March 27, 2020
The quote came from FDR’s first inaugural address in January 1933 as the depression reached its depth. As we find our way through the minefield of difficulties created by the corona virus, we believe that we are paralyzed by unjustified terror. We are more than willing to believe the direst economic scenario imaginable.
We have never seen Americans as afraid as they are right now. They claim they have never seen anything like this. Wrong. Older Americans have lived through two pandemics. They say they don’t have any idea when this will end. Wrong. The Chinese experience suggests that if a country takes aggressive action the virus will quickly begin to slow. Here are a couple of things to think about.
First, we deal with flu viruses every year. We get the virus, get sick, and typically recover. Some people die. It happens every year and it impacts many people. Through March 21 the CDC reports that 46 million Americans have contracted the flu. Of those, 43,000 Americans have died. I have not heard anybody ever mention those people. As of March 25, 85,000 Americans have contracted the corona virus and of those 1,300 people have died. Yet all we hear about are the 1,300 that have died from the virus. Something is not making sense to me. We mourn the 1,300 but not the 43,000? We see pictures of some of the 1,300 to make us realize that they were real people. Of course they were. Every one of those 1,300 people was somebody’s mom or dad, grandparent, spouse, brother, sister, or child. They are very real people and the loss of even one of them is a tragedy. But what about the other 41,000? Aren’t they just as real? Shouldn’t we care about them too? But we hear nothing.
Second, what is going on with the virus this year is only slightly worse than it was last year. In the 2018-2019 flu season 35.5 million people contracted the flu and 34,200 died. Last year nobody said a word about the flu having any significant impact on GDP growth. We did not sob and cry about the 34,200 who died. It happens every year. Life goes on. We are used to it.
Third, people say this is different because the corona virus was declared a pandemic by the WHO on March 12. Younger Americans have not experienced a pandemic. Older Americans have lived through two of them.
The first was in 1957-58. It was known as the “Asian Flu”. During that pandemic, 1.1 million people died worldwide, 116,000 in the U.S.
In 1968 we had a second pandemic known as the “Hong Kong Flu”. During that pandemic 1 million people worldwide, 100,000 in the U.S.
Thus far 22 thousand people have died from the corona virus worldwide, 1,300 in the U.S. We are not even remotely close to the death toll registered in those earlier pandemics.
When was the last time you heard any news anchor mention the fact that we have lived through pandemics in the past during which the death toll was far bigger than anything we are likely to see from the current corona virus, and we got through them?
Some may say that I am an economist and those are just numbers. That is simply untrue. The reality is that I am in that demographic group that is most at risk – over 70, male. I will do all the things that I have been told to do – wash my hands frequently, practice social distancing. But despite all that, it could happen to me, my family, my friends. If it happens to me, I will probably recover. But I might not. The one thing that I won’t do is live my life in fear. Last year the National Safety Council reported that 38,800 Americans lost their lives to car crashes last year and nobody even thinks about that when they get in their car. As I see it, I am far more likely to die in an auto accident than from the corona virus. Nobody seems to mention that either.
Instead, we choose to live in fear and believe every doomsday forecast we hear. Why are we so fearful? I would suggest that the major news networks are part of the problem. They provide news 24/7. There is not enough time to properly vet stories for accuracy. In addition to which, this is an election year and every major news agency has a political bias. Even more importantly, social media can instantly spread information — or misinformation, or lies — to tens of thousands of people.
We seemingly love bad news! Ratings for the various network news programs have never been higher. We are fascinated by this deluge of doom and gloom. Then we tell our friends on social media and they, too, get scared.
As the steady stream of bad news spread like wildfire in recent weeks the stock market plunged. It fell faster than ever before. The S&P 500 index reached a peak of 3,380 on February 20. It fell 1,090 points or 32% by March 23 – 22 business days later. The farther and faster it fell the more scared we became.
In the past we have used monetary and fiscal policy to stem the decline. The Fed cut rates in two increments to 0%. Typically, a rate cut by the Fed and soothing words from its Chairman would go a long ways to restoring confidence. Not this time. Within hours of each Fed announcement the markets plunged anew. Rate cuts could not stop the virus. They were the wrong solution to the problem.
The Administration tried fiscal policy. It initially proposed a $1.0 trillion fiscal stimulus package. Within hours the markets resumed their slide. Not big enough. Unsatisfactory.
Policy makers were unable to arrest the decline. Investors were petrified. We were told that the virus was going to kill millions of us. We believed that our leaders in Washington had no idea what they were doing. However, they did the exact same thing they did in 2008-09 after the collapse of Lehman Brothers and it worked. The economy recovered and we enjoyed a record-breaking expansion that lasted more than a decade.
Nothing was working but Trump somehow had to stop the fear. He declared a state of emergency on March 13. By March 26 governors of 22 states called on their residents to stay at home. Now we have a $2.0 trillion stimulus package and, finally, the stock market may have hit bottom. Unfortunately, these drastic measures have brought the U.S. economy to a screeching halt. Last week 3,283 thousand people filed for unemployment insurance. The previously record weekly increase was 695 thousand in October 1982. This week’s outcome more than quadrupled the previous record. Three million Americans lost their jobs in a single week. Consumer sentiment plunged in March. And now we are faced with a string of $2.0 trillion deficits for the foreseeable future. The government will become an even bigger portion of our economy in the years ahead.
Why was the stock slide so dramatic? Largely fear. We would suggest that we chose to accept at face value every statement uttered by, in our opinion, unduly pessimistic epidemiologists. One of them in the U.K. has frequently stated that more than 2 million Americans will die from this virus if nothing is done. But something has been done. Something drastic. The economy has stopped dead in its tracks. That statement was needlessly inflammatory. The news media latched onto it. That segment has been shown repeatedly. And nobody every questioned it. Not a single news anchor ever noted that something dramatic had already been done in the U.S. to combat the virus, so what did he think now? The news media loves doomsday stories. They attract viewers and sell newspapers.
No wonder we are scared. We hear these stories over and over. Do we ever question the veracity of a statement? No. Do we ever wonder if the organization or person making the statement might have a bias? Apparently not.
It is ironic that CNN, MSNBC, CBS, and even FOX have chosen not to televise Trump’s daily corona bias briefings because they contain media-bashing, exaggeration, and outright lies. Fair enough. But do the networks not recognize that they are exaggerating and telling just as many fibs as Trump? Both sides are guilty.
The point of all this is that we need to start thinking. If we do, we might conclude that:
- We have experienced pandemics in the past and recovered quickly. The corona virus is unlikely to be worse than any of these earlier ones.
- The drastic action taken recently will quickly slow its spread and the death toll from virus could fall far short of the death toll from these earlier pandemics.
- The China experience suggests that we will soon see early signs of a slowdown in the virus.
- The corona virus this year has killed 1,300 people. The flu has killed 41,000. Aren’t our priorities somewhat misplaced?
- The stock drop has been accentuated by, in our opinion, unwarranted fear. Once signs emerge that the virus is getting under control, the stock market rebound is likely to occur sooner and with more vigor than expected currently. And those recently laid off food and beverage workers, retail clerks, and airline employees can quickly return to work.
Stephen Slifer
NumberNomics
Charleston, S.C.
Steve
You are right on AS USUAL. The week before the pandemic kicked off, I re-read Tony Robbins wonderful book UNSHAKEABLE. He makes it clear that the stock market ALWAYS bounces back after world crises. The only unknown is how long it will take. I expect the rebound in the market to be dramatic, and will be buoyed up by the roll out of 5 G
Hi Steve,
Warranted fear or not, this is the world as it is today and the economy is as it is. There are going to be people that won’t be able to just pick up at their jobs and start again. Many business sectors are likely to have a sustained earnings depression, how quickly will people want to jam themselves together in a metal tube and go flying off somewhere? Even a 20% hesitation would have a big ripple effect. As priced to perfection as the stock market was pre-virus it’s hard to see a post COVID rational stock market rebounding to the same PE levels as we had previously. However, as you have pointed out, the market is not rational and it’s possible we may, even temporarily, have a V shaped recovery and touch on previous share price levels. However, it’s going to be interesting to see what the new economic reality will be by September. By then, the massive stimulus will have changed the economy, creating some winners and other’s who will be left to recover more slowly.
On a medical note, i have friends in the Western U.S. and Russia who work in hospitals. They all are reporting already being overwhelmed with cases and running out of resources to keep people alive.. We’re early in the curve and the health care system is already under strain. Hopefully it doesn’t get worse, but this is a very different disease than the Hong Kong or Asian flu’s with more than twice the death rate, easier to transmit and easier to pass to others. Hopefully our more modern health care systems will be up to the task.
Good review. However you missed the real point. This virus IS different from other pandemics for one because it is highly contagious and is killing health care workers! You also do not mention that our President was woefully unprepared to lead our nation during this crisis and many of the citizens of our Country get it. That is why there is unrelenting fear out there. Yes the media has contributed but at least some are calling out the real causes of the fear. Let’s hope this one doesn’t come back in the fall with a vengeance like the Spanish Flu of 1918. Please take care of yourself..
Hi Chris,
As always, thoughtful concerns. As I have done for the past several weeks I hang my hat on at least hints of improvement becoming evident by mid-April, and more clear-cut evidence by the end of next month. Same kind of timetable the Chinese experienced. If it drags on a lot longer than that, the economic fallout will be enormous. Most small businesses I know seem to have contingencies and lines of credit that can keep them going for a month or so. Beyond that, it will be hard for many to recover.
When I talk about a V-shaped recovery I do not intend to say that we will return quickly to the peak value on the S&P of 3,380. After falling rapidly by 32% to a low of 2,290, I would envision a quick, V-shaped recovery to a level that is 5-10% below its prior peak, and then a more gradual return to and beyond those values by the early part of next year. But that also depends upon a quick recovery. If it lingers for a while we will get a different story.
Re: your comments about friends who work in hospitals. No question that hospitals in some areas are having a rough time. Agreed. But I do not want to underestimate the ability of the medical sector to improvise and rebound. As I understand it there was an early version of a ventilator was used in the 1960’s. Crude by today’s standards, but they worked pretty well. Because hey are much less sophisticated they are also much less complicated to produce. Production could be ramped up in no time. It would free up the more modern ventilators for the most serious cases. Another guy runs a fabric shop. He is making masks out of fabric. They can be washed and are, therefore, re-usable. He can crank out thousands of them within a week. Finally, another professor at Mt. Sinai has developed a new blood test and he can quickly determine who was infected and who wasn’t. He could use it to screen people and find the ones who have had the disease and are now immune. They can then donate their serum to treat current virus patients. Furthermore, he could test health care workers and ask the ones who are immune to work with infectious patients and therefore not spread the virus as easily to colleagues or other patients. And now 5-G on the way, the tech sector may well be able to produce who knows what that might help.
Finally, you are right that there will be some long-term fallout from all this and it certainly makes for an interesting discussion. I am less worried about people getting on planes or on cruise ships. But that is just me. Others may feel differently. More health preparedness. But to me all of that is good. In the end make the economy stronger and more resilient. That is what we have done for centuries. Change is not necessarily bad. And the tech sector today with 5-G in the offing will guide us in the right direction.
Stay healthy.
Steve
Hi Allen,
Good to hear from you. I hear all the talk about how contagious this virus is and how deadly it is supposed to be. But if it so contagious, how is it that thus far in the flu season 46,000,000 Americans have contracted the flu versus 85,000 who have contracted the corona virus? That doesn’t make sense to me. If it is so deadly why is it that 43,000 Americans have died from the flu thus far in the season while just 1,300 have died from the corona virus? That doesn’t seem to make sense to me. If it is so deadly compared to earlier pandemics, how is that 100,000+ Americans died in those earlier epidemics versus 1,300 thus far from the c.v.? If it is so contagious, how is it that the Chinese were able to seal it off and the number of active cases has fallen from 58,000 in mid-February to 3,460 by this morning — 6 weeks. If it were so contagious that is not the result I would expect. I would also have expected a second wave of the virus at some point in China. Maybe that comes later, but with just 3,460 active cases walking around in a country of 1.4 billion people, I am not sure that is going to occur.
The bottom line is that none of us know. I have a guess. You have a different guess. Only time will tell.
I don’t disagree about Trump. He is not my favorite guy. But, in his defense (at least a little), nobody anywhere in the world has suddenly emerged as a great and wonderful leader that knew exactly what to do. Not one. Perhaps the one that comes the closest is Xi Jinping. Dithered at first, seemingly in denial. But then he came up with that quarantine which seems to have worked and has become the role model for the rest of the world to follow. Every other leader I know of, particularly in Europe, was also in denial and slow to re-act. I guess that is natural. I would have probably done the same thing. So what if Trump were not president, would somebody else have done a better job? Hillary for instance? Unanswerable question but I suspect not. There are no textbook answers on how you should respond to something like this.
Stay healthy.
Steve
Hi Bill,
I have no idea if I am right. I have a view and i certainly hope it is right. But, as always, time will tell. I am hanging my hat a lot on what happened in China and how quickly the virus has gotten under control in that country. I am expecting a roughly similar timeline for the U.S.
One thing that excites me is the response by the medical community which you will know far more about than I do. Clearly, hospitals need more ventilators, masks, and protective gear. The medical sector is coming up with all sorts of ideas to help — all within the last month.
A doctor wrote in to WSJ. During 1960’s there was an early version of a ventilator. Crude by today’s standards. But it worked pretty well. Production can be ramped up in no time. Would free up more modern ventilators for the most serious cases.
Another guy runs a fabric shop. Is now making masks out of fabric. They can be washed and are, therefore, re-usable. Can crank out thousands by the end of the week.
A few days ago a professor at the Icahn School of Medicine at Mt. Sinai developed a new blood test. Can figure out who was infected and who wasn’t. He can use it to screen people who had had the disease and are now immune. They can donate their serum and it can be used to treat patients. He can also test health care workers and ask the ones who are immune to work with infectious patients and therefore not spread the virus as easily to colleagues or other patients. Give these guys another month and who knows what they will find.
The medical profession is onto this. Cooperative efforts are taking place around the globe. And, as you point out, 5-G is on the way to expedite the process.
Stay healthy.
Steve
Spot on Steven. I refuse to live in fear, and hope the cure is not worse than the problem. Life, liberty, and the pursuit of happiness!
Thanks Lee. Interesting times. I sure hope I am right that this turns out to be a relatively short. If it is not, the economy is in serious jeopardy.
Stay healthy.
Steve
Thanks for giving us a dose of reality. No, the world is not coming to an end. Yes, this latest virus and our response will change everything going forward.
Hopefully, we will all stop shaking before the upcoming hurricane predictions send us into another frenzied run of toilet paper.
Fear is just an absence of faith. God bless America!
Hi Steve… Thanks for your response… Many citizens have realized as you have that the flu vs SARS-CoV-2 (covid-19 or current Coronavirus)) stats do not make sense. However, the current stats on covid-19 are vastly under-reported as are even the Flu. From the research, there are 8 strains of Coronavirus and many more of the Flu. Viruses are always mutating to propagate their survival. They go underrepresented and under-reported because our health care system does not test or do genomic analysis on most deaths. It is happening now on covid-19 because of the pandemic but that does not capture the deaths from other underlining health issues like COPD, CHF, auto-immune issues, asthma, etc. These viruses can mutate and replicated to make them hard to track and confirm without expensive testing which we as a Country do not routinely do. It is also possible that people can have more than one strain of virus that ultimately leads to their death. Right now, we are only tracking laboratory confirmed cases. Only recording deaths where influenza or coronavirus was recorded would be a gross underestimation per the CDC and many researchers. There is also much research already suggesting that many deaths caused by covid-19 are not being recorded as such. With pandemics, health care workers are so stressed that they are not reporting accurately due to lack of testing and being overwhelmed. So, I am saying that the numbers are grossly underreported and not as sophisticated as we financial types have become accustomed to in the world of economics. Even in economics, estimates are at the heart of most projections. Right?
Thus, many people including the President are comparing apples and oranges. These numbers are estimates at best. But when the real numbers are analyzed which is being done more so now than in years past, it shows that covid-19 is striking with more force and faster that previous pandemics. For example, in the US, comparing the Swine flu first 65 days of reporting by the CDC, showed 87 deaths. Compared to Covid-19, that first 65 day death rate is 1,050! Thus the swine flu pandemic of 2009 was considered mild compared to this one. Adding to the issue is that there is no ICD-10 code for this coronavirus yet. Thus, making reporting incomplete. Official reports indicate that the latest counts may be missing as many as 9 out of 10 deaths! So, depending on how the US handles this public health emergency, which we were slow to accept and react to in the first place, future estimates of the impact may be grim indeed.. Therefore, I would rather be over-prepared than under, and I would have expected my President to have been much more prepared given the international bravado of this pandemic.