‘Circumstantial Evidence’, Bats, And ‘A Civil War In Congress’:

Circumstantial evidence and “open source” information.

Apparently, that’s what at least some of the 17 agencies advising the US government on the origins of COVID-19 are relying on to assess the theory that the virus leaked from the Wuhan Institute of Virology.

With accusations flying and mainland Chinese markets set to get back to business after a holiday, traders are on edge. State media in China resorted to name calling early this week after Mike Pompeo appeared to suggest the administration’s official position will eventually be that Beijing covered up a lab accident to the detriment of the entire world. For that, America’s top diplomat was branded an “evil”, “poison-spitting clown” by CCTV and the People’s Daily.

A Bloomberg piece out Tuesday afternoon essentially recapping the situation appeared to hit risk sentiment after an otherwise upbeat (and uneventful) session in the US.

Sources described what sounds like a process beset by confirmation bias. “The Wuhan lab at the center of the debate is known for doing research on bats, a leading carrier of coronaviruses like this one, which adds to the case for this particular pathogen, Sars-Cov-2, to have escaped from there”, one person said. Peter Navarro cited the “lots of bats” excuse on Sunday, during a characteristically painful interview with CNN. “The US government cites open-source reports that the Wuhan lab wasn’t adhering to strict safety protocols while studying animals and dangerous viruses”, Bloomberg goes on to say.

While there seems to be some unanimity around the conclusion that COVID-19 is not a bioweapon, there’s not much consensus in the intelligence community beyond that. The ambiguity presents an opportunity for a president whose mistrust of intelligence reports is at least partially predicated on the fact that he was himself investigated by the same intelligence community.

Between that, and Trump’s notoriously rocky relationship with evidence and fact-based analysis, it seems highly likely that the president’s reelection campaign will be focused squarely on China’s role in decimating the US economy, something Bloomberg drives home in the same linked post. “He had planned on campaigning on the strength of the US economy and said virus cases would quickly fall to zero”, Jennifer Jacobs writes. “Now, with almost 70,000 Americans dead from the virus, he’s increasingly trying to shift more of the blame toward China”.

While fully acknowledging that most of this is not Trump’s fault, 70,000 dead Americans and record high unemployment aren’t the kinds of things that win elections, any “rally around the president in a crisis” phenomenon notwithstanding.

Meanwhile, the administration is said to be pondering a hodgepodge of tax cuts for (guess who?) businesses and investors as part of a new virus relief package.

This will be billed as an effort to pivot from government spending aimed at bolstering demand to supply-side gimmicky. According to The New York Times, a reduction in the capital gains tax is on the table. “Those proposals, which are still being debated and are not final, could accompany President Trump’s top two priorities for the next rescue package: the suspension of payroll taxes for workers and an expanded deduction for corporate spending on meals and entertainment”, The Times writes.

To be sure, not all of those ideas are necessarily “bad”, but as The Times goes on to point out, Democrats are focused on things that are immediately and obviously desirable, such as “additional support for Americans who have lost their jobs … and for struggling state and local governments to prevent layoffs of teachers [and] police officers”.

Predictably, Republicans are already leaning on the notion that an assumed rebound in growth in the second half of 2020 (and what The White House continues to insist will be an “unbelievable” year in 2021) will mean the government can throttle back spending and allow the economy to “grow out” of what is now guaranteed to be the worst recession in history.

Trump seems to realize he’s walking a fine line. “There is more help coming. There has to be”, he told Fox on Sunday. And yet, he talked up the “V-shaped” rebound. “I think we’re going to have an incredible following year. We’re going to go into a transition in the third quarter, and we’re going to see things happening that look good”, the president mused. “I really believe that. I have a good feel for this stuff”.

With all due respect, no, he does not. That is, Donald Trump most assuredly does not have a good feel for business cycles or, really, for business in general. As usual, I remind readers that is not a partisan assessment. If you ask anyone (including and especially banks) who has ever dealt with Trump, they almost invariably say that the president is a lot of things, but great business mind isn’t one of them.

As one lawmaker told The Times, “it’s extraordinarily naïve to think that tax cuts are going to bring this economy back faster”. “I have not talked to a single economist yet who says tax cuts are a viable solution here”, Virginia Democrat Donald Beyer said.

At the same time, Trump’s reliable supply-side sock puppets are already calling the virus relief packages a failure.

“We’ve done the spending, it didn’t work, and now we need to try something else”, Stephen Moore, who was laughed off stage when Trump and Larry Kudlow attempted to float his name for a seat on the Fed board last year, said Tuesday. “There is going to be civil war in Congress over this”.

Stephen Moore is not an economist.