Shipping Industry Warns of Trade Logjam as Crews Remain Stranded

Peggy Hollinger, Robert Wright, and Michael Pooler; Financial Times
Read the full article here

Nearly 400,000 crew are stranded at sea or at home by Covid-19 travel restrictions. The international shipping industry has warned that this issue is posing a great threat to global trade. Crewmen and ship owners are tired and fed up. Some crew have worked several months beyond their contracts, exceeding regulatory limits and posing a threat to the crew’s safety. Last week, a German-owned tanker refused to sail unless a replacement crew was brought in. Others may very well follow suit, especially when emergency extensions to labor agreements governing seafarer’s contracts expire after June 16th. Secretary-general of the International Chamber of Shipping, Guy Platten, has called the issue “a ticking time-bomb…The longer this issue goes on the greater the risk to the supply chain.” 

The shipping industry is calling on governments to create “safe corridors” to allow the free movement of 1.5 million commercial seafarers and designate the seafarers as “key workers”. Ensuring the welfare of the seamen will ensure supply-chain continuity. Close to 80 percent of world trade is carried on sea vessels. This is not only a pressing humanitarian issue, it is an urgent global trade issue that will affect the recovery of the world economy.

Uncertainty Has Seldom Been Higher

Ben Inker and Jeremy Grantham, GMO
Read the full article here

The pandemic and ensuing economic crisis has created an air of global uncertainty even as markets soar to new heights. With outcomes ranging from the quick arrival of a COVID-19 treatment and a “V” shaped recovery to long-term depression with the destruction of many small businesses leaving tens of millions unemployed, the outcomes are as numerous as they are disparate. Despite this uncertainty and an initial pummeling as the virus spread across the globe, risk securities have rallied in the intervening weeks,delivering in less than two months the equivalent of four to six years of equity returns.

Since the standard justification for the premium on equities is the risk of their dismal performance in depression scenarios, the current economic landscape creates a notable probability of disastrous returns from equities in the coming years, especially in largely overvalued developed markets. Jeremy Grantham writes, “The interactions of the virus with the economy and new economic measures are… complex and without precedent.” A truly global crisis with staggering drops in GDP and employment (drops which took years to materialize in the Great Depression) combined with the increasingly remote hope of a quick fix have set the stage for an upheaval of massive proportions. Even as uncertainty mounts, the themes of caution and patience remain the time-tested answers in volatile times.

Stocks’ Recent Rally Is Driven by Bears, Not Bulls. Why It Might Stop Soon.

Evie Liu, Barron’s
Read the full article here

Many would expect the recent rise in the stock markets to be driven by bullish buyers. However, Strategists at Citi suspect that the S&P’s rise from its March 23rd low has actually been fueled by short sellers. These short sellers are traders who borrowed and sold stocks months ago, betting prices would drop but are now buying back the stocks to close out their existing short positions. This is also known as short covering. Global strategists at Citi are predicting that the rally will most likely die down once most of the short positions are closed and the shares are bought back. Historically, equity fund flows have moved in the same direction as market performance, but investors have actually been taking money out of global equity funds since March. A future move higher will require new longs and increased equity inflows.

The Pandemic is Hurting China’s Belt and Road Initiative

The Economist
Read the full article here

China’s Belt and Road Initiative (BRI) remains a linchpin of Chinese domestic and foreign policy. As the pandemic squeezes both China and its debtors, financial losses have materialized with the deferment, restructuring, and in some cases cancellation of loans and building contracts. Even as the G20 agreed to suspend debt repayment until the end of the year, collateral clauses in about 60% of Chinese loans makes debt relief difficult to realize for many developing economies. Such heavy-handed moves as the seizure of ports, mines, and other critical infrastructure would doubtless spark international outrage, a position China has traditionally avoided. 

Given the close association between the success of the BRI and Chinese president Xi Jinping’s domestic reputation, the nation is unlikely to swiftly lay the project aside. To this end, the definition of the BRI has been expanded to include many of China’s activities abroad, most recently including a “Health Silk Road” of medical support and food supplies to countries hard-hit by the pandemic. 

Even as the activities of the BRI have been slowed by the pandemic, strategists in Beijing have been using the “downtime” to reassess several current facets of the initiative, shifting the focus of infrastructure development to more socially and environmentally conscious projects. The hope is that the alternative proposed by the US, Japan, and Australia will be able to compete with China’s BRI, demonstrating the ability to challenge China’s dominant position in the development of global networking infrastructure.