We are living through a mania. It is worse than the bitcoin mania. People that I follow and respect have succumbed to the Covid-19 madness.
Any data from China should be looked at with suspicion. South Korea is much more reliable source of nation-level data than China or Italy. We see that cases in South Korea have leveled off, which 99% are designated as “mild”.
The New England Journal of Medicine on February 28th had the most sober comment:
If one assumes that the number of asymptomatic or minimally symptomatic cases is several times as high as the number of reported cases, the case fatality rate may be considerably less than 1%. This suggest that the overall clinical consequences of Covid-19 may ultimately be more akin to those of a severe seasonal influenza (which has a case fatality rate of approximately 0.1%) or a pandemic influenza (similar to those in 1957 and 1968)…”
The fools in the media which extrapolate outlandish total mortalities will prove to be inaccurate. When the source of some of these outlandish claims made by media talking heads is traced back to the origin, what you find is a complete misrepresentation of the data.
Supply chain disruptions is already on the road to recover as China and other Asian manufacturing exporters go back to work.
Demand disruptions are just getting started. Corporate lawyers and insurers know the wrong move could lead to a lawsuit and cost the company millions. So to play it safe and cancel all events.
And Now Oil
Last Friday a split emerged between Saudi and Russia. Saudi slashed oil prices and demanded an increase in production. This lead to a 25% drop Sunday night in the price of oil. This was painful to watch since I am long oil. There are a few things to note about this.
First, both Russia and Saudi want higher oil prices. They just disagree on the best path forward. Second, if this truly is a feud between the two, Saudi will win. It cost them $15 a barrel to extract oil from the ground. Russia will wind up folding at some point. Saudi wants to negotiate. They need higher oil prices for the welfare state.
Central Bankers
After offering an expanded $1.5 trillion in repos, the New York Fed desk has announced Friday it is accelerating a planned $33 billion in treasury bond purchases. Since January, 15 central banks have cut rates. Monetary stimulus is coming from all directions. Boston Fed president Eric Rosengren is generally known as a hawk. He commented recently that in a crisis the Fed should be permitted to buy stocks. If you have not figured it out yet, let me be the first to tell you. Central bankers are going to print money. That is their answer to everything. Pandemic? Print. Earthquake? Print. Racism? Print. Global warming? Print. They will print until the bond market disciplines them.
What Should Be Done
I am long natural gas and oil still. Both are down big. The correction I “felt” coming has arrived. Covid-19 was the market looking for a reason to correct. But there was a lot of euphoria in stocks going into the new year. Far to many people became confident stocks could not go down. Far to many people were calling me asking me about stocks and what to buy. This is about the time a correction comes. This is why I stress the importance of taking profits. If you do not sell at a profit, you sell at a lose.
A lot of psychological and technical damage has been done. I have not deployed any cash reserves just yet. You need to see the market stabilize for a few days. The crucial point is this: There is nothing to indicate that an 08′ type financial crises is coming. Yes the airlines, cruise liners, restaurant industries will suffer. They will experience layoff’s. Unemployment will rise for these industries. But money supply growth and credit conditions remain intact. 30% corrections are hard. Especially when they occur in a few trading days. This is why you must always have cash reserves. Whether this turns into a deceleration or just another economic scare remains to be seen. I believe it is the latter.