What The Coronavirus Outbreak Could Mean For the Global Economy
Being just three weeks removed from an all time high, the U.S Treasury yield falls to an all time low. Many around the world are left with questions. Should I buy? Should I sell? What is going to happen to my retirement fund? On this episode of Full Disclosure, host, Roben Farzad sits down with the editor of Reuters Money, Lauren Young on how the coronavirus outbreak might affect the global economy and stock markets around the world.
The following excerpt was edited for clarity.
Roben Farzad: The last time we saw anything like this was in 2011 ... late summer of 2011, when there was this concern about the new level of contagion in Europe. They called them the P.I.I.G.S., Portugal, Italy, Ireland, Greece and Spain, and thankfully that was short lived and the economy, the global economy would come and recover. Prior to that, it was the 2008, 2009 freefall meltdown where, you and I remember this at Businessweek covering the markets, where just every day it became the market falling five, 600 points. There was this feeling of weightlessness, there's nothing you can do about it. Around March 9, 2009, I'll never forget, a bunch of people in the art department at Businessweek Magazine, a bunch of other staffers and editors came and tapped on the window by my cubicle and asked me if they should start liquidating their 401 Ks. One person very close to us said ‘you don't understand this we're all going to be eating cat food in a year my parents survived The Depression.’ And you and I know, reading all the literature, reading Warren Buffett, Jack Bogle, everybody else says that when things like that happen, it's supposed to be a contraindication for you to go in and buy.
Lauren Young: I don't disagree with you, and I don't think it's a bad time to buy it. Look, there are different sectors and there are different things happening and there are different motivations for buying things. You and I, it sounds so didactic, but we're in it for the long haul, we're still relatively young. But I think for people who are on the cusp of retirement right now, it is a scary moment. For people who have to take required minimum distributions this year in the US where you have to liquidate part of your retirement portfolio as required by US law, it's really scary. No one wants to be selling into a market like this.
Farzad: You know, Lauren, again, to go back to the 10-year Treasury note yield, that's supposed to be a sign … It's mostly quoted on the news, the benchmark 10 year Treasury yield on Thursday fell to an all time low. I mean, to put that in context, an all time low. We had not seen that, on September 11. We had not seen it in the worst, the teeth of Lehman Brothers, of everything falling apart on Wall Street at a time of war. Again, to remind you, we are just two or three weeks removed from an all time high on the market. For a global panic indicator of people piling into the safety of 10-year Treasury, with the United States being the ultimate readout of safety, that is a bit of a terrifying indicator.
Young: It is terrifying. It also is, for some people, a really good opportunity to refinance your mortgage right now. Particularly if you have an interest rate over 4% or 3.5%, you should take advantage of these things people because they may not happen again. It is terrifying Roben, I will not disagree with you. And I think what's scary about it is we have the surprise rate cut in the US. Fed officials are clearly concerned about what's happening with the US economy. And I have said it to many people and I will say it here now, I do think we are headed for a global recession. Only because of all the slowdown in so much activity that's so important to the world's economic growth. So it's not surprising to me. It is scary for sure. Do I think that it's gloom and doom and the days coming of Armageddon? No. But we do need to get a handle on what is happening with the coronavirus. I know that every pharmaceutical company is out there right now trying to figure out a way to treat it, vaccination, whatever it is. And I think you know this, everyone knows this, you can't find a bottle of Purell anywhere in a pharmacy right now in the US or a Costco or any other grocery store. It's also really interesting to me the preppers, the people who have gone out and stockpiled canned goods. I have not done that yet.