The Grip Tightens

By John Mauldin 

This is part two of my 2021 forecast series. I began last week (you can read it here) discussing a three-handed alien race envisioned by science fiction writers Jerry Pournelle and Larry Niven. 

They had two regular hands and a third “gripping hand,” which though less dexterous, was far stronger. My analogy was that the COVID-19 vaccine has us in the Gripping Hand. 

Any forecast for 2021 must first consider this decidedly “known unknown.”

Today we’ll begin by looking at new virus developments, some of which are good, some very good, and some frightening. We (the entire world) are in a very tight race with dire consequences if we lose.

Vaccine Race

The one thing we can say with certainty about this year is that the virus outweighs everything else. The economy can grow if we control the virus, or more likely shrink if the virus keeps spreading.

That said, the impact will vary by country, as some seem better at controlling it. But the new UK variant, known as B117 (somehow bringing to mind a World War II bomber), is threatening to upend some previously successful apple carts.

That means, from a global level, growth prospects depend heavily on vaccine success. 

The World Bank’s annual forecast was very plain about this. It has four scenarios:

  • Upside Scenario: Vaccine campaigns proceed swiftly with wide public cooperation, allowing governments to roll back their precautionary measures. Economic uncertainty dissipates and 2021 sees 5% global GDP growth, but a return to prior trend in 2022 with only 1.7% global growth.
  • Baseline Scenario: Caseloads fall in major economies as inoculations proceed, with social distancing measures gradually reduced. Economic activity recovers as household consumption returns. In that case, the World Bank expects 4.0% global growth in 2021 and 3.8% in 2022.
  • Downside Scenario: Cases remain high as supply bottlenecks and logistical problems slow vaccine deployment. Activity remains depressed as households continue to fear contact-intensive services. Here, it expects global growth of only 1.6% in 2021 and 2.5% in 2022.
  • Severe Downside Scenario: As in the downside scenario, the pandemic is difficult to manage and vaccine distribution is slow. The prolonged economic slowdown erodes corporate balance sheets and triggers widespread defaults and concerns for bank balance sheets. It gets worse from there, too. This would give the world economy another year of recession, with global growth somewhere below zero (they are oddly non-specific on this point) in 2021 and bouncing to just 2% in 2022.

The World Bank team also sees a much greater virus economic impact in developed countries, both upside and downside. This is partly because advanced economies are more service-intensive and the pandemic is striking those industries harder. 

But it’s also because the largest emerging market, China, is bouncing back while the virus has mostly spared Africa, at least so far (though the situation in South Africa is deteriorating quickly).

This handy Financial Times chart summarizes the World Bank’s two midrange scenarios.

Source: Financial Times

The part I circled is its 2021 forecast for advanced economies if vaccines go well (blue bar) or not so well (red bar). The difference is dramatic. Note carefully, these are the two middle scenarios. I think their optimistic scenario, given the latest data, is now sadly unrealistic. We have a nontrivial chance of experiencing the worst case.

However, there is good news, so let’s start there. After a very shaky and mostly slow start, federal and state officials in the US are reorganizing the vaccine rollout. 

One of the good things about the US federal system is that we can conduct 50 different “laboratory experiments.” In this case, West Virginia and Florida seem to have found better ways. Others are learning from them and the number of people vaccinated should grow quickly in the coming weeks.

Second, I noted last week that we desperately need Johnson & Johnson’s vaccine to be effective and available soon. Without it, we simply won’t have enough vaccine production capacity. 

This week they reported some initial results that show the vaccine does create antibodies, though that’s not necessarily actual virus immunity. We should see the results of their much larger, 45,000-person Phase 3 trial in late February or March. While the principal trial is a one-dose vaccine, they are also testing a second-dose regimen. We will have to wait for results, but there’s room for optimism.

In the undetermined but encouraging category, many other vaccines are in various trial stages, and we will see results this year. 

I am following one very closely that could be a game changer not just for the US but the world. It has Defense Department money involved. Logic says we are going to see a lot more of those, simply from the more shots on goal concept, which means we may have many more vaccines available later this year and next year.

Progress is not the same everywhere, though. Below is a graph from my friend Ian Bremmer’s GZERO Media illustrating the different timelines. 

Note that a significant part of the world stretches into middle or late 2022 and some into 2024. 

This is clearly a problem for those countries, and we do live in a global world with global trade, which has economic impact everywhere.

Source: GZERO Media

More troubling, this allows more time for mutations to develop. Luckily, the UK and South African variants seem to respond to current vaccines but the longer this virus has an opportunity to mutate, the less secure we all are.

As I said above, I expect to see significantly more vaccines this year, and it is important to vaccinate every person who wants a vaccine. The talk of only using one round of the two dose vaccine is extraordinarily dangerous. It is not clear if one dose will be sufficient to provide immunity, and some experts think it could give the virus opportunity to build resistance to the vaccines. I hope the powers-that-be avoid this.

Moreover, we learned as I was finishing this letter that fewer doses are available than thought. This is from a Washington Post report.

When Health and Human Services Secretary Alex Azar announced this week that the federal government would begin releasing coronavirus vaccine doses held in reserve for second shots, no such reserve existed, according to state and federal officials briefed on distribution plans. The Trump administration had already begun shipping out what was available beginning at the end of December, taking second doses directly off the manufacturing line.

Now, health officials across the country who had anticipated their extremely limited vaccine supply as much as doubling beginning next week are confronting the reality that their allocations will not immediately increase, dashing hopes of dramatically expanding eligibility for millions of elderly people and those with high-risk medical conditions. Health officials in some cities and states were informed in recent days about the reality of the situation, while others are still in the dark.

To be absolutely clear, I (and my personal physician Dr. Mike Roizen) will receive vaccines at the first available opportunity. I encourage you to do so, too.

The Irish Problem

I’m going to show you something that may seem alarmist. 

Fortunately, it is hypothetical at this point, and may remain so. 

But you need to know this. Because as alarmist as it is, it is a very real and present danger.

My friend Ben Hunt recently wrote a great piece called “The Ireland Event.” He graciously agreed to make it available without a pay wall. 

He talks about Ireland’s recent spike in daily cases in Ireland below. Many of these are from the UK/B117 variant, which is now all over the US and Europe.

Source: Ben Hunt

Quoting Ben, which I severely edited, (and let me say I agree with this concern):

And when I say “insane infection numbers” I mean a 30X spike in Covid cases in Ireland over the span of two weeks in late December, where the R number—the basic reproductive rate of the disease—went from something around 1.2 to something around 3. Where you suddenly went from a few hundred new Covid cases every day to more than six thousand cases every day. All in a country the size of Alabama (which, BTW, currently has about 4,000 cases every day).

So I’ve been trying to figure out what happened in Ireland, and whether it could happen here. To do that I had to research this new UK variant of the virus. I had to research the way in which Covid is explosively spreading in Ireland, and whether that was similar or different to US. I had to research what it MEANS to have an R number go from 1.2 to 3.

…I believe there is a nontrivial chance that the United States will experience a rolling series of “Ireland events” over the next 30-45 days, where the Covid effective reproductive number (Re not R0) reaches a value between 2.4 and 3.0 in states and regions where a) the more infectious UK variant (or similar) Covid strain has been introduced, and b) Covid fatigue has led to deterioration in social distancing behaviors.

A single Ireland event is a disaster. A series of Ireland events on the scale of the United States is catastrophic. If this were to occur, I’d expect to see a doubling of new Covid cases/day from current levels in the aggregate (today’s 7-day average is 240K/day), peaking somewhere around 500,000 new daily cases before draconian economic shutdowns (more severe than anything we’ve seen to date) would occur in every impacted major metro area. Hospital systems across the country would be placed under enormous additional strain, leading to meaningfully higher case fatality ratios (CFRs) as medical care was rationed. Most critically, this new infection rate would far outpace our current vaccine distribution capacity and policy. Assuming that vaccines are preferentially administered to the elderly, aggregate infection fatality ratios (IFRs) should decrease, but the overall burden of severe outcomes (death, long-term health consequences) would shift to younger demographics.

This highlights the need to vaccinate as many vulnerable people as possible, as soon as possible. And not just the elderly. There is clear scientific evidence that so-called comorbidities increase the death rate, especially in the younger population. Diabetes, obesity, compromised immune system, etc., make you more vulnerable. If you have any comorbidity, you must be exceptionally careful even if you are young.

Stories about these new variants often say they are no more severe, as if that helps. The problem is a faster-spreading virus ultimately is more deadly, simply because it infects many more people, even if the same small percentage of those infected die. Here is the math.

Source: CFR

I am not predicting this. But if something like Ben’s “Ireland Event” happens here, it would put the US and probably everyone else in the World Bank’s “severe downside” scenario. That’s why the vaccination efforts need to reach warp speed ASAP. Otherwise, we are going to see more, and perhaps more serious, lockdowns. I am not advocating, I’m simply noting the fact. Note that when Ben says “nontrivial chance,” he means in the 40%-plus category. I am horrified to say this, but I think as business owners and investors we need to consider this scenario a possibility.

More lockdowns mean more economic distress and more small businesses lost, which means the recovery will take longer.

Still, I think the more likely course (and I hope not Pollyannish) is good-but-not-great vaccine progress, allowing us to slowly start normalizing the economy late this year. A lot of things will have to go right. We still don’t know how long immunity lasts, for instance. Our challenge will be much greater if it fades in a year.

Another mystery is how many people unknowingly had mild cases and now possess some immunity even before vaccination. Estimates vary widely. But if it’s a large number, herd immunity effects could begin sooner. That would be extraordinarily economically beneficial, too.

One more distressing note. A new study shows that over a third of hospitalized COVID-19 patients were still experiencing various “neurological reactions” like cognitive deficits, hyposmia, and postural tremor even six months later. Another study from the same article shows that 87% of (emphasis again on hospitalized) patients had at least one lingering symptom. These findings were a “preprint” and haven’t undergone peer review. Still, this is obviously a damn tricky virus, with long-term implications.

My Economic Takeaway

I see better than 60–70% odds that the robust recovery scenarios many see for the latter half of 2021 will prove too optimistic. I desperately hope to be wrong, but restarting 150,000+ small businesses is no trivial matter. Further, all this talk of “pent-up demand,” is unrealistic. People aren’t going to take two vacations when the virus is defeated. Caution will be the rule of the day.

We already see that significant (majority) portions of those receiving the government stimulus checks plan to save them. If an Irish-scale problem (note, I am of Irish descent so I’m not blaming them) reaches the US, a nontrivial chance, it will scar a generation every bit as much as the Great Depression did in the 1930s. We will see higher saving rates and less consumption for years. Given all the other adjustments that COVID-19 has forced upon us, this “recovery” will likely be slower than others, especially given the increasing debt. (See my personal section for what I think is long-term fantastic/extraordinarily optimistic news on the general virus and infection front.)

That being said, the Biden spending plan should help mitigate the immediate downside. It is not clear how that will all turn out. That’s why I keep emphasizing that COVID-19 has us in the Gripping Hand. Making plans if you are a business, especially a small one, is difficult in this environment.

An Invisible Bright Future and Vaccinations

A note to our current Alpha Society members: January 19–22 is Member Appreciation Week here at Mauldin Economics—so mark your calendar and let us show how much we appreciate you! We’ll have several “Ask Me Anything” (AMA) hours with the editors in our Alpha Council forum, and I’m looking forward to answering your questions as well. Look for more details via email.

This week I talked with Fred Maxik, the chief scientific officer of Healthe, to get a progress update on far-UVC lighting. Briefly, this ultraviolet light in the “C” spectrum kills viruses and bacteria (all of them) without hurting humans. The company has made significant progress in developing systems that will be affordable for bars, restaurants, and other small businesses, eliminating (or close to it) the potential for spreading viruses.

They are making progress on an LED version of UVC. By the middle of this decade, this technology could be cheap and ubiquitous. It will eventually be in our homes and offices, on the back of stadium seats and other public venues. This is not just a COVID killer; it stops all viruses and bacteria. Think E. coli or common colds. I would expect shortly after the initial LED solution we will have combination visible light/invisible UVC spectrum light bulbs, too.

This has giant potential for health and wellness. How many people die from infections and viruses each year? Imagine cutting it by well over 90%. That is a game changer for healthcare, not to mention humanity.

This is just one of dozens of technologies that are to change our life this decade. How can I/you/we not be bullish on humanity?

I am not certain when I will have a chance to get a vaccine here in Puerto Rico. Evidently the rules are somewhat different here. I will soon find out. And since the letter is already long, let me hit the send button and wish you a great week. Oh, and you really do need to be following me on Twitter.

Your wanting all my readers to stay safe analyst,

John Mauldin
Co-Founder, Mauldin Economics

The pandemic’s darkest hour is yet to come

Fresh lockdowns are needed to slow the rapid spread of new Covid-19 variants and inevitable deaths

Anjana Ahuja

    Infections are rising in London, the east of England and south-east. The number of people testing positive in the UK now routinely exceeds 50,000 a day © John Sibley/Reuters

Those who predicted that 2021 would feel different from 2020 have been proven correct — but not in the way that anyone wanted. Despite the existence of several effective Covid-19 vaccines, the UK, many European countries, the US and Brazil appear headed for their darkest moments in the pandemic.

The number of people testing positive in the UK now routinely exceeds 50,000 a day. 

Infections are rising in London, the east of England and south-east; they are also plateauing in other regions where rates had been falling. 

That is despite universities and schools having been closed for the seasonal holidays. A full reopening has been delayed.

The number of people in hospital with Covid-19 is already higher than the April peak. 

Sir Jeremy Farrar, director of the Wellcome Trust and a pandemic adviser, told me we are past the point at which the NHS is in danger of collapsing; parts are already buckling. 

Healthcare staff, the same key workers being called on to roll out the vaccines, are exhausted. Many are isolating or sick. The current tiering system is not keeping infections down.

The situation is so grave that a national lockdown, including school closures, looks imperative. 

“What we’ve got is two or three months now of something that will feel and look and is worse than March and April,” Sir Jeremy says, adding that schools may have to shut into February given the prevalence of the new variant in young people, which risks turning schools into more significant sources of transmission. 

He emphasised he was speaking in a personal capacity.

The reality is that there is rampant spread, fuelled in the UK by the combination of a new variant that is around 50-70 per cent more transmissible, plus a lifting of restrictions at the beginning of December when the R number was hovering around 1.

A lockdown would starve the virus of the human contact on which it feeds and offer breathing space: to expedite the rollout of vaccines and get ahead of the virus; to get a proper testing regime up and running in schools, so that they can reopen with confidence as the R number falls; and for ministers to display honesty and humility about the immense challenges that still lie ahead. 

The promise of vaccines should not be a cue for complacency but rather a spur to curb transmission, so that the virus has fewer opportunities to mutate before people can be immunised.

That race between immunisation and mutation has never been more urgent — a fact recognised in the UK’s pragmatic decision to delay booster vaccines so that more people can be given a first dose. 

A variant with superior transmissibility, even if no more severe than its predecessors, is deeply concerning. 

The arithmetic of contagion means that more infections, as with the B.1.1.7 strain currently dominating in the UK, inevitably translates into more deaths (despite improvements in therapies and patient care). 

As well as the personal tragedies that come with increased infections, unrestrained transmission risks brewing further variants that could evade current vaccines. Brazil, India and Mexico are hotspots to watch.

According to the World Health Organization, an even more troubling variant first reported from South Africa has been clocked in at least four other countries, including the UK. 

This strain, known as 501Y.V2, has already shown some resistance to monoclonal antibodies, a potentially promising treatment. 

A new variant can arise anywhere and spread everywhere, making the race to conquer coronavirus global not national.

If 2020 taught us anything it is that countries can never act too early and that postponing the inevitable leads to protracted agony. 

A recent Imperial College London analysis suggests that locking down one week earlier in the first spring wave would have cut UK deaths from around 37,000 to about 16,000.

Taiwan, Vietnam and New Zealand demonstrate that early, aggressive intervention delivers a healthy population able to participate in a healthy economy. 

Treading a middle way between public health and the economy, as the UK has tried to do since March, is a half-measure that protected neither. 

It is like trying to keep a motorway open after a pile-up and hoping drivers can swerve to avoid the debris, rather than shutting the road and clearing it so traffic can flow normally. 

Further collisions simply produce more debris and casualties.

Eventually, the road will have to be shut anyway and take longer to clear. This was the pattern with UK lockdowns in 2020. 

Only if we act more swiftly is there a chance 2021 may feel different.

The writer is a science commentator

How Much Debt Is Too Much? It Depends on Your View of Inflation

There is broad agreement that inflation is the ultimate constraint on government debt. The question is how inflation works in the real world.

By Jon Sindreu

The pandemic will leave Western nations carrying the biggest public-debt pile as a percentage of gross domestic product since World War II. To deal with it, they will need a better grasp of inflation.

So far, fears about high debt-to-GDP ratios have been proven repeatedly wrong. Even so, officials are already trying to set limits. In the eurozone, deficit caps will likely return. In the U.K., Treasury chief Rishi Sunak has dubbed the path of public finances “unsustainable.”

If activist fiscal policy is to survive, new rules are required. Should they aim to stave off “bond vigilantes,” or simply not stoke inflation?

The latter focus has been popularized by the contentious school of thought known as Modern Monetary Theory, but the divide isn’t what it seems. Even vociferous opponents of MMT share the assumption that inflation is the true constraint on fiscal policy. The differences concern how inflation works.

Among the traditionalists, ex-Treasury Secretary Lawrence Summers and former Barack Obama adviser Jason Furman recently wrote that debt hasn’t been a problem because interest rates are so low. 

Governments can spend, they argued, as long as their net interest payments stay below 1% of GDP, adjusted for inflation.

For former International Monetary Fund chief economist Olivier Blanchard, the key is that government bond yields are lower than expected GDP growth rates. 

Even if a one-off stimulus leads debt-to-GDP to shoot up, forward-looking investors then know that the math will eventually bring it down—as happened after WWII.

Both arguments raise the specter of market forces: Loose debt issuance is allowed now but may not be in the future. Since 1881, bond yields have been above growth rates about 40% of the time, including most of the post-1980s era.

But, as Mr. Summers himself recently underscored, bond yields are also linked to inflation. If governments keep borrowing too much, the theory goes, interest rates will rise. 

At some point, printing money will be the only alternative to a default, creating inflation. By contrast, MMT advocates see inflation as a result of too much spending, regardless of whether it is financed by money or debt. This is the real clash.

So far, the latter theory seems to fit the facts better, given that central banks have spent a decade buying trillions of dollars of bonds without triggering inflation.

Many economists argue that this is yet another result of rates being suppressed by social and market forces, but this is also suspect. Inflation-adjusted long-term yields have historically tracked central-bank policy, even in periods when central banks weren’t focused on growth and inflation, such as under the 1880-1914 gold standard. 

The fact they are deeply negative now says much more about Federal Reserve policy than economic fundamentals.

If interest payments on the debt are themselves broadly determined by policy makers, they can’t be a good canary in the coal mine. Fiscal policy could be both too tight and too loose and still comply with such a rule.

What indicators should policy makers follow then? Inflation itself is a good bet, though consumer-price baskets are crude—they often obfuscate specific supply shortages, as happened this year. 

Governments will need to monitor and control consumer spending and industry bottlenecks, as well as automatically link stimulus programs to persistent increases in unemployment, rather than leaving them to officials’ discretion. 

Outside of the U.S., much more attention should be devoted to the exchange rate, since depreciation can create inflationary spirals.

It is understanding inflation, not bond markets, that will set fiscal policy free.

The fact that inflation-adjusted long-term yields are negative says more about Federal Reserve policy than economic fundamentals.


A Fairer Way to Help Developing Economies Decarbonize

Global carbon pricing is an essential part of any long-term solution to the climate crisis. But advanced economies also need to provide the developing world with highly concessional financing and technical expertise to help it decarbonize – all guided by a World Carbon Bank.

Kenneth Rogoff

CAMBRIDGE – With US President-elect Joe Biden’s incoming administration promising a fresh, rational approach to climate change, now is an ideal time to make the case for a World Carbon Bank that would transfer and coordinate aid and technical assistance to help developing countries decarbonize.

The proposed Green New Deal in the United States and the European Commission’s European Green Deal have laudable environmental goals but are too inward-looking. 

When an entire building is burning, to concentrate firefighting resources on one floor would only delay, not prevent, its destruction.

Broadly defined, intervention refers to actions that influence the domestic affairs of another sovereign state, and they can range from broadcasts, economic aid, and support for opposition parties to blockades, cyber attacks, drone strikes, and military invasion. 

Which ones will the US president-elect favor? 

According to the International Energy Agency (IEA), almost all the net growth in carbon dioxide emissions over the next two decades will come from emerging markets. Although China recently pledged to achieve zero net emissions by 2060, it is sobering to consider that it accounts for half of the world’s coal output and half of its coal consumption.

India, too, is highly dependent on its plentiful coal reserves, and will likely remain so despite strong advances in solar power. For all the fanfare accompanying the 2015 Paris climate agreement, the share of clean energy in global energy investment is still only around 34%, almost exactly the level five years ago. 

Wind and solar account for only 8% of global energy. The IEA estimates that allowing existing power plants to operate for the remainder of their expected lifespans in their current form would by itself cause global temperatures to rise by 1.7 degrees Celsius relative to pre-industrial levels.

Right now, the most widely discussed approach to encouraging developing economies to cut their CO2 emissions is a carbon border tax on imports from countries without adequate carbon-pricing systems. 

The European Union is currently considering such a measure, and the Climate Leadership Council (whose members include incoming US Treasury Secretary Janet Yellen) also has advocated it.

Economists almost universally favor carbon taxes (Europe’s carbon-pricing system is a clumsier version) so that producers and consumers take account of how their actions affect the global commons. 

A border-tax adjustment is aimed at prodding developing economies to introduce their own carbon taxes. The policy is conceptually sound, but is too static and difficult to implement.

For starters, developing economies have neither the resources nor the technology to transform themselves overnight. Part of the reason advanced economies have been able to mitigate their CO2 emissions is that global manufacturing has migrated to emerging markets that have invested heavily in energy.

The average age of coal plants in Asia is 12 years, compared to 43 years in advanced economies. Given that the lifespan of a coal plant is about 50 years, and coal is one of the few natural resources that China and India possess in abundance, the cost to developing Asia of decommissioning its coal plants is huge. 

And then there is Africa, where the number of people lacking access to electricity has risen during the COVID-19 pandemic, to almost 600 million.

The gap between the developing world’s ability to deal with climate change and the ambitious plans being discussed in advanced economies is just another example of the huge disparity in wealth and resources between the Global North and the Global South. 

In response to the COVID-19 crisis, for example, advanced economies marshaled fiscal and credit support in 2020 averaging over 16% of GDP, compared to 6% in emerging markets and 2% in developing economies, according to the International Monetary Fund (IMF). 

And this wide gap does not take into account the potential for pandemic-related debt build-ups to morph into a full-blown developing-country debt crisis over the next couple of years, making decarbonization even more difficult.

Global carbon pricing is an essential part of any long-term solution to the climate crisis, but advanced economies need to provide the developing world with a carrot and not just a stick. 

This should come in the form of highly concessional financing, combined with technical expertise and sharing of best practices – all guided by a World Carbon Bank.

The IMF, the World Bank, and regional development banks have an important role to play, but their mandates are too diffuse for them to deal effectively with the climate challenge on their own. 

Meanwhile, those who think that government-to-government assistance should not play any role in climate solutions need to bear in mind that state-owned firms, which are not terribly responsive to economic incentives, increasingly dominate the global coal industry.

Is it too optimistic to think that inwardly focused advanced economies will ever be willing to earmark large amounts of aid – at least $100-200 billion per year – to help the developing world meet climate goals? 

The response to the COVID-19 crisis so far offers little encouragement; the G20’s Debt Service Suspension Initiative has delivered a few billion dollars of relief to 40 very poor countries, but that pales in comparison to the trillions that rich countries have spent on their own citizens. 

An enhanced carbon tax or pricing regime could be one source of sustainable funding over the longer term, but the problem is too urgent to wait for this to fall into place.

The goal of achieving zero net CO2 emissions by 2050, which the EU has adopted and the US is likely to do soon, is praiseworthy. But not-in-my-backyard, or NIMBY, environmentalism is no way to solve a global problem.

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.


By Matthew Piepenburg

Below, we take another deep dive into the lessons of history, math and objective facts as one year replaces another in a global market increasingly on edge.

The Most Important Numbers of 2020

As we say goodbye to 2020 and look toward 2021, the key numbers on my screen and mind have nothing to do with dates yet everything to do with this: 14.

14 is the number of trillions by which the aggregate money supply increased in the U.S., EU, Japan and eight other developed economies in a single year, 2020.


Of course, other numbers matter in ways which can’t be fully fathomed, such as the 1.7 million deaths attributed to a global pandemic of the same year which has sent the global economy into a crisis not seen since the Great Depression.

And speaking of depressions, in terms of inflation-adjusted GDP growth rates per capita, the classic measure of a depression, we are clearly experiencing one now, and have been since before COVID.

As to other memorable 2020 numbers, and despite open evidence of an economic depression, the DOW shot past 30,000 as global GDP tanked, economies plunged and death counts mounted, proving yet again that there’s very little a money printer at a central bank near you can’t do to support a Frankenstein securities bubble.

In short, as viral risk locked us all indoors, every risk asset, from credits, equities to crypto’s saw a risk-on high (including a 66% surge in the MSCI All-Country stock index) that would make any market bull blush, then sneeze.

And if that wasn’t enough to make one question the death of capitalism and rational price discovery, the fact that 2020 also saw record low yields for junk bonds and a 5X increase in the price of Bitcoin ought to be evidence enough that investors are enjoying a collective madness led by an equally mad cadre of blind central bankers.

The Martini Affect

Explaining the disgraceful disconnect between rising risk assets and tanking Main Streets requires no PhD in applied mathematics or economic history.

Instead, one merely needs to understand the fundamentals a gin or vodka martini.

That is, the more you drink them, the better you feel, the crazier you behave, and the dumber your decisions.

Then of course, comes the hangover.

That too is a basic law of the Martini Affect: Too many martinis will make you sick.

Of course, while drinking martinis, such sober considerations vanish—replaced instead by an almost mad optimism, i.e. the kind of drunken behavior otherwise known in the markets as a mania.

Taking this metaphor further, the amount of fiat currencies created in 2020 has made even the savviest of investors look a bit silly, like a casino of James Bonds drinking vodka from an embarrassing fire hose rather than suavely debating the merits of shaken vs. stirred.

At $94.8 trillion, the flood of fake money (lauded as “stimulus”) now splashing through the financial casinos from Wall Street to Tokyo is frankly comical rather than as devastatingly clever as an Ian Fleming hero.

Instead of heroes, global markets are now led by anti-heroes, each pandering for a book deal, vote, cabinet post or positive tweet by dumping liquidity into already grossly inflated markets for near-term market applause at the expense of long-term economic pain—namely, the hangover of all time.

Rather than applaud these central bankers (Bernanke’s book was literally entitled “The Courage to Act”), we ought to have the courage to hand them a blindfold and last cigarette, for the central banks have literally drowned (i.e. murdered) global currencies via a monetary policy that future history students will one day equate to monetary waterboarding.

Taken as a whole, the balance sheet assets of the Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England are now above 54% of their countries’ total GDP.

As I type this, Bernanke’s drunken (courageous?) heirs at the Fed are pumping $120 billion a month out of thin air to purchase otherwise unwanted sovereign IOU’s to save risk asset markets as real economies crawl on all fours.

Global Bonds—Nothing for the Money

And remember: As bond demand (artificial) and bond prices (“stimulated”) rise, bond yields (and hence interest rates) fall.

Thanks to the Martini Affect of liquidity drunk central banks, global bond yields have sunk to an unprecedented average of below-1%, objectively confirmed by Barclays Global Aggregate Bond Index.

Even more embarrassing, however, is the sad fact that the amount of bonds with yields below zero (and thus technically defaulting) have drunkenly climbed above $18 trillion, which empirically proves that markets and investors (if you still wish to call them that) are clinically insane to seek return within such a quantifiably obvious asset bubble.


Because bond issuers, as the great songwriter, Mark Knopfler, once said, “get their money for nothing” as bond buyers get nothing for their money.

That is, global bonds yield next to zilch, which means investors are going further and further out on the risk branch on a drunken quest for yield in a credit market that otherwise has no yield, save for the junkiest and riskiest of bond peddlers.

But hey, if you’re into asymmetric risk/reward gambles and a shot at 4.5% yield, you can always buy IOU’s from Belarus or Ghana…

From Bad Bonds to Inflated Stocks and Diluted Currencies

Of course, those investors weary of yield-less bonds don’t seem to be weary of paying 31X earnings in an equally bloated global stock market as per the latest PE ratios on the MSCI All-Country World Index.

In short, bond investors are running from a credit frying pan into an equity fire.

Needless to say, the sell-side on Wall Street is ignoring over-valuation facts and pumping out the “it’s all gonna be fine” propaganda.

The fee gatherers are promising extremely optimistic earnings revisions for 2021 with shameless confidence—mostly driven by vaccine headlines promising a return to normal which was never normal even pre-COVID.

But folks, look a little bit closer at those optimistic “revisions.”

The caveat I would add, as well displayed in the above graph, is that the last time Wall Street made such optimistic projections in January of 2018, what followed was a tanking rather than surging of those same earnings revisions.

Just saying…

No Place to Hide?

Which brings us to the primal issue: Where is a safe place to hide when these risk asset bubbles suffer their inevitable “popping” and the hangover which always follows?

Needless to say, the answer doesn’t lie in the global currency market.

Pick your currency—or pick your poison—for whether you hold dollars, Yen, Euros or Pesos, they are losing purchasing power by the second, which means you’re losing money by the second, regardless of the latest (siren-call) rallies making the headlines.

As central banks binge drink on fiat currencies to “accommodate” risk assets (and Wall Street lobbyists), the inevitable dilution affect of too much paper money is no surprise to either history or far-sighted gold owners.

Again, and pardon the needed repetition, but the following chart not only says it all, but needs to be said all the time.

As currencies die, gold rises as a store of value to the tune of greater than 80% since 2000.

All Talk (and History) Turns to Gold

As I’ve also written countless times, and bears repeating again, all market distortions, as well as conversations, ultimately turn toward precious metals.

Gold, can’t be hacked, replicated or humbled by electricity shortages or the super computers (and super dangers) of clever “dark corners” from Russia to China.

Physical gold serves as a far more sober component and solution than cryptos alone for the next disaster in the current regime of doomed foreign-exchange floors.

There’s also no denying that cycles move through time, and just as the industrial revolution replaced the agricultural revolution, the new era and cycle of tech is here, and that includes cryptos and blockchain.

The recent mania in Bitcoin, alas, is no joke, and like gold, represents a common distrust (and middle finger) to global central banks and their increasingly comical fiat currencies.

Cryptos and blockchain are thus an inevitable part of the present and future era, and that future will be volatile yet rewarding for those seeking to get rich, which is certainly the case today for Bitcoin holders.

But for those looking to stay rich, the very volatility and skyrocketing nature of cryptos like Bitcoin are, in and of themselves, dispositive evidence that such coded 0’s and 1’s will not, by themselves, be a source of real monetary stability in the next currency reset already being telegraphed by the IMF.

In other words, gold, that “barbarous relic of the past” will once again rise to the occasion as part of the future solution.

Past is Prologue

Stated otherwise, and with regards to gold, the past is prologue rather than just barbaric…

Love em or hate em, cryptos alone are not the real money answer to a global currency disaster now playing out in real time.

Your central bank will not be replacing one fiat currency today for tomorrow’s fiat crypto.

Nor will Bitcoin find itself on the Fed’s balance sheet or pinch-hitting for the IMF’s failing SDR’s.

Whatever blockchain technology or “global bank crypto” the cornered bankers of the next reset or “Bretton Woods II” ultimately decide upon will require a backing in something from that “barbarous” past as well as our digital future, and that “backing” will and must involve gold.

Anything less would be tantamount to the very definition of insanity—namely, repeating the same behavior yet expecting a different result.

That is, solving one global debt crisis (and $280T is a crisis) driven by gold-less fiat currencies by merely adding more global debt paid for by a new yet equally gold-less blockchain “alternative” is a distinction without a difference and thus an open-faced charade.

Alas, change is coming, technology is coming, blockchain and cryptos are coming. But as a new global currency, they will be useless unless gold is a part of their valuation and backing.

In short, crypto technology is new and, on the march, but gold, like always, was already here and just beginning to make yet another currency rescue, and yet another, calm “I told you so” to a global economy once again ruined by fake money, be it printed or software generated.

When it comes to real money, the old is the only force which can give legitimacy to the new, and gold is the only force to give legitimacy to the next global currency reset, one with a digital face yet precious metal pulse.