<aside> 💡 This essay was posted on Facebook on March 3rd 2020. After saying the pandemic was “under control”, and risks were “very low”, President Trump declared a state of National Emergency on March 13th. On March 20th the mayor of Los Angeles issued the nation’s first Stay At Home order.

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For those of you who aren’t economics geeks, and maybe are too young to remember what inflation is, or what a real crash looks like, let me just give a piece of unsolicited advice. Do NOT “buy the dip” in this market. In fact, sell the rally and get out of the way. The markets have hit a Minsky moment (google it) that’s been building up for years, and it’s gonna be a rough ride.

1. Whether or not Covid is a true health crisis, it already is an economic crisis. China, the growth engine of the world, has been shut down for two months. Travel and tourism is falling everywhere. Conferences are getting cancelled. Forget the cruise business for a few years. Theme parks, malls, all of that’s gonna take a big hit.
2. Markets… basically all markets… were massively overvalued and highly levered. Record levels of corporate debt exist, from government easy money. Tons of “zombie companies” still standing because of record low interest rates, which pumped money into the financial system, and inflated stocks, real estate, corp. balance sheets, and almost every other asset except precious metals, and commodities. These companies are vulnerable to collapse.
3. Trump one-upped the left by starting MMT long ago We have never before LOWERED Fed interest rates during an expanding economy with record low unemployment . He arrived into a bubble, and just wanted to blow it up further. He is also doing everything he can to convince everyone he’s the worst possible president to face down a pandemic. S. Korea has tested hundreds of thousands of citizens, we’ve tested a tiny fraction of that because we were not ready, and failed to heed warnings. When the scale of this infection here is known, expect a shock. His attempt to play it down is going to live in infamy.
4. But the real global impact of the pandemic in earnings and production and employment has NOT been priced into the S&P. This correction is only the beginning. There are unstable structural things we’ve allowed to happen that will now show themselves. ETF liquidity in high yield markets, for one. We will be whipsawed by ups and downs for weeks, with the overall trend sharply downward in global equities. Retreat to cash every time there’s a rally. The good news is that Trump’s re-election, a sure thing a few weeks ago, looks less and less likely. Good luck out there.