Ford’s Lending Arm Does The Dirty Work For Parent Company, Generating More Profit Now Than Ever

Ford’s Lending Arm Does The Dirty Work For Parent Company, Generating More Profit Now Than Ever

At a time when the global automotive market is mired in deep recession – and things likely aren’t going to be getting any better, with China in the midst of an epidemic – Ford’s lending arm is acting as the profit backbone for the company, generating more profit now than it ever has for the company. 

Amid an epic loss, and the resignation of the company’s president, Ford credit now generates a remarkable half of the automaker’s profit, according to Bloomberg, which is up from 15% to 20% in the past. The company’s credit arm makes loans to dealers stocking vehicles and then the consumers who buy them. Ford is relying on its financing unit to help it fund “multi-billion outlays on electric and self-driving cars” now.

The parent corporation, however, is dealing with $11 billion in charges from a restructuring that “could take years”. 

Lawrence Orlowski, an analyst at S&P Global Ratings said of Ford’s credit arm: “It’s like the ballast that keeps the ship steady. It’s a balancing act.”

The amount of vehicles that Ford has been selling has been on the decline for the last three years and the company is losing money in China. 

But the company would be “far worse off” without its Ford Motor Credit unit, which is paying for the company’s capex by borrowing in the debt markets and paying a dividend back to the parent company. Expectations are for the credit arm to contribute nearly $3 billion annually to Ford over the next 2 years. In 2017, that contribution was just $400 million.

The company’s credit arm borrowed about $10 billion in the U.S. investment grade bond market over the last 12 months. Meanwhile, it has been over 3 years since Ford itself has issued bonds. Moody’s downgraded Ford to junk in September and S&P cut its rating on the company to its lowest investment grade rating in October. Another downgrade from S&P could remove Ford out of some major indices, which has weighed on the minds of investors for the better part of the last year. 

All eyes are on the credit division now, especially, as the global automotive market continues to falter. Ford is going to be rolling out a new line of SUVs and redesigning its F-150 as part of its recent restructuring, as well. 

Analysts are wary of both cost risk and execution risk. 

David Whiston, an equity strategist with Morningstar said: “It’s quite clear Ford is not where it should be, but the finance arm is a bright spot. Obviously you want the whole company operating at full power, which you don’t have right now.”

Ford credit is also responsible for protecting the parent company’s dividend. The $2.4 billion it paid back to its parent in 2019 may be “unsustainable” in the future, analysts say, because Ford’s dividend consumers a much greater percentage of its cash flow than peers. 

In fact, Bloomberg notes how further important the credit arm would become/is during a recession:

In a recession, Ford Credit’s role becomes even more important. It doesn’t play much in the subprime market, so the ratio of its losses to total customer bills outstanding stayed below 2% during the Great Recession, a low level. Its repossession rate never got higher than 3.2%.

Those strong metrics allowed Ford’s captive finance unit to generate a dividend for the parent even in 2009, when U.S. auto sales slumped to a 27-year low.

Tim Stone, Ford’s chief financial officer, said during a November interview: “With a healthy portfolio, a captive balance sheet in an economic downturn actually starts generating and kicking off a bunch of cash flow. We take a very thoughtful approach to that business.”

Ford Credit has sent $28 billion over the last two decades to Ford.


Tyler Durden

Sun, 02/09/2020 – 22:30

via ZeroHedge News https://ift.tt/2uoara3 Tyler Durden

“The Death Rate Is Up To 5%”: The Harrowing Admission Of A Wuhan Doctor

“The Death Rate Is Up To 5%”: The Harrowing Admission Of A Wuhan Doctor

A front-line coronavirus doctor tells of life in death in the ICU…

Translated by Sun Huixia and Dave Yin via The Straits Times,

WUHAN (CAIXIN GLOBAL) – In the coronavirus epidemic, doctors on the front lines take on the greatest risk and best understand the situation. Dr Peng Zhiyong, director of acute medicine at the Wuhan University South Central Hospital, is one of those doctors.

In an interview on Tuesday with Caixin, Dr Peng described his personal experiences in first encountering the disease in early January and quickly grasping its virulent potential and the need for stringent quarantine measures.

As the contagion spread and flooded his ICU, the doctor observed that three weeks seemed to determine the difference between life and death. Patients with stronger immune systems would start to recover in a couple of weeks, but in the second week, some cases would take a turn for the worse.

In the third week, keeping some of these acute patients alive might require extraordinary intervention. For this group, the death rate seems to be 4 per cent to 5 per cent, Dr Peng said. After working his 12-hour daytime shifts, the doctor spends his evenings researching the disease and has summarised his observations in a thesis.

The doctors and nurses at his hospital are overwhelmed with patients. Once they don protective hazmat suits, they go without food, drink and bathroom breaks for their entire shifts. That’s because there aren’t enough of the suits for a mid-shift change, he said.

Over the past month on the front lines of the coronavirus battle, Dr Peng has been brought to tears many times when forced to turn away patients for lack of staffing and beds. He said what really got to him, though, was the death of an acutely ill pregnant woman when treatment stopped for lack of money – the day before the government decided to pick up the costs of all coronavirus treatments.

Here’s our interview with the ICU doctor:

Caixin: When did you encounter your first novel coronavirus patient?

Dr Peng Zhiyong: Jan 6, 2020. There was a patient from Huanggang who had been refused by multiple hospitals, who was sent to the South Central Hospital emergency room. I attended the consultation. At the time, the patient’s illness was already severe, and he had difficulty breathing. I knew right then that he contracted this disease. We debated at length whether to accept the patient. If we didn’t, he had nowhere to go; if we did, there was a high likelihood the disease would infect others. We had to do a very stringent quarantine. We decided to take the patient in the end.

I called the hospital director and told him the story, including the fact that we had to clear the hospital room of other patients and to remodel it after Sars standards by setting up a contamination area, buffer area, cleaning area, and separate the living areas of the hospital staff from the patients’.

On Jan 6, with the patient in the emergency room, we did quarantine remodelling in the emergency room and did major renovations to the ICU (intensive care unit). South Central Hospital’s ICU has 66 beds in total. We kept a space dedicated to coronavirus patients. I knew the infectiousness of the disease. There were bound to be more people coming in, so we set aside 16 beds. We did quarantine renovations on the infectious diseases area because respiratory illnesses are transmitted through the air, so even air has to be quarantined so that inside the rooms the air can’t escape. At the time, some said that the ICU had a limited number of beds and 16 was excessive. I said it wasn’t excessive at all.

Caixin: You predicted back in January that there would be person-to-person transmission and even took quarantine measures. Did you report the situation to the higher-ups?

Peng: This disease really did spread very fast. By Jan 10, the 16 beds in our ICU were full. We saw how dire the situation was and told the hospital’s leadership that they had to report even higher. Our head felt it was urgent too and reported this to the Wuhan city health committee. On Jan 12, the department sent a team of three specialists to South Central to investigate. The specialists said that clinical symptoms really resembled Sars, but they were still talking about diagnosis criteria, that kind of stuff. We replied that those standards were too stringent. Very few people would get diagnosed based on those criteria. The head of our hospital told them this multiple times during this period. I know other hospitals were doing the same.

Before this, the specialists already went to Jinyintan Hospital to investigate and made a set of diagnosis criteria. You had to have had exposure to the South China Seafood Market, you needed to have had a fever and test positive for the virus. You had to meet all three criteria in order to be diagnosed. The third one was especially stringent. In reality, very few people were able to test for a virus.

On Jan 18, the high-level specialists from the National Health Commission came to Wuhan, to South Central Hospital to inspect. I told them again that the criteria were too high. This way it was easy to miss infections. I told them this was infectious; if you made the criteria too high and let patients go, you’re putting society in danger. After the second national team of specialists came, the criteria were changed. The number of diagnosed patients rose quickly.

Security guards check the temperature of visitors at a seafood market in Guangzhou, Guangdong Province, China, on Feb 6, 2020. PHOTO: EPA-EFE

Caixin: What made you believe that the new coronavirus could be transmitted between people?

Peng: Based on my clinical experience and knowledge, I believed that the disease would be an acutely infectious disease and that we had to do high-level protection. The virus isn’t going to change based on man’s will. I felt we needed to respect it and act according to science. Under my requirements, South Central Hospital’s ICU took strict quarantine measures, and as a result, our department only had two infections. As of Jan 28, of the entire hospital’s medical personnel, only 40 have been infected. This is way less compared with other hospitals in terms of percentage of total medical staff.

It pains us to see the coronavirus develop to such a desperate state. But the priority now is to treat people; do everything we can to save people.

Caixin: Based on your clinical experience, what’s the disease progression of the new coronavirus?

Peng: Lately I’ve been spending the daytime seeing patients in the ICU, then doing some research in the evenings. I just wrote a thesis. I drew on data from 138 cases that South Central Hospital had from Jan 7 to Jan 28 and attempted to summarise some patterns of the novel coronavirus.

A lot of viruses will die off on their own after a certain amount of time. We call these self-limited diseases.

I’ve observed that the breakout period of the novel coronavirus tends to be three weeks, from the onset of symptoms to developing difficulties breathing. Basically going from mild to severe symptoms takes about a week. There are all sorts of mild symptoms: feebleness, shortness of breath, some people have fevers, some don’t. Based on studies of our 138 cases, the most common symptoms in the first stage are fever (98.6 per cent of cases), feebleness (69.6 per cent), cough (59.4 per cent), muscle pains (34.8 per cent), difficulties breathing (31.2%), while less common symptoms include headaches, dizziness, stomach pain, diarrhea, nausea, vomiting.

But some patients who enter the second week will suddenly get worse. At this stage, people should go to the hospital. The elderly with underlying conditions may develop complications; some may need machine-assisted respiration. When the body’s other organs start to fail, that’s when it becomes severe, while those with strong immune systems see their symptoms decrease in severity at this stage and gradually recover. So the second week is what determines whether the illness becomes critical.

The third week determines whether critical illness leads to death. Some in critical condition who receive treatment can raise their level of lymphocytes, a type of white blood cell, and see an improvement in their immune systems, and have been brought back, so to speak. But those whose lymphocyte numbers continue to decline, those whose immune systems are destroyed in the end, experience multiple organ failure and die.

For most, the illness is over in two weeks, whereas for those for whom the illness becomes severe, if they can survive three weeks, they’re good. Those that can’t will die in three weeks.

A patient covered with a bed sheet at an exhibition centre converted into a hospital as it starts to accept patients displaying mild symptoms of the novel coronavirus in Wuhan in China’s central Hubei province, on Feb 5, 2020. PHOTO: AFP

Caixin: Will you please give more details on clinical research? What percentage of cases would develop from mild conditions to severe conditions? What percentage of serious cases would develop into life-threatening cases? What is the mortality rate?

Peng: Based on my clinical observations, this disease is highly contagious, but the mortality rate is low. Those that progressed into the life-threatening stage often occurred in the elderly already with chronic diseases.

As of Jan 28, of 138 cases, 36 were in the ICU, 28 recovered, five died. That is to say, the mortality rate of patients with severe conditions was 3.6 per cent. Yesterday (Feb 3), another patient died, bringing the mortality rate to 4.3 per cent. Given patients in the ICU, it is likely to have more deaths. The mortality rate is also likely to edge up but not significantly.

Those hospitalised tend to have severe or life-threatening conditions. Patients with slight symptoms are placed in quarantine at home. We have not gathered data on the percentage of cases that progress from slight symptoms to serious symptoms. If a patient goes from serious conditions to life-threatening conditions, the patient will be sent to the ICU. Among 138 patients, 36 were transferred to the ICU, representing 26 per cent of all patients.

The percentage of deaths among life-threatening cases is about 15 per cent. The mean period to go from slight conditions to life-threatening conditions is about 10 days. Twenty-eight patients recovered and were discharged. Right now, the recovery rate is 20.3 per cent, while other patients remain hospitalised.

It is notable that 12 cases were linked to South China Seafood Market; 57 were infected while being hospitalised, including 17 patients already hospitalised in other departments; and 40 medical staff, among 138 cases (as of Jan 28). That demonstrates that a hospital is a high-risk zone and appropriate protection must be taken.

Caixin: What is the highest risk a serious patient faces?

Peng: The biggest assault the virus launches is on a patient’s immune system. It causes a fall in the count of lymphocytes, the damage in the lungs and shortness of breath. Many serious patients died of choking. Others died of the failure of multiple organs following complications in their organs resulting from a collapse of the immune system.

People lining up to buy face masks in Hong Kong, on Feb 5, 2020. PHOTO: EPA-EFE

Caixin: A 39-year-old patient in Hong Kong suffered from cardiac arrest, and his death ensued quickly. A few patients did not have severe symptoms upon the onslaught of the virus or in early stages, but they died suddenly. Some experts argue that the virus triggers a cytokine storm, which ravages the stronger immune system of young adults. Eventually excessive inflammations caused by cytokine result in the higher mortality rate. Have you seen such a phenomenon in the coronavirus outbreak?

Peng: Based on my observations, a third of patients exhibited inflammation in their whole body. It was not necessarily limited to young adults. The mechanism of a cytokine storm is about whole-body inflammation, which leads to a failure of multiple organs and quickly evolves into the terminal stage. In some fast-progressing cases, it took two to three days to progress from whole-body inflammation to the life-threatening stage.

Caixin: How do you treat serious and life-threatening cases?

Peng: For serious and life-threatening cases, our main approach is to provide oxygen, high-volume oxygen. At first noninvasive machine-pumped oxygen, followed by intubated oxygen if conditions worsen. For life-threatening cases, we use Ecmo (extracorporeal membrane oxygenation, or pumping the patient’s blood through an artificial lung machine). In four cases, we applied Ecmo to rescue patients from the verge of death.

Currently there are no special drugs for the coronavirus. The primary purpose of the ICU is to help patients sustain the functions of their body. Different patients have different symptoms. In case of shortness of breath, we provided oxygen; in case of a kidney failure, we gave dialysis; in case of a coma, we deployed Ecmo. We provide support wherever a patient needs it to sustain his life. Once the count of lymphocytes goes up and the immune system improves, the virus will be cleared. However, if the count of lymphocytes continues to fall, it is dangerous because the virus continues to replicate. Once a patient’s immune system is demolished, it is hard to save a patient.

Scientists working in the VirPath university laboratory, classified as “P3” level of safety, on Feb 5, 2020 as they try to find an effective treatment against the new Sars-like coronavirus. PHOTO: AFP

Caixin: There is news of some drugs that work. People are hopeful of the effect of US-made remdesivir, which cured the first case in the United States. What do you think of the drugs?

Peng: There are no 2019 novel coronavirus-targeted drugs so far. Some patients may recover after taking some drugs along with supportive treatment. But such individual cases do not indicate the universal effect of the drugs. The effect is also related to how serious each case is and their individual health conditions. People want a cure urgently, and that is understandable. But we need to be cautious.

Caixin: Do you have any advice for coronavirus-infected patients?

Peng: The most effective approach to the virus epidemic is to control the source of the virus, stem the spread of the virus and prevent human-to-human transmission. My advice for a patient is going to a special ward for infectious diseases, early detection, early diagnosis, early quarantine and early treatment. Once it has developed into a severe case, hospitalisation is a must. It is better to contain the disease at an early stage. Once it reaches the life-threatening stage, it is way more difficult to treat it and requires more medical resources. With regard to life-threatening cases, try to save them with ICU measures to reduce the mortality rate.

Caixin: How many patients with life-threatening conditions have you treated? How many have recovered?

Peng: As of Feb 4, six patients in the ICU of South Central Hospital died. Eighty per cent of them have been improving, a quarter are approaching their discharge and the remainder are still recovering in segregated wards.

The patient who impressed me most came from Huanggang. He was the first to be saved with the assistance of Ecmo. He had contact with South China Seafood Market and was in very serious conditions. He was transferred to the ICU and we saved him with Ecmo. He was discharged from the hospital Jan 28.

Medical workers in protective suits receive a patient at the Wuhan International Conference and Exhibition Center, which has been converted into a makeshift hospital to receive patients with mild symptoms caused by the novel coronavirus, in Wuhan, Hubei province, China, on Feb 5, 2020. PHOTO: REUTERS

Caixin: What are your work load and pace like?

Peng: The work in the ICU is overloaded. There are three patient wards with 66 beds in South Central Hospital, housing 150 patients. Since Jan 7, when we received the first patient, no one took any leave. We took turns to work in the ICU. Even pregnant medical staff did not take leave. After the epidemic got worse, none of the medical staff ever went home. We rest in a hotel near the hospital or in the hospital.

In the segregated ward, we wear level-3 protective gear. One shift is 12 hours for a doctor and eight hours for a nurse. Since protective gear is in a shortage, there is only one set for a medical staff member a day. We refrain from eating or drinking during our shift because the gear is no longer protective once we go to the washroom. The gear is thick, airtight and tough on our body. It felt uncomfortable at the beginning, but we are used to it now.

Caixin: Did you experience a very dangerous moment? For example, in case of intubation, what do you do to prevent yourselves from being infected?

Peng: It is a new coronavirus. We are not sure of its nature and its path of spread. It is not true if we say we are not afraid. Medical staff members do fear to some extent. But patients need us. When a patient is out of breath and non-invasive oxygen provision fails, we must apply intubation. The procedure is dangerous as the patient may vomit or spit. Medical staff are likely to be exposed to the danger of infection. We strictly require doctors and nurses to apply the highest-level protection. The biggest problem we face now is the shortage of protective gear. The protective stock for ICU staff is running low, although the hospital prioritises the supply to us.

Caixin: Is there anything that moved you in particular? Did you cry?

Peng: I often cried because so many patients could not be admitted to the hospital. They wailed in front of the hospital. Some patients even knelt down to beg me to accept him into the hospital. But there was nothing I could do since all beds were occupied. I shed tears while I turned them down. I ran out of tears now. I have no other thoughts but to try my best to save more lives.

The most regretful thing to me was a pregnant woman from Huanggang. She was in very serious condition. Nearly 200,000 yuan (S$39,505) was spent after more than a week in the ICU. She was from the countryside, and the money for hospitalisation was borrowed from her relatives and friends. Her condition was improving after the use of Ecmo, and she was likely to survive. But her husband decided to give up. He cried for his decision. I wept too because I felt there was hope for her to be saved. The woman died after we gave up. And exactly the next day, the government announced a new policy that offers free treatment for all coronavirus-infected patients. I feel so sorry for that pregnant woman.

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Special report: Fighting the coronavirus

The deputy director of our department told me one thing, and he cried too. Wuhan 7th Hospital is in a partnership with our hospital, South Central Hospital. The deputy director went there to help in their ICU. He found that two-thirds of the medical staff in the ICU were already infected. Doctors there were running “naked” as they knew they were set to be infected given the shortage of protective gear. They still worked there nonetheless. That was why ICU medical staff were almost all sickened. It is too tough for our doctors and nurses.


Tyler Durden

Sun, 02/09/2020 – 22:05

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

China Suddenly Has Another Major “Virus” Problem, As Soaring Food Prices Put A Lid On Central Bank Intervention

China Suddenly Has Another Major “Virus” Problem, As Soaring Food Prices Put A Lid On Central Bank Intervention

Soon the only food that will be affordable in China, is coronabat stew.

With over 400 million people across dozens of Chinese cities living in lock down as a result of the Coronavirus pandemic, crippling global supply chains and grinding China’s economy to a halt, it is easy to forget that China has been battling another major viral epidemic for the past two years: namely the African Swing Fever virus, aka “pig ebola” which killed off over half of China’s pig population in the past year, sending pork prices soaring, and unleashing a tidal wave of inflation.

Well, moments ago, the world got a stark reminder of this when China reported that in January, its CPI jumped by whopping 5.4% Y/Y, the highest print in nine years…

… driven by a surge in pork prices, which reversed a rare drop in December when the slid by 5.6%, rising 8.5% in just ont month, and a record 116% compared to a year ago.

This unprecedented surge in pork CPI meant that China’s food CPI rose a record 20.6% in January, also the highest on record, as China’s population, now ordered to live under self-imposed quarantine, suddenly finds it can no longer afford to buy food .

Needless to say, this is suddenly a major problem for China, whose central bank has in the past two weeks unleashed an unprecedented liquidity tsunami, including the biggest ever reverse repo injection…

… in hopes of stabilizing the stock market. Well, oops, because some of this liquidity now appears to be making its way into the broader economy, and is making already scarce food (aside from bat stew of course) even more unaffordable, and the already depressed and dejected Chinese population even more hungry, and angry.

There was one silver lining in today’s data: after spending half a year in deflation, China’s Production Prices, a proxy for industrial profits and overall price leverage, finally printed in the positive, rising 0.1% Y/Y, and better than the expected 0.0%

So far so good, however, with China’s economy now on indefinite lock down, expect the correlation shown in the chart above to break any moment now, with industrial profits crashing as a result of the coronavirus putting countless Chinese factories on lock down at least until the coronavirus is contained. When that happens is anyone’s guess, but one thing is certain: at the rate food prices are exploding, soon the only food China’s population will be able to afford will be the experimental bats used by the Wuhan Institute of Virology, one of which may or may not have been accidentally sold to the local fish market last December triggering what is now the worst viral pandemic in decades.

Just as concerning, if only for Beijing, is that if the surge in food prices isn’t “contained” very soon the arms of the PBOC will be tied and any hopes that China will reflate its economy – and the world – to offset the economic crunch resulting from the coronavirus, will be weaponized and vaporize right through the HVAC, just like any number of manmade viruses currently being developed in Wuhan, as pretty soon China’s population – starving and quarantined – will have no choice but take matters into its own hands.


Tyler Durden

Sun, 02/09/2020 – 22:03

via ZeroHedge News https://ift.tt/2w789wx Tyler Durden

Is Tesla The Next Amazon Of Auto Companies? One Investment Bank Offers Their Answer

Is Tesla The Next Amazon Of Auto Companies? One Investment Bank Offers Their Answer

We often rib on Morgan Stanley’s Adam Jonas for blindingly supporting Tesla with egregious price targets based on things like “Tesla Mobility”, which don’t even exist. But every once in a while Jonas produces an actual piece of analysis that can be useful. 

One of two notes Jonas put out on Thursday was called “A Valuation Guide for Tech PMs” and was dedicated to trying to compare Tesla to other tech titans, now that the automaker’s stock has ascended into the stratosphere for seemingly no reason at all. 

Tesla’s meteoric rise has “put it in the discussion with the most popular Teracaps, accelerating the hand-over from traditional
auto investor to tech investor,” Jonas said in his note. He says his firm is getting increasing numbers of calls from tech PMs who have picked up Tesla as a tech investment, instead of an auto investment. The market, Jonas says, is now viewing Tesla as a tech company.

It has to – how else is it going to justify a market cap of $150 billion on a company that has never turned an annual profit?

But, we digress. In his note, Jonas compares Tesla to Amazon, Apple, Netflix and Spotify. He hilariously calls it “more expensive, but higher growth” than the hyper-cash generative Apple and “cheaper than Spotify”:

  • Is Tesla the next AMZN? Amazon (covered by Brian Nowak) trades at over 7x 2025 EBITDA with over 12% top line growth from 2025 through 2030. On this framework, Tesla is much more expensive and lower growth (on our forecasts)vs. AMZN.
  • Is Tesla the AAPL of autos? Apple (covered by Katy Huberty) trades at under 12x 2025 EBITDA with 7% top line growth (based on Morgan Stanley’s published FY19-FY23E Revenue and EBITDA CAGR estimates) from 2025 through 2030. On this analysis, Tesla is slightly more expensive but higher growth than Apple.
  • How about Tesla vs. Netflix? Netflix (covered by Ben Swinburne) trades at around 13x 2025 EBITDA with over 9% top line growth from 2025 through 2030. On this analysis, Tesla is materially more expensive and slightly higher growth.
  • And vs. Spotify? Spotify (covered by Ben Swinburne) trades at around 15x 2025 EBITDA with over 12% top line growth from 2025 through 2030. On this analysis, Tesla is slightly cheaper than Spotify while materially lower growth.

He then says that Tesla’s valuation can appear “relatively reasonable” to some investors as a technology stock. But ultimately, he concludes, “for an investor to purchase TSLA’s stock today, based upon current 2025e valuation, he or she needs either higher growth or a better business (higher ROIC, recurring revenue, lower volatility, etc.) or both.”

Just yesterday, we pointed out that Morgan Stanley had kept an “underweight” rating on the stock with a $360 price target, amidst the stock’s recent run up, where it had nearly tripled in the span of just weeks. 

In that note, Jonas noted the astounding volume with which Tesla has traded. Jonas said that “Tesla traded over 48 million shares on Wednesday (over 25% of shares outstanding) for a value traded of approximately $36bn. For comparison, Apple, a company with roughly 10x the market cap of Tesla traded approximately $9.5bn of value yesterday. Tesla traded nearly 4x the value of the world’s most valuable public company.”

 

And he also was cautious about calling Tesla the winner in the EV space, given its new entrants: “Moreover, with US and global EV penetration at approximately 2% we believe it may be too early to declare the ultimate winner in the global EV market. At a minimum, there may be substantial risk to modeling the growth and market share of a market at such a low level of maturity today.”

He concluded by noting that even the bulls he was speaking sound like they are starting to change their tone to a slightly more skeptical one:

“We continue to engage with investors in high volume on Tesla, but noted a slight change in feedback where even some bulls on the name we have spoken with have expressed a degree of uncertainty, and in some cases, concern around the recent price action..”


Tyler Durden

Sun, 02/09/2020 – 21:40

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

“This Is A Ticking Timebomb”: Here’s The Chart That Convinced Albert Edwards That Helicopter Money Is On Its Way

“This Is A Ticking Timebomb”: Here’s The Chart That Convinced Albert Edwards That Helicopter Money Is On Its Way

Two weeks ago, when looking at the latest CBO forecast which predicted that the cumulative US deficits would hit $13.1 trillion by 2030, we highlighted perhaps the most troubling chart in all of finance right now, namely the CBO’s long-term forecast for US debt, which can be described in one word: exponential.

Commenting on this chart rather laconically, we said that “in other words, the MMT that will be launched after the next financial crisis, and which will see the Fed directly monetize US debt issuance from the Treasury until the dollar finally loses its reserve currency status, is now factored in.”

Neither the chart, nor the comment was lost on SocGen’s resident bear Albert Edwards, who after living through a harrowing earthquake during his vacation in Jamaica, chimed in on the chart above, writing in his latest Global Strategy Weekly that “this is a ticking timebomb and the chart… is screaming out for attention. The sources of this debt explosion are well known and documented with, for example, the unfunded liability of an aging population boosting Medicare expenses and the off-budget social security deficit spiralling upwards over the forecast period.”

To underscore his Japanification thesis, Edwards also points to the chart below to the left, and observes that this will be “the first year in which the US cyclically  adjusted primary deficit will have exceeded Japan’s since 1992, when Japan was beginning to suffer the serious fiscal impact from the bursting.”

But, as Edwards notes, “it is the change in the cyclically adjusted primary deficit – which economists think measures the discretionary fiscal impulse – that slows or stimulates the economy (see right-hand chart above). The almost 1½% US fiscal stimulus a couple of years back has given way to a slight tightening of policy. Indeed, it is notable that in contrast to all the market chatter about fiscal expansion – and with central banks pressing governments to do more – all major countries are basically fiscally neutral this year. But fiscal neutrality won’t defuse the ticking government debt bomb of their 1980s bubble. This does indeed mark a new level of fiscal debauchery for the US.”

So what to do? Below we present Edwards’ thoughts on what comes next and, you guessed it, it involves MMT, i.e., helicopter money being used to thaw the ice age that over the past 30 years sent bond yields to never before seen lows:

… based on the fiscal projections from the CBO above, I expect the US will likely join Japan in giving up any serious attempt to reduce its government debt to GDP ratios back to the historically ‘normal’ levels. It simply ain’t going to happen. Does anyone seriously believe that any democratically elected government would be willing to raise taxes or cut government spending and future pension/health benefits in a bid to delay the fiscal timebomb? Of course they wouldn’t! And any  government that attempts to do so will be hounded from office by an indignant public armed with pitchforks and much else besides.

The CBO chart above showing US federal debt spiralling exponentially out of control screams one indisputable outcome to me (and these sorts of charts are similar for most industrialised countries). Helicopter money is on its way. You can call it Modern Monetary Theory (MMT), you can call it ‘Fiscal and Monetary Co-operation’, or you can call it whatever you like, but there is only one realistic way out of this mess – and that is for governments to inflate away their  debts. However, since much of these liabilities will rise with the CPI, like state pension benefits and healthcare, and cannot be inflated away, there will have to be more emphasis on deflating the liabilities that can actually be shrunk via rapid inflation.

Russell Napier reaches the same conclusion in his Macrovoices interview. Like him, I believe the regime change will be such a major event that it can only be implemented during a crisis – and for both of us, the next recession will be that crisis as it  will be a deflationary bust! But my views are well known on that topic. 

If this outlook of Russell’s and mine is correct, one other thing is likely: helicopter money, and it will be a very effective tool. Mainlining liquidity directly into the veins of the global economy will be much more effective in boosting GDP than QE, which has largely injected liquidity only into the veins of the financial markets. Helicopter money will work for Joe Sixpack much more effectively than it will for Mike Moneybags – and so it will be much more widely popular. And that is the problem. Once politicians have their hands on this policy tool, make no mistake, they will never ever hand it back to the Central Banks. And any policymaker that ever dares try to turn off the monetary taps would be well advised to read about the fate of Korekiyo Takahashi , Japan’s Finance Minister and former Governor of the Bank of Japan.

Takahashi, who is credited with pulling Japan out of the early 1930’s depression with extremely loose fiscal policy financed by helicopter money, is regarded as Japan’s Keynes link. He resisted fiscal tightening in 1935 as too early because of the continued fragility of the economy, but by 1936 with the economy having returned to full employment he set about turning off the fiscal and monetary taps and called the helicopters back to base.

As in all these things, the beneficiaries of super-loose fiscal and monetary largess were not happy when it looked as if the fiscal taps were about to be turned off. The Japanese military, who had been a major beneficiary of his fiscal spending, were especially miffed – so they had Finance Minister Takahashi assassinated.

As helicopter money becomes increasingly inevitable, the big news is that we are calling for the thawing of the Ice Age after the next recession – whenever that arrives. But a deflationary bust, which will take US 10y yields to around -1% (and 30y yields negative), will come first and enable this massive shift in policy to occur.

And within a few years I have not one scintilla of doubt that helicopter money will be so successful that CPI inflation will return like a long-lost relative. But, like a distant uncle we only see every now and again, we will have forgotten just how out-of-control he can become after a few drinks, and woe betide anyone who tries to stop him in his tracks, or in policy terms tries to stand down those confetti dropping helicopters.

Where will it all end? Albert leaves us with these thoughts from Cathy Buckle, reproduced in The Zimbabwean last week.

“This week our government got off the hook with regard to their obligation to pay doctors the same salary they were earning a year ago. Zimbabwean Strive Masiyiwa and his Higherlife Foundation has established a fund that will pay junior doctors US$300 a month for the next six months….

While this deal was being finalised our Supreme Court ruled this week that all debts incurred before February 22 last year will be settled in the local currency on a US$1 to Z$1 basis. The ruling was made by Chief Justice Luke Malaba, the same judge who ruled that Emmerson Mnangagwa had won Zimbabwe’s 2018 disputed, contested election.

In the week that Justice Malaba made the currency/debt ruling, the bank rate for US$1 was Z$17 and the black market rate was US$1 for Z$25. To put Justice Malaba’s ruling into context: if someone owed you US$100 in February 2019, they can now pay you back $100 Zimbabwe bond dollars which today is worth the equivalent of just US$4, not quite enough to buy three mangoes in the supermarket.

The Supreme Court ruling was made in response to an appeal over a US$3.8 million debt owed by Zambezi Gas to mining-related company NR Barber, which is now to be paid in Zimbabwe dollars that are worth only US$145 000.

Undoubtedly this ruling will mostly benefit the well connected and the political elite.”

A little words, but the point is simple, and just to summarize Edwards’ take on what happens next, which is essentially a repeat of what we said both two weeks ago and what we have been saying for years now, the SocGen strategist is “now more convinced than ever before that the coming deflationary bust will take the US 30y yield below zero. I am also convinced that helicopter money will be the chosen way out of this deflationary quagmire, especially as it becomes increasingly clear that there is now no way left to reverse every government’s exploding fiscal liabilities. The Ice Age is nearing the end.”


Tyler Durden

Sun, 02/09/2020 – 21:15

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Futures Erase 0.7% Drop After Reuters Reports Foxconn Will Restart Some Production Monday

Futures Erase 0.7% Drop After Reuters Reports Foxconn Will Restart Some Production Monday

With traders anxiously eyeing the surge in overnight coronavirus deaths in China as evidence the pandemic is far from contained, amid fears that China will not be able to reopen for business tomorrow despite the government’s assurance that somehow everything will be ok on Feb 10 and supply chains will once again be humming as before, futures slumped in early trading, but promptly erased losses of as much as 0.7%…

… after Reuters reported that Apple’s main iPhone production partner and fab, Taiwan’s Foxconn, also known as Hon Hai Precision Industry, had received Chinese government approval to resume production at a key plant in the northern China city of Zhengzhou, where half of the world’s iPhones are made.

Earlier in the day, Bloomberg reported that Foxconn’s factories worldwide are coordinating with authorities in carrying out virus protection and are preparing safety measures with the approval of local governments.

“Our group hasn’t received any client requests to move production resumption earlier,” Foxconn said in a statement Saturday, adding that operating schedules will be arranged according to local governments’ requirements.

But as Reuters notes it’s not all clear, and the company is still in talks with the government to resume production at another plant in the southern Chinese city of Shenzhen, confirming a Bloomberg report that Foxconn had asked Shenzhen employees not to return to work when the extended Lunar New Year break ends on Monday.

On Saturday, Nikkei reported that China blocked a plan by Foxconn to resume production in China from Monday amid concerns about the spread of the new coronavirus.

As such, the greenlighting of at least some work by Foxconn – so critical for Apple’s production schedule – was seen by the market as a vote of confidence in Beijing’s ability to contain the virus from the giant Zhengzhou facility, which employs about 350,000  of Foxconn’s 1.3 million employees in China.

But is that indeed the case, or is China merely being cavaliers with the lives of hundreds of thousands of workers? The answer will emerge in the news few days, when either there is a confirmed infection among Foxconn’s massive worker army, or there isn’t. Or maybe even sooner, if faith in the containment of the virus among Foxconn’s workers is non-existent and nobody shows up to work on Monday despite the company’s reopening…


Tyler Durden

Sun, 02/09/2020 – 21:15

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Nine Members Of Hong Kong Family Infected WIth Coronavirus After Sharing Meal

Nine Members Of Hong Kong Family Infected WIth Coronavirus After Sharing Meal

One of the biggest clinical surprises involving the coronavirus epidemic in recent days was the discovery that in addition to targeting ACE2 (angiotensin converting enzyme 2) receptors in the respiratory tract, resulting in an aggravated “cytokine storm” in the lungs and lethal pneumonia as the cause of death, the virus which increasingly appears as if it was developed in a the Wuhan Institute of Virology, also targets ACE2 receptors in other organs such as heart, kidney, liver, intestine, etc., which in turn explains why the first Hong Kong death from coronavirus was the result of heart failure and not pneumonia.

This discovery also hints at air passage as a likely form of viral transmission, which in addition to the discovery that the virus can survive as long as a week on any surface, has dramatically raised the odds of widespread distribution.

Concerns about the way the virus spreads are likely to surge following a report that nine members of the same Hong Kong family have been infected with the deadly new coronavirus after sharing a hotpot and barbecue meal.  A hotpot – also known as a steamboat – is a bubbling cauldron of stock shared communally, to which diners add ingredients.

It wasn’t immediately clear if the food was contaminated with the virus, or if one of those present for dinner was a carrier.

According to the SCMP, the nine made up almost all of the 10 positive cases reported in the city on Sunday after seven people – all members of the family – were confirmed late in the evening as having the infection. Earlier in the day, a 24-year-old male member of the family and his grandmother were confirmed to have the virus. The man’s mother and father, two aunts and three cousins were the others infected. Their ages range from 22 to 68.

Adding to the mystery of the viral spread, the other case confirmed earlier was a 70-year-old man who had not travelled out of Hong Kong since January 9, spending most of his time at home.

With the 10 new cases, the number of people infected in the city jumped by more than a third to 36, heightening fears of a community outbreak. The development came as health authorities warned of “major difficulties” in tracing possible virus carriers because some might only show mild flu-like symptoms at an early stage.

In response to the increasing number of cases, the Hospital Authority, which runs the city’s public health facilities, also said it would drastically adjust non-urgent services in the coming four weeks.

“We’re facing major difficulties in isolating the suspected cases and tracing those who had close contact with the confirmed patients,” Dr Chuang Shuk-kwan, head of the communicable disease branch of the Centre for Health Protection, said, adding that it was because some people would only show mild symptoms and thus it was hard to tell who might have the virus.

Nine of the new cases had been to a family gathering on January 19 at the Lento Party Room in Kwun Tong. Nineteen people had joined the dinner, including two relatives from mainland China who left the city at the end of last month.

“I suggest the public cuts down on these gatherings. If they are necessary, try to reduce the time spent together,” said Chuang, who also urged citizens not to share chopsticks with those they dine with.

Ironically, even as authorities warned that the virus may spread even as carriers show mild, or no symptoms, about 3,600 passengers and crew members on board the World Dream cruise ship quarantined in Hong Kong for four days finally left the vessel on Sunday after control measures were completed. According to the report, all of the 1,800 crew members, who possibly had contact with eight passengers infected with the new virus on a previous trip, tested negative for the disease.

Commenting on whether Hong Kong could stop the spread of the virus in the community, Chuang said it depended on how many virus carriers there were who showed little or no symptoms.

“If there are many people who have no symptoms or only mild symptoms, and they have infected many others, then there isn’t much we can do to stop the spread,” she said. “We will do all we can.”

Two medical sources, meanwhile, said a 69-year-old man with diabetes had also tested positive for the coronavirus, possibly raising the total tally further. He remained in critical condition on Sunday at Pamela Youde Nethersole Eastern Hospital’s intensive care unit. He travelled to the mainland more than a month ago, so well before China scrambled to quarantine hundreds of millions of people across more than 60 cities, a move that in retrospect now appears to have been moot.

Pursuing its own quarantine, the number of people entering Hong Kong dropped sharply as a 14-day mandatory quarantine scheme to tackle the coronavirus outbreak took effect on Saturday.

On that day, only 23,399 people entered the city through the airport, Hong Kong-Zhuhai-Macau Bridge and Shenzhen Bay Port, the three control points that remain open, down from 95,982 on Friday. Of these, only 1,430 came through land crossings on Saturday from Macau and the mainland.

From Saturday to 7pm on Sunday, 918 people were put under mandatory quarantine. They included 814 Hong Kong residents.


Tyler Durden

Sun, 02/09/2020 – 20:51

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Who Can Now Say America Hasn’t Become A Mega-Corporate Dictatorship?

Who Can Now Say America Hasn’t Become A Mega-Corporate Dictatorship?

Authored by Eric Zuesse via The Strategic Culture Foundation,

Jon Hellevig posted on January 16th at The Saker, “Capitalism in America: How a Dismal Decimal is Robbing Americans Blind” the most extensive and up-to-date compendium anywhere, of data on economic inequality in America, and one fact especially stands out from it: “Today Top 1% are losers compared with Top 0.1% – the Dismal Decimal – who are where the music plays. Top 0.1% now holds as much wealth as Bottom 90% combined.”

These top 0.1% people also donate the lions’ share of the money that finances political ads and organizations for their candidates and against the candidates who are financed instead by the other Party’s billionaires. Any candidate who isn’t backed by the billionaires of any Party is a rarity and (except for the independent Bernie Sanders, who is truly an exception) has no realistic chance of winning or keeping a seat in Congress.

That drastic inequality of wealth in America — “Top 0.1% now holds as much wealth as Bottom 90% combined” — is calculated by Deutsche Bank, in their January 2018 study “U.S. Income and Wealth Inequality”. Here’s more from that study:

On page 3 is shown that U.S. is comparable to Chile, Israel, Mexico, Portugal, and Turkey, as being at the top of the nations studied, in “inequality in household disposable income.”

On page 6: “A record high 30% of households have no wealth” in the United States.

On page 7: All-time high median net worth in constant dollars was 2007, at $119,000, declined to $67,000 in 2010, and rose to $78,000 by 2016.

On page 8: “U.S.: Top 0.1% owns as many assets as the bottom 90%”

On page 10: U.S. has higher income-inequality than any other OECD nation.

On page 11: Income-inequality is rising faster in U.S. than any other OECD nation.

On page 15: Top 1% in pre-tax income in the U.S. in 2014 was $1.3 million+.

Top 0.1% was $6 million+.

So: if the top 0.1% in income in America are also the top 0.1% in wealth in America, then the individuals in America who draw $6 million+ annual income own as much as do all 90% who aren’t in the top 10%.

When a nation’s billionaires control not only its mega-corporations but its government, that small group — who do business with one-another — constitute a national dictatorship which is just as bad as in feudal times when a tiny aristocracy (who also did business with one-another) controlled the government and were a collective dictatorship over the entire nation’s population. A king isn’t required in order for there to be a dictatorship. Most dictatorships are aristocratic, not monarchical. Furthermore, in almost all monarchies, the king represents, and comes from, his class — the aristocracy. A collective dictatorship is no better, or worse, than is a one-person dictatorship.

There are, according to the latest count by Forbes (as of 2019), 607 billionaires in the U.S., and these people include, for example, Jack Dorsey who controls Twitter, and Eric Schmidt and John Doerr who mainly control Google, as well as Mark Zuckerberg who controls Facebook. Of course, Bezos, Buffett, the Waltons, the Kochs, and hundreds of others, are also among these 607: but, still, it’s this group of people (plus perhaps a hundred of the mere centi-millionaires) who actually control mega-corporate America including its government — they also hire and control millions of employees and other agents such as law firms and lobbyists — and the other 330 million Americans do not possess such control, but instead only work for them, and sell to them, and buy from them, and view the world through their media. Most importantly, the other 330 million Americans receive their television and radio and newspaper and magazine ‘news’ from the country’s billionaires, and vote for the U.S. President and members of Congress on the basis of that news, which is virtually entirely filtered by appointees of these 607 people, not only as being controlling owners of the media but as being (controlling) the largest advertisers in all of the major media. The largest advertisers participate, with the media-owners, in controlling the media. It’s all the same group of fewer than a thousand individuals, who collectively control America.

Some of them — such as Trump, and Bloomberg, and Steyer — are also in politics or trying to be, because they want to be controlling America even more directly than they already do, so that their power will be even greater than it already is. Of course, Trump has already succeeded at this, and we can see from what he has been doing to America as its President, a fair representation of the billionaire class’s political intentions, though he is more blatant about it than, for Example, Tom Steyer is, who was the biggest political donor in the 2016 campaign year, having given $91 million to help Hillary Clinton and other Democratic politicians. He was the top donor that year to defeat Bernie Sanders, and thus help Clinton win the Party’s Presidential nomination; so, that’s the type of Democrat which this billionaire actually is: a neoconservative and a neoliberal. No matter what Tom Steyer and another Democratic Party Presidential candidate, Michael Bloomberg, might say in order to win votes, that’s what they all actually are: neoconservative, and neoliberal. They support American imperialism, and they support America’s billionaires — they are the actual beneficiaries from American imperialism, and from an American economy that funnels more and more of the nation’s wealth into their control.

Here are some recent studies which document this dictatorship:

If America were a democracy, then there would be no “narrative control on social media,” because social media wouldn’t be allowed to censor whatever they want to censor. They wouldn’t have that power. The First Amendment to the U.S. Constitution prohibits the Government from punishing anyone for any type of “speech,” but doesn’t say anything to limit America’s aristocrats from censoring out whatever they want to be censored-out — using their “social media” so as to reduce the ability of anyone to say or to link to what those super-rich don’t want the public to have access to. Censorship by the billionaires is accepted in America.

Consequently, Julian Assange is kept imprisoned (in one way or another) for around a decade and is now being drugged in a British maximum-security prison while awaiting extradition to the U.S. for final slaughter, and he has never been convicted of anything, but Americans — alone of all the world’s people in this regard — approve of this, and accept both a Democratic President Obama and a Republican President Trump perpetrating this illegal punishment of him for revealing truths about their dictatorship.

And, also consequently, the United States has a higher percentage of its people in prison than does any other nation — and virtually all of them are lower class, not the type of criminal who murders by giving an order or by signing a contract or by selling a dangerous or toxic product but by knifing or shooting someone. The crooks who do the most harm are the richest ones, and they don’t merely violate the laws, they (through their lobbyists etc.) also write the laws.

This working through agents, whom they pay, is how it comes to be that America is now scientifically proven to be one dollar one vote instead of one person one vote.

And that is how it comes to be the case that the billionaire Trump can push into law a $32 billion taxpayer-giveaway to the investors and top executives in America’s biggest banks, which then use the money to increase stockholder dividends and to cut their workforce.

And, as “Capitalism in America: How a Dismal Decimal is Robbing Americans Blind” documents, it’s no longer the top 1% but now is instead the top tenth of one percent who are raking money in from the poorer 99.90% of the U.S. population. You’ve now got to be pretty rich in today’s America in order to be robbing from virtually everyone else. “Top 0.1% now holds as much wealth as Bottom 90% combined.” The top 0.1% are now scamming even the rest of the top 1%. But, of course, in this nation where the top 0.01% have been writing the laws (via their lobbyists) for decades now, none of them is anywhere among the millions of Americans who are in prison. To be that rich is to have a stay-out-of-prison card, no matter how many people you’ve harmed or even killed by your dangerous or harmful products or services, such as trick mortgage contracts or toxic pharmaceuticals.

So, realistically, now: Who can say that America hasn’t become a mega-corporate dictatorship?


Tyler Durden

Sun, 02/09/2020 – 20:50

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Oil Heading For “Mid $40’s” In Few Weeks On Lack Of Demand: Starfuels Brokerage

Oil Heading For “Mid $40’s” In Few Weeks On Lack Of Demand: Starfuels Brokerage

With WTI sliding below $50 on Sunday evening, expect even more downside according to S&P Global Platts’ Claudia Carpenter, who writes that oil prices will probably drop to the “mid-$40s” a barrel in the next couple of weeks because of weak demand, according to Matt Stanley, director of Starfuels commodities brokerage.

Supply isn’t an issue but demand is and demand growth is so fragile that an excuse like coronavirus has caused the 15% drop in prices the past few weeks, Stanley told the 7th annual Global Commodity Outlook conference in Dubai on Sunday.

Crude prices have dropped significantly in in the past few weeks on concern that the virus outbreak could blunt global crude demand. Front-month Brent settled Friday at $54.47/b, 16% below its most recent peak on January 20, while WTI futures were down 14% over the same period.

OPEC and 10 allies, including Russia, are debating whether to institute deeper production cuts to stem the price slide, but Stanley said the coalition, known as OPEC+, should instead be looking to increase output to revive demand growth. “Cutting supply to keep prices up is not the way to do it,” he said.

The only big winner of cutting supply would be US shale producers who would boost production on higher prices, effectively pushing prices even lower, he added. US President Donald Trump has probably had his eye on re-election for his second term ever since the first one started, with an eye on supporting the US energy industry so it becomes a key supplier to China, he said, predicting that Trump will win a second term in office.

An OPEC+ technical committee last week recommended that the coalition cut an additional 600,000 b/d on top of its existing 1.7 million b/d cut accord through the second quarter, to combat the coronavirus’ expected hit to oil demand. Russia, the main non-OPEC participant, has yet to commit to the deal, which requires unanimous approval by all 23 OPEC+ countries.

The coalition is next scheduled to meet March 5-6 in Vienna, but delegates have said it could be moved forward if a consensus on new cuts can be reached in advance.

The coronavirus has sparked fears of a major economic slowdown in China, the world’s largest importer of crude, where quarantines and travel restrictions have caused a contraction in oil consumption. China sources some 70% of its crude imports from OPEC+ members, and its refineries are expected to slash runs by about 1 million b/d in February, according to S&P Global Platts Analytics.

Robert Willock, Middle East and North Africa director at the Economist Corporate Network, part of the Economist Intelligence Unit, said his base outlook for the coronavirus is that China will have the outbreak contained by the end of March. That would mean China’s gross domestic product would grow at 5.4% this year, down from 5.9% forecast before the virus, he said.

If the virus is not under control until the end of June, the GDP would grow by 4.5%, he said. “All bets are off” on the GDP forecast if it’s not under control beyond then, he added.


Tyler Durden

Sun, 02/09/2020 – 20:25

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IOWAt The Fu*k?

IOWAt The Fu*k?

Authored by Scott Galloway via No Mercy / No Malice blog,

If a brand is a function of promise (imagery) and performance (interaction), then the brand Iowa is largely a function of the promise. The Hawkeye state is one of the least visited states in the union, attracting fewer tourists than Nebraska or Kentucky. The promise/perception: the caucus and dead baseball players emerging from a cornfield.

YTD, with this week’s debacle, the Iowa brand has suffered an erosion in equity greater than any geography other than the Wuhan region.

The Iowa primary is first for little other reason than it’s first, and has been since the disastrous 1968 Democratic Convention, where the DNC decided it needed a more egalitarian process. So it let Iowa go first, as they had a quaint (antiquated and stupid) caucus process that required more time. The contrast of candidates and deep-fried Snickers was a media hit that cemented the process as “American.” If “American” means damaging and irrational then, yes, go Hawkeyes.

Intimacy = Contact

I write about tech executives, and (no joke) refuse to meet with them. Mostly because I’m an introvert and don’t enjoy meeting new people. But also because intimacy is a function of contact. Often when I meet someone, I like them as a person, feel empathy for them, and find it harder to be objective about their actions. I was recently invited to an “intimate” dinner with the CEO of Uber orchestrated by his PR team, who were looking to spread Vaseline over the lens of the exploitation that Uber levies daily on its 4 million “driver partners.” As Gladwell writes, the people who did not meet Hitler got him right. 

It’s difficult for our elected leaders not to shape public policy around the concerns and priorities of the super wealthy when they have more access to their senators. It’s easiest to identify with those who are most like us and those we spend the most time with. The median wealth of Democratic senators is $946,000, Republican senators $1.4 million.

A National Bureau of Economic Research study of the 2004 presidential primary estimated that people in early-voting states had up to five times the influence in candidate selection of voters in later primaries. Since 1972, the Iowa caucus winner for the Democratic party has become the party nominee 70% of the time. 

The most influential people on the planet, who decide our laws and wars, spend way too much time interacting with Iowans. Over the last year, the top six candidates for the Democratic nomination collectively spent a year in Iowa. So, who has influence over the most influential people in the world? Old white people. Specifically, about 171,000 of them, about a quarter of the population of Washington, DC, and just 15.7% of Iowans — a state with less than 1% of the U.S. population, and just 1.1% of the electoral votes. 

The Iowa caucus has more sway over who gets the nomination than any media firm, ethnic group, or other state, as it provides focus and momentum in the all-important attention graph. So a state with the population of Chicago, whose inhabitants are 90% white, does what almost every policy and institution in America does: transfer wealth from the young and non-white to the old and white. Even in the land of old and white, it gets whiter and older — caucus attendees must have the time and money to caucus. Show me a single Latina mother, and I’ll show you someone who can’t make it to a caucus.

It Gets Worse

The second primary is where a candidate can get real momentum, but it’s also a chance to check and balance Iowa. Unfortunately, New Hampshire boasts the second-oldest population in the union and is even more monochrome with 93% white residents. White households commanding 8x the wealth of black and Hispanic households, skyrocketing student debt, anemic home ownership among millennials, and an agricultural sector where 15% of income is government subsidies — these are not a function of chance.

A democracy on its own is dangerous, as it creeps from egalitarianism to a mob mentality. A liberal democracy is supposed to slow our thinking by inserting institutions and laws that provide guidance and balance. Each of us didn’t send a text message on whether we should launch, on September 12, 2001, nuclear-tipped MGM-52 Lances into Kabul. Our slow thinking saves us from ourselves. But now, our institutions have transformed from bodies of nuance to vehicles of discrimination and cronyism.

Ingesting deep-fried Snickers and town-halling with old white people for a year inhibits our leaders’ ability to move where the puck is headed. Ideas worthy of consideration aren’t heard, and outdated thinking becomes a pillar of our union. For example, Social Security should be disbanded. Yes, I said it. The wealthiest cohort in human history (US baby boomers) should not be the recipients of the largest transfer payments in history. 

Without Social Security, senior poverty would escalate from 9% to 39%. This isn’t evidence of the program’s veracity, but its inefficiency. Lifting 15 million seniors out of poverty is noble, but not worth $1 trillion a year, escalating to $1.8 trillion over the next decade. So, each year we are spending $16,500 per person to pull these Americans out of poverty, vs. $5,700 per person for recipients of Medicaid. A targeted program for seniors, similar to most other social programs, would end the universal basic income program that Iowa and New Hampshire have essentially secured for one demographic: seniors. A better investment would be guaranteed income for Americans in their first decade of life vs. their last.

18% of children live in households that are food insecure. We could likely reduce this by two-thirds if we dropped groceries on the front door of every household with children, every day. However, this makes no sense, and neither does Social Security. For two-thirds of seniors, Social Security has detached from the program’s original mission — to eradicate senior poverty — and is now the world’s most expensive upgrade from Carnival to Royal Caribbean for Nana and PopPop. Senator Michael Bennet is correct when he says the reason we don’t discuss universal Pre-K is because toddlers don’t vote. They do, however, caucus. But only when cake is involved.

Suggestions

Racism, income inequality, and a generation less prosperous than their parents are complicated problems with no silver bullet. A decent place to start is to reorder the caucuses. Put Iowa and New Hampshire last. Kevin Sheeky, a Bloomberg advisor, suggested that the three closest states in the previous presidential general election go first in the next primary. This year that would mean Michigan going first, then New Hampshire and Wisconsin. That seems a lot more dynamic and strategic. 

Or … eliminate the caucuses altogether. Caucuses are undemocratic in that they require hours of participation that only those with the freedom not to work can afford. Older, wealthier, and more highly educated Americans punch above their weight in electoral terms — they have time to vote and stay engaged politically. Younger, poorer, and less educated Americans punch below their weight; they don’t have the time and resources to be politically involved and to go to the polls. Democrats need to get young and diverse voters to the polls. The Iowa and New Hampshire caucuses accomplish the opposite.

Dems also need to be more strategic. Millions of dollars, hours, ads, and corndogs are concentrated on small states that don’t make a big dent in the effort to organize and activate the national voter base. There are nearly twice as many registered Dems in Brooklyn as the entire state of Iowa. Iowa has a population of 3.2 million, New Hampshire 1.4 million, Nevada 3.1 million, South Carolina 5.1 million. Iowa is currently a non-competitive general election state, and little of all this work can be harnessed in November. 

And the strongest cautionary tale of the Iowa caucus — the fallibility of technology. The app, creepily named Shadow, by a firm formed five months ago, was barely tested and crashed. In addition, 4chan users conducted an operation to clog the phones and stop precincts from reporting. All this confusion without a hack. 

Technology is hackable, glitchy, and dependent on WiFi, which itself is vulnerable to attacks. An 11-year-old hacked a voting machine prototype in 10 minutes. Ivanka Trump has shown a peculiar interest in trademarking voting machines. The only safe election is a paper ballot election. Count them twice. Leave Russia, tech hubris, and Ivanka’s trademarks out of it. 

Gage Hake

At the State of the Union, the president honored 13-year-old Gage Hake and his mom, and recognized their father/husband, who was killed in Iraq. Gage was present, in the moment. But he wasn’t focused on his deceased dad or the recognition. Gage was 100% focused on consoling his obviously distraught mother. Any child of a single mother knows what it means to have your entire universe collapse to one thing: the well-being of your only remaining parent. A 13-year-old boy trying to be the man of his house and comfort his mother is instinct. Our institutions and idolatry of the dollar have arrested another instinct — to ensure the next generation prospers.


Tyler Durden

Sun, 02/09/2020 – 20:00

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