Dear Reader,
People everywhere are feeling uncertain about the future of the coronavirus. How will it impact lives? What is the the economic impact of shutdowns? And as a result, what does this do to the prices of commodities and financial assets?
One way of measuring fear and uncertainty is in the price volatility of financial assets. Volatility, as measured by the CBOE VIX-Index, hit an all time high of 82.69 on March 16th - higher than even during the peak of the financial crisis in ‘08 and has slowly been tapering off.
Fear operates and takes hold in the amygdala - the old, primal part of the brain - and feeds on itself. This ancient part of the brain puts great emphasis on social cues. What are other people doing? They must know something I don’t. This is called a positive feedback, or reflexive, loop. It is a self-reinforcing cycle. When you see a large stampede, you are more likely to join. This increases the size of the stampede and makes others more likely to join in turn.
When …