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This is today’s coronavirus update: The pandemic is in full effect. So is the enormous economic fallout. There are plenty of comparisons being made to previous market collapses and economic downturns. But, as many experts are pointing out, we’ve not seen anything quite like this before. It’s not just the speed at which financial markets around the world have fallen. It’s the nature of this crisis: an active pandemic that’s killing the modern global economic engine.
The potential implications are difficult to overstate. Already, experts say there will be historic increases in the number of unemployed during the coming months. As for markets, few are willing to call a bottom. Analysts say that without genuinely good news on the health front of the pandemic, there will be no good news about markets. Translation: Markets could be headed much lower.
The 2020 financial crisis will be remembered primarily for its severity. It also will be remembered for its uniqueness. Many are comparing the financial crisis stemming from the coronavirus pandemic to the 2008 financial crisis. But they are not at all the same thing, according to one economist who lived through 2008 events. The highly uncertain nature of the current debacle is the overriding reason. And that uncertainty is leading some analysts to forecast a potential for particularly dire outcomes.
Economist: “The Financial Crisis Did Not Come with a Mortality Rate”
David Rosenberg was Merrill Lynch’s chief economist when the 2008 debacle unfolded. He witnessed those events as up-close and personal as anyone could. Conditions were terrible at the depths of that crisis – including financial markets down more than 50%. Even at that, however, the 2008 crisis was not as bad as the mess we’re all dealing with right now. Rosenberg summed up the reason in a recent interview with the Financial Post:
In the financial crisis, air travel didn’t come to a halt, borders weren’t being closed, we weren’t talking about quarantines and self-isolation. In the financial crisis, people weren’t scared to leave their homes. We’re talking about palpable fear and when people get fearful, they withdraw from economic activity…. The reality is the financial crisis did not come with a mortality rate.
Rosenberg also reminds us that the source of the trouble in 2008 revolved around a single sector of the economy. The U.S. government had the ability to largely “solve” the problem by embarking on a massive program of purchasing distressed assets. In a sense, the most significant challenge at the time was the political unpopularity of bailing out what some people thought of as “demon” megabanks.
Many of us probably wish that’s the biggest problem we had today. We’re dealing with a much different situation this time. In the case of this novel coronavirus, the only way to contain the source of our economic troubles is to contain the virus. Quincy Krosby, chief market strategist at Prudential Financial, puts it this way: “The market is at the mercy of the virus and at the mercy of whether the containment policies work.”
Experts Now Using the “D-Word”
So when it comes to the economic fallout of the epidemic, how bad could things get?
Tuomas Malinen is a professor of economics at the University of Helsinki. Back in January, Malinen detailed why he believes “the coronavirus has the potential of being the ‘trigger’ which will push the world into a global depression.”
Global recession, a European banking crisis and a crash in the U.S. capital markets will produce a global economic collapse which will almost certainly overwhelm any attempts – massive and coordinated as they may be – to turn the tide by over-stretched central banks and over-indebted governments.
At the time, Malinen’s assessment seemed particularly dire and overblown. Now? Perhaps not so much. More than a few experts have been using the “D-word” lately in the context of the current crisis.
Last Sunday, the Federal Reserve slashed interest rates to zero. The central bank also declared it would initiate another round of quantitative easing worth $700 billion. The next day, the Dow Jones Industrial Average responded by plummeting nearly 3,000 points for its third-worst day (by percentage) ever. Reuters quoted Peter Cardillo, chief economist at Spartan Capital Securities, as saying that the market reaction is “a sign of a total breakdown in confidence.” A sharp, drastic loss in confidence is a key ingredient of steep recessions – and depressions.
The same article cited recent written commentary by Joachim Fels, PIMCO’s global economic advisor. In his commentary, Fels raised the specter of a depression eventually arising from the outbreak. He wrote that central banks and governments must do what they can to ensure any recession “stays relatively short-lived and doesn’t morph into an economic depression.”
There’s that word again.
Eric Winograd, chief U.S. economist at global asset management firm, AllianceBernstein, is quoted in the same Reuters article. He also suggested we could be looking at a depression if the virus is not contained in the near future.
“Nothing else matters if we can’t get this under control,” Winograd said. He added that, for now, markets don’t appear to be “pricing in a prolonged depression scenario at this stage.” However, he concluded, “If we end up in a multiple-quarter level decline, I would expect there still to be significant downside for the market.”
The fact that the word “depression” is being used at all, in any context, speaks volumes about how dire the current situation potentially could be. “This shouldn’t get as bad as the Great Depression” isn’t as reassuring as if the “D-word” wasn’t being invoked at all.
Finding Portfolio Stability Amid the Panic
We are living within a financial panic right now, due largely to the tremendous uncertainty characterizing the crisis. Many retirement savers are evaluating their options as they consider how best to stabilize their portfolios. For some, adding gold and silver to their portfolios is an excellent way to preserve the value of their savings – no matter what happens or when.
Perhaps you are thinking about adding a proven safe-haven asset such as gold to your own holdings. If so, award-winning Augusta Precious Metals is ready to assist. When you call 800-700-1008, you’ll speak with a friendly customer success agent. These team members are well-versed in the threats to your savings stemming from the current crisis. They are also knowledgeable about the array of other risks that can jeopardize your savings – and your retirement dreams. Eligible callers will receive our exclusive free guide on retirement protection. You’ll also have the opportunity to learn more about our free, live Profit & Protect Web Conference. This eye-opening retirement-protection presentation is hosted by Augusta’s chief economic analyst and Harvard Business School member Devlyn Steele.
In just a little over a month, financial markets have plummeted roughly 35% from their all-time highs. And if experts are correct, we have a long way to go before the outbreak is contained. There is no telling how bad economic and market conditions could become in the meantime. First and foremost, it’s important to stay safe and keep your family as safe as possible. But it’s also important to think about your financial future. If you’re ready to have a serious conversation about protecting your hard-earned savings, do not hesitate – contact Augusta today.