Professional investors can review published thought leadership and market updates from the Argonaut Investment Team.

‘The biggest fraud: Part 3 – Investment Implications’

Following unprecedented interest in our previous research on policy error in response to the coronavirus “The biggest fraud: Part 1 – The “hocus” science behind lockdown” and “The biggest fraud: Part 2 – The vaccine swindle” we now publish video blogs on Part 1 and Part 2. Furthermore, we now introduce new material “The biggest fraud: Part 3 – Investment Implications”. We also publish 9 2-minute easily digestible video blogs summarising our views on specific issues.

We stand accused of being “armchair epidemiologists” but fund managers are by nature “armchair everything”: we have never previously worked in any of the industries in which we have invested but this has never prevented us from making informed investment decisions. Moreover, given that the economic damage from the response to COVID is far worse than that witnessed during the Great Financial Crisis and has in fact more commonality with the Great Depression, we would be somewhat pointless if we did not research the subject or have our own opinions. This is after all what active fund management is supposed to be about.

The response to COVID has magnified the gap between winners and losers: technology companies talk about the crisis accelerating a year or two of future growth; by contrast many “sunset industries” have seen their line of longitude move further to the East. There has been an unprecedented policy response: governments have adopted a scattergun fiscal response which is currently being financed by the central bank printing press. Whilst this is necessary to avoid a deflationary spiral, it risks the integrity of fiat currencies. It would also be entirely unnecessary if the official “science” had properly understood COVID and not locked down their economies.

Most PMI’s are currently suspiciously “V-shaped” suggesting an inevitable bounce-back in economic activity as economies re-open. The recovery is, however, unnecessarily uneven with many industries still suffocated by ongoing policy blunders. The fizzling out of the so-called “second wave” of COVID infections in the US “sun belt” states currently being witnessed, however, should lead to a rekindling of animal spirits in cyclical parts of the market and (given crowded positioning) should be a catalyst for a short-term rotation out of YTD winners and into YTD laggards. Nevertheless, in view of the wide range of possible outcomes and the probability of further policy error, we continue to hedge our bets.

The Biggest Fraud: Part 3 – Investment implications (33 mins)

  • The only way to deal with “the plague” is honesty – the importance of evidence based research (0:00 - 7:00)
  • We successfully identified Wirecard and NMC as massive stock market deceits but what if the biggest fraud of 2020 is not actually a corporate? (7:00 - 12:26)
  • The response to COVID has caused unprecedented economic damage which was entirely self-inflicted (12:26 - 17:50)
  • Policy error has magnified the gap between stock-market winners and losers; government deficits are being monetised by central banks (17:50 - 26:15)
  • Can further policy error prevent a “v-shaped” recovery? Let’s hedge (26:15 - 33:08)

The Biggest Fraud: Part 1 – The hocus “science” behind lockdown (21 mins)

  • The hocus official “Science” vs. early evidence from the Diamond Princess (0:00 - 2:22)
  • The simple statistical error that led to panic and the care home disaster (2:22 - 5:25)
  • Care homes accounted for over 50% of all COVID mortality. Mitigating this infection risk did not require lockdown (5:25 - 8:10)
  • COVID was the complete opposite to “Spanish flu” yet the myth was perpetuated (8:10 - 14:25)
  • The truth about the Swedish herd immunity experiment (14:25 - 19:32)
  • Covid disappears from Sweden to be met with silence (19:32 - 21:39)

The Biggest Fraud: Part 2 – The vaccine swindle (16 mins)

  • How our understanding of “immunity” from COVID evolved (0:00 - 4:13)
  • The “second wave” misnomer: it was definitely only a first wave of infection in the sun belt and it is now coming to an end (4:13 - 6:11)
  • The mortality risk of the “second wave” is down 80%-90% (6:11 - 7:00)
  • The Spanish rural “second wave” has caused no pick up in mortality risk. There is no “second wave” in the UK (7:00 - 9:03)
  • Why there has been no spike in mortality in the “second wave” (9:03 - 11:04)
  • Why a vaccine is unlikely to work for the small population group who needs it (11:04 - 15:50)
  • Lockdown was at best a sledgehammer to crack a nut and really the worst collective policy error since 1914 (15:50 - 16:24)

Two minute summaries

  1. The hocus “science” behind lockdown
    • The official “science” behind lockdown made a basic statistical error
    • Governments panicked and moved infected patients to care homes causing over half of all COVID related deaths
    • Overestimating COVID risk led directly to the care home mortality crisis
  2. The second “Spanish Flu” myth
    • The second “Spanish Flu” narrative was powerful and emotive but it was never true
    • Old age and comorbidities presence in almost all COVID deaths was the complete opposite of “Spanish Flu”
    • Governments and media ignored this and instead doubled down on the myth
  3. The Swedish experiment
    • Sweden had 6k COVID deaths (median age 86 o/w 75% have been in care homes)
    • 96k deaths were predicted – this “dangerous” experiment should have been a statistical outlier to justify lockdown
    • Swedish COVID mortality risk has now all but disappeared
    • Silence
  4. Are we closer to herd immunity than we think?
    • The assumption that only those who have survived COVID are immune is false
    • The Boyman Zurich study demonstrated that a large part of the population were naturally immune
    • This would explain why first wave infections have now fallen away to almost zero
    • Has herd immunity already been achieved?
  5. The “second wave” misnomer
    • The “second wave” in the US was a misnomer
    • Its mortality rate has been 85% below April/New York
    • The “second wave” which was actually a first wave in the sun-belt states is now coming to an end
  6. The vaccine swindle
    • A vaccine that works for the population most at risk from COVID is very unlikely
    • Side-effects from a vaccine may be worse than an asymptomatic infection
    • Cheap generic drugs are already significantly reducing mortality risk
    • Moral hazard/investment swindle likely
  7. The importance of evidence based research
    • The only way to fight “the plague” is by honesty – evidence based research
    • We are accused of being “armchair” epidemiologists but Fund Managers are “armchair everything”
    • We can hedge negative outcomes but the wider economy and society cannot
  8. The economic damage
    • The current economic crisis is more comparable to the Great Depression (1933) than the Great Financial Crisis (2008)
    • Scattergun fiscal response is being monetised by central banks
    • Avoiding a deflationary depression may result in currency debasement (a further form of fraud)
  9. Investment implications
    • Policy error magnified the differences between stock market winners and losers
    • The end of the US “second wave” should see a rotation into cyclical losers
    • The economic recovery should be “V-shaped” and asset prices supported by infinite QE but likelihood of further policy error means that hedging is prudent

Barry Norris
Argonaut Capital
August 2020