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Pondering Pandemia, Politics, & Policy Mistakes In 2022 (But The Credit Market Is The Biggest Risk)

Pondering Pandemia, Politics, & Policy Mistakes In 2022 (But The Credit Market Is The Biggest Risk)

Authored by Bill Blain via MorningPorridge.com,

“Reader, suppose you were an idiot. And suppose you were a member of Congress. But…

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Pondering Pandemia, Politics, & Policy Mistakes In 2022 (But The Credit Market Is The Biggest Risk)

Authored by Bill Blain via MorningPorridge.com,

“Reader, suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself.”

Let me present a list of things to worry about next year. Inflation, US and China growth, Stagflation, Central Banks, Stocks, Climate and Equality, etc, etc.. But the big risks will be the consequences of US Politics and a Liquidity Meltdown in the Credit Markets.

As promised yesterday, ahem, my outlook for 2022: I can state with some certainty that 2022 will begin very early in January and go right through to the end of December…..  Otherwise, take your pick from the following:

I’ve got a number of main themes..

  • Inflation will not be transitory – it will grind away at savings as wage demands, labour shortages, supply chain instability, and energy costs undermine the global economy.

  • Two economies matter – the US will do relatively well. China is going to suffer from major energy dislocation, deepening the global supply chain crisis. Europe – really? UK – please…

  • There is a moderate probability of stagflation – recession plus inflation.

  • Central Banks have limited choices: destroy the global economy long-term by doing nothing to unwind monetary distortion, or destroy the global economy now by normalising interest rates. (Basically..)

  • Stock markets are not at record levels because of productivity gains or soaring earnings, but because money has been overly cheap and central banks accommodative – fuelling the rally. Mean reversion is not a risk – it’s a rule.

  • Credit spreads don’t reflect current real risks, which will magnify as rates rise – Credit Markets are my number one pick for a chronic liquidity crisis.

  • Too much easy money and minimal returns have fuelled massive speculation, financial asset inflation, crushed returns and is generating a pensions crisis.

  • FOMO and social media pressure reached a crescendo with retail desperately gambling on meme stocks and praying that crypto will make them rich. Hope is never an investment strategy.

  • Politics – especially in the US – will have major consequences for markets.

  • Regulatory risk in terms of tech and finance are substantial.

  • Climate change is now recognised as a major risk – policy makers will act.

  • Inequality is an even larger risk – policy makers are unlikely to act.

Let’s start with the big known unknown: Dysfunctional US Politics.

Back in January 2021 we started the year wondering if Donald Trump would actually exit the White House. He did, but left the US bitterly divided and fractional with 70% of his party convinced the election was “stolen”. The Biden administration has singularly failed to pass any meaningful legislation – and the Republicans haven’t had to do much, letting the Democrats beat themselves. There is no Democratic party as such, just different interest groups sailing in different directions.

The Republicans (at this stage) look certain to win both houses in the Nov mid-terms. That’s going to be the big political theme of the year on markets: just how badly Biden will fail and the Republicans are set to benefit.

If a united purposeful Republican party wins, then that’s a good thing? Well… it would be if it wasn’t likely to confirm a succession of voter-registration “laws”, consolidation of electoral power, and gerrymandering of seats designed to ensure the minority US party retains a majority of power. The party remains in thrall of a vengeful Trump setting its agenda, with moderates being forced out. There will be rising fears the failure of the left in the US is pushing the world’s most important economy towards long-term right-wing protectionism and global disengagement.

If we see the US morphing towards a one-party “democratic-state”, or even a Trump dynasty,  markets will probably embrace it, looking forward to tax breaks, subsidies and protections, and a push-back on anti-oil and climate change programmes. Long-term the consequences of a shift to an isolationist right-wing US on geopolitics will be immense. It’s not a pretty vision. All China and Russia have to do is…. wait.

Meanwhile..

Last year I correctly predicted the global economy would stage a swift recovery from the Pandemic lockdowns, but that supply chains were troubled (brought into focus when a container ship blocked the Suez cannal), and inflation would be a rising risk factor through the year. I pointed out Billionaires got $1.9 trillion richer in 2020 on the back of recovering markets. They did it again the year just past. No political party is yet serious about addressing income inequality.

Outlook

We’re heading into a very uncertain year for the global economy and markets in 2022. The fiscal consequences of the pandemic spending bailouts are mixed; on one hand government largesse avoid collapse and actually strengthened fundamentals, but the consequences include soaring wage demands, while rising debt levels terrify many investors. Inflation/Stagflation and renewed Covid recession are also known unknowns.

One immediate issue to deal with will be a winter energy crisis. Markets are vastly underestimating just what higher power prices are going to do to corporate earnings and growth across the globe. Europe is particularly vulnerable, the numbers coming out of China may be even more scary – power outages and serious industrial dislocation (caused by rising prices and their unwise attempts to bully Oz), could rapidly send renewed rounds of supply chain chaos around the globe, triggering a host of consequences.

The dearth of financial asset returns has focused investors on now ways to generate alpha on the investment spectrum. That’s always a risk – new risks require new skills and experience to manage. Some of the return strategies are founded in common sense; generating high returns from negotiated private and structured assets, (equity, debt and hybrid). However, although hopes and dreams seldom pay out, inflated hopes and expectations from “disruptive” technologies, right across to wildly speculative conflabulations like cryptocurrencies and NFTs which few folk understand, but which everyone expects to get rich from – will likely still droive markets in 2022.

Never forget – it’s not what you know about markets and expect that matters, but what the market believes that matters. The market is just a voting machine – and if the voters are daft, then prices might be daft, but the price is the price is the price. As the well known saying goes; the market can remain irrational longer than you can remain solvent. But even daft markets revert to mean stupidity over time. You can speculate and win in the short-term. In the long run, returns are mean reverting and smart long money generally wins.

So… some quick thots on two dominant other trends likely to set the story of 2022:

The risk of Policy Mistakes

There is a significant risk parts of the global economy could tip into Stagflation triggered by further Covid induced slowdowns and/or policy errors by central banks and governments raising taxes, austerity spending and overly aggressive tightening too early. Policy mistakes will remain a major fear through the new year.

The big risk for the year? Credit

At its core the credit market is broken. Credit Spreads no longer reflect real risks – they gave up doing so sometime after Central banks took over being the market. Now they simply reflect misperceived relative interest rates vs other financial assets. Ultra-low rates have distorted the business cycle – allowing failing firms to survive longer. The market sees lower default rates as positive signal of corporate resilience rather than a signal of something fundamentally wrong. (There you are, my Big Short trade: sell mispriced credit…)

When the whole market is missing debt fundamentals like the capacity to repay debt, the strength of future earnings, and resilience (ie, all the old-fashioned stuff about lending to firms with effective management with a high propensity to repay lenders), then it’s time to be betting against them.

Default risks look to be relatively low, but Zombie overleveraged firms that have beggared themselves via stock buybacks and are now clinging on due to absurdly low rates will clearly suffer as rates rise, and face financing risks in a diminished liquidity environment.. (Which will occur as rates rise.)

But if you want to sell credit… who will buy? Regulation means there is no market making, and if central banks stop buying, the smart money will already be out. The market will go offered only. Anyone left in will find liquidity as rare as an ice-cube in hell.

And on that happy note…. There are a host of other topics I need to cover like energy transition, climate threats and change, growth, the taming of ESG, and many more. I will write about them all in the porridge through the coming year…

Tyler Durden Wed, 12/15/2021 - 06:30

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International

Beloved mall retailer files Chapter 7 bankruptcy, will liquidate

The struggling chain has given up the fight and will close hundreds of stores around the world.

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It has been a brutal period for several popular retailers. The fallout from the covid pandemic and a challenging economic environment have pushed numerous chains into bankruptcy with Tuesday Morning, Christmas Tree Shops, and Bed Bath & Beyond all moving from Chapter 11 to Chapter 7 bankruptcy liquidation.

In all three of those cases, the companies faced clear financial pressures that led to inventory problems and vendors demanding faster, or even upfront payment. That creates a sort of inevitability.

Related: Beloved retailer finds life after bankruptcy, new famous owner

When a retailer faces financial pressure it sets off a cycle where vendors become wary of selling them items. That leads to barren shelves and no ability for the chain to sell its way out of its financial problems. 

Once that happens bankruptcy generally becomes the only option. Sometimes that means a Chapter 11 filing which gives the company a chance to negotiate with its creditors. In some cases, deals can be worked out where vendors extend longer terms or even forgive some debts, and banks offer an extension of loan terms.

In other cases, new funding can be secured which assuages vendor concerns or the company might be taken over by its vendors. Sometimes, as was the case with David's Bridal, a new owner steps in, adds new money, and makes deals with creditors in order to give the company a new lease on life.

It's rare that a retailer moves directly into Chapter 7 bankruptcy and decides to liquidate without trying to find a new source of funding.

Mall traffic has varied depending upon the type of mall.

Image source: Getty Images

The Body Shop has bad news for customers  

The Body Shop has been in a very public fight for survival. Fears began when the company closed half of its locations in the United Kingdom. That was followed by a bankruptcy-style filing in Canada and an abrupt closure of its U.S. stores on March 4.

"The Canadian subsidiary of the global beauty and cosmetics brand announced it has started restructuring proceedings by filing a Notice of Intention (NOI) to Make a Proposal pursuant to the Bankruptcy and Insolvency Act (Canada). In the same release, the company said that, as of March 1, 2024, The Body Shop US Limited has ceased operations," Chain Store Age reported.

A message on the company's U.S. website shared a simple message that does not appear to be the entire story.

"We're currently undergoing planned maintenance, but don't worry we're due to be back online soon."

That same message is still on the company's website, but a new filing makes it clear that the site is not down for maintenance, it's down for good.

The Body Shop files for Chapter 7 bankruptcy

While the future appeared bleak for The Body Shop, fans of the brand held out hope that a savior would step in. That's not going to be the case. 

The Body Shop filed for Chapter 7 bankruptcy in the United States.

"The US arm of the ethical cosmetics group has ceased trading at its 50 outlets. On Saturday (March 9), it filed for Chapter 7 insolvency, under which assets are sold off to clear debts, putting about 400 jobs at risk including those in a distribution center that still holds millions of dollars worth of stock," The Guardian reported.

After its closure in the United States, the survival of the brand remains very much in doubt. About half of the chain's stores in the United Kingdom remain open along with its Australian stores. 

The future of those stores remains very much in doubt and the chain has shared that it needs new funding in order for them to continue operating.

The Body Shop did not respond to a request for comment from TheStreet.   

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Government

Are Voters Recoiling Against Disorder?

Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super…

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Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super Tuesday primaries have got it right. Barring cataclysmic changes, Donald Trump and Joe Biden will be the Republican and Democratic nominees for president in 2024.

(Left) President Joe Biden delivers remarks on canceling student debt at Culver City Julian Dixon Library in Culver City, Calif., on Feb. 21, 2024. (Right) Republican presidential candidate and former U.S. President Donald Trump stands on stage during a campaign event at Big League Dreams Las Vegas in Las Vegas, Nev., on Jan. 27, 2024. (Mario Tama/Getty Images; David Becker/Getty Images)

With Nikki Haley’s withdrawal, there will be no more significantly contested primaries or caucuses—the earliest both parties’ races have been over since something like the current primary-dominated system was put in place in 1972.

The primary results have spotlighted some of both nominees’ weaknesses.

Donald Trump lost high-income, high-educated constituencies, including the entire metro area—aka the Swamp. Many but by no means all Haley votes there were cast by Biden Democrats. Mr. Trump can’t afford to lose too many of the others in target states like Pennsylvania and Michigan.

Majorities and large minorities of voters in overwhelmingly Latino counties in Texas’s Rio Grande Valley and some in Houston voted against Joe Biden, and even more against Senate nominee Rep. Colin Allred (D-Texas).

Returns from Hispanic precincts in New Hampshire and Massachusetts show the same thing. Mr. Biden can’t afford to lose too many Latino votes in target states like Arizona and Georgia.

When Mr. Trump rode down that escalator in 2015, commentators assumed he’d repel Latinos. Instead, Latino voters nationally, and especially the closest eyewitnesses of Biden’s open-border policy, have been trending heavily Republican.

High-income liberal Democrats may sport lawn signs proclaiming, “In this house, we believe ... no human is illegal.” The logical consequence of that belief is an open border. But modest-income folks in border counties know that flows of illegal immigrants result in disorder, disease, and crime.

There is plenty of impatience with increased disorder in election returns below the presidential level. Consider Los Angeles County, America’s largest county, with nearly 10 million people, more people than 40 of the 50 states. It voted 71 percent for Mr. Biden in 2020.

Current returns show county District Attorney George Gascon winning only 21 percent of the vote in the nonpartisan primary. He’ll apparently face Republican Nathan Hochman, a critic of his liberal policies, in November.

Gascon, elected after the May 2020 death of counterfeit-passing suspect George Floyd in Minneapolis, is one of many county prosecutors supported by billionaire George Soros. His policies include not charging juveniles as adults, not seeking higher penalties for gang membership or use of firearms, and bringing fewer misdemeanor cases.

The predictable result has been increased car thefts, burglaries, and personal robberies. Some 120 assistant district attorneys have left the office, and there’s a backlog of 10,000 unprosecuted cases.

More than a dozen other Soros-backed and similarly liberal prosecutors have faced strong opposition or have left office.

St. Louis prosecutor Kim Gardner resigned last May amid lawsuits seeking her removal, Milwaukee’s John Chisholm retired in January, and Baltimore’s Marilyn Mosby was defeated in July 2022 and convicted of perjury in September 2023. Last November, Loudoun County, Virginia, voters (62 percent Biden) ousted liberal Buta Biberaj, who declined to prosecute a transgender student for assault, and in June 2022 voters in San Francisco (85 percent Biden) recalled famed radical Chesa Boudin.

Similarly, this Tuesday, voters in San Francisco passed ballot measures strengthening police powers and requiring treatment of drug-addicted welfare recipients.

In retrospect, it appears the Floyd video, appearing after three months of COVID-19 confinement, sparked a frenzied, even crazed reaction, especially among the highly educated and articulate. One fatal incident was seen as proof that America’s “systemic racism” was worse than ever and that police forces should be defunded and perhaps abolished.

2020 was “the year America went crazy,” I wrote in January 2021, a year in which police funding was actually cut by Democrats in New York, Los Angeles, San Francisco, Seattle, and Denver. A year in which young New York Times (NYT) staffers claimed they were endangered by the publication of Sen. Tom Cotton’s (R-Ark.) opinion article advocating calling in military forces if necessary to stop rioting, as had been done in Detroit in 1967 and Los Angeles in 1992. A craven NYT publisher even fired the editorial page editor for running the article.

Evidence of visible and tangible discontent with increasing violence and its consequences—barren and locked shelves in Manhattan chain drugstores, skyrocketing carjackings in Washington, D.C.—is as unmistakable in polls and election results as it is in daily life in large metropolitan areas. Maybe 2024 will turn out to be the year even liberal America stopped acting crazy.

Chaos and disorder work against incumbents, as they did in 1968 when Democrats saw their party’s popular vote fall from 61 percent to 43 percent.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

Tyler Durden Sat, 03/09/2024 - 23:20

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Government

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The…

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The U.S. Department of Veterans Affairs (VA) reviewed no data when deciding in 2023 to keep its COVID-19 vaccine mandate in place.

Doses of a COVID-19 vaccine in Washington in a file image. (Jacquelyn Martin/Pool/AFP via Getty Images)

VA Secretary Denis McDonough said on May 1, 2023, that the end of many other federal mandates “will not impact current policies at the Department of Veterans Affairs.”

He said the mandate was remaining for VA health care personnel “to ensure the safety of veterans and our colleagues.”

Mr. McDonough did not cite any studies or other data. A VA spokesperson declined to provide any data that was reviewed when deciding not to rescind the mandate. The Epoch Times submitted a Freedom of Information Act for “all documents outlining which data was relied upon when establishing the mandate when deciding to keep the mandate in place.”

The agency searched for such data and did not find any.

The VA does not even attempt to justify its policies with science, because it can’t,” Leslie Manookian, president and founder of the Health Freedom Defense Fund, told The Epoch Times.

“The VA just trusts that the process and cost of challenging its unfounded policies is so onerous, most people are dissuaded from even trying,” she added.

The VA’s mandate remains in place to this day.

The VA’s website claims that vaccines “help protect you from getting severe illness” and “offer good protection against most COVID-19 variants,” pointing in part to observational data from the U.S. Centers for Disease Control and Prevention (CDC) that estimate the vaccines provide poor protection against symptomatic infection and transient shielding against hospitalization.

There have also been increasing concerns among outside scientists about confirmed side effects like heart inflammation—the VA hid a safety signal it detected for the inflammation—and possible side effects such as tinnitus, which shift the benefit-risk calculus.

President Joe Biden imposed a slate of COVID-19 vaccine mandates in 2021. The VA was the first federal agency to implement a mandate.

President Biden rescinded the mandates in May 2023, citing a drop in COVID-19 cases and hospitalizations. His administration maintains the choice to require vaccines was the right one and saved lives.

“Our administration’s vaccination requirements helped ensure the safety of workers in critical workforces including those in the healthcare and education sectors, protecting themselves and the populations they serve, and strengthening their ability to provide services without disruptions to operations,” the White House said.

Some experts said requiring vaccination meant many younger people were forced to get a vaccine despite the risks potentially outweighing the benefits, leaving fewer doses for older adults.

By mandating the vaccines to younger people and those with natural immunity from having had COVID, older people in the U.S. and other countries did not have access to them, and many people might have died because of that,” Martin Kulldorff, a professor of medicine on leave from Harvard Medical School, told The Epoch Times previously.

The VA was one of just a handful of agencies to keep its mandate in place following the removal of many federal mandates.

“At this time, the vaccine requirement will remain in effect for VA health care personnel, including VA psychologists, pharmacists, social workers, nursing assistants, physical therapists, respiratory therapists, peer specialists, medical support assistants, engineers, housekeepers, and other clinical, administrative, and infrastructure support employees,” Mr. McDonough wrote to VA employees at the time.

This also includes VA volunteers and contractors. Effectively, this means that any Veterans Health Administration (VHA) employee, volunteer, or contractor who works in VHA facilities, visits VHA facilities, or provides direct care to those we serve will still be subject to the vaccine requirement at this time,” he said. “We continue to monitor and discuss this requirement, and we will provide more information about the vaccination requirements for VA health care employees soon. As always, we will process requests for vaccination exceptions in accordance with applicable laws, regulations, and policies.”

The version of the shots cleared in the fall of 2022, and available through the fall of 2023, did not have any clinical trial data supporting them.

A new version was approved in the fall of 2023 because there were indications that the shots not only offered temporary protection but also that the level of protection was lower than what was observed during earlier stages of the pandemic.

Ms. Manookian, whose group has challenged several of the federal mandates, said that the mandate “illustrates the dangers of the administrative state and how these federal agencies have become a law unto themselves.”

Tyler Durden Sat, 03/09/2024 - 22:10

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