Wednesday Briefs – 1 July 2020

A weekly commentary on current events. Follow populyst to receive notification.

This week: Coronavirus in June; Accidental winners; New York City budget.

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Coronavirus in June

June was another month of great progress against the virus, albeit with some fresh concerns in a handful of states. Nationwide in the US, the seven-day average of daily deaths fell from 1,017 on June 1st to 586 on June 30th. On this measure, New York State continued its recovery with deaths dropping from 67 daily to 13. But Arizona, Florida and Texas saw increases from 16 to 35 (AZ), 30 to 39 (FL) and 22 to 29 (TX).

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While concerning, these increases are very modest compared to the big numbers of daily deaths we were seeing just ten weeks ago, with the US and New York at 2,618 and 760 respectively on April 15th.

Assuming a two to three week lag between the surge in cases and the rise in deaths, we would expect deaths to continue rising in these “hotspot” states and a few others for the next month or so. Based on the cases that we are seeing now, each of AZ, FL and TX could see deaths in excess of 100 on several days in July. In theory, the reversal or slowdown in the re-opening of these states should limit this surge however.

Accidental winners

Unexpected events like the pandemic produce unexpected winners and losers in the economy and stock market. Though the S&P 500 is still down for the year, erstwhile ho-hum stories Clorox and Kroger were up 42% and 18% in the first half of the year, while once-cool Shake Shack and Ulta Beauty are down 11% and 19% (and each down over 50% from its 2019 high).

On Main Street too, the divergence is clear, if not in actual sales, in demand for services or products. Most retailers and restaurants are faring poorly. Hair salons and personal grooming were devastated. But bicycle shops and the rare surviving toy stores are seeing strong demand. Much to their dismay, this demand is not necessarily translating into significantly higher revenues given that they have sold their inventories and are having difficulty sourcing product. Finding a bicycle of one’s choice during June was a near impossibility.

Instead of planning a summer vacation, consumers have moved their dollars towards indoor entertainment (electronic or other), bicycles, boats and, if anecdotal information is worth anything (it usually isn’t), horses. As far as we can tell from a quick browse on eBay, there is not yet a pricing mania in Lego or similar products.

New York City budget

Is New York City facing difficult times or will it once again defy the odds and prove to be antifragile (per Naseem Taleb’s terminology)? Betting against the city in recent decades has been a losing proposition, as was the case in the immediate aftermath of 9/11 when real estate activity recovered quickly.

The City relies on real estate taxes for a significant part of its budget and real estate is being pressured from the weakening economy, a scarcity of residential buyers (domestic and foreign), pressures on rents and the decisions of some companies to move out or to reduce floor space.

Ultra-luxury residential was vulnerable before the pandemic because inventory was rising rapidly with the completion of several condominiums on Billionaire’s Row or elsewhere. The pandemic has made things more complicated. Michael Hendrix of the Manhattan Institute relates the following:

The city’s wealthiest neighborhoods lost between a third and half their population since the pandemic hit, and recent unrest has not helped to draw them or the rest of the estimated 420,000 departees back. House hunters are reportedly “swarming” New York City’s outskirts. Roadway Moving reports “insane” demand from residents moving out of New York City, consisting “largely of higher net-worth individuals.”

A few years ago, we expressed doubt on the profitability of some ultra-luxury residential projects (then planned, now nearing completion), in Manhattan Ultra-Luxury ‘Battling the Serpent of Chaos’.

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Why the Market is Rallying

This article first appeared at National Review.

Some sectors have fared better than others. The general market thrust was greatly assisted by the trillions of dollars of stimulus.

A shrewd market participant, and one whom we know as a fine fellow, recently quipped that he would stop researching companies and instead start investing by acting on signals from the cover stories of prominent magazines. He would sell when the cover was exuberantly bullish and buy when it was all doom and gloom.

There is a whimsical theory that by the time the media gets sufficiently excited about a stock or investment theme to place it on a cover, such stock or such theme has already played itself out in the market and is therefore on the verge of reversing itself. The examples abound.

In February 2000, weeks before the beginning of the three-year bear market, a BusinessWeek cover screamed “The Boom”, cheering on the stratospheric dotcom bubble. In June 2013, Barron’s chose to worry on its cover about “Trouble Ahead at Tesla” — but the stock nearly doubled that summer. In September 2009, Fast Company celebrated “Nokia’s Plan to Rule the World,” adding, combatively, a subtitle on its “bold plan to trounce Apple.” Kindness compels us not to dwell on what happened next.

So the financial media is not the best guide to identifying major turning points in the markets, although it can be a useful reverse indicator. Read the rest at National Review >>>

The Pandemic as a ‘Gray Rhino’ Event, with Michele Wucker

“The paradox of the Gray Rhinos is that the further they are down the road, the less likely you are to do something about them. But that is the time when it will cost the least and you are most likely to be successful.” ____ Michele Wucker


Sami J. Karam speaks to best-selling author Michele Wucker about her 2016 book The Gray Rhino and how its method and lessons apply to the coronavirus pandemic. Gray Rhino threats are highly probable, highly impactful but often neglected until it is too late or until the cost of dealing with them becomes very high.

Topics include:

  • 0:00 Introduction of Michele Wucker
  • 1:05 When will we be able to travel to Asia or Europe again?
  • 3:10 Explaining the concept and examples of Gray Rhino events
  • 9:00 Various reactions to the spread of the pandemic
  • 15:50 Was the virus predictable?
  • 19:20 Why should we have been readier for the virus when it is so rare?
  • 22:00 Why we ignore what is “over there”. Did it start “over there” or over here?
  • 25:35 How could we have prepared for the pandemic?
  • 31:00 The current catch-22: deaths by virus vs. deaths of despair
  • 44:10 Stages of a Gray Rhino event applied to the pandemic
  • 50:10 What other Gray Rhino events do you worry about? A triad of Gray Rhinos
  • 55:45 How alarmists help avert deep crises
  • 59:40 Conclusion


(photo of Michele Wucker by Hal Shipman)

Cronyism and its Scapegoats

Cronyism destroys trust and assigns the blame to scapegoats of its own creation.

Only a fiercely committed left or right-winger would fail to recognize that there is today a social and political divide that does not easily fit within the traditional mold of left vs. right. If, loosely speaking, the left leans socialist and the right leans capitalist, there is a third branch, cronyism, that is characterized by the rising power and wealth of rent-seeking industries and individuals. In the past, this branch was dominant mainly in poorer countries with weaker institutions. But today it has also gained significant strength in a number of developed countries, including the United States.

In fact, if the Republican Party has been hijacked by Trumpism, as some allege, then we could say that capitalism has been similarly hijacked by cronyism. In our view, this parallel is nearly seamless, given that the GOP is traditionally pro-capitalism – in words if not always in deeds – and that the incumbent administration is largely populated with captains of rent-seeking industries. Read more

Cronyism Damaged Venezuela before Chavez

Venezuela is bankrupt, having just defaulted on three interest payments. And much of the world is pointing fingers at the socialist policies of Hugo Chavez and those of his successor, the incumbent Nicolás Maduro. This laying of the blame is not wrong but it is incomplete.

The kindest thing you could say about Mr. Chavez is that he was a talented demagogue who brilliantly identified his opportunity and judiciously seized his moment. But, as previously argued by Fred McMahon of the Fraser Institute, Chavez did not start Venezuela’s downward spiral. He was instead one of the final acts in the country’s decades-long devolution from laissez-faire capitalism to cronyism and finally to socialism. Cronies undermined Venezuela’s economy for decades and opened the door to Chavez’s socialism. Read more

A Different Kind of Border Wall

To slow mass migration, stop the illicit capital flight from poor to rich countries.

An asset manager called ____ Capital recently sent out this email seeking referrals:

The US Investor visa program allows one to invest $500,000 U.S. in a government licensed fund for a period of about five years and in around 18 months, a conditional green card is attained for the investor and their immediate family. The investor and their family can live, work and study anywhere in the United States and there are no educational, age or English language requirements.

Most experts report that on September 30th the investment amount will increase from $500k to $1.3m, a significant jump that will price out many potential investors.

There is still time to file before September 30th if you start your process with ____ Capital now.

Others can comment on the practice of selling green cards (and ultimately US citizenships) to wealthy foreigners while millions of other applicants, some of whom would be greater contributors to the United States, continue to wait in line for years. Our concern is one step removed and has to do with the legality of this money. Read more

Capitalism Did Not Win the Cold War

This article first appeared at Foreign Affairs.

Why cronyism was the real victor.

When the Soviet Union collapsed 26 years ago, it was generally agreed that the West had won the Cold War. This was affirmed by the prosperity and possibilities awaiting citizens of Western countries, as opposed to the political and economic stagnation experienced by those in Communist states. A natural conclusion, much repeated at the time, was that capitalism had finally defeated communism.

This sweeping statement was only partially true. If one took capitalism and communism as the only two protagonists in the post–World War II struggle, it was easy to see that the latter had suffered a mortal blow. But there was a third, stealthier protagonist situated between them. This was a system best identified today as cronyism. For if capitalism did win over the other two contenders in 1991, its victory was short-lived. And in the years that have followed, it is cronyism that has captured an ever-increasing share of economic activity. A survey of the distribution of power and money around the world makes it clear: cronyism, not capitalism, has ultimately prevailed. Continue reading at Foreign Affairs >>>

Father of the Bernie Sanders Presidency

President Trump’s elite-managed populism opens a path for a more genuine version.

On the usual political spectrum, there are left and right, people who call themselves progressive or conservative, socialist/social democrat or capitalist. But these labels seem to mean less today than in the past. The Trump phenomenon highlighted another divide that has little to do with the historic left and right. Crudely speaking, we can call it coastal vs. non-coastal, urban vs. rural, ethnically diverse vs. more homogeneous, elitist vs. populist. This at least is the way the dominant media sees it.

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At the same time, the old labels are not completely dead. So if we try to overlay the new on the old and to categorize the Trump following, we could say that some of the old guard conservatives joined forces with the new rural populists. This is a little complicated and barely makes sense given that the former include some of the elites, in other words the very same people who have angered the populists for the past decade. Many people who want lower taxes and free trade and globalization voted for the same person, Donald Trump, as did people who want import tariffs and restrictions on the flows of people, capital and goods. Some of the same people who survived in 2008 thanks to Wall Street bailouts voted for the same candidate as did people who are still seething over the bailouts. Read more