Market Fallout – 3.23.20

Back to the ’87 18% one-day selloff:  

Total value lost = $500B
Total value of transactions = $25B
Q:  Where’d the other $475B end up?      A:  It was never there.
Markets have a limited amount of cash, or liquidity in them. PANIC sends everyone heading for the door, but they discover the door is only so wide. Everyone can’t get out. Thus prices drop dramatically to find willing buyers at ever lower prices.
CALM prevails and normal functioning markets return.

Benjamin Graham > Pioneer – value investment sage (1894 – 1976) – advice that still applies today.

  • “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”  –

I’ve heard this quote a few times, but yesterday it finally made sense. Long term, stocks are valued relative to their balance sheets, cash flow and business prospects. Short term, prices are determined by investors’ immediate needs, emotions (related to both fear and greed) and want for cash.

News of the day:  Congress squabbles on details of the aid package. The Federal Reserve expands its asset purchase program to now include corporate bonds and…

Other initiatives include an unspecified lending program for Main Street businesses…. There will be a program worth $300 billion “supporting the flow of credit” to employers, consumers and businesses and two facilities set up to provide credit to large employers. (See link below)

Once considered the lender of last resort, they have now become buyer of last resort to keep the dis-functional markets functioning.