Until we hit a point where it gets as bad as it
can get for the world and economy with the Coronavirus, it’s not okay to get
into stocks yet. There will be many dead
cat bounces from hungry retail investors just to be burned again because the
reason for the spiral in the stock market is the hit it will cause the
economy. We are still uncovering how bad
it can get for the economy and the end of it hasn’t come yet. This is still a train wreck in progress.
How bad can it get in the US?
- · China model where they quarantine off entire cities. They lock up entire buildings so people can’t
go out. That means the entire economic
engine stops. It becomes a ghost
town. People only stay in and they have
no choice.
- · The government forces everything shut
- · Businesses shut down
What is likely to happen in the US?
- · Modified version of China
- · US government will not directly lock down a city or lock a
building. The US will ask companies to
start cancelling events and do a lot of “advising” which companies for sake of
public image will comply. The US will
ask businesses to shut and ask people to not go out. When there is nothing to do and nowhere to
go, people will just not go anywhere.
The hysteria created in people’s head will keep them in.
- · Stock markets can crash to levels unimaginable as in percentage
wise. I don’t think we will see it go
down nominally as 2008, but in terms of percentage wise from its peak this
year, it can outdo the Great Recession which was down over 50%.
- · I predict DJIA can be as low as 12,000 – 13,000 points and the
S&P 500 as low as 1,400 – 1,500. The
Coronavirus scare is the zombie apocalypse scenario.
- · The economic impact of the Coronavirus is more and more pointing
to a nightmare scenario where we see ghost towns and frozen economic activity. This is as bad as a credit crunch that led
many companies towards a nosedive in 2008.
Right now cash flow concerns for corporations are a real danger for many
companies. Companies that are seeing
their cash flow affected most by the Coronavirus are the ones to look out
for. This will sink stocks without a
doubt, but at the same time, the government will come to the rescue. The US government certainly sees the cash
flow danger and will create financial rescue packages.
What conditions to look for to know it is the
peak we are seeing? (this is when you want to get back in)
- · Test kits are in ample supply
- · Daily number of new cases stabilizes for the entire week
- · Daily number of new cases starts to go down after stabilizing in a
range the week prior.
- · Vaccines are mass-produced
- · US government no longer advising cancellations and ceasing travel
Then the rosy future will appear and investors
can start pricing that in.
