Trump Is Playing With Fire; Coronavirus Update

Donald Trump is playing with fire regarding the Coronavirus. Even with the Fed rate cut, there is no confidence-building in the face of a pandemic. Trump is betting that the virus will just go away. While we hope he is right, that it just goes away, people are dying in the USA without having come into contact with anyone who had been to China. If Trump is wrong, it will be a disaster for this nation. We are ill-prepared.

It started with the scandal of faulty testing kits. The US CDC decided to make their own tests instead of the ones recommended by WHO.. They didn't work. The rest of the world is testing and cities are being quarantined. The United States appears to be unable or unwilling to quarantine cities. And we are not testing:

While the U.S. has tested less than 500 cases, U.K. health officials have conducted more than 7,100 coronavirus tests as of Wednesday, confirming 13 positive cases, and U.K. authorities have announced aggressive plans to test thousands more, including drive-thru coronavirus testing. South Korea, which is battling the largest known outbreak outside of China, already has drive-thru testing in place and the country’s health officials have already conducted more than 30,000 coronavirus tests — mostly within the last week. And just one province in Canada, Ontario, has already conducted more tests (629) than in the entire U.S.

In China, cities were quarantined and workers were paid. Tests were done. In the United States, tests cost a lot of money, and people will hide from them, fearing their bottom lines. Trump says that the government is testing everyone that needs to be tested. That is impossible to know. He is not up to speed and delegated poor Pence to deal with it. That was the guy who let HIV go out of control in his home state as governor. 

Las Vegas and the White House

The White House has canceled a conference with Southeast Asians in Las Vegas. This was done 4 days ago while Trump was saying that the virus was just like common flu.

Confidence means you are open for business. If Trump really believes the virus is like the common flu, he should be going to that conference with the Asians in April. He is sending mixed messages. 

If he is not open for business, Wall Street must think that many other people will choose to be closed for business as well. Certainly, Las Vegas is very vulnerable, as are the big cities in California, and New York and Miami. 

Government Response Needed

In the face of almost certain spread of the disease, I wrote:

Coronavirus is potentially dangerous to humans and to the travel industry. We can hope it will pass gently but experts have warned that more than 1/2 of the entire US population could become infected with millions of deaths. One researcher predicted 40 to 70 percent of our population will be infected. The risk is greater for older people, with an 8 percent death rate for those between 70 and 79, and a 14+ percent death rate for those over 80. That includes much of the investor class.

Wall Street must demand a proper response from the United States government. Wall Street is essential voting on our government's competency right now. Volatility is massive with the VIX holding at over 33. If Wall Street thought lower interest rates could restore confidence, the VIX would be dropping like a rock. How the government reacts to the Coronavirus is the single issue that the Street cares about. 

Trump doesn't have much time to formulate a real and powerful response to the virus. I am not sure he has it in him to close cities and pull in business, except when it affects him personally. 

Helicopter Money

Because of the possible need to close America down, as China closed down, we should revisit the subject of helicopter money. Half of America lives paycheck to paycheck. If they lose their jobs employers will have to pay, or the government will have to open up the unemployment spigots, or better yet, the Fed should do helicopter money. I wrote about HM a long time ago. It is the most logical way to deal with a credit crisis because it buys time. 

We have done this with farmers but maintain the silly trade war that threatens to compound world financial distress. About HM, I said back then:

Of course, real helicopter money as defined by Eric Lonergan is non sterilized. It amounts to a permanent increase in the money supply by offering everyone money in place of lending it to them. It does not require the usage of bonds, and it does not increase the debt of government, it only expands the balance sheet of the central banks. It would be shared by the central bank in a window of 12 to 18 months, allowing the central bank to monitor the goal of getting rates to move higher off the zero bound and out of negative where necessary. It would not be Universal Basic Income, which would require permanent transfers of money to the people.

Conclusion: Risky Markets 

Being leveraged in a market that is very volatile is for the pros, and even they could be seen reducing leverage. Investors were worried about stock leverage way back in 2019. The Fed soothed the markets after that. But we are facing a much different animal. Leverage is dangerous when the Fed cannot fix the problem. As the author at CNBC said:

For the first time since the financial crisis, corporate leverage is the chief concern for the professional investors who handle Wall Street’s largest funds.
A survey of institutional investors show that half of all managers prefer corporations use any extra cash to improve balance sheets instead of spending the money on capital expenditures or buying back shares, according to the January Bank of America Merrill Lynch Fund Managers Survey.

That problem has to be taking on more risk now. Corporate stock pumping may go out of style for a bit, and it only takes a bit of a pullback there.

Likewise, personal accounts that are over-leveraged are vulnerable. Only time will tell if the Coronavirus breaks out in a way that hurts America badly. No one wants that. What good is it if you are shorting some stock based on the virus but lose your life in the process.  No one should want this danger for our nation.