The writer is the editor-in-chief of MoneyWeek
Everyone in global financial markets wants to have the same thing. They want to find some data that they absolutely believe is accurate and want to use it to reduce their level of inherent risk Portfolio.
that's terrible. They have nothing at all, and they have no low-risk assets to buy. Everyone knows all this, which explains the hysterical volatility of the index this week. By Friday, March 9 trading days had become Bianco Research's analyst list, the largest one-day rise and fall since World War II. No other months are approaching.
But nothing was lost. We may be approaching or even exceeding the peak of uncertainty in this crisis.
For example, we know that Covid-19 cases may have peaked in China in early February and now appear to peak in Italy. We also know that China is recovering rapidly: According to Macquarie, coal consumption is 95% of normal levels at this time of year, traffic congestion is recovering, and car sales are even [slightly higher] again. The consensus seems to be that 85 percent of China is back to normal.
We can also feel that the worst thing in China is the worst: industrial profits Down 38% In February. Therefore, we have a rough guide to what might happen elsewhere, not including second round infections. Think about it: a month of complete lock-in, then a few months of ease, and unless there is any new terror, it will return to a new normal level in early June.
We also know another important thing: the government and the central bank are preparing to take a bigger blow to our current monetary and fiscal system to bring the economy to the other side [30% of the world's population is in some form of blockade] .
They are prepared to completely blur the line between monetary and fiscal policy, creating and spending money indefinitely in an attempt to replace the closed part of the economy. New packaging from the United States comes from Nearly 2tnThis is really a shocking 9.5% of gross domestic product [GDP], or once GDP. At present, the total amount of global fiscal stimulus accounts for about 3% of global GDP.
You may not like all of them. You may notice that when the decline in growth is due to physical constraints, not much cash can increase restaurant bookings from zero. You may be scared by the post-viral consequences of helicopter funding, as there is no choice but to monetize government debt from here. But this provides at least a degree of clarity.
Passing peak uncertainty is not the same as certainty. But some predictions are back in the market. Revenue in the United States is expected to fall by as much as 60% in the next few years, instead of growing by about 10% this year as expected in January this year. The GDP of most economies is expected to fall by about 35% during the locked period: at least, this is the recommendation of Capital Economics.
What about the stock market? Now we know a little bit about the way forward. We also know that the market is often about three months faster than the economy. So, should we assume that this is the fastest cow-to-bear to cow transition in history, and that the worst short-term stimulus package ever overwhelmed by the strongest stimulus package in history?
The calls coming in and out in just one month were really brave. If this crash works like most crashes, then we are likely to test the lows again. Just ask any technical analyst! But there is definitely a reason to start buying.
The first thing to note is that stocks are no longer expensive even after this week's rally. The so-called Shiller P / E ratio is one of the better indicators of long-term value, indicating that the stock market, especially outside the United States, is at least a 20-year low.
As pointed out by Luca Paolini of Pictet, it's worth noting that although you may think that you have just experienced one of the biggest bull markets in history, if you only watched the last ten years on Wednesday, it would account for roughly the global market. 90% show negative returns.
It is also difficult to see stock alternatives. The bond market is hardly a long-term safe haven. Nor is cash: in the short term, too many dominoes have landed in too many places to determine the financial system. In a world of limited crises and unlimited stimulus, inflation is also worrying.
Therefore, buy long-term, but buy with caution. There is a good argument that during the period of unlimited quantitative easing, it doesn't matter what you buy. All stocks, and even all assets, will move together. But why risk it? In most bear markets, everything will fall. But not everything reappears.
So buy what you might buy. Market leaders with little or no debt, experienced managers, and operating industries can alleviate some pressure during the lockup period. Think about it ang teeth: Facebook, Amazon, Netflix and Google. The gigantic tech stocks that have led the U.S. bull market over the past decade have become so stupid that many believe they will also trigger its end. Instead, they are companies that provide the few services we really need now. You cannot pay any price for it.