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What Now?

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We have learned that China, the world's second-largest economy contracted by nearly 10% in Q1.  The US has lost in less than two months all the jobs gained in the record expansion.  The central bank of Canada, the 10th largest economy, warned that its output could fall by 30% in the first half.  Europe's automakers' association estimates that sales imploded by 55% in March, twice the pace at the worst of the Great Financial Crisis.

Investors know that the shutdowns mean those claiming welfare benefits, unemployment insurance are surging.   Benefits have generally been increased and extended. Some countries offer to subsidize wages of employees whose employer reduces their hours rather than letting them go.  The US has offered loans that turn into grants to businesses that retain or rehire employees.  The early April manufacturing surveys conducted by the New York and Philadelphia Federal Reserve Banks (-78.2 and -56.6) provide more color of the depth of the economic contraction that is underway.    

It is hardly surprising that activity slows down dramatically when broad parts of the major economies have shut down.  A coin is dropped from the top of a 50-story building.  Snapshots of what it looks like at the 35th floor and again at the 10th floor may be interesting for a photographer, or physicist but it makes little difference.   And so it is with the economic data, except in slow motion.  It is going to get worse.  More important for investors and businesses is when the turn comes.  That is, of course, predicated in part by the easing of restrictions on movement, but it is not as simple as that due to complex and opaque supply chains.

Nevertheless,  like the rubbernecks on the highway, investors will take note of the preliminary April PMIs that are due in the days ahead.  The economic entrails will be combed and teased, but the reports are unlikely to influence investor or business decisions.  That said, Europe's report will be released as the heads of state meet virtually to ostensibly approve the compromise struck by the finance ministers last week.  The no-doubt dreadful preliminary PMI may further embolden those seeking a more significant response.  

The 540 bln euro deal pales in comparison to the economic catastrophe.  Europe is shaped by its reaction to crises.  A milquetoast response will set into motion forces that will exacerbate and deepen the fissure between creditors and debtors in Europe. Northern Europe entered the crisis with a better balance sheet than the South.  This will allow greater resources to be devoted to the reconstruction and rebound.  As a consequence, those centrifugal forces that threatened the European project a decade ago would likely re-emerge.   

Many attempts to chronicle recent events and official reactions cannot help but draw parallels with the Great Financial Crisis.   The debate over a common bond is one reiteration, and no progress has been made. The cart is often put before the horse. There has been too much focus on the liability and none on the asset.  Find compelling joint projects.  The Common Agriculture Policy ensures that Europe can be food self-sufficient.  It needs a Common Public Health Policy, and it needs to be tailored for every country.  From education and research, the capacity to manufacture essential drugs and medicines, as well as the equipment and devices are needed.  Regional coordination capitalizes on economies of scale and could facilitate and formalize the integration along borders.  

The UK and EU plan monthly meetings starting next week to negotiate a new trade agreement.  Prime Minister Johnson has previously warned that if the EU was not moving toward his position by the middle of the year, the UK would walk away from talks.  Apparently, three meetings are planned here in Q2 starting next week.  The EC had already expressed concern about the timeframe prior to the onset of the corona crisis.  

Nevertheless, the UK government should not be expected to change its insistence that the current timeframe is respected.  It gains nothing by even discussing it now.  Yet, its hurdle is not just the negotiations themselves. However, the measures the UK still needs to implement: enhanced borders checks, a new immigration system, and the introduction of a new and complicated customs border with Northern Ireland. The logical window is in June as the agreement allows for, but it would likely be a joint decision, and one blamed on the unforeseeable consequences of the virus.

Still, the UK's position appears to have hardened.  Johnson has explicitly refused to consider a delay, but last week, a government spokesperson indicated that UK would reject a formal EU request for a delay as well.  That said, lack of agreement and proper preparations would generate a disruption at a potentially vulnerable time (i.e., the normal coronavirus season of the common cold and flu).  

Meanwhile, China's economic and financial response to the crisis has been underwhelming.  The government and the central bank's response appear mild compared with the actions in 2008-2009 and relative to the reaction of other major countries.  By first cutting the seven-day repo rate at the end of March and then the medium-term funding rate last week, the PBOC signaled that the new benchmark 1-year Loan Prime Rate will fall 20 bp (to 3.85%) when it is set in the banks' submissions.  

On the other hand, the Federal Reserve is being accused by many observers for doing too much.  Its encroachment into free-markets is undermining the market discipline that requires as Oaktree's Howard Marks called a "healthy fear of loss."  A noted analyst argued because the Federal Reserve is buying assets for the Treasury Department, it has completely lost its independence: The White House is running the Fed.  Leave aside the months that Chairman Powell suffered a barrage of criticism from President Trump and that none of his appointed Governors have dissented from a single decision the Fed has taken before or since the crisis.    

Even for the less zealous, the buying of high-grade ETFs seemed beyond the pale.  The signaling effect of the announcement of its intentions was sufficient to set savings flowing into the largest ETFs in the space and raise valuations levels beyond the Fed's thresholds.  Others do not approve of the criteria that are being used to buy municipal bonds.  Debating the issues is beyond the scope of this note, but reference points can be useful. 

1.  What happens in a crisis stays in the crisis.  During an emergency, measures are often taken that would not be under normal circumstances.  Emergency measures can be and are often unwound.  The conservative President Nixon imposed price and wage controls. The government's equity stakes taken during the Great Financial Crisis were sold and for a profit to boot.  

2. The idyllic free-market has not existed for a long-time, if ever.  Keynes published his "End of Laisse Faire"  almost a century ago.  States play a vital role in sustaining aggregate demand.  Government spending accounts for between a third and half of the GDP of most high-income countries.  Between Fannie, Freddie, and Ginnie, the US government invests or insures something around 90% of America's mortgages.  

3.  Don't blame the plumber for the architect's mistake: The reforms in response to the GFC required that there be more democratic oversight of Fed's asset purchases outside of those for monetary policy (Treasuries and Agencies).  The special-purpose vehicles have been seeded with money Congress earmarked for the Fed and US reserves (Exchange Stabilization Fund).  It would cushion the central bank from any loss.  The Fed is acting as lender-of-last-resort and ensuring that the transmission mechanism of monetary policy functioning to  "bridge" the financial system to the other side of the crisis.  The Fed is concerned about the circulation of capital both in terms of bank lending and capital markets.  It has little direct influence over the disparity of wealth and income in the US.  Among the most helpful things it has done for those without capital was to help manage the longest business expansion in American history that saw a dramatic decline in the underemployment rate.   

4.  Impaled by two horns of the dilemma: On one hand, the Fed is accused of buying everything, and on the other, that its criteria are not fair.  Introducing rules about the kind of assets that it will purchase defines the assets it will not buy.  One bank estimated that the debt of about 10 cities and 16 counties meet its criteria.  It has taken a public health crisis and an economic shutdown of unthinkable proportions for the Fed to move so extensively.  In this unprecedented time, it is impossible to get it right, but one can choose the kind of mistake one is willing to make:  You are driving a car on a narrow twisted mountain road.  You could assume another car is coming around the corner and slow down as you approach it.  If no car is coming, you slowed down for nothing.  Alternatively, you could assume no car is coming, and you speed up to enjoy the thrill, and you find another driver going in the opposite direction had the same idea. As a response to this crisis, it is preferable to do too much than too little.  





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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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