iftttwall

Deaths breached the 100,000 mark on Friday, another grim milestone for the world engulfed in a pandemic. 

More than a billion people across the world remain in quarantine as the global economy crashes into a depression in the second quarter. The OECD and WTO on Wednesday published two separate reports that both outline global economic activity has collapsed.

The OECD Leading Indicators show the global economy experienced a sharp decline in the last month. 

The WTO shows world trade has plunged well below 2008 levels. One word: unprecedented. 

As a result of quarantines, unemployment claims have rocketed higher in nearly every major developed and emerging market economy. Tens of millions of people have been laid off as streets, highways, shopping districts, and manufacturing hubs have become lifeless. 

While words can only describe so much of a world in lockdown, Bloomberg has published a handful of pictures illustrating what the world looks like after a month of pandemic: 

New York City 

Los Angeles

Paris

Milan

Sao Paulo

Moscow

Jerusalem

Istanbul

London

Toronto

Madrid

Mumbai

Lisbon

It becomes evident that the world has ground to a halt in one of the fastest economic crashes ever. It remains to be seen if the recovery phase is V-shaped, U-shaped, or L-shaped. 

More or less, we’re leaning towards an L-shaped recovery… 

Authored by Mike Whitney via The Unz Review,

There’s no doubt that the Coronavirus is a serious infection that can lead to severe illness or death. There’s also no doubt that ‘virus hysteria’ has been used for other purposes. Wall Street, for example, has used virus-panic to advance its own agenda and get another round of trillion dollar bailouts. In fact, it took less than a week to get the pushover congress to ram through a massive $2.2 trillion boondoggle without even one lousy congressman offering a peep of protest. That’s got to be some kind of record.

In 2008, at the peak of the financial crisis, Congress voted “No” to the $700 billion TARP bill. Some readers might recall how a number of GOP congressmen bravely banded together and flipped Wall Street “the bird”. That didn’t happen this time around. Even though the bill is three times bigger than the TARP ( $2.2 trillion), no one lifted a finger to stop it. Why?

Fear, that’s why. Everyone in congress was scared to death that if they didn’t rush this debt-turd through the House pronto, the economy would collapse while tens of thousands of corpses would be stacking up in cities across the country. Of course the reason they believed this nonsense was because the goofy infectious disease experts confidently assured everyone that the body-count would be “in the hundreds of thousands if not millions.” Remember that fiction? The most recent estimate is somewhere in the neighborhood of 60,000 total. I don’t need to tell you that the difference between 60,000 and “millions” is a little more than a rounding-error.

So we’ve had the wool pulled over our eyes, right? Not as bad as congress, but, all the same, we’ve been hoodwinked and we’ve been fleeced. And the people who have axes to grind have been very successful in taking advantage of the hysteria and promoting their own agendas. Maybe you’ve noticed the reemergence of creepy Bill Gates and the Vaccine Gestapo or NWO Henry Kissinger warning us that, “the world will never be the same after the coronavirus”.

What do these people know that we don’t know? Doesn’t it all make you a bit suspicious? And when you see nonstop commercials on TV telling you to “wash your hands”or “keep your distance” or “stay inside” and, oh yeah, “We’re all in this together”, doesn’t it leave you scratching your head and wondering who the hell is orchestrating this virus-charade and what do they really have in mind for us unwashed masses??

At least in the case of Wall Street, we know what they want. They want money and lots of it.

Have you looked over the $2.2 trillion CARES bill that Trump just signed into law a couple weeks ago? It’s pretty grim reading, so I’ll save you the effort. Here’s a rough breakdown:

$250 billion will go for the $1,200 checks that most of us will receive in a couple weeks.

And $250 billion will be provided for extended unemployment insurance benefits.

That’s $500 billion.

Working people will get $500 billion while Wall Street and Corporate America will get 3 times that amount. ($1.7 trillion)

And even that’s a mere fraction of the total sum because– hidden in the small print– is a section that allows the Fed to lever-up the base-capital by 10-to-1 ($450 billion to $4.5 trillion) which means the Fed can buy as many “toxic” bonds and garbage assets as it chooses.

The Fed is turning itself into a hedge fund in order to buy the sludge that has accumulated on the balance sheets of corporations and financial institutions for the last decade.

It’s another gigantic ripoff that’s being cleverly concealed behind the ridiculous coronavirus hype. It’s infuriating.

So here’s the question:

Do you think Congress knew that working people would only get a pittance while the bulk of the dough would go to Wall Street?

It’s hard to say, but they certainly knew that the economy was cratering and that $500 billion wasn’t going to put much of a dent in a $20 trillion economy. In other words, even if everyone goes out and blows their measly $1,200 checks on Day 1, we’re still going to experience the sharpest economic contraction on record, a second Great Depression.

Maybe they should have talked about that in congress before they voted for this trillion-dollar turkey? Maybe they should have thought a little more about how the money should be distributed: Should it go to the people who actually buy things, generate activity and produce growth, or to the parasite class that blows up the system every decade and drags the economy down a black hole? That seems like something you might want to know before you pass a multi-trillion dollar bill that’s supposed to fix the economy.

It’s also worth noting that the $5.8 trillion is not nearly the total amount that Wall Street will eventually get. The Fed has already spent $2 trillion via its QE program (to shore up the dysfunctional repo market) and Fed chair Jay Powell announced on Thursday that another $2.3 trillion in loans and purchases would be used to buy municipal bonds, corporate bonds and loans to small businesses. The allocation for small businesses, which falls under the, Main Street Lending Program, has been widely touted as a sign of how much the Fed really cares about struggling Mom and Pop businesses that employ the majority of working Americans. But, once again, it’s a sham and a boondoggle. The program is on-track to get $600 billion funding of which the US Treasury will provide the base-capital of $75 billion. The rest will be levered-up by 9-to-1 by the Fed, which means it’s just more smoke and mirrors.

What readers need to realize is that the Treasury has accepted the credit risk for all of the loans that default. In other words, the American people are now on the hook for 100% of all of the loans that go south, and there’s going to be alot of them because the banks have no reason to find creditworthy borrowers. They get a 5% cut off-the-top whether the loans blow up or not. And, that, my friend, is how you incentivize fraud which, as Bernie Sanders noted, “is Wall Street’s business model.”

It also helps to explain why Trump has repeatedly rejected congressional oversight of the various bailout programs. He’s smart enough to know a good swindle when he sees one, and this one is a corker. The government is essentially waving trillions of dollars right under the noses of the world’s most ravenous hyenas expecting them not to act in character. But of course they will act in character and hundreds of billions of dollars will be siphoned off by scheming sharpies who figure out how game the system and turn the whole fiasco into another Wall Street looting operation. You can bet on it.

So, what is the final tally?

Well, according to Trump’s chief economic advisor, Larry Kudlow, the first bailout installment is $6.2 trillion (after the Fed ramps up the Treasury’s contribution of $450 billion.). Then there’s the $2.3 trillion in additional programs the Fed announced on Thursday. Finally, the Fed’s QE program adds another $2 trillion in bond purchases since September 17, when the repo market went haywire.

Altogether, the total sum amounts to $10.5 trillion.

You know what they say, “A trillion here, a trillion there, pretty soon you’re talking real money.”

Of course, no one on Capitol Hill worries about trivialities like money because, “We’re the United States of America, and our dollar will always be King.” But there’s a fundamental flaw to this type of thinking. Yes, the dollar is the world’s reserve currency, but that’s a privilege that the US has greatly abused over the years, and it’s certainly not going to survive this latest wacky helicopter drop. No, I am not suggesting the US would ever default on its debt, that’s not going to happen. But, yes, I am suggesting that the US will have to repay its debts in a currency that has lost a significant amount of its value. You don’t have to be Einstein to figure out that you can’t willy-nilly print-up $10 or $20 trillion dollars without eroding the value of the currency. That’s a no-brainer. Central bankers around the world are now looking at their piles of USDs thinking, “Hmmm, maybe it’s time I traded some of these greenbacks in for a few yen, euros or even Swiss francs?”

So how does this end? Can the Fed continue to write trillion dollar checks on an account that is already $23 trillion overdrawn? Will Central banks around the world continue to stockpile dollars when the Fed is printing them up faster than anyone can count? And what about China? How long before China realizes that US Treasuries are grossly overvalued, that US equities markets are unreformable, that the dollar is backed by nothing but red ink, and that Wall Street is the biggest and most corrupt cesspit on earth?

Not long, I’d wager. So, how does this end? It ends in a flash of monetary debasement preceded by a violent and destabilizing currency crisis. It’s plain as the nose on your face. The Fed knows that when a nation’s sovereign debt exceeds 100% of GDP, “there’s almost no mathematical way to service that debt in real terms.” Well, the US passed that milestone way-back in 2019 before this latest drunken spending-spree even began. It’s safe to say, we’ve now entered the financial Twilight Zone, the Land of No Return. If we add the Fed’s bulging balance sheet to the final estimate, (after all, it’s just another shady Enron-type Special Purpose Vehicle) the national debt will be somewhere north of $33 trillion by year-end, which means that Uncle Sam will be the greatest credit risk on Planet Earth. Imagine how jaws will drop on the day that Moodys and Fitch slash the ratings on US Treasuries to Triple B “junk” status. That should turn a few heads.

So what can we expect in the months to come?

First, the economy is going to slip into a deflationary period as people get back to work and slowly resume their spending.

But once demand picks up and the Fed’s liquidity starts to kick in, the economy will rebound sharply followed by steadily rising prices.

That’s the red flag that will signal a weakening dollar.

Similar to 1933, when Roosevelt took the U.S. off the gold standard and printed money like crazy, economic activity picked up but the value of the dollar dropped by 40%.

A similar scenario seems likely here as well.

Economist Lyn Alden Schwartzer summed it up like this in an article at Seeking Alpha:

“One of the common debates is whether all of this debt, counteracted by a tremendous monetary expansion by the Federal Reserve in response, will cause a deflationary bust or an inflationary problem…..Fundamentally, evidence points to a period of deflation due to this global shutdown and demand destruction shock, likely followed in the coming years by rising inflation….

In the coming years, the United States will be effectively printing money to fund large fiscal deficits, while also having a large current account deficit and negative net international investment position. This is one of the main variables for my view that the dollar will likely decrease in value relative to a basket of foreign currencies in the coming years….” (“Why This Is Unlike The Great Depression”, Seeking Alpha)

So, after decades of lethal low interest rates, relentless meddling and gross regulatory malpractice, the Fed has led us to this final, fatal crossroads: Inflate or default.

From the looks of things, the choice has already been made. Wiemar America, here we come!

Earlier today, when summarizing the terms of the “historic” OPEC+ cut, which was presented theatrically as a 10MMb/d 9.7MMb/d by OPEC+ and all the oil bulls (including Citi’s Ed Morse who may have been acting in his capacity as OPEC advisor instead of Citi commodity analyst, when he immediately raised his oil price target) we said “OPEC Reaches “Historic” Deal To Cut Oil Production As Mexico Wins “Mexican Standoff” With Saudis… But It’s Not Enough” because “in a world where there is now up to 36MMb/d less oil demand, the world’s oil producers have agreed to cut production by…  9.7MMb/d” and added that “the real cuts when ignoring accounting gimmicks, amount to just over 7mmb/d, still a record amount, but hardly enough to put an even modest dent in today’s massively oversupplied market.”

As a reminder, this is what OPEC+ agreed on, with Mexico an outlier after winning the “Mexican standoff” with Saudi Arabia which would grant the country an exemption from the deal, in cutting just 6% of production, or 100Kb/d, instead of the 23% agreed by everyone else (whether they actually do cut production by 23% is an entirely different matter, now that everyone will feel slighted by the Mexican special treatment and look to cheat by maximizing their output, especially if the price of oil does not rebound).

With that in mind, moments ago Goldman’s commodity analyst Damien Couravalin published his latest OPEC+ deal post-mortem, in which he agreed with our take (and even title) and in a report titled “A historic yet insufficient cut”, he writes that “taking into account updated core-OPEC production guidance from April, this 9.7 mb/d “headline” deal represents a 12.4 mb/d cut from claimed  April OPEC+ production (given the Saudi, UAE, Kuwait ongoing surge) but an only 7.2 mb/d cut from 1Q20 average production levels.“

Precisely as we said 4 hours earlier.

Doing the math, the Goldman analyst calculates that “the OPEC+ voluntary cut would only lead to an actual 4.3 mb/d reduction in production from 1Q20 levels” adding that “based on our updated oil balances, such OPEC+ voluntary cuts would still require an additional 4.1 mb/d cut in May  production at the binding storage capacity constraint” which means that “at the 35% compliance level outside of core-OPEC, the necessary production cuts need would need to be 0.5 mb/d larger.”

Then, having been skeptical about the deal all along, Couravlin adds that “today’s agreement leaves the voluntary cuts as still too little and too late to avoid breaching storage capacity, ensuring that low oil prices force all producers to contribute to the market rebalancing” which prompts the Goldman analyst to reiterate his view that “inland crude prices will decline further in coming weeks as storage capacity becomes saturated and expect further weakness in WTI timespreads and crude prices in coming weeks, as already presaged on Friday, with downside risks to our short-term $20/bbl forecast.“

Judging by the swift and violent drop in oil once the market reopened at 600pm ET, following a very brief kneejerk move higher the market agrees.

His full note is below:

A historic yet insufficient cut

OPEC+ members have agreed to cut production by a record large 9.7 mb/d from May 1. The agreement came after settling over a smaller contribution from Mexico of only 0.1 mb/d instead of the 0.4 mb/d initially planned. Taking into account updated core-OPEC production guidance from April, this 9.7 mb/d “headline” deal represents a 12.4 mb/d cut from claimed  April OPEC+ production (given the Saudi, UAE, Kuwait ongoing surge) but an only 7.2 mb/d cut from 1Q20 average production levels.

G20 ministers appear to have also committed to output reductions, with headlines today of potentially 3.7 mb/d output cuts by the US, Brazil and Canada or even 5 mb/d mentioned on Friday. These are very unlikely to be voluntary cuts but instead set to occur over time and due to market forces (ie. low prices) given the significant geological and regulatory hurdles in reducing production (well illustrated by Mexico’s refusal to cut by a reported 0.4 mb/d following its 50% increase in upstream capex since 2018), with the Iranian minister adding that they could take a year. We therefore do not count these as voluntary cuts in our oil balance.

Optimistically, assuming full compliance from core-OPEC and 50% compliance by all other participants already in May (vs. 35% achieved in Jan/Feb-19 despite the new cut being 8x larger), the OPEC+ voluntary cut would only lead to an actual 4.3 mb/d reduction in production from 1Q20 levels. Based on our updated oil balances, such OPEC+ voluntary cuts would still require an additional 4.1 mb/d cut in May production at the binding storage capacity constraint. At the 35% compliance level outside of core-OPEC, the necessary production cuts need would need to be 0.5 mb/d larger.

Given the difficulty for most producers outside of core-OPEC to implement large cuts, today’s agreement leaves the voluntary cuts as still too little and too late to avoid breaching storage capacity, ensuring that low oil prices force all producers to contribute to the market rebalancing. Ultimately, this simply reflects that no voluntary cuts could be large enough to offset the 19 mb/d average April-May demand loss due to the coronavirus. We therefore reiterate our view that inland crude prices will decline further in coming weeks as storage capacity becomes saturated and expect further weakness in WTI timespreads and crude prices in coming weeks, as already presaged on Friday, with downside risks to our short-term $20/bbl forecast.

The reduction in seaborne exports from OPEC+ producers will however likely lead Brent prices to outperform as the cut in seaborne exports (especially from the record April Saudi/UAE export program) will ease the pull on the global VLCC fleet, freeing vessels to be used for floating storage and capping freight rates. We therefore expect Brent prices to outperform WTI prices in coming weeks. The announcement of today’s cuts may also provide some support to long-dated prices as the expected price support later this year creates a disincentive for producers to add new hedges and instead likely incentivize them to monetize existing ones (a buying flow of forwards)

Finally, Reuters reported that the IEA is set to announce this week oil purchases into SPR that would contribute towards effective oil output cuts. For example, a 2.5 mb/d SPR purchase announcement would help square the “20 mb/d cut” stated in the OPEC+ draft statement (pegging OPEC+ at 12.5 mb/d cut and G20 at 5 mb/d). Importantly, we do not view such SPR purchases as changing our supply-demand balance since we estimate that combined commercial and government storage capacity would be reached by late April, with 4 mb/d of production shut-ins required even before the OPEC+ deal starts. Such a high SPR purchase pace would further likely be logistically difficult as strategic reserves are designed for fast drawdowns not fills, and typically operate at high utilization levels with low spare capacity.

For once, Goldman was right:

The latest aerial view of Manhattan in lockdown is riveting. YouTube account Mingomatic flew a drone over the island on Sunday morning (April 12) and found a city straight out of I Am Legend. 

The video starts with a broad view of Manhattan from the sky, then cuts to ground level scenes. The drone flies around some of the highest-trafficked areas, such as the Financial District, Grand Central Terminal, Rockefeller Center, Times Square, Radio City, and Chinatown, to only find just a couple of cars and less than a dozen people in the entire 5-minute video. The video ends with an impressive tilt shot of the New York Stock Exchange with no one on the street. 

Lifeless Manhattan illustrated in ten images:

Charging Bull: 

NYSE Exchange:

West 50th Street: 

West 48th Street: 

Grand Central Terminal:

Chinatown: 

Globe Sculpture at Columbus Circle: 

Rockefeller Center:

Rainbow Room NBC Studios:

Empire State Building: 

Here are Mingomatic’s other impressive drone shots detailing how NYC and Jersey have transformed into ghost towns: 

• Stunning Drone Footage Shows Newark Avenue In Jersey City Completely Empty
• Dramatic Drone Footage Reveals Ghost Town As Hoboken Residents Shelter
• ‪”I See No People” – Stunning New Drone Footage Shows Jersey City’s “Stay At Home” Policy In Action

A mixture of good (European daily virus death count growth slowing) and bad (US virus death count growth not slowing) news mixed with an ‘odd’ deal with OPEC+ and G20 debt restructuring chatter has sparked an instant bid in stocks and oil prices but just as quickly those bids are disappearing…

Dow futures were up almost 300 points at the open but have given it all back and turned ugly red already…

Oil opened up over 8% after the OPEC+ deal…

But, as one major brokerage platform wrote to clients today:

Due to potential market volatility, OPEC meetings and the upcoming holiday weekend, Crude Oil (CL & QM) will require 150% of initial margin for today’s trading session.  

At 3pm ET, initial margin will increase to 200%.

Any client wishing to hold a position after today’s close must have 200% of the maintenance margin requirement.

Which may help explain why WTI is now trading back below Thursday’s lows…

Gold is marginally higher…

We’re gonna need a bigger oil deal!

Authored by Philipp Bagus via The Mises Institute,

In dark hours, when people fear for their lives, they eagerly deliver their freedom to the state. Many want the government take control of their lives, because they think it will be better for them. Ludwig von Mises has written extensively about the erroneous belief that in an emergency the state must take control of the economy because the market economy supposedly fails. Specifically, Mises dealt with this subject in his writings on war socialism.

In Human Action, he writes about the reasoning in favor of state planning:

The market economy, say the socialists and the interventionists, is at best a system that may be tolerated in peacetime. But when war comes, such indulgence is impermissible. It would jeopardize the vital interests of the nation for the sole benefit of the selfish concerns of capitalists and entrepreneurs. War, and in any case modern total war, peremptorily requires government control of business.” (1998, p. 821).

In Nation, State, and Economy Mises similarly remarks:

So-called war socialism has been regarded as sufficiently argued for and justified with reference mostly to the emergency created by war. In war, the inadequate free economy supposedly cannot be allowed to exist any longer; into its place must step something more perfect, the administered economy. (2006, p. 117).

The similarity between the reasoning in favor of war socialism and the arguments that have been brought forward during the corona emergency is striking. Today war rhetoric abounds. Emanuel Macron explicitly stated, “We’re at war,” and sent, as in Spain, the military to the streets. US president Donald Trump similarly speaks of “Our Big War” and invokes the wartime authority of the Defense Production Act. We hear the slogan “We are in this together” all the time.

Mises discusses German war socialism during the First World War in detail. He points out that Emperor Wilhelm II basically lost all powers to the General Staff. General Ludendorff “became virtually omnipotent dictator,” he explains in Omnipotent Government (1985, p. 42), and subordinated everything to the war effort.

Winning the war was thought to be the outstanding goal, which could only be achieved by centralizing all powers. These powers were given to the military. After all, they were the experts in military matters.

Today, we face a similar tyranny of experts, to borrow a term from William Easterly. In the medical emergency, enormous power lies in the hands of doctors such as Anthony Fauci in the US or Christian Drosten in Germany. These experts advise governments what to do—for instance, which size of gatherings shall be prohibited (events of 1000, 100, or 3 persons), if and for how long economies shall be locked down, and if the wearing of masks shall become mandatory. And politicians follow the advice of the doctors. After all, they are the experts.

The similarities to war socialism do not end there. Indeed, to different degrees we are experiencing war socialism, because the war against the virus involves a massive central invasion of private property. Almost all economic activity has become subordinated to the war effort. In many countries businesses not considered essential to the war effort are forced to close down, such as retail stores, gastronomy businesses, or hotels. Others are forced indirectly to close, as their customers are confined.

In a sense, the whole population has been conscripted in the fight against the virus. Some people are allowed to continue producing, because it is considered worthwhile. Other people have been conscripted and ordered to fight the war on the home front. They are not allowed to leave their homes, as the experts consider this the best way to fight the virus and win the war. Even children are forced to contribute to the war effort by staying home. The central planners also decide when it is worthwhile to leave the home trenches, i.e., to walk the dog or buy groceries.

As in other wars, borders are temporarily closed and the international division of labor is severely hampered. War is financed in three main ways (Mises 2006, pp. 136–42).

• First, goods and services are confiscated. In the corona war, medical material is being seized. Companies are closed and individuals confined. They shift their “production” toward the war effort. They produce “social distancing,” which is considered the main “good” necessary to win the war against the virus. 

• Second, taxes are increased. Indeed, war profit taxes are especially popular. We are already hearing the first proposals in that direction.

• Third, the printing press accelerates, which we are experiencing as well.

In sum, the government interventions in the corona epidemic can be considered as a form of war socialism.

The next question is: is war socialism true socialism?

According to Mises, true socialism exists when there is a “transfer of the means of production out of private ownership of individuals into the ownership of society. That alone and nothing else is socialism. (Mises, 2006, p. 142).

Mises declares:

“the measures of war socialism amounted to putting the economy on a socialistic basis. The right of ownership remained formally unimpaired. By the letter of the law the owner still continued to be the owner of the means of production. Yet, the power of disposal over the enterprise was taken away from him” (2006, p. 143).

In socialism, the central authority decides what is produced. In corona socialism, the government indirectly does that also: it decides which businesses are allowed to open and which are not. Thus, it decides what can be produced (masks, ventilators) and what will not be produced (tourism or sporting events).

Mises clarifies:

“War socialism was by no means complete socialism, but it was full and true socialization without exception if one had kept on the path that had been taken” (Mises 2006, p. 144). Of course, corona socialism, as an instance of war socialism, is considered to be temporary, as “exceptional provisions for the duration of the war” (Mises 2006, p. 146).

But does war socialism achieve its aim? The defenders of the centralized effort claim that “the organized economy is capable of yielding higher outputs than the free economy” (Mises 2006, p. 117).

The opposite is true. It is the private economy that wins wars. The private economy is yielding more goods and services to alleviate the corona epidemic. The efficiency of private companies these days is amazing. Uncounted solutions are coming from the private sector, which is switching to the production of masks, medical suits, drugs, ventilators or coming up with safe new ways of delivering goods and services to consumers.

Private companies swiftly shift their production efforts due to anticipated profits. In a market economy, it is profits that direct production, quickly taking all human needs into account. In contrast, the medical production czars tend to have only one end or human need in mind. They want to slow down infection rates at all costs. They disregard other human ends, such as creating successful businesses and enjoying a vast array of goods and services such as vacationing or other leisure activities. When these ends cannot be reached, there may be other health problems, such as heart diseases or psychic issues. The forced lockdown brings economic misery. A general fall in living standards ensues with all its consequences.

The central medical planning focuses only on measurable variables such the infection rate. By not taking into account other ends (and not being able to do so), this planning exerts enormous harm from the point of view of voluntarily interacting individuals. In contrast to the central planning approach, which focuses on one end, all ends in human society are taken into account in the market economy through (expected) profits. Production is adjusted swiftly and efficiently toward the changing ends of consumers.

It is entrepreneurial profit seeking that unleashes human creativity and genius and thereby satisfies human needs as efficiently as humanly possible. The right answer to a war, and to the corona war as well, is therefore to eliminate all barriers to entrepreneurship:

For anyone of the opinion that the free economy is the superior form of economic activity, precisely the need created by the war had to be a new reason demanding that all obstacles standing in the way of free competition be set aside. (Mises 2006, p. 117)

In other words, in order to win the corona war, government should cut taxes and regulations vigorously. Unfortunately, governments around the world have opted for the opposite path, namely war socialism. If they do not quickly rectify their responses and end their war, the socialization of our economies will continue. Mises warns: “in the long run war and the preservation of the market economy are incompatible” (1998, p. 824).

Ahead of the Thai New Year (April 13-15), the government of Thailand has banned sales of alcoholic beverages in the attempt to curb irresponsible socializing that could lead to the further spread of COVID-19, reported Reuters.

Bars, restaurants, and other non-essential businesses have been closed in many provinces, as well as the capital of Bangkok. Still, until Thursday (April 9), the sale of beer, wine, and spirits was permitted.

A 10-day ban on the sale of wine, beer and spirits began Friday and will last through April 20. About 61% of the country’s provinces, or about 47 out of 77, have implemented alcohol bans, the interior ministry said in a statement.

According to the Ministry of Interior, at least 47 provinces now have a ban on the sale of alcohol:

1) Until further notice: Chon Buri, Phitsanulok & Phuket
2) Until April 15: Rayong & Ranong
3) Until April 16: Sakon Nakhon, Yala, Phichit, Lop Buri & Chiang Rai #Thailand pic.twitter.com/vrOtHpOWLo

— Richard Barrow in Thailand 🇹🇭🇬🇧 (@RichardBarrow) April 11, 2020

The abrupt decision to halt alcohol sales in many provinces, including Bangkok, is ahead of the Thai new year festival known as Songkran. This is the country’s biggest holiday, usually involves street parties and absolutely no social distancing.

Organizers of Songkran have already canceled the events as the country has confirmed 2,551 virus cases and 38 deaths. Many of the country’s early cases were linked to parties in Bangkok.

Officials believe many people are still going to host Songkran parties of their own, despite lockdown orders. Anyone who violates the public health order will be subjected to a fine, imprisoned, or both.

Ahead of the alcohol ban, people disregarded government-enforced social distancing rules and panic hoarded boozes on Thursday.

นี่แหละ​ครับ​ อยากให้ประชาชนเว้นระยะห่างทางสังคม​ แต่ดันประกาศห้ามขายแอลกอฮอล์​ ตอนนี้ที่ร้านเหล้าสยามพารากอนจึงมีคนออกัน​ คิวยาว​ 20​ คนเสี่ยงติดเป็นคลัสเตอร์​ใหม่​ เพิ่งถ่ายกับมือ #ป​ #โควิด19 คิดสิคิด​ #แอลกอฮอล์ #โควิด19เราต้องรอด pic.twitter.com/vv0EV9sI46

— Pravit Rojanaphruk (@PravitR) April 9, 2020

Booze mayhem here in Villa Market, i see people with carts full of wines, beer, booze, 10.000-20.000 thb and up… insane!

— Rob van Gelder (@steadirob) April 9, 2020

This was predictable. The local government in #Bangkok announced a ban on the sale of alcohol starting tomorrow and so everyone rushed out to stock up on booze. Judging by these pictures by @ken1978uk and others, there was no chance to do any #SocialDistancing #Thailand pic.twitter.com/tSbGngkpoh

— Richard Barrow in Thailand 🇹🇭🇬🇧 (@RichardBarrow) April 9, 2020

Several other countries have forbidden or limited alcohol sales during the pandemic. The list includes France, South Africa, Grenada, Colombia, Mexico, Botswana, Zimbabwe, and Greenland.

We noted specifically in Greenland and France, alcohol restrictions were to prevent domestic violence cases from surging during lockdowns. In South Africa, sales of alcohol and cigarettes were halted last month as Martial law style lockdown unfolded across the country. 

Last week, when we looked at the latest shape of the Coronavirus curve, we said that even as US cases continue to soar, “the light at the end of the tunnel is now visible” and indeed as JPMorgan’s MW Kim writes in his latest Covid-19 update note published late last week, the global infection growth is showing early signs of slowing (53% W/W vs. 95% W/W two weeks ago), according to Johns Hopkins data, according to which the number of global confirmed cases is set to surpass 2 million in the coming days.

This reduction in new cases is the result of a sharp drop in the number of susceptible targets (i.e., cutting new contacts), which means that curve control is working with both China and Korea now well into the recovery stage, while Germany, Spain and Italy are at or near the curve peak, with US, France, the UK and several other nations close behind.

This is certainly impressive considering what the curve looked like just two weeks ago:

In other words, the first wave of coronavirus infections appears to be plateauing as a result of a sharp, forced reduction in secondary infection rates, or R-0. This has been achieved in three ways:

• Reducing susceptibles: an accurate vaccine targeting COVID-19 could reduce the initial susceptible (or S0) with smaller/slower infection development similar to seasonal flu.
• Shortening the infection period: certain therapies for COVID-19 could shorten the period of recovery (or duration of infection). As a result, this could lower the secondary infection rate (or Ro) compared to the initial infection curve experience without the treatment.
• Lowering the transmission rate: The transmission rate (or beat) can be reduced by encouraging a higher level of hygiene adoption including wearing masks. Given the transmission rate is the combination of (1) average contact rate between susceptible and infectious and (2) the probability of transmission, wearing a mask could lower the probability of transmission.

With that in mind, JPMorgan looked at some new development in the coronavirus therapeutic approach (or possible way to reduce the recovery period) and updates its thoughts on the wearing of masks (or possible ways to lower the probability of transmission).

• Control of Cytokine storm as a therapeutic approach. Cytokine storm, an overproduction of immune cells and their activating compounds (cytokines), is believed to be responsible for acute respiratory distress syndrome (ARDS) and multiple organ failure in severe COVID-19 patients. Therefore, some companies intend to develop drugs targeting the production of cytokine in COVID-19; including Siltuximab, an FDA and EMA-approved interleukin (IL)-6 mAB developed by EUSA Pharma with encouraging preliminary efficacy; Kevzara (IL-6 mAB) by Regeneron and Sanofi (currently in Phase II/III); TJM2 (anti GM-CSF) by Chinese biotech I-MAB (received IND clearance from the FDA); and Jakafi by Incyte (in collaboration with Novartis), a JAK-1/2 inhibitor approved for polycythemia vera (PV) and graft-versus-host disease (GVHD) (recently initiated Phase III trial in COVID-19).
• Masks or no masks in public places during COVID-19? JPM’s opinion is that reducing the number of people exposed to those infected should be the primary strategy for curve control. Wearing a mask as a supplementary measure to reduce the transmission rate is also topical. In countries like China and Korea, wearing masks is recommended in public places to reduce the risk of infection, while public health agencies in the West have generally recommended wearing masks only for healthcare workers and the sick. The US CDC recently revised its stance and  recommends people to wear face coverings in public places. We believe wearing a mask properly (which doesn’t require special skills and only takes education) will lower the risk of infection, given the transmission might occur via droplets, which can be controlled by preventing touching one’s face with one’s hands. 

JPM’s conclusion is that reducing the susceptible (i.e., cutting new contacts) should remain the prime strategy. Herd immunity might be considered an option once a vaccine becomes available. However, there are concerns about a possible series of infection waves following relaxation of social distancing rules. Hence, based on the bank’s epidemiology modelling framework, shortening the infection period (i.e., therapies: production of cytokine in COVID-19) and lowering the transmission rate (i.e., wearing masks) could be extra mitigating factors.

And speaking of the second wave of infections, there are some not so good news: China appears to be experiencing a rebound in new cases and the onset of the dreaded second wave, although it is still early to determine if there is a sufficiently high number of new cases for Beijing to seek a renewed shuttering of the economy (it is unlikely China will pursue this option until it is again too late and the real number of cases has soared). In any case this dynamic has to be watched closely.

Which then brings us to the $64 trillion (not that far off from global GDP) question: is the coming “second reinfection wave” going to be smaller or bigger – similar to the Spanish Flu pandemic – where deaths in the second wave were 5x greater than those from the first?

Here JPM believes that next waves could be at a smaller amplitude with lower mortality rate potential compared to the current first wave. This is due to (1) strong risk awareness among stakeholders; (2) faster government response potential at the infection tipping point; and (3) enhanced risk manual at the containment stage. However, even a substantially reduced amplitude of wave 2 (and 3 and 4), suggest that ongoing economic shutdowns will be recurring feature of life for quarters if not years!

The amplitude could be higher, however, a la the Spanish Flu pandemic, if it turns out that the life cycle of the coronavirus is far longer than assumed.  As JPM noted last week, the COVID-19 infection life cycle could last for 4-5 weeks including a 2-week incubation period.

The bottom line, and somewhat counterintuitively, the sooner the world declares victory against the Wu Flu, the faster the general population will rush back into “social un-distancing”, sparking new case clusters as the infection restarts from scratch, forcing authorities to re-establish social distancing once again, and so on, as the entire process repeats from square one.

Which brings us to the latest assessment made from Minneapolis Fed chief and former Goldman and PIMCO staffer, Neel Kashkari who has somehow also emerged as a budding epidemiologist and who today warned that without an effective therapy or a vaccine for the novel coronavirus, the US economy could face 18 months of “rolling shutdowns” as the outbreak recedes and flares up again.

“We’re looking around the world. As they relax the economic controls, the virus flares back up again,” the 2020 FOMC voter Kashkari said Sunday on CBS’s “Face the Nation.” Kashkari  “We could have these waves of flareups, controls, flareups and controls until we actually get a therapy or a vaccine. I think we should all be focusing on an 18-month strategy for our health care system and our economy.”

Kashkari warned that “this could be a long hard road that we have ahead of us until we get either to an effective therapy or a vaccine. It’s hard for me to see a V-shaped recovery under that scenario,” he said.

Of course, since Kashkari has been wrong about everything his entire career – most notably, in late January he asked “QE Conspiracists” to show him how the Fed is manipulating stock prices, which led to the Fed unleashing unlimited QE just two months later and demonstrating very vividly just how it is manipulating stock prices, this may be the most promising assessment of where we stand on the curve yet.