March9,2020 BARRON’S 39
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Coronavirus
Fears Spook
The Market
To the Editor:
For a while now, many analysts have been saying that the
market was due for a correction because it had gotten
ahead of itself, particularly as measured by earnings to
valuations (“Fear Factor,” Cover Story, Feb. 28). Covid-19
provided the perfect impetus of bad news combined with
uncertainty, and so the algos and robots had a field day.
While there’s no doubt that harm is being done to
global supply chains and travel-related services, I’m
skeptical that a rate cut by the Fed will have any impact in
resolving the issues. While the market gloms on to rate
cuts like an infant to its pacifier, cutting rates is not going
to get production in China moving faster, unblock the
logjam of container ships that can’t load or unload, or
bring back lost sales.
With rates already very low at this stage of the
recovery, the Federal Reserve does not have a lot of
ammunition left. I believe that Chairman Jerome Powell
will be under enormous pressure to cut rates, but he
really has to stay patient to see how this plays out.
Arthur M. Shatz
Oakland Gardens, N.Y.
To the Editor:
The coronavirus should serve as
further proof that U.S. corporations
are far too dependent on China for
intermediate goods and finished
products. This is in addition to the fact
that our country’s interests frequently
diverge from China’s, and that trade
disputes are likely to continue.
Hopefully, this will serve as a
wake-up call to Corporate America to
bring back production to our shores
or at least diversify foreign sources. In
the case of a very serious political
dispute, China could virtually cripple
our economy by halting exports.
Although it would be at great cost to
itself, the political leaders in that
country have never shown much
concern for its people.
Robert M. Sussman
Paradise Valley, Ariz.
To the Editor:
While the Covid-19 outbreak is being
considered a black swan event for the
financial markets, the topping process
seems to be similar to that of other ma-
jor tops. On Feb. 7, 2020, I posted on a
popular financial website that the
Dow’s closing figure of 29,408 would
stand as the high for this current cycle
and that a bear market is now in pro-
cess. On Feb. 24, all of the world’s ma-
jor indexes gapped down over 1,000
points. Most commentators correctly
pointed that while it was the third-larg-
est point decline in history, it was not
even in the top 70 of the biggest per-
centage declines. What made this drop
a standout is the size of the gaps in the
indexes and almost all of the large-cap
liquid stocks. It’s the character of this
drop that makes holding equities so
dangerous at this juncture. While a
rally is to be expected somewhere, it
will fail to surpass the highs and will
eventually break down through previ-
ously thought to be support levels.
Greg Chang
Los Angeles
A Note of Caution
To the Editor:
Caution should be taken when going
from interest-rate descriptions to
predictions to implied asset allocations
(“This Downturn Might Just Be Getting
Started. Let the Recession Watch
Begin,” The Trader, Feb. 28).
Ben Levisohn, in the context of
Covid-19, writes about authors who
suggest that 1) short-term Treasury
interest rates are low, so stocks will
return 3.5%, which is just a “hiccup” or
“blip,” so stay invested in stocks.
But 2) a return of 3.5% is a huge
problem for institutions assuming a
7% return, so get defensive; 3) Real
rates suggest that the ratio of the S&P
500 index to gold is in the midst of a
move from over two to under one-half,
so move assets from stocks to precious
metals; 4) U.S. 10-year Treasury
yields under 2.5% often predict a
world war, so invest accordingly.
It’s fun to spin these out. The
challenge is knowing which deserve
attention.
Jeremy Gwiazda
Cambridge, Mass.
Tesla Hopes Overblown
To the Editor:
Many things are conflated when
people talk about Tesla (“Why Tesla
Could Be Worth $1.5 Trillion by 2030,
According to Ron Baron,” Interview,
Feb. 28).
For instance, the data that Tesla
collects is cited as a unique advantage.
However, remote telemetry is
available from many auto makers.
And, software controls pretty much
all modern cars. My Subaru collects
reams of data. That companycanalso
potentially update the software over
the air (not sure if it actually does).
And it has a lot more cars on the road
than Tesla. Likewise, autonomous
driving features are not tied to electric
cars or Tesla in particular. Driver
assist is available from many
manufacturers. Tesla may be ahead,
but technology will become
commoditized sooner or later (yes, I
anticipate Apple versus Android
comparisons here, especially from
those who haven’t used Android).
You can narrow this down to
battery, manufacturing, and charging
network, which seem to favor Tesla
now. But it’s hard for me to think Tesla
will be the only player or even the
player with an overwhelming share of
the auto market with so many
innovators around. I don’t own Tesla
shares, nor I am crying sour grapes.
I’m just a bit skeptical that most of the
world will be driving only Teslas in 10
years.
Bala Rajagopalan
On Barrons.com
Reading China
To the Editor:
It is interesting to note that some
commentators, politicians, and
reporters cannot resist the temptation
to take a shot at the Chinese
government (“Coronavirus Is Hitting
China’s Economy Harder Than
Expected,” Other Voices, Feb. 28).
Those who say that they were in the
dark or the numbers cannot be trusted
are actually trying to cover their
ignorance or their inabilities to read
Chinese. Of course, China has strong
censorship, but if you look at the data
and news reports closely down to the
local level, you can still get a good
picture of the situation.
Chun Chang
On Barrons.com
“I’m just a bit skeptical that most
of the world will be driving only
Teslas in 10 years.”
Bala Rajagopalan, on Barrons.com