Covid Journal, April 21, 2020
The Coming Bear Market
Many people felt a little nauceous after the wild rides in the stock markets over the last month or so.
If the price of oil – now negative – is any indication, the markets will sink substantially lower.
I keep asking myself: how does a market operate without a market?
With so many things closed, dysfunctional or simply not operational, how is it that the market consists of anything worth trading?
The only things that have seemed to sustain ‘value’ are companies that are currently raking it in (ie. “The CLAW” – Costco, Loblaws, Amazon, Walmart) at the overwhelming cost of smaller businesses that simply can’t outlast the storm. Many of the latter don’t even have online representation (their own website, a Facebook page, social media accounts, etc) let alone fulfillment and delivery based on orders received.
Typically, I point to just Canada, but it seems like this is a universal issues.
No cash flow for this massive array of small companies – restaurants, their landlords, tourism companies, airlines, third-party food suppliers and even charities – means we have no cash flow going up, down or even sideways. No savings, no investments.
We are looking at an unprecedented level of collapse and it’s more than likely when companies start reporting on the fact that there is NO activity creating cash-flow for them, the market will collapse further than it already has.
Some sources predict the S&P Index in the US will tumble to roughly 1,000-1,500 points from its current level of around 2,700 (already down from its high of about 3,400). This would peg the DOW at around 10,000 as well.
Why the dire prediction? Rolling lockdowns are likely to continue until there’s a treatment for Covid. This will likely come in the form of a vaccine which means it may not be universally accepted unless it becomes a legal requirement (which it will). The high volume of unprecedented money printing will force governments into massive austerity programs – selling everything off in order to keep lenders at bay – unless we radically alter the way we deal with our problems.
Real estate markets will collapse. With no commercial buyers or waves of properties for sale, the market will be flooded. No potential home buyer in their right mind would commit to something in a crumbling market, especially if they have a pocket of cash and can sit in the sidelines.
China’s economic stagnation has only just begun, driven largely by the discovery of the rest of the planet that our ‘needs’ are local food, water and shelter. Our wants tend to originate in Chinese manufacturing plants. To top it off, the West might wind up pointing the finger in some way or other at China (even though it’s the wrong approach) and start talking about debt cancellation and market barriers. A more extreme case might be Western ‘democracies’ declaring that China is no longer an acceptable trade partner because of the way humans are treated in this country. India too may fall under this kind of scrutiny as the West tries to protect its own people.
There are so many other factors at play, it’s hard to imagine how the markets will recover in the next 2 years, let alone the next 2 months.
Ultimately, it’s up to you to decide what to do, but you and our governments need to think of how we’re going to operate in a post-market economy. The sooner we do it, the sooner, we’ll emerge from this mess.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.