I am definitely not in my normal morning rhythm today (hence only 7 articles in today’s aggregator). Part of that may be due to meeting up with some friends in Athens yesterday, but that’s certainly not the whole story. Athens is still mainly deserted, by the way, which is kind of nice and refreshing, but also very obviously hurtful to many people’s incomes.
But what really bumped me off my rhythm is reading the stories, and reactions to them, about AG Barr asking US Attorney for the Southern District of New York Geffrey Berman to resign, and the latter refusing to comply. Reading through all the related articles had one notion, one fear, creep up on me: that the US is at a serious risk of becoming ungovernable. And I mean: serious.
Whoever wins on November 4, Trump or Biden(?!), may well be unacceptable and unaccepted by half the country. And what happens then? Are we going to have a civil war? I’ll get back to that soon. It’s not like this is the first time it ever occurred to me, but it has gained a lot of weight -and risk- lately.
I thought maybe I had erred yesterday when my count of new cases was so much higher than Worldometer. Instead, they are even higher.
Worldometer reports new cases for June 19 (midnight to midnight GMT+0) at + 181,005.
My count 6AM EDT to 6AM EDT based on Worldometer numbers is 184,233. Have we entered a new phase?
New cases past 24 hours in:
• US + 30,810
• Brazil + 54,771
• Russia + 7,790
• India + 14,721
• Pakistan +8,466
• Mexico + 5,662
Brazil was scary:
• Cases 8,786,592 (+ 184,233 from yesterday’s 8,602,359)
• Deaths 463,156 (+ 6,354 from yesterday’s 456,802)
From Worldometer yesterday evening -before their day’s close-:
I forgot to take a screen shot last night.
2/n I am not saying 1) here is the authority of Hayek, or 2) Hayek was a "true" libertarian. I am just fed up with sociopaths with reduced brain functions citing Hayek to justify their crackpot theories about the pandemic. Period.
4/n This is similar to aversion to plane crashes. A tiny risk of crash, orders of magnitude smaller than death from COVID, causes enough people to avoid flying in the 737 max to make it unprofitable. Governments follow.
Troubling spikes in coronavirus infection rates were reported on Friday in several U.S. states, mainly in the South and West, a day before President Donald Trump was due to preside over an Oklahoma campaign rally that will be America’s largest indoor gathering in months. Wall Street jitters over a resurgence in COVID-19 cases as states moved to reopen long-stifled commerce and ease social-distancing measures helped drive down major U.S. stock indexes, reversing earlier gains. Experts say expanded diagnostic testing accounts for some, but not all, of the growth in cases – numbering at least 2.23 million nationwide on Friday – and that the mounting volume of infections was elevating hospitalizations in some places.
“Clearly the cases are rising rapidly. It’s not just a matter of testing more,” said Dr. Murtaza Akhter, an emergency room physician at Arizona hospitals, noting the lag time between a positive test and severe illness or death. “The real concern is what is coming up for us in the next week or two.” He said the latest wave of cases has put Arizona’s major hospitals at or near capacity, and placed the Southwestern state on track to surpass New York at its peak on a per-capita basis. More than 119,000 Americans have perished from COVID-19 to date, according to Reuters’ running tally. Particularly alarming has been the upward trends several states are reporting in the percentage of positive tests among individuals who are screened, a metric experts refer to as the positivity rate.
The World Health Organization considers positivity rates above 5% to be especially concerning, and widely watched data from Johns Hopkins University shows 16 states with average rates over the past week exceeding that level and climbing.
Mainland China reported 27 new coronavirus cases as of the end of June 19, 22 of which were reported in the capital Beijing, China’s National Health Commission said on Saturday. This compared with 32 confirmed cases a day earlier, 25 of which were in Beijing, where local authorities are working to contain a new outbreak at a food wholesale market. Another seven asymptomatic COVID-19 patients, those who are infected with the coronavirus but show no symptoms, were also reported as of June 19 compared with five a day earlier. China does not count these patients as confirmed cases.
Geffrey Berman is refusing to step down as US Attorney for the Southern District of New York after Attorney General William Barr asked him to resign, according to Bloomberg. “I learned in a press release from the Attorney General tonight that I was ‘stepping down’ as United States Attorney,” said Berman, adding “I have not resigned, and have no intention of resigning, my position, to which I was appointed by the judges of the United States District Court for the Southern District of New York. “I will step down when a presidentially appointed nominee is confirmed by the Senate… …Until then, our investigations will move forward without delay or interruption.” Reacting to the news, Senate Democratic leader Chuck Schumer (D-NY) said “This late Friday night dismissal reeks of potential corruption of the legal process.”
[..] A Republican who contributed to Trump’s campaign, Berman was considered a highly qualified pick to succeed Preet Bharara, the previous occupant of his Berman’s soon-to-be-former office, which also features heavily in the TV show “Billions” (it’s the position held by the show’s antagonist, a corrupt federal prosecutor). AG Barr didn’t offer much in the way of an explanation, and Berman hasn’t said much either. Then again, we’re only just finding out about this, and it’s 10pmET on a holiday Friday. But even more surprising than the news of Berman’s sudden departure is the news of who will take his place. Following a brief interlude, SEC Chairman Jay Clayton will become the next US Attorney for the Southern District of New York.
For those who aren’t familiar, Clayton is the same man who almost allowed Hertz and its creditors to sell hundreds of millions of dollars of stock to unsuspecting Robinhood day traders trying to flip their stimulus checks for quick cash with nary a word from the SEC. But even more extraordinary than his handling of the Hertz situation is Clayton’s decision to allow Tesla CEO Elon Musk walk away from a dispute with the SEC in which the CEO flagrantly and blithely violated basic securities regulations involving disclosures of material information to the public (remember “funding secured?” and the tedious legal melodrama that ensued in which Musk, in full blown tantrum mode, was repeatedly appeased by government regulators seemingly robbed of all willingness to hold him accountable).
Italian scientists say sewage water from two cities contained coronavirus traces in December, long before the country’s first confirmed cases. The National Institute of Health (ISS) said water from Milan and Turin showed genetic virus traces on 18 December. It adds to evidence from other countries that the virus may have been circulating much earlier than thought. Chinese officials confirmed the first cases at the end of December. Italy’s first case was in mid-February. In May French scientists said tests on samples showed a patient treated for suspected pneumonia near Paris on 27 December actually had the coronavirus.
Meanwhile in Spain a study found virus traces in waste water collected in mid-January in Barcelona, some 40 days before the first local case was discovered. In their study, ISS scientists examined 40 sewage samples collected from wastewater treatment plants in northern Italy between last October and February. Samples from October and November came back negative, showing that the virus had not yet arrived, ISS water quality expert Giuseppina La Rosa said. Waste water from Bologna began showing traces of the virus in January. The findings could help scientists understand how the virus began spreading in Italy, Ms La Rosa said. However she said the research did not “automatically imply that the main transmission chains that led to the development of the epidemic in our country originated from these very first cases”.
When the government said it would give out thousands of dollars in bailout loans grants under the Paycheck Protection Program, every eligible business – which was most small and medium businesses (that had no access to capital markets) with up to 500 employees, signed up. And why not: it was free money from a government that had launched helicopter money, and was seeking to ram the newly created money into the economy. There was no downside – the grants would be forgiven if used to pay wages or rent, and – at least according to widespread speculation – the loans would remain a secret. Which is why it was so surprising when it emerged that some “asset managers” such as Ritholtz Asset Management, led by Josh Brown and Barry Ritholtz, had also accepted bailout grants to stay in business. In retrospect, Ritholtz is the author of Bailout Nation so it probably should not have been a surprise.
What should have been a surprise is that an asset manager – i.e., a professional collecting generous fees to predict the future and entrusted with billions in capital not only failed to do that, but himself needed a bailout. It just goes to show how important it is to pick very calm and patient clients. Of course, we can’t blame them: like most other recipients, Ritholtz probably expected that his name would never see the light of day, even though technically he used taxpayer money to prop up his company. And since it is taxpayer money, everyone has a right to know how it would be used. Only in the case of just over half a trillion dollars in PPP grants that wasn’t the case, because for nearly 3 months after the PPP program was launched, Treasury Secretary Steven Mnuchin persisted in keeping the names of all recipients secret, much to the growing anger of those who effectively funded the loans.
That all changed late on Friday, when Bloomberg reported that the Trump administration said it would disclose details about companies that received loans of $150,000 or more from a coronavirus relief program for small businesses, following a backlash against its earlier refusal to release data about which firms got billions of dollars in government aid. Eleven news organizations had sued to make details about PPP loan recipients public. Which is bad news for all those “financial advisors” like Ritholtz who will soon be revealed as getting paid to “predict” the future, yet not having the sense to even budget for a short-term crisis, let along have hedges in place for a downside scenario. As for the rest, it’s unclear how willing most small businesses would have been had they known that the very act of requesting a bailout would open them up to eventual public shaming.
The early morning of Monday, 23 March was a significant time, marking the top of the dollar’s trade-weighted index. At the same time, gold, silver and copper prices, having fallen in the weeks before turned sharply higher. And while oil initially followed, it was a month before it resumed its uptrend — delayed by the delivery hiatus in the futures markets which briefly drove the price negative. The S&P 500 rallied the following day, ending a near 30% decline before recovering all of it, and then some. Something had changed. Either markets decided that economic growth, both in the US and the rest of the world was going to continue following lockdowns, and growing demand for key commodities was going to be resumed. Or, as the decline in the dollar’s TWI indicated, the purchasing power of the dollar was going to decline, and commodity prices were reflecting an accelerating downtrend for the dollar’s purchasing power.
The performance of the S&P 500 since 23 March, being unhinged from any business conditions, gives us a clue: the flood of money emanating from the Fed is fuelling stock prices. It is also fuelling prices of all other financial assets. The turnaround in silver is a more subtle story, shown in the chart as the reciprocal of the more usual gold/silver ratio. Silver had been ignored, classed solely as an industrial metal. Gold was seen by the financial community as the only metallic hedge against uncertainty in the financial system. That changed on 23 March when the gold/silver ratio peaked at 125 on the previous business day. It is now beginning to outperform gold with the gold/silver ratio currently down to 98. We might look back and pinpoint this time as marking the beginning of a return to some moneyness in silver.
The weeks before had seen the Fed ease monetary policy. On 3 March, the Fed cut its funds rate from 1,5% to 1%. In the accompanying announcement the Fed said that the fundamentals of the economy remained strong, but the coronavirus posed evolving risks to the economy. On 15 March, the Fed cut its funds rate again, this time to zero, but the statement now said the coronavirus had harmed communities and disrupted economic activity in many countries, including the US. On a twelve-month basis, overall price inflation and price increases for other than food and energy were running at below 2%. The Fed announced renewed quantitative easing of at least $500bn of Treasury purchases and $200bn of mortgage-backed securities “in the coming months”. It was “prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.”
House GOP leader Kevin McCarthy suggested Thursday that the Democratic Party change its name, considering its ties to the Confederacy and segregation laws. The comments by McCarthy, the chamber’s top Republican, follow House Speaker Nancy Pelosi saying she wants to remove Confederate-era statues from the Capitol, most of which honor registered Democrats. Pelosi, a California Democrat, on Thursday announced the removal of four portraits of former House speakers – three Democrats and one a Whig who later registered as a Democratic. “The speaker has the power to do that,” McCarthy said when asked about the portrait removal.
“If the speaker is concerned about that, should she also start talking about changing the name of her party and actually changing the nominee?” The California Republican also said that Pelosi should be “really concerned about the history of her party and what her party has done so shouldn’t they change the name if they’re going to be different?” McCarthy went further and said the Democrats should consider changing Joe Biden as their 2020 presidential nominee, given his remarks at the funeral of Sen. Robert Byrd (D-W.V.), a former member of the KKK who later denounced the group. Biden referred to Byrd as a “mentor” and “dear friend” at his funeral when he was vice president. McCarthy called on Pelosi to apply the “same standards” for the portrait removals to the name of her party and its 2020 nominee. “Shouldn’t they change the nominee if they want to be different?” McCarthy asked.
• US #coronavirus deaths rise by 2,333 in 24 hours: Johns Hopkins
• Cases 3,744,765 (+ 82,494 from yesterday’s 3,662,271)
• Deaths 258,884 (+ 6,137 from yesterday’s 252,747)
From Worldometer yesterday evening -before their day’s close-
I was reading two things (first two articles in this overview): 1) that a new dominant corona strain appears more contagious, and 2) that it is a weakening strain. Now, that makes perfect sense, it’s a trade-off that’s ubiquitous in nature: when a virus becomes more contagious, it kills fewer of its new hosts. That way the death number remains the same, and enough potential hosts remain.
But that’s not necessarily what people see. The LA Times seems to expect the opposite: “The Los Alamos study does not indicate that the new version of the virus is more lethal than the original.”
It’s of course possible that a more contagious strain is also more lethal, but it wouldn’t seem to be the more logical chain of events.
Scientists have identified a new strain of the coronavirus that has become dominant worldwide and appears to be more contagious than the versions that spread in the early days of the COVID-19 pandemic, according to a new study led by scientists at Los Alamos National Laboratory. The new strain appeared in February in Europe, migrated quickly to the East Coast of the United States and has been the dominant strain across the world since mid-March, the scientists wrote. In addition to spreading faster, it may make people vulnerable to a second infection after a first bout with the disease, the report warned.
The 33-page report was posted Thursday on BioRxiv, a website that researchers use to share their work before it is peer-reviewed, an effort to speed up collaborations with scientists working on COVID-19 vaccines or treatments. That research has been largely based on the genetic sequence of earlier strains and might not be effective against the new one. Scientists with major organizations working on a vaccine or drugs to combat the coronavirus have told The Times that they are pinning their hopes on initial evidence that the virus is stable and not likely to mutate the way the influenza virus does, requiring a new vaccine every year. The Los Alamos report could upend that assumption.
The mutation identified in the new report affects the now-infamous spikes on the exterior of the coronavirus, which allow it to enter human respiratory cells. The report’s authors said they felt an “urgent need for an early warning” so that vaccines and drugs under development around the world will be effective against the mutated strain. In many places where the new strain appeared, it quickly infected far more people than the earlier strains that came out of Wuhan, China, and within weeks it was the only strain that was prevalent in some nations, according to the report. The new strain’s dominance over its predecessors suggests that it is more infectious, according to the report, though exactly why is not yet known.
The coronavirus, known to scientists as SARS-CoV-2, has infected more than 3.5 million people around the world and caused more than 250,000 COVID-19 deaths since its discovery late last year. The report was based on a computational analysis of more than 6,000 coronavirus sequences from around the world collected by the Global Initiative for Sharing All Influenza Data, a public-private organization in Germany. Time and again, the analysis found the new version was transitioning to become dominant.
[..] The Los Alamos study does not indicate that the new version of the virus is more lethal than the original. People infected with the mutated strain appear to have higher viral loads. But the study’s authors from the University of Sheffield found that among a local sample of 447 patients, hospitalization rates were about the same for people infected with either virus version. Even if the new strain is no more dangerous than the others, it could still complicate efforts to bring the pandemic under control. That would be an issue if the mutation makes the virus so different from earlier strains that people who have immunity to them would not be immune to the new version.
A new coronavirus mutation discovered by Arizona researchers mirrors a change that occurred as the 2003 SARS virus began to weaken, the researchers announced. Lead study author Dr. Efrem Lim, an assistant professor at Arizona State University’s Biodesign Institute, and his team use a new technology called next-generation sequencing to rapidly read through all 30,000 chemical letters of the SARS-CoV-2 genome, or genetic code. That technology helps researchers determine how the virus is spreading, mutating and adapting over time. Out of the 382 nasal swab samples the researchers examined from coronavirus patients in the state, a single sample was missing a significant chunk of its genome. 81 of the letters were permanently deleted, according to the new study published in the Journal of Virology.
“One of the reasons why this mutation is of interest is because it mirrors a large deletion that arose in the 2003 SARS outbreak,” Lim said in a statement. During the middle and late phases of the 2003 SARS epidemic, the virus accumulated mutations that lessened its strength, according to the researchers. “Where the deletion occurs in the genome is pretty meaningful because it’s a known immune protein which means it counteracts the host’s antiviral response,” Lim told the Daily Mail. A weakened virus that causes less severe symptoms may get a leg up if it is able to spread efficiently through populations by people who don’t know they are infected, the scientists say. However, it’s too soon to say whether the novel coronavirus is beginning to lose its potency, according to the researchers.
“The takeaway is that one virus had a large deletion which demonstrates that it is possible for the virus to transmit without having complete portions of its genetic material,” study co-author Matthew Scotch said in an email. “This was one virus and we do not suggest that this means a ‘weakening’ of any kind.” All of the patients whose samples the Arizona scientists analyzed had some clinical coronavirus symptoms — meaning that even the version with 81 deletions was still strong enough to make the patient at least somewhat sick, the Mail reported. This is the first time such a deletion has been seen in the 16,000 coronavirus genomes that have been sequenced to date, according to the researchers. That’s less than half a percent of the strains circulating, according to the scientists. There are about 3.6 million confirmed COVID-19 cases worldwide. “This is a drop in the bucket,” Lim told the Mail.
The coronavirus has been circulating among people since late 2019 and appears to have experienced a highly rapid spread after the first infection, according to a new genetic analysis of 7,600 patients around the world. Researchers in Britain wrote in a report published Tuesday in the journal Infection, Genetics and Evolution that they examined samples taken at different times and from different places, concluding that the virus first began infecting people late last year. The researchers found evidence of quick spread but found no indication that it is becoming any easier to transmit the virus, which was first identified in Wuhan, the capital of China’s Hubei province, in December 2019.
“The virus is changing, but this in itself does not mean it’s getting worse,” genetics researcher Francois Balloux of the University College London Genetics Institute told CNN. The study indicated that infections in the U.S. and Europe specifically could have occurred weeks or months before the first official cases were reported in January and February, making it more difficult to find “Patient Zero” in any particular area. The findings shot down hopes from some doctors that the virus had in fact been circulating under the radar for months before it burst onto the scene, which would have indicated that there could be some immunity already built up. But Balloux told CNN at most only 10 percent of the population has been exposed to the coronavirus.
I was wondering why the numbers are so different, but one thing at least is that numbers for the UK, which includes Scotland and Northern Ireland, do not include Scotland and Northern Ireland. Curious.
And then there’s more: the UK appears to undercount deaths by some 20,000.
More than 32,000 people in the United Kingdom have died with suspected COVID-19, the highest official toll yet reported in Europe, according to data published on Tuesday. The Office for National Statistics said 29,648 deaths had taken place as of April 24 in England and Wales with COVID-19 mentioned in death certificates. Including deaths for Scotland and Northern Ireland, the official toll now stands at 32,313. That is more than Italy, previously Europe’s worst hit country, though its toll does not include suspected cases. Ministers dislike comparisons of the headline death toll, saying that excess mortality – the number of deaths from all causes that exceed the average for the time of year – is a more meaningful metric.
Chris Giles is economics editor at the FT.
Update: After today's official statistics on deaths linked to coronavirus, a cautious estimate of all UK deaths up to today 05 May stands at
Hydroxychloroquine (HCQ) was accepted as a COVID-19 treatment by the medical community in the US and worldwide by early April. 67% of the US physicians said they would prescribe HCQ or chloroquine CQ for COVID-19 to a family member (Town Hall, 2020-04-08). An international poll of doctors rated HCQ the most effective coronavirus treatment (NY Post, 2020-04-02). On April 6, Peter Navarro told CNN that “Virtually Every COVID-19 Patient In New York Is Given Hydroxychloroquine.” This might explain decrease in COVID-19 deaths in the New York state after April 15. The time lag is because COVID-19 deaths happen on average 14 days after showing symptoms. But on April 21, several perfectly coordinated events took place, attacking HCQ’s use for COVID-19 patients.
• The COVID-19 Treatment Guidelines Panel of the National Institute of Health issued recommendations with negative-ambivalent stance regarding the use of HCQ as a COVID-19 treatment. This surprising stance was taken contrary to the ample evidence of the efficacy and safety of HCQ and despite absence evidence of its harm. The panel also strongly recommended against the use of hydroxychloroquine with azithromycin (AZ), the combination of choice among practitioners.
• On the same day, a paper (Magagnoli, 2020) was posted on a pre-print server medRxiv, insinuating that HCQ is not only ineffective, but even harmful. This not-yet peer reviewed paper, by unqualified authors with conflicts of interest, received wall-to-wall media coverage, as it if were a cancer cure. It used data from Veterans Administration hospitals, spicing its effects. The paper has shown to be somewhere between junk science and fraud.
• Rick Bright, a government official who was probably more responsible for the low level of preparedness to the epidemic than most others, and had been re-assigned to a lower position earlier, emerged as a “whistleblower.” He claimed he had been demoted for opposing hydroxychloroquine, the claim to be soon debunked by documents bearing his signature. The media also gave him a wall-to-wall coverage.
On April 24, the FDA struck its own blow, issuing a stern warning against use of HCQ for COVID-19 treatment. While these warnings are not binding to doctors, they do produce a chilling effect. Consequently, either patients do not receive necessary treatment, or they receive it with a delay, sharper decreasing its effect. This allows detractors to question HCQ efficacy even more aggressively. Below, I review problems in the NIH COVID-19 Treatment Guidelines and other sources, used to wage anti-HCQ propaganda.
Tanzania’s President John Magufuli has dismissed imported coronavirus testing kits as faulty, saying they returned positive results on samples taken from a goat and a pawpaw. Magufuli made the remarks during an event in Chato in northwestern Tanzania on Sunday. He said there were “technical errors” with the tests. The president, whose government has already drawn criticism for being secretive about the coronavirus outbreak and has previously asked Tanzanians to pray the coronavirus away, said he had instructed Tanzanian security forces to check the quality of the kits. They had randomly obtained several non-human samples, including from a pawpaw, a goat and a sheep, but had assigned them human names and ages.
These samples were then submitted to Tanzania’s laboratory to test for the coronavirus, with the lab technicians left deliberately unaware of their origins. Samples from the pawpaw and the goat tested positive for COVID-19, the president said, adding this meant it was likely that some people were being tested positive when, in fact, they were not infected by the coronavirus. “There is something happening. I said before we should not accept that every aid is meant to be good for this nation,” Magufuli said, adding the kits should be investigated.
On Saturday, Magufuli announced that he had placed an order for a herbal treatment for the coronavirus touted by the president of Madagascar. “I have already written to Madagascar’s president and we will soon dispatch a plane to fetch the medicine so that Tanzania can also benefit from it,” he said. The herbal remedy, called “Covid Organics” and prepared by the Malagasy Institute for Applied Research, is made out of Artemisia, a plant cultivated on the Indian Ocean island of Madagascar. Despite a lack of scientific evidence, President Andry Rajoelina of Madagascar claimed that the remedy has already cured some Madagascans of COVID-19. Children returning to school have been required to take it.
A Pennsylvania woman was jailed over the weekend for refusing to quarantine after testing positive for COVID-19, officials said Saturday. Erie County President Judge John Trucilla ordered that the woman be kept on electronic monitoring at home for at least a week after she spent a night in jail Friday for repeatedly violating her isolation order, the Erie Times-News reported. County Solicitor Richard Perhacs said the woman, who was unidentified at her Saturday court hearing, attended a party, did some banking and had her vehicle repaired after she tested positive. As a result, 27 people are now in quarantine after coming in contact with her or someone who was in contact with her.
The woman reportedly cried throughout the emergency proceeding as she appeared via a video call from the Erie County Prison, according to the news outlet. She told Trucilla that she did not understand a letter she signed on April 29 saying the county could take legal action if she did not self-isolate. “I want to explain from the bottom of my heart that I apologize,” she told the judge, according to the Times-News. “It was a mistake. I’ve learned from my actions. I want to go home.” Trucilla ruled in a preliminary order that she had to remain at home until she was tested again on Friday but said she could be jailed for longer if she violated the order again. The judge will determine whether her self-isolation period needs to be extended based on that test.
County officials said they explained the letter to her multiple times. The woman first developed symptoms on April 12 and said Saturday that she was no longer experiencing them. Erie County Chief Public Defender Pat Kennedy, who represented the woman, requested she be electronically monitored at her home. “Based on my interaction with her, I don’t think that day in jail was lost upon her,” Kennedy said, according to the news outlet.
The White House coronavirus task force will wind down as the country moves into a second phase that focuses on the aftermath of the outbreak, President Donald Trump said on Tuesday. Trump confirmed the plans after Vice President Mike Pence, who leads the group, told reporters the White House may start moving coordination of the U.S. response on to federal agencies in late May. “Mike Pence and the task force have done a great job,” Trump said during a visit to a mask factory in Arizona. “But we’re now looking at a little bit of a different form and that form is safety and opening and we’ll have a different group probably set up for that.” Asked if he was proclaiming “mission accomplished” in the fight against the coronavirus, Trump said, “No, not at all. The mission accomplished is when it’s over.”
Trump said Anthony Fauci and Deborah Birx, doctors who assumed a high profile during weeks of nationally televised news briefings, would remain advisers after the group is dismantled. Fauci leads the National Institute of Allergy and Infectious Diseases and Birx was response coordinator for the force. “We can’t keep our country closed for the next five years,” Trump said, when asked why it was time to wind down the task force. More than 70,000 people in the United States have died from COVID-19, the respiratory illness caused by the virus. The U.S. death toll is the highest in the world. Trump acknowledged there might be a resurgence of the virus as states loosen the restrictions on businesses and social life aimed at curbing its spread. “It’ll be a flame and we’re going to put the flame out.”
Earlier, Pence said Trump was starting to look at Memorial Day on May 25 as the time to shift management of the response to the pandemic. [..] Health and Human Services Secretary Alex Azar and Food and Drug Administration chief Stephen Hahn said the Trump administration was committed to accelerating the search for a vaccine, with the goal of producing 100 million doses by the autumn and 300 million doses by the end of the year. “Whether that can be achieved or not, it is realistic,” said Azar. “We would not be doing this if we did not think it were realistic. Is it guaranteed? Of course it is not.” Most experts have suggested clinical trials to guarantee a vaccine is safe and effective could take a minimum of 12 to 18 months.
The government is using the coronavirus pandemic to transfer key public health duties from the NHS and other state bodies to the private sector without proper scrutiny, critics have warned. Doctors, campaign groups, academics and MPs raised the concerns about a “power grab” after it emerged on Monday that Serco was in pole position to win a deal to supply 15,000 call-handlers for the government’s tracking and tracing operation. They said the health secretary, Matt Hancock, had “accelerated” the dismantling of state healthcare and that the duty to keep the public safe was being “outsourced” to the private sector. In recent weeks, ministers have used special powers to bypass normal tendering and award a string of contracts to private companies and management consultants without open competition.
Deloitte, KPMG, Serco, Sodexo, Mitie, Boots and the US data mining group Palantir have secured taxpayer-funded commissions to manage Covid-19 drive-in testing centres, the purchasing of personal protective equipment (PPE) and the building of Nightingale hospitals. Now, the Guardian has seen a letter from the Department of Health to NHS trusts instructing them to stop buying any of their own PPE and ventilators. From Monday, procurement of a list of 16 items must be handled centrally. Many of the items on the list, such as PPE, are in high demand during the pandemic, while others including CT scanners, mobile X-ray machines and ultrasounds are high-value machines that are used more widely in hospitals.
K Street may soon have its own taxpayer-funded bailout. Industries as varied as oil refining, construction, fast food restaurants, and chemical manufacturing are seeking federal cash to support their lobbyists in Washington, D.C. Many of the largest lobbying forces are organized under the 501(c)(6) section of the tax code as trade groups. Corporations with similar concerns pool their money together to fund trade groups, which in turn employ thousands of lobbyists to shape elections and legislation on a daily basis. But the Paycheck Protection Program, the centerpiece of the small business rescue program, excluded such trade groups. That could change in the next round of stimulus legislation, which Congress is scheduled to debate later this month.
Lobbyists have stepped up a campaign to make sure professional influence peddlers are eligible for the PPP, or P3, funds. The push also includes a demand for an additional $25 billion for canceled events and other lost revenue from the coronavirus pandemic. The American Society of Association Executives, which represents trade group leadership, explained in a letter to lawmakers that trade group lobbyists need federal funding to better advocate for their clients. “These organizations are already relied upon to help coordinate federal resources to combat the coronavirus pandemic, and they require staff to fulfill this duty,” ASAE wrote. Trade groups, the ASAE letter notes, have faced declining revenue as corporations wind down dues payments and sponsorship fees in response to the economic downturn.
U.S. airlines are collectively burning more than $10 billion in cash a month and averaging fewer than two dozen passengers per domestic flight because of the coronavirus pandemic, industry trade group Airlines for America said in prepared testimony seen by Reuters ahead of a U.S. Senate hearing on Wednesday. Even after grounding more than 3,000 aircraft, or nearly 50% of the active U.S. fleet, the group said its member carriers, which include the four largest U.S. airlines, were averaging just 17 passengers per domestic flight and 29 passengers per international flight. “The U.S. airline industry will emerge from this crisis a mere shadow of what it was just three short months ago,” the group’s chief executive, Nicholas Calio, will say, according to his prepared testimony.
Net booked passengers have fallen by nearly 100% year-on-year, according to the testimony before the Senate Commerce Committee. The group warned that if air carriers were to refund all tickets, including those purchased as nonrefundable or those canceled by a passenger instead of the carrier, “this will result in negative cash balances that will lead to bankruptcy.” Separately, Eric Fanning, who heads the Aerospace Industries Association, will ask Congress to consider providing “temporary and targeted assistance for the ailing aviation manufacturing sector,” in testimony made public by the group. Boeing Co said last week it would cut 16,000 jobs by the end of the year, while GE Aviation plans to cut up to 13,000 jobs and airplane supplier Spirit AeroSystems Holdings Inc is cutting 1,450 jobs.
Calamity creates opportunity. That has always been true when it comes to corporate consolidation. Recall how a series of mega-mergers and acquisitions transformed the banking industry after the 2008 financial panic. Wells Fargo snagged Wachovia. Bank of America scooped up Merrill Lynch. Lloyds TSB bought HBOS. BNP Paribas grabbed Fortis. JPMorgan got Washington Mutual and Bear Stearns. And so on. Before the coronavirus has taken its full physical and economic toll, expect more of the same. Strong banks ate the weak, and they were chivvied along by federal and state governments and regulators worried about the sustainability of their financial systems. Governments will play a central role now, too.
Even before the Great Lockdown, leaders were calling for relaxation of antitrust restrictions as a response to the emergence of stronger Chinese competitors. France and Germany railed against the European Commission blocking the merger between the rail businesses of Siemens and Alstom, complaining it would give Chinese giant CRRC free reign. President Donald Trump has tried to encourage telecom mergers to combat Huawei. These concerns have only become more pronounced as China appears to have rebounded from the virus more rapidly than the rest of the world. The political logic of protecting domestic companies through strategic alliances will apply after the pandemic and across a broad range of industries.
Governments will come away from Covid-19 with new priorities, ranging from safer, more domestic, manufacturing and supply chains to less risky balance sheets. If history rhymes, then pre-virus views about competition may take a back seat. As Edward Chancellor argued, this will lead to an unhealthy concentration of power. For the M&A business it opens all sorts of possibilities once considered taboo. Take the oil patch. Sliding demand has combined with efforts by the world’s largest producer, Saudi Arabia, to flood the market and nudge U.S. drillers toward bankruptcy. As the price of a barrel of West Texas Intermediate crude has fallen below $20 a barrel from $60 at the start of the year, producers have been lobbying Trump for a rescue.
It’s not inconceivable to imagine the largest American producers banding together to squeeze out costs and take a better grip of U.S. oil supply, maybe even aided by government loans and a streamlined regulatory process, effectively creating a potential rival to Saudi Aramco. Merging Exxon Mobil with Chevron would forge a company worth some $350 billion with 35 billion barrels of proved reserves. Heck, they might even fold in BP’s 20 billion of reserves and $75 billion market cap and “ExChevBrit”. It would be a shrimp compared to Aramco’s $1.6 trillion value and 270 billion barrels of proved barrels of oil – and that’s how they would justify a deal.
Named for the 10th century king Harald “Bluetooth” Gormsson, famous in Scandinavia for uniting (and Christianizing) the Danes, the humble, oft-derided wireless technology included in some form in nearly every portable device from the past decade and beyond is central to coronavirus contact tracing apps pushed by Apple, Google, and governments across the world. Banking on the standard’s ubiquity, and considerably improved reliability since the ’90s, these entities hope to turn billions of Bluetooth-enabled devices into an army of public health automatons that can map anyone who came into contact with someone who tests positive for Covid-19.
Although the exact plans for using Bluetooth vary between governments, the gist is simple: In order for your iPhone to connect to your friend’s Bluetooth speaker, it has to essentially shout its existence into the electromagnetic spectrum, sending repeated radio messages that announce that the device is turned on and willing to pair with another. It’s exactly these short, repeating radio wave bursts that tech companies and public health authorities hope can be used for contact tracing, by collecting an anonymized record of every Bluetooth announcement within a certain range. If one of these “HELLO, I AM BLUETOOTH!” messages ends up coming from an individual who later tests positive for Covid-19, the hope is that anyone else whose phone was able to detect that message could then be alerted and tested (or treated) accordingly.
Beekeepers in France are celebrating a bumper spring honey harvest after weeks of warm weather but will need a smooth unwinding of the coronavirus lockdown if they are to find a market for their produce. Down an overgrown track near the Chantilly Palace, where the James Bond film “A View to a Kill” was filmed in the 1980s, beekeeper Franck Portefaix says it could be the best season in four decades. “The blossom was almost three weeks early and the harvest is very, very good,” said Portefaix, who followed his parents into beekeeping 30 years ago. Nearby, colleagues in protective suits sprayed smoke over hives before opening them to extract the raw honey, most of which Portefaix’s business sells in markets. Temperatures in the l’Oise, north of Paris, in April hit as high as 30 degrees Celsius, more typical of early summer.
In a mediocre harvest, a beehive can produce 4-6 kg of honey, rising to 10 kg in a good harvest, but this spring Portefaix said the best performing among his 500 hives could produce up to 20 kg each. “1976 was really the year of reference, a very good year. And this year has begun much like that year. But not all beekeepers are cheering 2020. While northern and western regions of France basked in ideal April weather, prolonged dry spells hurt harvests in the south. Unfavourable weather also in the Landes region hurt acacia honey production. “With the upheaval to our climate, harvests are becoming increasingly unpredictable. It’s still early in the season, we need to temper our expectations,” said Henri Clement, a spokesman for the National Union of French Beekeeping.
With the release of the new material from the case of Michael Flynn, an array of experts came forward to assure the public that it was all standard procedure for investigators to conclude that there was no criminal conduct uncovered and then prosecutors creating a crime (including the use of a clearly unconstitutional law never used to convict anyone since the start of the Republic). Many of these same experts who have been espousing untethered (and ultimately rejected) theories for criminal and impeachment charges for years. Yet, what was most striking is how many also rejected any claim that the undisclosed evidence, at a minimum, violated Brady, the case requiring the government to turn over exculpatory information.
Indeed, Ben Wittes, a staunch defender of James Comey, assured readers “while you might not know much about federal law enforcement,” this is all “standard practices.” In fact, this is a clear and flagrant violation of the both Brady and the orders of Judge Emmet Sullivan. The fact that such violations are also dismissed by mainstream media and experts reflects how rage has distorted legal analysis in this Administration. Brady v. Maryland is a 1963 decision of the Supreme Court that prosecutors must under the Fifth and Fourteenth amendments disclose favorable evidence to defendants upon request, if the evidence is “material” to either guilt or punishment. There are also due process rights requiring the disclosure of any evidence that would allow the defense to attack the reliability, thoroughness, and good faith of the police investigation or to impeach the credibility of the state’s witnesses. Kyles v. Whitley, 514 U.S. 419 (1995).
Courts like Judge Sullivan in the Flynn case issue standard orders under this and other cases requiring disclosure of evidence that are exculpatory or material to issues like impeachment. Many of us who work on the criminal defense side have long frustrating histories with courts in dealing with violations of Brady and other cases. Often these violations are exposed after sentencing (unlike in Flynn). Courts often cite cases like Strickler v. Greene to decline to order a new trial unless “the nondisclosure was so serious that there is a reasonable probability that the suppressed evidence would have produced a different verdict.” That is a standard that is difficult to overcome. However, this case exposes a particularly obvious set of violations.
The Chinese government has laid off its entire propaganda arm, cutting thousands of jobs at China Central Television and other state-run media outlets as the American media is already doing their job for them. “It seemed kinda redundant for us to have a state-run media when we have the American press,” said President Xi at a press conference Monday. “The American media is carrying water for us. It’s pretty incredible. We unleashed a virus on the world and lied about it for months, and the American press can’t stop praising us. As long as they make their orange leader look bad, they’ll repeat any line we feed them.”
“Really, we Commies could learn a lot from the propaganda of the press over in America,” he added admiringly. The Communist dictator sat the nervous, state-owned journalists down and asked them, “What would you say you do there?” to which they responded, “We take the propaganda and tell it to the people.” But President Xi wasn’t fooled, saying that the American press already does that and the redundancy would be eliminated. Luckily for the state-owned journalists and broadcasters who lost their jobs in China today, CNN was hiring.
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A great thread, putting together lots of studies:
A lot of discussion recently about transmission dynamics, most of which are extrapolated from viral loads & estimates. What does contact tracing/community testing data tell us about actual probability of #COVID19 transmission(infection rate), high risk environments/age? [thread]
It is truly great to see that over the past 10 days or so, millions of coronavirus experts worldwide have come out of hiding whose existence we knew nothing about beforehand. We at the Automatic Earth have been following the virus for well over 2 months, and not only do we still not understand as much as all these experts, we even contradict ourselves and each other from time to time. With all the new expert knowledge and -especially- opinions, no doubt the crisis will be solved real soon now.
When I started working very early this working, one of the first things I saw was this from Reuters. Which shows, while for instance Worldometer still had total deaths at 7,915, a 8,410+ number. Somehow it feels too specific for just a random mistake. Worldometer now says 8,010, so there is an increase, but not nearly as much.
Do note, however, that both cases and deaths are up by much larger numbers in the past 24 hours than ever before…
• Cases 202,270 (+ 18,137 from yesterday’s 184,133)
• Deaths 8,012 (+ 830 from yesterday’s 7,182)
These numbers, too, are rising relentlessly.
From Worldometer yesterday evening (before their day’s close)
From Worldometer -NOTE: mortality rate is now at 9%!- (Note: some call this rate “misleading”, but that can by definition only be true if you don’t know the parameters. Worldometer is very clear: the death rate is part of Closed Cases, not All Cases. You may argue that Active Cases should be part of the equation, but that would only insert uncertainty into the number. Neither Worldometer nor I imply that 9% will be the ultimate fatality rate, just that at present it’s the rate among Closed Cases.)
From SCMP: (Note: the SCMP graph was useful when China was the focal point; they are falling behind now)
From COVID2019.app: (New format lacks new cases and deaths)
Somebody found a money tree. Or, rather, one in every country.
The world’s richest nations prepared more costly measures on Tuesday to combat the global fallout of the coronavirus that has infected tens of thousands of people, triggered social restrictions unseen since World War Two and sent economies spinning toward recession. With the highly contagious respiratory disease that originated in China racing across the world to infect more than 196,000 people so far, governments on every continent have implemented draconian containment measures from halting travel to stopping sporting events and religious gatherings. While the main aim is to avoid deaths – currently at over 7,800 – global powers were also focusing on how to limit the inevitably devastating economic impact.
In the world’s biggest economy, U.S. President Donald Trump’s administration has proposed pumping $1 trillion into the market. Trump wants to send cash to Americans within two weeks as the country’s death toll approached 100 and more testing sent the number of coronavirus cases to over 5,700. Airlines are among the worst-hit sector, with U.S. carriers seeking at least $50 billion in grants and loans to stay afloat as passenger numbers evaporate. Britain, which has told people to avoid pubs, clubs, restaurants, cinemas and theaters, unveiled a 330 billion pounds ($400 billion) rescue package for businesses threatened with collapse. Budget forecasters said the scale of borrowing needed might resemble the vast amount of debt taken on during the 1939-1945 war against Nazi Germany.
“Now is not a time to be squeamish about public sector debt,” Robert Chote, head of the Office for Budget Responsibility, which provides independent analysis of the UK’s public finances, told lawmakers. France is to pump 45 billion euros ($50 billion) of crisis measures into its economy to help companies and workers, with output expected to contract 1% this year. “I have always defended financial rigor in peacetime so that France does not have to skimp on its budget in times of war,” Budget Minister Gerald Darmanin was quoted as saying by financial daily Les Echos. The European Union eased its rules to allow companies to receive state grants up to 500,000 euros ($551,000) or guarantees on bank loans to ensure liquidity.
But even with the promised cash splurges, world stock markets and oil prices were unable to shake off their coronavirus nightmare after Wall Street on Monday saw its worst rout since the Black Monday crash of 1987. The Philippines was the first country to close markets, while Europe – now the epicenter of the pandemic – saw airline and travel stocks plunge another 7%.
Mr. Bianco, the Federal Reserve takes massive emergency actions. What does this mean for financial markets? The Central Banks went all in. They fired all of their ammunition and they’ve got only one goal in mind: They have to stop the decline in financial markets. This started late last week with the Fed’s giant repo operation. You can also throw in the announcements of the ECB and the Bank of Japan. Plus, we have the extraordinary actions taken by European governments to stem the effects of the pandemic. The government of Germany for instance is basically guaranteeing everybody’s job.
However, investors don’t seem convinced. What’s going to happen if markets drop further? Central Banks need to stop the stock market from falling through last week’s low. I believe if markets fall through those levels and keep going down, the so-called Fed Put is dead. It doesn’t work anymore, so quit trying to find new ways to exercise it. Just understand Einstein’s definition of insanity: Doing the same thing over and over again, and expecting different results.
What are the ramifications if the Fed Put doesn’t work anymore? Central Banks will need to move on. So if stocks make new lows we’re at a real risk of financial markets being closed. The Fed and other Central Banks have fired all their ammunition and if markets crash through last week’s lows, there’s nothing left. The Fed can’t buy equities outright without a change of the Federal Reserve Act. It would take weeks for Congress to do that. Even if Congress moves with lightning speed it will take them at least a week, and it will be over before that.
What would be the benefit of closing markets? It took the stock market sixteen trading days to drop by 27% from the all-time highs to Thursday’s lows. We have never seen anything close to that in history. The closest we’ve ever been in history was 1929, when it took 42 days to get from the all-time highs to a 20% correction. The speed in this decline is unprecedented.
Why is it so important to stop this crash? If it continues, you will get margin calls, involuntary liquidation. Markets will lose their ability to price securities, especially things like high yield bonds and emerging markets securities. Funds in those areas will be unavailable for people to redeem because they won’t have any prices. There will be trapped money. Also, you will get broken covenants in the corporate debt area, and that will force changes of control or restructurings. But the biggest damage will be that pensions will become underfunded. Companies will be forced to pony up billions of Dollars to get their pensions back into funding.
[..] You’re been in the investment business for a long time and have seen quite a few crashes. How do you experience this crisis personally? This is unlike anything we’ve seen in our lifetime. What’s going on in financial markets today exceeds the financial crisis of 2008, it exceeds 9/11, it exceeds the tech peak, and it exceeds the 1987 crash. Maybe 1929 is still bigger, but few of us were alive then. We’re writing a new chapter for American and world history textbooks. We’re only a few pages into it, and we’re not sure how it will end, but our grandchildren will one day learn school about the great pandemic of 2020 and what it meant for world history.
“What I’m opposed to is the hype, hypocrisy and excess that has preceded it. People got greedy, they piled into stocks at ungodly valuations. Companies that didn’t save or prepare for a crisis, instead were focused on short term market gains to juice up their stock prices. Companies such as Boeing that cut corners and blew money on buybacks for financial engineering purposes to enrich upper management and shareholders. I say screw them..”
The lesson of it all? The lesson is that lessons are not being learned. Of course the human species has an ingrained problem: We are all born with a blank sheet and have to learn everything from scratch. It would be helpful though if the elders could pass lessons from past mistakes on to the new generation. But no. So we keep making the same stupid mistakes. And here we are. Just four weeks after all time highs in markets America is again turning into bailout nation. Yes coronavirus is an unforeseen shock. So what? We’re supposed to handle a shock. We’re supposed to be prepared. We’re supposed to have savings and great balance sheets.
After an 11 year recovery and market bull run based on cheap and easy money shouldn’t things be great and shouldn’t we be well prepared for the next downturn? Is that really too much to ask? Apparently. We can’t even go 4 weeks without the Fed going apeshit on cutting rates to zero, launching $700B in QE, making discount windows available and launching $500B, even trillion dollar repos. We can’t even go 4 weeks without the government launching a proposed $850B stimulus package, tax cuts, free money checks of $1,000 to Americans and suggesting bailouts for $BA and $GE. That’s how fragile things are. They must be, otherwise the system would be able to handle a temporary shock. But it can’t. Why? Well for one our supposed great economy ever has the vast majority of Americans live paycheck to paycheck:
The consumer is doing great:
“78 percent of full-time workers said they live paycheck to paycheck, up from 75 percent last year. Overall, 71 percent of all U.S. workers said they're now in debt, up from 68 percent a year ago.” https://t.co/iLgLYRrPYN
That’s a systemic problem. Sure you can blame people for living beyond their means, but in general most people just don’t have the income power to keep abreast with rising medial costs, home prices and all the other fun inflationary items that the Fed simply doesn’t count as inflation. How ignorant they are. PCE deflator. Please. And then of course the same lesson again not learned that keeps repeating ahead of every bust: Greed and more greed. When has it ever been a good idea to chase stocks to 150% market cap to GDP or even higher? The answer is never. Yet they convinced themselves and others that it’s different this time. New flash: It wasn’t. A lesson not learned and yet they did it. The chart was screaming unsutainability. And here we are 4 weeks later, yesterday closing at 109.5% market cap to GDP:
Reversion to the mean. And it could eventually get much worse. I showed this chart in Bull Cliff in February and I stated: “Investors keep piling money into this historically priced market….Central banks can deny all they want that they are not responsible for asset price inflation, but everybody knows better. The denials are not only hollow they are straight out lies. And having created the Pavlovian effect we now see in the investment community they are leading investors to abandon all sense of risk when risks are mounting ever more around us as valuations and earnings multiples keep expanding as a result of monetary policy. And hence it may be said that central bankers may be leading investors off the cliff.”
[..] I’m not opposed to the government stepping in to help in an emergency. That’s why we have government. What I’m opposed to is the hype, hypocrisy and excess that has preceded it. People got greedy, they piled into stocks at ungodly valuations. Companies that didn’t save or prepare for a crisis, instead were focused on short term market gains to juice up their stock prices. Companies such as Boeing that cut corners and blew money on buybacks for financial engineering purposes to enrich upper management and shareholders. I say screw them. If you don’t learn the lessons of the past then live with the consequences. And who pays ultimately for the consequences? We’ve seen this movie before
In its latest 8K, the plunging planemaker has completely drawn down its $13.8 billion credit line that it entered in October 2018 as it “navigates current business challenges” exposing just how fast this company is burning through cash. [..] This comes just hours after sources told Reuters that Boeing is seeking a bailout of ‘tens of billions’ in US government loan guarantees amid the Covid-19 crisis.[..] As we raged previously, this bailout demand comes after the company blew nearly $100 billion on stock buybacks since 2013 helping push its stock to all-time highs not that long ago, and instead of selling stock to get liquidity, they’re asking the Trump administration for a massive bailout.
So, no, nobody in their right minds should give Boeing even one penny in “short term aid”. Instead, management and the board should be ordered to sell as much stock as they need – you know, the opposite of buying it back – to maintain the business, even it means sending the stock price crashing far lower. Because it’s called capitalism, and because there is no reason why taxpayers should foot the bill for a company which instead of saving cash when times were good, was handing it out to shareholders and a handful of executives, and which should now for some insane reason be eligible for a bailout when times suddenly go bad. No: force Boeing – and others like it that spent billions repurchasing its stock while incurring massive amounts of debt – to sell its stock.
After all that’s what a public company’s stock is – a currency – and just as Boeing could repurchase it when it had cash, and lifted its stock price to all time highs, it should now sell its stock and use the proceeds to fund itself, like any other corporation does when it needs funding. Last time we checked, Boeing’s market cap was $73 billion, and it certainly afford to drop much more as the company now does the buyback in reverse. This is also a warning to Congress and the White House: if chronic stock repurchasers such as Boeing, are bailed out instead of ordered to find their own sources of liquidity, there will be a mutiny in America and rightfully so, because it was Boeing’s shareholders that got rich on the way up, and now it is somehow up to taxpayers to make sure the company, loaded up with record amounts of debt used to fund buybacks, survives one more quarter. That, in a word, is bullshit.
Staggered by the coronavirus outbreak, the lodging industry requested $150 billion in aid from the Trump administration Tuesday as Marriott International announced plans to furlough tens of thousands of workers. After a White House meeting with President Trump and Vice President Mike Pence, hotel industry leaders said the virus outbreak is on pace to cause a bigger economic hit than the 2001 terrorist strikes and the 2008-09 recession combined. In addition to the $150 billion requested by the hotel industry, other sectors of the travel industry — such as convention centers, theme parks and tour companies — have requested $100 billion in funding to overcome the crisis, said Roger Dow, president of the U.S. Travel Assn., the trade group for the country’s travel industry.
That is on top of the $58 billion in aid requested Monday by the airline industry to overcome a surge in flight cancellations amid new travel restrictions. Without federal aid to the travel and lodging industries, the U.S. could lose as many as 4 million jobs in 2020, pushing the unemployment rate from 3.3% to 6.3% across the country, Dow said. Hotel occupancy rates were around 80% a few weeks ago but are now 10% to 20% in the busiest cities of the country, Chip Rogers, president of the American Hotel & Lodging Assn., said in a conference call with reporters. The federal aid, he said, has been requested in the form of grants to keep workers employed until the crisis subsides. Details about how the money would be disbursed had yet to be decided, Rogers said.
The Native American gaming industry on Tuesday requested $18 billion in U.S. federal aid as it shut casinos that are the sole source of commercial revenue for dozens of tribes in a bid to slow the coronavirus epidemic. Tribal governments will be unable to provide health and education services and will default on loans unless they get federal support to make up for lost casino money, the National Indian Gaming Association said in a letter to members of the U.S. House of Representatives. “Providing the means for tribal governments to continue paying all employees’ salaries and benefits will immensely help this country recover,” according to the letter addressed to Representatives Deb Haaland and Tom Cole of the House Native American Caucus.
The United States’ roughly 460 Indian casinos are in the process of closing given the threat of coronavirus to tribal members and many non-Native American employees. Tribes are sovereign nations but are following advice from U.S. states and the federal government to slow the virus’ spread. That means shutting American Indian casinos which employ a combined 700,000-plus people directly and indirectly and generated over $37 billion in 2017, making them the largest segment of the U.S. gaming industry, according to the association.
Frances Coppola: “Demand is falling because of virus control measures. Giving people money to spend (above their normal income) while simultaneously making it impossible for them to spend it is absurd.”
U.S. Treasury Secretary Steven Mnuchin warned Republican senators on Tuesday that the country’s unemployment rate could hit 20% if they failed to act on a proposed coronavirus rescue package and there was lasting economic damage, a person familiar with the closed-door meeting said. Mnuchin met with senators to persuade them to pass a $1 trillion stimulus package that would send cash to Americans within two weeks and backstop airlines and other companies. The Senate is majority-controlled by President Donald Trump’s fellow Republicans. A Treasury official said Mnuchin was not providing a forecast but trying to illustrate the potential risks of inaction.
“During the meeting with Senate Republicans today, Secretary Mnuchin used several mathematical examples for illustrative purposes, but he never implied this would be the case,” Treasury spokeswoman Monica Crowley said in an emailed statement. The warning was similar to one issued to U.S. lawmakers at the depths of the 2008 financial crisis, when Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke went to Capitol Hill to urge passage of a $700 billion plan to buy toxic mortgage assets.
As fallout from the coronavirus pandemic hits the economy, it’s slamming the American workforce: Some 18% of adults reported that they had been laid off or that their work hours had been cut, a new poll found. The proportion affected grew for lower-income households, with 25% of those making less than $50,000 a year reporting that they had been let go or had their hours reduced, according to a survey released Tuesday by NPR, PBS NewsHour and Marist of 835 working adults in the contiguous United States. The poll was conducted Friday and Saturday, just after stocks began their steep plunge and normal life started grinding to a halt, with schools and places of worship closing, concerts and conferences being canceled and sports leagues suspending their seasons. The same poll found that about 56% of Americans considered the coronavirus outbreak a “real threat,” while 38% said it was “blown out of proportion.”
A senior German disease control expert has warned that the coronavirus pandemic could continue for two years, depending on how long it takes for an effective vaccine to be developed and if people develop immunity after illness. Speaking on Tuesday, the Robert Kock Institut’s (RKI) president, Prof. Lothar Wieler, said pandemics tend to run their course in waves, and factors influencing how it unfolds from this point include how many people become immune to it after contracting the virus – and how quickly a vaccine is made. The RKI, a German federal agency responsible for disease control and prevention, on Tuesday raised the country’s threat level from the ongoing coronavirus pandemic from ‘moderate’ to ‘high’.
It said the revision comes in light of the continuing increase in new infections of the rapidly-spreading virus, which originated in China late last year and whose symptoms range from fever to serious respiratory illness. Germany has recorded over 7,900 cases of Covid-19 to date, with 20 deaths. New research from RKI scientists and the Helios clinic group also says that the novel coronavirus can more seriously afflict adults aged under 60 who have no underlying health conditions than similar patients suffering severe pneumonia in the regular flu season.
Although countries around the globe have largely stepped up measures to counter the spread of the virus, including border closures, shutting schools and limiting mass gatherings, Covid-19 cases outside of China recently surpassed the total figure recorded inside the country that had, until now, suffered the worst of the outbreak. Italy, in particular, is struggling with the pandemic and recorded a larger single-day number of deaths last weekend than China did at the worst of the peak there.
The highly contagious novel coronavirus that has exploded into a global pandemic can remain viable and infectious in droplets in the air for hours and on surfaces up to days, according to a new study that should offer guidance to help people avoid contracting the respiratory illness called COVID-19. Scientists from the National Institute of Allergy and Infectious Diseases (NIAID), part of the U.S. National Institutes of Health, attempted to mimic the virus deposited from an infected person onto everyday surfaces in a household or hospital setting, such as through coughing or touching objects. They used a device to dispense an aerosol that duplicated the microscopic droplets created in a cough or a sneeze.
The scientists then investigated how long SARS-CoV-2 remained infectious on these surfaces, according to the study that appeared online in the New England Journal of Medicine on Tuesday – a day in which U.S. COVID-19 cases surged past 5,200 and deaths approached 100. The tests show that when the virus is carried by the droplets released when someone coughs or sneezes, it remains viable, or able to still infect people, in aerosols for at least three hours. On plastic and stainless steel, viable virus could be detected after three days. On cardboard, the virus was not viable after 24 hours. On copper, it took 4 hours for the virus to become inactivated.= In terms of half-life, the research team found that it takes about 66 minutes for half the virus particles to lose function if they are in an aerosol droplet.
That means that after another hour and six minutes, three quarters of the virus particles will be essentially inactivated but 25% will still be viable. The amount of viable virus at the end of the third hour will be down to 12.5%, according to the research led by Neeltje van Doremalen of the NIAID’s Montana facility at Rocky Mountain Laboratories. On stainless steel, it takes 5 hours 38 minutes for half of the virus particles to become inactive. On plastic, the half-life is 6 hours 49 minutes, researchers found. On cardboard, the half-life was about three and a half hours, but the researchers said there was a lot of variability in those results “so we advise caution” interpreting that number.
Scientists in Australia say they have identified how the body’s immune system fights the Covid-19 virus. Their research, published in Nature Medicine journal on Tuesday, shows people are recovering from the new virus like they would from the flu. Determining which immune cells are appearing should also help with vaccine development, experts say. “This [discovery] is important because it is the first time where we are really understanding how our immune system fights novel coronavirus,” said study co-author Prof Katherine Kedzierska. The research by Melbourne’s Peter Doherty Institute for Infection and Immunity has been praised by other experts, with one calling it “a breakthrough”.
Many people have recovered from Covid-19, meaning it was already known that the immune system can successfully fight the virus. But for the first time, the research identified four types of immune cells which presented to fight Covid-19. They were observed by tracking a patient who had a mild-to-moderate case of the virus and no previous health issues. The 47-year-old woman from Wuhan, China, had presented to hospital in Australia. She recovered within 14 days. Prof Kedzierska told the BBC her team had examined the “whole breadth of the immune response” in this patient. Three days before the woman began to improve, specific cells were spotted in her bloodstream. In influenza patients, these same cells also appear around this time before recovery, Prof Kedzierska said.
Chest scans showed the patient’s lungs clearing after immune cells appeared
The next site of a deadly coronavirus outbreak may not be a cruise ship, conference, or school. It could be one of America’s thousands of jails or prisons. Just about all the concerns about coronavirus’s spread in packed social settings apply as much, if not more, to correctional settings. In a prison, multiple people can be placed in one cell. Hallways and gathering places are often small and tight (often deliberately so, to make it easier to control inmates). There is literally no escape, with little to no space for social distancing or similar recommendations experts make to combat coronavirus. Hand sanitizer can be contraband.
Such an outbreak could not only infect and kill hundreds or thousands of people in prison, but potentially spread to nearby communities as well. Visitors and correctional staff could spread the disease when they go back home, and inmates could spread it when they’re released. Even an outbreak contained within a jail or prison could strain nearby health care systems, as hundreds or thousands of people suddenly need medical care that jails and prisons themselves can’t provide. So if you want to “flatten the curve” to spread out the illness and avoid overwhelming health care systems, experts say, you should worry about coronavirus in prisons and jails.
In the US, the concern is particularly acute because America puts so many people in jail or prison. The US locks up about 2.3 million people on any given day — the highest prison and jail population of any country in the world. With an incarceration rate of 655 per 100,000 people, the US locks up people at nearly twice the rate of Russia, more than five times that of China, more than six times Canada and France, nearly nine times Germany, and almost 17 times Japan. “We can learn what works in terms of mitigation from other countries who have seen spikes in coronavirus already, but none of those countries have the level of incarceration that we have in the United States,” Tyler Winkelman, a doctor and researcher at the University of Minnesota focused on health care and criminal justice, told me.
Cyprus on Tuesday announced a two-week ban on flights from 28 countries, including Britain and Greece, to curb the coronavirus outbreak. The measure will come into effect from 0100 GMT on March 21 for a 14-day period, an official statement said. It does not affect cargo flights. The island has already enacted stringent entry requirements, effective from March 16, barring anyone into the island, including Cypriots, without a medical certificate that they are clear of coronavirus. Those who do arrive are placed in compulsory quarantine in a government-supervised facility for two weeks. The east Mediterranean island has reported 49 cases of coronavirus.
Australia’s DFAT travel advisory map has been updated. Every country in the world is labelled “Do Not Travel”, for the first time ever.
China is pulling the press credentials of US journalists from outlets including the New York Times and the Washington Post whose passes expire in 2020, in the latest move of an ongoing tit-for-tat with America over media access. In a statement about China’s “countermeasures against US suppression of Chinese media organizations in the United States,” Beijing announced that American reporters working for the NYT, Wall Street Journal, Voice of America, Time and the Washington Post whose credentials are due to expire by the end of this year must hand them over within 10 days. These reporters will also not be allowed to work in China – including Hong Kong and Macau – in the future, and other US journalists will face new visa restrictions similar to those Washington recently introduced for Chinese reporters.
“In view of the US’ discriminatory restrictions on visas, administrative review, and interviews of Chinese journalists, China will take reciprocal measures against US journalists,” it added. The back-and-forth expulsions of journalists started in February, when Chinese authorities gave three Wall Street Journalists five days to leave the country after Beijing objected to an opinion piece in the outlet calling China the “real sick man of Asia.” The paper refused to apologize for the piece. Shortly afterwards, the US dramatically reduced the number of journalists it would permit to work for four Chinese state-owned media companies inside the US, cutting the number allowed from 160 to 100. They also reduced the length of time those permitted entry could remain in the US. Beijing condemned the move as reflecting a “Cold War mindset” and warned of retaliation.
Clean water in Venice for the first time in forever. The flipside of this: Free parking in Athens to limit use of public transportation.
Here's an unexpected side effect of the pandemic – the water's flowing through the canals of Venice is clear for the first time in forever. The fish are visible, the swans returned. pic.twitter.com/2egMGhJs7f
In 1933, when FDR took power, global banking was essentially non-functional. Bankers had committed widespread fraud on top of a rickety and poorly structured financial system. Herbert Hoover, who organized an initial bailout by establishing what was known as the Reconstruction Finance Corporation, was widely mocked for secretly sending money to Republican bankers rather than ordinary people. The new administration realized that trust in the system was essential. One of the first things Roosevelt did, even before he took office, was to embarrass powerful financiers. He did this by encouraging the Senate Banking Committee to continue its probe, under investigator Ferdinand Pecora, of the most powerful institutions on Wall Street, which were National City (now Citibank) and JP Morgan.
Pecora exposed these institutions as nests of corruption. The Senate Banking Committee made public Morgan’s “preferred list,” which was the group of powerful and famous people who essentially got bribes from Morgan. It included the most important men in the country, like former Republican President Calvin Coolidge, a Supreme Court Justice, important CEOs and military leaders, and important Democrats, too. Roosevelt also ordered his attorney general “vigorously to prosecute any violations of the law” that emerged from the investigations. New Dealers felt that “if the people become convinced that the big violators are to be punished it will be helpful in restoring confidence.” The DOJ indicted National City’s Charles Mitchell for tax evasion.
This was part of a series of aggressive attacks on the old order of corrupt political and economic elites. The administration pursued these cases, often losing the criminal complaints but continuing with civil charges. This bought the Democrats the trust of the public. When Roosevelt engaged in his own broad series of bank bailouts, the people rewarded his party with overwhelming gains in the midterm elections of 1934 and a resounding re-election in 1936. Along with an assertive populist Congress, the new administration used the bailout money in the RFC to implement mass foreclosure-mitigation programs, create deposit insurance, and put millions of people to work. He sought to save not the bankers but the savings of the people themselves.
Too Big To Fail shows Fuld on a rant: “People act like we’re crack dealers,” Fuld (James Woods) gripes. “Nobody put a gun to anybody’s head and said, ‘Hey, nimrod, buy a house you can’t afford. And you know what? While you’re at it, put a line of credit on that baby and buy yourself a boat.” This argument is the Wall Street equivalent of Reagan’s famous Cadillac-driving “welfare queen” spiel, which today is universally recognized as asinine race rhetoric. Were there masses of people pre-2008 buying houses they couldn’t afford? Hell yes. Were some of them speculators or “flippers” who were trying to game the bubble for profit? Sure. Most weren’t like that – most were ordinary working people, or, worse, elderly folks encouraged to refinance and use their houses as ATMs – but there were some flippers in there, sure.
People pointing the finger at homeowners are asking the wrong questions. The right question is, why didn’t the Fulds of the world care if those “nimrods” couldn’t afford their loans? The answer is, the game had nothing to do with whether or not the homeowner could pay. The homeowner was not the real mark. The real suckers were institutional customers like pensions, hedge funds and insurance companies, who invested in these mortgages. If you had a retirement fund and woke up one day in 2009 to see you’d lost 30 percent of your life savings, you were the mark. Ordinary Americans had their remaining cash in houses and retirement plans, and the subprime scheme was designed to suck the value out of both places, into the coffers of a few giant banks.
School bus driver Michael Payne was renting an apartment on the 30th floor of a New York City high-rise, where the landlord’s idea of fixing broken windows was to cover them with boards. So when Payne and his wife Gail saw ads in the tabloids for brand-new houses in the Pennsylvania mountains for under $200,000, they saw an escape. The middle-aged couple took out a mortgage on a $168,000, four-bedroom home in a gated community with swimming pools, tennis courts and a clubhouse. “It was going for the American Dream,” Payne, now 61, said recently as he sat in his living room. “We felt rich.” Today the powder-blue split-level is worth less than half of what they paid for it 12 years ago at the peak of the nation’s housing bubble.
Located about 80 miles northwest of New York City in Monroe County, Pennsylvania, their home resides in one of the sickest real estate markets in the United States, according to a Reuters analysis of data provided by a leading realty tracking firm. More than one-quarter of homeowners in Monroe County are deeply “underwater,” meaning they still owe more to their lenders than their houses are worth. The world has moved on from the global financial crisis. Hard-hit areas such as Las Vegas and the Rust Belt cities of Pittsburgh and Cleveland have seen their fortunes improve. But the Paynes and about 5.1 million other U.S. homeowners are still living with the fallout from the real estate bust that triggered the epic downturn.
As of June 30, nearly one in 10 American homes with mortgages were “seriously” underwater, according to Irvine, California-based ATTOM Data Solutions, meaning that their market values were at least 25 percent lower than the balance remaining on their mortgages.
A no-deal Brexit could lead to a financial crisis as bad as the crash in 2008, the governor of the Bank of England has warned. Mark Carney told Theresa May and senior ministers that not getting a deal with the European Union would lead to a number of negative economic consequences. It is also understood that Mr Carney warned house prices could fall by up to 35 per cent over three years in a worst case scenario, an event that could cause the value of sterling to plummet and force the bank to push up interest rates. His bleak prognosis came as France said it could halt flights and Eurostar trains from the UK if there was no agreement when Britain leaves the EU in March 2019.
The Bank of England declined to comment on Mr Carney’s briefing to ministers. Following the three-and-a-half hour meeting of the cabinet, a Downing Street spokesman said ministers remained confident of securing a Brexit agreement, but had agreed to “ramp up” their no-deal planning.
Europe’s top rights court ruled Thursday that Britain’s programme of mass surveillance, revealed by whistleblower Edward Snowden as part of his sensational leaks on US spying, violated people’s right to privacy. Ruling in the case of Big Brother Watch and Others versus the United Kingdom, the European Court of Human Rights in Strasbourg, France, said the interception of journalistic material also violated the right to freedom of information. The case was brought by a group of journalists and rights activists who believe that their data may have been targeted. The court ruled that the existence of the surveillance programme “did not in and of itself violate the convention” but noted “that such a regime had to respect criteria set down in its case-law”.
They concluded that the mass trawling for information by Britain’s GCHQ spy agency violated Article 8 of the European Convention on Human Rights regarding the right to privacy because there was “insufficient oversight” of the programme. The court found the oversight to be doubly deficient, in the way in which the GCHQ selected internet providers for intercepting data and then filtered the messages, and the way in which intelligence agents selected which data to examine. It determined that the regime covering how the spy agency obtained data from internet and phone companies was “not in accordance with the law”.
Financial services and ratings giant S&P Global is honing in on China’s $11 trillion bond market, a move that may spell good news for international investors in search of more reliable ratings for bonds. Speaking to CNBC on Friday, S&P Global Chief Financial Officer Ewout Steenbergen explained that it’s a good time to enter China as Asia’s largest economy has lifted foreign ownership restrictions for credit ratings agencies. Elaborating on the company’s plan to offer ratings services for the bond market there, Steenbergen said that S&P Global intends to start a new entity for its mainland business.
“We are expanding our market intelligence business in China, very specific local content, for example for Chinese private company data … But the most attractive opportunity we have is in the ratings business,” he said on CNBC’s “Squawk Box.” “It is the third-largest domestic bond market in the world, we think it will overtake Japan soon to become the second-largest domestic bond market,” added Steenbergen, who is also an executive vice president at S&P Global. [..] Steenbergen said he hopes that S&P Global’s move to enter that market can create more confidence. “Today, Chinese domestic bonds, 2 percent are bought by international investors, 98 percent only by Chinese investors. And I think (how) we can help with the market is to create more maturity, more confidence.
The current world trade system is not perfect and China supports reforms to it, including to the World Trade Organization, to make it fairer and more effective, Beijing’s top diplomat said. China is locked in a bitter trade war with the United States and has vowed repeatedly to uphold the multilateral trading system and free trade, with the WTO at its center. But speaking late on Thursday to reporters after meeting French Foreign Minister Jean-Yves Le Drian, Chinese State Councillor Wang Yi said some reforms could be good. While certain doubts have been raised about the current international trading system, China has always supported the protection of free trade and believes that multilateralism with the WTO at its core should be strengthened, Wang added.
[..] China will not buckle to U.S. demands in any trade negotiations, the major state-run China Daily newspaper said in an editorial on Friday, after Chinese officials welcomed an invitation from Washington for a new round of talks. The official China Daily said that while China was “serious” about resolving the stand-off through talks, it would not be rolled over, despite concerns over a slowing economy and a falling stock market at home. “The Trump administration should not be mistaken that China will surrender to the U.S. demands. It has enough fuel to drive its economy even if a trade war is prolonged,” the newspaper said in an editorial.
The EU’s top economic official has voiced fears that “little Mussolinis” might be emerging in Europe, drawing a furious response from Italy’s far-right interior minister who accused him of insulting his country and Italians. Pierre Moscovici, a Frenchman who is the European Union’s economics affairs commissioner, said the current political situation, with populist, far-right forces on the rise in many nations, resembled the 1930s when Germany’s Adolf Hitler and Italian fascist chief Benito Mussolini were in power. “Fortunately there is no sound of jackboots, there is no Hitler, (but maybe there are) small Mussolinis. That remains to be seen,” he told reporters in Paris, speaking in a jocular fashion.
Moscovici, a former French finance minister, mentioned no names, but Matteo Salvini, who is a deputy prime minister and heads Italy’s anti-immigrant League, took it personally. “He should wash his mouth out before insulting Italy, the Italians and their legitimate government,” Salvini said in a statement released by his office in Rome. Salvini took advantage of the spat to set out once again his grievances with France, which he accuses of not doing enough to help deal with migrants from Africa and of having plunged Libya into chaos by helping to oust former strongman Muammar Gaddafi. “EU commissioner Moscovici, instead of censuring his France that rejects immigrants … has bombed Libya and has broken European (budget) parameters, attacks Italy and talks about ‘many little Mussolini’ around Europe,” Salvini said.
Two leading scientists have issued a call for massive swathes of the planet’s land and sea to be protected from human interference in order to avert mass extinction. Current levels of protection “do not even come close to required levels”, they said, urging world leaders to come to a new arrangement by which at least 30 per cent of the planet’s surface is formally protected by 2030. Chief scientist of the National Geographic Society Jonathan Baillie and Chinese Academy of Sciences biologist Ya-Ping Zhang made their views clear in an editorial published in the journal Science.
They said the new target was the absolute minimum that ought to be conserved, and ideally this figure should rise to 50 per cent by the middle of the century. “This will be extremely challenging, but it is possible,” they said. “Anything less will likely result in a major extinction crisis and jeopardise the health and wellbeing of future generations.” Most current scientific estimates have the amount of space needed to safeguard the world’s animals and plants at between 25 and 75 per cent of land and oceans.
Heavy rain, wind gusts and rising floodwaters from Hurricane Florence swamped the Carolinas early on Friday as the massive storm crawled toward the coast, threatening millions of people in its path with record rainfall and punishing surf. Florence was downgraded to a Category 1 storm on the five-step Saffir-Simpson scale on Thursday evening and was moving west at only 6 mph (9 km/h). The hurricane’s sheer size means it could batter the U.S. East Coast with hurricane-force winds for nearly a full day, according to weather forecasters. Despite its unpredictable path, it was forecast to make landfall near Cape Fear, North Carolina, at midday on Friday.
Elliott Wave International recently put together a chart (click here or on the chart to watch the accompanying video) that illustrates a recurring theme of financial bubbles: When good times have gone on for a sufficiently long time, people forget that it can be any other way and start behaving as if they’re bulletproof. They stop saving, for instance, because they’ll always have their job and their stocks will always go up. Then comes the inevitable bust. On the following chart, this delusion and its aftermath are represented by the gap between consumer confidence (our sense of how good the next year is likely to be) and the saving rate (the portion of each paycheck we keep for a rainy day). The bigger the gap the less realistic we are and the more likely to pay dearly for our hubris.
There is an important picture that is currently developing which, if it continues, will impact earnings and ultimately the stock market. Let’s take a look at some interesting economic numbers out this past week. On Tuesday, we saw the release of the Producer Price Index (PPI) which ROSE 0.4% for the month following a similar rise of 0.4% last month. This surge in prices was NOT surprising given the recent devastation from 3-hurricanes and massive wildfires in California which led to a temporary surge in demand for products and services.
Then on Wednesday, the Consumer Price Index (CPI) was released which showed only a small 0.1% increase falling sharply from the 0.5% increase last month.
This deflationary pressure further showed up on Thursday with a -0.3 decline in Export prices. (Exports make up about 40% of corporate profits) For all of you that continue to insist this is an “earnings-driven market,” you should pay very close attention to those three data points above. When companies have higher input costs in their production they have two choices: 1) “pass along” those price increase to their customers; or 2) absorb those costs internally. If a company opts to “pass along” those costs then we should have seen CPI rise more strongly. Since that didn’t happen, it suggests companies are unable to “pass along” those costs which means a reduction in earnings. The other BIG report released on Wednesday tells you WHY companies have been unable to “pass along” those increased costs.
The “retail sales” report came in at just a 0.1% increase for the month. After a large jump in retail sales last month, as was expected following the hurricanes, there should have been some subsequent follow through last month. There simply wasn’t. More importantly, despite annual hopes by the National Retail Federation of surging holiday spending which is consistently over-estimated, the recent surge in consumer debt without a subsequent increase in consumer spending shows the financial distress faced by a vast majority of consumers. The first chart below shows a record gap between the standard cost of living and the debt required to finance that cost of living. Prior to 2000, debt was able to support a rising standard of living, which is no longer the case currently.
With a current shortfall of $18,176 between the standard of living and real disposable incomes, debt is only able to cover about 2/3rds of the difference with a net shortfall of $6,605. This explains the reason why “control purchases” by individuals (those items individuals buy most often) is running at levels more normally consistent with recessions rather than economic expansions.
If companies are unable to pass along rising production costs to consumers, export prices are falling and consumer demand remains weak, be warned of continued weakness in earnings reports in the months ahead. As I stated earlier this year, the recovery in earnings this year was solely a function of the recovering energy sector due to higher oil prices. With that tailwind now firmly behind us, the risk to earnings in the year ahead is dangerous to a market basing its current “overvaluation” on the “strong earnings” story.
Norway’s proposal to sell off $35 billion in oil and natural gas stocks brings sudden and unparalleled heft to a once-grassroots movement to enlist investors in the fight against climate change. The Nordic nation’s $1 trillion sovereign wealth fund said Thursday that it’s considering unloading its shares of Exxon Mobil, Royal Dutch Shell and other oil giants to diversify its holdings and guard against drops in crude prices. European oil stocks fell. Norges Bank Investment Management would not be the first institutional investor to back away from fossil fuels. But until now, most have been state pension funds, universities and other smaller players that have limited their divestments to coal, tar sands or some of the other dirtiest fossil fuels. Norway’s fund is the world’s largest equity investor, controlling about 1.5% of global stocks. If it follows through on its proposal, it would be the first to abandon the sector altogether.
“This is an enormous change,” said Mindy Lubber, president of Ceres, a non-profit that advocates for sustainable investing. “It’s a shot heard around the world.” The proposal rattled equity markets. While Norwegian officials say the plan isn’t based on any particular view about future oil prices, it’s apt to ratchet up pressure on fossil fuel companies already struggling with the growth of renewable energy. Norway’s Finance Ministry, which oversees the fund, said it will study the proposal and will take at least a year to decide what to do. The fund has already sold off most of its coal stocks. “People are starting to recognize the risks of oil and gas,” said Jason Disterhoft of the Rainforest Action Network, which pushes banks to divest from fossil fuels.
UBS, the world’s largest wealth manager, isn’t prepared to make portfolio allocations to bitcoin because of a lack of government oversight, the bank’s chief investment officer said. Bitcoin has also not reached the critical mass to be considered a viable currency to invest in, UBS’s Mark Haefele said in an interview. The total sum of all cryptocurrencies is “not even the size of some of the smaller currencies” that UBS would allocate to, he said. Bitcoin has split investors over the viability of the volatile cryptocurrency and UBS is among its critics. Bitcoin capped a resurgent week by climbing within a few dollars of a record $8,000 on Friday. Still, events such as a bitcoin-funded terrorist attack are potential risks which are hard to evaluate, he said.
“All it would take would be one terrorist incident in the U.S. funded by bitcoin for the U.S. regulator to much more seriously step in and take action, he said. “That’s a risk, an unquantifiable risk, bitcoin has that another currency doesn’t.” While skeptics have called bitcoin’s rapid advance a bubble, it has become too big an asset for many financial firms to ignore. Bitcoin has gained 17% this week, touching a high of $7,997.17 during Asia hours before moving lower in late trading. The rally through Friday came after bitcoin wiped out as much as $38 billion in market capitalization following the cancellation of a technology upgrade known as SegWit2x on Nov. 8.
Aaron Miller and Richard Sokolsky, writing in Foreign Policy, suggest “that Mohammed bin Salman’s most notable success abroad may well be the wooing and capture of President Donald Trump, and his son-in-law, Jared Kushner.” Indeed, it is possible that this “success” may prove to be MbS’ only success. “It didn’t take much convincing”, Miller and Sokolski wrote: “Above all, the new bromance reflected a timely coincidence of strategic imperatives.” Trump, as ever, was eager to distance himself from President Obama and all his works; the Saudis, meanwhile, were determined to exploit Trump’s visceral antipathy for Iran – in order to reverse the string of recent defeats suffered by the kingdom.
So compelling seemed the prize (that MbS seemed to promise) of killing three birds with one stone (striking at Iran; “normalizing” Israel in the Arab world, and a Palestinian accord), that the U.S. President restricted the details to family channels alone. He thus was delivering a deliberate slight to the U.S. foreign policy and defense establishments by leaving official channels in the dark, and guessing. Trump bet heavily on MbS, and on Jared Kushner as his intermediary. But MbS’ grand plan fell apart at its first hurdle: the attempt to instigate a provocation against Hezbollah in Lebanon, to which the latter would overreact and give Israel and the “Sunni Alliance” the expected pretext to act forcefully against Hezbollah and Iran.
Stage One simply sank into soap opera with the bizarre hijacking of Lebanese Prime Minister Saad Hariri by MbS, which served only to unite the Lebanese, rather than dividing them into warring factions, as was hoped. But the debacle in Lebanon carries a much greater import than just a mishandled soap opera. The really important fact uncovered by the recent MbS mishap is that not only did the “dog not bark in the night” – but that the Israelis have no intention “to bark” at all: which is to say, to take on the role (as veteran Israeli correspondent Ben Caspit put it), of being “the stick, with which Sunni leaders threaten their mortal enemies, the Shiites … right now, no one in Israel, least of all Prime Minister Benjamin Netanyahu, is in any hurry to ignite the northern front. Doing so, would mean getting sucked into the gates of hell”.
After jailing dozens of members of the royal family, and extorting numerous prominent businessmen, 32-year-old Saudi prince Mohammed bin Salman has widened his so-called ‘corruption’ probe further still. The Wall Street Journal reports that at least two dozen military officers, including multiple commanders, recently have been rounded up in connection to the Saudi government’s sweeping corruption investigation, according to two senior advisers to the Saudi government. Additionally, several prominent businessmen also were taken in by Saudi authorities in recent days. “A number of businessmen including Loai Nasser, Mansour al-Balawi, Zuhair Fayez and Abdulrahman Fakieh also were rounded up in recent days, the people said. Attempts to reach the businessmen or their associates were unsuccessful.”
It isn’t clear if those people are all accused of wrongdoing, or whether some of them have been called in as witnesses. But their detainment signals an intensifying high-stakes campaign spearheaded by Saudi Arabia’s 32-year-old crown prince, Mohammed bin Salman. There appear to be three scenarios behind MbS’ decision to go after the military: 1) They are corrupt and the entire process is all above board and he is doing the right thing by cleaning house; 2) They are wealthy and thus capable of being extorted (a cost of being free) to add to the nation’s coffers; or 3) There is a looming military coup and by cutting off the head, he hopes to quell the uprising. If we had to guess we would weight the scenarios as ALL true with the (3) becoming more likely, not less.
So far over 200 people have been held without charges since the arrests began on November 4th and almost 2000 bank accounts are now frozen, which could be why, as The Daily Mail reports, Saudi prince and billionaire Al-Waleed bin Talal has reportedly put two luxury hotels in Lebanon up for sale after being detained in his country during a corruption sweep. The Saudi information ministry previously stated the government would seize any asset or property related to the alleged corruption, meaning the Savoy hotel could well become the state property of the kingdom. ‘The accounts and balances of those detained will be revealed and frozen,’ a spokesman for Saudi Arabia’s information ministry said. ‘Any asset or property related to these cases of corruption will be registered as state property.’
Saad Hariri arrived in France with his family amid mounting concern that his country, Lebanon, may once again turn into a battleground for a showdown between Saudi Arabia and Iran. The Lebanese prime minister and his family were invited to France by President Emmanuel Macron. French officials say they can’t say how long Hariri will stay. On Saturday, Macron and Hariri will meet at noon for talks, following which the Lebanese leader and his family will have lunch at the Elysee Palace. Hariri, 47, hasn’t returned to Lebanon since his shock resignation announcement from Saudi Arabia on Nov. 4, which sparked fears of an escalating regional conflict between the kingdom and Iran. The Saudi government has denied accusations it was holding Hariri against his will. The kingdom recalled its ambassador to Germany in response to comments made by Foreign Minister Sigmar Gabriel.
Hariri weighed in on the spat, suggesting that Gabriel has accused the kingdom of holding him hostage. “To say that I am held up in Saudi Arabia and not allowed to leave the country is a lie. I am on the way to the airport, Mr. Sigmar Gabriel,” he said on Twitter. In limited public comments and on Twitter, Hariri has sought to dispel speculation that Saudi Arabia asked him to resign because he wouldn’t confront Hezbollah, an Iranian-backed Shiite Muslim group that plays a key role in Lebanon’s fragile government. The group is considered a terrorist organization by countries including Israel and the U.S., and it has provided crucial military support to President Bashar al-Assad’s regime in Syria’s war.
Macron, who met with Saudi Arabia Crown Prince Mohammed bin Salman in Riyadh, said last week that the two agreed that Hariri “be invited for several days to France.” He also reiterated France’s pledge to help protect Lebanon’s “independence and autonomy.” Hariri will be welcomed in France “as a friend,” Foreign Minister Jean-Yves Le Drian said a press conference in Riyadh on Thursday after meeting with Saudi authorities. French officials have said they still regard Hariri as Lebanon’s prime minister since the country’s president, Michel Aoun, rejected his resignation on the grounds that it must be handed over on Lebanese soil.
Qatar’s foreign minister said the tiny emirate has U.S. backing to resolve the ongoing crisis with a Saudi-led alliance, but the country is also prepared should its Gulf Arab neighbors make military moves. The Trump administration is encouraging all sides to end the dispute and has offered to host talks at the Camp David presidential retreat, but only Qatar has agreed to the dialogue, Foreign Minister Sheikh Mohammed Al-Thani said Friday. Four countries in the Saudi-led bloc severed diplomatic and transport links with Qatar in June, accusing it of backing extremist groups, a charge Doha has repeatedly denied. Saudi Arabia closed Qatar’s only land border. Sheikh Mohammed said he will meet Secretary of State Rex Tillerson next week after having talks this week with Senate Foreign Relations Committee chairman Bob Corker and ranking member Ben Cardin as well as other congressional leaders.
“The Middle East needs to be addressed as the top priority of the foreign policy agenda of the United States,” he told reporters in Washington on Friday. “We see a pattern of irresponsibility and a reckless leadership in the region, which is just trying to bully countries into submission.” The Middle East has been a key foreign policy issue for the Trump administration, with much of it centered around support for the Saudis. The White House has backed the kingdom’s “anti-corruption” campaign that has ensnared top princes and billionaires once seen as U.S. allies, it has provided support for the Saudis in their war in Yemen and it has been muted in criticism of the crisis sparked when Lebanon’s prime minister unexpectedly resigned this month while in Saudi Arabia. Meanwhile, mediation attempts by Kuwait and the U.S. have failed to settle the spat with the Saudi-led bloc and Qatar.
Sheikh Mohammed accused Saudi Arabia of interfering in other countries’ affairs, citing the resignation of Lebanese Prime Minister Saad Hariri as an example of the oil-rich kingdom’s overreach and warning that other countries could be next. Asked about the prospect of the Saudi-led bloc taking military action, Sheikh Mohammed said though Qatar hopes that won’t happen, his country is “well-prepared” and can count on its defense partners, including France, Turkey, the U.K. and the U.S., which has a base in Qatar. “We have enough friends in order to stop them from taking these steps,” but “there is a pattern of unpredictability in their behavior so we have to keep all the options on the table for us,” he said. On the U.S. military presence, “if there is any aggression when it comes to Qatar, those forces will be affected,” he added.
While reporting on the recent court case where controversial landlord Fergus Wilson defended (but lost) his right to refuse to let to Indians and Pakistanis, I learned something about how he’s now making money. He is now far from being Britain’s biggest buy-to-let landlord. He’s down to 350 homes, from a peak of 1,000. And what’s he doing with the cash made from sales? Buying agricultural land close to Kent’s biggest towns. One plot he bought for £45,000 is now worth, he boasted, £3m with development permission. And therein lies the reason why we have a housing crisis.
As long ago as 1909, Winston Churchill, then promoting Lloyd George’s “people’s budget” and its controversial measures to tax land, told an audience in Edinburgh that the landowner “sits still and does nothing” while reaping vast gains from land improvements by the municipality, such as roads, railways, power from generators and water from reservoirs far away. “Every one of those improvements is effected by the labour and the cost of other people … To not one of those improvements does the land monopolist contribute, and yet by every one of them the value of his land is sensibly enhanced … he contributes nothing even to the process from which his own enrichment is derived.”
When Britain’s post-war housebuilding boom began, it was based on cheap land. As a timely new book, The Land Question by Daniel Bentley of thinktank Civitas, sets out, the 1947 Town and Country Planning Act under Clement Attlee’s government allowed local authorities to acquire land for development at “existing use value”. There was no premium because it was earmarked for development. The New Towns Act 1946 was similar, giving public corporation powers to compulsorily purchase land at current-use value. The unserviced land cost component for homes in Harlow and Milton Keynes was just 1% of housing costs at the time. Today, the price of land can easily be half the cost of buying a home..
The European Central Bank (ECB) challenged an attempt by the European Court of Auditors (ECA), the watchdog of EU finances, to examine the Bank’s role in the Greek bailout and reform programmes and refused to provide access to some requested information, citing banking confidentiality. The European Court of Auditors published a report assessing the effectiveness and results of the Greek bailouts on Thursday (16 November). “In line with the ECA’s mandate to audit the operational efficiency of the management of the ECB, we have attempted to examine the Bank’s involvement in the Greek Economic Adjustment Programmes. However, the ECB questioned the Court’s mandate in this respect,” the report reads. The auditors examined the role of the European Commission and found some shortcomings in its approach, which they said overall lacked transparency.
They made a series of recommendations to improve the design and implementation of the Economic Adjustment Programmes. “These recommendations have been accepted in full,” the report said. However, the ECB had invoked the banking confidentiality and denied access to specific information. “It [ECB] did not provide sufficient amount of evidence and thus we were unable to report on the role of the ECB in the Greek programmes,” the auditors said. The report pointed out that the European Parliament had specifically asked the Court to analyse the role of the ECB in financial assistance programmes. It noted that EU auditors had faced similar problems with obtaining evidence from the ECB when reviewing the Single Supervisory Mechanism.
The report highlighted the ECB’s decision on 4 February 2015 to suspend the waiver for accepting Greek government bonds as loan collateral, thereby automatically increasing short-term borrowing costs for the banks. That happened during the tough negotiations between Greece’s leftist government and its international lenders before the third bailout. Many believed it was meant to put additional pressure on Alexis Tsipras’ government to back down and respect the obligations undertaken by the country’s previous governments.
Salary workers, retirees on low pensions, property owners and families with three or more children will bear the brunt of the new austerity measures accompanying the 2018 budget, which come to 1.9 billion euros. Next year the primary budget surplus will have to rise to 3.5% of GDP, therefore more cuts will be required, with low-income pensioners – the recipients of next month’s so-called “social dividend” – set to contribute most, according to the new measures. Retirees on low pensions will effectively have to return the handout they get in late December at the end of January, as the cost of pension interventions according to the midterm fiscal strategy plan amounts to 660 million euros. This is just 60 million euros shy of the social dividend’s 720 million euros that Prime Minister Alexis Tsipras promised this week.
The new measures for 2018 are set to be reflected in the final draft of the budget that is to be tabled in Parliament on Tuesday. They are likely to further increase the amount of expired debts to the state, after the addition of 34 billion euros from unpaid taxes and fines in the last three years, owing to the inability of most taxpayers to meet their obligations to the tax authorities. Plans for next year provide for the further reduction of salaries in the public sector in the context of the single salary system, additional cuts to pensions and family benefits, as well as the abolition of the handout to most low-income pensioners (EKAS). Freelance professionals are also in for an extra burden in 2018, due to the increase in their social security contributions that will be calculated on the sum of their taxable incomes and the contributions they paid in 2017.
The chancellor, Philip Hammond, will announce in next week’s budget a “call for evidence” on how taxes or other charges on single-use plastics such as takeaway cartons and packaging could reduce the impact of discarded waste on marine and bird life, the Treasury has said. The commitment was welcomed by environmental and wildlife groups, though they stressed that any eventual measures would need to be ambitious and coordinated. An estimated 12m tonnes of plastic enters the oceans each year, and residues are routinely found in fish, sea birds and marine mammals. This week it emerged that plastics had been discovered even in creatures living seven miles beneath the sea. The introduction just over two years ago of a 5p charge on single-use plastic bags led to an 85% reduction in their use inside six months.
Separately, the environment department is seeking evidence on how to reduce the dumping of takeaway drinks containers such as coffee cups through measures such as a deposit return scheme. Announcing the move on plastics, the Treasury cited statistics saying more than a million birds and 100,000 sea mammals and turtles die each year from eating or getting tangled in plastic waste. The BBC series Blue Planet II has highlighted the scale of plastic debris in the oceans. In the episode to be broadcast this Sunday, albatrosses try to feed plastic to their young, and a pilot whale carries her dead calf with her for days in mourning. Scientists working with the programme believed the mother’s milk was made poisonous by pollution. The call for evidence will begin in the new year and will take into account the findings of the consultation on drinks containers.
Tisha Brown, an oceans campaigner for Greenpeace UK, said the decades-long use of almost indestructible materials to make single-use products “was bound to lead to problems, and we’re starting to discover how big those problems are”. She said: “Ocean plastic pollution is a global emergency, it is everywhere from the Arctic Ocean at top of the world to the Marianas trench at the bottom of the Pacific. It’s in whales, turtles and 90% of sea birds, and it’s been found in our salt, our tap water and even our beer.
An Irish Catholic priest has called for Christians to stop using the word Christmas because it has been hijacked by “Santa and reindeer”. Father Desmond O’Donnell said Christians of any denomination need to accept Christmas now has no sacred meaning. O’Donnell’s comments follow calls from a rightwing pressure group for a boycott of Greggs bakery in the UK after the company replaced baby Jesus with a sausage roll in a nativity scene. “We’ve lost Christmas, just like we lost Easter, and should abandon the word completely,” O’Donnell told the Belfast Telegraph. “We need to let it go, it’s already been hijacked and we just need to recognise and accept that.”
O’Donnell said he is not seeking to disparage non-believers. “I am simply asking that space be preserved for believers for whom Christmas has nothing to do with Santa and reindeer. “My religious experience of true Christmas, like so many others, is very deep and real – like the air I breathe. But non-believers deserve and need their celebration too, it’s an essential human dynamic and we all need that in the toughness of life.”
U.S. stocks closed lower on Thursday, capping the worst year for the market since 2008. The Standard & Poor’s 500 index ended essentially flat for the year after the day’s modest losses nudged it into the red for 2015. Even factoring in dividends, the index eked out a far smaller return than in 2014. The Dow Jones industrial average also closed out the year with a loss. The tech-heavy Nasdaq composite fared better, delivering a gain for the year. “It’s a lousy end to a pretty lousy year,” said Edward Campbell, portfolio manager for QMA, a unit of Prudential Investment Management. “A very unrewarding year.” Trading was lighter than usual on Thursday ahead of the New Year’s Day holiday. Technology stocks were among the biggest decliners, while energy stocks eked out a tiny gain thanks to a rebound in crude oil and natural gas prices.
The Dow ended the day down 178.84 points, or 1%, to 17,425.03. The S&P 500 index lost 19.42 points, or 0.9%, to 2,043.94. The Nasdaq composite fell 58.43 points, or 1.2%, to 5,007.41. For 2015, the Dow registered a loss of 2.2%. It’s the first down year for the Dow since 2008. The Nasdaq ended with a gain of 5.7%. The S&P 500 index, regarded as a benchmark for the broader stock market, lost 0.7% for the year. According to preliminary calculations, the index had a total return for the year of just 1.4%, including dividends. That’s the worst return since 2008 and down sharply from the 13.7% it returned in 2014. While U.S. employers added jobs at a solid pace in 2015 and consumer confidence improved, several factors weighed on stocks in 2015.
Investors worried about flat earnings growth, a deep slump in oil prices and the impact of the stronger dollar on revenues in markets outside the U.S. They also fretted about the timing of the Federal Reserve’s first interest rate increase in more than a decade. The uncertainty led to a volatile year in stocks, which hit new highs earlier in the year, but swooned in August as concerns about a slowdown in China’s economy helped drag the three major stock indexes into a correction, or a drop of at least 10%. The markets recouped most of their lost ground within a few weeks. “The market didn’t go anywhere and earnings didn’t really go anywhere,” Campbell said.
Oil futures ended higher Thursday in the final trading session of 2015, but posted a steep annual drop for the second year in a row as markets continue to wrestle with a global glut of crude. On the New York Mercantile Exchange, light, sweet crude futures for delivery in February rose 44 cents, or 1.2%, to finish at $37.04 a barrel. For the year, the U.S. benchmark dropped 30.5% and has lost 62.4% over the last two years. Crude hadn’t dropped two years in a row since 1998. February Brent crude, the global benchmark, rose 82 cents, or 2.3%, on London’s ICE Futures exchange to settle at $37.28 a barrel. Brent fell 35% in 2015, marking its third straight yearly drop. Oil trimmed gains somewhat after oil-field services firm Baker Hughes said the total number of U.S. oil rigs fell by two this week to 536.
Oil’s bounceback on Thursday likely reflected some short covering ahead of year-end and a three-day weekend, said Phil Flynn at Price Futures. U.S. markets will be closed Friday for the New Year’s Day holiday. Flynn said traders might be nervous about maintaining short positions amid rising tensions within Iran that could threaten the implementation of a nuclear accord that was expected to result in the lifting of sanctions that have prevented the country from exporting oil. Iran’s president has ordered his defense minister to expedite the country’s ballistic missile program following newly planned U.S. sanctions, he said Thursday, according to The Wall Street Journal. With U.S. production “growing for the last few weeks and global inventories being near storage limits, this is yet another reminder that the supply glut could take a long time to clear, which may mean even lower oil prices in the near term,” said Fawad Razaqzad at Forex.com.
Gold was steady on Thursday, ending the year down 10% for its third straight annual decline, ahead of another potentially challenging year in 2016 amid the prospect of higher U.S. interest rates and a robust dollar. Largely influenced by U.S. monetary policy and dollar flows, the price of gold fell 10% in 2015 as some investors sold the precious metal to buy assets that pay a yield, such as equities. The most-active U.S. gold futures for February delivery settled at $1,060.2 per ounce on Thursday, almost flat compared with Wednesday’s close of $1,059.8 and close to six-year lows of $1,046 per ounce earlier in December. Spot gold was down 0.2% at $1,061.4 an ounce at 1:57 p.m. EDT, during the last trading session of the year. Volumes were thin ahead of the New Year holiday on Friday.
“The key factor for gold remains the strong dollar and that ultimately trumps all other issues including the economy and the geopolitics,” said Ross Norman, CEO of bullion broker Sharps Pixley. The dollar was on track for a 9% gain this year against a basket of major currencies, making dollar-denominated gold more expensive for holders of other currencies. Other precious metals have also been hit by dollar strength and the gold slump, and were headed for sharp annual declines. The most-active U.S. silver futures settled at $13.803 per ounce on Thursday, down 0.3% from Wednesday and ending the year down 12%. Spot prices were down 0.2% at $13.83 an ounce. Industrial metals platinum and palladium were harder hit, notching up big yearly losses partly due to oversupply from mines and concerns about growth in demand. Platinum futures settled at $893.2 per ounce, down 26% from a year ago, while the most-active palladium futures ended at $562, down 30% on the year.
Copper prices fell in London on Thursday ending a dismal year as industrial metals were battered by a toxic mix of oversupply and concern over demand from China. Analysts don’t expect much respite for copper in 2016, with the oversupply expected to continue and the macroeconomic picture still uncertain. Among other factors, commodity prices have been hit by a stronger dollar, and few economists expect the greenback to weaken in any meaningful way. “I think that the bear market is not totally complete,” said Boris Mikanikrezai, an analyst at financial markets research company Fastmarkets. “Although a temporary rally in metal prices is possible over a one-to-three-month horizon, the macro fundamental picture may warrant lower prices.”
On Thursday, the London Metal Exchange’s three-month copper contract was down 0.5% at $4,720.50 a metric ton in midmorning European trade. Other base metals were mixed. Copper has lost about a quarter of its value this year. Among other base metals, nickel has lost 42%, zinc is down 25% while aluminum fell 18% over the year. “In retrospect, 2015 will be considered a year that can be safely forgotten when it comes to copper,” analysts at Aurubis, Europe’s largest copper producer, said in a report.
Worries about the health of the Chinese economy will continue to roil metals markets in 2016, analysts said. The country is the biggest source of global demand for metals, accounting for nearly half of total global zinc consumption, 45% of global copper consumption and 40% of lead production. “It will be another challenging year for China and that will affect metals,” said Xiao Fu, head of commodity markets strategy at BOCI Global Commodities. “Still, we expect the government’s fiscal stimulus package announced this year to provide some support for demand in 2016.”
Staff reductions at some of the world’s biggest banks are far from over. Deutsche Bank, which has held employment close to its 2010 peak, plans to slash 26,000 positions by 2018, following a trend that began with the financial crisis. Announced cuts in the fourth quarter total at least 47,000, following 52,000 lost jobs in the first nine months of 2015. That would bring the aggregate figure since 2008 to about 600,000. UniCredit says it will eliminate about 18,200 positions. Citigroup, which has reduced its workforce by more than a third, plans to eliminate at least 2,000 more jobs next year.
China looked set for a soggy start to 2016 after activity in the manufacturing sector contracted for a fifth straight month in December, suggesting the government may have to step up policy support to avert a sharper slowdown. While China’s services sector ended 2015 on a strong note, the economy still looked set to grow at its slowest pace in a quarter of a century despite a raft of policy easing steps, including repeated interest rate cuts, in the past year or so. The world’s second-largest economy faces persistent risks this year as leaders have pledged to push so-called “supply-side reform” to reduce excess factory capacity and high debt levels.
The official manufacturing Purchasing Managers’ Index (PMI) stood at 49.7 in December, in line with expectations of economists polled by Reuters and up only fractionally from November. A reading below 50 suggests a contraction in activity. Still, economists seemed to find some comfort that there were no signs of a sharper deterioration which has been feared by global investors. The slight pick up in the manufacturing PMI “suggests that (economic) growth momentum is stabilizing somewhat … however, the sector is still facing strong headwinds, said Zhou Hao, China economist at Commerzbank in Singapore. “In order to facilitate the destocking and deleveraging process, monetary policy will remain accommodative and the fiscal policy will be more proactive.”
Economic activity in the Midwest contracted at the fastest pace in more than six years in December, according to the Chicago Business Barometer, also known as the Chicago PMI. The index fell to 42.9 from 48.7 in November. Economists had expected it to rise 1.3 points to 50 in the December reading. The index has spent much of the year below the 50 mark that separates expansion from contraction. Order backlogs were the biggest drag in December, dropping 17.2 points to 29.4. That’s the lowest since May 2009 and marked the 11th-straight month in contraction. The last time such a sharp decline was registered was 1951. New orders also sank to the lowest level since May 2009. That’s bad news for activity down the road. Still, 55.1% of survey respondents said they expect stronger demand in 2016 than in 2015.
Europe has called an end to the era of mass bank bail-outs as new rules to stop taxpayers from footing the cost of financial rescues come into force. Private sector creditors will be forced to take the hit for bank failures as the EU seeks to end the age of “too big to fail”, which has cost member states more than €1 trillion since 2008. The measures – which will come into force on January 1 and apply to eurozone states – are designed to break the vicious cycle between lenders and governments that bought the single currency to its knees four years ago. Senior bondholders and depositors over €100,000 will be in line to be “bailed-in” if a bank goes bust, a departure from the mass government-funded rescues seen in Ireland, Portugal, Spain and Greece in the wake of the financial crisis.
Brussels’ tough new Bank Recovery and Resolution Directive (BRRD) will require shareholders and bond owners to incur losses of at least 8pc of their total liabilities before receiving official sector aid. Britain will not be subject to the rules. The EU’s commissioner for financial stability, Britain’s Jonathan Hill, said: “No longer will the mistakes of banks have to be borne on shoulders of the many”. Struggling banks in Italy, Portugal and Greece have rushed to recapitalise themselves in a bid to avoid falling foul of the new regime. The rules resemble the bail-in of creditors first seen in the eurozone during Cyprus’ banking crash in 2013, where savers were forced to endure losses as part of the international rescue package.
More than €1.6 trillion (£1.18 trillion) has been pumped into troubled banks by member states between October 2008 and December 2012, according to figures from the European Commission. This amounts to 13pc of the bloc’s total economic output (GDP) and imperiled the public finances of Ireland and Spain. “We now have a system for resolving banks and of paying for resolution so that taxpayers will be protected from having to bail-out banks if they go bust”, said Lord Hill. A new eurozone wide insolvency fund, the Single Resolution Mechanism, will also become operational on January 1. It will build up contributions from the banking industry over the next eight years to use in cases of financial collapse. Europe’s banks have been required to beef up their capital buffers and comply with tough new regulations in the wake of the financial crisis.
The ECB has also assumed direct supervisory responsibility for 129 “systemically” important lenders in a bid to create a fully-fledged banking union in the currency bloc. However, analysts have warned Brussels’ tentative steps towards banking union remain incomplete and could cause more uncertainty for ordinary depositors after January 1. “Taking 8pc losses from creditors has never been tested in reality”, said Nicolas Veron, of think-tank Bruegel. “The first few test cases will be very important . There is the combination of uncertainty over how the SRM will work with ECB, and then additional uncertainty over how creditor losses will work in practice.”
Hundreds of thousands of diesel-VW owners are waiting to find out how their cars will be updated to meet emissions standards, once modifications are approved by regulators. And Volkswagen Group has clearly been tarnished by the emission-cheating scandal, which affects 11 million cars worldwide. But the costs of the entire affair remain to be tallied; some analysts have said that the $7.1 billion set aside several months ago will not be nearly enough. A Bloomberg article earlier this month cites an estimate by Bloomberg Intelligence that payments and buybacks for owners in the U.S. alone could range from $1.5 billion to $8.9 billion. And those are just the damages or buyback payments that “customers should get for being duped into buying high-polluting vehicles,” it notes.
About 157,000 of the 482,000 affected 2.0-liter TDI diesel cars sold in the U.S. with “defeat device” software are already fitted with Selective Catalytic Reduction after-treatment systems (also known as urea injection). They’re likely to require no more than software updates or perhaps minor hardware tweaks to bring them into compliance. VW then might only have to pay owners for diminished value, plus some penalty. But for 325,000 VW Golfs, Jettas, and Beetles and Audi A3 cars without the SCR systems fitted, the prognosis is much grimmer. Most analysts agree that the cost and complexity of retrofitting a urea tank, a different catalyst, and all the associated plumbing could exceed the value of cars that are now as much as seven years old. Those cars, some suggest, may all have to be bought back and either destroyed or exported.
Using an average price of $15,000, that would cost $4.9 billion alone–before any civil or criminal penalties are levied. On top of the hundreds of thousands of 2.0-liter four-cylinder TDI cars, 85,000 more VW, Audi, and Porsche vehicles were sold in the U.S. with a 3.0-liter V-6 TDI engine. That engine contains several undisclosed software routines, and one of those qualifies as a “defeat device” as well. The admission by Volkswagen that it cheated makes the case close to unique, suggests Paul Hanly, a plaintiffs’ lawyer quoted in the Bloomberg article. It may point to an early settlement, he says, since culpability doesn’t have to be established first. All that’s left is to settle on the costs and penalties. That just applies, however, to more than 450 lawsuits filed by Volkswagen customers in the wake of the mid-September disclosure.
On December 8, those lawsuits were consolidated and will be heard in California, where a high proportion of the affected TDI diesel vehicles were sold. The state also has a large number of VW dealers. Volkswagen had opposed the designation of California, asking that the suits be heard in Detroit instead. That did not happen. On top of the customer lawsuits, which will lead to cash payments and perhaps buybacks, Volkswagen faces criminal investigations in several states. But no settlements can move forward until regulators agree on modifications to the various sets of vehicles to bring them into compliance with tailpipe emission laws. Volkswagen submitted its proposals for those updates to the U.S. EPA and the California Air Resources Board in November.On December 18, CARB extended its own deadline for responding to VW’s proposal until mid-January. That leaves owners in a holding pattern at least until then, and likely far longer.
In this special New Year’s Eve episode of the Keiser Report, Max Keiser and Stacy Herbert talk to trends forecaster Gerald Celente of TrendsResearch.com about the upcoming trends for 2016. They recall that a few years ago, Celente forecasted on the Keiser Report that we would see currency war, trade war and hot war, and they ask whether or not this has come true in 2015. They discuss ‘bankism’, oil prices and US election insanity and what they hold for the future of the global economy.
2016 is fast approaching, and with it another phase in the EU’s attempts to make creditors pay for failed banks. The European Bank Recovery and Resolution Directive (EBRRD) has been law in all EU countries since January 2015, but up till now the bail-in rules have not been fully implemented. The EBRRD provides bank regulators with four main tools for resolving a failed bank:
• Sale of the failed bank partly or entirely to another entity
• Creation of a “bridge bank” containing the good assets, which would be sold to another entity or floated as an independent business
• Creation of a “bad bank”, or asset management vehicle, which would be gradually wound down over time (to prevent state aid rules being breached, this tool must be used in conjunction with at least one of the other tools)
• Write-down of creditor claims (or conversion to equity) in order of rank.
Mergers, “bad banks” and even “bridge” banks are all familiar tools from the financial crisis. But writing down creditor claims or converting them to shares (haircut or bail in) is more controversial. During the financial crisis, creditors – and sometimes even shareholders – were made good at taxpayer expense. But these expensive bailouts have left a very sour taste, and no-one has any appetite for them anymore. These days, creditors are expected to pay. Well, some of them, anyway. In all recent bank failures (apart from Duesseldorfer Hypothekenbank), subordinated debt holders have been bailed in, leaving senior creditors untouched. This sounds straightforward: subordinated debt holders rank junior to senior unsecured bondholders and all depositors, so should expect to lose their investments first in the event of bank insolvency.
However, bailing in subordinated debt holders has proved to be anything but simple. A roll-call of recent bail-ins shows just how difficult it can be:
• In 2013, the UK’s Co-Op Bank attempted to bail in its subordinated debt holders; but the deal failed and the subordinated debt holders took over the bank, to the considerable annoyance of the Co-Op Group (the bank’s owner), which lost the majority of its stake.
• In 2014, Portugal’s Banco Espirito Santo was split in two: subordinated debt holders were left in the residual “bad bank” along with the bank’s impaired assets, while senior and official creditors sailed off into a new entity, the aptly named Novo Banco, along with all the good assets. But the Bank of Portugal now faces lawsuits from disgruntled subordinated debt holders who claim they were never given a chance to provide more capital and rescue the bank themselves, Co-Op Bank style.
• In Austria – and increasingly in Germany too – the tangled web of claims and counterclaims in the Heta mess becomes ever more complex. These days it is not even clear exactly how the claims are ranked. The settlement agreement between Heta and the State of Bavaria in October effectively converted 60% of BayernLB’s subordinated claim into a senior claim, diluting the other senior creditors – many of whom are themselves only “senior” because of deficiency guarantees from the Province of Carinthia, which the Austrian federal government has repeatedly tried (but so far failed) to repudiate.
• In the Netherlands, the government was forced to offer compensation to SNS Reaal subordinated debt holders for its expropriation of their claims.
But why should a few problems with bail-in of subordinated debt holders spoil a good directive? Undeterred, the EU is pressing ahead with the next phase. From January 2016, senior as well as subordinated creditors will be bailed in in the event of bank insolvency. Bail-in of 8% of total liabilities (plus complete wiping of equity, of course) will be required before state aid can be granted.
Dorothea Lange American River camp, Sacramento, CA. Destitute family. 1936
I don’t know about you, but I’m having a ball reading up on the preparations for the Wednesday/Thursday talks between Greece and .. well, everybody else. German FinMin Schäuble proudly declares that it’s do what I tell you or you’re finished, Greek FinMin Varoufakis says prepare for a clash. Greek advisors Lazard say a $100 billion debt reduction sounds reasonable, and some anonymous EU official says Lazard are incompetent and counterproductive (not smart, that).
When will the Brussels luxury cubicles understand that the Greek people have voted down their approach fair and square? That they voted down the government that made deals with the Troika for the very and explicit reason that they made those deals in the first place, and that telling the newly elected government to stick by those deals regardless is a corruption of democracy? So far, all the EU has (anyone notice how silent the IMF has been?) is hubris, bluster and chest-thumping.
They play politicians, but Syriza plays real life. Tsipras and Varoufakis stand up for real people, while Schäuble and Dijsselbloem and their ilk stand up only for themselves. And then pretend, in front of their bathroom mirrors and the news cameras, that they protect their own people against the greedy Greeks. As for the 50%+ of young Greeks who have no future, or the countless elderly who go without basic health care, too bad and boo hoo hoo.
The European Union is no Salvation Army, after all. In Europe, everybody takes care of their own, not the others. It’s a union in name only. That’s why Germany, France, Holland bailed out their own banks after these lost big on wagers in Athens, and want the Greek people to pay for those bailouts – at least the union was good for that -.
Claiming the Greeks all borrowed so much and lived it up way beyond their stature, while in reality people are dying who could be saved with simple treatments still easily available in Berlin, Paris and Amsterdam. Greece, make no mistake, has become the third world, whether your atlas confirms it or not.
Their MO is that banks are more important than people, Germany is more important than Greece, and the Greek people are less important than the great EU project that – and they actually still believe this- will make everybody richer. Only, to Tsipras the Greek people are more important. And so the new Greek leader’s partners in the European Union threaten to make things even worse than they already are.
It’s not just hubris and bluster, it’s pure impotence. If the talks this week don’t provide a solution, or a realistic proposal for one, Greece will be very close to leaving the eurozone. Syriza will not agree to continue with the deals the Samaras technocrats have agreed with the Troika, for the simple reason that their voters have trusted them with the mission to throw out those deals. Otherwise, they might as well have stayed with Samaras, and the elections would have no meaning.
Brussels and Berlin – and Paris and Amsterdam – have such trouble understanding what democracy means, they prefer to ignore it. But it was them who saddled their own voters with the debt which results from wagers on Greece gone awry, it wasn’t the Greek population. The entire western world has elected to not restructure the debt of its banking system. And don’t be confused, that’s not an economic choice, it’s a political one.
A lot more money has been thrown at maintaining the banking system, hopelessly bankrupt as it is no matter what, than would have been needed to guarantee the bank accounts of all citizens and all small businesses. Now the banks are still there, and so is their debt, but the people are sinking into an endlessly dark pool. Not an economic choice, a political one.
What we will see envelop this week is a game in which accusations will grow ever more wild and grotesque, but also a game in which Greece in the end will not do what everyone still seems to expect it to do. Because that would require for Syriza to betray the people who voted for them. Not going to happen.
The underlying – but we’re way past that by now – problem was explained quite well by UofMaryland professor Peter Morici:
Europe has few of the mechanisms that facilitate adjustment in the United States, which has a single currency across a similarly wide range of competitive circumstances. A single language permits workers to go where the jobs are, whereas most Greeks and Italians are stuck where they are born. New Yorkers’ taxes subsidize public works, health care and the like in Mississippi through the federal government in ways the European Commission cannot accomplish.
Germany uses its size and influence to resist changes in EU institutions that could alter fiscal arrangements. Hence, the Greeks and other southern Europeans were forced to borrow heavily from private lenders in the north – mostly through their commercial banks – to provide public services, health care and similar services that were hardly overly generous when measured by German standards.
All this kept German factories humming and German unemployment low. When the financial crisis and meltdown of global banking made private borrowing no longer viable, Greece and other southern states were forced to seek loans directly from Germany and other northern governments. Bailouts implemented by Germany through the ECB, the IMF and the European Commission required labor market reforms, cuts in wages and pensions, higher taxes, and less government spending. All to restore Greek competitiveness, growth and solvency – and all have absolutely failed.
The eurozone is by design and of necessity a predatory ‘union’. The US would be too, to an even greater extent than it is today, if it didn’t have a transfer of federal tax revenue from New York to Nowhere, Nebraska. And it wouldn’t be a union anymore.
So you know, for me, I’m fine with Greece blowing it up. There’s nothing good left from the initial idea that gave birth to the EU. It’s devolved into something utterly ugly, in which fat Germans driving their Mercs and Beamers down the autobahn can yell at their car stereos that those lazy Greeks must pay their due. Which stems from Merkel et al bailing out Deutsche Bank’s insanely outsized derivatives portfolios.
The whole thing is so morally bankrupt, it’s really insane that we’re still trying to have a serious discussion about it. The whole thing, the entire global banking system, is as morally bankrupt as it is financially. And we keep on believing that it matters what Berlin tells Athens to do. Our best hope is that Varoufakis refuses to be told what to do. It’s not as if we did anything about it, after all. We let others do our jobs and watch them do it on TV.
Here’s a prediction for you: the eurozone is ‘past its half-life’, or more correctly, it has over 50% of its existence behind it. It won’t last another 15 years. And perhaps much less than that. And I’m seriously thinking about moving to Greece. Just to experience sanity.
PS: A quantity is subject to exponential decay if it decreases at a rate proportional to its current value.
And once again the markets are happily and excitedly awaiting more free zombie capital from a major central bank, this time the ECB. Of course this is capital the markets, judging from where stock exchanges find themselves, absolutely don’t need, but, you know, gift horses have foul breath and all that.
It’s some 15 years ago since the dotcom bubble started to burst, and half that long since the US (and Spanish, and Irish) housing bubble began to show what it was truly made of. So we’re due, and what do we find ourselves with today? Bubbles as far as the eye can see that everyone denies are bubbles. S&P, London housing, tech, biotech … No, Tesla and Netflix and Twitter are solid proof that it’s different this time, and companies don’t need to make an actual product, or even money, to be valued through the rooftops. Right? Oh, sweet Jesus…
I never see anyone talk about this, but the biggest reason why all banks should be fully restructured, all assets and liabilities, is not even, though it’s certainly true, that they are too big, that they have too much debt, or that they prey upon society, but it’s that restructuring bank debt will chase zombie money away all across the financial markets. That is long overdue.
All those QEs lead to humongous and growing distortions of the economy you and I have to live in. And since we have no access to the funny money, but it does get used to buy real assets, like land, food, water, at insanely bloated prices, it is hugely destructive to the world we need to survive in, to our future ability to survive. Whoever bought into these basic human needs at highly inflated “values” will be looking for a “healthy” return long after you and I will no longer be able to afford them. This will lead to severe human suffering, and only because we, as a society, refuse to be honest.
It’s not just some vaguely defined elite, it’s you too. You too are hoping for recovery, now, with your wealth intact. And it’s the Chinese who’ve managed to get hold of part of the $7 trillion or so Beijing stimulus, and that’s before it was leveraged (a scary thought indeed!), and use it to buy US land. It’s all zombies all the way down. And there’s no way that’s not going to crash.
As long as banks don’t have to fess up to their losses, lots of other parties don’t have to either. That’s why there are so many people and institutions who label themselves “investors”, and often even borrow to buy stocks, who are just as much zombies as the banks are. Their “capital” would be wiped out faster than an HFT flash if we would start being honest about what things are worth. But our governments and central banks have decided that we’re going to lie to ourselves up to some undetermined point in the future, when our economies are supposed to reach escape velocity, when, to put it in other words, our lies will become the truth.
The past 6+ years of attempts not to come clean are tremendously damaging to society at large because they for instance keep the hopes alive for recovery and growth, notwithstanding the fact that the whole charade facade is based on the refusal to let actual and honest markets determine what assets are worth. And how much more obvious does it have to get that you can and will never ever restore faith and confidence in markets as long as you keep distorting them with these neverending interventions aimed at, well, distorting them even more?
We lie to ourselves, as a society and as individuals, on a constant basis because we (have been led to) believe that we have no choice but to forever chase an illusive entity named economic growth that we don’t even need at all. We’re rich enough. More than rich enough.
The growth illusion is more destructive than anything in the history of the planet. And we know it, we – can – see it every day in the world around us. And we know, too, that we don’t need any more growth. What do any of us lack in a material sense? We also know that nothing can grow forever, and the cancerous tumor metaphor is as obvious as it is well-known. But if you can find one single politician or analyst where ever you live who doesn’t want more growth, please let me know.
A smart species? Us? I don’t see how, if we were, we could find ourselves where we do. We destroy the only reality we have, this planet, to chase illusions we don’t even have a real use for. I think I’ve said this before: the only thing that makes us different from amoeba, when provided a surplus of energy, is that we can watch ourselves use it to destroy the very things need to live. And be aware of it. So much for awareness. And for being smart.
If we really were smart, we’d stop this madness, starting with the bank bailouts and the voting for whoever promises the rosiest gardens and the biggest profits. There must be a better reason for us to have been put on this earth than to chase profits and eternal growth and faster cars and bigger TV screens and one mile high buildings and even deadlier weapons to kill one another with. Because if there’s not, or even just if we can’t find that reason, we should say goodbye and leave this humble abode for the incredible beauty around us to survive in.
The much-awaited Non-Farms Payroll Report didn’t produce any positive result for bulls. The report on Friday showed 192,000 jobs vs. 206,000 expected and the prior report was revised higher to 197,000 from 175,000. The unemployment rate remained at 6.7% vs 6.6% expected. Inside the numbers though conditions weren’t that rosy. In fact, looking at Janet Yellen’s “dashboard,” many data points weren’t positive including: declines in wages from 0.4% to 0.0%; only 1,000 new manufacturing jobs created; temporary Help came in at 29,000; retail was just 21,000 and leisure and travel was a mere 29,000 — not to mention that in combo these jobs are dominated by low-wage paying part-time work.
Plus, underemployment, the labor participation rate and the long-term unemployed numbers are still bothersome. Overall the report is dovish for the Fed, as these data points were so weak the Fed is less likely to raise interest rates any time soon. So, why the market decline? Bulls are too complacent and too many sectors were overstretched. Social Media and Biotech are two sectors exemplifying this condition. These sub-sectors in turn spilled losses over to larger parts of the market, notably the NASDAQ 100 (down 2.33%) and other major markets like small-caps. However, overseas markets for the most part were able to avoid much of the selling.
For much of the past year, Tesla Motors seemingly could do no wrong in investors’ eyes. An early unbroken string of quarterly losses, ambitions to build a huge battery factory: no matter. Shareholders kept pushing the company’s stock up, by about 50% this year. But on Friday, the market had second thoughts about its onetime darling, as Tesla shares tumbled nearly 6%. That sudden turnaround played out again and again in the once-high flying technology and biotechnology stocks that propelled the markets for over a year. The Icarian Tumble of beloved names, like NXP Semiconductor and the biopharmaceutical company Alexion, signals a potential shift in investors’ belief in chasing eye-popping growth.
What remains to be seen is whether the damage has been contained, or even if these stocks have finally hit earth. All that is apparent now is that many “momentum” stocks, those that had drawn buyers because of their ascending trajectories, ran out of steam on Friday. While the three major market indexes were down that day, the Nasdaq composite index fell by more than double the descent of the Standard & Poor’s 500-stock index or the Dow Jones industrial average. The Nasdaq began to wobble a little before 11 a.m., and then commenced a full-on tumble, ending the day down 2.6% at 4,127.73.
Behind the index’s plunge was its very nature as the home of many of the highest highfliers, whose valuations have soared to spectacular levels. Over all, the Nasdaq trades at 31 times the reported earnings of its constituent companies, or nearly twice the ratio seen with the S.&P. 500. “There is concern that we could be at a near-term market peak,” said Dane Leone, the head of United States market strategy for Macquarie. If that is true, he added, investors rightly worried about holding onto stocks that were correlated so closely with overall market performance.
When Mario Draghi flies to the U.S. this week, he will leave a 1 trillion-euro ($1.4 trillion) question mark hanging over Europe. While the European Central Bank president can show his new quantitative-easing plan to officials at the International Monetary Fund meetings in Washington, he has yet to reveal his full hand to investors on its design. That suspense risks setting them up for disappointment, according to economists at UniCredit SpA and Deutsche Bank AG.
With the revelation last week that the ECB has simulated an anti-deflation QE program deploying as much 1 trillion euros in bond purchases, Draghi and his colleagues can expect intensifying scrutiny of the measure he divulged on April 3. Executive Board members Vitor Constancio and Yves Mersch and Governing Council members Jens Weidmann and Ewald Nowotny are all due to make public appearances today. “All this talk about QE has gotten markets rather excited,” Erik Nielsen of UniCredit wrote in a note yesterday. “I am sure the ECB – like most of us – is happy about this, but action is not imminent. What happens when markets realize that this was all just a semi-public discussion of the toolbox – – and not what will happen, unless we get an emergency?”
The global economy seemed to be on the mend when the International Monetary Fund met for its spring meeting in Washington 10 years ago. Alan Greenspan had cut official interest rates in the US to 1% after the collapse of the dotcom boom and the world’s biggest economy had responded to the treatment. Gordon Brown was chancellor of the exchequer and the UK was in its 12th year of uninterrupted growth. Companies in the west were flocking to China now that it was part of the World Trade Organisation. The talk was of offshoring, just-in-time global supply chains and integrated capital markets.
The expectation was that the good times would last for ever. No serious thought was given to the notion that total system failure was just around the corner. Faith in the self-correcting properties of open markets was absolute. When the crash duly came, a self-flagellating IMF confessed that it had been guilty of groupthink. It had either ignored the signs of trouble or played down their significance when it did spot them. The fund has learned some hard lessons from this experience. Downside risks to the forecasts in its half-yearly World Economic Outlook (WEO) are now exhaustively catalogued.
The world of 2014 is not dissimilar to that of 2004. The boost provided by cheap money has got the global economy moving. Inflation as measured by the cost of goods and services is low but asset prices are starting to hum. Financial markets have got their mojo back. Deals are being done, big bonuses paid. The received wisdom is that the worst is over and that the prospects for the global economy will strengthen as the remaining problems are ironed out.
In the twelve months to January, the lending of U.S. banks to households increased about 3% while, over that period, their loanable funds (excess reserves) soared by an incredible 59.4%. Clearly, massive monthly asset purchases by the U.S. Federal Reserve (Fed) were of no great help. The banks’ near retreat from their core business (consumer financing), along with sluggish income growth and a large slack in labor markets, weakened all the key pillars of private consumption.
Is it any wonder, then, that the inflation adjusted consumer spending – 70% of the U.S. economy – was growing at a rate of 2.2% in the first two months of this year, after a lackluster 1.9% growth during 2013? The void left by the weak bank lending to consumers has been filled by nonbank financial institutions (finance companies, credit unions, etc.). Lending to households by these companies rose a whopping 9% in the year to January, and was 47% higher than the amount of consumer loans booked by commercial banks.
Hence an interesting question of monetary policy: Why do banks prefer to keep their huge excess reserves ($2.5 trillion at the last count) at the Fed at an interest rate of 0.25% instead of making car loans at 4.4% or two-year personal loans at 10.2%? I can take a guess at some answers, but that is irrelevant. The important public policy issue here is what the Fed makes of all this, and how it intends to solve this well-known problem plaguing the U.S. economy over the last few years.
Monthly asset purchases – on top of a virtually zero% interest rate – have been a relatively easy part of a sweeping crisis management. The verdict on that policy is given by America’s demand, output and employment. It is perhaps time to adjust policy instruments and intermediation techniques to address some apparently structural issues whose solution does not seem to be in the wall of money thrown at the U.S. economy. I have no doubt that the Fed’s highly capable technical staff is fully aware of these problems, and that – given a chance – they could probably come up with specific remedies instead of continuing with an excessive monetary creation.
One of the first investors in Pimco’s $232 billion Total Return fund has begun looking for an alternative fixed income manager as concerns over the world’s biggest bond house escalate. The Orange County Employees Retirement System, situated just 12 miles from Pimco’s headquarters in California, has instructed an investment consultant to search for an “additional” domestic fixed income portfolio manager. The $11.5 billion pension scheme has invested in Pimco chief executive Bill Gross’s Total Return strategy since 1982, but it has put the fund on watch due to “organisational and personnel issues” at the company.
The setback follows the resignation of chief executive Mohamed El-Erian in January, which triggered widespread criticism from investors and analysts about Pimco’s recent investment performance and Mr Gross’s management style. The Californian pension fund has $1.3 billion invested in Pimco and $582 million in the Total Return fund, which has suffered $52 billion of outflows in the past 11 months. Pimco declined to comment on Ocer’s decision but a spokesperson said the bond house has seen “considerable interest from institutional and retail investors in fixed income strategies” beyond its core bond funds.
Concerns are growing, however. Investment group Columbia Management last month replaced Pimco with rival US fund company TCW for a $1.3 billion bond fund mandate. The $28.6 billion Indiana Public Retirement System also recently dropped two Pimco mandates worth $50 million and placed the remaining investments with the group on watch. Several pension funds, including the California-based City of Fresno retirement board and the $8.5 billion North Dakota state board of investments, have placed Pimco on watch since Mr El-Erian quit the Newport Beach-based company. Calpers, the world’s biggest pension fund, has not placed Pimco on a formal watch list, but a spokesperson said: “We are paying close attention to developments. Calpers staff has tremendous respect for the staff at Pimco and we are monitoring the issue and will keep our board aware of the changes.”
Since 2008, the number of people who call themselves middle class has fallen by nearly a fifth, according to a survey in January by the Pew Research Center, from 53% to 44%. Some 40% now identify as either lower-middle or lower class, compared with just 25% in February 2008. According to Gallup, the percentage of Americans who say they’re middle or upper-middle class fell eight points between 2008 and 2012, to 55%. And the most recent National Opinion Research Center’s General Social Survey found that the vast proportion of Americans who call themselves middle or working class, though still high at 88%, is the lowest in the survey’s 40-year history. It’s fallen four percentage points since the recession began in 2007.
The trend reflects a widening gap between the richest Americans and everyone else, one that’s emerged gradually over decades and accelerated with the Great Recession. The difference between the income earned by the wealthiest 5% of Americans and by a median-income household has risen 24% in 30 years, according to the Census Bureau. Whether or not people see themselves as middle class, there’s no agreed-upon definition of the term. In part, it’s a state of mind. Incomes or lifestyles that feel middle class in Kansas can feel far different in Connecticut. People with substantial incomes often identify as middle class if they live in urban centers with costly food, housing and transportation.
Former U.S. Treasury Secretary Larry Summers has urged global leaders to form a global growth strategy to combat economic stagnation and has called upon the U.S. government to ramp up investment expenditure. Writing in the the Financial Times on Monday, Summers took the opportunity to openly address central bankers and finance ministers who are gathering in Washington this week for the biannual International Monetary Fund meetings. “In the U.S. the case for substantial investment promotion is overwhelming. Increased infrastructure spending would reduce burdens on future generations, not just by spurring growth but also by expanding the economy’s capacity and reducing deferred maintenance obligations,” he said.
“Government could do much at no cost to promote private investment including authorizing oil and natural gas exports, bringing clarity to the future of corporate taxes, and moving forward on trade agreements that open up foreign markets.” Since the global financial crisis of 2008, loose monetary policies from central banks across the globe have resulted in record low interest rates in the hope of stimulating borrowing and spending. This has been accompanied by asset purchases by the U.S. Federal Reserve and others. Summers believes that while this may be better than the strategies put in place during the Great Depression of the 1930s, it doesn’t necessarily have a big impact on spending decisions.
Any spending this loose monetary policy induces tends to represent a pulling forward rather than an increase of demand, he said, adding that no-one can confidently predict the ultimate impact on markets of the unwinding of central bank balance sheets. “Creative consideration should also be given to ways of mobilizing the trillions of dollars in public assets held by central banks and sovereign wealth funds largely in the form of safe liquid assets to promote growth,” he said. “In a globalized economy, the impact of these steps taken together is likely to be substantially greater than the sum of their individual impacts. And the consequences of national policy failures are likely to cascade.”
The catchall response to worries about China’s credit-bloated economy is don’t worry, the government controls the money, and with it, the ability to fix or patch-up any problems. That means talk of a Lehman-style financial crisis, a Minsky moment or a property implosion are all rather far-fetched, as Beijing simply won’t allow it. Indeed, last week it was very much business as usual as a mini-stimulus was announced to shore up flagging growth. This will see more affordable housing being built, more railways, as well as a tax cut for small businesses.
At the same time, guidance from China’s central bank was unequivocally reassuring. The People’s Bank of China (PBOC) released a brief statement after its quarterly policy meeting saying economic conditions are in a “reasonable range,” though the economy faced complicated situations. It also reaffirmed a commitment to keep the exchange rate at an “appropriate level,” while adding that domestic price levels are basically steady. This sanguine outlook is a contrast to red flags at various agencies, from the IMF to the Bank of International settlements, about China’s dangerous build-up of credit, now estimated at over 200% of GDP. Such warnings are nothing new perhaps, but the difference this time is that the PBOC no longer controls all the money.
It has become increasingly clear just how much foreign capital China has borrowed, despite its closed capital account. And this foreign capital is getting edgy as the yuan weakens and markets brace for further Fed tapering. According to one estimate by the Bank of International Settlements (BIS), foreign credit to China has more than tripled over four years, rising from $270 billion to $880 billion in March 2013. Much of that lending has come through Hong Kong and Singapore. Brokerage Jefferies estimates that Hong Kong’s financial system has become linked to an “invisible carry trade” with a parabolic surge in lending to mainland China. Since 2009 Hong Kong banks have lent almost $400 billion.
China’s development has been driven by investment, which represents around 50% of Gross Domestic Product. About half of this investment is in property. Infrastructure investment is also high, far greater annually than the U.S. and Europe, but also than other emerging markets — double that of India and around four times that of Latin America. China’s total investment levels are also 10%-15% of GDP higher than comparable countries, such as Japan and South Korea, at the equivalent stage of development. China’s central government wants to enhance domestic demand and consumption, but the task is made even more difficult by the influence that state-owned enterprises command over the national economy.
China has about 150,000 SOEs, which control around 50% of industrial assets and employ around 20% of the nation’s workforce. These SOEs receive plenty of government support — except they aren’t as profitable as their private sector peers. SOEs have become a drag on China’s economic potential and are need reform. How, and how much, that will happen is questionable. That said, China’s consumption has not been static, growing strongly at around 8% annually over the past decade. However, the growth in consumer spending has been slower than that of the overall economy and the increase in gross fixed investment, at an average annual growth of over 13% annually, has dropped private consumption to about 35% of GDP.
If China’s economy grows at 8% annually , consumption needs to grow by around 11% just to increase the share of consumption one percentage point, 36% of GDP, in a year. Assuming a growth rate of 8% and consumption increases of 11%, it would take around five years to increase consumption to 40% of GDP. If growth slows, then the difficulty increases.
As China frets about meeting its target of about 7.5% growth in 2014, it’s time for more stimulus. The State Council, China’s cabinet, announced plans this week to further expand railways across the country, renovate dilapidated urban housing, and provide new tax breaks for small businesses. Many analysts are expecting a return to looser credit policies this year as well. But what China considers unacceptable levels of gross domestic product growth would be the envy of most other countries. So why do China’s leaders demand such rapid rates of economic expansion?
A clue to that is found in Premier Li Keqiang’s recent work report, China’s version of a state of the union speech. Creating enough jobs – mentioned 11 times in the document released on March 5 – is what drives Chinese officials’ obsession with fast-rising GDP. China needs high levels of growth – at least 7%, says Li – to ensure enough jobs for 7.2 million college grads and 10 million people flooding cities from the countryside every year. China’s leaders have set a target of producing at least 10 million jobs this year, and a record-high 13.1 million urban jobs were added last year. “Employment is the basis of people’s well-being,” Li said in the work report. “We will steadfastly implement the strategy of giving top priority to employment.” The trouble is, new stimulus mainly means more investment-driven expansion, which already accounts for about half of the economy. That’s problematic given industrial overcapacity and soaring debt levels held by local governments and companies.
Short-seller Jim Chanos says China is “panicking” in the face of a stalling economy. As the fast-growing economy now deals with a lending bubble, Chanos told CNBC’s “Squawk Box” on Thursday his long-running bearish outlook is now coming to fruition. On Wednesday, the Chinese government vowed to cut taxes on small firms and said it would boost railway construction. Chanos said China has rolled out such “mini-stimulus” programs for years. “One has to keep in mind, if you’re a Western investor in stocks and bonds in China, you are investing in a scheme, not a market,” Chanos said. “This is important. You are basically providing capital to them and you might not see any profits or dividends from them.”
The country still houses massive stretches of unoccupied residential complexes, with three to six years of unsold supply left over outside of Beijing and Shanghai, Chanos said. Chinese growth figures don’t account for sales, so the country’s enviable growth rate includes construction projects left empty, Chanos said. China fueled its construction boom largely on credit. “Anybody who thinks that can’t collapse because of too much lending has not looked at economic history,” Chanos said.
For the first time since 2007, investors are willing to lend five-year money to Spain at a lower interest rate than they charge the U.S. government. Yes, that’s not a typo. Spain, where more than a quarter of the nation is unemployed is paying less than the world’s biggest economy, which also happens to own the global reserve currency of choice and the deepest and most liquid bond market anywhere. Today, Spain’s five-year bond yield dropped to as low as 1.71%, compared with about 1.72% for the comparable Treasury yield.
Provided we believe that “in price, is knowledge” — an increasingly bankrupt tenet in these days of central bank intervention and manipulation – what does this tell us? For one thing, it reinforces the view that credit ratings on sovereign borrowers are pretty meaningless. Uncle Sam still enjoys the top Aaa grade from Moody’s and AA+ from Standard & Poor’s, while Spain languishes among the alphabet spaghetti of Baa2 (Moody’s) and BBB- (S&P).
So, Spain would have to be upgraded by no fewer than eight levels at Moody’s to get the same credit score as the U.S. Just as telling, Spain would only have to be downgraded by two levels to be classified as junk. The main implication, though, is that investors are increasingly convinced that Mario Draghi and the European Central Bank are about to lace up their bond-buying boots, just as Janet Yellen and the Federal Reserve are scaling back on their yield-suppressing debt purchases. The bond market is telling us that it thinks quantitative easing is coming to the euro region.
When Eisenhower signed the 1956 Bank Holding Company Act banning interstate banking, he left a large loophole as a conciliatory gambit: a gray area as to what big banks could consider “financially-related business,” which fell under their jurisdiction. In practice, that meant that they could find ways to expand their breadth of services while they figured out ways to grow their domestic grab for depositors. On May 26, 1970, the “Big Three” bankers— Wriston and Rockefeller, along with Alden “Tom” Clausen, chairman of Bank America Corporation—appeared before the Senate Banking and Currency Committee to press their case for widening the loophole.
During the proceedings, Wriston led the charge on behalf of his brethren in the crusade. Tall, slim, elegantly dressed, and the most articulate of the three, he dramatically called on Congress to “throw off some of the shackles on banking which inhibit competition in the financial markets.” The global financial landscape was evolving. Ever since World War II, US bankers hadn’t worried too much about their supremacy being challenged by other international banks, which were still playing catch-up in terms of deposits, loans, and global customers.
But by now the international banks had moved beyond postwar reconstructive pain and gained significant ground by trading with Cold War enemies of the United States. They were, in short, cutting into the global market that the US bankers had dominated by extending themselves into areas in which the US bankers were absent for US policy reasons. There was no such thing as “enough” of a market share in this game. As a result, US bankers had to take a longer, harder look at the “shackles” hampering their growth. To remain globally competitive, among other things, bankers sought to shatter post-Depression legislative barriers like Glass-Steagall.
They wielded fear coated in shades of nationalism as a weapon: if US bankers became less competitive, then by extension the United States would become less powerful. The competition argument would remain dominant on Wall Street and in Washington for nearly three decades, until the separation of speculative and commercial banking that had been invoked by the Glass-Steagall Act would be no more.
Hundreds of pro-Kremlin demonstrators seized official buildings in Ukraine’s eastern regions, where separatist unrest turned deadly last month, urging referendums on joining Russia. Buildings in the cities of Donetsk, Kharkiv and Luhansk were occupied yesterday by protesters with Russian flags who also called for a boycott of May 25 presidential elections. Amid the unrest, acting President Oleksandr Turchynov canceled a trip to Lithuania and convened a special meeting of law enforcement officials, according to the website of the Ukrainian parliament.
Ukraine’s government, which came to power after Kremlin-backed President Viktor Yanukovych fled the country last month, has accused Russia of stoking tensions in the country’s eastern regions following the annexation of Crimea. The U.S. and NATO have urged Russian President Vladimir Putin to pull back thousands of troops massed on his neighbor’s eastern border in the worst standoff since the Cold War.
The idea of reverse gas flow from Europe to Ukraine raises lots of questions, says Gazprom CEO Aleksey Miller, as the physical reverse flow is hardly possible and a virtual one questions the legality of the reverse flow itself. “We very much doubt whether reverse flow from Slovakia to, say, Donetsk, Kharkov or Kiev is physically possible,” Gazprom CEO Aleksey Miller said in an interview with Russian NTV channel. According to Miller, the pipe “can’t have gas flowing in both directions at the same time,” that’s why it cannot be a physical reverse flow but a virtual one on paper, “which questions those who gave Ukraine the right to control Gazprom gas in the Ukrainian pipe.”
“Our terminals are in Europe. We will certainly look very carefully into that to see if this scheme is legal. I think this issue requires careful study and consideration. For example, I think that the European companies that plan to supply gas to Ukraine through such reverse flow should think twice whether such transactions are legal,” said Miller. The issue of the reverse gas deliveries was raised by Ukraine’s coup-appointed PM Arseniy Yatsenyuk who said on Wednesday that Ukraine is looking forward to a political decision by the EU to start reverse gas supplies from Slovakia. Yatsenyuk also added on Saturday that Ukraine may get up to 20 billion cubic meters of reverse gas from Slovakia, Poland and Hungary.
Supermarkets have been forced to defend their efforts to tackle the UK’s food waste crisis, after being accused by MPs of contributing to the “morally repugnant” mountain of produce thrown away each year by shoppers. A report published today by the House of Lords EU Committee, Counting the Cost of Food Waste, urged supermarkets to end “Buy One, Get One Free” promotions to help cut the 15 million of tonnes of food wasted in the UK each year, at a cost of £5bn.
According to the report, the supermarkets are able to pass on food waste “from the store to the household” by the use of special offers. Baroness Scott of Needham Market, the chair of the committee, said: “We are urging the supermarkets to look again at offers such as ‘buy one get one free’, which can encourage the excess consumption that leads to food waste. “We also think supermarkets must work much more closely with their suppliers so as not to cancel pre-ordered food which has been grown, is perfectly edible and is then ploughed straight back into the field.”
But the British Retail Consortium, the industry body that represents the supermarket chains, said the Lords committee should focus on “evidence-based policy, rather than being distracted by perception”.
A spokesman said: “The report is useful in highlighting the need for everyone, including retailers, government and consumers, to make cutting food waste a priority. However, it appears to have not appreciated what is already happening.
The media has been overwhelmed by talk of Crimea joining Russia, but all are ignoring the fact that the ‘Five Eyes’ intelligence alliance, principally the US, has annexed the whole world through their spying, said WikiLeaks founder Julian Assange. Speaking at the WHD.global conference on Wednesday, Assange – who has been living under asylum in Ecuador’s embassy in London since 2012 – pointed out that there is a need for independent internet infrastructure for countries to maintain sovereignty to resist US control over the majority of communications. The annual conference is dedicated to global surveillance and privacy matters.
“To a degree this is a matter of national sovereignty. The news is all flush with talk about how Russia has annexed the Crimea, but the reality is, the Five Eyes intelligence alliance, principally the United States, have annexed the whole world as a result of annexing the computer systems and communications technology that is used to run the modern world,” Assange said. “So it’s a matter of national sovereignty. If there is not at least some national network that can be maintained in a moment of economic or political conflict with the United States, then there is simply too much leverage on nation states to be able to effectively defend the interests of their peoples.”
Assange noted that the revelations leaked by Edward Snowden on NSA and GCHQ spying have caused a new wave of resistance against US control, shifting the geopolitical forces in Europe. “These revelations about the United States and GCHQ annexing our new world of the internet has produced market forces to do something about it. But they’re also playing into, within Europe, a very interesting geopolitical phenomenon, which is Germany’s new leadership of Europe, and it demonstrating its new leadership of Europe.” “One of the ways to demonstrate its leadership is to demonstrate how someone else does not control you. Here we have an example of Angela Merkel and German society as a whole striving slowly to demonstrate some kind of independence in relation to the United States,” he said.
BP is expected to come under pressure at its annual meeting this week to explain how its decision to take a 20% stake in Russia’s biggest oil company, Rosneft, will be affected by the country’s standoff with the west over Crimea. BP’s annual meeting, held at the ExCel centre in London’s docklands on Thursday, could see questions from shareholders about Rosneft, continuing legal threats in the US and executive pay and environmental issues. The British oil group has already been drawn into the row over Russia’s annexation of Crimea with calls for Rosneft’s delisting from the London Stock Exchange.
There is a risk that the Russian president, Vladimir Putin, could expropriate assets from western companies, including BP, said independent analyst Louise Cooper. BP’s Rosneft stake accounts for a third of its production volume and gives it a stake in Arctic exploration. In addition, BP still operates under the cloud of the Deepwater Horizon disaster. It has already paid out billions in compensation to victims but could face further penalties of up to $20bn (£12bn), on top of the existing $40bn bill, if it is found guilty of gross negligence by the US department of justice.
HSBC oil analysts Gordon Gray and Peter Hitchens wrote of the 2010 disaster in the Gulf of Mexico : “In the case of gross negligence 1) BP’s balance sheet looks strong enough to weather it in our estimates, and 2) we would expect a multi-year appeal process to mean the near-term financial impact would be limited.” They also thought BP’s strategy presentation in early March “did a good job of shifting the strategic emphasis from the post-Macondo [Gulf of Mexico] recovery to its longer-term growth potential”. BP can point to a recent deal with US environmental protection authorities that will enable the oil company to bid for drilling rights in the Gulf of Mexico.
As advances in horizontal drilling and hydraulic fracturing have boosted U.S. crude oil and natural gas production to multidecade highs, midstream companies have struggled to keep up with the surge in output. In remote resources plays like North Dakota’s Bakken shale, where pipeline capacity is limited, many companies are shipping the majority of their production by rail. Midstream companies recognize these challenges and are investing heavily in the necessary infrastructure to transport, store, and process the oil, gas, and natural gas liquids being pumped out of U.S. shale plays. But to keep up with the expected growth in domestic hydrocarbon production, they will have to spend a whole lot more over the next several years. Let’s take a closer look at exactly how much, as well as one stock to play the trend.
Energy companies will need to invest a whopping $641 billion on U.S. and Canadian midstream oil, gas, and natural gas liquids infrastructure over the next two decades, according to a recent study by consultancy ICF International on behalf of the Interstate Natural Gas Association of America. That equates to annual spending of roughly $29.1 billion through 2035, almost triple the $10 billion companies have shelled out each year over the past decade.
So, where exactly will that money go? According to the study, roughly half, or about $14.2 billion per year, will need to be spent on midstream infrastructure to accommodate the continued growth in U.S. natural gas production. Companies will need to build some 35,000 miles of new transmission pipelines and 303,000 miles of gas gathering lines, says the report, titled “North American Midstream Infrastructure Through 2035: Capitalizing on Our Energy Abundance.”
In addition to heavy spending on gas infrastructure, the study estimates that some $12.4 billion per year will have to be directed toward infrastructure designed to handle crude oil, including pipelines, gathering lines, and storage tanks. Lastly, another $2.5 billion in annual spending will be required for infrastructure associated with natural gas liquids such as ethane, butane, and propane, including NGL pipelines, fractionation, and export facilities.
A gigantic resort proposed for far north Queensland does not need federal environmental assessment, its backers have argued, even though it includes two casinos, eight accommodation towers, a golf course and a 33-hectare lake filled via a 2.2km pipeline from the Great Barrier Reef. The $8 billion Aquis project, slated for Yorkeys Knob, north of Cairns, is described as “Australia’s only genuine, world-class, integrated resort”. The resort, which would cover 340 hectares, is backed by the Hong Kong investor Tony Fung, who last year bought the Reef Casino Trust, which operates the Cairns casino.
An initial advice statement from July last year describes the casino as the “man-made wonder of the world” that north Queensland is missing. The development would include accommodation for up to 12,000 guests, an 18-hole golf course, tennis courts and the artificial lake. The resort would be built on the Barron river floodplains, which drains into the Great Barrier Reef lagoon, on land used mostly as sugar cane plantations. The proposal has divided the small community of Yorkeys Knob.
In a submission to the federal Department of the Environment last week, Aquis maintained it did not require a commonwealth environmental assessment process, as any impacts on the surrounding environment – including the reef – were not significant enough to warrant it. Should the proposal be considered for a “controlled action” under environmental legislation, a report appended to the submission is good enough. “A draft EIS [environmental impact statement] has been completed but not submitted to the co-ordinator-general, pending finalisation of a related issuing of a casino licence that is critical to the project viability,” the company said.
Australian household debt has hit a record 177% of annual disposable income while housing valuations are “flashing red”, according to Barclay’s chief economist, Kieran Davies. “House prices now equate to 4.3 times annual income and 28 times annual rent, both within a fraction of their historic highs,” Mr Davies said. The respected former treasury economist believes the RBA is “worried about the strength of the housing market, where the evolution from recovery to boom has brought jawboning by the governor into play.”
“We’re paying more attention to house prices and credit than the currency to see if the RBA changes its mind on macro-prudential tools [which limit lending growth] to gauge if housing strength could trigger a rate rise this year.” In March RBA governor Glenn Stevens warned “we need to be alert to the possibility that the past year of strong rises in dwelling prices leads people to assume that this is the norm”.
“Were such an assumption to lead to increasing speculative activity, accompanied by a renewed increase in household leverage with all the associated risks to the housing market … that would be unwelcome,” Mr Stevens said. Australian house prices leapt almost 11% over the 12 months to 31 March to record levels in absolute terms, with capital gains of 15 % experienced in the nation’s largest city, Sydney. Using ABS data on total Australian household liabilities and incomes, including small business debts that are excluded from similar RBA metrics, Barclays found that the ratio of household debt to disposable incomes has hit a record of 177%.
“This is up from a recent low of 173% and exceeds the previous high of 175% reached in 2010,” Mr Davies noted. In striking contrast to consumers in the US and UK, Australian families have boosted debt relative to incomes since the 2008 crisis. The RBA put the household debt to income ratio at 149% in December, just a touch off its 153% peak in 2006.
Wind power in the U.S. is on a respirator. The $14 billion industry, the world’s second-largest buyer of wind turbines, is reeling from a double blow — cheap natural gas unleashed by the hydraulic fracturing revolution and the death last year of federal subsidies that made wind the most competitive of all renewable energy sources in the U.S. Without restoration of subsidies, worth $23 per megawatt hour to turbine owners, the industry may not recover, and the U.S. may lose ground in its race to reduce dependence on the fossil fuels driving global warming, say wind-power advocates.
They place the subsidy argument in the context of fairness, pointing out that wind’s chief fossil-fuel rival, the gas industry, is aided by the ability to form master limited partnerships that allow pipeline operators to avoid paying income tax. This helps drive down the cost of natural gas. “If gas prices weren’t so cheap, then wind might be able to compete on its own,” said South Dakota’s Republican Governor Dennis Daugaard. Consider that gas averaged $8.90 a million British thermal units in 2008 and plunged to $3.73 last year, making the fuel a cheaper source of electricity for utilities. Congress allowed the wind Production Tax Credit to expire last year, and wind farm construction plunged 92%.
Towering flames atop oil wells break the inky darkness in the badlands on North Dakota’s Fort Berthold Indian Reservation. The flares of natural gas set grass fires on the prairie where Theodora Bird Bear’s ancestors hunted buffalo and create a driving hazard on rural roads. “At nighttime, clouds of gravel dust from semis are lit up with flaring lights,” said Bird Bear, 62, who can see flames shooting from a well behind land where she grows red beans, corn and squash. “It’s a hellish scene.” Twice as much natural gas is wasted through flaring than in 2012 amid an energy boom that’s propelled North Dakota’s torrid economic growth.
The state’s employment expansion has been the fastest in the U.S. for four years. In the rush to exploit the Bakken shale formation, which holds the nation’s second-largest oil supply, companies from Statoil to Whiting Petroleum are stepping in to try to capture more of what’s lost. Natural gas burned in flaring is a byproduct of crude oil. Without enough pipelines to transport the gas, or the refinery capacity to process it, about a third of what’s released each day, worth $1.4 million, goes up in smoke. Tribal members say as much as 70% of gas from wells on the reservation is flared. “We’re confessing that we are flaring a tremendous amount of gas right now,” Governor Jack Dalrymple, a Republican, said at a Bloomberg Link Conference, Energy 2020, in Washington on Feb. 24.
“Everybody feels it’s a huge waste, to say nothing of the environmental impact.” Drillers flared 340 million cubic feet, or 30%, of the 1 billion cubic feet of natural gas produced per day in January, about twice as much as the 184 million cubic feet burned per day two years ago, said Marcus Stewart, an analyst at Denver-based Bentek Energy. The lost revenue adds up to $1.4 million each day, he added. Energy executives say economic realities force them to start producing oil from wells before infrastructure is in place to haul away less-valuable natural gas. Bakken oil fetched $98.14 on April 4, while natural gas for May delivery fell to $4.439 per million British thermal units on the New York Mercantile Exchange the same day.