From March 23 to March 27, there was nothing but devastating developments: Initial jobless claims came in at a record 3.283 million, the U.S. surpassed China in total Coronavirus cases, new COVID-19 hotspots keep forming, and the federal government is set to go deeper into debt.
Bounce or Head Fake?
All the ingredients were available for a recipe for additional losses. Yet, despite the plethora of bad news from around the world, U.S. financial markets bounced and recorded their best days since the early 1930s. It may be a case study in why investors should refrain from trying to time or beat the market and embrace dollar-cost averaging. Have equities hit bottom and are putting together a rally? Is this a bear market head fake? Is this a prolonged dead cat bounce?
So many questions and so many speculative answers.
Well, there are many factors at play. The first is that the liquidation may have eased after weeks of traders selling everything – from gold to oil to bonds – to raise cash. Things are a bit less volatile than they were to kick off March madness, and there is more certainty amid fiscal and monetary stimulus.
The second aspect is that markets are forward-looking, so they do not necessarily concentrate on every single piece of news coming out hour by hour. All the bad news that will likely come out over the next few months may have already been priced in, and that could also include a 20% unemployment rate. Unless there was a dramatic event, like a G7 leader dying from the coronavirus or a complete collapse of the health care system, the market might expect every disappointing piece of economic data.
The third component is the unlimited amount of money being pumped into the financial system. The Dow Jones Industrial Average may have hardly reacted to the Federal Reserve’s initial quantitative easing infinity announcement, but it is responding now – and big money likes it. Who wouldn’t? The Fed is adding $4 trillion to the economy, and Chair Jerome Powell confirmed the Eccles Building would do whatever it can during and after the coronacrisis.
Word of advice: Just because you have seen Wall Street or The Big Short not once but twice, it does not mean you know better than the market gods! Nobody does.
Government Paranoid Over Bank Runs
There have yet to be any reports of bank runs in any part of the United States. Financial institutions have not published any warnings or made any announcements. Depositors have not started a hashtag. And yet, the only institution to even open its mouth and allude to a bank run is the Federal Deposit Insurance Corporation (FDIC).
For whatever reason, FDIC Chair Jelena McWilliams released a video titled The Safest Place for Your Money. In the 56-second clip, McWilliams urged everyone to think twice before taking their money out of the bank.
Does this mean Americans should be considering withdrawing their deposits? Anytime the government comes out of nowhere and issues a public address like this, you cannot help but second guess the bureaucrats’ motives. Remember, the most dangerous words in the English language are, “Hi! I’m from the government and I’m here to help.”
Plus, Americans are inherent contrarians. They do not like being told what to do by the state. It is comparable to the Seinfeld episode “The Showerhead,” when Frank and Estelle Costanza purposely move to a Florida condominium complex out of spite because the Seinfelds do not want them to move there. "They don't want us there, so we're going! No one tells Frank Costanza what to do!”
Private Sector to the Rescue
For the last month, it has been nothing but a barrage of bad news. It has been depressing. We cannot even escape the turmoil, the bloodshed, and the misery with baseball.
But there has been a speck of light in the chasm of darkness that should really make you thank the heavens for free-market capitalism.
The private sector has responded to society’s needs as of late, filling in where the government has failed. In the issue of medical supplies alone, a whole host of companies are coming together to help the heroes of the day: nurses, paramedics, and physicians.
Bauer, Fanatics, 3M, and so many other businesses are ramping up production, reconfiguring operations, or hiring more employees to help meet the demand for N-95 masks, visors, ventilators, and hand sanitizer. Big Tech is using its vast amount of data to help researchers mitigate outbreaks and come up with better solutions for disease prevention. Smaller companies are helping keep children engaged in learning, professionals being productive, and freelancers earning a living. Even individual entrepreneurs are coming to our rescue by utilizing their 3D printers to produce a lot of the tools hospitals need to treat and save the enormous influx of patients diagnosed with Coronavirus.
The free-enterprise system has gotten a bad reputation as of late, mostly from agenda-driven leftists spreading misinformation. It does not help when opportunistic politicians propose nationalizing crucial factories and industries that are proving invaluable in these times. If communists did take over the economy, there would be no way a distillery firm would transform operations to start manufacturing hand sanitizer for the public.
Economist Veronica De Rugy recently and eloquently wrote: “So, during these depressing times, don't underestimate human ingenuity. Just keep your eyes open, and prepare to be amazed.” Our eyes are open, and they are filling up with a salty discharge right now!
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Read more from Andrew Moran.
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