Joe Biden took control of the Democratic Primaries last night on Super Tuesday. Bernie Sanders was expected to win California which was supposed to maintain his lead even if Biden managed to close the gap somehow. It looks like Bernie’s momentum ran out instead. Joe Biden has taken the lead and it’s difficult to see where Bernie can make up ground. It looks like markets are responding to this positively. Who could have seen this coming? (Just sayin’)
It looks like the coronavirus may have been in the United States FOR WEEKS, according to analysis of the virus’s genomes. Estimating initial infections at mid-January and an incubation period of two weeks, this indicates a strong probability that the cat is out of the bag. This tells me two things. One, while it is great to emphasize good hygiene and make the general population more aware of the spread of infectious disease, most of this is closing the door after the coronavirus horse has left the barn. Two, this virus just isn’t as deadly as the media wants it to be. We’ve got 128 confirmed cases in the United States and 9 deaths, a 7% mortality rate. This is likely extremely exaggerated. The global rate is still in the neighborhood of 3%. Still high. If the data is correct, thousands of people in the US have already been infected and recovered without even knowing they had it. Wash your hands, but you probably don’t need to clear out your local Costco.
Pay attention to the language used in news stories. Tensions, panic. These are not data points, but emotions. That’s a supposedly objective narrator injecting his/her opinion into a news piece. Notice the way the coronavirus has been altered over the last months. It was initially referred to as ‘the deadly coronavirus’ – so much so that you could be forgiven for thinking that was its proper name. It has shifted to ‘new coronavirus’ and now to ‘novel coronavirus’, if any descriptor is used at all. The pivot to COVID-19 is an especially cute re-branding. I expect further attempts at catchy nicknames until the flu season peters out. A valiant effort on the part of the virus’s marketing team. They had a good run.
The deadly/new/novel coronavirus/COVID-19 is expected to impact the global economy as well as hit US Q1 GDP. The markets and media have acted as though this will be a lasting effect, but it reminds me more of the Polar Vortex from 5 years ago.
I can’t believe I just linked to zerohedge. Ugh. Don’t go too far down the rabbit hole on that site. While there’s some non-mainstream info there, it’s largely perma-bear conspiracy theories, doomsday preppers, and gold bugs.
Anyway, for several years in a row, Q1 GDP took a hit due to weather. Oddly, there were a couple of years where the weather was normal and GDP still dipped (a sign somebody was pulling data into Q4 to fudge the numbers?). Revisions have made the data look smoother, but thankfully zerohedge has captured the pessimism that showed up each year like clockwork.
I get the feeling coronavirus will be this year’s Polar Vortex. A hit to Q1 GDP, then a rebound and possibly some revisions later in the year that make it look less bad. To be honest GDP isn’t even all that important. What’s important is people getting back to work and getting money in their pockets. That may already be happening. Chinese workers are already getting back to work as traffic is gridlocked and pollution levels rise (oddly good news even if some of this is due to powering on empty factories). Supply chains have been disrupted, but fears of a long-term dislocation are diminished.
The US Federal Reserve cut rates by 0.50% yesterday. Was this a Super Tuesday surprise? The market had factored in a chance of a rate cut at over 100% (meaning a cut of over 0.25%) as early as last Friday. I’d say no, it was not a surprise. I agree with First Trust’s Brian Wesbury that the cut wasn’t totally necessary, but a bigger move makes sense for the time being. My concern is that they will be slow to raise rates back up. A case can be made that the Fed was right to lower rates to put them in line with the market (which had dropped the 10-year below 1% on Super Tuesday), but it seems somewhat reactive if this was a temporary movement. It doesn’t look like the lower rates are a structural shift or even an intermediate-term theme to me. It will be interesting to see whether the Fed is beholden to stock market action, market rates, or hopefully neither. On the plus side, if you’ve been looking to refinance your mortgage, you may be able to take advantage of possibly generational low rates.