From Project Syndicate, March 31:
Predicting the stock market at a time like
this is hard. To do so well, we would have to predict the direct effects
on the economy of the COVID-19 pandemic, as well as all the real and
psychological effects of the pandemic of financial anxiety. The two are
different, but inseparable.
NEW HAVEN – We are feeling the anxiety effects of not one pandemic but two. First, there is the COVID-19 pandemic, which makes us anxious because we, or people we love, anywhere in the world, might soon become gravely ill and even die. And, second, there is a pandemic of anxiety about the economic consequences of the first.....MUCH MORE
These two pandemics are interrelated, but are not the same phenomenon. In the second pandemic, stories of fear have gone so viral that we often think of them constantly. The stock market has been dropping like a rock, apparently in response to stories of COVID-19 depleting our lifetime saving unless we take some action. But, unlike COVID-19 itself, the source of our anxiety is that we are unsure what action to take.It is not good news when two pandemics are at work simultaneously. One can feed the other. Business closures, soaring unemployment, and loss of income fuel financial anxiety, which may, in turn, deter people, desperate for work, from taking adequate precautions against the spread of the disease.Moreover, it is not good news when two contagions are, indeed, global pandemics. When a drop in demand is confined to one country, the loss is partially spread abroad, while demand for the country’s exports is not diminished much. But this time, that natural safety valve won’t work, because the recession threatens nearly all countries.Many people seem to assume that the financial anxiety is nothing more than a direct byproduct of the COVID-19 crisis – a perfectly logical reaction to the disease pandemic. But anxiety is not perfectly logical. The pandemic of financial anxiety, spreading through panicked reaction to price drops and changing narratives, has a life of its own.The effects financial anxiety has on the stock market may be mediated by a phenomenon that psychologist Paul Slovic of the University of Oregon and his colleagues call the “affect heuristic.” When people are emotionally upset because of a tragic event, they react with fear even in circumstances where there is no reason to fear.
In a joint paper with William Goetzmann and Dasol Kim, we found that nearby earthquakes affect people’s judgment of the probability of a 1929- or 1987-size stock-market crash. If there was a substantial earthquake centering within 30 miles (48 kilometers) within the previous 30 days, respondents’ assessment of the probability of a crash was significantly higher. That is the affect heuristic at work.It might make more sense to expect a stock-market drop from a disease epidemic than from a recent earthquake, but maybe not a crash of the magnitude seen recently. If it were widely believed that a treatment could limit the intensity of the COVID-19 pandemic to a matter of months, or even that the pandemic would last a year or two, that would suggest that the stock-market risk is not so great for a long-term investor. One could buy, hold, and wait it out.But a contagion of financial anxiety works differently than a contagion of disease. It is fueled in part by people noticing others’ lack of confidence, reflected in price declines, and others’ emotional reaction to the declines.
A negative bubble in the stock market occurs when people see prices falling, and, trying to discover why, start amplifying stories that explain the decline. Then, prices fall on subsequent days, and again and again. ...
Okay, long suffering reader also knows: It is very, very dangerous when analysts venture into seismology, with Joe Granville being the poster child. See:
Long-time bear joins bulls: Controversial Joe Granville says Dow could rise 800 points
I didn't realize he was still alive. There was a time when he moved markets, then he started predicting earthquakes. Then he called the crash of 2000 within 24 hours of it's March 10 Nasdaq peak of 5048. After the MW piece are a story, a stub and a bit of history.....That was posted on August 7, 2008, not a good time to be going bullish.
If interested see also "Joe Granville Predicts Another Earthquake: 'Dow Jones INDU to 8000'"
That was January 24, 2012 so ditto on the timing, this time going bearish.
Also, from the New York Times:
NOTES ON PEOPLE; As a Seismologist, He's a Good Stock Analyst
And another guy who went that way:
November 2017
Jason Zweig: "Can Fund Manager Bill Miller Use Earthquakes to Predict the Market?"
