(^34) Best columns: Business
Markets are driven by fear, greed, and, rarely, by
“outright panic,” said Mike Bird. At the beginning
of this week, we saw panic—the 11th-biggest drop,
in percentage terms, in the history of the U.S. stock
market and the third-biggest drop in bond yields
in 35 years as investors flocked to the safest instru-
ments they could find. There’s a lot of bad news
driving the market, including the Saudi-Russian
oil-price war and Italy’s nationwide coronavirus
restrictions. But “the latest move may be larger than
is merited even by the seriousness” of the news.
Markets are now being ruled not by economic fun-
damentals but by worries over the “perceived health
of the institutions operating in them.” Sell-offs like
this can trigger margin calls or “blowups” of hedge
funds and send the markets looking for the safest
assets. Be wary of “attempting to time markets or
find bargains right now.” In the long run, though,
the world’s banks are “better able to weather shocks
than they were in 2008.” After Black Monday in
1987, “it took the Dow Jones industrial average a
little over 18 months to hit fresh highs.” The current
crisis looks “more like Black Monday than like the
global financial crisis of 2008.”
The economic impact of the coronavirus will lin-
ger after the epidemic recedes, said Annie Lowrey.
The contagion sweeping the globe is not like the
shocks that triggered past recessions. Many of
those, such as the Great Recession and 2001 down-
turn, snowballed when struggling businesses laid
off workers and consumers stopped spending. To
counter that, central bankers cut interest rates, “en-
couraging investors to take more risk,” while gov-
ernments cut taxes and increased spending to put
more money into the economy. “But the coronavi-
rus is not just sapping demand from the economy,
it is also affecting supply.” The fiscal and monetary
levers that governments can use to help their econo-
mies tend to “work primarily on the demand side.”
But how is an emergency Federal Reserve rate cut
going to help an American assembly business that
cannot get parts out of China? Meanwhile, the
payroll-tax cut proposed by the White House will
do “nothing to aid households struggling because
a breadwinner falls sick or needs to help a sick
relative.” Unfortunately, the Trump administration
has “virtually no experience managing a financial
crisis.” Seeing no discernible financial plan in place,
“people are afraid, and it may take months for that
fear to abate.” Re
ute
rs
The markets
will weather
this storm...
Mike Bird
The Wall Street Journal
...but the
economy
needs help
Annie Lowrey
TheAtlantic.com
An oil-price war between Russia and
Saudi Arabia sent more shock waves
through “a world economy already reel-
ing from the coronavirus,” said Verity
Ratcliffe in Bloomberg.com. Oil prices
plunged by almost a third, the biggest
drop since 1991, after Russia “refused to
yield to a Saudi-led gambit to force Mos-
cow to join OPEC in production cuts”
last week. The Russian rebuff led Saudi
Arabia to respond with fury, “slashing
pricing for its crude by the most in more
than 30 years” to roughly $31 a barrel.
The gush of Saudi oil “if sustained, would savage national bud-
gets from Venezuela to Iran, threaten the heartland of America’s
shale revolution, and upend politics around the world.” The
turmoil, on top of the coronavirus crisis, shook financial markets,
with U.S. stocks plunging by 7 percent early in the week. The
Saudis knew there’d be serious economic consequences, but they
were not going to let Vladimir Putin bully them, said Anjli Raval
and David Sheppard in the Financial Times. It’s a gamble, but
the kingdom had “to punish Russia for abandoning” the alle-
giance it had forged to “prop up the oil market since 2016.”
The U.S. economy could be a big loser in this, said David
Fickling in Bloomberg.com. American shale producers, which
have helped the U.S. become a net energy exporter, still need
roughly $44 per barrel to break even. American investors “have
been falling out of love with crude production for a while,” and
they’ll be reluctant to put in the capital necessary to withstand
“trench warfare with Russia and Saudi Arabia.” Expect shrink-
ing and consolidation of the U.S. shale industry. Our Middle
Eastern “ally” has decided to “undermine an important part of
the U.S. economy at a critical time,”
said Daniel Larison in TheAmerican
Conservative .com. Maybe now the U.S.
will realize it “owes Saudi Arabia noth-
ing and should stop supporting it.”
No, said Bill Farren-Price in the
Financial Times, this is not the Saudis’
fault. Moscow started this—and “has
effectively sent its tanks on to the White
House lawn.” Putin finally grasped
what’s “been haunting oil officials in
Saudi Arabia” for years: That OPEC’s
production cuts have benefited the U.S. shale explosion, threaten-
ing Russian exports to Europe and Asia. “Moscow has taken aim
at President Trump’s much-vaunted U.S. energy independence”
with what amounts to an “economic smash-and-grab.”
“There are rare moments when the world economy seems to be
reconfiguring itself beneath our feet,” said Neil Irwin in The New
York Times. “March 2020 is one of those moments.” As major
industries grapple with the spread of Covid-19, an oil-price war
“could cause widespread bankruptcies in the American energy in-
dustry” and crush capital investment, since “spending on energy
is a major driver of demand for heavy industrial equipment.”
American businesses have borrowed heavily at low rates. Their
debt gives them little room to “withstand the occasional hiccup
in demand or a problem with supplies.” That in turn makes
lenders vulnerable and raises the chance they will pull back just
as businesses need money. Combined with coronavirus’ decima-
tion of consumer-driven demand, this puts “numerous industries
under pressure in ways that could bounce off one another—
through financial markets, to the economy, and back again.”
Oil: Price war wreaks havoc on world markets
Saudi Arabia: Turning the spigot to maximum
greg delong
(Greg DeLong)
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