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When Government Officials Calmly Say Don't Panic, People And Business Panic And Stop Spending

Mar. 08, 2020 11:39 PM ET
Vaughn Cordle, CFA profile picture
Vaughn Cordle, CFA


  • Panic begets more panic, and it's time to apply for refinancing and buy selected stocks on the panic dip - but not yet.
  • Fed Funds and the entire yield curve is falling fast, which has inflated a major bubble in the bond market.
  • The economic damage will show up in 2Q and 3Q with a rebound in the stock market prior to the leveling off and decline in virus cases.

The “panic” in the market is reflected in the spike in the VIX, the plunge in the market and interest rates, and the sudden and big drop in GDP growth estimates. Investors are still anticipating another cut at the central bank’s meeting on March 18, and potentially another quarter-point cut in April. We are in uncharted territory, and the damage from the fear of COVID-19 will be much greater than the virus itself.

The Fed is running out of room to cut rates to avert a more significant economic downturn if the virus cannot be contained, and it will not be contained in non-China countries. There is a limit to monetary policy, and President Trump is pushing for temporary payroll tax cuts or possibly some type of stimulus package that includes infrastructure investment. Democrats will support investment but not likely tax cuts.

Charles L. Evans, the president of the Federal Reserve Bank of Chicago, said on Tuesday night that the onus was on federal authorities, not the Fed.

“You’ve got to recognize that the key response to the virus has to come from the federal authorities, and the health community, to make sure that we all stay safe,” he said, adding that he expected the economy to bounce back after a short-term pullback in demand. “This is the type of event that you would expect to be short-lived.” Short-lived could be one, two or even four quarters. This is the uncertainty that is driving the uncertainty and exaggerated swings - and plunge - in interest rates and the stock market.

First-quarter (real) GDP growth is now expected to fall from 2.3% (prior to the virus event) to perhaps 1 % or even lower. The probability of a recession has increased significantly for the first half of 2020, and the economic damage will show up big time in the

This article was written by

Vaughn Cordle, CFA profile picture
Founding Partner and Chief Analyst at Ionosphere Capital, LLC Vaughn Cordle, CFA has 40 years of experience in the transportation industry. Work includes over 20 years as an analyst and consultant to various institutional investors, money management firms, suppliers, and various labor groups. A retired senior B787 Captain at United, 35 years / 28 years as Captain flying international flights out of Washington DC. Highlights include being selected to fly inaugural Paris, London, and Frankfurt flights after United purchased Pan American World Airways in the late 80s. Vaughn is an ATP pilot with 25,000+ hours with the following ratings, licenses, and awards: LRJET, CE500, A320, B727, B737, B747, B757, B767, B777, B787. Gold Seal Instructor, Flight Engineer, 31 World and National speed records. Records certified by the National Aeronautic Association and Federation Aeronautique Internationale Vaughn founded AirlineForecasts, LLC and Ionosphere Capital, LLC and has managed transportation-related investment research employing subject matter experts and a small team of analysts and researchers. Clients included Mitsubishi Heavy Industries, Fuji Heavy Industries, Southwest, and WestJet pilot groups and over 50 large and small equity and debt funds. Vaughn attended executive education programs at Kellogg, Wharton, and other business schools and is considered one of the leading experts in the transportation industry. Vaughn earned the Chartered Financial Analyst (CFA) designation in 2003. Media interviews include appearances on Fox business news, CNN, CNBC, Bloomberg TV and Radio and various other business news networks. Highlights include testimony, briefings and presentations at the DOT, White House, FAA, American Bar Association and various other groups. Work includes authoring and co-authoring various published papers and reports on industry deregulation, consolidation, and mergers. Selected as X Prize pilot for the first civilian company to carry passengers into low-earth orbit. The system was designed for satellite deployment with a side project for the X Prize competition that included controls for a pilot and two seats for civilian passengers. The launch system rocket was developed by 16 NASA engineers and scientists that managed the Challenger flights. The project failed to get off the ground due to funding issues. Highlights included various media interviews and a guest appearance on the David Letterman Show.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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