On Coronavirus and Money Changers

The numbing refrain that the Wuhan coronavirus (COVID-19) is unilaterally pushing world financial markets to near collapse is growing as tiresome as it is misdirected.  A basic forensic analysis would likely shed telling light on the real reasons for the epic stock market swings of late.  Namely, that the real culprits may very well be the world’s money changers and the processes and systems that they have helped create and perpetuate.

The world’s stock markets make up only a part of the global financial system that sports a regular cast of players including commercial banks, investment houses, insurers, central banks, Non-Governmental Organizations (NGOs like the IMF, World Bank, WTO), hedge funds, private markets, traders, investors, savers, arbitragers, and the like.  Despite the many interrelationships and complexities of the global financial system and all the associated punditry, a simple and sad truth is that the bigger players can and do swing entire markets pretty much at will.  Abject fear is an additional catalyst to volatility.  And, is often the case, lots of non-financial institutions, companies, individuals, and even nations can get hurt and somehow end up holding the bag if things go south as they have again recently.  Recall the 2008 financial crisis for perspective.

As goes the United States, so goes the world.  The U.S. dollar is still the premier trading currency and basis for trillions upon trillions of dollars in contracts, trade, sales, monetary exchange and worldwide financial flows.  The following chart shows that the U.S. accounts for over half (54.5%) of the world’s stock market capitalization and related wealth.  Consequently, bringing down the U.S. market is a huge deal by any standard. 

Stock markets are places where businesses head to raise needed capital and individuals seek to protect or build wealth.  There is some question as to whether the latest global contagion is the primary contributor to the precipitous market drops seen through March of 2020.  The following chart shows how the world’s financial markets have tanked during February and March of 2019.  If the Wuhan coronavirus is considered the reason for the world’s recent massive loss of wealth, then it is difficult to explain just how China, the actual source of the Wuhan coronavirus, can have its financial markets faring significantly better than everybody else’s.  

Johns Hopkins University’s global coronavirus map continually charts the worldwide spread of the Wuhan coronavirus using data from the World Health Organization (WHO), the U.S. Center for Disease Control (CDC), and other recognized sources.  As of March 21, 2020, the coronavirus pandemic, originally emanating from China, has supposedly infected about 305,000  (or .004%) of the world’s near eight billion population.  Granted, an escalating pandemic is cause for concern, but undue fear and hype seem to be contributing to the mindset of coming financial and economic disasters ostensibly due to infection and its subsequent impact on sourcing, distribution, commerce, unemployment, and government decision making among other things.

Any fear stoked by a new contagion is amplified by government stonewalling or overreaction or other missteps.  Shutting down societies and economies, or parts thereof, will invariably add fearsome economic disease on top of the viral and financial illnesses spreading around the globe.  When somebody suggests that the Wuhan coronavirus will cause an economic depression, politely remind them of the roles that the world’s money changers and governments may play in the grand scheme of things.

Closer to home, the CDC conservatively estimates over 22,000 flu deaths in the U.S. during the 2019-2020 flu season between October 1, 2019 and March 7, 2020.   The Wuhan coronavirus, on the other hand, has reportedly killed a confirmed 307 people in the U.S. through March 21, 2020, according to the John Hopkins University tracking efforts.  There is a ways to go numerically from 307 to 22,000.  The flu typically gets considerable attention during its season but nothing close to the astounding coverage level received by the newest coronavirus scourge.

Differences exist between a financial collapse and an economic meltdown.  Chaos in a bedrock financial system can certainly drive down an economic order.  Such things are true for both free and controlled economies and may be the case here and now.  The Wuhan coronavirus is a very real threat but, thus far, one that seems disproportionally small relative to the world’s total economic capacity and the eye-popping stock market plummet.  All projected fear aside, prudent investors and governments need to summarily ask and investigate whether there could be a bigger reason than a virus for the rapid loss of trillions of dollars in market wealth that puts so many in financial harm’s way.

Much has been reported on the precarious international financial situation over the last couple of years. In short, the pre-coronavirus U.S. and world had already been looking at another crisis similar in nature and potentially bigger than the infamous 2008 market crash.  The following exhibit presents just a few of the concomitant factors then and now.  Mindboggling and frightening are terms that easily come to mind here -- no scary infectious agents needed.

Those who control and direct the world’s money can have a tremendous impact on markets and economies.  As an example, the world’s top sixty-five asset management firms had assets under management (AUM) totaling over $76.8 trillion in 2019 according to ADV Ratings.  The top five, including such names as BlackRock, Vanguard, and UBS, controlled about $21 trillion alone.  These figures far exceed the total world foreign exchange reserves of roughly $12 trillion as reported by the International Monetary Fund (IMF).   In essence, a few decision makers can help shift vast amounts of money all over the planet with astonishing effect.

Nobody throws more money at a problem than a caring government.  At least two large, unprecedented coronavirus outlays totaling $1 trillion dollars or more apiece are in the offing according to a March 18, 2020 article by ABC News -- one from the U.S. Treasury Department and another by Congress.  These amounts may seem large.  However, together they are still substantially smaller than the $7 trillion worth of instant liquidity the Federal Reserve Bank has been offering up to the repurchase agreement (repo) market since mid-September last.   

Why the biggest run on repo short-term liquidity by banks and investment firms since 2008 has been occurring seems to remain an unanswered question.  Remember that the entire 2019 GDP for the U.S. came to only $21.4 trillion.  Adding the mentioned $7 trillion and $2 trillion figures equals $9 trillion in recent and proposed government spending.  The latter translates to a 42% share of this country’s total production for an entire year.  Moreover, social and military spending does not seem to be declining any time soon.

Government shutting down large swaths of the country and economy will not help pay the bills or keep the lights on.  History will judge those invoking martial law type measures that extinguish individual rights.  Banks, investment houses, and supportive industry analysts claim that there is no gargantuan goose egg to see here.  Apparently the Wuhan coronavirus has a fierce competitor for taxpayer funding.  The game is afoot and is still in early innings.  The financial market meltdown scoreboard unceremoniously reads:  Money Changers 7 (trillion), Coronavirus 2.

Drix Dressler provides strategic and operational planning and analysis support and insights that help executives make correct decisions and build their businesses.

The numbing refrain that the Wuhan coronavirus (COVID-19) is unilaterally pushing world financial markets to near collapse is growing as tiresome as it is misdirected.  A basic forensic analysis would likely shed telling light on the real reasons for the epic stock market swings of late.  Namely, that the real culprits may very well be the world’s money changers and the processes and systems that they have helped create and perpetuate.

The world’s stock markets make up only a part of the global financial system that sports a regular cast of players including commercial banks, investment houses, insurers, central banks, Non-Governmental Organizations (NGOs like the IMF, World Bank, WTO), hedge funds, private markets, traders, investors, savers, arbitragers, and the like.  Despite the many interrelationships and complexities of the global financial system and all the associated punditry, a simple and sad truth is that the bigger players can and do swing entire markets pretty much at will.  Abject fear is an additional catalyst to volatility.  And, is often the case, lots of non-financial institutions, companies, individuals, and even nations can get hurt and somehow end up holding the bag if things go south as they have again recently.  Recall the 2008 financial crisis for perspective.

As goes the United States, so goes the world.  The U.S. dollar is still the premier trading currency and basis for trillions upon trillions of dollars in contracts, trade, sales, monetary exchange and worldwide financial flows.  The following chart shows that the U.S. accounts for over half (54.5%) of the world’s stock market capitalization and related wealth.  Consequently, bringing down the U.S. market is a huge deal by any standard. 

Stock markets are places where businesses head to raise needed capital and individuals seek to protect or build wealth.  There is some question as to whether the latest global contagion is the primary contributor to the precipitous market drops seen through March of 2020.  The following chart shows how the world’s financial markets have tanked during February and March of 2019.  If the Wuhan coronavirus is considered the reason for the world’s recent massive loss of wealth, then it is difficult to explain just how China, the actual source of the Wuhan coronavirus, can have its financial markets faring significantly better than everybody else’s.  

Johns Hopkins University’s global coronavirus map continually charts the worldwide spread of the Wuhan coronavirus using data from the World Health Organization (WHO), the U.S. Center for Disease Control (CDC), and other recognized sources.  As of March 21, 2020, the coronavirus pandemic, originally emanating from China, has supposedly infected about 305,000  (or .004%) of the world’s near eight billion population.  Granted, an escalating pandemic is cause for concern, but undue fear and hype seem to be contributing to the mindset of coming financial and economic disasters ostensibly due to infection and its subsequent impact on sourcing, distribution, commerce, unemployment, and government decision making among other things.

Any fear stoked by a new contagion is amplified by government stonewalling or overreaction or other missteps.  Shutting down societies and economies, or parts thereof, will invariably add fearsome economic disease on top of the viral and financial illnesses spreading around the globe.  When somebody suggests that the Wuhan coronavirus will cause an economic depression, politely remind them of the roles that the world’s money changers and governments may play in the grand scheme of things.

Closer to home, the CDC conservatively estimates over 22,000 flu deaths in the U.S. during the 2019-2020 flu season between October 1, 2019 and March 7, 2020.   The Wuhan coronavirus, on the other hand, has reportedly killed a confirmed 307 people in the U.S. through March 21, 2020, according to the John Hopkins University tracking efforts.  There is a ways to go numerically from 307 to 22,000.  The flu typically gets considerable attention during its season but nothing close to the astounding coverage level received by the newest coronavirus scourge.

Differences exist between a financial collapse and an economic meltdown.  Chaos in a bedrock financial system can certainly drive down an economic order.  Such things are true for both free and controlled economies and may be the case here and now.  The Wuhan coronavirus is a very real threat but, thus far, one that seems disproportionally small relative to the world’s total economic capacity and the eye-popping stock market plummet.  All projected fear aside, prudent investors and governments need to summarily ask and investigate whether there could be a bigger reason than a virus for the rapid loss of trillions of dollars in market wealth that puts so many in financial harm’s way.

Much has been reported on the precarious international financial situation over the last couple of years. In short, the pre-coronavirus U.S. and world had already been looking at another crisis similar in nature and potentially bigger than the infamous 2008 market crash.  The following exhibit presents just a few of the concomitant factors then and now.  Mindboggling and frightening are terms that easily come to mind here -- no scary infectious agents needed.

Those who control and direct the world’s money can have a tremendous impact on markets and economies.  As an example, the world’s top sixty-five asset management firms had assets under management (AUM) totaling over $76.8 trillion in 2019 according to ADV Ratings.  The top five, including such names as BlackRock, Vanguard, and UBS, controlled about $21 trillion alone.  These figures far exceed the total world foreign exchange reserves of roughly $12 trillion as reported by the International Monetary Fund (IMF).   In essence, a few decision makers can help shift vast amounts of money all over the planet with astonishing effect.

Nobody throws more money at a problem than a caring government.  At least two large, unprecedented coronavirus outlays totaling $1 trillion dollars or more apiece are in the offing according to a March 18, 2020 article by ABC News -- one from the U.S. Treasury Department and another by Congress.  These amounts may seem large.  However, together they are still substantially smaller than the $7 trillion worth of instant liquidity the Federal Reserve Bank has been offering up to the repurchase agreement (repo) market since mid-September last.   

Why the biggest run on repo short-term liquidity by banks and investment firms since 2008 has been occurring seems to remain an unanswered question.  Remember that the entire 2019 GDP for the U.S. came to only $21.4 trillion.  Adding the mentioned $7 trillion and $2 trillion figures equals $9 trillion in recent and proposed government spending.  The latter translates to a 42% share of this country’s total production for an entire year.  Moreover, social and military spending does not seem to be declining any time soon.

Government shutting down large swaths of the country and economy will not help pay the bills or keep the lights on.  History will judge those invoking martial law type measures that extinguish individual rights.  Banks, investment houses, and supportive industry analysts claim that there is no gargantuan goose egg to see here.  Apparently the Wuhan coronavirus has a fierce competitor for taxpayer funding.  The game is afoot and is still in early innings.  The financial market meltdown scoreboard unceremoniously reads:  Money Changers 7 (trillion), Coronavirus 2.

Drix Dressler provides strategic and operational planning and analysis support and insights that help executives make correct decisions and build their businesses.