What does the Fukushima Daiichi nuclear disaster from 2011 have in common with the global pandemic currently unfolding?
More than you think, according to Jim Rickards.
Today, Jim explains what the two have in common, and how it’s almost impossible for the stock market to ‘price’ coronavirus events when they keep evolving.
Read on for more.
| Until next time, |
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| Shae Russell, |
When Complex Systems Collide
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Complex systems are full of surprises and non-linear relationships. A good example of diverse complex systems interacting is the Fukushima disaster in Japan in March 2011.
The Fukushima event began with an underwater earthquake in the Pacific Ocean, off the coast of Fukushima Prefecture in Japan. The earthquake could have been isolated, but instead it triggered a tidal wave or tsunami.
The tsunami could have crashed ashore in an uninhabited region, but it didn’t. It struck the Fukushima Daiichi Nuclear Power Plant, built on the coast of Fukushima in the town of Okuma. The power plant then lost its coolant due to the impact of the tsunami and produced three nuclear meltdowns and three hydrogen explosions.
Finally, the Tokyo Stock Exchange crashed due to panic selling as a result of the nuclear disaster and other damage to Fukushima.
The point is that plate tectonics, hydrology, radioactivity, and capital markets are all individual complex dynamic systems. The earthquake did not have to cause a tsunami. The tsunami did not have to hit a nuclear reactor. The nuclear reactor did not have to melt down. And the stock market did not have to crash. But they did.
Each catastrophe was the direct result of the one before. Earthquakes, tsunamis, reactors, and stock markets all crashed into each other. This is not uncommon because of network effects and interdependencies.
We’re seeing the same interactions today. A contagious virus, an unstable economy, and a highly contested US election are crashing into each other. Any one of these systems is difficult to model and predict. Collectively it’s almost impossible, which is why markets are in panic and investors are anxious.
** Market expert Shae Russell predicts five knock-on effects of the recent market crash that could be even bigger threats to the average investor’s wealth than the crash itself. Learn more. **
Trumping coronavirus
Even in the face of the pandemic, Trump is getting some good news. On 22 March 2020, The Hill reported that Trump’s approval rating had passed 50% (according to a Harris Poll). Trump’s approval rating has rarely exceeded 50% during his entire term in office, so this is extremely favourable. The same article in The Hill reported on the results of an ABC-Ipsos poll that showed 55% of Americans approved of Trump’s handling of the coronavirus outbreak.
These poll results indicate that the American people do not blame Trump for the pandemic itself, but they will hold him accountable for his handling of the crisis. The verdict is ‘so far, so good’. Even progressive Democratic Governors Gavin Newsom of California and Andrew Cuomo of New York have had high praise for Trump’s efforts to get federal assistance to the states to deal with the crisis.
Still, the jury is out. Trump’s performance is being evaluated daily. As horrendous economic data emerges, and the impact of mass layoffs and business failures starts to sink in, Trump’s approval ratings could fall even if he is not held responsible for the actual virus.
We still have over six months until the election. Few would have imagined six months ago that we’d be here today. The best approach is to reserve judgement on what will happen six months from now.
You’ll no doubt hear more from me as the election horse race picks up speed. For now, let’s turn our focus to the coronavirus pandemic.
What’s next with the coronavirus?
If you think you know what’s going on with the coronavirus, you don’t. If you’re uncertain about what’s going on, you’re right.
That dictum is not a criticism of anyone. It’s just a succinct way to summarise the analytic problems facing the US, Australia, and the world as we confront the coronavirus pandemic.
It’s not difficult to access the best data available. Yet even the current data is not the real data. There are more infections than we know of. There have been more fatalities than we know of.
And the number of recoveries cannot be compared to the known infections; it should be compared to the total infections, and we just don’t know what that number is. What we do know is that the numbers will expand quickly, and even those numbers will be wrong when we get them.
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Ascertainable metrics and reality
Risk managers (including market, economic, and medical risk) are used to operating with ascertainable metrics. They may not be able to predict outcomes perfectly, but they know what they’re up against. That’s not true with the coronavirus. We don’t know what we’re up against.
No one knows exactly how the disease spreads. No one knows if the virus can survive suspended in the air. No one knows how contagious the virus is. No one knows if it will die out naturally when warm weather returns. No one knows if a ‘recovered’ person can be reinfected and show symptoms again.
No one knows if the coronavirus is a biological weapon of mass destruction created in a Chinese government laboratory…although there is good reason to suspect that may be the case.
In short, public health officials are doing the best they can, but we don’t know what we’re facing.
Since we expect the spread of the virus and the number of fatalities to rise exponentially, we could be looking at 30 million infected and 1.35 million dead by the time the virus starts to fade (if it does).
Those numbers are shocking, but they are not far-fetched given existing data on known cases, a known fatality rate, and the continuing spread of the virus. This possibility is one more reason why the stock market’s ability to adjust seems to know no bottom. The stock market is repricing to a moving target, but the target keeps getting worse.
What’s the economic impact of all this? I’ll share my thoughts in a future edition of The Daily Reckoning Australia — stay tuned.
| Regards, |
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| Jim Rickards, |
PS: Learn why a recession in Australia is coming and three steps to ‘recession-proof’ your wealth. Click here to download your free report.
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