29-04-2020, 07:10 AM
Markets are forward-looking. But they have also been more optimistic than otherwise for the past 10 years.
Recall that major indicies, excluding China/HK, were still doing okay when the virus was starting its spread, during the month of February. The entire world had one month to understand that the virus' is highly contagious, and may cause serious illness. But most countries saw it only as a China problem, so they didn't care; at least not enough to judiciously guard against it.
Then everyone seemed surprised when major European, and then American, cities were overwhelmed by the virus. And that's when the selling started in March. The decline arrested only when some central bank slashed interest rate to zero, and made themselves buyers and lenders of last resort, reducing the probability that businesses will go kaput.
Now, most of the developed world are near the end -- or for some, already at the end -- of their lock down. The markets are cheering because they think the end of lock down means the start/return of normalcy. Most medical experts seem to think that the virus will remain until a vaccine is developed, produced, and people inoculated. Most of them also seem to think that the vaccine is 12 months away.
What is the impact on SG's economy if her airport and tourism industry have no business for the next 12 months, because borders remain closed? A shut down of such a large part of the economy, for such a long time, has never occurred, except during periods of war. And this does not include the loss of business for most of everyone else due to social distancing and work-from-home rules. Anecdotally, I was told by a recruitment professional that they have almost no new business since the start of CB.
As the lock down gets lifted in major cities around the world well before there is certainty that the virus is eliminated, the number of cases may start rising again. And if the case load is severe, some cities may lock down again. Growth forecasts from most economic models assume that normalcy will return in the second half of the year. But the reality may be worse than expected. And as time passes, some of the poorer financed companies with poor sales will come under greater liquidity stress.
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I think there will always be opportunities for one to make good purchases. And if you're looking to remain vested till the end of 2030, generally, stocks are certainly looking cheap now. Of course, they can be cheaper in a few months time, if something bad and unexpected happens. But if you're ready to hold stocks for a long time, and you are in an all cash position, now is probably a good time to spend a good amount of that cash. Just save some for the next big dip that may or may not be coming.
Recall that major indicies, excluding China/HK, were still doing okay when the virus was starting its spread, during the month of February. The entire world had one month to understand that the virus' is highly contagious, and may cause serious illness. But most countries saw it only as a China problem, so they didn't care; at least not enough to judiciously guard against it.
Then everyone seemed surprised when major European, and then American, cities were overwhelmed by the virus. And that's when the selling started in March. The decline arrested only when some central bank slashed interest rate to zero, and made themselves buyers and lenders of last resort, reducing the probability that businesses will go kaput.
Now, most of the developed world are near the end -- or for some, already at the end -- of their lock down. The markets are cheering because they think the end of lock down means the start/return of normalcy. Most medical experts seem to think that the virus will remain until a vaccine is developed, produced, and people inoculated. Most of them also seem to think that the vaccine is 12 months away.
What is the impact on SG's economy if her airport and tourism industry have no business for the next 12 months, because borders remain closed? A shut down of such a large part of the economy, for such a long time, has never occurred, except during periods of war. And this does not include the loss of business for most of everyone else due to social distancing and work-from-home rules. Anecdotally, I was told by a recruitment professional that they have almost no new business since the start of CB.
As the lock down gets lifted in major cities around the world well before there is certainty that the virus is eliminated, the number of cases may start rising again. And if the case load is severe, some cities may lock down again. Growth forecasts from most economic models assume that normalcy will return in the second half of the year. But the reality may be worse than expected. And as time passes, some of the poorer financed companies with poor sales will come under greater liquidity stress.
===
I think there will always be opportunities for one to make good purchases. And if you're looking to remain vested till the end of 2030, generally, stocks are certainly looking cheap now. Of course, they can be cheaper in a few months time, if something bad and unexpected happens. But if you're ready to hold stocks for a long time, and you are in an all cash position, now is probably a good time to spend a good amount of that cash. Just save some for the next big dip that may or may not be coming.