Even though only last week I warned about potential "Black Swan" on the horizon, no one would have predicted that within a week markets would go from all time highs to correct territory in one week. This is the fastest and steepest entry to correction. So it's worth looking at which direction world economy and world markets are heading as new week starts. Here is my take based on some history, market psychology and just some common sense:
The world had seen many pandemics such as SARS (2003), Swine Flu (2009-10), Russian Flu (1977-78), HongKong Flu (1968-69) and one of the most deadly Spanish Flu (1918) The Spanish Flu infected nearly 500 million people and caused over 50 million deaths (more than both world wars combined). Before these pandemics, there used to be plague pandemics. Humanity had always and will always survive. During all these periods, markets go down but every time it had recovered. In 2003 during SARS, markets went down by 15% but six months later they were up by 1% from levels before the spread of flu started. If you believe in this narrative, by end of 2020, markets would again recover and start making new highs.
Starting next week, we will start hearing very bad economic indicators of how world economies are collapsing with sector after sector showing double digit declines. e.g. Macau casino revenues are down by over 80%, travel industry is going to take big hit. Already Microsoft and Apple have warned that they will not meet current quarter's revenue projections. Each news will be amplified by news channels, newspapers and social networks. Rumors will be spread using popular apps which have multi-billion people reach with intention of causing panic. Spread of Coronavirus will be front and center of every news. It is required so citizens are aware of what's happening as long as it's done in responsible way and not to cause panic. So I would recommend reading but draw your own conclusions. As FDR had said in 1933, "Only Thing We have to Fear is Fear Itself" and things were much much worse in 1933 than now.
Central Banks would come to rescue similar to what they did during 2001 and 2008-09. US Fed will reduce rates by 50 basis points in March meeting or even earlier than that. And when Fed reduces rates, it has major impact on market recovery. The pattern will repeat in March.
And finally US presidential election. Biden's win in South Carolina will jump-start his campaign and give an alternative to establishment voters who want alternative to Sanders on democratic ticket which can provide continuity (in terms of economic policy) rather than revolutionary ideas. Sometimes, motto of "If it ain't broken, don't fix it" works.
Now coming to investment suggestions, I would refer to my 2020 blog for some of the ideas. Most of the suggestions are below the prices I mentioned. So it would be good time to nibble on some of the suggestions like MSFT, AMZN, DIS or sector ETFs like IGV, SMH, XBI and ITA. In addition to these, one may want to take a look at banks and energy which got punished due to fears of recession. ETFs like KBE and XLE would be good way to get exposure to these sectors instead of individual stocks.
As legendary investor Warren Buffet said:
The world had seen many pandemics such as SARS (2003), Swine Flu (2009-10), Russian Flu (1977-78), HongKong Flu (1968-69) and one of the most deadly Spanish Flu (1918) The Spanish Flu infected nearly 500 million people and caused over 50 million deaths (more than both world wars combined). Before these pandemics, there used to be plague pandemics. Humanity had always and will always survive. During all these periods, markets go down but every time it had recovered. In 2003 during SARS, markets went down by 15% but six months later they were up by 1% from levels before the spread of flu started. If you believe in this narrative, by end of 2020, markets would again recover and start making new highs.
Starting next week, we will start hearing very bad economic indicators of how world economies are collapsing with sector after sector showing double digit declines. e.g. Macau casino revenues are down by over 80%, travel industry is going to take big hit. Already Microsoft and Apple have warned that they will not meet current quarter's revenue projections. Each news will be amplified by news channels, newspapers and social networks. Rumors will be spread using popular apps which have multi-billion people reach with intention of causing panic. Spread of Coronavirus will be front and center of every news. It is required so citizens are aware of what's happening as long as it's done in responsible way and not to cause panic. So I would recommend reading but draw your own conclusions. As FDR had said in 1933, "Only Thing We have to Fear is Fear Itself" and things were much much worse in 1933 than now.
Central Banks would come to rescue similar to what they did during 2001 and 2008-09. US Fed will reduce rates by 50 basis points in March meeting or even earlier than that. And when Fed reduces rates, it has major impact on market recovery. The pattern will repeat in March.
And finally US presidential election. Biden's win in South Carolina will jump-start his campaign and give an alternative to establishment voters who want alternative to Sanders on democratic ticket which can provide continuity (in terms of economic policy) rather than revolutionary ideas. Sometimes, motto of "If it ain't broken, don't fix it" works.
Now coming to investment suggestions, I would refer to my 2020 blog for some of the ideas. Most of the suggestions are below the prices I mentioned. So it would be good time to nibble on some of the suggestions like MSFT, AMZN, DIS or sector ETFs like IGV, SMH, XBI and ITA. In addition to these, one may want to take a look at banks and energy which got punished due to fears of recession. ETFs like KBE and XLE would be good way to get exposure to these sectors instead of individual stocks.
As legendary investor Warren Buffet said:
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
/Shyam
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