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Investing Life Wealth

This Covid-19 News May Trigger a Big Rally

Summary: stock markets are forward-looking. They act on what might happen 4-6 months into the future. So early signs that the future will start to get better can have a big positive impact on stocks, especially after they’ve been beaten down. I’m not saying this is the definitive “all clear” for stocks, but it is a very early sign that things could start improving. Something to keep watching.

It looks like the Covid-19 coronavirus pandemic is starting to weaken. Obviously this is very preliminary data, but the rate of growth of total new cases might be slowing.

The two charts below show on a log scale the number of Covid-19 cases in the United States. A diagonal line on a log chart indicates exponential growth. A flattening line indicates a slowing of the exponential growth rate of new cases. The lines are starting to flatten.

The next chart shows the number of new cases of Covid-19 in the United States reported daily. As you can see, the final data point showed a fairly significant decline in new daily cases.

New York State has also experienced a decline in new deaths, as reported by Governor Cuomo. Another sign the virus spread is starting to slow.

This slowing phenomenon is also occurring on a global scale. (With half of humanity on lock-down you’d certainly hope so.) The final two data points in the chart below shows a significant slowing of new case growth worldwide.

While this is early data, stock markets are already taking this information to potentially form a new rally (markets were up 7%+ today). I suspect the trend – both medically and financially – may continue for a while but keep watch to see how this develops. By no means am I giving the ‘all clear’.

Of course, the real economy won’t mend as quickly as financial markets. This might take years to recover from – especially if there’s a second wave of Covid-19 in the fall.

Still, we all could use a light at the end of the tunnel. We may see one very soon.

Get you free copy of the 47 page guide: CoronaCrisis

The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

This is war. I created a 17 step, 47 page guide to help DumbWealth subscribers get through this.

I originally planned on printing the guide and selling copies for $20+. Instead I’m giving this away free because I think we all need to help each other during these difficult times.

Categories
Investing

25 Charts of the Week

Massive, sudden spike in Fed’s balance sheet:


Performance of various types of stocks during WWI and the Spanish Flu. “Smaller stocks with high yields (value) tend to not offer protection during these sharp market corrections but perform well during the recovery phase.”

Image

    What do the returns look like in the 3 months before stocks bottom in a bear market?

    2020 unemployment line is just getting started, but it will probably rival that of the Great Recession:

    The worst market crashes tend to see a huge drop in earnings but the relationship isn’t perfect:


    This recession will force GDP onto a lower growth path:

    Slow productivity growth followed the last recession:

    Fiscal stimulus needed to offset coming drop:

    Students graduating in 2020 will be permanently impacted:

    The data tables below show what happened across a variety of asset classes after the last four market crises. There is some variance depending on asset class and the nature of the crisis, but again, the story is uniform in the only
    important respect: the markets recovered what they lost and grew nicely from there.

    As of March 26, the FTSE Canada Long Corporate Bond Index yielded 3.96%, compared to the FTSE Canada Universe Bond Index yield of 2.10%, resulting in a yield advantage of 1.86%:

    Big drop in manufacturing activity coming to Canada:

    List of the companies and institutions developing new tests for COVID-19:

    covid-19 diagnostics in development

    Performance of gold vs. gold miners:

    The insane daily volatility of March 2020 indicated the market was broken:

    In March 2020, investor sentiment sunk to levels not seen since the Global Financial Crisis. While some use this as a contrarian indicator, note how long negative sentiment in 2008/2009 persisted. In fact, the sentiment was deeply negative in EARLY 2008, prior to the near-collapse that started in September. So I question the idea that extreme sentiment is actually a contrarian indicator:

    When the traditional 60/40 portfolio failed:

    “Pandemics have effects that last for decades. Following a pandemic, the natural rate of interest declines for decades thereafter, reaching its nadir about 20 years later, with the natural rate about 2% lower had the pandemic not taken place. At about four decades later, the natural rate returns to the level it would be expected to have had the pandemic not taken place. These results are staggering and speak of the disproportionate effects on the labor force relative to land (and later capital) that pandemics had throughout centuries.”

    Pandemics also have the effect of raising real wages for some time:

    Bear market rallies during the dot-com collapse and global financial crisis:

    Canadian housing prices expected to take a minor hit, but quickly recover. Is this realistic? Possibly, provided flexibility is afforded to mortgage holders so they aren’t forced to sell:

    Get Your Free Copy of CoronaCrisis:

    The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

    This is war. I created a 17 step, 47 page guide to help DumbWealth subscribers get through this.

    I originally planned on printing the guide and selling copies for $20+. Instead I’m giving this away free because I think we all need to help each other during these difficult times.

    Categories
    Wealth

    Now is the Time To Build Emergency Savings

    About 4 billion people around the world are under some form of lockdown right now due to the Covid-19 coronavirus. Except to get groceries, many of us haven’t left the house in weeks. 

    Get Your Free Copy

    If you’re one of the lucky salaried employees able to work from home count your blessings! You’ve just been forced onto a highly restrictive spending diet. 

    If you’re like me you haven’t bought anything except food over the past couple weeks. My only other bills are utilities and mortgage payments. Many people are saving a ton of money right now.

    This is a rare opportunity that might soon vanish. Use this to your advantage!

    If you have still been spending money, stop. After all, with unemployment skyrocketing we don’t know how long we will keep earning an income. At this point, each paycheck we receive should be able to cover about 3 pay-periods worth of expenses. We need to do this so if we lose our jobs we have money to continue living. 

    Actual experiences may vary, depending on the size of your fixed costs (rent, mortgage payments, utilities, etc.). If you’re still spending a considerable portion of your paycheck on these fixed expenses, take some time to go through each one. Can you cut back? Can you renegotiate with your provider? It is worth the effort and right now banks, telecoms and utility providers might be more receptive to your negotiation requests.

    You’re at home working, eating and watching TV. So take the time and effort to AGGRESSIVELY minimize your spending. Essentially, what I’m saying is – if you’re still getting a regular paycheck – you now have an unprecedented opportunity to build your emergency savings. Use it wisely.

    Subscribe now to get your free copy of ‘CoronaCrisis’

    The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

    This is war. I created a 17 step, 47 page guide to help DumbWealth subscribers get through this.

    I originally planned on printing the guide and selling copies for $20+. Instead I’m giving this away free because I think we all need to help each other during these difficult times.