India Announces $40 Billion Emergency Fiscal Injection As Economy Plunges
India’s economy is rapidly decelerating and could be headed for a financial crisis.
As an emergency response to plunging growth rates and falling energy consumption, along with a manufacturing hub grinding to a halt, the government has just announced a massive $40 billion fiscal injection in its budget for 2020/21 to prevent a hard landing, reported Reuters.
Emergency fiscal measures by government are typically for an economy that is in a recession or certainly headed towards one.
However, India isn’t in a recession, but growth rates are rapidly decelerating and now being referred to as “great slowdown.”
“Look at electricity generation growth, it’s falling off the bottom, and it’s never been like this ever. So this is the sense in which I would say this is not just any slowdown, this is the great slowdown that India is experiencing and we should look at it with all seriousness …and the economy seems headed for the intensive care unit,” former Indian Chief Economic Adviser Arvind Subramanian warned last month.
Economic growth in the country is expected to fall under the 5-handle this year, will be the weakest since the global financial crisis in 2008-09.
Industrial production growth is collapsing:
Business confidence is also crashing:
Subramanian also warned that as the economy stalls, corporate debt and increasing non-performing assets could produce shocks in the country’s banking sector that may lead to slower growth rates in credit, thus slowing the economy even further.
Finance Minister Nirmala Sitharaman announced Saturday that 2.83 trillion Indian rupees ($39.82 billion) would be allocated for agriculture, farming, alternative energy, and infrastructure projects for the 2020/21 fiscal year.
Sitharaman also said the government would spend $50.65 billion on federal water projects that provide more freshwater access to the population.
She said the increased deficit spending could pressure public finances and lead to a deficit that would widen to 3.8% of GDP, up from 3.3% from earlier estimates for the current year.
As we noted Friday, January 31, 2020, Prime Minister Narendra Modi rode the wave of fake GDP data from 2014 through 2017, but growth has since collapsed; he has since been heavily criticized for a slumping economy by national media
“India’s 2020/21 budget highlights the challenges to fiscal consolidation from slower real and nominal growth, which may continue for longer than the government forecasts,” said Gene Fang, Associate Managing Director, Sovereign Risk, Moody’s Investors Service.
And what does this mean for Indian NIFTY 50 futures, well, possibly a correction from the 16.5% run-up from August.
The city of Santa Cruz in Central California has become the most recent municipality to decriminalize the use of psychedelic mushrooms.
This week, the measure passed The City Council of Santa Cruz with a unanimous vote to make the investigation and arrest a low priority for “the adult possession, use or cultivation of psychoactive plants and fungi.”
Councilmember Chris Krohn told ABC News that the new initiative is part of a broader plan to treat mental health in the community.
“This resolution ensures that only people 21 and over have access to these plants and the Council has given direction to our Police Department to make it a low priority infraction. Entheogenic plants offer many in our community a way out of the addictive pharmaceuticals known as opioids. People came forward at last night’s meeting telling of the beneficial effects of how these plants changed their lives,” Krohn said.
Drew Glover, another council member who voted in favor of decriminalization, pointed to the long history of ancient cultures around the world who have “respected entheogenic plants and fungi for providing healing, knowledge, creativity and spiritual connection with nature.”
“With the passing of this resolution Santa Cruz has taken an important step in acknowledging the impact that the war on drugs has had on communities while at the same time giving people the liberty to choose how to address their medical needs, providing a potent tool to address issues like PTSD, addiction, and depression,” Glover told ABC News.
Denver was the first municipality in the United States to decriminalize possession of psychedelic mushrooms, and the organizers of that successful initiative are working to implement the same strategy in other cities and states. Similar measures have already been passed in Oakland, California, as well.
Significant progress has also been made in opening up psychedelic compounds to scientific study.
As Truth Theory reported last year, a $17 million psychedelic research center will soon be opening at John’s Hopkins University. This research center is the first of its kind in the United States, and the largest of its kind in the entire world.
Researchers at the new Johns Hopkins facility will be studying psychedelic substances and their effect on the human brain. More specifically, they will be seeking possible treatments for mental health issues like addiction, depression, PTSD, Alzheimer’s disease, eating disorders and a variety of other conditions.
The science in this field has been so convincing, that large investors are now working to develop pharmaceutical drugs derived from these compounds.
Lonely Japanese Billionaire Abandons Search For Space Ho After 22,000 Women Apply
A Japanese billionaire who put out a casting call for single females to join him for a SpaceX voyage around the room has called off the search, citing “personal reasons.”
Yusaku Maezawa, 44, announced in January that he was looking for single females over the age of 20 to join him on the trip, which was set to be broadcast as part of a documentary on streaming channel, AbemaTV.
Alas, there will be no zero-G sex for Maezawa or a lucky lady.
Due to personal reasons, I have informed AbemaTV yesterday with my decision to no longer participate in the matchmaking documentary, hence requested for the cancellation of the show.
“To think that 27,722 women, with earnest intentions and courage, had used their precious time to apply makes me feel extremely remorseful to conclude and inform everyone with this selfish decision of mine,” he continued.
To think that 27,722 women, with earnest intentions and courage, had used their precious time to apply makes me feel extremely remorseful to conclude and inform everyone with this selfish decision of mine.
… China’s reopening from the long Lunar New Year holiday was set to be ugly, and sure enough with Chinese stocks resuming trade at 9am on Monday, a wave of selling was unleashed culminating in nothing short of a bloodbath with the Shanghai Composite crashing 9% at the open, down by the most since the bursting of China’s 2015 stock bubble, and wiping out 12 months worth of gains in a corona moment.
Not even the hilarious beat in China’s Manufacturing PMI (this time from Caixin), which somehow surpased expectations of a 51.0 print by the smallest amount possible at 51.1 (down from 51.5) despite a major portion of China’s population under quarantine and the economy hitting a brick wall, had any impact on stocks.
What is odd is that this is happening even as China earlier in the day barred short selling, which only means the central bank made a huge oversight and should have also banned all selling altogether.
As stocks collapse the flight to safety is predictably on with 10Y Chinese bond tumbling in yield to 3%, matching the lowest yield since late 2016…
… while spiking in price.
The selloff wasn’t limited just to stocks, however, with China’s benchmark iron ore contract falling by its daily limit of 8%, with copper, crude and palm oil also plunging by the maximum allowed. This is bad news for anyone still holding on to dreams of a Chinese economic renaissance, as the following correlation between China’s macro surprise index and copper demonstrates.
China’s bloodbath is taking place even as the PBOC scrambled earlier in the day to inject a gross 1.2 trillion in liquidity which however as we explained, was woefully inadequate because when netting off the 1 trillion in short-term reverse repo funds scheduled to mature on Monday, the liquidity injection amounted to a far more modest 150BN yuan, or just over $27BN.
The lack of any notable impact from China’s reverse repo injection probably explains why shortly after the catastrophic open, the PBOC also cut rates on both its 7 day and 14 day-reverse repo from 2.5% to 2.4%, and from 2.65% to 2.55% respectively.
Then, as a result of the unexpected additional easing, the Yuan promptly slumped back under 7.00, potentially risking the framework of the US-China trade deal, and the reversal in the US Treasury’s designation of China as a currency manipulator.
Then again, in retrospect it’s probably not accurate to say China’s emergency intervention and rate cut has had no positive impact on stocks: after all US futures have surged since the open and are up 0.7%, or 21 points, to 3,245 from Friday’s 3,223 close.
… or else any additional selling will only beget even more selling, which is certainly on the mind of whoever is buying US futs even as China is crashing.
Media ‘impartiality’ on climate change is ethically misguided and downright dangerous
January 31, 2020 6.11am AEDT
Denis Muller
Senior Research Fellow in the Centre for Advancing Journalism, University of Melbourne
In September 2019, the editor of The Conversation, Misha Ketchell, declared The Conversation’s editorial team in Australia was henceforth taking what he called a “zero-tolerance” approach to climate change deniers and sceptics. Their comments would be blocked and their accounts locked.
His reasons were succinct:
Climate change deniers and those shamelessly peddling pseudoscience and misinformation are perpetuating ideas that will ultimately destroy the planet.
…
But in the era of climate change, this conventional approach is out of date. A more analytical approach is called for.
…
Harm is a long-established criterion for abridging free speech. John Stuart Mill, in his seminal work, On Liberty, published in 1859, was a robust advocate for free speech but he drew the line at harm:
… the only purpose for which power can be exercised over any member of a civilized community, against his will, is to prevent harm to others.
It follows that editors may exercise the power of refusing to publish climate-denialist material if doing so prevents harm to others, without violating fundamental free-speech principles.
Other harms too provide established grounds for limiting free speech. Some of these are enforceable at law – defamation, contempt of court, national security – but speech about climate change falls outside the law and so becomes a question of ethics.
The harms done by climate change, both at a planetary level and at the level of human health, are well-documented and supported by overwhelming scientific evidence.
…
External guidance is nonexistent. The ethical codes promulgated by the media accountability bodies – the Australian Press Council and the Australian Communications and Media Authority – make no mention of how impartiality should be achieved in the context of climate change. The Media, Entertainment and Arts Alliance’s code of ethics is similarly silent.
These bodies would serve the profession and the public interest by developing specific standards to deal with the issue of climate change, and guidance about how to meet them. It is not an issue like any other. It is existential on a scale surpassing even nuclear war.
The problem with comparing discussion of climate change to shouting “fire” in a burning theatre is one of immediacy.
Shouting “fire” to create a fake panic in a movie cinema is punishable, because it has been amply demonstrated through experience that creating a fake panic causes immediate, measurable harm; we know through observation of past events that people can be hurt or even killed during the resulting stampede.
But a public comment disputing alarmist climate claims; not so much.
The author’s comparison of climate change to an imminent nuclear war is absurd. Climate change is a gradual process, with significant changes taking decades or even centuries to manifest.
Even if climate skeptics were totally wrong, there is no justification for shutting down our right to be wrong. Unlike shouting “fire” in a crowded theatre, no single climate “shout”, no matter how wrong, has the potential to alter the trajectory of society to such an extent that measurable harm could be ascribed to it.
If society lowers the bar of censorship to such an extent that publicly supporting a position which might be wrong but which causes no immediate harm qualifies as a punishable offence, then we have lost more than our right to free speech.
NYC Apartment Sales Crash To Near Decade Low As Government Suffocates Market With New Regulations
There’s nothing like broad overreaching government regulation to absolutely suffocate any type of market.
This is a lesson that the New York City apartment market is learning first hand, as sales of apartment buildings in the city have crashed to near decade lows after new rent rules scared investors away from buying real estate as investment and/or rental properties, according to Bloomberg.
In 2019, the value of purchases across all boroughs fell an astounding 40% to $6.91 billion, the lowest total since 2011. There were 290 multifamily deals in the year, a 36% decline and the first year with less than 300 deals since 2010.
The market ground to a halt as a result of New York’s new rent law, which affects about 1 million apartments in the city. The law makes it almost impossible for landlords to raise rents, remove units from state regulation or recoup costs of capital improvements.
The message this sent to the market? Stop spending on renovations.
And so, landlords did. They stopped buying properties altogether, as well.
Shimon Shkury, president of Ariel Property Advisers, said: “The fact that there’s no correlation between the amount you put into a building and the amount of rent you can charge has completely shifted investment interest in rent-stabilized buildings.”
In Manhattan, south of 96th street and West 110th, investors turned specifically toward non-regulated units and paid higher prices for them. More than 60% of units that were bought and sold last year were market rate and buyers paid an average of $758,217 per apartment, up 14% from 2018.
Investors who bought rent-regulated properties, on the other hand, demanded discounts.
In Queens, where about 67% of apartments sold were under these regulations, prices fell 7.7% to $276,261 per apartment. In the Bronx, the average sale price per unit also fell, from $185,006 in 2018 to $171,855 in 2018.
Late Friday, the US officially declared coronavirus a “national health emergency”.
Some are starting to claim that it’s “too late” to do anything to stop the spread of coronavirus.
Is it?
Well, even if it’s too late to stop it, we may still be able to slow the spread substantially.
The latest numbers from China may be offering our first hope of that. At ~12,000, they are our first sign the virus may no longer be spreading at a geometric rate.
China’s quarantine efforts may be starting to pay off. (Or, we may just be getting bad data. It’s simply too early to tell.)
Yes, it’s important to prepare for coronavirus to arrive in your community. That’s just prudent given what we know right now.
But don’t lose hope. We all have a role to play in limiting the damage this outbreak can cause.
Michael Bloomberg’s Super Bowl ad, which presents the Democratic presidential contender as a brave advocate of public safety who is not afraid to take on “the gun lobby,” claims “2,900 children die from gun violence every year” in the United States, which is not true. That number includes young adults as well as minors, and it includes suicides as well as homicides.
Bloomberg’s campaign cited Everytown for Gun Safety, a Bloomberg-backed group, as the source of the number used in the ad. “Annually,” the organization said in June 2019 fact sheet, “nearly 2,900 children and teens (ages 0 to 19) are shot and killed.” The ad changed “children and teens” (including young adults) to “children,” presumably because that makes the deaths more shocking, strengthening the emotional case for the gun control policies Bloomberg favors.
According to to the U.S. Centers for Disease Control and Prevention, FactCheck.org notes, the average number of firearm-related deaths involving Americans 17 or younger from 2013 through 2017 (the period used by Everytown for Gun Safety) was about 1,500, roughly half the number cited by Bloomberg. Furthermore, nearly two-fifths of those deaths were suicides, meaning the number of minors killed each year by “gun violence,” as that term is usually understood, is about 73 percent smaller than the figure cited in Bloomberg’s ad.
The case highlighted by the TV spot does not actually fit into any of these categories. The ad features Calandrian Kemp, whose 20-year-old son, George, was shot to death in 2013 at a park in Richmond, a Houston suburb, during a confrontation that a Texas appeals court described as “gang-related.” According to the court, “two groups of young men, most of them teenagers, had met that night for a fight.” Two of them, including an 18-year-old, Corey Coleman, fired the handgun rounds that struck Kemp. Coleman was convicted of murder and sentenced to 34 years in prison.
An honest discussion of this issue would start by clearly defining the problem. Bloomberg fails that test by using a highly misleading number referring to “children,” half of whom were adults, and by using a definition of “gun violence” that includes suicides, a very different problem that is likely to require different solutions.
“Ask any grieving parent whose 18- or 19-year-old son or daughter was shot and killed, and they will tell you they lost a child,” a Bloomberg campaign spokesperson told Fox News in defense of the ad. “There are simply too many of these deaths, and Mike has a plan to prevent them with common-sense gun safety laws.” Everyone is somebody’s child, of course, so by this reasoning all firearm-related deaths involve children.
Leaving aside Bloomberg’s slippery numbers, how well do the “common-sense gun safety laws” he supports address the problem exemplified by George Kemp’s death? Many of Bloomberg’s ideas, such as banning “assault weapons,” passing more “red flag” laws, and closing the “boyfriend loophole,” have nothing to do with cases like this. Others seem more relevant but are unlikely to have much of an impact.
Bloomberg wants to require background checks for all firearm sales and ban purchases by anyone younger than 21. Those rules would be effective in preventing murders like George Kemp’s only if young men like Corey Coleman are currently obtaining handguns from sources that can reasonably be expected to follow the new requirements, which is highly doubtful.
Bloomberg also wants to “make straw purchasing and trafficking stand-alone federal crimes, with serious penalties for offenders in order to help stop illicit sales.” Yet people who buy guns from federally licensed dealers already have to certify that they are not buying the guns for someone else, and lying about that is a felony punishable by up to 10 years in prison. The same penalty applies to anyone, including a private seller, who “knows or has reasonable cause to believe” that the person to whom he is transferring a gun is legally disqualified from owning it.
Finally, Bloomberg supports allocating “at least $100 million annually for local violence intervention programs,” which might make homicides like this less common if those programs are effective. Everytown for Gun Safety cites several programs it considers promising. Whether it makes sense to spend more taxpayer money on such programs is a subject worth discussing. But Bloomberg’s dishonest, inflammatory approach seems designed to avoid that sort of substantive debate.
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It now appears that this massive euphoria, which culminated in the biggest one-day selloff since August, may have been a tad excessive, hitting just as China was forced to admit it has a major viral epidemic on its hands (although in retrospect Ray Dalio’s Gartmanesque “cash is trash” declaration just days earlier in Davos, may have been just as powerful a catalyst for the derisking as the Coronavirus pandemic).
And nowhere was the investor euphoria more apparent than in the tech sector which, as the BofA chart below shoes, was the most overbought since dotcom bubble.
Then, on Friday, as we duly reported fears that China is losing the fight to contain the Coronavirus spread finally exploded, and sent the Dow red for the year, with the S&P 500 index now flat for 2020 as positive early results from 4Q 2019 earnings season offset the economic concerns of the coronavirus. In short, much of the euphoria that was unleashed by the Fed’s launch of QE4 in October to “fix” the repo market, coupled with central banks cutting rates as if “it’s a crisis” in the words of Bank of America…
… concerns that China’s economy may slump to a 5% or lower GDP as a result of the viral pandemic, have come at the worst possible time. And so, with the market finally cracking, suddenly panicked investors are asking if what has gone up in almost vertical fashion over the past year is about to come down.
Namely the handful of tech stocks that has been at the forefront of the S&P’s tremendous ascent: the FAAMGs.
As Goldman’s David Kostin write over the weekend, picking up where Morgan Stanley’s Michael Wilson left off two weeks ago, “today, the S&P 500 market cap is concentrated in the five largest stocks to a degree not witnessed since the peak of the Tech bubble. The five firms – FB, AAPL, MSFT, AMZN, GOOGL – collectively account for 18% of S&P 500 market cap, the largest share since 2000“…
… even as earnings are slightly less concentrated, with the top five stocks represent 14% of profits, the highest level since 2015. During the past three months, aggregate FAAMG returns have been double the S&P 500 index (19% vs. 8%) and generated 37% of the gain for the entire index during that time. And with most of tech earnings roughly unchanged over the past year, the bulk of this price increase was the direct result of multiple expansion, which in turn was made possible by a record expansion in stock buybacks among tech companies.
So with everyone casting a fearful eye to the first tech bubble in 2000, investors are understandably curious what happened back then, and are we about to witness the second coming of the dot com bubble bursting.
Here, Kostin, which has a 3,400 year-end price target understandably does everything in its power to mitigate fears that the Nasdaq is about to experience a second catastrophic plunge. Here is what Kostin writes:
Twenty years ago, the US equity market was also dominated by five stocks: MSFT, CSCO, GE, INTC, and XOM. In March 2000, these stocks accounted for 18% of total S&P 500 market cap and were priced at a substantial premium to the index. Collectively, the firms traded at a forward P/E of 47x (vs. 24x for S&P 500) and 7.3x trailing EV/sales (vs. 2.7x). The elevated valuations reflected expectations for rapid growth in aggregate earnings and sales during 2000 and 2001.
In contrast, full-year 2001 results for the five largest stocks in March 2000 came in nowhere near the lofty initial expectations. In aggregate, sales fell by 7% (vs. expectations of +15%), net margins contracted by 150 bp (from 13% to 11% vs. the original forecast of 1100 bp of margin expansion) and net income fell by 18% (vs. forecast of +14%). Three of the five firms actually realized negative sales growth in 2001 (INTC: -21%, XOM: -10%, CSCO: -24%) and three reported negative EPS growth (CSCO: -72%, INTC: -68%, XOM: -6%).
In contrast to the devastating misses suffered by the “Big Five” in 2000, Goldman claims that “lower growth expectations, lower valuations, and a greater re-investment ratio suggest the current concentration may be more sustainable than it proved to be in 2000.” To underscore this point, Goldman shows the following chart according to which valuations of the five largest companies now are far more manageable compared to 2000.
But as even Goldman admits, “in order to avoid repeating the share price collapse experienced by their predecessors, today’s market cap leaders will need to at least meet – and preferably exceed – current consensus growth expectations,” which, however, “seem more achievable based on recent results and management guidance. In aggregate, consensus expects a 100 bp sales growth deceleration (from 15% in 2020 to 14% in 2021), a 20 bp margin expansion (19.5% to 19.7%), and a 600 bp EPS growth acceleration (10% to 16%).”
The good news is that at least for now, these market titans have not disappointed, as Bloomberg pointed out in “Like It or Not, Trillion-Dollar Titans Lived Up to Earnings Hype.” Indeed, four of the five FAAMG stocks reported 4Q 2019 results this week, which generally came in stronger than expected:
Apple reported a revenue and EPS beat, with quarterly revenues of $92 billion (+9% vs. the year-ago quarter) beating consensus by 4% as demand for iPhones and wearables better than expected. Subscriptions came in ahead of schedule, despite a deceleration in services revenue growth to 17% year/year.
Microsoft posted positive results across every segment. Sales grew by 14% year/year and executives affirmed guidance for continued double-digit growth in 2020. Consensus estimates currently forecast 12% sales growth and 11% EPS growth in 2020 and 12% and 14%, respectively, in 2021.
FB reported strong 4Q results across almost every financial metric. Overall revenues jumped by 25% to $21 billion. While ad revenue beat for the fifth consecutive quarter, slowing growth in mature markets led to some investor concern.
AMZN’s Thursday report was the best of the FAAMG lot. The company reported 4Q revenues of $87 billion (+21%), above consensus forecasts, and AMZN exceeded the high-end of its revenue guidance for the first time since 1Q 2018.
Yet while the market leaders did not disappoint in the last quarter of 2019 when stocks exploded higher with the blessing of the Fed’s QE4, what about the current quarter and the future? What happens to revenues and demand, to established supply chains, to profit margins, if the Coronavirus epidemic keep spreading and tens of millions of Chinese remain under quarantine? What happens to Apple’s iPhone sales in China if the Cupertino company is unable to reopen its store for a month, or two, or three? What happens to the already depressed global auto industry if Chinese part-makers can’t transport their parts to their core customers? What happens to China’s financial system if the local banking sector is suddenly paralyzed as the great unknown of how the pandemic will impact the Chinese economy spreads?
One thing is certain: with the tech sector priced to perfection, and with multiples of the IT sector at the highest level since the dot com bubble, and the tech setor the most overbought relative to the broader S&P500…
… anything less than perfection could lead to a violent selloff among the massively overbought handful of tech names that have led the market for much of the past year.
As such, it’s suddenly up to China to make sure the FAAMGs in particular, and the tech sector, and S&P500 in general, can sustain the lofty ascent that Donald Trump demands to ensure his reelection in November. That, however, may be a big ask as the NYT writes in “China Kept World in Dark as Outbreak Rippled” because, well, why would China have to keep the world in the dark if indeed the situation was contained, or containable? And one lack at the recent action in the NYSE FANG index…
… indicates that traders are increasingly starting to wonder if the mega tech party was finally ended, not by a black swan, but a black bat…
In 1349, when Black Death was ravaging Europe, many of the day’s best and brightest banded together in pursuit of a common cure. They had little choice. Black Death was rapidly spreading across the continent. Nothing could stop it.
Boils were lanced with precision. Blood was let with vigor. But there was no escape from the plague’s instant death. It was efficient. It was relentless. People would go to bed at night perfectly healthy; by morning, they’d wake up perfectly dead.
Then, at the exact moment of maximum death and despair, flagellants came to the rescue. Processions marched to and fro, seeking relief through forcefully whipping themselves in public displays of self-mutilation. According to the History Channel:
“Some upper-class men joined processions of flagellants that traveled from town to town and engaged in public displays of penance and punishment: They would beat themselves and one another with heavy leather straps studded with sharp pieces of metal while the townspeople looked on.
“For 33 1/2 days, the flagellants repeated this ritual three times a day. Then they would move on to the next town and begin the process over again.”
This may seem strange, weird, and, quite frankly, a bit nuts. But something miraculous happened. The Black Death epidemic soon exhausted itself. The flagellants saved Europe from the mid-14th century onslaught of Black Death.
Or did they?
Probably Nothing, Possibly Everything
To be clear, flagellants had no influence on the eventual relenting of Black Death. Remember, correlation does not imply causation. Post hoc ergo propter hoc – “after this, therefore because of this” – or simply the post hoc fallacy, recognizes that just because one event happened to follow another, doesn’t mean the initial event caused the later event to occur.
The example of flagellants stopping the plague is absurd. Still, we present it to underscore several points:
(1) Humans are often irrational, especially during times of crisis, and
(2) Mis-assigning causation is a common appeal to ignorance, especially when it comes to modern day economics analysis.
One popular tactic of central planners, for example, is to point to an economic statistic – like low unemployment – and self-adulate for maneuvering it down. Does pumping fake money into credit markets somehow create jobs? Does pumping fake money into credit markets somehow create wealth and prosperity?
Similarly, when the yield curve inverts and the economy stalls, central planners always scratch for a convenient culprit. Last fall, when the economy slipped, the trade war with China was to blame. Now it’s the Chinese coronavirus. Jeffrey P. Snider, at Alhambra Investments, offers the following insight:
“The mainstream needs to blame something and given how convenient the timing between ‘protectionism’ and the ‘unexpected’ appearance of this globally synchronized downturn should the latter flame back up again, having never really been extinguished, China easily provides the next scapegoat (wouldn’t it be ironic if the virus was found to have jumped from goats to humans?)”
At this point, it’s still too early to tell. China’s coronavirus, like past outbreaks of the bird flu or SARS, is probably nothing. But it’s possibly everything.
How Xi Jinping will Save the World from Coronavirus
You see, every bubble eventually finds its pin. Perhaps coronavirus is the pin that the twin stock and bond market bubbles have elegantly eluded over the last decade. If not, it should be.
By this, coronavirus would not be the cause of a bear market and economic recession. It would merely mark a coincidental turning point. One that could have been marked by a whole host of potential triggers over the course of many years.
The experience of the last decade, however, is that the coronavirus is probably nothing. Certainly, if central banks are being called on to save us from melting glaciers, a determined central bank can paper over coronavirus, right?
Indeed, complacency still reigns. The question, at the moment, is not whether the stock market bubble is bursting. But, rather, should you buy the dip?
The repeat lessons of the past decade are that you should definitely buy the dip. The yield curve may be inverting for the first time since October. But if this is a signal the Fed will be pumping more fake money, maybe, once again, it’s bullish for the S&P 500.
In the meantime, one thing is crystal clear. China’s lunar new year holiday has been ruined. And Xi Jinping, China’s paramount leader, is mad. He also recently distilled the coronavirus challenge down to a bite sized nugget:
“The epidemic is a devil. We cannot let the devil hide.”
Should this escalate to full pandemic, Mr. Xi will be compelled to join a procession of flagellants in Beijing; he’ll flog himself silly to rid the world of the coronavirus.
