COVID 19 and markets


COVID-19 is perhaps the last thing anyone could have imagined that would lead to the bear market everyone was waiting for. Yet it happened, and unfortunately with very real circumstances to the real economy.

We stand now 2 months later after it hit Europe and US and trillion dollars added to the balance sheet of FED, ECB and BoJ. The market has bounced 35% from the lows and we are at a critical juncture. It is very difficult to imagine new all the time highs at this point as we are set to see declines of 5 to 15 % in Real GDP across the globe, yet we see stocks relentless rallying.

Why is that?

Yes, the economy is going to take a big hit and so are company earnings, but if we think about it after trillions of Dollars, Euro’s and Yen’s being pumped into the economy around the world as free-money what’s is the value of 1 single unit of each of those fiat currencies now vs then? It is impossible to measure the effect of that properly as we all race for the bottom but it is fair to say that as Central Banks print and print, there will be a normal Price to Earnings ratio inflation a result of one simple fact, a dollar yesterday will be worth more than a dollar today, thus investors will scramble to buy stocks and gain exposure to real assets instead of holding a bunch of debased currencies.

Sure every crisis originally gets people swinging to cash, we saw that, we even saw Gold sell off with stocks as people were moving to cash. However, it is our opinion that seeing S&P500 move towards the 4,000 rally is not ludacris. We urge newbie traders to be careful when they try shorting and we urge permabears to keep our words in mind. Reality depends on a lot of things, and in the end of the day we are edging closer to MMT which makes our central banks the primary game in town.

We already saw far too many lose money trying to short this rally underestimating the power of the Fed don’t be one of those. If 3000 breaks we will more than likely get new highs.