It is now more or less recognized this time by most people that Covid is a little more than a simple flu. It may be for a very large section of the population, but it is much more complicated for people with weakened immune systems, which saturates our health systems. Above all, the virus seems to be much more contagious than we thought, the number of carriers without symptoms potentially representing 50% of those affected. The good news is that the mortality rate is probably overestimated, the bad news is that it explains why it is spreading so quickly and why there are so many deaths in absolute terms. Large-scale analyses carried out in South Korea and on the Diamond Princess confirm this.
That being said, in parallel with Covid-19, another much more worrying virus is invading the planet just as quickly: human stupidity. People have become completely crazy. It is known that fear revives our animal instincts, but seeing it on such a large scale is dizzying. Alongside those who are freaking out, there are also the unconscious, those who have not understood that the situation is serious, those who show no solidarity with the weaker people and the healthcare staff. There is no longer any middle ground, no reasoned position: either it is flight or it is unconsciousness.
We've been told to social distance for several weeks now, and it's even more important if we're in the at-risk categories. I don't have enough space in my cupboards to list all the examples I've seen around me recently that totally go against these recommendations: an acquaintance who goes to a bonesetter who sees 10 people like him a day for back problems (but he didn't "shake his hand", phew...), people who crowd together in public places and places of worship, particularly people over 65 who don't seem to have understood that they are the most directly threatened, employers who continue to organize sessions in confined spaces with dozens of employees, drunken little shits who act smart on the terraces of bistros, etc. We can thank all these morons. Thanks to them, we are now all confined. Apparently most human beings do not understand what responsibility, solidarity and civic sense are.
The other side of the coin is not much better. Fear clearly makes us do anything. Nothing has changed for the food industry and the movement of goods, yet people have been raiding stores as if a nuclear conflict were imminent. Ok, Macron said at least 10 times "we are at war", but we should not take things literally either. What is this trip with toilet paper rolls? The Coronavirus attacks the airways, it is not gastro... By the way, I thank all those who filled their cellar with toilet paper, because now I can wipe my ass with my bills, literally and figuratively. Thanks also to those who rushed to buy boxes of ravioli, I finally have a strong argument to make my kids eat fresh vegetables. When the Covid crisis is over, however, there are some who will risk indigestion from pasta and canned food.
In the same vein, a small warning about Ibuprofen was enough for people to rush to buy Paracetamol. Wait. We never said that Paracetamol prevented or cured the Coronavirus, just that Ibuprofen should not be taken because it could cause complications. In the same kind of collective delirium, we see people everywhere carrying around my surgical masks that should be used more by the sick (so as not to contaminate others) than by healthy people. Not only is the protection offered questionable, but above all they should be thrown away after 3 hours or each time they are removed or lowered to chin height.
To continue with the collective hysteria, barely had Macron decreed general confinement, that thousands of Parisians fled the metropolis to go to the provinces. Bravo. To properly disseminate the virus there is nothing like it. What is the goal? The provinces are not subject to the same rules? No doubt it is me who has lost my mind, but I really do not understand anything anymore.
Governments are hardly any smarter, mind you. They should have closed the borders, especially with Italy at the beginning of the spread, at least a month ago. They are only doing it now, even though it has become totally useless. There are infinitely more infections on the territory than imported cases. Even worse, the war of words: not long ago we were predicted a rapid recovery when recession was already inevitable. Today we are told about a recession when it is economic depression that awaits us. The difference? A recession is a contraction in growth. A depression is a decline. Not only will we not be richer at the end of the year, but we will be collectively poorer. Greta must be rubbing her hands (with hydroalcoholic gel). Hey, can't we hear from her anymore, by the way?
Finally, the best proof of our collective hysteria is the stock market. It seems that traders have set the level of their orders incorrectly. Everything is multiplied by 10. One day it goes down by 10%, the next day the same, the day after that it goes up by 10%, then it goes down again by 10%... What's the name of this famous theory again... "efficient markets"??? In this genre I prefer to go to the local fruit and vegetable market, from a price point of view it is much more efficient (too bad it is no longer open...).
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Deep crises will bring out human nature (or rather the animal side) in all its glory. Everyone only thinks about their own buttocks: what does it matter if others no longer have food or medication as long as my cellar is full of them...
But let's not lose faith in humanity. We also see wonderful solidarity movements like young people going shopping for their elders or parents helping to look after other children.
Let's hope that we will emerge stronger and united from this crisis. As for the stock market, it will also eventually calm down and come to its senses. We had exaggerated on the rise, now we are exaggerating in the other direction. Those who keep a cool head and gradually build positions in quality companies will eventually come out on top. We just don't know how long it will take.
Crises are also opportunities for those who do not lose sight of their goal and walk with determination towards financial independence.
That's right bro. Valuations are slowly becoming more correct. If it continues to fall this fast in a few days the market as a whole will return to a more or less decent level.
How to be effective with a message to millions of people who have behavior that varies from totally I don't care to completely anxiety-provoking? If the initial message is too scary, the anxiety-prone people throw themselves out the window (or buy 10kg of paracetamol).. if the message is too relaxed it doesn't get through either. A real balancing act. Everyone has their own opinion, after the fact it's always easier. Herd behavior and our human biases have been well documented in finance.. this time it's not just finance, it's everyday life today. Mass effect, herd behavior, etc.
As for the market: the bond market is not working and there must first be liquidity to unjam this infernal machine (and yesterday this was not at all the case, cf US treasury, gold, oil and even a little the currencies yet THE liquid market) so that only then the shareholder market can begin to stabilize (in a RELATIVE way..).
For those who want to invest eur (chf??) in good quality bonds now is the time.. you will find positive returns; it will not last.
Jerome, what do you have on your shopping list if you would like to share?
I don't really have a list but I'm thinking in Switzerland to strengthen Swiss life, buy Zurich airport (a little riskier because the dividend could very well be suspended given the carnage in the sector). In the USA I have CVS and or UHN since Sanders is out of the race and a few others like CSCO.
THANKS
For my part it's very simple. My list is empty!
UNH… and not UHN..
Wise
For that yes 🙂
Macron here, Macron there, that's a lot of Macron for a .ch site 😉
This bullshit has its good side, there is now crazy volatility – even swissquote sent an email to tell its clients to be careful with certain leveraged products – and every day the lowest and still a little lower than the day before.
and for me who wanted to build a yield portfolio for several months, even if it remains high, bluechips are still more affordable now.
Jérôme, how do you explain that solid Swiss real estate companies such as Mobimo, Allreal, Intershop or SPS have fallen so much recently? I read that some are anticipating suspensions or reductions in rents in the restaurant sector, but that we are talking about a maximum of a few % of lost revenue.
This is a defensive sector par excellence and valuations are now generally reasonable.
Even though real estate is defensive, it is partially correlated to stocks. So when stocks go down, real estate tends to go down too, but often less violently.
I am looking very carefully at this sector because this is most certainly where I will start to reinvest first.
According to some articles it seems that we are facing a big squeeze of Hedge Funds that are (were) active on a strategy that has a very low yield using a huge leverage. The intervention of the FED in the Repo market would be a monumental rescue of many of these institutions.
I think I'm dreaming; we find ourselves in the situation of privatization of profits and nationalization of losses. (Tax aid and other nationalizations of governments will be paid for by taxes)
Credit & derivatives also play a key role in the huge swings in the equity market: the lower the market goes, the more market makers have to protect themselves and sell underlying positions. (The opposite is also true) and we end up with ridiculous days of -10%/+10%.
Wait and see...we're not at the end of this story even if apparently the derivatives deadlines last Friday should reduce this snowball effect.
Have a good week everyone.
And Boeing which used 96% of its cash to do share buyback... and which is now demanding government intervention to avoid bankruptcy => privatization of profits and nationalization of losses!
To follow up on the comment from “Soon”, the bailout of hedge funds would also be shocking to me. The question I ask myself, however, is this: what would happen if they received no help? Would the consequences ultimately affect the community, directly or indirectly? In what way and to what extent?
As for Boeing, as an industrial company, I understand better the interest in saving it. But such a rescue should not be free (for the company and therefore its shareholders).
With the economic and financial crisis only just beginning, states will need a lot of money to support citizens and businesses, while also carrying out their usual tasks. Where will they find it?
1) Hypothesis 1: increase taxes; this solution would have the opposite effect to the one sought, which is to restart the economy.
2) Hypothesis 2: borrow money, through bonds. I imagine that this will happen. With low or even negative interest rates, the money that the State will borrow will not be expensive in terms of interest. However, since most States are already -very- indebted, the debt rate will be aggravated; at this level, one can wonder if States will be considered safe debtors for a long time and if people will be inclined to lend to them. In addition, the low interest rate of the bond will not make it a very profitable investment, which will have to be compared to the risk; but, of course, it is better to be remunerated a little than not at all, and investors without more advantageous alternatives will probably buy State bonds.
3) Hypothesis 3: increase in the money supply through central banks ("printing money", "quantitative easing"). This has already been done on a massive scale since 2008 and it risks happening even more. By dint of "printing money", one can wonder whether it will end up massively losing its value, and whether there is not the risk of hyperinflation.
So, what should someone who has patiently built up a heritage through hard work and effort do? If it is in cash, they are taking a risk in the event of a bank failure as well as in the event of high inflation, not to mention negative interest rates. If they buy government bonds, they are taking the risk of non-repayment. If they buy gold, it could be a security in the event of high inflation. If they buy shares or corporate bonds, everything will depend on the quality of the company in question; a company that is financially fragile or that is active in a depressed sector, there is a risk of bankruptcy or in any case of loss of value, but solid companies active in sectors that have a future will be able to increase in value and provide remuneration (dividends). If he buys real estate, there is something concrete behind it, but the value and the yield can fluctuate depending on what the tenants (private and commercial) will still have the means to pay the rents.
I think it is still a bit early to invest, because there are still many unknowns, but that in the long term gold, shares of good companies and real estate could be largely preferable to cash that could go up in smoke, as well as to over-indebted government bonds. But when everyone rushes to invest to escape the risk of cash, assets such as gold, shares and real estate risk being excessively valued by strong demand, and ultimately deliver only a very low return (except gold, which does not give a return by nature).
I would like to point out that I am not an economist. I try to use simple common sense, but I know that this is not always enough and that many things can escape me. I would be interested in reading more "authoritative" opinions than mine.
For my part, I leave these futile debates to the economists. Being a long-term investor is, above all, having the honesty to say that you have absolutely no idea what is going to happen. I could also make 10 hypotheses, but I know full well that one of them will come true anyway. The world of finance (and life in general) will always manage to surprise us and a scenario that no one had predicted will happen. This is the main lesson of this cursed virus (as long as it serves some purpose!).
Faced with so many unknowns and black swans, there is only one remedy: Have a strategy and continue to adhere to it no matter what, act rather than overthink and go around in circles. For me, this means continuing to regularly buy as many quality stocks as possible, at a price that seems right to me, as soon as I have cash available.
No matter what the news is, the number of new infections or Trump's speech, I have only one obsession: to stick to my strategy and relentlessly grow my passive income!
It certainly won't make the coronavirus disappear, but it is an effective remedy against that other disease that is work...
Like dividinde, I think it is illusory to want to predict the direction of the economy. It is already impossible to guess the results of a company even in the relatively short term. Who would have bet three months ago that we would be at this point today? The Chinese leaders perhaps, they who kept this virus silent for at least two months, but even they would never have imagined that half of the world's population could be confined in a single quarter. What a sketch. And teleworking, there too, another joke that makes you laugh bitterly. At first it seems nice, you get up and you're already at work. The only problem is that in the end you have twice as much work, not to mention that you have the kids on your tail. In short, while I had managed to reduce my working time by half for several years, I feel like I'm working full-time again. What a load of crap.
That being said, right now, I'm putting my fist in my pocket and champing at the bit. Because I've been waiting for this drop for three years. I didn't see it in these circumstances, but this time it seems to be for real. Thanks to it, I'm taking a giant step towards financial independence. It's no longer a reality that's measured in years, but rather in months. I'm at the stage where the psychological barrier is greater than the financial barrier. I have to be ready to take the big leap, and paradoxically mourn my tormentor, the disease that dividinde was talking about: work.
To return to Laurent Martin's comment, even if it is impossible to make predictions, we have known how the planet works for quite some time, even if the 'Chinese virus' (for once an expression of Trump that I like) seems to want to shake us in our certainties. There will be very little increase in taxes because it will not go down well with the population, especially from a political point of view. On the other hand, there will be very large public spending as usual and already announced. Since no one will be able to pay for it, the only way as always is to print money. Currencies will be devalued. In the end it comes to the same thing: we make people less rich, not by taxing them, but by devaluing their capital and income. Politically speaking it is much more convenient.
For savvy investors, this means, as always, that cash should be avoided in the long term. Gold, on the contrary, is always a faithful ally in such circumstances, as is real estate. Bonds can be an ally in the very short term (to counteract stock fluctuations), but in the medium and long term they are dangerous because they are expensive and risky in the event of a rate increase (which is predictable in the long term…: rates are very low and the massive injection of liquidity simultaneously associated with high budgetary expenditure are likely to lead to inflation). In terms of stocks, value stocks, with little debt, are to be favored over growth stocks, often with a lot of debt, precisely because of the risk of a rate increase that is predictable in the long term.
These are not predictions, but just common sense.
@Jérôme and Dividinde: I share your analyses.
Good morning,
If we take the major stock market cycles, we have the table below. To put it simply, either we will rebound very quickly to continue our bullish cycle or we have started a Bear cycle of about ten years. To be seen in the coming weeks/months but it will be complicated to rebound given the situation. The bullish cycle will have lasted 11 years which is a little below average but still acceptable. The choice of stock selection will be even more important than in recent years.
Bull Market Approximate Dates Number of years
Good feelings 1815 – 1835 20
Railroad boom 1843 – 1853 10
Civil War and beyond 1861 – 1881 20
Pre-World War I 1896 – 1906 10
Roaring Twenties 1921 – 1929 8
Post-World War II boom 1949 – 1966 17
High-tech boom 1982 – 2000 18
? 2009 – present ? 11 years to date
Total 103
Average in years 14.7
Bear Market Approximate Dates Number of years
Pre-War of 1812 1802 – 1815 13
First Great Depression 1835 – 1843 8
Pre-Civil War era 1853 – 1861 8
Banking Crisis era No 1 1881 – 1896 15
Banking Crisis era No 2 1906 – 1921 15
Second Great Depression 1929 – 1949 20
Inflation era 1966 – 1982 16
War on Terrorism 2000 – 2009 9
Total 104
Average in years 13.0
Source: Trade your way to financial freedom, VAN K. THARP, second edition, p. 164
Interesting. However, I find the categorization of markets between bear and bull a bit peculiar and arbitrary. This makes some of these periods appear abnormally long.
For example, for the second great depression, the bear market is indicated from 1929 to 1949, or 20 years, but the market has been recovering since 1932 already, or 3 years later "already".
Likewise, “War on Terrorism” is listed from 2000 to 2009, yet it encompasses a big bull market between 2003 and 2007.
The last bullish cycle is rather abnormally long at 11 years, contrary to what this analysis seems to indicate.
The average of bull cycles is 14.7 (without taking the last one since history has not yet confirmed its end). So with 11 years, we are below this average.
The author did mention "Approximate Dates" but yes this can be debatable. From what I have seen, he simply takes the highest and the lowest so as long as there has been no confirmation of a break. Which explains why the bull market between 2003 and 2007 is integrated into the Bear market. The point of 2007 does not exceed the year 2000. We can see clearly with the following link:
https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart
All this to say that you will have to be very vigilant in the coming months as an investor.
Good morning
I'm sharing some info I saw recently:
The ECB recommends that banks not pay dividends until at least October 2020 in addition to not buying back shares.
It seems that the French government will ask companies that have the French state as a shareholder not to pay dividends. For companies that want to obtain a loan from the German state, it will be necessary to suspend dividend payments...
Basically it seems that states want to protect workers at the expense of capital (shareholders).
@Laurent Martin: taxes.. we forget that after the Second World War taxes were, in the USA at levels that we would call confiscatory today (above 70%). That said I imagine that capital will be taxed more than labor but we will get there one way or another… and unfortunately taxes or other measures, in one form or another, will be good news relative to losing your job.