I look at the markets and I’m aghast. Has Wiley Coyote run of the cliff and still not know it?
Oil is energy and energy is life. As you undoubtably know oil has just made history and traded at a negative value. Even beyond the aberrational moment of future contract closure the price of oil is trading at incredible levels. Incredibly low.
Love it or loath it, Oil is the life blood of the world economy and its value has imploded
Yet at the same time here we are on the S&P500
When the world economy was on the brink in 2008 at the peak of the financial crisis Oil was $90, not $9.
It makes sense. The central banks of the world are levitating the stock market of the globe but not Oil. So one stays high while the other dies.
So the call is, can central banks keep the stock markets of the world artificially high for long enough for the hoped for recovery to fill in the hole left by the global lockdown. That is going to be a very long time.
While the IMF references the ‘Great Depression’ as the imminent future and the UN talks of ‘biblical famines’ and oil gets a negative price, the exploding balance sheets of Central Banks are keeping assets at elevated levels. It’s a hedge, long bonds, long stocks. If stocks tank, interest rates will fall…. Heaven help us if interest rates go up by some freakish event, then nothing will save us.
History attempts to teach us you can’t corner the market for long, let alone forever and it has been the case time and again. This time its different?
Can oil prices drop to next to nothing and Oil companies stock price barely twitch? Yes they can and they have but the reason is not a good one. They have, the governments of the world, at least for now, have broken the market by cornering it. Even worse, they may also have broken their economies until further notice.
Can this be a wrong analysis?
Try saying this. The world economy is fine and the market is operating normally.I certainly can’t say that without feeling like an idiot.
Every data point says no, the whole thing is broken and people are simply not prepared to face what is a tremendously ugly situation.
Then there is the Nasdaq.
According to the Nasdaq there are no biblical famines on the way nor 1930s depressions on that chart. Nothing but a blip on the Unicorn’s yellow brick road.
Can it be true? How’s Google’s advertising doing? How about Facebook’s? If the likes of Expedia are cutting their advertising by 80%, or so Barry Diller just said, how’s that going to work out?
So we are here:
At best, and here is that chart again, we are going here:
At worse we are going this way:
So this is the call.
I’m 99.9% cash and at least my downside is zero, for now.
But what to do?
If you are in, you are between a rock and a hard place. You should give both the outcomes above a percentage chance and operate accordingly.
If you are out, the moment of truth for the market is coming in the next few weeks, 6-8 weeks out seems as good a guess as any. The key will be to watch the Fed balance sheet, if it has to expand its balance sheet significantly just to hold the market weakly aloft, then he market is done for when it stops. If the Fed goes to expand to infinity rather than let the market reprice, then the whole system will at some point meltdown. I don’t see that as likely; the Fed will not kill itself for the SP500. If the Fed stops levitating the market, the market must fold and reprice to reflect the deep damage done to the global economy going into a coma. If it can slow its balance sheet growth to less than astronomical, there is hope we have seen the bulk of the worse.
In 6-8 weeks we should have a pretty good grasp on the damage done too and so will those in government who are currently going all in to bail out everything.
So there is no V recovery,
As such, right now, the market is a financial death trap. Every investor needs a plan with their triggers neatly laid out for whats ahead.
Don’t look away in the near term, what happens next could make or break you.
If todays Oil chart is tomorrows SP500 chart, this is only just the beginning of our troubles.