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Economy
Strange Relationship Between Stocks and Havens Unnerves Investors

By

Amrith Ramkumar
Amrith Ramkumar
The Wall Street Journal
Biography
@AmrithRamkumar

amrith.ramkumar@wsj.com

Updated April 16, 2020 4:25 pm ET

Safer assets from gold to Treasurys are rising alongside major indexes, a sign that the stock-market rebound hasn’t assuaged investors’ fears about the world economy.

The S&P 500 has rebounded 25% from its March 23 multiyear low. At the same time, gold on Tuesday climbed to its highest level in nearly 7½ years, bringing its gains for the year to 15%. Billions of dollars have flowed into gold exchange-traded funds, and sales of physical bars and coins have soared.

Treasurys prices have joined the rally, pushing the yield on the benchmark 10-year U.S. Treasury note down to 0.61% from 1.26% on March 18. The Swiss franc and Japanese yen also have posted gains.

This is a reversal from mid-March, when investors sold a range of risky and safe assets to raise cash. Analysts attributed part of the widespread selling to banks demanding repayment from investors who had used their stock portfolios as collateral to buy other securities. Those margin calls then forced investors to sell unrelated assets.

But stocks and havens have risen in tandem since the Federal Reserve slashed interest rates near zero last month and stepped up lending programs and asset purchases. A roughly $2 trillion stimulus package passed by Congress last month—and discussions about more stimulus programs—also have helped markets stabilize despite the broad economic damage caused by the coronavirus.

Still, some analysts view the simultaneous rebounds as evidence of investors’ excessive optimism about how quickly the economy can rebound. Stock prices suggest a short recession with a swift rebound in corporate profits, while gains in havens signal worries about a longer downturn.

New data show how chunks of the U.S. economy froze in March, business executives tell President Trump that a lot more coronavirus testing is needed to get Americans back to work, and New York is set to require people wear face coverings in public. WSJ’s Shelby Holliday has the latest on the pandemic. Photo: Johannes Eisele/Getty Images

Tony Roth, chief investment officer at Wilmington Trust Investment Advisors, said the firm is holding a smaller position in stocks than the benchmark it tracks, believing it will take longer than expected to restart global commerce.

“We are seeing an increasing disconnect between how we expect the economy to perform and what stocks are doing,” he said.

As the busiest part of first-quarter earnings season gets under way, investors are weighing results and comments from the nation’s biggest banks from

JPMorgan Chase

& Co. to

Bank of America Corp.

this week. Both firms reported big drops in quarterly profits from a year earlier after setting aside billions of dollars to cover potential losses from loans.

Bank stocks have clawed back some of their 2020 slide recently, climbing even as rising bond prices have driven Treasury yields lower. That is unusual because falling yields highlight a drop in lending profitability.

Such atypical market movements are contributing to investors’ anxiety. Even within the stock market, many are favoring companies with more cash that can withstand the crisis.

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“When you’re in a storm, you want to be in a strong house,” said Steve Chiavarone, a portfolio manager at Federated Hermes. “We are sitting in the initial couple of weeks of what’s going to be a hellacious economic quarter.”

One of the biggest beneficiaries has been gold, a popular destination during times of economic turmoil. Soaring demand and shutdowns of mines, refineries and transportation methods that move gold around the globe have buoyed bullion lately. Front-month gold futures rose Tuesday to $1,757 a troy ounce—bringing their advance in April alone to 11%—before dropping back to $1,720 on Thursday following back-to-back declines.

Ellen Hazen, a portfolio manager at F.L.Putnam Investment Management, bought the metal recently through an exchange-traded fund. With the Fed flooding the economy with cash to stabilize growth, some analysts think the dollar could weaken, making gold an attractive bet. Low or negative government-bond yields also make it less likely investors will miss out on outsize returns by owning gold instead of bonds.

“It just seems prudent to have a small hedge,” she said.

Concerns about the economic outlook have also driven gains in the safest bonds and currencies and pushed many investors to buttress their cash holdings. At the same time, analysts say it is challenging to interpret some of those moves, given the Fed’s increased purchases of Treasurys and other securities.

SHARE YOUR THOUGHTS Do you think this trend signals excessive optimism in stocks? Why or why not? Join the conversation below.

Central-bank programs are also affecting currencies. After shortages of dollars overseas pushed the U.S. currency to a 18-year high last month, the central bank also took steps to make it easier for foreign central banks to access dollars, potentially impacting swings in haven currencies like the yen and franc.

Still, many investors think owning havens is appropriate, anticipating delays in restarting the world economy and more hurdles for stocks.

“This recovery will take time,” said Luca Paolini, chief strategist at Pictet Asset Management, which holds larger positions in gold and the Swiss franc than the benchmarks it tracks. “The [stock] rally that we have seen seems to be pricing in too much good news.”

Much of that good news relates to how the Fed and Congress are attempting to support the economy. But the longer lockdown orders are in place in the U.S. and other countries, the more likely it is that market momentum reverses again, investors say.

“There’s only so much the Fed can do if the economy is still shut down,” said Nancy Perez, senior portfolio manager at Boston Private.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Economy
The case for emerging-market stocks

Editor’s note: The Economist is making some of its most important coverage of the covid-19 pandemic freely available to readers of The Economist Today, our daily newsletter. To receive it, register here. For our coronavirus tracker and more coverage, see our hub
YOU KNOW by now, if you’ve been paying attention, that the coronavirus pandemic is, if not a turning point in history, then the midwife to profound change or, at the very least, an opportunity for a bit of a rethink. Everything has changed—except, perhaps, minds. Those who expected China (or the European Union or shareholder capitalism) to blow up are now more convinced it will. Believers in globalisation’s retreat, or inflation’s comeback, have fewer doubts.

And if you were chary of emerging markets you might be more so now. In March, when there was a mad scramble for cash, the cash everyone wanted was dollars. When the dollar gets bid up, it hurts emerging markets. If inflation returns, meanwhile, it will surely show up first in the developing world.
Yet if these vices seem more apparent, so does the virtue of diversification. The ideal diversifier is not just something other than what you own, but something that contrasts with it. The typical portfolio is rich in dollar assets—in Treasuries and the leading American shares. It needs a counterweight, an anti-dollar trade. A benchmark basket of emerging-market stocks is a good one.
It helps that such stocks are cheap. Valuations based on company earnings are often misleading at the start of recessions. Recent earnings figures flatter the appraisal; forward-looking estimates of profits take time to reflect grim reality. A way around this is to use a measure that takes in company profits over the cycle: the CAPE (cyclically adjusted price-earnings ratio) popularised by Robert Shiller of Yale University. A snapshot taken at recent market lows by James Montier of GMO, an asset-management firm, shows a healthy margin of safety. Emerging-market shares look very cheap relative to both their history and to America’s S&P 500 index of shares.
Rich-world investors must also consider exchange-rate risk. Forecasting currencies is a mug’s game. Even so, a shrewd investor should at least check she is not buying a currency that is obviously riding high, and thus at greater risk of a dramatic fall. A broad analysis by Charles Robertson of Renaissance Capital, an investment bank, finds that after recent declines, emerging-market currencies are as cheap in real terms as they have been since the mid-2000s.

Should inflation pick up faster in the developing world than in the rich one, the reckoning would change. Currencies would then need to fall further in nominal terms to keep the exchange rate steady in real terms, so that exports stay competitive. Emerging-market economies tend to be more inflation-prone than richer ones. Because of that, central banks have generally been vigilant. A weaker currency has been typically met with higher interest rates to counter imported inflation—even if that hurts an already weak economy. But a lot of central banks in the developing world have relaxed monetary policy recently—understandable, given the severity of the economic shock.
For some countries, though, the dangers of inflation are not great. These more closely resemble rich-world economies, where a weak currency leads to a temporary burst of inflation. The wealthier parts of Asia are like this. But in other places inflation sticks around if not stomped upon. That tends to be because wages are indexed to prices; industry is somewhat cartelised; or trust in the currency is low, encouraging the local use of the dollar. Parts of Latin America come to mind. So does Turkey. Indeed the options a country has when its currency falls define its status, says Eric Lonergan of M&G, a fund-management group. If it must raise interest rates to counter inflation, it is an emerging market; if it has the room to cut rates without fear, it is developed.
Definitions matter, of course. Part of the appeal of indices of emerging-market stocks is that they are dominated by Asian economies that are fairly rich and well-run. They count as emerging markets, because the buying and selling of financial assets is not quite frictionless. Taiwan and South Korea together make up a quarter of the MSCI index. China accounts for a further third. All may prove quite resilient as the world emerges from lockdown. At the very least, the way they perform is likely to be different from rich-world economies.
That feature alone should be appealing to a certain kind of investor. If the world is indeed changed radically by this health crisis, it may be in ways that are hard to imagine today. And if you are unsure of the future, it makes all the more sense to spread your bets.
Dig deeper:For our latest coverage of the covid-19 pandemic, register for The Economist Today, our daily newsletter, or visit our coronavirus tracker and story hub
This article appeared in the Finance and economics section of the print edition under the headline “A shrewd counterweight”
Reuse this contentThe Trust Project

Business
Unemployment Permeates the Economy During the Coronavirus Pandemic

Even as political leaders wrangle over how and when to restart the American economy, the coronavirus pandemic’s devastation became more evident Thursday with more than 5.2 million workers added to the tally of the unemployed.In the last four weeks, the number of unemployment claims has reached 22 million — roughly the net number of jobs created in a nine-and-a-half-year stretch that began after the last recession and ended with the pandemic’s arrival.The latest figure from the Labor Department, reflecting last week’s initial claims, underscores how the downdraft has spread to every corner of the economy: hotels and restaurants, mass retailers, manufacturers and white-collar strongholds like law firms.“There’s nowhere to hide,” said Diane Swonk, chief economist at Grant Thornton in Chicago. “This is the deepest, fastest, most broad-based recession we’ve ever seen.”Some of the new jobless claims represent freshly laid-off workers; others are from people who had been trying for a week or more to file. “We’re still playing catch-up on multiple fronts,” Ms. Swonk said.

Economy
A GOP senator says reopening the economy means accepting the coronavirus will spread faster

AP Photo/Patrick Semansky
GOP Sen. John Kennedy said reopening the US economy means accepting an accelerated spread of coronavirus.
He warned of a global economic collapse if the American economy wasn’t reopened soon in a Fox News interview.
“We’ve gotta reopen, and when we do, the coronavirus is gonna spread faster,” Kennedy said.
Visit Business Insider’s homepage for more stories.
Republican Sen. John Kennedy of Louisiana said in a Fox News interview on Wednesday night that reopening the American economy from its coronavirus-induced shutdown means accepting the infectious pathogen will spread faster.
Speaking with anchor Tucker Carlson, Kennedy said he wanted to be blunt about the need to kick the economy back into high gear.
“Every politician, myself included sometimes, is just dancing around the issue. The American people get it. We’ve gotta reopen, and when we do, the coronavirus is gonna spread faster,” the Republican senator said. “And we’ve gotta be ready for it.”

Tweet Embed://twitter.com/mims/statuses/1250582792972484610?ref_src=twsrc%5EtfwSen Kennedy: “We’ve gotta reopen, and when we do the coronavirus is gonna spread faster” pic.twitter.com/v3KsK0XPEw
He also warned of a global economic collapse.
“We gotta open this economy. If we don’t, it’s gonna collapse,” Kennedy said. “And if the US economy collapses, the world economy collapses. Trying to burn down the village to save it is foolish — that’s a cold hard truth.”
The GOP senator said the shutdown failed to stop the spread of the virus and only slowed the transmission rate — even though that’s what public health officials were trying to achieve.
Still, Kennedy acknowledged the US had to be “smart” in its strategy to reopen the economy.
“Don’t open up in the middle of a hot-spot,” he said. “Encourage your elderly and those with pre-existing conditions to stay quarantined and provide them with financial support. Wear masks, try to socially distance.”

Read more: Restarting the economy doesn’t mean life will return to normal anytime soon. Here are 5 plans that offer a glimpse of a dystopian future.
Kennedy’s comments channel a growing push among conservatives to reopen the economy after a month of astonishing job losses and business closures that have wreaked economic chaos and thrown millions of Americans into dire financial straits.
On Thursday, the Labor Department released data showing 5 million people filed for unemployment for the week ending April 11. That brought the total number of unemployment claims to 22 million — and virtually wiped out all the jobs created in the decade since the Great Recession.
The Trump administration is driving to restart economic activity next month, despite its struggle to ramp up mass coronavirus testing that public health experts say is critical to tracing and managing the spread of the disease.
The White House’s own efforts to reopen the economy have been hobbled by a lack of planning and coordination so far. Trump’s much-vaunted second economic task force instead became a marathon series of phone calls with scores of corporate leaders on Wednesday, Bloomberg reported.

Still, any semblance of a normal life for Americans is likely far off, experts say — at least until a coronavirus vaccine is successfully created and administered to a large segment of the public. 

Business
‘Nowhere to Hide’ as Unemployment Permeates the Economy

Even as political leaders wrangle over how and when to restart the American economy, the coronavirus pandemic’s devastation became more evident Thursday with more than 5.2 million workers added to the tally of the unemployed.In the last four weeks, the economy has lost about 22 million jobs, roughly the net number created in a nine-and-a-half-year stretch that began after the last recession and ended with the pandemic’s arrival.The latest figure from the Labor Department, reflecting last week’s initial unemployment claims, underscores how the downdraft has spread to every corner of the economy: hotels and restaurants, mass retailers, manufacturers and white-collar strongholds like law firms.“There’s nowhere to hide,” said Diane Swonk, chief economist at Grant Thornton in Chicago. “This is the deepest, fastest, most broad-based recession we’ve ever seen.”Some of the new jobless claims represent freshly laid-off workers; others are from people who had been trying for a week or more to file. “We’re still playing catch-up on multiple fronts,” Ms. Swonk said.

Economy
Jeff Bezos: Widespread coronavirus testing needed before economy can get running again

Jeff Bezos, founder and chief executive officer of Amazon.com Inc., speaks at the National Press Club in Washington, D.C., on Thursday, Sept. 19, 2019.
Andrew Harrer | Bloomberg | Getty Images

Jeff Bezos on Thursday published Amazon’s annual shareholder letter, in which he detailed how the company has responded to the coronavirus pandemic so far.
Bezos stressed the importance of testing in order for the public to return to work, as well as for his own employees to be protected from the virus. He pointed to Amazon’s efforts to develop “incremental testing capacity,” which the company announced last week. As part of that announcement, Amazon said it hopes to begin testing all of its employees, including those who show no symptoms.

“Regular testing on a global scale, across all industries, would both help keep people safe and help get the economy back up and running,” Bezos said. “For this to work, we as a society would need vastly more testing capacity than is currently available.”
Bezos detailed other steps Amazon has taken to curb the coronavirus, such as providing employees with face masks and distributing temperature checks for warehouse workers, delivery drivers and Whole Foods employees. He added that Amazon temporarily closed some of its physical stores, including Amazon Books, Amazon 4-star and Amazon Pop Up stores as they don’t sell essential products, and offered those store employees roles in other parts of the company.
Amazon’s logistics and delivery systems have been under some strain since the pandemic worsened across the globe. Due to a surge in online orders, the company was forced to prioritize shipments of essential goods at its fulfillment centers, resulting in longer delivery times and a rare disruption to its typical two-day and one-day delivery windows.
Bezos said unlike the typical holiday shopping season, the surge over the last few months “occurred with little warning, creating major challenges for our suppliers and delivery network.” For that reason and others, Bezos added that his “own time and thinking” continues to be focused on the coronavirus.
“I am extremely grateful to my fellow Amazonians for all the grit and ingenuity they are showing as we move through this,” Bezos said. “You can count on all of us to look beyond the immediate crisis for insights and lessons and how to apply them going forward.”

You can read the letter in full below:
To our shareowners:
One thing we’ve learned from the COVID-19 crisis is how important Amazon has become to our customers. We want you to know we take this responsibility seriously, and we’re proud of the work our teams are doing to help customers through this difficult time.
Amazonians are working around the clock to get necessary supplies delivered directly to the doorsteps of people who need them. The demand we are seeing for essential products has been and remains high. But unlike a predictable holiday surge, this spike occurred with little warning, creating major challenges for our suppliers and delivery network. We quickly prioritized the stocking and delivery of essential household staples, medical supplies, and other critical products.
Our Whole Foods Market stores have remained open, providing fresh food and other vital goods for customers. We are taking steps to help those most vulnerable to the virus, setting aside the first hour of shopping at Whole Foods each day for seniors. We have temporarily closed Amazon Books, Amazon 4-star, and Amazon Pop Up stores because they don’t sell essential products, and we offered associates from those closed stores the opportunity to continue working in other parts of Amazon.
Crucially, while providing these essential services, we are focused on the safety of our employees and contractors around the world—we are deeply grateful for their heroic work and are committed to their health and well-being. Consulting closely with medical experts and health authorities, we’ve made over 150 significant process changes in our operations network and Whole Foods Market stores to help teams stay healthy, and we conduct daily audits of the measures we’ve put into place. We’ve distributed face masks and implemented temperature checks at sites around the world to help protect employees and support staff. We regularly sanitize door handles, stairway handrails, lockers, elevator buttons, and touch screens, and disinfectant wipes and hand sanitizer are standard across our network.
We’ve also introduced extensive social distancing measures to help protect our associates. We have eliminated stand-up meetings during shifts, moved information sharing to bulletin boards, staggered break times, and spread out chairs in breakrooms. While training new hires is challenging with new distancing requirements, we continue to ensure that every new employee gets six hours of safety training. We’ve shifted training protocols so we don’t have employees gathering in one spot, and we’ve adjusted our hiring processes to allow for social distancing.
A next step in protecting our employees might be regular testing of all Amazonians, including those showing no symptoms. Regular testing on a global scale, across all industries, would both help keep people safe and help get the economy back up and running. For this to work, we as a society would need vastly more testing capacity than is currently available. If every person could be tested regularly, it would make a huge difference in how we fight this virus. Those who test positive could be quarantined and cared for, and everyone who tests negative could re-enter the economy with confidence.
We’ve begun the work of building incremental testing capacity. A team of Amazonians—from research scientists and program managers to procurement specialists and software engineers—moved from their normal day jobs onto a dedicated team to work on this initiative. We have begun assembling the equipment we need to build our first lab and hope to start testing small numbers of our frontline employees soon. We are not sure how far we will get in the relevant timeframe, but we think it’s worth trying, and we stand ready to share anything we learn.
While we explore longer-term solutions, we are also committed to helping support employees now. We increased our minimum wage through the end of April by $2 per hour in the U.S., $2 per hour in Canada, £2 per hour in the UK, and €2 per hour in many European countries. And we are paying associates double our regular rate for any overtime worked—a minimum of $34 an hour—an increase from time and a half. These wage increases will cost more than $500 million, just through the end of April, and likely more than that over time. While we recognize this is expensive, we believe it’s the right thing to do under the circumstances. We also established the Amazon Relief Fund—with an initial $25 million in funding—to support our independent delivery service partners and their drivers, Amazon Flex participants, and temporary employees under financial distress.
In March, we opened 100,000 new positions across our fulfillment and delivery network. Earlier this week, after successfully filling those roles, we announced we were creating another 75,000 jobs to respond to customer demand. These new hires are helping customers who depend on us to meet their critical needs. We know that many people around the world have suffered financially as jobs are lost or furloughed. We are happy to have them on our teams until things return to normal and either their former employer can bring them back or new jobs become available. We’ve welcomed Joe Duffy, who joined after losing his job as a mechanic at Newark airport and learned about an opening from a friend who is an Amazon operations analyst. Dallas preschool teacher Darby Griffin joined after her school closed on March 9th and now helps manage new inventory. We’re happy to have Darby with us until she can return to the classroom.
Amazon is acting aggressively to protect our customers from bad actors looking to exploit the crisis. We’ve removed over half a million offers from our stores due to COVID-based price gouging, and we’ve suspended more than 6,000 selling accounts globally for violating our fair-pricing policies. Amazon turned over information about sellers we suspect engaged in price gouging of products related to COVID-19 to 42 state attorneys general offices. To accelerate our response to price-gouging incidents, we created a special communication channel for state attorneys general to quickly and easily escalate consumer complaints to us.
Amazon Web Services is also playing an important role in this crisis. The ability for organizations to access scalable, dependable, and highly secure computing power—whether for vital healthcare work, to help students continue learning, or to keep unprecedented numbers of employees online and productive from home—is critical in this situation. Hospital networks, pharmaceutical companies, and research labs are using AWS to care for patients, explore treatments, and mitigate the impacts of COVID-19 in many other ways. Academic institutions around the world are transitioning from in-person to virtual classrooms and are running on AWS to help ensure continuity of learning. And governments are leveraging AWS as a secure platform to build out new capabilities in their efforts to end this pandemic.
We are collaborating with the World Health Organization, supplying advanced cloud technologies and technical expertise to track the virus, understand the outbreak, and better contain its spread. WHO is leveraging our cloud to build large-scale data lakes, aggregate epidemiological country data, rapidly translate medical training videos into different languages, and help global healthcare workers better treat patients. We are separately making a public AWS COVID-19 data lake available as a centralized repository for up-to-date and curated information related to the spread and characteristics of the virus and its associated illness so experts can access and analyze the latest data in their battle against the disease.
We also launched the AWS Diagnostic Development Initiative, a program to support customers working to bring more accurate diagnostic solutions to market for COVID-19. Better diagnostics help accelerate treatment and containment of this pandemic. We committed $20 million to accelerate this work and help our customers harness the cloud to tackle this challenge. While the program was established in response to COVID-19, we also are looking toward the future, and we will fund diagnostic research projects that have the potential to blunt future infectious disease outbreaks.
Customers around the world have leveraged the cloud to scale up services and stand up responses to COVID-19. We joined the New York City COVID-19 Rapid Response Coalition to develop a conversational agent to enable at-risk and elderly New Yorkers to receive accurate, timely information about medical and other important needs. In response to a request from the Los Angeles Unified School District to transition 700,000 students to remote learning, AWS helped establish a call center to field IT questions, provide remote support, and enable staff to answer calls. We are providing cloud services to the CDC to help thousands of public health practitioners and clinicians gather data related to COVID-19 and inform response efforts. In the UK, AWS provides the cloud computing infrastructure for a project that analyzes hospital occupancy levels, emergency room capacity, and patient wait times to help the country’s National Health Service decide where best to allocate resources. In Canada, OTN—one of the world’s largest virtual care networks—is scaling its AWS-powered video service to accommodate a 4,000% spike in demand to support citizens as the pandemic continues. In Brazil, AWS will provide the São Paulo State Government with cloud computing infrastructure to guarantee online classes to 1 million students in public schools across the state.
Following CDC guidance, our Alexa health team built an experience that lets U.S. customers check their risk level for COVID-19 at home. Customers can ask, “Alexa, what do I do if I think I have COVID-19?” or “Alexa, what do I do if I think I have coronavirus?” Alexa then asks a series of questions about the person’s symptoms and possible exposure. Based on those responses, Alexa then provides CDC-sourced guidance. We created a similar service in Japan, based on guidance from the Japanese Ministry of Health, Labor, and Welfare.
We’re making it easy for customers to use Amazon.com or Alexa to donate directly to charities on the front lines of the COVID-19 crisis, including Feeding America, the American Red Cross, and Save the Children. Echo users have the option to say, “Alexa, make a donation to Feeding America COVID-19 Response Fund.” In Seattle, we’ve partnered with a catering business to distribute 73,000 meals to 2,700 elderly and medically vulnerable residents in Seattle and King County during the outbreak, and we donated 8,200 laptops to help Seattle Public Schools students gain access to a device while classes are conducted virtually.

Beyond COVID

Although these are incredibly difficult times, they are an important reminder that what we do as a company can make a big difference in people’s lives. Customers count on us to be there, and we are fortunate to be able to help. With our scale and ability to innovate quickly, Amazon can make a positive impact and be an organizing force for progress.
Last year, we co-founded The Climate Pledge with Christiana Figueres, the UN’s former climate change chief and founder of Global Optimism, and became the first signatory to the pledge. The pledge commits Amazon to meet the goals of the Paris Agreement 10 years early—and be net zero carbon by 2040. Amazon faces significant challenges in achieving this goal because we don’t just move information around—we have extensive physical infrastructure and deliver more than 10 billion items worldwide a year. And we believe if Amazon can get to net zero carbon ten years early, any company can—and we want to work together with all companies to make it a reality.
To that end, we are recruiting other companies to sign The Climate Pledge. Signatories agree to measure and report greenhouse gas emissions regularly, implement decarbonization strategies in line with the Paris Agreement, and achieve net zero annual carbon emissions by 2040. (We’ll be announcing new signatories soon.)
We plan to meet the pledge, in part, by purchasing 100,000 electric delivery vans from Rivian—a Michigan-based producer of electric vehicles. Amazon aims to have 10,000 of Rivian’s new electric vans on the road as early as 2022, and all 100,000 vehicles on the road by 2030. That’s good for the environment, but the promise is even greater. This type of investment sends a signal to the marketplace to start inventing and developing new technologies that large, global companies need to transition to a low-carbon economy.
We’ve also committed to reaching 80% renewable energy by 2024 and 100% renewable energy by 2030. (The team is actually pushing to get to 100% by 2025 and has a challenging but credible plan to pull that off.) Globally, Amazon has 86 solar and wind projects that have the capacity to generate over 2,300 MW and deliver more than 6.3 million MWh of energy annually—enough to power more than 580,000 U.S. homes.
We’ve made tremendous progress cutting packaging waste. More than a decade ago, we created the Frustration-Free Packaging program to encourage manufacturers to package their products in easy-to-open, 100% recyclable packaging that is ready to ship to customers without the need for an additional shipping box. Since 2008, this program has saved more than 810,000 tons of packaging material and eliminated the use of 1.4 billion shipping boxes.
We are making these significant investments to drive our carbon footprint to zero despite the fact that shopping online is already inherently more carbon efficient than going to the store. Amazon’s sustainability scientists have spent more than three years developing the models, tools, and metrics to measure our carbon footprint. Their detailed analysis has found that shopping online consistently generates less carbon than driving to a store, since a single delivery van trip can take approximately 100 roundtrip car journeys off the road on average. Our scientists developed a model to compare the carbon intensity of ordering Whole Foods Market groceries online versus driving to your nearest Whole Foods Market store. The study found that, averaged across all basket sizes, online grocery deliveries generate 43% lower carbon emissions per item compared to shopping in stores. Smaller basket sizes generate even greater carbon savings.
AWS is also inherently more efficient than the traditional in-house data center. That’s primarily due to two things—higher utilization, and the fact that our servers and facilities are more efficient than what most companies can achieve running their own data centers. Typical single-company data centers operate at roughly 18% server utilization. They need that excess capacity to handle large usage spikes. AWS benefits from multi-tenant usage patterns and operates at far higher server utilization rates. In addition, AWS has been successful in increasing the energy efficiency of its facilities and equipment, for instance by using more efficient evaporative cooling in certain data centers instead of traditional air conditioning. A study by 451 Research found that AWS’s infrastructure is 3.6 times more energy efficient than the median U.S. enterprise data center surveyed. Along with our use of renewable energy, these factors enable AWS to do the same tasks as traditional data centers with an 88% lower carbon footprint. And don’t think we’re not going to get those last 12 points—we’ll make AWS 100% carbon free through more investments in renewable energy projects.

Leveraging scale for good

Over the last decade, no company has created more jobs than Amazon. Amazon directly employs 840,000 workers worldwide, including over 590,000 in the U.S., 115,000 in Europe, and 95,000 in Asia. In total, Amazon directly and indirectly supports 2 million jobs in the U.S., including 680,000-plus jobs created by Amazon’s investments in areas like construction, logistics, and professional services, plus another 830,000 jobs created by small and medium-sized businesses selling on Amazon. Globally, we support nearly 4 million jobs. We are especially proud of the fact that many of these are entry-level jobs that give people their first opportunity to participate in the workforce.
And Amazon’s jobs come with an industry-leading $15 minimum wage and comprehensive benefits. More than 40 million Americans—many making the federal minimum wage of $7.25 an hour—earn less than the lowest-paid Amazon associate. When we raised our starting minimum wage to $15 an hour in 2018, it had an immediate and meaningful impact on the hundreds of thousands of people working in our fulfillment centers. We want other big employers to join us by raising their own minimum pay rates, and we continue to lobby for a $15 federal minimum wage.
We want to improve workers’ lives beyond pay. Amazon provides every full-time employee with health insurance, a 401(k) plan, 20 weeks paid maternity leave, and other benefits. These are the same benefits that Amazon’s most senior executives receive. And with our rapidly changing economy, we see more clearly than ever the need for workers to evolve their skills continually to keep up with technology. That’s why we’re spending $700 million to provide more than 100,000 Amazonians access to training programs, at their places of work, in high-demand fields such as healthcare, cloud computing, and machine learning. Since 2012, we have offered Career Choice, a pre-paid tuition program for fulfillment center associates looking to move into high- demand occupations. Amazon pays up to 95% of tuition and fees toward a certificate or diploma in qualified fields of study, leading to enhanced employment opportunities in high-demand jobs. Since its launch, more than 25,000 Amazonians have received training for in-demand occupations.
To ensure that future generations have the skills they need to thrive in a technology-driven economy, we started a program last year called Amazon Future Engineer, which is designed to educate and train low-income and disadvantaged young people to pursue careers in computer science. We have an ambitious goal: to help hundreds of thousands of students each year learn computer science and coding. Amazon Future Engineer currently funds Introduction to Computer Science and AP Computer Science classes for more than 2,000 schools in underserved communities across the country. Each year, Amazon Future Engineer also gives 100 four-year, $40,000 college scholarships to computer science students from low-income backgrounds. Those scholarship recipients also receive guaranteed, paid internships at Amazon after their first year of college. Our program in the UK funds 120 engineering apprenticeships and helps students from disadvantaged backgrounds pursue technology careers.
For now, my own time and thinking continues to be focused on COVID-19 and how Amazon can help while we’re in the middle of it. I am extremely grateful to my fellow Amazonians for all the grit and ingenuity they are showing as we move through this. You can count on all of us to look beyond the immediate crisis for insights and lessons and how to apply them going forward.
Reflect on this from Theodor Seuss Geisel:
“When something bad happens you have three choices. You can either let it define you, let it destroy you, or you can let it strengthen you.”
I am very optimistic about which of these civilization is going to choose.
Even in these circumstances, it remains Day 1. As always, I attach a copy of our original 1997 letter.
Sincerely,
Jeffrey P. Bezos
Founder and Chief Executive Officer
Amazon.com, Inc.

Economy
Grab has 'ample liquidity' to tide through a 3-year recession, CEO predicts

Southeast Asia’s ride-hailing giant Grab saw its transportation business take a hit due to the coronavirus outbreak, but CEO Anthony Tan predicts that his company will have enough liquidity to tide through a recession.
“In some countries, our transport GMV is down by double-digit percentage,” Tan told CNBC’s Nancy Hungerford in an interview. 

GMV is a commonly tracked metric by internet companies that measures the total value of sales for goods and services sold on their platforms.
He explained that the company’s diversified business model, which includes food and grocery delivery among others, has helped Grab weather some of the coronavirus impact. Grab has adjusted to the new environment by scaling up some of its non-transport business segments to meet demand spikes and moving its supplies around to ensure drivers on the platform can still have income opportunities, the CEO said.

We are fortunate to have ample liquidity to tide us through, whether it’s a 12-month recession or 36-month recession.

Anthony Tan
CEO of Grab

Still, the uptick in delivery services has not completely offset the impact on the transport business but Tan appeared optimistic about the outlook. 
“Looking ahead, though, I know that transport is a mass-market essential service, so we anticipate it will recover strongly once people start commuting again post lockdown,” he said. 
Grab operates in 339 cities across eight countries in Asia, including Singapore, Malaysia, and Indonesia.

All of those countries have implemented some forms of social distancing measures, some stricter than others, and more people started staying at home in recent months due to the virus outbreak. It has reduced the demand for transportation. 
Globally, more than 2 million people have been infected and the International Monetary Fund has predicted the worst economic downturn since the Great Depression.

That has affected the income of many drivers on Grab’s platform, including some who have contracted Covid-19, the disease caused by the coronavirus. In response, the company said it invested close to $40 million in financial assistance across the region and introduced additional support measures in places like Singapore, where it is headquartered.
“They can focus on recovering rather than worrying about putting food on the table,” Tan said.
When asked about the company’s overall financial health, he explained that most of Grab’s costs are variable and they decline when demand is down. 
“Because of our strong investor base, we are fortunate to have ample liquidity to tide us through, whether it’s a 12-month recession or 36-month recession,” Tan added. 
Grab counts the likes of SoftBank, Singapore’s state investment firm Temasek Holdings and Chinese ride-hailing giant Didi Chuxing as its investors. It has raised $9.9 billion to date, according to Crunchbase data, including an investment commitment from Japan’s Mitsubishi UFJ Financial Group for $706 million in February. 

Economy
The agonies of stock-picking in a falling market

Editor’s note: The Economist is making some of its most important coverage of the covid-19 pandemic freely available to readers of The Economist Today, our daily newsletter. To receive it, register here. For more coverage, see our coronavirus hub
I SUSPECT THAT this not a common feeling, but part of me is excited about the crash in stock prices. It is the part of me with a personal-account portfolio. I have long-term financial goals. I want to hold equity risk, even as others run from it. If I can buy streams of cash flows at lower prices, I am happy. But another part of me, the professional who invests on behalf of others, is anxious. I try to fuse these two selves. It is not easy.

In my lifetime there have been three bear markets in which the value of shares in aggregate has fallen by half. Perhaps this episode will be as bad—or worse. I don’t know. I can say this, though. For a long-term investor who doesn’t have to worry about perfect timing, there should be opportunities to buy good stocks at attractive prices. As a private investor, I can wait for risky bets eventually to pay off. My clients may not be so patient.
Nobody knows how this pandemic will play out. Lots of people claim to know, of course. A few of them will be right, by luck or judgment. That’s a matter for the scientists and for economists, too. The biggest insight I have gleaned from economics is that asset prices are set at the margin. The stock price on the screen is the one at which the most desperate seller and the bravest buyer are willing to do business. When the ranks of the first group overwhelm the second, the result is a rout—or capitulation, in market-speak.
Every recession is unique. This one has the impact of a natural disaster or a nuclear accident. But every recession is also the same. You can never be sure how deep it will be, how long it will last and what scars it will leave. China has just experienced its sharpest downturn in a century. That is scary. But 2008 was scary. The dotcom bust was scary. I was a baby in 1974, but my old boss tells me that was scary. True, this is a different kind of scary. I call my parents every day to check how they are. I didn’t do that in 2008. (I wasn’t trading stocks in pyjamas on a weekday either.) This could be a savage recession. But it will be like other recessions in that there will be a recovery.
In the meantime, stock prices can keep falling. I understand why people are selling. A lot are forced to. They may have borrowed to buy stocks and had their loans called by nervy lenders. Fund managers that promised low volatility must cut their equity risk. But capitulation is more than this. It is the dumping of stocks that have already fallen a long way. Retail investors are prone to it. But why would any professional do it? Well, sometimes you sell your duds so you don’t have to talk about them anymore—to the firm’s risk manager or to your clients. Owning a stock that goes to zero is too horrible to contemplate. So you sell. And sometimes you sell things that as a private investor you would hold onto or double-down on. Clients want you to take risk. But they don’t like what risk-taking looks like when it doesn’t work. Try explaining, after the fact, why you bought a stock two weeks before the firm went bankrupt, because you judged that, should it survive or be rescued, you stood to make ten times your money.

I am lucky. I have been in the top-quartile of stockpickers. So I have earned the trust to make risky bets in a falling market. A good portfolio in a recession is not necessarily a good portfolio for when the economy recovers. I know that at some point I am going to have to change tack. I would have to be a genius to time this shift perfectly. And I am not a genius. The best I can hope for is not to get it too badly wrong.
My instinct is to be contrarian, to buy what others now hate. Some industries, such as oil, are outside my comfort zone. The politics of OPEC are too messy for me to fathom. But I have an eye on mining companies with attractive dividend yields and low debt. If China’s economy rebounds, they will benefit. And, yes, I am absolutely looking at airlines. A national champion or two is bound to be saved. In the right situation, I might make a lot of money for clients. Dislocation on this scale will take out the weaker players in every industry. The best companies will emerge even stronger. I hope I pick the right ones.
There will come a time when the market surveys the whole panorama—bad businesses cleared out; interest rates even lower; fiscal policy in the pipeline; cheaper stocks—and changes direction. I have to be ready for that. The S&P 500 is America’s capital stock. It will survive (or most of it will). People will want to fly, stay in hotels and go to restaurants and coffee bars again. I have to keep that in mind always. I feel queasy. But this is the game I have chosen to be in.
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This article appeared in the Finance and economics section of the print edition under the headline “Capitulation”
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Economy
Economies can rebound quickly from massive GDP slumps—but not always

Editor’s note: The Economist is making some of its most important coverage of the covid-19 pandemic freely available to readers of The Economist Today, our daily newsletter. To receive it, register here. For more coverage, see our coronavirus hub
IT WILL BE some time—years most likely—before the full extent of the economic blow from covid-19 can be estimated with any confidence. As ever more of the global economy enters a prolonged shutdown, it seems increasingly clear that the world is facing a drop in output unprecedented in its breadth and intensity. Some analysts see in the growing economic disruptions and market panic the first stirrings of an economic collapse more serious than the global financial crisis of 2007-09. Joachim Fels, an economist at PIMCO, an investment fund, recently warned that in the absence of sufficiently aggressive action from governments the world could face a market meltdown and ensuing depression. All downturns create discomfort, but the pain of a slump—even a very steep one—depends greatly on how long it lasts. History suggests that rapid rebounds from enormous output losses are possible, but not by any means guaranteed.

Some economies, perhaps those of Singapore or even South Korea, could find a footing by the second half of the year, sufficient to offset some of the production lost during the first half. But the probability that others could experience extreme declines in GDP in 2020—perhaps as large as 10%—grows by the day. Falls of that magnitude are not especially unusual in developing economies, where growth is highly volatile. (To take just one example, there have been ten years since 1980 in which real GDP in Libya has fallen by at least 10%, between which plunges the economy has experienced annual growth spurts of as much as 125%.) In industrialised countries swings of that scale are exceedingly rare. An analysis of data gathered by the World Bank reveals that since 1960, across rich countries, there have been only 13 instances in which an economy experienced an annual decline in GDP of at least 5%, only three cases in which output fell by at least 7% in one year (Finland in 2009, and Greece in 2011 and 2012), and none in which output dropped by more than 10%. In the rich world, clusters of large decreases in GDP appear on the heels of the 1973 oil crisis, during the Asian financial crisis of 1997-98, and as part of the global financial crisis and its aftermath.
A longer perspective reinforces the rarity of such events. Economic historians at the University of Groningen, in the Netherlands, maintain a cross-country set of GDP data stretching far into the past. Since 1870, across 18 industrialised economies, there have been only 47 instances in which a country experienced an annual decline in output of more than 10%. Most are associated with world wars and the Depression; of the 47 large output declines, 42 occurred between 1914 and 1945 (see left-hand chart).

How do countries fare after suffering such economic blows? Recoveries are occasionally quite rapid. At the end of the world wars, a few economies experienced near-immediate bursts of growth—partly, but not always, because of rebuilding. The beleaguered Italian economy grew by about 35% in 1946. By 1949 it had already recovered all the ground it lost during the war and then some. The German economy shrank by a staggering 66% from 1944 to 1946, then grew at an annual average rate of 12% over the subsequent decade. In other cases rebounds are less robust. In 1924 real output in both Germany and Austria remained below the levels before 1914. Across the period from 1870, it took an average of five years for output in countries that experienced declines in GDP of more than 10% to regain their peak (see right-hand chart).
Importantly, this reflects the fact that the main causes of economic contraction—world wars—persisted and disrupted activity for several years. French output fell by more than 10% per year in 1940, 1941, 1942 and 1944, for example. Yet focusing on more recent experience, and on smaller initial output declines of just 5%, does not dramatically change the picture. Among the rich economies which experienced annual drops in GDP of more than 5% since 1960, output took an average of four years to return to its previous level. Again, there are examples of immediate, robust recovery. By 1999, for instance, real GDP in South Korea had already risen well above the peak reached in early 1997, before the Asian financial crisis struck. Recoveries from the global financial crisis, in contrast, have been more sluggish. The Italian economy entered the covid-19 crisis having failed to regain the level of real output it achieved in 2008.

Catch the trade winds
Any lessons from these experiences should be applied to the world’s current situation with care. A dangerous pandemic working its way across a highly integrated global economy is an unprecedented event. Still, a few historical patterns are worth noting. First, and most obviously, the duration of the economic pain depends on how much goes wrong as a result of the initial shock. Germany and Austria fared worse than other first-world-war combatants because they lost the war and their empires, and suffered state collapse and hyperinflation. If countries today can survive massive output declines without sustaining much institutional damage, that bodes well for the pace of recovery.

Second, large drops in output often accompany a fracturing of global trade networks. The success with which those trade ties are restored matters for the robustness of the economic rebound. Western Europe enjoyed explosive growth in the years after the second world war, thanks in part to efforts to knit trade back together—a very different outcome from that following the first. Similarly, the world must hope that trade recovers quickly when the pandemic ebbs.
And third, it is important to get macroeconomic policy right. The global financial crisis, and the euro-area debt woes which followed, did not kill millions of people or destroy valuable infrastructure, but the sluggish recovery that followed left Europe both economically and politically vulnerable to new shocks.
Even the mildest brush with the coronavirus could prove economically destructive if governments are reluctant to provide enough stimulus. The world should be able to bounce back to growth once covid-19 is brought under control. It has only to avoid the errors of history.■
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This article appeared in the Finance and economics section of the print edition under the headline “From V to victory”
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Economy
How market panic can feed back to the world economy

FINANCIAL MARKETS have not endured a day as brutal as March 9th since the global financial crisis of 2007-09. Stockmarkets were a sea of red ink. The S&P 500 index fell by 7.6%. The FTSE 100—laden with oil firms, such as Shell and BP, and other natural-resource companies—suffered a similar drop. Investors rushed for the safety of government bonds. The yield on ten-year American Treasuries dipped below 0.5% for the first time ever. Investors sought other havens, such as the yen. Gold rose above $1,700 an ounce for the first time in seven years.
The backdrop, present for the past fortnight or more, is growing anxiety about global recession as covid-19 spreads. But the trigger for the latest burst of panic was a collapse in the oil price, following a meeting of OPEC ministers and other oil producers on March 6th. Russia (not an OPEC member) balked at cutting production to stabilise the price of crude. The response from Saudi Arabia, OPEC’s largest producer, was unexpected. It offered discounts to its customers and announced an increase in its output from next month. In effect, it launched a price war. Early on March 9th the price of a barrel of the Brent benchmark blend slumped by around a third, almost touching $31, before recovering a few dollars.

But why the panic? Cheaper oil ought to be a balm to the world economy. The oil-price spikes of the 1970s and early 1990s led to recessions because they transferred income from oil-consuming countries in the West to oil-producing countries in the Middle East. The consumers were forced to cut spending, but the producers saved much of their windfall. The net effect was to squash aggregate demand. So a sharp drop should act as a stimulus.
The logic these days is partly reversed. For a start, rich economies are a lot less dependent on oil; it takes far less oil to produce a dollar of GDP today than it once did. Still, the benefits of cheaper oil to consumers are not to be sniffed at. Next, America is once again a big producer of oil, so its economy suffers as well as gains when prices fall. The equation for other oil producers has also changed. Many of them spend freely when the oil price is high. So when prices fall, that element of global aggregate demand falls too.
Russia—the tactical target of Saudi Arabia’s price war—is different. Since 2014 it has run orderly monetary and fiscal policies. It has been a net provider of credit to the world, not a net borrower. And it has saved a lot of its surplus oil revenue for a rainy day, by basing its budget on an oil price of $40 a barrel. Middle Eastern and African producers (and never mind Venezuela) have not been as disciplined. Saudi Arabia itself needs $80 a barrel to balance the books.
Listed oil companies in America and Europe will endure a direct hit to profits if the oil price stays where it is. Much of the red ink on March 9th was spilled in listed oil stocks—which were out of favour even before the spread of covid-19. Yet what worries a lot of investors is the indirect impact of the latest market gyrations. Oil producers account for a big chunk of America’s high-yield (“junk”) bond market (see chart). As a method of squeezing high-cost American shale-oil producers out of the market, there is some logic to the Saudis’ move. An immediate effect of lower oil prices was a further tightening of corporate-credit conditions for the riskiest borrowers. A slug of investment-grade issuers—hoteliers and carmakers as well as airlines and oil firms—must also be at risk. Already there has been a trickle of ratings downgrades to junk. The more stressed markets become, the more credit will be withheld from those companies most desperate for cash to tide them over.

Few foresaw the Saudis reacting as they have to the collapse in oil demand induced by covid-19 and the failure to strike a deal with the Russians. Other surprises are surely lurking. Big falls in equity markets may beget yet further falls, as certain kinds of investors try to limit the volatility of their portfolios by switching into safer government bonds. Another worry is that offshore borrowers of dollars may find it hard to secure funding in future. Japanese banks and insurance firms have been voracious buyers of bonds in America and Europe. Were they to back away, credit markets would come under further strain. Much depends on measures to keep credit flowing. The Federal Reserve has already acted: on March 9th it offered to increase its lending to overnight money markets from $100bn to $150bn.
No end to the market turmoil is in sight yet. For things to stabilise, two things are required. First is a sign that the worst is past—clear evidence that virus infection rates in rich economies are peaking. Second, the price of risky assets, such as stocks and corporate bonds, must become cheap enough to attract bottom-fishing investors. Even to an optimist, these pre-conditions are weeks away. For now, panic reigns.
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