covid-19, your money, and the fed

Well, I’m back. Yes, I’m here, writing again from the confines of my apartment and informing you on the latest business news that has swept our great nation as of late. 

Lets dive right into this people -we are officially in crazy town. No, not a few miles out. No, not a couple blocks away. We’re here. We made it. Look around because it’s a sight to see. Ignorance, stupidity, herd mentality, and full-blown hysteria have pushed our world to the brink. The stock market has fallen into bear market territory and some even believe has pushed our economy into a recession. Great job you fucking idiots because this ones on you. Hope you enjoyed sports or going to the Met or a Broadway show or even going out for dinner because in NYC now you cant and if you think you’re safe from these type of limitations -think again. You let tv headlines and memes and your overall ignorance drive us to the point of insanity. All for what? An illness with symptoms similar to the flu. And yeah, let’s talk about the flu. Why weren’t you this concerned during flu season? You could have easily have gotten the flu and spread that to an elderly person or someone with an underlying health condition and they could’ve died from it -just like the coronavirus.  It happens every year and we even have a shot for that. But let me guess, you didn’t get that did you? You didn’t care, and you might’ve gotten sick, you might not have, you may or may not have washed your hands, and you may have spread that to someone who carried that to someone who was at risk of dying from it. Where was the lockdown then? And all of these statistics so far is look at an incredibly small sample size of those tested –those with symptoms serious enough to justify testing. Not the people walking around Earth who have had it or those having a few symptoms or showing none at all. But even if you did look at the current statistics: 196,000 affected with 7,902 deaths globally -this is out of a population of over 7 billion. Death from an illness and death in and of itself is tragic yes, but does it justify a global lockdown? No, it does not. But hey no one cares, just read a meme and regurgitate a headline or something you heard from someone else and we’ll let our economy crash in the meantime. This has spiraled into a bizarre phenomenon unique only to a world that’s interconnected by ignorance and click bait thanks to social media. 

Anywho, let’s check in on the economy eh? Oh right, its the fucking apocalypse! People liquidating their positions in nearly every asset category because of the coronavirus. How did we get here? What began this massive sell-off a little more than a week ago? I’ll fill you in here, it wasn’t the coronavirus. It actually all started because of a price war over oil between Saudi Arabia and Russia. An agreement they had to fix prices fell apart and Saudi Arabia decided to fuck Russia over and flood the market with cheap oil. What does that mean? Saudia Arabia increased the supply of oil, which means theres less demand for all of the oil now available, so the cost goes down (because people aren’t going to pay a lot for something thats widely available) and now oil companies lose money (for example, the nationalized corporations that own the oil in Russia).

Russia may have been hurt by this but the oil market constitutes a considerable portion of the market overall and when it goes down -so does the rest of the market. On March 9th (the Monday after the weekend Russia and Saudi Arabia’s deal fell apart) markets opened down 7% from oil alone and with the coronavirus hysteria lingering, everything fell apart. Investors dumped their positions in equities and fled to safe havens like gold and bonds. When investors sell their stocks this hurts the value of a publicly traded corporation. This sell-off is pushing the corporations behind restaurant chains, airlines, real estate development, live entertainment, hotels, and motels to the brink. These corporations employ thousands of people that make up the backbone of our economy and if the parent company goes under, they’ll lose their jobs and this country will really be in the shitter. 

In response to this crisis, central banks in China, South Korea, Japan, the EU, and the US are taking every action in their arsenal to respond and to weather the storm. How’s it going? Unless you live under a rock -not fucking well. In the US, the Fed announced plans to buy $700 billion in government and mortgage-related bonds and cut the interest rate to almost zero. What does this do? It means that those who bought bonds years ago get paid for them today and have cash on hand to spend now how they please. It also encourages those looking to borrow money from the bank (say for a car or house) and get an interest rate thats practically zero. That way when they pay back the loan they don’t have as much tacked on every month from interest.

So far the results have been the economic equivalent of a burning bus hurtling off a cliff. In addition to what was lost last week, the DJIA plunged almost 3,000 points Monday. The market saw a small increase after an aid bill from Congress for the coronavirus looked likely to pass, President Trump announced his support for a check of some amount to be handed out to every American to spend how they please (kind of hard to do when everything other than grocery stores and bodegas are closed in NY -but hopefully it’ll coordinate with the end of what has become a self imposed shelter in place), and after the Fed announced an additional $500 billion in a repo operation (“repo” involves banks putting up high-quality collateral like Treasurys in exchange for the liquidity they need to conduct operations).

The Fed and governments around the world are pulling every lever at their disposal but so far with not a lot of luck. In my personal opinion, when a central bank responds with measures to help the economy it actually ends up validating the seriousness of the issue at hand and hurting our economy further but then again, what do I know?