Larry Kudlow may have just had his “Baghdad Bob” moment. As Centers for Disease Control officials warned it is a matter of when, not if, the coronavirus arrives in the United States — and the stock market responded by tanking more than 3 percent for the second day in a row — President Trump’s top economic adviser tried in vain to reassure investors that all is well.
“We have contained this. I won’t say airtight, but pretty close to airtight,” Kudlow said in an afternoon interview on CNBC.
Like Saddam Hussein’s spokesman insisting during the 2003 U.S. invasion of Iraq that American forces were on the cusp of annihilation, Kudlow’s claim the Trump administration has the matter in hand seem to bear little resemblance to reality as other officials predicted the “inevitable” spread of covid-19, as the disease is known, to the United States.
Nancy Messonnier, a top CDC official, told reporters the impact of the virus on the United States “may seem overwhelming and that disruption to everyday life may be severe.”
And she made a direct appeal to the public to brace for a domestic outbreak: “We are asking the American public to prepare for the expectation that this might be bad.” That includes making plans to work from home and otherwise reduce face-to-face contact. (Shares of Zoom Video, which provides videoconference software, have been surging amid the broader market carnage.)
The virus continues its relentless spread outside of China. Overnight, “France reported the first death of a French citizen from the epidemic as cases spread rapidly across Europe, with Spain confirming eight new cases in the past 24 hours and new infections reported in France, Croatia, Austria and Switzerland,” The Post's Adam Taylor writes. “Although China announced a decline in new confirmed cases on Wednesday, the number of infected people soared in South Korea to more than 1,200, with more expected in the coming days as the state attempts to test 200,000 people.”
Investors voted with their portfolios, crediting dire warnings instead of Kudlow’s nothing-to-see-here take. The Dow Jones industrial average dropped 3.2 percent on the day, making the two-day selloff the worst the market has seen in two years. “With Tuesday’s declines, eight of the S&P 500’s 11 sectors are in negative territory for the year. The worst among them, energy, has shed 19% so far in 2020—reflecting investors’ fears that a slowdown in global economic activity will drag oil prices lower” per the Wall Street Journal’s Akane Otani.
Investors fleeing risk assets piled into the relative safety of government debt, sending the yield on 10-year Treasury bonds to a record low of 1.32 percent.
Trump, who has been on a state visit to India, weighed in five hours after the close of trading. He rebutted the mounting criticism of his team’s response in grievance-fueled, partisan terms:
....Democrats talking point is that we are doing badly. If the virus disappeared tomorrow, they would say we did a really poor, and even incompetent, job. Not fair, but it is what it is. So far, by the way, we have not had one death. Let’s keep it that way!— Donald J. Trump (@realDonaldTrump) February 26, 2020
This morning, he blamed cable TV for exaggerating the “Caronavirus” and said on Twitter he would hold a 6 p.m. news conference with CDC officials:
But administration officials faced a bipartisan grilling on Capitol Hill on Wednesday, “with Republicans and Democrats outwardly expressing alarm and outrage.lawmakers,” CNN’s Lauren Fox and Clare Foran report. Lawmakers from both parties “say that the Trump administration's response has exposed vulnerabilities and prompted lawmakers to push for ways to curtail future outbreaks faster.”
Behind the scenes, the president is preoccupied by the stock selloff. “Trump is highly concerned about the market and has encouraged aides not to give predictions that might cause further tremors,” my colleagues Jeff Stein and Josh Dawsey report. “Privately, Trump has become furious about the stock market’s slide, according to two people familiar with the president’s thinking, who spoke on the condition of anonymity to share internal details.”
They write while abroad, “Trump has watched the stock market’s fall closely and believes extreme warnings from the Centers for Disease Control and Prevention have spooked investors, the aides said.”
For his part, Kudlow tells Jeff and Josh “there is no distance” between his position and that of the CDC officials. “We have to err on the side of emergency planning in the United States. They are doing the right thing,” he said of the CDC. “I have to worry about the economy and the financial markets ... There’s a fear factor right now, and I get that, but what I was trying to say is this thing is not going to go on forever, and our economy is in great shape.”
But as my colleague Catharine Rampell notes, Kudlow's credibility is a fragile resource:
Remember the @Austan_Goolsbee rule, which he calls the pathological irony of crisis: "if you lose your credibility, your statements begin to mean the opposite of what you say." https://t.co/kCbj8THOXk https://t.co/bNHk6nYiaW— Catherine Rampell (@crampell) February 25, 2020
Federal Reserve officials are attempting to strike their own balance. Fallout from the spread of the virus “could spill over to the rest of the global economy,” Fed Vice Chairman Richard Clarida said in a Tuesday speech, per the Wall Street Journal's Nick Timiraos. But, Clarida said, “it is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook.”
The mixed messages from federal officials are feeding investor anxiety, says Ed Clissold, chief U.S. strategist at Ned Davis Research. “Uncertainty is what the market dislikes the most,” he tells me. "And in general there has been conflicting information from the beginning about the coronavirus, and that has not helped investor sentiment.” His firm’s measure of daily trading sentiment fell to 36 percent bullish this morning, “in the ‘extreme pessimism’ zone but higher than troughs around the six previous [World Health Organization] health emergencies since 2002,” Clissold writes in a follow-up email.
Meanwhile, the virus is beginning to weigh on consumer confidence. Morning Consult's measure of that sentiment dropped 0.6 percent and now stands at 114.8, “close to where it started at the beginning of the year,” per economist John Leer. “The dip was particularly pronounced among those who work in the financial and transportation sectors, dropping 4.7 and 4.9 points, respectively.”
— El-Erian: Don't buy the dip yet. Mohamed El-Erian, chief economic adviser at Allianz SE, warns the worst may be yet to come in a Bloomberg Opinion column: "The steep sell-off in stocks related to the coronavirus has intensified focus on the financial implications of the outbreak. Much of the narrative, especially when it comes to economists and market pundits as opposed to companies, has yet to internalize the significant uncertainties concerning both the known knowns and the known unknowns.
“As the virus has spread into several countries — particularly Iran, Italy and South Korea — and brought with it more sudden economic stops, it has become even harder for companies and economists to ignore the mounting damage to supply-and-demand conditions on the ground, let alone the funding challenges that lie ahead for some of the more financially stressed companies in China… Companies appear to have internalized these uncertainties better than economists and markets. All of that leads to me to continue to question the latter’s comforting notion of a rapid V-shaped recovery as opposed to a U-, W- or L-shaped one."
Asian economies could be hit hard. Reuters's Hari Kishan and Vivek Mishra: "The effects of the coronavirus outbreak are likely to reverberate beyond China as most major economies in the region are expected to either slow down significantly, halt or shrink outright in the current quarter, Reuters polls found. Many Asian economies, which were just limping back to growth from the spillover effects of the 18-month long U.S.-China trade dispute, were again dealt a blow by the outbreak, which has shut down businesses and cities…
“Forecasts from economists collected Feb 19-25 showed that Australia, South Korea, Taiwan, Singapore and Thailand are all expected to put in their worst performance in years in the first quarter. Only Indonesia was expected to remain relatively unscathed.”
Fund managers look to virologists, zombie movies. Bloomberg News's John Ainger: "Health academics, death-monitoring platforms and even zombie movies -- these aren’t normal sources of information for investors trying to assess risks in markets. But these aren’t normal times, as the coronavirus outbreak triggers an unconventional hunt for insights about what to expect from a swiftly spreading epidemic… Funds are… going straight to experts, akin to the way investors consulted pollsters and political consultants ahead of the tortuous series of Brexit votes in the U.K…
“James Athey, a money manager at Aberdeen Standard Investments in London, said his team was positioned defensively at the start of the year because risky assets appeared to be pricing in a ‘utopian future’ at a time when the global economic cycle appeared to be approaching an end and unable to withstand a negative shock… ‘I did quote ”28 Days Later" when describing the various outcomes on the desk,' said Athey."
— Bernie battered amid messy debate: “Standing at center stage for the first time, a reflection of his newfound front-runner status, Bernie Sanders faced attacks from all sides on matters including his inconsistent record on gun control, his praise for leftist dictators, the cost of his signature Medicare-for-all plan and the damage other candidates believe he would inflict on the Democratic Party if he were the nominee," my colleagues Matt Viser, Annie Linskey, Sean Sullivan and Cleve R. Wootson Jr. report.
"With the future of several of the campaigns hanging in the balance, the candidates let loose, throwing their arms in the air and shouting over one another, presenting a cacophony from a party that, as it approaches its biggest voting day, has made no strides in its quest to figure out where it’s headed. They debated capitalism and socialism, a host of liberal ideas and cautions about their cost, struck at one another’s pasts and questioned the legitimacy of their promises for the future.”
How they bashed Bernie:
Biden tore into him over guns: “Bernie voted five times against the Brady Bill and wanted a waiting period of 12 hours,” the former vice president said.
- He also went after Sanders for mulling a primary challenge to Obama: “… He said we should primary Barack Obama, someone should, and, in fact, the president was weak and our administration was in fact not up to it."
Bloomberg said Sanders would be a disaster for the entire ballot: “If you keep on going, we will elect Bernie. Bernie will lose to Donald Trump. And Donald Trump and the House and the Senate and some of the statehouses will all go red. And then, between gerrymandering and appointing judges, for the next 20 or 30 years, we're going to live with this catastrophe."
- Sanders pointed out that he beats Trump in some early polling of swing-states: He also jabbed back at the mayor, “Mayor Bloomberg has a solid and strong and enthusiastic base of support. The problem is, they're all billionaires.”
Buttigieg took issue with Sanders's praise of Cuban literacy under Castro: “We are not going to survive or succeed, and we're certainly not going to win by reliving the Cold War. And we're not going to win these critical, critical House and Senate races if people in those races have to explain why the nominee of the Democratic Party is telling people to look at the bright side of the Castro regime.”
Warren said he wouldn't be as effective as her: “Getting a progressive agenda enacted is going to be really hard, and it's going to take someone who digs into the details to make it happen,” she said of her Senate colleague, whom she added that she “agrees with on a lot of things.” She continued: “Bernie and I both wanted to help rein in Wall Street. In 2008, we both got our chance. But I dug in. I fought the big banks. I built the coalitions, and I won."
Warren slammed Bloomberg for cutting checks to Republicans: "We're here in Charleston, and you know who is going to be in Charleston later this week is Donald Trump. He's going to be here to raise money for his buddy Senator Lindsey Graham. Who funded Lindsey Graham's campaign for re-election last time? It was Mayor Bloomberg,” Warren said.
Bloomberg appeared to almost say he bought lawmakers: “Did [Bloomberg] almost say he bought the Democratic majority in Congress? That’s kind of what it sounded like for a moment … as the billionaire was boasting about his investment in Democrats’ success in the 2018 congressional elections. But we’ll never know for sure — he caught and quickly corrected himself,” my colleague Amber Phillips reports.
CBS is taking heat over the fracas: “The CBS moderating team — which featured [anchor Gayle] King, the anchor Norah O’Donnell, and three other network journalists — struggled to keep control, calling for order as jawboning candidates talked over their questioners and each other,” the New York Times's Michael M. Grynbaum reports.
— Disney names new CEO: “In a move that stunned the entertainment world, Walt Disney Co. chief executive Robert Iger announced Tuesday that he was stepping down from his position immediately and would be replaced by Bob Chapek, 60, the head of its theme park division. Iger would remain on as executive chairman focused on creative endeavors, he said,” my colleague Steven Zeitchik reports.
“Iger, 69, has long been planning retirement and had postponed a scheduled departure date several times. The most recent had been slated for the end of 2021, when his current contract expires. But the news that he would leave his post immediately sent shock waves through the industry, which has seen Disney not only as one of the most successful entertainment conglomerates but its most deliberate.”
— Dimon says JPMorgan is looking at acquisitions: “JPMorgan Chase & Co. is looking ‘aggressively’ at acquisitions across its businesses and could buy anything that’s not another U.S. bank, the chief executive officer said at the firm’s investor day in New York,” Bloomberg's Michelle F Davis reports of CEO Jamie Dimon's comments. “The bank has a greater appetite for deals than in previous years, helped by regulators who are more accommodative, he said.”
“Coming off the most profitable year in U.S. banking history, Dimon attempted to push down expectations, saying last year’s bonanza was helped by unusually low credit costs and flagging 2020 as a ‘tougher year.’ The bank’s presentation touted how it’s outperformed rivals in recent years, but also struck a cautious tone on challenges it faces from a series of industry trends that aren’t going away.”
- Dimon warns on climate change. “The bank’s annual regulatory report added ‘climate change’ as a risk factor, saying it could hurt operations and customers,” Davis reports. “Risks including prolonged droughts or flooding, increased frequency of wildfires, rising sea levels and altered rainfall could ‘prompt changes in regulations or consumer preferences, which in turn could have negative consequences for the business models of JPMorgan Chase’s clients,’ the company wrote in the filing.”
- More on the record year: “The banking industry collectively made $233.1 billion in profits in 2019, the Federal Deposit Insurance Corporation said … the industry’s second-most profitable year ever,” the Associated Press's Ken Sweet reports. “The slight drop in profits from 2018 is due to the drop in interest rates, which happened in the second half of last year. The Federal Reserve cut its benchmark interest rate three times, in an effort to shore up the U.S. economy, which was facing difficulties from the U.S.-China trade war and a slowing manufacturing sector.”
— Juul's troubles are far from over: A group of 39 state attorneys general “announced an investigation into Juul Labs Inc’s marketing practices, adding to mounting legal and regulatory problems for the e-cigarette maker over its role in the nation’s youth vaping epidemic,” Reuters's Chris Kirkham reports.
“The probe, led by attorneys general in Connecticut, Florida, Nevada, Oregon and Texas, will examine whether Juul targeted underage users, and its claims about nicotine content and safety, the offices leading the probe said in separate statements. Several other states, including California and Massachusetts, have already sued the San Francisco-based company saying it did little to prevent sales to underage customers and directly marketed to teenagers.”
— More on Bezos's $10 billion climate pledge: “As federal funding for climate research has stagnated and the U.S. government has forfeited its leadership on the issue, Bezos is one of a growing cadre of philanthropists who see an opportunity to set the agenda for climate mitigation and adaptation," our colleagues Sarah Kaplan and Andrew Freedman report.
“… Even as scientists and activists have welcomed the influx of cash from the man who founded Amazon and owns The Washington Post, they caution against private individuals driving climate science and the search for solutions … Many green technologies that have been the focus of private financing, such as electric vehicles and solar panels, are still available largely to the wealthy, said [economist Rachel Cleetus] of the Union of Concerned Scientists. Meanwhile, issues that affect the most vulnerable citizens — improving transmission lines to get clean energy to rural areas, maintaining maps of flood risk to low-lying communities — are rarely a focus for deep-pocketed donors.”
— Millionaire-tax gains momentum in New Jersey: “Governor Phil Murphy’s third shot at a higher tax for New Jersey millionaires may be the charm,” Bloomberg's Elise Young reports. “The first-term Democrat proposed a record $40.9 billion budget with a tax boost for the rich to help underpin unprecedented spending on New Jersey Transit, pensions and schools.”
“His odds are far better this year, with Senate President Stephen Sweeney saying he’d consider the levy if the governor would consider an even bigger-than-planned pension payment.”
MONEY ON THE HILL
- The Washington Post holds an event on working families and the cost of the American dream.
- Lowe's, Wyndham Destinations, Office Depot, Wendy's, Hostess Brands, Square and Sea World Entertainment are among the notable companies reporting their earnings
- The Brookings Institution holds an event on the economy and the 2020 election, featuring remarks from former Fed Chair Janet L. Yellen
- The House Financial Services Committee holds the second part of a hearing on “Rent-a-Bank schemes."
- Dell, Best Buy, Anheuser-Busch InBev, Keurig Dr Pepper, AMC Entertainment and Crocs are among the notable companies reporting their earnings
- Foot Locker is among the notable companies reporting its earnings