Modern Markets - 19.0

As we wait for the new Stimulus, Bitcoin drops in price, and COVID-19 is still here

NOT FINANCIAL ADVICE

Coronavirus (COVID-19) Updates
Stats via Johns Hopkins
Confirmed Cases - 10,055,037
Total Deaths - 499,967
Total Recovered - 5,087,006
Mortality Rate - 4.9%

"I think everyone should be worried about how this is going to turn out in the end, because it's a shock unlike anything we've ever seen”

Former White House economic adviser Kevin Hassett, on the economy

Round the World in Markets

North America

A recent report has revealed that the US government sent over a billion dollars worth of stimulus checks to dead people. The IRS has tracked 1.4 million payments that were incorrectly sent to the recently deceased. Gene Dodaro, the US Comptroller General has requested that anyone in possession of these checks send them back to the IRS. Based on his testimony to the government, it appears that similar mistakes could be made to larger sectors including agriculture and education.

South America

Latin and South America continue to feel the economic strain from the coronavirus. A report published in April was revised this week, suggesting a contraction of 4.9% for 2020 was likely, resulting in a loss of $1.2 trillion from 2020-2021. The IMF has $1 trillion of lending available to make available to its member countries. It is also ready to “suspend debt service payments to official creditors.” While this seems like a good short term option, the implications of suspending debt over a longer period of time could have unforeseen consequences.

European Union

Wirecard, one of the leading financial technology firms in Europe, has misplaced $2.2 billion. The disclosure came as Wirecard was prepared to give its annual report for 2019. Its corporate auditor signaled that it could not find justification or "sufficient audit evidence" for the funds in question. In other words, the money was lost and could not be accounted for. The CEO Markus Braun stepped down on June 19th and turned himself in to the police. The stock quickly dropped and is now worth a small fraction of its previous value. 

Africa

The largest dust storm in decades has hit the South and East Coast. This storm originated in the Saharan Desert and recently made its way to the US. Nicknamed the “Godzilla Dust Cloud,” the plum is already causing hazy skies in the cities of Atlanta and Mississippi. Health officials are concerned that the increased particulates could exacerbate those with pre-existing lung conditions, and increase the infection rate for COVID-19. 

Asia

Thailand is the newest nation to be free of new local COVID-19 infections. For the last 30 days, 0 new cases have been reported. The only new patients who have tested positive had recently returned from a trip to the Middle East. All cases were asymptomatic. The spokesman of the Centre for Covid-19 Situation Administration, Dr. Taweesilp Visanuyothin, said that while the news is encouraging, that vigilance must still be exercised. "No matter how many days have passed without a local infection, it does not mean that there is no disease. This is why everyone is saying that a second round of infection will occur.”

Middle East

IMF leaves Saudi oil projections at current levels due to the economic downturn. The current price at $36 dollars a barrel is nearly at, or below, the break-even cost of production. Justification for the continued low price is a lack of demand due to the coronavirus.  However, the world runs on oil and there may be some relief once the virus runs its course or a vaccine is discovered. "Oil futures curves indicate that prices are expected to increase thereafter toward $46, still about 25% below the 2019 average.”

Stimulus Check 

The extra unemployment benefits are set to expire on July 31st, eliminating $600 from millions of Americans’ bottom line. The additional funds were put in place by Congress as part of its stimulus plan to help those who lost their jobs due to COVID-19. The additional funds have been cited as instrumental in keeping households afloat, even allowing families to save more than before. If the unemployment benefits are returned to their previous level, we could see another sharp drop in consumer spending and an increase in mortgage delinquencies.

Which brings us to . . . 

Consumer spending is back up from COVID-19 lows. While spending is still down 8.6% from pre-coronavirus levels, it is up dramatically from a low of 33%. High-income earners had the largest drop in discretionary spending at 44%. 

(Courtesy of https://tracktherecovery.org)

This trend could continue as multiple states and counties continue to open back up for business. The hope is that employers will re-hire employees that were previously let go. While this would look good for the federal job reports, the sharp spike in recent infection cases could cause this plan to backfire dramatically.

Another Shot of Stimulus

To combat the continued economic troubles plaguing the nation the government may issue another round of stimulus. President Trump announced he was in favor of another stimulus, yet stopped short of saying it would be in the form of direct cash payments. Larry Kudlow, director of the White House National Economic Council, said the issue would be brought to Congress in July.

The deciding factors concerning the stimulus will likely be a combination of new COVID-19 cases, unemployment numbers, and public outcry. The government acted quickly on the first round of stimulus packages as the full impact of the coronavirus was unknown. There were conflicting accounts of transmission and mortality rates. With the current data, the virus seems to be contained to specific “hot spots” that may need to go into lockdown mode again. Texas in particular has seen an increase over the last month while New York has seen a marked decrease in overall cases.

The data is clear that quarantining, social distancing, and diligent use of facemasks can decrease the spread of the virus. 

One possible solution would be to reward states that show a decrease in confirmed cases over time. This would incentivize residents to wear masks and practice social distancing while allowing them to go back to work. This will most likely not happen and we move into the presidential campaign season, and dividing the country in this manner would reflect poorly at the polls. If anything it is more likely that members of Congress will support another round of stimulus checks to try to keep their jobs.

Bitcoin Is Down

After flirting with the $10k level, Bitcoin has decided it’s tired and wanted a nap. The cryptocurrency dropped quickly below that $9k mark at the beginning of the weekend. It nearly touched the $8,800 low previously hit in late May.

The drop comes on the heels of some exciting retail news for Bitcoin. Australians are now able to buy Bitcoin at their local post offices. 

Australians can buy Bitcoin at over 3,500 post offices and LibertyX is allowing Americans to buy Bitcoin at stores like 7-11, Rite Aid, and CVS. The LibertyX announcement is particularly interesting as these stores are ubiquitous to the USA. Users are required to use the mobile LibertyX app and submit their driver’s licenses to comply with KYC/AML banking requirements.

Not to be left out, PayPal may be reversing its decision to ban the purchase of Bitcoin using its platform. Anonymous sources within the company have confirmed the payment processor may enable the new functionality within three months. While millions of people shelter in place due to COVID-19, social media has shown an increased interest in day-trading. With a user base of over 300 million people worldwide, PayPal may be trying to cash in on the new fad. What we know for sure is that PayPal recently opened two job positions for cryptocurrency engineers. 

Offices are Overrated

(Image Courtesy of Insights)

Working from home may be permanent for millions of workers, even when the coronavirus goes away. Companies are considering allowing their employees to continue to attend Zoom meetings from the comfort of their couch, despite interruptions from family members and pets. 

Tech giants Facebook and Twitter have already announced that remote working will be made available for its employees who wish to remain at home. Other organizations are following the example including the Parks and Recreation Department of King County in Washington. Roughly 800 employees will have the option to continue working from home with no changes to salary or compensation.

This trend has become more popular, even as 80% of office workers expect to return to their cubicles in the next 12-18 months, according to a recent Xerox survey. The current state of technology allows meetings, calls, product demonstrations, and collaboration to take place anywhere a laptop and fast internet is available. In addition to an increase in morale, there is a multitude of other benefits. Long commutes, office overhead, and HR complaints can all be largely eliminated by working remotely. As companies deal with reduced sales they will look to cut costs in whatever way possible. Rent and lease expenses can account for 15-20% of recurring costs for corporations which places pressure on both accountants and leadership. 

Of course, there are some jobs that cannot be remote. Those that work in factories, the service industry, and emergency services will still need to report to work as they always have. But for the vast number of developers, office employees, and desk jockeys, the home office is here for the foreseeable future.

Especially for these dogs enjoying a Zoom call. 

“Olive, got a message from Management which I have to readout.

You’re a good dog, yes you are. 

Who’s a good dog? You’re a good dog. Glad that makes you happy.”

COVID-19 - It’s Still a Thing

East Coast Quarantines

The coronavirus is still here for the foreseeable future. As part of its plan to keep local cases from increasing, both New York and New Jersey are beginning to quarantine those arriving from COVID-19 hot spots. Travelers from the following states will be subject to a 14-day quarantine: Alabama, Arkansas, Arizona, Florida, North Carolina, South Carolina, Utah, and Texas. These states will likely change as their respective infection rates increase or decrease.

EU Closed to Americans, For Now

The EU is also looking at travel restrictions for those coming from the US, Russia, and multiple other countries. While it has been closed off for most tourists since March, EU nations are planning to lift the incoming travel ban on July 1st. The official list will be released this week and Canada and Australia have already been white-listed. 

Antibodies Fade

In a potential blow to the recovery efforts, a report from China is showing that COVID-19 antibodies fade after two months in recovered patients. As we have discussed in previous newsletters, antibodies are created by the body to specifically protect against further infections. The findings were specific to asymptomatic subjects who recovered, compared to those who showed symptoms. It appears that those without symptoms had a weaker immune response than those who had a fever, coughed, and felt ill.

Antibody response to the virus is still not fully understood. It may seem like the coronavirus has been in the public eye for a long time, but it is still largely a new and novel disease.

Kaltoro
@kaltoro_