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You’ve undoubtedly heard of the coronavirus by now. That’s the first epidemic many economists say is causing the markets to crash. The second epidemic is one of fear.
While there’s no real reason to be in a panic over this virus, some are still a little afraid of it. But staying healthy and preparing for a larger spread of the outbreak will help eliminate that fear. So what about the markets? There’s not much that can be done, right?
Pretty much nothing can be done about it until people stop worrying so much. But one thing is almost certain, there will be more selling, and the markets will go down further.
Robert Shiller, a Yale professor and Nobel Prize winner, explained to CNBC during Monday’s market plunge why he believes there’s more selling to come. “This disease is contagious even before it shows obvious symptoms,” he said. “So, it’s going to be harder to quarantine people in this epidemic. That’s the narrative, and we haven’t gotten very far into it yet.”
The general public appears to believe that the central banks will save the economy, but there might not be anything they can do. Slashing interest rates hasn’t spurred economic growth, and President Donald Trump is floating the idea of giving a payroll tax cut. If that’s the solution that’s decided upon, it better be a swift and deep tax cut or people won’t be likely to notice and there will be no economic relief.
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Regardless of any kind of political stimulus or attempts to stop the bleeding, there is still a chance that the markets will continue their drop. “The potential for market disruption because of a scary narrative is quite high,” Shiller warned. “It’s highly likely now that we’ll have a recession. It’s already disrupting business. It’s already causing people to pull back. We’re not going to see creative new investments blossom in this environment.”
“We’ll see how well the measures to reduce the coronavirus epidemic play out. But I wouldn’t put too much hope in that,” Shiller said. “It’s a dangerous epidemic and the epidemic of fear that accompanies it is dangerous also.”
There’s too much volatility and uncertainty in the markets because of the public’s fears of the coronavirus outbreak. Putting faith in the central banks and politicians that they will make the right decisions to stave off a recession is a little delusional as well. Even if any stimulus has the net positive impact on the markets, it will only be because this market is highly manipulated.
Of the solutions presented, a deep tax cut is likely to be the most effective, and only if it happens quickly and is immediately noticeable. That means a 1% cut is unlikely to be enough to prevent a recession. Trump is going to have to big, and that could mean a double-digit percentage cut. When people notice bigger paychecks, they will spend more of that money spurring economic growth.
Put your faith in yourself and your knowledge of how to gain and protect your personal wealth. Don’t wain for the central banks or politicians to save you because they’ve already rigged this economy in favor of themselves.
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