This is not a pullback, not a correction, and in all likelihood, not even a cyclical bear market; it could be a FULL-BLOWN market S.O.S. event, where the Dow Jones COULD go down by a total of 40%.
So far, the Dow Jones is down by 12.5%, from the highs. It has pulled back as much as 14.1%. The S&P 500 is down by 12.7%, from the highs. It has pulled back as much as 12.8%. The NASDAQ 100 is also down by 12.7%. Investors are panicking so badly that it feels like the indices have given up 25%-35%, but for now, we’re not seeing Dot.Com-days or 2008-type gigantic LOSSES.
There are a number of reasons that make perfect sense, as to why we might not see that kind of traumatic crash occurring. For one, unlike the 2008 period, there are ENORMOUS amounts of cash held by institutional investors. Secondly, interest rates have long left planet earth’s gravitational pull. They’re somewhere out in space, where UFOs believe in living with reverse conditions, where the lenders get paid to take the borrower’s money.
Thirdly, the general economy, outside of the coronavirus, is quite healthy. Asset prices were and still are EXPENSIVE, but the real economy was doing just fine and still is.
On the other hand, if coronavirus isn’t managed properly by everyone, we’re going to regret the day we decided to own stocks and KEEP following the path of the Dot.Com bursting bubble.
In worst-case scenarios, the NASDAQ 100 will drop by another 1,700 points, which translates to an additional 20%, on top of the 13% already under its belt, for a top-to-bottom move of MINUS 33%.
Over the past week, the number of confirmed cases of COVID-19 outside of China more than tripled once again. The aerosolized virus spreads quickly and because no individual, corporations, or governments want to be blamed for doing LESS than the maximum to protect their surroundings, everyone is erring on the side of caution and that’s putting the BRAKES ON for many industries, some of which are experiencing their most nightmarish quarters ever.
This self-fulfilling prophecy mentality, where the media keeps shoving down your throats images of the most outlandish worst-case scenarios, is trickling through to all sectors and some of them are DEVASTATED already.
More than anything else, what we see is how the decade-long financial stimulus QE programs, ZIRP and NIRP official policies and the easy-money environments, from Japan to Europe to the United States and to China, have WARPED and morphed the yields of sovereign bonds from rational to DELUSIONAL.
It’s la-la land:
At no time in history have bonds soared in price so much, so QUICKLY.
I have no doubt that this is all bringing us very close to the ENDGAME; the amount of people and businesses refinancing debts and calculating their lives as if loans cost next to nothing, is dangerous and reckless.
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Now, if the Dow Jones does go down by another 10%-15%, for a total of 22%-27% top to bottom crash, gold could rally to $2,000/ounce, up 50% since its breakout.
In that scenario, I’ll be cashing in my chips, selling much of my gold and buying stocks.
This could be a GENERATIONAL buying opportunity!
Courtesy: U.S. Global Investors
In the past 20 years, stocks haven’t reached such discounted and oversold conditions many times. There have only been six other times, each of which marked a bottom and might shape up to be another rare one.
The markets will keep churning, until the Federal Reserve announces more easing and lower rates later this month.
Hasta La Vista Baby!
Forget everything you’ve been told about traditional portfolios and understand that gold was the most important asset to own throughout the 21st century. It served as a hedge in bad times, and soared along with the DOLLAR and with STOCKS in good times. It’s up more 500% this century and I couldn’t be more thrilled to own it in my own life.
History isn’t on the side of bulls, when it comes to the year after an unexpected emergency rate cut. In 1998, the markets actually rallied on steroids after it, but the rest of the times were terrible for investors.
Again, the key is diversification and being able to sit still, think clearly and not cling to one theory, as to what’s going to happen.
In the markets, we don’t PREDICT. Instead, we wait and wait. We are like a baseball player, who waits for the perfect pitch, but never strikes out. Wait for prices to be right where you want them and SWING.
Let others swing and swing, while you stay cool and collected, READY FOR THE PERFECT OPPORTUNITY.
Coronavirus was not the cause of the sell-off, but a legitimate catalyst for one that is long overdue.
Research Partner, PortfolioWealthGlobal.com
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