I vividly recall the turmoil of 2000 and 2008 and prior to those busts there were signs of danger which I did manage to see. These busts were driven by something that went wrong with the economy internally as is the case with pretty much any major market downturn in history. The oil shock downturn of 1973- 1974 is probably the only notable case where something external was the trigger and that's the type of external shock we are experiencing right now but we've never seen anything like this before. Yes, we've had pandemics but we've never had lock downs/shutdowns on a global scale like this. First of all, I will admit that I was very, very wrong to be as dismissive as I was about COVID-19 initially. Although I did adjust my view point and advised avoiding to buy the dip, I was woefully behind the curve in terms of how fast this crisis has escalated. I'm not alone on this but that gives me little comfort. It's nothing short of stunning to witness the world go from ho-hum into lock down mode in just 2 weeks. The US announcing the travel ban to Europe last night is just another WTF moment to add to what has been tsunami of WTF moments. Investors have been paralyzed and dip buyers have been brutally ran over.
It's pretty much a certainty now there will be a global recession. This is rapidly being priced into the market. The question now becomes as I postulated in my previous post, will this be short lived or will it lead to a credit crisis and a more severe and prolonged downturn? It's going to up to government authorities to somehow provide lifelines to businesses and financial institutions during what is rapidly becoming a self imposed global shutdown of the economy. Memories of 2008 still linger and this is 2008 again in terms of the urgency that's required.
In terms of sentiment, I am seeing enough capitulation to suggest a bottom in what you would see in a normal correction, but these are clearly not normal conditions and as such, it's probably going to require full blown capitulation for this market to bottom at least on on medium term basis. I think this type of capitulation happens in the next few days as the US banning travel to and from Europe is no doubt going to make people come to terms with the notion that the global economy is being shut down.
To get a sustainable rally and at least a medium term low what I think we need to see is signs that the growth rate of the virus is leveling off. Authorities also need to play their part with major stimulus and counter measures to prevent a credit crisis. The ECB meets on the 16th and they will have to deliver on this. Be mindful of expectations. If there's too much hope being placed on authorities to save the day, the market may not have had the sufficient capitulation needed to mark the bottom and any rally would be fleeting.
Skate to where the puck is going to not where it's been. Questions to ask yourself are this. How much worse can things get in the short to intermediate term? Have expectations been decimated to the point where any little bit of good news sparks a major rebound? Here's a glimmer of hope to keep in mind. In China where this whole mess started, they appear to have got this thing under control and life is returning back to normal there. Given the extreme measures we are seeing globally perhaps we will see "peak corona" quicker than what everyone's fearing. But don't hold your breath. Let the numbers speaks for themselves. I been visiting this site daily https://www.worldometers.info/coronavirus/
I stated before that you'll know it's a good time to buy when it makes you feel sick to your stomach doing so. I don't know about you but looking at the futures for Thursday's open I'm feeling sick thinking about it now.
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