Sunday, September 13, 2020

Winter Is Coming

We have reached peak economic activity for 2020 and several months past the election. The winter of COVID is coming... 

aka. Extreme Deflation:

Whenever we go to a restaurant, my wife and I sit inside. Why? Because there are more people outside than inside; and I practiced social distancing long before it became fashionable. I'm a trend-setter. 

But does anyone really think that economic activity will increase during the winter lockdown period? 

Not Dr. Fauci:

We know that young people will not be hunkering down this winter, as abstinence is not as good as it sounds. Nevertheless, senior citizens take these warnings very seriously.

I posted this chart below of refinery crude oil demand on Twitter tonight - what it shows is that crude oil demand is collapsing earlier than usual this year. Usually crude declines hard in October, however this year it's already collapsing:

..."refiners restarted crude buying earlier this year in anticipation of a rebound in demand for fuels. This rebound, however, never came to pass, and now refiners—and commodity traders—are stuck with millions of barrels of fuels they can’t sell. What makes things worse is that the latest data on oil demand, particularly from China, is not encouraging at all"

Where this gets interesting as usual is the feedback through U.S. reflation expectations:


From there it gets more interesting, because the entire cyclical reflation trade is what was holding markets up last week. And yet here we see the cyclicals generally track reflation expectations:

Jobless claims remain at apocalyptic levels and have started rising again:

“It is especially concerning that the pace of layoffs has not slowed more materially even though the economy has reopened more fully, and more and more businesses have come back online” 

What it all comes down to is America's exceptional gap between the haves and the have nots:

"The unemployment rate among banks, insurers, Wall Street brokerages and other companies involved in the handling of money was just 4.2% in August"

"By contrast, the unemployment rate for companies involved in travel, hotels, dining out and other forms of leisure and hospitality stood at a stunning 21.3% last month. What’s worse, these jobs tend to pay far less than professional work in fields such as finance and technology"

In summary, "GDP" is about to hunker down for the winter.