The Fear Trade is Alive and Kickin’…
The China virus news has quickly taken on a life of its own and is now positioned to destroy the world and everything in it.
Though it was not so long ago “the experts” were telling us how the bond market was sniffing out inflation and would tie the Fed's hands, and the China-US trade wars would be doing the same.
Before that it was Trump, and SARS, and oil, and interest rates, and bird flu, and climate change, and killer bees, and Dan Quayle… (too far?) …
But what unfolded with the bond market is yet another rapid drop in rates as fears escalate, and the comfort of the 10-year bond security blanket blinds many to the consequences of same:
Bathed in Red for Sure…
Capital is now running from 18-19 times earnings product with a history of growing, into 10-year bonds at just over 60 times earnings with assurances that they won't grow a single red cent for the next decade.
And yes, the red ink stinks. But as we say repeatedly, corrective waves are required parts of all markets.
There is no proven secret sauce other than hype.
These corrective waves are what builds the fear back up, restocks the fuel, and then sets the stage for future rates of return.
The Larger Issues?
The demographic elements which set the stage for dynamic changes in the 1980s and 1990s are here again in the form of Generation Y.
Just like back then our airwaves today are filled with problems, ghosts and goblins all set to take us down.
Succumbing to them has been the most expensive lesson investors have ever been faced with in the last four decades.
Fear is seductive. It even sounds smarter, especially with the coronavirus chatter seems set to hit higher pitches in the days and weeks ahead.
Let's hope these market waves last a few weeks – that the noise about virus cases helps to cloud the understanding of improving earnings.
Let's hope for incessant chatter about how this latest monster is finally the one that will topple us into a dreaded recession.
So, while vast resources are being put towards a cure or solution, the next flu season, instance of inappropriate food handling or other contagion will come.
And the media will introduce another monster under our social and / or economic bed.