Tag: finance

Via The Strategic Culture Foundation,

The Covid-19 pandemic is unleashing obscene bailouts of Western industries and companies, as well as lifelines for billionaire business magnates.

It is grotesque that millions of workers are being laid off by corporations which are in turn receiving taxpayer funds. Many of these corporations have stashed trillions of dollars away in tax havens and have contributed zero to the public treasury. Yet they are being bailed out due to shutdowns in the economy over the Covid-19 crisis.

Why aren’t the banks and corporations being forced by governments to pay for their workers on sick leave or in lockdown?

It’s because the governments are bought and paid-for servants of the top one per cent. Some political leaders are the embodiment of the one per cent, like Donald Trump and senior members of the U.S. Congress.

The biggest orgy of funny money is seen in the U.S. where the Trump administration and Congress have approved the printing of trillions of dollars to prop up corporations and banks. Meanwhile crumbs are being thrown at millions of workers and their families.

In just five weeks, unemployment has hit a staggering 26.4 million people in the U.S. – and that’s the official figure. The real level is doubtless much higher. It is reported that the job losses have wiped out all the employment gains made over the past decade since the last financial crisis in 2008. As with the present crisis, the U.S. government arranged trillion-dollar bailouts for banks and industries back in 2008-2009. It didn’t last long until the next binge.

In truth is this is a familiar pattern over the past century where the economy is continually salvaged from ruin by the government at the expense of ordinary workers, small businesses and taxpayers.

The recurring rescue is proof that the system of private capital and supposed free markets is a myth.

The system typically privatizes profit for an elite while socializing the losses for the mass of people. It has always been a version of “socialism for the rich”.

In the distant past the salvaging of broken-down capitalism was at least conducted with a certain degree of democratization and social progress. In the New Deal era of Roosevelt in the 1930s at least government intervention went a long way to restoring workers and their rights, despite bitter opposition from capitalists. Over recent decades, however, the rescuing of capitalism has seen an ever-increasing emphasis on plying money and loans to corporations and investors while ordinary workers are neglected. This process of embezzlement reached new heights in the 2008 crash. Now under Trump the larceny has become legendary. It should be underscored though that the corruption has bipartisan endorsement from Republicans and Democrats. They are really one party beholden to big business.

As Eric Zuesse commented in an-depth analysis published in our journal this week, the Covid-19 “top-down bailout” in the U.S. will result in even more social inequality and ultimately more dysfunction in the American economy going forward.

“The outcome will therefore be economic collapse, and perhaps even revolution,” notes Zuesse.

It is indisputable that capitalism is a failed system both in the U.S. and Europe. The Covid-19 pandemic and its disastrous social impact of sickness and deaths shows that such an economy cannot organize societies based on satisfying human needs. Instead, it functions to continually enrich the already wealthy while creating ever-greater numbers of impoverished and deprived. This chronic polarization of wealth has been pointed out by many critics of capitalism, including Karl Marx, and more contemporaneously by progressive economists like Richard Wolff and Thomas Picketty.

It is fair to describe corporate capitalism (or socialism for the rich) as a pathology which produces many other pathologies, including deprivation, crime, insecurity, ecological damage, militarism, imperialism and ultimately war.

Ironically, a virus is exposing the pathological system. And it is, inevitably, forcing a cure to arise.

It’s time to abolish the parasitical system and implement something more civilized, effective, sustainable and democratic. That is the task of people organized to fight for their interests. The delusion of bailing out a failed and sick system must be shaken off once and for all.

Last week we identified a potential rent strike brewing among the working poor in New York City. Many of these folks are planning to skip out on May 01’s rent payment to their landlords:

“With so many New Yorkers unable to pay rent for the foreseeable future, the current crisis is unsustainable and demands action,” Housing Justice for All and New York Communities for Change said in a recent statement. “Many tenants have no ability to pay rent, and landlords can’t collect rent from tenants who are broke.”

Lena Melendez, a rent strike activist, said landlords “have gotten taken care of” by the government, suggesting that poor people who are quarantined in their apartments or homes do not need to pay rent because they have no money.

And of course, the virus pandemic, triggering mass quarantines and economic depression, has exposed America’s second housing crisis. We recently noted that as many as 30% of Americans with home loans – about 15 million households – could stop paying if lockdowns continued through summer. 

What’s more important at the moment is that landlords expecting May’s rent next week could be for a rude awakening. Mostly because “rent strike” searches across the internet have exploded in April. 

Many of the searches surged in Oregon, New York, Washington, Colorado, and Vermont. 

When it comes to subregions, Monterey-Salinas, California; Boise, Idaho; Lansing, Michigan; Savannah, Georgia; and Lexington, Kentucky, saw increased “rent strike” searches over the month. 

And so it begins? Rent strikes across America? Or maybe at least starting in New York City first? 

Authored by George Gilder via The American Institute for Economic Research,

With the latest reports of plummeting death rates from all causes, this crisis is over. The pandemic of doom erupted as a panic of pols and is now a comedy of Mash-minded med admins and stooges, covering their ifs, ands, and butts with ever more morbid and distorted statistics.

The crisis now will hit the politicians and political Doctor Faucis who gullibly accepted and trumpeted what statistician William Briggs calls “the most colossal and costly blown forecast of all time.”

An egregious statistical horror story of millions of projected deaths, suffused with incense and lugubrious accents from Imperial College of London to Harvard School of Public Health, prompted the pols to impose a vandalistic lockdown on the economy. It would have been an outrage even if the assumptions were not wildly astronomically wrong.

Flattening the curve was always a fool’s errand that widened the damage.

President Trump had better take notice. He will soon own this gigantic botch of policy and leadership. No one will notice that his opponents urged even more panicky blunders.

The latest figures on overall death rates from all causes show no increase at all. Deaths are lower than in 2019, 2018, 2017 and 2015, slightly higher than in 2016. Any upward bias is imparted by population growth.

Now writing a book on the crisis with bestselling author Jay Richards, Briggs concludes:

“Since pneumonia deaths are up, yet all deaths are down, it must mean people are being recorded as dying from other things at smaller rates than usual.”

Deaths from other causes are simply being ascribed to the coronavirus.

As usual every year, deaths began trending downward in January. It’s an annual pattern. Look it up. Since the lockdown began in mid-March, the politicians cannot claim that their policies had anything to do with the declining death rate.

A global study published in Israel by Professor Isaac Ben-Israel, chairman of the Israeli Space Agency and Council on Research and Development, shows that “the spread of the coronavirus declines to almost zero after 70 days—no matter where it strikes, and no matter what measures governments impose to try to thwart it.”

In fact, by impeding herd immunity, particularly among students and other non-susceptible young people, the lockdown in the U.S. has prolonged and exacerbated the medical problem. As Briggs concludes, “People need to get out into virus-killing sunshine and germicidal air.”

This flu like all previous viral flues will give way only to herd immunity, whether through natural propagation of an extremely infectious pathogen, or through the success of one of the hundreds of vaccine projects.

No evidence indicates that this flu was exceptionally dangerous. On March 20th, the French published a major controlled study that shows no excess mortality at all from coronavirus compared to other flues. SARS and Mers were both much more lethal and did not occasion what Briggs’ reader “Uncle Dave” described as “taking a hammer and sickle to the economy.”

We now know that the crisis was a comedy of errors.

The Chinese let it get going in the raw bat markets of Wuhan. But together with the Koreans, the Chinese dithered and demurred and allowed six weeks of rampant propagation to create herd immunity before they began locking everyone up.

Therefore, the Chinese and Koreans were among the first to recover.

The Italians scared everybody with their haphazard health system and smoking fogies.

Crammed together in subways and tenements, the New Yorkers registered a brief blip of extreme cases.

Intubations and ventilators turned out not to help (80 percent died).

This sowed fear and frustration among medical personnel slow to see that the problem was impaired hemogloblin in the blood rather than lung damage.

The New York media piled on with panic, with bogus reports of rising deaths. “Coronavirus deaths” soared by assuming that people dying with the virus were dying from it and then by ascribing to the coronavirus other deaths among people with symptoms of pulmonary distress, even without being tested.

Now jacking up the case rate will be further pointless testing. As Briggs points out,

“Fauci is calling for ‘tripling’ of testing, which can only boost these dailies [case totals]. And make it seem like there’s a genuine increase occurring. Oh my! The daily reported cases are up! It must mean the disease is spreading!

“No. It could also mean, and probably does given all the other evidence we now have from sampling, that the disease was already there, and we just now have measured it.”

The death rate rises with further reclassification of pneumonia and other pulmonary deaths. When we reach herd immunity, and nearly everyone has the antigen, nearly all deaths can be chalked up to COVID19. Hey, it will be Quod Erat Demonstrandum for the panic mongers.

In a fascinating open letter to German Prime Minister Angela Merkel, epidemiologist Mihai Grigoriu concludes that with the French study, corroborated by findings from a Stanford antibody seroprevalence study in Santa Clara county, “the case for extreme measures collapses like a house of cards.” Grigoriu says that since the virus has already spread widely in the general population, efforts to stop further spread are both futile and destructive.

So let’s stop pretending that our policies have been rational and need to be phased out, as if they once had a purpose. They should be reversed summarily and acknowledged to be a mistake, perpetrated by statisticians with erroneous computer models.

Perhaps then we can learn from this experience with the flaws of expertise not to shut down the economy again for the totally bogus “crisis” of climate change.

Across the US, 16 states are moving to reopen more nonessential businesses as thousands protest around the country demanding that the country be reopened now, even as governors like Andrew Cuomo advise that a recent slowdown in deaths and diagnoses suggests the lockdown is working well.

Of these, Georgia has emerged as the most aggressive, with Gov. Brian Kemp allowing the first ‘nonessential’ businesses – a group including salons, bowling allies, tattoo parlors and gyms – to reopen.  Even President Trump is now denying that he supported Kemp’s plan, a disavowal that was reportedly news to Kemp.

Mayors from the across state have warned residents that it’s too soon to return to some semblance of normal, and have urged businesses to remain close, and people to remain indoors. In many areas, as the Washington Post reported Saturday, businesses appear to be following this advice.

And even the businesses that have opened aren’t operating at anything approaching full capacity, employees don masks and take other steps to ensure social distancing is maintained.

Atlanta Mayor Keisha Lance Bottoms appeared on CNN to clear up the “confusion” that she was was putting her voters’ lives at risk: Instead, she said that businesses and individuals should ignore Kemp’s order, adding that “nothing has changed.” 

She declared that the 37% increase in Georgia’s mortality rate over the last week is a clear indication that the state ‘isn’t ready’ to reopen.

“We are not on the other side of this,” Bottoms said. “It’s like we are in a tunnel, and rather than walking straight toward the light, we’re spinning around in circles. We’ll never get to the light if we don’t continue to do what we’ve done thus far, and that’s to separate ourselves socially from one another.”

In Waycross, the county seat of Ware County, one salon owner told WaPo that the only people working on Friday and Saturday were those who absolutely needed to.

Only a handful of the 18 hairdressers who work at Salon Cheveux came in on Friday. They donned masks, spaced their workstations apart and screened inbound customers by phone with the dedication of hospital admission nurses: Any fever recently? Or contact with someone sick? Can you wear a mask?

It was the first day businesses reopened in Georgia, which is moving faster than any other state to ease restrictions amid the novel coronavirus pandemic. As a result, Georgia has become a flash point in the battle over whether it is time to remove the shutdown orders that have kept much of the country indoors.

Jamie McQuaig glanced at the two cosmetologists, clad in masks, coloring customers’ hair and wondered whether coming back to work was the right decision for her family, her salon or her state.

“I do feel like it’s too soon, but it will probably always feel like it’s too soon because we’re all scared of the virus,” she said. The nation’s response to the pandemic has left many in her shop with difficult choices. “The ones that are going back to work right now are the ones that have got to. They’ve got to feed their children. They’ve got to pay their mortgage.”

Local officials in one particularly hard hit county have been begging Kemp to carve out an exemption for them, but he has so far refused.

If he doesn’t, those ‘hot spots’ could swiftly reinfect the entire state. In Albany, Georgia, a small city with an extraordinarily high number of cases per capita, the mayor, Bo Dorough said he continues to warn residents to stay inside and practice social distancing. 

The worst outbreak in the state is still raging in Dougherty County, where Albany is located. The county has a population of about 88,000, and the Georgia Department of Health has reported 1,465 confirmed cases of the virus and 108 deaths as of Friday evening. That means more than 1% of the county’s population is currently infected.

For a time, Dougherty County had the unwelcome distinction of having one of the highest number of per capita cases in the country.

The virus ripped across the county after two widely attended funerals. One attendee, a 67-year-old man, who was at both funerals, later tested positive, setting off what’s called the “domino effect,” according to CNN.

Those Georgians who are returning to work have apparently accepted that they’re guinea pigs in a great national experiment with incredibly high stakes.

After weeks of unemployment, often with uneven government help, some said they were happy to be earning paychecks but worry about the ultimate costs of abandoning isolation too soon, according to the Washington Post.

But they won’t be the only ones for long. Tennessee’s governor has said he will allow many businesses to reopen after his shelter-in-place order expires next week. The governor of South Carolina has already said he will allow some retail stores to reopen this week. People have been walking on the beaches near Jacksonville, Fla., for a week, and on Friday, Iowa and Mississippi became the latest states to announce plans to reopen.

As of Saturday, there were nearly 4,500 confirmed in Iowa, and yet, Gov. Kim Reynolds has said she will consider reopening more businesses, while reversing a ban on hospitals performing non-essential surgeries. And in Mississippi, which has more than 5,400 confirmed Covid-19 cases, Gov. Tate Reeves has traded the4 state’s lockdown order for a “safer-at-home” order, which will remain in effect for two weeks, beginning Monday.

Across Georgia, more than 22,000 people have tested positive and nearly 900 have died. The state has tested < 1% of its residents.

Trump was correct when he said on Thursday that Georgia hasn’t met the benchmarks released by the White House. They include a downward trajectory of confirmed cases over 14 days.

Here’s a map of the US breaking down what various states are planning, courtesy of the NYT:

The big question looking ahead: Will Georgia’s decision make the state look like Sweden, or Wuhan?

Because it’s extremely likely that it’ll be one, or the other.

Authored by Ryan McMaken via The Mises Institute,

Imagine what it is like right now to plan for the future as a business owner. The owner doesn’t know if he or she will even be allowed to be open for business two weeks from now, or a month from now.

Indeed, politicians and their unelected (and unaccountable) health advisors keep insisting that they might elect to close down businesses or impose new restrictions on large portions of the economy at any time.

The uncertainly associated with all this is immense. Consider some examples: thanks to moratoria on evictions in many cities, renters who can’t pay rent — thanks in part to government-forced lockdowns — can stay in their rental units indefinitely. Landlords have no idea when they will next be able to actually collect revenues again from paying customers. Meanwhile, “elective” healthcare services like eye care and dental care have been deemed “unessential” by bureaucrats and governors in many states. These offices will be closed and collecting little-to-no revenue. Restaurants, of course, aren’t permitted to do business beyond take-out service in places with lockdowns. (Although these restaurants still have to pay rent for their dining rooms.)

Even beyond the short term, business owners have no way to plan. If a business owner is allowed to actually conduct business during the summertime this year, it may still be that politicians will later elect to shut businesses whenever it is decided the risk of spreading viruses demands another “shutdown.” We’re even told this could go on for years.

One would have to be impressively naive and deeply ignorant about how businesses work to think that commerce, investment, and entrepreneurship would just continue as usual under these conditions. In reality,  the threat of a government-mandated lockdown hanging over the heads of countless business owners and entrepreneurs will mean there will be far less willingness and ability to invest in businesses, offer products and services, or employ people.

The Problem with Regime Uncertainty

This problem has a name: “regime uncertainty.” Economic historian Robert Higgs defines it as “a pervasive lack of confidence among investors in their ability to foresee the extent to which future government actions will alter their private-property rights.”

Broadly understood, of course, “investing” isn’t just a matter of people putting money in mutual funds or buying municipal bonds. “Investors” are people who buy and manage apartment buildings. Investors include doctors and dentists who invest enormous amounts of time and money into a private healthcare office. Investors are people who put their life savings into starting a new restaurant or tavern.

As Higgs has shown, when the legal environment and property rights can be so radically altered so quickly, economic growth slows and economic depressions are drawn out and made worse.

Specifically, Higgs has illustrated that regime uncertainty was a significant factor in making the Great Depression such a long and unpleasant affair. The Roosevelt administration’s numerous and enormous changes to the legal regime — through new taxes, regulations, and labor laws — made the Depression far worse than it needed to be. Higgs explains how thanks to a multitude of state interventions during the Depression:

the Roosevelt administration “abruptly and dramatically altered the institutional framework within which private business decisions were made, not just once but several times” … with the result that regime uncertainty was heightened and recovery substantially retarded.

As one investor at the time observed:

Uncertainty rules the tax situation, the labor situation, the monetary situation, and practically every legal condition under which industry must operate. Are taxes to go higher, lower or stay where they are? We don’t know. Is labor to be union or nonunion?… Are we to have inflation or deflation, more government spending or less?… Are new restrictions to be placed on capital, new limits on profits?… It is impossible to even guess at the answers.

The result was “the New Deal prolonged the Great Depression by creating an extraordinarily high degree of regime uncertainty in the minds of investors.”

The recovery was slowed, of course, because investing, building businesses, and engaging in innovation became far riskier and unpredictable thanks to the chances that governments might once again impose draconian new restrictions on businesses. This changed the calculus completely.

Regime Uncertainty vs. Regular Uncertainty

Admittedly, even in a laissez-faire policy regime, it is more difficult for investors to calculate risk and future conditions when consumers and employees become far more fearful about an outbreak of disease. But, as Brendan Brown notes, private firms are likely to adjust quickly to attempt to address the needs of consumers who may now demand less crowded rooms and more “precautions.” Uncertainty is always a problem for investors and entrepreneurs. But regime uncertainty is worse because it limits the ability of property owners to adapt. Regime uncertainty also tends to be done in a haphazard and arbitrary way across a multitude of markets. 

Consumers will still drive some owners out of business because consumers constantly change their demands and values.  On a whim, consumers may decide to spend their money elsewhere.  But in an unhampered market, businesses and investors can learn from watching others, plan for the future in their specific markets, and adjust accordingly. Unlike governments in the business of ruling by decree, investors and business owners seek to serve as wide a swath of the public as possible.

But this sort of flexibility is destroyed when governments impose lockdowns. There is no learning and no adjusting. Statewide lockdowns don’t take into account diversity in health, demographics, and market conditions.  Instead economic activity is halted in a one-size-fits-all fashion based on what politicians — not consumers, mind you — deem to be “essential.” Even worse, changes can be be quickly imposed by a small handful of policymakers without public debate or consultation. There is no time for businesses to adjust.

This is far worse than any ordinary market shock.

Wall Street vs. Main Street, Again

Ultimately, this process will also accelerate wealth inequality by contributing to the further financialization of the economy. Thanks to the maximization of the “too big to fail” narrative at the Fed and in Washington, the financial sector continues to grow as the safe go-to place for investment. Why invest in community businesses and small medical firms when it is much lower risk to invest in a bank or a financial firm that’s sure to be bailed out? The constant threat of forced shutdowns makes this risk assessment even more stark: non-financial firms can be shut down and destroyed at any time. But Wall Street will be bailed out.

Since the financial sector employs a relatively small number of people, this shutdown-bailout dichotomy means employment will suffer. It means the working class and the middle class will suffer. It means people with sizable Wall Street portfolios will benefit while Main Street businesses go bankrupt.

But even Wall Street will eventually suffer because an economy cannot survive on bailouts forever. At some point, people have to produce actual goods and services. This requires capital. It requires planning. It requires many things that arbitrary shutdowns make far more difficult to find.

Some people are intentionally hoarding toilet paper; others are stockpiling hand sanitizers and masks; and the glut of oil around world grows concerningly higher day after day. But, while stock markets rebound by the most ever (after their fastest collapse ever), there is (at least) one billionaire investor who is not buying it and instead is hoarding something else in readiness for what comes next… 

In an insightful (and unusual for mainstream business media) interview with Bloomberg TV, Carl Icahn isn’t buying stocks right now. He’s hoarding cash, shorting commercial real estate and preparing for COVID-19 to wreak more havoc.

This is a time to be “extremely careful,” Icahn said in an interview Friday on Bloomberg Television.

The 84-year-old’s reasoning is simple – and terrifying for the average commission-raker and asset-gatherer – having traded through every stock-market crash since the Great Depression, the future is just too unpredictable for the S&P 500 to be trading at almost 20 times next 12m earnings estimates…

“You cannot really justify that multiple,” Icahn said.

“Short-term, you may have some big downdrafts.”

Source: Bloomberg

Unlike Boeing, IBM, and, the airlines, and cruise lines, the veteran investors hasn’t blown through his cash in recent years chasing dreams, he has instead been preparing and building cash positions – what he says he always keeps for “a stormy day.”

His thesis is straight forward – he disagrees with the market’s apparent belief that we will ‘return to normal’ sometime soon and everything that was will be again.

Having donated over $200 million to the medical school at Mount Sinai Hospital in New York, the 1980s corporate raider says he has been talking to “some of the smartest guys in this area” and formed an opinion of the virus that doesn’t leave him optimistic.

He’s concerned about recurrences of infection and believes the economy will reopen in “spurts.”

“It’s not like turning on a spigot,” he said.

However, there are opportunities amid the carnage as Icahn took advantage of the recent collapse in crude oil prices with a secondary trade, as Bloomberg details:

Because refiner CVR constantly needs oil to supply its two refineries, Icahn realized he could use it to profit from the frenzy. He said he instructed the Sugar Land, Texas-based company to make space in its storage tanks and put in orders for 1 million to 2 million barrels at negative prices he doesn’t expect ever to see again.

We made some money on it,” Icahn said in an interview Friday with Bloomberg Television.

“We did get a fair amount.”

You’ll never see that again in history,” Icahn said.

But, while that opportunistic position was quickly taken advantage of, Icahn’s largest position is a multibillion bet he initiated in mid-2019 against the CMBX 6, an index of commercial real estate mortgage-backed securities that should be very familiar to ZeroHedge readers:

Back in March 2017, a bearish trade emerged which quickly gained popularity on Wall Street, and promptly received the moniker “The Next Big Short.”

As we reported at the time, similar to the run-up to the housing debacle, a small number of bearish funds were positioning to profit from a “retail apocalypse” that could spur a wave of defaults. Their target: securities backed not by subprime mortgages, but by loans taken out by beleaguered mall and shopping center operators which had fallen victim to the Amazon juggernaut. And as bad news piled up for anchor chains like Macy’s and J.C. Penney, bearish bets against commercial mortgage-backed securities kept rising.

The trade was simple: shorting malls by going long default risk via CMBX 6 (BBB- or BB) or otherwise shorting the CMBS complex. For those who have not read our previous reports (here, here, here, here, here, here and here) on the second Big Short, here is a brief rundown via the Journal:

each side of the trade is speculating on the direction of an index, called CMBX 6, which tracks the value of 25 commercial-mortgage-backed securities, or CMBS. The index has grabbed investor attention because it has significant exposure to loans made in 2012 to malls that lately have been running into difficulties. Bulls profit when the index rises and shorts make money when it falls.

The various CMBX series are shown in the chart below, with the notorious CMBX 6 most notable for its substantial, 40% exposure to retail properties.

One of the firms that had put on the “Big Short 2” trade back in late 2016 was hedge fund Alder Hill Management – an outfit started by protégés of hedge-fund billionaire David Tepper – which ramped up wagers against the mall bonds. Alder Hill joined other traders which in early 2017 bought a net $985 million contracts that targeted the two riskiest types of CMBS.

“These malls are dying, and we see very limited prospect of a turnaround in performance,” said a January 2017 report from Alder Hill, which began shorting the securities.

“We expect 2017 to be a tipping point.”

Alas, Alder Hill was wrong, because while the deluge of retail bankruptcies…

… and mall vacancies accelerated since then, hitting an all time high in 2019…

…  not only was 2017 not a tipping point, but the trade failed to generate the kinds of desired mass defaults that the shorters were betting on, while the negative carry associated with the short hurt many of those who were hoping for quick riches.

One of them was investing legend Carl Icahn who as we reported last November, emerged as one of the big fans of the “Big Short 2“, although as even he found out, CMBX was a very painful short as it was not reflecting fundamentals, but merely the overall euphoria sweeping the market and record Fed bubble (very much like most other shorts in the past decade). The result was what we said four months ago was “tens if not hundreds of millions in losses so far” for the storied corporate raider.

That said, while Carl Icahn was far from shutting down his family office because one particular trade has gone against him, this trade put him on a collision course with two of the largest money managers, including Putnam Investments and AllianceBernstein, which for the past few years had a bullish view on malls and had taken the other side of the Big Short/CMBX trade, the WSJ reports. This face-off, in the words of Dan McNamara a principal at the NY-based MP Securitized Credit Partners, was “the biggest battle in the mortgage bond market today” adding that the showdown is the talk of this corner of the bond market, where more than $10 billion of potential profits are at stake on an obscure index.

However, as they say, good things come to those who wait, and are willing to shoulder big losses as they wait for a massive payoffs, and for the likes of Carl Icahn, McNamara and others who were short the CMBX, payday has just arrived.

Behold the CMBX as it stands now: 

That, in the parlance of our times, is what traders call a “jackpot.”

The epic crash in the CMBX 6 BBB (the junk-rated BB tranche has fallen 25% in the past fortnight) meant all those shorts who for years suffered the slings and stones of outrageous margin calls but held on to this “big short”, are about to get very rich (and in the case of Icahn, even richer) it has also means the pain is just starting for all those “superstar” funds on the other side of the trade who were long CMBX over the past few years, collecting pennies and clipping coupons in front of a P&L mauling steamroller.

One of them, as noted above, is mutual fund giant AllianceBernstein, which has suffered massive paper losses on the trade, amid soaring fears that the coronavirus pandemic is the straw on the camel’s back that will finally cripple US shopping malls whose debt is now expected to default en masse.

According to the FT, more than two dozen funds managed by AllianceBernstein have sold over $4 billion worth of CMBX protection to the likes of Icahn. One among them is AllianceBernstein’s $29 billion American Income Portfolio, which is down 15% since the beginning of March, having written $1.9bn of protection on CMBX 6, while some of the group’s smaller funds have higher concentrations.

The trade reflected AB’s conviction that American malls are “evolving, not dying,” as the firm put it last October, in a paper entitled “The Real Story Behind the CMBX. 6: Debunking the Next ‘Big Short’” (reader can get some cheap laughs courtesy of Brian Philips, AB’s CRE Credit Research Director, at this link).

Hilariously, that paper quietly “disappeared” from AllianceBernstein’s website, but magically reappeared on Friday, shortly after the Financial Times asked about it.

“We definitely still like this,” said Gershon Distenfeld, AllianceBernstein’s co-head of fixed income. “You can expect this will be on the potential list of things we might buy [more of].”

Sure, quadruple down, why not. Meanwhile, one of America’s biggest mall operators, Simon Property Group, has closed all its US properties until March 29, and it is unclear not only when it will reopen but what viable tenants it will still have that are able and willing to pay rent. For a broader perspective on what Simon has to look forward to when it reopens, read “Widespread Panic” Hits Commercial Property Markets: Deals Implode, Renters Disappear, Businesses Shut Down”.

Good luck on the quadruple down – as Icahn notes of the “mall short” – the more the pandemic slows economic activity and drives consumers to shop online, the greater the chances that some of those loans will default.

“It’s ‘08 all over again,” Icahn said, likening the trade to wagers that paid off massively when subprime mortgage debt collapsed more than a decade ago.

In which case, as we noted at the very beginning, Icahn’s warning to investors to be “extremely careful” would seem very timely.

Earlier this week, when we first heard the reports about Kim Jong Un possibly being dead, or close to it, followed by Yonhap’s denial – which simply stated that one official who spoke with a reporter at the news org said SK Intel had nothing on it. We suspected that observers seemed to willing to accept that report as actual evidence to the contrary. We suspected there might be something more to it.

Even when Trump said KJU was probably fine, something still seemed to be amiss. If he was truly in good health, why hadn’t he made an appearance at any other scheduled public events to ward of panic? The North Koreans didn’t even have a convincing body double to fool the crowds into believing their dear leader was well?

Now, a few days later, the Japanese press appears to be getting closer to the truth: As we noted earlier today, it’s widely believed that Kim is in a “vegetative state”, and likely won’t survive.

Kim Yo Jong

Which – since Kim’s children are far too young to run the country – brings our attention to the line of succession. As we noted earlier this week, there are several potential successors to the throne. Since the founding of the modern state in the aftermath of the Korean War, the country has been ruled by the “Mt Paektu Bloodline”, which comprises most of the mythos and cult of personality around the Kim family.

But one thing we didn’t really cover in great depth was the concerns that some in western intelligence have about Kim’s sister, who has been seen more frequently in international news reports in recent years. The younger Kim, believed to be 31, is one of her brother’s closest confidants and his de facto chief of staff. She has joined him at several high-profile international summits.

Unfortunately, to put it simply and straightforwardly, many fear that Kim Yo Jong would be even more diabolical and hostile than her brother. As one twitter wit joked, he is ready and willing to dunk on any ‘feminist takes’ claiming that the younger Kim would be a more judicious and receptive ruler.

If Kim Jong Un ends up dying and his evil sister takes over, I vow to you all right here and now that I will dunk on any & all hot takes that even hint that a woman taking over the family business of running a starving nuclear prison state is some sort of victory for feminism.

— JERRY DUNLEAVY (@JerryDunleavy) April 25, 2020

The Telegraph reports that she was recently elevated to NK’s Politburo.

One reason for the anxieties about her hardline politics: Earlier this year, she issued a scathing political statement about South Korea in her own name, raising concerns that she was pushing back against her brothers purported efforts to deescalate the tensions on the peninsula, even as ‘expert’ after ‘expert’ has insisted that NK will never surrender its nukes.

If she takes the throne, would Kim’s younger sister instead send them flying across the Pacific? News this weekend that a mobile missile launcher has been deployed amidst the crisis of leadership certainly doesn’t make us feel less alarmed.

To be sure, Kim’s sister isn’t the only possible successor; there are doubts that the Party would allow her to lead, given the fact that she is a woman.

As the speculation mounts, here’s a quick run-through of the options, courtesy of Bloomberg:

Kim Yo Jong; Sister

Part royal representative, part personal assistant, Kim Yo Jong has emerged as one of her older brother’s closest aides. Earlier this month, she was reinstated as an alternate Politburo member of the ruling Workers Party of Korea. As such, she’s the only other member of the Kim family with anything approaching real power in the regime.

Although she became the first member of the ruling family to visit Seoul and accompanied Kim Jong Un in his summits with U.S. President Donald Trump and China’s Xi Jinping, she’s also performed mundane tasks, such as helping the leader extinguish a cigarette during a train stop in China. Whether North Korea’s patriarchal elite will support a relatively young woman as the country’s next “supreme leader” is unclear.

Kim Jong Un’s Son

A male heir would provide the most conventional line of succession in a dynasty previously ruled by Kim’s father, Kim Jong Il, and founded by his grandfather, Kim Il Sung. South Korean intelligence said Kim married Ri Sol Ju, a former singer, in 2009 and is thought to have three children.

Problem is, the children have yet to be officially mentioned in state media and the oldest is believed to be a son born in 2010, according to South Korea’s DongA Ilbo newspaper. Dennis Rodman, the offbeat former basketball star who visited North Korea, said in 2013 that he also held a baby daughter named Ju Ae. That would likely require any of the children to rule under some form of regent until they come of age.

Kim Han Sol; Nephew

Kim Han Sol, born in 1995, may have become heir-apparent himself if his father, Kim Jong Nam, hadn’t fallen out with Kim Jong Il and gone into exile in the Chinese gambling hub of Macau. Kim Jong Nam was Kim Jong Un’s older half-brother and his most serious rival, frequenting casinos and occasionally criticizing his younger sibling’s regime.

Any hopes that Kim Han Sol might have had of returning to Pyongyang were dashed in 2017, when his father was murdered at the Kuala Lumpur airport by two women who smeared VX nerve agent on his face. Chinese police later arrested several North Koreans dispatched to Beijing on suspicion of plotting to kill Kim Han Sol, South Korea’s JoongAng Ilbo newspaper reported at the time. His whereabouts remain unknown.

Kim Jong Chol; Brother

Kim Jong Chol, Kim Jong Un’s only surviving brother, would be another longshot, since he has shown more interest in guitars than politics.

Thae Yong Ho, the former No. 2 at North Korea’s embassy in London who defected to South Korea, once said Kim’s elder brother “doesn’t own any official title” adding he’s “just a really talented guitarist.”

Kim Jong Il saw his middle son as “girlish,” according to the person who goes by the pen name of Kenji Fujimoto and claims to have been the personal sushi chef for the former North Korean leader. In 2011, South Korean broadcaster KBS captured Kim Jong Chol enjoying an Eric Clapton concert in Singapore. Little else is known about him except that he studied in Switzerland and is a fan of U.S. professional basketball like his brother.

*      *      *

Source: Bloomberg

Colleges across the country are trying to figure out whether they can reopen campus this fall. Right now, it’s a 50/50 shot. No one knows, and with a second coronavirus wave looming later this year, face-to-face classes might not be seen until early 2021.

Ted Mitchell, president of the American Council on Education, said reopening colleges could be a drawn-out process and lead to a 15% decline in students, resulting in billions of dollars lost for schools.

“The math is not pretty,” Robert Kelchen, a student at Seton Hall University in New Jersey, told NPR News. “Colleges are stressed both on the revenue side and on the expenditure side.”

The transition to virtual classes has been epic. Schools in nearly every state have moved courses online in just weeks, triggering lawsuits filed by some students that claim refunds for tuition, fees, and room and board must be seen. 

Dominique Baker, a professor of education policy at Southern Methodist University in Dallas, warned that every college would feel financial stress related to coronavirus lockdowns. 

NPR estimates that virus lockdowns are leading to significant losses for some universities:

“The University of Michigan estimates it may lose up to $1 billion by the end of the year. For the University of Kentucky, it’s $70 million. Hundreds of schools — including some with endowments of more than a billion dollars, like Duke University, Virginia Tech and Brown — have announced hiring freezes. Other institutions have cut pay and have laid off staff and contractors. In Vermont, state officials have floated potential college shutdowns.”

Baker said the lockdowns would affect colleges in disproportionate ways. “For some colleges, this is an existential threat that means they’ll have to close,” she said, while others have the financial support to weather the virus storm. 

The higher education community received a bailout via the CARES Act. Congress allocated around $14 billion to colleges and universities affected by the shutdowns, though the American Council on Education said it was not enough and is calling for $46 billion more. 

Campus Reform identified the top ten schools receiving the most bailout money, courtesy of the American taxpayer:

1. Arizona State University- $63.5 million
2. Pennsylvania State University- $54.9 million
3. Rutgers University- $54.1 million
4. University of Central Florida- $51 million
5. Miami Dade College- $49 million
6. Georgia State University- $45.2 million
7. California State University-Northridge- $44.6 million
8. The Ohio State University- $42.8 million
9. California State University- Long Beach- $41.7 million
10. California State University- Fullerton- $41 million

Kelchen described a situation that happened over a decade ago when the economy crashed in 2008, and state budgets were not able to fund schools. With a depression unfolding, it appears funding for higher education will come into question once more. 

And to make matters worse, nationwide enrollment in higher education has plunged 11% in the last eight years as millennials figure out they don’t need to rack up tens of thousands of dollars in debt before entering the labor force.

Nicholas Christakis, a sociologist and physician at Yale University, said colleges are not returning to normal this fall. 

“This idea — that we can somehow just get back to normal and go back to school in the fall, because we always have, it’s not reasonable, actually. I think we’re going to have to figure out other ways of doing this,” said Christakis.

Bryan Alexander, an educational futurist at Georgetown University, said the pandemic is going to reshape everything we know about college. 

“There are many ways a reconstructed fall might look, including the option of continuing everything online, though many colleges that teach in-person still think of that as a last resort. They cite online learning growing pains and an ambivalent faculty. Plus there’s some fear that students and their families won’t be willing to pay as much for an online offering. Among the ideas being floated for tweaking the in-person model is changing the traditional academic calendar. Instead of starting in August or September, school might open in October or even January. Instead of 16-week semesters, colleges could shift to quarter systems or even shorter, four-week courses to allow flexibility,” said NPR.

Some have floated the idea of trying smaller classes and hosting larger ones online. Kim Weeden, a sociologist at Cornell, along with colleague Benjamin Cornwell, said large lecture classes should be eliminated. 

“Just eliminating those 100-person or more classes didn’t seem to reduce the small-world nature of the network all that much,” Weeden said. Their research — which was published recently in a white paper, but not peer reviewed — was only looking at classes and didn’t factor in dorm life or campus events such as social gatherings and athletics.

“There’s just so much uncertainty,” said Weeden. “You know, a big piece of this, of course, is whether there is going to be [coronavirus] testing available and what those tests can and cannot tell us. And you know, everybody wants to know the answer to that question.”

The million-dollar question is if college classes will return to normal by fall. And the answer is likely no, while many schools will push for virtual classes, extended lockdowns, and a second coronavirus wave could lead to the implosion of higher education.

Authored by Will Oremus via Marker.Medium.com,

It isn’t really about hoarding. And there isn’t an easy fix…

Around the world, in countries afflicted with the coronavirus, stores are sold out of toilet paper. There have been shortages in Hong Kong, Australia, the United Kingdom, and the United States. And we all know who to blame: hoarders and panic-buyers.

Well, not so fast…

Story after story explains the toilet paper outages as a sort of fluke of consumer irrationality. Unlike hand sanitizer, N95 masks, or hospital ventilators, they note, toilet paper serves no special function in a pandemic. Toilet paper manufacturers are cranking out the same supply as always. And it’s not like people are using the bathroom more often, right?

U.S. Health Secretary Alex Azar summed up the paradox in a March 13 New York Times story: “Toilet paper is not an effective way to prevent getting the coronavirus, but they’re selling out.” The president of a paper manufacturer offered the consensus explanation: “You are not using more of it. You are just filling up your closet with it.”

Faced with this mystifying phenomenon, media outlets have turned to psychologists to explain why people are cramming their shelves with a household good that has nothing to do with the pandemic. Read the coverage and you’ll encounter all sorts of fascinating concepts, from “zero risk bias” to “anticipatory anxiety.” It’s “driven by fear” and a “herd mentality,” the BBC scolded. The libertarian Mises Institute took the opportunity to blame anti-gouging laws. The Atlantic published a short documentary harking back to the great toilet paper scare of 1973, which was driven by misinformation.

Most outlets agreed that the spike in demand would be short-lived, subsiding as soon as the hoarders were satiated.

No doubt there’s been some panic-buying, particularly once photos of empty store shelves began circulating on social media. There have also been a handful of documented cases of true hoarding. But you don’t need to assume that most consumers are greedy or irrational to understand how coronavirus would spur a surge in demand. And you can stop wondering where in the world people are storing all that Quilted Northern.

There’s another, entirely logical explanation for why stores have run out of toilet paper — one that has gone oddly overlooked in the vast majority of media coverage.

It has nothing to do with psychology and everything to do with supply chains. It helps to explain why stores are still having trouble keeping it in stock, weeks after they started limiting how many a customer could purchase.

In short, the toilet paper industry is split into two, largely separate markets: commercial and consumer. The pandemic has shifted the lion’s share of demand to the latter. People actually do need to buy significantly more toilet paper during the pandemic — not because they’re making more trips to the bathroom, but because they’re making more of them at home. With some 75% of the U.S. population under stay-at-home orders, Americans are no longer using the restrooms at their workplace, in schools, at restaurants, at hotels, or in airports.

Georgia-Pacific, a leading toilet paper manufacturer based in Atlanta, estimates that the average household will use 40% more toilet paper than usual if all of its members are staying home around the clock. That’s a huge leap in demand for a product whose supply chain is predicated on the assumption that demand is essentially constant. It’s one that won’t fully subside even when people stop hoarding or panic-buying.

Boxes of Angel Soft toilet paper for the consumer market roll off the line at Georgia-Pacific’s paper mill in Palatka, Florida. Credit: Image courtesy of Georgia-Pacific

If you’re looking for where all the toilet paper went, forget about people’s attics or hall closets. Think instead of all the toilet paper that normally goes to the commercial market — those office buildings, college campuses, Starbucks, and airports that are now either mostly empty or closed. That’s the toilet paper that’s suddenly going unused.

So why can’t we just send that toilet paper to Safeway or CVS? That’s where supply chains and distribution channels come in.

Talk to anyone in the industry, and they’ll tell you the toilet paper made for the commercial market is a fundamentally different product from the toilet paper you buy in the store. It comes in huge rolls, too big to fit on most home dispensers. The paper itself is thinner and more utilitarian. It comes individually wrapped and is shipped on huge pallets, rather than in brightly branded packs of six or 12.

“Not only is it not the same product, but it often doesn’t come from the same mills,” added Jim Luke, a professor of economics at Lansing Community College, who once worked as head of planning for a wholesale paper distributor.

“So for instance, Procter & Gamble [which owns Charmin] is huge in the retail consumer market. But it doesn’t play in the institutional market at all.”

Georgia-Pacific, which sells to both markets, told me its commercial products also use more recycled fiber, while the retail sheets for its consumer brands Angel Soft and Quilted Northern are typically 100% virgin fiber. Eric Abercrombie, a spokesman for the company, said it has seen demand rise on the retail side, while it expects a decline in the “away-from-home activity” that drives its business-to-business sales.

In theory, some of the mills that make commercial toilet paper could try to redirect some of that supply to the consumer market. People desperate for toilet paper probably wouldn’t turn up their noses at it. But the industry can’t just flip a switch. Shifting to retail channels would require new relationships and contracts between suppliers, distributors, and stores; different formats for packaging and shipping; new trucking routes — all for a bulky product with lean profit margins.

Because toilet paper is high volume but low value, the industry runs on extreme efficiency, with mills built to work at full capacity around the clock even in normal times. That works only because demand is typically so steady. If toilet paper manufacturers spend a bunch of money now to refocus on the retail channel, they’ll face the same problem in reverse once people head back to work again.

“The normal distribution system is like a well-orchestrated ballet,” said Willy Shih, a professor at Harvard Business School.

“If you make a delivery to a Walmart distribution center, they give you a half-hour window, and your truck has to show up then.”

The changes wrought by the coronavirus, he said, “have thrown the whole thing out of balance, and everything has to readjust.”

While toilet paper is an extreme case, similar dynamics are likely to temporarily disrupt supplies of other goods, too — even if no one’s hoarding or panic-buying. The CEO of a fruit and vegetable supplier told NPR’s Weekend Edition that schools and restaurants are canceling their banana orders, while grocery stores are selling out and want more. The problem is that the bananas he sells to schools and restaurants are “petite” and sold loose in boxes of 150, whereas grocery store bananas are larger and sold in bunches. Beer companies face a similar challenge converting commercial keg sales to retail cans and bottles.

It’s all happening, of course, against the backdrop of a pandemic that makes it hard enough for these producers to keep up business as usual, let alone remold their operations to keep up with radical shifts in demand.

If there’s any good news, it’s that we can stop blaming these shortages on the alleged idiocy of our fellow consumers. “I’m absolutely convinced that very little was triggered by hoarding,” Luke said. Even a modest, reasonable amount of stocking up by millions of people in preparation for stay-at-home orders would have been enough to deplete many store shelves. From there, the ripple effects of availability concerns, coupled with a genuine increase in demand due to people staying in, are sufficient to explain the ongoing supply problems.

In the long run, the industry is still optimistic that it can adapt. “We’ve got fiber supply, we’ve got trees,” said Georgia-Pacific’s Abercrombie. “It’s just a matter of making the product and getting it out.”

In the meantime, some enterprising restaurateurs have begun selling their excess supplies of toilet paper, alcohol, and other basics. Last week I picked up takeout at a local restaurant with a side of toilet paper and bananas. The toilet paper was thin and individually wrapped. The bananas were puny. They’ll do just fine.

A California-based startup that’s seen recent success as a popular electric scooter rental service in cities across the nation appears to have set a record in terms of number of employees laid off on the spot in the least amount of time.

Bird, which is headquartered in Santa Monica, but maintains clusters of employees nationwide that must service and oversee its fleet of ‘Bird scooters’ including app developers — invited 406 employees to attend what the company called a “COVID-19 Update” Zoom meeting on March 27. And then a massacre ensued… a two-minute massacre. 

“Once employees logged onto the one-way meeting, a woman’s voice began reading a script, informing the attendees that they had all been laid off in a 2-minute speech,” SF Gate describes.

To add insult to injury it was the chief communications officer, Rebecca Hahn, apparently forced to fire over 400 employees on the spot seemingly while fighting back tears – in a “choked monotone” as one staff member put it – instead of Bird’s founder and CEO, Travis VanderZanden. This was some 40% of the company’s total employees.

A prior detailed account was related by dot.LA as follows: 

The woman began by acknowledging “this is a suboptimal way to deliver this message.” Then she cut to the chase: “COVID-19 has also had a massive impact on our business, one that has forced our leadership team and our board of directors to make extremely difficult and painful decisions. One of those decisions is to eliminate a number of roles at the company. Unfortunately your role is impacted by this decision.”

The meeting was scheduled to last half an hour but ended up going for only two minutes. 

Immediately upon the news being delivered all now ex-employees on the other end of the call promptly had their email and Slack accounts instantly deactivated. The Zoom webinar had allowed no participation, push-back, or question and answer. 

A recording to the mass firings via Zoom was subsequently posted online:

“It should go down as a poster child of how not to lay people off, especially at a time like this,” one employee previously said. And a Bird manager later noted that “It was a cowardly move,” given that “Travis did not want to deliver the news” – in reference to the CEO.

“It felt like a Black Mirror episode,” another employee interviewed said. “This ominous voice came over and told us we were losing our jobs.”

Meanwhile, The Verge on Thursday published a deep-dive into other similar questionable and disturbing practices at the company, which has seen an unusually high turnover rate among employees.

In one 2019 example dubbed “The Pizza Party Firings” the company laid off between 4 and 5 percent of its staff in one fell swoop during an office pizza party. 

The Verge recounts of that episode that while everyone partied in a relaxed atmosphere, a group of staff were “corralled into a conference room where they received a brief speech, not unlike the one given on this year’s Zoom call, before being escorted out of the building by security with no opportunity to retrieve their belongings from their desks.”

Given the ongoing COVID-19 crisis, more such stories like this are to soon emerge, but hopefully companies have enough sense, and humanity for that matter, to handle lay-offs better than doing it through some dystopian looking gray screen and robotic monotone voice.