That Black Swan

Donald Trump will win in November and it will be the end of the world as we know it. Bernie Sanders will win in November and it will be the end of the world as we know it. Bernie Sanders will win in November and Donald Trump will refuse to leave office, because the election was obviously rigged (“and everyone knows it”) and that will be the end of the world as we know it. Or the American people will say the hell with it and ask Vladimir Putin to come on over and run things, because he seems to be running things here anyway, and that will be the end of the world as we know it. Or the economy will collapse all on its own, without any help from Trump or Bernie or anyone else, and that will be the end of the world as we know it.

Count on that:

Investors in the United States have mostly shrugged off the impact of the coronavirus ravaging China. That changed on Monday, when news of the outbreak’s spread drove them to sell stocks – at a furious pace.

The S&P 500 index which had reached a record high as recently as Wednesday fell 3.4 percent, its worst single-day performance since February 2018. As analysts issued new warnings that the outbreak could drag down economies around the globe, stocks fell enough to wipe out all of the index’s gains for 2020.

It was a turbulent day for stocks worldwide: European markets recorded their worst session since 2016, and major benchmarks in Asia also closed down.

The Dow dropped over one thousand points due, it seems, to a collective agreement that everyone had been quite foolish:

“There was a cavalier attitude about the virus,” said Bruce Bittles, chief investment strategist at Baird, an investment banking and money-management firm. With the threats appearing to increase, he added, “you have to think about the global economy slipping enough to cause a shortfall in earnings.”

The problem is that everything everywhere is connected. Everyone sells to everyone. Everyone buys from everyone. From supply chains to tourism nothing anywhere stands alone. Trump can shout America First all he wants, but until recently those Make America Great Again hats were manufactured in China. Everything is interlocked, so a global slowdown is a local slowdown. And the local news wasn’t good:

On Monday, fears were rising that the outbreak could spread further into Asia and Europe.

Italy reported it had 219 cases and locked down 11 towns, restricting the movements of 50,000 people. Police and military forces were deployed to ensure that only people with special permission left or entered towns covered by the order. Officials in Lyon, France, stopped a bus from Milan on Monday and confined the passengers inside over suspicions of a case onboard, the newspaper Le Parisien reported.

South Korea, a major industrial center, reported 231 new cases a day after its government said it was prepared to use emergency powers if necessary. And state-owned media in Iran reported that the virus had killed 12 people there – the highest death toll outside China.

Imagine trade and travel everywhere just stopping. That was beginning to happen and the markets reacted appropriately, although there was this:

Not all the news was bad. China may be getting the outbreak under control, the World Health Organization said. Health officials said the daily tally of new infections had been declining since Feb. 2 because of the lockdown around Wuhan, the city at the center of the outbreak. The Chinese government and businesses have begun chartering trains, buses and airplanes to retrieve workers who were stranded by travel restrictions put in place during the Lunar New Year holiday.

“We’re encouraged by the continued decline in cases in China,” said Dr. Tedros Adhanom Ghebreyesus, the organization’s director general. Still, he cautioned that the outbreak could worsen.

That is, the outbreak could worsen everywhere else, and as that seemed to be happening, there was this:

In a note published on Friday, economists at JPMorgan Chase wrote that they expected global growth to slow to a 1 percent annual pace in the first quarter, which would be the weakest quarter of the economic expansion that began after the deep recession that started 12 years ago.

In the United States, the consensus estimate for first-quarter domestic growth has slipped to 1.5 percent, according to data from FactSet on Monday, from 1.7 percent at the end of 2019. Economists at Goldman Sachs, who were expecting first-quarter domestic growth of 2 percent as recently as late January, have been steadily lowering their estimate, which fell to 1.2 percent on Sunday. “The risks are clearly skewed to the downside until the outbreak is contained,” they wrote.

And everyone finally got it:

Airline and technology stocks were particularly hard hit on Monday. Delta Air Lines shares fell 6.3 percent and American Airlines slid 8.5 percent, while Apple stock fell 4.8 percent. The tech-heavy NASDAQ composite index dropped 3.7 percent.

The sell-off continued in Asia on Tuesday morning, starting in Japan: The Nikkei 225 fell about 4 percent after the start of trading in Tokyo.

Oil prices dropped, with a barrel of West Texas Intermediate crude slipping nearly 4 percent to roughly $51, a result of the reduced demand from idled factories and restricted travel.

This is the big shutdown that scares economists, and there seems to be no way to fix things:

Officials at the Federal Reserve and within the Trump administration are watching the situation closely, although the central bank’s main tool for stoking growth – lowering interest rates – might not help much if factories are not producing goods and supply chains are disrupted by quarantines.

Ah, but maybe it’s nothing:

The White House has been cautious in declaring the disease a major source of concern. Tomas Philipson, acting chairman of the White House Council of Economic Advisers, said at the National Association for Business Economists conference in Washington that it was too early to tell how significant the effects of the virus will be.

“We don’t know yet, we’re sort of taking a wait-and-see approach,” he said, also noting that the scale of the seasonal influenza is much more significant and that “in terms of the public health impact on the economy, I think that’s been exaggerated.”

So, the flu is a real problem and this virus may not be much of a problem at all. Wait and see. But the markets didn’t wait, and Politico ran with this:

Stock markets tumbled around the world. The number of coronavirus cases mushroomed in advanced nations like Italy, Japan and South Korea. And travel bans expanded as leaders confronted the nightmarish prospect of a spreading virus swallowing their nations.

President Donald Trump’s top aides faced an increasingly urgent threat Monday with potentially monumental implications: a global outbreak knocking down the U.S. economy and walloping markets in an election year, all against accusations about whether the Trump administration had mismanaged and underfunded a critical response with American lives on the line…

“The view in the White House is that this is one of those classic black swan events, and all we can do is control the health issues in the U.S.,” said Stephen Moore, an informal economic adviser to the Trump team.

And just a note on that term:

The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term is based on an ancient saying that presumed black swans did not exist – a saying that became reinterpreted to teach a different lesson after black swans were discovered in the wild.

The theory was developed by Nassim Nicholas Taleb to explain: 1. The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology. 2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities). 3. The psychological biases that blind people, both individually and collectively, to uncertainty and to a rare event’s massive role in historical affairs.

And here a rare event has already had a massive role in historical affairs:

With the possibility of a U.S. outbreak growing by the day, Trump allies and advisers have grown increasingly worried that a botched coronavirus response will hit the U.S. economy. Even Donald Trump Jr. has mused to associates he hopes the White House does not screw up the response and put the president’s best reelection message at risk, said two individuals with knowledge of his comments.

“Trump’s reelection effort is so closely tied to the strength of the stock market and the economy,” said Moore, a distinguished visiting fellow at the Heritage Foundation and 2016 Trump campaign adviser. “Anything that shakes us off of that pro-growth track is a concern, but I think the view of officials in the White House is that this will be contained.”

“Once the virus is contained, the market will bounce right back,” Moore added.

The market will bounce right back, unless it doesn’t, and no one knows which it will be:

Trump himself took a break from his two-day trip to India to weigh in on coronavirus, tweeting that the virus was under control in the United States. “We are in contact with everyone and all relevant countries. CDC & World Health have been working hard and very smart. Stock Market starting to look very good to me!”

But inside the White House, officials have been quietly studying models of the pandemic’s potential effect on both the U.S. and the global economy, said one Republican close to the White House. Among policy aides, there’s widespread concern that the spread of the coronavirus will hit a slew of industries including manufacturers, airlines, automakers and tech companies, slowing down both the U.S. and Chinese economies. Aides fear the White House has few economic tricks it can deploy to lessen the impact.

The only trick left is to say everything is just fine, really, or will be just fine quite soon, and to keep saying that over and over again. But no one is buying that:

Some White House officials also remain frustrated by the Chinese government’s handling of the outbreak, but Trump has been hesitant to publicly criticize President Xi Jinping. Democrats have seized on Trump’s wariness, with Senate Minority Leader Chuck Schumer on Monday calling on Trump to demand that Xi “end the secrecy and suppression of facts around coronavirus.” China spent more than three weeks rebuffing U.S. offers to send health officials to help with its outbreak and delayed reporting key details of the epidemic.

Public health groups have chastised the Trump administration for not moving faster to fund a response. “Major investments are needed to assist in this global health security challenge, which is directly impacting our nation’s health,” the Association of State and Territorial Health Officials and three other organizations wrote on Monday.

Advocates also criticized the administration’s significant cuts to pandemic preparedness — including a proposal to cut $1.3 billion from CDC’s discretionary spending in the president’s recent budget blueprint – which they say have left the nation less prepared to deal with an outbreak.

Trump is catching hell for this, and the Washington Post’s Toluse Olorunnipa and Robert Costa explain why:

For a president who has governed “by tweet and circus,” a potential global health crisis that blunts economic growth could expose one of Trump’s main weaknesses as he prepares to face voters in November, said Russell Riley, a presidential historian at the University of Virginia’s Miller Center.

“Having hollowed out the senior leadership of so many departments of the government – especially in the scientific community – he is now in desperate need of professional guidance among people he has abused for three years,” Riley said. “If the markets continue to drop and the medical news gets very bad, then this president is singularly ill-prepared to deal with it in a rational manner.”

Donald Trump began his campaign for president by saying he was the real expert on everything – he knew more about ISIS that all the generals and in one weekend he figured out all there was to figure out about healthcare delivery and costs  – and only he could fix things – no experts ever could. So he then hollowed out the government and fired most of the experts everywhere he could. And now that’s a problem. And the only solution left is to throw money at that problem:

The White House requested an emergency spending package from Congress seeking $1.8 billion to combat the virus, part of a $2.5 billion total government response effort, according to a letter sent Monday by the Office of Management and Budget.

“This funding would support all aspects of the U.S. response,” wrote acting OMB director Russell Vought, mentioning costs for quarantining, vaccine development and preparedness, among others.

“Because this funding arises from an unforeseen, unanticipated event and is necessary for the protection of human life, these supplemental resources should be designated as emergency funding.”

That is, this funding should be approved outside the budget. It shouldn’t count against Trump at all. But they did have an additional idea:

National security adviser Robert C. O’Brien has discussed possible options for global coalitions and outreach with other senior White House officials in recent days, according to a White House official and a veteran Republican who have been briefed on the deliberations. One option includes having Trump call for a U.N. Security Council meeting to force China to share more information about the outbreak, which began in December in Wuhan and quickly spread from the world’s most populous nation.

Will the rest of the world help Donald Trump stick it to the Chinese? Why would they? He’s spent almost four years calling all our allies fools and liars and cheats out to take advantage of us. He prefers Putin and Kim, and has said so, so our allies are not going to stand with us now, only to be insulted with sneers a week later. Donald Trump has said, over and over and over, that only he can fix this or that or that other thing. Fine. Prove it.

That’s not going to fly, nor will this:

National Economic Council Director Larry Kudlow encouraged Americans to buy more stocks, and Trump’s reelection campaign released a statement praising the stock market’s ongoing Bull Run.

“The stock market has continually broken records under President Trump, boosting 401(k)s across the country,” said campaign spokeswoman Kayleigh McEnany.

This was the wrong day to say that, and there’s this too:

Internal tensions have plagued the administration’s response, which is being run by a task force with O’Brien and Health and Human Services Secretary Alex Azar at the helm.

Trump and Azar’s department have clashed in recent days over HHS’s handling of the repatriation of Americans with the virus.

Trump grew furious with senior advisers last week over a decision to allow 14 Americans who tested positive for coronavirus to return to the United States from Japan after being assured that infected patients would remain in quarantine overseas, according to administration officials.

He again became irate after learning over the weekend that federal officials planned to house some coronavirus patients in an Alabama facility despite protests from local officials, said Rep. Mike D. Rogers (R-Ala.).

Trump personally stepped in to block the plan.

That’s because he knows more about epidemiology than all those doctors combined. Only he can fix this.

And then there’s Rush Limbaugh:

Folks, this coronavirus thing, I want to try to put this in perspective for you. It looks like the coronavirus is being weaponized as yet another element to bring down Donald Trump. Now, I want to tell you the truth about the coronavirus. You think I’m wrong about this? You think I’m missing it by saying that’s… Yeah, I’m dead right on this. The coronavirus is the common cold, folks.

The drive-by media hype of this thing as a pandemic, as the Andromeda strain, as, “Oh, my God. If you get it, you’re dead,” do you know what the  I think the survival rate is 98%. Ninety-eight percent of people who get the coronavirus survive. It’s a respiratory system virus. It probably is a ChiCom laboratory experiment that is in the process of being weaponized. All superpower nations weaponize bioweapons. They experiment with them. The Russians, for example, have weaponized fentanyl.

Now, fentanyl is also not what it is represented to be…

He then takes a few minutes to explain that fentanyl is good stuff, entirely harmless and seriously misunderstood, and then he drifts back to his main point:

I think the coronavirus is an effort to get Trump. It’s not gonna work. It’s one of the latest in a long line of efforts that the drive-by media is making to somehow say that Trump and capitalism are destroying America and destroying the world. Just keep in mind where the coronavirus came from.

It came from a country that Bernie Sanders wants to turn the United States into a mirror image of: Communist China. That’s where it came from. It didn’t come from an American lab. It didn’t escape from an American research lab. It hasn’t been spread by Americans. It starts out in a communist country. Its tentacles spread all across the world in numbers that are not big and not huge, but they’re being reported as just the opposite – just trying to keep it all in perspective.

It is a matter of perspective:

President Donald Trump described conservative radio host Rush Limbaugh as the “greatest fighter,” a “winner” and a charitable person when honoring him with the Medal of Freedom at the State of the Union Tuesday night. But Trump did not, of course, make note of his past record of controversial, conspiracy-driven and racist comments on the air…

Limbaugh has frequently referred to some women as “feminazis,” compared an adolescent Chelsea Clinton to a dog and said feminism “was established so as to allow unattractive women easier access to the mainstream.”

Limbaugh suffered the most backlash from advertisers for his comments about women when he referred to a law student named Sandra Fluke as a “slut” and a “prostitute” after speaking before Congress in 2012 to advocate that birth control should be covered by health insurance at religious institutions…

He referred to Barack Obama as a “Halfrican American,” and played a song called “Barack the Magic Negro” on the airwaves. He’s also compared professional sports leagues to gangs.

“Look it, let me put it to you this way. The NFL all too often looks like a game between the Bloods and the Crips without any weapons. There, I said it,” Limbaugh remarked in 2007.

Similarly, he said the NBA should be renamed to reflect that they were gangs.

“I think it’s time to get rid of this whole National Basketball Association. Call it the TBA, the Thug Basketball Association, and stop calling them teams. Call ’em gangs,” he said in 2004…

Like Trump, Limbaugh also promoted the conspiracy theory that Obama was not born in the US. He also peddled the idea that “race riots” were part of the Obama administration’s plan for the country.

After getting the medal, Limbaugh was lauded by Republicans.

Ohio Rep. Jim Jordan listed Limbaugh getting the medal as one of “the things that make America great.” Former White House staffer Sebastian Gorka called the President a “genius” for honoring Limbaugh with the award. And House Minority Leader Kevin McCarthy called the honor “well-deserved”.

And now he says this new virus that is shutting down the world economy is just the common cold. This might actually be the end of the world as we know it. A black swan popped up.

About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
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