This is a better analysis of the stock market’s reaction than most others that I’ve seen.
The stock market was irrational in subtle ways, but didn’t make blatant mistakes like failing to understand exponential growth.
I expect the biggest problem was recency bias / availability bias that caused markets to overweight the chance that this virus would be contained in the way that happened with Ebola, SARS, and a few other scares that were the most familiar analogies in most investors memories. I think this was one of the larger mistakes that I made.
It’s also hard to evaluate the economic consequences of a given number of infections and deaths. The pandemics of 1918, 1957, and 1968 all seemed to suggest less economic damage than is being forecast for this pandemic. Some of that is simply due to us being better able to afford to shut down businesses than was possible for prior generations—restaurants and airline travel were a much smaller fraction of the economy in 1968 than today.
I think there’s a ton of complexity in “the stock market” that is pretty orthogonal to prediction of growth and impact of the virus. It’s very believable that this ends up BENEFITING the weighted majority of major indices—big companies with the political and financial connections to be in the index are exactly the ones that use their bailout money to buy the broken smaller companies on the cheap.
I don’t know enough to predict the changes, but it’s not unbelievable that we have large price and monetary inflation, even while the government lies about it with skewed measurements, so the stock market keeps up, and anyone who got out and put their hope in cash-equivalent or government-inflation-indexed instruments loses out.
This is a better analysis of the stock market’s reaction than most others that I’ve seen.
The stock market was irrational in subtle ways, but didn’t make blatant mistakes like failing to understand exponential growth.
I expect the biggest problem was recency bias / availability bias that caused markets to overweight the chance that this virus would be contained in the way that happened with Ebola, SARS, and a few other scares that were the most familiar analogies in most investors memories. I think this was one of the larger mistakes that I made.
It’s also hard to evaluate the economic consequences of a given number of infections and deaths. The pandemics of 1918, 1957, and 1968 all seemed to suggest less economic damage than is being forecast for this pandemic. Some of that is simply due to us being better able to afford to shut down businesses than was possible for prior generations—restaurants and airline travel were a much smaller fraction of the economy in 1968 than today.
I think there’s a ton of complexity in “the stock market” that is pretty orthogonal to prediction of growth and impact of the virus. It’s very believable that this ends up BENEFITING the weighted majority of major indices—big companies with the political and financial connections to be in the index are exactly the ones that use their bailout money to buy the broken smaller companies on the cheap.
I don’t know enough to predict the changes, but it’s not unbelievable that we have large price and monetary inflation, even while the government lies about it with skewed measurements, so the stock market keeps up, and anyone who got out and put their hope in cash-equivalent or government-inflation-indexed instruments loses out.