One of the (few) advantages of getting older is the benefit of experience, if not always wisdom. As such we sometimes spot patterns that are not necessarily picked up by historical graphs or datasets, based on ‘lived experience’. Thus in watching the current connections between testing, lockdowns and political spin, we are (strangely) reminded of the situation back in 1997/8 during the Asian Financial Crisis, when there was an attempt by speculators to break the Hong Kong Dollar peg. By August 1998, the seemingly unstoppable damage from a rules-based system was putting the Hong Kong economy under enormous pressure and there seemed no way out, and yet within a matter of months the rules that had made everything steadily worse had flipped and were making everything better. As such, the apparent nonsense of yet another lockdown have left us curiously positive, for we see that they actually offer a way out of this current impasse.
A Parallel/Parable from the Hong Kong Peg
But first to our parallel/parable. Many readers will remember George Soros as the man who allegedly made a billion dollars ‘breaking the Bank of England’ back in 1992, with his successful attack on the ERM sterling peg, but fewer will know of his similar success with Asian Currencies such as the Malaysian Ringgit and the Thai Baht in the five years that followed, where similar tactics to use leverage to break fixed or semi fixed currency regimes had succeeded to an equal, if not indeed greater, extent.
Thus in 1997/8, he and a group of western speculators brought what they regarded as ‘their A Game’ to Hong Kong, encouraged no doubt by predictions from, among others, Milton Friedman, that the HK currency peg to the $ would collapse in the wake of the 1997 handover. They had the narrative, but the secret of their success had always been to use a rules-based system to force the monetary authorities to put intolerable pressure on their domestic economies in order to defend a currency level such that the politicians ultimately caved in. In effect it was a short selling strategy at a national level.
In HK, the rules based system was centred around something referred to as a ‘currency board’, which effectively compelled the authorities to raise interest rates when the currency came under pressure. To protect against speculative attacks, they had accordingly made it difficult, if not impossible, to ‘borrow’ Hong Kong dollars to go short. However, the speculators found a way around this, borrowing instead HSBC and other liquid stocks and selling those short in exchange for Hong Kong Dollars and then in turn selling those HK$s to put pressure on the peg. The currency board meant that the short selling had the effect of raising interest rates – a blow to the heavily leveraged Hong Kong economy and stock market and in itself a reason to sell down financials – and likely providing for an interest rate/bond trade at the same time. This appeared to produce a death spiral as the stocks went down, the bonds went down, rates went up, the financial sector threatened to collapse along with the housing market and the currency struggled to maintain its peg. The interaction between the markets was creating its own dreadful logic.
All looked rosy for the speculators until the authorities worked out the ju-jitsu moment; how to use the strength of the speculators’ position against them. They moved in and started buying up HSBC and the rest of the stock market. The hyper-active and hyperbolic Bond economists I was working with at the time screamed in indignation that the authorities should not be trying to protect the stock markets (bond guys always want equities to go down, obviously. It’s like sibling rivalry thing) and especially not at the same time as ‘protecting the peg’. And yet of course by squeezing the shorts, the authorities forced the speculators to buy back the stock and to do so they had to somehow get hold of some Hong Kong Dollars, which meant borrowing, which in turn meant the currency board acted to reduce rates and the whole system then flipped 180 degrees. The end of the story (apart from the economists self detonating) was that the HK authorities ended up with a lot of HK equities, which they then turned into a form of Sovereign Wealth Fund. They also unitised some of it and sold it to the public. Result, HK system 1. Speculators Nil. The peg still stands. Incidentally how is that short working out Kyle?
The connection to the Pan(dem)ic
So how does that connect us to now and to Covid? Well, for good reason or bad, we find ourselves in a similarly interconnected situation. To take the UK as an example – although most western countries are the same – we have a situation where the number of ‘cases’ is acting like a Currency Board, every time the case count goes up, seemingly so do the restrictions on freedom of movement and the ability of the private sector economy to function. The policy of Mass Testing only increases this problem, since it is an acknowledged fact that the PCR test has sufficient false positives that so long as you continue to test you will continue to find ‘cases’, even if there are none. The idea that mass-testing is somehow a solution is 180 degrees wrong. The problem that we have is that lockdowns do not eliminate the virus, they merely delay it and the vaccines were never meant (or promised) to deliver herd immunity. Rather they are there to reduce the mortality rate of the virus. As such we look stuck in the same sort of doom loop as the Hong Kong economy with lockdowns acting like high interest rates to protect a currency while destroying an economy and the response to more cases (but not more deaths) is more testing and more lockdown. The problem to date is that the policy makers seemingly can not and will not act to ‘break the peg’, but neither are they acting to ju-jitsu the rules based system. The hope, therefore is that this latest lockdown is actually the first step on our route out of all this.
The way out however is simple, and curiously similar to our Hong Kong example; we reverse the system. First, the full lockdown means that we can stop mass testing – currently the UK has similar death levels ‘with Covid’ to the rest of Europe but between 10 and 20 times as many ‘cases’ due to the mass testing. Had the children gone back to school, mass testing of school children would have inflated this even further. This then is the equivalent of a ban on short selling HK stocks.
Second, with no more mass testing and thus no more ‘record cases’, the fear level can die down and, just as important, the approximately 20% of NHS staff who are well but ‘self isolating’ (due for example to another child at their own child’s school testing positive) can return to work, removing the entirely self inflicted pressure on the NHS. What then happens is that the government identifies a target for vaccination ‘for the vulnerable’. Not the 90% of the population that the Medics are claiming is required for herd immunity, but the 2.2 million or so elderly and unwell/vulnerable to the virus on the shielded patients list. (It goes without saying that the 22m number from head of the NHS Sir Simon Stevens should be treated as the political spin that characterises almost all of his pronouncements.) This should not be too difficult, especially if the Government allows the private sector to help – Pharmacists already give the flu jab and with around 11,500 Pharmacies giving ‘only’ 20 jabs a day, they could do it themselves within two weeks. (If they are allowed that is).
Once this vaccination is ‘achieved’ they can then point to the Infection Fatality Rate (IFR) now falling – which is actually the one thing we should care about. John Ioannidis, the Stanford Professor and actual expert on this already believes it to be around 0.25%, which is similar to seasonal flu, but the notorious Imperial Model still has it up at around 0.9%. (An interesting aside, as this article points out, the most important’ members of the government advisory group SAGE are all mathematical modelers, behavioral specialists, civil servants and medics. There are no immunologists or virologists). This then is how the policy makers get themselves out of the corner they have painted us all into, they allow themselves to adjust the (incorrect) models on which the entire policy has been based under the guise of ‘the vaccine’. At a stroke, making this adjustment from Imperial to Stanford reduces the apparent ‘risk’ of Covid to the general population by almost 75% and turns it from a ‘killer virus’ to something more able to ‘live with’.
This then allows a reduction in the Tiers of restriction, the equivalent of buying back the short positions allowing the authorities to reduce interest rates. Then as the normal seasonal respiratory diseases peak in around February and fade, so too will total respiratory infections including Covid – which given almost everything is now attributed to Covid will see a fall in the actual data of hospitalisations and deaths. Thus as the furlough ends in April, we can be allowed to emerge, blinking, into the spring sunlight praising our wise and wonderful politicians for saving us.
As part of this new narrative, the Oxford Astra Zeneca vaccine will be hailed as ‘a life saving jab’ (as it was already described as being on the front page of the Sunday Times this week) and plaudits and self congratulation will abound. We will be encouraged to be vigilant, but Tiers can be lowered further and we can gradually extract ourselves from this self-generated crisis.
Here’s hoping.
