Does Elon Musk Risk Becoming A Chinese Government Asset?

Does Elon Musk Risk Becoming A Chinese Government Asset?

With the geopolitical landscape between the U.S. shifting even further as a result of the ongoing pandemic – and now potentially China’s involvement in North Korea amidst rumors of Kim Jong Un’s death – no one has really stepped back and taken the time to critically examine just how close Tesla has become to the Chinese government. 

After all, the Chinese have been extremely accommodative to Musk, offering him land to place his factories and sweetheart loan deals with little or no interest. But anyone who has watched a couple of gangster movies in their day can tell you that nothing comes for free. And regardless of whether or not he deserves to be, Elon Musk is intimately involved in the U.S. space program and in several intelligence circles in the U.S. 

And while Musk and his airhead followers seem to believe that the Chinese are simply excited about his plans to save the world, we remain skeptical about their intentions, and so do others. Such was the topic of a brand new article by well-known Tesla short seller Lawrence Fossi, also known as “Montana Skeptic”, which appears to have gone semi-viral on Seeking Alpha, eliciting more than 800 comments in under 48 hours. 

Fossi/Montana Skeptic (Photo: Hidden Forces)

The article, called “Tesla’s Transformation Into A Chinese Company Seems Unstoppable”, seeking to critically examine why the Shanghai factory is a negative for Tesla, how Tesla’s China operation could ultimately compete with Fremont and what the Chinese may ultimately gain from having Musk as an ally. 

The article addresses the questions of:

  • Who calls the shots at Tesla Shanghai?

  • What are the interests of the Chinese leadership?

  • Whom does the Shanghai factory actually benefit?

  • How will Shanghai affect Tesla’s operations elsewhere?

  • When will Tesla’s security filings reflect the economic reality?

It lays out in detail the three key agreements between Tesla affiliates and the PRC/PRC banks, which appear to allow the Chinese government to take possession of the Tesla Shanghai site whenever they want.

The article asks critical questions about significant loans made to Tesla that mature this December, and also notes a provision in one loan that requires Tesla to deposit its operating revenue from the site into so-called Revenue Collection Accounts at Chinese banks. From there, they can only be used in limited fashion by Tesla until the loans have been paid off. 

In the interim, China has given Tesla a “free factory” essentially, Skeptic notes, before reminding readers “And yet, of course, nothing is free. There’s always a price to pay.”

So what does China want, Skeptic asks. First, he notes they “want a large measure of influence over a business leader who, in much of the rest of the world, is widely admired and viewed as a shaper of public opinion.”

They also want “Model Y production to begin in Shanghai as soon as possible. They want 100% local sourcing for all Tesla MIC parts, including battery cells so that Tesla Shanghai is not reliant on, and is independent of, the Rest of Tesla,” he says. They also want the prestige of the Tesla brand. 

From there, Skeptic begins to ask some obvious questions. With Musk deep in the pockets of the Chinese government, what more could they wind up wanting from Musk in a situation where Tesla because financially stressed and the Chinese government has the leverage?

One could go further, inquiring what else the Chinese PTB might want that goes beyond Tesla Shanghai. How about some SpaceX technology, or information about confidential U.S. plans entrusted to SpaceX? If such requests were made, what pressures would Musk face to comply?

Skeptic’s article concludes by making the case that Tesla shareholders should be concerned about the company’s Chinese operations, instead of jubilant. Given the volatile nature of the geopolitical landscape at the moment, we think he makes a very serious point that holds water.

“Tesla Shanghai profits will stay in China. Even under the best of circumstances, U.S. companies face many obstacles in repatriating profits earned in China,” Skeptic argues. “China wants to be come less of an exporter of goods that are merely made in China, and more of an exporter of goods that are designed in China as well.”

He makes the case that Fremont will ultimately shut down as more cars roll off the line in Shanghai and that Tesla may transform itself into a Chinese company in “just years”. He also thinks there is a real chance that the Chinese goverment could usurp Tesla and “take it private” in a “manner altogether unpalatable to those accustomed to the U.S. rule of law.”

“Tesla Shanghai already has begun taking oxygen from the Rest of Tesla, and the suffocation will become only worse,” he concludes.

And with each coming capital raise that Tesla needs, specifically as it relates to China, we will start to get a glance at exactly which direction the Chinese government wants to take their newfound interest both the brand and its CEO. 


Tyler Durden

Sun, 04/26/2020 – 18:00

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Here Are The Three Steps For An “Exit Plan” Torward Full Economic Re-opening

Here Are The Three Steps For An “Exit Plan” Torward Full Economic Re-opening

Global infection growth slowed from 40% W/W to 20% W/W in the last fortnight (total infection: 2,709,483, death: 190,872, 7.0% mortality rate) as a majority of countries are past or nearing infection peak of the coronavirus curve.

And as many states are on the cusp of reopening, JPMorgan has enumerated a three step “exit plan” framework incorporating community transmissions, imported cases and time to relax social distancing. However, as before, the bank’s central thesis is that until a specific vaccine is available, the potential risk of a second wave should be the main determinant of strategy.

First, some big picture thoughts: broadly speaking, once community transmission is confirmed, the strategy on public health intervention has been focused on slowing the infection curve to a smaller scale (i.e., curve flattening) so as to manage the infection under hospital capacity and to reduce potential mortality risk in the community under strong boarder control. As local infections are brought under control, a series of curve control relaxation measures would be under consideration. JPM’s MW Kin visualizes three steps of an “exit plan” building in stages of community transmission, imported cases, and relaxing social distances.

The three steps toward a full economy reopening are shown below:

More details below:

  • Community transmission: For a country with fewer new infections under adequate hospital capacity, the infection curve would be under control. Thus, it would likely be appropriate for the governor to consider lifting the city lockdown or relaxing social distancing. In this process, the net infection tally (=total infection-recovery death) could remain at a certain level, thus the re-opening plan should be based on a conservative approach so as to reduce the transmission rate. If not, there exists the risk of curve rebound or re-acceleration. The concerning re-acceleration in local infections in Singapore for the last two weeks is supporting evidence for the risk outcome.
  • Imported case: Once community transmission is under strong control, the next step would be relaxation on border control. Due to asymptomatic cases and the latent period (~2 weeks) of COVID-19, even when community transmission is under strong control, there exists risks of a second wave from imported cases. As each country is at a different stage in the infection curve, the relaxation on border control should not be immediately implemented with re-opening of the economy. Instead, in JPM’s opinion, it should be considered only when most countries’ infection curves are under strong control. Meanwhile, it should be highly encouraged to ask passengers to take the virus test at the airport (i.e., full scale of test at arrival should be maintained for a while despite the inconvenience) and to maintain the 14 day self-quarantine rule. This is perhaps the best way to minimize the risk of a second wave
  • Social distancing voluntary: With COVID-19 assumed to last for a while in the community, JPMorgan believes that it is essential for the public to maintain social distancing. In this stage, the format of social distancing could shift from  “compulsory” by law to “voluntary” at the individual/community level, instead of entirely ending this practice. Also, in theory, if COVID-19 test kits would be largely available to the public, at affordable prices, and test results could be confirmed in a few minutes, this could be one of the most powerful solutions to re-activate the economy post the first curve.

Finally, since Asia is furthest ahead on the curve, here is a recap of how each nation is proceeding toward full reopening:


Tyler Durden

Sun, 04/26/2020 – 17:53

via ZeroHedge News https://ift.tt/2W2NSkG Tyler Durden

Hedge Fund CIO: “The Oil Price Is A Rare Indicator Of What Is Still Real In This Market”

Hedge Fund CIO: “The Oil Price Is A Rare Indicator Of What Is Still Real In This Market”

Authored by Eric Peters, CIO Of One River Asset Management, via LinkedIn.

Crude utterly collapsed. 300% in a single trading day. Sellers paid $37.63 to buyers.

Everyone acted shocked, but no one really cared. Not even Powell, who has developed a falling-knife fetish but didn’t lift a finger to catch that one.

Jay gets it. Oil is real. Unlike stocks and bonds, he’d have to store the stuff. So until producers cap the wells, or light up their neighbors fields like Saddam, the price will keep falling until we start driving.

And besides, the Fed and Treasury believe it’s not commodity prices that need support, it’s drillers, frackers, and investors who lent them so much. The refiners need help. The guys who bought their bonds. Airlines that bought back their stock. Car companies too. Boeing. And on, and on. So they bailed out all the really big companies.

In the end, risks their investors took were not risks at all, only rewards.

Absorbing a financial asset glut is easy for a committed central bank. They credit a column, change a ledger, hit a button, hire the Blackrock boys. Add a server, maybe two. That’s the Fed’s storage cost.

Which leaves the oil price as a rare indicator of what’s real. Unemployment claims are real too. They’ve jumped 26mm in the two months since stocks hit all-time highs.

The CBO forecast America’s already extraordinary federal deficit will quadruple to $3.7trln. Q2 GDP will shrink 40% (-5.6% for 2020). They expect unemployment to peak at 16%, but we know it’s already higher than that, so their other forecasts are low too.

That’s real. People are real. You can’t house 26mm unemployed folks in servers.

The United Nations says 265mm face acute food shortages, you can’t feed them with a ledger. Will the real world rebound to meet the paper asset prices artificially set by the Fed and Treasury?

Or has the relationship between paper assets and reality been permanently severed? And if that is so, then what will be the price we pay?

* * *

By targeting asset prices instead of bread lines, we run the risk that in our attempt to prevent another Great Depression, we amplify the inequality that left the hill so unstable to begin with. And this raises the greatest risk of all. You see, today’s politicians, policy makers and investors have only experienced mass hysterias of the wildly optimist type. But in the ebb and flow of history, there are mass hysterias of exactly the opposite sort too. The Great Depression was one.


Tyler Durden

Sun, 04/26/2020 – 17:35

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National Guard Deployed At Nation’s Food Banks To Ensure Stability During Unprecedented Times 

National Guard Deployed At Nation’s Food Banks To Ensure Stability During Unprecedented Times 

There is increasing evidence on social media that the National Guard has been deployed to the nation’s food banks to ensure food supply chain networks are not severed, and shortages do not materialize. 

This comes at a challenging period for the country, one where 26.5 million people have filed for unemployment benefits in five weeks as the economy crashes into depression. 

We have documented the unprecedented volume of Americans flooding food banks across the country in the last four weeks as a hunger crisis develops. 

Now it appears National Guard troops have been deployed to food banks in many states to make sure logistical pipelines of food to these facilities can continue dishing out care packages to the working poor.

And why would the Pentagon, likely instructed by the Trump administration, deploy military assets to food banks? Because food shortages are already starting to develop as facilities are overwhelmed with hungry people. 

The deployment of military assets to these facilities is a reflection of where the government believes the most vulnerable parts of instabilities reside at the moment. Just imagine if some of these places ran out of food, and people in mile-long lines were told to go home empty-handed. That would leave many in an untenable hangry state where social instabilities could be seen. 

So, without further ado, here is the military deployed at the nation’s food banks: 


Tyler Durden

Sun, 04/26/2020 – 17:10

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Whisteblowing ER Docs Urge “Open Up Society Now” Because “Lockdowns Are Weakening Our Immune Systems”

Whisteblowing ER Docs Urge “Open Up Society Now” Because “Lockdowns Are Weakening Our Immune Systems”

Authored by Edward Peter Stringham via The American Institute for Economic Research,

Dr. Daniel W. Erickson of Bakersfield, California, is a former emergency-room physician who co-owns, with his partner Dr. Artin Massih, Accelerated Urgent Care in Bakersfield.

They are experienced medical professionals who have 40 years of hands-on experience in dealing with viruses and respiratory infections.

Watching the news in China in January, they knew the virus was on its way. They ordered many COVID-19 tests because they knew they would need them. They tested many thousands of people, and discovered for themselves what epidemiologists around the world are saying:  COVID-19 came here earlier than previously believed, is more ubiquitous, and ultimately for the general population less deadly than we thought.

While this realization is gradually dawning on people around the world, they went public with their findings, which are not generated out of a predictive model but rather the actual facts of the case. In the course of their press conference, they addressed the question of whether or not California should have shut down much of its economy. Their answer is no. They conclude with the need to open up immediately, on grounds of health and human rights. 

“If you’re going to dance on someone’s constitutional rights you better have a good reason, you better have a really good reason, not just a theory,” he said.

“The data is showing us it’s time to lift (the stay-at-home orders) so if we don’t lift, what is the reason?”

Here are some selected quotes from their interview with a hostile reporter (emphasis added).

We’d like to look at how we’ve responded as a nation, and why you responded. Our first initial response two months ago was a little bit of fear: [the government] decided to shut down travel to and from China. These are good ideas when you don’t have any facts. [Governments] decided to keep people at home and isolate them. Typically you quarantine the sick. When someone has measles you quarantine them. We’ve never seen where we quarantine the healthy. 

So that’s kind of how we started. We don’t know what’s going on, we see this new virus. How should we respond? So we did that initially, and over the last couple months we’ve gained a lot of data typically. We’re going to go over the numbers a little bit to kind of help you see how widespread COVID is, and see how we should be responding to it based on its prevalence throughout society—or the existence of the cases that we already know about….

So if you look at California—these numbers are from yesterday—we have 33,865 COVID cases, out of a total of 280,900 total tested. That’s 12% of Californians were positive for COVID. So we don’t, the initial—as you guys know, the initial models were woefully inaccurate. They predicted millions of cases of death – not of prevalence or incidence – but death.

That is not materializing. What is materializing is, in the state of California is 12% positives.

You have a 0.03% chance of dying from COVID in the state of California. Does that necessitate sheltering in place? Does that necessitate shutting down medical systems? Does that necessitate people being out of work?

96% of people in California who get COVID would recover, with almost no significant sequelae;  or no significant continuing medical problems. Two months ago we didn’t know this. The more you test, the more positives you get. The prevalence number goes up, and the death rate stays the same. So [the death rate] gets smaller and smaller and smaller. And as we move through this data—what I want you to see is—millions of cases, small death. Millions of cases, small death. 

We extrapolate data, we test people, and then we extrapolate for the entire community based on the numbers. The initial models were so inaccurate they’re not even correct. And some of them were based on social distancing and still predicted hundreds of thousands of deaths, which has been inaccurate. In New York the ones they tested they found 39% positive. So if they tested the whole state would we indeed have 7.5 million cases? We don’t know; we will never test the entire state. So we extrapolate out; we use the data we have because it’s the most we have versus a predictive model that has been nowhere in the ballpark of accurate. How many deaths do they have? 19,410 out of 19 million people, which is a 0.1% chance of dying from COVID in the state of New York. If you are indeed diagnosed with COVID-19, 92% of you will recover.

We’ve tested over 4 million… which gives us a 19.6% positive out of those who are tested for COVID-19. So if this is a typical extrapolation 328 million people times 19.6 is 64 million. That’s a significant amount of people with COVID; it’s similar to the flu. If you study the numbers in 2017 and 2018 we had 50 to 60 million with the flu. And we had a similar death rate in the deaths the United States were 43,545—similar to the flu of 2017-2018. We always have between 37,000 and 60,000 deaths in the United States, every single year. No pandemic talk. No shelter-in-place. No shutting down businesses… 

We do thousands of flu tests every year. We don’t report every one, because the flu is ubiquitous and to that note we have a flu vaccine. How many people even get the flu vaccine? The flu is dangerous, it kills people. Just because you have a vaccine doesn’t mean it’s gonna be everywhere and it doesn’t mean everyone’s going to take it… I would say probably 50% of the public doesn’t even want it. Just because you have a vaccine—unless you forced it on the public—doesn’t mean they’re going to take it.

Norway has locked down; Sweden does not have lock down. What happened in those two countries? Are they vastly different? Did Sweden have a massive outbreak of cases? Did Norway have nothing? Let’s look at the numbers. Sweden has 15,322 cases of COVID—21% of all those tested came out positive for COVID. What’s the population of Sweden? About 10.4 million. So if we extrapolate out the data about 2 million cases of COVID in Sweden. They did a little bit of social distancing; they would wear masks and separate; they went to schools; stores were open. They were almost about their normal daily life with a little bit of social distancing. They had how many deaths? 1,765. California’s had 1,220 with isolation. No isolation: 1,765. We have more people. Norway: its next-door neighbor. These are two Scandinavian nations; we can compare them as they are similar. 4.9% of all COVID tests were positive in Norway. Population of Norway: 5.4 million. So if we extrapolate the data, as we’ve been doing, which is the best we can do at this point, they have about 1.3 million cases. Now their deaths as a total number, were 182. So you have a 0.003 chance of death as a citizen of Norway and a 97% recovery. Their numbers are a little bit better. Does it necessitate shutdown, loss of jobs, destruction of the oil company, furloughing doctors?

I wanted to talk about the effects of COVID-19, the secondary effects. COVID-19 is one aspect of our health sector. What has it caused to have us be involved in social isolation?  What does it cause that we are seeing the community respond to? Child molestation is increasing at a severe rate. We could go over multiple cases of children who have been molested due to angry family members who are intoxicated, who are home, who have no paycheck. Spousal abuse: we are seeing people coming in here with black eyes and cuts on their face. It’s an obvious abuse of case. These are things that will affect them for a lifetime, not for a season. Alcoholism, anxiety, depression, suicide. Suicide is spiking; education is dropped off; economic collapse. Medical industry we’re all suffering because our staff isn’t here and we have no volume. We have clinics from Fresno to San Diego and these things are spiking in our community. These things will affect people for a lifetime, not for a season. 

I’d like to go over some basic things about how the immune system functions so people have a good understanding. The immune system is built by exposure to antigens: viruses, bacteria.  When you’re a little child crawling on the ground, putting stuff in your mouth, viruses and bacteria come in. You form an antigen antibody complex. You form IgG IgM. This is how your immune system is built. You don’t take a small child put them in bubble wrap in a room and say, “go have a healthy immune system.” 

This is immunology, microbiology 101. This is the basis of what we’ve known for years. When you take human beings and you say, “go into your house, clean all your counters—Lysol them down you’re gonna kill 99% of viruses and bacteria; wear a mask; don’t go outside,” what does it do to our immune system? Our immune system is used to touching. We share bacteria. Staphylococcus, streptococcal, bacteria, viruses. 

Sheltering in place decreases your immune system. And then as we all come out of shelter in place with a lower immune system and start trading viruses, bacteria—what do you think is going to happen? Disease is going to spike. And then you’ve got diseases spike—amongst a hospital system with furloughed doctors and nurses. This is not the combination we want to set up for a healthy society. It doesn’t make any sense.

…Did we respond appropriately? Initially the response, fine shut it down, but as the data comes across—and we say now, wait a second, we’ve never, ever responded like this in the history of the country why are we doing this now? Any time you have something new in the community medical community it sparks fear—and I would have done what Dr. Fauci did—so we both would have initially. Because the first thing you do is, you want to make sure you limit liability—and deaths—and I think what they did was brilliant, initially. But you know, looking at theories and models—which is what these folks use—is very different than the way the actual virus presents itself throughout communities….

Nobody talks about the fact that coronavirus lives on plastics for three days and we’re all sheltering in place. Where’d you get your water bottles from? Costco. Where did you get that plastic shovel from? Home Depot. If I swab things in your home I would likely find COVID-19. And so you think you’re protected. Do you see the lack of consistency here? Do you think you’re protected from COVID when you wear gloves that transfer disease everywhere? Those gloves have bacteria all over them. We wear masks in an acute setting to protect us. We’re not wearing masks. Why is that? Because we understand microbiology; we understand immunology; and we want strong immune systems. I don’t want to hide in my home, develop a weak immune system, and then come out and get disease.

When someone dies in this country right now they’re not talking about the high blood pressure, the diabetes, the stroke. They say they died from COVID. We’ve been to hundreds of autopsies. You don’t talk about one thing, you talk about comorbidities. COVID was part of it, it is not the reason they died folks. When I’m writing up my death report I’m being pressured to add COVID. 

Why is that? Why are we being pressured to add COVID? To maybe increase the numbers, and make it look a little bit worse than it is. We’re being pressured in-house to add COVID to the diagnostic list when we think it has nothing to do with the actual cause of death. The actual cause of death was not COVID, but it’s being reported as one of the disease processes and being added to the death list. COVID didn’t kill them, 25 years of tobacco use killed.

There’s two ways to get rid of virus: either burns itself out or herd immunity. For hundreds of years we relied on herd immunity. Viruses kill people, end of story. The flu kills people. COVID kills people. But for the rest of us we develop herd immunity. We developed the ability to take this virus in and defeat it and for the vast majority 95% of those around the globe. Do you want your immune system built or do you want it not built? The building blocks of your immune system is a virus and bacteria. There’s normal bacteria in normal flora that we have to be exposed to bacteria and viruses that are not virulent are our friends. They protect us against bad bacteria and bad viruses. 

Right now, if you look at Dr. Erikson’s skin or my skin we have strep, we have stuff—they protect us against opportunistic infections. That’s why for the first three to six months [babies are] extremely vulnerable to opportunistic infection. Which is why, when we see a little baby in the ER with fever who is one month old, you do a spinal tap, you do a chest x-ray, you do blood cultures, you do urine cultures. But if you had a fever I wouldn’t do that for you. Why? Because that baby does not have the normal bacteria and flora from the community, whereas you do. I guarantee when we reopen there’s going to be a huge, huge amount of illness that’s going to be rampant because our immune systems have weakened. That’s just basic immunology.

Do we need to still shelter in place? Our answer is emphatically no. Do we need businesses to be shut down? Emphatically no. Do we need to have it, do we need to test them, and get them back to work? Yes, we do. The the secondary effects that we went over—the child abuse, alcoholism, loss of revenue—all these are, in our opinion, a significantly more detrimental thing to society than a virus that has proven similar in nature to the seasonal flu we have every year. 

We also need to put measures in place so economic shutdown like this does not happen again. We want to make sure we understand that quarantining the sick is what we do, not quarantine the healthy. We need to make sure if you’re gonna dance on someone’s constitutional rights you better have a good reason. You better have a really good scientific reason, and not just theory. 

One of the most important things is we need our hospitals back up. We need our furloughed doctors back. We need our nurses back. Because when we lift this thing, we’re gonna need all hands on deck. I know the local hospitals have closed two floors. Folks, that’s not the situation you want. We’re essentially setting ourselves up to have minimal staff, and we’re going to have significant disease. That’s the wrong combination. 

I’ve talked to our local head of the Health Department and he’s waiting… for the powers that be to lift. Because the data is showing it’s time to lift. I would start slowly [open up schools sporting events] I think we need to open up the schools start getting kids back to the immune system you know and the major events the sporting events these are non-essential let’s get back to those slowly let’s start with schools let’s start with cafe Rio and the pizza place here… Does that make sense to you guys and I think I can go into Costco and I can shop with people and there’s probably a couple hundred people but I can’t go in Cafe Rio so big businesses are open little businesses are not….

Eventually we treat this like we treat flu. Which is if you have the flu and you’re feeling fever and body aches you just stay home if you have coughing or shortness of breath—COVID is more of a respiratory thing—you stay home. You don’t get tested, even when people come with flu a lot of times we don’t test them. We go, “you have flu. Here’s a medication.” You have COVID, go home, let it resolve and come back negative. 

If you have no symptoms you should be able to return to work. Are you an asymptomatic viral spreader? Maybe, but we can’t test all of humanity. Sure we’re gonna miss cases of coronavirus, just like we miss cases of the flu. It would be nice to capture every coronavirus patient, but is that realistic? Are we gonna keep the economy shut down for two years and vaccinate everybody? That’s an unrealistic expectation. You’re going to cause financial ruin, domestic violence, suicide, rape, violence and what are you going to get out of it? You’re still going to miss a lot of cases. So we need to treat this like the flu, which is familiar, and eventually this will mutate and become less and less virulent… 

I don’t need a double-blind clinically controlled trial to tell me if sheltering in place is appropriate, that is a college-level understanding of microbiology. A lot of times in medicine you have to make you have to make educated decisions with the data that you have. I can sit up in the 47th-floor in the penthouse and say we should do this, this, and this, but I haven’t seen a patient for 20 years—that’s not realistic. 

If you’re healthy and you don’t have significant comorbidities and you know you’re not immunodeficient and you’re not elderly you should be able to go out without any gloves and without a mask. If you are those things you should either shelter in place or wear a mask and gloves. I don’t think everybody needs to wear the masks and gloves because it reduces your bacterial flora… and your bacterial flora and your viruses your friends that protect you from other diseases [if they] end up going away and now you’re more likely to get opportunistic infections infections that are hoping you don’t have your good bugs fighting for you.

The videos are embedded below. ..


Tyler Durden

Sun, 04/26/2020 – 16:45

via ZeroHedge News https://ift.tt/3eRINob Tyler Durden

WHO Deletes Misleading Tweet That Spread Paranoia About COVID-19 Reinfection

This weekend the World Health Organization (WHO) had to delete a misleading tweet about the coronavirus. Unfortunately, several media outlets had already cited it, spreading unwarranted fear about the likelihood of secondary COVID-19 infections.

On Friday, the WHO published a scientific brief on “immunity passports“—the idea that governments should grant special documents to citizens who test positive for COVID-19 antibodies, allowing them to move about freely. The WHO warned that this is premature, since “no study has evaluated whether the presence of antibodies to SARS-CoV-2 confers immunity to subsequent infection by this virus in humans.”

The WHO is correct that scientists have not determined the degree of immunity enjoyed by COVID-19 survivors. But the tweet version of the brief was missing important context, and it said only this: “There is currently no evidence that people who have recovered from #COVID19 and have antibodies are protected from a second infection.”

That’s technically true: There’s no evidence of immunity. But that’s because COVID-19 is new and the matter hasn’t been conclusively studied yet. Scientists have good reason to expect COVID-19 survivors to have some immunity to the virus, though they’re unsure how strong it will be or how long it will last.

“When they say ‘no evidence’ they mean something like ‘no definitive proof, yet,'” wrote statistician Nate Silver in response to the WHO tweet. “But the average person is going to read it as ‘there’s no immunity to coronavirus,’ which is likely false and not a good summation of the evidence.”

Indeed, Bloomberg News reported this story with the headline “WHO Warns You May Catch Coronavirus More Than Once.” Here’s how the article started:

Catching Covid-19 once may not protect you from getting it again, according to the World Health Organization, a finding that could jeopardize efforts to allow people to return to work after recovering from the virus.

That’s just wrong. There is no “finding” to speak of here, just an absence of definitive proof that antibodies confer a degree of immunity. Many readers undoubtedly would come away from these statements with a level of anxiety—You can get it again! We’re doomed!—that isn’t merited.

The WHO ultimately conceded that its declarations about immunity passports were overly pessimistic and deleted the tweet in question.

From parroting the Chinese communist government’s lies about COVID-19 to wrongly warning people against wearing masks, the WHO has badly mishandled its communications about the pandemic. The organization really needs to get its act together.

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WHO Deletes Misleading Tweet That Spread Paranoia About COVID-19 Reinfection

This weekend the World Health Organization (WHO) had to delete a misleading tweet about the coronavirus. Unfortunately, several media outlets had already cited it, spreading unwarranted fear about the likelihood of secondary COVID-19 infections.

On Friday, the WHO published a scientific brief on “immunity passports“—the idea that governments should grant special documents to citizens who test positive for COVID-19 antibodies, allowing them to move about freely. The WHO warned that this is premature, since “no study has evaluated whether the presence of antibodies to SARS-CoV-2 confers immunity to subsequent infection by this virus in humans.”

The WHO is correct that scientists have not determined the degree of immunity enjoyed by COVID-19 survivors. But the tweet version of the brief was missing important context, and it said only this: “There is currently no evidence that people who have recovered from #COVID19 and have antibodies are protected from a second infection.”

That’s technically true: There’s no evidence of immunity. But that’s because COVID-19 is new and the matter hasn’t been conclusively studied yet. Scientists have good reason to expect COVID-19 survivors to have some immunity to the virus, though they’re unsure how strong it will be or how long it will last.

“When they say ‘no evidence’ they mean something like ‘no definitive proof, yet,'” wrote statistician Nate Silver in response to the WHO tweet. “But the average person is going to read it as ‘there’s no immunity to coronavirus,’ which is likely false and not a good summation of the evidence.”

Indeed, Bloomberg News reported this story with the headline “WHO Warns You May Catch Coronavirus More Than Once.” Here’s how the article started:

Catching Covid-19 once may not protect you from getting it again, according to the World Health Organization, a finding that could jeopardize efforts to allow people to return to work after recovering from the virus.

That’s just wrong. There is no “finding” to speak of here, just an absence of definitive proof that antibodies confer a degree of immunity. Many readers undoubtedly would come away from these statements with a level of anxiety—You can get it again! We’re doomed!—that isn’t merited.

The WHO ultimately conceded that its declarations about immunity passports were overly pessimistic and deleted the tweet in question.

From parroting the Chinese communist government’s lies about COVID-19 to wrongly warning people against wearing masks, the WHO has badly mishandled its communications about the pandemic. The organization really needs to get its act together.

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Goldman Sees Imminent “Momentum” Crash As All S&P Gains Come From Just 5 Stocks

Goldman Sees Imminent “Momentum” Crash As All S&P Gains Come From Just 5 Stocks

With a third of companies having reported Q1 results so far, earnings season has proven to be neither a spoiler nor a catalyst, with modest market reaction to some truly horrific numbers as investors are now ready to ignore earnings until well into 2021 when a V or U-shaped recovery is expected to kick in.

That said, the numbers have been mixed, for anyone monitoring rather than looking through them because they are the fuzziest figures since Q1 2009 just after Lehman’s bankruptcy. While 65% of US companies that have reported beat estimates (vs 50% in Europe and Japan), this represents the worst margin in a decade.

Meanwhile, those hoping for some guidance will have to keep waiting as visibility from the C-suite is so poor that almost 90% of reporting companies have withdrawn guidance. Worse, the actual numbers for Q1 which caught the tail end of March as much of corporate America shut down, are coming in horrendous with US EPS of -24% yoy is coming in some 9% lower than consensus expectations, which raises questions about whether a prevailing view for rapid earnings recovery in H2 are too optimistic, as JPM cautions. On a rolling four-quarter basis, the consensus has S&P earnings surpassing pre-crisis levels by Q4 2020, which would be tough to reconcile with the JPM Economics view that GDP will not return to pre-crisis levels until after 2021, even though JPM’s Marko Kolanovic now expects new S&P500 all time highs in the first half of 2021 (using a rather ornate DCF of the entire S&P500 to justify his view).

Which in turn brings us to something we showed two weeks ago when we noted that the “the S&P is now just a handful of mega stocks, because as the chart below shows the largest 5 stocks in S&P500 now account for 22% of market cap, even higher than during the dot com bubble.”

Picking up on this observation, Goldman’s David Kostin in his latest Weekly Kickstart writes that the fundamental volatility captured in 1Q earnings reports explains why stock return dispersion has jumped to the highest level since the Financial Crisis. According to the Goldman strategist, “the gap between the three month returns of the S&P 500 stock one standard deviation above the average vs. one standard deviation below the average has registered 40%, nearly twice the 10-year average of 23%.”

What is bizarre, is that this split in the market has occurred despite average stock correlations reaching the highest levels on record, a dynamic that would normally reduce return dispersion. One explanation for this paradoxical confluence is that record correlations have been outweighed by extreme price volatility and a wide gap between the outlooks for stocks perceived to be most vulnerable to the current economic shock (virtually all stocks except the 10 biggest ones) and those with the most resilient balance sheets and business models (mostly Microsoft, Apple, Amazon, Alphabet and Facebook).

To validate this observation, Kostin notes that Goldman’s Strong Balance Sheet basket has returned -5% YTD while the Weak Balance Sheet basket has returned -27%.

More confounding for so-called “stock pickers” is that not only did return dispersion rise during the market sell-off, but it has also increased during the market rebound. AS a result, many stocks that outperformed during the market sell-off have continued to outperform even with the S&P 500 retracing half of its drawdown, and nowhere is this more obvious than in the steamrolling of value stocks by “growth” names…

… and also of large-caps over small-caps… 

where the divergence is now unprecedented.

Indeed, as shown above, as the market swooned in late February and March, investors rotated to strong balance sheets, large-caps, Technology companies, and other “quality” stocks viewed as safe havens. These stocks lagged during the first two weeks of the market rebound following its March 23 bottom but have resumed their outperformance more recently as investors remain concerned about the outlook for corporate earnings despite the boost to valuations from extraordinary policy support.

Which brings us to what is the one concern more often cited among Goldman clients. According to Kostin, the persistent outperformance of a handful of mega-cap stocks has supported the level of the S&P 500 index but raised investor concerns about narrow market breadth.

As Kostin puts it, “many market participants – ourselves included – have expressed incredulity at the fact that the S&P 500 trades just 17% below its all-time high amid the largest economic shock in nearly a century.”

However, below the surface of the market, the median S&P 500 constituent trades 28% below its record high. This 11
percentage point gap is one measure of market breadth…

… which now stands roughly a standard deviation below its historical average.

Going back to our thesis that “The Market Is Now Just 5 Stocks“, Kostin next notes that because many of the recent  outperformers had also been market leaders prior to the coronacrisis, their recent gains have led to a surge in already- elevated market concentration. While coming into 2020, the five largest S&P 500 stocks accounted for 18% of index market cap, matching the share at the peak of the Tech Bubble in March 2000, since then, those stocks (MSFT, AAPL, AMZN, GOOGL, FB) have risen to account for 20% of market cap, representing the highest concentration on record.

Which brings us to Goldman’s ominous warning #1: “We opined in January that the earnings power and valuations of the top five stocks suggested they could avoid the fate of the top stocks in 2000. However, the further market concentration rises, the harder it will be for the S&P 500 index to keep rising without more broad-based participation.” In other words, if the dispersion continues to soar, and if the entire upside in the S&P500 is thanks to just five stocks, not even Goldman can see a happy ending.

If that wasn’t enough, Goldman also has an ominous warning #2, namely that sharp declines in market breadth in the past, of the kind we see now, have often signaled large market drawdowns. For example, in addition to the Tech Bubble, breadth narrowed ahead of the recessions in 1990 and 2008 and the economic slowdowns of 2011 and 2016.  This is also observed empirically, as historically sharply narrowing breadth has signaled below-average 1-, 3-, and 6-month S&P 500 returns as well as larger-than-average prospective drawdowns.

That said, Goldman refuses to put a timeline to its dour outlook, and notes that periods of narrow market breadth can last for extended periods. Since 1980, the breadth measure charted in Exhibit 2 has indicated 14 episodes of breadth narrowing more than one standard deviation, as it does today. The median episode persisted for three months, with the longest lasting 27 months from 1998-2000.

However, eventually, “narrow market breadth is always resolved the same way. Often, narrow rallies lead to large drawdowns as the handful of market leaders ultimately fail to generate enough fundamental earnings strength to justify elevated valuations and investor crowding. In these cases, the market leaders “catch down” to weaker peers.” This is the scenario laid out by Nomura last week in our post Spectacular Momentum Crash” Imminent As Record Human Hedge Fund Selling Meets Furious Robot CTAs Buying.” In other cases, an improving economic outlook and strengthening investor sentiment help laggards “catch up” to the market leaders, which also results in a violent drawdown as the leaders get repriced sharply lower.

The bottom line, however, is that in both cases, “on a relative basis the outperformance of market leaders eventually gives way to underperformance.”

What does this mean in practical terms? As Goldman concludes, since 1980, its long/short Momentum factor has generated a median unconditional 12-month return of +400 bp “but a 12-month return of -300 bp following periods of narrow market breadth like today.” In short, while it may not necessarily be “spectacular”, Goldman agrees with Nomura that a momentum crash is dead ahead.  And with that pessimistic view, Goldman – which just two weeks ago called the “bottom” in the S&P500, has joined Morgan Stanley’s “notorious bear-turned-bull” Michael Wilson in warning that stocks are now overbought and that a “correction will begin soon.”

Finally, Goldman has a word of hope for all those who have been crushed by the growth-over-value and large-over-small cap steamrolling: first, small-caps and laggards have outperformed coming out of every bear market and major market correction during the last 40 year. Furthermore, “in the past, wide valuation dispersion has been a strong signal for value stock outperformance over 2- and 3-year horizons but has been a much weaker indicator for short-term returns.”

Now if only we had the same level of comfort as Goldman, that we are coming out of a major market correction instead of just enjoying a record bear market rally as shown in this chart from Deutsche Bank…

… before we enter the next one.


Tyler Durden

Sun, 04/26/2020 – 16:20

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Bitcoin’s Bull-Case Gets Big Boost As Calls For Negative Rates Mount

Bitcoin’s Bull-Case Gets Big Boost As Calls For Negative Rates Mount

Authored by Nick Chong via Bitcoinist.com,

One of the most prominent Bitcoin narratives is that it is an asset not correlated with the going-ons of Wall Street, of the traditional world. Although this was seemingly the case for much of its earliest years, the past few years have seen macroeconomic and geopolitical trends affect the cryptocurrency market.

This was accentuated in March when there was a global liquidity event that saw investors in all markets rush to sell their assets for U.S. dollars.

On March 12th, stocks, commodities, Bitcoin, and even precious metals all fell in tandem, experiencing their worst trading days in years. That day has since been dubbed “Black Thursday.”

But, the effect that traditional finance has on Bitcoin could be a good thing, with the asset’s bull case recently getting a massive boost as calls for negative interest rates in the U.S. have mounted.

NEGATIVE INTEREST RATES IN THE U.S.?

Over the past few weeks, the economic situation around the world has trended worse and worse, despite the 35% rally in the S&P 500 and similar gains in other assets like Bitcoin and gold.

To combat these trends, the central banks and governments of the world have gone into overdrive, embarking on more fiscal and monetary stimulus than ever before in an attempt to save companies, save people, and ultimately save society. It’s a move that has had Bitcoin bulls buzzing.

In the past two months alone, the U.S. Federal Reserve has added over $2.3 trillion to its balance sheet, which is a 50% increase from its year-end balance for 2019. But it isn’t enough, analysts are saying.

Narayana Kocherlakota, an economist who served as president of the Federal Reserve Bank of Minneapolis in the six years after 2008, recently penned a Bloomberg article titled “The Fed Should Go Negative Next Week” outlining a case for the U.S. central bank to bring rates to the negative.

This was echoed by Alan Greenspan, a former Fed chairman, late last year.

Tyler Winklevoss, the co-founder of Gemini and a prominent Bitcoin bull, commented on Kocherlakota’s article with the tweet seen below, accentuating how he thinks this move would be unprecedented and potentially dangerous.

WHY BITCOIN IS A SOLUTION

The idea goes that Bitcoin stands to benefit from this trend.

Unlike cash, which soon may require soon be expensive to hold due to negative interest rates, Bitcoin offers 0% yield and is a relatively deflationary currency due to the existence of halvings.

Furthermore, the idea goes that with negative interest rates, with increasingly bizarre monetary policy, comes the slow (but increasingly rapid) debasement of fiat currency, which should prove to be a benefit for a scarce and decentralized form of money like Bitcoin or gold.


Tyler Durden

Sun, 04/26/2020 – 15:55

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Bank Of China Clients Lose Over $1 Billion During Oil Crash, Many End Up Owing The Bank Money

Bank Of China Clients Lose Over $1 Billion During Oil Crash, Many End Up Owing The Bank Money

It’s not just investors in the largest US oil ETF, the USO, the suffered billions in losses last week after WTI plunged, its May contract settling at minus $37.63 on Monday: the shockwave from the crash in near-dated crude prices, which has forced the USO to halt for trading on several occasions as it scrambles to rebalance daily and purchase as many longer-dated futures as it possibly can to avoid another deliverable disaster and stay in business, has also wiped out countless Chinese investors, many of whom ended up owing money to the bank.

The latest Bank of China estimates for the carnage to retail investors from the collapse in a product linked to U.S. crude oil futures has surged 11-fold to more than 7 billion yuan ($1 billion) as it consolidated reports from its nationwide network, Bloomberg reported. The fourth largest Chinese bank’s estimate of losses to customers across China increased from just 600 million yuan in the middle of last week as more information was gathered from its over 10,000 outlets, said the sources. And since the number “isn’t final and subject to further changes as the lender examines the data from its branches”, the full loss will likely be even greater.

The losses stem from the bank settling May West Texas Intermediate contracts that underpinned its very inappropriately named “Crude Oil Treasure” (Yuan You Bao in Chinese) product on April 20 at minus $37.63 a barrel, leaving Bank of China customers caught in the middle of oil’s unprecedented collapse below zero, one which some had speculated could leave clients owing money to the bank. Hundreds of investor took to the Internet to protest the lender’s handling of the contract rollover and to demand it shoulder some of the losses.

Bank of China hasn’t disclosed the size or performance of “Crude Oil Treasure” since launching the product in January 2018, although it did suspend trading in the product on Tuesday after Monday’s historic rout. China’s biggest banks including China Construction Bank and Bank of Communications also halted sales of similar vehicles that had become a popular way for individuals to speculate on swings in oil.

More than 60,000 clients have invested in Bank of China’s product, Caixin reported, adding that investors have lost their margins of 4.2 billion and owed the bank a further 5.8 billion yuan. BoC said Wednesday that investors still need to settle their positions at the Monday WTI settlement price, and the bank has completed settlement of all May contracts. Over the next few days, more investors were likely settling their losses with some strategically disappearing and hoping they can leave the bank to foot the bill. As Caixin adds, one investor took a 9.2 million yuan ($1.3 million) loss on a 3.9 million yuan investment in the product, according to a document circulating online. The oil price slump left the investor owing 5.3 million yuan to the bank.

On Saturday, Bloomberg carried a vivid depiction of how some Chinese investors lost all their life savings in the blink of an eye investing in the “Crude Oil Treasure”:

26-year-old named A’Xiang Chen watched events unfold on her phone in stunned disbelief. A few weeks earlier, she and and her boyfriend had sunk their entire nest egg of about $10,000 into a product that the state-run Bank of China dubbed Yuan You Bao, or Crude Oil Treasure.

As the night wore on, A’Xiang began preparing to lose it all. At 10 p.m. in Shenzhen — 10 a.m. in New York — she checked her phone one last time before heading to bed. The price was now $11. Half their savings had been wiped out.

As the couple slept, the rout deepened. The price set new low after new low in rapid-fire succession: the lowest since the Asian financial crisis of the 1990s, the lowest since the oil crises of the 1970s, the first time ever below zero.

And then, in a 20-minute span that ranks among the most extraordinary in the history of financial markets, the price cratered to a level that few, if any, thought conceivable. Around the world, Saudi princes and Texan wildcatters and Russian oligarchs looked on with horror as the world’s most important commodity closed the trading day at a price of minus $37.63. That’s what you’d have to pay someone to take a barrel off your hands.

* * *

“It was mind-bending,” said Keith Kelly, a managing director at the energy group of Compagnie Financiere Tradition SA, a leading broker. “Are you seeing what you think you’re seeing? Are your eyes playing tricks on you?”

For A’Xiang who bet enthusiastically on oil, waking up the next day meant a new world with no life savings. She awoke to a text at 6 a.m. from Bank of China informing her that not only had their savings been lost but that she and her boyfriend may actually owe money.

“When we saw the oil price start plunging, we were prepared that