COVID-19 notes
Stanford Med: What’s a virus,
anyway? Part 1: The bare-bones basics
Fauci says US
could have ‘millions’ of coronavirus cases and over 100,000 deaths.
Bernanke: “At this juncture, however, the impact on the broader
economy and financial markets of the problems in the subprime market seems
likely to be contained. In particular, mortgages to prime borrowers and
fixed-rate mortgages to all classes of borrowers continue to perform well, with
low rates of delinquency.” Plus ça change….
Marc Lipsitch and Yonatan Grad: Navigating the
Covid-19 pandemic: We’re just clambering into a life raft. Dry land is far away.
Imagine you are in a small boat far, far from shore. A surprise storm
capsizes the boat and tosses you into the sea. You try to tame your panic,
somehow find the boat’s flimsy but still floating life raft, and struggle into
it. You catch your breath, look around, and try to think what to do next.
Thinking clearly is hard to do after a near-drowning experience.
You do, though, realize two important things: First, the raft is saving
your life for the moment and you need to stay in it until you have a better
plan. Second, the raft is not a viable long-term option and you need to get to
land.
In April 2020, the storm is the Covid-19 pandemic, the life raft is the
combination of intense measures we are using to slow the spread of the virus,
and dry land is the end to the pandemic.
The U.S. is still in the clambering-into-the-life-raft phase of
responding to Covid-19, and thinking clearly about what to do is still
difficult. This confusion has made it hard to appreciate two facts: One is that
social distancing combined with scaling up testing, production of medical
equipment, and other countermeasures are essential and must be replicated
across the country, intensified, and continued. The other is that if these
measures have the desired effect of reducing the number of new cases
accumulating each day, they provide only a temporary solution.
We still need to find a way to bring the pandemic to a permanent
conclusion. …
Harvard researchers’ paper: Social
distancing strategies for curbing the COVID-19 epidemic
calls for "intermittent" lockdowns and "widespread
surveillance" to mitigate the spread and prevent hospital systems from
being overwhelmed
Abstract: The SARS-CoV-2 pandemic is straining
healthcare resources worldwide, prompting social distancing measures to reduce
transmission intensity. The amount of social distancing needed to curb the
SARS-CoV-2 epidemic in the context of seasonally varying transmission remains
unclear. Using a mathematical model, we assessed that one-time interventions will be insufficient to maintain COVID-19
prevalence within the critical care capacity of the United States. Seasonal variation in
transmission will facilitate epidemic control during the summer months but
could lead to an intense resurgence in the autumn. Intermittent distancing
measures can maintain control of the epidemic, but without other interventions,
these measures may be necessary into 2022. Increasing critical care
capacity could reduce the duration of the SARS-CoV-2 epidemic while ensuring
that critically ill patients receive appropriate care.
Special report: The simulations driving the world’s response to
COVID-19
How epidemiologists rushed to model the coronavirus pandemic.
Coronavirus headline or climate change headline?
It’s Too Late to
Avoid Disaster, But There Are Still Things We Can Do
Testing backlog
linked to shortage of chemicals needed for COVID-19 test
Why the U.S. Is
Running Out of Medical Supplies (transcript)
Health care is a private industry in the U.S., and hospitals are
businesses designed to maximize profit, not respond to a pandemic.
Would everyone
wearing face masks help us slow the pandemic?
To paraphrase moderator at naked capitalism blog: I’m of the view that
masks not only encourage social distancing, but are a signal of seriousness and
commitment, and so should be worn to promote that. If only there were enough
masks.
Transmission of
COVID-19 by aerosol, implications for public health.
We are a multidisciplinary and international group of experts who
conclude that neglecting the transmission of COVID 19 by aerosol is the source
of the difference between the countries which control or do not control the
spread of the new coronavirus.
When a person carries a respiratory virus, his cough, sneezing, but also
his talking or singing will produce a cloud of droplets from his mouth or nose.
The modes of contamination of respiratory viral diseases can be
classified into three categories according to the size of these droplets:
·
For large droplets if you are at a short
distance (less than the famous 6 feet) they can be directly projected on you
(the healthy person).
·
These same droplets can fall on a surface and
contaminate it. If you touch it and bring your hands to your face there is a
high risk of being contaminated.
·
But for very small droplets, they stay
airborne and propagate over distances well over 6 feet, and this infectious
aerosol can be inhaled, leading to contamination.
The recommendations currently given to the population to slow down the
epidemic are exclusively based on the first two modes of transmission of
COVID-19 described above and exclude the third possibility [of aerosol
transmission]. …
Sweden Begins to
Abandon Liberal Coronavirus Approach as Deaths Surge
Having been one of the few European countries in the world not to impose
a coronavirus lockdown, Sweden is now starting to abandon its liberal approach
after a surge in deaths.
What NASA is
doing to keep COVID-19 off the space station
Intense quarantine, disinfection, and inspection protocols are designed
to keep astronauts from getting sick in orbit.
In 1348. LRB. (re: Black Death then vs Covid-19 pandemic
now)
Regular Related
Fare
Satyajit Das: If the Virus Hadn’t Caused the Crash, Something Else
Would Have
The pandemic has
exposed the vulnerabilities of a structurally unsound financial and economic
system.
… A second
problem is that, in the “everything bubble,” asset prices were priced for
perfection. Policymakers boosted the values of financial assets to increase
economic activity via the wealth effect, and to support borrowing to protect
financial institutions.
High asset
prices reflected high leverage, in the form of leveraged loans for private
equity or structured investments such as collateralized loan obligations.
Debt-financed share buybacks and distributions to shareholders inflated equity
values by increasing earnings per share, but simultaneously raised corporate
leverage. Toxic layers of debt were heavily exposed to significant revenue
downturns.
…
The long-term
damage will be great. Hysteresis refers to effects that persist after the
initial causes are removed. The current crisis will compound persistent
financial and economic weakness; structural damage to industry, employment and
public finances; and savings and consumption behaviors which are difficult to
foresee. While the Covid-19 crisis will probably pass, our fragile economic and
financial system will take longer to recover.
Rabobank:
"Policy Awe Is Behind Us While Sheer Economic Shock Is About To Overwhelm
Markets"
Last week was
about policy-makers keeping us in awe. Central banks have done what central
banks do – slash rates
and pump in liquidity (the latest being the Bank of Canada taking rates to
0.25%, joining the zero-lower-bound-and-let’s-do-QE gang). Governments have
done what they had long decided not to do – ramp up spending and pump in
liquidity (the latest being Australia now offering to pay 80% of salaries for
those laid off too). None of this should be a surprise. As we published
recently, and as many others in the market are echoing, this is being treated
as a war on the home front: and wars on the home front mean zero rates, yield
curve control, and fiscal deficits from 15 to 20% of GDP. Markets have, of
course, tried to rally on that front. It’s even been seen as patriotic in some
cases.
However, here
comes the shock that has required all that awe. Last week US President Trump was talking about
reopening the economy around Easter: now lockdown is extended through to 30
April. Moreover, Dr Fauci, the leading medical expert on the White House team,
has stated he expects to see millions of infections and 100,000 – 200,000 US
deaths… In the UK, the Deputy Chief Medical Officer briefed that the current
lockdown could be extended for six months, and perhaps even longer – and at the
minimum Britain seems to face three months under the present new normal. Much
of 2020 is going to be under virus controls of some kind. Again, a major
economic shock. In China, which has apparently turned the corner vis-Ã -vis the
virus, we have the Western media openly questioning the official figures for
deaths in Wuhan; stories underlining that while people are getting back to
work, exporters have nobody to produce for; a wave of consumer debt defaults
seems inevitable; and, in a
don’t-listen-to-what-they-say-but-watch-what-they-do way, Beijing ordered all
of the country’s cinemas closed again just days after reopening them to great
fanfare. Looks like a major after-shock… So what’s the takeaway: that policy
awe is behind us while sheer economic shock is about to overwhelm markets
ahead; and we will require even greater policy responses.
2008 Playbook:
Unknown Unknowns
While Donald
Rumsfeld may not be one’s go-to guy for decision making paradigms, his 2002
mention of “unknown unknowns” is worth considering just now as an investment
framework. The idea here is that we all make judgments based on a tripartite
spectrum of available information. Specifically:
Known knowns
(entirely baked into asset prices):
·
COVID-19 both spreads easily and is sufficiently harmful to require
countries to limit economic activity dramatically in order to contain the virus
before it overwhelms their health care systems.
·
Policymakers have responded by providing large scale fiscal and monetary
stimulus in the hopes of tiding over economies during the worst of the
outbreak.
·
Medical researchers are working on improved therapeutic treatments as
well as vaccines. Testing is
becoming faster and more widespread.
Known unknowns
(partially baked into asset prices):
·
The exact duration of national lockdowns around the world and their
impact on labor markets.
·
The pace of economic recovery once the immediate danger has
passed/possibility of reinfection during a restart.
·
The size and timing of further fiscal/monetary stimulus
Unknown unknowns
(not in asset prices and near-impossible to assess today):
·
Inflation rates over the next 1-3 years, a push-pull of fiscal/monetary
stimulus and uncertain consumer/business confidence.
·
Any change of personal/corporate tax rates to stabilize government
deficits (both at national and state levels).
·
The political implications of COVID-19 on the November US general
election.
·
The effect of exploding deficit spending around the world on the cost of
capital.
·
How emerging market economies with large dollar-denominated debts will
handle a slow global economic recovery
·
How the European banking system will deal with a sharp recession in its
most vulnerable countries.
·
Just as the Great Recession did lasting damage to younger job seekers,
will the current global downturn affect those finishing college now?
You probably
have many other “unknown unknowns” you could add to this list, but that’s
exactly the point when considering how well US equities have held up; the
S&P 500 at 2541 implies:
·
No structural damage to US large cap earnings power. We’re trading at
20x the trailing 10-year average S&P earnings of $122/share, not the 10x we
saw in 2009.
·
Confidence that visibility into that $122/share earnings run rate will
be there in November 2020 (near term equity prices tend to lever off 6-month
forward economic/profit conditions).
·
That the CBOE VIX Index over 60, even on large up days, is only a sign
of near-term potential volatility rather than a sign equity prices are
fundamentally wrong.
·
That markets will continue to ignore bad economic news or disappointing
corporate profit reports because either they are temporary or they will spur
further monetary/fiscal stimulus.
IHS Markit: COVID-19 recession to be deeper than that of 2008-2009.
IHS Markit now
believes the COVID-19 recession will be deeper than the one following the
global financial crisis in 2008-09. Real world GDP should plunge 2.8% in 2020
compared with a drop of 1.7% in 2009. Many key economies will see double-digit
declines (at annualized rates) in the second quarter, with the contraction
continuing into the third quarter.
·
Based on recent data and developments, IHS Markit has slashed the US
2020 forecast to a contraction of 5.4%.
·
Because of the deep US recession and collapsing oil prices, IHS Markit
expects Canada's economy to contract 3.3% this year, before seeing a modest
recovery in 2021.
David Blanchflower: Forget
'recession': this is a depression.
SCMP: Coronavirus: a
global consumer default wave is just getting started in China
·
Overdue credit-card debt in China rose by
about 50 per cent in February, bank executives say
·
Issues in world’s second-largest economy ‘are
a preview of what we should expect throughout the world’, says research fellow
13D Global Strategy and Research: A Corporate-Debt
Reckoning Is Coming
Corporate debt is the timebomb everyone saw ticking,
but no one was able to defuse. Ratings agencies warned about it: Moody’s,
S&P. Central banks and international financial institutions did too: the
Fed, the Bank of England, the Bank for International Settlements, the IMF.
Financial luminaries expressed concern: Jamie Dimon, Seth Klarman, Jes Staley,
Jeffrey Gundlach, Henry McVey. Even a presidential candidate brought the issue
on the campaign trail: Elizabeth Warren. Yet, as we’ve documented in these
pages for more than two years, corporations have only piled on more debt as
their balance sheet health has deteriorated.
Total U.S. non-financial corporate debt sits at just under $10 trillion,
a record 47% of GDP. One in six U.S. companies is
now a zombie, meaning their interest expenses exceed their earnings before
interest and taxes. As of year-end 2019, the percentage of
listed companies in the U.S. losing money over 12 months sat close to 40%. In
the 12 months to November, non-financial S&P 500 cash balances had declined
by 11%, the largest percentage decline since at least 1980.
For too long, record-low interest rates inspired complacency, from
companies to lenders to regulators and investors. As we warned in WILTW August
8, 2019, corporate fundamentals will eventually matter. Now, with COVID-19
grinding the global economy to a halt, that time has come.
Systemic threats are littered throughout the corporate
debt ecosystem. Greater than 50% of outstanding debt is rated
BBB, one rung above junk. As downgrades come, asset managers will be forced to
flood the market with supply at a time demand has dried up. Meanwhile,
leveraged loans — which have swelled by 50% since 2015 to over $1.2 trillion —
threaten unprecedented losses given covenant deterioration. And bond ETFs could
face a liquidity crisis as a flood of redemptions force offloading of
all-too-illiquid bonds (see WILTW January 31, 2019).
Red lights are now flashing. Distressed debt in the U.S. has quadrupled
in less than a week to nearly $1 trillion. Last week, bond fund outflows quadrupled the previous record, which
was set the previous week. Moody’s and S&P have already declared a
significant portion of outstanding debt under review for potential downgrade.
Leveraged loan spreads have ballooned to the point that the market for new loan
issuance is effectively closed. Bond ETFs have been trading at historic
discounts versus the NAV of their underlying bonds. And CLOs are facing the
prospect of an existential crisis as Libor plunges and threatens to dip below
zero.
Markets rebounded this week as the government passed a
stimulus bill and the Fed announced it will dedicate $200 billion to buying
corporate debt. Given the size and fragility of the corporate debt bubble, it
will prove far too little to stem the reckoning to come.
The implications are seismic. Buybacks and dividends will
dry up. Layoffs will spike and consumer spending will plummet. Suffering gig
and hourly workers will revolt against reappropriating taxpayer dollars to save
corporate powers (WILTW March 19, 2019). And the bailout decisions made by the
Fed and politicians now will define the presidential election in November.
…
With economic uncertainty at an extreme and yields spiking, who is going
to lend to zombies right now? Exacerbating that problem, we are now at the
start of the debt-maturity wall we’ve warned about for years. Roughly $840
billion of bonds rated BBB or below in the US are set to come due this year.
Doug Noland’s Credit Bubble Bulletin: The Solvency
Problem: It's A Different World Now: The Global Solvency
Issue Is Becoming Systemic
this time the housing sector is facing a far more conventional problem:
the sudden and unpredictable inability of mortgage borrowers to make their
scheduled monthly payments as the entire economy grinds to a halt due to the
coronavirus pandemic. And unfortunately this time the crisis will be far worse,
because as Bloomberg reports mortgage lenders are preparing for the biggest
wave of delinquencies in history. ….
Meanwhile lenders - like everyone else - are operating in the dark, with
no way of predicting the scope or duration of the pandemic or the damage it
will wreak on the economy. If the virus recedes soon and the economy roars back
to life, then the plan will help borrowers get back on track quickly. But the
greater the fallout, the harder and more expensive it will be to stave off
repossessions.
Michael Markowski: Markets Now At
Tipping Point, Ride Will Be Epic.
The above …
provide the rationale as to why the eight indices of the six countries will
soon begin their marches to the following in sequence:
·
new lows
·
interim bottoms
·
interim highs
·
final bottoms in Q4 2022 with declines ranging from 78% to 89% below
2020 highs
According to the
Statistical Crash Probability Analysis’ (SCPA) forecasts the probability is
100% that:
·
The relief rally highs for markets of the six countries have either
already occurred or will occur by Friday, April 3, 2020.
·
The eight indices will reach new 2020 lows by April 30, 2020.
Global Macro Monitor: A Long Way Down
to Value.
·
The stock market has completed the first phase
of a bear market with a rapid and sharp Q1 sell-off caused by massive
deleveraging
·
Stocks still need to deal with its valuation
problem as well as discounting the long-term financial and economic impact of
the Coronavirus shock
·
Even with the 25 percent sell-off since the
February 19th high, stock market capitalization-to-GDP remains extremely
elevated, still higher than its pre-GFC high and at the 85th valuation
percentile
·
Our analysis illustrates that stocks still
have 40-56 percent of downside to reach the valuation levels where the past two
major bear market’s bottomed
Saxobank: "Get To Da Choppa"
Markets are dealing with a health crisis that cannot
be appeased by central banks. …
Vulnerabilities throughout global supply chains, ‘just in time’
manufacturing models and the pursuit of cost minimisation above all else have
been exposed by the virus outbreak. The crisis of confidence among communities
has been perpetuated by political fragmentation, populism and pro-nationalist
sentiment. This means the tailwind for the ongoing
de-globalisation shift has only grown — and with it, nationalism,
protectionism and localisation. …
What is currently a liquidity crisis could fast become
a solvency crisis as the simultaneous shocks to demand and
supply weigh on the balance sheets of otherwise solvent SMEs. This crisis is about too many to fail, as opposed to too big to fail. Distressed entities
(businesses and households) desperately need a lifeline to maintain wages,
rents and other such payments that do not stop as economic activity grinds to a
halt. ….
Things are moving quickly — far quicker than they did
in the GFC — markets and shutdowns included. For each stimulus package
announced, a corresponding travel ban is enacted or city is locked down.
Shutdowns, border closures and disruptions are moving at such a pace that
economists and markets alike cannot mark down
growth expectations quickly enough. As the number of infections continues to
rise globally, the likelihood of these measures becoming more aggressive will
further impact economic activity.
With so many unknowns at large, forecasts seem little
more than vague verbiage that are consistently marked to market. However, what
is certain is that an exceptional policy response is necessary. TINA (there is
no alternative) can be applied in a different sense as
monetary policy pushes on a string and unemployment rises. Policymakers must underwrite the demand shock and helicopter drop
payments directly to households along with support for cash-strapped
businesses. ….
Although stimulus packages may ease downside risks to the economy, for markets to really recover the onus will be on reduced COVID-19 transmission
rates, increased immunity and a clear containment of the outbreak. As yet,
relative to previous crises, valuations have not become outright cheap.
Nevertheless, hope springs eternal both in financial markets and humanity, so
there will come a time for bargain hunting. However, as the rulebooks
go out the window in terms of crisis rescue packages, we may eventually enter a
different investment paradigm. The extraordinary fiscal stimulus, a
de-globalisation tailwind and eventual recovery in economic activity will bring
at the very least higher inflation expectations, and long-term bond yields may
eventually rise. Perhaps we’ll see an opportunity to rethink diversification
beyond the traditional 60/40 and a comeback for value, cyclicals and commodities.
Scott Minerd: The Faustian
Bargain
The consequences of policymakers returning to the same tools employed in the financial crisis
… We are experiencing the end game of the great debt super cycle. As the private sector has become increasingly over-levered, the baton is being passed to the public sector where resources are so strained that the printing press has become the last resort. At 4.6 percent of GDP, the U.S. federal budget deficit in FY 2019 was larger than anything we’ve seen outside of a recession or war.
The truth is that the only policy solution short of socialism is to accomplish a great transfer of wealth from investors to debtors. In the normal course, companies reorganize and creditors haircut debts on a case by case basis. This process, however, is time consuming and expensive. Given the systemic nature of the current crisis, the sheer volume of reorganizations would swamp the financial and legal systems and large defaults would be followed by asset liquidations that would depress the value of collateral backing other loans and likely set off a downward spiral.
Another answer is negative interest rates, where creditors accept a slow erosion of value. The hurdle to successfully implement this solution expeditiously seems completely unrealistic. To reach levels of negative interest rates that would effect a solution would require a rapid shift to a cashless global society and an overhaul of regulation around pension funds and the insurance industry, not to mention the logistical challenges of immediately implementing the systems throughout the financial industry.
Of course, there remains a tried and true method to achieve this policy:
debasement. …
What Is The
Fed’s New FIMA? The Potential For A SHADOW Shadow Run Is Very Real
Conclusion: Fundamentally, we have a global (euro)dollar system in which
the public still believes there is a central bank backstop (thank you, subprime
mortgages!) Instead of a dollar central bank, we have a US bank authority whose
primary interest is in making the public believe it is a dollar central bank –
so long as no one asks questions or thinks too deeply about practical details.
All with a series of elaborate puppet shows, theater which now includes
FIMA. Everything our banking authority does is designed to further hide even
the biggest problems, not tackle any of them mainly because it isn’t suited to
be of much technical, legitimate help to anyone within its approved sphere let
alone any party on the other side of the border. Which is just where most of
the eurodollar system “exists.”
Millions Of
Small Businesses Stunned To Learn They Are Not Eligible For Bailout Loans
contrary to the SBA's guidance that any small business with 500 or less
employees can apply, going to lender portals shows that only a very narrow
subset of America's millions in small businesses are be eligible.
Major Technical
Failures Confirms Bear Market Risk
As we noted last week’s Macroview there are two issues currently weighing
on the economy and markets, short-term. “Most importantly, as shown below, the majority of businesses will run out of money long before SBA loans,
or financial assistance can be provided. This will lead to higher,
and a longer-duration of unemployment.”
Furthermore, the bill only provides for
two and a half times a company’s average monthly payroll expense over
the past 12 months. However, the bill fails to take into consideration that not
all small businesses are labor and payroll intensive. Those businesses will
fail to receive enough support to stay in business for very long. Furthermore,
the bill doesn’t provide for inventory, other operating costs, and spoilage.
Small businesses, up to 500-employees, make up 70% of employment in the
U.S. While the government is busy bailing out self-dealing publicly traded
corporations, there will be a massive wave of defaults in the small- to
mid-size business sector.
Secondly, we are not near the end of the virus as of
yet
Michael Every, Rabobank: MMT-rump
After noting for the nth time yesterday that not all currencies are
equal, and that the Eurodollar system--that is to say, offshore USD
liquidity--remains a structural issue regardless of the recent introduction of
(too small) Fed swap lines with (too few) central banks, it’s not surprising
that we saw movement on that Front. Indeed, the Fed introduced a new repo
facility for any central banks that with an account with the Federal Reserve
Bank of New York, who can now swap their holdings of US Treasuries held on
account for good ol’ USD cash. The key takeaways from this move are as follow:
1.
The stress on USD liquidity is real and isn’t
going away despite the alphabetti spaghetti of Fed channels to try to get USD
from A (them) to B (everyone);
2.
It means country C (and let’s just say ‘C’ is
particularly apt in this instance) doesn’t have to sell US Treasuries to gain
access to USD, alleviating the risks of a move higher in Treasury yields should
this need to happen on scale in what are currently far from normal market
conditions;
3.
However, it is not actually going to solve any
real problems if country C (or D or E) are short of USD, as those USD are still
gone once they have been used to pay for imports or settle USD debts; yet
4.
The fact that the universe of foreign central
banks being offered this facility is now anyone, not G-10, speaks volumes about
the structural issues relating to the global role of the USD; and hence
5.
This is net structurally positive for USD even
while it looks negative.
In short, the Fed might, in its navel-gazing kind of way, only care about
smooth functioning of the US Treasury market; yet this is still a step towards
one of the only logical end-points of having USD as de facto global currency –
the Fed as not just US but de facto global central bank. Don’t like that? Well,
the other end-points are that the system collapses due to a lack of USD and/or
USD being far too high for all involved, which will make what happened in Q1
look like a picnic; or that the system lasts in some places lucky enough for
the Fed to look up from its navel at, which will be similar globally if not as
bad.
One might not want to recognise any of this from a small, technical
change in Fed policy, but it’s not hard to join the dots and project them
forward. The only question is how far those dot-plots extend into the future.
(As I have said before, if unsustainable systems didn’t ultimately change, we
would probably all be Romans.) …
There is one point that must be made clear so that history can properly
record it; the COVID-19 virus did not cause the stock and bond market carnage
we have seen so far and are likely to see in the coming months. The virus was the passive triggering mechanism, the tripwire, for an
economy full of a decade of monetary policy-induced misallocations and excesses
leaving assets priced well beyond perfection.
They say “being early is wrong,” but the 30-day destruction of valuations
erasing over three years of gains, argues that you could have been conservative
for the past three years, kept a large allocation in cash, and are now sitting
on small losses and a pile of opportunity with the market down 30%.
As we have documented time and again, the market for financial assets was
a walking dead man, especially heading into 2020. Total corporate profits were stagnant for the last six years, and the
optics of magnified earnings-per-share growth, thanks to trillions in share
buybacks, provided the lipstick on the pig.
Passive investors indiscriminately and in most cases, unknowingly, bought
$1.5 trillion in over-valued stocks and bonds, helping further push the market
to irrational levels. Even Goldman Sachs’
assessment of equity market valuations at the end of 2019, showed all of their
valuation measures resting in the 90-99th percentile of historical levels.
The fixed income markets were also swarming with indiscriminate buyers. The corporate bond market was remarkably overvalued with tight spreads
and low yields that in no way offered an appropriate return for the risk being
incurred. Investment-grade bonds held the highest
concentration of BBB credit in history, most of which did not qualify for that
rating by the rating agencies’ own guidelines. The junk bond sector was full of companies that did not produce
profits, many of whom were zombies by definition, meaning the company did not
generate enough operating income to cover their debt servicing costs. The same held for leveraged
loans and collateralized loan obligations with low to no covenants imposed. And
yet, investors showed up to feed at the trough. After all, one must reach for
extra yield even if it means forgoing all discipline and prudence. To say that no lessons were learned from 2008 is an understatement.
"The
Biggest Decline Ever": Goldman Now Sees US GDP Crashing 34% In Q2
Informal Workers
in the Time of Coronavirus
The global devastation caused by Covid-19 is only just beginning, with
the severe threat to public health worsened by the evident inability to cope of
most health systems across developing and developed countries. Many states
across the world appear to have realised the serious potential of this pandemic
and have declared lockdowns, closures, partial curfews and curtailment of all
but essential activities in efforts to contain the contagion.
The economic impacts of such lockdown are also just beginning to be felt,
and will escalate in the coming months. The discussion on the economics of this
pandemic has tended to focus on supply disruptions and the likely financial
losses of companies, especially those in travel, transport and other services
and manufacturing activities. Precisely because companies have more lobbying
power and more political voice in general, they have already started clamouring
for (and being offered) incentives, bailouts and other relief measures to allow
them to cope with this crisis.
But in fact, the worst material impacts are already being felt by
informal workers, who face a dismal spectrum of probabilities of loss of
livelihood, from declining earnings among the self-employed to job losses among
paid workers. These are likely to get much worse in the coming months. Even so,
barring in just a handful of countries, very few governments have declared
strong measures to cope with these effects …
Related: Virus Lockdowns
Confront Billions Working in the Shadow Economy
From the slums of Manila to remote villages in Colombia, some 2 billion
people ply their trades in a barely-regulated and untaxed informal economy. The
effort to contain the spread of a disease that’s so far infected around a
million people may soon hinge on places hamstrung by weak institutions,
constrained resources, and corruption.
FRB of St Louis: “Parasite,”
COVID-19, and U.S. Wealth Inequality
And one would certainly call COVID-19 a “difficult” situation, one that
underscores how critical it is to have wealth to fall back on when such an
event strips you of your income. Unfortunately, as we will show, too many
Americans lack such a wealth “buffer,” whether it be emergency savings, home
equity, retirement savings, stocks or assets in a small business
Martin Wolf: The tragedy of
two failing superpowers
To address the pandemic, China and the US must not only function. They
must function together
The Nordic Way
to Economic Rescue
In the face of the pandemic, Denmark is effectively nationalizing private
payrolls, in contrast to the patchwork American system.
Covid-19 and the
magic money tree.
‘New Keynesians’ have long been arguing that, at the zero lower bound of nominal
interest rates, central bankers don’t have the tools to effectively fight
recessions. This yours truly and other Post Keynesian economists have
criticized, arguing that those monetary measures don’t work even when we’re not
even close to the zero lower bound.
In the ‘New Keynesian’ world we don’t need fiscal policy other than when
interest rates hit their lower bound (ZLB). In normal times monetary policy
suffices. The central banks simply adjust the interest rate to achieve full
employment without inflation. If governments in that situation take on larger
budget deficits, these tend to crowd out private spending and the interest
rates get higher.
Now, the logic behind the New ‘Keynesians’ loanable-funds-IS-LM-theory is
that if the government is going to pursue an expansionary fiscal policy it will
have to borrow money and thereby increase the demand for loanable funds which
will — “other things equal” — lead to higher interest rates and less private
investment. According to this approach, the interest rate is endogenized by
assuming that Central Banks can (try to) adjust it in response to an eventual
output gap. This, of course, is essentially nothing but an assumption of
Walras’ law being valid and applicable, and that a fortiori the attainment of equilibrium
is secured by the Central Banks’ interest rate adjustments. From a Post
Keynesian point of view, this is a belief resting on nothing but sheer hope.
We have to start using good old Keynesian fiscal policies. Keynes — as
did Lerner, Kaldor, Kalecki, and Robinson — showed that it was possible to
promote economic growth with an “appropriate size of the budget deficit.” The
stimulus a well-functioning fiscal policy aimed at full employment may have on
investment and productivity does not necessarily have to be offset by higher
interest rates.
Under the pressure of Covid-19, more and more economists and politicians
have now come to realize that the ‘New Keynesian’ dogma is wrong and that we
need other stabilisation (i.e. fiscal) tools to get the economy going. That’s
great. Now we’re eagerly awaiting the ‘New Keynesians’ to also finally wake up
…
Richard Vague: How to rescue
our coronavirus-infected economy from collapse
Michael Hudson: How a debt
jubilee could help the U.S. avert economic depression
Regular Fare
Fictional
Reserve Lending Is the New Official Policy.
What's Changed Regarding Lending?
Essentially, nothing.
The announcement just officially admitted the denominator on reserves for
lending is zero.
There are no reserve lending constraints (but practically speaking, there
never were).
(not just) for the ESG crowd:
What If a
Shrinking Economy Wasn’t a Disaster?
The degrowth movement is building a vision of a society where economies
would get smaller by design—and people would be better off for it.
Trump Rollback
of Obama Mileage Standards Guts Efforts on Climate Change
The Climate
Crisis Will Be Just as Shockingly Abrupt.
Antarctica was
warm enough for rainforest near south pole 90m years ago.
Three states
push criminal penalties for fossil fuel protests amid coronavirus.
Big Thoughts:
Craig Murray: How it Starts.
It is a recognised pattern for dictatorship to commence with emergency
measures designed to combat a threat. Those emergency measures then become
normalised and people exercising arbitrary power find it addictive. A new
threat is then found to justify the continuation
It is by no means clear to me that it is a rational response to covid-19
to tear up all of the civil liberties which were won by the people against
authority through centuries of struggle, and for which people died. To say that
is not to minimise the threat of covid-19. It is also worth pointing out that a
coronavirus pandemic was a widely foreseen eventuality. People keep sending me
links to various TV shows or movies based on a coronavirus pandemic, generally
claiming this proves it is a man-made event. No, that just proves it is a
widely foreseen event. Which it is.
The lack of contingency preparedness is completely indefensible. It is
partly a result of the stupidity of Tory austerity that has the NHS permanently
operating at 100% capacity with no contingency, and partly the result of the
crazed just-in time thinking that permeates management in all spheres and
eliminates the holding of stock.
It is incredible to me that the UK is willing to throw away some £220
billion and rising on Trident against a war scenario nobody can sensibly
define, but was not willing to spend a few million on holding stock of
protective clothing for the NHS against the much more likely contingency of a
pandemic. What does that say about our society? ….
Ian Welsh: Why Western
Elites Are So Incompetent And What The Consequences Are.
Fun Fare:
For Introverts, Quarantine Can Be a Liberation; or, on the other hand, The World Could Be Running Out of Condoms Because of Pandemic
Darwin Award of the Week:
Dad hid
coronavirus symptoms to visit maternity ward after wife gave birth
Quotes of the Week:
There is a
saying among epidemiologists: “If you’ve seen one
pandemic, you’ve seen one pandemic.”
Dean Baker: “There have been a number
of pieces in major news outlets telling us what the recovery will look like
from this recession. Most have been pretty negative. The important thing to know about these forecasts is that the people
making these forecasts don’t have a clue what they are talking about. The shape of recovery will
depend first and foremost on the extent to which the coronavirus is contained
or is treatable, areas in which most of our prognosticators have zero expertise.”
“on the macro? Give me a break. Nobody
knows anything. Everybody is just guessing.”
“The cable news announced the other day that Covid-19
patients placed in critical care may have to be on ventilators for 21 days.
Only a few years ago, I went in for an ordinary hip replacement. A month or so
later, I got the hospital billing statement. One of the line-items went like
this: Room and board: 36 hours…$23,482.79. I am not jiving you. That was just
for the hospital bed and maybe four lousy hospital meals, not the surgery or the
meds or anything else. All that was billed extra. Say, what…? Now imagine you have the stupendous good
fortune to survive a Covid-19 infection after 21 days on a ventilator and go
home. What is that billing statement going to look like? Will the survivors
wish they’d never made out of the hospital alive?”
“When I was a teenager, he liked to tell me: “I
had it tough in the beginning and easy in the end. You, Willy, have had it easy
in the beginning, but will likely have it tough in the end.””
There’s No
Vaccine for Stupidity.
“A few thoughts generated by these coronaviral times:
Perhaps in a year, we’ll have an effective vaccine against COVID-19. But developing a vaccine against stupidity
will remain elusive.
Perhaps we should redefine COVID-19 as a terrorist outfit, thereby
unleashing unlimited funding from Congress to combat it.
People are stunned by this pandemic and the changes driven by it. We’ve been knocked out of our routines and
perhaps our complacency. At least some
of us are now open to new ideas. Which
is precisely why our government is rushing in with old ideas, doubling down on
trickle down, telling us to remain in place, not only physically, which is
necessary, but mentally. Look at the
parade of old ideas trumpeted by the president.
And for that matter Joe Biden, Nancy Pelosi, and the Democratic
establishment. Trump and Biden are
literally tired old men, not in age alone, but more importantly in how they
view the world. There’s nothing fresh or
original about them. Nothing. Whereas Bernie Sanders is fighting for health
care for all, better pay for workers, and a system that puts people first
instead of profits.
The courage and selflessness of doctors, nurses, first
responders, and indeed all those who are risking exposure to the virus to help
others has truly been inspirational. We’re
hearing a lot from the media about our doctors, nurses, etc. being “heroes,”
which is encouraging. Far too often in
the U.S., and for too long, the concept of “hero” was linked to military
service, with all troops being celebrated as “hometown heroes.” Athletes, too, were called heroes for hitting
homeruns or throwing touchdowns. Our coronaviral moment is reminding us about the true nature of heroes.”
Tweets of the Week:
“Wait a second, so you're telling me the
government can just pay hospitals directly for medical care? And that health
insurance companies are just unnecessary middlemen out to make a buck? Well,
I'll be damned....”
In response to WSJ: “The White House plans to pay hospitals for
coronavirus treatment for the uninsured, as long as patients aren't billed”
Not exactly full lock-down:
Of the 4800 flights we're
currently tracking worldwide, two-thirds are seen in this image.
Normally, we would be tracking about 13,000 flights right now.
Must see: Photos of the Week:
AP Photos: Indian migrants walk hundreds of miles to
go home.
They were hungry. Some had not eaten for days. Others survived on water
and biscuits.
But they walked anyway for hundreds of miles, in groups of families that
included men and women, young and old — all trudging along deserted highways.
Some had nothing but flip-flops on their feet, and others lugged bags on
their heads. Young parents balanced children on their shoulders.
Over the past week, India’s migrant workers — the mainstay of the
country’s labor force — spilled out of big cities that have been shuttered due
to the coronavirus and returned to their villages, sparking fears that the
virus could spread to the countryside.
It was an exodus unlike anything seen in India since the 1947 Partition,
when British colonial rule ended and the subcontinent was split between
Hindu-majority India and mostly Muslim Pakistan.
India’s 21-day lockdown has effectively kept 1.3 billion people at home
for all but essential trips to places like markets or pharmacies. But the
world’s largest lockdown has turned into a humanitarian crisis for India’s
improvised workforce.
They mostly live in squalid housing in congested urban ghettos. But with
no daily earnings, no savings, and thus no way to buy food, they must head to
their home villages to survive.
Train services are suspended, taxis are unaffordable and the hundreds of
buses brought to the outskirts of New Delhi to ferry people home lacked enough
seats.
That leaves walking.
The government told India’s top court on Tuesday that 500,000 to 600,000 migrants have walked to their villages from cities….
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