WILL BLACK SWAN EVENTS CONTINUE TO OCCUR?

Several months ago, I opined the corona virus will morph into a political issue, stating it would be a huge abnormality if it does not given the massive impact the virus will have upon the economy and society.

As previously written some skeptically supported government initial action given the lack of data and knowledge about Covid-19, trusting “the experts” that a crush of patients could potentially overwhelm and devastate the health care system and threaten overall economic viability. The price of inaction was perhaps too great.

Bloomberg today however writes “epidemiologists tend to focus on what will save the most lives from a given disease at any cost…the experts operate in a political vacuum immune to societal and economic pressures and realities.”

As data was collected many original assumptions and conclusions were nullified changing the views of some to pragmatism. Placing all information into perspective, something that is vastly nonexistent in the media whether watching Fox or MSNBC.

Simplistically speaking, the total number of cases are about 0.50% of those initially forecasted. forecasted. Deaths are about 98% lower than projected.

I do believe the number of cases is considerably higher than reported (i.e. over 27% of NYC posted positive for Covid-19 antibodies) but such will dramatically lower the over death rate.

We now know who is most at risk for the virus and would argue the high-risk groups are the one’s that must be protected versus the largely continued nuclear carpet bombing of society and the economy.

The vitriol is rising between those who want to open the economy and those who do not. The media is attempting to portray the reopening into a political battle. In some regards there is some merit as some are calling for a reopening for constitutional reasons.

A major question at hand is will workers/shoppers return, fearing infection? Will companies rehire workers/reopen, fearing liability?

I will argue the speed of the reopening—and political future of many—will depend whether the health care system becomes overwhelmed and the number of deaths.

The markets, the economy, society is in uncharted territory. I lost count as to how many “Black Swans” have occurred during the last eight weeks. If the “trend is your friend,” the unexpected will continue.

Will the next “Black Swan” event be widespread belief government’s Covid-19 warnings became to effective. That these warnings invoked needless panic, fear and pandemonium into society.

Wow! That is radical, about as radical as negative $38 oil.

Just as aside, the NYT penned an article yesterday suggesting that some parts of society are at a breaking point. Enough is enough with many demanding a return of normalcy, accepting the disease as it is. In other words, learning how to live with it and accepting the probability of getting sick.

Radically changing topics, markets were bifurcated as the NASDAQ rose about 0.75% and the Dow fell 0.45%.

What will happen today?

Last night the foreign markets were mixed. London was up 0.93%, Paris down 0.17% and Frankfurt up 0.44%. China was down 0.11%, Japan down 01.2% and Hang Sang down 1.45%.

The Dow should open nominally higher even as the Administration moved to block investments in Chinese equities by a government retirement fund and an uptick in virus cases. Oil is up about 6% because of an expected increase in demand and deeper Saudi Arabian output cuts.

The 10-year is unchanged at 0.72%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. 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. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.