by Shane Ormond
On May 21, 2020
Target reported that online sales on an average day in April exceeded last year’s Cyber-Monday sale, because if you’re not going to buy a Cuisinart Perfectemp 14 Cup Programmable Coffee Maker at the end of the world, when are you gunna buy one?
- Trump Wants to Send You a Check (Really)
- Softbank Backing Off WeWork Bailout
- The Lehman Moment
- Almost 1 in 5 Households Have Lost Work Due to Coronavirus
Trump Wants to Send You a Check (Really)
Well folks, it looks like Sump’n Claus may be coming early this year.
With the stock market circling the drain and low-income households teetering on the edge of financial ruin, lawmakers are frantically pitching a grab bag of coronavirus-busting economic strategies.
Nothing’s set it stone yet, but after a long day of meetings, its looking increasingly likely that:
The Trump administration says it’s considering sending most adult Americans a check to help workers whose jobs have been disrupted by closures. (And help Americans who can work from home buy Xboxes, 3D TVs, and other rad junk.)
Utah Senator and Muppet Show news anchor Mitt Romney was the first Republican to call for a cash payout for Americans.
On Monday, the senator asked the government to send every American $1,000 “to help ensure families and workers can meet their short-term obligations and increase spending in the economy.” (I think Romney may have been peaking at Andrew Yang’s homework.)
It’s no secret Romney isn’t particularly “in-step” with this current administration. But at a press conference yesterday, President Trump and Treasury Secretary Steve Mnuchin signaled they might be coming around to the idea.
And by “signaled” I mean they just kinda came out and said it.
“We want to make sure that Americans get money in their pocket quickly,” Mnuchin said. “We’re looking at sending checks to Americans immediately.
“Americans need cash now, and the president wants to get cash now — and I mean in the next two weeks.”
The details of the proposed program are unclear for now, but President Trump suggested there would be a cutoff point for folks who refer to tuxedos as “dinner wear.”
“Some people shouldn’t be getting a thousand dollars,” said the president.
“We don’t need to send people who make $1 million a year checks,” added Mnuchin. (Probably because they’d never cash ‘em, right? Maybe we should just wire it straight to their offshore accounts?) “We’re going to preview that today and we’re going to talk about details afterward.”
Americans received checks in 2001 and 2008, in the form of a tax refund, as part of recession-response packages. But the U.S. has never distributed checks to non-working citizens and those without positive income tax burdens.
It remains to be seen what the limits on this package are. But economists on both the right and the left are all about this idea, babeee. (Mainly because they’re economy nerds and they just want to see what will happen when you give everyone a bunch of money.)
Harvard economist Greg Mankiw (formally chief economist to the funny President Bush) says that while it may not prove to be an effective economic stimulus, a cash payment would help out of work Americans weather the storm.
“Financial planners tell people to have six months of living expenses in an emergency fund. Sadly, many people do not,” wrote Mankiw on his blog because apparently people still have those.
“Considering the difficulty of identifying the truly needy and the problems inherent in trying to do so, sending every American a $1,000 check asap would be a good start. A payroll tax cut makes little sense in this circumstance, because it does nothing for those who can’t work.”
Softbank Backing Off WeWork Bailout
Japanese investment fund Softbank is trying to back out of a planned $3 billion bailout of WeWork, according to an investigation by the Wall Street Journal.
WeWork once held pride of place in SoftBank’s investment portfolio. The fund’s founder and CEO, Masayoshi Son, used to throw bags of money at the company and tell ‘em to “just go nuts.”
These cash injections were supposed to fuel WeWork founder Adam Neumann’s wildest dreams and drive the company to become the next Amazon. But it turns out Neumann’s wildest dreams were getting high on a private jet and drinking enough tequila to kill three regular CEOs.
When it became clear just how much of a money hole WeWork was in, Softbank removed Neumann, set about uninstalling all the beer taps, and launched an $8 billion rescue plan. Part of that rescue plan was a $3 billion purchase of WeWork shares, including Neumann’s $970 million of stock (which SoftBank super does not want to pay any more).
According to the Journal’s sources, WeWork shareholders received a notice Tuesday saying SoftBank had found an out from the deal. The Japanese investment fund believes the ongoing regulatory probes from the SEC and Justice Department into WeWork’s business will allow them to break the contract.
This fun loophole won’t affect the $5 billion lifeline SoftBank agreed to give WeWork. But it will deprive the company of some much-needed cash in a time when everybody could use a little extra cash right now.
WeWork’s business model is especially vulnerable to the insecurity caused by the spread of the Rona. With much of the world working in “sweatpants-friendly environments” to limit contact with other people, demand for short-term workplace rentals is at an all-time low.
Softbank hasn’t explicitly said whether or not it intends to avail of this loophole. It may be simply using this information to delay the investment or use as a bargaining chip to renegotiate the deal.
Almost 1 in 5 Households Lost Work Due to Coronavirus
Nearly one in five households are experiencing layoffs or reduced work hours, as the entire country grinds to a halt and I discover I don’t like the inside of my house as much as I thought I did.
Some folks, like me, are lucky enough to be able to work from home (has my ceiling always been this low?). But many are unable to work due to closures and disruptions designed to slow the spread of the virus.
The restaurant, bar, hotel, and airline industries have been devastated by these measures. But the economic fallout is expected to ripple out into all areas of the economy (the bounce house industry may never recover).
As of March 13-14, layoffs and reduced hours had already hit 18%, according to a joint poll by NPR, PBS, and Marist. And as of March 18, I’ve watched the entire first season of the Wire. (It’s still good.)
Low income workers have been most affected, according to the survey, with a quarter of households making less than $50,000 experiencing disruptions to their income.
We don’t know all the details of the Trump administration’s $1 trillion coronavirus relief package just yet. But it may well address some of these concerns with possible cash payouts for individuals and assistance for small business.
Now, if you’ll excuse me I have a sudden urge to knock down that wall in the kitchen.
In Other News
ONE LAST THING
The Lehman Moment
Do you ever feel like you’re on a badly designed carnival ride that never stops?
The markets are spiraling. The entire world is locked indoors because of a global pandemic. All the toilet paper is gone for some reason.
It’s a wild ride, but it’s important to not let it get in the way of the truth. Our macroeconomist and editor of Money Crisis Graham Summers says the coronavirus was just a catalyst.
Before a single sneeze, we were already in a bubble. The virus just burst it.
Graham pulls back the curtain on The Everything Bubble in today’s One Last Thing.
We Are Now Approaching the “Lehman” Moment
By Graham Summers
Someone or some people are in MAJOR trouble.
Back in September 2019, the Fed announced it would begin implementing a number of repurchase “repo” programs.
If you’re unfamiliar with repo programs, these are programs through which the Fed allows financial banks/institutions to park assets at the Fed in exchange for cash.
At the time the Fed announced this, it claimed that it was performing these programs to help with a capital crunch due to tax season. However, that excuse was soon proven to be total bunk – the repo programs were extended from September through October and finally through January.
At the same time, the repo programs grew in size from $75 billion for overnight repos and $30 billion for term repos, to $120 billion in overnight repos and $45 billion in term repos.
Why would the Fed be doing this?
After all, the economy was growing at the time. And there were no indications or systemic risk in the U.S. financial system.
Lehman-like Liquidation is Coming to the Markets
The Fed was NOT doing this to help out with tax season…
The real reason the Fed was doing this?
A financial institution or institutions were in BAD SHAPE and desperate for capital. By bad shape, I mean “Lehman Brothers” type failure.
Now, we do not know who it is. But considering the fact that the Fed announced an emergency round of $1.5 TRILLION in repos last week… and that it stopped the market from collapsing… suggests it’s a very LARGE institution (think the size of Deutsche Bank or UBS).
With this in mind, it doesn’t matter what happens with coronavirus or with the economy. If a large, systemically important financial institution or bank fails, we could get a Lehman-like liquidation in the markets.
My Bear Market Trigger Says It’s CRISIS TIME
If you think I’m being dramatic here, consider that the EIGHT largest U.S. banks just announced they are going to start accessing the Fed’s Discount Window: a means through which the Fed gives banks access to capital overnight.
The banks haven’t done this since 2008.
Again, a large financial institution or institutions are in MAJOR trouble here. The fact that even $1.5 TRILLION in repos didn’t fix this issue means it’s truly a systemic problem.
THIS – not the coronavirus – is the issue to focus on. The Everything Bubble has burst, the coronavirus was just the pin.
Closing Data for Today
|S&P Index 500||$2,407.38||↓ 4.82%|
- The EU banned nonessential travel from the rest of the world for 30 days.
- The IRS granted taxpayers a three-month reprieve to pay 2019 federal income taxes.
- Joe Biden swept Democratic primaries yesterday, beating Bernie Sanders in Arizona, Illinois, and Florida.
Editor, One Last Thing