Tag: finance

While Mexico scored a dramatic, if mostly symbolic, victory in its “Mexican standoff” with Saudi Arabia over the weekend, when the oil producer who famously hedges its output every year in preparation for the worst received an exemption from the uniform 23% production cut, its economy sadly remains in shambles as it enters a deep recession, the Mexican peso recently plunged to all time lows (and is headed in that direction again), the coronavirus epidemic is ravaging its population, its industrial base is frozen with its biggest client – the US – on indefinite hiatus, and generally things are going from bad to worse. None of that has escaped Fitch, which moments ago downgrade Mexico from BBB to BBB-, the lowest rating above junk (outlook stable) because as the rating agency writes, “the economic shock represented by the coronavirus pandemic will lead to a severe recession in Mexico in 2020.”

The Mexican peso tumbled in kneejerk reaction, with the USDMXN spiking as much as 0.8% on the downgrade that sets the stage for Mexico to be kicked out of all non-junk mandates.

The full report is below:

Fitch Downgrades Mexico to ‘BBB-‘; Outlook Stable

Fitch Ratings – New York – 15 Apr 2020: Fitch Ratings has downgraded Mexico’s Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘BBB-‘ from ‘BBB’. The Rating Outlook is Stable.

KEY RATING DRIVERS

The economic shock represented by the coronavirus pandemic will lead to a severe recession in Mexico in 2020. A recovery starting in 2H20 will likely be held back by the same factors that have hampered recent economic performance, which has lagged rating and income level peers. These include a previously noted deterioration in the business climate in certain sectors – notwithstanding examples of cooperation with the private sector in areas such as developing infrastructure – and a perceived erosion of institutional strength in the regulatory framework. Even in the absence of a debt-financed fiscal response to the economic recession, general government debt/GDP is likely to jump by at least 6pp of GDP to almost 50%, the highest since the 1980s. Consolidating public finances once the crisis is over and returning debt/GDP to a sustainable path will prove challenging in Fitch’s view. At the same time, the credible monetary policy framework built around a flexible exchange rate and inflation targeting remains a rating strength and will help the economy absorb the external shock, while minimizing current account external imbalances.

In line with its April 2nd Global Economic Outlook update, Fitch expects the economy to contract by at least 4% in 2020, with a steep fall in 1H followed by the start of a sequential recovery in 2H, but given the nature of the crisis there is a higher than usual level of uncertainty around our forecasts, and the balance of risks is firmly to the downside. Underlining the depth of the shock, which has yet to be fully reflected in published economic data, Mexico lost 130,500 formal sector jobs in March, equivalent to more than one-third of jobs created in 2019, while automotive output contracted 24.6% yoy. Trade will be highly disrupted and will contract steeply in 2020, although net trade is likely to make a positive contribution as imports fall more heavily than exports.

The extent of the economic contraction and scope for recovery starting 2H20 will be dictated by prospects in the U.S., Mexico’s main trading partner, as well as the duration of the virus shock domestically. Mexico’s official projections are based on a domestic lockdown lasting until early May, but this may be extended, or relaxed more gradually. The absence to date of a sizeable fiscal response to support consumption, by comparison with other rating peers in the region, reflects a desire to minimize fiscal imbalances but may delay the recovery. A recovery to full year 2.1% growth in 2021 would imply real output levels remaining well below current GDP.

Moreover, the factors that held back investment prior to the crisis, which in Fitch’s view include relatively weak governance and ad hoc government policy interventions, are likely to persist. While the macro policy framework remains intact, microeconomic policy interventions in a range of sectors have damaged the investment climate. Real GDP contracted by 0.1% in 2019, driven by a 5% fall in gross fixed investment, with no discernible recovery in 1Q20 before the crisis hit, as investment declined further.

On the positive side, Fitch would expect trade to help the economy recover, based on Mexico’s openness and strategic place in the North American supply chain. The U.S.-Mexico-Canada Agreement (USMCA) is scheduled to come into force at mid-year, relieving uncertainty which had prevailed since late 2016. Outcomes from the coronavirus pandemic that lead to U.S. businesses reducing dependence on China, which was already an administration policy goal, could support investment prospects over the medium term. Additionally, the treaty itself represents a long-term commitment on the Mexican side to maintain a market-oriented economic stance and work constructively with foreign investors in a way that limits downside risks to policy orientation.

The outlook for the public finances is much less favorable than at the time of the last rating review in December 2019. Fitch expects the general government deficit to widen by around 2.5pp of GDP to 4.4% of GDP, higher than implied by the most recent budget review, with little scope for consolidation in 2021. Sensitivity of revenues to changes in the growth rate is comparatively limited given the low non-oil tax take but more serious damage to the tax base is possible if the current one month lockdown is prolonged or subsequently re-imposed.

In keeping with the spirit of fiscal rules that have sought to avoid increasing borrowing at the federal level, and which have kept general government debt/GDP relatively stable, the government plans to fund higher deficits in 2020 without extra borrowing, by tapping the FEIP (budget revenue stabilization fund), although this would deplete the fund to approximately 20% of its current value. A presidential decree also allowed the government to tap a range of other trust funds for financing, which hold up to 3% of GDP. Most federal government oil income is hedged at the budget assumption price of USD49/b for the Mexican mix, cushioning federal finances from the direct impact of lower oil prices. Oil income, which makes up around 10% of federal budget income, will likely remain under pressure in 2021, according to Fitch’s oil price assumption. Long-standing strengths of Mexico’s public finances, including deep and developed domestic capital markets, continue to support the ratings.

However, there are downside risks to our fiscal forecasts, as Mexico may increase spending by more than budgeted to counteract the effect of the coronavirus and public health measures on the economy, which in Fitch’s view is likely to contract by more than the 2.9% assumed in the government’s April budget revision. Leaving aside measures to bring forward spending, the direct fiscal policy response has been relatively limited compared with other countries in the region. In April, the finance ministry re-allocated spending and unveiled around 0.2% of GDP in lending by development banks and funding for guarantees. Congress has voted to set up a fund worth up to 0.7% of GDP to finance health spending.

The contingent liability represented by the debt of state oil company Pemex, which totals USD105 billion or 9% of GDP, remains a key risk factor, particularly in view of the sharp fall in oil prices and the widening discount of prices to global benchmarks, but the impact of Pemex’s worsening financial position on the sovereign credit profile was largely anticipated in our previous (June 2019) sovereign rating action on Mexico. While the company’s income will decline, it will continue to invest in new development capacity and in priority projects, increasing its financing needs. The government plans to bring forward a tax rate cut scheduled for 2021 that would lower the federal government tax take by around MXN65 billion or 0.25% of GDP. Pemex production was unchanged yoy in February after sustained declines, but Mexico recently agreed with the OPEC+ group to temporarily cut output by 100,000b/d from a baseline of 1.75mb/d, above current production. Extended over a year, this would represent a loss of federal government income equivalent to 0.2% of GDP compared with the assumptions in the 2020 budget.

The Banco de Mexico rapidly cut interest rates (and is likely to cut further through 2020) as well as injecting liquidity in both foreign and local currency into the banking system. The peso has depreciated sharply in line with other major EM currencies since the onset of the crisis. Deflationary impacts of the fall in oil prices and shock to demand are likely to counteract upward pressure on prices from exchange rate depreciation. Portfolio capital outflows have risen sharply, but the policy framework has absorbed a rise in demand for foreign currency. A swap line from the Federal Reserve enables the Banco de Mexico to offer three-month foreign currency loans to banks. Reserves remain intact and sizeable at USD185 billion, or more than twice Mexico’s gross external financing needs including short-term external debt. Mexico’s current account will remain close to balance. Mexico renewed access in November to the IMF Flexible Credit Line worth USD61 billion, which can be used for balance of payments support.

ESG – Governance: Mexico has an ESG Relevance Score (RS) of 5 for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption, as is the case for all sovereigns. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Mexico has a medium WBGI ranking at 38th, reflecting a recent track record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, and established rule of law. Corruption is relatively high, as measured by the WBGI, and has been on an increasing trend, although the present administration has introduced measures focused on combating corruption.

If one listened to the US president, or any other member of OPEC+ in the past few days, this weekend’s history production cut deal (which we said was not nearly enough to offset the plunge in global demand), would have been sufficient to push the price of oil by $10/per barrel or more. Instead, after spiking last Thursday as high as $36 as triggerhappy algos were fooled by OPEC+ jawboning, Brent is down as much as 25% in the past 4 days.

Meanwhile, realizing that the US has become ground zero for excess oil production, and is unwilling – or unable – to cut output, thus shooting itself in the foot, on Tuesday Scott Sheffield, CEO of Pioneer Natural Resources, argued that Texas can lead in producing a “real” U.S. oil production cut to save the shale industry, and called for the state to take action to force companies to hold back their production for the first time since 1973.

Alas, with billions of junk bonds at stake and a lot of private equity vested interests assuring that the “spice flows” that is unlikely to happen. So on Wednesday, with US producers seemingly at an impasse and with Trump terrified that a wave of Texas defaults could doom his reelection chances as millions of shale workers are out of a job, Bloomberg reported that the Trump administration was considering paying U.S. oil producers to leave crude in the ground to help alleviate a glut that has caused prices to plummet and pushed some drillers into bankruptcy.

According to the report, the Energy Department has drafted a plan to compensate companies for sitting on as much as 365 million barrels worth of oil reserves and counting it as part of the U.S. government’s emergency stockpile. West Texas Intermediate crude oil futures rose fractionally, about 20 cents to $20.42, on the news.

Unlike previous ideas float by the administration which included ordering forced production shutdowns, this plan is actually workable as federal law gives the Energy Department authority to set aside as much as 1 billion barrels of oil for emergencies – without dictating where they should go. That creates a legal opening for storing crude outside the government’s existing reserve and even blocking its extraction in the first place, according to Bloomberg.

There is just one problem: money, lots of it, and it will have to be paid to shale companies which are already on the verge of default which means that this would be seen as yet another industry bailout. Indeed, as Bloomberg explains, the keep-it-in-the-ground plan, which would require billions of dollars in appropriations from Congress, could be unprecedented and reflects a Trump administration push to help domestic drillers battered by a surge of oil production.

Of course, since “billions of dollars” would be headed to the shale sector, we doubt democrats would be excited unless of course similar billions of dollars were directed at illegal aliens or some other progressive ideal.

The effort comes after President Donald Trump helped broker a deal to cut global crude production and help rescue oil markets from a pandemic-fueled collapse. However oil demand has sunk even further, as lockdowns around the world paralyze air and ground travel. While the U.S. government doesn’t control oil production, Trump has said domestic output will automatically shrink due to market forces.

* * *

Meanwhile, with every day of delays a historic day of reckoning comes closer: the moment when storage runs out. Analysts expect storage tanks to fill by summer, with some predicting as soon as May. Whenever that happens, oil producers with no place to put their crude would be forced to halt production and lay offworkers. Some are already idling drilling rigs and stowing excess supplies in rail cars, while pipeline operators are reversing flows to transport crude to underused storage sites. President Donald Trump on April 3 asked his energy secretary to “check out other areas where you can store oil,” and look for places “bigger than what we have now.”

To delay the moment storage tanks are full, the Energy Department is discussing other ideas, including stashing oil in floating tankers, unused refinery storage tanks and underground salt caverns, the officials said. But those approaches might take too long to help as U.S. crude inventories build toward a crisis point.

The quicker solution would be to effectively reward drillers for taking a timeout. Under the approach being developed by the Energy Department, the agency would contract with companies to delay production of proven oil reserves for several years, if not indefinitely. When that crude is finally extracted and sold, the proceeds would go to the Treasury. Companies would be selected through an auction, with the government picking the lowest-price bidders.

And, as Bloomberg notes, Energy Department officials developed the plan after affirming they had legal authority for the move and studying alternatives. According to senior administration officials the effort would benefit independent oil companies across the U.S., and it would be focused on sites that are either producing today or those with infrastructure in place so they could quickly yield oil.

The Energy Department already moved to sop up some excess crude by renting out space in the U.S. Strategic Petroleum Reserve for private storage. The agency said Tuesday it is in negotiations with nine companies to store some 23 million barrels of crude in the underground salt caverns that make up the emergency stockpile. And it expects to offer more space in the reserve in coming weeks.

That said, the probability of this plan passing Congress is slim to none: an earlier administration proposal to spend $3 billion buying U.S. oil for the strategic reserve was blocked in Congress, as Democrats sought to offset the purchase with investments on clean energy. Similar opposition will likely derail the Trump administration’s new plan too. Democratic leaders have said they oppose anything that smacks of a “big oil bailout”, although what they really mean is that they want a mirror-image bailout for their own causes. Worse, while environmentalists have favored a “keep-it-in-the-ground” approach to phasing out fossil fuel production, Trump’s venture is aimed at sustaining the industry – not ending it.

The price tag? With some 635 million barrels already socked away inside underground salt caverns in Texas and Louisiana, the government has authority to snap up 365 million more as long as Congress doles out money for the transaction. At current prices it could cost at least $7 billion.

Energy Secretary Dan Brouillette said in an interview on Bloomberg TV this week that he would “be working closely with Congress” on a possible storage expansion, adding that “It’s something that the Congress should consider. They will of course make the ultimate decision as to whether or not they want to pursue that. But we’re going to make some I think very strong and credible arguments why additional storage capacity is important to the country.”

At today’s low prices, the U.S. government could fare well on the deal. Buying 365 million barrels at the current price of $19.87 a barrel – and selling at the 2019 average price of $57.04 would yield more than $13 billion profit. Even selling at just $30 a barrel could net nearly $4 billion, minus any transport and holding costs. It’s an idea not lost on Trump, who in an April 3 meeting with oil executives wondered why everyone wasn’t socking away cheap crude to sell later.

“At these prices,” Trump mused, “you would think you’d want to fill up every cavity that we have in this country.”

Authored by Jon Rappoport via LewRockwell.com,

It’s a con as old as the hills.

The ancient chieftain of a little territory looks out across his domain and says to his top aide,

“You know, we have these clusters of people worshiping different gods. That’s not good for business. Our business is CONTROL, so we need UNITY. Make up the name of some god, and go out there and sell it. Take down those little shrines and tell all the people they have to believe in the new deity. Use force and censorship when necessary. Later on, I may decide I’M really the name you chose for the new god. We’ll see. If you have any trouble right away, call me on my cell. I’ll be out sunning by the pool.”

Unity of thought. That’s what controllers are after.

In the case of this fake epidemic, the population must view WHAT IT IS in the way public officials and the press are describing it. Dissenting analysis must be pushed into the background.

Here is a 4/9 Bloomberg News headline: “5G Conspiracy Theory Fueled by Coordinated Effort.” [1] A sub-headline states, “Researchers identify disinformation campaign but not source.” The article begins: “A conspiracy theory linking 5G technology to the outbreak of the coronavirus is quickly gaining momentum…”

Obviously, such wayward thinking has to be stopped. And down further in the Bloomberg article, we have chilling news:

“Some social media companies have taken action to limit the spread of coronavirus conspiracy theories on their platforms. On Tuesday, Google’s YouTube said that it would ban all videos linking 5G technology to coronavirus, saying that ‘any content that disputes the existence or transmission of Covid-19’ would now be in violation of YouTube policies.”

“In the U.K., a parliamentary committee on Monday called on the British government to do more to ‘stamp out’ coronavirus conspiracy theories, and said it was planning to hold a hearing later this year at which representatives from U.S. technology giants will be asked about how they have handled the spread of disinformation on their platforms.”

Independent analysis of the “epidemic” hangs in the balance. The masters of control want to maintain an information monopoly.

It goes without saying that, in order to achieve this monopoly, detailed surveillance of Internet content is necessary.

Another type of surveillance is also part of the squeeze play. Apple.com has the story (press release, 4/10):

“Across the world, governments and health authorities are working together to find solutions to the COVID-19 pandemic, to protect people… Since COVID-19 can be transmitted through close proximity to affected individuals, public health officials have identified contact tracing as a valuable tool to help contain its spread. A number of leading public health authorities, universities, and NGOs around the world have been doing important work to develop opt-in contact tracing technology.”

“To further this cause, Apple and Google will be launching a comprehensive solution that includes application programming interfaces (APIs) and operating system-level technology to assist in enabling contact tracing. Given the urgent need, the plan is to implement this solution in two steps while maintaining strong protections around user privacy.”

“First, in May, both companies will release APIs that enable interoperability between Android and iOS devices using apps from public health authorities. These official apps will be available for users to download via their respective app stores.”

“Second, in the coming months, Apple and Google will work to enable a broader Bluetooth-based contact tracing platform by building this functionality into the underlying platforms. This is a more robust solution than an API and would allow more individuals to participate, if they choose to opt in, as well as enable interaction with a broader ecosystem of apps and government health authorities. Privacy, transparency, and consent are of utmost importance in this effort, and we look forward to building this functionality in consultation with interested stakeholders. We will openly publish information about our work for others to analyze.”

“All of us at Apple and Google believe there has never been a more important moment to work together to solve one of the world’s most pressing problems. Through close cooperation and collaboration with developers, governments and public health providers, we hope to harness the power of technology to help countries around the world slow the spread of COVID-19 and accelerate the return of everyday life.”

If you believe citizen privacy is an utmost concern in the minds of Google and Apple, I have condos for sale on the far side of the moon.

The tracing tools appear to involve a very rapid expansion of Snitch Culture. What else are “opt-in users” going to communicate about? The weather? Lunch?

“Dear Relevant Users and Public Health Officials: Yes, I know Marty. Sad to hear he’s been diagnosed with COVID-19. I did have a brief meeting with him just prior to the lockdown. I suppose I might be infected. I should get tested right away. Let’s see, who else was at the meeting? Marty’s brother, Felix, and Carrie, who is Felix’ on and off girlfriend. Six months ago she was tested for an STD, I don’t know the results—Sandy, the broker at Wilson and Wise was also at the meeting—OMG, that could mean the whole company is infected—and Sandy’s dog Tootsie—can animals spread the virus?—then there was a janitor who came into the room, I think his name is Al. He lives down near the docks. He has a brother who I hear is a drug dealer and a compulsive gambler. He owes money to some nasty people, I think…Anything I can do to stop the spread of the virus, let me know…”

Enlist the citizenry to act as spies on each other. A useful tactic.

It rips the fabric of social trust.

It blows apart privacy.

It exposes people to government intervention.

It cements the UNITY DICTUM: the epidemic has only one portrait, and the population must bow before it.

An answer? A counter? More citizens must become independent reporters and publish their findings. More citizens must set up blogs and sites that act as old-fashioned street newsstands, posting the work of independent journalists and investigators.

For every ten they censor, a hundred must spring up.

Nothing is riding on this except the immediate future – freedom, slavery, medical dictatorship, a borderless planet operated as one super-corporation, the individual vs. the collective, the energy of the individual soul.

Or people can say doom is upon us and nothing can be done about it.

Or people can sit at home and suck on the lockdown lollipop.

The last few days have exhibited some of the most intense sniping between President Trump and the American media, as the media – via reports in WaPo and NYT – goes all-in on the “Trump screwed up” narrative, while President Trump hews to the “it was a perfect response” counternarrative.

In reality, the truth is somewhere in the middle. But increasingly, more and more evidence being reported in the western press – by mainstream outlets like the AP, as well as the newspapers mentioned above – appears to suggest that suspicions about China’s deceptions have proven true. The notion that Chinese officials ‘reacted slowly’ or ‘dragged their feet’ isn’t accurate. It looks more like Beijing knew what they were dealing with right away, but decided to withhold that information from the Chinese people and the international community because – because, why, exactly?

It’s not exactly clear. By failing to act right away, Beijing passed on a chance to cut the global case total by as much as two-thirds, according to some models cited in an AP report. As for why Beijing might have purposefully allowed a pandemic to blossom, well…that should be abundantly clear by now.

In a bombshell report that exposes not just Beijing’s lies, but the WHO’s complicity in those lies, the AP obtained documents allegedly proving that President Xi and the leadership were aware of human-to-human transmission and the potential for a pandemic six days earlier than previously believed.

And instead of acting, they chose to sit on their hands, allowing the virus to continue spreading freely in Wuhan until Jan. 20, when President Xi delivered his first warning to the public.

“This is tremendous,” said Zuo-Feng Zhang, an epidemiologist at the University of California, Los Angeles. “If they took action six days earlier, there would have been much fewer patients and medical facilities would have been sufficient. We might have avoided the collapse of Wuhan’s medical system.”

That’s not all. Some experts believe that the CPC leadership did act during the six day lag, taking subtler steps to erect more mitigation efforts, while waiting to inform the public to avoid “mass hysteria.”

Given the fact that Beijing managed to leverage the Red Army and close down half of the largest country on Earth, something tells us the public reaction to news of the virus – and the government’s heavy handed efforts to contain it – wasn’t high up on the Party’s list of concerns.

What’s more, the report suggests that the government essentially bullied doctors into silence, something that Beijing has vehemently denied, despite the death of Dr. Li Wenliang, a doctor who was punished for warning about the virus, then died fighting it, becoming a symbol of Beijing’s mishandling of the outbreak.

“Doctors in Wuhan were afraid,” said Dali Yang, a professor of Chinese politics at the University of Chicago. “It was truly intimidation of an entire profession.”

And they might have waited longer, even, if the first international confirmed case, found in Thailand on Jan. 13, didn’t force the Chinese government to act.

Still, the fact that China lied – and continues to lie – can no longer be disputed, even as Beijing assured the AP that they reported the outbreak to the WHO as soon as they were aware.

The meat of the documents, which were provided to the AP by an anonymous source, involves proof of a call involving President Xi, Premier Li Keqiang and Vice Premier Sun Chunlan – three of the most senior party leaders – and the leader of the NHC. During the call, the director shared evidence of H2H transmission (this is nearly a week before it was publicly confirmed) while discussing other topics that weren’t recorded in the document.

In the end, who knows what was said. What we do know is that the Chinese government took more steps to prepare for the outbreak, while continuing to play the risks down in public.

The documents show that the head of China’s National Health Commission, Ma Xiaowei, laid out a grim assessment of the situation on Jan. 14 in a confidential teleconference with provincial health officials. A memo states that the teleconference was held to convey instructions on the coronavirus from President Xi Jinping, Premier Li Keqiang and Vice Premier Sun Chunlan, but does not specify what those instructions were.

“The epidemic situation is still severe and complex, the most severe challenge since SARS in 2003, and is likely to develop into a major public health event,” the memo cites Ma as saying.

The National Health Commission is the top medical agency in the country. In a faxed statement, the Commission said it had organized the teleconference because of the case reported in Thailand and the possibility of the virus spreading during New Year travel. It added that China had published information on the outbreak in an “open, transparent, responsible and timely manner,” in accordance with “important instructions” repeatedly issued by President Xi.

The documents come from an anonymous source in the medical field who did not want to be named for fear of retribution. The AP confirmed the contents with two other sources in public health familiar with the teleconference. Some of the memo’s contents also appeared in a public notice about the teleconference, stripped of key details and published in February.

Under a section titled “sober understanding of the situation,” the memo said that “clustered cases suggest that human-to-human transmission is possible.” It singled out the case in Thailand, saying that the situation had “changed significantly” because of the possible spread of the virus abroad.

“With the coming of the Spring Festival, many people will be traveling, and the risk of transmission and spread is high,” the memo continued. “All localities must prepare for and respond to a pandemic.”

In the memo, Ma demanded officials unite around Xi and made clear that political considerations and social stability were key priorities during the long lead-up to China’s two biggest political meetings of the year in March. While the documents do not spell out why Chinese leaders waited six days to make their concerns public, the meetings may be one reason.

“The imperatives for social stability, for not rocking the boat before these important Party congresses is pretty strong,” says Daniel Mattingly, a scholar of Chinese politics at Yale. “My guess is, they wanted to let it play out a little more and see what happened.”

According to the AP, the documents and testimonials from Chinese insiders help support President Trump’s assertion that China is truly to blame for the outbreak, and that officials in Beijing should be held responsible, and perhaps even owe compensation. Looking further down the line, we can envision a scenario where differing ‘interpretations’ of these critical first weeks of the outbreak could lead to an all-out military war between the world’s two largest economies as both Washington and Beijing demand compensation from the other.

The delay may support accusations by President Donald Trump that the Chinese government’s secrecy held back the world’s response to the virus. However, even the public announcement on Jan. 20 left the U.S. nearly two months to prepare for the pandemic.

Of course, everything we said above is pure conjecture: nobody really has any idea what life will be like after this, whether things will be extremely different from the ‘before time’, or whether we’ll easily slip back into our old routines, and look back two years from now with the benefit of hindsight and ensure we’re better prepared for future outbreaks. Or future ‘accidental leaks’ from a biosafety level 4 laboratory.

Update (1705ET): As we wait for the meeting to begin, we’d like to highlight this Bloomberg report from earlier claiming that the president has abandoned the idea of forming a second task force to focus on reopening the economy – a trial balloon that elicited a pretty tepid response from both insiders and the public – and has instead held a “marathon” series of calls with business leaders on Wednesday.

As the outbreak shows signs of plateauing in the country, corporate executives are being asked to advise Trump on how to resume something approaching normal business and social life. Trump was scheduled to speak with more than 200 leaders from nearly every corner of the U.S. economy in four calls.

Several of the companies and other participants said they found out they were invited only after Trump announced their names in a Rose Garden news conference on Tuesday or from a subsequent White House statement. They said they didn’t know the format or the purpose of the calls, and some expressed doubt the exercise would be productive.

The calls began Wednesday morning in Washington. The White House said the discussions would include chief executive officers of some of the country’s largest and most prominent companies, including Tim Cook of Apple Inc., Doug McMillon of Walmart Inc. and Jamie Dimon of JP Morgan Chase & Co.

We suspect we’ll be hearing more about the contents of these calls tonight.

*     *     *

Wednesday night’s press briefing is slated to begin at 5pmET, but when the show will actually start is anybody’s guess.

Watch it live below:

It’s not just corporations that are scrambling to raise liquidity as fast as they possibly can (by drawing down on their bank revolver): so is the US Treasury. After fluctuating between $300 and $400 billion since last October (which in turn was a sharp spike from the $150BN at the end of August 2019, which prompted the first repo market crisis as the Treasury sucked out liquidity from banks), the US Treasury’s total cash balance has more than doubled in the two weeks, soaring to a record $959 billion as of April 14.

How did the Treasury manage to raise such a massive cash balance on such short notice? By unleashing a record flood of Bill and CMB (Cash Management Bill) issuance starting on March 30 when the Treasury cash balance was still just $408 billion.

As shown in the chart below, in just the past 11trading days, the Fed has sold an unprecedented $1.382 trillion in Bills and CMBs, or $125BN on average every single day.

The reason why the Treasury is stockpiling cash like its going out of style by tapping the short-term Treasury market, is because it will soon need to fund the Treasury’s multi-trillion bailout of America, and spend on countless other program that will only emerge in the coming weeks. But while we know the source and use of funds, one thing we don’t know is how the government will refinance the securities as they come due, Wrightson ICAP economist Lou Crandall wrote on Monday.

As shown in the chart above, the Treasury has announced $740BN in CMBs since the end of March, and while Wrightson sees the pace of CMB issuance slowing in the second half of April, total CMB supply may reach or exceed $1 trillion by the end of the month, an amount which will soon have to be rolled over/refinanced as the Treasury cash balance will soon tumble and it won’t be able to repay CMB maturities.

Looking ahead at the upcoming refinancing deluge, Crandall says that given that all of Treaury’s recent CMBs have Tuesday or Thursday maturity dates, one option is to increase the size of regular weekly auctions to cover the scheduled redemptions. Other options would be to increase regular bills enough to cover part of the rollover and supplement with ongoing CMBs, or refinance a portion of maturing CMBs with other instruments, such as floating-rate notes. Sooner or later, the Treasury will have to start raising coupon sizes too – after all the US budget deficit this year will quadruple to $3.8 trillion (at least) according to the CRFB…

… and will need to be somehow as well (mostly by debt as tax receipts are about to plunge to nothing). But we’ll cross that bridge when we get to to.

Going back to Crandall’s assessment, the ICAP strategist writes that the Treasury could refinance all of the CMBs anticipated in April without pushing its regular offering sizes “dramatically above current levels”, noting that when Treasury introduced FRNs in 2014, one of the objectives was to allow the government to meet demand for short-duration instruments in a low-rate environment “without expanding its auction footprint at the front end excessively.”

“That is suddenly a very relevant consideration again” he notes, which segues into the latest Zoltan Pozsar note released on Tuesday and which we will discuss shortly, in which the former Fed repo guru warns that soon the Fed may have to cap Bill yields as a result of the ongoing issuance flood.

Issuance concerns aside, the record surge in Bills will soon have a direct impact on the repo market, and as Curvature’s Scott Skyrm wrote earlier this week “term rates are moving higher because overnight rates are moving higher, which is because of all the bill issuance hitting the market this week.”

On Tuesday, Wednesday, and Thursday over $100 billion net new Treasurys [blue] settle each day with another $50 billion on Friday. This, combined with less QE [red], and declining RP operations means there’s a ton of collateral coming into the Repo market

This means that suddenly the Fed – which as we said yesterday is monetizing every new dollar of issuance as part of “helicopter money” – is locked to doing roughly the same amount of POMO as net Treasury issuance every day. And with Powell easing off the QE pedal in recent days, is the market about to suffer another major liquidity freak out as banks are forced to convert their much needed cash into Bills and coupons? If so, keep an eye on repo usage. While in recent weeks it has plunged…

… any increase in repo usage in the coming days will signify that another liquidity crisis may be imminent.

Authored by Michael Snyder via The Economic Collapse blog,

COVID-19 has turned all of our lives upside down, and most people are quite eager for a return to normalcy.  But as you will see below, fear of the coronavirus is going to prevent the vast majority of Americans from immediately resuming all of their normal daily activities once the coronavirus restrictions have been lifted.  Every day there are more stories in the news about prominent individuals that have died from the virus, and the chilling testimonies of those that have wrestled with the virus and survived are extremely sobering. 

Yes, most people that catch this virus will ultimately recover, but the fact that tens of thousands of Americans are dying is seriously scaring a lot of people.  And even though the “shelter-in-place” orders appear to be slowing the spread of the virus to a certain extent, the official U.S. death toll has actually doubled over the past week…

U.S. deaths from the novel coronavirus topped 25,000 on Tuesday, doubling in one week, according to a Reuters tally, as officials debated how to reopen the economy without reigniting the outbreak.

The United States, with the world’s third-largest population, has recorded more fatalities from COVID-19 than any other country. There were a total of nearly 597,000 U.S. cases – three times more than any other country – with nearly 2 million reported cases globally.

And according to Worldometers.info, more than 2,200 Americans have died over the last 24 hours, and that would make this the deadliest day of this pandemic so far.

So it is easy to understand why so many people out there are deeply afraid of this virus.  Most of us don’t want to die, and COVID-19 can kill you.

In recent days, there has been a whole lot of talk about “reopening America”, and many are assuming that life will start to look somewhat normal once that happens.

But Gallup just conducted a survey in which they asked people if they would be “resuming their normal daily activities” once the restrictions are lifted, and these were the results…

Americans remain hesitant about resuming their normal daily activities amid the COVID-19 outbreak according to a Gallup question first asked in late March and repeated in early April.

When asked how quickly they will return to their normal activities once the government lifts restrictions and businesses and schools start to reopen, the vast majority of Americans say they would wait and see what happens with the spread of the virus (71%) and another 10% would wait indefinitely. Just 20% say they would return to their normal activities immediately.

In other words, about 80 percent of the country is going to take a hesitant approach, and that has huge implications for our economy moving forward.

Of course all of the coronavirus restrictions are not going to be lifted any time soon anyway, and this is something that I discussed yesterday.

Today, California Governor Gavin Newsom set forth six specific conditions which must be met before the restrictions will be lifted in his state…

1. The ability to monitor and protect our communities through testing, contact tracing, isolating, and supporting those who are positive or exposed.

2. The ability to prevent infection in people who are at risk for more severe COVID-19.

3. The ability of the hospital and health systems to handle surges.

4. The ability to develop therapeutics to meet the demand.

5. The ability for businesses, schools, and child care facilities to support physical distancing.

6. The ability to determine when to reinstitute certain measures, such as the stay-at-home orders, if necessary.

Needless to say, California may continue to be locked down for an extended period of time to come.

But the longer that these shutdowns persist, the more impatient many Americans are going to become.

Already, we are starting to see protests pop up all over the nation.  For example, just check out what is happening in Michigan…

At least 15,000 cars and trucks are expected to descend on Michigan’s state capital on Wednesday to protest what they’re calling Gov. Gretchen Whitmer’s tyrannical new guidelines to slow the spread of the novel coronavirus in the state.

The so-called “drive-by” demonstration – in order to maintain social distancing — aims to bring traffic to a gridlock in Lansing and protest the “Stay Home, Stay Safe” executive order by Whitmer, a Democrat, mandating what businesses could stay home, what some businesses could sell and ordering people in her state against any gatherings – no matter the size or family ties.

I am seeing a lot of anger out there right now.  Business owners, workers and entrepreneurs are not being allowed to make a living and provide for their families, and I can certainly understand their frustration.

And the longer that things are shut down, the worse this economic downturn is going to become.  At this point, the IMF is projecting the worst performance for the global economy since the Great Depression of the 1930s…

The global economy will this year likely suffer the worst financial crisis since the Great Depression, the International Monetary Fund said Tuesday, as governments worldwide grapple with the Covid-19 pandemic.

The Washington-based organization now expects the global economy to contract by 3% in 2020. By contrast, in January it had forecast a global GDP (gross domestic product) expansion of 3.3% for this year.

Actually, I believe that the IMF’s projection is way too optimistic.

If global GDP only declines by 3 percent in 2020, that should be considered a rip-roaring success.

Now that the U.S. has become the epicenter for this pandemic, our nation is being hit particularly hard economically, and we are being warned that more than 2,000 cities “are anticipating major budget shortfalls this year”…

More than 2,100 U.S. cities are anticipating major budget shortfalls this year and many are planning to slash programs and cut staff in response, according to a new survey of local officials released Tuesday, illustrating the widespread financial havoc threatened by the coronavirus pandemic.

The bleak outlook — shared by local governments representing roughly 93 million people nationwide — led some top mayors and other leaders to call for greater federal aid to protect cities now forced to choose between balancing their cash-strapped ledgers and sustaining the public services that residents need most.

Of course this is just only the beginning of the end.  All of the economic and financial bubbles are bursting, and this is going to cause severe distress on the national, state, local and community levels.

And as long as COVID-19 is still spreading somewhere, fear of the coronavirus is going to cause a lot of people to greatly alter their normal economic patterns.

So the truth is that we have a very long and very painful road ahead of us, and the months to come are going to make the last recession look like a Sunday picnic.

As we have noted, the evolution of the virus pandemic is not just a public health crisis nor a financial meltdown but could transform into a social unraveling. And, oh boy, it appears we could be right. 

But before we cover today’s events. Several weeks ago, what piqued our interest was a warning from the Federation of Red Cross and Red Crescent Societies of how “a social bomb” was ready to explode over major Western cities “in a few weeks.” And it appears, those few weeks have just expired, as protests begin: 

On Wednesday afternoon, massive crowds, organized by a conservative group, have surrounded Michigan’s state Capitol building. Protestors are angry at Gov. Gretchen Whitmer’s (D) stay-at-home public health order during the pandemic. 

Supporters of the Michigan Conservative Coalition have requested Whitmer to reopen the economy on May 1 and ease restrictions to return life to normal.

WWJ Newsradio 950’s Charlie Langton said organizers are calling the movement “Operation Gridlock.” Langton tweeted a video of a traffic jam of protestors that “extends for miles outside Lansing,” waiting to get to the Capitol. 

The line for the anti- @GovWhitmer “Operation Gridlock” rally extends for miles outside of Lansing. @WWJ950 @FOX2News #coronavirus pic.twitter.com/18KJlxUKsC

— Charlie Langton (@charlielangton) April 15, 2020

WOOD-TV’s Heather Walker provides coverage from within Operation Gridlock as people use their cars to lockdown streets around the Capitol building. Walker interviewed several Michiganders, who are fed up with the public health order and want the economy to reopen. Many said they could make their own health decisions and don’t need the government to tell them what to do.

‘GOVERNOR, OPEN OUR ECONOMY ON MAY 1 AND RESPECT OUR RIGHTS AND FREEDOMS.’

Wild scene in Lansing, Michigan as hundreds of people protest the state’s stay-at-home order.

Team coverage from @WOODTV‘s @_HeatherWalker and @LeonHendrix. pic.twitter.com/CySg9Y6Nx8

— Austin Kellerman (@AustinKellerman) April 15, 2020

Some protestors were dressed in body armor, wielding AR-15s. 

We need global protests! Take back your rights NOW! #OperationGridlock #OPENAMERICANOW #FireFauci pic.twitter.com/a5tG7YMxn9

— Chris (@ChrisM26981) April 15, 2020

In what looks like Revolutionary times, some protestors were riding horses. 

Horses have arrived in Lansing for #OperationGridlock pic.twitter.com/9VbknmFsS6

— Mikenzie Frost (@MikenzieFrost) April 15, 2020

More views of people with body armor and weapons at the steps of the Capitol.

“I gotta feed my family!” — #OperationGridlock video from https://t.co/JGanAgY24y pic.twitter.com/rGnRU7dRPi

— Memelord (@dailydigger19) April 15, 2020

Here’s another view of the protestors locking down streets. 

People are not happy about the public health order that has collapsed their local economy. 

More people with weapons. 

WOOD-TV’s Blake Harms shows a traffic map of how Operation Gridlock has caused severe traffic jams in Lansing. 

Here is how Lansing traffic compares to current travel speeds in the three largest cities in America… because of the ongoing #OperationGridlock pic.twitter.com/kC9Ezp2Szn

— Blake Harms (@wxblakeharms) April 15, 2020

By mid-afternoon, it appears the Capitol building has been surrounded by cars. 

Another view of the highway around Lansing shows a massive traffic jam of protestors. 

This is westbound 496 more than a mile out of Lansing, MI. Many local news stations are saying that dozens of people showed up. More like dozens of thousands!#OperationGridlock pic.twitter.com/E4a9qUayEi

— My3sonshine (@my3sonshine) April 15, 2020

After a month of lockdowns, slamming the local economy into depression, with hundreds of thousands of job losses, people are starting to get angry and are now locking down roadways around the Lansing Capitol building demanding the governor reverse the public health order. 

How long until Operation Gridlock spreads to other US cities? 

The Treasury’s report on cross-border capital flows showed total foreign ownership of Treasuries rose $209.7 billion from January, to $7.067 trillion with Japan, UK, Hong Kong, and China the biggest buyers in February (ahead of the main virus impacts).

The breakdown is as follows:

• Foreign net buying of Treasuries at $4.9b

• Foreign net buying of equities at $11.5b

• Foreign net selling of corporate debt at $20.5b

• Foreign net buying of agency debt at $39.4b

In Treasury-land, China bought $13.7 billion of US Treasuries in February – the most since August 2017 – to the highest level since Oct 2019…

Source: Bloomberg

But Japan bought over $56 billion – near a record monthly purchase – for the second month in a row, pushing Japanese holdings to record highs at $1.27 trillion…

Source: Bloomberg

With Japan now dominating China as America’s largest creditor…

Source: Bloomberg

The UK Was also a massive buyer of Treasuries – adding $30.5 billion to a record $403 billion overall…

Source: Bloomberg

On the downside, Korea (-$5bn), Thailand (-$4.7bn), and UAE (-$2.5bn) were the biggest sellers of Treasuries in February.

As Bloomberg notes however, the release largely pre-dates the global spread of Covid-19, and while China was already feeling its toll with much of the population under quarantine, economic data had yet to show the hit to growth. Next month’s update could show more volatility, judging by the Fed’s report of a record $109 billion drop in custody holdings over March.

Today was a bloodbath for economic data (and that is before tomorrow’s horrific continuation of jobless claims) with almost every item experiencing record collapses (from Empire Fed to Retail Sales to Homebuilder and Homebuyer Sentiment). In fact the last four weeks – despite analysts knowing it was all coming – has seen the fastest crash and most disappointing collapse in US Macro data ever…

Source: Bloomberg

And while The Fed keeps printing money to rescue the (INSERT YOUR CHOICE OF – stock market, junk bond market, banks, airlines, or ‘Average Joe’ Americans), it’s not working…

Source: Bloomberg

Or put another way…

The chart below illustrates why it is that the government must ensure that bear markets never happen. There is too much at stake to end the “casino economy” when people’s net worth is so crazily hitched to the stock market. Question is – at what cost?? pic.twitter.com/abaXPwFvBD

— David Rosenberg (@EconguyRosie) April 14, 2020

But The Fed would never “manipulate” markets?

And even the big bounce in stocks stalled after The Dow managed to scramble back to a 50% retracement of the drop…

Source: Bloomberg

And Nasdaq was unable to hold on to its 50- and 200-DMA…

On the week, Small Caps are down almost 5% and Nasdaq up around 3%…

Sending Nasdaq to its highest since Oct 2000 against the Russell 2000…

Source: Bloomberg

TSLA surged again today – up 35% in the last 3 days (GS upgraded today)…

And FANG Stocks extended gains – almost back to their record highs…

Source: Bloomberg

Bank stocks were ugly for the 3rd day but Goldman was bid after an ugly open…

Source: Bloomberg

Value factor is getting slayed this week…

Source: Bloomberg

Cyclicals were dumped today…

Source: Bloomberg

HY Bonds were down again… despite The Fed put…

Source: Bloomberg

Treasury yields plunged today led by a huge drop in long-end yields (30Y -12bps, 2Y -1bp)…

Source: Bloomberg

10Y back below 70bps (biggest yield drop in almost a month)…

Source: Bloomberg

The yield curve flattened notably today…

Source: Bloomberg

Elsewhere in the world, Italian bonds blew out…

Source: Bloomberg

The dollar surged higher today (biggest jump in a month) after dropping for 5 of the last 6 days (NOTE that the dollar reversed lower as soon as the US cash equity market opened)…

Source: Bloomberg

Cryptos were rangebound today unable to hold modest intraday gains…

Source: Bloomberg

WTI closed below $20 today (but Brent was harder hit)…

This is the lowest close since Feb 2002…

Source: Bloomberg

The front-month spread compressed a little today but remains a signal of a massive glut…

Source: Bloomberg

As Gasoline demand crashes to a record low…

Source: Bloomberg

Gold futures were lower today (not entirely surprising given the big surge in the dollar) and compressed the premium to spot…

Source: Bloomberg

Finally, as Gerard Minack notes, the key to my medium term view is not what is happening now amidst the Covid-19 crisis. The key is that these arrangements remain in place in the recovery phase. The crucial difference is that I expect fiscal policy, backstopped by QE, will remain expansionary in the recovery phase, unlike in the post-GFC expansion when fiscal policy was typically tightening as QE programs were deployed.

I don’t expect many markets to price today the prospect of this seismic policy change…However, it may be that gold is now sniffing out this shift.

Source: Bloomberg

Through the past few years gold has behaved as a deflation hedge. The spot gold price was highly correlated to the value of negative yielding debt. That correlation is breaking down. Market alchemy may be transforming gold from a deflation hedge to an inflation hedge.

And as far as inflation is concerned… Avocado prices have never been more expensive at this time of year…

Source: Bloomberg