The Start of the New Depression?

We have all been treated to the real-life drama of the CV-19 epidemic. And now that Italy and some other nations with honest data reporting have made their stats available on a daily basis, we see how an epidemic really works. Not like the fictional data from China.

I don’t mean to imply that we know the number of infections in Italy and elsewhere. We only know the results shown by testing. What about the silent majority who have not been tested? Mrs. Trudeau, wife of Canada’s Prime Minister, has recently, just like the wife of Spain’s Prime Minister, tested positive for the virus. Her infection has been attributed to her brief visit to London for a speaking engagement. So, there she was in a country where officially one in a hundred thousand people have the virus. What is the likelihood that Madame Trudeau encountered even one infected person on her trip? Even if she was with two meters of 10,000 people, the likelihood of her being infected would have been very low IF only one in 100,000 people in the UK have the virus. Statistically, her infection indicates that a much higher proportion of the population is infected than what the tests show. It makes sense because most people don’t get tested. What’s even the point of testing if there is no cure? If you have symptoms, keep away from other people. You don’t need testing to know that.

The virus scare plus the oil price collapse have served as two pins to burst the asset price bubble that has been with us for a long time. The bubble was bound to burst; it was just a matter of finding the straw to break the camel’s back. 2007 to 2009 should have done the job of reallocating assets from the inefficient to the efficient and grounded the economy on a stronger foundation, but our frightened governments kicked the can further down the road with their bailouts. Well, guess what…?  We seem to have arrived at where the can landed. The trouble is that we are a lot more tired and the can is a lot bigger now. I doubt we can kick it out of the way again. I laughed yesterday when I heard that interest rates had been cut to zero, like that will do anything. You can’t stimulate an economy with interest rate cuts when the rate is already very low. Part of the drawn-out delay in coming to grips with the economic dislocations of 12 years ago has involved the low interest rates. Had they been allowed to rise, then today there would be some wiggle room.

There is another aspect to the problem: the notion that reduction in interest rates will give businesses a chance to borrow money to tide them over until they can pay it back. The businesses that need the cash don't have the credit rating to gain access to the cash. Interest rates are not the problem. Liquidity is. Soon, more and more businesses will not be able to keep their workers working.

Many people around the world are no longer working; they are avoiding other people. Prosperity in an economy depends on the production of goods and services and distribution of them. When people are not working, they are not producing or distributing. A depression will be the natural outcome of the current state of things unless people get back to work before the start of our northern summer methinks.

The fear that is toppling markets is seen in the strengthening of the U.S. dollar. Even gold and silver prices are collapsing. The Japanese Yen is one of the few major assets holding its value in dollar terms, not unusual in times like today.

Cash is becoming king again. Hang onto it. Keep your powder dry and wait for prices to come to you rather than chasing them. Prices are dropping and will drop more.

Fallacious Coronavirus Stats?

I learned long ago to not trust financial data from China, so why would I believe epidemiological data from that razzle-dazzle part of the world? Each day we read the official coronavirus counts (infections and deaths) and I notice these have been progressing arithmetically for most of the duration of the epidemic: around 2,000 new cases per day I estimate.

This slow and steady march has seemed uncharacteristic of an epidemic. Geometrical and, I suppose even logarithmic, spread of infection normally characterizes epidemics I think. The steady arithmetical growth would indicate that there is no epidemic or that the numbers are lies, so far as I understand how epidemics work. My vote is for the second explanation.

I would not be surprised if millions have been infected and if tens of thousands are dying daily. We probably will not see how the disease truly spreads until countries such as Australia and Japan have more experience with it. Their stats I trust.

The decimation of the Chinese workforce may be the catalyst that undoes the Chinese Miracle. As people stay home, or in the grave, from work, industrial production will fall, materials orders will decline and markets may have to source other countries for goods formerly bought from China. I can’t see this as reducing the average quality of manufactured goods.

Roses by Leila Meacham

Not so long ago, I finished reading Roses by Leila Meacham --- the first book of hers I have read. I guess that if the tale was from Iceland or Norway we would call it a saga. It’s a multi-generational story about inter-connected Texas families. I have read other books of its style, but this was one of the best. I rank it up there almost with Diane Pearson’s Csardas and The Tontine by Thomas Costain.  

If you like losing yourself in another world where nobody is all good or all bad and where are the occurrences of uncontrived surprises, you might like the book.