Another 100 Year Event Anyone?
The stock market crash of 1987 when the DJIA fell 22.6% in one day
The EMS crisis occurred in 1992/1993, Scandinavian o/n rates traded over 1000%
The 1994 during the Mexico crisis
The Asia crisis of 1998, Russian debt default, LTCM failure https://www.businessinsider.com/the-fall-of-long-term-capital-management-2014-7?r=US&IR=T#in-only-a-few-weeks-long-term-was-facing-1-trillion-in-default-risks-meriwether-tried-to-raise-more-money-from-investors-to-save-their-positions-but-no-one-was-willing-to-lend-8
The dot.com bust 1999/2000
The September 11th 2001 attacks
The 2008 Financial Crisis
European Sovereign Debt crisis 2010 …..
(forgive me if I forgot one of your favorites…)
When I think back about what I was thinking and feeling, it was very different from the first stock crash in 1987, to the financial crisis of of 2008 to the current market situation. In theory we should be better at trading and handicapping events like the current market due to the experiences many of us have from the events above.
Is the current market event, similar to those in the past or is this something different?
As I speak to the people I have known in the markets over the years, I agree with them that:
The market was on all time highs and global growth was slowing.
There was a true fear of missing out and of no other choice that was prevalent among many in the markets.
Demands for returns and lack of yields forced pension funds, endowments to raise equity exposure.
Historically low interest rates were a ticket to excessive risk taking.
What is happening now, some say will pass in a short amount of time, that this is just an adjustment and good levels to buy….
For me what is going on now is not the same old market correction that we have seen before, due to an overbought/ change in growth situation.
When Italy puts its whole country under quarantine, the knock on effects are going to be staggering for that country and Europe.
When the Vice Governor of the Swedish Riksbank is home for fear of passing on the coronavirus to others and the Head of Transportation for The U.S. has contracted the virus, it shows that no one is safe. (Thankfully most patients experience very mild symptoms!)
I hope and believe that this pandemic will come under control and that we collectively find a way to limit the number of fatalities!
However the market is getting to grips with the potential affects on the global corporations in terms of investment and buyback behavior going forward.
The market is trying to handicap how this will affect consumers globally.
The central banks have tools to support the market, but the problem is the toolbox is pretty empty!
Previously it was G7 heads and central banks that steered the markets, that has changed as China is just under 20% of the global economy and the global economy is far more intertwined with supply chains being so important in an integrated global economy.
I have not currently seen a sense of coordination and cooperation by global authorities (Russia vs OPEC, Turkey vs EU on immigration, global leaders on the Syria crisis, U.S. and North Korea on nuclear weapons etc. etc. (I do hope that the U.S./Afghanistan progress is for real)
So where does that leave us here 11 years to the day of the start of the Bull market in equities?
We would expect to see some sort stronger global policy reaction if the market continues down another 10% or so from current levels, if not before.
That will be the test in the market confidence about the underlying economy and faith in the global powers that be.
On the positive side of things, markets are functioning, prices are clearing and that is a positive sign that past experience and a more robust financial sector due to improved regulations and oversight, will help the market function.
|Ticker||Date Opened||Entry Price||Stop||Target Price||Current Price||% Change|
|Long EURCHF Put Option, Strike 1.0650, Expiry 15.4.2020||2020/01/15||1.0757 (Ask 0.00620)||1.06230 (Bid 0.01029)||+1.25%|
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