Tag: news

“S&P500 Could Decline To 1,600” – Stocks Facing Worst Outlook Since 2008

“S&P500 Could Decline To 1,600” – Stocks Facing Worst Outlook Since 2008

Submitted by Peter Garnry, Head of Equity Strategy at Saxo Bank

Summary: With all the major central banks expected to be effectively zero bound in 2020, the scope for returns in bonds will be low for years to come.

Equities have hit multiple speedbumps since 2008. But every time, they came back to new all-time highs fuelled by endless policy action, mostly from central banks. Through quantitative easing and lower rates, central banks have engineered a now-evidently unsustainable investment boom in energy that cannot repay it itself, large-scale buyback programmes among US companies and ever-higher valuations for growth companies. 

The US-China trade war already started disrupting supply and slowing growth over the last year. In Q1 2020 the world economy was hit by the COVID-19 virus outbreak, creating both a supply (Chinese lockdown) and demand (lockdowns in many countries) shock, in addition to an oil price war between Russia and Saudi Arabia which threatens to significantly impact the US oil industry and global investments in general. 

Not since 2008 has the world been this uncertain and out of balance. As equity prices reflect the future and growth prospects, they are the most sensitive to current crisis. Investors are desperate to get out and cash in on years of fat profits.

S&P 500 could decline to 1,600 in worst-case scenario

The last couple of months have given investors a glimpse of what’s lurking around the corner. Countries have entered lockdown, hospitals have been overstretched and demand for certain products and services has been in freefall. The three most important questions for equity investors, then, are: 

  1. How much will corporate earnings decline? 

  2. What will the earnings multiple be during the contraction? 

  3. What will the shape of the recovery look like?

As global pandemics of this type are very rare, all GDP forecasting models can be tossed out the window. We have instead tried to create two types of GDP paths. One is a mild shock to 0% GDP growth and then a quick reversion to trend growth. The other is a 4% drop in growth in a few quarters and a slower recovery that doesn’t quite hit trend growth. Many market participants believe in the base case scenario. But with dramatic lockdowns in Europe and the potential for COVID-19 to become seasonal the impact could become deeper and longer.

Based on data since 1954, we can fit a quantile regression on quarterly changes and log EPS on a GDP growth series. Our two GDP paths produce the following EPS paths:  

Given all the unknown variables at play in the COVID-19 outbreak, we lean towards the 25% percentile as more likely than the median paths across the two scenarios. If we take the average of the two 2021-ending EPS scenarios for the S&P 500 then we end up at $108.61, which is 28% lower than current earnings. If we assume the P/E ratio declines to 15 — which is reasonable judging from the yield level and previous crisis — then the S&P 500 could hit 1,600. These calculations are not meant to be precise and should not be taken at face value as there is simply too much uncertainty across too many variables. But the exercise is meant to give investors an idea of how bad things go in a worst-case scenario.

The current drawdown in global equities has taken valuations from 0.84 standard deviation expensive to -0.35 standard deviation cheap, and that’s before the denominator (earnings, sales and cash flows) has even begun to decline. The valuation picture leaves the equity market with plenty of room for further falls. When the global equity market hits -1 standard deviation cheapness then investors should begin to increase their allocation to equities.

We are in the phase where policymakers will throw a lot of stimulus against the economy, including various lending programmes from governments and the extension of tax payments (which is essentially just swapping cash flows over time). With the Fed’s two panic cuts taking the rate to 0.25% all major central banks are now effectively zero bound. Our view is that sentiment and asset prices could be lifted here due to all the stimulus. But then, as economic activity numbers are published investors will realise more is needed and equity markets will take another leg down. Policymakers have a record of always being behind the curve. 

Eventually, however, enough stimulus will be added to the economy that equilibrium is reached. At that time, equities will have bottomed. 

Can energy stocks climb out of the darkness?

The energy sector is suffering from both a supply and demand shock and an oil price war between Russia and Saudi Arabia, which could push many US shale producers into bankruptcy. Government policies have changed under the current US administration and we cannot rule out bailouts in the US sector to protect jobs and investments in an election year. Among energy companies in North America and Europe, it is the American energy companies that have seen their implied default probabilities rise the most. 

The energy sector is structurally weak after years of trying to rebuild profitability and lower debt levels after the oil price collapse of 2014-2015, so it’s inevitable that some companies will disappear. Our view is that investors who want exposure to the energy sector should do it in the strongest energy companies and avoid the weakest (see list for inspiration).

But even after the economy has recovered, the energy sector will have to transition away from fossil fuels — which was the theme in our Q1 Outlook. This means that there will continue to be an ongoing demand pressure for some end products of the oil industry. Our long-term belief is that the oil and gas industry will not deliver excess shareholder value relative to the equity market over the coming decades. The opportunities in the energy sector will be more tactical and more short-term as the economy goes through the business cycle.

What comes after 60/40 portfolios and risk parity?

The dramatic volatility and declines observed in the first two weeks of March severely impacted 60/40, and risk-parity portfolios will change their asset allocation in the future. With all the major central banks expected to be effectively zero bound in 2020, the scope for returns in bonds will be low for years to come. 

As the oil price war and COVID-19 shocks turn into a liquidity and credit crisis — alongside a breakdown of some parts of the ETF market — asset allocators will be forced to consider tail-risks in their approach. But even more importantly, long-volatility components (benefitting when volatility increases) will most likely enter portfolios as these strategies are the only ones that can really protect in these types of crises. 

There are many ways to express long volatility, but one is to be long on VIX futures and roll those positions over time. As the VIX forward curve is in contango (upward sloping) there is a negative roll yield to be permanently long this position. 

The S&P 500 VIX Futures Enhanced Roll Index shows the P/L of such a position since late 2006. From market bottom in early March 2009 until the week before COVID-19 volatility began, annualised return was -34%. Allocating just 2% of a portfolio to this type of long volatility strategy would create a 0.68% drawdown on annualised return during non-crisis years. In 2008 and during the first weeks of COVID-19 turmoil the 2% exposure would have added 4.7% and 3.1% respectively. 

As drawdowns have a disproportionate impact on long-term performance, it does make sense in asset allocation to add a negative expected return stream because of its negative correlation during crises.


Tyler Durden

Thu, 04/02/2020 – 11:15

via ZeroHedge News https://ift.tt/34aOx7t Tyler Durden

Texas Inmates Sue for Access to Hand Sanitizer As Coronavirus Threatens Prisons

Two Texas inmates have filed a lawsuit to improve conditions in their facility as COVID-19 threatens to tear through America’s prisons and jails. 

On Monday, two Texas inmates filed a lawsuit against the Texas Department of Criminal Justice (TDCJ), as well as Executive Director Bryan Collier and Deputy Executive Director Oscar Mendoza, alleging “willful and/or deliberately indifferent and discriminatory conduct in failing to protect inmates housed.” Plaintiffs Laddy Curtis Valentine, 69, and Richard Elvin King, 73, are incarcerated at Wallace Pack Unit in Navasota, Texas, and both men have chronic illnesses (hypertension and diabetes, respectively) that place them at high risk of death should they become infected.

The two men say Texas inmates are unable to practice social distancing and often come into contact with surfaces where the virus may be present. While the Centers for Disease Control (CDC) released guidelines to help corrections facilities prepare, the lawsuit accuses the TDCJ of only partially adopting CDC guidelines, and only when an inmate is showing symptoms of illness. TDCJ has otherwise failed, the lawsuit alleges, to implement policies that would curb the spread behind bars.

“While TDCJ has implemented policies in response to the COVID-19 pandemic,
these procedures are woefully inadequate and do not comport with many of the CDC’s
recommendations,” the suit alleges.

For example, the CDC recommends that corrections facilities consider “relaxing restrictions” on alcohol-based sanitizer containing at least 60% alcohol, which can be used when soap and water are not readily available.

But King and Valentine claim in their lawsuit that they are not allowed to use alcohol-based sanitizer even when performing the same tasks as staff, and must instead use soap and water even though it is often not available. (TDCJ’s new COVID-19 policy does encourage staff to carry hand sanitizer, but King and Valentine say prisoners are still prohibited from having access to it.)

“And, ironically,” the suit continues, “TDCJ inmates have been pressed into manufacturing alcohol-based hand sanitizer at the Roach Unit. Thus, TDCJ is forcing inmates to manufacture a necessary preventative measure they are prohibited from using themselves.”

The prisoners are asking for unrestricted access to antibacterial hand soap and disposable hand towels, access to hand sanitizer containing at least 60% alcohol, and access to bleach-based cleaning agents to disinfect housing areas and common-use surfaces and items.

“TDCJ’s failures don’t just affect the inmates. Prison health is community health.
An outbreak at the Pack Unit could easily spread to the surrounding communities, and vice versa,” the plaintiffs argue.

Prisoners, their families, and advocacy groups around the country are pushing correctional facilities to protect the health of people under their supervision. On Monday, the American Civil Liberties Union of Washington, D.C. filed a class-action lawsuit against the D.C. Department of Corrections alleging inadequate sanitation to stop the spread of COVID-19, including failing to provide hand soap or sanitizer.

from Latest – Reason.com https://ift.tt/2UAUibg
via IFTTT

The FDA Is Making It Much, Much Harder for Distilleries To Produce Hand Sanitizer

In the midst of the COVID-19 pandemic, hand sanitizer has become an incredibly scarce resource. It’s practically impossible to find any at a grocery or drug store, or to order it online. But in Washington, D.C., at least, anyone who wants a bottle can get one. All you have to do is buy a bottle of booze. 

That’s what I did yesterday when I ordered delivery of a pre-bottled cocktail—the delicious rye-apple brand blend, the American Trilogy—from Restorative Republic, a local distiller that makes bourbon, vodka, rye, and apple brandy. A few hours later, the bottle was delivered to my front gate—along with a smaller bottle labeled “hand cleaner.” 

Local distilleries like Restorative Republic and rum-maker Cotton & Reed are making artisanal hand cleaner, the primary ingredient in which is high-proof alcohol. And anyone who buys a bottle of their booze also gets a small bottle of what you might call hipster Purell. They’re not alone. Distilleries across the country have begun producing hand cleaners, and many more have said they’d like to, with more than 500 producers reportedly indicating they’d like to convert some of their production. 

But there’s a problem: The Food and Drug Administration (FDA) currently won’t let them do so in an efficient way. 

“We are ready willing and able to produce massive amounts of hand sanitizer,” says Matt Dogali, the President and CEO of the American Distilled Spirits Alliance. The FDA, along with the Alcohol Tax and Trade Bureau, he says, “have guidance documents about how we make our hand sanitizer.” And that guidance requires a denaturant—an additive meant to make the alcohol unpalatable if, say, a child tried to drink it. 

But the denaturant the FDA currently requires would temporarily wreck their production lines. “We make consumable alcohol products,” he says. “And if we introduce a denaturant into our lines, it renders them useless for future alcohol production barring extreme cleaning measures, because we cannot have any remnant of the denaturant in our lines, and then sell a consumable product.” Deep cleaning could take down lines, which in many distilleries run either continuously or the majority of every day, for days if not longer, costing distilleries precious time and money in the process. 

Some distilleries, he said, initially began producing sanitizer with ethanol, which is used to produce consumable alcohol, and food-safe ingredients. But the FDA released follow-up guidance saying those food-safe formulas were only allowable with types of alcohol that most liquor producers don’t use. The March guidance document says that, given the emergency circumstances surrounding the spread of COVID-19, the FDA “does not intend to take action” against alcohol producers who make alcohol for hand sanitizer—so long as a lengthy list of requirements is met. 

The FDA’s requirements have nothing to do with making hand sanitizer work; hand sanitizer doesn’t require a denaturant to be effective at killing germs. In fact, the World Health Organization’s (WHO) guidelines for producing it don’t include a denaturant. 

Those guidelines are what some distilleries, like Republic Restoratives, have reportedly followed—and why they are labeling it “hand cleaner” instead of sanitizer. “I don’t really know what the FDA thinks about things like this,” owner Pia Carusone told Washingtonian in March. Regulations governing the production of sanitizer are also why they can’t sell it. 

Nor are the FDA’s approved denaturing agents the only options. Dogai says there are other substances that could be added that would ward off drinking without affecting production lines. And he’d like to see direct sales to medical facilities approved as well. 

Distillers, Dogai says, have proposed to the FDA that “they should allow us to make a commercial-grade hand sanitizer, that is, a hand sanitizer that would never end up for public sale.” It would never reach store shelves to which children might have access, and that way, it wouldn’t need to be denatured to discourage consumption. The goal, he says, would be to “put our products in the hands of professionals. That allows conventional labs to restock grocery stores.” 

“If we can alleviate the demands of the hospitals and first responders,” he says, then other producers can restock the grocery stores. 

The Distilled Spirits Council of the United States (DISCUS), another industry group, has set up a portal for distillers hoping to produce sanitizer. Among other things, producing sanitizer allows “craft distilleries to keep their stills going, maintain their employees and stay afloat during this crisis,” said CEO Chris Swonger, in a statement.

Congress has already taken some action to make it easier for distillers to produce sanitizer by eliminating a tax on alcohol production if it’s used for hand cleaner. That tax, if it had continued, would have “basically been a stop order,” Dogai says, making it prohibitively expensive to produce much sanitizer. But there’s a catch: The tax break only applies to sanitizer produced according to FDA guidelines. 

Personally, I’m happy to buy liquor and cleaner as a package deal: I prefer to think of it as buying a pricey bottle of hand cleaner and getting a tasty bottle of booze for free. But that’s not ideal for most people, and it means that distilleries can’t produce the mass quantities necessary to keep up with unprecedented demand. 

There are about 4,000 distilleries in the U.S., and many are already making some sort of hand cleaner. But Dogai says they could be making 10 times as much if the FDA were to change its rules. “At this moment in time,” he says, “the amount of hand sanitizer that we’re making is smaller than it could be.”

from Latest – Reason.com https://ift.tt/2JwRkhN
via IFTTT

Texas Inmates Sue for Access to Hand Sanitizer As Coronavirus Threatens Prisons

Two Texas inmates have filed a lawsuit to improve conditions in their facility as COVID-19 threatens to tear through America’s prisons and jails. 

On Monday, two Texas inmates filed a lawsuit against the Texas Department of Criminal Justice (TDCJ), as well as Executive Director Bryan Collier and Deputy Executive Director Oscar Mendoza, alleging “willful and/or deliberately indifferent and discriminatory conduct in failing to protect inmates housed.” Plaintiffs Laddy Curtis Valentine, 69, and Richard Elvin King, 73, are incarcerated at Wallace Pack Unit in Navasota, Texas, and both men have chronic illnesses (hypertension and diabetes, respectively) that place them at high risk of death should they become infected.

The two men say Texas inmates are unable to practice social distancing and often come into contact with surfaces where the virus may be present. While the Centers for Disease Control (CDC) released guidelines to help corrections facilities prepare, the lawsuit accuses the TDCJ of only partially adopting CDC guidelines, and only when an inmate is showing symptoms of illness. TDCJ has otherwise failed, the lawsuit alleges, to implement policies that would curb the spread behind bars.

“While TDCJ has implemented policies in response to the COVID-19 pandemic,
these procedures are woefully inadequate and do not comport with many of the CDC’s
recommendations,” the suit alleges.

For example, the CDC recommends that corrections facilities consider “relaxing restrictions” on alcohol-based sanitizer containing at least 60% alcohol, which can be used when soap and water are not readily available.

But King and Valentine claim in their lawsuit that they are not allowed to use alcohol-based sanitizer even when performing the same tasks as staff, and must instead use soap and water even though it is often not available. (TDCJ’s new COVID-19 policy does encourage staff to carry hand sanitizer, but King and Valentine say prisoners are still prohibited from having access to it.)

“And, ironically,” the suit continues, “TDCJ inmates have been pressed into manufacturing alcohol-based hand sanitizer at the Roach Unit. Thus, TDCJ is forcing inmates to manufacture a necessary preventative measure they are prohibited from using themselves.”

The prisoners are asking for unrestricted access to antibacterial hand soap and disposable hand towels, access to hand sanitizer containing at least 60% alcohol, and access to bleach-based cleaning agents to disinfect housing areas and common-use surfaces and items.

“TDCJ’s failures don’t just affect the inmates. Prison health is community health.
An outbreak at the Pack Unit could easily spread to the surrounding communities, and vice versa,” the plaintiffs argue.

Prisoners, their families, and advocacy groups around the country are pushing correctional facilities to protect the health of people under their supervision. On Monday, the American Civil Liberties Union of Washington, D.C. filed a class-action lawsuit against the D.C. Department of Corrections alleging inadequate sanitation to stop the spread of COVID-19, including failing to provide hand soap or sanitizer.

from Latest – Reason.com https://ift.tt/2UAUibg
via IFTTT

The FDA Is Making It Much, Much Harder for Distilleries To Produce Hand Sanitizer

In the midst of the COVID-19 pandemic, hand sanitizer has become an incredibly scarce resource. It’s practically impossible to find any at a grocery or drug store, or to order it online. But in Washington, D.C., at least, anyone who wants a bottle can get one. All you have to do is buy a bottle of booze. 

That’s what I did yesterday when I ordered delivery of a pre-bottled cocktail—the delicious rye-apple brand blend, the American Trilogy—from Restorative Republic, a local distiller that makes bourbon, vodka, rye, and apple brandy. A few hours later, the bottle was delivered to my front gate—along with a smaller bottle labeled “hand cleaner.” 

Local distilleries like Restorative Republic and rum-maker Cotton & Reed are making artisanal hand cleaner, the primary ingredient in which is high-proof alcohol. And anyone who buys a bottle of their booze also gets a small bottle of what you might call hipster Purell. They’re not alone. Distilleries across the country have begun producing hand cleaners, and many more have said they’d like to, with more than 500 producers reportedly indicating they’d like to convert some of their production. 

But there’s a problem: The Food and Drug Administration (FDA) currently won’t let them do so in an efficient way. 

“We are ready willing and able to produce massive amounts of hand sanitizer,” says Matt Dogali, the President and CEO of the American Distilled Spirits Alliance. The FDA, along with the Alcohol Tax and Trade Bureau, he says, “have guidance documents about how we make our hand sanitizer.” And that guidance requires a denaturant—an additive meant to make the alcohol unpalatable if, say, a child tried to drink it. 

But the denaturant the FDA currently requires would temporarily wreck their production lines. “We make consumable alcohol products,” he says. “And if we introduce a denaturant into our lines, it renders them useless for future alcohol production barring extreme cleaning measures, because we cannot have any remnant of the denaturant in our lines, and then sell a consumable product.” Deep cleaning could take down lines, which in many distilleries run either continuously or the majority of every day, for days if not longer, costing distilleries precious time and money in the process. 

Some distilleries, he said, initially began producing sanitizer with ethanol, which is used to produce consumable alcohol, and food-safe ingredients. But the FDA released follow-up guidance saying those food-safe formulas were only allowable with types of alcohol that most liquor producers don’t use. The March guidance document says that, given the emergency circumstances surrounding the spread of COVID-19, the FDA “does not intend to take action” against alcohol producers who make alcohol for hand sanitizer—so long as a lengthy list of requirements is met. 

The FDA’s requirements have nothing to do with making hand sanitizer work; hand sanitizer doesn’t require a denaturant to be effective at killing germs. In fact, the World Health Organization’s (WHO) guidelines for producing it don’t include a denaturant. 

Those guidelines are what some distilleries, like Republic Restoratives, have reportedly followed—and why they are labeling it “hand cleaner” instead of sanitizer. “I don’t really know what the FDA thinks about things like this,” owner Pia Carusone told Washingtonian in March. Regulations governing the production of sanitizer are also why they can’t sell it. 

Nor are the FDA’s approved denaturing agents the only options. Dogai says there are other substances that could be added that would ward off drinking without affecting production lines. And he’d like to see direct sales to medical facilities approved as well. 

Distillers, Dogai says, have proposed to the FDA that “they should allow us to make a commercial-grade hand sanitizer, that is, a hand sanitizer that would never end up for public sale.” It would never reach store shelves to which children might have access, and that way, it wouldn’t need to be denatured to discourage consumption. The goal, he says, would be to “put our products in the hands of professionals. That allows conventional labs to restock grocery stores.” 

“If we can alleviate the demands of the hospitals and first responders,” he says, then other producers can restock the grocery stores. 

The Distilled Spirits Council of the United States (DISCUS), another industry group, has set up a portal for distillers hoping to produce sanitizer. Among other things, producing sanitizer allows “craft distilleries to keep their stills going, maintain their employees and stay afloat during this crisis,” said CEO Chris Swonger, in a statement.

Congress has already taken some action to make it easier for distillers to produce sanitizer by eliminating a tax on alcohol production if it’s used for hand cleaner. That tax, if it had continued, would have “basically been a stop order,” Dogai says, making it prohibitively expensive to produce much sanitizer. But there’s a catch: The tax break only applies to sanitizer produced according to FDA guidelines. 

Personally, I’m happy to buy liquor and cleaner as a package deal: I prefer to think of it as buying a pricey bottle of hand cleaner and getting a tasty bottle of booze for free. But that’s not ideal for most people, and it means that distilleries can’t produce the mass quantities necessary to keep up with unprecedented demand. 

There are about 4,000 distilleries in the U.S., and many are already making some sort of hand cleaner. But Dogai says they could be making 10 times as much if the FDA were to change its rules. “At this moment in time,” he says, “the amount of hand sanitizer that we’re making is smaller than it could be.”

from Latest – Reason.com https://ift.tt/2JwRkhN
via IFTTT

The Right to Unmarry: A Proposal Within a Proposal

Brian Frye and Maybell Romero’s new essay on The Right to Unmarry has a most unusual abstract:

BLF: This is a marriage proposal in the form of a law review article. In this article, I observe that Maybell Romero and I are in love. I want to marry her, and I believe she wants to marry me. At least I’ll find out pretty soon. But we cannot marry each other right now, because we are both currently married to other people.

Maybell and I want to end our existing marriages, and our respective spouses have even agreed to divorce. But the government will not allow us to marry each other until it decides to terminate our current marriages.

Maybell is unaware of this prologue to our article, describing our personal circumstances, but I’m sure she’ll see it soon. Wish me luck.

The Constitution protects the fundamental right to marry the person of your choice, so long as the choice is mutual. Any two people can agree to marry each other, and the government cannot stop them.

But the government can and does regulate the dissolution of marriages. While people can divorce, they need the government’s permission. A marriage isn’t over until the government says it is. And a person cannot remarry until their divorce is final. In other words, The government cannot prevent people from marrying each other, but it can and does force them to remain married.

We believe that people should be able to end a marriage and start a new one whenever they want. Indeed, we believe it is their constitutional right. If due process protects the right to marry based on autonomy and dignity, then it must also protect the right to unmarry on the same grounds. If it offends autonomy and dignity to prohibit a marriage, it offends autonomy and dignity to preserve a marriage, against the will of the married.

The state can legitimately regulate the allocation of property when a marriage is dissolved, just like it regulates the dissolution of any other partnership. But it cannot legitimately force people to remain married against their will or prevent them from remarrying. As always, love will out.

On the merits, my immediate objection was that divorce requires tying up loose ends. But they offer an answer to this:

[D]ivorce disputes are not about marital status, but about the distribution of property, the custody of children, and other contentious issues. None of these are implicated by the right to unmarry. Courts can and must resolve these difficult questions over a period of time, in consultation with the parties. But there is no reason or need for the marriage itself to persist, in order to address them.

So the right of which the authors speak is not the right to unmarry so much as the right to unmarry immediately. My remaining objection then is that it is not clear to me that the right to marry entails the right to marry immediately or even quickly. Anthony Kronman has noted “the statutory rule (found in many states) that a couple may not marry until a stated period of time has passed until the issuance of their license and that, once married, they may not obtain a divorce decree before the end of a similar cooling-off period.” Anthony T. Kronman, Paternalism and the Law of Contracts, 92 Yale L.J. 763, 788 (1983). To be sure, the cooling-off period for marriage is generally much shorter than the time it takes to complete a divorce. One possible explanation is that states do not wish to discourage shotgun weddings when a woman is pregnant.

One could imagine a longer cooling-off period for marriage, at least when pregnancy is not involved. Would it be so terrible if states required a couple to take a trip together before getting married (if possible within their means), or to answer jointly a questionnaire about how they might deal with some difficult questions, especially as to children, or to attest multiple times over a three-month period that they really do want to get married? My purpose here is not to advocate that states require more deliberation before marriage, but the idea does not seem crazy to me, and if that’s so, it’s also not clear to me that cooling-off periods for divorce are problematic.

But Frye and Romero should be applauded for pointed out the asymmetry in current policy. I wish them (as well as their current spouses) best of luck in their endeavors, personal and professional.

from Latest – Reason.com https://ift.tt/39BRGhF
via IFTTT

Trump, Pelosi Eye 2017 Tax Rollbacks In Next Virus Bill

Trump, Pelosi Eye 2017 Tax Rollbacks In Next Virus Bill

President Trump and House Speaker Nancy Pelosi are looking at rolling back some of the more controversial pieces of the 2017 tax overhaul, as the White House and Congress hammer out the next round of economic stimulus.

Under discussion are lifting the cap on state and local deductions, as well as restoring the break for entertaining business clients, according to Bloomberg.

According to the report, Pelosi says the next round should suspend the $10,000 cap on deducitons for state and local taxes, while President Trump said in a Wednesday tweet that tax breaks for corporate client outings, dinners, sporting games, cruises and concerts should be restored. The 2017 tax law eliminated writeoffs for entertainment expenses, while leaving a 50% deduction for client means untouched. 

“This will bring restaurants, and everything related, back – and stronger than ever. Move quickly, they will all be saved,” wrote Trump.

“I think it will open up the restaurant business,” Trump said during a Wednesday evening White House briefing.

According to the report, the changes may be easier said than done.

The deduction cap for state and local taxes was a large cost-saving measure in the $1.5 trillion tax-cut plan enacted in 2017, and reversing that would benefit people largely in states run by Democrats. Republicans have already called the idea a “non-starter” and accuse Democrats of using the virus crisis to repeal the most politically contested portion of the tax law. –Bloomberg

According to Veena Murthy, an executive at accounting firm Crowe LLP, Congress would have to roll back decades of tax-code adjustments to make meals and entertainment costs fully deductable – telling Bloomberg “I don’t think that’s going to happen.”

SALT(y)

The 2017 law’s limit on deductions for state and local taxes largely affect Democratic-controlled regions with high taxes, such as New York, California and New Jersey. As such, Republicans aren’t excited about the idea of rolling back the rules.

“I’m not going to allow this to be an opportunity for the Democrats to achieve unrelated policy items they wouldn’t otherwise be able to pass,” said Senate Majority Leader Mitch McConnell in a Tuesday interview with Hugh Hewitt.

Discussion of a new round of economic stimulus is in the early stages, and Pelosi said Wednesday the House might take up a bill soon after its scheduled return to Washington April 20.

The SALT limit and other cost-saving measures were necessary to keep the massive 2017 corporate and individual income tax cut below a $1.5 trillion price cap — a condition of the budgetary process Republicans used to pass it without Democratic votes. –Bloomberg

And according to Bookings Tax Policy Center senior fellow Steven Rosenthal, “Republicans used budget gimmicks to keep the costs down,” adding “They took deductions that would have been within the 10-year budget window and pushed them outside of the window.”

According to the report, the proposed changes were already on several lawmakers’ wish lists.

“At first glance I was like, ‘Really? Wow, way to go lobbyists,’” said Gordon Gray, director of fiscal policy at the right-leaning American Action Forum. “And then I sat down to think about it. We’ve closed a lot of businesses so some of these make sense.”


Tyler Durden

Thu, 04/02/2020 – 11:04

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

“There Are Only Two Perfect Hedges…”

“There Are Only Two Perfect Hedges…”

Authored by Bill Blain via MorningPorridge.com,

“There are only two perfect hedges; the first is a flat book and the other is to be found in a Japanese garden.”

(I must thank my fellow teenage scribbler Anthony Peters for this morning’s quote.)

I warned April was going to be bad. Stocks down, bonds up. Everyone shocked and surprised by the Trump’s admission “It’s going to be bad…”, apparently. If you are still looking at the virus news for clues, wake up: It is bad, it’s going to peak, there is a risk of second wave. Stop. You can’t do anything about it. And if you worry about Covid-19, you are worrying about the wrong stuff.

It’s about the economy, stupid! 

I was reading an investment letter from a well known UK asset manager this morning, who are blithely predicting a V-Shaped recovery from the third quarter onwards will get investors their money back.

They had the good sense to caveat it with some “as long as the virus doesn’t change the rules” mumble-swerve. They think QE Infinity packages have “resolved” the debt bubble, the equity market is now realistically priced for a global recovery, governments’ have mitigated the damage, and we will see a massive jump in sentiment, activity and repressed demand when the lockdowns end, and economies reopen with a leap of unfettered joy. 

I want to meet their crack dealer. It must be extraordinary stuff. 

There is certainly going to be recovery – and not just on the back of pent-up demand, but it’s going to be seriously crippled by the damage already done. Whether companies have been shuttered, bankrupted or nationalised, it’s going to impact the speed of their response. Putting millions of people and companies back to work, in a decimated work-scape will not be immediate. Resolving billions of claims and counter claims will be fraught. I suspect it will be a great time to be a corporate lawyer, insolvency practitioner, and forensic accountant. 

How quickly we come out of this depends on how RESILIENT our economies prove to be. I am concerned. 

Governments have made big promises. There is a growing risk many of their support packages, designed to mitigate the effect of lockdown, could be perceived as failing. Perception is reality. Policy Deliverability is a critical component of Government efforts to enhance the Resilience of their economies to this crisis. At the moment the anecdotal evidence suggest they are long promises, short deliverables.  

Give them time… but..

Resilience is a function of confidence the government is doing the right thing. Here in the UK we pride ourselves on our ability to triumph in adversity, get through the bad times, and our National Resilience. That is going to be severely tested in coming weeks. For instance, the dismal performance of equivocating ministers shows it’s clear our “Wartime Government” utterly failed to coordinate the deliverability of an effective testing policy – which has massive implications for effectively handling the virus crisis and particularly timing the end of the economically catastrophic lockdown. 

Failures happen. We learn from them. 

Consider the pitiful confused response of the UK government in the opening years of the Second World War, taking years to find its stride, but eventually delivering a coordinated wartime economy that massively outproduced and outfought our enemies. That took place over 6 years. This time we have a few weeks.  

There are lots of new policies, programmes and plans. There are risks in terms of their long-term consequences and effects, but the biggest risk is their immediate deliverability. Read through the papers this morning and you get snapshots of just how demanding the need for them is:  

  • There have been more immediate layoffs around the globe already than through the whole of the 2007-2009 crisis. UK Universal Credit Claims jumped by 1 mm people last week – UK unemployment is headed for double digits. Norway’s unemployment rate already hit 10.4%. Half a million German SME’s have applied for support to shorten worker hours. Danny Blanchflower, now of Dartmouth College, predicts 10 million Americans were put out of work in March.

  • Most consumers have limited reserves and savings to cope with long-term loss or reduced earnings. The losses we’ve already seen in auto-loans, credit cards, student loans, and rentals are going to multiply. A massive global consumer Demand Shock is imminent. 

  • Companies are complaining government loan guarantees are locked up in red-tape and difficult to obtain. Shuttered shops and restaurants across the UK are receiving threatening demands to pay rent or go to court. (Knight Frank says less than a 1/3rd of the UK high street is paying rent.) Similar is happening across the Occidental world. 

  • Airlines are begging for bailouts. Companies around the globe are scrabbling for cash to withstand a few months of shutdown. Companies are going to be constrained for years by the long-term consequences of surviving this immediate crisis. Just-in-time companies lack time to survive.

These are all facts of real economic damage. Pile on top of that theoretical damage like a sovereign risk crisis in Europe, a renewed trade war as China tries to muscle in on US allies, and just how bad an oil crisis develops… 

On the topic of China, a must read WSJ piece this morning: China Assets Claim to Global Leadership, Mask by Mask.. It’s got some great quotes:

“When the epidemic started to explode everywhere, it was China who the entire world asked for help, and not the United States, the ‘beacon of democracy,’” the embassy said.

“It is China who lent a helping hand to more than 80 nations. Not the United States.”

Or how about this classic:

“Faced with this great epidemic, the philosophy of a community of shared future for mankind put forward by President Xi Jinping has seen its value for these times magnified,” Vice Foreign Minister Luo Zhaohui said in a press conference.

In view of all these points, ask yourself if you’d stay invested in the optimism of the firm that wrote the investment letter I referred to above….

Meanwhile.. Cruising… 

Sometimes even I am surprised. Carnival Cruise Lines raised a $4 bln from a new 3-year 12% bond issue yesterday, secured on its fleet. I thought cruising was finished, but apparently the customers are still queuing up to buy holidays, and 45% of Carnival customers chose credit for future trips rather than a cash refund for cancelled trips. Forget the fact the new cash will only keep them solvent through the summer – when they will need more – or what the ships might be worth.. (there is always scrap.)

On the back of QE infinity – well you can apparently sell anything. New issue bond markets have never been so busy, pumping out bonds the punters are happy to buy, secure in the knowledge the Fed or the ECB will backstop them with QE bids. What’s not to like… 

What’s interesting is BBB rated Carnival is paying 12% on the back of its compromised business and distressed assets. Yet, I am hearing there are funds willing to bid even more aggressively for similar distressed assets in equally troubled industries. (If anyone has a couple of billion to invest in senior secured debt with good security over modern assets, and a 4%+ coupon, give me a shout..) 

Boeing

I might have upset a few C-Suite execs at Boeing y’day when I described the plane maker as an object lesson in doing absolutely the wrong thing on my Webinar for Iskha on the Outlook for Aviation. I ended up asking the question: “Why bail out Boeing for its appalling corporate behaviour?” 

My reasoning was that it’s a critical part of the US industrial ecosystem, but if the US is really heading for a wartime footing why not address air travel holistically: nationalise it, and pump in the money required to design and build new fuel efficient, composite aircraft that will prove long-term environmentally friendly, and be what airlines and passengers want when the global economy reopens.

Why not? 


Tyler Durden

Thu, 04/02/2020 – 10:44

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

Oil, Stocks Soar After Trump Says He Expects Oil Production Cut; Russia/Saudis Deny

Oil, Stocks Soar After Trump Says He Expects Oil Production Cut; Russia/Saudis Deny

Update (1045ET): Shortly after the market moved on this tweet, Russian State Newswire RIA Novosti reports that “Kremlin denies President Putin has spoken with Saudi Crown Prince.”

Which appears to confirm what we said below. It is unclear if this is ‘new’ news or Bloomberg reporting ‘old’ news.

Additionally, Bloomberg’s Javier Blas notes that the statement from Riyadh (via the Saudi official news agency) is far more measured:

All code words from the Saudis for a deal that needs to include cuts from every nation.

So it appears like Trump ‘bent the truth’ that any agreement was in place or imminent.

Oil (and stocks) are both fading…

GLJ research’s Gordon Johnson is skeptical also, writing that:

“$25 WTI doesn’t help US. We need $50. What trump is doing doesn’t matter. More BKs.

No new rigs coming back if they cut production. All they’re doing is filling a 20mm barrel hole that we have b/c planes and cars are grounded.

And once economy comes back they turn back on anyway.

Market will be back negative by lunch.”

*  *  *

Whether it’s just more desperate jawboning or resembles reality, CNBC’s Joe Kernan reports that he just spoike to President Trump who claims his conversations with Putin and MbS suggest an oil production cut of up to 15mm barrels/day is imminent.

President Trump tells CNBC that he spoke to President Putin yesterday and Saudi Crown Prince today and expects them to announce an oil production cut of 10 million barrels and could be up to 15 million. 

President Trumptold reporters in Washington this morning that…

“Worldwide, the oil industry has been ravaged. Its very bad for Russia, its very bad for Saudi Arabia. I mean, its very bad for both. I think they’re going to make a deal.”

…and has just tweeted his confirmation:

The result is not surprisingly a massive 35% surge in crude…

With a huge gap higher as Trump stopped everyone out…

Stocks are also being buoyed by this…

We suggest skepticism here is well placed – it makes no sense for Saudis to back down now.

Just this morning, Kremlin spokesman Dmitry Peskov told reporters on a conference call that consultations with Saudi Arabia haven’t started yet and that there are no plans for Putin to contact Saudi leadership in next day or two. Additionally, he noted that “nobody is satisfied” with the situation on the global oil market, and confirmed that there have been no discussions yet of any possible agreements to replace OPEC+.


Tyler Durden

Thu, 04/02/2020 – 10:34

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

China Rejects US Intelligence Report Claiming Beijing Lied About Coronavirus Numbers

China Rejects US Intelligence Report Claiming Beijing Lied About Coronavirus Numbers

Many were perplexed earlier this week by a headline proclaiming that Beijing would disclose a number of “asymptomatic” COVID-19 patients who hadn’t been previously included in the country’s numbers. As it dawned on them that the CPC was finally conceding, in its own roundabout way, that it had doctored the numbers during the height of the outbreak, rumors started to swirl, and reporters started picking up phones and calling their sources in the intelligence community.

That apparently culminated in the leaking of a classified intelligence report that detailed US intelligence’s findings about Beijing’s efforts to conceal the extent of the outbreak. The fact that China lied about the numbers probably surprised absolutely no one. But everybody knows how Beijing hates it when the international community says the quiet part out loud. Especially at a time when Beijing appears to be slowly reinstating lockdown conditions amid a resurgence in cases that officials have blamed on foreigners.

Hua Chunying

President Trump was unsurprisingly questioned about the report during last night’s press briefing. When asked, Trump denied that he had received an intelligence report like the one described by Bloomberg, but he added that China’s data do ‘appear low’.

“Their numbers seem to be a little bit on the light side, and I’m being nice when I say that,” Trump said.

And as we reported at the time, Vice President Mike Pence told CNN on Wednesday that “the reality is that we could have been better off if China had been more forthcoming.”

That was probably the final straw for Beijing. Because on Thursday morning, Foreign Ministry spokeswoman Hua Chunying – a name that’s probably familiar to readers from the time China accused the US of ‘inciting panic’ during the early days of the outbreak (remember, the one Democrats wanted to reverse) – defended China’s handling of the outbreak as “open and transparent.”

“Some U.S. officials just want to shift the blame,” Hua told a regular briefing in Beijing. “Actually we don’t want to fall into an argument with them, but faced with such repeated moral slander by them, I feel compelled to take some time and clarify the truth again.”

Hua hit back by asking what the US has been doing for the last two months while the virus quietly spread across the country.

Hua questioned the speed of the U.S.’s response to the virus after banning arrivals from China on Feb. 2. “Can anyone tell us what the U.S. has done in the following two months?” she said.

According to the US intel report, China intentionally lowered case totals and death tolls, and withheld information to its global partners during the early days of the outbreak. Though Beijing eventually resorted to strict lockdowns that would never fly in the West, crushing the outbreak by sheer intensity, its repeated “adjustments” to its counting “methodology” sowed widespread doubt about China’s numbers. Officially, the country has reported roughly 82k cases and 3,300 deaths.

But experts suspect that the real totals for both could be far higher, tens of thousands, perhaps hundreds of thousands, of mild cases were likely left out, while the surge in the number of bodies quietly cremated showed up in some surprising places.


Tyler Durden

Thu, 04/02/2020 – 10:30

via ZeroHedge News https://ift.tt/3aD7rX5 Tyler Durden