The COVID Bubble

With equity markets reaching new heights at a time of rising income and wealth inequality, it should be obvious that today's market mania will end in tears, reproducing the economic injustices of the 2008 crash. For all of the talk of supporting households, it is Main Street that will suffer most when the music stops.

Nouriel Roubini

NEW YORK – The US economy’s K-shaped recovery is underway. 

Those with stable full-time jobs, benefits, and a financial cushion are faring well as stock markets climb to new highs. 

Those who are unemployed or partially employed in low-value-added blue-collar and service jobs – the new “precariat” – are saddled with debt, have little financial wealth, and face diminishing economic prospects.

These trends indicate a growing disconnect between Wall Street and Main Street. The new stock-market highs mean nothing to most people. 

The bottom 50% of the wealth distribution holds just 0.7% of total equity-market assets, whereas the top 10% commands 87.2%, and the top 1% holds 51.8%. 

The 50 richest people have as much wealth as the 165 million people at the bottom.

Rising inequality has followed the ascent of Big Tech. 

As many as three retail jobs are lost for every job that Amazon creates, and similar dynamics hold true in other sectors dominated by tech giants. 

But today’s social and economic stresses are not new. For decades, strapped workers have not been able to keep up with the Joneses, owing to the stagnation of real (inflation-adjusted) median income alongside rising costs of living and spending expectations.

For decades, the “solution” to this problem was to “democratize” finance so that poor and struggling households could borrow more to buy homes they couldn’t afford, and then use those homes as ATM machines. 

This expansion of consumer credit – mortgages and other debt – resulted in a bubble that ended with the 2008 financial crisis, when millions lost their jobs, homes, and savings.

Now, the same millennials who were shafted over a decade ago are being duped again. 

Workers who rely on gig, part-time, or freelance “employment” are being offered a new rope with which to hang themselves in the name of “financial democratization.” 

Millions have opened accounts on Robinhood and other investment apps, where they can leverage their scant savings and incomes several times over to speculate on worthless stocks.

The recent GameStop narrative, featuring a united front of heroic small day traders fighting evil short-selling hedge funds, masks the ugly reality that a cohort of hopeless, jobless, skill-less, debt-burdened individuals is being exploited once again. 

Many have been convinced that financial success lies not in good jobs, hard work, and patient saving and investment, but in get-rich-quick-schemes and wagers on inherently worthless assets like cryptocurrencies (or “shitcoins,” as I prefer to call them).

Make no mistake: The populist meme in which an army of millennial Davids takes down a Wall Street Goliath is merely serving another scheme to fleece clueless amateur investors. 

As in 2008, the inevitable result will be another asset bubble. 

The difference is that this time, recklessly populist members of Congress have taken to inveighing against financial intermediaries for not permitting the vulnerable to leverage themselves even more.

Making matters worse, markets are starting to worry about the massive experiment in budget-deficit monetization being carried out by the US Federal Reserve and Department of the Treasury through quantitative easing (a form of Modern Monetary Theory or “helicopter money”). 

A growing chorus of critics warns that this approach could overheat the economy, forcing the Fed to hike interest rates sooner than expected. 

Nominal and real bond yields are already rising, and this has shaken risky assets like equities. 

Owing to these concerns about a Fed-led taper tantrum, a recovery that was supposed to be good for markets is now giving way to a market correction.

Meanwhile, congressional Democrats are moving ahead with a $1.9 trillion rescue package that will include additional direct support to households. 

But with millions already in arrears on rent and utilities payments or in moratoria on their mortgages, credit cards, and other loans, a significant share of these disbursements will go toward debt repayment and saving, with only around one-third of the stimulus likely to be translated into actual spending.

This implies that the package’s effects on growth, inflation, and bond yields will be smaller than expected. 

And because the additional savings will end up being funneled back into purchases of government bonds, what was meant to be a bailout for strapped households will in effect become a bailout for banks and other lenders.

To be sure, inflation may eventually still emerge if the effects of monetized fiscal deficits combine with negative supply shocks to produce stagflation. 

The risk of such shocks has risen as a result of the new Sino-American cold war, which threatens to trigger a process of deglobalization and economic balkanization as countries pursue renewed protectionism and the re-shoring of investments and manufacturing operations. 

But this is a story for the medium term, not for 2021.

When it comes to this year, growth may yet fall short of expectations. 

New strains of the coronavirus continue to emerge, raising concerns that existing vaccines may no longer be sufficient to end the pandemic. 

Repeated stop-go cycles undermine confidence, and political pressure to reopen the economy before the virus is contained will continue to build. 

Many small- and medium-size enterprises are still at risk of going bust, and far too many people are facing the prospects of long-term unemployment. 

The list of pathologies afflicting the economy is long and includes rising inequality, deleveraging by debt-burdened firms and workers, and political and geopolitical risks.

Asset markets remain frothy – if not outright bubbly – because they are being fed by super-accommodative monetary policies. 

But today’s price/earnings ratios are as high they were in the bubbles preceding the busts of 1929 and 2000. 

Between ever-rising leverage and the potential for bubbles in special-purpose acquisition companies, tech stocks, and cryptocurrencies, today’s market mania offers plenty of cause for concern.

Under these conditions, the Fed is probably worried that markets will instantly crash if it takes away the punch bowl. 

And with the increase in public and private debt preventing the eventual monetary normalization, the likelihood of stagflation in the medium term – and a hard landing for asset markets and economies – continues to increase.

Nouriel Roubini, Professor of Economics at New York University's Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is, and he is the host of 

Germany loses Covid crown as vaccine campaign falters

Country lags far behind UK and US while jab strategy and technology underpinning it draw fierce criticism

Guy Chazan in Berlin

A doctor and nurse administer a shot to a German pensioner in a mobile vaccination centre housed in a modified bus in the Saxon town of Grosshartmannsdorf © Matthias Rietschel/Getty

Germany is famed for Vorsprung durch Technik, engineering knowhow and general competence. No wonder then that its Covid-19 vaccination drive is fast becoming a national embarrassment.

So far, the country has administered only 6.2m doses of the coronavirus jab, compared with 75.2m in the US and 21m in the UK. Perhaps most strikingly, it has 2.3m shots lying around unused.

“Morocco is vaccinating more quickly than Germany,” said Marco Buschmann, an MP with the opposition Free Democrats.

Bild Zeitung summed up the national mood last week with the front-page headline “Dear Britons, we beneiden [envy] you”. Britain had just announced it would come out of its lockdown on June 21, while “here there is no hope”, the mass circulation daily lamented. (The riposte from Bild’s UK equivalent, The Sun, ran: “Wir beneiden dich nicht.”)

This is in stark contrast to the first wave of the pandemic, when Germany’s crisis response was the envy of the world. It went into lockdown early, set up an exemplary contact-tracing system and quickly curbed the virus, ending up with one of the lowest infection rates in Europe.

But the second wave over the winter struck Germany much harder, with the more contagious British mutation stymying efforts to deal the virus a knockout blow. A shutdown declared last December is still in place and a shortage of vaccines has dashed hopes of a swift return to normal life.

Widespread public frustration initially found an outlet in criticism of the EU and its botched vaccine procurement strategy. But with millions of doses of the BioNTech/Pfizer, Moderna and Oxford/AstraZeneca vaccines now arriving in Germany, criticism has shifted to the German authorities and their seeming inability to administer all the shots they have.

“It was bad enough that the EU ordered too little vaccine, too late, but now we have all these jabs being stockpiled, unused,” said Ulrich Weigeldt, head of the German Association of General Practitioners. “It’s a scandal.”

Officials say shots are not just “lying around” but are being deliberately held back for the required second dose. But it is nevertheless clear that many thousands of doses of the AstraZeneca vaccine, which is restricted to those aged between 18 and 64, are going unused, largely because of its poor reputation with the German public. 

“In the public debate it’s perceived — unfairly — as not as good as the others,” said Mario Czaja, head of the German Red Cross in Berlin. No-shows for AstraZeneca appointments are widespread.

But even to get an appointment in the first place, users must navigate a digital platform that has become a byword for clunkiness. Visitors to the portal, embraced by five of Germany’s 16 states, have to go through 10 online steps, including 2-factor authentication — a tricky task for an octogenarian. In Poland, by contrast, you simply enter your social security number.

“The system’s a piece of shit,” said one German health official in a state that had embraced the platform. 

He said he and his colleagues “want to shoot ourselves it’s so bad. I can’t believe we chained ourselves to this.”

German chancellor Angela Merkel at a session of the Bundestag in Berlin. Even some members of her centre-right bloc have called for urgent action to reform the vaccine delivery system © AP

The official said that for months the website was only able to give users one appointment — although two are needed for a full inoculation — and does not allow them to go on a waiting list to be notified when more vaccine doses become available. 

“It’s totally amateurish and incredibly inflexible,” he said.

The sense of shame is growing. “This chaos with the allocation of vaccine appointments is absolutely unworthy of a high-tech nation like Germany,” said Achim Berg, head of Bitkom, a digital lobby group.

Public perceptions of the system were not helped when authorities in the state of Lower Saxony mailed vaccination letters to a number of dead people, triggering public outrage.

MPs, even some from Angela Merkel’s centre-right bloc, have called for urgent action to reform the appointment system. “What’s been happening in the past few weeks in some regions, with people aged 80 and over being put on hold for hours and getting stuck in online waiting rooms — that’s unacceptable, it’s undignified, and it shows a lack of respect for elderly people in this country,” Ralph Brinkhaus, head of the CDU/CSU parliamentary group, told the Bundestag last month.

Christine Aschenberg-Dugnus, health policy expert for the Free Democrats, said Germany should have spent last summer preparing for the vaccination drive and figuring out how best to distribute shots to its 82m population. “We missed our chance to digitise the entire health system,” she said.

She pointed to Israel, whose immunisation campaign was led by big health maintenance organisations (HMOs) rather than the state. “The HMO communicates with all its members over an app,” she said. “It knows everything about them and knew exactly who was first in line for a shot. That’s why it all happened so much more quickly than here.”

Officials insist that the pace of vaccinations is picking up. Czaja said a medical centre set up in Berlin’s old Tegel airport is now administering 1,000 AstraZeneca jabs a day, up from 400 in mid-February, in a sign that public attitudes to the Anglo-Swedish shot may be shifting. Meanwhile, Berlin’s four other big vaccination centres, which are distributing the BioNTech and Moderna shots, are operating “at full blast”, he said.

But the fear is that the big centres could quickly reach the limits of their capacity in the coming weeks, as supplies ramp up. Some experts are predicting a “vaccine jam” in the early summer, with about 3m unused doses a week from May.

Their solution: Germany’s general practitioners must also start administering jabs to their patients. Doctors’ groups say some 50,000 GP practices could potentially vaccinate 20 people a day, equating to a national daily total of 1m shots.

The government is currently working on plans to involve GPs. But some observers complain they should have acted much more quickly.

“It's a huge mistake that GP practices weren’t brought into the vaccination campaign from early on,” said Weigeldt. “We’ve been saying since the start of the year that they should be.”


Why Cathie Wood is the fund manager of the moment

Her hunt for the big business winners of the future holds mass appeal

Cathie wood, founder of Ark Investment Management, provokes a variety of responses. The main one is envy. 

Her firm has been wildly successful. 

Ark manages a suite of exchange-traded funds (etfs), portfolios of equities around the theme of “disruption”. 

Last year its flagship Ark Innovation etf posted returns of 152%. 

It is now the largest actively managed equity etf in the world. Ms Wood is the investment manager of the moment.

Fund flows follow performance. 

Ark’s funds under management have ballooned to $60bn. 

Much of the commentary around Ms Wood’s firm is around the difficulty of putting so much capital to work in Ark’s narrow categories, while sustaining bumper returns. 

When you charge 75 cents for every $100 you manage, though, this is a nice problem to have. 

That Ms Wood has to wrestle with it is a mark of a singular success. 

She has found a way of selling an important concept—the extreme skewness of stockmarket returns—to a mass market.

For those who slept through statistics class—which is most people—skewness is the lack of symmetry in a probability distribution. 

The apportionment of business success has an extreme right-tail skew—there are a few big winners and many losers. 

Skewness is present in the stockmarket, too. 

Much of the recent advance in America’s market is built on quite a small group of technology stocks. 

This pattern, in which a few shares dominate returns, is evident in data going back almost a century. 

Research by Hendrik Bessembinder of Arizona State University finds that over half of the excess returns of equities over cash since 1926 came from fewer than 100 stocks. 

The bulk of the 26,000-plus stocks listed since then turned out to be duds.

Ms Wood does not talk much about “skewness”. But the idea is implicit in her pitch. 

The companies she likes are those with the potential for “explosive” or “exponential” growth. 

A lot of Ark’s research contains optimistic ballpark estimates of “the opportunity” in, say, digital wallets or driverless taxis. 

Ark’s signature investment is in Tesla, the electric-vehicle maker, which spans nearly all of Ark’s five investment sub-themes. 

Her advocacy of Tesla, and of bitcoin, has endeared her to the WallStreetBets generation of investors. 

Social media in general has proved an invaluable marketing tool for Ark.

Rivals carp that Ms Wood is selling not skewness but momentum. 

She certainly puts a lot more emphasis on “the story” than on valuation. 

There seems to be no stock price that a would-be disrupter could not grow into in time. 

Any sell-off in tech, such as this week’s swoon, is not a warning but an invitation to buy the dip. Disruption, reinvention and exponential growth are Ark’s shibboleths. 

The message may not be to all tastes. But you may at the very least applaud the skilful marketing. 

“The rest of us are stupidly fighting the tape, trying to build balanced portfolios,” says an admiring fund manager. 

Ms Wood is instead giving people what they want: a sex-and-violence portfolio undiluted by anything dull or tame.

Alert readers may by now sense that a biggish “but” is on the way. 

Skewness is a fact of life in tech businesses, where the best firms enjoy increasing returns to scale. 

But identifying the winners of the future is not easy. 

They may not even exist yet, much less be listed. 

And outside of a few strategies, such as index investing, asset management is subject to diminishing returns to scale.

Every successful asset manager finds there is a fund size beyond which the magic stops working or begins to do damage. 

Shovelling $60bn into a strategy in which smallish, illiquid stocks are prime targets is going to distort the market. 

Already Ark holds a stake of 10% or so in two dozen biotech names. 

If a lot of money flows out from Ark’s etfs, then the prices of some illiquid holdings could fall hard. 

The latent boom-bust dynamic is made worse by Ms Wood’s high profile, which only encourages copycat investors. 

These add to price momentum on the way up, but would also worsen a sell-off.

Should Ms Wood’s funds fall from grace, as envious rivals predict, she is unlikely to fall hard herself. 

She is now associated with an investment thesis that chimes with a big feature of economic reality, the superstar firm, even if it is speculative and prone to bubbles. 

The Ark effect is both brand new and as old as the hills. 

Many star fund managers of the past found it hard to sustain performance once they grew bigger. 

The good news for Cathie Wood is that none of them ended up in the poorhouse.

Are You Easy Prey?

by Jeff Thomas

For many years, I’ve been predicting the coming of a crisis of epic proportions. 

I’ve focused on the economic and political aspects, although the social aspects will be no less severe.

This is not the stuff of crystal balls, nor is it mere guesswork. 

The fundamentals for economic crisis have remained essentially the same for thousands of years, and if we’re diligent enough to study history and analyse the present, we can identify the fundamental ingredients of a crisis in the making. 

Once we’ve done this, the actual prediction of the event itself is no more inspired than recognising that if we have a bomb filled with explosives and we light the fuse, it will go off.

The predicted bomb was long in coming, but in 2020, it arrived on our doorstep and the fuse is lit.

Governments understand that, if they wish to give the shaft to their own citizens and still remain in power, they must deflect blame for their actions to another party.

In 2020, they outdid themselves by creating perhaps the most ingenious distraction ever created. 

Whether or not the coronavirus was consciously created and/or consciously released, governments’ handling of it has been brilliant.

People the world over have lined up to get their vaccines, believing them to be essential to the recovery of their freedom, even though the vaccines have been declared by the experts to be ineffective in controlling transmission, curing the virus, eliminating the need for masks and social distancing, or making it possible to return to the normal freedoms of travel, sports, work, religious gatherings, schools or even a meal out.

So, if we accept the obvious – that the reason for all the hoopla was not to protect the public from a killer virus – then what could possibly have been the purpose of all the Machiavellian controls?

Well, we might want to consider that the controls themselves were the object.

Historically, whenever a dramatic governmental shift to collectivism has been intended, the very first move is to lock down the people. 

Convince them that only the government can or should have the power to decide whether its subjects may get on a plane, attend school or even go out for a sandwich.

As Thomas Jefferson stated, "When government fears the people, there is liberty. 

When the people fear the government, there is tyranny."

The people have now been successfully subjugated, and whether they understand it or not, a condition of tyranny exists.

It has often been observed that, if you wish to shear sheep, you first enclose them in a pen, so that they have no escape. 

You can then shear them at your leisure.

Of course, readers of this publication are likely to object to the idea of being sheared – of either their wealth or their liberty. 

But it’s safe to say that the great majority of people are likely to fall victim to the upcoming shearing. 

For most of them, this will be because they simply waited to see what will happen and did little or nothing to ensure that their wealth and freedom had been safeguarded.

But what can you do? 

Is the government not, for all practical purposes, omnipotent at this point?

Well, no, but they soon will be. 

There remains a window in which to act to retain wealth and freedom.

But first, it’s important to recognise that you cannot guarantee that you will not become a casualty. 

What you can do is to place as many obstacles between you and your government as possible, so that you’re less likely to become a casualty.

Exit Your Jurisdiction

If you currently live in one of the jurisdictions that will be most highly impacted (the US, Canada, UK, EU, Australia, etc.), move to another jurisdiction. 

Select an alternate jurisdiction with an historically stable government that’s less likely to cave in to demands from your home government during a crisis period. 

In addition to the governments of those countries listed above, others such as Panama, Israel, Japan, etc., have a long history of caving in to demands by world powers quickly, often to their residents’ peril.

Choose instead a jurisdiction that has minimal dependency upon the major powers and/or has had a history of fighting off edicts from them, such as Uruguay, Singapore, Mexico or Thailand.

Avoid Double Criminality

This is a bit of an unknown to most people in most countries, but by international agreement, in order for one country to pursue you or your wealth, it must appeal to your refuge country, to cooperate with it to deport you or to hand over your wealth.

However, it must first state the law under which you are being accused. If there is no similar law in your refuge country, the likelihood of compliance by its government is very low (unless the government actually violates its own laws to do so).

Some countries have been known, on occasion, to do just exactly that. However, if the demand goes against the well-being of the refuge country, its government is unlikely to comply.

For example, a country such as the Cayman Islands depends heavily upon international wealth preservation for its livelihood. 

It would therefore be economically suicidal for it to give in to demands for the confiscation of a foreign depositor’s wealth, as word of the breach of faith would quickly get out and cause a run of wealth exiting the islands. 

The Caymanian government itself would soon find itself without international revenue to pay its own salaries. It would fight tooth and nail to protect the client.

Or, in the case of Uruguay – which imports only ten percent of what it consumes and exports only ten percent of what it produces – another country would have great difficulty in pulling muscle on the Uruguayan government. It would simply have no leverage.

And it’s safe to say that no world power needs the wealth of its few citizens who may live in Uruguay badly enough to go to war to pursue such minimal revenue.

Understand the Laws in Your Refuge Country

Finally, with regard to dual criminality, it’s wise to seek out a country that has a fairly non-corrupt court system. 

Short of going to war, even a major power, when dealing with a much smaller country, must do so within the laws of both countries. 

You are therefore protected by the courts in your refuge country.

Unless your net worth is in the hundreds of millions, it’s simply not worth it to any country – even a major power – to drag your case through the courts, possibly for years, in attempt to attack your wealth. 

It’s not that they don’t want the money, it’s just that there’s only so much manpower to facilitate the shearing and there will be more low-hanging fruit elsewhere. You may simply be too much bother to pursue.

Again, there are no guarantees. 

But the more obstacles you place between yourself and those who would seek to pillage your wealth, the less likely you are to become a casualty or, possibly, even to be pursued.

Make it as hard as possible for your adversary to succeed in taking your wealth and he is altogether likely to focus his attention on easier prey.