Why Ebola Fear Made the Stock Market Shudder
When three people getting Ebola in the U.S. can cause the stock market to shudder, then you know the market has entered that crisis I was talking about when I said the headwinds to the global economy would become so strong in the fall that a single significant event out of the blue — such as Ebola fear — could cause the market to tumble.
In market terms, Ebola is leveraged by its fear factor
This week, it is clear that exact scenario happened. Try googling “ebola fear stock market” and see how many pages pop up from significant market news sites stating that Ebola fear is shaking the market. And look at how many other sites have commentary imploring people not to fear and not to fear monger (because they are concerned that the market is so precarious that mere negative talk could cause it to collapse).
What I’ve said about Ebola is not that the disease, itself, will tear up the economy (though that could happen and would be even worse), but simply that fear of the fear of Ebola might cause the stock market to plunge. In other words, investors’ fear of the public fear about Ebola would cause investors to panic about the market. The first direct sign of that came on Tuesday of last week when news of someone with Ebola-like symptoms on a plane came out. Within ten minutes, the market plunged from being down 50 points to being down 110 with airline stocks taking the biggest hit. The correlation was pretty clear as cause and effect, given the stocks that were immediately hit.
It’s the economy, Stupid, not Ebola Fear
Having said that the market tumbled and bounced because of Ebola fear, I need to explain that it is not fear of Ebola that is destroying the market. It is the rickety condition of our economy leaning into the winds of a European recession, a crisis with Russia, a Chinese move to create an alternate international currency, war in the Middle East, and, far more than anything else, the ending of quantitative easing. (You cannot take $80 billion a month out of the marketplace and not see stocks go down for the simple reason that there is so much less easy money looking for a place to go.)
What I’ve been saying on this blog is there will be so many negative forces in the fall blowing against the economy that the economy will weaken to the point where all it takes is a fear trigger to send the whole thing cascading. It doesn’t make any difference what the trigger is. It could be anything that causes a panic.
This week most stock advisors and economists began seriously fearing that fear, itself, will cause the market to fall. This proves that they deep inside that the market is weak, in spite of all they have been saying on the surface. These are the same bulls who said only a few weeks ago that the market was nowhere near a top and would keep rising.
I wouldn’t be surprised, if the market gives way completely now, if they blame everything on the public panic over Ebola. Rather than admit they were wrong and that the economy is weak and cannot hold up to the headwinds it is facing, the die-hard bulls will say it was Ebola fear that broke the market. But ask yourself, how is it that three sick people who were all in the same hospital in a vast country filled with hundreds of millions of people could cause such a lurch in the market if investors were really as certain as they pretend to be that the economy is recovering and the stock market is not a bubble.
Hopefully, some will become smart enough to recognize the difference between a triggering event when the market has reached its tipping point and the fundamental problems that made the stock market so easy to tip over in the first place. If the market was on the solid path that the bulls proclaimed, Ebola fears would never send it trembling.
It is not the straw (Ebola fear) that breaks the camel’s back; it is the crushing load that is already on the camel. What I’ve said for the past six months is that load is going to pile up in the fall, and when it does, a mere straw will be able to bring everything down. Some will now foolishly mistake the straw for the cause of the market’s crash if it crashes.
The stock market grew fat on artificial life support
I will agree that the stock market is not a bubble, but only because I think it’s a balloon (being far bigger than a bubble). It is in other words, not just a part of the market that is overinflated, it’s the whole thing. The stock market’s sudden deflation and volatility happened because this market is pumped up with the hot air of the Federal Reserve’s free money. (I mean the Fed didn’t inject trillions of dollars into the system for nothing!)
Create $80 billion out of nothing every month in the accounts of deregulated banks for them to play with, and it will certainly inflate the stock market because that is the casino where they go to play. Stop creating $80 billion a month, and there is no new stock inflation. Without new stock inflation, there is no reason for investors to get excited, so the hot air begins to cool, and the market deflates.
It was, for me, a given that this would happen because the rising market was on artificial life support. The patient is brain-dead and cannot survive without the life support. So, why is anybody surprised that the market is falling to rise any higher now that life support is ending? Did they really think the government had done anything to fix the patient’s (the economy’s) internal problems?
This patient’s stomach had ruptured from swallowing too much debt. She was anemic from declining wages. She had a weak heart due to low employment leaving her without strength drive her system. Yet, under her doctor’s care, she had grown morbidly fat on a pumped-up, intravenous, pure-glucose diet of free money for several years. Then her doctors took her intravenous diet away. They sat her up in bed, told her that her entire European family was dying and then forced her to walk naked out of hospice alone and into the frigid autumn winds. Is it any wonder that she was about to fall over as the winds of war and economic chill blew against her? Barely staying upright, she heard that she had been exposed to the Ebola virus on her way out the door. It was too much to bear, and she passed out in the cold where hypothermia is taking what was left of her declining life away.
When her ticker isn’t ticking anymore
If she dies during the Ebola scare, her doctors will gather round and wonder if it was the fear of Ebola that killed her. It will not occur to them that it was their own medicine and the lack of treating her underlying problems that killed her — that the Ebola scare was just too much for a dying heart to take.
Of course, it isn’t Ebola fear that took her life away! It’s a wonder she could even walk before she was beset with fear of Ebola. But leave it to her medical experts to say that she died from hysteria about Ebola. “What a pity,” they will say to each other “that someone who was fattening up so nicely on our medicine should die of a panic attack. She was so close to recovery.”
The experts who are trying to save our economy are as clueless as the CDC has proven to be about stopping the spread of Ebola. If a few cases of Ebola in the U.S. can create quakes in the market when they arrive in conjunction with the other bad winds that were already blowing, imagine what will happen if the disease appears to be spreading beyond the medical professionals who have treated Ebola patients and into the general population. Imagine how much deeper the market will shudder if the epidemic clearly grows beyond the CDC’s ability to control it.
Given the numerous mistakes that were made with Ebola’s introduction into the United States, it’s not hard to believe that could happen … or may already be happening.