Month: March 2020

As Trump Imagines ‘2.2 Million Deaths’ From COVID-19 in the U.S., a Top Federal Disease Expert Cautions Against Believing Worst-Case Scenarios

During his COVID-19 briefing yesterday, President Donald Trump suggested that the control measures implemented so far should keep the number of deaths from climbing above 100,000 in the United States. Although that is “a horrible number,” he said, the death toll otherwise could be “up to 2.2 million deaths and maybe even beyond that.”

Trump has pivoted from minimizing the severity of the epidemic to exaggerating the likely outcome in the absence of extreme measures such as mass business closures and stay-at-home orders. Appearing on CNN yesterday, Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, offered some words of caution about worst-case scenarios that assume nothing is done to contain, suppress, or mitigate the spread of COVID-19.

Jake Tapper asked Fauci how many COVID-19 cases the United States can expect to see. “To be honest with you, we don’t really have any firm idea,” Fauci said. “There are things called models. And when someone creates a model, they put in various assumptions. And the model is only as good and as accurate as your assumptions. And whenever the modelers come in, they give a worst-case scenario and a best-case scenario. Generally, the reality is somewhere in the middle. I have never seen a model of the diseases that I have dealt where the worst-case scenario actually came out. They always overshoot. So when you use numbers like a million, a million-and-a-half, 2 million [deaths], that almost certainly is off the chart. Now, it’s not impossible, but very, very unlikely.”

Those caveats are important because focusing on implausible worst-case projections creates a bias in favor of sweeping and prolonged interventions, which impose enormous costs that might not be justified based on more realistic expectations. In the world we live in, as opposed to the one imagined by modelers when they talk about millions of COVID-19 deaths in the United States, many steps already have been taken to curtail the spread of the virus. These include not just government policies, such as isolation and quarantine, air travel restrictions, and bans on large gatherings, but also voluntary precautions, such as limiting social interactions, working at home, and paying extra attention to hygiene.

When modelers at Imperial College projected 2.2 million COVID-19 deaths in the United States, they were assuming “the (unlikely) absence of any control measures or spontaneous changes in individual behaviour.” Although that horrifying number got a lot of attention and has now been embraced by Trump, it was never plausible, even leaving aside the question of whether the case fatality rate (CFR) assumed by the model (0.9 percent) will prove to be correct.

The choice confronting policy makers right now is not between doing “nothing,” as that projection assumed, and maintaining lockdowns “for 5 months or more” (or perhaps for “18 months or more”), as the Imperial College report suggested. Rather, the choice involves what kinds of restrictions make sense, where, and for how long.

“Looking at what we’re seeing now,” Fauci said, “we’re going to have millions of cases” in the United States, and it is reasonable to expect “between 100,000 and 200,000” deaths. But he cautioned that “I just don’t think that we really need to make a projection, when it’s such a moving target, that you can so easily be wrong and mislead people.” Deborah Birx, coordinator of the White House’s COVID-19 task force, yesterday cited similar but somewhat less alarming estimates, saying “between 80,000 and 160,000, maybe even potentially 200,000 people,” could be killed by COVID-19 in the United States.

One unknown variable in these projections is how many Americans will ultimately be infected. Some projections “predicted half of the United States would get infected,” Birx said. Another crucial variable is the CFR, which federal public health officials say could be anywhere from 0.1 percent (about the same as the CFR for the seasonal flu) to 1 percent. If half the population were infected and 2.2 million people died, that would imply a CFR of about 1.3 percent, substantially higher than the upper limit of that range—another reason to be skeptical of the worst-case scenario.

Such a high CFR also suggests that the actual number of infections is only about two-fifths bigger than the current number of documented cases, which is highly implausible when testing is so sparse and cases typically involve mild to nonexistent symptoms. “Probably for every case,” Assistant Secretary for Health Brett Giroir estimated earlier this month, “there are at least two or three cases that are not even in the denominator.”

Based on the available data, which are very limited in the absence of wide testing, it surely is not safe to assume that COVID-19 is only slightly more deadly than the seasonal flu. But neither is it reasonable to assume that the disease is 13 times as deadly. The truth, as Fauci says, is likely to be “somewhere in the middle.” In the face of such uncertainty, decisions with profound economic consequences should not be based on one extreme or the other. “Although people like to model it,” Fauci told Tapper, “let’s just look at the data of what we have, and not worry about these worst-case and best-case scenarios.”

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“Wuhan COVID-19 Death Toll May Be in the Tens of Thousands”

So reports Newsweek (Christina Zhao); there was an earlier article from Radio Free Asia (a U.S.-government-funded nonprofit) that gave similar estimates. (Bloomberg likewise writes, “Report of Urns Stacked at Wuhan Funeral Homes Raises Questions About the Real Coronavirus Death Toll in China.”)

These are just estimates, and may well be incorrect, but I thought they were worth noting given that the government-released data may be incorrect as well.

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As Trump Imagines ‘2.2 Million Deaths’ From COVID-19 in the U.S., a Top Federal Disease Expert Cautions Against Believing Worst-Case Scenarios

During his COVID-19 briefing yesterday, President Donald Trump suggested that the control measures implemented so far should keep the number of deaths from climbing above 100,000 in the United States. Although that is “a horrible number,” he said, the death toll otherwise could be “up to 2.2 million deaths and maybe even beyond that.”

Trump has pivoted from minimizing the severity of the epidemic to exaggerating the likely outcome in the absence of extreme measures such as mass business closures and stay-at-home orders. Appearing on CNN yesterday, Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, offered some words of caution about worst-case scenarios that assume nothing is done to contain, suppress, or mitigate the spread of COVID-19.

Jake Tapper asked Fauci how many COVID-19 cases the United States can expect to see. “To be honest with you, we don’t really have any firm idea,” Fauci said. “There are things called models. And when someone creates a model, they put in various assumptions. And the model is only as good and as accurate as your assumptions. And whenever the modelers come in, they give a worst-case scenario and a best-case scenario. Generally, the reality is somewhere in the middle. I have never seen a model of the diseases that I have dealt where the worst-case scenario actually came out. They always overshoot. So when you use numbers like a million, a million-and-a-half, 2 million [deaths], that almost certainly is off the chart. Now, it’s not impossible, but very, very unlikely.”

Those caveats are important because focusing on implausible worst-case projections creates a bias in favor of sweeping and prolonged interventions, which impose enormous costs that might not be justified based on more realistic expectations. In the world we live in, as opposed to the one imagined by modelers when they talk about millions of COVID-19 deaths in the United States, many steps already have been taken to curtail the spread of the virus. These include not just government policies, such as isolation and quarantine, air travel restrictions, and bans on large gatherings, but also voluntary precautions, such as limiting social interactions, working at home, and paying extra attention to hygiene.

When modelers at Imperial College projected 2.2 million COVID-19 deaths in the United States, they were assuming “the (unlikely) absence of any control measures or spontaneous changes in individual behaviour.” Although that horrifying number got a lot of attention and has now been embraced by Trump, it was never plausible, even leaving aside the question of whether the case fatality rate (CFR) assumed by the model (0.9 percent) will prove to be correct.

The choice confronting policy makers right now is not between doing “nothing,” as that projection assumed, and maintaining lockdowns “for 5 months or more” (or perhaps for “18 months or more”), as the Imperial College report suggested. Rather, the choice involves what kinds of restrictions make sense, where, and for how long.

“Looking at what we’re seeing now,” Fauci said, “we’re going to have millions of cases” in the United States, and it is reasonable to expect “between 100,000 and 200,000” deaths. But he cautioned that “I just don’t think that we really need to make a projection, when it’s such a moving target, that you can so easily be wrong and mislead people.” Deborah Birx, coordinator of the White House’s COVID-19 task force, yesterday cited similar but somewhat less alarming estimates, saying “between 80,000 and 160,000, maybe even potentially 200,000 people,” could be killed by COVID-19 in the United States.

One unknown variable in these projections is how many Americans will ultimately be infected. Some projections “predicted half of the United States would get infected,” Birx said. Another crucial variable is the CFR, which federal public health officials say could be anywhere from 0.1 percent (about the same as the CFR for the seasonal flu) to 1 percent. If half the population were infected and 2.2 million people died, that would imply a CFR of about 1.3 percent, substantially higher than the upper limit of that range—another reason to be skeptical of the worst-case scenario.

Such a high CFR also suggests that the actual number of infections is only about two-fifths bigger than the current number of documented cases, which is highly implausible when testing is so sparse and cases typically involve mild to nonexistent symptoms. “Probably for every case,” Assistant Secretary for Health Brett Giroir estimated earlier this month, “there are at least two or three cases that are not even in the denominator.”

Based on the available data, which are very limited in the absence of wide testing, it surely is not safe to assume that COVID-19 is only slightly more deadly than the seasonal flu. But neither is it reasonable to assume that the disease is 13 times as deadly. The truth, as Fauci says, is likely to be “somewhere in the middle.” In the face of such uncertainty, decisions with profound economic consequences should not be based on one extreme or the other. “Although people like to model it,” Fauci told Tapper, “let’s just look at the data of what we have, and not worry about these worst-case and best-case scenarios.”

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In Late February, Nancy Pelosi Encouraged Large Groups To Congregate In Chinatown

In Late February, Nancy Pelosi Encouraged Large Groups To Congregate In Chinatown

Authored by Paul Joseph Watson via Summit News,

A video clip from late February shows Nancy Pelosi encouraging large groups of people to congregate in San Francisco’s Chinatown before she would later go on to blame President Trump’s early “denial” for the spread of coronavirus.

The footage, which was taken on February 24th, is introduced by a reporter noting how Pelosi wanted residents to understand how it’s “perfectly safe to be here” in Chinatown.

“We do want to say to people, come to Chinatown, here we are…come join us,” said Pelosi.

The reporter then explains how the stunt was a response to San Francisco’s Chinatown experiencing a drop in business since the outbreak of coronavirus in Wuhan, China.

San Francisco has since recorded 340 confirmed cases of coronavirus and 5 people have died.

The video is particularly eye opening since yesterday on CNN, Pelosi blamed President Trump’s “denial at the beginning” for the spread of coronavirus throughout the United States.

The video underscores how many officials flouted the very social distancing measures they now amplify because at the time stopping bigotry towards Chinese people was seen as being of greater importance than preventing the spread of coronavirus.

As we previously highlighted, health officials in New York gave identical advice, urging residents to gather in crowds to celebrate the Chinese Lunar New Year.

“Today our city is celebrating the #LunarNewYear parade in Chinatown, a beautiful cultural tradition with a rich history in our city,” wrote New York City Health Commissioner Oxiris Barbot. “I want to remind everyone to enjoy the parade and not change any plans due to misinformation spreading about #coronavirus.”

Her message was echoed by Mark D. Levine, Chair of New York City Council health committee, who lauded how “huge crowds gathering in NYC’s Chinatown” was a “powerful show of defiance of #coronavirus scare,” tweeting four images of large groups of people gathered to celebrate the occasion.

Mayor Bill de Blasio also urged New Yorkers to “get out on the town despite coronavirus” and visit the cinema as late as March 2nd.

As we highlight in the video below, back in February, leftist officials in Italy were also urging citizens to go outside and hug Chinese people in order to fight racism.

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Tyler Durden

Mon, 03/30/2020 – 12:50

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Gov. Abbot Orders Texas State Troopers To Enforce Quarantine At Louisiana Border

Gov. Abbot Orders Texas State Troopers To Enforce Quarantine At Louisiana Border

Texans are used to hearing talk of securing the southern border with Mexico, but the idea of checkpoints at the border with Louisiana is something no one ever imagined. 

After late last week Louisiana and specifically New Orleans have emerged as the southern epicenter for the coronavirus outbreak in the US, with the Bayou State on Sunday reporting more than 3,500 positive cases – a number expected to grow rapidly following a busy Mardi Gras season, Texas Governor Greg Abbott on Sunday ordered all travelers entering Texas from Louisiana to enter a 14-day quarantine, now enforceable by state troopers.

File image of a border patrol checkpoint along US Route 70 in New Mexico, via NPR.

Crucially, for the first time police have been told to enforce the quarantine order at checkpoints along the state border.

Few details have been given, but it’s expected that law enforcement will for the first time in living memory establish and beef up checkpoints along all major roadways that cross into Louisiana.

According to some of the few known details in The Houston Chronicle: 

Those in quarantine will be asked to provide an address for where they plan to hole up in Texas, either for two weeks or until their return to Louisiana, whichever comes first.

A provision in the order allows DPS special agents to check on those under quarantine to ensure they’re complying. Violators could be subject to either a $1,000 fine or 180 days in jail, according to the four-page document. Another provision states that if a driver is showing symptoms associated with COVID-19, such as fever, coughing or shortness of breath, a trooper will follow them to their destination.

It’s similar to current inter-state travel advisories and restrictions in place in Flordia, New York and New Jersey.

The order takes effect Monday at noon and will involve unprecedented border control checks along the busy Texas-Louisiana border. 

Health officials have recently warned that the skyrocketing Covid-19 cases in Louisiana could threaten the entire southern region of the United States, which thus far has generally seen lower numbers than either the Northwest or East coast cities.


Tyler Durden

Mon, 03/30/2020 – 12:35

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You Say “Epidemic”; He Says “Great Time to Go Surfing!”; …

Or so says an article in Stab Magazine (apparently a publication about surfing). An excerpt with some policy analysis (the article also has more on the facts):

Kelly makes some great points about how arresting officers grabbing surfers could exacerbate the spread of covid-19 (certainly more so than the physical act of surfing). And, also to his point, it makes no sense for the ocean to be closed before retail spaces. But on the point that people should be allowed to surf throughout this crisis (especially if they keep their distance), Kelly is wrong….

If people are allowed to surf (even at a safe distance from one another), it will lead to a mass migration of surfers from all surrounding areas to the beach. This is especially true since everyone is out of work and wants something to keep their minds and bodies occupied. Also, we’re coming into a holiday week/end around the world, which will only add to the chaos.

Now, even if we were to assume that not a single person around the world could or would contract covid-19 while in the water (which is a very weak assumption), what about all the hotels, gas stations, coffee shops, public bathrooms, and other disease-incubating amenities that will inevitably be flooded by these migratory surfers?

If you could somehow enforce a law that only people who lived within walking distance of the beach were allowed to surf, it would probably be fine for them to do so. But of course that’s not logistically feasible, so closing all beaches (and their adjacent waves) is the only logical step our government can take if they’re serious about stopping the spread.

Thanks to Jenny Wilson for the pointer.

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You Say “Epidemic”; He Says “Great Time to Go Surfing!”; …

Or so says an article in Stab Magazine (apparently a publication about surfing). An excerpt with some policy analysis (the article also has more on the facts):

Kelly makes some great points about how arresting officers grabbing surfers could exacerbate the spread of covid-19 (certainly more so than the physical act of surfing). And, also to his point, it makes no sense for the ocean to be closed before retail spaces. But on the point that people should be allowed to surf throughout this crisis (especially if they keep their distance), Kelly is wrong….

If people are allowed to surf (even at a safe distance from one another), it will lead to a mass migration of surfers from all surrounding areas to the beach. This is especially true since everyone is out of work and wants something to keep their minds and bodies occupied. Also, we’re coming into a holiday week/end around the world, which will only add to the chaos.

Now, even if we were to assume that not a single person around the world could or would contract covid-19 while in the water (which is a very weak assumption), what about all the hotels, gas stations, coffee shops, public bathrooms, and other disease-incubating amenities that will inevitably be flooded by these migratory surfers?

If you could somehow enforce a law that only people who lived within walking distance of the beach were allowed to surf, it would probably be fine for them to do so. But of course that’s not logistically feasible, so closing all beaches (and their adjacent waves) is the only logical step our government can take if they’re serious about stopping the spread.

Thanks to Jenny Wilson for the pointer.

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Kunstler: When Americans Wake From The Corona-Coma, This Will Be A Different Country

Kunstler: When Americans Wake From The Corona-Coma, This Will Be A Different Country

Authored by James Howard Kunstler via Kunstler.com,

People, Get Ready!

The cable news announced the other day that Covid-19 patients placed in critical care may have to be on ventilators for 21 days. Only a few years ago, I went in for an ordinary hip replacement. A month or so later, I got the hospital billing statement. One of the line-items went like this: Room and board: 36 hours…$23,482.79. I am not jiving you. That was just for the hospital bed and maybe four lousy hospital meals, not the surgery or the meds or anything else. All that was billed extra. Say, what…?

Now imagine you have the stupendous good fortune to survive a Covid-19 infection after 21 days on a ventilator and go home. What is that billing statement going to look like? Will the survivors wish they’d never made out of the hospital alive?

Right now, we’re in the heroic phase of the battle against a modern age plague. The doctors, nurses, and their helpers are like the trembling soldiers in an amphibious landing craft churning toward the Normandy beach where the enemy is dug in and waiting for them, with sweaty fingers on their machine guns and a stink in the pillbox. Some of the doctors and nurses will go down in the battle. The fabled fog-of-war will conceal what is happening to the health care system itself, while the battle rages. After that, what?

One thing will be pretty clear: That the folks in charge of things gave trillions of dollars to Wall Street while tens or perhaps hundreds of thousands of Covid-19 survivors got wiped out financially with gargantuan medical bills. Do you think the Chargemaster part of the hospital routine will just stop doing its thing during this emergency? The billings will continue – just as the proverbial beatings will continue until morale improves! In the aftermath, I can’t even imagine the ‘splainin’ that will entail. The rage may be too intense to even get to that. For some, it may be time to lubricate the guillotines?

Meantime, of course, the global economy has shut down which suggests to me, anyway, that any prior frame of reference you may have had about money and business and social normality goes out the window.

The world is still here. We’re just going to have to learn to live in differently. The American portion of the world is in need of a severe retrofit and reprogramming. We waited too long to face this in a spell of tragic complacency and the virus has forced the issue.

Here are the main things we have to attend to:

  • Reconsider how we inhabit the landscape. Do you think $20-a-barrel oil is a boon to the Happy Motoring way-of-life? It’s going to at least bankrupt most of the companies producing shale oil, and that’s where way-more than half of our production came from in recent years. How many ordinary Americans will be able to finance car payments now? To say suburbia will not be functioning too well mere months from now is a merciful way to put it.

  • The big cities will not recover from the trauma and stigma of the virus, but that is only the beginning their problems. What, exactly, will the suffering poor of the ghettos do, under orders to remain cooped-up until the end of April? These are people who are unlikely to have laid in supplies ahead of time, and a month from now they are sure to be very hungry. How will the big cities be able to manage their infrastructures with municipal bonds massively failing? How will they provide social services when tax revenues are down to a trickle? The answer is, they won’t manage any of this. They grew too big and too complex. Now they have to get smaller, and the process will not be pretty.

  • What will the business of America be after Covid-19? If we’re lucky, it will be growing food and working at many of the activities that support it: moving it, storing it, selling it, making an order of smaller-scaled farm machinery, including machines that can be used with horses and oxen, breeding the animals. I’m not kidding. Growing food happens in the countryside, where the fields and pastures are. There are towns there, too, associated with the farming, where much of the business of farming and the activities that support it transact. I believe we’ll see impressive demographic movements of people to these places. There are opportunities in all that, a plausible future. The scale of agriculture will have to change downward, too. AgriBiz, with its giant “inputs” of chemicals and borrowed money, is not going to make it. Farms have to get smaller too, and more people will have to work on them. Farewell to the age of the taco chip!

  • If we want to get around this big country of ours, and move food from one place to another, we better think about fixing the railroads. Try to imagine what six trillion dollars might have done for that crucial venture. And I’m not talking about high-speed and high-tech; I mean the railroads that were already here. Where I live, the tracks are still in place, rusting in the rain. How did we let that happen?

  • Then there is the question of how do we behave? You may not think that matters so much, but we’ve become so profoundly dishonest that it’s impeding our relationship with reality. On top of that we’re surly, impolite, clownish, blustering, greedy, and improvident. Believe me, that is going to change. Hardship is a great attitude-adjuster.

When Americans awake from the corona coma like millions of Rip Van Winkles, it will matter again to be upright and to act in good faith. This will be a different country.


Tyler Durden

Mon, 03/30/2020 – 12:20

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Second US Aircraft Carrier Is Facing A COVID-19 Outbreak Among Crew

Second US Aircraft Carrier Is Facing A COVID-19 Outbreak Among Crew

After late last week the USS Theodore Roosevelt diverted from its mission in the Western Pacific in order for its 5,000 crew to disembark in Guam to be quarantined due to coronavirus outbreak among sailors, now at at least 38 cases, a second Navy aircraft carrier is dealing with a potential outbreak in its midst.

Over the weekend Fox News cited unnamed US officials to report that the USS Ronald Reagan aircraft carrier has two sailors who have recently tested positive for Covid-19.

USS Ronald Reagan, via Wiki Commons

This as a major naval station in Japan has already gone on lockdown over cases on the base itself.

Military newspaper Stars & Stripes, which also reported the two cases aboard the USS Ronald Reagan, on Monday noted the base spent the weekend on lockdown:

The Yokosuka base entered a third day of lockdown Monday to mitigate spread of the virus following the three positive test results announced last week. Base commander Capt. Rich Jarrett instructed non-essential personnel to stay home and instructed residents to shelter in place “until further notice.”

The Reagan is permanently forward deployed out of the base, US Fleet Activities Yokosuka.

Few details were given over the USS Ronald Reagan and its two reported cases, also as the Navy has begun a policy of restricting its coronavirus numbers to only publicly reporting branch-wide cases.

But the Reagan could be the next disaster in the making, give the Roosevelt sent Navy top brass scrambling for a solution, which was to drastically divert the ship to US bases at Guam in order to isolate and test all 5,000 crew members.

Of that massive and disruptive effort the the Daily Beast reported: “But in Guam on Wednesday, both Navy and Marine Corps service members set up roughly 140 military beds in a basketball gymnasium.”

Naval Base Guam, via US Navy

The report continuned: “To squeeze more troops into the gym, Navy medical professionals recommended measuring the six-foot distance per guidance from the CDC from the center of the bed rather than from the outer edges, meaning, that the beds are actually 3-feet apart.”

Only a week prior to Sunday’s report of 38 USS Roosevelt crew being positive, merely three had been confirmed for Covid-19. The numbers are expected to rise as the Navy awaits testing on all crew members, and as another potential outbreak looms for the USS Ronald Reagan.


Tyler Durden

Mon, 03/30/2020 – 12:05

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Rabobank: “Policy Awe Is Behind Us While Sheer Economic Shock Is About To Overwhelm Markets”

Rabobank: “Policy Awe Is Behind Us While Sheer Economic Shock Is About To Overwhelm Markets”

Submitted by Michael Every of Rabobank

Awe & Shock; Questions & Quislings

Last week was about policy-makers keeping us in awe. Central banks have done what central banks do – slash rates and pump in liquidity (the latest being the Bank of Canada taking rates to 0.25%, joining the zero-lower-bound-and-let’s-do-QE gang). Governments have done what they had long decided not to do – ramp up spending and pump in liquidity (the latest being Australia now offering to pay 80% of salaries for those laid off too). None of this should be a surprise. As we published recently, and as many others in the market are echoing, this is being treated as a war on the home front: and wars on the home front mean zero rates, yield curve control, and fiscal deficits from 15 to 20% of GDP. Markets have, of course, tried to rally on that front. It’s even been seen as patriotic in some cases.

However, here comes the shock that has required all that awe. Last week US President Trump was talking about reopening the economy around Easter: now lockdown is extended through to 30 April. Moreover, Dr Fauci, the leading medical expert on the White House team, has stated he expects to see millions of infections and 100,000 – 200,000 US deaths. Even Trump has said 100,000 deaths would be a “very good job”. To put that in context, were we to exceed that total by just a little it would mean more civilian deaths than the US suffered in combat in WW1, Vietnam, and Korea combined. In other words, a major shock.

In the UK, the Deputy Chief Medical Officer briefed that the current lockdown could be extended for six months, and perhaps even longer – and at the minimum Britain seems to face three months under the present new normal. Much of 2020 is going to be under virus controls of some kind. Again, a major economic shock.

In China, which has apparently turned the corner vis-à-vis the virus, we have the Western media openly questioning the official figures for deaths in Wuhan; stories underlining that while people are getting back to work, exporters have nobody to produce for; a wave of consumer debt defaults seems inevitable; and, in a don’t-listen-to-what-they-say-but-watch-what-they-do way, Beijing ordered all of the country’s cinemas closed again just days after reopening them to great fanfare. Looks like a major after-shock – and in response China is already talking about more awesome fiscal stimulus in response. Let’s see how that is compatible with economic rebalancing, deleveraging, and balance of payments and currency stability.

So to Questions & Quislings (which, in a lighter moment in these dark times, sounds like an unpopular niche 1970’s role-playing game.)

Question: How bad is this going to get economically? Worse than central bank and government largesse can overcome? Is it now insolvency not illiquidity we risk? After all, US Q2 GDP is openly being discussed as falling as much as -50% q/q annualised by ne ex-Fed official; UK Q2 GDP is seen -15% y/y by the Centre for Economics and Business Research; and nobody else is looking much better.

Question: so what do we do about it? Which leads us to Quislings.

To try to relax this weekend I made the decision to listen to UK talk radio for a ‘taste of home’. One particular host was insistent that the economic shock we are experiencing was so severe that a cost-benefit analysis needed to be done immediately – and a return to work was almost certainly the best overall outcome in his mind even if he would not say so directly. In support of his position, he interviewed Professor Philip Thomas from Bristol University, whose work involves the kind of grim trade-offs highlighted in ‘Fight Club’, where car firms look at the cost of improving vehicle passenger safety features over paying out insurance claims to those who are injured or die. Thomas argued that the virus, if unchecked, might kill over a million people in the UK, and 400,000 in middle age. This was economically unacceptable, of course. However, based on his modelling (in turn based on a simple regression analysis of GDP per capita and life expectancy), if UK GDP were to fall more than 6.4% y/y then the country would see more deaths due to poverty and depression than the virus would imply, and so it would arguably be better off opening up its economy again regardless of the virus.

A philosopher(!) immediately called in to respond and pointed out what I did in an email they didn’t opt to rad: that this is an entirely false exercise in that is assumes: (1) the virus would not destroy the economy anyway even if no lockdown were in place (i.e., voluntary lockdowns); and (2) that the government cannot shift economic policy to mitigate the decline in GDP per capita under lockdown. To which the host seemed outraged: “So we have to rip up the economics textbooks?! Really?!”

Then an experienced ex-Bank of England economist called in. He supported the philosopher’s stance, and noted that the paper from Thomas had not been peer reviewed and was published in a minor non-economics journal. In his view, it belonged in the wastepaper basket. The host’s response, in so many words: “You are being too emotional saying that. Bye!”

So what’s the takeaway, apart from the obvious fact that intellectuals can be idiots and I was one for listening to talk radio? That policy awe is behind us while sheer economic shock is about to overwhelm markets ahead; and we will require even greater policy responses.

Markets are far less likely to enjoy them, however. Wars aren’t just about pump-priming. We also see regulation and excess profit taxes rather than headlines lionizing hedge funds for making USD2.6bn in profits. (That said, some of the people running this war seem like the kind of blokes who in WW2 always had black-market chocolate and nylons for sale…)

Yet for now markets need to grapple with what is going to be cheap and what is going to be expensive. Do we face deflation as the economy implodes? Oil sub USD20 per barrel says yes. Do we face inflation as supply shocks hit home? Stories suggesting countries are hoarding food and that food production could be hit by the virus also say yes.

And, looking ahead to when we win the war, which we will one day, what does the economic and financial world look like when debt to GDP will be 20-30ppts higher at least, behaviour will have changed, SMEs may have been savaged, globalisation undermined, and the government will have many large fingers in many pies? Which asset class, if any, looks a winner on that basis? Short of USD, answers are short on the ground.

So time for a quick game of Questions & Quislings!


Tyler Durden

Mon, 03/30/2020 – 11:50

via ZeroHedge News https://ift.tt/2UNS4V6 Tyler Durden