“In perhaps the most peculiar of the developments flowing from the US central bank’s novel policies was last week’s approval by a Delaware judge of a plan by Hertz to raise up to $US1 billion ($1.4 billion) of new equity by selling shares to the public – while it is in bankruptcy!
Shares in the fallen car rental company have, bizarrely, traded at prices as high as $US5.53 since the company filed for bankruptcy with $US19 billion of debt, although they closed at $US1.88 on Monday. The New York Stock Exchange is planning to de-list the shares, underscoring the extent of the risk investors are taking…
“With cash pouring into the junk bond market and the Fed acting as a form of underwriter for even risky corporate debt, perhaps it isn’t surprising that investors are taking risks that they might not have contemplated previously…
“The Hertz case is… an extreme example of how the Fed’s interventions distort markets by removing risk from any price signal…
“The US corporate sector was already highly-leveraged even before the coronavirus outbreak… More concerning, since the financial crisis – even as the debt levels have climbed – there has been a steady deterioration in the quality of the credit. About a third of the corporate bond market is now in the form of leveraged or non-investment grade bonds…
“A problem for the future, and one that has been present since the financial crisis, is how the Fed and its central bank peers elsewhere can extricate themselves from the unconventional settings they’ve created and the unintended consequences and side-effects of those settings, the most potentially threatening of which are the excessive leverage and risk-taking they have encouraged.
“On the evidence of the past decade, there is no exit path without implosions in markets, another financial crisis and, at best, another very deep recession. In these circumstances investors are clearly signalling that they expect more of the same.”
“The quantity of money in the US (as measured by M3) rose by 7.5 per cent in April 2020. With further strong money growth in May, the annual rate of growth of money has shot up to a shocking 25.5 per cent…
“The rest of the world should be very concerned about the effects of the Fed’s policies over the next two to three years. In sharp contrast to the response during the global financial crisis of 2008, not only have both treasuries and central banks coordinated unprecedented economic stimulus policies to address the current crisis, but bank regulators have also significantly eased bank capital requirements.”
https://www.cityam.com/watch-out-for-too-much-money-and-the-return-of-boom-and-bust-cycles/
“Consumption of drugs and alcohol has increased in the U.S. during the pandemic, creating an anticipated need for treatment in coming months and years.
“But, at the same time, there are now a host of financial challenges that threaten the existence of most addiction treatment centers in the country.”
“The Trump administration doesn’t want to extend the $600-a-week enhancement to unemployment benefits past July 31, according to Larry Kudlow, White House economic advisor.
“The White House and congressional Republicans want to provide a temporary cash bonus to those who find a job.”
“The UK’s coronavirus jobs nightmare unfolded further today as the number of benefit claimants surged to a record 2.8m, around 600,000 workers lost their jobs and vacancies collapsed.
“The Office for National Statistics’s data showed claimants have more than doubled since March, with a further 529,000 people submitting claims in May…”
https://www.telegraph.co.uk/business/2020/06/16/benefit-claims-hit-28m-uk-faces-jobs-nightmare/
“It is no exaggeration to say the United Kingdom is in deep trouble, lurching from one catastrophe to another.
“As soon as the economy gets over the coronavirus crisis, Britain faces a new disaster over Brexit… a hard Brexit shock could be the last straw… the pound could collapse under the weight of a British crash.”
Global auto sales were already declining in 2009 and German industrial output was already contracting. Now we have the pandemic on top.
“The coronavirus pandemic, which shattered supply chains and forced automotive manufacturers to close their plants for weeks, caused passenger car production in Germany to tank in the first five months of 2020. Now sluggish demand and slow recovery in global markets is likely to puts tens of thousands of job in the sector at risk in Germany.”
“New tensions on Monday flared in France’s eastern city of Dijon after it was rocked by a weekend of unrest blamed on Chechens seeking vengeance for an assault on a teenager…
“After three successive nights of violence, early Monday evening some 150 people, some hooded and armed, again assembled in Dijon, setting rubbish bins and a car on fire.”
Deflation for Italy:
“Rome, June 15 – ISTAT said Monday that its consumer price index was down 0.2% in May, both with respect to the same month in 2019 and compared to April this year. The national statistic agency had put the inflation rate at -0.1% in its preliminary estimate.”
“The European Union has been relaxing its rule book for banks — painstakingly built up in the decade or so since the financial crisis — as it tries to manage the impact of coronavirus. Unfortunately, the move might create big problems if economic activity fails to recover.”
https://finance.yahoo.com/news/europe-risks-creating-another-sovereign-053025893.html
“Public trust in the European Central Bank appears to have dropped by more than in other governing institutions over the past decade…
“Having pushed monetary policy close to its limits since the global financial crisis, the ECB has faced a barrage of criticism and legal challenges… The bank has launched a strategy review, but the exercise had to be postponed due to the coronavirus crisis – which also forced the bank to take even more radical measures.”
https://uk.finance.yahoo.com/news/ecb-struggling-weak-public-trust-085207805.html
““Everybody is fed up with the lockdown and wants to return to normal life as quickly as possible,” said José Martínez, a cafe owner in the southern city of Seville, as he wiped down outdoor tables with disinfectant.
““But you can certainly bet that nobody will take responsibility if the result is another wave.”“
https://www.nytimes.com/2020/06/15/world/europe/coronavirus-europe-borders-reopen.html
“The coronavirus shutdowns have seen close to one million jobs disappear in just two months with new figures adding to fears Australia’s unemployment will hit ten per cent for the first time since 1994…
“…as the health pandemic caused an even faster downturn than the 1930s Great Depression.”
“Australia’s lucrative exports of natural gas are being hit by a global supply glut and the coronavirus crisis destroying demand, with dozens of cargoes either anchored offshore or idling at sea as Asian buyers delay deliveries…
“…the worst may be yet to come for the gas industry as demand collapses in key Asian markets and storage facilities approach capacity.”
“Peru, one of the countries worst hit by the coronavirus pandemic, has seen GDP plummet by more than 40 percent year on year in April, the government said Monday.
“Mining production fell sharply in one of the world’s largest producers of copper, gold and silver, contracting by more than 42.29 percent in April.”
https://today.rtl.lu/news/business-and-tech/a/1534600.html
“A group of 37 members of the Peruvian Jewish community flew to Israel on a special charter flight amid high rates of COVID-19 in their native country and street riots that have broken out as a result of a scarcity of food and medical supplies.”
https://www.jpost.com/diaspora/peruvian-jews-move-to-israel-to-flee-covid-19-and-street-riots-631619
“South America is the region of the world where peace deteriorated most last year, followed by Central America and the Caribbean…
“…according to the “Global Peace Index 2020” report, with peacefulness expected to drop globally as a result of COVID-19.”
“Syrian government salaries have become nearly worthless.
“Protests against falling living standards have broken out in the southeast. The Syrian pound is worth so little that people have posted images on social media of bank notes used to roll cigarettes. The government is so strapped for cash that it is squeezing wealthy businessmen to help fund the state.”
https://www.nytimes.com/2020/06/15/world/middleeast/syria-economy-assad-makhlouf.html
“The heavily indebted country [Lebanon] has been sliding deeper into trouble since October, when a combination of slowing capital inflows and protests against corruption spilled into a political, banking and financial crisis.
“Hopes of a quick rescue deal with the International Monetary Fund have faded, with talks complicated by a row between the government and central bank over the scale of the losses in the financial system.”
“Global foreign direct investment flows are likely to plunge by 40 percent this year due to the coronavirus crisis, the UN said Tuesday, with worse expected in 2021.
FDI will shrivel from its 2019 value of $1.54 trillion to below $1 trillion for the first time since 2005, said the United Nations Conference on Trade and Development.
“”The global economy is in a direr situation than it was during the 2008 financial crisis,” UNCTAD secretary-general Mukhisa Kituyi told reporters. “The pandemic represents a supply, demand, and policy shock for FDI.””
http://www.naharnet.com/stories/en/272580
Rogoff (This time really is different):
“The political ramifications will be just massive. There were trends already in place, such as de-globalization and populism, and my guess is those trends will be reinforced—and not just in the United States.
“Obviously, the concern about inequality just blows up in this situation with 20% unemployment. People who don’t have adequate space and adequate resources are suffering inordinately.”
https://www.investopedia.com/rogoff-why-this-time-is-really-different-5024875
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