This happens against a backdrop of unprecedented manipulation of the financial markets since 2008. The signs are everywhere:
- persistent negative-yielding long-term sovereign debt in Europe
- Bank of Japan owns 80% of the Japanese ETF market
- a Federal Reserve unable to contain the exploding repo market
- price-to-earnings multiple at historic highs, even accounting for declines
- stock buybacks galore field by ultra-accommodative central bank policies
- all eyes on the Fed to see what kind of shock-and-awe they can deliver
- a US administration doing everything in its power to undermine the independence of the Fed and bring on negative interest rates
The GFC never ended. It was never resolved. It was simply rolled over, like opening a second credit card account to paper over a hole in a personal budget.
Panic is a strong word. Market panics are very rare. Nevertheless, it would not be surprising to see a full-blown stock market panic this week.
I think this is all very overblown, and think within 5 years most people (obviously not those directly effected) won't even remember this happening. Similar to the Swine flu of 2009. Global growth will have a 1-2Q hiccup and then we'll likely have a rubber band recovery. But markets are in panic mode, and a lot of governments are showing their ineptitude, which is causing even more panic.
Consider that career expert epidemiologists are predicting billions infected and millions if not tens of millions of deaths worldwide, unless something dramatically changes to deflect the current course or some of their assumptions turn out to be substantially wrong. That’s more infected and 1–2 orders of magnitude more deaths than the 2009 swine flu.
SARS happened 17 years ago yet a lot of people remember it vividly.
It had a dramatically smaller infection and fatality count than COVID-19 already has, and COVID seems to be just getting started.
I understand why people want to be optimistic, but this is a really big deal. The markets aren't taking a multi-trillion dollar haircut for nothing. Governments aren't quarantining tens of millions and undertaking absolutely historic responses for nothing.
And if anything, the impact of this is being grossly under-considered yet. Travel is withering to nothing. Airlines are flying around a bunch of empty jets. As these start appearing on balance sheets the cascading effect will begin.
People remember SARS in Toronto from 2003. It really freaked out the whole city. I recall it took the film industry about 2 years to recover. When Covid-19 happened everyone wondered if it would be like SARS all over again. Still waiting to see how it pans out.
Depends how many over-indebted companies can't survive even a temporary cut in revenue. Flybe already closed in the UK. Together with people losing jobs, it gives an increase in bad debts.
this is more than just corona. oil prices have dropped 30% which generally should mean all asset/price levels should come down, at least if the drop is prolonged.
I don't play the stock market (I invest monthly and hold), but doesn't all this kind of make you want to buy? Eventually everyone will get Coronavirus and 0.2% of us will be dead. Then it will be back to making things again.
We're down only 12% from an all time high. It's only been a couple of days since the market reacted to Coronavirus. It's possible that if you buy now, you'll soon lose another 20% or more. At the same time, trying to time the bottom is a gamble. Dollar cost averaging might be the best & simplest choice for a conservative investor.
(disclaimer: I have $280 SPY puts expiring in April, and tomorrow is probably gonna be a great day, personally)
The issue, at least in the United States, is that corporate debt is sky-high right now: [0]. If the recovery doesn't happen soon enough before those businesses default on their bonds, the bondholders lose a bunch of money and then we might be looking at a liquidity crisis.
Buying and holding is "playing". It's the belief that markets fundamentally go up long term, which is a healthy and reasonable assumption, for if nobody could ever get a positive return, the rationale for the existence of markets ceases to exist.
> But maybe we’d be just better off if we gave it to everybody, and then in a month it would be over because the mortality rate of this probably isn’t going to be any different if we did it that way than the long-term picture, but the difference is we’re wreaking havoc on global and domestic economies
The entire world has collectively decided that recessions are unacceptable, so all central banks will print as much money as necessary to ensure no pain is ever experienced by anyone except prudent savers. Watch the printing presses get ramped up, I assume everyone in the USA will be getting a few thousand bucks in the mail soon.
Are you saying that you think central banks will overshoot their inflation targets? Or that they'll hit them but that you don't think they should have those targets?
My hot take is that the virus isn’t affecting future cash flows enough to warrant a crash, but as is typical, it sure as heck is a big enough catalyst for “risk off” to take hold and most pent-up mispricings to finally normalize, which according to some would be a huge pullback or crash.
Your hot take is wrong. Cash flows are absolutely going to be impacted here. Initially, the thought was that this was only going to be a supply-side shock, but people are planning to completely hunker down, not booking flights, not traveling to work, taking time off.
This is going to be a large, if transitory, problem. Buy a little bit of the dip every day, and get ready to eat some losses in Q2. Summer is coming.
The US is 80% services based which is why we were immune from the China trade war. China has a lot more to lose than the US because they don’t import from the US as much as they export.
But services are going to dry up very very badly. Which will disproportionately affect the US, especially with how many minimum wage jobs there are.
I have been holding S&P puts as a hedge since the S&P was at 3330, and my portfolio value is at the same level as it was near early Feb highs because of them even though my stock holdings are down.
The idea that you should just sit back and be ok with a 20% haircut isn’t something that I will just “take” if I can help it.
That analysis is true according to precedent. But we are experiencing an unprecedented event.
That said, eventually we will have a vaccine, anti-viral, or effective test&quarantine system; and the time to buy is BEFORE we have this under control.
I can’t see why this wouldn’t be the biggest crash for 50 years.
All the other ones were largely human caused and largely controlled by sentiment, and did not cause everyone around the world to avoid contact with everyone else.
This will last until a vaccine is developed which might take 12-18 months and in the meantime many many businesses will die around the world.
The domino effects will be huge. Remember that lots of people and companies are up to their eyeballs in debt, what if that starts to run out of control with bad debt everywhere cause businesses and people are bankrupt?
This is very long term and very damaging to all economies and there’s not really much governments can do to change people’s behaviour.
This one is caused by sentiment, but that sentiment is driven by a virus which is out of human control. Unlike for example a war, which can be controlled by politicians.
Thar’s a big one blowin in, batten down the hatches.
So late last year after about 3 attempted rallies, around one of those local peaks I decided enough is enough and I basically liquidated everything so now I'm 100% cash. This was all before the coronavirus. My rationale for this was simply that we were in the longest bull market in modern history, we were likely closer to the top than the bottom and because of certain FIRE tendencies [1] I decided my time horizon had shrunk to less than 5 years, at which point I decided it was more prudent to get out of equities.
For the last several years I wondered what triggered the eventual correction. By "correction" I mean there'll eventually be a reversion to mean that will, for a time, cause the market to be oversold. Traditionally this is a good time to buy but it can be hard to get anywhere near the local bottom (this is where the term "dead cat bounce" originates).
I didn't think it would be anything like 2000. We have some tech giants around $1T market caps now but they are money generating machines the likes of which probably hasn't been seen since the era of Standard Oil and the rail barons (whereas 2000 was purely speculative). It didn't seem like real estate would be the trigger either.
I thought it might be the possibility of a trade war with China but, on further inspection, it seems China may well be more vulnerable to that than the US. Still, China has a way of thinking long term that's simply nonexistent in US politics.
Certainly when I heard about this new virus, I didn't think it would be it. AFter all, we'd had SARS. But SARS was in some ways too effective and it basically burned out really quickly so never threatened a pandemic.
But this? The problem here isn't the disease. After all, for most people, it'll likely just be a bad flu. The problem is the changing behaviour it will cause because there seems to be such a long period of being contagious while asymptomatic while being highly contagious.
Some airlines are down 40%+ this year. Some cruise lines are even worse off than that. With travel being impacted, so are hotels, restaurants, tourism, etc. Any large public gatherings are likely to be curtailed (either officially or just effectively as people stay away).
As soon as I saw there were cases in California where the source couldn't be identified I thought "well that's game over for containment". The same with the Italian cases.
Oil prices have plummeted due to lower demand so all oil-dependent economies are now at risk of recession. The Fed's attempt last week to jump start the economy with a surprise 0.5% rate cut basically did nothing and there's only so low rates can go.
So best case I think we're in for a bad 6 months, maybe as much as 18-24 months.
Personally I'm disappointed I didn't end up shorting the market in the last week, I honestly don't really know why I didn't. But it could be worse.
It'll be interesting to see how the anti-vaxxers spin this as it unfolds.
What I do know is that it's way too early to go bargain hunting on the stockmarket.
There needs to be a discussion about how China is going to compensate the world for covid19. Given the thousands of lives lost and billions of lives disrupted, it seems unfair and unwise to let the source of the loss escape shouldering the cost.
[+] [-] aazaa|6 years ago|reply
- persistent negative-yielding long-term sovereign debt in Europe
- Bank of Japan owns 80% of the Japanese ETF market
- a Federal Reserve unable to contain the exploding repo market
- price-to-earnings multiple at historic highs, even accounting for declines
- stock buybacks galore field by ultra-accommodative central bank policies
- all eyes on the Fed to see what kind of shock-and-awe they can deliver
- a US administration doing everything in its power to undermine the independence of the Fed and bring on negative interest rates
The GFC never ended. It was never resolved. It was simply rolled over, like opening a second credit card account to paper over a hole in a personal budget.
Panic is a strong word. Market panics are very rare. Nevertheless, it would not be surprising to see a full-blown stock market panic this week.
[+] [-] partiallypro|6 years ago|reply
[+] [-] jacobolus|6 years ago|reply
[+] [-] endorphone|6 years ago|reply
It had a dramatically smaller infection and fatality count than COVID-19 already has, and COVID seems to be just getting started.
I understand why people want to be optimistic, but this is a really big deal. The markets aren't taking a multi-trillion dollar haircut for nothing. Governments aren't quarantining tens of millions and undertaking absolutely historic responses for nothing.
And if anything, the impact of this is being grossly under-considered yet. Travel is withering to nothing. Airlines are flying around a bunch of empty jets. As these start appearing on balance sheets the cascading effect will begin.
[+] [-] enchiridion|6 years ago|reply
1. Significant quarantines in areas which have never seen them.
or
2. Mass infection and death.
Both will be remembered.
[+] [-] kccqzy|6 years ago|reply
[+] [-] xbmcuser|6 years ago|reply
[+] [-] hourislate|6 years ago|reply
[+] [-] incompatible|6 years ago|reply
[+] [-] hisabness|6 years ago|reply
[+] [-] empath75|6 years ago|reply
[+] [-] jrockway|6 years ago|reply
[+] [-] Matheus28|6 years ago|reply
(disclaimer: I have $280 SPY puts expiring in April, and tomorrow is probably gonna be a great day, personally)
[+] [-] Analemma_|6 years ago|reply
[0]: https://www.wsj.com/articles/corporate-debt-fully-joins-the-...
[+] [-] JMTQp8lwXL|6 years ago|reply
[+] [-] TAForObvReasons|6 years ago|reply
> But maybe we’d be just better off if we gave it to everybody, and then in a month it would be over because the mortality rate of this probably isn’t going to be any different if we did it that way than the long-term picture, but the difference is we’re wreaking havoc on global and domestic economies
https://www.marketwatch.com/story/cnbcs-rick-santelli-sugges...
[+] [-] seibelj|6 years ago|reply
[+] [-] OscarCunningham|6 years ago|reply
[+] [-] nostromo|6 years ago|reply
If we can create wealth without inflation, we should.
[+] [-] dcftoapv|6 years ago|reply
[+] [-] empath75|6 years ago|reply
[+] [-] hi5eyes|6 years ago|reply
[+] [-] thoughtstheseus|6 years ago|reply
[+] [-] gfodor|6 years ago|reply
[+] [-] dcftoapv|6 years ago|reply
This is going to be a large, if transitory, problem. Buy a little bit of the dip every day, and get ready to eat some losses in Q2. Summer is coming.
[+] [-] remote_phone|6 years ago|reply
But services are going to dry up very very badly. Which will disproportionately affect the US, especially with how many minimum wage jobs there are.
[+] [-] dforrestwilson|6 years ago|reply
https://www.epsilontheory.com/the-mozilo-market/
As this thing eats its way through other countries and their economies slowdown the cash flow outlook will change won’t it?
[+] [-] aplummer|6 years ago|reply
- here for future reference
[+] [-] tempsy|6 years ago|reply
The idea that you should just sit back and be ok with a 20% haircut isn’t something that I will just “take” if I can help it.
[+] [-] skybrian|6 years ago|reply
It's sometimes worth thinking about timing when there is a move you already want to make for better reasons.
[+] [-] manigandham|6 years ago|reply
All-time highs after 10 year bull run + coronavirus pandemic is a good time to at least buy some puts or move into cash holdings.
[+] [-] all_blue_chucks|6 years ago|reply
That said, eventually we will have a vaccine, anti-viral, or effective test&quarantine system; and the time to buy is BEFORE we have this under control.
[+] [-] the-dude|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] drenginian|6 years ago|reply
All the other ones were largely human caused and largely controlled by sentiment, and did not cause everyone around the world to avoid contact with everyone else.
This will last until a vaccine is developed which might take 12-18 months and in the meantime many many businesses will die around the world.
The domino effects will be huge. Remember that lots of people and companies are up to their eyeballs in debt, what if that starts to run out of control with bad debt everywhere cause businesses and people are bankrupt?
This is very long term and very damaging to all economies and there’s not really much governments can do to change people’s behaviour.
This one is caused by sentiment, but that sentiment is driven by a virus which is out of human control. Unlike for example a war, which can be controlled by politicians.
Thar’s a big one blowin in, batten down the hatches.
[+] [-] drenginian|6 years ago|reply
Maybe these are inconvenient truths?
[+] [-] ncmncm|6 years ago|reply
But billions of people will suffer before this blows over.
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] cletus|6 years ago|reply
For the last several years I wondered what triggered the eventual correction. By "correction" I mean there'll eventually be a reversion to mean that will, for a time, cause the market to be oversold. Traditionally this is a good time to buy but it can be hard to get anywhere near the local bottom (this is where the term "dead cat bounce" originates).
I didn't think it would be anything like 2000. We have some tech giants around $1T market caps now but they are money generating machines the likes of which probably hasn't been seen since the era of Standard Oil and the rail barons (whereas 2000 was purely speculative). It didn't seem like real estate would be the trigger either.
I thought it might be the possibility of a trade war with China but, on further inspection, it seems China may well be more vulnerable to that than the US. Still, China has a way of thinking long term that's simply nonexistent in US politics.
Certainly when I heard about this new virus, I didn't think it would be it. AFter all, we'd had SARS. But SARS was in some ways too effective and it basically burned out really quickly so never threatened a pandemic.
But this? The problem here isn't the disease. After all, for most people, it'll likely just be a bad flu. The problem is the changing behaviour it will cause because there seems to be such a long period of being contagious while asymptomatic while being highly contagious.
Some airlines are down 40%+ this year. Some cruise lines are even worse off than that. With travel being impacted, so are hotels, restaurants, tourism, etc. Any large public gatherings are likely to be curtailed (either officially or just effectively as people stay away).
As soon as I saw there were cases in California where the source couldn't be identified I thought "well that's game over for containment". The same with the Italian cases.
Oil prices have plummeted due to lower demand so all oil-dependent economies are now at risk of recession. The Fed's attempt last week to jump start the economy with a surprise 0.5% rate cut basically did nothing and there's only so low rates can go.
So best case I think we're in for a bad 6 months, maybe as much as 18-24 months.
Personally I'm disappointed I didn't end up shorting the market in the last week, I honestly don't really know why I didn't. But it could be worse.
It'll be interesting to see how the anti-vaxxers spin this as it unfolds.
What I do know is that it's way too early to go bargain hunting on the stockmarket.
[1]: https://www.daveramsey.com/blog/what-is-the-fire-movement
[+] [-] taurath|6 years ago|reply
[+] [-] Alex_P13|6 years ago|reply
[deleted]
[+] [-] MaupitiBlue|6 years ago|reply
[+] [-] mc3|6 years ago|reply
[+] [-] mullingitover|6 years ago|reply
[deleted]
[+] [-] quickthrowman|6 years ago|reply