The market crisis where 'this too shall pass' doesn't work

Subscribe to enjoy similar stories.Through the dotcom bust, the 2008 crisis, demonetization, the Covid crash, the Ukraine war, and every oil shock in between, my answer in this column has been almost monotonously the same. Stay the course. Don’t react to the news.

Downturns are opportunities. This too shall pass. Readers will recognize the refrain.

The data has backed it, again and again, for three decades.Today I am stepping back from that template.The US-Iran war is a rare disruption for which my standard advice does not apply. The reason matters more than the news itself. Most crises that frighten markets are damage to sentiment.

This one is damage to things. The distinction sounds small. It changes everything.Consider what most market crises actually are.

Companies stumble. A sector falls out of fashion. Valuations get ahead of earnings.

Panic sets in. Prices fall. But the factories are still there.

The workers are still there. The supply chains, the customers, the productive capacity of the economy, all of it remains intact. What has changed is mood, or liquidity, or the price someone is willing to pay for a future stream of cash.

These are mood swings inside a body that is fundamentally healthy. They are, by their nature, cyclical. They pass.The conflict in West Asia is the other kind.The damage being inflicted is not to sentiment.

It is two things. If a meaningful share of the world’s crude refining capacity is being physically destroyed, and the figures being floated are 10% to 15%, though no one can verify them, then we are not in a cycle. We are in a rebuilding phase that has not even begun, because the destruction has not stopped.