Trump threatens executive order suspending all immigration. President Donald Trump and Republicans are once again using the mass death and unemployment brought about by COVID-19 to try and institute their favorite flavors of authoritarianism. Last night, the president announced on Twitter that he would be “signing an Executive Order to temporarily suspend immigration into the United States!”
As with a lot of Trump bluster, the president might be overstating the case.
In reality, the executive order has not yet been drafted and will likely not attempt to suspend all immigration, officials from the Department of Homeland Security toldPolitico. “One possibility that has been discussed is an exemption for temporary guest workers, including those who work on farms,” Politico reports. With non-worker visas already severely restricted, “the impact would probably address only immigrants coming here to work.”
Wait you’re telling me the president tweeted a thing that wasn’t a done deal yet? HEAVEN FORFEND https://t.co/T0dhyePM2U
Trump’s immigration-ban tweet comes as the State Department “has been practically begging immigrant healthcare workers to come here to help fight coronavirus and has been offering them emergency visa appointments,” notesThe New York Times‘ Evan Hill. (See here.)
The odds seem pretty good that at tomorrow’s press conference trump will be angrily denying that he ever tweeted out what purported to be an blanket ban on immigration.
Implicit in Trump’s tweet “is that immigrants are spreading COVID-19 in the United States,” notes Alex Nowrasteh, director of immigration studies at the Cato Institute’s Center for Global Liberty and Prosperity. But “there is no relationship between COVID-19 cases or deaths at the county level and the share of the population that is foreign-born in each county,” as Nowrasteh details in this post.
While “the federal government has the legitimate power to restrict immigration or other travel across borders to limit the spread of serious contagious diseases and to protect public health,” blanket bans “are akin to closing the barn door after the horse has escaped,” adds Nowrasteh. “At most, a reduction in travel from China might have delayed the onset of a pandemic for a few weeks after Trump imposed a virtual ban on travelers and immigrants from China on February 2, 2020. But further immigration bans now will have no effect.”
Trump and his allies are largely portraying the possible order as a pro-employment measure, rather than one aimed at public health (which both plays to the Trump base’s preoccupation with foreigners stealing their jobs and avoids any awkwardness around whether the coronavirus outbreak is still a big deal as the president encourages protests against stay-at-home orders).
“There is another side to this issue, of course,” writes Tyler Cowen at Bloomberg: “Many countries may decide to continue to limit visitors from the U.S. The American government might then respond by restricting in-migration from those countries.”
In any event, the president has moved on this morning to more ranting about how good his TV press conference “ratings” are and how powerful people in media won’t acknowledge it. Trump may give his base some red meat with overstated promises about immigration, but the only thing that truly seems to animate the man himself is projecting popularity.
FREE MINDS
With this Zoom, I thee wed… New Yorkers can now get married via video chat. Gov. Andrew Cuomo issued an executive order saying clerks can perform ceremonies remotely, which was banned. “Many marriage bureaus have temporarily closed as a result of the COVID-19 pandemic, preventing New Yorkers from getting a marriage license during the current health emergency,” the governor’s office said in a press release, also noting that this permission will only be temporary.
FREE MARKETS
Federal labeling laws make pandemic grocery store shortages worse. The problem right now isn’t that there’s a food shortage, explainsReason‘s Eric Boehm, but rather supply chain issues. And picky laws about how food can be packaged and labeled for sale to restaurants versus grocery stores means that a lot of products sitting in storage—or going to waste—while restaurants are shut down cannot be repurposed for sale to grocery stores, even if the food content is identical.
QUICK HITS
• For new Hulu series Little Fires Everywhere, Kerry Washington and Reese Witherspoon “both tossed leading-lady egos aside to play thoroughly unappealing bullies whose sophisticate veneers quickly give way to the streetfighters inside,” writes Kurt Loder. “Watch out for them, but watch.”
• Should Justin Amash run for president? Reasoneditors discuss.
• Fifty-eight percent of voters want a vote-by-mail option this fall, according to a new NBC/Wall Street Journalpoll.
• This new study doesn’t bode well for opening back up restaurants and bars with slight modifications such as more spaced-out tables. But it does add more fuel to the theory that “coronavirus is primarily transmitted through larger respiratory droplets, which fall out of the air more quickly than smaller droplets known as aerosols, which can float for hours.”
• The Centers for Disease Control and Prevention’s (CDC) bungling of early testing for COVID-19 just keeps getting worse. In February, the CDC “sent states tainted test kits in early February, that were themselves seeded with the virus,” notesArs Technica.
• Some good news, for a change:
Huge news! At-home testing will help prevent hospital-acquired infections and reduce the crushing demand for PPE by healthcare workers currently collecting samples. pic.twitter.com/IgAEgHoyHk
The headlines say it all this morning… Everything from negative oil prices, to Richard Branson offering Necker Island as collateral to bail his airlines – too late; Virgin Oz (which was high on our list of likely airline failures) went down last night. I’m reading about farmers pouring milk down the drains even though we’re crying out for it. Unemployment going through the roof.
If I were the Italian prime minister, I would be reading “The Last Bluff”, the story of how Greece flirted with financial catastrophe and its plan to exit the Euro. It’s a good plan when facing an “all or nothing” crisis-meeting to be forewarned for the moment you storm out the room. (Or, slam down the phone – as will probably happen at Thursday’s virtual EU meeting.)
It’s what you aren’t reading in the news that’s most important.
We assume financial disasters are triggered by financial foolishness; some grandiose investment mistake, a butterfly flapping its wings, or greedy bankers. Not this time.. This time it really is different.
The COVID shock has been sudden and severe. Governments and Central Banks have thrown the kitchen sink at the problem (some less accurately than others). Financial markets are behaving like they think it’s a quick fix.
The scare stories in the media don’t help. The fact the hospitals have coped is great news – after we were primed to expect disaster. But have you noticed how suspiciously some people eye you as you pass on your daily walk? They reckon if you come closer than 2 meters, you’ve effectively already murdered them. Panic buying (bananas have disappeared in Hamble), is another example.
But fear of the virus is not really the problem. Its fear of the future.
This is hitting everyone, every individual on the planet at the most basic level. Everyone is considering just how bad this might get. And never forget – most consumers are only a couple of pay-checks short of financial disaster. Not their fault – that’s the way the system is biased. If we all had lots of money, none of us would be rich.
Although the virus rates appear to have peaked, we still don’t know when we can fully reopen economies. We don’t know about second waves, or RNA mutations, or whether herd immunity is real or not. There are no guarantees about a Vaccine in 6-9 months, new treatments or drugs. Some reports think social distancing could continue for years – spelling the end for aerospace and tourism which account for 14% of global GDP. There will be crisis for a host of other sectors also.
We know all that…
But are markets really accounting from the damage at the individual level?
If you want to form a picture of what’s really happening, you could pick up the phone and talk to your neighbours and friends. Ask them about how they are doing financially, and how confident they feel about the future.
Everyone can tell stories – few of them are positive.
Mine include one of my former crew who is an airline skipper, expecting their first child – salary cut and furloughed while the airline is likely to go bust. Another young friend has seen his income tumble by 80% leaving him and his very young family in crisis as the struggle to pay the mortgage on their tiny London suburban house that cost just slightly less than Necker. Friends with small businesses are fuming about the seas of Red Tape they are encountering trying to access government loans and the Furlough scheme. One of best chums could well be bust well before the bailout comes – and it won’t be his fault that companies that owed him money cant’ pay, won’t pay or have gone bust. Even the optimists are worried. Universities are looking over-extended into the crisis. A chum in private medicine reckons his organisation will be nationalised
From the graduates who joined the market last year to the mightiest financial titans among the Porridge readership – you will all know people who are genuinely struggling. Add your own stories of financial pain to the picture, magnify then across the UK, the US and the Global Economy, and you get a glimpse of just how deep the COVID depression is likely to go. The collapse in confidence is issue that’s really unprecedented about this crisis.
It means consumers won’t be consuming… Demand Shock.
Over the coming months we are going to see global business adopt survival mode. It won’t be about reopening stores and factories. It will be about paring costs to the bone to withstand a massive, potentially long-term, global depression. There is no point talking about V-shapes, or a Nike-tick recovery. This is shaping up to be the ultimate economic shakedown. This could become economic FULL STOP.
That is why the authorities have thrown the rules out of the window, desperately trying to keep economies functional with unlimited money drops and support. But, it wont be all they have to do. There are simply not enough helicopters to save everybody. We are going to see deepening financial hardship with potentially millions unable to pay mortgages, credit cards, student loans, and bills. Governments will need to consider massive debt writeoffs, which could mean the de-facto nationalisation of banking systems to cope.
They can also consider help at the consumer level – policies to boost and stimulate consumption. Loans for home improvement. New housing buying support to kick start the property market, and zero-borrowing cost subsidies. There is much governments can do – but it comes at a dangerous risk cost.
A few countries will be able to cope with the consequences of the massive spending which will be required. It will be monetary. A few nations are secure enough with their own currencies to withstand the likely inflationary burst that is going to follow – a supply shock, followed by a deflationary demand shock, and massive monetary creation. MMT is going to be tested.. In theory it should work.. but..
Most nations are too dollar linked to survive intact. To avoid a global sovereign debt crisis beyond the most fervid imaginations of Bosch, we’re likely to need a vastly empowered and financied IMF to cope – IMF’s $1 trillion lending power is not all it is cracked up to be. Dust off these plans about global sovereign debt forgiveness!
Of course… things are never as bad as we fear they might be… most of the time.
OIL
Very quick comment on oil as this is very well covered in the press. The supply storage issues that drove WTI crude as low as negative $40 last night could well be magnified and repeated next month. Oil keeps pouring out the ground, and no one particularly wants it. It has to go somewhere, and the US is running out of space.
Some say Oil’s a good proxy for global recovery, hence the money we’re seeing flow into Oil ETFs – but that’s a really bad way to play oil. Buying longer dated oil futures isn’t looking so attractive. If you are think of a speculative punt in oil – read this first: Sub-zero Oil prices threaten big-losses for ETF investors.
The really interesting question about oil is which US Producers have taken the biggest hits from the current crisis. I suspect a swathe of mid-size US oil firms just bit the dust. I guess we will find out when the banks announce rising provisions against oil industry losses. More pain.
Schumer Sees Tuesday Passage Of Small Business Relief, Says ‘Agreement On Just About Every Issue’
Chuck Schumer (D-NY) says he thinks the Senate will pass an additional relief bill for small businesses on Tuesday.
“I think we will be able to pass this today,” the Senate Minority Leader said in comments to CNN, adding that last night he was speaking “well past midnight” with House Speaker Nancy Pelosi as well as White House chief of staff Mark Meadows and Treasury Secretary Steven Mnuchin, and that the four of them “came to an agreement on just about every issue,” according to CNBC.
Negotiations come after House Speaker Nancy Pelosi – who has $24,000 in fully stocked fridges, held up the “clean” funding bill which the GOP rushed to introduce in order to replenish the $349 billion Paycheck Protection Program which ran out of funds last week (after hedge funds, large businesses, and publicly traded companies successfully tapped the funds – which banks have been accused in a lawsuit of doling out to large customers first).
“Staff were up all night, writing. There’s still a few more Is to dot and Ts to cross, but we have a deal. And I believe we’ll pass it today,” said Schumer.
As of Sunday night, Democrats and Republicans were negotiating a deal that would allocate $310 billion more into the Paycheck Protection Program, setting aside $60 billion of that sum for rural and minority groups. Another $60 billion would go to the Economic Injury Disaster Loan program, a separate program offering loans for small businesses administered by the Small Business Association.
Treasury Secretary Steven Mnuchin said the deal could include $75 billion in funding for hospitals and $25 billion in funding for testing. –CNBC
Democrats have also held up small business relief in order to shift funds to states and local governments, some of which are facing dire cash situations.
World’s Biggest Oil ETF Suspends Sales Of Creation Baskets: “This Shock Is Real… Be Very Careful Out There”
Update (0855ET): USCF has suspended the creation process for its USO baskets…
In the Form 8-K filed on April 20, 2020 (“April 20 Form 8-K”), United States Oil Fund, LP (“USO”), indicated that it would announce through a current report on Form 8-K when USO has determined to temporarily suspend the issuance of additional Creation Baskets. Today, USO issued all of its currently remaining registered shares. The registration statement that USO filed on April 20, 2020 with the Securities and Exchange Commission (“SEC”) to register an additional 4,000,000,000 shares has not been declared effective. As a result, USCF management is suspending the ability of the USO Authorized Purchasers to purchase new creation baskets until such time as the new USO registration statement for the additional shares has been declared effective by the SEC. The ability of Authorized Purchasers to redeem Redemption Baskets during the suspension of the sale of Creation Baskets will remain unaffected. In addition, trading of USO shares on the NYSE Arca, Inc. will not be discontinued as a result of the suspension of sales of Creation Baskets.
USO will issue a subsequent current report on Form 8-K to announce the effectiveness of the above-mentioned registration statement offering the additional, new shares as well as USO’s ability to resume offering Creation Baskets to its Authorized Purchasers.
In English that means the managers are basically transforming USO into a closed-end fund, and a ForexFlowLive notes, they are basically freezing new trades and probably going into management (or damage limitation) mode.
JUST IN: $USO IS HALTING CREATIONS. Shocker but not a shocker, looks like they hit their limit (as per below I thought they had a little more left). They will re-open creations when SEC approves new shares. When will that be? I don’t know. BBG piece on it: https://t.co/9Wr4W9Un6Qhttps://t.co/936ocBu6ob
How long before retail oil investors demand a bailout? When will The Fed start buying USO? Somebody do something!! Think of the children!
* * *
After posting his best month ever in March (up 63.5%), Pierre Andurand – manager of The Andurand Commodities Master Fund, considered by many to be the world’s largest oil hedge fund – is someone worth listening to when it comes to the oil markets.
After yesterday’s catastrophe in oil markets exposed the farcical and fragile relationships between physical and paper oil markets, today’s price action in the ‘out’ futures…
… and the ETFs…
Have destroyed all the bullshit comments yesterday that this was all technical and be reassured that this is not a reflection of reality. It is!
The oil curve just got hammered all the way out, as “cash and carry” arb goes “out of business” along with likely basis-traders blow-outs – but, as Nomura’s Charlie McElligott warned this morning, retail investors (who pumped a record $1.4B into USO last week) are also experiencing the pain of negative carry.
USO is trading at a massive premium to NAV…
Remember, USO ETF represents 30% of the June WTI contract open-interest now (CL2 down -20% right now), while any other systematic roll products were likely still long May contracts, judging from forced-selling over the final 30 minutes of the day closing-trade.
And this is what Pierre Andurand is most concerned about – that the link between the massively dominant Oil ETF and the actual underlying markets is about to snap and leave a gaping hole at CME…
I think the CME might have no other choice but to close out the ETFs positions. It cannot take the risk to have negative prices before the roll and be on the hook.
This shock is real. Be very careful out there. We are going to hear about crazy losses in the days and weeks to come
Nomura’s McElligott goes a little further than Andurand in his questioning of the paper oil markets.
The entire strip for both WTI- and Brent- Crude are collapsing lower today in unison, because yes, there is nowhere to put the stuff (storage tanks, pipelines, supertankers are all full), but also because market participants believe things won’t be getting much better into the future either, as “nobody needs it,” and without storage since you cannot take physical delivery – then what is the “utility” of the futures contract itself?
As far as USO is concerned, despite there not being a redemption mechanism…
Apropos of nothing, circumstances that would constitute a “Termination Event” for USO are as clear as mud
USO will hold something like 30% of June futures at the open today because retail traders have poured money into it, thinking it was a long-term bet on oil. It’s turning into one of the great incinerations of retail money of all time.
Nomura notes that there is certainly a scenario where if June futures were to also go negative, then USO would be “lights out” as a partnership and could actually “owe” money.
Joe Biden Would Pick Michelle Obama As Running Mate ‘In A Heartbeat’
Joe Biden says he’d pick Michelle Obama to be his running mate with no hesitation, though he says he doubts she’d be interested in the position, according to The Hill.
“I’d take her in a heartbeat,” said the former Vice President during a Monday interview with Pittsburgh’s KDKA on Monday. “She’s brilliant. She knows the way around. She is a really fine woman. The Obamas are great friends.”
That said, ” don’t think she has any desire to live near the White House again,” Biden added.
No word on whether he thinks Michelle would be ‘the first mainstream African-Amerian who is articulate and bright and clean and a nice-looking woman’ – praise he showered on Barack Obama in 2007.
Talk of the former First Lady joining Biden on the ticket was given new life over the weekend after a Saturday Op-Ed in the New York Post posited that the Obamas could have eight more years in the White House if Michelle became Biden’s VP, and on January 21, 2021, “On live television, Joe and Dr. Jill Biden tearfully announce that the 78-year-old president is “unable to discharge the powers and duties of his office,” and that under the 25th Amendment, he’s resigning. Michelle Obama is now president of the United States and will not only fill out Biden’s term but will retain her eligibility to run again in her own right in 2024 when she will have turned 60.”
So while it may not be Michelle Obama, Biden says he’s committed to picking a woman as his running mate – though he didn’t comment on whether she will be a minority.
“I’ll commit to that [it will] be a woman because it is very important that my administration look like the public, look like the nation. And there will be, committed that there will be a woman of color on the Supreme Court, that doesn’t mean there won’t be a vice president, as well,” he said.
Sen. Elizabeth Warren (D-Mass.) said last week in an interview with MSNBC’s Rachel Maddow she would say yes if Biden asked her to be vice president, and Sen. Kamala Harris (D-Calif.) said last week she would be “honored” if she were being considered as Biden’s running mate.
Former Georgia gubernatorial candidate Stacey Abrams has also said she would like to serve as vice president.
Abrams told Elle magazine last week she would make an “excellent” running mate for Biden.
Biden also confirmed earlier this month that he is considering Michigan Gov. Gretchen Whitmer (D) for the spot. –The Hill
Biden himself sparked the Michelle Obama rumor at a January campaign stop, where he said “sure would like Michelle to be the vice president.”
Apple Shares Climb On Report Of 4% Boost To iPhone Production
With the Dow futures pointing to another large drop at the open, the good people at Apple have come through with a headline that, for all we know, could have been uniquely crafted to bolster the lagging Dow.
To wit, Apple is apparently planning to boost iPhone production 4% through March, literally the very first economic ‘green shoot’ to emerge amid a torrent of abysmal global economic data and a rash of alarming corporate earnings reports, Nikkei reports.
APPLE AIMS TO INCREASE IPHONE OUTPUT BY 4% THROUGH MARCH:NIKKEI
The company has reportedly notified several of its suppliers that it plans to make about 213 million iPhones in the 12 months through March 2021, up 4% from the same period a year ago, despite some suppliers’ belief that orders could end up being significantly lower. However, a further reading of the story shows that the orders are related to a company plan to ‘stockpile’ its 5G phones over fears about a possible shortage of certain components. Last week, Apple released the new models of its low-end iPhone SE series, a series that’s extremely popular with customers looking for cheaper phones.
Even the suppliers who leaked the story to Nikkei urged caution about Apple’s sunny outlook: “Apple’s production outlook is pretty bullish, and we will need to assess whether it is based on a realistic demand [forecast],” one executive reportedly said. However, “[a]ctual production could be 10% to 20% lower.”
Apple’s shortage fears are likely partially rooted in the fact that Asian smartphone makers are also “starting to reduce their procurement of parts,” according to another executive.
Though the market reaction would suggest that investors are primed and ready for any signs of “green shoots” that might indicate the economic carnage isn’t as terrible as feared, we suspect a quick glance back over at the carnage in the oil market should quickly disabuse them of any misguided optimism that a ‘V’ shaped recovery might still be possible.
I don’t care how hard you’re squinting for green shoots, you cannot convince me that the world’s most important input commodity trading at negative prices isn’t a sign things are very, very bad.
Futures, Oil Plunge As Crude Contagion Spreads To All Markets
The experts said ignore the May WTI meltdown – it is irrelevant and is only confined to the deliverable contract. The experts were wrong.
Not only was the Monday May WTI meltdown not contained, with the contract still trading negative after closing down nearly $40 on Monday in their first ever sub-zero dive as traders realized Cushing was on the out of storage space, but overnight it spread to the more-active June contract which crashed almost 50% plunging to the low teens, before stabilizing down 23.5%, to $15.64 a barrel. June trading volumes were roughly 80 times those of the expiring May contract.
…. with Brent also dragged in, dropping as low as $18/barrel and last trading down $5.25, or 21% at $20.32 per barrel…
… as the world’s oil benchmark dropped below $20. And as the oil meltdown accelerated, it inflicted huge losses sweeping through markets as the world runs out of places to store unwanted crude and grapples with negative pricing.
The plunge in oil is taking place even as President Trump said late on Monday that he is looking at putting as much as 75mln bbls into SPR which would top it out and that the oil price drop is short-term in which a lot of people got caught out and was largely a financial squeeze. Furthermore, Trump suggested oil producers need to do more by the market in terms of output cuts and that the administration will either ask permission from Congress to buy oil or we will store it, while he also responded we will look at it when questioned about stopping shipments of oil from Saudi Arabia.
If the oil crash wasn’t enough, overnight we also got unconfirmed reports that North Korea’s Kim Jong Un was in critical condition (and may have contracted the coronavirus) after a surgery, which slammed Korean assets, and sent the dollar sharply higher, while hitting global stocks and S&P futures, even as traders continued to follow the impact of the ongoing coronavirus epidemic and plunging corporate earnings.
Exxon Mobil dropped 3.7% in premarket trading and Chevron slipped 4.0% as the front month May WTI contracts continued to trade below $0 on Tuesday. Other oil-related companies including Apache, Halliburton, ConocoPhillips, Schlumberger and Occidental Petroleum all tumbled between 6.3% and 11%. Coca-Cola Co provided the latest evidence of the damage wrought by the pandemic, saying its current-quarter results would take a severe hit from low demand for sodas. IBM was also sharply lower after the company reported its lowest revenue in the 21st century and withdrew guidance.
As Bloomberg writes, mystery surrounded Kim Jong Un’s health after U.S. and South Korean officials gave differing accounts of the North Korean leader’s condition. The risk of instability in the region adds to a host of market headaches, including the gut-wrenching oil slump and concerns about the outlook for the global economy.
“The uncertainty about who succeeds him in North Korea is the great unknown,” said Jeffrey Halley, senior market analyst at Oanda Asia Pacific, conjecturing about a potential worst-case scenario for Kim. “That’s what is making markets nervous.”
Meanwhile, President Donald Trump said he’ll sign an executive order temporarily suspending immigration into America as the country tries to contain the spread of the coronavirus. The news came even amid more signs that the outbreak is slowing in hard-hit areas.
In Europe, all markets and industry sectors were in the red as the Stoxx Europe 600 index declined as much as 2.1%, dropping for the first time in 4 days, with energy companies dragging on the gauge despite a sharp rebound in Germany’s ZEW index, which soared from -49.5 to +28.2, smashing expectations. In retrospect, this jump may prove to be premature.
Asian stocks also fell, led by energy and IT; all Asian markets in the region were down, with India’s S&P BSE Sensex Index dropping 3.6% and Taiwan’s Taiex Index falling 2.8%. The Topix declined 1.2%, with IBJ and Asteria falling the most. The Shanghai Composite Index retreated 0.9%, with Shangying Global and Beijing Vantone Real Estate posting the biggest slides.
In FX, the Bloomberg Dollar Spot Index advanced a second day as the dollar climbed against most major currencies, with the won and ruble tumbling and the yen edging up. amid losses in Japanese stocks while EUR/USD traded within recent ranges. The slump in Brent dragged down the Norwegian krone, as the sterling reached a near two-week low, weighed down by renewed Brexit concerns and wider unease on global markets after the rout in the U.S. oil. The kiwi fell versus all its Group- of-10 peers and NZD/USD slid as much as 1% after Reserve Bank of New Zealand Governor Adrian Orr said the central bank was open- minded on direct monetization of government debt.
In rates, the Bund and Treasury curves steepened somewhat while yields plunged, the 10Y yield sliding to the lowest since April 3, while the 5Y TSY yield plunged to an all time low.
Investors will be looking to corporate earnings for more insight on the impact of the coronavirus pandemic, with almost one-fifth of S&P 500 companies reporting this week. Looking at the day ahead, we get March existing homes sales is expected. Coca-Cola, Lockheed Martin, Philip Morris, Chipotle, and Netflix are among companies reporting earnings
Market Snapshot
S&P 500 futures down 0.6% to 2,790.75
STOXX Europe 600 down 1.7% to 330.00
MXAP down 1.8% to 141.46
MXAPJ down 2.3% to 455.77
Nikkei down 2% to 19,280.78
Topix down 1.2% to 1,415.89
Hang Seng Index down 2.2% to 23,793.55
Shanghai Composite down 0.9% to 2,827.01
Sensex down 3.7% to 30,468.34
Australia S&P/ASX 200 down 2.5% to 5,221.30
Kospi down 1% to 1,879.38
Brent futures down 21% to $20.29/bbl
Gold spot down 0.4% to $1,688.44
U.S. Dollar Index up 0.2% to 100.20
German 10Y yield fell 0.9 bps to -0.457%
Euro down 0.3% to $1.0833
Italian 10Y yield rose 14.4 bps to 1.763%
Spanish 10Y yield fell 1.2 bps to 0.879%
Top Overnight News from Bloomberg
The world’s biggest independent oil storage company said that space for traders to store crude and refined fuels has all but run out as a result of the fast-expanding glut that’s been caused by Covid-19
President Donald Trump said he’ll sign an executive order temporarily suspending immigration as the country tries to contain the spread of the coronavirus; Italy will present a plan this week to ease its rigid lockdown, joining Germany, France and Austria in pursuing a gradual return to normality as coronavirus infection rates fall and pressure mounts to reopen businesses
Central-bank balance sheets are expanding to record levels amid their latest buying spree, raising questions about how big they can get and whether those assets can ever be sold back to markets
More signs emerged that the coronavirus outbreak is slowing in hard-hit areas, with the U.S., Italy and U.K. showing smaller gains in new cases. China reported its sixth straight day without a fatality. Hong Kong extended social distancing measures, even as infections have dropped off
Southern U.S. states moved to open their economies, though the nation’s top infectious disease expert warned that relaxing restrictions too soon could cause even more harm
The U.S. is seeking details about Kim Jong Un’s health after receiving information that the North Korean leader was in critical condition after undergoing cardiovascular surgery last week, a U.S. official said. CNN had earlier reported, citing a U.S. official with direct knowledge of the matter, that Kim may be in “grave danger” after the surgery
The Reserve Bank of Australia said it’s likely smaller and less frequent purchases of government bonds would be required if economic and market conditions continued to improve, according to minutes of its April 7 meeting
South Korea’s exports plunged this month so far, underscoring the hit to global trade caused by lockdowns to combat the global coronavirus pandemic. Exports slid 27% during the first 20 days of April from a year earlier, the Korea Customs Service said in a statement Tuesday. Shipments to the country’s biggest trading partner, China, dropped 17%. Semiconductor sales fell 15%
President Donald Trump said he wants to add as much as 75 million barrels of oil to the nation’s Strategic Petroleum Reserve, taking advantage of record low prices for crude, and that he’ll consider blocking imports of crude from Saudi Arabia
President Donald Trump said he’ll sign an executive order temporarily suspending immigration into the United States as the country tries to contain the spread of the coronavirus
Asian equity markets were negative across the board following the weak handover from Wall St where sentiment was subdued. Oil markets drew a lot of attention after WTI crude futures plunged and the May contract turned negative for the first time in history, briefly resulting to losses of over 300% and lows of around USD -40/bbl. This was due to the ongoing supply glut and filling storage culminating to a lack of buying interest on a contract which is due for settlement today. Note, the more widely-traded June contract remained above USD 20/bbl throughout the chaos and the May contract gradually returned to positive territory. ASX 200 (-2.5%) weakened with focus on corporate updates including mixed quarterly production numbers from BHP which subsequently weighed on the mining giant and with Virgin Australia going into voluntary administration in an effort to recapitalize amid the government’s refusal for a bailout. Nikkei 225 (-2.0%) was pressured by the flows into the currency and the KOSPI (-1.0%) was initially among the worst hit amid uncertainty regarding the geopolitical climate for the Korean peninsula after reports that North Korea leader Kim was in grave danger following cardiovascular surgery which boosted defence stocks, although South Korea have denied the reports of Kim’s condition. Elsewhere, Hang Seng (-2.1%) and Shanghai Comp. (-0.9%) also traded lower with underperformance in Hong Kong after social distancing restrictions were extended for 14 days and after the recent sovereign rating downgrade by Fitch. Finally, 10yr JGBs were choppy with initial gains seen amid the risk averse tone and similar upside in T-notes but with price action only mild as participants also digested mixed results from the 20yr JGB auction which saw a lower b/c and wider tail in price.
Top Asian News
Genting Plans Unprecedented Pay Cut as Virus Shuts Casinos
Oil’s Slide Favors India’s Bonds Versus Indonesia, JPMorgan Says
Debt Monetization Is Creeping Closer by the Day in New Zealand
Virgin Australia Becomes First Asia Airline to Fail After Virus
Europe has latched onto the downbeat lead from the Asia-Pac session (Euro Stoxx 50 -2.1%), as oil markets continue to crater whilst stock also weighs the COVID-19 impact on large-cap earnings. US equity futures fare slightly better than its counterparts across the pond – with the prospect of another State-side stimulus package potentially providing some support. Broader sectors are lower across the board and point towards risk aversion. Energy underperforms amid the depressing performance in the crude complex, whilst the breakdown has Oil & Gas as the marked laggard, closely following by Basic Resources and Banks. In terms of individual movers, SAP (-2.3%) fell post earnings after cutting its FY total revenue guidance alongside its FCF guidance, adding to the woes for the IT sector after IBM earnings overnight. The company expects a deterioration in Q2 before gradual improvement in Q3 and Q4. PSA (-0.5%) remains subdued by its respective update in which it sees European car sales -25% and China -10% in FY20. Richemont (-3.0%) and Swatch (-2.9%) bear the brunt of Swiss watch sales slumping over 20% YY.
Top European News
Italy Vows to Reopen as Europe Takes Steps to Ease Virus Curbs
U.K. Takes Heart on Slowing Death Toll With Parliament Returning
SAP Ends Co-CEO Role After Virus Brought Leadership Problem
In FX, it remains to be seen whether the Kiwi and Aussie fall prey to the phenomenon of ‘turnaround Tuesday’, but for now the tide has certainly changed markedly as RBNZ Governor Orr reiterated dovish guidance overnight and the option of more stimulus at the May policy meeting, while his RBA counterpart delivered a daunting economic outlook to compound a sharp decline in wages and the stats bureau publishing figures for March 14-April 4 revealing a 6% drop in employment. In response, Nzd/Usd is back below 0.6000 and Aud/Usd is under 0.6300 again, while the Aud/Nzd cross pivots 1.0500. For the record, RBA minutes did not really impact even though scaling back QE was mentioned if conditions improve. Elsewhere, Loonie losses are accumulating almost in lock-step with oil prices, as WTI and Brent lose grip of Usd12 and Usd19/brl handles respectively in the June contracts after Monday’s May capitulation, with Usd/Cad up through 1.4200 and eyeing 1.4250 ahead of Canadian retail sales data.
USD/JPY – The Yen is marginally eclipsing the Dollar as safe-haven currency of choice amidst renewed risk-off positioning and the ongoing rout in crude markets, as Usd/Jpy edges towards 107.00 and the DXY tests resistance above 100.00 around 100.300 again that has been rejected a couple of times in recent sessions.
NOK/GBP/SEK/CHF/EUR – No shock that the Norwegian Krona, Russian Rouble and Mexican Peso are all underperforming alongside oil, but broader risk asset contagion is also weighing heavily on the likes of the Swedish Crown, British Pound and even Swiss Franc. Indeed, better than expected jobs data and a wider trade surplus have been largely ignored, while the Euro has only derived partial encouragement from the latest German ZEW survey showing some signs of improvement in sentiment to counter the steep deterioration in current conditions. Eur/Nok has been up above 11.5900, Usd/Rub as high as 77.2400+, Usd/Mxn over 24.3000, while Eur/Sek straddles 10.9000, Cable gives up another big figure at 1.2400 and breaches the 21 DMA (1.2357), Usd/Chf rebounds from sub-0.9700 to circa 0.9715 and Eur/Usd rotates either side of 1.0850.
EM – Contrasting fortunes for the Zar and Hkd as the Rand weakens on more SA financial strain given a missed loan payment by the Land and Agricultural Development Bank, while the HKMA has sold Hong Dollars to maintain the peg for the first time in over 4 years despite yesterday’s ratings downgrade by Fitch.
In commodites, WTI and Brent June contracts are posting unprecedented losses. Attention remains on the oil market since yesterday WTI May crude futures plunged to negative territory for the first time in history, briefly resulting to losses of over 300% and lows of around USD -40/bbl. This was sparked by the ongoing supply glut and filling storage culminating to a lack of buying interest on the contract which is due for expiry later today. The volatile price action followed through to today’s trade with WTI June contracts -42% at one point, and Brent down over 25% – with the former dipping below USD 12/bbl, to trigger a 2-minute circuit breaker and the latter residing sub-20/bbl. Russia’s Kremlin emerged amid the volatile action and downplayed the moves in the oil market, stating that its speculation sparked the movements. Kremlin also stated talks between OPEC+ members can be set up if needed; Moscow has all reserves it needs to offset weak oil prices. Meanwhile yesterday, WSJ citing sources noted that Saudi is mulling applying the agreed-upon oil cuts as soon as possible instead of waiting until May 1st. Elsewhere, today will see the second official Texas Railroad Commission (RRC) meeting, where the Texas regulatory agency is expected today to provide more colour on its stance regarding potential oil production curtailment in the state. However, the RRC is reportedly unlikely to vote on a plan to mandate oil production cuts for Texas at the Tuesday meeting, according to Energy Intel citing sources. As a reminder, the meeting last week saw disagreement on whether cuts should be implemented or not, with larger producers mostly arguing for market-driven declines, and smaller players supportive of cuts. Elsewhere, spot gold trades relatively flat and meanders just south of USD 1700/oz. Copper prices meanwhile track sentiment and the downside in stocks, with the red metal now below USD 2.25/lb.
US Event Calendar
10am: Existing Home Sales, est. 5.25m, prior 5.77m
10am: Existing Home Sales MoM, est. -9.01%, prior 6.5%
DB’s Jim Reid concludes the overnight wrap
One of the great things about working through several cycles is that you can recycle old research. Yesterday we updated and republished a chart (originally from 2010) looking at the biggest bailouts in history. Back then we highlighted how ever increasing debt had meant the bailout currency had needed to be inflated perhaps 10 fold in the GFC relative to the past. 10 years and even more debt later and we’ve perhaps had to inflate the bailout currency by an additional 10 times. While we have sympathy for current policy makers given the nature of this shock, the reason the numbers are so big today is due to a 20-30 year “bailout first, ask questions later” approach which has left the world with ever higher debt. See the short note here for more. I look forward to republishing it in another 10 years.
Also a reminder of our April investor survey results ( link here ) from yesterday where we showed the usual market related answers plus people’s views on WFH and when the world will be back to normal post covid-19. We also asked whether people were eating, drinking and exercising more or less during the lockdown.
Yesterday I talked about how I had a gushing flow of water in my garage after a stopcock failed. If you want an image of what it looked like picture one of those movies where you see someone successfully striking oil. However given the current price of oil this leak is potentially more profitable than had we actually struck oil in our back garden. Indeed yesterday this was the main theme in markets as we saw one of the more remarkable moments in financial history and that is a deeply negative oil price – that is paying someone to take delivery. The May contract for WTI, which started the day at $17.85, traded at -$39.55 at one point and in negative territory for a total of about six hours before popping back to $1.43 this morning. This move is all about supply and demand. American energy users and refiners do not have the storage capacity given all that is going on.
This decimation comes ahead of today’s contract expiration, a culmination of sorts for an asset that’s been under immense pressure all year, with WTI and Brent having already lost nearly two-thirds of their value in Q1. According to our colleague Michael Hsueh, the fact that June is currently still trading $21 per barrel should not be seen as a guarantee that this sort of price action could not happen again upon June’s expiry if demand hasn’t increased over the next 2 months. Even prior to the move lower on WTI, lower quality runs of crude were near to or in negative territory, with Wyoming Asphalt Sour – a landlocked stream with higher associated costs than WTI – traded at negative 19 cents a barrel last month.
The moves for oil had knock-on effects in equity markets. By the close the S&P 500 had fallen -1.79% with the Energy industry group a relatively measured -3.30% given the carnage in May WTI. Every sector in the S&P 500 ended the day lower though as the large index moves continue. Yesterday’s move means that the index has only had 3 days under 1% in either direction since the start of March. In Europe the STOXX 600 managed to pare back its losses to record a +0.70% gain, putting the index in a technical bull market, up +20.04% since the March lows. It closed before the US sunk back towards the lows for the session at the final bell.
After the bell IBM announced earnings at $1.84 per share, compared to consensus of $1.81, but posted lower revenues on the quarter compared to a year ago. Also the firm pulled its year-long profit guidance on concerns that the virus outbreak makes it hard for the company to roll out its cloud computing transition. Today the main earnings highlights are from The Coca-Cola Company, Netflix, Philip Morris International, Lockheed Martin and Texas Instruments.
Before we get to that though there’s a couple of overnight stories to report. The first came from CNN who reported that the US is monitoring the health of North Korean leader Kim Jong Un after receiving information that he may be in “grave danger” following cardiovascular surgery last week. Yonhap reported that South Korea has denied the news. Meanwhile, US House Speaker Pelosi has said that the negotiations on an emergency stimulus package of as much as $500bn are “down to the fine print.” She added that the Senate can vote on the measure today and then it can move to the House on Wednesday for vote. The legislation would add funds to the tapped-out Paycheck Protection Program for small businesses and would also provide money for coronavirus testing and overwhelmed hospitals. Staying with the US, President Trump has said that he’ll sign an executive order temporarily suspending immigration as the country fights off the spread of the virus. No further details were mentioned.
Asian markets are following Wall Street’s lead this morning with the Nikkei (-2.17%), Hang Seng (-2.29%), Shanghai Comp (-1.35%), ASX (-1.83%) and Kospi (-1.68%) all down. In FX, the New Zealand dollar has weakened -0.66% after RBNZ Governor Adrian Orr said that he was open to the idea of directly monetizing sovereign debt or buying bonds straight from the government. He also said that the central bank would assess the need for additional stimulus at its May review. Elsewhere, futures on the S&P 500 are down -0.60% while yields on 10y USTs are down –1bp to 0.597%.
Back to yesterday, there was further pressure on European sovereign bonds ahead of Thursday’s pivotal European Council videoconference, with spreads widening across the continent to their highest level in over a month. The spread of yields on 10yr Italian debt over bunds ended the session up +12.2bps at 239bps, while those on Spanish (+5.0bps), Portuguese (+6.0bps) and even French (+1.6bps) debt also widened to one-month highs. So keep an eye out for any further widening of spreads over the next couple of days going into that meeting, and whether the calls for joint debt issuance manage to get any more traction. Assuming not how will they fudge the rescue packages.
On similar lines, we did get some news yesterday from Bloomberg, who reported that the idea of an EU-wide bad bank that we mentioned yesterday had run into resistance from Germany. According to the report, they’re resistant to the idea that they and other northern countries would have to see their taxpayers on the hook for losses accumulated elsewhere, which pretty much echoes the objections made to the idea of ‘coronabonds’.
It was a different story over in the US, where 10yr Treasury yields fell -3.6bps. On the subject of US debt, our economists put out a note yesterday where they forecast that debt-to-GDP ratio is likely to rise to 100% this year, a level not seen since the mid-1940s. Under their base case, the ratio will rise to nearly 125% by the end of the decade, with the possibility of even steeper increases if the pandemic lasted longer than anticipated. In reading through their piece it echoes a lot of what we said in last year’s long term study in that you can control the rise in debt/GDP if you can successfully keep yields notably below nominal GDP. Obviously that won’t happen this year but will likely in the years ahead if the economy gets back to some normality and the Fed control yields. The alternative scenario of yields mean reverting back to their long-term trend is a scary prospect for debt sustainability. Link here.
There wasn’t much in the way of economic data, though we did get the Chicago Fed’s National Activity index, which fell to -4.19 in March (vs. -3.00 expected), its lowest level since January 2009. Meanwhile in Hong Kong, the unemployment rate rose to 4.2% in the January-to-March period, its highest level in over 9 years, while the Spanish central bank predicted that country’s economy could contract by between 6.8% and 12.4% this year.
To the day ahead now, and data releases include UK employment data for February, the German ZEW survey for April, Canada’s retail sales for February, and US existing home sales for March. From central banks, the ECB’s Stournaras will speak, while earnings releases out include The Coca-Cola Company, Netflix, Philip Morris International, Lockheed Martin and Texas Instruments.
Treasury Yields Are Tumbling… 5Y Just Hit Record Lows
As commission-rakers and asset-gatherers cheer the rebound in stocks as if it means anything – remember, stocks are a discounting mechanism (like they were in February?) – bond markets are saying this is far from over.
5Y Treasury yields are now at record lows…
10Y yield is back within a few bps of the record low plunge…
And bonds and stocks are completely decoupled…
Who do you think will be right when this is all over?
Perhaps it is just common sense that markets, as a reflection of human nature, breed repeatable patterns. The tenet that supported risk based strategies held that an all seeing, all knowing Fed could indefinitely extend the cycle by cooking up a witches’ brew of macro-prudential policies, dot plots, QE, not-QE, and if need be, by adding a pinch of negative rates. Well, that way of thinking, has, for now, been banished to the ash heap of history.
At least until the next financial bubble fades the memories of these times.
Once again, the markets have schooled us that risk and volatility can be suppressed, delayed, repriced and mispriced, but as uncertainty is the human condition, risk cannot be avoided nor conquered, just lived with.
If central banks were more reflective, they might learn to practice what they sometime preach: that it is their very penchant for suppressing volatility through low rates and market interventions that encourages imprudence, leverage, and excesses in the use of credit and in risk-taking.
Shield a business from its “natural” ups and downs, provide it with cheap and ready credit, and you can be pretty sure that, over time, such a business will “learn” to be under-equitized and hence ill-prepared for a downturn from which it cannot be so shielded. Ditto for the private citizen who is “taught” that a world without recessions is a world that needs no rainy day fund nor indeed any cushion between expenses and earnings. In short, the central bankers’ “best intentions” set up the private economy like so many bowling pins.
This time around, the bowling ball came down the alley with a fury that hooked all the pins with one single strike. And, of course, no one could have foreseen the first global pandemic of its kind in generations; that said, COVID-19 has revealed the excesses that had been building for years and, alas, had this disease not been the catalyst of the downturn, some other ill wind would surely have done so eventually.
Where does this leave us as investors?
Let’s begin with the poisoned chalice handed to the financial markets by the Fed itself: an improperly arranged economic system with an imprudent financial system to match.
Are we being too harsh?
Consider some of these candidates for practices that perhaps never should have been, and in any case, are unlikely to be standing in the post- COVID-19 economy in any form even resembling their former glory:
WeWork, a company that in just the third quarter 2019 alone managed to lease an incremental 2.8 million square feet of space in the U.S., winning the “crown” of number one leaser in 9 out of the top 10 markets for “flexible space.” Sorry, but the business of taking on long-term leases for top dollar as liabilities and then expecting to be profitable by leasing the space out short-term never was a full cycle strategy.
Covenant-lite leveraged bank lending: no financial reporting, no restrictions…no problem? That is, until credit tightens or the rating agencies downgrade the leveraged loan space pre-empting the distribution of loans into the now voided space of CLO underwriting.
Unicorns with operating losses. Okay, so who now wants to pay for those operating losses hoping that these “bad pennies” can be profitably passed off to the IPO market?
In-rush of non-banks into the riskiest parts of the mortgage lending and investing space encompassing such sectors as non-qualified mortgages (non-QM), non-performing loans (NPLs), re-performing loans (RPLs), and credit risk transfer (CRT) securities. The seizing up of credit combined with margin calls on many of the mortgage REITs has exposed the vulnerabilities of these business models.
Retail commercial space. There’s too much of it.
Massive share repurchases and concomitant re-leveraging of the Fortune 500. EPS accretes in the good times while fallen angels proliferate in the bad.
The relentless expansion of private equity driving over 60% of LBO deals to leverage beyond 6x, in many cases justified with EBITDA add-backs.
Marketplace lending offering “better” terms than regular banks to the small business customer. It’s “better”, that is, until the marketplace lender loses its own financing and is forced to cut the credit lines to its own customers. Again, this never was going to be a full-cycle lending model.
This list could go on and on, but the purpose of the enumeration is to address the question of the day: can we expect a V-recovery when we get to the other side of this, or will we experience a lengthy and painful de-leveraging, even with the helicopter drops?
Many might be inclined to “punt” at this point, as to some the dispositive question is the one that can’t be answered: when does the country—the planet—re-open for business. Obviously, we have no more insight into this matter than does anyone else, though we will be monitoring developments in China as a clue to when the U.S. might re-open. But is this the right question to be asking? It is not. We fervently hope for a quick passing of the public health danger. But even should our wish be granted, we are dubious about the potential for a V-shaped recovery.
Why is this?
The optimists are blithely assuming that when all is said and done, the global economy will more or less reset itself to where it was in January 2020 and resume its preordained trend line of growth. In fact, say some, future growth will be accelerated by the alphabet soup of Fed and government programs providing a multi-trillion dollar Keynesian kick. Were that it was so! Rather, we are inclined to understand the challenges of these times differently.
Even supposing the pandemic fades and the helicopter drops “stimulate” demand, is it really reasonable to believe that:
Consumer and lender preferences return to their pre-pandemic forms and levels? Will the 20%+ of households that find at least one member of their household laid off blithely assume that their jobs are as safe after the event as they perceived them to be before? Will lenders, say in underwriting a candidate for a first time mortgage, be willing to make the same assumption as well?
After having sustained true losses to their incomes and revenues, do preferences surrounding discretionary purchases return to their January levels? Does any small business that nearly went under put its expansion plans back on the front burner and start hiring with enthusiasm again?
Does the newly minted college grad seek out that hip position with the unicorn scooter company (oops, now out of business) or does he decide that while his peers might think him “uncool” that perhaps a position with a more established company makes more sense?
Will those businesses most exposed to the pandemic be willing to commit themselves financially to the proposition that once the quarantines are lifted, the base case becomes “no recurrence?” Even if a business is willing to so stake its future, will investors accept the January 2020 risk premiums associated with these businesses, or will these businesses face a substantial elevation in their cost of capital?
The upshot is that to assume a return to “normalcy” unconsciously assumes that the January 2020 economy was “normal.” It was not. A good thought experiment might be this: what percent of the labor force is likely to be impacted by the combination of factors that will necessarily mean a different “normal” on the other side of this? If you are still an optimist, you might posit that perhaps only 5% of the labor force might be so impacted. Were that so, then we might suppose that unemployment might semi-permanently seek out a level of January’s 3.5% level plus the additional 5% virus impacted such that we arrive at an 8.5% unemployment rate on the “other side.” High, but the U.S. economy could likely work that number down to a few points over a few years. What it won’t do is work 8.5% unemployment down to January’s “normalized” 3.5% figure by the end of the summer! We’ll eat our hats if it does!
Our view is that the 5% number is too low. Perhaps a number closer to 10% might be more realistic, but we don’t really know. Either way, much higher unemployment – perhaps “European levels” – will be with us for a long-time to come. But perhaps you thought we forgot to factor in all that helicopter money coming our way? We did not! Recessions are not caused by demand shortfalls per se. Demand comes from income and income comes from labor and capital collaborating to deliver valuable goods and services.
Helicopter money blunts the pain but does not incentivize or otherwise call into existence profitable companies. Hopefully, the Fed understands this by now: they know less than they think and all of their actions must work through people with results that can’t be entirely predicted by econometric models.
Lest we end on too dour a note, let us say that U.S. institutions—both economic as well as political—have proven to be remarkably adaptable. The collective “we” will arrive at a future economy that will profitably deliver what is demanded by the consumer. That process of adjustment though does not work by Fed magic and will take time.
For the investor, this means that opportunity to deploy capital in highly profitable ways will continue since risk fell into a bear market 1-2 months ago. To date, we have exploited the opportunity presented in fortress corporate balance sheets that have repriced in some cases 150-200 basis points wider in spread, in agency mortgages which reached yield spreads not seen since the last crisis, and in some select portions of the securitized credit markets. In an environment that may take 1-2 years to “re-normalize”, we expect the opportunity to be abundant and we expect to keep adding substantial value to the portfolios of our clients and shareholders.
Monday yielded several fascinating Supreme Court decisions. I encourage you to read the dueling opinions in Atlantic Richfield Co. v. Christian. Here, I will highlight two of Chief Justice Roberts’s delightful gems.
First, he offers an assurance to the posterity of Montana:
Turning from text to consequences, the landowners warnthat our interpretation of §122(e)(6) creates a permanent easement on their land, forever requiring them “to get permission from EPA in Washington if they want to dig out part of their backyard to put in a sandbox for their grandchildren.” Tr. of Oral Arg. 62. The grandchildren of Montana can rest easy: The Act does nothing of the sort.
Second, he puns on Justice Scalia’s reference to elephants in mouseholes:
The landowners relatedly argue that the limitation in§122(e)(6) on remedial action by potentially responsible parties cannot carry the weight we assign to it because it is located in the Act’s section on settlement negotiations. Congress, we are reminded, does not “hide elephants in mouse-holes.” Whitman v. American Trucking Assns., Inc., 531 U. S. 457, 468 (2001).
We take no issue with characterizing §122(e)(6) as an elephant. It is, after all, one of the Act’s crucial tools for ensuring an orderly cleanup of toxic waste. But §122 of the Act is, at the risk of the tired metaphor spinning out of control, less a mousehole and more a watering hole—exactly the sort of place we would expect to find this elephant.
Roberts is always a joy to read.
A few other points on Atlantic Richfield. Justice Gorusch issued a partial dissent. He raises some potential constitutional concerns with CERCLA.
Reading CERCLA this way would raise uneasy constitutional questions too. If CERCLA really did allow the federal government to order innocent landowners to house another party’s pollutants involuntarily, it would invite weighty takings arguments under the Fifth Amendment. See Loretto v. Teleprompter Manhattan CATV Corp., 458 U. S. 419, 421 (1982). And if the statute really did grant the federal government the power to regulate virtually each shovelful of dirt homeowners may dig on their own properties, it would sorely test the reaches of Congress’s power under the Commerce Clause. See National Federation of Independent Business v. Sebelius, 567 U. S. 519, 551–553 (2012).
And, Justice Gorsuch offers this sharp barb back to the Chief;
The restrictions Atlantic Richfield proposes aren’t really that draconian because homeowners would still be free to do things like build sandboxes for their grandchildren (provided, of course, they don’t scoop out too much arsenic in the process).
Finally, Justice Gorusch earned his reputation as the Court’s Westerner here. Throughout the opinion, there are references to the importance of property rights out west:
But, as in so many cases that come before this Court, the policy arguments here cut both ways. Maybe paternalistic central planning cannot tolerate parallel state law efforts to restore state lands. But maybe, too, good government and environmental protection would be better served if state law remedies proceeded alongside federal efforts. State and federal law enforcement usually work in just thisway, complementing rather than displacing one another.
Just try to imagine this Court treating other individual liberties or forms of private property this way. Major portions of this country were settled by homesteaders who moved west on the promise of land patents from the federal government. Much like an inventor seeking a patent for his invention, settlers seeking these governmental grants had to satisfy a number of conditions. But once a patent issued, the granted lands became the recipient’s private property, a vested right that could be withdrawn only in a court of law. No one thinks we would allow a bureaucracy in Washington to “cancel” a citizen’s right to his farm, and do so despite the government’s admission that it acted in violation of the very statute that gave it this supposed authority. For most of this Nation’s history it was thought an invention patent holder “holds a property in his invention by as good a title as the farmer holds his farm and flock.” Hovey v. Henry, 12 F. Cas. 603, 604 (No. 6,742) (CC Mass. 1846) (Woodbury, J., for the court). Yet now inventors hold nothing for long without executive grace. An issued patent becomes nothing more than a transfer slip from one agency window to another.
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