Tag: finance

Authored by Egon von Greyerz via GoldSwitzerland.com,

Whoever doesn’t learn to dance in the rain will struggle to survive the virtually non-stop storms that the world will experience in the next few years. The abrupt downturn in the global economy, triggered but not caused by coronavirus, came as a lightning bolt out of the blue. Thus, most people are paralysed and will fall helplessly as the world unwinds 100 years of mismanagement and excesses, caused primarily by bankers, both central and commercial.

2006-9 WAS JUST A REHEARSAL

I have for years warned about the enormous risks in the financial system that inevitably would lead to a collapse. As the bubble continued to grow for over ten years since the 2006-9 crisis, very few understood that the last crisis was just a rehearsal with none of the underlying problems resolved. By printing and lending $140 trillion since 2006, the problem and risks weren’t just kicked down the road but made exponentially greater.

So here we are in the spring of 2020 with debts, unfunded liabilities and derivatives of around $2.5 quadrillion. This is a sum that is impossible to fathom but if we say that it is almost 30x global GDP, it gives us an idea what the world and central banks will have to grapple with in the next few years.

THERE WILL BE NO V OR U RECOVERY

No one should believe for one moment that once CV is gone we will experience a V shaped recovery. There will be no V, there will be no U and nor will we see a hockey stick recovery. What few people understand, including the so called experts, is that there will be no recovery at all. An extremely rapid decline of the world economy has just started and will be devastating in the next 6-12 months, whether CV ends soon or not.

CORONAVIRUS CASES EXPONENTIALLY HIGHER THAN RECORDED

There always had to be a catalyst to trigger the inevitable end to the biggest economic bubble in history. Catalysts are normally a financial event like a default of a financial institution. But this time the world could not have been hit by a worse event than Coronavirus. In just over one month the disease has spread like wildfire all around the world. Currently there are almost 900,000 identified cases and 43,000 deaths. The problem is that the number of cases are only a function of how many have been tested. Since most countries only have a limited number of test kits, the real figure of infected people is most probably exponentially higher than 900,000. CV was discovered in Wuhan back in November 2019. The disease most likely spread a lot faster around the world than anyone realised since no one was tested for a long time and still today very few are tested.

LOCKDOWN WILL BE DEVASTATING

The effects of CV have been to shut the world down for an unknown period. With schools, shops, hotels, airlines and factories etc closed, most countries are not producing anything currently. This total lockdown will not only be devastating for the world economically. It could lead to more people suffering due to hardship, famine and health problems with lack of essential items like medicines and food, rather than from CV itself. I pointed this out already 3 weeks ago but politically and humanely this solution has not been considered acceptable.

What the world is now encountering is the perfect storm. That the debt infested global economy would one day come to an abrupt halt has been clear for a while as I have written in many articles. But instead of a gradual downturn, the world economy is now going to experience a fast and devastating collapse which will lead to a decline in real terms of most assets like stocks, property and debt by more than 90%. Real terms means measured in constant purchasing power like gold.

In the Dow for example, we have just seen on the quarterly chart, a downturn in the MACD indicator from a very high level. This is a very important trending signal which indicates that we are likely to see at least 10 years downtrend in stock markets. The alternative is that we will see a very rapid decline in the next 6-24 months and then the index going along the bottom for a decade or more.

UNLIMITED MONEY PRINTING HAS STARTED

Central banks around the world have so far committed $12 trillion of direct support via money printing. In addition global fiscal stimulus or tax reductions of $5 trillion have been committed by governments. But these amounts are just a drop in the ocean. Just take a company like Volkswagen. They are now experiencing a cash drain of $2.2 billion per week. If we multiply that by factories and businesses around the world plus assistance to individuals, we will soon see liquidity requirements of $10s followed by $100s of trillions as the financial system implodes.

If we take the Fed as an example, it has cut rates to zero and already expanded its balance sheet by $700 billion to $5.5 trillion since September 2019. Another $2 trillion have been committed but that is just the start. Just to remind ourselves, during the 2006-9 crisis the Fed’s balance sheet only grew by $1.2 trillion to $2 trillion in 2009. We will most likely see the balance sheet grow by $ trillions in the next few weeks.

AFTER US THE FLOOD

Surging national debts and unlimited money printing has always been the inevitable end to periods of excesses. We are now seeing not only the end of a 100 year cycle since the Fed was created, but also the end of a 300 year cycle since John Law and the Mississippi Bubble in France in 1716-20. We could even be at the end of a 2,000 year cycle from the Roman Empire but that only future historians will know.

In 1757 France lost a war against Prussia. The French king Louis XV had a mistress called Mme de Pompadour. When France lost the war she said to the king: “Après nous le déluge” – After us the flood, meaning that the loss of the war would mean chaos and destruction for France. And it did of course as 30 years later the French Revolution took place.

The situation is now the same, with Powell and Lagarde flooding the world with worthless money and the people virtually drowning. Many countries are likely to experience social unrest and possibly also revolutions.

TEXTBOOK END TO AN ECONOMIC ERA

The end of the current cycle is textbook. Bubbles everywhere, major problems in the global economy with economic and financial pressures plus a pandemic that has hit the whole world, all simultaneously.

Next come pressures in the currency system as all currencies are debased. They will all reach their intrinsic value of zero, but not quite at the same time, as central banks flood the world with unlimited amounts of money.

Hyperinflation will follow and then a collapse of the financial system as we know it today. No one must believe that SDRs (Special Drawing Rights) issued by the IMF will make any difference to a bankrupt system. SDRs are just a different form of paper money and a reset based on new SDRs issued will have a life of a few months maximum before it all collapses again. The next reset thereafter will be disorderly and dramatic as central banks lose total control.

THE EUROPEAN DISUNION – ED

Just a few words about the EU. It is no longer the European Union but the European Disunion – ED. All the illusions of grandeur have gone and each ED country is now fighting for its own survival. There is no coordination and no cross border assistance in connection with Coronavirus. Italy, Spain and France are on the verge of collapse but are getting no aid from Germany. The European banking systems under massive pressure and will most probably fail or be seriously impaired in the next 6-12 months.

So we are looking at a truly global crisis which will have irreparable repercussions for the world for a foreseeable future.

END OF PAPER GOLD MARKET NEAR

Another piece of the perfect storm is the physical gold market. The three largest gold refiners in the world closed down their factories a week ago. These three are based in the Canton of Ticino which is the Italian part of Switzerland.

They produce more than 50% of the gold bars in the world. These refiners are closed until further notice on the order of the local government in Ticino. This is due to the Coronavirus. Ticino is on the border to Italy and the majority of the workers are from Italy. The management of these refiners do not know when they can reopen and it could take a long time.

So with physical gold demand being unprecedented and with very little supply or stocks available, we are very soon likely to see the physical and paper gold market going separate ways. Who would like to own even 1 ounce of paper gold when there is no physical supply and many hundred times more paper gold outstanding than available physical gold. The paper gold market can break at any time. If I owned paper gold or a gold ETF (which I naturally don’t) I would ask for delivery on Monday. The whole paper gold market is a total illusion like most markets today. There is zero underlying value. Time will very soon reveal that the paper gold market is just standing on a foundation of quicksand.

For anyone who doesn’t own physical gold, I suggest to acquire gold at virtually any price. You cannot buy physical gold at the paper gold price you see on the screen. You can of course buy unlimited paper gold at that price but that will soon have zero value. Our company is fortunate to still find physical gold for our clients but that situation will not last if the refiners don’t start producing soon.

To make it very clear, the screen price for gold bears no resemblance to reality. If you can get hold of gold buy it now without worrying about the markup. Silver is even worse. There is no physical silver available in large amounts. Whatever smaller amounts are available can fetch a 100% premium.

As the world is now entering the Dark Years that I wrote about many years ago, remember that the most important thing is helping family and friends as well as our health.

In late January we asked whether a prolific Chinese scientist who was experimenting with bat coronavirus at a level-4 biolab in Wuhan China was responsible for the current outbreak of a virus which is 96% genetically identical – and which saw an explosion in cases at a wet market located just down the street.

For suggesting this, we were kicked off Twitter and had the pleasure of several articles written by MSM hacks regarding our ‘conspiracy theory’ – none of which addressed the plethora of hard evidence linked in the post. These are the same people, mind you, who pushed the outlandish and evidence-free Trump-Russia conspiracy theory for years.

Whether or not the virus was engineered (scientists swear it wasn’t) – it shouldn’t take Perry Mason to conclude that a virulent coronavirus outbreak which started near a biolab that was experimenting with — coronavirus — bears scrutiny. Could a lab worker have accidentally infected themselves – then gone shopping for meat at the market over several days, during the long, asymptomatic incubation period?

In February, researchers Botao Xial and Lei Xiao published a quickly-retracted paper titled “The possible origins of 2019-nCoV coronavirus” – which speculated that the virus came from the Wuhan biolab.

Now, mainstream outlets are catching on – or at least have become brave enough to similarly connect the dots.

Earlier this week, Fox News‘ Tucker Carlson suggested that COVID-19 may have originated in a lab.

Tucker Carlson is currently citing a report that he openly admits he can’t confirm is true to question if coronavirus was made in a lab pic.twitter.com/CTxrJtw0Sh

— Andrew Lawrence (@ndrew_lawrence) April 1, 2020

And now, the Washington Times is out with a report titled “Chinese researchers isolated deadly bat coronaviruses near Wuhan animal market.”

Chinese government researchers isolated more than 2,000 new viruses, including deadly bat coronaviruses, and carried out scientific work on them just three miles from a wild animal market identified as the epicenter of the COVID-19 pandemic.

Several Chinese state media outlets in recent months touted the virus research and lionized in particular a key researcher in Wuhan, Tian Junhua, as a leader in bat virus work.

The coronavirus strain now infecting hundreds of thousands of people globally mutated from bats believed to have infected animals and people at a wild animal market in Wuhan. The exact origin of the virus, however, remains a mystery. –Washington Times

“This is one of the worst cover-ups in human history, and now the world is facing a global pandemic,” said Texas GOP Rep. Michael T. McFoul – a ranking member of the House Foreign Affairs Committee. McFoul believes China should be held accountable for the outbreak.

Meanwhile, a video from December funded by the Chinese government shows Tian collecting samples from captured bats and storing them in vials.

“I am not a doctor, but I work to cure and save people,” said Tian, adding “I am not a soldier, but I work to safeguard an invisible national defense line.”

The mainstream theory behind the virus is that it crossed over to humans after first infecting an intermediary species – such as a pangolin.

Read the rest of the report here.

With month-/quarter-end rebalancing flows now a thing of the past…

Virus-fear is back…

Source: Bloomberg

But the day started off ugly with a huge sell program…

Source: Bloomberg

…the biggest negative TICK since Aug 13th 2018…

Source: Bloomberg

Small Caps led the bloodbathery with a near 7% collapse today (limit-down) but all the major US indices were ugly (note the weak open, bounce into EU close, then selling fir the rest of the day…

The Dow lost 21k; S&P dropped below 2,500; and Russell 2000 broke back below 1,100… erasing over 50% of the dead-cat-bounce from last week…

Both Defensive and Cyclicals were equally hit today…

Source: Bloomberg

It appears the short-squeeze ammo has run out again…

Source: Bloomberg

FANG stocks were slammed, as the opening and closing bid ramps from last week have disappeared…

Source: Bloomberg

Bank stocks continued yesterday’s losses…

Source: Bloomberg

Directly-Virus-Affected sectors were monkey-hammered today with Airlines collapsing…

Source: Bloomberg

Most worrisome today was the crash in Mortgage REITs – despite weak markets and tumbling yields… systemic issues?

Source: Bloomberg

Credit was weaker today (HY worse)

Source: Bloomberg

Will stocks catch-down to bond yields now that the rebalance flows are done?

Source: Bloomberg

Treasury yields were all lower today as the rate-locks from record issuance lift (led by the long-end: 30Y -6bps, 2Y -1.5bps)…

Source: Bloomberg

10Y Yield tumbled back below 60bps today (57.7bps lows)…

Source: Bloomberg

The Dollar rebounded from yesterday’s weakness…

Source: Bloomberg

The Dollar shortage is back, with FRA-OIS widening notably today

Source: Bloomberg

Cryptos faded today…

Source: Bloomberg

Commodities were noisy today with oil and gold up, copper down…

Source: Bloomberg

Oil prices turmoiled around today but ended higher after plunging back below $20 again

Gold futures bounced back above $1600…

Finally, we note that Republicans have retaken the lead (albeit very marginally) in the prediction markets for the November election…

Source: Bloomberg

And amid all the ongoing calls for more and more rounds of fiscal stimulus and helicopter money, USA sovereign/deval risk is starting to rise rapidly…

Source: Bloomberg

It’s officially zero hour for both landlords and tenants alike as today marks the first day that mortgages and rents are due since the nation has addressed the coronavirus on a national scale with a lockdown and stay-at-home orders.

Meanwhile, in the balance hangs $81 billion in rent payments. Renters are warning they’re not going to pay, putting property owners in precarious positions and forcing them to have conversations with their tenants. Meanwhile, the government is doing their best to try and keep the economy slowly moving along despite essentially advising the nation that it must remain shut down. 

And nobody, especially in the real estate industry, understands how this unprecedented event will play out.

Willy Walker, chief executive officer at commercial real estate lender Walker & Dunlop Inc, told Bloomberg: “The hardest thing right now is that nobody actually knows how bad it’s going to get. That’s driving everybody crazy.”

Many local governments have placed bans on evictions for the time being, removing the incentive for even those who can afford it to stop paying rent.

Of all the different types of landlords, apartment owners usually collect about $22 billion in rent per month. Research from Amherst Holdings suggests that up to $12 billion a month in government support could be necessary to help households in the U.S. continue to make their obligation due to the coronavirus lockdowns. 

Commercial landlords are also worried. Owners have very little leverage, since a quarantine is a bad time to go out and find new tenants. Rental debt will need to be paid eventually, but there is significant uncertainty surrounding what happens to the economic machine when these bills are paid late, instead of on time. 

Scott Rechler, chief executive officer at RXR Realty said: 

“If tenants stop paying rent, then at some point landlords can’t pay utilities. The municipalities don’t get their property taxes or mortgages aren’t paid and the banks get a spike in defaulting loans.”

The apartment industry alone has more than $1.5 trillion in outstanding debt and credit markets are trying to make preparations and concessions for borrowers who may not be able to service debt payments as a result of rent not coming in.

Real estate investor Tom Barrack has argued that the U.S. Treasury should help stabilize the debt markets by purchasing commercial mortgage backed securities. The government’s stimulus checks should be hitting the accounts of U.S. citizens over the next 3 weeks. 

And while the system may be able to to handle one month of missed rents, it could quickly devolve into chaos if things don’t soon return back to normal.

Bruce McNeilage, CEO of Kinloch Partners, which operates single-family rental homes concluded: 

“I’m less worried about April. I’m more worried about May 1. Once people miss three or four paychecks, that’s when things get bad.” 

However, some landlords took a more direct approach – get out!!

There is being an asshole in a crisis, and then there is President-of-the-HOA-during-a-crisis level of asshole. #Coronavirus #COVID pic.twitter.com/G3ZUIEUoQU

— associatesmind (@associatesmind) March 31, 2020

Authored by Paul Joseph Watson via Summit News,

Democratic Michigan Governor Gretchen Whitmer is now asking the federal government to send her hydroxychloroquine just four days after she threatened to revoke the medical licenses of doctors who prescribed it.

Last week, Whitmer sent a letter warning physicians and pharmacists of punishments for the prescribing of hydroxychloroquine and chloroquine despite a major study recommending “COVID-19 patients be treated with hydroxychloroquine and azithromycin to cure their infection and to limit the transmission of the virus to other people in order to curb the spread of COVID-19 in the world.”

Medical professionals were threatened with “administrative action,” with Whitmer claiming that hydroxychloroquine had not met the benchmark for “proof of efficacy.”

How quickly things change.

Four days later, Whitmer is now begging the feds to send her hydroxychloroquine.

pic.twitter.com/T8zcz6yF4t

— I,Hypocrite (@lporiginalg) April 1, 2020

“We want to ensure that doctors have the ability to prescribe these medicines,” she said.

“We also want to make sure that the people who have prescriptions that predated COVID-19 have access to the medication they need. And so all of the work that we’ve done is trying to strike that balance.”

It’s also worth noting that Fox News host Laura Ingraham was forced to delete a tweet that promoted hydroxychloroquine as a COVID-19 cure under threat of suspension despite it already having been approved by the FDA.

In its approval letter, the FDA said, “Based on the totality of scientific evidence available to FDA, it is reasonable to believe that chloroquine phosphate and hydroxychloroquine sulfate may be effective in treating COVID-19.”

*  *  *

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Until now, the media and financial commentariat had been very careful to frame the coronacrisis as merely a one-time shock to the global economy and a non-recurring hit to corporate earnings as the world is put into an induced coma, with hopes that once the coronavirus pandemic passes, the world can simply be woken up and a V-shaped recovery can commence.

Alas, the longer the coma lasts, the more unlikely the recovery is V-shaped, something a recent research report from the San Fran Fed admitted by looking at the aftereffects of some of the world’s most notable pandemics, to wit: “Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed.”

Bloomberg confirmed as much today in “Trump’s Dire Forecast Reinforces Outlooks for Deep Economic Hit.”

And yet while the debate rages on whether the economy and corporate profits are due for a V-shaped recovery or instead a W- or even L-shaped “recovery” is more appropriate, so far nobody had mentioned, or rather dared to mention, the possibility that beyond a one-time economic shock, the corona-crisis could also affect the financial sector. Read: the banks. After all, the last thing the crippled economy needs now is a bank run to go with the total shut down of most businesses and cash flows.

That changed today when none other than CNBC anchor-at-large Bill Griffeth unexpectedly asked a “serious question” on behalf of bank depositors:

Was a global pandemic one of the scenarios in the bank stress tests?? Asking for the world’s depositors

Serious question: Was a global pandemic one of the scenarios in the bank stress tests?? Asking for the world’s depositors. @WilfredFrost @kaylatausche

— Bill Griffeth (@BillGriffeth) April 1, 2020

We know the answer to this rhetorical question: after all all banks passed the Fed’s latest stress test without a glitch. here another CNBC anchor, Kayla Tausche helpfully chimed in reminding us just how laughable, in retrospect, was the Fed’s “severely adverse” scenario. In a nutshell, the banks were expected to have no problem with an outcome in which:

• Unemployment jumps to 10%
• GDP falls -8.5%
• The US 10Y “plunged” to 0.75%

Here are the Fed’s scenarios for this year. https://t.co/ZuTUNYrmD8

A pandemic wasn’t a scenario, per se, but the “severely adverse” picture included:
* 10% unemployment
* GDP falling -8.5%
* US 10Y at 0.75%

This could be worse than that. https://t.co/0tPocI3ilT

— Kayla Tausche (@kaylatausche) April 1, 2020

Under the severe scenario, banks would lose $410 billion if there were another severe global recession, but would maintain enough capital to keep lending to companies and individuals.

But what happens if there is a global pandemic that results not in a severe global recession, but an outright depression. Which, as a reminder, is what Goldman’s latest forecast for at least Q2 is, when the bank expects GDP will plunge to -34%…

… and the unemployment rate soars to 15%.

In that scenario, which the world is now living through, nobody knows what happens to the banks, or perhaps hasn’t bothered to get the answer, because the last thing the “world’s depositors” want to hear is that not only are they quarantined at home, but a trip to the local ATM may reveal no cash in stock.

While we don’t know the answer to Bill Griffeth’s question, it appears that the market is trying to come up with one, and is not happy with what it is seeing, because not only is the stock index of GSIBs, or global systematically-important banks tumbling…

… as global broker counterparty risk soars…

… but most ominously, 1 Year CDS on the US have been on a tear lately, suggesting US default odds – it appears the CDS market is not a fan of that MMT idiocy that a currency issuer can’t default – are surging.

And while we are confident that others will soon start asking questions about whether this is also a financial crisis in addition to an profit and economic one, one thing we don’t know is whether US CDS are surging because of that… or because of the US response to the crisis which will see US debt exploding by $2-3 trillion this year alone with the Fed’s balance sheet doubling to $9 trillion and over.

In other words, is the CDS market starting to sniff out the beginning of the end – the moment when the US dollar is no longer the world’s reserve currency?

Submitted by Christopher Dembik of Saxo Bank

The ADP estimates that US companies cut 27,000 jobs from March 1 to March 12 after an increase of 179,000 in February. This is the first monthly contraction since September 2017. The 6-month average is down at 119,000 vs 183,000 in February. The final print is better than expected (consensus at -154,000), but it is important to keep in mind the report does not reflect the full impact of the COVID-19 outbreak on the labor market. The most severe measures of containment were implemented after the survey, especially in the third week of March. There is no need to say that today’s statistic has zero value in forecasting the BLS number that will be released at the end of the week (see our conservative forecast here).

Digging into data, the only interesting trend is the very sharp cut in employment by small businesses (1 to 49 employees). As you can see in the below chart, over the first twelve days of March, small businesses have cut 90,000 jobs, which is the highest drop since the GFC. Given we don’t have data for the whole month and that the lockdown measures we re after the survey, it is likely that job cuts surpassed the previous record of February 2009, at minus 174,000.

We are living in unprecedented times and figures do not match historical reference anymore. We can discuss for a long time the real data for March, but what is really of prime importance is that job cuts by small businesses are doomed to last for many months. Investors need to keep in mind that small firms make up 90% of all companies in the United States and, in a normal economic expansion phase, they create around 3 million jobs every year. This is an understatement to say that small businesses are at the heart of employment growth. We need to get ready to a wave of bankruptcies and job cuts in the coming months.

The below tab represents the employment trend by industry. The goods-producing sector posted 8,000 job cuts in March mostly due to a drop in the construction sector (-16,000). We notice a slight increase in the manufacturing sector (+6,000) that is unlikely to last considering the slump in manufacturing demand and the steep downturn in production.

With the exception of the healthcare sector (for obvious reasons), all the service providing sectors experienced job cuts in March with the biggest decrease in trade and transport (-37,000) and leisure and hospitality (-10,000). It confirms that the service sector has been badly impacted by the crisis, with consumer-facing industries directly affected by social distancing and lockdown measures, while tourism has virtually been decimated.

“We’re going to have the worst bear market in my lifetime,” in the next year or two.

That’s the message from billionaire cofounder (with Soros) of the legendary Quantum Fund, Jim Rogers, who told Bloomberg this morning that the impact of the virus on economies “will not be over quickly because there’s been a lot of damage. A gigantic amount of debt has been added.”

Rogers is far alone in his alarm. As Bloomberg reports, the fund manager overseeing the fortune of the Lego billionaires says equity markets remain too volatile to justify any bargain hunting.

“This is not the time to be brave,” Soren Thorup Sorensen, the chief executive of Kirkbi Group said in an interview on Tuesday,

“Volatility is at historic highs.” As a long-term investor, the best response is to “sit still and weather the storm,” he said.

Bond King Jeffrey Gundlach said similar things during his webcast last night,

“I think we’re going to get something that resembles that panicky feeling again during the month of April,” Gundlach said as economic uncertainty in April will rise further.

He added that stocks won’t hit their recent highs for a long time:

“It won’t be back to where it was prior for a long time to come,” he said, “particularly on a real basis.”

But it is yet another legendary investors,  OakTree Capital’s Howard Marks, who really laid out the case for not ‘buying the dip’ here in a 10-page note which can be summarized simply – “sell, don’t hold… worse is coming.”…

“In the Global Financial Crisis, I worried about a downward cascade of financial news, and about the implications for the economy of serial bankruptcies among financial institutions.  But everyday life was unchanged from what it had been, and there was no obvious threat to life and limb.

Today the range of negative outcomes seems much wider… 

Social isolation, disease and death, economic contraction, enormous reliance on government action, and uncertainty about the long-term effects are all with us, and the main questions surround how far they will go.”

While Marks suggests that assets were “fairly” priced for an “optimistic case,” he warns that this “didn’t give enough scope for the possibility of worsening news.”

Marks concludes on an ominous note, saying that he expects asset prices to decline.

“You may or may not feel there’s still time to increase defensiveness ahead of potentially negative developments. But the most important thing is to be ready to respond to and take advantage of declines.”

Below is Marks’ summary of the “Negative Case”:

I always say we have to be aware of and open about our biases. I admit to mine: I’m more of a worrier than a dreamer. Maybe that’s what made me a better credit analyst than equity analyst. On average I may have been more defensive than was necessary (although somehow I was able to shift to aggressive action when crisis lows were reached during my career). Thus it shouldn’t come as a surprise today that my list of cons is longer than my pros (and I will elaborate on them at greater length).

I’m very worried about the outlook for the disease, especially in the U.S.

For a long time, the response consisted of suggestions or advice, not orders and rules. I was particularly troubled last weekend by pictures of college kids on the beach during spring break, from which they would return to their communities. The success of other countries in slowing the disease has been a function of widespread social distancing, testing and temperature-taking to identify those who are infected, and quarantining them from everyone else. The U.S. is behind in all these regards. Testing is rarely available, mass temperature-taking is nonexistent, and people wonder whether large-scale quarantining is legal.

• The total number of cases in the U.S. has surpassed both China’s and Italy’s and is still rising rapidly (and is likely understated due to under-testing).

• The number of deaths doubled from 1,000 to 2,000 between Thursday and Saturday.

• From a recent tweet by Scott Gottlieb, MD, former commissioner of the FDA: “I’m worried about emerging situations in New Orleans, Dallas, Atlanta, Miami, Detroit, Chicago, Philadelphia, among others. In China no province outside Hubei ever had more than 1,500 cases. In U.S. 11 states already hit that total. Our epidemic is likely to be national in scope.”

• The U.S. is under-equipped to respond in terms of hospitals, beds, ventilators and supplies. Under-protected doctors, nurses and first responders are at risk.

I’m concerned that the number of cases and deaths will continue to rise as long as we fail to emulate the successful countries’ actions. The health system will be overwhelmed. Triage decisions – including who lives and who dies – will have to be made. There will be a point where there doesn’t seem to be an end in sight. I’m afraid the headlines are going to get much uglier in this regard.

The economy will contract at a record rate.

Many millions will be thrown out of work. People will be unable to patronize businesses. Not only will workers miss paychecks and businesses miss revenues, but businesses’ physical output will tail off, meaning essentials like food may run short. Last week, 3.3 million new unemployment claims were filed, versus the previous week’s 282,000 and the weekly record of 695,000. Prior to the government’s actions, expectations included the following:

• unemployment would return to 8-10%, and citizens would soon run short of cash;

• businesses would close;

• second-quarter GDP would decline from the year-ago level by 15-30% (versus a decline of 10% in the first quarter of 1958, the worst quarter in history);

• some forecasters said the combined earnings of the S&P 500 companies would decline 10% in the second quarter, but that seems like a ridiculously small decline. At the other end of the spectrum, I’ve seen a prediction that S&P earnings would decline by 120% (that’s right: in total, the 500 companies would shift from profits to losses).

Government payments plus augmented unemployment insurance will replace paychecks for many workers, and aid to businesses will replace some of their lost revenues. But how long will it take to get these funds to recipients? How many should-be recipients will be missed? For how long will the aid continue? ($3,400 to a family of four won’t last long.) What will it take to bring the economy back to life after it’s been in a deep freeze? How fast will it recover? In other words, is a V-shaped recovery a realistic expectation?

It will be very challenging to resolve the conflict between social isolation and economic recovery.

How will we know whether the disease merits the cure? The longer people remain at home, the more difficult it will be to bring the economy back to life. But the sooner they return to work and other activities, the harder it will be to get the disease under control.

First, the growth in the number of new cases each day has to be reduced. Next, the number of new cases has to begin to decline from one day to the next (that is, the growth rate has to turn negative). Then new cases have to stop appearing each day. (Of course, we’ll need increased testing and mandatory quarantining for these things to occur.) As long as there are new cases each day, there are people who are infectious. If we send them back into the world and into contact with others, the disease will persist and spread. And if we seize the opportunity provided by a decline in the number of new cases to resume economic activity, we risk a rebound in the rate of infection.

For the most part, we have companies whose revenues are down and companies whose revenues are gone.

They can reduce their expenses, but because many of them are fixed (like rent), they can’t reduce expenses as fast as revenues decline. That’s why second-quarter profits will shrink, dry up or turn negative. Revenues may come back relatively soon for some industries (like entertainment), but less rapidly for others (like cruise lines).

Many companies went into this episode highly leveraged.

Managements took advantage of the low interest rates and generous capital market to issue debt, and some did stock buybacks, reducing their share count and increasing their earnings per share (and perhaps their executive compensation). The result of either or both is to increase the ratio of debt to equity. The more debt a company has relative to its equity, the higher the return on equity will be in good times . . . but also the lower the return on equity (or the larger the losses) in bad times, and the less likely it is to survive tough times. Corporate leverage complicates the issue of lost revenues and profits. Thus we expect to see rising defaults in the months ahead.

Likewise, in recent years, the generous capital market conditions and the search for return in a low-interest-rate world caused the formation of leveraged investment entities. As with leveraged companies, debt increased their expected returns but also their vulnerability. Thus I believe we’re likely to see defaults on the part of leveraged entities, based on price markdowns, ratings downgrades and perhaps defaults on their portfolio assets; increased “haircuts” on the part of lenders (i.e., reduced amounts loaned against a dollar of collateral); and margin calls, portfolio liquidations and forced selling.

In the Global Financial Crisis, leveraged investment vehicles like Collateralized Mortgage Obligations and Collateralized Debt Obligations melted down, bringing losses to the banks that held their junior debt and equity. The systemic importance of the banks necessitated their bailouts (the resentment of which contributed greatly to today’s populism). This time, leveraged securitizations are less pervasive in the financial system, and their risk capital wasn’t supplied by banks (thanks to the Volcker Rule), but mostly by non-bank lenders and funds. Thus I feel government bailouts are unlikely to be made available to them. (As an aside, it’s not that the people who structured these leveraged entities erred. They merely failed to include an episode like the current one among the scenarios they modeled. How could they? If every business decision had to be made in contemplation of a pandemic, few deals would take place.)

Finally, in addition to the disease and its economic repercussions, we have one more important element: oil.

Due to a confluence of reduced consumption and a price war between Saudi Arabia and Russia, the price of oil has fallen from $61 per barrel at year-end to $19 today. The price of oil was only slightly lower immediately before the OPEC embargo in 1973, and in the 47 years since then it has only been lower on two brief occasions. While many consumers, companies and countries benefit from lower oil prices, there are serious repercussions for others:

• Big losses for oil-producing companies and countries.

• Job losses: the oil and gas industry directly provides more than 5% of American jobs (and more indirectly), and it contributed greatly to the decline of unemployment since the GFC.

• A significant decline in the industry’s capital investment, which recently has accounted for a meaningful share of the U.S.’s total.

• Production cuts, since consumption is down and crude/product storage capacity is running out.

• The damage to oil reservoirs that results when production is reduced or halted.

• A reduction in American oil independence.

As recounted above, the negative case encompasses rising numbers of infections and deaths, unbearable strain on the healthcare system, job losses in the many millions, widespread business losses and mounting defaults. If these things arise, investors are likely to shift from the optimism of last week to the pessimism that was prevalent in the rest of March. Contributing factors may include:

• negative psychology surrounding the combination of threats to the economy and life itself,

• fear of more, and 

• a very negative wealth effect that depresses spending and investing.

The TL;DR version:

Bull case: everything opens in 6 weeks. The unemployed can go back to old jobs or as true Americans, bootstrap. Economy back to normal within 6 months. 2T $ in PE dry powder, low gas prices and 0% interest rates pour fuel onto on the economy. The roaring 20’s mean the 2020’s now.

Bear case: Unemployment goes to 20%+. Everything does NOT go back to normal before at least a year or two, and in the meantime, there is a huge demand shock. The effects of the lockdown on businesses as well as the oil shock create depression-like conditions.

Trade accordingly.

Authored by Caitlin Johnstone via Medium.com,

Coronavirus disinformation is the hot topic of the day, with pressure mounting on social media platforms to censor incorrect information about the virus and mainstream news outlets blaring dire warnings every day about the threat posed by the circulation of false claims about the pandemic.

“As fast as the coronavirus has raced around the globe, it has been outpaced by a blinding avalanche of social media sorcery and propaganda related to the pathogen, much of it apparently originating in Russia,” the Washington Post editorial board . 

“As always when it comes to its relations with the West, Moscow’s main currency is disinformation, and it spends lavishly.”

This would be the same Washington Post who falsely assured us that the Bush administration had provided “irrefutable” proof that the government of Iraq had weapons of mass destruction. The same Washington Post who falsely assured us that Russian hackers had penetrated the US electricity grid to cut off heat during the winter, and who circulated a McCarthyite blacklist of alternative media outlets designated “Russian propaganda” compiled by a group of anonymous internet trolls. The same Washington Post whose sole owner is a literal CIA contractor yet never discloses this brazen conflict of interest when reporting on the US intelligence community as per standard journalistic protocol.

If outlets like The Washington Post had done a better job of consolidating their reputation as a reliable news source instead of constantly deceiving their readers about very important matters, people would believe them instead of believing a “blinding avalanche of social media sorcery” (and web wizardry and internet incantations and electronic enchantments and net necromancy).

Funny, this is exactly what the US is doing to China, Iran, Venezuela & Cuba to deflect from its own abysmal failures that turned America into the world’s largest corporate sacrifice zone https://t.co/yIXGZoZp9L

— Abby Martin (@AbbyMartin) March 28, 2020

We’re seeing these urgent warnings about coronavirus disinformation and misinformation from mainstream outlets who’ve sold the public lies about war after war, election after election, status quo-supporting narrative after status quo-supporting narrative.

“Here’s How to Fight Coronavirus Misinformation” reads a headline by The Atlantic, whose editor-in-chief Jeffrey Goldberg once assured us that “the coming invasion of Iraq will be remembered as an act of profound morality,” and whose star writer is David “Axis of Evil” Frum.

“China and Russia have seized on the coronavirus outbreak to wage disinformation campaigns that seek to undermine the U.S. and its handling of the crisis, rather than addressing public criticism of their own struggles with the pandemic,” warns The New York Times, who played a leading role in the disinformation campaign to build support for the Iraq invasion and who aggressively pushed crazy-making Russia hysteria (including famously retracting its bogus “17 intelligence agencies” claim).

So it is understandable that people are suspicious and looking to alternate sources for answers. The outlets which are warning them about the dangers of this virus and defending massive, unprecedented changes which have an immense impact on the lives of ordinary people have an extensive and well-documented history of lying about very important things. People are aware of this, in their own ways and to varying degrees, and it doesn’t help that all the usual suspects are behaving in a way that feels uncomfortably familiar.

“This pandemic will be more consequential than 9/11. It probably already is. People just don’t realize it, because they still think — still feel — that once this is all over we’ll go back to the way things used to be. We won’t,” says The Bulwark, founder Bill Kristol was also the founder of the wildly influential think tank Project for a New American Century (PNAC). PNAC famously argued a year before the 9/11 attacks that the massive worldwide increase in US military interventionism they were promoting at the time would not be possible without “some catastrophic and catalysing event — like a new Pearl Harbor”. All of which miraculously came to pass.

“This pandemic will be more consequential than 9/11. It probably already is. People just don’t realize it, because they still think—still feel—that once this is all over we’ll go back to the way things used to be. We won’t.” https://t.co/WzorDyXIYR

— Bill Kristol (@BillKristol) March 30, 2020

I personally believe there’s enough evidence that this virus is sufficiently dangerous to justify many of the significant precautions nations have been taking (though of course we must oppose and be vigilant against government overstepping into authoritarianism). The statistics are still very blurry and unreliable, but the mountains of testimonies by rank-and-file medical staff pouring in from areas where the outbreak is bad constitute enough anecdotal evidence for me to believe that this virus can very easily overwhelm our healthcare systems if we don’t collectively take drastic measures to contain it.

That said, I certainly can’t cast blame on people who believe the threat the virus poses is being greatly exaggerated. Not because I think they’re right, but because you don’t blame a population who’s been constantly lied to for their disbelief in what they’re being told by the very political/media class which has been lying to them. It’s not the fault of the rank-and-file public that they’re believing conspiratorial narratives, erroneous Facebook memes, right-wing pundits and the US president over the mainstream press; it is the fault of the mainstream press themselves.

I’ve taken a lot of flack in conspiracy circles lately for my relatively normie stance on Covid-19, but I also can’t really take it personally because it isn’t really their fault. Not everyone has the time and the resources to independently comb through many disparate bits of information about a single topic and synthesize a lucid understanding of what’s going on; that’s meant to be the job of the press, but since they’ve neglected to do their job time and time again they lack the credibility to demand that people believe what they’re reporting.

So I never join in the loud finger-wagging and aggressive demonization of those who express doubt in what’s really going on with this thing. I’ll leave that to those of a more mainstream bent, since they seem to enjoy it so much. As for myself, I will continue pointing out that the reason misinformation is so readily believed is the same as the reason Trump’s criticisms of the mainstream press are so readily believed: they have absolutely earned their garbage reputation.

The whole reason the world is the way it is right now is because people have been manipulated by the media-controlling class into accepting an absolutely insane status quo as normal. That’s the only reason anyone believes it makes sense for so few to have so much while so many have so little, for trillions of dollars to be poured into military expansionism and wars which benefit no one but the rich and powerful, for the environment to be destroyed to make a few more millionaires into billionaires, for a demented right-wing racist warmonger to be running against another demented right-wing racist warmonger for the most powerful elected office on the planet.

The big lies happen once in a while, but these little lies of normalizing our insane status quo happen every single day. On some level everyone is aware, however dimly, that our society is crazy and needs to change drastically, and so they are also aware that this is the opposite of the message they receive every day from the “authoritative” narrative-makers. The crazier things get, the more this awareness will necessarily grow, and the less people will trust the billionaire media whose only purpose is to maintain the status quo upon which its owners have built their respective kingdoms.

You can’t blame people for being distrustful when you make them that way. The people screaming the loudest about disinformation right now are the ones most responsible for it.

*  *  *

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To quantify the impact of COVID-19 on local businesses across the U.S., the data science team at Womply is conducting ongoing, daily data analysis of transaction trends year-over-year at 400,000 local businesses across the country, including 48,000 restaurants, 10,000 grocery stores, 4,600 bars, 64,000 retail shops, and 6,400 lodging businesses. You can view that ongoing analysis here.

Here’s what the data revealed about last week’s impact on local businesses nationwide:

Restaurants

• Weekly revenue was down 57% YoY. Daily revenue levels bottomed out on Sunday, March 22 at 68% below the same day last year. Revenue seems to be trending upward again, though still well below neutral.

Grocery stores

• Consumer spending at grocery stores is returning to a semblance of normalcy. After daily revenue variance topped out at 100% YoY above neutral on March 16, sales have trended downward, averaging 18% above natural for Wednesday, Thursday, and Friday of last week. Weekly revenue is up 24% YoY.

Bars

• Weekly revenue is down 47% YoY. Daily revenue levels bottomed out on Sunday, March 22 at 66% below the same day last year. Revenue seems to be trending upward again, though still well below neutral.

Lodging

• Sales at lodging businesses continue to trend downward. Weekly revenue is down 83% YoY (down from 75% the previous week). Daily revenue levels dropped to as low as 87% under neutral YoY last Tuesday.

Firearm and sporting goods stores

• Driven by consumer panic to buy guns and ammo, daily sales at firearm and sporting goods stores continue to hover at least 70% above neutral YoY. Weekly revenue is up 97% YoY. 

Arts and entertainment

• Arts and entertainment businesses are entering their worst sales days to date. Weekly revenue is down 91% YoY. Daily revenue levels dropped to as low as 132% below the same day last year YoY last Thursday.

Retail

• Local retail still hadn’t yet felt the full force of social distancing measures. Weekly revenue was up 10% YoY.