Sick virus or just sick markets?
Equity and other risk markets saw sharp declines on Friday and into this week, which the headlines are universally attributing to the Coronavirus.
But the headlines are missing the bigger picture—for the global markets have been sick markets long before the virus went viral. Below, we make these sick markets data-driven-clear.
Perception vs Reality
Emotions and headline sentiment are powerful market forces and should never be underestimated.
There is no argument from us that the Coronavirus is having an impact on market sentiment and thus market pricing, and we’ve been tracking the virus’ gradual evolution from a slight concern to a genuine and pandemic market force in prior reports here, here and here.
That said, it is important to step back and look at the data, rather than the mainstream financial media, as the media is not something we have a great deal of faith in when it comes to diagnosing already very sick markets, as our recent report here details with math rather than bravado.
Remember: Sick markets can still be sick when markets are at near highs. In fact, when those highs are primarily supported by 11 years of central bank support, this just proves they are sick markets, for why else would they need the Fed to keep them breathing?
Below, we thus look at the math and data both pre and post Coronavirus. What do we see? It’s fairly obvious: Things were falling apart in these sick markets long before the virus made the headlines…
The Current Virus Numbers
But first, let’s step back and consider the virus itself in terms of the data we now have, which admittedly, can change on a dime and be different by the time this report gets released.
Additionally, and needless to say, we are not virologists and offer no opinion here as to the potential evolution of this virus’ spread or mortality rates. Indeed, as we reported on Monday, the experts are concerned this virus could become a pandemic “Disease X.”
We’re not gonna second-guess the experts.
Nor do we wish to smugly gloss over the human cost and concerns surrounding this virus. That which cannot be seen or touched, yet which can lead to severe illness or death is nothing to be smug about.
In short, there are reasons to be nervous.
Nevertheless, and based upon what we know as of today, one also has to consult common sense and look at the facts.
The media, for example, is polarizing the viral threat and impact on the markets by calling its spread a “swell” and “wave of destruction” now going global. OK, so let’s look at the current “swell.”
China, with a population of 1.4 billion, is the epicenter of this viral outbreak and it currently reports 70,000 cases with 2000 fatalities.
The U.S., with a population of 327 million, has 15 cases of infection with zero fatalities. And here’s a quick breakdown of the data regarding the “swell” elsewhere.
Japan: 204 cases, 3 fatalities.
- Korea: 86 cases, 2 fatalities.
Singapore: 86 cases, zero fatalities.
Thailand: 35 cases, zero fatalities.
Taiwan: 26 cases, 1 fatality.
Malaysia: 22 cases, zero fatalities.
Iran: 18 cases, 4 fatalities.
Italy: 17 cases, zero fatalities.
Vietnam: 16 cases, zero fatalities.
Germany: 16 cases, zero fatalities.
France: 12 cases, 1 fatality.
In short, the virus is indeed contagious, and could indeed spread much, much wider, but its fatality rate appears low, assuming of course, we are getting all the facts, and recognizing, again, that we are not medical experts by any stretch.
What we do know from World Health Org data is that the fatality rate of the flu in China boils down to a death rate of 0.1%, which is lower than the 2.3% death rate of the Coronavirus there, a rate which soars to near 15% for those over the age of 80.
Sadly, however, the death rate for nearly all pulmonary diseases is much higher for those over 80, both in China and around the world.
Again, we are not trying to downplay the seriousness of the virus, merely to place it within a current perspective. And based upon such data, one can at least ask themselves why the Coronavirus is creating so much panic for the markets?
One answer is that its strand is so unique and new, and the other is that many are silently wondering if the data out of China, in particular, is accurate, as China is not reputed as being all that “transparent” …
But speaking of transparency… As the global financial media collectively (and conveniently) attributes every current economic problem to the Coronavirus, it’s equally worth noting that the vast majority of those problems were already in place in these sick markets before the outbreak.
Let’s take a look at the data.
Oil Stocks—Sick Before the Virus
Oil stocks continued to fall on Friday and Monday at daily rates of 1% or greater, with more headlines pointing to tanking Chinese demand due to the virus as a key factor in the fall.
But folks, oil was already tanking, as rig count data, increased Shale production in the US, and further production from Russia was adding to a supply glut that kills oil prices, a fact which pre-dates the virus.
Additionally, the $86 billion wave of near-defaulting debt levels among over-indebted U.S. energy companies, who were barely squeaking by at $100/barrel oil, are thus heading faster toward the bankruptcy courts at $50/barrel oil.
And this, folks, was in play well before the virus broke out. Tanking oil prices are a classic symptom of sick markets.
One foreseeable tailwind for oil today would be a war in the middle east; and as we’ve discussed at length: War is sadly good for the markets.
Walmart America—Sick Before the Virus
The Wall Street Journal recently reported on sluggish holiday sales data from Walmart, which is a key bell-weather for the strength of the U.S. middle class.
We’ve already unpacked the harsh realities (and math) behind the dying US middle class, and these facts, along with the recent holiday shopping data, were egregious well before the Coronavirus broke out or 15 Americans out of 327 million became infected.
Tanking retail sales are yet another symptom of sick markets.
China—Sick Before the Virus
Needless to say, nearly every headline is now focused on the tanking Chinese economy and the supply-chain implosion following in the wake of the viral outbreak.
There’s no denying that the Coronavirus has made things worse for China in particular, or global trade in general.
Car sales in China, for example, saw a 92% decline in the first two weeks of February, which likely has Elon Musk a bit worried.
But folks, China was tanking in grand fashion well before the virus emerged.
In addition to the trade war, which no one wins, China was already staring down the barrel of a $40 trillion debt shotgun and a currency getting weaker by the day.
Tanking currencies in the backdrop of record-high debt levels are just further symptoms of sick markets.
Given that China is the world’s largest importer and that 70% of its GDP is derived from consumer demand, a weakening currency there makes everything the Chinese buy more expensive, which means Chinese consumption was tanking long before the first virus headline.
But speaking of dying currencies and lunatic monetary policies…
Central Banks—Stupid Before the Virus
It should come as no surprise that the central banks are and were losing their minds in epic fashion both pre and post Coronavirus.
Recently, the president of the Swedish Central Bank confessed that negative interest rate policies (like those seen throughout Europe and Asia) just don’t work, even for sick markets, and thus they’ve decided to halt that brilliant idea…
Christine Lagarde, the new head of the ECB, has also been making headlines declaring that more is needed to save the EU than just monetary stimulus.
Now there’s a novel idea…
Meanwhile the Head of the St. Louis Fed is running around telling investors that the Fed is “not worried about stock market pricing, only the economy,” which is doing “fine” and “stable.”
The ironies (and lies) just abound…
Only sick markets require 11 years of artificial rate suppression and ongoing money printing to carry an otherwise deathly-ill bond market.
Currencies Were Tanking and Gold Was Surging Before the Virus
Needless to say, gold has been ripping in the backdrop of the Coronavirus headlines. But folks, gold was already ripping, for reasons outlined in detail here.
What’s even more compelling is that gold has been ripping despite a strengthening dollar, whose inevitable rise relative to other tanking currencies we not only (and easily) foresaw, but explained in greater detail here and here.
As the euro, yen, yuan and other currencies tank in epic fashion in the backdrop of outrageous money printing and rate suppression, the headlines are attributing this to the viral outbreak, but that’s just not accurate.
Take the absolute zombie Japan example, its yen has been seeing massive sell offs and a decline of 1.4% (a new 9-month low) against the dollar, thus threatening its un-deserved reputation as a “safe haven currency.”
The media bobbleheads have naturally and immediately attributed this to a weakened economy and, of course the virus…But what the media isn’t addressing in that Japan’s GDP had already fallen by 6% long before the virus broke out… That’s a classic sign of sick markets.
As for the Euro, it too is tanking (its lowest level in 3 years) relative to the U.S. Dollar, and once again, the headlines are citing “virus fears,” which is, well nonsense.
Germany, which has been on the edge of recession for months, had reported major declines in profits and earnings among its top-tier companies long before the Coronavirus showed up.
Furthermore, its 10-year bond was and is in deliberate negative territory (and hence its currency tanking) both before and after the viral outbreak. Again, negative yielding bonds are screaming symptoms of sick markets.
In short, and despite scary virus headlines and central bank double-speak, the low to zero interest rate magic and money printing cocaine of the central banks, as well as the currencies they’ve destroyed, is slowly running out of “punch,” a fact well in place before the Coronavirus.
Thus, if you want to know why gold is ripping to its highest levels in 7 years, it’s not because of the virus, it’s because the central banks have been diluting the purchasing power of their respective fiat currencies in the backdrop of over $15 trillion worth of money printing since “resolving” the 2008 Financial Crisis.
Again, the Fed is in overdrive because these are sick markets, not healthy markets. Market highs do not mean healthy highs.
Summing it Up
We are not trying to minimize or discount the human and market toll of the Coronavirus.
The virus is simply making a bad global economy and sick markets worse, because things were already bad.
In short, the virus is not the cause of the problems currently making headlines above (i.e. in oil, trade, the US middle class, central bank lunacy, tanking currencies or surging gold).
Instead, the virus, and viral headlines, are simply one more symptom of an already diseased and rigged-to-fail global economy, as well as openly sick markets in need of a central bank respirator.
Indeed, and despite absurd market highs against taking GDP and flights to bonds, our sick markets are inching toward a recession by 2021, failing any other black swans before then.
Grab it now—for gosh sakes, it’s free!
Enjoy the read.