Human Sentiment

Human sentiment is a fascinating beast. Sudden fears of contagion sent markets tumbling this past week, vaporizing $6 trillion in global stock market wealth, and setting off negative economic feedback loops that have raised credible fears of a global downturn. The S&P 500 sank 11.5% for the week, the fourth largest weekly drawdown for the index since World War 2. Back home, the TSX slid 8.9%, the worst week since the financial crisis. Ultimately begging the question, now what? There is now widespread belief central banks will come to the rescue. Federal Reserve Chairman Jerome Powell is already standing by ready to cut interest rates after saying Friday that the U.S. central bank will “act as appropriate” as the virus poses “evolving risks” to the economy. Apparently there is no issue cheap money can’t solve, including global pandemics… While it seems highly doubtful cheaper interest rates will force consumers out of quarantine, nor relieve supply chain disruptions, it may at least provide a temporary relief to financial markets. Even still, the global economy was already slowing prior to this black swan event. Canada’s economic growth slowed to an annualized rate of 0.3% in the fourth quarter, the worst performance in almost four years. This could finally prompt Bank of Canada Governor Stephen Poloz to the chopping board on March 4th. After all, this is the kind of  “economic shock” that Poloz has been warning could eventually trigger a crisis in household debt imbalances. Ironically, in typical Canadian fashion, virus panicked mobs of weekend shoppers are looting local Costco stores in the morning, and flooding open houses in the afternoon. The lust for Real Estate remains unfazed, at least for now…