Modern Markets Episode 5.1 - Post Covid-19 Robots and Bailout Updates
March 23rd, 2020, By FomoHunt
COVID-19 has officially taken over the world's news, and it may for the foreseeable future. Experts are projecting that the worldwide pandemic will last between a few and 18 months as “multiple waves of illness” beset the global population. Modern Markets continues to track and observe what it means to the markets and future of humanity in both the short and long term.
Modern Markets is also deeply interested in the stories of readers and how COVID-19 has affected their daily lives. Please reach at modernmarketsinfo@gmail.com if you or someone you know has been directly affected.
You can listen to this episode on all popular platforms at Anchor.FM
“The worst is yet ahead for us”
Tony Fauci, the Director of the National Institute of Allergy and Infectious Diseases
Quick Clips
Italy’s deaths surpass China’s
In late February, Senator Richard Burr warned specific constituents in a secret meeting about COVID-19. Richard is the Senate Intelligence Committee Chairman. This was the same day President Trump said “It’s going to disappear. One day, it’s like a miracle. It will disappear.” He also dumped $1.6 million in stock after reassuring the public things were being handled.
$1,200 payments to adults and $500 for each child gains traction on Capitol Hill.
Tony Fauci claims COVID-19 transmits more efficiently than SARS
Round the World in Markets - Yup, Still Bad
North America
New York Governor asks 100% of non-essential business employees to stay home. This enforced social distancing is in line with the rest of the world in trying to curtail the spread of COVID-19. Unfortunately, the more people staying at home means less business being done. Revenue losses are being reported across the board on a global scale.
US closing Mexico border to non-essential travel. Asylum seekers will be turned away. The San Ysidro border is the busiest international border in the world with over 120,000 people crossing it every day.
President Trump is currently NOT considering a nationwide lockdown. Yet.
This is something to keep an eye on, especially with the recent mobilization of the National Guard. Over 6,500 members of the National Guard were activated this week to assist in food delivery and medical education. It is up to the State Governors to dictate the best use of the National Guardsmen.
Money Printer Goes Brrr. While the current proposed stimulus package sits at over $1 trillion, it may need to be ten times that amount to get us through the next 6 months. Companies that do not have enough funding and cash reserves to make it through the crisis will go bankrupt.
Post Covid-19 Robots
(Image Courtesy of: https://cdn.mobilesyrup.com/wp-content/uploads/2019/03/boston-dynamics-handle-robot.jpg)
Businesses are closing. Schools are closing. Cities are on lockdown as legislators try to keep the wheels of commerce turning. This won’t last forever, and at some point, social-distancing and toilet paper shortages will be a thing of the past, just like Pokemon Go.
Hold on, the Pokemons still a thing.
I digress. At some point, we will peek out of our houses and slowly start to go back to work in a post-coronavirus world. Those who used their time wisely will be able to explain in excruciating detail what happened, while most citizens will grumble about their “Trump Checks” being taxed. Yet, the impact of the world's changes will rival that of 9/11. New laws will be passed and new memes will emerge as the experts analyze how this happened and what can be done to prevent it happening again. One of the trends that will likely gain momentum is the automation of the workforce in an attempt to lower future infection rates.
Yes, the robots are coming for your jobs. Again.
A staggering 40% of our jobs are open for robot workers to assume. Not only do robots not have unions or breaks, but they also don’t leave their place of business. From a hygiene point of view, this makes them a better solution in times of a health scare. The increased automation of the world was seen/predicted by former presidential candidate Andrew Yang:
“Main Street stores are closing. They see a self-serve kiosk in every McDonalds, every grocery store, every CVS. Driving a truck is the most common job in 29 states, including this one; 3.5 million truck drivers in this country. And my friends in California are piloting self-driving trucks.”
Andrew Yang’s emphasis originated with self-driving cars. When extrapolated the self-driving car could be a truck, and trucking accounts for 70% of all freight delivered through the US. Looking forward toward the service industry, we already see workers at fast food restaurants being phased out in preference of kiosks, reducing the number of employees needed. McDonalds has kiosks in all of their US restaurants, and competitors like Panera, Wendy’s, and Burger King are not far behind in catching up.
Japan has taken things a step further with waiters, bussers, and automated cooks. Cooking robots, long regarded as science fiction, are now a reality. From complex multi-jointed automatons to Ausca (click the link, it’s adorable), a simple omelette maker that lives in the MSOCIAL hotel in Singapore. Your omelettes aren’t the prettiest, Ausca, but I believe in you. These may be the perfect food service employees, always on time, don’t talk back, and never need to wash their hands.
Singapore seems to love robot workers, as does Japan. Both countries employ robots in select hotels. They operate as greeters, provide information services, and deliver room service.
Not to be outdone, Vegas has its own robot bartenders. The Tipsy Robot is a cocktail bar with two automated arms that make and serve drinks. And they don’t have to act as a therapist at the same time.
That’s cute, but they’ll never replace humans
Too late, they already have. While previous robots have not fared well on their own, robot employees seem to be doing just fine. A human touch is always a nice fallback but a world of tech-addicted adults might be just fine communicating with a cute robot that cracks jokes as it serves your food. And as an added bonus, you won’t be able to get sick from it.
Bailout Updates
(Image Courtesy of: https://www.thedailystar.net/opinion/no-frills/why-the-endless-bailouts-state-owned-banks-1547221)
How will the $1 trillion bailout work?
As it stands now, half will go directly to Americans as checks, cash money - $1,200 for each adult and $500 per child. The most current proposal has these payments going as long as the crisis takes. A citizen must have a reported income of less than $75k per year based on 2018 tax returns to receive the full amount.
The other half of the bailout goes to corporations. Not as cash, but as loans. This will allow businesses to survive as people are quarantined and non-essential businesses shut down. This is the “full might” that the president spoke about just over a week ago. As the lockdowns continue, these bailouts are necessary to give these businesses even a small chance of making it through. Many will not.
One contested section of the bill is around bailing out the airline industry, which is asking for $50 billion.
Airlines are asking for this money despite reporting record buyback programs in the past. United alone announced it would buy back $3 billion in 2017, roughly 17% of its market value as a company. Stock buybacks, or stock repurchases, are when a company buys its own stock. On a basic level, this has the effect of driving up the price of the stock and lowering the total supply of shares. Share buybacks may be done with company profits, in lieu of offering dividends.
President Trump has stated that he plans to approve bailouts for airlines, hotels, and cruise lines. Congress and the Senate are still debating the finer points of the bill, which has expanded to $1.8 trillion.
History of Bank Runs
(Image Courtesy of: https://www.econlib.org/library/Enc/BankRuns.html)
A bank run is a seldom seen, yet terrifying event to behold. During this kind of event a bank will run out of paper currency. The vault and teller drawers will be empty; there is literally no money left. Most are confused at this concept: Isn’t the bank supposed to hold ALL the money I deposit there? Where does the money go if not in the bank? Why can’t I take MY money out? All of these will be answered but first a short history on bank runs.
The most famous bank runs came during the Great Depression as people frantically tried to withdraw their savings. The result of the chaos was the creation of the 1933 Banking Act and the Federal Deposit Insurance Corporation (FDIC). The FDIC insures all bank deposits up to $250,000. What this means is that IF there were a run on the bank and all the money was taken, each account would be made whole up to $250,000.
If the money in the bank is safe there’s nothing to worry about right?
Not so fast. Bank runs occur because there is an underlying fear that the bank will not be able to meet the demand of its customers. If confidence drops enough for a bank, or financial institution, clients will rush to take out their money to secure it. In this case, a client is either an individual or company.
In 2008 a bank run occurred on Bear Stearns, a financial securities firm. While not a traditional deposit-withdrawal bank, it did control between $66.7 billion to $350 billion in total assets. In the lead up to the 2008 financial crisis, the word spread that Bear Stearns had become illiquid, or unable to make good on its debts. The fear that it had become “insolvent” caused its clients to pull their investments as quickly as possible. Bear Stearns was later bought by JP Morgan and no longer exists today.
In this case, FDIC insurance would be nowhere near enough to cover the billions of dollars that were lost. Perhaps more importantly, the loss of this 85 year old bank was a large indicator that a MUCH larger issue was looming. The loss of Bear Stearns was a very public display during the Great Recession of 2008.
Unfortunately, it is nearly impossible to stop a bank run. All that can be done is to prevent it. The simple solution is to require banks hold 100% of their deposits in-branch so clients can withdraw their funds at any time. This will never happen as banks loan out depositors’ money. Yes, that’s right. More on that in another edition. If you have the time, and you probably do now, Money As Debt does a great job breaking down our current banking system. Don’t be scared, it’s a cartoon.
Historically banks have always had to keep a percentage of deposits in physical cash at a banking branch, known as the Federal Fund Rate. A little over a week ago that rate was 1.25%, meaning that if a bank had $100 in deposits it had to keep $1.25 in currency. At the time of writing, the federal fund rate is 0%. The means that banks are not required to hold ANY cash as a percentage of their deposits. This is a fact.
How does this affect me?
Hopefully not at all! At the same time concerned investors will “flee to cash” during economic downturns. This means that they will sell whatever assets they have, i.e. stocks, bonds, gold, real estate, and keep their money in US Dollars. Some choose to keep that money in banks, some withdraw it in cash. Sounds strange, I know.
Normally when stocks go up, gold and bonds go down. When bonds and gold go up, stocks go down. That is, they have an “inverse correlation.” When do stocks, bonds, AND gold all go down together?
How about right the hell now.
This is starting to look more like a recession every day. We have the fastest ever recorded drops in the markets, small businesses shutting down, lowered quarterly projections, and record high unemployment on the horizon. The “smart money” got out and is keeping their value in dollars for the time being. Only in the last few days are outlets even mentioning the word “Recession.”
To reiterate from our Survival Kit edition, we recommended that everyone have at least $500 in various bill sizes. Even if you have enough cash on hand, it would be prudent to call the local branch and see if they are instituting limits on cash withdrawals. If there IS indeed a bank run, or nation-wide cash shortage, we are all in for a bad time.
In times of unease, Cash is King.
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Has Bitcoin returned to it’s uncorrelated status
FED to make $4 trillion available in business loans/ $3000 for family of 4
Congresswoman suggests creating 2 $1 trillion platinum coins and issue money to americans
FED offering $1 trillion a day in Repo operations
We live in interesting and ever changing times. The Modern Markets team is acutely aware that this may be a difficult time for people to make ends meet, provide for their families, and remain calm. If you are in need of financial assistance from this national disaster, please contact FindHelp.org as they may able to help.
This link has a comprehensive list of Crisis Hotlines in the US https://www.allaboutcounseling.com/crisis_hotlines.htm
Or if you would rather text, here is an alternative: https://www.crisistextline.org/
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.