Edit: looks like I was wrong about this being the Fed's biggest tool to correct the market. See below.
The 0% interest rate cut was supposed to be the last bullet and the Fed has very likely used it up too early. I suspect there was pressure from Trump to do something right this instant, because I don't see the Fed doing this out of their own accord. Possibly election related, we'll never know.
What can they do now? Negative interest rates? Everybody will withdraw their accounts at the same time. Combining this with the zero reserve requirements that was put into force for most banks, this is a recipe for a disaster unlike any we've seen before.
The zero reserve requirements are intended to prevent the problems caused by a potential bank run. Once the economy is running smoothly again, reserve requirements will be made more stringent again. It seems likely that the Fed is more well informed of how quickly lending is drying up than most people are, and their injection of ~$1.5 trillion must have been prudent.
QE was the bullet the Fed still had in 2008, and it is the bullet the Fed still has in 2020. It seems that QE worked better than the negative interest rates Europe used.
The reasoning I read is that this is the Fed basically passing the buck and saying "we're done, we can't and won't do more" and telling congress it's Fiscal Stimulus time.
> The 0% interest rate cut was supposed to be the last bullet
Not really.
> What can they do now?
The Fed has a vast array of tools, the Fed Funds rate being only one. Open market activities, interest on excess reserves, QE (i.e. non-Treasury asset purchases), discount window lending, et cetera remain.
Completely different. Compensating people for an obvious widespread crisis is more like insurance targeted at a specific event.
If we had UBI, the government would still need to inject additional payments in to the economy on top of the regular UBI payments. The goal is to provide income that people haven't already budgeted for.
Wouldn't the more effective point be to provide critical capital for smaller companies that might not be able to afford operating expenses while revenue is short?
I guess zero interest loans could cover parts of this but defaulting over a slow restart would still be a risk. I'm not enough of a money person to know what could be done there.
Is there any aggregated source to see how Angel Investors and other startup financial investments are tracking? I wonder if there is going to be a financial crisis on a smaller scale for startups running out of runway.
> Is there any aggregated source to see how Angel Investors and other startup financial investments are tracking?
I know it seems like an eternity, but we're only a few weeks into this.
Startups are generally expected to be unprofitable for a long time anyway. They're not going to implode after a few weeks of a slowed economy. The real effects will take months or years to see.
I got worried when Kai Ryssdal opened Marketplace last Thursday with, "this is the scary part." For those not familiar, he's a voice of extreme moderation and calm regardless of what happened that day or week in the markets.
I think what we're seeing is the market trying to price in the complete halt of the worlds' economies for an unspecified length of time. Monetary policy doesn't cure coronavirus, and until we see the end of the health crisis I don't think we'll see the floor of this ongoing crash.
That's also my opinion, monetary policies have no effect because this isn't a financial crisis, it's an existential crisis because economies needs to stop with a lot of uncertainty, no amount of money can solve that.
>Monetary policy doesn't cure coronavirus, and until we see the end of the health crisis I don't think we'll see the floor of this ongoing crash.
There's a Planet Money that talks about the virus and the economic response to it. The main takeaway is that it's completely misguided to think about economics now. The underlying problem is a public health crisis. One of people interviewed in that episode likened the administration's response to wringing out your shirt as a storm is rolling in, when in fact we should be seeking shelter to stay dry.
We've got a long way to go down, IMO. A lot of these highly leveraged companies are going to implode, and the companies that lent them money will also implode.
The biggest victims (out of survivors) of this coronavirus panic are probably going to be the millions of people who will lose their jobs and go broke for a variety of reasons. Foreclosures will jump, big company CEOs will get large government handouts, and the poverty gap will just get wider.
> big company CEOs will get large government handouts
Indeed, which is why I'm against emergency loans, but for emergency equity... it's free market capitalism, if your company isn't able to survive on its own (due to your lack of planning) and needs government help, then you don't deserve to own (all of) it.
Since the government response is a LAGGING indicator (I.e. people are already the steps to contain the virus before the government), we probably saw pick virus.
Also, the stock market becoming cheaper actually reduces inequality since it allows new savers to get in at a lower price. And the same thing for housing.
> Also, the stock market becoming cheaper actually reduces inequality since it allows new savers to get in at a lower price. And the same thing for housing.
It increases inequality: people lose their jobs, people can't pay their rents, people can't pay their mortgages.
Most people can't put money in stocks and work paycheck to paycheck. Those people are going to get hit the hardest.
When the stock market is doing the best ever, these people aren't benefiting, but when the stock market crashes, these people have the most to lose.
It's exactly why our economy shouldn't be tied to the whims of the stock market.
> Also, the stock market becoming cheaper actually reduces inequality since it allows new savers to get in at a lower price. And the same thing for housing.
I'm sure all the hospitality workers getting fired/laid off are just itching to get into this rocky market right now.
Just wait till testing ramps up and people realize that there already tens of thousands if not hundreds of thousands of people infected. We're nowhere near peak virus, we're still doing virtually nothing to contain this.
This is why we need fiscal policy not monetary. People are begging for T-bills and we could create positive GDP for years with it. Unfortunately with a partisan government it is a non starter.
Well. Now all the previous 10 years of growth through wild money printing, affirmative action, green subsidies, life-saving regulations, etc are showing their real 'worth'.
I feel bad for the Fed folks because they were stuck in a terrible position.
Their options were basically:
Don't do anything - "Fed won't save us!"
Do something as scheduled (March 18) - "wow, we already priced this in and that's really all they're doing?"
Do something ahead of schedule (Sunday rate cut) - "they're panicking! They have no other tools left! I thought the Fed was supposed to be independent of the President!"
The Fed lost its independence at least a year ago, since the President has maintained a sustained and public campaign to pressure them.
But the real issue here is that people don’t see this as a monetary issue and the fiscal side is dependent on an administration that has only just come around to recognizing it as a problem after having spent weeks trying to minimize it and actively discourage steps to reduce the impact of COVID 19.
The difference being no other president in at least the past 3 decades has publicly tried to influence the Fed.
I’m sure every president has done so privately. Doing it publicly is not the same thing.
There’s also the fact that no other president did so during a boom cycle. That was new as well.
It’s possible Obama and Bush tried to influence Bernanke and Greenspan. But it’s definite Trump did so. I only need to look at his twitter history to confirm that.
The Fed lost a lot of credibility in the 2000s. I still remember how Bernanke constantly claimed that things were ok right until they blew up in 2008. Since then they seemed to be mainly a tool of the political and financial classes that easily gets intimidated by pressure from people like Trump .
They probably lost credibility even earlier when they allowed the hero worship around Greenspan who turned out to be just a hack.
Don't. The entire financial structure is based on parasitic and immoral practices that people have known about for thousands of years now (charging usury, aka "interest", comes to mind). The unfortunate thing is that the average person is going to end up paying for all this, while the very rich benefitting from it are barely affected.
I don't understand this at all. Stock prices are supposed to include estimates of all futures earnings of a company, discounted for distance in the future, right? Even in the worst case where four or five percent of the population die and the economy is impacted by quarantines for a few years until we reached herd immunity, I don't see how this lowers future earnings by 30% and more.
If they're not working, they're not producing wealth, they're living off a pension or savings, and in either case that money doesn't evaporate, it goes to someone else who will spend it. Buying a widget doesn't create a widget -- someone building it does.
The labor force not working is what's going to cause the decline in GDP, not retired people dying.
I'm not saying it's not bad, it's obviously horrific, but I think the deaths themselves will not overly impact the economy.
Well, for instance, most airlines will probably go bankrupt. It's not just a case of "we can't sell to these dead people"; everything is kinda broken right now.
There was already a lot of uncertainty over everything. Supply from overseas is all delayed. Production at home delayed because of supply issues and probably quarantine measures. Demand at home is all over the place because people are preparing to self isolate. Oil prices crashed, and the oil & gas industry is a pretty large portion of the US economy.
A lot of companies were already over leveraged so this is probably not a good situation to be in with so many things that could mess them up.
> I don't understand this at all. Stock prices are supposed to include estimates of all futures earnings of a company, discounted for distance in the future, right?
In theory, yes, but we're in uncharted territory. Everyone is struggling to predict how this this temporary shutdown will impact the economy. The market will fluctuate wildly until we can start estimating what the actual impact will be.
There is a large risk element as well. People are currently choosing to invest in safer instruments instead of stocks. Sitting on the sidelines.
> Even in the worst case where four or five percent of the population die and the economy is impacted by quarantines for a few years until we reached herd immunity, I don't see how this lowers future earnings by 30% and more.
We're in the middle of a mass panic and a societal lockdown. People aren't going to rush out and immediately put their spending back to 100% of the previous levels. It's going to take a long time to get back to normal.
Stock prices aren't linearly proportional to earnings. For many mature industries, margins are thin. Small changes in earnings can have massive effects on stock price during normal times. This isn't a normal time, so those small changes will be even amplified even further.
Stocks were overvalued two months ago, based on super-rosy projections. The move from tech stocks' price-earnings ratios of 50 to 30 will greatly reduce valuations. But it doesn't mean that the economy is falling apart forever. It just means that it's not worth paying nearly so much for any company's growth curve.
Let's not forget the impact of big stock buybacks, which served to reduce the float of shares and make per share earnings go up. This is small-time financial card shuffling, but for a few years investors believed that all kinds of companies with only modest sales growth were incredible profit-making machines because their per-share earnings were surging. So these companies got very high valuations.
Now if we're heading into hard times and there's no available cash to do the buybacks, the game stops. And with that -- the illusion of fast growth companies goes away
I suspect that stock prices were artificially inflated over the last several* years. If we were in a bubble, then this coronavirus ends up acting more as a catalyst for popping the bubble, then you would see a significant drop to the market beyond the immediate effects to the market.
> Even in the worst case where four or five percent of the population die and the economy is impacted by quarantines for a few years until we reached herd immunity, I don't see how this lowers future earnings by 30% and more.
Though, that worst case scenario a 30% drop seems low to me. For some particularly hard-hit sectors, a lot of business would go to 0 in the scenario you described.
* For some pretty ambiguous definition of "several" that I can't pin down with precision
> I suspect that stock prices were artificially inflated over the last several* years. If we were in a bubble, then this coronavirus ends up acting more as a catalyst for popping the bubble, then you would see a significant drop to the market beyond the immediate effects to the market.
I don't really get the bubble theory. Stock prices were "artificially inflated" because the Fed was keeping interest rates low. That causes people to borrow money and use it to invest with, because the risk-adjusted return on the investments is higher than the interest they have to pay to borrow the money. Which creates more demand for stocks and drives up the prices.
But that demand continues as long as the interest rates are low. It's the same as housing -- low interest rates and easy money increased housing prices, which then came to a head when interest rates started to rise and suddenly that demand fell off, sale prices fell and people were underwater on their mortgages. That's what happens when interest rates rise, which is why the Fed has been keeping them low for more than a decade, but they just fell even more. The "pop" happens when interest rates go up too fast. Stocks are down right now because of the coronavirus, not because interest rates went up.
The trick is how to get out of the low interest rates without causing the market to decline, and there are two options. One is high economic growth, so that natural demand can replace the demand created by low interest rates, which you take if you can get it but hasn't been the case recently. The other is inflation -- the government creates a bunch of new money and gives it out, which creates a tendency for nominal prices to increase and offsets the decrease caused by raising interest rates.
We may be at the point where that second one is making a lot of sense, because "high economic growth" seems pretty unlikely in the immediate future, but "print a bunch of money and give it to people" is exactly the sort of thing you want to do during hard times when there are existing deflationary forces in effect. And then it sets you up for a subsequent recovery that allows interest rates to rise as the deflationary forces wane and the inflationary effect from creating the new money catches up and allows you to raise interest rates without reducing nominal asset prices.
> Stock prices are supposed to include estimates of all futures earnings of a company, discounted for distance in the future, right?
This is the theory in a finance textbook. I worked as a hedge fund manager for several years, and there are plenty of people who do not try to project the earnings of companies in order to value them. It's not that easy to do with any certainty.
What you get is more ordinary concerns driving investment:
- Customers have allocated some money with my firm. I need to buy something. (Or the reverse!)
- I don't know what to buy, I'll just buy the index
- This has gone up for a while, better get on the bandwagon
> Stock prices are supposed to include estimates of all futures earnings of a company, discounted for distance in the future, right?
Keep in mind that these future earnings for a given company might also be "zero forever", if the company goes bankrupt. That is, for each company, there are two main scenarios: the company recovers together with the rest of the economy, or the company goes under. If the probability of the later scenario increases, the stock price should decrease to match.
And there's also the second-order effect that this probability of going "zero forever" becomes harder to calculate in these times of high uncertainty, which makes holding stock of the company riskier, so those with less tolerance for risk sell the stock.
> Stock prices are supposed to include estimates of all futures earnings of a company
The difference between theory and practice is bigger in practice.
Meaning it's supposed to include it in theory, but in practice it's only an incomplete description. Humans are irrational and information in a market is never perfect.
>Stock prices are supposed to include estimates of all futures earnings of a company, discounted for distance in the future, right?
In theory. But there are hedge fund managers who go on CNBC everyday with "models" based on pure speculation that they can't even justify with a loose DCF model.
The stock market is probably 1/3 investors in the true sense, 1/3 algorithm and momentum traders, and 1/3 unbridled YOLO speculation.
The article was later published as American Economic Review 71(3): 421-436, one of the absolute top journals in economics, and selected as one of its top-20 papers in the past centuries[1], and one of the works that won Shiller his Nobel Prize in 2013[2].
This is just an uneducated hypothesis, but maybe the implied risk adjusted discount rate of cash flows is actually quite high?
For instance, assume that investors don't really care about cash flows beyond 10 years. After all our government puts out 10 year budgets. It seems a reasonable assumption.
So in that case, if you run the numbers you will find that the discount rate has to be about 20% annually in order for the 10th year earnings to be worth 10% what they are today:
80%^10 = 10.73%
At that rate, the first 3 years of earnings represent 54% of the value, and the first 2 years are 40% of the value.
All of this ignores the book value of a company, but often these days companies are funded by debt, so equity investors may not even be expecting to pick up the scraps of a bankrupted company.
Finally, stocks themselves may have been at an unfortunate peak, right at the time of this correction. So they also have to correct whatever amount they were overvalued by in the first place.
Every time I see one of these articles I'm reminded that it was only just over a month ago I had a conversation on here with people suggesting that taking a 7 year car loan to buy a car and using their saving to buy mutual funds was a sound financial decision.
It's amazing how quickly the whole world can be flipped upside down.
It all depends on how long your investment horizon is.
If you have another 30 years until retirement it would be foolish not to buy stocks now. Not saying to dump every penny you have into the market at once, but increase your buying NOW. The dollar is being devalued as we speak, holding cash makes little sense.
When all the dust and panic around this virus has settled, many quality companies will still be around. Procter & Gamble will still be selling detergents and tampons, McDonalds will still be frying hamburgers and Microsoft will still be selling office subscriptions.
If markets fall another 20-30%, it won’t have obviously been a good time to buy today. These aren’t normal times.
In the depression, stocks fell for about three years. Also, your dollar argument makes no sense: the stocks are valued in dollars, and are falling faster than the dollar.
It’s great to buy at the bottom, but who knows if that’s it.
The point is that even in the worst-case-scenario, if you bought stock the hour before the great depression, you'd still be way up when you retire in 30 years later.
You're probably right, but keep in mind that for the past 100 years we have seen a systematic trend in lower interest rates that brought massive debt expansion and financialization of the economy. We are at the 0% interest rate at the moment so monetary expansion will be more difficult, unless the FED does direct equity purchases like the ECB did. So it's worth considering other outcomes as well, like stagflation, MMT or massive devaluation of our currencies. Some of these outcomes are very bullish for equities, but it's hard to say where things are headed at the moment.
As you said It’s great to buy at the bottom, but who knows if that’s it., so I’m going to continue investing whatever I can each fortnight.
I’d rather risk paying more now before a big crash and continuing to invest through the big crash than risk missing this opportunity and the market going back to a bull one in a few weeks.
That’s fine. The parent comment was recommending people increase their buying right now however. My point was this isn’t necessarily a special opportunity just because it’s off a peak.
For the most part I agree with everything you have said. In the original conversation I obliquely mentioned I took the stance that no one should finance a car over 7 years.
I myself pay cash for all of my vehicles and simply limit my choice to vehicles I can afford to buy in cash.
A couple of people came out of the woodwork to say that paying cash on a car is not a sound financial decision because I could otherwise invest the same money at gain a 10% return each year while only paying 1.5% for the debt.
I made the argument that over a 3-7 year time span you are about as likely to come out down as you are to come out up in the stock market.
That car loan can make sense if you are investing in an electric car that substantially lowers your maintenance and fuel expenses. Unfortunately, most people who consider a car loan don't care about any of that.
I was sceptical when I read that. I done some quick back of the envelope maths based on the Renault Zoe (very much on the small / cheaper end of the ev scale). The offer they have at the moment is a PCP deal (basically you lease the car for 2 years then have the option to buy it) at £269 per month. At UK fuel prices that's equivalent to 20k miles a year in fuel costs in a equivalent reasonably efficient small petrol car. Of course that is assuming the electricity is free. Even if it was it falls apart when you check the small print and see the deal is based on 6000 miles per anum.
Maybe there is a way of making the numbers come out ahead but it's not immediately clear to me how.
Serious question: Is this now a good time to refinance a home mortgage? Or should we wait until negative interest rates, which would surely set up the minimum positive mortgage rates. Or does it become irrelevant to mortgage rates at some point?
Mortgage rates have moved surprisingly little. They usually trade at around a 2% premium over the 10-year government bonds for a 30-year fixed. Right now that would mean about 2.8% but my local bank quotes 3.5%. My guess is that spread is going to shrink over time but who knows. I'm waiting...
Setup a spreadsheet to show how many months it takes to payback the refi costs at today's rates. Then see how much lower the rates would have to go for the payback to be a reasonable number of months again. If you don't think the second one is going to happen, maybe wait for a bit lower before doing a refi, but who knows if it'll go lower.
Other things to consider right now. If your job goes away, and it's hard to pay your mortgage, it might be better to be on an existing loan and not a new loan.
It will turn around one day. It feels like that’s impossible but it will. If you’re holding anything the just keep holding them. If you have cash, start dollar cost averaging with it over a many, many months timeline.
We will be fine eventually. I don’t claim to know when - just that eventually better days will come.
- Trading halts are there to let people catch their breath, supposedly. More likely it's in order to be able to announce news, because without news what's gonna change?
- The news everyone wants now is fiscal stimulus. From what I can see, there's a lot of consumers whose personal finances will blow up if the economy shuts for a couple of months. So perhaps what needs to be announced needs to be aimed at those types of people. Certainly people will protest if fiscal stimulus means just handing money to people and companies who aren't in dire straights. How about a rent break or something drastic like that?
- The effect of systematic strategies should not be underestimated. By that I'm lumping passive index trading in with various forms of systematic rules based trading (my specialty actually). Things that hop on the momentum bandwagon will make the move more extreme. They will also tend to whipsaw on reversals. There's also risk parity funds, which now need to reposition based on risk being higher.
- Also you have to figure on short options players getting blown up on this kind of thing. (Vol trading was my other specialty). Basically what I mean is in recent years it's been quite enticing to simply sell options to pick up premium, which normally is a bit too expensive in relation to the expected volatility (ie it seems smart a lot of the time). Of course nothing is free, and when there's a blowout the short gamma guys are also pushing the market the wrong way.
- There's at least one major investment bank that thinks this will end soon, markets to recover in H2, and no systemic risk. (Got that from a friend chain so grain of salt.) Not sure what to think, since this is more a question of how politicians will respond than ordinary day-to-day reading tea leaves.
> Certainly people will protest if fiscal stimulus means just handing money to people and companies who aren't in dire straights.
How is it not the opposite? Bailing out only the people who have lived beyond their means or made poor decisions is a big moral hazard. Moreover, it doesn't do everything you want -- if you give money to people who are in debt, they use it to make their loan payments and pay rent. Which is better than defaults and evictions, but you also want some of the money to go to people who will actually spend it and stimulate new demand.
You also have to worry about some kind of emergency "dire straights" metric being off by a significant amount in one direction or another and as a result you either end up paying most of the money to whoever is most willing to play accounting tricks or lie on forms, or it doesn't go where it's supposed to and you still get the defaults and evictions, or both.
As a result it seems like the best option is to distribute money evenly, to everybody.
I find this situation very different from the bail outs of 2008. In 2008, the economy was too focused on housing and lending, and so real substantive changes needed to occur to refocus. People need to change jobs, etc. I was annoyed by the bailout then, though in the long term I came to see parts of it as wise.
In this situation, many many business which are fundamentally viable (great restaurants, cruise lines) are going to be threatened by a temporary dislocation (everyone social distancing). It's not clear to me that we need a fundamental reallocation of resources in the long term (we don't have too many restaurants, or vacation destinations).
In addition, I don't think its economically sensible to ask every business (say restaurant) to plan for a 2 year pandemic. It would just be inefficient. I think its right to handle that risk at the gov't level. It's all of our problem.
So, in this case, I am hoping for effective gov't action to preserve much of the economy. I don't think I benefit if in 2 years, all my favorite restaurants are gone, and all the big vacation operators are bankrupt.
> In this situation, many many business which are fundamentally viable (great restaurants, cruise lines) are going to be threatened by a temporary dislocation (everyone social distancing).
The issue is that it isn't just restaurants and cruise lines. How many of the shops in the local mall are in trouble if people stay home and order from Amazon? What happens to gas stations and convenience stores and truck stops if people are temporarily driving less? What happens to charter bus companies? Local community organizations? Conference organizers?
Pretending that we can predict what all the effects are going to be on everyone and centrally plan optimal resource allocation is dangerous hubris.
> In addition, I don't think its economically sensible to ask every business (say restaurant) to plan for a 2 year pandemic. It would just be inefficient. I think its right to handle that risk at the gov't level. It's all of our problem.
That's kind of the point. When times are tough, that's the time for the government to borrow money and use it to help people out. But they're notoriously bad at deciding whether a cruise ship captain deserves it more than a small business owner with a sandwich cart.
To be clear, I am not arguing for central planning.
If I were in charge, I would try to combine (1) a temporary but much broader federally run unemployment system, with (2) measures to prevent short-sighted reallocation of capital resources based on contracts (say leases) that did not adequately anticipate this kind of disruption. My strong emphasis would be on (1).
Part of my perspective is that I remember being very, very annoyed by the bailout of the automakers in 2008. Now, though, I think "where were all those workers going to go?" Would I have really been better off if we had hundreds of thousands more unemployed ex-autoworkers, and no GM? Ultimately, I think Obama made the right call on that.
I am just arguing that in this case, gov't support for struggling individuals and businesses seems quite justified to me, and I think actions meant to support a return to something like the status quo in 2 years are probably wise.
Suppose you've got a small shop owner. Right now their sales are temporarily down by 60% -- but they're still open, or it would be down by 100%, so they're not unemployed. Unemployment doesn't help them. They also own the building, so reallocating a lease isn't their problem. Their problem is that after making their mortgage payment and utility bills, they can only pay themselves a third of their normal salary, and in two months of spending down savings they won't have money to buy food.
Which is also a problem for all the places they usually buy everything else from, because all the non-necessities get cut out of their budget.
> - The news everyone wants now is fiscal stimulus
Market-clueless newbie here. How would fiscal stimulus help a market that is seizing up due to reducing supply side (factories close) and reducing demand side (pubs to be closed, airlines crashing because of border closures, & more) and a disease that is likely to stress many countries medical provisions to breaking point, and then beyond.
Didn't the US dump 1.5 trillion dollars in a few days ago, and the market bounced but briefly? I mean it was obvious to me that it wouldn't work, why do you (as an expert - and I don't mean that sarcastically) think more stimulus, or indeed any, would help at this point?
Especially painful for anyone relying on tips. They're very often under the table to avoid taxes, which has the downside of not being recognized re: unemployment / paid leave benefits.
Bottom-up stimulus money helps us "socially distance" faster and to a greater degree, and bounce back quicker... we don't want to exit this disaster with bankrupt small businesses and unemployed/broke/homeless individuals.
The mid-to-long term issue will be demand contraction.
Small businesses under stress, service workers not paid or let go completely, workers in general laid off, etc. All this will lead to the average person being under financial duress with rent/mortgage still due, potential medical bills, and so on and so on.
If you can get money into people's pockets (Congress has to do this) instead of cheap loans to banks (Fed does this), then you have a fighting chance of actually smoothing out the major demand contraction that is coming.
Yep. This is what we get without social safety nets: a large fraction of the country is constantly perched on the cliff of poverty. Just one big thing has to go wrong and it's all over. Right now, that one big thing is going wrong for virtually everybody all at the same time.
Yes but I assume you don't have a bunch of individuals who are about to have their lives ruined, potentially becoming homeless. The country as a whole bears the weight of the crisis, no?
In a few days time we ran out of space in the hospitals so unless you're dying you don't really get treatment. Businesses will die and peoples life will be ruined.
Not to the point of being homeless though, maybe living in the slum being dependent on government payout. (Which is not a fun existence)
Sweden is talking about herd immunity just as the UK because we don't have the capacity to handle it.
>How would fiscal stimulus help a market that is seizing up due to reducing supply side (factories close) and reducing demand side (pubs to be closed, airlines crashing because of border closures, & more) and a disease that is likely to stress many countries medical provisions to breaking point, and then beyond.
If we literally hand money to people, they can pay their bills on time while we work through this thing.
I'm not sure what else will work at this point.
It's not feasible to simply have "rent holidays" or some such, as the OP suggests, as that rent expense is someone else's income.
Most of that rent goes towards a mortgage, which can also be suspended. The landlord still looses income, but not in a worse way then other bussiness which had to close.
By tiding people over who would otherwise lose it all if the national economy shut down for a protracted amount of time, which seems to be happening as we speak.
>- Trading halts are there to let people catch their breath, supposedly. More likely it's in order to be able to announce news, because without news what's gonna change?
Wouldn't the change be, "people have caught their breath?"
If the free fall is sustained by emotional panic, then halting the emotional panic can help stop the free fall.
On the bright side, the virus might buy us a year or two before we hit climate change tipping points. Imho, climate change is the actual threat to future earnings.
Not surprising this is happening a day after many states are in almost lockdown. Too many unknowns and lots of small business that lost their income. People are fearful and they have good reasons. Clearly this cannot continue for too long.
No one knows what will happen but I'm optimistic that like in South Korea and a couple of other places, next month things will get start looking better in Europa and US. FAANG companies should be fine too. They all have services that must be surging in demand. Amazon shopping, Netflix and FB usage, etc. Apple is likely to be the one most in trouble but they have so much cash they will survive. Ad spending will take a hit as companies wide down on spending, but should be only temporarily.
Currently no one knows what will happen. But long term investors should sleep well at night.
We have a virus problem, not a credit problem. The Fed is whipping out all the financial tools and it's totally ineffectual at best, and disastrous at worst as now those tools are used up (as it were).
Trying to address this pandemic with financial tools geared towards the market feels like trying to address a house fire by rebuilding parts that are still on fire without actually putting out the fire.
With no one at the wheel addressing the actual problem, the outlook feels grim. RIP my retirement account.
We are quickly reaching the point of no return because of the fear overshoot. We don't JUST have a virus problem, global financial markets are seizing up.
They should not have closed bars, restaurants, Vegas, etc. It was a panic move that just puts tens of thousands of people out of work.
I'm not even concerned with my losses now, I'm now concerned with the dollar itself. We need people going to work and doing the important things they do and that requires they get paid with dollars that have some kind of intrinsic value/buying power. If we hyper-inflate, people will just say "fuck it" and not go to work. You can't pay bills with worthless money. We're headed into "worthless money" really fast here, though.
If the Fed had done nothing at all, it's conceivable that the markets would still be in exactly the same shape they are now (or even possibly better), except we'd still have those tools at our disposal.
To an extent, that the Fed took such drastic action probably helped to spook investors even more, since (1) now those tools are gone, (2) it implied that the Fed is panicked and doesn't know what to do, (3) it implied that the Fed thinks the market will sink dramatically.
As to what I think they should do: address the needs of the people who will be hardest hit. Interest-free moratorium on mortgages, rents, debts, and/or full FMLA. This will actually help with the underlying virus problem more quickly, and consequently should help fix the underlying market problem (lack of demand) more quickly.
Funding and effective virus response and admitting the severity of the problem would be a start. Our country needs to be seen taking this seriously from the top which it most certainly isn't.
I don't think there are any measures that will prevent this drop right now though. Supply and demand are both heavily impacted. We should be looking further down the line to the financial consequences we can prevent.
Layoffs have already started, part time workers are making significantly less, and imports aren't as stable. This is going to have serious knock on effects preventing a quick recovery once the pandemic is under control.
I agree. It's not that people wouldn't purchase stuff or go abroad, it's just they can't or won't.
But as I yesterday understood, the lower interest rate should weaken the deflationary effect and make money less desirable asset than stocks. So in theory less people would pull out their money from the stock market. Don't know about that.
Nothing can survive if people just stop spending money. But hopefully this won't last long, otherwise the wave of bankruptcies will be a one devastating tsunami.
The Fed cannot fix the virus problem. It is not in their control.
They are only delaying and mitigating the risks that occur as a result of the virus related slowdown. That is in their control (at least for a while)
This slowdown because of bans and quarantines will hit the cash strapped businesses a lot, especially small businesses. They will have to layoff. People will lose their jobs. When businesses actually start to shut down, you are looking into a deeper economic pain that will most likely lead to a recession.
By reducing rates, they are giving small businesses and people a little breather. And they are assuming the virus impact will be clearer in the next couple of months.
Increasing the access to credit really only helps if there's a belief that businesses will take out credit in order to continue operations despite the lack of business, but it's hard to imagine they would do that. The problem is that there is no demand for their businesses, so why take out credit just to not be able to actually leverage it?
Your post is sitting at negative points as of when I’m writing this comment. My understanding is the same of yours. If someone here has expertise in this field, please enlighten us and explain what’s wrong with this conclusion instead of just downvoting. Thanks!
There are 3 main ways this crisis can go for a bussiness:
1) Keep operating throughout the crisis while remaing solvent.
2) Cut losses by suspending or reducing bussiness during the crisis. Service debt and other non suspendable bills through credit or savings. Reopen after the crisis and return to bussiness as usual.
3) Attempt to do 1 or 2, but become insolvent. Don't reopen after the crisis passes, because your bussiness failed and is now closed for good.
Providing credit can move companies from 3 to 2, which will greatly improve our ability to recover.
God, as a normal consumer investor this is terrifying because I don't know what to do without contributing to the problem - if there's even anything I can do.
Compared to other crashes where there seemed to be an underlying economic issue - this one feels like it will bounce back quickly at some point in my amateur opinion. Am tempted by some 2022 SPY leaps for this reason.
Why not just close the markets down? If everyone has to take a break from congregating and in some cases working (think retail and restaurant workers), then the market should have to as well. Everyone take a 3 week break from working and partying and chill the F out.
My mind is blown that the fed would cut rates again before the Senate passed that bill from the House. All they did was highlight the fact that this is a huge problem and that we have absolutely no plan in place to deal with the fall out. Powell caving to Trump's tweets is embarrassing, I've lost so much respect for the Fed.
The 0% interest rate cut was supposed to be the last bullet and the Fed has very likely used it up too early. I suspect there was pressure from Trump to do something right this instant, because I don't see the Fed doing this out of their own accord. Possibly election related, we'll never know.
What can they do now? Negative interest rates? Everybody will withdraw their accounts at the same time. Combining this with the zero reserve requirements that was put into force for most banks, this is a recipe for a disaster unlike any we've seen before.
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