SP500 - Irrational exuberance vs Rational fear
已更新
Where is the 
SPX500USD heading?
Having experienced 1997-98 Asian Financial Crisis and 2008-09 Global Financial Crisis, I find 2020 Covid Financial Crisis difficult to fathom up to this point. Generally, investors are in 2 state of minds that describe the current market situation:
1) Rational Fear - The pandemic risk of Covid-19 is still present and spreading globally, despite at a slower rate. There is no vaccine in sight and evidence suggest Covid will be here to stay for the next 12-18 months until we find a cure or vaccine. In the mean time, social distancing, WFH are becoming the new normal and it will have severe impact across every industry from airlines to F&B, retail to SMEs. As these enterprises (borrowers) struggle with cash flow and meet their debt obligations, it will have a domino effect on financial institutions (lenders) and increases default risks.
Will the economy see a V-shape or U-shape rebound? Will companies start to rehire all the employees they let go during the pandemic or will customers start spending the same way they did prior to the pandemic within the next several months and improve the hopes of a V-shape recovery? Personally, it is unlikely my life will return to the same way it was like before. I will be more cautious in my spending and will not bet that my job is secured.
2) Irrational exuberance - With trillions pumped into the monetary system to help individuals and businesses through this crunch time, investors are optimistic that it will be enough to see us through this crisis. For every dollar printed by the government going into the market, they will be spent reviving the economic engine and bring us back on track. Investors are irrationally optimistic that they look past the pandemic and expect strong economic rebound in 2021-2022.
When the individual or SME receives the government fund, what will they do with it? If they have surplus (after paying all the necessary bills), it is very likely they will save or invest into financial markets (causing markets to go up) because you need to find alternative ways of generating income in case you lose your job or the company goes bankrupt tomorrow. The next question is how long can this go on? Can the government keep printing money, hand them over to the people, who in return channel them back into stocks and cause a bull run to make everyone rich (on paper)? How many percent of the population has extra money to invest into stock market? Does the government indirectly help make the rich (shareholders and listed company CEOs) richer instead of actual productivity and jobs creation by the corporations and SMEs?
Final thoughts: : My observation of the last 3 stock market bear runs suggest it takes at 12-18 months for the market to find the bottom. We are now facing an unprecedented situation where we are dealing with a health crisis, oil crisis and historical low interest rates.
Governments are printing money with the aim of jumpstarting a global economic shock but this unlimited QE is an act of mortgaging our future, a debt that has to be paid when the time comes. When the time comes, the outcome will be more catastrophic than what we are facing today. It will bring about the collapse of the monetary system that so far has created huge wealth gap between the minority who have an upper hand and knowledge of the game vs those who have been slaving their lives to serve the system.
The bulls (irrational exuberance) and bears (rational fear) will battle it out within these few weeks and time will tell if the bull that has been fed with unlimited QE can endure the economic reality that is going to hit us soon.
SPX500USD heading?Having experienced 1997-98 Asian Financial Crisis and 2008-09 Global Financial Crisis, I find 2020 Covid Financial Crisis difficult to fathom up to this point. Generally, investors are in 2 state of minds that describe the current market situation:
1) Rational Fear - The pandemic risk of Covid-19 is still present and spreading globally, despite at a slower rate. There is no vaccine in sight and evidence suggest Covid will be here to stay for the next 12-18 months until we find a cure or vaccine. In the mean time, social distancing, WFH are becoming the new normal and it will have severe impact across every industry from airlines to F&B, retail to SMEs. As these enterprises (borrowers) struggle with cash flow and meet their debt obligations, it will have a domino effect on financial institutions (lenders) and increases default risks.
Will the economy see a V-shape or U-shape rebound? Will companies start to rehire all the employees they let go during the pandemic or will customers start spending the same way they did prior to the pandemic within the next several months and improve the hopes of a V-shape recovery? Personally, it is unlikely my life will return to the same way it was like before. I will be more cautious in my spending and will not bet that my job is secured.
2) Irrational exuberance - With trillions pumped into the monetary system to help individuals and businesses through this crunch time, investors are optimistic that it will be enough to see us through this crisis. For every dollar printed by the government going into the market, they will be spent reviving the economic engine and bring us back on track. Investors are irrationally optimistic that they look past the pandemic and expect strong economic rebound in 2021-2022.
When the individual or SME receives the government fund, what will they do with it? If they have surplus (after paying all the necessary bills), it is very likely they will save or invest into financial markets (causing markets to go up) because you need to find alternative ways of generating income in case you lose your job or the company goes bankrupt tomorrow. The next question is how long can this go on? Can the government keep printing money, hand them over to the people, who in return channel them back into stocks and cause a bull run to make everyone rich (on paper)? How many percent of the population has extra money to invest into stock market? Does the government indirectly help make the rich (shareholders and listed company CEOs) richer instead of actual productivity and jobs creation by the corporations and SMEs?
Final thoughts: : My observation of the last 3 stock market bear runs suggest it takes at 12-18 months for the market to find the bottom. We are now facing an unprecedented situation where we are dealing with a health crisis, oil crisis and historical low interest rates.
Governments are printing money with the aim of jumpstarting a global economic shock but this unlimited QE is an act of mortgaging our future, a debt that has to be paid when the time comes. When the time comes, the outcome will be more catastrophic than what we are facing today. It will bring about the collapse of the monetary system that so far has created huge wealth gap between the minority who have an upper hand and knowledge of the game vs those who have been slaving their lives to serve the system.
The bulls (irrational exuberance) and bears (rational fear) will battle it out within these few weeks and time will tell if the bull that has been fed with unlimited QE can endure the economic reality that is going to hit us soon.
註釋
As predicted, SP500 goes into its initial phase of correction as the capitulation of oil prices triggered profit-taking after last 2 week's rebound. The light that we see at the end of the tunnel is not a sign of recovery but an oncoming recession train that will "bull"doze the market to historic lows.註釋
The week ahead:Market continues to be in denial of the "new normal" that is going to hit them. Is it possible that research analysts are working from home that they become less sensitive to what's happening in the real world and yet to update their earning's forecasts?
Perhaps this is a case of boiling a frog in hot water that investors hope the bazooka trillions of dollars will propel the economy out of the pandemic and oil shock.
Brace for a volatile week ahead with a bias towards lower close end of the week as the bear approaches.
註釋
SP500 is forming a double-top and failure to close higher today will result in sharper downward correction as predicted. The battle between Covid optimism vs dire economic situation will continue to play out in the next 2 weeks to reveal the longer term trend.註釋
It seems that irrational exuberance is defying logic and cranked the market higher with optimism that a Covid drug is going to be available soon.I still think this is very much a bear market rally and the optimism will soon be hit by the reality train and get wrecked.
註釋
The US government (including Fed) is trying to manipulate the market and distort reality of the economic situation by pumping more money and fabricate good news (we found a cure for Covid!). The intention is to build up positive momentum leading up to Trump's re-election campaign, after which the market will tank when the reality hits.註釋
Why is the SP500 up when we know the economy is collapsing?At zero interest rates and free money, where would you put your money if not stocks? Bonds are yielding nothing and property prices will be depressed when there are low economic activities and rlooming ecord unemployment.
The Fed is bending the economic reality and Trump is cooking up the narratives as part of his re-election strategy. I expect this bear disguised under a bull's cloak will reveal itself post-election.
手動結束交易
Looks like my timeframe has been stretched by continuous QE by the government and the fake rally will continue to battle with the bear for some time creating this sideway action.註釋
We could be caught in this range sideway move for a while over the summer as any recovery in Covid situation is neutralized by concerns over the economy and resumption of trade war between US and China.The only reason the stock market is holding up well is because people with money has no where to go except stocks. Bond yields at almost zero, property market facing uncertainty as more people become jobless despite ultra-low mortgage rates. Business confidence is low and unlikely to borrow cheap credit to re-employ laid off workers or expand their business operations (unless you are manufacturing PPEs).
Trump will not let the stock market crash at least until post-election in Nov.
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