Is a Double Dip Coming? What If Everybody Got it Wrong?
AK Fallible used to be very bearish since Feb this year. They got it right that time, but didn't catch the rebound of 30% over 40 days.
https://www.youtube.com/watch?v=3DjWWpSotaE
They were very sure that the stock markets will fall below 23 Mar 20's level. However, they are not as bearish now.
I actually will stick to my guns to say that we may have seen the bottom on 23 March. Of course, again I'm not 100% sure, that's why I'm not 100% invested. Heck, I'm only about 50% long into equities. I'll explain that later.
Here are the factors for a V shaped stock recovery.
1. Financial support from the governments.
2. Virus will get less deadly after 1 to 2 years.
3. Vaccines and cure found within 1.5 years.
4. Herd immunity where 70% of population achieve immunity and the virus doesn't spread easily.
Here are the factors that point to either a W or L shaped stock market.
1. second and third waves so forth of infections worldwide. Another lock down after another.
2. Economy collapses, traditional businesses see revenues plunge 70%. Unemployment rate 50% to 60%.
3. Stock prices of 60% of companies collapse because revenue plunged 70%.
4. Even internet ad revenues fall 50% as people have no jobs to spend money to buy products online.
As you can see, even my earlier post said that there is a high probability of a double dip in stock markets. However, I believe that it's not ALL doom and gloom. There is a rash of wealth transfer from traditional businesses to tech businesses.
https://www.youtube.com/watch?v=3DjWWpSotaE
They were very sure that the stock markets will fall below 23 Mar 20's level. However, they are not as bearish now.
I actually will stick to my guns to say that we may have seen the bottom on 23 March. Of course, again I'm not 100% sure, that's why I'm not 100% invested. Heck, I'm only about 50% long into equities. I'll explain that later.
Here are the factors for a V shaped stock recovery.
1. Financial support from the governments.
2. Virus will get less deadly after 1 to 2 years.
3. Vaccines and cure found within 1.5 years.
4. Herd immunity where 70% of population achieve immunity and the virus doesn't spread easily.
Here are the factors that point to either a W or L shaped stock market.
1. second and third waves so forth of infections worldwide. Another lock down after another.
2. Economy collapses, traditional businesses see revenues plunge 70%. Unemployment rate 50% to 60%.
3. Stock prices of 60% of companies collapse because revenue plunged 70%.
4. Even internet ad revenues fall 50% as people have no jobs to spend money to buy products online.
As you can see, even my earlier post said that there is a high probability of a double dip in stock markets. However, I believe that it's not ALL doom and gloom. There is a rash of wealth transfer from traditional businesses to tech businesses.
If you are fearful of investing and facing a collapse of businesses, yet you are worried about missing the boat or FOMO (Fear of Missing Out) if the stock markets rise to a new high, here are the sectors that I am confident will not perish and will instead thrive.
1. Healthcare / medical. I bought Janus Henderson Global Life Sciences Fund, Franklin Biotech to cover this sector, so that I will exposure to large biotech companies. The revenue of healthcare sector should totally be unaffected. Either the insurance industry, government or private individuals pay for the medical fees. People will still go to the gynae, see a doctor when sick, take medicine.
2. Tech sector. I went for Polar Tech, Franklin Tech fund. I think the tech sector will be relentless. Amazon to deliver goods, Baba for online sales, Tencent, Meituan Dianping, Facebook, Alphabet.
3. Gold. All this money printing will mean that gold is the only currency that cannot be printed. The value of gold is technically all the money supply in the world. I went into GLD ETF, also Blackrock World Gold.
4. Oil. I think old school fossil fuel will still be around for a long time. Of course, electric cars etc, wind turbines, solar will slowly remove the demand for oil. But for now, it is necessary. The growth will slow down. Peak demand maybe in 2025 or earlier. After that, it may fall. I took small positions in USL ETF and Blackrock World Energy.
I am not attempting to time the exact bottom of the stock markets. I'm saying that in times of uncertainty, when you have no frame of reference, you need to go for companies who's earnings will not fall due to Covid 19.
Healthcare and Tech should continue to see their earnings grow despite the lockdowns. So there's fundamentally no reason that they can't climb to a new high in stock price.
Gold is more of a hedge against money printing. While oil is something that I'm pretty confident will still be relevant in the foreseeable future. At USD20 per barrel for Brent and 27 for WTI, most producers will be losing money. They will stop producing oil which means supply should technically be zero. I think oil's long term equilibrium price is around USD40 - 50 / bbl. This is about 80% higher than current levels.
At USD45 / bbl, most Shale gas will be unprofitable. Only the onshore rigs will be profitable. Demand for crude oil should peak at around 100 to 110 million barrels per day in 2025. It may be around 80 to 90 million barrels now.
Comments
Post a Comment