Still away from Lunada Bay working on constructing low risk/high return government backed affordable solar homes as an alternative to more traditional risk markets. Why? Because I have viewed traditional stocks and bonds as fraught with risk and recommended that people stay out of those investment waters. A wipe-out waiting to happen.
It is happening now.
Last year I saw the shift in US-China relations and a potential move by China military into Hong Kong as the catalyst for the next down move. China smartly took a non-military path. Markets recovered to reach new highs.
But many of the nagging fundamentals markets have been resting on remained in play, specifically:
1. Deflation;
2. Low and negative interest rates;
3. Mismanagement of the financial system by regulators;
4. Concentration of gains in tech stocks;
5. Computer dominated trading systems;
6. Large accumulation of debt and leverage in the financial system;
7. Many risk markets near historical high prices with little value.
Then along comes Coronavirus. Smack.
In just a few short days the Dow Jones is back to where it was in January 2018. Over 2 years of gains lost. Zero return. US markets starting to look a bit more like Japan.
Agreed, hard to forecast a black swan event like Coronavirus, but easy to see that something would tilt markets down when people were piling into stocks, not because they were a compelling investment, but because they were the only game left in town with the hope of going up. What, or buy negative yield bonds?
Now what?
Stay out of the water, or close to shore. Safe haven assets. Uncorrelated assets. Let this thing play out.
On the surface the numbers do not support a panic. As of today, around 82,000 cases of Coronavirus and 2,800 deaths world-wide. Only a small portion of the tens of millions of flu cases globally per year with hundreds of thousands of deaths. But this one is more contagious and more deadly.
What could be an over-reaction, or the beginning of a global pandemic, has already spilled over to the real global economy. Cities shut down. Religious sites closed to pilgrims. Country borders closed. Schools being closed. The economic impact is already real. Global growth has been slowed. Markets are adjusting.
People are rushing for the doors because it is hard to handicap a virus, and Coronababy does not care if the Fed lowers interest rates. Investors are now starting to realize what we have been saying for a while, the current macro-economic mix is not favorable for traditional risk assets. Plus, it is another negative for China and globalization, two of the key economic drivers for the past two decades. Markets are just coming to terms with this paradigm shift.
So sit tight. Keep risk low. Continue to act like a bird above Lunada Bay and survey the scene. Now is the time to monitor. As you know I am a bargain hunter. But I still see few investment bargains other than our affordable housing program.
