Manias, Panics and Crashes - Dylan Jovine

Writing About the Stock Market & Life Since 2003


Manias, Panics and Crashes

Some thoughts on the stock market and the collapse of income facing retirees.
Manias, Panics and Crashes
30-years investing has taught me there tends to be three phases to a stock market panic.
The first phase is the shock phase. This is where, almost suddenly, the world realizes the depth of the problem. Panic ensues, as every headline is worse than the last one. That causes a “stampede effect” as everyone rushes for the exits at once.
You tend to know you’re close to the end of this phase when you start seeing headlines comparing the crisis of the day to the Great Depression. That’s what happened this weekend.
The second phase is the counter-attack phase. This is where policy makers begin to make adjustments based on the problem. They get their arms around the problem. This typically includes both fiscal and monetary stimulus. And with the coronavirus, that includes new responses like “stay-at-home” orders, etc.  
What I look for here is the ratio of bad headlines to good headlines. At the beginning of this phase, all headlines are bad. But it’s not long before good headlines start to filter through also. And enough good headlines bring us to our third and final phase.
The third and final phase is the rebirth phase. This is where investors begin to realize that the worst is behind them. It’s a shift in thinking. And that’s what sets up the next bull market.
By my estimate, we are currently in the middle of phase two. That means there will be more “unexpected” bad news (a drug doesn’t work as well as hoped for, more people are infected than first thought, etc). And that means there will be more “unexpected” market drops.
But the coronavirus pandemic will ease. Life will start getting back to normal (in most places) in weeks, not months. And the markets will go up. Buy the drops and leave the panic to others.
The Collapse of Retirement Income
Financially speaking, the elderly face a bigger problem than the coronavirus. And it’s a problem nobody seems to be talking about.
I’m talking about negative interest rates and the coming collapse of retirement income. Negative interest rates are when you have to pay the government to buy bonds. And yesterday, for the first time in American history, negative interest rates came to 1-month and 3-month treasury bills.
If you would have bought $10,000 worth of 1-month treasuries yesterday, you would only get back $9,947 in 30 days. It’s like you’re paying the government interest to loan them money.
As former Fed Chairman Ben Bernanke said yesterday on CNBC, “Low interest rates are something we’re going to have to live with.”

That’s a problem for every retiree living off a fixed income.
 New problems need new solutions. I’m searching for them.

“The Buck Stops Here”

Dylan Jovine

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