The quest for Someone to blame is always Successful

Monthly Market Commentary: May 1, 2020

In Booms and Depressions written in 1932, Irving Fisher quotes Bank of England Director Sir Josiah Stamp (1880 – 1941): “Money as a physical medium of exchange, made a diversified civilization possible. And yet it is money, in its mechanical more than in in its spiritual effects, which may well, having brought us to the present level, actually destroy society.”

Be prepared! Sometimes in future, your children or grandchildren will ask you about the current economic slump. They will question: “how was it possible that such a minor pandemic in terms of mortality rates created such global economic calamity?” You will then have to explain that the recovery which followed the Crisis of 2008/2009 was artificial because it was financed with debts, and involved fiscal deficits and money printing, which created an extremely unstable and vulnerable financial system. In addition, you will need to point out the high valuation of US stocks, at the time the crisis occurred.

In fact, for a brief period of time in March 2020, the stock market capitalization of the NASDAQ Composite Index exceeded the entire market capitalization of the MSCI World Index ex USA.

Your grandchildren will further ask: “Grandpa, why was it that all the world's money was flowing into the US, boosting asset prices there including the value of the US dollar?” It is at that point that you will remember Bertrand Russell's words that, “Everything is vague to a degree you do not realize till you have tried to make it precise.” You will likely quote the economist JR McCulloch who observed already at the beginning of the 19th century that, “In speculation, as in most other things, one individual derives confidence from another. Such a one purchases or sells, not because he had any really accurate information as to the state of demand and supply, but because someone else has done so before him.”

As an example of financial instability you will likely bring up the below zero crude oil prices on April 20th. It is a most unusual situation that prices for products become negative even for a short period of time. However, the negative prices for WTI crude oil on April 20 were symptomatic of financial instability and excessive speculation by uninformed investors.

Furthermore, the below zero prices for oil could be a harbinger of negative returns for most assets, and for some assets, even of below zero prices.         

The point is this. The Coronavirus did not cause the slump of 2020. But it was the pin that pricked the monetary-inflationary credit bubble for good, and depressed all asset prices, and with the invaluable assistance of incompetent politicians led to severe economic hardship.         

As Thomas Sowell opined: “There is nothing so bad that politics cannot make it worse.”  

On March 17, I sent out a tweet that stocks were about to bottom out because the US stock market had become  grossly oversold. [Please follow us on] US stocks are now no longer oversold, and with the month of May some seasonal weakness should be expected.  

I am enclosing The pH Report, written by my friend Paul Hodges. Please pay attention to his phases five and six of the economic and financial cycles.  

Finally, keep in mind the words of President Woodrow Wilson after signing into Law the Federal Reserve Act:
“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and vote of majority, but a government by the opinion and duress of a small group of dominant men.”  

With kind regards   
Yours sincerely  
Marc Faber

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