Thinking About Things: The Next New Normal

Having been under house arrest for many weeks now, I have in recent days been thinking about what it might actually mean for all of us, as a practical matter, when the Governors of the various states decide to “open up” things. But I get ahead of myself. The stock market, while down by some indices more than 15% (having come back from being down plenty more than that), seems to have to a significant extent shrugged off the reality that economic activity in this country has substantially declined and in some segments disappeared. Aerial photographs of highways show few cars and no trucks. The skies are eerily silent, almost reminiscent of the time after 9-11; restaurants are closed. While some stores are open, JC Penny and other big-box department stores all seem headed for chapter 11 bankruptcy. Amazon beat them up and the quarantine seems to be pushing them off the cliff. Layoffs are everywhere. A lot of the jobs will not come back any time soon. Maybe millions. ... Read More

Could the Stock Market Be Rational?

John Briggs observes early in this article that “the stock market seems to have shrugged off economic reality.” He puts his finger on the persistent problem of understanding what drives the stock market. Small blips on the economic horizon produce disproportionate reactions and corrections, as we saw when worries about trade wars dropped the market at the end of 2018. In this case, however, it strikes me that the market is evidencing almost unique far-sightedness and rationality in assessing the relative size of the real economic impacts of the China Virus, with a good bit of pessimism about the harm that political responses might do.... Read More