Recently, I was asked to participate in a live radio talk show and was sent the following questions to prepare for the show. I thought this would be a great way to share my thoughts and expectations related to the COVID-19 virus, global economics and what the central banks are doing to combat this virus economic event.
The reality is that the bottom in the markets won’t set up until fear subsides and the unknowns related to this virus event are behind us. Until then the global markets will attempt to seek out the true valuation levels based on this fear and the unknowns. This means true valuation could be much further away from current price levels as the virus event is still very fluid in nature.
1. Rates at zero, massive injections and coordinated central bank action: Why isn’t the market convinced the situation is under control?
2. What are investors looking for now? A peak in coronavirus infection rates? A sense that a proper health-care response is in place and won’t be overwhelmed?
3. The main issue seems to be that this is not a slowdown, but the sudden closure of economic activity, do you see massive fiscal support coming, including bailouts for sectors like airlines?
4. Do you get a sense that the White House finally gets it, and is now moving to reassure markets and ordinary Americans?
The markets are not reacting to what the global central banks are doing right now and probably won’t react positively until two things happen: fear of the unknown subsides across the globe and the total scope of the global economic destruction is assessed. (Think of this as true price valuation.)
Right now, we are in the midst of a self-actuating supply and demand-side economic contraction that will result in a renewed valuation level as markets digest the ongoing efforts to contain/stop this virus.
Where is the bottom? I have an idea of where the bottom might setup, but the price will be what dictates if that becomes true.
If 2018 lows fail to hold as a support level, then we are very likely going to attempt to reach the 2016 trading range, and I believe the midpoint and low price range of 2016 are excellent support levels for
What we are looking for in terms of closure of this event (or at least a pathway out of it) is some type of established containment of the event, the spread of the infections and the ability for governments and economies to begin to advance forward again. As long as we are stuck in reverse and do not have any real control of the forward objective (meaning consumers, corporations and governments are reacting to this event), then we will have no opportunity to properly estimate forward expectations and advancement in local and global economies – and that is the real problem.
The White House and most governments get it and are not missing any data with regards to this virus event. I truly believe that once this virus event ends and the general population gets back to business
as normal, the world’s economy will, fairly quickly, return to some form of normal – with advancing expectations, new technology and continued global economic and banking functions. Until that happens, which is the effective containment and control of this virus event, then no amount of money or speech writing is going to change anything.
Far too many people are acting emotionally and afraid right now. The facts are simple; until we get a proper handle on this virus event, there will continue to be extended threats to our economy, people,
families and almost every aspect of our infrastructure, banking, society and more. Once the virus event is mostly contained and settled, then we can get back to business cleaning up this mess and finding our way forward.
I’m not worried too much. My research team and I advised our clients to move into bonds and cash before the drop in equities and have been warning our members of a zombie-rally for the past 5+ months, which took place as expected. We called for a volatile 2020 with a very strong potential for a breakdown in global markets near August 2019. This is playing out almost exactly like we expected
(except we had no idea a virus event would be the cause).
I firmly believe the global leaders and dozens of technology firms will have a vaccine and new medical advancements to address the COVID-19 virus. I believe this event will be mostly behind us in about 90+ days. What happens at that point is still unknown, but I believe we will be able to see a pathway forward and I believe all nations will work together to strengthen our future.
In closing, I urge everyone to try to relax a bit and understand this is a broad (global) market event with a bunch of unknowns. It is not like the Fed can just throw money at this problem and make it go away. This is going to be a process where multiple nations and various industries and groups of people will have to work together to reduce and eliminate this threat. Because of that, there are no real clear answers right now.
As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for short-term swing traders.