Month: April 2020

Authored by Mike Whitney via The Unz Review,

1– Unemployment is off-the-charts

Thursday’s jobless claims leave no doubt that the country is in the grips of another severe recession. More than 6.6 million Americans filed for unemployment insurance in the last week. That number exceeds the gloomiest prediction of more than 40 economists and pushes the two-week total to an eye-watering 10 million claims.

According to CNBC:

“Those at the lower end of the wage scale have been especially hard-hit during a crisis that has seen businesses either cut staff outright or at best freeze any new hiring until there’s more visibility about how efforts to contain the coronavirus will work.

“We’ve lived through the recession and 9/11. What we’re seeing with this decline is actually worse than both of those events,” said Irina Novoselsky, CEO of online jobs marketplace CareerBuilder.” (CNBC)

According to New York Magazine:

“Economists at the Federal Reserve Bank of St. Louisprojected Monday that job losses from the coronavirus recession would reach 47 million and push America’s unemployment rate to 32.1 percent — more than 7 points higher than its Great Depression–era peak.”

2– Service Sector has been walloped by the virus

Services account for 70% of the US economy, but presently the sector is in meltdown. According to the analysts at Wolf Street: “Employment contracted sharply and hours were reduced for those still employed. “The employment index plunged from +6.1 to -23.8, also the lowest level on record…

Retailers got whacked. The Retail Sales Index of the Texas Retail Outlook Survey collapsed from the already beaten-down level of -2.5 in February to an epic all-time low of -82.6 in March… (Also) the general business activity index collapsed from the beaten down level of -5.0 to a historic low of -84.2…

Comments from retail executives were somber:… “Most of our business has gone to zero except for essential locations such as hospitals, military bases and prisons… We are contemplating at this moment sending most employees home while our owners determine whether they can afford to pay reduced salaries and cover benefits for a short period while we see if things improve or worsen” (Wolf Street)

3– Economic carnage extends across sectors

Business Insider: “Recession risks are rising as coronavirus spreads around the world…The crisis will clobber airlines, shipping, hotels, and restaurants…

“Sectors reliant on trade and the free movement of people are most exposed,” said Benjamin Nelson, a Moody’s vice president and co-author of the report.

Carmakers, gaming, and retail will be hit hard by supply chain disruptions, the analysts said…

“A lengthy outbreak would affect economic activity for longer, leading to heightened recessionary dynamics and a more significant demand shock,” Moody’s said. “A sustained pullback in consumption would hurt corporate earnings, prompt layoffs, and weigh on consumer sentiment.”(Business Insider)

Car sales have also dropped dramatically in the last two weeks. On Wednesday,Hyundai reported that sales had seen a decline of 43 percent for March compared to the same period in 2019. That’s a drop from 61,177 vehicles in March 2019 to just 35,118 during the same month in 2020. All other car manufacturers are experiencing similar weakness in demand.

4– The Bloodbath on Wall Street continues

U.S. shares sold off again on Wednesday for the third time in four days wiping out most of last week’s bear market rally. The SandP 500 dipped 114 points while the Dow Jones lopped-off nearly 973 points by the end of the session. Analysts now believe that last week’s 20% surge was a temporary reaction to Trump’s multi-trillion dollar fiscal plan. By a 9 to 1 margin, investors are now betting that stocks have further to fall.

“Investor pessimism today is as bad as it has been,” said Dennis DeBusschere of Evercore ISI. “All estimates of when this will end are being pushed out…”

Before the outbreak of the virus, traders believed that low rates, liquidity injections and easy credit would keep stocks on a permanent upward trajectory. But the daily deluge of bad news coupled with an economy that is in freefall has undermined confidence in the Central Bank sending stocks into a tailspin. The Dow closed Wednesday at 20,943, which is three times higher than its March 9, 2009 low of 6,547. Stocks still have further to fall.

5– Struggling consumers can no longer carry the US economy

An article at The Medium explains how the composition of the workforce has changed since the 2008 financial crisis. Gig workers make up are a significant part of the workforce, but they do not have the protections or benefits of most wage earners. These independent contractors will impacted the most by the sudden downturn in the economy. Their ability to consume will also weaken the post-crisis recovery and lead to slower growth. Check out this short excerpt from A crippling collapse in consumer spending is coming:

“From restaurant workers, caterers, and Uber drivers to office and hotel cleaning staff to event venue staff to people supplementing earnings with AirBnB revenue, income is cratering across the country for hourly and gig workers. And most have little to no financial cushion…

Thirty-six percent of U.S. workers are now involved in the gig economy…. Most gig and hourly workers are walking a financial tightrope. They will not be able to afford even a short-term hit to their earnings. It will mean a further spike in auto loan and credit-card delinquencies. It will mean a spike in healthcare-driven bankruptcies. It will mean unpaid rent. And it will mean consumer spending will plummet…. A sudden shock to gig and hourly-worker earnings will have seismic implications for the economic and political future of the US…

More than 15.5 million Americans work in restaurants. Of those workers, roughly 3 million live in poverty….Unpaid rent will eventually lead to landlord defaults… Consumer spending now accounts for roughly 70% of the U.S. economy. Reportedly, government stimulus may not reach consumers until the end of April. Gig and hourly workers need help now.” (“A crippling collapse in consumer spending is coming”, The Medium)

How many of these gig workers will fall through the cracks, lose their apartments or rental units, and wind up on the streets, homeless and destitute?

6– Americans continue to stockpile food

According to the Wall Street Journal: “In the past two weeks, Americans have hoarded food as restaurants close their dining rooms and more are told to stay home from work and school. General Mills, which makes Cheerios cereal, Yoplait yogurt and Progresso soup, on Wednesday said retailers in North America and Europe are purchasing more of its products and its factories are running at near capacity to meet the demand…(WSJ)

“Consumers across the globe are still loading their pantries — and the economic fallout from the virus is just starting…

“You could see wartime rationing, price controls and domestic stockpiling,” said Ann Berg, an independent consultant and veteran agricultural trader.” (Bloomberg)

CNBC: “Psychologists ..weigh in on why our brains push us to panic buy — even when authorities are assuring the public there’s no need to. According to Paul Marsden, a consumer psychologist at the University of the Arts London,…

“It’s about ‘taking back control’ in a world where you feel out of control…When people are stressed their reason is hampered, so they look at what other people are doing. If others are stockpiling it leads you to engage in the same behavior. People see photos of empty shelves and regardless of whether it’s rational it sends a signal to them that it’s the thing to do….” (CNBC)

7– Most Americans have no savings

From Yahoo Finance:

Saving money continues to be a challenge for Americans…

Since 2015, GOBankingRates has asked Americans how much they have in savings. Each year, the survey results have shown that a majority of adults don’t even have $1,000 in a savings account…

This year, GOBankingRates asked more than 5,000 adults, “How much money do you have saved in your savings account?” Respondents could choose from one of seven options:

The survey found that 58 percent of respondents had less than $1,000 saved.

“It’s always concerning when a large part of the population is seemingly living paycheck to paycheck because when unexpected personal or financial hardships occur, it can be challenging to recover without adequate savings,” Jason Thacker, head of consumer deposits and payments at TD Bank, said.” (“58% of Americans Have Less Than $1,000 in Savings, Survey Finds”, Yahoo Finance)

8– Household debt is at an all-time high

From CNBC: “Household debt surged in 2019, marking the biggest annual increase since just before the financial crisis, according to the New York Federal Reserve.

Total household debt balances rose by $601 billion last year, topping $14 trillion for the first time, according to a new report by the Fed branch. The last time the growth was that large was 2007, when household debt rose by just over $1 trillion…

“The data also show that transitions into delinquency among credit card borrowers have steadily risen since 2016, notably among younger borrowers,” Wilbert Van Der Klaauw, senior vice president at the New York Fed, said in a statement.” (“Household debt jumps the most in 12 years, Federal Reserve report says”, CNBC)

9 — Many businesses might not survive long enough to get stimulus

Many businesses shut their doors either for a lack of customers or on orders from state or local governments as emergency declarations began rolling across the country in mid-March,. Yet it could be weeks more before the business loans, bigger unemployment checks and direct payments to individuals from the stimulus plan flow into the economy.

Small businesses account for almost half of U.S. private employment. A complete collapse of even some of those enterprises not only would dash the dreams of entrepreneurs and threaten the livelihoods of many, it risks sapping the power of an eventual economic rebound as the financial distress ripples through to landlords, vendors and lenders.

Already, 50,000 retail stores have shut in just over a week across the country, putting more than 600,000 workers on furlough, according to data compiled by Bloomberg.

The National Federation of Independent Business, had a record 13,000 people register for a webinar it hosted Monday on the stimulus plan and financial resources….After the webinar ended, more than 900 emails flooded in, she said, with business owners asking: “Am I going to have anything left? Will I be evicted? Will I have to file for bankruptcy? Will I be able to reopen?”

“The emails almost make me want to cry,” Milito added. “What I’m hearing from members is fear, uncertainty and almost heartbreak.” (“Stimulus May Come Too Late for U.S. Businesses Already Stretched”, Bloomberg)

10– Food banks are seeing a sudden, sharp rise in demand

This is from Newsday:

“Emergency food programs are bracing for a wave of new recipients in the coming weeks as more Long Islanders are expected to lose their jobs, get furloughed or have work hours and wages reduced. At the same time, volunteers — many of them at high risk of contracting the virus — are staying home to protect themselves and needy people from getting sick.

Compounding the problem is a crippled national supply chain that delays food deliveries by weeks.

“It’s a perfect storm of tragedy on top of each other,” said Jean Kelly, executive director of the Interfaith Nutrition Network, a Hempstead soup kitchen. “Everything that could go wrong is going wrong.”

Soup kitchens and pantries in many communities closed temporarily in recent weeks to protect volunteers or because sponsoring agencies, such as houses of worship and nonprofits, also shut their doors.

“The reason they’re closed is they don’t really have an infrastructure of people to work there….The majority of the food pantries are operated by volunteers. The average age is in their 70s. They’re fearful of contracting the coronavirus.” (“Demand at LI food pantries rise as volunteers and food supplies fall”, Newsday)

Final Note from an article titled: “Americans Are Worried About The Coronavirus. They’re Even More Worried About The Economy”

“An overwhelming majority of Americans are really concerned about the economy. … A Morning Consult poll conducted between March 20 and March 22 found that 90 percent of Americans said they were “very” or “somewhat” concerned that the coronavirus would impact the economy…Americans are also worried about job security — 49 percent said they were worried about losing their job, according to an Economist/YouGov survey conducted between March 22 and March 24.” (FiveThirtyEight)

Not surprisingly, some polls suggest that “more Americans are worried about the effect of the coronavirus on the economy than about their own health.”

I would include myself in that group, which is why I hope that President Trump expands his economics team by adding more experienced, top-notch economists who can help him navigate this unprecedented and potentially-catastrophic crisis. This isn’t the time for the B Team (Kudlow, Mnuchin) to making decisions that will impact the entire country.

Jim Chanos had a good start to the day today.

Hours before his appearance on CNBC, where he weighed in on a number of topics, he had already covered his short on Luckin Coffee. Recall, we reported this morning that Luckin Coffee was smashed 85% after it admitted to inflating its sales to the tune of RMB 2.2 billion after an internal investigation. 

Luckin Coffee said its special committee today brought to the attention of the board information indicating that COO Jian Liu and several employees engaged in certain misconduct, including fabricating certain transactions, starting 2Q last year.

The market reaction was so fierce, Chanos said he covered his position in the pre-market session, where the stock was trading as low as with a $3 handle. It finished trading on Thursday at $6.40. 

Chanos credited his “luck” to fellow short seller Muddy Waters and Carson Block. “We were short thanks to Muddy Waters, who urged me to take a look at it back in February,” Chanos told CNBC. 

Chanos used Luckin’ as an example of why short selling is valuable, telling Scott Wapner:

“Luckin’s a great example of — when people talk about banning short selling or restricting short selling. This stock was being talked about by the fundamental short sellers in the community in January and February as a fraud. It’s one of the things that short-sellers do: They’re the real-time financial detectives.”

He also used it as an example of why people should continue to avoid Chinese companies. “We saw it this morning with Luckin: You have to avoid these Chinese companies like the plague,” Chanos said. “How many times do investors have to be burned in these companies that are just too good to be true? Growing 40% to 50% a year, with all kinds of odd transactions with affiliates.” 

Chanos also warned about “virus stocks”. 

The short seller said on CNBC’s Halftime Report:

“One area I would warn people about for example is the virus stocks. They are doing well right now in this enforced lockdown. A lot of these companies are really not structurally growth stocks that are trading at 30, 40, 50 times earnings because they are going to do well in the first and second quarters of 2020.”

He continued: “Of course when the virus subsides, and we all know it will, those companies will probably begin to not look as attractive going forward. I would tell your viewers to be very, very careful about just piling into things that are doing well because people are inside and will stay inside for the next three, four, five weeks.”

Among the names he warned about were Zoom Video, Teladoc, Peloton and Clorox. Shares of Zoom Video and Teladoc are up 85% and 94%, respectively, this year.

“Look at the business and look at 2019. Take an educated guess, do your research and do your work and what you think this looks like in 2021. If it’s still a cheap stock then, then it might be an attractive investment on the long side.”

Chanos also took exception to “gig economy” stocks.

He said, on the same network where contributor Joshua Brown “doubled” his position in Uber on February 7, that gig economy companies like Uber would wind up “harmed” from the coronavirus.  

“I think the gig economy companies are going to come out of this harmed, not enhanced,” he said.

“I know there’s a body of thought that oh, well everybody will just do food delivery and we’ll all take Ubers and no one is going to buy a car again, and I think the flip side of it is that the labor pool issue for the gig economy companies is going to loom very very large coming out of this crisis.”

Chanos also admitted to being short several restaurant names, like Wendy’s and Restaurant Brands. 

“Some of the franchisees may not make it,” he said. Chanos also told Wapner that he had covered shorts in a lot of energy names to begin the week. 

Chanos also said he thinks the political landscape around many corporations will have shifted after the pandemic. 

“I think both political parties are going to be looking at that pretty hard coming out of the crisis to enhance corporate responsibility in lots of different ways whether it’s keeping employees as independent contractors, whether its restricting buybacks,” Chanos concluded.

Having  ‘come out’ as the infamous VIX-whale “50-Cent,” London-based fund manager Jonathan Ruffer has called it quits on his VIX-call-buying strategy:

“In sum, the catastrophe insurance did absolutely everything that might be expected of it. And it is now spent. It is likely to be some time before this insurance again prices at levels that makes it attractive as a defensive investment.“

So what is he looking at now, and what does the future hold?

The next defence was – and still is – a position in credit spreads. These spreads reflect the difference in yield between, say, a government bond, and a high-quality corporate bond. For years the spreads had been falling – a phenomenon which occurred in the UK in 1936 – and for exactly the same reason. As interest rates came down, the reality of the diminishing income was more eloquent than the shadow of the fear that a less-sound borrower might default. Victorian grandees wanted to know what their future daughters-in-law were worth – worth was expressed as an income figure, not as capital – and her Ladyship would want a second question answered: was this income from government Consols, or something flakier?

Our investments in credit spreads have protected the overall values of the portfolios, as conventional asset prices have tumbled. As I write, there still seems a good deal more mileage in this idea – we had positioned ourselves just outside the ‘safest’ corporates, as these could be the beneficiaries of Federal Reserve intervention. The Fed has intervened, and it will be interesting to know whether this does in fact stabilise the corporate bond market.

Our equities have borne the brunt of the grief, as they did in Q4 2018, falling by every bit as much as the overall indices. We were caught out then because action by the Fed meant that the markets recovered sufficiently to neutralise the effectiveness of our protective investments. This time round, our equity positions would have saved us a fair bit of money if they had performed better. It is worth peering into this part of the portfolios. Commentators divide the market into ‘momentum’ – stocks whose share price pattern is favourable – and value. Generally speaking, the best companies will be in the momentum bucket, and Fred Karno’s army relegated to value.

For the last decade, the gulf between momentum and value stocks has grown wider, and unprecedently so. Some of this may well be justified, as the techie carnivores eat up the Laura Ashleys of this world. But much of it is due to the fact that, recently, more money has come into equity markets through ETFs (exchange traded funds, a passive move to ‘buy the index’) than by specific analysis of each company’s prospects. Many have laughed bitterly at the fund management industry for being sent to the cleaners by index performers. It’s true that we are pretty hopeless, but one would expect a cheap ETF to be in the middle of the fifth decile (about 45th out of a hundred) – its performance median, but, being cheaper, better than an active fund manager who is trying to do the same thing. It feels to us as if the ETF phenomenon is beginning to unravel: they do not always trade at asset value any more, and there could be widespread liquidations. As this happens, momentum stocks will lead the markets lower, since that is where the indices are most heavily weighted.

There was more to our emphasis on ‘value’ stocks, than the ‘less bad’ aspect. The unprecedented monetary looseness in the period since the 2008 crisis has always meant that the economy might find traction – and if it had done, then these companies would have prospered, some of them mightily. Ironically, we believed that 2020 itself was going to be a year when world economies coordinated into a pattern of significant growth. Just as the fat lady reached for the high C, the platform collapsed.

Elsewhere, gold has been somewhat disappointing, with its performance weighed down by forced sellers.

But we think gold is the right place to be for the battles ahead.

Where do we go from here?

Mercifully, I have left myself little space for the humiliation of calling the future. Until the market becomes calmer, it will suffer all the vagaries of a civil war.

The biggest danger comes from an overwhelming desire in all of us to ‘buy the dips’.

In the old days, that was right – and wrong – pretty much 50% of the time.

Since Alan Greenspan, chair of the Federal Reserve, began medicating the markets after the 1987 crash, it has always – always – been right to do so.

Not many of us old-timers who acquired our hard wiring before 1987 are left; I started as a stockbroker in 1972, when a falling stock market was friendless, and bad news was pretty much just that – bad.

Buying the dips is predicated on the assumption that bad news is in fact good news since it opens up Uncle Sam’s pocketbook. Now debt is so great, and the promises needed so egregious, that there has to be a question mark over the efficacy of the pocketbook.

Any loss of confidence in the value of the collateral will manifest itself in a fear of inflation, since money is an expression of confidence in a token (fiat money, it is called – the divine ‘let it be’) – and if that confidence is lost, it ceases to do its job as a store of value.

What is clear is that central banks and governments will use whatever firepower they have – even if it turns out that their cheques are blank.

Accordingly, we have increased again our holdings in inflation-linked bonds (notably in the US). These will be a proper protection against a grinding bear market in money, in savings, in prosperity. The time is moving on from a world where we had to protect against sudden shocks – catastrophe insurance is behind us, job done. The investment landscape is going to become much more familiar, but it will only be a homecoming to the greybeards (what’s the gender neutral word for this? The mind boggles) who have lived it before.

Thirty-three years is a long detour – and for many it will have proved a cul-de-sac. It is difficult to master old tricks, secondhand, but my prediction is that it will prove a valuable quality over the next longish while.

Lastly, I want to express a personal view. It’s one which reflects that of all of us at Ruffer – of gratitude to you for sticking it out over the lean times. To do so, you had to trust us that a shock was on the way, and that we would rise to meet it. (I had more confidence in the first of those than the second…). The battle to keep clients safe is not won – alas, it is never won. But the first onslaught of a bear market has been successfully navigated, and this review ends with a reiteration of our investment priorities – first and second, to keep portfolios safe, third, to make them sing.

*  *  *

In January – amid the roaring meltup in stocks – Ruffer proclaimed:

“the central plank of what we’re doing – that there’s a dislocation ahead, speaking of wealth-destruction and illiquidity – well, our sureness of that makes us lions!”

His firm’s philosophy is built around the fact that clients love making money, but they hate losing it more than they like making it… something we suspect many “gurus” who have ‘come-up’ in the last decade of central bank largesse are about to discover this lesson the hard way.

Unlike in the 2008 financial crisis when a glut of subprime debt, layered with trillions in CDOs and CDO squareds, sent home prices to stratospheric levels before everything crashed scarring an entire generation of homebuyers, this time the housing sector is facing a far more conventional problem: the sudden and unpredictable inability of mortgage borrowers to make their scheduled monthly payments as the entire economy grinds to a halt due to the coronavirus pandemic.

And unfortunately this time the crisis will be far worse, because as Bloomberg reports mortgage lenders are preparing for the biggest wave of delinquencies in history. And unless the plan to buy time works – and as we reported earlier there is a distinct possibility the Treasury’s plan to provide much needed liquidity to America’s small businesses may be on the verge of collapse – an even worse crisis may be coming: mass foreclosures and mortgage market mayhem.

Borrowers who lost income from the coronavirus, which is already a skyrocketing number as the 10 million new jobless claims in the past two weeks attests, can ask to skip payments for as many as 180 days at a time on federally backed mortgages, and avoid penalties and a hit to their credit scores. But as Bloomberg notes, it’s not a payment holiday and eventually homeowners they’ll have to make it all up.

According to estimates by Moody’s Analytics chief economist Mark Zandi, as many as 30% of Americans with home loans – about 15 million households – could stop paying if the U.S. economy remains closed through the summer or beyond.

“This is an unprecedented event,” said Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania. She also points out another way the current crisis is different from the 2008 GFC: “The great financial crisis happened over a number of years. This is happening in a matter of months – a matter of weeks.”

Meanwhile lenders – like everyone else – are operating in the dark, with no way of predicting the scope or duration of the pandemic or the damage it will wreak on the economy. If the virus recedes soon and the economy roars back to life, then the plan will help borrowers get back on track quickly. But the greater the fallout, the harder and more expensive it will be to stave off repossessions.

“Nobody has any sense of how long this might last,” said Andrew Jakabovics, a former Department of Housing and Urban Development senior policy adviser who is now at Enterprise Community Partners, a nonprofit affordable housing group. “The forbearance program allows everybody to press pause on their current circumstances and take a deep breath. Then we can look at what the world might look like in six or 12 months from now and plan for that.”

But if the economic turmoil is long-lasting, the government will have to find a way to prevent foreclosures – which could mean forgiving some debt, said Tendayi Kapfidze, Chief Economist at LendingTree. And with the government now stuck in “bailout everyone mode”, the risk of allowing foreclosures to spiral is just too great because it would damage financial markets and that could reinfect the economy, he explained.

“I expect policy makers to do whatever they can to hold the line on a financial crisis,” Kapfidze said hinting at just a trace of a conflict of interest as his firm may well be next to fold if its borrowers declare a payment moratorium. “And that means preventing foreclosures by any means necessary.”

Take for example Laura Habberstad, a bar manager in Washington, D.C., who got a reprieve from her lender but needs time to catch up. The coronavirus snatched away her income, as it has for millions, and replaced it with uncertainty. The restaurant and beer garden where she works was forced to temporarily shut down. Laura has no idea when she’ll get her job back, nor does she have any idea how to look for a new job. After all, how do you search for another hospitality job during a global pandemic? Now she’s living in Oregon with her mother, whose travel agency was also forced to close.

“I don’t know how I’m going to pay my mortgage and my condo dues and still be able to feed myself,” Habberstad said. “I just hope that, once things open up again, we who are impacted by Covid-19 are given consideration and sufficient time to bring all payments current without penalty and in a manner that does not bring us even more financial hardship.”

Borrowers must contact their lenders to get help and avoid black marks on their credit reports, according to provisions in the stimulus package passed by Congress last week. Bank of America said it has so far allowed 50,000 mortgage customers to defer payments. That includes loans that are not federally backed, so they aren’t covered by the government’s program.

Meanwhile, Treasury Secretary Steven Mnuchin has convened a task force to deal with the potential liquidity shortfall faced by mortgage servicers, which collect payments and are required to compensate bondholders even if homeowners miss them. The group was supposed to make recommendations by March 30.

“If a large percentage of the servicing book – let’s say 20-30% of clients you take care of – don’t have the ability to make a payment for six months, most servicers will not have the capital needed to cover those payments,” QuickenChief Executive Officer Jay Farner said in an interview. But not Quicken, of course.

Quicken, which serves 1.8 million borrowers, and in 2018 surpassed Wells Fargo as the #1 mortgage lender in the US, has a strong enough balance sheet to serve its borrowers while paying holders of bonds backed by its mortgages, Farner said,  although something tells us that in 6-8 weeks his view will change dramatically. Until then, the company plans to almost triple its call center workers by May to field the expected onslaught of borrowers seeking support, he said.

Ironically, as Bloomberg concludes, “if the pandemic has taught us anything, it’s how quickly everything can change. Just weeks ago, mortgage lenders were predicting the biggest spring in years for home sales and mortgage refinances.”

Habberstad, the bar manager, was staffing up for big crowds at the beer garden, which is across from National Park, home of the World Series champions. Then came coronavirus. Now, she’s dependent on her unemployment check of $440 a week.

“Everybody wants to work but we’re being asked not to for the sake of the greater good,” she said.

“We’re going to need a bigger chart.”

That’s all one can say when seeing what happened to the Fed’s balance sheet in the past week.

According to the Fed’s latest weekly H.4.1 (i.e., balance sheet) update, as of April 1 the Fed’s balance sheet hit a record $5.811 trillion, an increase of $557 billion in just one week. And when one adds the $88.5BN in TSY and MBS securities bought by the Fed today…

… we can calculate that as of close of business Thursday, the Fed’s balance sheet was an unprecedented $5.91 trillion, an increase of $1.6 trillion since the start of the Fed’s unprecedented bailout of everything on March 13 when the Fed officially restarted QE. And since we know that tomorrow the Fed will buy another $90 billion, we can conclude that as of Friday’s close, the Fed’s balance sheet will be a nice, round $6 trillion.

Finally, here is what the Fed’s balance sheet looks like over a longer timeframe: it shows that in just the past 3 weeks, the Fed’s balance sheet has increased by a ridiculous $1.6 trillion – the same amount as all of QE3 did over 15 months  – and equivalent to an insane 7.5% of US GDP.

One more insane statistic: the Fed’s balance sheet was $3.8 trillion in August 2019 when the shrinkage in reserves supposedly triggered the repo crisis. Fast forward, 6 months, when the Fed’s balance sheet is now 60% higher.

Last Saturday we said that according to former NY Fed staffer, the Fed’s balance sheet will double to $9 trillion by the end of the year.

Just three weeks after the Fed restarted its “all in” gamble, the balance sheet is already one third of the way there.

This is turning into a major sh*tstorm…

The Pentagon has relieved Navy Capt. Brett Crozier, the commander of the USS Theodore Roosevelt, from command of the aircraft carrier after he allegedly leaked a copy of a scathing letter he wrote to top brass requesting that all but the bare minimum (he said 10% ) of the sailors on his boat be let off to prevent a brutal outbreak of COVID-19. 

Reports about the sailors, the first aboard a ship on active duty to test positive for COVID-19, first emerged last week, and the situation has become a growing hot potato as the White House and Pentagon have resisted allowing the sailors to disembark.

Similar to how Trump initially wanted to keep the passengers of the ‘Diamond Princess’ from leaving the ship, it’s believed Trump pressured the Pentagon not to let the sailors off because it would look bad for the administration. There are 4,865 sailors on board, and

But Acting Secretary of the Navy Thomas Modly replied that he didn’t believe leaving only 10% behind would be appropriate. “Our plan has always been to remove as much of the crew as we can while maintaining for the ship’s safety,” he said. “This ship has weapons on it, it has munitions on it, it has expensive aircraft, and it has a nuclear power plant. It requires a certain number of people on that ship to maintain the safety and security of the ship.”

Capt. Crozier

Even writing the request was probably out of line for Crozier, who clearly felt obligated to act to stop his crew from being infected en masse as part of a PR strategy. But the obvious leaking of the letter was clearly a bridge too far.

“I recognize that there’ve been a lot of questions about the Teddy Roosevelt, particularly over the last 24 hours,” Modly said during a recent Pentagon press conference. “We have accelerated testing and are deep cleaning all the spaces on the ship. We are providing the commanding officer what he has requested and we are doing our best to accelerate the pace wherever we can.”

Whispers about Crozier’s imminent firing emerged shortly before the news was confirmed. The firing has unleashed a torrent of criticism against Trump, while others argued that in the military, following your conscience often means losing your stripes.

Navy Captain Brett Crozier was removed from the USS Theodore Roosevelt I’m sure because he wrote a letter to his superiors imploring them for help. In my mind as a former Navy wife (husband USN/Ret) he’s a hero! #NavyHero

— DoodleMom (@SnowflakePeg) April 2, 2020

It’s unclear whether he will face any additional punishment.

Read the letter below:

TR COVID 19 Assistance Request by Zerohedge on Scribd

 

 

Written By Sam Laakso for Voima Insight,

There have been recent rumors in the gold market about the availability of physical gold. Some social media personalities and news agencies have claimed that there is a shortage of physical gold on the market. However, it is not so much about a shortage of gold, but rather a sudden demand for gold in places where it cannot be quickly supplied in the desired form.

These availability problems are largely due to what I like to call real world problems. Logistics and production processes play an important role in the journey of the gold from the mine or warehouse to the end-user.

Logistics

After the gold has been mined, the rough gold material is often transported to gold refiners for further processing. Another option is that the gold moves from warehouses around the world in various shapes and sizes to the refineries. In this case, gold is often delivered in the form of roughly 12.4-kilo bars (400 Troy ounces) or as recycling material.

Roughly, a typical gold production chain goes like this: Gold Mine or Other Warehouse – Logistics Company – Refinery – Logistics Company – Mint – Logistics Company – Bullion Dealer – Individual

As you can see from the chain, logistics companies play an important role in the flow of gold. Mostly gold moves with air cargo, and as recent news has shown, international air traffic has fallen significantly. This has caused problems in moving gold from one country to another.

At Voima, the supply chain is a bit shorter because our sourcing department obtains some of our gold directly from the refineries.

The production chain of Voima:  Gold Mine or Other Warehouse – Logistics Company – Refinery – Logistics Company – Voima’s Vault Service

Production

The coronavirus has also posed challenges, for instance to Swiss refineries. Some refineries have been forced to cut production as governments have imposed bans on people’s gatherings and encourage people to work remotely. In other words, people have restrictions on movement and gathering. These restrictions affect all businesses in the area. Therefore, some Swiss gold refineries are closed, just like other Swiss industrial companies. The location and the nature of the operations determine whether or not the company allowed to carry on production.

When refineries are unable to produce their products, delivery times to the consumer are further extended. The situation in Switzerland has also been aggravated by the fact that a significant part of the workforce, at the refineries in southern Switzerland, comes from Italy, which is one of the major sufferers of the coronavirus.

Gold availability 

London is the center of the world’s gold trade and most of the world’s gold is traded in 12.4-kilo bars. However, many savers prefer to buy small gold items such as coins and plates. In addition, many bullion dealers favor sales of these products, as small coins and plates have the highest profit margins.

These products are made either from mining concentrates or, for example, from larger gold bars like the 12.4-kilo bars. Often mine concentrates or larger bars have to be delivered to the refinery from another country.

The challenges brought up by the coronavirus related to the availability of gold are mainly due to the real-world problems such as logistics and production processes of gold. In other words, there is gold, but as long as the coronavirus causes problems with logistics and production, the availability of small gold bullion coins and bars may be poor.

Gold has not run out, and gold is not running out of the world, as some claim. These individuals have probably never been involved with the larger international gold market. So, it is understandable that they do not understand the life cycle of gold and the challenges of the real world.

It is good to remember one undeniable fact: new gold mined increases the total supply of gold by only 1% annually. The remaining 99% already exist, in large warehouses, jewelry, and people’s homes around the world. The laws of supply and demand also move this 99%. If gold is “not available” the current owners believe that the price of gold is too low, or the people simply do not want to exchange gold for the weakening euro or dollar.

It is reasonable to assume that once the worst peak of the panic caused by the coronavirus subsides, factories open, air traffic normalizes, and the gold market will return to normal.

The Bureau of Federal Prisons (BOP) issued an order this week, directing all prisons to lockdown facilities and keep inmates in cells for two weeks. The order will affect 122 federal prison facilities across the country.

Bureau Director Michael Carvajal activated “Phase 5 of its COVID-19 Action Plan” on April 1. Here are the following “Phase 5” actions that BOP will conduct to “further mitigate the exposure and spread of COVID-19:”

• For a 14-day period, inmates in every institution will be secured in their assigned cells/quarters to decrease the spread of the virus. This modification to our action plan is based on health concerns, not disruptive inmate behavior.
• During this time, to the extent practicable, inmates should still have access to programs and services that are offered under normal operating procedures, such as mental health treatment and education.
• In addition, the Bureau is coordinating with the United States Marshals Service (USMS) to significantly decrease incoming movement during this time.
• After 14 days, this decision will be reevaluated and a decision made as to whether or not to return to modified operations.
• Limited group gathering will be afforded to the extent practical to facilitate commissary, laundry, showers, telephone, and Trust Fund Limited Inmate Computer System (TRULINCS) access.

However, “Phase 5” did not include any new measures that would protect guards and other prison staff employees from contracting the virus.

Last week, the BOP said it had “increased” COVID-19 screening for inmates and staff as cases and deaths surged across the country. New prisoners are to be quarantined for two weeks before placed into the system, while no visitors are allowed during the pandemic.

 

We recently noted that the pandemic had turned the country’s jails and prisons into ticking time bombs that could amplify the public health crisis.

The prison system across the country has been thrown into crisis. Earlier this week, chief doctor at Rikers Island, New York City’s largest jail, warned that a “public health disaster is unfolding before our eyes.”

PLEASE READ: Conditions on Rikers are unimaginably bad. My colleague has spoken to a few people trapped inside. What they told her is horrifying. Unless @NYGovCuomo, @NYCMayor, & all DAs do something ASAP, we’re looking at mass death. What they’re reporting:

— Scott Hechinger (@ScottHech) March 24, 2020

In California, 3,500 prisoners were released early this week to reduce the spreading of the virus in the jail system. The trend across the country has been much of the same, as prisoners test positives for the infection, more are being released early to avoid an outbreak.