RUTHFULLY YOURS

https://www.forbes.com/sites/richkarlgaard/2020/03/08/covid-19-and-the-economy-as-seen-from-a-technology-investment-conference/#4c13a064fc7c

COVID-19 infected the American psyche and stocks rather suddenly during the final week of February. Last week I attended at large technology investment conference in California — The Montgomery Summit 2020 — and was eager to see whether investors and entrepreneurs were pulling in their horns. I also moderated two discussions on the pandemic’s likely damage to the economy, markets and supply chains around the world.

My first session was with Michael Milken, the noted financier and philanthropist. Milken was cautious for the short term, but generally optimistic. Computer power for gene sequencing and AI models to predict infection spread, he said, are vastly more capable than during the SARS scare of 2002-2003 and the H1N1 epidemic of 2009-2010, when 700 million to 1.4 billion people became infected worldwide and upwards of 500,000 died. Technology can identify and solve problems much faster today.

Milken cited the U.S. polio epidemic of 1952 and the HIV/AIDS panic of the late 1980s as times when fear gripped the population. “People were afraid to be in the same room with someone infected with HIV.”

Fear, of course, is hard to break. The polio fear persisted a few years after the Salk vaccine. Milken said it was popular figures like Elvis Presley, photographed during his Army vaccine, that broke the spell. What lifted the clouds for AIDS were new drug cocktails that eliminated the death sentence, along with thriving patients such as basketball star Magic Johnson.

Capitalism, reasonably regulated, Milken reminded us, has remarkable recuperative powers.

https://asiatimes.com/2020/03/this-is-a-not-a-panic-but-adjustment-to-a-mild-recession/

Financial panics occur when investors sell what they can, not what they want to. And that happens when they can’t finance their positions. Credit remains freely available for sound borrowers, and the rise in the cost of credit has been orderly – except for energy companies below investment grade.

There is no sign of sudden liquidation from popular exchange-traded funds that buy high yield debt, despite steep price declines. Equity multiples shrank and probably will shrink further as the market prices in a mild recession during 2020. But that’s a far cry from 2008, when major banks levered $2 trillion worth of phony AAA-rated securities sixty-to-one.

The stock market’s 15% fall from its February peak is painful, but not panicky. The coronavirus probably will cause a mild contraction of US economic activity during the second and third quarters, as travel and hospitality businesses shrink, consumers avoid shopping malls, and Americans, in general, save rather than spend as a precaution.

Consumer spending was the only significant source of US growth during 2019, as investment and manufacturing shrank in response to the incipient trade war. Strong economic data for the first two months of 2020, including an exceptionally large increase in February employment, indicated that the US economy was improving after the conclusion of a “Phase One” trade deal with China – before the coronavirus problem emerged.