Markets: Shut them down or bet on recovery?
Wall Street has been roiled by the fastest and most extreme sell-off in its history, said Michael Santoli in CNBC.com. With the coronavirus pandemic worsening, it took the S&P 500 only 22 trading days to fall 30 percent from its record high. That’s a faster fall than stocks saw in the financial crisis or even the cataclysm of 1929. Investors have been searching for clues about when the market carnage could end, but it has become “like forecasting the weather before radar or telegraphs: Noticing how the wind ruffles the leaves, watching how animals are acting.” Things are so bad that a rally of 10 to 15 percent looks like just a “bounce on a chart.” On a call with the Bank of England’s new governor last week, some of the world’s biggest fund managers suggested the unthinkable: shutting the stock market for two weeks, said Justin Baer in The Wall Street Journal. While “a majority of the people on the call said they didn’t think shuttering the markets would help,” there is a growing chorus of alarm about the market rout.
Shut it down, said Julianna Tatelbaum in CNBC.com. Everything, including the New York Stock Exchange’s iconic trading floor, is closing around us, in an unprecedented swoon, and we need “two weeks to allow the business community to adjust to the new reality.” The global uncertainty prevents “financial markets from functioning efficiently.” It’s not unheard-of: Wall Street was paused after 9/11 and Hurricane Sandy and closed for four months after the outbreak of World War I. How many circuit breakers need to be triggered before policymakers come to their senses? There’s “less near-term clarity than investors had during the depths of the 2008 financial crisis,” said Conor Sen in Bloomberg.com. The problem is not just that the market has fallen. It’s that we have no idea how much stocks and bonds should be worth. Many of the market’s short-term moves are driven by speculation about a government rescue, “raising the risk of significant amounts of insider trading and market manipulation.” A temporary halt “seems like the only realistic way” to mitigate the panic.
That has things backward, said Alex Friedman in Barron’s. Freezing the markets means blocking investors from access to their assets. That doesn’t curb panic, it incites it. That’s “how a run-on-the-banks mentality starts.” Shutting the markets would inevitably cause “a cascade of black swan events”—unexpected consequences that will actually make markets more unpredictable. And even amid the devastation there are investors willing to buy, said Scott Deveau in Bloomberg.com— witness the market’s extraordinary jump on news of a stimulus deal. The billionaire hedge fund manager Bill Ackman, who just a week earlier called on the government to shut down the economy for 30 days, “made a ‘recovery bet’” this week. He’s taken off the “short” positions he had—wagers that the market would go down—and “invested $2.5 billion in equities,” increasing his position in companies that include the home-improvement chain Lowe’s, the Hilton hotel chain, and the conglomerate Berkshire Hathaway. His fund, says Ackman, is now “betting on the country.”