Time USA - 06.04.2020

28 Time April 6–13, 2020

For weeks, i waTched The evolving coronavirus

crisis the way one observes an avalanche: it looks distant until

suddenly it is upon you. I was inclined to take advantage and

“buy the dips.” Then, something snapped: I started selling. I

wanted cash. I panicked.

There. I said it. And I’m saying it to dispel the idea that the

response of markets to what is happening is based on cold cal-

culation of the future. It is based right now on a complicated

mix of legitimate recalibration of what the economic future

holds and pure unmitigated fear of loss. The former is abso-

lutely necessary. The latter is utterly destructive. U.S. equity

indices lost more than $10 trillion.

I have been an investor for almost 20 years. Through the

burs ting of the dotcom bubble, 9/11 and the resulting reces-

sion, and then during the massive financial collapse of 2008–

2 009, I never really got scared. This time, I did. In financial-

land, selling and fleeing to cash is the real-world equivalent

of hoarding toilet paper: it seems to make individual sense,

but collectively it is nonsensical. We aren’t running out of toi-

let paper, unless we all try to buy it simultaneously. We aren’t

going to run out of cash and liquidity in financial markets

unless everyone tries to liquidate at once.

The challenge now in the financial markets is that you have

multiple players—individuals, large funds, banks and other

financial institutions—resetting every expectation of what

the future will look like, and having to do so in real time. Usu-

ally, recessions send out early signals such as rising unem-

ployment or slowing retail sales or creeping inflation. Models

and projections start to adjust. Interest rates and the ease of

credit begin to reflect changed expectations. None of that was

Moneyland has lost it s beari ngs

By Zachary Karabell

much in evidence five weeks ago. The

coronavirus was a nearly unmodelable

event. If you exist in moneyland, lack

of clarity about what to expect is one

of the more toxic ingredients. It can

lead investors to try to calculate worst-

case scenarios.

In moneyland, as well as in real life,

there is always a range of probable to

possible. Stocks, bonds, homes, busi-

nesses are all priced to reflect the best

judgment at any given time about what

the future holds. We look to past pat-

terns to assess probabilities and set

prices accordingly. That’s never an

exact science, which is why there is

so often such intense disagreement

among finance professionals about

what things are actually worth.

These are noT normal times. There

is no recent correlate with a global pan-

demic halting commerce and upend-

ing daily life since the 1918 Spanish

flu. The possible range has exploded,

with some wondering whether markets

have reached a bottom or the bottom

is still way down. In that sense, what is

happening now in financial markets in

response to the contagion is similar to

what unfolded in 2008–2009.

As each of us contemplates what to

do with money right now, it’s impor-

tant to pause, breathe and recognize

that there is an unequivocal distinction

between what is happening now and

every other major financial and eco-

nomic crisis: governments are acting to

spend aggressively with a level of fund-

ing and measures that dwarf previous

responses to serious crises. The Fed-

eral Reserve is providing almost limit-

less liquidity; Congress and the White

House are negotiating to pass bills

that could distribute some $2 trillion;

similar efforts are under way in almost

every country affected.

Will that prevent markets from fall-

ing further as the data rolls in of mil-

lions laid off and hundreds of billions

of evaporated revenue? Who knows?

But in a crisis, markets die when peo-

ple scramble for cash, and they revive

when some sense of the worst becomes

clear. We may not be there yet, but we

are getting there.

Karabell is an investor and writer

TheView Business

ILLUSTRATION BY PAUL GARLAND FOR TIME

3

Number o f y ears

of e conomic

growth w iped o ut

by t he c oronavirus

market c rash i n

March 2020

5 6%

Drop i n t he

S&P 5 00, f rom

peak i n J anuary

2 007 t o t rough i n

March 2 009, d uring

the l ast r ecession

7 8%

Decline o f N asdaq,

from h igh i n M arch

2 000 t o l ow i n

October 2 002,

during d otcom-

bubble c ollapse

VBUSINESS.indd 28 3/24/20 10:31 PM