Kudlow & COVID: ‘We Have Contained This’

The Dow fell more than 1,000 points on Monday and it was down nearly 900 more on Tuesday, if you can believe it.

Market participants are witnessing one of the worst two-day slides for US stocks since the crisis.

Happily (although I suppose “happily” is a horrible misnomer in this case), we’re only two sessions into the week, which means this can be shown as a weekly change chart. Simply put, the S&P is already on track for one of its ten worst weeks since the crisis.

You can think about that one of two ways. A glass-half-full take would be that there’s still plenty of time to turn things around. A less optimistic view would be that, if the virus news gets worse, this could end up being the worst week for equities since the GFC.

One thing’s for sure: Donald Trump’s Monday evening contention that stocks are “starting to look very good to me!” is “starting to look” wholly laughable to the rest of humanity.

To be clear, the only time it makes sense to measure benchmark moves in points as opposed to percentage moves is when you’re trying to be funny. Today, I’m trying to be funny. Here’s what a ~2,000-point, two-day Dow decline looks like:

As the CDC sounded the alarm on the likelihood that the US will experience an increased incidence of COVID-19 infections, the Trump administration dispatched Larry Kudlow to CNBC.

That went about like you’d expect it to go. Kudlow irresponsibly said the US “has contained the virus” and contended that a vaccine will come sooner than people think.

 

There’s something to be said for not contributing to public angst at a time when people are nervous and markets are seemingly on the brink of capitulating entirely. That said, Kudlow has no authority to weigh in on public health crises. And yet, that’s precisely what he did.

“We have contained this. I won’t say [it’s] airtight, but it’s pretty close to airtight”, Larry assured Kelly Evans. “[It’s a] human tragedy”, but it probably won’t be an “economic tragedy”, he added.

By contrast, Dr. Nancy Messonnier, the head of the CDC’s National Center for Immunization and Respiratory Diseases, told a media briefing that “it’s not so much a question of if this will happen any more, but rather more a question of exactly when this will happen and how many people in this country will have severe illness”.

“We are asking the American public to prepare for the expectation that this might be bad”, Dr. Messonnier went on to say.

Echoing the cautious tone, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, told NBC that “when you start to see sustained transmission in other countries throughout the world, it’s inevitable that it will come to the United States”.

---

Kudlow wanted to focus on the stock market, though, almost surely at Trump’s direction.

Among other things, Larry suggested “long-term” investors should buy US equities, which he called “cheap”. Growth in the second half of the year will be propped up by trade deals, he mused, adding that the US is “ahead of the curve” on the virus and will be “ready” if the contagion rate rises.

All of that may well be true. And, frankly, there’s nothing at all wrong with suggesting investors take a look at shares of good US corporates when those shares may have overshot to the downside. The problem, as ever, is that it isn’t entirely clear this is the appropriate time for Kudlow to be making these kinds of tacit recommendations.

Although this pullback is starting to look “real” (so to speak), stocks are still trading at elevated multiples and were perched at record highs barely a week ago.

Kudlow also claimed there’s no evidence yet of supply disruptions and said more travel restrictions are “under discussion”.

(Deutsche Bank, containment measures in Asia, list is not exhaustive)

As far as that emergency, inter-meeting rate cut folks are talking about thanks to Narayana Kocherlakota’s Bloomberg Op-Ed, Larry doesn’t know anything about it – yet. “I’m not hearing the Fed’s going to make any panic moves”, he said. “We’re in touch with the Fed people all the time”.

It’s probably just a matter of days (or hours) before Trump implores the Fed to cut rates on Twitter or, perhaps more likely, in a phone call to Jerome Powell.

“It’s clear this administration is in total disarray when it comes to the crisis of the coronavirus,” Chuck Schumer told reporters on Tuesday afternoon. “When Larry Kudlow says it’s contained, you have to wonder what his motivation is”.

---

At the risk of ending an otherwise serious discussion with a cheap shot, I’d be remiss not to tell the obvious joke.

On December 7, 2007, in an article for the National Review, Kudlow said the following about the Bush economy:

There is no recession. Despite all the doom and gloom from the economic pessimistas, the resilient U.S economy continues moving ahead quarter after quarter, year after year defying dire forecasts and delivering positive growth. These guys are going to wind up with egg on their faces.

Kudlow was right about one thing — there was a “guy” who ended up with “egg on his face”.

Spoiler alert: It was Larry.

Because he quite literally wrote those words on the eve of one of the worst financial meltdowns in the history of the world.

---

[Editor’s note: the CDC’s official page on COVID-19 can be found here]

---