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August 28, 2020 | What 2020 Has Taught Us

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

SAN MARTIN, ARGENTINA – Unbelievably, August is almost over.

Summer has all but adjourned. The leaves are turning and the gavel is coming down.

And what have we learned? What is the verdict?

  1. It doesn’t matter whether you lock down or not.
  2. A face mask probably doesn’t help.
  3. Americans are easily panicked.
  4. They readily tyrannize each other.
  5. The Federal Reserve can inflate stock prices (at least some of them, sometimes).
  6. Nobody is worried about deficits, debts, or reckless money-printing.
  7. Neither political party can add or subtract.
  8. The economy is not going to bounce back.

Futile Lockdown

Thanks to the diligent, detailed, and deep analysis of David Stockman, we now see that COVID-19 acts just like the seasonal flu. It works its way through a population, infects many, and kills the weakest.

We know, too, that face masks provide little protection. They stop droplets – say, from a sneeze – from spreading. But the COVID-19 molecule is much too small to be snagged by woven cloth.

Another thing we know is that the lockdowns were a mistake. For three very good reasons:

First… They don’t make any difference.

Stockman highlights three approaches: No lockdown (Sweden); a light lockdown (Arizona); and a heavy lockdown (Illinois).

Guess which one has had the lowest death rate so far?

Right… Sweden.

But the numbers are so close; as we suspected, the virus doesn’t care whether you lock down or not. The results are about the same.

Needless Deaths

The second reason is that by shutting down the whole society, the people who actually needed protection didn’t get it.

The best policy solution is probably simply to try to keep old people and the virus away from each other. That is especially important in nursing homes, where people are already on the edge of the grave.

Instead, governments locked down those who were not at risk, and largely ignored the vulnerable. Deaths were needlessly high among those most at risk.

Collateral Damage

The third reason will take more time to calculate and confirm. But the collateral damage – deaths from other causes, including poverty… depression… stunted lives – will eventually be tallied. Among young people, for example, suicides are 22 times as common as COVID and pneumonia deaths.

We already know some of the major costs – the $2.2 trillion “Everything Bailout”… the Federal Reserve’s $3 trillion money-printing spree.

But that is just the beginning. Even with a record current deficit of $2.8 trillion, Democrats and Republicans are “negotiating” (both sides bidding with other peoples’ money) even more boondoggles.

Not Bouncing Back

These amounts will rise over the next few years. Because the economy is not bouncing back. Restaurants are half-empty. Airports are operating at only a quarter of their pre-lockdown levels. Hotels, theaters, bars – the whole travel and leisure complex is depressed.

And after a bit of recovery from April to July, small business employment is now drifting downwards – signaling not just a weak recovery… but no recovery at all.

GDP growth rates have been trending down for decades. Under Donald Trump, they reached their lowest level since World War II.

Staggering under $77 trillion of debt…

…fearful of more riots, race- or mask-shaming, and lockups…

…with mortgages and rents unpaid…

…10% unemployment…

…empty seats, empty desks, empty parking spaces…

…trillions in fake money…

…unemployment benefits that were often more than people’s income from working…

…helicopter money…

…a public that has been indoctrinated to believe the coronavirus is like the Black Death…

…and two presidential candidates, neither of whom has any idea what is going on…

…it is possible that the economy will never recover… that the downdraft from the worst policies and stupidest mistakes in history cannot be overcome… and that we are on our way to an unavoidable reckoning.

Early and Often

The feds will continue to try to replace real, wealth-producing schlepping and bussing in the Main Street economy with fake, sweat-free dollars doled out by both the Federal Reserve and the federal government.

More loans, more $1,200 giveaways… more bailouts for businesses… and more “liquidity” provided by the Fed.

In the coming two months, for example, neither party will want to stand in the way of a gift to the voters. Later, the feds – Republicans or Democrats – will respond to events, rushing in with more cash and credit at every hint of Armageddon.

A new virus? A stock market selloff? A dragging recovery? Sagging inflation? They only have one tool – fake money. Now we know that they will use it early and often.

The injury caused by the Fed will take even longer to tally. So far, it seems benign.

The indexes are all at or near all-time highs, just five months after a massive selloff. That, alone, is remarkable enough.

But it is even more remarkable when we realize that this has happened during a severe recession.

No Bull

Another remarkable thing we’ve learned is that the indexes can go up and the media can report on the fabulous bull market… even while, for most investors, the bull market doesn’t exist.

While the leading stocks soar, the average stock in the S&P 500 is still down for the year… and there are 126 stocks in the S&P 500 that have lost more than 25% of their value.

And that’s only part of the story. Here’s fund manager Jon Boyar:

Look at the smaller names, which have fared the worst. I like to track the Russell 2000, because I think you find the most value in the micro-, small-, and mid-caps. As of July 9th, Russell 2000 was down about 14%, but the “typical” stock in that index has done far worse.

Again, simply computing the average of all the companies in the index masks real pain within it, with outliers like Novavax Inc. (NVAX) – which has gained around 2000% for the year – skewing the results. Calculating the median return for each company, however, produces a negative 20% return.

Even worse, about a third of the stocks in that index have seen their prices drop by a third or more over that span.

More Bull

But the Fed is ready to do even more mischief. Here’s Fed Chairman Jerome Powell, yesterday, with more mumbly-fumbly:

The persistent undershoot of inflation from our 2 percent longer-run objective is a cause for concern. Many find it counterintuitive that the Fed would want to push up inflation. After all, low and stable inflation is essential for a well-functioning economy. And we are certainly mindful that higher prices for essential items, such as food, gasoline, and shelter, add to the burdens faced by many families, especially those struggling with lost jobs and incomes. However, inflation that is persistently too low can pose serious risks to the economy. Inflation that runs below its desired level can lead to an unwelcome fall in longer-term inflation expectations, which, in turn, can pull actual inflation even lower, resulting in an adverse cycle of ever-lower inflation and inflation expectations.


We want to do what we can to prevent such a dynamic from happening here.

The point?

We don’t know why the economy is doing so poorly. And we don’t care.

So, we’ll just keep the printing presses running hot!




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August 28th, 2020

Posted In: Bill Bonner's Diary

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