To my family- In the stock market, few people can pick a bottom and no one should try catching that falling knife. The best way to manage this kind of trading is like surfing without a wet suit. Ease in a little at a time, get use to the temperature then paddle around and look for a few good waves but be careful not to get crushed on you first ride.
This is the ultimate black swan event and it is hard to wrap our brains around it when whole cities are shutting down. The speed at which this has happened is astonishing. We went from a booming economy to possible recession in two weeks. Schumer is a disgrace making the Stimulus Package vote a political opportunity to push against Trump and raise unnecessary fears. China did not do this to retaliate and harm the US. China was a major loser from the virus. Kim, in N Korea says he solved the virus problem but likely shot anyone who got sick. LOL
The world is entering a dangerous place but this is America! Politics in places like Italy, France Iran, Spain and China will become less stable. In Iran the virus is running rampant and with collapsed oil prices and collapsed economy, it runs the risks of revolution. Xi will be gone in a few years. Putin who made himself leader for life will be more dangerous. The US will need a powerful military to deal with what might come (LMT). Cyberwar will likely become the new battlefield (FEYE).
The EU is now in bad shape and it’s hard to see how Italy can ever economically recover. Greece was insolvent before the virus. France was in serious trouble, and now all will struggle for years. Without Merkel to lead Macron will fail. Investing anywhere but the US is going to be filled with risk. Globalism will be materially reduced. Most drugs and pharma now come from China and India. They will return to America (GILD). Rare earths come from China for the military and so do high-tech products. Time to bring industries back to the states (CSCO) or maybe Mexico. Companies and production will leave China soon (GBX) and world trade will reset. Phase II of trade negotiations will be very different. Brexit negotiation will change and the UK will be winner (GBP). The US will be able to force EU into much different trade terms. We will develop an industrial policy requiring made in America for critical commodities and products (AAPL) (MSFT).
Inflation is dead and oil prices will remain relatively low once the Saudis and Russians stop their suicide war. The US oil industry is used to boom bust, and will consolidate as the biggest producer in the world. Russia cannot keep up a price war. Their break-even is $54, oil is near half that and Saudis also cannot afford lower prices (CVX). The prince is pissing off a lot of powerful people and it would not be a shock to hear one day that he is out.
Financially one third of our economy has shut down and store shelves are being stripped clean. We are likely near the bottom but it cannot be known yet. There is no way to forecast since Congress is now key and they are never intelligent nor keenly responsive. If they quickly pass the $1 trillion package then markets will begin to recover. If they screw around like they did with TARP, then this looks more like in 2008.
Nothing in the economy or the market is predictable right now. The algos and the lack of the uptick rule has made the stock and bond markets totally irrational. The good news is the Fed is feeding huge amounts of capital into the banks, bonds, inter-loan markets, and commercial paper. The Treasury could refi the government debt at new low yield using a 50-year bond, making a tremendous difference to the debt service burden on the federal budget. Treasury has initiated new funding support to make sure the debt markets stay on track along with Fed funding. Treasury and the Fed are going all out this time before the crisis hits, to make sure debt markets function smoothly and with liquidity. They are doing a good job.
Liquidity for the markets is critical so there are no bank bailouts necessary. Rule 13 at the Fed seems to be reinstated despite Dodd Frank. Allowing the Fed to make collateralized loans to major corporations. Boeing will get a major loan so their suppliers can stay working (BA). As in 2010, and after loans to industries will get repaid with interest. Congress needs to act fast and boldly and the economy will come roaring back in July or August when it is clear the virus did not kill any productive younger people.
Shutting the borders early saved us, and massive containment will work. The communications effort by the White House task force to keep us informed and away from each other was a critical step. We will turn the corner in a two to three weeks. Fauci will be the hero and Trump is doing all the right things by enlisting the private sector so heavily. Keep in mind Biden attacked Trump for shutting down travel. If Trump had not, we would be in real trouble. The US acted fast enough by closing the borders—that was essential. The internet will be seen as having made a deference and more people will work from home (ZM) (WORK).
Business is functioning, although at a slower pace. A lot was learned from 9-11 and plans at large companies, the financial markets, and hospitals were already in place. Treasury and the Fed know what to do. I lived through 1987, 1994 & 2001 and know we will get through this better than in the past. Therapeutics will be available by July or August (MRNA) and will solve a big part of the issue (TDOC).
When this is over, the US will still be strong, even with a short recession but some companies will quickly stabilize (SBUX). Keep things in perspective, stay calm and hold on. We are probably at the worst moment right now waiting for the peak cases and to see if Congress can act responsibly. The US will emerge better than most!!!
NR