This downturn is not business cycle related. There is no shift from capital good spending to consumer spending. This is a case where the market was looking for a correction and an exogenous event (COVID-19) gave it a reason to go down. This is a mania. Almost ever media story is a lie. Take this one from the New York Post for example. The headline says “20-year-old coronavirus victim was told ‘no need to worry’ by doctors”. Only half way through the article do you find out he had leukemia. Just one sentence buried in the middle of the article.
The Fed went berserk and has entered into a whole bunch of markets. It cut the fed funds rate to zero, announced $700 billion in QE, re-opened facilities to buy commercial paper-short, re-opened its Primary Dealer Credit Facility and opened up swap lines to other central banks. It basically made unlimited amount of dollars available.
The US goverment is set to bail out the world. A lot of the ’08 money went back to the federal reserve in the form of excess reserves. This time the goverment is going to directly infuse money into the economy.
I also want to put things in perspective.
The NASDAQ and the SP500 are a little higher than one year ago. It was the speed of the correction that caused a massive panic.The DOW and Russel 2K are down big. But the DOW is really not representative of the general stock market and the Russell 2K was always the weakest index of this bull market.
In my post “Took Profits“, I stated a modest correction was coming and I did not want to wait it out. Well the correction was a little more than modest. I honestly thought the market would take a 5-10% dip and go sideways for a while. No one can know when a +30% correction is going to come. They can happen at any time. But there are good stocks out there trading for good prices. I have not opened up any positions yet. I am still in defensive mode. I would like to see the market stabilize and the VIX drop below 20. Obviously my futures trade with oil and natural gas are hurting. But you have to think about the other side of this mania. There is plenty of money in the system to bid up prices as soon as this panic goes away. In the coming weeks we shall see how all this money printing and bailouts enter the economy. If I am correct we will see large money supply increases. I expect a sharp contraction in economic data in Q2 and a recover in Q3. Over the next few weeks I will be opening up some stock recommendations.