9/5/20: Summary of Russian COVID19 Policy Responses

Based on the Finance Ministry estimates, Russian COVID19 measures will cost between 1 and 2 percent on GDP to the Russian Exchequer, as reported by BOFIT.

The impact combines both declines in government revenues and increases in expenditures. Much of the COVID19 measures costs, however, will come from reallocation of spending priorities away from yet-to-be-launched capital expenditures and, potentially, defence budgets.

In response to COVID19, Russian government deployed significant supports for:

• SMEs, targeting primarily employment in the private sector. The government identified over 70 sub-sectors hardest hit by the social distancing measures imposed on the general population and provided funding to cover companies' payrolls as long as the companies retain the levels of employment at 90% or more compared to the start of March levels. 
• Tax deferrals for SMEs and significantly impacted sectors (excluding VAT, excise, natural resources extraction taxes and export tariffs). 
• Per BOFIT, "Federal, regional and municipal government real estate landlords are postponing rental payments for all SMEs and larger firms in hard-hit [sectors]. Private landlords renting commercial real estate (other than residential properties) have been obligated to defer payments of tenants in hard-hit branches. To help participating private landlords, regions are to grant them relief from property taxes."
• The government effectively froze all new bankruptcy proceedings for the duration of the crisis measures.
• Special social insurance payments for families with children, increased levels of benefits for the newly unemployed, and added supports for the pensioners were put in place. Pensioners can avail of a range of enhanced services and additional payments, although these vary by region.
• Frontline healthcare workers have been allocated supplementary pay increases.
• Federal government also suspended debt repayments by regional and local governments.

The Central Bank of Russia moved quickly to alleviate the immediate impact of the crisis:

1. The CBR froze banks' asset valuations at the start of March 2020 levels to delay recognition of banks' losses and prevent a wave of loans defaults.
2. "The general loosening of regulatory rules applicable by banks also covers e.g. loss reserves, credit quality and related collateral for a very large part of corporate and household loans granted, as well as their possible restructurings," per BOFIT.
3. "Authorities have also set up separate deferral programmes for bank debt repayments that are supported by regulatory easing, government interest-rate subsidies and low-interest CBR loans to banks."
4. "Deferral programmes are available for households that have suffered income losses of more than 30 %, as well as SMEs and enterprises in hard-hit sectors."
5. CBR also cut interests rates, most recently on April 24th from 6.0% to 5.5%, bringing 2020 cuts to 75 basis points.

Per BOFIT note, "the state social funds will lose revenues as wage-based social taxes of employers will be halved to 15 % for SMEs. The move will give businesses relief this year in an amount equivalent to slightly less than 0.3 % of GDP."

The latest Russian economy forecasts via CBR come in at -4% to -6% for 2020 and +3 to +5% in 2021, implying slower than V-shaped recovery in real GDP. The forecasts assume oil price averaging USD27 per barrel over 2020, which is consistent with May-December average price of USD20 per barrel, or more conservative than prior assumptions. Notably, the CBR forecast implies that Russian economy will be running a current account deficit in 2020, for the first time since 1999.


As an aside, it is worth noting that the U.S.-Government funded RFEL https://www.rferl.org/a/putin-s-pretext-covid-19-crisis-tapped-to-tax-rich-russians-offshore-wealth/30513483.html has been out in force decrying alleged use of COVID19 as a pretext for, shock-horror, taxing offshore wealth. The proposal has not been approved by the Russian government, yet.

9/5/20: Some uncomfortable facts on the U.S. wealth distribution since 1989

The distributional effects of COVID19 pandemic impact on the labour markets in the U.S. will likely result in a massive debasement of the national wealth shares of the 'Main Street' segment of American society (the 90 percent) and a further increases in the national wealth share of the top 10 percent. So much is rather clear from the data on the labour markets (e.g.: https://trueeconomics.blogspot.com/2020/05/8520-path-of-tornado-us-labour-force.html).

But this process is not a unique feature of the current 'ideology' prevailing in the White House, nor is it a unique feature of the 'Republican Party ideology'. Historically, both, the Democratic Party Presidencies and the Republican Party Presidencies since the start of the 1990s on have been responsible for the dramatic drops in the share of national net worth accruing to those outside the top 10 percent of the wealth distribution. Here is the data through 4Q 2019:

The last time, the 'Main Street America' enjoyed sustained increases in net worth was during the tenure of George H. W. Bush. Since then, there have been just one short-lived period of increase in net worth, with subsequent declines erasing fully those gains: the Dot.Com bubble during the tail end of the Clinton and the starting part of the George W. Bush administrations.

And the current Presidency is actually somewhat exceptional to the trend: under Trump Administration, American's Main Street witnessed the lowest rates of decline in their share of the national net worth of 'just' 0.13% per annum, of all post-1992 administrations. In fact, the share of the country's net worth accruing to the bottom 50 percent of Americans has risen under the Trump Presidency tenure at the fastest annualized clip since the data series started.

In simple terms, American policies of destroying the prosperity of the majority of the country's population are not reflective of the 'political divide'. Both, Democratic and Republican Presidencies have led to the effective debasement of the wealth of the American Main Street. And, in equally simple terms, the Trump Administration tenure so far has been more benign to the bottom 50 percent of the American wealth distribution than any presidency since 1989.

Like it or not, but the data is quite telling.

8/5/20: The Path of a Tornado: U.S. Labour Force Numbers for April

So, BLS just printed their April 2020 numbers of official non-farm payrolls: https://www.bls.gov/news.release/empsit.t01.htm. And things are, expectedly, ugly.

Civilian 'non-institutional' population is up 1,203,000 y/y, while employment is down 23,384,000. Official unemployment i up from 3.3% in April 2019 to 14.4% in April 2020. Number not in the labour force are up 7,470,000 and numbers in unemployment are up 17,117,000 y/y. Which means that those out of employment are now up 24,587,000 year on year. Labour force participation rate is down from 62.7 in April 2019 to 60.0 in April 2020. In April 2019, 60.58 percent of the non-institutional American population was in employment. In April 2020 this figure was 51.30 percent. Which means that, excluding jails and military, almost 50 Americans out of 100 were not working even part-time.

Here's a summary of y/y comparatives by education status:

As the result of the massive wave of jobs destruction primarily concentrated in the lower wages categories of services workers, U.S. average labour earnings managed to actually increase (see a post on this from our friends at the Global Macro Monitor: https://global-macro-monitor.com/2020/05/08/bad-look-of-high-stock-prices-high-unemployment/). In  fact, combined effects of exits from the labour force and unemployment increases for those with less than college degree amount to 74 percent (three quarters) of all jobs destruction compared to April 2019.

With this, based on the data through the week of May 2, 2020, total employment levels in the U.S. are now down to the levels of October-November 1999.

Meanwhile, things are going swimmingly for the financial markets recoveries:

Only foreclosures and evictions delays, unemployment checks and rent rollups are holding back a wave of mass discontent these days.

7/5/20: Visualizing COVID19 Impact: U.S. Unemployment Claims

We though the Great Recession was bad... until we got COVID19:

The most intensive, in terms of unemployment claims, six months of the Great Recession peaked in new unemployment claims in the week of May 16, 2009 when cumulative 6 months worth of new unemployment claims filings reached - until then unprecedented - 16,815,050. At the end of the week of May 02, 2020, the same number stood at 35,569,978 or more than double the prior historical peak.

7/5/20: No Value in Them, Stonks

No, folks, the markets are still not in line with fundamentals:

And that applies to all three sets of fundamentals: pre-COVID19 conditions in the underlying economy (secular stagnation), during-COVID19 collapse of the economy, and post-COVID19 expectations for the economy.

Which, of course, explains why Buffett sees no opportunities for buying, given the above chart is one of his favourite indicators of value.

7/5/20: BRIC Composite PMIs: Global Economy in a Free Fall

With Russia and China data finally in, here are the full updated BRIC PMIs for April (note: manufacturing has been covered in more details here: https://trueeconomics.blogspot.com/2020/05/4520-eurozone-manufacturing-pmis-crater.html).

Sharp drop in Manufacturing PMIs in April, compared to 1Q 2020, were accompanied by even more spectacular declines in Services PMIs:

Across the BRICs, Services PMI fell from 44.9 in 1Q 2020 to 30.6 in April. The two readings represent the lowest and the second lowest readings in quarterly PMIs in history of the series (since 1Q 2006).

Brazil Services PMI sunk from already-contractionary 45.9 in 1Q 2020 to 27.4 in April. Russia saw its Services PMI falling from 47.7 in 1Q 2020 to 12.2 in April, with the swing of -35.5 points in one go. India, however, went into an even worse collapse, with its Services PMI falling from 54.1 to 5.4. Indian economy should be contracting at more than 15.5 percentage points if these numbers are true.

China was a 'relative' out-performer in Services PMIs, with its index increasing from a strongly recessionary 40.4 in 1Q 2020 to 44.4 in April, signalling a moderate reduction in the rate of economic activity contraction.

In comparison, Global Services PMI stood at 24.8 in April, down from 45.5 in 1Q 2020. This means that two of the BRIC economies, Russia and India, are both underperforming Global PMI in the services sector.

As the result of the extreme changes in the Manufacturing and Services PMIs, BRICS composite PMIs have fallen sharply off their 1Q 2020 levels:

Global Composite PMI fell from 45.8 in 1Q 2020 to 26.5 in April, signalling worsening of the global recession. India matched Global Composite PMI reading in April, showing a fall from 46.9 in 1Q 2020 to 26.5 in April. China outperformed the Global Composite, with its Composite PMI rising from 42.0 to 47.6, even though April reading remains recessionary. Russian Composite PMI fell through the floor, declining from the recessionary 47.7 in 1Q 2020 to a depression-level 13.9 in April. India performed even worse, with its Composite PMI falling from growth-supportive 54.8 in 1Q 2020 to an unprecedented 7.2 in April.

Overall, movements in PMIs in March-April 2020 have been extreme. So extreme, I had to re-scale the charts and double-check the numbers, especially in the case of Russia and India.

6/5/20: Trump, Irish Pharma and Amazeballs Economics Stats

The Mondo Bizarro of Irish Economics:

Industrial production activity:

And yet, 

• Irish Manufacturing PMI plummeted to 36.0 in April, from 45.1 in March, the lowest since March 2009
• Irish Services PMI "continued its historic descent in April to 13.9, indicating the fastest decline in Irish service sector output in the 20-year survey history. The month-on-month decrease in the Index, at 18.6 points, was smaller than March’s 27.4-point plunge, but still far exceeded anything else in the series to date."

So actual industrial indices are showing booming Manufacturing across both turnover and volumes of production in March, yet PMI surveys showing collapsing activities. You really can't make this up. But, wait, worse: energy-generation is down, apparently, in volume by 0.2% y/y, yet 'modern sectors' activity is up 35.4%. Which points to the heroic efforts of the Irish economy to be the most energy-efficient in the Universe. 

Of course, the entire circus of Irish economic statistics is driven by the 'dotted-out' sectors in the industrial activity tables - the CSO's way of saying "you, peasants, don't need to know what multinationals are up to".

Amazeballs! Just in time for Mr President to muse about taking US pharma out of Ireland's tax [non] haven... https://www.rte.ie/news/business/2020/0504/1136374-pharma-trump-ireland-coronavirus-vaccine/. 

6/5/20: H1B Visas and Local Wages: Undercutting Human Capital Returns

The Economic Policy Institute published an interesting piece of research on the links between H1B visas and lower wages paid by the U.S. employers for key skills: https://www.epi.org/publication/h-1b-visas-and-prevailing-wage-levels/. As far as I can see, the report does not cover academic faculty employment, but it does cover data from universities and other non-profits.

The report is worth reading.

6/5/20: S&P500 and Fundamentals: What should matter, doesn't

S&P500 and earnings per share: what should matter, doesn't

We are now in extreme territory of the markets ignoring basic corporate fundamentals.

6/5/20: The Glut of Oil: Strategic Reserves

The Giant Glut of Oil continues (see my analysis of oil markets fundamentals here: https://trueeconomics.blogspot.com/2020/04/23420-what-oil-price-dynamics-signal.html)

China strategic oil reserves have also surged. U.S. oil reserves are now nearing total capacity of 630 million barrels, and China's reserves are estimated to be about 90% of the total capacity of 550 million barrels. Japan's reserves similar (capacity of ca 500 million barrels). Australia is using leased U.S. strategic reserves capacity to pump its own stockpiles, with its domestic storage capacity already full. 

6/5/20: 1Q 2020 US GDP:

From Factset: "The decrease in first-quarter real GDP was largely driven by the 7.6% decline in consumer spending, which subtracted 5.3% from the total GDP number. Investment was also a drag on growth, while an improvement in the trade deficit partially offset these negatives. We may see downward revisions to these numbers with the next two data revisions, and second-quarter growth is expected to be far worse. Analysts surveyed by FactSet are currently expecting a 29.9% contraction in Q2."

Yeeks!

6/5/20: S&P500 Earnings and Revenues Growth 1Q 2020

With early effects of COVID19 pandemic in:

Both charts via Factset.