To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.
I have been under withering (if modestly deserved) friendly fire recently for posing a riddle and sitting on the answer. It is with some hesitation that I pose another.
Relax. I won’t make you wait for the answer this time.
What is every marginally competent CEO AND every financial journalist on the Coronavirus beat planning right now?
Kitchen sinking it.
Let me show you what I mean. Here are three of the top five most linguistically connected financial and market news articles published a couple days ago. If watching Michael Bloomberg self-immolate on stage isn’t crowding out all of your short term memory, maybe you’ll remember these articles:
Apple Shares Drop After Virus Warning Rattles Tech Investors [Houston Chronicle]
Apple’s coronavirus warning wasn’t a total surprise, but magnitude rattles Wall Street [DJ Marketwatch]
Apple Investors Get Nervous After Tech Giant Cautions on Coronavirus Impact [The Street]
Yeah, me neither. Why? Because in two trading days the stock bounced right back to where it was before Apple gave markets its guidance on Coronavirus impact. As I’m writing, it’s about 10 basis points away.
A similar story hit the Zeitgeist yesterday for Puma – who reported half their stores in China being closed – and Adidas, who reported an 85% drop in sales compared with the same period last year. And that’s just sales impact.
Adidas and Puma warn of coronavirus sales drag [Financial Times]
Those stocks, on the other hand, barely attempted a headfake downward before bouncing well into positive territory. Let’s make the obligatory (and important!) observation that stock prices are driven by a billion things. Let’s make the second observation that investors are not stupid, and that active investors who owned these stocks probably knew before formal guidance that they had stores in China. They have probably read something about the Coronavirus. Presenting that day’s price behavior as a simple, straightline function of the announcement event alone is obviously silly.
And yet: if you were CEO of a company that’s been sitting on some bad assets, postponed cash outlays or ugly one-time expenses that you needed an excuse to vomit out, and you saw the collective yawn with which markets have viewed other negative Coronavirus-related guidance, what would you do?
You’d kitchen sink it. Let it all out, fellas. You’ll feel better afterward.
We’re seeing an entirely different type of kitchen sink on the side of institutional missionaries in central banks and financial media, and it’s a familiar story. Here’s one of the most connected stories in today’s Zeitgeist run:
Fed Flagged Coronavirus Risk at January Meeting [NY Times]
The Fed wants us to know they’re on it. Financial media wants to make sure that everybody knows everybody knows that the Fed is on it. It’s our old friend “The Narrative of Central Bank Omnipotence.” Is that why stocks guiding on Coronavirus fears have been greeted with a yawn? Why a serious regional health issue with non-zero global pandemic risk hasn’t really manifested in risky asset prices? I think you’d be kidding yourself to say that it’s not at least playing a role.
But what’s more interesting to me is how media calls for us to connect our expectations for central bank action with the Coronavirus problem have been positively related to the level of focus on the pandemic itself. In other words, when the share of equity market news that is focused on the Coronavirus increases, the share of THAT news which is focused on central bank response increases too. When the day’s updates feel a little bit more dire, we immediately start talking about throwing the kitchen sink at it. When you hear us talk about the drum beats of narrative, this is what we mean.
What does it all mean? Well, we won’t tell you that good or bad news on Coronavirus won’t matter to markets or stocks, especially in the short run. Clearly there are people who are going to try to trade on news and their predictions of it. But if I had genuine concerns about Coronavirus-related risk for a portfolio position, at least for now I’d be a little less focused on predicting, and a little more focused on observing missionary statements about Fed/ECB policy.
No doubt that everyone will get a free pass in April no matter what numbers they report.
Good piece Rusty, oh, and by the way, your idea of “withering friendly fire” is much, much different than mine…
In the chart, it looks like since early Feb the share of Coronavirus stories referencing the Fed increases (and decreases) a day or two before the overall level of equity market stories referencing Coronavirus. Is it a leading indicator rather than a response to the increase in stories?
Hmm, interesting. Let me take a closer look at individual articles to see if there’s something to that. Generally my instinct is not to read too much into +1 / -1 day lags.
Hahaha just feigning woundedness, Farmer Don. I shall pull through.
In Things Fall Apart Part 1. Ben states, "I think that’s how this widening gyre ultimately resolves itself, too. In a big war. Not another Civil War, because the issues at stake today in the aftermath of the Great Recession aren’t existential and foundational like slavery, but are echoes of exactly the same issues we wrestled with in the aftermath of the Great Depression. No, we’ll need a big war with an Other to get out of this.
So one way or another, that’s what we’re gonna get."
Could a global pandemic solve the widening gyre? Could this absolute cluster fuck (sorry but I know no better description) from the global elites be spun into a positive?
Too complicated for me to guess. Death is an event which can’t be cartooned away (except in some ways by authoritarian governments, I suppose), so you can certainly make the argument that a pandemic could be a shock to an abstraction-driven system. Will have to think about this one a little bit.
At what stage does a bit of reality, say not being able to make things, so not being able to sell them so not raising invoices so having no cash coming in overcome the central bank jabbering?
And then what?
Will the central banks “kitchen sink it” too? They have painted themselves into a corner with ZIRP and in the USA under the political pressure of maintaining a rising stock market. Will the Corona Virus give the central banks a chance to escape that corner if the stock market collapses, leading to a wave of bankruptcies. Can they then point to the virus and put up their hands and say “it wasn’t us, it was the virus”, and argue that they need to reset interest rates to “normal levels” to grow a healthy economy out of the ashes?
“Never waste a good crisis”
Listening to the meltdown on CNBC in my car yesterday…dude comes on and actually said he was looking for companies to “kitchen sink it”…and that that was a good thing, clearing the way for the next leg up.
I was much happier when I was young and didn’t see the cartoons playing everywhere.
Continue the discussion at the Epsilon Theory Forum