As per JPM and Nomura   the mkt is pricing a Biden win, caution that a blue wave is necessary, otherwise will get gridlock.

Even if it happens probably get turmoil specially if we do not get clean sweep. Otherwise legal problems will be forthcoming. The groups would be HC, alternative energies, cyclical, education, infrastructure. Also China as frictions will be reduced

Can you identify possible winners, using the charts and share them?

Trust you and your family are well. Stay safe.

The narrative about who will win the US Presidential election has morphed over the last couple of weeks to pricing in a Biden victory. The catalyst for this change was the debate where the two candidates harangued each other and dropped the bar for political decorum another notch lower. Since then, confidence among Democrats has increased substantially. There has been talk of a double-digit margin of victory and a blue wave where they control both legislative branches and the Presidency.

I hope you and the family are well. well done on your XXX trade. What would you do now if you are not in the shares? and why are the shares up 25 per cent today? Is that shorts closing out their positions, realisation that the company will not go bust or just volatility associated with the rights issue? Many thanks

Thank you for this question which may be of interest to other subscribers. I agree the most likely reason for today’s significant additional surge today was because of short covering. It’s up almost 100% this week so buying the rebound requires one to have some tolerance of volatility. The only way to deal with that and not lose sleep is to control the size of the position.

“The glass half-full view of stimulus talks is if you don’t get it today you’ll get it tomorrow from whomever wins the election,” Sheets said in an interview. “This V-shaped recovery is still intact.”

His conviction that growth will continue unabated is in contrast with other strategists who say the U.S. is facing a multitude of risks. Lawmakers have been deadlocked for weeks on the details of a stimulus package and President Donald Trump surprised allies with a unilateral call on Tuesday to halt talks on a deal.

Sheets’s recommendations are mirrored in hedge funds positioned ever more aggressively for a steeper U.S. yield curve, often seen as a bet on reflation. The latest data shows speculative net short positions in long bond futures have hit a record, while net long positions on 10-year Treasuries have climbed to their highest since October 2017.

Brinksmanship does not mean an agreement will fail to be reached. Regardless of which way the US election goes, the next administration has an interest in continuing to support the recovery. Fiscal stimulus will be a big part of that.

A link to the full report is posted in the Subscriber's Area. 

The fourth quarter is going to bring two strong sales events for Amazon. Prime Day usually occurs in July but was delayed because of the pandemic. It will now take place on the 13th. That might just kick off the beginning of the holiday season. Considering the extent of excess savings this year is likely to deliver a bumper holiday season for Amazon’s retail operation.

Hi Eoin, could you please state what your APPROXIMATE price objective is for XXX to know whether you see this more as an opportunistic trade or more of fundamental return to e.g., the 200dma? Thank you

Thank you for this question. I view my trades as opportunistic and my investments as holdings in a long-term portfolio. 

Alibaba Group Holding Ltd. agreed to buy as much as a 9.99% stake in Dufry AG, giving the Swiss duty-free giant a lifeline as the pandemic hammers the business.

Dufry said Monday it’s proposing a capital increase that will raise up to 700 million Swiss francs ($763 million), and Alibaba will participate. Advent International Corp., a private equity company, also plans to invest as much as 455 million francs. Dufry shares surged as much as 16%.

The Swiss company said the proceeds from the share sale will help it buy out its Hudson Ltd. U.S. unit, as previously announced.

The capital increase will bolster the company, whose market value has dropped to 1.6 billion francs as the shares trade near the lowest in a decade. The companies are also forming a joint venture in China that will combine Alibaba’s digital capabilities and network with Dufry’s travel retail business in that market.

The absence of airline traffic gutted Dufry’s business model. That’s a condition which has been shared by every business leveraged to travel and tourism. The big question is how long air travel will take to recover. I remain of the opinion we are close to the peak of coronavirus hysteria. That suggests it can only get better from here.

That completes the good news. The bad news is that TDFs have become so big that, like whales splashing around in the bathtub, they are affecting markets. Deluard points to the weird
coincidence that each of the last four corrections (including the massive Covid-19 market break earlier this year) bottomed with a week to go in the quarter. All but one were even on the same day of the month — the 23rd. The exception was the Christmas Eve climax to the sell-off of winter 2018, which came after the 23rd had fallen on a Sunday. Here they are:

This could be a weird coincidence. It could be an example of the power of numerology. And it could be the basis of a very specific new market aphorism. Rather than “Sell in May and go away,” we can have “Buy on the 23rd of March, June, September or December.” Most usefully, however, we might look at it as an example of the newly minted power of the TDF whales. If the market is going down, these days it is a safe bet that a big infusion of money into stocks will be coming at the end of a quarter. TDFs’ contra-cyclicality means that they act as an accidental “put” option under the market. 
 

Seasonality in the market is an important factor because there is a clear trend for the market to do better at certain times of the year. Sell in May and come back on Labor/St. Leger’s Day has long highlighted the tendency of markets to do best in the 4th and 1st quarters. The Santa Claus rally between Thanksgiving in late November and the first week of the new year has also statistically returned positive results, albeit with some volatility.

Hello Eoin 1.) domiciled in Switzerland I wonder what is your opinion on the SMI? 2.) watching the presidential debate, I am impressed by Biden’s face lifting - would you know or could you find out which doctor did this great job?

Thank you for this question which may be of interest to subscribers. Politics is a visual profession and looking good on TV has been important since the days of JFK. Whoever is looking after the appearance of the septuagenarians running for US President deserves every penny they are earning. I'll keep my ear to ground for who that is. 

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change.

As far as a big hot war between the United States and China is concerned, it would include all the previously mentioned types of wars plus more pursued at their maximums because, in a fight for survival, each would throw all they have at the other, the way other countries in history have, so it would be World War III, and World War III would likely be much more deadly than World War II, which was much more deadly than World War I because of the technological advances that have been made in the ways we can hurt each other.  

In thinking about the timing of a war, I keep in mind the principle that when countries have big internal disorder, it is an opportune moment for opposing countries to aggressively exploit their vulnerabilities.  For example, the Japanese made their moves to take control of European colonies in Southeast Asia in the 1930s when the European countries were challenged by their depressions and their conflicts.  History has also taught us that when there are leadership transitions and/or weak leadership, at the same time that there is big internal conflict, the risk of the enemy making an offensive move should be considered elevated.  For example, those conditions could exist in the upcoming US presidential election.  However, because time is on China’s side (because of the trends of improvements and weakenings shown in prior charts), if there is to be a war, it is in the interest of the Chinese to have it later (e.g., 5-10 years from now when it will likely be more self-sufficient and stronger) and in the interest of the US to have it sooner.   

I’m now going to add two other types of war—1) the culture war, which will drive how each side will approach these circumstances, including what they would rather die for than give up, and 2) the war with ourselves, which will determine how effective we are, which will lead us to be strong or weak in the critical ways that we previously explored. 

Governance is Everything has been a mantra at this service for decades. It is becoming increasingly relevant because standards of governance are in flux all over the world. Governance is never static, it’s the relative trend that determines the risk factor for investors. 

“We are ready for a negotiation,” she said. “I am talking with my caucus and my leadership and we will see what we are going to do,” Pelosi said.

The prospect of talks helped push stocks higher briefly, with the S&P 500 extending gains after the Pelosi and Mnuchin remarks. But that optimism was tempered by reports showing a resurgence in coronavirus cases in Europe and investors pulled stocks back off session highs.

The risk of a slowdown in the recovery is rising with the lack of movement on fiscal stimulus. Initial claims for unemployment insurance remained at a level above the peak during the Great Recession of 2007-09, the latest weekly data showed on Thursday.

Fed Chair Jerome Powell reiterated his conclusion that “it’s likely that additional fiscal support will be needed,” speaking at the same Senate panel where Mnuchin was testifying.

The recovery has been faster than anticipated so far, Powell said, thanks to income support to those affected by the pandemic.

“The risk is that they’ll go through that money, ultimately, and have to cut back on spending and maybe lose their home,” the Fed chief said. “That’s the downside risk of no further action.”

The big question for investors is to determine how credible this news story is. The Fed has been very clear that it sees a need for additional stimulus and that the path out of the recession is dependent on support mechanisms remaining open ended.

I may be mistaken but I thought in one of your commentaries you listed some betting stocks.

Assuming the continue pandemic mode, sport fans may be eager to bet, same for the elections, Point bets PBH .au and Penn gaming PENN may be good idea.

DraftKings is the name that has been recognized DNKG

 Pls. confirm you had mentioned in one of your commentaries, alternatively, any ideas / opinion on the space

Best keep safe

Thank you for this question. I have spoken about the airline and tourist sectors generally but not about pure gambling plays. However, I agree that speculative fervour is a significant factor in the market today. The lack of sports events to bet on has been a factor in the surge in online stock market trading among retail investors. The buzz people get from punting is addictive so demand will likely persist for at least as long as their money lasts. The online venues are likely to benefit at the expense of physical locations.

Hi Eoin - hope you are keeping safe & well. It is sad to see the fires causing so much devastation in your state once again, and you are also dealing with the "new norm" and the unsettling Covid world. With this in mind your readers may find this article of interest. Stay safe 

Thank you for your well wishes. The headlines about California are terrifying and I can see why people question the decision to live here. The place is either jammed with cars, choking on smog, shaking with earthquakes, burning to the ground or dying en masse from the coronavirus. On top of that the occasional surfer is munched on by a Great White Shark and we are all about to be inundated with rising sea levels.  

Any loss of life is a tragedy and I know this is not going to sound politically correct but we’re fine. We knew the shelter in place orders were coming so we stocked up early. As soon as the tennis courts opened up, we started playing again. Over the course of the last few months my resting heart rate has fallen to 43 and I’m fitter than I have been in years.

Eating lots of fruit and veg, drinking plenty of water, getting enough sleep, moderating one’s consumption of alcohol and practicing as much physical activity as you can, without injuring yourself, should be everyone’s prescription for life. The fact it helps keep illness at bay is a bonus.

Dear Eoin, I suppose you are doing well since I’ve been following your research through all these months. Pandemic changed a lot of things, but we had the crisis of our own. We built the leading Russian business daily but this year, after more than 20 years of our efforts, it was effectively taken from us through machinations brought about by forces close to Kremlin. You can have a look, this is the early July statement by Reporters Without Borders 

By now, almost all members of the newsroom have left, Vedomosti degraded very quickly and stopped being independent, honest and objective. But a group of journalists and editors including myself have launched the new online publication VTimes - https://vtimes.io . The full-fledged launch including new web-site is scheduled for October but we’ve been active with our articles and podcasts on social platforms, such as Telegram, Facebook etc., since August and feel tremendous support from readers many of whom switched from Vedomosti to VTimes. Last week we began crowdfunding campaign that can be supported from anywhere. I have already used your most valuable comments in my stories for VTimes and will continue to do so.

I am writing now about rather quick rebound of the global trade. In particular, according to calculations by the Kiel Institute for the World Economy, the trade volumes recovered about half of this year’s historic loss in four months while it took 13 months after 2008 crisis had begun. Some other information on the issue can be found in the WSJ story - 

And major exporters of goods, such as China, Korea, Germany, now recover quicker than economies more depending on services. You several times wrote about US-China trade from your personal point of view, or rather your wife’s business. I also remember you describing situation in Los Angeles port. Can you tell, what is the situation now, for me to get first-hand experience?

Thank you for this update and please accept my condolences in seeing your work disappear into the hands of an interloper. I also wish you the best of luck with your new venture. Journalistic independence is under threat all over the world, not just in Russia. The price for holding a contrary opinion is rising all the time. That’s a clear sign of deteriorating standards of governance globally which suggests the risk premium is rising.

A link to the full report is posted in the Subscriber's Area. 

The death of Justice Ruth Bader Ginsburg has injected an additional element of contention into the US Presidential Election competition. It therefore further reduces the potential for an additional stimulus in the short term. Meanwhile, central banks have appeared reticent to boost liquidity. The partial rebound in economic activity has improved the velocity of money reading but it is raw liquidity measures that stoke leveraged bets.

BuzzFeed also reported that a team from Deutsche Bank’s audit division conducted a review of the Moscow operation in 2014 and gave the office a “green” rating. Christian Sewing, now the bank’s chief executive officer, was global head of audit at the time, though he had no “direct or indirect involvement” in that probe, a Deutsche Bank spokesperson told BuzzFeed.

Sewing oversaw an internal investigation of the mirror trades the following year, which led to the lender shuttering its securities unit in the country. Achleitner appointed him CEO three years later.

BuzzFeed wrote that the volume of Russian money flowing into the U.S. financial system was so big that a team of experts at Bank of America raised the issue at a meeting with Deutsche Bank in London in early 2016. The issue was eventually escalated within Bank of America and one of its senior managers raised the issue with Achleitner himself. Bank of America in February of that year filed a suspicious activity report with the U.S. Treasury Department.

Deutsche Bank in a statement cast doubt over some element of that report, saying in Germany’s two-tier board system, it wouldn’t have been the role of the supervisory board chairman to get involved in the matter. Instead, it was the chairman of the management board -- John Cryan at the time -- who had a meeting with a Bank of America executive.

There is a lot of money to be made in laundering money and there is a lot of money to be laundered. That pretty much ensures it is going to be a pervasive practice across the global financial system. In many respects it is akin to the drug trade. No matter how much money is spent on stamping it out, it always finds a way through.

Hancock said the country faces a “big moment” but emphasized a second lockdown “is not the proposal that’s on the table.” Asked if scientists are saying schools and business don’t need to be closed, he replied: “that’s right.”

“The strategy is to keep the virus down as much as is possible, whilst protecting education and the economy and doing everything we possibly can for the cavalry that’s on the horizon,” he said, referring to efforts to develop Covid-19 vaccines, new testing technologies and treatments.

Much is riding on the government’s test-and-trace program, which officials regard as vital to keep infection rates down and to give people confidence to return to work. But the system is failing to meet key targets, including on the rapid turnaround of tests and the number of people deemed at risk of contracting the virus who are contacted.

The rising number of cases is a concern. However, it has not transferred into a higher death rate. Some would argue that a rising death toll is inevitable but that is not necessarily the case.

You can’t die twice. Many of the deaths were among the most susceptible groups. Lessons have finally been learned. Older, sicker people are now better protected. At the same time methods for treating the virus have improved. The situation today is not comparable to what prevailed in February.

“It’s really a unique mechanism for investors themselves and California to be able to at the very least understand and price the risk and potentially hedge the risk of water price volatility,” said Carter Malloy, founder and chief executive officer of AcreTrader, a farmland investing platform.

“The crucial thing is right now we have very little visibility” on what water prices will look like in the future, he said.

Water preservation and distribution could become increasingly attractive as investors like Jeff Ubben, who recently launched Inclusive Capital Partners, look to tackle problems ranging from environmental damage to food scarcity through their funds.

Climate advocates have warned in recent years for the potential of water wars as competition increases between needs from agriculture, energy and growing cities. Food production in particular could be vulnerable as drought makes it increasingly difficult to grow crops in many parts of the world and farmers balance water and land needs with protecting forest in places like Brazil’s Amazon.

“Food is going to be a flash point” in the world going forward as climate change makes production more challenging, Carter Roberts, chief executive officer of World Wildlife Fund, said in an interview at the Bloomberg Green Festival this week.

A couple of the other directors at the Nevada Trust Company sit on the board of Ducks Unlimited. It’s a conservancy group run by hunters and aims to protect as much wetland habitat has possible. Water rights and abeyance agreements are the bread and butter of the organisation.

The data’s strength was surprising because the period spanned Melbourne’s shift to Stage 4 restrictions and a curfew to contain a rapidly spreading outbreak, as well as nervousness in neighboring New South Wales that it was headed down the same path. The labor market’s ability to absorb this weakness and maintain its recovery is testament to the government’s signature JobKeeper employment subsidy -- that will extend into 2021 -- and central bank stimulus.

Self-employed workers drove the monthly jobs increase. As part-time jobs returned at twice the pace of full-time, the ubiquitous food delivery services, with its riders pedaling the streets of Australia’s cities, are expected to be responsible for much of this rise.

“The upshot is that the unemployment rate is now unlikely to climb to 8.5% over the coming months as we had anticipated, let alone the 10% predicted by the RBA and the Treasury,” said Marcel Thieliant, senior economist for Australia at Capital Economics. “Indeed, with restrictions in Victoria set to be loosened toward year-end, employment should continue to rise.”

The Reserve Bank of Australia, which has kept its benchmark interest rate near zero since March, when it began buying government bonds to ensure the yield on three-year remained around 0.25%, had predicted the jobless rate would climb to around 10% later this year.

Australia has successfully contained the coronavirus outbreak in Melbourne but the whole economy benefits from the monetary and fiscal stimulus to aid Victoria. With the RBA’s cash target rate at 0.25% Australia’s higher growth sectors that can benefit from access to abundant liquidity should continue to prosper.

Key markets are stabilizing and GE is making “good progress” in cutting costs by $2 billion and saving $3 billion in cash to contend with the coronavirus pandemic, Culp said. While the recovery will be gradual, results are improving and GE is poised for continued cash-flow gains through the end of the year, he
said.

“I sit here today feeling very confident about where we are and where we’re going despite all of the trials and tribulations that Covid has certainly thrown at us,” Culp said at a Morgan Stanley conference Wednesday.

The CEO’s optimistic tone marks a turnabout from late July, when he stopped short of saying GE would generate free cash flow in the second half. The pandemic has prompted an unprecedented collapse in air travel, gutting demand for the company’s jet engines and crimping sales of other products such as gas turbines and medical equipment.

Manufacturers of big pieces of equipment that require teams of people to operate were hit hard by COVID-19. However, a number had been trending lower for a long time before pandemic hit and rationalisation plans were already well underway. There is no doubt that the ill effects of the lockdown are non-trivial but valuations are much improved and a return to profitability is likely to be rewarded by investors.

“The PBOC is sending a signal that it will not tighten monetary policy quickly, but also it’s less likely to use broad easing measures such as a reserve ratio cut,” said Xia Le, chief economist at PingAn Digital Economic Research Center. “This will benefit government bonds in the short term. But in the longer run, the performance of the debt is more dependent on China’s economy and the U.S. election.”

The yield on 10-year government bonds dropped 4 basis points to 3.11% as of 4:15 p.m. in Shanghai. The yuan last traded at 6.7815.

The PBOC offered 600 billion yuan ($88.1 billion) of one-year funding with the medium-term lending facility, according to a statement. That will more than offset the 200 billion yuan in loans that come due on Thursday, implying a net injection of 400 billion yuan, the largest monthly addition since July 2018. It kept the interest rate on the funds unchanged at 2.95%.

Chinese lenders -- the main buyers of government debt -- are compelled to buy 1.13 trillion yuan of new debt this month and repay 1.7 trillion yuan of short-term interbank debt. Financial institutions are also hoarding funds for quarter-end regulatory checks. Adding to the liquidity strain is the authorities’ crackdown on high-yielding financial products, which has limited their ability to attract deposits.
 

Chinese stimulus has taken a slightly different path to that followed by the Fed or ECB but it is certainly present. China’s steel and aluminium production are hitting new highs and Chinese demand for copper is the primary factor behind recent strong pricing. The clear message here is that China is pulling on the traditional levers for growth which is spurring infrastructure and industrial development. They clearly intend to come out of the pandemic in a stronger position than before they went in.

A link to the full report is posted in the Subscriber's Area. 

Media commentary continues to focus on the number of new cases of COVID-19 but that is an irrelevant figure. The numbers of hospitalisations and deaths and the fear that healthcare systems would be overrun was the reason for locking down economies. The reality today is even in countries where the number of cases is increasing, the hospitalization rate has not increased because most newly infected people are younger. Obviously, there are risks that younger people will infect older people but that is a manageable risk compared to the financial stress of total cessation of economic activity.

Known for their love of risk, individual investors appear to be changing the contours of South Korea’s broader market. They are the force behind the benchmark Kospi index’s 64% rebound from its March low -- the strongest performance in Asia in that period -- having bought a net 25.6 trillion won ($21.6
billion) worth of stocks since then even as foreign funds and institutional investors sold. In the U.S., the Robinhood craze means that retail investors now account for roughly 20% of equity trading, up from 15% historically, according to Bloomberg Intelligence analysis.

“Retail investors appear to be seeking short-term profits after hearing their next-door neighbors earned lots of money from stocks after the March selloff,” said You Seung-Min, chief strategist at Samsung Securities Co.

The activity of Korean short-term traders in September hasn’t been limited to typical darlings like preferred stocks or shares of healthcare firms. They have also dominated trading in blue-chip companies like Samsung Electronic Co., about 81% of value traded this month through Sept. 8, and SK Hynix Inc.,
almost 76%.

“Unlike previously, they are trading large-cap stocks as well because they believe some large-size firms may be able to make a huge profit amid the spread of the Covid-19,” You said.

The South Korea and Taiwanese markets are heavily oriented towards technology companies which has made them a natural destination for traders playing the stay-at-home momentum trade. South Korean retail traders were also highly active in the cryptocurrency markets in 2017. That experience may have emboldened them to be more aggressive in pursuing gains during this momentum move.

The EU may have a case to seek legal remedies under the Brexit Withdrawal Agreement even before controversial provisions in the U.K. internal-market bill are passed by Parliament, and would have a clear justification once the bill becomes law, according to the bloc’s preliminary analysis of the U.K. legislation.

Johnson is facing a backlash from the EU and from within his own ruling Conservative Party after his government said it is ready to break its commitments to the EU over the Irish border. With negotiations over a trade deal already deadlocked over state aid rules and fishing quotas, the controversy is fueling concern there may be no agreement by the year-end deadline, triggering tariffs between the U.K. and the world’s biggest single market.

“A no-deal is becoming more likely every day,” Manfred Weber, head of the main center-right group in the European Parliament, said Thursday in an interview with Germany’s DLF radio. “We have the feeling that Britain wants a hard Brexit for ideological reasons and as Europeans we need to prepare for the worst.”

There are three treaties or laws that are now in question and the UK looks like it is going to have to break one. The Act of Union created the UK. The Good Friday Agreement settled the Northern Ireland question and the Brexit agreement created a framework for the UK to trade with the EU post Brexit.

A link to the full report is posted in the Subscriber's Area. 

One of the greatest advantages emerging markets have over developed markets is they get to skip stages of development. The rollout of remote working, more online services like shopping, entertainment and relocating business activities to the cloud is likely to have a much bigger impact on growth in developing countries because the leap in productivity gained is so much greater. That is likely to set up continued outsized growth for years to come.

 

The prime minister could walk away this year and seek to re-open negotiations at a later date. “Our door will never be closed,” Johnson said. “We will of, course, always be ready to talk to our EU friends even in these circumstances.”

Crucially, though, Johnson is a politician who has shown himself to be flexible and often keeps people guessing until the last moment. He says he wants a deal. His officials insist he does, too, and there are still almost four months to go before the real deadline at the end of the year.

The leak of government plans to dilute parts of the Brexit withdrawal agreement sparked muted warnings from Brussels on Monday and private dismay from EU officials. There cannot be a trade deal if Johnson breaks his promises on the earlier divorce accord, the EU said.

In London, the premier’s team worked to contain the damage and play down any threat to the carefully crafted exit agreement.

After all, Johnson is a politician who loves to be loved. During a summer in which public pressure forced him to reverse plans repeatedly -- on issues including exam grading, wearing face masks, and local lockdowns -- Johnson has shown how much he cares about staying popular.

Opinion polls are studied closely in his Downing Street office. Currently they show only limited backing for leaving without a deal. Only a quarter of voters think that would be, as Johnson says, a “good outcome,” according to YouGov. Half say such a result would be “bad” or “very bad.”

How that sentiment shifts, or not, over the next four months may give the strongest clue to whether Johnson will change his mind.

It is very likely that the ambition of having an agreement in place by October was overly optimistic. As with most things in the EU, the negotiations are likely to come down to the wire in late December. Boris Johnson understands that you have to willing to walk away if you are to have any negotiating leverage. Holding out the prospect that the UK is willing to renege on treaties is part of the wider tapestry of brinksmanship.

Demand was strong enough to push rates up, even with cancelled sailings restored and carriers adding temporary and even new permanent services on the lane,” said Freightos CMO Eytan Buchman.

“With reports of rolled shipments and container shortages out of China indicating the extent of the demand rush, carriers will likely introduce another China-US GRI for September, which would be the sixth in just three months,” said Mr Buchman.

In his weekly US import update report, Jon Monroe, president of Jon Monroe Consulting and a representative for Worldwide Logistics, said the big US retailers were “experiencing a major surge in online orders”, and were converting many of their stores to fulfilment centres.

He said, however, that the substantial freight price hikes were taking their toll.

“Importers’ budgets are ballooning and, in some cases, about to explode from having to pay the extremely high cost of transport,” said Mr Monroe. “The record high rates will undoubtedly cause bankruptcies in the worst case, and major budget excesses in the best case, scenarios,” he warned.

There a couple of complimentary trends that have resulted in a significant bump in container shipping rates over the last month. The first is the surge in demand for new furniture as people flee the confined environment of the city for the space of the suburbs. Bigger houses need more tables, chairs, sofas, desks and TVs. These are bulky items so demand for 40ft containers has surged.

Shipping inventory has also declined because of the cost of compliance with IMO2020 regulations. The hit to demand during the lockdowns was likely a significant negative catalyst for what was already a highly pressured sector.

Traders across major asset classes are sending the same message: Prepare for what could be the most-contentious U.S. presidential elections in decades.

One measure of hedging in the stock market is higher than at any point in the past three presidential elections. In the interest-rates market, implied volatility is well above levels reached in 2016 or 2012. And three-month implied volatility in the dollar-yen pair -- a classic haven trade -- has risen above the two-month tenor by the most in two decades, signaling demand for protection from turbulence near Election Day.

Trades protecting against election-induced volatility have been around all year, with “unprecedented” levels of hedging seen as early as January. Yet the potential for drama has only grown since then as the coronavirus leaves the U.S. mired in a recession and President Donald Trump rages against mail-in voting, raising concerns about a prolonged dispute over vote tallies. That uncertainty is complicating more conventional topics, such as how the results will affect tax policy and the trade war with China.

“You have a global pandemic as your backdrop, which speaks for itself, and then you have a president that’s in a term, volatile, and you have the things going on with the Postal Service,” said Zachary Griffiths, a rates strategist at Wells Fargo. “All these factors that don’t typically play into an election are impacting things now and that’s clearly got people concerned. And vol has bid up tremendously in rates and equities.”

Veteran election watchers will remember the hanging chads of 2000 which were key to deciding the outcome of the Florida count and the US election. George W. Bush’s victory came down to 500 votes and it was possibly helpful that his brother was the state’s governor.

It is looking likely that a large number of people are preparing to vote by mail in 2020. The US Postal Service is in no way prepared to handle that volume of mail. Right now, they are short staffed. Whether that is through absenteeism or not, there are already long lines at post offices.

The EC’s paradigm shift

By becoming the borrower through its issuance of €750 billion of debt, the EC sets a new precedent while becoming a major new force in the sovereign debt markets. It is also expected to demonstrate maximum flexibility in managing its debt to achieve the most favorable terms for the member states. The bonds are expected to be repaid through the EU budget through the end of 2058. New tax revenues have been proposed, such as a plastic levy, a digital tax, and a review of the EU Emissions Trading System.  

The recovery plan marks a significant moment in which EU Leaders recognized the need to create a new structure for raising funds under the auspices of the EC and funded by the EU budget. This structure has a strong likelihood of becoming a permanent funding mechanism at the EU level for emergency programs and other funding needs for the fiscally weak member states. They have also acted swiftly to stem the risks to the eurozone’s stability from alarmingly high fiscal deficits, and to front-load the raising of funds in order to plug the enormous fiscal gaps into the future. They have recognized the need to move away from the failed austerity approach of the past and to adopt a pro-growth policy through grants and loans on attractive terms with light conditionality – a major departure from the past.

‘Hamilton light’ plan is an auspicious beginning

The recovery plan could well become a permanent feature for the EU, serving to underpin the debt issued by the periphery member states. This has enormous significance for the EU banking industry, which has become reliant on the ECB’s QE programs for its stability and capital adequacy. If the fear of default is truly removed for any eurozone sovereign debt, without assuming intervention by the ECB, there could be broader implications for financial system integration within Europe, with cross-border mergers and acquisitions within the EU finally taking place. This is sorely needed to drive greater scale in a banking system that has poor profitability compared to that of the US.

The recovery fund may not be quite as far-reaching as Alexander Hamilton’s re-ordering of the financial system in the newly born United States. However, the progress made by EU leaders this summer points to a measured yet pivotal step toward very similar ends. 

Europe has just created Federal bonds which will be repaid from the bloc’s budget. New taxes are being proposed to increase the size of the budget and there are aspirations for the system to become permanent.

In his speech, Barnier also hinted that negotiations over the EU and U.K.’s future relationship may stretch beyond a meeting of the bloc’s leaders scheduled for mid-October as the two sides struggle to reach an agreement.

“If we want to ensure the ratification of this new treaty at the end of the year, we need an agreement around Oct. 31,” Barnier said. “The clock is ticking.”

Brexit appears to have lost its ability to move markets. Perhaps investors have made their peace with the idea that the UK will leave the EU without a trade deal. It’s more likely that investors have concluded the border with the EU will be down the middle of the Irish Sea rather on the island of Ireland. In other words that a deal is inevitable.

The top three holdings of the machine-guided fund in July were Amazon.com Inc., Alphabet Inc. and Facebook Inc. Those are far from the kind of undervalued stocks typically favored by a value strategy. But to Qraft, it’s just value 2.0.

“Intangible assets have become a more important factor in the actual value of the company due to the development of information technology,” founder Hyungsik Kim wrote in an email.

“It is easy to tell which of the following is more important in measuring the value of Amazon: warehouses (tangibles) or automated logistics systems (intangibles).”

It’s the rallying cry for many remaining proponents of value: The factor isn’t dead, it’s simply plagued by outdated accounting rules that treat intangible investments such as research as expenses rather than capital.

As a result, knowledge-intensive firms end up with much lower book values and higher costs, which make them look more expensive than they actually are.

The new ETF’s eye-catching backtests also speak to the variety of methods underlying even the best-known equity factors. One study estimated there are well over 3,000 different ways to define a value strategy.

Intangible values is a fascinating subject because it forms the basis for the investing in technology firms but is the reason to avoid legacy firms. The challenge in teaching an algorithm to know the difference means a great deal of labeling would be required to identify the differences.

UK National debt hits £2 trillion. As in astronomy, it is difficult to get one’s head around the numbers A financial journalist put this into some perspective this morning. Someone living in ancient Egypt at the time of the great pyramid spending a million pounds a day over the next 3000 years would still have money to spare today!

Thank you for this comparison. It is also a £30,000 ($39,240) debt for every one of the UK’s 66.5 million people. By comparison the debt per capita of the US is now $80,000 per person. As with so many items, the absolute level is often less important than the trend.

Lyft and Uber shares erased earlier losses to jump higher after the companies were spared from having to rapidly convert their California drivers to employees by a state appeals court

Shares of both companies had dropped earlier after Lyft said it will suspend its rideshare operation in California at 11:59 p.m. Pacific time today

“We don’t want to suspend operations. We are going to keep up the fight for a benefits model that works for all drivers and our riders,” Lyft said in statement

Lyft shares rose as much as 8.7%, Uber gained 7.8%

NOTE: Earlier, Former Uber Security Chief Charged With Obstruction of Justice

Tax codes generally favour business owners. It is in the public good to foster business creation because that improves the potential for new jobs to be created by entrepreneurs. The sole proprietor gains many of the benefits of business tax treatment, but also gives up the safety net provided by companies in the form of benefits. They lose access to unemployment benefits and the old age pension/social security benefits are also not as generous. In return sole proprietors generally pay less city, state and federal taxes than corporations do.

I am a pre-subscriber (financial constraints, exacerbated since Covid-19, make it impossible for me to become a full subscriber, I'm afraid, so I may not qualify for a reply. But David did reply to me on more than one occasion;  he was always so kind, and is greatly missed).

I remember your being on the panel at a money show in the conference centre in Westminster Square (I forget the name - possible Westminster Conference Centre) - it must have been about 2009 because I remember asking a question as to whether there were any "good" banks left that might be worth investing in.
  
Anyhow, in response to a question from another attendee about companies drilling for water in Australia, (or possibly into wind power or solar or even lithium miners (if it wasn't too early) - I forget exactly which), I remember you replying that you never favoured chasing these early-stage stories, and in general you have been proved right since.   

I still tend to class hydrogen fuel and battery power for vehicles in the same category, but perhaps you feel that times have changed sufficiently now?    Since I am only a pre-subscriber, and not able to read the full article, I appreciate that you may have said more on this there, or in previous Comments of the Day.
    
It seems to me that since hydrogen when mixed with oxygen is a very explosive mix (although this could also be said to a lesser extent of petrol vapour, I suppose), it would only take one careless mistake or faulty construction to cause a serious explosion.   But perhaps the design features are so tight that this would be impossible.   

At least I would trust an electric vehicle more than a self-driving one! In fact, I am a bit nervous by nature. I would never trust a Toyota now, after that stuck accelerator pedal caused a fatality. What the last minutes of those poor occupants were like I cannot face thinking about.

Whether it is possible to reply to this or not, many thanks Eoin for the comments that I am able to read daily. They give a very sane and reassuring perspective, especially in these difficult times.

David always saw value in conducting a public discourse with subscribers because it helped to educate us as much as the Collective. It also ensures we are covering topics of interest. I agree and one of the things I enjoy most is attempting to provide satisfactory answers to subscriber’ queries. However, as someone who has been familiar with the Service for at least 11 years, might I suggest you at least take a trial subscription?

If that is too much of a financial constraint it may be time to reassess your investment/trading ambitions. Investing involves a degree of risk. If you are uncomfortable with driving a Prius because of a fault corrected more than a decade ago, it might be time to conclude investing is not for you.

The response to this email continues in the Subscriber's Area. 

Once countries have basic housing for the poor and an urban economy has installed the infrastructure to begin to grow, there is an increase in wealth, GDP and income per capita. This allows for a move from public housing to suburbanise into single unit family homes, something witnessed in many developed economies across the world. In the UK, the overall number of ‘housing starts’ has stayed largely flat since the 1970s, but the housing mix has changed from public to private homes. At the same time, timber consumption has increased as, on average, a single-family suburban home uses around three times the timber of a multi-family unit.

And

The result is that even when total new housing starts begin to level off, timber consumption increases again in the mature stage of an economy, leading to a third wave of timber construction. Not only is more timber used in single unit homes, the home improvements sector becomes a significant additional source of timber demand. In the US and developed world it contributes circa 35% of all consumption by the construction industry.

The big question for timber consumption in the medium-term is whether the trend of migration from cities to the suburbs will continue post COVID-19. The desire to exit population dense regions during the pandemic was understandable and not least because of the widespread public disobedience that characterised the lockdowns. The big question is whether that migration will be sticky. We do not yet know how long people will be happy working from home or whether they will miss the buzz of the city.

For four months, the Victoria’s Secret flagship store at Herald Square in Manhattan has been closed and not paying its $937,000 monthly rent. “It will be years before retail has even a chance of returning to New York City in its pre-Covid form,” the retailer’s parent company recently told its landlord in a legal document.

“In the prime real estate areas, all the stores rely on having half international tourists and half local tourists or those from the local neighborhoods,” said Thiago Hueb, a founder of a jewelry company who had decided to close his flagship store on Madison Avenue before the pandemic struck because of high rents.

Now brokers are calling him trying to lure him back to the block, but Mr. Hueb, whose jewelry is sold in 80 department stores nationwide, is not interested.

“The avenue is no longer what it used to be,” he said.

J.C. Penney and Neiman Marcus, the anchor tenants at two of the largest malls in Manhattan, recently filed for bankruptcy and announced that they would shutter those locations.

It easy to give into the groupthink that the lockdowns will last forever. They won’t. By the time next summer swings around the world is going to be awash in tourists again. The lure of US retail will still be powerful for international travellers. The sheer scale and variety is hard to beat, but the high sales taxes and import taxes elsewhere make the USA a favoured shopping destination. Between now and then we can expect a significant transfer of assets from weak to strong hands.

3. Valuation is not privatization It is a misconception to assume that valuing ecosystem services in monetary units is the same as privatizing them or commodifying them for trade in private markets (Costanza, 2006; Costanza et al., 2012; McCauley, 2006; Monbiot, 2012). Most ecosystem services are public goods (non-rival and non-excludable) or common pool resources (rival but non-excludable), which means that privatization and conventional markets work poorly, if at all. In addition, the non-market values estimated for these ecosystem services often relate more to use or non-use values rather than exchange values (Daly, 1998). Nevertheless, knowing the value of ecosystem services is helpful for their effective management, which in some cases can include economic incentives, such as those used in successful systems of payment for these services (Farley and Costanza, 2010). In addition, it is important to note that valuation is unavoidable. We already value ecosystems and their services every time we make a decision involving trade-offs concerning them. The problem is that the valuation is implicit in the decision and hidden from view. Improved transparency about the valuation of ecosystem services (while recognizing the uncertainties and limitations) can only help to make better decisions.

Assigning a value to the natural world is at once both helpful and also deeply concerning. On the one hand it helps to ascribe a value to the benefit each of us receives from the place we call home, the air we breath and the water we drink. These are often factors we take for granted, but we are increasingly being re-educated to think of the unnatural way in which these gifts have been distributed.

Dear Eoin and team, I would like to thank you very much for the big difference you have made to my confidence in advising my clients, since I re-joined the service. If only I could find a way of explaining the benefit to my professional contacts! All the very best

Thank you for your kind words and welcome back. The one thing I would highlight for prospective subscribers is that in the evolving global tapestry of events, some big picture perspective is likely to be beneficial.

Dear Eoin, I've enjoyed reading your words for quite a while. Today is the first time I am writing you. You included a snip-it from Martin Spring suggesting a genetic component to how people from Southeast Asia avoid infections. You also suggested that it might be potential herd immunity from previous outbreaks.

As a person who has lived in Hanoi for 12 years, I wanted to share my insights with you.

First, and foremost, the government was very quick to shut things down here. The border with China closed even before we had our first case in country. Given the history with previous outbreaks, the government knew enough to act swiftly.

Second, lots of propaganda. In every neighborhood there are announcements about covid. On TV you are reminded constantly about covid. Every time you call someone, they insert a message between the time you press the button and it starts to ring. That message reminds everyone to wear a mask, wash your hands, keep your distance, etc.

Third, people here are more compliant. Conflict is frowned upon. The government says do it, you do it. They say you will protect your parents and grandparents, so you do it out of respect. Young people often avoid wearing helmets on their motorbikes (required by law) but they all wear masks.

Fourth, and something I have not seen stated before, is the Vietnamese language itself. Vietnamese is an under-aspirated language. That is, people breath much less when they speak. In the English- speaking world, sometimes we feel others spit on us accidentally while they are speaking. This does not happen in Vietnam because of the way the language works.

In short, there are plenty of reasons why Vietnam, in particular, has been lucky. Of course, we just started our second wave and now have 16 deaths. Still, I see no reason to believe that there is a genetic component to Vietnam's good fortune. Keep up the great work. Even those of us who never write to you find great value in your insights. Best regards, J.

Thank you for this informative email and your kind words. The Vietnamese response has been very impressive and I in no way wished to disregard the Herculean efforts they have made to contain infection. I did however wish to draw some attention to the question of where the disease in fact originated.

Some of the biggest countries are recording amazingly low figures. In India the virus has killed only two people per hundred thousand. In Brazil less than 4 per cent of those infected are dying. Nowhere is Covid-19 much worse than a bad outbreak of flu. That’s why I call the extreme policies of lockdowns and border closures the Self-Inflicted Disaster.

You may remember that I suggested months ago that the extraordinarily low infection rates and deaths in East Asia could be because people of Mongoloid race have strong genetic resistance to the virus. Till now nobody has wanted to say that could be so, because of fear of being accused of racism. However now I see that the New York Times, in an article about Thailand’s amazing success fighting Covid-19, suggests there could indeed be a genetic component in the immune systems of Thais and other peoples of the Mekong River region. Thailand has experienced only 58 deaths from the virus; Vietnam none at all; China’s southwestern province of Yunnan fewer than 190 cases.

There is an alternative interpretation of the fact that cases in Yunnan, Cambodia, Laos, Thailand, Myanmar and Vietnam has been so low. What if these populations already had herd immunity because they have been exposed to similar diseases in the past?

The first is that many investors have underestimated the impact of low rates on valuations.  In short, what should the stock market yield?  Not its dividend yield, but its earnings yield: the ratio of earnings to price (that is, p/e inverted).  Simplistically, when Treasurys yield less than 1% and you add in the traditional equity premium, perhaps the earnings yield should be 4%.  That yield of 4/100 suggests a p/e ratio (the inverse) of 100/4, or 25.  Thus the S&P 500 shouldn’t trade at its traditional 16 times earnings, but roughly 50% higher.

Even that, it’s said, understates the case, because it ignores the fact that companies’ earnings grow, while bond interest doesn’t.  Thus the demanded return on stocks shouldn’t be (bond yield + equity premium) as suggested above, but rather (bond yield + equity premium - growth).  If the earnings on the S&P 500 will grow to eternity at 2% per year, for example, the right earnings yield isn’t 4%, but 2% (for a p/e ratio of 50).  And, mathematically, for a company whose growth rate exceeds the sum of the bond yield and the equity premium, the right p/e ratio is infinity.  On that basis, stocks may have a long way to go.

The removal of the discount rate, as a basis for valuing cashflows has an outsized effect on all income producing assets. That implies the persistent threat of deflation which allowed long-bond yields to compress to historically low levels globally will persist indefinitely.

Digital continues to rise. Pre-COVID-19 trends will likely accelerate, with direct-to-consumer e-commerce, such as brands’ websites, shoppable social-media platforms, and marketplaces becoming more important. Across the globe, consumers indicate they are likely to increase their online engagement and spending. Beauty-industry players will need to prioritize digital channels to capture and convert the attention of existing and new customers. On the operations side, the use of artificial intelligence for testing, discovery, and customization will need to accelerate as concerns about safety and hygiene fundamentally disrupt product testing and in-person consultations.

The pace of innovation accelerates. As the COVID-19 crisis has shown, the world can change quickly, bringing substantial shifts in demand. Sometimes, supply cannot catch up. Even before the pandemic, brands were under pressure to overhaul their product-innovation pipelines, inspired by the ability of digital-native direct-to-consumer brands to go from concept to cupboard in less than a month. Now, the need for speed is even greater. To achieve it, there may be a greater role for contract manufacturers, both to diversify (and thus reduce production risks) and to serve as thought partners in product innovation. There is also potential for closer collaboration—among brands and retailers, in particular—through data sharing and inventory pooling.

M&A rises as multiples fall. With the COVID-19 crisis causing significant damage to the balance sheets of brands, retailers, and suppliers, many companies will need to find new sources of capital. At the same time, given the hits to revenues and the global economy, multiples could fall from precrisis levels, when some brands were trading for more than eight times revenue or 10 to 15 times earnings.

The clearest trend in online retail is the evolution of the in-person sales experience. Most men think of shopping in a perfunctory manner but most women think of it as a pleasurable experience which is part of a daily social experience. It is very difficult to replace the sales experience of in person contact online and from a purely technological experience it is inefficient. That’s where livestreaming comes in.

In the view of analysts from Goldman Sachs Group Inc. and Oxford Economics, rate increases may be warranted soon. Others are less bearish, citing a shortage of liquidity in the offshore money-market engineered by authorities.

The cost of overnight funding spiked to over 1,000% earlier this week, making it prohibitively expensive for foreign investors to borrow the currency and bet against it.

“My sense is that there is more tolerance for currency volatility than there is for a drastic measure like an emergency rate hike,” said Phoenix Kalen, a strategist at Société Générale in London. “And with the squeezes in the front-end rates, market participants are, needless to say, wary about getting burned trying to short the lira speculatively.”

The single biggest lesson this year is that COVID-19 is an accelerant. It has exaggerated just about every trend that was in evidence in 2019. That’s as true of yield compression and gold’s bull market as it is of the growth of cloud computing. It’s also highlighting the serious debt problems of countries like Turkey.

Robusta coffee futures have surged about 16% in London this month, the biggest gain for a most-active contract since June 2010 amid a shift toward home coffee consumption. Worldwide lockdowns that shuttered cafes, restaurants and offices have supported demand for robusta beans, typically favored to brew instant coffee at homes.

“Nestle results provide confirmation at-home sales is doing very well,” said Carlos Mera, an analyst at Rabobank in London. “It was priced in to some extent, based on IRI data from the U.S., but this is more global.”

Robusta spreads have firmed up and its certified stockpiles have fallen to the lowest since the start of last year. Speculators covering their negative positions has also helped prices rally in recent weeks. Smaller robusta crops expected in Brazil and Vietnam in the 2020-21 season are also bullish for prices, Rabobank said.

I’ve been working from home for 13 years and even I am drinking more coffee than normal lately. Many people have probably discovered that with the help of capsules of home espresso machines it is possible to get better tasting coffee than what is available from Starbucks. Arguably, that wouldn’t be difficult.

In some ways, however, that was the easy bit. The U.S. economy now enters a phase that cautiously could be described as the beginning of a recovery. However, remember that the virus is still out there. This leads to the question of how QE can continue to provide support in the months ahead? In terms of mechanics, the Fed describes the main purpose of LSAP as putting "[…] downward pressure on longer-term interest rates […]" in order to stimulate economic activity by generating attractive financial conditions.5 The key word behind those mechanics would be financial conditions. Such metrics generally try to describe the "[…] financial conditions in money markets, debt and equity markets […]" as the Federal Reserve of Chicago puts it.6 In other words, measures of financial conditions gauge the effectiveness of monetary policy.

Deriving a metric that summarizes the stance of monetary policy once the policy rate hits the Zero Lower Bound (ZLB) is not a trivial task, however. The monetary stimulus, as a combination of rates at the ZLB and asset purchases, is not directly observable. Our preferred methodology to overcome this problem would be the so called shadow short rate (SSR) as provided through the Reserve Bank of New Zealand.7 This concept mathematically derives a theoretical policy rate which is based on the evolution of the whole yield curve, therefore accounting for the impact of QE once the true policy rate is at the ZLB (see Chart 2).

Using the inflation of financial assets as a way of measuring the success of monetary accommodation is a recipe for bubble inflation. Nevertheless, it is the most expedient way to measure the impact of a central bank’s actions in fostering growth.

Unfortunately, the vast majority of the tests were done at the big new Optum site, or inside local hospitals, and processed by Quest Diagnostics and LabCorp. Five months into the pandemic, the two giant private testing companies were taking more than a week to send back results. “If I look at Optum I always ask, ‘What am I going to do with this, because the result is eight to 10 days old?’” said Erica. “Your ability to contain is over.” By the time she got a hold of people to inform them that they had Covid-19, they no longer had Covid-19. There was no point in isolating them.

I think the rest of the world must be bemused at the resistance many Americans have to cooperating with public health officials, wearing masks and social distancing. As far as I can see there are a couple of reasons that simply are not getting discussed.

When I was tested in early May it took 11 days to get the results. That’s frankly ridiculous and timelines have not improved. I was feeling flu symptoms for about 24 hours and I quarantined myself away from my family for two days but it was a 24-hour bug so maintaining distance when you feel fine is difficult. In the end my results were negative. However, if I was positive, I would probably have passed it one to multiple people before I got my results. That pretty much means that testing is futile and everyone who has been tested knows it.

During today’s testimony before a Congressional antitrust panel, Mark Zuckerberg went off-script a little bit -- at least the script we expected -- pointing out how Facebook Inc. lags behind a number of competitors, including Alphabet Inc., Amazon.com Inc. and Apple Inc.

Zuckerberg isn’t hesitating to use some sharp elbows, pointing out that Amazon is the fastest-growing advertising platform and Google is the biggest.

“In many areas, we are behind our competitors,” Zuckerberg said. “The most popular messaging service in the U.S. is iMessage. The fastest growing app is TikTok. The most popular app for video is YouTube. The fastest growing ads platform is Amazon. The largest ads platform is Google. And for every dollar spent on advertising in the U.S., less than ten cents is spent with us.”

This is why the executives likely preferred to appear at once -- it allows them to spread the burden. The antitrust case against Google and Facebook is far stronger than the one against Apple, for instance.

The five largest tech companies in the USA have dominant positions in the social/ecommerce/cloud computing sectors. They may compete with one another but the barriers to entry are so large that it is largely beyond the scope for smaller companies to compete. In fact the only way for established businesses to reach consumers in any other these sectors is to use the products and services provided by the big five.

Kōno said Japan would welcome an invitation to join the Five Eyes grouping.

He warned the growth of the Chinese economy has allowed China to purchase foreign tech companies, adding: “This is a development we must monitor closely. Tech-partnerships with countries like the UK will be critical to countering China, pooling our investments and encouraging our people to study the skill sets needed for our high-tech sectors to grow.”

He added China was attempting to become independent of the US dollar economy through fast money-sending services, the introduction of their own internet, launching a digital renminbi and introducing a Chinese international order.

Kōno in his remarks stressed he was not seeking a military conflict with China, and was instead hoping to provide the Chinese Communist party with the space to cut defence spending, allowing democratic nations to take parallel steps.

Urging caution about economic decoupling, Pascal Lamy, the former World Trade Organization director general, predicted a more autonomous and closed China was likely to prove more dangerous. But he warned: “The west cannot coexist in a free trade relationship with a country that subsidies 30% of its economy. If China is not willing to accept global disciplines on state aid then we have to review a number of trade commitments – whether it is on public procurement or in specific sectors.”

The coronavirus crisis has been an accelerant for just about every trend. That is particularly true of the Anglosphere’s awakening to the threat posed by China’s increasingly ambitious program of global domination. There is no getting around the fact that many countries are heavily reliant on Chinese suppliers for essential components and products to fuel their economies, and are also reliant on Chinese demand to absorb their exports. Therefore, the process of decoupling was never going to be a simple process but it is underway and is likely to persist.

Evacuations of the mostly local tourists will take at least four days, with domestic airlines running 100 flights from Da Nang to 11 Vietnamese cities, according to Reuters.

The first case was confirmed on Saturday, with another 11 cases, all from the hospital where the initial case was being treated, confirmed late Monday.

These are the first cases of Covid-19 in the country since April.

Those leaving Da Nang will have to self-quarantine for 14 days, fill out health declaration forms, or report on their health to local authorities.

Vietnam’s aggressive response to the burgeoning outbreak is a prime example of how it has been able to keep the pandemic at arm’s length.

With a population close to 95.5 million people, Vietnam has seen only 431 cases of Covid-19 and zero deaths, according to John Hopkins University.

The number of countries that successfully quashed coronavirus infections in February and March is frighteningly small. Vietnam was among the leaders in aggressive early action and it succeeded in keeping its case numbers low and spread contained. It is testament to just how difficult the virus is to contain that cases are rising once more in Vietnam.

The stimulus debate pits the GOP’s political pragmatists against its spending hawks, with the fate of swing-state incumbents hanging in the balance: At-risk Republican senators don’t want to return to the campaign trail during the August recess empty-handed, while fiscal conservatives recoil at any plan that they see as ballooning the deficit and conditioning the public to expect broader government assistance once the pandemic is over.

At stake could be control of the Senate and White House, some Republicans warn. The nonpartisan Cook Political Report last week released a new analysis of key Senate races that for the first time this cycle favored Democrats to take back the chamber.

Democrats already control the House and are expected to keep or expand their majority in November, making the GOP-held Senate a critical bulwark against total Democratic control of the legislature next year. Democrats need to flip three seats from red to blue to seize control of the chamber in November, or four if President Trump wins re-election.

The massive stimulus introduced during the initial lockdown with $1200 for the majority of adults and $600 a week for millions of unemployed people plugged a significant hole in consumer spending potential. It also allowed ecommerce businesses to flourish and gain market share.

For a view of just how high the bar is set for technology stocks, consider this: Every single one of their earnings reports this season has topped forecasts. Yet the sector has recently gone from being 2020’s best performer to one of its biggest laggards.

Not that beloved tech companies have crumbled. Since the reporting season began July 14, the S&P 500 technology sector is up 0.7% while the Nasdaq 100 is virtually unchanged. But both have trailed the broader S&P 500 over the period, and tech’s performance is the second-worst of S&P’s 11 main sector groups.

That’s a change from earlier in 2020 -- a year in which megacaps and tech firms have been viewed as coronavirus havens because of their strong balance sheets, healthy profit pictures and the fact that some have actually benefited from the stay-at-home economy. Still, with the tech-heavy Nasdaq 100 up 22% this year, investors want proof that those stocks are worth the high prices they’re fetching.

“On the positive side, there are so many reasons why tech should be okay,” said Gene Goldman, chief investment officer at Cetera Financial Group. “But on the negative side, it’s just valuations and earnings. It’s a high bar that companies are going to have to beat.”

Stay-At-Home stocks have been the clear winners from the lockdowns. The concentrated number of winners coupled with a surge in liquidity and punters eager to participate resulted massive outperformance over the last few months. 

The US dollar accounts for over 50% of reserves held and has unwaveringly remained the primary reserve currency since 1945, especially after it replaced gold as the most-held reserve asset after there was a move to a fiat monetary system.  European currencies have remained steady at 20-25% since the late 1970s, the yen and sterling are around 5%, and the Chinese RMB is only 2%, which is far below its share of world trade and world economic size, for reasons we will delve into in the Chinese section of this book.  As has been the case with the Dutch guilder and the British pound, the status of the US dollar has significantly lagged and is significantly greater than other measures of its power.

That means that if the US dollar were to lose its reserve status and significantly depreciate in value it would have a devastating effect on the finances of those countries holding those reserves as well as private-sector holders of dollar-debt assets.  Who would be the winners?  Those with dollar-debt liabilities and those with non-dollar assets would be the big winners.  In the concluding chapter, “The Future,” we will explore what such a shift might look like. 

The massive increase in the supply of currency since the end of the quantitative tightening regime last year is a headwind for the US Dollar. The fact the monetary and fiscal assistance programs deployed by the USA are much larger than in other countries is certainly a near-term headwind for the Dollar but the big question is whether this is a secular change?

After negotiating through the night, the Netherlands, Austria, Denmark and Sweden are satisfied with 390 billion euros ($450 billion) of the fund being made available as grants with the rest coming as low-interest loans, the officials said, asking not be named discussing private conversations. The total size of the recovery package is in flux, but an earlier proposal was for 750 billion euros.

The bloc’s 27 leaders will gather again at 4 p.m. in Brussels to settle the outstanding issues such as the overall size of the fund and the mechanisms for controlling its spending. A French official said that their delegation now see a path to a full deal.

“After lengthy talks last night, we worked out a framework for a possible agreement,” German Chancellor Angela Merkel said on Monday. “It’s progress and gives hope that perhaps today an agreement will be made, or at least that an agreement is possible.”

€750 billion is a substantial aid package, but is rather small when compared to the measures taken by the USA. The reluctance of creditor nations to give money away, the length of time taken to negotiate the deal, and the fact the agreement has been reached following the peak infection point for Eurozone countries have contributed to the tailored size of the package.

Like Germany, Japan was also hit exceptionally hard by the depression and became more autocratic in response to it.  Japan was especially vulnerable to the depression because, as an island nation without adequate natural resources, it relied on exports for income to import necessities.  When its exports fell by around 50% between 1929 and 1931, it was economically devastated.  In 1931, the depression in Japan was so severe that the country went broke—i.e., it was forced to draw down its gold reserves, abandon the gold standard, and float its currency, which depreciated it so greatly that Japan ran out of buying power.  These terrible conditions and large wealth gaps led to fighting between the left and the right.  In 1932 that led to a massive upsurge in right-wing nationalism and militarism to forcefully restore order and bring back economic stability.  To that end, Japan’s military took control and pursued military options to get Japan the resources it needed by taking them away from other countries.  Japan invaded Manchuria in 1931 and later expanded through China and Asia to obtain natural resources (e.g., oil, iron, coal, and rubber) and human resources (i.e., slave labor).  As in the German case, it could be argued that this path of military aggression to get needed resources was the best path for the Japanese because relying on classic trading and economic practices wouldn’t have gotten them what they needed.   

Shifting to more autocratic, populist, and nationalist leaders and policies during times of extreme economic stress is typical, as people want strong leadership to bring order to the chaos and to deal strongly with the outside enemy.  In 1934, there was severe famine in parts of Japan, causing even more political turbulence and reinforcing the right-wing, militaristic, nationalistic, and expansionistic movement.  

In the years that followed, this movement in Japan, like that in Germany, became increasingly strong with its top-down fascist command economy, building a military-industrial complex with the military mobilized to protect its existing bases in East Asia and northern China and its expansion into other territories.  As was also the case in Germany, during this time, while most Japanese companies remained outside government ownership, their production was controlled by the government.

It makes sense that no one would enter a war under the assumption they are going to lose more than they gain. Therefore, it is reasonable to conclude the increasing competition between China and the USA will not result in a war until one side clearly believes they can win. Nuclear weapons obviously complicate the calculus.

Political scientist Joseph Nye believes that the key trigger in the Thucydides trap is an excessive reaction to the fear of losing one’s power status and prospects for future development. In the case of Washington and Beijing, the relative decline of America’s power and the rapid rise of China’s power destabilizes their relationship and makes it difficult to manage. Gen. Martin Dempsey, then-chairman of the Joint Chiefs of Staff of the U.S. Armed Forces, even admitted in May 2012 that his primary task was to ensure that the United States did not fall into the Thucydides trap.

As a result of the slow but noticeable erosion of the U.S. position in the Western Pacific, it is highly conceivable that a scenario could emerge in which the current hegemon is tempted to conduct a strategic counteroffensive in response to an incident, even a trivial one, in the South China Sea or East China Sea, believing falsely that it has the edge over its inferior rival. This would trigger a modern Thucydides trap.

An in-depth reading of Thucydides’ work reveals a second trap, even more complex and dangerous than the first. Thucydides clearly warned that neither Sparta nor Athens wanted war. But their allies and vassal states managed to convince them that war was inevitable anyway, which meant that both city-states would need to gain a decisive advantage at an early stage of the escalating confrontation. Thus, they decided to enter the war after being urged to do so by their vassal states.

The discussions of the Great Game between China and the USA and many interlinkages across the global economy has been fodder for analysts for much of the last five years. I believe a much greater intensification of the competition between the USA and China is likely. Arguably it is already underway. However, for outright war to take place a number of additional conditions would need to be met.

The chancellor and Prime Minister Boris Johnson have repeatedly said they’re not planning on pursuing austerity policies to rein in government spending, and for now Sunak has focused on preserving jobs to avoid long-term scarring of the economy. He unveiled a 30-billion pound stimulus program last week, and plans a wider package in a budget in the fall.

Hughes said while there are upside and downside risks to inflation, they’re tilted toward it remaining below the Bank of England’s 2% target. He also warned that the debts being built up by companies to tide them over the pandemic could end up becoming a burden that leads to scarring of the economy.

“One of the concerns that we’ve had is that the longer the crisis goes on for, the more likely government-guaranteed loans becomes less of a facilitator of the recovery and more of a burden,” he said. “The more the debt is a burden on companies the less they will invest. We know from past crises that one of the reasons you see longer-term scarring on the economy is you have foregone investment, and that scarring can be significant.”

He suggested one way to mitigate for that effect would be to tie repayments of the government-backed loans to a company’s earnings and profitability.

Hughes said high frequency data pointed to a “a bit of good news,” with April representing the low point for the economy and output contracting by about 25% instead of the 35% initially forecast by the OBR. The question is how quickly the economy gets back that loss.

Current OBR projections are based on Britain and the European Union striking a free-trade agreement. If talks fail and Britain is forced onto WTO rules when the current transition period ends in December, there will be adverse “consequences” for growth and the public finances, he said.

The biggest challenge for every country as we look beyond the coronavirus-induced crisis is in what manner the debt will be paid back and how a drag on recovery can be avoided. The clear answer is to refuse to raise interest rates regardless of how powerful the economy is. Following that up with additional spending measures, to placate restive populations is also likely to be part of the solution.

Yet the book that has done the most to educate me about how China views America and the world today is, as I said, not a political text, but a work of science fiction. "The Dark Forest" was Liu Cixin’s 2008 sequel to the hugely successful "Three-Body Problem." It would be hard to overstate Liu’s influence in contemporary China: He is revered by the Shenzhen and Hangzhou tech companies, and was officially endorsed as one of the faces of 21st-century Chinese creativity by none other than … Wang Huning.

"The Dark Forest," which continues the story of the invasion of Earth by the ruthless and technologically superior Trisolarans, introduces Liu’s three axioms of “cosmic sociology.”

First, “Survival is the primary need of civilization.” Second, “Civilization continuously grows and expands, but the total matter in the universe remains constant.” Third, “chains of suspicion” and the risk of a “technological explosion” in another civilization mean that in space there can only be the law of the jungle. In the words of the book’s hero, Luo Ji: The universe is a dark forest. Every civilization is an armed hunter stalking through the trees like a ghost … trying to tread without sound … The hunter has to be careful, because everywhere in the forest are stealthy hunters like him. If he finds other life — another hunter, an angel or a demon, a delicate infant or a tottering old man, a fairy or a demigod — there’s only one thing he can do: open fire and eliminate them.

In this forest, hell is other people … any life that exposes its own existence will be swiftly wiped out. Kissinger is often thought of (in my view, wrongly) as the supreme American exponent of Realpolitik. But this is something much harsher than realism. This is intergalactic Darwinism.

Of course, you may say, it’s just sci-fi. Yes, but "The Dark Forest" gives us an insight into something we think too little about: how Xi’s China thinks. It’s not up to us whether or not we have a Cold War with China, if China has already declared Cold War on us. 

The Three Body Problem is an excellent read and The Dark Forest follows on well from where it left off. The third book in the series, Death’s End, was too meandering for me and I did not finish reading it. For a non-Chinese reader, the names can be a bit of an obstacle but the story is compelling.

Governor Perry Warjiyo said at Monday’s briefing that inflation is under control and the central bank regularly assesses price and growth dynamics.

“We see so far that demand is not yet strong and inflation is low,” he said. “However, if inflation recovers and the economy picks up, Bank Indonesia has the tools ready, we have
the policies.”

The agreement between the Finance Ministry and central bank allows the bonds to be tradable and marketable, Indrawati said, so Bank Indonesia can use the securities for its monetary
operations.

The burden-sharing scheme caps the upside risk for bond supply in the near term, as the bulk of the securities will be privately placed with Bank Indonesia, according to Citigroup Inc. economist Helmi Arman. There’s less likelihood of the central bank unwinding the securities this year or next even
though the notes are tradable, he said in a report.

Bank Indonesia already had been taking a more aggressive role in providing stimulus to the economy, buying sovereign notes directly from the government at primary market auctions since April. Under the latest agreement, Indrawati said the government will double the size of its auction, held every two
weeks, to 40 trillion rupiah.

Emerging markets are currently free to engage in quantitative easing because they are experiencing the same deflationary forces of developed markets. That’s an odd set of circumstances but it speaks to the deleterious effects of the global response to the coronavirus and the impact it has had on near-term inflationary expectations.

We also ranked them. It would have been nice to use profits or sales as the gauge of success. But the lag in reporting and different calendars made that impractical, even for public companies. So we stuck with a market measure, accepting that — in the saying attributed to value investing doyen Benjamin Graham — the market is only a “voting machine” in the short run, rather than a “weighing machine”.

But which market measure? For the main rankings of the top 100, we opted for equity value added. That list included some of the clear “winners” from the pandemic, such as Netflix and Zoom Video. But it has one obvious flaw: it favoured those that were already large. Companies including Nestle, L’Oréal and Alibaba made the cut despite single-digit percentage gains in value.

If we had used percentage gains, the list would have had the opposite problem, favouring smaller companies, penny stocks that can swing wildly on trades of modest value. However, we still wanted to assemble an alternative ranking to highlight some less known but still significant winners. To do this, we used percentage gains but with a $10bn floor for market cap.

This brings into the top 100 companies that escaped the original list such as Ocado, the UK online supermarket that has reinvented itself as a global tech supplier to other grocers, and Peloton, whose stationary bikes equipped with video screens for online classes have surged in popularity as gyms closed. But otherwise the top 100 has a lot of the original big names such as Tesla, Pinduoduo and PayPal.

If the floor is $1bn, there is a lot more shuffling around. On this measure, Novavax comes top, with a 1,900 per cent rise in value. There is little mystery behind this: Novavax has a vaccine candidate for Covid-19 and is racing to expand its manufacturing capacity. 

There is no doubt that for some companies the COVID-19 crisis has been a gift. It accelerated customer acquisition efforts while also lower lowering borrowing costs and boosting liquidity. High growth companies that reside online, instead on Main Street, were already gaining market share from brick and mortar. That process has not gone into overdrive as the number of retail bankruptcies surges.

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.

The way in which we collect data about the economy is deeply flawed. That’s a well understood fact but we have not yet come up with a more effective way of measuring economic activity and potential. The problem with changing the status quo is it would completely upend the way in which economies are managed. That might well be inevitable because the populist uprising that continue to  spread are challenging the establishment already.

“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?”

Thank you for this email which highlights the dilemma of many people on the side-lines of the broad market rebound. There is always a crisis of confidence for anyone who has missed a rebound and is presented with the choice of buying a breakout or waiting for a pullback. That is amplified during accelerations where the fear of missing out is weighed against the fear of sitting through a reversal.

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.

Thank you for this perspective which I’m sure will be of interest to other subscribers. The personal experience you highlight is a testament to what can be achieved through resilience and frugality. If more people were willing to practice delayed gratification we would be in the very different world. As I see it there are two important trends that the younger generation face relative to the older generation. These are disinflation and globalisation.

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.
 

Setting a high standard for a vaccine that will be administered to hundreds of millions of people is imperative. It is the minimum requirement to instill faith in the population that it is worth accepting. I have every expectation that the advances in genetic sequencing and editing will deliver a positive result this year and that a true second wave will be avoided.

The impatience many people feel is perhaps the biggest obstacle to containing the spread before a vaccine has been delivered. I even find myself being less vigilant now than I was a few months ago. That is despite the massive swell of community spread and the greater likelihood of contracting it as a result. That’s a good example of how even the most extreme situation can assume an air of normalcy after a relatively short period of time. That’s one of humanity’s greatest survival instincts, although it is not especially helpful in the short term.

The 5 billion pounds Johnson allocated to hospital maintenance, school repairs and road improvements on Tuesday is not new money and is a fraction of the infrastructure spending announced in March.

What Our Economists Say:
“There was a lot of inevitable political bluster in Prime Minister Boris Johnson’s speech today, but for the economy there were two key takeaways. First, his pledge to accelerate 5 billion pounds worth of capital projects is money already allocated in the March Budget. He left plans for any further stimulus to Chancellor of the Exchequer Rishi Sunak’s update on the economy next week. Second, Johnson distanced himself from a quick return to austerity. That’s good news for the outlook.”

--Dan Hanson. For the full insight, click here

Carolyn Fairbairn, director general of the country’s biggest business lobby, the Confederation of British Industry, described the intervention as “first steps” only.

“Foundations are there to be built on,” Fairbairn said in a statement. “More is needed to prevent the uneven scarring unemployment leaves on communities.”

She called for more details on Johnson’s guarantee of apprenticeships and in-work placements for younger workers, as well as an extension of wage support to protect jobs and more funding for “future skills in high-potential areas such as digital, low carbon and health.”

Johnson described the planning reforms as the most “radical” since World War II. They include greater freedom for developers to change the use of buildings and land in town centers without planning permission, and would make it easier to convert unused commercial buildings into homes, his office said in a briefing.

Focusing more on regulatory reform to boost growth, rather than relying solely on big ticket spending is an encouraging sign the Johnson administration understands where the big gains are to be made once the UK is unshackled from the EU.

The spending measures in the March budget already imply significant spending. The challenge for the UK is in overcoming the raft of bureaucratic roadblocks to growth that focus on regulations for regulations sake, rather than prioritising productivity.

The secret service, best known as ASIO, confirmed in a statement that “search warrant activity occurred in Sydney on Friday as part of an ongoing investigation,” but would not comment on Moselmane or its involvement.

Less than two weeks ago, Morrison said that a “sophisticated state-based cyber actor” was targeting Australia in an escalating cyber campaign that was threatening all levels of government, businesses, essential services and critical infrastructure.

Most analysts said Morrison was referring to China, but the prime minister would not name the country.

Already high tensions between Australia and China have been raised by the pandemic.

China in recent weeks has banned beef exports from Australia’s largest abattoirs, ended trade in Australian barley with a tariff wall and warned its citizens against visiting Australia. The measures have been interpreted by many as punishment for Australia’s advocacy of an independent probe into the origins and spread of the coronavirus.

Australia’s foreign minister has accused China of using the anxiety around the pandemic to undermine Western democracies by spreading disinformation online, prompting China to accuse Australia of disinformation.

Australia depends on China’s demand for many of its exports. That’s represents a difficulty for the country in attempting to assert independence from China. For its part, China has a clear interest in securing its supply chains. That means ensuring Australia is at least amenable if not fully subservient to its wishes.

German Chancellor Angela Merkel made a pitch for a radical recovery proposal for the virus-ravaged European Union and warned her cohorts that there was no time to lose.

Her words carried extra weigh, spoken in person on Monday alongside Emmanuel Macron. The French president is the other heavyweight in the euro. He is a long-term advocate of ever-closer collaboration for a common position on international relations and a joint fiscal policy.

Germany has always been the more reluctant partner on both fronts, but there are signs the famously cautious Merkel is letting up.

“Talks won’t fail because of us,” Merkel told reporters in Meseberg, Germany. “But there will be no new proposal.”

Merkel’s exhortation comes before all 27 EU members gather in Brussels on July 17 to discuss a stimulus package that would see the bloc issue 750 billion euros ($845 billion) in joint debt and make 500 billion euros of that in grants to the nations most affected by the coronavirus crisis.

The plan, which needs the unanimous approval of all EU members, seeks to tackle divergences in the region’s internal market that have widened as a result of the uneven impact of the outbreak and differing national responses.

Here is a summary of what the director general of the WHO had to say today:

Tedros Adhanom Ghebreyesus, director general of the World Health Organization, said that living with Covid-19 is the “new normal” and that “we will need even greater stores of resilience, patience, humility and generosity in the months ahead.” He spoke Monday at a press briefing in Geneva. 

A link to the full report is posted in the Subscriber's Area. 

The biggest existential question in financial markets today is how likely are global interest rates to trend towards zero in aggregate. To date the Anglosphere countries have been adamant in their determination to avoid negative interest rates.

However, there is no avoiding the fact that interest rates are falling all over the world. Additionally, Poland, Ghana, Philippines, Chile, Turkey, Colombia, Thailand, South Africa, Egypt, Hungary, Romania, Indonesia and South Korea are all now engaged in quantitative easing.

Looking at the daily charts of the Dow Jones and S&P there appears to be potential "island reversals". Do these "islands" carry much weight in charting terms?

Thank you for this question which I believe will be of interest to the Collective. In order for an island reversal to form we need to first see a breakaway gap form which is generally consistent with a burst of enthusiasm. That has to be followed shortly afterwards by a breakdown gap which is consistent with a sudden bout of fear which nullifies the initial surge.

A link to the full report is posted in the Subscriber's Area.

The Dollar tends to attract interest because the USA is the largest capital market and the Federal Reserve is highly active in deploying support measures for the economy. The supply inelasticity argument supported its value until last year and the subsequently, desire for a safe haven has been a support.

“@DavidGHFrost
6/6 Finally, I want to be clear that the Government will not agree to ideas like the one currently circulating giving the EU a new right to retaliate with tariffs if we chose to make laws suiting our interests.We could not leave ourselves open to such unforeseeable economic risk.”

Frost’s comments come ahead of a fresh round of talks with the EU next week. The two sides are trying to break an impasse that risks a damaging rupture at the end of this year. Without a trade accord, Britain and the EU would default to trading on World Trade Organization terms from Jan 1. 2021, meaning steep tariffs and an economic shock.

A key sticking point in the talks has been the EU’s demand that the U.K. commits to tracking the bloc’s rules in areas such as environmental and labor protections and state aid, for fear that Britain would become a competitor on its doorstep. The British government sees the request as inconsistent with the principle of sovereignty that it argues was at the core of the vote for Brexit.

“This needs to be a real negotiation and some of the EU’s unrealistic positions will have to change if we are to move forward,” Frost said. “U.K. sovereignty, over our laws, our courts, or our fishing waters, is of course not up for discussion.”

The EU is deeply concerned at the prospect of the UK competing aggressively. There is a simple reason for that. Self-determination, which the UK has just recovered, is easier to manage than decisions by committee. Any counter measures the EU uses against the UK will need to focus on broad market access and tariffs because it is incapable to taking competitive steps on its own for fear of upsetting its own internal balance of relationships. The EU’s negotiations are aimed at ensuring the status quo is maintained.

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

No President in modern history has been more stock market friendly than Donald Trump. Since he won the election in 2016, the Nasdaq-100 has doubled. The fiscal stimulus, tax cuts and tax holidays on foreign income, regulatory roll backs and championing of the stock market have all contributed to positive returns. The simple fact he has continually pointed to the strength of the market as vindication for his policies is a clear sign of his efforts to boost sentiment.

After watching your latest insightful and thought-provoking long term take on the markets, I noticed on Friday there were daily downside key reversals both for the Dow Jones Utilities and Transportation indices. Could this be a straw in the wind for the main US indices?

Thank you for your kind words and this question which may be of interest to other subscribers. For a key reversal to occur, we need to see a new high reached for the move, only to be reversed and for the market to fall and close below the low of the previous day.

Questions like these can’t tell us for a fact whether an advance has been reasonable and current asset prices are justified. Buy they can assist in that assessment. They lead me to conclude that the powerful rally we’ve seen has been built on optimism; has incorporated positive expectation and overlooked potential negative; and has bene driven largely by the Fed’s injections of liquidity and the Treasury’s stimulus payments, which investors assume will bridge to a fundamental recovery and be free from highly negative second-order consequences.

A bounce from the depressed levels of late March was warranted at some point, but it came surprisingly early and quickly went incredibly far. The S&P500 closed last night at 3,133, down only 8% from an all-time high struck in troubled-free times. As such, it seems to me that the potential for further gains from things turning out better than expected or valuations continuing to expand doesn’t fully compensate for the risk of decline from events disappointing or multiples contracting.

In other words, the fundamental outlook may be positive on balance, but with listed security process where that are, the odds aren’t in investors’ favor.

The rise of earnings-agnostic investing has been a trend which has defined the bull market since 2008. Every major bull market thrives on a financial innovation. It would be tempting to think that in this case it was cryptocurrencies, but the answer is probably more mundane. ETFs have enabled factor investing and promoted the acceptance of Modern Monetary Theory. They have allowed companies like Blackrock and Vanguard to become titans of Wall Street on the back of value-agnostic investing.  

Prime Minister Boris Johnson called for people to be “less apprehensive” about Covid-19 as the U.K.
lowered the pandemic alert level and he promised to get all students back to school by September.
The new Level 3 alert indicates the virus is no longer spreading exponentially after almost three months of lockdown, and the guidance allows for some relaxation of social-distancing
measures.

Johnson hinted the rule that people should stay 2 meters (6 feet, 7 inches) apart may be relaxed to 1 meter for pupils -- as Northern Ireland has done -- to help re-open schools in England. He also said the track and trace system, and a new treatment for the virus, means the pandemic is entering a new phase.

“We’ve got to start thinking about a world in which we are less apprehensive about this disease,” Johnson told broadcasters on Friday. “On the social-distancing measures, watch this space, we will be putting in place further changes as the science allows.”

We have a lot more testing so the number of cases continues to rise. The protest movements that sprang up at the end of May and the end of lockdowns have also both contributed to the increasing pace of the spread of the coronavirus. The big question we all need to answer is does it matter?

FWIW I found this page on the AP website which seems to debunk the idea on BLM being used to fund Democratic candidates:

https://apnews.com/afs:Content:9043930562

Over here in the UK, I found this expressed aim of the BLM movement a lot more troublesome:

https://www.gofundme.com/f/ukblm-fund

"a commitment to dismantle imperialism, capitalism, white-supremacy, patriarchy and the state structures"

Has raised nearly £1M.

Thank you for this information email. The ActBlue Charities organisation was set up in 2004 and has been one of the primary routes through which the Democratic Party has sourced grassroots funding. It’s association with BLM, as you point out, is not funding Democratic electoral campaigns directly. However, it would be a gross misrepresentation to think that the two movements are not highly sympathetic to one another. This article from fivethirtyeight.com carries additional information on ActBlue’s success in raising money before the recent protests.

The announcement adds another major player to Shopify’s growing alliance against Amazon.com Inc.’s e-commerce dominance. Last month, I wrote how Shopify CEO Tobi Lutke has often said his company’s goal was to “arm the rebels” against the Amazon empire. The Walmart deal comes just weeks after Shopify signed a partnership with Facebook Inc. that allows Shopify’s merchants to sell on the social-media giant’s platforms under the newly launched Facebook Shops initiative. Before these moves, the aggregated online sales of Shopify’s U.S. customer base already ranked as the second-largest in the country after Amazon, according to the company. And now with Walmart on board and the expanded deal with Facebook, they mark significant steps to expand Shopify’s eco-system, making its platform a more viable and an attractive alternative to sellers.

Amazon is a facilitator of commerce by being a destination in its own right. When people shop, they go to Amazon in much the way we go to Google for information. Anyone who completes a transaction via Shopify’s network is ignorant of the company’s existence because it facilitates trade in the background. The big challenge in competing against Amazon is in easing the route to customer acquisition for Shopify sellers.

A link to the full note is posted in the Subcsriber's Area. 

There is probably no more important question than in which direction bond yields are likely to move. Is the Anglosphere moving increasingly towards negative yields or are we on the cusp of a revolt which will see interest rates rise?

Portnoy and his ilk have been part of one of the greatest rallies in history, adopting as a mantra the online slogan of “stocks only go up!” Market watchers are being forced to ask to what degree retail interest has become a self-fulfilling prophecy in many parts of the market -- and what dangers it poses for its sustainability. Thursday’s rout, the deepest in three months, offered a reminder that stocks do, in fact, fall, though equities rebounded in trading Friday.

Millennials and Gen Zs, the target audience of Barstool content, have long been under-invested in the stock market, said Julian Emanuel, chief equity and derivatives strategist at BTIG LLC.

That’s changing. Stuck at home with plenty of free time, government stimulus checks, no sports to bet on and, for better or worse, a figure like Portnoy turning investing into entertainment, more and more young people are wading in for the first time.

In the last 24 hours two different subscribers have drawn my attention to the role of day traders in supporting stock prices over the last few months. It’s an important phenomenon but it is not new. Investment heavy weights raising cash and warning about excess is a late stage phenomenon. The masses listening instead to proclamations “stocks only go up” is a signal of even later stage activity.

Liberal-market economies

Countries with liberal-market economies face greater short-term risks than do those with coordinated-market economies but have greater flexibility for long-term dynamism. The group includes Australia, Canada, the United Kingdom, and the United States. A key feature here is a limited framework of preexisting measures to protect households—the countries in this archetype spend 17 to 20 percent of GDP on social protection. Their economies skew more heavily toward big corporations than do those with coordinated-market economies, with a comparatively smaller role for SMEs, and flexible labor policies are dominant.

The limited degree of automatic coverage for workers and businesses drives a focus on emergency support-of-wage bills for companies and direct transfers to individuals. More companies will fail in such economies, and the reliance on massive cash transfers in those countries will increase the pressure to build a robust digital infrastructure. However, creative destruction in the least resilient sectors will provide more flexibility to pivot and emerge from the crisis stronger and more competitive, provided that economic shutdowns do not last too long, as unemployment can become sticky, driving up costs and dampening consumption in the longer term.

The clear message coming through from central banks is there needs to be additional and considerable increases in fiscal stimulus to put money in people’s pockets. That is a priority to both quell popular protest but to also reinvigorate demand.

European Central Bank Vice President Luis de Guindos said policy makers at the institution haven’t talk about creating a pan-European bad bank to manage the unpaid loans that are arising during the coronavirus crisis.

“We haven’t had any sort of serious discussion about this instrument,” Guindos said at a webinar hosted by the Institute of International and European Affairs

“I am a little bit surprised when I see this kind of information,” he said in response to a question about a report published by Reuters

Bad banks created after the last financial crisis in Ireland and Spain were “powerful instruments to clean up the balance sheets” of lenders

The potential for the EU to create a bad bank which would warehouse the large number of legacy and new bad debts is certainly a promising potential solution to the region’s systemic problems. Creation of a pan Eurozone body to issue debt and absorb regional debt would represent a significant step towards federalism. It would, however, be a massive step towards recapitalising bank balance sheets. 

Treasury Secretary Steven Mnuchin said the U.S. shouldn’t shut down the economy again even if there is another surge in coronavirus cases.

“You create more damage, not just economic damage -- medical problems that get put on hold,” Mnuchin said Thursday on CNBC. “We can’t shut down the economy again.”

Mnuchin added that he believed President Donald Trump made the right decision to urge states to ease social distancing rules that have crippled the U.S. economy. He said that in the event of a resurgence, it will not be necessary to impose restrictions again because Covid testing and contract tracing are improving and they understand more about how to contain outbreaks.

As restrictions are lifted across the country, signs of a second wave of coronavirus cases in the U.S. have been raising alarms. More than 2 million people in the U.S. have been infected so far.

The majority of coronavirus cases in the USA emerged on the coasts. The middle of the country was comparatively unaffected initially and was afforded the luxury of lax containment measures as a result. The uptick in locations which had large protests a week ago, like Los Angeles, and the rising infection rates in places that did not have a significant issue in March, suggest the first wave of infections is still rolling through communities.

According to the city’s transit manager, Transport for London (TfL), maintaining social distancing means that buses and London Underground trains will only be able to carry around 13–15% of the 9 million passengers who use the services daily. One of eight carriages on a Central line train can carry 131 people in a typical peak hour crush. Only 7% of these passengers could travel if 2-meter distancing was achieved.

TfL has imposed a limit of 20 passengers on its double-decker buses, that can usually carry up to 87.

To help alleviate this precipitous drop in passenger capacity, TfL and London Mayor Sadiq Khan unveiled their ‘London Streetspace’ program in May, which aims to accommodate a possible 10-fold increase in cycling and a fivefold increase in walking. “Many Londoners have rediscovered the joys of walking and cycling during lockdown and by quickly and cheaply widening pavements, creating temporary cycle lanes and closing roads to through traffic we will enable millions more people to change the way they get around our city,” Khan said.

I’m all for walking or cycling to work but a 90% drop in occupancy for the Tube and a 75% drop in bus occupancy is completely unworkable. The age of the Tube network has always mean ventilation is a problem. The 10 to 15 degree pick up in temperature when entering the network has long been a testament to that fact.

“We’re not even thinking about thinking about raising rates,” he told a video press conference Wednesday. “We are strongly committed to using our tools to do whatever we can for as long as it takes.”

The Federal Open Market Committee earlier said it would increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities “at least at the current pace” to sustain smooth market functioning.

A related statement from the New York Fed specified that the pace of the increase would be about $80 billion a month for purchases of Treasuries and about $40 billion of mortgage-backed securities.

“Acting on mortgage-backed securities and Treasuries underscores their belief that more support is needed,” said Diane Swonk, chief economist with Grant Thornton in Chicago. “The Fed does not see a victory in the employment bounce-back. The risk of deflation is still high and the economy needs more support to heal more fully.”
 

$120 billion a month for the next two years will add nearly $3 trillion to the size of the Fed’s balance sheet. It sounds like a lot but the Fed added nearly $500 billion to its balance sheet in May, so $120 billion is a significant deceleration of support.

At the heart of the speculative activity are smaller investors, according to Sundial. Small trader call buying made up more than 50% of total volume last week, the highest since 2000, it said.

Past instances when bullish small trader positions made up 45% or more of volume preceded a median loss for U.S. stocks of about 3% in two months time and 15% in a year, according to the note.

“Small traders are pushing their luck in a major way,” said Goepfert. “It seems increasingly risky to try to chase this rally along with traders who have traditionally been extremely reliable contrary indicators.”

Regardless of any mitigating argument, chasing the rally has been the right decision. The major Wall Street indices blazed through potential areas of resistance in short order. The Nasdaq Composite is now at a new all-time high and the worst performing, most at risk of bankruptcy companies, have staged spectacular rallies. The determination of retail investors to ride the coattails of the Fed while institutional investors stepped aside is a clear example of speculative fervour.

Assuming you don’t get government support to advance research in hydrogen production and carbon capture and storage, what will you have to do to make those viable?

Stay with the program a little bit longer. That’s exactly what we’re doing. You could take a negative view and say we knew that hydrogen was a good thing and we knew that CCS [carbon capture and storage] was needed, but it hasn’t happened. I’m not signing up for that approach. We need a lot of hydrogen in the mix. We need significant CCS. My prediction is that in the next few years you will see CCS projects come off the ground. You will see very large-scale hydrogen projects come off the ground as well. And I hope we will be associated and involved in each and every one of them.

Hydrogen is where traditional oil companies see their future. It does not produce emissions. That ticks a lot of boxes for companies long associated with being among the world’s biggest polluters in their own right while also facilitating emissions growth wherever there are internal combustion engines.

As a white, middle-aged, upper-middle-class immigrant, I’m hardly the person to speak to the politics of race in America.  So I turned to an African-American friend, the economist Roland Fryer, whom I’ve known since we were colleagues at Harvard.

In 2016, he published a brilliant but controversial paper which argued that the police did not disproportionately use lethal violence against black people, though they were more likely to use non-lethal force against them. (A paper published last year in the Proceedings of the National Academy of Sciences lent strong support to Fryer’s thesis.) He has a new, unpublished paper that looks at a perverse effect of investigations into police shootings. I asked Fryer to walk me through the argument.

“If you have a police shooting that goes viral online but isn’t investigated,” he explained, “then nothing changes — levels of police activity and crime are about the same. But if you have a viral shooting that is investigated, then police activity plummets, and crime goes up dramatically.” In just five cities – Baltimore; Chicago; Cincinnati; Ferguson, Missouri; and Riverside, California -- this led to excess homicides of almost 900 people in the subsequent 24 months, 80% them black, with an average age of 28. It's a dangerous Catch-22: You're damned if you don't investigate “viral” incidents, and in even worse shape if you do.

How does Fryer interpret the current protests? “People are fed up,” he told me. “They are frustrated by the disparities they see in educational outcomes. Frustrated by the disparities they see in criminal justice. Frustrated by racial disparities in life expectancy. We are all to blame — this happened on our watch.” And when you add to that the fact that Covid-19 disproportionately affected the black community: “Folks have had enough. People are very much on edge.”

Policing and the outcomes from tough to loose methods is endlessly debatable and not least because of the credit politicians claim for successes that may or may not be attributable to their policies.

That was one of the primary topics of discussion in the book Freakonomics where the coincidence of abortion legislation and the implied reduction in the number of unwanted children implied reduced crime figures twenty years later. A similar argument is made about the impact of removing lead from gasoline and how that improved mental health outcomes and, by extension, crime rates.

Greetings Eoin. Firstly, thank you for the daily commentary and Big Picture Long Term view. They remain the highlight of my weekend and are greatly appreciated. I’m interested in your comments regarding future expectations of inflation.

I hope I’m summarising you accurately, but in essence the thinking runs that the provision of vast amounts of monetary liquidity from Central Banks, combined with Government fiscal spending will at some point come home to roost, and drive up inflation.

If so, why then did we not see an inflation spike following the 2007/08 GFC, where massive (at the time) injections of liquidity and fiscal spending should have delivered the same result?

One view is that we did get inflation following the GFC, just that it showed up in asset prices, not in consumer prices. Equities, bonds, property, luxury goods, art and even later on precious metal prices all benefited from the increased liquidity following 2008. As you have previously highlighted, massive advances in technology, changes to the way we work and live, outsourcing of jobs to lower wage economies, and historically low interest rates have all combined to keep consumer inflation in check over the same period.

Are we to assume that this time is different, and we should expect consumer price inflation at some point, or is it safer to expect history to rhyme and that inflation will again show up in asset prices? If so, should we presume the liquidity will chase better returns and lower P/E multiples of Europe and Emerging Economies this time around? And finally, when investing I’m always conscious of the wise words from the famous British Economist, John Maynard Keynes “The market can stay irrational longer than you can stay solvent”. Spoken nearly a century ago, and never more relevant than today! Many thanks for your time

Thank you for this important email and your kind words. The global response to the 2008 global financial crisis was to bailout the sinners, and pass the bill on to savers. The massive liquidity provided and increases in government debt loads the bailout entailed, saved the global economy. However, it also exacerbated inequality, because, as you highlight the inflation benefitted the holders of financial and physical assets. The coronavirus has laid bare that divergence and it is fanning the flames of left-wing populism.

“You have been calling for some ‘consolidation’ for equity markets for a number of weeks now (which I expected too), but this just hasn’t come to pass. Instead we have seen a relentless charge higher in virtually every market. You’ve stated that it’s liquidity driven which until recently at least, little participation from the professional money managers. Short term yields no longer can be relied upon as a risk indicator with the Fed deliberately compressing yields at the front end. To what extent, if any, has this recent episode viewed the way you look at markets through a charting lense. A despondent sceptic of this rally here, it seems the only winning strategy is just to ride the liquidity train, and rotate one’s positions towards riskier assets (travel, emerging etc) as the new safe havens (tech) reach maturity.

Thank you for this question which may be of interest to other subscribers. In a response to a similar email on May 12th. I led with this observation. “The best time to buy is following a significant pullback. The next best opportunity is following the first reaction from an important low. The next will be when a breakout to new highs occurs.

Jeremy Hunt, a Conservative lawmaker and former foreign minister, opened a new front on Thursday with an op-ed in the Times of London warning that Taiwan, the separately ruled island that China regards as part of its territory, “should worry us more.”

“In its willingness to abandon Hong Kong’s ‘one country, two systems’, China may also be signalling that it has given up hope of a peaceful reunification with Taiwan in favour of a military solution,” Hunt wrote. “Were that to be the case the implications for western democracies would be extraordinarily dangerous.”

One potential bonus for Johnson in escalating tensions with China lies with the U.S., where the Trump administration has been prodding allies globally to adopt a more skeptical stance to Beijing. That includes shunning technological advances such as the 5G capabilities offered by Huawei, which Washington says are a security risk.

The world is quickly realising that decisions need to be made on how close a relationship we want with China. Passing the security law in Hong Kong on the 29th anniversary of the squelching of Tiananmen Square democracy protest movement sends a none too subtle signal China is not about to back down from imposing its will on Hong Kong.  

Without much fanfare, a second global monetary easing was unleashed in May as the dollar fell without anyone appearing to notice. The fact that the greenback fell of its own volition suggests that the unprecedented risk aversion seen in March is really beginning to unwind. If so, then the US$1.2trn sitting in US money market funds since February will be itching to find a home or asset class that can hold its value (see Global Asset Allocation: Too Much Money Chasing Too Few Assets). Throughout 2019, US money markets only accumulated US$555bn.

As fears of the COVID-19 pandemic recede, the Federal Reserve is continuing to add dollars to the global monetary system at an unprecedented rate (see RHS chart). Just as importantly, US implied inflation expectations, as measured by the 10-year breakeven inflation rate, are rising after lurching into deflation. Coincidentally, this is occurring as the futures markets price in the probability of negative US rates. One of the most important turning points for the direction of equity markets is the shift into inflation (see US: Market Bottoms).

The upwelling of emotion that has poured out onto the streets of the USA, and elsewhere, is a symptom of a much larger issue. The reality is that globalisation has hollowed out the middle classes of most OECD countries. Simultaneously, the evolution of technology means we can do even more with less which is dehumanising the economy. That also concentrates the benefits of globalisation in the hands of the well-connected, wealthy and/or highly educated individuals, but also leaves millions of people behind with a degraded standard of living.

While the U.S. President Donald Trump’s speech Friday was heated in rhetoric, it lacked specifics around measures that would directly impact the city. He announced the U.S. would begin the process of stripping some of Hong Kong’s privileged trade status without detailing how quickly any changes would take effect and how many exemptions would apply.

“Trump’s comments gave no immediate measures on Hong Kong and leave room for negotiations with Beijing,” said Castor Pang, head of research at Core Pacific-Yamaichi International. “Trump’s comments have eased investors’ concern about the impact of potential sanctions on the Hong Kong economy.”

With significant domestic challenges the Trump administration has probably concluded that now is not the best time to further escalate tensions with China to the point where they are irredeemable. That has helped to support the Chinese markets.

There’s no sign yet that the stimulus package is anything more than a one-off response to an unprecedented crisis. Even so, investors are viewing it with a bullish lens. “It’s completely new territory for the European Union,” Michael Strobaek, global chief investment officer at Credit Suisse Group AG, said in a Bloomberg TV interview. “And that would make the European Union as an investment much more attractive for global investors.”

That would represent a shift for European markets, which have been unpopular compared with the U.S. For example, European equity funds suffered from outflows more than any other major region this year, losing about $31 billion, according to data from EPFR Global and Bank of America Corp.

Bond Buyers Toast EU Ambition in Moment They Were Waiting for Gary Kirk, a money manager at TwentyFour Asset Management in London, which oversees 17.8 billion pounds ($22 billion), is sticking with his U.S. bias. “It’s a bit early to get overly excited,” said Kirk, who’s waiting to see how the details are hammered out and whether it will pass muster with more austere governments in north Europe.

The Eurozone’s so-called sovereign wealth crisis arose because investments creditor nations’ pension funds made in private enterprises in the Eurozone’s periphery went bad. That was blamed on lax regulation and egregious behaviour with the result respective governments were forced to absorb private sector debts. That blew out sovereign debt ratios and caused a crisis. The response to the coronavirus could not be more different. Coupled with a willingness to loosen fiscal constraints, there is now also willingness to break the taboo of direct transfers to weaker nations. That is significant development even if it proves transitory in the near term.

Years of neglect had already hobbled Mexico’s health care system, leaving it dangerously short of doctors, nurses and equipment to fight a virus that has overwhelmed far richer nations.

Now, the pandemic is making matters much worse, sickening more than 11,000 Mexican health workers — one of the highest rates in the world — and depleting the already thin ranks in hospitals. Some hospitals have lost half their staff to illness and absenteeism. Others are running low on basic equipment, like heart monitors.

The shortages have had devastating consequences for patients, according to interviews with health workers across the country. Several doctors and nurses recounted dozens of preventable deaths in hospitals — the result of neglect or mistakes that never should have happened.

“We have had many of what we call ‘dumb deaths,’” said Pablo Villaseñor, a doctor at the General Hospital in Tijuana, the center of an outbreak. “It’s not the virus that is killing them. It’s the lack of proper care.”

The coronavirus has ripped through the perception of government effectiveness. That is particularly true of governments where lax standards of governance have been a systemic issue for decades. That makes dealing with a threat like the coronavirus all the more difficult because it is not something that can easily be overridden by false paperwork.

Dear Eoin, thank you for the excellent insights into market dynamics. There is one thing which you state from time to time - viz that you do not believe there will be a second wave of the virus in the Autumn. What leads you to believe that - we don't seem to know that much about the virus. So how can you know that there will not be a second wave in the Autumn? Although I definitely agree with you that authorities will do everything in their power to avoid more lock-downs. Many thanks, A

Thank you for this question which may also be of interest to other subscribers. Coincidence does not imply causation even though as humans we are hardwired to recognize patterns. In fact, we are so desperate to make sense of inscrutable situations that our minds will latch onto anything that provides a sense of security. However, the coronavirus is the not the 1917/18 influenza.

“We’ll have a better sense in a few days as we publish our numbers in early June, but it’s likely we will be in between the medium and severe scenarios,” Lagarde said when asked about the outlook in an online question-and-answer session.

The ECB is set to update its official projections for growth and inflation next, when the Governing Council also decides on policy. The central bank launched a 750-billion-euro emergency asset-purchase program in March, and economists are increasingly predicting it’ll be boosted at the June 4 session.

The asset-buying has helped rein in borrowing costs and made it easier for governments to fund stimulus.

And

“All countries around the world had to respond, and as a result of that had to increase their debt,” she said. In the face of the pandemic, “use of debt is not only recommended, it’s the way to go.”

Eurozone countries are being encouraged to break the fiscal strait jacket like never before, and now they have the perfect justification for spending. A decade of austerity has not resulted in debt ratio harmonisation as was hoped.

The coronavirus outbreak in Italy has struck overwhelmingly among the nation’s older population and those with preexisting medical conditions, according to the national health authority.

Almost 96% of the country’s virus fatalities had previous medical conditions, data from Italy’s ISS health institute show. The ISS, which publishes a range of studies on the outbreak including a detailed weekly report, confirms a trend seen since the beginning of the emergency, with the average age of Italians who’ve died from the virus at around 80.

“The latest numbers show that new cases and fatalities have a common profile: mostly elderly people with previous illnesses,” ISS chief Silvio Brusaferro said at a news conference Friday.

The coronavirus pandemic forces us to engage in some grizzly calculus to try and figure out how markets are likely to respond to unfolding events. The reality of aging is we develop chronic conditions, one of which is likely to eventually kill us. Whether that is high blood pressure, heart disease, cancer or diabetes, aging contributes to the ill effects of all these ailments.

One in five people who were working in February reported losing a job or being furloughed in March or the beginning of April, the data showed, and that pain was highly concentrated among low earners. Fully 39 percent of former workers living in a household earning $40,000 or less lost work, compared with 13 percent in those making more than $100,000, a Fed official said.

The U.S. economy began slowing in March as state and local governments instituted stay-at-home orders to tame the coronavirus’ rapid spread. That has most likely caused the steepest growth decline in the United States’ postwar history. Consumer spending has plummeted as stores and restaurants closed, and mass layoffs have become a feature of everyday life. Nearly three million people filed for unemployment benefits last week, pushing the two-month tally over 36 million.

And

While about 53 percent of those with jobs worked from home at the end of March, that was a highly educated group. More than 60 percent of workers with at least a bachelor’s degree worked completely from home, versus 20 percent of those with a high school degree or less.

Among those who had lost hours or jobs amid the pandemic, 48 percent were “finding it difficult to get by” or “just getting by,” according to the survey. Just 64 percent of those who had taken an employment hit felt that they would be able to pay their bills in April, compared with 85 percent of those without a work disruption.

Those challenges came as a large swath of Americans took pay cuts. About 23 percent of all adults, and 70 percent of those who had lost their jobs or their hours reduced, said their income was lower in March than in February.

“We’re All In This Together” has been the rallying cry of media outlets during lockdowns. However, that is no exactly true. Some people are doing fine working from home while others are in dire straits. For people who went into the lockdowns with little to now savings, they are likely to come with even less. That represents a challenge for societies everywhere because the issues of inequality that have been such a cause celebré for populists are going to be magnified going forward. 

Xi’s China is thus not the inevitable culmination of prior Chinese history. When he was elevated to head of the Party in 2012, many Chinese elites hoped that he would deal with mounting corruption—which he did, in a highly authoritarian fashion—but also lay the ground for a more liberal China that would permit more freedom to talk, think, interact, and even criticize their government. They were bitterly disappointed when he moved in the opposite direction, placing priority above all not on the welfare of the nation as a whole, but on the survival of the Chinese Communist Party. Why he did this was the result of his personal quirks and history; another leader may have gone in a very different direction. There was no historical inevitability to the present outcome.

The dangers of a regime that seeks totalitarian control were laid bare in the early days of the COVID-19 crisis, when speaking honestly about the unfolding epidemic, as Dr. Li Wenliang did, was severely punished. For all we know, the flow of misinformation is continuing today. It is wrong to hold up the CCP’s totalitarian approach in dealing with the virus as a model to be emulated by other countries. Nearby South Korea and Taiwan, both healthy liberal democracies, achieved even better results in the pandemic without the draconian methods used by China. One of the great dangers today is that the world looks to Xi’s totalitarian model, rather than a broader East Asian model that combines strong state capacity with technocratic competence, as the winning formula in facing future crises.

How then should the United States and other Western democracies deal with Xi’s China? The starting point is to recognize that we are dealing with an aspiring totalitarian country like the mid-20th century Soviet Union, and not with some kind of generic “authoritarian capitalist” regime. There is no true private sector in China. Although there are quasi-property rights and ambitious entrepreneurs there, the state can reach into and control any one of its supposedly “private sector” firms like Tencent or Alibaba at any point. Although the Trump administration’s campaign against Huawei has been clumsy and in many respects self-defeating, the goal is essentially correct: It would be crazy for any liberal democracy to allow this firm to build its basic information infrastructure, given the way it can be controlled by the Chinese state.

That word, resiliency, just popped up again. The one lesson we have learned from the coronavirus is how fragile the global supply chain. The simple fact is we are wholly dependent on an increasing antagonistic country for essential products. That is something that is going to change in the coming few years as the theatres of great power competition expand significantly. 

Bank Indonesia is using bond purchases to support the rupiah and help fund the government’s Covid-19 response. Too much quantitative easing, though, could backfire and fuel worries about the accommodation of unfettered government spending.

Critical for reassuring investors, in our view, is that the central bank stick to its pledge to cap bond purchases in the primary market at 25% and intervene only as a last resort. If these promises are broken, QE could weigh on the rupiah like a pair of cement shoes.

Emerging market central banks embarking on QE might already be skating on thinner ice than peers in developed markets. Bank Indonesia, for one, has a shorter track record for demonstrating independence from political interference.

The relative strength of the Rupiah is a standout relative in Asia and is mirrored by the stability of the Philippine Peso. Both countries have deployed quantitative easing to support their respective bond markets and short up their currencies.

Less than 24 hours after Angela Merkel and Emmanuel Macronlaid out a radical plan that would see the European Union collectively finance its response to a virus-induced recession, countries were already expressing disapproval, threatening to doom the nascent proposal.

The German and French leaders on Monday threw their weight behind a plan to allow the EU’s executive arm issue 500 billion euros ($548 billion) of bonds, with the proceeds going to help member states affected most by the pandemic. Controversially, recipients of the funds won’t need to pay the EU back and the securities would be financed collectively. That means richer countries, like Germany, would be bankrolling poorer ones.

Angela Merkel arrives to address a joint press conference with Emmanuel Macron, attending via video link, in Berlin, on May 18.The plan represents a remarkable about-face for Germany, and the proposal, which needs unanimous approval by all 27 members of the EU, faces stiff headwinds from the bloc’s more frugal members.

“We still have to convince other member states, four in particular: Austria, Denmark, Sweden and the Netherlands,” French Finance Minister Bruno Le Mairesaid on Tuesday. “And we mustn’t hide the fact that it will be difficult.”

Austrian Chancellor Sebastian Kurz immediately threw cold water on the Franco-German plan, saying that he had consulted with his Danish, Dutch and Swedish counterparts, and that they remained opposed to any money being given to fellow countries in the form of grants. Any funds would have to be repaid by the beneficiaries, he said.

Europe needs to come up with a clear vision for its existence or it will not survive. The founding rationale for the EEC was to put age-old animosities aside and to concentrate on trade. Everyone making money and delivering improving standards of living would help to foster peace. That was successful enough to encourage further cohesion.