I’m offering this for your consideration as you navigate the current hysteria. As we’ve discussed and despite appearances, our financial system is highly unstable and poised for a major deflationary correction as market forces seek to purge the system of unhealthy amounts of leverage.
You’ll recall that I mentioned the warning signs that began to flash in September in the repo market. That issue was not temporary and indeed has lingered and grown over time. Downplayed in the media, the Fed was intervening to lend to a bank (or banks) to whom other banks refused to lend because they deemed it too risky.
The existence of this new coronavirus - whatever its origins - has been known about since at least December. And while more and better information became available throughout January, by the time February rolled around it’s safe to say global awareness was high.
This virus is real and dangerous for older and other immune compromised people - not unlike and perhaps (significantly) worse than the flu. But something has happened in the past week, where we’ve gone from caution to outright panic. Is that due to sudden recognition of the true dangers of this virus or is this virus being overhyped to paralyze us with fear to allow the establishment to achieve other ends?
What Has Happened?
Tuesday March 3: With markets exhibiting higher volatility, the Fed announces an emergency 50 bps rate cut. After a brief rally, stocks sag in the following days.
Friday March 6: Reports come out of Saudi Arabia; (i) MBS has apparently detained two high-ranking members of the royal family in what is seen as a move to further consolidate his power and (ii) Saudi announces they would begin to significantly increase oil sales, which sends oil prices plummeting more than 30%. That’s a huge number with massive global implications.
Monday March 9: Stock markets plunge. Dow Jones falls over 7.7%. Fed announces increased intervention in repo market of “no less than” $75 billion.
Tuesday March 10: Stocks recover a bit, Dow gains 4.9%
Wed March 11: Stocks resume their decline, Dow loses more than 5.8%
Wall Street CEO’s scramble to White House for emergency meeting and hold late afternoon press conference with Trump to assure everyone banks are healthy (they are not) and all is well. Trump specifically blames coronavirus for market fall (saying otherwise everything great) and says will have to do something about it. Says he’s going to give speech that night.
Trump gives haphazard speech (later needing to “correct” multiple misstatements) from Oval, declaring Euro travel ban.
Thur March 12: By noon, stock markets down more than 8.5% from Wednesday’s close.
Shortly thereafter, the Fed announces it will make up to an additional $4.5 TRILLION available to repo market in coming days/weeks.
Stocks rally for about an hour and then resume their decline, closing down almost 9.5%.
Friday March 13: As rising Treasury yields begin to squeeze highly leveraged players like hedge funds and banks, Fed announces emergency immediate purchases of $37 billion of Treasuries (to bail them out). Stocks fly.
The scale of what the Fed is doing is absolutely breathtaking and it's likely going to ramp up. They are conducting a massive Wall Street bailout as we speak, but distracting/paralyzing us with fear so we won’t object. This is how the elites steal from ordinary Americans. This is how they preserve and widen the wealth gap.
We need a voice of reason. Someone to call this out. Economics is a zero sum game. It’s not always easy to see, but it’s true.
Helping individual Americans truly in need is great, but bailing out companies means bailing out their shareholders and lenders. Our corporate bankruptcy laws allow companies to restructure and continue to operate all the time. It’s a really powerful and constructive system. Trust it.
This virus is out. And while we should be protecting those most at risk for serious complications (and testing those in direct contact with them), we otherwise need this virus to spread so that we develop widespread immunity. If we are too effective at halting it now, this will come back equally strong in a matter of months.
Otherwise healthy people not in contact with the most vulnerable should try to stay home if symptomatic, but there’s no reason for them to go to the doctor/get tested as the treatment is the same whether it is Covid-19 or not. The biggest danger is everyone rushing to hospitals and overwhelming our healthcare system.
March 14, 2020