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We are witnessing a financial panic in the making.
The baby is getting thrown out with the bathwater and mostly everything is selling off.
First off, there is no secret, the coronavirus is spooking the markets.
More than 100,000 case and 3,383 deaths according to data compiled by Johns Hopkins University.
Trying to contain optics is both frustrating the world and confusing the public. This morning, Mike Pompeo accused China of setting back coronavirus prevention efforts and putting the rest of the world, “behind the curve.”
We are seeing once in a blue moon type measures. The Fed dropped interest rates by 50 basis points in emergency fashion, last time seen in the depths of the 2008 financial crisis. Except the last time they did this, rate were higher with more ammo to deploy.
We’re literally getting awfully close to zero with CNBC pundits even discussing how many trillions of dollars will need to be deployed into the markets to prop up this contagion.
It really begs the question; how will the Fed be able to combat this with stimulus at what is seemingly mass exhaustion?
The 10-year treasury is now in unprecedented territories. And I mean unprecedented. When I screen shotted this chart for everyone below, I literally took it to the max going back to 1954 and as you can clearly see, we’ve never experienced rates this low:
If you look at today’s low for the yield, you’ll notice it hit as low as .66% for the day!
For many who own stocks right now is a troubling time to be looking at your computer screen or turning on Bloomberg and CNBC.
Markets are tail-spinning and world leaders and trying to put the pieces together as events are literally presenting themselves. Again, this was the definition of a “black swan.” An event that comes as a surprise.
The coronavirus panic is exactly that and the grind that is taking place is only perpetuating on itself.
Here’s the truth, markets overreact all the time in either direction. In a bull market, they climb further than they should and in panics, the selloff more so. This will undoubtedly be the case.
I would not be surprised if the Dow Jones goes below 20,000 in this environment. This selloff isn’t ending anytime soon, and what is more troubling, is the emergency cut was COMPLETELY ignored by the market.
Oil is on the verge of collapsing below $40 a barrel from $60, as the economy is coming to a grinding halt.
In my honest opinion, to get the attention of the market, the Fed will need to inject literally trillions to wake up the markets from the coma they are falling into.
And yes, that means a diminishing return on every dollar GDP for every new dollar of stimulus being injected into the economy, which I believe is extremely unsustainable.
I’ve never advocated for artificial management of the markets from government, but this is the game that is played and is what I fully expect to happen.
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For the rational person…
I try to stress the fact to my readers that you want to be ready for times like this and not have to react in a panic when moments like this take place to the upside or down.
My thoughts haven’t wavered in this environment and I’ll reiterate them here:
- Own precious metals and the most quality of names in the mining sector. Gold is outperforming and putting on a firework show. Aside from last Friday’s selloff during the panic gold is continuing to settle higher and higher deeper into this panic.
- Silver is continuing to become a stronger and stronger buy. We are at a 97 to 1 ratio and counting. Just to put this into perspective, to get to a 100 to 1, gold could go to new all-time-highs of $2,000 and silver would only be at $20. I think those valuations would be ludicrous. Although, I’m not saying it isn’t possible, but my bet is on the inevitable that silver will slingshot higher.
- You don’t want to be overweight in overall equities going into this selloff and this is something I’ve tried to pound the table on for a while now. Hopefully whatever people do have in the markets, is not their life support and can manage the volatility despite how volatile the near-term future is likely to be. (For many, this won’t be the case.) The market will overcorrect and overtime, will increasingly becoming a better buy. I’ve said it before and I’ll say it again, the stock market will be a hedge against the failing dollar. Inflation will be reflected in stocks over the longer-term.
- I fully expect Bitcoin and other top cryptos to be a safe haven over the longer term as this plays out. $9,100 Bitcoin reflects that and new all-time-highs I believe are in order similar to the gold trade.
- Do what you can to minimize your expenses and manage your finances to be as resilient as possible. In this interest rate environment, if you have a mortgage, consider a refinance which could literally save you thousands of dollars in interest and give you an opportunity to get lenders off of your back sooner rather than later. And let me be clear, don’t refi to buy a boat or put in a new kitchen, refi to save tens, if not hundreds of thousands of dollars in interest that is available to you now. 30-year mortgages are close to 3% and if you have the stomach for a 15-year note, these are getting close to 2.5%.
- This is a good time to be prepared with food storage and essentials in the event of supply chain disruptions and complete depletions of our grocery stores. Empty store shelves is already happening, so do not think this is out of the question.
The unthinkable has happened for years to the upside in our markets and I’m afraid that we are seeing the unthinkable equal and opposite to the downside transpire before our very eyes. It’s a good time to be prepared if you aren’t already.
And keep in mind, no matter how prepared anyone of us are, we will all be impacted one way or another. No one will be completely immune from this whether it hits our portfolios, jobs, income, sicknesses, people around us that will need our help.
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