4/20/2020

Good day,

Hope all has been well. Sports pretty much returned on Sunday night as ESPN released the first two episodes of its highly anticipated 10 part documentary about the 1997-98 Bulls called, The Last Dance. It was fantastic. Michael Jordan is something else. It probably took just five minutes into the first episode for the world to remember how much of a giant he was during his prime. He was the dude of not just the Bulls, not just the NBA, but of the entire globe. He was breathing rarefied air at his apex that probably only one other athlete has reached in my lifetime: Tiger Woods. It is mind-blowing to be reminded of just how savage of a competitor that MJ was. He was the ultimate alpha-male who didn't have time for anyone slacking off in any way. LeBron James is fantastic and one of the best ever. Same with Kobe. But MJ was just different. The dude dropped 49 and then 63 on the road in the first round of the 1986 playoffs, coming off a broken foot, against the vaunted #1 seed 67-win Celtics that featured four hall of famers and was led by Larry Legend. After Game 2 of that series, Larry Legend himself offered the highest of praise that any person on the planet could receive when he said MJ that night was "just God disguised as Michael Jordan." Larry Legend said that. Larry Legend is one of the greatest players ever on his own and was at the height of his powers when he said that. Larry Legend is also one of the greatest trash talkers in the history of the earth and he still said that after competing against him that night in 1986. Magnificent first couple of episodes in the series and I am glad that ESPN didn't release them all at once. It at least gives us sports nerds something to look forward to watching that is sports related for the next few weeks. Maybe by then the MLB will be going in some fashion and possibly the NBA will try to finish up its season. Until then, we get to relive how dominate MJ was at everything. He could probably dunk on this #bucketsblog and cause it to explode just by looking at it. What has been getting dunked on lately is China as they are facing questions about the true origin of COVID-19 and are coming under scrutiny about its nuclear program. Plus, all things oil related continue to crater, U.S. airline co's need some quick cash, and every country is staring a recession in the face in this week's #bucketsblog.

April 20, 2020

Where did COVID-19 really begin?

• The Washington Post (WaPo), published an article last Tuesday (14th) that raised some very interesting concerns about where COVID-19 actually originated. The report conveyed that U.S. Embassy officials sent two warnings back to Washington DC two years ago that outlined their concerns about the safety of a Chinese research facility in the city of Wuhan in a lab called Wuhan Institute of Virology (WIV). This lab happened to be conducting "risky studies on coronaviruses from bats." Specifically, the two cables tried to warn Washington about the "safety and management weaknesses at the WIV lab" and were asking Washington to provide assistance at the lab to help fix security problems. No assistance was provided. Over the past two months, these two cables have been circulating inside the Trump administration. The first cable also warned that:

• Both cables were classified as sensitive but unclassified when they were sent. Specifically, the cable warned that:

• They in this cable was referring to the two State officials from the U.S. Embassy in Beijing. The State officials met with Shi Zhengli, the head of the research project at WIV, who had previously published several studies related to bat coronaviruses including a report that stated how bats from a cave in Yunnan province were likely the source of the 2003 SARS coronavirus. Shi's research was intended to prevent the next SARS-like pandemic by anticipating how it might emerge. Other scientists were questioning Shi's work and whether he was taking unnecessary risks as early as 2015. However, despite the security concerns at WIV, most scientists believe that COVID-19 did indeed come from animals and there is no evidence the virus was engineered, as the WaPo article points out. In that same vein, the WaPo article explains how Xiao Qiang, scientist guy at UC Berkeley, stated that is not the same as saying it did not come from the lab which had spent years testing bat coronaviruses in animals. Another Chinese lab is being called into question as well, Wuhan Center for Disease Control and Prevention lab, which operates at a lower security level than WIV. Quite a few smoking guns are starting to pop up around Wuhan labs. However, according to the New York Times (NYT), the U.S. intelligence community has so far not confirmed either lab is the true source of the virus. According to WaPo, though:

• So nothing concrete yet to point the finger at one of the labs, but the WaPo author included a line of how a senior administration official informed him that the cables provide one more piece of evidence that suggests one of the labs is at fault of a horrendous accident that caused the virus to break outside of the lab walls and shut down the world. The same official said:

• WaPo points out that the Chinese government's original story of how the virus emerged from a "wet" market in Wuhan is shaky, at best. This is pretty wild:

• The bolding of the letters was done by me. Of course China is denying this is even a possibility and their actions keep making the smoking gun look even smokier:

• In addition to this wildness, Chinese President Xi Jinping is quickly pushing through a new "biosecurity law" that will severely restrict any research institution's ability to publish anything about the origin of COVID-19 without the government's approval. This is one of the craziest stories I have read in quite some time that could be the start of something huge. If you have never clicked on a link to any article I write about, then I would encourage you to at least click on this one even though I quoted maybe half of the article in this blog section. I couldn't help it. Fascinating read and there seems to be quite a bit of information that is linking one of the labs as the possible origin of the virus. Was it intentional to leak the virus by one of the labs? Highly doubt it. The Chinese government will likely not let any type of information get out that could concretely point to one of the labs as the origin though so we will likely never know for sure. At best the world will be left to speculate, although possibly armed with substantial information that would warrant the speculation as true.

As if China wasn't already in the spotlight enough, they may be illegally testing nuclear weapons

• There is an international accord, called the 1996 Comprehensive Nuclear Test Ban Treaty, that has been signed, but not ratified, by most major powers but has been adhered to as it if has been signed and ratified by all major powers. China, Russia, and the U.S. are all a part of this agreement. According to the Wall Street Journal (WSJ), the purpose of the accord is to:

• The U.S. is becoming concerned that China may be violating that last part as interruptions have occurred in the flow of data at times over the past few years from monitoring stations in China that measure radioactive particles and seismic tremors. Specifically the concerns are stemming out of a Chinese nuclear facility called Lop Nur. There are concerns from the Trump administration that China has been conducting "low-yield" nuclear testing at this site and the stations that are supposed to monitor this were offline during potential testing periods. If testing is occurring, then this would violate the terms of the accord. The punishment for violating the terms of the accord is that all people in the violating country has to watch every single game of the Cleveland Cavaliers during the next full NBA season. Those are the rules. These stations are a part of an international network of hundreds of sites that exist to ensure compliance of the accord. Each country is responsible for running the stations that are inside its borders and then voluntarily transmit the data to a Vienna-based organization that oversees the agreement called the Comprehensive Nuclear Test Ban Treaty Organization (CTBT). The CTBT claims there have been "virtually" no interruptions in data transmissions from China since September 2019. The CTBT did state there have been a couple interruptions but they were due to the result of the "negotiating process between the CTBT and the Chinese government on arrangements for putting the stations in operation." A spokeswoman's statement from CTBT:

• In the eyes of the Trump administration, however, the interruption was due to China "blocking the flow of data from the monitoring stations." Lt. General Robert Ashley Jr., director of the U.S. Defense Intelligence Agency, said in May 2019 that he expects China to "double the size of its nuclear stockpile over the next decade." Currently, China's nuclear arsenal is estimated to be 300, according to the Federation of American Scientists. The U.S. has 3,800 but only 1,700 are deployed. China's ramp up would likely require some type of testing. American officials are already concerned over China's handling of COVID-19, its South China Sea militarization, and ongoing trade disputes. U.S. and China's relationship appears to be faltering quicker than John Beilein's relationship with his NBA players in a time when the two most influential countries in the world could be working together to fight COVID-19 and building this thing called "good-will." Bang! Two Cavs references in one article. I might retire after this. Ole Johnny B Fired coached the Cavs for maybe 4 months before he "resigned" after he said some things to / at his players and his players immediately quit on him. Successful coach at Michigan University but quickly, very quickly, flamed out in the big leagues. Who knew that college players didn't react the same way as millionaire NBA players to "motivational" speeches?

North American oil producers closing up the rim on production like Serge Ibaka in his prime

• Prime Serge Ibaka could block your shot twice in a matter of two seconds and then give you a Mutombo like finger wag to let you know that the rim is closed today. That was back when he played for OKC and claimed to be in his "young twenties" but after seeing his athletic ability uncharacteristically decline so quickly for his "age" that I think he might actually be 5-10 years older than whatever he claims to be. I don't really care. He made it to the league and became a perfect small ball five player. Then he became the perfect trade bait as Presti swindled the Magic a few years ago and traded a 35 year-old Ibaka for a young Victor Oladipo (now an all-star) and rookie Domantas Sabonas (now an all-star). Then Presti flipped those two for an in-his-prime PG13. Then flipped PG13 for the future aka SGA and 8 million draft picks. Solid work there by Presti to turn Ibaka into a decade of draft picks and one Scottie-Pippen-second-best-player-on-a-title-team guy. The Magic quickly fired their GM and traded a 40 year-old Ibaka that same year to the Raptors for a new washing machine and Terrance Ross. Then the 48 year-old Ibaka went on to be a key role player on the Raptors championship squad last year so, good for him. Always was a fan of his 50 year-old self. North American producers are swatting away production like a prime Ibaka though. This is due to free market forces dictating the shutting in of un-economic wells at current oil prices which helped act like the U.S. is participating in the OPEC++ worldwide production cut that was agreed to two weeks ago. The degree of shutting in wells varies by the size of each oil producer in the U.S. A smaller firm called Texland Petroleum LP ended up deciding to shut in every one of its 1,211 oil wells in May, according to the WSJ. Jim Wilkes, the president of the 7k bpd Fort Worth, TX firm said:

• Texland has been in business since 1973 and has never had to do this before. The Timberwolves have never made a good trade before but that doesn't mean it won't happen at some point. The T'Wolves traded Andrew Wiggins AND a very lightly protected first round pick to the Warriors for a defense last D'Angelo Russell who will fit perfectly next to a defense last team strategy. The T'Wolves defense is like the Flint Tropics defense except not as entertaining and those players get paid millions of dollars whereas the Tropics players just received free entry to Jackie Moon's nightclub. On a larger scale, Exxon, Shell, Devon, Continental, Canada's Cenovus Energy, and everything in between have collectively announced spending cuts that total ~$50B for 2020. According to the Energy Information Agency (EIA), the U.S. has already declined ~5% since record levels were set in the early parts of March. Shale wells realize steep decline curves so the spending cuts that majors are doing, especially in the Permian, should cause production to decline somewhat quickly across America as there will be substantially less new wells being turned in line to replace the decline curves of producing wells. The production loss will need to happen quickly if prices are to somewhat stabilize. Analysts project that oil consumption is forecast to drop by at least 20mmbpd, ~20% of global demand, in April and May. U.S. consumption fell by 19% for the week ended April 3rd which is good for a 30-year low, according to the EIA. Domestic inventories experienced its largest one week build in history in the same week as a result. If build rates continue at that pace, then the world will run out of storage within about 60 days, according to Houston's Simmons Energy. Other analysts predict the time-frame is much shorter than that. Saudi and Russia are leading an effort to cut production but it may not be enough or be fast enough to prevent storage from filling up. U.S. producers are shutting in wells but there is a significant risk to that. The WSJ provides a high level explanation about the risks of shale production shutting in:

• Then Mr. Wilkes, the Texland guy, added a bit more doomsday news to those risks by saying how some wells may not ever return to producing. Production cuts will help, but ultimately global economies will need to begin opening back up so demand rises. If that doesn't happen, then spending cuts and shutting in wells will both increase in number substantially. For now, it is bye-bye demand:

Oil demand falling quicker than Carmelo Anthony's paychecks

• Melo went from earning max dollars with the Knicks to bouncing around on vet minimum deals within a year after he requested a trade away from the terribly ran franchise in the fall of 2017. He was sent to one of the better ran organizations in OKC. He had one year plus a player option left on his contract after he was traded and everyone on the planet knew he was going to pick up that player option so it was basically two-years left on his deal. He had a blah season with OKC and it was clear he didn't fit because he was old and still thought he could average 25ppg and be a full time starter even though a high-flying Jerami Grant was dunking on him every time he subbed in for the fountain of youth-less Melo. Sure enough, Melo picked up his option, was traded to Atlanta, was bought out five seconds later, then landed in Houston on a minimum deal, then D'Antoni told him don't come back after about 10ish games, then was cut, then finally landed with Portland this season and was having mild success before he caused COVID-19 to breakout. Nah. He wasn't the cause. Maybe. No one will ever know. Global crude demand is mimicking both Melo's paychecks and basketball ability in 2020:

• Except in this case, Melo is not going to see a rebound in his paychecks or basketball ability. Full year 2020 global demand versus 2019 is projected to fall by 9.3mmbpd, according to the International Energy Agency (IEA). Global demand is projected to fall by as much as 29mmbpd in parts of 2020 as the majority of the globe is going through some type of lockdown which means no one is traveling and using petroleum products. Total global demand was around 100mmbpd prior to COVID-19. Fatih Birol, IEA's executive director, had some encouraging words:

• The IEA also expects global economic growth to fall by 4.8% so we all have that going for us as well. Crude prices are continuing to free fall despite basically the entire world coming to an agreement to cut oil production in order to try and keep prices from going negative. The IEA said there is no feasible agreement in place that could off-set the near term demand loss. In the meantime, global oil storage is going to fill up, and quickly. The EIA showed a whopping 19.2mmbbl increase in crude stocks for the week ending April 10th which is the largest weekly increase ever. The IEA projects crude stocks building by 11.9mmbpd in the second quarter which would cause global storage to hit "operational capacity" limits by the middle of 2020. Currently it appears as though the world is ahead of schedule in that regard. Production cuts are not scheduled to go into effect until May 1st for the most part. Free markets will surely dictate quicker well shut-ins, right? If not, negative prices may well be on the way. They might even be on the way regardless of shut-in fields if storage capacity tops out quicker than expected.

U.S. airlines are running out of ways to raise ca$h

• Who doesn't love a fantastic rewards credit card these days? These types of cards have become ubiquitous in wallets and purses as they are a great way to earn points while spending money on everyday things that can eventually be used towards things like traveling. Mostly, these points are used to pay for flights. These cards are kind of a rare win-win for the banks and airlines on one side of them and the consumers on the other. The banks, like JPMorgan and American Express, buy points from airlines like United and Delta and then provide them as rewards to their customers. In return, the customers tend to stick with the co-branded cards and entrench themselves with one credit card and one airline that they use for the majority of their purchases and traveling needs. Banks / credit card issuers then make money on transaction fees every time a customer uses a card, airlines earn money from the banks by selling them more miles, and both earn free advertising on the co-branded card. Consumers in turn can use the points for travel things or receive cash back. Nowadays no one is traveling on airlines though and well, no one is traveling anywhere. U.S. carriers have cut roughly 70% of their flights in April and a deeper reduction could be on the way. Airline companies burn through a ridiculous amount of cash per day and need a substantial steady revenue stream in order to stay in business. Companies like United Airlines and Delta have secured almost every airplane they have against various loans from major banks in order to try and have enough liquidity to make it to the other side of the COVID-19 crisis. According to WSJ, Delta secured a fleet of its airplanes on March 20th to a few banks, led by JPMorgan, in return for a $2.6B credit line. Delta then withdrew $2.3B from that revolver on the exact same day. Why? Because Delta burns about $60mm in cash everyday. American Airlines took out a second mortgage on its New York to London Heathrow route, which is apparently one of the world's most valuable routes, from Citigroup for $1B. I don't even know what that means! United raised $2B from a group of banks by securing some of its older aircraft in return for the cash and then went back to Goldman Sachs only a couple of weeks later to secure another $500mm by securing its inventory of engines and other spare parts against the loan. Spare parts! Goldman apparently was like, 'ya cool we'll take those spare wrenches you have as collateral.' Airline co's are apparently so far down on the collateral list that they are contemplating using ground-handling equipment and heavy machinery as collateral in order to secure more financing, according to WSJ. Roger King, analyst at CreditSights, summed things up succinctly for the state of airlines:

• In the meantime, the U.S. energy industry is welcoming its new set of friends at the bottom. The $2T relief package passed by Congress in March set aside up to $50B in grants and loans for the airline industry. However, the airline companies must demonstrate that other alternatives are not "reasonably available" if they try to pursue a part of the $50B. Another catch is that the U.S. government would likely take an equity stake in the airline co if they chose to utilize this funding pool and airline co's are trying to avoid that like the plague, or I guess like COVID-19. So pretty much, most of the major airlines in America are down to pledging their old rusty tool sheds as collateral or forward selling miles to major banks in order to receive much needed cash. However, the Fed and 10 of the 12 largest U.S. airlines ended up coming to an agreement on financial assistance last Tuesday (14th). Part of the assistance includes $25B that will go directly towards payroll servicing with the intent to keep all current employees paid for the next few months. Airline co's will be required to payback at least 30% of the grant money they receive through this program and each will have to offer stock warrants to the federal government on a portion of those funds. Delta, for example, will offer the federal government 1% of its outstanding stock at a $24.39/share price over five years. Delta stock traded at $60/share in the early parts of 2020 so this is a significant discount when considering that. Back to airline miles, the potential proposal for how this transaction would be constructed is below:

• The downside to this for airlines is that it would likely lower their negotiating power with banks in the future. Banks would likely try to stay closer to the discounted price for points as opposed to the higher prices they have paid in the past for them. Airline co's might not have a choice though. Either way, what would make everyone happy is if the airlines / banks gave everyone a million reward points for future travel amiright??

Hide your countries hide your states because e'rbody is getting a recession up in here

• COVID-19 is turning into an evil Oprah Winfrey and handing out bad news to everyone. The virus has caused the majority of the world to go into prime Andre Roberson lockdown mode in order to try and protect the health of as many people as possible. For the record, the economic toll will never mean as much as the health and safety of any one person. However, nothing like this has ever occurred in the modern world before. This is the blackest of black swan events or close to being that at least. Seeing the health impact provides enough explanation on the severity of this crisis. Seeing the economic impact provides another lens at which to see how impactful the virus has become. The International Monetary Fund (IMF) said last Tuesday (14th) that this period of time is unmatched, economically, when compared to anything that has occurred before outside of the Great Depression. The IMF stated the global economy is almost certainly entering a recession:

• IMF's chief economist, Gita Gopinath, believes this will very likely be much worse than the global financial crisis that occurred a decade ago. The financial crisis started in 2007 in America but hit its peak in 2009 across the globe. During this time, ~40% of countries continued to post positive per capita growth compared to the ~10% that is expected now (graph above). Somehow, China is expected to grow by 1.2% this year but this is a much lower growth rate than the 6.1% that China posted in 2019. On the other side, America is expected to shrink by 5.9%, which is twice as worse as the -2.5% that was posted in 2009. The Euro area will shrink by 7.5% this year compared to declining by 4.5% in 2009. 2021 is projected to return to growth according to the IMF, but the two-year period will likely represent the weakest two-year period since at least the early 1980s when Chris Paul first entered the NBA, probably. After the two-year period is complete, the global economy will be ~4% smaller than originally projected by IMF in its January 2020 forecast. During this time, hopefully Chris Paul finds the fountain of youth, reverts back to two years before hitting his prime, and then can enter his prime at the same time that SGA will be entering his. Then the Thunder will have a two headed point god monster who will develop a vaccine for COVID-19 and spur massive global economic growth. How they are able to do that is out of my area of expertise but I'm sure that scientists and economists will agree.

Thoughts of the week:

• An underrated savage move is turning off the passenger side airbag in your car when there is someone sitting in it.

• I thought that a good strategy to reduce the amount of ice cream I am eating during lockdown would be to buy a flavor that I like, but don't love, so I wouldn't be as tempted to eat it as often. That ended up backfiring though as I ended up trying to eat through it as quickly as possible so I could get back to the ice cream I love. #lessonsoflockdown