Ross Rant March 18
The world will never be the same. This is the ultimate black swan event. I have never witnessed anything like this in America, and it is hard to wrap your brain around what is happening with whole cities shut down. The speed at which this has happened is astonishing. We went from a booming economy that was growing well, to recession in two weeks. Who could ever have imagined this even two weeks ago. Essentially they have shut down around one-third of the economy. Here in Longboat Key there is one supermarket-Publix. The shelves on many items are stripped clean. See attached pics. When I asked if they were restocking over-night I was told no because the warehouses are far short of enough drivers to keep supplies moving to cover all the panic buying. I was having a root canal procedure on Tuesday. My dentist told me I was lucky to have come in Tuesday as the ADA has told all dentists in the US to Shut Down ALL offices for two weeks. Bet you had not heard that. We are very likely near the bottom now, but it cannot be known yet. There is no way to forecast the short run since Congress is now the key, and they are never intelligent nor quick in their response to anything. If they quickly pass the $1 trillion package hen the market will begin to recover. If they screw around like they did with TARP, then there is much more down to go,. Just as with TARP.The world is entering a very dangerous place now. Populism will increase in many countries. Politics in places like Italy, France Iran, Spain and China will become less stable. Governments will be overthrown. It is just a matter of when and how. The good news is it appears the virus is running rampant in Iran including at the highest leadership level. Thousands of Iranians will die, and as a percent of the population it will be very impactful. On top of a collapsed oil price and collapsed economy from sanctions, Iran is going to have major risks of revolution. They will have nothing left to fund their proxies, nor to pacify the populace with subsidies. Xi will possibly be gone in a few years. Putin just made himself leader for life. The next few years will be dangerous. The US will need a huge and powerful military to deal with what might come at us. Cyberwar will likely become the new battlefield, although shooting wars could happen if the world becomes destabilized. Iran is the wild card as that regime is on borrowed time. .This is the inflection point. Globalism will be materially reduced as it is clear we must have US sources of key materials and products, especially drugs and rare earths and tech components. It is nuts that most drugs come from China and India. Suppose they just stopped supplying them. Rare earths come from China for the military and high tech products. Parts for ventilators are made in China. This will bring several industries back to the US, or maybe Mexico. Companies and production of all sorts will leave China as soon as they can. World trade is going to be reset in major ways, and China is the big loser. China will have economic setbacks of major proportions going forward between the trade war with the US and now the virus forcing a lot of manufacturing out of China. Phase II of the trade negotiations will be very different. The whole Brexit negotiation will be changed, and the UK will be the winner. The US will be able to force the EU into much different trade terms. The EU may not survive this. The US will develop an industrial policy to require made in America for critical commodities and products.Fiscal discipline is out the window. Maybe the Treasury will refi the government debt at these low yields with 50 year bonds, which would make a tremendous difference going forward as to the debt service burden on the federal budget. Mnuchin has been pushing this. Notice how the ten year shot from .3% to well over 1%. In a week. Healthcare will be an excellent place to invest for a long time. The EU is now in really bad shape, and recovery for them may seriously raise the issue of, can the EU survive as an governing entity. Can the EU banks survive-likely not, and there needs to be consolidation, along with the major QE the ECB just announced of $800 billion. It is hard to see how Italy can ever economically recover from this. They were insolvent before the virus. Greece is toast. France was in serious trouble, and now will have a real struggle for several years. Without Mamma Merkel, there is no leadership in the EU. Macron wants to take her place, but France is not Germany. He will not have the same level of influence she had. Do not invest in the EU.When this is over, the US will be the only nation still strong, even with a short recession. It raises serious question as to whether China can still afford Belt and Road. There is now no way any of the countries that took Chinese loans can pay them back. Iran can no longer afford to fund its proxies. The mullahs are now on borrowed time. There is real risk to them now of a real revolution. In short, the world is in for years of instability, and the US is the only safe haven. The UK with Brexit behind it, is the only other nation that can stand on its own after this. Even Germany is now in recession and is mired in the mess in the EU. With a large poor Muslim population, and its dependence on Chinese buying its cars and machines, and the EU its biggest market, Germany has likely seen its best days. Investing anywhere but the US for the next few years is going to be filled with real risk. Inflation is dead for several years and oil prices will remain relatively low in the $50-$60 range at most once the Saudis and Russians stop their suicide war. The US oil industry is used to boom bust, and will consolidate and survive as the biggest producer in the world. Russia cannot keep up a price war. Their break-even is $54, Oil is near half that. The Saudis also cannot afford this. The prince is pissing off a lot of powerful people and it would not be a shock to hear one day that he is out. Once again, the US is where to be in this mess. If all this sounds upsetting, get ready for a very messy world now. Be thrilled you live in America.Nothing in the economy or the market is predictable right now. The algos and the lack of the uptick rule has made the stock and bond markets totally irrational. The good news is the Fed is feeding huge amounts of capital into the banks, the bond and inter-bank loan markets, and commercial paper. Treasury has initiated new funding support top make sure the debt markets stay on track along with Fed funding. Treasury and the Fed are going all out this time before the crisis hits, to make sure the debt markets function smoothly with sufficient liquidity. Call it the Fed and Treasury put 2.0. They have made sure we do not have a repeat of the financial market shutting down as we did in October 2008. Liquidity for the markets is critical, no matter what the Fed has to do to maintain that. There will not be any bank bailouts as that is not needed now. Rule 13 at the Fed seems to be reinstated despite being ended by Dodd. That rule allows the Fed to make collateralized loans to major corporations. Boeing will get a major loan so their suppliers can stay working. As happened in 2010, and after, a lot of the loans to industries will get repaid with interest in a few years. It will work and will save the economy. Congress needs to act fast and boldly, and some way needs to be found to allow companies to be subsidized for keeping staff on payroll, and for laid off workers to get enough cash for three months or so until things start to return to normal. If Congress can do that successfully without F-ing it up, (very questionable) then the economy will come roaring back in July or August when it is clear the virus did not kill very many, and almost no productive younger people. Shutting the borders early saved us, and now the massive containment will work. The massive communications effort by the White House task force to keep us fully informed, and to get people to stay home and away from each other was a critical step, and will turn the corner in a two to three weeks. Fauci will be the hero of this crisis. Trump is doing all the right things by enlisting the private sector so heavily. The US acted relatively fast and effectively, and closing the borders was essential. Testing will now catch up. There was no way to know to produce ventilators in time no matter what Schumer says. You don’t just buy those by the hundreds of thousands when nobody ever forecast the need. The internet will have been seen to have made all the difference from anytime in the past. Without the ability to work effectively online, we would have a real crash. We are actually closing a construction loan at the end of March with a commercial bank where the loan officers are working from home certain days, and others in the bank in the other days. That is how a lot of companies are doing it, and it is working. Business is functioning, although at a slower pace. Most people quickly adapted. A lot was learned from 9-11 and 2008, and a lot of plans at large companies, the financial markets, and hospitals were already in place for just this sort of disruption. Treasury and the Fed know what to do. We will get through this better than at any time in history. Therapeutics will be fielded by July or August, and that will solve a big part of the issue. The US will emerge better than most.Keep things in perspective. Net of the nursing home there are just 95 deaths in the US over several weeks. Almost all, if not all, were people with serious health issues before. Testing is now ramped up. There are still only 5800 cases and most will recover fine. While the numbers will ramp up in the next three weeks, the massive stay apart and stay home effort should make a massive difference. Possibly in three or four weeks we will see the reduction in cases.Schumer is a disgrace by making a highly political speech attacking Trump on the floor, just raising unnecessary fears with the public. It was disgusting.Just stay calm and hold on. We are probably at the worst moment right now waiting for the peak cases and waiting to see if Congress can act responsibly for once. It is darkest before the dawn. That is where we are right now. Conspiracy theories that China did this intentionally to retaliate and harm the US is utter nonsense. China has been severely damaged by this and that damage will get worse as supply chains are moved out. Xi’s rule has been materially weakened. China was a major loser from the virus. Kim says N Korea has solved the virus problem. They very likely just shot anyone who got sick. Keep in mind Biden attacked Trump for shutting the travel from China and then from the EU. Had Trump not dome that we would be in real trouble. Just imagine if Joe had been in charge right now-we would be in really big trouble.For perspective. When I visited Warsaw and Dresden I studied the history and was able to get perspective. Warsaw was obliterated by Russian armies. There were only 1,000 people left in the entire city. There was no food or anything. Dresden was burned to the ground. Today both are lovely thriving cities. I then visited Auschwitz and that horrible place. Yet the Jews survived as a people and went on to create one of the most intellectual and advanced nations on earth. Humans rise to the occasion, and the virus in nothing at all by comparison. America is rising up and will be better than ever.