Two Questions to Ask about ‘Black March’ before Tonight’s Event

Dear Reader,

Before we kick off with the second to last instalment of our special series, a reminder to keep an eye on your inbox around 7pm for tonight’s investment briefing. It could not come at a better time. Greg, Shae, and I (Dan) have mapped out a course ahead through the coming days and months.

We’ll share it with you tonight at 7pm — don’t miss it.

Between now and then, there are now two urgent questions on the table for Australian investors: How much worse is this bear market going to get? And has Australia’s first recession in 33 years already begun? The two are interlinked.

But before we get to the answer, we’ll add a third question that might make you uncomfortable: Have the last 24 hours in global markets created the kind of buying opportunity you read about in financial history books? And if so, in what sectors or what companies?

Hold that thought…

Australia’s number of coronavirus cases spiked in the last 24 hours. The country faces lockdowns, the cancellation of public events, and a grinding halt to normal life for as many as six months, according to Prime Minister Scott Morrison. This comes as the number of virus cases outside China is greater than the number of cases in China for the first time.

The World Health Organization has called the coronavirus the ‘defining global health crisis of our time.’ The stock market agrees. It was panic stations yesterday on the ASX 200. Australia’s benchmark index had its biggest fall in 33 years, plunging 9.7%.

The index is hovering just above 5,000 points. It was not the reaction the Federal Reserve was hoping for when it slashed US interest rates a full 1% all the way to zero AND introduced $700 billion of quantitative easing designed to ease liquidity in the US Treasury bond market. The Fed panicked.

And then the US market followed suit. The Dow Jones Industrials fell almost 3,000 points and 13% in Monday’s session. It began with a halt on trading as the index opened ‘limit down’ and the circuit breakers kicked in. It accelerated into the close.

Here we are then, in the middle of a Black March. The bear market has done more work in three weeks than you often see in five years. The market may get an involuntary holiday under the thinking that price discovery is a flawed process in the absence of information about what’s happening in the real economy over the next six months.

If it’s a cyclical bear market — the deflating of excess leverage built up since 2015 — the bear’s work is mostly done. You should be looking for cheap assets on sale (as hard as that is to do). A reminder that Shae Russell, Greg Canavan, and I are going to talk about that later today. Most of you will find that kind of thinking almost impossible right now. But after the last 24 hours, I’m convinced it’s exactly the right question.

Stay tuned.

Cheers,

Dan Denning,
For The Rum Rebellion

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The Rum Rebellion