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Uncertainty is Choosing to be Blind to Long Term Pandemic Damage

Separating the Wheat and Chaff

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This article was originally published by Marc to Market.

The recent price action, and in particular, the sideways trend in many segments of the capital markets, reflects the challenge investors are having in separating the wheat from the chaff.  The strong co-movement of risk assets has weakened. There is a lack of near-term visibility and contradictory signals, while the trends in place since March have stretched valuations and complicate risk-reward calculations.
The US followed the much better than expected jobs report with news that retail sales surged by 17.7% in May, more than twice what economists were expecting, and April's decline was pared.  The real signal is more nuanced.
First, the government has acted quickly to replace much of the wage income that has been lost.  Consider that an estimated 2/3 of people collecting unemployment insurance are receiving money than their work paid.  The surge in savings was involuntary for the most part, and when the opportunity availed itself, Americans went shopping.
This will likely be reflected in May's personal income and consumption figures out at the end of next week.  Personal income jumped 10.5% in April.  This is an exaggeration, and around half may be given back in May.  Consumption, on the other hand, crashed by 13.6% in April and could have recouped almost half in May.    Separately, May durable goods orders should also recover smartly from the 17.7% crash in April, owing primarily to the transportation sector.  Excluding it, durable goods orders may have risen by around 1% after dropping 7.7% in April, illustrating the cautiousness about investment.
The pandemic and the universal response of reduced social interaction was shaped by perceptions of safety and government edicts.  The shock has synchronized business cycles.  Leaving aside a handful of countries, including most notably China, the steep contraction is being experienced this quarter, and, already, there are signs that the worst has passed.   The preliminary June PMIs--the data highlight of the week--for Europe, the US, Australia, and Japan can be expected to confirm that the pace of contraction is slowing, setting the stage for a recovery in H2.
Second, it seems clear from alternative data, like Open Table reservations and traffic patterns, while there has been increased activity, most people are far from resuming their normal activities, even in states and cities that have re-opened.  Moreover, some areas are seeing increased cases and hospitalizations.   Beijing seems to be struggling to contain a flare-up, Germany, and the Australian state of Victoria are also reporting an increase of infections.  California, Florida, and Arizona reported one-day records, and infections in Texas are rising. The surge in several US states, which has prompted Apple to close several stores again. The stay-in-place orders were never suggested to be a cure for the virus but rather a means to stretch out the occurrences to avoid over-burdening the medical capacity.  Many people are understandably concerned about the increase in incidents.  Nearly a fifth of US states are reporting either a new record number of cases or new seven-day averages.  For many, talk of a second-wave is a way to get around talking about the relaxation of containment procedures before meeting the criteria that the federal government provided.
Third, the economic data is really more mixed than the focus on the jobs report, and retail sales would suggest.  The contraction here in Q2 will be historic, whether it is 30% or 45%.   Industrial output last month rose by less than half of the 3% that economists expected, and April's 11.2% decline was revised to show a 12.5% decline.  A similar development was evident in the narrower measure of manufacturing output.  The 3.8% increase disappointed forecasts, and the April series was revised to show a 15.5% decline rather than 13.7%.  May housing starts were well shy of expectations.  The 4.3% gain was less than a fifth of what economists had projected (23.5% median forecast in the Bloomberg survey) after plummeting a revised 26.4% in April (initially estimated at -30.2%).
Fourth, there are going to be temporary and longer-lasting effects of the virus and economic shutdown.  The unwind of the temporary factors, like some furloughed workers, the re-opening of stores, will see economic activity increase.  This is what the "soft" June data, like the Empire and Philadelphia Fed manufacturing survey showed.  Weekly jobless claims proved to be stickier than expected, and, as it stands now, many of the Fed's emergency facilities end in September, while the $600 a week extra unemployment insurance ends July 31.
Congress and the White House most likely will find an agreement on more fiscal support during this important election year. Still, it is unlikely to be as direct as the household checks and extended unemployment benefits.   Nevertheless, investors and businesses may turn cautious, given the coming cliff in economic support.   And like after the Great Financial Crisis, the risk is that support is withdrawn before the economy is on a strong path toward full-employment.  As companies reassess their business outlook and the Payroll Protection Program incentives fade,  permanent layoffs seem likely.  Several large banks and non-financial firms are already moving in that direction.  Some businesses are going to realize that they do not need as much office space, and commercial real estate may be challenged.
Central banks did move in concert last week though it was hardly coordinated.  The Federal Reserve's Main Street facility was launched after being announced in late March.  The Fed's corporate bond purchase program began to include individual issues rather than just ETFs, which has been the case until now.  The Bank of Japan expanded interest-free loans to corporations to JPY110 trillion from JPY75 trillion.  The ECB's made a net new three-year loans of nearly 550 bln euro (at minus 100 bp), or a 10% increase of its balance sheet (~5.63 trillion euros as of June 12).  The Bank of England boosted its bond-buying program by GBP100 bln.  The People's Bank of China cut its reverse repo rate by 20 bp, and officials signaled further easing of monetary policy would be delivered.  Other central banks, including Brazil (-75 bp to 2.25%), Russia (-100 bp to 4.50%), and Indonesia (-25 bp to 4.25%), also eased policy.
More central banks meet in the week ahead. The Reserve Bank of New Zealand meets following the larger than expected contraction in Q1 (-1.6% vs. 1.0%)  but will likely be content with the policy setting (0.25% cash rate) after doubling the long-term asset purchase plan to NZ$60 bln last month from NZ$33 bln announced in March.
Among emerging market countries, central banks in Mexico and Turkey are likely to deliver additional rate cuts.  Under intense political pressure, Turkey's central bank halved the key one-week repo rate last year to 12%.  It cut it to 8.25% and is expected to reduce it by another 25 bp on June 25.  The small move anticipated reflects the sense that stubborn price pressure limits the scope for additional cuts. Turkey's CPI fell from 11.84% in December 2019 to 11.39% in May.  The lira was already under pressure before the crisis hit, and despite reserve-draining intervention, the currency did not bottom until early May.  It recouped some losses in May but is softening again in June and is off about 13.2% this year.
The dramatic risk-off move in March offset the high real and nominal rates that had lifted the Mexican peso in 2019 and early 2020.  The peso bottomed in early April and appreciated by more than 18% through last week, leaving it still down almost 17% year-to-date.  With the virus hitting Mexico hard and the deflationary impact spreading, the central bank will likely cut the target rate by 50 bp to 5.0%.   Banxico's easing cycle began last August.  It has cut rates at every meeting since but October 2019 and January 2020.  The target rate has fallen by 125 bp since February.  Inflation is running below 3%.  It has plenty of room to reduce rates, though the peso's pullback may continue.
Geopolitics is on radar screens, but outside of a flicker, the impact seems negligible.  South Korea appeared more sensitive than India or China.  Taiwan's markets seemed unperturbed by reports of China's incursions into its airspace.  On the other hand, the resignation of Brazil's Treasury Secretary weighed on the real, which fell even more following COPOM's rate cut.  The US removal of troops from Germany, withdrawal from the Open Skies Treaty, and the World Health Organization, in relatively rapid succession, also seem to have no tangible impact.  Canada lost its bid for a UN Security Council seat to Ireland and Norway, and while chins wagged and column inches were delivered, investors were unmoved.
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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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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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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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