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: 2 APRIL 2020

Virus Update

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Timeline heatmap showing new confirmed cases around the world

  • Cases world-wide topped 937,000, while the death toll exceeded 47,000.
  • Cases in the U.S. exceeded 216,000. New York state, the hardest-hit, had more than 84,000 cases. Some 5,000 people have died of the disease in the U.S.
  • Many New York Coronavirus Patients Are Young, Surprising Doctors
  • Italy’s death toll from the virus is probably far higher than the official figure of more than 13000. Many people who have died from the virus didn’t make it to the hospital and were never tested. In two of the hardest-hit cities, Bergamo and Brescia, the real number of deaths is probably at least double the official count, according to interviews with local officials, doctors and funeral-service providers and comparisons with the numbers of deaths from past years.
  • Tokyo found a record 97 new coronavirus cases on Thursday, national broadcaster NHK reported, a number quickly approaching a level medical professionals warned would merit more pronounced measures from the government.
  • China reported 130 people over the past day who were infected with the novel coronavirus but don’t have symptoms, a sign that the group of people who can spread the virus without being detected is sizable.
  • A county in central China has been put under lockdown again after a flareup in cases, pointing to the difficulty of sustaining containment when carriers show no signs of sickness. Jia county, with a population of about 640,000, issued a directive Wednesday asking all residential compounds to be sealed off, and those visiting and leaving homes to produce identity cards, wear masks and submit to temperature checks.
  • Confirmed cases in Germany rose by more than 6,000 on Thursday to 77,981, after several days with a lower number of new infections. Deaths rose to 931 from 775.
  • Since March 13, 158 flights have come into Canada with a confirmed case of COVID-19 on board
  • Hyped Malaria Drug Not Showing Much Effect at One Paris Hospital
Some Nations Look to Mass Testing for Faster Way Out of Coronavirus Crisis As quarantine fatigue sets in, several countries ramp up test capacity

(…) In the U.S., most officials remain focused on keeping people apart to slow the virus’s transmission, as testing availability is spotty in different parts of the country.

In Germany, which is testing up to 500,000 people a week, the highest number of any Western nation, government advisers recommended last week that this capacity be raised to up to 200,000 tests a day, in a report to Chancellor Angela Merkel seen by The Wall Street Journal.

“By far the most important measure against a virus such as SARS-CoV-2 is testing and isolating of the infected persons,” the report said, referring to the new coronavirus. (…)

The U.K. has purchased 2.5 million kits for a mass-testing campaign and aims to be testing 25,000 people a day by the end of April. Officials in Sweden and Austria said they are boosting capacity to up to 15,000 tests a day.

(…) [Some experts] say the approach is too late in places where the virus is already widespread, as it is in much of Europe and the U.S. Most countries still limit testing to the severely sick, including industrial nations such as Japan and France and large ones such as India.

Relying only on lockdowns without extensive testing is like fighting a fire blindfolded, said Tedros Adhanom Ghebreyesus, head of the World Health Organization.

In the U.S., more than 1.1 million coronavirus tests had been completed as of Tuesday, according to Vice President Mike Pence. But the availability of tests in the U.S. varies by location. (…)

In the U.S., Abbott Laboratories ABT plans to make a rapid test available this week for use in clinics and other settings that can detect the virus in a patient sample in as few as five minutes and return negative results in 13 minutes. (…)

Only 63% of Germans said they would go into self-isolation if they were to experience Covid-19 symptoms, and only 41% believed the disease was dangerous, in a poll commissioned by Germany’s disease-control agency. (…)

Got Coronavirus Antibodies? Tests that show immunity are crucial to beating Covid-19.

(…) Dozens of commercial and public health labs around the world are rolling out antibody tests that can show if an individual was recently infected with the virus and has developed immunity. When fighting a pathogen, the immune system produces proteins known as antibodies that bind to specific molecules known as antigens on the invader’s surface like a lock and key. (…)

Some experts estimate that more than half of infected individuals show mild or no symptoms, though the true figure could be higher. Around three-quarters of people infected with flu viruses show mild or no symptoms. (…)

Antibody tests would also let governments and individuals tailor their behavioral responses. Kids with antibodies could visit grandparents without worrying they might kill them. Governments could ease restrictions for those with immunity and focus on protecting those most at risk. (…)

Forty some companies have indicated that they plan to launch tests. But many are waiting for the government imprimatur of FDA approval and inoculation against lawsuits. (…)

Gleaned here and there:

The Food and Drug Administration issued an emergency approval Tuesday for a serological testing kit produced by Bodysphere Inc. that can detect a positive or negative result for COVID-19 in two minutes. (…)

The Bodysphere two-minute test can only detect the coronavirus in people who have had the infection for several days, meaning the test can’t be used too early on when the body hasn’t produced enough antibodies.

Abbott Laboratories received emergency authorization last week to produce portable coronavirus tests, which the company indicates can detect the virus within five minutes.

Nature: On 25 March, a UK government official said that the country had ordered 3.5 million ‘finger-prick’ tests and planned to order millions more. (…) These ‘serological tests’ should become available to the public in days rather than weeks or months, said Sharon Peacock, director of the national infection service at Public Health England (PHE), a UK health agency. Peacock suggested that the bulk of the UK tests, which will be available to buy from Amazon and pharmacies to perform at home, had not yet arrived.

LiveScience: The CDC has been developing two serological tests for coronavirus for weeks, Stat News reported. On March 18, virologist Florian Krammer of the Icahn School of Medicine at Mount Sinai and colleagues posted a preprint paper describing their serological test, which they are now working to get into clinical use. The Krammer lab has set up a website describing their ingredients and techniques for any other lab that would like to use them. Researchers at the Mayo Clinic are developing serological tests as well, Pritt said.

There are also efforts to import already-developed serological tests from other countries. For example, the distributor Ideal Rehab Care Inc. has been approved to import a test from a Singapore-based manufacturer, according to the distributor’s law firm.

The testing is being offered free of charge by UBI and c19 and will be administered by the Public Health Department of San Miguel County, with the goal of detecting and containing community spread, and providing a more accurate assessment of disease prevalence. (…)

UBI’s c19 has developed a high-precision antibody blood diagnostic test that has been validated in China, Taiwan and California labs and has virtually 100% sensitivity and specificity in patients who have developed antibodies against the virus (seroconverted). The tests are manufactured in Long Island, N.Y. and can differentiate between COVID-19 and other coronaviruses (e.g., HKU1 and NL63). Results can be obtained within a couple hours. The company has submitted to the FDA for Emergency Use Authorization, and is allowed under FDA guidance to begin distributing the antibody test with specific disclaimers about its status and limitations until an EUA is authorized.

Fingers crossed COVID-19: the immune system can fight back

Melbourne researchers have mapped immune responses from one of Australia’s first novel coronavirus (COVID-19) patients, showing the body’s ability to fight the virus and recover from the infection.

Researchers at the Peter Doherty Institute for Infection and Immunity (Doherty Institute) were able to test blood samples at four different time points in an otherwise healthy woman in her 40s, who presented with COVID-19 and had mild-to-moderate symptoms requiring hospital admission.

Published today in Nature Medicine is a detailed report of how the patient’s immune system responded to the virus. One of the authors on the paper, research fellow Dr Oanh Nguyen said this was the first time that broad immune responses to COVID-19 have been reported. (…)

“Three days after the patient was admitted, we saw large populations of several immune cells, which are often a tell-tale sign of recovery during seasonal influenza infection, so we predicted that the patient would recover in three days, which is what happened.” (…)

Working together with University of Melbourne Professor Katherine Kedzierska, a laboratory head at the Doherty Institute and a world-leading influenza immunology researcher, the team were able to dissect the immune response leading to successful recovery from COVID-19, which might be the secret to finding an effective vaccine.

“We showed that even though COVID-19 is caused by a new virus, in an otherwise healthy person, a robust immune response across different cell types was associated with clinical recovery, similar to what we see in influenza,” Professor Kedzierska said.

“This is an incredible step forward in understanding what drives recovery of COVID-19. People can use our methods to understand the immune responses in larger COVID-19 cohorts, and also understand what’s lacking in those who have fatal outcomes.”

Dr Thevarajan said that current estimates show more than 80 per cent of COVID-19 cases are mild-to-moderate, and understanding the immune response in these mild cases is very important research. (…)

Professor Peter C. Doherty: Producing massive numbers of antibody test kits really fast should be a top priority. Once people are antibody positive, they will be at (or near) zero risk of being transmitters, and they should be able to return to normal life.

Even in the absence of an antibody screen­ing test — if, say, it is true that 40%-60% of Brits and Italians have already had the disease — we should see a massive drop in clinical case acquisition through the next month or so. An epidemiologist could model this and give better estimates. Of course, we don’t know that 60% herd immunity will be enough. Maybe it will take 80% or 90%. (via BCA Research)

Now Is Not the Time for ‘Coronabonds’ The ECB gives crisis-struck Southern Europe all the flexibility it needs to fight Covid-19. Directly sharing debt with Germany could take some of it away.

This past week, Germany and the Netherlands have shot down proposals that “coronabonds” could jointly finance the fight against the Covid-19 outbreak, triggering vocal protestations from Italy, Spain and Portugal. Many economists warn that, without debt mutualization, the currency bloc is doomed. (…)

Unlike in the U.S. or the U.K., where government bonds are akin to money in that both are ultimately issued by the state, 18 nations in the eurozone need to repay their debts in a currency printed by someone else. The exception is Germany, which is seen by investors as being fully in control of the Frankfurt-based European Central Bank.

This is a big reason why U.S. fiscal stimulus measures are typically well received by financial markets—as was the case last week—whereas their Italian and Spanish equivalents often prompt investors to dump their debt. The result is that the Covid-19 fiscal packages announced by these worst-affected countries are so far much smaller than those of austerity-prone Germany.

Fixing this problem, though, doesn’t require coronabonds—only the ECB’s implicit promise that Italian and German debts are interchangeable. (…)

PANDENOMICS

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  • World food prices fell 4.3% from the prior month to 172.2 points in March, the United Nations’ Food & Agriculture Organization said. The drop to the lowest level since October was driven by demand contractions because of the pandemic.
Debt crisis awaits in emerging markets (Axios)

Many of the world’s poor and developing countries could begin defaulting on their bonds in the coming weeks as the coronavirus outbreak has led to massive outflows from emerging market assets and real-world dollars being yanked from their coffers.

The wave of defaults is unlikely to be contained to EM assets and could exacerbate the global credit crisis forming in the world’s debt markets.

Investors pulled a record-breaking $83.3 billion from EM securities in March, dwarfing outflows seen during previous “stress events” like the global financial crisis, the 2014 taper tantrum, and China’s devaluation scare of 2015, the Institute of International Finance says.

  • The outflows will be particularly damaging for emerging economies that are heavily reliant on foreign capital, especially as foreign direct investment has been drying up since early 2019 as a result of the U.S.-China trade war.

“The huge fiscal costs and humanitarian consequences of coronavirus could incentivize a slew of distressed governments to default on their debts,” Edward Glossop, emerging markets economist at Capital Economics, wrote last week.

  • The World Bank and IMF already have called for an immediate suspension of debt payments from International Development Association countries, which are the world’s poorest.
  • However, both Fitch and Moody’s warned that any restructuring of private-sector debt could trigger restrictive defaults.

(…) IIF’s data show total debt for 30 large EM countries reached $72.5 trillion in 2019, a 168% increase over the past decade.

  • EM countries also have around $5.5 trillion of debt coming due this year, with a sizable percentage held by investors in the industrialized world.

Emerging Market Currencies Crash

FILL HER UP!
As Saudi Arabia Boosts Oil Output, Some Tankers Have Nowhere to Go Saudi Arabia is ramping up its oil output, boosting production capacity and hiring new tankers to fight its price war with Russia despite the coronavirus pandemic’s erosion of crude demand.

The world’s biggest oil exporter is producing above 12 million barrels a day, at maximum capacity, and about two million barrels a day more than a month ago, Saudi officials said.

There are signs that some of this extra oil has virtually no place to go. Some of the vessels the kingdom has hired to help it increase exports are leaving ports filled with oil, but have no destination, casting doubts on whether the extra production will end up with customers and add to a global glut.

“There are loadings [from Saudi ports in the Persian Gulf] with no destination on them because we don’t have buyers,” a Saudi official said. (…)

The market is expected to be oversupplied in April by 25 million barrels a day, more than twice Saudi Arabia’s production capacity, according to consulting firm Rystad. (…)

There is also evidence that some of the extra oil Saudi Arabia is pumping isn’t leaving its shores at all. As of March 17, Kpler had detected a significant increase in oil inventories inside the kingdom with stocks at 74.4 million barrels, 8.2 million barrels above the 2019 average.

Saudi Arabia has refused overtures from other nations offering to broker oil-market peace. Last week, it nixed a proposal from Algeria—which holds the OPEC presidency—to convene a meeting to discuss the market situation, according to Saudi and OPEC-country officials. When Russia offered a three-way dialogue with the U.S. in recent weeks, Saudi Arabia refused.

Moscow hasn’t been in contact with Saudi Arabia regarding the oil market but is prepared to do so if necessary, Kremlin spokesman Dmitry Peskov said Wednesday.

(…) Trump also said he had talked recently with the leaders of both Russia and Saudi Arabia and believed the two countries would make a deal to end their price war within a “few days” – lowering production and bringing prices back up.

“I’m going to meet with the oil producers on Friday. I’m going to meet with independent oil producers also on Friday or Saturday. Maybe Sunday. We’re going to have a lot of meetings on it,” Trump told reporters at a media conference. (…)

The WSJ adds:

But the options are limited for Washington to help beleaguered U.S. oil-and- gas producers, and there are strong differences between major oil companies and some independent shale drillers about whether aggressive government actions are even necessary, making the prospect of any agreement challenging, some of the people said.

(…) Whiting Petroleum Corp., once the largest oil producer in North Dakota’s Bakken region, (…) has seen its market capitalization shrink to US$61.5-million from as much as US$15-billion at its peak in 2011, when investors were first discovering the burgeoning shale sector.

(…) corporate balance sheets in the U.S. energy industry tend to be heavier on debt, making them more vulnerable to the current crisis than Canadian companies on average, said Robert Fitzmartyn, analyst at Stifel FirstEnergy. (…)

MARKETS!

S&P 500 - Anatomy of a Decline

Valuation - MSCI World 12-Month Forward P/E

High five But don’t trust forward earnings here.

‘Highly Bullish’ Survey May Mean Stock Bottom Not In, RBC Says

Respondents to RBC’s survey of American stock investors were the most bullish since it began in early 2018, encouraged by what they see as attractive valuations, faith the Federal Reserve will continue to support equities and a belief that the economic damage from the coronavirus crisis will be manageable, strategists including Lori Calvasina said in a note Thursday.

“This surprisingly high level of bullishness supports our own view that we haven’t yet seen investor capitulation, echoing what we’ve seen in other data sets,” the strategists wrote. “We view capitulation as a necessary, though not sufficient condition for stock market bottoms in major drawdowns.” (…)

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Nearly two-thirds of the 185 institutional investors responding thought the S&P 500 Index would bottom at 2,100 or higher, according to the survey, which was conducted between March 25 and 31. (…)

Still, 57% of respondents expected a trough in the second quarter, compared with 19% who think the lows have already occurred, according to the report. Those bulls have company, with Morgan Stanley’s Mike Wilson saying the benchmark was unlikely to retest the March lows, and JPMorgan Chase & Co.’s John Normand writing that the market rout is probably past its worst point. (…)

Fed Temporarily Eases Capital Requirements for Big Banks Central bank aims to address strained conditions in Treasury market

(…) The banks are sitting on giant stockpiles of cash, U.S. government debt and other safe assets. By tweaking how the ratio is calculated, the Fed is effectively trying to engineer a swap. Remove Treasurys and central bank deposits from the calculation, the thinking goes, and banks should be able to replace them in the asset pool with loans to consumers and businesses.

The Fed made it clear that tweak is designed to give banks more flexibility to grow their assets rather than shrink their capital by increasing shareholder payouts. (…)

Bloomberg: Cruise line operator Carnival Corp. proved that Wednesday when investors clamored to buy a new $4 billion bond sale that pays interest of 11.5%, one of the highest coupons ever offered, particularly by an investment-grade rated company. Demand was so frenzied — as high as around $17 billion — that Carnival was able to cut the coupon and increase the original size of the offering by an extra $1 billion, according to people familiar with the situation.

Overall in March, U.S. investment-grade issuance topped $259 billion for a new monthly record, while European supply passed 135 billion euros ($148 billion), the most since 2016. Asia’s dollar market was quiet for most of the month, though Chinese internet search giant Baidu Inc. announced a deal to start April.

WHEN ZOMBIES MEET BLACK SWAN
WeWork troubles deepen as SoftBank pulls $3 billion tender offer

SoftBank Group Corp (9984.T) said it has terminated a $3 billion tender offer for additional WeWork shares agreed last year with shareholders, drawing threats of legal action and plunging the floundering office space company further into crisis. (…)

Watch the ripple effects…

THE DAILY EDGE: 1 APRIL 2020

Virus Update

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  • New Cases of COVID-19 In World Countries
  • Global cases top 874,000; deaths pass 42,200
  • U.S. Officials Project 100,000 to 240,000 Coronavirus Deaths President Trump gave his starkest warning to date about the pandemic that is coursing its way across the country, with a peak of infections in the U.S. still projected to be at least two weeks away.
  • ‘This could be a hell of a bad two weeks,’ Trump warns. “This is going to be three weeks like we’ve never seen before.”
  • QUOTE OF THE PANDEMIC: “For whatever reason, New York got off to a very late start, and we see what happens,” Trump said
  • China reported 130 people over the past day who were infected with the virus but didn’t have symptoms, signaling that the group of people who can spread the illness without being detected is sizable. The tally was the first daily count of so-called asymptomatic patients and established a new benchmark to measure the scope of the outbreak amid domestic and international criticism of official Chinese data.
  • China also reported 36 additional cases by the end of March 31, with all but one from abroad, according to the National Health Commission. Two had earlier been classified as asymptomatic. The country now has 81,554 confirmed coronavirus cases and a death toll of 3,312.
  • South Korea brought its new case numbers down sharply through rapid and strict measures, but neighbouring Japan is seeing its first marked increase in new infections as weeks of minimal restrictions begin to take their toll.
  • Italy Hopeful That Coronavirus Pandemic Is Slowing Down But authorities say it will take until after Easter to cut new infections enough to begin loosening the lockdown
  • Italian scientists tracing almost 6,000 infections around Lombardy, for instance, found nasal swabs of asymptomatic carriers had similar amounts of virus as those with symptoms, which could make them as contagious, according to a prepublication draft of their research. But they also said the small number of asymptomatic cases turned up in contact tracing may mean such carriers played a limited role in spreading the virus.
  • With Medical Equipment in Short Supply, 3-D Printing Steps Up in Coronavirus Crisis Health-care workers are 3-D printing face masks and nasal swabs needed for Covid-19 testing

  • (…) health officials and 3-D printing companies are sharing digital files
    which can be “printed” into potentially lifesaving equipment in a fraction of
    the time. (…) In Tampa, a team of radiologists, infectious disease experts and
    ear, nose and throat physicians finalized the design for the nasal swabs,
    printed samples and confirmed that they were safe to use in about a week, Dr.
    Decker said. It could typically take as long as a year to get a new medical
    product to that stage, she added.
    (…)

PANDENOMICS

Markit’s March Manufacturing PMIs are out today. Only China’s report is provided fully here. You can use the links to access reports from other regions/countries. I find them of lesser interest at this time. The US PMI will be out later this morning and linked here tomorrow.

The survey was conducted from March 12 to March 23.

After deteriorating at the quickest pace on record in February, business conditions faced by Chinese manufacturers were broadly stable in March. Production rose slightly as more firms reopened following widespread company shutdowns and travel restrictions in February amid the Coronavirus diseases 2019 (COVID-19) outbreak. However, the pandemic continued to weigh on demand conditions and supply chains, with total new work falling for the second month running and delivery times lengthening sharply.

Firms remained upbeat that production would increase over the next year, however, as a number of manufacturers expect demand to recover once the COVID-19 outbreak subsides.

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) rose from a record low of 40.3 in February to 50.1 in March, to signal a broad stabilisation of business conditions. This marked a strong improvement from the previous month when the nation imposed strict measures to stem the spread of COVID-19.

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After widespread company closures and travel restrictions led to a record drop in production in February, an easing of some measures led to a tentative rise in output at the end of the first quarter. However, demand conditions remained fragile, as highlighted by a second monthly fall in total new business. A number of panel members mentioned that firms had delayed or cancelled orders due to the ongoing COVID-19 pandemic. Furthermore, new export work declined solidly during March as nations around the world grapple with containing the spread of the virus.

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  • China is moving more quickly to open up. It has pushed to resume activities that were stalled nationwide since the end of January, reopening factories, malls and other public amenities as new cases of infection slowed sharply in recent weeks.
  • More than 95% of industrial companies in Hubei province with annual revenue of at least 20 million yuan ($2.8 million) have resumed work, Xin Guobin, a deputy minister at the Ministry of Industry and Information Technology, said Monday at a briefing. On average, 70% of these companies’ staff have returned to work. However, Xin said that besides persistent logistical problems posed by travel restrictions, industrial chains have been disrupted as some companies resume work later than others. (Caixin)
  • China’s housing market rebounds as sales triple on pent-up demand

(…) Transactions in at least eight large cities – Shenzhen, Chengdu, Fuzhou, Hangzhou, Huaian, Yangzhou, Jiaxing, Shantou – indicated buyers have returned in recent weeks, with volume surpassing the average levels in the final quarter of 2019, according to China Real Estate Information Corporation (CRIC).

The rebound comes as a relief to the industry after measures to contain the coronavirus outbreak kept buyers away and almost froze the market. Developers have since offered discounts to boost sales and avert a liquidity crunch as factories resumed production and lockdowns eased in signs the health crisis is abating. (…)

In the week to March 22, sales in tier-1 and tier-2 cities were still 50 per cent and 24 per cent below their year-ago levels, according to the consultancy, despite developers resorting to price discounting and a record number of supporting policies. (…)

Mr. Trump called Tuesday for a possible fourth congressional coronavirus relief package to include significant investment in infrastructure, citing an opportunity in low interest rates.
Economists Are Losing Hope in a ‘V-Shaped’ Post-Virus Recovery
Here’s what a team of Citi analysts say will save the global economy

Citi’s global health-care, strategy and economics teams say governments and health-care providers will be able to supply 60% of U.S. individuals of working age with antibody tests by the end of April, and 95% by the end of May.

Individuals with elevated antibody levels will then be able to return to the workforce with minimal risk of reinfection or transmission, they say. How many? Such tests could enable between 20,000 and 400,000 of sidelined U.S. workers with previous exposure to COVID-19 to cease lockdown and immediately and safely return to work. Soon after, 90 million workers, representing 60% of the U.S. workforce, could return.

“While potential therapeutic strategies for COVID-19 seize headlines, we believe diagnostics rather than therapeutics are far better positioned to materially change the economic and even medical outlook for the current COVID-19 pandemic,” say the analysts.

There are, of course, important caveats, such as the false positives that the tests produce, and that having detectable antibodies doesn’t guarantee a person is immune.

Força Brazil?

Geopolitical Futures questions the Brazilian president’s economy-first approach:

Known for his contrarian and uncouth behavior, Brazilian President Jair Bolsonaro frequently comes under intense scrutiny for his decisions. The latest controversy stems from his refusal to shut down economic activity in response to the coronavirus outbreak. Many governments face this decision but few have opted for Bolsonaro’s economy-first approach. The policy hasn’t been well received at home: Governors have lined up against him, media outlets have raised the idea of removing him from office, and even Facebook removed a video of Bolsonaro speaking to street vendors on the grounds that the content violated misinformation standards related to the virus. But however controversial it may be, there is a method to Bolsonaro’s apparent madness. Brazil’s economy is simply too weak to deliberately close down for a prolonged period of time. (…)

Under these circumstances, Bolsonaro’s effort to preserve what’s left of Brazil’s economy at any cost does not seem unfounded. At present, the economic pause in parts of Brazil has been in place for only a couple of weeks. During this time, the government has worked to better position the economy to stay afloat. The calls for vertical isolation demonstrate that the government believes it is reaching the limits of its ability to save the economy from severe recession if more economic activity is not restored soon. Bolsonaro, of course, is not alone in being trapped between two bad policy options, and many leaders will soon have to decide when measures to protect public health no longer outweigh the economic cost. When this shift will occur depends on the economic resilience of the country in question, and Brazil came in with a weak hand already half-played.

Pain in the Oil Patch Borrowing from the Fed is the best of mostly bad rescue ideas.

The WSJ editorial board reviews available options:

(…) A better response is diplomacy to convince Saudi Crown Prince Mohammed bin Salman to stop his game of chicken with Russia, which is also undermining national oil producer Aramco and his strategy to modernize the Kingdom’s economy. Secretary of State Mike Pompeo has tried but so far failed.

An especially bad idea would have the Texas Railroad Commission impose production quotas, which the state last did in the 1970s. But this would punish the most efficient producers and prop up the weaklings. Quotas would be hard to enforce and violate the property rights of producers, leaseholders and mineral-rights owners. Texas can’t control global oil prices in any case, and state quotas would encourage higher production in other regions like the Bakken. Quotas would also signal to Saudi Arabia and Russia they are winning the price war. (…)

A better idea is to let producers that were solvent before the virus borrow against good collateral from the Federal Reserve’s new liquidity vehicles that are open to all comers. This would ensure some market accountability as companies with higher-valued assets and better balance sheets could ride out the Covid-19 shock. U.S. producers have shown they are resilient and should rebound once the coronavirus passes.

(…) Shale wells’ high initial pressure means that there is a strong likelihood that companies can shut them in and later resume production with limited lost capacity, Courvalin said. That’s not the case for many more mature wells that face being shut-in amid low prices and storage and logistics constraints, with production being potentially lost forever, he said. (…)

Russia doesn’t plan to increase crude production given the huge oversupply in the global market, according to a government official, a potentially dovish signal in the price war with Saudi Arabia.

But Russia isn’t yet holding talks with Saudi Arabia on the situation, he said, speaking on condition of anonymity to discuss matters that aren’t yet public. (…)

The Russian official said it made no sense for producers to boost output in the current situation. (…)

On Tuesday evening in Washington, President Donald Trump said the U.S. would meet with Saudi Arabia and Russia with the goal of staunching the historic plunge in oil prices.

Trump, said he’s raised the issue with Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman. “They’re going to get together and we’re all going to get together and we’re going to see what we can do,” he said. “The two countries are discussing it. And I am joining at the appropriate time, if need be.”

U.S. Energy Secretary Dan Brouillette and Novak, his Russian counterpart, had a “productive discussion” on Tuesday and agreed to “continue dialog among major energy producers and consumers, including through the G20,” the Department of Energy said in a statement.

The Bear Rally: market churn, not a market turn

Goldman Sachs:

(…) But despite the scale of the policy support, which we agree is a necessary condition for markets to rebound, we think it is too early and the level and valuation of equity markets still too high. (…) current market levels do not reflect the scale of EPS decline that we are forecasting. For example, we expect falls of 33% in the US and 45% in Europe.

(…) many of the valuation metrics no not look like crisis-level lows. (…) Some valuation metrics, such as dividend yield, do look cheap, but this may not be enough. Our US strategists forecast S&P 500 dividends will decline by 25% to US$44 per share in 2020. Dividends actually rose by 9% during 1Q. However, they expect a wave of dividend suspensions, cuts, and eliminations will result in dividends declining by 38% during the next nine months so on a full-year basis dividends will be 25% below the level of 2019.

In Europe, meanwhile, the French government has argued that companies in which the government has stakes should not pay dividends, and the government will vote against them during the AGM, while Norway has required financials to stop paying dividends. The German government may also impose restrictions on payouts by companies receiving state aid. Given that 10 of the 50 Euro STOXX 50 companies have government stakes, an apparently high dividend yield may not offer much support for investors.

The timing of any recovery in economic activity is also unclear. (…)

Our US strategists have shown that bear market rallies are quite common, particularly during the bear market of 2008 (…). For example, between September and December 2008, the S&P 500 experienced six distinct bounces of 9% or more, with some rallies as large as 19%, during the course of between one and six trading days. But the market low did not occur until March 2009, when the pace of economic contraction began to slow. (…)

Asset prices could fall further as the range of negative outcomes from the coronavirus pandemic is much wider than during the global financial crisis, according to Oaktree Capital Group co-founder Howard Marks. DoubleLine Capital Chief Investment Officer Jeffrey Gundlach says the S&P 500 Index is likely to reach new lows in April, with economic uncertainty further riling investors.

A gauge of global equities sank 22% in the first quarter, the most since 2008, as worries about an all but certain recession swept through markets despite governments worldwide pumping trillions to prop up economies and central banks undertaking emergency interest-rate cuts. Driven by some of the lowest oil prices since the early 2000s, the amount of distressed bonds surged to the highest level since April 2009, quadrupling in less than a week to nearly $1 trillion, according to data compiled by Bloomberg.

“I think we’re going to get something that resembles that panicky feeling again during the month of April,” Gundlach said Tuesday during a webcast on the market and economic impact of the coronavirus pandemic. “We will get back to a better place, but it’s just not going to bounce back in a V-shape back to January of 2020.” (…)

In a note to clients Tuesday, Marks said assets on Friday were priced “fairly” for the optimistic case, but “didn’t give enough scope for the possibility of worsening news.” (…)

[Jim] Rogers expects “the worst bear market in my lifetime” in the next couple of years, he said in an interview. His concerns have grown as the debt of businesses afflicted by lockdowns and travel bans comes under the the spotlight. The impact of the virus on economies “will not be over quickly because there’s been a lot of damage. A gigantic amount of debt has been added,” he said. (…)

Read Howard Marks latest memo Which Way Now?