
Fed cuts half point in emergency move amid spreading virus - a2h
https://www.bloomberg.com/news/articles/2020-03-03/fed-cuts-rates-half-point-in-emergency-move-amid-spreading-virus
======
airstrike
From what I gather after spending more time than I'm willing to admit
listening to every finance talking head out there, the consensus on the street
seems to be that this will result in a temporary market recovery followed by
the continued deterioration of stock prices given that fiscal or monetary*
policy can't really affect the real economy in the near term* i.e. if the
supply chain is indeed impacted due to COVID-19, no amount of fiscal or
monetary* stimulus can make up for the time / productivity losses in the near
term*

On the margin, I'm still slightly bearish on the whole situation due to the
combination of the virus' absurdly high infection rate[0] and its long
incubation period (I'll let each one of you be the judge of how long that
is...)

[0]
[https://duckduckgo.com/?q=infection+rate+sars+vs+coronavirus...](https://duckduckgo.com/?q=infection+rate+sars+vs+coronavirus&ia=images&iax=images)

~~~
rsync
" ... I'm still slightly bearish on the whole situation due to the combination
of the virus' absurdly high infection rate[0] and its ridiculous ~25-30 day
incubation period ..."

You're right to highlight those aspects of the virus and I find them
noteworthy as well.

However, the statistics I am most interested in is _mortality rate_ and rate
of asymptomatic infections.

I note with interest that among the 700+ infected on the cruise ship, there
were 6 deaths as of yesterday - and this is among a relatively geriatric
population. So, _perhaps we see_ a mortality rate of <1% among a greater risk
population.

~~~
lancyH
> among the 700+ infected on the cruise ship, there were 6 deaths

Your death count is incorrect. Several deaths occurred after cruise members
returned to their home country, and are currently counted as deaths in their
home country instead of the cruise ship.

Take for example: 78-year-old man in Perth - got infected on the cruise ship -
but counted as a death in Australia.

~~~
bryanrasmussen
So I guess that means the 36 serious/critical I pointed out are not
necessarily serious/critical at the moment either. Is there an actual place
that counts that?

------
aazaa
For those saying the Fed is running out of ammunition, study what the Bank of
Japan has done.

It owns close to 80% of the Japanese ETF market currently, with no end to the
expansion of balance sheet in sight.

After buying long treasuries, it's not unreasonable to imagine the Fed buying
stocks, either individual issues or ETFs. The President would be for it, and
it would be hard to drum up any opposition to it in congress.

Not only that, but rates on long treasuries have stayed negative for long
periods of time in other countries. It's an open question how negative long
treasuries can go, but the evidence suggests we're not even close to the
limit.

Recessions are politically unacceptable in today's world. Buy stocks. Buy
treasuries. Do so with wild abandon, because the Fed has your back. Just watch
out for the moment when the whole thing jumps into reverse and no amount of
market manipulation will stop the bleeding.

~~~
mbesto
> For those saying the Fed is running out of ammunition, study what the Bank
> of Japan has done.

Oh you mean the economy that has been stagnate for 20 years?

~~~
adrianN
GDP per capita doesn't look stagnant: [https://tradingeconomics.com/japan/gdp-
per-capita](https://tradingeconomics.com/japan/gdp-per-capita)

~~~
unreal37
Looks like the population of Japan is falling faster than the GDP of Japan. So
"per capita" is kinda misleading here.

~~~
adrianN
I think GDP is pretty much meaningless and GDP per capita is a much more
useful statistic.

------
ptyyy
We're basically running out of tools to combat an actual financial crisis.
[https://www.investopedia.com/terms/l/liquiditytrap.asp](https://www.investopedia.com/terms/l/liquiditytrap.asp)

~~~
atq2119
Only because the toolset is artificially restricted for ideological reasons.

Fiscal responses (having the government spend actual money, either on things
like infrastructure it by just handing it out to the population, which will
then largely spend that money as they see fit) rather than monetary policy
responses (reduce rates and hope that people will borrow more) are known to
work well in most cases.

The Corona virus situation is slightly different than the financial mess of
2008 because it involves actual potential supply constraints. This means that
a higher rate of inflation may have to be accepted temporarily. But inflation
has arguably been far too low for far too long anyway...

~~~
gdubs
Keynes famously said you could hire people to dig ditches and it would
stimulate the economy.

However, if we were to take aggressive action on Climate Change, there’s a lot
of potential jobs there. A massive potential stimulus. Also, you know, public
funding of basic research which could explore, I don’t know, pandemic
response, new therapeutics, etc.

Like you said, ideological barriers are what’s keeping us stuck. But before we
went all in on finance we had a pretty epic run last century of productivity
fueled by public investment (think 1940-1970).

~~~
OCASM
Keynes's ideas also fail all over the globe. Saving and investing is what
grows an economy.

~~~
atq2119
Saving doesn't grow the economy, pretty much by definition as was already
pointed out.

(Real) investment, in the sense of building up new productive capacity, is an
important part of growing the economy. However, investment at least by the
private sector cannot thrive in a vacuum. It needs a context of either
existing or plausible demand. If the demand is missing, you'd be a fool to
spend money on increasing productive capacity, i.e. you'd be a fool to invest.

Note the important emphasis on what kind of investment we're talking about.
Unfortunately, the act of buying existing productive capacity (e.g. by buying
stocks) is also called investing, and you have to be careful not to confuse
the different meanings of the word.

~~~
OCASM
Indeed, real investment requires market interest, something the government is
pretty bad at discerning

Saving goes hand in hand with investment since by putting money in the bank it
can be borrowed by entrepreneurs and they can hopefully do something
productive with it. Merely spending it doesn't have that effect.

~~~
atq2119
I feel like you are not replying to the core of the argument:

Spending is crucial because that's what signals where investment is needed /
desirable. Furthermore, spending is what gives companies profits that can then
be reinvested for sustained development. If there is no spending, then
investment is simply pointless.

If investment happens in a vacuum, without regard for where the demand (which
is nearly a synonym for spending) is, the investment will likely go to
inefficient or useless projects.

Furthermore, the stated causality from saving to investment doesn't exist in
our modern financial system. Banks create money out of nothing whenever they
find a suitable borrower. Of course, a borrower is more likely to be suitable
if they can demonstrate demand for their product - again, the importance of
spending.

Sidenote: There is an equality of savings and investment in the national
accounts (if you ignore the external sector), but that's just an after-the-
fact accounting identity without any causal content. There's good reason to
believe that, if anything, the causality goes from investment to savings.
Either way, it's not an interesting causality. The real economic decisions,
certainly the ones that lead to good allocation of capital, follow where the
demand is.

Sidenote #2: Your stab at the government misses the point as well. Nobody is
asking for the government to start investing in productive capacity for things
that the private sector usually provides.

However, government could ensure that people have more disposable income. This
leads to more spending, which encourages (and finances, via reinvested
profits!) investment in order to satisfy the added demand. At the same time,
it improves the quality of the demand signal, which helps achieve a better
overall allocation of capital.

There are other useful things that governments could do, but this is an
important and useful thing. The economy generally works well when people can
just vote with their wallets. But one precondition is that there is money in
those wallets.

~~~
OCASM
The government would be creating a market distortion by not allowing companies
to spend their money how they see fit and instead redistributing to another
sector (the general public).

There would be no growth because the money the people would be spending is the
same the government took from the companies in the first place. It's like
taking the fat out of a man and feeding it back to him.

~~~
atq2119
I'd point out that nobody (except for you) said anything about preventing
companies from spending their money as they see fit. I don't understand where
you even get that from.

The discussion was about fiscal stimulus.

~~~
OCASM
How does the government acquire the money for that stimulus? By taking it from
the companies through taxation. Government spending is always less efficient
than by private entities.

------
mech1234
Interest rates have been on a secular decline over the course of the last
century. Different economists have described this via various terms- "savings
glut" is the one I like the most (even though I don't like Krugman). Right now
there is so much saved cash out there looking to be lent out that any project
looking for financing can find it for cheap.

The Fed does not keep interest rates low in a vacuum. There is an auction
system that determines real rates. If the Fed is not able to sell all their
bonds at the target rate, they have to adjust.

In the long run, I think we will see:

1\. (at risk of calling this bull market a "new normal") P/E ratios for stock
will continue to climb in a secular fashion. Low returns from the alternative
investment of bonds will dictate high P/E ratios.

2\. Debt financing will remain cheap. Low interest rates signal cash that is
desperate to find a place to park it.

3\. Government debt will remain popular and affordable. This is a win for
Keynesians.

4\. Secular low interest rates are an indicator of a stable and mature
economy, which is good. The bad part is that they signal a world where obvious
available capital investment projects are missing- we seem to have picked the
low hanging fruit.

5\. Next recession the U.S. will hit the zero lower bound, and we will see
lots of QE and/or nominal negative interest rates through some institutional
mechanism.

6\. Increasing government deficits look better when interest rates are low.

7\. Speculative: Deficit spending can increase indefinitely if real interest
rates are below 0 (aka nominal rates are below inflation). To put it in other
terms: Any deficit spending is free money up until the point that it causes
inflation to rise about the nominal interest rate.

~~~
budlightvirus
What does "secular" mean to you?

~~~
mech1234
In Economics, secular essentially refers to long-term trends regardless of
boom-and-bust business cycles. The focus is on the long term. In the context
of economics it has nothing to do with religiousness.

A secular trend is a variable that evidences a consistent pattern within a
given period of time. It is a statistical tendency that can be easily
identified and it is not subject to seasonal or cyclical effects.
([https://www.myaccountingcourse.com/accounting-
dictionary/sec...](https://www.myaccountingcourse.com/accounting-
dictionary/secular-trend))

------
tasty_freeze
Pardon my cynicism, but it seems like many of the actions the administration
is pushing are simply things they were pushing already and are using this
health crisis as cudgel to help get what they want.

What we need are lower interest rates! What we need is to limit immigration
from Mexico (even though the US has a higher infection rate and there isn't
any talk of limiting flights from, say, England). What we need to do is
silence domain experts and have communications controlled by politicians at
the White House.

Maybe this rate cut is actually the right thing to do, what do I know? But I
have little reason to believe it was made for the right reasons.

~~~
dageshi
The administration doesn't direct interest rate policy, the FED does, within
the context of the FED's mandate a rate drop isn't unexpected during an event
like this.

~~~
SkyPuncher
> The administration doesn't direct interest rate policy, the FED does,

Given that the administration choose exactly who leads the FED, they're not
exactly independent either.

------
wonderwonder
We are burning all of our fuel to ensure we are running at record levels and
when a real problem rears its head, we are going to be dry.

~~~
muttled
The fallout will either fall on a second term or during someone else's first
term. Either way the administration doesn't care.

~~~
katmannthree
November is still more than six months away. Given how quickly COVID-19
spreads I think our economy will likely be feeling the pain long before the
election.

~~~
wonderwonder
You are not wrong, and I do think that on the individual level, company
employees will feel it. Unemployment may go up. This administration though
uses the stock market as their barometer so if they are able claim that the
S&P and DJIA are up they can claim victory. There are a lot of things they can
do to keep stocks artificially inflated such as more rate cuts, corp. tax
cuts, removing regulations, reducing the capital banks are required to keep on
hand, etc. All of these can work towards keeping stocks high for a limited
time but do essentially nothing for the normal person. At that point then its
just a race between when the election occurs and when the market no longer
responds to the artificial scaffolding.

I have no doubt this administration will hesitate for even a second if they
are able to implement a feature that results in short term (through November)
gains at the cost of long term ruin.

------
timroman
Bringing a fire truck to a bank robbery

~~~
ohazi
Eh... maybe more like bringing a SWAT team to a brush fire.

~~~
rolltiide
what part of the prior analogy made you think this one was better, and so much
better to actually post?

cynical, but genuinely curious

I like the imagery of fire hydrants spraying water on an issue that is ongoing
and unresolved while the vaults become hollow and worth nothing.

~~~
ratfaced-guy
Less syllables, rolls of the tongue better.

------
yumraj
China started with single digit cases, which then spread countrywide with tens
of thousands of cases and many deaths. They quarantined cities, built 1000 bed
hospitals in 10 days. And now after about 2 months they are seeing a slowdown.

Why would this exact scenario regarding growth in the number of cases not play
out in the US? The only difference is smaller population, but cities are dense
here too.

However, unlike China, I don't think US and other countries will be able to
quarantine entire cities.

They only hope IMHO is that the virus becomes less virulent with as summer
approaches.

~~~
cprayingmantis
I think the thing that no one is looking at here is that nursing homes and
elderly care centers are going to be hot beds for the the virus. From my
understanding China and most of these Asian countries is that don't have
nursing homes so the house can be isolated. Here in the US we concentrate the
elderly in these nursing homes and hope for the best. Most CNAs don't have
enough vacation or sick time to miss work so they will continue to come to
work if they're feeling a little bad or have a slight fever and they will
spread it despite everyone's vigilance.

~~~
tartoran
Perhaps CNAs should start wearing masks not only to prevent getting sick but
to prevent spreading the virus.

------
throwaway5752
This is not solving the problem which is 1) the US is drastically behind in
testing the population 2) it will not fix disrupted international supply
chains 3) it will not fix liquidity crises at health insurers, hospitals, and
life insurers and 4) it will not fix demand if people do not want to go
shopping at any price because of non-financial concerns.

I presume the Fed knows this, and what worse is this seems to be due to
political pressure.

Finally, when this does not work, it will reduce peoples' faith in the Fed.

~~~
snarf21
People have faith in the Fed? You are right though, this is political to slow
a market correction to where it actually _should be_. We just keep spinning
more plates. What we really need if fiscal policy plans, not monetary. We have
so many zombie companies that are on life support and we need to let them die
but it won't happen with 0% rates.

~~~
seganddr
The US federal reserve are the best in the world at what they do IMO.

------
chvid
I like how you guys are pouring free money into the financial system while
still asking $3000 if an uninsured person needs to be tested.

~~~
OscarCunningham
This isn't free money.

------
76543210
I'm looking to refinance. If my lender says the rate hasn't changed from 3.25%
since last week, that's bullshit Right?

How long should I wait for the rates to move?

~~~
throwaway3157
It looks like the rates actually went slightly up from a few days ago (though
these depends on many variables, but I'm comparing to my local rate that I've
been checking for weeks). Might change tomorrow based on today's news.

~~~
rubidium
How do you check your local rate?

~~~
throwaway3157
I use a website from a local private lender. It requires info about the kind
of mortgage you want, the value of the property, your credit score, the zip
code, etc. If you don't know where to look, you can start with Zillow's tool:
[https://www.zillow.com/mortgage-rates/](https://www.zillow.com/mortgage-
rates/)

------
scarmig
Keeping the party going by drinking rubbing alcohol.

What would be hilarious/terrible is if this attempt to juice the markets
doesn't prevent a sea of red at EOD.

------
ithinkinstereo
Most of the risks to the economy posed by COVID19 are supply side. How is a
rate cute going to help? It seems like the main consequence of this in the
near term is an increase in inflation.

------
zcase
50 bps cut, initial rally, faded super fast and now down for the day. Would be
interested to see if Fed cuts further.

The first order effects weren't so large to stem the selloff (first order
meaning the PV effect of lowering discount rate).

As for second order effects (rate cuts to spur economic activity), I'm not
even bullish about the mechanism to transmit rate cuts to the real economy
normally, but I think in a quarantine situation, those mechanisms are even
more diminished as there's less economic activity. Thinking out loud, demand
will probably just hit a wall--there's no elasticity here when people are
worried about their lives.

The only mechanism that sounds plausible to flow through to the real economy
is fiscal. Government buys Pampers, burns them, buys them again. Or keep
lowering rates to raise asset prices by a purely mechanical lowering of
discount factor.

------
tlb
It's well-understand how low interest rates boost the economy in the medium-
and long-term. Companies deploy cheap capital to build new factories, and
consumers buy more appliances, cars, and houses.

What short term behavior changes do emergency rate cuts cause to boost the
economy? Are there capital projects that can get started in weeks, that were
previously shelved because the rates were 0.5% too high, but are now viable?
What sort of projects would these be?

~~~
shdh
> Companies deploy cheap capital to build new factories

Have we actually seen investment though? Or have we seen mostly stock
buybacks?

------
flyGuyOnTheSly
Does this mean the meeting on march 18th (where there was almost a 100% chance
of a rate cut going through) is not happening anymore? [0]

I can't tell if they've just not yet updated that page.

[0] [https://www.cmegroup.com/trading/interest-rates/countdown-
to...](https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)

~~~
Donald
The market is pricing in an additional rate cut at that meeting

------
pearjuice
I don't want to sound overly negative but at least hedging with puts (and not
gambling but sane expiry dates) against index funds isn't a bad idea. Cutting
rates by a half point is panic football and won't fix the supply chain hiccups
which will affect production and therefore consumption.

------
_marlowe_
This is a supply shock. Cutting interest rates won't make widgets appear if
the widget factory is idle...

~~~
_marlowe_
I'm not sure why I was downvoted.

[https://www.marketplace.org/2020/02/18/coronavirus-
warnings-...](https://www.marketplace.org/2020/02/18/coronavirus-warnings-
from-apple-nintendo-and-nissan-kindle-supply-shock-fears/)

~~~
rolltiide
everyone is equally as confused as its the same user experience for everyone
that comments but protip, talking about downvotes just opens a spiral of more
downvotes until you criticize the site rules and get shadowbanned. taking one
for the team!

------
vnchr
The Dow finished up 1,294 points yesterday, making it its best one-day point
gain on record.

~~~
howlin
It's best to follow the SP500 rather than the Dow. The former is much more
representative of the whole market. And it's best to follow market movement in
percentage rather than points. Points inflate over time as the nominal value
of the market indexes climb.

~~~
stevenwliao
I can't wait for the SP500 to replace the Dow in news reporting.

------
ajphdiv
I had some call options on Robinhood that I wanted to sell after the spike
caused by this rate hike. Now I'm watching my gains slowly go away since
Robinhood is down again. Two days in a row.

~~~
rolltiide
and what lesson have you learned?

------
cft
I am wondering: what if this happened when the interest rates were zero?

------
interlocutor
This abrupt move by the Fed betrays lack of knowledge of stock market
psychology. Looking at how stocks are doing today you would not think that
anything of interest has happened (no pun intended).

The stock market psychology works on "buy on rumor, sell on news" principle.
This is the reason there was a significant rally yesterday, and stocks are in
negative territory today.

What the Fed should have done is give signals that they are about to cut
interest rates, then give stronger signals, then even stronger signals, then
cut interest rate by 0.25% then repeat for the next 0.25%. Markets would have
rallied multiple times for each good news signal.

~~~
spectramax
> "buy on rumor, sell on news"

Let me stop you right there - stock market is a multi-agent system with
autonomous algorithms making micro decisions, cap managers doing strategic
decisions, and everything in the middle. Add a bit of chaos theory. "Buy on
rumor, sell on news" is an extremely simplified and naive rational for
explaining how a stock market works.

Most theories of how a stock market works have a built-in fallacy. If someone
figured out how the stock market fluctuates, it would be ironed out by massive
hedges.

~~~
interlocutor
There may not be one, precise and predictable way the stock market works, but
buying on rumor, and selling on news is a very common, herd mentality that is
easily observable, as seen yesterday (rumor) and today (news).

------
rhexs
This will further increase housing prices, no? How much more unobtainable for
the average American could they possibly get?

I suppose negative interest rates will let us know shortly!

~~~
thedance
Don’t worry, literally every single one of the presidential candidates in the
democratic primary wants to “build wealth” by making housing ever more
expensive. It’s practically state policy to make it impossible for a first-
time buyer.

~~~
elicash
The entire point of housing policy at the local level, where it matters, is to
make housing more expensive because people's wealth is in their homes and
they're relying on housing prices to rise steadily. Renters have less
political power.

~~~
thedance
Local policy is broken but I’m not convinced that it dominates. The Feds have
the mortgage interest deduction and Fanny, which both stimulate the demand
side very greatly.

~~~
elicash
Aren't significantly fewer (tens of millions?) people taking the mortgage
interest deduction due to tax reform that doubled the standard deduction?
Doesn't seem to have driven a collapse in housing costs.

We need more density in low-density areas of cities. Allow people to have
multi-family homes if they choose it.

------
ngngngng
So should I wait a week and then refinance my houses?

~~~
JMTQp8lwXL
The effects to the mortgage market aren't immediate, but should follow on
soon. I'd keep an eye on current rates and observe the fall before signing any
paperwork.

------
vanniv
This seems like a bad move.

It isn't going to help, because it doesn't address the actual cause at all --
but it will help heighten the panic

------
pastor_elm
>The Fed also said in the statement that the “fundamentals of the U.S. economy
remain strong.”

So why cut the rate? Doesn't make any sense.

~~~
ptyyy
Political optics. Current POTUS's claim to success rests, in part, on a high
performing financial sector. If the market tanks or stagnates, he no longer
has that as a talking point.

~~~
Loughla
I agree with the political optics part, and that the POTUS current claim to
success is finances, but I 100% disagree that if the market stagnates or tanks
completely that he no longer has that talking point.

If the market tanks, all the talking heads will just blame the upcoming
election, and claim that markets and market makers are scared of a Democrat
being elected. It doesn't change the talking points for the President at all,
I imagine. He still claims the moral victory, if only he hadn't been undercut
by those thieves on the other side.

That sort of thing is standard now. Claim success until you can't, then deny
any involvement and blame someone else. That's politics, baby.

------
coliveira
This is a big mistake. There is nothing the Fed can do revive the economy from
the Corona virus, because this is not a demand problem, it is a supply
problem. The economy WILL slow down because the major parts of the economic
chain have been considerably affected by this virus. You cannot use more money
when there is less to buy and sell. This will happen simply because whatever
solution to the virus disruption will take time to be implemented.

~~~
MrPowers
I am always surprised when software engineers have such strong opinions on
monetary policy. Black and white statements like "There is nothing the Fed can
do revive the economy from the Corona virus" aren't the best for
macroeconomics discussions that rely on imperfect information and multiple
related variables. Your wording makes it sound like you know more about macro
than the best minds in monetary policy.

~~~
Der_Einzige
Software engineers are uniquely qualified to analyze supply chains and supply
chain problems. In this case, technical analysis looks a whole lot different
than the chicken bone divination stuff you see with thinkorswim or other
trading platforms...

~~~
mikestew
_Software engineers are uniquely qualified to analyze supply chains and supply
chain problems._

You’re going to have to qualify that. I’ve been doing this shit for thirty
years, including writing logistics and other supply chain software. Do not
prioritize my opinion just because I write software; prioritize the opinions
of, oh I don’t know, maybe COOs? The buyer for electronic parts at my
employer? Anyone, _anyone_ but software engineers so arrogant that they think
they have an opinion worthy of listening simply because... hell, I can’t even
guess why a software engineer would think that.

~~~
senordevnyc
Agreed. The worst thing about software engineers is how smug and arrogant we
can be. I think it's just an astounding ignorance of other fields and how
they're no less complicated or filled with smart people than ours is.

------
neonate
[https://archive.md/MusGO](https://archive.md/MusGO)

------
auiya
Imagine facing a global pandemic, and your first concern is how to profit from
it.

------
yters
What if the reaction to the coronavirus is worse than the virus itself?

~~~
b1ur
I agree to an extent. From a utilitarian standpoint, the economic damage
caused by the virus is not outweighed by a mortality rate of 0.2%. That being
said, coronavirus has the potential to become worse (more infections -> more
mutation -> potential to mutate more aggressively or more resistant to our
research) so minimizing infections is probably a good idea. Not to mention,
people tend to get angry when you start assigning objective tangible value to
human life.

------
hsnewman
I'm retired and mostly not in the market. I won't invest in the market while
it is overpriced. With such low interest rates, what is a safe investment?

~~~
sand_castles
There is no interest without risk.

I suggest Iranian, Argentinian bonds if you really want to get that blood
flowing.

~~~
xeromal
I wonder if syrian bonds are available?

------
freepor
I wonder if economic indicators will temporary blip up because of stockpiling.
I recently bought $1000 of food and supplies and books and toys for my kids if
they get stuck indoors which would have normally taken me six months to buy.

------
seoulbran
3-2-1, bull market returns. (I hope)

~~~
lisper
Why? Are you retired? Because if you aren't, if you're working and putting
money into a retirement plan, you are _much_ better off with a bear market,
especially one like this that is practically guaranteed not to run for years.
When you're a buyer you want prices to be low.

~~~
repsilat
This assumes a return to trend, right? If stocks are temporarily depressed you
can get them at a discount.

If stock prices are permanently lower as a result, though, it's certainly not
good for you. And, believe it or not, this is probably the more accepted idea
-- that price movements are memoryless, that we shouldn't subscribe to the
gamblers fallacy (that down today means up tomorrow), and that being happy for
a price drop is a form of timing the market, which is frowned upon.

I don't fully buy it, but it's worth thinking about.

~~~
lisper
> If stock prices are permanently lower

The only way that can happen is if the economy is permanently less productive.
There are things that can make that happen (climate change, for example) but
the corona virus is not among them. Fear of the virus is causing vastly more
damage than the virus itself. The virus itself is mainly killing old,
unproductive people. I don't want to minimize the severity of the problem or
the emotional pain of people who have lost loved ones, but in terms of _long-
term_ economic impact the corona virus is really not a problem.

~~~
repsilat
I mostly agree. Some nits, though:

> _permanently less productive_

A short-term reduction in profits reduces the discounted sum of future
returns. Not as much as if interest rates were lower, though.

Also, the example of the virus could indicate that these infections are on
average more common and more severe than we figured, and that could reduce
expected long-term growth.

Finally, a "pause" on activity could _delay_ productivity increases. Probably
a small effect, but this could represent investment not happening in the short
term.

I sent some lumpy buy orders yesterday, but I'm not sure I was right to.

------
vmchale
Wish the coronavirus czar had the same urgency...

------
ck2
So every safety in our country and economy is now disabled, air and water
regulations food regulations,taxes cut to flatline levels for industry, all in
the name of profit. Now the monetary system is being tampered with further.

All reserves are gone. Imagine trying to climb out of this ditch if something
_really_ bad happened (like say a million people die).

------
woeirua
This is the start of the next Global Financial Crisis folks. It's not hard to
see the pieces in motion now:

1 - The Q1 supply shock is going to be a temporary thing. They'll recover
alright after causing some companies to miss their Q1 earnings. If this was
the only effect, we would recover just fine here later this year, but...

2 - Coronavirus is just getting started in the US and Europe. If it spreads
widely, and unabated, then the those countries will be forced to enact school
closures, business closures, etc, which will cause a massive demand shock.

3 - Demand shock will tank airlines, cruises, restaurants, malls, etc.
Basically anything that requires groups of people to make money.

4 - Eventually, demand shock will hit corporate balance sheets in a big way.
Many corporations (especially in the energy industry) are overloaded with debt
[1]. If this goes on long enough, then those companies will go bankrupt.

5 - If enough companies default on their debt simultaneously, then derivatives
on corporate debt (defaults) will cause a systemic crisis again [2].

There's no guarantee that this will happen, but if it does it's going to make
2008 look like a joke by comparison.

If it does, we need to do the right thing this time: wind down the banks and
let them fail.

For the downvoters:

[1] [https://www.nytimes.com/2018/09/01/opinion/the-next-
financia...](https://www.nytimes.com/2018/09/01/opinion/the-next-financial-
crisis-lurks-underground.html)

[2] [https://www.wsj.com/articles/in-a-blast-from-a-financial-
cri...](https://www.wsj.com/articles/in-a-blast-from-a-financial-crisis-past-
synthetic-cdos-are-back-1503912601)

~~~
seganddr
Please don't spread FUD. Please do provide references for your claims.

~~~
woeirua
This isn't FUD:

[https://www.wsj.com/articles/in-a-blast-from-a-financial-
cri...](https://www.wsj.com/articles/in-a-blast-from-a-financial-crisis-past-
synthetic-cdos-are-back-1503912601)

