Coronavirus -- an exogenous "black swan" with global implications that no domestic "policy" can stop. Rate cuts, such as they are, are not vaccines.
This is also not about mortality or how people with coronavirus "feel," it is about closed factories, supply chain disruptions, consumption, and hits to corporate profits in a year of already slowing and questionable world growth. Indeed, since a huge percentage of critical components to manufacturing are made in China, Korea, and Japan, even a "small" disruption in the supply chain can have major consequences when domestic producers run out of input materials.
This is not the "zombie apocalypse" but it's not a "nothing-burger" either, and we couldn't have more incompetent "leadership" domestically. Simply put, we are unprepared to meet this challenge and officials talking into the teevee, or lifting tariffs, or buying bonds won't meaningfully change anything.
To paraphrase someone on Twitter, you might have thought the riskiest words on Wall Street were that "it's different this time," but it's my view the riskiest words are "it's contained." Recall Bernake saying the sub-prime mortgage crisis was "contained" in 2007? Well, enter Larry Kudlow this week to say the virus is "contained."
We've had a massive, unstoppable, record-setting bull-run that was, at least to some degree, due to governments' putting their thumbs on the scales. We're overdue, and that cheap money cannot save us this time. Cheap money won't reopen ports, get people traveling again, or fix supply chain disruptions. This is also coming at a time of precipitous corporate leverage where the cheap money was used for share buybacks, not capital investments. Expect layoffs and closures to come.
This, of course, is not the end of the world, but it will be the end of this economic cycle. This will, in my view, put most of the world's developed countries into recession, including the U.S. |