by Gary Alexander
March 10, 2020
So far, the coronavirus has killed around 3,000 people, mostly in China, and a handful in America, yet the stock market here has responded with its fastest-ever (7-day) 10% correction, and numerous after-shocks.
A decade ago, far worse catastrophes hit China and America, yet growth was not hindered, there or here:
- In May 2008, an earthquake struck Sichuan province, China’s crowded central province, killing 87,587 (plus over 18,000 missing), but despite the worst earthquake in China since 1950 and a global recession that sent stocks down worldwide, China’s GDP kept growing at a +9.65% pace in 2008.
- In April 2009, the “swine flu” (H1N1) entered America from Mexico. By March 2010, according to the CDC, an estimated 59 million Americans contracted H1N1, with 265,000 hospitalized and 12,000 Americans dying from the flu, yet the S&P 500 gained 34% from April 1, 2009 to April 1, 2010.
- Two years ago, the 2017-2018 U.S. flu season infected 45 million Americans and killed 61,000 of us, yet there were no scary daily headlines about those flu deaths, nor any flu-related stock market panic.
Just a hunch, but could the 2020 press panic and resulting market panic be blamed on the fact that (1) we were at an all-time market high on February 19, 2020 and the market was looking for an excuse to sell (vs. no flu panic in 2009, when we were coming out of a bear market and Obama was President)? Or was it that (2) the press respected President Obama, while the press is at war with Trump (and vice versa)?
Either reason seems irrational or, as my headline calls it “senseless.” But beyond this seemingly irrational response to a still-little-understood virus, there is a much better-understood virus spreading in America.
Another Kind of Virus May be Haunting the Stock Market
Everyone is blaming this stock market malaise on the coronavirus, but I’ve shown you that previous flu outbreaks did not cause a stock market collapse. Could there be another virus? Consider this timeline:
- The market collapse began on Monday, February 24, the first trading day after Bernie Sanders’ surprisingly strong win in the Nevada caucus, beating Joe Biden, 47% to 20%. Bernie’s big victory in Nevada gave him confidence to come out of the closet and praise Castro a bit too much for most voters’ tastes. In a town hall meeting on February 24 – the day the market carnage began – Sanders said the first thing Castro did when coming to power was to start a major literacy program (Bernie ignored the killing and jailing of dissidents). He praised China for bringing millions out of poverty while ignoring their previous killing of tens of millions in famines and work camps. That week, the market began its fastest-ever 10% correction, falling that far in just a little over six trading days.
- Next, examine the stock market’s strong recovery on Monday, March 2 (+1,293 Dow points), the first trading day after Joe Biden won South Carolina over the weekend, and then on Wednesday, March 4 (+1,173), after “Super Tuesday,” when Biden won nine states to only three for Sanders. However, the market soon realized that Sanders had won America’s most populous state, California, and Biden’s wins were concentrated in the Deep South, so the market belatedly realized that Sanders is still a viable candidate – causing the market to drop sharply on Thursday last week.
Today, we have Democratic primaries in six states, led by Michigan (125 delegates), Washington (89), and Missouri (68). I know for certain Bernie will take my Washington county in a landslide. He may take my state, and if he wins Michigan, look for a big down day Wednesday, and more volatility as four big primaries arrive March 17. As with Trump in 2016, pundits don’t give Sanders much chance of winning, but he has a loyal base and could pull off the upset – like Trump did in 2016 – so the market is skittish.
That’s at least a viable theory – as viable as the coronavirus theory – to explain why this market is so volatile now. Sanders’ campaign is still alive and well and could overtake the cognitively challenged Joe Biden for the Democratic nomination. There is no question that Bernie is a firebrand zealot in full command of his senses, unlike his more centrist challenger, who is favored by the Party machine.
Coronavirus will eventually go away, but socialism is a virus that won’t go away. An extreme version of the flu killed millions in 1918-19, but extreme versions of socialism killed over 100 million since then.
10 states to watch in the next week of Democratic primaries:
March 10: Idaho, Michigan, Mississippi, Missouri, North Dakota, Washington
March 17: Arizona, Florida, Illinois, Ohio
If Bernie is effectively out of the picture after March 17, and new coronavirus cases are peaking, I predict a strong market rally in the spring, but win or lose, Bernie has moved the goalposts for America’s future.
The current New Yorker contains a book review of French economist Thomas Piketty’s new book, Capital and Ideology, a sequel to his huge 2014 tome, Capital in the Twenty-first Century. (The book is so large that reviewer Idrees Kahloon admitted, “The 1100-page work broke an (admittedly unsteady) card table and later caused a carry-on to exceed the weight limit on an (admittedly stingy) European airline.”
The reviewer’s following paragraph encapsulates the creeping socialism of Sanders and Warren. It also reminds me of a frog slowly boiling in hot water; the frog doesn’t notice the rising heat until it’s too late.
“In ‘Capital in the 21st Century,’ Piketty made a policy proposal that, he cautioned, was probably ‘utopian’: a global tax on wealth topping out around 2%. Half a dozen years later, it seems almost like milquetoastery. The signature idea of Elizabeth Warren’s Presidential candidacy is a wealth tax with a top rate of 6%, in order to fund her Medicare for All plan; Bernie Sanders’ tax plan tops out at 8%. As the Overton window shifts, * Piketty has made sure to stay well ahead of it. In his new plan, America would raise its taxes high enough to collect 50% of national income each year – roughly $10 trillion, or three times as much as the federal government currently takes in. With this cash, the government would not only fund universal health care and higher education but offer everyone a basic income floor equivalent to 60% of average after tax income. On your 25th birthday, you’d also get a cash payout of $230,000 – the equivalent of 60% of the average adult’s net worth. (Piketty has called this … ‘inheritance for all.’) It’s enough to make Sanders blush.”
*The Overton window is the range of policies politically acceptable to the mainstream population at a given time.
In short, I believe the market is down because investors fear Bernie could win in November, then raise taxes to fund socialist programs, including regulating business out of existence. That’s a real scary virus.