced to do so. 

The economics profession is certainly not immune to this. It manifests in several ways, one of which is mainstream economists’ unwillingness to admit their errors (as the continued use of flawed models or bad data attests to). Many economists instinctively do not criticize theory or practices within their institution or school of thought owing to political expediency. The highly ‘siloed’ nature of journals and conferences attests to it, as do the veritable echo chambers in social media. This is not merely a personal observation; it and its effects have been cited elsewhere. Here, in no less prominent a place as the International Monetary Fund:  

Analytical weaknesses were at the core of some of the IMF’s most evident shortcomings in surveillance … [as a result of] … the tendency among homogeneous, cohesive groups to consider issues only within a certain paradigm and not challenge its basic premises.

Cognitive and confirmation biases are noted as well. 

The Media Amplifier

Farcical predictions, whether owing to one or all of the above elements, would nevertheless be innocuous if limited to circulating among small groups of scientists or within the rarified pages of peer-reviewed journals. But whether viewed as a vital democratic institution, a propagandistic organ of political parties, or somewhere in between, it’s far from a conspiracy theory to note that the dominant media outlets are massive businesses which fundamentally compete for revenue on the basis of attention. As with politicians, the loudest and scariest messages and interpretations garner the most attention and have the added perk of defensibility in the name of “vigilance.” 

And in the same manner in which tremendously negative predictions permit self-aggrandizing assessments of policy outcomes — such as in Neil Ferguson’s claim that the lockdowns saved lives — doomy economic projections are almost always associated with unprovably optimal outcomes. 

An example of that is found in President Obama’s assertion that without the bailouts and Fed programs administered in the wake of the 2008 financial crisis, the world might have fallen into a “permanent recession.” (The idea that a “permanent recession” would have been a recession which simply lapsed into a new, permanent low level of economic activity went predictably unchallenged.) The best (and least common) unprovable counterfactuals are good guesses; the majority are deceptive. 

Where Economists can Help Epidemiologists

Having said all of that, the paper concludes with a redemptory note, commending the efforts of epidemiology teams and warning that it would be “horrifically retrograde if this [modeling] debate ushers in a return to an era where predictions, on which huge decisions are made, are kept under lock and key (e.g. by the government – as is the case in Australia).”

The mundanity of letting individuals or localities assess and act in concert with proprietary risk appetites must, on some level, be frustrating when compared with creating vast artificial populations of agents or using big data to sift through colossal data repositories. It would no doubt seem a massive waste of time to expend energy writing code and poring over results only to recommend that citizens exercise their best judgment. 

Simply building and running computational models is not, of course, harmful in and of itself: it is in the leap from output to implementation where hazards emerge. Here’s Hayek, again, in “The Counter-Revolution of Science” (1956):

The universal demand for conscious control or direction of social processes is one of the most characteristic features of our generation. It expresses perhaps more clearly than any of its other cliches the peculiar spirit of the age. That anything is not consciously directed as a whole is regarded as itself a blemish, a proof of its irrationality and of the need completely to replace it by a deliberately designed mechanism . . . The belief that processes which are consciously directed are necessarily superior to any spontaneous process is an unfounded superstition. It would be truer to say [as Whitehead did] that on the contrary “civilization advances by extending the number of important operations we can perform without thinking about them.”

Hysterical, wildly off-the-mark forecasts about COVID-19 will ultimately cause more harm than good, and find their origins in the same set of snags which regularly trip up econometric forecasts. In the epidemiological version, instead of predicting a new Great Depression, they brought an artificial depression, a growing spate of coercive masking initiatives, school closures, and the lockdowns — which quite possibly filled the powderkeg that was ignited by the killing of George Floyd. And that’s what we can see, directly in front of us: the ultimate cost of surgeries foregone, rising rates of drug abuse, alcoholism, and suicides, and other knock-on effects of the ridiculous government responses to the novel coronavirus outbreak will be unfolding for a generation. 

What can economists teach epidemiologists? When it comes to forecasting, humility is key and discretion is the better part of valor. If in a position of power or influence, don’t be afraid to bore politicians to death. Be aware, and remain aware, of the utter unpredictability of human action. And always, above all, remain mindful that the presence of even one human being (and more realistically, millions) introduces complexities which are difficult to predict and virtually impossible to simulate. 

Authored by Elias Marat via TheMindUnleashed.com,

With the pandemic continuing to sink its claws into the United States, economic conditions have also failed to improve for millions of people. As a result, nearly one-third U.S. households – representing 32 percent – have still not made their full housing payments for the month of July, according to a survey from online rental platform Apartment List.

And with public health experts warning people to continue to “Stay at Home,” the slogan is taking on a perverse new meaning as humanitarian disaster looms for some 28 million people in the U.S. who are facing eviction and homelessness in the immediate future.

About 19 percent of those surveyed were unable to make any housing payment in the first week of the month, while 13 percent paid a portion of their rent or mortgage.

The numbers represent the grim fact that for four months now, a “historically high” amount of U.S. households have been unable to pay their housing bill, either on time or in full. It also represents an increase from 30 percent in June and 31 percent in June.

According to Apartment List, those most likely to miss their payments were younger, low-income, or renters. Other experts warn that Black and Latino families face the highest risk of eviction. They also may be entering the start of a rapid and vicious cycle, the report suggests.

“Delayed payments in one month are a strong predictor for missed payments in the next,” Apartment List says. Indeed, 83 percent of households who paid the entirety of their May housing costs in a timely way did the same in June, but only 30 percent of households who were late in May did so in June.

As the economic crisis continues to spiral unabated, tens of millions of Americans continue to survive on unemployment while their economic stimulus checks have long been gone.

“The economic fallout from the pandemic does not appear on track for the quick V-shaped recovery that many had originally hoped for,” Apartment List notes.

And with unemployment benefits expiring while eviction bans and moratoriums that deferred rent payments are being lifted by local governments, experts and advocates are warning that we could see a tsunami of mass evictions across the country that exceeds anything ever seen.

Emily Benfer is the chair of the American Bar Association’s Task Force Committee on Eviction and co-creator of the COVID-19 Housing Policy Scorecard with the Eviction Lab at Princeton University. In an interview with CNBC, Benfer explained that the current public health crisis will soon see tens of millions of people losing their homes in the coming weeks.

“We have never seen this extent of eviction in such a truncated amount of time in our history,” she said. “We can expect this to increase dramatically in the coming weeks and months, especially as the limited support and intervention measures that are in place start to expire.”

“About 10 million people, over a period of years, were displaced from their homes following the foreclosure crisis in 2008,” she added.

“We’re looking at 20 million to 28 million people in this moment, between now and September, facing eviction.”

The reporter asked me why I’m so invested in preventing #eviction.

Because it would be unconscionable to let 20+ million adults & children fall into homelessness, debt & the associated harm, especially when we can prevent it.

Maybe the question should be, why isn’t everyone?

— Emily A. Benfer (@emilyabenfer) July 10, 2020

Legal aid groups and housing advocates are expecting an avalanche of cases as eviction moratoriums and rent deferral moratoriums have ended in quick succession. And across the country, there has been a 200 percent jump in calls to 211 call centers that refer people to social service providers, reports Yahoo! finance.

And as the moratoriums are lifted, county courts are facing hundreds, if not thousands of eviction cases flooding in – in Memphis, local county courts saw a backlog of 9,000 eviction cases when hearings resumed last month.

“In many ways, the wave has already begun. We need to work to stop it from becoming a tsunami and we’re running out of time,” said Diane Yentel, president of the National Low-Income Housing Coalition. “We’re seeing now a really frankly horrifying confluence of increasing evictions in states where new coronavirus cases are surging.” 

According to the COVID-19 Eviction Defense Project (CEDP), one in five of the 110 million Americans who rent their homes – over 20 million people – are at risk of eviction by the end of September. And these aren’t simply low-income families, but people who fell on rough times recently due to the shock of the pandemic, explains CEDP Co-Founder Zach Neumann – and the number is expected to dramatically jump when unemployment benefits run out at the end of the month.

“You have a lot of folks who had strong incomes, in a lot of cases high five-figure or low six-figure [salaries],” Neumann explained.

 “They didn’t have a lot of savings, lost their jobs or were furloughed, and there was not any severance attached to that, but had rents that were in line with the salaries they were earning. The client pool economically looks a lot different than it has in the past.”

In the meantime, the threat of homelessness has coincided with a dramatic spike in coronavirus infections across the U.S. South and the West, hitting struggling tenants disproportionately. And with states like Texas pausing reopening plans, evictions hearings are still proceeding – but on Zoom. As a result, tenants who lack access to technology are often robbed of their ability to flex their legal rights.

Housing advocates are urgently calling for nationwide protections in the form of a uniform eviction moratorium and federal aid through the Health and Economic Recovery Omnibus Emergency Solutions or HEROES Act and the Emergency Housing Protections and Relief Act of 2020. However, the Republican-controlled Senate is expected to block both measures.

Renters across the country are also forming tenant’s unions and demanding that rent be deferred indefinitely. Some tenants, such as the Acacia Apartments residents in Denver, Colorado, are already waging a rent strike – potentially showing the how people across the country who are struggling to keep a roof over their heads plan to keep fighting even in the face of their landlords’ eviction threats.

Update: Watch live

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A fire broke out Sunday on the USS Bonbomme Richard at US Naval San Diego, injuring several sailors according to authorities.

Developing story: A #fire broke out aboard US #Navy‘s #amphibious assault ship USS #BONHOMME RICHARD LHD6 Sunday morning 12 July around 1000 PDT while pierside at the San Diego #Naval Base. At least 3 fire alarms reported. Images gathered from various sources around the net pic.twitter.com/EzOjpHP6KT

— Chris Cavas (@CavasShips) July 12, 2020

Explosion with at least one injury at the USS Bonhomme Richard. #shipfire pic.twitter.com/HooWIRcjU4

— SDFD (@SDFD) July 12, 2020

A three-alarm fire was declared on the amphibious assault ship, reported at 8:51 a.m. according to local station CBS8, citing the San Diego Fire-Rescue department. As the fire progressed, the ship was reportedly evacuated.

More views of the #fire burning now on board US #Navy amphibious ship USS #BONHOMME RICHARD LHD6 at 32nd Street Naval Station in San Diego. Reports so far indicate 3 sailors, 1 SDFD fireman injured. At the moment the fire seems to be growing pic.twitter.com/icPblRJOEV

— Chris Cavas (@CavasShips) July 12, 2020

At least one sailor has been treated for smoke inhalation. Fire appears to have broken out in the hanger deck. pic.twitter.com/AbeH9UHq5J

— Sentinel (@StratSentinel) July 12, 2020

San Diego scanner: fire on USS Bonhomme Richard is getting worse, firefighters are “going defensive” and evacuating ship

— Steve Lookner (@lookner) July 12, 2020

Smoke could be seen from a distance as the fire burned. Meanwhile, just before 11 a.m. an explosion was reported resulting in at least one injury, according to the report. 

3RD Alarm fire on USS Bonhomme Richard (LHD-6) at Naval Base San Diego.

SDFD & Federal Fire have unified command for what sounds like a below deck fire, possibly in a hanger bay

Initial reports of an explosion & injuries.

As both a fireman & a sailor, thoughts with all aboard. pic.twitter.com/eDnLBYZ2SA

— Gregg Favre (@GreggFavre) July 12, 2020

Developing…

Despite the non-stop deluge of market-pumping vaccine trial press releases and leaks that seem to move futures even when the news is entirely procedural (ie when a new human trials get the green light to begin), we haven’t seen any coverage of a Russian vaccine trial that has reportedly become the first in the world to finish all clinical trials.

Vadim Tarasov, the director of the Institute for Translational Medicine and Biotechnology, told Sputnik that clinical trials of the world’s first coronavirus vaccine on volunteers at the Sechenov First Moscow State Medical University have been successfully completed.

“Sechenov University has successfully completed tests on volunteers of the world’s first vaccine against coronavirus,” Tarasov said.

The university began clinical trials of a vaccine produced by Russia’s Gamalei Institute of Epidemiology and Microbiology on June 18, meaning the university managed to distill the entire process trial process down to just 3 weeks.

As for the volunteers, the first group will be discharged Wednesday, while the second will be discharged July 20.

The story comes with a caveat. The trials were solely intended to show that the vaccine is safe for human consumption and use. Several trials for therapeutics and vaccines in the west have also completed at least some trials proving safety. According to Alexander Lukashev, the director of the Institute of Medical Parasitology, Tropical, and Vector-Borne Diseases at Sechenov University, the safety objective was successfully achieved.

“The safety of the vaccine has been confirmed. It corresponds to the safety of those vaccines that are currently on the market,” Lukashev told Sputnik.

Apparently the results were encouraging enough that a “vaccine development plan” is already being rolled out by the developer to mass produce the vaccine.

‘Never-Trump’ neoconservatives working to get Biden elected are planning to teach the president’s most ardent supporters a lesson in cancel culture.

Two groups, the Lincoln Project and Republican Voters Against Trump – described by the Washington Post as a “rebellion that began four years ago” – has “transformed in recent weeks into a potentially disruptive force in this year’s presidential race.”

Republican Voters Against Trump have collected hundreds of first-person testimonials from people claiming to be former Trump supporters, with which the group has begun running campaign ads in North Carolina, Arizona and online – and plans to spend $10 – $15 million in Pennsylvania, Michigan, Wisconsin and possibly Florida according to the report.

One of their ads will air on “Fox News Sunday” in North Carolina and Arizona and will spotlight 15 Republicans who cast their vote for Trump in 2016 but will now vote for Biden.

The Lincoln Project, meanwhile, is the brainchild of GOP strategists Rick “confederate cooler” Wilson, John Weaver, Steve Schmidt and former NH Republican Party Chair Jennifer Horn. The husband of Trump adviser Kellyanne Conway, George Conway, is also involved with the project.

A White House insider anonymous told WaPo that the two endeavors, particularly the Lincoln Project, are “scam PACs” run by “beltway swamp creatures whose candidates can’t win.”

These are the same people who supported independent candidate and former (?) CIA operative Evan McMullin in 2016.

And now for the punchline – which is that the never-Trump cabal is planning to target lawmakers and media figures who support the president.

According to the Lincoln Project’s John Weaver, “dispatching Trump does not dispatch Trumpism,” citing Fox News‘s Tucker Carlson – the highest rated cable host in history, as well as Republican Sens. Tom Cotton (AK), Josh Hawle (MO) and others.

With growing ambitions, a hit list: After ‘dispatching’ President Trump, the pro-Democratic Lincoln Project hopes to ‘dispatch’ others: Tucker Carlson, Tom Cotton, Josh Hawley, more. ‘Our task won’t be finished when Joe Biden takes the oath of office.’ https://t.co/zs2zmG2x8Q pic.twitter.com/6BKKGzSiUc

— Byron York (@ByronYork) July 12, 2020

“The next battle will be making sure those from his ilk do not get the next Republican nomination,” said Weaver. “Our task won’t be finished when Joe Biden takes the oath of office.“

Authored by Charles Hugh Smith via OfTwoMinds blog,

The greater fools still partying in the first-class lounge are in denial that even the greatest, most technologically advanced ship can sink.

On April 14, 1912, the liner Titanic, considered unsinkable due to its watertight compartments and other features, struck a glancing blow against a massive iceberg on that moonless, weirdly calm night. In the early hours of April 15, the great ship broke in half and sank, ending the lives of the majority of its passengers and crew.

The usual analogy drawn between the Titanic and our financial meltdown stems from the initial complacency of the passengers after the collision. Some passengers went on deck to play with the ice scraped off the berg, while most returned to the festivities still working their magic as midnight approached.

The class structure of Edwardian Britain soon came into play, however; as the situation grew visibly threatening, the First Class passengers were herded into the few lifeboats while the steerage/Third Class passengers–many of them immigrants–were mostly kept below decks, sealing their doom.

But there are even more compelling analogies than initial complacency turning to panic. Consider this diagram of the great ship:

The large black rectangles on the lower deck represent the coal bunkers; they were located adjacent to the boilers which powered the engines. Though the ship only scraped against the iceberg, as Titanic explorer Robert Ballard explains, that was enough to pop rivets and open hull plates:

The glancing blow that ruptured the Titanic’s hull over a distance of roughly 250 feet (out of a full length of 882 feet) and admitted water into six of her compartments sealed her fate.

Considerable hullabaloo attended the attempt in the summer of 1996 to raise a piece of the hull from the debris field, but far more interesting was the ultrasound investigation of the area of the bow damaged by the iceberg. These images revealed six small tears or openings affecting the first six compartments. Just as we had surmised in 1986, the great gash was a myth and the actual openings into the ship seem to have been the result of rivets popping and hull plates separating.

This offers a very powerful analogy to the fatal damage inflicted on our financial system by an apparently “glancing blow” with the pandemic shutdown. Just as the Titanic was mortally wounded not by great tears in its hull but by the buckling of steel hull plates, so the U.S. (and thus global) financial system is sinking from similarly “glancing” blows.

The actual damage could have been contained–do you sense another analogy about to surface?– had the fifth watertight bulwark–shall we call it “the bulwark against systemic failure”?– extended a few decks higher. But inexplicably, this watertight barrier did not extend as high as the other watertight bulkheads.

Though the water gushing through a three-foot gash in the forward engine room was held back by the ship’s great pumps, as the bow sank lower then water seeped over the fifth watertight bulkhead and gushed into the boiler room, extinguishing the fires that powered the pumps.

This generated a feedback loop: the higher the water rose, the more boilers were extinguished and the less power was available to the pumps.

And so against all “rational odds,” the ship’s apparently minor structural design flaw led to its inevitable loss as the mighty pumps lost their battle against the rising water.

To all the “experts,” the risk of collision with an iceberg were considered low, while the risk of catastrophic damage were considered essentially zero. Hmm, does that remind you of our financial system circa September 2019, just as the great U.S. economy’s hull was buckling?

Now we have the Great Pumps of Federal Reserve money-printing and Stimulus, which in a close analogy are pumping trillions of dollars into the sinking U.S. economy. But just as the engines of the Titanic lost power as the water extinguished the boilers supplying steam to the engines, so the stimulus is only keeping the rising water temporarily at bay– it is not actually saving the “engines” of the economy from sputtering.

And what are those engines?

1. Debt, which must increase to fuel spending, income and thus taxes

2. Rising assets, which provide the basis for ever-more borrowing

3. Government borrowing, which enables government spending to keep rising without regard to actual tax revenues or the health of those being taxed

4. Rising employment as vast borrowing and spending creates new jobs

The ice-cold water is splashing into each of these engines. As assets fall then there is simply no foundation (collateral) to support more borrowing. As debt is paid down rather than expanded, then spending falls. As spending falls, so do revenues, profits and employment, all of which crimp tax revenues.

The last engine is government borrowing. To those still standing on the sloping deck, cheering the “good news” of Big Tech’s meteoric ascent to the heavens of bubble overvaluation, this seems like the engine which can never be extinguished. Through thick and thin the Federal government and the state and local governments (via muni bonds) have been able to borrow and spend stupendous sums seemingly without consequence.

The demise of this last great engine will surprise as many as the sinking of the Titanic did, but it is as inevitable as the sinking of the great ship. The pumps can only hold the water back for a while, but the Stimulus magic will expire sooner than anyone imagines.

As the government scrambles to find buyers for endless trillions in new U.S. bonds (and trillions more in new corporate debt, new mortgages, new consumer debt, student loans, new muni debt, etc.) then interest rates will rise and the great engine of ever-greater debt will hiss and sigh as the water rises and then go silent and cold.

The first-class passengers have already been ushered to their lifeboats. They’ve sold to the euphoric passengers buying Big Tech’s parabolic ascent and the greater fools still partying in the first-class lounge who are in denial that even the greatest, most technologically advanced ship can sink, taking everyone in denial down with it.

The sinking is not a possibility, it is an inevitability.

*  *  *

My recent books:

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World ($13)

(Kindle $6.95, print $11.95) Read the first section for free (PDF).

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Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

*  *  *

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Things are going so splendidly with China right now, the U.S. has officially come out and warned citizens that there is a heightened risk of arbitrary law enforcement – and detention – for visitors to the Asian country.

The State Department is telling Americans to “exercise increased caution” in China, noting that there is a chance they could be banned from exiting the country, according to Reuters. 

The U.S. State Department told citizens in China last week: “U.S. citizens may be detained without access to U.S. consular services or information about their alleged crime. U.S. citizens may face prolonged interrogations and extended detention for reasons related to state security.”

The warning continued: “U.S. citizens may be detained without access to U.S. consular services or information about their alleged crime.”

U.S. citizens in China could wind up facing “prolonged interrogations and extended detention”, the State Department continued.

The alert comes at a point where tensions between China and the U.S. appear to be on the rise. Despite the Phase 1 trade deal supposedly going forward, blame for coronavirus pandemic and China’s reporting of the virus to the world continue to be points of contention for the Trump administration.

At the same time, the U.S. has taken a far more hawkish view on Chinese companies doing business in the U.S., including names like Huawei, Hikvision and TikTok. The Trump administration is taking the threat of IP theft from these companies far more serious than China would probably like and, as a result, it appears the State Department believes China could wind up retaliating. 

“Washington and Beijing recently exchanged visa bans against each other’s officials,” Reuters also reporting, making note of how tensions continue to be on the rise.

Australia issued a similar warning to its citizens last week, which China called “completely ridiculous and disinformation.”

USA Today is the latest MSM outlet whose ‘woke’ progressive staff is so anti-Trump that they deemed the American eagle a ‘nazi’ symbol, after the Trump campaign rolled out t-shirts featuring the iconic bird.

The ‘fact check’, brought to us by USA Today‘s Will Peebles, takes its direction from anti-Trump GOP operatives at the Lincoln Project as well as Jewish progressive group, Bend the Arc – the latter of which tweeted on July 1: “The President of the United States is campaigning for reelection with a Nazi symbol. Again”

The President of the United States is campaigning for reelection with a Nazi symbol. Again.

On the left: an official Trump/Pence “America First” tee.

On the right; the Iron Eagle, the official symbol of the Nazi party.
⁰It’s not an accident. Bigotry is their entire brand. pic.twitter.com/mSOBxwf7Wa

— Bend the Arc: Jewish Action (@jewishaction) July 1, 2020

USA Today took the bait, publishing a fact-check which was heavily ‘ratio’d’ on Twitter – meaning, more people are slamming the outlet than ‘liking’ or ‘retweeting’ their post. 

After their initial tweet came under fire, the outlet issued a lame ‘clarification’ noting “the eagle is a longtime US symbol, too.”

Oh…

Reactions have been hilarious, with many pointing out that it’s the icon used by the Speaker of the House:

And the US Marines… pic.twitter.com/iuYfJrDogu

— Josh (@audrum1) July 12, 2020

Ever see the back side of a quarter? pic.twitter.com/q85QALy2uP

— 🇺🇸BᴏᴊɪSɴᴏᴡQᴜᴇᴇɴ🇺🇸⭐️⭐️⭐️ (@bojisnowqueen) July 12, 2020

The symbol is also on our money pic.twitter.com/m4RzdooeBL

— kwmckinley (@kmclt) July 12, 2020

Hi Bill – @bsternbe

How does it feel to see @USAToday become a complete joke? Will you accept an editorial explaining why people are correct to consider your organization a left-wing propagandist.

Bill runs the Editorial Page. pic.twitter.com/3NxCbRGPOR

— Todd Ξ Herman (@toddeherman) July 12, 2020

Wut??? Have you seen the Speaker of the House’s Mace??? It’s been in use since 1842??? pic.twitter.com/iQrtjqfpP3

— Dog guy (@Catsorange1) July 12, 2020

In retrospect, it’s impressive that it lasted as long as it did.

Four months after OPEC cobbled together a record production cut to offset the demand destruction unleashed by the covid-19 lockdowns, R-OPEC+ (i.e., OPEC plus Russia and a bunch of non-OPEC exporters) is set to slowly resume pumping more after an alliance of producers led by Saudi Arabia wants to increase oil production starting in August, amid signs that demand is returning to normal levels following coronavirus-related lockdowns Bloomberg and the Journal reported overnight.

Bloomberg confirms as much, noting overnight that “having successfully doubled crude prices over the past few months through unprecedented output cuts, the OPEC+ alliance led by the Saudis and Russia is poised to begin unwinding these stimulus measures. As fuel demand recovers with the lifting of coronavirus lockdowns, the producers are about to open the taps a little.”

According to the report, alliance members will meet via zoom on Wednesday to debate the group’s current and future production, which include plans to restore some 2 million in production following the record production cut in April which saw Saudi Arabia push for a 9.7 million b/d in production stoppages as the pandemic led to a collapse of oil demand. More from BBG:

The JMMC will consider whether the 23-nation alliance should keep 9.6 million barrels of daily output off the market for another month, or restore some supplies as originally planned, tapering the cutback to 7.7 million barrels.

As the demand recovery gains traction, members are leaning toward the latter option, according to several national delegates who asked not to be identified. Shipping schedules for August are already being set, so the course is more or less locked in, one said.

While all this sounds great in principle, in practice it will likely send the price of oil crashing because just as there was a massive uphill battle in April to get everyone on the same page (and even that did not stop oil from hitting a record negative price on April 20), so now that production quotas are being eased, the result will be a furious scramble to outproduce everyone else, as OPEC’s most characteristic feature is exposed for the entire world to see: cheating.

“If OPEC clings to restraining production to keep up prices, I think it’s suicidal,” a person familiar with the Saudis’s thinking told the Journal. “There’s going to be a scramble for market share, and the trick is how the low cost producers assert themselves without crashing the oil price.”

“When they look at prices over the quarter, when they look at green shoots of demand pick-up, I think they feel good,” RBC commodity strategist Helima Croft told Bloomberg. “I do think they are cognizant though of some of the potential clouds on the horizon.”

Still, with OPEC+ oil exports generating far less state revenues than pre-covid, the oil producers have little choice but to agree to pump more even if it means sharply lower prices (and yet another round of production cuts in a few weeks). Indeed, producers’ relative optimism coincides with a Friday report from the International Energy Agency showing the worst effects of the coronavirus on global oil demand have passed, although as we showed on Friday, it now appears that record numbers of cases are once again starting to impact mobility and travel.

Indeed, as Bloomberg admits, A second wave of the pandemic threatens another slump in oil consumption, while the billion-barrel mountain of inventories that piled up during the first outbreak still looms. If OPEC+ increases supply just as the market falters then prices could crash once again.

Despite draconian production cuts, Brent remains down 31% since the beginning of the year, at $43.24 a barrel, while West Texas Intermediate futures, the benchmark in U.S. oil markets, have traded at around $40 a barrel since late June after falling below zero at one point in April.

As a reminder, back in late Q1, the market was generally ignoring news of the covid pandemic until the March 6th failure between Saudi Arabia and Russia to agree on a production cut quote (a mistake which was promptly remedied a month later), at which point stocks imploded and the S&P saw a record number of limit down overnight future sessions.

Is OPEC+ about to unleash another round of market chaos?