Chinese Coronavirus Changeup

By John Mauldin

In baseball, there is a kind of pitch called the “changeup,” designed to look like a fastball while actually going slower. The deceived batter swings too soon and misses. Strike, you’re out. The world has thrown a wicked biological changeup at the global economy.

This is kind of how coronavirus fear is spreading from China to the rest of the world and now the US. We think it’s coming fast. Many Americans have swung at the pitch by selling stocks, stocking up on food, cancelling travel plans, and so on. Those may prove to be wise choices. But in fact, the ball is still coming.

As of now, the medical data is a still evolving. What’s clear is we face an easily transmitted, flu-like virus. However, it’s more dangerous than the normal seasonal flu, particularly to the elderly and people with other health conditions. And it is spreading. The US appears to be a few weeks behind other countries where the situation is already much worse.

Every death is sad, and we should all take precautions. But we will adapt, and in due course have a vaccine that reduces the risk. The economic damage will be both harder to control and harder to repair. This week’s letter will focus on the economic impact globally—but specifically in China.

The Federal Reserve cut rates this week and bond traders clearly see more cuts coming. Jim Bianco says Fed officials know markets will keep falling anyway; they just want to manage the decline. Maybe so, but the problem began in China, and that’s where the solution will have to begin, too.

The good news is there are things we can do to help. I’ll mention one big idea at the end of this letter. But first, we’ll take a closer look at what happened in China and how it affects the world economy.

Masked Bike Rides

Aside from everything else, coronavirus is generating some amazing charts. The out-of-nowhere waterfall declines in various China stats are remarkable. For example, here is a manufacturing activity index.

Source: Seeking Alpha

That’s just one example of many. February in China was unlike anything seen since 2008. And back then, the decline happened over a few months.

This one was just as deep but nearly instant. And we don’t yet know if it is over.

Just as the Lunar New Year holiday ended (during which many people travel and business activity declines), Beijing quarantined entire cities and regions in an effort to stop the viral outbreak. Workers who had left for the holidays couldn’t get back. Others couldn’t leave home to go to work. Much of the country essentially shut down.

The most reliable source of on-the-ground data I know is China Beige Book.

Their flash survey in February found 31% of companies still closed, and many of those that had reopened still lacked staff or materials and couldn’t operate at full capacity.

Simon Hunt shared this anecdote from one of his contacts.

Here in central Shanghai, the usual rush-hour traffic kicks off at 8 am and remains nose to tail until 9 am when the streets become curiously empty. So, leaving Browning Towers yesterday, I took a shared bike (RMB 1.5, USD 0.21) and cycled around my local neighborhood.

I can report 70% of street-side shops and businesses are open, however, 100% of the restaurants and 50% of the hotels are closed. Like mine, all residential compounds are gated and closed except to residents with huge piles of deliveries waiting outside for collection under makeshift awnings. Everyone, and I mean everyone, wears a mask, and on a bike, breathing through an N95 mask is no easy business.

I stopped at my local Starbucks to find it open, but all the furniture was stacked and swept to one side and a barista took my temperature before serving me. Seeing that my fellow customers were heavily wrapped delivery guys (Deliveroo, Sherpa etc.) I realized my usually cozy Starbucks was open for takeaway only. I mention this as Shanghai with 42 confirmed cases has not had any meaningful increase in virus cases for some weeks. Wuhan, where the new cases are declining but still averaging about 400 a day is only 460 miles away. Clearly, the numbers in Shanghai are static because of the level of precaution the local community is happy to make.

I returned to my compound, the street-side gate security took my temperature and waved me through, and I finally I arrived home with my coffee.

So that was life a long way from the outbreak’s center, and we know conditions are much harsher in Wuhan. The measures seem to have been effective in slowing the virus spread, but at tremendous cost.

Note what he said about hotels and restaurants being closed. Those are low-margin businesses that employ millions of low-wage workers. How many lost income during this time? Their incomes are low, but the numbers add up. This will certainly affect China’s consumer spending. Many of the small businesses that had to close have outstanding loans. The government may shield them for a time, but somebody will have to absorb those debts.

Other statistics also show China still reeling. Estimates say anywhere from 40 to 50% of the trucks that are used to bring containers and product around China are simply not moving. It appears at least 30% of the workers who travelled away from home for the lunar holiday have not returned.

Apparently, the lockdown in Wuhan and other cities is effective as the numbers of new cases and deaths appears to be dropping rather rapidly. That’s good, but it doesn’t solve the problema.

Overly Optimized

The bigger issue, at least for the US, is supply chain disruption. It is hard to explain how finely calibrated these have become. US retailers and manufacturers depend on China for a steady flow of both finished goods and components. Tariffs made this more expensive in the last couple of years, but the flow continued, mostly uninterrupted. Coronavirus may accomplish what the trade war couldn’t.

My best sources think most Chinese manufacturers should be back at full staff levels in the next month or so, and in some cases, a few weeks—barring a secondary virus wave (which Simon Hunt thinks is possible; he notes schools are still closed with no reopening scheduled).

But that doesn’t mean normal operations. Shipments for all kinds of items have been so scrambled, it could take months to get all the right stuff in the right places.

Charles Gave raised an interesting and scary question in a recent Gavekal report. Is the fine-tuned engine of our global economy now thrown off its axis?

In a fully optimized world, almost all the manufacturing would take place in China, the design and sales in the US, and all the profits would magically appear in Dublin, Amsterdam, Hong Kong, or the Cayman Islands. The world would then be as optimized, fast-paced, and high-performance as English rugby player Manu Tuilagi. Yet, as England fans know, the problem with Tuilagi is that injuries mean he is seldom available to put on the white shirt.

The more optimized a system is, the more fragile it potentially becomes. Ming dynasty porcelain is undeniably finer and more beautiful than any tin cup. But what the tin cup gives up in beauty, it makes up for in resistance. Clearly, the current Covid-19 uncertainties are revealing the global system’s fragilities, both short term and long term.

We have seen disruptions before. Many cite the 2011 Japan earthquake and tsunami, which essentially brought that nation to a halt. It recovered. But China in 2020 is far bigger and far more integrated with the rest of the world economy.  

It’s also unclear if reports of business re-openings are true. A March 4 Caixin report said the lights may be on, but that doesn’t mean people are working.

As new coronavirus cases in China slowed in recent weeks, local governments in less-affected regions pushed companies and factories to return to work, typically by assigning concrete targets to district officials. Company insiders and local civil servants told Caixin that, under pressure to fulfill quotas they could not otherwise meet, they deftly cooked the books.

Leaving lights and air conditioners on all day long in empty offices, turning on manufacturing equipment, faking staff rosters, and even coaching factory workers to lie to inspectors are just some of the ways they helped manufacture flashy statistics on the resumption of business for local governments to report up the chain.

Chinese data is “dynamic” in the best of times. If Beijing is now punishing local governments and businesses for not doing the impossible, then it’s not surprising they would try to generate the appearance of activity.

In any case, the full impact hasn’t yet reached us because businesses in the US, Canada, Europe, and elsewhere have some inventory of the things they need from China. Some ships were already on the way before China shut down in late January. But we will start feeling it soon.

Then what? Much depends on how the virus spreads here and what measures we take to control it. In a worst case, this could turn into a simultaneous supply shock (with the US unable to obtain critically needed imports) and demand shock as millions can’t work or travel.

Either of those alone would be bad. Together, they would be devastating.

But it’s a real possibility if the Seattle-area outbreak intensifies and spreads like the one in Northern Italy.

Exogenous Causes

For the last three years, I’ve said the United States wouldn’t sink into recession unless there was some exogenous event, meaning from outside the US. I think the coronavirus qualifies as exogenous.

A significant part of the world will likely enter recession. I don’t care how they cook the books in China, because that’s what they do, but China will be in a recession in the second quarter and perhaps the third quarter. Europe was already at stall speed and could be in recession soon, if not already.

Ominously, jet fuel demand is beginning to drop. Some of this is clearly because of international flights being cancelled. But airlines are starting to cancel domestic flights as well. The coronavirus is clearly having an impact on our travel. The chart below is from Danielle DiMartino Booth’s Quill Intelligence.

I see at least a 50% chance we have a US recession soon. If it doesn’t cause a crisis in the overstretched corporate bond markets (namely high yield and triple B), something I have written about, the economic impact should pass in less than a year—maybe six months. The accompanying equity bear market should recover in a V-shaped manner.

However, if the biological crisis creates an economic crisis, we will have a deeper bear market and a much slower recovery. The important word in that last sentence is recovery. Much depends on how deep the recession is, if that’s what happens.

Silver Linings

In my last letter on this subject, I ended with some silver linings. Let me give you another one.

Globalization was already changing and possibly reversing before any of us heard of COVID-19, mainly due to technology. The labor-cost savings of manufacturing overseas are no longer as stark as they once were. Add to this the political changes as working-class Westerners complain, correctly, that their jobs were outsourced to either machines or foreigners and somebody else got the benefit. Furthermore, there’s now a widespread US belief that China is a strategic rival on which we shouldn’t be overly dependent.

I think the current supply chain problems will likely accelerate an ongoing move of manufacturing closer to consumers. Robotics, 3D printing, artificial intelligence, and all sorts of new manufacturing technology are already encouraging this process. I think a number of businesses will see the writing on the wall and speed up their plans. This could raise capital investment enough to actually boost growth—a very good thing.

Unlike some, I would not want to cut off trade with China. I do think we need to be more careful how we trade. Coronavirus could spur a restructuring of the relationship that was going to happen anyway. We will all be better off if it happens in an orderly manner. I don’t know if that is possible anymore, but we should try.

In that regard, I have a suggestion for the Trump administration:

Take the high road. Cancel the tariffs on Chinese goods “for the duration of the crisis” and recognize we are all in this together. This is not a US or China problem. It is humanity’s problem. Lifting the tariffs will set the tone for more amicable negotiations and, if nothing happens, you can slowly restore them after the crisis passes.

Yes, we need China to change some of its policies. I think Beijing is probably more willing to negotiate now than it was three months ago. The tariffs are an unnecessary obstacle to further progress.

New York and Final Thoughts

I will be flying to New York next Tuesday for several meetings and dinners. I am curious what I will find in the Big Apple.

This week, I was on a conference call with several hundred, high-net-worth investors. I told them I think this crisis will present a number of positive opportunities. There are already high-quality stocks whose prices have fallen enough to put dividends in the 7% range. A US 10-year bond below 1% vs. 7% in a company that has increased its dividend every year for decades? I know which I would want.

I encouraged the listeners to make a “watch list.” At what price would you like to buy X company? When do dividends become absolutely compelling? For those with more to invest, the private, fixed-income world has some absolutely screaming opportunities.

Look, we know many thousands of coronavirus tests will be done in the US in the coming weeks. Obviously, these tests will give us a spike in virus cases, and the media will breathlessly report it. Maybe you buy the rumor and sell the fact. Perhaps it is time to buy today. I don’t know. But I think I would wait to see the reaction. And by waiting, I mean with my “watch list” in hand, waiting for my own personal buying opportunity. Some are already here.

We have no way to know what will happen in the short term. It is tragic for many, and we should all take the health risks seriously. But it will pass. As investors, we need to both manage the risks and consider the opportunities.

And with that, I will hit the send button. You have a great week. I am looking forward to being in New York with lots of friends. Maybe doing a little more fist-bumping than hand shaking, but enjoying the time nonetheless.

Your simply going about his life analyst,

John Mauldin
Co-Founder, Mauldin Economics

Parsing the financial turmoil

What the markets imply about the economic impact of the coronavirus

Investors should get used to the rollercoaster

THE START of the year has been a rollercoaster for stockmarket investors. Out of the gates in January they experienced a gradual ratchet higher, climbing to an all-time peak in America, before a brutal and swift 11.5% plunge in the S&P 500 during the last week of February.

So far in March investors have loop-the-looped. After the Federal Reserve convened an emergency meeting on March 3rd to cut interest rates by 0.5 percentage points, stocks spun and gyrated and the yield on the ten-year Treasury bond fell below 1% for the first time ever (see chart).

Uncertainty and fear about the spread of the covid-19 disease are to blame for the havoc (credit for some of the gains on March 4th may belong to Joe Biden, a moderate Democrat, who won the most delegates in primary voting on “Super Tuesday”).

The market is wrestling with three fears.

First, that the virus will (and may already have) spread widely across America and the rest of the world.

Second, that fear of covid-19 and measures to stem its spread, like advising workers to stay home, will have severe consequences for economic activity.

And third, that policymakers may be unable to keep short-term disruption from becoming long-term damage.

These fears have culminated in a sharp “risk-off” move in markets.

As stocks have tumbled, safe-haven assets like gold, government bonds and certain currencies—such as the yen and the Swiss franc—have rallied sharply.

Copper and oil prices, both bellwethers of economic health, have swooned.

The VIX, an index of the implied volatility embedded in options prices, has jumped.

The price of high-risk corporate bonds fell sharply.

There are two reasons why rapid moves in markets are worth examining. They are important sources of information. By parsing changes in asset prices it is possible to glean insight into how the virus might affect the American economy. And while some markets merely predict doom, others can hasten its arrival—the healthy functioning of credit markets is especially vital.

So what does the market imply about economic expectations? One way of capturing this is to consider what will happen to firms’ finances if people can no longer gather or move around freely. Revenues would take a hit across the board.

The damage would be most acute for firms that rely on large groups of people coming to them, such as casino and theme-park owners. It would, however, also hurt those that rely on travel, like hotels and airlines. Corporate events and conferences have been cancelled in many countries—Starbucks, for example, plans to hold its annual shareholder meeting virtually.

Such consumer-facing firms have seen bigger share-price falls than most. But revenues will also suffer at companies with complex supply chains. If factories close in China, firms like Apple are unable to produce their wares.

While sales may plummet, costs will not. Firms will still need to pay their staff, landlords and banks, among many other expenses. The markets are suggesting that the hit to profits will be significant. In aggregate the stockmarket gyrations since the middle of February imply that investors, who once thought this year would see robust profit growth of 14.3%, now expect perhaps half that amount.

But the risks may be even greater for some companies, and possibly existential for those with large debts to service. Consumer companies in general have lost 7.1% of their market value since February 24th. But as our chart shows, the prices of listed firms with high interest expenses relative to profits have fallen more than their peers—those with lots of debt have fared worse (except for those purveying essentials, like Campbell Soup).

This suggests investors think the risk of a cashflow crunch at some firms is very real. Smaller firms may be more exposed. According to the IMF, small and medium-sized firms with annual interest costs larger than their profits account for more than half of all corporate borrowing in America.

That feeds jitters about bad debts in credit markets. The interest-rate spread over Treasuries demanded by investors to hold high-yield corporate debt had widened to 4.9 percentage points on March 4th, from 3.3 percentage points at the start of the year. Public credit markets even briefly ground to a halt.

There was hardly any corporate issuance at all between February 24th and March 2nd in America and Europe. Fear about tight credit markets was one of the reasons the Fed stepped in to cut rates. There is evidence it is helping. After the emergency rate cut on March 3rd a handful of issuers seized the opportunity to issue small quantities of bonds.

Two questions now hang over the markets. First, is their reaction to the epidemic exacerbated by technology? Algorithmic trading has come to dominate stockmarket transactions. Just one in ten equity trades is carried out by a human. Plenty of sensible people worry that these “algos” exacerbate short-term moves. But the evidence in this case suggests that they are not to blame. Algos tend to trade heavily at the open and the close. Market moves since the middle of February have been characterised by extremely high volumes throughout the day.

Second, will the turmoil continue? The VIX gauge offers the closest thing to an answer. Because stocks tend to sedately tick up, but lurch downwards, volatility usually only rises when stocks are falling. But recent news has caused stocks to lurch in both directions.

Unusually, volatility therefore remains elevated despite a recovery in share prices. A high VIX also suggests that violent swings will continue. Investors should get used to the rollercoaster ride, because the end is not in sight.

Central banks’ influence on economies is diminishing

Monetary policy cannot protect us from each and every shock

Dario Perkins

BEIJING, CHINA - FEBRUARY 12: A Chinese boy is covered in a plastic bag for protection as he arrives from a train at Beijing Station on February 12, 2020 in Beijing, China. The number of cases of a deadly new coronavirus rose to more than 44000 in mainland China Wednesday, days after the World Health Organization (WHO) declared the outbreak a global public health emergency. China continued to lock down the city of Wuhan in an effort to contain the spread of the pneumonia-like disease which medicals experts have confirmed can be passed from human to human. In an unprecedented move, Chinese authorities have put travel restrictions on the city which is the epicentre of the virus and municipalities in other parts of the country affecting tens of millions of people. The number of those who have died from the virus in China climbed to over 1100 on Wednesday, mostly in Hubei province, and cases have been reported in other countries including the United States, Canada, Australia, Japan, South Korea, India, the United Kingdom, Germany, France and several others. The World Health Organization has warned all governments to be on alert and screening has been stepped up at airports around the world. Some countries, including the United States, have put restrictions on Chinese travellers entering and advised their citizens against travel to China. (Photo by Kevin Frayer/Getty Images)
© Getty

The idea that central banks can address any problem that emerges in markets is surely one of the most dangerous in finance. Since the outbreak of the coronavirus in China, it is reaching the point of parody.

Without doubt, the prospect of monetary stimulus has buoyed investor confidence over the past year, supporting a powerful rally in equities and a big easing in financial conditions.

But central bank officials are contributing to the fantasy that they can solve other ills, by continually talking about risks outside their mandates.

We can all agree, for example, that climate change will have severe macroeconomic consequences, but it is less clear how many trees policymakers can save with an extra €30bn a month in bond purchases, or how to translate the European Central Bank’s inflation target into degrees Celsius of global warming.

Even aside from such high concepts, while central banks still hold considerable sway over financial markets, their power to influence the real economy has steadily diminished over time.

Our analysis shows that every part of the transmission mechanism from monetary stimulus to the real economy has faded during the 2000s.

That is not to say monetary tightening would be ineffective; in a world of record leverage and a decade-long search for yield, there is no limit to the chaos large rate increases might bring. And yes, cutting interest rates can boost asset prices.

But the assumption of central bank support has become reflexive. Investors appear to believe that big central banks will respond to the economic shock of the coronavirus with further stimulus — a factor that has helped to buoy markets. It is hard, however, to see how interest rates can alleviate a health crisis.

More broadly, with a rising slice of wealth now in the form of equities rather than housing, the impact of monetary stimulus on spending is weaker than it has ever been. This is true for both consumers, where equity holdings are concentrated only among the wealthiest, and for businesses.

Economists like to assume that lower interest rates boost investment and encourage people to bring forward their spending plans from the future. Yet empirical studies have never really endorsed the link between capex and the cost of borrowing. Monetary stimulus may have played this role in the past, but it has diminished.

Spending on consumer durables such as cars, washing machines and even housing was always the most sensitive part of the economy to monetary policy, yet these sectors have declined as a share of overall gross domestic product, in the US and across the rich world.

It seems obvious, if stimulus works by bringing forward spending from the future, that a decade of low interest rates will eventually lose any potency. Maybe we have simply run out of “marginal” consumers who can be encouraged to spend — that is the impression you get from global car manufacturers, where demand has sagged as customers stopped borrowing. Put simply: consumers need a limited number of cars.

The traditional link between real interest rates and personal saving has also broken down. In some countries, it now even operates in the reverse direction. Recent research from Germany’s central bank suggests consumers in some euro-area countries will curb their spending in response to lower interest rates, as the losses they make on their bank deposits outweigh any tendency they might have to increase their spending. This shift is most notable in Germany where — contrary to the popular narrative in the foreign financial press — opposition to ECB policy is not just a matter of ideology.

The other issue is that when another serious economic shock strikes — whether the coronavirus, or something else — central banks will not be able to cut rates as much as they needed to in the past.

Past recessions required at least 5 percentage points, or 500 basis points, of rate cuts, not the 0-175 bp that is available today. Sensibly, the US Federal Reserve does not want to experiment with negative interest rates and even the European central banks, which have hit sub-zero deposit rates, are unlikely to push these policies further. They realise the costs of these experiments will soon outweigh the benefits.

The official solution to this problem is to react even more aggressively when facing a particular risk. By using the existing ammunition more forcefully, central banks hope they can create extra room for manoeuvre on policy. Two former Fed chairs, Ben Bernanke and Janet Yellen, recently explained this strategy in some detail. The idea clearly resonates with current monetary officials across the world, given how quickly they pivoted towards easing in 2019.

Investors have welcomed this new hypersensitive risk-management approach because they think it means they can rely on monetary stimulus whenever something goes wrong. They do not seem to realise this was an admission of weakness, not a display of strength.

The writer is managing director for global macro research at TS Lombard

Emergency Market Crash Update & Video Analysis

The US stock market opened Sunday, March 8, 2020, dramatically lower. 

Oil collapsed 25% to near $30. 

Gold shot higher to levels just above $1700. 

All of the major US indexes were lower than 5%. 

As of this morning, the US major indexes are lower by 6.40%, and oil down 23%.

Bonds are set to open 7-8% higher at this time.

As mentioned in yesterday’s update, we could see metals and miners get hit with margin calls, and silver took a beating last night down over 5%, and miners are down 5% in pre-market, so things could get uglier yet.

The war on oil has officially started.

To me, it’s a typical bully/bad guy move.

When everyone is bleeding, and in trouble like the financial markets, everyone’s mental state, and our health, the true bullies and bad guys (sharks) come out of the woodwork.

Russia is being difficult and will keep production high for oil; the Saudis are giving out hug discounts on oil and jacking up their production to flood the market with their oil and take as much of the market share possibly.

When blood is in the water, the sharks attack.

This oil war is going to devastate the USA and Canadian oil sectors and businesses if the price of oil trades between $20-35 per barrel, which I think is what will happen and could last a few years.

The US futures for stock hit a circuit breaker and halted futures trading of the Indexes once a 5% drop took place, but ETF and regular stocks will continue to trade.

The next round of circuit breakers are only during regular trading hours and was implemented after the May 10, 2010, flash crash.

This new set of circuit breakers have never been hit before which are:

A drop of 7% stock halt for 15 minutes.

A drop of 13% stocks halt for 15 minutes.

A drop of 20% stocks halt for the rest of the session.

This is a huge breakdown in the US markets and indicates much greater weakness within the global markets and further concern that the COVID-19 virus may continue to disrupt the US and European markets (as well as others).

The potential that multiple billion-dollar disruptions in the US and other foreign markets, including travel, leisure, autos, hospitality, and many others, may see a continued decline in sales and incomes over the next 6+ months. 

We don’t believe we will truly understand the total scope of this COVID-19 virus event until possibly well after July 2020.

The crazy part is I’m in a little secluded town in Canada, and people are starting to panic and buy food and toilet paper for their bunker stash. Almost everyone I talked to this weekend while out snowboarding has been affected by manufacturing, trade show cancellations, travel restrictions, etc.. 

We are in a full out global crisis that seems to affect everyone in some way no matter their location, occupation, or business.

There will be some great opportunities to find and execute incredible trading opportunities – yet the risks are very high right now for volatility and price rotation.  Think of the markets like a body of water in a severe storm.  The waters are very choppy, unstable, and chaotic – just like the markets. 

Unless you have the right information, skills, and vehicle to navigate these waters, there is a very high probability that a dangerous outcome could happen. I closed out our last position on Friday with our TLT bond trade for a 20.07% profit and we are 100% cash watching this market VS trying to survive it.

Right now, Cash is king.

Waiting for proper setups and understanding risks is critical. 

Timing your entries and targets is critical. 

Learning to stay away from excessive risk is essential.

We’ll scan the markets for you and find the best opportunities that set up over the next week.

We appreciate your loyalty and want to continue to deliver superior analysis and research. 

Please be well aware that the current market environment is very dangerous for traders. 

The VIX recently touched above 50. 

We believe it could reach levels above 75~90 still. 

These are incredible levels for the VIX.


Mike Bloomberg’s (very expensive) moment

The former mayor of New York’s lavish spending and weak rivals make him a contender

ON A RAINY afternoon in Chattanooga, the queue for Mike Bloomberg trailed around the block.

Eleven weeks into his presidential campaign, the former New York mayor and world’s 12th-richest man is already well known in Tennessee. This was his fourth visit to the state, one of 14 that will hold its primary vote on March 3rd.

He is also dominating its airwaves, with television ads touting his criticisms of Donald Trump, mayoral record and philanthropic support for gun control and climate-change policy running on a loop. “It’s almost like it was with Obama,” said a sodden Chattanoogan retiree, marvelling at the size of the crowd.

The back-to-front oddity of Mr Bloomberg’s campaign has drawn a lot of scorn. Presidential primaries have traditionally been decided by the first four early-voting states which, because of his late entry to the race, he is sitting out. His politics, as a former Republican, once synonymous with racially insensitive policing, also looked hopeless to many leftist commentators.

Yet self-made billionaires tend not to be bad at reckoning their odds. And, sure enough, while Mr Bloomberg’s rivals knocked lumps out of each other in Iowa and New Hampshire, his aggressive campaigning in the Super Tuesday states has produced the biggest, fastest polling surge of the contest.

He sits third in The Economist’s national polling aggregate, on 16%. And with Joe Biden falling, he may soon be second to Senator Bernie Sanders, the winner in New Hampshire. This has already attracted an impressive ripple of endorsements, including from three members of the Congressional Black Caucus—hitherto Mr Biden’s biggest champion—this week. And if the primary were indeed to start looking like a face-off between Mr Bloomberg and the widely mistrusted Mr Sanders, many more would follow.

Diminutive, prickly and poor at public speaking, Mr Bloomberg is almost nothing like Barack Obama—save potentially in one regard. Unlike their more uniform opponents, Democrats’ first concern is to find a leader capable of uniting their party’s ethno-politically divided coalition.

Mr Obama did so magnificently—which is why Mr Biden, his bumbling deputy, has been afforded such an extended stab at assuming the role. The nascent enthusiasm for Mr Bloomberg, before he has contested a primary or debated any of his Democratic rivals, suggests he might soon be auditioned for it.

There are two reasons for his rise. First, the vastness of his spending. He is estimated to have splurged over $300m on TV, radio and digital advertising alone. To put that in perspective, Amy Klobuchar, a rival moderate, recently had $5m in hand. Mr Bloomberg has also assembled a huge and talented campaign team—with so far 2,100 employees, many of whom earn twice what other campaigns pay. The resources and professionalism of his rallies are on a different level from his rivals’.

When it became clear that the venue in Chattanooga could not accommodate at least 200 of those queuing, his technicians rigged up a sound system outside the building within minutes. At a later event in Nashville, over 1,000 attendees were served a barbeque supper and all the “I like Mike” badges and T-shirts they could carry.

The second thing in Mr Bloomberg’s favour is that the verdict of the earliest states is far from decisive. The centre-left is currently split between Pete Buttigieg, Ms Klobuchar and the fading Mr Biden.

This has made Mr Sanders, through his dominance of the smaller left-wing faction, a weak front-runner. To challenge him, either Mr Biden would have to rally his erstwhile non-white supporters, or else Mr Buttigieg or Ms Klobuchar would have to win them.

Yet Mr Biden looks blown. And, notwithstanding their attributes, Mr Buttigieg and Ms Klobuchar are still giving many voters pause. Neither a gay mayor nor a woman has yet made it to the White House. The fact that Mr Bloomberg is himself a “short, divorced Jewish billionaire from New York”, as he once self-deprecatingly termed himself, does not now seem disqualifying.

In reality, no candidate looks able to unite Democrats as Mr Obama did: Mr Bloomberg would certainly alienate many Sandernistas. Yet the best argument for his candidacy may be that he is unusually able to focus wandering Democratic minds on the common enemy: Mr Trump. The many symmetries between the two New Yorkers are glaring and unfailingly to Mr Bloomberg’s credit. He is a self-made billionaire; Mr Trump inherited his wealth and bankrupted his companies.

Mr Bloomberg has a record of improving government by bringing business-like efficiencies to it; the president is a wrecker. Mr Bloomberg is one of America’s most generous philanthropists; Mr Trump used his family foundation to buy a portrait of himself to hang in one of his golf clubs.

And if Democrats doubt that such comparisons are important, they should reflect that, if Mr Bloomberg were his opponent, Mr Trump would think about little else. A recent quip by Mr Bloomberg about Mr Trump’s lesser wealth (asked about the prospect of two billionaires vying for the presidency, he asked: “Who’s the other one?”) was plainly intended for an audience of one.

There are still huge questions about his candidacy. His support has been inflated by high name-recognition in places where his opponents are absent. If he performs badly in his first clashes with them—starting with a televised debate in Las Vegas on February 19th—it could shrivel.

Having been largely ignored by his rivals thus far, he is also due some potentially damaging attention. The unearthing this week of some past thuggish remarks by Mr Bloomberg in support of his controversial policing was an early taste.

A bigger fear is that, instead of capitalising on the Democrats’ divided field, he may fracture it further. He could nab enough of Mr Biden’s support with non-whites to stop Mr Buttigieg or Ms Klobuchar uniting the centre-left, yet be unable to do so himself.

Perhaps his qualities are worth the risk.

But if it backfires, he will have done more than almost anyone to make Mr Sanders the nominee.

Electric cars threaten to pull the plug on petrol stations

Refuelling industry looks to Norway for answers on how to evolve

Archie Hall in London

2A12CA4 Eidfjord, Norway - June 13, 2019: Many Black And Blue Colors Renault Z.E. Cars Parked In row. The Renault Z.E. or Zero Emission is a line of all-elec
Electric cars in Norway. Almost one in five cars in Bergen are now electric © Alamy

Perched between Norway’s two longest fjords, Bergen might appear an unlikely place to glimpse the possible future of transport. But close to one in five cars in Norway’s second city are now fully electric — the most of any city, anywhere.

As Bergen’s residents steer their Nissan Leafs and Teslas down the city’s cobbled streets, they, alongside compatriots across Norway, are also being scrutinised by companies eager to adapt to the era of the electric car.

“Over the last year or so there have been more and more visits from other parts of the world,” said Christina Bu, secretary-general of the Norwegian Electric Vehicle Association. “Companies are coming to Norway to learn.”

Few are looking more closely than the multinationals that run petrol stations, which are grappling with a pressing question: will the electric car mean the end of the road for roadside refuellers?

After buying Norway’s largest petrol station network in 2012, Canadian refuelling giant Alimentation Couche-Tard designated Norway its “laboratory” to study that precise question.

Norway’s government wants to end sales of fossil fuel-powered cars by 2025 and has waived its heavy taxes on new car purchases for electric vehicles. Internationally, Bloomberg New Energy Finance estimates that 57 per cent of cars sold in 2040 will be electric. Norway crossed that threshold in March.

Couche-Tard has replaced fuel pumps with electric vehicle chargers in some of its Circle K gas stations in Scandinavia and launched a home and workplace charging service in Norway.

British consultancy Insight Research also offers fuel retailers what it calls Norwegian “retail safaris” where they can pay to tour petrol station sites across Oslo.

A Boston Consulting Group study published last year found that at least a quarter of petrol stations worldwide risk closure by 2035 without significant changes to their business models. Under BCG’s most aggressive scenario, 80 per cent could shut.

Ms Bu described BCG’s projections as “a bit exaggerated”. Nevertheless, she said she had seen plans for new Norwegian petrol station developments quietly killed off or scaled back as the pace of her nation’s transition to electric vehicles had accelerated.

Column chart of Projected demand for vehicles powered by electric batteries (millions)  showing  The electric car market is set for a decade of expansion

“Maybe . . . ,” said John Eichberger, director of the US-based Fuels Institute, an industry research group, to BCG’s findings. But he added: “You’re looking at a liquid fuel demand market that’s going to extend to the 2060s and 2070s at a minimum.”

In most countries, Norway’s vision is a way off. Electric vehicles constitute 2.5 per cent of new car sales in America and 3.4 per cent in the UK. Cars are only occasionally replaced — the average American car is 11.8 years old, according to IHS Markit.

But the electric vehicle industry is bullish. Erik Fairbairn, chief executive of Britain’s Pod Point, which sells electric vehicle chargers, estimates that 95 per cent of new UK cars will be electric by 2030. He argues that rapidly falling battery prices will make electric cars substantially cheaper than internal combustion alternatives, even without Norway-style government intervention.

“[It’s] a phase of vehicles which is going to look like Blockbuster versus Netflix . . . they don’t coexist for any material amount of time,” he said, referring to the speed with which Netflix dispatched its erstwhile brick-and-mortar video rental rival.

Only petrol stations by motorways or shopping centres stood any chance, he added.

Those affiliated with the refuelling industry disagree. “We’re too early in the curve,” said Mr Eichberger. “The multiples being paid for acquiring an existing convenience store are extremely high.”

“I was with bankers last week, and they were saying that they have got confidence in the sector for at least the next 10 or 15 years,” said Brian Madderson, chairman of the UK’s Petrol Retailers’ Association.

Most petrol stations’ profit comes from selling food, drink and tobacco, not fuel. Only 38 per cent of profit dollars from American petrol stations came from fuel sales, according to the National Association of Convenience Stores, a US industry group.

Couche-Tard has already thought up future uses for its petrol stations, ranging from operating as a parcel depot to running a car wash and on-site auto repairs.

“With electrical mobility, a whole range of new business models arises,” said Hakon Stiksrud, senior director of e-mobility for Couche-Tard’s Circle K petrol station business in Europe.

But without the need to refuel, electric vehicle owners rarely need to visit forecourts, even to pick up an Amazon delivery.

In Norway, while charging outlets are increasingly available at petrol stations, the majority of electric vehicle owners use them only monthly, according to the Norwegian Electric Vehicle Association. Day-to-day, most charge at home or at work.

“The business case is difficult, you only use them when you go on longer trips,” said Ms Bu.

The Issa brothers, Mohsin and Zuber, co-founders of Blackburn-based European refuelling conglomerate Euro Garages, were more optimistic. “It’s the smaller sites who don’t have food, who don’t have the good coffee and [a] convenience programme that will end up struggling,” said Mohsin.

Zuber added: “People stop for a comfort break rather than a fuel break . . . More than 60 per cent of people stop for a comfort break. And on the motorways, it’s more like 80 per cent to 85 per cent.”

As goes Bergen, so goes the world? Even Couche-Tard’s Mr Stiksrud thinks that is a possibility. “Norway could be an example of how the development will be [across] the rest of the world,” he said.

“But it’s not easy to say when.”

Additional reporting by Andy Bounds in Blackburn

Never Mind the Internet. Here’s What’s Killing Malls.

Yes, the internet has changed the way we shop. But taken together, other factors have caused greater harm to traditional retail stores, an economist says.

By Austan Goolsbee

Credit...Abbey Lossing

It has been a tough decade for brick-and-mortar retailers, and matters seem only to be getting worse.

Despite a strong consumer economy, physical retailers closed more than 9,000 stores in 2019 — more than the total in 2018, which surpassed the record of 2017. Already this year, retailers have announced more than 1,200 more intended closings, including 125 Macy’s stores.

Some people call what has happened to the shopping landscape “the retail apocalypse.” It is easy to chalk it up to the rise of e-commerce, which has thrived while physical stores struggle. And there is no denying that Amazon and other online retailers have changed consumer behavior radically or that big retailers like Walmart and Target have tried to beef up their own online presence.

But this can be overstated.

To begin with, while e-commerce is growing sharply, it may not be nearly as big as you think. The Census Bureau keeps official track. Online sales have grown tremendously in the last 20 years, rising from $5 billion per quarter to almost $155 billion per quarter. But internet shopping still represents only 11 percent of the entire retail sales total.

Furthermore, more than 70 percent of retail spending in the United States is in categories that have had slow encroachment from the internet, either because of the nature of the product or because of laws or regulations that govern distribution. This includes spending on automobiles, gasoline, home improvement and garden supplies, drugs and pharmacy, food and drink.

Collectively, three major economic forces have had an even bigger impact on brick-and-mortar retail than the internet has.

In no particular order, here they are:

Big Box Stores: In the United States and elsewhere, we have changed where we shop — away from smaller stores like those in malls and toward stand-alone “Big Box” stores. Four years ago, the economists Chad Syverson and Ali Hortacsu at the University of Chicago analyzed the recent history of retail and found that the rise of warehouse clubs and supercenters was bigger than the rise of online commerce.

They gave this telling example: Over the 14 years through 2013, Amazon added $38 billion in sales while Costco added $50 billion and the Sam’s Club division of Walmart $32 billion.

Amazon had the higher growth rate, but the bigger problem for most brick-and-mortar stores was other, larger brick-and-mortar stores. This continued in 2019.

• Income Inequality: Rising income inequality has left less of the nation’s money in the hands of the middle class, and the traditional retail stores that cater to them have suffered. The Pew Research Center estimates that since 1970, the share of the nation’s income earned by families in the middle class has fallen from almost two-thirds to around 40 percent. Small wonder, then, that retailers aiming at the ends of the income distribution — high-income people and lower-income people — have accounted for virtually all the revenue growth in retail while stores aimed at the middle have barely grown at all, according to a report by Deloitte.

As the concentration of income at the top rises, overall retail suffers simply because high-income people save a much larger share of their money. The government reports spending for different income levels in the official Consumer Expenditure Survey. In the latest data, people in the top 10 percent of income saved almost a third of their income after taxes. People in the middle of the income distribution spent 100 percent of their income. So as the middle class has been squeezed and more has gone to the top, it has meant higher saving rates overall.

• Services Instead of Things: With every passing decade, Americans have spent proportionately less of income on things and more on services. Stores, malls, and even the mightiest online merchants remain the great sellers of things. Since 1960, we went from spending 5 percent of our income on health to almost 18 percent, government statistics show. We spend more on education, entertainment, business services and all sorts of other products that aren’t sold in traditional retail stores.

That trend has continued for a long time. The federal government’s Current Expenditure Survey goes back more than a century. In 1920, Americans spent more than half their income on food (38 percent) and clothing (17 percent) and almost all of that was through traditional retail stores. Today, food eaten outside the home and in it accounts for 10 percent of spending and clothing just 2.4 percent.

Economists debate theories of why we have shifted to services and away from goods but no one questions that it has happened. It means that over time, retailers selling things will have to run harder and harder just to stay in place.

In short, the broad forces hitting retail are more a lesson in economics than in the power of disruptive technology. It’s a lesson all retailers will have to learn someday — even the mighty Amazon.

Austan Goolsbee, a professor of economics at the University of Chicago’s Booth School of Business, was an adviser to President Barack Obama.

Gold and Silver Rally Back After Fed Emergency Rate Cut

Over the past few weeks and months, our research team has continued to sing the praises of precious metals – particularly Gold and Silver.  After last week’s dramatic selloff in precious metals (attributed mostly to margin call sales), both Gold and Silver rallied almost 3% on Tuesday, March 3 – the day the US Fed issued an emergency 0.50% rate cut.

We believe this move by the US Fed solidified a fear in the global markets that the central banks are preparing for a much broader economic contraction and attempting to front-run weakness by moving price rates lower.  This will help to ease capital restrictions, liquidity across global markets and spur some global borrowing at a time when the Coronavirus may continue to weigh on global economies. 

Still, for skilled metals traders, this is likely the rocket fuel we need to see Gold rally above $1800 very quickly and for Silver to rally above $21 quickly as well.

This Weekly Gold chart highlights the early recovery that took place on Tuesday, March 3, 2020. 

Gold actually closed at $1641.6 for the day – up 2.93%.  This move nearly recovered the entire bearish previous Weekly bar – suggesting that traders were not going to be forced away from the metals markets by any shakeout.

Our ADL predictive modeling system on this Gold Monthly chart suggests Gold will rally above $1700 within 2~3 weeks, then briefly pause before rallying to levels just below $1800.  From there, it appears Gold will rally very quickly to near the $1902, a pullback to levels near $1820, then settle into a range near $1875 or higher.

Considering Gold was trading at $1560 just a few days ago, this represents a +21% rally from recent lows.

This ADL Monthly Silver chart also highlights the advance in prices in Silver and how the next 3~5+ weeks will likely support a moderate upside price advance to levels near $18.35 before a more aggressive upside move begins where $19, the $20, then $21 will be reached over a very short period of time (roughly 30 days). 

Remember, the Gold to Silver ratio was sitting near 94 at the end of February. 

If this ratio reverts back to levels near 75, Silver would likely rally 45% or more from current levels.

Don’t miss these incredible moves in precious metals.  The markets are actually gifting these recent low price levels to skilled traders. 

We issued a research post just last week that suggested any move below $1600 in Gold was an excellent opportunity for skilled traders to load up. 

Silver prices just above $16 was another gift for skilled traders.

We don’t believe these current levels will be available for much longer. 

Our modeling systems are suggesting precious metals is just beginning a much bigger upside price move.  Now is the time to get in while you can before the +20% to +40% rally begins.

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly.