IS THE CURE WORSE THAN THE DISEASE?

Rarely do I favor government intervention into our lives.  I believe government is the least efficient use of our resources.

Today there is a mass government imposed shut down of business activity and of society.  This shutdown if it lasts too long will erode future living standards and may end up killing more people than the Coronavirus itself via despair, suicide and civil unrest.

Roughly speaking the global shutdown has cost over $120 trillion dollars, a figure that takes in the gargantuan losses in the fixed income and equity markets and lost global economic production.  This does not include the anxiety and apprehension that most are feeling.

At this juncture I am asking is the cure worse than the disease?

With the above written and at the risk sounding extremely hypocritical the government must act immediately, providing a nonpolitical stimulus that addresses today’s dire need for liquidity and funds for the typical American.

Initial jobless claims are expected to survey by 1,500,000 for last week.  To put this in perspective, the peak for any week during the Great Recession of 2008-09 was 665,000.  The record high was 695,000 in October 1982.

If it does not, the odds rise of total self-induced implosion.

This stimulus is forthcoming but I believe the next crisis may be one of hyper inflationary growth, the result of too much money flooding into the system at the same time the economy is recovering with broken supply chains.

Together with Fed intervention the proposed legislation amounted to a total $6 trillion stimulus or about 30% of annual GDP according to White House economic advisor Larry Kudlow.

This is a nasty side effect but the patient today (i.e.  the economy) is dying because of the government-imposed shutdown and radical measure must be taken to prevent such a self-induced death.

Some might think this is a radical view of potentially hyper inflationary growth but both former FRB Chairs Greenspan and Bernanke suggested such could occur.

To write the incredibly obvious, the headlines are apocalyptic but I ask will the headlines begin changing in several days?   According to Fundstrat, both new cases and deaths have dropped 2 days in a row in the 43rd day after the first case was diagnosed in both South Koreas and Italy.  The US is about 2 weeks behind Italy.  Is this just a coincidence?

I don’t know.

But what I do know, any inference of peaking cases will cause a sustainable rally.

Last night the foreign markets were up.   London was up 0.99%, Paris up 0.72% and Frankfurt down 1.18%.  China was up 2.17%,  Japan up 8.04%  and Hang Sang up 3.81%.

The Dow should open “nominally lower”  (defined as a decline of less than 1.2%) on potential passage of a massive stimulus package.  The 10-year is off 2/32 to yield 0.76%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.