I would like to ask Mr Treacy the following question:

Warren Buffet is currently holding relatively high proportion of Berkshire Hathaway holdings in cash. At the last shareholder meeting he cited the reason for not investing at this level as “The range of possibilities on the economic side are still extraordinarily wide,”

Would you consider his comments (and more importantly actions - high cash position) confirming the fact that overall market is still very far off lows that it will eventually reach? Or he holds high proportion of cash in large part due his business model - funding investments with funds generated through insurance (which potentially have high payouts coming due to downturn)? Or perhaps that he plays mainly in private equity hence the investment objectives are not very closely related to indices such as S&P 500 and Nasdaq?

I would very much appreciate your thoughts on this topic. 

Thank you for this question which others may also be asking. The facts are Buffett has sold positions in airlines and greatly reduced positions in banks like Goldman Sachs and JPMorgan, insurance companies like Travelers and energy stocks like Philips 66. He boosted his position in PNC Financial Services Group. 

Now, imagine that, rather than shoring up markets solely via guarantees, the Fed could push most short-term interest rates across the economy to near or below zero. Europe and Japan already have tiptoed into negative rate territory. Suppose central banks pushed back against today’s flight into government debt by going further, cutting short-term policy rates to, say -3% or lower…

,,,A number of important steps are required to make deep negative rates feasible and effective. The most important, which no central bank (including the ECB) has yet taken, is to preclude large-scale hoarding of cash by financial firms, pension funds, and insurance companies. Various combinations of regulation, a time-varying fee for large-scale re-deposits of cash at the central bank, and phasing out large-denomination banknotes should do the trick.

This is the economic equivalent of “use it, or lose it” when applied to money. The idea of forcing banks, pensions and insurance companies to invest is fine on paper but takes no account of the credit worthiness of the assets being purchased. The time to institute this kind of policy is after a major decline when bankruptcies have washed away high leverage and investors need an incentive to speculate. At today’s valuations, where asset prices have already been rising for 12 years, forcing speculation is a recipe for an asset bubble of epic proportions.

Eoin - appreciate your use of both the P&F and weekly chart against the moving average in your discussion of Microsoft.  When evaluating the consistency pattern of stocks (Microsoft and others), how do you "adjust" for circumstances such as COVID 19?  Clearly, Microsoft was negatively impacted like many other equities in the COVID induced meltdown, but has also rebounded more smartly than others.  Thanks, as always, for your insight and willingness to share same.

Thank you for this question which gets to the heart of a question I think most people are thinking at present. There are three important considerations when looking at market reaction. These are: where are we in the secular trend? Is liquidity expanding or contracting? What does the chart tell us about sentiment?

“The consensus out there seems to be: ‘Don’t worry, the Fed has your back,’” said Druckenmiller on Tuesday during a webcast held by The Economic Club of New York. “There’s only one problem with that: our analysis says it’s not true.”

While traders think there is “massive” liquidity and that the stimulus programs are big enough to solve the problems facing the U.S., the economic effects of the coronavirus are likely to be long lasting and will lead to a slew of bankruptcies, he said.

“I pray I’m wrong on this, but I just think that the V-out is a fantasy,” the legendary hedge fund manager said, referring to a V-shaped recovery.

Druckenmiller’s remarks are among the strongest comments yet by a Wall Street heavyweight on the bleak outlook facing the U.S. They also stand in contrast to the optimism that has pushed the S&P 500 Index to rally almost 30% since its March low even as the pandemic has brought the economy to a standstill, seized up credit markets and ended the longest bull market in history.

The damage spurred the Federal Reserve to unveil a raft of emergency lending programs and Congress to unleash almost $3 trillion in stimulus funds. But those programs aren’t likely to spur future economic growth, Druckenmiller said. “It was basically a combination of transfer payments to individuals, basically paying them more not to work than to work,” he said. “And in addition to that, it was a bunch of payments to zombie companies to keep them alive.”.

Have we just seen an impressive countertrend rally in an evolving medium-term bear market, or are we on the cusp of seeing an additional down-leg which could see new lows posted? It’s a multi-trillion Dollar question but another related one is how are investors responding to Jay Powell’s statement today.

The ECB is, of course, not subject to German law. As an EU institution it answers to the European Court of Justice. But this ruling is binding on the Bundesbank. I doubt that Jens Weidmann, its president, will want to fob off the German judges with a superficial response.

The ruling only allows the Germans to take part in the asset purchase programme for another three months unless they find a way to comply. Theoretically, the ECB could proceed without Germany. But I would strongly advise against it because that could precipitate a eurozone break-up.

Since its 1993 ruling upholding the legality of the Maastricht treaty, the German constitutional court has become more radical. But it avoided outright confrontation, until last week.

I find the most troubling aspect of this ruling is the assertion that the ECJ was also transgressing its competences by approving the bond buying and has gone ultra vires, in the Latin jargon of German constitutional lawyers.

This part of the ruling raises deeply troubling issues for the relationship between the EU and its member states. The German court accepts the principle that EU law overrides national law for areas they specifically recognise lie within the EU’s competence. But they reserve the right to decide whether the EU and the ECJ are operating inside or outside their legal remits. It sets a troubling precedent.

The smartest response to this ruling would be for the EU to address the problems of the eurozone head on: lack of convergence between north and south, debt sustainability and, most important right now, the issuance of mutualised debt to finance a recovery fund.

The emerging reality for EU member states is they gave up the essence of sovereignty when they accepted the idea of a European constitution. They can still go through the motions of national elections and get to issue their own debt but when it comes to big decisions about the fate of their economies, they now have little choice but to fall in line with the ECB.

Yelp shares are down as much as 15%, the most since late March, on a risk-off day for the market; JMP (market perform) in a note Wednesday highlights worries that the local search site will continue to suffer from social distancing and stay-at-home mandates affecting its advertising base.

This is another example of a company that has a reliance on brick and mortar businesses which is at severe risk of implosion. The experience of Tencent with outperformance in the Chinese gaming segment being counterbalanced by weakness in consumer finance is another example. Here is a segment from their quarterly report.

“If our employees are in a role and situation that enables them to work from home and they want to continue to do so forever, we will make that happen,” Twitter said in the post. “If not, our offices will be their warm and welcoming selves, with some additional precautions, when we feel it’s safe to return.”

The company has more than 35 offices worldwide, including in Paris, New York and Toronto.

“We’ve been very thoughtful in how we’ve approached this from the time we were one of the first companies to move to a work-from-home model,” Twitter said in a statement. “We’ll continue to be, and we’ll continue to put the safety of our people and communities first.”

I’ve been working from home for 13 years. In fact, as soon we got the internet at home when I was 19 years old I decided I was going to find a job I could do from anywhere. Here are my two cents. 

If you someone is a self-starter in the office that will not change when they work from home. If a worker is a lay about in the office or relies on virtue signalling to the higher ups in the office. that is a lot more difficult to maintain when working from home.

Most workers will also quickly realise it is a lot easier to do two things at once on a video conference than it is in a conventional meeting. That runs the risk of tuning out in the event someone starts waffling. Generally, people are more willing to tolerate long rambling meetings in person than when at home.

For workers it is important to realise that you are not working from home. You now live at work. It is inevitable you will put in longer hours when working from home because there is always the temptation to “just check something”. Having a dedicated space or office for work is essential in my view. You need to be able to close the door on the inside world.

If more companies adopt work from home policies, as seems likely, demand for larger dwelling seems inevitable. My home has been fine for our needs for the last five years but now everyone is working from home. Just about every room in the house has been repurposed as an office, schoolroom, gym or studio. We are actively looking for a bigger home. That’s also something that will likely spur a migration from inner city smaller dwellings to larger suburban ones. That also will have a knock-on negative effect for central city office values.

Something everyone has had to deal with in lockdowns is we see a lot more of our children and spouses. That’s a good thing, the most precious thing in the world to me is the close relationship I have with my daughters. I have been priveleged to be with them for almost every day of their lives. However, many relationships survive on spouses only seeing each other for a few waking hours a day and on weekends. Prolonged interaction definitely raises the risk of partners getting on each other’s nerves and lockdowns certainly throw focus onto who does what around the house. I can say from experience that talking about these kinds of challenges is time well spent. Simultaneously accepting that one’s work life and home life are now the same is another major transition because both will be significantly affected.

Personally, I can’t see myself ever working in an office again. I am much more productive at home and I hate wasting time in meetings. The lockdowns will allow everyone to find out which they are best suited to and also whether their family life can support their preference.

With respect to the second note, and knowing your own preference to stay with the "winners" and cut the "losers", at what point do you look to valuations and question the sky-high prices people are willing to pay for these "winners"? I personally have a tough time chasing stocks that have already run, but for now at least, they just keep going, proving highly frustrating!

Thank you for this question which others may also have an interest in. 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 occur.

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

Gold’s relative strength over the last year, coupled with a tight labour market were already starting to raise interest in inflation hedges a year ago. Then came the truce in the trade war, the halting of the Fed’s rate hikes, the repo liquidity crisis and finally the coronavirus recession. That has once again raised the spectre of deflation.

“We can’t let our guards down, but the numbers of new infection cases are falling, allowing people to formulate some sort of outlook, which is being welcomed by the market,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. “The market is moving based on a scenario that the June quarter will be a bottom for the economy, followed by a recovery from the September quarter.”

Optimism that economic stimulus measures will help cushion the blow from the virus also buoyed sentiment. The government and the ruling party aim to finalize plans for a second supplementary budget for fiscal 2020 during the current Diet session, the Yomiuri reported.

“The 2 trillion yen being touted is sizable and the government is taking action faster than expected,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute.

 

The easing of lockdowns will allow the economies of the world to get off their knees and hopefully will allow some rationality to come back into public discourse. That’s not a guarantee by any means considering the emotionality in how coverage of the coronavirus is being reported. The equivalent of $200 billion in government supports is not all that large relative to what has been provided by other countries but it is supportive for asset prices.

The rate of labor force dislocation, albeit distressing, appears to be moderating. The weekly 3 million jobless claims number is the lowest in the last seven weeks and less than half the worst level.

The report highlights the urgent and important policy priorities of dealing both with the implications of such a terrible shock to jobs and with ensuring that short-term problems don’t become long-term ones that are much harder to solve.

With markets focusing on the improvement in the “second derivative,” that is a reduction in the rate of labor force dislocation, U.S. stocks rose. This widens an already considerable decoupling from the real economy and will fuel the debates on Wall Street versus Main Street, companies versus people and the well-off versus the marginalized. 

Didi’s CEO was quoted today stating the company has recovered to about 70% of the number of rides taken before the Chinese lockdown began. That’s an impressive rebound, particularly as we look at what the trajectory of recovery will be for countries only beginning to ease lockdowns today.

Then came World War I when warring countries ran enormous deficits that were funded by central banks’ printing and lending of money.  During the war years gold was international money as international credit was lacking because trust was lacking.  Then the war ended, and a new monetary order was created with gold and the winning countries’ currencies, which were tied to it, at the center of that new monetary order. 

Still, in 1919-22 the printing of money and devaluations of several European currencies were required as an extension of the debt crises of those most indebted, especially those that lost World War I.  As shown this led to the total extinction of the German mark and German mark debt in the 1920-23 period and big devaluations in other countries’ currencies including the winners of the war that also had debts that had to be devalued to create a new start.

With the debt, domestic political, and international geopolitical restructurings done, the 1920s was a boom period, which became a bubble that burst in 1929.

In 1930-45, 1) when the debt bubble burst that required central banks to print money and devalue it, and then 2) when the war debts had to increase to fund the war that required more printing of money and more devaluations. 

At the end of the war, in 1944-45, the new monetary system that linked the dollar to gold and other currencies to the dollar was created, and the currencies and debts of Germany, Japan, Italy, and China (and a number of other countries) were quickly and totally destroyed while those of most winners of the war were slowly but still substantially depreciated.  That monetary system stayed in place until the late 1960s. 

The purchasing power of fiat currencies is rapidly being debased. That is helping to support the nominal prices of stocks, property, gold and bonds. The $4 trillion surge in the total assets of central banks over the last couple of months has supported prices for just about all asset classes. The best performing assets have been those that have historically benefitted from deploying free abundant capital to fuel growth since 2009.

Almost every major crisis and recession has resulted in lasting implications. The 1973 oil crisis ended the Bretton Woods system and brought about the regime of floating currencies and exchange rate volatility. September 11 permanently changed the way we travel and raised the level of security in public settings and airports. Unprecedented monetary easing after the 2008 Great Financial Crisis further propelled the unlikely continuation of the 30-year rally in government bonds and facilitated the resurgence of tech stocks and credit markets. The Global Covid-19 Crisis will also leave its permanent imprints on consumers, markets and economies. Although we are only a few months into the crisis, it is key to look forward to the next economic cycle and ask: what are the structural changes created by the Covid-19 outbreak and who will be the winners and losers?

For companies, the focus will shift to building resilience
As the virus outbreak results in demand and supply shocks unprecedented in terms of speed, depth and breadth, many companies face tremendous pressure, and this will have a lasting impact on risk perception.  Companies will turn more cautious and focus on building resilience in terms of their business strategies and balance sheets, and shareholders will expect management teams to take steps to ensure that the business is strong enough to take the next big shock.

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

Consumers are wondering about what the trajectory for their earnings are going to be. Nobody knows what the outlook for their businesses is likely to be in the aftermath of the lockdowns or how long recovery is going to take. There is a temptation to think corporations are going to be as cautious as individuals.

“We’ve come through the peak, or rather we have come under what could have been a vast peak, as though we have been going through some huge alpine tunnel,” Johnson said. “And we can now see sunlight and the pasture ahead of us, and so it is vital that we do not now lose control and run slap into a second and even bigger mountain.”

And

“As part of coming out of the lockdown, I do think face coverings will be useful both for epidemiological reasons and giving people confidence it’s safe to go back to work,” Johnson said. “We will be saying a lot more next week and in the coming weeks about how and when we propose to unlock the various parts of the U.K. economy.”

The government has announced more than 60 billion pounds ($75 billion) of direct aid to companies and individuals to help them weather the pandemic, and offered 330 billion pounds of loan guarantees. The Office for Budget Responsibility on Thursday said the government’s virus response has cost almost 105 billion pounds in the current fiscal year.

Asked whether the government would need a new period of austerity, including cuts to public services in order to restore the country’s finances, Johnson rejected the approach.

“I think the economy will bounce back strongly, I think that this government will want to encourage that bounce back in all kinds of ways,” he said. He added that he’d “never particularly liked” the term “austerity,” saying “it will certainly not be part of our approach.”

Very few mainstream parties have been able to evolve enough to appeal to the growing populist fringes of political discourse. The Conservatives in the UK and Republican’s in the USA have been able to co-opt the revolutionary agenda by embracing fiscal easing.

On their own, Kelleher’s purchases don’t amount to much. But combined with similar decisions by tiny investors around the country, the buying represents a formidable force that has helped the market claw back more than half the ground lost in its fastest bear-market drop. A trio of giant retail brokerages, E*Trade Financial Corp., TD Ameritrade Holding Corp., and Charles Schwab Corp., each saw record sign-ups in the three months ending in March, with much of it coming at the depths of the swoon.

“I’m a complete noob when it comes to stocks,” the mother of high school senior twin boys said while sheltering at home. “It’s not thousands and thousands of dollars that I invested, but it’s a start. We’ll see what happens. I hate to say it, but it’s like gambling, isn’t it?”

There may be something to that. “When the casinos/sport betting closed down, some of that action went to stock markets,” speculated Nicholas Colas, cofounder of DataTrek Research, in a note Wednesday. “Google Trends data supports that idea.”

When I started receiving stock tips from the twentysomething working at UPS a few weeks ago, my contrarian heckles rose.

The trend of zero commissions, promise of massive quick profits and the confidence built up from a decade of watching buying the dip be successful has emboldened legions of new investors into the market.

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

It is probably true that Australia is about to have a technical recession. The fires, lockdowns and collapse in Chinese demand are all contributing factors. However, it is also worth remembering that the medium-term response to the coronavirus is likely to be an epic infrastructure development spending spree which will be global in nature. For commodity exporters like Australia that is likely to be good news.

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

The US consumer is holding up for good reason. With an additional $600 a week in unemployment benefits, on top of the $1200 sent to 90% of the population, many people are making more money than if they were working.

Long time since I have sent an email to you, however I have kept my subscription up (joined in 2006) and always look forward to your daily audio/video etc.

In your last audio on 24 April I believe I heard you describe Australia’s Covid-19 rate as rising. I have to say that Australia is rightly proud of its success in fighting this virus and you can see from the following chart, from the Australian Financial Review, what a great job the Australian and state governments have done. I understand we have the second highest testing rate in the world and, so far, we have had only 93 deaths, compared with 20,319 deaths in the UK and 54,161 in USA. Boris and Donald should hang their heads in shame!

Just wanted to set the record straight!

Keep well!

Thank you for this graphic which, as you say, highlights Australia’s success in curtailing infection growth before the “knee” of the exponential curve was reached. Thanks also for setting the record straight.

There has been significant dispersion between early actors and late reactors in their success rates in containing the viral spread. That was the primary reason I was so critical of the UK’s approaching more than a month ago. Since then almost every country has introduced lockdowns which has significantly reduced pressure on healthcare sectors.

Australia has announced they are increasing petroleum reserve stocks. Small steps in the global oil market. We have lots of gas not much Oil. Government argument oil prices are low. Think I can see political / defense US / Australian ambitions in this move.

The Governor of the RBA made a speech a few months back the RBA will support all local banks. That investors should feel confident about the security of their bank deposits and securities. Can I trust these comments? I almost fell out of my chair when Glenn Stevens made this statement

Thank you for this email which may be of interest to other subscribers. It makes sense that Australia should build up an oil reserve when prices are cheap. It certainly beats doing it when prices are high and a significant reserve is a geopolitical imperative during a time when stress between the great powers of our day is only likely to increase.

Although it's true that millions of hospitality workers now are out of work and available for immediate employment, the generous unemployment benefits passed by Congress in the $2 trillion rescue bill may make some of them less interested in going back to their old jobs. Ernie Tedeschi of Evercore ISI notes that between state insurance and the federal supplements, the average weekly unemployment benefit for workers in states such as New York, California, Washington and Massachusetts will be more than $1,000. That's the equivalent of $25 an hour for a 40-hour work week. For restaurant workers who earn significant tips, returning to work may offer enough economic incentive to be worth it. For lower-paid dishwashers and line cooks, unemployment might be a better deal -- at least through the end of July, when the benefits are set to expire. That means restaurants may have to pay much higher wages than in the pre-virus market level to staff up.

Combining these two dynamics -- restaurants aren't going to be able to serve as many patrons and they will have higher labor costs -- and it's likely that many restaurants won't survive. The most obvious way for the survivors to make up for this is to charge more for the same menu offerings, perhaps much more. The good news for the restaurants that do survive is that between fewer seats available at each restaurant, and fewer restaurants competing for customers, eating out might become a scarce, coveted experience, particularly after weeks or months of much of the population sheltering in place.

Not everyone is a good cook and few are ever likely to be. If eating out and receiving full service becomes inordinately expensive then the law of supply and demand means dark kitchens will proliferate. Uber was helping to pioneer this trend ahead of the virus outbreak and the sector is likely to pick up a lot of the slack from fast casual dining.

“We haven’t actually seen the stress emerge,” she said on a call with analysts. “What we took in the first quarter was our best estimate of future losses.”

Banks also have to determine how many lending commitments will turn into funded loans as companies tap previously unused revolving credit facilities. Wells Fargo CEO Charlie Scharf said commercial clients had tapped $80 billion of loan commitments just in March. JPMorgan said customers had drawn more than $50 billion of existing revolvers and were approved for $25 billion in new credit in March.

U.S. banks have maintained that they are much better positioned for this crisis than in 2008. JPMorgan’s key capital ratio was 11.5%, within its medium-term target range. Wells Fargo’s was 10.7%, above its internal target. Still, shares of both banks slipped in New York trading by 10:30 a.m. in New York as the broader market rose, with optimism the pandemic is slowing driving up the S&P 500 more than 2%.

“We like to be conservative in reserving,” Dimon said. “Plan for the worst so you can handle it.”

The virus did not impact economic activity until about the middle of February for most countries, so 1st quarter earnings include 3 weeks at most of lockdown conditions for US companies. Ahead of the lockdowns economic activity was still expanding, after the lockdowns it will take time to recover but we won’t get 2nd quarter earnings until July. However, it is reasonable to conclude banks are going to be where some of the heaviest impacts from constraining consumer ability to service debt are going to hit.

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

Let’s set aside for the moment questions of timing and think about what changes we can expect to be durable from the virus-induced recession.

The first thing that springs to mind is a loss of income which will take a while to recover. For some that will be quite soon, for others who need to find a new job it will take longer. As we go from full employment in many countries to something less that necessarily represents lower growth overall and by extension lower corporate earnings.

Many thanks for your continuing high-quality service, exemplified by the comprehensive Income ITs spreadsheet you produced yesterday. It will be invaluable for Private Investors such as myself. On a separate topic, do you have any views on the banks in the light of the suspension of dividends? In particular, I see that HSBC shares are approaching chart support from 1997-98 and 2016.

Thank you for this question. There is no denying that bank shares have declined significantly so it is logical to question whether they are close to a low. With dividends being eliminated, a rise in defaults inevitable, a moratorium on buybacks, and tight margins from low interest rates the big question is whether the bad news has been priced in.

The coronavirus crisis has transformed the fiscal landscape at a stroke. Britain was on course for a budget deficit of 55 billion pounds in the fiscal year starting April. Now, according to the Institute for Fiscal Studies, borrowing could be as much as 200 billion pounds as an economy on course to shrink at least 5% this year hammers tax revenue and drives up spending on welfare.

That could leave the deficit just below the 10% reached in the aftermath of the financial crisis and push up already elevated debt levels.

The chancellor announced his first economic package to deal with the outbreak when delivering the budget on March 11, unveiling 12 billion pounds of measures to mitigate the effects of the outbreak on the economy.

As evidence mounted that the crisis was snowballing, he followed up with a 350-billion pound stimulus package comprising government-backed loans as well as 20 billion pounds of grants and tax cuts for struggling companies.

Then, last Friday, he announced 7 billion pounds of extra welfare spending and said the government would pay 80% of salaried employees’ wages up to a maximum of 2,500 pounds a month -- a plan Bloomberg Economics estimates will cost 17.5 billion pounds.

Announcing further details of the job-retention program today, the Treasury said the government will also cover employers for the National Insurance and minimum auto-enrolment pension contributions of furloughed workers, saving firms 300 pounds a month per employee on average.

The trouble with the coronavirus is not so much in the mortality rate but in the speed with which it is spreading. Overloading hospitals with scarce resources and scary reports of tens of thousands dying has put a great deal of pressure on the economy. However, it is also worth considering that despite the scale of the challenge faced in Italy, they have seen the peak in the infection growth rate. That suggests the problem is unlikely to get worse.

The SARS epidemic did not become a pandemic. Its effects were limited to a relatively small number of countries and, even then, the majority of infections occurred within the hospital setting. The trough in markets evolved when the growth rate in new infections moderated which eventually contributed to the peak in new infections. COVID-19 is global and has infected many more people that SARS ever did and particularly because the large numbers of serious cases have overwhelmed healthcare systems.

Liquidity is vanishing for U.S. equity futures. Traders of S&P 500 e-minis are now only offering to buy or sell a few contracts at a time -- often numbering in the single digits -- compared with an average of more than 1,000 just a month ago, data from Deutsche Bank Asset Allocation show.

Drastically thin markets are alarming because they can fuel outsize price swings. With futures markets being halted almost every day in the wake of wild swings, the lack of liquidity is so severe now that it’s fueling concern even among the pros who’ve lived through the worst market crashes in history.

“There’s no liquidity in any market,” said Rick Bensignor, the founder of Bensignor Group and a former strategist for Morgan Stanley, who has traded the futures market for 40 years. “When you’re talking about restructuring a portfolio too, you have to think about the potential slippage that’s involved to get anything done.”

Of course it’s no surprise that markets would thin out when investors, strategists, and economists alike are unsure of the ultimate impact of the coronavirus pandemic. And it’s not clear if the low liquidity may be feeding upon itself -- i.e., are traders staying away because liquidity is so horrible, or is it just a natural side effect caused by all the uncertainty?

“‘Thinly traded’ now an understatement considering how much liquidity in futures market has collapsed,” tweeted Liz Ann Sonders, the chief investment strategist at Charles Schwab. U.S. contracts hit exchange-mandated halts for the ninth time in 10 days overnight Sunday, before an announcement of unlimited quantitative easing from the Federal Reserve ignited gains that lasted just 20 minutes before turning negative again.

Strategists at JPMorgan Chase & Co. have estimated liquidity in U.S. futures markets is seven times worse than the poorest levels during the financial crisis. According to Bensignor, typically when it comes to size, anywhere from 200 to 500 blocks trade on both the bid and offer side of a wager at every tick. Watching his screen Monday morning, there were fewer than 10.

“You are going to have to deal as you restructure portfolios,” he said in an interview on Bloomberg Television. “You’re also going to have to realize that doing so is going to cost a lot of money compared to what you had to do in the past, where you could basically just do it for no cost because of the liquidity.”

One of the reasons stock markets have sold off so aggressively is because the spike in volatility initiated an epic deleveraging in the macro hedge fund sector. The knock-on effect of that deleveraging was to inhibit the ability of high frequency traders to make markets. That exposed, again, the limitations of the Volcker Rule.

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

The Dow/Gold ratio has clearly broken its decade-long uptrend. In the last month it has broken below the 1000-day MA. That’s a monumental event because it has never happened in a secular bull market before. This has been achieved by the gold price going nowhere while the stock market has collapsed by approximately 30%

The Coronavirus crisis, the most serious event since the Global Financial Crisis (“GFC”) of 2008/2009, has set in motion a series of governmental policies whose unfortunate effect is to choke both demand and supply in the global economy.  These policies - prudential measures taken by governments united in their desire to appear to be “doing something”- are likely to be worse, economically speaking, than the disease itself.  Relief comes only with the passing of time or the finding of an anti-viral remedy, the latter a distant prospect at this stage.

Earnings news, monetary news, fiscal news and pandemic news are all following the disheartening course that we feared.  An emergency Fed meeting last Sunday, slashing rates to near zero, failed to reassure.  The next day, Wall Street produced the second of 2 record points drops in a week, falling -13%.  Equity markets have fallen by an average of about -30% from their January highs.

Equity markets are now oversold and distorted by panic.  The market finds it hard, if not impossible, to “price” risk when an end to the crisis is undefined and earnings unknown. And what discount rate should one use in a global panic when rates are near zero?  Many stocks trade under “fair value” on “normalized” earnings.  But the risks being taken by governments are such that there may be worse to come: bankruptcies in directly affected sectors like leisure, hospitality, airlines, hotels and “bricks and mortar” retail.  There may even be nationalizations in troubled sectors.  On the other hand, other sectors, also hit hard by the same waves of panic selling, may emerge as new long-term leaders in a changing world where personal safety, health fears, depersonalizing technology and e-commerce may enjoy further and more widespread adoption.

Millions of people just lost their jobs in the retail and restaurants sector. Weekly jobless figures are reported with a two-week lag, so today’s 281,000 increase is reflective of the week ending March 7th. Most cities in lock down made the decision over last weekend so next week’s figure will be higher but the release on April 2nd is likely to take jobless figures to new highs. The only limiting factor is the ability of people to sign on for benefits given the system’s capacity restraints.

It strikes them as preposterous that you could achieve anything close to the threshold level of immunity - ultimately 60pc - over the six month window of time available to us before the second (more dangerous?) wave hits in the autumn.

The explosive rise in cases - with 13pc needing intensive care in the Italian region of Lombardy - would smash the system.

As a sample, I offer extracts from an email received on Sunday from consultant cardiologist at a top British hospital, with high-powered credentials, who is working in the front line.

His Whatsapp group of 10 fellow doctors has a Wuhan sense of frustration about it. Things are going horribly wrong. Covid-19 is taking off among NHS staff.

“One of them seems to probably have Covid, as has multiple symptoms. Two of them have personally treated a patient with Covid before the patient was diagnosed, eg with no protective measures in place. It is clear that there are certainly multiple cases amongst staff and patients in every NHS hospital today, and they are actively spreading, with nothing stopping them.

"One of the 10 is in his 50s, and has somewhat restricted lung capacity because of an orthopaedic problem – he spent this weekend making a will and putting his affairs in order. He had realised that with the current NHS leadership, there was basically nothing he could do to avoid catching it in coming days. Crunching the statistics, he realised that several consultants in the hospital will probably die.

“We have received no advice at all to take any measures to reduce spread in the hospital. Where the South Koreans were attending hospital in full hazmat suits, I will be arriving in my suit and
tie tomorrow with nothing to prevent me catching it, and working in an operating theatre that a Covid patient was in on Friday, nobody aware that he had it, and the staff members I will be working with, will all have been in contact with that patient.

“Panic early” or “Keep Calm and Carry On”? That is the decision provided to the UK government last week and they went with the latter, which was the wrong move. They are now, belatedly organising a change of heart. Social distancing is now top priority and not before time. What we now need to see is a clear follow through on shutting down contact between infected people and a massive ramp up of testing.

Lagarde told European Union leaders on a conference call late on Tuesday that without coordinated action Europe “will see a scenario that will remind many of us of the 2008 Great Financial Crisis,” according to a person familiar with her comments. With the right response, the shock will likely prove
temporary, she added.

Lagarde said her officials are looking at all their tools for Thursday’s policy decision, particularly measures to provide “super-cheap” funding and ensure liquidity and credit don’t dry up, said the person, who declined to be identified because the call was private.

Still, she stressed that central-bank measures can only work if governments throw their weight behind them too, with steps to ensure banks keep lending to businesses in affected areas, said the person. An ECB spokesman declined to comment.

Lagarde spoke hours before the Bank of England became the latest central bank to take emergency action. It announced a 50 basis point interest-rate cut early Wednesday, combined with measures to help keep credit flowing, and said it still has more policy space to act if needed.

The ECB has been cautioning Eurozone governments for much of the last decade that fiscal stimulus has to be part of the solution to the region’s debt/growth challenges. That exhortation has fallen on deaf ears as the region’s creditors imposed fiscal conservativism on the most profligate debtors.

Chancellor of the Exchequer Rishi Sunak announced 30 billion pounds ($34 billion) of fiscal stimulus and pledged to spend 600 billion pounds by 2025 on a massive infrastructure program, alongside measures to help businesses and the National Health Service weather the disruption from the disease.

The European Central Bank is expected to join the easing this week after President Christine Lagarde warned leaders on Tuesday that the crisis has echoes of 2008.

“The bazookas are loaded and the BOE just fired their first salvo,” said Luke Hickmore, investment director at Aberdeen Standard Investments. “It seems unfeasible that the ECB does not also find ways of supporting the banking system. Europe needs to get its act together -- and act together.”

The predictable 50 basis cut to the Bank of England’s interest rates is the first volley in a range of supports. The announcement of massive infrastructure spending, fiscal deficits but less bond issuance than originally anticipated is all designed at making the best of a bad situation. That final point where less bonds were issued than expected was probably aimed at countering the claim Modern Monetary Theory is being deployed.

Boeing obtained the loan from a group of banks last month to help it deal with its cash burn while it prepares to return its 737 Max plane to the skies. It initially tapped about $7.5 billion of the debt, and is now expected to draw the rest, said the people, asking not to be named discussing private information. Boeing plans to draw the remainder of the loan as a precaution due to market turmoil, one of the people said.

Companies affected by the virus are increasingly turning to banks for short-term financing to provide a safety net. United Airlines Holdings Inc. raised $2 billion in new liquidity with a secured term loan, while Norwegian Cruise Line Holdings Ltd. recently signed a new $675 million revolver. Should credit conditions worsen, more firms may start to draw down their credit lines, market watchers say. Boeing’s loan came about before Covid-19 spiraled into a global crisis and was expected to be fully drawn eventually.

“They want to have cash on the balance sheet,” said Bloomberg Intelligence’s Matthew Geudtner. The Max grounding, the company’s joint venture with Embraer SA and looming debt maturities will also weigh on Boeing’s cash hoard, he said.

The easiest way to determine where the biggest risks reside in this market is to use this metric: Whatever people were worried about in 2019, the coronavirus makes things worse.

“It’s literally as if the market makers didn’t show up for work,” Curnutt said in a Bloomberg Television interview, referring to options and junk-bond exchange-traded funds such as the iShares iBoxx High-Yield Corporate Bond ETF, known by its ticker, HYG. “The posted bid-offers on the screens illustrated that there was no one in the market posting for something that is one of the more liquid -- usually -- hedges to use.”

Banks have been constrained by rules created after the 2008 financial crisis. That has pushed some market-making activity to other types of financial institutions including Citadel Securities and Virtu Financial Inc., which was one of a handful of firms that rose in trading Monday as the S&P 500 slipped
7.6%.

“The traditional liquidity provider in times of stress -- the bank -- really isn’t there,” John McClain, portfolio manager at Diamond Hill Capital Management, said in an interview. “Banks themselves have a lot more regulation around what they can be doing.”

Still, for all that, trading was relatively orderly in HYG and other debt ETFs, especially compared with the underlying bonds. The liquidity concerns still didn’t mean there was a “full-blown breakdown in markets,” Curnutt said.

Philipp Hildebrand, vice chairman of BlackRock Inc., agreed. “I was there in 2008, and the difference is the financial system essentially seized up, which is not what happened, at least not so far,” he said. “It’s an important signal that the ETF market functions.”
 

ETFs have been a wonderful innovation which have opened up asset classes which were never previously available to retail investors. They have also allowed the cost of investing to come down and reduced performance deviation from the broad market averages. The challenge is ETFs can often be more liquid than their underlying indices and instruments. That represents a significant challenge in times of stress and particularly during bouts of contagion selling.

The downbeat assessments come amid a meltdown in financial markets not seen since the height of the global financial crisis in 2008. It marks a grim start to the week for European Central Bank policy makers, who meet in Frankfurt and may be forced to lower interest rates and step up bond purchases. The U.S. Federal Reserve has already acted, with an unexpected easing last week.

“I want a strong, massive, coordinated response,” Le Maire said on France Inter Radio as the central bank slashed the outlook for the country’s economic expansion this quarter to 0.1% from 0.3%.

“We should work on a stimulus plan with fiscal and budgetary measures, and tax cuts, so that when the epidemic crisis is over we can relaunch the economic machine,” he said. The virus is another blow to the euro area’s second-largest economy, after disruption from strikes caused output to shrink at the end of 2019.

“This slowdown is potentially severe but temporary,” Bank of France Governor Francois Villeroy de Galhau said in a rare statement accompanying the report.

The markets tend to test new central bankers and Christine Lagarde’s honeymoon period is definitely over. The ECB will be expected to lay out what kind of assistance it is willing to provide. While room for interest rate cuts is limited because they are already so low, there is plenty they have do to ensure ample liquidity in the system.

This article highlights widespread testing as one of the primary reasons South Korea has been able to make headway against the outbreak. Here is a section:

South Korea has borne its virus outbreak relatively well despite the scale of the spread. The country has been testing people for the virus at the fastest pace in the world, which appears to have allowed early detection of cases and keep its mortality rate lower than average. Infections have also been largely contained to Daegu and surrounding areas, although the government has not imposed restrictions over people’s movements like in China and Italy.

“New cases of coronavirus have been continuously slowing down, to 248 yesterday, after reaching a peak of 916 on Feb. 28. We should continue this trend,” President Moon Jae-in said in a meeting with his senior secretaries Monday. “Still, we need to stay vigilant as sporadic small group infections in Daegu, North Gyeongsang and other areas continue.”
 

The growth rate of South Korea’s cases appears to have peaked which suggests the measures put in place so far have helped contain the spread. The Kospi Index pulled back sharply today to test its recent lows.

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

The Credit Suisse team do an excellent job of highlighting where the risks are and provide a handy list of instruments to monitor to get an idea of how liquidity flows are functioning.

The repo market illiquidity in September was a signal to everyone that the tightening program had gone too far. There was nowhere near enough available capital in the system to allow the global money market to function. The Fed stepped in with a large swift injection of liquidity; inflating its balance sheet by $400 billion in four months.

Unfortunately, because of Sequoia’s presence in many regions around the world, we are gaining first-hand knowledge of coronavirus’ effects on global business. As with all crises, there are some businesses that stand to benefit. However, many companies in frontline countries are facing challenges as a result of the virus outbreak, including:

Drop in business activity. Some companies have seen their growth rates drop sharply between December and February. Several companies that were on track are now at risk of missing their Q1–2020 plans as the effects of the virus ripple wider.

Supply chain disruptions. The unprecedented lockdown in China is directly impacting global supply chains. Hardware, direct-to-consumer, and retailing companies may need to find alternative suppliers. Pure software companies are less exposed to supply chain disruptions, but remain at risk due to cascading economic effects.

Curtailment of travel and canceled meetings. Many companies have banned all “non-essential” travel and some have banned all international travel. While travel companies are directly impacted, all companies that depend on in-person meetings to conduct sales, business development, or partnership discussions are being affected.

It will take considerable time — perhaps several quarters — before we can be confident that the virus has been contained. It will take even longer for the global economy to recover its footing. Some of you may experience softening demand; some of you may face supply challenges. While the Fed and other central banks can cut interest rates, monetary policy may prove a blunt tool in alleviating the economic ramifications of a global health crisis.

The knock-on effect to consumer confidence from the coronavirus and most particularly its influence on social interaction is a wild card for the global economy. It should help to focus minds on how best to deal with the situation but the global response, so far, has been haphazard. 

I hope you and the family are enjoying a normal coronavirus free lifestyle?

I was looking at some 2 year charts recently, and I know you are not always   fan, but I noticed quite large volumes spikes on some individual co charts, but especially on the DJ and the NASDAQ. Near the end of 2018 and again last week major volume spikes. My experience over the last 50 years has taught me though it's not 100 0/0 accurate, volume spikes can be a very useful tool for gauging tops and bottoms, more so for lows. I just thought subscribers might find this food for thought!!

Thank you for your concern. I’ve got some travel coming up over the weekend which I am not especially thrilled about but it falls into the necessary category. I intend to take a number of infection prevention measures while travelling. Other than that, it has been business as usual since we have stocked up on just about everything.

Over the last five years, Baric, working closely with Vanderbilt University infectious-disease specialist Mark Denison, tested almost 200,000 drugs against SARS, MERS and other bat coronavirus strains.  He found at least two dozen that appeared to hinder the virus.

Among the most promising was Gilead’s remdesivir, a drug that fared poorly when used against a recent Ebola outbreak in Africa. In the lab, it worked against numerous coronavirus strains, including SARS and other bat coronaviruses that are similar to the new strain. Every coronavirus it was tested on, “it had high potency and efficacy,” Denison says.

That work was fortuitous. In early January, Baric got an urgent call from an infectious-disease colleague to send his unpublished data on remdesivir to colleagues in China who were dealing with a then-mysterious outbreak. Baric says he “was shocked” to see how fast the coronavirus was spreading.

Since then, work at his lab has been virtually nonstop. Each scientist puts in from one to six hours inside two different clean rooms equipped to handle the virus. The lab’s workday begins at 6 a.m. and often goes until 11 p.m. Individual sessions are short for safety and practical reasons — researchers aren’t permitted to eat, drink or visit the bathroom once inside the lab. Everyone has to pass an FBI background check and undergo months of safety training.

The WHO has stated remdesivir is their best bet for a suitable treatment for coronaviruses. It’s another question whether Gilead will make money form that evolving market since it will be under extreme pressure to provide an affordable range of treatments ahead of a vaccine being developed over the next year. 

Eighty-four percent of Chinese cases, 97% of critical cases and more than 96% of deaths are within the province, which was placed under mass quarantine by the government on Jan. 23 to slow the virus’ spread to the rest of the country. The ongoing lockdown of the region of 60 million people has led to widespread suffering and scores of preventable deaths as the local medical system collapsed under the strain.

The lockdown also meant that China’s fatalities from the pathogen have been confined almost entirely to the province. As of Wednesday, 4.3% of people who were confirmed to have the virus in Hubei have died, while that rate is 0.8% in China outside Hubei.

Over the past three weeks, China’s number of recovered patients has surged both in Hubei and the rest of the country, with the government sending in thousands of health-care workers to help in Hubei. Almost 65% of those who’ve been officially diagnosed with the disease are now better and out of hospital, according to the data from the National Health Commission on Thursday.

Loosening restrictions comes with a significant number of risks because the viral infection rate has capacity to ramp up again as people get back to work and particularly in the cramped conditions of factories. The bigger question is whether China is willing to tolerate community spread on the assumption most workers will recover in a relatively short period of time. I believe that is the most likely scenario considering the continued risk from domestic or imported infections.

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

There is no doubting we saw evidence of contagion selling last week with everything selling off as quantitative strategies headed for the exits en masse and ditched ETF positions in the process. The growth of passive investing and the ease with which positions can be exited is contributing factor in the speed with which declines take place in today’s market.

In politics, you have to win to win. And in the crucial Super Tuesday primaries in 14 U.S. states, Biden did just that, and Democratic voters singularly obsessed with defeating Trump finally began coalescing around their candidate.

There’s still a long road ahead for the former vice president. His chief rival, Bernie Sanders, won California -- the biggest prize of the entire nominating race -- where a runaway victory could give the Vermont senator enough delegates to blunt Biden’s gains on Tuesday. And the former vice president’s turnaround was made all the more remarkable because of his plunge from front-runner status, bruised and battered by a meandering campaign, lackluster fundraising and trademark gaffes.

Still, the whirlwind three days following Biden’s convincing win in South Carolina -- which propelled top rivals like Pete Buttigieg and Amy Klobuchar back the former vice president -- underscored the extent to which Democrats were ready to unite behind anyone perceived as ready to take on Trump.

“Just a few days ago the press and the pundits had declared the campaign dead,” Biden told supporters in Los Angeles. “I’m here to report, we are very much alive.”

The rise of Bernie Sanders to front runner status about ten days ago was a significant catalyst for profit taking in the wider stock market and was potentially the motivating factor behind the pricing in coronavirus fears.  
 

“The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower,” Lowe said. “It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path.”

In this case, though, Australia’s central bank isn’t going to have to face the downturn alone, with fiscal support in prospect.

“The Australian government has also indicated that it will assist areas of the economy most affected by the coronavirus,” Lowe said. Before the RBA meeting, Prime Minister Scott Morrison said the Treasury is working closely together with the other agencies “to address the boost that we believe will be necessary.”

Morrison urged major banks to pass on any RBA cut. The four top lenders have all since confirmed that mortgage rates will be reduced by the full amount.

The RBA now has only one 25 basis-point cut left in the locker before it reaches its effective lower bound of 0.25%. Lowe will find himself dragged toward quantitative easing, should the economy need further monetary stimulus.

The Australian Dollar has bounced over the last few days to partially unwind its oversold condition relative to the trend mean. The big question is whether the RBA will continue to hold the zero bound for interest rates and if it does that greatly increases scope for quantitative easing.

Though the Fed met Wall Street’s hopes for aggressive action with its half-point reduction, Chairman Jerome Powell seemed to unnerve markets by saying it’s unclear how long the virus’s impact will last. Traders were already pricing in another rate cut later this month, with more to come in June.

“The market is trading right now on a lot of fear and uncertainty,” said Gary Pollack, head of fixed income at DWS Investment Management. “The Fed certainly didn’t bring calm, and the virus continues. The Fed’s relatively large move also made people wonder what they know that we don’t.”

The central bank’s decision came a few hours after Group-of-Seven finance chiefs issued a coordinated statement saying they were ready to act to shield their economies from the virus. Policy makers faced pressure to act after the OECD warned the world economy faces its “greatest danger” since the 2008 financial crisis.

The market is pricing in the assumption the US economy is going to lock up in exactly the same fashion as the Italian or Chinese economies did as coronavirus concern/paranoia spreads. There is no doubt the virus is dangerous for at-risk groups, but the bigger question is whether its effects will persist beyond the first quarter or perhaps second quarter, not least because warmer weather will likely curtail its spread as temperatures rise.

A more urgent consideration is today is Super Tuesday. The biggest issue investors are worried about is the potential Bernie Sanders is going to be the next President of the USA. The range of proposals he has tabled include breaking up the banks, financial services taxes, capping interest rates, breaking up internet and cable companies, Medicare negotiations for drug pricing, importing foreign drugs, capping prices, end health insurance, banning fracking, insist on 100% renewable utilities and railroads, cars and manufacturing. It’s very unlikely any of these will become law without the Democrats retaining the control of the House and also winning the Senate. However, President Trump has demonstrated just how much power the executive branch has and therefore there are grounds for worry.

After a week characterised by selling across the board, a great deal of profit taking has taken place and many overextensions relative to the trend mean have been unwound. The question I believe many people will be concerned with is whether the coronavirus is going to be the catalyst for an economic contraction? I thought it would therefore be worth monitoring the kinds of instruments that offer a lead indicator for that kind of concern.

A 61-year-old Brazilian man who lives in Sao Paulo was infected during a recent trip to Northern Italy and tested positive upon returning to the country, Health Minister Luiz Henrique Mandetta said Wednesday at a news conference in Brasilia. The patient, who traveled via France on the way back to Brazil, is doing well and is at home, a Sao Paulo state official said.

“We’ll have to see how the virus reacts in a tropical country in the middle of summer,” Mandetta said. “We still can’t say how lethal this virus will be.”

Maybe they should ask how Singapore has successfully contained the spread of the virus? The stock market lost now time pricing in the fear of a wider spread with the iBovespa dropped nearly 8% to test the region of the trend mean and the four-year sequence of higher reaction lows.

Contagion experts Peter Sandman, Ian Mackay, and Jody Lanard sum up my view in this passage from Past Time to Tell the Public: It Will Probably Go Pandemic, and We Should All Prepare Now:

“We are near-certain that the desperate-sounding, last-ditch containment messaging of recent days is contributing to a massive global misperception about the near-term future. One horrible effect of this continued 'stop the pandemic' daydream masquerading as a policy goal: it is driving counter-productive and outrage-inducing measures by many countries against travellers from other countries, even their own citizens back from other countries.

“But possibly more horrible: the messaging is driving resources toward 'stopping' and away from the main potential benefit of containment – slowing the spread of the pandemic and thereby buying a little more time to prepare for what’s coming.”

For readers who can spare the time, I suggest tuning out media noise – much of it dwelling on the malevolent distraction of which individual may have been spreading Covid-19 – and going straight to research papers being released daily by PubMed Central, the data bank of the US National Library of Medicine.

That way you avoid the sort of misunderstanding I just heard on the BBC, which stated that the death rate is comparable to flu. No, it is not. The average morbidity of flu annually is 0.1pc; Covid-19 is an order of far greater magnitude.

The latest tracking data as of Feb 22 (unreliable, but the best we have) is that the mortality rate is 4pc in Wuhan, 2.8pc in Hubei, and 0.8pc in other regions of China, though all figures are creeping up as slow deaths hit the data.

There can be long lag times after infection so it is too early to infer ratios from South Korea, Italy and Iran, but this is surely more like the Spanish Flu of 1918 than anything we are used to. Chinese data suggests that roughly 14pc of those infected over the age of 80 are dying.

You can read most of the PubMed abstracts free and can see what is coming out of labs in China – some of them excellent – or in Hong Kong, Korea, Japan, Europe and North America. There are already 80 peer-reviewed papers. The unfiltered findings are arriving almost in real time. They give you an extra edge.

The annual seasonal flu becomes a pandemic every year. The coronavirus shares enough similarities with the flu in how it spreads to become a pandemic. Meanwhile, it is far more deadly.

This graphic, produced by the New York Times a few weeks ago gives us a good picture of what we are dealing with. The mortality rate is anything from 8 to 40 times more deadly than flu while the transmission or contagion factor is about the same or higher.   

“Our overriding priority is to retake control of our laws,” Slack told reporters in London as Barnier spoke in Brussels. “The British public were promised we will take control of our fishing waters and that’s what we’re going to do.”

The EU does have level playing field conditions in other trade deals -- including its tariff-free agreement on goods trade with Canada that the U.K. wants to replicate -- but they aren’t as stringent. The EU says it needs to be tougher with the U.K. because the British economy is so close and so large.

That is reflected in the final negotiating mandate European ministers approved on Tuesday. In it, the bloc requires the U.K. to broadly follow any future changes in EU rules on competition policy, environmental protections, tax, and labor law.

Access to the UK’s, and Ireland for that matter, fisheries is worth billions to the Spanish and French economies every year. It is logical that allowing access should form part of any trade negotiation between sovereign entities. The UK deserves a significant reward for granting that access and financial services are likely to be part of the price.

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

“The Fed has got your back and they will do whatever is necessary to support asset prices” That is the mantra of stock market investors who have been following a diversified or balanced investment strategy for the last decade. In between there have been occasions when the mantra was challenged, particularly following Jay Powell’s appointment as Fed chair. However, the pivot to easier policy and the response to the repo tightness in Q3 have reasserted belief in the mantra.

Remdesivir is the “one drug right now that we think may have efficacy,” Bruce Aylward, an assistant director-general at the World Health Organization, said at a briefing in Beijing. WHO officials and international scientists are in the country assessing the outbreak.

The spread of the coronavirus accelerated internationally over the weekend with exponential growth in South Korea and Italy. Right now, there are no cures for the ailment and therefore any whiff of a successful treatment is likely to be rewarded with investor interest.

Masahiro Kami, an infectious diseases expert, said he was skeptical that the suspension of some public events would have a significant impact on the spread of the virus. “Commuting on a packed train, for instance, is way worse than taking part in the Tokyo marathon,” he said.

Dr. Kami, who heads a nonprofit organization called the Medical Governance Research Institute, said a media focus on the few cases of serious illness from coronavirus infection in Japan had created a panic over the need to cancel events.

While Japan initially had a handful of cases involving people who had come from Wuhan, the center of the epidemic in China, or had direct contact with someone from Wuhan, a surge of cases in the past week included many whose path of infection wasn’t clear. The cases span from Hokkaido in the north to Okinawa in the far south.

More than 1,000 people disembarked from the Diamond Princess cruise ship between Wednesday and Friday, and they entered Japan without restrictions on their movements. All of those passengers tested negative for the virus, but in some cases people have tested positive after a negative test—including two cases reported Friday in Australia, which sent a flight to Japan to repatriate citizens who had been on the ship.

The coronavirus popping up in unrelated areas in Japan is not exactly good news. Additionally, the lax quarantine imposed on the passengers of the Diamond Princess cruise liner greatly increases the potential for the virus to spread even further. At a minimum the potential is for much tighter measures to contain the spread across Japan and other countries. This is also going to create a headache for Abe’s government.

“When you take a bull market and juice it with zero commission trading, we can expect it to generate interest among retail accounts. That, it did,” said Jason Goepfert, president of Sundial. “Retail traders have become manic.”

Individual investors were seen as indifferent participants for much of the 11-year bull market. No more. The latest leg of their emergence times closely with October, when E*Trade, Charles Schwab and TD Ameritrade slashed commission fees to zero. Not that it’s firm proof of anything, but since the start of that month, the S&P 500 is up 13% and the Nasdaq 100 has surged 24%.

Conversations with a handful of clients found lots of praise for zero-commission trades but mostly conservative purchases -- index funds and blue chips. Matt Hermansen, 23, who works for a concrete company in Oakland, California, said the absence of fees makes him more willing to trade.
“I’ll invest smaller amounts. Before I never really invested anything less than $1,000, $500 minimum,” he said in a phone interview. “Now if I have enough to buy an extra share, I’ll do it. I’ll do like $300.”

Welcome back! Remember Caveat Emptor! Retail investors have been absent for the majority of this bull market because they did not have the financial wherewithal to participate. Zero fee trading and accelerating trends are exactly the kind of combination that spurs retail interest in the stock market. Concurrently, low interest rates, the mortgage refinancing boom that began in Q4 and full employment mean retail investors increasingly have the available cash to participate. The downside is the return of retail investors, in force, is a late cycle phenomenon.

If the impact of the outbreak can’t be contained this quarter, annual growth forecasts will need to be revised down, Huw McKay, BHP’s vice president of market analysis and economics, said Tuesday in a blog post. “This would then flow directly through to lower commodity demand and price expectations.”

BHP forecasts China’s growth to slow to about 6% this year and as low as 5.75% in 2021 based on a swift recovery from the virus outbreak. In a worst-case scenario that combined a lingering impact from the virus and a re-escalation of trade war tensions, the nation’s economic expansion this year could slip to 5.5%, the miner said.

Goldman Sachs Group Inc. and Macquarie Group Ltd. are among banks who’ve cut China growth forecasts for both the first quarter and the full year as a result of the outbreak. China’s gross domestic product will grow 4% in the first quarter, according to the median of 18 forecasts since Jan. 31, which would be the lowest level since 1990.

The working assumption most investment models are relying on is the trajectory of the coronavirus outbreak and recovery is going to follow that of SARS. Even though the number of cases and deaths is larger and the coronavirus is more contagious, the measures taken to contain it have been much more aggressive. Therefore, the majority of investors have concluded that a V-shaped recovery is the most likely scenario.

The EU says any agreement hinges on the U.K. signing up to commitments to prevent it undercutting the European economy. But  the U.K. says sticking to the EU’s rules -- known as the “level
playing field” because it would force Britain to accept EU standards in areas such as public subsidies, environmental rules, and labor conditions -- is unfair and goes beyond the conditions the EU imposed in other trade deals.

“It is central to our vision that we must have the ability to set laws that suit us -- to claim the right that every other non-EU country in the world has,” Frost said. “To think that we might accept EU supervision on so called level playing field issues simply fails to see the point of what we are doing. It isn’t a simple negotiating position which might move under pressure -- it is the point of the whole project.”

Under Johnson, the U.K. is taking a less conciliatory approach to its EU negotiations than under his predecessor Theresa May. Frost’s outlining of Britain’s strategy in public contrasts sharply with the secretive way the government conducted talks from 2017-2019 on the country’s withdrawal.

The EU is still concluding its own position on the negotiations, with a series of internal discussions by diplomats scheduled to end on Wednesday. The bloc is considering demanding the U.K. stick to EU rules -- and, in some cases, make them tougher if the EU does -- in a whole host of areas from food hygiene to data protection to labor law.

In a signal of where a compromise might eventually come, Frost said the U.K wants “open and fair competition provisions” based on precedents in other free trade deals.

If the UK is going to succeed in developing a successful economic model capable of competing with the EU and everyone else for that matter, then the ability to set its own rules, regulations and incentive programs is essential. It’s a good thing the current UK administration understands that but it is also a recipe for acrimonious negotiations where brinksmanship is to be expected. The deadline of December 31st ensures this is going to be a topic of conversation for the rest of the year.

Kraft Heinz Co. was downgraded to junk status by Fitch Ratings, which predicted the company’s leverage will remain high for an extended period as the maker of Jell-O and Classico pasta sauce works to stabilize declining sales.

The food company was cut to BB+ from BBB- by the credit-ratings company, with a stable outlook. Fitch said the company may need to divest a sizable portion of its business in order to reduce its debt.

The downgrade follows Thursday’s earnings report, in which Kraft Heinz reported a drop in fourth-quarter sales that sent its bonds and stock tumbling. It was the latest sign that the company’s turnaround plan still has a long way to go.

Kraft Heinz said Thursday it would release a more detailed turnaround plan around the time of its next earnings report in early May, though many investors and analysts had been looking for it sooner.
 

Kraft Heinz’ dividend was 62.5¢ in 2018, 40¢ in 2019 and is expected to be 20¢ in 2020. The decline in the share price has supported the yield, which is currently 5.98% but the outlook for additional dividend cuts puts that under question. The company is likely to be a case study in how intangible values cannot be used to underpin a credit rating during a time of technological and social upheaval.

Basically, Medicare for All would be bad for health insurers.

But as MarketWatch's Victor Reklaitis wrote Tuesday, Sanders' New Hampshire victory is like a double negative, as while it might appear as a negative for insurers, Wall Street seems to believe Sanders would lose to Trump in a general election, which would be a positive for insurers.

Bernie Sanders won New Hampshire by a wide margin in 2016 and only by 4000 votes in 2020. That’s not a particularly encouraging signal. There is a historical comparison circulating that any candidate who won both Iowa and New Hampshire went on to win the Democratic nomination. I’m not convinced by that considering how many historical comparisons have been challenged over the last few years. The results from Super Tuesday in a few weeks will be a better picture.

Output in the world’s largest auto market could be cut by more than 1.7 million cars should the spreading virus resulted in more shutdowns of manufacturing facilities across China, lasting into mid-March, according to an IHS Markit estimate last month.

The auto industry accounts for more than 80% of demand for the precious metal, according to a Johnson Matthey report released Wednesday. That makes it difficult for the market to ignore the shutdowns in China.

“The effects on the wider, global supply-chain are also starting to show,” refiner Heraeus Holding GmbH said in a research note. “Plants across Europe and the wider Asia region are also at risk now because of problems sourcing Chinese-made parts.”

The palladium market is another area where investors and traders are paying scant regard to the risk of a Chinese slowdown despite the fact prices are at elevated levels.

Almost half of top Amazon sellers — those selling more than $1 million in the U.S. — are in China; about a third of Amazon’s Chinese sellers overall are estimated to be in Shenzhen. (This according to Marketplace Pulse, which tracks e-commerce marketplaces.)

Amazon shuttered its Chinese store, Amazon.cn, in 2019, after it failed to crack a market dominated by domestic giants like JD and Alibaba.

But it has been much more successful in recruiting Chinese entrepreneurs to sell abroad, opening “cross-border e-commerce parks,” where sellers can get assistance with logistics, branding, and navigating Amazon’s platform. For the last five years, the company has also hosted summits for Chinese cross-border sellers. Last year’s conference, held in Shanghai, was attended by more than 10,000 sellers, many of whom see, in Amazon, an alternative to increasingly saturated domestic platforms like Taobao.

A seller in America might start with a brand idea and need to figure out how to get it manufactured; a seller connected to a factory in China’s manufacturing capital needs to figure out how to sell to Americans, which Amazon has been working hard to facilitate.

The vast majority of household and personal use products sold in Wal-Mart, Amazon, Target and elsewhere are manufactured in China. Most of the electronics, clothing, and jewellery in stores come from Guangdong. The majority of paper bags, nuts and bolts, toys and other small items come from Zhejiang which is just outside the quarantine area. Manufacturing is also spread over the rest of the country. That suggests the ability of companies to fulfil orders is going to be spotty if they don’t get back to work soon.

Finally, the economic model underlying the reserves creates a complex financial interdependence between Asian central banks and advanced economies, termed the “fatal embrace” by the late Paul Volcker, former chairman of the Federal Reserve. Foreign-exchange reserves represent advances allowing the importing country to buy the exporter’s goods and services on credit. Withdrawing support would risk destroying the value of existing investments and damaging the borrowers’ real economy and export demand.

The interdependence runs deeper. Since 2009, the growth of developing-country reserves is highly correlated to the growth of the balance sheets of advanced-economy central banks, which has been driven by quantitative easing. Attracted by higher returns than available at home, investors moved capital into emerging markets, which in turn supported demand and economic activity in developed economies. This is evident in the increased reliance of many North American, European and Japanese businesses on emerging economies for growth and earnings.

Unfortunately, this cheap capital encouraged rapid rises in debt and increased the risk of future financial instability in many emerging countries. The solution lies in international co-operation to create a new international monetary system and for surplus countries to boost domestic demand.

In a world of rising political tensions, trade wars and adherence to debt and export driven economic models, the prospects for that may appear bleak. Still, this is unfinished business the world will have to return to — once it has got past the economic shock of the coronavirus epidemic.

The strength of the US Dollar over the last ten sessions is at odds with the efforts by the US government and Federal reserve to increase the supply of the currency relative to just about all others. That suggests both repatriation of funds invested overseas as well as the proceeds of carry trades being invested in the USA are supporting the currency. This trend coupled with continued fears about the knock-on effects of the virus scare on economies dependent on China is weighing on Asian markets.

“I think we’re still going to see a slight increase in 2020,” André Bolduc, an executive board member at the Canadian Association of Insolvency and Restructuring Professionals, said in a phone interview from Ottawa. “We’re hoping the economy stays strong so that the increases stay healthy and it doesn’t become a crisis.”

On the less alarming side, adjusting the number of insolvencies to account for population growth shows the increase isn’t as dramatic. As a share of total debt, the rate of filings also appears to be more stable.

In addition, the lion’s share of the increase in the past decade has been so-called consumer proposals, where the debtor agrees with creditors to pay back a proportion of what’s owed. Proposals are considered less severe than bankruptcies, the other form of insolvency reported by the Ottawa-based OSB.

Canada depends on exports to both the USA and China for its prosperity. The slowdown in US manufacturing as a result of the trade war will have had some impact which should now be moderating from the signing of the USMCA. However, the knock-on effect from China’s freezing of economic activity on commodity demand represents a significant challenge that is only now being considered.

AKK’s downfall was ultimately triggered when the CDU in Thuringia voted alongside the AfD to elect a state premier last week. Local leader Mike Mohring has been forced to back track, but other CDU officials in the east have signaled sympathy for his maneuver as he tries to maintain support for the party.

The CDU’s flirtation with the AfD is “very worrisome,” said Norbert Walter-Borjans, the co-leader of the Social Democrats, Merkel’s junior coalition partner, which is also searching for a candidate to lead its next national election campaign.

AKK told party colleagues at a meeting in Berlin that one reason for her decision is the unclear relationship between parts of the CDU and the far-right AfD and the anti-capitalist Left party. At a press conference in Berlin, she underscored her stand that the CDU needs to be strictly opposed to any cooperation with the two fringe parties.

So is the enemy of my enemy my friend or not? The far- left Die Linke party secured the most votes but the far right AfD supported the CDU candidate instead of its own to ensure Die Linke were defeated.

Policy makers capped their easing cycle this week in a bet that aggressive borrowing cost reductions will help fuel growth without jeopardizing inflation control. Central bank President Roberto Campos Neto has said he’s comfortable with the consumer price outlook despite a recent spike in meat costs and possible pressures from a weaker real. Economists surveyed by the monetary authority expect inflation to ease well below target by year-end.

Brazil cut interest rates this week and now has negative real interest rates. Water shortages in Rio de Janeiro are only going to make the case for additional stimulus more compelling since repairing vital infrastructure is unlikely to meet which much local opposition.

“The government is going to have to make sure these voters are looked after,” said Seamus Nevin, chief economist at MakeUK, the U.K.’s largest manufacturing organization. “Investment in our sector is going to be key.”

Britain’s business groups are already drawing up maps like these, hoping to gain leverage in the coming negotiations by showing the U.K. government how the lack of a deal, or one with only a limited scope, would cost jobs in what are now marginal Conservative seats, according to two people familiar with the matter.

Johnson hopes to secure a zero-tariff, zero-quota deal with the EU, similar to the bloc’s existing agreement with Canada. It would mean extra customs paperwork for importers and exporters—but it would avoid tariffs on goods. The problem is that Johnson has ruled out meeting the EU’s condition that the U.K. plays by its rules on state aid, workers’ rights and the environment.

Negotiating with the EU is in no way easy. Right now, Boris Johnson has both a strong mandate and a long runway until the next election. He has every incentive to play hardball now so that any potential drawdown will be smoothed out by the time he needs to go back to the people for another election.

Chinese officials took issue with U.S. comments about the country’s response to the coronavirus outbreak, and promised they would bring the infection under control.

“U.S. comments are inconsistent with the facts and inappropriate.” Chinese Ministry of Foreign Affairs Spokeswoman Hua Chunying said in statement posted online Friday. The World Health Organization “called on countries to avoid adopting travel bans. Yet shortly afterward, the U.S. went in the opposite direction, and started a very bad turn. It is so unkind.”

U.S. officials said this week that they had difficulty getting specialists from the Centers for Disease Control and Prevention to the front lines of the outbreak in China, and late Thursday the State Department advised Americans traveling in China to come home. Commerce Secretary Wilbur Ross on Thursday also said the outbreak may help bring jobs back to the U.S.

China’s ambassador to the United Nations, Chen Xu, said during a press conference in Geneva that the country had been transparent about the disease.

“We have conducted our business in an open and transparent manner with the outside world,” he said.

Xu said that China would work with the World Health Organization to bring the disease under control, following a declaration by the WHO that the outbreak was an international emergency. The declaration will “not only coordinate global prevention control measures but enables us to mobilize international resources to respond to the epidemic,” he said.

“Official” figures are just below 10,000. This Lancet article suggests 76000 infections. The death toll is reported at around 200 but if that is the case why are crematoria running 24/7? The biggest challenge the Chinese administration has is their claims of full disclosure are being met with doubt because they have such a poor record of reporting accurate facts about any part of the economy. Little wonder that other countries are taking more forceful measures to isolate the country until the infection rate peaks and begins to decline.  

What will the U.K. look like after Brexit? Stephen Jen, CEO of Eurizon Slj Capital:

Britain will probably face a “J Curve” effect after Brexit, with challenges ahead before taking off.

The world is experiencing disruptive shocks that require countries to re-invent themselves and stay competitive. There is a big scope for the U.K. to achieve that outside the EU given that it will have a greater degree of freedom. It’s already number three next to the U.S. and China in terms of technology innovations such as AI, biomedicine and robotics. There is a good opportunity that it could leap-frog its competitors. I don’t think it’s a stretch of the imagination that it’s a very exciting future that the U.K. is facing.

As an investor, I would not focus on the negotiation status of various parties or quarter-by-quarter developments, but on the long-term vision of the U.K. government. We are now talking about a different set of considerations -- structural, strategic, forward-looking, institutional. Think Abenomics. Think Singapore-type vision. The government will have to put the country on a very different path than before.

I believe David would have been chuffed to see the UK leave the EU and today marks a momentous occasion for all Britons. Regardless of how one feels about the exit from the EU the real work is only about to get started. The UK needs a clear growth strategy and is going to require visionary thinking on energy, regulation, taxation, immigration and trade.

The ship was bound for La Spezia in the Liguria region, with 1,000 crew and 6,000 passengers, 750 of whom came from China, a port spokesman said.

It is looking like the ill person did not in fact have the coronavirus but the fact that 1/8th of the passengers are from China highlights just how influential Chinese tourists are for the global sector. The cancelling of flights both to and from China is going to have a material effect on all tourist destinations and the longer it lasts the greater the impact will be.

Cancelling Christmas is a closest parallel I can think of for the impact of missing the New Year celebration on Chinese society. Spending on all services, travel, restaurants, hotels and businesses will have been impacted during what is one of their busiest times of the year.

China will introduce new measures to aggressively cut back on its use of plastic, its first such move in more than a decade as booming e-commerce and food deliveries dramatically increase the country’s production of plastic waste.

In recent years, Beijing has stepped up efforts to reduce waste and pollution, introducing measures such as trash sorting and halting imports of recycling.

“China has used too much plastic,” said William Liu, senior consultant at energy consulting firm Wood Mackenzie. “Everyone is calling for more environment-friendly development.”

By the end of this year, nonbiodegradable plastic bags will be largely banned from major cities, and single-use straws will be prohibited in restaurants across the country, Beijing’s top economic-planning office and its Environment Ministry said on Sunday. The ban will extend to all cities and towns by 2022 and to markets selling fresh produce by 2025.

The spectacle of business titans fawning over Greta Thunberg and feigning concern at the issues she champions while simultaneously giving a warm welcome to President Trump is yet another example of the virtue signalling designed to impress electorates all over the world.

Boeing Co. is telling 737 Max customers that the grounded jet won’t be approved to fly until June or July, months later than previously anticipated, said people familiar with the matter.

The new delay comes after two recent discoveries, a software flaw that will require more work than expected and an audit that found that some wiring on the plane needs to be rerouted. The timetable also includes a buffer for unanticipated complications, said one of the people, who asked not to be named because the discussions are private.

The new expectations mean that Boeing’s best-selling jet would miss the busy summer travel season for the second straight year, adding to the compensation that the U.S. planemaker is likely to pay airlines. The Max was grounded in March 2019 after two deadly crashes that killed 346 people.

Trading was halted on Boeing’s shares ahead of the above announcement. The retort from the FAA that no timetable for the recertification of the aircraft has been set and that safety remains the top priority represents an additional blow.

Fiat Chrysler and Foxconn plan Chinese electric vehicle joint venture - This article from Reuters may be of interest to subscribers. Here is a section:

FCA last month reached a binding agreement for a $50 billion tie-up with France’s PSA (PEUP.PA) that will create the world’s No. 4 carmaker. FCA said that the proposed cooperation was initially focused on the Chinese market.

It “would enable the parties to bring together the capabilities of two established global leaders across the spectrum of automobile design, engineering and manufacturing and mobile software technology to focus on the growing battery electric vehicle market,” it said.

FCA said it was in the process of signing a preliminary agreement with Hon Hai, aiming to reach final binding agreements in the next few months.

However, it added there was no assurance that final binding agreements would be reached or would be completed in that timeframe.

Foxconn has been investing heavily in a variety of future transport ventures for several years, including Didi Chuxing, the Chinese ride services giant, and Chinese electric vehicle start-ups Byton and Xpeng.

Foxconn also has invested in Chinese battery giant CATL and a variety of other mostly Chinese transportation tech start-ups.

This is an example of the most profound change batteries are bringing to the automotive sector. They are rapidly commoditizing the car. The difference between an Apple, Samsung or Google phone is less about what is on the inside than familiarity with the brand, ease of operation. software, the app ecosystem and the camera. Other than that, they all have pretty much the same internal composition with some minor differences in the design of the chips while manufacturing is outsourced to a third party.  

By the time Boeing decided to cobble together the 737 Max, its engineering culture was completely broken. Here’s how Aboulafia described it to Useem in the Atlantic:

It was the ability to comfortably interact with an engineer who in turn feels comfortable telling you their reservations, versus calling a manager [more than] 1,500 miles away who you know has a reputation for wanting to take your pension away. It’s a very different dynamic. As a recipe for disempowering engineers in particular, you couldn’t come up with a better format.

You can see that disempowerment — and its consequences — in the recently released emails. Instead of bringing their fears and complaints to superiors, the engineers grouse to themselves about the problems they see with the plane. They are bitter about management’s unwillingness to slow things down, to build the plane properly, to take the care that’s required to prevent tragedy from striking.

There is one email in particular from an unidentified Boeing engineer that I can’t get out of my head. It was written in June 2018, about a year after the company had begun shipping the 737 Max to customers:

Everyone has it in their head that meeting schedule is most important because that’s what Leadership pressures and messages. All the messages are about meeting schedule, not delivering
quality…

We put ourselves in this position by picking the lowest cost supplier and signing up to impossible schedules. Why did the lowest ranking and most unproven supplier receive the contract? Solely based on bottom dollar…. Supplier management drives all these decisions — yet we can’t even keep one person doing the same job in SM for more than 6 months to a year. They don’t know this business and those that do don’t have the appropriate level of input… .

I don’t know how to fix these things … it’s systemic. It’s culture. It’s the fact that we have a senior leadership team that understand very little about the business and yet are driving us to certain objectives. It’s lots of individual groups that aren’t working closely and being accountable …. Sometimes
you have to let things fail big so that everyone can identify a problem … maybe that’s what needs to happen instead of continuing to just scrape by.

Of course that’s exactly what happened: the 737 Max failed big — at a cost of 346 lives. Shareholder value has caused much harm in the three decades since it became the core value of American capitalism: diabetics who can’t afford insulin; students ripped off by for-profit universities; patients gouged by hospital chains; and so much else. But none worse than this.
 

General Electric basically invented financial engineering and built a massive business based on moving money around while its industrial core withered. That resulted in unique exposure, for an industrial company, to the credit crisis. The erasing of goodwill, forced sell-off of prime income producing assets and failure to reinvent a business model, resulted in the complete collapse of the share down to the low in late 2018.

The U.S. and China signed what they’re billing as the first phase of a broader trade pact on Wednesday amid persistent questions over whether President Donald Trump’s efforts to rewrite the economic relationship with Beijing will ever go any further.

The deal commits China to do more to crack down on the theft of American technology and corporate secrets by its companies and state entities, while outlining a $200 billion spending spree to try to close its trade imbalance with the U.S. It also binds Beijing to avoiding currency manipulation to gain an advantage and includes an enforcement system to ensure promises are kept.

The most important point about the trade deal is the stock market did not sell off immediately following the signing. Considering the rally that has been underway for the last three and half months there is clear risk of some consolidation on a buy the rumour to sell the news, but no evidence it has started just yet.

The pound faltered and gilts rallied after inflation data backed up Bank of England policy maker Michael Saunders’ call for urgent stimulus to boost the U.K. economy.

Sterling weakened against the euro and 10-year government bond yields dropped to the lowest in seven weeks after the data fueled bets that the central bank will lower interest rates this year. Money markets are now fully pricing in a full 25-basis-point rate cut for May, compared to November a day ago, and see a 65% chance of a move this month.

Saunders’ view on the need for more accommodative policy comes just days after BOE Governor Mark Carney said Britain’s economic growth had slowed below potential and that the Monetary Policy Committee had discussed the merits of near-term stimulus.

“There is more room for easing expectations to rise should incoming data disappoint and that could keep short-term sterling downside risks intact,” said Manuel Oliveri, a currency strategist at Credit Agricole AG.

The UK is determined to avoid the deflationary environment that has seen negative rates prevail in the Eurozone. That entails a willingness to let inflation run hot. Cutting interest rates now can be justified based on Brexit uncertainty as the end of the transition agreement is clearly within sight on December 1st.

Semiconductor shipments, South Korea’s biggest source of income, rose 12% in the first 10 days of January from a year earlier, data from the Customs Service showed Monday. That’s the first time the preliminary figure posted growth since October 2018.

While the expansion benefits from a base effect of poor performance last year, it suggests global tech demand is improving after being battered by the U.S.-China trade war. The two countries entering a phase-one trade deal later this week should further support demand.

“It’s definitely a positive signal,” said Lim Hye-youn, an economist at KTB Investment & Securities, referring to the chip shipment in South Korea’s preliminary trade data. “But it’s still difficult to see the growth big enough to be leading Korea’s strong economic recovery. The base effect played a large role.”

The global semiconductor sector is a lead indicator for corporate spending and tends to suffer when expectations for future economic potential are weak. All we hear right now is about the negative expectations for future growth among CEOs. If that were the full story then chips sales would not be turning higher.

While analysts say the exchange rate is being driven by improving market sentiment as China’s economy steadies and trade tensions ease, the recent bout of strength comes at a pivotal time for U.S.-China negotiations. Chinese Vice Premier Liu He is expected to sign the long-awaited phase one agreement in Washington Wednesday.

Some now predict the currency will touch 6.8 per dollar within three months -- a level not seen since May last year.

“Having a stronger currency is one way to show good will,” said Mitul Kotecha, a senior emerging-markets strategist at Toronto-Dominion Bank in Singapore. “Signs of a gradual, as opposed to rapid, slowdown in China’s economy and limited decline in China rates will provide support to the currency.”

I did not think we were going to see the Renminbi trade stronger than the trend mean but it is now clearly breaking out. That is as much about the willingness of China to tolerate a stronger currency as it is about the supply of Dollars resulting from the ongoing repo operations.

“The PBOC is likely to continue to use interest rate and liquidity tools to loosen monetary conditions in 2020, though the easing will probably be less pronounced than last year,” David Qu, a China economist at Bloomberg Economics in Hong Kong, wrote in a note. “We expect the PBOC to stick to a stance of measured easing to counter the economic slowdown.”

For the year, consumer inflation for 2019 stood at 2.9%, in line with the government-set target of 3%, while producer prices declined 0.3%. Core inflation, which removes the more volatile food and energy prices, stabilized at 1.4% in December, signaling ongoing weakness in the broader economy.

China’s economy has shown signs of recovery in recent months as global demand steadies and trade tensions ease. As commodity prices rise and factories start restocking, PPI deflation is set to continue to moderate and some see it turning positive as soon as January.

The outlook for the Chinese economy represents the lynchpin for the global reflation trade and the prospects of steadying growth and continued stimulus are helping aid in the positivity surrounding the hiatus in the trade war.

Chief Executive Officer Elon Musk announced in November that Tesla planned to build a plant outside Berlin. The facility is expected to produce Model 3 sedans and Model Y crossovers starting in 2021.

Fiat Chrysler is going to launch a new version of its Fiat 500 battery-powered vehicle in Europe this year, along with plug-in hybrid versions of its Jeep Compass, Renegade and Wrangler models. That, combined with the Tesla credits, should make the company compliant with Europe’s emissions rules, CEO Mike Manley told analysts in July.

While Fiat Chrysler would otherwise struggle to meet new carbon-dioxide emissions standards in Europe, the so-called open-pool option available in the European Union allows automakers to group their fleets together to meet targets.

Compliance has gotten harder for automakers as consumers have shifted toward gasoline cars, which emit comparatively more CO2, following Volkswagen AG’s diesel-emissions scandal that first erupted in 2015.

Getting your competitors to pay for a factory, which you will then use to produce cars aimed at putting them out of business is a narrative that is so farfetched it would be unlikely to ever pass muster as a movie script. Yet, it is reality in the growth killing market designed by the bureaucrats ruling the EU. Is it any wonder the UK voted to leave?

The world’s biggest maker of jewelry added roughly a tenth to its market value on Monday after reassuring investors it would reach the upper end of its profit forecast for 2019.

Shares in Pandora A/S rose as much as 12%, as the Copenhagen-based company released some preliminary figures ahead of its Feb. 4 annual results. It now expects its profit margin for 2019 to be in the higher end of the previously guided range of 26-27%.

The update was “definitely good news,” said Per Fogh, an analyst at Sydbank. “Many people had expected Pandora to miss that guidance altogether, so a margin in the upper end of the range shows that Pandora has been able to get its costs under control under its turnaround plan.”

This video has been following me around the internet for much of the last month and its touching sentiment may have been enough to help boost sales in the critical fourth quarter for jewelry sales.

China approved a new strain of genetically modified soybeans developed by a U.S. company, a move that could bolster looming trade talks.

The variety approved for import is an insect-resistant soybean from Dow AgroSciences LLC, according to a list published by China’s agriculture ministry on Monday. The nation also approved a new type of GMO papaya and renewed permits for 10 crop varieties, including corn and canola.

China and the U.S. are gearing up to sign the first phase of a trade deal, with the South China Morning Post reporting Chinese Vice Premier Liu He is set to lead a delegation to Washington on Jan. 4. The countries agreed to speed up the approval process for imports of GMO crops as part of efforts to boost bilateral trade.

“The news helps confirm China’s opening of its market to U.S. GMO products and dropping additional non-tariff barriers,“ said John Payne, senior futures and options broker at Daniels Trading in Chicago.

GMO crops have been a source of tension with the U.S. arguing China’s stance isn’t based on science and has been used as a non-tariff barrier. In 2013, China rejected several cargoes of corn and distillers dried grain from the U.S. due to the presence of a GMO variety that took the Asia nation almost five years to approve, said Darin Friedrichs, a senior analyst at INTL FCStone in China.
 

The Phase 1 agreement to at least usher in a hiatus in the trade war means China will be buying a lot more US agricultural products. The challenge is that will bring the total to a record and there are questions about how sustainable that is with the USA’s current production figures. The move to accept more genetically modified grain is reflective of the efforts under way to lower barriers to additional imports.

South Korea’s won has surged through the pack to become the best-performing Asian currency for December after being the outright worst over the previous 11 months.

The catalysts behind its revival: the agreement of an initial trade deal between the U.S. and China -- South Korea’s two largest trading partners -- and improving local data that suggest that economy is turning the corner following a series of interest-rate cuts.

The won has jumped 1.7% this month after President Donald Trump said Dec. 13 the U.S. and China had reached a phase-one trade deal, helping to limit any further escalation of the dispute that has pummeled emerging-market assets this year.

Investors are clearly willing to give a trade deal the benefit of the doubt and that is now being reflected in the outperformance of Asian and European markets relative to Wall Street. The recent weakness of the US Dollar is an additional indication of capital moving out of US assets.

Japan’s Topix index advanced, set for its best quarterly gain since 2016, after the latest economic data out of the U.S. indicated the labor market is solid.

Banks contributed most to the benchmark measure’s Friday gains. The Nikkei 225 Stock Average slipped 0.4% to 23,837.72, as 30 of its components traded without rights to receive the next dividend, including Canon Inc. and Japan Tobacco Inc. Next Monday will be the last trading day of the year.

The Topix extended its gain for the quarter to 9.2%, the biggest such increase in three years. Japanese equities have rallied since September, bolstered by signs of easing tensions between the U.S. and China.

U.S. jobless claims fell to a three-week low of 222,000 in the week ended Dec. 21, in another sign of health in the U.S. economy. Major U.S. equity indexes climbed to fresh records Thursday in holiday-thinned trading.

The Yen tends to strengthen when investors are worried and seeking a safe haven. With worries about trade and geopolitics easing, demand for the Yen is moderating and that is helping to stoke demand for equities.

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

It’s all about the consumer. If the consumer is working, they are spending and that helps to keep the economy chugging along. Therefore, unemployment rates remaining well contained are one of the primary factors in ensuring growth remains on an upward slope.  

FedEx Corp. erased its gains for the year after cutting its profit forecast for the second straight quarter as e-commerce puts a squeeze on margins. The stock also weighed on the Dow Jones Transportation Average, where it held the third-biggest weighting prior to Wednesday. FedEx was already reeling this week after Amazon.com Inc. stoked competitive tensions by banning third-party sellers from using the courier’s services, citing poor service.

 

Fedex is being squeezed between the preferred status of UPS as an Amazon shipper but also by Amazon performing its own deliveries via its own network of shippers. The clear divergence between Fedex and UPS highlights the fact there are some clear winners and losers in the evolving ecommerce shipping landscape.

Thailand continues to face political divisions that in the past led to sometimes bloody demonstrations followed by military coups. Future Forward, the most high-profile opposition party, last week warned protests could erupt again if a slew of legal cases lead to its dissolution by judges.

The reform-minded party is part of an opposition bloc that controls almost half the lower house of parliament, and which has questioned the fairness of the March election and its outcome following five years under a junta.

A pro-military coalition led by former junta chief Prayuth Chan-Ocha took office after the poll with a slim majority. It subsequently faced a complaint of illegitimacy for failing to utter the whole oath of office in a swearing in ceremony in front of Vajiralongkorn.

The more strident participation of the monarchy in Thai political life is certainly a change and suggests potential for a tripartite struggle for power between the military, opposition and king.

These new statistics suggest that the spread of AI will not just amount to “more of the same,” and that the onset of AI will introduce new riddles into speculation about the future of work.

Given their difference from previous analyses purporting to discuss AI, Michael Webb’s novel procedures demonstrate that we have a lot to learn about artificial intelligence, and that these are extremely early days in our inquiries. What’s coming may not resemble what we have been experiencing or expect to experience.

Webb’s machine learning statistics suggest AI could bring new patterns of impact across the labor market—ones fundamentally different from those brought by previous technologies.

It’s clear that past automation analyses—including our own, with its amalgamation of robotics, software, and artificial intelligence—have likely obscured AI’s distinctive impact. Based on expert familiarity, previous analyses have almost certainly been dominated by the ways robotics and software have been able to take over numerous routine, highly structured, and repetitive tasks.13

These analyses have tended to suggest that automation’s main effects will be to displace work across the middle of the skill and wage spectrum (such as factory workers and office clerks) while leaving the status quo more or less intact for both high-pay and low-pay interpersonal or nonroutine work (such as chemical engineers and home health aides, respectively).

However, the more refined empirical research presented here suggests that AI’s ability to employ statistics and learning to carry out nonroutine work means that these technologies are set to affect very different parts of the WHAT JOBS ARE AFFECTED BY AI? 23 workforce than previous automation. Most strikingly, it now looks as if whole new classes of well-paid, white-collar workers (who have been less touched by earlier waves of automation) will be the ones most affected by AI.

Many better paying jobs rely less on expertise than on workplace protections. It is still mandatory to speak with an insurance agent in the USA when buying insurance. Many European countries dispensed with agents years ago. That single workplace rule which necessitates little more than a box ticking exercise with an agent, and the commissions that agent derives from the policy for every year it is active subsequently represent a massive cost to consumers.

In Brazil, the inflation pick-up comes as economists and company executives sound the alarm on rising meat prices due to dwindling supply. China, the world’s top meat consumer, doubled pork imports and shipped in 63% more beef in October than a year earlier as the country struggles to ease shortages due to African swine fever.

“The food price shock has arrived” in Brazil, said Leonardo Costa, an economist at Rosenberg Associados. “We’re increasing our 2019 inflation call to 4% because the increase in food and
beverage costs will be even stronger in December.”
 

If inflation is rising, and this appears to be a global phenomenon that will reduce the ability of central banks to continue to cut interest rates. That was certainly a factor in the RBI’s decision to hold rates steady in India today and similar decisions are likely across emerging markets as the full impact of higher food prices rolls through.

The research departments of major asset managers are currently putting out their expectations for what to expect in 2020. There is a great deal of commonality in what is being predicted. The reality is many investors went to cash a year ago and were slow to reinvest. They continue to feel shy about being fully committed and still feel a great deal of uncertainty. That it being reflected in the views being espoused in predictions for 2020.

The estimate of the Brazilian coffee crop of 2019 is 49 million bags of 60 kg This means a 20 % drop from 2018, when Brazil produced a record crop of 62 million bags. This is a big difference. But it is due to the fact, first that Brazil is in the “off-year” of its two-year coffee production cycle, which alternates between years of high and low production cycles. The coffee trees are resting one in two years. Second, there has been irregular weather that was not good for the crop. And third, the farmers are diminishing the crop care because of prices that have fallen too low. This is happening after a bumper “on-year” which brought a collapse of prices. The influence of Brazil on the world coffee market is important because it is the largest producer. (62 million bags on a total world production of 175 million bags). But in the other countries the same causes have most of the time had the same effect.

What must be noticed also is that very low prices because of overproduction were normal to a certain extent, but as always, investment funds and speculators (or call these also investors with a euphemism) went about 51.000 contracts short (equals 12.750.000 bags) and then suddenly reduced these short positions to about 17.000. This of course amplifies the movements of the market, this time to higher but still not normal prices. In the meantime, the farmers are starving with a daily income of 3 dollars, flee their central American countries and try to get in the U.S. It’s a shame, a hard world. That’s why in my company we promote Fair Trade Coffee, now at about the double of the price of the market. We are making nearly half of our turnover with this coffee.

The Real is also an important parameter, but it is not the only one. The two charts of coffee and Real are often linked, but not always when such fundamental events are happening;

Thank you for this valuable insight into the machinations of the coffee market. The two-year cycle of coffee tree productivity is an important consideration when weighing the likelihood of a downtrend due to overproduction persisting. The fact farmers are walking off their farmers in Central America is an inhibitor to increasing supply but as you point out Brazil is the primary source of Arabica.

The EU plan, set to be approved as the high-profile United Nations summit in Madrid winds up, would put the bloc ahead of other major emitters. Countries including China, India and Japan have yet to translate voluntary pledges under the 2015 Paris climate accord into binding national measures. U.S. President Donald Trump has said he’ll pull the U.S. out of the Paris agreement.

In a pitch of her Green Deal to member states and the European Parliament on Dec. 11, von der Leyen is set to promise a set of measures to reach the net-zero emissions target, affecting sectors from agriculture to energy production. It will include a thorough analysis on how to toughen the current 40% goal to reduce emissions by 2030 to 50% or even 55%, according to an EU document obtained by Bloomberg News.

Make It Irreversible
In the next step, the commission will propose an EU law in March that would “make the transition to climate neutrality irreversible,” von der Leyen told the UN meeting. She said the measure will include “a farm-to-fork strategy and a biodiversity strategy” and will extend the scope of emissions trading.

The EU’s political elite view the climate argument as a voter winner, a source of revenue for their constrained social services and an additional control on the economy that would be impossible under normal circumstances. It is also a response to the fact the region is a major energy consumer and has long had to deal with regimes it is politically at odds with because of its dependence on imports of energy commodities.

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

It takes all kinds of views to make a market and that is particularly true when supply and demand have been in relative equilibrium for almost two years. When that amount of time has passed both the bullish and bearish arguments are well understood.

Former State Security Minister Bongani Bongo was arrested in a case related to bribery and state-owned companies. Bongo appeared in a court in Cape Town Thursday to face a charge of corruption.

“This is the first big arrest,” said Claude Baissac, the head of Eunomix Business and Economics Ltd., which advises on political risk. “It’s demonstrating that at long last some criminal charges are going to be brought against African National Congress members and clearly pretty senior ones.”

More than 500 billion rand ($34 billion) was stolen from state companies and government departments during the nine-year rule of President Jacob Zuma, according to Ramaphosa. While he has promised to fix the economy by curbing state costs and splitting up the indebted state power utility, a demand for arrests has been a constant refrain in the nation’s media and on radio talks shows.
 

Respect for minority shareholder interests, property rights, a free press and independent judiciary are the hallmarks of states with good governance. The extent to which these ideals and institutions are supported and improved dictates whether governance is improving. South African corruption has put all in jeopardy over the last decade and it is particularly good news the Ramaphosa administration is will to begin to do something about it.

The intervention comes after Simon Cheng -- a Hong Kong resident who worked for the consulate’s business-development team before he went missing in mainland China for 15 days in August -- said on Wednesday he was beaten and forced to confess while detained by Chinese agents, who pressed him for information on participants in the city’s protests.

“Simon Cheng was a valued member of our team,” U.K. Foreign Secretary Dominic Raab said in a statement. “We were shocked and appalled by the mistreatment he suffered while in Chinese detention, which amounts to torture.” Raab said he summoned the Chinese ambassador in London to demand an investigation into the “brutal and disgraceful treatment of Simon in violation of China’s international obligations.”

China claims anyone with Chinese heritage as its own, regardless of where they were born or what passport they hold. It’s what forms the basis for the greater China argument and is used to back up their territorial claims well beyond their land border. It also ensures that people who look Chinese tend to be treated as if they are Chinese when in custody. It’s questionable whether Simon Cheng would have been treated the same were he Caucasian.

Morrison has been loathe to provide stimulus that may jeopardize a promised return to surplus this fiscal year, even after the central bank urged his government to help facilitate spending on major projects.

Reserve Bank of Australia chief Philip Lowe has called for the government to tap record-low borrowing costs to ramp up investment in roads, railways and bridges to support economic growth and employment as the central bank’s conventional interest-rate ammunition comes to an end.

Treasurer Josh Frydenberg has so far resisted bringing forward additional income tax cuts, maintaining he’s already doing enough to support the economy. Morrison will maintain that stance in Wednesday’s speech.

“A panicked reaction to contemporary challenges would amount to a serious misdiagnosis of our economic situation,” Morrison will say in the speech. “A responsible and sensible government does not run the country as if it is constantly at DEFCON1 the whole time, whether on the economy or any other issue.”

While the ideal of a budget surplus is laudable, the government bond market is suggesting a lot more stimulus is required to reignite animal spirits. Easing mortgage rules, fiscal stimulus and lower interest rates are have all been implemented in the last few months to support growth but Australia has among the world’s highest consumer debt to GDP ratios. That suggests continued commitment to supporting the economy is going to be required if the expansion is to persist.

“While the data are early, we are quite excited about what we are seeing,” he said in a telephone interview. “This is a pretty significant milestone, not just for us as a company but for the entire field. This could be an important landmark in medicine, when we saw the first promise for providing cures for a number of diseases using a gene editing approach.”

The early findings may benefit rival companies also studying medicines based on Crispr technology, as they are the first results from publicly traded companies using the platform. Editas Medicine Inc.’s lead drug will be given to its first patient at the start of next year as a treatment for a form of blindness, while Intellia Therapeutics Inc. is on track to file for its first human trial by mid-year.

Gene editing deals in cures rather than treatments. That’s a major challenge for the traditional pharmaceuticals business. Chronic conditions which requite ongoing treatment but have no cure have been massive money spinner for the pharmaceuticals business for decades. Right now, the cost of cures is extraordinarily high because a one-shot solution has to load all of the revenue from a treatment into one bill rather than spacing it out with a chronic condition. However, as the sector moves out of the orphan disease sector and into the mainstream over the next decade the potential for costs to come down is quite compelling.

The Mach-E will make a profit “on vehicle one,” he said in a Bloomberg TV interview. “That’s surprising a lot of people because electrics have not had a history of making money. This will.”

Hackett said it will turn a profit because the vehicle “creates the passion that follows with Mustang” and prices start in the mid-$30,000 when U.S. subsides on electric cars are factored in. “So it’s attractive to customers.”

Ford is building it in Mexico because it had an open factory there and it needed to be overhauled to build an electric vehicle, Hackett said. “As we start to adopt more electric vehicles — we had capacity down there, we had no capacity in the United States — we’re going to have electric capacity here in the United States. They’ll be building other electric platforms.”

Still, it’s a high-risk gambit. The Mustang is Ford’s signature sports car, having sold more than 10 million units since it debuted in 1964 with simultaneous cover stories in Time and Newsweek. When Ford decided to abandon the traditional passenger-car business last year, it spared only one model: The Mustang.

Sports cars, pickups and SUVs represent the high margin portions of the auto industry. Many traditional manufacturers are racing to get electric SUVs and sedans into the market to compete with Tesla. Today’s Ford announcement is obviously aimed at competing with the Model 3, while Tesla’s debut for its pick-up, on Thursday, is aimed at competing with the F-150. The disruption in the auto sector is forcing massive investment in new manufacturing capacity and not all will survive. From listening to what Jim Hackett had to say about profitability, it sounds there is some creative accounting in making the claim the electric Mustang will be profitable on car one.

Shares of Luckin Coffee Inc. (LK) shot up 7.6% in premarket trading Wednesday, after the China-based coffee seller reported wider third-quarter loss but revenue that rose above expectations. The net loss was RMB531.9 million ($74.4 million), or RMB3.60 per American Depository Share, after a loss of RMB484.9 million, or RMB2.24 per ADS a year ago. Excluding non-recurring items, the adjusted per-ADS loss was RMB2.08, compared with the FactSet consensus for loss per ADS was RMB2.75. Revenue rose to RMB1.54 billion ($219.6 million) from RMB240.8 million, to beat expectations of RMB1.47 billion. Average monthly items sold were 44.2 million, up from 7.8 million a year ago, while the average monthly transacting customers grew to 9.3 million from 1.9 million. "During the third quarter, sales from freshly-brewed coffee drinks continued to maintain very strong growth, and we believe we will reach our goal to become the largest coffee player in China by the end of this year," said Chief Executive Jenny Qian. The stock. which went public on May 17, has tumbled 22.7% over the past three months, while the S&P 500 has gained 5.7%.

I wanted to try a Luckin Coffee while in Guangzhou over the summer but I was voted down by my daughters who could not get enough of boba tea. Since they discovered smores frappacinos the two alternatives are more balanced but they will always still choose a boba tea over a trip to Starbucks.

“We’re exploring how we can partner with banks and credit unions in the U.S. to offer smart checking accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools,” Google said in an emailed statement, adding that the accounts will carry federally guaranteed insurance.

The move is the latest sign of Silicon Valley’s determination to muscle in on financial firms’ territory, looking to expand their hold on customers and accumulate data on their finances. At the same time, it shows banks are more willing to pair up with technology companies in their quest to avoid getting shut out of the relationship entirely. In the Google arrangement, the financial institutions will handle most of the compliance requirements.

Google has spent years building out its payments capabilities, offering consumers the ability to send money to friends and check out both online and in stores through Google Pay. With the checking accounts, consumers will be able to receive their paychecks and transact solely inside the Google ecosystem.

Apple has teamed up with Goldman Sachs to branch into consumer credit while Amazon, Berkshire Hathaway and JPMorgan are planning on tackling the health care market. Google is partnering with Citigroup on consumer credit but Ascension on patient data. These stories highlight how eager tech companies are to branch into these data-rich sectors, where legacy players are ill-equipped to monetise the value, they have access to.

I can never understand the irrationality of the markets (I know, I can hear David's words, "the markets don't care what you or I think" ringing in my ears!) but surely a decisive separation from the EU, if necessary on WTO terms would eliminate uncertainty and settle the issue for good. The notion of a Brexit with the UK still subservient to the EU's protectionist policies and antidemocratic dogma will fester among the majority of the British public causing it to flare up again repeatedly in the years ahead.

Thank you for this note which I believe accurately encompasses the emotional response many of us feel at the creeping slide in ideological purity the solution to success of the Brexit referendum represents.

It’s difficult to know how representative this data is of Teslas overall, given that Tesloop’s fleet is small, but it likely includes a large share of the highest-mileage Teslas on the road—several are nearing 500,000 miles. Finding conventional vehicles to compare is virtually impossible since most fleet cars are typically sold off after 100,000 miles.

But the implications could be huge. Every year, corporations and rental car companies add more than 12 million vehicles in Europe and North America to their fleets (pdf). Adding EVs to the mix could see those cars lasting five times longer—costing a fraction of conventional cars over the same period—while feeding a massive new stream of used electric cars into the marketplace. Whether the future of fleets is really electric, however, depends on the data. And that’s still in short supply.  

The promise of EVs
Most commercial vehicle fleets still run on gasoline and diesel, David Hayward, a fleet expert with Deloitte consulting, said. But EVs are top of mind. “Everyone is excited about it and everyone wants it,” he told Quartz. “But there’s trepidation.” The potential savings are huge. Fleet owners’ biggest expenses after depreciation (44%) are fuel (22%) and maintenance and repairs (11%), according to Deloitte.  EVs could slash those by more than half.

The original electric vehicles that entered service about ten years ago have some of the lowest resale values and steepest depreciations of any car. Meanwhile the Tesla Model 3 was the car with the least depreciation of any vehicle this year. That is a function of both supply and built up demand but the success in limiting the erosion of the battery’s charge potential has reversed the economics of the electric vehicle market. If a car can comfortably drive 500,000 miles with little to no maintenance, other than tyres, the only limitation is range. Right now, a Model 3 has about a 300 miles range which more than enough for most people. My SUV will do around 480 miles on the highway to a tank but probably closer to 200 in the stop/go of the city so the range issue is less of an issue today.

Drier than average conditions are forecast across the Brazilian coffee region over the next five days, particularly in Cerrado, Marex Spectron said in emailed weather report.

Regions of southern Espirito Santo, southeast Minas Gerais and southeast Sao Paulo are forecast to be wetter than average
In the next five days thereafter, the whole Brazilian coffee region is expected to be wetter than average, except for the northern coffee region, which is expected to be slightly drier than normal

VIETNAM

Typhoon Nakri is forecast to weaken to a tropical depression before it makes landfall over central or eastern Vietnam between Nov. 10 and 11

“It is associated with heavy rain and strong, sustained winds”

There is an anomaly of 10 mm predicted across the Central Highland region over the next five days
Drier than average conditions expected in the northern coffee areas
NOTE: Vietnam Coffee Harvest Threatened by Tropical Storm: Maxar

Arabica coffee is particularly affected by weather conditions in Brazil and the price is also influenced by the outlook for the Real. Meanwhile Robusta coffee is much more dependent on growing conditions in the Vietnamese highlands