March 11, 2020

Algochums Unite

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.