If there is a second virus wave I imagine it will but what are your thoughts?
If there is, I donāt think it would be as hard hitting as what we have already experienced in terms of market volatility but then what do I know!
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Iāve been meaning to ask the same question. Why is the stock market so buoyant when there is the likelihood of a second wave and most companies are still counting the cost of the first lockdown?
My question would be what are your plans depending on your response to the original question. - Buy, hold, or sell your shares?
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My plan is keep holding and try not to trade emotionally, keep studying my holdings regularly.
Iāve not yet bought any of the new stocks added, waiting a few weeks to see whatās happening in the US now theyāve opened a lot of their stores and restaurants.
The Feb/March sell off was in reaction to economies being put into hibernation. We donāt yet know the extent to which the daily operations of companies are being impacted by having to adapt to social distancing measures, something the Q2 reporting season should shed some light on.
Of course it may not cause a sell off if the marketās expectations are met.
I think this just confirms that the stock market is not necessarily linked to the real world implications of economics or common sense, and has a vision and life of itās own as a prediction apparatus for future events.
We are facing the worst lay-offs and bankruptcies of big companies ever since the great depression, and the stock market is booming and reaching yearly all-time-highs in some cases.
I think at this stage, we have successfully unlinked book ratios, earnings per share and other indicators for gambling if, how, and when the stock market will dip again. Riding the rollercoaster and profiting of other peoples misfortune.
Letās also not forget that unlimited supplies of dollars will be put into this āprojectā until the presidential elections later this year. It will be the perfect poster child of how certain entities and individuals āsavedā us from an economic collapse.
In my humble opnion, weāre gonna be facing the truth of action and reaction once the reality sets in of putting trillions of dollars into an economy that is backed by nothing but thin air.
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Fantastic commentary.
Couldnāt agree more.
Peoples spending and saving habits have changed forever.
Agreed. In answer to the OP my thinking is that there will be a dip sooner or later. QE is creating a false sense of security?
Current DCFs made by stock analysts must be estimating cashflow in 2021 as a starting point for their models.
It all depends on how successful countries are in fighting the virus. Nobody can predict that. I guess all of the available information has been factored in the prices and there might be some price adjustments based on Q2 results of individual companies but I am not expecting the whole market to dip again.
One thing I am sure off is that things will get back to normal eventually in 1-3 years.
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Government bonds are the place to look to get a sense of the true state of things.
Bond yields are continuing to fall (meaning the price is rising, because more people want to buy them for safety).
This indicates that enough of the big players expect problems ahead.
Weāre already seeing hints of insolvencies here and there around the world. I expect more of these over time. Businesses going bust keeps unemployment higher. And if I think my job is at risk, I save more in case I need the money later, causing further deflation.
Right now stocks have priced in a āback to normalā 2021. If you think things will be totally back to pre-Coronavirus in 2021, then keep buying stocks. If not, then we will see adjustments down as future earnings disappoint and insolvencies grow.
Gold in this scenario is a good bet, because people are also worried about Governments ābuying all the thingsā and the impact on inflation. And in any case, Gold rises when things are uncertain. Itās win-win really. Try getting your hands on the stuff though ā itās all sold out everywhere. That itself is an indicator of whatās going on!
Lastly, Bitcoin and Ethereum have hugely asymmetric risk-reward profiles. Ā£1000 of BTC could go 10x in a couple of years, for a downside to 0. So you risk losing Ā£1k, but could make Ā£10k+. Thatās a great risk-reward.
Ethereum is much more undervalued and I think could go 20x easily, as adoption is growing rapidly, especially in LatAm.
Do not go mad on crypto though ā 1 to 3% of a portfolio is probably about right. But youād be unwise to write it off.
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I think a lot of people misunderstood or overemphasis the signal from the bond markets. The bond markets have undergone structural changes which have impacted the signals of these markets. Larger savings pots with very narrow investment mandates buy huge positions in government bond markets as they have no choice. Alongside this vast quantities of bonds are bought up by Central Banks. If you look at investment grade debt in the Eurozone the ECB owns nearly 1/3 of it. This means that what is left is heavily sought after driving prices up and yields down. It does not necessarily reflect a flight to safety anymore.
Your point about cryptocurrency is an interesting one. As the coins themselves have no inherent value (they are not a commodity) nor any implied value (not a claim on government tax revenue) then they are impossible to value. The idea of a 10x risk/reward ratio is therefore nonsense. Yes there is a chance Bitcoin could rise 10x or even 100x but if the probability of that is 0.1% (i.e. 1 in 1,000) then you should not take that bet. As no one can give good estimate due to a lack of data it is not a great option for most people.
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the stock market is buoyant, because the government is paying peoples wages. I expect this to change, as the furlough scheme is tapered down, and companies start facing real world costs.
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I see all commodities as risky at the moment, whether it is gold or crypto. If there is a stock market crash, I expect gold and crypto to crash too. This happened already when BTC got down to 4000/Euro, and gold had a temporary 13% crash, when stocks crashed. BTC then back up to 8000 and gold back up with the stock rise. I see some downward pressure on commodities from people needing cash too. Certainly more downside than upside on commodities. I am sticking with stocks.
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What we saw in March was a liquidity event. Everything crashed because there were way too many highly leveraged long positions that needed liquidity to unwind rapidly. They pulled that liquidity from absolutely anywhere they could, including gold.
I donāt expect to see another crash as large as that again any time soon ā I think much of the rebound is coming from retail investors piling in, not high leverage positions.
I do however expect a slow grind of insolvencies and deflation which gradually erode jobs and confidence in the recovery.
With this happening more slowly, I expect gold to rise. And I think much of the worst of it will happen in developing markets first, where US dollar debt is high. As their local currencies fall, people are scrambling to buy US dollars to cover their debts, accelerating the trend and worsening the situation.
The Federal Reserve is buying debt. Itās not pumping much money into the real economy (except the $1,200 cheques). And the new money they are āprintingā is certainly not finding its way out of the US to developing markets. So the dollar shortage is likely to grow worse.
This is bullish for gold because if it gets bad enough and countries / companies / people canāt get dollars, they risk defaulting. If that happens there will be a scramble for alternative stores of wealth. Weāre already seeing this in Argentina, for example. I think it is bullish for Bitcoin too because Bitcoin doesnāt require physical delivery and can be accessed from anywhere with a smartphone.
Likewise if all this money supply does make it through to the real economy (more likely in the UK with such direct stimulus), inflationary pressures could rise. Again this is bullish for both gold and Bitcoin because they are limited supply, deflationary assets that store wealth well. Bitcoin is very new of course, but as the best performing asset of the last decade, I wouldnāt write it off. Especially when Paul Tudor Jones and other highly respected names are getting behind it.
Saying it has no intrinsic value implies that the dollar or pound does. They are just as digital as Bitcoin these days. The only thing that gives Ā£/$/ā¬ value is wide acceptance and adoption, and this grows for digital currencies every day.
As I say though, Ethereum is the real one to watch.
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The major difference between bitcoin and Ā£$ā¬ is that the national currencies are backed by a strong advanced military which gives people confidence. That is not imaginary.
Also thinking wider, world governments have bailed out very good companies as well as bad and very bad. So there will have to be a period when those governments take their medicine. Bad companies you could argue are still economically valuable regardless of legality but politics does not always agree and so political instability will follow. When that happens is anyoneās guess
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Again we have no empirical evidence to support the claim that Bitcoin is a good store of value during inflationary periods. It is not a good store of value at all because it is impossible to know tomorrow what it will he worth today due to the volatility. Bitcoin does have no intrinsic value (unlike other fiat currencies which are effectively claims on future tax revenue). It has value as a concept but that is exactly what proponents of Bitcoin criticise fiat currency for.
Gold is a hedge against inflation as it is a commodity and so the price of it rises as the price of other goods in the economy rise. Bitcoin does not have this functionality. Just having a finite supply of something does not make it a hedge against inflation, otherwise we would not fear inflation.
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Fiat money is a currency established as money, often by government regulation, but that has no intrinsic value. Fiat money does not have use value, and has value only because a government maintains its value, or because parties engaging in exchange agree on its value.
The value of fiat money is based on supply and demand and the stability of the issuing government, rather than the worth of a commodity or other asset backing it.
Throughout time, attempts of using fiat currency, even today, have failed. When governments print money that isnāt backed by any value, disaster inevitably ensues. Paper currency has led to the collapse of many economies that have tried to institute a fiat currency to trade for goods and services, yet the long history of failed fiat currency is being ignored by todayās central banks and governments.
I think that sometime in the near future there will be a global debt reset which will involve pegging currency back to gold or potentially bitcoin.
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Bitcoin does have a cost involved, so it does have a value. The energy required to process blockchain transactions has become enormous, and countries with abundant cheap energy have become magnets for bitcoin farms; old hydro dams in Alaska, Icelandic thermal heat for example. In the early period you could use a decent PC to connect to the network and process transactions, but the Chinese have emerged to totally dominate the network with state owned energy. And this cost has knocked on to transaction cost: addresses with a 1 at the start, the original address system, can cost over Ā£150 to send one transaction of any size today, maybe more. So there are various costs associated with bitcoin and the competition is fierce to process transactions cheaply.
As for gold, it only occasionally follows currency inflation. It should be much much higher after all the QE globally but itās nowhere near where it should be.
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