Trying to predict a bottom in the stock market really depends on 3 factors.
- When will America get its companies and workers back to operational?
- How long will it take for the US Government to raise the money it’s handing out?
- Will The Fed officially buy up stocks as Japan has and if so when?
Let’s dissect each of these then I’ll leave you with a handful of videos that will be critical for having an educated guess on each of these items.
#1. When do Americans get back to work?
I believe we need around 2-months of severe economic slow down followed by another 6-18 months of limited economic slow down as we allow the disease to slowly spread through all of those who are not yet infected.
I would expect in 14-days the deaths per day to flat line, rather than grow exponentially, and if restrictions are kept in place for 60-days, we’ll see the infection/death case rate begin to drop rapidly.
In this time our health care system can urgently prepare to “restart” the spread by allowing Americans to go back to work with much greater safety precautions, new budgets raised by the Government to fund the healthcare costs and an increased ability to handle such huge inflows of sick.
No matter who you slice it, we’re nowhere near getting back to work or turning America back on, so I’m afraid the worst news in this department is yet to come.
#2. How much will all of this cost and how long will it take to raise the money?
It will cost trillions and trillions which the Government doesn’t have. Tax receipts will decline significantly at the same time our treasury auction sizes will inflate massively.
If we need to raise say 3.6T to pay for all of the free handouts and are currently only auctioning off around 100B/month of deficit, assuming we can successfully auction off 300B/month a 200% increase, then it will take no less than 12 months.
This also leads one to believe asset classes outside of US Treasuries will be punished for no less than the next 12 months as these funds are siphoned out of the economy.
Keep in mind the US likes to go wreak havoc on other nations’ economies to help fund their deficits which would help relieve some of the pressure off the US stock market, the value of the dollar and the value of the US real estate market.
This is one reason I believe we’re likely to see retaliation against China/Russia which may help fund the deficit but surely will create more panic in all equity markets.
#3. Will The Fed force the stock market to stop crashing by buying stocks?
This would almost certainly crash the value of the dollar and is a great reason to start legging into leap options on the gold market.
The Fed is already buying up trillions in US treasuries, municipal bonds, loaning money to primary dealers and broker dealers through repo, buying up corporate bonds. Why not go all in and buy stocks?
I suspect they might if the market crashed beyond 50% but it would cost additional trillions and apply even more pressure to the sovereignty of the US dollar.
Here are a few videos I highly endorse watching: