UKRAINE – 2020/10/29: In this photo illustration an Amazon index displayed on a smartphone screen. … [+] Stock market indexes sharply dropped as investors nervously looked at elevating coronavirus case counts in the US and Europe, as media reported. (Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
The Wile E. Coyote stock market has now looked down. Nothing but air!
The “good news” data from the U.S. economy is all stimulus related. Without stimulus, Q3 GDP would have fallen double digits.
The economy has yet to face the oncoming eviction crisis in the rental markets and foreclosure tsunami in the commercial real estate market.
No matter how the economic numbers are presented, 22+ million unemployed tells you all you really need to know!
Nothing But Air!
Financial markets are tumbling as investors scramble for liquidity. Strange that this is occurring amidst all the upbeat economic news, not only at home, but abroad:
China Q3 GDP: +4.9%
Japan: Q3 IP: +8.8%
U.S.: Q3 GDP: +33.1%
Germany: Q3 GDP: +8.2%
France: Q3 GDP: +18.2%
Italy: Q3 GDP +16.1%
Taiwan: Q3 GDP: +3.3%
AAPL, FB, GOOGL, AMZN: all beat earnings estimates
Was this good news all priced in and then some? Are falling prices the result of nerves about U.S. elections? Or maybe, just maybe, markets have begun to recognize that there is trouble ahead in the economy! There has been recent commentary from the likes of Christine Lagarde, President of the European Central Bank, that the Eurozone economy “is losing momentum;” and from William Dudley, former President of the NY Fed that “the outlook for the [U.S.] economy is deteriorating.” Recent headlines in the financial media include:
It appears that, like Wile E. Coyote, market participants finally looked down – Nothing But Air!
Market Reality
The reality is that only a handful of large tech stocks (AAPL, FB, AMZN, NFLX, GOOG, MSFT) have buoyed the S&P 500 index to a +4% total return YTD (10/29/20). The S&P 500 is a cap weighted index, meaning that companies in the index are given weight based on their total market value (market capitalization). If all the stocks in the S&P 500 are given the same weight (i.e., equal weighted), the YTD return is -5%, and, just counting the bottom 494 stocks (i.e., eliminating those six), the YTD return is lower than -7%.
As an aside, while the business media tells you the “total return” of the S&P 500 on a daily basis (includes price changes and dividend distributions), they never tell you the total return of issues in bondland. They only tell you the current yield. For example, the yield on the 10-year U.S. T-Note is 0.87%. That’s equivalent to just telling you the S&P 500 dividend yield (1.98%). So, just for the record, the YTD yield on the 30-year U.S. T-Bond is close to +20%!
Certainly, some of the market’s angst can be assigned to the very real possibility that there may not be certainty about the election outcomes (president and Congress) for several weeks. But it is the headlines cited above regarding the state of the economy that may be the most troubling of all, and that’s because the effects of the virus and the resulting economic consequences may be more immediately impactful to consumers and the economy than a few weeks of uncertainty over elections.
Given the second wave of COVID infections that appears to be upon Europe and the U.S. (especially in the northern (cooler) states), the markets may be discounting a longer-term bout with the virus. “Maybe it won’t be gone by spring; maybe it will be with us much longer; or maybe we will just have to figure out how to live with it.” These thoughts may just reflect the markets’ thinking.
Reality Behind the Data
After tanking 31.4% in Q2, the first pass at Q3 GDP shows a growth of 33.1%. Just that cursory look could lead one to think that we are out of the woods, or even that GDP has fully recovered and then some. Unfortunately, that isn’t the math. The denominator has changed. A 33.1% growth from a base that is 31.4% lower results in a GDP still -3.5% below the Q4/19 peak. And the only reason the nominal GDP actually grew by $409 billion in Q3 was because of the federal government’s stimulus packages. In fiscal 2019 (the 12 months ending 9/30/19), the federal budget deficit was $984 billion. For the fiscal year ended 9/30/20, it was 3,132 billion (i.e., 3.132 trillion), or 2,174 billion more. Much of that was the various stimulus packages. So, as you can see, the money drop was much larger than the ultimate economic impact. What happened to the rest? Consumers saved some, they paid off a large amount of debt, corporate cash balances rose, a good deal found its way into the financial markets… Without such stimulus, Q3 real GDP would have contracted an additional 10%-12% according to Wall Street Economist David Rosenberg.
Because of the nature of the political system, another stimulus package has not yet arrived. Maybe one will, post-election, or maybe it will be delayed again if election outcomes are undecided. The original stimulus packages appear to have run their courses. There is an emerging realization that the significant economic issues, outlined by those financial headlines noted above, have no quick or easy solutions, and at least one of the issues (evictions) has never been faced before.
The Oncoming Crises
As told in the WSJ, state and local governments are facing the biggest cash crisis since the Great Depression. These units employ more than 19 million people. Are layoffs looming? This one appears dependent on the outcome of the elections with a split government not a favorable development.
Moody’s estimates that 12.8 million renters are delinquent with an average owed of $5,400. That amounts to $70 billion. Many of these renters will be evicted once the eviction moratorium ends unless the federal government steps in. That could put people on the street, many of whom have no jobs. But, even if there is a new eviction moratorium package, any monies advanced to landlords on behalf of the renters will likely have to be paid back over time by the renters, which means future consumption for the renters will be lower. And since the marginal propensity to consume of landlords is lower than that of renters, future economic growth will be lower.
There are major delinquencies in the commercial real estate sector (malls, strip malls, department stores…). When the foreclosure moratorium ends, the balance sheets of the banks that hold such paper (mainly the regional banks), REITs, and other forms of such debt (CMBS)
CMBS
will take big hits. This hasn’t happened yet, but, it is inevitable. And it is doubtful that Congress will bail out the holders of such paper. In fact, the Fed’s most recent Beige Book had many such worrying comments.
Employment
There seemed to be some better news in the Department of Labor’s weekly employment news release (10/29/20) for the week ended October 24th. The state Initial Unemployment Claims (ICs) fell slightly from 761K to 732K.
Total State & PUA ICs
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When the Pandemic Unemployment Assistance (PUA) program ICs are added, there was hardly any downward movement in ICs (from 1.105 million to 1.091 million). The chart and table above show that while there has been a downtrend (right side of chart), the slope is quite shallow. Eight months into the pandemic crisis, we still have 1.1 million of new weekly claims (layoffs). That’s huge. Pre-virus “normal” is 200K (see left side of chart).
The Continuing Claims (CCs) chart also shows a mild downslope. But, much of the falloff in CCs is due to the exhaustion of benefits, not re-employment. Again, the chart says it all. Look left for the pre-virus levels, and right for the current 22.7 million unemployed (out of 160.1 million labor force participants). That calculates to an unemployment rate of 14%. Given that the 22.7 million number is low due to the exhaustion of benefits, the real unemployment rate is likely somewhere north of 15%!
Total All Unemployment Claims
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Conclusions
The Wile E. Coyote stock market is now looking down, and, sees nothing but air!
The GDP numbers looks great, but on closer analysis they are still troubling. Furthermore, they are entirely based on fiscal stimulus. While we may get more such stimulus, the reality is that the patient is quite ill.
A second wave of the virus has appeared in Europe and the U.S. While the number of deaths has not risen commensurately with the number of infections, it is now likely that the virus will impact economic activity for a much longer period than originally thought. The unemployed have been living on federal stimulus. Even with another dose, more than 22 million are unemployed and many will be facing evictions come the new year.
Defaults have been suppressed, but these, too, are likely to be a big issue in 2021.
22+ million people are unemployed with few prospects. That says it all!!!
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.
The S&P/TSX composite index was up 254.62 points at 23,847.22.
In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.
The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.
The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.
This report by The Canadian Press was first published Sept. 19, 2024.
VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.
Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.
The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.
“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.
“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”
Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.
The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.
The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.
Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.
More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.
Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.
“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.
Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.
“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.
Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.
Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.
Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”
“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.
This report by The Canadian Press was first published Sept. 18, 2024.
