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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)

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THE DAILY EDGE: 24 SEPTEMBER 2020

Europe, Shunning New Lockdowns, Fights Resurgent Coronavirus With Local Restrictions Governments want to avoid returning to the full-blown lockdowns of early 2020, including widespread business closures and stay-at-home orders, which broke the pandemic’s first wave but also froze European economies.

(…) From Madrid to Marseille to the English Midlands, local interventions range from restrictions on bars to limits on social gatherings and travel. But, so far at least, infections are still rising rapidly in the worst-affected areas.

“These measures are not very effective,” said French epidemiologist Catherine Hill. “We are headed straight for disaster.” She said France’s government should focus instead on building up mass testing and quickly isolating infected people. (…)

Madrid is a major reason why Spain is now recording around 11,000 new coronavirus infections on an average day. In the Madrid region, one in four hospital patients is a Covid-19 case, and 23% of coronavirus tests are coming back positive, a sign that contagion is far from under control. (…)

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  • The coronavirus is surging once again across the U.S., with cases rising in 22 states over the past week, Axios’ Sam Baker and Andrew Witherspoon write.

  • Moscow registered 1,050 new cases in the last day, the first time that the Russian capital diagnosed over a thousand infections since June.
  • New daily cases in Moscow have grown by two-thirds since Sept. 1, when schools opened nationwide. The number of infections is rising throughout Russia, with 6,595 new cases in the last day.
  • The Israeli government sharply tightened lockdown restrictions for the next two weeks in an effort to rein in a coronavirus outbreak that’s spun out of control.
  • CDC director Robert Redfield said he expects “the entire American public completely vaccinated” against coronavirus by July and anticipates around 700 million doses of a vaccine to be available by late March or April. (Reuters)
  • Sinovac Biotech will seek approval globally for its coronavirus vaccine by the end of the year after a successful completion of a trial in Brazil, said Chief Executive Officer Yin Weidong. So far, the shot has shown a very good safety profile with very few low-fever cases and offers cross-protection against different strains.
  • President Donald Trump said that the White House could veto any tightening of Food and Drug Administration rules for authorizing the emergency use of a coronavirus vaccine. (…) The FDA is expected to issue final rules in coming days for issuing an emergency-use authorization for a coronavirus vaccine. “That has to be approved by the White House,” Trump said at a news conference on Wednesday. “We may or may not approve it.”
  • Some Covid-19 Patients Show Signs of Heart Damage Months Later
Concern Over Outbreak Among Gen Zers Takes Sharp Dive

In the latest update [the latest survey was conducted Sept. 18-20, 2020] to our Coronavirus trend tracker, concern over the outbreak has taken a significant drop among Gen Zers. Compared to a week ago, the share of Gen Z adults who said they were very concerned about the coronavirus outbreak dropped 13 percentage points to 38 percent, from 51. (Morning Consult)

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Confused smile What have these 15-21 year-olds just learned we haven’t learned yet?

Business Roundtable CEO Economic Outlook Index Up in Q3

(…) Forty percent said they expect business conditions to recover in 2021, and 36 percent said they expect business conditions to recover in 2022 or later. (…)

Other components of the Index were as follows:

  • CEO plans for hiring increased by 20.3 points to 46.6, 11.9 points [20%] below the sub-index’s historical average of 58.5.
  • CEO plans for capital investment increased by 33.8 points to 58.8, 16.8 points [22%] below the sub-index’s historical average of 75.6.
  • CEO expectations for sales increased by 35 points to 86.5, 24.7 points [22%] below the sub-index’s historical average of 111.2.

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Data: Business Roundtable; Chart: Naema Ahmed/Axios

Trudeau Vows ‘Whatever It Takes’ to Get Canada Through Covid

(…) Immediate steps include extending the emergency wage subsidy program until next summer and expanding credit facilities for companies, as well as more targeted support for the hardest hit industries.

These measures would be part of a campaign to create 1 million jobs in Canada, returning employment to pre-pandemic levels, according to Trudeau’s address. (…)’

The government’s promise to extend the wage subsidy could cost around C$40 billion ($30 billion), while the drug and daycare plans could add another C$20 billion annually, Young said. (…)

The government already projects a budget deficit equal to 16% of gross domestic product this year, the widest since World War II. (…)

Housing Agency Stands by Forecast for Sharp Price Drop in Canada

Canada’s federal housing agency is sticking to its pessimistic forecast for the future of the country’s housing market, citing “tremendous” risks from the Covid-19 pandemic.

Canada Mortgage and Housing Corp. forecast in May that average prices would fall between 9% and 18% from pre-pandemic levels before beginning to recover in the first half of 2021. Chief Economist Bob Dugan reiterated that forecast, though he cautioned that it’s difficult to predict the “peaks and troughs” and there are many moving parts. (…)

“When I look at the housing market there are a tremendous number of risks.”

Canada’s housing market has not only defied expectations of a slowdown, it’s booming, even as the economy suffers from the deepest downturn since the Great Depression. Demand for homes combined with tight inventory levels and historically low interest rates are driving gains. (…)

“I’m not convinced that we have a sustainable basis for housing demand in the economic disturbance that’s going on related to Covid-19,” he said. “That’s why I say I stand by the forecasts.”

Pent-up demand has been formidable, driving the country’s housing market to new heights. Nationally, sales jumped 6.2% in August, the fourth straight month of strong gains after the market froze at the height of the Covid-19 pandemic, CREA said last week. Sales are now 33.5% above year-earlier levels. Benchmark prices rose 1.7% in August and are now 9.4% higher than in August 2019. (…)

California to Ban Sales of New Gas-Powered Cars in 2035 Gov. Gavin Newsom signed an order that aims to end the sale of new gasoline and diesel-powered passenger cars in the state by 2035.
WeWork Sells Majority Stake in China Business, Cutting Costs The real-estate operator is selling control of its business in China, the latest sign it is abandoning its former rapid-growth approach and looking to reduce risk.
Goldman Sachs downgrades Q4 growth expectations
  • We think it is now clear that Congress will not attach additional fiscal stimulus to the continuing resolution. This implies that after a final round of extra unemployment benefits that is currently being disbursed, any further fiscal support will likely have to wait until 2021.

  • We estimate that the withdrawal of fiscal support will reduce disposable income in Q4 to roughly the pre-pandemic level. This will weigh on consumer spending, but probably by less than initially feared. Seven weeks after unemployment benefits lapsed, timely spending measures have trended higher, reflecting an offset from ongoing adaptation and reopening in the service sector. This process can likely continue to at least some extent in coming months, and we therefore expect softer but still modestly positive consumption growth in Q4.

  • We are lowering our Q4 GDP growth forecast from 6% to 3% on a quarterly annualized basis. This leaves more room for catch-up later [!!!], and we have therefore raised our 2021Q2-Q4 growth forecasts as a partial offset. Our new forecasts imply full-year growth of -3.5% in 2020 and +5.8% in 2021 (or -2.5% in 2020 and +5.5% in 2021 on a Q4/Q4 basis).

This Bout of Stock Market Angst Looks Much Darker We’ve gone from correcting excess to questioning the basic assumptions of a pandemic recovery that underpinned the rally.

(…) The latest sell-off was about rethinking the basic assumption that the U.S. and world economies can continue to recover, buoyed by continuing Fed largesse. This wasn’t so much “we took things too far” as “we might have taken things in completely the wrong direction.” (…)

TECHNICALS WATCH

The 13/34–Week EMA Trend maybe flattening…

“Selling was across the board” says Lowry’s. Last 4 sessions, Buying Power declined 8 points while Selling Pressure rose 10 points. BP remains above SP but only barely. Next test: the 100dma at 3193, then the 200dma at 3100.

Buybacks are not there to boost BP this year:

Buybacks in 2020 - Announced Share Repurchases for S&P 500 Companies

Speaking of power, Axios highlights SPI yesterday, vaulting from a buck to $46 before closing below $14.

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Dunno SPI?

The company has about 15 million shares outstanding, and a float of about 7.4 million, according to Bloomberg’s data. Tiny float but …

… trading volume hit nearly 350 million shares yesterday, more than 700 times its usual activity. Why>

SPI announced it was launching a unit to design and develop electric vehicles and charging solutions called EdisonFuture — a nod to electric vehicle companies Nikola and Tesla, which are both named after Nikola Tesla, a rival of Thomas Edison.

Another concept stock for Robinhooders!

Companies Adjust Earnings for Covid-19 Costs, but Are They Still a One-Time Expense? CFOs navigate accounting rules as some coronavirus-related expenses may be here to stay

(…) Some investors and accounting professionals suggest that after two quarters of reporting Covid-19-related costs, companies should consider treating these items as regular costs of doing business as they close the books for the third quarter and not adjust their non-GAAP earnings. (…)

In the second quarter, 94% of companies in the S&P 500 used at least one non-GAAP measure, according to data provider Audit Analytics. (…)

The Center for Audit Quality, which represents public-company auditors, reviewed a sample of second-quarter earnings releases and found an increase in the dollar amounts of non-GAAP adjustments compared with before the pandemic. Among the more common were adjustments for hazard pay or Covid-19 bonuses, PPE charges, and incremental sanitation and cleaning costs, said Dennis McGowan, senior director of professional practice at the CAQ. (…)

Ebitda adjustments for virus-related costs also have become a point of contention between companies and lenders. Businesses that have term loans or revolving credit facilities have to meet certain financial targets, or covenants. Adding back certain costs or charges can boost a company’s adjusted Ebitda, therefore making it easier to comply with those requirements, said Janet Vance, a partner at Gibson, Dunn & Crutcher LLP, a law firm.

“We have seen some lenders who are sensitive to these add-backs,” Ms. Vance said.

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Devil JPMorgan will pay a record $1 billion to settle charges of metals and Treasury manipulation after prosecutors charged that its desk acted as an illicit enterprise within the bank for almost a decade. (Bloomberg)

PANDEMONIUM
Trump Won’t Commit to Peaceful Transfer of Power After Election

President Trump wouldn’t commit to a peaceful transfer of power after the November election and predicted the outcome would be decided by the Supreme Court, a reason he wants to quickly fill the vacancy left by the death of Justice Ruth Bader Ginsburg.

“I think this will end up in the Supreme Court. And I think it’s very important that we have nine justices,” Mr. Trump said Wednesday.

During an event on social-media companies Wednesday, Mr. Trump amplified his long-running claim of widespread ballot fraud—which studies show is rare—and asserted without providing evidence the idea that Democrats plan to use mail-in voting to tilt the election in their favor.

Later, during a news conference, Mr. Trump was asked if he would commit to a peaceful transfer whether he won or lost in November.

“Well, we’re going to have to see what happens,” he responded. “I’ve been complaining very strongly about the ballots.…The ballots are out of control.”

Pressed on the question, the president said, “Get rid of the ballots and…we’ll have a very peaceful. There won’t be a transfer. Frankly, there’ll be a continuation.”

Lawmakers from both parties called Mr. Trump’s comments unacceptable. (…)

Five states—Colorado, Hawaii, Oregon, Washington and Utah—routinely conduct elections primarily by mail. In response to the pandemic, at least four additional states—California, Nevada, New Jersey and Vermont—and the District of Columbia have pledged to mail out ballots [which is how the president casts his vote in Florida] to all properly registered voters for the November election.

Many other states allow voters to request a mail-in ballot without providing a specific reason, such as being away on Election Day. Some states restrict who can vote absentee. (…)

Academic studies and election scholars say there is no evidence of widespread fraud linked to mailed ballots, though there have been isolated cases.

Research isn’t definitive on whether voting by mail benefits one party more than another. Past elections held primarily through mail-in voting have shown mixed party outcomes. (…)

In December 2000, the Supreme Court in a 5-4 decision decided the presidential race in favor of George W. Bush after it stopped a recount that was under way in Florida, where only 537 votes separated Mr. Bush and Democrat Al Gore. Florida’s 25 electoral votes put Mr. Bush over the top.

  • “Well, we’re going to have to see what happens. You know that. I’ve been complaining very strongly about the [mail-in] ballots. And the ballots are a disaster.”

Axios attempts to explains why “ballots are a disaster”:

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Graphic: Third Way