Short market comment

This is basically the same text I used as an answer to a comment on a previous post:

In short: Stocks are currently (March 16, 3pm Central European Time) down by 33% from February 20, 2020. My base case if the corona situation develops in a benign and controlled fashion is another -33% (to a total of -55%). That should take most stocks to fair value, not cheap, and enable fundamentally based investments.

If things turn ugly we could see a third -33% (to a total of -70%), and given the adverse effects on the economy that would still not be cheap, just fair. Worst case scenario is a fourth -33% (for a total drop of 80%) on top of the first 3.

I expect maximum quarantine/lockdowns in most of Europe by end April and maximum US by end of May (with perhaps 50m US citizens infected). Maybe stocks will bottom by then, since everything about this crash is faster, bigger, more frequent than usual. But the recession and financial crises that follow will probably take markets to a lower low further down the line. In any case we should see a bottom for stocks within 12 months from now, as long as we don’t get a second virus attack of a different strain (unlikely but could happen).

as long as we don’t get a second virus attack

Volatility will be much higher than anybody expects, except Hussman. We could see rallies and drops by 20% on single days (circuit breakers prevent more than -20% and close the market for the rest of the day).

If central planners manage to lift markets with a quadrillion in helicopter money, gold will rise even more than stocks. I would take every opportunity to load up on gold and Bitcoin now that they are falling with the rest of the market due to margin calls. I don’t think gold will fall below 1250. And I think it’s an extremely good buying opportunity here at 1475.

And 6 months from now silver might bottom at ridiculous levels and provide the real buying opportunity of the century – or at least the decade. Maybe silver will rise by 1000% from 7 or 10 to around 100 in the coming years. And gold could go to 5 000 or 10 000 USD/oz after the current little correction.

NB, NO recommendations given here. Do your own research. I hold no licences and I never give recommendations to buy or sell financial instruments or anything else.



  1. IMHO oil in the 20s is also a tremendous buying opportunity. I’ll be looking at the stock of majors who survive. The smaller debt laden ones drilling in marginal areas may not.

    Just curious, did you go back to work at some hedge fund? Hope you are getting over your personal set backs.

  2. As you know, I think the markets have even further to fall (~50% from today’s valuations) before fair value is reached – /without/ any economic shrinkage. Obviously, there will be a recession, the question is how long it lasts. If the Democrats win the fall elections, we are in for a catastrophe. If Mr. Trump were to do the right thing (declare martial law and suspend the elections until the panic is over), we might come out okay within a year.

    Given the size of the previous bubble, likelihood of severe recession, and stocks being undervalued (as during the Great Depression), I would by no means rule out a total sustained drop of 90% or more in the markets, with fluctuations even lower.

    I don’t think we’ll see 50E6 Americans infected that soon, and not all at one time ever. If martial law is implemented soon enough, the outbreak could still be well controlled. Even the moderate and poorly enforced measures now in place should slow the spread substantially.

    There are obviously some big unknowns. For one, I think you underestimate the chance of new strains emerging. India, and other densely populated, poor nations, are going to get wiped out. My guess is that around 1E9 people in east and south Asia could be infected (not all at once though), and that’s a huge breeding ground.

    There will also be many millions of people attempting to flee these regions to less affected ones. Countries like Canada and Australia have a long established habit of letting pretty much any non-white person into their territory just for the asking.

    Will Australia be willing to sink boatloads of Indonesian “asylum seekers” on sight?

    Most goods are now manufactured in east Asia. Will this continue? Will governments fall? Will countries ban imports from China, or quarantine them? The breakdown of global manufacturing is a distinct possibility. (The value of Europe’s protectionist policies may be revealed soon).

    More unknowns: Will the coronavirus slow down as the weather warms, like influenza usually does? Will a vaccine or treatment be discovered? Will the necessary violence be used to enforce restrictions on inner city populations that typically consider themselves above the law?

    I hear that markets don’t like uncertainty.

  3. Mikael,
    I know you obviously do a bunch of your own research (and thought), but I’d also love to see a short list of people you read/follow these days.

  4. Fair value is -55 to -70%? In a bear market it seems like the bottom is still expensive because earnings have collapsed. But you buy because you know this is temporary. In a few quarters business will pick up and your bearish fundamentals suddenly look like a stunning bargain.

    The market is a discounting mechanism.

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