Viruses, Stock Markets, Trump & The Global Economy (#112)
The seemingly indestructible US Stock Market came tumbling down last week, and in doing so, the distinction it earned, was for it to be the biggest drop of the Dow Jones Industrial Average in a single day (-1,190 pts), and the fastest drop into ‘correction territory’ (contraction greater than 10%), in history.
Since these were record setting numbers, of the ‘greatest ever’ sort, they were certainly worthy of President Trump, who claims everything he does as the ‘best ever’, the ‘greatest ever’, and always ‘in history’. But not surprisingly, he didn’t want to own these numbers - instead, he tried to pin the Market’s drop on the Democrats, labeling the cause of the Market’s tumble (which was of course the Corona Virus), as another elaborate ‘Democrat hoax’, designed solely to dethrone him.
His Chief of Staff, Mick Mulvaney, later reiterated Trump’s accusation and seconded it (talk about a conspiracy theory at work) as another attempt by the Democrats to bring Trump down as ‘Russian collusion hoax’ had failed, as had the ‘Impeachment hoax’, and now it was the Democrats using the Corona Virus scare, with the ‘media’s help’ of course, to try and destroy the Stock Markets and the Economy, by creating panic in the news cycles (the Democrat hoax), just to bring Trump down.
One has to marvel at Trump, his family, his administration, and the entranced Republicans, for the sheer tackiness to be able to say the stupidest things in front of the World, and not show a flicker of self-consciousness or embarrassment.
The fact that the Corona Virus emerged out of Wuhan Province in China, and spread across the Globe from there, and the fact that governments around the World are scrambling to take emergency measures to try and contain the spread of the viral infections, did not restrain Trump and his sycophants from personalizing the entire Corona Virus Crisis, and then pinning it on the Democrats.
Only Trump can take a global pandemic and make it all about himself.
Trump and his administration’s typical response to a real problem, with bizarre non-factual utterances and willful denial of reality, gave the falling Stock Markets no reassurances, and the rout continued after Trump’s attempt to reassure them.
Trump and his administration, and his campaign team fear that this Stock Market drop, and the economic hit from the disruptions to business and economic activity around the World (and eventually in the US), will pose a real danger to Trump’s reelection hopes in 2020 (November of this year). And so, their knee-jerk reaction was not, to responsibly address the Corona Virus crisis engulfing the World and potentially the US, but to go immediately into re-election mode, and play the blame-game with the Democrats.
And to make matters worse, clueless Trump appointed his equally clueless and strangely robotic, unsuitable and highly impractical VP, Mike Pence, with a poor record in controlling epidemics (who by the way also thinks Science is a hoax), in charge of the potential Corona Virus Crisis in the US.
But this crisis is not an American political one, as with Trump’s many ethical infractions as President, triggering endless investigations and finally Impeachment - this was an international crisis that legitimately threatened the Global Economy.
So, American political Trump tragi-comedy aside, the Corona Virus has disrupted one of the greatest bull-markets in history, and brought to its knees (economically speaking), the second largest, and one of the most aggressive economies in the World, China, with a growing impact on South Korea, Japan, Australia, Italy, Iran France, the UK, and others, with cases growing daily around the World, including Canada and the US. The growing economic impact toppled the Markets at the fastest rate recorded, as fear of a full-fledged Global pandemic set in.
The hit to China’s economy from the Corona Virus has been unprecedented.
China is the second largest, and perhaps the most significant economy to most of the countries of the World, in terms of mass produced goods, global supply chains, and for being one of the largest consumers of commodities and resources.
China’s forced shutdown has already disrupted global business drastically.
A significant drop in China’s economic activity, as has been presently triggered by the Corona Virus, if prolonged, would most certainly bring on a global recession. And, the much touted current strength of the American economy, which is more fragile than is acknowledged currently, will not be able to stave off that recession.
Additionally, the Corona Virus has added significantly to the existing and growing political and economic problems around the World.
The UK and the European Union are now locked in a bitter and fractious disengagement battle as a result of the recent enacted Brexit.
The most immediate casualty for them both is the trade and economic relations between them - and from reports of their most recent discussions towards a new trade relationship, they are not even cordial, let alone being mutually constructive. That meant one of the largest and most important trading blocs was already in turmoil, before the additional impact from the Corona Virus Crisis hit.
The spreading Corona Virus in Europe is most severe in Italy at the moment, with over 1,000 reported infections and dozens of deaths. But a number of other European countries, France, Germany and Spain, have already found cases of the Corona infections, and are expecting the crisis to grow significantly, daily.
Britain is preparing for a potentially devastating impact from the spread of the Corona Virus, and lately, UK’s Health Secretary, Matt Hancock, indicated that the government might consider shutting down entire cities, like China did, in an effort to contain the spread of the Virus, in its worst-case scenario possibilities.
Beyond China, the rest of Asia and Europe, the Corona Virus has spread to practically every region and continent, with Iran having over a 1,000 cases with over 50 deaths reported, and Canada and the US, and Brazil, each having confirmed cases of the infection, while expecting the numbers to get worse before they get better.
The Stock Markets last week reflected this growing menace, and the new global economic reality emerging from the actions of governments and business that were needed to contain it.
The potential of the Corona Virus to disrupt global trade, regular business within countries, international and local supply chains, jobs through possible closures of factories, offices, schools, malls and all other myriad gathering places, such as restaurants, etc., has investors running for the exits.
The fear of massive economic disruption has already happened in China, where entire cities were shut-down, and travel throughout the country was severely curtailed, especially from the ‘infection centers’.
The impact of such drastic but necessary actions was that China’s first quarter GDP, estimated to be around 6% per annum, before the Corona Virus, is now expected to drop to just above 4%, because of the impact of the Corona Virus.
And because of China’s significant economic hit, and because of the spreading impact around the World, the Global GDP for 2020, currently pegged by the IMF at 3.3%, will probably come in at, or below, 3%, as IMF’s estimates generally tend to be a bit optimistic and are usually revised downward, post reality. And according to Goldman Sachs, corporate earnings in 2020 may well be non-existent in the US, due to the Corona Virus.
Such significant economic disruption, in real time, has sent markets tumbling worldwide, and until there is absolute proof of containment, and later, a possible cure, confidence in the business communities, consumers, and the stock markets, will not be returning anytime soon.
Exacerbating the problem is the fact that at the helm of the biggest of the biggest economy now, is a President and his VP in charge of the crisis, who not only do not believe in Science, but in their solely self-serving reptilian brain, the entire global (56 countries) reaction to the Corona Virus is solely engineered by the Democrats to bring Trump down.
Such self centered detachment from public responsibility, by the highest Office, does not engender confidence in anyone, and if the pandemic does accelerate outside of China, as it shows signs of doing, then the vaudevillian act that is Trump’s administration is the least equipped to effectively deal with it.
And, in such an environment, the Federal Reserve and the Global Central Banks are very limited in what they can do to reverse the deteriorating global economic condition, as shutdowns, supply chain disruptions, and the accompanying loss of jobs and confidence, are well beyond the toolbox of Central Banks and the Fed.