Donald Trump says the markets will reach all time highs. And he is correct.
The question is whether we reach them from here or go backwards first.
There is no doubt that the long term trend is going to be bullish. We are not going to see this stopped no matter how the economy fares.
While it is likely we are headed for (in?) a recession, the flow of capital will dictate a run in equities.
For the last 6 months, the major issues has been Europe. This is something the coronavirus provided a bit of a distraction to yet, in a way, only added to the crisis.
The European banks are a mess and now the European economy is wiped out. The European Central Bank is powerless to stop the slide and Brussels is up the proverbial creek without a paddle. The ECB is trying to sell Europeans on "Corona-bonds", something that Germany and the Netherlands are resisting.
In other words, Europe is a mess and we could start to see bank failures in the next 30-60 days.
All this equates to a loss of confidence. In fact, we are seeing this all over the world. The appetite for buying bonds is going to dwindle rapidly. In the United States, municipal bonds are going to take a beating as tax revenue dries up. Illinois is already screaming for a bailout due to the coronavirus, ignoring the fact the state was insolvent for a long time now.
Ultimately, we are going to see a run towards private and away from public. As the appetite dwindles, investors and traders are going to find equities a lot more appealing. Companies revenue streams and profitability can return a lot quicker than a loss in confidence, which is what many governments are going to face.
We could well see a run down in the stock market before lift off begins. Regardless of the rhetoric that is being spewed, we are heading for some rough times ahead. Over the next couple weeks, we are going to get a bit of insight into the damage that was done to the global economy. Of course, it is very unlikely we will see a V-shaped recovery.
Nevertheless, as governments and central banks fumble through the mess that was created, companies are going to be more streamlined than before. As they embrace automation more, their margins should jump when consumers do eventually re-enter the fray.
This will send equities on an upward run as those who are liquid will find many bargain.
In the end, the confidence in equities will be much higher than that in bonds.
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The bank to watch in Europe is the Deutsche Bank, if they go down, it's going to have some adverse worldwide affects. I have a short on HSBC which is tied to the South Korean won at the moment.
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Anything in Italy is also ripe for implosion too.
Deutsche is the biggest one out there and likely in the worst shape, but it is not a lone wolf.
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@tipu curate
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