The year the Earth stood still

Whatever happens to society after Covid-19, the answer for investors has barely changed form over the last few years, writes Tim Price.

“So, first of all, let me assert my firm belief that the only thing we have to fear is… fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance…”

– From the first inauguration of Franklin D. Roosevelt as the 32^nd President of the United States, Saturday, 4^th March, 1933.

First the virus. Then the governmental overreaction. Now the backlash. At the end of May, a German official, Stephen Kohn, blew the whistle on the established Covid-19 narrative, and leaked a 93-page report entitled Analysis of the crisis management. Among its key findings:

1. “The dangerousness of Covid-19 was overestimated: probably at no point did the danger posed by the new virus go beyond the normal level.”
2. “The people who die from Corona are essentially those who would statistically die this year, because they have reached the end of their lives and their weakened bodies can no longer cope with any random everyday stress (incl. approximately 150 viruses currently in circulation).”
3. “Worldwide, within a quarter of a year, there has been no more than 250,000 deaths from Covid-19, compared to 1.5 million deaths [25,100 in Germany] during the influenza wave 2017/18.”
4. “The danger is obviously no greater than that of many other viruses. There is no evidence that this was more than a false alarm. A reproach could go along these lines: During the Corona crisis the State has proved itself as one of the biggest producers of Fake News.”
5. “The report focuses on the “manifold and heavy consequences of the Corona measures” and warns that these are “grave”. More people are dying because of state-imposed Corona-measures than they are being killed by the virus.”
6. “A Corona-focused German healthcare system is postponing life-saving surgery and delaying or reducing treatment for non-Corona patients.”
7. “Therapeutic and preventive measures should never bring more harm than the illness itself. Their aim should be to protect the risk groups, without endangering the availability of medical care and the health of the whole population, as it is unfortunately occurring”.
8. “We in the scientific and medical praxis are experiencing the secondary damages of the Corona-measures on our patients on a daily basis.”
9. “We therefore ask the Federal Ministry of the Interior, to comment upon our press release, and we hope for a pertinent discussion regarding the [Corona] measures, one that leads to the best possible solution for the whole population”.

The following day, the US entrepreneur JB Handley published a definitive guide to the accumulated governmental and medical mis-steps in handling the pandemic, most notably the lockdown itself. His executive summary is clear:

Knowing what we know today about COVID-19’s Infection Fatality Rate, asymmetric impact by age and medical condition, non-transmissibility by asymptomatic people and in outdoor settings, near-zero fatality rate for children, and the basic understanding of viruses through Farr’s law, locking down society was a bone-headed policy decision so devastating to society that historians may judge it as the all-time worst decision ever made. Worse, as these clear facts have become available, many policy-makers haven’t shifted their positions, despite the fact that every hour under any stage of lockdown has a domino-effect of devastation to society. Meanwhile, the media—with a few notable exceptions—is oddly silent on all the good news. Luckily, an unexpected group of heroes across the political landscape—many of them doctors and scientists—have emerged to tell the truth, despite facing extreme criticism and censorship from an angry mob desperate to continue fighting an imaginary war.

The only thing more damning was his citation of the thoughts of Yoram Lass, former director of Israel’s Health Ministry:

It is the first epidemic in history which is accompanied by another epidemic – the virus of the social networks. These new media have brainwashed entire populations. What you get is fear and anxiety, and an inability to look at real data. And therefore you have all the ingredients for monstrous hysteria… Compared to that rise, the draconian measures are of biblical proportions. Hundreds of millions of people are suffering. In developing countries many will die from starvation. In developed countries many will die from unemployment. Unemployment is mortality. More people will die from the measures than from the virus. And the people who die from the measures are the breadwinners. They are younger. Among the people who die from coronavirus, the median age is often higher than the life expectancy of the population. What has been done is not proportionate. But people are afraid. People are brainwashed. They do not listen to the data. And that includes governments.

Joseph Tainter, in his book The collapse of complex societies concludes as follows:

Collapse is recurrent in human history; it is global in its occurrence; and it affects the spectrum of societies from simple foragers to great empires. Collapse is a matter of considerable importance to every member of a complex society, and seems to be of particular interest to many people today. Political decentralization has repercussions in economics, art, literature, and other cultural phenomena, but these are not its essence. Collapse is fundamentally a sudden, pronounced loss of an established level of sociopolitical complexity.

A complex society that has collapsed is suddenly smaller, simpler, less stratified, and less socially differentiated. Specialization decreases and there is less centralized control. The flow of information drops, people trade and interact less, and there is overall lower coordination among individuals and groups. Economic activity drops to a commensurate level, while the arts and literature experience such a quantitative decline that a dark age often ensues. Population levels tend to drop, and for those who are left the known world shrinks.

It is by no means clear that the Coronavirus Crisis of 2020 will cause widespread social collapse, but it is not as if the global economy or our modern culture and society were exactly in rude health in the days before the pandemic erupted. For years I have nursed doubts about the unsustainable build-up of government debt, for example – to levels which are now well and truly beyond the unpayable. The effect of Covid-19 has been, I would argue, to act like a time machine, accelerating us to the endgame of this global debt predicament.

If you accept the thesis that there is too much debt in the system (essentially, that the rest of the world has now turned into 1990s no-growth deflationary Japan), then you must also accept the thesis that there can only be three ways of “reconciling” that debt. One is for government to engineer enough economic growth to keep the debt serviced. Good luck with that strategy in a year when US unemployment claims have already topped 42 million.

One is for governments to default on that debt. If you prefer more polite language, you can call it a “debt jubilee” or a reset, but it amounts to the same thing. Not least, the instantaneous bankruptcy of the entire global pension system. Not to mention the equivalent of Armageddon within a credit-based global economy.

So what’s in Box Number Three? Funnily enough, Box Number Three is the option to which all heavily indebted governments have resorted since the beginning of recorded time. Inflation. So why weren’t central banks able to ignite inflation (in the prices of goods and services, at least) after eight years of ever more ridiculous Quantitative Easing? Listen to this recent podcast with the financial historian Russell Napier, and the answer becomes clear. Central banks failed to spark “real” inflation after the Global Financial Crisis because while they were “filling the bathtub” in monetary terms, the commercial banks were essentially emptying it. But a) the combined fiscal and monetary stimulus in response to Covid-19 is truly monstrous (the Fed has already this year, in the space of two months, printed more than half of what it printed in the eight years following the Lehman Brothers collapse), and b) governments and central banks, this time around, are more likely to succeed in coercing the private banking system to join forces with them in the project to reflate. Unfortunately, that also means that financial repression is alive and well. So whatever happens to society, the answer for investors has barely changed form over the last few years. Do you own enough gold?

About Tim

Tim Price is manager of the VT Price Value Portfolio (www.pricevaluepartners.com) and author of ‘Investing Through the Looking Glass: a rational guide to irrational financial markets’.