August 18, 2020
With the S&P closing at a new record high today, I want to revisit my note from March 24th, the day after the stock market bottomed.
Here's an excerpt from that note (link here):
"Make no mistake, with global governments and central banks following the 'print and backstop everything/everyone policies' we have explicit devaluations of currencies. That makes it a 'buy everything' market.
This is the global "debt monetization" event people thought we were witnessing during the Global Financial Crisis (GFC). The difference? In the GFC, people thought the result of the Fed's actions would be hyperinflationary, and therefore a defacto debt and currency devauation. It didn't happen. When you give people money in a debt crisis, they hoard it. With that, we didn't get hyperinflation, instead we got a deflationary bust.
The Virus War is the opposite. Never has there been a more applicable environment to inflate away the value of everything (in the medium term) to keep the economy (the world) intact (in the near term). It's the only option.
Again, as we discussed yesterday, this is a brew for massive inflation when we come out on the other side of the virus. That means, just as people are wanting to hold cash, it's the worst place to be. The early evidence: Almost everything (all global assets) was up today.
With this backdrop, the first place you look, as a preservation of buying power: gold.
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As we discussed back in this March note, the policy response made it (and continues to make it) a "buy everything market." Let's take a glimpse of what that has looked like since that March 23rd low in stocks (a little less than five months ago).
The S&P 500 is up 56%. Oil is up 91%. Gold is up 33%. Copper is up 41%.
Now, as we also discussed in my notes surrounding that stock market low, "in historical crises Wall Street panics well before Main Street panics." That was the case once again. By the time the economic shut down hit, and Main Street started panicking, the bottom for Wall Street was near.
So, now Wall Street has recovered. And not surprisingly, well before Main Street has recovered. And Wall Street is now pricing in a wave of inflation. That's whats next for Main Street.
August 17, 2020
We’ve had a crazy seven months. The next two-and-a-half months may be even crazier, heading an election that has big global ramifications.
The stakes are extremely high.
Let’s step back and gain some perspective on just how high the stakes are/must be…
It’s now seven months since the first virus case was diagnosed in the U.S. And in the days and weeks that followed, through social media, we saw imagery from China, of hazmat officials disinfecting streets. We saw videos of Chinese officials welding Wuhan residents into their homes. We saw videos of residents dropping dead in the middle of the street.
I think it’s clear now that there has been plenty of propaganda coming out of China, infiltrating our media.
Now that we have data, and seven months of history with the virus on the ground in the U.S., the world looks far less scary.
As we discussed last week, the virus isn’t nearly as deadly as it was initially said to be. If we assume, as the CDC does, that we are only diagnosing at best 1 out of every 10 infected, then the death rate is quickly converging toward the annual flu rate.
Remember, all along, we’ve discussed what China has to lose, if they are faced with another four years of Trump. It reveals their desperation.
Let’s revisit …
China has spent the past 40 years executing on a plan to rise to a global power.
The Chinese currency was its primary tool. By massively devaluing the yuan in the 1980s through the early 1990s, and then keeping it artificially cheap through a variety of managed peg strategies for the past 25+ years, China became the exporter to the world. The Chinese economy exploded in size, growing 37-fold since the early 80s, while the U.S. economy has grown just 3-fold. This has put China on the footsteps of its goal of global leadership.
And Trump’s economic plan (demanding that China play by the same rules as its trading partners) has derailed it all. If Trump wins, and they abide by a trade deal, the Chinese economy falls out of the race for global power. If Trump wins, and they don’t play ball, but get put into the penalty box by global trading partners (allies Pompeo is building as I write), they also fall out of the race for global power. The stakes are extremely, extremely high for China (and the world).
August 14, 2020
We are now halfway through the third quarter. And this is the quarter where we will begin to see very clearly that the response is MUCH greater than the damage.
Remember, the economy is down $2.3 trillion from the Q4 peak.
And yet we have more than $6.6 trillion worth of fiscal and monetary stimulus still working through the system.
So what does Q3 look like?
The Atlanta Fed model is currently projecting 26% annualized economic growth for the third quarter.
The easy math on this says that the economic loss is, and will be, aggressively replenished – maybe even by the year end.
And that will leave us with trillions and trillions of dollars worth of new money floating around the economy.
Make no mistake, this is by design. Back in March, when Mnuchin and Powell were confronted with an apocalyptic scenario, they had one option, flood the world with money, reflate GDP and devalue debt.
Things are going according to plan. The downside? Inflation is coming.
With that, we looked at this chart of gold a couple of weeks ago, which projects a move to $2,700. It has since traded as high as $2,072.
And here’s a look at Bitcoin. This big downtrend broke in late July.
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August 13, 2020
About a month ago, as all of the "spiking cases" hysteria was being peddled by the media, we took a sober look at the raw data (from Harvard, here), and concluded that the rise in cases, was simply representing the slow closing of the gap between the reported infection rate and what the CDC believes to be the real infection rate (at least 10 times as many), while revealing a death rate that is converging toward the annual flu death rate.
That has indeed been the case.
As we discussed, the rate of change in cases has only led to the rate-of-change in deaths-to-cases declining, and declining rapidly.
Let's take a look at some updated charts …
First, here's another look at the path of the "case fatality rate" (my charts).
Again, as we discussed last month, despite the fears that the higher case numbers were going to result in more New York-like crises around the country, it hasn't happened.
The death rate has gone down since mid-May, and it has done so for a couple of reasons: 1) treatment options are working, and 2) the large majority of people are simply defeating the disease on their own, and more of those types are being revealed with more testing — and those people are testing because they are being forced to test to return to work OR because they simply can, now that testing is, largely, open and free for asymptomatics.
Next, remember, the CDC chief told us that we've likely only diagnosed about 10% of those that have, or have had, the disease in this country. That's based on surveys of blood samples taken around the country. So the CDC thinks the infection rate (i.e. cases) should be multiplied by a factor of 10.
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That CDC projection now brings the number down within the range of annual flu deaths (0.33% in the above chart).
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If we assume that were only diagnosing 1 out of 20, the COVID death rate goes to 0.17%. The 10-year average U.S. flu death rate is 0.13%.
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