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MVIS, the Fed, oil, next week and beyond -3


The Fed went further down the rabbit hole today by bailing out state & local governments, larger businesses, and the banks lending to smaller ones to the tune of $2.3T.  MicroVision also received another delisting notice, which I'm going to focus on first, even though it is not the primary focus of this note.  This SEC letter points out that MicroVision's market cap has been below the $50M threshold for the past 30 business days.  In a way, this doesn't matter as MVIS was already subject to delisting after June 9th for trading below $1.  On the other hand, the market cap violation means that no reverse split or other accounting can retain the Nasdaq listing now.  Only a fundamental change that almost doubles the stock price to 40 cents would do that.

The reason why I've gone to the trouble to spell that out for a truly innovative company that I no longer have any investment interest in is to illustrate that there always limits to debt.  Unlike MicroVision, or even state governments, the American government is unrestricted on how far it can push its debt load.  However there are still limits, and a future article may discuss my theories for calculating exactly where those financial (as opposed to social) limits are.  Hopefully that will wind up being as accurate as my 2,250 estimate for the S&P bottom.

For now, though, it's important to understand that the Fed has crossed the line out of free market territory to directly take on corporate risk.  In the process it is also giving further weight to the buffoons at the ratings agencies and thus allowing the banking sector to determine winners and losers.  Regardless of the guidelines, I've already seen plenty of anecdotal evidence of differences on who gets support when.  What's happened with Golar shows that while some small companies may be bought out, this is not a market for GRoDT stocks or an environment that supports true innovation. 

In the short term it will be easier for companies like AES, CenturyLink, Covanta and BGC to borrow.  This is why on March 15th, I wrote:
Regardless of the long-term economic effect, this should light a fire under equities.  Right now futures are still down BIG, but don't expect that to last.  There's only so much canned soup you can hoard, and truly, the world is NOT coming to end.  Tougher societies have suffered through worse more stoically and no matter how ours handles it, inflation will flow right back into the market as it has for the past few decades until central bankers decide to finally stop pushing on the string.
As a Canadian company that has already secured support from its government, Westport is technically outside the American dynamic, but its situation is not so different.  Access to money doesn't necessarily change real world operations and I will cover the business update that the company has announced for Tuesday.  I maintain my outlook in the meantime and that goes doubly for American shale, despite the noise on OPEC+ today.  Any publisher that reiterated the term "deep cuts" without at least referencing back-of-the-envelope calculations against demand deserves to be permanently ignored.  Since I've already gone a step further to doubt that there is actually any genuine disagreement between Putin and the Saudis, it should also go without saying that I question any compliance, when and if the world returns to the point of having someplace to put the stuff.  In the meantime, we're already well on the way to my ballpark projection on where things will wind up.

The seeds of this crisis were sown just a decade ago, when the government chose economic triage to preserve the status quo over implementing meaningful economic reform.  America will recover from COVID-19, though this updated table shows it will not do nearly as well as the response from South Korea or prevention in New Zealand.

Country Pop. Cases Case% Deaths Pop Mortality Case Mort Density Med. Age Urban
U.S. 331,002,651 451491 0.1364% 15938 0.0048% 3.5301% 36 38 83%
Spain 46,754,778 152446 0.3261% 15238 0.0326% 9.9957% 94 45 80%
Italy 60,461,826 143626 0.2375% 18279 0.0302% 12.7268% 206 47 69%
Germany 83,783,942 115523 0.1379% 2349 0.0028% 2.0334% 240 46 76%
France 65,273,511 83080 0.1273% 12210 0.0187% 14.6967% 119 42 82%
Iran 83,992,949 66220 0.0788% 4110 0.0049% 6.2066% 52 32 76%
U.K. 67,886,011 61519 0.0906% 7111 0.0105% 11.5590% 281 40 83%
Belgium 11,589,623 24983 0.2156% 2523 0.0218% 10.0989% 383 42 98%
Turkey 84,339,067 42282 0.0501% 908 0.0011% 2.1475% 110 32 76%
S. Korea 51,269,185 10423 0.0203% 204 0.0004% 1.9572% 527 44 82%
Netherlands 17,134,872 21903 0.1278% 2403 0.0140% 10.9711% 508 43 92%
Sweden 10,099,265 9141 0.0905% 793 0.0079% 8.6752% 25 41 88%
NYC 8,300,000 87028 1.0485% 5150 0.0620% 5.9176% 10682 35.8 100%
S. Africa 59,308,690 1845 0.0031% 18 0.0000% 0.9756% 49 28 67%
Canada 37,742,154 19773 0.0524% 462 0.0012% 2.3365% 4 41 81%
Finland 5,540,720 2605 0.0470% 42 0.0008% 1.6123% 18 43 86%
Ukraine 43,733,762 1892 0.0043% 57 0.0001% 3.0127% 75 41 69%
Japan 126,476,461 4667 0.0037% 94 0.0001% 2.0141% 347 48 92%
India 1,380,004,385 6653 0.0005% 199 0.0000% 2.9911% 464 28 35%
New Zealand 4,822,233 1239 0.0257% 1 0.0000% 0.0807% 18 38 87%

Also note the unreliability of the data from some sources.  Compare to the original table, and you'll see that the confirmed (not active) French cases have gone down by over 15% in just two days, and American data has shown similar discrepancies at points.  That shouldn't be able to happen with accurate data, and managing the virus should be more important than managing image.  The death toll is rising consistently everywhere.

By contrast to the virus, there is no end in sight to the grim consequences of America's inability to stop playing politics and reach consensus toward meaningful societal change.  Furthermore, the upcoming election holds little to no hope for progress, regardless of which candidate wins.  If there is to be change, it will have to be more of an individual, grass roots effort to change the very workings of the political system.  Without that, it won't be another decade to the next major crisis.  You already have my projection on when that will happen too.