It’s an understatement to say that this week was particularly wild, and we’ve seen global chaos from the coronavirus’ spread lead to a rapid and mindless downturn in the markets. More and more known figures are testing positive for the virus – from Tom Hanks and Rita Wilson to Sophie Trudeau and Jair Bolsonaro to potentially a significant amount of the Utah Jazz basketball team – and people are starting to finally realize that this spread will have a significant impact on our financial systems and way of life.
As I’ve been saying, this is the definition of a “black swan.” It’s the most abused financial term in history, but this is really it. Nobody could have seen such a volatile scenario unfolding, and now it’s really here – and the markets started reacting as soon as it hit the Western world in Italy.
This is what happens when bubbles first start to burst, but the one we’re in now is bigger, moving faster, and will break harder than previous instances. Normally, the bubble peaks when the smart money starts selling into it and shorts leverage, but that’s not what’s happened here. Instead, the smart money has not been selling into this – and that’s something we’ll have to prepare for. There’s potential for things to wear off by April or so with a strong counter rally, but it’s not really clear yet.
So this week in the Friday rant, I’ve put together a few scenarios for you to consider. Most likely is that we’ll see a temporary recession and strong rally when this wears off, and an economic recovery into the election, followed by a big recession/depression after that, whether Trump gets re-elected or not. But again, this is a fast-moving thing and we really have no clear idea yet how it might play out. So stay tuned. We’ll keep you updated.