Money talks, and Wall Street had gotten used to getting its way. Now along comes a little tiny coronavirus flu bug, and it has brought Wall Street banks, hedge funds, and the world economy to their knees!
In the past 30 days Wall Street has lost complete control of the media narrative. They do not control where the viral enemy spreads, the damage it causes, or the lives it takes. They have lost all control of the international supply chains and which factories remain open or closed. The banks have no ability remaining to control economic numbers, profits, or the stock and bond markets. If this virus continues to spread, as it looks it will, the banks may even lose control of the dollar itself!
One can see the look of panic on the analyst faces as the banks parade an endless stream of bull market “party line” enthusiasts across financial news screens. Their eyes look very worried as they tell listeners to “buy buy buy!” Obviously though, somebody was selling! And it wasn’t the mom & pop investor with 100 shares of Microsoft! Truth is, it was these very same banks and hedge funds selling, to the tune of $6 TRILLION, leaving YOU holding the bag of worthless 401k shares! While they tell you to get aggressive and “Buy the Dip”, they are exercising the old nuclear cold war practice of “Duck & Cover”!
While I don’t claim to know where the market will go one day to the next, I can say with a reasonable degree of certainty that the earnings numbers….if there are earnings….are going to be HORRIBLE at the end of this quarter when corporations start reporting in April. NOBODY will be exempt from the economic effects, just as nobody is exempt from the damage of nuclear fallout!
It is estimated that Chinese manufacturing production is operating at 20% to 50% of normal, while the virus continues to spread across China and the rest of the world. China comprises 50% of the world’s manufacturing capacity. This means that at a minimum, one quarter of the world’s production has been shut off in just 30 days! And with “just in time inventory” practices, the ripples are felt almost immediately through the entire supply chain! One example is Detroit auto factories, which have had to slow production because critical parts from China or South Korea are out of stock. Now, as the first deaths caused by the virus begin hitting American shores, the effects will be even more pronounced!
It goes without saying that this level of economic disruption WILL impact earnings. It WILL cause credit defaults! Those credit defaults WILL beget other credit defaults! There WILL be job layoffs. And with an economic system built on unprecedented debt levels, the peril will reverberate around the world!
There should be no rush to “buy the dip” or “jump back in”. Until this viral enemy has run its course, the damage will continue to pile up! The virus has only gotten started where the real capital is! Instead of “buying the dip”, you should consider the “duck & cover” strategy being employed by the banks! If you like the stock prices now, just wait. They will be a lot better six months from now!