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Coronavirus hit to industry is ‘concerning’




One technique for staying upbeat during the pandemic



As the coronavirus pandemic rages on, it can be difficult to remain upbeat.

Aside from the health implications and associated financial stressors, uncertainty over the outcome of the virus has eroded one of the key contributors to our overall happiness, making optimism hard to obtain.

“A sense of control is very important for happiness,” Tali Sharot, a cognitive neuroscientist and author of “The Optimism Bias,” told CNBC Make It.

Indeed, in her research during the height of lockdowns, Sharot and her peers at University College London found that control was the number one contributor to people’s overall level of happiness: Those who felt they had a sense of agency in their day-to-day lives were far happier than those who did not.

In the months since then, people have adapted to the pandemic and the average person’s happiness level has returned to a “baseline,” said Sharot, describing happiness like a treadmill.

Tali Sharot, cognitive neuroscientist at University College London and author of “The Optimism Bias”

Tali Sharot

“You can go up and down, but people do converge to a certain baseline of happiness,” she said. “That’s true when things are very, very difficult; they eventually find their way back to that baseline. But also when things are good; after a while, they adapt to these good things and go back to the baseline.”

However, that doesn’t mean we shouldn’t find new ways to boost our happiness levels, said Sharot.

One of the best ways of doing that is to start making plans, or what she calls “anticipatory events.” Such tactics can not only help us regain feelings of excitement but also that sense of control, she said.

Anticipation makes us happy in and of itself.

Tali Sharot

cognitive neuroscientist, University College London

“Anticipation makes us happy in and of itself,” said Sharot. Indeed, in a 2010 Dutch study of close to 1,000 holidaymakers, researchers found that the act of planning a holiday contributes a greater boost to respondents’ happiness levels than the aftermath of the trip itself.

Of course, planning for the future can be easier said than done right now. With so many unknowns ahead and further potential lockdowns looming, it can be difficult to arrange anything with certainty.

However, such plans don’t need to be huge or immovable. They could range from vacation for next summer to smaller highlights like dinner with friends, watching a movie or going on a hike.

“It’s important to still get into the habit of making those plans, putting them in the diary, and having things that we can look forward to,” she said.

Don’t miss: Why optimism could be unhelpful in a pandemic, according to behavioral psychologists

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Commercial property prices are a risk for banks and bond investors



(Photo: Getty Images | d3sign)

SINGAPORE — Commercial real estate prices have plunged this year as people stopped going into offices, and retail businesses were disrupted. That could lead to a significant amount of losses for banks, according to a recent report.

In previous downturns, commercial property loan losses were “heavy” and there are worrying signs that such a trend could be repeated this time during the coronavirus-induced slowdown, Oxford Economics’ Adam Slater said in a report.

In a worst-case scenario, Slater said these loan losses would “materially erode” bank capital.

“Large (commercial real estate) price declines generally translate into big losses for banks. Write-offs of (commercial real estate) loans made a big contribution to overall bank losses in the last two major downturns,” wrote Slater, an economist at the firm.

During the 2008 great financial crisis, for example, such loan losses accounted for between 25% and 30% of total loan write-offs in the U.S.

This time those risks look highest in the U.S., Australia, and parts of Asia such as Hong Kong and South Korea. In these economies, lending growth has been high, with “significant” loan exposure. But commercial property prices are already sliding, especially in Hong Kong, the report said.

In Singapore, office rents had their steepest decline in 11 years in the third quarter, official data showed on Friday. Rents for office space fell 4.5% in the latest quarter till September.

The firm’s index of global commercial real estate prices based on seven large markets show they are down 6% from last year.

“Could the coronavirus crisis lead, via the commercial property sector, to long-term problems for the banking and financial systems? … we think it is a genuine concern,” Slater wrote.

“Currently, hotels are running at very low occupancy rates, retail units have seen sharp declines in customer footfall, and many offices are closed or running with very low staffing levels,” he said. “In these circumstances, rental income and debt repayments from affected sectors are in grave doubt.”

Oxford Economics analyzed 13 major economies and found that write-offs of 5% of loans would amount to the equivalent of a loss between 1% and 10% of banks’ tier 1 capital, their primary funding source including equity and earnings. The biggest impact would be felt in Asia, it said.

Bond investors may also be at risk.

In the U.S., around half of the lending by this sector is not made through bank loans, and that includes the issuance of bonds in the sector, according to the report. In parts of Europe and Asia, that proportion of borrowing through the non-bank sector has risen to 25% or more, in recent years.

“In the case of property funds, (commercial real estate) downturns could see a rush by investors to redeem their holdings leading to fire sales of assets — amplifying price declines and broader loan losses,” said Slater.

But there’s one bright spot. Banks are in better shape to absorb them as compared to a decade ago. Their capital and leverage ratios are around double the levels a decade ago, Slater said.

Following the financial crisis, reforms were introduced to mitigate risk and improve the resilience of the global banking sector, by maintaining a certain leverage ratios and levels of reserve capital.

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Stock market turbulence could last until the election, followed by a relief rally, strategists say



A trader walks by the New York Stock Exchange.

Spencer Platt | Getty Images

The stock market turbulence could be a setup for a post-election rally.

The more than 2% decline in stocks Monday came amid new worries about the coronavirus, as average daily cases hit a record high in the U.S. At the same time, the efforts between Congress and the White House to reach a stimulus deal also appeared to have hit a wall.

“It’s a bit of a double whammy. Covid’s definitely not going in the right direction in the U.S. right now. I think now there is maybe some diminishing optimism because stimulus just hasn’t come together, and the election is just around the corner,” said Tom Lee, head of research at Fundstrat Global Advisors. “I think the polling is kind of solidifying. It’s looking very much like a Biden White House and then for policy, if it’s a Biden win, there’s a chance the incumbent administration just dawdles on stimulus. That would really dampen markets into the new year.”

But Lee and other strategists said this week may be rocky for stocks, but once the election is over, the market is likely to bounce in a relief rally, if the winner is clear.

Stocks sold off out of the gate Monday, with the Dow down more than 3% at one point. The Dow fell 2.5% in afternoon trading, while the S&P 500 fell 2%. The decline was led by energy, industrial stocks and other cyclicals.

“We have a lot of things to be anxious about in the next couple of weeks. That’s why this is a pre-election market. But post-election, I think a lot of things that make people nervous turn into a tail wind,” Lee said. “Post-election stimulus is a when, not an if. Even if it’s a mixed Congress, I think there’s still some common ground. It’s just the scope that’s different. It would be a smaller package.”

Lee said Covid has become less deadly, and even if it continues to spread, it is not likely to result in the shutdowns that occurred last spring.

But comments today from Europe’s biggest software company, SAP sent a chill nonetheless. SAP said its business was being hurt by lockdowns in Europe, as the virus spread there has increased dramatically.

Lee said Covid has a big influence over the market. “It’s almost as important as the Fed right now. Covid is suppressing the economy, and it’s essentially offsetting easy money. If we didn’t have Covid, people would be going out and spending money,” said Lee. “It’s acting as a huge headwind.”

Lee said on balance, the economy continues to become more open.

“With the increase of cases in the U.S. and Europe, it’s just reminding everybody, the virus is still very much with us, and not going away any time soon, and with the weather getting colder and people moving inside, it’s likely to get worse before it gets better,” said Ed Keon, chief investment officer at QMA.

“I think it’s unlikely to be the beginning of a major sell-off,” said Keon. “I still think underlying fundamentals for companies are quite good. If you look at earnings season, it’s been pretty promising.”

Biden related?

Barry Knapp, managing partner at Ironsides Macroeconomics, said the market may also be reflecting concern about a possible victory by former Vice President Joseph Biden. Biden’s ability to implement his policies will be determined by whether Democrats also take a majority of seats in the Senate, now a close call.

Topping Biden’s agenda is a reversal of Republican tax cuts, which essentially would raise taxes on corporations and the wealthy. He is also expected to push a stimulus program, the size of which would be subject to whether the Senate is Democratically controlled,

“I think its is a gut check around that,” said Knapp, noting the market appears to be digesting the idea of a Democratic sweep. “For me the most important outcome of the election is: Does the corporate part of the tax cuts survive?” If not, Knapp said corporate earnings would fall and corporate spending and investment would decline.

Even so after the election, if there is a clear winner, the market should rally, strategists said.

“I think it’s likely. Elections tend to breed optimism. Then there’s the seasonality,” Knapp said. Stocks historically tend to gain between an election day and the end of the year.

If there is a protracted post-election count with no clear winner, or the election is contested that would lead to a period of choppiness for stocks.

“We’re still bullish. We still think there could be a post-election rally driven by the combination of good corporate earnings, very low interest rates and just a sense of relief that if we get this definitely behind us, there will be a reduction in risk and a rally in stocks,” said Keon.

Keon said the uncertainty could carryover even after the presidential election is decided. “We don’t know what the composition if the Senate is. If those two Georgia races end in a runoff, there’s a good chance we won’t know the composition of the Senate until those two races are decided. There’ a lot of really close races for the Senate all around the country.”


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