Covid-2019 Becomes Covfefe-2020

Markets are in the deep correction we expected in response to the Covid-2019 epidemic. The objective epidemiological data has gotten just slightly worse, but subjective sentiment has worsened considerably, goaded on by a “blame Trump” political circus. This makes government response more difficult and complex, and erodes confidence. The worst case is that it weakens the economy sufficiently to thwart Trump’s re-election, the fear of which would “reflexively” weaken the economy further. It likely creates both a demand effect and a political rationale for the Fed to cut rates in March. A cut can’t cure Covid-2019, but the Fed was too tight to begin with, and a cut can ease financial conditions that the virus tightened further. OPEC is likely to announce production cuts. The S&P 500 equity risk premium is near the widest since the end of the Global Financial Crisis. The atmosphere of panic has made equities very cheap, suggesting at least some timid dip-buying.