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BarnacleBob

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JayDubya

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The latest from Simon Black:

It was barely a week ago that the federal government estimated it would borrow $3.7 trillion this fiscal year due to all the Covid bailouts.

Then, only a few days later, the Treasury Department updated the estimate and announced they would in fact be borrowing $4.5 trillion this fiscal year.

That’s an increase of $800 billion in less than a week!

Not to be outdone, the Federal Reserve has printed more than $2.5 trillion in less than 50 days, expanding its own balance sheet by 62% since the start of the pandemic.

I’ve been really hammering this theme lately, but it’s critical to understand: there is no limit to the amount of money they’ll print, or to the amount of debt they’ll take on.

And this has serious implications for the dollar.

It would be foolish to expect that you can create trillions of dollars in a matter of weeks, and take on trillions of dollars in debt, without any consequences whatsoever.

I’ve already written this a number of times, but I’ll repeat it again: if printing money were the way to achieve prosperity, then Zimbabwe would already be the wealthiest country in the world.

Prosperity requires smart, talented, hardworking people efficiently producing valuable goods and services. You can’t just click a button and create that out of thin air.

But politicians don’t seem to understand this simple point.

It’s far easier for them to print money, go into debt, and bail everyone out. And when that approach doesn’t work, they resort to dismantling capitalism, brick-by-brick.

Housing authorities have ripped up centuries of contract law and told people that it’s OK to not pay their mortgages.

Politicians are attempting to pass laws to retroactively adjust insurance policies and force insurance companies to pay for pandemic-related damages that were NOT part of the contract.

Local governments have suspended property rights and forced homeowners to leave town at the point of a gun, while police agencies raid businesses to seize legally-acquired private property.

Regulators have destroyed any hint of safety and told banks to NOT report non-performing loans, all while asking depositors to keep their savings in the banking system.

There’s a never-ending list of dirty tricks that these people have used to beat the economic system to a pulp.

You can practically hear them say, “sweep the leg,” as they come up with creative new ways to wreck the economy and devalue the currency.

Look, there’s still a tremendous amount of uncertainty about how this pandemic will play out. Will they open the economy? Will anyone show up? How long will the recovery take? How many jobs and businesses will be lost for good?

There are so many unknowns.

But one thing that’s becoming completely obvious is that they don’t give a damn about the value of the currency, and they will keep printing incomprehensible amounts of money to bail everyone out.

Consider that the $2.5 trillion they printed since March is more money than they printed in the first 95 years of the Federal Reserve’s existence. That’s astonishing.

We can keep our fingers crossed and hope this won’t create devastating, long-term consequences.

But as a practical matter it makes sense to at least consider owning some real assets, including precious metals.

History tells us that whenever governments and central banks resort to such extraordinary measures, precious metals tend to be a safe haven asset.

To your freedom,



Simon Black,
 

Scorpio

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and yet, the dollar hangs out around 100, with others in the toilet,

for 20 years we have been hearing of this 'demise of the dollar'
when in fact, it is but a 'representative dollar', meaning it is a comparison to other currencies,

leading you to the fact that the other currencies are pure rubbish, and the dollar is the leader of the fiats

does this appear as it is collapsing?

sc.png
 

JayDubya

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Yup, a lot of people keep saying it's a mess, but until there's an alternative, she's still "the prettiest horse in the glue factory".
 

BarnacleBob

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and yet, the dollar hangs out around 100, with others in the toilet,

for 20 years we have been hearing of this 'demise of the dollar'
when in fact, it is but a 'representative dollar', meaning it is a comparison to other currencies,

leading you to the fact that the other currencies are pure rubbish, and the dollar is the leader of the fiats

does this appear as it is collapsing?

View attachment 164393
The $ itself is very safe, while bank credit & debt based dollar substitutes maybe not so much.... With that said, as Scorp pointed out, the dollar denominated bank credit as measured by FOREX remains at the top of the heap. Why? DEMAND for dollar denominated credit & debt alike is greater than all the rest, as it should be. Why is that? The U.S military & intelligence agencies can & do enforce dollar denominated contract disputes anywhere in the world. If your operations are in international commerce, whether you are a buyer or seller, you want to minimize risks from contract disputes and you want an enforcer with teeth & the will to enforce the contract settlement. Therein lays the demand for $ & dollar denominated credit... CONTRACT ENFORCEMENT & SETTLEMENT.

If the U.S. terminated this function, the use of $ & dollar denominated credit & debt in international commerce would lose its demand & appeal to the merchants & nations of the world. Then maybe an arguement could be produced to support a major decline in the $$$ & dollar denominated credit & debt. Until that occurs or the credibility & ability of the U.S. military machine to function is somehow distressed or prevented, the $ & its substitutes will remain the King of the Hill. Which makes all the dollar bears wholley & totally wrong.... for the dollar & its substitutes serve as more than just a mere currency, but rather the "go to" currency for contract disputes, settlements & enforcement... Something that no other currency or nation in the world at this time can offer to the nations & their international merchants engaged in cosmopolitan commerce.
 

Scorpio

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I appreciate how BB states this is contract enforcement, and would argue in many cases it is in fact that.

Vene repatriates its gold, a contract. Then it takes a loan from Citi, fails, and Citi takes their gold, again a contract.

Yet, I did argue the point with him that this is but a piece of the puzzle, where they operate ex contracts all the time, using politics and military might all without contracts or laws.

Stated they were operating as a modern mafia at the highest level, wherein a contract may be offered, and if you refuse they don't need a contract, they just come ridin' in and do what they want anyway using politics and force.

Invading Afghanistan wasn't contractual,
Shutting down a $20T economy wasn't contractual,
etc.
 

Strawboss

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I appreciate how BB states this is contract enforcement, and would argue in many cases it is in fact that.

Vene repatriates its gold, a contract. Then it takes a loan from Citi, fails, and Citi takes their gold, again a contract.

Yet, I did argue the point with him that this is but a piece of the puzzle, where they operate ex contracts all the time, using politics and military might all without contracts or laws.

Stated they were operating as a modern mafia at the highest level, wherein a contract may be offered, and if you refuse they don't need a contract, they just come ridin' in and do what they want anyway using politics and force.

Invading Afghanistan wasn't contractual,
Shutting down a $20T economy wasn't contractual,
etc.
I think another facet of the dollars dominance is the depth of its debt markets as Martin Armstrong has stated many times...

If you are a SWF or pension fund or HNW individual...and you want to park your money for a spell...where do you put it? The Euro? Russian ruble?

The only debt market big enough and liquid enough to accomodate large transactions of these types without distorting the market and blowing out the spreads is the USD...

This may not be the only facet...but it is a significant one...
 

BarnacleBob

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I appreciate how BB states this is contract enforcement, and would argue in many cases it is in fact that.

Vene repatriates its gold, a contract. Then it takes a loan from Citi, fails, and Citi takes their gold, again a contract.

Yet, I did argue the point with him that this is but a piece of the puzzle, where they operate ex contracts all the time, using politics and military might all without contracts or laws.

Stated they were operating as a modern mafia at the highest level, wherein a contract may be offered, and if you refuse they don't need a contract, they just come ridin' in and do what they want anyway using politics and force.

Invading Afghanistan wasn't contractual,
Shutting down a $20T economy wasn't contractual,
etc.
FB_IMG_1589133853054.jpg

up
 

JayDubya

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EU could open legal case against Germany over ECB bond-purchases ruling: Commission

https://www.reuters.com/article/us-...gn=Feed:+reuters/businessNews+(Business+News)

BRUSSELS (Reuters) - The European Commission could open a legal case against Germany over a ruling by the country’s constitutional court that the European Central Bank had overstepped its mandate with bond purchases, the EU executive arm said on Sunday.

The German court in Karlsruhe last Tuesday gave the ECB three months to justify its flagship euro zone stimulus scheme or said the Bundesbank might have to quit it.

In response, the European Union’s top court - which had previously gave its green light to the ECB scheme - and the European Commission have said that EU law holds precedence over national regulations. They added that the European Court of Justice’s rulings were binding for courts in the 27 member states of the bloc.

On Sunday, Commission President Ursula von der Leyen went a step further, saying the EU executive might end up opening a legal case against Berlin.

“The recent ruling of the German Constitutional Court put under the spotlight two issues of the European Union: the euro system and the European legal system,” she said in a statement.

“We are now analysing the ruling of the German Constitutional Court in detail. And we will look into possible next steps, which may include the option of infringement proceedings,” she said.

Infringements are legal cases the Commission can bring before the Luxembourg-based Court of Justice of the EU, if the Brussels-based executive deems a member state is violating EU law. The court can order a nation to make amends, or face hefty fines.
 

JayDubya

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Fed's New QE Operations Could Be 'Last Stop' Before Deep Recession

http://www.silverbearcafe.com/private/05.20/laststop.html

Last September, the Fed’s emergency liquidity operation in the repo markets signaled serious distress in the economy. The topic deserved the attention that we gave it at the time, but looking back on it now, those actions are dwarfed by those that the Fed has taken in recent months.

In March, in order to stave off market panic, Federal Reserve Chair Powell fired most of his economic “bullets”, including initiating a new round of Quantitative Easing.

As a result, the Fed’s balance sheet went vertical, potentially igniting a powder keg of inflation.

And, in just over a year, Powell has done a complete 180 on the topic of the national debt, now saying that he’s not worried about it at all.

But all of the Fed’s desperate attempts to add liquidity to the markets will eventually come up against their greatest obstacle: fundamentals.

James Altucher adds color to this point, saying:

While the Fed may be willing to step in and pump liquidity into a market that is in free fall, the Fed will NOT be able to prevent the coming recession.
While the talking heads would love for you to believe that the path forward will be smooth and painless and that we’re in for a V-shaped recovery, that’s extremely unlikely given the impact the coronavirus will continue to have on many sectors of the economy.

This sure sounds like the Fed’s recent return to Quantitative Easing could be delaying the inevitable: a potentially deep recession.

Altucher concludes, “The uncomfortable reality is we need to give the market and the economy the necessary time to find the bottom.”

This “bottom” may arrive sooner than you think.

U.S. Debt Spikes $1.5 Trillion in 6 Weeks (Fed Monetizes 90%)

One trillion dollars is an incredible amount of money. To provide some scale, the image includes a person, a semi-truck, an airplane and some buildings.

Yet to the federal government these days, $1 trillion is small beans.

According to an article on WolfStreet.com, over the last six weeks the U.S. national debt skyrocketed to $25.06 trillion.

This is an increase of $1.5 trillion since March 23, 2020.

There aren’t many other ways to think about this except calling it what it seems to be: insanity. On the chart, Wolf Richter calls it “debt out the wazoo”.

Wolf adds, “Those trillions are whizzing by so fast it’s hard to even see them. WOOSH… What was that? Oh, just another trillion. The flat spots in the chart are the periods when the debt bounced into the debt ceiling. Yeah, those were the days!”

With national debt growing trillions at a time, it sure doesn’t seem as though fundamentals are playing a primary role in decisions that are being made.

Especially when you consider that, according to the same WolfStreet article, the Fed added $1.39 billion in treasuries to its own balance sheet. This means that it effectively “monetized” about 90% of the new debt.

Bottom line, the piper will have to be paid, and fundamentals will eventually matter. No one can say for sure when that will be or what that will look like, but it sure seems like it will be historic.

Prepare Yourself in Case the Economy ‘Hits Bottom’

In the midst of all this madness in the markets, the Financial Times recently reported, “Some of the world’s largest hedge funds are raising their bets on gold.”

In addition to other ways to diversify your savings, perhaps it’s time for you to consider following the hedge funds’ lead.

Precious metals like gold and silver make for a good choice if the dollar goes sideways, inflation gets out of control, or reality sets in.
 

ErrosionOfAccord

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Been telling the coworkers to buckle up but I can’t make the concise argument for another BK this author provides. Here we go again.

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I Have Doubts That Peabody Energy Corporation Can Survive
May 07, 2020 12:44 PM ETPeabody Energy Corporation (BTU)30 Comments
Summary

Coal production and prices continue to plunge during the COVID-19 crisis.
Peabody Energy Corp. does not directly own the operations in Australia.
Australian insolvency laws are very different than the U.S. Ch.11 Bankruptcy Code.
There are over $1.26 billion in U.S. reclamation liabilities that can't be discharged in Ch.11 bankruptcy.
Investors might be mistaken thinking Elliott Management will protect the shareholders.
I doubt that Peabody Energy Corp. (BTU) can survive for even another year. While certain operations might be able to continue, the company as a whole, in my opinion, will end. Peabody did emerge from a Ch.11 bankruptcy in 2017, but the world has drastically changed and it is unlikely they can survive another bankruptcy filing. The company already had a loss of $1.33 per share in the first quarter and that was before much of the impact of Covid-19 hit the world's economy. With secured notes due in 2022 selling at about 72 and secured notes due in 2025 at 56, the market clearly expects that even secured claim holders will receive far less than a full recovery in any restructuring.

Australian Laws
The key factor in the potential liquidation of Peabody Energy Corp. is Chapter 5 of the Australian Corporations Act of 2001. I covered this issue in a 2015 article, but it is a very critical issue that needs to be looked at again. In Australia, a company "goes into administration" that is a very different process than under our Ch.11.

First, Peabody Energy Corp. does not directly own the assets in Australia. It owns equity in multiple layers of companies (mostly holding companies) in Gibraltar, The Netherlands, and Australia that eventually own the assets (and liabilities). This is an absolutely critical point.

Second, in Australia, an administrator is appointed. The board and current management do not control the insolvency process in Australia. Either the company goes into liquidation or the administrator and creditors negotiate a DOCA-Deeds of Company Arrangement. While the claim/creditor order is somewhat different in Australia than Ch.11 in the U.S., equity holders in both Australia and the U.S. are at the bottom. (There are also no DIP loans allowed in Australia.) Peabody Energy Corp. is an equity holder and is, therefore, on the bottom for any recovery. Because under either a liquidation or DOCA, I am not expecting full recovery for all creditors, I am not expecting any recovery for shareholders. Peabody Energy Corp. as an indirect shareholder of Peabody Australia Holdco Pty. Ltd. (Queensland, Australia) would not receive anything for their assets in Australia-zero recovery. (Note: PEAMCoal Pty. Ltd. was "deregistered" in 2018. This layer of Australian ownership was the focus of many SA readers during the prior bankruptcy process.)

Third, some might counter that Peabody Energy Corp. could file for Ch.11 in the U.S. and try to get all the entities included in a joint administration, including Australia entities, under the cross-border insolvency MODEL Law. I would expect a huge fight by various interested parties in Australia. Certain creditors, including workers, have a better standing in Australia than under our Ch.11. In addition, there are usually very modest legal expenses under the Australian process compared to the huge legal fees in the U.S., which means a greater potential recovery for unsecured claim holders in Australia. Local environmental groups and politicians would fight losing control to some bankruptcy judge in St. Louis. (I would not be surprised if some Australians who object to having the U.S. courts handling the case point out the appalling treatment of retail noteholders under Peabody's Ch.11 reorganization plan confirmed by Judge Barry Schermer in 2017. This mistreatment was covered by many SA writers in 2017. They may assert the U.S. courts are extremely unfair to various stakeholders.)

If this is not complicated enough, there is another issue and that is inter-company transactions between various U.S. and foreign entities. Most of these inter-company receivables and payables cancel out when reporting a consolidated balance sheet. It could be a major issue, however, for creditors seeking recovery for their claims. Just for the sake of an example: Assume the Australian operations owe U.S. entities a lot of money and the Australian operations go into administration. U.S. creditors will assert that as a creditor to the Australian operations, the U.S. Peabody is owed money regardless of the status of their equity ownership of Australian operations. This would have a positive impact on the recovery of the 1lien notes. If the reverse was true, U.S. creditors may litigate and seek recovery based on section 547 for "preferential transfers" in any payments made to Australia. The issues regarding inter-company transfers are extremely complex and I tried to explain the basics as simple as I can.

The tables below give some indication of the Australian operations and the U.S. operations. The seaborne thermal mining and most of the seaborne metallurgical mining are the Australian operations.

Revenue



EBITDA


What Happened in Australia During the Last Bankruptcy
Because of huge negative issues associated with potentially going into administration in Australia, I did not expect in 2015 that Peabody would file for bankruptcy. I thought management would fight very hard to avoid bankruptcy and try to wait it out until coal prices increased. I was wrong. Management, which I asserted in a SA article was "inept and incompetent", did almost nothing to avoid bankruptcy. (I guess they wanted a very lucrative management incentive plan under a Ch.11 reorganization plan instead.)

The Ch.11 filing in St Louis did not directly include any Australian entity but did include the Gibraltar entities. The Australian continued normal operations. After the terrible prior-year Australian results were filed with the Australian Securities and Investment Commission on May 31, 2016, some local environmentalists were developing a strategy to force the Australian operations into administrations. Local media sources were expecting them to go into administration because the Australian operations received a qualified accounting opinion in May 2016:

There is significant uncertainty whether the company and/or the consolidated entity will continue as a going concern, and therefore whether they will realise their assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial report...

They were saved by soaring metallurgical coal prices. With much higher prices in Australia, it was impossible to assert that their Australian operations were insolvent. They never went into administration. There still was, however a nasty fight between various creditor groups regarding the value of equity of Australian operations, which was the majority of the collateral that secured 1lien holders. Eventually, the parties negotiated recoveries for various creditor classes under a Ch.11 reorganization plan.

Some Coal Assets May Actually Be Liabilities
In bankruptcy, a coal company's mining reclamation liabilities are not discharged and remain a liability even after the company exits Ch.11. Peabody has about $1.264 billion in reclamation liabilities. An issue that has not been firmly established by the courts is the reclamation claim priority standing compared to other creditor claims. In prior coal mining company's reorganization plans, there were negotiated settlements with various regulatory agencies. Some assert, including myself, that reclamation should be classified in the same claim class as federal tax liabilities, which is one of the highest creditor claim classes and must get full recovery before even secured bondholders get any recovery.

Last year, for example, the Kayenta mine was closed because their sole utility customer ceased operations. Peabody had a $188 million legacy liability for reclamation, but other parties associated with the closure of the power plant also are paying some of the reclamation expenses. This mine was no longer an asset and is now just a major liability. If Peabody tried to sell any coal mines, the buyer would also be getting the reclamation liability associated with that mine. This greatly diminishes the potential selling price for a coal mine. Cottage Grove, Millennium, Wildcat Hills Underground, and Somerville Central Mines have closed or are closing this year, which means reclamation expenses have to be paid.

There is also another potential problem in trying to sell a coal mine on federal land, including a section 363 sale while in Ch.11 bankruptcy, and that is the Secretary of the Interior must approve the transfer of any coal lease. As stated in 30 U.S.C. §187: "No lease issued under the authority of this Act shall be assigned or sublet, except with the consent of the Secretary of the Interior". This most likely will not be a problem over the next few years if President Trump is re-elected, but could be a huge problem if Biden is elected. Many backers of the "Green New Deal" would pressure the Secretary of the Interior under a Biden administration to block coal lease transfers in an attempt to try to close that coal mine.

Brief Summary of Peabody and Coal Industry News
*Prices have continued to plunge from the end of the first quarter. This is from the May 6 10-Q for the first quarter:


*The latest weekly U.S. coal industry production was down 39.4% from a year ago and so far this year (17 weeks), total U.S. coal production was down 20.8% from same 17 weeks last year. Since current utility stockpiles of coal have increased 22.3%, it is unlikely that there will be any increase in the near future for thermal coal even if the economy starts to regain footing.

*Elliott Management, which owns 29.8% of the shares, and Peabody reached an agreement in February. There will be 4 new board members, including the head of restructuring at Elliott. The stock price rose on this news, but I viewed this as a negative sign. I thought it indicated that Elliott was moving in the direction of some restructuring and asset sales, which to me indicates that they thought the near-term outlook was bleak. Some BTU shareholders may have thought that agreement showed Elliott was aggressively trying to "defend" their very large BTU equity position. Elliott has already lost $1.27 billion on their 28,916,201 shares that they currently own since the BTU high price in June 2018. They did sell over 6 million shares since the proxy statement in 2019.

*FTC filed a suit to block the Peabody and Arch Coal (ARCH) proposed joint venture in late February because they asserted it would eliminate competition.

*$1.3501 billion long-term debt as of March 31, 2020

Peabody also borrowed $300 million under the revolver in early April leaving $192.4 million (after factoring in the letters of credit).

*Peabody eliminated 250 jobs in PRB and Midwest operations in April.

*Based on Glenn Kellow's wording of an indirect no comment response to a question by an analyst during the recent conference call about "monetization" of the North Goonyella Mine, there could be some progress in trying to sell that mine.

Bankruptcy Recoveries For Peabody Energy Investors
First, I do not expect any recovery for BTU shareholders. The complexities due to the corporate structure and Australian laws do not have much of an impact on BTU shareholders. Since shareholders were not paid for releases under the 2017 Ch.11 reorganization plan, I doubt they will get any payment for releases under a new bankruptcy. If they file Ch.7 this time, there will definitely not be any payments-no "gifting". Shareholders can't expect a recovery since secured noteholders are most likely not going to a full recovery for their claims.

Second, secured noteholders just can't look at the consolidated annual report numbers to estimate a recovery under either Ch.11 or Ch.7 in the U.S. I suggest estimating recoveries based on a Ch.11 filing in the U.S. and going into administration in Australia. Without knowing the current inter-company transactions, the prudent approach would be just to subtract the value of the Australian operations and assume the recoveries would be from only U.S. operations.

Adding $1.3501 billion long-term debt and the $300 million recent revolver borrowing, which I would expect would be fully drawn to $492.4 million prior to any bankruptcy filing (after factoring in the letters of credit), the total is $1.8425 billion. The $1.264 billion in reclamation liabilities also have to be factored into estimating recoveries for investors. Given the current extremely uncertain world economy, it is unrealistic to estimate an enterprise value for Peabody's U.S. operations, but I am guessing it is much less than $1.8 billion. Often 1lien claim holders do a "credit bid" to get control of their collateral assets, but I would not be surprised if they tried to "shop" the assets first to see if there any interested buyers of specific assets. The current low prices for the secured notes reflect the many uncertainties mentioned in this article.

My Peabody Short Position
Briefly, I shorted BTU when the company announced last year that they were going to try to issue new notes maturing in 2026 to replace the 2022 and 2025 notes. (The new note deal was pulled because of market conditions.) Before that announcement, I was expecting Peabody would do multiple market repurchases with cash from operations to retire some or almost all of the notes prior to maturity. The company already had spent $1.34 billion to repurchase 41.5 million shares (average price about $31 per share), which I was strongly against, and I thought they would be able to use projected future cash-flow to buy notes instead. I took the announcement as an indication that management thought that they needed to extend maturities and that cash-flow over the next few years was going to be much weaker than expected.

As BTU stock price has fallen below the $3 level, I booked some profits and will most likely close my short position completely before it goes below $1.00 per share because I rarely hold penny stock short positions.

Conclusion
Investors can't just use the Peabody Energy's consolidated financial reports in determining recoveries under any future bankruptcy/insolvency filings. Australian laws and reclamation liabilities are major issues that have to be factored into the process. While the price of the Peabody secured notes looks "cheap" for secured debt issues, they are no bargain, in my opinion.

BTU shareholders are not expected to get any recovery. The Australian and reclamation issues do not directly impact shareholders because I don't expect recoveries for shareholders regardless of the Australian law issues. While Elliott may try to delay filing for bankruptcy as long as possible to protect their large BTU position, I just don't see coal prices improving enough to prevent a complete liquidation of Peabody Energy Corp. There might be some mines still operating in the future under the Peabody name, but the large entity of Peabody Energy Corp, in my opinion, will not survive.

Disclosure: I am/we are short BTU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

https://seekingalpha.com/article/4344147-i-doubts-peabody-energy-corporation-can-survive
 

Scorpio

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billions of tons of coal in the us,
and all not to be used by the market

what was once treasured is now just rock
 

BarnacleBob

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Inflationary Depression v Deflationary Depression

In real terms, an inflationary depression is indistiguishable from a deflationary depression. In both cases production and incomes decline in real terms; in both cases liquidity problems proliferate; in both cases widespread bankruptcies occur. The distinction between a deflationary and inflationary depression is this: in a deflationary depression– production, incomes,and living standards generally all decline both in real terms and in nominal money terms; in an inflationary depression– production, incomes and living standards generally also decline in real terms while at the same time all of these [categories] show increases in nominal money terms. --- “The Coming Currency Collapse, And What You Can Do About It.” by Jerome F. Smith, c.1980. Bantam printing Oct.1981.


Ludwig von Mises lays out five fundamental truths of monetary expansion (1949)

https://oll.libertyfund.org/quotes/198
 

JayDubya

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Infinite money printing: Fed now buying ETFs

Just when you thought they couldn’t come up with any more crazy ideas, the Federal Reserve announced last night that they will start buying Exchange Traded Funds, effective immediately.

Just to be clear, this means that the Fed is going to conjure money out of thin air, and then use that new money to buy ETFs.

But not just any ETF. The Fed is specifically targeting ETFs that own corporate bonds.

The key idea here is that the Fed is trying to bail out bankrupt companies across the Land of the Free.

Under normal circumstances, most medium and large businesses regularly issue corporate bonds (which is a type of debt) to help fund their companies.

This is pretty normal; even very strong and healthy businesses regularly go into debt by issuing bonds.

For example, Apple has been wildly profitable for years. But the company has about $90 billion in debt according to its most recent financial statements, plus they just issued another $8 billion in bonds last week.

Companies all over the world do this, and the total size of the global corporate bond market is absolutely enormous-- tens of trillions of dollars.

The obvious problem is that there are countless businesses around the world, both big and small, that simply aren’t going to make it through this economic crisis.

Airlines, hotels, restaurant chains, factories, shipping companies, retail stores, daycare facilities, construction companies, etc. have all been devastated by the pandemic.

Most of these companies have borrowed extensively. And without any revenue, there’s likely going to be a giant wave of defaults in the corporate bond market.

American Airlines, for example, has $21 billion in debt. There’s practically zero chance they’ll be able to make interest payments, which will trigger a default of their corporate bonds.

Thousands of other companies are in a similar position; they won’t be able to make their payments.

The even bigger problem is that, eventually, bonds mature and need to be paid back.

Unlike the mortgage on your house, whose principal balance is slowly paid down over 20-30 years, most corporate bonds are interest-only.

They pay what’s called a ‘coupon’, which is a regular interest payment, and then the entire principal balance is paid back when the bond ‘matures’ after perhaps 7-10 years.

Usually when their corporate bonds mature, most companies simply issue new bonds. It’s sort of like a refinance; so instead of paying back $1 billion worth of bonds that are about to mature, the company will issue $1 billion in new bonds for another 10 years.

In this way they keep rolling over their debt. And in normal times, that approach typically works just fine.

But these are not normal times.

Right now the bond market is frozen solid. And very few investors want to buy bonds of, say, an airline or cruise operator.

But a lot of those companies have billions of dollars worth of bonds that are about to mature.

And without a way to roll over those bonds and refinance the debt, they’ll be in default… meaning most investors who own those bonds will suffer major losses.

This is a huge problem because it can cause a chain reaction across the entire financial system.

Let’s imagine “Rude Airways” has $10 billion worth of bonds that are about to mature.

But Rude Airways is out of cash and has no hope of generating revenue while the lockdowns are in place.

So instead of paying back the $10 billion, Rude Airways defaults.

“Big Ego Capital Partners” is a hedge fund that owns billions of dollars worth of Rude’s bonds. So when Rude Airways defaults, Big Ego is also wiped out.

Big Ego owes a lot of money to “Liars Bank”. So when Big Ego goes under, Liars Bank also takes a huge hit.

You get the idea. If thousands of companies constituting trillions of dollars worth of bonds don’t pay, then the chain reaction across the entire financial system will be nothing short of cataclysmic.

This is what the Fed is trying to prevent… with the only tool they have available: PRINTING MONEY.

So, again, the Fed is going to conjure money out of thin air, and use that money to buy corporate bonds and bond ETFs.

Their plan is to help companies like Rude Airways roll over their debts, and hopefully prevent a chain reaction of defaults across the entire financial system.

According to yesterday’s press release, the Fed estimates spending $750 billion initially, though it’s clear they could easily blow past that number.

That, of course, is on top of the trillions of dollars worth of other commitments they’ve already made, the $2.6 trillion they’ve already printed, and the trillions of dollars of other facilities they’ll create in the future.

I’ve been writing about this a lot lately, but at the risk of beating this horse to death, I believe it’s worth repeating:

There is so much we don’t know about the economic consequences of this pandemic. Will we see major inflation? Depression? Stagflation?

No one really knows for sure.

But one thing that has become totally obvious is that central banks around the world are going to continue printing incomprehensible sums of money-- this is ‘whatever it takes’ monetary policy.

I won’t bother opining on whether what they’re doing is right or wrong. It doesn’t matter.

The reality is that it’s happening; they’re printing ridiculous quantities of money, and that’s that. Nothing we can do will change that fact.

Our only decision is how we choose to react.

Again, there’s no playbook here, and every possible scenario is on the table.

But historically speaking, whenever central banks devalue their currencies by printing vast amounts of money, real assets (and especially gold and silver) generally tend to be safe havens from the monetary consequences.

To your freedom,



Simon Black,
 

JayDubya

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Doug Casey on How Technology and Biological Warfare Will Impact How World War 3 Will Be Fought

International Man: With all the hysteria surrounding the coronavirus, there has been a renewed discussion on biological warfare.

How likely will some form of biological warfare happen in the near future? What could the scenario look like?

Doug Casey: It’s very likely—in fact, inevitable. There are many advantages to biological warfare over conventional warfare.

First, it doesn’t destroy materials. That’s a huge plus. What’s the point of conquering a country if all you have to show for it is a smoking radioactive ruin? That was the major advantage of the neutron bomb, of course, but bioweapons will essentially make atomic weapons obsolescent.

Second, bioweapons can be structured to attack only certain racial groups. If the US is at war with China, they could see that as an advantage. Of course, two can play that game. In any event, you can immunize your own population, or at least the military and "essential" workers, so you’re not hurt too badly.

Third, bioweapons are very cheap and easy to fabricate. If someone has access to a good high school chemistry lab, the person’s in business. There’s no need for an expensive and tricky U-235 or, for that matter, any of the junk toys the Pentagon spends hundreds of billions on.

Fourth, bioweapons don’t need sophisticated delivery systems; no need for B-2s, B-52s, cruise missiles, or any of that. A sick tourist or two, or a few packages sent in the mail will get the job done.

Fifth, bioweapons, whether they‘re viruses or bacteria, not only offer plausible deniability, but the potential to blame a third party. You can launch an attack, and nobody can really be sure who did it, or even that an attack is, in fact, being launched.

There's every advantage to biological warfare from an aggressor‘s point of view. And, the aggressor doesn’t even have to be a nation-state, which is, of course, another excuse for governments to further clamp down on their populations—but that’s another story.

It‘s well known that the US has spent tens of billions of dollars on biological weapons, mainly at Fort Detrick, Maryland, among other places, starting in the 1950s. The American government has been on this for a long time, but I‘m sure that the Chinese and other major powers have caught up.

World War 3 is going to have a substantial biological component.

International Man: Albert Einstein once said, "I know not with what weapons World War 3 will be fought, but World War 4 will be fought with sticks and stones."

What do you make of that?

Doug Casey: Like most of Einstein’s observations, it’s very astute. Warfare is all about technology, along with economics and psychology. Those three things are of equal importance.

The first people to develop the bow and arrow had a gigantic advantage over neighboring tribes that only had spears or rocks to throw.

The invention of steel made bronze obsolete. The Roman legion made the Greek phalanx obsolete. Gunpowder made everything previous obsolete, including castles and armor. Nuclear weapons also created a huge change. But there have been hundreds of critical tech innovations—just listing them would take a book.

The point I’m trying to make is that warfare is a history of technological advancement.

That said, what’s World War 3 going to look like?

I see five new technologies that are going to make World War 3 quite different from World War 2.

Number one is electronic warfare. Today, the whole world is built around computers, including utility operation, communication, aircraft, and the monetary system. Computers are critical. A major component of warfare will be trying to destroy an opponent’s electronic infrastructure, perhaps by creating nuclear bursts in the upper atmosphere to deliver electromagnetic pulses (EMPs) to fry all the circuits.

Number two, drones are going to be very big. Not just the kind of drones that we now think of, as with cruise missiles or the little four-rotor toys, but tiny insect-like drones that can be structured to attack individual people. Using visual recognition, they will be highly targeted. Perhaps thousands of them could be launched on an enemy military camp or, for that matter, an enemy city. Micro-drones are going to be very important.

The third area, related to both computers and drones, are robots. The weakest part of most war machines is the human beings that run them. Not only are they easy to damage or destroy, but they have unpredictable psychological problems.

It’s time to think in terms of an actual Terminator, as in the Arnold Schwarzenegger movie from 1985. They won’t be just bipedal robots: they will come in many shapes and flavors. It costs the US about a million dollars to train a soldier today; they’re no longer just mass-produced draftee cannon fodder. Most soldiers today are highly-trained specialists, but a lot of them are going to be replaced by robots running on artificial intelligence.

The fourth new element of World War 3 is space. There are thousands of satellites circling the earth; they not only enable communication of all types but spy on adversaries. As in the past, a military commander wants to control the high ground—to put gravity on his side. Space will be full of prepositioned weapons, waiting to rain terror downwards.

But the fifth, and probably the most important new element, is going to be biological warfare.

I’d mention the real biggie, nanotech, but that’s likely post-WW3. If we’re lucky . . .

International Man: The US government spends more on the military than the next six largest countries combined.

Aside from padding the pockets for the cronies of the Deep State, what are the implications of this?

Doug Casey: First of all, it’s unnecessary for defending US territory. In fact, it’s a positive danger because it’s so provocative. It’s terrifying because everybody knows the adage: When all you have is a hammer, everything looks like a nail. Meanwhile, it’s a major factor in bankrupting the country, so it’s not making the US stronger but weaker.

The US spends something like $1 trillion on defense annually, but nobody knows for certain. These budgets are complicated; military spending is hidden here, there, and everywhere. You don’t dare question anything they say that has to do with "national security." Who knows how many trillions of dollars are diverted to pure corruption? The Pentagon is probably better at stealing than crime syndicates in the ghetto.

Apart from the economic consequences, military spending is very dangerous, especially with rapidly expanding technology.

One of the times that the US came closest to nuclear war with Russia was in the mid-'80s when Russian generals could see that they were falling behind, and any edge they had was disappearing.

It became a question of "use it or lose it." Fortunately, they decided not to use it, so we didn’t have World War 3.

The US could very well find itself in exactly the same position—being bankrupted by wasteful, even worthless military spending. The generals might decide that it’s now or never against China and Russia.

Russia and China are the major adversary nations, but Russia really isn’t a threat. It has half the population of the US, with a GDP that’s more like that of New York state. Remember, war is about economics as much as technology.

Russia is really just a gas station with an attached gun store sitting in a wheat field. It’s actually not a threat to anybody. But it has a right to feel threatened by NATO, which should have been disbanded after the USSR collapsed, but has instead been aggressively expanded—benefitting nobody but US arms manufacturers.

American generals are one of the greatest dangers to the US. Anybody who gets a star on his shoulder in today’s US military is really more of a political operative than anything else.

I have no doubt that as problems mount in the next few years, one or both of the candidates for president in the next election will be a general.

Why?

Because the average American has been programmed to love and trust the military. That goes for the generals as well. It does not auger well.

If a general doesn’t succeed in becoming a political operative—which they really are—they become cronies, going to work for some large defense contractor so that they can retail their knowledge and connections, to become personally wealthy.

Believe it or not, 90% of the US military is not only unnecessary but is an active danger to the people of the US.

International Man: Relatively cheap equipment can be used to create billions of dollars of damage. We saw this in the Middle East, where relatively cheap drones from Yemen were able to create a substantial amount of damage to Saudi Arabia’s oil facilities.

What is asymmetric warfare, and what role will it play in the future?

Doug Casey: It will play a huge role. In Third World countries, there’s nothing cheaper than human life.

The actual cash value of a Mohammedan teenager is extremely low, measured in the hundreds of dollars. But even the cheapest weapons systems that we have, which are some of the most popular, are extremely expensive, measured in the millions or billions of dollars.

For instance, the Tomahawk cruise missile costs $1.4 million apiece. That is a pretty high price to take out a few Arab teenagers or blow up a mud hut in the middle of nowhere.

Terrorists are the ultimate in asymmetric warfare. It costs very little to send a team to an advanced country. With just a couple of high-powered rifles, they can create chaos in a city just by killing a few people a day in random places.

A couple of guys with wire cutters and sledgehammers can destroy electrical substations and likely evade capture until they’ve done many millions of dollars in damage. There’s no limit to the number of things that can be done to disrupt a high-tech society like the US. I’m just surprised that we haven’t seen a lot more of it so far. This is further proof that the War on Terror is a chimera—just like the War on Poverty, the War on Drugs, and the current War on COVID-19.

One asymmetrical weapon which will be used more is massive amounts of migrants. It shouldn’t be hard to encourage poor people coming from Africa to Europe—for that matter from Central America to the US— to simply overrun the borders.

How are you going to stop them if there are thousands, tens of thousands or hundreds of thousands of them en masse? It’s unlikely they’ll be machine-gunned. So they’ll push down the fences, land their boats, and then what are you going to do? Especially since Europe and North America have millions of leftists who want to see it happen.

This is a method of warfare that hasn’t really been considered as such. But, once again, it’s extremely low-cost and very effective. So it will be used.

The fact that the US is spending hundreds of billions on junk, like F-35s, the Littoral Combat Ship, and the Burke destroyer practically guarantees it will not only bankrupt itself, but likely lose the conflict. It’s exactly equivalent to what they did before World War 2, building battleships, or before World War 1, when the cavalry was the cream of the military. They’re doing exactly the same thing today.

International Man: What do you think the chances are of a war with a big power, like Russia or China? If a shooting war started, how do you think the US would do?

Doug Casey: As I said before, Russia is not a threat. They’re not going to do anything unless they’re attacked first. China is a different question.

I don’t think there’s much doubt that the 21st century is going to be the Chinese century.

That being said, China is really half a dozen or a dozen different countries. Xinjiang Province is full of people that are not ethnically, linguistically, or culturally Han Chinese. Tibet is a similar situation. It’s somewhat similar in Inner Mongolia.

Even within Han China itself, the people speak many different dialects and have many different cultures. China is a domestic empire, and it could easily fall apart if things get tough.

I suspect it will get tough even though the progress that China has made over the last 40 years is unique in world history. It’s completely undeniable. But on the other hand, there are indications that their financial system is on the ragged edge of collapse. They’ve created huge distortions and made huge, politically driven, misallocations of capital.

All the Chinese banks are bankrupt.

When Mrs. Wong goes to her bank and either can’t get her yuan out or the yuan are worth nothing, the place will fall apart and return to the kind of situation the Chinese had in the 1930s.

China is an unstable place. The US shouldn’t provoke the Chinese—sending aircraft and ships all around their borders, particularly to the South China Sea. It’s not our problem. We wouldn’t like it if they sent the Red Navy off the California coast or into the Gulf of Mexico.

China will probably fall apart on its own, breaking into smaller states in the future as, incidentally, the US itself might. Why? Because the US is no longer a nation bound by common traditions, language, and religion. The US has turned into a multicultural domestic empire.

But your opening question concerned World War 3. Of course, we’ll have it. Its consequences will dwarf those of WW2, and its most devastating element will be bioweapons.

That’s one more reason—there are many—why it makes sense to have a pleasant place in the country or in a small town, as opposed to the city or the suburbs. But that’s a whole other conversation. . .

Editor's Note: The amount of money the US government spends on foreign aid, wars, the so-called intelligence community, and other aspects of foreign policy is enormous and ever-growing.

It’s an established trend in motion that is accelerating, and now approaching a breaking point. At the same time, the world is facing a severe crisis on multiple fronts—including a global pandemic.
 

BarnacleBob

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Grocery store prices post highest jump in 46 years

Certain types of food aren’t just harder to find at grocery stores, but they cost more, too.

Prices surged last month, and the increases are unprecedented.

According to the U.S. Department of Labor, the prices of staples like eggs, meat and cereals recorded their highest increases in 46 years.

Eggs saw the biggest hike, up 16 percent.

But all six of the major grocery store food categories – Cereals and bakery products; meats, poultry, fish, and eggs; dairy and related products; fruits and vegetables; nonalcoholic beverages and beverage materials and other food at home – are up at least 1.5 percent.

Grocery stores seem to be alone in price increases as most industries saw declines in April.

https://kfor.com/news/national/grocery-store-prices-post-highest-jump-in-46-years/
 

JayDubya

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The Scary Truth About Living in Big Cities During the Turbulent Times Ahead

International Man: Amid the Covid-19 hysteria and global shutdown, the drawbacks of living in a big city have become more apparent.

Sure, cities can offer more career opportunities. Still, they are also more expensive, dirtier, have higher levels of crime, crowded, have fragile supply lines, and infrastructure that can get easily overwhelmed.

How do you view the value proposition of living in a big city today, given what is transpiring?

Jeff Thomas: Well, in my college years, I found cities to be very attractive. Lots of social opportunities, lots of shops, a greater variety of goods, etc. But, during that time, I was very fortunate to have experienced two city crises from which I learned valuable lessons.

The first was an oil crisis in the winter of 1973. It was bad enough that many people had to abandon their cars, some out on the highway, in the snow. Some people died from exposure.

But at that time, I seemed to be the only one who was wondering what would happen if it got just a bit worse. What if there were no fuel to heat houses? People in the country can find a way to survive, but in the city, you have no options. Many would die without heat. But first, they’d become desperate and desperate people are a threat to your well-being.

The second was a city riot. Until I was in the midst of one, I didn’t fully understand their real nature. A riot isn’t merely a crime spree; it’s random chaos, fueled by anger and desperation. They occur due to built-up tension that’s sparked off, often by a "last straw" event. Because they’re spontaneous, mini-riots tend to pop up all over the city like popcorn. And they’re uncontrollable. When the sirens are heard, rioters may disburse, but as soon as the police drive on to the next neighbourhood, the rioters start in again. Riots are similar to guerilla warfare, except that they have no organization whatsoever. They are high on anger and low on reason and, as such, are very dangerous.

For someone living in a city who’s hoping to be left in peace, there’s no chance of that in a riot. Sooner or later, you have to go out, and when you do, you may become a casualty.

Those two occurrences provided me with the important lesson that, whilst cities are very attractive in good times, you want to be well out of them in a chaotic period.

International Man: What are some risks of living in a city during a prolonged crisis?

Jeff Thomas: One of the greatest attractions of a city is that, all around you, there are small businesses that do everything for you. It’s wonderfully convenient. As long as you can pay, you can have anything. The great advantage is that a host of others have control of everything you may need. And, in a crisis, it’s that very condition that becomes your greatest danger. You can’t remove yourself from the dependency on others and suddenly become self-reliant. You have very little control over your surroundings and the services you need.

In a crisis, the first locations to be hit with food shortages are cities, and you find you have no alternate supply of food. And this is true of any city, no matter how nice it is in good times. The West End of London is a neighbourhood that I’m fond of, but if there’s a food shortage and some people are desperate, I’m not going to want to be walking home from Sainsbury’s with a loaf of bread under my arm.

And this holds true of all things in a city. You need the shops for your food. You may need a laundromat to wash your clothes. Your building has a central water supply, gas supply and electrical supply. Your ability for self-reliance is very low indeed.

In a crisis, none of the attractions of city life continue to have value. The city becomes a liability.

International Man: How important is it to have a pleasant place to go to in the countryside or a small town?

Jeff Thomas: It’s vital. Your life may depend upon it.

International Man: Do you think there will be a trend of people moving out of cities? What are the implications?

Jeff Thomas: Yes. We have literally thousands of years of history to look at when it comes to this question. Historically, a small number of people will see the writing on the wall and arrange to have a bolt-hole somewhere in a small town or in the country. But the great majority will wait until the last minute and, when it comes time to make a run for it, they may have no plan whatsoever.

So, we’ll see panic exits—large numbers of people attempting to leave as a result of some ‘last-straw’ event. It may be similar to the 1930s – the Okies loading up their Model A trucks with their possessions and driving to California. Only this time, it will be Montana, and other rural places where the existing residents are known to be self-reliant.

And there are numerous problems with this idea. First, there will need to be plenty of gas stations with ample fuel along the way, or you’ll never reach your destination. Second, there may well be marauders along the way. This, again, is historically the norm in such situations.

And, if you arrive at your destination, you’ll find that those who had settled these areas want no part of the city-dwellers, who are descending upon them in droves. Nor will they want to share the stores of food that they so carefully ferreted away in anticipation of a crisis. Just as the Okies discovered, the new arrivals will be quite unwelcome.

International Man: Do you perceive a different mindset amongst those who reside outside cities that makes them more desirable as neighbours in a crisis?

Jeff Thomas: Oh, definitely. It’s not so true in the suburbs, but those who choose to live in small towns and rural areas do, for the most part, tend to be more self-reliant than city-dwellers. And because, in those areas, neighbours are few and don’t change often, people get to know their neighbours personally, and they become mutually reliant. They form strong bonds, which may help them through harder times. People help each other in the knowledge that the help will come back to them at some later date. This, of course, is not so true in a city, where many people don’t even know the names of those in the apartment across the hall.

So, in a crisis, you want rural people around you. First, they’re unlikely to aggress against you, and second, they may even help you and share what they have with you, once they know you well. But it does mean that you’d have to start early and earn your place amongst them.

International Man: What do you look for in an ideal "bug out" location?

Jeff Thomas: Three things: stable government; good neighbours; ample food and water.

I have homes in several countries so that, if one proves to have been a poor choice as a bolt-hole, I have other options.

In assessing each of those countries, I first wanted to know that the government had a history of political stability, not undergoing dramatic change from one leadership to another. I also value governments that impose themselves as little as possible onto the lives of residents. Any country that’s already in the habit of being overly-autocratic is only likely to get worse in a crisis.

As I described, having neighbours that are unlikely to become a liability to you is another essential. In considering each of my homes, I asked myself, "How do these people treat each other?" and "How would they behave in a crisis?"

And, finally, it’s advisable to choose locations that have an abundance of food and water. If there are already farms all around you, wonderful. However, if this doesn’t exist — that is, if most food is imported — you’d want to either establish a farm or, at the very least, stockpile food that could carry you for a while.

I don’t doubt that, over the next few years, we’ll be seeing a breakdown in the availability of food in some countries, and those locations would be the worst of choices. However, even in countries where food delivery is likely to be good, there may be interruptions from time to time, so a month’s backup food storage would be advisable, no matter where you plan to be.

International Man: Any final points that should be considered?

Jeff Thomas: Only that we’ve just begun a period that will evolve into what may be the crisis of our lifetimes. There’s no guarantee that one reader out there will be luckier than another and will fare better. In such times, the likelihood of very major unrest and shortages is high enough that it would be quite unwise to just "wait and see what happens," or "hope for the best."

Those who prepare are less likely to become casualties of the coming crisis. I wouldn’t want to be locked into a city residence once the fur begins to fly.

Editor's Note: The recent global hysteria has inflicted a debilitating blow to an already fragile financial situation. It will soon cause significant economic, political, and social problems.

With a crisis brewing on multiple fronts, making the right moves right now could mean the difference between suffering crippling losses and protecting yourself and your money.
 

BackwardsEngineeer

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Posted several times about the screaming real estate market here in SC. One interesting thing that I have not been able to get a good clear definition as to the "why", is the almost total drying up of demand for repurchase of Jumbo loans. Lenders have pretty much exited that market entirely, leaving portfolio loans or cash plus the 510,400 conforming as last resort in the large purchase arena. Portfolio loans can have rates as high as 8 - 10%, so they have typically only been used as a bridge type product...

So help me out how can the market here in excess of 500k be screaming as strong as it is if the traditional loan of choice is pretty much gone? Or the other side if a buyer wants a place at say 2mil and wants to put down 50% or 1 mil, why wouldn't wall street be racing to buy that paper at 4%?

Things that you go hmmm
 

Scorpio

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BE, isn't that because of rehypothecation?

wherein that paper isn't backed by the fannie/freddie scam, which then takes away that backstop?

----------------------

Originating & Underwriting
Loan Limits
The Federal Housing Finance Agency (FHFA) publishes annual conforming loan limits that apply to all conventional mortgages delivered to Fannie Mae. These include general and high-cost area loan limits; high-cost areas vary by geographic location.
General Loan Limits for 2020
The general loan limits for 2020 has increased and apply to loans delivered to Fannie Mae in 2020 (even if originated prior to 1/1/2020). Refer to Lender Letter LL-2019-09 for specific requirements.
Supporting Tools
Resources
External Resources
Maximum Loan Amount for 2020
Units Contiguous States, District of Columbia, and Puerto Rico Alaska, Guam, Hawaii, and the U.S. Virgin Islands 1$510,400$765,6002$653,550$980,3253$789,950$1,184,9254$981,700$1,472,550
Maximum Loan Amount for High-Cost Areas for 2020
+A number of states (including Alaska and Hawaii), Guam, Puerto Rico, and the U.S. Virigin Islands do not have any high-cost areas in 2020.
Units Contiguous States, District of Columbia+ Alaska, Guam, Hawaii, and the U.S. Virgin Islands 1$765,600 2$980,325 3$1,184,925 4$1,472,550
2020 Loan Limits Overview
  • Loan limits increased for all but 43 counties across the country, including Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
  • In those 43 counties, the limits remained unchanged.
  • Loan limits did not decrease anywhere in the U.S. and its territories.

2020 High-cost Counties/Metropolitan Statistical Areas (MSA)
  • There are high-cost areas within the following states: California, Colorado, Connecticut, District of Columbia, Florida, Georgia, Idaho, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Tennessee, Utah, Virginia, Washington, West Virginia, Wyoming.
  • The high-cost area limits published in Lender Letter-2019-09 are the statutory limits provided by FHFA, but should not be used to determine the loan amount. Lenders must find the applicable loan limit for counties/MSAs in the Loan Limit Look-up Table or on FHFA's web page.
https://singlefamily.fanniemae.com/originating-underwriting/loan-limits

Loan Limit Look-Up TableAll U.S. and Territory Counties/EquivalentThis file provides the 2020 loan limits by county (or county-equivalent) for all areas of the U.S. and eligible territories. The limits that exceed our general limits are the high-cost area loan limits established by the Federal Housing Finance Agency (FHFA). Loans subject to the high-cost area loan limits must comply with Fannie Mae's high-balance loan requirements. See links below for more details on the loan limit information issued by FHFA.

Last Update: 11/26/2019 to provide 2020 loan limit informationHigh-Balance Loan Feature informationLink to FHFA Information:FHFA Loan Limits Web PageThe 2020 base loan limit is $510,400**This is a 5.38% increase over the 2019 base limit of $484,350The 2020 ceiling limit for most high-cost areas is $765,600Loan limits are based on the average U.S. home priceThis file is provided for reference only. Sale of mortgage loans to Fannie Mae is subject to all Selling Guide provisions.The loan limit is determined by the county (or equivalent) where the property is located. This file will allow you to look up loan limits for a specific county or equivalent.How to use:1) Determine property's state and county from agent, developer, appraisal, or other means.2) Filter* this file by STATE NAME3) Filter* results by COUNTY NAME4) View current Loan Limit for appropriate location.Please note that the determination is not based on the Metropolitan Designation. Determinations should be based on the specific county or equivalent in which the property is located.*Filter: To use the filter feature in Excel, click on the small gray 'down' arrow under a field name and select the item you would like to view.**Most counties have higher loan limits for 2020 than for 2019; a few counties have no increase. See the Loan Limits tab for details.

https://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx
 

BackwardsEngineeer

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Thats the reason they always give Scorp. But several local brokers, who deal with 40 to 50 different lenders, say it doesn't pass the smell test. Many of these loans in the past, have been a great place to create return with quality collateral, outside of the controlled pension arena. But what makes it even more unusual is that the VA removed the 484k limit January 1. So now you can get the best rates going if you are eligible through the VA, up to 766k in many markets.

As much as wondering why the jumbo disappeared, I truly thought it would shut down the market at some point above 600 to 800, but it does not seem to be the case. Also had a lender tell me next year is going to be the year of the refi, people locking in sub 2.5% 30 year rates!
 

JayDubya

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Opinion piece from Seeking Alpha:

American Airlines: The First To Go Under

Bears of Wall Street



Summary
* American Airlines burns $50 million to $70 million per day, and it will continue to lose money in the foreseeable future.

* At the end of Q2, American Airlines expects to have $11 billion in liquidity, while its total debt is $25 billion.

* Considering its enormous debt burden, there’s a very high chance that American Airlines will be one of the first major airlines to declare bankruptcy in recent years.


Just like United Airlines (NASDAQ:UAL), American Airlines (NASDAQ:AAL) is in the midst of a liquidity crisis. Despite the weekly increase of air traffic, we are far away from the recovery of air travel, and it will take years before we return to pre-COVID-19 levels. The consensus now is that the traffic will be down around 50% to 80% this year, and this leaves airlines in a dire situation. American Airlines' latest earnings results for Q1 were just the beginning of what's to come in Q2. While its revenues were down nearly 20% Y/Y from January to March, the decline rate of its revenues will be considerably worse from April to June.

By burning $50 million to $70 million a day, American Airlines will not have enough resources to outlive this pandemic. With $25 billion in debt, the airline has no chances of surviving this crisis without additional state aid. However, even if the government will continue to inject more liquidity into the company, it's highly unlikely that shareholders will be able to benefit from it. Even before the pandemic, American Airlines was struggling to generate a positive free cash flow a couple of years in a row. In the current environment, it has no chances of becoming profitable and deleveraging its books anytime soon. Considering its enormous debt burden, there's a very high chance that American Airlines will be one of the first major airlines to declare bankruptcy in recent years.

Road to Chapter 11

Before the pandemic, American Airlines was already a poorly run airline. The management in the last couple of years was excessively repurchasing American Airlines stock using debt, while the company wasn't even able to generate positive free cash flow. At the same time, from January 2018 to February 2020, American Airlines stock depreciated by more than 45%, while we've experienced one of the best economic booms in history. As we're currently in the midst of a pandemic, there's no reason to believe that the same management that failed to create value in the last couple of years will finally be able to get it right this time.




Source: gurufocus

Q1 earnings results clearly showed how bad the situation really is. While the airline's business started to deteriorate only in March, when the virus started to spread outside China, one month of disruption was enough for the company to report disastrous results. In Q1, American Airlines' GAAP EPS was -$5.26, while revenue of $8.52 billion was down nearly 20% Y/Y. However, those results are nothing in comparison to the upcoming Q2 results, which will be even worse, as the airline is currently burning $50 million to 70$ million per day just to stay alive. At the same time, American Airlines has the worst margins among its peers, and it's unlikely that it will be profitable anytime soon, if ever.



Source: Capital IQ

During the latest earnings call, American Airlines' CEO clearly said that the airline expects to have $11 billion in liquidity by the end of Q2, while at the same time, it has several significant assets in place:

We expect that we will reduce our daily cash burn rate from an expected average of $70 million per day in the second quarter to approximately $50 million a day for the month of June. As a result of all that, we expect to end this quarter with approximately $11 billion of liquidity and a significant amount of unencumbered assets still in place.​

Considering that the company has $25 billion of debt on its balance sheet, there's a high chance that solvency issues will start to arise, as the airline will not be able to meet its obligations. Last week, Boeing (BA) CEO said that there's a possibility that one of the major airlines will declare bankruptcy in the upcoming months. We believe that that airline will be American Airlines, considering that it has the highest debt burden among its peers:




To improve the situation, American Airlines needs to drastically cut down its costs and pray that passengers will rush to buy its tickets and once again start to travel like they did a year ago. Unfortunately, that's not going to happen. While TSA reports a small increase in weekly traffic, it's still down 90% Y/Y. The consensus right now is that the air traffic for the rest of the year will be down 50% to 80% Y/Y, and it will take a couple of years, until we return to pre-COVID-19 levels in air traffic. At the same time, to break even, American Airlines load factor should be at least 70%, and the company is unlikely to achieve it in the current environment.

Another problem is that American Airlines management heavily relies on federal help to keep the airline afloat. Under the CARES Act, it already received $5.8 billion in grants and loans, and it plans to use its AAdvantage loyal program as collateral to receive an additional $4.75 billion loan. While there's a high chance that the Treasury will approve this loan, there's no guarantee that the airline will be able to get more money later on, as there will be no collateral left. Back in 2002, the federal panel denied a $1.8 billion loan to United Airlines and let the airline go bust. This time, history could repeat itself.

Without government help, American Airlines will not be able to survive this pandemic. Just a week ago, United Airlines was forced to increase the yield of its latest bond offering to 11% from 9%, as creditors were unimpressed with its 360 planes that were used as collateral. If United failed to raise more debt, then American Airlines with its already high debt burden has no chance of accessing capital in an open market at a reasonable yield.


Right now, American Airlines 5-year credit default swaps trade around 6000 bps, just shy of 7000 bps at which Lehman's 5Y credit default swaps were trading right before the bank declared bankruptcy in 2008.



Source: Asset Macro

If American Airlines indeed decides to file for Chapter 11 anytime soon, then it will be able to wipe out a large chunk of its outstanding debt. At the same time, the airline will also become much smaller in size, as it will be required to give a large portion of its fleet as collateral to the creditors. However, as the recovery of air travel is years away, this might seem like a right move to make. After all, to deleverage its books, American Airlines needs to become profitable, and that's not going to happen anytime soon. While, in the short term, the company's stock could appreciate on news about the recovering air traffic, its long-term future looks bleak.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
 

JayDubya

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Doug Casey on Whether You Should "Buy the Dip"

International Man: The government's reaction to the global pandemic has led to an unprecedented economic, political, and social decline.

Can you talk about the financial risks you see unfolding in the months ahead? Are we headed for a debt crisis?

Doug Casey: It’s not just a crisis. It’s a depression, and it’s just starting. This is only the first out in a nine-inning ball game. It promises to be terrifying before it’s over.

Recall that it was close to four years from the time the stock market rolled over in 1929 to its bottom in 1933. And the stock market bubble of the 20s was much smaller than today’s. The amount of debt was vastly less. The amount of regulation vastly less. The level of State involvement in the economy vastly less. The US economy itself was much more self-contained. The currency was much sounder than today’s—although currency inflation was the cause of the bubble and the main cause of the last depression.

There are scores of reasons why the current bubble had to break. All of them are much more serious than those of the 20s. The economic distress we’ll see in the next few years will be much more serious than that of the 30s.

I hope I’m wrong. I far prefer good times to hard times.

The virus was hyped into a Great Hysteria that acted as the pin to break the huge bubbles in the financial markets. It was inevitable that there would be a pin of some kind.

We’re now facing the Greater Depression. We are, as we speak, entering the trailing edge of the financial hurricane we entered in 2008. But it is more serious now, and increasing distortions have been cranked into the economy for generations. Unfortunately, the depression likely won’t be blamed on governments and central banks’ stupid policies such as inflation, taxation, and regulation. Rather, they’ll blame the Greater Depression on this rather trivial virus.

The problems we have now aren’t caused by the flu, but the insane lockdown of the world, the Great Hysteria. It’s bad news all around. Governments and the media are using the virus as an excuse to do the same kinds of things that made the depression of 1929–1946 much worse and longer-lasting than was necessary. Tariffs, protective quotas, and embargoes are bad enough. But the collapse in world trade—which is a much bigger factor now than it was then—will have the same effect as the infamous Smoot-Hawley tariffs.

Taxes skyrocketed in the 30s because the government needed money for its vast new programs. Taxes will certainly go up now, especially at the state and local levels, because they can’t print money. The Federal government also "needs" more money than ever to do things that shouldn’t be done. They’ll get it by printing money—the Fed buying their debt—which is actually far more damaging than direct taxation.

We’ll see many more rules imposed than was the case in the 30s. All of them will increase the costs of doing business. Products will be much less affordable. The profits of most businesses will collapse.

So far, almost 40 million Americans have filed for unemployment. That number is going to go up for some time despite much of the lockdown ending.


As people are kept from working, the real amount of wealth in the world decreases. Even people who can still work will findthere is less demand for their products. Nobody escapes in a depression. As Richard Russell used to say, "In a depression nobody wins. The winner is just the person who loses the least."

One thing that’s certain is that the public’s debt will not only remain but will go up. Most of the 40 million unemployed—there are actually lots more, counting gig workers and those in the "black" economy—will max out their credit cards at 20% plus interest.

Americans tend to think the whole world is just within our borders, but we must remember that we’re only 4% of the world’s population. The hysteria from this largely phony global pandemic is worldwide. It includes much poorer countries with much less capital saved than we do—even though it’s said the average American has less than $500 for emergencies.

In India, for instance, there are tens of millions of migrant workers trapped hundreds of miles from their homes, with almost zero money. Will they starve? Maybe.

Government policies and media hysteria are turning the average American into a Zimbabwean. Zim probably has 50–60% true unemployment. It wouldn’t matter how many cars and refrigerators and air conditioners we might send to Zimbabwe, for they couldn’t afford to buy them. Many unemployed Americans will find that their jobs are probably gone for good. They won’t be consuming as much because they’re not producing as much—or maybe anything.

Again, the first-order effects—health risks from the virus itself—have turned out to be trivial.

The second-order effects of the Great Hysteria regarding the economy are extremely serious.

But the third-order effects, which is to say the government’s response to the first and second-order effects, are going to be more serious yet again and much longer-lasting. The biggest is the trillions of dollars that they’re printing, cementing old distortions into the economy, making them bigger, and creating new ones. What are some examples? Many people now feel they shouldn’t pay their rent or mortgage. Many want the Federal $600 weekly unemployment benefit to continue until a guaranteed annual income is put in place.

Worst of all, it’s getting Americans used to doing as they’re told and living in a police state.

International Man: Do you think the Federal Reserve will be able to paper over this crisis and create another 10-year bull market like it did last time?

Doug Casey: No. The Fed is inculcating bad habits in corporations, workers, and society as a whole. An artificially high stock market gives everyone false signals. It makes things worse by encouraging everybody to keep living above their means.

They’re giving people a sense of false security—making them think the authorities can solve all the problems that they created by doing more of exactly the same things. It’s foolish to count on either the Fed or any level of government to solve the problem. They caused the problem.

Where’s all that money that the Fed is creating going?

Most is going to the financial markets. The money is propping up unsustainable patterns of production and consumption. This has nothing to do with creating real wealth—the Fed is just trying to maintain a bubble economy and blow it bigger.

The government wants to avoid a 1930s-style deflationary depression at all costs, but we are likely going to get a vastly worse 1920s-German-style hyperinflation in the process. It’s created a dead cat bounce in the stock markets in April and May. And suckers are buying when, instead, they should be selling. It has been said that millions of newbies are opening brokerage accounts with the PPP (Paycheck Protection Program) money. They’re bullish and buying call options.

When this thing unwinds in earnest, there will likely be deflation in a number of areas, not just the stock market, with some prices dropping catastrophically.

For instance, this will be the case in housing and autos—the two biggest consumer durables. Forget about new car sales; even used car prices are going to collapse. The bankruptcy of Hertz and the liquidation of much of its fleet is just a straw in the wind—lots of individuals are going to have their cars repossessed. Few own a vehicle for cash anymore.

Will people be put out of their houses? Yes, unless Washington pays their mortgages or rent and their utilities. There recently was an article in Barron’s, of all places, where some PhD "economist" was advising exactly that. There’s going to be deflation in housing and autos.

But there will also be much higher retail food prices, even while farmers are squeezed, and higher prices on anything imported too.

The one thing that you can absolutely plan on is a significantly lower standard of living. That, you’ll recall, is the first and most important definition of a depression.

We've had an artificially high standard of living for years for two big reasons. First, there’s all the debt—which is essentially mortgaging the future—as well as consuming the capital that lenders have saved over generations. Second, we’ve been able to export US dollars at zero cost and get imports in exchange for that paper currency.

That’s going to stop in the years to come.

International Man: The coronavirus popped the Everything Bubble, the largest financial bubble in all of human history. The Greater Depression seems just to be getting underway.

But even with the sell-off earlier this year, stocks are still near record-high valuations.

What do you say to those people and those who are looking to "buy the dip?" What do you think the impact will be on the stock market?

Doug Casey: Most people don’t understand anything about economics. Most of what they’re taught in school today is actually rubbish. Few "economists" employed by the government or the Fed understand anything about economics. They’re all Keynesians.

There’s no telling how high a tree is going grow. It’s possible the Dow could go to 50,000 with all the dollars being created. But I have no interest in stocks. In fact, I’m thinking of buying distant puts. When earnings collapse—which they will—stock prices will follow them.

Since World War II, people have gotten into the habit of buying the dips. It’s become a Pavlovian response. Especially over the last 10 years, the average person has been trained to think that stocks always go up. But the wonderful times we’ve had since 1946 are over. We’re in a new era, and it’s going to be a lot less fun.

The public thinks that the Fed is their friend and "has their back." Certainly, Trump thinks that. If they have any spare cash, they’ll put it into the market.

High stock prices equal prosperity in Trump’s mind. But he’s confusing correlation with causation. Prosperity eventually causes high stock prices—not vice-versa. The reverse is true with low stock prices. That’s why you should be out of the general market today.

But, having said that, now that we live in Bizarro World, we could have very high stock prices for a while, even as the standard of living goes down significantly.

This is actually quite a unique situation for a developed country. It’s the type of thing that happens in third-world countries, where the stock market goes up even while the society is collapsing. Why? Because they don’t want to hold currency. Where else are you going to put your money?

At least stocks represent real wealth of some type.

I have no interest in playing the scam. It’s a casino. Most stocks now are not just hot potatoes; they’re live hand grenades. Now is the time to be in gold and gold stocks.

This is a rare opportunity. This is going to be the next bubble.
 

JayDubya

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Our Economy Was Just Blasted Years Into the Future
https://marker.medium.com/our-economy-was-just-blasted-years-into-the-future-a591fbba2298

The crisis is The compressing and accelerating trends that would have taken decades to play out


Steve LeVine


In 2010, two former New York hedge fund investors paid $5.8 million to buy Clear, a biometric identification firm that had gone bust in the fallout of a lost laptop containing the unencrypted personal data of 33,000 people. Caryn Seidman Becker and Ken Cornick were certain they could revive the company’s fortunes and earn tons of money whisking people through aggravating airport security lines based on scans of their irises and fingerprints.

To a degree, they were right. Just two years later, the Department of Homeland Security recognized them as a “qualified anti-terrorism” firm, and they quadrupled their clientele, expanding into security, along with age-verified beer sales at major sporting events. Clear says it has turned a profit since 2017.

But that was all before Covid-19.

Last week, Seidman Becker launched Clear into a brand new digital space — “touchless technology,” a play built around the fear that the coronavirus may lurk on any surface, anywhere. Against this threat, airports are deploying a new level of security including thermal cameras, all but assuring exceptionally long lines once people resume flying. Seidman Becker is responding with hands-free navigation: Clear will upload its clients’ Covid-19 test results, ID, air tickets, credit card, and health quiz. This, along with iris and face scans, will allow them to pass through the new phalanx faster.

The concept is now spreading well beyond the airport. Clear, along with Swiftlane and Envoy, are among the companies that have begun to offer similar services to office buildings. They say the technology is deployable anywhere someone needs to prove identity or take out their wallet to pay, raising the specter of biometric entrance to many or most of the places people frequent. The possibilities are limitless.

Before the coronavirus, surveillance capitalism was already a big worry — Big Tech companies were vacuuming up data from laptops, front doors, appliances, kitchens, living rooms, and smartphones and selling the resulting market intelligence for hundreds of billions of dollars a year. Now, touchless technology suggests a new front in the age of around-the-clock commercialized surveillance, hackable by Iran, China, North Korea, Russia, or any number of private actors, well- or malignly intended. It is an unusual, once-in-a-lifetime, super-charging event for Clear and its surveillance rivals, rebranding themselves while becoming an answer for companies, offices, and agencies everywhere contemplating how to safely reopen.

In a webcast last week sponsored by Axios, Seidman Becker did not say how many people had signed up for Health Pass — as Clear is calling its new product — and the company did not respond to emails. But the recast also lets the industry mask over the Orwellian undertones created by companies such as China’s Megvii Tech, an A.I. unicorn whose facial recognition cameras have helped to sweep up members of the Uighur minority. It makes them appear not to be about odious Big Brother presumptions but societal safety. In this makeover, “touchless” becomes more like “wireless,” a benign appellation meant to milk the zeitgeist.

“It’s a one-time shift in technology. After this, it’s going to stay like this forever,” says Saurabh Bajaj, CEO of Swiftlane, a Silicon Valley touchless startup using facial recognition. He says that Covid-19 had enabled technology to leapfrog into an immediate future of touchless elevators, doors, and trash cans. The barriers, for the most part, are gone: “We will just move on into this new world.”

Throughout history, pandemics have left varying, sometimes momentous impacts on the societies in which they have occurred. In the 16th and 17th centuries, smallpox, measles, and other diseases brought by the Spanish wiped out up to 90% of the South and Central American population, utterly transforming the historic order. Conversely, the global flu pandemic of 1918 to 1919 appeared to establish no new norms, suggests Harvard political scientist Joseph Nye. Rather, the approximately 50 million flu deaths seemed to blend into the general slaughter of World War I and go on to be all but forgotten until modern historians began to write about the calamity in the 1970s.

As a catastrophe, Covid-19 itself appears so far to be a hybrid in impact — vastly speeding up some potent trends while quickly dispelling others that people thought were happening but actually weren’t. Cliff Kupchan, chairman of the Eurasia Group, says such acceleration is a natural byproduct of crises like pandemics, which “tend to jolt the current system.”

“There is pressure on all trends, and only the strongest, most vibrant continue to be underway,” he says. “Only the fittest survive. You have a Darwinian moment for trends.”

What Kupchan is describing is an economic time machine. Against the backdrop of a two-century period of faster and faster transformation, the coronavirus is compressing and further accelerating the arc of events.

Consider the shift to driverless automobiles, one of the most-predicted events of our time. In the popular vision, repeated countless times by Silicon Valley, Wall Street, Detroit, expensive consultants, think tanks, and governments around the world, the human race is quickly shifting to a world of autonomous, shared cars. Starting in the early 2020s, it has been said, people will travel in such vehicles, heedless to their surroundings, relaxing, working, or shopping in smart metropolises looking substantially like Orbit City, home of the Jetsons, perhaps even including a few flying cars. This newfound liberation from the steering wheel would be a bonanza for automakers and Silicon Valley alike, producing tech-laden vehicles that would suck up a constant flow of lucrative data from the passengers. So certain was this future that the major automakers and Silicon Valley went on a spending spree to make it a reality, investing a collective $16 billion.

That was then. Even before Covid-19, many auto hands were already expressing private doubts about the timeline. But now, prominent names have mostly stopped making predictions about what they will produce and when they will produce it. Ford has outright postponed the 2021 debut of robotaxis and driverless delivery vehicles, saying that the virus could have an unknown, long-term effect on consumer behavior. BMW says people seem not to want to get into the kind of shared, autonomous vehicles it had planned but instead to drive their own car. GM has shut down Maven, its car-sharing service, and laid off 8% of the workforce at Cruise, its driverless vehicle division.

Some of this is the auto industry feeling its own mortality: Ford expects to lose $5 billion this quarter after a $2 billion loss in the first three months of the year. Fiat Chrysler also lost just under $2 billion the first quarter. GM made a little money — $294 million — but that was an 86% drop year-on-year. It has been the same abroad: VW’s earnings plunged by 75% in the first quarter, and Toyota says it expects its full-year profit to plummet 80%.

But the industry has also lost confidence that a fully autonomous, go-anywhere vehicle is possible any time soon. In a Wall Street Journal report on May 18, Uber — whose business model until recently centered entirely on mastering autonomy — was said to be reevaluating driverless research after burning through more than $1 billion. It was stunning news since just last year, Uber’s self-driving unit was valued at $7.25 billion. In addition to the major players, tens of millions of dollars of venture capital has gone into countless startups, among them Argo AI, Zoox, Aurora, and Voyage.

No one is publicly giving up — that would be too much of a concession given the hit they would probably take from Wall Street. Rather than an admission of failure, look for one after the other to embrace lesser, limited autonomy such as lane changing, highway driving, and automatic parking.

A primary economic bright spot in 2019 was the lowest-paid tier of workers, whose wages rose by a dramatic 4.5% after decades of a shrinking share of the economic pie. Companies were snapping up some of the hardest-core unemployed — among them the long-time jobless, felons, and drug users, necessary because, with the unemployment rate at 3.6%, there was no one else to fill the jobs.

The coronavirus has erased all of that, returning many of the newly hired workers to jobless status and making the prior year’s wage raises look hollow. According to a new paper published by the National Bureau of Economic Research, 42% of those laid off won’t get their jobs back. How most will ever regain what they have lost is not clear since the economy had almost no cushion for them, says Rick Wartzman, director of the Center for a Functioning Society at the Drucker Institute. “The progress that was finally beginning to be made in raising all boats is now sinking the smallest boats most rapidly,” says Josh Bolten, head of the Business Round Table and former chief of staff to President George W. Bush.

One reason for the doubts about the revival of gains for workers is yet another byproduct of the coronavirus: an accelerated automation of jobs. Some parts of the country were long fearful of the possibility of robots taking over swaths of the economy, and companies, big consultants, and thought leaders worked overtime to assure people that automation would help workers, not replace them.

But the moment of truth forced by the virus has seen worker-replacing automation even by companies that had not previously turned to robots. The trend is more pronounced in China, where investment in automation technologies is surging, but U.S. companies are trying out more robots, too. “Many companies are experimenting with automation in ways that they might not have today without necessity — from A.I. to replacing shut-down call centers in the Philippines and India to robots using ultraviolet light to sanitize,” says Karen Harris, managing director of Bain Macro Trends. “As we have a greater installed base of automation, the cost will come down, and the number of use cases will rise.”

One of the key buyers of these new robots are retail stores, already among the most disruption-stressed sectors on the planet. Since 2015, about 32,600 stores have shuttered across the U.S. as consumer taste shifted online. Since the virus, the industry’s implosion has sped up, with new bankruptcy filings this month by J.C. Penney, Neiman Marcus, and J.Crew and forecasts of 100,000 more store closings over the next five years. Combined March and April sales fell a calamitous 24%, a record.

Yet, look closer at the numbers: Leading up to Covid, just 15% of retail sales happened online. Now, during the coronavirus — with almost every store around the country shuttered, apart from groceries, pharmacies, and some other essential shops — the number rose to 25%, UBS said. That is, despite a majority of the country sheltering at home, captive to their computers with all those online websites, physical stores still rang up three-quarters of all sales.

The virus clearly changed consumer behavior; in just a few weeks, e-commerce achieved years of growth. Yet the pandemic, at least so far, has not driven most buyers online. This may make retail another case in which what we thought was happening may not be: Against the drumbeat of forecasts of the demise of physical stores, people still prefer them — perhaps not the current number of stores but physical shops nonetheless.

If there is a perverse positive gloss in the retail fallout from Covid-19, it is the opportunity for vulture investment firms. As if to underscore that possibility, Women’s Wear Daily reported last week that Amazon was in talks to acquire J.C. Penney. Both companies declined to comment, but it seems the e-commerce behemoth’s interest in physical retail has not waned.

Since taking office, President Donald Trump has campaigned for American companies to return their manufacturing activities home in what experts call a “decoupling” of the U.S. and Chinese economies. Until Covid-19, he didn’t have much luck on this front — big companies traditionally favor globalization since a presence everywhere can mean richer profit. Most simply refused to pull up stakes in China.

But in an interview with Fox News on May 14, Trump renewed a call for Apple to make the iPhone entirely in the United States. And he raised the dramatic specter of the U.S. breaking off “the whole relationship” with Beijing.

That pressure, combined with U.S. tariffs and the spectacle of the coronavirus shredding far-flung American company supply lines, many CEOs are now quickly strategizing how to better diversify their offshore supply chains, suggests David Dollar, an analyst at the Brookings Institution.

U.S. companies such as Apple and Google are begrudgingly embarking on what will be a yearslong process of finding and establishing the right new partners, according to reports. Mauro Guillén, a Wharton professor who teaches a new class called Epidemics, Natural Disasters, and Geopolitics: Managing Global Business and Financial Uncertainty, says companies are likely to contract with duplicate sources of supply, adding to cost but resulting in a tradeoff: higher prices but a more secure manufacturing chain.

What most of the biggest American companies will be able to count on is their own survival. For years, trends have favored so-called “superstar companies” — Big Tech and other mega-businesses that typically attract the best research talent, buy up the most valuable new patents, and cut the most advantageous deals. The Covid-19 age is entrenching their dominance, says Tania Babina, a professor at Columbia University.

Babina is the co-author of a new paper called “Crisis Innovation” in which she describes how, during the Great Depression, the most important inventions, regardless of the creator, ended up in the hands of the largest companies, too. Not right away, but eventually. Under pressure, it turns out, future corporate behemoths may simply be faster, hardier versions of their current selves.
 

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Why the Fed's Money Printing Won't Save Main Street... Here's What It Means for the Dollar

Doug Casey's Note: In the over 30 years I've known him, my respect—and liking—for Frank Giustra has only grown. Not just because he's a world-class businessman, having built Yorkton Securities into a powerhouse, and then founding Lionsgate Entertainment. More relevant to this interview, he's a first-rate judge of the markets—one of the best I've ever met at seeing turning points and understanding trends.

He's one of the few financiers in the "Master of the Universe" class that understands gold and economics. Frank knows what he's talking about. I suggest you read this closely.


International Man: The coronavirus was the pin that popped the Everything Bubble. What do you think the economic ripple effects will be?

Frank Giustra: I think it was a bubble that was begging to be pricked. The cause was never the issue. I don’t think anybody predicted the cause would be a pandemic.

Last summer in an interview, I provided a list of things that might prick the bubble. A pandemic wasn’t on the list, but here we are.

As I said, the bubble was begging to be pricked. It was a bubble unlike any bubble we’ve ever seen in history—and it was a global bubble. It was a debt-driven bubble, spread over many asset classes.

I think the economic hit from COVID is going to be long-lasting. All the fiscal and monetary policy response is not going to address what is actually changing out there, which is a lack of demand.

We were already going into a slowing global economy when the COVID crisis hit. Everybody was preparing for the next recession, and this event completely killed the remaining demand.

Furthermore, I don’t believe we are returning to the old "normal."

I don’t believe we have seen the end of this pandemic. It won’t end with a first wave only. The world lacks a concentrated coherent effort—in fact, it’s all over the map.

The US response is unique to say the least, and it will come back to bite them.

We haven’t seen the effects of this crisis on the developing world yet. I think when it hits there—if it hits in the same way that it hit the developed world—it’s going to be even more tragic. It’s going to doubly impact global supply chains, demand, and all sorts of things.

So, I think we’re going to probably see a second wave, maybe in the fall or winter.

The reaction will probably be more severe than with the first wave because people and governments will completely freak out and overcompensate.

Even when we get back "normal," it won’t be the old normal.

I think that people’s behavior is going to change with respect to travel, consumption, and going out.

It’s going to be an economic hit that’s going to be with us for a very long time.

And now you’ve got all this crazy money printing that’s taking place. I predicted we were going to get money printing but not to the degree that we’re seeing now.

The money printing we are now seeing is in full ludicrous mode. We’re going to see the Fed balance sheet probably at $10 trillion before the year is out.

Looking ahead, I think we are going into a 1970’s style stagflation but in hyperdrive. And, that’s probably the worst of all worlds.

I just don’t see how we come out of this easily over the next little while.

As I said, this was bound to happen. We were already coming to the end of a long-term debt cycle that lasts 70 years or so, and we are now at its peak.

Everybody was speculating like crazy. Now, we are seeing the unraveling of that bubble, and it’s going to be very, very ugly.

Personally, I am more concerned about the geopolitical impact of what’s coming than I am about the economic impact.

Everybody can afford to live a poorer lifestyle, but what happens in these situations is a trend towards deglobalization as we are starting to see now.

It’s always worrisome when countries stop trading. We all know what happens when countries engage in trade and currency wars... the shooting starts.

That’s what worries me the most, especially with respect to the U.S. and China: the back and forth blame game that’s taking place. We already had a scenario where the relationship was very fragile between the U.S. and China.

There’s no stopping China from becoming the next economic superpower. But I think the U.S. is taking a position of trying to undermine that.

While this COVID situation is very unfortunate, I’m more worried about what’s going to happen geopolitically as we get into very difficult economic times.

International Man: Those are great points.

You’ve mentioned something that I think no one has really focused on. Many people are just watching what is happening with the U.S., Canada, and the rest of the developed world. Few realize there are many weaker links out there in the third world.

Just look at Argentina right now. As you know, it’s a perfect example of everything that can go wrong. It’s not just Argentina; it is happening in countries like Venezuela, Lebanon, and others.

Frank Giustra: I grew up in Argentina as a little boy.

My father lost all his wealth there. I’m very familiar with Argentinian history.

If you look at what’s happening in the US, it’s going down a similar path as Argentina. Where politicians will do anything to please the electorate. Politicians will do anything to please the electorate; they print money, pile on debt. What eventually follows is hyperinflation, which, in turn, destroys their currency. Savers get wiped out, and everyone has to start from scratch.

I think it will not be long before the US ends in a similar place. And likely in a lot less time than I would have thought last year.

International Man: Since the global lockdown, the Federal Reserve has created trillions of dollars out of thin air to bail out everyone—huge corporations, small businesses, average Americans, airlines, and more.

In just the past few months, the US government has created more money out of thin air than it has for its entire existence.

What does this mean for the US dollar?

Frank Giustra: All discipline has gone out the window. We are talking about trillions of dollars like we are throwing around baseball scores.

It’s amazing; in a country that is so divided, politicians are united on one thing—they can spend endlessly.

That’s what they’re doing now. There is no opposition for $2- or $3-trillion-dollar stimulus plans.

The Fed bailouts that cost trillions of dollars to bail out the markets, not to save Main Street. And there will be a day of reckoning for all this useless money printing.

The U.S. dollar is going where every other reserve currency in history has gone: in the dust bin.

It’s fascinating, as it happens on a regular basis every 100 years or so. For some reason, Americans don’t believe it will happen to them because, after all, it’s America!

I wonder if the Dutch believed that... or the French or the British.

The printing presses are now in ludicrous mode, and they’re going to stay there.

I don’t think there is any going back to any kind of discipline—whether fiscal or monetary policy. I think the days of sub-trillion-dollar deficits are long gone.

It is far too easy for politicians to wave their hand and say, "Okay. Pile on another two or three trillion dollars."

I think the federal deficit will end up at four or five trillion dollars before the year is over.

They’re not done. An additional stimulus will come. They will find that the idea of a V-shaped recovery is sheer fantasy.

So, they’re going to keep throwing more and more money at it.

I did an interview last August where I was asked specifically about the U.S. dollar as a reserve currency, and I said, "It’s inevitable that the US dollar will cease to be the reserve currency at some point down the road, but that’s a long way off."

Once the COVID crisis hit, I've changed my views on the timeline.

Now, I think the US dollar’s days are numbered in the shorter term, but I am not sure how, exactly, it’s going to play out.

The only reason that the dollar sat on top of all the other currencies—all the other reserve currencies of the developed world—is because it actually provided a yield. As small as it was, there was a yield. You could buy U.S. Treasuries and get something, whereas, if you bought euros or yen, you got a zero or negative return.

Last summer, I predicted that U.S. rates would go to zero before the recession hit because Trump was already pushing for it, and once they went to zero, the money-printing would start.

I said, "Once the U.S. dollar goes to zero yield, what reason is there for any foreign investor to invest in U.S. dollars? Why would you do that, especially when they’re printing it like crazy?"

It just goes on top of the same garbage pile as every other non-yielding currency.

I said, when that happens—and you’re seeing it now—buyers are going to walk away.

So, who’s left to buy all that debt?

The Fed.

The Fed will be the buyer of last resort, and the only buyer. And you can see it already happening. The Fed is buying the Treasuries as they are being issued.

This is something that Ray Dalio predicted last year, too—when he talked about the paradigm shift. He talked about the "big squeeze" that was coming, and he was absolutely correct.

He said, "We’re going to hit a recession. Rates will go to zero; investors are going to start looking for returns that they believe will give them a better return than US Treasuries, but you have these growing deficits and all these unfunded pension and healthcare liabilities coming due. So, what’s going to happen? The buyers disappear, and the Fed has to buy it. The Fed has to monetize that debt."

So, what we’re going into now is a grand debt monetization.

Here is the absurd part. The Fed is pushing for fiscal stimulus, saying it’s done its part with monetary stimulus. But at the end of the day, it’s all one and the same, because all deficits are being monetized, regardless. It’s a Ponzi scheme.

It doesn’t really matter.

You can create a fiscal stimulus plan for another five trillion dollars, but you’re going to monetize that immediately, so it’s all about printing money. And by doing so, you destroy your currency just like every other great power throughout history.

I think that’s where we’re headed.
 

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What Is the Stock Market Even for Anymore?
With the economy in free fall, the resilience of share prices defies the misfortunes of most Americans.
By Michael Steinberger May 26, 2020

https://www.nytimes.com/interactive...avirus-pandemic.html?utm_source=pocket-newtab

I almost didn't read beyond the first sentence, but I powered through it and although there is a definite liberal slant I found the writer has a couple decent points further into the article.

In early March, as it became clear that the coronavirus pandemic really wasn’t a hoax but was about to upend American life, I started texting my friend Paul, an investment adviser, about the stock market. Although I worked briefly on Wall Street before succumbing to the wealth and prestige of a career in journalism, I couldn’t claim any particular financial expertise. But that didn’t stop me from burdening Paul with my predictions. On Sunday, March 8, I texted him that I thought the market was going to drop 25 to 30 percent over the next three to four months. When the S&P 500 plunged more than 7 percent the next morning, triggering an automatic halt in trading, I told Paul that I was revising my time frame to three to four hours and added, ‘‘Good luck trying to catch this falling knife.’’ The Dow Jones industrial average sank 2,000 points that Monday, the biggest one-day loss since October 2008.

The following Monday, with the news growing more ominous, I sent Paul an updated prediction: The Dow was heading to 15,000. I was just spitballing, but given that the market fell almost 90 percent following the 1929 crash, a 50 percent decline now seemed plausible. Several days later, the Dow dipped below 20,000. Feeling oracular, I revised my outlook again: I told Paul 10,000 was my new target. ‘‘Well, that was uplifting,’’ he replied. The market dropped another 1,338 points the next day, and though my funds were tanking along with almost everyone else’s, I found some empty satisfaction, at least, in my prognosticating.

Then the market began to rise. I was dismissive. ‘‘How are you enjoying the sucker’s rally?’’ I asked Paul. My skepticism only grew when I saw Jim Cramer — yeah, he’s still around — on CNBC saying that bears like me were ‘‘betting against science’’ and basically selling the country short, a comment that called to mind Otter’s ‘‘student court’’ peroration in ‘‘Animal House.’’ By then, however, stocks had climbed 3,000 points in about a week. The market now seemed impervious to bad news while surging on even the flimsiest pretext, and my mood had turned bitterly sarcastic. ‘‘5.5 million first-time jobless claims expected tomorrow. So limit up on the open?’’ I texted Paul on April 8. The next morning, the Labor Department announced that 6.6 million new claims had been filed. The Dow gained another 779 points. Paul was as puzzled as I was. ‘‘Ridiculous!!’’ he texted.

By then, the market’s rebound had become a source of morbid fascination for many. How could it be that stocks were heading higher — after a steep sell-off, of course — in the face of a global pandemic and what’s shaping up to be the worst economic downturn since the Great Depression? Wall Streeters were quick with answers: The Federal Reserve was pumping more than $1 trillion into the markets to stave off a financial meltdown, and besides, with bond yields at record lows, investors didn’t really have any palatable alternatives to stocks as places to put their money. Still, it was jarring, even macabre, to watch the market soar while tens of thousands of Americans were dying of Covid-19 and millions were losing their jobs as a consequence of the nation’s economic shutdown.

In the years since the Great Recession, Silicon Valley had eclipsed Wall Street as an object of public ire. But with the market’s unseemly rise, investment banks and hedge funds appear determined to become the villains of this crisis, too. While tech giants like Amazon, Apple and Google have been helping to make life under lockdown somewhat more bearable — and going some way to redeem Silicon Valley’s image — the stock market’s shocking resilience (at least so far) has looked an awful lot like indifference to the Covid-19 crisis and the economic calamity it has brought about. The optics, as they say, are terrible. And they can’t help inviting a broader discussion about the market’s role in American life.

Even before the coronavirus struck, there were some trends that called into doubt how well the market was facilitating economic growth. The number of publicly traded U.S. companies has been in sharp decline for years, for instance, and financial legerdemain played an outsize part in the vaunted bull market that took the Dow to almost 30,000 in February. The run-up in stock prices clearly didn’t mirror the fortunes of most Americans, a fact laid bare by Covid-19. But it did greatly increase the fortunes of wealthy Americans, who have by far the largest stake in the stock market. They also happen to be the people best positioned to ride out this crisis, which raises a question: Is the market detached from reality, or does it simply reflect the reality of those most heavily invested in it?

Hoping to make sense of what’s been going on with the stock market these last couple of months, I reached out to Bill Ackman, a billionaire investment manager who appears to have read the market perfectly. Ackman, 54, is one of Wall Street’s more colorful figures, an activist investor renowned for both the returns he generates and the fights he has had with corporate executives as well as rival financiers. (Some people on Wall Street believe he is the inspiration for the Bobby Axelrod character on the cable series ‘‘Billions.’’) Back in March, he gave an interview on CNBC in which he implored President Trump to shut down the country for 30 days to combat the coronavirus. ‘‘Hell is coming,’’ he warned, and unless Trump ordered the country to stay at home for a month, ‘‘America will end as we know it.’’ Despite the dire message, Ackman said that he was buying stocks that morning. He was immediately accused, however, of trying to talk down the market. When he revealed a week later that his firm, Pershing Square Capital Management, had made a $2.6 billion profit on credit insurance that it purchased to guard against a steep fall in the market, critics pounced. But it seemed to me that Ackman was just doing his job, and apparently doing it well, so who cared what the critics thought?

It turned out that he did. When I spoke to Ackman in the middle of May, on a day the Dow gained another 912 points, he brought up the CNBC interview before I could even mention it. He hadn’t been on CNBC in over two years, he said, and had only ‘‘reluctantly agreed’’ to appear. He noted something that I had overlooked: The day he was interviewed, March 18, was the day the market bottomed out. ‘‘If my goal was, in fact, to push the market down, I certainly failed,’’ he said.

He reiterated that he was buying stocks at that point — and had been since March 12, actually. ‘‘I did not go on TV trying to mislead the public that the world was ending while I was short the market,’’ he said. ‘‘We were massively, massively long the market. And I was $3.3 billion more long on March 18 than I was on March 12.’’

But why, with the coronavirus bearing down on the country, had he turned so bullish that week? He told me he had become confident the country would do what was needed to combat the pandemic. ‘‘I said, We’re at a fork in the road. One leads to death and oblivion, and the other leads to long-term health and happiness. We’re going to take the right path, and the way we get there is a little short-term pain, which is a shutdown of the country,’’ is how he explained it. ‘‘That was the bet I was making.’’ He emphasized that he was not being cavalier about the cost of a shutdown: Some of Pershing Square’s biggest clients, he told me, were pension funds for teachers and emergency medical workers — people who were going to be among those hit hard by the crisis. (He also mentioned that his foundation had donated millions to coronavirus relief efforts and research.)

But even with most of the country shut down, almost 100,000 Americans were now dead, and some 38 million were out of work. So why was the stock market going up? Ackman said that the market was heavily weighted to a small number of companies — Amazon, Apple, Google, Facebook — that were positioned to become even more dominant than they were before the crisis and whose stock prices were rising in anticipation of that. Weak public companies were being culled — ‘‘the virus kills older people, people with comorbidities, people with other health issues, and the same thing is true in business; the virus kills off companies that were structurally impaired already’’ — while strong ones were poised not just to survive but to prosper. ‘‘The impact of the crisis on companies like Amazon is actually a little bit of short-term negative because they’re spending a lot of money managing through this, but it’s long-term hugely beneficial to the company.’’ In that sense, Ackman said, the market ‘‘doesn’t seem wrong to me.’’

It was a surprisingly tepid endorsement coming from someone who had made a lot of money in this market, and when I thought about it later, I couldn’t help wondering if it reflected either a sense that the recent gains were tenuous or an awareness that the rally had offended a lot of people.

But Jeremy Siegel had no doubts or qualms about the market’s behavior. Siegel, who is 74 and teaches finance at the University of Pennsylvania’s Wharton School, is a prominent scholar of the markets, a fixture on CNBC who is often referred to as ‘‘the wizard of Wharton.’’ He is famed for his bullishness: His 1994 book, ‘‘Stocks for the Long Run,’’ which argued that stocks were the best option for buy-and-hold investors, presaged — and some say helped spark — the 1995-2000 bull market during which the S&P 500 more than tripled in value. He and I spoke the morning after the Labor Department reported that the United States lost 20.5 million jobs in April and that the jobless rate had spiked to 14.7 percent. The Dow, true to recent form, jumped 455 points that day.

For Siegel, there was nothing strange about the market’s rising despite the gruesome unemployment figures: Investors already knew they would be ugly. ‘‘It’s Principle 1 of Finance 101: Anything that is expected doesn’t move the market,’’ he told me. People who were dismayed by its upswing since mid-March didn’t understand how the market works. ‘‘Over 90 percent of the value of stocks is dependent on earnings more than a year in the future,’’ he said. ‘‘The market is very forward-looking.’’ Investors weren’t thinking six months ahead; they were thinking a year or two ahead, Siegel said, by which point the virus would probably have been brought under control. ‘‘We’ll have a U-shaped recovery, not a V, but the market is looking at the upper part of the U,’’ Siegel said.

He then pointed out that people confused by the market’s recovery were overlooking something else: The sector of the economy being hit hardest by the crisis, the small-business community, was not represented in major stock indexes like the Dow and the S&P 500. The market tracked the fortunes of big companies, not mom-and-pop shops.

From a societal standpoint, Siegel said, the carnage on Main Street was terrible. He mentioned that he lived in Center City, Philadelphia. ‘‘It’s depressing to me — I walk by all the shuttered shops that made the neighborhood the neighborhood. I mean, there is something that is going to be lost.’’ But the stock market was unmoved by sentimentality, and the closure of a corner coffee shop meant one less competitor for Starbucks.

Siegel went on to say that in contrast to the Great Recession, which was arguably touched off by a housing bubble, this crisis was not a result of excesses built up in the economy. Rather, it was caused by an ‘‘exogenous shock’’ that hit an economy that was on otherwise solid footing. He said investors were anticipating that the economy would resume its upward trajectory once the virus was under control. ‘‘We had a very vibrant, very good economy beforehand,’’ he said, ‘‘and they’re saying that we can return to that in a couple of years.’’

I mentioned an interview that he did with MarketBrief in January, in which he said the Dow could reach 40,000 within five years. I asked if he was sticking by his prediction.

‘‘Yes, it’s still possible,’’ he said, though he allowed that the severity of the economic downturn would possibly slow the market’s ascent. ‘‘This set it back maybe two or three years.’’

The floor of the New York Stock Exchange is still considered a symbol of American capitalism, a shrine to its vitality and ingenuity. Its actual significance is greatly diminished these days, however, and not just because most trading is now done electronically. A primary function of the stock market is supposed to be the allocation of capital to help companies grow. Yet fewer and fewer companies seem to want the market’s help. In 1997, there were roughly 7,500 publicly traded companies in the United States. That number has since fallen by half, to around 3,600 — a startling trend when you consider that the economy has more than doubled in size over the same period. How is it that the stock market lost so many listed companies at a time when the economy was growing so much larger, and where have they all gone? Some are no longer in business, while more than a few have been swallowed up through mergers or acquisitions. Lately, though, the decline has been driven by the growing allure and financial muscle of private equity and venture capital. Private equity is now a $5 trillion market, having increased threefold over the last two decades, according to a Milken Institute study, and there are now nearly 8,000 private-equity-owned companies in the United States, quintuple the number at the start of the 2000s.

The appeal of private capital is obvious: Firms can obtain the funding they need without having to meet what they see as the onerous regulatory requirements of the public equity markets or having to answer to pesky Wall Street analysts. A few years ago, Elon Musk gave voice to this sentiment when he announced via Twitter that he was taking Tesla private (he reversed course, but that didn’t stop the Securities and Exchange Commission from suing him for misleading investors, a case he settled for $20 million). These days, many promising companies are bypassing the public equity markets as money continues to pour into the private market from institutional investors and wealthy individuals seeking higher returns. An Ernst & Young study from last year claimed that the public-to-private trend represents ‘‘one of the most profound shifts in the capital markets since the 19th century.’’

So, if companies are increasingly meeting their financing needs elsewhere, it seems fair to ask what exactly the point of the stock market is these days. The growth of high-frequency trading, in which players dart in and out of the market seeking to profit from the tiniest price discrepancies, certainly lends credence to the idea that the market is now little more than a glorified casino. Some observers, though, contend that it actually serves a more nefarious purpose — that the market, instead of directing capital to its most productive uses, has essentially become a mechanism for draining capital out of the economy in order to funnel ever more of the nation’s wealth upward. This is being done, goes the argument, primarily through stock buybacks — companies repurchasing their own shares.

That’s not a new argument. The financial journalist Doug Henwood made the same case in his 1997 book, ‘‘Wall Street: How It Works and for Whom,’’ which offered a lucid and meticulously detailed critique of what he called ‘‘stock-market-centered capitalism.’’ Henwood’s main contention was that the actual purpose of the market was not to distribute capital efficiently but rather to make the rich richer — to ‘‘maximize the wealth and power of the most privileged group of people in the world, the creditor-rentier class,’’ as he put it. At a time when the dot-com boom was driving Wall Street to record highs and the Dow was becoming a national obsession, Henwood’s book was almost a form of dissident literature — and the fact that he was a self-declared Marxist added to its subversive edge.

Henwood highlighted the role of stock buybacks, through which companies reduce the number of available shares on the market in order to raise the price. This practice was effectively banned after the 1929 crash because regulators saw it as a form of stock manipulation. But that restriction was lifted in 1982 as part of the financial deregulation that started under the Reagan administration. During the 1980s and ’90s, as ‘‘shareholder value’’ — the idea that a company’s primary obligation is to generate returns for its owners — became a mantra of American business and executive compensation was increasingly linked to a firm’s stock price, buybacks surged. Henwood noted that between 1984 and 1997, U.S. corporations repurchased $864 billion worth of their own shares.

Now consider this: Yardeni Research reports that in 2019 alone, U.S. companies in the S&P 500 bought back $728.7 billion of their own stocks, which is equivalent to 3 percent of the country’s G.D.P. Not only that: According to Goldman Sachs, buybacks constituted the single-largest source of demand in the stock market, which was also the case in two of the previous three years. This was a period in which the stock market gained around 65 percent. To the extent that buybacks helped fuel the run-up, it suggests that the market was really just a hall of mirrors.

The defense of buybacks — and the practice has plenty of defenders, including Warren Buffett — is that if a firm can’t find productive uses for all the profit it has earned, it is obliged to give the surplus to its investors, who can then put the money into the economy in other ways. Jeremy Siegel told me that buybacks are ‘‘totally misunderstood. They get a bad rap.’’ He said that companies ‘‘invest their profits when it is profitable to invest’’ and return the money they can’t spend to shareholders, either through dividends or buybacks — and because buybacks offer a tax advantage over dividends, they have become the preferred means of distributing excess profits.

Whatever the reason, some estimates indicate that between buybacks and dividends, the largest U.S. companies returned roughly 90 percent of their earnings to shareholders in the last decade. That’s money that could have been used to give employees a raise, or to increase spending on research and development, or to cushion a future downturn, but instead it went to investors. And when you consider how generally modest economic growth has been in recent years (despite President Trump’s boasts to the contrary) and the country’s anemic productivity growth, the buyback binge seems even harder to justify.

Nick Hanauer, a Seattle venture capitalist who was one of the original investors in Amazon, has become a fierce critic of buybacks. When we spoke recently, he recalled serving on several corporate boards and being asked to approve stock buybacks. At the time, he thought they were ‘‘isolated acts of desperation and stupidity,’’ as he put it. He was stunned when he discovered how prevalent the practice was. In Hanauer’s view, buybacks are just a form of looting and represent ‘‘one of the biggest grifts in contemporary economic life.’’ He said the reason companies had so little need to reinvest their profits was that four decades of what he called ‘‘wage suppression’’ has been a check on consumer demand. ‘‘The less you pay people, the less they buy, the less average demand there is in the economy and the less reason you have to invest in increased productive capacity,’’ he said.

Even including 401(k)’s and individual retirement accounts, only 55 percent of Americans are investors in the market, according to Gallup, down from 62 percent in the early-to-mid 2000s — and not surprisingly, stock ownership has become even more concentrated in the hands of the affluent during this period. The New York University economist Edward Wolff has pointed out that as of 2016, the wealthiest 10 percent of Americans owned, in dollar terms, 84 percent of the total stock held by U.S. households. And it seems likely that as a result of the current crisis, even fewer Americans will have money to invest, and the rich will end up with an even larger share of the market.

But that’s just one more thing the market has brushed aside since mid-March. It’s possible that stocks will tumble again. Some of the biggest names on Wall Street, like Stanley Drucken-miller and David Tepper, have suggested that the market is overvalued, and their skepticism might sober up other investors. Or it could be that the market is simply telling us something we intuitively know: that the strong will emerge from the current crisis even stronger and the rich will grow even richer. Amazon’s share price is up 45 percent since the market bottomed out on March 18 and just reached an all-time high. According to a new study, Jeff Bezos has added another $34.6 billion to his net worth.

Perhaps one lesson this crisis can reinforce is that we should stop thinking of the stock market as a barometer of national prosperity. Maybe it served that function in the past, but it doesn’t now. Instead, the market has become an emblem and engine of American inequality. In that sense, its performance in recent months reflects our reality all too well.
 

JayDubya

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US Imports Record Amount of Gold From Switzerland as Virus Upends Trade

https://www.voanews.com/economy-bus...witter&utm_medium=social&utm_campaign=dlvr.it

LONDON - Swiss exports of gold to the United States leapt to 111.7 tons in April -- by far the biggest monthly total on record -- while shipments to other destinations dwindled, customs data showed on Tuesday.

The global gold market has been turned on its head by the novel coronavirus, with demand in China and India collapsing due to lockdowns while in the West investors rushed to buy bullion as a safe asset to weather a period of financial turmoil.

High prices on CME Group's Comex exchange spurred shipments to New York.

Switzerland, a major trading, vaulting and refining center for precious metals, exported a total of 131.8 tons of gold in April, up from 96.2 tons in March but slightly lower than in April 2019.

The United States, which typically imports less than a ton of gold a month from Switzerland, accounted for 85% of that total.

Switzerland meanwhile shipped 500 kgs (0.5 tons) of gold to India, 1 kg to Hong Kong and no gold at all to China in April. Each of these destinations usually receive tens of tons of metal from Switzerland each month.
 

Scorpio

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current mort rates,

for 30 yr they are showing around 3.5%
and for 15yr they are showing around 2.75-3.0%

the 10 year spiked on this flu nonsense and has since stayed there,
while the 30 yr has come off its lows in rates, high in price a bit


1.png


30yr.png
 

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for gold to be getting new legs, need a break above the 1776 level

gold.png
 

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for silver, has broken the 18 and holding well above now finally,

going back to take another shot at that 19 level to see if it too can break out to new highs for the move

July silver got to 18.95 on the overnights before being repelled,
whether temp or just an initial thrust will reveal soon,


2.png
 

ErrosionOfAccord

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Wouldn't the TA guys call that silver chart bearish or, do I just suck at TA?
 

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just taking a quick look at metals

the ride up after the collapse back in march has been sharp and swift,
the rise in gold and silver were both capped at the top of their ranges,
then seemingly large decreases, yet on the charts, the severity really isn't there,
for now, just a correction after a nice run,

gold broke thru support at 1700, and now easily can go to 1650 to 1640 without really damaging the charts,

silver took a dive off 19, but that was just the top of the recent range,
mid 17's currently, but can make a run down to mid 16's again without creating much of a stir,

so if one is a buyer, those would be the areas I would be looking at,
weekly charts follow

gold.png


week silver.png
 

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gold broke thru support at 1700, and now easily can go to 1650 to 1640 without really damaging the charts,

silver took a dive off 19, but that was just the top of the recent range,
mid 17's currently, but can make a run down to mid 16's again without creating much of a stir,
I concur, Scorpio. 1660 support on Au and 16.50 for Ag on my charts.
 

Scorpio

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AuMyn,

yep, those are the areas I am looking at as we get our summer break in the action
 

JayDubya

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Doug Casey on Rent Strikes, the Erosion of Property Rights, and What Comes Next

International Man: In recent months, "rent strikes" have emerged in many cities. There has also been an increasing number of politicians suggesting they’ll pass laws to force landlords to "cancel rent."

What is your take on this?

Doug Casey: Property rights are basic to human rights. In fact, it doesn’t make any sense to talk about human rights unless you talk about property rights.

Your primary form of property is your own body. But things outside of your body are equally as important. You can’t survive without possessions, things that belong to you alone, and that you are responsible for. "Rent strikers"—who are philosophically aligned with socialists, communists, Antifa, Black Lives Matter, and similar groups— don’t see it that way, however. They believe their problems are your problems. They’re completely irresponsible.

They seem to think that saying something, no matter how irrational, can make it so. And saying that you shouldn’t have to pay rent makes it possible to roll back the laws of economic reality.

Of course, the whole world has pretty much gone on tilt over the last six months. Not paying agreed-upon rents and mortgages is economically destructive. But that’s exactly the result these people want. It’s a step to completely overturning what’s left of capitalism. That’s bad enough. But saying you don’t have to meet your obligations is simply dishonorable. These people shouldn’t be taken seriously but treated with contempt.

International Man: In New York, the government instituted an eviction freeze. Without fear of eviction, many tenants felt they didn’t need to pay rent.

Without rent money, landlords won’t be able to pay their mortgages, their ever-increasing property taxes, and will be unable to meet their other obligations.

How do you see the daisy chain effects playing out?

Doug Casey: It’s predictable, actually. People seem to have forgotten what a dump most of New York City was turning into during the ’70s. Many—perhaps most—apartments were rent-controlled. As a result, landlords were both unwilling and unable to maintain their properties. Nobody was building new ones. The city was crime-ridden and on the edge of bankruptcy. Those days may return.

But it all starts with education.

The last several generations of Americans have grown up in a school system which basically teaches Marxist values. The average American no longer sees any problem with that. People have been completely indoctrinated with perverse views of ethics, economics, politics, and how the world works.

It’s going to end badly. And I’m not just talking about the average man in the street. The executives running major corporations support all of this nonsense and run commercials promoting it. The colleges, and even high schools and grade schools, promote it to students. The news and entertainment industries are totally PC.

The battle has really been lost. Things are likely to keep degenerating because trends in motion tend to stay in motion until they reach a crisis, at which point anything can happen.

So what are the practical effects of this?

Well, one of them is that landlords will stop building because they can see that the rental return on their capital is uncertain. Building is risky enough, but if the sanctity of contracts is broken, it becomes extremely risky.

Even if an entrepreneur wants to build, banks will be very loath to lend on projects for exactly the same reason: they may not get their money back.

The government has painted itself into a corner with all of the debt that it’s encouraged in society over many years.

We might have 20 million families who can’t pay their mortgage or their rent. This is a real possibility if unemployment doesn’t turn around radically and quickly. If they’re evicted, where are they going to go?

Are they going to live under bridges or on sidewalks? Or will they stay where they are, rent-free? Of course the answer is that the government will "step in." Both renters and landlords will beg them to. And it’s not just a question of paying the rent; there are utilities to be paid as well. There are thousands of electric, gas, and water utility companies who will lobby for it.

So who’s going to eat the cost of all this—the vast numbers of people that were living just on the edge and have now gone over the edge? I suspect this is the next stage of the Greater Depression—one that nobody wants to confront because it’s too scary.

The way to solve the problem, of course, is by deregulating everything. Let the market restructure; let bankruptcies happen; let evictions occur. That should have happened in past crises—but every time, they’re papered over instead. Now the problem is so huge as to be insoluble, short of a real conflagration. Governments are actually cementing the distortions in place, however. It’s perverse since they caused these problems to start with.

I'm not sure how it’s going to end. We had overtures of a socialist revolution in the ’30s. It was even more serious in the late ’60s and early ’70s. This time, things might truly go over the edge for the reasons I touched on and many more.
International Man: What does the growing popularity of rent strikes mean for American society and culture?

Doug Casey: As I said before, the entire society has been corrupted over the last several generations with Marxist and socialist values.

One consequence of that is a breakdown of trust.

Unless you know another person well, you really don’t know if you can trust them. What happens if government steps in and says, "The fact that they made a contract with you means nothing. They don’t have to pay their rent or their mortgage. Not only won’t we help you, we’ll work with them, since they have more votes"?

When you don’t have trust in society, titles become insecure. You can’t believe anything, even if it’s written down on a piece of paper. You find you may not really own what you thought was yours.

In the years to come, a whole new class of Americans could, in effect, become squatters.

In other words, the many thousands of people who are living on the streets in major cities are squatting on public property. Millions who can’t pay the rent or the mortgage might also become squatters, not just on public property but on private property.

This is one of the reasons why Africa and Latin America never go anywhere. It’s why Haiti is going in reverse. When property rights aren’t observed, it becomes impossible to plan.

You can’t have a sophisticated industrial, technological society if you can’t make plans. If you can’t rely on institutions, on laws, on other people’s words, or rely on traditional social bonds, then society itself can break down.

This is how a country degenerates into a place like Haiti. I’ve been there numerous times over—believe it or not—the last 50 years. It was always poor, but now it’s a genuine hellhole for exactly the causes we now see in the US.

International Man: Tenants and landlords have both called for government bailouts. How do you think that will play out?

Doug Casey: It really is funny. Everybody wants to be bailed out, absolutely everybody.

In a way, I can understand it. Everybody would like to not work, sit around in Starbucks all day, and play games on their iPhones. For years, I’ve said that societal values are eroding, and Western civilization is degrading and collapsing. But the process has gone into hyperdrive.

I’ll give you an example.

In 1980, the day before the national elections, when Reagan was elected, I did an hour interview on the Phil Donahue Show.

The most interesting part of that very entertaining show occurred when I was explaining exactly the kind of problems that we’re now talking about to the audience. A guy in the audience stood up and asked, "Well, wait a minute, why do we have to pay for this stuff? Why can’t the government pay for it all?"

The question was stupid enough, but the really shocking thing was that the audience all clapped and cheered for him. A completely insane comment that showed no understanding of anything and the crowd went wild.

Here’s another odd thing. That tape of the Donahue Show is excellent, but for some reason, the guy’s comment and the crowd’s reaction was edited out—I’m not sure why, or by who. But the point I’m trying to make is that, even then, the public had no understanding of economics.

Since then, their understanding has degraded much more—to the point people are actually talking seriously about things like Modern Monetary Theory and Guaranteed Basic Income. Actually, we're seeing the overture to both now, with the multi-trillion Everything Bailout and the $600 per week Unemployment Boost program.

The American public actually believes that the government is a magic cornucopia.

Although most politicians also believe that, they’re cynical and duplicitous enough to realize that the main purpose of government is to enrich themselves. So, of course, they want to turn socialist theories into law. It’s a real free lunch for them, and it seems like a free lunch to the boobs voting for them. This is actually how a civilization collapses. The situation is much more serious than the riots and inconveniences we’re now experiencing.

Let me go off on a slight tangent here—but one that’s basic and critical. It’s important to emphasize that government is pure force by its nature. A civilized society, however, wants to limit force as much as possible.

If that’s true—and it is—then government should do only three things:

First, protect you from force and violence within the country—which implies a police force.

Second, it should allow you to adjudicate disputes with each other without resorting to force—which implies a court system.

Third, it should protect you from force outside of the country—which implies an army.

The government should do absolutely nothing else.

But in today’s world, it actually does everything but those things. That’s an important part of the problems we’re seeing. Government isn’t viewed as a tool to maintain a civil society, but a weapon to destroy it.

International Man: Given the trends playing out with the rent strike, what are the investment implications?

Doug Casey: The first thing is, don’t pay any attention to the stock market. It’s been totally corrupted by all the money that’s spewing out of Washington DC.

The price of stocks and bonds today, the level of interest rates—these things no longer have anything to do with reality. Honest markets have ceased to exist. It’s going to be a really painful comeuppance for those who think we’re still in a bull market.

But, to return to our original topic, why stop with rent? Why stop with mortgages and utilities? 40 million US residents are getting free food. Why not everyone? Rioters say everyone has a "human right" to free food, housing, medical care, and a college diploma. They never ask "At whose expense?". In fact, the only sane "human right" is to be left alone.

Automobiles today cost as much as houses not long ago. There’s a giant amount of automobile debt, apart from the fact most people today lease their cars. Cars have gone from a small asset on the average guy’s balance sheet to a major liability. If Joe Average can’t make his car payment, he likely can’t get to work—assuming he still has a job.

In any event, car payments are now so large; they’re tantamount to mortgages. They run for seven years in many cases, with next to nothing for a down payment. Few people realize that when banks first started granting mortgages on houses, they were only for five-year terms, with at least 20% down…but that’s now ancient history.

Maybe the government should pay for car loans as well. And, certainly, student loans.

If you can’t pay your credit card debt, maybe it ought to be forgiven in some type of a jubilee. Anything is now possible in Bizarro World, where personal responsibility is an alien concept.

From an economic perspective, it brings us back to the question of what the next stage of the Greater Depression will look like. Will there be a credit collapse—where trillions of dollars of debts are defaulted on, and prices drop? Or are we going to have hyperinflation if the government succeeds in bailing everybody out?

Or will these things happen simultaneously in different parts of the economy? Or in sequence?

Whatever it is, we’re looking at chaos.

I have little confidence in a meaningful near term recovery of the economy and zero confidence in the current recovery of the stock market.
 

Uglytruth

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My sister & I own my brothers home. Property taxes came today and are his responsibility. I sent him & his wife a text. Reply was I thought because of the corona I had an extra 6-8 weeks. So I called the office. Nope! July 10th.

I think a lot of people will be in trouble. 3 mil not making mortgage payments & 15 mil not making credit card payments.
Something is going to break!
 

Scorpio

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yields on 10 yr went negative in March, then came back after fed dropped to zero,
currently running in the .75% area,

was actually approaching 1% recently before the next turn down, coupled with todays decreases in stocks,

fed announced bad news and no reason to change strategy at this time, and rates have been somewhat capped and relatively stable

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