The Bull Market Caught a Virus

It’s weird to have a market crash with such a simple explanation. Why are we in a bear market? An infectious disease is killing people and disrupting all sorts of economic activity. That’s it; that’ll do it. If no one is traveling and trade is disrupted and businesses are closed and no one is leaving the house then, sure, corporate earnings will probably go down, and you should pay less for those earnings. On Monday I contrasted this simple story with the complex emergent financial phenomena that caused the 2008 crash, but 2008 is not the anomaly there. When you read about the 1929 or 1987 crashes, the stories involve some combination of speculative bubbles and leverage and slowing economic trends and unstable combinations of new financial technologies. In 20 years when you read the Wikipedia page for the crash of 2020 it’ll be like “everyone got a virus so the market crashed.”

Oh I mean it’ll probably go on! “Once all the companies stopped making money due to everyone staying home,” it might say, “they couldn’t pay their debts, which was bad for them and also for the banks who loaned them money, and also for the non-bank lending operations that had grown in the previous decade’s boom and never really been tested.” (“Will the coronavirus trigger a corporate debt crisis?,” asks the Financial Times.) Or whatever, I don’t know. There’ll be a section about some complex financial transaction that you’ve never heard of but that will have unwound in an unpleasant way. Maybe there’ll be a section on what happened to all the Redditors’ options bets when Robinhood crashed, that seems like the sort of thing you find in Wikipedia articles about market crashes. That Businessweek cover is gonna end up in the history books.