And yet the official numbers have been a matter of some dispute. According to public health officials, in the first two weeks of April alone — a period where the region might see 1,000 people die for any number of reasons, natural and otherwise — Guayas province registered more than 6,700 deaths. As of this week, however, Ecuador has only been able to officially confirm, through testing, that 537 people have died due to Covid-19. Another 952 are considered probable Covid-19 deaths, with the victims having shown symptoms, but without definitive testing.

But just how many of the nearly 6,700 deaths in this one province are ultimately attributable to Covid-19 is impossible to know — and may well remain so. As has been the case in Italy, Spain, and other nations where health care resources have collapsed beneath the weight of illness and death, several reports have surfaced of people dying of non-Covid-19 causes that would have, or should have, been preventable. But authorities — widely criticized for being slow to act amid the gathering crisis — insist that they now have the matter well in hand.

“It is true, that in the beginning, this got out of control,” Juan Carlos Zevallos, the health minister of Ecuador, said in an interview. “But we are handling the situation now.” He was referring to the bodies. The region had become so quickly overwhelmed by the number of deaths that no resources were available to deal with them. Hundreds of corpses and cardboard coffins accumulated in tidy rows in the streets, while in homes across the province, the dead bodies of loved ones, mothers, fathers, children — whether they perished from the coronavirus or not — lay for days on sofas and in bedrooms and across floors. And with temperatures pressing past 85 degrees (30 degrees Celsius), an almost unbearable smell rose up across Guayaquil.

It was the smell of a Covid-19 situation out of control.

Let’s put to rest the belief the virus cannot spread in hot countries. Ecuador sits on the equator. I’ve been to Guayaquil, it’s hot and sticky a lot of the time. That means everywhere is going to have to deal with the impact. No testing does not mean no infections.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: stock markets at continued risk of consolidation, Euro weak, gold firm, food prices beginning to rise, Europe lining up stimulus, 

“With the fiscal programs that all the governments are appropriately injecting into their economies and printing money, the one currency you cannot print is gold,” Jake Klein, executive chairman at Australia’s Evolution Mining Ltd. Told Bloomberg TV. “That’s why it’s got investors’ interest.”

Next week, policy makers from the Federal Reserve, European Central Bank and Bank of Japan all meet to assess their stances, raising the possibility of further assistance. Gold futures for June delivery rose 1.1% to $1,756.90 an ounce at 10:43 a.m. on the Comex in New York after surging 3% on Wednesday. Global holdings in ETFs rose for a 23rd session on Wednesday and are at a record. Silver futures advanced on the Comex, while platinum and palladium climbed on the New York Mercantile Exchange.
 

ETF Holdings of gold have come from nowhere at the turn of the century to become the third largest in the world. The total held by ETFs eclipsed those of the IMF in March. Germany and the USA are now the only two larger official holders of the metal. No one really knows how much gold China has accumulated and the vast quantities warehoused in India’s temples are not counted in official totals because they are unlikely to ever move. 

Australia has announced they are increasing petroleum reserve stocks. Small steps in the global oil market. We have lots of gas not much Oil. Government argument oil prices are low. Think I can see political / defense US / Australian ambitions in this move.

The Governor of the RBA made a speech a few months back the RBA will support all local banks. That investors should feel confident about the security of their bank deposits and securities. Can I trust these comments? I almost fell out of my chair when Glenn Stevens made this statement

Thank you for this email which may be of interest to other subscribers. It makes sense that Australia should build up an oil reserve when prices are cheap. It certainly beats doing it when prices are high and a significant reserve is a geopolitical imperative during a time when stress between the great powers of our day is only likely to increase.

Facebook's investment of $5.7 billion in India's top telecom operator Reliance Jio highlights a broader bet on India’s online growth beyond ads. Jio has more than 388 million subscribers with reach in content, payments and ecommerce, all of which Facebook can scale up via its 380 million WhatsApp, Facebook or Instagram users in India. Plans to integrate Jio’s small businesses to enable shopping on WhatsApp shows an acceleration in e-commerce.

THESIS: Facebook will be the hardest-hit internet company in 2020 from the virus fallout as a sharp ads decline and small and medium business exposure can take growth down to low-single digits, while surging usage hits profit harder. Yet we believe exiting this uncertainty with a higher user base and new habits means diversification into new businesses and a 2021 ad rebound will make its growth emerge the strongest among peers. More than 60% of Facebook's sales are in the U.S., the U.K., Germany, Japan, France and Italy. Small and medium business make up the majority of Facebook's 7 million advertisers. Earnings in 1Q will likely reset growth expectations, creating room for longer-term sales outperformance as Facebook pushes into diversifying its business post-virus.

Where are the largest tech companies going to find the next billion users? There are only three potential options. China, Africa and India. They have been cut out of China as it champions its domestic firms. Africa is a continent rather than a country, and on aggregate is further down on the per capita income scale. That leaves India with a massive young population, large number of English- speaking consumers, an independent judiciary, financial market norms familiar to westerners and a democracy intent on raising living standards.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: European sovereign spreads break out despite ECB support, Euro weakens, Gold firm in all currencies, oil steadies, Stock markets steady, bitcoin stable ahead of halvening.

Consider now the potential for a diametrically opposite situation in COMEX gold. Why and how could this unfold?

COMEX gold also has "delivery month" contracts that serve as the "front month" for trading purposes until they go off the board and into delivery—at which time the trading volume rolls into the next scheduled month.
In delivery, anyone still long the contract can stand for delivery through the COMEX vaults in New York. (And now might also stand for fractional ownership of bullion bars in London, too.)
But global demand for physical gold outstrips supply at present, as many refineries, mines, and mints are closed worldwide due to Covid-19.
Thus, we are seeing a growing need/demand to hold COMEX contracts into delivery. For the current month of Apr20, total gold deliveries on COMEX exceed 3,000,000 ounces. This is more than 3X the usual demand for a "delivery month".
If an extreme shortage develops—or if any sort of "run" on the bullion bank fractional reserve system begins—demand for delivery through the COMEX and LBMA will soar.
Demand for the front/delivery month contract will surge. However, to buy a contract, you will also need a seller—someone interested in adding a short or selling an existing long.
And in this case, there may be NO SELLERS. Thus, what you may see is a true offerless market.
The potential result? The exact opposite of what you witnessed Monday in NYMEX crude oil.

Could this opposite scenario actually play out in COMEX gold? You may be reluctant to say yes, as this type of situation would seem unlikely and unprecedented. However, prior to Monday, April 20, the idea of negative pricing for the world's most important commodity was similarly unlikely and unprecedented.

The US Oil Fund ETF’s predictable roll schedule which has been gamed by hedge funds for years is the primary reason the April WTI crude oil contract hit -$40 this week. To the best of my knowledge there is no corresponding fund that is rolling over futures contracts in gold on a predictable basis. The vast majority of ETFs investors buy for gold exposure hold physical metal rather than futures.

The U.K. will begin human trials of a coronavirus vaccine Thursday, Health Secretary Matt Hancock said, as he argued that the government’s strategy for fighting the disease had succeeded.

“In the long run, the best way to defeat coronavirus is through a vaccine,” Hancock told the government’s daily news conference. “The U.K. is at the front of the global effort. We have put more money than any other country into a global search for a vaccine and, for all the efforts around the world, two of the leading vaccine developments are taking place here at home.”

The trials will be of a drug developed at Oxford University. Hancock said the government would give 20 million pounds ($25 million) to support the research. “In normal times, reaching this stage would take years,” he said. Another 20.5 million pounds will go to a separate project at London’s Imperial College.

There are 70 different teams working on vaccines around the world which highlights how urgent the need for a barrier of safety from COVID-19 is. Not only do competition, money and a willingness to break-down barriers to entry increase the scope for a breakthrough but this kind of news is positive for consumer sentiment amid lockdowns.

The halving decreases the amount of new bitcoins generated per block. This means the supply of new bitcoins is lower.

In normal markets, lower supply with steady demand usually leads to higher prices. Since the halving reduces the supply of new bitcoins, and demand usually remains steady, the halving has usually preceded some of Bitcoin's largest runs.

In the image below, the vertical green lines indicate the previous two halvings (2012-11-28 and 2016-7-9). Note how the price has jumped significantly after each halving.

The bitcoin halvening is estimated for May 10th. In a market where supply inelasticity has been making headlines in a number of asset classes, the doubling of the work load to produce one bitcoin represents a noteworthy event.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Banks remain very weak, short-term overbought conditions likely to be unwound, gold eases, oil prices flowing down the commodity curve, bonds steady.  

I am adjusting my retirement income portfolio by broadening my global search for income, particularly from Investment Trusts. For the first time I am looking at Japanese markets and in particular 2 ITs, CC Japan Income & Growth and one of David’s favourites from a few years ago, Atlantis Japan Growth. I would value your thoughts on looking for income from the historically low yielding Japanese markets and your opinion of the 2 ITs: CC Japan Income & Growth only have a short history but have consistently raised their dividend over the past 4 years. Atlantis Japan Growth have altered their growth focus to some degree. I learnt from their most recent factsheet that, at the 2019 AGM, shareholders approved the Board’s recommendation to replace the redemption facility with a regular dividend paid to all shareholders on a quarterly basis set at 1% of net asset value at the close of the preceding financial year. This is an interesting approach, what is your opinion of it? Many thanks

And

I ask you, over a 12-month horizon, what are your 2 highest conviction ideas? The first from a purely technical/chart-based perspective and the second from a fundamental/macro-based view.

And

Eoin I trust this message finds you well! I have a question: I have some funds left in South Africa and I know its still early days for them in terms of the crisis, but the banking sector has been quite severely hit. I was considering buying some the banks, i.e. Nedbank, ABSA, Standard Bank and First Rand. I would love your view on that. Thanks a lot.

Here are three examples of emails I have received in the last week which are important from a number of perspectives. The first is I have received more emails in the last three weeks from subscribers, than in the preceding three months. That is normal when uncertainty prevails and was to be expected.

The tone of the emails is what I find particularly interesting and it is something that needs to be highlighted to investors. Almost everyone is in the market to buy the dip. That’s understandable. It has been the go-to investment strategy of the last decade and there is no denying there have been some exceptional value opportunities in the dividend aristocrats’ and gold miners’ sectors. However, when everyone reaches the same conclusion at the same time it is usually the time to think as a contrarian.

A link to the full report is posted in the Subscriber's Area. 

This rise of populism has made this a more likely scenario than it was following the financial crisis. Whatever the economic medicine, the health and wellbeing of consumers is likely to be at the centre rather than the periphery of the solution. The alternative would be revolution.

As George Friedman discussed in his The Storm Before The Calm, the U.S. operates on two long cycles – the socioeconomic cycle and the institutional cycle.  The first works on a 50-year time frame, while the other is about 80-years long.  The socioeconomic cycle’s last shift “happened around 1980, when the economic and social dysfunction that began in the late 1960s culminated with a fundamental shift in how the economic and social systems functioned.”  This is referred to as the Reagan Revolution, which brought lower tax rates that addressed a crucial issue facing the U.S., which was a lack of capital.  Today, we suffer from too much capital and a lack of investment opportunities, which Mr. Friedman attributes to a decline in productivity growth as we experience a falloff in innovation.  There have been a number of studies and books written about why the nation’s productivity has declined.  

The institutional cycle deals with how the federal government’s operation and relationship to society changes.  It’s first 80-year cycle began with the Revolutionary War and the drafting of the Constitution and ended with the Civil War in 1865.  The second cycle extended to World War II.  The current cycle will end around 2025, about the same time the current socioeconomic cycle will end, leading, in Mr. Friedman’s view, to extreme chaos that will force changes on the nation that will bring social calm and economic prosperity in the 2030s, and thereafter.   

Mr. Friedman makes a compelling case in studying how our economy, government, society and geopolitical role in the world have evolved and changed since the arrival of the first colonists in the late 1500s and early 1600s.  Without expounding on his discussion, the nature of cycles, something we pay attention to in the business, investment and energy worlds, has driven us to think about how the future may evolve.  

A link to the full report is posted in the Subscriber's Area.

There is a lot of talk in financial blogs about the prospect of a debt jubilee where governments get together and decide that the liabilities have become so large that the totals will be reduced in an abrupt manner and a new money will be created. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: WTI crude oil trades at huge contango ahead of May expiry, natural gas, uranium, nickel, wheat steady, stock market susceptible to consolidation, bonds steady, China deploys additional stimulus. 

The price on the futures contract for West Texas crude that is due to expire Tuesday fell into negative territory -- minus $37.63 a barrel. That’s right, sellers were actually paying buyers to take the stuff off their hands. The reason: with the pandemic bringing the economy to a standstill, there is so much unused oil sloshing around that American energy companies have run out of room to store it. And if there’s no place to put the oil, no one wants a crude contract that is about to come due.

Underscoring just how acute the concern over the lack of storage is, the price on the futures contract due a month later settled at $20.43 per barrel. That gap between the two contracts is by far the biggest ever.

“The May crude oil contract is going out not with a whimper, but a primal scream,” said Daniel Yergin, a Pulitzer Prize-winning oil historian and vice chairman of IHS Markit Ltd.

The May contract expires tomorrow and as of today was still trading 108,593 contracts that will need to roll or be delivered. That’s going to result in massive trading losses for anyone looking to roll and the incredible decline today suggests a surge for the exits among traders.

Good afternoon Eoin, I am enjoying the daily video and the written commentaries. Regarding your medium and long-term view that the price of gold is and will be reflecting the increasing and competitive debasement of currencies, but that presently gold is in an overbought phase, please explain what you would consider the maximum drawdown in gold to undo the overbought situation.

Would that imply that gold should e.g., give up about $170 (10%) and reach approximately $1530 which I believe is the 200 SMA? Same question for silver. In what time frame do you expect the undoing of the overbought situation for gold (and silver) to happen? Days, weeks, months? How quickly would the bull market resume?

It seems that the script of the last financial crisis is happening at 4-5 times the speed of 2008/2009...) What likelihood do you see that governments and central banks in the end will intervene (on an international scale) to either confiscate or prohibit the private holding of gold and silver and/or otherwise make sure that the nuisance of gold and silver as uncontrolled non-fiat money disappears? Roosevelt and others like Hitler, Soviet Union already proved that this can be successfully implemented ...Second addition to my first message/questions: To what extent did the rally in stocks trigger yesterday's and today's downdraft in the PM sector? Thank you!

Thank you for this series of questions which may be of interest to subscribers. The mantra that delivers the best returns is “don’t pay up for commodities” and that applies even in a bull market. Gold and the precious metals generally are prone to volatility and often posted failed upside breaks. Chasing the market higher will only work on the relatively rare occasions when the trend accelerates; whereas more often than not precious metals trends adopt a sawtooth profile.

Hi Eoin, could you please comment on the pricing discrepancies between Comex and spot? It is playing havoc with the Gold ETFs which are not reflecting the underlying as well as they should be.

Thank you for this question which may be of interest to other subscribers. Speculation about what exactly is causing this arbitrage is running hot in the media. The lack of liquidity among market makers, the shortage of refined gold, the break in shipping schedules for the metal and fears about counterparty risk among London bullion banks are all contributing to the historically wide spread.

Eoin, you are an optimist. I hope you will be proven right! for another point of view read the article from today's New York Times: "The Coronavirus in America: The year Ahead". One factoid: the record time for producing a vaccine is 4 years, for mumps.

Thank you for this email and I agree the New York Times article certainly paints a gloomy picture of potential success rates with developing vaccines. I thought the most useful portion of the article was to highlight just how patchy information relating to the COVID-19 virus really is.

Thanks for the insightful video, as always, Eoin. Have you had a look at the uranium sector lately? The spot price has jumped along with the miners, including Cameco and Denison which jumped 26% yesterday. Is the long-awaited supply crunch coming into play and how long will the uptrend last? Your thoughts on this will be appreciated.

Thanks for this question which may be of interest to subscribers. The shutting down of both transportation and some mining operations has created a short-term supply shortage which is supporting the outperformance of uranium. It’s the number one best performing commodity this year but the supply shortage is unlikely to last beyond the lockdown phase of the virus-induced recession.

A link to this week's Big Picture Long-Term Video is posted in the Subscriber's Area. 

Although it's true that millions of hospitality workers now are out of work and available for immediate employment, the generous unemployment benefits passed by Congress in the $2 trillion rescue bill may make some of them less interested in going back to their old jobs. Ernie Tedeschi of Evercore ISI notes that between state insurance and the federal supplements, the average weekly unemployment benefit for workers in states such as New York, California, Washington and Massachusetts will be more than $1,000. That's the equivalent of $25 an hour for a 40-hour work week. For restaurant workers who earn significant tips, returning to work may offer enough economic incentive to be worth it. For lower-paid dishwashers and line cooks, unemployment might be a better deal -- at least through the end of July, when the benefits are set to expire. That means restaurants may have to pay much higher wages than in the pre-virus market level to staff up.

Combining these two dynamics -- restaurants aren't going to be able to serve as many patrons and they will have higher labor costs -- and it's likely that many restaurants won't survive. The most obvious way for the survivors to make up for this is to charge more for the same menu offerings, perhaps much more. The good news for the restaurants that do survive is that between fewer seats available at each restaurant, and fewer restaurants competing for customers, eating out might become a scarce, coveted experience, particularly after weeks or months of much of the population sheltering in place.

Not everyone is a good cook and few are ever likely to be. If eating out and receiving full service becomes inordinately expensive then the law of supply and demand means dark kitchens will proliferate. Uber was helping to pioneer this trend ahead of the virus outbreak and the sector is likely to pick up a lot of the slack from fast casual dining.

Much depends now on whether consumers regain a willingness to spend amid nervousness that the virus can stage a comeback as controls are relaxed. Evidence from the epicenter of the virus, Wuhan, suggests progress will be slow.

While factories around Wuhan are working around the clock to get back up to speed, the recovery of consumer-focused businesses won’t be straightforward. People are cautiously taking to the streets again, but they remain subject to curbs on their movements aimed at keeping the virus at bay.

The nation’s per capita disposable income declined by 3.9% in real terms in the first quarter from a year ago, the first contraction since the data was available in 2014.

Consumer caution “continues to restrain demand, and thus activity more broadly,” said Frederic Neumann, co-head of Asia economic research at HSBC Holdings Plc in Hong Kong. “This is reminder also for other economies of the arduous path to full recovery even after full lockdowns are removed. All this points to the need for a more determined policy push on both the monetary and fiscal fronts to ‘shock the system’ and get activity back up to its earlier vitality.”

Personal consumption is going to take a hit because if Chinese consumers have learned anything from the six-week lockdown it is they are on their own when to comes to survival. Western countries are boosting the provision of cash to citizens to help them make it through the loss of income phase. Those kinds of support do not exist in China and therefore the key lesson is to boost savings.

China agreed to resume normal customs procedures at its border gates after Vietnamese transport trucks endured extensive backups due to Chinese measures designed to counter the spread of the novel coronavirus, according to a statement on the website of Vietnam’s trade ministry.

Chinese authorities will ease some of the procedures to make it easier for Vietnamese trucks loaded with agricultural products to more quickly cross the border into China, according the statement. The agreement came during a conference call between Vietnam’s Minister of Industry and Trade Tran Tuan Anh and Chinese officials, it said.

Not all emerging markets are going to be evenly affected by the coronavirus in just the same way that Greece and Germany skirted the worst of the outbreak while Italy and Spain were hit particularly hard. With the infection rate cresting in a number of markets, the big question is when it will crest in the emerging markets. The relative strength of their respective currencies is about the best barometer we have for how economies are being affected. 

BBC: The fear of coronavirus is changing our psychology

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Wall Street replacing short-term oversold with short-term overbought condition buy many global and mid cap sectors have experienced modest rallies. Banks continue to underpeform, competitive currency devaluation, gold steady, oil weak, emerging market risk. 

A link to the full report is posted in the Subscriber's Area. 

Central banks have been particularly firm in stating they will do whatever it takes to support the market. If the measures currently in place do not succeed in that ambition, I have no doubt purchasing equities will be a part of future suite of policy initiatives.

Early peek at data on Gilead coronavirus drug suggests patients are responding to treatment - This article by Adam Feuerstein for statnews.com may be of interest to subscribers. Here is a section:

A Chicago hospital treating severe Covid-19 patients with Gilead Sciences’ antiviral medicine remdesivir in a closely watched clinical trial is seeing rapid recoveries in fever and respiratory symptoms, with nearly all patients discharged in less than a week, STAT has learned.

Remdesivir was one of the first medicines identified as having the potential to impact SARS-CoV-2, the novel coronavirus that causes Covid-19, in lab tests. The entire world has been waiting for results from Gilead’s clinical trials, and positive results would likely lead to fast approvals by the Food and Drug Administration and other regulatory agencies. If safe and effective, it could become the first approved treatment against the disease.

The University of Chicago Medicine recruited 125 people with Covid-19 into Gilead’s two Phase 3 clinical trials. Of those people, 113 had severe disease. All the patients have been treated with daily infusions of remdesivir. 

“The best news is that most of our patients have already been discharged, which is great. We’ve only had two patients perish,” said Kathleen Mullane, the University of Chicago infectious disease specialist overseeing the remdesivir studies for the hospital.

One of the biggest challenges with COVID-19 is hospitals had no treatment for it so they were flying blind with how they manage patients with severe symptoms. That has resulted in prolonged stays in hospital which has gummed up the medical systems of a significant number of countries.

In 2019, about 3 million pickups were sold out of 17 million vehicles. Nobody knows the size of the EV pickup market initially, or how badly EV range suffers under a heavy load (Tesla owners have known range tanks when a Model S or Model X tows a trailer), or if buyers are willing to pay extra to get the large batteries that allow 300 t0 400 miles of range on pickups.

As for the market for all plug-in vehicles – battery electric vehicles and plug-in hybrids – the final 2019 US sales numbers for light vehicles amount to combustion-engine-only cars, 98.1 percent of the market, BEVs and PHEVs 1.9 percent.

There is some hope – among environmentalists, at least – that Americans, in the wake of the coronavirus slowdown, will appreciate the cleaner skies in major cities and adopt plug-in vehicles to keep the air clear and clean. GM’s battery R&D is for its worldwide markets, not just the US, and it may find more traction outside the US. Depending on how many people and businesses have money to spend on new cars in the next year.

At the Ultium rollout, GM cited forecasters who called for EV volumes to double between 2025 and 2030 to 3 million units annually – one in six vehicles sold – and added its belief the numbers could be “materially higher.”

The point in the above piece, that the global market influences the kind of cars US companies produce is an understatement. The most profitable market for conventional US automakers is the pick-up truck, which is a predominately North American vehicle. All other markets are heavily influenced by whatever China demands.

A link to today's video and audio commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Wide divergence between winners and losers, tech, dividends and gold leading, oil weak, bonds steady, big correction or end of the secular bull?

Hi - in light of recent stock market rise I checked how past 2 bear markets behaved and found the following:

2000 bear (2 years)

2000 Aug 2001 Mar -29%
2001 Mar 2001 May +22%
2001 May 2001 Sep -28%
2001 Sept 2002 Jan +24%
2002 Jan 2002 Aug -34%

2008 bear (18 months)
2007 Oct 2008 Mar -20%
2008 Mar 2008 May +15%
2008 May 2008 Dec -44%
2008 Dec 2009 Jan +18%
2009 Jan 2009 Mar -28%

The second (2008) bear market was deeper and shorter. How do you anticipate 2020 bear market evolving? Will it be even deeper and shorter? Thank you

Than you for this informative email which raises an important question about whether we are in medium-term correction within a broader secular bull market or is this a major market top which denotes the end of the secular bull market?

The peak in 2000 was the end of a 20-year secular bull market and represented the climax of a liquidity fuelled mania in the technology, media and telecoms sectors. The 2007 peak occurred within the context of a secular bear market which we defined a generational long process of contracting valuations and rising dividend yields.

It goes beyond even this though, and the Fed now has powers to buy the actual junk rated ETFs, direct from the market. So yes, they can directly buy the debt of the fallen angels like Ford and Macy’s but pre-existing junk bond issuers also stand to benefit. There really does seem to be no end to the rescue packages served up by Governments across the world.

The question remains though as to who will ultimately pay for this? In the U.K. we have only just exited an era of deeply unpopular austerity. Do we delve straight into more of the same? With a post-election promise of massive equalisation between North and South, I can’t see how that sticks. Or are we looking at increased taxes on the wealthy through direct asset-based taxes? Someone has to pick up the tab after all.

Thank you for this question which I believe many people are asking and not just in the UK. I agree there is no appetite for higher taxes. The populist wave that has swept the status quo aside in many countries, was powered by disaffection with globalisation, austerity and the hollowing out of the middle class.

“This period, like the 1930-45 period, is a period in which I think you’d be pretty crazy to hold bonds,” Dalio said Wednesday on the Bloomberg Invest Talks webcast. “If you’re holding a bond that gives you no interest rate, or a negative interest rate, and they’re producing a lot of currency and you’re going to receive that, why would you hold that bond?”

Central bankers around the world are playing the most instrumental role trying to keep the coronavirus recession from deepening into a depression. Already, the Federal Reserve balance sheet has ballooned by almost 50% since the end of February to a record $6 trillion, and there may be trillions more in stimulus spending from the U.S., Europe and Asia. So far, the Fed’s buying has helped to push Treasury yields down.

While Dalio may not like bonds, he thinks governments have to employ every bit of monetary ammunition they can muster to compensate for the collapse in income and spending resulting from the pandemic. While economists are divided on how long and painful the recession will be, Dalio thinks about it differently: as a $20 trillion “hole” in the global economy that needs to be filled. “There’s no choice,” said Dalio, whose firm manages about $160 billion. “If you don’t do that, the consequences are enormous.”
 

It is looking increasingly like more of the G-7 are going to follow Japan’s lead and adopt some form of yield curve stabilisation. That suggests the spread will remain positive but only because central banks are manipulating both ends of the curve. What Ray Dalio is referring to is a loss of faith in the value of the currency in which bond coupons and maturities are being paid back in.

A link to day's video commentary is posted in the Subscriber's Area. 

Some of the topics dicsussed include: Gold remains firm with competitive currency devaluation a significant theme, stocks conitnue to firm but banks are a headwind, emerging markets primed to outform if Dollar conitnues to weaken, 

Overall, gold still has room to run, according to Hans Goetti, founder and chief executive officer of HG Research.

“What’s happening here is that the Fed is expanding its balance sheet and every other central bank in the world is doing the same,” he told Bloomberg TV. “What you’re looking at is massive currency debasement in the long term. That’s the major reason why gold is higher, and I would think that over the next few weeks or months, we’re probably going to retest the high that we saw in 2011.”

The Federal Reserve’s massive U.S. monetary program and the fiscal stimulus “could see long-end rates rise during the recovery phase, but not without rising inflation expectations, which should keep real rates suppressed,” TD Securities analysts said in an emailed note. “In this context, we suspect that investment demand for gold will continue to rise as capital seeks shelter from a long-term environment in which real rates are negative.”

Negative real rates boosts the appeal of non-interest-bearing bullion.

Gold’s latest upswing has come even as risk sentiment received a boost after China’s trade data beat estimates, while the pace of coronavirus infections has slowed in some countries, with the focus shifting toward how lockdowns can be eased. President Donald Trump said he has “total” authority to order states to relax social distancing and reopen their economies.

The rationale being used by governments everywhere to justify massive spending programs is “this is not the time to worry about deficits.” The stock market, particularly the FAANG sector continues to rebound on the abundance of free money but the bigger picture is this is being achieved by rapidly debasing the purchasing power of fiat currencies.

“We haven’t actually seen the stress emerge,” she said on a call with analysts. “What we took in the first quarter was our best estimate of future losses.”

Banks also have to determine how many lending commitments will turn into funded loans as companies tap previously unused revolving credit facilities. Wells Fargo CEO Charlie Scharf said commercial clients had tapped $80 billion of loan commitments just in March. JPMorgan said customers had drawn more than $50 billion of existing revolvers and were approved for $25 billion in new credit in March.

U.S. banks have maintained that they are much better positioned for this crisis than in 2008. JPMorgan’s key capital ratio was 11.5%, within its medium-term target range. Wells Fargo’s was 10.7%, above its internal target. Still, shares of both banks slipped in New York trading by 10:30 a.m. in New York as the broader market rose, with optimism the pandemic is slowing driving up the S&P 500 more than 2%.

“We like to be conservative in reserving,” Dimon said. “Plan for the worst so you can handle it.”

The virus did not impact economic activity until about the middle of February for most countries, so 1st quarter earnings include 3 weeks at most of lockdown conditions for US companies. Ahead of the lockdowns economic activity was still expanding, after the lockdowns it will take time to recover but we won’t get 2nd quarter earnings until July. However, it is reasonable to conclude banks are going to be where some of the heaviest impacts from constraining consumer ability to service debt are going to hit.

I am following your features on investment trusts with interest. I was hoping to be able to locate ten year average discounts on the Association of Investment Trusts Website  . Unfortunately, the format has changed since I last looked at it several years ago. However, there is a wealth of information on the site including a section on Dividend Heroes as well as performance stats on individual trusts. Thank you for your efforts.

Thanks for this informative email which I believe will be of interest to subscribers. The project I am currently working on is to create a comprehensive database of UK listed investment trusts which includes the number of years since their last dividend cut, dividend yields, discount to NAV and the 10-year average discount/premium to NAV. I’m about 75% complete. Once complete I will post the results on the site and envisage updating them monthly.

A link to today's video commentary is posted in the Subscriber's Area. 

As we wrote in our March 24 industry note, we see extreme monetary and fiscal stimulus leading to dollar deflation. In this environment, similar to the set up in 2008, we expect gold price to trade materially higher and we have raised our gold price forecast to $2,500/oz. With higher prices, gold miners stand to benefit from substantial margin growth, assuming that industry-specific cost inflation remains low. In our opinion, investors should be looking to build positions in gold-related equities that give them exposure to gold. In our experience, investors will gravitate to large-cap producers and select those with the largest annual production of gold. Investors will also look to published gold reserves (and resources) in the ground, and selecting those equities with the largest accumulation. While neither of these section methods is without its flaws, we have reviewed our coverage and aggregated this data. As we indicated in our January 30 gold industry note (“Strategies for Outperforming the Gold Miner ETFs”), we continue to recommend investors build a concentrated portfolio of our favorite names that offer gold leverage, but also minimize exposure to production interruptions and provide exposure to the M&A cycle that historically accompanies a gold bull market.

A link to the full report is posted in the Subscriber's Area.

This is not the time to worry about deficits” are likely to prove fateful words 18 months from now. The measures being adopted by the world’s governments, in tandem with their respective central banks, are sowing the seeds for future inflation.

That’s not a short-term risk because the velocity of money is at an unprecedented low but stimulus often proves sticky and any improvement in economic conditions is going to result in a surfeit of money sloshing around.

The Federal Reserve is not leaving any corner of the U.S. bond market behind in this crisis. There’s no other way to interpret the central bank’s sweeping measures announced Thursday, which together provide as much as $2.3 trillion in loans to support the economy. It will wade into the $3.9 trillion U.S. municipal-bond market to an unprecedented degree, can now purchase “fallen angel” bonds from companies that have recently lost their investment-grade ratings, and has expanded its Term Asset-Backed Securities Loan Facility to include top-rated commercial mortgage-backed securities and collateralized loan obligations.

This is new and close to what I’ve argued for over the past year. The Fed’s facility will buy muni debt directly from issuers that’s sold for cash-flow purposes and matures no later than 24 months from the date of issuance. I had figured that for simplicity the central bank would make this available only to
states, but the Fed decided that in addition to states and Washington, D.C., it would also buy notes from cities with more than 1 million residents and counties with more than 2 million. The Treasury Department is making an initial $35 billion equity investment, and the vehicle can snap up as much as $500 billion of eligible debt.
 

The buck has to stop somewhere and the support mechanisms announced following the lockdowns resulted in the burden of fiscal supports falling unevenly on different portions of the market.

Saudi Arabia and Russia ended a devastating oil price war on Thursday, agreeing to slash output together with other members of the OPEC+ alliance in an effort to lift the market from a pandemic-driven collapse.

The tentative deal came after strong pressure from U.S. President Donald Trump and American lawmakers, who fear thousands of job losses in the U.S. shale patch, not to mention Wall Street chaos. The price crash has also threatened the stability of oil-dependent nations and forced companies from Exxon Mobil Corp. to small independents to rein in spending.

OPEC and its allies, meeting by video conference, agreed to cut production by about 10 million barrels a day in May and June, delegates said, asking not to be identified ahead of an official statement. Saudi Arabia and Russia, the biggest producers in the group, will each take output down to about 8.5 million a day, with all members agreeing to cut supply by 23%, one delegate said.

“Both Saudi and Russia were going to have to cut anyway, and these cuts allow them to win political points too,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.

While the headline cut equates to a historic reduction of about 10% of global supply, it makes up just a fraction of the demand loss, which some traders estimate at as much as 35 million barrels a day.

The oil price turf war is over, for now, but unfortunately the cuts announced are not near enough to rebalance the market in the near term. The very fact the Federal Reserve supplemented its stimulus with an additional $2 trillion in spending today, only a week after the last announcement is a testament to how weak economic activity is, even if it turns out to be short-term in nature.

State Street Global Advisors: Quantifying Macroeconomic Risk

Trust you are keeping safe in your home. Here is a bit more on Vitamin C worth reading. I have been taking 5000mg( sodium ascorbate) for years and I can’t remember getting the common cold or flu going back years. I have never had a flu jab. I am definitely a convert. I won’t bother checking the subject matter with doctors because these guys whilst they are good in their respective disciplines are not trained in the area of nutrition. 

And

IMPORTANT From a Respiratory Therapist Friend

They are calling on Respiratory therapists to help fight the Corona virus. I am a retired one, now too old to work in a hospital setting. I'm going to share some common sense wisdom for those with the virus, and trying to stay home. If my advice is followed as given, you will improve your chances of not ending up in the hospital on a ventilator.

This applies to the otherwise healthy population, so use discretion,

(1) Only high temperatures kill a virus, so let your fever run high. Tylenol, Advil, Motrin, Ibuprofen etc. will bring your fever down allowing the virus to live longer. They are saying that ibuprofen, Advil etc. will actually exacerbate the virus. Use common sense and don't let fever go over 103. If it gets higher than that, take your Tylenol, not ibuprofen or Advil to keep it regulated. It helps to keep house warm, and cover up with blankets so body does not have to work so hard to generate the heat. It usually takes about 3 days of this to break the fever.

(2) The body is going to dehydrate with the elevated temperature, so you must rehydrate yourself regularly, whether you like it or not. Gatorade with real sugar, or Pedialyte with real sugar for kids, works well. Why the sugar? Sugar will give your body back the energy it is using up to create the fever. The electrolytes and fluid you are losing will also be replenished by the Gatorade. If you don't do this, and you end up in the hospital, they will start an IV and give you D5W (sugar water) and Normal Saline to replenish electrolytes. Gatorade is much cheaper, pain free, and comes in an assortment of flavors.

(3) You must keep your lungs moist. Best done by taking long steamy showers on a regular basis, if your wheezing or congested use a real minty toothpaste, and brush your teeth while taking the steamy shower, and deep breath through your mouth. This will provide some bronchial dilation and help loosen the phlegm. Force yourself to cough into a wet wash cloth pressed firmly over your mouth and nose, which will cause greater pressure in your lungs forcing them to expand more and break loose more of the congestion.

(4) Eat healthy and regularly. Gotta keep your strength up.

(5)  Once the fever breaks, start moving around to get the body back in shape and blood circulating.

(6) Deep breathe on a regular basis, even when it hurts. If you don't, it becomes easy to develop pneumonia. Pursed lip breathing really helps. That's breathing in deep and slow; then exhaling through tight lips as if your blowing out a candle. Blow until you have completely emptied your lungs, and you will be able to breath in an even deeper breath. This helps keep lungs expanded as well as increase your oxygen level.  

(7) Remember that every medication you take is merely relieving the symptoms, not making you well.

(8) If you have difficulty breathing, chest pain or pressure go to ER. Please wear a mask.

I've been doing these things for myself and my family for over 40 years, and I've kept them out of the hospital. All are healthy and still living today.

Thank you all for sharing this with family & friends. We gotta help one another.

Thank you for this first hand account and we are all well. My girls are looking forward to getting off of online school for their Easter holiday. They are both in agreement online classes are the closest thing to make believe one might imagine. Either that or what they spend most of their time at school doing is a complete waste of time. After lockdowns end, I suspect the number of people opting for home schooling, at least in the early years, will surge.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Stocks extend rebound on optimism the worst is over, oil steady amid improving sentiment,. UK mid caps outperforming again.

A link to the full report is posted in the Subscriber's Area.

The virus scare has highlighted how susceptible China is to the export market. They have worked extremely hard to get factories back to full capacity but, having succeeded in that objective, they now find there are no orders.

When we look at the company’s costs and expenses per barrel of oil equivalent (BOE), we find they totaled $14.01 for 2019.  Based on the company’s average oil price (which was not adjusted for its gas output given its low price), this translates into a cash profit margin per BOE of $36.88.  If we include the cost of depreciation, depletion and amortization expense (largely a non-cash expense), but indicative of the amount of investment the company needs to make to insure it replaces produced barrels and remains an ongoing enterprise, the cash profit per BOE falls to $19.06, or 37.4% of the average selling price after adjusting for hedging.  That is a pretty attractive return.  

With WTI oil futures prices falling to $20 per barrel, and assuming the location and quality discount remains at $6, Whiting Petroleum was looking at generating no positive cash from the oil it produced.  It also assumes cash operating expenses remain at 2019 levels.  This means Whiting Petroleum would be unable to invest in new exploration and development, which makes the company a self-liquidating entity.  In that condition, the company essentially has no value.  The bankruptcy filing indicates that reality, as current shareholders will only retain 3% of the shares of the reorganized company, as the debt holders will hold 97% in return for agreeing to cancel their bonds.  

Under today’s very depressed oil and gas prices, few producers will be able to fund operations.  If the companies have a significant amount of debt on their balance sheets, they will face serious challenges to sustain their businesses if they do not address their financial leverage.  To understand the precarious health of the producer sector, energy consultant Rystad has prepared a chart showing the debt maturity schedule and annual interest expense for a group of 29 significant producers.  While this represents only 29 producers, we believe it is indicative of the financial condition of the balance of the producer sector.  

The only way the unconventional oil sector is going to make it through the current crisis is to reduce the cost of production. There is no getting around the fact hydraulic fracturing and horizontal drilling operations are considerably more expensive than conventional drilling. Technological innovation will help improve that spread but it will be impossible to eliminate. Therefore, scale and proximity to end markets are the primary route to reducing costs.

A link to the full report is posted in the Subscriber's Area. 

The most useful way of thinking about the current environment I have seen was provided by a friend, Akhil Patel, who described it as a recession in reverse.

His rationale is a recession generally begins with some portions of the economy shutting down and spreads to increasingly more as the contraction expands. The recession eventually ends when the central bank overreacts and cuts rates aggressively.

On Coronavirus In 1970, the late eminent medical research scientist and Nobel prize winner Linus Pauling made quite a startling finding, albeit based on a fairly small sample of school children on vacation in the swiss alps. He found that there was a statistically significant group that were taking daily high doses of vitamin C which had a much lower infection rate with the common cold virus. Vitamin C has subsequently been found to help the cellular production of Interferon. Common cold viruses are also in the family of coronaviruses. Just a thought

Thank you for this insightful comment. There have been stories from hospitals that vitamin-C is effective. I have also talked to rheumatologists who dismiss the claim it is possible to affect the immune system. That definitely seems to fly in the face of the fact that people have taken everything from oranges to lemons as home remedies for colds for centuries.

For example, my mother never treated a cold or flu with anything more than a hot drink made from fresh lemon juice, honey and sugar as well as the strong belief it was going to improve her symptoms. She maybe took one ibuprofen a year.

This interview, kindly forwarded by a subscriber, with Dr. Shiva Ayyadurai, who is running for the US Senate, is on the fringe of systems biology but he is making a number of compelling arguments about the lack of systems based biology in the medical field.

I was on a conference call today with someone who has recovered from the coronavirus. He was on a ski trip in Colorado with ten families in total. Eight people contracted the virus and none passed it the other members of their families. Testing was hard to get and no one has had an antibody test yet.

Eventually, we are going to get a vaccine for the coronavirus and that will be useful for people with compromised immune systems. There is no argument to counter the advice we should be looking after our personal wellbeing through sound nutrition. The vast majority of people are going to work through an infection with little need for hospital assistance.

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics dscussed include: stocks markets fail to hold intraday gains amid a short-term overbought condition, gold arbitrage narrows, oil steady, bonds ease, tech continues to outperform.

A link to the full report is posted in the Subscriber's Area. 

Let’s set aside for the moment questions of timing and think about what changes we can expect to be durable from the virus-induced recession.

The first thing that springs to mind is a loss of income which will take a while to recover. For some that will be quite soon, for others who need to find a new job it will take longer. As we go from full employment in many countries to something less that necessarily represents lower growth overall and by extension lower corporate earnings.

A link to the full report is posted in the Subscriber's Area. 

The idea of Modern Monetary Theory scandalised investors a year ago but very much the reality today as central banks fall over themselves to accommodate the efforts of governments to spend their way out of the trouble. My contention since early this year was the coronavirus will be temporary but the monetary and fiscal effects will be very long lasting.

One of the biggest challenges of buying Chinese corporate debt is working out the borrower’s ties to the government, says Soo Cheon Lee, chief investment officer at SC Lowy, a credit-focused banking and investment firm. “China is not about the financials, it’s about relationships,” Lee says. “That’s driving a lot of the liquidity available to a company. You really need to understand the local landscape, and it’s difficult for foreign players to understand who has that connection or support from the state.”

Sometimes a Chinese company will appear to be in dire straits, only to come up with the cash for a debt payment at the last minute, Lee says. “For most of the companies in Asia, we know two weeks before whether they have financing or if they are going to restructure,” he says. “I think it’s very unique for China to not be able to predict a default.”

Some firms are not what they appear to be, Lee says. “If you are truly a state-owned enterprise,” he says, “you will continue to get support from the government or state-owned banks. But when we look at companies that claim to be SOEs but aren’t really SOEs, we see they’re having some difficulties.”

I think a handy rule of thumb for anyone thinking of dipping a toe in China’s distressed debt markets is “state support is a precondition, not a nice to have”. $1.5 trillion in defaulted debt is a juicy target provided covenants can be enforced. The extent to which that is possible in an autocracy is to ascertain how much the ruling families might be inconvenienced by a default.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: FAANGs outperform by a wide margin while other markets unwind deep oversold conditions, mortgage servicers under extreme pressure increases chance of additional stimulus, Dollar steady but gold outperforming. bond ease.

Over the past decade, a huge mountain of Dollar denominated debt has been built up outside the U.S., especially in emerging markets, and particularly in China. According to the BIS, these loans increased from $5.8 trillion to more than $12 trillion between 2009 and 2019. When the crisis hits, short-term loans are often not extended because lenders turn risk-averse. Then debtors have to scramble to buy Dollars in the market. As the Dollar rises, the debt in the debtor's home currency increases, which in turn increases the pressure on them even more. Weak economies such as Turkey, Brazil and South Africa are caught in a vicious cycle. That's why I've been warning for some time about investing in emerging markets, including China. They just have a huge Dollar debt problem.

Do you expect a «Lehman Moment» in this crisis, the collapse of a major market player?

In every crisis there are companies that perish. It won't be any different this time. Given the excessive indebtedness in the corporate sector, one would have to expect some spectacular bankruptcies. But given the speed with which central banks have acted - much faster than in 2008 -, this will no longer threaten the financial system per se.
 

Swap lines have been extended to considerably more countries than during the global financial crisis. In 2007, the focus of attention was the developed market banking sector so swap lines were limited to G-7 central banks. At the end of March that list was expanded to Australia, Brazil, South Korea, Mexico, Singapore, Sweden, Denmark, Norway and New Zealand. The notable exceptions have been to countries like Turkey, South Africa and China.

“This is a crisis so easily correctable,” he said. “The GSEs [Fannie Mae and Freddie Mac] for years have always assured the servicing community that in the event of a major credit event, they’ll be there to make sure they provide the liquidity. From what we are hearing, and we can’t verify it, the FHFA director instructed the GSEs not to set up a liquidity or advance facility.”

When asked for a response to the industry plea, Calabria on Monday declined to comment.

Both Stevens and Bray said that because of this new and momentous risk in the mortgage market, it is suddenly much harder for borrowers to get new loans or refinance current mortgages. Wells Fargo is already placing restrictions on jumbo lending to its customers.

“It’s just going to create more fear within the nonbank servicing sector. The banks that service them are going to start to not lend,” said Bray. “Ultimately that impacts homeowners. They won’t be able to be served because these companies will be in the middle of a crisis. We’ve seen a lot of businesses close their doors, and if you start closing the doors of servicers, you’re impacting people’s lives much more than other sectors. You’re talking about their homes. It’s the largest asset they have.”

The buck has to stop somewhere. If homeowners are given a free pass on skipping mortgage payments that simply pushes the onus for making payments up the line to servicers who need to pay mortgage bond coupons. When major tenants like H&M or Primark refuse to pay rents, it puts a great deal of pressure on landlords who still have mortgage payments to meet. I have not seen any commentary yet on how much forbearance will be made available to commercial property REITs.

Facebook’s deal with Plessey illustrates how tech giants are racing to secure the building blocks needed for AR headwear—technology experts believe could be as transformational as the introduction of PCs and smartphones. Facebook CEO Mark Zuckerberg recently predicted that “we will get breakthrough AR glasses that will redefine our relationship with technology” in the 2020s. 

To create such a device, Facebook has teams building its own operating system, apps, silicon chips, and tech capable of deciphering human thoughts. It also continues to invest in VR headset maker Oculus, which it acquired for roughly $2 billion in 2014.  

In a statement, Facebook said it wants to build “a glasses form factor that lets devices melt away so we can be more present with our friends, families, and surroundings.” 

“This will take years, so across AR/VR we’re continuing to invest in extensive research on this deep tech stack and components such as small-scale displays,” the company said.

The AR devices that have been released so far from the likes of Magic Leap and Microsoft are clunky, expensive headsets with extremely limited graphics capabilities that haven’t sold well. 

Mark Zuckerberg was an early advocate of virtual reality as the next big social medium. Having tried out the Oculus Quest over the last few weeks I think he is onto something.

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

Governments raced to craft stimulus programs to shield businesses from the economic fallout of the coronavirus, but now they face the challenge of getting the funds flowing.

A review of efforts in the Group of Seven nations suggests Germany and France are proving the most successful, in part because they can take advantage of existing bureaucracy. Others need to win the approval of lawmakers, while logistical obstacles are also emerging that slow the money.

The obvious risk is that the longer programs take to get up and running, the greater the chance firms fail and the economic recovery is delayed.

Small businesses are among the biggest employers on aggregate but also represent among the biggest customers for large companies. However, because the sector is necessarily disparate in nature there is a clear difficulty in ensuring the most in need receive funds.

ETFs TAN and FAN: what is your opinion on the quality of the constituents in both products? I do believe going forward this be a huge trend. but how many companies will make it to the other end? thanks very much for educating us in these turbulent times!

Thank you for your kind words and this question which may be of interest to other subscribers. The renewables or alternative energy sector was a clear outperformer into the beginning of March but quickly played catch up with the wider market during a panicky period two weeks ago. I believe it is certainly worthwhile to ask whether the factors which contributed to earlier outperformance are still relevant following what are in some cases declines in the order of 50%.

Can you remind me how you define "trend mean"?

Thank you for this question which comes up from time to time. Here is a reasonably complete answer to this point from July 2019 

Congratulations on your work on UK investment trusts. I have studied the sector for 40 years and as you know used to present it at David's "Markets Now" evenings. The key reason why retail savings vehicles like the IT sector maintain dividends better than most is that they are permitted to pay dividends out of reserves. This means that in bad years, they can "borrow from the future" and smooth those dividend payments over time. Investors need therefore to check the precise statutory position of each investment trust before buying as there may be technical impediments to the use of reserves. They are a wonderful sector to invest in longer term, and the collapses in markets have widened discounts in many cases. I strongly suggest you do a similar analysis of IT sector discounts. You may find some great Easter presents, even if Easter in 2020 has been cancelled because of Covid19. Keep up the good work. Iain

Thanks for the words of encouragement and the additional intelligence on mechanics of how some investment trusts are capable of sustaining their impressive records of dividend growth.

I know David was always keen on picking up positions in investment trusts when they were trading at historic discounts so I agree it is certainly a topic for further study. I have been searching for additional intelligence on the investment trust sector with a particular focus on trying to find average discount data. So far, I have not had any luck with finding it elsewhere so I have resolved to generate it myself.

Bloomberg does have average discount data on the system. However, this is not available for export on a bulk basis for the universe of investment trusts. Instead I have downloaded the last twenty years of discount/premium data for 240 investment trusts. It’s going to take me some time to compile the data for average discounts versus current figures but I certainly hope to have it in an accessible fashion by Easter.

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A link to today;s video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: oil rebounds and gold firms, stocks stead but big difference emerging between investment grade and non investment grade bonds and equities.

“It’s very clear that Saudi Arabia is maintaining its position - it will cut only if everyone else cuts,” Energy Aspect’s Amrita Sen says in a Bloomberg TV interview.

Russia does not see benefit in cutting production given the 20m b/d drop in demand “No way” Saudi Arabia can cut enough to compensate for such a decline

NOTE: Sen speaks following U.S. President Donald Trump’s tweet saying he expects Saudi Arabia and Russia to cut production by 10m bbl

There could be a deal later in the year, but it’s too early as it is unclear how low demand will go; “There’s a lot of hope and expectation rather than anything concrete”

Market will correct through market mechanisms; Energy Aspects believes world will run out of storage in May, producers will then have no choice but to shut production, but prices will remain low

It’s unlikely that the U.S. would ever join Russia and Saudi Arabia in coordinated cuts

“How do you get the U.S. to join something that it would call a cartel?”; there are thousands of producers in the U.S., so it would be impossible for the country to cut

The shock from the coronavirus lock down is still rippling through the energy markets but that is not why Saudi Arabia chose now to launch a price war with Russia. They are much more concerned with the fact oil demand growth is slowing down, if not contracting, on a secular basis. That presents singular problems for countries who entire existence is predicated on oil exports.

The process of swapping GLD shares for physical gold sits “outside of normal dealings,” according to State Street Global Advisors head of ETF research Matthew Bartolini. Bank of New York Mellon, the fund’s trustee, doesn’t interact with the public but only with middlemen known as authorized participants -- traders who channel assets in and out of the fund. An investor would have to work with one of GLD’s APs to acquire gold, he said.

“An individual investor wishing to exchange the Trust’s shares for physical gold would have to come to the appropriate arrangements with his or her broker and an authorized participant to receive the gold bars,” Bartolini wrote in an email.

Gundlach said earlier in March that while he was neutral on gold mining companies, the metal would ultimately go higher. The $51 billion DoubleLine Total Return Bond Fund, Gundlach’s mortgage-focused flagship fund, lost 1.3% this year through Monday and returned an annual average 2.6% over five years.

For Bloomberg Intelligence’s Eric Balchunas, that process isn’t necessarily a problem. Most investors buying gold ETFs are doing so to get exposure to bullion’s price movement, rather than to acquire physical gold, he said.

“The problem with getting physical gold is you’ve got to insure it or keep it in a safe spot,” Balchunas said. “Generally speaking, most people don’t want gold. They want the return stream that gold gives.”

There is no way to hold physical gold in a fund without incurring some form of risk. However, there is also no way of holding physical gold personally without also incurring some form of risk. Most people are satisfied to receive the diversification and potential for appreciation gold represents. However, it is inaccurate to describe gold as offering a return stream. It does not pay dividends. For that you need gold miners.

Even as the number of jobless claims soar, companies around the globe are capitalizing on investors’ thirst for debt by moving ahead with larger and riskier bond offerings.

T-Mobile US Inc. is selling $19 billion of bonds in the year’s second-largest sale, while the high-yield market is coming back to life with three new deals, including one from Tenet Healthcare Corp. T-Mobile and Tenet announced their debt offerings just ahead of what turned out to be 6.6 million more Americans applying for unemployment benefits, double last week’s record. More borrowers like VMware Inc. and Ross Stores Inc. came forward after that, on top of 17 in Europe.

Issuers are seeing a resurgence in risk appetite, as massive demand for new issues has allowed companies to go bigger and bolder with their debt offerings. Cruise line operator Carnival Corp., though technically investment-grade rated, was able to draw massive demand from high-yield investors for a bond sale that ended up being larger and cheaper than expected. Junk bond funds are expected to see a record inflow this week when Refinitiv Lipper reports data later Thursday, reversing six straight weeks of outflows.

There are two important factors at work in the investment grade market. The first is interest rates might be zero, economies under duress and anxiety high but investors still need to capture yield and cashflows. The second is the Federal Reserve is backstopping purchases of investment grade debt so investors now have a measure of security in purchases that did not exist two weeks ago.

A link to today's video commentary is posted in the Subscriber's Area. 

Many thanks for your continuing high-quality service, exemplified by the comprehensive Income ITs spreadsheet you produced yesterday. It will be invaluable for Private Investors such as myself. On a separate topic, do you have any views on the banks in the light of the suspension of dividends? In particular, I see that HSBC shares are approaching chart support from 1997-98 and 2016.

Thank you for this question. There is no denying that bank shares have declined significantly so it is logical to question whether they are close to a low. With dividends being eliminated, a rise in defaults inevitable, a moratorium on buybacks, and tight margins from low interest rates the big question is whether the bad news has been priced in.

Many companies went into this episode highly leveraged. Managements took advantage of the low interest rates and generous capital market to issue debt and some did stock buybacks, reducing their share count and increasing their earnings per shares (and perhaps executive compensation). The result of either or both is to increase the ratio of debt to equity. The more debt a company has relative to its equity, the higher the return on equity will be in good times…but also the lower the return on equity (or the larger the losses) in bad times, and the less likely it is to survive tough times. Corporate leverage complicates the issue of lost revenues and profits. Thus we expect to see rising defaults in the months ahead.

Likewise, in recent years, the generous capital market condition and the search for return in a low- interest-rate world caused the formation of leveraged investment entities. As with leveraged companies, debt increased their expected returns but also their vulnerability. Thus I believe we’re likely to see defaults on the part of leveraged entities, based on price markdowns, ratings downgrades and perhaps defaults on their portfolio assets: increased “haircuts” on the part of lenders (i.e. reduced amounts loaned against a dollar of collateral); and margin calls, in portfolio liquidations and forced selling.

In the Global Financial Crisis, leveraged investment vehicles like Collateralized Mortgage Obligations and Collateralized Debt Obligations melted down, bringing losses to the banks that held their junior debt and equity. The systemic importance of the banks necessitated their bailouts (the resentment of which contributed greatly to today’s populism). This time, leveraged securitizations are less pervasive in the financial system, and their risk capital wasn’t supplied by banks (thanks to the Volcker Rule), but mostly by non-bank lenders and funds. Thus I feel government bailouts are unlikely to be made available to them. (As an aside, it’s not that the people who structured their leveraged entities erred. The merely failed to include an episode like the current one among the scenarios they modelled. How could they? If every business decision had to made in contemplation of a pandemic, few deals would take place.

Corporate leverage has increased substantially over the last decade because low interest rates made balance sheet optimisation strategies a no brainer. What board would refuse the prospect of reducing the interest on existing debt by refinancing, and using the difference to reduce the share count? Afterall equity is an inherently more expensive form of financing. That was the logic in the early part of the cycle but refinancing was quickly exhausted. Companies then migrated to “maximising shareholder value” by inflating the share price with debt fuelled buybacks. Some companies are obviously much more guilty of this practice than others and have been among the biggest decliners so far.

The list is long, and probably doesn't come close to capturing the total job loss. In the last few weeks, there have been reported cuts at WeWork (250), Bird Rides Inc. (more than 400), ZipRecruiter Inc. (400 layoffs and furloughs) and direct-to-consumer clothing company Everlane (200 cuts and furloughs).

For now, the layoffs are affecting largely companies with a high cash-burn rate—like Bird—or companies that haven’t raised money in the last year or two—like ZipRecuiter—and thus lack a big cash cushion, or both. But many industry watchers expect the job cuts to spread as the lockdown continues. 

“This coronavirus pandemic is affecting very qualified people,” Lee said. His site also includes an option to add a documents so that laid-off employees and human resources departments can enter names and contact details, providing leads to anyone who wants use the list to make some hires. Lee added:

“It’s something that I thought might be a good service to tech.” The list may also be of service to Lee. His company Human Interest, which he co-founded with Paul Sawaya five years ago, announced on March 11 that it had raised $40 million in a round led by family office Oberndorf Enterprises LLC, bringing its total capital raised to $75 million. Now, the company is hiring, mostly engineers, Lee said. That makes it one of a rarified group of companies currently in a position to pick up talent, rather than shed workers. 

Some startups likely can put off layoffs for some time, given that venture capitalists invested $137 billion into startups last year, according to the National Venture Capital Association. But not all will want to.

Many firms, including Sequoia Capital, are urging their portfolio companies to conserve cash, and salaries are often among the biggest expenditures at startups.

 

Having a cash reserve is a nice-to-have during the good times. It’s essential during a crisis when burn rates need to be slowed in order to deal with the realisation earnings and profits are further away than ever.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: stock markets ease on the last day of the quarter, gold and oil ease, bonds firm, deep and short versus deep and long recession risk discussion of the prospects for dividend growth stocks.

I was interested in your comments about companies which have a long record of paying dividends. It is maybe worth mentioning that a good number of UK registered investment trusts have long records of increasing dividends year by year. They tend to have reserves which can be used to bolster pay outs in years when dividend income comes under pressure. Regards from Scotland

Thank you for your kind email and this reminder that Scotland has a long history of investments that concentrate on dividends. It took several hours today, but I was finally able to compile a reasonably complete list of UK listed investment trusts with admirable records of dividend increases. It turns out there is no easy way to compile the data so I did the grunt work of eyeballing the dividend histories of all 145 trusts with histories of dividend growth.

As far as I can see there are only two which have never cut their dividend in 31 years of history. Three have not cut their dividend in at least 28 years and three more have maintained that feat for more than 20 years.

A link to the full report is posted in the Subscriber's Area.

Corporate defaults are inevitable considering the leverage in the system and the sudden disappearance of revenue for many companies. Where companies had borrowed heavily to fund acquisitions or buybacks, they now have to make debt payments with no, or much reduced, incoming revenue. That is an obvious problem particularly affecting some of the most indebted tourist, auto and aeronautics companies. The biggest challenge for banks will be in how exposed they are to small companies on a local level because many are now in dire financial straits.

Copper climbed as a strong rebound in Chinese manufacturing bolstered the outlook for demand, trimming the industrial metal’s biggest quarterly drop since 2011.

China’s official purchasing managers’ index rose this month, up from a record low in February, signaling the world’s second-largest economy is restarting. While the outlook remains uncertain as the country faces a growing threat from slumping external demand, production cuts at major mines around the world are shoring up sentiment for copper.

The metal extended gains after President Donald Trump called on Congress to provide $2 trillion for infrastructure spending in the U.S.

On a day when Wall Street pulled back on book squaring at the end of the quarter copper prices were quite firm. China’s reported economic activity has been strengthening as the economy starts back up and commodity investors are expecting significant infrastructure development as some of the more traditional levers of growth are leaned on.

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics discussed include: polarity between winners and losers continues to expand, oil breaks lower, gold steady, bonds ease, stocks follow through on the upside. tech and dividend aristocrats leading. 

A link to the full report is posted in the Subscriber's Area. 

JG: Yes, yes. Patience is absolutely in order and also gold is … you know, I confess I’m a gold bug and I blurted it out — gold — before you even asked the question. Yes, but it’s not to the end of emulating Scrooge McDuck. That’s not the point.

The point is to have liquid wealth available when opportunity presents itself. Gold is many things but it’s not regenerative. And there’s nothing as an investment like a well-priced, successful, profitable well-financed business. So, what you want is gold for opportunities. You also want it, not so much as a hedge against monetary disorder because we have that, you want it as an investment in monetary disorder. That’s a second reason. So, I guess that’s a little bit of Scrooge McDuck reason but I hold it for those two reasons. I think that it’s going to be helpful for both.

I look forward to liquidating some of my gold bullion, as modest as that stack of coins is. I look forward to, at some point, liquidating that, if I have the nerve and the opportunity to accumulate something that is going to be yielding dividends and cash flow. But the other portion, well I think, I hope, I’ll never sell — that’s the bottom dollar: an investment in the evident tendency of monetary affairs. The arc of monetary evolution points to greater and greater interventions, more radical policy which begets still more radical policy, financial repression and more of that. We got more QE this week than they did under the Bernanke Fed.

So, to me the arc of this is very clear and you want gold, both for the inevitable spills in the market for financial assets as well as for the seemingly inevitable destruction, or certainly impairment, of the government-issued money. Those are my reasons.

Governments the world over are telling us this is not the time to worry about deficits. That begs the question, when is the best time? The Velocity of Money is cratering because of the shutting down of economic activity and the reduced number of transactions required to fulfil an online sale. That removes the inflationary bias from massive monetary and fiscal stimulus in the short term.

It is the latest blow to SoftBank founder Masayoshi Son, who last week unveiled a plan to raise $41 billion to buy back shares and slash debt. The announcement sent the shares soaring more than 50% in just a few days. The rally was interrupted when Moody’s Corp. cut its debt rating by two notches, saying the Japanese investment firm’s plan to sell off assets during a market downturn threatened its total value. SoftBank’s shares traded 6.7% lower on Monday morning in Tokyo.

Son had often pointed to OneWeb as one of the cornerstones of an investment portfolio that ranges from ride sharing, co-working and robotics to agriculture, cancer detection and autonomous driving. The startup was working on providing affordable high-speed access anywhere in the world and targeting 1 billion subscribers by 2025. Son has painted a picture of a future where satellite networks cover every inch of the Earth and a trillion devices connected to the internet disgorge data into the cloud where it is analyzed by artificial intelligence.

OneWeb listed liabilities and assets of more than $1 billion each in its Chapter 11 petition in U.S. Bankruptcy Court in White Plains, New York. The company had been in advanced discussions earlier in the year for a fresh investment, it said in a statement. But the discussions fell apart after the coronavirus pandemic sent markets into a tailspin, it said.

The unlisted unicorn sector is difficult to monitor because they have no obligation to report earnings and depend almost entirely on the private markets for funding. It is reasonable to expect many loss-making companies are going to experience significant challenges from the economic shut down, while others will likely have benefitted from the abrupt move to cloud and delivery utilisation.

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

The coronavirus crisis has transformed the fiscal landscape at a stroke. Britain was on course for a budget deficit of 55 billion pounds in the fiscal year starting April. Now, according to the Institute for Fiscal Studies, borrowing could be as much as 200 billion pounds as an economy on course to shrink at least 5% this year hammers tax revenue and drives up spending on welfare.

That could leave the deficit just below the 10% reached in the aftermath of the financial crisis and push up already elevated debt levels.

The chancellor announced his first economic package to deal with the outbreak when delivering the budget on March 11, unveiling 12 billion pounds of measures to mitigate the effects of the outbreak on the economy.

As evidence mounted that the crisis was snowballing, he followed up with a 350-billion pound stimulus package comprising government-backed loans as well as 20 billion pounds of grants and tax cuts for struggling companies.

Then, last Friday, he announced 7 billion pounds of extra welfare spending and said the government would pay 80% of salaried employees’ wages up to a maximum of 2,500 pounds a month -- a plan Bloomberg Economics estimates will cost 17.5 billion pounds.

Announcing further details of the job-retention program today, the Treasury said the government will also cover employers for the National Insurance and minimum auto-enrolment pension contributions of furloughed workers, saving firms 300 pounds a month per employee on average.

The trouble with the coronavirus is not so much in the mortality rate but in the speed with which it is spreading. Overloading hospitals with scarce resources and scary reports of tens of thousands dying has put a great deal of pressure on the economy. However, it is also worth considering that despite the scale of the challenge faced in Italy, they have seen the peak in the infection growth rate. That suggests the problem is unlikely to get worse.

But it’s the alphabet soup of new programs that deserve special consideration, as they could have profound long-term consequences for the functioning of the Fed and the allocation of capital in financial markets. Specifically, these are:

CPFF (Commercial Paper Funding Facility) – buying commercial paper from the issuer.
PMCCF (Primary Market Corporate Credit Facility) – buying corporate bonds from the issuer.
TALF (Term Asset-Backed Securities Loan Facility) – funding backstop for asset-backed securities.
SMCCF (Secondary Market Corporate Credit Facility) – buying corporate bonds and bond ETFs in the secondary market.
MSBLP (Main Street Business Lending Program) – Details are to come, but it will lend to eligible small and medium-size businesses, complementing efforts by the Small Business Association.

To put it bluntly, the Fed isn’t allowed to do any of this. The central bank is only allowed to purchase or lend against securities that have government guarantee. This includes Treasury securities, agency mortgage-backed securities and the debt issued by Fannie Mae and Freddie Mac. An argument can be made that can also include municipal securities, but nothing in the laundry list above.

So how can they do this? The Fed will finance a special purpose vehicle (SPV) for each acronym to conduct these operations. The Treasury, using the Exchange Stabilization Fund, will make an equity investment in each SPV and be in a “first loss” position. What does this mean? In essence, the Treasury, not the Fed, is buying all these securities and backstopping of loans; the Fed is acting as banker and providing financing. The Fed hired BlackRock Inc. to purchase these securities and handle the administration of the SPVs on behalf of the owner, the Treasury.

In other words, the federal government is nationalizing large swaths of the financial markets. The Fed is providing the money to do it. BlackRock will be doing the trades.

This scheme essentially merges the Fed and Treasury into one organization. So, meet your new Fed chairman, Donald J. Trump.

My rule of thumb for plotting a route through the market mayhem of the last six weeks has been to take what people expressed disquiet about last year and amplify it. Modern Monetary Theory has gone global even quicker than the coronavirus. It is now the de facto economic policy for much of the world and has seen just about every government concede to the requirement for fiscal laxatives.

With some US$111 million in investment from major companies, including LG, Samsung, Mitsubishi, Renault and Nissan, Enevate now says its cells are ready for the big time. In an interview with Charged EVs, Park said Enevate is designing packs for the 2024 and 2025 model years to get its cells into consumer products with major manufacturers. There are no announcements around who or what exactly they're making packs for, but the list of companies above may be instructive.

As far as we're aware, though, the infrastructure to support blast-charging at the kinds of rates we're talking about here simply doesn't yet exist. Tesla's V3 superchargers are currently capable of blast-charging a Model 3 at 250 kilowatts, which would give you around 133 km (83 mi) of range in five minutes.

These batteries would charge three times faster, at around 0.75 megawatts, which is a huge power draw. An alternative method might involve trickle-charging massive supercapacitors all day at slower rates so they've got enough energy to supply the cars super-quickly when they need it, but we're yet to see anything like that in action, and the size of those supercapacitors might end up being prohibitive.

It is almost as if I see a new story about advancements in battery technology every day. They all come with caveats but the one thing we can be sure of is the quantity of capital now devoted to solving the issue of energy density and range anxiety is growing persistently. Producing a doubling of energy density with a low charging time is the hold grail of the sector today and it is reasonable there will be a solution in the market within five years. 

 A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: upside key reversals for the Dow, S&P500 and Nasdaq-100, Microsoft and Apple, VIX Index moderating, Dollar falling as epic money priniting kicks off, gold firm, TED spread still expanding,  

“The Fed has effectively shifted from lender of last resort for banks to a commercial banker of last resort for the broader economy,” said JPMorgan Chase & Co. chief U.S. economist Michael Feroli.

The coming rain of credit -- historic in both size and scope -- will be made possible by $454 billion set aside in the aid package for Treasury to backstop lending by the Fed. That’s money the central bank can leverage to provide massive amounts of financing to a broad swathe of U.S. borrowers.

“Effectively one dollar of loss absorption of backstop from Treasury is enough to support $10 worth of loans.” Fed Chairman Jerome Powell said in in a rare nationally-televised interview early Thursday morning. “When it comes to this lending we’re not going to run out of ammunition.”

He told NBC’s “Today” show that the Fed was trying to create a bridge over what may well be a substantial decline in the economy in the second quarter, to a resumption of growth sometime in the latter half of the year.

“It’s very hard to say precisely when that will be,” he said. “It will really depend on the spread of the virus. The virus is going to dictate the timetable here.”

While the Fed can help by keeping interest rates low and ensuring the flow of credit, “the immediate relief” for Americans will come from the Congressional aid package, Powell said. The bill includes direct payments to lower- and middle-income Americans of $1,200 for each adult and $500 for each child.

Combined with an unlimited quantitative easing program, the Fed’s souped-up lending facilities are set to push the central bank’s balance sheet up sharply from an already record high $4.7 trillion, with some analyst saying it could peak at $9-to-$10 trillion.

The new stimulus plan is providing money to 90% of consumers, but also to corporations, municipals and both the government and corporate bond markets. In terms of both size and scope the package is designed to provide a life line to all markets and, so far, it is having the desired effect.

I read Eoin’s commentary today and saved myself a lot of money.

Could I pay the difference and pay an additional £542 today for a full year sub?

I would be very grateful if that could be arranged.

Thank you for your support and I am delighted you are finding value in the service. We are happy to help any monthly subscriber to upgrade to annual subscription and will of course perform a pro-rate credit against the annual total.

From an international potential subscriber’s perspective, the accelerated decline in the Pound also offers a favourable entry point for annual subscriptions.

At the same time the extent of virus damage starts to show in data, Wells Fargo & Co. reckons the recent plunge in equities has left pension-fund portfolios so far out of balance that it will force them to dump about $40 billion in Treasuries and other debt before the month is out.

Even ignoring quarter-end, JPMorgan Chase & Co. was predicting pension and other investment funds would have to shift billions into equities to counter the historic rout.

These kinds of flows can create turmoil for currencies. The forum overseeing conduct on the $6.6-trillion-a-day foreign-exchange market warned on Thursday volatility may surge in the coming days.

“At the end of every month and even more so the end of every quarter, we tend to see strong corporate demand for the U.S. dollar,” said Athanasios Vamvakidis, head of G-10 foreign exchange strategy, Bank of America Merrill Lynch. “This seasonality is strong on our flows, particularly for end-quarter. Having said that, the global crisis may be a more important dollar driver now.”

The ebbing and flowing of global liquidity over the last month has resulted in some acute volatility for the Dollar. It initially sold off heavily because carry traders were being unwound, which saw short-term demand for the Euro and Yen soar as funds were repatriated. That subsequently morphed into a Dollar shortage as demand soared with banks refusing to lend.

At a time when Valve Corp.’s Steam online gaming service is breaking records and global gaming publishers are registering increased demand due to millions of people stuck at home, the systems designed to build those companies’ future success are faltering.

One game project that Upfall Studios was doing work for has been put on hold because its developers weren’t able to demo it at GDC and haven’t yet managed to pitch it remotely. Two other developers Amador has collaborated with are also struggling to secure remote calls with publishers.

Before the coronavirus grew into a global pandemic, it was already interrupting the supply chain for game art and assets, as many big publishers rely on outsourcing to art studios in China, which was first to suffer the effects.

Super Smash Bros. creator Masahiro Sakurai wrote in industry magazine “Famitsu” last week that the release of additional content for his blockbuster series would be delayed due to the coronavirus. Private Division, a unit of Take-Two Interactive Software Inc., said last month that its Outer Worlds action role-playing game would also be late arriving on Nintendo Co.’s Switch due to the pandemic.

We bought an Oculus Quest (untethered virtual reality headset) as a surprise for my daughter’s birthday last week. We did not realise at the time how limited supply was. It was sold out for months up till early March and sold out again within two weeks.

It is the most innovative piece of gaming technology I have seen since the Nintendo Wii came out 14 years ago. The immersive environment and visceral experience of reality lend a degree of fun and playability I was not prepared for. I boxed competitively at university and the Apollo Creed game is the closest thing anyone is likely to come to being in the ring in real life.

 A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics covered include: attention turns to buybacks as details of fiscal package emerge, palladium surges and is now short-term overbought, Dollar eases versus Euro and Pound, stock markets extend rebounds but Wall Street fails to hold intraday high, bonds steady but high yield spreads are elevated and the TED spread is still expanding. 

In addition to Troubled Asset Relief Program (TARP)-like programs to assist companies and industries, there is no other choice but for the Fed to step up to keep markets functioning. That’s why I’ve been saying that we would need to see about $4.5 trillion of quantitative easing (QE) before everything was resolved. This is in addition to emergency lending through the discount window, dealer repo operations, central bank liquidity swaps, and the Commercial Paper Funding Facility, Primary Dealer Credit Facility, and Money Market Mutual Fund Liquidity Facility. That would take the Fed’s balance sheet to at least $9 trillion, or about 40 percent of last year’s gross domestic product (GDP). That might sound like an alarmingly big number, but to put it in perspective the Bank of Japan’s balance sheet is the equivalent of 105 percent of GDP. So, the United States is a piker on QE.

The Fed has now entered its ‘at all costs’ phase of assistance. I will freely admit my initial estimate from six months ago the Fed’s balance sheet would reach $6 trillion is now wildly overoptimistic. Considering the extent of the challenge and the desperate need for liquidity $10 trillion is probably a more likely number for the size of the Fed’s balance sheet.

The comment suggested his distaste for the practice predates the coronavirus outbreak and echoed criticism from Democratic presidential candidates who have long viewed buybacks as a waste and social ill.

“When we did a big tax cut and when they took the money and did buybacks, that’s not building a hangar, that’s not buying aircraft, that’s not doing the kind of things that I want them to do,” Trump said on Friday. “We didn’t think we would have had to restrict it because we thought they would have known better. But they didn’t know better, in some cases.”

Trump said he would support a prohibition on buybacks for companies that receive government aid. The five biggest U.S. airlines -- prime targets for bailout funds -- spent 96% of their free cash flow on repurchases over the last decade, money that could have been used to build rainy-day funds. Overall
buybacks started to slow in the first couple of months of the year in the U.S., when they were $122 billion in January and February, down 46% from a year earlier in the slowest start to the year since 2009.

While some viewed share repurchases as one of the driving forces behind the bull market, the practice was constantly criticized, particularly in populist circles. Companies were simply inflating their stock prices inorganically, using cheap money in the process, so the argument went, exacerbating wealth inequality as the ultra-rich cashed out.

Buybacks have been the primary source of demand supporting the market, particularly during pullbacks, over the last decade. The problem with relying on buybacks as a rationale for being bullish is they are inherently procyclical. The majority of companies are not in a position to buy back shares following big declines. Additionally, since debt loads have increased, at least in part to fund buybacks, they are overleveraged at peaks and debt obligations come before equity during a downturn.  

Many thanks for the latest Big Picture Long-Term video. For the last ten years my forty-year old twins have been investing every month in the Vanguard Star Fund. My instinct is to advise them to continue this monthly investment as long as they have a regular income. What do you think about this strategy?

Thank you for this question which may be of interest to subscribers. Dollar cost averaging works because you get to buy more during the declines and less at the top by never wavering in the amount regularly committed to the market. Therefore, it only succeeds in achieving in controlling the average purchase price if it is practiced, or initiated, during big market declines.

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: potential for a reversionary rally has increased substantially but pressure on corporate balance sheets will remain as a scramble to retain investment grade credit ratings begins. Gold surging on flagrant devaluation of fiat currencies. 

Thanks for answering my question here. Eoin, which primary trend ending would you most likely expect to see following the current melt down? Is there an ending that presents itself most frequently following this very very rapid collapse in markets?

Thank you for this question which I believe the majority of investors are pondering at present. The top put in over the last 18 months has Type-2 characteristics.

The swift pullback in Q4 2018 was in hindsight a loss of consistency at the penultimate peak for the S&P500. The failed break above 3000, with the dynamic of the failure being larger than the dynamic of the breakout, took the market back down to test the lower side of the underlying range and then it broke below the lows near 2500.

Favorite way to play higher gold prices? commodity, miners, royalty/streaming, etc?

Thank you for this question which others may have an interest in but it is not an easy one to answer. I think it really depends on what your personal disposition is.

Many people suspicious of the ultimate ambitions of government prefer to hold physical gold. There is a shortage right now because refineries have shut down because countries are on lock down. Air traffic limitations also makes it difficult to transport the metal. Gold is not much like toilet paper but there is a rush on at present to secure supplies. Meanwhile mine production is still rising so the physical supply situation is likely to moderate eventually. 

Historically you have shown the PE ratios for a number of the major indices. Considering the levels, the markets are at now, it would be interesting to look at these again. Is this something you can share with the collective.

Thank you for this email which may be of interest to subscribers. I produced the Fundamental Valuation Tables on a monthly basis for approximately 8 years but they always had to carry a number of riders at the bottom of the page highlighting caveats that needed to be taken into account before looking at the data. These included the absence of data for some indices, the distorting effect of ADRs and the fact P/E ratios are based on indicated earnings rather than any other calculation and as a result were prone to spikes. As a result, I stopped producing the reports when I found a better online resource.

Germany based Star Capital produce comprehensive valuation tables for just about every country which also include cyclically adjusted P/Es. This is all presented in an attractive graphic format.

Shiller’s Multpl.com is an additional resource for long-term charts of P/Es for the USA as well as bond yields that may be of interest.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Fed to buy corporate bonds, Australian QE, Synchronised global monetary and fiscal stimulus, stock market s very oversold and dividend aristocrat yields at historic highs, oil stocks extremely oversold, gold and silver firming on currency debasement fears.

The SARS epidemic did not become a pandemic. Its effects were limited to a relatively small number of countries and, even then, the majority of infections occurred within the hospital setting. The trough in markets evolved when the growth rate in new infections moderated which eventually contributed to the peak in new infections. COVID-19 is global and has infected many more people that SARS ever did and particularly because the large numbers of serious cases have overwhelmed healthcare systems.

Liquidity is vanishing for U.S. equity futures. Traders of S&P 500 e-minis are now only offering to buy or sell a few contracts at a time -- often numbering in the single digits -- compared with an average of more than 1,000 just a month ago, data from Deutsche Bank Asset Allocation show.

Drastically thin markets are alarming because they can fuel outsize price swings. With futures markets being halted almost every day in the wake of wild swings, the lack of liquidity is so severe now that it’s fueling concern even among the pros who’ve lived through the worst market crashes in history.

“There’s no liquidity in any market,” said Rick Bensignor, the founder of Bensignor Group and a former strategist for Morgan Stanley, who has traded the futures market for 40 years. “When you’re talking about restructuring a portfolio too, you have to think about the potential slippage that’s involved to get anything done.”

Of course it’s no surprise that markets would thin out when investors, strategists, and economists alike are unsure of the ultimate impact of the coronavirus pandemic. And it’s not clear if the low liquidity may be feeding upon itself -- i.e., are traders staying away because liquidity is so horrible, or is it just a natural side effect caused by all the uncertainty?

“‘Thinly traded’ now an understatement considering how much liquidity in futures market has collapsed,” tweeted Liz Ann Sonders, the chief investment strategist at Charles Schwab. U.S. contracts hit exchange-mandated halts for the ninth time in 10 days overnight Sunday, before an announcement of unlimited quantitative easing from the Federal Reserve ignited gains that lasted just 20 minutes before turning negative again.

Strategists at JPMorgan Chase & Co. have estimated liquidity in U.S. futures markets is seven times worse than the poorest levels during the financial crisis. According to Bensignor, typically when it comes to size, anywhere from 200 to 500 blocks trade on both the bid and offer side of a wager at every tick. Watching his screen Monday morning, there were fewer than 10.

“You are going to have to deal as you restructure portfolios,” he said in an interview on Bloomberg Television. “You’re also going to have to realize that doing so is going to cost a lot of money compared to what you had to do in the past, where you could basically just do it for no cost because of the liquidity.”

One of the reasons stock markets have sold off so aggressively is because the spike in volatility initiated an epic deleveraging in the macro hedge fund sector. The knock-on effect of that deleveraging was to inhibit the ability of high frequency traders to make markets. That exposed, again, the limitations of the Volcker Rule.

“If its price trajectory proves similar to 2008, we could see the precious metal’s benefits resurging as market stress continues to assert itself,” said Catherine Doyle, an investment specialist in the real-return team at Newton Investment Management. “We continue to have significant exposure for this very reason.”

Anyway we look at it, the efforts of governments and central banks to support economies and reflate asset prices are going to come at the expense of the purchasing power of their currencies. Therefore, any asset that offers insulation from currency devaluation, either by offering a higher yield or limited supply is likely to benefit.