Modern Markets 15.0 - Protests, COVID-19, and Goldman Sachs & Bitcoin
June 1st, 2020.
Round the World in Markets
North America
The coronavirus has hit a new morbid record in the US as the death count rises above 100,000. These new statistics come at the same time states are beginning to open up for travel and business. It appears that the economic health of the nation is overcoming the fear of contracting the disease.
As hospitals are able to find enough beds and ventilators for patients, testing still lags behind. Even as more tests are approved by the FDA for emergency use, the US has still only tested 2.5% of its population for the coronavirus.
South America
Brazil sees loan defaults rise across the board. Reuters is reporting that the loan default rate is up to 4%, an increase from the previous months 3.8%. Defaults are projected to increase in the coming months due to increased economic downturn.
The country has also restricted bank dividends and share buybacks for the remainder of the year. The central bank of Brazil justified this by stating “The objective is to maintain credit in the economy and ensure any future losses can be absorbed (by banks).”
European Union
Sweden now has the highest death rate for COVID-19. Previously cited as a counter-example to most nation’s policy on quarantines, the nation may have to rethink its existing policy. Since the beginning of the pandemic, Sweden has issued guidance recommending social distancing as it’s restaurants and bars remained open.
While the government has the ability to issue closures to businesses, it does not have the authority to implement a curfew during a time of peace.
Africa
China has agreed to stop buying cobalt from the Democratic Republic of Congo. This decision comes after pressure to stop doing business with companies that exploit child labor. Child labor concerns have long been an international issue in the Congo, where a depressed economy pushes underaged youths into risky work digging in mines. Cobalt is a mineral used in many electrical devices such as batteries, electric cars, and mobile phones.
Asia
The US declares that Hong Kong is no longer autonomous from China. Echoing the sentiment from Secretary of State Mike Pompeo, President Trump held a press conference this week. This will remove the special considerations Hong Kong has previously enjoyed with the US, which included
Middle East
Turkey expects the economy to grow despite COVID-19 concerns. Ignoring recent worries about the global economy, the Fitch rating agency is projecting an increase in GDP following a 3% decline for the rest of the year. The country plans to re-open its tourism sector, which accounts for a significant amount of revenue, in June.
Op-Ed: “Riots Sweep the Nation”
(Image Courtesy of Independent.co.uk)
Following Twitter labeling one of his tweets as “potentially misleading,” the President of the US has begun a war against the social media platform. The tweet in question referred to the recently deceased Minnesota man, George Floyd, and those rioting as “THUGS.” The tweet continued with a pledge to use military strength in quelling the riots and ended with “when the looting starts, the shooting starts.”
This last part of the tweet is a quote from Miami police Chief Walter Headley, who in 1967 used it in referring to why Miami had not had any riots. The implication was that protestors knew that they would be fired upon if they began robbing stores.
The President responded by issuing an executive order requesting that the federal government be more involved in social media, specifically towards censorship. The order, which can be found here in full, lacks the ability to accomplish much. It mainly requests that agencies like the Federal Communications Commission and the Federal Trade Commission look into the possibility of issuing new regulations on social media companies. It will take an act of Congress to implement any new impactful legislation.
While not directly tied to the financial markets, this recent spat between Trump and Twitter is a symptom of a much larger problem. For too long the divide of racial inequality has persisted. Despite laws to help mitigate this issue, a large section of the populace has gone without a response. Civil Rights leader Dr. Martin Luther King Jr. referred to riots as “the language of the unheard,” and there are definitely a number of issues that the US has not taken seriously.
Most recent is the death of George Floyd, a black man who was suffocated to death by Minneapolis police officers. The tragic event was captured on multiple cell phone videos and broadcasted to various news sites and social media outlets. In the following days, protests around the nation quickly turned to riots. The Minneapolis police department has been overwhelmed following the occupation destruction of the Third Precinct. An 8 pm curfew has been instituted and the National Guard is now active in the area.
While police brutality is a disgusting fact of life, the coronavirus has created a powder keg environment. Record high unemployment, constant misinformation about the disease, a depressed economy, and hundreds of years of racial inequality have led to a situation, not unlike the Rodney King riots in 1992. For those unaware, Rodney King was an African-American construction worker whose arrest and beating by four officers in LA was broadcast across the nation. The resulting acquittal of the officers responsible served as the catalyst which saw the city of LA burn and billions of dollars in property damage. The very public coverage of the riots in 1994 showed the world the significance of the public’s perception. Rodney King was ultimately awarded over $3 million in a civil case against the city of Los Angeles.
Darnel Hunt the Dean of Social Sciences at UCLA, is of a similar opinion, stating "It's a script we've seen before. It was eerily similar to me to what we saw in 1992 in L.A. which I've written about . . . Rioting implies senseless venting of frustration with no focus or political agenda and clearly that is not what we have here. We have people that are demanding that the police are held accountable."
Just as the Rodney King riots forced the LA Police Department to reexamine its current policies, we will likely see similar action taken by the Minneapolis Police Department. Unfortunately without fixing the underlying issues, riots like this will likely persist.
At the time of publishing, riots had spread to Los Angeles, San Jose, and outside the White House in Washington D.C. Peaceful protests are underway in Newark, Philadelphia, and more.
COVID-19 Takes a Back Seat
(Image Courtesy of 660citynews.com)
Current events have overtaken the COVID-19 press cycle. National riots, the SpaceX launch, and increased tensions with China are threatening to force the pandemic from the national spotlight. Despite the latest events the virus continues to spread through the US.
The death toll has surpassed 100,000, businesses are beginning to reopen across the nation, and the race for a cure continues.
In Minneapolis, the death toll has risen above 1,000 people, and the infection rate continues to grow. Over 60 new cases have been reported over the last 24 hours as the public continues to protest, ignoring social distancing and the mandatory 8 pm curfew. The Intensive Care Units in the city are brimming with patients and is at 87% capacity. For comparison, the flu season normally fills the ICU occupancy to 95%.
As the participants of protests and riots are actively disregarding the social distancing guidelines, it is likely we see a spike in COVID-19 cases in the following weeks. Depending on how long these gatherings take place, and the speed at which businesses open back up, we could easily see an overlap of COVID-19 and the annual flu virus.
The flu hits the US every year, normally arriving in October and peaking in February. Dr. Anthony Fauci of the Trump Corona Task Force warns that the coronavirus will still be with us in the Fall, creating a compounded effect on the healthcare system. In an interview with CNN, Dr. Fauci explained that while there is still no reliable cure or treatment for the virus, that an extended national lockdown could do “irreparable damage” to the US and its economy.
The 24-hour news cycle follows a predictable pattern: “If it bleeds, it leads.” The latest “bright shiny object” will continue to gather the most coverage. It remains to be seen what next situation will receive the lion's share of coverage as Americans continue to die from the coronavirus.
Goldman Sachs Hates Bitcoin
(Image courtesy of EleveNews.com)
In a call to its clients this week, Goldman Sachs reiterated its anti-Bitcoin stance. The slide deck from the financial giant was leaked which laid out a familiar case against the cryptocurrency. Highlights include “Cryptocurrencies including bitcoin are not an asset class.” Also highlighted was the ability for Bitcoin to be used in illicit transactions, and that it produces no yield or annual report. This opinion came as a surprise to some of the meeting attendees as Bitcoin’s support and interest has continued to grow around the world.
The same slide deck also states that gold is not a good hedge during times of unrest, “In periods of significant equity market drawdowns, high-quality bonds are a more reliable source of diversification.“
In the days following the release of the document Bitcoin surged past $9,500, up from $8,800. By ignoring Bitcoin for the past decade Goldman Sachs has chosen to cause its investors to lose out on the best performing asset of the last 100 years.
The end of the deck concludes that
The economy has bottomed out
Implemented financial policies will not lead to inflation
Stagflation is unlikely at this point
The US Dollar will continue to remain dominant
Bitcoin and Gold are not recommended investment vehicles
In contrast, institutional interest in Bitcoin seems to be rising. Specifically, Grayscale’s Bitcoin Trust (GBTC) saw 88% of its investment come from institutions. Furthermore, Grayscale announced that it had bought 33% of all Bitcoin mined in the last three months. Whether or not this strategy plays out remains unknown.
Stimulus Round 2
(Image Courtesy of Debt.org)
If there is another round of stimulus checks, it may be the last. On Friday Senate Majority Leader Mitch McConnell stated “You could anticipate the decision being made on whether to go forward in about a month. And it will be narrowly crafted, designed to help us where we are a month from now, not where we were three months ago.”
The new bill already approved by the House of Representatives is labeled the “Heroes Act,” and would include an additional $3 trillion to be released to the US economy. The $1,200 direct aid would be included amongst more funds for COVID-19 testing, the unemployed, renters, and homeowners.
Despite support in the House, the bill still needs to make its way through the Republican-controlled Senate and the President. Sentiment on the bill actually passing into law is marginal. Not only would it require bipartisan support but if the economy picks back up as states reopen, there may be an argument that the bill’s benefits are unnecessary. The recent $600 bonus to unemployment is already seeing Americans making more from being out of work than having a job. While this may seem like an incentive for people to not return to their place of employment the national sentiment seems to be in favor of a return to normal.
Kaltoro
@kaltoro_
This newsletter, analysis, research, and commentary provided by Modern Markets, lead analyst Kaltoro, with contributions from TytanInc and Digital Lawrence. The publication incorporates data from numerous sources including, but not limited to, CoinMarketCap, Bloomberg, CNBC, Lunar Crush, and the team at FomoHunt.