Month: July 2022

Bernie Sanders Wants To Force Airlines To Refund Passengers for Flights Delayed Over 1 Hour


Bernie Sanders speaking in a committee hearing

Last week, Sen. Bernie Sanders (I–Vt.) sent a letter to Transportation Secretary Pete Buttigieg proposing that the federal government take “immediate action” to reduce flight cancellations and delays that have been inconveniencing American travelers this summer.

According to Sanders, the U.S. government ought to fine airlines $55,000 per passenger for each flight the airline must cancel due to staffing shortages. Airlines also ought to be fined by the government $27,500 per passenger for each domestic flight delayed over two hours where passengers must sit on the tarmac, and $15,000 per passenger for each domestic flight delayed by more than two hours if tarmac loitering is not a factor. (Neither fine would be doled out if weather forces a delay.) For flights delayed by merely one hour, Sanders wants the federal government to force airlines to give passengers refunds.

Though none of this is likely to become law, Sanders’ frequent cries for heavy-handed federal government intervention should be opposed whenever they crop up. This one is no exception.

Sanders, ever a man of the people, is reacting to the fact that summer air travel has been a hot mess. Prices have surged, reflecting pent-up demand that has rebounded from peak COVID era, while some airlines (like JetBlue) have cut routes and most have struggled with staffing shortages. In Atlanta, 400 Delta pilots spent this past holiday weekend picketing, protesting what they say are subpar working conditions. Per data collected Saturday afternoon, 20 percent of Southwest flights within the U.S. had been delayed for the start of Fourth of July weekend. American Airlines logged similar numbers, while Delta came in a little better, at 13 percent.

“Nine of the ten busiest days for air travel passenger volume since March 2020 have come in the last month,” wrote Sean Cudahy last week for The Points Guy, “and the majority of those days fell in the last week or two.” Transportation Security Administration pass-through numbers for this holiday weekend surpassed last year’s, with more than 9 million total travelers hitting U.S. airports between Thursday and Sunday. The Los Angeles Times reports that “the rate of cancellations over the last two weeks is up 59% from the same period in 2019, before the pandemic.”

The reasons for this dysfunction are complex, though, and Sanders’ proposed fixes—which read more like punishments—would not solve domestic flyers’ problems.

Mostly, the summer of flight delays and cancellations is a demand issue. Travel demand is extraordinarily high, which is a positive indicator that most Americans are going back to the normal patterns of life following pandemic interruptions, overly cautious guidelines from the Centers for Disease Control and Prevention and 40-year-high inflation be damned. When you order people to stay at home for many months and tell them to skip a bunch of holidays and life events, at a certain point they decide to get back in the game of existing as social creatures. We’re seeing that happen now.

But it’s also an understaffing problem. Over the course of the pandemic, many airline employees were unable to do their jobs as they’d traditionally been done due to depressed travel; a chunk of them participated in the much-ballyhooed “Great Resignation,” switching industries or retiring a bit early. Some airlines took advantage of service interruptions to retire some of their aircraft, which resulted in pilots needing to be retrained to fly different plane models. Some airlines also retrained pilots who had been furloughed or laid off during that period of record-low travel demand. Airlines like Delta, faced with financial trouble during the pandemic, adopted controversial “juniority benefits” (a.k.a. buyouts) for the most senior and highly-paid employees, as a cost-cutting measure. Airlines did what they could to hunker down, cut costs, and make the best of a dismal time for the industry.

Meanwhile, air traffic control—run by the Federal Aviation Administration (FAA)—also deserves some of the blame. FAA representatives deny that there’s a staffing shortage while simultaneously admitting that air traffic controller training has been reduced due to COVID…which sure looks like a staffing shortage.

Sanders is right to bemoan the fact that airlines received $74 billion in pandemic-related aid from the federal government, which was ostensibly doled out to ensure airlines would be able to be resilient during low-travel times and get back to regularly planned service once conditions stabilized, though it didn’t quite work out that way. It’s almost like infusions of federal cash change airlines’ incentives, and don’t even fully prevent bad outcomes!

It’s hard to see how the federal government intervention proposed by Sanders would create the endgame he desires, at a time when airlines are struggling to adapt to quickly changing conditions, and still face many unknowns—like whether business travel will ever fully rebound—that are tough to plan for.

Many sectors of the economy are experiencing strain right now. There’s a palpable sense among American consumers that everything is getting simultaneously worse and more expensive. But this will not always be the case, since markets have a way of sorting these things out over time and readjusting to consumers’ ever-changing needs. Eventually, supply chains will restabilize. Ports will no longer cyclically close down or be short-staffed due to COVID lockdowns. The real estate market will cool down a bit, with homes no longer going for 20 percent above asking. Inflation will someday be below today’s staggering 8.6 percent. And, yes, airlines will once again compete for the mantle of best and most reliable, taking discerning flyers with them (and letting those who don’t care as much about service interruptions gravitate toward more affordable airlines).

But it’s not Sanders who will pull all this off—it’s market forces, quietly at work, that should be trusted, not messed with.

The post Bernie Sanders Wants To Force Airlines To Refund Passengers for Flights Delayed Over 1 Hour appeared first on Reason.com.

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We All Are Just Taking on Over

Too bad for you, dude; from Lindblad v. Bolanos, decided by Judge Susan Illston (N.D. Cal. 2022), and filed July 4 (ha!):

Ever-present in the background of the [First Amended Complaint] is an allegation that law enforcement agents from Colorado “followed” plaintiff to California and are conspiring with law enforcement in California to carry out clandestine surveillance with hopes of obstructing plaintiff’s pro se litigation activities through intimidation and harassment.

The Court attempts to focus on nonfrivolous allegations only. [Details omitted. -EV] …

All remaining claims alleged in the FAC are dismissed as frivolous pursuant to section 1915(e)(2)(B)(i). See, e.g., FAC at 89 (“It is alleged Chief Bolanos is involved with cartels and organized crime.”); Id. at 69, 71, 81, 85 (repeatedly commenting on the race of Officers Chung and Cheung and stating “[e]ven the postal, cable, and telephone employees are primarily Chinese across the nation, in what appears a coupe against the ownership rights of Americans with inclusion of the plaintiff,” and “arguing the 14 Amendment right to equality have been largely frustrated by minority groups in government who are bias, legally, against Caucasian and White skinned people.”); Id. at 63 (“Officer Azar, likely being of a Jewish Judaism, appeared particularly annoyed by the First Amendment Freedom of Speech that the plaintiff expressed relevant to the [August 19] situation. After witnessing two Chinese officers arriving on a scene, in a town that was previously predominantly white, it was frustrating for the plaintiff to see the third to arrive was of Jewish descent.”); Id. at 86–87 (“the Mexican Government is a massive ring of corruption and due to gang activity and a failing economy, the Mexican Government have never been able to operate their government and become susceptible to bribes and using police powers to ascertain personal gain. It is a known feat of the Mexican Government to redraw borders and extract the wealth from the United States.”); Id. at 25–26 (“plaintiff has multiple people in his family at the pinnacle of economic and political activity” and “defendants attempted to capitalize by identity theft of the plaintiff and his family who hold the strongest royal-bloodline worldwide.”).

You strongest royal-bloodline people better watch out for those of us of a frustrating Jewish Judaism, as well as our Chinese buddies. And always remember: We’re sleeping with your women.

The post We All Are Just Taking on Over appeared first on Reason.com.

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We All Are Just Taking on Over

Too bad for you, dude; from Lindblad v. Bolanos, decided by Judge Susan Illston (N.D. Cal. 2022), and filed July 4 (ha!):

Ever-present in the background of the [First Amended Complaint] is an allegation that law enforcement agents from Colorado “followed” plaintiff to California and are conspiring with law enforcement in California to carry out clandestine surveillance with hopes of obstructing plaintiff’s pro se litigation activities through intimidation and harassment.

The Court attempts to focus on nonfrivolous allegations only. [Details omitted. -EV] …

All remaining claims alleged in the FAC are dismissed as frivolous pursuant to section 1915(e)(2)(B)(i). See, e.g., FAC at 89 (“It is alleged Chief Bolanos is involved with cartels and organized crime.”); Id. at 69, 71, 81, 85 (repeatedly commenting on the race of Officers Chung and Cheung and stating “[e]ven the postal, cable, and telephone employees are primarily Chinese across the nation, in what appears a coupe against the ownership rights of Americans with inclusion of the plaintiff,” and “arguing the 14 Amendment right to equality have been largely frustrated by minority groups in government who are bias, legally, against Caucasian and White skinned people.”); Id. at 63 (“Officer Azar, likely being of a Jewish Judaism, appeared particularly annoyed by the First Amendment Freedom of Speech that the plaintiff expressed relevant to the [August 19] situation. After witnessing two Chinese officers arriving on a scene, in a town that was previously predominantly white, it was frustrating for the plaintiff to see the third to arrive was of Jewish descent.”); Id. at 86–87 (“the Mexican Government is a massive ring of corruption and due to gang activity and a failing economy, the Mexican Government have never been able to operate their government and become susceptible to bribes and using police powers to ascertain personal gain. It is a known feat of the Mexican Government to redraw borders and extract the wealth from the United States.”); Id. at 25–26 (“plaintiff has multiple people in his family at the pinnacle of economic and political activity” and “defendants attempted to capitalize by identity theft of the plaintiff and his family who hold the strongest royal-bloodline worldwide.”).

You strongest royal-bloodline people better watch out for those of us of a frustrating Jewish Judaism, as well as our Chinese buddies. And always remember: We’re sleeping with your women.

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Dutch Farmers Block Food Distribution Centers; Undercover Cops Chased Away From Protest

Dutch Farmers Block Food Distribution Centers; Undercover Cops Chased Away From Protest

Dutch farmers who are livid over government plans to cut nitrogen emissions by 50% – 95% have now taken to blocking food distribution centers in protest of the plan, which would shutter an estimated one-third of farms in the Netherlands.

Some 25 tractors parked outside a distribution center in the city of Zaandam, just north of Amsterdam, donning banners which read “Our farmers, our future” and other slogans, according to the Fresh Fruit Portal.

Fisherman in the country have also begun blocking ports in solidarity with the farmers.

A tractor at another protest, in the northern town of Drachten, urged people to “think for a moment about what you want to eat without farmers.”

The strike has sparked fears of supermarket food shortages, as fishermen have also blocked a number of harbors in an act of solidarity.

“Supermarkets do everything they can to keep the stores stocked, but if blockades continue, it could lead to people not being able to do their daily shopping,” the Central Bureau for Food Trade said in a statement.

In addition, traffic authorities warned of delays and possible slow-moving tractors on the nation’s highways, while Schiphol Airport urged travelers to use public transport to get to its terminals amid fears that the blockades also would target airports. -Fresh Fruit Portal

The upcoming reforms are expected to include a reduction in livestock, as well as buying up farms whose animals produce large volumes of ammonia.

Meanwhile, undercover cops were reportedly ousted from a protest over the weekend.

Earlier in the weekend, farmers poured mature on government offices in protest.

In short, don’t fuck with farmers. 

Tyler Durden
Tue, 07/05/2022 – 17:20

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Daily Briefing: Oil Slips Hard as Recession Risk Rises

Daily Briefing: Oil Slips Hard as Recession Risk Rises

Commodity prices are collapsing, the U.S. dollar is soaring, and the yield curve has inverted again: This is not an auspicious combination. Nor is the fact that a Bloomberg Economics model is now indicating a 38% chance of a recession in the next year. Real Vision’s Andreas Steno Larsen welcomes Tony Greer of TG Macro to talk about recent price action in the commodities market and the longer-term supply-demand story for oil and gas – highlighted by a look-in at Tony’s recent conversation with the infamous Doomberg about the complexities of hydrocarbons and their everyday use. Andreas and Tony also discuss the current condition of the global economy. Want to submit questions? Drop them right here on the Exchange: https://rvtv.io/3OGZ1ls. Watch the full interview with Doomberg and Tony Greer here: https://rvtv.io/3yh8toE.

Tyler Durden
Tue, 07/05/2022 – 15:10

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We’re Witnessing A Stunning Breakdown Of Law & Order, And The Overwhelmed Police Seem Powerless To Stop It

We’re Witnessing A Stunning Breakdown Of Law & Order, And The Overwhelmed Police Seem Powerless To Stop It

Authored by Michael Snyder via The Economic Collapse blog,

This country is not the same place that it was ten years ago.  In fact, it is not even close to the same place that it was five years ago. 

Violent crime is out of control in many of our major cities, and there aren’t enough police to handle it all.  So in many cases a police officer literally never shows up when someone reports a serious crime.  Unfortunately, the number of serious crimes just keeps going up.  In 2020, we witnessed the worst spike in violent crime in U.S. history, but 2021 was supposed to be a year when rates of violent crime started going back down. 

Of course that didn’t happen, and now 2022 is on pace to be even worse than either 2020 or 2021…

Violent crimes are on the rise in six of America’s major cities and set to outpace the already historic levels of 2021 violent crime.

Baltimore, Los Angeles, Philadelphia, Washington D.C., Atlanta, and New York City are all on pace to break their 2021 levels of violent crime halfway through this year, with the nation’s largest city leading the group, according to crime data reviewed by Fox News.

At this point, violent crime is up 25.8 percent in New York City compared to the first half of last year.

That is staggering.

Of course New York City still has a way to go before it gets as bad as Chicago.

In the Windy City, there are hundreds of thousands of “high-priority emergency service calls” each year, and last year there were no police available to respond to those calls 52 percent of the time…

New data uncovered by Wirepoints through public records requests to the Chicago Police Department (CPD) reveal that in 2021 there were 406,829 incidents of high-priority emergency service calls for which there were no police available to respond.

That was 52 percent of the 788,000 high-priority 911 service calls dispatched in 2021.

So if you are the victim of a violent crime in Chicago, your odds of having a police officer available to help you are about the same as guessing a coin flip correctly.

The following is a partial list of “high-priority emergency service calls” for which no police officer was available in 2021…

  • 14,955 – assaults in progress.

  • 17,828 – batteries in progress.

  • 16,350 – person with a gun.

  • 5,210 – person with a knife.

  • 12,787 – shots fired (reports from people, not the city’s automated “Shotspotter”)

  • 1,352 – person shot.

  • 887 – person stabbed.

  • 14,265 – domestic battery.

Despite numbers such as these, there are lots of people out there that are relentlessly calling for the police to be “defunded”.

Do they want total anarchy?

Because that is what would happen.

Our streets are already bad enough.  As you can see from this video, police in Chicago are having a really difficult time even protecting themselves at this point.

But Chicago actually doesn’t have the highest murder rate in the nation.

That honor goes to New Orleans…

It’s no secret that New Orleans struggles with violent crime, but new statistics paint a grim picture of the Crescent City being on pace to be the murder capital of the United States if trends don’t change in 2022.

According to data from AH Datalytics, compiled using the FBI’s Uniform Crime Reporting (UCR) program, New Orleans has a per capita year-to-date homicide rate of 72 per 100,000 residents. The next three U.S. cities behind New Orleans are Birmingham with a per capita homicide rate of 59 per 100,000 residents and Baltimore and St. Louis, each with a per capita homicide rate of 58 per 100,000 residents.

So far this year, the murder rate in New Orleans is up 44 percent.

But the corporate media is trying to convince us that all of this is perfectly “normal”, aren’t they?

Do you believe them?

One man that will never be fooled is World War II veteran Carl Spurlin Deke.  He just turned 100 years old on June 29th, and when he was interviewed by a local news outlet he boldly declared that the U.S. “is going to hell in a handbasket”…

Deke’s gratitude for his life quickly turned into an emotional confession about his concern about the entitlement and ungrateful grievance erupting from younger generations saying, “People don’t realize what they have. They b*tch about it. And then nowadays, I am so upset because the things we did, the things we fought for, and the boys that died for it, it’s all going down the drain.” Deke began weeping as he added “Our country is going to hell in a handbasket. We haven’t got the country we had when I was raised, not at all.”

The 100-year-old WWII vet cried for those growing up in America today saying, “Nobody will have the opportunity I had. It’s just not the same. That’s not what our boys, that’s not what they died for.”

Sadly, he is 100 percent correct.

We are in an advanced state of decline, and it is getting worse with each passing day.

If things are this bad now, what will this country look like once economic conditions deteriorate quite a bit more?

Previous generations of young Americans were equipped to handle adversity.

This generation of young Americans is not.

The thin veneer of civilization that we all used to be able to take for granted is steadily disappearing, and our society is evolving into a horror show that would have been unrecognizable to previous generations.

If we would have done things differently, we could have gotten much different results.

Our choices have consequences, and now most of our major cities are being transformed into crime-infested hellholes right in front of our eyes.

*  *  *

It is finally here! Michael’s new book entitled “7 Year Apocalypse” is now available in paperback and for the Kindle on Amazon.

Tyler Durden
Tue, 07/05/2022 – 17:00

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My Dear

I noticed that the Virginia A.G.’s 1989 opinion on residential picketing began with “My Dear Mr. Godfrey:”—the opinion was a response to Washington County Commonwealth’s Attorney Dennis Godfrey—and it made me wonder: How long had the “My Dear” salutation (as opposed to just “Dear”) endure?

It appears that, true to Virginia’s genteel Southern image, the Virginia A.G.’s office did use “My Dear …” as a salutation until 1996, well beyond any other state office (e.g., the Iowa A.G.’s office, which kept it up until 1965). But the U.S. Justice Department’s Office of Legal Counsel used “My Dear Mr. President” until as late as 1999, under Janet Reno.

The post My Dear appeared first on Reason.com.

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LAPD’s Militarized Response to Peaceful Abortion Protests Makes the Case for Police Reform—Again


A police officer with the Los Angeles Police Department aims non-lethal projectiles into a crowd

Despite promises of reform after the city’s poor response to Black Lives Matter protests in the summer of 2020, video of police violence at recent pro-abortion protests in Los Angeles shows that Los Angeles police have not yet changed their practices.

After pro-abortion activists took to streets around the U.S. to protest the Supreme Court’s decision to overturn Roe v. Wade in late June, videos have circulated on social media showing police in Los Angeles treating protesters like enemy combatants.

Armed with riot gear and brandishing rubber-bullet guns, the Los Angeles Police Department (LAPD) mobilized rapidly in response to pro-abortion protests near the city’s federal courthouse from June 24–27. Activists and journalists claim excessive use of physical force was rampant, with officers using batons against peaceful protesters.

The LAPD has maintained that it did not use force against peaceful protesters. “The vast majority of those involved [in pro-abortion protests] were peaceful and law abiding, however, a much smaller group of individuals took to the streets with the intention of creating chaos and destruction,” the LAPD said in a June 27 statement. “The Los Angeles Police Department has the distinction of facilitating First Amendment Rights for all Angelinos. Equally the Department will enforce the law when individuals engage in violence,” the statement continued.

While there were violent actors present at the protests, including one man who attacked police with a torch, videos shared online appear to show police using force against nonviolent protesters, including those trying to deescalate the situation. In one clip that received particular attention on social media, LAPD officers seemingly shoved Full House actress Jodie Sweetin to the pavement as she tried to defuse a confrontation between police and protesters on a Los Angeles freeway.

In another video, LAPD officers appeared to keep bystanders from providing water to a protester who had his head and arm repeatedly slammed into the ground by police.

Police also reportedly targeted journalists, even when they presented their press credentials and explicitly identified themselves. One clip seems to show police officers hitting reporter Tina Desiree Berg and shoving her to the ground, even after she showed her press badge:

Back in May, when Politico released a leaked draft Supreme Court opinion overturning Roe v. Wade, protesters were also met with violence from LAPD officers.

The LAPD’s response to Black Lives Matter protests in June 2020 was also subject to criticism over poor planning, disorganization, and several instances of excessive force. An investigative report commissioned by the Los Angeles City Council found that “those arrested for curfew were detained and handcuffed for hours, without water or bathroom breaks, before being transported to the jail facility for booking.”

City officials promised reform following protests in summer 2020. In response to public outcry, the LAPD updated many of its policies on managing crowds and respecting protesters and journalists. Police reform has also remained an important issue in Los Angeles elections, with both major candidates for Los Angeles mayor, businessman and former president of the Los Angeles Police Commission Rick Caruso and U.S. Representative Karen Bass (D–Calif.), promising to implement further changes to the LAPD’s practices without “defunding” the department. The Bass campaign includes police reform as a key tenet of her public safety policy. 

For activists and local observers, the police department’s approach to these recent protests shows the failure of reform efforts. “It’s a little less than two years since [the LAPD] changed its policy on how it treats non-city credentialed press after they roughed up [reporter Lexis Olivier-Rey] in 2020,” tweeted James Queally, a crime reporter for the Los Angeles Times. “Pretty clear from this video they’re not following it.”

The post LAPD's Militarized Response to Peaceful Abortion Protests Makes the Case for Police Reform—Again appeared first on Reason.com.

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My Dear

I noticed that the Virginia A.G.’s 1989 opinion on residential picketing began with “My Dear Mr. Godfrey:”—the opinion was a response to Washington County Commonwealth’s Attorney Dennis Godfrey—and it made me wonder: How long had the “My Dear” salutation (as opposed to just “Dear”) endure?

It appears that, true to Virginia’s genteel Southern image, the Virginia A.G.’s office did use “My Dear …” as a salutation until 1996, well beyond any other state office (e.g., the Iowa A.G.’s office, which kept it up until 1965). But the U.S. Justice Department’s Office of Legal Counsel used “My Dear Mr. President” until as late as 1999, under Janet Reno.

The post My Dear appeared first on Reason.com.

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Mike Wilson: This Slowdown Is Even Worse Than We Expected… Stocks Will Hit 3,000 Late This Year

Mike Wilson: This Slowdown Is Even Worse Than We Expected… Stocks Will Hit 3,000 Late This Year

Morgan Stanley’s uberbear Michael Wilson continues to have his cake and eat it too: on one hand the bank refuses to make a recession its base case; on the other Wilson continues to predict increasingly gloomy market outcomes as if he anticipates not a recession but a modest depression.

Two weeks after Wilson correctly predicted that the bear market in stocks will end when the recession officially begins (which we know as of this moment, has unofficially started), he looks at rates instead and writes that interest rates continue to fall despite still elevated concerns about inflation, and a Fed that remains committed to doing whatever it takes to squash it.

This is notable because last week, Wilson discussed how the direction of equity markets would be partially decided by their interpretation of this move in rates. In one interpretation, equities might rally as lower rates provide a cushion for valuation and potentially a leading signal that the Fed may ease off its policy stance if inflation pressures slow in 2H ’22. In another, stocks could probe new lows as falling yields reflect increasing concerns around growth, a dynamic that would be reflected in higher ERPs. And just so there is no confusion, Wilson reiterated that his intermediate term view is that any fall in rates should be interpreted as more of a growth concern rather than as potential relief from the Fed/inflation pressures.

Fast forward one week, and it looks like the answer is somewhere in between… meaning the equity market may not yet be sure what to make of the fall in rates.

First, rates fell another 20 bps last week after having falling 40bps the prior 2 weeks, leaving 10-year US Treasury yields down 60 bps from their recent high in Mid June. However, as noted last week, yields are still lagging the recent negative data surprises which continued to come in worse than expected last week. In other words, the risk of growth slowing more than expected has only increased.

And speaking of data, last Friday we also got the closely watched Manufacturing ISM survey for June and it was a pre-recessionary doozy. As Wilson notes, this survey is important because it has such a powerful relationship with the S&P 500…

 

… while providing a great coincident/leading indicator for the economy. The headline index has been falling for over a year. For June, the headline reading came in at 53 which is still in expansionary territory, if badly missing expectations. That said, during a mid/late cycle slowdown, this is about where the index would stop going down, according to Wilson. Furthermore, the S&P 500 is trading right where it should be based on this PMI reading.

The question, as Wilson asks, is whether it’s done going down.

For answers, the MS strategist looks to the internals of the survey–orders and inventories. On that score, he is quick to note that the data is not encouraging for those looking for a soft landing. Instead, it’s indicating the headline index is likely to fall further.

Based on history, Wilson concludes that “if we are going to end up in a recession (our bear case), it’s very likely the PMI would eventually fall to the low 40s.” And if one overlays that outcome onto the S&P 500 vs. PMI chart, “it suggests we could reach 3000 late this year—a temporary overshoot of our bear case point in time June ’23 price target of 3350” which of course is just Wilson goalseeking his prior conclusions, such as the one from mid-May which we discussed in “Morgan Stanley Sees S&P Tumbling As Low As 3,400: “That’s Where Valuation And Technical Support Lie.” Incidentally, if Wilson is so confident in the downside case, why doesn’t he just make this “bear” case his “base” case. Oh yes, because the Fed could say one word – just one word – and spark a furious rally which will make the bear market a distant memory, crushing Wilson’s street cred in a millisecond.

And just to hedging some more, Wilson also notes that given the coincident relationship shown above, and the fact that we won’t have additional data points for a while, “equity markets could hang around, and even rally in the absence of a confirmation of a recession.” Conversely, in the absence of confirmation a recession will be avoided, it will also be difficult for equity markets to rally too far… unless of course markets price in aggressive rate cuts and QE in the coming weeks.

Fed aside, Wilson again beats the bearish drum, and again warns that earnings remain too high even in the soft landing outcome. Under that scenario, he thinks NTM EPS should fall toward $225-230 over the next few quarters. Using that as his guide, Wilson still get to a fair value tactical target of approximately 3400-3500, or about 300 10% of downside from current prices, which however is just a fraction of the potential upside should the Fed surprise markets and pivot dovishly.

Wilson’s bottom line is that we are firmly in the midst of the economic slowdown we expected – i.e., “the Ice.” Furthermore, due to the war in Ukraine and China’s extended zero covid policy, the MS strategist cautions that :this slowdown is even worse than we expected” and “we believe most investors are also now in our camp and trying to determine how much earnings need to fall. Every investor can decide for themselves what the right earnings multiple should be in the context of the macro economic environment–i.e., what’s the right 10-year yield and equity risk premium.”

The good news is that Wilson’s case for lower multiples earlier this year has played out, and equity risk premiums (the growth component of the P/E) have risen over the last week to more reasonable levels (340bps) as we enter what should be a messy earnings season. In short, going forward stock prices should be determined more by earnings than the macro. The bad news is that what is most difficult about this stage of the cycle is that individual companies will likely see divergent paths, providing conflicting signals to investors. Here, Wilson’s experience is that the higher quality companies will admit the problems earlier and set expectations appropriately given the deteriorating macro environment. But this process can take longer than it should, and this time is likely no different.

Much more in the full Michael Wilson note available to pro subscribers in the usual place.

Tyler Durden
Tue, 07/05/2022 – 16:47

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