Dan Celia: How Long Will the Volatility Last?
Share This article
COMMENTARY
After two back-to-back weeks of extreme volatility—most of it on the downside—it's certainly not beyond the realm of possibility that we could see another 10% drop in the near term. The question is: How long will this last? I don't think it will last all year long; this is a transitory effect. Many claim that all of this volatility is because of the economic damage stemming from coronavirus worries, and certainly that is true if we don't start to see containment soon or a drop in cases due to warmer weather. The lack of GDP growth globally is almost certain, but we'll have to wait and see. U.S. equities will fare far better than most countries because we've started from a much higher place in a much stronger position, whereas everyone else's economy was already extremely fragile before any of this started. For example, it's likely that Germany will slip into recession this year.
One of the biggest problems I am concerned about—but, apparently, I'm the only one—is, as I expected and talked about all week long, the U.S. dollar has fallen amid expectations that the Federal Reserve could cut interest rates even further. First of all, let's make something clear, and I'll say it again—there is absolutely no reason for the Federal Reserve to have slashed rates by 50 basis points this week, and certainly there won't be another emergency move that would cause the Fed to slash them again. The Federal Reserve in its Beige Book report mentioned the epidemic 48 times. They do this to suggest that policymakers are highly concerned about economic damage from this disease. How about we get through this transitory effect before we start dropping rates?
I am all for trying to get ahead of a downturn, but this is not an economic downturn.
This was not caused by a geopolitical event or an economic event that is likely to be long-lasting. The Fed does not need to be trashing the dollar. And what about Treasury rates yesterday? Remember, our debt is desirable because we're the strongest dollar in the world. We were the only treasury bill or government bond that had a whole number in front of that decimal point. But it looks like that is going by the wayside, and we will be just like every other country. There will be no incentive and no reason for other countries to buy our debt. Then what?
Dan Celia is president and CEO of Financial Issues Stewardship Ministries, Inc., and host of the nationally syndicated radio and television program "Financial Issues," heard daily on more than 660 stations across the country and reaching millions of households on several TV networks, including FISM.TV.
Share This article