Werewolves, Emergency Rate Cuts And Peak COVID-19 Panic
In hindsight, Monday on Wall Street will probably be seen as either "peak COVID-19 panic" or the beginning of something far more serious, both for markets and humanity in general.
I'm leaning towards the former, in part because, as I was compelled to remind some folks over the weekend, one cannot hedge the apocalypse - or at least not if you're using the term "apocalypse" any semblance of literally.
Among the endless market notables, the entire German curve turned negative again on Monday, as
A 50% correction would not be the End of the World.
This has been a long time coming. While the guy with the orange hair is in India getting accolades, we are nearing a global watershed moment. Assuming the virus is a factor until April, you can kiss world growth and inflation good-bye. Nominal growth of less than 2% appear to be in the cards for the US. MAGA!
One reason I hesitate to call peak-Covid on Monday is that WHO data show zero cases in all of Africa except for Egypt. There are 60,000 Chinese workers in Algeria alone.
…and if you think today was bad, imagine what the screens will look like if (when?) we start to hear reports of random outbreak pockets scattered across the United States.
H-Man, I vote for chain reaction #1. Data to be provided at a later date.
The epidemiologists have insisted that the virus is underreported and probably cannot be contained. The strategists have credulously charted the reported numbers and hailed declining slope as evidence of containment. The epidemiologists are being proven right. Not surprising, as it is their field of expertise.
So the virus will inevitably make it “into the wild” in the US. Clusters will emerge in Brooklyn, or Boise. They won’t be contained any more than in Beijing, or another B city I can’t be bothered to think of.
The US will react exactly as the Chinese, Koreans, Italians have. Shutdown, cancel, quarantine. It’s impossible for government health officials to do any different: their responsibility is to protect humans, not economic activity. And Americans will get scared, stay home, defer spending, report declining “confidence”. Our pyschology is not different than that of any other nationality.
Does the Fed really have tools to support stocks when Brooklynites and Boiseans are wearing face masks and shutting themselves in their homes? Will lower rates motivate businesses to borrow and investors to lend, in that environment? Will more liquidity be used to buy risk assets or more UST and GLD? When do we start with the “pushing on a string” analogy?
I guess the Fed can start buying stocks? No, they won’t, because the act alone will be like ringing the alarm bells. They’re not ready to heli-drop money either, not do they have the mechanisms. Treasury could heli-drop by declaring a tax holiday and asking the Fed to fund the government, but they’re not ready to do that either. Maybe after -1,000 SP50 points they might be.
Doesn’t matter, I think, if the dip gets bought. The buyers will be the weakest of hands.