The second source of trouble is supply: modern supply chains are complicated and only as strong as their weakest link. If you can't get one part, you don't have a car. So it matters that TS Lombard estimates that only 35 per cent of Chinese workers were on the job in mid February. Even now employers are struggling to rebuild their migrant workforces. You rarely see global supply and demand shocks at exactly the same time, but you've got that now.
The main reason markets have done so well over the past decade is extraordinary monetary policy support. When interest rates go down, asset prices go up. Whenever markets have felt a little tired, a hint or a headline that there is more easing to come has pepped them right back up. Mr Trump presumably figures that what central banks have done before — whatever it takes — they can do again.
But potential pandemics don't care if you cut interest rates. Respiratory infections don't care about quantitative easing. The average Covid-19 virus won't cheer up and pop out for a new car, however excellent the terms you offer it.
Central banks promising stimulus may not make much of a difference this time. Loose monetary policy might help companies temporarily weather the storm but it cannot fix broken supply chains or get people on lockdown to buy Hermès handbags.
A headline suggesting a fall in interest rates is coming cannot compete with Thursday's news that all schools in Japan are to close, or Israel's advice to citizens on Wednesday to avoid all foreign travel. Imagine the potential reaction to an outbreak in a major US city.
The behaviour of public health authorities is not reassuring. A family member of mine who feels a little snivelly after an Italian ski trip is waiting for test results. While he does, his kids have been told to attend school and no one has suggested that the rest of the family should curtail their trips to the pub. Containment? Not really.
The key point here is that monetary policy can neither help with the medical risks of the virus; mitigate the obvious supply and demand risks; or manage government responses.
All is not lost, of course. It is entirely possible that nature will come to our rescue. Maybe as the spring comes, the virus will disappear and supply chains will normalise, while pent up demand and a nice wave of stimulus will provide fuel for a renewed bull market. Hong Kong is giving residents hit by the virus HK$10,000 ($1280) to spend.
But here's the thing. The global economy was already looking a bit ropey after decelerating Chinese growth and record levels of global debt. That makes it vulnerable to shocks that would be minor if valuations were low across the board. But valuations are not low.
Brokers can always find a way to argue that overall global markets aren't hugely overpriced. However, some segments are very expensive even after the 10 per cent-plus falls this week, among them growth stocks, a lot of technology and bond proxies. Much of the US market has long been priced for perfection rather than pandemic. Many investors have been nervous — even waiting for an excuse to sell — for some time. Now they have that excuse and they are using it.
So buy on the dip if you are convinced that the virus will be contained and that supply chains and behaviour will soon go back to "normal". You must also brush off the rising evidence that globalisation has an awful lot of thoroughly unpleasant downsides and be sure that markets entered this non-financial crisis fairly priced.
If you have any doubts, you might want to leave buying into corona capitulation to Mr Trump. He at least can afford it.
© Financial Times
