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Are Financial Markets Forecasting More Lockdowns?

Posted July 22, 2021

Jeffrey Tucker

The seemingly soft-panic on Wall Street on July 19, 2021, brought back some very bad memories of mid-March 2020 when the DJIA lost 3,000 points. Back then, governments set out to crush markets in the name of virus control. What did they think would happen? Trump went along because he was sure that the markets would bounce back quickly. What he did not know is that he unleashed something he could not control.

And now, what do they think will happen by threatening even more in light of the “Delta variant” and the continued push for throttling market activity so long as pathogens exist (which is always)? There are growing lockdown threats in Los Angeles and even New York, and lockdowns keep vexing huge parts of the world – Australia of course, but the UK too. More importantly, the mainstream media is addicted to disease panic, hinting daily that more “restrictions” could be on their way.

Does this disorient a market struggling to recover from 16 months of hell? Indeed. The Wall Street Journal summed up the terrible day:

”The moves were reminiscent of trading patterns that prevailed in the early days of the pandemic. Investors sold shares of companies directly affected by restrictions on movement and business, while buying government bonds and stocks that stood to benefit from renewed lockdowns.” [Emphasis my own.]

I’m not forecasting a terrible crash; new highs could be in the offing, depending on whether, and to what extent, market sensibilities believe new lockdowns could actually happen or will be prevented by the intensification of public anger. Still, the experience illustrates a truly fundamental problem facing the prospects of long-term recovery from this disaster.

The Hair Trigger

The market restrictions put in place in the Spring 2020 were deeply dangerous, not only for their immediate effects but also for the impact on investor confidence in the future. Are we really going to live in a world in which unelected elites can order you to stay home, close whole classes of business, ban religious services, restrict travel, stop the purchase of any time deemed unessential?

What will that do to the rule of law on which markets depend so foundationally? After this disaster, markets needed a firm commitment that this was a one-time disaster. Politicians never admit error, and we are used to that, but at least there needs to be a perception out there that nothing like this would be tried again, so that investment, manufacturing, and supply chains can get back to what they do best.

The latest market signals reveal that such confidence is not assured. The trouble is that too many powerful people still believe that the right way to respond to viruses is to batter and imprison people, markets, and society, generally. So long as lockdown ideology inhabits the halls of power, all markets will be fragile. And the people doing this to us are wholly insulated from the consequences of their decisions. They operate outside markets entirely, mostly living on government and academic largess, lacking in genuine empathy for the sufferings of people outside their professional and social orbit.

Break this Cycle

What we have developing here is a vicious cycle.

We’ve got media organs who have enjoyed vast new traffic during lockdowns by focussing constantly on virus panic. Their fortunes have gone through the roof. It’s a new beat for these reporters, about which they previously knew nearly nothing. But they’ve gotten the hang of it. And they know the line: restrictions, masks, mandatory vaccinations are all good because their favorite experts – cultivated from the spring of 2020 – say that this must be so.

They are disinclined to change the line now. It did so well for them. Now, however, they are now losing traffic, dramatically, both on the web and on TV. That means declining revenue to support their gigantic staffs and attract advertising dollars. What’s more, it’s the anti-lockdown media and mainstream alternatives that seem to be thriving these days.

Panicked about the future, big media just cannot stop. Every variant gets top billing. Any increase in PCR-tested positive cases receives vast attention. And the blithering array of misleading statistics (“Florida Responsible for 20% of New Cases) are nearly impossible to sort through on the spot, only leaving viewers with weird percentions: “Florida is bad!”

This in turn feeds more public panic. People put their masks on again because this is what they are told to do. The masks alone spread fear further. Some people see them and think “what does she know that I don’t know? I better put mine on too!” Then it grows worse from there.

The political class is ever aware of public sentiment. Some in this group take advantage of the fears to exercise power in their own interest, pushing for more spending and payoffs. Others merely go along, based on the idea that their “failure to act” means holding them accountable for every hospitalization and death. Lockdowns do nothing to control that but they figure that at least they are something to do.

The restrictions then feed more public panic. Surely this strain must be wildly deadly else health officials would never have done this! A brilliant piece at explains:

Psychologists found lockdown in itself was a primary reason why so many people were willing to abide by the rules from the start – believing the threat must be severe if the government imposes such drastic measures.

Once the health officials are permissioned to act, and public opinion tumbles further into the abyss of irrationality, markets are forced to go along regardless. All of this is preventable, if somehow we could abolish cowardice, ignorance, superstition, and power lust, we’ll be safe from this vicious cycle forever.

Do Not Interact with Others!

The core principle we are dealing with dates to the weird announcement from Dr. Deborah Birx from March 16, 2020: “We really want people to be separated." If you think about that one statement, we are talking about a complete reconstruction of the social order and human life itself. In Australia now, you have officials telling people not to speak to others in grocery stores or otherwise engage their neighbors in any conversations. It’s a level of fanaticism that would have been unthinkable two years go – an utterly bonkers and unsustainably grotesque fantasy.

Is this going to affect market valuations? Certainly. Markets are robust, and shockingly so. But no vision of prosperity can survive such a mega-totalitarian ideology. Financial markets in particular, having been trying to shake off the existence of such foolishness for the better part of 16 months — but there is only so much that can be done in the face of such fanaticism.

“There is always money to be made, even when there is blood in the streets,” at least according to the apocryphal quote by John D. Rockefeller. Therefore until the prospects of lockdowns are gone, the companies that thrived in 2020 will continue to do so this year. The struggling hospitality industry will be battered and same with theaters, restaurants, and so on. Hopefully this will not be the case, and in the near future, the backlash culture of gathering and traveling again will become entrenched.

The trouble is that the political class and media are addicted to fear. The unthinkable is now thinkable.

Jeffrey Tucker

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