Markets during pandemics 1918 vs 2020

It seems the market moves of inflation, debt and interest rates and very similar during once in 100 yrs pandemics.


1918 - 1920: Swine Flu Pandemic Market review
1) The shock forces the Dow to sells off (black).
2) Different news of multiple flu waves and effects sends stocks up and down.
3) Government creates debt to help resolve the crisis (light green shade).
4) Supply shortages send CPI (blue) to record heights while new money supply from new debt is present.
5) As the pandemic subsides the Fed hikes the fund rate to crush inflation (red) [Monetary Tightness].
6) Due to the over aggressive hiking of funds rate, inflation collapses very quickly.
7) The inflation collapse forces the Fed to pivot and cut rates in very quick time [Monetary easing].
8) Gold rallies on deflation (fast falling CPI) and easy monetary conditions.

During 1918 - 1920 period the economy was not as dependent on oil as it is today and the oil  price remain flat during this pandemic. Also the US dollar was not the world reserve currency, the British pound was at this time. 

It seems history repeats in the same manner.


2020 - 2022: COVID Pandemic Market review
1) The shock forces the Dow to sells off (black).
2) Different news of multiple COVID waves and effects sends stocks up and down.
3) Government creates debt to help resolve the crisis (light green shade).
4) Supply shortages send CPI (blue) to record heights while new money supply from new debt is present.
5) As the pandemic subsides the Fed hikes the fund rate to crush inflation (red) [Monetary Tightness].

Currently 2022 August this is were we are, in the FED tightening phase.

This time oil is a large part of the world economy and the US dollar is the worlds reserve currency. The methods used to calculate US CPI in 1918 and 2020 are also very different. Plus computer trading algos tend to push markets around more so than 1920's.

Inflation excluding food and energy may collapse very quickly, however the elevated price of oil may hold up headline inflation (CPI) for a few months.  But do not underestimate the deflationary damage COVID has done to the demand side of the debt heavy US economy, as this may force the FED to cut rates very quickly (monetary easing) which will likely see gold rally. The last two times the Fed (2009, 2019) cut the funds rate gold moved higher, the faster the rate cut the faster the gold rally.

Keep an eye on gold over the next 6 months. 

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