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Markets Signaled Early That COVID-19 Was A Negligible Factor. Politicians-Market Deniers- Refused To Listen.

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Strategas’s Jason Trennert has pointed out over the years that ADP, a payroll processing company, produces at no cost to the taxpayer an extraordinarily thorough accounting of U.S. employment before the Bureau of Labor Statistics does. ADP is very much in the business of knowing what the BLS spends hundreds of millions to know.

This column has pointed out that Visa produces endless reports on consumer spending, borrowing, levels of debt, debt in arrears, etc. Well, of course it does. As a credit card company, there’s a reason for Visa to know these things, and to know them as far in advance as possible. Translated, Visa doesn’t wait for the U.S. Bureau of Economic Analysis to calculate consumer spending. Neither do sophisticated investors. Bank on it.

All of this should offer a clue to readers of something that’s not been said enough over the last several months. Markets don’t wait. The new coronavirus was a news item in January. It was known then that the virus had originated in China. U.S. companies derive enormous amounts of sales from the very Chinese customers who produce so much for American consumers. To export is to import, by definition. This is a long, or short way of saying that investors had a good sense long before politicians panicked in March that irrespective of the growing alarmism among politicians and doctors, the virus wasn’t terribly lethal. If it had been, there’s no way that U.S. equity markets would have reached all-time highs in late February. Again, markets don’t wait for politicians to respond, nor do they wait for doctors and entities like the CDC.

This truth brings to mind what Ken Fisher routinely tells audiences he speaks to. What you know, assuming it’s true, is already priced. Markets are relentless processors of information, good and bad. What you think, or what someone told you at a party to think is, if valid, already processed.

This is worth a thought in consideration of the growing investor focus on “volatility.” As the Wall Street Journal’s Gunjan Banerji explained it on Saturday, “In recent years, volatility has gone from a specialty of derivatives traders to a vehicle for trading in its own right. Investors big and small are wagering hundreds of billions of dollars on volatility.” Call it the politics trade.

Volatility speaks to big lurches in market sentiment rooted in surprise. Since markets are on their own feverishly processing information, it’s not as likely for the day-to-day vicissitudes of life to produce too much surprise. Markets yet again don’t wait, so it’s logically true that “news” about unemployment, shrunken sales, mild or lethal viruses, and reduced production in Bangalore is already known and priced well ahead of when we read about these things in newspapers.

To offer up yet another example, former Fed Chairman Alan Greenspan was known to call FedEx CEO Fred Smith with great regularity. To export is to yet again import, so Smith has a keen sense of global economic activity based on shipments, and well before official figures are released.

Notable about Smith, and as was pointed out here a few weeks ago, his company has a big, 907 employee operation in Wuhan. Smith knew long before the hideous lockdowns that the virus had thankfully not killed any of his Wuhan employees. Had it proved extraordinarily lethal, we consumers of news would have known this truth long before March given the exposure of all-too-many public companies to China, along with Wuhan, the virus’s epicenter. These realities, good or bad, would have reached equity prices first, only for them to reach newspapers and news organizations after. Professional investors are paid not for being late to information, but for being early. That there was no market alarm in January or February about the coronavirus should once again have readers wondering….

Bringing it back to the Journal’s Banerji, he contends that markets “were once dominated by bulls who thought stocks would go up and bears who thought they would go down.” Investors focused on volatility don’t much care about the direction of shares as much as they care about big movements. In short, volatility traders are focused on politics.

Politicians are the wildcard. Way-too-powerful responders to news that markets have already processed, their responses to information that investors have been pricing for a lot or a little time helps create the volatility that is increasingly a trade. Because politicians are powerful, their decisions have economic impact.

But since politicians are members of the human race, it’s not always predictable what they’ll do. If it were, or if their power was limited, they couldn’t create volatility. Unfortunately, it’s neither true that their actions can always be known in advance, nor is it true that their power is so hemmed in that their actions don’t matter.

Which to a high degree explains volatility. Big market movements are a function of surprise, and politicians responding to yesterday’s news create the surprise.

Imagine then, the economic growth lost to the volatility trade that is in so many ways a politics trade. Think how much further along the global economy would be if hundreds of billions weren’t directed toward hedging the volatility of statesmen, and instead toward the ideas and businesses that drive progress. Most of all considering the troubled present, imagine where the global economy would be today if politicians had listened to the markets over their own, highly emotional and vain, selves.

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com).

Politicians Panicked, Plain And Simple, And Brought On Unnecessary Unemployment And Long Term Agony.

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On March 18th FedEx founder & CEO Fred Smith was interviewed by Fox’s Bret Baier about the new coronavirus. Smith’s entrepreneurial brilliance makes him an insightful interview at any time, but the one referenced on the 18th was particularly important.

That’s the case because FedEx has 907 employees based in Wuhan. Wuhan is an increasingly prominent city when it comes to production, and as FedEx moves production and packages around the world, it was only logical that Smith’s company would have a big presence there.

What Smith relayed to Baier was very eye opening, which is why it’s surprising the interview didn’t achieve more play than it did. Smith indicated to Baier that all 907 of his employees in Wuhan had been tested for the virus, and four were initially diagnosed as having contracted it. Smith went on to report that two of the four positive diagnoses were later revealed as false, but the main thing was that those who contracted the virus were fully recovered.

From there it’s worth considering the Smith interview on March 18th relative to when the virus first became news in the United States. It was in early January that readers started to read about it, which means it likely had been working its way through Wuhan and other Chinese cities for quite some time.

The point of this introduction is that FedEx’s complex in Wuhan is hardly some kind of micro warehouse employing very few. One imagines that at 907 employees it’s fairly large relative to other employers in Wuhan, not to mention that Smith’s employees were actively handling packages presumably touched by residents of the city that’s known as the epicenter of the virus’s breakout. Translated, Smith and FedEx’s experience with the virus as of March 18th was much more than anecdotal. That his employees were largely spared its spread, and that none had died, reads as a reasonable market signal going back over two months (and realistically much longer than that) that the lethality of Covid-19 was thankfully less than substantial.

Thinking about China more broadly, much noise has been made by left and right about how China’s death rates from the virus require an asterisk next to them, that Beijing’s Communist Party leadership can’t be trusted, that the economic figures are fudged, etc. For the purposes of this piece, let’s agree that all that’s assumed is true.

If so, it doesn’t alter the reality that assuming massive amounts of deaths in Wuhan and elsewhere from the coronavirus, this truth would have quickly reached the media. In a world in which information travels at the tap of a smartphone, there’s no way to hide what’s happening. Or for that matter, what happened. Along these lines, it’s no doubt true that Chinese history books are scrubbed of information about the bloody, 1989 Tiananmen Square protests. At the same time, it’s also well known in China that anyone with passable computer skills can pull up the truth about what happened on the internet with ease.

In short, if the coronavirus had been a major killer in a country with hospitals that don’t hold a candle to U.S. hospitals, and in a country where smoking is at least visibly quite a bit more common, we would have known about it months ago. Smith’s nearly 2 ½ month old interview, along with the speed at which news travels, tells us there was fairly reliable information going back quite a while that this wasn’t the Bubonic Plague.

It’s something to think about in consideration of the economic impact of the lockdowns. Patricia Cohen reported in yesterday’s New York Times that “More than 40 million people – the equivalent of one out of every four workers – have filed for unemployment benefits since the coronavirus pandemic grabbed hold in mid-March.” In Cohen’s case, let’s first excuse her reportorial habit of blaming the virus for the onset of all this job loss, while also correcting it. What happened is that by mid-March, much of the U.S. was locked down or on the way to being locked down. With streets and businesses empty, and with other businesses increasingly shut down by decree, unemployment soared.

This is important simply because we knew by mid-March that the virus wasn’t very lethal. Sorry, but we did. Just as the old Soviet Union couldn’t keep the Chernobyl nuclear incident off of the front pages of U.S. newspapers at a time when communications technology was more than primitive by comparison, there’s no way that the Chinese could have hidden mass death in Wuhan or elsewhere if in fact mass death had been the result of the virus’s spread.

Which means that it was also well known by mid-March that some who contracted the virus experienced a lot of discomfort, some very little, and some seemingly not at all. But the main thing is that if it had been a major killer, the previous truth would have been a known quantity.

All of which brings up a question: who among us would trade job loss for the possibility of delaying exposure to a virus? As Holman Jenkins at the Wall Street Journal has long made plain, flattening the curve at best means rescheduling virus exposure as opposed to avoiding it altogether.

As someone who has been laid off before, and who has also been demoted, the embarrassment and agony that comes with job loss would make feeling sick to awful for one or several weeks the ultimate bargain. Worse is that job loss and/or demotion stay with those let go and publicly shrunken long after both scenarios happen. For one, there’s the terror related to how bills will be paid, rent will be made, and whether a move will be a necessity. For two, while it’s so often the case that job loss is a consequence of forces beyond one’s control (think dopey politicians prone to hysterics), it’s frequently true amid layoffs that not everyone is let go. No matter the circumstances of job loss, they attack the self-worth of those made redundant. And then there’s the terror of getting back on the job market, all the while wondering how to explain your unemployment.

All of the above ignores how much it pains those who must deliver the news about firings. Media members who should know better paint CEOs and executives as heartless on the matter, but readers can rest assured they’ll never find anyone who enjoys delivering news this crushing. Job loss is awful for everyone,

Which brings us back to mid-March when the lockdowns began and when layoffs took off at a rate no American has realistically ever seen. Politicians will claim they had no choice, that the virus was an unknown, that “China” wasn’t forthcoming with the truth about it such that stateside politicians had to fly a little bit blind.

Let’s please not them get away with such nonsense. The very technology that enables rapid fire communication among readers, the very technology that has enabled long lost and geographically distant friends to reconnect (think Zoom parties) amid these lockdowns is the same technology that would have alerted us to a killer, as opposed to that which generally makes us ill.

Politicians panicked. Plain and simple. And in doing so their panic led to exponentially more unemployment and long-term agony than would have been the case had they simply told us adults to be careful. In short, let’s not let the political class hide behind a lack of knowledge and “China.” They need to pay at the ballot box.

John Tamny is editor of RealClearMarkets, and Vice President at FreedomWorks.

American Politicians And Administrators Of All Stripes Are Sounding More And More Like Soviet Central Planners.

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It’s been said by those who know Fred Smith well that when the visionary FedEx founder is asked about the U.S. Post Office, he’s known to say that in a competitive market he could put the government-created monopoly out of business in a matter of months. Smith’s confidence shouldn’t surprise readers, conservative readers least of all.

That’s the case because at least in their rhetoric, conservatives preach the gospel of market discipline. The Post Office would be extraordinarily vulnerable to competition precisely because it’s never faced the kind of competition and investor pressure that conservatives at least rhetorically deem so essential to corporate progress. If funding will always be abundant, and if funding will actually rise the more that mistakes are made, why make the hard decisions that real businesses make every day?

Stating what should be obvious, and has long been obvious to conservatives, the Post Office is a low-quality provider of fourth-rate service, and it’s that way because always-there government funding has shielded it from the market realities that would have otherwise strengthened it over the years; that, or put it out of business. In short, copious government support has weakened the Post Office. No entrepreneur or business would ever consider emulating it since mimicry of what defines bad service in the minds of all too many would repel the very investors necessary for a business to open its doors in the first place.

Smith’s opinion of the Post Office has routinely come to mind amid the odd conservative crack-up over Chinese communications giant Huawei. Republicans and conservatives inside and outside the Trump administration were very disappointed recently when British Prime Minister Boris Johnson announced that Huawei, a corporation so valued by its customers that it operates in 177 countries around the world, would “allow” the company’s “equipment to be used in Britain’s 5G wireless network.”

GOP hand wringing is puzzling. Long the Party that’s striven to properly associate itself with keeping government out of the rollout of anything commerce or market related, when it comes to what’s expected to be “next generation” in communications, Republicans find themselves parroting the very wording that animates the rhetoric of their ideological foes on the left, and in the extreme, the rhetoric of central planners from the 20th century. Don’t Republicans remember how horridly and murderously central planning failed, and don’t they remember how very much their political hero (with good reason) in Ronald Reagan confidently predicted the failure of statist regimes precisely because politicians, not market-disciplined businesses, were calling the commercial shots?

Yet when it comes to 5G, it’s as though state planners have entered the bodies and minds of conservatives and Republicans. Out of one side of their mouth they talk of the enormous potential of 5G to “transform” how business is done for the much, much better, only for them to proclaim out of the mouth’s other side the genius of a public/private 5G partnership. As the Wall Street Journal’s Bob Davis and Drew FitzGerald recently reported, “the White House is working with U.S. technology companies to create advanced software for next-generation 5G telecommunications networks.” Yes, you read that right. Conservatives believe that which is anti-innovation, and that which is where innovation routinely goes to die, is necessary to build up that which is billed as a revolutionary driver of technological advancement. No less than the great free-market champion Larry Kudlow confirmed to Davis and FitzGerald that “The big picture concept is to have all of the U.S. 5G architecture and infrastructure done by American firms.” Say it ain’t so!

Thinking about this, readers would be wise to stop and marvel for a second or two. It wasn’t too many years ago that conservatives figuratively trampled on one another as they raced to TV cameras and computers to mock the Obama White House and Democrats for the Solyndra bust-up, and that was just solar. Back then the very notion of public/private anything was anathema to conservatives, yet now they’re championing it for 5G. The technological future is coming, and it will be planned by conservatives in government!

Fear not, it gets weirder. Indeed, their support for government investment grows by the day. Hudson Institute senior fellow Thomas Duestenberg is the latest (but surely not the last) conservative to call for government planning in the development of 5G, along with government finance. Duestenberg et al want tens of billions of taxpayer dollars to allegedly bolster the 21st century equivalent of putting a man on the moon first. Funny here is that conservatives were up in arms back in 2011 when it was revealed that Solyndra had been the “beneficiary” of $535 million in government loan guarantees…

Needless to say, the previous number is chump change to the overnight planners on the right. Duestenberg laments that Huawei allegedly has received $75 billion from the Chinese government (as though the feds don’t wastefully shower all manner of taxpayer dollars on U.S. firms – TARP comes to mind, so does ExIm…), so he’s cheering bipartisan legislation and funding from Congress meant to “encourage development of open-architecture systems to promote Western competition to Huawei and ZTE.” Stranger still is that Duestenberg’s op-ed was hosted prominently by the Wall Street Journal’s editorial page, long the Holy Grail of free market opinion. Needless to say, the Obama White House’s partnership with the solar industry amid lefty alarmism about global warming wasn’t cheered by conservatives in the way that they now cheer government investment in that which alarms them.

Which brings us to a basic question: just what are conservatives so afraid of? If Huawei is truly a tool of the state as they want to believe, and as they keep telling us, then it’s a safe bet that its efforts to lead the world toward an amazing 5G-enhanced future will fall very short. What’s innovative and has major market applications of the technological variety is never hatched by government. So let the Chinese government spend enormous sums weakening Huawei as it produces something that consumers will reject.

On the other hand, and with Huawei’s seminal role in rapidly advancing global communications top of mind, let’s consider the possibility that conservative scholars and politicians have well overstated the Huawei threat (haven’t they overstated other threats before?). As in, let’s consider the very real possibility that Huawei is actually a great company, and that it thrives despite state investment. If so, what’s there to be afraid of? Most of us don’t live in Cupertino, Mountain View or Seattle, but open markets make it seem as though Apple, Google and Amazon are right next door.

When markets are open, location of business doesn’t matter. If Huawei can bring 5G to market the quickest, brilliant. Just as the Chinese aren’t hurt by Apple selling 1/5th of its iPhones in China, and just as Los Angelenos aren’t hurt because Microsoft is in Seattle, New Yorkers won’t be harmed by technological advances that happen in Shenzhen.

The main thing is that conservatives need to act like conservatives again. State planning fails. Always. If Huawei is truly a creation of the state, then conservatives needn’t worry about it growing so rapidly in the U.S. such that it can “spy” on us, and do other scary things. If not, conservatives might reacquaint themselves with their support of the open markets that similarly always succeed when it comes to lifting everyone up.

John Tamny is editor of RealClearMarkets

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