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Last week, Bloomberg finally confirmed what we first reported last December: namely that the return of the Fed’s repo operations, allegedly to “fix” the clogged up repo market, was just a stealthy attempt to prevent a firesale liquidation among massively levered macro hedge funds that had allocated hundreds of billions in regulatory capital to the cash/futures basis trade which had steadily printed money for years and which suddenly went haywire.

In effect, the Fed was bailing out not one but dozens of LTCM-like funds which had all ended up on the wrong side of an extremely popular basis trade, but a handful of funds were exposed the most. To wit, as we explained last December, “hedge funds such as Millennium, Citadel and Point 72 are not only active in the repo market, they are also the most heavily leveraged multi-strat funds in the world, taking something like $20-$30 billion in net AUM and levering it up to $200 billion. They achieve said leverage using repo.”

Bloomberg finally caught up with the narrative last week. In an article discussing how and why the Fed unleashed its March 12 repo bazooka, Bloomberg writes that “when coronavirus panic kicked off unprecedented turmoil in Treasuries last week, hedge fund leverage was lurking” and goes on to “explain” something we said late last year:

The [hedge funds] use borrowed money from the repurchase market for the popular basis trade, which exploits price differences between cash Treasuries and futures. Though individual firms’ borrowing is a closely guarded metric, people familiar with the transactions said some of them levered up as much as 50 times their own wagers. Leveraged funds’ exposure to the basis strategy could be as much as $650 billion, JPMorgan Chase & Co. strategists said.

Does that sound like “the Fed suddenly facing multiple LTCMs”? Because to us it sure does. And more importantly, what happened in the days ahead of last week’s credit market debacle is precisely what happened ahead of the September repo snafu, only with exponentially more destructive power.

“We’ve had 10 years of a perfect paradise and so people have been picking up pennies thinking there’s no risk in holding strategies like the basis trade,” said Kathryn Kaminski, chief research strategist and portfolio manager at AlphaSimplex Group. “A lot of the strategies, like the basis, that hedge funds tend to use don’t work when markets aren’t stable. You’ll see more of these types of blowouts.”

Of course, the Fed’s massive intervention to the tune of up to $1 trillion per day in repo operations, made sure that all hedge funds that were stuck holding to illiquid Off The Run positions in basis, could repo them back to the Fed in exchange for fresh, brand new and far more liquid On The Runs, as the hedge fund industry quietly got another bailout.

So fast forward to last Friday when courtesy of Bloomberg, we got a  update on the performance of the three hedge funds which we identified first in December that were most heavily exposed to the lock up in the repo market, namely Citadel, Millennium Management and Point72 Asset Management, and which were among the funds that struggled in the first half of March as the effects of the Wu Flu pandemic halted the global economy and seized up capital markets.

As Bloomberg explains, “while losses at the largest multi-strategy firms — which invest across a range of assets — were only in the single digits at their peak, the moves were sudden and unexpected, hitting usually dependable trades that use leverage to take advantage of small price differences in related securities. The so-called arbitrage trades were placed on everything from Treasuries to company mergers.”

And then came the Fed’s bailout of well, everything, including billionaire hedge fund managers, as it unleashed an unprecedented series of actions to inject liquidity into markets coupled with Congress’s promise of a $2 trillion economic stimulus package. That combination boosted markets this week – at least temporarily. U.S. stocks had their best three-day run since the 1930s before falling again on Friday.

“Investors can take heart that we’ve counteracted this existential shock with the greatest fiscal and monetary bazooka,” fund manager Paul Tudor Jones said in an interview on Thursday with CNBC. “It’s not even a bazooka — it’s more like a nuclear bomb.”

In the meantime, as part of its nationalization of capital markets, by Friday the Fed had bought $1 trillion worth of Treasuries and mortgage-backed securities since the launch of “QE-Unlimited”, the same amount they bought over eight months during the global financial crisis.

The biggest beneficiary of all this?

Not the economy or the middle class, but the trio of hedge funds which as shown in the chart above have regulatory assets of roughly half a trillion dollars among them, and which managed to quietly offload position that could have otherwise forced their liquidation, a la LTCM.

The end result, after suffering major losses in the first few weeks of the month, Millennium, Citadel and Point72 were all nearly back to breakeven:

• Citadel was down 5.3% for the month through March 20. Its performance has since improved.
• The fixed-income heavy ExodusPoint, run by Michael Gelband, had been down 3%, and is now up slightly on the month.
• Millennium had posted a loss of about 5% through March 20.
• Point72’s losses were around 4% through March 20. The fund had taken a hit from its quant trading group Cubist, which had lost 22%.

Then, in a follow up published on Sunday, Bloomberg reports that the $40BN Millennium (which is levered up to over $200BN in regulatory capital), successfully erased its losses this past week, and is now just down 67 basis point for the month, compared with a decline of 5.1% a week earlier. More impressive is that the fund is now up 17 basis points for the year, just as we predicted it would be last weekend, thanks to what is arguably the most draconian back office of any fund in existence. The fund, which had about 230 portfolio managers running individual teams, gained 9.8% last year and has posted annualized growth of 13.7% over the past three decades.

Millennium Management and most other firms struggled in the first three weeks of March as the effects of the spreading coronavirus virtually halted the global economy and seized up markets from stocks to bonds to commodities.

Then came unprecedented moves by the Federal Reserve and the promise of a $2 trillion stimulus bill that was signed by President Donald Trump on Friday. That combination boosted markets last week, with U.S. stocks posting their best three-day run since the 1930s, before falling again on Friday.

So in light of the above “miraculous” recoveries by the “smartest people in the room”, who occasionally are so smart only a Fed bailout can rescue them, perhaps it’s time to finally remove the clearly obsolete “hedge” designator from the description of this particular bailed out industry.

Then again, not everyone came crawling to the Marriner Eccles building. Unlike the macro basis trade funds noted above, several smaller, more nimble firms actually did not need a Fed bailout,having navigated the first half of March without losses. For example, Dmitry Balyasny’s $6 billion pod-based Balyasny Asset Management made money in March through Monday, climbing 1.1% in the month, and 2.2% for the year, after returning about 12% last year. This year it made money in areas including equities and macro trading, according to a person familiar with its performance. At the same time, $1 billion Cinctive Capital Management, a multi-manager stock fund founded by Rich Schimel and Larry Sapanski, was up about 1% after cutting risk going into March, an investor said. It’s up more than 3% for the year. Verition Group, a $1 billion fund run by Nick Maounis – best known for blowing up Amaranth – returned 2% in the month. It uses less leverage and stays away from crowded trades, according to an investor.

Finally, here are the top and bottom 20 funds are compiled by HSBC through the middle of March; note this table does not capture the sharp rebound in performance observed in the past week.

By now it becoming clear to many that demand for precious metals, as the world ‘turns’, is far outpacing supply as major gold suppliers and sellers exclaim “there is no gold.”

One glance at APMEX pages and two things are immediately clear:

1) There is no gold or silver….

2) And if there is, the premium for physical gold and silver over paper is massive…

Put in context, this 100% premium for silver is shocking (h/t @JanGold_)

And the mainstream media is starting to notice as DollarCollapse.com’s John Rubino points out, The Wall Street Journal just published the kind of article gold bugs dream of… Here’s an excerpt:

Coronavirus Sparks a Global Gold Rush

Epic shortage spooks doomsday preppers and bankers alike; ‘Unaffordium and unobtanium.’

It’s an honest-to-God doomsday scenario and the ultimate doomsday-prepper market is a mess.

As the coronavirus pandemic takes hold, investors and bankers are encountering severe shortages of gold bars and coins. Dealers are sold out or closed for the duration. Credit Suisse Group AG, which has minted its own bars since 1856, told clients this week not to bother asking. In London, bankers are chartering private jets and trying to finagle military cargo planes to get their bullion to New York exchanges.

It’s getting so bad that Wall Street bankers are asking Canada for help. The Royal Canadian Mint has been swamped with requests to ramp up production of gold bars that could be taken down to New York.

The price of gold futures rose about 9% to roughly $1,620 a troy ounce this week and neared a seven-year high. Only on a handful of occasions since 2000 have gold prices risen more in a single week, including immediately after Lehman Brothers filed for bankruptcy in September 2008.

“When people think they can’t get something, they want it even more,” says George Gero, 83, who’s been trading gold for more than 50 years, now at RBC Wealth Management in New York. “Look at toilet paper.”

Worth its weight in Purell

Gold has been prized for thousands of years and today goes into items ranging from jewelry to dental crowns to electronics. For decades, the value of paper money was pinned to gold; tons of it sat in Fort Knox to reassure Americans their dollars were worth something. Today they just have to trust. President Nixon unpegged the dollar from gold in 1971.

Gold is popular with survivalists and conspiracy theorists but it is also a sensible addition to investment portfolios because its price tends to be relatively stable. It is especially in-demand during economic crises as a shield against inflation. When the Federal Reserve floods the economy with cash, like it is doing now, dollars can get less valuable.

“Gold is the one money that can’t be printed,” said Roy Sebag, CEO of Goldmoney Inc., which has one of the world’s largest private stashes, worth about $2 billion.

The disruptions this week pushed the gold futures price, on the New York exchange, as much as $70 an ounce above the price of physical gold in London. Typically, the two trade within a few dollars of each other.

That gulf sparked a high-stakes game of chicken in the New York futures market this week. Sharp-eyed traders started snapping up physical delivery contracts, figuring banks would have trouble finding enough gold to make good and they would be able to squeeze them for cash. That set off a scramble by banks.

Goldmoney’s Mr. Sebag said bankers were offering him $100 or more per ounce over the London price to get their hands on some of his New York gold.

What’s more, there is limited new supply. Mines in countries such as Peru and South Africa are shut down because of the coronavirus. Once-busy Swiss refineries that turn raw metal into gold bars closed earlier this week as the country’s coronavirus cases neared 10,000.

David Smith owns a wristwatch business in northern England and said Tuesday his bullion dealers weren’t taking any more orders. He has been scouring social media for individuals who might sell to him.

“You can’t really get physical gold and silver anywhere at the moment,” he said.

He began investing personally in metals a few years ago after watching videos from Mike Maloney, creator of the website goldsilver.com. Like other online dealers, the site currently has a notice saying products are back-ordered up to 12 weeks and that there is a $1,000 delivery order minimum.

The title of Mr. Maloney’s latest podcast: “Unaffordium and unobtanium.” (The latter has popped up in the plots of science fiction movies).

To sum up:

A pillar of the mainstream financial media just acknowledged gold’s multi-millennia role as a store of value, quoted someone calling it “money,” and noted that since the world left the gold standard, we “just have to trust” governments to maintain their currencies.

The article quotes the CEO of GoldMoney and GoldSilver’s Mike Maloney, and calls gold “a sensible addition to investment portfolios.”

It mentions the divergence between paper and physical prices and attributes it to the same kind of buying panic that has emptied stores of toilet paper. “When people think they can’t get something, they want it even more.”

Now pretend you’re an editor at a city newspaper or regional magazine and you’ve just finished reading the above article. What do you do? You immediately call in one of your finance reporters and tell them to look into this “gold shortage” thing.

So prepare for millions of anxious people to get their first exposure to the gold story, just as the supply dries up.

After receiving a controversial $25 million bailout (which would pay for a lot of respirators), the John F. Kennedy Center for the Performing Arts notified nearly 100 musicians with the National Symphony Orchestra that they won’t receive paychecks after April 3rd, according to the orchestra’s COVID-19 Advisory Committee obtained by the Washington Free Beacon.

“The Covid-19 Advisory Committee was broadsided today during our conversation with [Kennedy Center President] Deborah Rutter,” reads the email. “Ms. Rutter abruptly informed us today that the last paycheck for all musicians and librarians will be April 3 and that we will not be paid again until the Center reopens.”

The email went out to members on Friday evening, shortly after President Trump signed the $2 trillion CARES Act, a stimulus package intended to provide relief to people left unemployed by the coronavirus pandemic. Congress included $25 million in taxpayer funding for the Kennedy Center, a provision that raised eyebrows from both Democrats and Republicans, but ultimately won support from President Trump. The bailout was designed to “cover operating expenses required to ensure the continuity of the John F. Kennedy Center for the Performing Arts and its affiliates, including for employee compensation and benefits, grants, contracts, payments for rent or utilities, fees for artists or performers,” according to the law’s text. The arts organization decided that the relief did not extend to members of the National Symphony Orchestra, its house orchestra. –Washington Free Beacon

“Everyone should proceed as if their last paycheck will be April 3,” the email continues. “We understand this will come [as a] shock to all of you, as it did to us.”

One veteran member of the orchestra (who we suspect forwarded the email to the Beacon) told the outlet that the decision has “blindsided” musicians.

“It’s very disappointing [that] they’re going to get that money and then drop us afterward,” the musician said. “The Kennedy Center blindsided us.”

The cente, which received $41 million from taxpayers in 2019, just completed a $250 million renovation – however it faced insurmountable deficits after shuttering its doors on March 12 due to COVID-19.

Rutter, meanwhile, told the Washington Post that she would forego her $1.2 million salary while the JFK center was closed – while orchestra members bristled at the idea of doing the same.

“While the Union understands that the Kennedy Center has decided to cancel all performances through May 10, 2020 because of the COVID-19 pandemic, those cancellations do not give the Association any contractual basis for failing to comply with the sections of the [agreement],” reads a grievance filed by the orchestra, claiming that the center has violated its contract with members that stipulates members be given at least six-weeks notice before they can stop paychecks.

“There is no provision of our collective bargaining agreement that allows the Kennedy Center to decide to stop paying us with only one week of notice,” the email says. “While we fully expect that an arbitrator would agree that management violated the CBA and that we are entitled to continued salary and benefits, this process takes time.“

Authored by Sven Henrich via NorthmanTrader.com,

Answers

The year is 2020. A new virus is spreading across the planet like a wildfire. More lethal than the flu, highly contagious with no cure. Stocks markets collapse, global economies are shutting down with billions of people quarantined to their homes and millions losing their jobs overnight. What do you do? What DO you do?

While it sounds like the script of a bad disaster movie, it is nevertheless the world we suddenly find ourselves in. If you’d outlined this script to anyone just a couple of months ago nobody would’ve believed you.

But here we are and everyone has to adapt and get on with it.

Everyone searches for answers. Is it a short term thing and a big recovery is just around the corner with the help of unprecedented monetary and fiscal stimulus, or will the monetary and structural consequences be so severe that a larger recession, depression even, is inevitable?

The Big Battle is unfolding right in front of us.

Markets, following the biggest crash off of all time highs since 1929, also just managed the sharpest rally since 1933. A bear market rally similar to many seen during the 2008 crisis?

Or a V shaped bottom similar to December 2018?

A retest of the lows for a “W” bottom, or the beginnings of a much more sinister stair step descent to new lows? Lots of questions, but few answers amid evolving data points that do not offer clarity where the current shock will settle.

Fact is the long term monetary and fiscal consequences of the current interventions will reverberate for years to come. Fact is also the global recession that was already at risk of playing out in 2019, but was delayed by aggressive global central bank action, but has now come to fruition anyways. Sparked by a trigger that has rendered all these policy actions of the past year ineffective and meaningless.

And now the forces of intervention have gone straight the MMT route. I urge caution once again:

This crisis is every MMT proponent’s wet dream.
Don’t let them lead you astray with promises of magic money.
They are even more dangerous than the easy money hacks that have steered us into this latest disaster.

— Sven Henrich (@NorthmanTrader) March 28, 2020

Since the advent of cheap money the crashes are getting worse. 2000 was bad, 2008 was worse and now 2020 is even worse than 2008. The trend is your friend? Not so. The trend suggests ever cheaper money, ever more debt and ever more interventions lead to ever more severe consequences and all is reliant on the forces of intervention to retain their efficacy and double, triple, quadruple down, a proposition whose wisdom is highly debatable.

Many now say the shock will be short lived and the market is a forward discounting mechanism and will look to brighter things to soon to come. If the market is a forward discounting mechanism why did this just happen:

If markets were forward looking they wouldn’t have made all time highs on February 19th.

— Sven Henrich (@NorthmanTrader) March 28, 2020

My view: Flexibility over certitude. Anyone expressing certitude about what will or will not happen has access to information I don’t have or perhaps they are simply projecting of what they would like to see happen.

What I do know is that technicals are working and they help guide us through this complex jungle and I’ll demonstrate that in the video below. But technicals also have to negotiate the complex web of artificial liquidity which is now entering markets to a degree never before seen in human history, even dwarfing the interventions of 2008/2009.

This week’s technical market assessment:

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Please be sure to watch it in HD for clarity. To get notified of future videos feel free to subscribe to our YouTube Channel. For the latest public analysis please visit NorthmanTrader. To subscribe to our market products please visit Services.

COVID-19 cases and deaths are soaring in New York and New Jersey, prompting President Trump on Saturday to consider a short-term quarantine for the tri-state area — New York, New Jersey, and Connecticut. 

Around March 10, New Jersey residents started to reduce their mobility around their respective communities, all because the government asked people to stay home as confirmed cases and deaths increased. On March 21, New Jersey Gov. Phil Murphy ordered all residents to “stay at home” to flatten the curve and reduce infections to prevent hospital systems in the state from being overwhelmed. 

The changes in the travel of New Jersey residents have been monitored on a new app called “Social Distancing Scoreboard,” which tracks the GPS location of smartphones in a geographical area, to make sure people are abiding by the government enforced public health order. The app gives the state an “A” for its residents following the rules.  

With that being said, stunning drone footage of Newark Avenue, one of the busiest streets in Jersey City, was uploaded to YouTube on Saturday morning. The short video shows shuttered shops and the overall area resembling a ghost town. The video confirms the Social Distancing Scoreboard app’s finding of how many residents in the state have reduced travels. During the video, maybe two people were spotted. 

New Jersey closed all non-essential business one week ago. The state’s Attorney General’s Office said anyone who doesn’t abide by the public health order could face criminal charges. 

Murphy called up the National Guard on Friday evening, as it appears a lockdown of the tri-state area could be next, as per President Trump’s comments on early Saturday. 

Authored by Charles Hugh Smith via OfTwoMinds blog,

There are only two ways to survive a decline in income and net worth: slash expenses or default on debt.

In post-World War II America, the cultural zeitgeist viewed frugality as a choice: permanent economic growth and federal anti-poverty programs steadily reduced the number of people in deep economic hardship (i.e. forced frugality) and raised the living standards of those in hardship to the point that the majority of households could choose to be frugal or live large by borrowing money to enable additional spending. Either way, rising income and net worth would raise all ships, frugal and free-spending alike.

For everyone above the bottom 20%, frugality was viewed as a sliding scale of choice: if you couldn’t increase your income fast enough, then borrow whatever money you needed. If you chose to be frugal, in moderation (i.e. clipping coupons and shopping for the cheapest airline seats, etc.) this was viewed as admirable fiscal prudence; if pushed beyond moderation then it was dismissed as counter to the American spirit of everlasting expansion: tightwad is not an endearment.

Thus none of us immoderately frugal folks ever fit in. Our frugality raised eyebrows and drew derogatory exhortations from indebted free-spenders to “get out there and live a little,” i.e. blow hard-earned money on aspirational gewgaws or status-enhancing fripperies, including the oh-so-precious “experiences” that have now replaced gauche physical markers of status-climbing.

We are now entering a new era of forced frugality in which incomes and net worth stagnate or decline while the cost of living rises and borrowing is no longer frictionless.

To say that these changes will shock the system is putting it mildly. Here’s the key dynamic in forced frugality: income can drop precipitously without any ratcheting to slow the decline, but costs only ratchet higher, or decline by nearly imperceptible degrees; that is, costs are “sticky” and refuse to slide down as easily as income.

The second key dynamic in forced frugality is the tightening of lending and the rising cost of borrowed money. When lenders could assume that almost every household’s income would increase as a byproduct of ceaseless economic expansion, and assets such as stocks, bonds and houses would always increase in value (any spots of bother are temporary), then the odds of a nasty default (in which the borrower stiffs the lender–no monthly payments to you, Bucko)–were low.

But once incomes and asset valuations are more likely to fall than rise, the door to lending slams shut. Why would lenders extend loans to households and enterprises that are practically guaranteed to default? Any lender that self-destructive would soon be stripped of their capital and solvency.

The general assumption is that since central banks are buying bonds, interest rates for borrowers can only go down. This assumption is misguided. The base assumption of all lenders is that a very thin layer of borrowers will default. Once this layer thickens, it makes no sense to lend to everyone who can fog a mirror.

Unwary lenders are about to learn a very painful lesson about the creditworthiness of supposedly solvent middle-class households: since income isn’t “sticky,” households that had high credit scores for years can quite suddenly default on their loans once their incomes plummet.

As for the borrower’s assets, those too can plummet in value, leaving the lender with zero collateral or an asset for which there is no buyer, regardless of the appraised value.

The income/assets slope is greased while the cost slope is on a resistant ratchet. Income can slide down effortlessly while costs stubbornly refuse to fall.

The net result of this dynamic is forced frugality. For the first time in decades, households and enterprises cannot count on a resumption of growth in a few months and higher incomes and asset valuations.

To the dismay of living-large-on-debt households and enterprises, the only way to get more than you have now will be to save, save, save cash. Earning more from one’s labor will be difficult, as will reaping easy speculative gains from simply owning assets.

The debt-free frugal may be forgiven for indulging in a bit of schadenfreude toward those who scorned frugality in favor of living large in the moment. Now who’s living large? Not the extremely frugal, because squandering money gives them no pleasure, and they prefer the anti-status “status” of old cars and trucks, tools that have lasted decades and assets that look like everyone else’s except they’re debt-free.

As for income–those who control and invest their own capital and labor, the class I’ve long called mobile creatives–will have far more opportunities than those chained to the monoculture plantations of corporate cartels and government agencies squeezed by collapsing tax revenues.

A great many people who reckoned moderate frugality was more than enough will discover it no longer suffices. A great many other people who reckoned they were rich enough to spurn frugality will discover their income no longer covers their expenses and so expenses will have to be slashed and burned to the ground.

And many frugal people who did the best they could with limited income will find that even extreme frugality can’t fix a decline in income.

An economy-wide reckoning of what’s essential is just starting. Netflix subscription? Gym membership? Fast food takeout a couple times a week? No, no and no. A thousand no’s as there are only two ways to survive a decline in income and net worth: slash expenses or default on debt. Both are toxic to “growth” in spending and debt.

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My recent books:

Audiobook edition now available:
Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World ($13)
(Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

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The last time Dr. Anthony Fauci did the Sunday Shows a few weeks back, he achieved a vaunted Washington milestone by doing all five network and cable Sunday shows – NBC, ABC, CBS, Fox News & CNN – in one day. That was back when President Trump’s approval rating was soaring, and the good doctor was indisputably the lead ‘subject matter expert’ guiding the White House’s response.

That was less than a month ago. But in that time, so much has changed.

President Trump and the good doctor are said to be at odds over some vaguely critical statements made by Fauci. Of course, that didn’t stop the administration and that task force’s media team from sending him out to do more Sunday Show appearances as officials hope futures will open higher after Friday’s selloff following the first three-day rebound since February.

Still, as the death toll in the US crept above 2,000, Dr. Fauci, officially the director of the National Institute of Allergy and Infectious Diseases and a member of the White House coronavirus task force told CNN’s “State of the Union” that models suggest the coronavirus will infect millions of Americans and could kill between 100,000 to 200,000.

However, he stressed that these projections are really a “moving target”, and that it’s possible the numbers could be much lower – or much higher – depending on how the US handles the response. So far, the disorganized response at the federal level has left a hodge podge of states to deal with their own problems, which is why Louisiana Gov. John Bel Edwards – a Democrat – is begging the Feds for help before the outbreak completely overruns his state’s capacity to handle it.

Video of Dr. Fauci telling @jaketapper that “Looking at what we’re seeing now, I would say between 100,000 and 200,000 cases… excuse me, deaths. I mean, we’re going to have millions of cases.” #CNNSOTU

These next few weeks could be pretty rough.pic.twitter.com/Vh6xB4Fele

— Josh Jordan (@NumbersMuncher) March 29, 2020

Back to the interview, Dr. Fauci told Jake Tapper that “Looking at what we are seeing now, I would say between 100,000-200,000” deaths from the coronavirus. “We’re going to have millions of cases,” he added.

“But it’s such a moving target and you could so easily be wrong…what we do know is we have a serious problem in New York, we have a serious problem in New Orleans and we’re going to be developing serious problems in other areas. Although people like to model it, let’s just look at the data that we have, and not worry about these worst case and best case scenarios.”

Dr. Fauci also cautioned the public about how to interpret models:

“There are things called models, and when someone creates a model, they put in various assumptions. And the model is only as good and as accurate as your assumptions.”

“And whenever the modelers come in, they give a worst case scenario and a best case scenario. Generally, the reality is somewhere in the middle. I’ve never seen a model of the diseases that I’ve dealt with where the worst case scenario actually came out. They always overshoot.”

Dr. Fauci stressed that Trump’s hope to reopen the country by Easter will greatly depend on whether the public complies with the ‘shelter in place’ recommendations, though he said he greatly doubts that the US will be able to reopen by next week (Easter is April 12, still a couple of weeks away). And notably, when Tapper pressed Dr. Fauci about rumors the administration was ignoring Democratic governors pleas for more federal assistance simply because they were Democrats, Dr. Fauci assured CNN that anybody asking for assistance would get it.

#CNNSOTU Watch Tapper tried to trap Dr. Fauci to smear President Trump😂😂😂
Dr. shut him down quickly again and again throughout the whole interview. pic.twitter.com/wlcFa0VTg1

— MAGA Immigrant (@RealCindy9) March 29, 2020

That last clip is really something: but the takeaway from the interview is this: prepare for the worst, but hope for the best. The result is going to depend on whether millions of Americans do their part not to spread the virus. So, instead of focusing on the projections, focus on reacting to the situation at hand.

Authored by Daniel Lacalle,

The economy is the heart of the social body. If we shut down the heart of an organism to safeguard the hands and brain, the body dies.

The data on deaths and infected from the Covid-19 coronavirus epidemic is alarming. Let us remember the deceased, the infected and their families, and applaud the response of civil society, businesses, and citizens.

A pandemic crisis is addressed by providing safety protocols and sanitary equipment for businesses to continue to run and keep employment, not shutting down everything, which may create a larger social and health problem in the long term regardless of the massive liquidity and fiscal policies. Why? Because demand-side policies never work in a forced shutdown of all sectors. There is no demand to “incentivize” when the government orders the closing of all activities. And there is no supply to follow when the economic crisis creates a collapse in employment and consumption.

Many commentators are saying that shutting down the economy is an essential measure to gain time to control the virus. This analysis comes from people who simply do not understand the ripple effects and massive ramifications of a complete shutdown. They perceive that it is small collateral damage because they also believe that everything can go back to normal in one month. They are wrong. The impact is severe, widespread and exponential.

The decision to shut down the economy may cause long-lasting damages to job creation and businesses that cannot be unwound in a few months. Yes, it is essential to contain the virus spread and drastic measures are warranted, but we cannot forget that each month means millions of unemployed and thousands of business closures.

Each month of lockdown means more than millions of unemployed. It means thousands of businesses that go bankrupt and have to close forever. This debunks the V-shaped recovery theory (even with Congress package, which does not address the working capital nightmare unraveling). The best course of action to tackle the health crisis, as well as the economic collapse risk, is to follow the South Korea and Singapore strategy. This is not a spending crisis, but a test and prevention crisis.

The healthcare crisis has to be tackled from three angles: prevention, testing and ensuring that treatment and vaccines will be widely available when ready. If governments fall prey to panic and destroy the economic fabric of the country they will add poverty, misery, and bankruptcy to the fatalities of the epidemic, thus creating a larger, longer-lasting social and health depression.

The debate in the media has tried to focus on the issue of austerity and government spending as if this had been solved by having massive budgets.

This is not a crisis due to a lack of health spending but from the lack of foresight, prevention, and management of some countries.

South Korea is, with 51 million inhabitants, is one of the countries with a higher ranking in economic freedom (ranked 25 globally), public spending to GDP is much lower than most leading economies, at 30%, and per-capita health expenditure is much lower than in the EU or US. South Korea is also a world example in managing the pandemic, with 139 deaths and 9,332 cases at the end of this article. The same can be said of Singapore, also a leader in economic freedom and with much lower spending to GDP (18%).

On the opposite side, Spain or Italy, with large government spending (above 40% of GDP) and vast public healthcare systems, stand unfortunately at the top of the list in deaths. There may be many factors involved, but one is clear. More spending is not the magic solution to a crisis generated by poor prevention and mismanagement.

What has been the success of the leading countries? Little bureaucratic administration and a fast, effective and efficiently managed prevention, analysis and containment system.

Any Spanish or Italian citizen can understand that the accumulation of inefficiencies they have experienced in managing the pandemic would have been the same if in the past they had spent much more because resources would have been allocated to other things, not to an epidemic that the governments failed to recognize. It is a management problem, not necessarily of funding, and much less of funds managed by the government.

This leads us to another fallacy which is the concept of “public health” when what most politicians want to impose is “political health”. An efficient public service health system not only does not have to be a single-payer but much less a single manager and less so a political one.

Recall that in July last year that same government called on the autonomous communities to reduce spending on Health (“urgent plan for adjustments in pharmaceutical and health spending”, demanding measures “in the outpatient and hospital pharmaceutical provision, as well as in health products” ).

Public services and the private sector are giving everything and more in this crisis. This is the evidence of social capitalism that I comment on in my book, Freedom or Equality (PostHill Press).

The crisis has shown that the only solution to future challenges comes precisely from greater collaboration, with a solid and powerful private sector. There is no public sector without the private sector. There is no public health without the technology, innovation, research, products, and drugs of the private sector. No leading state in the world faces the challenges of health in the future by imposing political management as the only option.

Everyone knows that we will need all-important competition, freedom of choice, and technological leadership to serve many more people while maximizing the use of resources. Anyone who thinks that by destroying the private sector they are going to guarantee greater and better access to goods and services has a problem with history and statistics. No leading healthcare system is only state-managed. And none works only with state-owned resources.

Health professionals do not belong to the Government. They are free individuals, many of them working in the private and public sector at the same time, and they are part of civil society that provides a service with their magnificent work, which we taxpayers pay for.

This crisis has demonstrated the reality of capitalism as the most efficient and social system. Companies and self-employed workers have responded in an exemplary way. The number of businesses, entrepreneurs, and organizations that have acted quickly and efficiently to support countries like Spain or Italy in difficult times is enormous. Unfortunately, these days the examples of solidarity and contribution shown by anti-capitalist agitators are almost non-existent.

It is curious that those “anti-capitalists” who previously encouraged debt defaults and anti-business slogans today demand the most capitalist instruments in the world, support from the balance sheet of multinationals, multibillion-dollar bond issuances that they will have to sell to the investment funds they hate, and massive debt that will be financed by the investors they abhorred, with investments that will be made by the companies they condemn and giant loans from the banks they wanted to destroy. I have never seen more capitalist anti-capitalists.

Thanks to capitalism, we are going to get out of this crisis of poor prevention and worse management in a record period, if there are no more obstacles for economic recovery. In socialism, we would be forced to choose between misery and more misery, added with repression once the citizens began to show their discontent with the Government.

When the Government stands as the only power without checks and balances, the door is opened to incompetence, authoritarianism, and misery. Competition is essential for progress. The moment competition and freedom are curtailed, progress is destroyed.

That is the great advantage of a free economy. Progress in competition and freedom. The government is at the service of civil society and taxpayers, and not the other way around.

This crisis is going to destroy millions of jobs, but these can recover quickly and heal the economy if governments don’t make the mistake of addressing a pandemic crisis by creating an economic depression. Spain and Italy show why this is a grave mistake. The vast majority of small and medium companies are sent en masse to collapse, leading to years of economic stagnation, poverty, and massive unemployment. Destroying the economy is not a social policy.

Governments need to provide citizens and businesses with the tools to ensure safety, not kill the social fabric of the nation.

Instead of protecting the productive fabric to create more jobs when the pandemic is controlled, some countries are going to lead hundreds of thousands of small businesses to bankruptcy. Businesses that will not come back when, thanks to science, the crisis passes.

The health pandemic will be overcome thanks to human ingenuity, science, technology, and business. The interventionist pandemic will cost a lot more, in lives, in employment, in growth, and in opportunities.