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February
28
2020

Potential Coronavirus Pandemic Sends Fed Into Crisis Mode
Bill Bonner

The Coronavirus is very much under control in the USA.- Donald J. Trump, Feb. 2020

The subprime problem is contained. - Ben Bernanke, former Federal Reserve chairman, March 2007

RANCHO SANTANA, NICARAGUA – We watched the tape again yesterday, while Tom Dyson was surfing in front of the house.

In the morning, the stock market was “stabilizing,” said The Wall Street Journal. It was “recovering,” said Barron’s.

But then, by the afternoon, some stocks were already in the red – Berkshire Hathaway, Starbucks, Disney, and General Electric. By 1:30 p.m., the whole tape had gone red.

And by 9:30 this morning, the Dow was already down 500 points.

“Not good action,” say the old timers.

So today, we turn to a word that can help us understand it better: more.

More = Better?

Economists can’t tell “better” from a hole in the ground, so their professional guidance is directed only at quantity. More is the preferred adjective. More jobs. More GDP. More sales. More profits. More spending. More income. More output.

Then, they pretend that “more” is the same as “better.”

But “more” is not compatible with a stock market selloff. Or a recession. Or the C virus. The bug, especially, is a “less” kind of thing. Fewer trips to the mall. Fewer sales. Fewer profits.

Imagine that your friends – fresh back from Venice – invite you to a party. Would you go? And if not… think of all the “less” that would happen. Less gas to get there. Less alcohol consumed. Fewer canapes eaten.

And since you don’t get an update on their latest trip… and how great it would be to take a vacation to Italy this summer… no vacation is planned. Or taken. Less again.

For better or for worse, we don’t know. But definitely less.

State of Emergency

Already San Francisco is planning for less. In a report out on CNN yesterday: “San Francisco declares state of emergency.”

Here in Nicaragua, too, our resort is stocking up on essential supplies… and making plans to close its doors.

It is unlikely that it will be necessary. These types of viruses don’t do well at the beach. Not a lot of people coughing and sneezing in confined spaces. But you never know.

There’s already a state of emergency on the other side of the Pacific. Schools are closed. Offices are shut. Airports are empty. In Hong Kong, for example, families are practically confined to their apartments.

But wait… Where there is a crisis, there is also an opportunity for the feds to make it worse. And the Hong Kong feds are already going “Full Retard.” Here’s the latest from the South China Morning Post:

Hong Kong permanent residents aged 18 and above will each receive a cash handout of HK$10,000 (US$1,200) in a HK$120 billion (US$15 billion) relief deal rolled out by the government to ease the burden on individuals and companies, while saving jobs.

Financial Secretary Paul Chan Mo-po confirmed an earlier Post report when he unveiled the payment during his budget speech on Wednesday morning, along with a full guarantee on loans taken out by companies to pay wages and taxes.

And here is an opportunity for us…

Our Opportunity

It is rare that we get a chance to read tomorrow’s newspapers today… and watch the evening news in the morning of the same day.

And normally, investors never know what is coming. If they knew, they’d race ahead of the news and make it happen ahead of time.

If you knew, for example, that the Federal Reserve was going to cut rates, you’d buy bonds… driving down yields… before the Fed made its move. In effect, you’d be front-running the Fed.

At hand is our opportunity to front-run the Fed.

According to the news reports, Donald Trump is “furious” with the stock market. He, too, very much wants more… not less. Surely, the call is going out from the White House already: Do something!

But what can they do? They can impose travel bans; they can set up makeshift hospitals and lock down the economy.

But all of those things – along with the selfish desire of citizens not to die – lead to less.

Good for One Thing

Less is not necessarily worse. It is better than dying, for example.

And wouldn’t fewer cars on the road be a good thing? Wouldn’t it be easier to get a reservation at a good restaurant if people didn’t want to go out so much? And who really wants another app or cares if the GDP is lower?

We recall 1969. The economy was only one-twentieth of today’s GDP. But was the quality of life inferior? In any event, we don’t remember feeling less happy… even with the Hong Kong flu!

But the feds don’t care about happiness. Their economists have no way of measuring it; they wouldn’t recognize it if it bit them on the derriere.

All they know is that less is not acceptable. They want more.

Which is where our opportunity lies. The feds stand ready. If the stock market continues to fall today… if the economy weakens further… if the virus spreads in the U.S… even if aliens land from outer space…

…what will they do?

Inflate! Spend! Print!

Whether this will halt the stock market correction, we don’t know. But it’s a fair bet that something will go up – gold.

Back tomorrow…

Regards,

Bill

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Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter publishing companies, and the author of the free daily e-mail The Daily Reckoning. Bill's passion for international travel and big ideas are reflected in the company he's successfully built. In 1979, he began publishing International Living and Hulbert's Financial Digest. Since then, Agora has grown to include dozens of newsletters focusing on finance, health and travel. Since the early '90s Bill has vigorously expanded from Agora's home base in Baltimore, opening offices in London, Paris, Bonn, Waterford, Ireland and Johannesburg, South Africa.

 

 

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