Thoughts and emotions during my first market crash,2020.
There is so much happening and is quite hard to process all the information coming in at once. I decided to maintain a diary of COVID-19 and its impact on the economy as it unfolds for my future reference when an event of this magnitude happens. To be honest, I did it for myself, to benefit from recalling my emotions and thought process on a later timeframe. Initially shared with a few but as it escalates, I feel each of us have a responsibility to make our broader networks aware in the midst chaos.
My mantra in a situation like this is to “Prepare for the worst, hope for the best”.
March 13th
Sleep quality- very bad. Markets- Absolute carnage. Woke up to a sea of red with all US stocks on the watchlist hitting multi-year lows. This is uncharted territory. Realise that this is the 1 in a 100-year flood that people forget to prepare for. It is also Friday the 13th. That explains everything.
News
-Australia advises against public gatherings of 500+
-Cancels Grand Prix( About time).NBA suspended.
-Worst day since 87’ crash for US stocks
-Markets gapped down and hit the circuit breaker (7%) within the first few minutes. 2 times in 4 days. We haven’t broken it in over 20 years and here we are.
-COVID-19 cases 132k.
-RBA pumps $8.8bn repo→ Explains the pump at the end of the trading day. From -8% gap down to +4% in 1 trading day. Unreal. There is enough speculation. Imagine when manipulation joins the party. Perfect timing too, just before the end of the trading week.
-FED repo injects 1.5 trillion. For perspective, entire US student debt is $1.6 Trillion.
-Bitcoin and crypto crash (-25%) → Bitmex and margin calls. Insensitive to price when there’s a liquidity crisis. Possible dump before bitcoin halving in May 2020.
-Oil down 8%. Gold down 2.5% → Margin calls
-#flattenthecurve → Social distancing to reduce stress on hospital beds. China flattened the curve further by building 2 brand new hospitals in 12 days.
-Liquidity crisis → Exiting all asset classes at the same time.
-Volatility 70+. GFC was 89
-Fear and greed index at 1(extreme fear). 1 month ago: 60
Social
-Media hysteria: 3 months ago, it was the US china trade deal and geopolitical tensions. 2 months ago it was climate change with that girl. Has the climate recovered? Possibly, because everyone’s working from home. Now, its COVID-19. People will panic more because they are directly vulnerable to its effects. In fact, climate change is way worse than COVID-19 can ever be. Up next — US elections.
-Still can’t believe people think “it’s just the flu”. Still can’t believe people watching cat videos, pranks and reality TV amidst history unfolding. There will be books written about this. Why not pay some extra attention?
-When toilet papers are back in stock, that’s when rational thinking could come back to Australians.
-In times of panic, historically people throw rationality and logic out of the window and follow the herd. This is further accelerated due to Social media. Rid yourself of all emotional bias and act based on science and facts. Politicians lie. Science doesn’t. Fundamentals and technicals are irrelevant if you can’t understand and conquer your emotions.
-Panic is a result of ignorance. Ignorance is due to over-exposure to media hype and underexposure to information.
-USA “don’t test, don’t tell” policy is getting exposed. Australia to follow.
-Highly probable that someone in your network will test positive for COVID-19. Be emotionally prepared. Most people still don’t understand exponential growth and R0.
-Emotionally prepare for a -70 to -80% portfolio. Don’t catch falling knives. This time, the knife is the sharpest it’s ever been. And you’re not wearing gloves.
-For the best reference for health and social concerns, please refer to Reference 6.
-Spread → Case, case, cluster, cluster, parabolic.
-Forced leave which will play out in the coming weeks → No days off for future holidays, knock-on effects to poor economies that depend on tourism. With the current household debt in Australia, no one is willing to go on unpaid leave(Thanks, Afterpay).
-A common attitude in Australia: Business as usual till it gets serious. As usual, following the US.
-After effect on survivors: Mental effects, unknown medical conditions
-Thoughts from “Meltdown” book- The lack of slack in our economic system especially with just in time logistics (no backup stock) combined with the ever-increasing complexity might be large enough to knock over the house of cards.
-The virus is a direct health concern. In the upcoming months, people that haven’t prepared for a financial downturn with insufficient cushions to fall on will expose indirect health concerns in the form of social unrest(Already in Iran), depression(Already in China and Italy) and disrupting family dynamics. This is a typical script for a revolution. No living person has seen any event remotely close to this. Time to forget GFC and dot com bubble, this is a different beast. Dotcom crash led to GFC.GFC led to this. Let’s find another set of solutions that will lead us to the next crash. Welcome to the credit cycle.
Optimism
→Remote/online learning: Might change attitude on traditional universities after all.
→People who cannot work from home: Adapt, learn and innovate.
→ People who can work from home: Spend time with family, deeper connection.
→ Planet Earth: Much needed break.
Financial
-Margin calls triggered in a liquidity crisis. No place to hide. Not even gold and bitcoin. Gold will eventually pick after capitulation.
-Fast and painful drop due to the availability of technology and the option to sell in a matter of seconds. First iPhone was released in mid ’07 and access to stocks were much less. Flow information has grown exponentially.
-This level of volatility will possibly price companies under their net cash value. Basically get their assets, reputation, legacy, customers and staff for free. Keep screening, keep looking. Buy based on your conviction.
-Headwinds for Australia,
→ Housing market bubble: Recession would lead to redundancies which could default home loans. Australians are severely levered and in debt. Do not have a safety cushion to ride out 6–12 months of economic uncertainty and downturn. Housing prices have skyrocketed in proportion to wage growth.
→ Over-dependence on china: Major exporter of resources, education, materials. Most Manufacturing plants depend on china for the majority of the supplies.
→ Over-dependence on a few key sectors: resources, mining and financials.
→ Already affected by one of the worst bushfire seasons in Australia
→Winter is coming ( Regular flu season) while every other county is heading to summer. Current cases 100+ which can grow exponentially and peak at the worst possible time( late April, May)
→ Retirement crisis: Superannuation funds crashing down+ baby boomers cashing in. Do the math.
Raoul pal: “At best a ‘08 recession. At worst, 1929 depression”.
-The perfect excuse of coronavirus to completely blindfold the general public on underlying policy failure. Record levels of corporate debt to finance stock buybacks and boost earnings for higher stock valuations, Low-interest levels during times of economic expansion, geopolitical tensions, repo crisis and retirement crisis to name a few.
-“Stock market becoming a promise kept to baby boomers. If the government buys financial assets whenever there’s a dip, how can demand and supply determine the price?”- Raoul Pal. Price in any free-market economy lies at the intersection of the demand-supply curve. Imagine when there is zero demand and supply. There is no price. Only uncertainty. The economy virtually shuts down.
-While we self quarantine ourselves in the coming weeks, there are life-changing decisions made by policymakers behind closed doors.
-Is the world getting ready for a paradigm shift? Ray Dalio, you sir are an absolute legend. This might be a decade of slow growth and pain for equities after all.
If at least one of the following points makes you curious enough to dig a little deeper and explore the underlying events, my job for the day is done. As always, feedback is appreciated. I hope most of the events don’t eventuate, but if it does, I’d rather prepare.
Don’t play it as it comes, stay ahead of the curve, the catalyst is here.
Resources
- UTS ACRI. 2020. Understanding Australia’s Economic Dependence On China. [online] Available at: https://www.australiachinarelations.org/content/understanding-australias-economic-dependence-china [Accessed 13 March 2020].
- Real Vision. 2020. The Potential Economic Impact Of Coronavirus. [online] Available at: https://www.realvision.com/the-potential-economic-impact-of-coronavirus?utm_source=carousel&utm_medium=website&utm_campaign=43900_EVPROMO_BB_RV_W1_LINK [Accessed 14 March 2020].
- Clearfield, C. and Tilcsik, A., 2019. Meltdown.
- Dalio, R., 2019. Paradigm Shifts.
- Pompliano, A., 2020. Off The Chain. [online] Pomp.substack.com. Available at: https://pomp.substack.com/ [Accessed 13 March 2020].
- https://medium.com/@tomaspueyo/coronavirus-act-today-or-people-will-die-f4d3d9cd99ca?fbclid=IwAR3gEZFU3VfGAKI_BTkw5dpn3_D37asZVc_HR7u74NB49dzqc2iOA0N4NpQ
CNNMoney. 2020. Fear & Greed Index — Investor Sentiment — CNNMoney. [online] Available at: https://money.cnn.com/data/fear-and-greed/ [Accessed 14 March 2020].