Weekly Memorandum 3/16/2020
It is truly incredible how fast markets, and life itself, can change. Not even a month ago, equities were at all-time highs, and things were as good as it gets in the market. Nonetheless, warning signs appeared that stocks were set for a pullback, which we highlighted continuously in both our Mercator Letters and other Weekly Memorandums.
In the Weekly Memorandum from 2/17/2020, it stated, "In the short-term, our work still suggests we are set for a pullback in equities in the U.S. The long-term trend, however, remains solidly up, and it would take quite the sell off to alter this position." The market peaked two days later. Admittedly, this sell-off turned out to be a bit worse than expected, but for now, the long-term, secular bull market remains intact. Perhaps worth noting here is that we do not define bull and bear markets by an arbitrary percentage at +/- 20%; but that's a separate discussion for another time.
Late last night, the Federal Reserve came out and cut interest rates to zero, and launched a $700 billion Quantitative Easing (QE) program. These are financial-crisis level measures in response to the coronavirus's threat to the economy. Equity futures apparently took this as a panicked-response, and reacted with a limit down, which activated the circuit breakers yet again.
During times like this, it's important to remember there are more important things in life than money and markets. Granted, if you're in the market, the only purpose is to make money. But in reality, life extends well-beyond the market itself. The health and wellness of oneself, one's family, and of society are much more important. Last week, I suggested it may be a good idea to close the market for a few days. I have not felt this level of societal anxiety since the days of 9/11. We are rife with panic and hysteria. Perhaps this is a sign from nature that we are living too fast; we need to slow down. The alternative is that this is something much more sinister. It's too hard to tell.
In such times, people need to think in terms of secondary and tertiary effects when it comes to their actions. The more dramatic the initial response, the faster we can all resume our normal lives.
We need to rip off the band-aid.
Stay safe, stay home, and stay vigilant. We will be okay.