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With what are sure to be ugly March sales numbers looming, Ford has now decided it is cancelling plans to re-start production in the U.S. and Mexico over the next two weeks. 

Citing risks associated with the coronavirus, the automaker has said the the suspension is “indefinite” and has not set a timeline to bring its facilities back online, according to Bloomberg. The company is currently working with the UAW to establish new guidelines for safety procedures before re-opening. 

The union announced the death of two Ford plant workers on March 28 as a result of the coronavirus. 

UAW President Rory Gamble said on Tuesday: “Today’s decision by Ford is the right decision for our members, their families and our nation. Would I send my family member — my own son or daughter — into that plant and be 100% certain they are safe?”

The shutdowns continue to cost Ford billions of dollars. Despite this, there is no rush to re-open as demand will likely be “depressed for months”. Meanwhile, Ford’s plans to produce ventilators during the week of April 20, in conjunction with GE, remains on schedule. 

Kumar Galhotra, Ford’s president of North America said: “The health and safety of our workforce, dealers, customers, partners and communities remains our highest priority.”

Recall, as we noted yesterday, the entire U.S. auto industry has basically entered full collapse. 

The industry was already barely holding on by a thread before the coronavirus pandemic started, with China leading the rest of the globe’s auto industries into recession over the last 18 months. Now, in a post-coronavirus world, automakers in the U.S. are expecting nothing less than full collapse.

And the things that were barely holding the industry up to start 2020, namely low rates and modest consumer confidence, don’t matter. Businesses are closed, would-be buyers are strapped for cash and the country’s economy has simply been turned off. The industry’s annualized selling rate could slow to 11.9 million in March, according to Edmunds.

Jessica Caldwell, executive director of insights for market researcher Edmunds, told Bloomberg: “The whole world is turned upside down right now.”

Morgan Stanley analyst Adam Jonas put it simply: “There are basically no U.S. auto sales right now. Investors have fully embraced the reality that the U.S. auto industry may be shut down for one or two full months. We’re now being asked to run scenarios of six-month or nine-month shutdowns.”

The President’s extension of his social distancing guidelines to the end of April will also act as a headwind for the industry. Factory shutdowns that started in March will now head toward their second month of no production, as the U.S. consumer, for the most part, remains stuck at home. 

Jeff Schuster, senior vice president of forecasting for research LMC Automotive commented: “We just don’t know when and how this ends, and that’s the biggest problem right now. All of this uncertainty creates a lot of angst and that has been spreading really like a wildfire through the industry.”

He predicts that the industry’s annualized selling rate will continue to plummet to between 9 million and 10 million vehicles. Those numbers are well below the 10.4 million autos sold in 2009, the year GM and Chrysler both filed for bankruptcy. J.P. Morgan has an even more pessimistic view, with estimates of a pace of 6 million to 7 million vehicles over the next month.

Talk about a coincidence: just as we were discussing why April would be “apocalyptic” for the oil industry, as Saudi Arabia just unleashed an unprecedented record amount of oil to buyers in a scramble to put its high-priced competitors out of business, warning that “countless oil producers would file for bankruptcy”, former shale darling Whiting Petroleum did just that, filing a pre-packaged Chapter 11 deal in the Southern District of Texas Bankruptcy Court after reaching an agreement with certain note holders to pursue a “comprehensive” and “consensual” financial restructuring.

Whiting, which in Q4 pumped 123,000 bpd of which 80,000 bpd was nat gas, said it concluded that given a “severe downturn” in oil and gas prices resulting from the Saudi Arabia-Russia oil price war and COVID-19-related impact on demand a financial restructuring was the “best path forward.” Creditors may disagree: the company’s bonds due March 2021 were trading at par as recently as mid-January, even though we warned as far back as 2015 that it would be the first company to go under: truly a testament to how idiotic the junk bond market has been for the past 4 years.

The company said that the plan provides for de-leveraging of capital structure by more than $2.2 billion, and listed $1-$10 billion in debt and more than $585 million of cash on its balance sheet, noting that it expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing.

More importantly, it will continue to operate its business and pump oil for the duration of the Chapter 11 proceedings, meaning that oil production won’t decline by even one drop.

The bankruptcy press release is below:

 Commences Chapter 11 Reorganizational Process to Right-Size Capital Structure

DENVER–(BUSINESS WIRE)–Apr. 1, 2020– Whiting Petroleum Corporation (NYSE: WLL) and certain subsidiaries (collectively, “Whiting” or the “Company”) today announced that they had commenced voluntary Chapter 11 cases under the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Company has more than $585 million of cash on its balance sheet and will continue to operate its business in the normal course without material disruption to its vendors, partners or employees. Whiting currently expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing.

The Company has also reached an agreement in principle with certain holders (the “Supporting Noteholders”) of its 1.25% convertible senior notes due 2020, 5.750% senior notes due 2021, 6.250% senior notes due 2023, and 6.625% senior notes due 2026 (collectively, the “Notes”) regarding a term sheet (the “Term Sheet”) that contemplates a comprehensive restructuring. The proposed financial restructuring, the terms of which will be set forth in a forthcoming restructuring support agreement between the Company and the Supporting Noteholders, would significantly reduce the Company’s debt and establish a more sustainable capital structure pursuant to a consensual chapter 11 plan of reorganization (the “Plan”) that would be supported by the Supporting Noteholders on the terms of such restructuring support agreement.

The Plan will provide for, among other things: (1) significant de-leveraging of the Company’s capital structure by over $2.2 billion through the exchange of all of the Notes for 97% of the new equity of the reorganized Company to be issued pursuant to the Plan; (2) payment in full in cash and/or refinancing of the Company’s revolving credit facility; (3) the payment in full in cash of all other secured creditors, tax and other priority claimants, and employees; and (4) the Company’s existing equity holders receiving 3% of the new equity of the reorganized Company and warrants (as described in the Term Sheet). Consummation of the Plan will be subject to confirmation by the Bankruptcy Court in addition to other conditions to be set forth in the Plan and related transaction documents.

Bradley J. Holly, the Company’s Chairman, President and CEO, commented, “In 2019, we took proactive steps to reduce our cost structure and improve our cash flow profile. We continue to build on these actions in 2020. The Company has also explored a wide variety of alternatives to address our balance sheet and looming note maturities in a highly capital constrained market environment.

Given the severe downturn in oil and gas prices driven by uncertainty around the duration of the Saudi / Russia oil price war and the COVID-19 pandemic, the Company’s Board of Directors came to the conclusion that the principal terms of the financial restructuring negotiated with our creditors provides the best path forward for the Company. We are pleased to have secured a highly constructive restructuring framework with a critical mass of our noteholders. Through the terms of the proposed restructuring, we believe a right-sized balance sheet will enable us to capitalize on our enhanced cost structure, high-quality asset base and successfully compete in the current environment.”

Mr. Holly continued, “I want to express my gratitude to the employees for their continued dedication and hard work, and to our service providers and business partners for their ongoing support during this time. Following the restructuring process, we look forward to having substantially less debt and a significantly improved outlook for our Company and its stakeholders.”

Moelis & Company is acting as financial advisor for the Company, Kirkland & Ellis is acting as legal advisor, Alvarez & Marsal is acting as restructuring advisor and Jeffrey S. Stein of Stein Advisors LLC is the Company’s Chief Restructuring Officer.

PJT Partners is acting as financial advisor for the Consenting Noteholders and Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal advisor.

End result: Whiting will emerge from bankruptcy in a few weeks, leaner and meaner, with almost no debt, yet pumping as much oil as before.

For those confused, this is confirmation that companies can and will continue to operate even under bankruptcy, something which the airline and cruise industry may want to realize, or perhaps the Trump admin, because if any company is to be bailed out, the existing equity has to be wiped out, period end of story.

Here is Whiting’s bankruptcy filing:

Joe Biden doesn’t think the Democratic National Convention in Milwaukee will go off as planned this summer, telling MSNBC “It’s hard to envision that.”

“Again, we should listen to the scientists,” he added.

On the Democratic National Convention going forward in July

Brian Williams: Can you really envision every prominent Democrat in this country from all 50 states inside a hot arena 104 days from now?

Joe Biden: It’s hard to envision that. pic.twitter.com/9eHP6LDdRw

— Natasha Korecki (@natashakorecki) April 1, 2020

The DNC has been considering contingency plans for the event – currently scheduled for July 13-16, though no final decisions have been made, according to Bloomberg, which notes that last Thursday President Trump claimed that the Republican National Convention would go ahead as planned.

In his interview, Biden also said states should prepare for the possibility of remote voting in November. The former vice president added that he was beginning to lay the groundwork to select his running mate, saying a team to oversee that process will be in place by mid-April.

Biden said six to 10 women would likely make the list, including Michigan Governor Gretchen Whitmer. –Bloomberg

Biden holds an insurmountable lead in delegates vs. his primary Democratic opponent Bernie Sanders. Sanders, meanwhile, remains in the race and has insisted that Biden debate him again.

The former Vice President says he feels “confident” about being the nominee – and that his staff has reached out to Sanders to discuss “a way we could accommodate his concerns” over a variety of issues.

Via Global Macro Monitor,

Summary

• The stock market has completed the first phase of a bear market with a rapid and sharp Q1 sell-off caused by massive deleveraging

• Stocks still need to deal with its valuation problem as well as discounting the long-term financial and economic impact of the Coronavirus shock

• Even with the 25 percent sell-off since the February 19th high, stock market capitalization-to-GDP remains extremely elevated, still higher than its pre-GFC high and at the 85th valuation percentile

• Our analysis illustrates that stocks still have 40-56 percent of downside to reach the valuation levels where the past two major bear market’s bottomed

• Time, rather than price, could bring valuations back into line with historical valuation levels as stocks settle in for a protracted bear market

• A loss of confidence in the dollar as the world’s reserve currency could spark inflation and boost stocks as an inflation hedge

As the historic Q1 2020 (Wilshire 5000 down 21.25%) comes to a close, we take a look at the current valuation of the U.S. stock market as defined by the Wilshire 5000-to-Nominal GDP ratio also known as the Buffet Indicator.

…the Buffett indicator is the total market capitalization of all U.S. stocks relative to the country’s gross domestic product. When it’s in the 70% to 80% range, it’s go time. When it moves well above 100%, it’s time to tap the brakes.

– MarketWatch

Stock Market Capitalization-to-GDP Valuation Metric 

We like this metric for several reasons.

First, GDP is more difficult to manipulate than earnings, which are subject to accounting vagaries and other forms of CFO trickery.

Second,  stock valuations cannot be divorced from the economy forever.  Earnings should theoretically track long-term economic trend growth.

We wrote about this in 2018 in our post, Asset Prices Divorced From Economic Reality More Than Ever,

The valuation reality coupled with the prevailing, but false, “don’t worry” market narrative sets us up for another major financial crisis.

A third major crisis in 20 years?   These are only supposed to happen once in every 100 or 1,000 or 10,000 years, so say the rocket scientists. 

– GMM,  June 2018

Of course, sustained periods of divergence can occur when profit margins experience rapid expansion.  The diminished bargaining power of labor, technology-led productivity gains, and the emergence of new economic/market paradigms, such as the rise of Chimerica – though rapidly fading rapidly into the dustbin of history – have all contributed to the expansion of corporate profit margins over the past 20 years.

That is until an event or major shock comes along to reset the economy and financial markets.

Business As Usual? 

To believe the economy returns to “business as usual” is a hope based on fantasy and ignores the political winds that coronavirus pandemic has stirred up.  Nobody could have ever envisioned the possibility of a tenant “rent strike,” which is now gaining support and almost encouraged by some state and local governments.  There is probably no more an applicable case for TINA than this.

Furthermore, corporations who now engage in buybacks, one of the main drivers of demand for stocks over the past few years, and do not “take care of their employees” are now viewed as market lepers.   The financial zeitgeist is changing rather quickly.

It is interesting to watch the purest of ideologues suspend their economic theology during this pandemic, which is not a bad thing, in our opinion.  To paraphrase Voltaire, when the ship is sinking, you can’t allow the perfect to destroy the good.

We Are All Socialists Now

Wall Street and the financial system has been bailed out and saved from itself once again.  What else is new?  Maybe the third time in twenty years is the charm?

Nevertheless, we are all socialists now.  If you doubt that, go ask “Bernie” Trump.

Still Grossly Overvalued

At today’s close,  the stock market remains extremely overvalued even with a generous assumption Q1 nominal GDP contracted only 1.41 percent on an annual basis.   Market cap-to-GDP finished the quarter at 119.59 percent of GDP, which is still 9 points higher than its peak at the end of Q2 2007, just before the Great Financial Crisis (GFC) began.

That is a very difficult metric for the bulls, who are now touting “the bottom is in,”  to digest.

Moreover, today’s close puts the stock market at its 85th percentile in terms of its 185 end-of-quarter valuation levels since 1974, the year the Wilshire 5000 Total Market Index was created.   Even at the March 23rd low,  18 percent below today’s level, the Wilshire 5000-to-GDP ratio was at 101.38 percent, the 73rd percentile,  hardly a “generational buying opportunity,” in our book.

What’s Up?

Our perception is that markets are dealing with and trying to sort out the confluence of several issues, including financial, economic, and political, which have created a financial and economic “perfect storm.”

Financial Bubbles

Though the catalyst was the Coronavirus, the first leg of the downdraft has been mainly driven by the bursting of multiple asset bubbles, including stocks, bonds, and real estate, which during its initial phase is a massive deleveraging leading to a rapid and trapdoor sell-off.  This was inevitable even without the pandemic shock and was a very long time in coming due to the technical condition of most asset markets.  The supply and demand imbalance for assets remained favorable for an extended period until it didn’t.  See our post,  The New “Supply-Side Economics” Fueling Asset Bubbles.

Economic Consequences

The magnitude and speed of the sell-off were sparked by the biggest economic shock the world has experienced since the Great Depression and then some.

It is our opinion, the market still has to grapple and come to grips with its valuation problem, i.e, regress to mean valuations, even before it evaluates the long-term damage and impact the coronavirus shock will have on the global economy.

Politics

Additionally, we have little doubt the domestic and geopolitical landscape is going to look much different on the other side.  We have our priors that the political winds, out of necessity,  are blowing in favor of:

1) more state intervention in the economy;

2)  more national autarky, and

3) the willingness to finally address the country’s growing wealth gap, though the current bear market is already in the process of closing the disyance between the richest and poorest Americans.   

All of the above are not stock market positive. 

Where Now?

In the last table, we run a couple scenarios based on two trajectories of nominal GDP and what we deem as the “value zone” where the market should/could/or might bottom based on the past two bear markets.  Though we can’t stress enough that nobody knows for certain where the bottom is,  or that if it is already in, our analysis is not based on a hunch, gut feel, or wishful thinking but on the historical precedent of the prior two major bear markets, excluding the December 2018 Nightmare Before Christmas mini-bear market.

The upper band of the value zone is the market cap-to-GDP ratio where the dot.com bear market bottomed at 70.72 percent.   The lower band is the level where the 2007-09 GFC bear market bottomed at a market cap of 56.36 percent of GDP.

The two scenarios are based on the trajectory of nominal GDP to the end of June 2020.

The first scenario assumes GDP declines by an annual rate of 12.73 percent in the first half of 2020, while the second scenario assumes nominal GDP is at the end-2019 level, very generous and not likely.

Both show that the stock market has a long way down until it reaches the “value zone,”  a downside range of 40.7 to 55.8 percent lower, or an S&P500 equivalent of 1123.65 to 1509.31.  Take these as approximations and don’t get hung up on the exact figures.

It is important to note, our analysis is based on end-of-quarter observations, which may or may not be the high/low points for each particular three-month period.

Time 

Our analysis assumes price is the main determinant in regressing stocks to these valuation levels and that it happens at relatively light speed.  Alternatively,  the stock market could bang around and slowly drift lower for years as the economy recovers and grows into a more realistic historic valuation.  That doesn’t seem likely, however, given the rise of the quants, HFT, and algorithmic trading.

Inflation Hedge As The Upside Target

One possible path, which is not a zero probability, is that with all the current monetization of spending and bailouts,  with more surely to follow, inflation begins to take off and stocks become an inflation hedge.

The coronavirus could be the beginning of the end of the dollar’s reserve currency status,

The coronavirus crisis should still wreak far less human damage than the Great War, which precipitated the fall of the Austro-Hungarian Empire, but the shock to the global system may be comparably great. According to Michael Howell of London’s CrossBorder Capital Ltd., this is reason to prepare ourselves for another change of global financial leadership. After a century in which the financial world orbited around the dollar, he believes that we are at the beginning of the Chinese century. 

If this sounds outlandish, remember that almost everyone suddenly seems to agree life after the coronavirus will be different. This crisis will change us. The disagreement is over exactly what it will change us into.  

– Bloomberg

If so,  the demand for the dollar will diminish while the supply is skyrocketing from all the monetization, leading to severe weakness or even its collapse and thus generating a wave of monetary inflation.  Not the “good” demand-pull inflation as central bankers have been trying to generate or have been miscalculating.

Upshot 

We don’t know for certain how this all plays out but now you have our analysis.  We would love to hear from you if you disagree and to see yours.   No happy talk, no hunches, no warm feelings in your tummy but hard analysis with the data.

As always,  we reserve the right to be wrong.

Oil held steady near $20 on Wednesday, after President Trump’s pledge to meet with feuding producers Saudi Arabia and Russia (whose real feud is with US Shale producers) to support the market failed to bolster prices after their worst ever quarter.

Having crashed by a record 66% in the first three months of the year, as the coronavirus destroyed demand and the world’s biggest producers embarked on a catastrophic supply free-for-all, oil prices extended losses on Wednesday even after Trump said he discussed the collapse with his Russian and Saudi counterparts, adding that Moscow and the kingdom would “get together” to seek a solution.

However, as Goldman noted last night, any agreement to cut output is likely too late and would fall short of the loss in consumption, not that one is imminent mind you because after Trump’s comments last night, on Wednesday Russia said it is not in talks with Saudi Arabia on oil market situation and President Vladimir Putin has no immediate plans to speak with Saudi Arabian leadership, though Moscow remains open for talks, Kremlin spokesman Dmitry Peskov tells reporters on conference call.

“Russian side traditionally welcomes mutual dialog and cooperation in order to stabilize energy markets” Peskov said adding that “our relations with Saudi Arabia remain on a high level. Of course, we may have certain disagreements, but in general our bilateral relations with SaudiArabia allow us to act effectively when there is such need.”

In short, no meetings between the two oil exporters any time soon, and yet they may have no choice but to arrange a deal.

“I do think both Russia and Saudi Arabia will be forced to cut back production, not because there’s a deal or they’re talking, but because of market forces,” Amrita Sen, chief oil analyst at Energy Aspects said in a Bloomberg TV interview.

“The possibility of negotiations is offering a rare ray of light to a heavily beleaguered market,” said Howie Lee, a Singapore-based analyst at Oversea-Chinese Banking Corp. “There are too many uncertainties involved to determine how strong a driver this would be, but it would probably take more than output cuts to lift prices back to pre-crash levels.”

So there is some hope, but for now with Trump failing to defuse the oil price war, Saudi Arabia has flooded the market as it warned it would less than a month ago, with Saudi Aramco’s oil supply surpassed 12 million bpd on the first day of April, up from 9.7mmb/d in March, and is boosting its production to its maximum, Bloomberg and the WSJ reported. As a reminder, in early March, Saudi Arabia instructed its state-owned oil company to boost supply to 12.3m b/d in April, and told Aramco to boost maximum production capacity to 13m b/d as soon as possible, something it has taken quite seriously as a tweet it just sent would indicate.

الموثوقيّة ليست مجرّد مؤشّر أداء، بل هي ثقافة الاستدامة في إمداد العالم بالطاقة. نفخر في أرامكو بتحميل 15 ناقلة نفط بـ 18.8 مليون برميل

هذه هي #الطاقة
هذه هي #أرامكو pic.twitter.com/Nz3YhHqP2x

— أرامكو (@Saudi_Aramco) April 1, 2020

In it, Aramco says that it is loading 15 oil tankers with 18.8 million barrels of oil.

As a result of this unprecedented surge in output coupled with plunging demand, the outlook for oil looks terrible, with Bloomberg noting that “oil is facing a potentially apocalyptic April“, according to top industry analysts. Making matters worse, Iraq has pledged to boost its output this month, while U.S. industry data is signaling the biggest weekly increase in American stockpiles since 2017.

Fears that oil storage space may run out as early as 2 months from now have already pushed certain crude grades to negative prices as we reported last night.

Meanwhile, virtually all energy products are now trading at cash costs, and set to drop further as countless oil producers file for bankruptcy.

Reporters hounded President Trump during yesterday’s White House press conference about a Monday phone conversation between Trump and Russian President Vladimir Putin, where the two leaders agreed to hold talks about the chaos in the oil market. And in a gesture of goodwill, Russia – which has only recently started to report large numbers of COVID-19 cases – is sending a military transport plane full of “medical equipment and masks” to aid American governors like Andrew Cuomo in their time of need.

Putin offered to send the aid during Monday’s call, while the two leaders discussed how best to respond to the virus, according to Reuters.

Trump’s decision top accept the aid, which was organized by the Russian defense ministry, is likely to be unpopular with the president’s critics who seemingly jump on any sign of warming relations between Trump and Putin, and argue that Moscow uses these shipments as a “propaganda tool”. Some critics even went so far as to speculate that it might be a “spy operation.”

Still, the equipment could help save American lives. Trump announced the “very, very large planeload” of supplies before it was officially confirmed by Moscow.

“Trump gratefully accepted this humanitarian aid,” Kremlin spokesman Dmitry Peskov said Tuesday according to Russia’s Interfax news wire. Trump enthusiastically touted the aid after the call. Russia had agreed to help because the pandemic “affects everyone without exception and is of a global nature.”

Russia’s Rossiya 24 channel aired footage of the plane taking off from a military air base outside Moscow on Wednesday morning, its cargo hold was filled with cardboard boxes and other packages (footage courtesy of RT).

Last week, Moscow also sent some 600 ventilators, as well as masks and teams of medical experts, to Italy, which is struggling with the highest death toll from the virus in the world.

Authored by Paul Joseph Watson via Summit News,

Tucker Carlson exposed during a powerful monologue last night how the World Health Organization helped China cover-up the severity of coronavirus and how the U.S. media turned a blind eye.

The Fox News host noted how World Health Organization Director-General Tedros Adhanom “got his job with Chinese support after he covered up cholera outbreaks in his home country” of Egypt.

Tedros has denied the allegation, which centered around claims he had downplayed cholera epidemics in Ethiopia in 2006, 2009 and 2011 by passing them off as “acute watery diarrhea,” a symptom of cholera.

The United Nations later said that more lives could have been saved if the epidemic had been accurately labeled as cholera.

Carlson then accused Adhanom of setting the standard for corruption within the WHO by congratulating China for its “speedy” response to coronavirus in late January despite widespread evidence that China covered up the outbreak for over a month, lied about its severity and then silenced whistleblowers who tried to warn the world.

“Everything you just heard him say there was a lie,” said Carlson, highlighting an Australian 60 Minutes piece which features an expert explaining how China knew human to human transmission of COVID-19 had happened back in December.

Indeed, as we previously highlighted, on January 14th, the WHO was amplifying Chinese fake news that no human to human transmission of coronavirus had occurred.

Preliminary investigations conducted by the Chinese authorities have found no clear evidence of human-to-human transmission of the novel #coronavirus (2019-nCoV) identified in #Wuhan, #China🇨🇳. pic.twitter.com/Fnl5P877VG

— World Health Organization (WHO) (@WHO) January 14, 2020

“So the World Health Organization’s leadership tells you that China ‘set the standard’ for the response to the outbreak, apparently that standard includes disappearing doctors who tell the truth about it,” said the Fox News host.

Ai Fen, a doctor at the head of emergency at Wuhan central hospital, asserted that Beijing stopped her from warning the world and subsequently disappeared with her whereabouts being completely unknown.

Pointing out that the U.S. media has completely failed to properly document China’s cover-up of the coronavirus outbreak, Tucker noted how even as late as mid-February officials were seemingly more concerned with political correctness than the spread of the virus.

“In early February, the director of the World Health Organization was still lecturing the public that using terms like ‘Wuhan virus’ was racist,” said Carlson before playing a clip of Adhanom from February 11 in which he asserted that using the wrong name for coronavirus was “stigmatizing.”

“You might think that the World Health Organization, a group that got $58 million of your tax dollars last year might care that a government arrests doctors and lies about deadly new diseases, but no, like so many other organizations they are lapdogs for the powerful and that means their real job is sucking up to the Chinese government,” concluded Carlson.

*  *  *

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Despite last week’s mind-numbing explosion in initial jobless claims, expectations were for a rather modest 150k drop in ADP employment in March… and in a shocking turn of events – ADP employment dropped a mere 27k jobs!??

Source: Bloomberg

Both Goods and Services firms saw job losses…

Source: Bloomberg

However, it is very clear where the pain is and will be felt… small businesses:

This was the biggest small business job loss since the financial crisis…

Source: Bloomberg

It’s pretty clear that the survey period was just too early to pick up the nationwide effects of the lockdown.

“It is important to note that the ADP National Employment Report is based on the total number of payroll records for employees who were active on a company’s payroll through the 12th of the month. This is the same time period the Bureau of Labor and Statistics uses for their survey,” said Ahu Yildirmaz, co-head of the ADP Research Institute.

“As such, the March NER does not fully reflect the most recent impact of COVID-19 on the employment situation, including unemployment claims reported on March 26, 2020.” 

However, 60% of companies have reported hiring freezes, while over 13% have already begun laying workers off:

And worse still, as Michael Snyder writes, according to a survey that was conducted from March 20th to March 26th by Challenger, Gray & Christmas, almost half of all U.S. companies say that it is likely that they will be conducting layoffs at some point “in the next three months”…

Forty-nine percent of companies told Challenger, Gray & Christmas they are very or somewhat likely to conduct layoffs in the next three months, while 11% reported they have conducted permanent layoffs; another 7% have conducted temporary layoffs.

If that actually happens, can you imagine what that will do to our unemployment rate?