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What Powell’s Not Telling You; Half of Jobs Already Lost May Not Be Coming Back Anytime Soon

What Powell’s Not Telling You; Half of Jobs Already Lost May Not Be Coming Back Anytime Soon



Time may not heal all wounds, after all. One thing it does do is clarify. There was a time not all that long ago when 20 million sounded absolutely enormous. How quaint today. At the end of March, initial jobless claims in the US were surpassing that unthinkable level leaving everyone to hope it wouldn’t get much worse.

Having blown through 40 million now, the real story is neither 20 nor 40. As I wrote what seems like ages ago, back on March 26:

The dislocation is upon us, but that’s no longer our major concern. Having been left no chance to avoid one, the only issue now is how quickly we get out from under it. If 20 million American workers maybe more are dispatched to the unemployment line in the weeks ahead, how soon do we get them back to work?

Just as important, do they all get a chance to go back?

Exactly. That’s the whole thing in a nutshell: do they all get a chance to go back?!

This is precisely the difference between bonds and stocks at the moment, though “precise” is hardly the best choice to describe anything. Jay Powell said the words “create money digitally” which the NYSE took to mean what never happens. The salivation began immediately upon hearing this particular bell ring.

The idea is simple if imprecise; stocks are a bet right now that over the course of the next few months the economy will show that, yes, as hard as it was to have 40 (and more) million jobs temporarily suspended all those workers will eventually be made whole. Business will go about being business in short order, the Fed’s magic money printing a key reason why.

The “V” of all V’s.

And the reason Jay Powell made such a point of saying “create money digitally” on 60 Minutes is because he knows it’s all bullshit. Furthermore, Powell understands his easily influenced audience very well (the financial services industry). Distracted by a canard, the stock market isn’t at all appreciating the gravity of this traumatic situation.

And that’s just the version being told by these optimists like Powell and the CBO models. The best case is mind-bogglingly bad.

This explains perfectly why the Fed Chairman lied so much, as well as the bond market’s determined detachment from both “money printing” and the preferred recovery letter.

How bad is it? Let’s run through a pro forma exercise using those CBO projections. Why them? Because they are, again, an example of the best case. The econometric models being used to come up with these rough guesses already encode within them the success of so much “stimulus.” That’s what puts them in the optimist category; they calculate how Jay Powell’s done an awesome job and how they believe it will make a meaningfully positive contribution.

Despite what’s assumed to be terrific monetary “stimulus” alongside massive fiscal “stimulus”, the CBO projects that by the end of next year the US will have been hit with something substantially worse than the Great “Recession.”

And when I write this, I don’t mean the contraction right now – the non-economic portion immediately related to the COVID-19 overreactions. What these forecasts are saying is that over the intermediate term the US economy, and the labor market in particular, will end up suffering worse than it did during and after GFC1.

But in order to really appreciate this we need to put some numbers on it. These ratios are too abstract. Using the rough estimate of an 8.6% unemployment rate at the end of 2021 plus an employment-to-population ratio almost 5 percentage points lower than Q4 2019, hold onto your hats.

Assuming that the labor market bottoms out in May, which is no safe assumption, as jobless claims are ably demonstrating, the participation rate using this scenario leaves the labor market, as I wrote, in worse shape than the worst of it during 2009.

Now to turn these ratios into raw numbers of workers. Extrapolating conservative growth estimates for all three variables, including what might’ve been unbroken employment growth in the Household Survey of just 140k jobs per month average, the deficits are terrifying.

When you hear this constant talk of the “V” recovery, getting back to normal relatively quickly, the best growth ever seen during Q3, no one said anything about 19 million being left outside, unable to find any way back into the labor market, did they?

NINETEEN MILLION. As a best case, maybe half of the jobs so far lost not coming back for years, if ever. That’s what we’re looking at right now…if everything happens to go beautifully from here. 

Five million of the twenty is those who have dropped out of the labor force altogether and, according to the CBO’s models, won’t even bother looking for work again. You’ll understand why in a second.

The combination of an employment-to-population ratio of 56.2% plus the estimated unemployment rate of 8.6% (which, by the way, leaves those 5 million above out of its denominator; more millions added to those already missing from the last time we did this) puts the Household Survey at ~147.5mm.

That’s barely more than what has been estimated for the peak…in 2007.

Don’t forget, these levels are for the end of next year. A year and a half of supposedly money-printed recovery, fiscal splurging feds, and we’ll be lucky to see 2008 levels of jobs entering 2022.

What the CBO, like Jay Powell, will add is that there is massive uncertainty with these figures. And that’s absolutely true. But, so what? Let’s assume that “stimulus” is even more effective than how it is being modeled, and that it cuts these labor market losses in half; which would still mean almost 10 million Americans left out of work nineteen months from now.

As it also would mean those tens of millions more who have already been laid off only slowly get back into jobs. This is not what they’re telling in their carefully worded, happy-times narrative.

How many millions of Americans will miss (more) rent and mortgage payments? How many millions won’t be able to spend on the same discretionary items? How many more companies are going to go out of business because of so much lost business?

What Jay Powell has done, effectively at the NYSE, is to get people to believe none of that will matter; that by the power of magic words alone, the economy will be left to slowly, painfully heal without being further disrupted by the massive ramifications of all these things (second and third order effects).

If everything goes smoothly, record high stock prices signal back to normal (being 2019 normal, too, not 2005 normal let alone pre-21st century normal) sometime in the mid-20’s? This is not what the V people have in mind, and furthermore this scenario requires officials and authorities to thread the tiniest, slimmest needle just to get there.

In short, these best cases are themselves atrocious and replete with enormous risk(s). And that’s before ever factoring how these are so low in probability; the tails are all this presumed upside. The Fed is suddenly a competent, well-run money machine? By what actual evidence are we supposed to believe this? Certainly not history, including and especially recent history (see: late 2018).

All this disconnect, by the way, isn’t unusual; recency bias is a bitch. It quite naturally takes people quite a long time to realize the scale of such a gigantic hole (GFC1 still surprised the vast majority of the population when it took down Lehman and AIG halfway through the Great “Recession”). No one wants to believe something like this is possible, not in this day and age, and not with the mainstream myth of the technocracy.

It’s like 2008 never happened.

That’s why I wanted to use “their” numbers and estimates. They’re out there saying everything’s going well and it’s going to be just fine if you sit back and let it; when, at the same time, their very own numbers don’t buy it.


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Here’s Why Royal Caribbean, Carnival Stock Are Good Buys

Yes, Carnival reported a bigger-than-expected loss but in this case, unlike taking a cruise, it’s the destination not the journey for the cruise lines.



Yes, Carnival reported a bigger-than-expected loss but in this case, unlike taking a cruise, it's the destination not the journey for the cruise lines.

For the past two years, since the covid pandemic hit in late-February 2020, the cruise industry has taken one punch after another. And, while the situation has improved from the extended period when cruises were not allowed to sail from United States ports, that does not mean that it's back to 2019 for Royal Caribbean International (RCL) - Get Royal Caribbean Group Report, Carnival Cruise Line (CCL) - Get Carnival Corporation Report, and Norwegian Cruise Line (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report.

The industry has done a remarkable job bringing operations back to near-normal. All three cruise lines not only have put all their ships back in service, they're also still moving forward with plans for new ships and other investments including improvements to private islands, and developing new ports.

That being said, Carnival just reported its second-quarter earnings and the market did not like the numbers at all. Shares of all three cruise lines were down double digits on Sept. 30, but traders clearly missed that aside from rising costs and a loss (both of which were expected) the cruise line largely delivered good news.

Image source: Shutterstock

Carnival Did Well in Areas it Controls  

Carnival reported a GAAP net loss of $770 million for the quarter. That was driven by higher costs with the company specifically citing advertising expenses and having some of its fleet unavailable to produce revenue.

While the company's year-to-date adjusted cruise costs excluding fuel per ALBD during 2022 has benefited from the sale of smaller-less efficient ships and the delivery of larger-more efficient ships, this benefit is offset by a portion of its fleet being in pause status for part of the year, restart related expenses, an increase in the number of dry dock days, the cost of maintaining enhanced health and safety protocols, inflation and supply chain disruptions. The company anticipates that many of these costs and expenses will end in 2022.

If you're investing in any cruise line you have to do so on a very long-term basis. That makes profitability less of a concern than the company building back its business and Carnival showed some very positive signs in that direction.

  • Revenue increased by nearly 80% in the third quarter of 2022 compared to second quarter 2022, reflecting continued sequential improvement.
  • Onboard and other revenue per PCD for the third quarter of 2022 increased significantly compared to a strong 2019
  • Total customer deposits were $4.8 billion as of August 31, 2022, approaching the $4.9 billion as of August 31, 2019, which was a record third quarter.

  • New bookings during the third quarter of 2022 primarily offset the historical third quarter seasonal decline in customer deposits ($0.3 billion decline in the third quarter of 2022 compared to $1.1 billion decline for the same period in 2019).

Carnival (and likely all the cruise lines) is being hurt by prices generally being depressed and some passengers paying for their trips using future cruise credits from cruises canceled during the pandemic. That's not really what matters though. Carnival has been increasing passenger loads and getting people back on its ships.

"Since announcing the relaxation of our protocols last month, we have seen a meaningful improvement in booking volumes and are now running considerably ahead of strong 2019 levels," Carnival CEO Josh Weinstein said. "We expect to further capitalize on this momentum with renewed efforts to generate demand. We are focused on delivering significant revenue growth over the long-term while taking advantage of near-term tactics to quickly capture price and bookings in the interim."

Basically, cruise prices are cheap right now because it's more important to get customers back on board than it is to maintain pricing integrity. That's a tactic that could hurt long-term pricing, but the cruise industry is less vulnerable than other vacation options because there have always been large pricing variations based on the calendar and the age of the ship being booked.

It's a Long Voyage for Cruise Lines

Carnival was trading at its 52-week low after it reported. That's a pretty major overreaction given that the cruise industry was barely operating in the fall of 2021.

Yes, the industry has a long way to go. All three major cruise lines took on billions of dollars of debt during the pandemic. Refinancing that debt in an environment with higher interest rates is a challenge, but it's one Carnival (and its rivals) have been meeting.

That has come with some shareholder dilution. Carnival sold $1.15 billion in new stock during the quarter, but the company has over $7.4 billion in liquidity. Weinstein is optimistic (he has to be, that's part of his job) about the future.

"During our third quarter, our business continued its positive trajectory, achieving over $300 million of adjusted EBITDA and reaching nearly 90% occupancy on our August sailings. We are continuing to close the gap to 2019 as we progress through the year, building occupancy on higher capacity and lower unit costs," he said.

Usually it's easy to dismiss a CEO making upbeat comments after posting a loss, but in this case, Carnival has basically followed the recovery path it laid out once it returned to sailing. Both Royal Caribbean and Norwegian have followed similar paths and while meaningful shareholder returns may take time, these are strong companies built for the long-term that made a lot of money before the pandemic and should do so again. 

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Spread & Containment

Three reasons a weak pound is bad news for the environment

Financial turmoil will make it harder to invest in climate action on a massive scale.




Dragon Claws / shutterstock

The day before new UK chancellor Kwasi Kwarteng’s mini-budget plan for economic growth, a pound would buy you about $1.13. After financial markets rejected the plan, the pound suddenly sunk to around $1.07. Though it has since rallied thanks to major intervention from the Bank of England, the currency remains volatile and far below its value earlier this year.

A lot has been written about how this will affect people’s incomes, the housing market or overall political and economic conditions. But we want to look at why the weak pound is bad news for the UK’s natural environment and its ability to hit climate targets.

1. The low-carbon economy just became a lot more expensive

The fall in sterling’s value partly signals a loss in confidence in the value of UK assets following the unfunded tax commitments contained in the mini-budget. The government’s aim to achieve net zero by 2050 requires substantial public and private investment in energy technologies such as solar and wind as well as carbon storage, insulation and electric cars.

But the loss in investor confidence threatens to derail these investments, because firms may be unwilling to commit the substantial budgets required in an uncertain economic environment. The cost of these investments may also rise as a result of the falling pound because many of the materials and inputs needed for these technologies, such as batteries, are imported and a falling pound increases their prices.

Aerial view of wind farm with forest and fields in background
UK wind power relies on lots of imported parts. Richard Whitcombe / shutterstock

2. High interest rates may rule out large investment

To support the pound and to control inflation, interest rates are expected to rise further. The UK is already experiencing record levels of inflation, fuelled by pandemic-related spending and Russia’s war on Ukraine. Rising consumer prices developed into a full-blown cost of living crisis, with fuel and food poverty, financial hardship and the collapse of businesses looming large on this winter’s horizon.

While the anticipated increase in interest rates might ease the cost of living crisis, it also increases the cost of government borrowing at a time when we rapidly need to increase low-carbon investment for net zero by 2050. The government’s official climate change advisory committee estimates that an additional £4 billion to £6 billion of annual public spending will be needed by 2030.

Some of this money should be raised through carbon taxes. But in reality, at least for as long as the cost of living crisis is ongoing, if the government is serious about green investment it will have to borrow.

Rising interest rates will push up the cost of borrowing relentlessly and present a tough political choice that seemingly pits the environment against economic recovery. As any future incoming government will inherit these same rates, a falling pound threatens to make it much harder to take large-scale, rapid environmental action.

3. Imports will become pricier

In addition to increased supply prices for firms and rising borrowing costs, it will lead to a significant rise in import prices for consumers. Given the UK’s reliance on imports, this is likely to affect prices for food, clothing and manufactured goods.

At the consumer level, this will immediately impact marginal spending as necessary expenditures (housing, energy, basic food and so on) lower the budget available for products such as eco-friendly cleaning products, organic foods or ethically made clothes. Buying “greener” products typically cost a family of four around £2,000 a year.

Instead, people may have to rely on cheaper goods that also come with larger greenhouse gas footprints and wider impacts on the environment through pollution and increased waste. See this calculator for direct comparisons.

Of course, some spending changes will be positive for the environment, for example if people use their cars less or take fewer holidays abroad. However, high-income individuals who will benefit the most from the mini-budget tax cuts will be less affected by the falling pound and they tend to fly more, buy more things, and have multiple cars and bigger homes to heat.

This raises profound questions about inequality and injustice in UK society. Alongside increased fuel poverty and foodbank use, we will see an uptick in the purchasing power of the wealthiest.

What’s next

Interest rate rises increase the cost of servicing government debt as well as the cost of new borrowing. One estimate says that the combined cost to government of the new tax cuts and higher cost of borrowing is around £250 billion. This substantial loss in government income reduces the budget available for climate change mitigation and improvements to infrastructure.

The government’s growth plan also seems to be based on an increased use of fossil fuels through technologies such as fracking. Given the scant evidence for absolutely decoupling economic growth from resource use, the opposition’s “green growth” proposal is also unlikely to decarbonise at the rate required to get to net zero by 2050 and avert catastrophic climate change.

Therefore, rather than increasing the energy and materials going into the economy for the sake of GDP growth, we would argue the UK needs an economic reorientation that questions the need of growth for its own sake and orients it instead towards social equality and ecological sustainability.

The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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Covid-19 roundup: Swiss biotech halts in-patient PhII study; Houston-based vaccine and Chinese mRNA shot nab EUAs in Indonesia

Another Covid-19 study is hitting the breaks as a Swiss biotech is pausing its Phase II trial in patients hospitalized with Covid-19.
Kinarus Therapeutics…



Another Covid-19 study is hitting the breaks as a Swiss biotech is pausing its Phase II trial in patients hospitalized with Covid-19.

Kinarus Therapeutics announced on Friday that the Data and Safety Monitoring Board (DSMB) has reviewed the company’s Phase II study for its candidate KIN001 and has recommended that the study be stopped.

According to Kinarus, the DSMB stated that there was a low probability to show statistically significant results as the number of Covid-19 patients that are in the hospital is lower than at other points in the pandemic.

Thierry Fumeaux

“As many of our peers have learned since the beginning of the pandemic, it has become challenging to show the impact of therapeutic intervention at the current pandemic stage, given the disease characteristics in Covid-19 patients with severe disease. Moreover, there are also now relatively smaller numbers of patients that meet enrollment criteria, since fewer patients require hospitalization, in contrast to the situation earlier in the pandemic,” said Thierry Fumeaux, Kinarus CMO, in a statement.

Fumeaux continued to state that the drug will still be investigated in ambulatory Covid-19 patients who are not hospitalized, with the goal of reducing recovery time and the severity of the virus.

The KIN001 candidate is a combination of the small molecule inhibitor pamapimod and pioglitazone, which is currently used to treat type 2 diabetes.

The news has put a dampener on the company’s stock price $KNRS.SW, which is down 22% since opening on Friday.

Houston-developed vaccine and Chinese mRNA shot win EUAs in Indonesia

While Moderna and Pfizer/BioNTech’s mRNA shots to counter Covid-19 have dominated supplies worldwide, a Chinese-based mRNA developer and IndoVac, a recombinant protein-based vaccine, was created and engineered in Houston, Texas by the Texas Children’s Hospital Center for Vaccine Development  vaccine is finally ready to head to another nation.

Walvax and Suzhou Abogen’s mRNA vaccine, dubbed AWcorna, has been approved for emergency use for adults 18 and over by the Indonesian Food and Drug Authority.

Li Yunchun

“This is the first step, and we are hoping to see more families across the country and the rest of the globe protected, which is a shared goal for us all,” said Walvax Chairman Li Yunchun, in a statement.

According to Walvax, the vaccine is 83% effective against the “wild-type” of SARS-CoV-2 infection with the strength against the Omicron variants standing at around 71%. The shots are also not required to be stored in deep freeze conditions and can be put in storage at 2 to 8 degrees Celsius.

Walvax and Abogen have been making progress on their mRNA vaccine for a while. Last year, Abogen received a massive amount of funding as it was moving the candidate forward.

However, while the candidate is moving forward overseas, it’s still finding itself stuck in regulatory approval in China. According to a report from BNN Bloomberg, China has not approved any mRNA vaccines for domestic usage.

Meanwhile, PT Bio Farma, the holding company for state-owned pharma companies in Indonesia, is prepping to make 20 million doses of the IndoVac COVID-19 vaccine this year and 100 million doses by 2024.

IndoVac’s primary series vaccines include nearly 80% of locally sourced content. Indonesia is seeking Halal Certification for the vaccine since no animal cells or products were used in the production of the vaccine. IndoVac successfully completed an audit from the Indonesian Ulema Council Food and Drug Analysis Agency, and the Halal Certification Agency of the Religious Affairs Ministry is expected to grant their approval soon.

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