Pro Perspectives 7/17/20

July 17, 2020

Yesterday, we looked at the COVID story, through a simple and clear lens — the data.  

Contrary to the hysteria in the media, the raw data tells us that the death rate is moving lower, and has been moving in an orderly trend lower since mid-May. 

Add to that, we took two very important observations from two very important voices in this crisis (the CDC and former FDA head Scott Gottlieb — the same authority figures that the media relies on to validate their draconian stories and positions on the trajectory and threat of the virus) and we found that the death rate, if we include the undiagnosed (per their projections), is between 0.4% and 0.2% (near the ten year average flu death rate of 0.137%).

Now, with this backdrop in mind, let's revisit what we have on the liquidity front: 

We have we have $3.3 trillion in fiscal stimulus now working through the economy.  And the Fed has pumped $3 trillion into the system since March.  That’s a total of $6.6 trillion.  And it’s estimated that, with the Fed’s other facilities, the Fed could inject up to another $3 trillion+.

This doesn’t even include the massive amounts of money the banks are creating, with a zero reserve requirement. On that note, if we look back at the Global Financial Crisis response, where the Fed expanded the balance sheet from $870 billion to $4.5 trillion.  The money supply grew from $7.4 trillion to almost $14 trillion.  That’s a double in the money supply.  If the money supply doubled this time, we’d be looking at over $15 trillion of new money circulating in the economy.

Still, despite the better than expected trajectory on the health crisis, and despite the unimaginable amount of new money floating around, the expectations bar for the economic data has continued to be in the gutter.

But the data don't lie.  That's why we have this chart …

We looked at this Citi Economic Surprise Index a couple of weeks ago, which shows us how economic data is reporting relative to expectations.  As you can see, there has been and continues to be a dramatic disconnect in what the expert community thinks should be happening, and what is happening. The economy is bouncing back aggressively.

This view on the economy reminds me of the view on the NY health crisis.  Remember, we followed the chart on daily intubations in NY hospitals, very closely back in April. 

The daily narrative surrounding the crisis was doom and gloom everyday from the media and the NY Governor.  And neither the media nor the Governor would report on the effectiveness or progress of the experimental treatment options that were being utilized in the NY hospitals (maybe the most important information everyone needed to know). 

But the daily intubations told the story for them. When the data started turning south (i.e. showing less intubations), and then went negative, it was clear that something was working.  The data don't lie. That was the turning point in the health crisis, overall.