The Lay of the Land Today

We have all been treated to the real life drama of the CV-19 epidemic. And now that Italy and some other nations with honest data reporting have made their stats available on a daily basis, we see how an epidemic really works. Not like the fictional data from China.

I don’t mean to imply that we know the number of infections in Italy and elsewhere. We only know the results shown by testing. What about the silent majority who have not been tested? Mrs. Trudeau, wife of Canada’s Prime Minister, has recently, just like the wife of Spain’s Prime Minister, tested positive for the virus. Her infection has been attributed to her brief visit to London for a speaking engagement. So, there she was in a country where officially one in a hundred thousand people have the virus. What is the likelihood that Madame Trudeau encountered even one infected person on her trip? Even if she was with two meters of 10,000 people, the likelihood of her being infected would have been very low IF only one in 100,000 people in the UK have the virus. Statistically, her infection indicates that a much higher proportion of the population is infected than what the tests show. It makes sense because most people don’t get tested. What’s even the point of testing if there is no cure? If you have symptoms, keep away from other people. You don’t need testing to know that.

The virus scare plus the oil price collapse have served as two pins to burst the asset price bubble that has been with us for a long time. The bubble was bound to burst; it was just a matter of finding the straw to break the camel’s back. 2007 to 2009 should have done the job of reallocating assets from the inefficient to the efficient and grounded the economy on a stronger foundation, but our frightened governments kicked the can further down the road with their bailouts. Well, guess what…?  We seem to have arrived at where the can landed. The trouble is that we are a lot more tired and the can is a lot bigger now. I doubt we can kick it out of the way again. I laughed yesterday when I heard that interest rates had been cut to zero, like that will do anything. You can’t stimulate an economy with interest rate cuts when the rate is already very low. Part of the drawn-out delay in coming to grips with the economic dislocations of 12 years ago has involved the low interest rates. Had they been allowed to rise, then today there would be some wiggle room.

There is another aspect to the problem: the notion that reduction in interest rates will give businesses a chance to borrow money to tide them over until they can pay it back. The businesses that need the cash don't have the credit rating to gain access to the cash. Interest rates are not the problem. Liquidity is. Soon, more and more businesses will not be able to keep their workers working.

Many people around the world are no longer working; they are avoiding other people. Prosperity in an economy depends on the production of goods and services and distribution of them. When people are not working, they are not producing or distributing. A depression will be the natural outcome of the current state of things unless people get back to work before the start of our northern summer methinks.

The fear that is toppling markets is seen in the strengthening of the U.S. dollar. Even gold and silver prices are collapsing. The Japanese Yen is one of the few major assets holding its value in dollar terms, not unusual in times like today.

Cash is becoming king again. Hang onto it. Keep your powder dry and wait for prices to come to you rather than chasing them. Prices are dropping and will drop more.

Growing Global Social Unheaval

We are seeing a disturbing trend in the spread of social disruption around the world. We had the Arab Spring several years ago, which I think was primarily triggered by economic difficulties of the masses. Food prices had gotten very high, seemingly in response to USA economic policy.

This was followed by some years of relative social peace until Venezuela imploded. Now we see Chile, once considered an oasis of South American prosperity and peaceful stability, erupting in unrest that has destroyed numerous supermarkets and injured thousands of people, while other thousands have been arrested.

We’ve had recent riots in Iraq and in Lebanon which seem like delayed Arab Spring phenomena. South Africa is experiencing unrest born of people’s frustration with government corruption and rolling power blackouts. France is experiencing demonstrations, and so is Ecuador. Even Alberta seems to be in the beginnings of such social turmoil.

None of the foregoing have the potential for damage as does what is going on in Hong Kong. China, as I keep saying in this blog, has a major economic problem. China was able to grow capital simply by forcing people to work, but its workers have aged and its population pyramid no longer looks like a pyramid. It is more like a fire hydrant with the big bulge of 50s, and a smaller bulge of millennials. Gen X, born at the start of the one child policy, and Gen Z, born during the latter years of that foolishness, are a small percentage of the population. A workforce like that is limited by age related infirmities from providing the kind of brute production it once did. Chinese economic growth can only continue by working smarter instead of harder. This requites innovation. It is hard to induce innovation in a centrally planned economy where people labor yields fruit to be taken by the government. I think China may be in for some major social upheaval, and if so, it will likely be very bloody.

Torpedoing Alberta's Oil Industry

There is a recent interview of two experts (one of whom I know, since we both serve as advisors to the same company) on the subject of American interests conspiring to destroy Alberta’s oil industry. It’s a worthwhile listen for anyone even peripherally interested in such things.

https://omny.fm/shows/danielle-smith/capital-markets-impact-of-oilsands-reserves-strand?in_playlist=danielle-smith!podcast