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Blain: “Markets Are Still In Denial/Fool-Themselves Mode”

Blain: "Markets Are Still In Denial/Fool-Themselves Mode"

Authored by Bill Blain via,

“Cheer up my lads ‘tis to glory…



Blain: "Markets Are Still In Denial/Fool-Themselves Mode"

Authored by Bill Blain via,

“Cheer up my lads ‘tis to glory we steer, to add something new to this wonderful year…”

Stocks tumbled 20% in H1, but Central Banks are fixated on Inflation as the No 1 priority with higher interest rates nailed on. Supply chain issues remain difficult, meaning corporate earnings will remain under pressure. The market is setting up for further weakness through H2.

It’s the last day of June, the end of the 2nd Quarter of this inglorious year, and the headlines sum up the mood: Banks are warning of recession, Tesla is laying off staff from its Autodrive division (really? I thought that was what justified it’s 100 times P/E?), petrol prices at the pump are putting on a new high. Or how about Morgan Stanley warning the price of Carnival Cruise could tumble to zero if recession triggers a major demand shock.. High probability then…

Will things get any better in the second half of the year?

Probably not.

Jay Powel said it all: The process is highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent” Inflation is Central Banks number one concern – not addressing the market declines we’ve seen in the first half. We’re expecting a series of large hikes in interest rates through the summer – even the ECB!

Yet, Markets are still in denial/fool-themselves mode. Markets tend to accentuate the positive and, in doing so remain largely unaware of reality. But at some point reality and inflated hopes tend to collide. Usually painfully.

I’m guessing, but I have a gut-feeling the coming July earnings season could be the straw that triggers the next leg down. The results news-flow will be subtle, and its unlikely to be a succession of disastrous results – just a stream of not-quite-as-good-as-expected numbers. Cumulatively, the news trend will confirm companies are struggling more than anticipated with the consequences of high staffing costs and low availability, high inventories and the need to discount, falling demand on the back of the inflation shock, and ongoing supply chain issues.

Listen very closely to what CEO’s are really saying, and strip out what they want you to hear. Get past the corporate blandishments and it could reverse years of blithe expectations. It’s going to highlight just how badly the real world is still misfiring. (There is a developing sub-text to the corporate outlook – the increasing untenability of highly levered Zombies.. the first, like Revlon have already stumbled.)

Think back to the Pandemic. When it began in March 2020 the stock market took a massive dip. And then it went steadily higher and higher – fuelled by expectations of swift recovery once Covid was beaten. Positive news – like vaccine tests, airports reopening or falling infections were each greeted by rallies. Traders and professional investors talked about how the wall of pandemic savings would create a post-pandemic boom.

The real question to ponder is… why were markets so wrong? Now we look headed for recession. It’s not just the Ukraine energy and food inflation stocks. Much of it boils down to still broken global supply chains.

One of the surprising things I’ve learnt over nearly 40 years about the business of finance is how little investment bankers actually know about the real world. They experience little real “friction” in the business of moving assets around an electronic balance sheet, or calculating returns on a laptop. This morning I have experienced friction because my Laptop had a hissy fit. I was about to punch it before our IT guy bravely stepped in….

In the real world there is tremendous friction in every single part of all transactions – loading a ship, putting cargo on a plane, getting goods shifted from A to B, waiting for parts, waiting for payments, dealing with customers, building products and selling them. It’s difficult. Yet, friction played little part in the markets analysis of the pandemic. Analysts straight out of Investment Management school have diddly-squat idea about the real world.

Even now I don’t think the “market” understands the real economy. It’s still poised for a buying opportunity – looking for signals the bottom has passed and it’s time to buy. I read loads of research about why markets may go up, and look at pages of overweight recommendations and just a few lines of underweight. The market remains highly biased to the upside.

That’s the real divergence in the economy – what the market thinks is happening, and what actual people on the ground actually see… Let me digress for a moment and try to explain the divergence:

For the first 20 years of my inglorious career in finance I spent 99% of my time speaking to fellow finance professionals – traders, salesmen, economists all pushing whatever the investment banking line was. I then relayed these perspectives to my clients in the debt capital markets; Bank Treasurers, CEOs, Investment Firm Economists and Strategists, Portfolio Managers and funding bosses. I existed in a groupthink bubble comprising entirely financial market participants. I thought, acted and behaved like a financial professional clone.

It took me years to realise just how conditioned I had become.

I was lucky. Writing the Morning Porridge since 2007 – and being a natural cynic – has helped. I was lucky to retain just enough disbelief to realise how fundamentally broken financial markets were by the Global Financial Crisis in 2008. My blinkers over investment banking were lifted after the bank I’d led from zero to top 3 in the Financial Institutions business sacked me for “not fitting in.” I perceived just how distorted markets became as a result of regulation, monetary experimentation and QE.

I broke out the bubble. As financial markets became more and more distorted, I started to look for opportunities in real assets rather than financial assets. It’s been fascinating.

Since 2009 I’ve been fortunate to spend an increasing amount of my time talking to real people with real jobs in the real economy. I chat to real entrepreneurs and businesses looking for finance and meeting a whole range of executives, engineers, marketing managers, retail leaders, designers and guys who actually make stuff. A brush with illness brought me to Earth, meeting doctors able to explain not only why I wasn’t working, but the issues with heath provision. Talking to real nurses, brickies, chippies, and artisans has been extraordinary.

I now find it’s difficult to take all finance professionals seriously. It’s been a learning curve about friction.

Pandemic reality slows and there still aren’t enough ships, lorry drivers, pilots, baggage handlers… As shortages bite, inflation rises, we get further exogenous shocks, and a cost-of-living crisis develops. Firms suddenly find themselves with over-ambitious inventories, and suddenly there is talk of companies dumping stock, meaning they miss margins. As interest rates soar to address inflation, zombie companies that leveraged themselves up to buy back their own stock suddenly find themselves busting. (There just is not enough worry about how the junk sector is likely to fare.)

And supply chains are not fixed.

Speak to real economy professionals and they will tell you rising labour costs, rising energy costs, rising logistical costs, rising transport costs, ongoing shortages of key parts, longer lead times for parts, ongoing supply disruptions, rising inventory levels, rising tariffs and barriers to trade, increasing red-tape, geopolitical uncertainty, right down to their simply not being enough space to store components in what was once a just-in-time based factory… and it’s all a recipe for a broken economy.

Compare and contrast to what the market expected and believed would happen – a frictionless reopening of the post-pandemic economy, and what we actually have: ongoing supply chain disruption and friction. All it takes is a few missing containers, a delayed ship (because it slowed down because fuel costs soared), or a container pork blocked because there aren’t enough lorry drivers. One pebble quickly becomes a landslide.

Real businesses are addressing it – they are solving problems ranging from storage space, using smart data, communications, planning and new supply chain approaches. If a particular chip is unavailable and irreplaceable, they find a work around – even it means delaying deliveries. Its tough. They know it may take years because it’s not just supply chains that are changing – its terms of trade, trade routes and costs. Markets assume it will just happen – probably tomorrow or the day after. No it won’t.

And ongoing supply chain crisis is just one aspect of what markets aren’t grasping in terms of the economic reality out there… The inflation shocks from Energy, Food and now Wages. These are real and long-term. They were never transitory.

One of the aspects of the coming Carnival Lines dunking will be its coming liquidity crisis on the back of rising interest rates and crashing customer demand. Morgan Stanley point out it has $30 bln of debt and “unsustainably” high leverage. As its’ stock prices continues on a downwards spire, then raising new equity will be dilutive and costly. You can bet its not the only firm in trouble!

Tyler Durden Fri, 07/01/2022 - 11:05

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Reduced myocardial blood flow is new clue in how COVID-19 is impacting the heart

Patients with prior COVID may be twice as likely to have unhealthy endothelial cells that line the inside of the heart and blood vessels, according to…



Patients with prior COVID may be twice as likely to have unhealthy endothelial cells that line the inside of the heart and blood vessels, according to newly published research from Houston Methodist. This finding offers a new clue in understanding covid-19’s impact on cardiovascular health.

Credit: Houston Methodist

Patients with prior COVID may be twice as likely to have unhealthy endothelial cells that line the inside of the heart and blood vessels, according to newly published research from Houston Methodist. This finding offers a new clue in understanding covid-19’s impact on cardiovascular health.

In a new study published today in JACC: Cardiovascular Imaging, Houston Methodist researchers examined the coronary microvasculature health of 393 patients with prior covid-19 infection who had lingering symptoms. This is the first published study linking reduced blood flow in the body and COVID-19.

Using a widely available imaging tool, called positron emission tomography (PET), researchers found a 20% decrease in the ability of coronary arteries to dilate, a condition known as microvascular dysfunction. They also found that patients with prior COVID-19 infection were more likely to have reduced myocardial flow reserve – and changes in the resting and stress blood flow – which is a marker for poor prognosis and is associated with a higher risk of adverse cardiovascular events.

“We were surprised with the consistency of reduced blood flow in post covid patients within the study,” said corresponding author Mouaz Al-Mallah, M.D., director of cardiovascular PET at Houston Methodist DeBakey Heart and Vascular Center, and president elect of the American Society of Nuclear Cardiology. “The findings bring new questions, but also help guide us toward further studying blood flow in COVID-19 patients with persistent symptoms.”

Dysfunction and inflammation of endothelial cells is a well-known sign of acute Covid-19 infection, but little is known about the long-term effects on the heart and vascular system. Earlier in the pandemic, research indicated that COVID-19 could commonly cause myocarditis but that now appears to be a rare effect of this viral infection.

A recent study from the Netherlands found that 1 in 8 people had lingering symptoms post-covid. As clinicians continue to see patients with symptoms like shortness of breath, palpations and fatigue after their recovery, the cause of long covid is mostly unknown.

Further studies are needed to document the magnitude of microvascular dysfunction and to identify strategies for appropriate early diagnosis and management. For instance, reduced myocardial flow reserve can be used to determine a patient’s risk when presenting with symptoms of coronary artery disease over and above the established risk factors, which can become quite relevant in dealing with long Covid.

Next steps will require clinical studies to discover what is likely to happen in the future to patients whose microvascular health has been affected by COVID-19, particularly those patients who continue to have lingering symptoms, or long COVID.

This work was supported, in part, by grants from the National Institutes of Health under contract numbers R01 HL133254, R01 HL148338 and R01 HL157790.


For more information: Coronary microvascular health in patients with prior COVID-19 infection. JACC: Cardiovascular Imaging. (online Aug. 16, 2022) Ahmed Ibrahim Ahmed, Jean Michel Saad, Yushui Han, Fares Alahdab, Maan Malahfji, Faisal Nabi, John J Mahmarian, John P. Cook, William A Zoghbi and Mouaz H Al-Mallah. DOI:


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War, peace and security: The pandemic’s impact on women and girls in Nepal and Sri Lanka

The impacts of COVID-19 must be incorporated into women, peace and security planning in order to improve the lives of women and girls in postwar countries…



Nepalese girls rest for observation after receiving the Moderna vaccine for COVID-19 in Kathmandu, Nepal. (AP Photo/Niranjan Shrestha)

Attention to the pandemic’s impacts on women has largely focused on the Global North, ignoring countries like Nepal and Sri Lanka, which continue to deal with prolonged effects of war. While the Nepalese Civil War concluded in 2006 and the Sri Lankan Civil War concluded in 2009, internal conflicts continue.

As scholars of gender and war, our work focuses on the United Nations Security Council Resolution 1325 on women, peace and security. And our recently published paper examines COVID-19’s impacts on women and girls in Nepal and Sri Lanka, looking at policy responses and their repercussions on the women, peace and security agenda.

COVID-19 has disproportionately and negatively impacted women in part because most are the primary family caregivers and the pandemic has increased women’s caring duties.

This pattern is even more pronounced in war-affected countries where the compounding factors of war and the pandemic leave women generally more vulnerable. These nations exist at the margins of the international system and suffer from what the World Bank terms “fragility, conflict and violence.”

Women, labour and gender-based violence

Gendered labour precarity is not new to Nepal or Sri Lanka and the pandemic has only eroded women’s already poor economic prospects.

Prior to COVID-19, Tharshani (pseudonym), a Sri Lankan mother of three and head of her household, was able to make ends meet. But when the pandemic hit, lockdowns prevented Tharshani from selling the chickens she raises for market. She was forced to take loans from her neighbours and her family had to skip meals.

Some 1.7 million women in Sri Lanka work in the informal sector, where no state employment protections exist and not working means no wages. COVID-19 is exacerbating women’s struggles with poverty and forcing them to take on debilitating debts.

Although Sri Lankan men also face increased labour precarity, due to gender discrimination and sexism in the job market, women are forced into the informal sector — the jobs hardest hit by the pandemic.

Two women sit in chairs, wearing face masks
Sri Lankan women chat after getting inoculated against the coronavirus in Colombo, Sri Lanka, in August 2021. (AP Photo/Eranga Jayawardena)

The pandemic has also led to women and girls facing increased gender-based violence.

In Nepal, between March 2020 and June 2021, there was an increase in cases of gender-based violence. Over 1,750 incidents were reported in the media, of which rape and sexual assault represented 82 per cent. Pandemic lockdowns also led to new vulnerabilities for women who sought out quarantine shelters — in Lamkichuha, Nepal, a woman was allegedly gang-raped at a quarantine facility.

Gender-based violence is more prevalent among women and girls of low caste in Nepal and the pandemic has made it worse. The Samata Foundation reported 90 cases of gender-based violence faced by women and girls of low caste within the first six months of the pandemic.

What’s next?

While COVID-19 recovery efforts are generally focused on preparing for future pandemics and economic recovery, the women, peace and security agenda can also address the needs of some of those most marginalized when it comes to COVID-19 recovery.

The women, peace and security agenda promotes women’s participation in peace and security matters with a focus on helping women facing violent conflict. By incorporating women’s perspectives, issues and concerns in the context of COVID-19 recovery, policies and activities can help address issues that disproportionately impact most women in war-affected countries.

These issues are: precarious gendered labor market, a surge in care work, the rising feminization of poverty and increased gender-based violence.

A girl in a face mask stares out a window
The women, peace and security agenda can help address the needs of some of those most marginalized. (AP Photo/Niranjan Shrestha)

Policies could include efforts to create living-wage jobs for women that come with state benefits, emergency funding for women heads of household (so they can avoid taking out predatory loans) and increasing the number of resources (like shelters and legal services) for women experiencing domestic gender-based violence.

The impacts of COVID-19 must be incorporated into women, peace and security planning in order to achieve the agenda’s aims of improving the lives of women and girls in postwar countries like Nepal and Sri Lanka.

Luna KC is a Postdoctoral Researcher at the Research Network-Women Peace Security, McGill University. This project is funded by the Government of Canada Mobilizing Insights in Defence and Security (MINDS) program.

Crystal Whetstone does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Target Sets Sights on Holiday Season, Has Plan for High Inventory

Target said that it still expects spillover from inventory rightsizing to the tune of $200 million in the third quarter.



Target said that it still expects spillover from inventory rightsizing to the tune of $200 million in the third quarter.

Target's  (TGT) - Get Target Corporation Report strategy is paying off as the company's stock falls on heavy volume following its earnings release. 

Normally, a profit miss as wide as Target's, 39 cents per share vs. expectations of 72 cents per share, would result in a bigger drop than Target's, but the retailer has been prepping the market for this miss all summer. 

The inventory the company built up during the height of the pandemic, as Americans shopped more from home, needs to go, and the only way get rid of the excess product is deep discounts. 

"Back in June, we announced that our team would be undertaking a bold effort to rightsize our inventory position in the categories for which demand patterns have radically changed," CEO Brian Cornell said during the company's earnings call. "While this decision had a meaningful short-term impact on our financial results, we strongly believe it was the best path forward."

Now, looking forward the company sees some overhang for the third quarter, but expects a big holiday season ahead. 

While some fear a recession and what it might do to the economy, Target is convinced that the holiday season will be strong.

Image source: John Smith/VIEWpress.

Target Aims for Holiday Season

While Target is focused on the back-to-school season currently underway, the company expects "spillover" from its inventory issues to be present during the third quarter to the tune of $200 million. 

But the company's own checks suggest that its shoppers are excited about the holiday season. 

"The one thing that seems to be very consistent is a guest and consumer who says they want to celebrate the holiday seasons so we certainly expect that they are going to be celebrating Halloween this year and actively trick or treating and hosting parties with friends and family," Cornell said.

"We know they're looking forward to Thanksgiving and they're going to look forward to celebrating the Christmas holidays and that comes down each and every week as we survey consumers and talk to our guests so that gives us great optimism for our ability to perform during these key holiday seasons"

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Not only does Target expect a strong quarter, but the company also expects favorable comps as fourth quarter headwinds from a year ago aren't present this time around. 

"Guests already have their sights set on upcoming holidays and seasonal moments in Q3 and beyond," Cornell said.

Target's Q2 Collapse

Target said adjusted earnings for the three months ending in July were pegged at 39 cents per share, down 89% from the same period last year and well shy of the Street consensus forecast of 72 cents per share.

Group revenues, Target said, rose 3.5% to $26 billion, essentially matching analysts' estimates of a $26.04 billion tally. Target said same-store sales rose 2.6%, again shy of the Refinitiv forecast of 3.2%, while operating margins fell to 1.2%, below the group's July guidance of a 2% level. 

Earlier this summer, Target cautioned that its bigger-than-expected 35% build-up in overall inventories over the first quarter would trigger price cuts, adding that deeper discounts would be needed to shift the excess goods onto a customer base that was already pulling back on discretionary spending.

Walmart  (WMT) - Get Walmart Inc. Report, Target's larger big box rival, said Tuesday that improving spending trends, as well as actions the group has taken to shift excess inventory, will ease some of the pressures it expects to face in terms of overall profits over the back half of the year.

Walmart said adjusted earnings for the three months ended in July came in at $1.77 per share, down one penny from the same period last year but well ahead of the Street consensus forecast of $1.62 per share.

Group revenues, the company said, were tabbed at $152.9 billion, an 8.4% increase from last year that topped analysts' estimates of $150.81 billion. U.S. same-store sales rose 6.5% from last year, the company said, firmly topping the Refinitiv forecast. 

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