These Aren't Totally Unprecedented Times
The Fed chairman makes Tony Montana-like promises... The economists are watching the doctors and the virus... About that 'vaccine'... Revisiting the course of the Spanish flu of 1918... These aren't totally unprecedented times... Doc's best path forward...
Federal Reserve Chairman Jerome Powell lit another match last night...
Powell, wearing a fresh suit and crisp tie, held the fire against the tip of a cigar labeled "Economy and Markets: Product of USA"... inhaled, released... and puffed a few rings of smoke in the air of the Fed governor's fancy meeting room in Washington, D.C.
OK, this image is a slight exaggeration... But Powell did, in fact, sit down for a long, nationally televised interview on 60 Minutes last night. And his words stoked the glowing embers of the flickering U.S. economy...
In the long run, and even in the medium run, you wouldn't want to bet against the American economy. This economy will recover. And that means people will go back to work.
Powell sounded an optimistic tone, saying a recovery could happen as soon as the third quarter of this year...
But he also qualified that statement by saying the rebound could stretch into the end of 2021... and depends on if a "second wave" of COVID-19 appears in the U.S... and if an effective vaccine is developed... and if Congress tells the Fed to "do more" (or not)...
Those are some big, heavy, expensive, and uncertain "ifs"...
But Powell promised he could always make like Tony Montana in Scarface and take out the bazooka...
"Has the Fed done all it can do?" the interviewer, CBS's Scott Pelley (sitting about six feet away), asked the Fed chairman. And Powell's response...
There's a lot more we can do... We're not out of ammunition by a long shot... and we're committed to doing everything we can as long as we need to.
In other words... Puh-lease, have you met my friend, bazooka digital currency press? It has unlimited zeros.
Powell said "there's no limit" to the lending powers the Fed has. It doesn't have any problems giving money to itself, of course... or small and large businesses. And it can adjust its "asset purchasing" strategy, too (a reminder that BlackRock is on speed-dial to handle such bond-buying matters).
Powell went further, saying there is no chance we're headed into another Great Depression... because the financial system is strong, and this whole thing is more like a "natural disaster" than anything. As he concluded...
I don't think that's a likely outcome at all.
Those words don't hit with the same force as Tony Montana's defiant, "Say hello to my little friend," and "I'm still standing, go ahead!" before he's shot in the back and falls into a pool at the end of the cult movie Scarface... but it's about as close as you'll get from the Fed chairman, in couched terms.
To that point, a lot of Powell's interview didn't actually make the TV cut. You can read the full transcript here.
There's a lot to unpack any time the Fed chairman speaks...
And especially when uses as close to plain English as we've heard in a while...
Perhaps most importantly, Powell said the Fed governors are watching the medical data roll in like everyone else... and that the spread of COVID-19 will determine when the economy bounces back...
We don't have virologists working here at the Fed... [but] at the moment, the thing that matters more than anything else is the medical metrics, frankly. It's the spread of the virus...
What we're really looking at is getting the medical data, which is not what we usually look at, taken care of so that the economic data can start to recover.
In a sense, the real-time economic data that we're seeing is just a function of how successful the social distancing measures are...
For the economy to fully recover, people will have to be fully confident. And that may have to await the arrival of a vaccine.
It's crazy to think that this select group of folks has as much influence on the economy as it does, but... it does.
You're telling me (Corey McLaughlin) that the Fed can lend money out like it's dirt and buy trillions of dollars of assets, but the central bank can't hire a part-time medical expert to at least be "on call"?
Now about that 'recession until we get a vaccine' comment...
I've been guilty of saying it myself... It is a comforting idea. And today, from 100 candidates, companies involved in the race have now been whittled down to about a dozen.
Just today, biotech company Moderna (MRNA) reported positive results in an early stage human trial for a coronavirus vaccine. And the company's shares surged more than 26% as a result.
But anyone who has read Retirement Millionaire editor Dr. David "Doc" Eifrig's latest comprehensive issue, published last Wednesday, knows there's some needed context and clarifications in the "vaccine" argument...
(By the way, if you don't already subscribe to Doc's Retirement Millionaire, click here for more information on how to join now.)
In the issue, Doc and his research team say the only word to describe today is "unprecedented." And they showed a host of charts (the wacky world of oil, airlines, and staggering unemployment) and other evidence to support that fact.
And we agree, today – exactly as it has happened – has never happened before.
But today isn't totally unprecedented, either...
Even Doc and his team laid out a few pieces of knowledge from the past that we think apply to the present, especially when everyone is wondering what will happen next...
In short, Doc says a vaccine is not an end-all, be-all – simply because of the science involved in a "coronavirus" itself. As you likely know by now, there are many kinds of coronaviruses. A coronavirus causes the common cold.
So to call this pandemic simply a "coronavirus outbreak" might actually lead to some subconscious confusion...
The point is, it's important to learn the details...
You should do so both for your financial and physical health. We don't know another way to properly prepare yourself and your portfolio for the length and scope of this recession and pandemic...
In their latest issue, Doc and his research team listed out "10 Things We Know About COVID-19." And for the purposes of today's Digest, we'll focus on just a few of them, starting with No. 2...
It's a seasonal phenomenon.
The SARS-CoV-2 virus is more similar to seasonal viruses than we think. And that means our immune systems can take care of it.
We know that other coronaviruses are seasonal. Take a look at this chart of four other common coronaviruses over the past eight years. Notice a pattern?
They all peak in January and February, dying down after May. If SARS-CoV-2 is anything like the rest of its family, it will follow suit.
Getting into the weeds, Doc says less than 20% of all cases are "severe." That means 80% of people infected will have mild symptoms, if any at all.
And those with mild symptoms often don't make antibodies, since their bodies wipe out the infection before that part of the immune system needs to activate.
This is why Moderna's trial vaccine results are important. The company said doses of the drug produced COVID-19 antibodies in all of its 45 study participants.
The point is, though, according to Doc...
This means we could see reinfection and a reappearance next winter... and the winter after that... and the winter after that one.
We see this with influenza virus (the flu) pandemics, too, including the 1968 to 1969 H3N2 virus that killed 100,000 Americans. We didn't shut the country down then. (Imagine trying to cancel Woodstock.) Today, the H3N2 flu still pops up every winter, and we count it with our usual seasonal illnesses. I suspect that to happen with SARS-CoV-2 as well.
One of Doc's other 10 big 'knowns' is that this virus is likely to mutate...
This fact is extremely important, but a lot of people aren't talking about it.
Scientists believe the virus has mutated multiple times already as people traveled around the world during the pandemic's early days...
And this will likely continue, which can be good (stronger virus) or bad (weaker virus). But the salient point is that all that work for a vaccine now might be for naught in later COVID-19 seasons or waves. As Doc said...
Vaccines don't work that well on mutating viruses... and will NOT work here.
SARS-CoV-2 virus is an RNA virus. That means it has RNA as its genetic material instead of DNA.
RNA viruses are more likely to mutate. That's why vaccines don't work nearly as well. RNA viruses include influenza, Ebola, and HIV. It's the reason we need new flu vaccines every year – the virus changes too much each season.
And even if we do get a vaccine, efficacy rates could be low if scientists incorrectly guess which strain is likely to pop up during the next season, let alone which strain is in Alabama versus California. That's why we've seen efficacy rates as low as just 19% with the flu shots.
Add to that the safety concerns of vaccines and any drug in general. The rush to roll out a COVID-19 vaccine means many places are skipping the standard animal studies before going straight to human test subjects.
We have no idea how safe these vaccines will be and whether or not they'll do any serious, lasting damage. In my mind, it is insane to skip basic safety protocols for a vaccine that likely won't be effective for more than a single season.
So as much as we like the idea and the comfort that a vaccine may bring, we're not holding out hope that it's going to 1) be safe, without unforeseen or untested side effects... and 2) wipe COVID-19 from the planet even if it is safe.
Flu shots, after all, haven't eradicated the flu. And Doc says we're dealing with something very similar.
Taking this one step further, in the spirit of Dan Ferris' Friday Digest, let's take a look at history...
On Friday, Dan urged investors – citing Santayana's early 1900s book, The Life of Reason, and distilling a pair of quotes into simple advice – to do two things when thinking about their assets today...
- Learn some history.
- Use what you learn to help you re-adapt to the present.
Dan followed through on these thoughts and compared today to the Great Depression era, referencing Extreme Value analyst Mike Barrett's prescient Digest on that point from the start of the year.
Since we've gone through the present circumstances already, now I want to do "No. 1" of Dan's exercise with the Spanish flu outbreak of 1918...
Part of 'these unprecedented times' of the present have actually happened before...
Anita Simpson of Sarasota, Florida – the nice, 100-year-old lady on the new heartwarming Facebook (FB) "Born in quarantine" commercial, who was born during Spanish flu pandemic – is now reminding everyone of this fact...
The commercial features this picture, from the U.S. Centers for Disease Control and Prevention's ("CDC") website, of Red Cross volunteers in Boston making masks for people at hard-hit Camp Devens in Massachusetts...
This photo was taken in the fall of 1918. The timeline of the events in the U.S. compared to today, so far, is eerie...
First off, despite its name, this flu didn't originate in Spain. The origin is largely considered unknown, but some trace it to Asia. It was called the "Spanish flu" because at the time – during World War I – Spanish newspapers were the only publications freely reporting on the flu itself...
Information about infections and deaths in Germany, France, the U.K., and the U.S. was censored, at least initially.
According to the CDC, outbreaks of people with flu-like symptoms began in March 1918, notably at a U.S. military base in Kansas. And the first mention of "influenza" appeared in a public health report on April 5.
War continued. Soldiers traveled around the world. The flu spread "unevenly through the United States, Europe, and possibly Asia over the next six months," according to a CDC timeline.
The 'second wave' hit the U.S. that fall and killed hundreds of thousands of people...
Between September and November, a second wave of flu peaked in the U.S. This second wave was highly fatal... It was responsible for most of the deaths attributed to the pandemic.
In October 1918 alone, the virus killed an estimated 195,000 Americans. And no age group was spared, making observers think the virus mutated into a deadlier form.
The point is, the virus was killing a lot of people (more than the war itself), and the spread continued when soldiers returned home in November after the war ended.
Only then were 'social distancing' measures recommended...
In the fall of 1918, according to the CDC, public health officials began education programs and publicity about the dangers of coughing, sneezing and careless disposing of "nasal discharges."
The Committee of the American Public Health Association encouraged stores and factories to stagger opening and closing hours, and suggested people walk to work instead of using public transportation to prevent overcrowding. In Indiana, the state's secretary of health, Dr. John Hurty, suggested people...
Avoid crowds until the danger of this thing is past. The best thing to do is to keep your body in a splendid condition and let it do its own fighting after you exercise the proper caution of exposure.
If all spitting would immediately cease, and if all coughers and sneezers would hold a cloth or paper handkerchief over their noses and mouths when coughing or sneezing, then influenza and coughs and colds would almost disappear.
Sounds familiar...
Some cities had different policies than others. And Philadelphia and Boston, for example, had worse death rates than New York.
By the end of it all, one-third of the world's population was reported to have become infected. At least 50 million people reportedly died, or 3% of the world's population.
In the U.S., 28% of the population was infected, and 675,000 died – 10 times as many as the soldiers who died fighting in World War I.
The virus largely disappeared by early 1919 – without a vaccine...
Deaths continued into that March, even killing Montreal Canadiens defenseman Joe Hall during the 1919 Stanley Cup Finals. (The series was canceled after five games.)
But a little less than a year after this flu first became noticed... cases dropped to small numbers. And a year later, it disappeared after a tiny, final "fourth wave."
The Spanish flu came in with a bang, unleashed chaos, and went out with a whimper...
So if we wanted to extrapolate this past information into our current situation, we can now ask a few important questions to determine if or when the virus will go away, and if or when the economy will come back...
Can we say we're ahead of the 1918 ballgame when it comes to slowing down the spread and treatment the virus? It seems so.
The pandemic isn't over, but with a global population of 7.8 billion today, the death rate is about 0.003%. That's minuscule compared to the Spanish flu.
But are we ahead of schedule, in terms of eradicating the virus and bringing the economy and the world back to life as we know it?
That's truly to be determined... There are still too many variables to get into today.
For example, are we in the second wave already? Did the virus already mutate quicker than the 1918 Spanish flu edition because of the number of people in the world today? And was it already around last year? These are all possibilities.
And as for the stock market... it can be – and is – acting disconnected from the economy and Main Street reality. How will it react over the next year and beyond? Well, find me someone who can accurately predict the future 100% of the time...
But looking back one more time, after the Spanish flu disappeared, the Dow Jones Industrial Average pretty much traded sideways until 1924.
Then, the index began a nearly four times run higher into 1929 and... the Great Depression. Our friend over at Empire Financial Research, Enrique Abeyta, shared this chart last week...
And Enrique said...
This could be a reasonable road map for the period we are in right now: Slower recovery in the real world, but the injection of liquidity "supercharges" asset prices.
As for what 'we' should do in the meantime, we go back to our 'Doc'...
When trying to determine the path of severity of the virus, Doc says "accurate testing" is the only way forward when dealing with COVID-19. From the latest Retirement Millionaire issue...
We need verifiable, scientific proof of infection rates. We need to know the real mortality rate from the virus alone. We don't have any of these right now. So we're making sweeping decisions based on guesswork and fear.
Worse, the decisions are being made by people that don't live and work in the real-world economy... They work off of your taxes and your efforts. And they are people who naturally want to keep it that way with more power and more control.
This whole mess is a testament to massive incompetence and scientific illiteracy.
Use your own common sense...
If your immune system is weak and you're rundown and at risk, avoid interacting with sick folks who have these underlying conditions unless you're taking extra precautions like wearing masks and gloves. Take care of yourself. Nobody else – especially anyone from the government – will.
As we've said before, only "we" have the power to determine what we do next.
In this case, our individual decisions, collectively, will decide the path of the virus itself. But at the same time, we can't predict what every single person in America is going to do.
That's why even Fed Chairman Jerome "Scarface" Powell, the puller of the U.S. economy's trillion-dollar strings, is watching and waiting like everyone else is.
Make sure your portfolio is prepared accordingly.
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In today's mailbag, a question about bitcoin based off Dan's Friday essay. Do you have a question or comment? Send it to feedback@stansberryresearch.com.
"OK, more and more I am seeing references to bitcoin in your pubs. But I do not have a clue how to purchase bitcoin. It would be nice if someone in your firm could publish a tutorial on how to buy/use bitcoin. With some recommendations on where/how to store it as well." – Paid-up subscriber Chip C.
Corey McLaughlin comment: We have a service that does precisely everything you mentioned, Chip.
Eric Wade's Crypto Capital newsletter provides all the basics and recommendations for a cryptocurrency novice and all the details you need to stay ahead of the curve in the crypto space.
In fact, just today, Eric launched a bitcoin and cryptocurrency "Masterclass." And best of all, it's free to participate. Click here for more information on how to get started right now.
All the best,
Corey McLaughlin
Baltimore, Maryland
May 18, 2020