Wednesday, April 29, 2020

Odds and Ends: April 2020

"To error is human, to forgive, divine."
- Alexander Pope

As the warm weather approaches, fortunately for all of us, the flu season will pass. What will linger is the wrangling for power within the government, Monday Morning Quarterbacking. In hindsight, we all should win the Super Bowl, but our two political parties are capable of ruining a wet dream.
We will hear that President Trump waited too long to enact a policy of prevention. He will counter that China hid the damage of contagion. He will lash out at experts, pundits and Democrats like a real estate agent taking any and all listings. If he puts enough on the wall, one may sell. This is the presidents position. The Democrats will basically do the same process. The only difference will be the names. They will fault the president and the Republican senate. They will cry about the allocation of the stimulus. They will produce new "experts" who will suggest that the administration took the wrong approach. This is why our government sucks! No one seeks what is best for the nation. No one enacts like Profiles in Courage.

Dear Reader, there was no playbook for this situation. My earlier comments and feeling was that the government overreacted. Now, I'm thinking, "It is always better to be safe than sorry." Let us all thank God that the virus was not as bad as everyone feared. It is time to move on.
The problem is what remains of our economy and life situation. My position was and still is the same. We need to protect workers. Globalization is another word for taking from America and giving our wealth to the world. Well, world, we have nothing left to give. Did you not see the lines of our citizens at food banks? Our jobs only produce enough to last until the next paycheck. It is true that we live above our means, but these last two crisis's have opened our minds. We will cut video streaming. We will live a more simple life and we will put something away for a rainy day. With that said, we should also demand that things be produced once again in America. We have nothing! We produce nothing! The supply chains revealed this aspect. We need to be self-sustaining once again. We need to return to our manufacturing roots that provide a livable wage. This will stop the climb of poverty and homelessness along with the new fear of food insecurity.

Where we are now...

With that said, let us look at conditions as the S&P ratings service does. From their viewpoint we are in trouble. Sebastian reminds us that mortgage debt fueled the crisis of 2008. The S&P worries that corporate debt could fuel a new crisis. They say that corporations have been borrowing up at a 75% clip. US firms now owe a record $10 trillion. Their credit quality is at an all-time low. They have downgraded more companies in the first quarter than ever before. In the financial crisis of 2008 the S&P downgraded a total of 1500 companies. In the first three months of 2020, they have already downgraded 1270 firms.
This cannot all be laid at the foot of the virus. Last year and looking ahead into this year, S&P ratings predicted a higher level of defaults. It put the percentage at 3.3%. Now, it is revised up to 10%.
It gets worse...
By the end of this year, S&P sees the rate of defaults climbing over 13%. If this happens, defaults will break a 40-year record to the negative side. Not good.

Quick Oil Lesson

The contract to purchase oil did something no one would ever predict: it went negative in value.
How can this be, you ask? People, there are two contracts for oil. The US contract and the European contract. There is a big difference between them. When the American contract expires, the holder of the contract agrees to take possession of the quantity of oil. No one has the ability at this moment to store oil, especially with declining prices and outlook. This is why speculators were dumping contracts.
Think about this? If you had a storage facility, you could have taken possession of oil for free and received payment to do so. I think of these things, but I lack the money to enact the ideas.
The Brent oil contract is ended in a cash solution. The pluses and minuses are calculated. It is no different than buying and selling a stock, just much, mucho bigger numbers.
However, there are other problems with oil. The basics of supply and demand. The demand side is so bad that the most important commodity in the world is trading below its asset value. Could it go lower, you ask? Possibly, but in reality, too much money is invested into this sector for the deviation to radically change its importance and value. The first signs of a return to normalcy will have a huge request that will give oil a trading range until the global economy sets its footprint level.

Does 2% Interest You?

Switzerland, the one time home for gold and now, the land of negative interest rates, just tried an experiment. In an effort to retain its high income, "special" clients who were taking money out of the nation, the Swizz bank piloted a program that offered a 2% interest rate. Guess what? It got oversubscribed. This is the sorry state of the world for savers and one to which central banks machinations has put us.

Speaking of central banks or the devil, the IMF sees the worst world recession since the Great Depression. These are the same people who four months ago said global growth would be 3.3%. They are seeking aid from wealthy nations of $8 trillion to help poor countries in South America, Asia, Africa and the Middle East. Question? If they are a bank, how come they don't give their money to these needy nations? Better yet, ask China to cover the bill, after all, they made the most money from all of their manipulations. Let them show a nicer face to the world. Don't count on that...

SBA

The agency is providing loans to small businesses in America. How about the "poor" NBA? They have cancelled all their games due to the virus. So, they gave a loan of over $4 million to the LA Lakers. Another example how not in touch with reality our government leaders are.

Real Unemployment

The media was making noise about the huge record jump in unemployment numbers (26 million).
They should have looked deeper into the reports from state agencies to the Bureau of Labor Statistics. JFL enlightened us to the reality that states are doing a terrible job with unemployment claims. States have cut back on insurance for workers as well as the agencies that address the claims. It is almost impossible to file a claim on the internet and even worse by phone. Then, there are millions of migrants who were working full-time, but of course, they will not be able to file a claim. JFL figures that there are another13 plus million laid off workers to which makes the total unemployment figure rise to 40 million. Yowzah!

NFL Draft...

was a success before and after. When ABC offered advertising for the event, companies bid more than ABC had slots. They could have raised their fees. The actual event garnered the highest ratings ever for this type of broadcast. We love our football.