I have been following the news and it has been stressing me out. There is full fledged market panic now.
The corona virus situation has escalated far beyond anyone’s imagination. Nobody could have predicted it would spark off a crisis worse than the Great Financial Crisis of 2008. The media is making things worse, and people are panicking, and for increasingly good reason. 1 out 5 of Americans are going to be in lock down, and its going to increase. The hysteria there will probably last till at least end Apr 2020. Initially most people were predicting that by May, the virus will have died down. But the economic fallout looks increasingly like it will last quite a bit longer than that.
I wonder how much more the markets can tank. Many high-yield investments such as REITs and bonds have dropped 30%-50%. Can the system handle another such drop? I think another 20% will cause mass panic and layoffs, and credit markets to freeze up even more.
There is also the human stress on the ground.
While dropping off cheques at my brokerage, I couldn’t help but over-hear a very stressed auntie screaming at her husband, about losing money. They were calling their relationship manager, likely to give him/her a tongue-lashing. But really, like everyone else, the RM could not have seen it coming. The smart money didn’t see it either. Not Warren Buffet, not Ray Dalio. What chance did we have.
Another time, I saw a family asking how fast their cheque would clear. They couldn’t seem to be able to wait the 2 days. I don’t think many more people can withstand even a 20% drop.
Origins of Crisis
The problem was that many people were leveraged up just before this crash. Believe it or not, things looked very calm in the months before. Stock markets were at records highs. It was not easy to put money to work, and most people were forced into higher risk investments to earn a decent yield. These yields weren’t speculative either, around 5%-7% for moderate investments.
The drop has been much faster and dramatic than anyone could have anticipated too. Most people were assured that 10% drop in their mutual funds and bonds was close to impossible. What has actually been seen is at least double or triple of that, in a fraction of the time it took it in 2008. Taken together with leverage, this means most people’s losses on paper are at least 50%, with investors in the high-yield space losing the entirety of their capital.
So far, I have been refusing to sell, even though I want to deleverage. There aren’t even any serious buyers anyway. Bidders are asking 20% lower than what sellers are asking e.g. $90 asking price (what sellers are willing to sell) and $75 bidding price (what buyers are willing to pay). This is worse than Carousell low ballers. But its a very precarious situation, and another round of bad news would tip us over.
What the fark.
I’m going to try to stay off the news for a while. I don’t want to sell anything during this period, and reading all this stuff just makes me more anxious. So no WSJ, no Bloomberg, nothing. Just family and rest. Maybe play the new Doom game.
I wonder if I’m going to be the next husband to be yelled at by my wife.