Venezuela Captures Two American “Mercenaries” Involved In Failed ‘Invasion’ Attempt
An astounding and unexpected development which is about to launch US regime change efforts in Venezuela straight back into the headlines. The Maduro government says it has captured two Americans who were leading a ‘Rambo-style’ armed coup effort. CNN reports:
Venezuelan President Nicolas Maduro says two American “mercenaries” have been apprehended after a failed coup attempt launched over the weekend.
In a live address on state television late Monday, Maduro brandished what he claimed were the US passports and drivers licenses of the two men, along with what he said were their ID cards for Silvercorp, a Florida-based security services company.
Luke Denman, 34 (left) and Airan Berry,41 (right), being paraded in front of Venezuelan state TV cameras after their arrests Monday.
Silvercorp, it must be remembered from our reporting days ago based on the Associated Press, is a Flordia-based private security firm founded by a former Green Beret soldier who hooked up with Venezuelan military officer defectors for a half-baked ‘armed invasion’ of the socialist country in order to overthrow Maduro.
Airing photos of the men on state television, Maduro further described the pair were playing “Rambo” illegally in his country. And further:
Footage posted on Maduro’s official Twitter account shows several unidentifiable men in a boat with their hands in the air and a helicopter overhead. The men in the boat were not identifiable in one video, but a separate photo more clearly depicted two men who Maduro claimed were American.
One of the now detained men apparently even had a US military ID on him:
My bro, who takes their fucking mil ID card with them on a merc job to dispose of a foreign government? https://t.co/uN0Y5a8Dh7
It total Maduro said 13 “terrorists” had been captured by authorities in connection with a bid to invade the country and stoke insurrection on Sunday.
Maduro paraded what were described as passports and other identification cards of Airan Berry and Luke Denman, described as employees of Silvercorp.
President Maduro said Venezuela has detained two American citizens working with a U.S. military veteran allegedly involved in a plot to enter the South American country and oust him https://t.co/0ngHr7dQV6pic.twitter.com/mm5nsiQLu7
Crucially, the family of one of the detained Americans has confirmed to the AP on Tuesday he is currently missing.
Per the NY Times: “Kay Denman, the mother of one of the captured Americans, told The Associated Press that the last time she heard from her son was a few weeks ago when he texted her from an undisclosed location to ask how she was coping with the coronavirus pandemic. She said she never heard her son discuss Venezuela and only learned of his possible capture there after his friends called when they saw the reports on social media.”
Trump Says Dr. Fauci Will Testify To Senate, Slams Dem-Controlled House As “A Set-Up”
Update (1045ET): In video of Trump’s Tuesday morning scrum with reporters, the president can be heard telling a reporter that he is allowing Dr. Fauci to testify before the Senate – and not the House – because the House is “a set up”.
REPORTER: Why won’t you let Fauci testify before the House?
TRUMP: “Because the House is a set up. The House is a bunch of Trump haters … they, frankly, want our situation to be unsuccessful, which means death.” pic.twitter.com/G3G5OoV5IV
Trump and Dr. Fauci initially said the doctor wouldn’t testify because he’s too busy dealing with the ongoing public health crisis that has killed more than a quarter of a million people around the world and brought the American economy to a standstill.
* * *
President Trump is speaking to a group of reporters and has just confirmed that contrary to the administration’s earlier decision, Dr. Fauci will make time in his busy schedule to testify to the Senate (not the Democrat-controlled House).
He also had some more fighting words for China, again bashing Beijing for withholding information on the virus, in keeping with recent allegations.
TRUMP SAYS FAUCI WILL TESTIFY TO SENATE
TRUMP: NYT REPORT WAS ON DATA THAT DIDN’T INCLUDE MITIGATION
TRUMP SAYS HE JUST HEARD ABOUT DETAINED AMERICANS
TRUMP SAYS CHINA SHOULD HAVE INFORMED US ABOUT THE CORONAVIRUS, SAYS HE HAS NOT TALKED TO XI
TRUMP SAYS U.S. WILL BE REPORTING VERY DEFINITELY OVER A PERIOD OF TIME ABOUT ORIGIN OF VIRUS
TRUMP SAYS VIRUS MODELS HAVE BEEN VERY INACCURATE
TRUMP SAYS HE WANTS CHINA TO BE TRANSPARENT ON VIRUS
Of course, any public hearing involving Dr. Fauci, the most trusted authority on the outbreak in the US, will be closely followed by the press and the public.
Three US universities are responding to the coronavirus crisis by creating (irony of all ironies) a Chinese style social credit surveillance system that will ‘score’ people based on their exposure to the virus.
According to a report from Tech site dot.LA, researchers at the University of Southern California, Emory University, and the University of Texas Health Science Center are jointly working on the system after receiving federal grant funding.
Like the Chinese social credit system, the scheme will consist of a mobile app for contact tracing the virus, and promises to track the real-time location and symptoms of individuals to calculate “personal risk scores”.
The score would be used to determine the need “for quarantine and decontamination,” according to the report, with “aggregate risk scores” also assigned to “locations like your neighborhood grocery store.”
The universities hope to have a working mobile app by August, in time for the start of the fall semester.
Welcome to the new normal. Surely the fallout of this system will all be positive.
When the coronavirus vaccine eventually comes along the system will presumably be updated to show who has had it and who hasn’t.
High social credit points for those who have taken it, no travel privileges for those who refuse!
The report notes that “Countries such as South Korea or China have used location-based digitized contact tracing. However, it has only been successful because citizens are forced to download it, opt into location monitoring, and regularly check in or otherwise be visited by enforcement authorities.”
“In that setting where there’s 100% mandated compliance, it’s been shown it can work, in our setting in the United States, I don’t see that really happening,” said Dr. Jeffrey Klausner, a professor of medicine at UCLA.
“We have enough problems with governors issuing orders and denying free personal movement, that the idea that people are going to be ordered to download apps to monitor their movement is highly unlikely and probably not constitutional.” Klausner added, conceding that
“It’s going to be difficult to get Americans to agree to involuntary surveillance.”
The report further notes that the social credit scoring could “become problematic if a school or employer requires students or workers reveal them as a condition of receiving a benefit, entering a building or returning to their office.”
“When you introduce ‘scoring’ that takes other factors into account, it complicates everything, and increases the risk that users will be misinformed or discriminated against due to factors beyond their control,” noted USC’s Cyrus Shahabi, a professor of computer science.
Indeed, the Chinese social credit system has reportedly blacklisted more than 13 million citizens as “untrustworthy,” state media recently bragged.
And what heinous behaviour led to the distinction? Well, jaywalking for one. According to Chinese media, other violations stretch to the following:
Bad driving.
Smoking on trains.
Buying too many video games.
Buying too much junk food.
Buying too much alcohol.
Calling a friend who has a low credit score .
Having a friend online who has a low credit score.
Posting “fake news” online.
Criticizing the government.
Visiting unauthorized websites.
Walking your dog without a leash.
Letting your dog bark too much.
The punishment for such a designation as “discredited entity” is to be barred from traveling by train or plane.
China restricted 2.56 million discredited entities from purchasing plane tickets, and 90,000 entities from buying high-speed rail tickets in July: NDRC #socialcreditpic.twitter.com/4zAwJ7hrBn
Here’s a dystopian vision of the future: A real announcement I recorded on the Beijing-Shanghai bullet train. (I’ve subtitled it so you can watch in silence.) pic.twitter.com/ZoRWtdcSMy
Apple and Google announced this year that they are working on a Bluetooth applications that will provide contact tracing of the coronavirus using smartphone location data.
ISM/PMI Surveys Signal Q1 Collapse In US GDP “Will Be Dwarfed By What’s To Come”
ISM’s data continues to lag Markit’s (due to the utter farce of supplier delivery reversals not being factored as a devastatingly bad thing in the former).
Markit Manufacturing 36.1 (record low)
Markit Services 26.7 (record low)
ISM Manufacturing 41.5 (not record low due to supplier delivery times)
ISM Services 41.8 (lowest since April 2009 – finally caught down to reality)
Finally ISM Services caught down to reality, somewhat, in April…
Source: Bloomberg
Measures of business activity, new orders and employment all fell to record lows last month in figures going back to 1997, according to survey data from the Institute for Supply Management on Tuesday. The industries in ISM’s report represent about 90% of the economy.
And the ISM Services print is way better than it should because of this shitshow!!
Source: Bloomberg
The composite gauge reflects a surge in the supplier-delivery index to a record 78.3, indicating longer lead times.
While that usually indicates strains from elevated demand, the deliveries index now reflects virus-related disruptions in supply lines and business closures.
The IHS Markit Composite PMI Output Index dropped significantly from 40.9 in March to 27.0 at the start of the second quarter. The overall decline was driven by historic downturns in both the manufacturing and service sectors following the escalation of the COVID-19 outbreak, and signals dramatic further worsening in GDP…
“The slump in the business survey indicators to all-time lows in April indicates how the 4.8% rate of economic decline seen in the first quarter will likely be dwarfed by what’s to come in the second quarter. “
“Measures to fight the COVID-19 outbreak mean vast swathes of the service sector has been especially hard hit by travel restrictions and social distancing, with temporary company closures and dramatically reduced demand resulting in an overall drop in activity of even greater magnitude than seen during the height of global financial crisis.
“With hope, infections rates have peaked and the economic downturn should start to ease as virus-related restrictions are lifted. However, while manufacturing may see a rebound in production as increasing numbers of factories are allowed to re-open, prospects look bleaker for many parts of the services economy, especially where businesses rely on travel, social gatherings or close contact with customers. Businesses such as airlines, bars, restaurants, cinemas, sports arenas and other recreational activities will likely be at the back of the line in terms of being able to re-open to anything like previous capacity levels, meaning the recovery will be long and slow.”
And finally, spot the odd one out!
Source: Bloomberg
Seems like China has this whole fake fucking data thing sorted out.
New York Confirms Another 1,700 Unreported Nursing Home Deaths Caused By COVID-19
Yesterday, Gov. Cuomo was urging local officials across his state to start preparing for the reopening on May 15. On Tuesday, state health officials reported another 1,700 previously unreported deaths from America’s nursing homes and adult-care facilities.
The revision follows a similar update made by NYC officials last month when they confirmed an additional 3,000+ COVID-19-linked deaths, including those who died at home and at nursing homes rather than in a hospital setting. According to Bloomberg, NYS and Gov. Cuomo are facing “scrutiny” over the state’s handling of the outbreak.
At least 4,813 people have died from COVID-19 at state-regulated nursing homes since March 1, according to the new tally which includes patients who were killed before they could be confirmed in a lab.
Cuomo himself has said that if he could do one thing over, he would have taken more steps to protect the most vulnerable populations, including groups of elderly patients in nursing homes. Whether this updated list represents a complete accounting of nursing home deaths remains unclear; many critics suspect that thousands of deaths among managed-care patients likely haven’t been reported.
The revised list shows that 22 nursing homes, largely in NYC and Long Island, have reported at least 40 deaths each. Parker Jewish Institute in Queens and Isabella Geriatric Center, one of NYC’s largest nursing homes with 705 beds, have reported the highest number of deaths: 71 and 64, respectively. Previously, Isabella showed just 13 deaths as of May 1. It now has 43 patients believed to have probably succumbed to COVID-19. Ozanam Hall of Queens now is reporting a total of 53 deaths, up from just 10.
Among the hardest-hit Veterans Homes, the Long Island State Veterans Home has reported 53 deaths, including 48 confirmed and five presumed COVID-19 deaths. The New York State Veterans Home at St. Albans in Queens has reported 33 deaths while New York State Veterans Home at Montrose in Westchester says 22 residents have died.
By now, the horrors of a COVID-19 outbreak inside a nursing home have become shockingly familiar. And unfortunately, a state policy in effect in New York and elsewhere requiring sick patients to be moved back to their nursing homes – despite likely being infected with the virus and well-positioned to spread it to all their fellow patients.
The state’s March 25 policy reads: “No resident shall be denied re-admission or admission to a nursing home solely based on a confirmed or suspected diagnosis of COVID-19.”
Cuomo has for some insane reason tried to defend this policy, saying it was intended to ensure that home residents weren’t left “lingering” in hospitals without anywhere to go. Cuomo’s spokesman tweeted Monday that the policy follows federal Centers for Medicare and Medicaid Services guidance, but as Bloomberg pointed out, the federal guidance says only that a nursing home “can accept a resident diagnosed with COVID-19”” so long as other federal transmission precautions can absolutely be followed.
We suspect that in many New York nursing homes, that probably wasn’t possible – and the state should have known better.
And amazingly, Democratic officials are trying to protect the same policy in California, according to the Mercury News.
The UK Is Now Home To The Deadliest COVID-19 Outbreak In Europe
After flip-flopping a handful of times over the past few weeks, it looks like the UK has finally cemented its status as the deadliest outbreak in Europe, with the UK death toll topping 32,000 on Monday, placing it decidedly above Italy’s 29,079, even though Italy still has confirmed more cases overall, according to a tally kept by Reuters.
Reuters reports that the milestone will probably “increase the political pressure on Boris Johnson”, who has been consistently blamed for not acting sooner to impose a countrywide lockdown, a decision he made at the behest of the government’s top viral experts, as Reuters’ own reporting readily confirmed early last month.
The difference-maker that finally put the UK over the top was a report from the UK national statistics office which found another 7,000 deaths in England and Wales since the beginning of the outbreak, as HMG pledges to account for ‘every death’ caused by the virus. The UK’s most recent death toll was 32,313.
This policy will almost certainly guarantee that the UK will emerge as the death-toll leader in Europe, heaping even more pressure on Johnson, who is still enjoying something of a bump in the polls from his hospital stint.
Notably, the new figures haven’t yet been reflected in the Johns Hopkins data, though that should change as the data are updated.
The political opposition in the UK – which is still processing the results of a snap election held late last year that delivered a surprisingly large majority for Johnson and his conservatives – has repeatedly bashed Johnson for waiting until hospitals were being overrun in Italy before he started closing schools and businesses. They also say his government was too slow to introduce mass testing and provide enough protective equipment to hospitals, issues we now know were in part due to China’s hoarding.
Even as the UK works to account for every death, calculations run by the FT and WaPo seeking to examine total “excess” deaths and comparing them to the number of confirmed coronavirus deaths in a search for discrepancies, the Office of National Statistics said 33,593 more people had died than average up to April 24 in England and Wales, compared to 27,365 cases in which coronavirus was mentioned on the death certificates, which means there are likely still more deaths in the UK that will be added to the total en masse.
Will the market retest lows this summer? In this past weekend’s commentary, I discussed the end of the seasonally strong period for the market.
“Despite the sell-off on the last day of April, the Best Six Months has ended on a positive note, registering the best month in decades and the best April since the Great Depression.”
– Jeffrey Hirsch, Stocktraders Almanac
As noted, the primary seasonal signal has not crossed into negative territory yet but seems to be heading in that direction. If we keep grinding sideways for a few more sessions, it will come to pass. (Note: Sell-off Monday morning did test and hold support at the 50% Fibonacci retracement level.)
“The massive rally has undoubtedly been impressive and a welcome change from the carnage we experienced in February and March. April 2020 has been the best month since January 1987 for DJIA and S&P 500, and the best April since 1938.
But April’s huge move was not enough to put the Best Six Months (November-April) in the black, and that concerns us. The DJIA was down 10.0% for this Best Six Months period, which ended today, and the S&P 500 lost 4.1%.
When the market is down during the “Best Six Months,” it’s an indication that there are more powerful forces than seasonality at work, and when the bullish season is over, those forces may really have their say.”
– Jeff Hirsch
Confirming Analysis
John Murphy, of Stockcharts.com, also suggests the spring rally may have concluded.
“Several short-term technical indicators suggest that the spring rebound in stocks may have peaked this past week. The daily bars show the S&P 500 selling off on Thursday and Friday after touching its 62% Fibonacci retracement line (purple arrow).”
“It’s also not far from its falling 200-day average, which is also likely to act as an overhead resistance barrier (red arrow). The short-term momentum indicators may also be weakening. The 14-day RSI line in the upper box ended the week at 52, which puts it in danger of falling back below its mid-line at 50.
That would signal that the market uptrend is losing momentum. The daily MACD lines in the middle box are still positive. But the declining purple trendline overlaid on the MACD histogram bars (which measure the spread between the two MACD lines) suggests that upward momentum may be slowing there as well.”
Both analyses confirms our work and leaves the question of just how deep the retracement may be unanswered?
Risk Abounds
There is much to be concerned with.
While we are already well aware of what has happened since the onset of the “COVID-19” virus, we are beginning to get the first sets of actual data. Plunging levels of production, manufacturing, sales, and surging rates of unemployment will potentially weigh on investor outlooks.
Currently, the investing mantra has been that investors are “looking past” the 2020 period, and into 2021, betting on earnings growth to come surging back. While such could be the case, investors are aggressively overpaying for future growth, considering a complete lack of visibility on how deep the earnings recession will be.
However, as noted previously, we can certainly make an educated guess based on past recessionary experience.
“So, with the entire U.S. economy shut down, 15-20% unemployment, and -20% GDP, earnings are only expected to decline by 10 20%?”
A review of GAAP Earnings as compared to GDP suggests such is likely not the case. There is a high correlation between economic growth and corporate earnings. Such is because without economic growth, consumers don’t have paychecks with which to consume. Ultimately, it is consumption that drives corporate profits.
Optimistic Assumptions
Assuming a 15% decline in GDP (some estimates run as high as 30%), the suggestion of only a 20% decline in earnings seems naive. However, the latest update from Standard & Poors for S&P 500 earnings contains a mild revision in earnings estimates. We suspect these are still too high, as is the expected recovery.
To garner a better understanding, the two charts below compare operating (earnings before real stuff) to reported (actual) earnings, on both an annual basis and as compared to Q4-2019.
Given the magnitude of potential economic destruction, a 20% decline in earnings seems optimistic. Such also suggests that valuations at current levels remain rich as well.
Maybe this is why Warren Buffett is sitting on $138 billion in cash and telling his investors he can’t find anything attractive to buy.
“Price is what you pay; value is you get.”
– Warren Buffett
As earnings align with economic realities, the risk to markets currently remains to the downside.
“Bespoke looked at bear markets since 1928 (the past 92 years) to determine how many times a bear market made new lows after initially rallying out of the bear market territory. They found that markets made new lows after rallying more often than not, but found that more recent results were less ominous.
Our analysis of the Bespoke results yielded a different conclusion.
Original Bespoke data and results
Number of bear markets counted = 25
Number of bear markets making new lows = 14
Percent of bear markets making new lows = 56%
Number of bear markets since 5/14/40 to make a new low = 6
Percent of bear markets making new lows since 5/14/40 = 42%
However, Bespoke counted as separate bear markets, several periods that should count as part of a longer bear market.
If we make sure that a new period must be at least 12 months past the previous period, then there are only 15, not 25 separate periods. Out of the 15 bear markets, 9 made new lows or 60%.
Using this new definition of the market periods means that in the past 20 years (since 2000), ALL of the bear markets have made new lows (see annotated table 2) We think this analysis makes more sense, as we don’t include the period from 1/6/09 to 3/9/09 in the 2008-2009 bear market? It does not make much sense to talk about these last 2-months as a separate bear market. This perspective on the historic pattern points to a much more likely retest of the 3/23 lows.”
Conclusion
Will markets retrace to the March 23rd lows? Maybe.
It is a “risk” worth evaluating when investing your capital. As investors, there are many possibilities and probabilities of future outcomes. Our job is to weigh those outcomes and make informed decisions.
“Hoping” is not an investment strategy or a logical decision-making process.
Even if the markets have indeed put in the “bear market” low, there is more than a small chance, it is not the final low.
When even Warren Buffett calls out Energy, Retail, Airlines, and Non-Residential Real Estate (read REIT’s) as industries that have been destabilized and will not likely resemble the past in terms of growth and profitability, you have to question your investment “risk.”
Those sectors are core reflections of the broader economy, and while Technology are insulated from complete revenue destruction, they are not immune from a slow down in personal and business spending.
There is risk to the downside currently, more so than there is to the upside. As we head into the “seasonally weak” period of the year, coupled with a deluge of weak economic and earnings data, this is likely a good time to rebalance portfolio risk.
There is not an insignificant chance of the market to retest lows when you are least expecting it.
US Trade Deficit Widens On Record Crash In Exports
After reaching its smallest deficit since September 2016 in February, the US trade balance tumbled in March. The overall gap in goods and services trade widened to $44.4 billion from a revised $39.8 billion in February.
Source: Bloomberg
The surge in the deficit was driven by a plunge in US exports of goods and services. Exports dropped from the prior month by a record 9.6% to $187.7 billion, while imports fell 6.2% to $232.2 billion.
Source: Bloomberg
Declines in international travel and tourism made up a large portion of the decreases in exports and imports. Travel and transport exports dropped about $10.1 billion, while imports fell around $10.6 billion.
And the trade deficit with China has shrunk dramatically…
Source: Bloomberg
As Bloomberg points out, and is clear from the chart above, foreign trade was already diminishing heading into the pandemic, and now, faced with supply chain disruptions, a previously incomprehensible surge in unemployment and a drop off in demand, the world’s largest economy has pulled back more dramatically.
All the news that’s fit to print. It’s a classic phrase, but it’s clearly not One Size Fits All in our fractured political/media landscape. Want to hear how awful party X or country Y is? There is a media outlet for you. Want to hear the complete opposite? There is another channel for that. Want to get an objective opinion? Well good luck with that – but there are some slim pickings out there in blog-land. The best approach is arguably Hegelian – follow everything. Read The Telegraph and The Guardian; read The Washington Times AND The Global Times; watch MSNBC AND Fox News; then compare and contrast – and this runs true for financial press and market news too.
For example, yesterday’s Daily underlined expectations that US-China relations would go off a cliff. Subsequently we saw two bombshell Reuters stories. The first is that according to anonymous officials, the Trump White House is going to “turbocharge” the extraction of supply-chains from China, taking an ‘all of government’ approach; this including financial incentives such as tax cuts or subsidies for those firms; the US is considering higher tariffs and targeted sanctions of Chinese individuals, and even close relations with Taiwan as well; and it wishes to bring other countries with it in a so-called new “Economic Prosperity Network”, which sounds like a combination of the TPP and the Cold War. At any point during the 2018-19 trade war, this would have been front page news. Instead, it got hardly a mention. It did rightly see markets dip somewhat yesterday, but arguably not to the extent the story deserved. It also ignored Peter Navarro following up that “Buy American would soon be the law of the land” for some US government departments. Perhaps the market, in its infinite wisdom, believes this is all electioneering and/or that Trump won’t follow through? There is form there – but such certainty in the face of such uncertainty!
Later in the day Reuters was at it again. This time with news that an internal Chinese report seen by Xi Jinping has concluded that in the post-pandemic era Beijing will face the toughest international anti-China pushback since 1989, and that in a worst-case scenario it needs to be prepared for armed confrontation between itself and the US. Reuters states that the report is regarded by some in China as their version of the 1946 “Novikov Telegram”, which was the former USSR’s response to George Kennan’s infamous telegram from Moscow that concluded the Soviets did not see the possibility of peaceful coexistence with the West, and that a US policy of containment was needed. One might think THAT would be front-page news. It wasn’t. It was hardly news at all. Yet there is no election coming up in Beijing.
It is probably not a coincidence that both of these stories emerged yesterday. The US clearly wants China to know that economic sabres are being sharpened in the hope that they don’t have to be used, just rattled; and China wants the US to know that they know the sabres are being sharpened – and that the outcome would be awful for both sides if they are used. Duelling with words is certainly preferable, after all.
This does not mean that something important is not happening here: it is. Neither does it mean markets should be ignoring it: they shouldn’t. Geopolitical tensions are escalating rapidly far beyond the extent to which markets are pricing for – apart from US Treasury yields, where the 2-year is hovering around a record low of just 18bp. An extra 10% US tariff on Chinese goods at this stage, as a random example, would actually be a very benign outcome given the rhetoric being flourished. Of course, one can make the point that USD/CNH is hardly moving. Yet as was stressed yesterday, this is not really a market. When it starts moving sharply we know that at least one sabre is already being used.
Meanwhile, on a different front, there are lots more headlines today about virus lockdowns being rolled back. It seems that real life will begin again in many developed economies within the next few weeks to some extent. That obviously generates one set of headlines – mainly “V-shaped” in tone. The problem is that once we get out of our houses we will see what the real economic damage is: no more hypothesizing what a post-pandemic recovery will look like. As alluded to yesterday, it’s likely to be very ugly due to lingering restrictions and prudent changes in behaviour (the kind of risk prudence markets aren’t showing re: US-China relations). For example:
As 3 in 4 Brits remain sceptical of leaving lockdown, the UK Chancellor is warning that half the population is now being supported by the government. Imagine what the bill is going to be. Imagine how we don’t need a Magic Money Tree to get out it.
New Zealand, which is seeing zero new infections, has seen PM Arden stress its borders will be staying closed for a long while yet. No tourism, sorry.
Australia, also doing well versus the virus, also has closed borders….and the RBA left rates on hold and pledged to keep them there until the economy is back at full employment, which could be years – or ever, depending on immigration policy. The RBA also pledged to do more QE if needed. (Which stopped AUD from ramping at this meeting for once.)
Showing the mental confusion when post-Covid geopolitics meets traditional “because markets” neoliberal thinking, Aussie Treasurer Frydenberg has stated that the country must avoid the evils of protectionism…while ensuring it is self-sufficient. Mate, self-sufficiency *requires* protectionism else everyone would already be buying Aussie because it’s cheaper. And perhaps it requires an Economic Prosperity Network too?
But back to what’s fit to print. Also not exactly screaming to the top of the front pages, Germany’s constitutional court will today rule on what Reuters (again!) is calling “an existential challenge to the ECB’s bond purchases”. Will judges give the green light for ECB operations to continue as normal, or place real limitations on them? Might that be an important story, perhaps, given the key role the ECB is playing, the risk downside, and the uncertainty of the outcome for markets? Apparently not. It’s more pressing for Bloomberg to tell us that US stock futures are heading higher along with oil. Perhaps to stop us all from having a fit.
SoftBank-Backed Home-Flipping Company Says It’s Time To Resume Buying Properties
Opendoor, a company backed by SoftBank that specializes in buying homes and flipping them, says now is time to get back into the market.
Far be it for us to question motives here at Zero Hedge, but one also must dryly note that their survival as a company likely depends on the market picking up, as well. The company’s main service allows owners to sell their homes without open houses or in-person closings, according to Bloomberg.
Opendoor allows owners to request bids online and then buys homes from those who accept. Then, it makes light repairs and re-lists homes without large markups, instead profiting by charging a fee above normal real estate commissions. Opendoor uses debt to buy homes and its borrowing costs move higher the longer it holds onto a property.
The company purchased about 19,000 homes in 2019 and 3,800 homes through March of 2020.
The company had previously halted purchases in March and laid off more than 33% of its staff as the housing market, like the rest of the economy, simply disappeared due to the coronavirus.
Chief Executive Officer Eric Wu said in an interview: “The value proposition we provide to customers is to help them move with certainty and convenience. We should be willing to take on some of that exposure and we should price homes appropriately due to that risk.”
Mike DelPrete, a real estate tech strategist who tracks the industry said: “They can’t afford to wait for things to get back to normal because they’re never going to get back to normal.”
Wu says that the company is even considering converting some of the houses on its books to rentals: “It’s always an option for us. It’s not something we’re actively pursuing at this moment.”
“There is still demand for people to move. That could be driven by the fact that people need more space because they work from home, or they want to move out of the middle of the city because they want something less dense,” Wu continued.
For now the company is touting the fact that its process is mostly “hands off”, which at a time of a global pandemic can act as a huge positive for those looking to social distance or quarantine.
Opendoor had previously raised $1.3 billion from investors that included SoftBank’s Vision Fund. We reported last month that SoftBank posted an astounding $25 billion loss for Q1.
And while growing home inventory and a potential lack of buyers remain obvious looming risks for Opendoor, Opendoor’s performance as a company remains a risk for Softbank. One big happy house of cards family.
