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White House Wants Stimulus by August Recess With $1 Trillion Cap

This article by Jordan Fabian and Kevin Cirilli for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump and senior White House officials have said a payroll tax cut, liability reform, tax incentives for businesses to adapt to the pandemic and a potential back-to-work bonus are priorities for the administration.

Short said the White House views liability protections as “essential” for companies to bring workers back and fully re-open the economy.

The administration wants to be sure it’s “striking the right balance between income replacement on the one hand, and ensuring that we don’t have excessively high implicit tax rates on the return to work, on the other hand,” Tyler Goodspeed, acting chairman of the president’s Council of Economic Advisers, said in a separate interview with Bloomberg Radio.

Implicit tax rates can’t exceed 100%, he said, meaning it can’t be more lucrative for workers to stay at home. But any plan will require “not allowing a big blow to household income,” which is core to the economy, Goodspeed added.

Ohio Republican Brad Wenstrup, a member of the House’s tax-writing committee, said the package should address the ability of working parents to find childcare and helping schools to reopen.

“We have a shortage of day care providers,” he said in another Bloomberg Radio interview. “I am going to look for incentives for those type of programs.”

Congress in March passed a $2.2 trillion pandemic relief program, with carve-outs for small businesses and the airline industry as well as multiple lending programs for corporations and Main Street businesses through the Federal Reserve. Treasury Secretary Steven Mnuchin sent out nearly $1 trillion in the first month after that bill became law, through checks directly to American families, forgivable loans to companies and unemployment insurance.

Still, much of that money remains unused. The Treasury Department has yet to disburse any loans from a $25 billion pool for airlines, and most of a $17 billion carve-out for firms deemed critical to national security remains untapped.



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Are you reframing your future or is the future reframing you?

Thanks to a subscriber for this report from Ernst and Young. Here is a section on financial statistics:

To some extent, technology can help meet these new challenges. The costs of data collection and analysis are falling rapidly thanks to Internet of Things and AI. Satellites and sensors, for example, can generate highly accurate real-time data. A broader corporate data strategy aimed at collecting social and environmental cost data, in addition to the well-being of employees and local communities, might help fill significant gaps in measurement. Useful new corporate reporting that details progress toward a broader business purpose means building the prerequisite data capabilities first.

Governments also have an opportunity to leverage data generating technologies to enhance feedback. More than 20 countries from Singapore to Sweden have “smart city” initiatives, demonstrating how better measurement through data can improve public safety and citizen services, albeit not without risks. The UK’s National Health Service has dozens of partnerships with leading technology companies analyzing the vast troves of patient data to support the provision of its services.109 And big data techniques have also proved a significant part of the policymaking process when fighting the COVID-19 pandemic. Countries that successfully implemented track and-trace techniques using smartphones fared better in managing the deadly outbreak.

An inflection point is approaching, driven by necessity. Our industrial-era metrics are misaligned with the needs of a knowledge-based economy characterized by widespread technological disruption. We are on the cusp of a significant change in the way societies make policy and conduct business. Companies will either evolve to realign with new values, or risk dissolving as their social contract is withdrawn. There is no looking back.



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Email of the day - on a stay at home index

“Are you able to create a Work From Home/Stay at Home index for you/us to track on a regular basis. Today has been another big day for many of these stocks with Shopify for example up another 7% in here today, clearing the $1,000 level, Netflix up 5%, Amazon 4%, Peloton up 4, DocuSign up 4, and Wayfair 11%! Regretfully I’m not involved in any of these as I can’t get my head around valuations. When will this madness stop?”



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Email of the day on contrasting life experience between generations

When I read that high house prices are a problem for the younger generation, I wonder whether the historical context is considered. I bought my first house in 1974 and I finally paid off the mortgage on my current home in1999. Over the 25 years that I had a mortgage the lowest interest rate I ever paid was 10% and the highest was 15%. Yes, for a quarter century I paid 10-15% interest on my mortgage, which frequently used up more than half my monthly income. Many of my age group went through a similar experience. My wife and I hardly ever ate out, and our children were treated to many years of cheap camping holidays. I had little spare cash at any time until the mortgage was gone.

Do today's new home buyers have any idea how we lived and struggled with finances? House prices today mirror the very low mortgage interest rate and I suspect that very few (if any) 20-40 year olds are using 50% or more of their income to pay their mortgage as we did. Their money goes on things we could not afford and did not regard as essentials. It's a matter of priorities.



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The FDA Wants a Covid-19 Vaccine That Really Works

This article by Max Nisen for Bloomberg may be of interest to subscribers. Here is a section:

The path the FDA outlines is a long one. It’s going to take a while to recruit and enroll 30,000 people in a trial and give half of them two shots in the arm — as Moderna Therapeutics Inc. intends to do to test its candidate. And until a sufficient number of subjects in the placebo arm of such a trial contract Covid-19, there won’t be any firm results. Any number of variables could cause further delays: bad luck, a poor vaccine performance, or slowing case growth.

The FDA is by no means ignoring the urgency of the moment. Its guidance includes a variety of concessions on safety data and other issues that are meant to speed the process. But the world can be grateful the agency is willing to bend only so far.
 



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Befuddled by the Bull? The Primacy of Free Liquidity and Risk-Love

Thanks to a subscriber for this report from Bank of America/Merrill Lynch which may be of interest. Here is a section:



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Occidental, AB InBev Lead Debt-Laden Firms Buying Back Bonds

This article by Molly Smith for Bloomberg may be of interest to subscribers. Here is a section:

Occidental Petroleum Corp. and Anheuser-Busch InBev SA/NV are seeking to buy back bonds through separate tender offers launched Thursday. Both are targeting debt due in the next three years.

Companies are seeking breathing room on debt payments as they contend with lower earnings amid the coronavirus outbreak, threatening to push leverage even higher. Credit raters are running out of patience: Occidental, already one of the largest fallen angels of this cycle, may be cut again by Moody’s Investors Service and S&P Global Ratings, while AB InBev was recently downgraded by S&P with a negative outlook.

Both companies largely amassed their massive debt loads by funding acquisitions. Much of Occidental’s nearly $40 billion of debt came from borrowing to help finance its takeover of Anadarko Petroleum Corp. last year, while AB InBev’s roughly $103 billion of obligations mostly stems from its purchase of SABMiller Plc in 2016.

While some firms are looking to buy back debt outright, others are pursuing different liability management exercises to push out maturities. Rite Aid Corp. launched a $750 million exchange offer Thursday, while Macy’s Inc. initiated one earlier this week. They’re also trying to amend certain covenants through what are known as consent solicitations.



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Forecasting the US elections

This article from the Economist may be of interest to subscribers. Here is a section:

Right now, our model thinks Joe Biden is very likely to beat Donald Trump in the electoral college.



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IMF Forecasts Deeper Global Recession From Growing Virus Threat

This article by Eric Martin for Bloomberg may be of interest to subscribers. Here is a section:

The International Monetary Fund downgraded its outlook for the coronavirus-ravaged world economy, projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.

The fund said Wednesday it now expected global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, the fund forecast growth of 5.4%, down from 5.8%.

Having already warned of the biggest slump since the Great Depression, the IMF said its increased pessimism reflected scarring from a larger-than-anticipated supply shock during the earlier lockdown, in addition to the continued hit to demand from social distancing and other safety measures. For nations struggling to control the virus spread, a longer lockdown also will take a toll on growth, the IMF said.

“With the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security and inequality have grown more daunting,” the lender said in its update to the World Economic Outlook.



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The 'Fed story' will win out over second wave and election fears, UBS says. It's time for investors to get off the sidelines

Thanks to a subscriber for this article by Callum Keown for MarketWatch. Here is a section:

The analysts, led by chief investment officer Mark Haefele, said three narratives were currently driving markets; the ‘Fed story’ — ongoing central bank stimulus — the second-wave story, and the U.S. election story. Fears of a second coronavirus wave have come to the fore in recent days, with spikes in Beijing, Germany and a number of U.S. states. The UBS team said that U.S.-China tensions fed into the election narrative, which would come into focus over the next four months.

“Overall we see the second-wave and U.S. election stories as contributing to market volatility as headlines feed investors’ hopes and fears about the speed and strength of the economic recovery. But it is the Fed story that will endure over the medium term,” they said in a note on Monday. They said they were positive on the outlook for both equities and credit, preferring USD high yield, Asian high yield and USD-denominated emerging market sovereign bonds as well as stocks in sectors that have so far lagged behind the market.

“Against this backdrop, we think the most important thing an investor can do is to be invested, rather than sitting on the sidelines. As earnings are likely to recover in the second half of the year and excess liquidity continues to support risk assets, we see further upside potential in global equities, in particular among sectors that have lagged the rally so far,” they added.



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