If you look at the US equity charts you would be forgiven in thinking that this coronavirus crash is all over.
It possible. Only a fool discounts possibilities in the markets.
However in my mind the key call is not, is it over but is it one of these two scenarios.
Or we are here:
I believe we are here and I am now back into 100% cash, having bagged a nice 20% profit, by dicing with the crash. I am passing on the upside for now because however I twist myself up in to a ball I can not make sense of the bounce except to put it down to a market corner by the Federal Reserve or hopeless optimism by a generation of participants that cant countenance a 1930s style depression.
Ironically if stocks all looked like Ford, I could be comfortable with being at the bottom.
But the market is behaving more like Tesla:
I want it to be real, but I cant make any reasonable narrative on calculation make this seems anything but insane.
Forgetting Mr Musk’s good fortune. Here is the Nasdaq.
In summary the Nasdaq is telling us the world is more favorable to it now than it was just Christmas. How or What could that possibly be?
Well it is the stimulus, a wall of money gushing into Equities. QE drives stocks for sure and this is what is doing this.
So we are dealing with a ‘market corner’ from the Federal Reserve and its minions. I’m grateful, it has just made me a fairly decent amount of money. We should all be grateful because without a bail out the misery would be soon, acute and extreme.
However can the Fed beat the market indefinitely?
Can it hold the market aloft for 2-3 years while things repair?
We are in the uncharted territory of QE ‘infinity’ and somehow it must avoid high inflation and dramatic deflation all the while masking the classic response to the level of calamity.
That is an incredible task.
This make sense, in a terrible way.
This is why I am 100% cash again.
V shaped bottom? It is possible, but the W is much more likely. Even the crash of 1929 tried one. Are we in line for a massive 1929 crash? No one should bet against it untill they have lots of real post stimulus evidence that the worse is over.
The upside is now limited and the downside has catastrophic potential, so anyone betting their financial future of this dire financial situation ending fast should be ultra-sure of themselves.
I went back in early but I’m back on this plan.
…but it will be tricky to buy the last leg because in a 1929 situation it will start the fall away again leaving the investor caught at the beginning of a long drop and in a difficult position to extricate themselves from.
It will need more than the current crisis to create the unfolding of this nightmare scenario, it will need a second blow. That could be a second lock down, it could come from the consequences of the world economy taking a blow to its collective temple, it could be caused by the consequences of hese trillions and zillions of NMT new money and a economic shipwreck on the uncharted hazards of these new economic horizons.
May is the first cruch point. If Europe and the US make major strides to unlock in May, then all is not lost.
Its looking nail bitingly close because you can hardly blame politicians for wanting to stretch the lockdowns out to a point of certainty that in effect will be to far from now to save their economies from a chronic economic debacle.
So this is the setup:
If the lockups are handled well we will see the W bottom,
If the lockups are botched we will see a 1929 scenario.
If we get a V bottom the central banks of this world have cracked the economic code and free markets as we know them are a thing of the past.
I’ll be watching for 1) and 2) because I’m not putting my capital at risk on the basis of relying on the genius of central bankers.