Month: March 2020

Even before the coronavirus pandemic ground the US economy to a halt, the US brick and mortar retail sector was facing an apocalypse of epic proportions with dozens of retailers filing for bankruptcy in recent years as Amazon stole everyone’s market share…

Since June 2015, retail chains have accumulated more than $45 billion in aggregate chapter 11 liabilities in connection with over 80 bankruptcy filings: pic.twitter.com/Q1XO9pSWij

— First Day by Reorg (@ReorgFirstDay) August 20, 2019

… resulting in tens of thousands of stores across the nation shuttering.

So what has taken place in the retail sector in just the past few weeks is straight out of the the 9th circle of hell. As we reported last week, in just the span of two weeks, more than 47,000 chain stores across the US shut their doors – temporarily, or so they hope – as retailers took extreme measures to help slow the spread of the coronavirus pandemic according to Bloomberg data. At least 90 nationwide retailers, ranging from Macy’s to GameStop to Michael Kors have temporarily gone dark. And while most have pledged to remain closed for at least two weeks, many if not all will likely have to stay closed for much longer, because as we showed earlier, the US is very early on the coronavirus curve, and many weeks have to pass before the peak is hit.

Needless to say, it has been an unprecedented moment for shopping in America, a country that contains more retail selling space than any other: “In the space of a week, the retail landscape has changed from being fairly normalized to being absolutely disrupted beyond what we’ve ever seen before outside of the Second World War,” Neil Saunders, managing director of GlobalData Retail, said.

With cash flows dwindling, and their survival in question every day, the total collapse in revenue has meant that firms such as (recently reorganized) Mattress Firm and Subway are among some of the major U.S. retail and restaurant chains telling landlords they will withhold or slash rent in the coming months after closing stores to slow the coronavirus, Bloomberg reports citing sources.  Best Buy, meanwhile, plans to pay rent, with the possible exception of locations it was forced to close.

Aware that one way (out of bankruptcy) or another (in bankruptcy), they will end up renegtiating their leases, retail chains are proactively calling for rent reductions through lease amendments and other measures starting in April.

However, since landlords have to meet monthly obligations of their own and pay their own lenders (who in turn are looking to the federal government for help), what is emerging is an epic clash is emerging between renters and landlords and no one knows when or how it will end.

And while it goes without saying, a lot is at stake: U.S. retail landlords collect more than $20 billion in rent in a typical month, according to Bloomberg citing data from CoStar Group.

“It’s three-dimensional chess,” said Tom Mullaney, a managing director in restructuring at Jones Lang LaSalle Inc. “The battlefield is foggy.”

The dynamics are well-known: with stores shuttered around the U.S., struggling retail chains and small businesses are laying off tens of thousands of workers and trying to figure out if they can make rent. And while landlords are expecting missed payments, they are also trying to assess whether their tenants are actually in trouble or just using the crisis to get a deal on rent. In short: landlords, for the most part, are still expecting payment and they will be disappointed.

Taubman Centers and Federal Realty Investment Trust, which operate millions in square feet of retail space, have told tenants they expect rent to be paid according to lease obligations, citing their own expenses. In statements to Bloomberg, both said they are talking to individual tenants about their specific situations.

“We are attempting to navigate through this situation in the best way we can, while being as flexible as we can with our tenants in light of our ongoing obligations,” Taubman, one of the largest U.S. mall operators, said in a statement. “The tenant memo does not replace our willingness to talk to each tenant about their respective challenges.”

Something tells us that in just a few weeks, the Taubmans of the world will become public enemy number one…

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Meanwhile, as Bloomberg notes, the federal stimulus bill is expected to provide some relief, both for tenants and owners, but it will take time to get the program up and running. Even then, it’s not clear the money will be enough to keep retailers afloat with their stores dark.

“All the money coming into the system from the stimulus will be good, but it won’t be enough,” said Eric Anton, an associated broker at Marcus & Millichap. “There’s going to be real losers and pain. There’s already been a lot of pain and it’s only been two weeks. Six more weeks will only bring more pain, lots of hard negotiations.”

Take the case of Anne Mahlum, founder and CEO of the Washington-based fitness chain Solidcore, which recently shut down 72 studios and laid off most of her staff. She sent letters to her landlords asking for rent abatement. So far, only a few have agreed. She owes more than $600,000 in rent for April.

“The majority of them are at least offering deferment, but some have said rent is still due, which is ludicrous,” Mahlum said. “Even deferment doesn’t help. We’re just kicking the financial can down the road.”

Landlords are getting flooded with identical requests from frantic tenants across the nation demanding rent relief. Many are trying to work out deals in private on a case-by-case basis, to avoid getting inundated with demands for similar concessions.

“If everybody asks and everybody gets, it’ll just bankrupt the landlord,” said Chris Smith, a lawyer at DLA Piper. “Everyone’s hoping to buy some time to respond intelligently as the facts start coming out.”

The first wave of bankruptcies however, will hit the tenants first, many of whom plan to withhold rent payments for April even if it they haven’t received preapproval to do so from landlowds: “You can’t work through expenses and continue to pay operating ones when you have zero money,” Mahlum said. “We’re not making any April payments.”

Those who can afford rent on some locations will likely be strategic, paying for their best-performing stores while withholding payment on the ones that were hurting before the crisis, JLL’s Mullaney said. Same goes for landlords, who were already struggling to fill their space before the coronavirus shut down the economy. Many are likely to work out deals with credit-worthy tenants who will take on a longer lease.

That partly depends on how much flexibility they can get from their lenders: “Some are taking the high road,” Mullaney said. “But the more leveraged you are, the more liquidity is an issue, and it’s not so easy to take the high road.”

Which is of course ironic considering how many years the nation’s top economists were calming the country’s nerves repeating at every soundbite opportunity, just how strong the fundamentals of US businesses were. In retrospect, all that “strength” was just debt…

CNN anchor Chris Cuomo has been diagnosed with COVID-19, the network said in a memo to employees on Tuesday.

“In these difficult times that seem to get more difficult and complicated by the day, I just found out that I am positive for coronavirus,” Cuomo wrote in a message on Twitter.

CNN reports that Cuomo was most recently at CNN’s offices in the Hudson Yards neighborhood of New York City last Friday. He anchored from his home on Monday, and interviewed his brother, New York Governor Andrew Cuomo.

“I have been exposed to people in recent days who have subsequently tested positive and I had fevers, chills and shortness of breath,” he wrote.

“I just hope I didn’t give it to the kids and Cristina. That would make me feel worse than this illness!”

Cuomo said Tuesday that he is “quarantined in my basement” and will “do my shows from here.”

“We will all beat this by being smart and tough and united!” he wrote on Twitter.

This is the third case of coronavirus involving CNN’s workspace in New York City. Employees were notified of another case in mid-March.

Authored by Paul Joseph Watson via Summit News,

The Empire State Building debuted what appeared to be a spinning red ‘siren’ light atop the iconic structure in what many observers saw as a dystopian sign of the times.

Scientist Rita J. King explained that the light was not actually spinning but was made to look that way.

The @EmpireStateBldg reminding us that the city is in the middle of an emergency. pic.twitter.com/50TjEjOogN

— Rita J. King (@RitaJKing) March 31, 2020

“It’s the way the light is being used to create the illusion of a spin,” King said.

Many respondents complained that the light was “anxiety inducing,” an observation shared by King, who said it should be swapped out “for the soothing, beautiful heartbeat pulse they use for Valentine’s Day.”

“Are they going to sound an air raid siren too?” asked another respondent.

While many saw the light as a dystopian touch that wouldn’t look out of place in an apocalyptic zombie movie, the Empire State Building itself claimed the light was supposed to represent the “heartbeat of America.”

“Starting tonight through the COVID-19 battle, our signature white lights will be replaced by the heartbeat of America with a white and red siren in the mast for heroic emergency workers on the front line of the fight,” the Empire State Building tweeted.

[1/2] We’ll never stop shining for you.

Starting tonight through the COVID-19 battle, our signature white lights will be replaced by the heartbeat of America with a white and red siren in the mast for heroic emergency workers on the front line of the fight. pic.twitter.com/OYkblLTRHN

— Empire State Building (@EmpireStateBldg) March 30, 2020

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It’s the final day of Q1, and in China, health officials have decided to start publicly unveiling the number of allegedly ‘asymptomatic’ carriers as Beijing ramps up travel restrictions. Many of these asymptomatic carriers are foreigners who managed to get into the country without being forced to self-quarantine because they didn’t exhibit any symptoms, including no fevers, one of the biggest and most critical symptoms for filtering out the potentially infected.

As the US ramps up its testing capacity, Reuters reports that the number of cases of ‘asymptomatic’ carriers in China was at 1,541 by late Monday, with 205 of those cases having come from overseas, according to data shared with Reuters. Shanghai, a critical commercial hub for China, reported 11 new imported cases on Monday, while three new cases among travelers were reported in Beijing. Still, there were almost no new cases in the country.

Just as the number of cases plunges to the point that nobody really cares about the numbers anymore, health authorities in Beijing said that they would start releasing data on the number of mostly foreign “asymptomatic” cases.

Wuhan, the capital of Hubei Province, reported no new infections for a seventh straight day. Groups of medical teams in brightly colored jackets took photos around the city as they prepared to leave. “Thank you, Wuhan. We are back,” read a message on a building that houses a Levi’s clothing store. The message was clear: The lockdown was finally over.

The commercial hub of Shanghai saw 11 new imported cases on Monday, mainly among returning Chinese nationals, while Beijing had three. By Monday, total infections stood at 81,518 in mainland China, with 3,305 deaths.

But initial data isn’t terrible. New data from a survey of manufacturers showed that factory activity expanded in March from February’s collapse as businesses returned to work, but analysts warned about the slump in external demand becoming a growing risk for Chinese factories ironically.

“The situation could be very fluid as the virus outbreak remains unpredictable,” analysts at ANZ bank said in a note. “Chinese policymakers will likely step up and expand the stimulus program if needed.” But that won’t spare domestic companies from the backlash from the fact that more people, including Americans are staying home.

Across China, as businesses start opening back up, locals are rejoicing as the number of infections peters out even as new cases surface among travelers returning home. However, the prevalence of virus carriers with no symptoms is spurring public concern that people could be spreading it without knowing they are ill.

And now that the daily report of the National Health Commission will include details of such cases for the first time (as Chang Jile, a commission official, said during a Tuesday briefing), the government is also recommending that anybody who comes into contact with these people quarantine themselves for 14 days.

Fearing a follow-up wave of infections sparked by travelers, China said Tuesday that it would delay its grueling college entrance exams, the “gaokao”, by a month, until July 7 and 8, according to China Central Television. Hubei Province and Beijing will get additional leeway in scheduling.

President Trump has called for $2 trillion in infrastructure spending in the upcoming ‘phase 4’ coronavirus stimulus.

“With interest rates for the United States being at ZERO, this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4,” Trump tweeted on Tuesday.

With interest rates for the United States being at ZERO, this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4

— Donald J. Trump (@realDonaldTrump) March 31, 2020

As we noted earlier, Congressional Democrats and the White House have been compiling their lists of what they say is needed in the next package.

Prime among them is “our infrastructure needs,” according to House Speaker Nancy Pelosi, who told MSNBC on Tuesday that “Many more people are teleworking, or tele-educating or really communicating with family and friends.”

“There are infrastructure needs that our country has that directly relate to how we are proceeding with the coronavirus. Many more people are teleworking, or tele-educating or really communicating with family and friends,” said Pelosi, according to te Washington Times.

In an interview Tuesday with MSNBC, Pelosi said negotiators had already agreed that “everything will be specific to the coronavirus” in the next round of legislation and that it wouldn’t become a “wish list.”

In an interview with the New York Times published on Monday, Pelosi indicated that another possible move was getting rid of the limit on state and local tax deductions, or SALT, that was part of the 2017 tax overhaul and affects California, Pelosi’s home state, and New York. –Bloomberg (via Yahoo!)

Senate Finance Committee Chairman Chuck Grassley (R-IA) says Pelosi’s SALT plan is “a nonstarter.”

“Millionaires don’t need a new tax break as the federal government spends trillions of dollars to fight a pandemic,” said spokesman Michael Zona.

Also being pushed by Pelosi is a vote-by-mail system amid the ongoing coronavirus pandemic.

“In terms of the elections, I think that we will probably be moving to vote by mail,” she told MSNBC‘s “Morning Joe” on Tuesday, adding that it’s a “reality of life” now.

Pelosi claims she won’t rush to push the bill through and doesn’t expect the package to be ready befor Easter, according to the . Instead, it will be ready for a vote when Congress returns.

The White House, meanwhile, has compiled their own list based on what US agencies say they need totaling roughly $600 billion, according to Bloomberg.

Submitted by Michael Every of Rabobank

Another day, another dollar.

Of course, that’s not strictly true. For the average market economist trying to predict that dollar on waking up it is more usually 0.99, 0.98, 1.01, 1.0, 1.01 – and then out of the blue minus 6 trillion.

For the epidemiologists at Imperial College it’s also a wild ride. To recall, first of all their model said the UK only needed to wash its hands and the herd would be immune to COVID-19; then the model was tweaked and 250,000 to 500,000 were going to die; then we all locked down and only 5,700 were going to die (leading some to scream “open the economy!”); and now, echoing the Oxford University team, they estimate that up to 2.7% of the UK population may already be infected, meaning 1.8 million people, and implying that the we are totally mismeasuring how many people have a symptomless and/or pain-free virus experience, and that the COVID-19 mortality rate is really very low.

Except that is isn’t 2.7%. It’s anywhere from 1.2% to 5.4% of the population, and once again this is based on guessing the R0 rate and the virus inception date and multiplying madly. And once again it fails to account for the fact that 90% of tests being done on people who already face virus symptoms and/or are at risk are coming back negative. Faulty tests, or is it just my Rebel Sum standing up to the might of the Imperials? (“Now witness the firepower of this fully armed and operational university!”) At least the thrust of their argument is that lockdowns are necessary rather than “open the economy!”

As they argue over how many viruses can fit on the head of a pin, the daily deaths in Italy and Spain number painfully close to 1,000 and New York’s fatalities are also rising rapidly – just like we normally see at this time of year in ‘flu season – not. Indeed, the latest data from China suggest that the mortality rate is 4% for those hospitalised in their 40s and 8% in their 50s.

Meanwhile, in China we are back to a familiar world of another day, another 1.06 dollars. The official Chinese PMI for March reported that manufacturing leaped from 35.7 all the way back to 52.0, vastly higher than the 44.8 expectation. All those stories you have read about factories being shuttered because export demand has dried up? Wrong. All those reports about local officials telling people to leave lights on to boost electricity demand and let foreign satellites see a ‘working’ plant? Wrong. All the data-trackers saying China is, at best, running at 80% of capacity, so down 20% y/y from where it should be? Wrong. Even the services PMI leaped to 52.3 from 29.6, which is interesting given all cinemas are still shut and reports are flying round talking about 18m people losing their jobs and Chinese consumers retrenching. (‘As Rest of World Locks Down, China Struggles to Get Shoppers Out’ says Bloomberg today; even the World Bank is saying the best case for China’s economy is 2.3% y/y growth)

When we saw the weak February PMI and associated terrible January-February retail sales, industrial production, and investment data it seemed we were getting accurate snapshots of what was going on in the Chinese economy for once. So, back to business as usual in more ways than one? Not quite. First, the PBOC just slashed its 7-day repo rate a record 20bp and the government are talking about more fiscal stimulus being needed: that is hardly cheer-leading. Second, these PMI surveys asked Chinese firms how the feel now compared to February – NOT to how they usually operate. The exercise is therefore incompatible with the normal PMI metric – which is where the consensus forecast of a recessionary 45-ish print rightly sat.

Once again, markets are going to have to pick their way through a data asteroid field to get to an accurate understanding of what is going on.

“Sir! The possibility of successfully navigating an asteroid field is approximately 3,720 to 1!”

“Never tell me the odds!”

Meanwhile, also showing how much success they are having against the virus, and in line with what I wrote yesterday, the White House and Congress are already planning the next phase of fiscal stimulus even before the current one hits anybody’s pockets. It appears help is on the way for the mortgage market, as mortgage firms complain the Fed’s action is wiping them out, for the travel industry, and for states and local governments. Some of that will be bailouts and some of it might even be actual economic stimulus, with the total package being talked about in the range of USD600bn. Once upon a time that was a lot of money.

Allow me to repeat once again: the crucial factor for markets to consider imminently is that not all economies and currencies are created equal. Not everyone is going to be able to get away with 20% fiscal deficits paid for by central banks. Only the US is guaranteed to be able to do so without crushing its currency due to the USD reserve function. The vast majority won’t, and there will be a high price paid for any stimulus.

Let’s see how AUD and NZD and CAD and GBP, et al., ultimately fare as they go the zero rates and unlimited QE route as if there is natural market demand for them globally; and emerging markets are in a far deeper hole if they want to push back fiscally against the ‘rules of the game’ in the same way that developed economies are.

The underlying issue is still ‘another day, another US dollar’. And there aren’t that many to go round in EM space in particular, doubly so when export earnings evaporate ahead – which they will. That key dynamic is set to trigger the next round of global turmoil ahead. Coming soon: Imperial vs. Rebel sums fighting over the USD Death Star.