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During the depths of the financial crisis as Lehman collapsed and fears about another Great Depression spiked, nearly 200,000 Wall Street professionals lost their jobs. But that figure will likely pale in comparison to the broad-based economic destruction brought by the coronavirus, which will hammer virtually every industry and sector. To wit, in a presentation from NYC Comptroller Scott Stringer responding to Mayor de Blasio’s budget proposal for the coming fiscal year, Hizzoner’s anointed successor (Stringer is planning a run for mayor next year when Blaz gets term-limited out) revealed that the city will lose as many as 900,000 jobs – roughly 1 in 5 – as the fallout from the crisis worsens.

What’s worse: most of this destruction is expected to take place by the end of June. The worst-hit businesses include restaurants, hotels and, of course, retail. As Bloomberg points out, Stringer’s forecast is more dire than the mayor’s prediction last month that the city would lose more than half a million jobs over the first three quarters of the year.

Stringer warned that as de Blasio pushes to ramp up spending on social services, the city’s finances are in tatters thanks to an expected $3 billion shortfall in state funding. Stringer called on Blaz to cut $89.3 billion from his proposed budget.

Stringer also joined de Blasio’s call for more federal aid, arguing that New York contributes more to the federal budget than it gets back in aid.

Without a doubt, NYC is facing its “deepest recession” since the Great Depression, with much of the country’s job losses likely centered on the city, which also saw an outsize share of economic growth during the post-crisis recovery.

“We’re facing the deepest recession since the Great Depression, marked by historic and rapid job losses,” Stringer said in a statement. “In a crisis this severe, the federal government must step up and deliver relief to New York – the economic engine for the nation.”

Hopefully, New York can suckle up to the federal tit right next to California.

Authored by Michael Snyder via TheMostImportantNews.com,

For those that wondered if Americans would be willing to report on their neighbors on a widespread basis during a major crisis, you now have your answer.  All over the country, calls have been pouring in to authorities from “concerned citizens” that are quite eager to point a finger at their neighbors for violating the coronavirus lockdowns.  In fact, it has been reported that some very nosy people in the state of California were actually calling 911 to report that their neighbors were coughing inside their own homes.  Of course the mainstream media is not exactly helping matters when they use phrases such as “death sentence” to describe this pandemic.  Yes, we should all be taking this virus very seriously, but the truth is that this is not the end of the world and everyone needs to calm down.

Do we really want to have a society where everyone is spying on their neighbors?  When I read that a mother in Wisconsin had been visited by the police because she had permitted her daughter to go play at a friend’s house, it really touched a nerve with me…

A Wisconsin mom videotaped two police officers who showed up at her home and accused her of “allowing” her daughter to play at a friend’s house, an act they deemed to be in defiance of Wisconsin’s “Stay at Home” order.

The officers are clearly agitated and condescending in their conversation with the mother, who is addressed as “Amy” when she opens the door upon their arrival.

So how did the police know that her daughter had gone to another house to play?

Needless to say, someone snitched on her.

And this next story is truly bizarre.  A Colorado woman named Heather Silchia was deeply alarmed when she discovered that her “neighbors” had put a really nasty note on her vehicle…

The missive read, “PLEASE STAY HOME. I noticed a few days a week you leave home with your baby and return a short time later without it. Then I see the man of the house arrive with the baby later in the afternoon while your vehicle hasn’t moved all day. This leads me to believe that the kid is in daycare.”

The letter continued, “Stop. I am assuming that man has an essential job since he is gone all day but if you are home there is no reason for your child to be in daycare at a time like this. I also see you leave shortly after your husband (I assume) gets home. You aren’t wearing any sort of uniform and I have never seen you wear a mask. Bars are closed and you couldn’t possibly be getting groceries every night (which would also require you to wear a mask) so I again ask you to please stay home.”

Well, it turns out that Heather Silchia is actually a 911 dispatcher, and that is why she can’t watch her baby all day.

And we should be thankful for front line workers like her, because they are so greatly needed during a time like this.

Sadly, the examples that I have just shared with you are not isolated incidents.  In fact, it has been revealed that there are hundreds of people that have been snitching on their neighbors in the state of Missouri alone…

Hundreds of people have been exposed for reporting people who have flouted social distancing rules and some are now scared they could receive a backlash. The names and addresses of approximately 900 people in Missouri were released as part of a media request under the Sunshine Law, which allows for the release of information submitted to a public agency (except for wrongdoing and abuse tips).

St. Louis County had urged the community to share details of anyone not following guidelines in response to the coronavirus pandemic and noted in the terms and conditions that information may be shared publicly. However some people may not have read the small print submitted tips via an online form and email from the end of March. Many had asked for their communications to remain private.

If things are this bad in Missouri, one can only imagine the level of snitching that is happening in New York or California.

And even though some states are starting to gradually lift their “shelter-in-place” orders, the truth is that our society is going to be dealing with “social distancing” for a long time to come.  In fact, the way that we share many of our public spaces is in danger of being permanently redefined…

New designs for eating places. McDonald’s is already prototyping a socially distanced version of its restaurant that could be a template for fast-food spaces around the world.

Checkerboard grids on the grass in parks, with people allowed to occupy one square only if those surrounding it are empty.

Or time-sharing of public places: If you don’t show up for your 12:15 p.m. slot at the playground, you’re out of luck.

Are you kidding me?

Of course snitches will have a field day in this sort of an environment.  If you sit too close to a snitch in church or you walk too closely behind a snitch on the sidewalk, you may find yourself explaining your actions to the police.

And what is truly tragic is that none of this nonsense is even necessary.  Please take two and a half minutes and watch this video from Dr. Eric Berg.  It is the most important video about this pandemic that I have watched by a wide margin.

After watching the video, I think that you will understand why all of the coronavirus lockdowns should be ended as soon as possible.

Yes, this virus spreads incredibly easily.  But a lot of the people that catch it never show any symptoms at all, and it has become clear that there are things that we can do for those that do become sick to prevent a lot of the really severe cases.

Unfortunately, the mainstream media is not going to tell you the truth.  Instead, they are just going to keep telling you that the death toll projections are going up and that everyone should continue to stay home.

Look, the reality of the matter is that most of the population is eventually going to be exposed to this virus no matter if we have lockdowns or not.  So it is very important to be taking your vitamins and to be doing whatever you can to support your immune system.  And it is also very important to understand that this is not even close to the worst thing that we are going to face.

If we can’t even handle COVID-19, and if the mainstream media won’t even share the truth when scientific studies show absolutely amazing results, what is going to happen to our society when a really severe crisis comes along?

Failing to take advantage of positive dealer gamma, the S&P is now stuck in “no man’s land” and as Nomura’s Charlie McElligott writes in his latest note, the market is “essentially near the Dealer “Neutral Gamma” level (~2845) and between 2 of the 3 largest Gamma strikes on the board (2850 w $1.355B and 2900 with $1.284B), while also now at the “Neutral Delta” level (2882 incl this week’s expiry).”

Separately, after CTAs briefly flipped to 100% positive, Nomura’s CTA model positioning in the S&P is quite small currently (signal is back “-69% Short,” but only a 4% gross-allocation across the aggregate portfolio), at low gross exposures levels due to the recent signal chopping back-and-forth. CTAs are also somewhat distant from buy- / sell- triggers in either direction, with the next sell level is down at 2746 in order to go to back to -100%, while the nearest buy level is 2936 to go all the way back to +100%.

So with little technical push on either side of spot SPX, what happens next?

According to Nomura’s McElligott the rally is now done, at least for the next few months, and as the Nomura strategist writes, “his sense is ‘lower’ for the next move in Spooz across the Summer months, as I think the market’s current pragmatism towards the virus in conjunction with the “feel-good” of the rally leaving it exposed to the downside of a coming second-wave as cases, as restrictions ease and some States rush back to “normalcy”…yet with fewer Fed and fiscal bullets in the chamber next time around.”

Another reason why the ramp is ending is that, as noted above, CTAs are now “somewhat distant from next triggers” and as a result “we are running out steam on the systematic vol-control-type re-leveraging at “status quo,” where in order to make the $allocation to Equities grow again significantly, we would need to see 3m realized vol (~60) fall below 1m realized (~40)—and that would require a significant “impulse” move requiring a new catalyst—so not necessarily a “sell” catalyst, but speaks to a potential “demand” vacuum.”

He then looks as the historically “weak-ish” thematic Summer seasonality for Stocks (Sell in May) and risk-sentiment (where Gold and USTs trade strong, while May thru Sep is bad for EEM and US Equities themes see Duration Sensitive Equities / Mo Longs tend to strongly outperform vs Cyclicals / Mo Shorts) matters into this current “directionless” trade

For some perspective, here is what seasonal returns look like from May to Sept for Global index, US sectors and industry, Cross asset and US equity factors (since 1994):

• Global index, HSCEI best +2.8% 54% hit (negative May June very positive July, very negative Aug and mild negative Sept), SPX +2.8% 65% hit (positive May, negative June, mild positive July Flat Aug and mild positive Sept), worst Japan -2.9% 35% hit (negative July Aug and Sept, EEM -2.3% 46% hit (negative May Jun Aug and very positive Sept)
• US sectors, best Tech +7.7% 65% hit (very positive May July Sept negative for June), Healthcare +3.8% 65% hit (mildly positive every month, worst Discretionary -0.4% 46% hit (negative June Aug and Sept), Industrials +0.6% 65% hit (negative June Aug and very positive Sept)
• US Industry,  best Tech hardware +5.8% 62% hit (very positive May July Aug, negative June), Semis +5.7% 54% hit (very positive May July & Aug, negative June), Healthcare equip +5.2% 69% hit (positive May to Aug, flat Sept), Software +5.1% 73% hit (very positive May June Aug, flat July Sept), Pharma biotech +4.6% 58% hit (very positive July and Sept, flat rest of the month), Worst Autos -8.2% 35% hit (negative every month x July), Media -3.6% 35% hit (every month negative x July), Div Fins -0.1% 50% hit (negative June Aug, good July and Sep), Food Staples -0.1% 50% hit (negative June and Aug)
• Cross asset, best Crude +5.0% 62% hit (negative May, very positive June and Sept), Gold +2.8% 62% hit (negative May June July, good Aug and Sept), worst US yields (my note: meaning USTs HIGHER) -6.3% 42% hit (negative May July very much in Aug and Sept), Dollar -0.1% 42% hit (negative to flat in June July Aug and Sept
• US Factors, Price mo +1.1% 63% hit (very good May and July, negative Jun Aug and Sept, worst Beta -7.3% 42% hit (very bad May, negative June July, good Sept)

As McElligott adds, this “meh” seasonality also corresponds with this period where most of the “positive catalyst checklist” boxes made by clients in March/April  in order to set scenarios to dip back-in from the long side have now largely been achieved. Of note, the ‘get constructive again’ starter kit established in March / early April is all green, so little upside left here:

• Massive monpol and fiscal pol response–CHECK
• flatten the curve in US cases–CHECK
• commencement of reopening on global and US state & local level–CHECK
• positive phase 1 Remdesivir data, or comments from REGN yesterday saying COVID19 antibody could be ready by Fall–CHECK

This has also affected the VIX:

What this meant then too and occurring simultaneously was a set of further positive inputs into the “vol normalization” process, following the various “short vol” stop-outs in late March—by late April we’d seen the return of Overwriters into “expensive” vols, while too we saw the resumption of an upwardly-sloping front-end of the VIX curve as an “all-clear” signal for the return of systematic “Short Vol” & VIX roll-down strategies

The drop in the VIX created mechanical covering of either legacy shorts (CTAs) or re-leveraging into longs from “vol control” / “tgt vol” space—and over the 1m stretch, and as we noted last week, we even got a day when the CTA signal had flipped back to “+100% Long,” which prompted Nomura to estimate ~$50B of CTA buying across US Eq futs on the month-long gradual / partial cover (from prior -100% position), while too our Vol Control model estimated ~ $15B bot over the past 2wks, as realized trailing vols reset gradually lower.

But now that these “positive catalysts” have largely been squeezed-out, the Nomura quant warns that “we are pivoting into said seasonality; an ugly forecast revision period for corp EPS; data continues to come-in even worse than expected as consumer psychology remains altered; the corporate cashflow disruption and imminent bankruptcy realities become front page daily news (particularly anticipating bloodshed in the energy space); and 2nd order white collar layoffs in corporate America all contribute to another sentiment swoon”

And then there is the new unknown element which is the China-US COVID / Trade War “hot potato,” where many see this rhetoric risk again growing over the Summer election cycle—and could really magnify the risks ahead of the U.S. Election, as Republican Govs look to reopen some states, while Democratic states stay slow on reopening and wait to see if another COVID wave 2.0 kicks-off…which could be seized into the election and act as a back-breaker for Republicans into Nov—either way, we have seen nothing but FXI / EEM vol buyers, with FXI Put Skew 98th %ile

• Note today the South China Morning Post article “Coronavirus: China could cut US debt holdings in response to White House Covid-19 compensation threats”
• Also with regards to China and their own COVID-19 recovery, here is Nomura’s China economist Ting Lu who states that the Golden Week data points to a weak Chinese economic recovery:
  • “Tourism and other activity data from the past Labour Day Golden Week (1-5 May) suggest that China’s economy is gradually returning to normal, but the pace of the recovery is quite slow, as the Chinese government is still maintaining some social distancing measures, consumer confidence is clouded by elevated uncertainty, and plummeting exports dent household income and slash millions of jobs. Online sales were impressive during the holiday, though at the cost of the bulk of offline services and shopping mall visits. We maintain our -0.5% y-o-y forecast for real GDP growth in Q2 and believe markets might need to lower their expectations for Q2 growth.”

This, as McElligott conlcudes, is also why it seems that “the obvious trade the market is putting-on again so far in May and ahead of the Summer is a resumption of the “Everything Duration” dynamic within Equities—long Bond Proxies (Sec Growth and Def / Min Vol) vs back again short Cyclicals / Value / High Beta as a preferred hiding-spot / comfort-blanket—as such, I’d likely prefer to express this “Momentum” view than an outright “bearish Equities” one”

This “downbeat Summer” trade would then look like a move BACK TO THE FUTURE of the “everything duration” safe-place trade, which should mean that “Momentum Long” of Secular Growers and “Cash / Assets” factor (stuff that can grow profits and earnings without a hot cycle) and Bond Proxies / Min Vol / Defensives likely continue to outperf “Momentum Shorts” being Cyclicals/ Value factor (EBITDA / EV) / Size / High Beta

This reversal in sentiment is also why “1Y Price Momentum” is again exploding higher in May, +8.4% in just 3 sessions…

… as Secular Growth and segments of Quality rally, while Value / Beta / Vol / Default Risk / Commods -factors gets hammered.

Oil prices suddenly tumbled this morning after a five-day surge as it appears the surge in ADP unemployment data (completely expected) seemed to remind the machines of the persistent concern that the global glut will take a long time to eliminate as demand remains crushed by the coronavirus.

Most analysts don’t see demand rebounding to pre-virus levels for at least a year, with some questioning if that will ever happen. The risk of a second wave of infections in the U.S. as states reopen can’t be discounted, while deteriorating relations between Washington and Beijing may hamper the global economic recovery.

“We’ve gone on Brent from $20 to $32, that’s a lot,” said Tor Svelland, chief executive officer of commodities fund Svelland Capital.

“The demand destruction is still there, it’s a very, very strong move.”

And while initially last night’s bigger-than-expected API-reported crude build was ignored, oil prices are losing steam fast this morning.

API

• Crude +8.44mm (+7.1mm exp)

• Cushing +2.681mm

• Gasoline -2.237mm (-400k exp)

• Distillates +6.143mm (+3.5mm exp)

DOE

• Crude +4.59mm (+7.1mm exp, +9.51mm WHIS)

• Cushing +2.068mm

• Gasoline -3.158mm (-400k exp)

• Distillates +9.518mm (+3.5mm exp) – biggest build since Jan 2019

This is the 15th straight week of crude inventory builds but notably less than expected (and lower than API’s print). It appears the bulls are choosng to ignore the huge build in distillates (think perhaps airlines)

Source: Bloomberg

Easing of stay-at-home orders in parts of the U.S. is driving increased gasoline demand, but the outlook over the medium term is still poor.

Source: Bloomberg

The overall crude inventory is back very close to record highs…

Source: Bloomberg

The recent collapse in US oil rig counts has started to sync with a plunge in US crude production (which fell 200k b/d in the last week).

Source: Bloomberg

WTI tumbled back to around $23.50 ahead of the DOE print and ripped back higher (though still down on the day) after the smaller than expected build… We will see if this spike holds…

Bloomberg Intelligence Senior Energy Analyst Vince Piazza notes that while announcements by E&Ps curtailing drilling and completions activity and shutting-in oil production are providing a near-term boost to sentiment, themes of lost demand and storage builds remain key concerns to us still. Reopening the global economy is a slow and arduous process, and a wave of infections in autumn may recast assessments of demand and supply balances.

On Tuesday, it was Airbnb Inc. announcing layoffs. Now it appears Uber has done the same, indicating in a company filing on Wednesday morning that it will cut 3,700 of its 26,900 employees or about 14% of its workforce.

“On May 6, 2020, Uber Technologies, Inc. (the “Company”) announced plans to reduce its operating expenses in response to the economic challenges and uncertainty resulting from the COVID-19 pandemic and its impact on the Company’s business. Due to lower trip volumes in its Rides segment and the Company’s current hiring freeze, the Company is reducing its customer support and recruiting teams by approximately 3,700 full-time employee roles. In connection with these actions, the Company estimates that it will incur approximately $20 million related to severance and other termination benefits. The Company is evaluating other cost and will provide an update in subsequent SEC disclosures regarding such amounts, if material,” the filing states. 

Uber’s stock plunged nearly 4% Wednesday morning.

A recent report from The Information suggests lockdowns have sent global bookings of the ride-sharing company down at least 80%. These are similar numbers to the collapse in Airbnb bookings since mid-March. 

Khosrowshahi told employees in a memo on Wednesday: 

“We are looking at many scenarios and at each and every cost, both variable and fixed, across the company,” Khosrowshahi said. “We want to be smart, to move fast, to retain as many of our great people as we can, and treat everyone with dignity, support and respect.”

Full memo below (via CNBC):

Team Uber,

I wanted to let you know that we just announced the elimination of around 3,700 roles in CommOps and Recruiting, and the closure of 40% of our Greenlight locations. You can read the emails that were sent to those teams here.

With the reality of our Rides trips volumes being down significantly, our need for CommOps as well as in-person support is down substantially. And with our hiring freeze, there simply isn’t enough work for recruiters.

This is not in any way a reflection of these employees’ efforts or contributions to getting us to where we are, as a service that everyone associates with movement and earnings opportunities. We wouldn’t be here without their efforts and I want to personally thank them for everything they’ve done for Uber.

We have worked hard to put together generous severance packages with a longer period of healthcare coverage to help provide a bridge, and we are also supporting EXTs whose roles are affected by today’s decision.

That’s today’s news. But, as I said at yesterday’s All Hands, this is one part of a broader exercise to make the difficult adjustments to our cost structure (team size and office footprint) so that it matches the reality of our business (our bookings, revenue and margins). We are looking at many scenarios and at each and every cost, both variable and fixed, across the company. We want to be smart, to move fast, to retain as many of our great people as we can, and treat everyone with dignity, support and respect. As I said yesterday, you can expect we will have a further, final update for you within the next two weeks.

Days like this are brutal. I am truly sorry that we are doing this, just as I know that we have to do this. And while it’s easier said than done, we have to keep our heads down and keep executing, because that—and nothing less—is what will keep Uber going and get us to the other side.

Given this news, and since we have Q1’20 earnings tomorrow, I thought it would be good to get everyone together again on Friday for a Global All Hands, where we can walk through our financial results and today’s changes, and can continue to answer your questions as openly as possible. Keep an eye out for an invite soon.

UberOn,

Dara

And just like that, gig-economy companies are struggling to survive in virus lockdowns that now risk ushering in a depression. 

Authored by Ted Dabrowski via Wirepoints.org,

Illinois has postponed a planned $1.2 billion short-term bond issue for tomorrow and says the deal is now day-to-day. The state plans another $1 billion the following week. 

The state wants the $1.2 billion to ease cash flow issues stemming from the state’s delay of its income tax filing deadline to July 15 from April 15. The additional $1 billion is to fund summer construction projects and for the state’s pension buyout program.

The postponement of the deal is likely due to the slew of recent bad news coming out of the state. All three major ratings agencies now rate Illinois just one notch from junk and all have negative outlooks. The state’s recent revenues have been severely impacted by the economic shutdown, as April’s year-on-year tax revenues are down by $2.6 billion. And the Illinois Senate Democratic request for a bailout, followed by Sen. Mitch McConnell’s bankruptcy comments in response, for sure didn’t help market perception of Illinois.

All that pushed up the state’s borrowing penalty to nearly 400 basis points over AAA-rated credits, even before the state came to market. By comparison, Reuters reports that New York state bonds are just 13 basis points over.

Now, Illinois may have willing lenders in the market, but the spreads may be far beyond what Illinois is willing to pay.

In contrast, other borrowers including California, Louisiana and Maryland tapped the credit markets in March, while other municipal entities like New York City, New York State Power Authority, San Francisco, Missouri University, and San Diego’s Public Facilities accessed the market as recently as last week.

If Illinois can’t access the financial markets, it may eventually attempt to tap the new Federal Reserve “Municipal Liquidity Facility.” The program is not up and running yet, and accessing the money in the Fed program may not be easy. That’s according to Fox Business News Correspondent Charles Gasparino here.

There are certain certifications Illinois must make to receive money from the Fed. First it must certify it could not successfully access the credit markets and second it must certify it is not insolvent. Here are the details from the Fed FAQ.

What legal opinions and certifications will be required?

Eligible Issuers will be required to deliver standard legal opinions for the issuance of debt, including, but not limited to, an opinion of nationally recognized note counsel as to the validity, enforceability, and binding nature of the notes. Each Eligible Issuer must also provide a written certification that it is unable to secure adequate credit accommodations from other banking institutions and that it is not insolvent. Further information on required legal opinions and certificates will be determined and publicly announced prior to commencement of the MLF.

For the purposes of participating in the MLF, what does it mean for an Eligible Issuer to certify that it is unable to secure adequate credit accommodations? 

The Federal Reserve must obtain evidence that participants in the MLF are unable to secure adequate credit accommodations from other banking institutions. In certifying whether the issuer is unable to secure adequate credit accommodations from other banking institutions, issuers may consider economic or market conditions in the market intended to be addressed by the MLF as compared to normal conditions, including the availability and price of credit. Lack of adequate credit does not mean that no credit is available. Lending may be available, but at prices or on conditions that are inconsistent with a normal, well-functioning market.

The implications of Illinois going to the Federal Reserve would be twofold.

One, it would increase the state’s borrowing costs even further – the Fed will purportedly charge a punitive rate for access to the facility.

But more importantly, it would send a signal to the market of Illinois’ further distress.

Acting Director of National Security Richard Grenell has given Rep. Adam Schiff (D-CA) and ultimatum; release 53 the transcripts from 53 secret interviews conducted by the House Intelligence Committee’s Trump-Russia investigation, or Grenell will do it through the Office of the Director of National Intelligence, according to the Washington Examiner.

In a letter to Schiff, Grenell noted that the transcripts of all 53 interviews – consisting of more than 6,000 pages, have been cleared for public release.

“All of the transcripts, with our required redactions, can be released to the public without any concerns of disclosing classified material,” wrote Grenell in the May 4 letter.

The Intel Committee did the first probe into Russia’s 2016 campaign interference and allegations of Trump-Russia collusion. Even today, its findings make up most of what we know about the affair. As part of that investigation — it was run by then-majority Republicans — the committee interviewed some key witnesses in the Trump-Russia matter: Donald Trump Jr., Steve Bannon, Andrew McCabe, Sally Yates, Michael Cohen, Hope Hicks, and many more. –Washington Examiner

The decision to make the transcripts public was reached in  September 2018, when the House was still controlled by the GOP, with the caveat that they would need to be first checked by the Intelligence Community for classified information.

Two weeks ago, the Wall Street Journal reported that the Intelligence Community had finished reviewing 43 of the transcripts, but that Schiff was sitting on them – and had prevented declassification of the remaining ten transcripts.

In fact, Grenell reveals in his letter that Schiff has been sitting on the 43 transcripts since June 2019. With the remaining 10 cleared, Grenell wrote:

“I urge you to honor your previous public statements, and your committee’s unanimous vote on this matter, to release all 53 cleared transcripts to Members of Congress and the American public as soon as possible,” adding “I am also willing to release the transcripts directly from the Office of the Director of National Intelligence, as to ensure we comply with the unanimous and bipartisan vote to release the transcripts.”

Your move, Schiff.