Blain: “You Can’t Spend & Promise Yourself Out Of A Natural Disaster”

Tuesday, March 10, 2020
By Paul Martin

by Bill Blain via,
Tue, 03/10/2020

“The Renaissance took place in an era of chaos and plague”

After yesterday’s sea of red, stock prices are green again. Phew…! Everyone breathe easy and buy the dip? Does that mean we forget yesterday’s cataclysm of clichés: “carnage”, “bottomless”, “rampant uncertainty”, “volatility storm”, and some unimaginative analyst even opined it was a “perfect storm”? Forget the fact Italy has gone into a countrywide lockdown – the market is apparently confident promises of further easing, relief packages, and even Donald Trump reversing from his earlier “Virus is Fake News” calling for payroll tax cuts and industrial sector bailouts, means everything will be “tickety-boo”.

Bollchocks to that!

First, you can’t spend and promise yourself out of a natural disaster, and second, yesterday’s crash was entirely predictable.

We know the virus is spreading, and likely to turn Pandemic, and we knew the Saudi/Russia axis was wobbly. As the virus takes hold, the fear levels will continue to rise. Yesterday was a new chapter where all the negative aspects of the unfolding exogenous shock narrative were suddenly amplified by an oil shock. They reinforced each other to create a Black Monday that’s worth putting in the history books. But, it isn’t over yet. In fact, I suspect its still only beginning.

Contagion has swept through the whole market.

It’s not just stocks and oil. Corporate bonds are now as illiquid as set concrete, while dealers aren’t able to find bids for corporate bond ETFs. We’ve all suspected ETF liquidity would be thin – but this is the first time liquidity has really been tested in recent years. I confidently predict massive liquidity failure will trigger further unintended consequences – especially when retail starts trying to exit daily liquidity funds. Who will be the first to Gate a fund? How embarrassing.

However, this market crisis feels very unlike previous crashes.
It seems to be happening in slow motion. I’ve worked through all the big ones since 1987 (although the great Perp Disaster of 1986 was my very first experience of market meltdown). This morning I’m looking at the wreckage from yesterday and thinking the Oil Shock aspect is probably done and dusted. (We will still have to see what happens to Shale producers – but that likely puts a floor on the market.) A falling out between Russia and Saudi was always on the cards as both chase different strategic objectives. The instability enveloping Saudi leader Prince MBS is a repeating factor. Does that mean it’s time to pile into oil stocks after they took a particularly heavy beating y’day? Or should we wait to see what the Virus does next?

That depends on your read of current market events:

A) Is the current volatility just a reaction to the unexpected Coronavirus shock, with the strong likelihood positive market direction will be restored once the authorities have “sorted-it-out”?


B) Is this the first act in a spectacular Götterdämmerung of an overlong bull market, as the virus signals the collapse of an overpriced stock bubble, fuelled by foolishly low interest rates which could now trigger secondary corporate and even sovereign debt corrections?

Your answer to the above determines whether you buy the dips or sell the rallies.

The Rest…HERE

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