When Biden took office, one of his first acts was the elimination of our border security. Like a power-hungry dictator, Biden simply decided to ignore our immigration laws. His catastrophic border policy resulted in untold millions of unidentified foreign citizens from around the world pouring into our country. Its impact is now being felt in cities across the country. The worst is yet to come. PETER LEMISKA - AND WE'RE ALREADY THERE!!!
Wednesday, March 11, 2020
WALL STREET'S SMOKE AND MIRRORS AND BULLSHIT ECONOMICS
Market turbulence continues in day of swings
Global markets recovered somewhat yesterday from Monday’s massive sell-off in a trading day that culminated in large swings on Wall Street.
It began with a rise in Asia, prompting a comment from one Tokyo-based trader that there was a “thin semblance of sanity … but we are talking very thin indeed.” European stocks opened 4 percent higher but then closed down by 1.1 percent.
In the US, the day began with a rise in stocks, followed by a sharp fall that saw major indexes come within a hair’s breadth of entering bear market territory—defined as a fall of 20 percent from their peak—before a surge at the end of the day.
The Dow finished up 1,167 points, a rise of 4.9 percent, with the S&P 500 rising by the same percentage.
The main factor behind the Wall Street rise appears to have been the announcement by US President Trump that the administration will launch a “major” economic relief package, prompting the belief there are profits to be made out of such measures, at least in the short term.
However, the key determinant of the state of the economy and its impact on financial markets is the rate of spread of the coronavirus worldwide. That is continuing to rise with the economic fallout widening—the lockdown of Italy being the sharpest expression.
The always fanciful notion that the effect on the global economy would be V-shaped—a sharp downturn in the first quarter followed by an upturn—has now been scrapped as economic forecasters downgrade their predictions.
As the Wall Street Journal noted yesterday, regions affected by the coronavirus are being hit from two sides. There is a supply shock as factories stop and a demand shock as consumers and businesses hold back spending.
“The combined effects risk pushing the global economy into a self-reinforcing, downward spiral—a possibility fuelling market turmoil and prompting many executives around the world to prepare for darker scenarios than before,” it said.
On Monday, the ratings agency Moody’s cut its forecast for growth in the US for the year from 1.7 percent to 1.5 percent and for the G20 economies from 2.4 percent to 2.1 percent. But even these lowered forecasts may be optimistic.
Moody’s vice president Madhavi Bokil warned that “a sustained pullback in consumption coupled with extended closures of businesses would hurt earnings, drive layoffs and weigh on sentiment” and that “such conditions could ultimately feed self-sustaining recessionary dynamics.”
That process has already begun in the global airline industry as travel is cut back because of the virus.
Carriers are slashing flight schedules and grounding large planes. United Airlines has said it expects revenues to fall by as much as 70 percent in April and May. Korean Air has warned that it may not survive unless the coronavirus is quickly brought under control, and has cut 80 percent of its international capacity.
Alan Joyce, the chief executive of the Australian-based airline Qantas, said the company was grounding its large-capacity aircraft, cutting almost a quarter of its international flights, and foreshadowed job cuts. He declared that 2,000 staff were now “surplus to requirements.”
Predicting that some airlines would go to the wall, Joyce said: “I think this will be a survival of the fittest.”
The oil price war, which broke out over the weekend with the collapse of an agreement between Russia and Saudi Arabia to limit production in order to sustain prices, is hitting oil-producing states. This is giving rise to turbulence in financial markets because of its effects on highly-indebted shale oil producers in the US.
With oil now at around $35 per barrel, having plunged by up to 25 percent virtually overnight, many oil-producing countries will not be able to sustain their already strained budgets and will face currency and balance of payments problems.
Nigeria announced on Monday that it would slash its budget for 2020 which had been based on an average of $57 per barrel for the price of oil.
Angola, already dependent on support from the International Monetary Fund to try to boost its non-oil revenue, will need even more support.
Algeria, which has initiated major cuts in public spending, had based its budget plans on an oil price of $60 a barrel. According to the North Africa director of the International Crisis Group, Riccardo Fabiani, “the impact of the latest fall in oil prices will be massive.”
Other countries to be adversely affected include Iran, Iraq, the Gulf states,and Venezuela and Ecuador.
The oil price war is also reaching into the US financial system via the market in corporate bonds issued by oil companies. They have exploited the provision of ultra-cheap money by the Federal Reserve since the global financial crisis to fund ever more risky financial operations.
Yesterday the Financial Times reported: “Nearly $110 billion of bonds sold by energy companies in the US have fallen into distressed territory, after a plunge in oil prices left investors doubting that the money will be paid back.”
Of the $936 billion worth of bonds issued by US oil and gas companies, around 12 percent are trading with a yield more than 10 percentage points above that on US Treasuries, a measure regarded as the definition of stress.
For so-called junk bonds, those rated below investment grade, which account for $175 billion of the total, the proportion under stress has risen to almost two-thirds. According to Michael Anderson, a strategist at Citi, “there is definitely a significant amount of default risk.”
There have been major falls in the valuation of oil and gas corporate bonds this week. The Financial Times reported that a $477 million bond issued by the Denver-based company SM Energy lost more than half its value in Monday’s market plunge, falling from 90 cents on the dollar last week to just 42 cents. Other companies’ bonds have dropped by as much as 40 cents on the dollar.
Smaller companies, which have sought to cash in on shale oil production, issuing large amounts of debt to do so, are not the only ones to be hit.
Yesterday Occidental Petroleum, one of the largest US oil and gas companies with major global operations, announced it was cutting its dividend by 90 percent, the first time it has made such a move since 1991.
Occidental was among the hardest hit in Monday’s bloodbath, as its share price plummeted by 50 percent.
The company’s financial operations are symptomatic of the parasitism throughout the entire US financial system. Last August it ramped up its debt in a $55 billion takeover battle with Chevron to acquire Anandarko Petroleum. The deal was based on the gamble that oil prices would continue to rise.
Since the deal was concluded, with assurances to investors that dividend payouts would remain sacrosanct, Occidental’s market capitalisation has fallen from $42 billion to around $12 billion.
The issue hanging over the US financial system is how many other companies are in the same position because their market capitalisation, boosted by the inflow of cheap money from the Fed over the past decade and more, bears no relation to the state of the real economy.
There is also a growing fear that the rising risk of defaults in the oil-based corporate bond market could be the start of a process that extends more broadly, under conditions where a large majority of US corporate debt has junk status or is rated at BBB, just one notch above it.
rump Wants Coronavirus Bailout for Oil and Hotel Industries
Yesterday evening, President Trump held a press conference and announced he would soon unveil an aggressive plan to head off a recession. “I will be here tomorrow afternoon,” he promised, “to let you know about some of the economic steps we’re taking, which will be major.”
This announcement “stunned” Trump’s own advisers, who had not yet figured out what the plan is going to be, reports Eamon Javers. But the press conference had been announced, so Trump’s advisers have been scrambling to backfill their boss’s promise of a “very substantial,” “very major,” “very dramatic” plan.
At his press conference, Trump mentioned a few possibilities for what this package might include. One item is a bailout for owners of hotels. “We’re also talking to the hotel industry. And some places, actually, will do well, and some places probably won’t do well at all. But we’re working also with the hotel industry.”
By the way, did you know that the Trump Organization is in the hotel field? Weird coincidence. In fact, it’s possible the people in the hotel industry the president is talking to about giving a federal bailout might even include members of his own family.
Today more details of Trump’s hastily emerging plan have leaked out. The Washington Postreports Trump is “strongly considering a bailout for oil and gas producers.” The president and his advisers “have been taking calls since Monday from concerned energy sector allies.” You might wonder what the energy sector has to do with the coronavirus. The answer is, almost nothing! They’re in trouble because Russia and Saudi Arabia are ramping up production and cutting into their market share. This move is a benefit to consumers, who will enjoy cheaper energy prices, which will help offset some of the contractionary hit from the slowdown.
Of course, cheap energy is the primary rationale for the Republican Party’s refusal to do anything about climate change or air pollution. Yet now, Trump wants to backstop that industry with a check from the taxpayers. Where is the logic? The Post notes, “One of the companies hardest hit was Continental Resources, founded by Harold Hamm, a Trump supporter and an adviser to the president on energy issues.” Ah, well, that explains it: Trump’s supporters are also advising him, and perhaps their advice is not being offered at a fully arm’s-length distance from their narrow interests.
Meanwhile, Trump is agitating for a payroll tax holiday, which is a controversial measure — it does nothing to help people who aren’t collecting paychecks — but would at least inject some demand into the economy. But he cannot help himself from framing his proposal in the most self-serving way possible:
Does Trump realize this bill can’t pass without the Democratic-controlled House, and Democrats might not be crazy about a plan to cut taxes geared around Trump’s reelection needs?
Trump’s meeting with Senate Republicans concluded “without any concrete plan” having been agreed upon, just a couple hours before the president was supposed to have unveiled it to the world. It is slightly unnerving to see the president of the United States putting less time and planning into a several-hundred-billion-dollar proposal to revive the world’s largest economy than a college senior puts into a midterm paper.
“Our entire crony capitalist system, Democrat and Republican alike, has become a kleptocracy approaching par with third-world hell-holes.
This is the way a great country is raided by its elite.” --- Karen McQuillan
President Donald Trump speaks to the press before departing the White House in Washington on Nov. 8, 2019. (Nicholas Kamm/AFP via Getty Images)
1 CommentsNovember 8, 2019Updated: November 8, 2019
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President Donald Trump accused New York Attorney General Letitia James of “deliberately mischaracterizing” the details of a $2 million settlement reached on Thursday.
New York Judge Saliann Scarpulla ruled that Trump must pay $2 million as part of a settlement he, the Trump Foundation, and James’s office reached in a lawsuit alleging Trump misused his charitable foundation during the 2016 campaign.
Scarpulla said Trump let his campaign hold a foundation fundraiser in January 2016 and used it “to further Mr. Trump’s political campaign.”
The foundation received $2.8 million from the fundraiser and the money “did ultimately reach their intended destinations, i.e., charitable organizations supporting veterans,” Scarpulla ruled.
Instead of the entire $2.8 million that James’s office pushed for, Scarpulla ordered Trump to pay $2 million. She also declined a statutory penalty of $5.2 million that James’s office wanted the president to pay.
James celebrated the ruling on Wednesday.
“We’ve secured a court order forcing President Trump to pay $2M in damages after admitting to illegally using the Trump Foundation to help him intervene in the 2016 presidential election and further his own political interests. No one is above the law,” she said in a statement.
In another statement, she wrote, “The court’s decision, together with the settlements we negotiated, are a major victory in our efforts to protect charitable assets and hold accountable those who would abuse charities for personal gain. My office will continue to fight for accountability because no one is above the law—not a businessman, not a candidate for office, and not even the President of the United States.”
Scarborough then launched into his own conspiracy theory:
But I think we all will be absolutely fascinated when we finally figure out what Vladimir Putin has on Donald Trump and why Donald Trump has surrendered the Middle East, helped ISIS, helped Iran, helped Russia, helped Turkey, helped all of our enemies and betrayed all of our allies. You know, a lot of people think that it’s – he has compromising pictures or something happened in a hotel in Russia years ago. No. It goes back to money. It’s always about money.
The Trump Organization has been criticized for stiffing contractors. Contractors have filed hundreds of complaints, which date back to the 1980s, alleging that the real estate company did not pay them.
“We believe in paying people when they do great jobs. And we get people paid incredibly quickly. And we pay contractors,” said Eric Trump, executive vice president of The Trump Organization at Yahoo Finance’s All Market Summit, adding that the organization only refuses to pay contractors who fail to complete a job.
“Yeah, well, they [the unpaid contractors] didn't finish a job. And they didn't do a good job. And they flaked out. And they were two months behind schedule. And so you had to let go of them. And you had to bring somebody else in to do the job that they otherwise would have. And it's called the real world,” he said, referring to the allegations. “People like to take cheap shots at us.”
Opinion: Trump’s emoluments transgressions don’t stop with the Doral fiasco
By NORMAN J. ORNSTEIN
When the White House announced that Donald Trump would host the 2020 Group of Seven meeting at his Doral golf resort in Florida — an in-your-face bit of self-dealing and a blatant violation of the Constitution’s foreign emoluments clause — Republicans and Democrats howled. Reporters had only just begun to tally the ways awarding himself a government contract could enrich Trump and the Trump Organization when the president backed down, but not before he publicly decried the “phony” emoluments clause.
The Doral reversal dimmed the spotlight on emoluments, but that should not lead us to drop the focus on the rest of Trump’s self-dealing and conflicts of interest. For strategic reasons, the House of Representatives may not include emoluments transgressions among potential impeachment charges. Nonetheless, the number of Trump’s violations are staggering, and growing by the day.
There are two separate emoluments sections in the Constitution; neither are phony, and both reflect the deep concern the Framers had about possible corruption in the highest offices in the land.
“Emoluments” are anything of value. The first constitutional clause, forbidding any officer of the United States from taking “any present, Emolument, Office, or Title, of any kind whatever” from a foreign government, is in Article I. It has no loopholes; the Framers feared that a rich foreign government could influence or sway American policy by giving something of value to a policy-maker. It is not limited to the president or vice president, but to all holding an office of trust in the U.S. government.
The second emoluments clause is in Article II and is limited to the president. It reads, “The President shall, at stated Times, receive for his Services, a Compensation, which shall neither be increased nor diminished during the Period for which he shall have been elected, and he shall not receive within that Period any other Emolument from the United States, or any of them.” Here, the fear was that Congress could shake down the president by withholding his salary or bribe him by increasing it, and that a president could use the leverage of his office with states or the federal government to enrich himself.
We have never had occasion in our history to be deeply concerned about violations of these constitutional clauses. Most previous presidents have scrupulously adhered to them in spirit and letter. Jimmy Carter, to pick one example, put his peanut farm in a blind trust to avoid any appearance of conflict or attempt to profit via his office.
Trump, whose chief of staff on Sunday said the president still thought of himself as an innkeeper, has kept ownership of all his properties and has lied about not participating in their operations. He pushed officials at the General Services Administration to allow him to keep his federal lease for his Washington hotel while pressuring the District of Columbia to lower his property taxes. Trump’s daughter, Ivanka, holding an office in his administration, has taken valuable trademarks, including, staggeringly, one on voting machines, from China. Trump’s son-in-law, Jared Kushner, holding an office of trust in the administration, has promoted Trump and Kushner properties and solicited loans from foreign governments.
In other words, the president is unique in his corruption in American history. The watchdog group Citizens for Responsibility and Ethics in Washington has regularly compiled a tally of Trump’s conflicts of interest and violations of the emoluments clauses. The latest numbers are stark: 1,493 trips to Trump properties by government officials, usually spending taxpayer money that will enrich the president; 292 promotions of Trump properties by White House officials; 63 foreign trademarks awarded to Trump brands, mostly from China and Brazil, while he has been president.
The message has been received: Foreign governments, including Romania, Kuwait and Saudi Arabia, moved events from other venues to Trump properties, and foreign countries or other foreign-connected entities have held 13 events at his properties, surely enriching him along the way. (He claims profits from foreigners are repaid to the Treasury; without his tax records, this can’t be checked). One hundred and twenty-one foreign officials from 71 foreign governments have visited his properties; lobbyists of all stripes have scheduled events there. Trump has openly talked about his ventures in places like Saudi Arabia and Turkey even as he has bent American foreign policy in ways that benefit those countries’ autocrats.
The president likes to pretend that there is no such thing as a conflict of interest, that his actions are ”perfect” and “innocent.” But we should not let his lies obscure what are ongoing, direct and outrageous abuses of the Constitution for financial gain by the president and his cronies. The House impeachment hearings are concentrating on other abuses of power, but there is no doubt our Framers would see the emoluments violations as a long series of impeachable and unconscionable offenses.
Norman J. Ornstein is a resident scholar at the American Enterprise Institute. His latest book, with Thomas E. Mann and E.J. Dionne Jr., is “One Nation After Trump: A Guide for the Perplexed, the Disillusioned, the Desperate and the Not-Yet-Deported.”
Eric Trump’s defense echoes his father’s status quo response.
During the 2016 presidential debate, President Donald Trump said something very similar. “Maybe he didn’t do a good job and I was unsatisfied with his work,” he said in response to nonpayment accusations.
Eric Trump also noted to Yahoo Finance that The Trump Organization has developed institutional knowledge about getting the best deals with contractors. “In New York, we know what contractors are going to be incredible, what contractors are going to — I won't use a word, but — take advantage of you,” he said. “And, you know, you have that institutional knowledge. You know your way around. You know the language. You know the laws. You know how things are built. You know what kind of foundations work in the ground.”
Jared’s BFF, Saudi Crown Prince Mohammed bin Salman (MBS), and the crown prince of Abu Dhabi, Muhammad bin Zayed (MBZ), refer to Jared as “the clown prince.” Bone-cutter MBS assured those around him that he had Jared “in my pocket.”
Following meetings at the White House and also with the Kushners over their 666 Fifth Avenue property, former Qatari Prime Minister Sheikh Hamad bin Jassim reported back to the emir that “the people atop the new administration were heavily motivated by personal financial interest.”
“Truthfully, It Is Tough To Ignore Some Of The Gross Immoral Behavior By The President” WASHINGTON POST
Trump's sister quits as a federal judge 10 days into formal probe of her possible role in massive family tax scam that could have ended in her impeachment
· Trump's older sister resigned as an appellate court judge shortly after a probe opened into her involvement in a family tax scheme
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·10 days ago an investigation into whether Maryanne Trump Barry violated judicial conduct rules launched
·The case was closed after Barry resigned because retired judges are not subject to the rules
· Barry had not heard a case in two years after transitioning to inactive shortly after Trump's inauguration
· the Trump siblings were probed after an investigation found they were involved in a tax scheme related to the transfer of their father's real estate empire
President Donald Trump’s older sister Maryanne Trump Barry, 82, retired as a federal judge just days after an investigation opened into her possible role in family tax fraud scheme.
Barry was a federal appellate judge in the third district, which includes Pennsylvania, New Jersey and Delaware, and the investigation could have led to her impeachment.
She had not presided over a case in more than two years, but was still listed as an inactive senior judge in the third district – usually the step taken before full retirement.
Barry did not give any reasons for her retirement.
The probe into the Trumps was first opened last fall, after a New York Times investigation found the Trump siblings engaged in tax schemes in the 1990s, including fraud, that increased their inherited wealth.
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Maryanne Trump Barry resigned as a federal appellate judge 10 days into an investigation into whether she violated judicial conduct rules
An investigation into the Trump siblings opened after the New York Times reported that they transferred their father's real estate assets improperly in the 1990s
PRESIDENT of the UNITED STATES DONALD TRUMP: Pathological liar, swindler, con man, huckster, golfing cheat, charity foundation fraudster, tax evader, adulterer, porn whore chaser and servant of the Saudis dictators
THE TRUMP FAMILY FOUNDATION SLUSH FUND…. Will they see jail?
VISUALIZE REVOLUTION!.... We know where they live!
“Underwood is a Democrat and is seeking millions of dollars in penalties. She wants Trump and his eldest children barred from running other charities.”
WHO IS FINANCING ALL THE TRUMP AND SON-IN-LAW’S REFINANCING SCAMS???
"I doubt that Trump understands -- or cares about -- what message he's sending. Wealthy Saudis, including members of the extended royal family, have been his patrons for years, buying his distressed properties when he needed money. In the early 1990s, a Saudi prince purchased Trump's flashy yacht so that the then-struggling businessman could come up with cash to stave off personal bankruptcy, and later, the prince bought a share of the Plaza Hotel, one of Trump's many business deals gone bad. Trump also sold an entire floor of his landmark Trump Tower condominium to the Saudi government in 2001."
“The Wahhabis finance thousands of madrassahs
throughout the world where young boys are
brainwashed into becoming fanatical foot-soldiers
for the petrodollar-flush Saudis and other emirs of
the Persian Gulf.” AMIL IMANI
I recommend that Ignatius read Raymond Ibrahim's outstanding book Sword and Scimitar, which contains accounts of dynastic succession in the Muslim monarchies of the Middle East, where standard operating procedure for a new monarch on the death of his father was to strangle all his brothers. Yes, it's awful. But it has been happening for a very long time. And it's not going to change quickly, no matter how outraged we pretend to be. MONICA SHOWALTER
WHAT WILL TRUMP AND HIS PARASITIC FAMILY DO FOR MONEY???
JOHN DEAN: Not so far. This has been right by the letter of the special counsel’s charter. He’s released the document. What I’m looking for is relief and understanding that there’s no witting or unwitting likelihood that the President is an agent of Russia. That’s when I’ll feel comfortable, and no evidence even hints at that. We don’t have that yet. We’re still in the process of unfolding the report to look at it. And its, as I say, if [Attornery General William Barr] honors his word, we’ll know more soon.
Morning Joe: Trump Is ‘Owned by Putin,’ Head of ‘Criminal Organization’
Following a discussion of President Trump’s decision to withdraw U.S. troops from Syria, on Thursday, MSNBC’s Morning Joe went far beyond standard criticism of the controversial foreign policy move and wildly claimed it was proof that Trump was “owned by Putin” and heading up a “criminal organization” that had been “laundering money” for the Russian autocrat for decades.
As the 6:00 a.m. ET hour segment about Syria was wrapping up and co-host Mika Brzezinski was starting to go to a commercial break, left-wing pundit Donny Deutsch interrupted to squeeze in an unfounded conspiratorial rant in which he accused the President of multiple crimes: “Let’s not forget it. This is all about failed casinos. He is owned by Putin because he’s been laundering money, Russian money for the last 20, 30 years. He’s owned by him. That’s what this is.”
Brzezinski voiced her agreement with irresponsible and unsubstantiated attack: “Oh, my lord....Yeah.”
Deutsch continued his tirade unchallenged:
You talk to any banker in New York, any business person in New York, any real estate person in New York, we have a president that’s selling out our military, that’s costing lives because he is owned by our geopolitical enemy because he’s been laundering money for him as a criminal organization for the last 30 years. That will come out in time.
Co-host Joe Scarborough seemed to offer a small dose of sanity in response: “That is – that is speculation and only speculation right now.” However, he quickly added: “I will say that it is speculation among New York bankers who have loaned Donald Trump money in the past and who have been following his business career for 30, 40 years.” Brzezinski chimed in: “Who know a lot.”
Scarborough then launched into his own conspiracy theory:
But I think we all will be absolutely fascinated when we finally figure out what Vladimir Putin has on Donald Trump and why Donald Trump has surrendered the Middle East, helped ISIS, helped Iran, helped Russia, helped Turkey, helped all of our enemies and betrayed all of our allies. You know, a lot of people think that it’s – he has compromising pictures or something happened in a hotel in Russia years ago. No. It goes back to money. It’s always about money.
He concluded the unhinged discussion by asserting: “And this president is selling not only America, but its most important allies, down the river for money he wants to make either while in office or when he leaves office, period, end of story.”
It’s never enough for the liberal media to simply express a policy disagreement with Trump and say that the U.S. abandoning its Kurdish allies in northern Syria would have a negative outcome. Instead, journalists and pundits must always try to outdo each other to make the most outrageous declarations imaginable to prove their bona fides as members of the resistance.
Here is a full transcript of the October 24 exchange:
6:48 AM ET
DONNY DEUTSCH: Make no mistake, because it’s easy to forget. Let’s not forget it. This is all about failed casinos. He is owned by Putin...
Markets plunge in worst fall since 2008 crisis
By Nick Beams 10 March 2020
Global stocks plunged yesterday in the worst sell-off since the global financial crisis of 2008, with indications that worse may still be yet to come as reflected in the fall in Asian markets when trading began today.
Yesterday, after falls across the Asia-Pacific, where the Tokyo and Sydney markets dropped by around 7 percent and similar sell-offs in Europe, Wall Street plunged on opening. The fall was so large that it triggered a circuit breaker that suspended trading for 15 minutes in order to try to halt panic selling.
The fall continued throughout the day with the Dow closing more than 2,000 points down, its largest one-day point fall in history. There was a drop of more than 7 percent in all market indexes, taking Wall Street close to entering a bear market—defined as a 20 percent fall—since its high in mid-February.
New York Stock Exchange President Stacey Cunningham consults with specialist Peter Giacchi, left, on the floor of the NYSE, Monday, March 9, 2020. (AP Photo/Richard Drew)
The downturn, initiated by the economic impact of the coronavirus, entered a new stage over the weekend with Saudi Arabia launching an oil price war. It boosted production and offered discount prices, following the breakdown of an agreement with Russia to limit supply and maintain prices.
The decision sent oil prices tumbling by between 25 and 30 percent when markets opened this week.
While the collapse in oil prices triggered the share sell-off, the underlying cause lies in the complete divorce of share market valuations—boosted by the continuing supply of cheap money from the US Federal Reserve and other central banks—from the underlying real economy.
Last week, the Fed responded to the sharp fall in the markets in the way it has done in the past, by announcing an emergency rate cut of 0.5 percent and indicating that more was to come. But the move failed to give any boost to share prices. As a former vice chairman of the Fed, Alan Blinder commented: “The markets were happy about that for about 15 minutes and then gave it a Bronx cheer.”
The collision between market euphoria, fuelled by the belief that central banks could forever counter any significant downturn, and the underlying recessionary trends in the US and global economy, has resulted in fear and panic.
The head of US equities for Aviva Investors Susan Schmidt told the Financial Times: “This is total panic.”
Schroders’ head of global equities Alex Tedder told the newspaper: “The mantra right now is you can forget about return on investment, it’s return of investment—will I get my money back? That’s all investors care about.”
A portfolio manager at Janus Henderson Investors, Paul O’Connor said, in just over two weeks investor sentiment had swung from complacency to panic.
“What started as a virus-driven de-risking has now mutated into a broad-based, multi-asset capitulation,” he said.
The market sell-off is being exacerbated by the dysfunctional, one could say insane, response of US President Trump.
After dismissing the threats posed by the spread of the coronavirus, he claimed the drop in the oil price would be good for the US economy.
“Saudi Arabia and Russia are arguing over the price and flow of oil. That, and the Fake News, is the reason for the market drop!” he tweeted, adding “Good for the consumer, gasoline prices coming down!”
Meanwhile tens of millions of American workers have seen billions of dollars wiped off their 401(k) pension plans, together with losses incurred by millions of workers around the world dependent on similar schemes.
The deep-rooted crisis in the real economy is exemplified in a number of areas.
The oil price war itself is the outcome of significant falls in demand resulting from the downturn in the Chinese economy, apparent before the coronavirus outbreak, and the marked slowdown in the euro zone area. Germany, together with France and Italy, stand on the brink of recession or have already entered one.
Japan is also expected to record another quarter of negative growth having experienced a 6.1 percent contraction in the last quarter of 2019.
Global demand for oil has fallen by 2.5 million barrels a day for the first quarter this year as a result of the contraction of the Chinese economy, the world’s largest consumer.
The International Energy Agency has cut its global demand forecast for the rest of the year. It said there would be a fall in daily demand of 90,000 barrels, compared to the forecast of a daily increase of 825,000 barrels made only last month.
Another clear indicator of future trends is the precipitous fall in the yield on 10-year and 30-year US Treasury bonds as investors, searching for a safe haven, push up their price.
At one point yesterday, the yield on the 10-year bond fell to a low of 0.3 percent before rising to 0.5 percent. The yield on the 30-year bond fell below 1 percent for the first time ever, meaning that the yield is below 1 percent across the market.
The fall in the bond market makes it virtually certain that the Fed will again cut interest rates, probably by 0.5 percentage points when it next meets on March 17-18, or possibly even before. It is likely to cut again in April.
However, as the market response to last week’s emergency cut shows, further interest rate reductions will have a very limited effect because they will do nothing to boost the real economy.
There is a growing realisation that what is unravelling is a series of mechanisms that have been employed not only since the global financial crisis of 2008, but stretching back to the late 1980s.
The crash of the stock market in October 1987 saw the implementation of a policy in which the Fed responded to every significant fall in shares by opening the financial spigots to enable further speculation.
This process was accelerated after 2008 through interest rate reductions and so-called quantitative easing. Trillions of dollars were supplied to the financial markets to enable the continued siphoning up of wealth to the upper echelons of society.
At the same time the working class was made to pay through austerity cuts to basic social services—health, education and other facilities—along with stagnant or falling real wages and the replacement of full-time jobs with part-time or contract work, much of it in the so-called gig economy.
The endless provision of cheap money has now created the conditions for another financial crisis, even more serious than that of a decade ago, which, as the historical record shows, will bring even deeper attacks on the working class.
One of the most significant developments in the financial system has been the accumulation of corporate debt, much of it of low quality. Corporations have taken advantage of ultra-cheap money to finance ever riskier operations as well as mergers and takeovers and share buy backs.
The result is that around 70 percent of corporate bonds, estimated to be as much as $10 trillion in the US, are either below investment grade, so-called junk status, or have a BBB rating, one notch above junk, and are susceptible to a write down to junk status in the event of a recession or a financial crisis.
The use of high-risk junk bonds has been particularly prevalent in the US shale oil industry, which is dependent on the maintenance of higher oil prices and the generation of revenue to make interest payments.
The rise of this industry—financed by risky debt but hailed by Trump as providing economic independence of the US from the global oil market—is now becoming one of the transmission mechanisms for a financial meltdown.
As the Financial Times noted, access to bond markets for these companies, had already become strained, “raising the risk they will be unable to refinance their debt, pushing them into bankruptcy.”
The growing concern is that high-yield, high-risk corporate debt as a whole will be affected.
Those concerns are reflected in the lowering valuation of bonds issued by energy companies and the rising costs of insurance against the risk of default on junk bonds across the board.
Deutsche Bank analyst Craig Nichol said the outbreak of the conflict in the oil market could not have come at a worse time for the US high-yield market as whole.
“The big question… is contagion to the broader high-yield markets outside of energy. In our view it is inevitable.”
Whatever the gyrations of the markets over the next days and weeks, it is clear that an inflection point has been reached. The very processes and mechanisms used to sustain the global economy and financial system over the past period are now collapsing. Rather than a means to ensure stability, they have proved to be the source of a new and rapidly developing crisis.
New York Stock Exchange President Stacey Cunningham consults with specialist Peter Giacchi, left, on the floor of the NYSE, Monday, March 9, 2020. (AP Photo/Richard Drew)
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