Sunday, April 5, 2020

From This Weekend's Notes

Note: To the extent that I express my short-term outlook on markets, a sector or a commodity in my log entries, these are not to be the least bit construed as trade recommendations for the reader. They are, under present conditions in particular, subject to change without notice. What might appear to the reader as a viable trade idea today, could be something I'll do an about face on -- as new information presents itself -- tomorrow, with no prior warning. I share excerpts from my notes only when I deem them useful in terms of helping our clients maintain proper perspective.

While this too shall pass, the longer present circumstances remain the more I consider the realities of, for example, nearly 10 million Americans filing for unemployment over the course of 2 weeks, the less convinced I am that we come out of this with anything remotely resembling a V-shaped economic recovery (stock market rallies notwithstanding) as many continue to predict.

I’m with macro strategist Julien Brigden:

“Employment doesn’t do Vs. It just doesn’t do V-shaped recoveries. So I’m very very worried that we may get a little bit of a base in this market, retest the lows, the coronavirus peaks, everyone thinks this is okay. But getting those people back into work is going to take a lot lot worse, and the danger is we’re destroying the underlying economy as we see things peak. And if we go into an Italian situation where this is a rolling, as we’re seeing in China, a much more slower, rolling, opening, then we haven’t seen the worst of the damage by any stretch of the imagination.”
In the near-term (sharp rallies notwithstanding) I too expect that we’ll at a minimum test the recent lows. Then -- as the covid-curve peaks -- we'll see additional rallies in stocks, followed by a consolidation phase that could morph into a months-long counter-trend move that has everyone beginning to believe that we’re out of the woods. Which, alas, should, let alone the uniqueness of our current situation, this bear market follow the historic script, will be a most dangerous time for investors; as many will get sucked into stocks amid what remain yet-to-fully-play-out bear market conditions.

To add to the notion that employment collapses don’t resolve in V-shaped fashion, I don’t suppose that the human psyche (even for those who get right back to work) rebounds from a global pandemic in V-shaped fashion either. I mean, to what extent is the all-clear from their respective governments going to inspire folks (provided they have the financial wherewithal) to immediately book flights, file onto cruise liners, attend group meetings, conventions, concerts and so on? Not that we won’t ever get back to “normal”, whatever the future normal will look like, but I’m wondering/pondering how quickly we get there, and what will be the economic and financial market implications along the way...

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