As I sat there listening, I pondered what exactly was happening in the markets?
Howard Marks Memo places it quite clearly - What does the U.S. see today?
- one of the greatest pandemics to reach us since the Spanish Flu of 102 years ago,
- the greatest economic contraction since the Great Depression, which ended 80 years ago,
- the greatest oil-price decline in the OPEC era (and, probably, ever), and
- the greatest central bank/government intervention of all time.
There seems some points in time when the market was literally throwing everything away, it seems that was due to:
1. Borrowed money, as margin calls were happening, private funds were selling.
2. When a crisis occurs, all assets suddenly have a correlation of 1, and all assets fell in prices.
3. Cutting the interest rate to 0, spooked markets even more.
But when the USA central bank mentioned that they would do Quantitative Easing Infinity, it brought back hope to the markets and a massive rally of 28% occurred. Under QE, they would buy treasuries. They later went on to buy junk bonds. (Not announced yet) The last thing they could do is buy equities.
After all, the key saying is don't fight the FED (central bank of America).
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Bearish calls
As markets went further up on the rebound, many people were betting it would drop down. And as it went further up, less people thought so. Even Goldman Sachs gave up on their 2000 estimate...
But is it really over? Following prominent investors call, everyone of the following names made a bearish call.
3rd April - Howard Marks
14th April - Mark Mobius
22nd April - Paul Singer
28th April - Jefferey Gundlach
30th April - James Bianco
3rd May - Kevin Smith, CFA
James who? Kevin who? - Yes, I haven't heard of these two chaps before but when markets run out of brilliant minds to ask, they ask the younger talents hoping to make a name for themselves. But Kevin has a CFA as well so respect from one charter to another.
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Key thoughts of experts
So as we were all wondering if we should have bet the house on March 23rd...I think the following opinions are right:
1. Jeffrey Gundlach: If the markets were really that good, we would not need all this stimulus measures to begin with.
2. Howard Marks: The world is more than 15% screwed up.
3. IMF projections - first ever global recession of -3% decline in 2020 and 5.8% bounce in 2021.
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And the bull case:
TL:DR. Markets are forward looking and it would be fixed in a year (markets project 6-9 mths ahead)
https://www.marketwatch.com/story/the-stock-markets-rallying-while-the-economys-tanking-it-all-makes-perfect-sense-2020-05-02
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The Oracle of Omaha
- Warren Buffett recently had an AGM
2-men AGM: https://www.youtube.com/watch?v=69rm13iUUgE
He said a few things:
1. Don't bet against America (in the long run)
2. Our cash pile of US$138b is not much under the worse case scenario
3. The repercussions of shutting down the economy is unknown and the financial possibilities are very vast (while the health possibilities have shrunk neither worse case nor best case are in the list).
4. During 08-09, the effects of the crisis didn't happen on day 1. i.e. The effects will take a while to be understood by the market.
5. The world has changed for airlines. (And therefore he sold everything), as passenger miles traveled is unlikely to return to the same level in the next 2-3 years.
6. Warren bought nothing in March as nothing was attractive enough.
I did observe that Mr Buffett wasn't his cheery self, it does bring some concern when Warren is fearful.
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My thoughts on what to do during this period?
1. Copy the rich. Re-inventing the wheel is not only foolish, it is a waste of time. Buy when owners are buying in (and buying in big)
2. Keep learning (I bought more books, signed up for masterclass, listened to more financial articles).
3. Be patient. For opportunities will surely come by in the next 2 years (Aim for a homerun and bat for 400).
Regarding the covid-19, it is clear that
- The world is consumer driven, two-thirds of spending are consumer driven. Given that there are job losses of 10-30% of the world....this is really unprecedented for B2C and C2C companies.
- The world has changed significantly, people are working from home, digital tools are the vogue and many old industry jobs are probably forever gone while the new era has been accelerated.
- Sad but true, the rich poor divide. The challenges of society, nationalism, racism, xenophobia are all being exacerbated and brought to light. As a friend said, covid-19 has brought the best and the worst out of people.
But the one certain thing is that until a vaccine is found - there is no return to normal. And that is a very worrying thought as we all ponder how long can businesses survive under the subnormal economy of being at 80%-90% of the usual (or 0% under lockdown).
Certainly, the most important thing in this uncertain time is to Stay safe and stay healthy.
Nevertheless, to end on a positive note - always remember the below quote by Zig.
I suggest you read it twice for (second time slowly for the needed impact).
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