Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

Month: April 2020

THE DAILY EDGE: 21 APRIL 2020

Note: It seems that yesterday I forgot to push the send button Sleepy smile. It is posted this a.m..

Virus Update

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  • Some areas of the U.S., including New York, the worst-hit state, have seen a slowdown in infection rates following tough restrictions on movement. New York, which has a total of more than 253,000 cases, according to Johns Hopkins, has begun tests aimed at more precisely measuring the rate of infection.
  • Other states said they planned to relax restrictions. In Georgia, Gov. Brian Kemp said the state’s stay-at-home order would expire on April 30 and recommended more vulnerable residents stay at home until May 13. Tennessee’s stay-at-home orders will also expire at the end of the month, Gov. Bill Lee said, allowing the “vast majority” of affected businesses to reopen on May 1.
  • Businesses Strive to Reopen From Coronavirus Shutdown As attention turns to restarting the American economy, companies are deploying a range of tactics to try to defend their workforces from the contagion.
  • In Germany, stores are starting to reopen. Italy will present a plan this week to ease its lockdown, said Prime Minister Giuseppe Conte in a post on Facebook. “A reasonable forecast” is that a detailed restart program will be applied from May 4, Conte said.
  • Serbia eased one of Europe’s strictest coronavirus lockdown regimes, allowing small businesses to reopen and relaxing a daily curfew that had kept most citizens indoors since mid-March. In Croatia, citizens can now move within their county of residence and Slovenia opened some businesses on Monday, while Greek Prime Minister Kyriakos Mitsotakis will next week provide details on a plan for a return to normalcy.
  • Australia’s government said lockdown measures have led to a “sustained and consolidated” slowdown in new coronavirus cases, though cautioned there will be no easing of restrictions for at least three more weeks.
  • Singapore’s lockdown—[a city of 5.7 million people] which began earlier this month and was intended to last four weeks—would be extended by four weeks beyond that, until June 1. (…) the government is now discovering thousands of cases among foreign workers, a sign that the virus ripped through crowded dormitories, probably for weeks, undetected. The list of essential services allowed to remain open would be pared down, he said, to further reduce the risk of transmission among workers who keep these going. Singapore’s experience shows how fragile control over the virus can be, and serves as a forewarning for the U.S. and others. New clusters of infection are inevitable as lockdowns ease and people start to mingle, experts say. The contagion can spread quickly if authorities aren’t able to pre-empt outbreaks, or catch them early, in spots that are likely pockets of rapid transmission.
  • Japan reported the lowest percentage rise in the number of cases in more than a month.
  • The U.K. reported its highest weekly death count in records going back to 2010, as the damage caused by the coronavirus epidemic continues to rise. The Office For National Statistics said Tuesday there were 18,516 deaths registered in the week ending April 10, 76% more than the average figure for the same week over the previous five years. The excess deaths are significantly more than the ONS officially attributed to the virus, suggesting the official count may miss many deaths caused by the epidemic.
  • In Russia, confirmed coronavirus cases rose by 5,642 overnight to to 52,763 as the number of new daily cases stayed above 4,000 for the fifth consecutive day.
  • More L.A. County Residents Infected With Coronavirus Than Thought Many more people in Los Angeles have likely been infected with the new coronavirus than previously known, according to preliminary blood test results released Monday. Some 863 adults in the county of about 10 million were tested for antibodies, and about 4.1% of the tests came back positive. (…) The new results echo other findings in the U.S. and Europe, and point to a lower hospitalization and mortality rate among the infected than current case counts suggest. Yet the results also suggest that Los Angeles county and other hot spots are still vulnerable, because most people still haven’t been infected. This means the virus could spread among the uninfected within communities if social-distancing measures are lifted too early. (…) The team plans to do a second round of testing in two to three weeks to see how the results have changed.
  • So far, research seeking to ascertain the percentage of Americans and Europeans that have been exposed has delivered discouraging results that less than 10% of people have been infected even in hard-hit areas, the World Health Organization said Monday. (…) “We remain at critical risk for second waves.”
  • In Washington, lawmakers and the Trump administration were nearing a $450 billion agreement to replenish a program for small businesses battered by shutdowns, after a weekslong impasse.
  • Trump to Temporarily Halt Immigration Into the U.S. President Trump said Monday he plans to sign an executive order temporarily suspending immigration into the U.S., saying he was doing so to protect American jobs as the novel coronavirus has taken a sharp toll on the economy.
  • (…) The full impact of the decision wasn’t clear, as the administration had all but halted nearly every form of immigration already. (…)
PANDENOMICS
Pointing up CHINESE SALES MANAGERS REPORT RECOVERY OF SUPPLY, BUT LACK OF DEMAND

(…) One panellist summed up the situation in the first quarter as ‘orders without production capability“. But in April the reverse “capacity to deliver, but no new orders”. Other panelists pointed out continuing difficulties with supply chains both within and outside China. Another theme was the fact that many of the containers leaving China are long delayed shipments of orders placed in January and February. But the most consistent theme of panelists was that China really is back in business in many ways, but the global shutdown has deprived it of clients.

The Sales Managers Indexes all show the economy remains deep in the doldrums.

  • The crucial Market Growth Index (reporting on growth in panellists’ own market) fell again in April to a new all-time low, from an already low March figure.
  • The Sales Growth Index (reporting on sales in April compared with March) was below the 50 “no growth “ line
  • The Staffing Index fell to a new all-time low
  • The All Sector Headline Index derived from the sector indexes fell once again
CHINA: SALES MANAGERS ALL-SECTOR MARKET GROWTH INDEX

(…) “If industry does not know if there will be a market in 18 months, [it] cannot carry all [the costs]. Industry alone can’t provide all the investment needed now for billions of doses,” David Loew, executive vice-president of Sanofi Pasteur, the vaccine producer, said in an interview. (…)

THE OIL SLICK
Oil Crash Accelerates, Rippling to Currencies, Stocks Global oil prices continued to plunge, while the pain spread to currencies of major exporters and shares in energy producers. The June WTI futures contract, now the most actively traded, dropped 41% to $11.95 a barrel.

The big surprise here is that everybody seems surprised, including those actually flooding an already saturated and almost dead market:

Confused smile (…) “Something has to be done about this bloodbath,” said a Saudi official familiar with the matter. “But it might be a little bit too late.” (…)

Don’t make too much of the negative WTI prices yesterday. Probably some day-traders got caught with expiring contracts without enough 5-gallons in their garage to accept delivery. (Brent contracts have no physical delivery). Hopefully, they have learned so this won’t happen with the May contracts. 

Canadian banks face earnings hit as analysts predict rising loan-loss provisions

(…) The four largest banks in the United States – JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. – reported a combined US$24-billion in provisions for credit losses, which are the funds set aside by banks to cover loans at risk of going bad. That was an increase of roughly 350 per cent in provisions compared with a year earlier, far exceeding most analysts’ predictions.

(…) In the most pessimistic cases published this week, provisions would eat deep into [Canadian] banks’ capital reserves, but not threaten their stability, analysts say. (…)

Mr. Holden at CIBC also considered a far more dire scenario in which adjusted earnings for the group fall 63 per cent and return on equity dips to 6 per cent, based on GDP falling by 4.9 per cent and unemployment at 9.8 per cent. Provisions for loan losses would soar to 161 basis points, reaching their worst level since the early 1990s.

In that case, banks’ capital levels – as measured by their common equity Tier 1 (CET1) ratio, a key measure of a bank’s resilience – would fall 130 basis points, swallowing most of their current 170 basis-point buffer, Mr. Holden said.

At that level, banks’ earnings would not cover current dividend payouts, but “we still think dividend cuts are unlikely as long as there is light at the end of the tunnel,” he said. (…)

U.S. banks are more exposed to wholesale corporate loans, which can perform poorly in a recession as businesses struggle with reduced cash flow. They also have a higher proportion of unsecured consumer loans on their books. Credit card loans, for instance, represent 13 per cent of U.S. bank loans compared with only 3 per cent for Canadian banks, Mr. Dechaine wrote.

Canadian banks also benefit from a “shock absorber” provided by mortgage insurance, Mr. Dechaine added. Mortgages make up a larger percentage of overall Canadian bank loans, but around a third of all Canadian mortgages are guaranteed by insurers backed by the federal government. (…)

Beijing puts strings on approval for Nvidia’s $6.9 billion deal for Isreali tech firm

After running a review that lasted almost a year, China’s monopoly watchdog decided to approve U.S. chipmaking giant Nvidia’s $6.9 billion deal to buy Israeli network-equipment maker Mellanox, though not without demands of its own.

The State Administration for Market Regulation (SAMR) posed seven conditions for the acquisition to proceed on the grounds that the merger of the two market leaders could diminish competition in the domestic and overseas markets for graphic processing units (GPUs), network gear and high-speed Ethernet adapters, the administration said in an announcement posted late Thursday on its website.

THE DAILY EDGE: 17 APRIL 2020: R20 Strategy Raising Cash

Virus Update

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U.S. deaths reported per day

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  • Globally, confirmed cases of the virus passed 2.17 million and the total number of deaths topped 146,000.
  • Reported Deaths in U.S. Reach Record 4,591 in 24 Hours, nearly double the prior record, as governors extended their lockdown orders.
  • Wuhan’s Death Toll Surges 50% After Data Review The number of deaths in Wuhan attributed to Covid-19, the disease caused by the coronavirus, increased by 1,290 to 3,869, according to a notice from Wuhan officials published Friday by China’s official Xinhua News Agency. The figure was adjusted to include people who had died at home and to correct earlier misreporting from overworked hospitals, Wuhan officials said in a separate interview published by Xinhua. The adjustment in the Wuhan figure pushed the death toll in China to 4,632. Authorities also increased the number of confirmed cases in Wuhan by 325 to 50,333 after the review, the notice said.
  • Russia Covid-19 Growth Speeds Up Confirmed coronavirus infection cases rose by 4,069, in the past day to 32,007, Interfax reported, citing the Russian coronavirus information center. The country had reported a 14% increase in total cases on Thursday.
  • Spain’s New Coronavirus Cases Rise by Most in More Than a Week There were 5,252 new infections in the 24 hours through Friday, the most since April 9, taking the total to 188,068. Despite the latest rise, the figures are still roughly half the number of new cases and deaths around the turn of the month, suggesting that the outbreak is losing intensity. There were more than 9,000 new cases on March 31 and 950 new deaths on April 2.
  • The coronavirus reproduction factor in Germany is estimated at 0.7, according to the daily situation report published by the country’s public-health authority. That means Germany is at a point where each person with the virus infects an average of 0.7 other people, down from 0.9 on Wednesday.
  • Germany’s confirmed coronavirus cases increased at a faster rate for the second day in a row and the number of fatalities climbed above 4,000 as the nation readies for some restrictions on public life to be lifted from next week. The country had 2,945 new infections over 24 hours, taking the total to 137,698, according to data from Johns Hopkins University. The pace of increase in new cases had declined steadily for six days until Thursday. Chancellor Angela Merkel on Wednesday announced tentative steps to begin returning the country to normal. Some smaller shops will be allowed to start serving customers again next week, and schools will gradually reopen in early May.
  • Virus Seen Killing 300,000 in Africa The coronavirus pandemic could kill 300,000 people in Africa this year, even with assertive government measures to limit social interactions, according to the United Nations Economic Commission for Africa. Overcrowded slums with no access to water coupled with fragile health-care systems make the continent especially vulnerable to the disease, the Addis Ababa-based body said in a report on Friday.
  • The Trump administration issued guidelines that could allow states and employers to abandon most social distancing practices within a month, sparking a rally in stocks.
  • ‘Call your own shots’: Trump leaves reopening states up to their governors
  • Ford Tests Buzzing Wristbands To Keep Workers Six Feet Apart
  • Denmark Removes More Curbs After sending young children back to school, Denmark is set to remove another layer of its lockdown as hairdressers, judges and several other corners of the labor force are told they can resume work next week.
  • Virus Vaccine May Be Ready for Mass Production By Autumn, Oxford Professor Says “The best-case scenario is that by the autumn of 2020, we have an efficacy result from phase 3 and the ability to manufacture large amounts of the vaccine, but these best-case time frames are highly ambitious and subject to change,” Gilbert was quoted as saying.
  • Roche Aims to Start Selling Antibody Test in Early May Roche Holding AG developed an antibody test for Covid-19 that it says it plans to start selling early next month, adding another of the diagnostic tools experts think will be needed to lift social-distancing measures put in place around the globe. The test will probe blood samples for antibodies that show whether a person has been infected by the new coronavirus, the Basel, Switzerland-based company said in a statement. Monthly production could reach the high double-digit millions by June.
PANDENOMICS
China Records First Ever Contraction in Quarterly GDP on Coronavirus China’s economy shrank 6.8% in the first three months of 2020 compared with a year earlier, the first such contraction since Beijing began reporting quarterly gross domestic product in 1992.

(…) Compared with the previous quarter, China’s GDP contracted by 9.8%. (…) Retail sales in March were off 16% from a year earlier, much worse than the 8.0% expected. Industrial production for the month was down 1.1% from a year earlier, better than the expected 7.5%. For the quarter, fixed-asset investment was off 16%, in line with expectations, property investment was down 7.7% and housing sales off 23%. (…)

One economic-research firm, Trivium China, estimates business activity now exceeds 80% of capacity, up from roughly 70% a month ago. (…)

Industrial production shrank 8.4%YoY in Q1 but only 1.1%YoY in March. Retail sales fell 15.8%YoY in March after falling 19.0%YoY in Jan-Feb.

U.S.-China Economic Breakup More Likely, U.S. Businesses Say The coronavirus pandemic is making the “decoupling” of the U.S. and Chinese economies a more realistic prospect, American companies in China say.

(…) The results of the March survey by the two organizations, published Friday, found more than a quarter of the companies plan to start sourcing some or all of their materials from different locations after the pandemic—though in some cases different regions of China rather than outside the country. Only 16% said they intended to shift some or all of their production outside China.

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EARNINGS WATCH

We got 40 Q1 reports in, a –7.1% surprise factor and a –30.9% decline in aggregate profits. Trailing EPS are now $158.91 and forward EPS $147.33.

RULE OF 20 STRATEGY RAISING CASH

An opening at or above 2845 will trigger a 40% cash level as the R20 P/E rises above 20.0 while the R20 Fair Value, currently at 2844 is falling, which doubles the cash allocation from valuation.

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Brazil’s President Fires Health Minister Nation’s vast health care system is left without a leader as infectious disease experts warn of a worsening pandemic

President Jair Bolsonaro, who has insisted the risk from the new coronavirus is low and called for Brazil to stay open for business, fired his health minister on Thursday after the two clashed repeatedly over how to handle the pandemic. (…)

Mr. Mandetta had called for people to isolate inside their homes as Mr. Bolsonaro waded into crowds of supporters and posted videos of people pleading with him to let them get back to work. The unorthodox right-wing leader has been facing growing opposition for his call for business to reopen. Polls showed Mr. Mandetta had become increasingly popular for advocating widely accepted measures to fight the spread of the disease.

The departure of Mr. Mandetta, a doctor and former congressman, came as infectious-disease experts warn that the number of people infected and dying in this country of 210 million is rising more quickly that hospitals can handle. Officially, infections have ballooned to 30,425 as of Thursday, with 1,924 deaths, the most in Latin America. (…)

Rio de Janeiro’s Pontifical Catholic University recently estimated in a study that the real number of infected people is 12 times higher because of lack of testing. (…)

In a poll released earlier this month, 76% of respondents approved of the way Mr. Mandetta had handled the crisis, while only 33% approving of Bolsonaro’s efforts to deal with the pandemic. (…)

In an interview Wednesday with Veja magazine, Mr. Mandetta described the difficulty of working under a president at odds with the health policies of his ministry. “We have been in this battle for 60 days, it’s tiring… Sixty days having to measure every word,” Mr. Mandetta said.

In other recent public comments, Mr. Mandetta also suggested his boss was too optimistic about the use of the antimalarial drug chloroquine to fight the coronavirus. “It’s not a panacea, it’s not a remedy coming to save humanity,” he said. (…)

“The president has been denying scientific facts,” Mr. Arruda said. “It is becoming increasingly clear Bolsonaro’s inability to manage the country during this crisis.”

What Would Aristotle Do in a Pandemic? Philosophy can help us navigate the moral dilemmas of the Covid-19 crisis.

(…) Could U.S. governors appeal to John Stuart Mill to justify their decision to keep houses of worship open during the pandemic, since that decision recognizes the freedom of people to make their own decisions? Certainly not. Mill extols freedom as much as anyone ever has, but he goes on: “The only freedom which deserves the name, is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs.” Yes, worshipers ought to be free to worship, but the contagiousness of the disease means that they would be depriving others of their freedom—in particular, their choosing to survive in good health.

Immanuel Kant (…) held that certain acts were intrinsically right, others intrinsically wrong, independent of their consequences, which are often too complicated for us to calculate. (…)

Consider the panic buying that the pandemic has prompted. The person who buys a few extra rolls of toilet paper in fear of a shortage is not, by that very act, harming anyone. But he or she is acting on the maxim that if there’s a potential shortage, stock up. The rule flunks the universalization test. Regardless of the commodity, when everyone hoards it, it creates the very shortage that people are hedging against.

Kant’s second standard is the end-in-itself test: Act in such a way that you never treat human beings, whether yourself or others, simply as a means to an end but as ends in themselves. To grasp what he had in mind we must understand that Kant, like Mill, sees the exercise of freedom as fundamental to human dignity. To use someone as a mere means is to involve them in a scheme of action to which they could not in principle consent. By usurping their freedom, you are diminishing their humanity.

This may apply to the societal dilemma of prioritizing the economy, with its diffuse benefits to many, at a cost to the first pioneers who return to work. If the young and fit are sent out to jump-start the economy, are they not being treated as mere means rather than as ends in themselves? Would they consent to their own exposure to Covid-19 or to transmitting the disease to their loved ones?

The difference between the utilitarian and Kantian approaches shouldn’t hide the similarities. Both see the point of morality as tempering a person’s self-interest with recognition of the self-interest of others. Though both maintain that the individual’s right to choose is crucial to human dignity, both also hold that morality demands we temper this individualism with a recognition of the common good. Behind both views we find the key moral insight that all humans matter.

A third alternative, which contrasts with the convictions of these two Enlightenment philosophers, is Aristotle’s virtue ethics. Aristotle singled out the cultivation of the virtues in one’s self, including temperance, courage, justice and munificence. The reason we ought to nurture these virtues is entirely self-interested: to live the best life we can, a life of flourishing or what he called eudaimonia. It also happens to be true that the virtuous person benefits his community, and while that may make him loved and respected, these side effects are not what make him virtuous.

The virtue of munificence is particularly relevant in this moment of our distress. It is not merely the willingness to make a sacrifice. The munificent person will give, writes Aristotle, “rightly, for he will give to the right people, and the right amount, and at the right time, and fulfill all the other conditions of right giving.“ Among all virtuous people, he writes, the munificent “are perhaps the most beloved because they are beneficial to others.”

And so it is that we feel about the medical personnel who are working around the clock to save their patients, the scientists who have set aside the problems they ordinarily study and pivoted to the virus, the manufacturers who have switched their production lines from widgets to ventilators and N95 masks. They are not merely exercising a generosity of spirit but are deploying unique and irreplaceable assets, giving to the right people, in the right amount and at the right time. Whether the benefit they confer on us all is the goal of their actions or a happy byproduct of their virtue, their munificence justly wins them our love and respect.

  • We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. U.S. Declaration of Independance
  • Rightful liberty is unobstructed action according to our will within limits drawn around us by the equal rights of others. Thomas Jefferson

Some like to compare the mortality rate of Covid-19 with that from other illnesses or even accidents to debate on the wisdom of confinement versus the economic cost. But even with the reduced number of casualties owed to various confinement measures…

…Covid-19 is rapidly becoming America’s leading cause of death

In just weeks, covid-19 deaths have snowballed from a few isolated cases to thousands across the country each day.

Covid-19 killed more people from April 6 to April 12 than any other cause of death except heart disease typically does in a normal April week.

All of those comparisons include only confirmed cases. This week, New York City said it considered an additional 3,700 people who had passed away over the previous weeks to have died of covid-19, even though there were no lab tests proving it. Those deaths have not been added to official state and national counts, though.

Covid-19 is not killing at the same pace everywhere: In the worst-hit areas, it is killing at an unparalleled rate.

The weekly total of covid-19 deaths in New York state and New York City has dwarfed the scale of normal causes of death — explaining why hospitals are struggling to cope. And although the outbreaks in other cities aren’t as bad, Louisiana and the District of Columbia also had more covid-19 deaths than any typical cause of death last week. In places that started social distancing and restrictions on businesses earlier, the deaths per week are lower: Washington state suffered an early burst of the disease, but covid-19 did not kill as many people there last week as in other hot spots.

California has been spared the intensity of many other states. Covid-19 deaths there last week were well below the national rate. (…)

The number of daily recorded deaths averaged 1,766 between April 6-12 and 2,252 in the last 4 days. And today we learn that yesterday’s tally jumped top 4,591!

Coronavirus re-emergence will be a threat until 2024, Harvard study finds

The paper – by five researchers with the Harvard T.H. Chan School of Public Health, and published in the journal Science on Tuesday – found that a re-emergence of the virus was possible in the next four years.

It did not say social distancing measures would need to stay in place for the entire next two years, but suggested that “prolonged or intermittent distancing may be necessary into 2022” unless a vaccine or improved treatment was available, or critical care capacity – which has been widely overwhelmed – was increased substantially.

“Even in the event of apparent elimination, Sars-CoV-2 surveillance should be maintained since a resurgence in contagion could be possible as late as 2024,” it said, referring to the virus’ official name. (…)

VIRAL STUFF

Most media are happy to report this hopeful note and GILD is up 12% this a.m.:

Gilead Sciences Inc. climbed as STAT reported severe Covid-19 patients being treated in Chicago with the company’s experimental drug remdesivir are “seeing rapid recoveries in fever and respiratory symptoms.” Almost all patients were discharged in under than a week, and only two patients died, STAT said, citing comments made this week during a video discussion about trial results with University of Chicago faculty members. STAT cautions that trials are running at other institutions and full study results can’t yet be determined; Gilead told the news outlet that it’s looking forward to data becoming available.

But that comes after we learned this yesterday:

A trial for remdesivir, an experimental drug developed by Gilead Sciences Inc., in Covid-19 patients with mild or moderate symptoms, has been suspended in China, as no eligible patients could be recruited amid an abating epidemic, according to a Wednesday update on ClinicalTrials.gov. Previously, a trial for remdesivir in severely ill Covid-19 patients was terminated due to a stall in enrollment.

I am no expert on biotech but some people smell something fishy here given the somewhat controversial source of the “hearsays” and the vagueness of the details. Let’s hope not.