The Market Is Melting Down and People Are Feeling It. ‘My Stomach Is Churning All Day.’

I don't have to take disbursement from my Roth IRA or my 403(b) until I'm 69, which is still a ways off. Hence my funds, with luck, will recover after the economy emerges out of the coming recession.

But folks who had immediate plans? They're fucked.

At WSJ, "Many are watching investments they meant for down payments, tuition or retirement shrink day after day":

The last time Todd Jones heard this kind of panic in his clients’ voices, it was 2008 and the global financial system was on the brink of collapse.

Mr. Jones, the chief investment officer at investment advisory firm Gratus Capital in Atlanta, now finds himself fielding similar calls. Two clients, both retirees, asked him this month to move their portfolios entirely to cash. Mr. Jones persuaded them to stay the course, saying the best way for investors to achieve their goals is to still be in the market when it eventually rebounds.

“Those people were not in a good place,” said Mr. Jones, 43. “They had a lot of anxiety about goals and dreams and being able to live their lifestyles.”

Stocks, bonds and other assets are getting hammered this year as investors wrestle anew with the possibility that the U.S. is headed toward recession. On Friday, the Dow Jones Industrial Average recorded its eighth straight week of declines, its longest such streak since 1932. The S&P 500 flirted with bear-market territory.

Families are watching the investments they meant for down payments or college tuition or retirement shrink, day after day. They’ve seen big retailers like Walmart and Target record their steepest stock drops in decades this week, after earnings that signaled an end to the pandemic spending boom.

The market turmoil has scared corporate chieftains away from taking their companies public. In Silicon Valley, dreams of multibillion-dollar valuations have been replaced by the reality of layoffs and recoiling investors.

Stock prices have been hurt by forces that appear in nearly every cycle, such as rising interest rates and slowing growth. There are also idiosyncratic ones, including the rapid return of inflation after decades at a low ebb, a wobbling Chinese economy and a war in Ukraine that has shocked commodity markets.

The Federal Reserve has raised interest rates twice this year and plans to keep doing so to curb inflation, but that makes investors worry it will slow the economy too fast or by too much.

To investors it can feel there is no safe place. While the vast majority of individual investors are holding steady, that is in part because customary alternatives don’t offer much relief. Bonds, normally a haven when stocks are falling, have also been pummeled. The cryptocurrency market, pitched as a counterweight to traditional stocks, is sinking.

For Michael Hwang, a 23-year-old auditor in San Francisco, the market’s tumble means he could wind up taking out loans to get an M.B.A. He has been hoping to pay his tuition out of pocket when he eventually goes back to school.

For Arthur McCaffrey, an 80-year-old retired research scientist from Boston, it means wondering if he’ll live to see his investments recover.

Rick Rieder, the head of fixed income at giant asset manager BlackRock Inc., likened the state of financial markets to a Category 5 hurricane. The veteran bond trader has been in the business for three decades and said the rapid price swings are unlike anything he has seen...

Keep reading.

 

Emmanuel Saez and Gabriel Zucman, The Triumph of Injustice

At Amazon, Emmanuel Saez and Gabriel Zucman, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay.

A Second Round of Coronavirus Layoffs

Well, I hope I'm not laid off, sheesh.

At WSJ, "A Second Round of Coronavirus Layoffs Has Begun. Few Are Safe":

Layoffs hit people who thought their jobs were secure, including white-collar professionals. “I always felt untouchable.” https://t.co/GRQwhlXgdX via @WSJ

— Catherine Lucey (@catherine_lucey) April 14, 2020

The first people to lose their jobs worked at restaurants, malls, hotels and other places that closed to contain the coronavirus pandemic. Higher skilled work, which often didn’t require personal contact, seemed more secure.

That’s not how it’s turning out.

A second wave of job loss is hitting those who thought they were safe. Businesses that set up employees to work from home are laying them off as sales plummet. Corporate lawyers are seeing jobs dry up. Government workers are being furloughed as state and city budgets are squeezed. And health-care workers not involved in fighting the pandemic are suffering.

The longer shutdowns continue, the bigger this second wave could become, risking a repeat of the deep and prolonged labor downturn that accompanied the 2007-09 recession.

The consensus of 57 economists surveyed this month by The Wall Street Journal is that 14.4 million jobs will be lost in the coming months, and the unemployment rate will rise to a record 13% in June, from a 50-year low of 3.5% in February. Already nearly 17 million Americans have sought unemployment benefits in the past three weeks, dwarfing any period of mass layoffs recorded since World War II.

Gregory Daco, chief U.S. economist of Oxford Economics, projects 27.9 million jobs will be lost, and industries beyond those ordered to close will account for 8 million to 10 million, a level of job destruction on a par with the 2007-09 recession.

Oxford Economics, a U.K.-based forecasting and consulting firm, projects April’s jobs report, which will capture late-March layoffs, will show cuts to 3.4 million business-services workers, including lawyers, architects, consultants and advertising professionals, as well as 1.5 million nonessential health-care workers and 100,000 information workers, including those working in the media and telecommunications.

“The virus shock does not discriminate across sectors as we initially thought,” Mr. Daco said.

Gary Cuozzo, owner of ISG Software Group in Wallingford, Conn., said in recent weeks he’s received only a few hundred dollars in payments from customers, including manufacturers, nonprofits and retailers, for which he hosts websites and builds applications. It’s not enough to pay the $3,000 electric bill for his servers and other equipment, much less pay his own salary.

“Customers who paid like clockwork for 10-plus years are suddenly late,” he said. “I’m burning through all the cash I have.”

Mr. Cuozzo stopped drawing a salary several weeks ago, and has filed for unemployment benefits. He’s essentially volunteering in an effort to keep his business afloat. He can work at home or alone at his business, but that’s of little help. “We have no software projects,” Mr. Cuozzo said. “Everything is on hold.”

Those employed in industries where working from home is feasible are facing widespread layoffs, said ZipRecruiter labor economist Julia Pollak. The recruiting site itself laid off more than 400 of its 1,200 full-time employees at the end of March.

A survey of visitors to the job-search site found 39% employed in business and professional services reported they were laid off, nearly the same rate as respondents in retail and wholesale trade. (Active job seekers are more likely to be laid off than the average American.) Among the respondents who still had jobs, many in white-collar industries said their hours were cut...

Still more.

Element Capital Buys Billions of Dollars of Treasury Securities

Hmm... This is pretty interesting.

At WSJ, "An Obscure Hedge Fund Is Buying Tens of Billions of Dollars of U.S. Treasurys":

A little-known New York hedge fund run by a former Yale University math whiz has been buying tens of billions of dollars of U.S. Treasury debt at recent auctions, drawing attention from the Treasury Department and Wall Street.

Element Capital Management LLC, led by trader Jeffrey Talpins, has been the largest purchaser in dozens of government-bond auctions over the past 10 months, people familiar with the matter said. The buying is part of an apparent effort by the fund to use borrowed money to exploit small inefficiencies in the world’s most liquid securities market, a strategy that is delivering sizable profits, said people close to the matter.

Mr. Talpins is an intense and reserved trader formerly at Citigroup Inc. and Goldman Sachs Group Inc. He is known for a tenacious style that can grate on rivals and once tested the patience of former Federal Reserve Chairman Ben Bernanke.

Element has been the largest bidder in many of the 62 Treasury note and bond auctions between last November and July, these people said. At many recent auctions, some of which involved sales of more than $30 billion of debt, Element purchased about 10% of the issue, these people said. That is an unusually large figure, analysts said.

Element’s activity has raised questions because the cumulative purchases far exceed the hedge fund’s $6 billion in assets under management. Treasury officials, who frequently meet with large auction participants, have asked Element about its activity, said someone close to the matter.

“Their buying is eyebrow-raising,” said a trader who once worked for a firm that deals in government securities and witnessed Element’s bidding. These primary dealers often know the identity of other auction bidders. Element “never shared its strategy, but we often asked,” the trader said.

Treasury likes to know who is buying its bonds and why, partly because it prefers long-term holders such as pension funds, insurance companies and central banks. Treasury officials fear purchases by trading-oriented funds could result in sales that increase market swings and potentially drive up borrowing costs.

“If you’re issuing debt, your preference is those ‘sticky investors,’” said Scott Skyrm, a managing director at Wedbush Securities.

“Consistent with our policy, Treasury does not comment on individual investors in Treasury auctions or conversations with market participants,” a Treasury representative said.

Element is a “macro” fund, or one that wagers on global macroeconomic trends in bond, stock and currency markets. The firm uses a “unique probabilistic approach,” according to a presentation the firm made last year at the University of Pennsylvania’s Wharton School.

Element had been shorting, or betting against, bonds in anticipation of higher interest rates but has been exiting from that wager, according to someone close to the matter. That is one reason the fund has been a big buyer of Treasurys lately.

But people who have worked with the firm or are close to Mr. Talpins said there is another reason: Element is among the last to embrace “bond-auction strategies,” trading maneuvers that have become less popular since the financial crisis.

These trades aim to take advantage of the effects of supply and demand in the $12.8 trillion Treasury market. Demand for these bonds often fluctuates based on factors including investor perceptions of economic growth and market risk, while supply can be affected by regular auctions of different-maturity Treasury securities. A burst of new supply tends to slightly depress prices for short periods, sometimes for less than an hour...

More at the link.

This is so slick it reminds of "Bonfire of the Vanities."

$15.00 Minimum Wage Laws Speed the Arrival of Robots in Restaurants

Anyone with half a brain saw this stuff coming. Businesses will do what they need to do to stay in business. At big corporate chains like McDonald's you'll see increasing use of self-serve kiosks, and then of course robots.

Naturally, these moves will be attacked as "racist," but then everything's racist if it goes against the prevailing ideology of unicorns and rainbows.

At the Washington Post, "Minimum-wage offensive could speed arrival of robot-powered restaurants."

Restaurants race to robots as minimum wages rise http://t.co/A9iTECmWM0

— Washington Post (@washingtonpost) August 17, 2015

Puerto Rico Economy Hammered by High Minimum Wage Laws

Pretty fascinating.

A real case study in how the minimum wage hurts workers, to say nothing of the national (Puerto Rican) economy.

At WSJ, "Puerto Rico’s Pain Is Tied to U.S. Wages":

Change in employment since 2000: Puerto Rico -7% U.S. mainland +11% http://t.co/esa6mjBor4 pic.twitter.com/HNWl76UJtQ

— Nick Timiraos (@NickTimiraos) July 1, 2015

Puerto Rico’s long-simmering debt crisis owes much to an economy that has been shedding jobs for years. And blame for that, economists say, stems in part from how the island operates under the same wage rules as the more prosperous 50 states.

The commonwealth is subject to the federal minimum wage of $7.25 an hour, even though local income and productivity are significantly lower than in Mississippi, the poorest American state. The minimum wage in Puerto Rico is equal to 77% of per capita income, compared with 28% in the U.S. overall.

Roughly one-third of workers earned the minimum wage on the island in 2010, compared with just 16% for the U.S. mainland, according to a 2012 report by the New York Federal Reserve Bank. That report concluded the minimum wage contributed to a lack of jobs for lower-skilled workers, in part because businesses can relocate to lower-wage nearby countries.

These problems are laid bare in a report Puerto Rico’s government released Monday by Anne Krueger, a former top official at the International Monetary Fund. Puerto Rico’s economy, which has been in recession for nine years, has struggled to create jobs and has compensated by offering generous tax breaks to companies and income support to residents.

The upshot is Puerto Rico, with a debt load of more than $72 billion, is running short of cash to repay lenders and keep basic services operating.

The island’s lack of competitiveness can be seen in the scant growth of its low-skill and low-wage industries, such as tourism. The number of hotel beds on the island has changed little from the 1970s, and tourist arrivals are down over the past decade, according to the Krueger report.

“They have all the traits of a welfare state gone wrong,” said Arturo Porzecanski, professor of international economics at American University in Washington, D.C.

The minimum wage is also high relative to average worker productivity. A 2012 World Bank study judged that the ratio of Puerto Rico’s minimum wage to the value added per worker was nearly twice that for the Bahamas and Jamaica, and three times that of the U.S. mainland.

The Krueger report recommends that Congress allow Puerto Rico to set its wage below the federal minimum, which is now allowed for a handful of employers. The New York Fed, in its report, separately advised creating a separate “sub-minimum” wage for workers under the age of 25 that gradually increases to match the federal minimum after several years...

Continue reading.

Noncompetes

I've never heard of this before, although they're banned in California except for limited circumstances. Interesting too. I can see the merits on both sides of the arguments.

At the New York Times, "Noncompete Clauses Increasingly Pop Up in Array of Jobs."

Ben Bernanke Struggled to Boost U.S. Economic Growth

Bernanke's stepping down at the end of the month, and the Fed's supposed to ease off its economic stimulus policies, but we'll see. A report at the New York Times, "Fed Scales Back Stimulus Campaign."

And see the Wall Street Journal, "Meltdown Averted, Bernanke Struggled to Stoke Growth: Fed Chairman Fails to Engineer Robust Recovery, Even With Extraordinary Measures" (via Google):

After a financial crisis he didn't see coming, Ben Bernanke steered the U.S. away from a potentially devastating panic. Yet five years later, the recovery he helped engineer with extraordinary policies remains frustratingly weak.

As Mr. Bernanke prepares for his final days as Federal Reserve chairman, that legacy—a mix of failings, boldness, persistence and frustration—is coming into sharper focus, and with it a clearer picture of the power and limitations of modern central banking.

Fed officials meeting in Washington on Wednesday face another consequential decision: a close call on whether to start winding down their $85 billion-a-month bond-buying program.

At the root of the issue is a long-running debate between Mr. Bernanke and other Fed officials about how much more a central bank can or should do to try to spur an economy that hasn't been wholly responsive to its efforts.

It could be the last big Fed decision before Mr. Bernanke ends his chairmanship next month, eight years after taking the helm in what he expected to be a far-more-placid era.

"I will make continuity with the policies and policy strategies of the Greenspan Fed a top priority," Mr. Bernanke said at his first confirmation hearing in November 2005, citing predecessor Alan Greenspan. He talked broadly of the need to ensure financial stability, but made no mention in his statement of the threat from a housing boom that by then had begun showing signs of cracking.

How would you rate Bernanke's performance? How will history remember him? Weigh in here.
Fans of Mr. Bernanke say history will mark him most as the courageous economic steward who, once crisis struck in 2008 and 2009, flooded the financial system with loans and averted another Great Depression.

"This is like saving you from nuclear war," said Ray Dalio, founder of the giant hedge fund Bridgewater Associates.

Mark Gertler, a New York University economics professor and friend of Mr. Bernanke, said that "like Roosevelt, he was the calming influence, the grown-up in the room, during the darkest days of the economic turmoil."

Before then, however, came calculations that haunt the Fed.

Mr. Bernanke's first steps in office were to continue a succession of small interest-rate increases that some economists say were too late, and too timid, to curb a badly swollen housing bubble.

Mr. Bernanke has disputed that analysis, but acknowledged that the Fed failed to adequately supervise banks before the crisis or to see danger to the broader financial system—mistakes that have since led Congress to revamp Washington's approach to financial supervision.

Early on, Mr. Bernanke embraced only reluctantly the interventionist stance that has come to define his stewardship.

In December 2007, for example, he said he was "quite conflicted" about whether to cut interest rates sharply, according to transcripts of Fed's meetings. That turned out the be the month the recession began. At other times, he talked about wanting to avoid bailing out financial markets, institutions or people.

Timothy Geithner, the former Treasury Secretary and New York Fed president, saw the reserved former professor's worldview change in early January 2008 as financial turmoil deepened and started to bite the economy.

"That's when he decided that the risks were so great and he was going to have to be much more aggressive," Mr. Geithner said. "He kept at it."

It is widely accepted that the landmark policies Mr. Bernanke championed during and after the crisis—rock-bottom interest rates, loans to banks and controversial bond buying—averted an economic calamity. Their failure to spur a vigorous recovery, however, has created perhaps the biggest unanswered question about Mr. Bernanke's legacy.

"I wish I was leaving with the unemployment rate at 5% instead of 7%," he said wistfully during a November discussion with high-school teachers.

The Fed has promised to hold short-term interest rates near zero at least until the unemployment rate, currently 7%, falls to 6.5%. And in an effort to drive long-term rates down, the central bank has accumulated more than $3 trillion in Treasury bonds and mortgage securities.

In the process, it has flooded the U.S. banking system with money, funds available for banks to lend. These cheap-credit policies, in theory, should spur job-creating growth.

There's a fabulous graphic here, "Imperfect Tools, Imperfect Economy." Pay attention to the radical growth and scale of quantitative easing after 2009. The Fed flooded the economy with money, deflating the currency while staving off a collapse in growth. Seriously. Just take a look at the scale of the monetary stimulus. That's gotta be unprecedented.

See that New York Times piece at top for more.