Understanding the central bank cycle

How have our overlords and rulers performed in the current crisis?

It’s a really interesting question and I’ve heard a true variety of answers.

It’s a tough one because it’s such an open question. What metrics should we use? Should performance be relative, or absolute? How do we account for the benefit of hindsight that we all have? I won’t pretend to offer firm conclusions, but I’ll offer some insights, rough as they may be.

I do hate to see the way that some politicians, here and everywhere, are lambasted furiously by those who did not speak out at the time, and probably wouldn’t have acted all that differently themselves.

For those in power, the early days offered a challenging dilemma. Shut down your country early, before the threat seems in any way serious, and risk huge economic loss possibly for nothing (of course we’re all now saying better safe than sorry, but were we then?).

I, for one, initially went tentatively down the route of thinking it was no worse than the flu, and statistically that seemed true.

But the statistics were lies (thanks, China), and I was wrong anyway. I missed the multiplicative nature of coronavirus – the reproductive rate, which means that if allowed to grow unchecked, the virus will rapidly ramp up to the tens of millions of new cases per day.

To be honest, I’ve not been keeping up with the progress of the virus that well any more. I’m not the only one either, because even a cursory glance at the latest figures would leave even the most optimistic investor quaking in their boots. A month or so ago, I was checking so often and trying so frantically to build a picture of who was doing well/badly, but I’ll admit I’ve run out of steam a bit.

I called the slowdown in growth of UK and European cases relatively early I’d say (see here), and was right that investors were using single-factor analysis – virus abates, markets rise (though it doesn’t cheer me to be so).

But now, a few weeks later, the virus is still raging, and so I’ve dived back in and here are some comments and interesting stats which I find relevant.

Here’s the global situation: 3.15 million total cases, 220,000 deaths. Daily new cases are below, averaging roughly 75,000 new cases every day for the last few weeks. It’s not growing, but it’s still a large number.

Here is a closer look at the European data for the top 12 countries for total cases:

Source for both images: Worldometer

There are some interesting points.

The UK was roughly a couple of weeks behind the other nations in all things virus related.

In theory this should have given us a two-week head start, though it seems we politely refused that kind offer. We are way behind in terms of tests per 1 million people. We now have the most active cases, and low testing means it could be higher.

The low testing also means it’s hard to praise our low cases per 1 million people – because it could be from insufficient data. Also, our higher “new cases” figure suggests we’ll catch up either way.

Spain has been the worst affected. France’s testing is even worse than ours! Sweden’s liberal no-lockdown approach is yielding interesting results too – no firm conclusions as yet. Russia has low cases and deaths per 1 million pop because it is only just accelerating now – you can see it had the most new cases.

Portugal has done notably well. Apparently, it counts countries like New Zealand, Greece and Slovakia as peers in its speed of lockdown after the virus arrived on its shores, and all have reaped very palpable benefits as a result.

Should we judge our own government by their standards? Or by the standards of our more similar European peers – Germany, France, Italy and Spain? Hard to say really, but there is one more thing.

Belgium’s death rate looks awful – what is it doing wrong?

Well, a cursory google suggests that’s the wrong way of looking at it. Belgium is including all deaths from outside hospitals, mainly care homes, which look likely to be Covid related even if they hadn’t been tested, because it shows a much more realistic picture of the virus’ spread and effect.

Here’s what the Belgian head of viral disease science said [emphasis mine]:

“We often get criticism – oh, you’re making Belgium look bad – we think it’s the opposite,” said Dr Steven Van Gucht at the Sciensano public health institute. “If you want to compare our numbers with a lot of other countries’, you basically have to cut them in half. Any other comparison isn’t relevant at all.”

It seems we are having the worst excesses of the pandemic hidden from us? Blissful ignorance? Or do we have a right to know?

It seems, as people seem to tire of lockdown here in London (parks were almost at normal levels from what I could see last weekend), that hiding the extent of the human tragedy could be self-defeating, because it is making us complacent.

I see that the leader of one of those American protests against the lockdown has indeed contracted the virus.

I also saw governor Andrew Cuomo explaining irately to protestors and journalists that yes, all complaints were valid. Support was too slow, suffering real and benefits insufficient, but none of those things were worse than death. Widespread, multiplicative death.

It’s harder to make Cuomo’s case if we don’t even have the data on how bad things are.

And to be honest, it’s quite depressing to feel that we are being lied to, or at least having the truth hidden.

I am fearful and critical of the Chinese Communist Party, and its response to the crisis. I fear the spread of authoritarian capitalism and the onward creep of Chinese communist tentacles into our every institution – universities, media, and most notably the World Health Organisation of late.

In order to beat it, we must be better than it, and our bungled and deceitful response to this in Europe and the US threatens to undermine our case for liberal democratic capitalism.

I hope we can return to form soon, before it’s too late.

Don’t even get me started on Donald Trump – honestly I can’t bear it. I used to point out the irony of Trump’s critics – Xi Jinping is far, far worse, just look at the oppression of the Uighurs in Xinjiang. That remains true, but now Trump’s pathetic, baffling, chest-beating mania has resulted in death and loss on an unnecessary scale, and I’ll leave the detailed criticism of his performance to someone better informed.

And goodness, I don’t even have time to properly get on to how central banks the world over have TRIPLED DOWN on their loosening of financial conditions, accentuation of moral hazard and undermining of capitalism.

They say that since the Federal Reserve came into being around a century ago, the dollar has lost 98% of its purchasing power. Gold is currency, gold is fixed, and bitcoin will be too, by the way.

Today, I read that while mid-sized companies take loans which restrict their possible uses – no firings or share buybacks, etc (hurrah!) – large caps are being offered restriction-free loans amounting to $500 billion. They can fire workers, keep executive bonuses and they can do it with money from the very taxpayers they are laying off.

Meanwhile, the Fed is just desperately trying to create inflation as it now realises it’s the only way out of their excessive debts.

From an economic and a political standpoint, I feel rather underwhelmed by the performance of our top institutions and national servants.

I repeat my wish that we return to a better path, and soon…

A special final note from me today

I hope you’ve been enjoying UK Uncensored.

I’ll be honest, I’ve been at Southbank Investment Research for a bit over a year now, and I’m still pretty young (turning 25 in a couple of weeks). It’s certainly strange to think I’ve been writing UK Uncensored for almost two months now! I must say, it has been an enormous pleasure and a privilege to be writing to you in these difficult times.

I may be young, but I love the field of investment. I think it’s one of the most fascinating things out there, combining every aspect of modern life – politics, technology, finance, economics, energy, health, and above all, psychology. It’s a great lens through which to perceive the world.

It also has the added benefit of being able to make a dramatic difference to your long-term financial wellbeing – that’s why we’re all here in many ways – to the house you live in, the schools our children can go to, and how we can live during our working lives and in retirement.

It’s a vital cog in all our lives, and in my view a widely underappreciated one.

So, while I may be young, I have been reading copious amounts of investment literature for quite a few years now, and frantically trying to learn as much as I can, as fast as I can. So, I hope you don’t think I’m doing a terrible job!

Any feedback can be sent to kit@southbankresearch.com.

For those precious few of you who’ve appreciated my work, today you have a rare opportunity. Here at Southbank Investment Research we operate an unusual model of marketing whereby we only promote one or two products at a time, and only for a short while.

But today, you have your first chance to actually buy the paid editorial which I work on: James Allen’s energy investing newsletter, Exponential Energy Fortunes.

James does a fantastic job, and over the last year and a half has slowly and generously trusted me to help more and more with the nuts and bolts of seeking out, researching and recommending companies to his subscribers.

Today, by watching James’ most recent speech, you can learn more about the work we do, and near the end there is an option to buy into our day-to-day work that we spend every available minute on – finding the best companies in the energy transition.

It’s live only until tomorrow.

Click here to watch it now.

Otherwise, I’ll catch you on Friday.

All the best until then,

Kit Winder
Editor, UK Uncensored

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