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The Zombies Are Coming – The Absolute Return Letter December 2020

Absolute Return Partners letter for the month of December 2020, titled, “The Zombies Are Coming.” Q3 2020 hedge fund letters, conferences and more Department stores are relics of the past. JC Penney has been stuck for years in permanent twilight,…

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Zombie Firms

Absolute Return Partners letter for the month of December 2020, titled, “The Zombies Are Coming.”

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Q3 2020 hedge fund letters, conferences and more

Department stores are relics of the past. JC Penney has been stuck for years in permanent twilight, with changes in retail and the weight of its own balance sheet blocking out the sun. -- Robert Armstrong, Financial Times

I am married to a very keen shopper. As much as I enjoy a good game of football or ice hockey when I am not working, she enjoys the kick she gets from shopping (in all fairness, she loves her ice hockey too). Tired of COVID-19 and the lack of shopping it has resulted in, she is anxious to get back to the high street.

“Shopping online is just not the same” she constantly reminds me and, when I tell her that shopping the way she likes may never be the same again, she frowns. “Why?”, she asks. “Sooner or later, life will return to some sort of normal.” “Yes”, I say, “but that doesn’t necessarily mean that the high streets will ever look the same again.”

The issue at heart is that, to many retailers, the COVID pandemic has been the death knell. Already struggling from online competition, when the government closed the high streets of Great Britain during the first wave in the spring, many consumers who had never shopped online before were suddenly forced to do so and found it was actually quite convenient. According to at least one estimate (provided by netimperative.com), for the first time ever, over 50% of all Christmas presents in the UK will be bought online this year.

The net result? More empty square metres in already half-empty high streets up and down the country and, of those brick and mortar retailers that are still standing, many are struggling. With the industry (on average) being highly indebted, you would expect weak revenues to lead to a phone call or two from the local bank, but life isn’t always as simple as that.

There is even a name for companies that really should go belly up but that are allowed to carry on. They are called zombies, and the zombie culture is growing bigger by the day. As it grows, it does more and more damage to the overall economy, and that is what this month’s Absolute Return Letter is about.

What is a zombie company and why are there so many of them?

I have just provided my own rather casual definition of a zombie company. However, it isn’t difficult to find a more formal one. After doing a simple search on the internet, I settled on this one from companyrescue.co.uk:

A zombie company is simply a company that is neither dead or alive. In other words, it is in so much debt that any cash generated is being used to pay off the interest on the debt […]. This means that there is no spare cash or capacity for the company to invest or grow. This means that is unable to employ more staff but on the flip side, as long as the company is not actually losing money on an operational basis, it does not need to make further redundancies either.

Bank for International Settlements (BIS) published a study on the phenomenon in September 2018 called “The rise of zombie firms: causes and consequences”. In the paper, BIS classified all those non-financial firms in the Worldscope database (which contains financial data on companies from 14 advanced economies) with an interest coverage ratio less than one for three consecutive years as zombie firms, provided they were over ten years old. BIS named this group of companies the “broad definition” of zombies.

BIS then calculated Tobin’s q on all those companies classified as zombies under the broad definition. (Tobin’s q is a measure of a company’s expected future profitability – see the precise definition underneath Exhibit 1.) All the broad zombie firms with a Tobin’s q below the median firm in the sector in a given year were then classified as zombies under the “narrow definition”.

BIS chose to distinguish between narrow and broad zombies as companies with great growth potential often have negative interest coverage ratios, but the growth potential is typically recognised by the stock market which is reflected in Tobin’s q. This also explains why BIS chose to only include listed companies in its analysis.

Zombie Firms

Exhibit 1: Interest coverage and Tobin’s q of zombies and non-zombies

Note 1: Based on data from 14 advanced economies over the period 1987–2016. Interest coverage ratio = ratio of earnings before interest and taxation to interest paid. Tobin’s q = the market value of total assets divided by their replacement cost, which is calculated as the book value of equity and debt.

Note 2: The broad definition of zombie firms include all those firms with an interest coverage ratio less than one for three consecutive years provided they are over ten years old.

Note 3: The narrow definition of zombie firms include the broad zombies that have a Tobin’s q below the median firm in the sector in a given year.

Source: “The rise of zombie firms”, Bank for International Settlements, September 2018

Quite interestingly, BIS found that, from virtually non-existent as recently as 30 years ago, by 2016, more than 12% of all listed, non-financial firms in the world had been zombified (Exhibit 2). At the same time they found that, whilst the prevalence of zombie firms is on the rise, so is the probability of them staying (barely) alive for longer.

Zombie Firms

Exhibit 2: Zombie firms in percent of all listed non-financial firms

Note 1: Based on Worldscope’s database with non-financial companies from Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden, Switzerland, the UK and the US.

Note 2: LH chart represents the broad definition of zombie firms: all those firms with an interest coverage ratio less than one for three consecutive years and over ten years old.

Note 3: RH chart represents the narrow definition of zombie firms: broad zombies with a Tobin’s q below the median firm in the sector in a given year.

Source: “The rise of zombie firms”, Bank for International Settlements, September 2018

The obvious two questions to ask are therefore – why do we have more zombie firms today than we did only a few years ago, and how does that affect the overall economy? Let’s deal with the simple one first – why? In the 2018 paper, BIS pointed to two reasons why it has become easier for financially weak companies to survive for longer.

Firstly, banks have been surprisingly accommodative. Rather than writing questionable loans off, many of those loans have instead been rolled over. Secondly, ever lower interest rates have made higher financial leverage more affordable, which many companies have taken advantage of, but the rising level of financial leverage has also driven more and more companies into zombification.

Let’s deal with banks’ behaviour first. Admittedly, this is a side of banks we have never seen before. Why this more gentle attitude? Have banks suddenly turned into Mother Teresa of the High Street, or could something else explain their behaviour? I am afraid to say that Mother Teresa didn’t suddenly turn up on the High Street. The explanation – or at least a significant part of the explanation – is the profound weakness of many banks’ own balance sheet (LH chart of Exhibit 3). Already bleeding quite badly from the Global Financial Crisis (GFC), banks simply couldn’t afford for all those companies to go bankrupt. In order to protect their own balance sheet, they allowed non-viable firms to carry on, even if one could argue that it would have been better not to.

Having said that, the global economy didn’t start to unravel until June 2007 (with the collapse of Bear Stearns), but the corporate world became zombified much earlier. This makes one wonder what else drove zombification higher in the years prior to the GFC, and I can immediately think of two reasons.

Firstly, as you can see on the left-hand side of Exhibit 3, although the GFC didn’t start in earnest until 2007, banks’ balance sheets began to deteriorate as early as 1998. Secondly, interest rates fell quite steeply for at least 20 years prior to the GFC, and there can be no doubt that the dramatic drop in interest rates during the 90s and 00s has played a role.

It is simple maths. When interest rates drop, more often than not, companies take on more debt. Why? Because they can afford to. Maybe not the family-owned business that has been in the hands of the same proud family for the last 150 years, but the flood of acquisition-hungry private equity funds and the omnipresent corporate mogul keen to grow his (her) business empire have most definitely driven financial leverage to new highs.

It has quite simply become so extraordinarily cheap to borrow that companies can afford debt levels that were unthinkable not that many years ago. As you can see on the right-hand side of Exhibit 3 below, in the last 35 years or so, there has been a noticeable link between the share of zombie firms and interest rates. Based on the two charts below, we can therefore conclude that, at least since the 1980s, the share of zombie firms has been linked to both interest rates and bank health (proxied by banks’ price-to-book ratios).

Zombie Firms

Exhibit 3: Drivers of rising zombie shares

Note 1: Price-to-book ratios, policy rates and zombie shares are simple averages from the same 14 countries as those listed in note 1 under Exhibit 2.

Note 2: Firms with an interest coverage ratio less than one for three consecutive years, over 10 years old and with a Tobin’s q below the median firm in the sector in a given year.

Source: “The rise of zombie firms”, Bank for International Settlements, September 2018

Let me make one more observation re the link between zombies and bank health. As you can see above, the correlation is not consistent. BIS found the link to be rather ‘episodic’ (their wording, not mine), meaning that the two tend to be more correlated during economic downturns and during periods of financial stress, such as the early 1990s, the early 2000s and the GFC – an observation I don’t find overwhelmingly surprising, given how banks often behave in difficult times.

The implications

It is relatively easy to understand why a combination of ever lower interest rates and a weak(ish) banking sector – a phenomenon we have experienced in the last 20+ years – could explain the rise in the zombie share. That said, the argumentation gets a bit more hairy when trying to explain what that means to the global economy. Again – let me try with the easy one first: It is not good for GDP growth. Those of you keen to start you Christmas shopping can stop here. The rest of you should hang on for a few more minutes.

Let’s begin with the zombie share’s impact on productivity. In a paper from 2017, researchers from OECD documented a link between the share of zombie firms and labour productivity when measured relative to labour productivity in non-zombie firms (Exhibit 4). OECD defined a zombie firm precisely the same way BIS defined a broad zombie some 18 month later, so the two studies are comparable in that respect.

Zombie Firms

Exhibit 4: The share of zombie firms vs. labour productivity (average across 8 OECD countries)

Source: “The walking dead? Zombie firms and productivity performance in OECD countries”, Economics Department Working Paper no. 1372, January 2017

Almost by definition, and as you can see in Exhibit 5 below, zombies are less productive than non-zombies, and productivity growth is a powerful driver of GDP growth. The problem is also that zombie firms crowd out many more productive non-zombies. Think for example of all the employees working for zombie firms. If those people made themselves available to more productive non-zombies, aggregate productivity would rise.

Zombie Firms

Exhibit 5: Labour productivity per worker (charts 1 & 2) Total factor productivity per worker (charts 3 & 4)

Note 1: Gross value added per worker, in constant 2010 US dollars.

Note 2: Broad zombies defined as firms with an interest coverage ratio less than one for three consecutive years and over 10 years old.

Note 3: Narrow zombies defined as broad zombies with a Tobin’s q below the median firm in the sector in a given year.

Note 4: In constant 2010 US dollars, based on Solow residuals from ordinary least squares regression estimates of sectoral production functions.

Source: “The rise of zombie firms”, Bank for International Settlements, September 2018

Furthermore, the more firms that are zombified, the lower new investments are (as zombies have little or no capital to invest), and productivity won’t improve much, if at all, unless you invest in productivity-enhancing technology. Zombie firms themselves obviously don’t invest much, but non-zombies are also negatively impacted. BIS found that a one percentage point increase in the narrow zombie share in a sector lowered capital expenditures of non-zombies in the sector by around one percentage point – equivalent to a 17% drop in capex relative to the mean investment rate.

There is also pretty strong evidence that employment growth is negatively affected by zombification. According to BIS, for every one percentage point increase in the zombie share, employment growth is 0.26% lower. Finally, zombies impact the pricing power of non-zombies by impacting total supply, i.e. the rise in the zombie share in recent years may at least partially explain why we have flirted with deflation more recently.

If you add up all those factors, it becomes evident that a rising zombie share does a considerable amount of damage to economic growth. BIS used a global database when it researched the topic and did not make any comments on geographical variations so, on the basis of the 2018 BIS paper, it is impossible to say whether certain countries are more zombified than others (more on this below).

One more observation before I move on. Is it possible that it is not falling interest rates that have led to a rising zombie share but the other way around? In other words, could a rising zombie share affect productivity negatively, which in turn causes interest rates to fall? The issue at heart here is the potential confusion between correlation and causality. Fortunately, there is a test for that – it is called the Granger causality test. When BIS tested for causality, they found that lower interest rates reliably predict an increase in the zombie share, whereas bank health does not. This may also explain why the zombie share has continued to rise more recently despite bank health having improved somewhat over the last few years.

Geographical variations

Various papers and articles on the zombie phenomenon argue that the zombie share varies significantly from country to country, but the only source on geographical variations that I have been able to find is the previously mentioned OECD paper from 2017. As you can see in Exhibit 6 below, the zombie share has risen much more in some countries (e.g. Spain and Italy) than in others (e.g. Finland and France). That said, according to OECD, nowhere did the zombie share drop between 2007 and 2013 – it was flat to up everywhere. I should also point out that major OECD countries like Japan, Germany and the US were not included in the OECD study, so my conclusion should be caveated by that.

Absolute Return Letter

Exhibit 6: The share of zombie firms over time (9 OECD countries)

Source: “The walking dead? Zombie firms and productivity performance in OECD countries”, Economics Department Working Paper no. 1372, January 2017

We know that, in recent years, productivity growth has been more modest, and interest rates have fallen more, in Japan and Europe than in North America. We also know that Japanese and European banks have, on average, been weaker than North American banks more recently. Therefore, one should expect the zombie share to be higher in Europe and Japan than it is in North America, but I can only provide limited evidence to support that claim.

COVID-19 and zombies

I have managed to find a recent study, conducted by Leuthold Group and presented in the Financial Times only a couple of months ago (Exhibit 7). The study includes the first half of this year when the first COVID-19 wave struck, but it includes only US companies, so no direct comparison to other countries can be made.

Leuthold’s definition of a zombie firm is precisely the same as the broad zombie definition in the BIS study from 2018, so the numbers are comparable in that respect, allowing me to make a few interesting observations. Having said that, the universe in the Leuthold study is the Leuthold 3000 index – a Russell 3000 look-alike – and I don’t know how similar that index is to the Worldscope database used by BIS in 2018. My conclusions will therefore have to be caveated accordingly.

If you take another look at Exhibit 2, you can see that the global zombie share under BIS’ broad definition was c.12% in 2016. Now, if you look at Exhibit 7, you can see that the US zombie share was c.10% in 2016 – a couple of percentage points lower than the global average as per the BIS study, which implies that the RoW zombie share (ex. USA) in 2016 was probably around 14-15%.

The other interesting observation you can make on the back of Exhibit 7 is that the COVID-19 pandemic has acted as fuel on an already existing fire. As you can see, from end-2019 to mid-2020, the US zombie share increased from 13% to 15%. Given that the economic impact of COVID-19 has been far more dramatic in Europe than it has in the US, I would expect the European zombie share post-COVID-19 to be approaching 20%.

Absolute Return Letter

Exhibit 7: Percentage of zombies in Leuthold 3000 universe

Source: Financial Times

Final remarks

As most of you will know, one of ‘our’ six megatrends is what we call the Last Stages of the Debt Supercycle. One of the classic characteristics of all late-stage debt supercycles is falling productivity growth, falling GDP growth and falling interest rates. Every single debt supercycle is the same in that respect, and it all ties back to the mountain of debt society has been saddled with in the latter stages of all debt supercycles.

In the early stages, GDP and debt grow approx. 1:1 but, as the super-cycle matures, the ratio drops fairly steadily. At the end of the cycle, it is always below 0.3, and I have noted that, more recently, GDP has grown less than $0.30 for every dollar of added debt in both the US and China. One of the world’s leading capacities on debt supercycles is Ray Dalio of Bridgewater Associates, and I can strongly recommend you read his book on debt cycles which is called Big Debt Crises.

One of the most important reasons GDP grows less and less for every dollar of added debt is the tendency for more and more capital to be misallocated (i.e. used for non-productive purposes) as the debt supercycle matures. In that context, capital sunk in zombie firms amounts to huge sums of misallocated capital which will hold back productivity growth. In Exhibit 8 you can see that Italy and Spain have been particularly guilty of ‘allowing’ zombie firms to deploy capital unproductively.

Absolute Return Letter

Exhibit 8: The share of capital sunk in zombie firms in 2013 (13 OECD countries)

Source: “The walking dead? Zombie firms and productivity performance in OECD countries”, Economics Department Working Paper no. 1372, January 2017

Going back to my earlier claim that we are fast approaching the end of the current debt supercycle, nobody knows precisely what will make the house of cards collapse this time and when it will happen, but collapse it will – it always does. If this is a topic that interests you, other than buying Ray Dalio’s book, I would suggest you subscribe to ARP+ where you will find much more information on debt supercycles.

Niels C. Jensen

1 December 2020

The post The Zombies Are Coming – The Absolute Return Letter December 2020 appeared first on ValueWalk.

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Government

Four Years Ago This Week, Freedom Was Torched

Four Years Ago This Week, Freedom Was Torched

Authored by Jeffrey Tucker via The Brownstone Institute,

"Beware the Ides of March,” Shakespeare…

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Four Years Ago This Week, Freedom Was Torched

Authored by Jeffrey Tucker via The Brownstone Institute,

"Beware the Ides of March,” Shakespeare quotes the soothsayer’s warning Julius Caesar about what turned out to be an impending assassination on March 15. The death of American liberty happened around the same time four years ago, when the orders went out from all levels of government to close all indoor and outdoor venues where people gather. 

It was not quite a law and it was never voted on by anyone. Seemingly out of nowhere, people who the public had largely ignored, the public health bureaucrats, all united to tell the executives in charge – mayors, governors, and the president – that the only way to deal with a respiratory virus was to scrap freedom and the Bill of Rights. 

And they did, not only in the US but all over the world. 

The forced closures in the US began on March 6 when the mayor of Austin, Texas, announced the shutdown of the technology and arts festival South by Southwest. Hundreds of thousands of contracts, of attendees and vendors, were instantly scrapped. The mayor said he was acting on the advice of his health experts and they in turn pointed to the CDC, which in turn pointed to the World Health Organization, which in turn pointed to member states and so on. 

There was no record of Covid in Austin, Texas, that day but they were sure they were doing their part to stop the spread. It was the first deployment of the “Zero Covid” strategy that became, for a time, official US policy, just as in China. 

It was never clear precisely who to blame or who would take responsibility, legal or otherwise. 

This Friday evening press conference in Austin was just the beginning. By the next Thursday evening, the lockdown mania reached a full crescendo. Donald Trump went on nationwide television to announce that everything was under control but that he was stopping all travel in and out of US borders, from Europe, the UK, Australia, and New Zealand. American citizens would need to return by Monday or be stuck. 

Americans abroad panicked while spending on tickets home and crowded into international airports with waits up to 8 hours standing shoulder to shoulder. It was the first clear sign: there would be no consistency in the deployment of these edicts. 

There is no historical record of any American president ever issuing global travel restrictions like this without a declaration of war. Until then, and since the age of travel began, every American had taken it for granted that he could buy a ticket and board a plane. That was no longer possible. Very quickly it became even difficult to travel state to state, as most states eventually implemented a two-week quarantine rule. 

The next day, Friday March 13, Broadway closed and New York City began to empty out as any residents who could went to summer homes or out of state. 

On that day, the Trump administration declared the national emergency by invoking the Stafford Act which triggers new powers and resources to the Federal Emergency Management Administration. 

In addition, the Department of Health and Human Services issued a classified document, only to be released to the public months later. The document initiated the lockdowns. It still does not exist on any government website.

The White House Coronavirus Response Task Force, led by the Vice President, will coordinate a whole-of-government approach, including governors, state and local officials, and members of Congress, to develop the best options for the safety, well-being, and health of the American people. HHS is the LFA [Lead Federal Agency] for coordinating the federal response to COVID-19.

Closures were guaranteed:

Recommend significantly limiting public gatherings and cancellation of almost all sporting events, performances, and public and private meetings that cannot be convened by phone. Consider school closures. Issue widespread ‘stay at home’ directives for public and private organizations, with nearly 100% telework for some, although critical public services and infrastructure may need to retain skeleton crews. Law enforcement could shift to focus more on crime prevention, as routine monitoring of storefronts could be important.

In this vision of turnkey totalitarian control of society, the vaccine was pre-approved: “Partner with pharmaceutical industry to produce anti-virals and vaccine.”

The National Security Council was put in charge of policy making. The CDC was just the marketing operation. That’s why it felt like martial law. Without using those words, that’s what was being declared. It even urged information management, with censorship strongly implied.

The timing here is fascinating. This document came out on a Friday. But according to every autobiographical account – from Mike Pence and Scott Gottlieb to Deborah Birx and Jared Kushner – the gathered team did not meet with Trump himself until the weekend of the 14th and 15th, Saturday and Sunday. 

According to their account, this was his first real encounter with the urge that he lock down the whole country. He reluctantly agreed to 15 days to flatten the curve. He announced this on Monday the 16th with the famous line: “All public and private venues where people gather should be closed.”

This makes no sense. The decision had already been made and all enabling documents were already in circulation. 

There are only two possibilities. 

One: the Department of Homeland Security issued this March 13 HHS document without Trump’s knowledge or authority. That seems unlikely. 

Two: Kushner, Birx, Pence, and Gottlieb are lying. They decided on a story and they are sticking to it. 

Trump himself has never explained the timeline or precisely when he decided to greenlight the lockdowns. To this day, he avoids the issue beyond his constant claim that he doesn’t get enough credit for his handling of the pandemic.

With Nixon, the famous question was always what did he know and when did he know it? When it comes to Trump and insofar as concerns Covid lockdowns – unlike the fake allegations of collusion with Russia – we have no investigations. To this day, no one in the corporate media seems even slightly interested in why, how, or when human rights got abolished by bureaucratic edict. 

As part of the lockdowns, the Cybersecurity and Infrastructure Security Agency, which was and is part of the Department of Homeland Security, as set up in 2018, broke the entire American labor force into essential and nonessential.

They also set up and enforced censorship protocols, which is why it seemed like so few objected. In addition, CISA was tasked with overseeing mail-in ballots. 

Only 8 days into the 15, Trump announced that he wanted to open the country by Easter, which was on April 12. His announcement on March 24 was treated as outrageous and irresponsible by the national press but keep in mind: Easter would already take us beyond the initial two-week lockdown. What seemed to be an opening was an extension of closing. 

This announcement by Trump encouraged Birx and Fauci to ask for an additional 30 days of lockdown, which Trump granted. Even on April 23, Trump told Georgia and Florida, which had made noises about reopening, that “It’s too soon.” He publicly fought with the governor of Georgia, who was first to open his state. 

Before the 15 days was over, Congress passed and the president signed the 880-page CARES Act, which authorized the distribution of $2 trillion to states, businesses, and individuals, thus guaranteeing that lockdowns would continue for the duration. 

There was never a stated exit plan beyond Birx’s public statements that she wanted zero cases of Covid in the country. That was never going to happen. It is very likely that the virus had already been circulating in the US and Canada from October 2019. A famous seroprevalence study by Jay Bhattacharya came out in May 2020 discerning that infections and immunity were already widespread in the California county they examined. 

What that implied was two crucial points: there was zero hope for the Zero Covid mission and this pandemic would end as they all did, through endemicity via exposure, not from a vaccine as such. That was certainly not the message that was being broadcast from Washington. The growing sense at the time was that we all had to sit tight and just wait for the inoculation on which pharmaceutical companies were working. 

By summer 2020, you recall what happened. A restless generation of kids fed up with this stay-at-home nonsense seized on the opportunity to protest racial injustice in the killing of George Floyd. Public health officials approved of these gatherings – unlike protests against lockdowns – on grounds that racism was a virus even more serious than Covid. Some of these protests got out of hand and became violent and destructive. 

Meanwhile, substance abuse rage – the liquor and weed stores never closed – and immune systems were being degraded by lack of normal exposure, exactly as the Bakersfield doctors had predicted. Millions of small businesses had closed. The learning losses from school closures were mounting, as it turned out that Zoom school was near worthless. 

It was about this time that Trump seemed to figure out – thanks to the wise council of Dr. Scott Atlas – that he had been played and started urging states to reopen. But it was strange: he seemed to be less in the position of being a president in charge and more of a public pundit, Tweeting out his wishes until his account was banned. He was unable to put the worms back in the can that he had approved opening. 

By that time, and by all accounts, Trump was convinced that the whole effort was a mistake, that he had been trolled into wrecking the country he promised to make great. It was too late. Mail-in ballots had been widely approved, the country was in shambles, the media and public health bureaucrats were ruling the airwaves, and his final months of the campaign failed even to come to grips with the reality on the ground. 

At the time, many people had predicted that once Biden took office and the vaccine was released, Covid would be declared to have been beaten. But that didn’t happen and mainly for one reason: resistance to the vaccine was more intense than anyone had predicted. The Biden administration attempted to impose mandates on the entire US workforce. Thanks to a Supreme Court ruling, that effort was thwarted but not before HR departments around the country had already implemented them. 

As the months rolled on – and four major cities closed all public accommodations to the unvaccinated, who were being demonized for prolonging the pandemic – it became clear that the vaccine could not and would not stop infection or transmission, which means that this shot could not be classified as a public health benefit. Even as a private benefit, the evidence was mixed. Any protection it provided was short-lived and reports of vaccine injury began to mount. Even now, we cannot gain full clarity on the scale of the problem because essential data and documentation remains classified. 

After four years, we find ourselves in a strange position. We still do not know precisely what unfolded in mid-March 2020: who made what decisions, when, and why. There has been no serious attempt at any high level to provide a clear accounting much less assign blame. 

Not even Tucker Carlson, who reportedly played a crucial role in getting Trump to panic over the virus, will tell us the source of his own information or what his source told him. There have been a series of valuable hearings in the House and Senate but they have received little to no press attention, and none have focus on the lockdown orders themselves. 

The prevailing attitude in public life is just to forget the whole thing. And yet we live now in a country very different from the one we inhabited five years ago. Our media is captured. Social media is widely censored in violation of the First Amendment, a problem being taken up by the Supreme Court this month with no certainty of the outcome. The administrative state that seized control has not given up power. Crime has been normalized. Art and music institutions are on the rocks. Public trust in all official institutions is at rock bottom. We don’t even know if we can trust the elections anymore. 

In the early days of lockdown, Henry Kissinger warned that if the mitigation plan does not go well, the world will find itself set “on fire.” He died in 2023. Meanwhile, the world is indeed on fire. The essential struggle in every country on earth today concerns the battle between the authority and power of permanent administration apparatus of the state – the very one that took total control in lockdowns – and the enlightenment ideal of a government that is responsible to the will of the people and the moral demand for freedom and rights. 

How this struggle turns out is the essential story of our times. 

CODA: I’m embedding a copy of PanCAP Adapted, as annotated by Debbie Lerman. You might need to download the whole thing to see the annotations. If you can help with research, please do.

*  *  *

Jeffrey Tucker is the author of the excellent new book 'Life After Lock-Down'

Tyler Durden Mon, 03/11/2024 - 23:40

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International

Red Candle In The Wind

Red Candle In The Wind

By Benjamin PIcton of Rabobank

February non-farm payrolls superficially exceeded market expectations on Friday by…

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Red Candle In The Wind

By Benjamin PIcton of Rabobank

February non-farm payrolls superficially exceeded market expectations on Friday by printing at 275,000 against a consensus call of 200,000. We say superficially, because the downward revisions to prior months totalled 167,000 for December and January, taking the total change in employed persons well below the implied forecast, and helping the unemployment rate to pop two-ticks to 3.9%. The U6 underemployment rate also rose from 7.2% to 7.3%, while average hourly earnings growth fell to 0.2% m-o-m and average weekly hours worked languished at 34.3, equalling pre-pandemic lows.

Undeterred by the devil in the detail, the algos sprang into action once exchanges opened. Market darling NVIDIA hit a new intraday high of $974 before (presumably) the humans took over and sold the stock down more than 10% to close at $875.28. If our suspicions are correct that it was the AIs buying before the humans started selling (no doubt triggering trailing stops on the way down), the irony is not lost on us.

The 1-day chart for NVIDIA now makes for interesting viewing, because the red candle posted on Friday presents quite a strong bearish engulfing signal. Volume traded on the day was almost double the 15-day simple moving average, and similar price action is observable on the 1-day charts for both Intel and AMD. Regular readers will be aware that we have expressed incredulity in the past about the durability the AI thematic melt-up, so it will be interesting to see whether Friday’s sell off is just a profit-taking blip, or a genuine trend reversal.

AI equities aside, this week ought to be important for markets because the BTFP program expires today. That means that the Fed will no longer be loaning cash to the banking system in exchange for collateral pledged at-par. The KBW Regional Banking index has so far taken this in its stride and is trading 30% above the lows established during the mini banking crisis of this time last year, but the Fed’s liquidity facility was effectively an exercise in can-kicking that makes regional banks a sector of the market worth paying attention to in the weeks ahead. Even here in Sydney, regulators are warning of external risks posed to the banking sector from scheduled refinancing of commercial real estate loans following sharp falls in valuations.

Markets are sending signals in other sectors, too. Gold closed at a new record-high of $2178/oz on Friday after trading above $2200/oz briefly. Gold has been going ballistic since the Friday before last, posting gains even on days where 2-year Treasury yields have risen. Gold bugs are buying as real yields fall from the October highs and inflation breakevens creep higher. This is particularly interesting as gold ETFs have been recording net outflows; suggesting that price gains aren’t being driven by a retail pile-in. Are gold buyers now betting on a stagflationary outcome where the Fed cuts without inflation being anchored at the 2% target? The price action around the US CPI release tomorrow ought to be illuminating.

Leaving the day-to-day movements to one side, we are also seeing further signs of structural change at the macro level. The UK budget last week included a provision for the creation of a British ISA. That is, an Individual Savings Account that provides tax breaks to savers who invest their money in the stock of British companies. This follows moves last year to encourage pension funds to head up the risk curve by allocating 5% of their capital to unlisted investments.

As a Hail Mary option for a government cruising toward an electoral drubbing it’s a curious choice, but it’s worth highlighting as cash-strapped governments increasingly see private savings pools as a funding solution for their spending priorities.

Of course, the UK is not alone in making creeping moves towards financial repression. In contrast to announcements today of increased trade liberalisation, Australian Treasurer Jim Chalmers has in the recent past flagged his interest in tapping private pension savings to fund state spending priorities, including defence, public housing and renewable energy projects. Both the UK and Australia appear intent on finding ways to open up the lungs of their economies, but government wants more say in directing private capital flows for state goals.

So, how far is the blurring of the lines between free markets and state planning likely to go? Given the immense and varied budgetary (and security) pressures that governments are facing, could we see a re-up of WWII-era Victory bonds, where private investors are encouraged to do their patriotic duty by directly financing government at negative real rates?

That would really light a fire under the gold market.

Tyler Durden Mon, 03/11/2024 - 19:00

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Trump “Clearly Hasn’t Learned From His COVID-Era Mistakes”, RFK Jr. Says

Trump "Clearly Hasn’t Learned From His COVID-Era Mistakes", RFK Jr. Says

Authored by Jeff Louderback via The Epoch Times (emphasis ours),

President…

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Trump "Clearly Hasn't Learned From His COVID-Era Mistakes", RFK Jr. Says

Authored by Jeff Louderback via The Epoch Times (emphasis ours),

President Joe Biden claimed that COVID vaccines are now helping cancer patients during his State of the Union address on March 7, but it was a response on Truth Social from former President Donald Trump that drew the ire of independent presidential candidate Robert F. Kennedy Jr.

Robert F. Kennedy Jr. holds a voter rally in Grand Rapids, Mich., on Feb. 10, 2024. (Mitch Ranger for The Epoch Times)

During the address, President Biden said: “The pandemic no longer controls our lives. The vaccines that saved us from COVID are now being used to help beat cancer, turning setback into comeback. That’s what America does.”

President Trump wrote: “The Pandemic no longer controls our lives. The VACCINES that saved us from COVID are now being used to help beat cancer—turning setback into comeback. YOU’RE WELCOME JOE. NINE-MONTH APPROVAL TIME VS. 12 YEARS THAT IT WOULD HAVE TAKEN YOU.”

An outspoken critic of President Trump’s COVID response, and the Operation Warp Speed program that escalated the availability of COVID vaccines, Mr. Kennedy said on X, formerly known as Twitter, that “Donald Trump clearly hasn’t learned from his COVID-era mistakes.”

“He fails to recognize how ineffective his warp speed vaccine is as the ninth shot is being recommended to seniors. Even more troubling is the documented harm being caused by the shot to so many innocent children and adults who are suffering myocarditis, pericarditis, and brain inflammation,” Mr. Kennedy remarked.

“This has been confirmed by a CDC-funded study of 99 million people. Instead of bragging about its speedy approval, we should be honestly and transparently debating the abundant evidence that this vaccine may have caused more harm than good.

“I look forward to debating both Trump and Biden on Sept. 16 in San Marcos, Texas.”

Mr. Kennedy announced in April 2023 that he would challenge President Biden for the 2024 Democratic Party presidential nomination before declaring his run as an independent last October, claiming that the Democrat National Committee was “rigging the primary.”

Since the early stages of his campaign, Mr. Kennedy has generated more support than pundits expected from conservatives, moderates, and independents resulting in speculation that he could take votes away from President Trump.

Many Republicans continue to seek a reckoning over the government-imposed pandemic lockdowns and vaccine mandates.

President Trump’s defense of Operation Warp Speed, the program he rolled out in May 2020 to spur the development and distribution of COVID-19 vaccines amid the pandemic, remains a sticking point for some of his supporters.

Vice President Mike Pence (L) and President Donald Trump deliver an update on Operation Warp Speed in the Rose Garden of the White House in Washington on Nov. 13, 2020. (Mandel Ngan/AFP via Getty Images)

Operation Warp Speed featured a partnership between the government, the military, and the private sector, with the government paying for millions of vaccine doses to be produced.

President Trump released a statement in March 2021 saying: “I hope everyone remembers when they’re getting the COVID-19 Vaccine, that if I wasn’t President, you wouldn’t be getting that beautiful ‘shot’ for 5 years, at best, and probably wouldn’t be getting it at all. I hope everyone remembers!”

President Trump said about the COVID-19 vaccine in an interview on Fox News in March 2021: “It works incredibly well. Ninety-five percent, maybe even more than that. I would recommend it, and I would recommend it to a lot of people that don’t want to get it and a lot of those people voted for me, frankly.

“But again, we have our freedoms and we have to live by that and I agree with that also. But it’s a great vaccine, it’s a safe vaccine, and it’s something that works.”

On many occasions, President Trump has said that he is not in favor of vaccine mandates.

An environmental attorney, Mr. Kennedy founded Children’s Health Defense, a nonprofit that aims to end childhood health epidemics by promoting vaccine safeguards, among other initiatives.

Last year, Mr. Kennedy told podcaster Joe Rogan that ivermectin was suppressed by the FDA so that the COVID-19 vaccines could be granted emergency use authorization.

He has criticized Big Pharma, vaccine safety, and government mandates for years.

Since launching his presidential campaign, Mr. Kennedy has made his stances on the COVID-19 vaccines, and vaccines in general, a frequent talking point.

“I would argue that the science is very clear right now that they [vaccines] caused a lot more problems than they averted,” Mr. Kennedy said on Piers Morgan Uncensored last April.

“And if you look at the countries that did not vaccinate, they had the lowest death rates, they had the lowest COVID and infection rates.”

Additional data show a “direct correlation” between excess deaths and high vaccination rates in developed countries, he said.

President Trump and Mr. Kennedy have similar views on topics like protecting the U.S.-Mexico border and ending the Russia-Ukraine war.

COVID-19 is the topic where Mr. Kennedy and President Trump seem to differ the most.

Former President Donald Trump intended to “drain the swamp” when he took office in 2017, but he was “intimidated by bureaucrats” at federal agencies and did not accomplish that objective, Mr. Kennedy said on Feb. 5.

Speaking at a voter rally in Tucson, where he collected signatures to get on the Arizona ballot, the independent presidential candidate said President Trump was “earnest” when he vowed to “drain the swamp,” but it was “business as usual” during his term.

John Bolton, who President Trump appointed as a national security adviser, is “the template for a swamp creature,” Mr. Kennedy said.

Scott Gottlieb, who President Trump named to run the FDA, “was Pfizer’s business partner” and eventually returned to Pfizer, Mr. Kennedy said.

Mr. Kennedy said that President Trump had more lobbyists running federal agencies than any president in U.S. history.

“You can’t reform them when you’ve got the swamp creatures running them, and I’m not going to do that. I’m going to do something different,” Mr. Kennedy said.

During the COVID-19 pandemic, President Trump “did not ask the questions that he should have,” he believes.

President Trump “knew that lockdowns were wrong” and then “agreed to lockdowns,” Mr. Kennedy said.

He also “knew that hydroxychloroquine worked, he said it,” Mr. Kennedy explained, adding that he was eventually “rolled over” by Dr. Anthony Fauci and his advisers.

President Donald Trump greets the crowd before he leaves at the Operation Warp Speed Vaccine Summit in Washington on Dec. 8, 2020. (Tasos Katopodis/Getty Images)

MaryJo Perry, a longtime advocate for vaccine choice and a Trump supporter, thinks votes will be at a premium come Election Day, particularly because the independent and third-party field is becoming more competitive.

Ms. Perry, president of Mississippi Parents for Vaccine Rights, believes advocates for medical freedom could determine who is ultimately president.

She believes that Mr. Kennedy is “pulling votes from Trump” because of the former president’s stance on the vaccines.

“People care about medical freedom. It’s an important issue here in Mississippi, and across the country,” Ms. Perry told The Epoch Times.

“Trump should admit he was wrong about Operation Warp Speed and that COVID vaccines have been dangerous. That would make a difference among people he has offended.”

President Trump won’t lose enough votes to Mr. Kennedy about Operation Warp Speed and COVID vaccines to have a significant impact on the election, Ohio Republican strategist Wes Farno told The Epoch Times.

President Trump won in Ohio by eight percentage points in both 2016 and 2020. The Ohio Republican Party endorsed President Trump for the nomination in 2024.

“The positives of a Trump presidency far outweigh the negatives,” Mr. Farno said. “People are more concerned about their wallet and the economy.

“They are asking themselves if they were better off during President Trump’s term compared to since President Biden took office. The answer to that question is obvious because many Americans are struggling to afford groceries, gas, mortgages, and rent payments.

“America needs President Trump.”

Multiple national polls back Mr. Farno’s view.

As of March 6, the RealClearPolitics average of polls indicates that President Trump has 41.8 percent support in a five-way race that includes President Biden (38.4 percent), Mr. Kennedy (12.7 percent), independent Cornel West (2.6 percent), and Green Party nominee Jill Stein (1.7 percent).

A Pew Research Center study conducted among 10,133 U.S. adults from Feb. 7 to Feb. 11 showed that Democrats and Democrat-leaning independents (42 percent) are more likely than Republicans and GOP-leaning independents (15 percent) to say they have received an updated COVID vaccine.

The poll also reported that just 28 percent of adults say they have received the updated COVID inoculation.

The peer-reviewed multinational study of more than 99 million vaccinated people that Mr. Kennedy referenced in his X post on March 7 was published in the Vaccine journal on Feb. 12.

It aimed to evaluate the risk of 13 adverse events of special interest (AESI) following COVID-19 vaccination. The AESIs spanned three categories—neurological, hematologic (blood), and cardiovascular.

The study reviewed data collected from more than 99 million vaccinated people from eight nations—Argentina, Australia, Canada, Denmark, Finland, France, New Zealand, and Scotland—looking at risks up to 42 days after getting the shots.

Three vaccines—Pfizer and Moderna’s mRNA vaccines as well as AstraZeneca’s viral vector jab—were examined in the study.

Researchers found higher-than-expected cases that they deemed met the threshold to be potential safety signals for multiple AESIs, including for Guillain-Barre syndrome (GBS), cerebral venous sinus thrombosis (CVST), myocarditis, and pericarditis.

A safety signal refers to information that could suggest a potential risk or harm that may be associated with a medical product.

The study identified higher incidences of neurological, cardiovascular, and blood disorder complications than what the researchers expected.

President Trump’s role in Operation Warp Speed, and his continued praise of the COVID vaccine, remains a concern for some voters, including those who still support him.

Krista Cobb is a 40-year-old mother in western Ohio. She voted for President Trump in 2020 and said she would cast her vote for him this November, but she was stunned when she saw his response to President Biden about the COVID-19 vaccine during the State of the Union address.

I love President Trump and support his policies, but at this point, he has to know they [advisers and health officials] lied about the shot,” Ms. Cobb told The Epoch Times.

“If he continues to promote it, especially after all of the hearings they’ve had about it in Congress, the side effects, and cover-ups on Capitol Hill, at what point does he become the same as the people who have lied?” Ms. Cobb added.

“I think he should distance himself from talk about Operation Warp Speed and even admit that he was wrong—that the vaccines have not had the impact he was told they would have. If he did that, people would respect him even more.”

Tyler Durden Mon, 03/11/2024 - 17:00

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