Chaotic and Irrational

Friday 20th March 2020

The current crisis feels so much worse as it affects our daily lives. Bath, and I'm sure everywhere else, feels like a Ghost Town. Only in the 1973 Oil crisis with the 3 day week have we seen such a day-to-day impact. Usually with stock market crashes life goes on as normal. So it's different this time and certainly feels like it.

It's the uncertainty and speed of stock market response that is so severe with huge stock markets swings on a daily basis. The stock market is usually forward looking and trying to price in future growth expectations from various companies but since the start of this pandemic, it has behaved in a chaotic and irrational way. In the same way that consumers all understand that bulk buying toilet rolls makes no sense, the reality is that individuals are panicking and behaving irrationally and the markets are no different.

As and when the virus starts to come under control we would expect behaviour to start to normalise and the markets will look to the future once again leading to a recovery from the current position of overreaction and panic. What is positive has been the speed and scale of Central Bank and Government intervention (who'd have predicted a Bank of England base rate of 0.1%?) and the key message is they will do whatever it takes. This is good news and a lesson hard learned from the 2008 crash. Once we are clear of the virus the flood of money (liquidity) should lead to a sustained period of growth, getting us back on track. But now what's important is getting money to those businesses and individuals that need it. Let's hope this is done without some of the usual bureaucracy and delay.

It also seems positive that China reported no new internal cases yesterday, only those travelling into the country. This is after six weeks of lockdown. The UK's seems a less severe response with the Prime Minister quoting 12 weeks yesterday to spread out the impact. The proposed increase in testing for the virus, but also developing a post virus antibodies test for those affected to be able to get back to normality as soon as possible, seems positive and is moving at great speed.