Scenario 2 – Pessimism: Why this is only the beginning of a much bigger crisis
- Triple Whammy: We have just witnessed a 1-2-3 blow to global demand, global supply and energy, unheard of in my 30 years of market experience. 2020 is guaranteed to be a recession year and we will be into 2021 before anything normalizes
- COVID19 could have a second outbreak similar to the 1918-19 Spanish Flu
- Market is on the brink of being disorderly. We risk seeing a Bank Holiday similar to the Roosevelt Emergency Banking Act of March 1933, in which he closed the market for four days.
- Strong US$ and lack of $ funding “kills” growth, lending and velocity of money. Recession becomes depression.
- Germany was in recession pre-COVID where are they now in “depression light”?
- The Fabric of International Cooperation has broken down. Since Trump took office (and he is just the last President to break it down) Gone in all but practice: WTO, OPEC+, G-7 and G-20. These have all been tools in keeping “order in the financial system” in the past.
- Fear, depression and cash. There is no hiding when the market goes into a tail-spin, fundamentals, value and “assumptions” all die by the sword of illiquidity.
My personal take? Not that it matters, as I have predicted seven of the last three recessions, but the “truth” lies somewhere in between.
- We will handle and deal with COVID19. The government response globally has been appalling and will cost lives, but we will be smarter for it next time and we needed a reminder of our sensitivity to health and health system capacity (which has been proven to be more than inadequate)
- Forget the emotions of the market. Focus on at what price level you want to increase your exposure to stocks, bonds and currency. Close out the noise.
- Have a plan for things to get worse and what to do ahead of time
- Have a plan for things to get better and what to do ahead of time
- Be sensitive to massive extremes in sentiment, both positive and negative
- One interesting thing here is that COVID19 is enabling the business cycle again for the first time since GFC in 2008/09 and that’s the best news in a long time. When this is over there is no hiding. The stronger companies will get stronger, the weaker ones weaker, remember this when you buy “concepts” and “pipedreams” of promises. Buffet has said a lot of nonsense, but his saying: When the tide goes out, you can see who is swimming naked” must be one of the most apt expressions for now and the next six months.
Furthermore for the balance of this week we will focus on “tell signs” for the lows being in and creating “need to follow” baskets of equity, bonds and futures for both hedging and new long plays.
Coming together is a beginning. Keeping together is progress. Working together is success.
― Henry Ford