What happens when the global economy gets sick?
I won't pretend that I pay much attention to the stock market. Let's just say I don't have much reason to do so. Occasionally though it is unavoidable now with all the reaction to the corona virus world markets have tumbled phased suffering. Its biggest drop. Since the nineteen eighty seven crash Wall Street plunged the most is the financial crisis the losses so steep on both sides of the border at it actually triggered a trading halt for the Fed and other central bankers drop in oil prices is adding another complication as they try to gauge. How the corona virus will impact the global economy the fascinating thing about the reaction of markets around the world to Cova Nineteen. It's not really about dollars and cents. Yes a lot of billionaires lost millions and millions more are are. Sp's have taken ahead but watching what's happening here even if you have no money in the markets is a glimpse to how we all value risk. So what have we seen in the past few days and weeks? It's different from financial shudders like the crisis of two thousand eight. Where could the markets go from here? How far could they sing? And what will the world's governments do to prevent that and what happens beyond dollars gained or lost as a result of all this weather or not. Stock prices surged again. When this is over what happens in other words when global economy comes down with flu like symptoms. I'm Jordan Heath Rawlings. This is the big story. Mike Apple is these senior business editor at six eighty news. He's been busy the last few. Hello Mike How are you? I'm doing well. Why don't you quickly outline? I keep in mind that we are talking in the middle of the day so stocks may do any thing quickly outline. What have we seen in the past couple of days with stock markets and oil prices? You have to go back actually three weeks because up until about the mid part of February the markets were on fire. Everybody was buying everything you could not lose money It was the greatest momentum rally not necessarily based on fundamentals which turned out to be a bit of a problem but Tesla was at a record SPACEX and Virgin Galactic Apple Microsoft all these big companies record highs and krona virus was starting at March so to speak in China. That's peculiar. Why isn't the market more worried about this well? Then as it started to spread people include in and airlines were. I think the first trigger where they started air. Canada cut flights to China. So there was this wakeup call that this was going to have an economic impact and that started the selloff for stocks and over the course of the past three weeks we have seen the biggest point declines and subsequent point gains on the benchmarks in history like there have been massive swings one day huge selling next a big buyback and we are coming off now the subsequent largest slump ever on a points basis. I WanNa make that designation for the Tsa X. Endow because when we look at it on a percentage basis. It's big but not October. Nineteen eighty seven big where the Dow Single Day drop twenty two percent. It's massive. We're talking trillions of dollars of market value. I don't want underestimated but again I wanNA put it into some context. The TSA was down over ten percent. Second biggest ever point percentage decline. Explain what's driving this. You touched on airlines. Yes okay. So that was the that was the first economic shock that the tourism industry was was seeing a major revaluation. People weren't traveling companies. Their supply chains were being shut down in China ripple effect elsewhere than into Italy in Europe and Potentially into North America. So that was the first wave of selling and then what happened? Was the reaction from the market for what? The Saudi Arabian government announced on the weekend. Last week they wanted to cut production to stabilize the oil market which had seen a bit of a downturn so they were holding meetings OPEC cartel and Russia. There's sort of a new player in the global market newish and they wanted to cut production well. Russia had been playing ball the better part of a couple of years but then for some reason they walked away from the table on Friday. They said we. We're really not thinking about cutting production. Now we think we can withstand lower prices. Have at it as you will. This incense the Saudis who say okay. Fine. We're going to raise output in an already oversupplied market to record levels. We're going to crush the low hanging fruit. Any company that produces at say forty or fifty dollars a barrel every barrel they produce is going to lose money but the Saudis can produce it around twelve to fifteen and we're still around thirty and change and the Russians are close but that was the second hit so to speak. Do we know if those two are connected the the sort of oil price wars and the corona virus? It is because the first reason oil dropped was because China basically came to a standstill China's one of the largest buyers of oil prices dropped dramatically. And then this next thing developed at the worst possible time for the market really. It's like really you got to do this now anyway They don't seem to care because this morning again. They said starting next month. Twelve million barrels Russia said okay. We'll match that or very close to it. You've got Canada in the mix the US already at record levels. Suir a globe that is going to be a washing oil which just kind of sounds gross by at least a lower prices lower prices at the gas gas stations. Great for consumers horrible for the industry. Guess what Albert is going to get hit again. Yeah how efficiently can Alberta Produce oil? And and what do they need? Oil PRICES TO BE AT in order to not crush their economy. More than it already. Is this Most recently the tech resources project that was mothballed by tech a few weeks back had a break even price. I think it was north of fifty dollars per barrel okay so significantly higher than than where we are now the established producers son core and the others. They're at a lower price point because they're already moving commodities around and this is why we're talking about you know the oil market being a barometer of the global economy and then you've got the travel and tourism industry in the mix and why the markets have done what they've done they they've re priced risk They've lowered earnings expectations. Apple has already said that its sales in China dropped substantially in February. They're gonNA drop again in March. Their supply chain has been hit again. Apple's got deep pockets. They don't have to worry. Long-term THEY'RE GONNA come out of this. But is the company worth a trillion dollars anymore. Right it's all a repricing and the pendulum that we see moves incredibly fast because everything and and it was funny to to to hear commentators about how quickly markets dropped and then recuperated in previous crises whether it was eighty seven or the DOT COM bubble. Or whatever over there was SARS or murders or any of these other things the Russian ruble crisis it. All of these would take months if not years now. We're talking about weeks and that's that's what shocks and scares people. Because it's like what do you do it? So let's just talk about people like myself and probably like many people listening who don't have tens of thousands of dollars sitting in stocks and aren't you know directly impacted the second. This happens when you look at a ticker in your money's dripping away. What does the crash of the market mean for someone like me? It's psychological more than anything else. Because you're not you're not selling you're not buying necessarily not cashing in for X. number of years on your RSP. So I mean time is your friend and all of the old market adages but you see that and you say wow. Do I want to go and buy anything big today? Do I WANNA spend money? You know when you're when you are in a good mood you're more willing to be happy consumer and when you're not and you see all these negative headlines You Kinda Kinda retrench. That's the biggest problem and again from an investing standpoint. You know it is so difficult to sell it. The high and via the low people do the inverse ratio. As you're thinking who I'm missing out when things are hitting records and then when things are on sale you don't WanNa touch with ten football so now is actually time it it. It's it's not over yet. We still seeing the virus ripple through. This is going to take some time. There's no doubt about it. Bought companies that were priced. Way Up here in the stratosphere a few weeks ago discount if you like them then should love them now and that's the hard thing to get past. How much risk has the priced in already? You know we've Seen Corona virus spreading in North America particularly So far at least in the United States is a larger spread of that already priced into these drops or could it get even worse as it expands it it. It could get worse but we are already looking at the forecasters saying okay. We are expecting that. The economy will slow dramatically. Hopefully it doesn't but it is likely going and they are already saying that interest rates which were cut last week going to fall that much further over the next two months you know the bond market which is another one of these barometers of risk and worry and flipside euphoria We have seen bond yields dropped to all time record lows lower than what we saw during the financial crisis when banks were going out of business which is just to me remarkable now as it was explained to me the reason they're lower than where they were then because they never got back up to where they were previously so you're starting at a lower point and then dropping from that so it okay that kind of makes sense but you know we could see zero percent interest rates in North America. This was something we were looking at in when Greece was defaulting. Right right and people were going. How does that work? You're getting zero percent. Yeah because you're buying that bond or whatever it is because you think that the stock market or any other asset classes going to drop further than just keeping it at something get zero percent and again that that adds to the concern in the caution right. How much of a role does politics play here? I mean there's a tremendous amount of discussion in the United States about the role. The economy will play in an election year. And I'm wondering how individual governments and especially Let's say prominent world leaders How their response to the crisis might drive the markets and impact. Well again. You're talking about a health. Risk as opposed to a financial risk more than anything. Oh Eight Oh. Nine was banking industry crisis. This is again more of a natural disaster. I guess I don't want to over Stated but when you've got you know an entire country under quarantine that's kind of big and how politicians handle that from a communication standpoint. It's not as much Under that circumstance what the economy does it is how the crisis is dealt with. Because they're kind of two different things now At the same time. We're into budget season. So you know the Federal Government Federal Government Finance Minister Bill. More no has said well. We're working on scenarios where we could do this that or the other thing from a stimulus effort to what end. I'm not sure because again. That doesn't you're not injecting money into a failing company per se. You're you're just basically trying to shore up confidence more than anything. Maybe some short term tax cuts. That's what they're talking about. The United States for payrolls for companies. It's a different if it's a different beast in the United States. Of course we're they're not under a a social healthcare net. Now a lot of people have been going to work because they don't get paid if they don't have that to some extent here but also health care is not covered in all circumstances. So it's a you know how they dig deeper. Theoretically into debt to pay for some short term economic stimulus efforts remains to be seen. And I think you know the the budget was supposed to be out here next couple of weeks. I have a feeling they're going to lay that just to get a handle on there. They've got to revise it. The can't you know that that's the thing if they go. If the Trudeau government goes with the current plan of talking about what they had been focused on and not account for what is the here and the now you can have grandiose plans. That's great but you gotta deal with you know because it was you know eight Late Finance Minister Jim. Flaherty onto the Harper government came out with a fall economic update in November after the collapse of Lehman brothers and the talk then was asked not gonNa Affect Canada. All that bad and of course it was in the midst of everything and he got it just got hammered from a political standpoint for sort of being oblivious to the the upcoming crisis that everybody else could see so you can't not do something in the here and now and just totally discounted. You have to be proactive. Rather than not this is perhaps A dumb question. I'm not intending to make light of the situation. But there are some companies that are seeing their stocks spike. Your this right. I imagine two weeks ago would have been a great time to buy Pierrot. Yes Kimberly Clark Procter and Gamble Costco and Walmart. All of them up in the past week. Because what have we seen people lining up to buy toilet paper Yeah no they`re. They're in every type of crises. There are winners and losers and right now consumer products companies are actually because people stockpiling whether they need to or not. You know the funny thing is you don't have to go to the store. Last time I checked you can have things delivered for the record to get off topic. I looked up Hand sanitizer on Amazon. The other day to have some delivered end You would not be shocked to learn that there is some price guy. I'm not shocked to hear that at all. In fact Amazon's been trying to crack down on that. They've been combing their website to get rid of third party sellers. That are trying to gouge. My last question is just a as someone who covers the markets What will you be watching four specifically over the next few days and weeks to see if this is the new normal and this is a dip you know some people say by the dip etcetera etcetera? What are your key indicators? I guess it's the The rate of the spread in various countries. it's starting to slow you watching the virus because then you'd actually have okay. We've passed the worst case scenario right so China's starting seemingly getting back to normal Italy is now the next kind of hotspot do they contain it. Does it spread into Germany more so than it already has And then here in certainly in North America as a as a as a big wild card. So that's you know and and also over the next couple of weeks. We'll have companies. The airline industry is already doing this as of today cutting their forecasts because they are shrinking capacity big time. They're taking planes parking them because they do not have the need right now for flights to various destinations. So you know they're all adjusting energy-sector too so I think it starts with the virus itself and then you kind of work out from there and also government policy. They could slow slow down some of the the risk as well. I guess. Short term. Thanks for helping Financial Moron understand this not at all. It's my pleasure. Mike Apple senior business editor four six eighty news. That was the big story if you would like more head to the Big Story. Podcasts DOT CA. You should know that by now. Shouldn't have to tell you you can also talk to us on twitter at Big Story F. p. n. you can find our whole network at frequency podcast network. Dot Com and at frequency pods on twitter or facebook or instagram. And of course you can find us in your favorite podcast player. Every single one leave us a rating five stars. Leave us a review. Say Nice things. Thanks for listening. I'm Jordan Heath Rawlings. We'll talk tomorrow.