Oil prices have dropped 12 percent since news about a new COVID variation broke. This reportedly reflects a belief by oil traders that international airline travel will halt again and that lockdowns could curtail domestic travel.
The stock markets experienced their worst day of the year after Omicron was announced and has fallen further since then. Apparently traders are concerned we may see another slowdown. They fear a repeat of March 2020 when COVID-19 was first announced and the entire world went into lockdown. Yesterday’s discovery of the first omicron case in the U.S. caused a recovering market to plunge again, the Dow losing 461.68 points Wednesday.
Traders are ignoring the vague reassurances from the Biden Administration. The smart money apparently thinks this new variant will cause a repeat of last year in which factories shut down, businesses closed, only essential workers could report to work, the travel industry shut down and the hospitality industry saw occupancy rates plunge.
Scare Tactics are Working
Anyone who pays attention to facts over scare mongering in the media should realize that we still lack sufficient data to determine if the omicron virus is going to be mild, no different from Delta, or far worse. Too many people are assuming it will be worse, meaning it will be more contagious and deadlier. We don’t know that. In fact, anecdotal evidence points to it being less serious than other common variations.
Governments are reacting to the worst-case scenario because that is what they have done before. They expect new COVID to be the same or worse than old COVID. They may be over reacting, but there is no downside for them. If omicron is mild, they can thump their chest and say, “It’s mild because we had strict regulations.” If it is deadly, they can say. “We did the best we could to crack down on it, but those non-vaccinated people are to blame.”
Will Omicron Stop Inflation or Make it Worse?
I have said previously that what we need to stop inflation is a recession. In a recession, people lose their jobs and have less money to spend. By reducing the amount of money chasing a limited number of goods, a recession can halt inflation. It might also reverse it, causing deflation.
The first COVID-19 outbreak caused a recession. The recovery was on steroids because of government stimulus that funded everything from the unemployed to the airlines. My guess is that if we go into an omicron-inspired post-holiday recession in the first quarter, the government will use it as an excuse to roll out duplicates of last year’s stimulus programs and pump more money into the economy. That would mitigate deflation and eventually accelerate inflation.
Look back 18 months, recall what happened to the economy and product availability as COVID struck, and brace for a repeat. You can prep in multiple ways. For example, you can stock up now on those items that were in short supply then, like ammunition and canned foods. You can also use a recession as a buying opportunity. For instance, rental car companies flooded the market with used vehicles, creating a surplus and driving down prices. If you need a new car soon, wait until the prices drop because of deflation and lockdowns and buy one at a lower price.
Unfortunately, any pause we get thanks to an omicron recession is likely to be short-lived. If the government stimulates the economy again, inflation will come roaring back when they lift the lockdowns and the economy recovers. Take advantage of the pause before the recovery to stock up while prices are low. Beat inflation by buying before it hits.
What Else to Expect
Whether or not omicron turns out to be serious, expect tumultuous times ahead. Politicians will seek ways to take advantage of yet another crisis, to use it as an excuse for more spending or to consolidate more power. Look for it to be used to attack your liberty and limit your freedom and to justify a crackdown on otherwise law-abiding people. Don’t be surprised if government actions and mandates result in protests and civil unrest.