Butterflies and Viruses

  • Factory shifts from iPhone parts to face masks
  • No infections, but virus impact felt across NYC
  • Strong jobs report, market sells off anyway
  • How a hedge fund king helped skew the Iowa caucus
  • Trump admin goes socialist to fight China (what?)
  • Kraft mac-and-cheese campaign goes PG-13
  • Tales from the DMV: Readers write about Real ID.

Well, there’s something to be said for flexibility in business…

Reuters Tweet

“A number of Chinese manufacturers including a subsidiary of Apple Inc. partner Foxconn have refitted production lines to make masks and medical clothing,” reports the Reuters newswire, “as a deadly coronavirus spreads across China.” Foxconn’s factory in Shenzhen could be cranking out 2 million masks a day by month’s end.

As we write this morning, the number of confirmed coronavirus cases is 31,523, the overwhelming majority still in mainland China. With 12 cases in the United States, the effects stateside seem negligible..

But scratch beneath the surface and you start to see an impact here and there.

So says Nomi Prins, our investment-banking veteran. A week ago yesterday she was on a trip to New York — a whirlwind of meetings, plus an in-studio interview with Charles Payne on Fox Business. Alas, her spot got bumped as the network cut to live coverage of a news conference by the World Health Organization.

“The next day I was due to head home to Los Angeles after a total of two weeks on the road. It was Friday. Now, on a normal Friday afternoon it could take between 1 and a half and 2 and a half hours to drive from midtown Manhattan to JFK airport. And getting a car service last minute would be unheard of.

“However, this was no ordinary Friday,” she goes on. “And New York City was dealing with its own ramifications of the coronavirus despite having no known cases of it.

“Because various airlines that fly in and out of JFK had canceled flights in and out of China, there were fewer people driving to the airport to fly out and fewer people arriving at the airport waiting for cars to drive them into the city.

“The result was less traffic and a rare case of my being able to get a car service last minute to take me to the airport.

“My driver confirmed all of this to me. He also talked about how he was immediately feeling the economic effect of the coronavirus. Normally on a Friday, he was prebooked for five–six rides between New York City and the airport. This Friday, I was just his third fare. And I hadn’t even prebooked.

“This meant there was less money in his pocket that Friday, which was also the last day of the month before his rent was due. He would make his rent, but it would be tighter than usual.

“He also told me that Chinatown with its grocery stores and restaurants in downtown Manhattan, usually bustling with tourist and local Chinese activity on any day of the week, was virtually empty. That meant its local commerce on that last Friday of the month would be lower as well.

“That’s our world today,” says Nomi — invoking the familiar analogy of a butterfly flapping its wings in western Africa, ultimately setting off a hurricane that strikes the United States.

“Unexpected events that happen in one corner of the world, whether biological or otherwise, can have rapid and unpredictable effects,” Nomi says. “These effects can be both financial and economic. A virus in Wuhan, China, had impacted large companies, tiny grocery stores, urban traffic patterns and my TV appearance all at once.”

Maybe you’re not seeing any effects where you live; I know I’m not. But it’s a big interconnected world — and our team is always on alert for rapid-fire changes that could affect the U.S. economy and markets.

[Ed. note: Only hours remain in which you can seize on access to Nomi’s unique 25-cent trades.

This little-known sector of the market is about as far removed from costly stocks and options as you could imagine. The gains can be huge — and they materialize in a single day.]

Nomi Prins

Check out Nomi’s 25-cent trades before access closes at midnight tonight.

Strong job numbers notwithstanding, the safety trade is on today.

After notching record closes yesterday, the major U.S. stock indexes are all in the red as we write — the Dow down the most, about six-10ths of a percent to 29,205. Meanwhile, crude is back below $51 a barrel.

Treasuries are rallying, the yield on a 10-year note back to 1.6%. Gold is holding onto recent gains at $1,566.

The job story in January fits the pattern of recent years — lots of new jobs, not a lot of growth in wages.

The wonks at the Bureau of Labor Statistics conjured 225,000 new jobs for the month — way more than expected. But average hourly earnings rose only 0.2%, less than expected. Still no evidence of the “wage-price spiral” that gets everyone worked up about an onset of inflation.

The official unemployment rate ticked up to 3.6% — a reflection of the fact that many people are starting to look for jobs again after a long time out of the workforce.

The real-world jobless rate from Shadow Government Statistics ticked up to 21.0% — terrible, yes, but down from 21.7% a year ago.

The hedge fund genius Seth Klarman just got one of his biggest “payoffs” ever with the botched and/or rigged Iowa caucuses.

The Associated Press refuses to call the race. “[T]here is evidence the party has not accurately tabulated some of its results,” says an AP statement, “including those released late Thursday that the party reported as complete.”

But the media narrative since Monday night is that South Bend, Indiana, Mayor Pete Buttigieg edged out Vermont Sen. Bernie Sanders. And going into New Hampshire next Tuesday, the narrative is all that counts.

Here’s a summary of the week that makes the most of Twitter’s available 280 characters…

Jordan Uhl Tweet

And for Seth Klarman, it couldn’t have worked out any better.

Klarman, as a reminder, is a demigod of the investing world. If you’re not familiar with him, that’s because he’s not a publicity hound like Warren Buffett or Carl Icahn or Bill Ackman.

His Baupost Group has amassed a phenomenal track record. His 1991 book Margin of Safety has been out of print for years, but its prestige is such that the cheapest used copy available on Amazon this morning fetches $879.95.

Klarman’s political donations leaned Republican for a long time. But in 2016, he was a vocal NeverTrumper, calling the Donald “completely unqualified.” Here in 2020, alarmed by the prospect of a Sanders presidency that he calls “appalling,” Klarman has been spreading money among several of the corporate-approved Democrats — including Buttigieg.

Of more significance… Federal Election Commission records reviewed by the Sludge website reveal Klarman is the single biggest donor to a Democratic super PAC called Pacronym.

[Warning: We’re going slightly in the weeds here. But we think it’s worth the effort…]

Pacronym is affiliated with Acronym — a Democratic dark-money nonprofit that launched Shadow Inc., the outfit that created the notorious smartphone app behind the caucus-night debacle.

Shadow was staffed by Clinton and Obama campaign veterans who were open about their loathing of Sanders. Meanwhile, the Buttigieg campaign had paid Shadow for “software rights and subscriptions” — the only Democratic campaign to do so, according to records reviewed by The Intercept.

Summing up: If centrist Democrats set out to monkey-wrench the Sanders campaign — hey, it happened in 2016! — Klarman’s money more or less bought a Buttigieg victory… or at least the narrative of a Buttigieg victory.

[Hat tip to Max Blumenthal of the Grayzone website for connecting these dots. He also reports LinkedIn founder Reid Hoffman shoveled boatloads of money to Acronym.]

The Huawei obsession in Washington is getting juuust a little out of hand.

Huawei is the Chinese electronics giant that’s taken the lead in next-generation 5G wireless technology. Both the Obama and Trump administrations have looked on Huawei as a potential spying threat, given its alleged ties to the Chinese Communist Party.

The only other companies on the planet that can compete with Huawei are Finland’s Nokia and Sweden’s Ericsson.

Yesterday during a speech in Washington, Attorney General William Barr said the United States should — well, take over those companies. Specifically, he advocated “American ownership of a controlling stake, either directly or through a consortium of private American and allied companies.”

“Directly?” So a leading Republican is open to nationalizing an industry so it could supposedly be a stronger competitor. We’re sure that’d work out just great. Who’re the socialists now?

And how would Washington nationalize a couple of foreign companies, anyway? The mind boggles…

Before we get to the mailbag, a warning about our “quirky” item of the day. It’s not entirely family-friendly.

But if a consumer-staples giant like Kraft Heinz is willing to go there, so shall we.

Kraft recently commissioned a survey of parents — finding 86% wish to be intimate with their partner on Valentine’s Day (that’s next Friday, by the way)… but the presence of children in the household will prevent the sparks from flying for one in every four.

Enter a new Kraft macaroni-and-cheese product. “Kraft Big Bowls [are] an easy and kid-pleasing dinner solution with even more cheese and noodles than our microwavable Easy Mac cups,” says Kraft Heinz brand manager Kelsey Cooperstein, “so parents can put their kids to bed and enjoy a night of romance.” Prep time: only 3 and a half minutes in the microwave.

All well and good. But the ad campaign seems a little forward for a stodgy consumer-products behemoth, no?

Kraft Big Bowl

Ingenious marketing, we suppose — and not just on the obvious level, either. Think about it: If a few pregnancies result from this campaign, that’s a new generation of mac-and-cheese consumers, no?

To the mailbag, and more reader feedback about Real ID-compliant driver’s licenses.

“Just to clarify,” writes the fellow from Idaho who wrote in yesterday, “while I eschewed the ‘star’ license, I did obtain a standard driver’s license.

“They say ‘Brevity is the essence of wit,’ but sometimes one can be too brief and come across as a bit witless.”

The 5: Interesting that you’re offered the option of a no-star license. Makes sense… and you’ve still got your passport for when you want to fly.

“Relax, Dave,” writes a reader we’d not heard from in a while — after I mentioned my Michigan driver’s license renewal is up soon.

“Wife and I got our driver’s licenses renewed down here in the L.P. (that’s the ‘Lower Peninsula’ for you non-Michiganders), and current U.S. passports got us that ‘star,’ no problem (On my license it’s hollow inside a gold circle, but whatever…)

“So if Emily gets any pushback, tell her to get some lawyer types to inform the local yokels that a valid U.S. passport is A-list ID and all one needs anywhere in the world, even in Maryland, and they need to get their heads out of where the sun don’t shine before they get the feds sicced on ’em. Again.”

The 5: Emily made it through her appearance unscathed, you’ll be pleased to hear.

“In addition to getting on a commercial aircraft, Real ID will be required to get into a federal facility,” our final correspondent reminds us.

“In my case it primarily means getting on a military base, but I have a retired military ID so no problem even with my non-Real ID Virginia license. However, many bases now require 100% ID checks coming through the gate, so your nonmilitary guest needs to have a Real ID compliant ID too.

“Just one more thing to check before I host a friend at the base golf course.”

The 5: Ah, yes. Federal courthouses, too. But not the Smithsonian or other tourist-type destinations. Or so we’re told…

Have a good weekend,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. One more item of note from Nomi Prins today: There’s only a slender window of time during the trading day when she recommends opening a trade.

Place your buy order during this 7.7% of the session and you’re in line to double your money within 24 hours.

That’s right, only 7.7%.

When does this window fall? And how can you take advantage? Nomi explains it all when you follow this link. The offer will remain on the table through midnight tonight.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

Recent Alerts

Here Comes the AI Cartel

Maybe you saw the news earlier this week: An outfit called the Center for AI Safety issued a 22-word statement — as dire as it is terse. Read More

A Deal in D.C., a Wipeout on Wall Street

Debt ceiling deal, U.S. Treasury auctions, Wall Street liquidity, Fed policy reversal, BlackRock recession call, gross domestic income, GDI, Maryland license plate snafu Read More

Climate, Carbon… and Control

“The climate change agenda is not about climate change,” says Jim Rickards. “It’s about total political and economic control of the population.” Read More

White House’s New Witch Hunt

Go figure: The stock market is at nine-month highs, but the Biden administration is amping up its jihad against short sellers Read More

The Biden Bleed

Presidents have meddled with the SPR for political purposes. But Biden is really leveling up. Read More

Natural Gas Gets Blacklisted

The EPA — with Team Biden’s blessing — proposes an overhaul of U.S. power plants by 2042. Read More

Green Smokescreen

Ray Blanco is on the lookout for presumed do-gooders… blowing “Green Smoke” up our collective rear ends. Read More

“No Blood for Chips!”

Fair warning: This edition of The 5 might be the most controversial issue we’ve ever published. Read More

The Dollar’s Death March

Nine years after The 5 started writing about “de-dollarization,” you can’t get away from headlines about it now. Read More

The “F” Word

No sooner did G7 leaders sit down yesterday than they declared they’re doubling down on sanctions targeting Russia. Read More