Peace For Our Time

My Comments: Please understand this is not a Happy Valentine’s Day message. Far from it. Nevertheless, Happy Valentine’s Day!

When I saw the title above that appeared in a news feed I follow, it seemed a little strange. However, the source was a highly credible one, someone with responsibility for many billions of investable assets across the globe.

Earlier this week I offered an opinion suggesting the US economy was not all it was cracked up to be. It had political overtones in that the White House says we’re doing great while the numbers supporting that premise tell a different story. I got more than a few comments to the effect my head was where the sun does not typically shine.

While the state of the economy does not correlate 100% with the state of the stock and bond markets, there is nevertheless a correlation. As someone who professes to know something about how markets are supposed to work and support the notion that investing money for retirement is necessary, the degree to which there is a lack of correlation is important.

These words from Scott Minerd, the Chief Investment Officer for Guggenheim Partners is something that should be read by anyone with money in the markets. I currently have no money invested with them but have followed his thinking and writings for many years.

By Scott Minerd, Global CIO \ 13 FEB 2010 \

The cognitive dissonance in the credit market is stunning. I recently have had the feeling that I’m living peaceably in Britain during the 1930s while on the continent the Germans were building weapons, expanding their army and navy, and opportunistically grabbing land. I know this comparison may seem excessive, yet market participants seem to be indulging in a cognitive dissonance akin to when British Prime Minister Neville Chamberlain in 1938 confidently assured not just Britain but the world that there would be “peace for our time.” He told them to ignore all the red flags and assured them that two decades after the end of the Great War there would be no repeat of the global carnage. Two years later the Nazis were bombing Britain.

In the markets today, yields are low, spreads are tight, and risk assets are priced to perfection, but everywhere you look there are red flags.

The latest red flag is the coronavirus. I would think that the correct way to measure the mortality rate of the coronavirus is similar to how you would evaluate the fail rate of an exam—the number of people who fail divided by the total number of people who have completed the exam, both passed and failed. Picture a four-hour exam that is administered every half hour from 8:00 a.m. to 12 noon. The fail rate for the 8:00 a.m. cohort is the number of 8:00 a.m. people who failed divided by the number of 8:00 a.m. test-takers, not the number of 8:00 a.m. people who failed divided by the sum of all the people who are taking the test at each interval from 8:00 a.m. through 12:00 noon.

Unbelievably, this is how the popular press is reporting the coronavirus “fail rate,” which is the mortality rate. At this moment, the coronavirus death toll stands at 1,370, and the number of confirmed active cases is 60,408. The press will take those two numbers and suggest that the death rate is 2.3 percent, and therefore lower than the 9.6 percent death rate of the SARS episode. But in order to calculate death rates, the denominator needs to be the sum of deaths plus cures, i.e., those who have completed the test. According to Worldometer, the number of cases with outcomes total 7,641 (1,370 deaths plus 6,271 recoveries/discharges), which suggests a much higher death rate of 18 percent.

The coronavirus was first widely reported in early January, and the total number of deaths already exceeds the total from SARS, which went on for about nine months. Coronavirus is much more deadly than SARS and if not contained threatens to become a global pandemic. For perspective, the last pandemic, the Spanish influenza of 1918, killed 50 million people around the world, or 3 percent of the global population.

From TK: Please note, there are charts that support what he says and additional commentary from Mr. Minerd. If you’ve reached this point and want to know the rest, visit the website where his comments appear:

One thought on “Peace For Our Time

  1. So Yeon Ryu

    Not to belittle the coronavirus threat….but this is not 1918. One would think a wealth advisor might have heard the expression “a bull market climbs a wall of worry”…..if you own stocks, articles like this should make your heart sing. Most likely, this guy is talking his book….he wants to buy more but hoping for a fear-induced pullback.


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