Never believe that a few caring people can't change
the world. For, indeed, that's all who ever have
-Margaret Mead
The markets as tracked by the broad indexes such as the
Dow Jones, S&P 500 and NASDAQ literally opened the week down more than 7%
each. This is a first for many, not including myself, and a clear indication,
in my opinion, of huge selling of index ETF’s, such as SPY (S&P 500) by our
neighborhood algorithms (i.e. algochums). The impact of the loss occurring at
the open stopped trading for a short period, a process that was instituted long
before the financial crisis that aims to give pause for thought, but unfortunately
our algochums are thinking from a different perspective.
The Markets
The pull and push of the markets in response to the
coronavirus and its challenging effects undermines the uncertainty that should
be better fuel for patience. Claims disseminated to the public with an air of
cringe worthy confidence suggest Mondays decline was the result of the plunge
(their word not mine) in oil prices. It’s worth noting in past commentaries
that the oil industry has been in managed moderation for a few years, in some
way by the growth of solar and the real disruptive potential of electric
vehicles, the future, not necessarily the virus, which has no future.
Comparisons are also alive and well, as narratives point to the financial
crisis that, in my opinion, offers shallow examples, namely a health crisis is
not a banking led financial crisis, although both can bruise the economy. In
short, the markets are suffering from fear and panic over a catastrophe that
hasn’t happened yet, more and more companies that are likely to persevere are
presenting investment opportunities, and only as long as the machine overwhelms
the unknown number of actual investors, it’s our cash that becomes the fuel of
patience and the tool of disciplined action.
The Economy
The Fed lowered interest rates last week. Not totally
wrong, but not totally well timed either. The need for greater clarity of the
economic impact of the virus will only come in the impending data. What is
probably far more predictive is the potential for government intervention in
the way of state, municipal and individual stimulus programs. The states and
municipalities for institutional and corporate challenges and the individual to
offset capital challenges. Mainly to address the strongest and most susceptible
part of the economy, the consumer. This would be a positive move, in my
opinion, as coming into the recent weeks of growing concern the growth of the
consumer services sector of the economy has been stable and steady. And while
at risk said stimulus measure would serve offset some of the more highly
probable outcomes of the virus, namely a consumer under stress, for any reason,
spends less. As far as additional moves by the Federal Reserve, the US 10yr
Treasury appears comfortable below 1% so any move will likely be further
insurance rather than stimulus, although no one is really sure what’s being
covered.
External Events
I was asked recently how big a group was our algorithmic
community and I was reminded of the long held belief among academics and philosophers
that an intolerant minority is always more capable of disrupting a majority,
and always has been. Our algochums are a small community and their impact to
equity prices is obvious to the focused observer of equity/index volatility.
That way it’s not so farfetched to think that volatility isn’t temporary, as
our algochums will never give up the fight, and probably don’t even know what
that means.
Regarding the coronavirus, as a
further abstraction, one takeaway is there is a uniqueness about the current
environment that will hopefully bring people together in a way neither our
politicians nor the media seem eager to see. What I call the equality of
helplessness is the reality that no one is above contracting the virus, no
matter the impact. Careful discipline and proactive advice for being prepared
for the worst is frightening but should also be reassuring, that we’re all in
this together, until the end, and it will eventually end, the only unknown for
now is when.
