Why Covid-19 will Make the Markets go Up...
So, you understand the markets? Will they go up or down next week? Read here for the answer (they will go up). So if you want to make billions buy now. The markets are rather like emotional and psychological states; they are volatile, and swing from one extreme to another, and surprise us.
Do you want to sound clever at dinner parties? Well, tell them the market will go up next week. Why? Because the opposite of what we expect often happens. Now the consensus across the chattering classes is that this is another 1929, and a great crash awaits. The end of the world is nigh. The majority of investors, terrified that they have the symptoms of coronovirus, believe that no one will spend, and that companies will go bust. Just as they hoard toilet paper, they prefer cash to risky stocks. However, it is just at this point, when the sellers are exhausted, and the consensus view is that the only way is down, that the smart money buys. This is the "contrarian" nature of markets. They are not logical creations, but infused with emotion. The explanations given by economists and pundits are usually just narrative glosses, trying to interpret what they cannot really fathom or explain. This week it is crisis. As markets rise next week, you will hear phrases like bargain hunting and value. Investors will move from extreme fear back towards greed, afraid of missing out. They will move out of cash and gold and into stocks. Suddenly, they will realise that TINA, (there is no alternative) and that there is no return from cash under the mattress, or zero percent interest accounts, or gold bars. So, once again, just when you thought, "the bull market is over", they will pile into shares.
The focus will shift to the psychological and monetary impact of the stimulus packages being unveiled by the global political class. This new potency from public servants, with the aim of changing the public mood, will build mental and physical infrastructure; both inner and outer strength. Terrified investors, who act as instinctual herds, trying to imagine what other people are thinking, and how they ascribe value, will suddenly change their horizons and think about the future. All that cheap money and drug like stimulus will help them dream of a new narrative. As the virus becomes routine, and our minds become accustomed to hearing about death counts and virus spreads, money will pour back in. This week was panic. The world acted as if civilisation was ending because of a new form of flu. Next week the world's investors will act without memory. The famous psychoanalyst Bion stated that the analyst should be without "memory or desire". Each session witht the patient should be a clean start. Only if the analyst is free of any presupposition, or fixed idea about the patient, can there be real growth. The stock market is the same. It has no memory from day to day. Red one day. Green another day.
Desparate selling will be replaced with deperate buying. So hold tight, just like our minds, the markets will be volatile. And like the best investors, keep your contrary streak alive. Think for yourself. Nowadays, more and more decisions are made by powerful algos, reading across from one another, second guessing, other algos. That's a very successful strategy, until it's not. In the end, using other people's momentum works, until is spectacularly doesn't. In the end, perhaps we are forced to think for ourselves. Psychological states of "fear", will shortly be replaced by "greed", and it will be business as usual.