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We had a feeling a few minutes ago when we heard President Trump mention a $2 trillion infrastructure package as part of his plan to reopen the economy tonight, and as it turns out, we had good reason.

Because Mitch McConnell just confirmed that “absolutely no progress” has been made in talks with the Dems & Pelosi, meaning hundreds of thousands of small businesses desperately in need of loans will just have to wait.

• MCCONNELL: NO PROGRESS MADE IN PAST WEEK ON SMALL-BUSINESS AID
• MCCONNELL BLAMES DEMOCRATS FOR BLOCKING LOAN FUNDING
• MCCONNELL SETS NEXT SENATE PRO FORMA SESSION FOR APRIL 20

McConnell hasn’t scheduled another pro forma session until next week, though if a deal is reached, there will very likely be emergency votes. Pelosi and Mnuchin have reportedly been in talks all day, but the Dems are pushing for more resources directed to ‘underserved’ communities’ while the Republicans are essentially arguing that a quick top-off of the ‘PPP’ is all that’s needed right now.

Fox’s Chad Pergram has more:

 

 

 

 

Today at 6pm, Trump will hold a “major” news conference in which he will explain the “guidelines” for reopening America.

Major News Conference tonight, the White House at 6:00 P.M. (Eastern), to explain Guidelines for OPENING UP AMERICA AGAIN!

— Donald J. Trump (@realDonaldTrump) April 16, 2020

In previewing the contents of the speech, Trump said that he thinks the “nation’s governors will be happy with guidelines he will unveil” adding that there “may be a $2 trillion infrastructure package.”

Earlier in the day, Academy Securities’ Peter Tchir published his preview of what to expect from the “reopening” presser. For those who missed it, here it is again.

35% Say the Re-Opening Plan Is Too Dangerous

35% of the population, 3 broadcast networks and 2 cable news networks will immediately blast the plan as not caring enough about lives. 

That the plan is full of mistakes and risks. 

They will replay the inevitable gaffs in the presentation repeatedly. 

Then they will fact check some statements and find great inconsistencies or a lack of corroboration.

The emotional drama will be high (and very light of fact checking the criticisms).

10% Say the Re-Opening Doesn’t Go Far Enough

10% of the population, mostly on social media will immediately lament that the plan doesn’t go far enough.  That too many of their rights are being infringed on.

20% Say the Plan is Best Thing Since Sliced Bread

20% of the population, lead by one broadcast network, will embrace the plan.  The anger factor will be high, along with I told you so’s.

Market Will Rally in Anticipation and Fade on the Plan

It will creep higher into the plan, with bears warning you that the problem is intractable and not to get caught in the sucker’s rally.  Then, when markets fade, which typically happens once the Q&A gets into gear (though there was one speech at 9 pm, early on in the crisis that was so bad (the President mentioned banning goods from Europe), futures sold off during that speech and through the next several days). 

35% Start Rational Discussion and Buy the Dip

Some percentage of people will try to read the plan, understand the plan and analyze it.  This segment of the population is heavily skewed towards the financial industry, financial media and corporate executives, where being right is more important than sounding right.

There will be some things to like.  There will be some things that don’t make much sense or are concerning.  There will be aspects that seem to go too far and areas that don’t seem to do enough.

There will be passionate disagreement between colleagues because this issue is complex and there is no easy or obvious answer to balance the health risk with the crushing economic problem.  There is no right answer.  Just various paths that each have their own uncertain levels of risk and reward.

Everyone Will Have a Plan

By tomorrow morning, there will be at least 2 or 3 competing plans.  The reaction of the media and most of the population will be 99% determined by who put the plan forward rather than any actual content in the plan (which is convenient, since most won’t read any of the details anyays).

By the Weekend 100% Will Support Some Re-Opening Plan

This is key.  While most people will hate some plans and love others and many won’t be able to explain inconsistencies or even contradictions in what they like or don’t like, there will be a vibe coalescing around a plan.  The administration will adapt their plan.  They will make some changes that they say are theirs, while others will argue they just stole their idea.  While the battle of who’s idea it was or wasn’t rages, we will slowly, inevitably, and against all the obstacles, make progress on re-opening.

If Others Can Do It, Why Not Us?

It will take some time for some people to back down from extreme positions.  Testing, or lack thereof is hurdle here, for now.  We should start seeing success stories of other economies.  Instead of the “we are going to be Italy” stories, we will start seeing “why can’t we compete with Germany” stories.  Ultimately I think that while the story is still the War on the Virus, the Battle for the Economy will take center stage.

Bottom Line?

Keep your risk assets – stocks and credit.  If you’re an aggressive trader, you can probably lighten up ahead of the  scheduled press conference, but you will want to buy the almost inevitable post conference dip.

Yesterday, when looking at the latest credit loss reserve numbers from America’s top banks which amounted to $27 billion among the big 7 banks, a number which was understandably 4x greater than the total provisions set aside a year ago…

… we said that despite the significant increase (mostly at JPMorgan which traditionally has been one of the most conservative banks), the number won’t be nearly sufficient by the time the corona-cession is over. Why? Because as we also showed, the last time the US economy suffered a horrific recession, similar to the one right now, the total loan loss reserve to total loans ratio soared to between 4 and 6%. It is now only between 1.5% and 2.5%.

This also explains the reason why banks did not want to discuss what their future loan loss provisions would and could be – because they know very well that if the financial crisis is a template, there is a long way to go before banks are properly provisioned and the cost of this provisioning would be billions in losses as well as billions in new capital. As an aside, BofA CFO Donofrio was almost angry on a few occasions when responding to questions how much more reserves in Q2 the bank would need, saying the bank reserves based on what we know at the moment, and that if he knew how much higher reserves would be he’d “add them now.”

Well, if he won’t add them now, he will add them in Q2, when loan loss provisions will explode, and we expect bank loss expectations will soar by double digits across most banks as the ghost of 2009 loan losses fully materializes.

So to put it all in context, so far the “Big 4” banks have reserved an additional $24BN in Q1 for future loses. But if the GFC is any indication of the defaults that are about to be unleashed, the real amount of losses, discharges and delinquencies will increase 3x-4x compared to the current baseline, meaning that over the next several quarters, banks will have to take another $75-$100BN in reserves on loans that go bad, wiping out years of profits, which were used not for a rainy day fund but to pay for – drumroll – buybacks. As Chris Whalen showed, the banks most recently repurchased over $100BN in stock (which is also why the banks better NOT come begging for bailouts in a few months).

In any case, such a sharp surge in loan losses could be a major problem for banks which until now were seen as generously overcapitalized, because if the US banking sector is facing $100BN (or more) in loan losses, then the Fed will have no choice but to once again step in and bail out the US financial sector.

It now turns out that even our aggressive estimate of $100 billion in potential losses may have been too low, because in what may be the only useful public address from Minneapolis Fed Neel Kashkari who generously took some time away from trolling all those who have exposed the Fed as a market manipulating vehicle for the benefit of the “0.01%”, has written an op-ed in the FT in which he doubles our estimate of potential losses, and urges bank to raise $200BN in new capital “now”, a move which while prudent – and frankly laudable – will never happen as it will send bank stock prices crashing since it would dilute the market cap of US banks by double digits.

And something else that banks won’t do is suspend dividends – until the coronacrisis gets much worse of course – even though Kashkari, useful for the first and probably last time in his career, urges them to suspend dividends now:

Large banks are eager to be part of the solution to the coronavirus crisis. The most patriotic thing they could do today would be to stop paying dividends and raise equity capital, to ensure that they can endure a deep economic downturn. Unlike the rest of us, banks have the ability to essentially vaccinate themselves against this crisis. They should do so now.

Of course, this being Kashkari, the former Goldman banker is purposefully clueless about the Fed’s role in promoting and encouraging bad bank behavior for the past decade; so instead of targeting the Fed, Kashkari lashes out at the banks instead:

When financial strains emerged in 2007, US officials urged large bank chief executives to raise equity to make sure they had the wherewithal to survive a crisis. The most common answer was: “We’re fine. We don’t need it. Our balance sheet is rock solid.” They only realised that they had serious problems after the deep losses were obvious to everyone, especially financial markets. At that point it was much more difficult, if not impossible, for them to issue equity because their stock prices had already collapsed. And that was when governments in the US and elsewhere had no choice but to step in with bailouts.

That’s funny because we remember another institution in 2007 which said that “we’re fine” – Kashkari’s current employer, the Federal Reserve itself. And once the US central bank found itself catastrophically behind the curve, it panicked and unleashed a wave of unprecedented moral hazard that appeared unsurpassable… until last week when the Fed doubled down and did something not even Bernanke was willing to do – buy investment grade bonds first, and then junk bonds.

It gets better: some of us actually recall in 2017 when Kashkari said – in response to a question from Zero Hedge, asking “what is the biggest S&P drop the Fed will accept before intervening?” – that he doesn’t “care about stock market fall itself. Care abt potential financial instability. Stock market drop unlikely to trigger crisis. “

Don’t care about stock market fall itself. Care abt potential financial instability. Stock market drop unlikely to trigger crisis. #AskNeel https://t.co/Cv7ENuJuqU

— Neel Kashkari (@neelkashkari) March 21, 2017

Oh how delightfully ironic it is then that the Fed waited until the stock market was down 35% on March 23 from its February highs before announcing it would unleash Unlimited QE and started buying corporate bonds. Would you care to revise your answer now, Neel?

Kashkari’s self-serving narrative – which nobody believes anymore – aside, he actually does bring up a valid point: we say that because it’s precisely the point we brought up yesterday, namely the banks have no idea how bad it will get, and they have a duty to prepare for the worst, something they clearly have not done now, and won’t do until they absolutely have to, at which point their loss reserves will explode. Here is Kashkari this morning in the FT, effectively reading from our post:

We simply do not know how large the losses from this crisis will be, because the depth and duration of the downturn depends on how the virus progresses and how our healthcare systems respond. Experts say a vaccine will not be ready for 18 months. Will new therapies emerge sooner that allow us to relax the economic shutdown while still protecting people? Nobody knows.

It is not hard to see scenarios where we have to impose some economic controls for months on end. In 2009, according to the Centers for Disease Control and Prevention, 61m Americans, or roughly 20 per cent of the population, contracted swine flu. Fortunately the mortality rate was low. There is still tremendous uncertainty around the Covid-19 death rate.

Shockingly, Kashkari actually makes another good point: not if, but when the banks come begging for another bailout – because, you know, everyone else is doing so thanks to the tsunami of moral hazard the Fed launched with LTCM in 1998 and then with the financial crisis ten years later, they should not get it because they had more than enough time to prepare.

Banks will argue that this crisis is not their fault, any more than it is the fault of airlines or hotel operators. So why should they not get a bailout too? There is an important difference: we can see this risk coming and banks have time to prepare for it. Airlines and hotel companies did not have advance warning.

Here’s the funny bit: while Kashkari is acting the tough guy in his oped, the moments his former employer Goldman Sachs tells the Fed it needs another $15Bn in capital right now, the Minneapolis Fed president – whose ambitions to replace Powell are all too obvious to everyone – will be the first to bend over.

In any case, his conclusion is correct – banks should raise $200BN in capital now while they can, not when they have to, at which point they will skip the song and dance entirely, and proceed to demanding taxpayer funds immediately.

In 2008, US taxpayers injected about $200bn of capital to strengthen banks. Raising that amount from private investors today, as a strong, preventive measure, would ensure that large banks can support the economy over a broad range of virus scenarios.

If the crisis turns out less serious than we fear, banks can return the capital through buybacks and dividends once the crisis passes. We will then celebrate their action to support the public during a national emergency. As bankers are fond of telling their clients: no one has ever regretted raising capital.

Right… except the banks themselves, who know very well the stock prices go up only when a company buys back its own stock. We hope that even a Fed president should be able to figure out what happens when a bank sells stock instead…

Just hours after President Trump, General Milley, and now the mainstream US media, increase the rhetoric volume on the source of the “Chinese Virus”, with questions about leaks from the Wuhan Lab growing louder, American firms producing medical goods in China have been slapped new export restrictions, stranding much of the supplies in warehouses across the country. 

This new hurdle comes at a time when shortages of masks, test kits, and other medical equipment have materialized in many hospital systems across the US.

Suppliers, brokers, and State Department memos reveal that large sums of protective gear lay on pallets in Chinese warehouses, unable to receive necessary shipping authorizations to the US, reported The Wall Street Journal.

For example, 1.4 million COVID-19 test kits sit in a warehouse in China, unable to ship from PerkinElmer Inc.’s Suzhou factory because “it lacks certification required by the new rules,” a State Department memo read, first reviewed by The Journal.

Another memo said Shanghai officials told 3M that the city is overly reliant on 3M-95 masks, and it would be up to Beijing to lift export restrictions.

State Department memos said the new restrictions had created “bottlenecks” for the US at a time when medical supplies are urgently needed.

The export restrictions have “disrupted established supply chains for medical products just as these products were most needed for the global response to COVID-19,” according to a memo this week.

“Every single day we don’t have the proper protective equipment is a new health-care worker exposed, is a new hole in the ship that is our current hospital system and ICU bed structure,” said Illinois Deputy Gov. Christian Mitchell, who leads the state’s efforts in acquiring medical supplies.

The Journal notes how China has created fresh “logjams” for companies trying to export medical supplies to the US.

“The export restrictions then followed. Chinese customs prohibited the export of medical products without certifications from China’s National Medical Products Administration, even if the goods had been registered with the US Food and Drug Administration. On Friday China added another hurdle, subjecting certain types of surgical protective gear and equipment—including ventilators and masks—to extra checks before they could be shipped overseas.” 

This has undoubtedly strained ties between the Communist government and the Trump administration.

There are some unanswered questions we have – first, why would Beijing suddenly delay critical medical goods that are knowingly used to combat the virus. 

Second, could the new export restrictions be a punishment by Beijing? And, if so, why would Beijing want to punish the Trump administration? Unless they know that President Trump is setting the narrative to blame the Wuhan lab. 

Authored by Charles Hugh Smith via OfTwoMinds blog,

Like the rest of the financialization machine, sickcare was never sustainable.

What was once known as healthcare in the U.S. has largely been replaced by sickcare: healthcare was focused on restoring and maintaining health and was owned and managed by community-based non-profit hospitals.

Sickcare is focused on extracting the maximum revenues and profits from managing the chronically ill, and is owned by Corporate America. Sickcare, by its very nature, stripmines the entire nation to maximize its profits, and does so dishonestly, with obtuse billing, overbilling, prescriptions for costly medications whose side effects and efficacy have been gamed/obscured, and so on.

Since sickcare profits from chronic illness, America is now chronically ill. Since sickcare profits from over-medicating patients, America is now chronically over-medicated.

As Jim Kunstler observed, sickcare is a racket, which Jim defines: “By racket, I mean an enterprise organized explicitly to make money dishonestly.” Ruin Nation.

There are still vestiges of healthcare in the U.S., but these are being undermined, marginalized or eliminated by the financialization machinery of sickcare. Financialization is the disease that has consumed America, hollowed it out and left it unable to discern the consequences of a financial system that has become neofeudal, parasitic and predatory. One such consequence has been the slow decay of healthcare and its transformation into sickcare.

A correspondent who is a physician recently explained the structure of sickcare.

1. Businessmen understand healthcare is the best industry to financialize:

A. it sells a product that generates its own demand

B. is run by no-nothing doctors who let their worldview get in the way of maximizing shareholder value

C. is a direct conduit to the holy grail–Federal dollars

2. Businessmen get on board

3. Businessmen begin applying business principles to healthcare

4. Businessmen kick cranky doctors off board who get in the way

5. Businessmen hollow out health system as they extract every nickel in value; compensation, no bid contracts, feather bedding

When the inevitable pandemic hits, their hollow organizations don’t have the resources to cope, even though that is their core function–remember, this pandemic is NOT a ‘black swan,’ black swans come out of no where. This was perfectly predicable and there was plenty of warning.

6. The lack of credibility in leadership accelerates the pandemic effects. The doctors who could lead have been marginalized so they can only have impact on the tactical side, rather than in leadership.

Look for wholesale leadership changes with maximal visibility among major health systems as they bring in outsiders to try to re-assert their credibility.

Spoiler Alert: It won’t work.

These hospitals are gaslighting their staff that previously recommended levels of PPE (personal protective equipment) was overkill and that the staff can do just as well with reduced levels of protection.

The staff smell the fire and are behaving accordingly.

No sign of leaders doing personal care in reduced PPE.

Do they not teach leadership in B-school anymore? If you don’t share the risk with your troops (the more intimately, the better) you lose credibility. If there ever is an actual reckoning, the leaders are going to regret not emptying a few bedpans.

I have come to the conclusion that our nation and society is no longer nimble enough to survive.

That’s sickcare in a nutshell. 

Like the rest of the financialization machine, sickcare was never sustainable.

The pandemic is merely the catalyst that is stripping away the PR illusions that have cloaked the looting, the fraud, the racketeering and profiteering, and the betrayal of everything healthcare once stood for.

*  *  *

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While the topic of Chinese government research dominating headlines thanks to a new report that COVID-19 escaped from a BSL-4 facility in Wuhan (reportedly not a bioweapon), it bears mention that the CCP has been pouring significant resources into the militarization of biotech.

To that end, last September Elsa Kania of the Center for a New American Security (CNAS) and national security expert Wilson VornDick penned a chilling look into China’s efforts to weaponize biotechnology in search of a “bloodless victory” over their adversaries.

According to their report in Defense One,  “China’s national strategy of military-civil fusion (军民融合) has highlighted biology as a priority, and the People’s Liberation Army could be at the forefront of expanding and exploiting this knowledge.”

As evidence, the authors provide several examples of the PLA’s strategic writings and research which make clear that they intend to ‘change the form or character of conflict.’ (via Defense One, emphasis ours):

• In 2010’s War for Biological Dominance (制生权战争), Guo Jiwei (郭继卫), a professor with the Third Military Medical University, emphasizes the impact of biology on future warfare.  
• In 2015, then-president of the Academy of Military Medical Sciences He Fuchu (贺福初) argued that biotechnology will become the new “strategic commanding heights” of national defense, from biomaterials to “brain control” weapons. Maj. Gen. He has since become the vice president of the Academy of Military Sciences, which leads China’s military science enterprise. 
• Biology is among seven “new domains of warfare” discussed in a 2017 book by Zhang Shibo (张仕波), a retired general and former president of the National Defense University, who concludes: “Modern biotechnology development is gradually showing strong signs characteristic of an offensive capability,” including the possibility that “specific ethnic genetic attacks” (特定种族基因攻击) could be employed. 
• The 2017 edition of Science of Military Strategy (战略学), a textbook published by the PLA’s National Defense University that is considered to be relatively authoritative, debuted a section about biology as a domain of military struggle, similarly mentioning the potential for new kinds of biological warfare to include “specific ethnic genetic attacks.” 

* * *

Indeed, China’s military researchers have been attempting to weaponize biology along with advances in other scientific fields of study, such as brain science, supercomputing and artificial intelligence. According to the report, China’s Central Military Commission has been behind projects on military brain science, advanced biomimetic systems, biological and biomimetic materials, human performance enhancement, and “new concept” biotechnology.

In particular, China has focused tremendous efforts on gene editing in humans through CRISPER technology, with over a dozen known clinical trials having been undertaken – including those by controversial Chinese scientist He Jiankui into cloning ‘HIV-resistant’ genetically modified humans. It is unknown if his research was sanctioned or even funded by the CCP, however the Chinese government introduced new watchdog legislation to govern such experiments after He’s research drew international condemnation.

But it is striking how many of China’s CRISPR trials are taking place at the PLA General Hospital, including to fight cancer. Indeed, the PLA’s medical institutions have emerged as major centers for research in gene editing and other new frontiers of military medicine and biotechnology. The PLA’s Academy of Military Medical Sciences, or AMMS, which China touts as its “cradle of training for military medical talent,” was recently placed directly under the purview of the Academy of Military Science, which itself has been transformed to concentrate on scientific and technological innovation. This change could indicate a closer integration of medical science with military research. -Defense One

And in 2016, a PLA doctoral research published a dissertation titled “Research on the Evaluation of Human Performance Enhancement Technology,” which outlined how CRISPR-Cas was one of three primary technologies which could be used to enhance the combat effectiveness of military troops. According to the report, “he supporting research looked at the effectiveness of the drug Modafinil, which has applications in cognitive enhancement; and at transcranial magnetic stimulation, a type of brain stimulation, while also contending that the “great potential” of CRISPR-Cas as a “military deterrence technology in which China should “grasp the initiative” in development.”

Biotech meets AI

Another concerning area of Chinese biotech is the intersection with artificial intelligence. In particular, “The vastness of the human genome — among the biggest of big data — all but requires AI and machine learning to point the way for CRISPR-related advances in therapeutics or enhancement,” write the authors.

In 2016, the potential strategic value of genetic information led the Chinese government to launch the National Genebank (国家基因库), which intends to become the world’s largest repository of such data. It aims to “develop and utilize China’s valuable genetic resources, safeguard national security in bioinformatics (生物信息学), and enhance China’s capability to seize the strategic commanding heights” in the domain of biotechnology.

The effort is administered by BGI, formerly known as Beijing Genomics Inc., which is Beijing’s de facto national champion in the field. BGI has established an edge in cheap gene sequencing, concentrating on amassing massive amounts of data from a diverse array of sources. The company has a global presence, including laboratories in California and Australia. -Defense One

Great concern has been expressed over BGI’s access to genetic information of Americans as the company partners with the likes of the University of California and the Children’s Hospital of Philadelphia on human genome sequencing. The company’s research and partnerships in Xinjiang also raise red flags over potential links to human rights abuses – such as the forced collection of genetic information on Uighurs in Xinjiang.

What’s more, BGI appears to have links to the PLA’s military research activities – and in particular the National University of Defense Technology. According to the report, “BGI’s bioinformatics research has used Tianhe supercomputers to process genetic information for biomedical applications, while BGI and NUDT researchers have collaborated on several publications, including the design of tools for the use of CRISPR.”

In closing, the authors recommend keeping tabs on China’s ongoing military interest in biotechnology as an emerging domain of warfare, “guided by strategists who talk about potential “genetic weapons” and the possibility of a “bloodless victory” over adversaries.