THE DAILY EDGE: 8 APRIL 2020: A Salute to “The Few”

A recent Axios survey finds that

the coronavirus is spreading a dangerous strain of inequality. Better-off Americans are still getting paid and are free to work from home, while the poor are either forced to risk going out to work or lose their jobs.

The survey finds Americans with less education and lower incomes far more likely either to have to keep showing up at their workplaces — putting themselves at greater daily risk of infection — or more likely to have seen their work dry up.

A large number of the people still “working normally” are in essential businesses, keeping all of us healthy and fed while we safely stay at home. All these people truly deserve the salute that Churchill gave to the Royal Air Force crews fighting the Battle of Britain in August 1940:

Never in the field of human conflict was so much owed by so many to so few

When the steep pandemic bill comes due, we shall remember how “The Few”, throughout the world, fought for all of us, risking their health, and their family’s, risking their lives for the benefit of the mostly wealthier “many”. If only for this reason, we shall aim at quickly and meaningfully reducing income inequalities and improve The Few’s working and living conditions.

Since the low point in 2002, American one-percenters have seen their collective wealth triple, ballooning $23 trillion. Meanwhile, the bottom 50% have seen their total wealth rise a miserable 9.0%, or $130 billion, over the entire 17 years while inflation advanced 44%. Unacceptable. Unsustainable.

Had the one-percenters’ share of wealth stayed constant at 25%, $8 trillion of additional wealth could have been shared by the other 99%, increasing their collective wealth by 11%. If 25% of the $8T had trickled to the bottom 50%, the poorer half of America would be 3.5 times better off, yet still only account for 5.4% of total wealth.

Considering that poorer people spend virtually all their income domestically while the wealthy are savers and travellers, the American economy could actually end up stronger with only a somewhat fairer distribution of wealth. And humanity would feel so much better.

BTW, Axios adds:

(…) it’s essential that food workers keep working so we can keep eating. Undocumented immigrants are a big share of America’s farm labor workforce, particularly for fruits and vegetables.
They often work and live in conditions that make social distancing difficult, and they rarely have good health care access or paid sick leave. They are also ineligible for the bailout protections that recently passed.

Back to reality.

VIRUS UPDATE

Encouraging curves. Goldman Sachs feeds the hope:

Confirmed new cases have declined globally on Sunday and Monday and have been broadly stable in the US. (…)

Exhibit 2 compares actual confirmed US cases and expert predictions from the prior week. While actual confirmed US cases exceeded expert predictions in late March, the April 5^th confirmed case count of 332,308 was below the 386,500 expert forecast for that day from March 31.

But beware, the number of cases greatly depends on the number of tests and the U.S. seems to have recently slacked off on testing:

• Globally, the number of confirmed cases topped 1.44 million, with more than 83,000 deaths.
• The U.S. continues to have the most infections, with almost 400,000 people testing positive for the fast-spreading pathogen. The U.S. death toll from the coronavirus rose sharply, with nearly 50% more people killed Tuesday than any previous day in the epidemic, according to a Wall Street Journal analysis.
• Britain, U.S. and Italy may see virus-related deaths exceed 5,000 in the coming week, according to a forecast by Imperial College London.
• The number of new coronavirus infections in Germany rose the most in three days, bringing the total to 107,663 in one of Europe’s worst-hit nations. More than two weeks after the government ordered citizens to adhere to strict limits on public life, infections increased by 4,288 on Wednesday, according to data from Johns Hopkins University. That compared with a gain of 3,252 a day earlier. The head of Germany’s public health institute said Wednesday that the general trend in confirmed cases is “positive” but cautioned that the nation is still only at the beginning of the pandemic.
• Japan began its first full day under a state of emergency Wednesday, as the government reported 351 new coronavirus cases. The total number of cases in Japan doubled over the course of a week to more than 4,200 as of Tuesday. Tokyo found 144 new cases of coronavirus, NTV reported. Earlier, Prime Minister Shinzo Abe warned Japan could be facing as many as 80,000 confirmed coronavirus cases in a month if no action is taken as he declared a state of emergency in Tokyo and its surrounding regions.
• China began to reopen the city of Wuhan, where the virus first emerged.
• Fear Lingers in Wuhan as China Eases Lockdown Epidemiologists, U.S. intelligence sources and residents suspect Chinese authorities substantially undercounted coronavirus infections and deaths over the past several months.
• South Korea’s Health Ministry has tallied about 50 a day this week, down from a high of close to 900 daily in February.
  
• In Australia, from a daily increase of 20% a little over two weeks ago, the rate has slowed to about 2% in recent days.
• Two-thirds of Chinese infections in past week had no symptoms Of the 885 infections reported between March 31 and April 7, 601 people showed no visible signs. But scientists say data set is too small to draw any conclusions about how Covid-19 spreads
• Russia reported 1,175 new cases overnight, a 16% increase, bringing the total number of infected to 8,672.
• The experience of countries further ahead in the battle against COVID-19 also suggests the road to recovery will not be straightforward. While there are signs of a resumption of normal life in China, including in Wuhan, cinemas have closed again. Meanwhile, Singapore, which had implemented a much-touted test and trace system, was forced into announcing a more formal lockdown, effective today, as it was unable to effectively squash the virus.
• Swiss group says its machines can conduct 30m virus antibody tests this year …medical technology company BD has said it will make 1m antibody tests available in the coming months. Many governments had in recent days warned that accurate antibody testing could take weeks to develop…
• Low antibody levels raise questions about coronavirus reinfection risk Scientists in Shanghai say some recovered patients show no signs of the neutralising proteins. Early-stage findings could have implications for vaccine development and herd immunity, they say.

PANDENOMICS

Bank of France Predicts 6% Drop in French GDP in First Quarter

(…) Every two weeks of lockdown could reduce annual economic activity by 1.5%, the Bank of France estimated, in line with the estimates from the French statistics office INSEE.

Separately, the German economy is expected to contract 4.2% in 2020, according to the spring report of leading economics research institutes in Germany.

Gross domestic product is likely to have shrunk 1.9% in the first quarter and is expected to contract 9.8% in 2Q due to the lockdown, being the sharpest decline ever recorded in Germany since quarterly national accounts began in 1970, the report said. The contraction expected in 2Q is more than twice as steep as the decline during the global financial crisis in the first quarter of 2009, the German institutes said.

EU Struggles to Agree on Economic Response to Coronavirus as Deadline Nears As the coronavirus epidemic roils markets and upends business, The Wall Street Journal is gathering in one place all the latest news and insights on the impact on investors, companies and economies.

(…) Two main issues prolonged the deadlock, according to people involved in the talks.

• Italy demanded some direct commitment from its counterparts that the bloc would consider issuing common Eurozone debt as part of the crisis response and recovery stage, a measure that the Netherlands, Germany and others have long resisted.
• These countries also clashed on the conditions which would be attached to credit lines from the region’s bailout funds, the European Stability Mechanism. The Netherlands is among those insisting that the ESM’s support is tied to some promises for medium-term economic reform.

During a call lasting more than 16 hours, finance chiefs couldn’t reconcile their contrasting visions for the steps needed to help European economies recover. Countries led by France and Europe’s hardest-hit south were pitted against Germany and other hawkish northern states over the need to issue joint debt. Another call is scheduled for Thursday.

Discretionary Fiscal Easing in Response to Coronavirus Crisis

Goldman Sachs Global Investment Research (via The Daily Shot)

Among other local government auto industry stimulus activities, residents of Shenzhen’s Futian and other districts receive cash coupons for auto purchases.

Nearly a third of Americans didn’t pay rent in April, according to new data.

It’s a Good Time to ‘Stock’ Up Amid market volatility, one thing is clear: Equities have become a good deal. (By Burton G. Malkiel)

(…) No one knows how many people the global Covid-19 pandemic will kill or how long it will last. Nor does anyone know the extent of the global downturn and how much further stock prices will fall. But there is one thing that everyone knows: Equity valuations are far more attractive today than they were at the start of 2020. (…)

Today they [CAPE ratios] have fallen more than 20%, suggesting that equity purchases at today’s levels should earn decent future returns.

A second reason investors may want to begin taking a more constructive view of the stock market is that alternative investments aren’t offering attractive returns at the moment. Yield on the safest bonds in the U.S. are near zero and are actually negative in Europe and Japan. Thus, the gap between probable equity returns and bond yields has risen significantly.

Finally, common stocks—representing ownership of real assets (factories, commodities, real estate, etc.)—have been a reliable long-run inflation hedge. (…)

Today I recommend that investors consider moving in the opposite direction and begin a program of liquidating a portion of their bond and short-term securities funds and buying equities instead. There is no need to complete any reallocation all at once. By moving money into equities slowly over time, you will “dollar-cost average” your reallocations and avoid the feeling of regret you could experience by reallocating equities at prices that could be well above the ultimate market bottom.

Not to dispute Professor Malkiel’s recommendation, but why is the CAPE P/E at 25 “suggesting that equity purchases at today’s levels should earn decent future returns”? (BEAR ESSENTIALS)

SHILLER CAPE P/E

A reality check for market bulls: It’s going to be a long slog for stocks Bear markets that saw 33% declines took 7½ years to regain their previous highs

(…) Those eight mega-bears lasted on average 18 months, posted stock declines of 49.9%, and took 7½ years from the market bottom to reach their all-time highs again.

Even if you assume that 1929 (after which stocks took 25 years to recover their all-time highs) and the 1987 crash (which was driven by a breakdown in trading technology, lasted only three months and wasn’t followed by a recession) were anomalies, the other six megabears still averaged 18 months in length, suffered a 46.5% peak-to-trough decline, and took 5½ years to reach their previous highs again. (…)