The Capital Note

The Capital Note: Coronavirus Winners & Losers

Alberto Mendoza checks a website to apply for unemployment benefits outside of the Workforce Solutions for South Texas offices in Laredo, Texas, March 20, 2020. (Veronica G. Cardenas/Reuters)

Welcome to the Capital Note, a newsletter (coming soon) about finance and economics. On the menu today: employment numbers, a macro renaissance, and a look back at Black Wednesday.

Jobless Claims Say No V Shape

The chances of a V-shaped recovery were never really credible — at least once the lockdowns had extended from weeks to months. The idea that an economy could simply be switched off is one in which a central planner might have faith, but which no one else should believe. Free markets are resilient and, given the chance, can fix themselves in ways that a planner could never have dreamed of, but they are also immensely intricate: Once the networks on which they depend are disrupted it will take time for them to be repaired or replaced. And yes, there can be room for government to help, particularly while that repair work is going on.

It’s important not to read too much into one data point, but today’s disappointing unemployment-claims numbers are just the latest reminder that recovery is going to take time (and also that it is more likely to look like a K than a V).

CNBC has more on today’s news:

The number of people filing for unemployment benefits last week was greater than expected, raising concern about the state of the economy as lawmakers struggle to move forward on a new pandemic stimulus package.

The Labor Department said Thursday that initial jobless claims for the week ended Aug. 15 came in at 1.106 million. Economists polled by Dow Jones expected a total of 923,000. Initial claims for the previous week were also revised higher by 8,000 to 971,000. Last week marked the first time in 21 weeks that initial claims came in below 1 million.

“The modest jump is a stark reminder that claims will likely encounter some turbulence as they fall rather than gliding in for a soft landing,” said Daniel Zhao, senior economist at Glassdoor.

Adding to the gloom, The Washington Post, reported that “new claims for Pandemic Unemployment Assistance, the program available to gig and self-employed workers, both went up. About 543,000 new claims were filed for PUA for the week that ended on Aug. 15, up from 488,000 the week before.”

And the news on job postings is also worth watching. Those numbers had been improving, but “last week, postings took a turn for the worse. They had been running about 18 percent below normal and fell to 20.3 percent below normal last week.”

The Post quotes AnnElizabeth Konkel, an economist at the job site Indeed: “The longer we go into this crisis, the longer people that have been temporarily laid off may not get called back,” Konkel said. “Businesses can only ride out this crisis for so long.”

Quite so. The risk-reward calculations surrounding lockdowns change all the time, but, at this point, the risks associated with lockdowns (let alone the adoption of a national “stringent” lockdown on the lines recently suggested by the Minnesota Fed’s Neel Kashkari) are growing by the day, especially if the reward is not the “crushing” of the virus, but merely the postponement of a possible second wave until (checks notes) the flu season.


With the coronavirus still spreading widely, it’s time to start thinking seriously about influenza, which typically spreads in fall and winter. A major flu outbreak would not only overwhelm hospitals this fall and winter, but also likely overwhelm a person who might contract both at once.

Doctors have no way of knowing yet what the effect of a dual diagnosis might be on a person’s body, but they do know the havoc that the flu alone can do to a person’s body. And, we know the U.S. death toll of COVID-19 as of Aug. 17 was 170,000, and doctors are learning more each day about the effects of the disease on the body. Public health officials in the U.S. are therefore urging people to get the flu vaccine, which is already being shipped in many areas to be ready for September vaccinations.

Flu cases are expected to start increasing early in October and could last late into May. This makes September and early October the ideal time to get your flu shot.

Good advice.

— A.S.

Macro Renaissance

“Global macro” — an investment strategy in which investors bet on global moves in currencies, interest rates, and commodities — has made more Wall Street legends than perhaps any other field. George Soros rose to prominence when he “broke” the Bank of England, netting a cool $1 billion in a spectacular bet against the pound. Louis Bacon, another master of the universe, made his name with a massive wager on oil during the First Gulf War.

Of late, though, macro has lost its allure thanks to persistently low volatility and near-zero interest rates globally. Macro funds have seen sluggish performance in recent years; now “quant” is Wall Street’s sexiest strategy. In a sign of the times, Bacon closed his fund to outside investors last year.

But the coronavirus pandemic — which caused massive price-displacements in financial markets — has sparked an unlikely renaissance in global macro.

The main fund at Brevan Howard, the firm headed by billionaire Alan Howard, was up over 21 per cent in the first half of 2020; Paul Tudor Jones’s flagship fund at Tudor Investment Corporation has gained 8 per cent through July; and Chris Rokos’s Rokos Capital Management has climbed 24 per cent through to the end of July, according to investor documents and people familiar with the matter.

Caxton Associates has returned 31 per cent this year, according to investors, while a fund run by the firm’s chief executive Andrew Law is up 42 per cent. Meanwhile, Louis Bacon’s Moore Capital, which last year decided to eject the remaining external investors from its flagship funds after a long barren stretch, notched up a 25 per cent gain in seven months through July. The firms declined to comment on their returns.

It’s unclear how long the boon will last. The initial volatility spike caused by COVID-19 receded after unprecedented policy interventions — interventions which were responsible for low volatility in the first place. Should quantitative easing and fiscal largesse persist, macro’s moment in the sun may be brief.

— D.T.

Around the Web

On Capital Matters earlier this week, Sean Higgins highlighted the battle between California and the rideshare companies (spoiler: California, shockingly, is doing the wrong thing). It is worth remembering that Massachusetts may well be going the same way.

From July:

Uber and Lyft should treat their drivers in Massachusetts as employees with the right to receive benefits, instead of misclassifying them as independent contractors, the state’s attorney general said in a lawsuit filed against the ride-hailing companies.

On a brighter note:

A group of Finnish researchers believe they’ve discovered what people have spent centuries searching for: a cure for hangovers.

A dose of 1,200 milligrams of amino acid L-cysteine was found to reduce alcohol-related nausea and headache, while a dose of 600 milligrams helped alleviate stress and anxiety, according to a study published in the journal Alcohol and Alcoholism by researchers at the University of Helsinki and the University of Eastern Finland…

The researchers received funding from Catapult Cat Oy, which sells the L-cysteine supplements.

However, Finland being Finland, the research ran into some problems. Some of the participants “had such high tolerance levels that they experienced no hangover symptoms; and some were sidelined because they insisted on topping up the dose by heading for the bar”.

The pricing model for US universities has long been a testament to the way power of credentialism, but it will be interesting to see how (for now anyway) this will hold up.

After Southern California’s soaring coronavirus caseload forced Chapman University this month to abruptly abandon plans to reopen its campus and shift to an autumn of all-remote instruction, the school promised that students would still get a “robust Chapman experience.”

“What about a robust refund?” retorted Christopher Moore, a spring graduate, on Facebook…

A rebellion against the high cost of a bachelor’s degree, already brewing around the nation before the coronavirus, has gathered fresh momentum as campuses have strained to operate in the pandemic. Incensed at paying face-to-face prices for education that is increasingly online, students and their parents are demanding tuition rebates, increased financial aid, reduced fees and leaves of absences to compensate for what they feel will be a diminished college experience.

Random Walk

Earlier we mentioned George Soros’ bet against the British pound. Black Wednesday — the day the pound collapsed — is a cautionary tale for countries with currency pegs. Europe instituted the exchange-rate mechanism (ERM) as an initial step towards a common market on the continent. But the artificial price of the pound sterling set by ERM was unsustainable.

Alan Budd explains why it was doomed from the start:

A long period of attempts to devise an independent domestic policy to control inflation ended when we joined the ERM in October 1990. The experience of membership was painful and became progressively more so despite cuts in interest rates – real interest rates remained very high. We were members at a time when Germany, a major fellow member of the mechanism, had a particular problem of excess demand. This is a well-recognised potential problem for any currency region. It meant that policies were imposed on other members which generated severe deflation. While we remained a member we were forced to adopt a policy that prolonged a recession.

Note that, though the eurozone obviates the need for currency pegs, it still sets monetary and regulatory policy for a heterogeneous group of countries. If the collapse of the ERM is any indication, there could be trouble ahead for Europe.

— D.T.

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