Today the stock market crashed over 1000 points. It is the first real ripple in the financial markets, due to the COVID-19 pandemic outbreak.
Financial investors are starting to see that all economies hinge on the Chinese economy. And with many Chinese workers still quarantined — many companies around the world will start to feel the pain.
We depend on Chinese workers for pharmaceuticals, semiconductors, steel, auto parts, and many consumer products. With the Chinese supply chain broken, many companies will grind to a halt — either temporarily while looking for new suppliers overseas, or while switching to new domestic vendors.
Even though this is a significant dip in the market, I think this is just the tip of the iceberg. Central banks are out of options because of the already low interest rates. Negative rates like we see in the EU, are a possibility.
What I am worried about is the derivatives market unwinding with billions of complex financial instruments, worth $$TRILLIONS of dollars that would come into play during dangerous market conditions.
I have a feeling it’s going to get really ugly.