Category: zerohedge

Authored by Daniel Lacalle,

Many countries have decided to lock down entire cities and shutdown airspace to contain the spread of coronavirus. This decision may create a massive crisis drowned in liquidity.

Governments and central banks are committed to do whatever it takes in terms of demand-side policies, spending and increasing liquidity as much as needed to avoid a 2008-style crisis. However, these measures, which were already ineffective for years, will be even less successful this time.

To start with, global policymakers made the mistake of implementing aggressive easing policies in a period of growth, which left them without effective tools to address the financial turmoil. When central banks cut rates and inject billions of liquidity in a period of growth and risk appetite, an urgent reaction due to a black swan scenario like coronavirus finds them with no tool that makes a significant impact. What impact will the ECB have with a 120 billion euro per month asset purchase when it has already bought almost 20% of eurozone governments’ debt in its misguided monthly 20 billion euro purchase and deposit rates are negative? None. Sovereign debt in the eurozone already trades with a negative yield, and buying corporate bonds of zombie multinationals did not help the eurozone economy nor will it help now.

Adding a monetary facility for SMEs only helps those who are indebted now, it does nothing for those small and medium companies that were prudent all throughout these years and now face a collapse in sales and accumulating fixed costs.

The Spanish government launched an urgent economic program of tax relief that, when you read the text, only applies to companies with sales below 6 million euros and maximum relief of 30,000 euro. Nothing. The vast majority of self-employed workers and small companies that face a lockdown that can last for months are not going to receive the slightest respite. In Italy, only the already indebted will see some relief. This is exactly the same all over Europe. Governments are implementing aggressive demand measures when the problem is not a demand issue and ignoring the real risks.

For most small companies and self-employed workers globally, a month of closure is a ruin. Two months is a catastrophe that leads to a domino of bankruptcies and layoffs.

The key factor is that the lockdown and economic crisis ahead comes on top of a very weak 2019 and 2018 for small companies, which are almost 90% of the corporate fabric in most developed nations.

Working capital kills more companies than the Government, but when the two factors come together, the risks of falling into a severe crisis are enormous.

What is death by working capital? Revenues plummet, rising unpaid or delayed payment invoices, while at the same time fixed costs accumulate and taxes continue to drown businesses. Most companies have very little liquidity. According to Moody’s the large quoted companies have increased cash, but even at large multinationals -excluding tech giants and a few exceptions-, net cash balance sheet does not cover one year of working capital requirements, particularly in the eurozone. However, an average small company usually has enough cash to survive a maximum of two months of difficulties. Hardly enough to survive a complete shutdown and a pandemic crisis.

In 2019 there were already worrying signals. In the US, small businesses were struggling despite economic growth and low unemployment. Thousands of stores closed in 2019, and the statistics of Business Formation suggested a significant weakness ahead. In most countries, the average cash maintained by an SME does not reach to cover three months of costs, and that is being very optimistic.

In the eurozone, the other problem is the high cost of hiring. Labor tax costs have increased 20% in the past two years in Spain, with 13% unemployment already, many taxes have to be paid in advance for invoices that, in the best case, will be paid months later, and fixed costs choke some companies that were mostly loss-making.

Delaying the payment of some taxes for six months does not mitigate the effect of a sales collapse or the already challenging situation that existed before any epidemic, in 2019.

The result of death by working capital is that the business fabric is rapidly destroyed and, with it, employment. Meanwhile, governments and already heavily indebted companies will receive ample liquidity and endless refinancing.

One of the reasons why Europe destroys so much employment is because it destroys companies faster than anyone else by resorting to large headline measures that do not solve the problems of job creators and ignore the problem of working capital and the size of its business fabric.

Governments will launch massive headline expense programs that strengthen neither the small nor the big companies. The small ones do not receive any real relief, and the large ones are only kept alive with a lifeline, zombified.

An epidemic crisis is not solved by increasing deficits and increasing spending in white elephants, with useless rate cuts that have no effect on SMEs with no debt suffering a sudden cash wipe-out, but even less by purchasing bonds from states that are already financing themselves at negative real rates.

GDP will be artificially lifted, but that does not work. It is easy to lift GDP with debt spending, it is very difficult to maintain the business fabric of a country in the face of a supply problem.

When governments and central banks deny supply-side measures to a supply problem and put in place large demand-side policies they benefit only those who were already privileged – the government and already-indebted sectors.

Small companies that behaved prudently throughout the so-called recovery face a double virus. The health pandemic and the interventionist epidemic.

It is almost impossible t to maintain the business fabric of a nation in the face of a supply crisis by rejecting supply measures yet adding even more demand policies.

An epidemic shock is not solved with deficit increases, current spending, and low rates. Demand for credit was already weak despite negative real rates.

The massive demand measures that will be announced in the coming days will generate a double negative:

• On the one hand, excess capacity in the zombie sectors and deficit spending will increase, credit is absorbed by governments and those companies that already had large debts.

• On the other hand, the lockdown and epidemic measures force a general closure of the economy that is not solved by building roads and infrastructure or forming congress committees.

The sectors that are already indebted and the Government benefit from the measures, the rest of us are hurt by the fall of the economy and the subsequent increase in taxes.

The reader might say that more government spending will also help SMEs and citizens. However, reality and history show that any relief measure does not even start to cover the loss of employment and productive parts of the economy. Think about this, if increasing government spending and deficits were the solution to a crisis, Europe would have recovered faster and stronger than any other economy in 2009 when it launched its enormous Jobs and Growth stimulus plan.

An epidemic shock is solved with supply measures, not demand policies:

• Cutting taxes during the crisis period, eliminating social contributions in labor taxes to avoid the bleeding of employment. Lower the corporate tax in all sectors by 50% in exchange for employment strengthening plans.

• Governments are already financing themselves at negative real rates. Enable, as banks are already doing, lines for working capital at zero rates. Banks do it with their clients, the government can do it with SMEs that do not have debt or financial contracts.

• Eliminating all the obstacles to job creation and burdens for the little investment that arrives. A project cannot be delayed for months and even years under normal conditions and even less in a period of crisis.

The reader will tell me that all of this must be done in normal conditions and not just because of an epidemic, and we agree. However, we are surrounded by some politicians who think this is a fantastic opportunity to destroy the small business fabric, advance in the nationalization of the economy and make employers and employees even more dependent on state aid.

The proof that these enormous “whatever it takes” measures will fail has been evident for years. These measures only help those who are already in debt. The ones who suffer the most are the ones who have been cautious in recent years but now face tax bills, zero support, and collapsing sales.

We will see, again, the bailout of the reckless and the burden to the prudent.

The ultra-wealthy aren’t running to Costco stores and or other big-box retailers to load up on supplies. They’re hopping on private jets to disaster bunkers while the fast-spreading virus consumes the world. 

These folks are also ordering $5,000 emergency go-bags that come with virus-fighting related products that will increase their survival probabilities. 

Bloomberg notes that purchasers of the emergency go-bag can expect to find a “virus-eliminating” personal air purifier, Garmin satellite messenger, night vision goggles, portable solar panel kit, Datrex food rationings, and N-95 masks. 

Ryan Kuhlman, the co-founder of Preppi, maker of high-end disaster kits, said as the virus spreads, the emergency go-bags are flying off the shelves: 

“Our warehouse shelves are almost wiped out,” said Kuhlman. “Having the right tools and supplies can provide incredible relief to anxieties.” 

He said sales jumped 5,000% in February, indicating that demand is coming in so suddenly that he’s having difficulty replenishing inventory.

The top gadget in the emergency go-bag is a $400 Hammacher Schlemmer & Co. portable air purifier that zaps dangerous microbes out of the air.

Ann Marie Resnick, Hammacher Schlemmer & Co.’s vice president, said sales of personal-care products are up 500% since the virus crisis developed earlier this year. 

“It just went boom,” she said. “Everyone needs an air purifier for the home. You’ll need more than one.” 

While the rich are buying emergency go-bags to survive the pandemic, they’re also hopping on private jets to fully stocked disaster bunkers – here are a couple of setups of how they will live: 

Interior bedroom of bunker

Bunker swimming pool and garden using artificial lighting

Underground bunker wine cellar

Authored by Tom Luongo via The Strategic Culture Foundation,

I am an avid board game player. I’m not much for the classics like chess or go, preferring the more modern ones. But, regardless, as a person who appreciates the delicate balance between strategy and tactics, I have to say I am impressed with Russian President Vladimir Putin’s sense of timing.

Because if there was ever a moment where Putin and Russia could inflict maximum pain on the United States via its Achilles’ heel, the financial markets and its unquenchable thirst for debt, it was this month just as the coronavirus was reaching its shores.

Like I said, I’m a huge game player and I especially love games where there is a delicate balance between player power that has to be maintained while it’s not one’s turn. Attacks have to be thwarted just enough to stop the person from advancing but not so much that they can’t help you defend on the next player’s turn.

All of that in the service of keeping the game alive until you find the perfect moment to punch through and achieve victory. Having watched Putin play this game for the past eight years, I firmly believe there is no one in a position of power today who has a firmer grasp of this than him.

And I do believe this move to break OPEC+ and then watch Mohammed bin Salman break OPEC was Putin’s big judo-style reversal move. And by doing so in less than a week he has completely shut down the U.S. financial system.

On Friday March 6th, Russia told OPEC no. By Wednesday the 11th The Federal Reserve had already doubled its daily interventions into the repo markets to keep bank liquidity high.

By noon on the 12th the Fed announced $1.5 trillion in new repo facilities including three-month repo contracts. At one point during trading that day the entire U.S. Treasury market went bidless. There was no one out there making an offer for the most liquid, sought-after financial assets in the world.

Why? Prices were so high, no one wanted them.

Not only did we get a massive expansion of the repo interventions by the Fed, but it was for longer duration. This is a clear sign that the problem is nearly without an end. Repos longer than three days are in this context a rarity.

The Fed needing to add $1 trillion in three-month repos clearly means they understand that they are looking out to the end of the quarter as the next problem and beyond that.

It means, in short, the world financial markets have completely seized up.

And worse than that…. It didn’t work.

Stocks continued to slide, gold and other safe-haven assets were hit hard by a reversal of capital outflows from the U.S. In the first part of the aftermath of Putin’s decision the dollar got whacked as European and Japanese investors who had piled into U.S. stocks as a safe-haven sold those positions and brought the capital home.

That lasted a few days before Christine Lagarde put on her dog and pony show at the European Central Bank and told everyone she didn’t have any answers other than to expand asset purchases and continue doing what has failed in the past.

This touched off the next phase of the crisis, where the dollar begins to strengthen. And that is where we are now.

And Putin understands that a world awash in debt is one that cannot withstand the currency needed to repay that debt rising sharply.

That puts further pressure on his geopolitical rivals and forces them to focus on their domestic concerns rather than the ones overseas.

For years Putin has been begging the West to stop its insane belligerence in the Middle East and across Asia. He’s argued eloquently at the U.N. and in interviews that the unipolar moment is over and that the U.S. can only maintain its status as the world’s only super power for so long. Eventually the debt would undermine its strength and at the right moment would be revealed to be far weaker than it projected.

This doesn’t sit well with President Trump who believes in America’s exceptionalism. And will fight for his version of “America First’ to the last using every weapon at his disposal. The problem with this ‘never back down’ attitude is that it makes him very predictable.

Trump’s use of sanctions on Europe to stop the Nord Stream 2 pipeline was stupid and short-sighted. It ensured that Russia would be merciless in its response and only delay the project for a few months.

Trump was easy to counter here. Sign a deal with Ukraine, desperate for the money, and redirect the pipe-laying vessel back to the Baltic to finish the pipeline.

And with natural gas prices in Europe already in the gutter from oversupply and a mild winter, there isn’t much time or money lost in the end. Better to take the world oil price down well below U.S. production costs which ensure that Trump’s prized LNG stays off the European market as the myth of U.S. energy self-sufficiency vanishes in a puff of financial derivative smoke.

Now Trump is facing a market meltdown well beyond his capacity to fathom or respond to. While Russia is in the unique position to drive costs down for so many of the people while riding out the shock to the global system with its savings.

Because money flows to where the best returns on it come, high oil and gas prices stifle development of other industries. Lowering the oil price not only deflates all of the U.S.’s inflated financial weapons it also deflates some of the power of the petroleum industry domestically. This gives Putin the opportunity to continue remaking the Russian economy along less focused lines. Cheap oil and gas means lower return on investment in energy projects which, in turn, opens up available capital to be deployed in other areas of the economy.

Putin just told the world he’s not riding his country’s oil and gas resources like a cash cow but rather as an important part of a different economic strategy for Russia’s development.

It’s like watching someone playing the first half of a game implying one strategy and making a critical shift to a different one halfway through, taking advantage of their opponents’ carelessness.

It rarely works, but when it does the results can be spectacular. Game, Set, Match, Putin.

Researchers at the Department of Energy’s Oak Ridge National Laboratory have used the world’s most powerful supercomputer to identify 77 drug compounds that could lead to scientific breakthroughs to combat Covid-19.  

The supercomputer, dubbed Summit, has been tasked to run complex computation across existing databases of drug compounds to see which combinations could thwart Covid-19 from infecting cells. 

Summit has been able to “simulate 8,000 compounds in a matter of days to model which could impact that infection process by binding to the virus’s spike, and have identified 77 small-molecule compounds, such as medications and natural compounds, that have shown the potential to impair COVID-19′s ability to dock with and infect host cells,” read an IBM press release, whose technology is present in Summit.

“Summit was needed to rapidly get the simulation results we needed. It took us a day or two whereas it would have taken months on a normal computer,” said Jeremy Smith, Governor’s Chair at the University of Tennessee, director of the UT/ORNL Center for Molecular Biophysics, and principal researcher in the study. 

“Our results don’t mean that we have found a cure or treatment for COVID-19. We are very hopeful, though, that our computational findings will both inform future studies and provide a framework that experimentalists will use to further investigate these compounds. Only then will we know whether any of them exhibit the characteristics needed to mitigate this virus.”

Smith’s team is expected to pass on the findings to others in the scientific community, who will then begin to experiment on Summit’s 77 compounds to see which one is the most effective against Covid-19. 

 “Our hope is that, by using a database of known compounds, we can greatly reduce the time it takes to make an effective drug publicly available, but there is no guarantee,” Smith said.

Once scientists find the right compound, then human testing would likely be next. Trials could take upwards of a year to conduct, suggesting that a vaccine is likely in 2021. As for now, prepare for an exponential rise in virus cases and deaths in the US. 

The UK has missed the critical containment window to implement social distancing policies that would flatten the curve and slowdown infections, suggesting the country could see an exponential rise in Covid-19 cases over the next month, sort of like what’s happening in Italy at the moment. 

The Guardian spoke with a senior consultant at a top hospital in the UK, who warned hospital beds are already 98% full, and the patients who need ICU-level treatment might not be able to receive it. 

The senior consultant said hospitals across the UK don’t have enough protective gear like N-95 masks and goggles, and the entire National Health Service (NHS) healthcare system is understaffed to handle a virus outbreak. 

If cases and deaths were to increase exponentially over the next 2-4 weeks, there wouldn’t be enough hospital beds and ventilators for the severely ill, which would imply the mortality rate would increase. 

The consultant said plans to increase ICU capacity are underway though trained medical staff would remain in a shortage.

“I’m worried that the NHS is completely ill-equipped to handle Covid-19,” the person said, adding that, “when Boris Johnson talks about our wonderful NHS and how well-prepared it is, that’s bullshit. He either doesn’t have a clue or is trying to falsely reassure people. The NHS has been hit hard before, by underfunding, terrorist attacks and tough winters. But usually crises are stretched over a period of time. With coronavirus it will all come at once.” 

The consultant suggested that the government missed the containment window: 

“I’m amazed it has taken the NHS and the government so long to get ready to deal with a crisis. We need to free up doctors and NHS staff to prepare for what’s coming. We should be cancelling outpatient clinics, suspending waiting-time targets, like the four-hour A&E wait and the 18-week target for outpatient treatment, until this is all over – and be open with the public about why this is happening. Soon the NHS is going to be faced with a huge amount people with Covid-19.”

With an influx of patients expected to overwhelm the UK hospital system in the weeks ahead, the consultant fears that “we are going to end up in the same situation as Iran and Italy, where health services have struggled to cope.”

If an Italy-style scenario were to happen, then the military would likely be deployed at hospitals, supermarkets, and on streets.

Defense sources told The Sun that troops would build tented field hospitals, deep-clean public buildings, and keep the order during a virus outbreak. 

A Chinese real estate tycoon has gone missing over the weekend after his latest commentary was highly critical of President Xi Jinping’s response to the Covid-19 outbreak that originated in Wuhan, China, in December.  

The New York Times reported on Saturday that friends of Ren Zhiqiang, known as “The Cannon,” went missing on early Saturday morning. 

“We’re very worried about him,” said Wang Ying, a retired businessman, and friend of Ren’s. “I will continue to look for him.”

Ren’s disappearance comes after his scathing blog post criticized Xi’s response to the virus crisis. He called Xi a power-hungry “clown” and said the ruling Communist Party’s censoring of speech made the crisis worst:

This outbreak of the Wuhan pneumonia epidemic has verified the reality: when all media took on the “surname of the Party” the people “were abandoned” indeed [a reference to a forecast Ren made in his response to Xi’s declaration that the media should “bear the Party surname”]. Without a media representing the interests of the people by publishing the actual facts, the people’s lives are being ravaged by both the virus and the major illness of the system.

I too am curiously and conscientiously studying [Xi’s teleconferenced February 23] speech, but what I saw in it was the complete opposite of the “importance” reported by all types of media and online. I saw not an emperor standing there exhibiting his “new clothes,” but a clown who stripped naked and insisted on continuing being emperor. Despite holding a series of loincloths up in an attempt to cover the reality of your nakedness, you don’t in the slightest hide your resolute ambition to be an emperor, or the determination to let anyone who won’t let you be destroyed.

Ren, a communist party member, has been critical of Xi for years. In 2016, he denounced Xi and was then placed on a year’s probation. 

The government has monitored Ren’s movements, and his social media accounts have been suspended. 

It appears the party has moved swiftly to censor Ren, as family and friends have been searching for him over the weekend. 

We noted earlier this year that the government censored the Chinese doctor who tried to raise the alarm about the novel coronavirus before it was even identified. Li Wenliang warned people in December about the virus and has since died of an infection. 

China is known for its strict censorship of non-government approved narratives. If someone criticizes the government about their virus response, it appears the party has no other choice than to silence those individuals. 

It’s much of the same in the US, where companies like Facebook, Twitter, Google, and YouTube are censoring coronavirus information that isn’t government-approved. 

Authored by Gary Barnett via LewRockwell.com,

“Our contemporaries are constantly excited by two conflicting passions; they want to be led, and they wish to remain free: as they cannot destroy either one or the other of these contrary propensities, they strive to satisfy them both at once. They devise a sole, tutelary, and all-powerful form of government, but elected by the people. They combine the principle of centralization and that of popular sovereignty; this gives them a respite: they console themselves for being in tutelage by the reflection that they have chosen their own guardians. Every man allows himself to be put in leading-strings, because he sees that it is not a person or a class of persons, but the people at large that holds the end of his chain.

By this system the people shake off their state of dependence just long enough to select their master, and then relapse into it again. A great many persons at the present day are quite contented with this sort of compromise between administrative despotism and the sovereignty of the people; and they think they have done enough for the protection of individual freedom when they have surrendered it to the power of the nation at large. This does not satisfy me: the nature of him I am to obey signifies less to me than the fact of extorted obedience.”

  ~ Alexis de Tocqueville, Democracy in America

Any real state of fear will bring panic, and once panic is the prevailing attitude of society at large, the herd seeks safety at all cost. Seeking safety under these circumstances allows for tyranny by the ruling class, and when the restrictive consequences of that tyranny are in place, escape from mass servitude is almost impossible to achieve. It must be understood that decisions made under stress due to fear end with a loss of freedom, and when freedom is compromised, what is left is slavery.

We have been told that a pandemic is upon us, and that we must sacrifice for the good of all, and for the sake of the nation. If the people at large accept this premise, individual sovereignty is not only compromised, but also permanently damaged. When the masses as a group seek shelter from harm, and agree to temporarily relinquish some or all of their freedoms, oppression is the result. That is why panic is so perilous, and why hasty decisions should never be made during a real or supposed crisis.

As I write this, it is obvious that none of these suggestions have been followed, and the herd has acquiesced to most all commands from on high in order to gain what will most likely turn out to be false hope at the expense of accepted domination. At this point, it is not too late to reverse part of the damage, but any continuation of mass subservience will only end in oppressive misery.

There is no certainty that this new coronavirus called COVID-19 is any more dangerous than any other virus in the past, but the ruling class and their minions in the mainstream media and beyond, are screaming at the top of their lungs that this is the scourge of mankind, and that tens of millions of Americans will become infected, and that millions might die.

This is being promulgated by government at every level, by so-called national and world health organizations, and by a complicit media that seemingly does as it is told by those holding political power. This is being done regardless of the fact that no one knows much about this so-called virus, knows little or nothing about its true origin, and knows little about its mutations. Also, politicians, claimed authorities, and alleged experts are in the dark as to how particular cultures have been more susceptible than others, and are unwilling to discuss that the probable cause of this is due to a man-made strain created in a bio-weapons lab, even though a preponderance of evidence points in that direction. All possibilities should be discussed.

Current headlines today:

Trump To Declare National Emergency

Complete shutdown On Table

This government is now taking total control over our lives, and will take full advantage of this situation to bring draconian anti-liberty measures to all that live in this country.  This is an atrocity, and one that will change the face of this nation. Current risk includes the implementing of medical martial law as well as the possibility of total martial law with any major resistance from those not willing to accept being in a captured society. I outlined the measures that have been implemented by at least 40 states to affect medical martial law recently in this article. The act that has been adopted is the Model State Emergency Health Powers Act (MSEHPA), and the included language is dictatorial in nature.

Besides the sheer tyranny of these measures being planned and implemented as I write this, the certain economic devastation to come is unimaginable. No one will be spared economic harm, and many will be completely destroyed by the government’s response to this manufactured panic. In addition, when the virus scare is over, and it will be, the economic destruction will remain, and it could take years for any recovery to take place.

Has all this panic been planned? The impending economic collapse caused by the Federal Reserve and its massive money printing is most likely going to be falsely blamed on the coronavirus, so what is the connection? Was this virus created for the purpose of covering up responsibility for an economic meltdown? Was it created to harm the economy of China and Iran? If not, is it being purposely used for these purposes? Is population control due to all these factors mentioned sought by the ruling class, and is this virus the impetus for gaining that control?

What is next on the agenda due to this panic? Will there be total lockdowns? Will there be universal travel restrictions, even at the local level? Will there be forced vaccinations? Will there be mandatory testing and inspections? Will there be food shortages? Will this lead to concentration camps for dissenters? Will the National Guard and military be patrolling the streets of your town?

There are many unanswered questions, and much uncertainty about this virus, so what is the real danger?

The real danger to America is the U.S. government and its dictatorial response to what appears to be an orchestrated hysteria. The solutions offered by Trump and this government, regardless of who is pulling the strings of these puppets, are far more dangerous than any manufactured pandemic. Fear and panic allow for control, and those in power understand this truth, and use it to their advantage. Panic is worthless, and can only lead to the acceptance of authoritative rule. This is the real risk; this is the real danger. If the people allow a takeover of their lives due to this panic, they will not only have lost their liberty and all they own, they will have also lost their sanity.

Champaign, Illinois mayor Deborah Frank Feinen signed an executive order on Thursday declaring a state of emergency to address the coronavirus.

Among the sweeping powers she gained after signing the executive order was the ability to ban the sale of guns, ammunition, alcohol and gasoline – as well as the power to cut off access to individuals’ gas, water or electricity, according to the Washington Examiner.

The city can also “take possession of private property” and order the temporary closing of all liquor stores and bars.

“The executive order allows the city to be flexible to properly respond to the emergency needs of our community. None of the options will necessarily be implemented but are available in order to protect the welfare and safety of our community if needed,” city manager Jeff Hamilton told WAND.

On Friday, the Champaign City Council met to discuss concerns over the sweeping powers granted to Feinen, with Deputy Mayor Tom Bruno noting that each ordinance considered under the executive order would be ratified by the council. Additionally, the city said Feinen would only take steps “necessary to ensure the health, safety, and welfare” of the city.

“The City will keep the public’s best interest in mind as we continue to work alongside public health officials and countywide leaders,” reads the council’s statement. “We understand this is a challenging time but working collaboratively as a community is the best approach to combating this virus.”

Please read the statement below then watch the excerpt from today’s meeting, which explains what the emergency order entails. The full meeting will be shared on social media and on the City’s website shortly as well. https://t.co/MpVhs5woxW pic.twitter.com/Ly0EeNfFht

— City of Champaign (@champaigncity) March 13, 2020

Illinois has 64 confirmed cases of coronavirus as of this writing.

On Monday, Gov. J.B. Pritzker announced a statewide disaster proclamation to address the situation.

Authored by Richard Hobday via Medium.com,

Fresh air, sunlight and improvised face masks seemed to work a century ago; and they might help us now.

When new, virulent diseases emerge, such SARS and Covid-19, the race begins to find new vaccines and treatments for those affected. As the current crisis unfolds, governments are enforcing quarantine and isolation, and public gatherings are being discouraged. Health officials took the same approach 100 years ago, when influenza was spreading around the world. The results were mixed. But records from the 1918 pandemic suggest one technique for dealing with influenza — little-known today — was effective. Some hard-won experience from the greatest pandemic in recorded history could help us in the weeks and months ahead.

Influenza patients getting sunlight at the Camp Brooks emergency open-air hospital in Boston. Medical staff were not supposed to remove their masks. (National Archives)

Put simply, medics found that severely ill flu patients nursed outdoors recovered better than those treated indoors. A combination of fresh air and sunlight seems to have prevented deaths among patients; and infections among medical staff. There is scientific support for this. Research shows that outdoor air is a natural disinfectant. Fresh air can kill the flu virus and other harmful germs. Equally, sunlight is germicidal and there is now evidence it can kill the flu virus.

`Open-Air’ Treatment in 1918

During the great pandemic, two of the worst places to be were military barracks and troop-ships. Overcrowding and bad ventilation put soldiers and sailors at high risk of catching influenza and the other infections that often followed it. As with the current Covid-19 outbreak, most of the victims of so-called `Spanish flu’ did not die from influenza: they died of pneumonia and other complications.

When the influenza pandemic reached the East coast of the United States in 1918, the city of Boston was particularly badly hit. So the State Guard set up an emergency hospital. They took in the worst cases among sailors on ships in Boston harbour. The hospital’s medical officer had noticed the most seriously ill sailors had been in badly-ventilated spaces. So he gave them as much fresh air as possible by putting them in tents. And in good weather they were taken out of their tents and put in the sun. At this time, it was common practice to put sick soldiers outdoors. Open-air therapy, as it was known, was widely used on casualties from the Western Front. And it became the treatment of choice for another common and often deadly respiratory infection of the time; tuberculosis. Patients were put outside in their beds to breathe fresh outdoor air. Or they were nursed in cross-ventilated wards with the windows open day and night. The open-air regimen remained popular until antibiotics replaced it in the 1950s.

Doctors who had first-hand experience of open-air therapy at the hospital in Boston were convinced the regimen was effective. It was adopted elsewhere. If one report is correct, it reduced deaths among hospital patients from 40 per cent to about 13 per cent. According to the Surgeon General of the Massachusetts State Guard:

`The efficacy of open air treatment has been absolutely proven, and one has only to try it to discover its value.’

Fresh Air is a Disinfectant

Patients treated outdoors were less likely to be exposed to the infectious germs that are often present in conventional hospital wards. They were breathing clean air in what must have been a largely sterile environment. We know this because, in the 1960s, Ministry of Defence scientists proved that fresh air is a natural disinfectant. Something in it, which they called the Open Air Factor, is far more harmful to airborne bacteria — and the influenza virus — than indoor air. They couldn’t identify exactly what the Open Air Factor is. But they found it was effective both at night and during the daytime.

Their research also revealed that the Open Air Factor’s disinfecting powers can be preserved in enclosures — if ventilation rates are kept high enough. Significantly, the rates they identified are the same ones that cross-ventilated hospital wards, with high ceilings and big windows, were designed for. But by the time the scientists made their discoveries, antibiotic therapy had replaced open-air treatment. Since then the germicidal effects of fresh air have not featured in infection control, or hospital design. Yet harmful bacteria have become increasingly resistant to antibiotics.

Sunlight and Influenza Infection

Putting infected patients out in the sun may have helped because it inactivates the influenza virus. It also kills bacteria that cause lung and other infections in hospitals. During the First World War, military surgeons routinely used sunlight to heal infected wounds. They knew it was a disinfectant. What they didn’t know is that one advantage of placing patients outside in the sun is they can synthesise vitamin D in their skin if sunlight is strong enough. This was not discovered until the 1920s. Low vitamin D levels are now linked to respiratory infections and may increase susceptibility to influenza. Also, our body’s biological rhythms appear to influence how we resist infections. New research suggests they can alter our inflammatory response to the flu virus. As with vitamin D, at the time of the 1918 pandemic, the important part played by sunlight in synchronizing these rhythms was not known.

Face Masks Coronavirus and Flu

Surgical masks are currently in short supply in China and elsewhere. They were worn 100 years ago, during the great pandemic, to try and stop the influenza virus spreading. While surgical masks may offer some protection from infection they do not seal around the face. So they don’t filter out small airborne particles. In 1918, anyone at the emergency hospital in Boston who had contact with patients had to wear an improvised face mask. This comprised five layers of gauze fitted to a wire frame which covered the nose and mouth. The frame was shaped to fit the face of the wearer and prevent the gauze filter touching the mouth and nostrils. The masks were replaced every two hours; properly sterilized and with fresh gauze put on. They were a forerunner of the N95 respirators in use in hospitals today to protect medical staff against airborne infection.

Temporary Hospitals

Staff at the hospital kept up high standards of personal and environmental hygiene. No doubt this played a big part in the relatively low rates of infection and deaths reported there. The speed with which their hospital and other temporary open-air facilities were erected to cope with the surge in pneumonia patients was another factor. Today, many countries are not prepared for a severe influenza pandemic. Their health services will be overwhelmed if there is one. Vaccines and antiviral drugs might help. Antibiotics may be effective for pneumonia and other complications. But much of the world’s population will not have access to them. If another 1918 comes, or the Covid-19 crisis gets worse, history suggests it might be prudent to have tents and pre-fabricated wards ready to deal with large numbers of seriously ill cases. Plenty of fresh air and a little sunlight might help too.

With the Fed’s cutting rates three days ahead of the regular Wednesday FOMC announcement by 100bps to 0%-25bps, while also announcing a fresh $700BN QE as well as enhanced FX swaps, panic is in the air as reflected in the S&P futures which have been locked limit down since the open, and with equity traders frozen out and unable to do anything all the attention has shifted to rates where all hell is breaking loose.

As BMO’s Ian Lyngen wrote in his Fed post-mortem “it is not inconceivable that we see negative Treasury yields in the front end when Asia comes back on line”, and that’s precisely what has happened, when yields on several Treasury bonds expiring in the next three months are getting quoted at slightly negative levels during Asia hours following the Fed’s 100bps rate cut.

One such example is the US govt bond maturing April 23, or in five weeks, which briefly dipped below zero, touching -0.01% after trading at 1.50% just two weeks ago.

And while so far NIRP is confined to short-dated maturities, expect to see negative rates migrating further right on the yield curve with every passing day, and as IG Markets’ analyst Kyle Rodda notes “everywhere effectively could see their yields under pressure and turn negative – you’ve got the Fed coming in cutting rates to near zero, and the Reserve Bank of New Zealand slashing to ensure liquidity in markets.”

As Rodda correctly notes, “it’s all about keeping financial conditions and liquidity as supported as they can, and investors might take this as another reason to just pile into safety.”

“It’s a sign the Fed and other central banks are doing whatever it takes to keep liquidity ticking, especially when we saw Treasuries trading almost like equities last week when all people wanted to do was hoard cash.”

Then there is the question of the Fed’s ad hoc QE announcement which, as Powell’s press conference made clear, is being made up as we go along, with the Fed simply stating that “to support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Committee will also reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.”

Purchases will begin Monday on the below schedule, similar to Friday’s QE shocker:

• 10:15 – 10:30 am: Treasury Coupons 0 to 2.25 year sector, for around $10 billion
• 11:00 – 11:15 am: Treasury Coupons 2.25 to 4.5 year sector, for around $8 billion
• 11:45 am – 12:00 pm: Treasury Coupons 4.5 to 7 year sector, for around $9 billion
• 12:30 – 12:45 pm: Treasury Coupons 7 to 20 year sector, for around $5 billion
• 1:15 – 1:30 pm: Treasury Coupons 20 to 30 year sector, for around $5 billion
• 2:00 – 2:15 pm: TIPS 7.5 to 30 year sector, for around $3 billion

It is this likelihood that the Fed will monetize anything and everything at far higher prices than market, coupled with a non-trivial probability that the Fed’s next move will, in fact, be to cut below zero, that will keep yields depressed, pushing them ever lower, especially if equities are locked out, until most of the curve eventually drops below zero.