Covid-19 Cargo Cults & Why The Market Is Still Too Complacent

Covid-19 Cargo Cults & Why The Market Is Still Too Complacent

Authored by Rusty Guinn via EpsilonTheory.com,

In the South Seas there is a Cargo Cult of people.  During the war they saw airplanes land with lots of good materials, and they want the same thing to happen now.  So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas—he’s the controller—and they wait for the airplanes to land.  They’re doing everything right.  The form is perfect.  It looks exactly the way it looked before.  But it doesn’t work.  No airplanes land.  So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land.

Richard Feynman, The Cargo Cult Science (Speech at Caltech in 1974)

I tease Ben sometimes for devoting his graduate studies to political science. Not because it isn’t a worthy field of study. I tease him because the idea of politics being a science is absurd on its face. And then he usually reminds me that my economics degree is nominally referred to as a science degree, too.

I am immediately chastened.

There are a lot of scientifically minded people in the investment industry. In general, this is for the good. I mean, of course it is. Investing in risky assets constantly appeals to our baser tendencies toward fear and greed. Worse, we do not respond to those appeals in isolation. We are surrounded by others who are watching us and responding to our actions for their own benefit. Process is a gift to investors.

And yet.

When we are free to be, shall we say, uncommercial, outside of the behavioral benefits accruing to process-adherence it is very difficult to find much that we do in the investment industry that is not what Physicist Richard Feynman called cargo cult science. When he wrote and spoke about cargo cults, he usually referred to very obvious pseudosciences like phrenology, astrology or reflexology. But his fundamental analogy is much more expansive, and in classic Feynman style, works in micro, macro AND meta. It is simultaneously an illustration of the practice of pseudoscience and the philosophy underlying pseudo-scientific practice.

If you imagine the islanders trying to recreate the landing of the airplane that brought goods and supplies, you are seeing the frustration yielded in the practice of pseudoscience. They observed a pattern: runway is cleared, fires are lit, man sits in a shack with things on its head, plane with goods and supplies lands. Easy peasy. They want to reproduce the final result, so, they get to clearing and manufacturing a makeshift set of wooden headphones.

It sure looked better in the backtest.

But Feynman’s analogy is not just an illustration of what cargo cults do. It’s also an illustration of why they do it. Instead of thinking about the airplane as an illustration of some feature of the world a scientist might be trying to research, think about the airplane as science itself. People who earnestly want to be more scientific see what scientists do. They do experiments. They measure data. They write it down. They perform calculations based on the data their experiments yielded. They build things based on those experiments. Alas, adhering to the cartoon of sciencey-looking process is not science. Neither is the closely-related meme of Yay, Science!

I don’t mean to be unkind. I’m also not condemning inductive reasoning in full, since in sciences where it can be combined with observation in ways that aren’t available to us in financial markets it has been responsible for some of our great discoveries.

But if your adviser or consultant does a lot of slicing and dicing of quintiles and quartiles on some good-sounding fundamental dimension and showing you the returns over the last 20 years if you’d bought this one and sold that one, you’re probably paying a cargo cultist to clear you a runway. Many quantitative managers do a lot better than this, of course. Some are, I think, doing something that is close enough to science to warrant the name. But even then, the airplane landing is dependent on some actual transmission mechanism to make it land. And the actual transmission mechanism in markets after removing abstraction layers is always – ALWAYS – another human making a decision for whatever reason they make decisions. This thwarts a lot of good theories. Ours included.

The right question to ask, both in science and in the maybe-science variant we perform in financial markets, is always this:

Why do you believe the measurements you are producing and the actions you are taking based on those measurements are related to the actual mechanic in the real world which produces the thing being measured?

It’s the right question if you’re thinking about what Covid-19 means for your portfolio, too.

The biggest concern I have as a risk manager is related to this question. It isn’t that I am concerned (as an investor) about how many people are infected with Covid-19 in the United States today. It isn’t even that I don’t know how many people are infected.

It’s that it isn’t knowable.

It isn’t knowable because we completely botched testing on initial suspected cases, and we have continued to permit that error to compound. To be clear, I don’t mean “unknowable” in the sense that we will always be inexact in our predictions. I mean unknowable in the sense of uncertainty: that you could produce a dozen different estimates of where we are at today in the development of Covid-19, and any attempt to assign probabilities to each of those estimates would be no better than an arbitrary guess. If your epistemic uncertainty about the predictive power of any of your models is not keeping you up at night, I think you’re making a mistake.

I think that has two implications for investors and asset owners.

The first is that we must be extremely cautious of anyone peddling quantitative, predictive or scenario analysis of what this means for your portfolios. Anyone who is acting positively on the belief that they know something is a cargo cultist. Anyone showing you charts of prior contagions and pandemics and showed you what happened next – whether they intend to frighten you or calm you – is a cargo cultist. Ignore it. And for God’s sake, don’t act on it.

Not until measurement has meaning again.

The second is somewhat related to the first. Acting positively because you think you know something is not the same as responding to the fact that you don’t. Every position in our portfolio is an implicit bet on a variety of things. Your active security positions – overweights and underweights – are bets that other investors will recognize or change how much they care about certain traits that exist today or that you are predicting will exist in the future. How confident are you that the kind of bets you are making will not be swamped by bets and responses other investors will inevitably make about Covid-19?

Your exposure to risky assets in general represents an implicit bet, too.

It’s a bet on functioning economies and trade. It’s a bet on available credit and liquidity. It’s a bet on productivity and the way capital marshals that into equity value. And, uh, I’d be going a bit off-brand if I didn’t mention that it’s a bet on a friendly and accommodative institutional apparatus that includes both central banks and the cadre of MMTers who occupy both political parties. Most importantly, it’s a bet that investors still care about those things. I still think they’re good bets in the long run. I actually still think they’re good bets in the short run, by which I mean that if your central case is that the world will largely continue to spin in 2020, history tells us that you are more likely than not to be correct.

But distributions get a bit funny in the face of the unknowable, folks. While the chest-pounding prediction game practiced by the media, banks and asset managers coerced by their head of sales to go on CNBC IS about acting on what’s more likely than not to be true, investing is not.

In short, if your confidence that the models leading you to active positions will matter in the near term is high, or if your confidence that the aforementioned uncertainty is already being discounted is high, we think you are wrong.

Part of the reason is epistemological. Uncertainty alone may be enough. But that isn’t all. We’re concerned about where we are on the Covid-19 narrative, too.

Our analysis of narrative structure shows that Covid-19 is dominating the last two weeks of markets coverage in a way that no topic has since we begin tracking macronarratives. Here’s the activity in traditional media:

And here’s the activity in social media.

But here’s the thing: our attention measure for Covid-19 over the same period is LOWER than each of Trade War AND Central Banks. It’s lower than the AVERAGE of all financial markets news.

What does that mean?

It means that authors reference the Fed when they’re talking about banks, when they’re talking about consumer borrowing activities and mortgages, when they’re talking about fears of Covid-19 and other market risks, when they’re jawboning for more easing, and when they’re talking about President Trump. It means that authors reference the Trade War when they talk about Boeing, and Tesla, and farmers, and consumer prices, and Trump’s reelection, and factory shutdowns, and supply chains.

But Covid-19 news? Right now, it’s mostly just about Covid-19 and the initial investor response. There’s a smattering of supply chain linkages, and a couple of companies reporting and warning about its impacts. But generally speaking, we haven’t yet seen the deluge of linking-everything-to-Covid-19 that we expect is coming. Even at a high volume of coverage, it’s its own beat. A sideshow.

As of February 27, even after a 10% drawdown, we believe the narrative about Covid-19 is complacent.

What would we be doing if we were an asset owner or adviser? Most importantly, we’d be ignoring the cargo cultists. We’d avoid actions predicated on predictions, and respond instead to the fact that we don’t know. What does that mean?

  1. It means we’d be actively trimming the risks of ruin. That means leverageconcentration and illiquidity. The last one’s definitionally tougher to trim, so focus would be on the first two.

  2. It means we’d put off hiring new active managers in search of idiosyncratic alpha, and we’d avoid paying for existing active strategy exposure if frictional costs were low (e.g. anything on swap, accessed through platforms like DB Direct, etc.)

  3. It means we’d be thinking long and hard about our dependence on backward-looking covariance estimates. If I was a steward for investors with a short investment horizon or a low risk tolerance that was based on some conversation I had with them about a remote probability of a major loss, I’d be inclined to pull back exposure to risk assets.

  4. It means we’d be couching our investment committee conversations for the near future in terms of insurance. In short, are you an institution whose objectives are better served by paying a 10% premium on your equity book by locking in this drawdown and avoiding potential tails? Or does your agency structure, investment policy and institutional temperament permit you to self-insure and avoid the uncertainty of foregone gains from the brutal difficulty of timing re-entry?

  5. It means we’d be doing all of the above until the cargo cult of Covid-19 analysis turns back into science. In short, we’d be doing the above until we felt that the measurements being provided about the state of Covid-19 infections reflected some underlying reality.


Tyler Durden

Thu, 02/27/2020 – 15:45

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Turkish Army Is Targeting Russian Planes In Idlib With Shoulder-Fired Missiles: Report

Turkish Army Is Targeting Russian Planes In Idlib With Shoulder-Fired Missiles: Report

We reported previously that an increasing number of advanced shoulder fired “Man-portable air-defense systems” or MANPADS are showing up in Idlib, alarmingly in the hands of al-Qaeda linked factions such as US terror designated Hayat Tahrir al-Sham.

But now the Kremlin is charging Turkey’s military with orchestrating the campaign to shoot down Russian aircraft over the war-torn northwest Syrian province. 

Reuters now reports that “Russian state television said on Thursday Turkish military specialists in Syria’s Idlib region were using shoulder-fired missiles to try to shoot down Russian and Syrian military aircraft.”



Syrian “rebel” with should-fired anti-aircraft weapon, via The Washington Post.

The report aired Thursday the Rossiya 24 channel:

“Their own and Russian planes are saving the lives of Syrian troops in a literal sense,” said the Rossiya 24 report. “Syrian and Russian planes are stopping the rebels again and again. But the sky above Idlib is also dangerous. The rebels and Turkish specialists are actively using portable air defense systems.

Recent footage out of Idlib showed Russian aircraft deploying countermeasures to escape an incoming shoulder-fired rocket.

The following video was published to social media and was widely circulated last week:

Jihadists on the ground fighting a major Syrian-Russian air and land offensive have over the past month downed at least two Syrian helicopters and possibly other aircraft. 

Syrian aircraft operating over al-Qaeda occupied Idlib have lately been shot down:

Meanwhile, it appears that as Turkey and Russia are at the height of tensions over Idlib, Putin and Erdogan are back to not talking. A widely reported meeting between the two leaders set for next week has been denied by the Russian side

As more MANPADs pop up in Idlib, it’s worth reviewing the following article: Where Does ISIS Get Those Wonderful Toys?


Tyler Durden

Thu, 02/27/2020 – 15:30

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Israeli Scientists Say They Will Have Coronavirus Vaccine “In A Few Weeks”

Israeli Scientists Say They Will Have Coronavirus Vaccine “In A Few Weeks”

Yesterday, Dr. Anthony Fauci, the head of the CDC’s infectious disease unit, affirmed that even though Gilead and Moderna might be ready, or almost ready, for Phase 1 trials, the US likely won’t have a workable vaccine for another year to 18 months.

And on Thursday, a team of Israeli scientists one-upped the US, boasting that they could have a vaccine ready “in a few weeks.”

According to a statement cited by the Jerusalem Post, a team of Israeli scientists are on the cusp of developing the first vaccine against the novel coronavirus, according to Israel’s Science and Technology Minister, Ofir Akunis. If all goes as planned, the vaccine could be ready within a few weeks and available for human use in 90 days.

“Congratulations to MIGAL [The Galilee Research Institute] on this exciting breakthrough,” Akunis said. “I am confident there will be further rapid progress, enabling us to provide a needed response to the grave global COVID-19 threat,” Akunis said.

For four years, a team of scientists at MIGAL has been developing a vaccine to combat infectious bronchitis virus (IBV), which causes a bronchial disease affecting poultry. The effectiveness of the vaccine has been demonstrated during preclinical trials carried out at the Veterinary Institute.

During the process, they discovered a process for developing new vaccines that they expect will help facilitate a novel coronavirus vaccine in world-beating time.

“Our basic concept was to develop the technology and not specifically a vaccine for this kind or that kind of virus,” said Dr. Chen Katz, MIGAL’s biotechnology group leader. “The scientific framework for the vaccine is based on a new protein expression vector, which forms and secretes a chimeric soluble protein that delivers the viral antigen into mucosal tissues by self-activated endocytosis, causing the body to form antibodies against the virus.”

Here’s how the team discovered their project would be useful for the coronavirus vaccine.

In preclinical trials, the team demonstrated that the oral vaccination induces high levels of specific anti-IBV antibodies, Katz said.

“Let’s call it pure luck,” he said. “We decided to choose coronavirus as a model for our system just as a proof of concept for our technology.”

But after scientists sequenced the DNA of the novel coronavirus causing the current worldwide outbreak, the MIGAL researchers examined it and found that the poultry coronavirus has high genetic similarity to the human one, and that it uses the same infection mechanism, which increases the likelihood of achieving an effective human vaccine in a very short period of time, Katz said.

“All we need to do is adjust the system to the new sequence,” he said. “We are in the middle of this process, and hopefully in a few weeks we will have the vaccine in our hands. Yes, in a few weeks, if it all works, we would have a vaccine to prevent coronavirus.”

Akunis said his government has ‘fast-tracked’ all the approval processes for the vaccine to get it out as soon as possible.

MIGAL would be responsible for developing the new vaccine, but it would then have to go through a regulatory process, including clinical trials and large-scale production, Katz said.

Akunis said he has instructed his ministry’s director-general to fast-track all approval processes with the goal of bringing the human vaccine to market as quickly as possible.

“Given the urgent global need for a human coronavirus vaccine, we are doing everything we can to accelerate development,” MIGAL CEO David Zigdon said. The vaccine could “achieve safety approval in 90 days,” he said.

It will be an oral vaccine, making it particularly accessible to the general public, Zigdon said.

“We are currently in intensive discussions with potential partners that can help accelerate the in-human trials phase and expedite completion of final-product development and regulatory activities,” he said.

Israel has only confirmed a handful of cases among travelers who visited South Korea and Italy (one case they confirmed on Thursday). We wonder: If Iran does roll out a vaccine, will it share it with Iran?


Tyler Durden

Thu, 02/27/2020 – 15:15

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Peter Schiff: The Real Safe-Haven Money Is Going Into Gold

Peter Schiff: The Real Safe-Haven Money Is Going Into Gold

Via SchiffGold.com,

Stock markets have crashed this week with the Dow Jones Industrial Average down over 3000 points from its highs, entering a formal correction (-10.4%).

As stocks dropped, the bond market was red-hot. Prices soared and yields dipped to record lows. Bonds are considered a safe-haven, but in his latest podcast, Peter said US Treasuries aren’t a safe-space.

When it’s all said and done, the only safe-haven left standing will be gold.

Coronavirus fear was the immediate catalyst for the sell-off as the virus spread outside China, but Peter noted that US stock markets were already vulnerable before the virus outbreak.

Remember, we’re talking about the US stock market that’s at bubble territory, nosebleed valuations, long in the tooth, the longest bull market in US history that has been fueled by the most monetary and reckless fiscal policy in US history. But this is a bubble in search of a pin. So, maybe the coronavirus is going to be the pin. But if we had a healthy market, if we had a healthy economy, it wouldn’t matter about the coronavirus. It’s because the economy is sick. That’s the problem, not the people who are infected with this virus.”

Peter said it looks like the coronavirus is going to have a bigger effect on the global economy than he originally thought. But there is a lot to worry about even if we didn’t have the coronavirus.

So now, when  you have this too – you have another straw on a camel’s back that is ready to just implode at any moment because he’s already barely able to support all the straws that are already up there. I mean, hey, why not sell? Why not lighten up in the stock market?”

While people were selling in the stock market, they were buying in the bond market. The yield on the 10-year Treasury was pushed all the way down to 1.377% — a record low. The 30-year US Treasury yield is also at record lows. Peter talked about the bubble in the bond market in his previous podcast and he reiterated his point in this one.

This is the biggest bubble of them all. And what is fueling this bubble, the reason that so many speculators are piling in the US treasuries is because they assume the Fed is going to cut rates. And they’re right. The Fed is going to cut rates.”

In fact, markets are now pricing in at least two Federal Reserve rate cuts before the end of the year.

But investors are ignoring the specter of inflation. Inflation is the enemy of the bond investor.  These people are piling into 30-year Treasuries and accepting a nominal yield of 1.8% in front of what’s going to be a massive surge of inflation.

The dumb money is piling into Treasuries because they think they’re doing something safe when they’re actually doing something extremely risky and probably extremely foolish if the music stops playing and they still hold those Treasuries.”

The real safe-haven money is going into gold.

Gold closed yesterday just above $1660 mark before some profit-taking overnight. During the day on Monday, the yellow metal surged as high as $1,690. But gold stocks continued to lag and there was some selling early in the day even as physical gold was rallying. Peter said this is another indication that this is an “unloved bull market.”

Nobody is looking for a reason to buy. Everybody wants to sell. People don’t believe this gold rally. We keep on making new high, after new high, after new high, yet nobody wants to come on and recommend gold or recommend these gold stocks.”

Peter said he watched CNBC throughout the day Monday and gold was barely even mentioned. But gold is exactly what you want to hold when inflation is hot and the stock market is crashing. It is a true safe-haven and his historically preserved wealth.

During this podcast, Peter also talked about Warren Buffet and the possibility of a Bernie Sanders presidency…

Coincidence or not?


Tyler Durden

Thu, 02/27/2020 – 15:00

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“Let’s Call It ‘Trumpvirus'”: Hillary-Loving NYT Columnist Blames Coronavirus Outbreak On Trump

“Let’s Call It ‘Trumpvirus'”: Hillary-Loving NYT Columnist Blames Coronavirus Outbreak On Trump

Once again, the NYT Opinion Page has produced an editorial so obviously at odds with reality, that we couldn’t help but comment. Longtime columnist Gail Collins, a Democratic centrist and staunch Hillary Clinton supporter, wrote in a column that the coronavirus outbreak is President Trump’s fault.

Her latest column, entitled “Let’s Call It Trumpvirus” completely ignores the fact that the virus emerged in China, before spreading around the world as Communist Party officials hesitated to try and contain it for fear of sparking a holiday ‘panic’.

No; instead, Collins rattles off a list of a list of loosely linked complaints about the Trump Administration: From Azar’s seeming inexperience, to obscure personnel choices made by John Bolton, to picking Pence to run the virus task force, to Trump’s offhand comment about the flu.

Oddly enough, even Trump’s penchant for hand sanitizer (given Trump’s reputation for being a “germaphobe”) seems to offend Collins.

Our president had to be going crazy over a problem that involves both declining stock prices and germs. This is the guy, after all, who thinks shaking hands is “barbaric,” who is followed around by aides bearing sanitizer. During his press conference he told the story of a fever-ridden supporter who gave him a hug. Do you think it was an apocryphal fantasy? Either way, the idea has been haunting him forever.

She dismissed Trump’s blaming the Democrats for the market’s pullback (even as more than a few have claimed it played some roll).

Meanwhile, he’s come up with a totally new explanation for the stock market skid. It turns out investors were not frightened so much by the pandemic as the Democratic debate.

“I think the financial markets are very upset when they look at the Democrat candidates standing on that stage making fools out of themselves,” Trump told reporters.

And let’s not forget Trump’s atrocious spelling, one of his greatest political sins, according to the New York Times newsroom.

Earlier in the day Trump argued, via tweet, that despite the expressions of concern by the evil media and “incompetent Do Nothing Democrat comrades,” the government is perfectly prepared to handle the coronavirus. Which he misspelled “caronavirus.” But nobody’s perfect.

Here’s the nonsense about Bolton.

The run-up to the Pence unveiling had not been exactly calming for citizens who wanted to have faith in competent White House oversight. Barack Obama used to have special epidemic-watching groups just in case this kind of crisis developed. One was headed by the highly regarded Rear Adm. Timothy Ziemer, who got sent packing by John Bolton. Another infectious disease expert, Tom Bossert, suddenly vanished from the Department of Homeland Security in 2018, presumably also at the hand of John You-know-who.

If Bolton’s memoir ever makes it into print, do you think it’ll have a chapter called “My War on Pandemic Fighters?” OK, probably not.

What are you talking about, Gail?

Moving on, personnel seems to be her main focus. For example, dear reader, did you quiver with apprehension when Chad Wolf, Trump’s acting homeland security secretary, appeared to not know basic facts about the outbreak during an obscure Senate subcommittee meeting?

Because Collins did. But somehow, we suspect that most voters missed that one.

Virus Week hasn’t really provided a whole lot of comfort to citizens who wanted to believe the president’s replacements were super high quality.

The nation got its first real look at Chad Wolf, the acting homeland security secretary, who appeared before a Senate subcommittee and admitted he had no idea how the virus was transmitted among humans, exactly how dangerous it was, or … pretty much anything.

When Senator John Kennedy, a Louisiana Republican not known for anti-administration bias, asked whether the country had enough respirators to deal with a coronavirus epidemic, Wolf answered in the affirmative.

“We just heard testimony that we don’t,” Kennedy responded.

“OK,” said Wolf.

To be fair, he’s only been on the job since November. He’s the fifth head of Homeland Security Trump’s had in the last three years. Good thing he has a deputy — or at least an acting deputy — to help. That would be Ken Cuccinelli, who made news this week when he went on Twitter to ask for tips on how to find an online map of coronavirus sites posted by Johns Hopkins University. (“Here’s hoping it goes back up soon.”)

Before signing off, Collins takes a shot at former Trump body man Johnny McEntee, the 29-year-old former UConn football quarterback, who was fired from another White House job and now runs the Presidential Personnel Office.

Losing faith in presidential appointees for health protection? Stop being so negative. They’re all vetted by the Presidential Personnel Office, which is now headed by John McEntee, 29, who was previously fired from another White House job because of concerns about a history of gambling problems and tax issues.

McEntee will be getting plenty of help from other stellar appointees, the newest being a 23-year-old college undergraduate. Together they’re going to be cleaning house, getting rid of folks who are insufficiently loyal to the president. Or maybe aren’t qualified or something. Never can tell.

At least when it comes to making hard decisions about quarantining large numbers of people, Trump likely won’t hesitate like his Democratic colleagues probably would.

Ben Shapiro put it best:


Tyler Durden

Thu, 02/27/2020 – 14:45

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Boston Considers Income-Adjusted Parking Tickets

Boston Considers Income-Adjusted Parking Tickets

Authored by Jonathan Turley,

The Boston City Council is considering a new system for parking tickets that would set the amount paid by violators based on their income. The proposal newly elected city councilor at-large Julia Mejia would implement the system of income-adjusted fines — a system that could trigger some novel legal and political questions.

Mejia has declared that she is “introducing legislation on income-adjusting parking tickets so low-income families don’t have to decide between paying a parking ticket or putting food on their table.”

[ZH: Or maybe not breaking the law?]

However, it also means that the wealthier citizens will be charged more for the same offenses. The implications of such a system is fascinating for those of us who have complained (as recently as this week) of cities using parking and traffic tickets as a form of revenue. This proposal would seem to reinforce the concept of tickets as a revenue-generating source. The alternative model is the tradition one. Historically, the amount of tickets was not defended as a revenue source but a reflection of the costs of such violations for the cities. Under that approach, citizens are paid the amount that the city deems as reflective of the misconduct and its costs.

If we treat these tickets as a revenue source (adjusted like taxes for wealth levels), the question is what other areas should also be adjusted. How about environmental fines or housing fines or misdemeanor fines? Tickets are imposed for conduct that could have been avoided in compliance with the law. There are a host of similar fines for such violations.

The legal dimension is rather fluid and uncertain.

Charging wealthier citizens for the same acts can raise equal protection and other concerns. However, wealth is not a suspect classification. Thus, the courts would likely review such a proposal under a rational basis test, which is easily satisfied. Yet, this is a highly novel proposal that could lead to equally novel case law. There is an alternative approach to an income-adjusted fine system, which raises troubling issues. Instead, if Boston wants to protect low-income families, it could leave the fines as uniform and have a special program for deferred payments or even public support for low-income citizens. That would leave the tickets as “priced” at the cost of the offense or violation while allowing for public support of families. That system would also more clearly and directly show the costs of such a system.

One other concern with this approach is that it will only accelerate the trend toward using tickets for revenue. Once uncoupled from the expectation of uniformity or the inherent costs of violations, Boston would be free to redefine tickets as a taxing mechanism. Such predatory measures are already out of hand in our cities like Washington, D.C. and Chicago. The Mejia proposal would reduce the political costs of such alternative tax techniques.

For those reasons, I have serious reservations about the Mejia proposal from both legal and economic perspectives.


Tyler Durden

Thu, 02/27/2020 – 14:25

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Fed’s Fisher Stuns CNBC: “Time To Wean Generation Of Money Managers Off Their Dependency On A Fed Put”

Fed’s Fisher Stuns CNBC: “Time To Wean Generation Of Money Managers Off Their Dependency On A Fed Put”

With stocks reversing from record highs into correction at the fastest pace since the start of The Great Depression, Janet Yellen warning that Covid-19 fallout could throw the economy into recession, Goldman forecasting zero growth in earnings, and BofA cutting their outlook for economic growth to the weakest since the financial crisis, it is no surprise that every talking head asset-gatherer and commission-raker is out on business media demanding everything from an emergency 50bps rate-cut by The Fed to a globally coordinated liquidity bailout.

The market is already pricing in at least 3 rate-cuts in 2020 and the odds of March cut are soaring, despite the obvious fact that The Fed can’t print vaccines to ‘salve’ the supply-chain block and if lower rates are supposed to spark more consumption, where are you going to consume? Not at crowded public places like theaters, restaurants, and sports stadiums?

It’s all becoming a little ridiculous, but what is perhaps most surprising is that it took a former Fed president to put CNBC straight on a few things…

Richard Fisher, former Dallas Federal Reserve president, has not been shy to speak his mind since he left office, and was quick to dismiss comments by Kevin Warsh – who wrote an op-ed demanding emergency rate-cuts – by rather pointedly explaining “there’s an audidence of one for that op-ed – the President of the United States” as Warsh angles for Powell’s job in 2022.

But CNBC’s Scott Wapner – seemingly as desperate to reinflate stock prices – would not stop there, asking “is he right?” Do we need massive intervention, once again, to rescue us?

Fisher pulled no punches:

Rates have dropped across the yield curve, that is what drives businesses and gives them confidence in terms of accomodative fixed income markets to issue debt… and every CFO I know, are taking advantage of this in one way or another… so as far as having the incentive to borrow and even engage in capex, it has increased, not decreased.”

Fisher added that “commodity prices were also down globally,” lowering costs for companies.

And so, the big question is “what will [a rate-cut] do for real operating businesses that are the job-makers and creators in America?”

A good question that nobody wants to answer (but what about stocks!!??).

“Is it worth lowering Fed Funds when the costs of borrowing has come down across the yield and access to credit is still very high?”

More silence…

“Does The Fed really want to have a put every time the market gets nervous? …Coming off all-time highs, does it make sense for The Fed to bail the markets out every single time… creating a trap?”

Wapner was quick to jump in, exposing his liquidity-drug-addicted perspective on the world…

“How can you ‘bail them out every time’ and then not bail them out when the market needs it most?”

Fisher almost mockingly repeated the CNBC anchor’s words:

“‘needs it most’? …as we are coming off record highs? The basic rule is simple – if you’re in a hole, stop digging.”

The Fed has created this dependency and there’s an entire generation of money-managers who weren’t around in ’74, ’87, the end of the ’90s, anbd even 2007-2009.. and have only seen a one-way street… of course they’re nervous.

“The question is – do you want to feed that hunger? Keep applying that opioid of cheap and abundant money?

But, but, but… responded Wapner, “the world is being starved because the supply chains are broken…”

Fisher’s response was simple – the Chinese central bank needs to do something, the Japanese central bank, the Singapore central bank, but the question is “why does the Federal Reserve need to cut rates?”

Careful not cross into too hawkish territory, Fisher concludes,

the market is getting ahead of itself, because the market is dependent on Fed largesse… and we made it that way…

…but we have to consider, through a statement rather than an action, that we must wean the market off its dependency on a Fed put.”

Watch the full interview below:

Blasphemy?!! We suspect that will be the last time Fisher is invited on CNBC…


Tyler Durden

Thu, 02/27/2020 – 14:07

via ZeroHedge News https://ift.tt/2Vwq4qT Tyler Durden

How Korea’s ‘End-Of-Days’ Coronavirus Patient Sparked An Epidemic

How Korea’s ‘End-Of-Days’ Coronavirus Patient Sparked An Epidemic

As new cases of COVID-19 in South Korea surpass China for the first time, Bloomberg has pieced together the unbelievable story of how a religious fanatic belonging to an ‘end-of-days’ cult became the Korean ‘Typhoid Mary,’ spreading the disease throughout her community at an alarming rate.

A little over a week ago, South Korea had just 30 cases – a figure which seemed to remain stable for several days. This calmed fears of contagion, leading to many Seoul residents relaxing their guard – taking off masks, getting back on the subway, and shopping at local malls, according to the report.

Yet, as the country breathed a cautious sigh of relief, an unidentified 61-year-old woman walked into a health clinic on February 17 in Dageu, around 150 miles south of Seoul – the country’s 31st case. The woman, who occasionally commuted to Seoul, tested positive for COVID-19.

Patient 31 first checked into the Saeronan Chinese Medicine Hospital on Feb. 7, complaining of headaches after being involved in a car accident the day before. According to the hospital, the patient didn’t have any record of traveling overseas nor any known contact with a coronavirus patient. She also didn’t have any fever, cough or respiratory symptoms.

On the third day of being hospitalized, the patient developed a fever and received a flu test, which came back negative, according to the hospital.

The next day, she left the hospital for two hours to attend a morning service at the Shincheonji church in southern Daegu, according to Korea’s CDC. It’s common in South Korea for hospital patients to come and go — even walking outside wearing hospital garb and wheeling intravenous drips alongside them.

The woman also had lunch with a friend at a hotel in eastern Daegu on Feb. 15 and attended another Shincheonji worship service on Feb. 16, the country’s health authorities said. –Bloomberg

It wasn’t until February 17 that her health had deteriorated to the point where she went back in to the hospital, where a scan showed signs of pneumonia, prompting the test for coronavirus. Ten days later, her infection was confirmed.

As authorities scrambled to trace her travel history to identify potentially infected people, they learned that she had spent the previous 10 days attending two worship services with at least 1,000 fellow members of a secretive religious sect, Shincheonji, whose leader preached that the end of days is coming.

Within 24 hours, the nation’s number of confirmed cases started multiplying exponentially. The tally rose by 20 during that period, doubled the following day and then doubled again on the third day.

By Wednesday, the count skyrocketed past 1,000 — a more than 30-fold increase in a week that prompted the government to raise its health alert to the highest level. At least half of the new cases are linked to the sect called the Shincheonji — which translates to “new heaven and land” and whose members worship side-by-side in cramped spaces. –Bloomberg

“What made this case so much worse was that this person spent a considerable amount of time in a very crowded area,” said Seoul National University professor of health policy, Kim Chang-yup. “There’s growing fear and resentment among the people right now.”

On Wednesday, South Korea’s health ministry announced a manhunt for over 212,000 members of the sect, while the country’s Centers for Disease Control began screening 9,300 members on top of anyone who had attended the two services. It expects to conclude tests by Wednesday of more than 1,300 sect members who are showing symptoms.

Former sect member Yoo il-han, who runs a support group for those wanting to leave the cult says authorities are going to encounter great difficulty tracking potential patients down, as the sect is highly secretive and protective of its members – warning that Satan will try to reach them through their families.

“Concealment is the key,” said Yoo. “They tell you: Don’t tell anyone, including your family members, what you believe in, and don’t believe what you see about Shincheonji online.”

South Korean health officials still don’t know how the woman was infected.

Shincheonji was founded in 1984 by Lee Man-hee, who is now 88, and claims to be an immortal prophet sent by Jesus Christ to lead what has blossomed to 300,000 followers in 29 countries, according to Bloomberg.

The group’s emphasis on continually gathering for worship, recruitment and other activities may be the root cause of the cascading number of infections among Lee’s disciples, said Stella Kang, a former sect member.

At the two worship services attended by patient 31, more than 1,000 people sat on the floor, elbow-to-elbow and knee-to-knee, for as long as two hours. -Bloomberg

“Their belief system is that the end time is coming soon and our physical body is not as important,” said Kang, a former sect member. “So even if you are really sick, you have to go to the church because that gives you the word of life.”

Authorities are now trying to figure out if the 31st patient is connected to an outbreak at a different hospital outside Daegu, where a funeral was held last month for the brother of the sect’s leader. This poses its own set of risks, as South Korean funerals are often carried out next to hospitals, where attendees eat and drink together in a nearby room. Funeral homes, many of which resemble conference centers, can have multiple services taking place at the same time.

That said, “The Daegu incident has certainly raised public awareness of the need for social distancing,” according to Kim.


Tyler Durden

Thu, 02/27/2020 – 13:50

via ZeroHedge News https://ift.tt/2T76L5X Tyler Durden

Tailing 7Y Auction Prices At Lowest Yield In 7 Years

Tailing 7Y Auction Prices At Lowest Yield In 7 Years

With 10Y and 30Y Treasury both hitting all time low yields, the belly of the curve has been notably slower in catching down to the long end. However, today’s 7Y auction helped bridge the gap: stopping at 1.247%, far below January’s 1.570% and the lowest yield for the 7Y tenor since 2013, however due to the dramatic move lower in yields in the past few days, the auction tailed the When Issued by a substantial 1.4bps, which was the highest since August 2019.

The weakness however was only superficial, with the Bid to Cover surging from 2.371 to 2.487, the highest since September, and above the six-auction average of 2.40%.

The internals were also impressive, with Indirects taking down 63%, up sharply from 58.1% last month, and above the six auction average of 61.3%; and with Directs taking down 13.1%, or below last month’s 17.2%, it left Dealers holding 23.9%

Overall, this was a mediocre 7Y auction – if one ignores the near record low yield – but one which appears to have had a favorable impact on the market as it top-ticked the move higher in 10Y yields, which have been slide more than 2bps from the 1pm high of 1.3254 just before the auction.


Tyler Durden

Thu, 02/27/2020 – 13:43

via ZeroHedge News https://ift.tt/2T5tOy8 Tyler Durden

Elizabeth Warren Adopts Cory Booker’s Plan for a Better Presidential Clemency System

Sen. Cory Booker (D–N.J.) failed to make much of an impact in his Democratic presidential campaign, but he did have a really good plan to deal with clemency if he were elected. Now Sen. Elizabeth Warren (D–Mass.) is adopting his plan into her own criminal justice reform proposal.

Last summer, Booker proposed making it easier and quicker for nonviolent federal drug offenders to seek clemency by shifting the process from the Department of Justice to the White House and creating a clemency panel to oversee the process. In particular, Booker’s plan would reduce the power of federal prosecutors to determine which clemency applications make it to the president’s desk and whether they arrive with a recommendation for denial or approval.

Warren is also supporting Booker’s plan to prioritize clemency for older inmates incarcerated for longer terms, and his proposal to quickly identify and focus on prisoners who would have benefited retroactively from sentencing changes under the First Step Act and other reforms. This second aspect is important because legislative changes to statutory sentencing practices do not automatically apply to prisoners currently serving time. The Fair Sentencing Act of 2010, which reduced the sentencing disparity between crack and powder cocaine, is a prime example of a good reform that unfortunately lacked retroactive language.

Warren’s updated plan notes:

Research shows that people tend to age out of crime and are substantially less likely to recidivate, but today thousands of elderly people remain behind bars. And those serving sentences equivalent to life in prison are disproportionately black and brown, many serving time for nonviolent crimes or crimes committed as juveniles. We are not any safer as a nation for their incarceration, nor is equal justice being served.

It’s a change criminal justice reformers have been recommending for some time and one with bipartisan appeal. President Donald Trump’s administration is considering something similar.

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