As I write this morning, markets (Dow Futures) are trending downward to open today by about 300 points, after going into correction (>10% down) territory in last week’s wild action. Mr. Trump is (once again) asking for the Fed to ride to the rescue.

“This is something I think they should’ve done even beyond this and before this,” Trump said, referring to the coronavirus scare. “We should have the lowest interest rates; we don’t have the lowest interest rates.”

Now as another colleague said in response to a coronavirus question, I’m the wrong kind of doctor to assess what is happening on the medical front. But we can analyze the effects of proposed economic policies. It should be clear to everyone that a rate cut is not going to help with any supply chain disruptions in China. It’s not going to help with the fear that may lead businesses to slow or shut down their operations for safety reasons. And of course it will not make one person less likely to get sick. But it will provide juice to the markets. Yes I’m a broken record here, but, in the words of the late great market guru Martin Zweig, “money makes the mare go.” People are very concerned about the loss of perceived increases in wealth, and no one more concerned than Mr. Trump, who seemingly is on his way to reelection without some major negative event. Is the coronavirus going to infect Mr. Trump’s reelection chances?

Yet it’s not as if Mr. Trump is asking for monetary stimulus that artificially drives up stock prices just to compensate for this issue–as if we haven’t had tremendous asset inflation over the last decade with the global central bankers’ relentless push to print money. It is precisely the resultant high valuations which lead markets to increased volatility with an unexpected shock. The continual “Fed Put”* tends to increase risk appetite, and in the near term, dampen volatility. But this reduced volatility doesn’t balance out the excessive fear/greed that normally would characterize a bull market–and sets the stage for more dramatic moves if there is a shock to expectations. That seems to be happening here.

So could an aggressive monetary stimulus have good results to market prices? No doubt. And I think its strongly likely that we’ll see the Fed take action this week, perhaps in coordination with other global central bankers. And the likelihood only increases if we have a rough start to the week. But in the longer term, I think it only increases the distortions in the markets, as market valuations are much more a reflection of monetary policy and interest rates than they are on earnings. That’s not really a sign of a healthy economy. **

So what’s the best thing we should be doing now? The answer is obvious–pray for God’s mercy in the wake of this devastating virus. Pray for leaders and all who are in authority to make wise decisions. Pray for the health care workers who bravely will put themselves at risk to care for those that catch this virus. But do not pray for a rate cut.

* The “Fed Put” is an expression that market participants use to describe the belief that the Fed will stock a steep down movement in stock prices with monetary stimulus. A put option is a protection on an stock that gives you the right to sell at previously agreed to price–effectively an insurance policy. To the extent that market participants believe there is a put option, they are more willing to increase their risk, since they effectively have free insurance.

** That doesn’t mean our economy is weak, I think its ok to good, but simply that you can’t point to the stock market as indicative of a good economy because its being manipulated by monetary policy.