How Revolutions, Wars and Plagues are Harbingers of "Great Changes" in Societies and in Economics
Monthly Market Commentary: March 1, 2020
Francesco Sisci, an Italian sinologist, writes under the title Doom or Renaissance in China after a Plague, that, “large plagues have been harbingers of great changes: the birth of the Islamic world or of the Renaissance, and the death of old institutions, like the old Roman and Persian empires and feudal culture."
I also came across historian Walter Scheidel’s book The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, which argues that, throughout all of human history, only violent cataclysms and plagues have produced significant and long-standing reductions in economic inequality.
Last month, I opined that, a severe coronavirus pandemic could tilt the global economy into recession and that therefore, it would be favorable for US Treasuries. Over the last twelve months, the long-term Treasury ETF (TLT) is up 30% and year-to-date 13%. By comparison, the S&P 500 Index is up 6% over the last twelve months, and is down 8% in 2020. US Treasuries remain inexpensive compared to European sovereign bonds and they are a great hedge against a further stock market decline. Near-term, Treasuries are very overbought but I continue to hold them because of my belief that the Coronavirus will tilt the global economy into a serious deflationary recession/depression.
In recent reports I have explained that I was reducing my equity exposure to around 20% of assets and increasing my cash holdings. I want to warn my readers not to be complacent. If the Coronavirus is going to be as bad as I believe it will be, I would not be surprised if all asset prices declined.
Most importantly, I suspect that the Coronavirus could be the event that pricks the monetary-inflationary credit bubble for good, depresses all asset prices, leads to severe economic hardship, and destroys central bankers.
I am enclosing with this report an essay by my friend Kevin Duffy (firstname.lastname@example.org) entitled The Coffee Can Portfolio. It is a great read.
Lastly, remember the words of the late Leon Levy:
“For most people, the most dangerous self-delusion is that even a falling market will not affect their stocks, which they bought out of a canny understanding of value.”
With kind regards