I thought we have seen it all last week and that it couldn’t get worse, but boy was I wrong. The world went crazier this week.
It was a week of unintended consequences that caused the financial markets to flip flop like mad every other day. I could see my Bloomberg stock portfolio MTM (Mark to Market) dollar values changing in value by the day, ending about 20% lower at the end of the week.
The week started on Monday after a huge blow up in the oil market on Sat. The Saudis declared open war on non-OPEC countries, Russia and American shale oil and promptly cut prices. The virus situation in Italy also did not help as they suddenly put North Italy/Lombardi on quarantine ala China/Wuhan. Panic exploded on Mon as the markets opened and there was a bloodbath in the financial markets.
Trump vaguely promised by Mon evening to announce actions to help the economy affected by the virus soon and the markets reverse course on Tue for a bit. By Wed, the markets continue to slide as no announcements were made while more coronavirus cases continue to pop up in America. Testing was slow and not 1 million by last week as promised. Even CDC went offline as people realized that many could not get enough testing kits at all. S&P 500 whipped like a spun girlfriend that was betrayed. New one day lows were recorded and it went limit down even before the opening bell. Meanwhile, Italy decided to close the whole country instead.
Then Trump on Thurs did the “masterful” stroke of unilaterally banning all of Europe from entering the USA without informing its closest European allies. That really did it for the markets. It was too little too late. Chaos was created with that announcement as everyone scrambled to comprehend how it will affect them. American citizens were worried that they could not return home before the ban takes effect at midnight on Friday.
We laughed when toilet paper ran out in HK a few weeks ago. Then it happened in S’pore and we thought that was mad. Now the whole world panics and toilet paper is flying off the shelves… LOL Why toilet paper?
Bill Maher’s Real Time episode today had a guest who is an expert on the subject of Risk and how it affects human psychology. He believes that humans will become more emotional, rather than logical, in times of uncertainty and fear. Hence, in the current times where there is no trust with the leadership and too many unknowns, people will tend to want to cling on to more quantifiable items like toilet paper and even religion. They become mental anchors to the individual and it is a reaction to maintain the sanity of the mind. That sounds logical to me…
If this mismanagement fiasco of Trump still doesn’t bring him down, nothing will. You can lie (16k and counting) and create alternate facts on just about everything. But when lives are at stake, you cannot run away from your responsibilities anymore. It is indeed sad and pathetic that the most powerful man in the world is throwing everyone under the bus except himself. Self-preservation to the extreme is not OK when you are entrusted with the protection of the nation and the free world. It is so disgusting to see him denying responsibility on TV today for the mishandling of the coronavirus process in America and to continue to lie through his teeth.
The virus saga is playing out all over the world like a slow-moving movie. China is (hopefully) near the tail end of the movie while Europe is in the middle. America seems to be only in part 1. We can see the likely unravelling of the plot in America into the next 2 weeks. Test kits will finally be fully available but the horses have already run out of the barn. Positive cases headcount will skyrocket exponentially before a peak can be reached. Draconian actions to have lockdowns may happen but the effectiveness of these moves would be questionable by then.
On the financial front, US Treasury yields have whipsawed the whole week. The whole curve dipped below 1% on Monday. All asset classes/commodities were dropping in prices. How can everything drop at the same time? Even Bitcoin was crashing…
I suspect that the AI trading systems were partially responsible for the selling onslaught. When these black boxes smell a panic, auto sell orders are generated in nanoseconds. Too many machine orders exiting from a single door will create a tsunami.
The other theory is that there are margin calls being triggered by multiple leveraged speculative transactions that were built up over time in a low yield environment. Big hedge funds and well-known investment houses may be in deep shit now. The need to liquidate existing positions to maintain cash for margin calls or for funds redemptions may result in the cashing out of positions that have liquidity while they are stuck with illiquid assets. It is a self-fulfilling vicious circle.
In the next few weeks, more big names in trouble may reveal themselves. H2O management fund from the UK had already pre-empted investors that they had a very wrong bet that had gone horribly bad – long Italian bonds and short US Treasuries.
Just this afternoon, a friend forwarded an article to me that indicates that the coronavirus may not have originated from China! Conspiracy theory? They exhumed some cases of patients who died presumably from flu a few months ago to retest for coronavirus again and the results were positive. Japan had a person that visited Hawaii a few months ago, who tested positive later. When the dust settles down on the bigger panic situation we are in now across the world, this topic may be revisited again by the media.
We live in interesting times indeed… I cannot imagine if next week can become even crazier than this week… ;-(
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