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Spiraling Virus Fears Are Causing Financial Carnage

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There is nothing investors hate more than uncertainty. Right now, that is all there is.

Uncertainty about the severity and duration of the coronavirus outbreak, ripping around the world at something like light speed. Uncertainty about how the global economy will fare as factories, airports, stores, schools, entire cities shut down. Uncertainty about the ability of governments to contain the disease and the power of central banks to counter its economic fallout. Uncertainty about how long all this uncertainty will last.

The spiraling fears have caused financial carnage. The S&P 500 index has dropped 12 percent since Feb. 19, the sharpest dive in nine years. The plunge has obliterated roughly $3 trillion in wealth.

In the past two weeks, even decent days have been tinted with a scary aura. On Friday afternoon, the S&P was poised to lose more than 2 percent, before the index pared its losses amid a blizzard of buying in the moments before the closing bell. (A similar last-minute surge the previous Friday made an awful week a little less bad.) For all the heartburn-inducing turmoil, the S&P ended this week essentially flat.

Market records have been falling like dominoes. The Dow Jones industrial average, for example, had both its biggest single-day point decline (1,191 on Feb. 27) and its biggest gain (1,294 on Monday).

Behind the turbulence are confusion and anxiety, and a sense that the modern world is in an unprecedented situation. “There’s no playbook for this,” said Derek Devens, a portfolio manager at the fund company Neuberger Berman. “That’s been really hard for people to digest.”

The financial mayhem extends beyond the stock market.

Many companies are essentially frozen in place, unable to predict how the coronavirus might affect their businesses. Their immediate task is to figure out how to keep operating while making sure their employees are safe. In Silicon Valley, Apple and Twitter told people to work from home. In New York, Bank of America and JPMorgan Chase dispatched small parts of their trading desks to the suburbs so they would have backup crews to keep business running in an emergency.

With the global economy now poised to shrink, demand for oil is declining, causing the price of crude to crater. As investors flee from risk, gold prices have soared. The safest assets out there — bonds issued by the U.S. government — have shot higher in price. For the first time, the interest rates on 10-year Treasury note shriveled this week to less than 1 percent, falling on Friday to a record low of 0.71 percent.

A sudden global disease outbreak isn’t the kind of risk that many market players were trained to react to. Few investors are epidemiologists. The most sophisticated financial models and the fastest-moving trading algorithms are flying blind.

“This you can’t even put a model on, because it’s not really something that we’ve seen before,” said Michael Feroli, the chief U.S. economist at JPMorgan.

In financial circles, there’s a term for such events: a black swan. They are rare but ominous. And they are impossible to anticipate.

The Sept. 11, 2001, terrorist attacks were a calamitous example, a so-called exogenous shock for markets, having originated outside the financial system itself. More often, market turmoil comes from within: the mortgage crisis and collapse of Lehman Brothers in 2008; tremors in the junk bond market in 1987 and 1989; and the demise of the giant Long-Term Capital Management hedge fund in 1998.

In 2001, no one knew if the attacks on the World Trade Center and the Pentagon were merely the first in a series of strikes. With the spread of the coronavirus, no one knows how deadly and widespread it will prove to be, or how disruptive to people’s lives, or its impact on the domestic and global economy.

Uncertainty breeds fear, and fear breeds panic.

“Investors went from thinking everything was flawless to hopeless,” said Howard Marks, a co-chairman of the alternative asset manager Oaktree Capital Management. “People are thinking, ‘I’ll be stepping over bodies on Park Avenue, like the Black Plague.’ That’s panic.”

Fears can be self-fulfilling. On Thursday, the venture capital firm Sequoia Capital directed the young tech companies in which it has invested to “question every assumption about your business” and consider taking pre-emptive action to prepare for a downturn, such as curtailing spending and taking a hard look at the size of their workforces. Sequoia called the coronavirus “the black swan of 2020.”

In some respects, exogenous shocks sow even more fear and uncertainty than traditional financial crises, because investors have no experience to draw on. Monetary policy, and the central banks that wield it, can be effective at battling financial upheavals, as the Federal Reserve managed to do during the 2008 crisis, but it has no effect on viruses.

What is especially unnerving to investors now is the apparent impotence of institutions that would seem to have the greatest chances of soothing markets.

When the Fed announced an emergency decision on Tuesday to slash benchmark interest rates by half a percentage point, stock markets rallied for about 15 minutes before resuming their downward spiral.

One reason: Investors feared that the Fed — whose monetary policy has been a key to the stock market’s long rally — is running out of options to stimulate the economy. Eric Rosengren, the president of the Federal Reserve Bank of Boston, said Friday that the central bank might need to weigh new measures to counter a downturn, including buying a wider array of assets.

The reality is that nobody knows quite how to calm markets, much less how to contain the virus outbreak. Modest bits of upbeat news — the Labor Department announced on Friday morning that the American economy had added 273,000 jobs in February — haven’t done the trick.

“Today you had this great jobs report,” said Jay Foreman, the chief executive of the toy company Basic Fun. “It’s going to be exactly the opposite next month. I can’t imagine anybody is hiring anybody this month, unless they’re selling hand sanitizer.”

He said the coronavirus crisis was forcing him to lay off 18 of the company’s 175 workers — 10 in the United States, six in Hong Kong and two in Europe.

Nor were investors soothed by President Trump’s signing of a bill to provide $8.3 billion to fight the coronavirus or cheerful TV assurances from Larry Kudlow, the top White House economic adviser.

“There really isn’t a response from the administration or the authorities telling people to calm down and there’s a plan,” said Gennadiy Goldberg, a strategist at TD Securities in New York. “It certainly feels like there isn’t a plan, and I feel like that’s what the market’s reacting to.”

That is a recipe for more wild days in the weeks ahead. In certain Wall Street drugstores, antacid might be in as much demand as hand sanitizer.

“When there’s unprecedented uncertainty, which is what we’re dealing with, we could have elevated volatility for quite some time,” said Julian Emanuel, a strategist at the brokerage firm BTIG.

He noted that Mondays are often days of particular turbulence because investors have spent a couple of days stewing over events. “What you see in markets, very often these things turn on a weekend,” he said.

However intense, panics don’t last forever. When markets reopened after the Sept. 11 attacks, the Dow dropped more than 14 percent in a week. It turned out to be a buying opportunity; within a month, stocks had recouped their losses.

“There will come a day when we reach a bottom,” said Mr. Marks, the Oaktree co-chairman. “We have no idea when or where that bottom will be. But all great investments begin with discomfort. You make the big money buying things no one else will buy.”

Reporting was contributed by Ana Swanson, Jeanna Smialek, Emily Flitter, Mike Isaac and Karen Weise.

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North Cowichan council members face financial ding for bad behaviour – Cowichan Valley Citizen

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Council members in North Cowichan will now have to pay a financial price if found guilty of contravening the municipality’s new standards of conduct policy.

In 2018, the municipality adopted the policy which set out the expectation for council members to adhere to when carrying out their duties and functions on behalf of North Cowichan.

If a council member is accused of harassment, bullying, intimidation, violence, and/or discrimination during these times, the municipality is mandated under the policy to hire a third-party investigator to determine the validity of the accusations.

The hiring of an investigator can be a significant expense, and council decided at its meeting on Oct. 21 that when a member of council has been found to have breached the policy, he or she must contribute towards the costs of the investigation.

For the first offence, council members will receive a 10 per cent pay reduction for 12 months, which is approximately $3,000 for a councillor and $8,000 for the mayor.

A second offence will result in a 15 per cent pay reduction, but if there is any overlap between the first offence and second offence, the offending council member will see a pay reduction of 25 per cent while those periods coincide.

Council members will face a 25 per cent reduction in pay for 12 months for the third and subsequent offences, and overlapping offences within those 12 months could result in reductions of 50 per cent where there are three concurrent offences, 75 per cent for four concurrent offences, or even 100 per cent if there are five or more concurrent offences.

Mayor Al Siebring said some may say that the financial penalties are overkill, but they are a good deterrent to bad behaviour of council members.

“Without this, our code of conduct would be just symbolic, but this will add some enforcement to it,” he said.

Coun. Kate Marsh said she was impressed with the repercussions council members could face when exhibiting bad behaviour.

“One of the challenging things about the code of conduct is consequences, and a cut in pay will add teeth to it,” she said.



robert.barron@cowichanvalleycitizen.com

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HSBC considers paying 2020 dividend as profits beat estimates

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HSBC said it would consider paying a “conservative” 2020 dividend after Europe’s largest bank unveiled a better-than-expected third-quarter profit on lower provisions for bad loans.

The lender on Tuesday reported a 36 per cent year-on-year drop in pre-tax profits to $3.1bn for the three months to September, which was above bank-compiled analyst forecasts of $2.1bn. Noel Quinn, HSBC’s chief executive, labelled the results “promising”.

HSBC shares rose as much as 5.3 per cent in Hong Kong on Tuesday after the results were released, hitting their highest level in about two months.

HSBC cancelled its payout for the first time in 74 years earlier this year following pressure from the Bank of England, infuriating its Hong Kong shareholders. It said a 2020 payout would depend on the bank’s forecasts for 2021 and its consultations with regulators. “We will seek to pay a conservative dividend if circumstances allow,” Mr Quinn said.

Provisions for bad loans dropped to $785m in the third quarter compared with $3.8bn in the previous quarter. The average analyst forecast was for $2bn in provisions for the third quarter.

The lender said it expected total loan losses to be closer to the lower end of the $8-13bn range it had earlier forecast for the whole year.

“This latest guidance, which continues to be subject to a high degree of uncertainty due to Covid-19 and geopolitical tensions, assumes that the likelihood of further significant deterioration in the current economic outlook is low,” the bank said.

The slower rate of new provisions in the third quarter came as the global economy tentatively reopened from strict lockdowns prompted by the pandemic.

This matched the trend last week at Barclays, which set aside an additional £608m, substantially lower than the £3.7bn reserved in the first six months of the year.

HSBC revenue fell by 11 per cent year on year to $11.9bn in the third quarter.

HSBC’s shares have plunged by more than 40 per cent this year as the lender struggles with the combined challenges of coronavirus, a UK regulatory ban on dividends, ultra-low interest rates and a confrontation between China and the west over Hong Kong, its most important market.

The bank said it expected to further cut costs. It would look to lower its original $31bn target for its annual cost base for 2022, adding it would release a “detailed and updated” transformation plan when it published its full-year results.

Mark Tucker, chairman, and Mr Quinn are re-evaluating a strategy unveiled only in February, preparing deeper cuts and exploring the sale of persistently underperforming businesses, such as its US retail arm, the FT has reported.

Mr Quinn said on Tuesday that the smaller fall in profits before tax for the quarter was in part due to the lower expected loan losses and “continued good cost management”. 

HSBC said it expected to increase investment in Asia due to the region’s economies “rebounding strongly” from the pandemic. The bank said it would provide an update on the future of its French and US operations in February 2021.

The bank highlighted the passage of a national security law and US sanctions on 11 Hong Kong officials under a list of risks to its operations. The US has threatened secondary sanctions on financial institutions which fail to cut ties with the officials.

“The financial impact to the group of geopolitical risks in Asia is heightened due to the strategic importance of the region, and Hong Kong in particular, in terms of profitability and prospects for growth,” HSBC said.

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Retiring finance minister Carole James tears up at outpouring of support

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Signing thank you cards in her B.C. Legislature office is what “retirement” looks like for out-going finance minister Carole James.

“I guess I’m a failure at retirement so far,” laughs James.  “I’m continuing on as a caretaker government for the next couple of weeks.”  

This is the first election in three decades that the four-time MLA and former Greater Victoria School Board trustee hasn’t run.

“This is the first election since 1990 when my name wasn’t on the ballot when I went to vote so it was a very strange experience, very strange experience, going to take some adjustments no question about it,”  James says. 

James led the BC NDP for seven years — taking over in November 2003 when morale was low after the party had been decimated to just two seats in the 2001 election.

In 2005, she helped the NDP win more than 41 per cent of the popular vote and 33 seats — including her own riding of Victoria-Beacon Hill, beating incumbent Jeff Bray, who she’d lost to in 2001 by just 35 votes.

“There are nice people in politics and Carole is one of them,” Bray says.

“She has always been respectful, always been friendly and is always trying to do the right thing. ”

But one of the toughest political moments came in December 2010, when Jenny Kwan publicly criticized James and called for an immediate leadership convention.

“I joked I’ve seen the good the bad and the ugly in politics and I think lots of leaders have gone through that experience but I also think it strengthens your values,” James says.

James stepped aside but instead of quitting, she stayed on to help the party.

“Credit to her, rather than fighting back, rather than being bitter about it she doubled down and gave all of her time and effort to both incoming leaders who followed her,” says Stephen Smart, former press secretary to premier Christy Clark and a member of the press gallery during the leadership crisis.

As accolades pour in on social media for the 62-year-old who’s made friends across party lines, she can’t help but tear up.

“It really has been pretty overwhelming,” says an emotional James. “I get choked up thinking about it because it has really been such a privilege for me to be able serve my community.”

Focusing on her family and her health after being diagnosed with Parkinson’s Disease, James plans to take up boxing and hopes people will remember her for working hard and always keeping her integrity.



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