We have a very serious international crisis unfolding, and Europe is ground zero in this initial stage. There is so much money being distributed; Trump’s billions, the fed’s moves including cutting by an almost unprecedented 1%, severe dollar shortages in Europe, a bank ‘holiday’ proposed, and Germany finally ending its austerity (short Euro, long dollar). Hedge funds along with correlation and relative value desks have lost hundreds of billions. Bridgewater is down over 20%.
These are the times when we all lose more of our freedoms for good, along with savings. Here in America we are in better shape, but some of the expected pols are ‘not letting a good crisis go to waste’. Bill deBlasio called for nationalization of several industries not associated with health care, Bernie used the panic to push his socialist Medicare for all plan, dismissing the efforts by the pharmaceutical industry to quickly come up with effective therapeutic treatments and a Covid-19 vaccine. Columbia economist Jeffrey Sachs praised Sanders and his stance, while continuing to praise China and its economic system. Illinois has used the virus outbreak to impose gun restrictions, and citizens have reacted to it by purchasing weapons along with mass TP.
Completely incongruent with the social distancing being practiced by millions now staying home and working remotely, the FBI has used the Corona virus to shut down its online public records Freedom of Information/Privacy Act operations and is telling the public to submit their public record requests by regular mail instead. It is a rather bizarre response considering that paper mail can transmit viruses while electrons cannot. The White House and the CDC are asking Facebook, Google, and other tech heavyweights to give them greater access to Americans’ cell phone locations, so that they can track everyone’s location to ensure they are practicing proper ‘social distancing’. As with the Patriot Act, no pledge was made to rescind this capability after the crisis passes.
Unfortunately none of this is terribly surprising anymore, though it would have been outrageous to many of us pre-Y2K. But for investors, the stage to watch right now is Europe. With its negative interest rates, the ECB has destroyed the European bond market (where shorting debt is prohibited) and left itself powerless. Watch for capital controls to be effected, including a possible digital currency and restrictions on gold. Lagarde is interested.
Here and elsewhere the immediate problem is the response to the virus. Shutting down economies does its own mass-damage (ahem) that should have (IMHO) weighed-in more in the decision. The helicopter money is for-naught in the face of such a move. If the intent is to get some cash to shut-in nonworking households to hold them over for a few weeks, there is some sense to it. But if the intent is to stimulate the economy while it’s working gears (people) are parked in idle, it’s futile. If there is intent is to restart the markets while no-one has confidence in it, its futile – no-one wants to catch a falling knife. Many small and mid-sized businesses will not only be shut, but will also find it hard to recover. There will be much permanent damage from this societal lockdown. If they keep this up for too long, social upheaval becomes a real problem, vindicating all the gun-buyers.
Industry is always changing, and economic prosperity is cyclical. But there is a certain feeling associated with working in an economy much of which you know is not sustainably founded. Many of us have felt that way for some time. The un-sustainability of it is now arriving.