As stock markets tumble because of coronavirus, this time feels different

[mahatmakanejeeves]

Economic Policy

As stock markets tumble because of coronavirus, this time feels different

Traditional methods for arresting an investor panic might be no match for fallout from global pandemic

By David J. Lynch
Feb. 28, 2020 at 9:39 a.m. EST

The coronavirus panic that sent stock markets tumbling this week has triggered calls for the federal government to intervene, relying on traditional playbooks that the Federal Reserve, Congress and the White House have used in numerous previous crises.

This time, though, the usual approach might not work.

{snip}

Typically, the Fed responds to economic trouble by lowering interest rates to make credit easier to obtain. It also can offer loans to banks via the “discount window” or buy large quantities of U.S. Treasury securities to offset any general tightening in financial conditions. Congress, meanwhile, can approve new spending or tax cuts to flood the economy with money.

But the best remedy for the coronavirus — which has sickened more than 83,000 people worldwide and killed nearly 3,000 — could lie beyond Washington’s immediate powers.

“Central banks don’t make vaccines,” said David Kotok, chairman of Cumberland Advisors.

{snip}

David Lynch
David J. Lynch is a staff writer on the financial desk who joined The Washington Post in November 2017 after working for the Financial Times, Bloomberg News and USA Today. Follow https://twitter.com/davidjlynch

[Apollo Zeus]

1. many corporations were buying back their own stock throughout 2019

thus inflating their stock prices and pumping up their own exec compensation (eg stock options they can exercise).

Companies are on track to buy back another $940 billion of stock in 2019, according to Goldman Sachs. That would easily surpass the record buyback boom set off last year by President Donald Trump's corporate tax cut....

In an alarming development, companies are now returning more cash to shareholders than they are generating in free cash flow. It's the first time that has happened in the post-crisis period, according to Goldman Sachs.

https://www.cnn.com/2019/07/30/investing/stock-buybacks-debt-leverage/index.html

Damage is under way as someone has been buying these stocks on the way down.

Hopefully taxpayers don't get stuck bailing out Wall Street (eg, "socialism for rich, only&quot , again.

[kurtcagle]

2. Margin Calls

I've been saying elsewhere that what you're seeing now is not CoV panic but margin calls hitting over-extended wallets. CoV-19 was simply the trigger. We saw a 20% market rise in a year on the basis of very little actual economic data to support it - anomalous hiring patterns, very little in the way of innovation from Silicon Valley, and the above-mentioned tax holiday and corresponding buybacks. I'm expecting that Amazon's announcement that they are curtailing ALL travel for employees effective immediately is going to hit the market hard over the next hour, and as that sinks in, we could be in for more bloodshed.

[Warpy]

3. He is going to claim a drop in the Dow under 1000 points

is a yooooge rally and we've turned the corner and the virus is going away in the US (precisely because the test kits weren't there for days) and he's done such a great job on all of this, isn't he just the best guy ever to hold the job, no more bad news (with his insane task force gagged) and everything is rosy so run right out and book that cruise to Asia you've always wanted.

JFC.

[Ghost Dog]

4. Serious containment measures, by stalling economies, would do more harm

than the virus itself. This is what the deciders have decided.

So they will concentrate on controlling the narrative.