Tags: invest | economy | panic | markets | virus

'Lifetime Perfect Moment to Invest' Will Be When Panic Hits Markets

'Lifetime Perfect Moment to Invest' Will Be When Panic Hits Markets
(Kevin Renes/Dreamstime)

By    |   Sunday, 26 April 2020 06:28 PM

Kevin Hassett, Chairman of the Council of Economic Advisers, on Sunday said “I think the unemployment rate is going to jump to a level probably around 16 percent or even higher in the next jobs report” due May 8.

Hassett added “This is the biggest negative shock that our economy, I think, has ever seen. We’re going to be looking at an unemployment rate that approaches rates that we saw during the Great Depression of the 1930s”.

From its side, the Congressional Budget Office (CBO) which is nonpartisan, estimates that U.S. GDP will contract at nearly a 40 percent annual rate in the second quarter, with unemployment at around 16 percent in the third quarter.

Interestingly, even for 2021, the CBO sees the jobless rate still averaging above 10 percent, Reuters reported.

One of the main challenges economists and investors have at the moment is that there are 3 levels of uncertainty:

  • We are uncertain about the path of the COVID-19 virus. Treatments, vaccines and basic statistics about the virus itself.
  • We are uncertain about the policy response to the COVID-19 virus, and
  • We are uncertain about the economic response to the virus and to the policy response to the COVID-19 virus.

That said, last week we got reports from China that a possible treatment of the virus had not performed well in tests over there.

Changing expectations about the treatment, changing expectations about the path of the COVID-19 virus shall have knock-on effects for policy and for the economy, Reuters reported.

And if all this wasn’t bad enough, it’s certainly not an overstatement to say that the United States is at present profoundly divided over how to further really and effectively support individuals and businesses.

Unfortunately it must be said, but last week, old fault lines have reappeared and may get worse in the days to come. Oil and other industries are lobbying for more cash, States are demanding aid, and what was meant to be a moment when help rolled out fast has instead generated outrage over who has and who has not been helped, Reuters reports.

That said, on Friday we got positive news as we got another batch of stimulus we could call U.S. stimulus 3.5 that was passed by the House, which means that aid to small businesses can resume while the discussion now will turn to U.S. stimulus 4.0, with, among others, the oil industry apparently suggesting they would like a little cash if that would be possible.

For investors it could be helpful to keep in mind that the U.S. oil industry is not a major employer in the United States overall, but it is a more important employer in certain States, which are: Texas, Alaska, North Dakota, New Mexico and Oklahoma, Investopedia reports.

Meanwhile, the European Union’s (EU) Heads of government met last Thursday and decided to delay deciding anything until they could decide on what they wanted to decide.

Nevertheless, a little bit good news came in reports that German Chancellor Merkel is prepared to contribute significantly to a recovery fund with a total funds size of about 1 trillion euros ($1.08 trillion).

The problem is that while the EU commission is being asked to set up a recovery fund, the absolute size, whether it offers loans or grants and the timing, all this needs to be sorted out. Mere details of course, but details that investors in euro and EU related instruments would probably like to know something about.

Finally, we got an historic event on April 20 when the benchmark price of U.S. oil futures “CLc1”, which had never dropped below $10 per barrel in its nearly 40-year history, plunged to a previously unthinkable minus, which means “negative,” $38 per barrel, which is in my view a bad omen that warns us that a market crash is underway and that will not be limited to the oil market.

Overinvestment when the fundamentals weren’t and still aren’t there to support market prices has more to do with wishful thinking than with sound investing.

Conclusion from my side remains rather simple: I continue to favor by far the U.S. dollar while remaining as liquid as possible and taking time as my friend. I have no doubt that we are on our way to a moment in time when panic will dominate the markets, which will be the once in a lifetime perfect moment to invest.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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I have no doubt that we are on our way to a moment in time when panic will dominate the markets, which will be the once in a lifetime perfect moment to invest.
invest, economy, panic, markets, virus
Sunday, 26 April 2020 06:28 PM
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