For a number of years, the worlds central bankers have kept interest rates near zero. This has made near cash assets loose their value. Investors have been forced to chase yields in all types of asset classes. This has caused bubbles to form all over the world in virtually all assets. Bubbles look for pins. It seems the Wuhan virus may have been that pin.
Unless the medical community can do something they have never done before, expect this virus to be around 12-18 months. Next fall and winter will probably be significantly worse than this spring. Will this push the world into a recession?
In bull markets it always pays off to buy on the drop. Trying that in bear markets just causes you to catch the knife over and over again. The question everyone has to ask themselves, are we in a bull market or a bear market?
In 1929 the DOW made it to the high 300's. It didn't recover until the mid 50's. Around 1970, the DOW went over 1,000. It didn't break that high until the early 80's. We have been fortunate that markets have rebounded reasonably quick when there have been large draw downs ever since 87. We have just ridden the longest bull market in history. Is there a reason the market should rebound quick or are we in for a long unwinding prior to achieving a DOW 30,000?
World governments have more debt than they have ever had before. Governments have interest rates at zero which means they have virtually no room to stimulate the economy. Governments have never been in this bad of a position when facing a recession.
Investors have more debt than ever before when facing a recession. This gives them little room to wiggle. Equity evaporates fast when leveraged.
Real Estate has gone through a massive boom. That 500,000 house with 175,000 of equity looks pretty nice in a good market. What happens if the real estate market looses 1/3 of its value and the house becomes an albatross?
The world economy is standing on the abyss. It doesn't take much for it to fall.
I am not trying to tell anyone what to do here. Perhaps your decisions will be home runs. Just be careful and think things through.
