Unveiling the Identities of Those Engaging in Unclothed Swimming in the Financial World
In a candid, straight-shooting style, esteemed financial journalist James B. Stewart sheds light on the latest dips in the stock market, sounding a warning bell echoing Warren Buffett's "Swimming Naked" remark from 1992.
With an uncompromising virus wreaking havoc on the world, a plummeting oil price, chaotic travel industry, and a dubious future for stocks, Stewart shows that the financial system is about to be put to the test - the first real severe stress test since the financial crisis more than a decade ago.
Even as the stock market gyrates wildly, it's no time for complacency, says Harvard economist Jeremy Stein. The potential for economic damage is high, especially with credit markets also feeling the pinch. In some ways, we had all anticipated an end to the unprecedented bull market that began over a decade ago, but with a president pressuring the Fed chair to keep stock prices rising, investors might have misplaced confidence in the central bank's ability to control the market. When the bull market meets its demise in an unexpected event like the coronavirus, complacency often leads to overconfidence, unsustainable valuations, and ultimately, bear markets.
Let's dive deeper:
- The outbreak spreads, with a substantial impact on tourism (13% of Italy's GDP), turning travel and tourism into a gloomy picture worldwide.
- Financial stress is mounting across the oil, banking, and airline industries, suggesting that a lot of risk-averse capital has been introduced without acknowledging the inherent risks of a mature economy and a late-stage bull market.
- Credit markets already show signs of tension, as investors withdraw funds from mutual funds and ETFs that buy corporate bonds and loans. This pullback couldespecially affect energy companies, which hold a significant slice of triple-C bonds (13%). The yield on those bonds rose sharply in the past week as prices plunged.
So, is a wave of defaults and bankruptcies in the energy sector imminent? Only time will tell. However, the emerging tension in credit markets could act as a canary in the coal mine, signaling financial stress well before it becomes visible elsewhere in the economy.
- What if the economic damage from the coronavirus is more extensive than we anticipate, just as Warren Buffett warned about in 1992 during the recession?
- As the recession looms, even esteemed figures like Warren Buffett might be protecting their finances by avoiding risky investments, much like their strategy during the stock market turmoil of the early 1990s.
- In light of the serious financial impact of the coronavirus crisis, investing in business might seem risky right now, but history shows us that those who navigate the challenging financial scenes well often emerge successful in the long run.
- If credit markets continue to show tension as investors withdraw funds, it could signal a recession in industries such as oil, banking, and travel, just as Jeremy Stein has warned.
