Even from the early days of the covid crisis, most sensible observers were concerned that the risk of mass panic and of fear overtaking reason was going to…
Interview with Fernando del Pino Calvo-Sotelo: Part I of II
Even from the early days of the covid crisis, most sensible observers were concerned that the risk of mass panic and of fear overtaking reason was going to be much higher and much more severe than the biological threat itself. As the weeks and months went on, those concerns were substantiated, as politicians and the media all over the world fueled the flames, bombarded the public with apocalyptic images and chose sensationalism and emotional appeals over rational analysis and responsible reporting. The impact of this approach soon became apparent: the majority of the population of most Western nations was paralyzed by fear, abandoned critical thinking and blindly trusted the authorities, the “experts” and the institutions, even when they contradicted each other and often themselves too, and even when the “science” they urged us all to follow clearly refuted their directives and their policies.
To this day, most Western citizens remain trapped in this nightmarish narrative, despite the fact that all the doom and gloom predictions about the impact of the virus we heard months ago never materialized. What did happen instead, was an unprecedented economic devastation, caused by the lockdowns and the countless restrictions imposed by governments. Throughout this entire ordeal, very few people spoke their minds and openly expressed dissent. Even fewer used sound arguments, a calm approach and actual scientific evidence to do so.
One of those rare voices of reason has been Fernando del Pino Calvo-Sotelo, private investor and former board member of Ferrovial, which was founded by his father, Rafael del Pino y Moreno, in 1952. Apart from his extensive experience in the private sector and his insights as a successful investor, Fernando also has a deep understanding of economic and monetary history. He had long been a staunch defender of individual liberty, self-responsibility and independent and rational thinking, and his writings on this crisis, as well as on other issues, clearly reflect this. Amid the fear mongering, the hyperbole and the politicization of science that we’ve been seeing for more than a year now, his calm, dispassionate and evidence-based analyses have provided an important tether to reality and countless solid arguments against the politics of fear and the abuses of State power that have by now become the norm.
Claudio Grass (CG): At the start of the pandemic, we witnessed the sudden introduction of unprecedented measures and restrictions across European democracies and across the globe. Forced business closures and stay-at-home orders created conditions that the average Western citizen could never have imagined. What was your initial reaction and your thoughts at the beginning of this ordeal?
Fernando del Pino (FdP): To be honest, when the first news broke from Wuhan, and later from Tuscany, in January and February 2020, I thought this was just another false alarm like the swine flu. Then, the first week of March I began to follow daily cases in Madrid and became worried because they were doubling or tripling every two days, and we all know what exponential growth leads to pretty fast. By the second week of March, I acknowledged that I had been way too complacent and that this was different and more lethal than the flu. I also saw that our government had no control whatsoever over the situation – rather chaos and deception was the rule.
The first government measures came as a surprise. I had not done any extensive research on covid yet as to have a fact-based judgement on their (in)effectiveness, but I was astonished by the ease with which restrictions on fundamental rights were implemented (apparently out of Constitutional limits, at least in Spain), and more worrisome, how easily people accepted the fact that they no longer were free citizens protected by the rule of law. Stay-at-home harsh measures, Stasi-like denouncements by neighbors, police officers abusing their power because they thought they were saving the Universe and the overall panic…it was like living in a dystopian, Orwellian world that had changed our lives in the blink of an eye. The measures taken were outrageous from the point of view of freedom and mostly useless from an epidemiological point of view. For instance, in spring 2020, Spain endured the worst lockdown in the world at the time – by duration and strictness – and yet the number of deaths multiplied by 120 in a period of 3 months (with a virus that has an average incubation period of just 5 days – you do the math).
Politicians don’t seem to know that however beautiful the strategy, occasionally one needs to look at the results, and, obviously, something was wrong: lockdowns, a medieval measure (as a Nobel Prize defined them), didn’t work. In the meantime, and completely unnecessarily, the economy (which means the livelihood of entire families) was being destroyed with carpet-bombing effectiveness. Maybe worst of all was the uncertainty about the future, which kills hope. Losing hope in any situation in life is very dangerous, indeed. In the UK, with the crazy lockdown policies and poor epidemiological results, we saw the same story unfold.
CG: More than a year later, a lot of the harsh restrictions are still there and we even saw a third round of total lockdowns in many European countries. And yet, we are already reading mainstream economic analyses celebrating a great recovery, despite the fact that unemployment levels remain extremely high and businesses have suffered incredible damage, in some cases irreparable. This is a difficult and confusing time for many conservative investors and ordinary citizens to find orientation, what are your guiding principles and what is your outlook going forward?
FdP: I think that the undue panic has now been substituted by an equally excessive euphoria, which is typical. Politicians tend to think (well, maybe that’s an oxymoron) that the economy is a machine that can be turned off and then restarted with the push of a button. Nothing could be further from the truth. The economy is rather a biological system, and when you close down the economy it biologically resembles an oxygen deprivation that leads to irreversible organ deterioration. Cells will die. I think the same is going to happen in the Western economies, when the true deterioration caused not by covid itself, but by governments’ reactions to covid (an essential distinction), will become apparent.
In the financial markets, I think that prudence should be key. The moment to buy was in the midst of the panic selling, not in the midst of an overextended euphoria. The US stock market is clearly in bubble territory as per all the valuation measures you can get your hands on; Europe and Asia might be less expensive, but it is difficult to imagine that they will be spared should the US market sink abruptly. Bonds are suffering from the financial repression, so a diversified portfolio that reflects and respects uncertainty should probably have some exposure to the least expensive equity markets and sectors, to ugly cash and to gold.
When asked about forecasts in the current situation I can’t help but recall the movie Rocky III, with Mr. T (playing Clubber Lang) being asked by a journalist before badly beating Rocky Balboa (Sylvester Stallone) in their first fight:
– “What’s your prediction for the fight?”
– “Yes, prediction” – repeats the journalist.
– Mr. T (looking fiery to the camera): “Pain”.
I hate to appear like a prophet of doom, but I think pain is unavoidable at the present time, with the current market bubble in stocks in the US and some other places, the deeply destabilizing zero or negative interest rates on both sides of the Atlantic, the rotten economic disease created by the suicidal government interventions “to fight covid” and the progressive degeneration brought about by the Welfare State, which is totalitarianism by the back door with a touch of light barbarism. Now Biden (the Deep State candidate and Kamala Harris’s chauffeur to the White House) is trying to destroy the US as well with the same weapons, but luckily his own ineptitude may prevent him from achieving it.
Another worrying development of events is the intolerable political and ideological censorship by Big Tech, which is completely totalitarian and resembles what happened in Communist dictatorships in the 20thcentury. Big Tech first hooked everyone and converted them into addicts. Now that they are in full control of their users’ will, they have proceeded to step 2 and have decided to exercise their huge power engaging in psychopathic and Messianic behavior. The guys in charge are rich enough. Now they want power, that is, to shape reality according to their will. The fact that there has not been any uproar against such despicable actions as banning people from sharing their ideas because they don’t fit in the new world order narrative is one more symptom of Western decadence and will not end well.
In fact, blasphemous as it may seem, although we have had an improvement in material conditions, it is highly questionable whether Western civilization has improved in the last century from a civilizational point of view. Moreover, as surprising as it might appear to the unwary reader, I don’t take it for granted that civil liberties and the rule of law will be the norm in the West in the next decades. In fact, we have started sliding down a dangerous slope under the indifference of the majority, blind and deaf to the warning signs. We should be prepared to resist the forces of tyranny and to maintain hope and survive politically and financially through this period, although it will be tough to get out unscathed. Such is the nature of the beast, I’m afraid, but of course I might be completely wrong. Of course, the financial cycle, the economic cycle and the socio-political cycle will not necessarily coincide, as the rhythm of change and the time unit of measurement are very different for each of them.
CG: Given your extensive investment experience and your deep understanding of the monetary and financial system, how do you view the radical efforts by governments and central banks to resuscitate the economy? Do you think the “helicopter money” panacea will work and what is your take on its inflationary potential?
FdP: Radical efforts seldom work if they are deprived of common sense and the lessons of experience. There is a limit on human intelligence, but fiscal, monetary and political recklessness seem to be limitless, with the added problem that “authorities” have been stretching the system for decades causing some “turbulence”, but apparently with no dire consequences, like the first cracks that appear unthreatening at the beginning of an earthquake. And when a crisis hit (such as in 2008), they blamed it on free markets or called it an unforeseeable black swan. Such deflector shield instinct belongs to the irredeemable cheeky arsenal of politicians.
They will discover they are wrong, but maybe the society needs a catharsis to go back to its senses. I might add that, in order to take the right measures, you need to start with the right anthropology, with a true understanding of human nature without which all plans – utopian as they may be – end up in disaster. In democracies, politicians play the game of power and popularity, not of efficacy, not of justice, not of truth. Priority number one is election, and priority number two, re-election. Usually there’s no priority number three. In this sense, all “radical” measures have been invented for millennia, and they don’t work. In fact, they tend to destroy the system. In China, in Ancient Greece, or in Rome, whole societies were broken down because of a combination of moral decay, Welfare States, debt and an artificial increase of the money supply, which creates havoc. I wrote a short essay titled The Five Experiments (The Five Experiments – A short essay (fpcs.es) in which I try to explore how intertwined the political, economic, social and spiritual realities are.
Helicopter money is the modern equivalent of coin debasement in the Antiquity. Has never worked, will never work. CPI inflation (in spite of hedonics and other cooking tools) might probably be the result, and we definitely have asset inflation – and then some. Unfortunately, the public – the voter – has been spoiled for decades by this vote-buying system formerly known as democracy, which has degenerated into the most socially accepted bribery scheme in the world. In many Western countries, the State has promised to take care of everything and everyone from cradle to grave. In the end, it has boldly promised there will be no suffering at all. So statism has created a new generation that thinks the State and the whole world is there just to make them happy, and that politicians are Mother Theresa in disguise and omnipotent to do “whatever it takes” and succeed in their endeavor of protecting us from harm. Concepts such as bearing the consequences of one’s actions, self-reliability, hard work, sacrifice, endurance, difficulties, even pain and death have been condemned to ostracism. However, reality will bite sooner or later, as it always does. In Asia and some important emerging countries this is not necessarily the case, though.
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In the upcoming second part of this interview, we turn our attention to the public reaction during this crisis and the politicization of science, while we also look at the political, economic and investment implications of the response to the pandemic.
Claudio Grass, Hünenberg See, Switzerland