Month: March 2020

Authored by Bill Blain via MorningPorridge.com,

Back in the real world, we have an answer:  “Dead cats infected with Coronavirus do Bounce..” Its amazing what the expectations of concerted Central Bank and G7 action to juice markets can achieve. Corporate Profits may be crashing, the corporate debt markets are locked tight in illiquid amber, credit ratings are tumbling, the IMF warns of recession, but “hey-ho, let’s go” and buy buy buy stock markets. On balance.. better selling opportunity me thinks. 

Back in the USA… 

At the risk of being told I have no right, as a Scotsman living in England, to comment on American politics.. here I go with the view on what it looks like over there from over here… It’s going to be important for markets.. 

Today is Super Tuesday in the US, and it could be the day that defines the November US Election. The pace of the election has suddenly stepped up a gear. Joe Biden looked dead in the water till he won South Carolina. Now 3 of his moderate Democrat rival contenders have pulled out and endorsed the former Vice-President. While he’s all smiles, Biden looks an old man – but his campaign has been reinvigorated. Biden and Mike Bloomberg will now duke it out for the votes of the 60% of Moderate Democrats for the nomination to fight Trump. 

They will be up against Socialist maverick Bernie Sanders who will likely win the 40% left-lane of the party. Cutting the moderate slate to two candidates changes the electoral maths of today’s vote completely. A moderate can now win the Democrat nomination, and seriously challenge Trump for the presidency – if it wasn’t for all the baggage.

The 2020 US election is going to be fascinating for all kinds of reasons. It will be utterly polarised between Trump lovers and Trump haters. There is no middle ground. Democrats want to get Trump out. Nothing else matters. In any normal world you would expect them to do well. Millennial voters will be out in force, while Generation Z voters (under 23) are ethnically diverse (less than 50% white) and represent 10% of the votes,  – although they tend to vote and care less than older electors who turn up in greater numbers. In places like California, Bernie’s clarion calls against income inequality appeal to voters struggling to make ends meet in the wealthiest state. 

But this is not a normal world… this is the USA. This is a country where the President can hold Ukraine to ransom to slander a political threat, and make it look like Biden was the bad guy! It was inspired brilliance and political theatre of the highest order. And utterly shocking to those of here in Blighty where the very idea that a politician might lie causes conniptions… (or at least it did till recently…)

The 14 states voting today represent some 33% of delegates to the Democrat Caucus. Because of the way the numbers work – you get zero delegate credit if you poll less than 15% – left wing socialist Bernie Sanders could conceivably have won an insurmountable lead. He could have polled less than 30% but still pulled a much larger share of the delegates. The moderates were each poling just shy of 15% before Pete Buttigieg and Amy Klobuchar pulled out to endorse Biden – meaning their votes would have been lost and piled up to Bernie.  

Now the 60% of moderate Democrats will likely pull behind Biden, or potentially Bloomberg, and it could be the Bernie threat has dissipated.  Most of Bernie’s voters wanted radical change, a fundamental reassessment of what had gone rotten in America in both government and corporate behaviours, and a focus on equality, fairness and social justice. Some will struggle to vote for the Moderates who will do little more than tinker with Washington bureaucracy and continue to play the Capitol Hill politics that turns off most voters, spawned Trump and created the radicalised right-wing populist agenda. 

But a vote for Biden (or maybe Bloomberg) will be a vote against Trump, and that’s all that Democrats really care about. Its also likely to wobble markets a little – they hate to admit it, but Trump has been good for markets. 

Lots of voters thought the Democrats had already lost the 2020 election, and until yesterday that looked nailed on. Bernie would have won the nomination and spectacularly lost the election. Now there will be a reassessment. The anti-Trump rhetoric of the Impeachment trial was a voter turn-off – that could be turned around to highlight his failings. Bernie’s Jeremy Corbyn style socialist nonsense as a complete vote loser – but could be a vote winner if he falls in behind Biden to “Get Trump Out”!  

Republican strategists were desperate to downplay Trump’s likely win. They learnt from the UK election – keep telling the electorate how dangerous Corbyn/Sanders will be for jobs, growth, the economy, apple pie and the American dream, but keep telling them the vote is much closer than they think. And to a degree they would have been right.

Until January, all Trump had to do was sit back and let the Democrats lose. 

Suddenly the story has changed. Biden will garner votes for not being Trump. There has never been a president like Trump. He’s never got close to breaking a 50% approval rating among the whole electorate. Because of the way the electoral college works it’s conceivable the Democrats can win the popular vote, but still lose in the electoral college – as happened to Hillary Clinton 4 years ago when Trump edged out Hillary Clinton by 0.2% in Michigan, and 0.7% in Pennsylvania and Wisconsin.  Clinton won the national popular vote by 2.1 percentage points, 2.9 million votes, but effectively lost the election by 77,744 votes in Michigan, Pennsylvania and Wisconsin!

These are the states critical to this year’s election. 

And now the economy and markets may longer be playing Trump’s tune. It’s all about the Economy Stupid!  A snap virus recession is likely to impact global trade. The recent global PMIs show a global trade and manufacturing contraction. The IMF is warning about the global economy slowing dramatically. The market is only hanging on because of expectations of accommodative central bank policy support.

Trump may have got tough with China, but did he push too hard? China’s growth and its whole economy may be in such serious trouble it triggers another long-term global recession. (Analysing just how badly China will struggle as a result of Coronavirus, the busting corporate lending boom, banking stress, and the slowing of prestige projects like the Belt and Road, raise a whole series of questions about sustainability of the last 20-years of boom-time. China hitting the economic buffers hard – as may be happening – could trigger a global economic pandemic.) 

As I wrote up near the top, this could be the day that defines the US election. If the Moderate Democrats make a decent showing, then they could yet overturn Trump in November. And markets are unlikely to like that.

Trump is already promising more of tax cuts to juice the economy and drive markets. Democrats will probably do a bunch of dull boring predictable things tinkering with the economy, health care and other stuff that will be utterly uninspiring and do little to bolster confidence.. They will propose rules and taxes that will leave Republicans choking on their coffees (or whatever Repubilicans drink). 

For the majority of Americans who don’t approve at Trump, whomever the Democrats propose will have the distinct advantage of not being Trump… and that’s apparently a good thing… 

A top US official announced Tuesday that America is willing to supply Turkey with ammunition amid its ongoing battle to push back the Syrian-Russian military offensive in Idlib province.

“The U.S. is willing to provide ammunition to Turkey for its operation in Idlib, northwestern Syria, U.S. special envoy for Syria James Jeffrey said Tuesday,” Turkey’s Daily Sabah reports.

The Syrian and Turkish armies have in recent days entered a dangerous heightened state of open war. No less than three Syrian jets have been downed in recent days, and over dozen Turkish drones have reportedly been shot down in the past week.

This after last week a likely Russian airstrike killed 33 Turkish troops, which Turkey blamed on Syrian forces, apparently not wanting a confrontation with the more formidable Russians, including the potential for disrupting deepening economic and defense ties with Moscow (such as Russia’s S-400 systems transfer).

Turkey previously requested Patriot missiles from Washington to protect against Russian and Syrian air power, however. While the White House has remained cool on giving Ankara outright military support in Idlib, some within the US administration are said to be strongly considering the Patriot request.

NEW – #Turkey – reportedly an F-16 – downed a #Syria Air Force L-39 jet over #Idlib today.

That’s 3 jets in 3 days.pic.twitter.com/0kupZOSRoR

— Charles Lister (@Charles_Lister) March 3, 2020

On Tuesday the Daily Sabah reports further that “U.S. Ambassador to Turkey David Satterfield also said the U.S. is considering the Turkish request for air defense systems.”

This means the US will be providing ammunition to Turkey to fight against Syria in the northwest….while in the northeast, the US is providing arms to the SDF, which is fighting with Syria against Turkey. https://t.co/H7E2Rmma56

— Liz Sly (@LizSly) March 3, 2020

Turkish state media now reports 55 of its soldiers have been killed in Idlib over the past weeks, though also claiming a dubiously high number of 2,557 soldiers killed on the Syrian Army side.

Ankara has lately urged greater NATO support as well; however, the collective defense Article 5 doesn’t apply in this case, given Turkey has suffered no attacks on its own soil, instead it’s engaged in operations on foreign soil. 

Though he’s presumably still being investigated by the DOJ he once helped to lead, former FBI director and (eternal) Trump antagonist James Comey apparently thinks it would be helpful for American voters, especially the #resistance true believers, to know whom he has decided to back in the Democratic Primary.

Unsurprisingly, it wasn’t Bernie Sanders.

With voting underway across the country on Super Tuesday, Comey tweeted Tuesday that he agrees with Amy Klobuchar, and has decided to back Joe Biden as the candidate best qualified to lead the resistance to take back the White House. He also said he supports Joe because Trump “fears” him, unlike Bernie Sanders, whom Comey seemed to suggest is also an illegitimate Russian plant, the same thing Comey believes about Trump.

Voted in first Dem primary to support party dedicated to restoring values in WH. I agree with @amyklobuchar: We need candidate who cares about all Americans and will restore decency, dignity to the office. There is a reason Trump fears @joebiden and roots for Bernie. #Biden2020

— James Comey (@Comey) March 3, 2020

Or get badly beaten by President Trump both on stage during the debates, and in the voting booths during the election, as most polls now suggest that Trump will likely be reelected if the economy doesn’t give out from under him.

And with federal agents looking into Comey’s behavior back when Biden was his boss, wouldn’t it be hilarious if the investigation of Comey has some kind of negative last-minute impact on the election?

 

Authored by Steve Watson via Summit News,

Get in the bubble…

A Chinese architect has designed a wearable bubble that he claims will protect people from the coronavirus by killing it with UV lights.

Dayong Sun claims that the lightweight carbon fiber frame can be worn like a backpack, with a thermoplastic material encasing the wearer and heating up to a temperature that will kill pathogens.

Sun says that the contraption effectively produces an enclosed sterilized environment.

Wearers would literally be living in a bubble.

“The coronavirus will be killed by temperatures of 56 degrees Celsius,” (133 degrees Fahrenheit)  the inventor told Dezeen.

“The PVC film cover is like our car windshields – there are heater wire in between the glass for heat the ice and snow in the winter,” he added.

The World Health Organization responded to the suggestion by pointing out that UV lamps should not be used in close proximity to the skin, given that UV radiation can cause irritation and illnesses.

“Sure we still need to do lot of work with engineers for the real production.” Sun stated.

The architect is marketing the contraption as bat wings, which is somewhat ironic, given that the coronavirus was likely contracted from bats.

You wanna live in a bubble?

Get in the bubble. Maybe eat some insects while you’re in there.

As the White House scrambles to assure the public that the coronavirus is under control, and that the CDC is working with local officials and labs to ramp up testing, it appears that the White House hasn’t been entirely forthcoming about a critical component of its ‘containment’ strategy: The virus tests.

Last night, during a press conference hosted by Vice President Mike Pence and HHS Secretary Alex Azar, FDA head Dr. Stephen Hahn boasted that labs across the US would have enough materials on hand to carry out “close to 1 million” tests by the end of this. According to Politico, that claim far exceeds the number of tests that several labs told POLITICO they will actually be able to run each day. Under ideal conditions, the nation’s public health labs could run up to 10,000 tests per day by the end of the week, according to figures provided by the Associated of Public Health Laboratories.

“With this new policy, we have heard from multiple companies and multiple academic centers, and we expect to have a substantial increase in the number of tests this week, next week, and throughout the month,” Dr. Hahn said in a press briefing Monday. “There will be – the estimates we’re getting from industry right now, by the end of this week, close to a million tests will be able to be performed.”

It seems like lab officials have been talking to reporters behind the administration’s back, and what they’re saying isn’t exactly flattering: while there’s no question that testing is being ramped up, the administration’s lofty expectations and projections far exceed capacity.

Stephen Hahn

Over the weekend, the FDA announced a plan to expand testing at local labs across the country following widespread complaints from labs, local public health officials and the mayor of NYC about restrictive conditions for testing suspected patients for coronavirus. As the administration has shifted from a strategy of prevention to containment, guaranteeing that labs are prepared to test any suspect patients, even if connections to other patients are always clear, is critical.

During another interview on CNBC Tuesday morning, former FDA Director Scott Gottlieb assured the public that the administration is “catching up” when it comes to making tests available, and that it will soon make up for its slow shift to a more containment-centric strategy.

However, according to the New York Times, this ‘shift’ is taking longer than the administration is willing to admit, and that instead of procuring 1 million tests by the end of the week, the administration and state and local labs might only be able to get its hands on…2,500, plus another 75,000…meaning they would be 922,500 tests short of their goal.

The NYT’s sources said that during a call between President Trump, VP Pence, the CDC and other parties participating in the outbreak response, Trump seemed unwilling to acknowledge the risks of the outbreak, instead insisting that it would fade once the warm weather arrives.

In the briefing, which was conducted by phone, the officials said that only 337 additional C.D.C. test kits were made available for distribution on Tuesday and Wednesday, according to two people on the call and the person briefed on the discussion who were not authorized to discuss it publicly. Each of those tests would cover about 350 people, officials said.

The officials added that they hoped that a private manufacturer could step in and provide 2,500 more kits by the end of the week. A spokesman for the Department of Health and Human Services said that public health labs currently can test 15,000 people, and could test up to 75,000 by the end of the week, numbers that fall well short of what Dr. Hahn indicated private labs could handle.

Without the tests, it will take longer for public health officials to figure out how widespread the virus truly is, giving the market a false impression that containment efforts have been a success. The only problem is that containing a virus isn’t like negotiating a trade deal. While a certain amount of bluster is acceptable, at a certain point, you actually need to fix the problem.

And just yesterday, we reported, Dr. Fauci appeared on cable news and warned that the outbreak has likely reached “pandemic proportions” regardless of the WHO’s reluctance to label it accordingly.

So, how long will it take the administration to boost testing to ‘full capacity’? Well, it’s unclear. But right now, it’s not looking good.

The Association of Public Health Laboratories, which represents state and local government laboratories around the country, has said that its labs would be able to conduct about 10,000 tests a day when all of its 100 members that can perform testing are running. Scott Becker, the executive director of the lab association, said Monday that labs can run about 100 tests per day. As of Monday, he said fewer than half of those labs were able to do so.

Seemingly overnight, the CDC has confirmed more than 100 cases from around the US that have nothing to do with the evacuees from Wuhan and the ‘Diamond Princess’.

If cases continue to grow at this pace, the US only has a few days to get the outbreak under control or risk facing a Wuhan-style outbreak.

Authored by Michael Snyder via TheMostImportantNews.com,

This is already the most frightening virus outbreak that we have seen in the past several decades, and it appears that it is just getting started. 

A week ago, there were about 3,000 confirmed cases outside of China and now there are more than 10,000.  4,812 cases have been confirmed in South Korea, 2,036 cases have been confirmed in Italy, and 1,501 cases have been confirmed in Iran at this point.  Of course by the time you actually read this article those numbers are likely to be significantly higher.  It is like we are watching a really bad Hollywood disaster movie play out right in front of our eyes, and so far every effort to contain this virus has failed.  On Monday, Dr. Anthony Fauci stunned many people when he told NBC News that COVID-19 has likely reached “pandemic proportions”…

News of the additional deaths came after Dr Anthony Fauci, the head of the National Institute of Allergy and Infectious Diseases, told NBC News on Monday that the disease had likely reached ‘pandemic proportions’ as 100 cases were confirmed across the U.S.

‘We’re dealing with an evolving situation. We’re dealing with clearly an emerging infectious disease that has now reached outbreak proportions and likely pandemic proportions,’ Dr Fauci said. ‘If you look at multiple definitions of what a pandemic is… multiple sustained transmissions of of a highly infectious agent in multiple regions of the globe.’

Dr. Fauci is definitely not an alarmist, and for him to use the word “pandemic” is a major red flag.

Last week a lot of people were pointing out that not a single American had died from this virus yet, but now six victims have died in the state of Washington alone…

Four more people have died of the coronavirus in Washington state, raising the death toll in the state and the nation to six, health officials said Monday.

Jeffrey Duchin, a health officer in King County and Seattle, said at a news conference Monday that five of the deaths were people from King County and one was from Snohomish County, north of Seattle.

If you live in the Seattle area, you need to understand that you are in the middle of a crisis zone.  As I discussed yesterday, it is likely that the virus has been circulating in that region for weeks, and each day the number of potential carriers will only get higher.

At this point, local officials are specifically warning everyone to “avoid crowded settings if possible”…

“To increase your chances of staying healthy, avoid crowded settings if possible,” King County Public Health said on Twitter. “Especially if you are over 60, or have other chronic health conditions such as diabetes, heart disease, lung disease, or a weakened immune system.”

There’s particular concern about the spread of the virus in nursing homes. One such  facility, Life Care Center in Kirkland, Washington, said in a statement that one of its residents and one of its associates have been diagnosed with COVID-19. The center is banning visitors for now.

And this doesn’t mean that you will need to change your behavior for a few days or even a few weeks.

At a minimum, if you live in the Seattle area you are going to want to avoid crowded settings for the next several months.

Of course it is just a matter of time before other major cities are facing similar outbreaks.  In recent days the number of states with confirmed cases has grown quite a bit larger…

• Arizona – 1

• California – 20

• Florida – 2

• Illinois – 4

• Massachusetts – 1

• New York – 2

• Oregon – 3

• Rhode Island – 2

• Washington state – 18 (includes 6 fatalities)

• Wisconsin – 1

Unfortunately, this list probably only represents the very small tip of a very large iceberg.  Up until just recently, the CDC was mandating that the only people that should be tested are those that have traveled to China or those that have had close contact with a known victim.  By using such restrictive criteria, the number of Americans being tested was kept extremely low, and a lot of infected people slipped through the cracks.

Now this virus has escaped containment, and authorities are telling us that “community spread” is inevitable all over the United States.

Meanwhile, COVID-19 continues to sweep across much of the rest of the planet like wildfire.

In Iran, the fact that a top adviser to Ayatollah Ali Khamenei just died from the virus made headlines all over the globe…

AN adviser to Iran’s supreme leader Ayatollah Ali Khamenei has died of coronavirus, state media reported today.

Mohammad Mirmohammadi, 71, died in hospital in Tehran as the pariah nation reels from a worsening outbreak that has left several senior officials in hospital.

But despite the fact that the number of confirmed cases in Iran is escalating at an exponential rate, and despite the fact that dozens of Iranians have already died, many Iranians continue to engage in the practice of “kissing and licking Shi’ite shrines throughout the country”…

Videos spreading on social media are showing Iranians kissing and licking Shi’ite shrines throughout the country as many call to close the shrines amid a severe coronavirus outbreak in the Islamic Republic.

The epicenter of the outbreak in Iran, Qom, is a religious city home to several shrines. The shrines remain open as some reports place the death toll in Iran in the hundreds.

Can you believe that?

We live at a time when it seems like much of the world has gone nuts.  Most people believe whatever they feel like believing, and most people do whatever they feel like doing.  But there are always consequences for our actions, and I have a feeling that this virus is going to spread particularly rapidly in the Middle East.

Here in the United States, it appears that this outbreak is far more extensive than we are being told.  As the U.S. starts to finally ramp up testing, it is inevitable that a lot more existing cases will be found.  In fact, in just a little while I will be posting an article on End Of The American Dream about an ER doctor in New York that is claiming that there is “going to be thousands” of confirmed cases inside this country by next week.

I don’t think that it is going to happen quite that rapidly, but it appears to be inevitable that the number of cases is going to be steadily rising.

This is not a drill.  This is an exceedingly dangerous virus that is killing people all over the planet, and we need to prepare for a scenario in which this crisis could extend for many months or even for several years.

More shocking leaked footage published by the BBC shows bodies piling up at a local morgue in Qom, said to be victims of the country’s spiraling coronavirus outbreak.

Mideast-based correspondent Joyce Karam comments of the newly published video: “If these are confirmed to be from Corona as videos claim, death toll is higher than the government claims (officially at 77).”

Horrific thread of BBC obtained Videos from #Iran shows bagged bodies in Qom from moment of death till burial.

If these are confirmed to be from Corona as videos claim, death toll is higher than Gov. claims (77): pic.twitter.com/vxmTren3Lt

— Joyce Karam (@Joyce_Karam) March 3, 2020

As of Tuesday Iranian health officials announced 2,336 coronavirus cases and 77 dead, including 23 parliament members confirmed for the virus, which is roughly 10% of Iran’s legislature.

All of this strongly suggest much bigger numbers of infected nationwide, after multiple reports alleged the Islamic Republic is hiding its true numbers, or at least refusing to test.

The country is bracing itself for the possibility of “tens of thousands” getting tested and possibly being confirmed for the virus after the latest spike in cases, an official said previously.

قبرستان سرخ‌حصار، شهر قدس، استان تهران؛ تدفین با تمهیدات بهداشتی ویژه ناظران، مقامات ایران را به پنهانکاری در مورد ابعاد شیوع ویروس کرونا متهم می‌کنند اما آیت‌الله خامنه‌ای، رهبر ایران امروز گفت که اطلاع‌رسانی درباره ویروس کرونا در ایران شفاف و صادقانه است. pic.twitter.com/YzcGEBMo8u

— BBC NEWS فارسی (@bbcpersian) March 3, 2020

Further video published Tuesday by BBC Persian shows health workers in full Hazmat gear burying victims believed infected by Covid-19.

Among the new series of leaked videos includes footage that appears to show preparations for mass graves as the crisis rapidly worsens in the Islamic Republic.

قبرستان بهشت معصومه قم؛ ردیفی از قبرهای جدید دیده می‌شود که ادعا شده مربوط به جان‌باختگان کرونا در قم است.
آمار رسمی شیوع کرونا در ایران در تاریخ ۱۳ اسفند، ۷۷ مرگ و ۲ هزار و ۳۳۶ مورد ابتلا اعلام شده است اما برخی منابع بیمارستانی به بی‌بی‌سی تعدادی بسیار بالاتر را اعلام ‌کرده‌اند pic.twitter.com/cxu397q4Uk

— BBC NEWS فارسی (@bbcpersian) March 3, 2020

Ayatollah Khamenei and others among Tehran’s top leadership have claimed Iran’s handling of the epidemic has been timely and transparent.

But on Tuesday the supreme leader ordered the armed forces to assist Health Ministry in combating the spread.

It’s as yet unclear what role national troops could play, but hundreds of thousands could be mobilized: “After downplaying the coronavirus as recently as last week, Iranian authorities now say they have plans to potentially mobilize 300,000 soldiers and volunteers to confront the virus,” Fox News reported citing state sources.

The series of clips published by BBC Persian Tuesday is not the first such to come out of Iran, but underscores the widespread allegation that authorities are greatly downplaying the true death toll and infected count.

Authored by former Alliance Bernstein Chief Economist Joseph Carson,

Uncertainty surrounding the global economic and financial implications of the fast spreading coronavirus was the catalyst for last week’s sharp drop in the US equity market. Yet, the speed and the scale of the decline were also influenced by how far finance had separated from the economy.

Stock Market’s Sharp Drop

Last weeks’ sharp decline in the equity market was both historic and unusual. In a span of 5 trading days, the S&P 500 index dropped 11.5%, one of the largest single week declines on record. And what is also unusual about last week’s decline was that there was no “hard” evidence of any disruption or decline in the domestic economy.

Yet, to be fair equity investors were reacting to a growing number of companies that have indicated Q1 earnings will fall below their initial guidance due to weakness in overseas economies (especially China) as well as the disruption to global travel and supply chains.

To illustrate how substantial last week’s plunge in the equity market was it nearly matched the 11.6% decline in the S&P 500 index for the first week of trading that followed the horrific events of 9/11. Now that comparison by no means is trying to compare the financial fears of last week with the horrific tragedy of 9/11. 9/11 stands alone in American history as one of the most tragic events ever, as it changed a city and a nation far beyond what any of the numbers say.

Yet, the comparison was offered only to suggest that given the speed and scale of the decline other factors beyond the coronavirus could have played a large role as well.

One possible explanations could be how far finance (equity markets) had separated from the real economy, as well as how monetary policy in recent years has made investors rely on cheap money and forget about the risks of equity investing.

Here are a few examples.

Finance vs. Economy

First, operating profits for US companies have not increased for 5 consecutive years, and yet the S&P 500 had climbed over 60% during that period.

Also, the market value of domestic companies to nominal GDP – a ratio that is often used to determine if the equity market is undervalued or overvalued relative to a historic average – stood at an estimated 1.85x at the end of 2019, matching the record high of 2000.

The run-up in equity prices and valuations over the past several years was fueled by easy money, along with the promise of low rates for the foreseeable future. As such, investors viewed stocks as low risks, with many professional investment advisors going as far as arguing that they “didn’t see any alternatives to stocks”.

Second, coronavirus puts “risk” back into investing, something that has been absent in recent years as policymakers have responded to every “illness” or setback in the markets with the promise of support. Also, the new “risk” factor (coronavirus) has an uncertain life and unquantifiable consequences, and cannot be “cured” by more easy money.

Third, the fast run-up in equity prices for so many companies, even for those continuing to report operating losses, forced equity analysts to keep raising their price target to stay relevant, or come up with new ideas or ways to justify higher valuations.

One analyst came up with a new idea on how to value Tesla, a manufacturer of electric cars. The analyst offered various scenarios. The base case price target called for nearly a 40% price drop from the stock’s current price (“reflecting an unfavorable risk-reward skew”), whereas the bull case price target was 50% higher, based on 2030volume and operating margin.

Tesla went public in 2010 and has yet to have one profitable year. Nonetheless, in early February Tesla stock price hit a record $969, a fourfold increase since October – just one example of how finance became separated from current economic conditions. At the end of February Tesla’s share price stood at $668.

Where Do We Go From Here?

Missteps in policy decisions created a large gap between finance and the economy. Fed’s policies of low rates ended up inflating finance over economy much more so that it had in success of hitting its price stability target. The fact that a market correction occurred was not a surprise, but the catalyst was.

It would be wise for policymakers to let the re-balancing between finance and the economy run its course, and also let the financial system re-price risk in a natural way. Yet, “politics” may force the Fed to play a role not well suited for traditional monetary policy.

Investors must stay focused on the behavior response of consumers and business to the plunge in equity prices and coronavirus. Each of the past two recessions were caused by a sharp plunge in asset prices, so the loss of household wealth and liquidity does raise the odds of a bad outcome. Consumer confidence for now may be shaken more by the speed of the decline than the scale.

Coronavirus has the potential to be even more disruptive. That’s because all of the unknowns about the new virus could compel people and business to become idle, and when the flow of business activity slows or stops so does profits (and soon jobs) in a number of industries.

Perhaps the biggest worry nowadays is that businesses are operating with a record debt load. Even though borrowing costs are exceptionally low, businesses still need to generate revenue to pay its debt obligations (as well as its’ workers). Small businesses might be the most vulnerable since they don’t have financial resources of large firms, and few, if any, could survive a few weeks of little or no sales. More than one-third of small firms are already burdened with high debt according to the Small Business Credit Survey conducted by the Federal Reserve Banks in 2019.

With the global coronavirus situation still fluid investors should be prepared for more disruption to business with the “big” risk that the disruptions spillover to the labor markets, if not lead to a number of corporate debt downgrades and a rise in business bankruptcies at some point.