I imagine they'll stay on sale until the US reaches the point China is at right now, signs of containment and tentative resumption of normal economic activities.
It's a 4.2% drop, using your numbers. That's not a pothole. If looking at my savings account, I saw a sudden 4.2% drop it would not just be a "meh, it happens, no problem here" type situation.
And for someone for who that 10 bucks is 4 percent of their total savings, that's a few days or a week or a month in some parts of the world without food to put on the table.
global GDP is not "the stock market". The "stock market" in this story is actually the S&P 500.
The high on 2/19 was 3386.15. The low right now as I post this is 2978.76. That's a drop of 12%. That is not a pothole. That is the grand canyon, opening all at once, not over a million years.
Luckily, this is correlated to a single "act of god" event. It will recover. In the short term, however, there will be real consequences.
This is one of those very, very good times to buy.
It's not the grand canyon opening. It happened in 2008 on a bad week, and it happened in 2018 over the month of September and again in the month of December.
To use 'wiped out' to describe market price changes doesn't really help people understand why this happens. It's this type of thinking which has killed interest rates, and has grown wealth inequality.
A better headline would be: "Demand for equity in companies with flat earnings potential returned to levels seen earlier in the year."
The subheadline would be: "speculative purchases banking on buybacks issued with cheap debt financed with promised rate cuts temporarily paused"
The sub-sub-headline would be: "CEO's plan aggressive debt financing to secure bonuses tied to stock price, not performance."
This is gonna be sort of basic but i think it conveys the main point
Lets say that you own x units of item y. You sell one of item y to someone for $100 dollars on an established exchange. According to the exchange, you have 100*(x-1) dollars of wealth.
Next day, some person comes along and tries to sell the same item for $100, but can only find a buyer for $50. Your wealth has now been cut in half.
Then there's Warren Buffet's approach, which is to understand the "value" of the asset. He uses an example around a farm he purchased, one of his early investments. He likened the stock market to a (hypothetical) crazy neighbor to his farm, who every morning shouts a purchase price over the fence at him. One day, the price is half what it was the prior day! Buffet's lesson is that he learned to remain calm, because the underlying value of the investment didn't change.
Thus the challenge is separating market feedback reactions (aka fear and bidding robots) from real-world valuation adjustments (aka mere delayed demand vs. destruction of long-term value).
This is an excellent analogy. The stock market is an aggregate of people's sentiments and numerical analyses (which often have absolutely no predictive power).
I think the old George Carlin quote applies perfectly to it - "Think of how stupid the average person is, and realize half of them are stupider than that."
If you've ever tried to pick stocks, you'll see countless examples where the stock price just seems to ignore the realities of a company. Level Three Communications taught me that lesson. Huge backbone fiber provider, growing and scoring major contracts continually, increasing revenues/profits for a decade, and the stock prices was practically constant. Then they rebrand as a CDN (with zero impact to how they operate) and their price rides the buzzword wave right into a big acquisition.
Something I did not learn from Warren Buffett, is that the value of a public company is not the stock price x the number of shares. Not in some fuzzy nebulous way or some of the time, but quite definitely in all cases. That's because any market has depth - there are only so many people willing to buy and sell right now at the market price. Most of the owners of, say, Apple (or any company) think it's worth more, maybe a lot more, than the "market" price. If someone wants to buy the whole company they pretty much always have to pay significantly more. It's the opposite for selling. Most of the people who don't own it think it's worth less than the market price, maybe much less.
So the market price isn't as real or as much of a consensus as people think it is. If you average a lot of opinions, the result isn't necessarily anyone's opinion, much less a correct one.
It doesn't. Valuation gets wiped out. Once you start relying on valuation as 1:1 to dollar value, you get stupid prizes. This is typically hysterical stories by people who are challenged in their irrational belief (which is uncomfortable!) and have to decide if they want to keep believing, while journalist-wannabes write clickbait headlines.
Percentage of patients who need ventilator support is magnitudes higher than for the flu. Around the world, no country has enough ICU beds and respirators to cope with the 10-20% of infected that will need them.
Current death rate is a joke compared to what it will be once hospitals become swamped.
Social distancing measures may prevent that outcome but will devastate the economy even further.
> Social distancing measures may prevent that outcome but will devastate the economy even further.
it would be nice if we could encourage low-consequence social distancing now, instead of being mindlessly told not to "panic". we'd have more leeway to keep running the parts of the economy that require social contact.
China acted based on SARS, the previous virus they got that had a fatality rate around 10%.
The new virus could have been the same and wipe double digits of the Chinese population so the central government went all in as soon as they heard of it.
This is something we’ll really only know in hindsight, but it’s reminiscent of the reaction post-y2k. People put in a lot of work to ensure there wasn’t a crisis, but the media narrative was that it was an overreaction (igniting all the work put in).
China — and this is not meant to give them a pass on all sorts of errors and shortcomings — took fairly dramatic measures and were well equipped.
My concern with this virus compared to SARS is that it spreads much easier, making the problem one of infrastructure and capacity to deal with a large number of cases all at once. E.g., how quickly can we ramp up to deal with a potential outbreak at scale in terms of ventilator beds, etc.
And if not for this, then the next one. Coronavirus has raised a lot of questions about our preparedness and strategy for coping with a pandemic — and personally it feels like we’re sleepwalking a bit here in the West.
I wouldn't bet on that. China halted it with extremely drastic measures, quite possibly more than we'd be able to muster in the US. Not that many people here have sick leave, and few can afford to not work for a month. Given how virulent this is and the statistic that 20% of cases require medical attention, once the hospitals fill this could get quite ugly.
Compounding that is the US government's response, which has been quite weak so far.
It's based on an assumption that most people do not report being sick and aren't tested. In this situation where vast majority of people are aware of Coronavirus I doubt this is true. Diamond princess case is an interesting one, but it is also highly quarantined ship where they stopped the spread early on and then gave huge amount of medical attention to people on board. Even in such a situation, there were 10 deaths and apparently 30 or so people are in serious condition. Let's say half of those die, so we get to 25 deaths of 700 infected. We get 3.5%.
One more issue is that apparently testing is not adequate, there have been numerous cases where someone tested negative several times only to test positive after a while. This means that containment processes in the western world will not work, no one is willing to blockade a huge region like China did.
In the end, we could end up in a situation where China understood the issue and acted decisively to stop the spread while the western world does half measures and ends up having a huge pandemic on their hands.
