Unreliable Economics & The Underlying Problem

Having to follow COVID-19 news cycles for work, I have not missed one bit of this crazy ride. I have to say, I am amazed at how short the memories of some public officials seem to be, especially among our neighbours to the South. Over the course of the last two months, the US' position has had more plot twist than an M. Night Shyamalan movie! It used the be a democratic hoax, like any issue they don't feel like debating. Then it was China's fault, to stoke the fires of the "patriotic" protectionism that Trump loves to hide his populist demagoguery behind. Now, they have it all under control since the son-in-law took care of the situation... So much so, the state of Georgia is reopening on account of FEMA's algorithm suggesting they will be fine. This is crazy. Bloomberg even wrote a piece on it called "A Secret Algorithm Is Deciding Who Will Die in America". They are referring to a book called "Weapons of Math Destruction" about the dangers of predictive algorithms. Indeed, predictive algorithms that are secretive, important and destructive are dangerous to society. The algorithm supported by FEMA shares all of these characteristics. It is important enough to change the Governor of Georgia's opinion on reopening the state, which could lead to many new cases and deaths, but no one has seen it. This logic is as good as a can of spam, some people might like it, but we all agree that it's bad for you... I have done a few models of my own following the classic SIR model. The model is assuming people carry lifelong immunity to a disease upon recovery. This creates significant issues however. We know for example that with seasonal influenza, an individual's immunity may wane over time. Additionally, most metrics used to simulate this model come from state-sponsored studies made in Wuhan. Far from me from to doubt the good intentions of any country in this situation, but China has a bad history with numbers. For many years, China forged its GDP numbers for many years to remain attractive to foreign investors. Considering the sensitive nature of this pandemic and tender political relations around the world, I would not discard the possibility that current estimates from China are lower than reality. So, given this expected underestimation, we should see favourable models right? Guess again. Models I ran suggested that the US could still be on its way to the peak. As of February data, I expected the US to reach its peak hospitalization rate by mid-July. That is, should the social distancing measures be maintained throughout, which already hasn't been the case. So what does this mean for Canada? Hard to tell. What is certain though: the economy is in it for a rough patch. Economic fundamentals were already in critical states before the pandemic. Some consider this natural. Economic crises tend to come in cycles of a decade for short term credit causing most recessions. Yet, there was nothing normal about the recession that was already brewing. Real inflation numbers in the labour markets have been stuck in the 90s. All the while, capital markets are soaring more than ever, despite people and business being more in debt than ever. Governments everywhere lack any budgetary margin for fiscal policy. Central banks around the world have their hands tied when it comes to monetary policy because of already low interest rates. We even live in a world where negative rates are a reality. I don't know if that resonates with you, but this is to economics equal to what breaking the barrier of the speed of light is in physics: models simply don't work after that. Putting aside economics for a moment. We must remember that the real fight of our lives will be climate change. We are on the verge of cataclysms ripping away what we know as a normal environment. Sometimes I wonder what would happen if climate change had COVID's publicist... But never mind that. Getting back to cataclysms, do you remember the fires in Australia? California? Ever heard of the Pacific's ring of fire? A large 40,000 Km volcanic belt, which scientist predict is due to erupt at any moment. Can we grasp the magnitude of these effects on the world supply chain? Think of what would happen if the Ring of Fire were to enter its active period? Remember that volcano ash cloud that grounded Europe for weeks? That was one, a tiny one in comparison. Imagine hundreds at a time, around a sea... This sounds like the beginning of the apocalypse to me and no one is talking about it. What happens if oil tankers can't go across the sea? What happens to crops if large areas are covered prior to harvesting seasons? This is the real economic challenge of this decade, which has already triggered polarizing issues across both the social and political spectrums. Only time will tell how things will play out. All I know is that there is about only one safe bet in all this, and it's production is about to get cut by half. In the end, I hope that the government did not exhaust all of its ammunitions agains the first wave of this pandemic. Pragmatically, they had enough change for one bailout, not two, and all scientist agree, there will be a second wave. That, I believe, will be on top of an already stressed economy. It is in these times that I believe digital gold's value proposition is truest. This is why I will be making sure to follow closely how Bitcoin responds to the halving of block rewards earlier this week.

#btc #hedge #economics #coronavirus

#macroenomics #macroview #disaster #recession #bigpicture #safehaven