Coronavirus continues to expose the Republican Administration. With some Republican supporters still believing that the Coronavirus or reasons to worry about it are hoaxes, suddenly the party leaders are coming in contact with the live virus. I intend to discuss the Fed and my trip to a chocolate factory, but really, the Republican leadership is in a world of hurt.
Republican SenatorTed Cruz is self quarantined. He shook hands with a carrier of the virus. CPAC, the Conservative Political Action Conference, had infected people in attendance. Even Donald Trump shook hands with the CPAC CEO who was exposed to a Coronavirus victim. Vice President Pence attended the conference as well as other Republican leaders.
The lack of test kits are undermining the US economy. When the Swine Flu attacked China last decade, President Obama was do nothing, though more honest than Trump, and got lucky as it was not as serious in the USA. There is a good chance that this virus is more powerful and contagious as a combination. If that is true in the face of no test kits, people will work from home and fly less. This could do more damage to the oil markets which are facing a meltdown from lack of demand already from China and elsewhere.
My Visit to the Ethel M Chocolate Factory
My family went to the fan-favorite Ethel M Chocolate factory the other night. There were 7 customers there, three of us and four others. No tour buses were there. It was so quiet. It was on a Friday night. Airplanes should have been screaming over Ethel M headed to the Las Vegas airport. But there was just a trickle of aircraft. As we got close to home we can look back and see the usual line airplanes hanging in the sky waiting to land. There were only two visible airplanes.
It just seems like common sense that people aren't going to fly unless both these become true:
1. The cases seem weak and the spread of them slows down naturally.
2. There are enough tests to start really testing on a very large basis.
The Republicans administration simply wants to test little and trust the numbers. Nobody is falling for that. if 2 is not implemented, 1 means nothing!
Now we have 4 cases of the virus in Nevada, two in Reno and two in Las Vegas. The latest Reno fellow went to Santa Clara. That was it. Do you wonder how many untested and infected people are walking around Silicon Valley?
Advertising Was Down Big in 2008.
Remember how advertising Was Down in 2008? Well, Forbes recently said don't stop advertising in a recession. The author did not anticipate a Coronavirus based recession. If everyone stays home, airline advertising will continue to drop. Advertising for restaurants, and hotels, and for so many venues where people can use disposable income will drop. In a pandemic, disposable income will stop being disposable.
Russians, Saudis, and Oil
Meanwhile, the oil market is in a price war due to this lack of demand that the Republican administration is not fixing. Of course, it cannot fix China or Europe's demand, although it could truce with both regions regarding tariff wars and threats.
Demand could increase where adequate testing and declining cases are shown to the American people by medical experts, but it is clear that Donald Trump wants to shut up scientists and play down the numbers. It is clear that he wants to keep numbers down by artificial means, by keeping cruise ship folks on the ships and by simply not testing people.
Is it wise to keep these folks on the ships? I don't know. Is it reassuring to Americans that we are told we are supposedly testing enough to assure the American people? Absolutely not! Our most expensive health system in the world must be a laughingstock with lack of test kits.
Fracking and shale oil have brought the United States back into the oil markets. These new extraction techniques have disrupted the markets, with the United States taking shares normally reserved for Russia and Saudi Arabia. Both these nations want the US out of the oil market. But they also generally cannot push prices down low enough to get US producers to exit. They seem to always bounce back.
How serious will these two nations be this time? They know that the US oil markets are financed in part by junk bonds. They have the power to crush those bonds. As the FT says, energy companies issue 11 percent of those junk bonds. The bonds are now worth far less than what investors paid for them. If investors are also invested in the Stock Market, they have to sell stocks to cover speculation on the bonds.
BBB bonds in retail and elsewhere were already in trouble, being close to junk. Junk bonds could just be the tip of the iceberg if poor quality bond and stock sales create panic.
The Saudis could rethink the oil price war. Or this could be an opportunity too easy to pass up, a chance to show the USA that the Saudis are in charge for now.
Federal Reserve Bank Reflation
The Fed will be wanting to reflate asset prices that are already clearly in a bubble. It will just make the American divide worse. It seems deflationary to me unless the virus is contained. Scott Sumner wants the Fed to start buying non-financials, like property maybe? It is a save the wealthy plan. I get it. But it hurts a lot of working people who want to catch a break. It could not work if the virus is not contained. It could be a total waste of the Fed's balance sheet expansion in that scenario.
People expect big things from the Fed. But really, this could be the perfect time for real helicopter money. If disposable income is no longer disposable, citizens need more money to free up some for disposable use. What a perfect time for helicopter money.
Image source: ethelm.com.
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