[srishiva]

As always the stock market response is exaggerated compared to the actual economic conditions and company earnings. This happens during stock boom and now its the other way.

For people holding stock, this will teach them on holding them for longer time. I am worried about some sectors and how it affects the employees in short term. For people holding stock, you never know but the market could recover in few months. Its better to forget and not trade in the current conditions.

[Samurai]

Originally Posted by SmartCat

However, experienced stock market investors usually just grin and bear it. Because they would have seen all this before:

I am curious. What was the last time such a calamity hit the stock market, where businesses are losing transactions because of social distancing at every level?

What are the models they are relying on to analyze this crash?

[SmartCat]

Originally Posted by Samurai

I am curious. What was the last time such a calamity hit the stock market, where businesses are losing transactions because of social distancing at every level? What are the models they are relying on to analyze this crash?

Majority of market participants do not think like that:

- They buy because prices are rising. They sell because prices are falling.
- Mutual fund managers are professionals, but they can't do much either. They buy when money flows into their funds. They are forced to sell when there is redemption pressure.
- There are algo trades that trigger a BUY/SELL depending on a number of price/index level factors.

However, there are two sets of market participants who look at economic situation. Let's split them into two camps: The Bears and The Bulls.

THE BEARS: These guys are selling. This is how they think:

- Earnings will definitely take a large hit this year because nobody is travelling, no social interactions, no gatherings etc.
- The whole financial system can freeze up.
- Looks like Coronavirus is difficult to control. Even if we control the virus in one country, it spreads in another country before coming back.
- We will probably see a global recession.
- Worse, we might see a depression like in 1929.

THE BULLS: These guys are buying. This is how they think:

- We are "long term" investors. We don't care if earnings/profits fall this year. Or the next.
- US fixed income is offering 0.3% per year on 10 year bond. Stocks are giving me 2% to 5% dividend yield per year!
- Like in the past, some drug company will launch either a vaccine or a cure for Coronavirus. Like Tamiflu for H1N1. Remdesivir is already being used on Coronavirus cases, with encouraging results.
- With firm action, Coronavirus can be controlled. China is almost back in action.
- Fed has our back. They will do whatever is necessary to ensure that financial system does not collapse. Like in 2008.

Right now, the bears are winning. That explains the 30% crash from the top.

[GTO]

Originally Posted by SmartCat

We will probably see a global recession.

- Worse, we might see a depression like in 1929.

This is what worries me the most. All factors are pointing toward a significant decline in spending. This will lead to a recession, the severity of which is unknown. The damn virus is affecting everything, everywhere in all industries. Only rogue I've seen that affects manufacturing as well as consumption, both! Worse still, a cure / vaccination is a lot of time away and there is no way to control it until you take it seriously (my best friend is right now working at office in a 1000-employee company, believe it or not).

This is much worse than even a deadly terrorist attack like 9/11 or 26/11.

[ashokrajagopal]

Originally Posted by GTO

This is what worries me the most. All factors are pointing toward a significant decline in spending. This will lead to a recession, the severity of which is unknown. The damn virus is affecting everything, everywhere in all industries. Only rogue I've seen that affects manufacturing as well as consumption, both! Worse still, a cure / vaccination is a lot of time away and there is no way to control it until you take it seriously (my best friend is right now working at office in a 1000-employee company, believe it or not).

This is much worse than even a deadly terrorist attack like 9/11 or 26/11.

IMO, a recession/slowdown may be better than if the central banks/govts start trying to help the markets.
US Fed was unusually involved in Repo markets from Sep 2019 onwards, to the tune of somewhere around 1 trillion dollars by last week I guess. If India tries to do a similar thing with LIC or with RBI intervening with too much of policy, it would be trying to catch a falling knife, and on top would be moving precious resources away from the actual fight at the virus front.
India was almost in that weird territory where the actual economy is sluggish but markets were going okay already.

[Samurai]

Originally Posted by SmartCat

Majority of market participants do not think like that:

- They buy because prices are rising. They sell because prices are falling.
- Mutual fund managers are professionals, but they can't do much either. They buy when money flows into their funds. They are forced to sell when there is redemption pressure.
- There are algo trades that trigger a BUY/SELL depending on a number of price/index level factors.

You are still not looking at the gravity of the current situation. GTO has alluded to it already.

None of us have seen such a scenario before. I don't care what market participants think, but here is what happens in a company, any company.

Company has expenses, which they keep paying throughout the month, this includes salaries, materials, travel and other stuff. This is funded by various sources, it could be investment capital, income from sales or loans.

The social distancing imposed by caronavirus is hurting the income from sales in every industry. Even industries like IT, which can work without social interaction is suffering because they still depend on meeting face-to-face for certain aspects. And the confidence is really low because there is no solution in sight.

If companies don't have sales and the confidence is low, the other two sources namely investment capital and loans will also dry out. Then the companies have to dig into their cash reserves, if they have one. However, many companies will decide to downsize instead of spending their cash reserves. The resulting massive layoffs will result in even less consumer confidence, resulting in a downward spiral.

And you think the market will rally back for no real reason? The 2008 crash was result of a correction that happened when subprime mortgage was incorrectly valued. This is not that. This is because economy is slowing down rapidly due to fear of a viral pandemic. Unless the cause is removed, or made harmless or overcome, there is no rallying back.

Few industries may get used to doing everything remotely using home based workers. But it doesn't work for most industries.

[SmartCat]

Originally Posted by GTO

This is what worries me the most. This is much worse than even a deadly terrorist attack like 9/11 or 26/11.

Because, for the first time, we are worried about both our financial health and physical health.

Originally Posted by Samurai

You are still not looking at the gravity of the current situation. I don't care what market participants think

I'm just giving you both sides of the story. Your view is the majority and widely accepted view. That's why the markets are crashing.

And you think the market will rally back for no real reason? The 2008 crash was result of a correction that happened when subprime mortgage was incorrectly valued.

Agreed. Every crisis is different from the past. The world already knows how to deal with "old problems" if it reoccurs again. What trips the market (and the world) is new, totally unexpected problems - like the Coronavirus.

[Thermodynamics]

Corona has been super-contagious to markets than real people. There is definitely a rationale for slowdown, but IMO, markets are over-reacting and would bounce back after the episode which could take may be two quarters. God knows, this could even end the trade war.

For the time being, I think it is an opportunity to reorganize portfolios. I have been stalking some healthy but overpriced stocks. This is the opportunity to grab them.

[alpha1]

Originally Posted by Samurai

The social distancing imposed by caronavirus is hurting the income from sales in every industry.

If companies don't have sales and the confidence is low, the other two sources namely investment capital and loans will also dry out.

The resulting massive layoffs will result in even less consumer confidence, resulting in a downward spiral.

because economy is slowing down rapidly due to fear of a viral pandemic. Unless the cause is removed, or made harmless or overcome, there is no rallying back.

Taken liberty to cherry pick a few points from your post, the cause of stock market crash is fear. Fear of business winding up. Fear of unemployment increasing because the underlying reason is:
Fear of sales drying up due to loss of interaction between the buyers and sellers.
Agreed.

Loss of interaction is happening because of another fear.
Fear of getting infected and dying.

I placing my bet on the thing that once public realizes that they are most probably not going to die even if infected, the panic will subside and people will get back into interacting with each other.
Sales will start once again, and business get back on their feet.

Stock market will continue its reactionary "yo-yo"ing like it has always done, but never has been a precursor for time to come.

[SmartCat]

Originally Posted by alpha1

Taken liberty to cherry pick a few points from your post, the cause of stock market crash is fear. Fear of business winding up. Fear of unemployment increasing because the underlying reason is: Fear of sales drying up due to loss of interaction between the buyers and sellers. Loss of interaction is happening because of another fear. Fear of getting infected and dying.

Incidentally, fear is a measurable parameter in the financial world!



This is the FEAR GAUGE or Vix or Volatility Index. The current vix value is 77.

What this means is that market participants are as fearful about the financial future of the world as they were at the peak of 2008 financial crisis. But not as much as they were in 1987.

[GTO]

IMHO, Bloomberg & NYTimes have the best business reporting. Bloomberg has a special issue on Coronavirus this week. Must read, I'll say.

Link

Note: If you aren't a subscriber, there will be a limit on how many articles you can read.

[Sawyer]

Originally Posted by Samurai

Few industries may get used to doing everything remotely using home based workers.

Even that is a temporary insulation - these/their workers have real world supply chains and real world customers. As these start either stuttering or contracting, there won't be any way to work from home remotely, or customers to work for, at the levels that support the existing jobs in these industries.

In a interconnected world, no one will be exempt, except those in backwaters that never were connected to the rest of the world.

These "stop everything and stay at home" across the board remedies cannot be a long term solution because the consequent fatalities/suffering from these will exceed those being presently reported from the virus.

What the world needs now, is a miracle.

[SmartCat]

Originally Posted by GTO

IMHO, Bloomberg & NYTimes have the best business reporting. Bloomberg has a special issue on Coronavirus this week. Must read, I'll say.

Good old www.cnbc.com works well too. And no restrictions, unlike Bloomberg or NYTimes. Unlike most publications, CNBC has been tracking coronavirus regularly from the past 2 months. You get different headlines and content when you click on USA link on top right -
https://www.cnbc.com/?region=usa

Finally, some action by America after the initial bumbling:

House passes coronavirus relief bill, sending it to Senate
https://www.cnbc.com/2020/03/13/coro...each-deal.html

- Free coronavirus testing for all who need it, including those without insurance
- Up to two weeks of paid sick leave and up to three months of paid family and medical leave
- Stronger unemployment insurance for furloughed workers
- Buttressing SNAP and other food programs for school children and seniors
- More money for Medicaid, the joint federal and state insurance program for low-income Americans

Trump gives people with student loans a break amid coronavirus
https://www.cnbc.com/2020/03/13/mnuc...-outbreak.html

“COVID-19 is causing economic devastation across the country, with even greater job and income losses to come,” said Toby Merrill, director of the Project on Predatory Student Lending at Harvard University.

“Suspending student loan payments is a helpful half measure, especially if interest accrual is frozen,” said Alexis Goldstein, a senior policy analyst at Americans for Financial Reform prior to Trump’s announcement. “The most distressed borrowers would potentially have hundreds of extra dollars to go toward food, supplies and medicine.”

[DigitalOne]

Originally Posted by SmartCat

THE BULLS: These guys are buying. This is how they think:

- We are "long term" investors. We don't care if earnings/profits fall this year. Or the next.
....
- Like in the past, some drug company will launch either a vaccine or a cure for Coronavirus. Like Tamiflu for H1N1.
....
- With firm action, Coronavirus can be controlled. China is almost back in action.

Originally Posted by Thermodynamics

Corona has been super-contagious to markets than real people. There is definitely a rationale for slowdown, but IMO, markets are over-reacting and would bounce back after the episode which could take may be two quarters. ....
For the time being, I think it is an opportunity to reorganize portfolios. ...

I am a firm believer of this camp. Another couple of points because of which I am optimistic on the stock markets,

- What we are seeing now is the result of the non-action in Western Europe and US in the last 1 month. Early countries which got badly affected like China, South Korea, Japan all of which implemented effective containment measures are slowly limping back. Containment works, which leads me to believe that the actions taken by US/Europe will start working in 3-4 weeks.

- Although no expert is (understandably) firmly telling this, data seems to suggest that the virus (as like others) doesn't like higher temperatures and may not spread much as temperatures rise.

Couple of events which would would affect the stock-market "sentiment"

1. Tokyo Olympics 2020: If the event goes through, it would be a massive boost to the sentiment. It will be a showcase of Human spirit and optimism.

2. US election: Trump may not be on such a firm footing as it seemed to be a couple of weeks back. If Trump wins markets would be back to previous highs, driven purely by sentiment and not data.

The hard economics would take a long-time to recover from the virus.

[V.Narayan]

This is not a good time for most experts to say this shall pass in the near term. But my belief, maybe wrong, is that in 7 to 8 weeks this pandemic will be in control. Finally the West is taking action, large gatherings in most countries are being restricted and common sense precautions and medical actions are taking root. For another 2 months we will witness the disease spreading and tragically some losing their lives. But I am betting on high normalcy by May and complete normalcy by October. Global economic recovery will only come in, 2021. Till then I am investing my spare cash on Bombay Stock Exchange.