Date: March 17, 2020

Corona Crash Continues. We WILL Get to the Other Side.

I wrote an update for yesterday, but I ended up hitting “save” instead of post and just realized it. Sorry about that. As I was emailing with a friend about analyzing what’s going, I said that short-term forecasts could literally be wrong before the ink dries on the paper. That’s how fast things are moving. I don’t want to jinx this (Lord knows we don’t need more problems), but I have been incredibly impressed that the electronic financial system seems to be running very well. Don’t underestimate the importance of that as there is certainly a chance that the NYSE floor closes down for a period of time.

Speaking of closing, there have been many folks calling for the markets to be shut down so things can calm down. I couldn’t disagree more. In my opinion that would only create even more panic and hysteria if that’s even possible. People need access to their money. Markets need to be open and transparent with a free flow of price discovery.

Like every other crisis in our history we will get to the other side. We always do. Things will be different over there, just like they were after 9-11, but the markets and the economy recovered. Remember, 9-11 was wrapped inside the Dotcom burst as well as the corporate fraud and malfeasance of 2002. Recall Enron? People remember 9-11 and think the markets went down 50% because of that. In reality, markets were already melting down and 9-11 resulted in a short, sharp plunge of almost 20% in 5 days. People forget that stocks fully recovered that decline in a little over a month. Then the bear market reasserted itself as the mild recession began to uncover corporate fraud at a level never before seen. When the tide goes out, you can see who is skinny dipping.

Again, I am losing adjectives to describe these enormous moves. Monday’s crash was historic. So was last Thursday’s, March 9 and February 28. Exactly a month ago, the markets were a day removed from an all-time high. Now they are down almost 30%. The speed and depth of the carnage has few precedents in a market now dominated by computer trading. As I have said before, this decline would have occurred regardless. However, it would have taken place over over a period of months, if not quarters. Everything has become so compressed.

And for all those who think our economy and markets will never recover, our country survived two world wars as well as an attack on our own shores in New York. Don’t think for a minute that once stability returns the recovery can’t be swift as well. It may not be a month, but it certainly won’t be forever.

And for those who think the Fed is “out of bullets” because interest rates are now at zero, you will be proven wrong sooner than later. They have many special programs to help keep capital moving and markets working. I won’t be surprised to see a new Fed program regarding the commercial paper market unveiled this month.

Today will be an interesting day, something I think I have said everyday since February 28.


Paul Schatz, President, Heritage Capital