COMMON FLU 650,000 DEATHS PER YEAR
Up to 650,000 deaths occur annually (EVERY YEAR) around the globe from outbreaks of common influenza, according to estimates by the United States Center for Disease Control and Prevention (US-CDC), the World Health Organization and global health partners.
So far, Coronavirus deaths number about 3,000. The difference in scale is stark but BOOM cannot find anyone who is panicking over the common Influenza risk which we all face every year.
JEROME POWELL MUST CUT TO 1% IMMEDIATELY
The Chairman of the Fed, Jerome Powell, said on Friday that he was closely monitoring the situation but, only a few weeks ago, he had indicated an unwillingness to lower the overnight key interest rate at the next FOMC meeting in mid March. This unwillingness now makes no sense at all when the US sovereign bond yield curve is clearly under stress and becoming more spoon shaped by the day.
In BOOM’s opinion, the FOMC committee MUST lower the overnight key rate IMMEDIATELY by 0.75% to bring the Yield Curve back into a more normal shape. But can Powell act boldly?
He is not a banker or an economist. He has a degree in politics and law. He has no Ph D in economics. He has spent his life in academia, law, government and the world of investments.
If he does not show a willingness to lower the official interest rate firmly and soon, then his position as Chairman of the Federal Reserve will come under great threat. The Federal Reserve Chairmanship is a Presidential appointment. No President has ever tried to remove a member of the Federal Reserve Board or its Chairman. He can do so to a member (but not necessarily the Chairman) only “for cause” according to Section 10 of the Federal Reserve Act as amended in 1935.
If the Fed does not cut by 0.75% as soon as possible, will the President have sufficient cause to remove members of the Federal Reserve Board? And its Chairman? BOOM thinks that if the Chairman does not act boldly then Trump will.
Last Sunday, the BOOM editorial pointed out that there was a very big disconnect developing between certain events that were occurring in the real world and the persistent strength in the world’s financial markets. It was apparent that investors were simply ignoring the real world events around them. They continued to be unrattled by the Coronavirus panic and they continued to buy battery powered companies (such as Tesla) despite a 12 month collapse in battery input prices (indicating a lack of demand). Well all of that changed in a heartbeat on Monday, the very next day. BOOM had no idea how influential that editorial was going to be.
As the week progressed, we saw very large falls each day in the world’s stock markets. The big “Disconnect” that BOOM had referred to last Sunday seemed to have finally become manifest.
By Friday, for example, the previously over-hyped Tesla shares had collapsed by 36% from their peak price of US$ 969 on February 4th. Many Tesla shareholders will be wondering what happened. BOOM can tell them that reality happened.
THE TRUE STORY
To get the real truth, BOOM looked more closely at the financial markets on each day — especially at the stock volumes traded, the US Bond market reaction, the currency market reaction and the precious metals markets.
As stock markets fell sharply, the Gold and Silver prices initially rose but then they also started falling. By the end of the week, GLD was down 7% from its peak price on February 24th. (GLD is the premier Gold ETF in New York). And SLV — the premier Silver ETF, collapsed harder 13% through the week from its peak price on February 24th. Gold and Silver are supposedly safe havens for investors but that did not play out as the Gold Bugs have always predicted.
The US Dollar Index also fell as the Euro, the Yen and the Swiss Franc surged upwards. So the theory of the US Dollar being the ultimate safe haven was also badly damaged by the end of the week.
And Bitcoin, another supposed safe haven, fell throughout the week by 14.5%.
The next safe haven to consider is the US bond market. US Bond prices initially rose but then stalled and barely moved on Tuesday, Wednesday, Thursday. On Friday, investors finally decided to start buying but not so enthusiastically. By the close on Friday, the broad bond market ETF — BND — had risen by only 1.12% for the week. Investment Grade Corporate bonds rose but only by a tiny margin while the high risk Junk Bond market did fall but was down by only about 3% on the week.
BOOM was also watching the daily volumes of shares traded on the US stock markets. They rose as the week progressed but not to stratospheric heights. In fact, similar daily volumes had been recorded on days during September and December last year when the market was under no pressure. So, the volumes traded daily were certainly higher than recently experienced but not extraordinary when looked at over long periods of time.
The weekly volume traded on the broad S & P 500 index was lower than the volume peaks recorded back in 2018. The NASDAQ weekly volume was a little more impressive but not extraordinary. The venerable Dow index recorded a weekly volume over 3 Billion shares traded but that was just a touch above the peak volumes recorded in 2018.
Conclusion: The stock markets fell on relatively unimpressive volumes. The safe havens such as the US Dollar, US Treasury Bonds, Gold and Silver did not see any huge demand as one would expect. Even Bitcoin fell. This is a very strange event in historical terms. The majority of stock investors appear to be sitting tight, waiting for a great buying opportunity.
THE VIRUS PROGRESSION
At the time of writing, the official figures for Coronavirus infections seemed to show a significant slowing in the epidemic, especially in China. South Korea is the exception. The virus is aggressively expanding its influence there and probably because people of Asian descent are reportedly more susceptible to this particular virus because of the Angiotensin Converting Enzyme status in their lungs. But, in other non Asian nations, the alarms are ringing loud but the epidemic is not (yet) apparent in any great numbers with the possible exception of Italy. The overall death rate seems to mimic the common Influenza death rate at around 2 – 3%.
It is important to remember that the number infected in China of 78,824 represents just 0.0055 % percent of the total population. Which means that well over 1.4 BILLION Chinese are NOT infected. If the virus is well contained, this could all turn around rather quickly.
EMAIL: gerry [@] boomfinanceandeconomics.com
Return to the BOOM Main Website – BOOM Finance and Economics at http://boomfinanceandeconomics.com/
HOW MOST MONEY IS CREATED
BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR (but they always need a Borrower to do so)
THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS
How is Most New Money Created ?
LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).
From the Bank of England Quarterly Bulletin Q1 2014 —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.“
Quarterly Bulletins Index
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.
On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —
“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”
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