In a 9-0 decision authored by Justice Sonia Sotomayor, the Supreme Court barred a proposed lawsuit against Facebook over automated text messages.
Before he was a cancer survivor, before he authored a compelling new book entitled “Fear Is A Choice,” James Conner was just another black man in America…targeted while Playing Football While Black. “Growing up playing football, and people on the other team calling me the N-word and stuff,” the Steelers running back told The Post…
From RussiaGate To ObamaGate & The End Of Boomerville
From the beginning of the story RussiaGate was always about Barack Obama. I didn’t always see it that way, certainly. My seething hatred for all things Hillary Clinton is a powerful blind spot I admit to freely.
But, it’s clear that Obama was always the vector through which the entire investigation into Donald Trump pointed. He’s the only one with the power to have marshaled the forces arrayed against Trump for the past four years.
We’ve known this for a couple of years now but there were a seemingly endless series of distractions put in place to obfuscate the truth…
Donald Trump was not a Russian agent.
What’s clear now is the President Obama’s administration was regularly engaged in illegally using NSA database access to spy on Americans and political opponents. This operation pre-dates Trump by a few years.
It was de rigeur by the time the election cycle ramped up in 2016. The timing of events is during that time period paints a very damning picture. This article from Zerohedge by way of Conservative Treehouse lays out the timing, the activities and the shifts in the narrative that implicate Obama beyond any doubt.
On April 18, 2016, following the preliminary audit results, Director Rogers shut down all FBI contractor access to the database after he learned FISA-702 “about”(17) and “to/from”(16) search queries were being done without authorization. Thus begins the first discovery of a much bigger background story.
And that’s when everything changed. Because at that point, having lost access Obama’s spy team needed another way into the NSA database. Enter Fusion GPS, Christopher Steele and the ridiculous dossier used to issue FISA warrants on Carter Page and all the rest of it.
The details are all there for anyone with eyes willing to see, the question is whether anyone deep in the throes of Trump Derangement Syndrome will take their eyes off the shadow play in front of them long enough to look.
I’m not holding my breath.
Obama is guilty of the highest crimes a President can be guilty of, utilizing Federal law enforcement and intelligence services to spy on a political opponent during an election. This is after eight years of ruinous wars, coups both successful and not, drone-striking U.S. citizens and generally carrying on like the vandal he is.
— Donald J. Trump (@realDonaldTrump) May 12, 2020
ObamaGate arrives on the verge of the real 2020 election season, now that the DNC has circled the wagons around Joe Biden hiding in his Gimp Cellar because they have no one else to run who isn’t pure Kryptonite, with Obama coming out of the shadows to attack Trump’s handling of COVID-19.
Rumors abound as to whether he can be Hillary’s running mate if Biden can’t run. Their echo chamber is desperate to build up his wife Michelle as the VP candidate.
Because this is Obama’s way of running for a third term without being on the ballot.
Trump has to destroy what’s left of the Left’s Last Messiah before we get into the campaign season or he will be dealing with someone his equal on the campaign trail.
Why else would Hillary back Biden after spending the past year trying to clear the decks for her triumphal return after they trashed Trump’s economy with a fake pandemic, and even faker impeachment trial based on an even less real accusation of him being a Russian agent?
She knows that it’s time they bury the hatchet, circle the wagons and get rid of Trump the only way they can now, at the ballot box.
Because if they don’t the generations-long project for global control by The Davos Crowd on their terms will evaporate as Trump goes on a vindication tour of DC.
These people obviously missed the key point about Goebbels’ Big Lie theory of propaganda. For it to work there has to be a nugget of truth to wrap the lie in before you can repeat it endlessly to make it real.
And that’s why RussiaGate is dead. Long live ObamaGate.
Obama’s people have been covering for him for nearly four years now. They have been exposed as bald-faced liars by the transcripts of their impeachment testimonies to Adam Schiff and the House Intelligence Committee.
None of them were willing to testify under oath, and be guilty of perjury, to the effect that Trump was colluding with the Russians. But, they’d say it on TV, Twitter and anywhere else they could to attack Trump with patent nonsense.
Now that the heat is rising and the apparatus they used to control turns its attention to what they did, enough of them will roll over and give Attorney General William Barr what he wants. Some of them will fall on their sword for Obama.
But I don’t think Trump will be satisfied with that. He has to know that Obama is the key to truly draining the Swamp if that is, in fact, his goal. Because if he doesn’t attack Obama now, Obama will be formidable in October.
Both men are fighting for their lives at this point.
Trump was supposed to roll over and play nice. But Pat Buchanan rightly had him pegged at the beginning of this back in January of 2017, saying that Trump wasn’t like Nixon, he wouldn’t walk away to protect the office of the Presidency. He would fight to the bitter end because that’s who he is.
And here we are coming into the home stretch and the bitter end is staring these people in the face. They’ve lost all credibility, corrupted whole swaths of the Federal government beyond recognition and activated every resource they have in the media and the chattering classes to make manifest a bald-faced lie.
And it didn’t work.
Now the desperation sets in. The exoneration of Gen. Michael Flynn, the release of the transcripts and conflicting stories told by John Brennan, James Clapper, James Comey and the rest all point to something beyond sinister.
You can smell the fear now. From Bill Kristol to John Brennan they can see the end of their project, whether it was for a New American Neocon Century or just the cynical push for a transnational oligarchy based around the European Union, their Utopian dreams have run into the immovable object of a people refusing to believe their lies anymore.
And if you look just a little farther into the future, once ObamaGate is behind us, one where Trump is re-elected you’ll see the end of something far bigger, the end of what I’m now calling Boomerville.
We’ve all been sucked into this fantasy of money for nothing and wars for free. That we can, as Ron Paul put it so elegantly for years, have both guns and butter.
Boomerville is that mythic image of a better world filled with unicorn farts and toxic egalitarianism and that we can issue endless debt we owe to ourselves to pay for it all.
It’s a Marxist world of power for power’s sake that lowers everyone’s status to that of worker drones while building them up to be heroes in a story only playing out in their own minds.
RussiaGate was the last ditch effort to kill off the Revolt of the Remnant, to take their Messiah, the Orange Jesus himself, Trump, and paint him as the worst thing possible.
They painted the picture that he was what they actually were.
And, by extension, us too. Those are fighting words folks.
It’s Alinsky 101, accuse your opponent of that which you are. Force them to defend themselves against the baseless and the false until they are either shamed into submission or crack under the pressure.
I warned for a long time that Trump wasn’t that guy. That his unique set of skills and personal faults — his vindictiveness, his narcissism and his disagreeableness — were his greatest strengths.
He could outlast RussiaGate and eventually turn it around onto the people who started it. And that’s where we are now. RussiaGate is now Obamagate and backed by an army who understand that his fight is their fight Trump needs to end this once and for all between now and November.
That’s where this ends, with Boomerville being over run by the Deplorables and the Resistance still trying to figure out why none of it worked.
* * *
Wed, 05/13/2020 – 15:31
Has Demand For Oil Already Peaked?
Authored by Nick Cunningham of Oilprice.com,
Oil prices continue to rise on the prospect of a rebound in fuel demand as economies begin to reopen. But there is a large difference between oil demand rising from recent lows and actually growing relative to pre-COVID-19 trends. In other words, demand destruction on the order of nearly 30 million barrels per day (mb/d) may have been brief, but we are a long way from a 100-mb/d oil market.
In fact, some are wondering whether the world will ever get back to 100 mb/d of oil demand. Even oil executives have their doubts. Royal Dutch Shell’s CEO Ben van Beurden recently suggested that a rebound is unlikely, even looking out beyond 2020. “We do not expect a recovery of oil prices or demand for our products in the medium term,” he said.
“We basically have a crisis of uncertainty. Uncertainty about demand, about prices,” van Beurden said in a video address when presenting first quarter results at the end of April.
“Maybe even uncertainty about the viability of some of our assets given all of the logistical issues we have.”
BP’s CEO Bernard Looney largely admitted the same thing. The COVID-19 pandemic could entrench certain societal changes – more teleworking, less commuting, less flying – that could permanently erode a portion of consumption. “It’s not going to make oil more in demand. It’s gotten more likely [oil will] be less in demand,” Looney said in an interview with the FT.
“I don’t think we know how this is going to play out. I certainly don’t know,” Looney said.
“Could it be peak oil? Possibly. Possibly. I would not write that off.”
Not everyone agrees. ExxonMobil’s chief executive Darren Woods recently said that the long-term trends “have not changed.”
A new study from IHS Markit also sees oil demand mostly returning to “normal” by the end of 2021. “It may be hard to comprehend now. But barring a second wave of the pandemic, nearly all pre-COVID demand could return by the second half of 2021,” Roger Diwan, vice president of financial services at IHS Markit, said in a statement. The firm sees oil demand rising to 96-98 percent of pre-coronavirus levels by the second half of next year.
“If that transpires it could even lead to a market squeeze in the medium-term as supply destruction hinders the ability of supply to keep up with recovering demand,” Diwan added.
A separate report from the Oxford Institute for Energy Studies sees something similar. The report eyes a supply deficit as soon as the third quarter of 1.5 mb/d, on the back of severe supply curtailments and a rebound in demand. The report says the market could be undersupplied in 2021 by as much as 5 mb/d. But the inventory overhang means that Brent trades in the $40 to $50-per-barrel range for most of next year.
The Oxford report also sees demand mostly arriving back at pre-pandemic levels at the end of 2021.
The problem with that notion is that a second wave of coronavirus infections is completely plausible, perhaps even likely (something both the IHS and the Oxford reports admit are big uncertainties). Time will tell.
But the permanent changes in some behaviors, along with the ongoing market share gains for electric vehicles, go beyond oil market cycles. If demand does return, and boom follows bust, the shift to cleaner energy will only accelerate, and that’s before even considering any green stimulus measures now under consideration.
One important issue that the Oxford report raises is how Saudi Arabia responds after the immediate crisis subsides. With the prospect of peak demand looming, there are “advantages” for Saudi Arabia if it pursues a high-volume/lower price strategy, the Oxford study says. That is, Saudi Arabia may want to ramp up production in the years ahead in order to monetize its remaining reserves as demand peaks and begins to decline.
Cutting by too much in an effort to push prices to $50 per barrel or above would clear the way for a return of U.S. shale. Better to keep the market well supplied, capture more market share, and box out a rebound in shale drilling.
Other analysts agree. “Will OPEC+ then hold on to production cuts in order to opt for price rather than volume once the oil price moves back to $50/bl thus once again chase the oil price to $60/bl and $70/bl by holding back supply?” Bjarne Schieldrop of SEB wrote in a report. “If so, this would again give preference to shale oil volume rebound in exchange for a higher oil price to OPEC+.”
Wed, 05/13/2020 – 14:59
Putting A Price On The S&P 500
Honey, I bought a new set of golf clubs for 40% off. What a deal!
Dearest, I also found a bargain. I bought XYZ stock at $30, and it was trading at $50 two weeks ago.
Our happy couple seems to have found some great bargains. Their purchases may be cheap in their minds, but are they? To answer the question, we need an understanding of what the right price is, not what the price was yesterday.
Why Do We Invest Our Hard-Earned Money?
There is no way to value a set golf clubs conclusively. Those that play three times a week value the latest and greatest set of clubs much higher than hacks like ourselves.
Stocks and other financial assets, on the other hand, are a little easier. Various forms of quantitative valuation methods allow a calculation of “fair value.” Such can be applied to every financial asset from the safest U.S. Treasury bills to the riskiest penny stock. The fair value for golf clubs, on the other hand, is primarily based on enjoyment, a qualitative factor.
As we will discuss and show, “fair value” allows us to objectively assess whether or not those who are buying the S&P 500 are getting a good deal.
Calculating the Fair Value of a Stock
One popular method to calculate the present value of a stock is to take its prior earnings, formulate a reasonable set of future earnings based on an assumed growth rate, establish an acceptable return, and calculate a fair value from those inputs.
Since no one can precisely know where fair value is, it is common to have a range of fair values based on various cash flow projections. Those ranges typically run from high, to low, and a base case, for example.
“Better than Best” Fair Value Estimate for the S&P 500
Just as we can forecast earnings for a stock, we can also use aggregated earnings to price the S&P 500. From those earnings we can determine if the current price is rich or cheap to what a model suggests is a fair price.
So with corporate earnings falling ill to COVID 19, we calculate a range of fair values for the S&P 500.
To run this analysis, we made the following assumptions:
Future earnings growth – we base this on the 4.85% growth rate of earnings from 2012 to the end of 2019. The forecast makes the bold, and dare we say impossible, assumption that growth in the second quarter and beyond are unaffected by the Corona Virus.
Acceptable return premium – we assume a 7% discounting factor based on historical equity returns
Years of cash flows to value – we project and discount earnings for the next 25 years.
Currently, with most earnings reported, we have a reasonable estimate of first-quarter earnings for 2020. Our “better than best” case scenario uses that first-quarter data point and grows it at the prior earnings growth (4.85%) rate going forward.
This forecast is very aggressive as we know that second-quarter earnings and those further out will fall well short of these projections. While optimistic, it at least allows us to form a baseline using reliable historical data.
The current fair value of the S&P 500 based on the assumptions listed above is an S&P 500 price of 2510. The current price of the S&P 500 as of 5/11/2020 is 2911. Therefore the S&P is overvalued by about 15%, as shown below.
Even if we can magically erase the bad earnings already seen in April and have an instant “V” shaped recovery, the market is still 15% overvalued.
The graph below provides some history on the price and fair value using the same assumptions and actual prior earnings.
The yellow area plots the percentage difference between the price and the fair value calculation. As shown, markets often go through prolonged periods of over and undervaluation. The biggest takeaway, however, is that prices always regress to at least fair value after these episodes. A more extended history argues that when prices do revert toward the mean, they usually go below fair value.
Given that we know our assumptions used above are too optimistic consider more realistic inputs of earnings projections to calculate a range of possible fair values.
Analysis Based on 2000 and 2008
As mentioned, the above example was our “better than best” case scenario. A logical next step is to take actual earnings declines from the prior two recessions as a forecast for the next few years.
In the Dot Com Bust recession of 2001, earnings per share for the S&P 500 were cut in half and did not fully recover for four years.
During the Financial Crisis and recession of 2008/09, earnings per share fell to near zero and also took four years to recover fully.
We use the percentage earnings declines and duration of shortfalls to forecast earnings for the second quarter of 2020 and outwards, as shown below.
Based on the prior two recessions:
The fair value for the S&P 500 using the earnings experience of the 2001 recession is 1980.
The fair value for the S&P 500 using the earnings experience of the 2008/09 recession is 1926.
Both experiences imply an approximate 30%+ decline from current levels to reach fair value.
The “What if” Worst Case Scenario
What if the recession starting in 2020 is worse than those scenarios modeled above?
Given the already recognized economic impact from COVID19 and the lack of a vaccine or treatment, it is hard for us to forecast a “V” shaped recovery in the coming months. The unemployment rate is at levels last seen in the Great Depression, and GDP will join it when reported in July. Simply, the depth and breadth of this episode dwarf the prior two recessions.
We also know the diffusion, or the number of industries and other countries affected is casting a much wider net than the prior two recessions.
At this point, the only unknown is the duration.
Given those metrics and even not knowing the duration of the recession, a worst-case scenario, fair value calculation based on a longer duration is well below the 2000 and 2008 based forecasts listed above.
Greed, fear, optimism, and pessimism about the stock market and/or economy can result in significant premiums or discounts.
However, over time, reality has a way of catching up with greed and fear and brings prices back to fair value, if only for a short time. Valuations most commonly pass through fair value on their way to being overvalued or undervalued.
In today’s environment, we must also factor in a central bank that indirectly supports stock prices.
The impressive stock rebound may continue. The markets may reach or exceed the record highs of February. Prices have well deviated from fair value, and the divergence may get worse as valuations are sustained or even rise despite the collapse of earnings.
Make no mistake; however, buying the S&P 500 15% below where it was a few months ago is not the rational investors’ idea of a bargain. Far from it, in fact.
Wed, 05/13/2020 – 09:11
Is This The Beginning Of The End Of German Support For NATO?
Make way for the Greens and the Leftists. They do not want US nuclear weapons on German soil.
Angela Merkel will soon be gone. The next German coalition already shares new ideas in many areas including NATO.
Germany will cease its nuclear sharing agreement with the US.
It will ask the US to remove its nuclear weapons from German soil.
Germany will abandon plans to purchase US military equipment such as the F/A-18 Hornet.
Justyna Gotkowska from the OSW think tank in Warsaw, laments in a Twitter Thread that Germany may soon abandon a key pillar of its NATO defence policy.
Eurointelligence picked up on the thread in its report Will Germany cease to host US nuclear weapons on its soil?
Gotkowska argues that it is highly probable that Germany will end its participation in the nuclear sharing programme within ten years. While the government itself, including the SPD leadership, is committed to it, the programme is not supported by the rank-and-file of the SPD. We would add that it is not supported by the Greens either.
Rolf Mützenich, the SPD leader in the Bundestag, has now formally come out supporting withdrawal of US nuclear weapons from Germany, and quitting nuclear sharing. The SPD has also nominated an anti-nuclear MEP for the job of Bundeswehr ombudsman.
Gotkowska concludes that there is no longer a majority in the Bundestag for the procurement of the F/A-18 Hornet tactical aircraft, which forms a key component for the nuclear sharing strategy. The government has now pushed a decision on the F/A-18 into the next parliament, which is even less likely than the current one to support it. Germany’s exit from the programme poses important questions for Nato: whether Germany can still be useful in other ways, and whether others member will, or should, pick up the slack.
Fake News Headline
Defense News reports NATO chief backs Germany’s vow to keep war-ready US nukes
NATO Secretary General Jens Stoltenberg has waded into Germany’s fiery debate about the decades-old pledge to retain American atomic bombs in the European nation as a way of deterring Russia.
Stoltenberg argued that only sticking to the doctrine of “nuclear sharing” would ensure Berlin’s continued seat at the table of strategic decision-making within the alliance.
Led by Rolf Mützenich, the chairman of the Social Democrats in parliament, a group within the governing coalition’s junior party want to exit the NATO atomic arrangement, arguing that deal, too, has outlived its usefulness.
Vow? What Vow?
Both Eurointelligence and Gotkowska lament this result. I view this as a good thing.
I suggest we remove the nukes and the troops, not just from Germany, but everywhere.
If Germany or Japan or any other country wants US weapons or troops, they should pay for them, not US taxpayers.
Wed, 05/13/2020 – 05:00
On The Battleground Of The Virus, The Fox Laughs Last
U.S. professor of history at John Hopkins University, Mike Vlahos, in a series of short interviews with John Batchelor, tells us how Coronavirus has become a fiery pivot, pushing different leaders in the U.S. to take existential stands on how to deal with this virus. With various separate American states insisting to pursue directly polarised paths: Mandated ‘sheltering’ (the U.S. term for distancing) versus economic opening; States versus the Federal government; Blue versus Red; Dems versus GOP; ‘authoritarianism’ versus Laissez Faire and traditional American liberties – and now, internal state, Blue-Red conflicts (i.e. Ventura County versus California’s Governor, on the burning issue of open or closed beaches); and even, counties versus states.
Vlahos notes the point is that that the battleground, thanks to the virus, has turned existential. No more is Blue/Red just a crafted rhetorical flourish – It is embodied; it is of biological flesh; it cuts into flesh – even as the virus’ future is unknown. In fact, the unknown deepens fears. The choice: ‘food on the table’ in a re-opened the economy (even at the real risk of those ‘doctors of death’ returning), or to play safe, passively, with distancing. The collective psyche is split; passions are raised; weapons are flourished, and militia parade. This is not theater: Its fervor is suffused into daily life: masks or not; socialie or not; work or not.
“The U.S. constitutional order is fissuring before our eyes: That we have skirted constitutional crisis for the past quarter century, is no reassurance: [as] each new test is yet more bitterly contested, and still less resolved”, Vlahos explains:
“Today, two irreconcilable visions of American life believe that they can continue only if they own the whole order”, Vlahos argues. “Yet, ours has been a shared constitutional order … The single-minded drive toward this goal – especially now by Blue state Democrats — has embrittled our constitutional order, and is creating the basis for a full-scale legitimacy crackup”.
The Executive – initially claiming sole authority over Covid practice – has backed down, in the face of governors asserting (correctly) that they enjoy co-sovereignty with the Federal government. The Blue and the Red governors – both – are at entirely cross-purposes, yet both are exercising their respective sovereignties – flagrantly.
Trump, meanwhile, is astride both horses: He cheers on the Second Amendment libertarian rebels, whilst at the same time, putting in place a wholly authoritarian, Federalised, bail-out economy, at the apex of which he will preside – having completed his ‘coup’ through merging the Treasury and Fed together, as a single (dollar) printing press – and atop a cascading monetary cornucopia.
Today, there are two irreconcilable visions of American life. After 1992, the two parties alternated presidents every eight years. Yet, with each succeeding administration, the political milieu has grown yet more rancorous and divided. There is no relationship between parties now — save as sworn enemies, Vlahos observes.
On the one side, we have ‘Unionists’, who expect public deference towards the judgements and authority of the élite technocracy (whether financial or medical), and on the other, a tradition of state sovereignty, dating back to the 1871 (the Articles of Confederacy), which grant no deference towards the Federal authorities – but rather is suffused with disdain for them. Hence the culture of (often armed) militia, ready to fight ‘the Feds’ for their ‘liberties’.
This latter touches a deep skein of emotion: the ancient fight against the tentacles of the British Imperial Octopus to secure America’s ‘liberties’. Thus, lockdown, and the medical world’s dire predictions necessitating economic shut-down, smack of ‘another agenda’ (the octopus agenda) – a backdoor, by which the globalists can complete their (imagined) project to feudalize an otherwise free people. One consequence of this is that, post-virus, the lockdown and the epidemiologists will be widely blamed for the coming depression – and the risky bubbles in the economy that were already inflated before virus, will be forgotten.
Vlahos is a tad coy on whether, or how, some reconciliation of these estranged parties can come about. The New Yorker opines in a similar vein: “The pandemic has dangerously deepened divisions across America—a nation already riven in recent years by race, class, religion, and trash-talking politics. The concept of ‘one nation, indivisible’ seems ever more elusive, even unattainable, in these anxious days of deadly pathogens, soaring joblessness, and food shortages. For many, the future seems so uncertain. So does survival, a privilege taken as a virtual right by the majority of Americans courtesy of economic and medical achievements since the Second World War.”
In this context of a ‘nation fissured’, the U.S. military have issued some catchy posters, urging national unity and the wearing of face-masks. (They can be seen here). And they all crib a notably nostalgic WW2 style: “It’s a woman’s war too”; “Fight the spread of coronavirus”, and “Let’s all fight” (as a GI lunges forward, in attack mode, his gleaming bayonet fixed).
Ok, Ok, everyone today is employing the military meme. That’s not the point. Ask historian, Professor Vlahos. He will tell you the salient point is that the American Civil War never really ended, and is still there, latent, today – except …
Except … during FDR’s term in office, when America fought WW2 – that’s the point. Only then was America a unitive state: ‘one nation, undivided’. That is, when it was fighting a war. So how to reconcile America’s split psyche? How to win re-election? Well … Blame China. Hot or cold? Who knows? It’s going to be a long, fraught six months ‘til November.
At one level, the targeting of China, might be viewed as a defensive change-the-narrative ploy, when blame for any U.S. poor handling of the Coronavirus contagion inevitably will be exploited electorally. But at another level, the danger is that the White House and Pentagon seem to be pivoting towards giving substance to the rhetoric. In this election year, someone must be blamed (that is the standard practice in politics), but in so doing, we are rapidly moving in the direction of the unknown.
What we suspect is that this is likely to become a ‘war’ of system-fragilities. This is China – no small fry. Nassim Taleb makes the point that it is easy to detect system-fragility: Fragility (and its opposite) can almost always be detected, using a simple test of asymmetry: Anything that sustains itself through sudden change (or shock), is resilient; the reverse is fragile. Washington, by its own liberal market metrics, believes the Chinese economy to be extremely fragile. We know however, that China has been long preparing for just such an (expected) moment.
Will China prove the more fragile? Both have undoubted fragilities to their economies; and yet, a political system that is “fissuring before our eyes”, is that not an obvious fragility? Will a sudden ‘shock’ fragment it into parts? Or, will escalation against China bring about another FDR ‘moment’ of healing for its split psyche? China, on the other hand, enjoys a certain popular solidarity, and the experience of regimentation. The Party remains a formidable ‘machine’, reaching into all spheres of life. Are these not the signs of resilience? Many unknowns.
Europeans will have no call to be smug about these U.S. fissures – for they have their own. Did not the 2016 Presidential election prefigure today’s rise of states-sovereignty-ism in the U.S.? Did not 2016 and Brexit prefigure today’s ‘populism’ in Europe? Will the virus bring these ‘fissured’ European visions to an open assault on an EU ‘octopus’ already found wanting in the face of Covid-19?
In the U.S., the Virus has spun-off ancient, irreconcilable differences about the nature of the State and the nature of power in the wake of their civil war. European thinking, between the two world wars, fell into relativism, nihilism, and the brooding existentialism of an Albert Camus. It also witnessed massive, blood-stained, governmental intrusions into every facet of civil society – with the rise of national-socialism, Trotskyism and Stalinism. Europe consequently finds itself today immobilized with its own (apparently) irreconcilable polarities – but lacks the means to lean inwards, toward some transcending framework that might make intelligible these conflicts, and allow them to be surpassed.
The attempt to develop some impersonal philosophical standard by which to adjudicate has failed, precisely because the attempt to free ethics from history, with its stress on personal autonomy, obstructs any answer to the questions: by whose justice; by which rationality; by whose narrative are we to decide.
So the story of the Coronavirus in the West, is also the story of Nassim Taleb’s tale of that extraneous event and ‘sudden shock’, exposing our hidden fragility of presuming upon life to be both secure – and predictable. Modern Man takes himself after Prometheus: the latter is celebrated as winning Man his freedom from ‘the tyranny of the gods’. What Prometheus did however was to teach man to regard himself as autonomous; to regard nothing as sacred; to ‘strike wounds in the divine environment’; to relegate nature to a heap of raw materials; to regard technology as the highest achievement; to probe nature’s deepest secrets, and not hesitate to play with fire.
WB Yeats once said ‘God save me from thoughts men think in the mind alone. If thought were a matter of mind only, man would be a windowless monad, an ego-bound monstrosity’. Yes. Just as polar-opposites never unite at their own level, a supra-ordinate ‘third’ is always required, through which the two, artificially warring, parts to the psyche can come together in synthesis. And since Nature derives as much from the unconscious as the conscious, perhaps the unexpected intrusion from Nature, underscoring our human precarity, and the shocking reality that constitutes Life, may be able to unite the severed spheres.
Ted Hughes, the celebrated poet and student of Shakespeare, tells his own story of escape from arid intellectual anomie in academia through The Burnt Fox, in which he remembers struggling as an undergraduate at Cambridge University with a tutorial essay. Abandoning the task in despair at two in the morning, young Ted goes to bed, and dreams that he is visited by a strange figure, half-man and half-fox, ‘just now stepped out of a furnace’ and in terrible agony from the burns that cover its body from head to foot. This enigmatic creature moves towards the desk and places its paw on the sheets on which Hughes is forlornly attempting to concoct an essay, leaving a bloody print behind, and says:
‘Stop this – you are destroying us’. Hughes wakes up a sadder and a wiser man.
And with the advent of the Coronavirus, maybe the burnt fox it is who laughs last?
Wed, 05/13/2020 – 00:05
China: Coexistence Or Cold War II?
Under fire for his handling of the coronavirus pandemic, President Donald Trump, his campaign and his party are moving to lay blame for the 80,000 U.S. dead at the feet of the Communist Party of China and, by extension, its longtime General Secretary, President Xi Jinping.
“There is a significant amount of evidence” that the virus originated in a Wuhan lab, said Secretary of State Mike Pompeo last week.
Trump himself seemed to subscribe to the charge:
“This is worse than Pearl Harbor. This is worse than the World Trade Center. There’s never been an attack like this… It could have been stopped in China. It should have been stopped right at the source.”
There is talk on Capitol Hill of suspending sovereign immunity so China may be sued for the damages done by the virus that produced a U.S. shutdown and a second Great Depression where unemployment is projected to reach near the 25% of 1933.
The Trump campaign has begun to target the Democratic nominee as “Beijing Biden” for his past collusion with China and his attack on Trump for “hysterical xenophobia” when Trump ended flights from China.
What is the historical truth?
On China, Trump is the first realist we have had in the Oval Office in decades. But both parties colluded in the buildup of China as she vaulted over Italy, France, Britain, Germany and Japan to become the world’s second power in the 21st century.
Both parties also dismissed Chinese trade surpluses with the U.S., which began at a few billion dollars a year in the early 1990s and have grown to almost $500 billion a year. Neither party took notice until lately of our growing dependency on Beijing for products critical to our defense and for drugs and medicines crucial to the health and survival of Americans.
The mighty malevolent China we face today was made in the USA.
But what do we do now? Can we coexist with this rising and expansionist power? Or must we conduct a new decades-long Cold War like the one we waged to defeat the Soviet Empire and Soviet Union?
The U.S. prevailed in that Cold War because of advantages we do not possess with the China of 2020.
From 1949-1989, a NATO alliance backed by 300,000 U.S. troops in Europe “contained” the Soviet Union. No Soviet ruler attempted to cross the dividing line laid down at Yalta in 1945. Nor did we cross it.
East of the Elbe, the Soviet bloc visibly failed to offer the freedoms and prosperity the U.S., Western Europe and Japan had on offer after World War II. America won the battle for hearts and minds.
Moreover, ethnic nationalism, the idea that separate and unique peoples have a right to determine their own political and cultural identity and destiny, never died in the captive nations of Europe and the USSR.
China today does not suffer from these deficiencies to the same degree. Unlike the USSR, China has four times our population. Where the USSR could not compete economically and technologically, China is a capable and dynamic rival of the U.S.
Moreover, if we begin a Cold War II with China, we would not be starting with the advantages Truman’s America, undamaged at home in World War II, had over Stalin’s pillaged and plundered land in 1945.
Where ethnic nationalism tore the USSR apart into 15 nations, today’s China is more of an ethno-nationalist state with Han Chinese constituting 1 billion of China’s 1.4 billion people.
There are millions of Tibetans, Uighurs, Kazakhs in southwest and west China, and tens of millions of Buddhists, Christians, Muslims, Falun Gong and other religious minorities. But China is unlike the multiracial, multiethnic, multicultural, multilingual Moscow-centered and Russian-controlled Soviet Empire and USSR that shattered after 1989.
She is feared and distrusted by her neighbors. She sits on India’s lands from the war of the early 1960s. She claims the whole South China Sea, whose waters and resources are also claimed by Vietnam, Malaysia, Singapore, Indonesia, the Philippines and Taiwan.
The peoples of Hong Kong and Taiwan fear that Beijing intends to overrun and rule them.
Even Vladimir Putin has reason to be suspicious as Beijing looks at the barren but resource-rich lands of Siberia and the Russian Far East, some of which once belonged to China.
China is thus a greater rival than the USSR of Stalin and Khrushchev and Brezhnev, but the U.S. is not today the nation of Ronald Reagan, with its surging economy and ideological conviction we would one day see the ideology of Marx and Lenin buried.
Three decades of post-Cold War foolish and failed democracy-crusading have left this generation not with the conviction and certitude of Cold War America, but with ashes in their mouths and no stomach to spend blood and treasure converting China to our way of life.
Tue, 05/12/2020 – 19:25
The Stock Market Isn’t The Economy, But…
“The stock market is not the economy.”
Such is the latest rationalization to support the “bull market” narrative. The question, however, is the validity of the statement. As I noted in this past weekend’s newsletter:
“There is currently a ‘Great Divide’ happening between the near ‘depressionary’ economy versus a surging bull market in equities. Given the relationship between the two, they both can’t be right.”
There is a close relationship between the economy, earnings, and asset prices over time. The chart below compares the three going back to 1947 with an estimate for 2020 using the latest data points.
Since 1947, earnings per share have grown at 6.21% annually, while the economy expanded by 6.47% annually. That close relationship in growth rates should be logical, particularly given the significant role that consumer spending has in the GDP equation.
The Consumption Function
While stock prices can deviate from immediate activity, ultimately, reversions to actual economic growth eventually occur. Such is because corporate earnings are a function of consumptive spending, corporate investments, imports, and exports.
I subsequently received an email discussing the point.
“PCE depends on jobs and wages as well as intact supply chains, neither of which are in good condition. Regarding unemployment, the U6 rate, which is a more reliable indicator of job market health, is at 22.8% currently and rising while the labor market participation rate has dropped to about 60%. These factors do not bode well for growth and earnings for most companies.” – A Brinkley, Jr.
His statement is correct. There is a precise correlation between PCE and GDP. Not surprisingly, if consumption contracts due to high levels of unemployment, then economic growth declines.
Furthermore, given that consumption drives imports, the correlation also stands.
Exports, which comprise roughly 40% of corporate profits, also have a high correlation to consumption and related economic activity.
It should be evident that corporate earnings and profits are highly correlated to economic activity. While Business Investment and Government Spending do have an input into the economy, it is consumption which ultimately drives profits.
Stock Prices & The Economy
As stated, over short-term periods, the stock market often detaches from underlying economic activity as investor psychology latches onto the belief “this time is different.”
Unfortunately, it never is.
While not as precise, a correlation between economic activity and the rise and fall of equity prices does remain. In 2000, and again in 2008, as economic growth declined, corporate earnings contracted by 54% and 88%, respectively. Such was despite calls of never-ending earnings growth before both previous contractions.
As earnings disappointed, stock prices adjusted by nearly 50% to realign valuations with both weaker than expected current earnings and slower future earnings growth. While the stock market is once again detached from reality, looking at past earnings contractions, suggests it won’t be the case for long.
The relationship becomes more evident when looking at the annual change in stock prices relative to the yearly change in GDP.
Again, since stock prices are driven in part by the “psychology” of market participants, there can be periods where markets become detached from fundamentals. However, there is no point in the previous history, where the fundamentals catch up with stock prices.
The Stock Market Isn’t The Economy
When it comes to the state of the market, corporate profits are the best indicator of economic strength.
The detachment of the stock market from underlying profitability guarantees poor future outcomes for investors. But, as has always been the case, the markets can certainly seem to “remain irrational longer than logic would predict.”
However, such detachments never last indefinitely.
“Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system, and it is not functioning properly.” – Jeremy Grantham
As shown, when we look at inflation-adjusted profit margins as a percentage of inflation-adjusted GDP, we see a process of mean-reverting activity over time. Of course, those mean reverting events always coincide with recessions, crises, or bear markets.
As shown below, peaks, and subsequent reversions, in the ratio have been a leading indicator of more severe corrections in the stock market over time. Such should not be surprising as asset prices should eventually reflect the underlying reality of corporate profitability.
More importantly, corporate profit margins have physical constraints. Out of each dollar of revenue created, there are costs such as infrastructure, R&D, wages, etc. Currently, one of the biggest beneficiaries to expanding profit margins has been the suppression of employment, wage growth, and artificially low borrowing costs. The recession will cause a rather marked collapse in corporate profitability as consumption declines.
Recessions Reverse Excesses
The chart below measures the cumulative change in the S&P 500 index as compared to corporate profits. Again, we find when investors pay more than $1 for a $1 worth of profits, there is a reversal of those excesses.
The correlation is more evident when looking at the market versus the ratio of corporate profits to GDP. Again, since corporate profits are ultimately a function of economic growth, the correlation is not unexpected. Hence, neither should the impending reversion in both series.
To this point, it has seemed to be a simple formula that as long as the Fed remains active in supporting asset prices, the deviation between fundamentals and fantasy doesn’t matter. It has been a hard point to argue.
However, what has started, and has yet to complete, is the historical “mean reversion” process which has always followed bull markets. This should not be a surprise to anyone, as asset prices eventually reflect the underlying reality of corporate profitability.
Recessions reverse excesses.
Rallying Into Uncertainty
While it may seem for the moment that stock prices can remain detached from the economic devastation, it is likely not the case indefinitely. Such is especially the case given stocks are rising into a increasing list of uncertainties. (Adapted from Doug Kass.)
The “value proposition” no longer exists.
A summer swoon? Seasonality is coming into play.
Corporate profits have been flat since 2014 and are likely to deteriorate markedly.
My S&P EPS estimates are well below consensus at $80-90/share.
Economic challenges going forward will absorb a vast majority of the Fed’s liquidity.
The Federal Reserve is already rapidly slowing the rate of QE
5-stocks dominate the market and are responsible for the rally.
Small- and Mid-caps stocks are sorely lagging.
Market participants have rapidly returned to exuberance during the rally.
No one wants to buy a “bear market” bottom.
Surging debts and deficits are economic retardants, which will eventually reflect in earnings, profits, and weaker economic growth.
A Democratic Presidential Win Could Be “Market Unfriendly”
Buyback activity, which has comprised almost the entirety of the markets advance over the last several years, is slowing markedly.
Pension plans problems are likely to become even larger problems, as discussed previously.
Bonds do not agree with the stock market. Bonds, more often than not, are right.
Trump is on the verge of restarting the “Trade War” with China.
There are a tremendous number of things that can go wrong in the months ahead. Such is particularly the case of a surging stock market against weakening fundamentals.
While investors cling to the “hope” that the Fed has everything under control, there is more than a reasonable chance they don’t.
Regardless, there is one simplistic truth.
“The stock market is NOT the economy. But the economy is a reflection of the very thing that supports higher asset prices – corporate profits.”
Tue, 05/12/2020 – 14:50
Thousands Of Brits Are Dying At Home Due To The Lockdown
A Guardian analysis has found that there have been thousands of excess deaths of people at home in the UK due to the lockdown.
“The data shows 8,196 more deaths at home in England, Wales and Scotland compared with the five-year average for this time of year, including 6,546 non-Covid deaths,” reports the newspaper.
“It also indicates a drop in non-Covid deaths in hospital, however, leading experts to conclude that many who would ordinarily have been admitted to a ward and died there are instead dying at home.”
According to Jason Oke, a statistician with the Nuffield Department of Primary Care Health Sciences at the University of Oxford, one explanation for the numbers is that, “People are dying of other causes that would not have happened under normal conditions – and are collateral damage of the lockdown.”
Another analysis suggests there could have already been around 10,000 excess deaths in the UK compared with previous years.
Why is nobody talking about the jump in NON-Covid related deaths? ONS data confirms lockdown is killing people. Over 10,000 Non-covid excess deaths in April!@BBC @bbclaurak @BethRigby @KayBurley @adamboultonSKY @SkyNews @Channel4News @afneil @toadmeister pic.twitter.com/8QHItqq0bz
— Normzy Esq. QTπ (@NobodyNorman) May 11, 2020
It’s a similar story in Italy, where there have already been 11,600 excess deaths due to seriously sick people avoiding hospitals.
“Data from other countries has shown delayed presentation in patients with heart attacks during the pandemic, either because people don’t want to burden the health service at the current time, or because of fear of catching Covid-19,” said Prof Andrew Goddard.
“It is critical that patients who are worried they may be having a heart attack or stroke should call 999.”
As we previously highlighted, a data analyst consortium in South Africa found that the economic consequences of the country’s lockdown will lead to 29 times more people dying than the coronavirus itself.
Professor Richard Sullivan also warned that there will be more excess cancer deaths in the UK than total coronavirus deaths due to people’s access to screenings and treatment being restricted as a result of the lockdown.
His comments were echoed by Peter Nilsson, a professor of internal medicine and epidemiology at Lund University, who said, “It’s so important to understand that the deaths of COVID-19 will be far less than the deaths caused by societal lockdown when the economy is ruined.”
Experts have also warned that there will be 1.4 million deaths from untreated TB infections due to the lockdown.
If the lockdown itself will end up costing significantly more lives than had countries followed the example of Sweden, which didn’t lockdown, then what was the point of the lockdown?
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Tue, 05/12/2020 – 09:30