03/07/2021 — A Systemic Problem?

At 5:00 PM today, when the market reopened after its brief two day slumber, buyers quickly forced a 20 point rally in the S&P index. Not to be out done, a couple hours later the sellers decided they’d had enough of the optimism and swiftly pushed things in the other direction to the tune of 30 points. Many of those buyers and sellers were probably even the same people.

This evening’s schizophrenic behavior, as well as that of the past week, appear to be the result of rising bond yields and tech stock pullbacks on one hand, and the continual influx of money and quest to replace income streams on the other. Those are quality technical reasons that I subscribe to as well and have referenced when discussing the madness. For a less technical analysis, I return to a discussion I had with a fellow trader nearly a year ago, before the current pandemic turned the months of March and April into a slaughter. At the time, my friend pointed out a crucial difference between the Pandemic Event and the Financial Crisis of 2008.

To him, the Financial Crisis represented a deeper problem and a serious threat to the medium-to-long term health of not just financial markets, but our financial system, and even our economy at large. The pandemic panic shared more in common with a September 11th event or the 2011 Japanese Tsunami. In other words, it bears a resemblance to a brief disaster that takes time to overcome, but not a concerning flaw that will need us to take an introspective look at out economic model at large. I agreed with him at the time, and I still do.

However, I wonder if the Pandemic itself can’t be serving as it’s own “environmental” crisis as well as accelerating a deeper, systemic issue that needs to be reckoned with. Is it possible that we really don’t ever return to what was once normal, pre-pandemic? I’m not talking about social-distancing, or spikes in OCD hand washing, and the potential extinction of the handshake greeting. To me, bigger concerns should be the possible disappearance of entire industries. The restaurant industry, the music industry, movie theaters, and even travel, might not ever return to their previous levels. For all the hype that surrounds peoples’ burning desire to return to the lives that they once lived, I wonder how many people have lived without for long enough that they wont come rushing back.

Concerts can be swapped out for livestreams. It appears that any opportunity to dine-out can be replaced with a delivery. And travel…is it a bridge too far to suggest that virtual reality couldn’t one day supplant the real thing? As much as technology saved us from the worst fallout of the pandemic, has it not also been accelerated in terms of its importance and omnipotence to a level that we are not prepared for?

Change can be good or bad, but sudden and extreme change usually tallies a few casualties. If the aforementioned scenario holds water, our system might be overwhelmed with casualties, or it might open up a new era of prosperity. The even more uncertain truth is that either way, the market might not respond in an intuitive manner. Perhaps this is part of the recent bi-polar market movement that we have experienced as we look towards the end of this “market cycle.” Or in a couple months, financial market behavior will regain calm and carry on, even if society takes years to recover. Of course, my guess is a good or bad as any, but I’m starting to feel like a purely technical analysis can’t explain all of these wild swings.

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A running soliloquy covering the life and times of a financial trader. Opinions, insights, commentary, and stories from past and present…served with a healthy dose of irreverence.

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Willie Witten

Willie Witten

Writer, thinker, trader, musician, builder and beer aficionado

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