Dear Students,
Given the amount of inquiry I am receiving from our readers and students regarding the Coronavirus and the recent market volatility, I feel compelled to share my views on the situation, from a trading and investing perspective as well as a personal perspective.
Why are the markets acting so crazy and is everything going to be ok?
“Correction” to “Bear Market” into “Crash
The moves in the markets have been both extreme and unexpected. This is a true black swan (an unexpected and unpredictable event that was extremely difficult or impossible to predict), that is causing genuine chaos to the world’s financial markets and economies. The move has been exaggerated by people’s predictable panic and confusion, and like always, the computer algorithms (quants) are fueling the momentum behind many of these unpredictable crazy movements in the markets.
“Fear”
Most retail market participants actually believe the world is ending right now, the level of chaos in stocks and commodities especially is unprecedented. Due to the extreme price volatility, we know that typical trader and investors' emotions will see many market participants panic and make decisions without even understanding what is truly happening. Some will inevitably be forced to sell due to margin calls or simply to raise capital to run their business during this slow economy.
The problem we have here is that panic and overreaction. Once you have the entire world fearful of owning financial assets and fearful of any form of travel or even leaving their house, you have a self-fulfilling crash in the global economy, regardless of the true cause. Fear and panic are the real danger to all of us here and not just virus pandemic itself.
US Federal Reserve to the rescue ‘Again’
Just like we saw back in the 2008/2009 , the US Federal Reserve has just announced ‘whatever it takes’ rescue measures to try and stem the bleeding in financial markets and credit markets. Countries around the world and central banks are all working together to try and stimulate their respective local economies and to help local businesses weather the current economic storm.
Sadly these rescue tactics will not save every local business and certainly won’t save every listed company. There is going to be insolvency and bankruptcies as a result of the current crisis, and the global stock, credit, and currency markets are pricing this in already.
Regards
PAG
Given the amount of inquiry I am receiving from our readers and students regarding the Coronavirus and the recent market volatility, I feel compelled to share my views on the situation, from a trading and investing perspective as well as a personal perspective.
Why are the markets acting so crazy and is everything going to be ok?
“Correction” to “Bear Market” into “Crash
The moves in the markets have been both extreme and unexpected. This is a true black swan (an unexpected and unpredictable event that was extremely difficult or impossible to predict), that is causing genuine chaos to the world’s financial markets and economies. The move has been exaggerated by people’s predictable panic and confusion, and like always, the computer algorithms (quants) are fueling the momentum behind many of these unpredictable crazy movements in the markets.
“Fear”
Most retail market participants actually believe the world is ending right now, the level of chaos in stocks and commodities especially is unprecedented. Due to the extreme price volatility, we know that typical trader and investors' emotions will see many market participants panic and make decisions without even understanding what is truly happening. Some will inevitably be forced to sell due to margin calls or simply to raise capital to run their business during this slow economy.
The problem we have here is that panic and overreaction. Once you have the entire world fearful of owning financial assets and fearful of any form of travel or even leaving their house, you have a self-fulfilling crash in the global economy, regardless of the true cause. Fear and panic are the real danger to all of us here and not just virus pandemic itself.
US Federal Reserve to the rescue ‘Again’
Just like we saw back in the 2008/2009 , the US Federal Reserve has just announced ‘whatever it takes’ rescue measures to try and stem the bleeding in financial markets and credit markets. Countries around the world and central banks are all working together to try and stimulate their respective local economies and to help local businesses weather the current economic storm.
Sadly these rescue tactics will not save every local business and certainly won’t save every listed company. There is going to be insolvency and bankruptcies as a result of the current crisis, and the global stock, credit, and currency markets are pricing this in already.
Regards
PAG
