Cumberland Advisors Market Commentary –  Wuhan to Pharaoh & 3 Musical Messages

We especially thank Gary Shilling and Fred Rossi for help with this list.

1. Coronavirus. First officially appeared in Wuhan, China in December 2019. (We now know it was there in November). It spread through China, then elsewhere in Asia, and now throughout the world.

2. MERS (Middle East respiratory syndrome). Originated in Saudi Arabia in 2012 and spread worldwide, most notably to South Korea, but was mainly confined to the Middle East. Close to 450 deaths were reported between 2012 and 2015. South Korea learned from the experience and was prepared for the 2019 novel coronavirus now named SARS-CoV-2.

3. Zika. See Kotok pamphlet: https://www.cumber.com/zika/. Spread of the mosquito-borne Zika virus is still underway. Still no vaccine.

4. West African Ebola virus. Originated in Guinea in 2013 and spread elsewhere in the West African region for three years. Some 11,300 deaths reported in Africa. One died in the US, and a handful of nonfatal cases were reported elsewhere. Some of the medical research used for the coronavirus originated in the work against Ebola.

5. SARS (severe acute respiratory syndrome). First appeared in Guangdong Province in China in November 2002. Spread worldwide within a few months, but by July 2003 WHO declared SARS contained. By then, close to 775 deaths had been reported.

6. Hong Kong flu. Originated in Hong Kong in 1968 and spread worldwide in 1968–1969. Estimated 1 million deaths.

7. Asian flu. Originated in China in 1957 and spread worldwide in 1957–1958. Estimated 2 million deaths.

8. Spanish flu. Said to have originated in wartime France in 1917 and spread worldwide for 3 years. 50 million–100 million deaths. I will skip smallpox, measles, yellow fever, cholera and others.

9. Black plague. Thought to have originated in Central or East Asia, where it traveled along the Silk Road, reaching Crimea by 1343. From there, it was likely carried by fleas living on rats that traveled on all the merchant ships, spreading throughout the Mediterranean and Europe. Peaked in Europe in 1347–1352. Estimated to have killed 30%–60% of Europe’s population and may have reduced world population in the 14th century from about 475 million to 350–375 million. It took 200 years for world population to recover to its previous level.

10. Athens about 2500 years ago. During the Peloponnesian War, the plague hit Athens (documented by Thucydides), and the casualties and costs rendered the Athenian coalition against Sparta so weak as to force a capitulation. The writings of the time indicate that the Athenian plague did not reach Sparta. One must wonder if Spartan social distancing was the first lockdown imposed in recorded history.

11. We recite the ten plagues at a Passover seder. Where did this practice originate? How is it tied to the Last Supper? To Easter? Are the present-day locusts in Africa a reminder of this history?

Now to something else – 3 musical messages.

Here is the link to a YouTube of the members of the Rotterdam Philharmonic playing “Ode to Joy” from Beethoven’s Symphony No. 9 – from home! When I first saw it there were only a few thousand views. Now their effort has been emulated worldwide. Please enjoy again or for the first time if you haven’t seen it. https://www.youtube.com/watch?v=3eXT60rbBVk

Here is a link sent to me by a friend and retired doctor who lives in Washington State and has been watching the events there unfold. As a clue, this music is by Mozart (can you identify it?) – with additional help, as you will see and hear. https://vimeo.com/243312820

Bird Song Opera on Vimeo - Link

Bird Song Opera from ShakeUp music & sound design on Vimeo.

Lastly, “The Weight,” by the Band – performed here by a band whose members are scattered across the globe – is the theme song at Camp Kotok each year. A few of us sing along with the Randy Spencer Band. We offer it to help those readers still with us, to lighten their load. https://www.youtube.com/watch?v=ph1GU1qQ1zQ

 

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Week in Review (Mar 30, 2020 – Apr 03, 2020)

The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team.

Week In Review

These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

CUMBERLAND ADVISORS’ WEEKLY RECAP

As part of Cumberland Advisors’ continuous effort to maintain strong customer relationships, we offer this week’s short video discussing current market conditions and how we are positioning portfolios.

Thank you for joining Cumberland Advisors for this end-of-week update on market conditions, bonds & equities with Matt McAleer and John Mousseau.

We’re in full social distancing mode this week, doing our part to combat COVID-19/Coronavirus.

First up is Matt McAleer with his thoughts on equities.

Next up is John Mousseau and his analysis of the fixed income / bond market.

Both gentlemen shot their own video this week and we expect to build upon this experience and get even better at producing our updates in a distributed fashion for you. Thanks for joining us.

Please reach out to Matt or John with any questions/comments you may have about this video, we always appreciate your calls, comments, and emails.

Watch this week’s update in the player above or at this link: https://youtu.be/7EabFgH8BYw

Have a safe weekend and thank you for joining us at Cumberland Advisors.

-Matt McAleer

Matt enjoys your feedback. You can reach him at:
-Link to Matt’s Email: Matthew.McAleer@Cumber.com
-Link to Matt’s Twitter: https://twitter.com/MattMcAleer4
-Link to Matt’s LinkedIn: https://www.linkedin.com/in/matthew-c-mcaleer/
-Call Matt: (800) 257-7013

Other questions or comments? Email us at info@cumber.com or give us a call at (800) 257-7013.

Contact Matt or any one of our advisors by following this link: https://www.cumber.com/our-people/

 


Cumberland Advisors In The News

Cumberland proposes new cash-flow anticipation note to help issuers fight coronavirus

State and local governments are facing a cash-flow crunch under the present emergency conditions, which limit or eliminate many reveue streams. Cumberland argues that this type of short-term security would help alleviate the problem and let municipalities recover more quickly once the danger had passed and things return to normal.

Full story at The Bond Buyer (paywall): https://www.bondbuyer.com/news/cumberland-proposes-new-cash-flow-anticipation-note-to-help-issuers-fight-coronavirus

More News About Cumberland Advisors Here: https://www.cumber.com/news


Cumberland Advisors Market Commentary

Cumberland Advisors Market Commentary offers insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies. Our readers appreciate its timeliness, depth of analysis, and quality of research.

To read current and past commentaries, visit www.cumber.com/category/market-commentary/


The War in Europe

Author: William Witherell, Ph.D., Post Date: April 3, 2020

The War in Europe During the first quarter of 2020, Europe once again found itself to be in the center of a global war, this time against an invisible, very deadly enemy, the virus SARS-CoV-2, which causes COVID-19. At the end of the quarter, on March 31, the 19 countries of the Eurozone had 359,296 confirmed cases of the [Continued…]

China’s Healthcare & Economy in the Aftermath of COVID-19

Author: David R. Kotok, Post Date: April 2, 2020

China’s Healthcare & Economy in the Aftermath of COVID-19 Dear Readers, While the United States and much of the world outside of Asia is still trying to “flatten the curve” in response to the coronavirus pandemic, China is posturing itself for a quick comeback. Can we believe their numbers and agree that their virus-response methodology was effective? USA Today along with Andy Mok, a [Continued…]

A Proposal for the Coronavirus Anticipation Note (CAN)

Author: David R. Kotok & John R. Mousseau, Post Date: April 1, 2020

A Proposal for the Corona Anticipation Note (CAN) John Mousseau and I have combined our professional experience with our views of the municipal finance market. With the help of our Cumberland staff, we want to offer a format for immediate assistance designed to address urgent state and local government financing problems. This proposal is only a framework. There are many skilled professionals who [Continued…]

One Less Worry?

Author: Robert Eisenbeis, Ph.D., Post Date: March 31, 2020

Cumberland Advisors Market Commentary - One Less Worry (Eisenbeis) It is tempting to focus on the here and now, especially when we are worrying about the economic fallout from the coronavirus pandemic and its impact on the nation. We are withdrawing from social contact and are concerned about all sources of risks. We have seen reports of people sanitizing cash as one way of [Continued…]

Cumberland Advisors Guest Commentary – Maybe the World is not Ending!

Author: Michael Drury, Post Date: March 30, 2020

Michael-Drury-McVean-Trading-Header Dear Readers: Mike Drury is past chair of the Global Interdependence Center, a skilled economist and a personal friend. He is not in the “world is coming to the end” camp. He has given me permission to run his entire weekend piece. Enjoy! -David Kotok Will second quarter NOMINAL GDP be positive? (Yes, that is [Continued…]

The Ringling Bridge

Author: David R. Kotok, Post Date: March 29, 2020

Dear Readers, In Sarasota, when twilight comes to Sarasota Bay, the lighting under the Ringling Bridge is usually rotating and alternating colors. The light used to be too bright, and the glare invaded the night sky. But now, and after enough complaints from locals, the powers that decide these things adopted a less glaring and [Continued…]

Why States Are Not Going to Default from the Coronavirus Fallout

Author: Patricia Healy, CFA, Post Date: March 27, 2020

Market Commentary - Cumberland Advisors - Why States Are Not Going to Default from the Coronavirus Fallout In our opinion this is a short-term shock, although it will likely change some behaviors for the long term that will need to be monitored. The initial concern is liquidity, not just in the bond market but also at the state level, where tax payment dates have been extended and economically sensitive revenues such as [Continued…]

 

The Muni Meltdown Timeline (and the Opportunity It Presents)

Author: John R. Mousseau, CFA, Post Date: March 26, 2020 CA-Market-Commentary-The Muni Meltdown Timeline (and the Opportunity It Presents) The Municipal Bond Market has suffered one of the most dramatic back-offs it has ever seen; and it was accomplished in about nine business days. The rise in yields has been dramatic and fierce and had lots of elements to it. This is a quick synopsis of some of the muni meltdown. As of Monday [Continued…]

The CDC Foundation

Author: David R. Kotok, Post Date: March 23, 2020

CDC Foundation Dr Judy Monroe & David Kotok Dear readers. The CDC Foundation is not widely known. It’s a 501(c)3 that was created by Congress as a special charitable agency. The Foundation works right alongside the CDC and other national health agencies but is an independent charity. It has a special-purpose charter. Its purpose is to respond rapidly to threats like COVID-19 or [Continued…]

 

Cumberland Advisors Guest Commentary – Is There A COVID-19 Signal in Climate Data & Is It Potential Good News for Florida?

Author: Bob Bunting, Post Date: March 20, 2020

Is There A COVID-19 Signal in Climate Data & Is It Potential Good News for Florida - Bunting Our colleague Bob Bunting, meteorologist, professor, and former executive at both the National Oceanic and Atmospheric Administration (NOAA) and the National Center for Atmospheric Research (NCAR), is CEO of the Climate Adaptation Center (CAC) here in Sarasota, Florida. Bob has contributed several guest commentaries to Cumberland in recent years, including “It’s Hot and Getting Hotter [Continued…]


Cumberland Advisors - Camp Kotok China Panel DiscussionNo lectern, no PowerPoint. The China Panel is public and in the public domain. The press and public are free to use the video footage and quote the speakers across social media and elsewhere.

The August 2019 China panel held at Camp Kotok packed an extraordinary amount of valuable information into a half hour and is well worth the time you’ll spend to view it: https://youtu.be/Sff0AGPrIJQ

This Camp Kotok talk session features panelists Michael Drury (Chief Economist for McVean Trading & Investments, LLC.), Jonathan D. T. Ward (Founder of Atlas Organization), & Leland Miller (CEO China Beige Book), all offering their take on U.S.-China relations. The panel and audience Q&A are guided by moderator, Lisa McIntire Shaw. <More…>


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentary – The War in Europe

During the first quarter of 2020, Europe once again found itself to be in the center of a global war, this time against an invisible, very deadly enemy, the virus SARS-CoV-2, which causes COVID-19.

The War in Europe

At the end of the quarter, on March 31, the 19 countries of the Eurozone had 359,296 confirmed cases of the virus and 26,612 deaths. Adding the remaining 8 member countries of the European Union that do not use the euro as their currency and the United Kingdom, which is in a transition period of leaving the EU, the numbers become 389,151 confirmed cases and 28,267 deaths. These compare with 164,359 confirmed cases and 3,173 deaths in the United States as of March 31. In other words, the EU registered more than double the confirmed cases in the United States by month’s end and about 9 times as many deaths. All countries in Europe are engaged in the battle to varying degrees. Italy and Spain have been hit the hardest. There are some indications that the virus situation in Italy is beginning to stabilize, with contagion appearing to have reached a plateau. The war is still raging in Spain, but the rate of increase in deaths may be slowing.

Governments, after an unfortunate delay, have moved to contain the virus with social distancing, travel restrictions, and lockdowns of increasing severity. Currently, most nonessential businesses as well as schools are closed or operating remotely, and citizens are expected to remain at home except for essential reasons such as to purchase food. A combination of severe supply and demand shocks resulting from both the disease and required countermeasures has led to a sudden recession, the depth and duration of which is impossible to determine at present. It is a service sector-led recession, with the travel and tourism industries being crushed. Keep in mind that services account for over 76% of the gross domestic product of the Eurozone. The just-released final IHS Markit Manufacturing PMI for the Eurozone for March indicates output, new orders, and purchasing in the manufacturing sector all fell sharply. Earlier-released flash data for services showed even steeper declines. Company closures, lockdowns, and rising unemployment are all contributing to the downturn, which promises to worsen in the current quarter.

As is happening in the United States, European governments individually and collectively through the European Union are moving rapidly to provide unprecedented stimulus to the economies and support to affected enterprises and individuals. Tax moratoriums, payment extensions on social charges, loans and loan guarantees, and wage subsidies, along with greatly increased health expenditures, have been announced by governments, with promises of further action (“whatever it takes”). Even Germany, known for the severity of its fiscal restraint in recent years, is abandoning that stance and borrowing 356 billion euros, equal to nearly 10% of gross domestic product, in order to finance its programs to counter the economic effects of the virus. Bruno Le Maire, French finance minister, has indicated that France intends to protect important companies by recapitalizing them and went so far as to say, “I could even use the word nationalization if necessary.”

Collectively through the EU, the European Stability Mechanism, the EU’s economic rescue fund, looks likely to be activated in the coming weeks, and that will provide funds up to another 2% of GDP stimulus from governments and 0.6% of GDP from the European Commission. Furthermore, the European Investment Bank proposes to provide guarantees of up to 200 billion € (About 1.5% of GDP). These measures provide a lot of firepower, and even more may be coming, including an 80- to 100-billion-euro pan-European unemployment reinsurance scheme to help countries faced with rapidly expanding jobless claims.

The European Central Bank has also rapidly ramped up its stimulus actions, including a new Pandemic Emergency Purchase Programme of up to 750 billion euros until the end of this year. This amount is addition to the 120-billion-euro extra purchases announced on March 12. Together these programs will be equal to 7.3% of the Eurozone’s GDP. Most previous restrictions on purchases have been dropped in order to give the ECB needed flexibility across time, asset classes, and jurisdictions. ECP President Christine Lagarde has emphasized, “We are fully prepared to increase the size of our asset-purchase programmes and adjust their composition by as much as necessary and for as long as needed.” She added that the ECB is making available “up to 3 trillion euros in liquidity through our refinancing operations.”

Eurozone equity markets tumbled during the quarter and ended with the iShares MSCI Eurozone ETF, EZU, losing 27.2 % year-to-date as of March 31 on a total-return basis. With fiscal and monetary policy fire hoses turned on full blast, the stage is being set for a potential upturn once the virus threat recedes and investors begin to see some light at the end of the tunnel.

Neither the author nor Cumberland Advisors currently hold the above-mentioned ETF EZU in their portfolios.
Bill Witherell, Ph.D.
Chief Global Economist & Portfolio Manager
Email | Bio


Sources: Financial Times, ETF.com, Action Economics, HIS Markit, Barclays


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Market Commentary – China’s Healthcare & Economy in the Aftermath of COVID-19

Dear Readers,

While the United States and much of the world outside of Asia is still trying to “flatten the curve” in response to the coronavirus pandemic, China is posturing itself for a quick comeback. Can we believe their numbers and agree that their virus-response methodology was effective?

USA Today along with Andy Mok, a fellow at the Center for China and Globalization (a public policy think tank based in Beijing), assert “that even in Beijing, about 750 miles north of Wuhan, coronavirus rules were established requiring residents to have a formal pass to get in and out of their apartment buildings and homes. At the outbreak’s height in Wuhan, nobody was allowed in or out of the city, and access to food stores was limited to once every few days.” (https://www.usatoday.com/story/news/world/2020/04/01/coronavirus-covid-19-china-radical-measures-lockdowns-mass-quarantines/2938374001/)

USA Today goes on to say, “Video footage published by the Australian Broadcasting Corp., the country’s state-funded broadcaster, showed Chinese authorities in Wuhan welding doors to entire apartment buildings shut – with residents inside – to enforce quarantines. The footage, collected from Chinese social media users, could not be independently verified by USA TODAY.

“Mok questioned whether Americans, raised on a diet of individualism and civil liberties that has informed every aspect of life from travel to economic institutions, would be willing to abide by invasive virus detection and containment methods that require a strong commitment to ‘collectivism’ and abridged freedoms.”

We wrote previously that the world needs strategies to choreograph both the physical distancing measures designed to reduce transmission and the vital work of keeping critical production and services going. An antibody test for COVID-19 (see Gretchen Vogel’s article, “New blood tests for antibodies could show true scale of coronavirus pandemic,” https://www.sciencemag.org/news/2020/03/new-blood-tests-antibodies-could-show-true-scale-coronavirus-pandemic) is still a crucial component that can help us to find balance in our response.

Earlier this week, we re-published the McVean Weekly Economic Update by Michael Drury (https://www.cumber.com/cumberland-advisors-guest-commentary-maybe-the-world-is-not-ending/) and we’d like to follow up and extend his invitation to an executive briefing organized by the Global Interdependence Center (GIC) called, “China’s Healthcare & Economy in the Aftermath of COVID-19”.

Are there lessons in the Chinese response hidden between their state-supplied figures and rigorously controlled press that we can adopt to accelerate our own recovery? Time will tell. Along with more trustworthy observations.

The GIC webinar streamed on, April 2, 2020. It featured friend and colleague Michael Drury. He’s McVean Trading’s Chief Economist, and he discussed the economic recovery in China through his lens of experience that includes extensive travel within China. Joining him was Mei Mei Hu, CEO of United Neuroscience, who discussed COVID-19 testing, vaccine developments, and insights from her firm’s fight against the COVID-19 battle earlier in the year.

The briefing is now prerecorded and free at this link: https://www.interdependence.org/events/chinas-healthcare-economy-in-the-aftermath-of-covid-19/
China’s Healthcare & Economy in the Aftermath of COVID-19

This was the second in the series of executive briefings by GIC. The first was “Analyzing Pandemics: Economic & Policy Impacts,” and it’s also available on demand at GIC’s website (https://www.interdependence.org/events/analyzing-pandemics-economic-and-policy-impacts-series-gic-virtual-event/).  It features Jeffrey Gold, MD, Chancellor of the University of Nebraska Medical Center, one of our nation’s top facilities on infectious disease, which handled early cases of Ebola and COVID-19. We found his talk to be highly informative.

At Cumberland, we venerate those who advocate for free speech and those who try to hold their governments accountable throughout this pandemic and we have special admiration for the hundreds of thousands of nurses and doctors who risk – and sometimes lose – their lives to care for the afflicted. Please be safe.

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio

 




Cumberland Advisors Market Commentary – A Proposal for the Coronavirus Anticipation Note (CAN)

John Mousseau and I have combined our professional experience with our views of the municipal finance market. With the help of our Cumberland staff, we want to offer a format for immediate assistance designed to address urgent state and local government financing problems. This proposal is only a framework. There are many skilled professionals who can quickly weigh in with ideas; and, ultimately, a final version of our proposed instrument will have to be crafted and brought to fruition at the federal level, combining the US Treasury, the Federal Reserve, and the Congress (maybe?) if the CARES Act doesn’t have enough authority.

A Proposal for the Corona Anticipation Note (CAN)

Here is the basic issue. Under these present emergency conditions, the nearly 90,000 separate municipal identities in the United States are experiencing deferred or permanently lost cash flow. Examples: Tax collections fall or cease. Revenues for services fall or cease. Use and sales taxes, various fees, and all associated sources of revenues decrease suddenly or cease for an unknown period of time. What can these diverse entities do to avoid reducing their important governmental functions and furloughing their labor forces, and to continue to provide essential services?

We propose the creation of a coronavirus cash-flow deficiency anticipation note. Let’s call it the Coronavirus Anticipation Note, or CAN, for short. We would model the CAN after other types of anticipation notes. That way, the system does not have to “discover a new wheel.” We are already used to tax anticipation notes (TAN), bond anticipation notes (BAN), revenue anticipation notes (RAN), tax increment financing (TIF), and various other types of financing instruments which raise money now and then get repaid after an event is completed or a project is fulfilled or some other target goal is met.

CAN needs a federal backup and a rapid issuance method, either through a national pooled vehicle or a state-by-state pooled vehicle. Because of diverse state taxation rules, we believe that the state-by-state method is probably more suitable. The federal government can backstop the state with a US Treasury guarantee. The guarantee can be pooled. The states can determine allocation to cities and counties and to local or state agencies. Most states have such allocation mechanisms already in place for their various budgets and services. The CANs would have state income tax exemption in the state where they are issued, in addition to being exempt from federal taxes.

Think of the national CAN pool in a form such that the Federal Reserve can add CAN pool notes to the assets on its balance sheet. The Treasury backstop transfers the default risk to the US Treasury, and the states can direct their CAN usage internally, since each state has a better handle on where the cash flow deficiencies reveal themselves. The Treasury already has a municipal information arm in place with the Municipal Issuers Oversight Unit, which was formed in 2014.

Municipal entities are transparent and have audits and usually adopt their budgets in a public meeting. The databases for these entities already exist in regulatory filings of various types, such as MSRB and EMMA.

The idea is to provide a bridge loan to a municipal entity to cover the shortfall in its cash flow during the crisis period. The entity can issue CANs to fill the gap. The states can pool them, as they usually do now with the various forms of pooled vehicles that already exist in the states.

When we get to the other side of this crisis, the CANs can be repaid from revenues, or they can be “termed out” into longer-term bonds with easy amortization. The municipal market is quite capable of handling this process in the normal course of business.

CANs can be the gap funding mechanism for what may be one or two quarters or one or two years. The timing for launching CAN is important, as those municipal entities are now seeing revenues shrinking every day. One final note. CANs must not be used to make up pension funding gaps or for other longer-term solutions for preexisting structural problems. The purpose of CAN financing is to raise the cash to bridge the coronavirus chasm and its funding gap. Keep it focused and not diluted or diverted to other purposes. There will be infrastructure program proposals for other types of long-term project financing.

We propose that CANs be discussed and developed as a manageable and timely tool for states and municipalities that must now weather both COVID-19 and its impacts on cash flow.

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio

and

John R. Mousseau, CFA
President, Chief Executive Officer & Director of Fixed Income
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentary – One Less Worry?

It is tempting to focus on the here and now, especially when we are worrying about the economic fallout from the coronavirus pandemic and its impact on the nation. We are withdrawing from social contact and are concerned about all sources of risks. We have seen reports of people sanitizing cash as one way of protecting against the transmission of the virus, and we have all experienced expanded use of electronic payments via cell phones, credit cards, and even no-signature requirements as a way of avoiding touching touchscreens at all point-of-sale terminals.

Cumberland Advisors Market Commentary - One Less Worry (Eisenbeis)

The fact is that we are moving closer to being a cashless society; and that may be, at least here in the US, one of the side effects of 9/11 and the growth of technology. When 9/11 occurred, the Fed was forced to arrange trucks to transfer checks across the country since its private fleet of airplanes that physically transported paper checks from place to place could not fly. In response to that experience, both the Fed and the private sector made changes to how transactions were cleared and settled and installed robust backup processes.

As a consequence of those changes, technology may be an important and underappreciated source of resilience for our financial system, mitigating some of the possible costs of the financial crisis. On CNN just recently there was an interview of an expert and her response to the NY governor’s claim that a lockdown of New York would cause economic disaster to the US economy. She made the point that financial markets are now essentially electronic and that we have already operated a week with the floor of the NY Stock Exchange closed. The exchange floor is basically a TV set at this point, and is not critical to the functioning of equity markets.

The same is true of all the actions that the Federal Reserve has taken to support financial markets. The Treasury market is electronic; the repo market is electronic; the federal funds market is electronic, as are the SWIFT international foreign exchange market, the large dollar transfer system, the credit card system, and the ACH funds transfer system among financial institutions, just to name a few.

As far as retail payments are concerned, prior to 9/11, checks and check clearing was so important that the Federal Reserve had 56 facilities across the country involved in the physical transfer of paper checks. Now it has only one office involved in that activity. The reason is that check images are now captured electronically and are truncated at the point of sale. Much of this shift was the logical fallout of the changes in the payment system that resulted from 9/11.

Why is this important today? Well, we can continue to go to the store and use credit cards, phones, and the like (electronics) to make purchases with greatly reduced risk of picking up the coronavirus or transferring it to others. While this convenience may not seem like a big deal, transferring money electronically certainly reduces risk in this time of crisis and is one less thing to worry about.

At Cumberland Advisors we have been working remotely for more than a week with full functionality, using technology and implementing emergency preparedness procedures that we had developed for exactly such a crisis.

Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Fed Outstanding Repo Transactions March 2020

Fed Outstanding Repo Transactions March 3 – March 31

Eisenbeis Chart - Fed Outstanding Repo Transactions March 2020 Overnight & Term Repos ($Billions)

Fed repo transactions have been declining is volume both in terms of outstanding credit being supplied as well as in take-downs of the daily offerings.  Today no one-day credit was applied for and only $250 million of the $45 billion 13 day-offering was taken down.  Most interesting is of the five the widely touted $500 billion 84-day and $500 billion 28  day offerings that have been put forward so far, which could have injected $2.5 trillion of liquidity into financial markets, only a total of $150 billion has been taken and none was taken of the $500 billion 28-day offering on March 27th.

This pattern suggests there the so-called liquidity squeeze in the repo market was a concern at the time but not a reality in fact and may be overblown.

Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
Email | Bio




Cumberland Advisors Guest Commentary – Maybe the World is not Ending!

Dear Readers: Mike Drury is past chair of the Global Interdependence Center, a skilled economist and a personal friend. He is not in the “world is coming to the end” camp. He has given me permission to run his entire weekend piece. Enjoy! -David Kotok


Michael-Drury-McVean-Trading-Header
Will second quarter NOMINAL GDP be positive? (Yes, that is all in bold and caps to get your attention.) There has been a wave of dire economic forecasts on real GDP, ranging from -15% to -25% for the second quarter. These are annualized numbers. They mean that volume (inflation adjusted) output will be down -3% to -5% in Q2, and then you raise that change to the fourth power (or multiply by four to estimate) and bam you have a terrible number. However, the cavalry has already been called and a massive money drop of 11% of GDP has already been planned – with the vast majority of that money coming in the second quarter. Will normal spending fall by more than -10% due to the virus? If not, it is possible that Q2 nominal GDP could be positive, as the money drop offsets the virus effects on income — but not production. The result may be a hefty rate of inflation, as hopefully sustained incomes chase far fewer goods. Will a lot of this initial surge in payments be saved? Maybe, but even if real GDP falls -5%, the money drop would allow for a 50% savings rate and still keep nominal GDP in the green. For most, this money drop is to replace normal income needed to pay current bills, not a windfall. We expect savings will be limited.

For the man in the street, the issue is income – and this $2.2 trillion bill attempts to short circuit any reduction in wages and salaries. First, Treasury will provide every adult with an income under $75,000 a one-time payment of $1,200 – regardless of current work status (smaller amounts phasing out for up to $99,000 in income, double those amounts for joint filers and $500 per child). Second, those unemployed (new and existing) will receive normal benefits, plus an additional $600 per week for up to four months. Eligibility rules are relaxed to include self-employed contract and gig workers and the benefit period was extended to 39 weeks from 26. Third, small businesses with less than 500 employees can get loans up to $10 million, with any proceeds used to cover payroll becoming a grant. Will employers’ wage offers have to compete with the elevated unemployment payments to retain workers? In some cases, but workers will also have to make decisions based on short- and longer-term self-interests — in a world of great future uncertainty. Bottom line, we expect much of potentially lost income will be replaced, maintaining stability for much of the economy (think rents, routine monthly payments, medical coverage), though clearly the brunt of the correction will still fall on discretionary spending, like restaurants, travel and big-ticket items, and on the associated manufacturers. These firms will receive most of the $1.1 trillion in business support loans and payments in the bill.

This economic episode is like nothing ever experienced here or anywhere else. Over three million workers applied for unemployment benefits this week – over four times the previous single week record back in 1982. In the entire 2007-2010 period, continuing claims rose 4.2 million. We should reach that number next week. For most of these workers, they will earn more in the next quarter than they would have if employed! However, another 1.4 million typically young seasonal workers would normally be hired over the next four months, and this is unlikely to happen. They likely do not qualify for benefits. Thus, the monthly seasonally adjusted payroll employment numbers will drop by far more than just the increase in claims. If the surge in joblessness is perceived as brief, most will not exit the labor force, so the unemployment rate could quickly spike to 10%. Bottom line, if the economy remains uncertain, we expect even more money will arrive from Washington. In for a penny, in for a pound. We started the stimulus negotiations at $800 billion just last week, and ratcheted up — with a cool 1% of GDP being tacked on at the last-minute Wednesday night to reach $2.2 trillion! Speaker Pelosi is already talking about the next bill.

The next significant decision is when quarantines will be lifted, so that at least part of the economy can return to normal. One marker will be the President’s comments – as he clearly is the most optimistic voice of authority. His call for some to re-open next Monday at the end of the initial 15-day study period was quickly kyboshed, and now has been replaced with the hope of a new resurrection on Easter. How biblical – after all, the disease ravaged China for forty days after they shut down Wuhan just before New Year’s Day. However, even that schedule suggests that the end of April is a more realistic early date for the US, given our shutdown started mid-March. Depending on whether the money has arrived, many households and institutions will be facing their second rent or mortgage payment and the pressure will be building for a return to normal. If the US follows the Chinese and Korean experience (where the virus appears under control), by then the number of active cases should have peaked, with daily resolved cases more than matching new illnesses. Europe should have peaked somewhat earlier – starting with Italy — though they may take longer to reopen given the, so far, much greater severity of the disease on that continent. Finally, if warmer weather has any impact on the virus, that, combined with a needed relief from cabin fever, may lead to a shift in sentiment. We are still in relatively early days, but hope springs eternal – especially in the Spring.

Michael-Drury-Increase-In-COVID19-Deaths-Chart

The money drop is a social and economic experiment of almost unprecedented scale. It echoes the Chinese stimulus in early 2009, when they injected 4 trillion yuan into what was then a 33.6 trillion-yuan economy, over 12% of GDP. While the rest of the world collapsed, China experienced a single quarter of negative nominal growth (they never reported negative real GDP, but you know…) before returning to 12% real growth (16% nominal) over the next year – roughly their reported running rate before the Great Financial Crisis. For a centrally planned economy running at over 15% nominal growth, that money drop was effectively just front loading a year of planned spending. For a democratic capitalism growing at 4% nominal – with huge deficits already and a massively underfunded retirement era rapidly approaching – spending 11% of GDP is a bit different. In contrast to the Great Depression, when a lack of income and liquidity ground the economy to an extremely painful halt, we are now going to attempt to protect everyone’s income, arguing that no one was at fault (as opposed to in earlier recessions) and hoping the economy can quickly return to is recent robust health as soon as the disease passes. As we have noted before, the nation’s – indeed the world’s — physical and human capital is largely intact, for now, so a rapid recovery is possible.

In our view, the advent of COVID-19 is a 9/11 or Pearl Harbor moment. It draws a sharp line between the peaceful world that existed before (even if there were Cassandra’s that saw it coming) and the massive change and innovation that followed. Pearl Harbor was not the first military event of WW2, nor was 9/11 the first terrorist attack – even in the US. However, both were horrific wake-up calls that the world had significantly changed, and that every business and household would have to adjust. COVID-19 is not the first infectious disease scare of even just this millennium. SARS, MERS, Ebola, Zika, and H1N1 all vied for the title of Disease X, which the WTO had warned us was a coming raging pandemic that would spread through the open globalized fabric of our economies. Pearl Harbor awoke a sleeping giant, unleashing unrivalled manufacturing prowess – and elevated military spending all the way to Vietnam. 9/11 resulted in TSA and trillions of dollars spent on wars in the Middle East to ensure domestic security. Both led to the building of global alliances and shattered periods of regionalism for the US economy – the recovery from the Great Depression, and the ‘90s of the Nikkei Crisis/Asian Crisis/Y2K. Globalism has been in decline since the Great Financial Crisis. Will this virus rally the world to fight together — or will it exacerbate the building of walls?

We should learn a lot about how integrated the global economy is — and will be — quickly. When the trade war started, US firms were faced with how to deal with tariffs. One answer was to leave China, another option was to move deeper in where labor was cheaper. Then came the virus, and many started to think about abandoning China altogether. Now, China is first to recovery – and its stimulus is advantaging those who stayed, while those now in Vietnam, Bangladesh and elsewhere get far less government aid. As recently as September, President Trump was threatening higher tariffs, then new tariffs were waived as past of the Phase One negotiations. Now there are discussions about rolling them back as many small businesses depend on Chinese inputs and the higher prices are an additional burden in an already trying period. Obviously not all agree, as some had begun adjusting to the new tariff world. Where we end up may depend on how quickly the virus is tamed – or not – and if it is likely to return seasonally, like flu. Bottom line, uncertainty reigns and firms will not undertake risk until they have a far clearer path for a foreseeable future. President Trump and Xi were speaking this week, hopefully finding common ground.

How bad might the virus hit our economy? Recent PMI’s indicate that the manufacturing side of the world economy fell into a normal recession in the past month – running around 45. On the service side, which normally holds up better, PMIs collapsed deeply into the 30s. Data from We Bank in China indicates that their economy bottomed at 50% below its normal for four weeks and then recovered over the next five weeks (averaging 25% below normal). That suggests that China lost 3.25 weeks of production during the first quarter or -25%! Annualize that and you get -68%. However, if you return to 100% in the third quarter, you are up by 33% — or 213% annualized!! More simply, if they lose 25% of one quarter and return to normal for the rest of the year, they would be down 6.25% from a supposed roughly 6% growth rate – or basically flat. To us, that’s a victory – and it might be even better with stimulus.

What kind of stimulus is important – and China has a bunch of shovel ready projects (it’s a planned economy), mostly focused on rolling out the 5G network. China Unicom, China Telecom, and China Mobile are all ramping up investment. China looks to have its entire population converted to 5G by 2025. That implies a whole new level of bandwidth and connectivity – and the foundation for a wave of innovation. The Congress is contemplating an infrastructure bill as part of the next stimulus. Let us hope we are not going to be rebuilding aging bridges, roadways and transportation systems in a world that has just learned that work from home and home schooling is the future.

We do see a world of innovation in the aftermath of the virus. The shift to online retail consumption and delivery has advanced significantly as many brick and mortar operations are closed – and many will remain so. The same is true of office space, where firms will certainly re-evaluate the importance of having everyone in one place – especially in densely populated areas where rents are highest. Office space’s future may look like retail real estate now. Will workers get to write off half their rent (or will firms pay it) if they work from home? There are huge tax implications ahead. Schools are also likely to see substantial changes. Some will make up the time recently lost. Others will not. Summer school, online schools, testing, grades and graduation are all likely to face innovations. And changes may be coming to higher education as well, as its dependence on foreign students faces an uncertain future.

The virus has opened our eyes. The world will never be the same. Was the US more concerned about the virus impact on China or Europe? That tells us a lot about where economic integration is the strongest. Which nations are best placed to fight future potential pandemics? Does it take authoritarianism – or just scale and a central authority? Will future trade blocs be stronger or weaker? Is China allying with Europe, and isolating the US? A lack of savings and too much leverage was a big reason for this massive US stimulus. How will incentives change to limit a repeat? Will weaker firms ever be able to borrow after this? If a borrower came to you needing funds after this massive a money drop, would you lend to them? At what premium? Are higher inflation expectations and interest rates a sure thing? How will P/E ratios react? If inflation is back, will commodities and real estate outperform equities? Will consumers demand lower prices, while labor asks for a growing share of the pie, as households seek to build precautionary balances? Who will gain a growing share of the economy? We doubt we are returning to the pre-virus order. There is plenty of fodder here for future McVean Weekly Economic Updates.

All readers are invited to go to www.interdependence.org to register for a free webinar on April 2 @ 4 PM EST, featuring McVean Trading’s Chief Economist, Michael Drury, discussing the economic recovery in China, and Mei Mei Hu, CEO of United Neuroscience, who will discuss COVID-19 testing and vaccine developments and share insights from her firm’s fight against the COVID-19 battle earlier in the year. This is the second in the series of executive briefings — Analyzing Pandemics: Economic & Policy Impacts. A replay of the first webinar is available, featuring Jeffrey Gold, MD, Chancellor of the University of Nebraska Medical Center, one of our nation’s top facilities on infectious disease, which handled early cases of Ebola and COVID-19.

GIC COVID-19 Briefing

 


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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Market Commentary –  The Ringling Bridge

Dear Readers,

In Sarasota, when twilight comes to Sarasota Bay, the lighting under the Ringling Bridge is usually rotating and alternating colors. The light used to be too bright, and the glare invaded the night sky. But now, and after enough complaints from locals, the powers that decide these things adopted a less glaring and more thoughtful policy.

From time to time they alter the lighting. It looks like this when we celebrate the Fourth of July.

Now, in this time of national apprehension, they have decided to relight the patriotic colors of our nation under the bridge. We share that with our readers around the world.

We contemplate these colors as our country is engaged in a war with a microscopic enemy. We are in the thick of a global fight. Even those who deny the fight are succumbing to it.  Another victim died in a Sarasota region hospital this week.

The enemy lurks invisibly and dangerously as we race to discover its mysterious ways. Once discovered, our national enterprise will subdue this enemy.  So, to be safe, we have to treat every aspect of our lives as though we we’re on a wartime footing.

Please be safe and careful.

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio

 

 




Cumberland Advisors Week in Review (Mar 23, 2020 – Mar 27, 2020)

The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team.

Week In Review

These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

CUMBERLAND ADVISORS’ WEEKLY RECAP

As part of Cumberland Advisors’ continuous effort to maintain strong customer relationships, we offer this week’s short video discussing current market conditions and how we are positioning portfolios.

 

Thank you for joining Cumberland Advisors for this end-of-week update on market conditions, bonds & equities with Matt McAleer and John Mousseau.
First up: Matt McAleer, Cumberland Advisors’ Director of Equity Strategies. I’ll give you a view of what happened in the stock market this week and what I think might be on the horizon. Keep in mind, there are no fixed scripts for the market.
Next up is John Mousseau, Cumberland Advisors’ CEO & Director of Fixed Income. Quite a week in the bond market. John also wrote a commentary this week, titled, “The Muni Meltdown Timeline (and the Opportunity It Presents).” If you haven’t read it already, here’s the link: https://www.cumber.com/cumberland-advisors-market-commentary-the-muni-meltdown-timeline-and-the-opportunity-it-presents/
Please reach out to me (or John) with any questions/comments you may have about this video, I always appreciate your calls, comments, and emails.

 

Watch this week’s update in the player above or at this link: https://youtu.be/MzdtUytWcos

Thank you for joining us at Cumberland Advisors. Be safe.

-Matt McAleer

Matt enjoys your feedback. You can reach him at:
-Link to Matt’s Email: Matthew.McAleer@Cumber.com
-Link to Matt’s Twitter: https://twitter.com/MattMcAleer4
-Link to Matt’s LinkedIn: https://www.linkedin.com/in/matthew-c-mcaleer/
-Call Matt: (800) 257-7013

Other questions or comments? Email us at info@cumber.com or give us a call at (800) 257-7013.

Contact Matt or any one of our advisors by following this link: https://www.cumber.com/our-people/

 



Cumberland Advisors Market Commentary

Cumberland Advisors Market Commentary offers insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies. Our readers appreciate its timeliness, depth of analysis, and quality of research.

To read current and past commentaries, visit www.cumber.com/category/market-commentary/


Fed Outstanding Repo Transactions March 2020

Author: Robert Eisenbeis, Ph.D., Post Date: March 27, 2020

Cumberland Advisors' Robert "Bob" Eisenbeis, Ph.D. Fed Outstanding Repo Transactions March 3 – March 27 Today, not only was the daily repo proposal very small, but also there were no proposals for the potential $500 Billion 84 day repos. (Chart Link)

Cumberland Advisors Market Commentary – The CDC Foundation

Author: David R. Kotok, Post Date: March 23, 2020

CDC Foundation Dr Judy Monroe & David Kotok Dear readers. The CDC Foundation is not widely known. It’s a 501(c)3 that was created by Congress as a special charitable agency. The Foundation works right alongside the CDC and other national health agencies but is an independent charity. It has a special-purpose charter. Its purpose is to respond rapidly to threats like COVID-19 or [Continued…]

Cumberland Advisors Market Commentary – International Stock Markets, First Quarter, 2020

Author: William Witherell, Ph.D., Post Date: March 23, 2020

Market Commentary - Cumberland Advisors - 2020 Q1 Strategy ReviewsInternational stock markets, like the US market, started the year on an optimistic note. The global slump in manufacturing appeared to be bottoming, and trade relations were easing. The first quarter is ending, however, with global equities experiencing dramatic losses and volatility surging across all market classes. As this is written (March 20), stocks in [Continued…]

Cumberland Advisors Guest Commentary – Is There A COVID-19 Signal in Climate Data & Is It Potential Good News for Florida?

Author: Bob Bunting, Post Date: March 20, 2020

Is There A COVID-19 Signal in Climate Data & Is It Potential Good News for Florida - Bunting Our colleague Bob Bunting, meteorologist, professor, and former executive at both the National Oceanic and Atmospheric Administration (NOAA) and the National Center for Atmospheric Research (NCAR), is CEO of the Climate Adaptation Center (CAC) here in Sarasota, Florida. Bob has contributed several guest commentaries to Cumberland in recent years, including “It’s Hot and Getting Hotter [Continued…]


Cumberland Advisors - Camp Kotok China Panel DiscussionNo lectern, no PowerPoint. The China Panel is public and in the public domain. The press and public are free to use the video footage and quote the speakers across social media and elsewhere.

The August 2019 China panel held at Camp Kotok packed an extraordinary amount of valuable information into a half hour and is well worth the time you’ll spend to view it: https://youtu.be/Sff0AGPrIJQ

This Camp Kotok talk session features panelists Michael Drury (Chief Economist for McVean Trading & Investments, LLC.), Jonathan D. T. Ward (Founder of Atlas Organization), & Leland Miller (CEO China Beige Book), all offering their take on U.S.-China relations. The panel and audience Q&A are guided by moderator, Lisa McIntire Shaw. <More…>


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.