The current global Covid-19 virus event has upended everyone's forward expectations related to the US and global economy. Recently, President Trump has announced a 12-month reprieve for homeowners who find themselves without income, or a job, because of the US National Emergency related to the Covid-19 pandemic (source: https://www.npr.org). All of the recent repositionings of the global mar-kets and forward expectations got us thinking about “what happens after 8 to 12+ months? How will the US and global markets attempt a recovery process – if at all?”. Today, we are going to try to start digging into the data that we believe is relevant to the future in terms of hard asset prices (home and other property) and more liquid asset prices (global financial markets).
First, we want to preface this article by stating that humans are somewhat predictable in terms of how they will react in emergency or panic situations like this current Covid-19 pandemic. Initially, they will react to protect what is vital to them (family, assets, safety). This same thing happened in the 2008-09 credit market crisis market collapse. Then, after a bit more time, people change their thinking and start to adapt to the situation as it unfolds. We believe that 30 to 60 days from now, as more information becomes available and consumers globally are more capable of addressing the true longer-term risks of this virus event, a social process will begin to take place where valuations and expectations will adjust to the new perceived outcome (whatever that may be).
The global stock market has collapsed nearly -35% based on our Custom Indexes. The SPY has col-lapsed -32.25% since February 23, 2020. During the 2008-09 Credit Crisis, the SPY collapsed -57.50% before finding a bottom near $67.10. We believe this initial price decline in the global markets is just the first downside price collapse of what may become many. Ultimately, we believe the 2015/2016 lows will become the ultimate support for this downside move in the US markets.
SPY Weekly Chart
Custom Real Estate Index Weekly Chart
Custom European Index Weekly Chart
The data that is currently being reported and posted is data from January and February 2020. Current expectations for March data look grim (at best). Jobless claims, hours worked, and other economic data for the US and global markets may shock investors and the general public for many months to come. In 2008-09, these types of large economic contraction numbers were not uncommon. We want to prepare all of our friends and followers that we believe the next 6 to 12+ months could somewhat mirror what we saw in 2008-09 – be prepared.
If our assumptions are correct, the reprieve in Foreclosures and Mortgage repayments for US consumers may not do much to resolve the ultimate problem. The problem will quickly revolve around the issue of how quickly the US economy can resume somewhat normal functions after the virus event sub-sides. We believe the reprieve offered to US consumers will assist in making the data a bit more tolera-ble for a short period of time, but ultimately any extended disruption in the US and global economy will result in extended risks in hard assets like homes, commercial property, and future valuation expec-tations.
This multi-part research article will dig deeper into the data and expected data to help you prepare for what may be likely in the markets (hard and soft). Now is the time to prepare for what could become one of the biggest disruptions in the global markets and global society we've ever seen.
As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I be-lieve I have a good pulse on the market and timing key turning points for short-term swing traders.