Uncharted waters

What a week. The SPX and other major indices are now trading like a penny stock moving up and down 5-10% daily. This is what happened during the 2008 meltdown as well. Unfortunately the circumstances are similar in the sense that what we are experiencing is a black swan event. We have never had a situation where major economies of the world are one by one going into lock down mode with major business shutdowns/curtailments. Before it was Costco that had their shelves cleaned out and now it's all supermarkets. This is fucking bananas.  In 2008 the crisis was focused on the banking and housing sectors with ripple effects hitting the rest of the economy. This crisis is effecting pretty much EVERYONE directly with travel and tourism related industries getting especially hit hard. The economic damage that we are going to see will be jaw dropping. Steven Mnuchin doesn't think the US will experience a recession. What a delusional clown. You got to be in deep denial to say such a thing. And speaking of clowns, Trump tweets how the stock market had it's biggest rally ever on Friday this after the market had been pounded by 25%.

The questions you got to ask yourself is this. Can world authorities do an effective enough job to prevent cascading effects, in particular, significant layoffs and a credit crisis? Well, the Central Bankers are certainty playing their part. Sunday night the Fed slashed rates to 0 and announced $700B in QE. Other central banks are likely to follow suit with similar aggressive measures. There will also need to be aggressive fiscal response and bailout/relief measures in place to support all who are effected, but the problem is as mentioned earlier, everyone is effected. It just seems like too tall a task to rescue everyone. Authorities will have to come up with something that is unheard of, they will have to embrace the concept of MMT which basically states that the governments of fiat based economies can print all the money it needs to fofill its goals. If the government wanted to, they could credit everyone's bank account by $1000 just like that. I'm not saying that's justified, I'm just saying it's something that the government can in fact do.

Look, we've got a market that is in full panic mode but to be quite honest, at least some of this panic is justified because the global economy is effectively freezing and who the fuck knows how long this is going to play out. How can the global economy cope with so many businesses shutting down and so many people staying at home? I did say before that once this shit blows over we can see a strong recovery as their will be pent up demand, but in the meantime the economic damage will be ugly, worse than any recession we've seen because in a recession the economy is still running just at a slightly lower clip and that's not the case here...we have an economy that is shutting down outright to a very large degree. I'm not going to be holding my breath thinking all will turn out fine in a few months. I sure hope it does, but I can't assume it will.

Ok, let's discuss some positives now.  During Thursday's jaw dropping 10% meltdown the VIX hit a high of 77.5. There was clearly panic in the air and you typically get rewarded for buying in a panic...eventually. You got to back to the heart of the 2008 meltdown to see a higher VIX which hit 90. History shows it's been always good to buy during extreme high VIX levels like this, however, you may not necessarily get rewarded right away. In 2008, the market still ended up making significant lower lows months after the VIX hit 90.. Given the huge amount of puts bought recently and all the government interventions that we'll get,  we may be in a position to see the market get a rebound by the end of the week but from the looks of the futures so far which are limit down, that prospect isn't look good for so far.  I don't believe we've seen a true capitulation yet as the indicators I track still say it's too early although there's enough to suggest that Thursday's low may end up being a ST low. I don't say that with much confidence however.   I'm not going to trust any rally until I at least see signs that the virus is being corralled and that could take another month at a minimum.  At the same time, I realize that vicious short squeezes tend to happen when the market gets compressed as it is now.

Here's the thing you need to remember. When you're in this type of rare black swan situation, technical analysis and concepts like "oversold" count for a lot less. Things simply don't work nearly as well as in normal conditions. In the heart of the 2008 crisis it felt as if the market had died. It felt utterly hopeless that we could get out it. We may very well have to get to that point of hopelessness before this decline is done for good. Do you have this sense of hopelessness or are you looking at every drop as opportunity to buy? Be honest with yourself. I'd love to read any comments.