Desperate times call for desperate measures. And with the Fed in the process of destroying the monetary system as we know, we can’t say we were surprised to hear that some landlords are attempting to use the age-old system of barter to accept payments.
The problem? They’re reportedly asking their broke tenants for sex, according to BuzzFeed.
Citing the Hawaii State Commission on the Status of Women, the report details several complaints of sexual harassment since the coronavirus outbreak began.
One woman says when she texted her landlord about a more affordable property after being unable to pay her April rent, “he responded with a dick pic.” A different woman claimed that her landlord told her she could come over and “spoon him” instead of paying her April rent.
Khara Jabola-Carolus, the executive director of the commission said: “We’ve received more cases at our office in the last two days than we have in the last two years.”
She thinks the cases are becoming more egregious as tenants become unemployed, broke and more vulnerable. “Of course that’s not the root cause of why it’s happening, but it makes it easier because now [landlords] have access to people at their fingertips,” she said.
Sheryl Ring, the legal director at Open Communities, a legal aid and fair housing agency just north of Chicago said: “We have seen an uptick in sexual harassment. Since this started, they [landlords] have been taking advantage of the financial hardships many of their tenants have in order to coerce their tenants into a sex-for-rent agreement — which is absolutely illegal.”
She says sexual harassment complaints related to housing are up threefold in the last month. Ring was already working on six cases before the epidemic began and says that women of color and trans women are the most likely to be targeted. Ring advises women not to give in to trying to negotiate with landlords at all if the topic comes up.
“You can’t really negotiate how much illegality the landlord is willing to do,” she said. “We’ve heard some landlords are attempting to use the situation where a tenant falls behind to pressure a tenant into exchanging sex for rent,” she continued.
“It’s important to know what your rights are as quickly as possible. Even now, just because courts are closed to most things, it doesn’t mean you do not have recourse right now and can’t be protected,” Ring concluded.
“The conditions are ripe for sexual exploitation,” said Jabola-Carolus, noting that since Hawaii’s tourism industry has fallen apart, many immigrant and native Hawaiians are out of work.
Jabola-Carolus concluded: “The power dynamic goes without saying. All of us feel intimidated by our landlords because shelter is so critical.”
(Bloomberg) — Tension is rising in the messy fight over commercial rent payments.
With stores shuttered, struggling retailers are skipping rent and asking for concessions, while landlords are demanding payment and having their own tricky conversations with lenders.
There are no easy answers as officials ponder how to safely get the economy back open. So far this month, some mall owners and other retail landlords collected as little as 15% of what they were owed, according to one estimate. And it’s expected to get worse, with more than $20 billion in rent payments coming due in May.
“It’s all over the map what’s happening out there,” said Tom Mullaney, a managing director in restructuring at Jones Lang LaSalle Inc. “More and more defaults are coming in every single day.”
Companies across the U.S. — from small mom-and-pop operations to giant corporations — have missed April payments or sent out relief requests citing store closures because of the pandemic.
Landlords have been pitching rent deferment, saying tenants can make reduced payments now as long as they pay the balance at some point. Some businesses are pushing back on that option and asking for rent cuts even after stores are open again.
U.S. retail landlords typically collect more than $20 billion in rent each month, according to data from CoStar Group Inc.So far, April rent collection has ranged from 15% to 30% for landlords with higher concentrations of shuttered businesses, according to an estimate from brokerage firm Marcus & Millichap.
Landlords, who are facing their own debt defaults, are getting frustrated. Some are complaining that large corporations are using the crisis to skip out on rent. Others say they’re not responsible for bailing out tenants and that the federal government or insurance companies should cover the costs instead.
“The landlords are triaging the battlefield,” said Gene Spiegelman, vice chairman at Ripco Real Estate Corp. “The super powerful and strong are not going to get any help and the ones that’ll die anyways, landlords will say why would I help them?”
To be sure, some landlords and tenants are working out deals on a case-by-case basis. And some companies are paying rent for their stores. That includes AT&T Inc. and T-Mobile USA Inc.according to people familiar with the matter. J.C. Penney also said it paid for April.
Ross Stores Inc. and fitness chain Solidcore, meanwhile, are among those standing firm on requests for rent abatements and asking for additional concessions. Williams-Sonoma Inc. is another chain that has stopped paying rent, according to people familiar.
Ross has told landlords that after the shutdown ends their rent on some stores should be cut until sales rebound. Solidcore hasn’t agreed to rent deferral and said it likely won’t be able to pay the same rent as it was before pandemic.
“We’re not going to be bullied by the landlords during this time,” said Anne Mahlum, the fitness company’s founder and chief executive officer said. “We have some leverage here. What are they going to do, say get out and then have vacancy for months on end?”
The firm, which owns more than 1,700 properties, has seen requests for rent relief since the crisis started. But several of those tenants ended up paying, according to Hsieh.
One agreed to pay after getting loans from the government’s relief package, while another did so after being asked to provide financial information. A discount retailer and a company in the auto industry paid after Spirit refused to consider their rent deferral requests.
“If a tenant just says I’m not going to pay, fine, I’ll default you, I’m going to go to the courts, and you have 30 days to pay or quit,” Hsieh said. “I don’t want to be negative, but we own the building.”
Many landlords are rushing to work out deals with lenders to stave off their own defaults. Banks and insurance companies are negotiating deals on a case-by-case basis, but borrowers in commercial mortgage-backed securities have fewer options.
About 11% of U.S. CMBS retail property loan borrowers have been late on April payments so far, according to preliminary analysis by data firm Trepp. If that number holds up, $13 billion worth of CMBS loans could miss payments for the month.
“The banks are a little more fluid and often there’s recourse,” said Camille Renshaw, CEO brokerage firm B+E. “But many large properties have CMBS debt and when there’s a crisis, no one is there to pick up the phone to negotiate.”
It’s just not retail stores that are suffering. Office space is a ghost town thanks to the Wuhan (bat) virus outbreak. But with tools like Zoom, Webex, Microsoft Teams, GotoMeeting, Skype, etc., one wonders if the days of massive office building demand is over. Other than for socializing and monitoring employees (as Bill Lumbergh did in “Office Space.”)
Carnage in home builder sentiment following a record collapse in home buyer sentiment means it really should not be a total surprise to see Housing Starts crashed 22.3% MoM (the biggest drop since 1984). Building Permits also plunged, but by a lower amount, down 6.8% MoM.
Under the hood, Single-family starts fell to 856k from 1,037K SAAR, a 17.5 drop, while multifamily starts crashed 32.1% to just 347K, the lowest since July, from 511K in February.
Permits were ugly too, although here multi-family units actually rose 5.2% to 423K, while it was single family that tumbled to 884K from 1,005K, a 12% drop.
And this is all before most of the national Chinese Flu lock downs came into effect!
Two weeks ago ZeroHedge reported how the “steepest decline in global oil consumption ever recorded” spelled negative prices for crude in what Goldman’s Jeffrey Currie as “the largest economic shock of our lifetimes.”
Now, the unprecedented collapse in consumption has hit the other end of the industry – gasoline.
According to Bloomberg, gasoline in Fargo, North Dakota has hit 12 cents a gallon at ‘the rack’ – the wholesale market where gas station owners buy fuel before marking it up at the pumps – which have become “little more than makeshift storage for ballooning inventories.”
“When you see gasoline down around 12 cents a gallon, no one is going to be making money,” said Ron Ness, President of the North Dakota Petroleum Council, who added that it’s nearly impossible for retailers to turn a profit at that price.
“Our gasoline business has been cut in half,” said David Olson, general manager of RJ’s Gas Station outside of Fargo. Nearby, Shaun Lugurt told Bloomberg that he estimates sales at his station have tumbled 80% in a month.
“The biggest part for us that has been so hard is the unknown,” said Lugurt, adding “It’s been kind of a roller coaster.” Lugert co-owns Don’s Car Washes, and has also been forced too cut back store and worker hours.
The slump in rack prices, which are typically stable due to intense competition among distributors, is the latest sign that the coronavirus pandemic is wreaking havoc on every aspect of the fuel market. American gasoline consumption fell to the lowest level on record last week as lock downs take drivers off the road while gasoline stockpiles rose to a record high. That’s caused rack prices across the U.S to collapse. Milwaukee this week beat out Fargo for the lowest price in the nation. –Bloomberg
“The local racks are just inundated with material,” according to Patrick De Haan, head of petroleum analysis at GasBuddy – who suggested that some refineries may be selling gasoline “at a break even or even a loss.”
“What we are seeing is that a lot of the big pipelines are being used as storage, and the product will just get pushed and pushed until it has no place else to go,” said DTN refined products analyst, Brian Milne. “Those places are at the end of the line.”
Retail gas prices, meanwhile, are catching up.
“You’re not going to be able to flip a switch and go back to what it was before coronavirus,” said Olson, the station manager at RJ’s. “Even with businesses opened back up again, people are going to be apprehensive.“
Olson is probably right – as a recent Gallup poll found that 80% of Americans say they will wait to return to normal activities after the government lifts the nationwide coronavirus lock down.
VIRGINIA — (CHINESE OWNED) Smithfield Foods, Inc. announced today that its Sioux Falls, SD facility will remain closed until further notice. The plant is one of the largest pork processing facilities in the U.S., representing four to five percent of U.S. pork production. It supplies nearly 130 million servings of food per week, or about 18 million servings per day, and employs 3,700 people. More than 550 independent family farmers supply the plant.
“The closure of this facility, combined with a growing list of other protein plants that have shuttered across our industry, is pushing our country perilously close to the edge in terms of our meat supply. It is impossible to keep our grocery stores stocked if our plants are not running. These facility closures will also have severe, perhaps disastrous, repercussions for many in the supply chain, first and foremost our nation’s livestock farmers. These farmers have nowhere to send their animals,” said Kenneth M. Sullivan, president and chief executive officer, for Smithfield.
“Unfortunately, COVID-19 cases are now ubiquitous across our country. The virus is afflicting communities everywhere. The agriculture and food sectors have not been immune. Numerous plants across the country have COVID-19 positive employees. We have continued to run our facilities for one reason: to sustain our nation’s food supply during this pandemic. We believe it is our obligation to help feed the country, now more than ever. We have a stark choice as a nation: we are either going to produce food or not, even in the face of COVID-19,” he concluded.
In preparation for a full shutdown, some activity will occur at the plant on Tuesday to process product in inventory, consisting of millions of servings of protein. Smithfield will resume operations in Sioux Falls once further direction is received from local, state and federal officials. The company will continue to compensate its employees for the next two weeks and hopes to keep them from joining the ranks of the tens of millions of unemployed Americans across the country.
“We are looking at the machine that feeds society shutting down under controlled demolition”
Dr. Fauci, lead member of the Trump Administration’s White House Coronavirus Task Force
After all this is over, questions are going to be asked on whether a different course could have been taken.
This is the only pandemic in which we locked down the American economy. 16 million jobs have been lost and will continue to grow. Could we have done better? I think we could’ve.
Gateway Pundit reports while the US shuts down all commerce for weeks and destroys the economy, other countries like Sweden and Brazil are doing the opposite and allowing the China coronavirus to run its course.
Data indicates there no material differences in fatalities between the three countries leading the casual observer to question why is the US killing its economy?
The US continues to prevent nearly all commerce from occurring to combat the China coronavirus. Many other countries are following suit. But some countries like Sweden and Brazil are keeping their countries open for business.
Data shows that the fatalities related to the coronavirus in these countries are very similar to those in the US.
New Digital Reserve Currency Anticipated to be Part of Future COVID-19 Stimulus Package
(Yahoo News) Vancouver, British Columbia–(Newsfile Corp. – April 6, 2020) – NetCents Technology Inc. (CSE: NC) (FSE: 26N) (OTCQB: NTTCF) (“NetCents” or the “Company“), a disruptive cryptocurrency payments technologies company, is pleased to announce that it has completed internally designated preparation for the expected US Government backed cryptocurrency, “Central Bank Digital Currency” (CBDC).
NetCents jumped into action as soon as it learned of the plans US Congress made to legislate for this US Federal Reserve Digital Currency as part of two different versions of the first Central Bank Digital Currency (“Stimulus Bill” or the “Bill”). Ultimately this aspect of the legislation wasn’t included in the final version of the first Stimulus Bill, but the Board and Advisors of NetCents have agreed that this “Digital Dollar” will be included in subsequent legislation.
The Bill is expected to establish a “Digital Dollar”, defined as ‘a balance expressed as a dollar value consisting of digital ledger entries that are recorded as liabilities in the accounts of any Federal Reserve Bank or … an electronic unit of value, redeemable by an eligible financial institution.’ This will create a cryptocurrency backed and guaranteed by the US Federal Government. The Bill goes on to define a digital wallet, and a requirement that US chartered banks offer these wallets.
The establishment of these products is intended to simplify the cost and process of distributing the millions of stimulus payments contemplated by the Bill, but the effects of this move will be far reaching. While the complexity of this undertaking meant that Congress was unable to include it in the first Bill – NetCents Management believes the ultimate adoption is a foregone conclusion.
Daniel Gorfine, founder of fintech advisory firm Gattaca Horizons and former Chief Innovation Officer at Commodity Futures Trading Commission (“CFTC”), as well as a founding Director of the Digital Dollar Project, stated to Forbes, ‘It is worth exploring, testing, and piloting a true USD CBDC and broader digital infrastructure in order to improve our future capabilities and resiliency. While the crisis underscores the importance of upgrading our financial infrastructure, broadly implementing a CBDC will require time and thoughtful coordination between the government and private sector stakeholders.’ – Forbes, March 24, 2020 (link below)
NetCents has developed software to support these initiatives and stands ready to support the effort. Part of the Bill requires US chartered banks to offer these digital wallets to their clients – NetCents has built this platform as part of its current white-label offering for financial institutions.
The Forbes article goes on to quote Carmelle Cadet, Founder and CEO of EMTECH, a modern central bank technology and services company. She has recently started a new initiative called, ‘Project New Dawn’ to ensure the unbanked and underbanked receive economic stimulus payments. Citing a FDIC report in 2017 that identified 63 million unbanked and underbanked in the U.S., she notes, ‘If checks are the form of payment, the stimulus is not going to reach many of them. That would be approximately $100B underutilized of stimulus for lower income householders.’
“We fully support the US Government in its’ creation of the contemplated Digital Reserve Currency. The US dollar is already the reserve currency of the World – so moving it to a digital format makes total sense. The US might have 63 million unbanked, but the planet Earth has billions of unbanked – it only makes sense that the dollar take a digital form to enable remittance and micropayments for the unbanked globally – as well as ensure its status as the World’s dominant currency. The benefits to the Treasury would accrue into many billions of dollars in innumerable ways. Societal benefits would be created as well; a Digital Dollar would be difficult to use for crimes and funding terrorism for example. This milestone is the ultimate endorsement that Cryptocurrency and Blockchain are here to stay,” stated Clayton Moore, Chief Executive Officer, NetCents. “We look forward to offering our platform to US Banks and then to Global Banks so that they can meet the requirements for a digital USD wallet,” he summarized.
NetCents Technologies enables transactions that are both touchless and within social distancing guidelines – which is an added benefit in the current environment.
The NetCents Suite of software enables individuals and merchants to transact using Cryptocurrency both in a physical store environment as well as in an e-commerce setting – it is deploying Crypto-enabled financial products across numerous business verticals to become a complete Crypto ecosystem.
Day 1 – I Can Do This!! Got enough food and wine to last a month!
Day 2 – Opening my 8th bottle of Wine. I fear wine supplies might not last!
Day 3 – Strawberries: Some have 210 seeds, some have 235 seeds. Who Knew??
Day 4 – 8:00pm. Removed my Day Pajamas and put on my Night Pajamas.
Day 5 – Today, I tried to make Hand Sanitizer. It came out as Jello Shots!!
Day 6 – I get to take the Garbage out I’m So excited, I can’t decide what to wear.
Day 7 – Laughing way too much at my own jokes!!
Day 8 – Went to a new restaurant called “The Kitchen”. You have to gather all the ingredients and make your own meal. I have No clue how this place is still in business.
Day 9 – I put liquor bottles in every room. Tonight, I’m getting all dressed up and going Bar hopping.
Day 10 – Struck up a conversation with a Spider today. Seems nice. He’s a Web Designer.
Day 11 – Isolation is hard. I swear my fridge just said, “What the hell do you want now?”
Day 12 – I realized why dogs get so excited about something moving outside, going for walks or car rides. I think I just barked at a squirrel.
Day 13 – If you keep a glass of wine in each hand, you can’t accidentally touch your face.
Day 14 – Watched the birds fight over a worm. The Cardinals lead the Blue Jays 3–1.
Day 15 – Anybody else feel like they’ve cooked dinner about 395 times this month?
While each of these essays offers a different perspective, let’s focus on the last two: Ugo Bardi’s essay on Hyperspecialization and the technological responses described in the MIT Technology Review essay.
As readers of the blog know, I’ve been differentiating between first-order and second-order effects: First order effects: every action has a consequence. Second order effects: every consequence has its own consequences.
We can think of these as direct (first order) and indirect (second order) effects.
The MIT Technology Review article focuses on direct effects, i.e. how to deploy technology to identify people with the virus, track their recent movements and who they might have exposed to the disease, tech-driven regulations that would limit the movements of infected (such as we see in China now), etc.
Bardi’s first-hand account from Northern Italy touches on an indirect effect:the profoundly negative impact of a hyperspecialized economy that is suddenly disrupted. In this case, the specialization is tourism, but there are other examples, many driven by hyper-globalization.
Specialization has long been central to capitalism’s relentless drive to increase efficiencies and thus profits, and globalization has pushed specialization to extremes globally dominant corporations can arbitrage currencies, wages, political corruption and lax environmental standards in ways that localized competitors cannot.
The net result is increasing reliance on one globally competitive industry for jobs, tax revenues, etc.–in essence, the modern-day equivalent of a monoculture plantation or single-industry factory town.
When the plantation or factory closes, there’s no economically diverse ecosystem to pick up the slack.
If tourism doesn’t rebound very quickly, all the local economies that became hyperspecialized to serve global tourism (enabled by low-cost airfares and credit cards) will be gutted.
The second order effect of the pandemic will be the wrenching transformation of these local economies into a much broader economic ecosystem that will have to be moated from globalized competition. For example, grapes flown in from locales 3,000 miles away will be banned or heavily taxed so local grapes can compete.
A great many inefficiencies have been sustained by hidebound, self-serving institutions and cartels which have moated their industries from competition.These include higher education, healthcare, the defense sector and the recent crop of Big Tech monopolies (Facebook, Google, et al.).
A number of people have already noted that remote online classes have become the norm out of necessity, and this has revealed the incredible inefficiency of maintaining enormously costly campuses and bureaucracies for coursework that can be completed anywhere.
While the large research universities need students to physically be present to operate the machinery of experiments and research, the vast majority of undergraduate coursework does not require physical presence. In many lab settings, whatever physical presence is required could be drastically compressed in time or shifted to remote control of lab tools.
The same transition will occur in Corporate America as managers accept that there are few absolutely essential reasons to demand workers squander huge amounts of time and money transporting themselves to centralized workplaces.
The trend to remote work is not new, but it is now being accelerated past the point that hidebound managers will be able to demand a return to the inefficiencies of the former status quo.
This shift to decentralized, networked remote work will have a devastating impact on the commercial office sector. A very large percentage of the already-excessive supply of office space will be surplus, and it won’t be cheap or easy to transform offices into residential living spaces.
(An entire floor of office space might have one set of bathrooms and a single utility kitchen; every living unit will of course require its own bathroom and kitchen.)
The financial fragilities and vulnerabilities that are now becoming apparent are not limited to hyperspecialization and globalized monoculture economies. The cost structure of most small enterprises was burdensome even in the best of times: rent, utilities, fees, taxes, regulatory compliance, insurance, labor overhead and so on are now crushingly costly, and once revenues decline by even modest amounts, the small businesses are no longer viable.
Costs such as rent, healthcare insurance, local fees and taxes are notoriously “sticky,” meaning the default setting is to ratchet ever higher. These costs don’t drop unless there is a full-blown crisis such as mass bankruptcies of commercial landlords and cities.
Thus we can anticipate a culling of all the marginal, struggling small businesses in the pandemic recession, and a weak or non-existent emergence of new businesses in the future to replace those lost, as revenues will remain weak while costs will only increase.
Few observers are pondering the psychological changes that the pandemic have unleashed. To take an obvious example, consumers will no longer be able to maintain confidence in their incomes or the market value of their labor and assets. This uncertainty will naturally encourage savings rather than frivolous spending and debt, and this change will depress consumption.
Status quo policies such as lowering interest rates will not change this psychological shift in the tides.
Lowering interest rates to zero won’t mean credit cards, auto loans and mortgages will be interest free, and lower rates won’t change the reality that incomes and asset prices may decline or remain uncertain for years to come.
The world has changed, and the only things we know with certainty are 1) a return to the pre-pandemic status quo is not possible and 2) this is a positive development.
Put another way: eras end. No matter how glorious or inglorious they may have been, eras end and a new era begins. Welcome to 2020.
(Pepe Escobar) You don’t need to read Michel Foucault’s work on biopolitics to understand that neoliberalism – in deep crisis since at least 2008 – is a control/governing technique in which surveillance capitalism is deeply embedded.
But now, with the world-system collapsing at breathtaking speed, neoliberalism is at a loss to deal with the next stage of dystopia, ever present in our hyper-connected angst: global mass unemployment.
Henry Kissinger, anointed oracle/gatekeeper of the ruling class, is predictably scared. He claims that, “sustaining the public trust is crucial to social solidarity.” He’s convinced the Hegemon should “safeguard the principles of the liberal world order.” Otherwise, “failure could set the world on fire.”
That’s so quaint. Public trust is dead across the spectrum. The liberal world “order” is now social Darwinist chaos. Just wait for the fire to rage.
The numbers are staggering. The Japan-based Asian Development Bank (ADB), in its annual economic report, may not have been exactly original. But it did note that the impact of the “worst pandemic in a century” will be as high as $4.1 trillion, or 4.8 percent of global GDP.
This an underestimation, as “supply disruptions, interrupted remittances, possible social and financial crises, and long-term effects on health care and education are excluded from the analysis.”
We cannot even start to imagine the cataclysmic social consequences of the crash. Entire sub-sectors of the global economy may not be recomposed at all.
The International Labor Organization (ILO) forecasts global unemployment at a conservative, additonal 24.7 million people – especially in aviation, tourism and hospitality.
According to the ILO, income losses for workers may range from $860 billion to an astonishing $3.4 trillion. “Working poverty” will be the new normal – especially across the Global South.
“Working poor,” in ILO terminology, means employed people living in households with a per capita income below the poverty line of $2 a day. As many as an additional 35 million people worldwide will become working poor in 2020.
Switching to feasible perspectives for global trade, it’s enlightening to examine that this report about how the economy may rebound is centered on the notorious hyperactive merchants and traders of Yiwu in eastern China – the world’s busiest small-commodity, business hub.
Their experience spells out a long and difficult recovery. As the rest of the world is in a coma, Lu Ting, chief China economist at Nomura in Hong Kong stresses that China faces a 30 percent decline in external demand at least until next Fall.
Neoliberalism in Reverse?
In the next stage, the strategic competition between the U.S. and China will be no-holds-barred, as emerging narratives of China’s new, multifaceted global role – on trade, technology, cyberspace, climate change – will set in, even more far-reaching than the New Silk Roads. That will also be the case in global public health policies. Get ready for an accelerated Hybrid War between the “Chinese virus” narrative and theHealth Silk Road.
The latest report by the China Institute of International Studies would be quite helpful for the West — hubris permitting — to understand how Beijing adopted key measures putting the health and safety of the general population first.
Now, as the Chinese economy slowly picks up, hordes of fund managers from across Asia are tracking everything from trips on the metro to noodle consumption to preview what kind of economy may emerge post-lock down.
In contrast, across the West, the prevailing doom and gloom elicited a priceless editorial from TheFinancial Times. Like James Brown in the 1980s Blues Brothers pop epic, the City of London seems to have seen the light, or at least giving the impression it really means it. Neoliberalism in reverse. New social contract. “Secure” labor markets. Redistribution.
Cynics won’t be fooled. The cryogenic state of the global economy spells out a vicious Great Depression 2.0 and an unemployment tsunami. The plebs eventually reaching for the pitchforks and the AR-15s en masse is now a distinct possibility. Might as well start throwing a few breadcrumbs to the beggars’ banquet.
That may apply to European latitudes. But the American story is in a class by itself.
Mural, Seattle, February 2017. (Mitchell Haindfield, Flickr)
For decades, we were led to believe that the world-system put in place after WWII provided the U.S. with unrivaled structural power. Now, all that’s left is structural fragility, grotesque inequalities, unplayable Himalayas of debt, and a rolling crisis.
No one is fooled anymore by the Fed’s magic quantitative easing powers, or the acronym salad – TALF, ESF, SPV – built into the Fed/U.S. Treasury exclusive obsession with big banks, corporations and the Goddess of the Market, to the detriment of the average American.
It was only a few months ago that a serious discussion evolved around the $2.5 quadrillion derivatives market imploding and collapsing the global economy, based on the price of oil skyrocketing, in case the Strait of Hormuz – for whatever reason – was shut down.
Now it’s about Great Depression 2.0: the whole system crashing as a result of the shutdown of the global economy. The questions are absolutely legitimate: is the political and social cataclysm of the global economic crisis arguably a larger catastrophe than Covid-19 itself? And will it provide an opportunity to end neoliberalism and usher in a more equitable system, or something even worse?
‘Transparent’ Black Rock
Wall Street, of course, lives in an alternative universe. In a nutshell, Wall Street turned the Fed into a hedge fund. The Fed is going to own at least two thirds of all U.S. Treasury bills in the market before the end of 2020.
The U.S. Treasury will be buying every security and loan in sight while the Fed will be the banker – financing the whole scheme.
So essentially this is a Fed/Treasury merger. A behemoth dispensing loads of helicopter money.
And the winner is Black Rock—the biggest money manager on the planet, with tentacles everywhere, managing the assets of over 170 pension funds, banks, foundations, insurance companies, in fact a great deal of the money in private equity and hedge funds. Black Rock — promising to be fully “transparent” — will buy these securities and manage those dodgy SPVs on behalf of the Treasury.
Black Rock, founded in 1988 by Larry Fink, may not be as big as Vanguard, but it’s the top investor in Goldman Sachs, along with Vanguard and State Street, and with $6.5 trillion in assets, bigger than Goldman Sachs, JP Morgan and Deutsche Bank combined.
Now, Black Rock is the new operating system (OS) of the Fed and the Treasury. The world’s biggest shadow bank – and no, it’s not Chinese.
Compared to this high-stakes game, mini-scandals such as the one around Georgia Senator Kelly Loffler are peanuts. Loffler allegedly profited from inside information on Covid-19 by the CDC to make a stock market killing. Loffler is married to Jeffrey Sprecher – who happens to be the chairman of the NYSE, installed by Goldman Sachs.
While corporate media followed this story like headless chickens, post-Covid-19 plans, in Pentagon parlance, “move forward” by stealth.
The price? A meager $1,200 check per person for a month. Anyone knows that, based on median salary income, a typical American family would need $12,000 to survive for two months. Treasury Secretary Steven Mnuchin, in an act of supreme effrontry, allows them a mere 10 percent of that. So American taxpayers will be left with a tsunami of debt while selected Wall Street players grab the whole loot, part of an unparalleled transfer of wealth upwards, complete with bankruptcies en masse of small and medium businesses.
Fink’s letter to his shareholdersalmost gives the game away: “I believe we are on the edge of a fundamental reshaping of finance.”
And right on cue, he forecasted that, “in the near future – and sooner than most anticipate – there will be a significant reallocation of capital.”
He was referring, then, to climate change. Now that refers to Covid-19.
Implant Our Nano chip, Or Else?
The game ahead for the elites, taking advantage of the crisis, might well contain these four elements:
a social credit system,
a digital currency,
and a Universal Basic Income (UBI).
This is what used to be called, according to the decades-old, time-tested CIA playbook, a “conspiracy theory.” Well, it might actually happen.
West Virginia National Guard members reporting to a Charleston nursing home to assist with Covid-19 testing. April 6, 2020. (U.S. Army National Guard, Edwin L. Wriston)
A social credit system is something that China set up already in 2014. Before the end of 2020, every Chinese citizen will be assigned his/her own credit score – a de facto “dynamic profile”, elaborated with extensive use of AI and the internet of things (IoT), including ubiquitous facial recognition technology. This implies, of course, 24/7 surveillance, complete with Blade Runner-style roving robotic birds.
The U.S., the U.K., France, Germany, Canada, Russia and India may not be far behind. Germany, for instance, is tweaking its universal credit rating system, SCHUFA. France has an ID app very similar to the Chinese model, verified by facial recognition.
Mandatory vaccination is Bill Gates’s dream, working in conjunction with the WHO, the World Economic Forum (WEF) and Big Pharma. He wants “billions of doses” to be enforced over the Global South. And it could be a cover to everyone getting a digital implant.
“Eventually what we’ll have to have is certificates of who’s a recovered person, who’s a vaccinated person…Because you don’t want people moving around the world where you’ll have some countries that won’t have it under control, sadly. You don’t want to completely block off the ability for people to go there and come back and move around.”
Then comes the last sentence which was erased from the official TED video. This was noted by Rosemary Frei, who has a master on molecular biology and is an independent investigative journalist in Canada. Gates says: “So eventually there will be this digital immunity proof that will help facilitate the global reopening up.”
This “digital immunity proof” is crucial to keep in mind, something that could be misused by the state for nefarious purposes.
The three top candidates to produce a coronavirus vaccine are American biotech firm Moderna, as well as Germans CureVac and BioNTech.
Digital cash might then become an offspring of blockchain. Not only the U.S., but China and Russia are also interested in a national crypto-currency. A global currency – of course controlled by central bankers – may soon be adopted in the form of a basket of currencies, and would circulate virtually. Endless permutations of the toxic cocktail of IoT, blockchain technology and the social credit system could loom ahead.
Already Spain has announced that it is introducing UBI, and wants it to be permanent. It’s a form insurance for the elite against social uprisings, especially if millions of jobs never come back.
So the key working hypothesis is that Covid-19 could be used as cover for the usual suspects to bring in a new digital financial system and a mandatory vaccine with a “digital identity” nano chip with dissent not tolerated: what Slavoj Zizek calls the “erotic dream” of every totalitarian government.
Yet underneath it all, amid so much anxiety, a pent-up rage seems to be gathering strength, to eventually explode in unforeseeable ways. As much as the system may be changing at breakneck speed, there’s no guarantee even the 0.1 percent will be safe.
As some misguided liberals complain about fruits “left rotting on the trees” because Trump’s immigration crackdown has left no undocumented migrants to pick the vegetables (a demonstrably false assumption), the Associated Press has offered an explanation for this phenomenon that also illustrates how disruptions in the businesses like the hospitality and food-service industry work their way through the supply chain, ultimately sticking farmers in the American Farm Belt with fields of vegetables that they can’t sell, or even donate as local food pantries are now full-up with donations from restaurants.
The AP started its story in Palmetto, Fla. a city in Manatee County on the Gulf Coast, where a farmer had dumped piles of zucchini and other fresh vegetables to rot.
As the AP reported, thousands of acres of fruits and vegetables grown in Florida are being plowed over or left to rot because farmers who had grown the crops to sell to restaurants or other hospitality-industry buyers like theme parks and schools have been left on the hook for the crops.
As the economy shuts down across the country, injecting what the Fed described as massive levels of uncertainty, farmers in the state are now begging Ag Secretary Sonny Purdue to get some of that farm bailout money. Without some kind of industry-specific bailout, these farmers might go out of business.
The problem – in a nutshell – is that these farmers have longstanding sales relationships, but suddenly, those customers have disappeared. And many other companies in the US that are still buying produce already have contracts with foreign suppliers.
It would be great if Trump could come in with agricultural tariffs that would effectively cut off foreign competition, but such a move would likely be widely panned by the establishment, who would sooner watch every small farmer commit hari-kari than see continued pullback in globalization and more limits on free trade.
“We gave 400,000 pounds of tomatoes to our local food banks,” DiMare said. “A million more pounds will have to be donated if we can get the food banks to take it.”
Farmers are scrambling to sell to grocery stores, but it’s not easy. Large chains already have contracts with farmers who grow for retail — many from outside the U.S.
“We can’t even give our product away, and we’re allowing imports to come in here,” DiMare said.
He said 80 percent of the tomatoes grown in Florida are meant for now-shuttered restaurants and theme parks.
And the problem isn’t unique to farmers in Florida. Other states are having similar issues. Agricultural officials said leafy greens grown in California have no buyers, and dairy farmers in states like Vermont have been hit especially hard. Dairy farmers in VT and Wisconsin told the AP they’ve had to dump surplus loads of milk.
An association for farmers in Florida asked the administration if their veggies could be donated to food-stamp or other federal welfare programs, but reportedly, they never heard back.
“The tail end of the winter vegetable season in Yuma, Arizona, was devastating for farmers who rely on food service buyers,” said Cory Lunde, spokesman for Western Growers, a group representing family farmers in California, Arizona, Colorado and New Mexico. “And now, as the production shifts back to Salinas, California, there are many farmers who have crops in the ground that will be left unharvested,” particularly leafy greens.
He said a spike in demand for produce at the beginning of the outbreak has now subsided.
“People are staying home and not visiting the grocery stores as often,” Lunde said. “So the dominoes are continuing to fall.”
Some farmers have experimented with selling crops directly to customers, with one Florida farmer in Palmetto selling boxes of roma tomatoes for just $5 a box, an amazing bargain in a time of tremendous need. But the sales are well short of what he needs and likely won’t do more than put a dent in his losses. But at least it’s something.
“This is a catastrophe,” said tomato grower Tony DiMare, who owns farms in south Florida and the Tampa Bay area. “We haven’t even started to calculate it. It’s going to be in the millions of dollars. Losses mount every day.”
Florida leads the US in harvesting tomatoes, green beans and cabbage. Can you imagine what life would be like if tomatoes and tomato sauce prices soared because all of these medium-sized and small farmers around the country have gone out of business? Or if you walked into the grocery store a year from now and there simply weren’t any tomatoes.
It could happen much more easily than you might believe – that is, if not enough is done.
(HousingWire) With the housing industry at large raising alarms about mortgage servicers’ desperate need for liquidity as more borrowers are requesting forbearance, the nation’s largest mortgage aggregator is now warning originators that it could force them to buy back loans that go into forbearance.
Late last week, PennyMac, which grew last year into the largest mortgage aggregator in the country, told its correspondent originators that it will not buy any loan that is currently in forbearance.
Beyond that, PennyMac also said that it may force originators to buy back a loan that goes into forbearance within 15 days of PennyMac buying it.
“Any loan in forbearance or for which forbearance has been requested is not eligible for purchase by PennyMac,” the company said in a note to originators. “Additionally, any loan that is in forbearance or for which forbearance has been requested up to 15 days post purchase by PennyMac may result in a repurchase.”
The move by PennyMac is a notable one considering its status as the largest mortgage aggregator in the country last year, according to data from Inside Mortgage Finance.
As an aggregator, PennyMac purchases loans from smaller originators, which then allows those smaller lenders to continue originating.
Per the company’s latest 10-K filing with the Securities and Exchange Commission, PennyMac purchased nearly $50 billion in loans through its correspondent channel last year. Of those, PennyMac asked for a repurchase on just over $12 million in loans.
But that could change as more borrowers are requesting forbearance due to loss of income or employment in the wake of the spread of the coronavirus.
The latest data from the Department of Labor shows that nearly 10 million people have filed for unemployment in the last few weeks, and that number is expected to continue to climb.
The massive surge in unemployment in recent weeks will likely lead to a significant number of forbearance requests, as under the CARES Act, homeowners with federally backed mortgages can request forbearance of up to 12 months.
That’s leading companies like PennyMac to take steps to protect themselves because they don’t want to be on the hook for advancing the principal and interest to investors, as they are required to do when a loan goes into forbearance.
And without clarification from the government on what will happen to servicers as loans go into forbearance, odds are that PennyMac won’t be the only aggregator to make such a move.
“The COVID-19 epidemic has caused unprecedented disruption to the lives and incomes of many current and prospective mortgage borrowers throughout the country,” PennyMac said in its announcement. “In this challenging time, it is important that borrowers whose ability to repay a mortgage loan has been compromised be directed to appropriate borrower assistance programs while new loans be made available for those borrowers who maintain the capacity to make payments.”
In recent decades, flu season has often peaked sometime from January to March, and this is a major driver in total deaths. The averagedaily number of deaths from December through March is over eight thousand.
So far, total death data is too preliminary to know if there has been any significant increase in total deaths as a result of COVID-19, and this is an important metric, because it gives us some insight into whether or not COVID-19 is driving total death numbers well above what would otherwise be expected.
Indeed, according to some sources, it is not clear that total deaths have increased significantly as a result of COVID-19. In a March 30 article for The Spectator, former UK National Health Service pathologist John Lee noted that the current number of deaths from COVID-19 does not indicate that the UK is experiencing “excess deaths.” Lee writes:
The simplest way to judge whether we have an exceptionally lethal disease is to look at the death rates. Are more people dying than we would expect to die anyway in a given week or month? Statistically, we would expect about 51,000 to die in Britain this month. At the time of writing, 422 deaths are linked to Covid-19—so 0.8 per cent of that expected total. On a global basis, we’d expect 14 million to die over the first three months of the year. The world’s 18,944 coronavirus deaths represent 0.14 per cent of that total. These figures might shoot up but they are, right now, lower than other infectious diseases that we live with (such as flu). Not figures that would, in and of themselves, cause drastic global reactions.
How do these numbers look in the United States? During March of 2020, there were 4,053 COVID-19 deaths according to Worldometer. That is 1.6 percent of total deaths in March 2019 (total data on March 2020 deaths is still too preliminary to offer a comparison). For context, we could note that total deaths increased by about four thousand from March 2018 to March 2019. So for March, the increase in total deaths is about equal to what we already saw as a pre-COVID increase from March 2018 to March 2019.
As Lee notes, total COVID-19 deaths could still increase significantly this season, but even then we must ask what percentage of total deaths warrants an international panic. Is it 5 percent? Ten percent? The question has never been addressed, and so far, a figure of 1 percent of total deaths in some places is being treated as a reason to forcibly shut down the global economy.
Meanwhile there is a trend toward to attributing more of those pneumonia deaths to COVID-19 rather than influenza, although this doesn’t actually mean the total mortality rate has increased. The CDC report continues: “the percent of all deaths with Influenza listed as a cause have decreased (from 1.0% to 0.8%) over this same time period. The increase in pneumonia deaths during this time period are likely associated with COVID-19 rather than influenza.” This doesn’t represent a total increase in pneumonia deaths, just a change in how they are recorded.
This reflects an increased focus on attributing deaths to COVID-19, as noted by Lee:
In the current climate, anyone with a positive test for Covid-19 will certainly be known to clinical staff looking after them: if any of these patients dies, staff will have to record the Covid-19 designation on the death certificate—contrary to usual practice for most infections of this kind. There is a big difference between Covid-19 causing death, and Covid-19 being found in someone who died of other causes. Making Covid-19 notifiable might give the appearance of it causing increasing numbers of deaths, whether this is true or not. It might appear far more of a killer than flu, simply because of the way deaths are recorded.
Given this rush to maximize the number of deaths attributable to COVID-19, what will April’s data look like? It may be that COVID-19 deaths could then indeed number 10 or 20 percent of all deaths.
But the question remains: will total deaths increase substantially compared to April 2019 or April 2018? If they don’t, this will call into question whether or not COVID-19 is the engine of mortality that many government bureaucrats insist it is.After all, if April’s mortality remains “about the same” as the usual total and comes in around 230,000–235,000, then obsessive concern over COVID-19 would be justified only if it can be proven April 2020 deaths would have plummeted year-over-year had it not been for COVID-19.
COVID-19 should be reported on the death certificate for all decedents where the disease caused or is assumed to have caused or contributed to death. Certifiers should include as much detail as possible based on their knowledge of the case, medical records, laboratory testing, etc. If the decedent had other chronic conditions such as COPD or asthma that may have also contributed, these conditions can be reported in Part II. [emphasis in original.]
This is extremely likely to inflate the number of deaths attributed to COVID-19 while pulling down deaths attributed to other influenza-like illnesses and to deaths caused by pneumonia with unspecified origins. This is especially problematic since we know the overwhelming majority of COVID-19 deaths occur in patients that are already suffering from a number of other conditions. In Italy, for example, data shows 99 percent of COVID-19 deaths occurred in patients who had at least one other condition. More than 48 percent had three other conditions. Similar cases in the US are now likely to be routinely reported simply as COVID-19 cases.
Unfortunately, because total death data is not reported immediately, we have yet to see how this plays out.
We do know historically, however, that deaths attributed to flu and pneumonia over the past decade have tended to make up around five to ten percent of all deaths, depending on the severity of the “season.” Last week (week 14, the week ending April 4) was the first week during which COVID-19 deaths exceeded flu and pneumonia deaths, coming in at 11 percent of all death for that week. The prior week, (week 13, the week ending Mar 28) COVID-19 deaths made up 3.3 percent of all deaths.
Until we have reliable numbers on all deaths in coming weeks, it will be impossible to know the extent to which COVID-19 are “cannibalizing” flu and pneumonia deaths overall. That is, if the COVID-19 totals skyrocket, but total deaths remain relatively stable, than we might guess that many deaths formerly attributed simply to pneumonia, or to flu, are now being labeled as COVID-19 deaths. Potentially, this could also be the case for other patients, such as those with advanced cases of diabetes.
Following Wells Fargo’s complaint that it was unable to fully participate in the SBA’s Paycheck Protection Program, capping its small business bailout exposure to at most $10 billion, due to the Fed unprecedented 2018 enforcement action and restrictions on Wells Fargo’s balance sheet as punishment for the bank’s opening of millions of fake accounts which cost former CEO John Stumpf his job, it was only a matter of time before the Fed relented and eased the bank’s restrictions as the NYT reported two days ago.
And indeed, this happened moments ago when the Fed announced that “due to the extraordinary disruptions from the coronavirus, that it will temporarily and narrowly modify the growth restriction on Wells Fargo so that it can provide additional support to small businesses.”
Due to the extraordinary disruptions from the coronavirus, the Federal Reserve Board on Wednesday announced that it will temporarily and narrowly modify the growth restriction on Wells Fargo so that it can provide additional support to small businesses. The change will only allow the firm to make additional small business loans as part of the Paycheck Protection Program, or PPP, and the Federal Reserve’s forthcoming Main Street Lending Program.
However, in a curious twist, the Board said it would require profits and benefits from Well’s participation in the PPP and the Main Street Lending Program “to be transferred to the U.S. Treasury or to non-profit organizations approved by the Federal Reserve that support small businesses. The change will be in place as long as the facilities are active.”
In other words, the Fed will remove incentives for the remaining criminals on Wells’ staff to create fake bailout loans and profit from the Treasury’s guaranteed funds.
Some more details:
The Board’s growth restriction was implemented because of widespread compliance and operational breakdowns that resulted in harm to consumers and because the company’s activities were ineffectively overseen by its board of directors. The growth restriction does not prevent the firm from engaging in any type of activity, including the PPP, the Main Street Lending Program, or accepting customer deposits. Rather, it provides an overall cap on the size of the firm’s balance sheet. The change today provides additional support to small businesses hurt by the economic effects of the coronavirus by allowing activities from the PPP and the Main Street Lending Program to not count against the cap.
The Fed concludes that “the changes do not otherwise modify the Board’s February 2018 enforcement action against Wells Fargo. The Board continues to hold the company accountable for successfully addressing the widespread breakdowns that resulted in harm to consumers identified as part of that action and for completing the requirements of the agreement.”
The PPP program, while much needed by main street businesses, will in the coming years be revealed as an unprecedented criminal “free for all”, as tens of billions in funds are funneled into illicit organizations and shady deals.
This action, which is supposedly such a great move by the Federal Reserve, is a monkey hammer on any business who uses Wells Fargo. They just took away the profit motive for Wells to produce any loans under this program. So why would Wells write any loans? They won’t!
Do you realize how many businesses are hooked up to Wells that will now not be able to use this program?
The cascading failures that have been set into motion by this “coronavirus shutdown” are going to make the financial crisis of 2008 look like a Sunday picnic. As you will see below, it is being estimated that unemployment in the U.S. is already higher than it was at any point during the last recession. That means that millions of American workers no longer have paychecks coming in and won’t be able to pay their mortgages. On top of that, the CARES Act actually requires all financial institutions to allow borrowers with government-backed mortgages to defer payments for an extended period of time. Of course this is a recipe for disaster for mortgage lenders, and industry insiders are warning that we are literally on the verge of a “collapse” of the mortgage market.
Never before in our history have we seen a jump in unemployment like we just witnessed. If you doubt this, just check out this incredible chart.
Millions upon millions of American workers are now facing a future with virtually no job prospects for the foreseeable future, and former Fed Chair Janet Yellen believes that the unemployment rate in the U.S. is already up to about 13 percent…
Former Federal Reserve Chair Janet Yellen told CNBC on Monday the economy is in the throes of an “absolutely shocking” downturn that is not reflected yet in the current data.
If it were, she said, the unemployment rate probably would be as high as 13% while the overall economic contraction would be about 30%.
If Yellen’s estimate is accurate, that means that unemployment in this country is already significantly worse than it was at any point during the last recession.
As measures to slow the pandemic decimate jobs and threaten to plunge the economy into a deep recession, young adults such as Romero are disproportionately affected. An Axios-Harris survey conducted through March 30 showed that 31 percent of respondents ages 18 to 34 had either been laid off or put on temporary leave because of the outbreak, compared with 22 percent of those 35 to 49 and 15 percent of those 50 to 64.
As I have documented repeatedly over the past several years, most Americans were living paycheck to paycheck even during “the good times”, and so now that disaster has struck there will be millions upon millions of people that will not be able to pay their mortgages.
A broad coalition of mortgage and finance industry leaders on Saturday sent a plea to federal regulators, asking for desperately needed cash to keep the mortgage system running, as requests from borrowers for the federal mortgage forbearance program are pouring in at an alarming rate.
The Cares Act mandates that all borrowers with government-backed mortgages—about 62% of all first lien mortgages according to Urban Institute—be allowed to delay at least 90 days of monthly payments and possibly up to a year’s worth.
Needless to say, many in the mortgage industry are absolutely furious with the federal government for putting them into such a precarious position, and one industry insider is warning that we could soon see the “collapse” of the mortgage market…
“Throwing this out there without showing evidence of hardship was an outrageous move, outrageous,” said David Stevens, who headed the Federal Housing Administration during the subprime mortgage crisis and is a former CEO of the Mortgage Bankers Association.
“The administration made a huge mistake bringing moral hazard in and thrust extraordinary risk into the private sector that could collapse the mortgage market.”
Of course a lot of other industries are heading for immense pain as well.
At this point, even JPMorgan Chase CEO Jamie Dimon is admitting that the U.S. economy as a whole is plunging into a “bad recession”…
Jamie Dimon said the U.S. economy is headed for a “bad recession” in the wake of the coronavirus pandemic, but this time around his company is not going to need a bailout. Instead, JPMorgan Chase is ready to lend a hand to struggling consumers and small businesses.
“At a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008,” Dimon, the CEO of JPMorgan Chase, said Monday in his annual letter to shareholders.
And the longer this coronavirus shutdown persists, the worse things will get for our economy.
Sunday on New York AM 970 radio’s “The Cats Round Table,” economist Stephen Moore weighed in on the potential impact of the coronavirus to the United States economy.
Moore warned the nation could be “facing a potential Great Depression scenario” if the United States stays on lock down much past the beginning of May, as well as an additional amount of deaths caused by the raised unemployment rate.
The good news is that the “shelter-in-place” orders all over the globe appear to be “flattening the curve” at least to a certain extent.
The bad news is that we could see another huge explosion of cases and deaths once all of the restrictions are lifted.
As pro-establishment mouthpieces downplay the efficacy of hydroxychloroquine to treat COVID-19 as “anecdotal” with “little evidence that the treatment is effective,” yet another doctor treating has claimed dramatic improvement in coronavirus patients within hours of taking the anti-malaria drug in combination with two other medications.
Los Angeles doctor Anthony Cardillo says he’s seen very promising results when the Trump-touted drug is combined with zinc for severely-ill coronavirus patients.
“Every patient I’ve prescribed it to has been very, very ill and within 8 to 12 hours, they were basically symptom-free,” Cardillo told Eyewitness News, adding “So clinically I am seeing a resolution.”
Cardillo, CEO of Mend Urgent Care, says that the drug must be used in conjunction with Zinc, as the hdroxycholoroquine opens a ‘channel’ for the mineral to enter cells and prevent the virus from replicating.
Los Angeles Doctor, Dr. Anthony Cardillo speaks of potential benefits of Hydroxychloroquine combined with Zinc. pic.twitter.com/fQ68HpsKup
Commonly used for lupus and arthritis, hydroxychloroquine has been approved by the FDA for limited emergency authorization to treat COVID-19 patients.
That said, Cardillo warns that the treatment should only be reserved for those with moderate to severe symptoms due to concerns over shortages.
“We have to be cautious and mindful that we don’t prescribe it for patients who have COVID who are well,” he said, adding “It should be reserved for people who are really sick, in the hospital or at home very sick, who need that medication. Otherwise we’re going to blow through our supply for patients that take it regularly for other disease processes.”
This coronavirus fraud is being labeled a war by the ruling powers, but this is no war on any virus, it is war against humanity. How many obvious signs are necessary before the frightened American sheep will pull their heads out of the sand? Because the general population hides from the truth in order to avoid reality, a governing takeover of epoch proportions is being implemented at a lightening pace. Every single day brings forth more tyrannical measures, and these measures are meant to be permanent. Are Americans really as ignorant as this government thinks they are?
Please look around at what is happening. Consider that this is no virus, but a false flag event long planned in order to facilitate an economic collapse that was already imminent due to corrupt banking and government policies. This might be the reason the reaction by so many countries is in concert with one another, as all major countries have destroyed their economies by monetary expansion, debt creation, and redistribution of wealth, which placed the bulk of assets in the hands of a concentrated few. In this country, there has also been perpetual indoctrination and aggressive war, and these factors combined have led to class separation, division, and enhanced dependence on government. Because of this, control over society is becoming a reality, and this control is necessary in order for those now so powerful to retain that power and more importantly, to expand and retain control of an obedient proletariat.
What has happened in just a few weeks is staggering to say the least, but this top-down takeover is just beginning. This tyranny was allowed to escalate due to fear of a so-called flu strain in China that allegedly killed 3,322 out of 1.45 billion people. That is a mortality factor of .00000229, or to put that in perspective, 1 death out of every 436,000 Chinese people. From Global Times:
“An analysis led by Chinese scientists published in the Lancet Public Health in September 2019 found that there were 84,200 to 92,000 flu-related deaths in China each year, accounting for 8.2 percent of all deaths from respiratory diseases.”
So the average number of common flu deaths in China is 26 times the number of deaths due to this so-called coronavirus, or Covid-19, but pneumonia deaths alone as of 2010 in China were an additional 125,000. Why is there panic and why is there chaos? The answer to this question is obvious if any logic is considered. This panic was not due to any virus strain, but to the purposeful political and media hype of a planned event meant to frighten the general population into believing that some fake pandemic was a threat to all life on earth. Approximately 3 million people die every year in the U.S., or 8,000 every day, with alleged total deaths due to coronavirus being 6,000 for the entire season. This is even with what are certainly vastly overstated numbers of deaths due to this “virus.” That is less than the number of deaths in one day in this country.
So what is really going on here? This is a planned takeover of people, and the fake virus scare is the excuse being used to advance a new totalitarian state that can monitor every aspect of our lives, monitor movement, surveil everything, control all monetary processes, behavior, travel, communication, and social contact. This dystopia is already here, but can get much worse if not stopped.
Travel and movement is becoming less possible every day. Most of this country has voluntarily locked themselves up in home prisons. Fear is rampant, and neighbors have become the eyes of the very police and security forces bent on controlling them. There is talk and plans to digitize all money, which in and of itself would destroy freedom. Distancing mandates have been implemented, but are also being promoted for the future. The entire economy is virtually shut down with no end in sight, food shortages are evident, and psychological and health problems are increasing at an alarming rate. Necessary surgeries are being cancelled even though many hospitals are empty. Mortgages are defaulting, and millions will lose their homes, this while unemployment will most likely affect a third or more of the people in this country.
In addition to all this, GPS tracking devices are being ordered in some areas for any who have tested positive for coronavirus, and Google is releasing location data to “authorities” so they can check and monitor all those in state mandated lock downs. Calls for forced vaccination abound, with all the social scoring and embedded devices to prove vaccination history not only being discussed, but also planned for the near future. Those like the evil eugenicist and population control advocate Bill Gates that have the ear of powerful politicians, are promoting full shutdowns, forced vaccination, tracking of all, and at the same time Gates is funding seven new vaccine factories, and tattoo ID tracking at MIT, and those conflicts are obvious and criminal.
The bottom line is that a massive plan to build a new monetary, economic, and social structure worldwide is being advanced. A new global order is being constructed that will replace our current system with a technocratic rule that will be all encompassing at every level of life. The financial systems due to fraud and corruption will fail and that failure will be blamed on this fake pandemic. This economic collapse will break the back of this country, and then the promise of universal income, universal healthcare, increased automated production, and smart living will be pursued, along with totalitarian rule.
None of this is accidental, and none of this is due to this virus. This coup has been planned for a long time, and those plans were exposed on many occasions in the past. Most thought that the ideas of prescient thinkers were far-fetched and that the loss of all freedom was not possible. Therefore, those that recognized the scope of this plot long ago were ignored and cast aside as conspiracy theorists, when in fact they were right all along. One look around today will bring to light that truth.
The threat of absolute rule is upon us, and little time is left to stop the onslaught of this dictatorial regulation of society by government and its masters. The decimation of freedom is at hand, so dissent by every able-bodied man is necessary to halt this terror. Political remedies are no longer possible in my opinion, so a real revolution is now necessary. An apocalypse is coming, and hell is coming with it.
“Disobedience is the true foundation of liberty. The obedient must be slaves.” ~ Henry David Thoreau, Thoreau and the Art of Life: Precepts and Principles
Source: Is the coronavirus a false flag? Undoubtedly. From Gary D. Barnett at lewrockwell.com
No business is immune to the country’s coronavirus shutdown, including the President’s. In fact, it was was reported yesterday that the Trump Organization is actively seeking out concessions from Deutsche Bank, one of its lenders, due to the pandemic.
Representatives from the President’s company reached out to Deutsche Bank late in March and talks between the company and the bank are ongoing, according to Bloomberg.
Or, as one person simply put it on social media: “Two broke organizations restructuring debt”.
TRUMP ORG TALKS TO DEUTSCHE BANK ABOUT DELAYING PAYMENTS: NYT
Deutsche Bank is said to be having similar talks with other commercial real estate companies in the U.S., as well. The pandemic, and ensuing economic shutdown, has squeezed both borrowers and lenders across the world. Central banks have worked on a plan to try and backstop banks and provide relief to companies, even considering lending to some businesses directly. However, it is going to be tough to paper over every single company that is facing a default.
The request from the Trump organization is noteworthy, since President Trump is arguably the most powerful person in the world and Deutsche Bank has been under scrutiny for years, with many speculating the bank could have solvency issues behind the scenes. The loans, which were taken out by Trump between 2012 and 2015, include a personal guarantee from Trump.
That means that in the case of a default, the lenders would have to collect from a sitting President.
The loans that the bank has provided for the Trump Organization include money for a Florida golf resort, a Washington D.C. hotel and a Chicago skyscraper.
Doral, Trump’s golf resort near Miami, has closed all operations. Trump’s hotel in Washington has shut down its restaurant and its bar. Additionally, a sale of the hotel’s lease has been halted while the commercial real estate market goes up in flames.
Deutsche Bank has been under scrutiny since Trump first took office back in 2016. The bank had previously considered the idea of extending Trump’s maturities to his loans to 2025, after the end of a second potential term, but ultimately decided against entering into any new business with a sitting President.
Apparently it took the invocation of the Defense Production Act to stop 3M from selling masks and PPE to cash paying foreign governments; forcing them to supply the U.S. federal government and states instead. WATCH:
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 home buyers, 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.”
“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.
2020 is shaping up to be nothing short of a complete and total meltdown for the U.S. auto industry.
The industry was already barely holding on by a thread before the coronavirus pandemic started, with China leading the rest of the globe’s auto industries into recession over the last 18 months. Now, in a post-coronavirus world, automakers in the U.S. are expecting nothing less than full collapse.
And the things that were barely holding the industry up to start 2020, namely low rates and modest consumer confidence, don’t matter. Businesses are closed, would-be buyers are strapped for cash and the country’s economy has simply been turned off. The industry’s annualized selling rate could slow to 11.9 million in March, according to Edmunds.
Jessica Caldwell, executive director of insights for market researcher Edmunds, told Bloomberg: “The whole world is turned upside down right now.”
The coronavirus lock downs across the nation will also put a damper on April, which is traditionally a good month for auto sales. Ford is all but shutting down and names like Fiat and GM are expected to release extremely weak numbers later this week.
Morgan Stanley analyst Adam Jonas put it simply: “There are basically no U.S. auto sales right now. Investors have fully embraced the reality that the U.S. auto industry may be shut down for one or two full months. We’re now being asked to run scenarios of six-month or nine-month shutdowns.”
The President’s extension of his social distancing guidelines to the end of April will also act as a headwind for the industry. Factory shutdowns that started in March will now head toward their second month of no production, as the U.S. consumer, for the most part, remains stuck at home.
Jeff Schuster, senior vice president of forecasting for research LMC Automotive commented: “We just don’t know when and how this ends, and that’s the biggest problem right now. All of this uncertainty creates a lot of angst and that has been spreading really like a wildfire through the industry.”
The biggest U.S. mall owner, Simon Property Group, has furloughed about 30% of its workforce, CNBC has learned, as the company copes with all of its properties being temporarily shut because of the coronavirus pandemic.
The furloughs impact full- and part-time workers, at its Indianapolis headquarters and at its malls and outlet centers across the U.S., a person familiar with the situation told CNBC. The person asked to remain anonymous because the information has not been disclosed publicly.
Simon permanently laid off some employees also, but the exact number could not be immediately determined.
CEO David Simon will not receive a salary during the pandemic, the person said. Salaries of upper-level managers at the real estate company will be cut by up to 30%.
As of Dec. 31, Simon had roughly 4,500 employees, of which 1,500 were part time, according to its latest annual filing. About 1,000 of those people worked from Simon’s Indianapolis headquarters, it said.
A representative from Simon did not immediately respond to CNBC’s request for comment.
Wave of retail furloughs
To date, hundreds of thousands of workers in the retail industry have been furloughed because of COVID-19, between recent announcements from J.C. Penney, Macy’s, Kohl’s, Gap, Loft-owner Ascena and others.
Luxury retailer Neiman Marcus is furloughing most of its about 14,000 workers.
With a $4.3 billion debt load, Neiman Marcus has been on many analysts’ so-called bankruptcy watch lists, as it is in more financial distress than some of its peers. The coronavirus will prove to be a bigger burden for these companies already fighting to stay in business.
“Unlike past recessions, this does not seem like companies are trying to figure out how to run their businesses on lighter operations … or adjust their expense structure to their revenue base,” BMO Capital Markets analyst Simeon Siegel told CNBC. “This seems like companies are trying to press pause on the world.”
Department store chain Macy’s said Monday it is moving to the “absolute minimum workforce needed to maintain basic operations.” It has furloughed the majority of its workforce, which is roughly 130,000 people.
“While the digital business remains open, we have lost the majority of our sales due to the store closures,” a Macy’s spokeswoman told CNBC in an emailed statement.
Kohl’s, meantime, said Monday it will be furloughing about 85,000 of its approximately 122,000 employees.
Penney announced Tuesday it is furloughing the majority of its hourly store workers, effective Friday. Starting Sunday, the company said a “significant portion” of workers at its headquarters in Texas will be furloughed. It had previously started furloughing workers for its supply chain division and at its logistics centers. And Penney said Tuesday that these furloughs will continue.
Apparel maker Gap is furloughing the majority of its store teams in the U.S. and Canada, or roughly 80,000 people, pausing pay but continuing to offer “applicable benefits” until stores reopen, it said.
Ascena Retail Group, which owns Ann Taylor and Loft, said it is furloughing all of its store workers and half of its corporate staff. As of Aug. 3, Ascena employed 53,000 people.
Tailored Brands, which owns Men’s Warehouse and Jos. A. Bank, has furloughed all of its store workers in the U.S., in addition to a “significant portion” of workers in its distribution centers and related offices.
Urban Outfitters said Tuesday it is furloughing a “substantial” number of store, wholesale and home office employees for 60 days, effective this Wednesday.
Nordstrom, Victoria’s Secret parent L Brands, David’s Bridal, Steve Madde and Designer Brands are among the other retailers that have announced their plans to furlough workers, amidst the coronavirus pandemic, where already so far at least 164,610 cases have been reported in the U.S., according to the latest data from Johns Hopkins University.
As retailers are working to slash costs, the furloughs are more akin to “Band-Aids” than a “structural shift” in these retailers’ business models, Siegel said. “Ultimately Band-Aids don’t heal.”
The layoffs and furloughs at Simon show the commercial real estate industry is not immune to this, either.
Similar cuts are expected to happen at other U.S. mall owners in the coming weeks, or days. Simon on March 18 announced it would be closing all of its properties temporarily, to try to help halt the spread of COVID-19. Others, such as Taubman Centers, Washington Prime Group and Unibail-Rodamco-Westfield, have followed suit.
Rent is due
These landlords are grappling with the fact that countless retailers and restaurants, with their stores temporarily shut, will not be able to pay April rent. High-end mall owner Taubman, however, has sent a letter to its tenants saying they must still meet their lease obligations.
Talks between many tenants and their landlords remain ongoing, as some are trying to work out abatements or deferrals. Mall owners still have their own obligations, such as utility bills and mortgage payments, that must be met.
The Cheesecake Factory, which has 294 locations in North America, has already said publicly that it will not be paying rent in April. Simon has 29 Cheesecake Factory locations, more than any of its peers, according to an analysis by RBC Capital Markets and CoStar Realty.
Simon on March 16 announced it had amended and extended its $6 billion revolving credit facility and term loan, giving it additional liquidity.
Simon shares have fallen more than 60% this year. It has a market value of about $17.3 billion.
ISM manufacturing index shows biggest drop in orders since 2009
Most manufacturers are suffering, but not all of them. Those that make foodstuffs and safety equipment are holding up better than others. Getty Images
The numbers: American manufacturers began to feel the brunt of the coronavirus pandemic toward the end of March as new orders and employment fell to the lowest level since the end of the 2007-2009 Great Recession, a new survey of executives showed.
Economists surveyed by MarketWatch had forecast the index to drop to 44%, but the survey was completed before widespread sections of the U.S. economy were shuttered.
The index is all but certain to sink next month, though a few industries are likely to hold up surprisingly well because of an increase in demand for products such as toilet paper, sanitizer and other consumer goods in short supply.
What happened: New orders for manufactured goods slumped in March. The ISM’s new-orders index fell 7.6 points to 42.2% — the lowest level since the end of the 2007-2009 Great Recession.
“COVID-19 has caused a 30% reduction in productivity in our factory,” said an executive at machinery manufacturer.
Production and employment also declined, with employment also sliding to an 11-year low.
The ISM index is compiled from a survey of executives who order raw materials and other supplies for their companies. The gauge tends to rise or fall in tandem with the health of the economy.
Big picture: Efforts to contain the coronavirus epidemic by shutting down large parts of the economy are slamming virtually every company, including manufacturers. Some have had to close, others can’t get necessary supplies and others have are seeing a big slump in demand.
A few manufacturers such as those that produce food, medicine, safety equipment and home supplies are faring better, in some cases even seeing an increase in sales.
“We are experiencing a record number of orders due to COVID-19,” said a senior executive at a company that makes food and beverages.
But they are few and far between. The news is only going to get worse in the short run.
What they are saying? “The headline looks not too terrible, but the details are far worse. The new orders and employment indexes both fell to their lowest levels since 2009,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Market reaction: The Dow Jones Industrial Average DJIA, -4.44% and S&P 500 SPX, -4.41% fell in Wednesday trades as investors remain nervous about the COVID-19 illness. The 10-year Treasury yield TMUBMUSD10Y, 0.581% slipped again to 0.60%.
(Bloomberg) — Chuck Sheldon, a landlord and property manager in Albuquerque, New Mexico, has owned apartments for more than half a century. These days, he can barely keep up with all the moving pieces.
He’s talking with owners of roughly 1,700 units he manages, who are worried what’s going to happen if rent checks stop coming in. He’s talking with tenants, about half of whom he assumes will be delinquent this month because they lost jobs or choose not to pay. And he’s in discussions with banks, trying to figure out how he’ll make mortgage payments on the properties he owns during a rapidly worsening global health crisis.
“That’s the $100,000 question,” said Sheldon, the president of T&C Management. “I’ve never seen something like this.”
It’s rent day in America, with roughly $22 billion in monthly payments on apartments due, according to CoStar. But just how much of it gets paid in the coming days is anybody’s guess.
Some large property owners have already rolled out payment plans and halted evictions as the coronavirus outbreak roils the economy. But many apartments in the U.S. are essentially small businesses that tend to have less financial flexibility and will need help in the coming months.
There are few good choices for the millions of Americans who lost their jobs and have no clear prospects for when they’ll get them back. Eviction moratoriums, unemployment benefits and cash payments from the federal government could help many keep a roof over their heads.
But nearly half of the nation’s 44 million renter households were already stretched financially. Over the next six months, they could need as much as $96 billion in relief, according to a recent analysis by the Urban Institute.
Housing advocates have urged Congress to protect low-income renters and homeowners as deadlines loom. On a conference call Tuesday, the Center for Popular Democracy called for eviction freezes and rent and mortgage payment cancellations. The group stopped short of pushing for a rent strike, an idea other activists have floated.
Sid Lakireddy, a landlord and the president of the California Rental Housing Association, said such efforts are “just plain wrong.” Property owners need to help tenants if they’re able, but renters should not take advantage of the situation, he added.
On a recent visit to an apartment building he co-owns in Berkeley, California, Lakireddy bumped into a tenant who threatened to withhold rent because of a new ban on evictions. He pointed out that the tenant hadn’t lost a job.
“I said, ‘You’re not affected by this economy. You’re on Social Security,’” Lakireddy recalled. “‘Don’t screw with me, man.’”
Not far away, in Oakland, Krista Gulbransen manages a duplex for a small property owner. She recently got a request from a tenant to lower the $3,495 monthly rent on his three-bedroom unit by roughly 40%. The renter makes about $172,000 a year at an established technology company, she said.
“I just didn’t understand,” said Gulbransen. “He’s asking for a rent reduction of about $1,500, saying he doesn’t know where his job is going to be in the next few months.”
Such anecdotes are probably rare, said Maya Brennan, a policy analyst at the Urban Institute.
“There will be a very small sliver of economically privileged renters who will try to use this to get some extra advantage,” she said. “The vast majority of renters know that they need to figure out a way to keep a roof over their heads and are going to be trying to ask only for the level of relief that they truly need.”
Not all the conversations between landlords and tenants are fraught. Hasan Leviathan, 20, lives by himself in a two-bedroom house in Frostburg, Maryland, where he is studying to become a physical therapist. In March, he lost his job at Kay Jewelers. Without that income, his $570 in rent is too burdensome, even with help from his mother, he said.Leviathan was prepared to move home, but his landlord agreed to stretch the April payment over the next six months, and also offered him a minimum wage construction job, which he plans to accept.
“People need help more than ever,” Leviathan said.
Chris Athineos, a Brooklyn landlord who owns nine buildings with about 150 apartments, half of which are rent-stabilized, said he’s sure some of his tenants have lost jobs and plans to work with them, perhaps offering the option of making partial payments.
Some rent checks for April have trickled in, he added. And a handful of tenants who have relocated out of the city called about making payments electronically, he said. It won’t be until the middle of the month that he’ll get a full accounting of how much of the expected rent came in.
Athineos said rent freezes don’t make sense, unless landlords get relief from property taxes. For now, he’s still paying a staff of five maintenance workers — on top of his mortgage, taxes and water and sewer bills.
“It’s kind of wait and see,” he said. “We’re holding our breath.”
When Goldman’s crude oil analysts wrote on Monday that “This Is The Largest Economic Shock Of Our Lifetimes“, they echoed something we said last week – nameley that the record surge in excess oil output amounting to a mind blowing 20 million barrels daily or roughly 20% of global demand…
… which is the result of the Saudi oil price war which has unleashed a record gusher in Saudi oil production, coupled with a historic crash in oil demand (which Goldman estimated at 26mmb/d), could send the price of landlocked crude oil negative: “this shock is extremely negative for oil prices and is sending landlocked crude prices into negative territory.”
We didn’t have long to wait, because while oil prices for virtually all grades have now collapsed to cash costs…
… Bloomberg points out that in a rather obscure corner of the American physical oil market, crude prices have now officially turned negative as “producers are actually paying consumers to take away the black stuff.”
The first crude stream to price below zero was Wyoming Asphalt Sour, a dense oil used mostly to produce paving bitumen. Energy trading giant Mercuria bid negative 19 cents per barrel in mid-March for the crude, effectively asking producers to pay for the luxury of getting rid of their output.
Echoing Goldman, Elisabeth Murphy, an analyst at consultant ESAI Energy said that “these are landlocked crude with just no buyers. In areas where storage is filling up quickly, prices could go negative. Shut-ins are likely to happen by then.”
While Brent and WTI are hovering just around $20 a barrel, in the world of physical oil where actual barrels change hands producers are getting much less according to Bloomberg as demand plunges due to the lock down to contain the spread of the coronavirus.
Brent is a waterborne crude priced on an island in the North Sea, 500 meters from the water. In contrast, WTI is landlocked and 500 miles from the water. As I like to say, I would rather have a high-cost waterborne crude oil that can access a ship than a landlocked pipeline crude sitting behind thousands of miles of pipe, like the crude oils in the US, Russia and Canada.
As we noted last night, when we asked who would see zero dollar oil first, several grades in North America are already trading in single digit territory as the market tries to force some output to shut-in. Canadian Western Select, the benchmark price for the giant oil-sands industry in Canada, fell to $4 on Monday, while Midland Texas was last seen trading just around $10.
Southern Green Canyon in the Gulf of Mexico is worth $11.51 a barrel, Oklahoma Sour is changing hands at $5.75, Nebraska Intermediate at $8, while Wyoming Sweet prices at $3 a barrel, per Bloomberg.
While there is very little hope of a dramatic improvement in the situation, late on Tuesday, President Trump said the U.S. would meet with Saudi Arabia and Russia with the goal of halting the historic plunge in oil prices. Trump, speaking at the White House Tuesday, said he’s raised the issue with Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman.
“They’re going to get together and we’re all going to get together and we’re going to see what we can do,” he said. “The two countries are discussing it. And I am joining at the appropriate time, if need be.”
It’s unclear what if anything Trump “can do” in what is effectively a collusive war between the two nations meant to crush shale oil.
Trump’s intervention comes as April shapes up to be a calamitous month for the oil market. Saudi Arabia plans to boost its supply to a record 12.3 million barrels a day, up from about 9.7 million in February. At the same time, fuel consumption is poised to plummet by 15 million to 22 million barrels as coronavirus-related lock downs halt transit in much of the world.
There is another problem: oil demand has been so battered by government lock downs to stop the spread of the coronavirus that any conceivable oil production cut agreement between the U.S., Canada, Russia and OPEC members would still fall well short of what’s needed to shore up the market, Goldman calculated. In fact, assuming roughly 20 million in excess supply currently, the only thing that could balance the oil market is nothing short of both Saudi Arabia and Russia halting all output together. And that will never happen.
Finally, below we put the “long history” of oil prices in context:
Airbnb CEO Brian Chesky wrote a letter to all hosts informing them that the company is committed to a $250 million bailout to cover some of the cost of COVID-19 cancellations. The canceled check-ins are for March 14 through May 31, Airbnb will pay hosts 25% of what they would’ve received via their cancellation policies, and the “payments will begin to be issued in April.”
Chesky said a separate $10 million Superhost Relief Fund would be designed for “Superhosts who rent out their own home and need help paying their rent or mortgage, plus long-tenured Experience hosts trying to make ends meet. Our employees started this fund with $1 million in donations out of their own pockets, and Joe, Nate and I are personally contributing the remaining $9 million. Starting in April, hosts can apply for grants for up to $5,000 that don’t need to be paid back.”
And here’s where the story gets interesting…
Of the four million Airbnb hosts across the world, 10% are considered “Superhosts,” and many have taken out mortgages to accumulate properties to build rental portfolios.
With the travel industry crashed, many of these Superhosts have seen their rental incomes plunge in March and risk missing mortgage payments in the months ahead. Chesky was forced to bailout Superhosts because some of these folks have overextended their leveraged in building an Airbnb portfolio and risk imminent deleveraging.
Highly leveraged Superhosts could be the first domino to fall that triggers a housing bust this year. Superhosts can have one property and or have an extensive portfolio, usually built with leverage. So when rental income goes to zero, that is when some have to make the difficult decision of missing a mortgage payment or having it deferred or liquidate the property to raise cash. These decessions are all happening all at once for tens of thousands of people not just across the world but all over the US and could trigger forced selling of properties into illiquid housing markets in the months ahead.
Some of the horror stories are already playing out on Twitter:
And just like in 2008, when the rent payments stopped, landlords also felt the crunch and went belly up. What’s happening with highly leveraged Airbnb Superhosts is no different than what happened a decade ago. Again, no one has learned their lesson. And we might have discovered the next big seller that could ruin the real estate market: Airbnb Superhosts that need to get liquid.
If you're an @Airbnb Superhost and pay a mortgage on that property, you're about to take the financial hit of a lifetime.
One week after the Fed expanded its “bazooka” by launching a “nuclear bomb” in the words of Paul Tudor Jones , at fixed income capital markets which it has now effectively nationalized by monetizing or backstopping pretty much everything, some signs of thaw are starting to emerge in the all important commercial paper market, where the spread to 3M USD OIS is finally starting to tighten, coming in by 60bps overnight.
But while the move will be welcomed by companies in dire need of short-term funding, it is nowhere near enough to unfreeze the broader commercial paper market, with the spread still precipitously high even for those companies that have access to commercial paper, which is why most companies continue drawing down on revolvers.
As ZeroHedge reported over the weekend, according to JPMorgan calculations, aggregate corporate revolver draw downs represent 77% of the total facilities, with JPM noting that the total amount of borrowing by companies is likely significantly greater than this, well above 80%, as it only reflects disclosed amounts by large companies, and there are likely undisclosed borrowings by middle market companies.
In nominal terms, this means that corporates that have tapped banks for funding has risen further to a record $208 billion on Thursday, up $15 billion from $193 billion on Wednesday and $112BN on Sunday. That’s right: nearly $100 billion in liquidity was drained from banks in the past week; is there any wonder the FTA/OIS has barely eased indicating continued tensions in the interbank funding market.
Yet the bigger problem remains: with banks already pressed for liquidity, they are suffering a modern-day “bank run”, where instead of depositors pulling their money, corporations are drawing down on revolvers at unprecedented levels, something we first described three weeks ago “Banking Crisis Imminent? Companies Scramble To Draw Down Revolvers.”
Of course, at the end of the day, liquidity is liquidity, and banks are starting to fear when and if this revolver run will ever end, and just how much liquidity they need to provision, especially since many of these companies will have to file for bankruptcy in the coming months, sticking banks with a pre-petition claim (albeit secured).
As a result, and as Bloomberg reports, the biggest U.S. banks have been quietly discouraging some of America’s safest borrowers from tapping existing credit lines amid record corporate draw downs on lending facilities.
as Bloomberg notes, investment-grade revolvers, “especially those financed in the heyday of the bull market,” are a low margin business, and some even lose money. The justification is that they help cement relationships with clients who will in turn stick with the lenders for more expensive capital-markets or advisory needs. While this is fine under normal circumstances when the facilities are sporadically used, “with so many companies suddenly seeking cash anywhere they can get it, they’re now threatening to make a dent in banks’ bottom lines.“
The second issue is more nuances: while Bloomberg claims that the draw down wave “is not an issue of liquidity for Wall Street” we disagree vehemently, and as proof of strained bank liquidity we merely highlight the fact that after $12 trillion in monetary and fiscal stimulus has been injected, it has failed to tighten the critical FRA/OIS spread which remains at crisis levels.
The good news is that at least some corporations – those who have the most alternatives – are willing to oblige bank requests, turning instead to new, pricier term loans or revolving credit lines rather than tapping existing ones. “McDonald’s last week raised and drew a $1 billion short-term facility at a higher cost than an existing untapped revolver” Bloomberg notes, adding that while rationales will vary from borrower to borrower, analysts agree that for most, staying in the good graces of lenders amid a looming recession is important.
The bad news is that most companies remain locked out of other liquidity conduits – be they new credit facilities, or commercial paper – and are thus forced to keep drawing down on existing lines of credit, which puts bankers – especially relationship bankers – in a very tough spot.
“The banker is coming at it trying to manage two things — the relationship profitability and their portfolio of risks and assets,” said Howard Mason, head of financials research at Renaissance Macro Research. “Bankers have some cards to play because they can talk to their clients that have undrawn credit lines. The sense is that there’s a relationship involved so relationship pricing and good will applies.”
Meanwhile, as banks quietly scramble to raise liquidity of their own – because, again, liquidity is always and everywhere fungible – U.S. financial institutions have sold almost $50 billion of bonds over the past two weeks to bolster their coffers, ironically even as corporate bankers are advising companies not to hoard cash unless they urgently need it. Some are even telling certain clients to hold off on seeking new financing to avoid over-stressing a system already stretched to its limits operationally as bankers are inundated with requests while stuck at home due to the coronavirus pandemic.
“The banks are open but if everybody asks at the same time then it’s going to be difficult from a balance sheet perspective,” Bloomberg Intelligence analyst Arnold Kakuda said in an interview.
Kinda like the whole fractional reserve concept: banks have money in theory… as long as not all of their depositors demand to withdraw money at the same time. With revolvers, it more or less the same thing.
“The corporate banker doesn’t want everybody to take a hot shower at the same time in the house,” said Marc Zenner, a former co-head of corporate finance advisory at JPMorgan Chase & Co. “They want to use their capital where it’s most beneficial.”
Amusingly, even McDonald – right after it signed a new revolver – immediately tapped the full $1 billion as a “precautionary measure” to reinforce its cash position, the company said in a regulatory disclosure Thursday. It also priced $3.5 billion of bonds last week as part of its broader liquidity management strategy.
In short, it’s a liquidity free for all, and the bottom line is simple: those bigger companies that still have access to liquidity will survive; those that are cut off, will fail, giving the bigger companies even greater market share, and crushing the small and medium businesses across America.
As a result, the prevailing thinking across corporate America is is “it’s ‘better safe than sorry,” said Jesse Rosenthal, an analyst at CreditSights Inc. “They might believe with all their hearts that the bank has all the liquidity they need, but it’s just fiduciary duty, due diligence, and prudence in a totally unprecedented situation.” Ironically, we reported last week that a bankrupt energy company, EP Energy, listed a trolling risk factor in its annual report, in which the company mused that it may be challenged if one or more of its lender banks collapsed.
Meanwhile, confirming that this latest freak out is all about liquidity, bankers are now including provisions in new deals that ensure they’ll be among the first to be paid back when companies regain access to more conventional sources of financing, according to Bloomberg sources.
And for those insisting on drawing down revolvers now, Renaissance Macro’s Mason says banks will ultimately seek to recoup the costs down the line.
“The message to corporate clients is, ‘you can continue to do this, but we are looking at profitability on a relationship business, so if we don’t make our hurdles here we need to make them somewhere else,’” Mason said. Of course, those companies which have already drawn down on their revolvers and/or have anything to do with the energy sector… see you after you emerge from Chapter 11.
San Francisco looks like a town expecting a Hurricane, with storefronts boarded up, and people lining up at stores, while others wander around without any apparent destination or plan, as if propelled by Brownian motion.
WAR WITH THE INTERNATIONAL BANKING CARTEL? OR NESARA?
Tucked in the $2 trillion coronavirus stimulus bill passed by Congress is a curious provision that essentially outlines how the Treasury and the Federal Reserve will merge into one organization. Is this President Trump’s way of taking back America’s monetary sovereignty, or is it a smokescreen that expands the Fed’s power?
(USA.watchdog) Bo Polny: “In the last interview, I gave you a time point, and I am going to give it to you again. This time point is incredible, and it is a Biblical calculation.
I am waiting to see what happens at this time point because it is supposed to be a truly epic time point, and that time point is April 21, 2020.
It’s a time point where the world changes, one system comes to an end or something really obvious happens. So, coming into the month of May, we have this new time point or this new era.”
Polny says all his work is based on Biblical cycles. He goes through the last 7,000 years with a powerful PowerPoint presentation that culminates with the Second Coming of Jesus Christ and predicts a time window for his return in the not-so-distant future. Polny also says his charts say the bottom is going to be ugly for the so-called long term investors. Polny says, “What it points to is a market drop that keeps falling. The potential target is 5,000 to 5,050 range for the DOW, and the time point for this comes at the end of the year 2022.”
Polny also says the U.S. dollar has topped and is going lower. Bo says, “I looked at a chart recently, and the dollar has a double top. It has not made new highs in a long time. It has just been sitting there. A lot of times with market events, you see the dollar move down with the stock market. (The dollar was down big time on Friday 3/27/2020. It lost more the 1% on a day the DOW lost more than 900 points.) So, that is unusual. The dollar moved with the stock market, and gold did not go anywhere. Gold was steady.”
Bo says, “The people in control of this system will try to stop the fall, and they will fail. For that reason, point E (15,000 on the DOW) is coming. . . . They will try to stop it, and they will fail. Look what’s happening. What we have seen in March was a crash. . . . We have not seen is a plunge. The plunge comes in April.”
There is lots more in this hour long interview, including a free 30 page PowerPoint presentation on the 7,000 year cycle that started in the days of Adam and Eve. Join Greg Hunter of USAWatchdog.com as he goes One-on-One with analyst Bo Polny of Gold 2020Forecast.com.
Update (1500ET): A top U.S. regulator is exploring whether to throw a lifeline to mortgage servicers stressed by the coronavirus pandemic by tapping a program meant to address natural disasters.
Bloomberg reports that, in order to prepare for an expected wave of missed payments as borrowers deal with the economic fallout from the virus, officials at Ginnie Mae are considering using relief programs most often activated in the wake of hurricanes, floods and other calamities, according to people familiar with the matter.
Mortgage-industry lobbyists unsuccessfully tried to get Congress to include some sort of liquidity facility for servicers in the stimulus bill. Still, many servicers expect the Treasury Department and the Federal Reserve to create a lifeline for servicers out of other money in the $2 trillion package.
Earlier this week,ZeroHedge highlighted the fact that numerous mortgage-related companies were facing considerable – and in some cases existential – crises in their day-to-day operations amid margin calls, illiquidity, and a drying up of demand for non-agency products thanks to The Fed’s intervention.
First, its was AG Mortgage Investment Trust which last Friday said it failed to meet some margin calls and doesn’t expect to be able to meet future margin calls with its current financing. Then it was TPG RE Finance Trust which also hit a liquidity wall and could not repay its lenders. Then, on Monday it was first Invesco, then ED&F Man Capital, and then the mortgage mayhem took down MFA Financial, which stated “due to the turmoil in the financial markets resulting from the global pandemic of the COVID-19 virus, the Company and its subsidiaries have received an unusually high number of margin calls from financing counterparties, and have also experienced higher funding costs in respect of its repurchase agreements.”
And now that mortgage-mayhem has impacted one of the largest U.S. mortgage firms catering to riskier borrowers.
Earlier in the week, we mentioned Angel Oak Mortgage Solutions – which specializes in so-called non-qualified mortgages that can’t be sold to Fannie Mae or Freddie Mac – pointing out that the company would pause all originations of loans for two weeks “due to the constant shifts and the inability to appropriately evaluate credit risk.”
And now Sreeni Prabhu, co-chief executive officer of the firm’s parent, Angel Oak Cos., is slashing 70% of the comany’s workforce (almost 200 of its 275 employees).
“The world has dramatically changed,” Prabhu said.
“We have to slow down and re-underwrite in the new world that we’re in. That’s going to take some time.”
Bloomberg reports that Angel Oak is primarily known for its riskier lending arm, which is one of the leaders in funding non-qualified mortgages. Such loans include those made to borrowers who verify their incomes with bank statements instead of tax returns and others who may have recently filed for bankruptcy or had a previous foreclosure that hurt their credit scores.
Angel Oak Mortgage Solutions funded some $3.3 billion of non-QM loans in 2019, making it one of the biggest lenders in the space. In January, Angel Oak’s mortgage units said they planned to fund more than $8 billion of home loans in 2020, but the total is now likely to be perhaps a quarter of that, Prabhu said.
The coronavirus pandemic has brought non-QM lending to a virtual standstill industrywide. Many non-QM borrowers are self-employed, making them among the hardest hit by a broad slowdown in business activity.
Add this halting of originations to the margin calls of the fund side, and it all sounds ominously similar to July 2007, when two Bear Stearns hedge funds (Bear Stearns High-Grade Structured Credit Fund and the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund) – exposed to mortgage-backed securities and various other leveraged derivatives on same – crashed and burned and started the dominoes falling…
Detroit-based mortgage giant Quicken Loans could be facing a cash crunch in coming weeks and possibly need temporary emergency federal assistance if lots of borrowers stop making payments on their home mortgages during the coronavirus pandemic, according to a news report.
The Wall Street Journal identified Quicken Loans as one of the major firms that are bracing for a wave of missed mortgage payments that would require them to quickly come up with billions of dollars that they hadn’t planned on.
This liability would pertain to mortgages that Quicken Loans services. Those are mortgages for which Quicken collects the borrower payments, then passes the payments on to investors who own the mortgages.
Quicken Loans, which survived the Great Recession and real estate market collapse, greatly expanded its mortgage servicing portfolio in the 2010s yet is still better known for originating mortgages.
The company is one of Detroit’s largest employers and the biggest revenue-generator in the business empire of its founder Dan Gilbert.
Mortgage servicers typically must advance the planned mortgage payments to the investors — regardless of whether borrowers make the actual payments that are due. The servicers are also responsible for payments when borrowers are granted a forbearance, or temporary suspension of their mortgage payments.
Even though mortgage servicers are eventually reimbursed for those advanced payments by entities such as Fannie Mae or Freddie Mac that guarantee mortgages, there is a timing mismatch, which can result in a cash crunch.
The Mortgage Bankers Association, an industry group, this week warned the Treasury Department and the Federal Reserve that, under one theoretical scenario, should one-quarter of mortgage borrowers stop making payments or enter forbearance for six months or more, mortgage servicing firms could be on the hook for $75 billion to $100 billion or more.
“In normal and even stressed environments, such as a localized natural disaster, servicers can withstand this liquidity pressure,” Robert Broeksmit, the association’s chief executive, wrote in a letter this week to Treasure Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell.
“Widespread, national borrower forbearance at the levels being proposed in response to the COVID-19 outbreak, however, extends well beyond any servicer advance obligations previously envisioned, and is beyond the capacity of the private sector alone to support.”
A Quicken Loans spokesman on Tuesday would not comment on whether the company is facing any potential cash crunch because of mortgage servicing. Quicken was among the first large companies in Detroit to have employees work from home in hopes of slowing the spread of the coronavirus.
“What I can tell you is that Quicken Loans continues to have record-breaking mortgage origination days and weeks,” Aaron Emerson, senior vice president of communications, said in an email. “This is occurring while more than 98% of our team members work from home.”
The mortgage bankers association is recommending that the Federal Reserve set up a temporary lending program for mortgage services to keep them solvent during the coronavirus crisis. The program — known as a “liquidity facility” — should be set up before mortgage servicing companies are in a state of emergency, the association says.
The association’s letter described general conditions for mortgage servicers and didn’t name specific firms.
“Virtually no servicer, regardless of its business model or size, will be able to make sustained advances during a large-scale pandemic when a significant portion of borrowers could cease making their payments for an extended period of time,” Broeksmit wrote.
Last week, government-backed mortgage enterprises Fannie Mae and Freddie Mac announced they would suspend foreclosures and evictions for 60 days for borrowers impacted by the coronavirus crisis. Many of Quicken Loans’ mortgages are guaranteed by Fannie and Freddie and other government-backed enterprises.
Quicken pools the mortgages that it originates and bundles them into securities, which it then sells into the secondary market.
A representative for Pontiac-based United Shore, another major mortgage firm in metro Detroit that also services mortgages, could not be reached for comment.
Are gold and silver becoming what Mike Maloney has always suggested, Unaffordium and Unobtainium? The last few weeks have given us a preview of how stretched the physical gold and silver markets can become when the markets move. Join Mike as he welcomes GoldSilver.com President Alex Daley for a special Retail Bullion Update.
“You have enormous buyers of debt meeting massive coordinated fiscal stimulus by governments across the globe. For bond investors, you’re caught between a rock and a hard place.”
With the Fed buying $622 billion in Treasury and MBS, a staggering 2.9% of US GDP, in just the past five days…
… any debate what to call the current phase of the Fed’s asset monetization – “NOT NOT-QE”, QE4, QE5, or just QEternity – can be laid to rest: because what the Fed is doing is simply Helicopter money, as it unleashes an unprecedented debt – and deficit – monetization program, one which is there to ensure that the trillions in new debt the US Treasury has to issue in the coming year to pay for the $2 (or is that $6) trillion stimulus package find a buyer, which with foreign central banks suddenly dumping US Treasuries…
… would otherwise be quite problematic, even if it means the Fed’s balance sheet is going to hit $6 trillion in a few days.
The problem, at least for traders, is that this new regime is something they have never encountered before, because during prior instances of QE, Treasuries were a safe asset. Now, however, with fears that helicopter money will unleash a tsunami of so much debt not even the Fed will be able to contain it resulting in hyperinflation, everything is in flux, especially when it comes to triangulating pricing on the all important 10Y and 30Y Treasury.
Indeed, as Bloomberg writes today, core investor tenets such as what constitutes a safe asset, the value of bonds as a portfolio hedge, and expectations for returns over the next decade are all being thrown out as governments and central banks strive to avert a global depression.
And as the now infamous “Money Printer go Brrr” meme captures so well, underlying the uncertainty is the risk that trillions of dollars in monetary and fiscal stimulus, and even more trillions in debt, “could create an eventual inflation shock that will trigger losses for bondholders.”
Needless to say, traders are shocked as for the first time in over a decade, they actually have to think:
“You have enormous buyers of debt meeting massive coordinated fiscal stimulus by governments across the globe. For bond investors, you’re caught between a rock and a hard place.”
And while equity investors may be confident that in the long run, hyperinflation results in positive real returns if one sticks with stocks, the Weimar case showed that that is not the case. But that is a topic for another day. For now we will focus on bond traders, who are finding the current money tsunami unlike anything they have seen before.
Indeed, while past quantitative easing programs have led to similar concerns, this emergency response is different because it’s playing out in weeks rather than months and limits on QE bond purchases have quickly been scrapped.
Any hope that the Fed will ease back on the Brrring printer was dashed when Fed Chairman Jerome Powell said Thursday the central bank will maintain its efforts “aggressively and forthrightly” saying in an interview on NBC’s “Today” show that the Fed will not “run out of ammunition” after promising unlimited bond purchases. His comments came hours after the European Central Bank scrapped most of the bond-buying limits in its own program.
The problem is that while this type of policy dominates markets, fundamental analysis scrambling to calculate discount rates and/or debt in the system fails, and “strategic thinking is stymied and some prized investment tools appear to be defunct”, said Ronald van Steenweghen of Degroof Petercam Asset Management.
“Valuation models, correlation, mean reversion and other things we rely on fail in these circumstances,” said the Brussels-based money manager. Oh and as an added bonus, “Liquidity is also very poor so it is difficult to be super-agile.”
The irony: the more securities the Fed soaks up, be they Treasuries, MBS, Corporate bonds, ETFs or stocks, the worse the liquidity will get, as the BOJ is finding out the hard way, as virtually nobody wants to sell their bonds to the central bank.
Another irony: normally the prospect of a multi-trillion-dollar government spending surge globally ought to send borrowing costs soaring. But central bank purchases are now reshaping rates markets – emulating the Bank of Japan’s yield-curve control policy starting in 2016 – and quashing these latest volatility spikes.
In effect, the Fed’s takeover of bond markets (and soon all capital markets), means that any signaling function fixed income securities have historically conveyed, is now gone, probably for ever.
“Investors shouldn’t expect to see much more than moderately steep yield curves, since the Fed and its peers don’t want higher benchmark borrowing costs to undermine their stimulus,” said Blackrock strategist Scott Thiel. “That would be detrimental to financial conditions and to the ability for the stimulus to feed through to the economy. So the short answer is, it’s yield-curve control.”
Said otherwise, pretty soon the entire yield curve will be completely meaningless when evaluating such critical for the economy conditions as the price of money or projected inflation. They will be, simply said, whatever the Fed decides.
And with the yield curve no longer telegraphing any inflationary risk, it is precisely the inflationary imbalances that will build up at an unprecedented pace.
Additionally, when looking further out, Bloomberg notes that money managers need to reassess another assumption that’s become widely held in recent years: that inflation is dead. Van Steenweghen says he’s interested in inflation-linked bonds, though timing a foray into that market is “tricky.”
Naeimi also said he expects that the coordination by central banks and governments will spike inflation at some stage. “It all adds to the volatility of holding bonds,” he said. But for the time being, he’s range-trading Australian bonds — buying when 10-year yields hit 1.5%, and selling at 0.6%.
That’s right: government bonds have become a daytrader’s darling. Whatever can possibly go wrong.
But the biggest fear – one we have warned about since 2009 – is that helicopter money, which was always the inevitable outcome of QE, will lead to hyperinflation, and the collapse of both the US Dollar, and the fiat system, of which it is the reserve currency. Bloomberg agrees:
Many market veterans agree that faster inflation may return in a recovery awash with stimulus that central banks and governments may find tough to withdraw. A reassessment of consumer-price expectations would be a major setback for expensive risk-free bonds, especially those with the longest maturities, which are most vulnerable to inflation eroding their value over time.
Of course, at the moment that’s hard to envisage, with market-implied inflation barely at 1% over the next decade, but as noted above, at a certain point the bond market no longer produces any signal, just central bank noise, especially when, as Bloomberg puts it, “central bank balance sheets are set to explode further into unchartered territory.” Quick note to the Bloomberg editors: it is “uncharted”, although you will have plenty of opportunity to learn this in the coming months.
Alas, none of this provides any comfort to bond traders who no longer have any idea how to trade in this new “helicopter normal“, and thus another core conviction is being revised: the efficacy of U.S. Treasuries as a safe haven and portfolio hedge.
Mark Holman, chief executive and founding partner of TwentyFour Asset Management in London, started questioning that when the 10-year benchmark hit its historic low early this month.
“Will government bonds play the same role in your portfolio going forward as they have in the past?” he said. “To me the answer is no they don’t — I’d rather own cash.”
For now, Mark is turning to high-quality corporate credit for low-risk income, particularly in the longer maturity bonds gradually rallying back from a plunge, especially since they are now also purchased by the Fed. He sees no chance of central banks escaping the zero-bound’s gravitational pull in the foreseeable future. “What we do know is we’re going to have zero rates around the world for another decade, and we’re going to have the need for income for another decade,” he said.
Other investors agree that cash is the only solution, which is why T-Bills – widely seen as cash equivalents – are now trading with negative yields for 3 months and over.
Yet others rush into the safety of gold… if they can find it. At least check, physical gold was trading with a 10% premium to paper gold and rising fast.
Ultimately, as Bloomberg concludes, investors will have to find their bearings “in a crisis without recent historical parallel.”
“It’s very hard to look at this in a historical context and then apply an investment framework around it,” said BlackRock’s Thiel. “The most applicable period is right before America entered WW2, when you had gigantic stimulus to spur the war effort. I mean, Ford made bombers in WW2 and now they’re making ventilators in 2020.”
Update (2040ET): 12 hours after the Senate was supposed to originally release the full text– all 889 pages of it – of the $2 trillion stimulus bill, it finally did just that, detailing in a whopping 889 pages, detailing its plans to stimulate spending, push tax breaks and generally boost the U.S. economy during and after the coronavirus outbreak.
Here is the part most relevant to capital markets, discussing the limitations on dividends and buyback:
The Secretary may enter into agreements to make loans or loan guarantees to 1 or more eligible businesses… if the Secretary determines that, in the Secretary’s discretion—(A) the applicant is an eligible business for which credit is not reasonably available at the time of the transaction; (B) the intended obligation by the applicant is prudently incurred; (C) the loan or loan guarantee is sufficiently secured or is made at a rate that— (i) reflects the risk of the loan or loan guarantee; and (ii) is to the extent practicable, not less than an interest rate based on market conditions for comparable obligations prevalent prior to the outbreak of the coronavirus disease 2019 (COVID–19); (D) the duration of the loan or loan guarantee is as short as practicable and in any case not longer than 5 years…
… and the punchline:
(F) the agreement provides that, until the date 12 months after the date the loan or loan guarantee is no longer outstanding, the eligible business shall not pay dividends or make other capital distributions with respect to the common stock of the eligible business.
In other words, as noted earlier, no dividends or buybacks for any company that uses the bailout loan. By implication, it means that all other companies can continue to repurchase their stock.
And here, courtesy of Bloomberg, are some additional observations on the winners and losers:
There was something strange about today’s continuation rally in stocks: while risk assets soared, the VIX barely moved. In fact the Vix is now roughly where it was on Monday, largely ignoring the move in stocks.
But there was another more sinister move in today’s risk rally, which as we noted earlier, appears to have been mostly a massive short squeeze, in fact the biggest two-day short squeeze in history…
… namely the persistent buying of safe havens such as Treasury’s but more importantly, Bills.
And so, one week after we reported that yields on many T-Bills through 3 months turned negative for the first time since the financial crisis, today virtually all Bills maturing around July had a negative yield.
Needless to say, a scramble for both cash-equivalents (i.e. Bills) and stocks is rather unorthodox, and sparked debate among Wall Street desks what may be behind it. One answer that emerged is that for those who did not have faith in today’s stock rally and wanted to allocate their funds elsewhere, yet in the absence of available physical gold as a result of the unprecedented scarcity described yesterday, the one place where investors could find “cash equivalent” securities was among the short T-Bill maturities.
If this theory is correct, it would mean that the pent up demand for physical gold is unprecedented and any newly available precious metal will be quickly snapped up as soon as it is available, which in light of the unprecedented expansion in central bank balance sheets as virtually every state is now pursuing helicopter money, is hardly that surprising.
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
… 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.
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.
Aware that one way (out of bankruptcy) or another (in bankruptcy), they will end up renegotiating their leases, retail chains are proactively calling for rent reductions through lease amendments and other measures starting in April.
Mattress Firm, with about 2,400 stores, sent landlords a letter last week saying it would cut rent in exchange for longer leases and offering two options to do so. This week, it sent a more urgent note revoking its earlier offer.
“The decline in revenue and forced store closures across the nation are more drastic, compressed and immediate than we originally anticipated,” the company wrote in a letter reviewed by Bloomberg. “Our need is now more severe,” the firm said, invoking the virus as a force majeure event that “will prevent or prohibit us” from paying rent.
After being contacted by Bloomberg, Mattress Firm confirmed that it has requested a temporary suspension of rent.
“We appreciate our landlord partners, and the responses have been encouraging so far,” Randy Carlin, chief real estate officer for Mattress Firm, said in a statement. “We will continue to do everything we can to maintain business continuity and to ensure there are jobs available for our people to return to when this crisis ends.”
Subway Restaurants, which has more than 20,000 U.S. locations, sent out a letter to landlords last week saying that it might cut or postpone rental payments due to the virus, according a person with knowledge of the situation. The Real Deal, a real estate trade publication, reported on the communication earlier.
Virtually every other US retailer has also told their landlords the same, and if not, they will soon.
Worse, if landlords refuse to budge, it’s unclear how this mutually assured destruction will conclude in anyone’s favor. The fiscal stimulus packages being considered don’t directly address rents. But the Federal Reserve’s actions may give banks the leeway to defer mortgage payments, allowing property owners to delay rent. Some retailers may also declare a “force majeure,” a contract clause that covers highly unusual events, although whether or not landlords or banks accept this is a different question.
“The court system is just going to get flooded with a million of these disputes between tenants and landlords,” said Vince Tibone, an analyst at Green Street Advisors. “If the government doesn’t step in in any form or fashion, it could get ugly. They need to respond quickly.”
In short: this will be the biggest in court mess ever, and whether it involves in court bankruptcy or not, will not matter one bit, as there is simply no money.
The good news is that some landlords have recognized they need to help smaller tenants. For example, California’s Irvine Company Retail Properties, is allowing rent to be deferred for 90 days and then paid back with no interest over a year starting in January. The firm confirmed the practice without further comment. Bedrock, a Detroit developer, said it will waive rent and other fees for three months for its smaller retail and restaurant tenants.
However, for many other landlords, who themselves are highly levered, forbearing on rent is simply not an auction as the lack of even a few months of liquidity could mean the different between life and death. Indeed, it may also be the tipping point for America’s malls, many of which should have shuttered long ago yet subsisted as zombie creatures kept alive by cheap money. Well, no more, and the result is a massive victory for all those who had the “Big Short 2.0” trade on their books: also known as the great mall armageddon trade via CMBX Series 6, and which we discussed yesterday, has made its long-suffering fans very right.
But even if retailers succeed in getting a rent reprieve for a month or two, in the grand scheme of things it will hardly make much of a difference. The reason: in just the past 10 days, 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.
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.
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.
After Apple, Nike and Urban Outfitters were among the first to announce store closures on Saturday, March 14, the store shuttering pace quickened over the remainder of the week. Then shopping centers closed by the hundreds, with developers like Simon Property Group and Westfield, owned by Unibail-Rodamco-Westfield, locking up their entire U.S. mall networks. By Monday, March 23, at least 47,000 chain stores were shut. Most told customers that goods would be available online, but even store websites weren’t immune. Victoria’s Secret, T.J. Maxx and Marshalls decided to cease operations in their distribution centers and shut down their e-commerce businesses.
There is some hope that when the virus is contained, shopping will get back to normal but in all likelihood the shopping experience in America may never be the same. People could still lean towards social distancing and be fearful of crowds, said Simeon Siegel, an analyst at BMO Capital Markets.“Even when companies are given the all-clear, we don’t yet know when consumers are going to embrace that,” he said. On the other hand, should the lock down duration extend, many of the stores listed above will simply liquidate and never be heard from again.
Given where Ford’s CDS was trading – more in line with B1/BB- rated American Axle – it should hardly come as a surprise that S&P has finally bitten the bullet and downgraded Ford debt to junk.
The decision to downgrade Ford Motor Co. from investment grade to speculative grade reflects that the company’s credit metrics and competitive position became borderline for the investment-grade rating prior to the coronavirus outbreak, and the expected downturn in light-vehicle demand made it unlikely that Ford would maintain the required metrics.
Ford Motor Co. announced it is suspending production at its manufacturing sites in Europe for four weeks and halting production in North America to clean these facilities and boost containment efforts for the COVID-19 coronavirus. We expect Ford’s EBITDA margin to remain below 6% on a sustained basis and believe that its free operating cash flow to debt is unlikely to exceed 15% on a consistent basis.
Ford has drawn $13.4 billion on its corporate credit facility and $2 billion on its supplemental credit facility. We believe the company’s current cash position stands at about $36 billion.
We are downgrading our long-term issuer credit rating to ‘BB+’ from ‘BBB-‘. At the same time, we are assigning issue-level ratings of ‘BB+’ on Ford’s unsecured debt.
We are also placing the ratings on Credit Watch with negative implications, which reflects at least a 50% chance that we could lower the ratings depending on factors such as the duration of the plant shutdowns, the rate of cash burn, and the adequacy of Ford’s liquidity position.
This S&P move follows Moody’s cutting Ford’s long-term corporate family rating to Ba2 from Ba1 earlier in the day.
With a total amount of public bonds & loans outstanding around $95.8 billion, according to data compiled by Bloomberg, Ford has just become one of the largest fallen angels yet.
Will this sudden large fallen angel lead to further repricing in the junk bond market, just as the market is dead-cat-bouncing on Fed intervention?
Perhaps of most note, the downgrade to junk means – we think – that this disqualifies Ford debt from The Fed’s corporate-bond-buying bandwagon – which is likely to make the cliff for Ford debt even more dramatic (especially after rallying so hard the last two days).
Previously we reported that the US restaurant and retail industries have all but shut down. We can now add airlines.
According to this stunning chart from Deutsche Bank’s Torsten Slok, US airline passenger traffic is currently just 10% of normal. As Slok explains, “on a normal day in March, over 2 million people travel by air in the United States. Yesterday that number was 279,018.”
Yesterday the Chair of the FDIC released an astonishing video asking Americans to keep their money in the bank.
Accompanied by soft piano music playing in the background, the official said:
“Your money is safe at the banks. The last thing you should be doing is pulling your money out of the banks thinking it’s going to be safer somewhere else.”
(Simon black) Amazing. I was half expecting her to waive her hand and say, “These aren’t the droids you’re looking for…”
As I’ve written before, there’s $250 TRILLION worth of debt in the world right now: student debt, housing debt, credit card debt, government debt, corporate debt, etc.
And let’s be honest, some of that debt is simply not going to be paid.
Millions of people have already lost their jobs. Millions more (like the 10 million waiters and bartenders across America) are barely earning anything right now because their businesses are closed.
The government has already suspended evictions and foreclosures, which is a green light for people to stop paying the rent or mortgage.
And that means banks will take it in the teeth.
This is what happened back in 2008– millions of people across the country stopped paying their mortgages, and the banking system nearly collapsed as a result.
Today it’s a similar situation; a lot of people are going to stop paying their mortgages, credit cards, auto loans, etc. And that directly impacts the banks.
Businesses are in deep financial trouble too.
According to the Wall Street Journal, the median small business in the United States has a cash balance that will last them just 27 days.
And many are operating with an even smaller safety net; the median restaurant, for example, has a cash balance of just 16 days.
These businesses have been told to close down due to the Corona Virus. And it’s likely that many of them will never re-open.
A lot of these companies also have debt. And if they close, those debts will never be repaid.
Even big businesses are susceptible to failure.
Every airline, cruise ship operator, hotel, retail chain, etc. is on the ropes, and each of these companies has borrowed billions of dollars.
This pandemic could easily push several big companies into bankruptcy.
You probably know that old saying– if you owe the bank a million dollars and can’t pay, you have a problem. If you owe the bank a billion dollars and can’t pay, the bank has a problem.
That’s what we’re seeing now.
Countless unemployed individuals, millions of shuttered small businesses, and bankrupt big companies collectively owe the banks trillions of dollars. And many of them can’t pay… which means the entire banking system has a problem.
How much money will the banks lose because of this pandemic?
It could easily end up being hundreds of billions of dollars, even several trillion dollars.
No one knows. But it’s not going to be zero. It’s silly to think that banks are immune to the Corona virus, or to assume that not a single bank is going to run into problems.
Don’t get me wrong– I’m not saying that the banking system is about to collapse. There are stronger banks and weaker banks. Many of them will survive, others will fail.
What I am saying is that there are enormous and obvious risks that threaten the banking system.
As I’ve written several times over the past few weeks: Anyone who says, “No, that’s impossible,” clearly doesn’t have a grasp of what’s happening right now. EVERY scenario is on the table, including severe problems in the banking system.
But the FDIC insists that there’s nothing to worry about.
That’s ridiculous. The FDIC only has $109 billion to insure the entire $13 trillion US banking system. That’s less than 1%!
The FDIC also insists that they’ve always been able to prevent depositors from losing money. “Not a single depositor has lost money since 1933.” And that’s true.
But they’ve never had to deal with this before. Neither the FDIC, nor any bank, has ever had to deal with a complete shutdown of the economy… or potential losses of this magnitude.
The Covid-19 impact on the banking system could be 10x bigger than the housing meltdown in 2008.
If the pandemic ends up causing trillions of dollars of loan losses, the FDIC won’t have enough ammunition to fix it… and that doesn’t even consider trillions of dollars more in potentially toxic derivatives exposure.
So to casually brush off these risks and claim that everything is 100% safe seems incomprehensible.
It also raises an interesting point: why is the FDIC asking us to NOT withdraw our savings?
If the financial system is so safe, it shouldn’t matter to them whether or not people keep their money in the banks.
Yet they still felt the need to specifically ask people to NOT withdraw their money… and tell us that we shouldn’t keep cash at home.
I’ll reiterate a point that we’ve made again and again at Sovereign Man over the years: it makes sense to have some physical cash in an at-home safe.
I’m not suggesting you keep your life’s savings in physical cash. But a month or two worth of expenses won’t hurt.
There’s very little downside– your bank probably only pays you 0.01% anyhow, so it’s not like you will be giving up a ton of interest income.
And given that the FDIC is specifically saying that you shouldn’t do this, a prudent person might wonder what’s really going on.
(ZeroHedge) We warned last week that, despite The Fed’s unlimited largesse, there is trouble brewing in the mortgage markets that has an ugly similarity to what sparked the last crisis in 2007. For a sense of the decoupling, here is the spread between Agency MBS (FNMA) and 10Y TSY yields…
At that time, WSJ’s Greg Zuckerman reported that the AG Mortgage Investment Trust, a real-estate investment trust operated by New York hedge fund Angelo, Gordon & Co., is among those feeling pressure, the company said, and, in the latest sign of turmoil in crucial areas of the credit markets, is examining a possible asset sale.
“In recent weeks, due to the turmoil in the financial markets resulting from the global pandemic of the Covid-19 virus, the company and its subsidiaries have received an unusually high number of margin calls from financing counterparties,” AG Mortgage said Monday morning.
Well, they are not alone.
As Bloomberg reports, the $16 trillion U.S. mortgage market – epicenter of the last global financial crisis – is suddenly experiencing its worst turmoil in more than a decade, setting off alarms across the financial industry and prompting the Fed to intervene. But, as we previously noted, it is too late and too limited (the central bank is focusing on securities consisting of so-called agency home loans and commercial mortgages that were created with help from the federal government).
And the aftershocks of a chaotic rush to offload mortgage bonds are spilling over to regional broker-dealers facing mounting margin calls.
Flagstar Bancorp,one of the nation’s biggest lenders to mortgage providers, said Friday it stopped funding most new home loans without government backing. Other so-called warehouse lenders are tightening terms of financing to mortgage providers, either raising costs or refusing to support certain types of home loans.
One prominent mortgage funder, Angel Oak Mortgage Solutions, said Monday it’s even pausing all loan activity for two weeks. It blamed an “inability to appropriately evaluate credit risk.”
Things escalated over the weekend, according to Bloomberg, when some firms rushed to raise cash by requesting offers for their bonds backed by home loans.
“I ran dealer desks for over 20 years,” said Eric Rosen, who oversaw credit trading at JPMorgan Chase & Co., ticking off the collapse of Long-Term Capital Management, the bursting of the dot-com bubble some 20 years ago, and the 2008 global financial crisis. “And I never recall a BWIC on a weekend.”
And now, commodity-broker ED&F Man Capital Markets has been hit with growing demands to post more capital to cover souring hedges in its mortgage division, according to people with knowledge of the matter.
The requests are coming from central clearinghouses and exchanges, forcing the firm to put up almost $100 million on Friday alone, the people said, asking not to be identified because the information isn’t public.
ED&F, whose hedges exceed $5 billion in net notional value, has been in discussions with the clearinghouses and has met all the margin calls, one of the people said.
As a reminder, ED&F Man Capital is the financial-services division of ED&F Man Group, the 240-year-old agricultural commodities-trading house.
It has about $14 billion in assets and more than $940 million in shareholder equity, according to the firm’s website.
Concern about losses in mortgage bonds could feed turmoil in the overall mortgage market that ultimately drives up borrowing costs for consumers looking to buy homes and refinance. Mortgage rates have risen in recent weeks, despite a fall in benchmark rates.
“The Fed is going to do whatever it takes to restore normal functioning in the market,” said Karen Dynan, a Harvard University economics professor who formerly worked as a Fed economist and senior official at the Treasury Department.
“But we need to remember that the root of the problem is that financial institutions and investors are desperately seeking cash, so in that sense the Fed’s announcement is not everything that needs to be done.”
All of which sounds ominously similar to July 2007, when two Bear Stearns hedge funds (Bear Stearns High-Grade Structured Credit Fund and the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund) – exposed to mortgage-backed securities and various other leveraged derivatives on same – crashed and burned and started the dominoes falling…
The global pandemic has shut down several mining jurisdictions around the world, taking off a large chunk of silver production, this according to Keith Neumeyer, CEO of First Majestic Silver. “In 2018, we produced, as a global industry, 855 million ounces of silver. So far, we’ve had Peru come offline, with 145 million ounces, we’ve had Chile come offline with 42 million ounces, we’ve had Argentina come offline with 26.5 million ounces. That’s a total of 213.5 million ounces that has now been shut down,” Neumeyer told Kitco News.
Discount silver bullion dealers via the internet are all out of stock, as of this writing, leaving us to explore retail silver price discovery via eBay auction for bargains today:
Gasoline futures in New York fell as much as 13% to 50.00 cents a gallon, the lowest level since the current contract started trading in 2005.
The previous gasoline contract last traded that low in 2001…
All of which means Americans – on average – except Californians – can expect gas-prices at the pump to plunge below $2/gallon very soon…
Energy prices slid toward this multi-decade low on plunging demand due to the economic fallout from the coronavirus crisis, and as prospects for a OPEC-Texas production deal faded.
“The government is taking a ‘whatever it takes’ approach,” said Marshall Steeves, an analyst at IHS Markit.
“That doesn’t change the fact that demand destruction is going to continue. There are still so many unknowns on the demand front. The duration of this economic shutdown is so uncertain that it’s making me believe the bottom may not be in yet.”
As Bloomberg notes, the prospects for the oil market remain bleak with more nations going into lockdown to tackle the virus. At the same time, supply is surging. The chance that either Saudi Arabia or Russia will back down from their price war seems remote, with President Vladimir Putin unlikely to submit to what he sees as the kingdom’s oil blackmail, according to Kremlin watchers.
Even if crude demand recovers to normal levels by the middle of the year, 2020 is still on course to suffer the biggest decline in consumption since reliable records started in the mid-1960s.
“We are now looking at a scale of surplus in the second quarter we probably never have seen before,” said Bjarne Schieldrop, chief commodities analyst at SEB.
Until now, the biggest annual contraction was recorded in 1980, when it tumbled by 2.6 million barrels a day as the global economy reeled under the impact of the second oil crisis.
On the day when The Fed unveils it will be buying agency MBS and CMBS (along with IG corporate debt) in unlimited size “to maintain the smooth functioning of markets,” The Wall Street Journal reports that for at least one major mortgage investor – it could be too late.
For a sense of the scale of collapse in CMBS markets alone, here is CMBX Series 6 BBB- tranche (a popular hedge fund “next big short” trade that is heavily exposed to malls/retail)…
And mortgage markets are becoming notably illiquid (hence The Fed’s unlimited injections)…
And the infamous ‘basis’ trade in ETF land, is extreme…
All of which has left an investment fund focused on mortgage investments struggling to meet margin calls from lenders.
WSJ’s Greg Zuckerman reports that the AG Mortgage Investment Trust, a real-estate investment trust operated by New York hedge fund Angelo, Gordon & Co., is among those feeling pressure, the company said, and, in the latest sign of turmoil in crucial areas of the credit markets, is examining a possible asset sale.
“In recent weeks, due to the turmoil in the financial markets resulting from the global pandemic of the Covid-19 virus, the company and its subsidiaries have received an unusually high number of margin calls from financing counter parties,” AG Mortgage said Monday morning.
The company said it had met “or is in the process of meeting all margin calls received,” though it acknowledged missing the wire deadline for some on Friday.
On Friday evening, the company “notified its financing counter parties that it doesn’t expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term,” AG Mortgage said in its statement, which said the company is in discussions with its lenders “with regard to entering into forbearance agreements.”
It’s stock has collapsed…
As have the Preferreds…
Concern about losses in mortgage bonds could feed turmoil in the overall mortgage market that ultimately drives up borrowing costs for consumers looking to buy homes and refinance. Mortgage rates have risen in recent weeks, despite a fall in benchmark rates.
All of which sounds ominously similar to July 2007, when two Bear Stearns hedge funds (Bear Stearns High-Grade Structured Credit Fund and the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund) – exposed to mortgage-backed securities and various other leveraged derivatives on same – crashed and burned and started the dominoes falling…
As a result of the coronavirus outbreak, and the ensuing lock down, the commercial property market has essentially frozen.
Buildings that were used for all types of purposes: offices, diners, restaurants, hotels – they’ve all been shut down. And industries like the travel industry are forgoing $1.4 billion per week in revenue, according to Bloomberg.
The shutdown is also having an effect on apartment buildings and industrial properties. Nothing is off limits, and it’s sending the commercial property market into chaos.
Alexi Panagiotakopoulos, partner at Fundamental Income, a real estate strategy firm, said: “On the investor side, there’s widespread panic. There’s downward pressure on every aspect of every asset class.”
And there’s no way to value a market when you don’t have a bid and an offer – and you’re not sure when the market will “re-open”. Further, there’s no way to try and model the future value of such properties when everyone is unsure of what the real estate landscape will look like when everything is said and done.
Scott Minerd, chief investment officer at Guggenheim Partners said: “There will likely be long-lasting changes.”
It’s estimated that investment activity in the space could fall by 45% this year, which would be further than post-9/11 or the 2008 financial crisis.
Viacom also announced last week that it’s suspending its plans to sell the Black Rock building in Manhattan because potential buyers can’t visit the property. Simon Property Group’s proposed acquisition of Taubman Centers, Inc., is also now up in the air.
More than $13 billion in funds in the UK has been frozen in property funds while appraisers warn that the virus makes it impossible to assess their value. China’s office market has been devastated with plunging rents and spiking vacancy rates, which could climb as high as 28% next year in Shanghai, according to estimates.
REITs in the U.S. have been destroyed. Names like Brookfield Property Partners, which made a $15 billion bet on malls in 2018, expects “severe consequences” in coming weeks. The company’s CEO says it has $6 billion in undrawn credit lines and cash.
Matthew Saperia, an analyst at Peel Hunt, commented on the potential threat to landlords: “The implications could be far-reaching, but quantifying these is highly speculative at present.”
As the uncertainty grows, the level of credit available begins to shrink. Financing has dried up for hotel, mall and senior living projects and it’s estimated that up to 15% of loans on commercial property could default over the next couple of years if the recession continues. The value of commercial mortgage-backed securities is collapsing…
Mark Fogel, CEO of Acres Capital, commented: “Nobody knows where deals will be priced and nobody knows just how long this issue is going to affect the world and how much it’ll affect the underlying collateral.”‘
And Minerd believes there won’t be a “back to normal” once this is all over: “I think there’s going to be a permanent change. People are more comfortable at home. Why do they need to commute?”
In the aftermath of the great Commercial Paper panic of 2020, which erupted over the past two weeks when initially the Fed failed to launch a Commercial Paper backstop facility, something it did with a two day delay on Tuesday, countless blue chip (and less than clue chip) companies found themselves with gaping liquidity shortfalls, and to bridge their funding needs, they rushed to draw on their existing credit facilities (also a hedge in case the banking system imposes a lending moratorium similar to what happened in the 2008 crash).
As a result, corporate borrowers worldwide, including Boeing, Hilton, Wynn, Kraft Heinz and dozens more, drew about $60 billion from revolving credit facilities this week in a frantic dash for cash as liquidity tightens.
On Wednesday alone, another seven more companies – CEC Entertainment, Metropolitan Transportation Authority, Diamondrock Hospitality, Tailored Brands, J Jill, Boyd Gaming, and National Vision – announced intentions to draw down credit lines.
As of Friday morning, the week recorded $58BN of draw downs, more than a five-fold jump from the $11BN for the whole of the previous week, according to Bloomberg data. The total drawdown would bring the utilization ratio above 24%, double from the 12% as of 4Q19 for US Investment Grade companies.
Thursday alone saw $21BN of facilities drawn, just short of the $21.3BN recorded on Tuesday, with Ford ($15.4BN), Kohl’s ($1BN), TJX ($1BN) and Ross Stores leading the revolving charge.
What is concerning is that despite the Fed’s CP backstop, companies continue to draw down on revolvers, whether because the rate on their CP is too high, or they simply do not trust banks.
The BofA table below summarizes all the companies that have drawn down on their revolver in response to the the Global Corona/Crude Crisis…
… and here is pipeline of upcoming deals, via Bloomberg.
No one alive has experienced an economic plunge this sudden…
We can’t say we’re in a recession yet, at least not formally. A committee decides these things—no, really. The government generally adopts the view that a contraction is not a recession unless economic activity has declined over two quarters. But we’re in a recession and everyone knows it. And what we’re experiencing is so much more than that: a black swan, a financial war, a plague.
Maybe things feel normal where you are. Maybe things do not feel normal.
Things are not normal. For weeks or months, we won’t know how much GDP has slowed down and how many people have been forced out of work. Government statistics take a while to generate. They look backwards, the latest numbers still depicting a hot economy near full employment. To quantify the present reality, we have to rely on anecdotes from businesses, surveys of workers, shreds of private data, and a few state numbers. They show an economy not in a downturn or a contraction or a soft patch, not experiencing losses or selling off or correcting. They show evaporation, disappearance on what feels like a biblical scale.
What is happening is a shock to the American economy more sudden and severe than anyone alive has ever experienced. The unemployment rate climbed to its apex of 9.9 percent 23 months after the formal start of the Great Recession. Just a few weeks into the domestic coronavirus pandemic, and just days into the imposition of emergency measures to arrest it, nearly 20 percent of workers report that they have lost hours or lost their job. One payroll and scheduling processor suggests that 22 percent of work hours have evaporated for hourly employees, with three in 10 people who would normally show up for work not going as of Tuesday. Absent a strong governmental response, the unemployment rate seems certain to reach heights not seen since the Great Depression or even the miserable late 1800s. A 20 percent rate is not impossible.
State jobless filings are growing geometrically, a signal of how the national numbers will change when we have them. Last Monday, Colorado had 400 people apply for unemployment insurance. This Tuesday: 6,800. California has seen its daily filings jump from 2,000 to 80,000. Oregon went from 800 to 18,000. In Connecticut, nearly 2 percent of the state’s workers declared that they were newly jobless on a single day. Many other states are reporting the same kinds of figures.
These numbers are subject to sharp changes; things like large plant closures lead them to jump and fall and jump and fall. But for them to rise so precipitously, across all of the states? To stay high? That is new. The economy is not tipping into a jobs crisis. It is exploding into one. Given the trajectory of state reports, it is certain that the country will set a record for new jobless claims next week, not only in raw numbers but also in the share of workers laid off. The total is expected to be in the range of 1.5 million to 2.5 million, and to climb from there.
None of that is surprising.
The economy needs to halt to protect lives and sustain the medical system. Planes have been grounded, conferences canceled, millions of Americans told not to leave their homes except to get groceries and other necessities. Because of the emergency measures now in place, businesses have had no choice but to let workers go. The list of employers laying off workers en masse includes cruise lines, airlines, hotels, restaurants, bars, cabinetmakers, linen companies, newspapers, bookstores, caterers, and festivals. I started adding up numbers in news reports, and quit when I hit 100,000.
The economy had been plodding along in its late expansion, growing at a 2 or 3 percent annual pace. Now, private forecasters expect it will contract at something like a 15 percent pace, though nobody really knows. A viral quarantine is impossible to model, because modeling would mean knowing how long the necessary emergency measures will last and how well the government will respond with some degree of accuracy. Still, real-time measures show a consumer-economy apocalypse. One credit-card processor said that payments to businesses were down 30 percent in Seattle, 26 percent in Portland, and 12 percent in San Francisco. Nearly every state is seeing dramatic declines, with hotels and restaurants hit particularly hard.
The markets are not normal, either. The stock market lost 20 percent of its value in just 21 days – the fastest and sharpest bear market on record, faster than 1929, faster than 1987, 10 times faster than 2007.
The financial system has required no less than seven emergency interventions by the Federal Reserve in the past week.The country’s central bank has wrenched interest rates to zero, started buying more than half a trillion dollars of financial assets, and opened up special facilities to inject liquidity into the financial system.
Yet in the real economy, everything has halted, frozen in place. This is not a recession. It is an ice age.
Back in December, someone in China made bat soup (at least according to the officially accepted narrative that doesn’t get you banned on Facebook, Twitter, etc), and the rest is history: in the next three months, the global equity market has lost $24 trillion in value, more than the $22 trillion in US GDP. And here is a staggering chart from BofA putting the crash of 2020 in its historic context: in the past month, the US stock market has crashed faster than both the Great Depression and Black Monday, and in terms of the total draw down, the crash of 2020 is now worse than 1929 and is fast approaching 1987.
Below, courtesy of BofA CIO Michael Hartnett, are several other stunning observations on the Crash of 2020:
Calls for Fed corporate bond buying, New Deal fiscal policies, new Plaza Accord to stabilize US$, closure of stock exchange coincide with week of Wall St devastation.
Peak-to-trough crash in global equity market cap = $24tn (c/o US GDP = $22tn).
Monday’s 12.0% drop Dow Jones = 3rd largest crash all-time (c/o -20.5% Oct 19th 1987, -12.9% Oct 28th 1929 – Chart 2).
Liquidation of “safe havens” e.g. gold & US Treasuries (TLT ETF sank 20% after oil shock); epic US$ surge reflects funding pressure of excess US$-denominated debt & zero liquidity.
Leverage in bond & stocks savaged (see REM, PFF, EMB, homebuilders like TOL – Chart 3); bond yields rise + bank stocks fall = classic sign of deflationary bear market.
Feral Wall St means vicious bear market rallies…WTI oil surged 24% today.
Stock exchange has closed just 4 occasions: 1914 & WW1, 1933 bank holiday, 1963 Kennedy assassination, 2001 9/11.
Global “lockdown” on movement people, goods, services unprecedented but note June 1930 passage of protectionist Smoot-Hawley bill saw US stocks -16.5% in one month.
Policy panic: 42 rate cuts since Feb 1st (note was 36 cuts in 2 months following Lehman); average COVID-19 rate cut has been 70bps; massive global central bank liquidity promised with no upper bound; $2.4tn in global fiscal stimulus (2.7% of GDP) in public aid, loan & income commitments (rises to $3.7tn with US Treasury/Senate proposals = 4.2% global GDP); acceleration toward yield curve control, UBI, MMT, industrial intervention…utterly unprecedented stimulus & intervention that will ultimately cause higher inflation expectations.
Note US GDP = $22tn, consumption $15tn so 20% drop in income & spending in 2-month period means GDP -$750bn, US consumption -$500bn.
Big pressure on corporate sector not to raise prices, cut employment…EPS takes Q2/Q3 strain.
2020 SPX EPS of $140 (-20%) generates SPX 2100 on historic mean 15X multiple, SPX 1700 on 12X policy-failure multiple, 2400 on 17X “some policy success” multiple (see Chart 12).
The “big stuff” will signal virus/recession/default fully-priced…volatility, Treasury yield, credit spreads, oil key.
The Reckoning: big shocks, big tops, many big political & social changes ahead…localization of supply, relationship with China, new inflationary era, using technology to “live” without human interaction, geopolitical instability of Middle East/Africa, end of era of PE, buybacks, financial engineering, comeback of active vs passive investing.
Q2 Strategy: aftershocks likely but assets with growth (tech), quality (best of breed stocks), yield (credits with fortress balance sheets) favored.
Q2 Tactics: policy makers winning “Intervention vs. Deleveraging” war; small cap, cyclicals, oil, banks…bear market rally plays.
In the lead up to this morning’s must-watch initial jobless claims data, searches for unemployment-related services have exploded as national lock downs have led to mass layoffs across both the services and manufacturing sectors.
And while analysts expected a modest 220k jump, the print came at 281,000 new jobless claims in the last week…
However, worse is guaranteed to be coming with claims will start moving sharply higher in the next few weeks (as only a small relative share of the moves was captured in today’s data which corresponds to the week ended March 14).
As Bloomberg’s Carl Riccadonna notes, scaling up the trends around the landfall of Hurricane Katrina in 2005 and the start of the Great Recession in late 2007 provide some context for understanding the severity of the economic shutdown currently underway.
Claims could continue to show an influx in that range for an extended period of time – possibly moving above 500k. Claims topped over 660k in early 2009, during the financial crisis.
After soaring unexpectedly to two-year highs in February (as stocks ignored the global disruptions), Philly Fed’s Business Outlook Survey has collapsed in March. From 36.7 in February, Philly Fed plunged to -12.7 (massively worse than the +8 estimate from clearly cognitively challenged analysts). That is the weakest level since September 2011…
This is the biggest drop in Phily Fed… ever…
Under the hood – everything tumbled…
March prices paid fell to 4.8 vs 16.4
New orders fell to -15.5 vs 33.6
Employment fell to 4.1 vs 9.8
Shipments fell to 0.2 vs 25.2
Delivery time fell to -9.1 vs 2.7
Inventories fell to 1.7 vs 11.8
Prices received fell to 6.8 vs 17.1
Unfilled orders fell to -7.4 vs 7.4
Average workweek fell to 0.5 vs 10.3
And worse still, the outlooks plunged…
Six-month outlook fell to 35.2 vs 45.4
Six-month outlook for capex fell to 12.0 vs 29.8
New Orders crashed and jobs are set to fall further…
So the question is – WTF were people thinking in February?
At the urging of UAW leaders, all three of Detroit’s “Big 3” automakers announced around midday on Wednesday that they would shutter all domestic production. The decision follows Daimler, BMW and a handful of other car makers in Europe and Asia shuttering factories to combat the coronavirus outbreak – and to prevent a glut of supply.
Here’s the rest of the update, courtesy of the AP:
Detroit’s three automakers have agreed to close all of their factories due to worker fears about the coronavirus, two people briefed on the matter said Wednesday.
Automakers are expected to release details of the closure later in the day. The United Auto Workers union has been pushing for factories to close because workers are fearful of coming into contact with the virus.
The people didn’t want to be identified because the closures have not been formally announced.
The decision reverses a deal worked out late Tuesday in which the automakers would cancel some shifts so they could thoroughly cleanse equipment and buildings, but keep factories open. But workers, especially at some Fiat Chrysler factories, were still fearful and were pressuring the union to seek full closures.
Fiat Chrysler temporarily closed a factory in Sterling Heights, Michigan, north of Detroit after workers were concerned about the virus. The company said a plant worker tested positive for the coronavirus but had not been to work in over a week. One shift was sent home Tuesday night and the plant was cleaned. But that apparently didn’t satisfy workers, and two more shifts were canceled on Wednesday.
Under an agreement reached with the union, companies will monitor the situation weekly to decide if the plants can reopen, one of the people said.
Honda is also planning on closing its North American factories, the company said.
Honda Motor Co. announced Wednesday that it will temporarily close its North American factories for about one week starting on Monday. The move by General Motors, Fiat Chrysler and Ford will idle about 150,000 auto workers. They likely will receive supplemental pay in addition to state unemployment benefits. The two checks combined will about equal what the workers normally make.
Automakers have resisted closing factories largely because they book revenue when vehicles are shipped from factories to dealerships. So without production, revenue dries up. Each company has other reasons to stay open as well. Ford, for instance, is building up F-150 pickup inventory because its plants will have to go out of service later this year to be retooled for an all-new model.
As the story explains, factories are typically reluctant to close factories since these companies book revenue when they ship vehicles, not when they’re sold – so it’s all gravy to them.
Holidaymakers have been asked to leave and others warned to avoid the area surrounding Dockweiler Beech RV site (pictured) in the city of El Segundo, California, amid preparation for the growing Coronavirus pandemic
Los Angeles’ homeless population could find themselves self-isolating inside a beachside RV in the coming months – as California frees up hundreds of motorhomes and hotel rooms for those in need.
Holidaymakers have been asked to leave and others warned to avoid the area surrounding Dockweiler Beech RV site in the city of El Segundo, California, amid preparation for the growing Coronavirus pandemic.
Hand washing stations have popped up in Los Angeles and San Francisco around large homeless populations and Governor Gavin Newsom revealed the state is acquiring around 900 hotels with tens of thousands of rooms to be converted for the use of both hospital patients and the homeless.
In the next few weeks, dozens of camper vans parked along the beach front are expected to become home to vagrants ordered into quarantine.
California boasts a homeless population of more than 100,000 and with no way for them to wash their hands or maintain hygiene, it was a highly at-risk group – diseases already run rife with central LA’s Skid Row recently seeing outbreaks of typhus and Hepatitis A.
Coronavirus has started a race into cash for all types of market participants. That has fueled rallies in reserve currencies—especially the dollar.
The U.S. dollar is approaching its highest level on record against other leading global currencies, according to the Bloomberg Dollar Spot Index. The index was up 1.1% in early trading Wednesday, and has climbed 6.5% in the past nine days. And derivatives markets indicate that even investors and banks in countries with their own major reserve currencies want to secure dollars.
Banks, companies, and investors have many good reasons to rush to secure dollar liquidity. Many businesses are facing the prospect of a steep decline in revenue as federal and local governments ask their constituents to stay home to prevent the spread of coronavirus.
That means businesses could struggle to keep paying leases, wages, and other costs. Workers (especially hourly workers) could struggle to pay their own living expenses. And banks could be met with withdrawal requests and surging demand for credit denominated in dollars.
“[The economic] front line in the crisis is the damage the pandemic is wreaking on companies in exposed sectors and on the economy more widely as the crisis spreads,” wrote Kit Juckes, a strategist at Société Générale. “So while market participants scramble [to] deleverage, the banks need money to lend to companies whose cash flow situation has changed almost overnight.”
The cash grab is echoing through markets in some striking ways. Even the lowest-risk markets—Treasuries and municipal bonds for example—have seen steep losses as investors move into cash. Benchmark 10-year and 30-year bond yields posted their steepest single-session jump since 1982 on Tuesday.
“This matters on a day-to-day basis for the [currency] market because liquidity stress, and a rush to get hold of dollar liquidity in particular, sends the dollar higher against everything,” Juckes wrote.
The widespread bid for liquidity has shown up in fund-flows data as well. Mutual funds in nearly every sector of markets lost billions of dollars in investor funds over the week ended March 11, the latest data reported by Refinitiv Lipper.
Taxable bond funds saw outflows of $11 billion that week, while equity funds lost $3.2 billion of cash and municipal (tax-exempt) bond funds lost $1.7 billion.
Money-market funds, on the other hand, brought in piles of cash. Investors put a net $87 billion into the sector as a whole over the week ended March 11, according to Refinitiv, the biggest inflow on record.
Government money-market funds pulled in $97 billion, their second-biggest inflow on record, Refinitiv data show. The biggest week was in Sept. 2008, at the height of the financial crisis.
The results for the week ended March 18 won’t be out until Thursday. But if the steep declines in stocks, longer-term Treasuries, and corporate bonds are any indication, investors are still racing for the exits.
“That need for funds to flow into the economy isn’t going away any time soon,” Juckes wrote. “The result is that while direct financial effects of this crisis might be less acute than in ‘08, they will continue being felt for a long time.”
The Century Bar, Dayton Ohio (image from Facebook)
Is a global recession already beginning as the vast majority of the US and other countries’ workforce grinds to a halt while large cities begin to receive ‘shelter in place’ directives? Yes, says Goldman; and more and more top economists are saying Tuesday it’s a near-certainty. State unemployment numbers are about to bear that out.
A new Marist poll this week for NPR/PBS News found 18% of US adults responding they’d already either been laid off or had significant reduction of hours due to the ripple effect of the pandemic.
For an indicator of just how high national unemployment may skyrocket, look no further than Ohio, which on Sunday night declared a ‘health emergency’ and shut down all bars and restaurants state-wide. Journalist Liz Skalka for The Toledo Bladereports that Ohio Senator Rob Portman (R) received“new data on Ohio’s unemployment claims today: 45,000 claims this week compared to 6,500 last week.”
The state-wide ordered shutdown of dining and drink establishments by Ohio Governor Mike DeWine on Sunday night impacted about 10% of the state’s workforce, some 500,000 people.
A 45,000 unemployment claims number jump from 6,500 means a whopping one-week increase of 592%, and surely now already to soar past 600% into next week.
Likely, Ohio is the canary in the coal-mine at a moment restaurants and bars across New York, California, and other large states are also fast being ordered to shutter their doors.
if this is accurate, and if representative of nat'l trends, that would suggest new UI claims are jumping by a factor of 7., putting them in the 1.4-1.5 million range. That's more than double where they were at the peak of the last recession. Hmmm.https://t.co/oxSYAUs9yJ
As of Tuesday Ohio announced67 confirmed Covid-19 cases across 16 counties, resulting in 17 hospitalizations thus far.
Federal data issued in February counts11,674,000 employees in restaurants in bars across the nation. These jobs are about to be decimated, assuming the latest breaking Ohio numbers of just the past week sets the trend.
“I think that the odds of a global recession are close to 100 percent right now,” Kevin Hassett, Trump’s former chair of the Council of Economic Advisers told CNN on Tuesday. “I think in the US, we’re going to have a very terrible second quarter.”
“You’re looking at one of the biggest negative jobs numbers that we’ve ever seen,” he added, warning further the US is set to shed 1 million jobs in March.
WASHINGTON (AP) — The Trump administration says individuals and businesses will be allowed to delay paying their 2019 tax bills for 90 days past the usual April 15 deadline. The extension announced Tuesday is an effort to inject up to $300 billion into the economy at a time when the coronavirus appears on the verge of causing a recession.
Treasury Secretary Steven Mnuchin speaks during a press briefing with the coronavirus task force, at the White House, Tuesday, March 17,… (AP Photo/Evan Vucci)
Treasury Secretary Steven Mnuchin said individuals will be able to delay paying up to $1 million in payments. Corporations will be able to defer payment on up to $10 million.
Taxpayers will still have to file their tax returns by the April 15 deadline. But they won’t have to pay their tax bill for 90 additional days. During that time, individuals and corporations will not be subject to interest or penalty payments.
“All you have to do is file your taxes,” Mnuchin said.
The Treasury secretary said President Donald Trump had approved the final details of the program, including its expansion to include the potential of allowing taxpayers to keep $300 billion in the economy for now. Last week, Mnuchin had estimated that deferred payments would amount to $200 billion.
Mnuchin had said the delay would apply to all but the “super rich” but did not spell out how the payment delay will work. The IRS has yet to release specific guidelines for the program.
The IRS is using authority under Trump’s national emergency declaration to take the step of approving the 90-day payment delay. Mnuchin encouraged taxpayers to keep filing their returns because many of them will be receiving refunds that they will be able to use to pay bills during the economic downturn.
As of Feb. 21, the IRS had issued more than 37.4 million refunds averaging $3,125.
Mark Zandi, chief economist at Moody’s Analytics, said that the tax delay program was only a stop-gap program but that it should help cushion the economy during a period of severe stress.
“Individuals and small businesses need cash right now,” Zandi said. “Anything that delays them having to send a check to the IRS will allow them to pay for their groceries and make mortgage payments and pay other bills.”
Under normal filing procedures, taxpayers must pay their obligations by April 15, although they can get a six-month extension to file the full return.
Mnuchin, who spoke to reporters at the White House, said that as part of a stimulus plan being negotiated with Congress, the administration is considering ways to send checks to Americans to help alleviate the impact of job losses from layoffs at restaurants and the tourism industry.
“Americans need cash now, and the president wants to give cash now and I mean now in the next two weeks,” Mnuchin said.
With the travel industry staggered by the coronavirus outbreak, Marriott International said Tuesday it planned to furlough tens of thousands of workers in the face of unprecedented booking cancellations.
The world’s largest hotel company, with 30 hotel brands and more than 7,000 properties worldwide, confirmed reports that it will be forced by a surge in cancellations to either cut back work hours or issue furloughs to a large portion of its workforce. Marriott International employed 174,000 people around the world at the end of 2019, according to securities filings.
“We are adjusting global operations accordingly, which has meant either reduction in hours or a temporary leave for many of our associates at our properties,” the company said in a statement Tuesday. “Our associates will keep their health benefit during this difficult period and continue to be eligible for company-paid free short-term disability that provide income protection should they get sick.”
Marriott’s announcement signals that the blow that has already shook the airline industry, theme parks, ski resorts and restaurants has started to rattle the U.S.’s $660-billion hotel and lodging industry.
Already the impact has surpassed the economic blow of the Sept. 11, 2001, terrorist attacks, according the American Hotel and Lodging Assn. and the U.S. Travel Assn., which estimates that the hotel industry is losing $1.4 billion a week.
“Based on current estimates, approximately 1 million direct hotel jobs, or 45% of all hotel jobs, have either been eliminated or will be eliminated in the next few weeks,” the two trade groups said in a statement. ” Current forecasts for a 30% drop in hotel occupancy over a full year would result in nearly 4 million total jobs being lost.”
Marriott did not address how many workers would be furloughed, but the company confirmed that news reports Tuesday about “tens of thousands” of employees being furloughed were accurate.
“While the ultimate impact is difficult to predict at this time given the fluidity of the situation, we remain confident in our long-term prospects,” the Marriott statement said.
In Las Vegas, 14 hotels along the Strip temporarily closed Tuesday, as well as all the hotels and restaurants in Yosemite National Park.
In Southern California, the opening of the 466-room JW Marriott that was scheduled for Monday in Anaheim was postponed indefinitely. The Disneyland Hotel and the Grand Californian at the Disneyland Resort have closed, along with the Great Wolf Lodge in Garden Grove.
The Los Angeles City Council is scheduled to consider Tuesday an emergency measure to require employers faced with economic hardships to fire workers with the lowest seniority first and to have a documented just cause before permanently dismissing employees.
To help hotel workers who have already been fired, a coalition of labor groups, including Unite Here, Local 11, organized a food distribution program Tuesday at the Hospitality Training Academy.
Update (1005ET): As we detailed below, Amazon was already struggling to meet delivery goals and having problems with stock, but now, in a blog post, Amazon told sellers on Tuesday that it’s suspending shipments of all non-essential products to its warehouses to deal with the increased workloads following the coronavirus outbreak.
“We are temporarily prioritizing household staples, medical supplies, and other high-demand products coming into our fulfillment centers so that we can more quickly receive, restock, and deliver these products to customers,” the message said.
That means sellers who use Amazon’s storage and delivery network for a fixed fee, through a program called Fulfillment by Amazon, will no longer be able to ship their products to Amazon.
“We are seeing increased online shopping, and as a result some products such as household staples and medical supplies are out of stock.”
Additionally, Amazon claims it is trying top crack down on gouging…
“We’re also working to ensure that no one artificially raises prices on basic need products during this pandemic and have blocked or removed tens of thousands of items, in line with our long-standing policy. We actively monitor our store and remove offers that violate our policy.”
So, we can’t leave our homes and all we can buy online is staples and medical supplies…
Amazon suspending deliveries. Just when you thought today couldn't get worse.
The online retailer updated its blog post on Saturday and told customers that “we are currently out of stock on some popular brands and items, especially in household staples categories.”
It said that certain items could experience longer than normal delivery times.
“We are working around the clock with our selling partners to ensure availability on all of our products, and bring on additional capacity to deliver all of your orders,” the post added.
In the last two months, Prime members have noticed notifications saying “inventory and delivery may be temporarily unavailable due to increased demand” for certain products, such as 3M N-95 virus masks. More recently, the shortage of products has significantly expanded to bottled water, hand sanitizer, toilet paper, and vitamins. Amazon noted that it has worked extremely hard to crack down on price gouging, especially seen with third-party sellers selling masks and hand sanitizers for many folds over the suggested retail price.
Social distancing has led to the max exodus of shoppers at brick and mortar stores, who have now gravitated to online shopping to prevent spreading.
“As COVID-19 has spread, we’ve recently seen an increase in people shopping online,” Amazon wrote. “In the short term, this is having an impact on how we serve our customers.”
Amazon is gearing up for increased online activity as the virus crisis is expected to worsen in the weeks ahead. A Wall Street Journal report on Monday said the online retailer is expected to add 100,000 workers to cope with the surge in new demand.
The virus crisis will forever change how consumers shop. Social distancing will ensure more online shopping. But in the meantime, Amazon has been caught off guard by the rapid surge and will result in shortages of products and shipping delays.
In many ways the US economy is currently in the eye of the coronavirus storm: cities and states are under quarantine lockdown, the CDC has prohibited any groupings of more than 50 people; stores, clubs, restaurants, bars and hotels are voluntarily shuttering indefinitely as the economy grinds to a halt and yet besides a tapestry of ghost cities across the nation, the immediate impact of the devastating viral storm on the service economy has yet to manifest itself.
But the hurricane is about to hit front and center, and the service-industry mecca of New York City is leading the way.
As the Daily News reports,New York’s unemployment website was overwhelmed Monday as the coronavirus pandemic put tens of thousands of people across the state out of work.
The flood of suddenly jobless workers hitting the Department of Labor website with applications for unemployment benefits was unleashed by a drastic move by Gov. Cuomo, who announced all of the state’s restaurants, bars, movie theaters, gyms and casinos would close by 8 p.m. Monday to contain the corona outbreak.
So many people tried to apply that the website crashed several times throughout the day, while the DOL’s hotline was so jammed up that callers seeking aid could not get through to someone who could handle their claim.
The unemployed can apply from 7:30 a.m. to 5 p.m. on weekdays. DOL spokeswoman Deanna Cohen said the department saw a “spike in volume comparable to post 9/11,” adding there are more than 700 staffers assigned to handle the high demand.
Gabe Friedman, unemployed drag queen
“I’m completely unable to log in and apply” said 26-year-old Gabe Friedman, a drag queen who performs under the name Kiki Ball-Change. “Me and so many other drag queens are completely out of work for at least two months. If I pay rent at the end of April, I would be broke.”
It’s not just the drag queens that find themselves with zero demand for their unique “skills”: tens of thousands of workers across New York’s service industries have already been, or are about to be let go as their employers are forced to either shut down permanently or hibernate until the economy recovers.
The DOL on Sunday waived a seven-day waiting period on unemployment benefits for people out of work due to coronavirus — but that concession proved to be moot as many people could not apply at all.
Rita Lee, 57, who works in the film industry (hopefully not as a drag king), said she started to apply Sunday night after movie productions shut down across the city. She hit a wall once applications opened Monday.
From 11 a.m. to 3 p.m. Lee tried and failed to apply on the website, saying she kept “getting either a system or server error message, or the page will never load.”
“I’ve called all the toll-free numbers, which are recordings that redirect you to a main menu or a message saying that all the operators are overloaded now and to call back,” said Lee. “Can’t reach a human to help.”
David Stollings, a sound engineer at a now-shuttered Broadway theater, called the situation a doozy. “I got the site to load once,” said Stollings. “Before this it was just not loading at all.”
Marnia Halasa, a Manhattan-based figure skating coach, said she was also unable to apply and became worried about paying rent. “What if I have to blow the New York popsicle joint and run back to Ohio to live with my father?,” asked Halasa, who’s lived in the city for 28 years.
* * *
While it is not clear how many New Yorkers will lose their jobs due to the pandemic, Empire Center founder E.J. McMahon told the NYDN the hit could be worse than the Great Recession of the late 2000s when roughly 370,000 people lost their jobs in a more than two-year span.
“The website crashed, that’s evidence that there has never been anything like this so quickly,” said McMahon. “You can fix a computer glitch. But I don’t think the problem is how the safety net operates. I think the problem is how the economy operates in the future for all these people.”
Incidentally, the chief economist of a multi-billion macro hedge fund advised us that they are now modeling approximately 10 million job losses over the next two to three months. We leave it up to readers to decide if that’s too little, too much or just right.
Last week investors were shocked when a barrage of major US corporations – including Boeing, Hilton, Wynn and a handful of PE portfolio companies – announced their decision to fully draw down on their existing credit lines. That said, for all the ominous banking crisis undertones – many still remember that one of the early symptoms of the global financial crisis was countless companies whose revolvers were pulled by a panicking banking sector – there was a common theme linking all these companies: they were all in sectors (airlines, casinos, lodging, energy) that were directly impacted by either the coronavirus pandemic or the recent oil price war.
Today, that changed when food giant Kraft Heinz – which should be benefiting generously from the recent food hoarding panic – was set to also draw down on its credit facility of as much as $4 billion, even though it faced none of the same coronavirus/oil headwinds as so many other companies that jumped the gun to boost their liquidity while they still could.
“We maintain our $4.0 billion senior credit facility, and subject to certain conditions, we may increase the amount of revolving commitments and/or add additional tranches of term loans in a combined aggregate amount of up to$1.0 billion,” the company said.
Speaking to Bloomberg, which first reported the draw down of the Buffett-owned company, a Kraft Heinz spokesman said that “the demand for our brands, our cash flow and our balance sheet remain strong,” which is a rather bizarre explanation why it would need billions more in liquidity. “As a matter of practice, we typically maintain a conservative liquidity posture, which is even that much more important as we focus on making sure all our products remain available to the public during these challenging times.”
One possible reason for Heinz’s liquidity problems is that while other sectors have been crippled by the ongoing dual viral-oil shock, the ketchup maker has seen it share of corporate woes in recent years, most recently its downgrade to junk by S&P Global Ratings and Fitch Ratings, when it also warned that the downgrades may limit its access to financing sources such as the commercial paper market, requiring it to use alternative funding sources such as its senior credit facility.
And, as we discussed yesterday, the commercial paper market is starting to freeze up (something the Fed failed to address in its emergency Sunday announcement) which is forcing companies like Heinz to seek alternative, last ditch sources of liquidity.
Indeed, as Bloomberg noted today, issuance of commercial paper dropped to 3,125 transactions on March 13, according to figures released Monday; that’s down 13% from the average daily rate in the week ending March 6 and 18% since February. At the same time, a closely watched CP spread – that between three-month AA rated financial and non-financial commercial paper rates versus overnight index swaps – shows some of the most stress since the financial crisis.
“I am not surprised, liquidity is the lifeblood of these types of programs,” said Scott Kimball, a portfolio manager at BMO Global Asset Management. “When markets lock up like this, interest rates surge to levels that are unsustainable for business.”
Yet what is odd, is that Kraft Heinz said in a regulatory filing last month that it had no commercial paper outstanding at the end of 2019 and that the maximum amount it held during last year was $200 million.
So maybe the company’s rush to its banking syndicate is simply that: a panicked attempt to grab as much cash as it can before it is locked out as banks go into cash conservation mode, something their halt of stock buybacks made quite clear is coming.
Created in a catastrophic merger five years ago orchestrated by Warren Buffett’s Berkshire Hathaway and private equity firm 3G Capital, Kraft Heinz is in the midst of a turnaround as its brands fall out of favor with consumers. Its shares have crashed 16% in the past month, less than the decline of the S&P 500 Index, amid ongoing consumer demand for food and beverages, although today’s revolver news will hardly excite investors.
The numbers: The New York Fed’s Empire State business conditions index plunged a record 34.4 points to -21.5 in March, the regional Fed bank said Monday. Economists had expected a reading of 4.8, according to a survey by Econoday. This is the lowest level since the financial crisis in 2009.
What happened: The new-orders index fell 31.4 points to -9.3 in March. Shipments fell 20.6 points to -1.7. Labor-market indicators weakened. The average workweek fell to -10.6 in March from -1. The number of employees fell to -1.5 from 6.6. Optimism about the six-month outlook dropped to 1.2 from 22.9.
Big picture: This is one of the first readings of the coronavirus outbreak’s impact on the economy and the results are not pretty. The worst seems yet to come. Fed Chairman Jerome Powell said Sunday that he expects negative GDP growth in the second quarter.
What are they saying? “The impact of the coronavirus was still in its early stages at the time of this survey. Nonetheless, the early indications suggest that the impact was substantial,” said T.J. Connelly, head of research at Contingent Macro.
Market reaction: A major rate cut by the Federal Reserve has failed to stemmed pessimism in financial markets. Stock market futures remained limit down ahead of Monday’s open. On Friday, the Dow Jones Industrial Average DJIA, -12.92% soared 1,985 points.
Right now, today, the retail food supply-chain is trying to recover from previous panic buying. Across the nation grocery stores are wiped out. Warehouses are emptying trying to replenish the stores. The upstream suppliers are trying to resupply the warehouses.
Supermarkets are closing early and opening late while trying to stem panic and fulfill customer demand. Now is exactly the wrong time to limit food choices and push more people into those retail food stores.
No advance notice. No time to prepare or plan… just an immediate order.
Imagine what will happen tomorrow morning in Ohio and Illinois at grocery stores.
Notice these orders from short-sighted governors are in effect almost immediately. Meaning no-one has had the time to prepare for this type of a disruption in the total food supply chain.
These governors do not have any experience, policy framework, or previously established state-wide systems (having been tested through experience) for a process of rapid food distribution as a result of a state emergency. They are flying by the seat of their pants, and taking advice from the wrong people with the wrong priorities and the wrong frame-of-reference.
A government cannot just shut down 30 to 50 percent of the way civil society feeds themselves, without planning and advanced preparation for an alternative. Those who ARE the alternative, the retail food grocers, need time to prepare themselves (and their entire logistical system) for the incredible impact. Without preparation this is a man-made crisis about to get a lot worse.
Some states have emergency food distribution and contingency plans. Those states are hurricane prone states; and those states have experienced the intense demand on the food distribution system when restaurants are closed and people in society need to eat.
Those states have, by necessity, developed massive logistical systems to deal with the food needs of their citizens. These current short-sighted states are not those prepared states.
Any governor who shuts down their restaurant industry without a civil contingency plan is being incredibly, catastrophically, reckless. It really is a terribly dangerous decision.
Any policy that drives more demand, when demand is already outpacing supply, is a bad policy. This is the food supply chain we are talking about. This is not arbitrary stuff being discussed. This supply chain is critical.
People freak out about access to food.
For the past 20 to 30 years there have been exhaustive studies on the growth of the restaurant sector. It has been well documented that as the pace of society increased, as efficiencies and productivity increased; and as less of the population learned how to cook and prepare meals; approximately 30% of retail food growth dropped.
Multiply the impact of lower food shopping over all those years. More Americans eat at restaurants now. Depending on the area, there are estimates that fifty percent of all food consumed is from “dining out” or “food consumed outside the home.”
Most of the current panic shopping is because people are preparing by buying weeks worth of food products. Closing restaurants will only magnify that panic shopping.
If state officials are going to make these decisions, they need to coordinate closely with the retail grocers and food outlets in their states. The decision to shut down restaurants must be very closely coordinated and timed with a civil society need for alternatives. Those providing the alternatives need time… not much time…. but they need time.
This is exactly the wrong time to shut restaurants and put additional pressure on a national food supply chain that is trying to meet overwhelming demand.
Either these officials are intentionally trying to create civil unrest, or they are just inexperienced politicians without the ability to think through the logical conclusions to their mandated orders. I’m not sure which it is. However, regardless of intent or stupidity, these types of knee-jerk decisions will harm more people than the virus itself.
Drive-thru and curbside services will not work. Yes, McDonalds and similar do and can provide drive-thru services… but they are not designed for exclusive “drive-thru” services. Approximately eight percent of all daily fast-food comes from McDonalds imagine a line of cars a mile long for a drive-thru hamburger. Then imagine that car, after waiting four hours in that line, orders a month’s worth of hamburgers…. and then that supply chain collapses…. See, it ain’t that simple.
These decisions create the snow-ball effect…
Most restaurants are not not set-up for immediate delivery…. Yes, all of these challenges can and will be overcome; restaurants will limit their curbside products, fast food will put a limit on orders, kitchens will modify to adjust to the work-flow, etc. However, it takes a time to prepare for these necessary shifts and changes.
A more prudent step would be for state officials to provide mitigation directives, simple and prudent changes, during a phase that allows restaurants to adapt:
Position all tables 6 feet apart.
Provide single use condiments and utensils.
Provide disinfecting wipes at the front door and on tables.
Limit the opportunity for virus spread by modifying the consumer engagement.
These types of dining out measures can be prudent and allow for the mitigation of the virus without spreading wide-scale panic that only worsens the issues for alternative options.
Arbitrarily shutting down restaurants, effective immediately, is not a good idea and will only increase the panic and anxiety…. Then again, maybe that’s the goal.
I was just at the Target in Boca Park in Las Vegas and the food shelves are empty.
There was plenty of produce, cereal, and snack foods available but most essential items were out of stock. pic.twitter.com/NYcL7grrw0
The gold / silver ratio. It’s simple: Take the price of an ounce of gold and divide it by the price of an ounce of silver. Presto; the resulting number is the gold / silver ratio.
104 Gold Silver ratio
The ratio is most useful at its extremes. When the ratio has topped 80, it has signaled a time when silver was relatively inexpensive relative to gold. Silver went on to rally 40%, 300%, and 400% the last three times this happened.
Likewise, the three times the gold / silver ratio has fallen below 20 in the past, it has marked a period when gold was relatively inexpensive compared to silver.
This is the best of savvy investment strategy; take a simple mathematical equation and track historical price behavior. When relative valuations hit extremes and then revert to historical means time and time again, we seek to buy these temporary under valuations and wait for their inevitable pendulum swing in the opposite direction.
For the above-mentioned period, we have served 2,626 customers with a sales revenue of more than SGD 50 M, which is 477% higher compared to the same period last year.
The last few days have been our busiest days of all time. Our staff members have been doing a fantastic job in going out of their way to serve as many customers as possible.
Gold & Silver Shortages – Supply Squeeze
The enormous increase in demand is straining our supply chains. BullionStar has supplier relations with most of the major refineries, mints and wholesalers around the world. Most of our suppliers don’t have any stock of precious metals and are not taking orders currently. The U.S. Mint for example announced just this Thursday that American Silver Eagle coins are sold out. The large wholesalers in the U.S. are completely sold out of ALL gold and ALL silver and are not able to replenish.
We are already sold out of several products and will sell out of additional products shortly if this supply squeeze continues. All products listed as “In Stock” on our website are available for immediate delivery. For items listed as “Pre-Sale”, the items have been ordered and paid by us with incoming shipments on the way to us.
This means that the physical gold market is a price taker, inheriting the price from the paper market, and that the derivative markets are the exclusive and dominant price makers. The entire market structure of this financialized gold trading is flawed. So while there is unprecedented demand for physical gold, this is not reflected in the gold price as derived by COMEX and the London unallocated spot market.
By now it is abundantly clear that the physical gold market and paper gold market will disconnect.
If the paper market does not correct this imbalance, widespread physical shortages of precious metals will be prolonged and may lead to the entire monetary system imploding.
Mainstream media assertions that “Gold has been stripped of its Safe Haven Status” are utterly ridiculous and distorted beyond belief, when in fact the complete opposite is true. Unbacked paper gold and silver may be stripped of safe haven status, but certainly not real physical gold bullion.
Physical Premiums & Spreads
The current supply squeeze and physical bullion shortage has caused and is causing an increase in price premiums. It’s currently difficult and expensive for us to acquire any inventory. We have therefore had to increase premiums on products to compensate for the constraints. We have endeavored to also raise our prices offered to customers selling to us, but with the extreme volatility and wild price fluctuations, the spread between the buy and sell price may temporarily be larger than normal. It is regrettable that premiums and spreads are larger than normal but it is outside our control that the paper market is not reflecting the demand and supply of the physical market. As many of you know, we are one of the largest critical voices of the LBMA run paper market and its bullion bank members in London.
Please note that premiums are likely to be higher on weekends when the markets are closed compared to weekdays.
We do not take lightly the decision to alter premiums but feel that it is a better alternative than to stop accepting orders altogether during weekends. Likewise it is a better alternative than to stop accepting orders when the paper gold market is in turmoil and failing to reflect the demand and supply realities of the physical bullion market.
Currently, we are completely sold out on BullionStar Gold Bars, BullionStar Silver Bars and are running low on several other products which we are not able to replenish for now. Several stock items will therefore likely go out of stock shortly. This is despite us having been aggressively buying bullion to create a buffer reserve inventory.
By now everyone is familiar with the abundant pictures on social media of empty shelves in local stores. Having some familiarity with the supply chain might help people to understand some of the challenges; and possibly help locate product. (Pics from Twitter)
There are essentially two types of distribution centers within the retail supply chain for most chain markets, food stores and supermarkets. The first type is a third party, or brokered, distribution network. The second type is a proprietary, company owned, distribution center. Knowing the type of distribution helps to understand what you can expect.
If your local retail store is being replenished from a third party distribution center, you can expect greater shortages and longer replenishment times; we will see entire days of empty shelves in these stores. However, if your local retail store owns their own warehouse and distribution network, the replenishment will be faster. In times of rapid sales, there is a stark difference.
These are general guidelines: An average non-perishable distribution center will replenish approximately 60 stores. Those 60 stores will generally not extend beyond 100 miles from the distribution center. The typical company owned warehouse will have approximately 20 tractors (the semis) delivering trailers of goods to those sixty stores.
In this type of network… On a typical day a truck driver will run three loads. Run #1 Delivery-Return; Run #2 Delivery-return, Run #3 Delivery Return. End shift.
If every tractor is operating that’s a maximum capacity of 60 trailers of merchandise per day. Many stores receiving more than one full trailer.
A typical store, during a non-emergency, will receive 1 full trailer of non-perishable goods three to five times per week. However, under current volume the purchased amount of product is more than triple normal volume. It is impossible to ship 180 trailers of merchandise daily to sixty stores with 20 fixed asset tractors. This is where the supply chains and logistics are simply incapable of keeping up with demand.
Thinking about distribution to a 100 mile radius. The stores closest to the distribution center will be delivered first, usually overnight or very early morning (run #1). The intermediate stores (50 miles) will be delivered second, mid-morning (run #2). The stores furthest from the distribution center will be delivered third, late afternoon (run #3).
So if you live close to a distribution center, your best bet is early morning. If you live in the intermediate zone, late morning to noon. If you are in the distant zone in the evening.
The current problem is not similar to a holiday, snow event or hurricane. In each of those events typical store sales will double; however, during holidays or traditional emergencies the increase in product(s) sold is very specific: (a) holiday product spikes on specific items are known well in advance and front-loaded; and (b) snow/hurricanes again see very specific types of merchandise spikes, with predictability.
In the current emergency shopping pattern the total business increase is more than triple, that’s approximately 30% more than during peak holiday shopping. Think of how busy your local store is on December 23rd of every year. Keep in mind those customers are all purchasing the same or similar products. Now add another 30%+ to that volume and realize the increases are not specific products, everything is selling wall-to-wall.
Perishable and non perishable products are selling triple normal volume. This creates a replenishment or recovery cycle that is impossible to keep up with. The first issue is simply logistics and infrastructure: ie. warehouse (selectors, loaders), and distribution (tractors, trailers, drivers). The second issue is magnifying the first, totality of volume.
A hurricane event is typically a 4 or 5 day cycle. A snow event might be 2 days. The holiday pattern is roughly a week and all the products are well known. However, the type of purchasing with coronavirus shopping is daily, everything, with no end date.
Once the store is wiped out, a full non-perishable recovery order might take four tractor-trailers of merchandise. In our common example, if every store needed a full recovery order that would be 240 tractor-trailers (60 stores x 4 per store). This would need to happen every day, seven days a week, for the duration of the increase. [And that is just for the non perishable goods]
That amount of increase is a logistical impossibility because: (a) no warehouse can hold four times the amount of product from normal distribution; (b) the inbound supply-chain orders to fill the distribution center cannot simply increase four fold; and (c) even with leased/contracted drivers doubling the amount of tractors and trailers, there’s still no way to distribute that much product.
Instead what we see are priorities being assigned to specific types of product that can be shipped to maximize “cube space” in outbound trailers going to stores. A distribution center can send 100 cases of canned goods (one pallet) in the same space as 15 cases of paper towels or toilet tissue (one pallet). So decisions about what products to ship have to be prioritized.
Club stores (ex. BJ’s, SAM’s, or Costco) can ship bulk paper goods faster because they do not carry a full variety of non-perishable items. The limited selection in Club stores naturally helps them replenish; they carry less variety. Meanwhile the typical supermarket distribution center has to make decisions on what specific goods to prioritize.
Nationally (and regionally) the coronavirus shopping panic is far outpacing the supply chain of every retailer. Instead of a weeks worth of food products, people are now trying to purchase a months worth. Every one day of coronavirus sales is equal to three or four normal days.
To try and get a handle on this level of volume we will likely see changes in operating hours. Expect to see stores closing early or limiting the amount of time they are open every day…. the reason is simple: (1) they don’t have the products to sell over their normal business hours; and (2) they need to move more labor into a more compact time-frame to deal with the increases in volume.
Has anybody been to the grocery store today? I shop every Friday morning at a west Georgia Walmart. This is how it looked. My Sister lives in northern Alabama and said the shelves were empty at Walmart too. My Daughter said Publix was the same.#panicbuying#Walmart#Publix DAMN! pic.twitter.com/9XKLxILBt7
We just witnessed a global collapse in asset prices the likes we haven’t seen before. Not even in 2008 or 2000. All these prior beginnings of bear markets happened over time, relatively slowly at first, then accelerating to the downside.
This collapse here has come from some of the historically most stretched valuations ever setting the stage for the biggest bull trap ever. The coronavirus that no one could have predicted is brutally punishing investors that complacently bought into the multiple expansion story that was sold to them by Wall Street. Technical signals that outlined trouble way in advance were ignored while the Big Short 2 was already calling for a massive explosion in $VIX way before anybody ever heard of corona virus.
Worse, there is zero visibility going forward as nobody knows how to price in collapsing revenues and earnings amid entire countries shutting down virtually all public gatherings and activities. Denmark just shut down all of its borders on Friday, flight cancellations everywhere, the planet is literally shutting down in unprecedented fashion.
At the start of January, when the market euphoria was at an all time high, the blow off top melt up was raging and an army of millennial Robinhood day traders was about to be unleashed (only to be crucified at the end of February), we first warned our readers that “Institutions, Retail And Algos Are Now All-In, Just As Buybacks Tumble.” In the markets, nobody noticed and the warning fell on deaf ears as the relentless melt up, which we called for what it was, namely a clear “distribution” from smart to dumb money – continued.
Exactly two months and one bear market later, the first in 11 years, they finally noticed, with Bloomberg today writing that US companies, which until now were quite happy to sell some BBB-rated bonds and use the proceeds to buy stocks to prop up their stock price, have stepped back from repurchasing their shares even before the coronavirus outbreak (something we made quite clear in January).
Using a calculation by the permabulls over at Birinyi, Bloomberg reports that companies have announced $122 billion of share repurchases in January and February, which as we warned was the lowest in years and down 46% from a year ago for the biggest drop to start a year since 2009.
The numbers above fail to capture the crash in markets the followed the acute phase of Coronavirus pandemic, as well as the most recent oil plunge that has caused a plunge in oil prices and hammered all junk-bond funded companies. As such, Bloomberg’s reporters correctly point out that the “reduction underlines a concern that will get bigger should the virus inaugurate an age of prudence among corporate treasurers. Luxuries such as share repurchases, while showing signs of picking up amid the rout, are easy to cut when cash preservation and creditworthiness become the priorities.“
Which is not to say that companies do not buyback their stock when markets tumble: indeed during prior corrections, repurchases may have prevented equity losses from snowballing. For example, in the middle of the sell-off in May 2019, repurchases by BofA’s corporate clients surged 23% for the eighth-busiest week in a decade. The market bottomed on the first day of June. During the route in February 2018, the rebound in stocks came in a week when Goldman Sachs’s corporate-trading desk saw the most buyback orders ever.
This time however, with a global recession over the corner, it may be different. Indeed, with companies now rushing to draw down on revolvers in a liquidity procurement panic, the last thing they will be spending money on ahead of the recession is buybacks. In fact, one can argue that the main reason why we are now in a bear market and on the verge of a recession is because of companies such as Boeing, which until recently spent billions on buybacks; companies which are now drawing down on their revolvers.
“If they’re forced to use that for other areas of the business, you’ll lose some of that key support in the market,” said Mike Stritch, chief investment officer for BMO Wealth Management. “That’s a key underpinning for the stock market, and you do worry you’re going to see some companies folding up on this.”
That the disappearance of buybacks is a problem is an understatement: as we reported recently for the past decade, the only source of buying have been companies themselves, repurchasing their stock.
Ironically, while companies should have stopped repurchasing their stock a long time ago, buyback appetite remained strong in recent weeks, and in the final week of February, when the S&P 500 tumbled the most since 2008, Goldman’s corporate clients snapped up their own shares at the fastest rate in two years, with volume running at 2.3 times the average in 2019. Unfortunately, it now appears they used up much of their dry powder just as stocks were about to take another leg lower.
In a perfect world, companies should maximize their buybacks at the lows and halt them at the highs, yet in the real world the opposite happens, even if there are plenty of experts who will tell you what “should” happen, experts such as Don Townswick, director of equity strategies at Conning, who told Bloomberg that “when your stock price is undervalued, buybacks become more attractive. At these levels in the marketplace, smart management is looking at this and thinking, ‘This is the time to actually realize those buybacks. We’re buying our stock 15% below where we thought it was.’”
Ah yes, but what Don is forgetting is that the bulk of buybacks in recent years was debt-funded, and unfortunately right now credit markets are slammed shut which means that companies have to rely on their own cash flow generation and cash balances to fund management’s favorite stock option boosting activity. There is just one problem: as we first reported last year, corporate America’s cash is draining at the fastest rate in decades, with balances at S&P 500 companies excluding financial firms plunging 15% in the past 12 months.
What’s worse is that the market now appears to be frontrunning the inability of companies to prop up their own stock prices, and is punishing those companies that have relied the most on buybacks. As Bloomberg notes, while the whole market is down more than 11% this year through yesterday, the S&P 500 Buyback Index that tracks stocks with the highest payout ratio has fared far worse, falling 19% this year.
Almost as if traders know that the golden goose, that propped up the market on so many occasions in the past, is now dead.
Payments on mortgages for families and small businesses will be suspended across the whole of Italy due to the coronavirus outbreak’s worsening impact on the country’s economy, the deputy economy minister said today.
‘Yes, that will be the case, for individuals and households,’ Laura Castelli, Italy’s deputy economy minister, said in an interview with Radio Anch’io today, when asked about the possibility.
Italy’s banking lobby ABI said on Monday lenders representing 90 per cent of total banking assets would offer debt moratoriums to small firms and households grappling with the economic fallout from Italy’s coronavirus outbreak.
The news comes as Italy announced that it had doubled the amount it plans to spend on tackling its coronavirus outbreak to £6.5billion and is raising this year’s deficit goal to 2.5 per cent of national output from the current 2.2 per cent target.
After the bloodbath caused by Saudi Arabia’s decision to ramp up output, European oil companies at first blush look enticingly cheap.
The Johan Sverdrup oil field in the North Sea, west of Stavanger, Norway, Getty Images
The dividend yield in BP, for example, is a mouth-watering 9.35%, according to FactSet Research. For perspective, the yield on a British 10-year gilt is 0.27%.
But with oil prices so low, how could BP possibly afford to pay such a dividend?
In a note to clients with little in the way of commentary, Morgan Stanley ran the numbers on what European major oil companies would look like with Brent crude at $35 a barrel.
Probably the most jarring numbers are the dividend cover at that level.
Equinor this year could cover just 1% of its dividend versus its previous estimate of 93%, according to the Morgan Stanley calculation of life at $35 a barrel.
The best positioned is OMV, which can still cover 107% of its dividend at $35, down from an estimated 198%.
BP’s dividend cover falls to 54% from 107%; Shell’s drops to 72% from 115%; Total’s goes to 62% from 125%; Eni’s drops to 57% from 87%; Repsol’s falls to 79% from 123%; and Galp’s drops to 52% from 115%.
Stock buybacks for the European major oil companies would drop by two-thirds on the Morgan Stanley numbers.
SANTA BARBARA, Calif. – The Employment Development Department (EDD) of California is providing workers who are unable to work because of the coronavirus with various insurance claims they may be eligible for.
Governor Gavin Newsom informed the public about these claims on Twitter Monday afternoon.
If your hours have been reduced or your employer has shut down operations due to Coronavirus — you can file an Unemployment Insurance claim.
The Unemployment Insurance claim provides partial wage replacement benefit payments to workers who lose their job or have their hours reduced, through no fault of their own.
The department says workers must remain able and available and ready to work during their unemployment for each week of benefits claimed and meet all other eligibility criteria. Eligible individuals can receive benefits that range from $40-$450 per week.
The department is also reminding individuals that they can file a Disability Insurance claim if they become sick or quarantined with the coronavirus. This claim, which is available for non-work-related illness, injury or pregnancy, provides short-term benefit payments who are losing money due to their health condition.
In order to file for this claim, the worker’s claims must be certified by a medical professional. Benefit amounts are listed as being around 60-70 percent of wages (depending on income) and would range from $50-$1,300 a week.
Those who are unable to work because they are caring for someone sick with the coronavirus are able to file a Paid Family Leave claim. This claim provides up to six weeks of benefit payments to workers who are losing wages while caring for a family member with a serious illness.
The benefits from the Paid Family Leave claim would cover 60-70 perfect of the worker’s wages (depending on income) and would range from $50-$1,300 a week as well.
For more information from the EDD about potential insurance claims related to the coronavirus, you can visit their website here.
(Denise Lones) There are many ways to react about the virus breakout. It doesn’t seem to matter where you go – the news is talking about it everywhere. It is completely normal to feel concerned, unsure, nervous, worried, and more.
However, the reality is that there is not a lot that any of us can do about the virus other than be informed and be aware of the things that we can do to keep ourselves and our families safe. From a business perspective it may seem like there is a lot of doom and gloom out there, but there are many things you could be doing to keep yourself busy and productive.
If you find yourself more home bound than usual, there are some things that you can do to make that time productive. You can:
Catch up on your client connections by sending out a mailer or cards,
Work on your Annual Client Reviews which often get put off because you are too busy,
Do custom research for each of your potential clients and send it to them now, while they too may be home bound and have extra time.
While it may feel like the world is slowing down and that real estate may come to a screeching halt, that is just not realistic, and it is not worth worrying about. Stop panicking and start taking action to catch up on projects or to help your potential buyers and sellers plan to do the things that they haven’t had time to do. How many times does a seller tell you that they can’t put their home on the market until they paint a room or put away their belongings or do a deep cleaning? This could be the perfect time for them to complete this project that never seems to make it into their regular schedule.
While the rest of the world may be focusing on only the negative try to keep your mind focused on something more positive and productive. Sit down and make a list of all the projects you would love to complete and then start tackling them.
Don’t spend your time focusing on the “what ifs” of this virus. Focus on what you have control over which is making a huge dent in the things you have been putting off. It is normal to worry, but try to put things into a more positive light.
This comes as demand has been slashed due to the coronavirus outbreak
Prince Abdulaziz, energy minister of Saudi Arabia
Saudi Arabia will increase its oil output next month to more than 10 million barrels per day, following talks between OPEC and its allies which failed to come to an agreement.
KSA has cut its oil prices drastically, more than it has in 20 years, with discounts to buyers in Europe, the Far East, and the US meant to draw more refiners to Saudi crude rather than other crude oil suppliers.
Bloomberg reported that Saudi Arabia has privately said it could raise production to 12 million barrels per day, citing anonymous sources.
This comes as demand is slashed due to the ongoing coronavirus outbreak.
… amid a (long-overdue) investor revulsion to the highly levered energy sector, much of which is funded in the high yield market, as crashing oil prices bring front and center a doomsday scenario of mass defaults as shale companies are unable to meet their debt and interest payment obligations, investor focus is shifting up the funding chain, and after assessing which shale names are likely to be hit the hardest, with many filing for bankruptcy if oil remains at or below $30, the next question is which banks have the most exposure to the energy loans funding these same E&P companies.
Conveniently, in a note this morning looking at the impact of plunging interest rates on bank profitability, Morgan Stanley also lays out the US banks that have the highest exposure to energy in their Q4 loan books.
With stocks tumbling, the VIX has, predictably, soared, briefly tipping above 50 intraday on Friday and last trading above 46, surpassing the levels hit during the Volmageddon in Feb 2018 and the highest level since the US credit rating downgrade in August 2011.
Just as dramatic is the accelerating VIX term structure inversion, which has pushed the curve to the steepest backwardation since the financial crisis…
Remember, Maiden Lane LLC? The loan to Maiden Lane LLC loan was extended under the authority of Section 13(3) of the Federal Reserve Act, which permitted the Board, in unusual andexigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations.
Will The Fed declare unusual and exigent circumstances, like they did with Bear Stearns, JP Morgan Chase and Maiden Lane?
Perhaps The Fed will add stocks, corporate bonds and real estate citing unusual and exigent circumstance.
“The bond market is rallying because The Fed has reacted the seizure in the corporate bond market – which is not getting enough attention.”
The Fed cut rates, he added, “in reaction to even the investment being shutdown for 7 business days.“
Gundlach noted that Powell’s background in the private equity world – rather than academic economist land – has meant that his reaction function is driven by problems in the corporate bond market as “this will be problematic for the buyback aspect of the stock market.”
As HY is already at its widest since 2016…
And that’s why Gundlach is long gold:
“I turned bullish on gold in the summer of 2018 on my Total Return webcast when it was at 1190. And it just seems to me, as I talked about my Just Markets webcast, which is up on DoubleLine.com on a replay, that the dollar is going to get weaker.
And the dollar getting weaker seems to be a policy. And the Fed cutting rates, slashing rates is clearly going to be dollar negative. And that means that gold is going to go higher.“
Rascoff purchased the house in 2016 for $19.7 million
Spencer Rascoff and the property (Credit: Twitter, Zillow, and Google Maps)
Spencer Rascoff, the co-founder and former CEO of Zillow, has put his Brentwood Park estate on the market for $24 million, according to Redfin. The asking price is $7 million over the “Zestimate,” or Zillow’s appraisal of what the home is worth.
Property records show that Rascoff paid $19.7 million for the property in 2016.
The listing states that the 12,700-square-foot home – remodeled by architects Ken Ungar and Steve Giannetti – is located on a half acre in a gated neighborhood. The Zillow Zestimate for the house suggests it’s worth $16.7 million.
Josh and Matt Altman of Douglas Elliman have the listing.
Rascoff purchased the house from investment banker Michael J. Richter, who reportedly paid $9.3 million for the Parkyns Street manse in 2012.
The home has six bedrooms and nine bathrooms, along with a “spectacular” chef’s kitchen, a state-of-the-art theater with stadium seating, a fitness studio and a large master suite with a large balcony. The estate also features a two-bedroom guest wing, a motor court, and a spa, pool and mudroom.
Rascoff is currently launching dot.LA, a news and events company that will cover the tech scene in Los Angeles.
It’s not just in China where the effects of the novel coronavirus are being felt – it’s in China Towns situated worldwide. Fear is gripping people around the world and, coupled with the uncertainty that is inevitable with the WHO and world leaders dragging their feet, it is keeping people out of Chinese businesses.
As Chinese citizens of other countries try to go about business as usual in the midst of what is likely a growing pandemic, business is collapsing. Lily Zhou’s Chinese restaurant in Australia, for instance, has seen business fall 70%, according to Bloomberg. It now has a board out front where “The restaurant has been sanitized!” is written in Chinese.
Zhou says at this rate, she can only stay in business “at most three months”.
The affect on the local economy has been so bad that the neighborhood of Eastwood is planning on setting up a A$500,000 assistance fund.
But the affects aren’t just being felt in Australia. There are Chinatowns and Chinese businesses in places like Sydney, New York and San Francisco that are all feeling the impact.
99 Favor Taste, a hotpot and BBQ restaurant in lower Manhattan, is now seating customers immediately. The restaurant usually has a half hour wait on weekdays to get a table. “Booths are empty,” said manager Echo Wu.
Wu believes that the fear keeping people out of Chinese businesses is “irrational”. He says customers have even gone so far as to phone ahead to check and make sure the food wasn’t being imported directly from China.
Wu said: “They may have a bias toward Chinese restaurants now. I hope people can be more reasonable. After all, there’s no cases in town yet.”
In Toronto, it’s a similar scene. Business at the Rol San Dim Sum restaurant is down as much as 30% and the sidewalks of Chinatown are quiet. The restaurant’s manager said it was “of course” due to the coronavirus.
At the Chinatown in Manchester, U.K., students stopped showing up after returning from the Chinese New Year holiday. The head of the local business association said: “There are less visitors, less customers. They’re really, really suffering — at the moment we haven’t come up with any solution yet. The group is discussing options such as opening a weekend market with free food tasting and discounts to bring back clients.”
San Francisco’s Chinatown has seen its lunch rush “evaporate”. One business owner, Henry Chen, said: “Usually we have a line out the door. There are less people on the street. Lunch, dinner, breakfast, there is no business.”
Philip Wu, who manages a hot pot restaurant in Sydney’s Chinatown, says that lifting travel restrictions is crucial for business.He has seen a 60% drop in business and has asked all 100 of his workers to cut their hours to four days a week.
“If the government says ‘Okay, we’ll stop the ban on the flights, and the people can travel to Australia,’ then I think the business will go up very quickly, because tens of thousands of Chinese people will be coming back,” he said.
But that looks extremely unlikely. And these are still just minor examples compared to the disruption in places like China and Hong Kong, where schools are closed and people are stuck in their apartments under quarantine. These types of lockdowns are now spreading to Italy and other neighboring countries.
And, unfortunately, we feel like it’s going to get worse before it gets better.
More and more New York City hotels are defaulting on their mortgages, signaling an alarming trend in the industry as “challenging market fundamentals” and new supply act as headwinds for the industry.
This has resulted in room rates declining and sites like Airbnb gaining traction in the market, according to The Real Deal.
The main metric to watch is the average daily room rate, which has dropped in New York City to its lowest point since at least 2013: $255.16, according to STR. More than 22,000 new hotel rooms remain in the pipeline, as well, which will further add to the supply glut and likely push room rates even lower.
As a result, loans like a $260 million loan on the Row Hotel near Times Square have been in default. In the case of the Row Hotel, it’s lender is looking to offload the loan on the secondary market for as little as $50 million. Meanwhile, the hotel itself has been on the market since last year, but has little interest from buyers.
Colony Credit, the lender, says there has been a “significant deterioration” in the hotel market and that feedback during the sales process has led them to mark down the value of the loan.
In 2019, Heritage Equity Partners defaulted on a $68 million loan for the Williamsburg Hotel. That property is now in the process of heading toward receivership. Lenders to Maefield Development’s hotel at 20 Times Square have also sought to foreclose on $650 million in loans that were made for the project. East West Bank has also moved to foreclose on loans secured by the Selina Chelsea.
The Blakely Hotel was shut down altogether last month by its owner, Richard Born, who blamed challenges facing the industry.
Finally, there are an additional 21 CMBS mortgages backed by New York hotels that remain under watch for potential difficulties.
As if the industry wasn’t facing headwinds of its own, it also now has to deal with the backlash of the coronavirus outbreak. We’re guessing that the droves of Chinese tourists usually meandering their way around Manhattan on any given day will likely continue to thin out, as travel restrictions between China and the U.S. remain in place. As we’ve already noted, the virus has already taken its toll on Chinese owned businesses in New York.
Now Wah Tea Parlor’s owner, Wilson Tang, said that on February 3, his restaurant saw an unprecedented 40% drop in business, according to Eater New York. It was a similar story out of critically acclaimed Sichuan restaurant Hwa Yuan, which also saw a steep plunge in sales 2 weeks ago.
Tang said: “It sucks. The past couple days suck. We’ve been letting people go early, just to let them take some extra time off. It’s slow in general.”
Elizabeth Chin, a travel agent in Fort Lee, N.J. told the NY Times: “It’s going to be a serious financial burden. The flights are canceled. The tour operators have canceled.”
Bruce Zhu, the manager of China Tour Travel Services in Flushing, Queens said: “It’s a big problem. We have to cancel the bookings, cancel the hotels. We lose a lot of money on the bookings.”
“It’s all stopped — zero,” another travel agent in Flushing lamented.
The rate of credit card balances that are 30 days or more delinquent at the 4,500 or so commercial banks that are smaller than the top 100 banks spiked to 7.05% in the fourth quarter, the highest delinquency rate in the data going back to the 1980s (red line).
While mom and dad on Main St. still aren’t getting the dire warning that the coronavirus has been offering up to Asia and the rest of the Eastern world over the last several weeks, perhaps a light bulb will finally go off when Jane Q. Public heads to the grocery store and is unable to buy shampoo and toothpaste.
Proctor and Gamble, one of the world’s biggest “everyday product” manufacturers, has now officially warned that 17,600 of its products could be affected and disrupted by the coronavirus. The company’s CFO, Jon Moeller, said at a recent conference that P&G used 387 suppliers across China, shipping more than 9,000 materials, according to CIPS.org.
Moeller said: “Each of these suppliers faces their own challenges in resuming operations.”
And it’s not just everyday consumer goods that are going to feel the impact of the virus.
Smartphones and cars are so far among the consumer products that have been hardest hit from the virus. In fact, according to TrendForce, “forecasts for product shipments from China for the first quarter of 2020 had been slashed, by 16% for smartwatches (to 12.1m units), 12.3% for notebooks (30.7m units) and 10.4% for smartphones (275m units). Cars have dropped 8.1% (19.3m units).”
Their report states: “The outbreak has made a relatively high impact on the smartphone industry because the smartphone supply chain is highly labor-intensive. Although automakers can compensate for material shortage through overseas factories, the process of capacity expansion and shipping of goods is still expected to create gaps in the overall manufacturing process.”
A separate coronavirus analysis by Mintec says that “Chinese demand for copper (it has hitherto been responsible for consuming half the world’s output), will fall by 500,000 tonnes this year, and falls in demand have already impacted prices. From December to January the price of copper fell 9.6%.”
The report notes: “Millions of people have been affected by the travel lock down in Hubei province, the centre of the outbreak. This has been responsible for a glut of jet fuel and diesel on global markets at a time when petroleum supplies were already abundant.”
Other products that have been negatively affected so far include pork, which is up 11% this month, chicken, garlic and dried ginger.
Product supply chain issues could eventually compound hysteria at supermarkets if coronavirus becomes widespread in western countries. Northern Italy, which has seen a small outbreak of coronavirus cases over the last 48 hours, is already experiencing long lines and sold out store shelves.
The impact of Covid-19 on supply chains has been tremendous. Uncertainty across the global economy is building as China remains in economic paralysis. The luxury fashion industry is suffering its most significant “shock” since the 2008 financial crisis, reported the Financial Times.
Our angle in this piece is to asses which luxury brand companies are most exposed/dependent on China. Many of these firms have complex operations in the country, from manufacturing facilities to brick and mortar stores to e-commerce platforms. Chinese consumers accounted for 40% of $303 billion spent on luxury goods globally last year.
The virus outbreak has also disrupted complex supply chains for mid-market apparel brands, like Under Armour, Adidas, and Puma, warning about collapsing demand and factory shutdown woes.
LVMH, Kering, and Richemont are luxury brands that are some of the least exposed to China because their manufacturing facilities are outside the country.
Kering, the owner of Gucci, warned earlier this month that the virus outbreak in China could damage sales in the first quarter.
A Moody’s report this week showed US-listed luxury brands, Coach and Kate Spade owner Tapestry, have increased their market exposure to China in recent years to gain access to a robust market, allowing their revenues to increase far faster than industry norms. That strategy today is likely to have backfired.
Fashion brands from Hennes & Mauritz, Next of the UK, and Tory Burch, have built factories in China to take advantage of inexpensive silk, fabrics, and cotton, along with lower labor costs, are now experiencing supply chain disruptions that could lead to product shortages in the months ahead.
The National Chamber for Italian Fashion warned earlier this week that the virus impact in China would lead to a $108 million drop in Italian exports in the first quarter because Chinese demand has fallen. If consumption remains depressed, then luxury exports to China could drop by a whopping $250 million in 1H20.
A top executive at Shanghai’s luxury shopping mall Plaza 66 said the mall had been deserted this month. Stores such as Cartier and Tiffany’s have been shuttered.
“We are now, brand by brand, reallocating that inventory to other regions in the world so that we are not too heavy in stock in China,” Kering chief executive François-Henri Pinault said last week. The move suggests the environment in China remains dire and to persist well into March.
Jefferies Group noted this week that Burberry Group is the most exposed luxury brand to China.
The crisis developing in the global luxury retail market is the first demand shock since that last financial crisis more than a decade ago. Brands that have manufacturing and retail exposure to China will be damaged the most.
UBS analyst Olivia Townsend said luxury brands she spoke with said factories are to remain shut for all of February may lead to product shortages.
The demand crisis comes as the global apparel industry rolls over suggests that world stocks could be headed for a correction.
Wells Fargo has agreed to pay $3 billion to settle U.S. investigations into more than a decade of widespread consumer abuses under a deal that lets the scandal-ridden bank avoid criminal charges.
The deal resolves civil and criminal investigations. It includes a so-called deferred prosecution agreement, where the Justice Department files, but doesn’t immediately pursue, criminal charges. It will eventually dismiss them if the bank satisfies the government’s requirements, including its continued cooperation with further government investigations, over the next three years.
The accord also resolves a complaint by the Securities and Exchange Commission.
“Our settlement with Wells Fargo, and the $3 billion criminal monetary penalty imposed on the bank, go far beyond ‘the cost of doing business,’” U.S. Attorney Andrew Murray for the Western District of North Carolina said in a statement.
“They are appropriate given the staggering size, scope and duration of Wells Fargo’s illicit conduct.”
All of which means – nobody goes to jail!
While today’s settlement shuts the door on a major portion of the bank’s legal problems related to the fake accounts, a scandal that has claimed two CEOs; it’s hardly the end of the bank’s legal woes. The firm remains under a growth cap imposed by the Federal Reserve. Last month the Office of the Comptroller of the Currency announced civil charges against eight former senior executives, some of whom settled. And probes into other suspected misconduct in other businesses are continuing.
(Birch Gold Group) Thanks to the Federal Reserve, the idea that you can go into a store and anonymously purchase something with cash might soon be obsolete.
Corporatocracy Fedcoin: ‘in private banks we trust’
Why? Because they’re developing something called Fedcoin, which would be based on blockchain technology.
The digital and decentralized ledger that records all transactions. Every time someone buys digital coins on a decentralized exchange, sells coins, transfers coins, or buys a good or service with virtual coins, a ledger records that transaction, often in an encrypted fashion, to protect it from cybercriminals. These transactions are also recorded and processed without a third-party provider, which is usually a bank.
Right now, Bitcoin is a popular form of cryptocurrency that operates using blockchain technology. Like the description above, Bitcoin is decentralized, its transactions are anonymous, and no central bank is involved.
But the irony is, the blockchain tech behind the Fed’s idea isn’t likely to be used the way Bitcoin uses it. Not even close.
Originally, the “Fedcoin” idea appeared to be a security enhancement to a century-old system used for clearing checks and cash transactions called Fedwire. According to NASDAQ in 2017:
This technology will bring Fedwire into the 21st Century. Tentatively called Fedcoin, this Federal Reserve cryptocurrency could replace the dollar as we know it.
The idea didn’t seem to move very much three years ago, but now the idea of a central bank-controlled “Fedcoin” seems like it could be moving closer to reality, according to a Reuters reportfrom February 5.
According to the report, “Dozens of central banks globally are also doing such work,” including China.
Of course, there is risk, according to Federal Reserve Governor Lael Brainard. For example, there is the potential for a country-wide run on banks if panic ensued while the Fed “flipped a switch” and made Fedcoin the primary currency for the United States.
But blogger Robert Wenzel warns the risks of the Federal Reserve issuing its own cyber currency may run even deeper than that.
“This is not good.”
Lawmakers try to package and sell whatever ideas they come up with, no matter how intrusive or ineffective they might be.
According to Brainard, Fedcoin has the potential to provide “greater value at a lower cost” for monetary transactions. Sounds reasonable, if taken at face value.
But no matter how the Fed may try to “sell” the idea of utilizing Fedcoin in the future, Wenzel’s warning is pretty clear:
A Federal Reserve created digital coin could be one of the most dangerous steps ever taken by a government agency. It would put in the hands of the government the potential to create a digital currency with the ability to track all transactions in an economy—and prohibit transactions for any reason. In terms of future individual freedom, this would be a nightmare.
If you use cash at a grocery store, no one will know who you are or what you bought unless it was caught on video or you use a reward card. In the rare instance a store accepts Bitcoin, the same would be true.
But if you were to use a centrally-controlled digital currency like Fedcoin, who knows what the Fed will decide to track now or in the future? Or what meddling they could come up with to deny your transaction?
If the Federal Reserve wanted to outlaw cash, and your only choice was to use Fedcoin to make purchases, then your financial life would be tracked under their watchful eye.
“Not good” indeed.
Protect your retirement by maintaining your financial freedom
Who knows if the Federal Reserve will move closer to making cash a thing of the past? Perhaps Fedcoin will add to the number of ways the Fed can meddle with your retirement?
Until that gets sorted out, you can consider other options to protect your retirement with a tangible asset that can’t be converted into digital form.
Precious metals like gold and silver continue to hold value, and have for thousands of years. And because they are physical assets, you can’t be tracked as you could if Fedcoin moves from being a bad idea to reality.
In the last few weeks, ZeroHedge provided many articles on the evidence of creaking global supply chains fast emergingin China and spreading outwards. Anyone in supply chain management, monitoring the flow of goods and services from China, has to be worried about which regions will be impacted the most (even if the stock market couldn’t care less).
Deutsche Bank’s senior European economist Clemente Delucia and economist Michael Kirker published a note on Thursday titled “The impact of the coronavirus: A supply-chain analysis” identifying the effect of contagion on the rest of the world, mainly focusing on demand and spillover effects into other countries.
The economists constructed a ‘dependency indicator,’ to figure out just how much a country depends on China for the supply of particular imported inputs. It was noted that the more a country depends on China, the more challenging it could be for businesses to find alternative sourcing during a period of supply chain disruptions.
The biggest takeaway from the report is that, surprisingly, the European Union is less directly exposed to a China supply-chain shock than the US, Canada, Japan, and all the major Asian countries (i.e., India, South Korea, Indonesia, Malaysia, Vietnam).
It was determined that in the first wave of supply chain disruptions that “euro-area countries are somewhat less directly dependent on China for intermediate inputs than other major economies in the rest of the world.”
“The euro-area countries have, in general, a dependence indicator below the benchmark. This suggests that euro-area countries have a below-average direct dependence on Chinese imports of intermediate inputs (Figure 2).”
But since China is highly integrated into the global economy, and a supply chain shock would be felt across the world. The second round of disruptions would result in lower world trade growth that would eventually filter back into the European economy.
The US, Japan, Canada, and all the major Asian countries would feel an immediate supply chain shock from China.
Here’s a chart that maps out lower dependency and higher dependency countries to disruption from China.
To summarize, the European Union might escape disruptions from China supply chain shocks in the first round, but ultimately will be affected as global growth would sag. As for the US and Japan, Canada, and all the major Asian countries, well, the disruption will be almost immediate and severe with limited opportunities for companies to find alternative sourcing.
“First of all, our analysis does not take into account non-linearity in the production process. In other words, it does not capture consequences from a stop in production for particular product. It might indicate that given the dependence is smaller, Europe could find it somewhat easier substitute a Chinese product with another. But there is no guarantee this will be the case.”
“Secondly, while our results indicates that the direct impact from supply issues in China could be smaller for the euro area than for other regions in the world, the euro area could be hard-hit by second-round effects. With their higher direct exposure to China, production in other major economies could slow down as a result of disruptions in the supply chain. This not only could cause a shortage in demand for euro-area exports, but it could also impact on the euro-area’s import of intermediate inputs from these other countries (second-round effects). In other words, China has become a relevant player in the world supply chain and production/demand problems in China are spread worldwide through direct and indirect channels.“
News flow this week has indeed suggested the virus is spreading outwards, from East to West, and could get a lot worse ex-China into the weekend.
The mistake of the World Health Organization (WHO), governments, and global trade organizations to minimize the economic impact (protect stock markets) of the virus was to allow flights, businesses, and trade to remain open with China. This allowed the virus to start spreading across China’s Belt and Road Initiative (BRI).
Enjoy a riveting weekly news wrap up with Greg Hunter…
In this recession 2020 video YOU are going to discover 5 reasons (NO ONE IS TALKING ABOUT) the next recession will be far worse than the 2008/2009 recession. The Fed has created so much mal investment, by keeping interest rates artificially low, we now have the EVERYTHING BUBBLE. Stocks are in a bubble, bonds are in a bubble, housing is in a bubble and the 2020 recession (which the data suggests is highly probable) will be the pin that pricks them all.
We’ve had recessions in the US every 6-8 years throughout our history, and we’re currently 10 years into an expansion which makes the US due for a recession in 2020. While not all recessions are devastating, because the debt bubbles are so much bigger now than in 2009, the next recession has the potential to be the worst by far.
Banks around the world are supposed to benefit the most from central banks inflating assets, and hyperinflating stock markets, but over the past few years, central banks have instead caused some of the biggest bank job cuts in half a decade.
HSBC, Europe’s largest bank and troubled lender, although not nearly as troubled as Deutsche Bank, said it would cut upwards of 35,000 jobs, shed $100 billion in assets, and take a massive $7.3 billion hit to goodwill as part of a major overhaul under Chairman Mark Tucker, the company said in a press release on Tuesday morning.
This comes months after HSBC’s interim CEO Noel Quinn unveiled plans to “remodel” large parts of the bank. The restructuring of the London-based bank is being led by Quinn, who replaced John Flint in August on an interim basis. Quinn is vying for the permanent role of CEO, which the bank said will be decided this year.
Europe’s biggest bank by assets is expected to focus more on Asia and the Middle East, while it winds down operations in Europe and the US; HSBC derives at least 50% of its revenue in Asia. The bank said net profit plunged 53% to $5.97 billion last year, due to the $7.3BN goodwill hit and also thanks to the record low interest rates and NIRP unleashed by central banks.
Tucker said the bank faces substantial challenges in the UK, Hong Kong, and mainland China. He also issued a warning over the Covid-19 outbreak in China and quickly spreading across Asia to Europe, indicating that the virus could impact the bank’s performance this year.
Quinn confirmed the bank would cut 15% of its workforce over the next two-three years. This is on top of the 10,000 jobs it axed in Oct.
“The totality of this program is that our headcount is likely to go from 235,000 to closer to 200,000 over the next three years,” Quinn told Reuters. adding that “HSBC will be “exiting businesses where necessary.”
“Around 30% of our capital is currently allocated to businesses that are delivering returns below their cost of equity, largely in global banking and markets in Europe and the U.S.,” he noted.
In its long-struggling U.S. arm, Quinn said HSBC will cut assets in investment banking and markets by almost half, and shut around 70 of its 229 branches. As of September, HSBC was the U.S.’s 14th largest commercial bank according to Federal Reserve data, with around $181 billion assets. Mr. Quinn said he had considered putting the unit up for sale but decided against it because the U.S. is a crucial part of the bank’s global network.
HSBC shares slid 6% on the restructuring news on Tuesday morning:
The benefits of the restructuring will be evident largely from 2023 onward, said Citigroup analyst Ronit Ghose, who recommended investors sell HSBC shares.
While stocks are hitting fresh all time highs, bringing joy and spreading the “wealth effect” across America, clients of the Fidelity brokerage are having a rather shitty day because due to a glitch, or perhaps a hack, countless accounts are currently showing a zero balance, or simply removing accounts altogether.
While we assume this pesky “glitch” will be resolved promptly, we should point out that if the market were to ever again suffer a down day and should investors wish to sell some/all of their holdings, this would be a convenient way to quickly and efficiently prevent that from ever happening.
@Fidelity Is there currently a problem with your website? When I log in I am not seeing any of my accounts.
@Fidelity Your site seems to be having issues, all my accounts and positions are no longer showing up for some reason, they were fine about 20 mins ago, although I was having issues with being logged out when trying to open new positions.
Which Supply Chains Are Most At Risk: The Answer In One Chart
Now that Apple has broken the seal and made it abundantly clear that China’s economic collapse which could push its Q1 GDP negative according to Goldman as the second largest world economy grinds to a halt (as described here last week)…
… will have an adverse impact on countless supply-chains, which in today’s “just in time” delivery environment, are absolutely critical for keeping the global economy running smoothly (for a quick reminder of what happens when JIT supply chains stop functioning read our article from 2012 “”Trade-Off”: A Study In Global Systemic Collapse“), attention on Wall Street has turned to which other US sectors stand to be adversely impacted should the coronavirus pandemic not be contained on short notice and China’s economy crisis transforms into a supply shock.
Conveniently, Goldman Sachs just did this analysis.
New evidence from Bloomberg reveals cracking global supply chains are fast emerging at major Chinese ports with thousands of containers of frozen meat piling up with nowhere to go.
The Covid19 outbreak will remain a dominant issue for 1Q as supply chain shocks are being felt by multinationals on either side of the hemisphere.
Sources told Bloomberg that containers of frozen pork, chicken, and beef (mostly from South America, Europe, and the US) are piling up at Tianjin, Shanghai, and Ningbo ports because of the lack of truck drivers and many transportation networks remain closed.
Seaports in China are quickly running out of room to house the containers and cannot provide enough electricity points to keep existing containers cold. This has forced many vessels to be rerouted to other destinations.
We’ve already noted that Bloomberg’s Stephen Stapczynski recorded footage of an oil tanker parking lot off the Singapore coast last week as refiners in China cut runs as crude consumption has collapsed by more than 4 million barrels per day.
It’s clear that a logistical nightmare is unfolding as two-thirds of the Chinese economy has effectively shut down much of its production capacity, producing a massive “demand shock.”
The impact on the global economy is already dragging down world trade and could force the World Trade Organization (WTO) to slash economic growth forecasts for the year.
The Chinese economy constitutes about 20% of global GDP, and supply chain disruptions across China could cause a cascading effect that could tilt the world into recession.
But it’s not just frozen meats piling up at Chinese ports or a crude glut developing. There’s a high risk that product shortages to Western countries could be 60-90 days out.
Alibaba Group’s CEO Daniel Zhang warned last week that the supply chain disruption, or “shock,” is a “black swan event” for the global economy.
It’s not only Chinese tourists, business travelers, and property buyers who’re not showing up, but also travelers from all over the world who’ve gotten second thoughts about sitting on a plane.
Wyndham Closes 1,000 Hotels, Hilton 150, Best Western 65% In China, Fiat Chrysler Halts Production!
Literally, everything is shutting down. I can’t even fit everything into the title. First, The world’s largest Hotel company by properties announced they will be temporarily closing 1,000 Hotels in China. This amounts to over 70% of their hotels and the CEO said the Hotels that remain open are running under 75% Guest capacity. They expect a huge financial impact. Hilton hotels also announced they will be closing 150 hotels in China along with Best Western. We then move to the recent data compiled by Goldman detailing the true weight of the industrial production halt. Steel demand is Crashing, Construction Steal demand has collapse 88%. Fiat Chrysler warned that they would need to halt production at one of their plants outside of China due to parts shortages and The plant has come to a halt as the problem is not resolved. The company said it is in the process of attaining the product from another source. Last but not least Carnival Corp has warned of a significant financial impact in their upcoming earnings report and they pulled their full-year 2020 forward guidance due to changes.