The Triple Whammy

One of my favorite TV shows when I was growing up was this game show that came on at some point in the early afternoon. I don't remember exactly when. I think I only got to watch it when I was home sick from school. It was called "Press Your Luck" and was just this random "hit the buzzer" kind of game. Kind of like a cross between Jeopardy and Wheel of Fortune, but you randomly got assigned the question value and the questions were way easier.

Anyway, and here's the Wheel of Fortunesque part, if you answered the question right, you could PRESS! YOUR! LUCK! and can keep racking up cash and prizes... That is, if you avoided the dreaded WHAMMY, which were these little weird red gremlin type animations. If you got a single Whammy, you lost your turn and the cash and prizes all went away - like hitting BANKRUPT in the Wheel of Fortune. You could recover from a single Whammy, but the more you got, the worse off you were. When you got to the third Whammy you were done. It was called TRIPLE WHAMMY and looked like this:

What does the Triple Whammy have to do with finance?

That's the idea that the coronavirus could be the first in a series of increasingly dire dominoes that are growing more difficult to avoid by the day.

The first domino is this public health crisis.

The second is a potential global financial crisis.

The final blow is the inevitable global climate crisis we are bound to have to confront sooner or later.

It's not so hard to see how all of these could flow into each other. Obviously, if people don't work because they're afraid of contracting the coronavirus, it's much harder for them to make money. Even if you're not a contractor or day laborer or tip maker, you could still be affected by this work stoppage if you own rental homes or bonds. Both rely on consistent payments being made. Once those stop, the value of the asset goes down significantly. Asset owners may not even be able to pay their own debt if rent goes unpaid for any significant period of time.

If we're looking at non-government debt, the mortgages and corporate bonds that are held by our pension funds, insurance companies, and even the Fed these days, this forecast is a potential scenario:

• If the US lockdown lasts until end of April, it may mean 5% default.
• If it lasts till May, it can get to 10%.
• If June, then it is 30%.
• If liquidations kick in after that, maybe only 50% or lower recovery. No debt holders are prepared for 50% loss, even for high yield investors.

It's unclear if the government can simply forestall required payments to privately issued assets. So we might be facing some truly difficult financial decisions here in the next few months if the whole world, or significant parts of the world economy, have to face extended periods of restrictive quarantine. The chances of that happening are probably more likely than most people realize.

Here's the good news. We've hit this giant pause button on the development of global capitalism.

We have the chance to make some significant changes right here that could help us significantly down the road. For instance, in the United States, we could start investing heavily once again in the public sector in things like the CDC and public hospitals. We could finally get that whole public health care system going. In Europe, we could revisit the logic of austerity, which was based on a huge error made by Harvard professor Kenneth Rogoff in the first place.

One lucky coincidence is that the rolling quarantines all over the world are vastly improving pollution all over the world. The dolphins are back in Venice, sorta. The blue skies are back in India and China. New York, LA, and London all have smog-free days.

Maybe COVID-19 is Mother Nature's respectful warning shot to the human species. It's almost like she's saying, "Like, yo, my peoples, get off my back... or else! Next time I won't be so lenient with the death rate on the silent killer virus, m'kay?"

Or are we already too late on this domino? Reports this week came out that the Denman Glacier is receding, which could raise global sea levels by 5 feet.

The Triple Whammy may have already been set in motion.