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  • Writer's pictureChristian Hyldahl

Calm Down

The Leadership Vacuum

It seems that elected leaders worldwide are trying to outdo one another by imposing variations of Martial Law. Every second a new headline appears with another draconian measure to thwart COVID-19 (aka Coronavirus). What’s extraordinary is that no empirical evidence exists to truly justify the measures being taken, and certainly not for any being proposed. These leadership vacuum’s take place as a result of misinformation, hysteria and political career risk. Pack mentality at its finest. Supposed leaders spend more time assessing the asymmetry of their decision than the decision itself. The risk assessment is invariably one that exclusively considers political survival and little else. If every other entity or leader is making these short sighted and economically destructive decisions, then I better as well. What’s the upside for a leader to impose some common sense and performing a longer-term cost benefit analysis? There is none. Hence, the asymmetry. The result is quickly becoming Martial Law like solutions. Josef Stalin would be delighted! With each passing day of this kind of decision making we sink further into assured economic and social destruction. To us it seems like the solution may be far worse than the problem.

Triggered by the virus pandemic, capital markets are now realizing that a decade of profligate policies and misguided resource allocation has created an environment ripe for panicked selling. It will not end in a few days. It is our view that the entire global economy will need to reset itself. Single sourcing from the cheapest countries will no longer be a viable approach. Diversifying suppliers will be key! Emerging Markets including China have the most to lose here. Developed countries may decide that the benefit of building out infrastructure is a better alternative to address the supply curve risks inherent in markets throughout the emerging world and China. This feeds the nationalist agenda and it may be one of the most significant outcomes in the long term.

Globalist and liberals are almost gleeful in their coverage of the Executive branch’s reaction to the current emergency. Perversely, the crisis actually feeds into the narrative of isolationism and “Made in America.” Look where globalism got us! Look how socialized medicine was unable to do deal with the issues! Let’s do it ourselves and don’t let anyone in and this kind of thing will never happen again. Let’s eliminate Obamacare and move to private healthcare! We will be surprised if this doesn’t become a talking point once the crisis passes. And it will. They always do. Hopefully, we are better on the other side of it than we are today. It is unlikely that politicians or policy makers will be, but our health system will be for sure. It’s our glass half full optimism!

The Race to the Bottom

As elected leaders show an aversion to leadership and just follow whoever shouts the loudest, local leaders are following suit. It’s a race to the bottom. Leaders at institutions of higher learning have displayed the opposite of leadership – another example of the coddled approach toward learning. Safe spaces and the like. Let’s shut everything down and destroy the dreams of every senior currently studying at a university. They are too fragile to make adult decisions on their own. It’s just an extrapolation of everything that is wrong with higher learning. Now local schools are doing the same thing. It’s the aforementioned asymmetry at work again, saving their own skin regardless of how destructive the outcome will be. The hell with the impact on the students and their families. Apparently, narcissism and weakness are the requisite characteristics to obtain a leadership role in academia. Playing the game well is, once again, more important than constructive problem solving.

Calm the **** Down!

That’s our advice to everyone. Practice good hygiene and common sense. Most of all Calm the **** Down! This too will pass. If you get the flu, stay hydrated, take a fever reducer, and get lots of rest. The odds are extremely skewed in your favor that you will be fine in a week or so. Being sick sucks but it is rarely life threatening. From everything that has been made public, there is nothing different with this virus. So again, Calm the **** Down. Don’t contribute to the insanity and the hysteria of the crowd. Lead don’t follow. It will all be OK.

Corporate Welfare

Every industrial leader who has leveraged themselves to the hilt over the past decade will now run to Washington for their share of handouts which further incentivizes excessive risk taking. Airlines will be at the head of that queue, then energy, then financials. Government fiscal profligacy as the ultimate problem solver for highly leveraged and poorly run entities. They will effectively replace private debt with government debt. It is the socialization of the debt markets. This just exacerbates the long term problems we will face as a nation. It is also a reason why our improperly functioning economy is so unstable.

The Fed creates a debt craze and an equity asset bubble and now corporations will refuse to be held accountable. It’s an insane cycle that our policy makers have created. The virus is merely a trigger. This moment was inevitable. Our hard-earned taxpayer dollars once again being misused by federal authorities. It’s a preposterous dynamic that never seems to go away. The federal government is operating like Lehman Brothers. With each taxpayer dollar they spend at a 20X multiple! It’s unsustainable. That is another ticking time bomb for a later day. When will the markets figure out that even the government can reach a spending limit and that there isn’t enough money to fix what’s ailing our economy?

The Avengers and The Fed

The Fed likens themselves as Avenger type superheroes saving the world from itself. Ever notice the level of destruction created by superheroes? Is the world really saved and better off now that it has been virtually destroyed? The Fed panicked today and tried to kill the bad guy with one huge frontal assault. The problem is that they didn’t come close to succeeding. What kind of horrifically bad forecast do they have to warrant an absolute depletion of all their ammunition so soon? For us, that’s the main takeaway. Additionally, the arrogance of the Fed to think that their actions could meaningfully impact what is an unknown health crisis is truly stunning. Are they really medical experts? I am sure that all the closed borders, businesses, airports, ports, stadiums, universities, schools etc. really appreciate the gesture. They created the equity bubble and now as it reverts to fair value, they are doubling down on the idiotic policy that created it. We sincerely wish the Fed would focus on their mandate and keep as far away as possible from inserting themselves into the capital markets. We have been writing about this for years.

The Federal Reserve, and central bankers in general, may be the most self-serving bunch we have ever witnessed. The hubris they exhibit is truly astonishing. Former chairpersons continuously revise history to justify horrific policy decisions. Expect more of this to come in the near future. They will completely misrepresent economic facts and history and have the temerity to suggest more idiotic solutions to the current situation. They are not elected, are never held accountable, and more ego maniacal than most politicians. A dangerous mix for any decision maker.


These are the periods where patience is vitally important. No investment professional can perfectly time the markets. However, experience and a deep understanding of fundamentals go a long way in properly assessing expected return relative to risk. Perfect clarity rarely prevails. However, there will be tremendous investment opportunities over the coming days. We are confident in our risk management skills. We have been explaining that this outcome was inevitable for the last few quarters. Risk is clearly back on.

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