We will rally and then re test the bottom

[BurtBurton]

That's what I thought too, and I figured the debt downgrades would exacerbate the downturn. So what am I missing in the current market? I anticipated expectations for a stimulus to push the market higher last week. What is the market anticipating right now, a quick return to normalcy? People don't spend when they are worried, even if they are collecting unemployment.

I think you're seeing a short term bump in sentiment. Look at all the things that have happened in the past few days. Italy's numbers are finally coming down; Our own government is talking about ways to send people back to work, and the federal government just issued a 2T stimulus package (the largest in history). Add to that the market just had the quickest and most rapid sell-off in history.

There was bound to be a relief rally.

Here's what's not captured in the rally the past few days. We haven't even begun to understand the economic impact of this shutdown. We just saw last week's unemployment numbers before the $%^& really hit the fan. More and more people (including office personnel) are going to be laid off in the next couple weeks. That is going to drag on everyone's sentiment.

We are going to start hearing rumors of bankruptcies as companies that depend on consumers for cash have evaporating balance sheets (retail, airlines, automotive, food service). After that the cash flow is going to make its way down the supply stream as the manufacturers as companies on net 30, net 60 or net 90 start failing to make payments (clothing manufacturers, oil and gas distribution, secondary and tertiary automotive suppliers, food packaging, retail food distribution).

We are only at the beginning stage of this recession, and I have a feeling it's going to be pretty painful. The best case scenario is that the US is somehow insulated from how this spreads in Europe because we all drive in cars and live farther apart. In that case, maybe we are out of this in 4 weeks. More realistically, I think we follow the trend of Italy and we have to shut down for at least 6-8 weeks.

And what happens after that? Does everyone bust out of their doors and rush back to their jobs that fired them only two months ago? Not likely.....the spigot will slowly turn on as companies try to gain some sense of normalcy after the biggest economic pause ever.

Then of course, we might have flare ups in the fall......

 

[farmerjohn1324]

I agree Burt.
The virus was the needle that popped the bubble.

But it isn't popped until somebody defaults on a bunch of loans. This has not happened.

 

[BurtBurton]

But it isn't popped until somebody defaults on a bunch of loans. This has not happened.

That's very true. But let's be real - defaults aren't going to start piling up only one or two months after the disaster strikes. The US housing market peaked in 2007. People didn't start defaulting and causing failures in banking until 2008. I think the dramatic sudden stop in this case will accelerate the timeline, but I don't think we start seeing defaults for another month or so.

That's really the whole point. Those companies that have had a sudden shock to their balance sheet, and can't loan money anymore aren't going to be hiring people back any time soon. Ergo, this economy isn't going to come roaring back in 3 months.

 

[farmerjohn1324]

That's very true. But let's be real - defaults aren't going to start piling up only one or two months after the disaster strikes. The US housing market peaked in 2007. People didn't start defaulting and causing failures in banking until 2008. I think the dramatic sudden stop in this case will accelerate the timeline, but I don't think we start seeing defaults for another month or so.

That's really the whole point. Those companies that have had a sudden shock to their balance sheet, and can't loan money anymore aren't going to be hiring people back any time soon. Ergo, this economy isn't going to come roaring back in 3 months.

Many necessary industries will not be affected at all...

Healthcare, construction, shipping...

The industries that will be affected the most are discretionary like retail, etc.

 

[ph1l]

No, Can you please speak using ebonics so i can understand you.

Spoiler: This may be offensive

He's sayin' he disagrees wid yo' opinion a'cuz da damn market already priced in 'spected earnin's and lost wo'k. And he also duzn't wants' ya' t'speak how much bre'd he gotss'ta lost.

 

[BurtBurton]

Many necessary industries will not be affected at all...

Healthcare, construction, shipping...

The industries that will be affected the most are discretionary like retail, etc.

Please tell me how shipping won't be affected? Oil consumption is tanking around the country as people shelter in place. How do you think that gas gets into their local gas station? Who gets all the plastic cups, plates, food and drink into food service locations? Who moves containers of clothing and electronics from ports to distribution centers? Shipping impact is going to be catastrophic.

Yes, healthcare should be ok....at least for drug and equipment manufacturers (if their supply chains can ramp up). What about insurance providers? They are going to be decimated by intensive care stays and drug bills for patients who have reached their out of pocket maximum.

Construction? Who wants to build a strip mall or house when retailers are going out of business left and right? Who wants to buy a house when they're unsure of a steady income stream?

 

[ET180]

That's what I thought too, and I figured the debt downgrades would exacerbate the downturn. So what am I missing in the current market? I anticipated expectations for a stimulus to push the market higher last week. What is the market anticipating right now, a quick return to normalcy? People don't spend when they are worried, even if they are collecting unemployment.

I think people are thinking / realizing that the Fed and global governments cannot allow the market to drop. There's just too much debt in the system and we cannot handle a long downturn. So there's now a confidence that the Fed and governments will just continue throwing more money at any economic problem that develops. No matter what happens, the Fed will always bail out the markets...until it no longer can.

 

[KCalhoun]

Big picture, consumer confidence and passive investing created the bubble.

Now with millions unemployed and virus deaths skyrocketing, there's not much propping up stocks but the fed..

This current bounce is a short lived dead cat bounce/short squeeze that will be overcome by massive virus death headlines next week.

Ive traded bounces TQQQ MGM PENN HTZ TLRY etc but am strong bear bias and will re-enter inverses SQQQ TVIX VXX SOXS TWM on bounces. Or TQQQ if mkt goes up... good luck all

 

[Cuddles]

I think people are thinking / realizing that the Fed and global governments cannot allow the market to drop. There's just too much debt in the system and we cannot handle a long downturn. So there's now a confidence that the Fed and governments will just continue throwing more money at any economic problem that develops. No matter what happens, the Fed will always bail out the markets...until it no longer can.

My fear is how compromised is our treasury in the name of propping up an election.... Going by memory, governments in the past have printed themselves into ruin for years before the charade blows up.

 

[jghall00]

My fear is how compromised is our treasury in the name of propping up an election.... Going by memory, governments in the past have printed themselves into ruin for years before the charade blows up.

I wonder if we just need to inflate less than everyone else to win. Where will investors turn? They have nowhere to hide from the printing presses.