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

THE DAILY EDGE: 3 JULY 2020: About that V

U.S. Adds Jobs Amid Cloudy Outlook: The jobless rate fell to 11.1% in June as the U.S. regained 4.8 million jobs, but a recent coronavirus spike could hamper the labor market’s recovery.

(…) Still, the U.S. labor market is operating with about 15 million fewer jobs than in February, the month before the pandemic struck the U.S., while the country faces an increase in coronavirus cases that has led some states and businesses to change course on reopenings. (…)

Thursday’s jobs report, which is based on survey data largely collected in mid-June, doesn’t reflect those recent government-mandated business closures and related layoffs. (…)

Job gains in leisure and hospitality—a sector hard hit by the shutdowns—accounted for about 40% of June’s employment growth. Restaurants and bars were the main driver. But those workers are particularly vulnerable to renewed layoffs because a recent rise in cases in several states is causing governors to halt or roll back reopenings. (…)

Unemployment claims have come down from a peak of nearly seven million in late March but have stabilized near a historically high 1.5 million, an indication that companies continue to cut jobs. (…)

Meanwhile, the number who permanently lost their jobs rose by about 600,000 over that period. (…) (WSJ)

(…) When the Senate returns to Washington on July 20, it will have just a matter of weeks to negotiate and pass a new bill before expanded unemployment insurance benefits expire on July 31 and the Senate begins another scheduled recess on Aug. 7. (…) “There’s a lot of discussion internally about that and there isn’t any consensus yet,” said Sen. John Cornyn (R., Texas).

President Trump, who cheered the drop in the unemployment rate to 11.1% in June from 13.3% in May, has said he supports another round of stimulus checks to individuals, but hasn’t offered details.  Treasury Secretary Steven Mnuchin said Thursday the administration will “seriously consider” additional direct payments. (…)

But many other Republicans on Capitol Hill see the new employment numbers—which some economists caution don’t capture the impact of coronavirus spikes and some business re-closures at the end of June—as evidence against the need for major new spending. Several GOP lawmakers said they didn’t yet support the president’s push for another round of checks to individuals. (…)

Additional economic data released over the first half of July will also shape how Republicans act. Sen. Marco Rubio (R., Fla.) said Thursday’s job report is likely an incomplete picture of what the economy looks like. (…)

And so will additional elections polling…

Workers are getting laid off for a second time, as the virus’s surge puts reopenings on hold 

The number of permanent job losers continued to rise, increasing by 588,000 or 25% to 2.9 million in June while the unemployment rate remains a chunky 7.6 percentage points above its February level. Fathom Consulting explains:

The unemployment report also underlined how the current environment remains significantly worse than previous recessions. As unemployment soared, almost all of those who had lost their job reported being ‘on temporary layoff’. So far, unemployment among this group has dropped from 18m to 11m while the number of people who report being ‘permanently laid off’ has actually increased by 1.6m since February with a +600k number in June after +300k in May. The bottom line is that there is a high risk of these ‘temporary’ lay-offs becoming crystallised into permanent ones particularly as generous government income support programmes are tapered over the coming months.

Obviously, as businesses reopen, employment recovers. But not all businesses have reopened or will reopen and those who will may well need fewer employees until final demand actually recovers near pre-pandemic levels. This chart shows the infamous “V” for employment, still a work-in-progress with 14.7 million fewer people working, while continuing unemployment claims balk at displaying a clear inverse “V”, seemingly stalled around 20 million. Numbers don’t necessarily jibe because of different surveys but the employment “V” is far from being confirmed by the unemployment “V”.

fredgraph (98)New manufacturing orders’ “V” is also unconfirmed by orders backlog…

fredgraph (97)

…also observed globally, which includes China, Asia and Europe which have all deconfined earlier than the U.S.:

unnamed (22)

This chart from Fathom Consulting shows the depth of the current employment crater:

The bulk of job losses are in Services so it is natural to see a meaningful recovery as restaurants, bars and other services reopen. But we all know many will never reopen and most which will will need fewer staff for quite a while. OpenTable data show that as of July 1, restaurant reservations were still down 65% YoY. And CalculatedRisk shows that hotel occupancy is barely above 40% compared to a normal 70% at this time of the year.

Fed official warns COVID-19 bankruptcies could trigger a financial crisis

St. Louis Federal Reserve Bank president James Bullard has warned that a growing number of bankruptcies due to the coronavirus outbreak could lead to a financial crisis, the Financial Times reported.

“Without more granular risk management on the part of the health policy, we could get a wave of substantial bankruptcies and [that] could feed into a financial crisis,” Mr. Bullard said in an interview with the newspaper on Wednesday. (…)

Fathom Consulting adds:

With political uncertainty on the rise and many government programmes set to be slowly tapered off, the risks to the corporate sector appear to be just in the very first innings. For example, the chart below shows that US bankruptcies trends follow the US output gap (derived from the HLBW methodology) with a four-quarter lag.

VIRUS UPDATE
  • As new cases rise in Washington state, Gov. Jay Inslee said he would pause a phased reopening for all counties for two weeks. He also announced a statewide directive for businesses to require face coverings of all employees and customers.
  • Chicago issued an emergency travel order requiring all visitors from 15 states to quarantine starting on Monday. Pennsylvania state officials issued a similar travel advisory.
  • The percentage of occupied intensive-care-unit beds in Arizona, another hot spot, remained at a high of 89% for a second day. On Thursday, the state reported nearly 3,300 new cases, for a total of 87,425. More than 10% of its daily tests were positive.
  • Only a dozen states, mostly in the Northeast, have managed to keep new case levels flat or declining.
  • The spread of the virus is still worsening in almost every state; only Vermont, New Hampshire, and New Jersey (3% of the population) now meet all four recommended federal gating criteria. Now hospitalizations are rising nationally as well, and COVID-19 patients occupy 1.5pp more of nationwide hospital capacity compared to two weeks ago. 5 states representing 15% of the population– Arizona, Florida, South Carolina, Nevada, and Georgia– are meeting none of the federal criteria for reopening, and another 11 states (24% of the population) meet just one. Conditions in the state of Nevada continue to worsen, with the estimated effective reproductive number Rt at a very high 1.5 and available hospital capacity already low.
  • Mexico, which does the least amount of testing of any major country, posted its largest daily increase with 6,741 new cases. Mexican government officials say because testing is limited, a more accurate reflection of new cases would require multiplying by roughly eight.
  • In India, new cases rose by 20,903, a single-day record, raising the total tally of infections to 625,544, according to data from the Health Ministry. India has so far reported a total of 18,213 deaths. As cases continue to rise, the government has extended lockdowns in areas with high caseloads through July.
  • Boris Johnson, Britain’s prime minister, who said earlier this week that it was Britons’ “patriotic duty” to go to the pub when they reopen on Saturday, has now urged people not to “overdo it.” His warning came after tens of thousands have flocked to beaches, organized illegal music parties and violated social-distancing rules in recent weeks.

How Beijing’s second Covid-19 wave knocked its business recovery off course Beijing’s thousands of small and midsized companies face renewed uncertainty as the 21 million-strong capital works to douse its new coronavirus hotspot. Private business owners from across the city’s ailing service sector said the return of disease controls has prolonged slumps in revenue, wilted recoveries and deepened fears of bankruptcies.

Hospital, ICU visits drop as cases become less severe in Canada In the last week 2,149 new cases were announced, 11 per cent fewer than the previous week.

“The crisis is being handled,” Mr. Trump said yesterday.

THE DAILY EDGE: 2 JULY 2020

  • U.S. Coronavirus Infections Hit New Single-Day Record. New coronavirus cases in the U.S. rose above 50,000, a single-day record, as some states and businesses reversed course on reopenings and hospitals were hit by a surge of patients.
  • In Texas, 6,533 Covid-19 patients were in hospitals, according to the state’s Department of Health. For most of April and May that number hovered between 1,100 and 1,800. It broke the 2,000 mark on June 8.
  • Arizona, another hot spot, recorded its highest percentage of occupied ICU beds, at 89%. On Wednesday the state reported nearly 5,000 new cases, for a total of 79,228. More than 10% of its daily tests were positive.
  • In California, where hospitalizations are up more than 40% from two weeks ago, Gov. Gavin Newsom announced new restrictions, including the mandatory closure of bars, indoor restaurants, movie theaters, zoos and museums in 19 counties where 70% of the state’s population lives. (…)
  • At least 80 students living in a dozen fraternity houses at the University of Washington campus tested positive, with hundreds of results pending, the Seattle Times reported. Three fraternity residents had symptoms of COVID-19, and public health officials noticed a spike in cases from the area among people ages 18 to 20, said university spokeswoman Michelle Ma, according to the newspaper.
  • Nationwide, 7% of tests administered are coming back positive, a new high reached even as testing capacity has improved (though parts of Texas and Florida are reportedly still struggling with long lines and poor response times).
  • Over half of the US has now reversed or placed reopening on hold. Some states that have paused or reversed reopening — such as Colorado and Michigan — are performing better than several others that have announced no changes or suspensions to their plans. Some other states like these could begin to react with targeted measures to mitigate virus spread before new case counts soar and hospital capacity diminishes. Another example is New York, where the governor today suspended the reopening of indoor dining, which was scheduled to begin this week. The spread of the virus is worsening in almost every state. Nationally, prevalence of symptoms, daily new cases, and the positive test rate are still increasing.

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Assessment of U.S. COVID-19 Situation Increasingly Bleak

  • India, struggling to contain the virus’s spread, reported 19,148 new cases, pushing up the tally of total infections to 604,641, data from the Health Ministry showed. (…)
  • In Tokyo, new cases topped 100 for the first time since May 2. The new infections were mainly in people in their 20s and 30s and many were linked to nighttime entertainment districts, according to the Tokyo government. (…)
  • Australia’s total number of cases topped 8,000, after Victoria state, which this week placed some areas under lockdown, reported 77 new infections over the past 24 hours—nearly all of the 86 new cases reported nationally. The lockdowns in 10 areas of Melbourne affect more than 300,000 people.
  • Experts Worry Latest Covid-19 Surge Will Shift From Healthier to At-Risk People
Pointing up Coronavirus autopsies: A story of 38 brains, 87 lungs and 42 hearts What we’ve learned from the dead that could help the living

(…) Among the most important findings, consistent across several studies, is confirmation the virus appears to attack the lungs the most ferociously. They also found the pathogen in parts of the brain, kidneys, liver, gastrointestinal tract and spleen and in the endothelial cells that line blood vessels, as some had previously suspected. Researchers also found widespread clotting in many organs. (…)

Another unexpected finding, pathologists said, is that oxygen deprivation of the brain and the formation of blood clots may start early in the disease process. That could have major implications for how people with covid-19 are treated at home, even if they never need to be hospitalized. (…)

When the brain does not get enough oxygen, individual neurons die, and that death is permanent. To a certain extent, people’s brains can compensate, but at some point, the damage is so extensive that different functions start to degrade. (…) the findings underscore the importance of getting people on supplementary oxygen quickly to prevent irreversible damage. (…)

“The big lingering question is what happens to people who survive covid,” he said. “Is there a lingering effect on the brain?” (…)

PANDENOMICS
A Recovery That Started Out Like a V Is Changing Shape After recovering rapidly from mid-April through mid-June the economy has shown signs of sputtering in the past two weeks, just as the coronavirus has resurged in parts of the U.S

The flattening may reflect a pullback by consumers in states where cases of Covid-19 have shot up, the exhaustion of pent-up demand driven by stimulus checks, or simply a pause after the first wave of low-risk workplaces were allowed to reopen.

Regardless of the reason, multiple data sources show that after an initial V-shaped plunge and partial rebound, activity has since flat-lined, resembling the reverse image of the square-root symbol (√). (…)

“There’s a clear decoupling in activity between these hot-spot states in the Sunbelt and the Northeast where activity continues to improve. Texas, Arizona and Florida have not just leveled off but are outright contracting. [For them,] what began like a V is morphing into a W.” (…)

Fed’s Bullard says risk of financial crisis remains St Louis president warns of wave of bankruptcies without public health measures

U.S. Construction Falters

The value of construction put-in-place unexpectedly fell 2.1% in May (+0.3% year-on-year). The Action Economics Forecast Survey anticipated a 1.0% gain. Spending in April and March were revised down to -3.5% and -0.3% respectively from -2.9% and unchanged. Since the February peak in economic activity construction spending has fallen 5.9%, which looks closer to previous recessions than many other economic statistics.

In the revised first quarter GDP report released last week private construction spending (nonresidential + residential) added 0.72 percentage point to GDP growth. Today’s data points to a slight downward revision to Q1 and a meaningful decline in Q2. (…)

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The crushing blow awaiting government workers (Axios)

The coronavirus pandemic blew a hole in state and local government budgets. A slew of states cut spending and jobs — with more planned layoffs announced this week as states try to balance budgets. Even more could be coming as states face more pressure from spiking caseloads and people hunkering back down.

In Maryland, layoffs, furloughs and pay cuts could come as soon as next month, Gov. Larry Hogan said on Wednesday. In New York City, 22,000 government jobs are at risk, Mayor Bill de Blasio said last week.
Missouri‘s state budget director also warned this week of looming job cuts for public sector workers in the state.

Already, nearly two decades worth of public sector jobs have been erased in three months as of May — easily bypassing declines seen during the financial crisis, per Pew Research.

Expenses are soaring. Revenues are plunging. Municipalities are seeing less money flow in from sales tax as residents shelter-in-place. In some states, tax deadlines were pushed back at the onset of the coronavirus crisis, and income tax collection is taking a hit as people lose work.
(…)

Moody’s said last week state and local governments may need as much as $500 billion over two years in federal aid to stay afloat. (That’s actually less than the $875 billion set aside for municipalities in the coronavirus relief bill passed by the House in May.)

The Federal Reserve offered cash-strapped state and local governments a rescue float to help manage cash flow pressures. But only one — out of over 250 eligible states, cities and counties — has taken it so far: Illinois. Hawaii officials last week authorized the state’s governor to borrow up to $2.1 billion from the Fed’s facility — but that doesn’t mean they’ll for sure do it.

The slow uptake of the Fed facility is by design. The credit markets seized up at the onset of the coronavirus panic. But the “municipal bond market is much improved from March and certainly operating more efficiently” since the Fed announced it would take action, says Rachel Perlman, who heads up municipal sales at Boenning & Scattergood, an asset management firm. It’s cheaper for municipalities to borrow elsewhere. The interest rates set by the Fed’s facility are “higher than in more traditional public or private markets for borrowings,” analysts at rating agency Fitch wrote last month. (…)

“Ten municipal borrowers defaulted for the first time in May and another 10 in June, the highest for those months since 2012, when borrowers were still absorbing hits from the 2008 financial crisis.” (…)

“More layoffs are coming, as pandemic-related revenue crashes leave many cities and states billions of dollars in the red,” Mark Muro, a policy director at the Brookings Institution, wrote this week.

Home Buyers Overwhelm U.S. Housing Supply Activity is springing back faster in major metro areas, where the median asking price in June was nearly 6% higher than a year ago

U.S. housing supply is falling short of demand, as droves of buyers returned to home shopping last month, according to a report Wednesday from realtor.com.

“Our June data reinforced that buyers are out in force and serious about finding a home,” said Danielle Hale, the listing portal’s chief economist.

But there isn’t enough to choose from. Sellers appear to be less eager to put their homes on the market with so much prevailing uncertainty. Total inventory was 27% lower in June than a year ago, according to the realtor.com report—compounding what was already a shortage of available homes for sale before the pandemic. (…)

In my neck of the woods, some 30 miles away from the city, all houses that were for sale for a while got sold since May at apparently good prices.

Apple Inc., which had been reopening many of its 270 stores in the U.S., said it would temporarily close dozens as the pandemic worsened in certain regions. As of Wednesday, Apple said it had closed 16 locations, with 30 more to close by Thursday.

McDonald’s Halts Reopening Plans as U.S. Coronavirus Cases Grow McDonald’s is pausing the reopening of dine-in service in the U.S. as coronavirus cases continue to spread across states.

Pizza Hut and Wendy’s Franchisee NPC Files for Bankruptcy The nation’s largest Pizza Hut and Wendy’s franchisee, filed for bankruptcy and will put its burger restaurants up for sale after failing to reach a deal with Pizza Hut parent Yum Brands.

Consulting firm Accenture is cutting as many as 900 jobs, or 8% of its U.K. workforce, amid a sharp slump in demand for its advisory work.

American Airlines sees long-haul international capacity down 25% in 2021

S&P now forecasts slower Canadian recovery than expected

Saudis Threaten New Oil-Price War With OPEC Brethren Saudi Arabia has threatened to ignite an oil-price war unless fellow OPEC members make up for their failure to abide by the cartel’s recent production cuts.

EARNINGS WATCH

The Q2 season is underway. Refinitiv reports that 81% of the first 16 reporters (quarter ended in May) beat estimates thanks to 4 of 5 Consumer Staples companies surprising by 5.7% and 2 of 2 Industrials surprising by 40.2%. These more than offset that 5 Consumer Discretionary companies missed by 102.7%.

That said, the 16 reporters had aggregate earnings down 18.5% on revenues down 2.2%. Recall that this is for the March to May quarter.

The blended growth rate for Q2 is -43.0%.

FYI:Net Investor U.S. Equity Futures Positions vs. Robinhood Distinct User Positions in S&P 500 Stocks

PANDEMONIUM

U.S. Warns CEOs Over Supply Chains Tied to Rights Violations in China The administration said companies face legal risks for involvement with entities in China blamed for human-rights abuses, including the mass detention of Uighur Muslims.

The U.S. warned companies that have suppliers or customers in China of legal and reputational risks linked to human-rights violations there, part of the Trump administration’s broader effort to limit business ties with the country.

Companies face peril for involvement with entities blamed for human-rights abuses, including forced labor or the mass detention of Uighur Muslims in China’s Xinjiang region, according to a 19-page memo released Wednesday from the Commerce, Treasury, Homeland Security, and State departments.

The memo repeatedly cited technology companies whose products can be used for the surveillance of Uighurs. (…)

A spokesman for the Chinese embassy in Washington urged the U.S. to “respect facts, drop biases, stop wrongful words and deeds that harm others and themselves and stop meddling in China’s domestic affairs with Xinjiang as a cover.” Beijing says that its efforts in northwest China are meant to counter extremist tendencies among Turkic Muslims.

The Trump administration notice doesn’t have legal force and won’t add new rules for businesses. Still, the coordinated warning from four U.S. agencies is a signal that the Trump administration will enforce the laws on the books in ways that could make many companies think twice about doing business in China. (…)

“THINGS GOTTA BREATHE”

https://mail.google.com/mail/u/0?ui=2&ik=607017aa4f&attid=0.1&permmsgid=msg-f:1671035705293475442&th=1730b61ed5030e72&view=att&disp=safe  (Tks Jean)

And yesterday in a Fox Business Network interview, Trump said: “I’m all for masks, I think masks are good.”…”I don’t know if you need mandatory”…