Current situation, trends and signals
I am a positive person by nature, and I don’t like negative scenarios. Unfortunately, it seems that it is inevitable. The COVID-19 virus outburst has made a tremendous impact on economy. Many have predicted a crisis that may come in 2020 but now we don’t have to guess, it is already out there, it is a fact. Combining with uncertainty of the virus outbreak it creates even more unprecedented turmoil for the markets.
To understand where we are, let's start with COVID-19 statistics. The virus is gaining strength. There are new cases every day, and the virus has reached and affected almost all countries.
So, to expect that the crisis will spare someone is unreasonable and even naïve.
On contrary, the data coming from China looks somewhat promising. This is a picture from data scientist tweet
As you can see, there is a very positive trend emerging in China. It seems that they have managed to contain the virus rather quickly. If we can trust the Chinese data, of course.
It must be understood that countries where democracy prevails it is impossible to apply such strict measures as Chinese did. That means that we don’t know yet how fruitful the containment measures will be in Europe, USA and other economic regions.
During this period, the Chinese economy literally stopped. The manufacturing and services sectors fell more than in the 2008 crisis. This is exactly what’s happening in Europe as well.
And it is very naive to think that something will be different in the US or other COVID - 19 affected countries. Not to mention the unemployment figures that will follow soon. Some forecasts are very bad. For example, Goldman Sachs predictions:
Look at Google Trends insight into all of this and notice the increasing number of searches for "unemployment benefits" in the US. This only confirms the negative predictions.
Data is, to put it mildly, looks really bad. And you don't have to be a rocket scientist or super economist to realize that this is really serious! I will repeat myself here, in the year 2008 was a bad economy but still we can call it the economy. Someone was doing better or worse than others, some regions were more affected than others, but we all moved along. Now the economy is stalling completely. You can say that "it hit the wall".
A lot now depends on the national central banks. In March many of central banks lowered the rates and now they are at their lowest rates globally.
Countries will be forced to stimulate the economy and support the people. In times like this, when not only financial system but whole economy lacks money, perhaps it is time for helicopter money. We may see negative mortgage rates, some new tight regulations for banks with obligations to credit entrepreneurs and individuals. I can’t tell for sure, so we’ll see how the situation unfolds. These are just my guesses.
The Federal Reserve has already acted very aggressively. As you can see, their "Balance sheet" has jumped. The quantitative easing program is back, and it looks like it will continue on an unprecedented scale.
I definitely do not want to get into the debate whether the chosen path is the right one or not. I can't influence anything there. Just putting the facts together. And so my questions arise – will the authorities succeed in stabilizing all this? What will be the impact of this in the long run? I think it is too early to know for sure and no one has the exact answer at the moment.
Let’s see how the market has reacted to all this so far.
The sharpest fall in history has occurred, and the virus just getting started in US…
Now it is worth to pay attention to agriculture. Putting together the current situation with quarantines and various restrictions affecting logistics and growing demand from consumers at stores, the production of agriculture crops should increase. So, if COVID-19 will prevail for some time and the situation with demand and supply will stay at current levels, this trend should continue. There might some virus-related harvesting issues arise for farmers, but that most likely won’t happen since most of the processes are automated with minimal human interaction.
I personally don’t see any buying opportunities in stock markets right now. Someone may say that the market has already “priced” these bad scenarios, but I don’t agree.
I think that the dollar index will continue to strengthen. It has a high “weight” of EUR and Europe is experiencing a tough time. Europe is fragmented with fragile banking sector and a large bureaucratic apparatus which, at least for the time being, doesn’t react quickly enough.
Treasury bills will continue their journey into negative territory.
Gold can become very interesting option. The gold and silver ration is rather interesting, there seems to be some potential for silver.
And most importantly, keep up with the evolution of COVID-19.
Look for trends, positive signals. This is now the number one factor in any topic!