Saturday, March 21, 2020

Looking for the lows that no one knows: 2280, 2137, 1900, 1600, 800

A savvy market observer wrote yesterday that the Spanish Flu, 1918, took the stock market down 37%.  "And this isn't the Spanish Flu," he wrote.  He has turned bullish.  Is he right?  Too early?  Dead wrong?  No one knows.

So.  Let's do some math.

Our recent high came just a relative few days (and 100 light years of consciousness) ago @ 3393.52, Feb. 19, 2020.  Just 31 days ago.  What a difference a day makes.

19-Feb-20 3,380.39 3,393.52 3,378.83 3,386.15 3,386.15 3,600,150,000

A 37% down move would take us to 2137.92.  We've already come pretty close.

Two days ago, we saw:

18-Mar-20 2,436.50 2,453.57 2,280.52 2,398.10 2,398.10 8,755,780,000

We weren't around in 1918, so can't comment directly, but in this age of 24/7, instantaneous news, and infection, recovery and death counts posted in near real-time courtesy Johns Hopkins for everyone to see and mull over, and fear, this feels worse.  The near-nationwide shutdown....also "feels" worse, hard on the psyche.  How will freedom-loving Americans fare, being in solitary or near-solitary confinement for a couple months?  Time will tell.

And then there's the entire matter of not enough hospital beds, not enough supplies, risks to our health workers -- truly apocalyptic.  To go from fat and happy to thoroughly stressed out -- in just 31 days.


To this observer, market will go lower than 1918-1919 lows, i.e., a bottom at 1600-1900, near 50% off (1696.76) to be exact, might absorb the horror.  For now.

Few things in our favor:
  • Most recover, though the "this isn't too bad" early descriptions seem to have fallen away
  • Death rates vary, but 1% seems average
  • Treatments being devised
  • Vaccine work being fast-tracked.
After it gets its footing back, the market will play "where the puck is going to be, not where it is.  So once the market senses the apex of the horror is already here or just ahead, (and things will get much, much worse in the next 14 to 28 days), engines will reverse hard.  They are variously talking about U or V shaped bottoms.

There will be a respite, but one perhaps with residual masks, gloves and "social distancing."

The real question comes in the fall. Spanish Flu took a toll in the spring, abated into the summer, and came back with a vengeance in the fall.  Is a similar fate ahead?  That might bring the market to three-digit levels, e.g., 800, a 75% decline.

In closing, nothing would please me more to be wrong about every word here, and that the situation miraculously reverses and in lightning speed.  To see so many suffering, and to fear that will be your own fate, is mentally wearing.

Stay safe, stay in, use the time as profitably as you can, keep faith and trust in the Lord, be of good courage, and here's hoping we all get through this together.....

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