Rocky Markets don’t have to be Catastrophic Part 1

The other day I was thinking about my life in Milan in Italy. I am an expat, like so many others in this beautiful city. And in the last week I’ve seen this city transform into this eerie ghost town as many businesses closed indefinitely and the streets are quiet, because of a new uncertainty lingering around known as COVID-19 outbreak. The tourism industry is suffering with an already fragile Italian economy. I fear this will be a catalyst for so many problems ahead.

Then I got thinking, what will happen if I lose my work? And is my money safe? The panic took over me like a killer tsunami as I watch the markets melt away. Obviously I am not the only one that thinks this way. So what now?

We should all be asking ourselves right about now: Am I positioned in such a way where I don’t get taken out of the game? Have I managed my risk? Do I have enough investments that are giving me consistent income no matter what happens in the market? And do I have enough saved no matter what happens to my job? Here is my view of what is going on:

Dollar up, Gold up…what does that mean? People are seeking safe havens right now. Obviously some of that has something to do with how the COVID-19 is going to play out. Duration is the key element in all of this. How long will this pan out? Best estimates? Let’s think about this: I am no expert but I would think this virus would run its course through this summer of 2020. If they come up with a drug, and approval process could take say 6 months. The global GDP figures, the measure of all global economic activity, is going to be substantially lower, at least in the first half of 2020 due to deteriorating inputs. So much of our economy is based on tourism and continuous outbreaks in recent days in Italy has already resulted in a tourist halt. I suspect global growth rates will continue to slip.

The uncomfortable elephant in the room is the growing concern of a 'no solution', and thereby a plan to mitigate and control the spread, have not been put to place. Let’s look at China by the way. The COVID-19, is just an example really, of a failed state when you can’t allow freedom of speech and all they were doing for the first four weeks is managing and controlling the dialogue and basically shutting out any discussion of what COVID-19 is. So when the government is more concerned about managing the narrative than solving the problem, there exists evidence of a failed state.

A virus is a unique factor. Because now, we’re talking about behavior modifications and shifts in consumption away from public spending putting everything at risk. Supply chain disruptions due to the viral concerns and a shut down to many airline/tourism industries is what is affecting earnings reports and thereby affecting sentiment in the markets. Is the lack of supply of goods going to push prices up? Could this potentially trigger the rise of inflation?

This week we saw a huge liquidation drop in the markets, and fast. The main question now is; do we have a correction or full on sell-off that could potentially lead into recession territory? And this is the perfect example that you can’t just throw money at everything to solve the problem, as the FED have been doing for so long by printing money and artificially lowering interest rates, also know as "Monetary Policy". 

Let’s talk about that for a second. We’ve had this artificial certainty for so long, Monetary Policy intervention, that’s been applied by this printing of money. All this printing of money has brought a hypnotic state to the markets where everyone knows the Central Banks have their backs. So no matter what happens, as long as they can print money, lowering interest rates, they can solve the problems. But let me highlight that in the current state of conditions, it could be that no amount of money thrown at this problem will be able to fix. 

Even if you have more lowering of interest rates and more liquidity injections with more money being printed (it all just sounds like one big video game) – the Monetary Policy, as a cure all, is less effective when the disease is ‘non-financial’. How long can they be throwing money on all of the problems?

Bear in mind (pun intended) the debt issues will only get bigger. At this point there are no debt ceilings anywhere in the world so get prepared for massive liquidity injections and more being pumped into these repo markets, and of course airline bailouts. This practice is going to be moving forward if everything does go out of control. Be prepared for huge increases in debts. And lowering of interest rates, how long until we hit negative interest rates? Because this is what they’ve done in recent past few corrections, let's call it “the economic Band-Aid”.

I think what people don’t realize is…this time, its really hard to control things. There is a health concern, and human tragedy. This is very real. Loss of any life is tragic. And to not have our arms around that, can be scary. The virus is a catalyst for businesses closures, job cuts, what does all that translate into? What happens when printing money and lowering interest rates just doesn’t work anymore?

This can certainly lead to social stress.

The massive sell off in the markets can mean a slap in the face for many people. The thing is all the of factors of uncertainty were there, all the red flags were there for a long time, that something should be done, so there should be a strategy and plan to be ready for anything that could trigger a bloated economy. And yet so many people chose to ignore the signs.

We have so much uncertainty from environmental to health to politics, and so on, that making educated predictions are near to impossible. But we can most certainly exercise risk mitigation.

Is it obvious by now what you should do? Take control and sharpen up your financial literacy and review your strategy. Autopilot, sitting back, waiting and hoping that the markets will somehow take care of you, this type investing are only good in bull markets. This is the time to engage an Active Management style and work with people who have gone through downturns and volatility before.

Consider evaluating your wealth strategy and look to diversify your portfolio by exploring opportunities and ways to receive consistency of income no matter what happens to the markets. Protect your future.

Get in touch with me if you would like to discuss your strategy:

Elena LPris

Wealth Management & Protection Consultant

[email protected]