Doug Casey on the COVID-19 Pandemic

Via Casey Research

Editor’s note: Regular readers know we’ve been warning against the mass hysteria in the media surrounding the coronavirus pandemic. So today and tomorrow, we’re bringing you a two-part conversation with our founder, Doug Casey, who sets the record straight on what’s really happening amid this crisis.

Doug believes that the panic is overblown, irresponsible, and dangerous – and that the markets aren’t done falling. In part one below, he discusses why the reaction to the virus is the greatest hysteria we’ve seen since the Salem witch trials… and why the government’s response will ruin our economy…

Daily Dispatch: So Doug, where are you now? Are you back in Uruguay or are you in Argentina?

Doug Casey: I’m on the farm in Uruguay, surrounded by horses, cows, poodles, and nature.

Daily Dispatch: And people?

Doug Casey: I’ve got a couple of people who work for me, keep the place up, and prepare great meals. And my wife. I’ve got a gym, a pool, a ton of books, and an internet connection. That’s about all I need.

Daily Dispatch: Sounds perfect.

Doug Casey: I’m pleased to be in pleasant surroundings during this largely manufactured crisis. Out here in the campo, in a quiet, rather backward little country, things have hardly changed. It certainly beats sleeping under a bridge and diving in dumpsters – assuming any restaurants survive to reopen – which I’m afraid a lot of Americans are going to be doing as a result of the hysteria.

The crisis is just starting. This is only the first out in a nine-inning ball game. It promises to be terrifying before it’s over. But we’ll see. I hope I’m wrong. I far prefer good times to hard times.

Daily Dispatch: Seeing as you’ve started off on that note, why don’t you tell me why you feel that way?

Doug Casey: Look, the virus itself is just the pin that broke the bubble. Over the last 20 years, we’ve had numerous viruses: swine flu, bird flu, AIDS, MERS, SARS, even an anthrax scare – although that was a bacteria, not a virus, of course.

These things come and go. Before viruses were pinpointed, about 80 years ago, there were probably lots of these things that cycled through, and they weren’t even noticed. As a medical phenomenon, this virus may or may not be more serious than the ones in the past. Based on the confused and sketchy evidence so far, I think it’s mostly hysteria.

In itself, not a terribly big deal. If you want a big-deal virus, you’ve got to look at the Spanish flu, which was mostly lost to popular history until just recently. It’s said to have killed about 675,000 Americans.

If you adjust that to the current population, that’s equivalent to about 1.8 million people dying today. That would be serious. However, the fact is that even in 1918 and 1919, when the Spanish flu happened, there was only a minor recession, mostly due to the end of the First World War and readjusting to a peace-time economy. Life went on.

Remember, the ordinary seasonal flu probably kills 25,000 to 50,000 people. This isn’t a big deal by comparison with traffic accidents, suicides, tuberculosis, and a dozen other things. Apart from that, the corona victims appear to be overwhelmingly old people who are already in poor health. Unfortunate, but an inevitable consequence of life on this planet.

What is a big deal are the second and third order effects of it.

Daily Dispatch: Can you explain what you mean by second and third order effects?

Doug Casey: Second order effects are economic, where businesses are shut down and bankrupted, people are unemployed, production is lost, markets crash, and debt is defaulted. But even those things can be absorbed, at least if we had a sound economy. Worse things have happened.

What’s bound to be more long-lasting and even worse, however, are the government’s reactions to this virus – the third order effects. The new laws they’re going to pass, the new agencies they’re going to set up, and the trillions of dollars they’re creating – which won’t save the economy, but destroy it. For that matter, if they develop a vaccine, they may require that everybody gets the vaccination. If you don’t, you can’t fly or God knows what else.

So it’s the second and third order effects of this that are really important. The virus itself is trivial. It’s the hysteria around it that’s really dangerous. The general reaction is borderline insane.

Daily Dispatch: And the financial impact, on the markets, I mean?

Doug Casey: As I said before, this whole thing just acted as the pin to break the huge bubbles in the financial markets. It was inevitable that there would be a pin of some type.

We’re now facing the Greater Depression. We are now, as we speak, entering the trailing edge of the financial hurricane we entered in 2008. Unfortunately, the depression likely won’t be blamed on the government’s and central banks’ stupid policies – their inflation and taxation and regulation. Rather, they’ll blame the Greater Depression on this rather trivial virus.

And even then, the problem really stems from the insane lockdown of the world. And the $2 trillion of helicopter money they’re creating. With more to come. It’s bad news all around. They’re using the hysteria as an excuse to do the kind of things that made the last depression much worse and longer lasting than was necessary.

Daily Dispatch: It’s interesting you mention the number of deaths during a typical flu season. The CDC website combines flu and pneumonia deaths, and it says there were just over 25,000 deaths in the US this flu season. In Italy, there was a study that looked at the numbers from 2013 through 2016. The total deaths from the flu for that period was 68,000.

So that’s around 17,000 deaths per year from the flu during that period. So far, the number of COVID-19 deaths in Italy is up to around 22,000. But even in that study, which was written in 2017, it noted that Italy historically has a higher flu death rate because of an older population, and for sociological reasons. For instance, Italians tend to revere their elders more, so grandchildren and children tend to visit their older parents and grandparents more than other European cultures.

Doug Casey: It appears that the average age of flu victims in Italy is over 70. And they mostly have complicating illnesses. It’s further proof – albeit anecdotal – this is all just a tempest in a political toilet bowl.

If Charles McKay were writing his Extraordinary Popular Delusions and the Madness of Crowds today, he unquestionably would add this coronavirus event to it.

This is truly one of world history’s great hysterias. This is the biggest mass psychological aberration since the witch trials of the 17th century. And it materialized out of absolutely nothing, just like the witch trials did.

This is further proof that we’re living on a planet with 8 billion chimpanzees who have a thin veneer of civilization. They’re quite capable of acting irrationally, and they’re very dangerous once they get caught up in a hysteria like this. In fact, there are a lot of people who want to call this episode a war of some type, which is especially stupid and dangerous. There’s good reason to be very concerned – not so much by the virus, but its artificial knock-on effects.

Now, earlier you mentioned the stock market. The stock market has a long way to fall. This was likely just the first step down. I’m sure that the trillions of currency units now being created in the US and other countries will result in a substantial dead cat bounce, however. We’re seeing it now, actually.

The average person has been trained over many years, but especially over the last 10 years, to think that stocks are the place to be and that they always go up.

We hear all these ridiculous stories about the average guy making a killing in the stock market. Well, they’re not all ridiculous, because some people do make millions of dollars in the stock market – but the average guy doesn’t. The average guy only buys at the top, when he sees stocks have “a good track record.” In other words, after they’ve run up, are way above the mean, and overpriced.

The average guy is still very interested in finding the key to wealth-buying stocks. That alone tells me that we’re nowhere near the bottom. When the bottom comes, he won’t care the market even exists, and will probably want to crucify anyone that even mentions it.

But the really serious thing is the bond hyper bubble. Because there’s so much debt in the world at such low interest rates, that when reality reasserts itself and interest rates start heading back towards the levels that they were in the early ’80s, the bond market is going to collapse. On the way, it will take down pension funds and insurance companies with it. It’s going to be really ugly.

Bonds are a triple threat to capital at the end of their 40-year bull market. You have huge interest rates, inflation, and default risks.

Daily Dispatch: The thing is though Doug, it’s not just in the financial markets that we’re seeing these bubbles. There are other markets where these bubble prices are showing up, right?

Doug Casey: That’s right. There are lots of indicators of the dream world that we’ve been living in. I’ve been a car guy my whole life. I’ve owned lots of exotic cars and I watch the exotic car market. The fact that there are scores of very expensive brands of exotic cars selling anywhere from $100,000 to several million dollars apiece… that’s a bubble that’s going to burst.

You’re going to find a lot of those exotic cars sitting in barns with flat tires, dead batteries, and birds roosting under the hood in a few years. Same thing happened in the 30s and 40s to Duesenbergs and Cords. It’s going to be quite interesting to watch.

Daily Dispatch: And this all surely means there will be more stimulus and further bailouts.

Doug Casey: Well, look, this is probably just the opening gambit to all kinds of new government programs. For instance, they’ll say, “Well, we have to guard the public health. The best way to do that is have free medical care for everybody.”

This is a perfect wedge to get that done. They’ll probably have some type of guaranteed national income as well.

Right now, they’re giving everybody up to $1,200. That’s not going to be enough to pay everybody’s rent, mortgage, car payments, insurance, and groceries. It’s probably going to be cemented into the national financial structure, however.

All this money is being created from nothing. The government wants to avoid a 30s-style deflationary depression at all costs. But it’s likely to get a 20s German-style hyperinflation in the process. It’ll create a dead cat bounce in the financial markets, of course. And it will cause the suckers to buy, just when they should sell.

I’m out of ordinary stocks. But I own a lot of gold. And gold stocks. Money managers who believed “economists” have none, and they’re going to pile into it. It’s going to be like trying to siphon the contents of Hoover Dam through a garden hose.

But more important is that retail prices are going to move up significantly, and that’s really going to hurt the average guy. Because his salary is not going to move up as fast as the retail prices do – if he’s still got a job, that is. And his savings – if he has any – are going to be eaten up.

Daily Dispatch: Thanks for your insights today, Doug.

Doug Casey: You’re welcome.

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