Blain: "A Global Reset Is Coming"

By Tyler Durden  Thu, 03/19/2020

Authored by Bill Blain via MorningPorridge.com,

“My centre is yielding, my right is retreating. Situation Excellent. I am attacking!”

No matter what the doomsters say... the Coronavirus is not the end of the world. But, it might still have trigged the global economic reset we’ve long feared...

Let’s talk about the virus first:

That the virus will abate is a simple matter of fact. Just as suddenly and quickly as it struck, it will feel like it fizzles out much faster than we expect. Its simple maths.

The modelers I’m working with show the Virus will peak in around 6-8 weeks, and then infections will start to fall. There will be future successive waves – which will be damaging and trigger market reactions before immunity is gradually built up.  The virus will have a volatility all of its own. Understanding that will be key to understanding economic and market consequences.

Other models show similar results. Watching the various scenarios play out on cluster charts on the Laptop yesterday was fascinating – rings of infection creating walls of immunity, while the virus seems to sleep before exploding elsewhere. Understanding how the successive waves of the virus will trigger new clusters, how it hides, and especially how it will impact the economy is going to be ... educational. 

Its complex math – but makes sense. Earlier this week, Rob Hillman, the quant behind the model I’m working with, confidently predicted UK schools would close. It happened. Next up is the rumoured London lockdown – and I hear 40 tube stations are closing this morning. Its not the end of the World – but it feels like it and its unprecedented. 

Everything we do to reduce infection rates – social distancing, working from home, self-isolation, and not socialising widely slows the transmission rate – so the overall infection rate goes down. There is a great article on Calcalist which describes similar modelling: Corona is Slowing Down, Humanity will Survive, Says Biophysicist Michael Levitt.

Unfortunately….

While the Virus may quickly abate, the damage done to global markets and the world economy will not be cured as fast. Despite the UK, USA, and last night, the ECB tweeting its Euro 750 bln PEPPS bond buying bonanza – it feels we’re now heading into the abyss.

Today we are blaming it on a global dollar shortage, but the real issue is the damage to sentiment, expectations and the burnt-finger syndrome. We’re hearing lots of funds have been caught wrong, thumped, crippled and are struggling – lesson learnt till next time.

We can all understand why equities are tumbling on the recessionary, depressionary, and demand side shock. I get that safe assets like Gold and Government bonds like Treasuries and Gilts are under selling pressure – because nothing else is liquid and they are the only assets likely to attract a bid.

Everyone wants dollars – all around the globe forget anything else.. Gimme dollars! As a result, US banks with access to the Fed are at a competitive advantage. I guess access to global dollars will be the next issue to be addressed?

The dollar shortage partly explains the tumble in Sterling, but I struggle to understand why Sterling has taken such a spanking against the Euro?

To continue reading, please go to the original article here:

https://www.zerohedge.com/markets/blain-global-reset-coming