Email of the day - on what the market reaction to the coronavirus portends
Comment of the Day

March 13 2020

Commentary by Eoin Treacy

Email of the day - on what the market reaction to the coronavirus portends

Today’s commentary regarding the developing crisis in the credit markets is a major concern.  With that worry in mind, the Boeing chart and S & P Banks Index chart become alarming. 

The financial markets appear to have been kept afloat only by increasing credit at lower and lower interest rates which may have reached their bottom limit.

In Australia, the COVD-19 is already affecting the economy.  A New Zealand/Australia cricket match today was played without spectators.  Next week’s opening round of Australian football will also be played behind closed doors!  Micro businesses, such as coffee shops, are reducing staffing levels.  Small business loan defaults are inevitable and will put extra pressure on banks which are already under threat.

Are equity markets signalling a debt crisis that even the Fed cannot overcome?

And

Thanks for your calm evaluation of the current situation. I just want to remind the collective of one of David's mantra: I remember him saying, "If you are going to panic, panic early". I know it is not easy but with your analysis of past recessions, would you be willing to make a very rough prediction as to how long do you think before markets will start to stablise. Thanks again. Best rgds

Eoin Treacy's view

Florida has hurricanes every year. People know when they are coming, so they stock up on essentials, take out a subscription to Netflix and hunker down to wait it out for a few days. Hurricanes have an economic impact that measures in the billions because of the damage done to physical infrastructure but economies pick right back up afterward because of the additional spending on rebuilding. It’s the classic version of the broken window argument in economic theory.

Hurricanes cause isolated credit events in the most overleveraged, least well-insured businesses but does not result in a wider credit event even when they are particularly disastrous like Hurricane Katrina. The coronavirus is worse than a hurricane. Let’s try and unpick why that is:

Click HERE to subscribe to Fuller Treacy Money Back to top