Uncertainty And Fear Continue To Rage On
by Eric Nager on Mar 25, 2020
The markets are behaving as though we are facing the bubonic plague of the Middle Ages which killed between 30% and 60% of all Europeans. Covid-19 is very serious and should not be taken lightly, but it is unlikely to decimate the world’s population. The medical experts seem to be saying that, like most viruses, it will cycle through in a few weeks to a few months. It is dangerous and there have been and will be fatalities, especially among the medically vulnerable, but as a nation and a society we will survive and recover.
The irrationality in the stock market arises from the uncertainty regarding the Covid-19 financial impact along with almost unbridled fear. The fear is also evident in the supermarket. TOILET PAPER is now the hottest commodity – WHY? It is absurd: the US produces all the TP that is needed and there is no future supply-chain difficulty. Fear makes people do crazy things like the response to the recent Fed activity.
The Fed has reduced interest rates by a full 1% to 0.00 to .25%. Additionally, they are injecting $2.2 trillion into the system and have indicated that they will continue to do so as needed. For a frame of reference, that is already about 2/3 of what they did for the entire 2008 financial crisis. Also, the Administration and the Congress are putting together stimulus packages to protect citizens from the financial impact of the slowdown. The market is reacting by selling-off.
Remember what happened in 2009 when the crisis ended and the low interest rates and massive amounts of liquidity remained -- a great stock market boom that lasted a decade followed. We just have to endure this difficult time.