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: 31 MARCH 2020

Did you miss: BEAR ESSENTIALS?
Virus Update

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  • Cases world-wide topped 801,000, while the death toll neared 39,000.
  • US reports more than 500 deaths for first time
  • US confirms largest one-day case jump
  • Russia reports jump in cases, deaths
  • Maryland, Virginia and DC all locked down
  • The head of Germany’s public health authority said he expects the coronavirus pandemic to continue for several more months and the nation’s death rate to rise. The current death rate in Germany of 0.8% is relatively low, partly because extensive testing was conducted early and included many of the less severe cases, Robert Koch Institute President Lothar Wieler said. That means there is a time lag and the rate is likely to rise, he said.
  • Italy is discussing an extension of lockdown measures into May as European countries fight to contain the spread of the coronavirus, even as the outbreak shows signs of slowing.
  • Dr. Fauci warns he fears virus will return this fall
NYU Langone Tells ER Doctors to ‘Think More Critically’ About Who Gets Ventilators NYU Langone Health, one of the nation’s top academic medical centers, told emergency-room doctors that they have “sole discretion” to place patients on ventilators and institutional backing to “withhold futile intubations.”
Gun Stores Ruled Essential Businesses During Coronavirus Shutdowns
An FDA Breakthrough on Treatment The agency finally approves anti-malarial drugs for Covid-19.

(…) The malaria drugs hydroxychloroquine (HC) and chloroquine have been around for more than five decades, so their safety is well documented. New evidence suggests that they could also help fight the novel coronavirus, as op-eds by Dr. Jeff Colyer on these pages have reported. Both chloroquine and HC in vitro block the replication of RNA viruses like the novel coronavirus. (…)

Notably, a study in France of 80 coronavirus patients given HC and azithromycin, an antibiotic for upper respiratory infections, documented “a clinical improvement in all but one 86 year-old patient who died, and one 74 year-old patient still in intensive care unit.” Doctors have also reported anecdotal evidence of the malaria drugs’ efficacy.

More study is needed, and a clinical trial of the two drugs involving 1,100 patients started last week in New York. But the FDA’s emergency authorization will let more doctors prescribe the drug outside of clinical trials, and hospitals will be required to maintain data on drug dispensation and patient outcomes. This will allow a larger review than possible in a controlled clinical trial. (…)

China Excluded Infected People With No Coronavirus Symptoms China said for the first time that it excluded people who were infected with the novel coronavirus but haven’t shown symptoms from its national tally, as questions arise about its accounting of the infectious disease.

On Tuesday, China said there are at present 1,541 asymptomatic carriers of the coronavirus in the country. Of that group, 205 people recently returned from overseas.

Chang Jile, a top Chinese health official, said the country will—beginning Wednesday—start reporting the number of asymptomatic carriers. He said this will be done “in order to respond to society’s concern in a timely manner.”

Mr. Chang said all asymptomatic carriers will be quarantined for 14 days and released only after they are medically cleared. (…)

China’s National Health Commission reported 48 new infections on Monday, all people who were recently abroad, taking the country’s total to 81,518.

This week, some high-school students in Shaanxi and Jiangsu provinces and the Inner Mongolia autonomous region returned to classes following more than a month off. An official in China’s education ministry said students are required to wear masks inside classrooms. Schools elsewhere in the country will reopen when the coronavirus situation is brought under greater control, necessary precautions are in place and it is safe for students and teachers to gather again. (…)

South Korea’s education ministry said Tuesday it would further delay the start of its new school year—which was originally scheduled to reopen in early March to—April 9. It was the fourth time that the start date was pushed back. (…)

PANDENOMICS
New Fed Data Point to Economic Pain and Worrisome Ebbing in Inflation

On Monday, the New York Fed launched a “Weekly Economic Index” aimed at capturing where the economy is in near real time, and extrapolated historical levels based on past data. In its first outing, the index showed “developments in the past week saw the index fall to a level unseen since 2008,” during the heat of the financial crisis.

The report’s authors note that their index seeks to show what a given quarter’s activity would look like if it persisted for a year. The index, which had been indicating economic growth on either side of 3% since about 2017, plunged in nearly a straight line and now reflects a contraction of about 3.97%.

Monitoring Real Activity in Real Time: The Weekly Economic Index

The New York Fed index’s authors said their new weekly index is based on a mix of job, consumer-confidence, steel-production, energy-use and electric-utility data.

A separate report from the San Francisco Fed warned uncertainty generated by the crisis could wash away already modest inflation impulses in the economy. This uncertainty may “lead to a persistent increase in the unemployment rate of roughly 1 percentage point, while simultaneously reducing the inflation rate by as much as 2 percentage points and bringing the interest rate close to its zero lower bound.”

The San Francisco Fed report warns its current findings “will surely understate the overall impact of the current pandemic” because new negative effects are still playing out, leading it to say “the pandemic is likely to weigh on the economy persistently, depressing economic activity and inflation well beyond the near term.” (…)

Goldman Sachs Group Inc. expects the U.S. economy to experience a far deeper slump than previously anticipated. The world’s largest economy will shrink an annualized 34% in the second quarter, compared with an earlier estimate of 24%, economists led by Jan Hatzius wrote in a report. Unemployment will soar to 15% by mid-year, up from a previous forecast of 9%.

The economists, however, now expect a stronger recovery in the third quarter, with gross domestic product expanding 19%.

China’s Coronavirus-Battered Economy Shows Tentative Signs of Renewed Life Manufacturing activity rebounded sharply from record lows after the virus appeared, but analysts say the economy is still far from pre-outbreak levels

China’s official manufacturing purchasing managers index jumped to a reading of 52.0 in March from a record low of 35.7 in February, the National Bureau of Statistics said Tuesday. (…)

A separate nonmanufacturing PMI, also released Tuesday, showed service and construction activity similarly rebounding in March to 52.3 from 29.6 in February. (…)

The manufacturing PMI’s subindex for new export orders, while rising to 46.4 in March from 28.7 in February, remained in contraction territory, though the subindex measuring factory production climbed to 54.1 from 27.8 in the previous month. (…)

China’s statistics bureau cautioned that the sharp rebound in the manufacturing PMI reading didn’t mean economic activity had returned to pre-virus levels. The bureau said the result merely reflected the resumption of work after more than a month of forced idleness. (…)

  • Using Wind’s financial database, the FT has compiled a weighted index of six daily, industry-based data series.
Chart showing Covid-19's impct on the Chinese economy. FT China Economic Activity index.
  • Eurozone CPI Fell Steeply in March

The European Union’s statistics agency Tuesday said prices were 0.7% higher than a year earlier, down from a 1.2% rate of inflation in February. That slide was largely due to energy prices, which were 3.1% lower than in February, and 4.3% down on a year earlier.

Excluding energy and other volatile prices, the core rate of inflation fell much more modestly, to 1% from 1.2% in February.

The only important stuff from these February data is that Americans were already in saving mode:

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Oil-Price War Batters Poorer OPEC Members With Saudi Arabia preparing to flood oil markets, countries including Iraq and Venezuela are cutting expenditures even as they confront the coronavirus.

(…) Oil and gas income for many members of the Organization of the Petroleum Exporting Countries is set to fall by 50% to 85% in 2020, reaching the lowest level in more than two decades, according to an International Energy Agency analysis. “This is likely to have major social and economic consequences, notably for public sector spending in vital areas such as health care and education,” the agency said. (…)

(…) The gap has opened so quickly that producers can’t shut down in time and two of the largest are ramping up on purpose. What is more, analysts at Citigroup point out that inventories have never been filled at more than 4.7 million barrels a day in any given month—a universe away from the 20 million barrels of excess supply being daily. In the U.S., pipeline operators are anxious that customers will leave them stuck with crude that nobody actually wants at the other end. (…)

The companies predicted that spot oil prices would fall below $10 a barrel unless the inventory situation is solved. They may be right, and they may also be too late.

IHS Markit expects as much as 10 million barrels a day of world oil production to be cut or shut-in from April through June as storage fills up and demand craters due to the Covid-19 pandemic.

Output is projected to fall in every region of the world, with OPEC members, Russia, and the U.S. among the hardest hit, the consultancy said in a note. Oil demand in the second quarter is expected to decline by 16.4 million barrels a day compared with the same period last year. (…)

The consultancy still expects that the price of Brent futures will fall to around $10 a barrel in April and some producers will experience negative prices, where they pay the buyer to take the crude. (…)

Russian President Vladimir Putin and his US counterpart Donald Trump agreed during a phone call on Monday that the current situation on world oil markets suited neither, the Kremlin said on Tuesday.

Trump and Putin agreed during their call to have their top energy officials discuss slumping global oil markets, the Kremlin said on Monday, as Trump called Russia’s price war with Saudi Arabia “crazy.”

On Tuesday, the Kremlin said the two men had agreed to have further consultations on oil markets, but had not fixed a date for more talks.

“Undoubtedly, there is an understanding that the current oil market situation is not in the interests of our countries,” said Kremlin spokesman Dmitry Peskov.

Saudi Arabia plans to boost its crude oil exports to 10.6 million barrels per day starting from May due to burning less oil for power generation at home and lower domestic consumption, a Saudi energy ministry official said on Monday. (…)

(…) A number of Norwegian fields would be profitable even at $10 per barrel, Bru said, adding that any unilateral action by Norway would have no effect on prices.

While Norway has not entered into formal agreements with OPEC to curb output, it did at some points in the 1990s and early 2000s cut its production in tandem when prices fell.

“It’s been done earlier, in Norway, out of regard for good resource management but there’s nothing Norway could do alone to balance the market,” said Bru when asked about output cuts, adding that Norway produces around 2 percent of global oil output.

Hidden Chinese Lending Puts Emerging-Market Economies at Risk More than $200 billion in Chinese overseas lending hasn’t shown up in official data in recent years, allowing emerging markets indebted to China to also borrow from other investors. Now borrowers are at risk of drowning in debt and investors face the reality that China may be ahead of them in collecting.

(…) Exactly how much China has lent is kept under wraps by state-run banks such as China Development Bank and the countries receiving the loans. China’s opaque lending can lead investors and organizations to underestimate the risk they are taking when they make loans to these countries or buy their bonds, leading them to lend at rates that might be too low given the potential losses. These include global investors and multilateral lenders such as the World Bank.

Investors “have to be very, very leery of what’s going on,” said Carmen Reinhart, a Harvard University economist and former IMF official who has studied China’s lending practices.

Ms. Reinhart, one of the most influential U.S. economists on financial crises, was part of a team that over the last two years pieced together a data set of Chinese loans. A resulting study by Ms. Reinhart and economists Sebastian Horn and Christoph Trebesch concluded more than $200 billion of Chinese overseas loans–around half of all its cross-border lending–was hidden from public view. Around a dozen of the poorest countries owed debts to China equal to 20% or more of their annual GDP, the research estimated. (…)

“This is scary stuff.”

Nigeria, Africa’s largest economy and which depends heavily on oil exports, was one such recipient. Official statistics have presented China as a modest financier for Nigeria in recent years. By the end of 2017, Nigerian government statistics show external debt owed to China was under $2 billion.

In reality, the total debts Nigeria owed to China were more than double that amount, according to the research. Chinese loans have financed infrastructure such as a light-rail project for the capital city of Abuja. Last year, China also committed $629 million in financing for the country’s first deep-sea port. Nigeria’s government is trying to borrow an additional $17 billion from the state-controlled Export-Import Bank of China. (…)

Parallels to the 1980s debt crisis in Latin America—which spurred a “lost decade” of growth for Mexico and others—concern economists today. (…) Some economists say China’s opaqueness in its lending is reminiscent of the syndicated U.S. bank loans that crippled Latin America decades ago. (…)

REBALANCING THE IMBALANCE

The severity and swiftness of the downturn in the stock market happened faster than any other time, including the Great Depression, and as a result, [for instance], the 60-per-cent stock, 40-per-cent bond portfolio that investors had as their ideal strategic weights has now become a 50/50 portfolio. That is not just true for individual investors but it’s true for large institutional investors and pension funds.

We are going to be hitting the end of the quarter and a lot of these funds are going to be looking to rebalance. Portfolios have drifted incredibly fast away from strategic weights and it makes sense to either, if there is cash, devote it to stocks – that is one avenue – or potentially take money out of the bond market and put it to work in stocks.

DIVIDENDS
Bank dividend payments should be suspended Balance sheets must be reinforced to help cope with disruption

(…) Banks will bear a large part of the burden that will come from the economic disruption of the coronavirus pandemic. They will need to support lending to households, businesses and large corporates. To weather the storm, they must build their balance sheets into fortresses and use every means to shore up capital.

The banking sector already serves a quasi-public function. It provides public infrastructure: the money supply and the payment system. And it is intertwined with the state through central banks and deposit insurance. (…)

Goldman Sachs:

We forecast S&P 500 dividends will decline by 25% to $44 per share in 2020. Dividends actually rose by 9% during 1Q. However, we 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. The dividend payout ratio will equal 40% this year based on our recently reduced EPS growth forecast of -33%. Looking ahead, we expect S&P 500 dividends will grow by 3% in 2021 and rise by 12% in 2022.

The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act stipulates that any companies that borrow money from the federal government may not repurchase stock, pay a dividend, or make any other capital distributions until 12 months after the loan is repaid in full. However, the bill does not restrict dividends or share repurchases by firms that do not accept government assistance.

Using history as a guide, dividend drawdowns typically result in a 6% peak-to-trough decline over a period of 3 quarters and take 6 quarters from the trough to recover to the prior high. Of 15 S&P 500 dividend drawdowns since 1900, the cuts following the Great Depression were both the sharpest and required the longest time to recover. S&P 500 DPS fell by 55% during a period of 11 quarters and took 61 quarters from the trough to recover to the prior high. During the Financial Crisis dividends fell by 24% over 5 quarters and took 10 quarters from the trough to recover to the prior high.

14. We forecast a sharp decline in S&P 500 DPS. Data available on request.

(…) Dividends are considered sacrosanct in Canadian income investing circles in normal circumstances, but a mass suspension may be unavoidable in an enduring pandemic.

Since the sell-off took hold, recreational vehicle maker BRP Inc., bus manufacturer NFI Group Inc. and two restaurant royalty trusts – Boston Pizza Royalties Income Fund and SIR Royalty Income Fund – have all cut or suspended their dividend payouts.

On Monday, Inter Pipeline Ltd. announced it was slashing its dividend by more than 70 per cent, which will save the company $525-million on an annualized basis. “We are currently in a unique and very challenging business environment,” Inter Pipeline’s chief executive officer, Christian Bayle, said. (…)

The biggest banks have reliably paid quarterly distributions for decades, even as payout ratios occasionally soared during tough times, including during the financial crisis. About 35 per cent of dividend payers in the S&P/TSX Composite Index cut their payouts in 2008, according to FactSet, but the big banks were not among them.

Even if the banks run into regulatory issues related to their capital levels, RBC expects that the banks would prefer to raise cash by issuing more shares rather than cutting their dividends. (…)

Dividends from Canadian insurance companies also look sustainable, according to RBC, given insurers’ strong capital ratios, low leverage and a sector-wide commitment to the payouts after being tarnished by Manulife Financial Corp.’s dividend cut in 2009. (…)

Germany went even further, asking listed companies to pause dividends as a condition for receiving government support, according to a Bloomberg report. Details are still emerging about Canada’s wage subsidy program, which will cover up to 75 per cent of worker salaries at companies affected by the pandemic. But there’s no indication that dividends might factor into whether a company can qualify. (…)

Re Inter Pipeline dividend cut, NBF reveals the naked swimmer in this receding tide:

Following a series of strategic missteps since late 2017, including 1)
choosing to go it alone on the $3.5 bln Heartland Petrochemical Complex
(HPC) without having contracts firmed up; 2) remaining unhedged on
NGL frac spreads; and 3) failing to close on a sale of the European
Storage business; IPL has announced a 72% dividend cut to $0.48/sh
annually (was $1.71/sh) versus our -50% forecast, alongside the
suspension of the DRIP, commencing with the May dividend payment.

THE DAILY EDGE: 30 MARCH 2020

Pointing up Posted Sunday March 29: BEAR ESSENTIALS
Virus Update

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Slowing a tiny bit but probably because of late and slow testing:

Number of specimens tested for SARS CoV-2 by CDC labs (N=4,750) and U.S. public health laboratories* (N=125,653)

Number of specimens tested for SARS CoV-2 by CDC labs and U.S. public health laboratories

§ Data during this period are incomplete because of the lag in time between when specimens are accessioned, testing is performed, and results are reported. Range extended from 4 days to 7 days on March 26.

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The chart above is one of many FT charts and data freely available here.

  • Cases world-wide topped 732,000, while the death toll surpassed 34,600.
  • In most western countries case numbers have been increasing by about 33 per cent a day, a sign that other countries may soon be facing the same challenge as Italy.
  • U.S. Deaths From Virus Could Be as Many as 200,000, Fauci Says
  • Dr. Deborah L. Birx, the lead coordinator of the White House’s coronavirus task force, said that even with precautions and restrictions the government’s model estimated “between 80,000 and 160,000, maybe even potentially 200,000 people succumbing” to Covid-19, the disease caused by the coronavirus. She added that without any precautionary measures, the same models projected that 1.6 million to 2.2 million Americans could die from complications of the virus.
  • The White House is extending social-distancing guidelines for another 30 days through the end of April. “Nothing would be worse than declaring victory before the victory is won,” Trump said Sunday.
  • Even Mr. Trump, who for weeks sought to downplay the seriousness of the crisis, struck a decidedly more somber note over the weekend. He also revealed that a personal friend was sick. “He’s a little older and he’s heavy,” Mr. Trump said. “But he’s a tough person, and we went to the hospital and a day later he’s in a coma.” “The speed and the viciousness, especially if it gets the right person, it is horrible,” Mr. Trump added.
  • Trump declares D.C. a ‘major disaster’ area (Winking smile Some say it’s been for a while…)
  • Officials in South Korea, widely praised for its handling of the outbreak, warned that they were seeing a sustained increase in infections in and around Seoul. The country has seen a steady rate of new cases for almost two weeks, with roughly 100 new cases each day since March 11. The outbreaks in the Seoul region have been linked to a call center and a church that held services in violation of the government’s social distancing policy.
  • Italy, with nearly 11,000 deaths, saw some hopeful signs as the mortality rate dropped for a third day in a row — from 969 to 889 to 756 — and new patients requiring critical care dropped to 50, from 124.
  • Spain also announced 812 new deaths, bringing its national total to 7,340 — more than twice the official death toll reported by China, but still less than Italy’s.
  • The total number of confirmed cases in Spain rose to 85,195 by Monday, whereas China had reported 82,356 by Sunday, according to the World Health Organization. New cases in China remain rare, despite concerns over imported infections and potential underreporting of asymptomatic carriers of the virus.
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  • Doctors Say It’s Only a Matter of Time Before Virus Sweeps India
  • Africa Is Two to Three Weeks Away From Height of Virus Storm
  • Abbott Laboratories shares rose 18% in U.S. pre-market trading after the company introduced a coronavirus test that can tell if someone is infected in as little as five minutes, and is so small and portable it can be used in almost any health-care setting.
  • The two tests that will help to predict spread of Covid-19
  • A consortium of manufacturing giants, including plane maker Airbus, defense giant BAE Systems and engine-maker Rolls-Royce Holdings, have agreed to build more than 10,000 ventilators amid a jump in demand from the spread of the new coronavirus outbreak. The VentilatorChallengeUK group, which also includes the U.K. operations of Ford Motor, packaged-goods giant Unilever, along with various Formula 1 teams, have agreed to combine forces to accelerate the production of a new ventilator design that can be assembled from parts in current production. Work is set to start this week.
  • Smiths Group said it is contracting with the U.K. government to produce ventilators needed to treat critically ill coronavirus patients. The company plans to increase production to thousands of units a month from hundreds.
  • Dyson announced last week it had developed a new ventilator and received an order from Britain for 10,000 units — but the government later said its purchase would depend on regulators approving the device.
  • Canadian companies retool to meet demands on front lines of pandemic
  • Authorities in Moscow ordered an indefinite citywide quarantine, compelling 12.7 million residents to remain in their homes.
  • In Belarus, the authoritarian President Aleksandr G. Lukashenko called the coronavirus “nothing else but a psychosis” and has joked that a shot or two of vodka a day will poison the virus, advice rejected by medical experts.
  • President Jair Bolsonaro of Brazil has also argued that concerns over the pandemic are overblown. He repeated his argument that the harm to the economy from efforts to curb its spread can be worse than the pandemic itself.
Outbreak at Washington state choir practice suggests virus had airborne spread

On March 10, 60 members of the Skagit Valley Chorale attended practice. Since then, two have died, three have been hospitalized, and 45 have either tested positive or shown symptoms of covid-19, the paper reported.

The outbreak was notable given that the singers, wary of the virus’s growing death toll in Seattle, were careful to use hand sanitizer, avoid physical contact and keep a distance from one another. None appeared to be ill at the time.

County health officials have concluded that the virus must have been transmitted through the air by singers who were asymptomatic, the Times reported. If so, it would bolster the findings of researchers who say that the virus can be transmitted through microscopic aerosols, in addition to the much larger respiratory droplets that are emitted when someone coughs or sneezes.

Chinese cinemas told to close just a week after reopening China Film Administration issues notice on Thursday as government seeks to prevent a new wave of Coivd-19 cases, after locally transmitted infection is reported in Zhejiang

(…) The infection was one of 55 reported across China that day, but the only one that was not imported, the report said. (…) While there have been sporadic cases of individual businesses being ordered to close soon after being allowed to reopen, a nationwide ban on an entire industry is unusual.

Earlier this month, a hotpot restaurant chain in Liaoning province was ordered to close all of its outlets just three days after being told it could reopen, when three new Covid-19 cases were found in the city of Dandong, according to Canyin88.com, which monitors the industry.

(…) In China’s official count of confirmed coronavirus cases, people who test positive but show no symptoms are excluded; they are added to the tally only if they start to feel sick. (…)

The Caixin commentary said revealing the scale and spread of asymptomatic cases was important for research and informing the public of continuing possible risks.

China has reported several days with no new cases outside those brought in from overseas. The case reported in Henan on Sunday suggests that the virus continues to spread among people who might not be included in the public tally. (…)

Caixin reported last week that thousands of urns were sent to funeral homes in Wuhan, the center of the outbreak, in recent days, raising questions about whether the death toll in the city could be higher than the official figure of 2,547.

Experts disagree on threat posed by asymptomatic coronavirus carriers

(…) Zhong Nanshan, one of China’s leading respiratory disease specialists, said in an interview with state broadcaster CGTN on Sunday that although asymptomatic virus carriers were “very infective because there is very high viral load in their upper respiratory tracts”, he did not think there were many of them. (…)

But not everyone is as optimistic as Zhong.

Speaking at a symposium in Shanghai on Friday, Zhang Wenhong, the head of the city’s Covid-19 clinical expert team, said that asymptomatic carriers “now pose the biggest risk” among imported cases of infection, of which Shanghai had reported more than 100.

“Asymptomatic coronavirus carriers usually have strong immunity and show no symptoms for more than two weeks despite being infected,” he said. (…)

Wang Xinhua, president of Guangzhou Medical University, said it was still too early to say what threat asymptomatic carriers posed.

“Confirmed cases with no symptoms do exist, but we don’t know the specific number and the workings and characteristics of this [type of] carriage are not clear,” he said.

“I think [in such people] the viral load is low and the virulence is weakened. If not, they would show symptoms.” (…)

PANDENOMICS
The Financial Times China Economic Activity Index

Using Wind’s financial database, we have compiled a weighted index of six daily, industry-based data series. The measures of the domestic economy include real estate floor space sales, traffic congestion within cities, and coal consumption in major power plants. Trade activity is represented by container freight.  Two other indices, which have been given a lesser weighting, provide social and environmental context: box office numbers from Chinese cinemas – a good proxy on consumer activity – and air pollution in the ten largest cities.

Chart showing Covid-19's impct on the Chinese economy. FT China Economic Activity index.

After Three Stimulus Packages, Congress Already Prepping No. 4 Legislators are already roughing out the contours of yet another emergency-spending package to try to keep the crisis from turning into a 21st-century Great Depression.

Legislators from both parties, administration officials, economists, think tanks and lobbyists are already roughing out the contours of yet another emergency-spending package—perhaps larger than the last—to try to keep the coronavirus crisis from turning into a 21st-century Great Depression. Many expect the debate to begin in earnest by late April.

“There’s talk of a multi-trillion-dollar program, given the size of the shutdown,” says Stephen Moore, a fellow at the conservative Heritage Foundation. “There’s a general recognition that we need something big to get some juice into the economy,” adds Mr. Moore, an outside economic consultant to the Trump administration and some congressional Republicans.

The ideas being floated include extending last week’s package to make the benefits last longer, as well as plugging in likely holes in the hastily assembled bill. One item in particular cited by both President Trump and Democratic leaders is a desire for more money to shore up state government budgets collapsing under lost tax revenues and new spending demands.

A common theme from economists and legislators across the political spectrum: The latest measure was mainly about keeping U.S. commerce on life support while it endures a medically induced coma. That is, paying businesses and workers revenues and wages lost during the shutdown. A next phase would likely pivot from stabilization to stimulus—providing the patient a robust regimen of physical therapy in an attempt to get the economy back to full health. (…)

“My guess is that this bill won’t wear well over time, and Congress isn’t going to be inclined do another big package,” says Andy Laperriere, a Washington policy analyst with Cornerstone Macro, an investor advisory firm. “There will be fraud, companies getting money going into bankruptcy, things that people on the left and right won’t like.” (…)

“The left is going to want to do infrastructure, welfare payments and food stamps,” says Mr. Moore. “Our side will want to do tax cuts and deregulation.” (…)

Fed Considering Additional Support for State, Local Government Finance Central bank hires former Treasury official to assist with potential municipal-lending program

(…) Democratic lawmakers have made support for city and state borrowing a priority in recent legislative talks, and the latest bill directs the Treasury secretary to seek a Fed lending program for municipal finance. (…)

Under its governing law, the Fed can’t directly buy corporate debt, and it is limited to purchasing municipal debt of six months or less. But it can work around these restrictions by creating lending facilities that lend or purchase debt, subject to approval of the Treasury secretary. (…)

The Fed and Treasury brainstormed ways to support hard-hit state and local treasuries after the 2008 financial crisis, but opted against doing so. (…)

“There is a real reluctance to blur the line between the federal government and the state and locals. You start going down that road, it’s hard to know where to stop.”

Bloomberg’s John Authers:

(…) when it comes to monetary bazookas, the Fed hasn’t gone anything like as far as the European Central Bank or the Bank of Japan in expanding its balance sheet. Now that it is effectively backstopped by the Treasury, it could go on quite a buying spree — which would, again, tend to weaken the dollar.

relates to Oil's Done. Watch the Dollar as the Key Virus Gauge
Coronavirus Heightens Risk of Emerging-Market Defaults About 18 countries’ dollar debt is trading at distressed levels, up from four nations at the start of the year

An unprecedented withdrawal of capital from emerging markets is threatening to create a wave of debt defaults as governments struggle with the double whammy of falling oil prices and the rapidly spreading coronavirus outbreak. (…)

Governments, already saddled with the high medical costs and the cost of shoring up their economies, could face a public backlash if they try to repay international bondholders when their local populations are suffering, Mr. Glossop said. (…)

The spread of coronavirus across Africa, South Asia and Latin America is likely to weigh heavily on the regions’ overstretched public-health systems. Measures to contain the outbreak, such as curtailing travel and business activity, will pose a crippling burden on the weakest economies, analysts said. For oil producers, who have seen the price of crude tumble by more than half to below $30 a barrel, that is a double whammy. (…)

The ICE Dollar Index, which tracks the dollar against a basket of currencies, this month climbed to its highest since January 2017. (…)

Oil Plummets to 17-Year Low as Broken Market Drowns in Crude

(…) The kingdom said on Friday that it hadn’t had any contact with Moscow about output cuts or enlarging the OPEC+ alliance of producers. Russia also doubled down, with Deputy Energy Minister Pavel Sorokin saying oil at $25 a barrel is unpleasant, but not a catastrophe for the nation’s producers. (…)

OPEC nations aren’t giving support to a request from the group’s president for emergency consultations over tanking prices, according to a delegate. Algeria, which holds the cartel’s rotating presidency, has urged the secretariat to convene a panel but the call has failed to gather the majority backing necessary to go ahead. Riyadh is among those opposing the idea. (…)

Global oil demand is in freefall and consumption may decline by as much as 20 million barrels a day, according to the International Energy Administration. That is forcing producers worldwide to slash output, while independent trader Trafigura Group expects as much as 1 billion barrels to be sent into storage tanks in the coming months. (…) For those without access to pipelines and ports, local storage will run out in days, traders and consultants say. (…)

In the U.S., one of the largest pipeline companies, Plains All American Pipeline LP, has asked oil producers to voluntarily cut output to avoid overwhelming the network that connects well heads to refineries through thousands of miles of pipelines. (…)

Many crudes, especially sticky, sulfurous grades that refiners find hard to process, trade at hefty discounts to international benchmarks. Western Canadian Select, a tarry blend squeezed from Alberta’s oil sands, reached a record low of $4.51 a barrel on Friday.

In the U.S., Oklahoma Sour is changing hands at $5.75, Nebraska Intermediate at $8, while Wyoming Sweet prices at $3 a barrel. (…)

The next stage of the oil market’s meltdown will be widespread production shutdowns as drillers decide the only option is to leave it in the ground until better days return. There are signs this is starting to happen.

Brazil’s state oil company Petrobras has announced it will reduce output by 100,000 barrels a day this year because of the lack of demand. In Canada, some producers have shut down output, and Glencore Plc., the world’s largest commodity trading house, has shut down its production in Chad.

Many producers are reluctant to shut wells because even though they’re losing money at today’s prices, some cashflow is often better than none at all. But as more refineries idle, the pipeline system grinds to a halt and storage tanks fill to the brim, they will soon have no choice.

Texas producers are beginning to receive requests from pipelines to reduce output as storage begins to run low, according to a tweet from Texas Railroad Commissioner Ryan Sitton. (…)

Here’s the tweet:

Got word yesterday that some Texas producers are starting to get letters from shippers (pipelines) asking for oil production cuts because they are out of storage. We need to get in front of this.

JPMorgan Says the Market Rout Is Probably Past Its Worst Now

(…) Coronavirus infection rates remain a “wild card,” as they remain high even if they’re “slowing” in the U.S. and Europe.

“Risky markets should remain volatile as long as infection rates create uncertainty about the depth and duration of the Covid recession, but enough has changed fundamentally and technically to justify adding risk selectively,” Normand wrote. “Most risky markets have probably made their lows for this recession, except perhaps oil and some EM currencies beset by debt-sustainability issues.” (…)

Goldman Sachs Group Inc.’s David Kostin reiterated in a note Friday that he expects the market to turn lower in coming weeks. He cited a checklist for a sustained rally similar to Normand’s — of slowing viral spread, evidence that fiscal and monetary policy stimulus is working, and a bottoming in investor positioning and flows.

Gavekal Research Ltd.’s Anatole Kaletsky said in a note Monday that it’s too early to buy equities, citing reasons including “surprisingly complacent” investor sentiment and historical data showing bear markets almost never end on a single massive sell-off without retesting the bottom. (…)

Sensitivity of S&P 500 EPS Forecast to Changes in GDP and the U.S. Dollar

SENTIMENT WATCH

Normally, I would act on these 2 charts… but this is not a normal bear…That said, some companies are clearly being valued well below their true long-term value.

S&P 500 and Insider Buy vs. Sell Ratio

BofA Bull & Bear Indicator

TO BE SHARED:
https://mvotd.com/pop-culture-covid-19-psa_c292fb0a2.html
TO BE WATCHED WITH FAMILY

(…) the best movie my family has streamed on Netflix has been Searching for Sugar Man, which won the Oscar for best documentary in 2012. It tells the incredible story of an American singer-songwriter who released two albums in the early 1970s, got dumped by his record label, and returned to his job as a construction worker in Detroit, all the time ignorant of the fact that he had developed a huge following in South Africa, where people thought he was “bigger than Elvis Presley.”

It’s wonderful and moving, it entertains all the family (a rare feat), and it introduces some extraordinary music. Try listening to “I wonder”, and then wonder how this man did not get to be a household name. (John Authers)

Also worth watching: The Stranger on Netflix.