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Ross Rants again:
Each time I write a Rant lately it is hard to know where to begin as there is so much going on all at the same time of great import. That is why they have become much longer lately. These are major historic events all happening at once.
The stock market is reacting to having moved too far, too fast, and a tide of professional investors who have the mantra- sell in May and go away. They believed, as do I, that a rise of 31% in a month is simply not substantiated by the fundamentals, especially since nobody even knows right now what the fundamentals are, or will be in 6 months. Some highly experienced pros believe we could go back to the lows before there is another spurt back up. I believe we will bounce around for months, and we will end the year around 2800-3000 on the S&P. It is possible that if Trump is reelected, which I believe is certain, and if a vaccine is proven or close to it by year end, and if several therapies are proven to work, which seems almost certain, and if there is a near total reopen by mid-June, that there is a chance we could see some number above 3000. Anything is a guess right now. The entire situation with China is going to get ugly, the EU is failing to come with any solid program to rebuild its economy, and oil prices likely will remain at levels that are not conducive to profits for US oil producers, and travel will be slow to return meaning tens of thousands of jobs will not return for a long time. There are so many negatives, plus some we do not yet know, that any forecast is just a guess.
Costar, a leading real estate data source, said there are going to be $148 billion defaults in CMBS, 13,000 loans, over 2 years. That is a huge hit to that portion of the bond market. That means a huge number of distressed debt property sales likely to occur at an average of 60%-66% of fair value compared to if we were in normal times. Retail and hotels will be by far the worst, with 40% discounts or more. . Industrial, warehouse, and related product will do well with only 15% likely discounts. Multifamily will have defaults, but nowhere close to hotels and retail. We are in for a rerun of 2009-2012 with some investors making a killing scooping up distressed properties and debt. There are already a substantial number of funds formed ready to pounce, which may result in too much money chasing too few deals. Marginal properties, especially in retail, will get washed out and have to be demolished.
Right now retail is only collecting 46% of rents, while industrial is 99%, and office 89%. At least 50% of all department stores will disappear. That will leave huge spaces in malls to be filled with who knows what. Possibly Amazon distribution centers which will be at low rents. Malls are in trouble, and online shopping will have risen to possibly 20% of total retail after the lockdown, which is considered by some to be the inflection point at which many malls fail. Add on reluctance of people to be in crowded spaces, and malls and power centers have a dismal outlook. Hotels are not coming lunging back. There will be a reluctance for corporations to send a lot of people back on the road for quite a while, and large conferences will be very slow to return, probably not until next year after we know if there is a resurgence of the virus in the fall. Some large hotels catering to meetings, may never reopen, or will be sold for 50 cents on the dollar and maybe repurposed as affordable housing, or demolished. It will be very ugly for big conference hotels for another 9 months at least. Airlines will also not recover for a long time as the same reluctance to have employees travel will apply. Consider that Chinese tourists were in the millions to the US and that is gone for the rest of the year. Other international tourists will remain shut out for a while and then it will be limited for a long time. There is no way the airlines and hotels will recover for a very long time. New York hotels are in real trouble due to the lack of tourists and limited business travel.. They were over built and in trouble before the virus.
Housing will likely rebound fairly well as the pent up demand is huge, and mortgage rates have never been lower. There will also be some exodus to the burbs from downtown, especially in New York. It is hard to know how much that will be, but in NY, IL, NJ, and some other states that are broke, there will likely be more tax increases which will drive out more upper end people, making it even worse for those states. There is no way the Republicans are going to bail out the irresponsible blue states who have allowed pensions and healthcare costs to overwhelm the rest of their budgets. Once people get back to work, and the virus has passed, housing will be strong again. The historic low rates will also let millions refinance and lock in very low monthly payments, which will be a big boost to consumer spending in the future. The big unknown is what happens to the forbear mortgage payments. The Dems want it added to the end with an extended maturity. That screws the bond holders of pools of residential mortgages and does not work. It is unclear how this gets resolved.
The other group that will never be the same is colleges. It is estimated that 200 small liberal arts colleges will get wiped out over the next 18 months. Some have already begun to close. Big schools will see enrollment this year decline, and much more refusal to pay high tuition. There is a massive uncertainty on campus now as to, will there be classes on campus, how many will show up, and how to deal with major budget cuts. Some with massive endowments will do OK, but it is possible many students decide to go to one of the very good state schools and save the overpriced tuition of the elite schools. There is a hope that there will now be some elimination of the useless deans and staffs of diversity, sex control, and all the other social nonsense that has caused university budgets to spiral out of control resulting in $80,000 tuition charges, and massive student loan problems.
The Flynn case is just the top of the tip of the massive iceberg of the attempt by the Dems to run Trump out of office. Covington law firm, who represented Flynn at first, one of their main partners is none other than Eric Holder. How coincidental. Covington could potentially have real problems for malpractice. Durham is going to put a bunch of people in jail from the Obama administration, FBI and DOJ. This will make Watergate look like kindergarten. It was an attempted coup. Barr and Durham are serious lawyers, and not political hacks like Holder. This will be the worst thing to ever have happened in US history other than the civil war. That sounds possibly silly and exaggerated, but I think what is coming will be really historically terrible. It was an actual attempted soft coup. The mainstream media will attack Barr and try to create stories to destroy his credibility because he will have shown the stories pushed by the media about Russia and Ukraine to have all been part of a conspiracy to get Trump out of office, and the media fed that false narrative. It will likely be July before they are ready to hold the big press conference, but it will upend the entire election. By then Covid will be minimal in the headlines, and this will have a clear run at headlines. Add on Tara Reade, who is not going away, and who has real corroboration from 4 real people, plus the tape, and Biden not being able to make cohesive sentence (see the attached from Sky News in Britain) , and they have real trouble up and down the ticket. Covington was either part of the conspiracy, or they were committing malpractice in the Flynn case defense. Either way, they have potentially major problems. Flynn may have a real case against them and the government. Given what is now coming out I would not be surprised to learn that at least one or more of the FBI agents and DOJ officials are talking to the grand jury. They committed real crimes and the trade of talk or jail has to be compelling. Comey, Brennan, Susan Powers and maybe some former White House execs better be lawyering up.
Tara Reade has far more credibility than Ford. There is the Larry King tape which should be able to be verified it is her mother, and there are 4 real independent corroborators who appear to be completely non-Republican ordinary people. We don’t yet know the true story, but Pelosi and others saying they know Joe, and this is not him, just does not cut it. The media and women’s groups have now been shown to be totally biased in their attacks on Kavanaugh. The contrast is stunning. Biden’s people were given access to the supposedly locked away files recently, so any documents to support Reade are gone, and the three former Biden senior staff aids who now say the recall nothing including Reade, are still Biden supporters, and likely hope for appointments if he wins. They have reason to cover up. Very possibly the same guy with bleach who handled Hillary’s emails just took care of Joe’s personnel file.
China has real problems now. The intelligence evidence is piling up quickly, and we only have snippets. The latest reports seem to confirm my view of two weeks ago that they intentionally sent thousands of people on flights all over the world so that everyone would have the virus and, therefore, major economic problems. They declared war on the entire world. If Trump had not shut down the border for people from China we would have had a major crisis worse than what we do have. It will be very hard for the rest of the world to gloss over what China did, and to not change their approach to China. The exodus of supply chains from China is likely to really accelerate now. I expect China to get even more aggressive with threats to the EU on trade, and to use its Belt and Road loans to try to shut down dissent from countries who owe it billions. The EU is very vulnerable since they need investment and trade and, they are weak in these matters. Don’t expect much support from them for our position. At the same time they were spreading the virus to the world, they then hoarded the PPE so they could make the situation even worse by creating shortages, and then selling it at hugely inflated prices and of poor quality. Navarro had it nailed. My view is China waged all- out war on the world, and succeeded, and Trump now knows it for sure. The intel report coming in two weeks will be devastating to China. Congress will have to act.
Russia has an efficient way to deal with docs who try to go public about the healthcare system and the virus. In the past week or so three of them somehow fell out windows. We will never know the real numbers from China or Russia and maybe not from Italy and some other countries. So comparing the US numbers to anywhere else may be meaningless.
NY has done extensive testing for anti-bodies-15,000, that is a real statistical sample. Only 13% had been infected. Given that NYC is in those numbers with subways, crowded apartment buildings, numerous nursing homes, etc, and the worst number of cases in the country by far, with 308,000, or 29% of total. NYC had 53% of NYS cases and 70% of deaths. So If the 13% infected across the state includes NYC, and NYC is 53% of cases and 70% of deaths, one can extrapolate that for people outside of NYC, your chance of contracting it is very low and of dying is under .5%. and maybe under .2%. The other point is there are now thousands of docs and nurses and techs unemployed. Despite all the public calls for help by Cuomo and other governors that we needed retired docs to come back, etc, reality is, in most places there was no need at all, and hospitals and private practice docs are going broke due to all the fear and shut downs. There never was a distinction by health experts and modelers to distinguish between big cities, and especially NYC, and most of the rest of the country. Slowing the return of doctor office visits and elective surgery was a huge mistake based on extrapolating the data from NY State.
I am very lucky to be here in Longboat right now. Tennis never shut down, most food was available, there was even TP and hand towels at CVS. As of yesterday people were eating outside at restaurants like normal, stores are open, and life is returning to close to normal. The weather has been near perfect. I went to the dentist Monday and a doctor appointment. They are back in regular appointments, they just call it elective. Restaurants at the club are reopening with limits, but they have outdoor seating, so not an issue. The other evening I took a walk on the beach near my home here on the gulf. Beaches here are wide and beautiful. The temp was perfect at 72 with no wind, and the air was so clean it was spectacular. It was like being in a dream to be on the beach at sunset in such a perfect environment. I decided to delay my return to the Hamptons since conditions there remain terrible. Still locked down, no tennis, hard to get food, nothing open. Nobody even knows when things will improve. I rather be lucky than smart.
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There is something wrong when a court demands the federal government cannot withhold funds from entities that are violating federal laws. Am I missing something?
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More thoughts regarding the need for democratic nations to change their relationship with China and in this America must lead.
Trump was ahead of everyone in calling China's hand and forcing them to negotiate. He now has to rally the rest of the democratic world to catch up to his own concerns. Many of our so called allies are snobs and have their nose in the air when it comes to what they think of our brash president. Yes, he has been churlish in making them confront reality. And yes, they resent him because he forced them to admit they have been blood sucking us. And yes, we have been patsies in allowing this to continue long after The Marshall Plan saved Europe.
It is time for European leaders to get over any pique and it is also time for them to join with us to address the China Threat. If the leaders of Europe think they will be better off with President Biden they are damn fools in the mold of Chamberlain. The same can be said for the Democrats.
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How to Keep the Free World From Becoming a Suburb of Beijing
Let’s be realistic. No consensus exists on the future of relations between China and the West. Yet, clearly that is changing.
Previously, many looked at Beijing as little more than a “checkbook,” an opportunity to make a quick buck and buy cheap stuff. That is quickly becoming the minority view. Even those still anxious to continue to engage know we are heading into troubled waters.
Left unaddressed, the influence of China’s communist government will threaten the freedom, prosperity, and security of the transatlantic community. Only together can the U.S., Canada, and its European partners ensure a stable future that allows free nations to thrive.
>>> When can America reopen? The National Coronavirus Recovery Commission, a project of The Heritage Foundation, is gathering America’s top thinkers together to figure that out. Learn more here.
In these trying times, we must turn to the greatest document in the history of the world to promise freedom and opportunity to its citizens for guidance. Find out more now >>
It is also not realistic to think the world will harden into new Cold War camps. We live in an interconnected world; a world of independent nations doing business around the clock; where the “freedom of the commons,” including the freedom to cross the seas and transit the skies, is a right.
That means the future is going to be messy. We can’t just wish China away.
To get through this, the family of free nations in the transatlantic community can’t be neutral in our approach to global affairs and China’s role. After all, we believe in popular sovereignty, human rights, and free enterprise. The Chinese Communist Party does not. If we do not stand together and defend these equities, we will lose the world we love.
Increasingly, leaders in Europe and the United States recognize that doing business as usual with China is risky business. So what do we do?
In part, the issue of China has come to the forefront because of the appalling behavior of the Chinese Communist Party in responding to the outbreak in Wuhan of COVID-19, the disease caused by the new coronavirus. No question, the Chinese government allowed people to travel internationally, knowing they had the potential to be highly contagious.
Further, China delayed reporting under international health regulations and did not provide live samples of the coronavirus to other countries for research and vaccine development. The regime’s behavior is not an aberration. China has a long history of bad behavior.
The global pandemic demonstrated the catastrophic consequences of leaving Beijing unchecked. Just as we need a vaccine to deal with COVID-19, we need a prophylaxis to deal with a belligerent, uncooperative Chinese Communist Party. Let’s get to it.
NATO is vital. The alliance needs to take the China threat seriously. Chinese actions and power could well erode NATO’s capacity to exercise self-defense.
From telecommunications to industrial control systems, from space and cyberspace to bridges, railroads, and ports, China already has a heavy footprint presence throughout the transatlantic community. NATO will need all this infrastructure to deter conflict and defend itself.
Yet if China controls the off switch or has the capacity to conduct malicious or denial activities, NATO’s capacity for self-defense will be severely compromised. NATO must be willing to prevent China from having the capacity to interfere in the defense of the alliance’s area of responsibility.
NATO nations all must continue to demonstrate the capacity for self-defense against other external threats.
The U.S. is a global power with global interests and responsibilities; in addition to participating in protecting the transatlantic community, the U.S. must face China in the Indo-Pacific and achieve a stable Middle East. For the U.S. to do all three well, NATO must do its part—particularly in dealing with the great external threats to European security.
NATO’s top priority must be countering the destabilizing activities of Russia. The second major threat is that the problems of the Middle East may spill over into and destabilize Europe. To confront all those very real possibilities, NATO needs to have the capacity and capability to look and act south toward the Middle East.
In short, a strong NATO allows the U.S. to focus more on responding to the global China challenge.
The European Union has a role. In addressing the destabilizing China threat to Europe, the EU is America’s other indispensable partner.
European leaders have seen in the past how China has used its relationships with individual European states to divide and conquer, play one country off against another, and undermine European solidarity to act in its own self-interest.
Further, the EU manages many of the competencies required to restrain Chinese predatory behavior, particularly in the areas of trade, finance, and investment.
Another area where EU-U.S. cooperation is vital is in taking on the challenges in Africa. Some African nations face a diversity of challenges, from human rights and lack of economic freedom to terrorism and environmental and public health issues, complicated by poor governance and public safety.
China’s incursions into Africa have served only to exacerbate all these problems. The Chinese have enabled corruption, employed predatory lending practices, and spread disinformation. The EU could be a partner for tackling many of these challenges together.
International organizations. Joint U.S.-European efforts to bring greater transparency and accountability in international organizations is also important.
For years, the Chinese Communist Party aggressively has attempted to inject staff and leaders into international organizations who are beholden to the Beijing regime. The World Health Organization is an ice shaving on the tip of the iceberg. The U.S. needs partners to tackle this threat.
U.S.-Europe economic recovery. The U.S. and Europe can’t handle China if our economies are not strong and resilient. The economic recovery of the transatlantic community is intertwined.
We need a joint U.S.-European economic recovery program. This program would not consist of traditional foreign aid but instead rely on investment and partnership engaging the private sector.
The United States and Europe need each other more than ever. It is time for leaders on both sides of the Atlantic to invest in strengthening the world’s most important partnership.
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