washingtonpost--2020-03-12--Lagarde Unveils ECB Surgical Aid for Economy to Fight Crisis

The move failed to stem a global stock rout however , which resumed even after the U.S. Federal Reserve took aggressive steps to add liquidity to Treasury financing markets .
Meanwhile a stumbled comment by Lagarde on bond spreads had already caused Italian yields to surge .
Observers were divided on the overall effectiveness of the package .
Erik Nielsen , group chief economist at UniCredit , said that it was “ pretty good ” with enormous liquidity on “ amazingly attractive terms.
” By contrast , Roberto Perli at Cornerstone Macro said that the stimulus was “ not entirely @ @ @ @ @ @ @ ” Overshadowing the presentation of the package at a press conference in Frankfurt was Lagarde ’ s observation that “ we are not here to close spreads , ” a declaration met with alarm by investors focused on Italy , the economy suffering the region ’ s worst outbreak of the virus .
Widening bond spreads are reminiscent of the debt crisis in 2012 that almost splintered the euro zone .
“ I don ’ t understand why she said that , ” Nielsen told Bloomberg Television .
“ As the head of @ @ @ @ @ @ @ concerned about spreads , because spreads prevent the ECB from having a proper transmission mechanism.
” Lagarde backpedaled a bit in an interview with CNBC , saying that the ECB is mindful of fragmentation risks and its tools will be completely available to Italy .
A centerpiece of her message on Thursday was to urge governments to form “ an ambitious and coordinated fiscal policy response ” to match the ECB ’ s new injection of liquidity .
She called for “ decisive and determined ” action by finance ministers as soon as @ @ @ @ @ @ @ dramatic escalation in the ECB ’ s own response after weeks of monitoring the worsening outbreak arrived in parallel with news of a loosening in Germany ’ s reluctant stance toward fiscal easing , though still laced with caution .
One day earlier , the U.K. had delivered a coordinated package including an emergency interest-rate cut , complementing a 30 billion-pound ( $ 38 billion ) budget stimulus .
European stocks extended a slump in the hours after the ECB announcement , with the Stoxx Europe 50 Index down more than 12 % @ @ @ @ @ @ @ as much as 1.9 % .
Italian bonds plunged .
Where she defied investor expectations on Thursday was in keeping the deposit interest rate at minus 0.5 % , staving off pressure for a cut deeper below zero .
With negative interest rates hurting banks and irking some voters in northern European countries , the arguments in favor of shunning such a move were clearly persuasive .
No rate cut was even on the table in the meeting as policy makers considered that there was little that monetary policy alone could do to @ @ @ @ @ @ @ people familiar with the matter .
The TLTRO measure has possibly created a dual-rate regime through the back door , by allowing the rate offered on the program -- which would be used by banks to lend into the real economy -- to fall by as much as a quarter-point below the deposit rate .
The ECB ’ s package also opens a new dimension to the central bank ’ s crisis toolkit by marrying liquidity provision with an easing of capital demands .
“ It looks actually quite promising , ” said @ @ @ @ @ @ @ Generale SA .
“ They are clearly sending a signal that liquidity should not be an issue .
On that level it ’ s a positive , and I ’ m maybe surprised a little bit that the market reaction is so poor.
” “ We expected Christine Lagarde to heed calls for stimulus and the European Central Bank president did not disappoint .
Much more favorable conditions on TLTRO-III will support lending and offer some support to businesses in Europe disrupted by the coronavirus outbreak , though governments will still need to @ @ @ @ @ @ @ call for governments to take timely action has yet to be heeded throughout Europe .
While indebted Italy has added stimulus , Germany in particular has been reticent .
Still , it is prepared to abandon its long-standing balanced-budget policy , according to people with direct knowledge of its economic policy .
“ The central bank acted decisively , ” Bundesbank President Jens Weidmann told Bloomberg .
“ Health and fiscal policy is , however , required to be in the front line of combating the causes and the immediate consequences .
”


washingtonpost--2020-03-12--European Stocks Plunge Most on Record After ECB Underwhelms

The Stoxx 600 ’ s biggest one-day drop since the gauge was introduced in 1998 came as U.S. peers plunged , triggering circuit breakers for the second time in a week .
European banks also saw a record drop , while carmakers and insurers were the worst hit , down more than 15 % .
“ None of the ECB ’ s measures or any other monetary , fiscal or regulatory policy initiative can be the circuit breaker in the recession into which the eurozone seems to have fallen this month , ” said Holger Schmieding , chief economist at @ @ @ @ @ @ @ , and further steps by bank supervisors as well as by fiscal policy , can limit second-round effects.
” The ECB left its deposit facility and main refinancing rates unchanged , and added 120 billion euros ( $ 135 billion ) of net asset purchases through the end of 2020 .
Its president Christine Lagarde urged governments to work on a coordinated fiscal response , warning of a “ major shock ” to the prospects for global growth .
German Chancellor Angela Merkel ’ s administration was said to be prepared to abandon @ @ @ @ @ @ @ measures to contain the fallout of the coronavirus .
U.S. stocks sank as investors were underwhemed by the government ’ s virus response after President Donald Trump announced a sweeping 30-day ban on travel from Europe excluding the U.K .
The Department of Homeland Security later clarified that the restriction applies generally to foreigners who ’ ve been in Europe within 14 days .
• “ On the edge of exhaustion but still trying , the ECB did what it could today .
Eurozone governments have previously ignored calls from the ECB for @ @ @ @ @ @ @ they will listen to calls for fiscal stimulus .
However , there was little indication of a coordinated approach between the ECB and major Eurozone governments .
Indications that Germany may scrap its balanced budget stance are not enough ; markets want to see decisive action and they want it now.
” • “ It ’ s not a liquidity problem .
This battle is for Merkel to step up and fight , Lagarde is the foot soldier in this coronavirus war .
The market needs to see decisive and effective political and @ @ @ @ @ @ @ first step , but not enough to lift the mood and change sentiment .
We need strong fiscal response .
Monetary policy bullet is spent and just a band-aid.
” • “ The fact that the ECB didn ’ t go for more negative interest rates tells you about the complete lack of coordination between the U.S. and the EU .
More negative interest rates are likely seen as a devaluation by the U.S. at the time of heavy trade negotiations and a travel ban.
” • “ While the initial reaction of @ @ @ @ @ @ @ I suspect bank investors will quickly see that the ECB actions are aimed at supporting banks and their investment cases are improved in light of Temporary Capital and Operational Relief as opposed to lower interest rates.
” • “ The ECB is trying to do its part to manage the crisis .
The deposit rate was not further reduced , but other means are in focus .
Small and medium-sized businesses in particular now need access to liquidity .
The banking sector can not help in all cases due to strict regulations .
@ @ @ @ @ @ @ regulations for banks ’ capital ratios is therefore correct .
In addition , however , flanking government special credit programs are now needed.
” • “ In the short-term this is supportive but not a game changer .
This is what the intraday of EUR/USD and EUR rates are telling us so far .
It is not the ‘ big bazooka ’ and , as a matter of fact , monetary policy is reaching its limits in Europe.
” • “ The ECB has stepped up to the plate and joined other major @ @ @ @ @ @ @ stabilise the economic shock being caused by COVID-19 .
The fact that rates haven ’ t been cut doesn ’ t really matter as it wouldn ’ t have made much difference , but the market will be disappointed by that .
It ’ s all about the liquidity package , which at first glance looks to be the targeted response that was promised.
” • “ So far we have seen numerous easing measures from central banks , but markets have yet to respond positively as we have not yet , outside @ @ @ @ @ @ @ seen the fiscal response which is expected .
The market remains focused on the short-term cash flow problems that the economic lockdowns will create and debt markets are pricing in a deterioration of credit quality and rise in defaults and downgrades .
For companies with strong balance sheets , this provides good opportunities for long-term investors , and for companies with weak balance sheets they should grab the loans while they can .
I expect stronger and more coordinated fiscal measures to be deployed soon .
”

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washingtonpost--2020-03-12--Analysis | Fracking Needs a Shakeout, Not a Bailout

Consider Continental Resources Inc. : Founder and majority shareholder Harold Hamm told Bloomberg TV on Wednesday he had “ reached out ” to the Trump administration and wants it to take action to prevent cheap Russian and Saudi Arabian barrels flooding the U.S. to the detriment of the domestic industry .
Yet Continental should look to itself .
Its guidance — which envisages growing production in a market that was oversupplied even before coronavirus struck — implies free cash flow going to zero this year if oil averages about $ 48 .
As of now , 2020 swaps trade around @ @ @ @ @ @ @ the company was buying back shares at an average price of about $ 34 apiece .
They are now below $ 9 .
One was OPEC ’ s willingness to keep its own barrels offline to prop up prices .
It ’ s worth remembering that in 2016 , when Hamm was then-candidate Donald Trump ’ s energy adviser , he openly called on Russia and Saudi Arabia to boost oil prices by cutting supply .
This striking call for cartel behavior at the expense of American consumers came almost two years after @ @ @ @ @ @ @ in the belief the oil crash would reverse quickly .
Clearly , that lesson wasn ’ t learned by too many .
Another put was the capital markets ’ willingness to fund drilling budgets come what may .
This worked out in 2016 , when investors ’ Pavlovian expectation enabled E & P companies to sell a ton of new stock .
By 2019 , though , investors were wising up to the sector ’ s peculiar capital-management skills .
Then coronavirus showed up .
Now the puts are gone and the model @ @ @ @ @ @ @ losses inflicted on investors , there will be layoffs , bankruptcies and rationalization .
Absent a sudden change in circumstance , U.S. oil production will start falling later this year .
Oil and gas production clearly is a vital sector .
But that doesn ’ t make every marginal barrel or molecule vital .
Commodity prices , along with dismal equity multiples and credit spreads , were telling us that even before this week .
Much of the industry engaged in a decade-long , WeWork-like expansion in global oil , aided by third-party @ @ @ @ @ @ @ In doing so , they flattened oil and gas prices and return on capital .
So it is almost comical to now hear Hamm decry Saudi Arabia ’ s sudden grab for market share as “ illegal ” when his own bit of the oil industry has been doing that for years — and helped by Saudi Arabia ’ s prior restraint , to boot .
As an aside , how do you prove a producer with operating costs of less than $ 10 a barrel is dumping oil when the market price @ @ @ @ @ @ @ can not count the number of times I ’ ve heard about the Darwinian imperative that infuses shale , spurring deeper wells , faster fracks and an energy revolution .
Yet now the talk is of trade barriers or even direct Federal aid , a bailout that would turn the industry ’ s dead men walking into the walking dead .
There is a long tail of producers lacking scale and duplicating corporate costs that is ripe for consolidation .
And there are companies out there with the strategy and resources to hunker @ @ @ @ @ @ @ budgets and ( for some ) dividend commitments can take some of the strain , and some companies have been quick to adjust .
If that means less production , well , that ’ s kind of the point .
If it means angering shareholders , they ’ re not happy anyway ( or just AWOL ) .
This would result in a more resilient , self-sufficient industry .
Too often , entrenched management convinced their stock is undervalued and corporate balance sheets larded with debt have been obstacles to making deals .
@ @ @ @ @ @ @ an opportune moment , keeping marginal wells pumping oil and gas into a market that doesn ’ t need it .
Along the lines of this recent column by my colleague Joe Nocera , if coronavirus aid is coming , then target workers and consumers .
It makes little sense to pump more capital directly or indirectly into a broken business model that ultimately has the wherewithal to fix itself .
There was nothing in Wednesday evening ’ s presidential address to help , though ; new travel restrictions on Europe and the @ @ @ @ @ @ @ markets actually inflict further pain on the E & P sector .
Indeed , one of the best things the White House could do for all parts of the economy , including oil and gas , would be to signal a comprehensive understanding of the threat and a set of concrete measures to help prevent further panic .
Still , watching the end of the 11-year bull market in stocks , President Trump has even more reason to try to provide succor to friendly constituencies .
Hamm , whose stake in Continental has @ @ @ @ @ @ @ , cited risks to jobs in comments made to the Washington Post on Tuesday , notably mentioning Pennsylvania .
Above all , “ energy dominance ” is a prominent part of the broader MAGA trope — and one whose worship of sheer quantity is both inherently deflationary and aligns perfectly with the old shale model .
Overt government efforts to keep wells pumping regardless of price signals would lay bare the fallacy of this , regardless of whether you ’ re a wildcatter or a president .


washingtonpost--2020-03-12--Analysis | Who Do You Trust in a Pandemic: Donald Trump or Angela Merkel?

That , in a nutshell , is the contrast in style displayed this week by U.S. President Donald Trump and German Chancellor Angela Merkel .
The metaphors aren ’ t far-fetched .
Trump really did star on a reality TV show , and Merkel really does have a PhD in quantum chemistry .
Since Trump ’ s election in 2016 , he and Merkel have been the yang and yin of world leaders , diametrical opposites in every way .
The coronavirus shines a stark light on those differences .
By definition , a pandemic is global and tests politicians @ @ @ @ @ @ @ .
In general , it seems to bring out each leader ’ s essence .
China ’ s President Xi Jinping , for example , dealt with the initial outbreak in Wuhan in characteristically authoritarian form , locking down entire populations and dictating behavior top-down .
Trump and Merkel , for their parts , came in for a lot of criticism in their initial handling of the crisis .
Trump , as is his wont , tried to brush off the danger with macho bluster , suggesting it ’ s yet more fake @ @ @ @ @ @ @ look bad .
Next , he began posing as the alpha male among scientists and lab rats , barely hiding his disdain for experts and their expertise .
“ I like this stuff , I really get it , ” he boasted .
“ People are surprised that I understand it.
” Surprised they were ; reassured they weren ’ t .
Merkel , meanwhile , was conspicuously absent in recent weeks .
This was mainly because her party and country are in the midst of a leadership transition , and Merkel wanted @ @ @ @ @ @ @ to avoid eclipsing the candidates .
But as the cases started mounting , her silence wasn ’ t tenable anymore .
On Wednesday , Trump and Merkel both changed tack .
Trump , enthroned behind his desk in the Oval Office , reverted to familiar tactics , such as scapegoating and creating a sense of “ us ” versus “ them.
” Calling Covid-19 a “ foreign virus , ” he blamed not only China but also Europe for being slow to act .
For good measure , he announced a suspension of @ @ @ @ @ @ @ Brexit buddies in the U.K. His vocabulary mixed terms of war and law enforcement , with “ tough measures ” to “ defeat ” the “ threat.
” Merkel spoke at a big press conference Berlin .
She was flanked by her health minister , Jens Spahn , as well as the head of Germany ’ s public health institute .
With balanced and matter-of-fact answers , the three jointly fielded journalists ’ questions .
Merkel conveyed no sense of “ us ” and “ them.
” Instead , she rejected the idea @ @ @ @ @ @ @ borders , emphasizing that the virus was already circulating within populations and that this was a test of “ our solidarity , our common sense , our open-heartedness for one another.
” Again and again , she nodded to the experts next to her and deferred to scientists not even in the room .
Without embellishment , she reported the pessimistic end of the “ expert consensus , ” warning that between 60 % and 70 % of people in Germany may become infected eventually .
Trump ’ s attempt at leadership relies @ @ @ @ @ @ @ resources , doctors , experts , the domestic population and foreign countries , ultimately even a virus .
He asserts certainty where there is none .
And he tries to rally support by appealing to those he considers to be on his side against those he deems outsiders .
Merkel not only acknowledges but emphasizes that our main problem is that we don ’ t yet know much — whether the virus will recede in warmer weather , say , or how many people have already been exposed .
She explicitly defers to @ @ @ @ @ @ @ .
She ’ s not promising victory but preparing Germans for a possibly long and uncertain , but joint , struggle , in which bans and prohibitions will play a smaller role than voluntary cooperation and grit .
The whole government will do “ whatever is necessary ” to prevent the worst , she said .
And suddenly , a chancellor who ’ d for months been considered a lame duck was back as the seasoned crisis manager she is — not “ tough ” but measured , not commanding but credible , @ @ @ @ @ @ @ months will show which style of leadership fares better in a real crisis .
I ’ m a dual citizen of the U.S. and Germany .
And I ’ ll choose the lab .


washingtonpost--2020-03-12--Analysis | Why Central Banks Down Under Are Moving Closer to QE: QuickTake

The Reserve Bank of Australia and the Reserve Bank of New Zealand began to talk more soberly and thoughtfully about unconventional policy last year , amid China ’ s slowing economy and its trade fight with the U.S. That suggested Australia and New Zealand might need to find extra monetary stimulus , having cut rates to levels the Federal Reserve and Bank of England were at when they turned to asset purchases -- known as quantitative easing , or QE -- to support their economies following the financial crisis .
The RBA and RBNZ both acknowledged their limited rate firepower @ @ @ @ @ @ @ to an external shock .
With that in mind , RBA Governor Philip Lowe and his New Zealand counterpart Adrian Orr said it was prudent to discuss unconventional options .
At that stage , a shock in the form of a health crisis had hardly occurred to anyone .
The RBA would talk about the future path of interest rates , known as forward guidance , Deputy Governor Guy Debelle said after a March 11 speech .
It would also likely set a numerical target for government bond yields .
The approach would @ @ @ @ @ @ @ Reserve , which announced the dollar amount of fixed-income assets it would buy each month and then observed the impact on the market .
The RBA is looking at price first , and its program would more closely resemble Japan ’ s yield-curve control .
For example , the RBA might aim to ensure rates were around , say , 25 basis points for a specific maturity .
The bank would then adjust its purchases of government bonds depending on how the market responded .
The “ announcement effect ” might be enough @ @ @ @ @ @ @ , though chances are the RBA would need to back this up with some purchases .
In other words , the RBA would use its market credibility to help achieve its objective .
And it would be flexible .
If , for example , the bank aimed to keep yields out to four or five years around 25 basis points , it wouldn ’ t be worried if they happened to be at 26 or 27 ; but if they were at 50 , then that wouldn ’ t be consistent with the @ @ @ @ @ @ @ negative rates are “ extraordinarily unlikely ” in Australia and there ’ s no appetite at the RBA for outright purchases of private-sector assets in a QE program .
In a Nov. 26 speech , he said the bank ’ s goal was “ lowering risk-free interest rates along the yield curve.
” This , he said , would also have a “ signaling effect ” that the RBA intended to keep rates low for an extended period .
The governor , in the address , set the bank ’ s lower bound @ @ @ @ @ @ @ made clear there ’ s “ not a smooth continuum running ” from rate cuts to QE , as the latter is a more significant step .
But that was before the coronavirus outbreak .
In response , on March 3 the RBA reduced its cash rate to 0.5 % .
It is now only one cut away from having to deploy unconventional policy if it wants to provide additional stimulus .
The RBA has signaled it ’ s ready to cut further and money markets are pricing in a cut in April @ @ @ @ @ @ @ cut his official cash rate ( OCR ) to 0.25 % from 1 % currently .
Markets are pricing in at least two cuts from the RBNZ by May ( it makes its next decision on March 25 ) .
ANZ Bank says that with a recession in New Zealand now highly probable , “ risks are clearly increasing that a more sizable policy response will be needed , potentially taking monetary policy into unconventional territory.
” In an interview with Bloomberg , Orr said the RBNZ ’ s benchmark rate is higher @ @ @ @ @ @ @ it still has conventional “ powder in the gun.
” Still , on March 10 he delivered long-awaited details on the bank ’ s approach to unconventional monetary policy , saying it is prudent to be prepared should such measures be needed .
Orr said the central bank would continue to use conventional policy until it was exhausted by taking the OCR to zero .
Should further stimulus be required , it would cut the OCR into negative territory , eventually hitting an effective lower bound , though he told Bloomberg this bound @ @ @ @ @ @ @ it was “ context dependent.
” The RBNZ would also use forward guidance to ensure markets understood its commitment to meeting its mandates .
The next step would be to intervene in the interest-rate swaps market to lower market rates , though Orr said he was aware this hadn ’ t been done anywhere in the world before .
After that , the RBNZ would turn to large-scale purchases of domestic government bonds to lower longer term rates , and would also look at buying foreign currencies or assets to exert downward pressure @ @ @ @ @ @ @ final measure would be long-term loans to banks which could be conditional on them increasing their credit supply .
While Lowe has said the bar for a move to QE would be different to a rate cut , that ’ s the only way he could go for additional stimulus if the RBA moves in April .
In other words , the RBA might be in a position to deploy unconventional policy as soon as May .
That said , Australia ’ s government announced a A $ 17.6 billion ( $ 11.3 @ @ @ @ @ @ @ 12 to keep firms operating , workers in jobs and consumers spending .
It also has the annual budget in May , when it could announce additional support .
That may ease some immediate pressure on the RBA .
The broad consensus is yes , particularly in the initial stages when economies and markets were facing severe shocks .
Borrowing costs have been lowered and financial conditions eased in economies that went unconventional , though the impact diminishes the longer the measures remain .
The Fed ’ s forward guidance is generally viewed @ @ @ @ @ @ @ U.S. economy , while QE ’ s impact on interest rates , bank lending and company behavior suggest it largely helped stimulate activity .
And while there were fears that negative rates would prompt savers to pull their cash out of banks and stuff it under their mattresses , this hasn ’ t come to pass .
The experience in Japan has been less convincing .
While prices are rising again , inflation remains a long way short of the central bank ’ s 2 % target and negative side effects , such @ @ @ @ @ @ @ piling up .
But as the RBA has noted , much is still in progress and it ’ s tricky to draw firm conclusions .
It wouldn ’ t be economics if there weren ’ t .
One potential fallout is that , as central banks lap up bonds , any subsequent squeeze on yields might encourage a move toward riskier assets in search of higher returns .
Very cheap money can also lead to inflated valuations -- real estate is a classic example -- and set the stage for a sharp correction @ @ @ @ @ @ @ more central banks become involved in multiple objectives and policy instruments , the more exposed they are to political interference .
A broader question is whether future policy will ever return to the conventional status quo , with more than half of central bankers in a recent survey expecting QE to stay around .
The other key issue is bank profitability .
Margins are going to be compressed when the yield curve is lower and flattened .
Any RBA target for the yield on government bonds would do that -- and its implications @ @ @ @ @ @ @ But , it ’ s worth noting , if unconventional policy leads to a stronger economy -- its basic aim -- then that ’ s good for bank profitability because it means there will be fewer loan defaults .


washingtonpost--2020-03-12--Lagarde Demands Fiscal Firefighting After ECB’s Own Crisis Salvo

The placing of that demand front-and-center in Lagarde ’ s opening statement is symbolic , and highlights added urgency to fiscal action that no ECB president has dared state previously .
She had already taken the unusual step of committing beforehand to a stimulus package in a call with European leaders this week , where she warned them that without appropriate action , the outbreak threatened to create conditions similar to the 2008 crisis .
The dramatic escalation in the ECB ’ s own response after weeks of monitoring the worsening outbreak arrived in parallel with news of a loosening @ @ @ @ @ @ @ fiscal easing , though still laced with caution .
One day earlier , the U.K. had delivered a coordinated package including an emergency interest-rate cut , complementing a 30 billion-pound ( $ 38 billion ) budget stimulus .
Economic firefighting in Europe , the world ’ s second-biggest agglomeration of the coronavirus outbreak after China , now seems at a more advanced stage than in the U.S. , which had arguably taken the lead last week when the Federal Reserve delivered an emergency half-point rate cut .
President Donald Trump raised the stakes @ @ @ @ @ @ @ from Europe .
Describing the euro-zone economy , Lagarde said that data already signal a considerably worse outlook , and that the virus had “ heightened market volatility ” in the run-up to the decision .
She unveiled new forecasts which showed projections that were “ notably ” lower for 2020 .
Where Lagarde defied market expectations on Thursday was in keeping the deposit interest rate at minus 0.5 % , staving off pressure for a cut deeper below zero .
With negative interest rates hurting banks and irking some voters in northern @ @ @ @ @ @ @ of shunning such a move were clearly persuasive .
The TLTRO measure has possibly created a dual-rate regime through the back door , by allowing the rate offered on the program -- which would be used by banks to lend into the real economy -- to fall by as much as a quarter-point below the deposit rate , which is already half a point below zero .
The ECB ’ s measures announced on Thursday also open a new dimension to the central bank ’ s crisis toolkit by marrying liquidity provision intended @ @ @ @ @ @ @ enterprises with an easing of capital demands , also aimed at encouraging banks to lend .


washingtonpost--2020-03-12--Lloyd Blankfein Urges ‘All-In’ on Social Separation, Financial Relief

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washingtonpost--2020-03-12--Analysis | Trump Vaunted the Rally. Now He Owns the Collapse

The stock market and a president ’ s chances of re-election aren ’ t necessarily linked .
But Trump ’ s fate is now inextricably tied to the market ’ s , and both are prone to the pandemic virus .
As he confronts what will probably be the toughest stretch of his political career to date , he might be well advised to take stocks as a good monitor of his performance .
Unless he can somehow deliver a successful response to both the human and economic effects of the coronavirus , a protracted bear market is likely .
@ @ @ @ @ @ @ to deal with the virus , that might conceivably be good reason to change course .
Over the past year , the link between the market and Trump ’ s perceived chance of re-election ( which can be most easily gauged by prediction markets ) is startlingly close .
Stock markets tend to reflect the prevailing mood in society , so this isn ’ t greatly surprising , and Trump is regarded as far more market-friendly than several of his potential Democratic rivals .
Over the past year , stocks rose with the @ @ @ @ @ @ @ as expressed by prices on the Predictit market — and in the last two weeks they have tumbled together .
The Democrats are now thought slightly more likely to win : This shows the folly of taking credit for the rally .
The president can not control the market — indeed , others have far greater influence over it .
Moreover , he took office at a time when stocks were already very expensive .
That made it highly unlikely that the stock market would perform well for him .
Even when stocks @ @ @ @ @ @ @ , the performance on his watch was nothing special .
This chart shows the S & P 500 from inauguration day until Wednesday ’ s close , in white , and compares it with the equivalent period for the first terms of the nine other presidents to be elected since the war .
( I excluded Johnson and Ford , who took over as vice presidents ) .
Trump is in white .
As that chart looks like spaghetti , here are the returns in simple bar chart form .
The blue columns @ @ @ @ @ @ @ 11 , while the white columns show performance to Feb. 19 , still not even a month ago , when the S & P 500 Index made its last all-time high .
At that point , Trump was roughly level with Bill Clinton and lagged only Eisenhower and Obama , both of whom took office near the bottom of major bear markets .
After the sell-off , Trump has now dropped in the rankings behind the first President Bush , and JFK : If this swift reversal of fortune doesn ’ t reveal @ @ @ @ @ @ @ stock market , note further that Trump still has better returns than the two Republican presidents he would most like to emulate .
Presidents Reagan and Nixon both won re-election in a landslide , and both oversaw thoroughly anemic stock-market returns early in their fourth year .
George W. Bush , the only president sitting on a decline in March of his fourth year ( having taken office just as a speculative bubble was bursting ) , also won a second term .
The fact that three conservative presidents prevailed in their re-election @ @ @ @ @ @ @ politicians shouldn ’ t target share prices .
They aren ’ t , in themselves , that relevant to voters .
But now that Trump has taken credit for the gains , he will find it difficult to avoid political responsibility for losses .
There is a decent chance that the market will rebound strongly into the election — that is exactly what a number of major Wall Street firms , including Goldman Sachs Group Inc. and Citigroup Inc. , are currently predicting .
The argument is that after the twin shocks of @ @ @ @ @ @ @ a profits recession in the first half , a natural rebound in earnings as life returns to normal will allow stocks swiftly to settle into a new bull market .
That scenario isn ’ t far-fetched , but it is hampered by the very high valuations that Trump inherited , and that have grown even higher under his presidency .
Sparking a pre-election stock market revival will require a strong response to the human effects of the virus , in addition to well-targeted financial measures to prevent the twin shocks from metastasizing into @ @ @ @ @ @ @ sector is heavily leveraged , and credit investors are already signaling concern about the risks of bankruptcies and forced sales .
This will be difficult .
The countries to have the best success in controlling the virus to date , Hong Kong and Singapore , are both cities with relatively authoritarian governments .
It will be hard to copy their methods in the far larger and more democratic U.S .
When it comes to stimulating the economy , the American system of checks and balances could again put Trump at a disadvantage .
@ @ @ @ @ @ @ succession an emergency 50-basis-point rate cut by the Bank of England , and the biggest fiscal expansion in almost three decades .
That was well received by the markets .
But the U.K. has a newly elected prime minister with five years left of his mandate , and a strong majority in parliament .
Policy is virtually a matter of deciding what to do and then doing it , untroubled by the opposition .
Coordination is far harder in the euro zone .
The European Central Bank has less freedom of movement and @ @ @ @ @ @ @ patchwork of finance ministers across the continent .
If Trump wants to spark a renewed bull market before the election , he will need to negotiate a complicated stimulus package with a House of Representatives controlled by Democrats desperate to ensure his defeat — but also desperate not to seem obstructionist .
He also needs to come up with exactly the right measures to avert credit problems — a feat that proved mighty difficult in 2008 .
If he can pull this off , the president should win both a V-shaped stock-market recovery @ @ @ @ @ @ @ would have been better off if he had never drawn attention to the stock market in the first place .


washingtonpost--2020-03-12--Analysis | Will Coronavirus Take Out the 2020 Tokyo Olympics?

It ’ s happened before .
Canceling the Tokyo Games is the least appealing option for organizers , competitors and sponsors , but could come about if the virus showed no sign of abating .
It would be the first scrapping of an Olympics for a reason other than World War : The summer games were canceled in 1916 , 1940 and 1944 as were the winter games in 1940 and 1944 .
Japan has spent an estimated $ 26 billion to ready Tokyo and cancellation could knock about 1.4 % from gross domestic product , Nikko Securities Inc. Chief @ @ @ @ @ @ @ note .
A large part of the economic stimulus may have already been delivered by the massive infrastructure spending laid out to get Tokyo ready for the games .
Several , such as going ahead but banning spectators .
The World Health Organization and sports federations have discussed the possibility , the New York Times reported .
The Tokyo Olympic Committee said it has already sold 4.48 million of its initial 7.8 million tickets to residents of Japan .
Keeping fans out in this way has never happened at an Olympics , but @ @ @ @ @ @ @ soccer leagues to Japan ’ s sumo wrestling -- have in recent weeks gone ahead “ behind closed doors.
” Strange .
While viewers would get to watch the action , some athletes who have played in empty venues said the silence deflates their competitive spirit .
It remains to be seen whether viewers would find it off-putting , a huge concern for media groups such as U.S. network NBC .
It has already sold $ 1.25 billion in ads , more than any other games it has covered .
Just a few @ @ @ @ @ @ @ fill stadiums for major sporting events when it hosted the 2019 Rugby World Cup , which saw a record 99.3 % attendance with 1.84 million tickets sold .
But in-person fans are a diminishing source of revenue .
When Atlanta hosted the 1996 summer games , tickets accounted for 25 % of the budget .
In Tokyo , they are half that .
Highly unlikely , since there are few major cities , if any , free of risk from the virus .
And even if a willing host were found , the @ @ @ @ @ @ @ medical infrastructure would be astronomical , and the logistical challenge overwhelming .
The host committee has already sold some $ 3.3 billion in sponsorships to local companies .
( Remember too that the Paralympics are held a month after the Olympics in the same host city . )
It has happened before , but there was ample time for a handover and that was for a smaller-scale winter Olympics : The 1976 games were moved to Innsbruck , Austria from Denver , Colorado after locals protested spiraling costs .
This would probably be @ @ @ @ @ @ @ t be held as planned in July and a spectator-free event is unfeasible .
The July start had raised worries about the summer heat in Tokyo and prompted the IOC to move the marathon and race walking events to the less balmy northern city of Sapporo .
The last time Tokyo hosted in 1964 , the games were in the cooler month of October .
One senior Japanese official told the Wall Street Journal that a delay of 1-2 years would be most realistic .
That would raise the possibility that athletes who @ @ @ @ @ @ @ cut for the rearranged event .


washingtonpost--2020-03-31--Analysis | Why Trump and California Faced Off Over Auto Rules

The targets agreed to in 2011 call for the Corporate Average Fuel Economy ( CAFE ) of cars and trucks to rise from 35.5 miles per gallon in 2016 to a projected 51.4 by 2025 ( down from an original projection of 54.5 mpg ) .
Tailpipe CO2 emissions are to fall 31 % to 173 grams per mile , a level similar to targets set in the European Union , China and Japan .
Automakers are assigned corporate averages to meet , under a complex system that accounts for production volumes and the sizes of cars and trucks .
@ @ @ @ @ @ @ targets , they face fines .
If they miss CO2 standards , they could be barred from selling vehicles entirely .
Technically they did .
But a key concession by Obama was to agree to backload many of the increases .
That means the manufacturers had to make only gradual improvements for the first decade but face steeply increasing requirements from 2021 to 2025 .
Automakers have endorsed the need for cleaner cars but say meeting ever-higher standards is proving a tricky task .
GM ’ s redesigned Malibu sedan weighed 300 pounds @ @ @ @ @ @ @ smaller but got just two more miles per gallon .
At the same time , cheaper gas has tilted sales away from fuel-efficient cars .
That ’ s increasing the burden of compliance on big pickups , which accounts for a significant portion of Ford Motor Co. ’ s profit in North America .
In 2014 , the company spent more than $ 1 billion to retool factories to build aluminum bodies for its F-150 pickup and introduced turbo-charged V-6 engines .
They say they ’ re spending more money than the government @ @ @ @ @ @ @ They also want more credits granted for eco-friendly technology like aerodynamic design that can help them meet their targets .
In negotiations that led to the rules , Obama agreed to an industry request for a midterm evaluation in 2017 , in which regulators would examine whether the costs and benefits of the clean car rules were meeting expectations .
In his last days in office , the Obama administration said it had completed the midterm evaluation and no changes were need -- to the chagrin of automakers .
Under an agreement that @ @ @ @ @ @ @ almost 50 years ago , the federal government has repeatedly affirmed that California , which struggles with smog , has a right to craft its own clean-air rules .
The state is so big that carmakers try first to comply in California and then use the same designs everywhere else .
During the Obama administration , the state agreed to let automakers that hit the new , tougher federal targets automatically comply with the state ’ s tailpipe carbon dioxide rules .
In addition , more than a dozen other states , including @ @ @ @ @ @ @ their option under federal law to adopt clean-air rules that mirror California ’ s .
For California , a lot .
The auto rules are key to achieving the state ’ s climate goals .
In 2016 , California Governor Jerry Brown signed a law to cut California ’ s greenhouse gas emissions by 40 % below 1990 levels by 2030 .
To do that , some 40 % of the state ’ s auto sales would have to be zero-emission vehicles -- ZEVs -- or gas-electric plug-ins by 2030 , up from @ @ @ @ @ @ @ projections from the state ’ s Air Resources Board .
Former Environmental Protection Administration chief Scott Pruitt declared in April 2018 that the fuel-efficiency regulations for cars and light trucks were too stringent and must be revised .
The following August , the EPA and Transportation Department ’ s National Highway Traffic Safety Administration then proposed scrapping steady increases in mileage rules and instead recommended capping them at a roughly 37-mile-per-gallon fleet average after the 2020 model year .
That proposal argued that easing mileage standards would reduce vehicle prices and make it @ @ @ @ @ @ @ less-efficient cars with newer , safer vehicles , avoiding thousands of traffic fatalities in the process .
It also proposed stripping California ’ s authority to regulate automobile greenhouse gas emissions , an unprecedented move challenging the state ’ s longstanding environmental power .
It followed through on that piece of the plan in September 2019 .
Conservative activists cheered the Trump administration ’ s effort while supporters of the previous rules were -- and still are -- outraged .
Environmental advocates have argued the plan will result in cars that spew more @ @ @ @ @ @ @ up-front savings on new car prices will be eclipsed by higher fuel costs .
Even some automakers have been cool to the approach and some have pushed back more forcefully .
Ford , BMW , Volkswagen , Honda and Volvo ’ s U.S. cars unit bucked the Trump administration and agreed to meet voluntary emissions targets set by California that are more stringent than the relaxed federal rules .
California along with several other states and environmental organizations have sued the Trump administration to block its attack on the state ’ s authority @


washingtonpost--2020-03-31--Analysis | Why BlackRock Has a Role in the Fed Bond-Buying Spree: QuickTake

The Fed ’ s stimulus plan extends aid to U.S. companies and local governments borrowing money as an increasing number of American businesses screech to a halt .
It vowed to buy unlimited amounts of Treasury bonds and mortgage-backed securities , to keep borrowing costs cheap .
The central bank reached even further , offering direct support for companies , pushing into territory typically reserved for federal government spending , or fiscal policy .
The Fed ’ s plans include buying newly issued corporate bonds , existing investment-grade bonds and exchange-traded funds that are based on highly rated debt .
@ @ @ @ @ @ @ lower interest rates to near-zero levels , an emergency step that encourages investment and spending .
The Fed is turning to New York-based BlackRock to oversee three separate debt-buying efforts .
It will buy and manage portfolios of newly issued bonds from U.S. companies as well as portfolios of investment-grade bonds and ETFs , according to the Federal Reserve Bank of New York .
( BlackRock is the world ’ s largest issuer of ETFs . )
BlackRock will also oversee purchases of packages of mortgages on commercial real estate guaranteed by one @ @ @ @ @ @ @ Mortgage Association ( Ginnie Mae ) , Federal National Mortgage Association ( Fannie Mae ) , and Federal Home Loan Mortgage Corp. ( Freddie Mac ) .
Still to be determined is how much money BlackRock will direct in these efforts .
Parts of the Fed ’ s bond-buying program fit more squarely in an asset manager ’ s wheelhouse .
While the Fed ’ s main job is to set big-picture monetary policy by purchasing Treasury debt , a fund firm like BlackRock can be tapped for its expertise in evaluating and @ @ @ @ @ @ @ portfolios of corporate bonds -- something that ’ s not a main skill set of the central bank .
BlackRock Financial Markets Advisory , an arm that consults with government agencies and institutions , will manage the projects .
Aladdin , the risk-monitoring software that BlackRock will use in the process , already watches over more than $ 20 trillion , with a client base including insurers , pensions and fellow asset managers .
( Bloomberg LP , the parent company of Bloomberg News , sells financial software that competes on certain fronts @ @ @ @ @ @ @ the aftermath of the 2008 financial crisis , the Federal Reserve turned to BlackRock to oversee $ 130 billion in distressed debt formerly on the books of Bear Stearns Cos. and American International Group .
Back then , BlackRock wasn ’ t nearly as large a force in global finance as it is today .
The firm oversaw a total of $ 1.3 trillion at the end of 2008 .
At the beginning of 2020 , it had about $ 7.4 trillion in assets under management .
The full extent of the fees @ @ @ @ @ @ @ .
For one piece of its work -- managing the portfolio of agency commercial mortgage-backed securities -- the firm stands to collect more than $ 4 million per year , according to filings .
Following the 2008 financial crisis , BlackRock drew some objections for its involvement in the clean-up .
“ Why is it that BlackRock is the only firm qualified to manage the assets of special-purpose vehicles ?
” Senator Chuck Grassley , the top Republican on the Senate Finance Committee , asked at a January 2009 hearing , questioning the @ @ @ @ @ @ @ .
( “ They come with a world-class reputation , ” answered Timothy Geithner , who was then the Treasury secretary . )
In a step that could help manage potential conflicts of interest this time around , BlackRock will waive investment advisory fees on all ETFs it buys on behalf of the Federal Reserve Bank of New York .
The firm will also credit any other associated fees it would have collected from purchases of its own ETFs in the program .
Also worth noting : The Fed will not buy more @ @ @ @ @ @ @ any ETF , nor will it purchase more than 10 % of any individual issuer ’ s outstanding bonds .


washingtonpost--2020-03-31--Analysis | Looks Like the Wrong Time to Quit Smoking

After all , if people are addicted to nicotine , they still need their fix .
And the pandemic-stricken world we live in provides incentives to light up more often : Anxiety induced by ever-grimmer headlines ; the fact that local stores selling cigarettes are still open ; and the ease with which you can take a fag break when working from home as opposed to having to step outside the office .
Imperial , which also makes Golden Virginia tobacco , said that its factories were building contingency stocks , and its Logista distribution business serving Italy , France @ @ @ @ @ @ @ ensure supplies could get through to retailers .
It ’ s also possible that as with rice and pasta , consumers are stockpiling cigarettes in case of even more stringent isolation measures down the road .
So some demand may have been pulled forward , meaning this uptick might not be sustained in the long term .
What ’ s more concerning is a recent focus on the increased risk of Covid-19 to smokers , and whether that may encourage more people to quit once the crisis has passed .
Reports that the @ @ @ @ @ @ @ about potentially banning cigarettes made headlines , but Bloomberg News reported on Monday that consideration of a ban was “ 100 % not true.
” Still , a renewed focus on personal health , especially where everyone ’ s lungs are concerned , would likely hurt cigarette sales in the future .
These are all challenges tobacco companies will have to grapple with as they race to find what alternative product will drive growth if or when the world does kick its cigarette habit .
The industry was already working to get past @ @ @ @ @ @ @ which was last year linked with a spate of cases of respiratory illness .
Groups including BAT , Altria Group Inc. and Philip Morris International Inc. have invested billions of dollars in electronic cigarettes and devices that heat rather than burn tobacco .
Altria took a 35 % stake in vaping leader Juul Labs Inc. , which it has now written down .
Right now , though , with the prospect of economic conditions deteriorating , tobacco ’ s resilience in the face of recession should come to the fore , especially given @ @ @ @ @ @ @ s most profitable product .
Smokers may trade down if money becomes tight , or switch to rolling their own cigarettes .
But Duncan Fox , an analyst at Bloomberg Intelligence , says that even then pure tobacco has higher margins .
So from a position a few months ago , where vaping sales were under pressure , but there were worries about an accelerated decline in smoking traditional cigarettes too , Big Tobacco ’ s core business now looks to be on a surer footing .
That ’ s bad for public @ @ @ @ @ @ @ choose not to invest in cigarettes .
But at least it can help preserve the industry ’ s profits and chunky dividend payouts for investors , when those at many other companies are suffering .


washingtonpost--2020-03-31--Japan Lenders Tapping Fed Dollars for Clients, Bank Group Says

Even amid the market turmoil caused by the pandemic , Japanese banks aren ’ t experiencing dollar funding difficulties as they did during the height of the global financial crisis more than a decade ago , Mike , 63 , said in an interview .
The Bank of Japan has encouraged banks to borrow as much as they wanted through the Fed ’ s expanded swap lines to ease a dollar shortage , people with knowledge of the matter said .
“ As a whole , we are not in a situation that could cause concern for the financial system @ @ @ @ @ @ @ also president of MUFG Bank , after stepping down Tuesday as chief executive officer of MUFG parent Mitsubishi UFJ Financial Group Inc. , Japan ’ s biggest bank .
Dollar funding has long been an issue for Japanese banks as they aggressively expand overseas .
While the lenders have plenty of yen-denominated deposits from customers , they rely on market funding including bond issuance to procure dollars and other foreign currencies , which often jump in price during market stress .
“ Companies are bracing themselves for unexpected events in a move that @ @ @ @ @ @ @ and banks are likely working to get hold of enough funds , ” said Hideyasu Ban , an analyst at Jefferies in Tokyo , commenting on the Fed purchases .
Another reason for Japan ’ s unprecedented take-up of the Fed program is the low cost of the funds .
The facility has allowed banks to borrow dollars for three months at 0.35 % , compared with 2 % if they do so against the yen in foreign-exchange markets .
That ’ s beginning to ease stress in market-sourced dollar funding .
The @ @ @ @ @ @ @ as seen in the three-month yen-dollar cross-currency basis -- hit its narrowest in a month on Tuesday .
Mike said banks ’ dollar funding has become more robust since the global financial crisis that saw the collapse of Lehman Brothers Holdings Inc. “ In terms of dollar liquidity for Japanese banks , the situation is not the same as the time of Lehman , ” he said .
The Japanese Bankers Association represents more than 100 banks in the country , and its chairmanship rotates annually among Japan ’ s top three lenders @ @ @ @ @ @ @ slipped into recession , with Goldman Sachs Group Inc. calling for a contraction of as much as 3.1 % this year .
Amid the slowdown , MUFG has seen strong demand for loans , especially via online applications , Mike said .
The number of online loan requests by small and medium-sized businesses tripled in March compared with November , before the pandemic struck , he said .
Growth in unsecured loans made to individuals online and by phone also tripled last month from a year earlier , he added .
“ It @ @ @ @ @ @ @ their fundamental competitiveness or are making bad investments , ” he said .
“ I expect businesses will be back on track once corporate activity resumes .
”


washingtonpost--2020-03-31--After $2 Trillion Stimulus, a Call for Another U.S. Rescue Fund


washingtonpost--2020-03-31--Private Equity Frets That It’s a Loser in $2 Trillion Virus Bill

While the biggest firms in the industry and its trade association are downplaying the problem , other executives say privately that it could deal a serious blow to the businesses they own .
The legislation , signed last week by President Donald Trump , does make an exemption for private equity-controlled hospitality and travel companies to obtain loans .
Those industries have been among the hardest hit from the virus-fueled slowdown .
At issue is how to count the employees that make up a small business .
In the rules laid out by the law and the SBA , firms @ @ @ @ @ @ @ ’ t eligible for the loans .
That number counts affiliates –- a definition that could include the workers at all the portfolio companies that a private-equity firm invests in .
It ’ s unclear whether private equity was purposefully targeted in the law .
A sign that it might not have been intentional : the same problem is impacting companies funded by venture capital firms .
If private equity doesn ’ t get the issue addressed by the SBA , it may have to seek a legislative fix on Capitol Hill .
@ @ @ @ @ @ @ have made the industry a target for attacks in an election year that has focused on issues like economic fairness and income inequality .
Progressives have homed in on the sector in part because some of its leaders , like Blackstone Group Inc. ’ s Stephen Schwarzman , are part of Trump ’ s inner circle and his administration has given private equity regulatory relief and tax cuts .
Industry executives who asked not to be identified said the SBA may issue guidelines for its loan program as early as today .
That @ @ @ @ @ @ @ clarity on whether their companies can get aid .
If not , the people said , the industry is likely to ask Congress to add a measure to the next rescue legislation that ensures they can take advantage of the lending .
Drew Maloney , the president of the American Investment Council , which lobbies in Washington for private equity firms , said the companies should be able to tap SBA funds regardless of their ownership structure .
“ Businesses across America are looking for support immediately in order to survive , ” @ @ @ @ @ @ @ t matter if these companies are backed by investments from corporations , pension funds , or others.
” An SBA spokesman didn ’ t immediately respond to a request for comment.It ’ s still uncertain how the issue might be worked out .
Last week , at least one senator was reassuring private equity groups that excluding their companies from the stimulus funds was an oversight and new language adopted in an SBA regulation governing the program would eliminate their concerns , according to people familiar with the discussions .
But SBA officials @ @ @ @ @ @ @ that they should use their own cash piles to bail out struggling portfolio companies , the people said .
“ Most portfolio companies controlled by private equity sponsors – even though each such company may be an eligible small business when considered on its own – are likely to be aggregated with the other controlled portfolio companies , ” Davis Polk & Wardwell lawyers wrote in a March 29 memo .
That would “ exceed the size limitations for participation.
” Still , the Davis Polk attorneys said that ambiguity in the law @ @ @ @ @ @ @ that could resolve the issue in the firms ’ favor .
“ All small businesses are likely to suffer some impairment , whether they are individual businesses , or those that happen to be owned as a portfolio company , ” the Institutional Limited Partners Association wrote .
“ We see no reason why being owned in a fund structure should result in these businesses having less access to the capital needed to keep their employees on the payroll .
”


washingtonpost--2020-03-31--Analysis | Trump and Putin Are All Talk on Oil Price Plunge

Putin ’ s most recent diplomatic “ successes ” include the annexation of Crimea and sending troops to support Bashar al-Assad ’ s regime in Syria .
Trump has become the master of the empty photo-op , most notably with North Korea ’ s Kim Jong Un .
In the energy sector , points of contention between the two men include Russia ’ s role in Venezuela ’ s oil export trade ; U.S. sanctions on Russia ’ s oil and gas industries , including those targeting the second Nord Stream gas pipeline from Russia to Germany and others that @ @ @ @ @ @ @ and gas projects ; and Russia ’ s own nascent shale sector .
Putin has no interest in throwing another lifeline to the U.S. shale sector .
Trump still seems to see the problem as being caused by Russia and Saudi Arabia both going “ crazy ” and launching a price war .
Let ’ s get one thing straight .
The collapse in oil demand as a result of the worldwide response to the Covid-19 virus is a much , much bigger problem than the additional barrels threatened by Saudi Arabia and @ @ @ @ @ @ @ yet .
As airplanes stop flying and drivers stop driving , they are going to struggle to find buyers for their oil , just like everyone else .
Saudi Arabia is already threatening to boost its exports by a further 600,000 barrels a day in May because its own refineries don ’ t want the crude .
This is simply more stranded oil trying to find a buyer .
Goldman Sachs estimates that global oil demand this week is down by 26 million barrels a day , or 25 % .
That ’ @ @ @ @ @ @ @ the U.S. , Canada , Mexico , Central America and the entire Caribbean .
Sadly , the loudest voices in America still seem to be those calling for the use of bully-boy tactics against the world ’ s other heavyweights .
A letter sent to Secretary of State Mike Pompeo last week from six Republican senators , including Lisa Murkowski from Alaska and John Hoeven from North Dakota , characterizes the Saudi and Russian decisions to end output restriction as “ economic warfare against the United States.
” The lawmakers argue that “ @ @ @ @ @ @ @ when what they really mean is that the kingdom led by Crown Prince Mohammed bin Salman must return to its previous course , and they name-check the whole gamut of pressure tactics the U.S. has at its disposal to get it to do so , from the threat of “ tariffs and other trade restrictions to investigations , safeguard actions , sanctions , and much else.
” I get that senators from oil-producing states want someone else to cut back to keep the oil price high enough so that their local fossil-fuel industries @ @ @ @ @ @ @ might well argue that the current situation would be easier to deal with had the U.S. not doubled its oil production in less than a decade .
Targeting Saudi Arabia and Russia for behaving as American leaders have always urged them to behave — by removing “ artificial ” restrictions on their oil production — will not solve the crisis faced by oil producers everywhere .
As I wrote Sunday , we are now getting the free-market in oil .
The demand destruction caused by the collapse in oil demand as a result @ @ @ @ @ @ @ not be solved by sanctions or tariffs .
The world ’ s Big 3 oil producers might have had a chance to get together to organize a global response to the temporary loss of oil buyers , but they squandered it .
As things stand , the companies ( and countries ) that bear the brunt will be those who can ’ t find buyers or storage tanks for their oil .
No amount of bullying , or half-hearted diplomacy , can change that now .


washingtonpost--2020-03-31--Analysis | What to Know About Recessions, as Virus Threatens One

The dictionary definition is a period when economic output contracts for two straight quarters .
The National Bureau of Economic Research ’ s Business Cycle Dating Committee , which makes the official U.S. determination , uses a different approach , considering factors such as inflation-adjusted GDP , employment , industrial production and income .
The International Monetary Fund , in designating recessions on a global scale , looks at several indicators including a decline in inflation-adjusted per-capita GDP that ’ s backed up by weakness in industrial production , trade , capital flows , oil consumption and unemployment .
Almost @ @ @ @ @ @ @ output likely shrank in the quarter ending March 31 , and there ’ s widespread agreement that the contraction in the second quarter , April through June , could be the most dramatic in records going back to 1947 .
Morgan Stanley ’ s expectation that gross domestic product will fall a jaw-dropping 30.1 % in the second quarter was topped by Goldman Sachs Group Inc. , which estimates the U.S. economy will shrink by 34 % .
( It ’ s worth noting that U.S. Treasury Secretary Steven Mnuchin said on March @ @ @ @ @ @ @ would slow growth but not tip the U.S. economy into recession . )
NBER typically takes about a year to make the official call on when a U.S. expansion ends and a recession begins , though this time it may not wait that long .
Bloomberg Economics is forecasting a global recession in the first half of 2020 , noting that “ for some important parts of the world the contraction has already begun.
” It foresees the global economy shrinking by 1.8 % year-on-year in the first half of 2020 , compared @ @ @ @ @ @ @ 2019 .
The International Monetary Fund has counted only four global recessions tracing back to 1960 , compared to the 11 counted in the U.S. since World War II by NBER .
That ’ s becoming the question of the moment .
There was some hope that the downturn wouldn ’ t last beyond the first two quarters of this year , a rosy scenario that assumes fast and effective work in getting the coronavirus under control .
More recently , economists have been losing hope in such a “ V-shaped recovery , @ @ @ @ @ @ @ restored .
The ultimate fear is a protracted malaise that has some flavor of a depression .
It ’ s generally interpreted as a severe downturn that is measured in years , not quarters .
There ’ s been just one in the last 100 years , the Great Depression of 1929-1933 .
The 2007-2009 recession lasted 18 months , making it the longest since the Great Depression , inspiring the name the Great Recession .
Besides duration , other measures of a recession ’ s severity are how much the economy contracts @ @ @ @ @ @ @ worst recessions tend to be those paired with some sort of collapse in the financial system , as happened in the U.S. in 1929 and 2008 .
Another driver of a recession ’ s severity is how broadly the economy suffers a contraction .
The relatively short and mild 2001 recession , for instance , was largely confined to the tech sector , with modest fallout to the rest of the economy .
That ’ s a question of particular interest in the U.S. , where the economic expansion has lasted almost 11 @ @ @ @ @ @ @ Cleveland researchers found little evidence that duration of an expansion influences how bad the subsequent recession .
They did , however , find reason to think severe recessions ( like the one that ended in 2009 ) spawn strong expansions .
In terms of the depth of the downturn , it might well be worse than the recession of 2007-2009 .
But the speed of the recovery could be swifter , since this recession will reflect a shock ( the virus ) rather than the buildup of underlying economic imbalances .
Also on @ @ @ @ @ @ @ in a good spot .
They ’ re carrying less debt , and an increase in mortgage refinancing has put more cash in consumers ’ pockets .
Central banks around the world are cutting interest rates , intervening in markets , buying corporate assets or helping banks to keep lending to businesses .
The People ’ s Bank of China has injected billions into the economy , and the Bank of Japan boosted asset purchases to stabilize markets .
The U.S. Federal Reserve cut its benchmark interest rate to near zero .
But @ @ @ @ @ @ @ governments in part because central banks have used up a lot of their interest-rate ammunition over the last decade .
“ The response should be fiscal , first and foremost , ” European Central Bank President Christine Lagarde said .


washingtonpost--2020-05-08--Democrats Ask Five Companies to Return Relief Funds

The letters weren ’ t signed by the five Republicans on the 12-member panel , who were named on Thursday .
Representative Steve Scalise , the second-ranking House Republican and a member of the committee , blasted Democrats for making the panel ’ s first official act “ blindly sending harassing letters to individual companies that followed the law.
” The letters were sent to EVO Transportation & Energy Services Inc. ; Gulf Island Fabrication Inc. ; MiMedx Group Inc. ; Universal Stainless & Alloy Products , Inc. ; and Quantum Corp .
The companies didn ’ t immediately return @ @ @ @ @ @ @ the panel , led by Chairman Jim Clyburn of South Carolina , said the companies all are publicly owned , have market capitalization of more than $ 25 million , have more than 600 employees , and sought and received loans through the Paycheck Protection Program for small business of at least $ 10 million .
The letters ask the companies to inform the subcommittee by May 11 if they will return these funds .
If not , the lawmakers will ask the chief executive officers to produce a range of documents no @ @ @ @ @ @ @ these funds will allow truly small businesses -- which do not have access to alternative sources of capital -- to obtain the emergency loans they need to avoid layoffs , stay in business , and weather the economic disruption caused by the coronavirus crisis , ” the letters said .
The letters to the CEOs of the five companies provide the dates of when each filed with or reported to the Securities and Exchange Commission having obtained a Paycheck Protection Program loan , each in the amount of $ 10 million .
MiMedx @ @ @ @ @ @ @ , Georgia , said April 21 that it obtained $ 10 million from the PPP .
Just weeks earlier , the company had agreed to pay $ 6.5 million to the Justice Department to settle allegations that it defrauded the federal government , without admitting wrongdoing .
Once a promising small-cap company with a market value of nearly $ 2 billion , it was delisted from Nasdaq in 2018 after its board found accounting irregularities .
The five panel Republicans were invited to co-sign the letters , and they declined , according to @ @ @ @ @ @ @ .
Scalise was copied as a recipient of the letters .
The 12-member committee was created on a party-line House vote when lawmakers were in Washington last month to pass the most recent coronavirus aid package .
House Minority Leader Kevin McCarthy of California didn ’ t announce his appointees to the panel until this week .
He and other Republicans have said the committee isn ’ t needed because other committees are already performing oversight .
In a statement , Scalise said Treasury Secretary Steven Mnuchin had already stated that the Treasury @ @ @ @ @ @ @ have received loans through the PPP fund .
“ With a large scale audit underway , this action by Democrats represents dangerous government intimidation that could cause more widespread layoffs at a time when we should be trying to keep American workers on the payroll , ” the Louisiana Republican said .
“ We hope Democrats will change course and spend as much time targeting , shaming , and investigating China as they do going after American workers and job creators .
”


washingtonpost--2020-05-08--Citi Has 2,000 Employees Working on Small-Business Loan Program


washingtonpost--2020-05-08--Analysis | How Covid-19 Is Changing Entertainment, in Five Charts

The most telling number that came out of earnings in recent weeks was 91 % .
That ’ s how much net income plunged at Walt Disney Co. , one of the most time-tested , resilient companies in the world .
Regional lockdowns have taken aim at all of Disney ’ s core businesses , most notably its theme parks around the world , which have been closed to visitors for weeks .
But the TV and film operations at Disney ’ s rivals are also hurting .
In fact , Netflix Inc. is the only media giant that doesn @ @ @ @ @ @ @ , live sports or people leaving their houses , and it ’ s the only industry stock that ’ s been left unscathed : Explosive demand for TV content led almost 16 million people to sign up for Netflix — more than double what the company predicted before the Covid-19 outbreak .
The extended time at home also has been a chance for consumers to take new apps out for a spin , including Disney+ , Apple TV+ , Quibi and Comcast Corp. ’ s Peacock .
Disney+ has added 28 million subscribers @ @ @ @ @ @ @ recession causes consumers to tighten their budgets , pricey cable-TV bills will be on the chopping block .
Already last quarter , the big four pay-TV providers saw an exodus of nearly 2 million customers , with AT & T Inc. ’ s DirecTV accounting for almost half of those cancellations : The desire to save money is boosting interest in free streaming-video services , such as Pluto TV and Tubi , that are funded by advertisers .
Pluto TV ’ s growth proved to be the biggest bright spot in ViacomCBS Inc. @ @ @ @ @ @ @ cancellation of the NCAA March Madness tournament crushed traditional network ad sales : Without sports , consumers are dusting off their gaming consoles and playing for hours on end .
Verizon Communications Inc. said that while video usage on its internet network was up 40 % , that ’ s nothing compared to the 200 % increase in gaming .
Like social-media apps , online gaming can provide a sense of community — something streaming-TV apps may aspire to do one day but don ’ t yet .
In-game purchases are also extending @ @ @ @ @ @ @ ’ ve become a money gusher during the lockdown for publishers such as Electronic Arts Inc. : It remains to be seen if , after all that time spent gaming and streaming from the couch , consumers will be itching to go to the movies once again .
Even as some states begin to reopen business , it won ’ t be possible to gauge any recovery for the movie-theater industry just yet because the year ’ s biggest films have been postponed : The same uncertainty hangs over theme parks .
Disney @ @ @ @ @ @ @ week to a relatively small number of visitors .
Normally , that resort ’ s capacity is 80,000 guests , but the local government is allowing just 30 % of that , and Disney is capping ticket sales at even less at first .
With face masks and temperature checks , and no more hugs from your favorite character , it ’ ll be a test of whether consumers still see Disney as a magical place to escape the real world — or a sad reminder of what it ’ s become .
@ @ @ @ @ @ @ and stream .


washingtonpost--2020-05-08--Analysis | Nomura Learns Some Uncomfortable Home Truths

That should be troubling for investors hoping that Nomura had turned a corner and was poised to strengthen its position after former CEO Koji Nagai ’ s cost cuts left the company in seemingly solid shape at the turn of the year .
Clearly , the Covid-19 outbreak couldn ’ t have been foreseen .
What ’ s disturbing is that Nomura failed to soften the blow by generating meaningful trading profits from a quarter of wild volatility , in contrast to peers from Goldman Sachs Group Inc. to Deutsche Bank AG .
It was also outshone by smaller Japanese @ @ @ @ @ @ @ reported a profit for the period .
Okuda , who took over from Nagai at the start of April , has pledged to continue his predecessor ’ s overhaul , which included significant management restructuring and a 20 % reduction in Nomura ’ s Japanese retail brokerage branches .
Hopes that the major surgery had been completed , which drove a 34 % rally in Nomura shares last year , will now have to be discounted .
The era of flip-flopping between expansion and retrenchment in its overseas operations may not be over @ @ @ @ @ @ @ ( $ 324 million ) net loss for the three months through March is all the more surprising given that Nomura has a niche in bond trading , which was a key contributor to the previous quarter ’ s 57.1 billion yen profit .
The brokerage ’ s bond trading revenue dropped to 78 billion yen from 99.7 billion yen in the December period , though it rose from a year earlier .
Chief Financial Officer Takumi Kitamura said the wholesale business , which houses its bond trading activities , had an uncertain @ @ @ @ @ @ @ ?
Its core domestic retail business looks relatively healthy , despite Japan ’ s state of emergency closing several branches .
The retail division reported pretax income of 18.4 billion yen , a more than fivefold increase from a year earlier .
The priority should be on protecting and building its domestic franchise , where Nomura has a strategic advantage .
That means continuing to invest in its digital operations .
The bank has long been seen as a dinosaur in this area and has been losing business to more nimble online brokers @ @ @ @ @ @ @ cost-cutting program is 70 % complete , Nomura said .
It would make no sense to abandon a revamp that had appeared to be delivering sustainable results at the end of last year .
As for its international business , shareholders could be forgiven for despairing .
The brokerage has been trying to put its ill-fated 2008 acquisition of Lehman Brothers ’ Asian and European operations behind it for more than a decade .
The December quarter has proved yet another false dawn .
This column does not necessarily reflect the opinion of @ @ @ @ @ @ @ its owners .
Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking .
She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter .


washingtonpost--2020-05-08--Fed’s Balance Sheet Expands Again, Grows to $6.72 Trillion


washingtonpost--2020-05-04--Analysis | Why There’s a Looming Debt Crisis in Emerging Markets

Emerging markets owe more than $ 8.4 trillion in foreign-currency debt , or about 30 % of the developing world ’ s gross domestic product .
At least $ 730 billion is coming due through the rest of this year , as many of these nations see the worst of the virus , which will severely tax health systems .
The fear is that weakening local currencies , dwindling foreign reserves and slower global growth , compounded by lower oil prices , will make it harder for some developing countries to keep up on their external debt payments .
While @ @ @ @ @ @ @ Venezuela among them -- were in trouble long before Covid-19 scared investors out of risky assets , the pandemic has helped at least 15 others to linger in distressed territory .
Ecuador has already won temporary relief from its bondholders , but Zambia , Suriname and Angola are among those with dollar-bond yields in excess of 1,000 basis points over U.S. Treasuries -- a threshold for securities to be considered in distress .
Lower-income countries and those reliant on tourism and remittances are also in need .
Leaders of the Group of 20 @ @ @ @ @ @ @ by some of the world ’ s poorest countries , mostly in Africa .
The IIF , which represents the world ’ s biggest banks and financial institutions , is helping spearhead the voluntary initiative .
This plan will likely appeal most to countries indebted to bilateral lenders , such as Cambodia and Myanmar , and is designed to free up funds to combat the crisis .
Still , only about 73 countries will be eligible to request access to the program .
Meanwhile , the IMF has granted debt waivers to at @ @ @ @ @ @ @ is a so-called standstill -- forbearance on external debt-service payments through at least the end of this year .
This would give countries room to spend on health services and measures to prop up their economies without risk of missing a coupon payment .
A possible step further would be a program to help some governments restructure their debt loads once there ’ s enough information to run sustainability analysis .
One inspiration for that idea is the Brady Plan of the late 1980s .
Announced in 1989 , when countries in Latin @ @ @ @ @ @ @ struggling to pay off loans , the U.S.-led initiative restructured the debt of 18 developing countries into more than $ 160 billion of so-called Brady bonds , many of which were backed by zero-coupon U.S. Treasury bonds or funds from the IMF or World Bank .
The bonds and plan were named for Nicholas Brady , treasury secretary under U.S. Presidents Ronald Reagan and George H. W. Bush .
Not without substantial changes .
The key difference is that the Brady Plan mainly transformed commercial bank loans , many of which were already @ @ @ @ @ @ @ was a way to relieve pressure on Wall Street and encourage growth in the developing world .
Today , emerging markets owe money to a wide range of creditors , and a relief plan would need the backing of hundreds of creditors from New York hedge funds to Middle Eastern sovereign wealth funds and Asian pension funds .
It ’ s no easy task to persuade private investors , especially those with large emerging-market exposure , to take a hit by deferring debt payments .
It ’ s also unclear whether their fiduciary @ @ @ @ @ @ @ grant leniency , even if they wanted to .
Fine print in many deals also make it so that terms can not be legally changed without the approval of the majority of bondholders .


washingtonpost--2020-05-04--Fintechs Poised to Lock In Sudden Success Courtesy of Crisis Era

Now , the firms must convert the victories into longer-term acceptance within the financial system .
Julien Courbe , a partner at PricewaterhouseCoopers who focuses on financial services , said the “ litmus test ” for fintechs will be how they perform through the whole credit cycle .
“ It ’ s not just the acceptance of the loans , ” he said in an interview .
“ It includes the forgiveness process , which is new for everybody , of course .
But the banks have infrastructure in place related to forgiveness while fintechs will have to create that @ @ @ @ @ @ @ , fintechs made advances that might have taken years under normal circumstances .
Prior to the coronavirus outbreak , non-bank access to any kind of Fed facility could have been a decade-long struggle , said John Pitts , head of policy at Plaid Technologies Inc. , a fintech that agreed this year to be acquired by Visa Inc. for $ 5.3 billion .
“ The sound barrier has been broken on a daily basis and no one has pulled back to say , ‘ Things that would ’ ve been a once-in-a-year achievement @ @ @ @ @ @ @ daily basis , ” ’ Pitts said in an interview .
The approvals indicate “ that the Fed considers fintech lending is on par with bank lending in terms of the government structural support it should receive to ensure that the economy is running smoothly.
” Predictably , the upstarts haven ’ t handled the kind of transaction sizes seen at the bigger firms .
Square ’ s average PPP loan size so far is $ 16,000 , compared with $ 123,000 at JPMorgan Chase & Co. and about $ 110,000 at Wells @ @ @ @ @ @ @ say one of their strengths is their work with the smallest businesses , including those owned by sole proprietors or minorities , many of whom haven ’ t been able to get access to the big U.S. banks .
Providing assistance to small businesses in crisis can deepen those ties , said Jackie Reses , capital lead at Square .
“ This is a moment of reckoning for banks , ” Reses said in an interview .
“ People are feeling a little exposed in where their relationships are and who those relationships @ @ @ @ @ @ @ traditional banks are still seen by the government as the primary conduits for distributing funds .
PayPal and Intuit , the first fintechs to participate in the PPP , weren ’ t approved until April 10 , just days before the first round of funding was exhausted .
Even though Congress recognized early the need for fintech lenders in the PPP , no government infrastructure was in place for their participation from the outset , Pitts said .
The fintech application form didn ’ t come until about a week after the PPP @ @ @ @ @ @ @ qualified a fintech before .
Del Grosso said that the biggest win for fintechs promises to be long-term adoption of digital payment methods that have picked up momentum amid the pandemic .
Consumers buying online and picking up in store , tap-to-pay and the decline of cash all may be here to stay even after the outbreak subsides , he said .
The crisis has “ shined a light on how truly interconnected our world is and increased use of all things digital , ” PayPal Chief Executive Officer Dan Schulman said in @ @ @ @ @ @ @ been a greater need for digital payments , he said .
“ A huge amount of volumes are shifting to online , e-com and contactless , ” Moshe Katri , research analyst at Wedbush Securities Inc. , said in an interview .
“ The traditional banking model is going to continue to get cannibalized by fintechs .
”


washingtonpost--2020-05-04--Analysis | J. Crew Is the First of Many Retail Casualties

Other chains are grappling with the same issues : heavy debt loads , compounded by the damage done from locations closed for weeks .
Neiman Marcus Group Inc. is closing in on a bankruptcy deal with a group of lenders , Bloomberg News reported on Monday , citing people with knowledge of the matter , and J.C. Penney Co. is reportedly in talks on a loan that would fund it through a restructuring .
Meanwhile , Victoria ’ s Secret-owner L Brands Inc. said late Monday that it agreed to terminate plans to sell a majority stake in the lingerie @ @ @ @ @ @ @ .
Jefferies analyst Randal Konik had warned last month of potential medium-term solvency issues at L Brands after Sycamore sued to get out of the transaction , citing a collapse in sales and looming debt maturities .
Every brand has its own story .
In the case of J .
Crew , it was one of the first mainstream U.S. retailers to gain real traction with the fashion crowd , and in its heyday was also ahead of its time in areas such as store design .
The leadership of former chief executive @ @ @ @ @ @ @ took its preppy styles from classic to cutting edge , all helped by the brand being a favorite of Michelle Obama .
But its trendy designs eventually alienated some customers , and when the power partnership came to an end in 2017 , it never regained its stride .
With cheaper competitors such as Inditex ’ s Zara and a resurgent Ralph Lauren Corp at the top end , J .
Crew had to rely on incessant discounting .
J .
Crew had hoped in recent months to spin off its faster-growing , @ @ @ @ @ @ @ cut borrowings of almost $ 1.7 billion as of February .
But plans for the initial public offering were scuppered by the pandemic , and it was left struggling to deal with its debt , a legacy from its 2011 leveraged buyout by TPG Capital LP and Leonard Green & Partners LP .
Neiman Marcus , meanwhile , was acquired in a $ 6 billion leveraged buyout by Ares Management LLC and the Canada Pension Plan Investment Board almost six years ago .
The chain has been in a race with its luxury @ @ @ @ @ @ @ turn stores into temples of indulgence .
That all takes investment , made harder with a debt load of $ 4.3 billion , according to Bloomberg News .
J.C. Penney is at the other extreme .
It must deal with shabby stores as it struggles to stay relevant while managing total borrowings of $ 3.6 billion excluding store leases as of Feb. 1 .
All three chains are facing pressure from online rivals .
For J.C. Penney , that ’ s Amazon .
For J .
Crew and Neiman , it ’ s @ @ @ @ @ @ @ .
The latter two are no laggards to online themselves , so this challenge should be manageable .
Their capital structures , however , are proving more of a hurdle .
Some stronger groups , including Gap Inc. , have tapped the credit markets .
In the U.K. , a number of retailers such as Asos Plc , have turned to shareholders .
American chains may follow suit .
But the steep falls in many retailers ’ share prices may make that difficult .
A buyer also can ’ t be ruled out @ @ @ @ @ @ @ which will continue to trade after also reaching agreement on $ 400 million of financing .
After all , both have recognizable brands .
But with valuations uncertain , a rescuer can ’ t be counted on either .
While the lockdown , and likely tepid recovery is most worrying for those companies with fragile finances , stronger chains will also emerge weaker .
Gap , for instance , revealed that with physical stores shuttered , it would burn through half of its cash pile in less than two months , eroding its @ @ @ @ @ @ @ was seeking to revive its core Gap brand .
Gap had $ 1.25 billion of long-term debt as of Feb. 1 , less than one times its Ebitda of $ 1.6 billion and seemingly manageable .
But with the pandemic , cash reserves — which stood at $ 1.7 billion on Feb. 1 — have dwindled to an estimated $ 750 million to $ 850 million as of May 2 .
After the struggle to survive , there will be little left over to invest , a problem when consumers are likely to @ @ @ @ @ @ @ online shopping .
So for those retailers that do make it through the crisis , prospering afterwards will be another thing entirely .


washingtonpost--2020-03-13--Analysis | Why Billions in Bonds Now Trade Like ‘Fallen Angels’

Generally speaking , a fallen angel is a bond that is downgraded to BB+ or below ( categories considered junk , or , more politely , high yield ) by at least two of the three major rating firms -- Moody ’ s Investors Services , S & P Global Ratings and Fitch Ratings -- after being formerly rated BBB- or higher ( categories that are investment grade ) .
Downgrades can happen when a company isn ’ t creating enough revenue or generating enough cash to service its debt , or when it takes on so much debt that @ @ @ @ @ @ @ debt as a measure of earnings -- becomes disproportionate .
A fall to junk status affects both borrowers and investors .
For companies , downgrades make borrowing more expensive .
A downgrade that extends all the way to junk could mean a need to tack debt covenants to the formal contracts with bondholders .
These covenants protect investors who agree to lend to the now-riskier issuer and , often , prevent the company from benefiting shareholders at the expense of bondholders .
Junk status also can force a wave of selling by investment @ @ @ @ @ @ @ from holding credits below investment grade .
The prices on the bonds may need to fall to compensate investors for holding a less liquid , or actively-traded security .
It started with a decade of ballooning corporate debt that followed the 2008 financial crisis , as companies took advantage of record low interest rates .
The size of U.S. investment-grade market has more than tripled to $ 5.7 trillion outstanding since then .
Historically low borrowing costs over the last decade paved the way for companies to issue debt and pursue aggressive growth @ @ @ @ @ @ @ of that , leniency by the rating firms allowed companies to maintain investment-grade ratings despite elevated leverage ratios .
Investors hungry for higher returns in a low-yield market were willing to lend copiously even as warnings were sounded about the ability of so much debt to be carried through a downturn .
The coronavirus pandemic has made those worries immediate .
As companies saw their supply chain disrupted or demand for their products fall or both , earnings projections have been cast into doubt .
That ’ s led traders to start to @ @ @ @ @ @ @ of this market .
There are some smaller ones that won ’ t cause much of a market ripple , such as Macy ’ s Inc. and Royal Caribbean Cruises Ltd. Then there are some biggies like Ford Motor Co. , which already has one high-yield rating , and Occidental Petroleum Corp. , one of many BBB energy companies teetering over the edge after a dramatic fall in oil prices .
Either would be the largest issuer in the Bloomberg Barclays high-yield index .
That ’ s not clear .
Investors are largely @ @ @ @ @ @ @ of investment-grade debt that has at least one BBB- or equivalent rating , just one level above junk .
Guggenheim Partners said $ 1 trillion of debt is potentially heading to high yield .
As much as $ 140 billion of investment-grade debt could be downgraded this year , largely given the stress in the energy sector , according to UBS Group AG strategists led by Matthew Mish .
At the prospect that lenders may effectively shut many companies out of the credit markets , there ’ s been a mad dash for @ @ @ @ @ @ @ banks and other lenders to fill the gap .
A 1984 story in American Banker newspaper attributed it to David Solomon , head of Solomon Asset Management , which at the time was a leading investor in the emerging field of junk bonds .
( He ’ s not to be confused with the current head of Goldman Sachs Group Inc . )


washingtonpost--2020-03-13--PBOC Pumps $79 Billion to Banks for Virus-Weakened Economy

China ’ s economy has been hit hard by the spread of the virus and the associated quarantine measures since January , which shut down much economic and daily activity .
However , even with these reductions , the PBOC has so far been less aggressive than other global central banks , which have acted in recent days to steady markets and their economies .
“ It is quite unlikely to see PBOC cutting rates as aggressively as some other central banks , especially the Fed , as an aggressive rate cut may not be as effective as fiscal and @ @ @ @ @ @ @ normal operations at this stage , ” said Becky Liu , China macro strategist at Standard Chartered Plc in Hong Kong .
“ Fiscal measures including tax cuts and exemptions ” as well as low-cost loans are likely to be more useful , she said .
That caution is driven by fears of another debt blowout after total borrowing ballooned in the decade after the global financial crisis , in large part due to the 4 trillion yuan stimulus and wave of bank lending unleashed at the time .
A dramatic escalation of @ @ @ @ @ @ @ central bank would need to soften their approach to reining in debt , a focus that has forced the government to lean on measures like tax cuts and support for small and medium-sized business instead of large-scale fiscal spending .
To qualify for the reduction announced Friday , banks have to pass an annual review that assesses their lending to small firms in 2019 , and the changes will reduce banks ’ interest costs by 8.5 billion yuan a year , the PBOC said .
The lower costs could lead to a 5 @ @ @ @ @ @ @ on Mar .
20 , according to China Minsheng Banking Corp. researcher Wen Bin .
The LPR is the interest rate on which borrowing costs for loans are based .
The RRR reductions will take effect on Monday , when the government will announce data which is expected to show that the economy shrank in the first two months of the year .
Data on China ’ s industrial output , investment and retail sales are forecast to show an across-the-board contraction for the first time on record , evidence of the extent @ @ @ @ @ @ @ economy .
“ The targeted RRR cut will be effective next Monday to offset the data shock , ” said Xing Zhaopeng , a market economist at Australia and New Zealand Banking Group in Shanghai .
He expects the PBOC to restart open market operations soon to offer sufficient liquidity to help banks get past the end of the quarter .
The last operation was on Feb. 17 , according to Bloomberg data .
A reserve-ratio cut , while not immediately lowering the cost of borrowing , is a rapid way of freeing @ @ @ @ @ @ @ been a favored tool in the central bank ’ s efforts to control the economic slowdown in recent years .
The step is a continuation of the targeted approach to stimulus , which has so far featured credit easing and tax cuts .
The central bank is “ making its prudent monetary policy more flexible and appropriate , ” the PBOC said in the statement .
“ The restoration and development of the real economy is being put in a more prominent position , while excessive liquidity will be avoided .
”


washingtonpost--2020-03-13--Analysis | Unraveling the Mysteries of China’s Multiple Budgets

According to the main one , China ’ s government spent about 23.5 trillion yuan ( $ 3.4 trillion ) in 2019 .
That compares with an estimated U.S. federal budget of $ 4.6 trillion in 2020 -- not including any recent measures to deal with the coronavirus .
As a share of the economy , the Chinese budget is about 23 % , slightly more than its American counterpart .
But China ’ s doesn ’ t include a range of important funding sources or almost 40 % of spending , such as money from land sales and special @ @ @ @ @ @ @ the other money , total expenditure was actually 37.2 trillion yuan .
Looking at just the general public budget , as the official economic plans do each year , the government planned a 2.76 trillion yuan deficit in 2019 , or 2.8 % of gross domestic product .
Once you include all the other spending listed in the table above , the deficit is 6.5 % of GDP , according to Bloomberg calculations .
By international standards , that ’ s a big deficit .
The Chinese government also has a budget for @ @ @ @ @ @ @ security insurance .
Since the revenue and expenditure in those two are generally used in dedicated sectors and are much smaller than the main budgets , economists don ’ t count them as part of China ’ s broad fiscal picture .
Much of the government ’ s tax revenue comes from companies , and the 2 trillion yuan tax cut last year meant that didn ’ t grow much in 2019 .
The authorities claim the tax cut boosted economic growth by about 0.8 percentage point .
Tax revenue rose 1 % @ @ @ @ @ @ @ % increase in 2018 .
This chart below shows actual revenue at the end of 2019 , whereas the table above shows the expected revenue in the budget early in the year .
Hard to say .
The biggest expenditure category in the general public budget is education , followed by social welfare .
But the finance ministry doesn ’ t release details .
Bloomberg has calculated the chart below based on a general breakdown from the ministry , but it ’ s unknown how this money is actually spent or which department @ @ @ @ @ @ @ government earmarked 1.2 trillion yuan for defense in 2019 , according to an announcement early that year , but there is no specific line item for defense in the official spending breakdown .
( That gets released about a year later . )
Compared with the average among rich countries , China appears to spend more of its budget on education , for instance , but much less on health care .
Outside the main budget , big-ticket expenditures include costs related to infrastructure - demolishing old buildings , relocating residents and preparing @ @ @ @ @ @ @ ’ s government is seen as a big investor there , it ’ s again difficult to estimate how much is spent due to the lack of detail .
In the main budget , funding for infrastructure is scattered among different programs such as urban and rural development or the construction of affordable housing .
In the other three budgets in 2019 , 2.15 trillion yuan of special debt is in theory meant to finance new infrastructure , although some economists calculate that only a small part of it was actually used directly @ @ @ @ @ @ @ assets also include some additional , related spending .
Spending to pay interest on debt has risen to about 834 billion yuan in the main 2019 budget from about 500 billion yuan in 2016 .
However , not all government liabilities are included in that budget .
Over the past few years , the government has been trying to use fiscal policy to support the economy more than massive monetary stimulus of the sort deployed during the global financial crisis , out of concern over financial stability and high debt levels .
Now @ @ @ @ @ @ @ outbreak , investors have called for large-scale fiscal stimulus .
While the government hasn ’ t detailed its plans , it has pledged to increase the amount of special debt to raise funding for infrastructure investment .
Local authorities started selling so-called “ special bonds ” in 2015 to finance infrastructure projects .
The money raised and the debt sold isn ’ t included in their official deficits .
But it does show up on the government fund budget , and hence is part of explicit government liabilities .
The quota for these @ @ @ @ @ @ @ economists forecast at least 3 trillion yuan worth for 2020 .
A problem of any fiscal stimulus in China is a lack of funding sources .
Special bonds alone -- be it 3 trillion yuan or even higher -- are not enough compared to about 20 trillion yuan of entire infrastructure investment that economists estimate for 2020 .
While a considerable part of it isn ’ t new investment , there ’ s still a gap to fill .
In the past , off-balance-sheet financing , such as loans borrowed by local government @ @ @ @ @ @ @ Premier Li Keqiang explained his budget plan for the year in March 2019 , he said the tax cuts showed the government was willing to “ slash its own wrist ” to help the economy .
But the process to take advantage of some of them was so complicated that companies simply chose not to bother as the administrative costs would have been higher than the savings , a think tank connected to the Ministry of Finance said in October .
To properly account for the various taxes , companies must constantly classify @ @ @ @ @ @ @ also gain the approval of local tax authorities , the report said .
On infrastructure , it ’ s become difficult to find profitable projects after a decade of fast expansion , and tighter control over local government borrowing also constrained growth , according to economists at JPMorgan Chase & Co .
Whether large-scale tax cuts are effective depends on how the hole in budgets is filled , and if local authorities have enough alternative resources to pay for social welfare and construction , according to the finance ministry research .
Cutting taxes @ @ @ @ @ @ @ the deficit is an “ impossible fiscal trinity , ” and some local authorities may have to strengthen tax collection or resort to off-balance-sheet borrowing to make ends meet , it said .
Central and local government debt together amounted to around 40 % of gross domestic product by August 2019 , up from 37 % at the end of 2018 , according to Bloomberg Economics .
That doesn ’ t include debt raised through local government financing vehicles and other off-balance-sheet channels , as those are officially counted as corporate debt , @ @ @ @ @ @ @ step in if there is a problem .
Overall , the campaign to curb excessive lending remains in place -- the outstanding amount of debt in the non-financial sector as a share of GDP edged up only moderately in 2019 after a decline in 2018 .
The leverage ratio could rise further in 2020 as the authorities ease their grip on lending to cement economic stabilization and deal with the coronavirus crisis .